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TXTR > SEC Filings for TXTR > Form 10-Q on 8-Aug-2014All Recent SEC Filings

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Form 10-Q for TEXTURA CORP


8-Aug-2014

Quarterly Report


MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and included in our Annual Report on Form 10-K filed on November 26, 2013.

We use the terms "we," "us," "our" and "the Company" in this report to refer to Textura Corporation and its subsidiaries, except where the context otherwise requires or indicates.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains ''forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended (the ''Exchange Act"), relating to our operations, financial results, financial condition, business prospects, growth strategy, liquidity and other matters that are based on our current expectations, estimates, assumptions and projections. Words such as "believes," "expects," "potential," "continues," "may," "should," "seeks," "predicts," "anticipates," "intends," "projects," "estimates," "plans," "could," "designed," "should be" and other similar expressions are used to identify these forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or forecast in these forward-looking statements. For a more detailed discussion of these factors, see the information under the heading ''Risk Factors" included in our Annual Report on Form 10-K filed on November 26, 2013. We undertake no obligation to update any forward-looking statements in this Quarterly Report on Form 10-Q.


Overview
We are a leading provider of on-demand business collaboration software to the commercial construction industry. Our solutions are focused on facilitating collaboration between owners/developers, general contractors and subcontractors. Our solutions increase efficiency, enable better risk management, and provide improved visibility and control of construction activities for our clients. Our collaboration solutions offer robust functionality, data sharing and exchange capabilities, and workflow tools that support several mission­critical business processes at various stages of the construction project lifecycle:
• Construction Payment Management ("CPM") enables the generation, collection, review and routing of invoices and the necessary supporting documentation and legal documents, and initiation of payment of the invoices.

•            Submittal Exchange enables the collection, review and routing of
             project documents.


•            GradeBeam supports the process of obtaining construction bids,
             including identifying potential bidders, issuing invitations-to-bid
             and tracking bidding intent.


•            Pre-Qualification Management ("PQM") supports contractor risk
             assessment and qualification.

• Greengrade facilitates the management of environmental certification.

•            BidOrganizer helps contractors save time and money by providing a
             central, online location to prioritize, track, and schedule all bid
             invitations.


•            LATISTA, which we acquired in December 2013 as part of our
             acquisition of Latista Technologies, Inc. ("Latista"), provides
             mobile-enabled, cloud-based field management solutions.

In addition, we offer PlanSwift, a take­off and estimating solution used in preparing construction bids, and Contractor Default Claims Management, which supports the process of documenting a subcontractor default insurance claim. We derive substantially all of our revenue from fees related to the use by our clients of our software solutions. We classify our revenue into activity­driven revenue and organization­driven revenue:

•            Owners/developers, general contractors and subcontractors using our
             CPM, Submittal Exchange, Greengrade and LATISTA solutions pay us
             fees that are dependent on the value of the construction project or
             contract and are collected at the start of activity. In addition,
             owners/developers and general contractors either pay us monthly fees
             that are dependent on the value and total number of projects managed
             using our system or subscription fees that are dependent on the
             number of projects added to our system. We typically invoice and
             collect these monthly and subscription fees in advance on a

six-month basis. We refer to these fees collectively as activity­driven revenue as they depend on the construction activity of our clients.

•            Participants using our GradeBeam, PQM and BidOrganizer solutions pay
             us subscription fees. These fees are dependent on a number of
             characteristics of the organization, which may include size,
             complexity, type or number of users, and are typically generated on
             a subscription basis. We typically invoice and collect these
             subscription fees in advance on a twelve­month basis. We also
             receive a combination of license fees, maintenance fees,
             subscription fees and claims fees for our other solutions. We refer
             to these fees collectively as organization­driven revenue as they do
             not depend on the construction activity of our clients but rather
             the number and characteristics of the organizations using the
             solutions.

Recent Developments
On December 2, 2013, we acquired Latista, the leading provider of mobile-enabled, cloud-based field management solutions in the construction industry, for a total cash purchase price of $34.9 million. (See Note 3 to the condensed consolidated financial statements for further details of the acquisition.)

On May 1, 2014, our Board of Directors approved a change in our fiscal year from September 30 to December 31. Accordingly, our next Annual Report on Form 10-K will be for the fiscal year ending December 31, 2014.

On June 30, 2014, we purchased our former joint venture partner's interest in Textura Australasia, Pty. Ltd. for approximately $1.6 million, resulting in our 100% ownership of that entity.


Key Business Metrics
In addition to traditional financial measures, we regularly review the following
key metrics to evaluate our business, measure our performance, identify trends
affecting our business, formulate financial projections and make strategic
decisions. These metrics reflect the impact of the acquisition of PlanSwift in
January 2013 and Latista in December 2013 as described in more detail in
''-Results of Operations.''
                                              Three Months Ended June 30,                 Six Months Ended June 30,
                                               2014                  2013                2014                    2013
                                          (dollars in thousands, except where        (dollars in thousands, except where
                                                 otherwise indicated)                       otherwise indicated)
Activity­driven revenue                  $     11,581           $      7,015      $      22,238             $      13,787
Organization­driven revenue                     3,384                  2,347              6,514                     4,123
Total revenue                            $     14,965           $      9,362      $      28,752             $      17,910
Activity­driven revenue:
  Number of projects added                      1,729                  1,467              3,441                     2,712
Client­reported construction value added
(billions)                               $       17.7           $       13.6      $        37.2             $        24.2
Active projects during period                   7,578                  5,701              8,625                     6,663
Organization­driven revenue:
Number of organizations                        15,922                  8,210             16,497                     8,447
Adjusted EBITDA                          $     (2,188 )         $     (3,809 )    $      (5,527 )           $      (6,431 )
Deferred revenue balance as of the end
of period                                $     31,148           $     18,765      $      31,148             $      18,765

Activity­driven revenue
Number of projects added. This metric represents the total number of construction projects added by our clients to our CPM, Submittal Exchange, Greengrade and LATISTA solutions during the reporting period. Each project on our system is created by the client and represents a unit of work they have elected to manage on our system as a single project. As a result, an individual development, structure or remodeling program may result in the creation of multiple projects on our system. A project added to our system does not necessarily become active immediately. We use the number of projects added to our solutions during a reporting period to measure the success of our strategy of further penetrating the construction market with these solutions. Also, activity­driven revenue is dependent in part on the number of projects using our solutions.
Client­reported construction value added. This metric represents the total client­entered dollar value of construction projects added by our clients to our CPM, Submittal Exchange, Greengrade and LATISTA solutions during the reporting period. We use client­reported construction value added to measure the success of our strategy of increasing the volume of construction activity managed with these solutions. In addition, we use this metric in conjunction with number of projects added to monitor average project size. Also, activity­driven revenue is dependent in part on project size.
Active projects during period. This metric represents the number of construction projects that have been active during the reporting period on our CPM, Submittal Exchange, Greengrade and LATISTA solutions. Especially with our CPM solution, clients may elect to add a new project on our system before their project activity begins. Accordingly, there may be an interval between when a project is included as a new project added and when we would consider it an active project. We use active projects during the period to evaluate our penetration of the construction market with these solutions and to monitor growth from period to period. Also, activity­driven revenue is dependent in part on the number of active projects on our solutions.
We derive the metrics above from a number of sources, including information entered into our solutions by our clients, our historical data and our analysis of the actions of our clients on our solutions. Clients may adjust or update previously­entered information periodically. In particular, client­reported construction value may be modified by the client during the lifetime of the project to revise initial estimates of construction value or reflect changes in the scope or cost of the project, and client­reported construction value may increase or decrease as a result. Since these metrics are based on information available at the time they are prepared, metrics may reflect updates from those previously reported for prior periods. Historically, these updates have not


been significant in amount or percentage. In addition, management is unable to independently verify the construction value data entered by our clients. Notwithstanding these limitations, based on our historical experience management believes that these metrics are valuable indicators of the overall progress of the business and the success of our various strategies. Organization­driven revenue
Number of organizations. This metric includes the number of organizations that are active subscribers on our GradeBeam, PQM and BidOrganizer solutions as of the end of the reporting period, as measured by the number of active subscriptions. An organization may be a single corporate entity or an operating unit within an entity. These clients pay an upfront fee for a fixed period of access. This metric also includes the number of organizations that have an active subscription or maintenance contract for our PlanSwift solution, or that have purchased a license within the period. We use this metric to measure the success of our strategy of further penetrating the construction market with these solutions. Also, our organization-driven revenue is dependent in part on the number of organizations using our solutions. Additional metrics
Adjusted EBITDA. Adjusted EBITDA represents loss before interest, taxes, depreciation and amortization, share-based compensation expense and acquisition-related expenses. In the three and six months ended June 30, 2013, Adjusted EBITDA also excluded certain IPO-related expenses. Adjusted EBITDA is not determined in accordance with accounting principles generally accepted in the United States (''GAAP''), and is a performance measure used by management in conjunction with traditional GAAP operating performance measures as part of the overall assessment of our performance including:
• for planning purposes, including the preparation of the annual budget; and

• to evaluate the effectiveness of business strategies.

We believe the use of Adjusted EBITDA as an additional operating performance metric provides greater consistency for period-to-period comparisons of our operations. For our internal analysis, Adjusted EBITDA removes fluctuations caused by changes in our capital structure (interest expense) and non-cash items such as depreciation, amortization, share-based compensation and infrequent charges. These excluded amounts in any given period may not directly correlate to the underlying performance of the business or may fluctuate significantly from period to period due to the conversion of convertible debentures, acquisitions, fully amortized tangible or intangible assets, or the timing and pricing of new share-based awards. We also believe Adjusted EBITDA is useful to investors and securities analysts in evaluating our operating performance as it provides them an additional tool to compare business performance across companies and periods.

Adjusted EBITDA is not a measurement under GAAP and should not be considered an alternative to net loss or as an alternative to cash flow from operating activities. The Adjusted EBITDA measurement has limitations as an analytical tool and the method of calculation may vary from company to company.

The following table presents a reconciliation from the most directly comparable

GAAP measure, net loss, to
Adjusted EBITDA:
                                             Three Months Ended June 30,           Six Months Ended June 30,
                                              2014                2013                2014             2013
                                                   (in thousands)                       (in thousands)
Net loss                                 $     (6,068 )     $      (20,363 )    $     (13,408 )     $ (25,258 )
Net interest expense                                8                2,018                 33           2,393
Income tax provision                               80                  142                160             191
Depreciation and amortization                   1,962                1,294              3,848           2,407
EBITDA                                         (4,018 )            (16,909 )           (9,367 )       (20,267 )
Share­based compensation expense                1,830               10,089              3,766          10,567
Acquisition­related expenses *                      -                    -                 74             258
IPO-related expense **                              -                3,011                  -           3,011
Adjusted EBITDA                          $     (2,188 )     $       (3,809 )    $      (5,527 )     $  (6,431 )

* Acquisition-related expenses are included within general and administrative expenses on the statement of operations.


** IPO-related expense for the three and six months ended June 30, 2013 represents one-time cash bonuses of $3.0 million paid to long-tenured employees in connection with the IPO.
Deferred revenue balance. Our deferred revenue consists of amounts that have been invoiced but that have not yet been recognized as revenue as of the end of a reporting period as well as unbilled amounts. Our deferred revenue balance consists of activity­driven and organization­driven revenue that is recognized ratably over the estimated life of a project or contractual service period. We monitor our deferred revenue balance because it represents a significant portion of revenue to be recognized in future periods.


Results of Operations
The following tables set forth our results of operations for the periods
presented and as a percentage of our revenues for those periods. The
period-to-period comparison of financial results is not necessarily indicative
of future results.
                                             Three Months Ended June 30,           Six Months Ended June 30,
                                              2014                2013                2014             2013
                                                   (in thousands)                       (in thousands)
Revenues                                 $     14,965       $        9,362      $      28,752       $  17,910
Operating expenses:
Cost of services                                3,028                4,754              5,910           6,534
General and administrative                      6,473                8,808             12,528          13,369
Sales and marketing                             4,663                5,433              9,506           7,717
Technology and development                      4,819                7,358             10,175          10,708
Depreciation and amortization                   1,962                1,294              3,848           2,407
Total operating expenses                       20,945               27,647             41,967          40,735
Loss from operations                           (5,980 )           (18,285)           (13,215)        (22,825)
Other expense, net                                 (8 )            (1,936)                  (33)        (2,242)
Loss before income taxes                       (5,988 )           (20,221)           (13,248)        (25,067)
Income tax provision                               80                  142                160             191
Net loss                                       (6,068 )           (20,363)           (13,408)        (25,258)
Less: Net loss attributable to
non-controlling interests                         (94 )              (886)              (169)         (1,597)
Net loss attributable to Textura
Corporation                                    (5,974 )           (19,477)           (13,239)        (23,661)
Accretion of redeemable Series A-1
preferred stock                                     -                2,310                  -           3,384
Accretion of redeemable non­controlling
interest                                          105                   75                199             146
Dividends on Series A-2 preferred stock             -                   95                  0             215
Net loss available to Textura
Corporation common stockholders          $     (6,079 )     $      (29,118 )    $     (13,438 )     $ (34,567 )



                                           Three Months Ended June 30,         Six Months Ended June 30,
                                              2014              2013             2014             2013
Revenues                                     100.0  %            100.0  %       100.0  %           100.0  %
Operating expenses:
Cost of services                              20.2  %             50.8  %        20.6  %            36.5  %
General and administrative                    43.3  %             94.1  %        43.6  %            74.6  %
Sales and marketing                           31.2  %             58.0  %        33.1  %            43.1  %
Technology and development                    32.2  %             78.6  %        35.4  %            59.8  %
Depreciation and amortization                 13.1  %             13.8  %        13.4  %            13.4  %
Total operating expenses                     140.0  %            295.3  %       146.0  %           227.4  %
Loss from operations                         (40.0 )%           (195.3 )%       (46.0 )%          (127.4 )%
Other expense, net                               -  %            (20.7 )%           -  %           (12.5 )%
Loss before taxes                            (40.0 )%           (216.0 )%       (46.1 )%          (140.0 )%
Income tax provision                           0.5  %              1.5  %         0.6  %             1.1  %
Net loss                                     (40.5 )%           (217.5 )%       (46.6 )%          (141.0 )%


Operating Metrics
                        Three Months Ended June 30,                                   Six Months Ended June 30,
                          2014              2013          $ Change     % Change          2014            2013        $ Change     % Change
                       (dollars in thousands, except                                    (dollars in thousands,
                        where otherwise indicated)                                      except where otherwise
                                                                                              indicated)
Activity­driven
revenue               $    11,581      $      7,015     $    4,566         65.1 %    $    22,238      $  13,787     $   8,451         61.3 %
Organization­driven
revenue                     3,384             2,347          1,037         44.2 %          6,514          4,123         2,391         58.0 %
Total revenue         $    14,965      $      9,362     $    5,603         59.8 %    $    28,752      $  17,910     $  10,842         60.5 %
Activity­driven
revenue:
Number of projects
added                       1,729             1,467            262         17.9 %          3,441          2,712     $     729         26.9 %
Client­reported
construction value
added (billions)      $      17.7      $       13.6     $      4.1         30.1 %    $      37.2      $    24.2     $    13.0         53.7 %
Active projects
during period               7,578             5,701          1,877         32.9 %          8,625          6,663         1,962         29.4 %
Organization­driven
revenue:
Number of
organizations              15,922             8,210          7,712         93.9 %         16,497          8,447         8,050         95.3 %

Activity­driven revenue: Activity­driven revenue increased $4.6 million, or 65.1%, in the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. The increase was primarily due to a 17.9% increase in the number of projects added to our solutions, a 32.9% increase in the number of active projects during the period and a 30.1% increase in client­reported construction value added. In the three months ended June 30, 2014, revenue for our LATISTA solution was $0.7 million. In addition, 29 projects representing $1.3 billion in construction value were added to our LATISTA solution, which had 285 active projects during the three months ended June 30, 2014. Activity-driven revenue increased $8.5 million, or 61.3%, in the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. The increase was primarily due to a 26.9% increase in the number of projects added to our solutions, a 29.4% increase in the number of active projects during the period, and a 53.7% increase in client-reported construction value added. In the six months ended June 30, 2014, revenue for our LATISTA solution was $1.4 million. In addition, 123 projects representing $4.6 billion in construction value were added to our LATISTA solution, which had 325 active projects during the six months ended June 30, 2014.
For several of our existing CPM general contractor clients, we have established subscription arrangements that combine monthly fees and project fees into one subscription fee, which is typically invoiced and collected in advance on a six-month basis and dependent on the number of projects added to our system. As a result of these subscription arrangements, nonrecurring revenue recognized during the three and six months ended June 30, 2014 was approximately $0.3 million and $0.4 million, respectively.
Organization­driven revenue: Organization-driven revenue increased $1.0 million, or 44.2%, in the three months ended June 30, 2014 as compared to the three months ended June 30, 2013 due primarily to Planswift growth.
Organization-driven revenue increased $2.4 million, or 58.0%, in the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. This increase was driven by Planswift growth as well as the Planswift acquisition in February 2013, resulting in six months of Planswift revenue in the current year period compared to five months of Planswift revenue in the prior-year period.


Cost of services
                      Three Months Ended June 30,                                    Six Months Ended June 30,
                        2014               2013         $ Change    % Change          2014               2013         $ Change     % Change
                        (dollars in thousands)                                        (dollars in thousands)
Cost of services   $      3,028       $      4,754     $ (1,726 )    (36.3 )%    $      5,910       $      6,534     $    (624 )       (9.6 )%
Percent of revenue         20.2 %             50.8 %                                     20.6 %             36.5 %

Cost of services decreased $1.7 million, or 36.3%, in the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. The decrease was driven primarily by a $2.7 million reduction in bonus and stock-based compensation expenses incurred during the prior-year period in connection with the IPO. This decrease was partially offset by increased salary expenses of $0.5 million, driven by the Latista acquisition in December 2013 and increased headcount to support growth of our business, as well as higher sales taxes of $0.2 million and increased travel expenses of $0.1 million.
Cost of services decreased $0.6 million, or 9.6%, in the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. The decrease was driven primarily by a $2.6 million reduction in bonus and stock-based compensation expenses incurred during the prior-year period in connection with . . .

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