Textura Corp - FORM 10-Q - February 13, 2014

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2013
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-35956

Textura Corporation
(Exact name of registrant as specified in its charter)
Delaware 
(State or other jurisdiction of 
incorporation or organization)
 
26-1212370 
(I.R.S. Employer 
Identification Number)
1405 Lake Cook Road
Deerfield, IL 60015
(Address of principal executive offices)
(847) 457-6500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x 
(Do not check if a
smaller reporting company)
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of February 7, 2014, 24,806,434 shares of Common Stock, par value $0.001 per share, of Textura Corporation were outstanding.

1


TABLE OF CONTENTS


2


PART I

ITEM 1. Financial Statements

Textura Corporation
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except per share amounts)
 
December 31,
2013
 
September 30,
2013
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
77,130

 
$
127,728

Accounts receivable, net of allowance for doubtful accounts of $148
5,516

 
3,664

Prepaid expenses and other current assets
2,631

 
1,534

Total current assets
85,277

 
132,926

Property and equipment, net
21,070

 
19,807

Restricted cash
530

 
1,530

Goodwill
52,722

 
23,937

Intangible assets, net
17,108

 
9,381

Other assets
1,217

 
386

Total assets
$
177,924

 
$
187,967

 
 
 
 
Liabilities, Redeemable Securities and Stockholders’ Equity (Deficit)
 
 
 
Current liabilities
 
 
 
Accounts payable
$
1,522

 
$
1,799

Accrued expenses
8,011

 
10,107

Deferred revenue, short-term
22,422

 
19,935

Notes and leases payable, short-term
884

 
868

Loan payable to related party, short-term
—

 
500

Total current liabilities
32,839

 
33,209

Deferred revenue, long-term
3,283

 
1,956

Notes and leases payable, long-term
638

 
742

Loan payable to related party, long-term
—

 
9,719

Other long-term liabilities
2,324

 
546

Total liabilities
39,084

 
46,172

Contingencies (Note 7)


 


Redeemable non‑controlling interest
355

 
373

Stockholders’ equity (deficit)
 
 
 
Preferred stock, $.001 par value; 10,000 authorized; 0 shares issued and outstanding
—

 
—

Common stock, $.001 par value; 90,000 shares authorized; 25,247 and 25,091 shares issued and 24,785 and 24,629 shares outstanding at December 31, 2013 and September 30, 2013, respectively
25

 
25

Additional paid in capital
329,073

 
325,387

Treasury stock, at cost; 462 shares
(5,831
)
 
(5,831
)
Accumulated other comprehensive loss
(49
)
 
(23
)
Accumulated deficit
(184,733
)
 
(178,136
)
Total Textura Corporation stockholders’ equity (deficit)
138,485

 
141,422

Total stockholders’ equity (deficit)
138,485

 
141,422

Total liabilities, redeemable securities and stockholders’ equity (deficit)
$
177,924

 
$
187,967


The accompanying notes are an integral part of these condensed consolidated financial statements.

3


Textura Corporation
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share amounts)
 
Three Months Ended December 31,
 
2013
 
2012
Revenues   
$
12,003

 
$
6,771

Operating expenses


 


Cost of services (exclusive of depreciation and amortization shown separately below)
2,742

 
1,688

General and administrative
5,378

 
3,705

Sales and marketing
4,264

 
1,818

Technology and development
5,667

 
2,995

Depreciation and amortization
1,560

 
760

Total operating expenses
19,611

 
10,966

Loss from operations
(7,608
)
 
(4,195
)
Other expense, net


 


Interest income
26

 
1

Interest expense
(120
)
 
(2,103
)
Change in fair value of conversion option liability
—

 
289

Total other expense, net
(94
)
 
(1,813
)
Loss before income taxes
(7,702
)
 
(6,008
)
Income tax provision (benefit)
(1,026
)
 
35

Net loss   
(6,676
)
 
(6,043
)
Less: Net loss attributable to non-controlling interests
(79
)
 
(1,046
)
Net loss attributable to Textura Corporation   
(6,597
)
 
(4,997
)
Accretion of redeemable Series A-1 preferred stock
—

 
165

Accretion of redeemable non‑controlling interest
70

 
76

Dividends on Series A-2 preferred stock
—

 
120

Net loss available to Textura Corporation common stockholders   
$
(6,667
)
 
$
(5,358
)
Net loss per share available to Textura Corporation common stockholders, basic and diluted
$
(0.27
)
 
$
(0.62
)
Weighted average number of common shares outstanding, basic and diluted
24,679

 
8,579

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


Textura Corporation
Condensed Consolidated Statements of Comprehensive Loss
(unaudited)
(in thousands)
 
Three Months Ended
December 31,
 
2013
 
2012
Net loss
$
(6,676
)
 
$
(6,043
)
Other comprehensive loss:
 
 
 
Foreign currency translation loss
(49
)
 
—

Comprehensive loss
(6,725
)
 
(6,043
)
Less: Comprehensive loss attributable to non-controlling interests
(88
)
 
(1,046
)
Comprehensive loss attributable to Textura Corporation   
$
(6,637
)
 
$
(4,997
)
The accompanying notes are an integral part of these consolidated financial statements.


5


Textura Corporation
Condensed Consolidated Statement of Redeemable Non-Controlling Interest and Stockholders' Equity
(unaudited)
(in thousands)
 
Redeemable
Non-Controlling Interest
Common
Stock
Additional
Paid-In Capital
Treasury Stock
Accumulated Other Comprehensive Loss
Accumulated Deficit
Total
Textura
Corporation
Stockholders’ Equity (Deficit)
 
Shares
Amount
Balances at September 30, 2013
$
373

24,629

$
25

$
325,387

$
(5,831
)
$
(23
)
$
(178,136
)
$
141,422

Share-based compensation
—

—

—

1,583

—

—

—

1,583

Exercise of stock options
—

123

—

1,648

—

—

—

525

Exercise of warrants
—

33

—

525

—

—

—

1,648

Net loss
(79)

—

—

—

—

—

(6,597
)
(6,597
)
Foreign currency translation
(9)

—

—

—

—

(26
)
—

(26
)
Redeemable non-controlling interest accretion
70

—

—

(70)

—

—

—

(70
)
Balances at December 31, 2013
$
355

24,785

$
25

$
329,073

$
(5,831
)
$
(49
)
$
(184,733
)
$
138,485

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


Textura Corporation
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
Three Months Ended
December 31,
 
2013
 
2012
Cash flows from operating activities
 
 
 
Net loss
$
(6,676
)
 
$
(6,043
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
1,560

 
760

Deferred income taxes
(1,026
)
 
35

Non-cash interest expense
62

 
1,934

Change in fair value of conversion option liability
—

 
(289
)
Share‑based compensation
1,583

 
661

Changes in operating assets and liabilities, net of acquisitions:
 
 
 
Accounts receivable
(1,107
)
 
7

Prepaid expenses and other assets
(594
)
 
(200
)
Deferred revenue, including long-term portion
1,789

 
(20
)
Accounts payable
(278
)
 
636

Accrued expenses and other
(1,479
)
 
432

Net cash used in operating activities
(6,166
)
 
(2,087
)
Cash flows from investing activities
 
 
 
Decrease in restricted cash
1,000

 
—

Purchases of property and equipment, including software development costs
(1,351
)
 
(19
)
Acquisitions of businesses, net of cash acquired
(34,880
)
 
—

Net cash used in investing activities
(35,231
)
 
(19
)
Cash flows from financing activities
 
 
 
Partner’s investment in joint venture
—

 
208

Principal payments on loan payable
(10,223
)
 
—

Payments on capital leases
(190
)
 
—

Proceeds from debt issuances
106

 
—

Proceeds from exercise of options and warrants
2,173

 
—

Deferred finance and offering costs
(1,032
)
 
(386
)
Net cash used in financing activities
(9,166
)
 
(178
)
Effect of changes in foreign exchange rates on cash and cash equivalents
(35
)
 
—

Net decrease in cash and cash equivalents
$
(50,598
)
 
$
(2,284
)
Cash and cash equivalents
 
 
 
Beginning of period
$
127,728

 
$
4,174

End of period
$
77,130

 
$
1,890

Supplemental cash flow data:
 
 
 
Cash paid for interest
$
56

 
$
149

Non-cash investing and financing activities:
 
 
 
Accretion of redeemable Series A-1 preferred stock
$
—

 
$
165

Accretion of redeemable non‑controlling interest
$
70

 
$
76

  Assets acquired under capital lease
$
—

 
$
350

  Deferred offering and financing costs
$
—

 
$
624

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

Textura Corporation
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(unaudited)


1. Description of Business
Textura Corporation (the ‘‘Company’’) was originally formed as a Wisconsin limited liability company (Textura, LLC) in 2004 and converted to a Delaware corporation in 2007. The Company provides on-demand business collaboration software solutions to the commercial construction industry. The Company’s solutions increase efficiency, permit better risk management, provide better visibility and control of construction activities to clients and address several mission-critical business processes at various stages of the construction project life cycle.
The Company is subject to a number of risks similar to other companies in a comparable stage of growth including, but not limited to, reliance on key personnel, the ability to access capital to support future growth, successful marketing of its solutions in an emerging market, and competition from other companies with potentially greater technical, financial and marketing resources. The Company has incurred significant losses and negative cash flows from operations and continues to devote the majority of its resources to the growth of the Company’s business. The Company has an accumulated deficit of $184,733 as of December 31, 2013.

To date, the Company’s activities have been financed primarily through the issuance of debentures, commercial debt, and the sale of equity securities.

2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
These unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (‘‘U.S. GAAP’’). In accordance with U.S. GAAP requirements for interim financial statements, these condensed consolidated financial statements do not include certain information and note disclosures that are normally included in annual financial statements prepared in conformity with U.S. GAAP. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto as of September 30, 2012 and 2013 and for each of the three years in the period ended September 30, 2013 included in the Company's Annual Report on Form 10-K filed on November 26, 2013. In the Company’s opinion, the condensed consolidated financial statements contain all adjustments (which are of a normal, recurring nature) necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations and cash flows for the periods presented. Interim results may not be indicative of results that may be realized for the full year. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

In October 2012, the Company and Minter Ellison, a law firm in Australia, formed a joint venture, Textura Australasia, Pty. Ltd. (the “Joint Venture”), to offer the Company’s construction collaboration software solutions to the Australia and New Zealand markets. Both parties have contributed cash of $400, denominated in Australian dollars, for their respective 50% interests in the Joint Venture. During the three months ended December 31, 2013, each party loaned the Joint Venture $100, denominated in Australian dollars. The Company has consolidated the financial results of the Joint Venture because the Company has determined that the Joint Venture is a variable interest entity and that it is the primary beneficiary. The Company is the primary beneficiary of the Joint Venture due to its controlling financial interest through its authority with regard to hiring key employees and decision making of its central operations. Due to certain redemption provisions in the Joint Venture agreement, the Company has reflected Minter Ellison’s financial interest as redeemable non-controlling interest in the condensed consolidated balance sheet at its redemption value.

Segment Reporting

The Company has one operating segment, providing on-demand business collaboration software solutions to the commercial construction industry. The Company’s chief operating decision maker, the Chief Executive Officer, manages the Company’s operations based on consolidated financial information for purposes of evaluating financial performance and allocating resources.


8

Textura Corporation
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(unaudited)

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates and assumptions used in the accompanying financial statements are based upon management’s evaluation of the relevant facts and circumstances at the balance sheet date. Actual results could differ from those estimates. Significant estimates are involved in the Company’s revenue recognition, depreciation, amortization and assumptions for share‑based payments.

Revenue Recognition

For the Company’s CPM, Submittal Exchange and Greengrade solutions, the Company earns revenue from owners/developers, general contractors and architects in the form of monthly fees and project fees; and from subcontractors in the form of usage fees. For the Company’s GradeBeam, PQM and BidOrganizer solutions, the Company earns revenue in the form of subscription fees. For the LATISTA solution, which was acquired by the Company in December 2013 (see Note 3), the Company earns revenue from subscription fees and related professional services. The Company’s arrangements do not contain general rights of return and do not provide customers with the right to take possession of the software supporting the solutions and, as a result, are accounted for as service contracts.

All of the Company’s on-demand solutions include implementation, training and support. The Company evaluates whether the individual deliverables in its arrangements qualify as separate units of accounting. In order to treat deliverables in a multiple deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. In determining whether deliverables have standalone value, the Company considers whether solutions are sold to new customers without implementation, training and support, the nature of these services provided and the availability of these services from other vendors. The Company concluded that implementation, training and support do not have standalone value because they are never sold separately, do not have value to the customer without the solution and are not available from other vendors. Accordingly, the training and support are combined with the solution and treated as a single unit of accounting.

The Company recognizes this revenue when there is evidence that an agreement exists with the customer and the customer has begun deriving benefit from use of the solution, the fee is fixed and determinable, delivery of services has occurred, and collection of payment from the project participant is reasonably assured. The Company recognizes project fees and usage fees ratably over the average estimated life of the project and contract, respectively, and recognizes subscription fees over the subscription period. The average estimated life of the project and contract is estimated by management based on periodic review and analysis of historical data. The applicable estimated life is based on the project or contract value falling within certain predetermined ranges, as well as the solution on which the project is being managed. The Company performs periodic reviews of actual project and contract data and revises estimates as necessary. Estimated project life durations range from 6 to 29 months, and estimated contract life durations range from 5 to 16 months. Subscription periods typically range from 6 to 36 months.

For its PlanSwift solution, the Company earns revenue from the sale of software licenses and related maintenance and training. License revenue is recognized upon delivery of the license, maintenance revenue is recognized ratably over the period of the maintenance contract, which is generally one year, and training revenue is recognized when the services are delivered to the client. For multiple-element arrangements that include a perpetual license and either maintenance or both maintenance and training, the Company uses the residual method to determine the amount of license revenue to be recognized. Under the residual method, consideration is allocated to the undelivered elements based upon vendor-specific objective evidence of fair value (‘‘VSOE’’) of those elements with the residual of the arrangement fee allocated to and recognized as license revenue. For subscription-based licenses, which include maintenance, the Company recognizes the subscription fees ratably over the subscription periods, which typically range from 1 to 6 months.

The Company has established VSOE based on its historical pricing and discounting practices for maintenance and training when sold separately. In establishing VSOE, the Company requires that a substantial majority of the selling prices for these services fall within a reasonably narrow pricing range. The application of VSOE methodologies requires judgment, including the identification of individual elements in multiple element arrangements and whether there is VSOE of fair value for some or all elements.

9

Textura Corporation
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(unaudited)

Foreign Currency Transactions
The functional currency of the Company is the United States Dollar. Asset and liability balances denominated in a foreign currency are remeasured to U.S. dollars at end-of-period exchange rates. Foreign currency income and expenses are remeasured at average exchange rates in effect during the period. Foreign currency translation differences have not been material to date and have been included in the statement of operations as incurred through the second quarter of the fiscal year ending September 30, 2013. Beginning in the quarter ended June 30, 2013, the Company recorded foreign currency translation differences in accumulated other comprehensive income (loss).
Net Loss Per Share
Basic net loss per share available to Textura Corporation common stockholders is calculated by dividing the net loss available to Textura Corporation common stockholders by the weighted average number of common shares outstanding, less any treasury shares, during the period.
Prior to the completion of the Company's initial public offering in June 2013 (the "IPO"), in calculating net loss available to common stockholders, cumulative undeclared preferred stock dividends on the Series A-2 preferred stock and accretion in the redemption value of the redeemable Series A-1 preferred stock and redeemable non-controlling interest were deducted from net loss attributable to Textura Corporation stockholders. Although the redeemable Series A-1 preferred stock, Series A-2 preferred stock, and non-controlling interest were participating securities, there was no allocation of the Company’s net losses to these participating securities under the two-class method because they were not contractually required to share in the Company’s losses. Subsequent to the IPO, which resulted in the automatic conversion of the outstanding preferred stock into common stock, the Company only deducts the redeemable non-controlling interest accretion from net loss attributable to Textura Corporation stockholders.
The following outstanding equity securities were excluded from the computation of diluted net loss per share available to Textura Corporation common stockholders as their inclusion would have been anti-dilutive:
 
Three Months Ended December 31,
 
2013
 
2012
 
(in thousands)
Conversion of redeemable or convertible preferred stock
—

 
5,578

Conversion of Submittal Exchange Holdings Class A preferred units
—

 
964

Outstanding restricted stock units
719

 
628

Outstanding stock options
3,747

 
2,454

Outstanding common and preferred warrants
1,287

 
1,412

Total excluded securities
5,753

 
11,036


Preferred stock, Submittal Exchange Holdings Class A preferred units and restricted stock units were considered contingently issuable common shares prior to the IPO and, accordingly, were not included in diluted EPS because the contingency had not been met. The table also excludes conversion of 2011 Debentures, because the number of shares upon conversion could not be calculated until an initial public offering.

Recently Issued Accounting Standards
Based on the Company's evaluation of recently issued accounting standards, there were no standards issued during the first quarter of 2014 that would materially impact its financial position, results of operations or related disclosures.


10

Textura Corporation
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(unaudited)

3. Acquisitions
In December 2013, the Company acquired all of the issued and outstanding shares of Latista Technologies, Inc. ("Latista"). Latista is the leading provider of mobile-enabled, cloud-based field management solutions in the industry. The LATISTA solution expanded the Company’s suite of solutions, especially in the field management process. In addition, we formed Textura Vostok, a Russian entity, and hired personnel previously employed by a Russian affiliate of Latista. The aggregate purchase price of $34,875 was paid in cash.
The total purchase price, which is preliminary and expected to be finalized later in the fiscal year, has been allocated as follows:
 
Amount
 
(in thousands)
Identifiable intangible assets
$
8,700

Goodwill
28,785

Deferred revenue
(2,025
)
Other current assets (liabilities), net
(585
)
Net assets acquired
$
34,875


Other current assets (liabilities), net in the table above include Latista-related deferred tax liabilities of $1,083. As a result of the nature of the deferred tax liabilities, the Company reduced the valuation allowance on its deferred tax assets and recognized a tax benefit of $1,083 in its statement of operations during the three months ended December 31, 2013. The deferred tax assets and liabilities primarily relate to timing differences in the amortization of intangible assets and net operating losses. On the balance sheet as of December 31, 2013, the Company had short-term deferred tax assets of $781 recorded in prepaid expenses and other current assets, long-term deferred tax assets of $946 recorded in other assets, and long-term deferred tax liabilities of $1,727 recorded in other long-term liabilities.

As the acquisition of Latista occurred in the quarter ended December 31, 2013, its results have been included in the condensed consolidated statement of operations for the three months ended December 31, 2013 since December 2, 2013, the closing date of the acquisition. The Latista acquisition, including Textura Vostok, contributed $200 to net revenue in the quarter ended December 31, 2013. The impact of Latista, including Textura Vostok, included in the consolidated results was a net loss of $500 and net loss per share of $0.02.

The following table contains unaudited pro forma consolidated statements of operations information assuming the acquisition of Latista occurred on October 1, 2012 and includes adjustments for amortization of intangible assets and interest expense. This pro forma information is presented for illustrative purposes only and is not indicative of what actual results would have been if the acquisition of Latista had taken place on October 1, 2012, or of future results.
 
Three months ended December 31,
 
2013
 
2012
 
(in thousands)
Revenues
$
12,619

 
$
7,086

Loss from operations
$
(8,261
)
 
$
(5,621
)
Net loss available to Textura Corporation common stockholders
$
(7,320
)
 
$
(6,784
)
Net loss per share, basic and diluted
$
(0.30
)
 
$
(0.79
)

The Company believes the goodwill reflects its expectations related to economies of scale and leveraging of the LATISTA solution with existing and future solution offerings. Goodwill is not deductible for tax purposes. Identifiable intangible assets consist of trademarks, technology and customer relationships, which are being amortized over a period of three, three and ten years, respectively.

As of December 31, 2013, the Company has recorded its best estimates with respect to the identified goodwill, intangible assets and related amortization of such assets. Due to the acquisition of Latista closing late in the first quarter of fiscal 2014 and related time constraints, the Company is still in the process of validating certain assumptions underlying the fair values of the identified intangible assets. Accordingly, as the purchase price allocation for the Latista acquisition is preliminary, the value attributed to goodwill, intangible assets and the related amortization expense recognized during the three months ended December 31, 2013 may change upon its finalization.

11

Textura Corporation
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(unaudited)



4. Property and Equipment

The following is a summary of property and equipment, at cost less accumulated depreciation, at December 31, 2013 and September 30, 2013:
 
December 31,
2013
 
September 30, 2013
 
(in thousands)
Land
$
4,276

 
$
4,276

Computer equipment
3,980

 
3,666

Furniture and fixtures
2,649

 
2,177

Leasehold improvements
124

 
92

Building
15,748

 
15,079

Capitalized software
5,883

 
5,520

Property and equipment, gross
32,660

 
30,810

Less: Accumulated depreciation and amortization
(11,590
)
 
(11,003
)
Property and equipment, net
$
21,070

 
$
19,807

Depreciation expense related to property and equipment was $569 and $253, respectively, for the three months ended December 31, 2013 and 2012. Amortization expense related to capitalized software was $19 and $0, respectively, for the three months ended December 31, 2013 and 2012. A total of $353 was capitalized related to the development of software during the three months ended December 31, 2013. No such costs were capitalized during the three months ended December 31, 2012.

5. Goodwill and Other Intangible Assets

The Company’s goodwill and other intangible assets have been recorded at fair value as of the acquisition dates. The change in the carrying value of goodwill during the three months ended December 31, 2013 was as follows:
 
Amount
 
(in thousands)
Balance at September 30, 2013
23,937

Acquisition
28,785

Balance at December 31, 2013
$
52,722


6. Loan Payable to Related Party
In October 2013, the Company repaid in full the outstanding balance of its bank loan facility of $10,216, plus accrued interest of $46. Upon repayment, restrictions on the related $1,000 compensating balance were lifted. The outstanding loan balance was $0 and $10,219, respectively, at December 31, 2013 and September 30, 2013.

The Company’s bank loan facility, prior to the payoff of this facility in full in October 2013, was held with a financial institution that, until September 2013, was an investor in the Company. The facility had been used solely for the purchase of land and the construction of the corporate headquarters facility.
 
7. Contingencies
The Company is involved from time to time in claims that arise in the normal course of its business. The Company is not presently subject to any material litigation nor, to management’s knowledge, is any litigation threatened against the Company that collectively is expected to have a material adverse effect on the Company’s cash flows, financial condition or results of operations.

12

Textura Corporation
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(unaudited)


8. Share‑Based Compensation to Employees
During the three months ended December 31, 2013, the Company granted under the Long-Term Incentive Plan stock options to purchase 631 shares of the Company's common stock with a weighted-average exercise price and weighted-average fair value of $33.75 and $15.45, respectively. The fair value of the options was estimated using the Black‑Scholes option‑pricing model with the following weighted-average assumptions:
 
2013
Expected dividend yield
—

Expected volatility
46
%
Risk-free interest rate
1.91
%
Expected term (years)
5.95


During the three months ended December 31, 2013, the Company granted 10 restricted stock units under the Long-Term Incentive Plan with a weighted-average fair value of $33.23.

Share-based compensation expense for employee equity awards was $1,583 and $661, respectively, for the three months ended December 31, 2013 and December 31, 2012. Share-based compensation expense is reflected in the following captions in the condensed consolidated statements of operations:
 
Three Months Ended December 31,
 
2013
 
2012
 
(in thousands)
Cost of services
$
95

 
$
44

General and administrative
857

 
451

Sales and marketing
401

 
83

Technology and development
230

 
83

Total
$
1,583

 
$
661


9. Warrants
Warrants outstanding to purchase the Company's common stock as of December 31, 2013 were as follows:

 
Vesting Date
 
Warrants Outstanding
 
Weighted Average Exercise Price
Fundraising
 
November 2007
 
24

 
$
12.38

Convertible debenture
 
Various 2009
 
295

 
$
16.26

Convertible debenture
 
Various 2010
 
394

 
$
13.25

Convertible debenture
 
May 2011
 
48

 
$
16.26

Mortgage renewal
 
August 2011
 
20

 
$
15.00

Convertible debenture
 
August 2011
 
32

 
$
13.25

Convertible debenture
 
September 2011
 
56

 
$
15.00

Convertible debenture
 
Various 2012
 
326

 
$
15.00

Notes payable
 
Various 2013
 
86

 
$
13.92

Referral Fees
 
September 2013
 
7

 
$
13.25


 

 
1,288

 



13

Textura Corporation
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(unaudited)


10. Related Party Transactions
In 2009, the Company entered into an agreement with an entity that was also an investor in the Company. The agreement compensates the entity for customer referrals based on revenues generated by the Company related to those customers. Warrants to purchase 7 and 20 shares of our common stock were issued in the year ended September 30, 2013 and September 30, 2010, respectively, pursuant to the referral agreement. The Company is obligated under the referral agreement to issue to the entity warrants to purchase up to an additional 208 shares of common stock based on the achievement of various milestones. In addition, in 2010, the Company entered into a service agreement with the entity, pursuant to which it was paid $1,000 in advance for software development services to improve software owned by the entity. This payment was deferred and recognized as revenue as development services were provided. The deferred revenue balance accrued interest and was increased by a portion of the referral fees due to this entity (the "Credit Bank"); the remainder of the referral fees due was paid in cash. The Credit Bank balance was in$911 as of September 30, 2013. Under the terms of the service agreement, the entity had the right to draw down from the Credit Bank after three years elapsed from the effective date of the agreement. As the entity had this right as of September 30, 2013, the Company classified $890 of the Credit Bank as a current liability and $21 as short-term deferred revenue. The amount of $21 in deferred revenue as of September 30, 2013 represented the revenue that the Company recognized in the three months ended December 31, 2013. During the three months ended December 31, 2013, the Company and the entity amended the referral agreement to dismantle the Credit Bank, pursuant to which the Company repaid the entity the entirety of the Credit Bank prior to the end of the quarter. The Company also provides hosting services to the entity for a fixed annual fee.

11. Employee Benefit Plans

The Company sponsors a defined contribution savings plan for employees in the United States that provides certain of its eligible employees an opportunity to accumulate funds for retirement. After employees have attained one year of service, the Company matches the contributions of participating employees on the basis specified by the plan, up to a maximum of 3% of participant compensation. The Company recorded total expense related to these plans in the amount of $107 and $70 for each of the three months ended December 31, 2013 and December 31, 2012, respectively. The plan was initiated in fiscal year 2012.

12. Convertible instruments
Prior to IPO, the Company had certain debt and equity securities outstanding that converted to common stock in connection with IPO in June 2013.

Convertible debentures

In 2011, the Company issued convertible debentures with detachable warrants (see Note 9). The convertible debentures had a stated interest rate of 8.0% per annum on the outstanding principal balance. The interest on the convertible debentures was payable in kind (“PIK”) and added to the unpaid principal in order to determine the number of shares of common stock to be issued upon conversion.
On December 31, 2012, certain holders of the convertible debentures elected to convert their debentures to common stock. The outstanding principal and PIK interest for these holders at December 31, 2012 was $12,392, which converted into 826 shares of common stock. The unamortized debt discount for these debentures was recorded as interest expense on the conversion date. Total interest expense recognized related to the convertible debentures was $1,934 for the three months ended December 31, 2012.

On June 12, 2013, in connection with the completion of the IPO, the outstanding principal of the convertible debentures of $5,865 and PIK interest of $778 automatically converted into 443 shares of the Company's common stock, based upon the IPO price of $15.00 per share. The unamortized debt discount for these debentures of $863 was recorded as interest expense on the conversion date.

14

Textura Corporation
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(unaudited)

Series A-1 and A-2 preferred stock

The outstanding shares of the Company's Series A-1 and A-2 preferred stock automatically converted into 5,336 shares of common stock at a conversion rate of 1:2.84 and the cumulative unpaid dividends were satisfied by the issuance of 412 additional shares of common stock through an adjustment to the conversion rate.

Submittal Exchange Class A preferred units

The former shareholders of Submittal Exchange received Class A preferred units of Submittal Exchange Holdings at acquisition, which were reflected as non-controlling interest in the condensed consolidated financial statements in the three months ended December 31, 2012. The Class A preferred units converted into 963 common shares on a 1:2 basis in connection with the IPO, at which time the non-controlling interest was eliminated.

ITEM 2.
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. All references to years, unless otherwise noted, refer to our fiscal year, which ends on September 30. For example, a reference to ‘‘fiscal 2013” means the 12-month period that will end on September 30, 2013. All references to quarters, unless otherwise noted, refer to the quarters of our fiscal year.

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 mission‑critical 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.

15


•
Greengrade facilitates the management of environmental certification.
•
BidOrganizer, launched in the fourth quarter of fiscal 2013, 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 take‑off 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 activity‑driven revenue and organization‑driven 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 typically pay us monthly fees that are dependent on the value and total number of projects managed using our system. We typically invoice and collect these monthly fees in advance on a six-month basis. We refer to these fees collectively as activity‑driven 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 twelve‑month 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 organization‑driven 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.)
    
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 GradeBeam in October 2011, Submittal Exchange in November 2011 and PlanSwift in January 2013 as described in more detail in ‘‘—Results of Operations.’’ As we are still integrating our LATISTA solution, the revenue from which is reflected within activity-driven revenue, the number of projects added, client-reported construction value added and active projects during the period metrics for LATISTA are not included in the table below. Revenue for LATISTA during the period from December 2, 2013, the acquisition date, to December 31, 2013 was $0.2 million.

16


 
Three Months Ended December 31,
 
2013
 
2012
 
(dollars in thousands, except where otherwise indicated)
Activity‑driven revenue
$
9,372

 
$
5,986

Organization‑driven revenue
2,631

 
785

Total revenue
$
12,003

 
$
6,771

Activity‑driven revenue:


 


    Number of projects added
1,466

 
1,048

Client‑reported construction value added (billions)
$
17.9

 
$
7.3

Active projects during period
6,580

 
5,046

Organization‑driven revenue:


 


Number of organizations
11,706

 
5,412

Adjusted EBITDA
$
(4,042
)
 
$
(2,329
)
Deferred revenue balance as of the end of period
$
25,705

 
$
14,146

Activity‑driven revenue
Number of projects added. This metric represents the total number of construction projects added by our clients to our CPM, Submittal Exchange and Greengrade 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, activity‑driven revenue is dependent in part on the number of projects using our solutions.
Client‑reported construction value added. This metric represents the total client‑entered dollar value of construction projects added by our clients to our CPM, Submittal Exchange and Greengrade solutions during the reporting period. We use client‑reported 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, activity‑driven 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 and Greengrade 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 period to evaluate our penetration of the construction market with these solutions, to monitor growth from period to period. Also, activity‑driven 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 previously‑entered information periodically. In particular, client‑reported 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 client‑reported 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.

17


Organization‑driven 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. 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 and 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 flows 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 December 31,

2013

2012

(in thousands)
Net loss
$
(6,676
)

$
(6,043
)
Net interest expense
94


2,102

Income tax provision (benefit)
(1,026
)

35

Depreciation and amortization
1,560


760

EBITDA
(6,048
)

(3,146
)
Share‑based compensation expense
1,583


661

Acquisition‑related expenses
423


156

Adjusted EBITDA
$
(4,042
)

$
(2,329
)

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 activity‑driven and organization‑driven 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.

18



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 December 31,
 
2013
 
2012
 
(in thousands)
Revenues
$
12,003

 
$
6,771

Operating expenses:


 


Cost of services
2,742

 
1,688

General and administrative
5,378

 
3,705

Sales and marketing
4,264

 
1,818

Technology and development
5,667

 
2,995

Depreciation and amortization
1,560

 
760

Total operating expenses
19,611

 
10,966

Loss from operations
(7,608
)
 
(4,195)

Other expense, net
(94
)
 
(1,813)

Loss before income taxes
(7,702
)
 
(6,008)

Income tax provision (benefit)
(1,026
)
 
35

Net loss
(6,676
)
 
(6,043)

Less: Net loss attributable to non-controlling interests
(79
)
 
(1046)

Net loss attributable to Textura Corporation
(6,597
)
 
(4,997)

Accretion of redeemable Series A-1 preferred stock
—

 
165

Accretion of redeemable non‑controlling interest
70

 
76

Dividends on Series A-2 preferred stock
—

 
120

Net loss available to Textura Corporation common stockholders
$
(6,667
)
 
$
(5,358
)

 
Three Months Ended December 31,
 
2013
 
2012
Revenues
100.0
 %
 
100.0
 %
Operating expenses:


 


Cost of services
22.8
 %
 
24.9
 %
General and administrative
44.8
 %
 
54.7
 %
Sales and marketing
35.5
 %
 
26.8
 %
Technology and development
47.2
 %
 
44.2
 %
Depreciation and amortization
13.0
 %
 
11.2
 %
Total operating expenses
163.4
 %
 
162.0
 %
Loss from operations
(63.4
)%
 
(62.0
)%
Other expense, net
(0.8
)%
 
(26.8
)%
Loss before taxes
(64.2
)%
 
(88.7
)%
Income tax provision (benefit)
(8.5
)%
 
0.5
 %
Net loss
(55.6
)%
 
(89.2
)%

19



Operating Metrics
 
Three Months Ended December 31,
 
 
 
2013
 
2012
 
% Change

 
(dollars in thousands, except where otherwise indicated)
 
 
Activity‑driven revenue
$
9,372

 
$
5,986

 
56.6
%
Organization‑driven revenue
2,631

 
785

 
235.2
%
Total revenue
$
12,003

 
$
6,771

 
77.3
%
Activity‑driven revenue:
 
 
 
 
 
Number of projects added
1,466

 
1,048

 
39.9
%
Client‑reported construction value added (billions)
$
17.9

 
$
7.3

 
145.2
%
Active projects during period
6,580

 
5,046

 
30.4
%
Organization‑driven revenue:
 
 
 
 
 
Number of organizations
11,706

 
5,412

 
116.3
%
Activity‑driven revenue. Activity‑driven revenue increased $3.4 million, or 56.6%, in the three months ended December 31, 2013 as compared to the three months ended December 31, 2012. The increase was primarily due to a 39.9% increase in the number of projects added to our solutions, a 30.4% increase in the number of active projects during the period, and a 145.2% increase in client‑reported construction value added. As we are still integrating our LATISTA solution, the revenue from which is reflected within activity-driven revenue, the number of projects added, client-reported construction value added and active projects during the period metrics for LATISTA are not included in the table above. Revenue for LATISTA during the period from December 2, 2013, the acquisition date, to December 31, 2013 was $0.2 million.
Organization‑driven revenue. Organization‑driven revenue increased $1.8 million, or 235.2%, in the three months ended December 31, 2013 as compared to the three months ended December 31, 2012. Our PlanSwift solution, which we acquired in the second quarter of fiscal 2013, generated revenue of $1.7 million and increased the number of organizations by 5,614 in the three months ended December 31, 2013.
Cost of services
 
Three Months Ended December 31,
 
 
 
2013
 
2012
 
% Change
 
(dollars in thousands)
 
 
Cost of services
$
2,742

 
$
1,688

 
62.4
%
Percent of revenue
22.8
%
 
24.9
%
 
 
Cost of services increased $1.1 million, or 62.4%, in the three months ended December 31, 2013 as compared to the three months ended December 31, 2012. The increase in cost of services was due primarily to a $0.5 million increase in personnel-related expenses, driven by stock-based compensation and an increase in headcount, related to both the growth of the business and the increase in personnel from the PlanSwift and LATISTA acquisitions. In addition, other service-related costs increased $0.5 million due to revenue growth for our solutions and the acquisition of PlanSwift in the second quarter of fiscal 2013.
General and administrative
 
Three Months Ended December 31,
 
 
 
2013
 
2012
 
% Change

 
(dollars in thousands)
 
 
General and administrative
$
5,378

 
$
3,705

 
45.2
%
Percent of revenue
44.8
%
 
54.7
%
 
 

20


General and administrative expenses increased $1.7 million, or 45.2%, in the three months ended December 31, 2013 as compared to the three months ended December 31, 2012. The increase was primarily due to a $0.8 million increase in personnel-related expenses as well as a $0.2 million increase related to consulting costs. The increase in personnel-related expenses was due primarily to stock-based compensation and an increase in headcount, related to both the ongoing requirements of being a public company and the increase in personnel from the PlanSwift and LATISTA acquisitions. In addition, equipment and maintenance expense and franchise tax expense each increased by $0.2 million and insurance expense increased by $0.1 million as compared to the prior year.
Sales and marketing
 
Three Months Ended December 31,
 
 
 
2013
 
2012
 
% Change
 
(dollars in thousands)
 
 
Sales and marketing
$
4,264

 
$
1,818

 
134.5
%
Percent of revenue
35.5
%
 
26.8
%
 
 
Sales and marketing expenses increased $2.4 million, or 134.5%, in the three months ended December 31, 2013 as compared to the three months ended December 31, 2012. The increase was primarily due to a $2.0 million increase in personnel-related expenses which related to stock-based compensation, commissions, an increase in headcount, related to both the growth of the business and the increase in personnel from the PlanSwift and LATISTA acquisitions as well as increased selling activities by our CPM client services team during the quarter. In addition, promotional activities increased by $0.3 million and other miscellaneous overhead expenses increased by $0.2 million as compared to the prior year.
Technology and development
 
Three Months Ended December 31,
 
 
 
2013
 
2012
 
% Change
 
(dollars in thousands)
 
 
Technology and development
$
5,667

 
$
2,995

 
89.2
%
Percent of revenue
47.2
%
 
44.2
%
 
 
Technology and development expenses increased $2.7 million, or 89.2%, in the three months ended December 31, 2013 as compared to the three months ended December 31, 2012. The increase was due primarily to a $1.8 million increase in personnel-related expenses, driven by stock-based compensation, and an increase in headcount, related to both the growth of the business and the increase in personnel from the PlanSwift and LATISTA acquisitions. In addition, third-party development fees increased by $0.4 million and recruiting expenses increased by $0.2 million from the prior-year period.
Depreciation and amortization
 
Three Months Ended December 31,
 
 
 
2013
 
2012
 
% Change
 
(dollars in thousands)
 
 
Depreciation and amortization
$
1,560

 
$
760

 
105.3
%
Percent of revenue
13.0
%
 
11.2
%
 
 
Depreciation and amortization expenses increased by $0.8 million, or 105.3%, in the three months ended December 31, 2013 as compared to the three months ended December 31, 2012. The increase was due primarily to a $0.5 million increase in amortization expenses related to the intangible assets acquired in the acquisition of PlanSwift in the second quarter of fiscal 2013 and the acquisition of LATISTA in the first quarter of fiscal 2014. In addition, depreciation expense increased $0.3 million driven by the increase in fixed assets to support the growth of the Company.

21


Other expense, net
 
Three Months Ended December 31,
 
 
 
2013
 
2012
 
% Change
 
(dollars in thousands)
 
 
Other expense, net
$
(94
)
 
$
(1,813
)
 
(94.8
)%
Other expense, net, decreased by $1.7 million, or (94.8)%, in the three months ended December 31, 2013 as compared to the three months ended December 31, 2012. The decrease was due primarily to non‑cash interest expense and change in the fair value of derivatives as a result of the conversion of certain convertible debentures in the three months ended December 31, 2012.
Additional metrics
 
Three Months Ended December 31,
 
 
 
2013
 
2012
 
% Change
 
(dollars in thousands)
 
 
Adjusted EBITDA
$
(4,042
)
 
$
(2,329
)
 
73.6
%
Adjusted EBITDA decreased $1.7 million, or 73.6%, from the three months ended December 31, 2012 to the three months ended December 31, 2013. The decrease was due primarily to higher personnel-related and professional services expenses, partially offset by higher revenue.
 
December 31, 2013
 
September 30, 2013
 
% Change
 
(dollars in thousands)
 
 
Deferred revenue
$
25,705

 
$
21,891

 
17.4
%
Deferred revenue increased $3.8 million, or 17.4%, from September 30, 2013 to December 31, 2013. The increase was due largely to the Latista acquisition, which contributed $3.4 million of deferred revenue as of December 31, 2013.

Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (‘‘GAAP’’). The preparation of these condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures. Management bases its estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our condensed consolidated financial statements, which, in turn, could change the results from those reported. In some instances, changes in the accounting estimates are reasonably likely to occur from period-to-period. Our management evaluates its estimates and assumptions on an ongoing basis.
We believe that there are several accounting policies that are critical to understanding our business and prospects for future performance, as these policies affect the reported amounts of revenue and other significant areas that involve management’s judgment and estimates. These significant policies and our procedures related to these policies are described in detail below. For further information on all of our significant accounting policies, please see Note 2 of the accompanying notes to our unaudited condensed consolidated financial statements and Note 2 of the audited consolidated financial statements included in our Annual Report on Form 10-K filed on November 26, 2013.

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Revenue Recognition
We classify our revenue into activity‑driven revenues and organization‑driven revenues.
Activity‑driven revenue. Activity‑driven revenue is generated as a direct result of project activity on our CPM, Submittal Exchange, Greengrade and LATISTA solutions. Such revenue includes monthly fees, project fees and subscription fees, paid by the owner/developer, general contractor or architect; and usage fees, paid by subcontractors. We recognize activity‑driven revenue when there is evidence that an agreement exists with the customer and the customer has begun deriving benefit from use of the solution, the fee is fixed and determinable, delivery of services has occurred and collection of payment from the project participant is reasonably assured. We recognize subscription fees ratably over the subscription period, which is typically between 6 and 36 months, and we recognize project fees and usage fees ratably over the average estimated life of the project and contract, respectively. The average estimated life of the project and contract is estimated by management based on periodic review and analysis of historical data. The applicable estimated life is based on the project or contract value falling within certain predetermined ranges, as well as the solution on which the project is being managed. We perform periodic reviews of actual project and contract data and revise our estimates as necessary. The estimated life of the projects on our solutions historically has ranged from 5 to 29 months, and depends on the construction value of the project and the solution being utilized. The estimated life of the contracts on our CPM solution historically has ranged from 5 to 16 months, and depends on the value of the contract.
Organization‑driven revenue. Organization‑driven revenue is generated when clients subscribe to our GradeBeam, PQM and BidOrganizer solutions. We recognize organization‑driven revenue when there is evidence of a subscription arrangement on our system, the fee is fixed and determinable, delivery of services has occurred, and collection of payment from the organization is reasonably assured. These fees are recognized ratably over the applicable service period, ranging from 6 to 36 months.
Organization-driven revenue also includes revenue from the sale of software licenses and related maintenance and training for our PlanSwift solution. We recognize license revenue upon delivery of the license, we recognize maintenance revenue ratably over the period of the maintenance contract, which is generally one year, and we recognize training revenue when the services are delivered to the client. For multiple-element arrangements that include a perpetual license and either maintenance or both maintenance and training, we use the residual method to determine the amount of license revenue to be recognized. Under the residual method, consideration is allocated to the undelivered elements based upon vendor-specific objective evidence of fair value (‘‘VSOE’’) of those elements with the residual of the arrangement fee allocated to and recognized as license revenue. For subscription-based licenses, which include maintenance, we recognize the subscription fees ratably over the subscription periods, which typically range from 1 to 6 months.

We have established VSOE based on our historical pricing and discounting practices for maintenance or training when sold separately. In establishing VSOE, we require that a substantial majority of the selling prices for these services fall within a reasonably narrow pricing range. The application of VSOE methodologies requires judgment, including the identification of individual elements in multiple element arrangements and whether there is VSOE for some or all elements. Changes to the elements in our sales arrangements, or our ability to establish VSOE for those elements, may impact the timing of revenue recognition, which may result in a material change to the amount of revenue recorded in a given period.

Share‑Based Compensation
We account for stock options granted to employees and directors by recording compensation expense based on the award’s fair value, estimated on the date of grant using the Black‑Scholes option‑pricing model. Share‑based compensation expense is recognized on a straight-line basis over the requisite service period of the award, which generally equals the vesting period.
Determining the fair value of stock options under the Black‑Scholes option‑pricing model requires judgment, including estimating the fair value per share of our common stock as a private company prior to our IPO, volatility, expected term of the awards, dividend yield and the risk‑free interest rate. The assumptions used in calculating the fair value of stock options represent our best estimates, based on management’s judgment and subjective future expectations. These estimates involve inherent uncertainties. If any of the assumptions used in the model change significantly, share‑based compensation recorded for future awards may differ materially from that recorded for awards granted previously.

23


We developed our assumptions as follows:
•
Fair value of common stock. Prior to the IPO, given the absence of an active market for our common stock, our board of directors was required to estimate the fair value of our common stock at the time of each grant of stock-based awards. From 2006 through the closing of our IPO, our management regularly engaged an independent third party valuation firm to prepare contemporaneous valuation analyses near the time of each grant to assist our board of directors in this determination.
•
Volatility. The expected price volatility for our common stock is estimated by taking the median historic price volatility for industry peers based on daily prices over a period equivalent to the expected term of the stock option grants.
•
Expected term. The expected term is estimated to be the mid-point between the vesting date and the expiration date of the award. We believe use of this approach is appropriate as we have no prior history of option exercises upon which to base an expected term.
•
Risk‑free interest rate. The risk-free interest rate is based on the yields of United States Treasury securities with maturities similar to the expected term of the options.
•
Dividend yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.
We estimate potential forfeitures of stock options and adjust share‑based compensation expense accordingly. The estimate of forfeitures is adjusted over the requisite service period to the extent that actual forfeitures differ from the prior estimates. We estimate forfeitures based upon our historical experience, and, at each period, review the estimated forfeiture rate and make changes as factors affecting the forfeiture rate calculations and assumptions change.
Goodwill
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the net assets acquired and is not amortized. Goodwill is subject to impairment testing at least annually, unless it is determined after a qualitative assessment that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount. Goodwill is measured for impairment on an annual basis, or in interim periods, if indicators of potential impairment exist. We test goodwill for impairment at a single reporting unit level and we have not reported any goodwill impairments to date.

We evaluated both qualitative and quantitative characteristics in determining our reporting units. Based on this evaluation, we determined that we have one reporting unit. Our management team reviews our historical profit and loss information and metrics on a consolidated basis. In addition, the majority of the components utilize a common distribution platform that enables sharing of resources and development across solutions. We also believe that goodwill is recoverable from the overall operations given the economies of scale and leveraging capabilities of the various components.
In the fourth quarter of fiscal 2013, we performed a qualitative assessment to determine whether it was more likely than not that the fair value of goodwill was less than its carrying amount. After consideration of our market capitalization, business growth and other factors, we determined that it was more likely than not that the fair value of goodwill exceeded its carrying amount and further analysis was not necessary.

In fiscal 2012, we conducted our annual goodwill impairment test in the fourth quarter. The process of evaluating the potential impairment of goodwill requires significant judgment at many points during the analysis. To determine estimated fair value of our reporting unit, we used the income approach, under which fair value was calculated based on estimated discounted future cash flows. The income approach was determined to be the most representative valuation technique that would be utilized by a market participant in an assumed transaction. Significant assumptions are based on historical and forecasted results of operations, and consider estimates of cash flows consistent with the plans and estimates used to manage the business, including significant assumptions as to revenue growth, operating costs and expenses and operating cash flows, as well as various assumptions for attrition, weighted average cost of capital and terminal growth. Based on our testing, the fair value of our reporting unit substantially exceeded its carrying value.


24


If management’s estimates of future operating results change, if there are changes in identified reporting units or if there are changes to other significant assumptions, the estimated carrying values of such reporting units and the estimated fair value of goodwill could change significantly, and could result in an impairment charge.
Intangible Assets
Intangible assets consist of acquired developed product technologies, acquired client relationships, non-competition agreements and trade names. We record intangible assets at fair value and amortize them over their estimated useful lives. We estimate the useful lives of acquired developed product technologies, existing client relationships and trade names based on factors that include the planned use of and the expected pattern of future cash flows to be derived from each of them. The useful lives of non‑competition agreements are equal to their contractual lives. We include amortization of intangible assets in depreciation and amortization expenses in our consolidated statement of operations.
We assess the impairment of identifiable intangible assets whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. Examples of such events or circumstances include, but are not limited to, significant underperformance relative to historical or projected future results, significant negative changes in the manner of use of the acquired assets in our business or material negative changes in relationships with significant customers. An impairment loss would be recognized when the sum of the undiscounted estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Such impairment loss would be measured as the difference between the carrying amount of the asset and its fair value. Cash flow assumptions are based on historical and forecasted revenue, operating costs and other relevant factors. If management’s estimates of future operating results change, or if there are changes to other assumptions, the estimate of the fair value of our intangible assets could change significantly. Such change could result in impairment charges in future periods, which could have a significant impact on our operating results and financial condition. We have not recorded any impairment charges to date.
During fiscal 2012, the actual operating results for GradeBeam met assumptions management used to determine the purchase price of the acquisition, but underperformed compared to GradeBeam’s revenue forecast at the time of acquisition. In preparing projected future results and analysis of recent actual results, we believe a triggering event had occurred requiring an impairment analysis. The impairment analysis of GradeBeam’s developed technology and customer relationship carrying values during the fourth quarter of 2012 indicated there was no impairment.

Liquidity and Capital Resources
We have financed our operations primarily through the issuance of equity securities, including $139.3 million in net proceeds received in connection with our IPO in June 2013 and follow-on offering in September 2013, private placements of convertible debentures, notes payable and leases payable. Our primary source of liquidity as of December 31, 2013 consisted of $77.1 million of cash and cash equivalents.
Our principal uses of liquidity have been to fund our operations, working capital requirements, capital expenditures and acquisitions and to service our loan payable, which was repaid in full in October 2013. In addition, we acquired Latista in December 2013 for cash consideration of $34.9 million. We expect that working capital requirements, acquisitions and capital expenditures will continue to be our principal needs for liquidity over the near term.
Over the next 12 months, we have planned capital expenditures of $2.6 million, excluding the capitalization of software development costs, and no expected debt service obligations. We believe that our existing cash and cash equivalents will be sufficient to fund our operations, including these capital expenditures.
The following table sets forth a summary of our cash flows for the periods indicated:
 
Three Months Ended December 31,
 
2013
 
2012
 
(in thousands)
Net cash used in operating activities
$
(6,166
)
 
$
(2,087
)
Net cash used in investing activities
$
(35,231
)
 
$
(19
)
Net cash provided by financing activities
$
(9,166
)
 
$
(178
)

25


Net Cash Used in Operating Activities
Our net loss and cash flows from operating activities are significantly influenced by our investments in headcount and infrastructure to drive future revenue growth and support that anticipated growth.
Our cash flows from operating activities are affected within the fiscal year by the timing of our invoicing of, and our receipt of payments from, our clients. In particular, our billing cycles for general contractor monthly fees on our CPM solution are concentrated in the second and fourth quarters and are largely collected by the end of the respective quarter. Accordingly, we experience relatively lower levels of billing and client payments in the first and third quarters of each year. We expect this pattern of cash flow from our operating activities to continue in the future.
In the three months ended December 31, 2013, $2.2 million, or 32.6%, of our net loss of $6.7 million consisted of non-cash items, including $1.6 million of depreciation and amortization expense, $1.6 million of share-based compensation expense, a $1.0 million income tax benefit and $0.1 million of non-cash interest expense. Working capital changes included a $1.8 million increase in deferred revenue, partially offset by a $1.8 million decrease in accounts payable and accrued expenses and a $1.7 million decrease in current and other assets. The increase of $4.1 million in cash used in operating activities from the three months ended December 31, 2012 to the three months ended December 31, 2013 was primarily a result of higher personnel-related and professional services expenses, partially offset by higher revenue, and changes in working capital balances year over year.

Net Cash Used In Investing Activities

Our primary investing activities have consisted of cash used for acquisitions and capital expenditures in support of expanding our infrastructure and workforce. As our business grows, we expect our investment activity to continue to increase.

In the three months ended December 31, 2013, cash used in investing activities was $35.2 million, which primarily related to $34.9 million in cash paid in connection with our acquisition of Latista in December 2013 and capital expenditures of $1.4 million, partially offset by a decrease in restricted cash of $1.0 million.

Net Cash Provided by Financing Activities
In the three months ended December 31, 2013, net cash used in financing activities was $9.2 million, which primarily consisted of $10.2 million paid in connection with the repayment of our bank loan and deferred offering costs of $1.0 million, partially offset by proceeds from the exercise of options and warrants of $2.2 million.

Off-Balance Sheet Arrangements
As part of our ongoing business, we do not have any relationships with other entities or financial partnerships that have been established for the purpose of facilitating off-balance sheet arrangements. We are therefore not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships.

Contractual Obligations
On October 4, 2013, the Company repaid the outstanding balance of loan payable for the purchase of land and the construction of the corporate headquarters facility. In connection with the repayment, the Company paid $10.2 million in outstanding principal and $46,000 in outstanding accrued interest. Other than the repayment of our bank loan, contractual obligations have not changed materially compared to contractual obligations included in our Annual Report on Form 10-K filed on November 26, 2013.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our market risk since September 30, 2013. For a discussion of our market risk as of September 30, 2013, see “Quantitative and Qualitative Disclosures About Market Risk” included in our Annual Report on Form 10-K filed on November 26, 2013.

26



ITEM 4. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer (our principal executive officer and principal financial officer, respectively), we have evaluated our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of December 31, 2013. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of December 31, 2013, the Company's disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the fiscal quarter covered by this Quarterly Report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.


27


PART II
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
a)
Sales of Unregistered Securities
During the quarter ended December 31, 2013, we sold an aggregate of 33,101 shares of common stock to four individuals upon the exercise of warrants to purchase our common stock.  The dates, number of shares and applicable exercise prices of the warrants were as follows:
Date of Exercise
Number of Shares
Exercise Price
November 25, 2013
6,949
$16.26
December 2, 2013
15,376
$16.26
December 2, 2013
3,076
$16.26
December 11, 2013
3,541
$16.26
December 11, 2013
4,159
$13.25

We deemed the forgoing sales of the securities to be exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), in reliance on Section 4(2) of the Securities Act relative to transactions by an issuer not involving a public offering. Each warrant holder represented to us that he or she was an accredited investor and was acquiring the shares for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof and that he or she could bear the risks of the investment and could hold the securities for an indefinite period of time. Each warrant holder received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration statement or an available exemption from such registration. All certificates representing the securities issued in the transactions described above included appropriate legends setting forth that the securities had not been offered or sold pursuant to a registration statement and describing the applicable restrictions on transfer of the securities. There were no underwriters employed in connection with any of the transactions described above.
b) Use of Proceeds from Public Offerings of Common Stock

On June 12, 2013, we closed our IPO, in connection with which we sold 5,750,000 shares of common stock at a price to the public of $15.00 per share. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to registration statements on Form S-1 (File No. 333-187745 and 333-189149), which were declared or became effective on June 6, 2013. The offering commenced on June 6, 2013. Credit Suisse Securities (USA) LLC and William Blair & Company, L.L.C. acted as the managing underwriters. We raised approximately $77.7 million in the offering, net of underwriting discounts and commissions of $6.0 million and other offering costs of $2.5 million.
There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC on June 7, 2013 pursuant to Rule 424(b). We used $8.1 million of the net proceeds of the IPO to repay indebtedness, of which $3.6 million was paid to directors and ten percent (10%) stockholders. We also used $0.6 million of the net proceeds of the IPO to repurchase 40,000 shares of common stock from one unitholder of PlanSwift. In addition, we used $10.2 million to repay in full all outstanding indebtedness under our loan agreement with First Midwest Bank and $34.9 million to acquire Latista. Pending the other uses described in our prospectus filed on June 7, 2013, we have invested the remaining net proceeds in money market funds.
c) Issuer Purchases of Equity Securities
None.



28


ITEM 6. EXHIBITS
Exhibit Index:
Exhibit No.
 
Description
10.1
 
Amendment to Software and Service Agreement dated June 15, 2010, between Textura Corporation and Aon Risk Services Central, Inc.
10.2
 
Amendment to Referral Fee Agreement dated June 15, 2010, between Textura Corporation and Aon Risk Services Central, Inc.
31.1
 
Certification of Chief Executive Officer of Textura Corporation pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
31.2
 
Certification of Chief Financial Officer of Textura Corporation pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.1
 
Certification of Chief Executive Officer of Textura Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.
32.2
 
Certification of Chief Financial Officer of Textura Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.
101.INS#
 
XBRL Instance Document
101.SCH#
 
XBRL Taxonomy Extension Schema Document
101.CAL#
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF#
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB#
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE#
 
XBRL Taxonomy Extension Presentation Linkbase Document
#
XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.


29


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date:    February 13, 2014

TEXTURA CORPORATION

By: /s/ Jillian Sheehan
Name: Jillian Sheehan
Title: Chief Financial Officer
(Principal Financial Officer and Authorized Signatory)




30


EXHIBIT INDEX
Exhibit No.
 
Description
10.1
 
Amendment to Software and Service Agreement dated June 15, 2010, between Textura Corporation and Aon Risk Services Central, Inc.
10.2
 
Amendment to Referral Fee Agreement dated June 15, 2010, between Textura Corporation and Aon Risk Services Central, Inc.
31.1
 
Certification of Chief Executive Officer of Textura Corporation pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
31.2
 
Certification of Chief Financial Officer of Textura Corporation pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.1
 
Certification of Chief Executive Officer of Textura Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.
32.2
 
Certification of Chief Financial Officer of Textura Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.
101.INS#
 
XBRL Instance Document
101.SCH#
 
XBRL Taxonomy Extension Schema Document
101.CAL#
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF#
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB#
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE#
 
XBRL Taxonomy Extension Presentation Linkbase Document
#
XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.



31

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