Textura Corp - FORM 10-Q - November 9, 2015

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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 September 30, 2015
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 x
Non-accelerated filer o 
(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 October 30, 2015, 26,087,273 shares of Common Stock, par value $0.001 per share, of Textura Corporation were outstanding.

1


TABLE OF CONTENTS
 
 
Page
 
 
 
Part 1 - Financial Information
Item 1.
Financial Statements (unaudited):
 
Condensed Consolidated Balance Sheets
 
Condensed Consolidated Statements of Operations
 
Condensed Consolidated Statements of Comprehensive Loss
 
Condensed Consolidated Statement of Stockholders' Equity
 
Condensed Consolidated Statements of Cash Flows
 
Notes to Condensed Consolidated Financial Statements
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Item 4.
Controls and Procedures
Part II - Other Information
Item 1.
Legal Proceedings
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
 
Signatures
 
Exhibit Index
 
 
 


2


PART I

ITEM 1. FINANCIAL STATEMENTS

Textura Corporation
Condensed Consolidated Balance Sheets
(unaudited)
(dollars and shares in thousands, except per share amounts)
 
September 30,
2015
 
December 31,
2014
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
73,167

 
$
66,758

Accounts receivable, net of allowance of $193 at September 30, 2015 and $254 at December 31, 2014
9,979

 
8,274

Prepaid expenses and other current assets
938

 
1,163

Total current assets
84,084

 
76,195

Property and equipment, net
34,517

 
26,103

Restricted cash
2,189

 
1,780

Goodwill
52,848

 
52,848

Intangible assets, net
8,972

 
12,132

Other assets
347

 
226

Total assets
$
182,957

 
$
169,284

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
2,334

 
$
1,699

Accrued expenses
9,927

 
9,874

Deferred revenue, short-term
39,644

 
31,923

Leases payable, short-term
—

 
412

Total current liabilities
51,905

 
43,908

Deferred revenue, long-term
5,458

 
3,660

Other long-term liabilities
1,296

 
1,028

Total liabilities
58,659

 
48,596

Stockholders’ equity
 
 
 
Common stock, $.001 par value; 90,000 shares authorized; 26,654 and 26,247 shares issued and 25,994 and 25,588 shares outstanding at September 30, 2015 and December 31, 2014, respectively
26

 
26

Additional paid in capital
352,590

 
340,344

Treasury stock, at cost; 660 and 659 shares at September 30, 2015 and December 31, 2014, respectively
(9,983
)
 
(9,923
)
Accumulated other comprehensive loss
(534
)
 
(340
)
Accumulated deficit
(217,801
)
 
(209,419
)
Total stockholders’ equity
124,298

 
120,688

Total liabilities and stockholders’ equity
$
182,957

 
$
169,284


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

3


Textura Corporation
Condensed Consolidated Statements of Operations
(unaudited)
(dollars and shares in thousands, except per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Revenues   
$
22,513

 
$
16,354

 
$
62,997

 
$
45,106

Operating expenses
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization shown separately below)
3,847

 
3,335

 
11,175

 
9,245

General and administrative
8,332

 
6,232

 
22,813

 
18,760

Sales and marketing
5,237

 
5,869

 
15,809

 
15,375

Technology and development
5,179

 
6,366

 
15,078

 
16,541

Depreciation and amortization
2,302

 
1,990

 
6,267

 
5,838

Total operating expenses
24,897

 
23,792

 
71,142

 
65,759

Loss from operations
(2,384
)
 
(7,438
)
 
(8,145
)
 
(20,653
)
Other income (expense), net
 
 
 
 
 
 
 
Interest income and other expense, net
10

 
6

 
30

 
51

Interest expense
(8
)
 
(28
)
 
(23
)
 
(106
)
Total other income (expense), net
2

 
(22
)
 
7

 
(55
)
Loss before income taxes
(2,382
)
 
(7,460
)
 
(8,138
)
 
(20,708
)
Income tax provision
80

 
80

 
244

 
240

Net loss   
(2,462
)
 
(7,540
)
 
(8,382
)
 
(20,948
)
Less: Net loss attributable to non-controlling interest
—

 
—

 
—

 
(169
)
Net loss attributable to Textura Corporation   
(2,462
)
 
(7,540
)
 
(8,382
)
 
(20,779
)
Accretion of redeemable non‑controlling interest
—

 
—

 
—

 
199

Net loss available to Textura Corporation common stockholders   
$
(2,462
)
 
$
(7,540
)
 
$
(8,382
)
 
$
(20,978
)
Net loss per share available to Textura Corporation common stockholders, basic and diluted
$
(0.09
)
 
$
(0.30
)
 
$
(0.33
)
 
$
(0.84
)
Weighted-average number of common shares outstanding, basic and diluted
25,925

 
25,426

 
25,781

 
25,083

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 September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net loss
$
(2,462
)
 
$
(7,540
)
 
$
(8,382
)
 
$
(20,948
)
Other comprehensive loss:
 
 
 
 
 
 
 
Foreign currency translation adjustment
(106
)
 
(55
)
 
(194
)
 
(56
)
Comprehensive loss
(2,568
)
 
(7,595
)
 
(8,576
)
 
(21,004
)
Less: Comprehensive loss attributable to non-controlling interests
—

 
—

 
—

 
(176
)
Comprehensive loss attributable to Textura Corporation   
$
(2,568
)
 
$
(7,595
)
 
$
(8,576
)
 
$
(20,828
)
The accompanying notes are an integral part of these condensed consolidated financial statements.


5


Textura Corporation
Condensed Consolidated Statement of Stockholders' Equity
(unaudited)
(dollars and shares in thousands)
 
Common
Stock
Additional
Paid-In Capital
Treasury Stock
Accumulated Other Comprehensive Loss
Accumulated Deficit
Total
Textura
Corporation
Stockholders’ Equity (Deficit)
 
Shares
Amount
Balances at January 1, 2015
25,588

$
26

$
340,344

$
(9,923
)
$
(340
)
$
(209,419
)
$
120,688

Share-based compensation
—

—

7,782

—

—

—

7,782

Issuance of common stock upon exercise of stock options
353

—

4,337

—

—

—

4,337

Issuance of common stock upon exercise of warrants
9

—

127

—

—

—

127

Issuance of common stock in connection with vesting of RSUs
38

—

—

—

—

—

—

Issuance of common stock in connection with Employee Stock Purchase Plan
6

—

—

121

—

—

121

Net loss
—

—

—

—

—

(8,382
)
(8,382
)
Foreign currency translation
—

—

—

—

(194
)
—

(194
)
Repurchase of common stock at cost
—

—

—

(181
)
—

—

(181
)
Balances at September 30, 2015
25,994

$
26

$
352,590

$
(9,983
)
$
(534
)
$
(217,801
)
$
124,298

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)
 
Nine Months Ended September 30,
 
2015
 
2014
Cash flows from operating activities
 
 
 
Net loss
$
(8,382
)
 
$
(20,948
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
6,267

 
5,838

Deferred income taxes
240

 
240

Non-cash interest income
—

 
(1
)
Share‑based compensation
7,782

 
6,404

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(1,739
)
 
(1,598
)
Prepaid expenses and other assets
138

 
245

Deferred revenue, including long-term portion
9,537

 
7,816

Accounts payable
356

 
360

Accrued expenses and other
(20
)
 
1,774

Net cash provided by operating activities
14,179

 
130

Cash flows from investing activities
 
 
 
Increase in restricted cash and escrow funds
(594
)
 
(1,250
)
Purchases of property and equipment, including software development costs
(11,079
)
 
(5,794
)
Net cash used in investing activities
(11,673
)
 
(7,044
)
Cash flows from financing activities
 
 
 
Principal payments on loan payable
—

 
(105
)
Payments on capital leases
(412
)
 
(608
)
Proceeds from exercise of options and warrants
4,464

 
2,213

Buyout of non-controlling interest
—

 
(1,563
)
Net issuance (repurchase) of common shares (treasury)
(60
)
 
(4,068
)
Net cash provided by (used in) financing activities
3,992

 
(4,131
)
Effect of changes in foreign exchange rates on cash and cash equivalents
(89
)
 
(50
)
Net increase (decrease) in cash and cash equivalents
6,409

 
(11,095
)
Cash and cash equivalents
 
 
 
Beginning of period
66,758

 
77,130

End of period
$
73,167

 
$
66,035

Supplemental cash flow data:
 
 
 
Cash paid for interest
$
23

 
$
106

Non-cash investing and financing activities:
 
 
 
Property and equipment expenditures included in accounts payable and accrued expenses as of period end
$
378

 
$
92

Accretion of redeemable non‑controlling interest
$
—

 
$
199

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

7

Textura Corporation
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share amounts)
(unaudited)


1. Description of Business
Textura Corporation (‘‘we,’’ ‘‘us,’’ ‘‘our,’’ or the ‘‘Company’’) was originally formed as a Wisconsin limited liability company (Textura, LLC) in 2004 and converted to a Delaware corporation in 2007. We provide on-demand business collaboration software solutions to the commercial construction industry. Our 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.
We are 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 our solutions in an emerging market, and competition from other companies with potentially greater technical, financial and marketing resources. We have incurred significant losses and continue to devote the majority of our resources to the growth of our business. We had an accumulated deficit of $217.8 million as of September 30, 2015.

To date, our 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
We have prepared these unaudited condensed consolidated financial statements 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 December 31, 2014 and 2013 and for the fiscal year ended December 31, 2014, the three months ended December 31, 2013 and the fiscal years ended September 30, 2013 and 2012 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 6, 2015. In our opinion, the condensed consolidated financial statements contain all adjustments (which are of a normal, recurring nature) necessary to state fairly, in all material respects, our 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.

Segment Reporting

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

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 our revenue recognition, depreciation, amortization and assumptions for share‑based payments.

Revenue Recognition

For our CPM, Submittal Exchange, Greengrade and Latista solutions, we earn revenue from owners/developers, general contractors and architects in the form of subscription fees and project fees; and from subcontractors in the form of usage fees. For our GradeBeam, PQM and BidOrganizer solutions, we earn revenue in the form of subscription fees. Our 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.

8

Textura Corporation
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share amounts)
(unaudited)


All of our on-demand solutions include training and support. We evaluate whether the individual deliverables in our revenue 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, we consider whether solutions are sold to new customers without training and support, the nature of the training and support provided and the availability of the training and support from other vendors. We concluded that training and support do not have standalone value because they are generally not 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.

We recognize 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 project fees and usage fees ratably over the average estimated life of the project and contract, respectively, and recognize 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. We perform periodic reviews of actual project and contract data and revise estimates as necessary. Estimated project life durations range from 6 to 32 months, and estimated contract life durations range from 4 to 20 months. Subscription periods typically range from 6 to 36 months.

For our PlanSwift solution, we earn 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 for which we have not established vendor-specific objective evidence of fair value ("VSOE") 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 VSOE of those elements with the residual of the arrangement fee allocated to and recognized as license revenue. For multiple-element arrangements that include a perpetual license for which we have established VSOE and either maintenance or both maintenance and training, we allocate the revenue among the different elements of the arrangement based on each element's relative VSOE. 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, training and certain software licenses 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 of fair value for some or all elements.

We collect sales taxes from our customers on sales of taxable products and services and remit such collections to the appropriate taxing authority. Sales tax collections are presented in the consolidated statements of operations and comprehensive income on a net basis and, accordingly, are excluded from reported revenues.
Foreign Currency Transactions
Our reporting currency is the U.S. 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. We record foreign currency translation differences in accumulated other comprehensive income (loss).
Net Loss Per Share
Basic net loss per share available to our common stockholders is calculated by dividing the net loss available to our common stockholders by the weighted-average number of common shares outstanding, less any treasury shares, during the period.

9

Textura Corporation
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share amounts)
(unaudited)

The following outstanding securities were excluded from the computation of diluted net loss per share available to our common stockholders as their inclusion would have been anti-dilutive:
 
As of September 30,
 
2015
 
2014
 
(in thousands)
Outstanding restricted stock units
403

 
70

Outstanding stock options
3,229

 
3,391

Outstanding common stock warrants
1,215

 
1,273

Outstanding employee stock purchase plan units
—

 
—

Total excluded securities
4,847

 
4,734


Recently Issued Accounting Standards
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”). ASU 2015-05 clarifies the accounting for cloud computing arrangements, as no specific guidance existed prior to this newly issued standard. The provisions of ASU 2015-05 must be applied to annual periods beginning after December 15, 2015 as well as interim periods within those annual periods. We are currently in the process of evaluating the impact of the adoption of ASU 2015-05 on our consolidated financial statements.

On May 28, 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers. In July 2015, the FASB voted to defer the effective date and, as a result, ASU 2014-09 is effective for us beginning on January 1, 2018. We are currently in the process of evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.

3. Property and Equipment

The following is a summary of property and equipment, at cost less accumulated depreciation, at September 30, 2015 and December 31, 2014:
 
September 30, 2015
 
December 31, 2014
 
(in thousands)
Land
$
4,276

 
$
4,276

Computer equipment
6,114

 
4,566

Furniture and fixtures
3,411

 
2,750

Leasehold improvements
2,013

 
124

Building
16,263

 
16,527

Capitalized software
17,504

 
11,968

Property and equipment, gross
49,581

 
40,211

Less: Accumulated depreciation and amortization
(15,064
)
 
(14,108
)
Property and equipment, net
$
34,517

 
$
26,103

Depreciation expense related to property and equipment was $847 and $615, respectively, for the three months ended September 30, 2015 and 2014, and $2,269 and $1,758, respectively, for the nine months ended September 30, 2015 and 2014. Amortization expense related to capitalized software was $402 and $93, respectively, for the three months ended September 30, 2015 and 2014, and $838 and $233, respectively, for the nine months ended September 30, 2015 and 2014. We capitalized software development costs of $1,590 and $1,483, respectively, for the three months ended September 30, 2015 and 2014, and $5,100 and $4,114, respectively, for the nine months ended September 30, 2015 and 2014.

10

Textura Corporation
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share amounts)
(unaudited)

In June 2015, we purchased the assets under our capital lease agreements. In connection with the termination of these leases, we wrote off the remaining net book value of $99 and recorded the new asset basis of $1,431 (see Note 9 for further details).

4. Commitments and Contingencies
We lease office space in various commercial buildings and have office equipment leases. For the office leases, we are also responsible for operating expenses and the leases escalation clauses.

In March 2015, we entered into a new lease for approximately 23,000 square feet of office space in a commercial building in Chicago, Illinois. The lease term commenced in July 2015 and will expire in September 2027.

The following is a schedule of future minimum rental payments required under all of our operating lease agreements as of September 30, 2015 for the years ending December 31:
 
Amount
 
(in thousands)
2015
$
171

2016
829

2017
724

2018
568

2019
298

Thereafter
3,430

 
$
6,020

On October 7, 2014, a putative class action lawsuit alleging violations of federal securities laws was filed in the U.S. District Court for the Northern District of Illinois, naming as defendants the Company and certain of its executive officers. An amended complaint was filed on February 17, 2015. The amended complaint alleges violations of the Securities Exchange Act of 1934 by the Company and its executive officers for making allegedly materially false and misleading statements and by failing to disclose allegedly material facts regarding its business and operations between June 7, 2013 and September 29, 2014. The plaintiffs seek unspecified monetary damages and other relief. We believe the lawsuit is without merit and intend to defend the case vigorously. We filed a motion to dismiss on May 4, 2015.

In addition, the Company is involved from time to time in legal claims and proceedings that arise in the normal course of its business. Although the results of these legal claims and proceedings cannot be predicted with certainty, we currently do not expect that any such legal claims or proceedings will have a material adverse effect on our cash flows, financial condition or results of operations.


11

Textura Corporation
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share amounts)
(unaudited)

5. Share‑Based Compensation
During the nine months ended September 30, 2015, we granted under the Long-Term Incentive Plan stock options to purchase 183 shares of our common stock with a weighted-average exercise price and weighted-average fair value of $26.59 and $9.99, respectively. The fair value of the options was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:
 
Nine Months Ended
 
September 30, 2015
Expected dividend yield
—

Expected volatility
37.1
%
Risk-free interest rate
1.65
%
Expected term (years)
5.79


In addition, during the nine months ended September 30, 2015, we granted under the Long-Term Incentive Plan restricted stock units (RSUs) to purchase 294 shares of our common stock with a weighted-average fair value of $27.72 per share.    

In September 2014, two co-founders of the Company retired from full-time employment with the Company and entered into consulting arrangements to provide certain transition services to the Company beginning in October 2014. Pursuant to the consulting arrangements, in October 2014, the former employees were collectively granted stock options to purchase 33 shares of our common stock. Such stock options vested over a period between six and twelve months, and we recognized the expense for these non-employee options as they vested. Since they are non-employee stock awards, we began recognizing the expense based on the fair value of the awards at the end of each reporting period beginning in the three months ended December 31, 2014. Share-based compensation expense related to these non-employee options was $47 and $189, respectively, for the three and nine months ended September 30, 2015.

On April 29, 2015, the Board of Directors (the “Board”) of the Company appointed David Habiger as interim Chief Executive Officer effective April 30, 2015. Mr. Habiger replaces Patrick Allin, who continues with the Company as Executive Chairman. In connection with Mr. Habiger's employment with the Company as interim Chief Executive Officer, he and the Company entered into a letter agreement dated May 4, 2015, pursuant to which he was granted a restricted stock unit award with a fair value of $2,250, which will cliff vest on May 4, 2016. In connection with Mr. Allin's transition to Executive Chairman, he and the Company entered into a Transition Agreement dated May 5, 2015, pursuant to which he was granted a restricted stock unit award with a fair value of $1,700, which will cliff vest on April 1, 2016.
    
Share-based compensation expense was $3,162 and $2,638, respectively, for the three months ended September 30, 2015 and 2014, and $7,782 and $6,405, respectively, for the nine months ended September 30, 2015 and 2014. Share-based compensation expense is reflected in the following captions in the condensed consolidated statements of operations:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in thousands)
 
(in thousands)
Cost of services
$
278

 
$
90

 
$
645

 
$
399

General and administrative
2,393

 
1,049

 
5,739

 
3,289

Sales and marketing
271

 
586

 
770

 
1,222

Technology and development
220

 
913

 
628

 
1,495

Total
$
3,162

 
$
2,638

 
$
7,782

 
$
6,405



12

Textura Corporation
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share amounts)
(unaudited)

6. Warrants
We did not issue any warrants during the nine months ended September 30, 2015. Warrants outstanding to purchase our common stock as of September 30, 2015 were as follows:
 
 
Warrants Outstanding
 
Weighted- Average Exercise Price
Convertible debenture
 
276

 
$
16.26

Convertible debenture
 
385

 
$
13.25

Convertible debenture
 
48

 
$
16.26

Mortgage renewal
 
20

 
$
15.00

Convertible debenture
 
32

 
$
13.25

Convertible debenture
 
49

 
$
15.00

Convertible debenture
 
319

 
$
15.00

Notes payable
 
86

 
$
13.92

 
 
1,215

 
 

7. Employee Benefit Plans

We sponsor a defined contribution savings plan for employees in the United States that provides certain of our eligible employees an opportunity to accumulate funds for retirement. After employees have attained one year of service, we match the contributions of participating employees on the basis specified by the plan, up to a maximum of 3% of participant compensation. We recorded total expense related to these plans in the amount of $182 and $149, respectively, for the three months ended September 30, 2015 and 2014, and $535 and $420, respectively, for the nine months ended September 30, 2015 and 2014.

8. Severance Arrangements
In September 2014, two of our co-founders retired from full-time employment with the Company, and two other non-executive members of management were terminated from the Company. Pursuant to the severance arrangements provided in their respective employment and separation agreements, we recognized severance-related expenses of approximately $1,488 during the year ended December 31, 2014. This severance expense includes salary, payroll taxes and bonus payments to which the former employees were entitled under their respective arrangements. We paid the balance of the severance expense, which totaled $452 and was accrued as of September 30, 2015, in October 2015.
In addition, the retiring co-founders entered into consulting arrangements to provide certain transition services to the Company beginning in October 2014 and were granted stock options to purchase 33 shares of the Company’s common stock in connection with such arrangements. See Note 5 for further details of these share-based compensation arrangements.

9. Leases
In March 2015, we entered into an agreement to lease approximately 23,000 square feet of office space in a commercial building in Chicago, Illinois. The lease term commenced in July 2015 and will expire in September 2027. We established a $400 letter of credit as security for the lease, which is recorded on the consolidated balance sheet as of September 30, 2015 as restricted cash.
Under the terms of the lease, we were required to establish an escrow account in the amount of $1,879, which was used to fund a portion of the leasehold improvements that we put into service. We own the leasehold improvement assets until the expiration of the lease period and, as a result, capitalized the leasehold improvement assets on the balance sheet as they were constructed. We are amortizing them using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements. As of September 30, 2015, we had disbursed $1,696 related to the leasehold improvements, and there was $183 remaining in the escrow account, which is classified as a long-term asset on the consolidated balance sheet.

13

Textura Corporation
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share amounts)
(unaudited)

We will recognize rent expense for the minimum lease payments on a straight-line basis over the term of the lease. The amount of rent expense in excess of cash payments will be classified as deferred rent. Any lease incentives such as rent abatements received will be deferred and amortized over the term of the lease. Future minimum lease payments for all of our operating leases are disclosed in Note 4 to the condensed consolidated financial statements.
In June 2015, we purchased the assets under one of our capital lease arrangements. In connection with the termination of the lease, we wrote off the former net book value of these leased assets of $99 and recorded $1,431 in new asset basis. The new asset basis was determined based on the sum of the cash consideration paid to the lessor and the net book value of the leased assets, partially offset by the remaining lease liability. We are depreciating the assets over periods of between one and five years.

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 March 6, 2015.

We use the terms “we,” “us,” “our” and “the Company” in this Quarterly Report on Form 10-Q 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 forecasted 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 March 6, 2015. 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 collaboration and productivity tools for the 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. In addition, we offer Early Payment Program (“EPP”), which facilitates third-party funding that enables general contractors to provide accelerated payments to subcontractors. We provide the technology for EPP through our CPM solution and technology platform.
•
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.

14


•
Greengrade facilitates the management of environmental certification.
•
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 BidOrganizer, a solution designed to help contractors save time and money by providing a central, online location to prioritize, track, and schedule all bid invitations.
In May 2015, we launched PerformanceTracker, an online collaboration solution that transforms the performance evaluation process for general contractors to yield data-driven, actionable insights and full visibility into the performance of subcontractors and other project partners.

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. In addition, owners/developers and general contractors pay us subscription fees that are based on project activity on our system. We typically invoice and collect these 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 participants' 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 and subscription fees for our PlanSwift solution. 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.
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.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(dollars in thousands, except where otherwise indicated)
 
(dollars in thousands, except where otherwise indicated)
Activity‑driven revenue
$
18,385

 
$
12,922

 
$
50,550

 
$
35,160

Organization‑driven revenue
4,128

 
3,432

 
12,447

 
9,946

Total revenue
$
22,513

 
$
16,354

 
$
62,997

 
$
45,106

Activity‑driven revenue:
 
 
 
 
 
 
 
    Number of projects added
2,202

 
1,792

 
6,276

 
5,233

Client‑reported construction value added (billions)
$
25.6

 
$
18.2

 
$
75.5

 
$
55.4

Active projects during period
9,710

 
8,030

 
12,980

 
11,874

Organization‑driven revenue:
 
 
 
 
 
 
 
Number of organizations
20,761

 
16,694

 
23,412

 
17,819

Adjusted EBITDA
$
3,147

 
$
(952
)
 
$
6,310

 
$
(6,478
)
Deferred revenue balance as of the end of period
$
45,102

 
$
33,647

 
$
45,102

 
$
33,647

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, Greengrade and Latista solutions during the reporting period. Each project on our system is created

15


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, Greengrade and Latista 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, 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, 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.
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 earnings (loss) before interest, taxes, depreciation and amortization, share-based compensation expense, severance expense, and acquisition-related and other expenses. Adjusted EBITDA is not determined in accordance with accounting principles generally accepted in the United States (‘‘U.S. GAAP’’), and is a performance measure used by management in conjunction with traditional U.S. 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 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.

16



Adjusted EBITDA is not a measurement under U.S. 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 U.S. GAAP measure, net loss, to
Adjusted EBITDA:

Three Months Ended September 30,
 
Nine Months Ended September 30,

2015
 
2014
 
2015
 
2014

(in thousands)

(in thousands)
Net loss
$
(2,462
)
 
$
(7,540
)
 
$
(8,382
)
 
$
(20,948
)
Total other (income) expense, net
(2
)
 
22

 
(7
)
 
55

Income tax provision
80

 
80

 
244

 
240

Depreciation and amortization
2,302

 
1,990

 
6,267

 
5,838

EBITDA
(82
)
 
(5,448
)
 
(1,878
)
 
(14,815
)
Share‑based compensation expense
3,162

 
2,638

 
7,782

 
6,405

Severance expense
—

 
1,488

 
—

 
1,488

Acquisition‑related and other expenses*
67

 
370

 
406

 
444

Adjusted EBITDA
3,147

 
(952
)
 
6,310

 
(6,478
)
*In 2015, acquisition-related and other expenses represent certain tax-related costs and certain legal costs related to the previously disclosed CEO transition and securities litigation. In 2014, acquisition-related and other expenses represent acquisition, strategic transaction and certain tax-related costs.
Deferred revenue balance. Our deferred revenue consists of amounts that have been invoiced or contracted but that have not yet been recognized as revenue as of the end of a reporting period. 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.

17



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 September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in thousands)
 
(in thousands)
Revenues
$
22,513

 
$
16,354

 
$
62,997

 
$
45,106

Operating expenses
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization shown separately below)
3,847

 
3,335

 
11,175

 
9,245

General and administrative
8,332

 
6,232

 
22,813

 
18,760

Sales and marketing
5,237

 
5,869

 
15,809

 
15,375

Technology and development
5,179

 
6,366

 
15,078

 
16,541

Depreciation and amortization
2,302

 
1,990

 
6,267

 
5,838

Total operating expenses
24,897

 
23,792

 
71,142

 
65,759

Loss from operations
(2,384
)
 
(7,438
)
 
(8,145
)
 
(20,653
)
Total other income (expense), net
2

 
(22
)
 
7

 
(55
)
Loss before income taxes
(2,382
)
 
(7,460
)
 
(8,138
)
 
(20,708
)
Income tax provision
80

 
80

 
244

 
240

Net loss
(2,462
)
 
(7,540
)
 
(8,382
)
 
(20,948
)
Less: Net loss attributable to non-controlling interests
—

 
0

 
0

 
(169
)
Net loss attributable to Textura Corporation
(2,462
)
 
(7,540
)
 
(8,382
)
 
(20,779
)
Accretion of redeemable non‑controlling interest
—

 
—

 
—

 
199

Net loss available to Textura Corporation common stockholders
$
(2,462
)
 
$
(7,540
)
 
$
(8,382
)
 
$
(20,978
)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Revenues
100
 %
 
100
 %
 
100
 %
 
100
 %
Operating expenses:
 
 
 
 
 
 
 
Cost of services
17
 %
 
20
 %
 
18
 %
 
20
 %
General and administrative
37
 %
 
38
 %
 
36
 %
 
42
 %
Sales and marketing
23
 %
 
36
 %
 
25
 %
 
34
 %
Technology and development
23
 %
 
39
 %
 
24
 %
 
37
 %
Depreciation and amortization
10
 %
 
12
 %
 
10
 %
 
13
 %
Total operating expenses
110
 %
 
145
 %
 
113
 %
 
146
 %
Loss from operations
(10
)%
 
(45
)%
 
(13
)%
 
(46
)%
Total other income (expense), net
—
 %
 
—
 %
 
—
 %
 
—
 %
Loss before taxes
(10
)%
 
(45
)%
 
(13
)%
 
(46
)%
Income tax provision
1
 %
 
1
 %
 
—
 %
 
1
 %
Net loss
(11
)%
 
(46
)%
 
(13
)%
 
(47
)%

Percentages are based on actual values. Totals may not sum due to rounding.



18


Operating Metrics
 
Three Months Ended September 30,
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
 
2015
 
2014
 
$ Change
 
% Change
 
2015
 
2014
 
$ Change
 
% Change
 
(dollars in thousands, except where otherwise indicated)
 
 
 
 
 
(dollars in thousands, except where otherwise indicated)
 
 
 
 
Activity‑driven revenue
$
18,385

 
$
12,922

 
$
5,463

 
42
%
 
$
50,550

 
$
35,160

 
$
15,390

 
44
%
Organization‑driven revenue
4,128

 
3,432

 
696

 
20
%
 
12,447

 
9,946

 
2,501

 
25
%
Total revenue
$
22,513

 
$
16,354

 
$
6,159

 
38
%
 
$
62,997

 
$
45,106

 
$
17,891

 
40
%
Activity‑driven revenue:
 
 
 
 


 
 
 
 
 
 
 
 
 
 
Number of projects added
2,202

 
1,792

 
410

 
23
%
 
6,276

 
5,233

 
1,043

 
20
%
Client‑reported construction value added (billions)
$
25.6

 
$
18.2

 
$
7.4

 
41
%
 
$
75.5

 
$
55.4

 
$
20.1

 
36
%
Active projects during period
9,710

 
8,030

 
1,680

 
21
%
 
12,980

 
11,874

 
1,106

 
9
%
Organization‑driven revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of organizations
20,761

 
16,694

 
4,067

 
24
%
 
23,412

 
17,819

 
5,593

 
31
%
Activity‑driven revenue: Activity‑driven revenue increased $5.5 million, or 42%, in the three months ended September 30, 2015 as compared to the three months ended September 30, 2014. Activity-driven revenue increased $15.4 million, or 44%, in the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014. These increases were due primarily to higher revenue from usage fees paid by subcontractors using CPM, an increase in CPM subscription fees and, to a lesser extent, increases in Submittal Exchange and Latista subscription fees.
The increases in CPM subcontractor usage fees year over year were driven by higher client-reported construction value, a larger number of projects added and a higher number of active projects on system compared to the prior-year periods. In addition, usage fees grew from 2014 due to a price increase that was effective in the first quarter of 2014. Since the price increase is effective only for projects added to our CPM solution subsequent to the effective date of the increase, and because these fees are recognized over the estimated term of the construction contract, which could be as long as 20 months, we will continue to realize the benefit of the price increase through 2016.
The increases in CPM subscription fees were also due to higher client-reported construction value and a larger number of projects added to our systems compared to the prior-year periods. In addition, 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 CPM system during the subscription period. As a result of these subscription arrangements, nonrecurring revenue recognized during the three and nine months ended September 30, 2015 was approximately $0.4 million and $1.4 million, respectively.
As discussed above, the increases in our revenue year-over-year were driven by the number of projects and client-reported construction value added during the period and the number of active projects on our systems, which were due to CPM general contractor implementations and growth in the construction industry. However, these metrics do not directly correlate to the percentage increase in revenue because they do not capture the impact of pricing changes (discussed above) or the impact of changes in the mix of project sizes. In addition, the period during which projects and construction value are added does not always directly correlate to the timing of revenue recognition, which is generally over a longer subscription period or over the estimated term of the project or contract.
Organization‑driven revenue: Organization-driven revenue increased $0.7 million, or 20%, in the three months ended September 30, 2015 as compared to the three months ended September 30, 2014. Organization-driven revenue increased $2.5 million, or 25%, in the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014. The increases were primarily driven by growth in sales of our PlanSwift solution and, to a lesser extent, growth in our PQM solution.    
    

19


Cost of services
 
Three Months Ended September 30,
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
($ in thousands, except percentages)
2015
 
2014
 
Change
 
% Change
 
2015
 
2014
 
Change
 
% Change
Cost of services
$
3,847

 
$
3,335

 
$
512

 
15
%
 
$
11,175

 
$
9,245

 
$
1,930

 
21
%
Percentage of total revenue
17
%
 
20
%
 
 
 
 
 
18
%
 
20
%
 
 
 
 
Headcount (at period end)
129

 
99

 
30

 
30
%
 
129

 
99

 
30

 
30
%
Gross margin
82.9
%
 
79.6
%
 
 
 
 
 
82.3
%
 
79.5
%
 
 
 
 
Cost of services increased $0.5 million, or 15%, in the three months ended September 30, 2015 as compared to the three months ended September 30, 2014. The increase was primarily driven by a $0.8 million increase in personnel-related costs, including a $0.2 million increase in share-based compensation expense, a $0.2 million increase in hosting expenses and a $0.1 million increase in license and referral fees, all related to general growth of the business. These increases were partially offset by a $0.4 million decrease in sales tax expense and $0.1 million in favorable foreign currency fluctuations year over year.
Cost of services increased $1.9 million, or 21%, in the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014. The increase was primarily driven by a $1.5 million increase in personnel-related costs, including a $0.2 million increase in share-based compensation expense, a $0.4 million increase in hosting expenses, a $0.3 million increase in license and referral fees and a $0.1 million increase in bank service fees, all related to general growth of the business. These increases were partially offset by a $0.4 million decrease in sales tax expense.
General and administrative
 
Three Months Ended September 30,
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
($ in thousands, except percentages)
2015
 
2014
 
Change
 
% Change
 
2015
 
2014
 
Change
 
% Change
General and administrative
$
8,332

 
$
6,232

 
$
2,100

 
34
%
 
$
22,813

 
$
18,760

 
$
4,053

 
22
%
Percentage of total revenue
37
%
 
38
%
 
 
 
 
 
36
%
 
42
%
 
 
 
 
Headcount (at period end)
75

 
62

 
13

 
21
%
 
75

 
62

 
13

 
21
%
General and administrative expenses increased $2.1 million, or 34%, in the three months ended September 30, 2015 as compared to the three months ended September 30, 2014. The increase was primarily driven by higher personnel-related costs of $1.5 million, including a $1.3 million increase in share-based compensation expense related to the CEO transition (see Note 5 to the Condensed Consolidated Financial Statements for further details). Additionally, facilities-related costs and rent expense increased by $0.3 million due to the new Chicago office lease, and insurance fees and recruiting expense each increased by $0.1 million to support growth of the business.
General and administrative expenses increased $4.1 million, or 22%, in the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014. The increase was primarily driven by higher personnel-related costs of $3.3 million, including a $2.5 million increase in share-based compensation expense related to the CEO transition (see Note 5 to the Condensed Consolidated Financial Statements for further details). Additionally, facilities-related costs and rent expense increased by $0.4 million due to the new Chicago office lease, and hardware and software purchases increased by $0.3 million, professional services expenses increased by $0.3 million, and insurance fees increased by $0.1 million to support growth of the business. These increases were partially offset by a $0.3 million decrease in travel expenses.

Sales and marketing
 
Three Months Ended September 30,
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
($ in thousands, except percentages)
2015
 
2014
 
Change
 
% Change
 
2015
 
2014
 
Change
 
% Change
Sales and marketing
$
5,237

 
$
5,869

 
$
(632
)
 
(11
)%
 
$
15,809

 
$
15,375

 
$
434

 
3
%
Percentage of total revenue
23
%
 
36
%
 
 
 
 
 
25
%
 
34
%
 
 
 
 
Headcount (at period end)
154

 
141

 
13

 
9
 %
 
154

 
141

 
13

 
9
%

20


Sales and marketing expenses decreased $0.6 million, or 11%, in the three months ended September 30, 2015 as compared to the three months ended September 30, 2014. The decrease was primarily driven by a $0.5 million decrease in severance expense and a $0.3 million decrease in share-based compensation expense due to expenses recognized under certain severance arrangements in the prior-year period. These decreases were partially offset by a $0.2 million increase in other personnel-related costs related to additional headcount.
Sales and marketing expenses increased $0.4 million, or 3%, in the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014. The increase was primarily due to a $0.6 million increase in personnel-related costs and a $0.4 million increase in professional service expenses to support headcount and growth of the business. Additionally, hardware and software purchases increased by $0.3 million and marketing costs increased by $0.1 million. These increases were partially offset by a $0.5 million decrease in severance expense and a $0.5 million decrease in share-based compensation expense due to expenses recognized under certain severance arrangements in the prior-year period.
Technology and development
 
Three Months Ended September 30,
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
($ in thousands, except percentages)
2015
 
2014
 
Change
 
% Change
 
2015
 
2014
 
Change
 
% Change
Technology and development
$
5,179

 
$
6,366

 
$
(1,187
)
 
(19
)%
 
$
15,078

 
$
16,541

 
$
(1,463
)
 
(9
)%
Percentage of total revenue
23
%
 
39
%
 
 
 
 
 
24
%
 
37
%
 
 
 
 
Headcount (at period end)
231

 
189

 
42

 
22
 %
 
231

 
189

 
42

 
22
 %
Technology and development expenses decreased $1.2 million, or 19%, in the three months ended September 30, 2015 as compared to the three months ended September 30, 2014. The decrease was primarily driven by a $0.6 million decrease in severance expense and a $0.7 million decrease in share-based compensation expense due to expenses recognized under certain severance arrangements in the prior-year period. In addition, professional services expenses decreased by $0.2 million and we capitalized $0.1 million more software development costs compared to the prior-year period, which decreased total personnel and professional service expenses in the current period. These decreases were partially offset by a $0.4 million increase in other personnel-related costs to support additional headcount and growth of the business.
Technology and development expenses decreased $1.5 million, or 9%, in the nine months ended September 30, 2015 as compared to the three months ended September 30, 2014. The decrease was primarily driven by a $0.6 million decrease in severance expense and a $0.7 million decrease in share-based compensation expense expenses due to expenses recognized under certain severance arrangements in the prior-year period. Additionally, professional services expense decreased by $0.4 million, recruiting expense decreased by $0.2 million, and hardware and software purchases, travel expense, and facilities-related costs each decreased by $0.1 million. Further, we capitalized an additional $1.4 million of software development costs compared to the prior-year period, which reduced total personnel and professional service expenses in the current period. These decreases were partially offset by a $2.1 million increase in other personnel-related costs, including a $0.2 million increase in share-based compensation expense, to support additional headcount and growth of the business.


Depreciation and amortization
 
Three Months Ended September 30,
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
($ in thousands, except percentages)
2015
 
2014
 
Change
 
% Change
 
2015
 
2014
 
Change
 
% Change
Depreciation and amortization
$
2,302

 
$
1,990

 
$
312

 
16
%
 
$
6,267

 
$
5,838

 
$
429

 
7
%
Depreciation and amortization expenses increased by $0.3 million, or 16%, and $0.4 million, or 7%, in the three and nine months ended September 30, 2015 as compared to the prior-year periods. The increase was primarily driven by capital expenditures over the past year, including internally developed software, which increased expense by $0.5 million in the three months ended September 30, 2015 and $1.1 million in the nine months ended September 30, 2015 as compared to the prior-year periods. This increase was partially offset by a $0.2 million decrease in the three months ended September 30, 2015 and a $0.7 million decrease in the nine months ended September 30, 2015 due to amortization expense related to intangible assets compared to the prior-year periods, as several assets acquired from the Gradebeam and Submittal Exchange acquisitions in the fiscal year ended December 31, 2011 became fully amortized during the fiscal year ended December 31, 2014.

21


Other expense, net
 
Three Months Ended September 30,
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
($ in thousands, except percentages)
2015
 
2014
 
Change
 
% Change
 
2015
 
2014
 
Change
 
% Change
Other expense, net
$
2

 
$
(22
)
 
$
24

 
109
%
 
$
7

 
$
(55
)
 
$
62

 
113
%
Other expense, net, decreased in the three and nine months ended September 30, 2015 as compared to the prior-year periods. The decrease was primarily driven by lower interest expense due to a reduced number of capital leases outstanding during the three and nine months ended September 30, 2015 as compared to the three and nine months ended September 30, 2014.
Income tax provision
 
Three Months Ended September 30,
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
($ in thousands, except percentages)
2015
 
2014
 
Change
 
% Change
 
2015
 
2014
 
Change
 
% Change
Income tax provision
$
80

 
$
80

 
$
0

 
—
%
 
$
244

 
$
240

 
$
4

 
2
%
Our income tax provision has not changed materially in the three and nine months ended September 30, 2015 as compared to the prior-year periods.  The income tax expense reflects a temporary tax difference resulting from tax amortization of goodwill connected with our acquisitions.
Additional metrics
 
Three Months Ended September 30,
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
($ in thousands, except percentages)
2015
 
2014
 
Change
 
% Change
 
2015
 
2014
 
Change
 
% Change
Adjusted EBITDA
$
3,147

 
$
(952
)
 
$
4,099

 
431
%
 
$
6,310

 
$
(6,478
)
 
$
12,788

 
197
%
Adjusted EBITDA increased by $4.1 million and $12.8 million, respectively, in the three and nine months ended September 30, 2015 as compared to the prior-year periods. The increase in Adjusted EBITDA was primarily driven by revenue growth, partially offset by higher personnel-related costs to support increased headcount and a general increase in expenses to support growth of our business.
 
September 30, 2015
 
December 31, 2014
 
Change
 
% Change
 
($ in thousands)
 
 
 
 
Deferred revenue
$
45,102

 
$
35,583

 
$
9,519

 
27
%
Deferred revenue increased $9.5 million, or 27%, from December 31, 2014 to September 30, 2015, primarily due to an increase in sales across all solutions.

Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting polices and estimates since December 31, 2014. For a discussion of our critical accounting polices and estimates as of December 31, 2014, see “Critical Accounting Policies and Estimates” included in our Annual Report on Form 10-K filed on March 6, 2015.

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 initial public offering (the ‘‘IPO’’) in June 2013 and follow-on offering in September 2013, private placements of subordinated convertible debentures, notes payable, leases payable and cash provided by operating activities. Our primary source of liquidity as of September 30, 2015 consisted of $73.2 million of cash and cash equivalents.

22


Our principal uses of liquidity have been to fund our operations, working capital requirements, capital expenditures and acquisitions. We expect that working capital requirements, acquisitions and capital expenditures will continue to be our principal needs for liquidity over the near term.
For the remaining quarter of the year ending December 31, 2015, we have planned capital expenditures of approximately $2.6 million and no expected debt service obligations. We believe that our existing cash and cash equivalents will be sufficient to fund our operations for the next twelve months, including these capital expenditures.

The following table sets forth a summary of our cash flows for the periods indicated:
 
Nine Months Ended September 30,
 
2015
 
2014
 
(in thousands)
Net cash provided by operating activities
$
14,179

 
$
130

Net cash used in investing activities
$
(11,673
)
 
$
(7,044
)
Net cash provided by (used in) financing activities
$
3,992

 
$
(4,131
)
Net increase (decrease) in cash and cash equivalents
$
6,409

 
$
(11,095
)
Net Cash Provided by 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 the nine months ended September 30, 2015, $14.3 million, or 170%, of our net loss of $8.4 million consisted of non-cash items, including $7.8 million of share-based compensation expense, $6.3 million of depreciation and amortization expense, and $0.2 million of income tax expense. Working capital changes in the nine months ended September 30, 2015 included a $9.5 million increase in deferred revenue, a 0.4 million decrease in accounts payable and a $0.1 million decrease in prepaid expenses and other current assets, partially offset by a $1.7 million increase in accounts receivable. The increase of $14.0 million in cash provided by operating activities for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 was primarily driven by higher revenue and deferred revenue, partially offset by higher personnel-related costs and other costs to support the growth of our business and a net decrease in other working capital balances.

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 nine months ended September 30, 2015, cash used in investing activities was $11.7 million. Cash used in investing activities consisted of capital expenditures to support our expanding infrastructure and growth and, to a lesser extent, an increase in restricted cash and escrow funds related to our new Chicago office. The increase in capital expenditures from the prior-year period reflects our investment in the growth of our business, which includes higher fixed asset purchases related to the preparation of our new Chicago office and higher capitalized software development costs.

Net Cash Provided by (Used in) Financing Activities
In the nine months ended September 30, 2015, cash provided by financing activities was $4.0 million, due primarily to $4.5 million in proceeds from the exercise of stock options and warrants, partially offset by $0.4 million in lease payments. In the prior-year period, cash used in financing activities was $4.1 million, driven by the withholding of shares of common stock with an aggregate value of $4.1 million to satisfy tax obligations related to the payment of restricted stock units and the purchase of our joint venture partner's interest in Textura Australasia, Pty. Ltd. for cash consideration of $1.6 million. These cash outflows were partially offset by $2.2 million of proceeds from the exercise of stock options and warrants.

Contractual Obligations
The following table describes our contractual obligations as of September 30, 2015 (in thousands):
 
Total
 
Less Than
1 Year
 
1 - 3 years
 
3 - 5 years
 
More than
5 years
Lease obligations (1)
6,020

 
775

 
1,366

 
681

 
3,198


(1)
Lease obligations include office leases in Des Moines, Iowa, Phoenix, Arizona, Bountiful, Utah, Reston, Virginia and Obninsk, Russia, as well as other office furniture and equipment leases. Additionally, in March 2015, we entered into a new lease for approximately 23,000 square feet of office space in a commercial building in Chicago, Illinois. The lease expires in September 2027. The minimum non-cancelable payments for the facility in Chicago are included in the table above and include amounts related to the lease.

ITEM 3. QUANTITAIVE AND QUALITATTIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risk since December 31, 2014. For a discussion of our market risk as of December 31, 2014, see “Quantitative and Qualitative Disclosures About Market Risk” included in our Annual Report on Form 10-K filed on March 6, 2015.

ITEM 4. CONTROLS AND PROCEDURES
Evaluation of 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 September 30, 2015. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of September 30, 2015, 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 Securities and Exchange Commission 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 are reasonably likely to materially affect, our internal control over financial reporting.

23


PART II
ITEM 1. LEGAL PROCEEDINGS

The Company is involved from time to time in legal claims and proceedings that arise in the normal course of its business. Although the results of these legal claims and proceedings cannot be predicted with certainty, the Company currently does not expect that any such legal claims or proceedings will have a material adverse effect on its cash flows, financial condition or results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
a)
Recent Sales of Unregistered Securities
On July 21, 2015, we sold 248 shares of common stock to an individual warrant holder upon the exercise of warrants with an exercise price of $15.00.

We deemed the forgoing sale and issuance 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. The individual warrant holder represented to us that it 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 it could bear the risks of the investment and could hold the securities for an indefinite period of time. The individual 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 transaction 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 the transaction 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 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. On June 30, 2014, we used net proceeds of the IPO to purchase our joint venture partner’s interest in Textura Australasia, Pty. Ltd. for cash consideration of $1.7 million, resulting in Textura's 100% ownership of that entity. In addition, since our IPO we have used proceeds totaling $21.6 million on capital expenditures. 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.

24


ITEM 6. EXHIBITS
Exhibit Index:
Exhibit No.
 
Description
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.

25


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:    November 9, 2015

TEXTURA CORPORATION

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




26


EXHIBIT INDEX
Exhibit No.
 
Description
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.

27

Textura Corp Reports

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