The Fraud At Textura Corp (TXTR) by Citron Research. Another salvo from the famous short firm. Also see Tilson Has Strong H1 Led By Quicksilver, NQ Mobile Shorts
In December of 2013, Citron Research introduced readers to Textura Corp (NYSE:TXTR), documenting the CEO’s history of fraud and failed businesses, and a shadowy weave of poorly disclosed insider relationships. In its last three quarters, Textura has missed analyst expectations and continues as a wannabe in the SaaS space. Ignoring scant earnings results, the analysts have stood by their unfounded optimistic forecasts.
If you are a Textura shareholder and you are a custodian of someone else’s money, you are obligated to read this report. We have done the homework that NONE of the analysts have done, and in this report we spill the truth about this “investment”. What you are about to read is not the opinion of Citron, it is FACT. We have hired consultants with genuine expertise and years of experience in construction management to prove that management of Textura Corp (NYSE:TXTR) is committing FRAUD on the investing public. Yes, we said fraud, and we would love to prove it in a Court of Law.
We already know that Textura has:
- 10 year history of operating losses
- Forward P/E: 111
- Price/Sales over 12.5
It’s taken over 10 years – and nearly $200 million in retained earnings losses — for this company to finally get its annual revenue run rate above the $50 million mark.
Nevertheless, the stock has now rebounded, buoyed by the unflinchingly optimistic analysts who know nothing about construction management but instead rely on the representation of unscrupulous management.
Our message to analysts: Don’t publish your predictable denials of this report’s conclusions unless you can specifically refute the facts.
Citron presents this story in 3 parts:
- The utterly fraudulent representation of management about gross margins of their flagship product
- The fraudulent claims from management when discussing Textura Corp (NYSE:TXTR)’s “Total Addressable Market”
- The recent lawsuit that Textura hopes its shareholders and customers never read.
Fraudulent Claim #1: 16 to 18 bps Earned on Gross Construction Contracts? Not Even Close!
Textura’s main product, CPM, which processes lien waivers and releases payments, accounts for appx 60% – 65% of its total revenues. In its presentations to investors and quarterly conference calls, the company consistently claims that it charges general contractors 4 basis points while collecting an additional 12 basis points from the subcontractors for using its system. This is a complete lie. This graphic is from their recent investor presentation:
Here is Barrington’s fiction regarding the revenue Textura Corp (NYSE:TXTR) will generate from CPM. 10 – 12 BPS and 12 – 15 with the new pricing model? Who are they kidding?
Here is the Truth About Textura CPM Revenue Rates:
- The company has never booked even half this level of BPs.
- It has cut special deals with highly touted licensees whose subcontractors don’t pay any subcontractor fees at all (e.g. Denver Airport – see below)
- Even their announced revenue increases cannot materially close this gap.
Presenting Textura’s Actual CPM Revenue Model, in BPS of Construction Value
This table compares client reported construction billed within the system for the last 8 quarters, comparing to CPM contribution to total revenues. The results are consistent: hi 5’s to mid 6’s, and not growing. That’s a long, long way from 16 bps.
What software analysts don’t understand is that in a typical project the general contractor performs some of the work itself and/or charges an override for supervision. Depending on the project, it might also mark up the subs billings. There is a treasure trove of detailed billing data about U.S. based real-world construction projects within the America’s Recovery and Reinvestment Act (ARRA) website. In fact, when our professionals surveyed the projects here, focusing on the categories Textura Corp (NYSE:TXTR) can legitimately claim as addressable market, the subs only account for 64.5% of the project cost. So while the entire project may be “addressable market” revenue from the General Contractor perspective, 75% of Textura’s revenue is claimed to be coming from the subcontractors. Yet only 2/3rds of the billed project is subcontractor pass-through. This is the type of work the sell side analysts has NEVER done because there is zero understanding of the construction industry among them. Here is a survey of 75 projects which illustrate the point. [LINK HERE]
Finally, we document a recent lawsuit that is the nightmare of every Textura CPM subscriber, a case of Subcontractor vs General Contractor, disputing the one thing Textura’s flagship CPM product is supposed to process: a lawsuit-free payments ecosystem.
See full The Fraud At Textura Corp (TXTR) – Citron Research in PDF Format here.