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Executives

Kevin Doherty - Director, Investor Relations, Solebury Communications

Pat Allin - Chairman and Chief Executive Officer

Jillian Sheehan - Executive Vice President and Chief Financial Officer

Analysts

Michael Nemeroff - Credit Suisse

Bhavan Suri - William Blair & Company

Peter Lowry - JMP Securities

Brian Schwartz - Oppenheimer

Jeff Houston - Barrington Research

Textura Corporation (TXTR) F1Q 2014 Earnings Conference Call January 30, 2014 5:00 PM ET

Operator

Good afternoon and welcome to Textura’s Corporation’s Fiscal 2014 First Quarter Conference Call. Today’s call is being recorded and we have allocated an hour for prepared remarks and question and answers. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions)

At this time, I would like to turn the conference over to Kevin Doherty, Director, Investor Relations at Solebury Communications. Thank you, sir. You may now begin.

Kevin Doherty - Director, Investor Relations, Solebury Communications

Thank you, operator and good afternoon everyone. We have posted our earnings release, as well as a supplemental slide deck to the Investor Relations portion of our website at texturacorp.com. Today’s speakers are Pat Allin, Chairman and Chief Executive Officer and Jillian Sheehan, Executive Vice President and Chief Financial Officer.

Before we begin, I would like to remind you that some of the comments made on today’s call including, but not limited to our financial guidance are forward-looking statements. These statements are subject to the risks and uncertainties described in the Risk Factors section of the company’s 10-K that’s filed on November 26, 2013 and other filings with the Securities and Exchange Commission. Actual results may differ materially from those described during the call.

In addition, all forward-looking statements are made as of today and the company does not undertake any responsibility to update any forward-looking statements based on these circumstances or revised expectations. And also non-GAAP financial measurers discussed during this call are reconciled to the most directly comparable GAAP measurers in the tables attached to our press release.

And with that, I would like to turn the call over to Pat Allin.

Pat Allin - Chairman and Chief Executive Officer

Thank you. Welcome everyone to today’s call. I am joined by Jillian Sheehan, Textura’s Executive Vice President and Chief Financial Officer. Our fiscal year end is September 30. So today we are reporting on the first quarter of fiscal 2014 the quarter ended December 31, 2013. I will begin today’s call with highlights from the quarter, provide background on Textura, discuss some important recent events, and then I will turn the call over to Jillian to walk through the first quarter financial results and our outlook in more detail. Finally, we will open the call to take your questions.

Well, we had another very strong quarter. Revenue for the quarter was $12 million. This represents 77% year-on-year growth, an accelerating revenue growth from 72% in the fourth quarter of fiscal 2013. Organic revenue growth was 50% year-on-year and accelerating from 45% in the fourth quarter of fiscal 2013. Construction value added to Textura’s activity-based solutions was $17.9 billion for the quarter, which represents 145% year-on-year growth. As expected, this was down somewhat from the 158% growth in the last quarter of 2013. These two quarters signal an important positive trend in our business with enhanced visibility to 2014 and 2015 revenue.

Total active projects during the period increased by 30% year-over-year to 6,580. Adjusted earnings per share, was a loss of $0.18 plus a $0.01 loss for one month of LATISTA for an overall adjusted earnings per share loss of $0.19. Our adjusted earnings per share guidance for 2014 shows that we expect to leverage in our model to start to improve profitability. We expect to see continued progress throughout 2014 and 2015. We acquired LATISTA, the leading player in field management solutions delivered on iPhones, iPads and Android devices were 35 million adding significant functionality to our platform of solutions.

We paid down the debt on our corporate facility in the amount of $10.2 million in the quarter and are now debt free. The cash balance of $77.1 million is more than sufficient for our operating and investment needs. We are in the midst of the integrating our solutions with the integration of PQM and GradeBeam, is being completed in the quarter. In summary, we have continued to deliver on our strategic and operating plans in a manner of fully consistent with our communications to you during our equity offerings and our previous earnings calls.

For those of you that may be new to our company Textura is the leading provider of on-demand business collaboration solutions to the commercial construction industry. We are a software and service company with a unique solutions based offering. Our collaboration solutions were used on commercial construction projects that added over $110 billion during the past quarter and our solutions are used by more than 3000 general contractors and owners and 300,000 subcontractors.

We started Textura and developed our first solution which we call Construction Payment Management or CPM to address the chronic inefficiencies resulting from the manual processing of invoices, legal documents and payments in the commercial construction industry. CPM is an intuitive, feature rich and highly configurable software solution that creates a standardized process and provides all participants with visibility into the same set of data on a construction project. CPM is an extremely complex piece of software with over 0.25 million major ways to configure a project and with the unique documents over 500 million ways to be configured.

Our intellectual property is protected by 42 patents and we have an additional 52 patents pending. CPM is very sticky and fully integrated with GCs ERP systems with an average value proposition for all users of four to five times our fees. CPM is sold to owners and general contractors who implement CPM on their portfolio of projects and mandate the use of CPM to the other project participants. Because we implement on a portfolio basis, the projects using CPM are a changing mix of the projects completing and new projects starting. The subcontractors on these projects can change on a project by project basis. However, the revenue from these fully implemented client project portfolios is highly visible and predictable and represents a solid base of recurring revenue.

The value proposition for CPM is broad and extends far beyond any one element of functionalities such as lien waiver collection. Interestingly, lien waivers are unique to the U.S. market. We had CPM functionality results in a very strong value proposition with clients in the non-lien waiver countries such as Canada and Australia. In addition to CPM, our on-demand solutions now enable our customers to collect, review and route project documents, identify, invite and track construction bidders, collect and review contractor risk assessment and qualification, manage the lead certification process for construction projects as well as field project management on mobile devices through LATISTA.

So today, Textura offers a robust suite of end to end solutions that provide a compelling value proposition for a broad range of users across the commercial construction landscape from owners and architects to general contractors and subcontractors. We are in the early stages of making investments to integrate our solutions, which will enhance the value propositions to our clients and simplify their technology requirements.

As we integrate, we see a large opportunity to cross sell our solutions within our current client base. We have build a culture at Textura that is focused on transforming an industry and with that in mind, we are accurately identifying and pursuing growth opportunities including cross selling, new solutions integration, penetration of existing markets and international expansion.

I would like to highlight some recent developments. First, our acquisition in early December of LATISTA, the leading provider of mobile enabled cloud based field management solutions in the industry. In addition, new customer wins in the quarter in diverse markets including Equiset in Australia, FA Peinado, and Streetlights Residential in Texas, Callahan in Massachusetts, and Ryder Construction, who is active in multiple markets across the U.S. As always these are only a few of the GCs we have publicly disclosed. We added other clients as our sales conversion efforts remain robust. Our sales funnel is full and active. We also announced the integration of our GradeBeam and PQM solutions, which provides our customers with enhanced search and custom targeting capabilities delivering increased vendor insight mitigating client risk and improving the preconstruction process for all participants.

And finally we announced a price increase for CPM subcontractor usage fees which remains on track to become effective on all new projects brought on system after February 1. As a reminder it will take several years to realize the full revenue impact of the price increase as it flows through. Therefore we are expecting a modest impact in 2014 ultimately the price increase will add two to three basis points of revenue on subcontracted contract value.

With that I’d like to turn the call over to Jillian to provide more details on our results.

Jillian Sheehan - Executive Vice President and Chief Financial Officer

Thank you, Pat and good afternoon everyone. During the quarter we delivered year-over-year growth of 77% on revenue of $12 million resulting from strong growth in both activity driven and organization driven revenue. Our organic revenue growth accelerated from 45% in the fourth fiscal quarter to 50% in the first quarter. We report our revenue in two categories, activity driven revenue which consist of revenue generated from our CPM, Submittal Exchange, LATISTA, and Greengrade solutions, and organization driven revenue, which consist of our GradeBeam, PlanSwift, Prequalification Management and BidOrganizer solutions.

Given the timing of the acquisition LATISTA contributed one month of revenue for the first quarter results or $177,000 after the normal acquisition related deferred revenue write-down. Activity driven revenue which accounted for 78% of our total revenue increased by 57% year-over-year to nearly $9.4 million and accelerated from the 50% growth we reported for the fourth quarter.

The key driver here was a 30% year-over-year increase in the number of active construction projects during the period with 1,466 or 40% growth in new projects added during the quarter. As Pat mentioned nearly $18 billion in construction value was added to our solutions in the first quarter representing another quarter of significant year-over-year growth. The average size of projects added increased year-over-year again this quarter. Due to the correlation of project size to project duration this will on average result in the revenue stream from these projects seen recognized over a longer duration. As a result these projects will have some impact on 2014 revenue, but they will have greater financial impact on 2015.

Organization driven revenue which accounted for the remaining 22% of our total revenue increased by 235% year-over-year to $2.6 million and was consistent with rapid growth into the fourth quarter. The driver here was 116% year-over-year growth in the number of organizations to more than 11,700 with the PlanSwift solution accounting for 5,614 of these organizations and contributing $1.7 million in revenue.

Total non-GAAP operating expenses increased by 72% year-over-year to $16.6 million, which is below our 77% revenue growth rate. We are beginning to see the operating leverage in our business model. We also incurred a full month of expenses from LATISTA of $500,000 on discounted revenue recognized of $177,000 due to acquisition-related deferred revenue write-downs. This will continue to impact us as we continue to work through the acquired deferred revenue discount both during the year and to a lesser extent in 2015 due to the duration ability to the contracts. Importantly, despite the accounting treatment impacting the P&L, LATISTA operated near breakeven on a cash flow basis at the time of acquisition. As discussed in previous calls, we will be making investments to build out expanded sales and technology capabilities and so we expect LATISTA to become a modest user of cash.

I will provide more specific guidance on the impact of LATISTA later in this call when I review our outlook for fiscal 2014. Our non-GAAP cost of services grew by 61% due to increased personnel-related expenses from a standing headcount and the impact from the PlanSwift and LATISTA acquisitions. Non-GAAP sales and marketing grew by 123% year-over-year resulting from the PlanSwift and LATISTA acquisitions as well as from increased headcount for our solutions that are sold by a direct sales force. In addition, our sales and marketing expense increased by 500,000 due to increased selling activities by our CPM client service teams during the quarter.

Our non-GAAP technology and development expenses grew by 87% due to investments we are making to integrate our solutions and the impact of the LATISTA and PlanSwift acquisitions. Depreciation and amortization expenses increased by 105% resulting from the amortization of intangible assets acquired from PlanSwift and LATISTA. We significantly leveraged our non-GAAP general and administrative expenses, which increased by 32% while supporting the strategic initiatives of our organization and the ongoing requirements of being a public company.

Adjusted EBITDA loss increased from $2.3 million, 34.4% margin in the first quarter of fiscal 2013 to $4 million, 33.7% margin this past quarter, due primarily to a higher level of operating expenses to support our growth in strategic initiatives. We define adjusted EBITDA as our loss before interest, taxes, depreciation and amortization, share-based compensation and acquisition-related and other non-recurring expense. We have provided a reconciliation table at the end of the press release.

Adjusted net loss of $4.8 million during the first quarter was largely consistent with the loss of $4.7 million in the year ago period while the adjusted EPS loss of $0.19 in the first quarter compared with $0.55 loss last year due to the higher share count from our equity offering. We define adjusted EPS as our net loss adjusted for share-based compensation expense, amortization expense, acquisition-related and other expenses recognized during the period. We have provided a reconciliation table at the end of the press release.

Turning to the balance sheet, cash and cash equivalents were $77.1 million as of December 31, 2013, which reflects the $35 million cash acquisition of LATISTA and $10 million repayment of our bank loan. This cash provides us with the liquidity to continue to invest in the growth of our business. Our deferred revenue increased by 82% year-over-year to $25.7 million, which includes $2 million of acquired deferred revenue from LATISTA. Deferred revenue consist of amounts that have been invoiced, but that have not yet been recognized this revenue as of the end of a reporting period and is generally recognized ratably over the estimated duration of a project or contractual service period.

And we will now turn to our updated financial outlook for the fiscal year 2014. As a result of the construction value on systems and clients in various stages of implementation, we have high visibility into our revenue stream for fiscal 2014. For fiscal 2014, we anticipate revenue growth of 62% to 70% or total revenue of $57.5 million to $60.5 million. As discussed earlier, the construction value added to our solutions in the past two quarters will have more than impact on 2015. We still expect the revenue contribution from LATISTA this year to be in the range of $1.5 million to $2 million after normal acquisition-related subscription revenue write-downs.

We are introducing a 2014 adjusted EPS guidance range of a loss of $0.55 to $0.62. As this range shows increasingly in fiscal 2014, we expect to see significant leverage in our cost structure as operating expenses grow at a slower rate than revenue. We estimate that the impact of LATISTA on adjusted EPS to be a loss of approximately $0.15 to $0.16. As discussed on our last quarterly call, we plan on accelerating our investments in LATISTA to drive high levels of revenue growth and integration with our other solutions. As you may recall, approximately 95% of our activity driven revenue in the quarter comes from projects added prior to the start of the quarter.

For the second fiscal quarter ended March 31, 2014, we anticipate a revenue growth range of 61% to 65% resulting in revenue of $13.7 million to $14 million. This includes the contribution from LATISTA in the range of $400,000 to $600,000. The anticipated revenue growth rate will be somewhat down sequentially for two reasons. PlanSwift was included for two months in the prior year comparison, which reduces the overall growth. We have also been focused on several large general contractors over the past and current quarters that are in early stages of implementation. This will accelerate growth in the last half of the year. We anticipate adjusted EPS for the second fiscal quarter ended March 31, 2014 to be in the range of a loss of $0.20 to $0.22 and the impact of LATISTA on adjusted EPS to be a loss of approximately $0.05 to $0.06. In summary, the business is strong and we are executing well.

With that, I’d like to turn it back to Pat for some summary remarks.

Pat Allin - Chairman and Chief Executive Officer

Thanks, Jillian. The team at Textura continues to deliver significant value to our clients and that is reflected in our financial and operating results as our unique solutions continue to gain traction through the commercial construction industry. We have a huge market opportunity in front of us and we will continue to make the necessary investments to drive growth while also beginning to leverage our cost structure as our business scales.

With that, I would like to turn the call back to the operator and open up the line to take any questions.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from Michael Nemeroff from Credit Suisse.

Michael Nemeroff - Credit Suisse

Thanks for taking my questions. Nice quarter. First one is really on the larger construction projects, just want to understand what the dynamics are around that or contract GCs are they combining projects to make them larger or should we view – how should we view this as a positive or a negative, because I assume that, that’s the reason why you didn’t increase the fiscal year revenue guidance because of the rev rec is taking longer, but the contracts are bigger?

Pat Allin

Yes. I don’t think it’s a function of GCs combining project elements. I mean, when it’s all said and done, the way they put projects into Textura is essentially the way they manage the construction. So, on a very large development like Hudson Yards, we may have five or six projects on right now. So even something as large as Hudson Yards is will never be a single project. So I don’t think the increase in project size really is related to that at all, I think it’s an improvement in the overall construction market and a return to the more midsized projects that were prevalence in 2006, 2007. And somewhat who are greatly diminished and in some cases just disappeared during the financial recession. So I think it’s that trend or an improving more healthy construction market, it’s really enhancing the overall size of the project. And if the projects are larger their duration is longer and there the contracting which is what of course drivers the subcontractor usage fees. It takes place throughout the life of the construction project. So when we bring on some of these projects, they do have some benefit obviously in 2014, but the joint financial analysis shows that it actually is driving even more benefit in 2015, but from where we said is a real positive because it means our visibility into 2015 is actually more than we would normally expect. And we are tracking very well for 2014 and it’s very encouraging to see this base of business for 2015 building at this point.

Michael Nemeroff - Credit Suisse

That’s helpful Pat and just to join I guess if you could comment on what degree or what percentage of visibility you have into fiscal ’14 revenue at this current state?

Jillian Sheehan

Yes, so Michael we do have as you know from our activity driven revenue, we typically have 95% visibility into the upcoming quarter. So at this point through the next quarter we would have 95% visibility and very strong visibility throughout the rest of the year.

Michael Nemeroff - Credit Suisse

Yes, thanks.

Pat Allin

Michael, I think when you look at our guidance from the guidance range, we give around revenue, I think that’s very, very indicative of where – what our visibility is and so when we get to almost mid year, most of the activities that’s going to drive revenue for 2014 are done. We are still two months away from that, but we are very confident with the range that we provided. And the activities that we needed to see happen are taking place. So we are pretty happy with how 2014 is shaping up.

Michael Nemeroff - Credit Suisse

Pat, can you comment on the size of the pipeline currently that the sales funnel currently versus let’s say the same period last year, how should we think about the new prospects, new GCs, new owners that you are talking to come on board?

Pat Allin

Yes, we have in the last 12 to 18 months, we have focused very heavily on the larger end of the commercial construction market and I am just actually delighted that the progress that we have made both in terms of implementing some new large clients, we have some exceptionally large GCs that are in early stages of implementation. And the sales funnel is much broader, much deeper and much more active than it was even 12 months ago. The prospects that are going public, six or either weeks after we went public, we started to see a pretty dramatic change in the market. And we had some very large GCs that to this point had appeared not to be interest is in our solution set, actually call us. And I can tell you that hadn’t happened very much in the last 8 or 9 years. And I can also say that since we acquired LATISTA there is only about a 30% overlap in the client set. We have seen some of their very large clients start to engage in a discussion around CPM. So the funnel is really robust, I mean converting that funnel would be all we really need to do over the next two years to continue to experience very dramatic revenue increases.

Michael Nemeroff - Credit Suisse

That’s great. And then just lastly from me, if you could just give us a sense on the timing of when we can expect some potential cross sell revenue or and if it’s happening already maybe one or two concrete examples that would be helpful? Thanks very much.

Pat Allin

We have – cross-selling is one of our important strategies, cross selling is obviously enhanced by the degree of integration between the solutions and we have integrated PQM and GradeBeam. We have started just try to figure out how we are going to report cross selling to the capital markets. And we are not finished yet, but we have started to gather a lot of information. And I can tell you that in the last six months, we have made some pretty dramatic progress. So, one little pit that I will give is that our top three clients are of course CPM clients and all three of them are either implementing one or two other of our solutions or in sort of what I would call a pilot test on one or two other of our solutions. So I would expect within 12 months, those top three clients will be using two to three of our solution set and the conversation is much broader than that with those clients. I think there is an opportunity for them to take home users of our platform at some future point. So very encouraged by what we are hearing and the cross-selling is actually being is more effective at the larger general contractors and owners than it is with the midsize and smaller at this point. Of course, that’s where we are focusing our energy, but that’s where we are also seeing some initial success.

Michael Nemeroff - Credit Suisse

That’s helpful. I’ll jump back in the queue. Thanks very much.

Pat Allin

Thanks, Michael.

Operator

Thank you. Our next question comes from Bhavan Suri from William Blair & Company.

Bhavan Suri - William Blair & Company

Hey, guys. Thanks for taking my questions. Just to follow-up on Michael’s first question sort of the larger GCs that are ramping up in the back half, Pat, are those already signed or is that something that you guys are close to working on?

Pat Allin

You find them interesting, because we do sign master services agreements with the larger clients. They don’t tend to be gate – that’s not a showstopper with most of them. So it’s something that does take place within the first two months of implementing. We tend to look at it more do we have agreed an agreed implementation plan and an agreed ERP implementation plan and allocated resources. And are we moving towards execution of that? And with that criteria, my answer is yes. We have a number of very large GCs that are in that process and you are right as we indicated in our comments that we will drive enhanced growth in the last half of the year and obviously throughout 2015. But it’s not with our CPM clients it’s hard to say that they are contractually obligated to use this on their portfolio projects although the fact of the matter is they do.

Bhavan Suri - William Blair & Company

Right. And then as you look at the smaller commercial construction market, the midsize commercial construction market, do you still feel that’s accelerating just the overall broader market? Have you seen any sort of broader trends in that space both here and in Europe?

Pat Allin

Yes. So let’s talk about U.S. for a minute. Generally speaking, it’s a much healthier commercial construction market. I think the healthier market does is a positive factor for GCs of all sizes. What I think there is a real trend that we have started to see over the last three or four years of the larger players actually doing better than the mid and the small. And I think some of that just have to do with the size and complexity of some of these projects. When you are talking about doing a $1.4 billion hospital, it just earns that many GCs that can really carryout that kind of a project. And I also think that the – throughout the recession, there was a flight to quality and larger size GCs. And I think that trend is not really reversed itself. So I think the larger GCs are doing better than the mid and small, but in this market, everyone is doing better than they were doing four, five years ago.

Bhavan Suri - William Blair & Company

Sure, sure.

Pat Allin

Europe is recovering. I mean, there is no question that the economies in Europe are doing better. We see in the U.K. market, which we are actually looking at very closely now that London in particular is really booming, I mean, outside of London, that’s a little bit different story and parts of Europe seem to be much healthier than they were 12 or 18 months ago.

Bhavan Suri - William Blair & Company

That’s helpful. And then when you look at the price increase, I guess two quick questions, maybe this is more for Jillian, but how does that shift that sort of minimum and maximum that you had said on the CPM basis? And then any pushback or is everyone been pretty okay with it overall?

Jillian Sheehan

Yes so as we said on the call that we expect over time that it will add another two to three basis points on what we’re monetizing from the subcontractor and it is because we shifted the maximum hire per subcontract as well as increase the basis points. And I would say that we did go out when we were planning the price increase and we talk to our general contractor clients to get their feedback and their input before announcing it to the subcontractor community and we didn’t receive much pushback there when we announced the price increase to the subcontractor out of our database of our 80,000 subcontractor organizations on system and we got a handful of emails and phone calls but it was more around clarification on how it will actually work and get implemented but not a lot of pushback.

Bhavan Suri - William Blair & Company

Great. That’s it from me. Thanks guys.

Pat Allin

Thanks, Bhavan.

Operator

Thank you. Our next question comes from Pat Walravens from JMP Securities.

Peter Lowry - JMP Securities

Hi, it’s Peter Lowry in for Pat. First congratulations on the quarter.

Pat Allin

Thank you, Peter.

Peter Lowry - JMP Securities

Yes, thanks. I guess just a follow-up on the line of question around the large GCs that are in the early stage of implementation and those that are in the pipeline. Are those totally new to Textura or how does the opportunity look to you in converting some of the large GCs that have been mandated to use CPM to full enterprise customers?

Pat Allin

Well some of these GCs have used some of the other solutions. So when we say that we’re working with 3,000 general contractors across our solution set, it’s unusual for a general contractor to not be using at least one of our solutions. The opportunity, the big revenue opportunity is sort of two-fold. One is to get them using CPM across their whole portfolio which is a somewhat lengthy 12 to 18 month process and then to broaden the solution sets they are using from one or two to the platform.

These are general contractors that have come to us in a number of different ways. We’ve seen over the last two years as we brought up much larger owners like the related group in Denver Airport et cetera, that – they tend to utilize the larger general contractors on their projects. So we’re – it gives us an opportunity to get test projects going in a large general contractor so that maybe disappointed only heard about CPM but it never used it. And that is becoming a much more prevalent in our business. And it is what has generated I think this pipeline being fairly flow I mean we do have some that tried on a project and it doesn’t progress from there at least not now but we had others that get three or four months in on an mandated project and use this as a way for of determining whether they want to use CPM and they get interested and we go through a fairly normal sales process. It’s getting more and more unusual for a contractor, large size contractor, top 100 contractors who have not had any exposure at all the CPM.

Peter Lowry - JMP Securities

Okay. And a quick follow-up I know it’s early but what’s been the initial customer feedback on LATISTA, I guess what are they like to do they like best and what’s been the biggest surprise after the acquisition?

Pat Allin

I’ll relate to you a conversation that Jillian and I had with the America’s CEO for very large global contractor who is implemented on CPM and he asked me - Jillian and I a couple of weeks ago why we acquired LATISTA and my G2 before that meeting was as they had used LATISTA but it didn’t integrate with their project management system so they weren’t overly happy with it. So I didn’t know exactly what he was trying to get out of the question. So I told him why we acquired LATISTA and then at the end – an heated reaction at the end of the meeting I asked him to give me some feedback and he said he may want hell of a good decision on acquiring LATISTA and he then went on to describe how they used LATISTA on two very complex hospital projects and how it enhanced their process to the point that they are able to do the close-out much more effectively and faster than they would have otherwise. And I took from that is there is an opportunity to use LATISTA and that you see on a broader basis. Other of our clients that have not had exposure to us are kind of intrigued and I think we’ll be able to get some test projects up at some of these clients over the next few months and hopefully that will lead to new revenue stream, but it’s been very encouraging, it’s only 60 days. So it’s very encouraging.

Peter Lowry - JMP Securities

Okay, great. Thanks again, and congratulations again in the quarter.

Pat Allin

Thank you.

Operator

Thank you. Our next question comes from Brian Schwartz from Oppenheimer.

Brian Schwartz - Oppenheimer

Yes, hi, thank you for taking my questions here today. Jillian first question, just want to ask you again the sensitivity here to the annual revenue guidance because if I look at the guidance you are putting out here today, it looks like the organic revenue growth it’s poised to accelerate here from about 50% in the first half of the year to the high 50% range in the second half of the fiscal year. So can you maybe just walk us through again what gives you and Pat the confidence level over there around the business accelerating ahead?

Jillian Sheehan

Sure. So as Pat has talked about early on this call with the large clients that we have in early stages of implementation and the implementation plan that we have laid out with them. So that’s really what gives us the confidence and the visibility as we talked about many times in the past in the organic revenue growth that we’ll see specifically coming from CPM and then other cross-sell opportunities with our PQM solution as well driving that, that high rate of growth for the remainder of the year, so second half of the year.

Brian Schwartz - Oppenheimer

Thank you. And then Pat I was wondering if you could talk maybe just qualitatively about the current size and shape of the backlog, really the off balance, off balance sheet deferred, the projects within your existing base right now that you foresee potentially coming online over the next couple of years, you talked about it on the IPO about six months ago. Just wondering if you can maybe update us qualitatively again just on how the size and shape of that backlog has grown since the IPO last summer?

Pat Allin

Yes so when we are on the IPO one of the questions that was asked was where are you on average with your CPM clients. And the answer was well we’re fully implemented on some and we’re halfway implemented on others and then we’re sort of early stages on others. And so we set on average, we are about 50% implemented and I think the logical conclusion from that was that from the revenue stream around the IPO that we would double in 18 to 24 months our CPM revenue stream. So here we are where we’re about six, seven months later and I would say that we’re tracking what we’ve said in the IPO extremely well.

I would also say that despite a lot of progress I think we’re still on the same position. So in other words despite seven month of great progress if you’re to look at where we are with our client set we’ve added a number of very large clients in early stages, we’re probably still sitting at around 50% and even though our revenue base is much higher seven months later I still think it will double again in the next 24 months. So the growth opportunity is there and that’s happening because we’ve got some very, very large clients, but we’ve got some even larger opportunities that are in late sales early implementation. And I think with successful execution on the implementation plans and some successful conversion from interest of client, we will be able to sustain our – that kind of growth rate for even a longer period of time than we talked about in the IPO.

Brian Schwartz - Oppenheimer

Thank you. And then last question from me just an operational question. In terms of the cross-selling initiatives really that growth lever that probably out ahead of us over the next couple of years, just wanting operationally where the sales force currently is in terms of being trained to go out and sell the other products on the platform? Thank you.

Pat Allin

Sure, so in our world and because CPM is roughly 60% of our business, our clients relations are in large part not exclusively are owned by our CPM group. And they have been trained on all of our solutions and they have available to the support both selling and technical support on all of our solutions. So when they are out with the client and they want to introduce LATISTA or PQM or GradeBeam or whatever, they know who to call and contact. And many of them have been doing this with their clients, so they have some experience doing it as well. Many of the people in CPM could do full demos of GradeBeam or PQM.

LATISTA, it’s a little bit early, yes, but we have had a number of training sessions in the last 60 days for everyone in the organization actually, so they can understand what it is, what LATISTA does and how it fits. We have developed a list of clients that they are going to introduce CPM to with the help of our CPM organization and vice versa. So its coming it – we are still thinking about when we have a – as we get to a platform exactly who is going to own the client and how we are going to sell it, how broad a knowledge base to our client services people really have to have etcetera. So far so good, but there is still some important decisions for us to make on how we are going to organize ourselves to position our portfolio in front of clients. And those are decisions we will make over the next 12 months.

Brian Schwartz - Oppenheimer

Thank you again for taking my questions today.

Pat Allin

You’re welcome.

Operator

Thank you. (Operator Instructions) Our next question comes from Jeff Houston from Barrington Research.

Jeff Houston - Barrington Research

Hi. Thanks for taking my questions. It was good to hear that the PQM and GradeBeam products are integrated, could you talk about – a bit about the timeline for full functional integration for all the acquired products with the Single Sign-On and single database and sharing of information. Then maybe provide an example of what type of power this will bring to your clients having all of those products integrated?

Pat Allin

Sure. So we have a number of projects that will have carried over the next 18 months, but there will be lots of deliverables between now and then. So Single Sign-On will be available in the next three to four months. And integration to us means that we come up with common databases for our solutions, which is maybe the most complex of the tasks. Single Sign-On and then an ability to move information to – from one solution to another so it enhances the value prop. And the example I might give you of that is that prequalification management as the solution that’s used to take a lot of information from a subcontractor and really run it – have the general contractor run it through, what I might call an underwriting process or risk assessment process. And so they are looking at financials and insurability and work history and experience and safety and a lot of other characteristics of the subcontractor and coming up with these are a rating or a single contract limit or an aggregate limit that their organization will apply.

Now in the course of evaluating that subcontractor there are some things that I think that general contractor would love to know. First, what they will – what work have I done with that general contractor in the past. And how did they perform on that work and who did they work with, so I can pick up the phone and talk to the project manager. Maybe the second thing is what’s my current exposure, what contracts does that subcontractor have across all my officers, what’s my exposure to them, what are they working on, how large are their contracts and who can I talk to, to see how they are performing currently on those projects.

The third thing I might like to know is how effective is a subcontractor in doing their punch list and closing out a project which is important for a general contractor to efficiently finish a project, get paid, etcetera. All that information that I would like to know sits in two places, its either in CPM. So what projects have they done? What are they working on currently? How do they perform? And the closeout performance is actually sitting in LATISTA. So, we can start pulling information out of some of our other applications and banking had available at a point where a general contractor is making a decision like with the risk management or a risk assessment around the subcontractor and make that a much higher value proposition than what we’re able to do today. And it’s that ability to bring the information to where it needs to be to assist in effective decision making is really the enhancement of the value prop that we’ve been talking about.

Jeff Houston - Barrington Research

Yes, that makes a lot of sense. Shifting gears a bit into your available market, I think you talked before about having roughly $700 billion domestically of commercial construction. Could you talk a bit about how much of that is controlled by large GCs and are the engineering E&C companies included in that number?

Pat Allin

We would not include them in our number simply because the – our engineering firms really are operating largely outside of the U.S. and so we are not in a position where we can fully support them in all of the countries and the types of projects that they do. So there is no way right now that Textura is geared up to support a mining project in Uganda for example. So we sort of take them out of the mix for now. We think ultimately maybe there are good client opportunities for us.

If you look at the top 100 GCs they do about $158 billion in annual construction value and the larger ones were actually obviously working on much larger projects. So when you actually think about what our opportunity is it isn’t the $158 billion, it’s more like $250 billion to $300 billion, right because what you – the numbers that are reported were actually their annual construction value that they put in place not the construction value of the projects they’re actually working on. So we’ve got some very big opportunities ahead of us it is a fragmented market in the U.S. much more so than Canada and Australia, the other two markets that we’re in. But there is we feel there is about 2,000 general contractors that we can approach through our traditional sales process and we developed this CPM business application de-configured CPM to really go after kind of the mid and the smaller markets which we estimate to be about 6,500 general contractors, so we can get after a big part of the market certainly not 100% that are big part of the market.

Jeff Houston - Barrington Research

Got it. That’s good color. Thank you.

Pat Allin

Thank you.

Operator

Thank you. At this time I will turn the call back over to Pat Allin.

Pat Allin - Chairman and Chief Executive Officer

Well, thank you very much for participating in today’s call and for your interest in Textura. We think we delivered another quarter of growth which has exceeded expectations. Our solutions continue to be validated in the marketplace as we bring on many new clients and deepen our engagement with our existing client base. And you can now start to see some of the leverage that will take place in our business model that will drive profitability and cash flow generation. So we look forward to speaking to you at the end of the next quarter. Thank you very much for attending today.

Operator

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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