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Short-Seller Takes Aim at Construction Software Maker

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Photo by Tudor Van Hampton for ENR
Patrick Allin, Textura chief executive and co-founder, met with upbeat investors on the floor of the New York Stock Exchange on June 7 to watch the company trade its first shares on the open market.
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A short-seller known for hitting companies hard in published reports has accused construction software maker Textura Corp. of misrepresenting its financial prospects and the background of its chief executive and co-founder, Patrick Allin.

Textura's shares (NYSE: TXTR) fell 17% in trading on the day the report appeared, Dec. 26th, and closed at $31.30. The next day the shares dipped further, closing at $29.54.

"The true value of the stock is $4 a share, at best," wrote the short-seller, Citron Research. It claimed Textura's leaders had engaged in fraud, collusion and deception.

The company denied the allegations and stood by the accuracy of the information it had disclosed.

Short-sellers profit by betting that the share price of a company will sink.

Last June Textura Corp. had one of the most successful initial public offerings of the year, with demand for shares and the price of its shares climbing fast. The company raised $86.2 million, which it said it would use to pay down debt and open new markets.

According to Citron, Textura, which is based in Deerfield, Ill., has a modest software business suitable for a niche market and not much else. It also has had big operating losses throughout its 10-year existence, including another loss for fiscal 2013 of $39.6 million, on revenue of $35.53 million.

Among Citron's concerns is Textura's customer retention rate, a figure Citron claims Textura declines to include in reports to the Securities and Exchange Commission. Citron also claims Textura has a penchant for misleading investors about the potential for future profits.

In addition, Citron claims that Textura deliberately omits that Allin, 61, was chief executive officer of Patron Systems, which Citron described as a "notorious OTC stock, pumped and dumped by perpetrators now in Federal prison."

Instead, Textura emphasizes Allin's prior experience as a senior manager at PricewaterhouseCoopers LLP, says Citron.

The information wasn't exactly secret. For example, a biography of Allin on the website of Bloomberg Business Week describes him as "the Chief Executive Officer of Patron Systems Inc. from October 11, 2002, to January 21, 2004."

In 2009, ENR named Allin one of its Top Newsmakers of the year for transforming "the time-consuming business of bank draws and lien waivers into a smooth, secure digital process."

Citron Research is headed by Andrew Left, an activist short-seller expert admired by financial journalists for exposing concealed information about companies in acerbic reports.

Textura's Reply

Textura disputed Citron's report in a brief statement released by the company Dec. 26.

"Textura finds this report to include a variety of inaccurate and misleading statements and gross distortions," said the statement. Textura "completely rejects any allegation of fraud, collusion or deception in Textura's IPO or SEC filings" and encourages investors to rely on those filings for accurate information. No additional details or arguments were addressed.

Textura derives about 60% of its revenue from its payment system, which cuts out the face-to-face meetings and protracted negotiations needed to close out a bank draw. Paying contractors the old-fashioned way "adds a high degree of frictional cost and introduces an incredible amount of execution risk that really doesn't need to be there," said Geoffrey Heekin, executive vice president and managing director of Aon Risk Solutions, in an interview last summer.

Aon Risk Services Central, part of the same parent company, has a referral agreement with Textura under which Textura compensates Aon for clients, according to Citron's report. Citron notes that Aon also owns shares of Textura and has a representative on its board.

Unlike other construction software that tracks accounting, cash flow and bills, Textura's niche is the actual payment. General contractors pay a setup charge for each project, and subcontractors pay a small fee to use the system.




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