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Duck Creek Technologies Announces Fourth Quarter and Full Year Fiscal 2020 Financial Results

October 20, 2020

  • Fourth Quarter Fiscal 2020 Subscription revenue grew 54% year-over-year
  • SaaS Annual Recurring Revenue (“ARR”) grew 85% year-over-year

BOSTON, Oct. 20, 2020 (GLOBE NEWSWIRE) -- Duck Creek Technologies (NASDAQ: DCT), a provider of SaaS-delivered enterprise software to the property & casualty (“P&C”) insurance industry, today announced its financial results for the fourth quarter and fiscal year ended August 31, 2020.

“Duck Creek’s fourth quarter was an excellent finish to an incredible year for the company, highlighted by 54% growth in subscription revenue,” said Michael Jackowski, Duck Creek’s Chief Executive Officer. “During the quarter we signed eight Duck Creek OnDemand wins, with a healthy mix of new and existing customers and a number of multi-product wins. We believe we have established Duck Creek OnDemand, which is approaching $100 million in SaaS ARR, as the SaaS platform of choice for the global P&C insurance industry.”

Jackowski added, “The success of our recent IPO was the latest important milestone for Duck Creek. We are at an exciting time in our history with the global P&C insurance industry at what we believe is the early stages of a generational shift to cloud technologies for their core systems. We believe Duck Creek is well positioned to partner with the world’s leading carriers on this digital transformation, delivering significant value for our customers and shareholders.”

Fourth Quarter Fiscal Year 2020 Financial Highlights

Revenue

  • Total revenue for the fourth quarter of fiscal year 2020 was $58.3 million, an increase of 22% from the fourth quarter in fiscal year 2019. Subscription revenue was $24.6 million, an increase of 54%; services revenue was $23.3 million, an increase of 6%; license revenue was $4.5 million, an increase of 6%; and maintenance revenue was $5.9 million, an increase of 2%.

Profitability

  • GAAP loss from operations was $21.6 million for the fourth quarter of fiscal year 2020, compared with a GAAP loss from operations of $2.4 million for the comparable period in fiscal year 2019.
  • Non-GAAP income from operations was $2.2 million for the fourth quarter of fiscal year 2020, compared with non-GAAP income from operations of $2.9 million for the comparable period in fiscal year 2019.
  • GAAP net loss was $21.5 million for the fourth quarter of fiscal year 2020, compared with a GAAP net loss of $2.8 million for the comparable period in fiscal year 2019.
  • Non-GAAP net income was $2.3 million for the fourth quarter of fiscal year 2020, compared with non-GAAP net income of $2.5 million for the comparable period in fiscal year 2019.
  • GAAP net loss per share is not meaningful because it would only represent results for the 17-day period following our IPO. Non-GAAP net income per share was $0.02, based on basic weighted average shares outstanding of 129.3 million.
  • Adjusted EBITDA was $3.0 million for the fourth quarter of fiscal 2020, compared with adjusted EBITDA of $3.6 million for the comparable period in fiscal year 2019.

Full Year Fiscal 2020 Financial Highlights

Revenue

  • Total revenue for the full year fiscal 2020 was $211.7 million, an increase of 24% from fiscal year 2019. Subscription revenue was $84.0 million, an increase of 50%; services revenue was $94.1 million, an increase of 21%; license revenue was $9.9 million, a decrease of 28%; and maintenance revenue was $23.7 million, which remained relatively flat.
  • SaaS annual recurring revenue, or SaaS ARR, was $95.6 million as of August 31, 2020, an increase of 85% from fiscal year 2019.

Profitability

  • GAAP loss from operations was $28.7 million for the full year fiscal 2020, compared with a GAAP loss from operations of $14.2 million in fiscal year 2019.
  • Non-GAAP income from operations was $8.6 million for the full year fiscal 2020, compared with non-GAAP income from operations of $4.4 million in fiscal year 2019.
  • GAAP net loss was $29.9 million for the full year fiscal 2020, compared with a GAAP net loss of $16.9 million in fiscal year 2019.
  • Non-GAAP net income was $7.3 million for the full year fiscal 2020, compared with non-GAAP net income of $1.7 million in fiscal year 2019.
  • GAAP net loss per share is not meaningful because it would only represent results for the 17-day period following our IPO. Non-GAAP net income per share was $0.06, based on basic weighted average shares outstanding of 127.4 million.
  • Adjusted EBITDA was $11.7 million for the full year fiscal 2020, compared with adjusted EBITDA of $6.8 million in fiscal year 2019.

Liquidity

  • Duck Creek had $389.9 million in cash and cash equivalents at August 31, 2020. The Company generated $25.7 million in cash from operations and had free cash flow of $19.0 million in fiscal year 2020, compared with $14.8 million and $6.6 million, respectively, in fiscal year 2019.

The information presented above includes non-GAAP financial measures such as “non-GAAP income from operations,” “adjusted EBITDA,” “non-GAAP net income,” “non-GAAP net income per share,” and “free cash flow.” Refer to “Non-GAAP Financial Measures and Other Metrics” for a discussion of these measures and reconcilations of each non-GAAP financial measure to the most directly comparable GAAP financial measure.

Business Outlook

Duck Creek is issuing the following outlook for the first quarter of fiscal 2021 and full year of fiscal 2021 based on current expectations as of October 20, 2020:

 First Quarter Fiscal 2021Full Year Fiscal 2021
Revenue$55.0 million to $56.0 million$244.0 million to $249.0 million
Subscription Revenue$25.5 million to $26.0 million$114.5 million to $116.5 million
Adjusted EBITDA$0.0 million to $1.5 million$3.0 million to $5.0 million
Non-GAAP Net Loss Per Share$(0.01) to $0.00$(0.04) to $(0.02)

Conference Call Information

Duck Creek Technologies will host a conference call today, October 20, 2020, at 5:00 p.m. (Eastern Time) to discuss the Company’s financial results and business outlook. A live webcast of the call will be available on the “Investor Relations” page of the Company’s website at https://ir.duckcreek.com/. To access the call by phone, dial 1-833-570-1119 (domestic) or 1-914-987-7066 (international). A replay of this conference call will be available for a limited time at 1-855-859-2056 (domestic) or 1-404-537-3406 (international) using conference ID 3139619. A replay of the webcast will also be available for a limited time at https://ir.duckcreek.com/.

About Duck Creek Technologies

Duck Creek Technologies is a leading provider of core system solutions to the P&C and General insurance industry. By accessing Duck Creek OnDemand, the company’s enterprise Software-as-a-Service solution, insurance carriers are able to navigate uncertainty and capture market opportunities faster than their competitors. Duck Creek’s functionally-rich solutions are available on a standalone basis or as a full suite, and all are available via Duck Creek OnDemand.

Forward Looking Statements

This press release includes certain disclosures which contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements because they contain words such as “expect,” “believe,” “target,” “project,” “goals,” “estimate,” “potential,” “predict,” “may,” “will,” “might,” “could,” “forecast,” “outlook” and variations of these terms or the negative of these terms and similar expressions. Forward-looking statements, including statements regarding Duck Creek’s expected outlook for first quarter fiscal 2021 and full year fiscal 2021, are based on Duck Creek’s current expectations and assumptions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements will be set forth in Duck Creek's recent Annual Report on Form 10-K that will be filed with the Securities and Exchange Commission and any subsequent public filings. In particular, the following factors, among others, could cause results to differ materially from those expressed or implied by such forward-looking statements: the impact of pandemics, including the on-going COVID-19 pandemic, on U.S. and global economies, Duck Creek’s business and results and financial condition, its employees, demand for its products, sales and implementation cycles, and the health of its customers’ and partners’ businesses; Duck Creek’s history of losses; changes in Duck Creek’s product revenue mix as it continues to focus on sales of its SaaS solutions, which will cause fluctuations in its results of operations and cash flows between periods; Duck Creek’s reliance on orders and renewals from a relatively small number of customers for a substantial portion of its revenue, and the substantial negotiating leverage customers have in renewing and expanding their contracts for Duck Creek’s solutions; the success of Duck Creek’s growth strategy focused on SaaS solutions and its ability to develop or sell its solutions into new markets or further penetrate existing markets; Duck Creek’s ability to manage its expanding operations; intense competition in Duck Creek’s market; third parties may assert Duck Creek is infringing or violating their intellectual property rights; U.S. and global market and economic conditions, particularly adverse in the insurance industry; additional complexity, burdens and volatility in connection with Duck Creek’s international sales and operations; the length and variability of Duck Creek’s sales and implementation cycles; data breaches, unauthorized access to customer data or other disruptions of Duck Creek’s solutions; control of Duck Creek by its controlling shareholders and perceived conflicts of interests; and Duck Creek’s status as a “controlled company” within the meaning of the corporate governance standards of Nasdaq.

Any forward-looking statement in this release speaks only as of the date of this release. Duck Creek undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable laws.

Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance unless expressed as such, and should only be viewed as historical data.

Non-GAAP Financial Measures and Other Metrics

This press release contains the following non-GAAP financial measures: non-GAAP gross margin, non-GAAP income from operations, adjusted EBITDA, non-GAAP net income, non-GAAP net income  per share,  and free cash flow. Adjusted EBITDA excludes provision for income taxes, other (income)/expense, interest expense, net, depreciation of property and equipment, amortization of intangible assets, share-based compensation expense, and change in fair value of contingent earnout liability. Non-GAAP gross margin excludes share-based compensation expense, amortization of intangible assets, and amortization of capitalized internal-use software. Non-GAAP income from operations excludes share-based compensation expense, amortization of intangible assets and change in fair value of contingent earnout liability. Free cash flow consists of net cash provided by operating activities less cash used for purchases of property and equipment and capitalized internal-use software.  See below for a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure.

Other metrics include SaaS ARR and SaaS Net Dollar Retention, which are calculated for all SaaS continuing software services. Subscription revenue excluded from the calculations relate to one legacy contract for a service no longer offered separately by the Company. SaaS ARR is calculated by annualizing revenue recorded in the last month of the measurement period. SaaS Net Dollar Retention is a rate calculated by annualizing revenue recorded in the last month of the measurement period for those customers in place throughout the entire measurement period. We divide the result by annualized revenue from the month that is one year prior to the end of the measurement period, for all customers in place at the beginning of the measurement period.

The Company believes that these non-GAAP financial measures and other metrics provide useful information to management and investors regarding certain financial and business trends relating to Duck Creek’s financial condition and results of operations. The Company’s management uses these non-GAAP measures and other metrics to manage our business, make planning decisions, evaluate its performance and allocate resources. The Company believes that the use of these non-GAAP financial measures and other metrics help investors and analysts in comparing its results across reporting periods on a consistent basis by excluding items that the Company does not believe are indicative of its core operating performance. These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation from, or as a substitute for, the analysis of other GAAP financial measures, including net income and cash flows from operating activities.

These non-GAAP financial measures are not universally consistent calculations, limiting their usefulness as comparative measures. Other companies may calculate similarly titled financial measures differently than the Company does or may not calculate them at all. Additionally, these non-GAAP financial measures are not measurements of financial performance or liquidity under GAAP. In order to facilitate a clear understanding of its consolidated historical operating results, readers should examine the Company’s non-GAAP financial measures in conjunction with its historical GAAP financial information.

To the extent that the Company provides guidance on a non-GAAP basis, it does not provide reconciliations of such forward-looking non-GAAP measures to GAAP due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation, including adjustments that could be made for the charges reflected in the Company’s reconciliation of historic numbers, the amount of which, based on historical experience, could be significant.

Investor Contact:
Brian Denyeau
ICR
646-277-1251
Brian.denyeau@icrinc.com

Media Contact:
Paul Rechichi
Racepoint Global
617 624 3295
prechichi@racepointglobal.com

Sam A. Shay
Duck Creek Technologies
857 201 5784
sam.shay@duckcreek.com


Duck Creek Technologies, Inc. and Subsidiaries  
Condensed Consolidated Balance Sheets  
(unaudited, in thousands)  
   
 August, 31 2020August 31, 2019
Assets  
Current assets:  
Cash and cash equivalents$389,878 $11,999
Accounts receivable 29,149  25,450
Unbilled revenue 18,121  15,293
Prepaid expenses and other current assets 12,186  5,772
Total current assets 449,334  58,514
   
Property and equipment, net 18,113  17,058
Operating lease assets 18,171  -
Goodwill 272,455  272,455
Intangible assets, net 81,687  98,756
Unbilled revenue, net of current portion 3,487  8,045
Other assets 17,853  12,449
Total assets 861,100  467,277
   
Liabilities and Stockholders' Equity/Partners' Capital  
Current liabilities:  
Accounts payable 1,802  1,362
Accrued liabilities 58,202  31,003
Contingent earnout liability 3,701  4,055
Lease liability 3,611  -
Deferred revenue 30,397  23,470
Total current liabilities 97,713  59,890
   
Contingent earnout liability, net of current portion 3,391  6,460
Borrowings under credit facility -  4,000
Deferred rent, net of current portion -  5,388
Lease liability, net of current portion 21,739  -
Deferred revenue, net of current portion 379  692
Other long-term liabilities 4,121  1,781
Total liabilities 127,343  78,210
   
Total stockholders' equity/partners' capital 733,757  389,066
Total liabilities and stockholders' equity/partners' capital$ 861,100 $ 467,277
   



Duck Creek Technologies, Inc. and Subsidiaries     
Consolidated Statements of Operations      
(unaudited, in thousands)      
       
 Three Months Ended August 31 Twelve Months Ended August 31 
  2020  2019   2020  2019  
       
Revenue:      
Subscription$24,631 $15,977  $83,999 $55,909  
License 4,483  4,237   9,914  13,776  
Maintenance and support 5,889  5,798   23,680  23,896  
Professional services 23,319  21,908   94,079  77,692  
Total revenue 58,322  47,920   211,672  171,273  
       
Cost of revenue (1):      
Subscription 10,031  7,211   34,902  24,199  
License 506  503   1,853  1,970  
Maintenance and support 863  610   3,338  2,781  
Professional services 18,243  11,924   57,082  43,228  
Total cost of revenue 29,643  20,247   97,175  72,178  
       
Gross margin 28,679  27,672   114,497  99,095  
       
Operating expenses (1):      
Research and development 14,628  9,597   44,052  35,936  
Sales and marketing 16,766  10,227   50,305  40,189  
General and administrative 18,746  9,417   48,662  36,493  
Change in fair value of contingent consideration 112  840   133  628  
       
Total operating expenses 50,252  30,081   143,152  113,246  
       
Loss from operations (21,573) (2,409)  (28,655) (14,151) 
       
Other income (expense), net 737  (252)  641  (565) 
Interest income (expense), net 30  (19)  (356) (1,030) 
Loss before income taxes (20,806) (2,681)  (28,370) (15,746) 
Provision for income taxes 673  143   1,562  1,150  
Net loss$ (21,479)$ (2,823) $ (29,932)$ (16,896) 
       
       
(1) Amounts include share-based compensation expense as disclosed in the following table:  
       
       
 Three Months Ended August 31 Twelve Months Ended August 31 
  2020  2019   2020  2019  
       
Share-based compensation expense:      
Cost of subscription revenue 405  8   415  20  
Cost of license revenue -  -   -  -  
Cost of maintenance and support revenue 24  2   28  9  
Cost of services revenue 4,581  41   4,683  123  
Research and development 3,844  132   4,128  397  
Sales and marketing 5,326  101   5,581  418  
General and administrative 5,524  292   6,273  1,103  
Total share-based compensation expense$ 19,704 $ 576  $ 21,108 $ 2,070  
       
As part of the Company's re-organization in conjunction with the IPO, Limited Partnership interests, including Class D units held by employees, were converted into restricted common stock (the "conversion"). In substitution for part of the economic benefit of the Class D units that was not reflected in the conversion, options were granted to holders of Class D units ("leverage restoration options"). Share-based compensation expense ("SBC") recorded during the quarter ended August 31, 2020 includes a modification charge of $11.3 million associated with these leverage restoration options. SBC during the quarter also includes a charge of $6.7 million for cash-settled phantom Class D units held by non-U.S. employees. 
       



Duck Creek Technologies, Inc. and Subsidiaries     
Condensed Consolidated Statements of Cash Flows     
(unaudited, in thousands)     
      
 Three Months Ended August 31 Twelve Months Ended August 31
  2020  2019   2020  2019 
      
Operating activities:     
      
Net loss$(21,479)$(2,823) $(29,932)$(16,896)
      
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation of property and equipment 793  668   3,143  2,398 
Amortization of intangible assets 4,765  4,348   17,773  17,594 
Impairment of right of use asset 2,792  -   2,792  - 
Amortization of deferred financing fees 28  (66)  134  136 
Share-based compensation expense 19,704  576   21,108  2,070 
Change in fair value of contingent earnout liability 112  840   133  628 
Payment of contingent earnout liability in excess of acquisition date fair value -  -   -  (2,350)
Bad debt expense 32  158   97  182 
Deferred taxes (544) 211   (690) 188 
Changes in operating assets and liabilities     
Accounts receivable 505  1,897   (3,796) (6,285)
Unbilled revenue 2,912  5,065   1,730  4,481 
Prepaid expenses and other current assets (6,396) (624)  (6,300) 198 
Other assets (1,663) (1,335)  (5,764) (3,788)
Accounts payable 123  189   (181) (783)
Accrued liabilities 7,070  7,459   16,393  9,150 
Deferred revenue 6,400  (205)  6,614  5,972 
Deferred rent -  779   -  1,661 
Operating leases (67) -   132  - 
Other long-term liabilities 2,391  (45)  2,339  277 
Net cash provided by operating activities 17,478  17,092   25,725  14,833 
      
Investing activities:     
      
Acquisition of Outline Systems LLC -  -   -  (9,814)
Acquisition of CedeRight Products -  (1,827)  -  (1,827)
Capitalized internal-use software (453) (781)  (2,893) (2,956)
Purchase of property and equipment (690) (3,517)  (3,854) (5,314)
Net cash used in investing activities (1,143) (6,125)  (6,747) (19,911)
      
Financing activities:     
      
Net cash provided by (used in) financing activities 354,348  (8,802)  358,901  3,198 
      
Net increase (decrease) in cash and cash equivalents 370,683  2,165   377,879  (1,880)
      
Cash and cash equivalents - beginning of period 19,195  9,834   11,999  13,879 
Cash and cash equivalents - end of period$ 389,878 $ 11,999  $ 389,878 $ 11,999 
      



Duck Creek Technologies, Inc. and Subsidiaries      
Reconciliation of GAAP to Non-GAAP Financial Measures    
(unaudited, in thousands)      
        
   Three Months Ended August 31 Twelve Months Ended August 31
    2020  2019   2020  2019 
        
Non-GAAP Gross Margin:      
 GAAP Gross Margin $28,679 $27,672  $114,497 $99,095 
        
 Share-based compensation expense  5,010  51   5,125  151 
 Amortization of intangible assets  1,186  1,164   4,746  4,680 
 Amortization of capitalized internal-use software  497  -   703  - 
        
 Non-GAAP Gross Margin $35,372 $28,887  $125,071 $103,926 
        
Non-GAAP Income from Operations:      
 GAAP Loss from Operations $(21,573)$(2,409) $(28,655)$(14,151)
        
 Share-based compensation expense  19,704  576   21,108  2,070 
 Amortization of intangible assets  3,994  3,921   15,975  15,884 
 Change in fair value of contingent earnout liability  112  840   133  628 
        
 Non-GAAP Income from Operations $2,237 $2,927  $8,561 $4,431 
        
Adjusted EBITDA:      
 GAAP Net Loss $(21,479)$(2,823) $(29,932)$(16,896)
        
 Provision for income taxes  673  143   1,562  1,150 
 Other (income) expense  (737) 252   (641) 565 
 Interest expense, net  (30) 19   356  1,030 
 Depreciation of property and equipment  793  668   3,143  2,398 
 Amortization of intangible assets  3,994  3,921   15,975  15,884 
 Share-based compensation expense  19,704  576   21,108  2,070 
 Change in fair value of contingent earnout liability  112  840   133  628 
        
 Adjusted EBITDA $3,030 $3,595  $11,704 $6,829 
        
Non-GAAP Net Income:      
 GAAP Net Loss $(21,479)$(2,823) $(29,932)$(16,896)
        
 Share-based compensation expense  19,704  576   21,108  2,070 
 Amortization of intangible assets  3,994  3,921   15,975  15,884 
 Change in fair value of contingent earnout liability  112  840   133  628 
 Tax effect of adjustments (1)  -  -   -  - 
        
 Non-GAAP Net Income $2,331 $2,513  $7,284 $1,686 
        
 Non-GAAP Net Income per Share (Basic) (2) $0.02 nm $0.06 nm
        
 Shares used in computing Non-GAAP Net Income per Share (Basic) (2)  129,264,149 nm  127,367,969 nm
        
 (1) Our tax provision is primarily related to state taxes and income taxes in profitable foreign jurisdictions. We maintain a full valuation allowance against our deferred tax assets in the U.S. Accordingly, there is no tax impact associated with the non-GAAP adjustments in the U.S. We have not included the insignificant tax benefit associated with the non-GAAP adjustments related to our foreign jurisdictions that are taxed on a cost-plus basis. The Company previously computed the tax effect of non-GAAP adjustments by multiplying the adjustments by an estimated effective tax rate of 27%. The Company has revised the August 31, 2019 prior year presentation in the table above in order to conform to the current year method of computing the tax effect of non-GAAP adjustments.
        
 (2) Prior to the IPO, there were no shares of common stock outstanding, and the membership structure of Duck Creek Technologies consisted of limited partnership units. The Company analyzed the calculation of earnings per unit for periods prior to the IPO and determined that it resulted in values that would not be meaningful to the users of the Company’s consolidated financial statements.  In addition, GAAP earnings per share for Q4 2020 and fiscal year 2020 has not been presented as it resulted in values that would not be meaningful to the users of this earnings release because it only reflects the operations of the Company for the 17 day period subsequent to the IPO.  For purposes of this earnings release, the Company has performed a calculation of Non-GAAP earnings per share for Q4 2020 and fiscal year 2020 by using a consistent exchange ratio for all pre-IPO limited partnership units and assuming that common stock sold in the IPO was outstanding for the entire fiscal year.
        
Free Cash Flow:      
 Net cash provided by operating activities $17,478 $17,092  $25,725 $14,833 
        
 Purchases of property and equipment  (690) (3,517)  (3,854) (5,314)
 Capitalized internal-use software  (453) (781)  (2,893) (2,956)
        
 Free Cash Flow $16,335 $12,794  $18,978 $6,563