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Duck Creek Technologies Announces Second Quarter Fiscal 2021 Financial Results

April 5, 2021

  • Second Quarter Fiscal 2021 Subscription revenue grew 51% year-over-year
  • SaaS Annual Recurring Revenue grew 75% year-over-year

BOSTON, April 05, 2021 (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 three and six months ended February 28, 2021.

“Duck Creek delivered strong second quarter results, as our continued market momentum drove 51% subscription revenue growth,” said Michael Jackowski, Duck Creek’s Chief Executive Officer. “Our growing number of SaaS wins, across all segments of the market, highlights that Duck Creek OnDemand can successfully scale from solutions for regional insurers to serving as the global platform for the most demanding Tier 1 Insurers.”
                                                                                                                                    
Mr. Jackowski added, “Many P&C carriers have embraced the need for true digital transformation and have recognized that a SaaS-based core systems platform is a competitive differentiator. We believe our continued success demonstrates that Duck Creek OnDemand is the leading SaaS platform of choice for the global P&C industry.”

Second Quarter 2021 Financial Highlights

Revenue

  • Total revenue for the second quarter of fiscal year 2021 was $62.7 million, an increase of 19% from the comparable period in fiscal year 2020. Subscription revenue was $30.6 million, an increase of 51%; services revenue was $22.6 million, a decrease of 8%; license revenue was $3.6 million, an increase of 61%; and maintenance revenue was $5.9 million, an increase of 1%.
  • SaaS annual recurring revenue, or SaaS ARR, was $118.1 million as of February 28, 2021, an increase of 75% from the comparable period in fiscal year 2020.

Profitability

  • GAAP loss from operations was $6.4 million for the second quarter of fiscal year 2021, compared with a GAAP loss from operations of $2.0 million for the comparable period in fiscal year 2020.
  • Non-GAAP income from operations was $2.2 million for the second quarter of fiscal year 2021, compared with non-GAAP income from operations of $2.7 million for the comparable period in fiscal year 2020.
  • GAAP net loss was $6.4 million for the second quarter of fiscal year 2021, compared with GAAP net loss of $2.4 million for the comparable period in fiscal year 2020.
  • Non-GAAP net income was $2.0 million for the second quarter of fiscal year 2021, compared with non-GAAP net income of $1.9 million for the comparable period in fiscal year 2020.
  • GAAP net loss per share was $(0.05), based on basic weighted average shares outstanding of approximately 131.0 million shares as of February 28, 2021. Non-GAAP net income per share was $0.01 based on fully diluted weighted average shares outstanding of approximately 134.8 million shares as of February 28, 2021.
  • Adjusted EBITDA was $3.0 million for the second quarter of fiscal 2021, compared with adjusted EBITDA of $3.5 million for the comparable period in fiscal year 2020.

Liquidity

  • As of February 28, 2021 Duck Creek had $76.1 million in cash and cash equivalents, $287.9 million in short term investments and no debt. The Company used $0.9 million in cash from operating activities and had free cash flow of $(1.6) million during the second quarter of fiscal year 2021, compared with $1.8 million used in cash from operating activities and free cash flow of $(3.6) million in the comparable period in fiscal year 2020.

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 reconciliations 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 third quarter of fiscal 2021 and full year of fiscal 2021 based on current expectations as of April 5, 2021:

    
 Third Quarter Fiscal 2021  Full Year Fiscal 2021
Revenue        $62.5 million to $64.5 million $250.0 million to $254.5 million
Subscription Revenue        $31.0 million to $31.5 million $120.0 million to $121.5 million
Adjusted EBITDA        $(0.5) million to $0.5 million $6.5 million to $8.0 million

Conference Call Information

Duck Creek Technologies will host a conference call today, April 5, 2021, 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 5074509. 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 third 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 most recent Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on November 3, 2020 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; the significant influence of Duck Creek’s largest shareholders on its management, business plans, and policies and any conflicts of interests therewith; and Duck Creek’s continued reliance on “controlled company” exemptions under the corporate governance standards of Nasdaq during the applicable phase-in periods.

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 income from operations excludes share-based compensation expense, amortization of intangible assets 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 net income excludes share-based compensation expense, amortization of intangible assets and change in fair value of contingent earnout liability and the tax effect of such adjustments. 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, excluding the subscription revenue related to one legacy contract for a service no longer offered separately by the Company. SaaS ARR is calculated by annualizing recurring revenue recorded in the last month of the measurement period. SaaS Net Dollar Retention is a rate calculated by annualizing recurring 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 recurring 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 financial measures and other metrics to manage its 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
Consolidated Balance Sheets
(unaudited, in thousands)

  February 28,  August 31, 
  2021  2020 
Assets        
Current assets:        
Cash and cash equivalents $76,074  $389,878 
Short-term investments  287,906    
Accounts receivable, net  34,738   29,149 
Unbilled revenue  22,143   18,121 
Prepaid expenses and other current assets  15,240   12,186 
Total current assets  436,101   449,334 
Property and equipment, net  16,725   18,113 
Operating lease assets  16,632   18,171 
Goodwill  272,455   272,455 
Intangible assets, net  73,512   81,687 
Deferred tax assets  2,065   1,550 
Unbilled revenue, net of current portion  2,824   3,487 
Other assets  16,983   16,303 
Total assets $837,297  $861,100 
Liabilities and Stockholders' Equity        
Current liabilities:        
Accounts payable $1,001  $1,802 
Accrued liabilities  40,664   58,202 
Contingent earnout liability  5,267   3,701 
Lease liability  3,292   3,611 
Deferred revenue  28,860   30,397 
Total current liabilities  79,084   97,713 
Contingent earnout liability, net of current portion     3,391 
Lease liability, net of current portion  20,196   21,739 
Deferred revenue, net of current portion  23   379 
Other long-term liabilities  6,058   4,121 
Total liabilities  105,361   127,343 
Commitments and contingencies (Note 13)        
Stockholders' equity        
Common stock, 134,081,473 shares issued and 131,524,442 shares outstanding at February 28, 2021, 133,269,301 shares issued and 130,713,745 shares
outstanding at August 31, 2020, 300,000,000 shares authorized at February 28, 2021 and August 31, 2020, par value $0.01 per share
  1,341   1,333 
Preferred stock, 0 shares outstanding, 50,000,000 shares authorized at February 28, 2021 and August 31, 2020, par value $0.01 per share      
Treasury stock, common shares at cost; 2,557,031 shares at February 28, 2021 and 2,555,556 shares at August 31, 2020  (64,745)  (64,688)
Accumulated deficit  (35,349)  (24,334)
Accumulated other comprehensive income (loss)  (6)   
Additional paid in capital  830,695   821,446 
Total stockholders' equity  731,936   733,757 
Total liabilities and stockholders' equity $837,297  $861,100 
         

Duck Creek Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited, in thousands except share and per share amounts)

  For the Three Months Ended
February 28 and 29,
  For the Six Months Ended
February 28 and 29,
 
  2021  2020  2021  2020 
Revenue:                
Subscription $30,608  $20,276  $58,517  $37,813 
License  3,588   2,226   4,938   3,271 
Maintenance and support  5,885   5,801   12,075   11,727 
Professional services  22,571   24,524   46,028   46,586 
Total revenue  62,652   52,827   121,558   99,397 
Cost of revenue:                
Subscription  11,411   8,873   21,495   16,150 
License  446   515   834   841 
Maintenance and support  859   887   1,701   1,765 
Professional services  14,826   13,338   28,542   25,380 
Total cost of revenue  27,542   23,613   52,572   44,136 
Gross margin  35,110   29,214   68,986   55,261 
Operating expenses:                
Research and development  12,681   10,008   23,785   19,227 
Sales and marketing  14,165   11,245   26,762   21,816 
General and administrative  14,617   9,747   29,035   19,732 
Change in fair value of contingent consideration  95   167   98   211 
Total operating expenses  41,558   31,167   79,680   60,986 
Loss from operations  (6,448)  (1,953)  (10,694)  (5,725)
Other income (expense), net  510   (153)  463   220 
Interest expense, net  (38)  (45)  (81)  (326)
Loss before income taxes  (5,976)  (2,152)  (10,312)  (5,832)
Provision for income taxes  388   288   703   622 
Net loss $(6,364) $(2,440) $(11,015) $(6,454)
Net loss per share information2                
Net loss per share of common stock, basic and diluted $(0.05)     $(0.08)    
Weighted average shares of common stock, basic and diluted  130,982,116      130,851,680    

(1) Amounts include share-based compensation expense as disclosed in the following table:

  Three Months Ended
February 28 and 29,
  Six Months Ended
February 28 and 29,
 
  2021  2020  2021  2020 
Cost of subscription revenue $132  $10  $212  $10 
Cost of maintenance and support revenue  8   1   15   2 
Cost of services revenue  1,139   41   1,750   67 
Research and development  709   98   1,220   188 
Sales and marketing  1,395   87   2,294   164 
General and administrative  1,133   251   2,117   494 
Total share-based compensation expense $4,516  $488  $7,608  $924 
                 

(2) Prior to Duck Creek’s initial public offering in August 2020, there were no shares of common stock outstanding, and the membership structure of Duck Creek Technologies consisted of limited partnership units. Accordingly, comparable period net loss per share has not been presented because it would not be meaningful to the users of the Company’s consolidated financial statements.

Duck Creek Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited, in thousands)

  For the Three Months Ended
February 28 and 29,
  For the Six Months Ended
February 28 and 29,
 
  2021  2020  2021  2020 
Operating activities:                
Net loss $(6,364) $(2,440) $(11,015) $(6,454)
Adjustments to reconcile net loss to cash used in operating activities:                
Depreciation of property and equipment  800   785   1,587   1,522 
Amortization of capitalized software  498   51   996   51 
Amortization of intangible assets  4,088   4,268   8,175   8,535 
Amortization of deferred financing fees  29   28   57   39 
Share-based compensation expense  4,516   488   7,608   924 
Loss on change in fair value of contingent earnout liability  95   167   98   211 
Bad debt expense  (4)  (32)  10   (72)
Deferred taxes  (344)  4   (515)  23 
Changes in operating assets and liabilities                
Accounts receivable  (6,880)  (4,785)  (5,600)  (6,124)
Unbilled revenue  (1,629)  (2,769)  (3,359)  (3,938)
Prepaid expenses and other current assets  (3,430)  (2,588)  (3,111)  (1,601)
Other assets  (664)  (3,723)  (679)  (3,636)
Accounts payable  (204)  398   508   168 
Accrued liabilities  5,958   6,040   (10,671)  1,340 
Deferred revenue  2,665   2,342   (1,893)  (1,300)
Operating leases  (162)  (63)  (323)  249 
Cash settlement of vested phantom stock  (227)     (6,904)   
Other long-term liabilities  338   22   1,938   115 
Net cash used in operating activities  (921)  (1,807)  (23,093)  (9,948)
Investing activities:                
Purchase of short-term investments  (287,912)     (287,912)   
Capitalized internal-use software  (214)  (693)  (750)  (1,555)
Purchase of property and equipment  (484)  (1,058)  (672)  (2,694)
Net cash used in investing activities  (288,610)  (1,751)  (289,334)  (4,249)
Financing activities:                
Proceeds from follow-on offering, net of issuance costs  3,452      3,452    
Payment of deferred IPO costs        (3,650)   
Payment of deferred Class E offering costs     (1,337)  (192)  (2,072)
Proceeds from issuance of Class E Units, net of issuance costs     100,214      215,668 
Payment on redemption of Class A and Class B Units     (100,000)     (198,000)
Purchase of treasury stock        (57)   
Proceeds from stock option exercises  993      993    
Payments of contingent earnout liability        (1,923)  (3,182)
Proceeds from revolving credit facility           5,000 
Payments on revolving credit facility     (4,000)     (9,000)
Payment of deferred financing costs           (228)
Net cash provided by (used in) financing activities  4,445   (5,123)  (1,377)  8,186 
Net decrease in cash and cash equivalents  (285,086)  (8,681)  (313,804)  (6,011)
Cash and cash equivalents – beginning of period  361,160   14,669   389,878   11,999 
Cash and cash equivalents – end of period $76,074  $5,988  $76,074  $5,988 
                 

Duck Creek Technologies, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures
(unaudited)

  Three Months Ended
February 28 and 29,
  Six Months Ended
February 28 and 29,
 
($ in thousands) 2021  2020  2021  2020 
GAAP Gross Margin $35,110  $29,214  $68,986  $55,261 
Share-based compensation expense  1,280   50   1,977   77 
Amortization of intangible assets  1,186   1,186   2,372   2,372 
Amortization of capitalized internal-use software  498   51   996   51 
Non-GAAP Gross Margin $38,074  $30,501  $74,331  $57,761 


  Three Months Ended
February 28 and 29,
  Six Months Ended
February 28 and 29,
 
($ in thousands) 2021  2020  2021  2020 
GAAP Loss from Operations $(6,448) $(1,953) $(10,694) $(5,725)
Share-based compensation expense  4,516   488   7,608   924 
Amortization of intangible assets  3,994   3,994   7,988   7,988 
Change in fair value of contingent earnout liability  95   167   98   211 
Non-GAAP Income from Operations $2,157  $2,696  $5,000  $3,398 


  Three Months Ended
February 28 and 29,
  Six Months Ended
February 28 and 29,
 
($ in thousands) 2021  2020  2021  2020 
GAAP Net Loss $(6,364) $(2,440) $(11,015) $(6,454)
Provision for income taxes  388   288   703   622 
Other (income) expense  (510)  153   (463)  (220)
Interest expense, net  38   45   81   326 
Depreciation of property and equipment  800   785   1,587   1,522 
Amortization of intangible assets  3,994   3,994   7,988   7,988 
Share-based compensation expense  4,516   488   7,608   924 
Change in fair value of contingent earnout liability  95   167   98   211 
Adjusted EBITDA $2,957  $3,480  $6,587  $4,919 
Adjusted EBITDA as a percent of total revenue  5%  7%  5%  5%


  Three Months Ended
February 28 and 29,
  Six Months Ended
February 28 and 29,
 
($ in thousands) 2021  Per Share  2020  2021  Per Share  2020 
GAAP Net Loss (2) $(6,364) $(0.05) $(2,440) $(11,015) $(0.08) $(6,454)
Add: GAAP tax provision  388       288   703       622 
GAAP pre-tax loss  (5,976)      (2,152)  (10,312)      (5,832)
Share-based compensation expense  4,516       488   7,608       924 
Amortization of intangible assets  3,994       3,994   7,988       7,988 
Change in fair value of contingent earnout liability  95       167   98       211 
Non-GAAP pre-tax income  2,629       2,497   5,382       3,291 
Non-GAAP tax provision applied at a 24% tax rate (1)  631       599   1,292       790 
Non-GAAP Net Income (2) $1,998  $0.01  $1,898  $4,090  $0.03  $2,501 
                         
Shares used in computing Non-GAAP income per share amounts:(2)                        
GAAP weighted-average shares - basic and diluted  130,982,116           130,851,680         
Non-GAAP dilutive shares excluded from GAAP income (loss) per share calculation  3,814,530           3,814,530         
Non-GAAP weighted-average shares - diluted  134,796,646           134,666,210         

(1)   Our GAAP 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.  For purposes of determining our Non-GAAP Net Income, we have applied a tax rate of 24% which represents our estimated effective tax rate once we are profitable on a GAAP basis.

(2)   Prior to Duck Creek’s initial public offering in August 2020, there were no shares of common stock outstanding, and the membership structure of Duck Creek Technologies consisted of limited partnership units. Accordingly, comparable period net loss per share has not been presented because it would not be meaningful to the users of the Company’s consolidated financial statements.

  Three Months Ended
February 28 and 29,
  Six Months Ended
February 28 and 29,
 
($ in thousands) 2021  2020  2021  2020 
Net cash used in operating activities $(921) $(1,807) $(23,093) $(9,948)
Purchases of property and equipment  (484)  (1,058)  (672)  (2,694)
Capitalized internal-use software  (214)  (693)  (750)  (1,555)
Free Cash Flow $(1,619) $(3,558) $(24,515) $(14,197)