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Duck Creek Technologies Announces Third Quarter Fiscal 2021 Financial Results

July 8, 2021

  • Third Quarter Fiscal 2021 Subscription revenue grew 56% year-over-year

  • SaaS Annual Recurring Revenue grew 64% year-over-year

BOSTON, July 08, 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 nine months ended May 31, 2021.

“Duck Creek continued to perform at a high level in the third quarter, highlighted by 56% subscription revenue growth,” said Michael Jackowski, Duck Creek’s Chief Executive Officer. “We signed several important wins with new and existing customers, including a substantial expansion with a Tier 1 carrier that is deploying Duck Creek OnDemand to additional lines of business.”
                                                                                                                                    
Mr. Jackowski added, “Our growing roster of successful Duck Creek OnDemand deployments is a clear demonstration that the P&C insurance industry is recognizing that our SaaS core systems platform can provide greater flexibility, faster innovation and a better customer experience than legacy systems. We remain at the early stages of this transformation and believe Duck Creek is well positioned to benefit for years to come.”

Third Quarter 2021 Financial Highlights

Revenue

  • Total revenue for the third quarter of fiscal year 2021 was $67.9 million, an increase of 26% from the comparable period in fiscal year 2020. Subscription revenue was $33.6 million, an increase of 56%; services revenue was $25.6 million, an increase of 6%; license revenue was $2.5 million, an increase of 15%; and maintenance revenue was $6.3 million, an increase of 4%.
  • SaaS annual recurring revenue, or SaaS ARR, was $124.1 million as of May 31, 2021, an increase of 64% from the comparable period in fiscal year 2020.

Profitability

  • GAAP loss from operations was $0.5 million for the third quarter of fiscal year 2021, compared with a GAAP loss from operations of $1.4 million for the comparable period in fiscal year 2020.

  • Non-GAAP income from operations was $4.8 million for the third quarter of fiscal year 2021, compared with non-GAAP income from operations of $2.9 million for the comparable period in fiscal year 2020.

  • GAAP net loss was $0.4 million for the third quarter of fiscal year 2021, compared with GAAP net loss of $2.0 million for the comparable period in fiscal year 2020.

  • Non-GAAP net income was $4.0 million for the third 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 $0.00, based on basic weighted average shares outstanding of approximately 131.6 million shares as of May 31, 2021. Non-GAAP net income per share was $0.03 based on fully diluted weighted average shares outstanding of approximately 135.2 million shares as of May 31, 2021.

  • Adjusted EBITDA was $5.5 million for the third quarter of fiscal 2021, compared with adjusted EBITDA of $3.8 million for the comparable period in fiscal year 2020.

Liquidity

  • As of May 31, 2021, Duck Creek had $115.6 million in cash and cash equivalents, $256.0 million in short term investments and no debt. The Company had $6.9 million in cash provided by operating activities and had free cash flow of $6.6 million during the third quarter of fiscal year 2021, compared with $18.2 million in cash provided by operating activities and free cash flow of $16.8 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 fourth quarter of fiscal 2021 and full year of fiscal 2021 based on current expectations as of July 8, 2021:

    
 Fourth Quarter Fiscal 2021 Full Year Fiscal 2021
Revenue$68.5 million to $69.5 million $258.0 million to $259.0 million
Subscription Revenue$32.0 million to $32.5 million $124.0 million to $124.5 million
Adjusted EBITDA$3.5 million to $4.5 million $15.6 million to $16.6 million

Conference Call Information

Duck Creek Technologies will host a conference call today, July 8, 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 5077088. 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 fourth 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 except share and per share amounts)

  May 31,  August 31, 
  2021  2020 
Assets        
Current assets:        
Cash and cash equivalents $115,637  $389,878 
Short-term investments  256,028    
Accounts receivable, net  37,177   29,149 
Unbilled revenue  22,491   18,121 
Prepaid expenses and other current assets  11,838   12,186 
Total current assets  443,171   449,334 
Property and equipment, net  16,008   18,113 
Operating lease assets  15,498   18,171 
Goodwill  272,455   272,455 
Intangible assets, net  69,425   81,687 
Deferred tax assets  2,226   1,550 
Unbilled revenue, net of current portion  2,576   3,487 
Other assets  16,679   16,303 
Total assets $838,038  $861,100 
Liabilities and Stockholders' Equity        
Current liabilities:        
Accounts payable $1,693  $1,802 
Accrued liabilities  42,485   58,202 
Contingent earnout liability  4,878   3,701 
Lease liability  3,007   3,611 
Deferred revenue  28,743   30,397 
Total current liabilities  80,806   97,713 
Contingent earnout liability, net of current portion     3,391 
Lease liability, net of current portion  18,342   21,739 
Deferred revenue, net of current portion  4   379 
Other long-term liabilities  4,285   4,121 
Total liabilities  103,437   127,343 
Commitments and contingencies (Note 13)        
Stockholders' equity        
Common stock, 134,217,410 shares issued and 131,660,379 shares outstanding at
  May 31, 2021, 133,269,301 shares issued and 130,713,745 shares
  outstanding at August 31, 2020, 300,000,000 shares authorized at May 31, 2021
  and August 31, 2020, par value $0.01 per share
  1,342   1,333 
Preferred stock, 0 shares outstanding, 50,000,000 shares authorized at May 31, 2021
  and August 31, 2020, par value $0.01 per share
      
Treasury stock, common shares at cost; 2,557,031 shares at May 31, 2021 and
  2,555,556 shares at August 31, 2020
  (64,745)  (64,688)
Accumulated deficit  (35,706)  (24,334)
Accumulated other comprehensive income  79    
Additional paid in capital  833,631   821,446 
Total stockholders' equity  734,601   733,757 
Total liabilities and stockholders' equity $838,038  $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
May 31,
  For the Nine Months Ended
May 31,
 
  2021  2020  2021  2020 
Revenue:                
Subscription $33,552  $21,555  $92,069  $59,368 
License  2,474   2,160   7,412   5,431 
Maintenance and support  6,329   6,064   18,404   17,791 
Professional services  25,583   24,174   71,611   70,760 
Total revenue  67,938   53,953   189,496   153,350 
Cost of revenue1:                
Subscription  12,045   8,721   33,540   24,871 
License  535   506   1,369   1,347 
Maintenance and support  855   710   2,556   2,475 
Professional services  14,315   13,459   42,857   38,839 
Total cost of revenue  27,750   23,396   80,322   67,532 
Gross margin  40,188   30,557   109,174   85,818 
Operating expenses1:                
Research and development  12,255   10,197   36,040   29,424 
Sales and marketing  13,628   11,723   40,390   33,539 
General and administrative  15,238   10,184   44,273   29,916 
Change in fair value of contingent consideration  (389)  (190)  (291)  21 
Total operating expenses  40,732   31,914   120,412   92,900 
Loss from operations  (544)  (1,357)  (11,238)  (7,082)
Other income (expense), net  546   (316)  1,009   (96)
Interest expense, net  (6)  (60)  (87)  (386)
Loss before income taxes  (4)  (1,732)  (10,316)  (7,564)
Provision for income taxes  353   267   1,056   889 
Net loss $(357) $(1,999) $(11,372) $(8,453)
Net loss per share information2                
Net loss per share of common stock, basic and diluted $0.00  $  $(0.08) $ 
Weighted average shares of common stock, basic and diluted  131,613,003      130,992,672    

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

  Three Months Ended
May 31,
  Nine Months Ended
May 31,
 
  2021  2020  2021  2020 
Cost of subscription revenue $90  $  $302  $10 
Cost of maintenance and support revenue  7   1   22   3 
Cost of services revenue  253   36   2,003   103 
Research and development  285   97   1,505   285 
Sales and marketing  199   93   2,493   257 
General and administrative  863   253   2,980   747 
Total share-based compensation expense $1,697  $480  $9,305  $1,404 

(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
May 31,
  For the Nine Months Ended
May 31,
 
  2021  2020  2021  2020 
Operating activities:                
Net loss $(357) $(1,999) $(11,372) $(8,453)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:                
Depreciation of property and equipment  790   828   2,377   2,350 
Amortization of capitalized software  510   154   1,506   205 
Amortization of intangible assets  4,087   4,268   12,262   12,803 
Amortization of deferred financing fees  28   67   85   106 
Share-based compensation expense  1,697   480   9,305   1,404 
Loss on change in fair value of contingent earnout liability  (389)  (190)  (291)  21 
Bad debt expense  654   137   664   65 
Deferred taxes  (161)  (169)  (676)  (146)
Other non-cash items  (37)     (37)   
Changes in operating assets and liabilities                
Accounts receivable  (3,093)  1,823   (8,693)  (4,301)
Unbilled revenue  (100)  2,756   (3,459)  (1,182)
Prepaid expenses and other current assets  3,373   1,697   262   96 
Other assets  303   (465)  (376)  (4,101)
Accounts payable  387   (472)  895   (304)
Accrued liabilities  4,269   7,983   (6,402)  9,323 
Deferred revenue  (1,706)  (50)  (2,029)  214 
Operating leases  565   1,514   (1,328)  199 
Cash settlement of vested phantom stock  (2,171)     (9,075)   
Other long-term liabilities  (1,774)  (166)  164   (52)
Net cash provided by (used in) operating activities  6,875   18,196   (16,218)  8,247 
Investing activities:                
Purchase of short-term investments        (287,912)   
Maturities of short-term investments  32,000      32,000    
Capitalized internal-use software  (114)  (885)  (864)  (2,440)
Purchase of property and equipment  (162)  (470)  (834)  (3,164)
Net cash used in investing activities  31,724   (1,355)  (257,610)  (5,604)
Financing activities:                
Proceeds from follow-on offering, net of issuance costs        3,452    
Payment of deferred IPO costs        (3,650)   
Payment of deferred Class E offering costs        (192)  (2,552)
Proceeds from issuance of Class E Units, net of issuance costs     (2,780)     212,888 
Payment on redemption of Class A and Class B Units           (198,000)
Purchase of treasury stock        (57)   
Proceeds from stock option exercises  964      1,957    
Payments of contingent earnout liability     (374)  (1,923)  (3,555)
Proceeds from revolving credit facility           5,000 
Payments on revolving credit facility           (9,000)
Payment of deferred financing costs     (480)     (228)
Net cash provided by (used in) financing activities  964   (3,634)  (413)  4,553 
Net increase (decrease) in cash and cash equivalents  39,563   13,207   (274,241)  7,196 
Cash and cash equivalents – beginning of period  76,074   5,988   389,878   11,999 
Cash and cash equivalents – end of period $115,637  $19,195  $115,637  $19,195 


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

  Three Months Ended
May 31,
  Nine Months Ended
May 31,
 
($ in thousands) 2021  2020  2021  2020 
GAAP Gross Margin $40,188  $30,557  $109,174  $85,818 
Share-based compensation expense  350   39   2,327   116 
Amortization of intangible assets  1,186   1,187   3,559   3,559 
Amortization of capitalized internal-use software  510   154   1,506   205 
Non-GAAP Gross Margin $42,234  $31,937  $116,566  $89,698 


  Three Months Ended
May 31,
  Nine Months Ended
May 31,
 
($ in thousands) 2021  2020  2021  2020 
GAAP Loss from Operations $(544) $(1,357) $(11,238) $(7,082)
Share-based compensation expense  1,697   480   9,305   1,404 
Amortization of intangible assets  3,994   3,994   11,982   11,982 
Change in fair value of contingent earnout liability  (389)  (190)  (291)  21 
Non-GAAP Income from Operations $4,758  $2,927  $9,758  $6,325 


  Three Months Ended
May 31,
  Nine Months Ended
May 31,
 
($ in thousands) 2021  2020  2021  2020 
GAAP Net Loss $(357) $(1,999) $(11,372) $(8,453)
Provision for income taxes  353   267   1,056   889 
Other (income) expense  (546)  316   (1,009)  96 
Interest expense, net  6   60   87   386 
Depreciation of property and equipment  790   828   2,377   2,350 
Amortization of intangible assets  3,994   3,994   11,982   11,982 
Share-based compensation expense  1,697   480   9,305   1,404 
Change in fair value of contingent earnout liability  (389)  (190)  (291)  21 
Adjusted EBITDA $5,548  $3,756  $12,135  $8,675 
Adjusted EBITDA as a percent of total revenue  8%  7%  6%  6%


  Three Months Ended
May 31,
  Nine Months Ended
May 31,
 
($ in thousands) 2021  Per Share  2020  2021  Per Share  2020 
GAAP Net Loss (1) $(357) $  $(1,999) $(11,372) $(0.08) $(8,453)
Add: GAAP tax provision  353       267   1,056       889 
GAAP pre-tax loss  (4)      (1,732)  (10,316)      (7,564)
Share-based compensation expense  1,697       480   9,305       1,404 
Amortization of intangible assets  3,994       3,994   11,982       11,982 
Change in fair value of contingent earnout liability  (389)      (190)  (291)      21 
Non-GAAP pre-tax income  5,298       2,552   10,680       5,843 
Non-GAAP tax provision applied at a 24% tax rate (2)  1,272       612   2,563       1,402 
Non-GAAP Net Income (1) $4,026  $0.03  $1,940  $8,117  $0.06  $4,441 
                         
Shares used in computing Non-GAAP income per share
amounts:(1)
                        
GAAP weighted-average shares - basic and diluted  131,613,003           130,992,672         
Non-GAAP dilutive shares excluded from GAAP
  loss per share calculation
  3,575,928           3,575,928         
Non-GAAP weighted-average shares - diluted  135,188,931           134,568,600         

(1)   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.

(2)   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.

  Three Months Ended
May 31,
  Nine Months Ended
May 31,
 
($ in thousands) 2021  2020  2021  2020 
Net cash provided by (used in) operating activities $6,875  $18,196  $(16,218) $8,247 
Purchases of property and equipment  (162)  (470)  (834)  (3,164)
Capitalized internal-use software  (114)  (885)  (864)  (2,440)
Free Cash Flow $6,599  $16,841  $(17,916) $2,643