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Duck Creek Technologies Announces First Quarter Fiscal 2023 Financial Results

  • First Quarter Fiscal 2023 Subscription revenue increased to $43.8 million, up 23% year-over-year
  • SaaS Annual Recurring Revenue (“SaaS ARR”) increased to $180.6 million, up 24% year-over-year

BOSTON, Jan. 05, 2023 (GLOBE NEWSWIRE) -- Duck Creek Technologies (NASDAQ: DCT), the intelligent SaaS solutions provider defining the future of property and casualty (“P&C”) insurance, today announced its financial results for the first quarter ended November 30, 2022.

“Duck Creek started fiscal 2023 strong, highlighted by nine SaaS wins for a variety of core and strategic insurance solutions with new and existing carrier customers of all sizes. We believe customer interest in core systems modernization will continue to be a top investment priority in the P&C industry and is viewed as essential to their success,” said Michael Jackowski, Duck Creek’s Chief Executive Officer.

Jackowski added, “We are encouraged by our recent performance and the opportunity ahead of us for the remainder of fiscal 2023. We are mindful of how fluid the macro environment is, but we are confident in Duck Creek’s ability to drive continued, profitable growth. Our recent announcement to acquire Imburse Payments is another proof point that Duck Creek is a well-positioned industry leader, enabling carriers’ digital transformation goals with modern tools.”

First Quarter 2023 Financial Highlights

Revenue

  • Total revenue for the first quarter of fiscal year 2023 was $80.6 million, an increase of 10% from the comparable period in fiscal year 2022. Subscription revenue was $43.8 million, an increase of 23%; professional services revenue was $27.9 million, a decrease of 6%; license revenue was $1.8 million, a decrease of 7%; and maintenance and support revenue was $7.2 million, an increase of 14%.
  • SaaS ARR was $180.6 million as of November 30, 2022, an increase of 24% from the comparable period in fiscal year 2022.

Profitability

  • GAAP loss from operations was $6.6 million for the first quarter of fiscal year 2023, compared with a GAAP income from operations of $1.9 million for the comparable period in fiscal year 2022.
  • Non-GAAP income from operations was $2.6 million for the first quarter of fiscal year 2023, compared with non-GAAP income from operations of $7.1 million for the comparable period in fiscal year 2022.
  • GAAP net loss was $5.2 million for the first quarter of fiscal year 2023, compared with GAAP net income of $0.7 million for the comparable period in fiscal year 2022.
  • Non-GAAP net income was $2.6 million for the first quarter of fiscal year 2023, compared with non-GAAP net income of $4.8 million for the comparable period in fiscal year 2022.
  • GAAP net loss per share was $0.04 for the first quarter of fiscal year 2023, compared with a GAAP net earnings per share of $0.01 for the comparable period in fiscal year 2022. Basic and diluted weighted average shares outstanding were approximately 132.7 million shares for the quarter ended November 30, 2022. Basic and diluted weighted average shares outstanding were approximately 132.0 million shares and 134.2 million shares, respectively, for the quarter ended November 30, 2021.
  • Non-GAAP net earnings per share was $0.02 for the first quarter of fiscal year 2023, compared with a non-GAAP net earnings per share of $0.04 for the comparable period in the fiscal year 2022, based on fully diluted weighted average shares outstanding of approximately 137.4 million shares and 134.2 million shares, respectively.
  • Adjusted EBITDA was $3.2 million for the first quarter of fiscal 2023, compared with adjusted EBITDA of $7.8 million for the comparable period in fiscal year 2022.

Liquidity

  • As of November 30, 2022, Duck Creek had $263.9 million in cash, cash equivalents and short-term investments and no debt. Duck Creek used $5.9 million of cash in operating activities and had free cash flow of ($7.4) million during the first quarter of fiscal year 2023, compared with $24.6 million of cash used in operating activities and free cash flow of ($25.5) million in the comparable period in fiscal year 2022.

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 second quarter of fiscal 2023 and full year of fiscal 2023 based on current expectations as of January 5, 2023:

     
  Second Quarter Fiscal 2023
Full Year Fiscal 2023
Revenue $79.5 million to $81.5 million $331.0 million to $338.0 million
Subscription Revenue $43.5 million to $44.5 million $177.0 million to $181.0 million
Adjusted EBITDA $4.0 million to $5.0 million $26.0 million to $28.0 million
Non-GAAP net (loss) income $3.0 million to $4.0 million $17.0 million to $19.0 million
Non-GAAP EPS $0.02 to $0.03 $0.13 to $0.14
     

The foregoing business outlook is a forward-looking statement. Refer to the Forward-Looking Statements safe harbor below for information on the factors that could cause actual results to differ materially from these forward-looking statements.

Conference Call Information

Duck Creek Technologies will host a conference call today, January 5, 2023, at 5:00 p.m. (Eastern Time) to discuss Duck Creek’s financial results and business outlook. A live webcast of the call will be available on the “Investor Relations” page of the Duck Creek’s website at https://ir.duckcreek.com/. To access the call by phone, please go to this link (registration link), and you will be provided with dial in details. To avoid delays, we encourage participants to dial into the conference call fifteen minutes ahead of the scheduled start time. 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 (NASDAQ: DCT) is the intelligent solutions provider defining the future of the property and casualty (P&C) and general insurance industry. We are the platform upon which modern insurance systems are built, enabling the industry to capitalize on the power of the cloud to run agile, intelligent, and evergreen operations. Authenticity, purpose, and transparency are core to Duck Creek, and we believe insurance should be there for individuals and businesses when, where, and how they need it most. Our market-leading solutions are available on a standalone basis or as a full suite, and all are available via Duck Creek OnDemand. Visit www.duckcreek.com to learn more. Follow Duck Creek on our social channels for the latest information – LinkedIn and Twitter.

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, including the Company’s business outlook. 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 second quarter fiscal 2023 and full year fiscal 2023, 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 are set forth in Duck Creek’s most recent Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on October 28, 2022, as supplemented by Duck Creek’s 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; and the significant influence of Duck Creek’s largest shareholders on the composition of its board of directors, its management, business plans, and policies and any conflicts of interests therewith.

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 (income) expense, net, depreciation of property and equipment, amortization of intangible assets, share-based compensation expense, change in fair value of contingent earnout liability, acquisition-related expenses, and severance expenses related to a workforce reduction. Non-GAAP income from operations excludes share-based compensation expense, amortization of intangible assets, change in fair value of contingent earnout liability, acquisition-related expenses, and severance expenses related to a workforce reduction. Non-GAAP gross margin excludes share-based compensation expense, amortization of intangible assets, amortization of capitalized internal-use software, and severance expenses related to a workforce reduction. Non-GAAP net income excludes share-based compensation expense, amortization of intangible assets, change in fair value of contingent earnout liability, acquisition-related expenses, and severance expenses related to a workforce reduction and the tax effect of such adjustments. Free cash flow consists of net cash provided by operating activities adjusted for purchases of property and equipment, capitalized internal-use software, and acquisition-related payments. 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 our portfolio of SaaS agreements. SaaS ARR is calculated by annualizing the recurring subscription revenue for each of our active SaaS agreements, which may not be the same as the timing and amount of revenue recognized. SaaS Net Dollar Retention is a rate calculated by annualizing the recurring subscription revenue for each of our active SaaS agreements, as of a specific date, for those customers in place throughout the entire measurement period (the last twelve-month period). We divide the result by annualized subscription revenue from the date that is immediately prior to the beginning of the measurement period, for all customers in place at the beginning of the measurement period.

Duck Creek 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. Duck Creek’s management uses these non-GAAP financial measures and other metrics to manage its business, make planning decisions, evaluate its performance and allocate resources. Duck Creek 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 Duck Creek 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 Duck Creek 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 Duck Creek’s non-GAAP financial measures in conjunction with its historical GAAP financial information.

Duck Creek is providing certain guidance on a non-GAAP basis, but is not providing 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 Duck Creek’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

Drake Manning
Duck Creek Technologies
860 877 3609
drake.manning@duckcreek.com

 
Duck Creek Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited, in thousands except share and per share amounts)
             
    November 30,     August 31,  
    2022     2022  
Assets            
Current assets:            
Cash and cash equivalents   $ 255,456     $ 155,265  
Short-term investments     8,432       117,823  
Accounts receivable, net     28,570       29,939  
Unbilled revenue     36,006       31,696  
Prepaid expenses and other current assets     16,303       13,355  
Total current assets     344,767       348,078  
Property and equipment, net     13,877       14,076  
Operating lease assets     15,636       16,502  
Goodwill     357,260       355,498  
Intangible assets, net     79,490       82,888  
Deferred tax assets     1,316       1,132  
Unbilled revenue, net of current portion     23       209  
Other assets     20,814       21,293  
Total assets   $ 833,183     $ 839,676  
Liabilities and Stockholders’ Equity            
Current liabilities:            
Accounts payable   $ 3,433     $ 2,577  
Accrued liabilities     38,980       41,747  
Lease liability     4,669       4,552  
Deferred revenue     26,509       29,618  
Total current liabilities     73,591       78,494  
Lease liability, net of current portion     16,660       17,877  
Deferred income taxes     8,827       8,654  
Deferred revenue, net of current portion     49       39  
Other long-term liabilities     2,753       2,207  
Total liabilities     101,880       107,271  
Commitments and contingencies            
Stockholders’ equity            
Common stock, 135,597,678 shares issued and 132,858,647 shares outstanding at November 30, 2022, 135,370,279 shares issued and 132,686,867 shares outstanding at August 31, 2022, 300,000,000 shares authorized at November 30, 2022 and August 31, 2022, par value $0.01 per share     1,355       1,353  
Preferred stock, 0 shares outstanding, 50,000,000 shares authorized at November 30, 2022 and August 31, 2022, par value $0.01 per share            
Treasury stock, common shares at cost; 2,739,031 shares at November 30, 2022 and
2,684,316 shares at August 31, 2022
    (69,437 )     (68,784 )
Accumulated deficit     (54,758 )     (49,597 )
Accumulated other comprehensive income (loss)     830       (393 )
Additional paid in capital     853,313       849,826  
Total stockholders’ equity     731,303       732,405  
Total liabilities and stockholders’ equity   $ 833,183     $ 839,676  
                 


 
Duck Creek Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited, in thousands except share and per share amounts)
       
    Three Months Ended
November 30,
 
    2022     2021  
             
Revenue:            
Subscription   $ 43,790     $ 35,705  
License     1,782       1,912  
Maintenance and support     7,159       6,277  
Professional services     27,855       29,527  
Total revenue     80,586       73,421  
Cost of revenue:            
Subscription     17,091       14,585  
License     261       244  
Maintenance and support     1,185       880  
Professional services     18,605       15,242  
Total cost of revenue     37,142       30,951  
Gross margin     43,444       42,470  
Operating expenses:            
Research and development     16,197       12,321  
Sales and marketing     16,211       13,167  
General and administrative     17,597       15,035  
Change in fair value of contingent consideration           67  
Total operating expenses     50,005       40,590  
Income (loss) from operations     (6,561 )     1,880  
Other income (expense), net     (402 )     (696 )
Interest income (expense), net     1,253       (118 )
Income (loss) before income taxes     (5,710 )     1,066  
Provision for (benefit from) income taxes     (549 )     374  
Net income (loss)   $ (5,161 )   $ 692  
Net income (loss) per share information            
Net earnings (loss) per share of common stock, basic   $ (0.04 )   $ 0.01  
Net earnings (loss) per share, diluted   $ (0.04 )   $ 0.01  
Weighted average shares of common stock, basic     132,748,831       132,038,274  
Weighted average shares of common stock, diluted     132,748,831       134,212,210  
                 

Cost of revenue and operating expenses amounts in the Consolidated Statements of Operations include share-based compensation expense as disclosed in the following table:

    Three Months Ended
November 30,
 
    2022     2021  
Cost of subscription revenue   $ 139     $ 42  
Cost of maintenance and support revenue     13       8  
Cost of services revenue     642       (100 )
Research and development     653       229  
Sales and marketing     568       (60 )
General and administrative     1,474       1,093  
Total share-based compensation expense   $ 3,489     $ 1,212  
                 


 
Duck Creek Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited, in thousands)
       
    Three Months Ended
November 30,
 
    2022     2021  
Operating activities:            
Net income (loss)   $ (5,161 )   $ 692  
Adjustments to reconcile net income (loss) to cash used in operating activities:            
Depreciation of property and equipment     653       704  
Amortization of capitalized software     611       561  
Amortization of intangible assets     4,440       3,973  
Amortization of deferred financing fees     36       18  
Share-based compensation expense     3,489       1,212  
Change in fair value of contingent earnout liability           67  
Payment of contingent earnout liability in excess of acquisition date fair value           (1,650 )
Changes to allowance for credit losses     6       817  
Deferred taxes     (10 )     1,288  
Changes in operating assets and liabilities            
Accounts receivable     1,532       (5,959 )
Unbilled revenue     (4,125 )     (3,115 )
Prepaid expenses and other current assets     (3,003 )     (2,428 )
Other assets     481       604  
Accounts payable     1,234       (909 )
Accrued liabilities     (2,708 )     (16,891 )
Deferred revenue     (3,099 )     (2,312 )
Operating leases     (235 )     (460 )
Cash settlement of vested phantom stock     (39 )     (175 )
Other long-term liabilities     12       (640 )
Net cash used in operating activities     (5,886 )     (24,603 )
Investing activities:            
Purchase of short-term investments     (8,417 )      
Maturities of short-term investments     117,481       95,967  
Capitalized internal-use software     (1,891 )     (366 )
Purchase of property and equipment     (443 )     (540 )
Net cash provided by investing activities     106,730       95,061  
Financing activities:            
Purchase of treasury stock     (653 )     (141 )
Proceeds from stock option exercises           132  
Payments of contingent earnout liability           (3,879 )
Payment of deferred financing costs           (488 )
Net cash used in financing activities     (653 )     (4,376 )
Net increase in cash and cash equivalents     100,191       66,082  
Cash and cash equivalents – beginning of period     155,265       185,657  
Cash and cash equivalents – end of period   $ 255,456     $ 251,739  
                 


Duck Creek Technologies, Inc. and Subsidiaries

Reconciliation of GAAP to Non-GAAP Financial Measures
(unaudited)

    Three Months Ended
November 30,
 
($ in thousands)   2022     2021  
GAAP Gross margin   $ 43,444     $ 42,470  
Share-based compensation expense     794       (50 )
Amortization of intangible assets     1,236       1,121  
Amortization of capitalized internal-use software     611       561  
Workforce reduction – severance expenses     392        
Non-GAAP Gross margin   $ 46,477     $ 44,102  


    Three Months Ended
November 30,
 
($ in thousands)   2022     2021  
GAAP Income (loss) from operations   $ (6,561 )   $ 1,880  
Share-based compensation expense     3,489       1,212  
Amortization of intangible assets     4,440       3,929  
Change in fair value of contingent earnout liability           67  
Acquisition-related expenses     559        
Workforce reduction – severance expenses     645        
Non-GAAP Income from operations   $ 2,572     $ 7,088  


    Three Months Ended
November 30,
 
($ in thousands)   2022     2021  
GAAP Net income (loss)   $ (5,161 )   $ 692  
Provision for (benefit from) income taxes     (549 )     374  
Other income (expense), net     402       696  
Interest (income) expense, net     (1,253 )     118  
Depreciation of property and equipment     653       704  
Amortization of intangible assets     4,440       3,929  
Share-based compensation expense     3,489       1,212  
Change in fair value of contingent earnout liability           67  
Acquisition-related expenses     559        
Workforce reduction – severance expenses     645        
Adjusted EBITDA   $ 3,225     $ 7,792  
Adjusted EBITDA as a percent of total revenue     4 %     11 %


    Three Months Ended
November 30,
       
($ in thousands)   2022     Per
Share
    2021     Per
Share
 
GAAP Net income (loss)   $ (5,161 )   $ (0.04 )   $ 692     $ 0.01  
Add: GAAP tax provision(1)     (549 )           374        
GAAP pre-tax income (loss)     (5,710 )           1,066        
Share-based compensation expense     3,489             1,212        
Amortization of intangible assets     4,440             3,929        
Change in fair value of contingent earnout liability                 67        
Acquisition-related expenses     559                    
Workforce reduction – severance expenses     645                    
Non-GAAP pre-tax income     3,423             6,274        
Non-GAAP tax provision applied at a 24% tax rate(1)     822             1,506        
Non-GAAP Net Income(1)   $ 2,601     $ 0.02     $ 4,768     $ 0.04  
                         
Shares used in computing Non-GAAP net income per share
amounts:
                       
GAAP weighted-average shares – basic     132,748,831             132,038,274        
GAAP dilutive shares                 2,173,936        
Non-GAAP dilutive shares (using the treasury stock method)     4,608,361                    
Non-GAAP weighted-average shares – diluted     137,357,192             134,212,210        

(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.

(2)  For the three months ended November 30, 2022, the Company had a GAAP net loss and non-GAAP net income. As such, outstanding potential shares of common stock are only included for the calculation of Non-GAAP earnings per share since these shares would be anti-dilutive for the calculation of GAAP earnings per share.

    Three Months Ended
November 30,
 
($ in thousands)   2022     2021  
Net cash provided by (used in) operating activities   $ (5,886 )   $ (24,603 )
Purchases of property and equipment     (443 )     (540 )
Capitalized internal-use software     (1,891 )     (366 )
Acquisition-related payments     862        
Free Cash Flow   $ (7,358 )   $ (25,509 )
                 

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