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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2022

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission File Number: 001-39449

 

Duck Creek Technologies, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

84-3723837

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

Duck Creek Technologies, Inc.

22 Boston Wharf Road, Floor 10

Boston, MA

02210

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (888) 724-3509

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, $0.01 par value per share

 

DCT

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of June 28, 2022, the registrant had 132,571,189 shares of common stock, $0.01 par value per share, outstanding.

 

 


Special Note Regarding Forward-Looking Statements

Some of the information contained in the section entitled “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Quarterly Report on Form 10-Q contain forward-looking statements that reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “target,” “projects,” “contemplates” or the negative version of those words or other comparable words. Any forward-looking statements contained in this report are based upon our historical performance and on our current plans, estimates and expectations in light of information currently available to us. The inclusion of this forward-looking information should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. For more information regarding these risks and uncertainties as well as certain additional risks that we face, refer to Part II, “Item 1A. Risk Factors” as well as the factors more fully described in “Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” and in our Annual Report on Form 10-K for the year ended August 31, 2021, and those described from time to time in our future reports filed with the Securities and Exchange Commission. Accordingly, there are, or will be, important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to:

our history of losses;
loss of key employees;
changes in our product revenue mix as we continue to focus on sales of our Software-as-a-service (“SaaS”) solutions, which will cause fluctuations in our results of operations and cash flows between periods;
our reliance on orders and renewals from a relatively small number of customers for a substantial portion of our revenue, and the substantial negotiating leverage customers have in renewing and expanding their contracts for our solutions;
the success of our growth strategy focused on SaaS solutions and our ability to develop or sell our solutions into new markets or further penetrate existing markets;
our ability to manage our expanding operations;
intense competition in our market;
third parties may assert we are 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 our international sales and operations;
the length and variability of our sales and implementation cycles;
data breaches, unauthorized access to customer data or other disruptions of our solutions;
the significant influence that Apax VIII Fund, a global private equity fund (collectively, with its affiliates, “Apax”) and Accenture plc, a public limited company incorporated in Ireland (collectively, with its affiliates, “Accenture”), will have on the composition of our board of directors, our management, business plans and policies, and any conflicts of interest between Apax and Accenture, on the one hand, and our other stockholders, on the other hand;
impact of pandemics, including the COVID-19 pandemic, on U.S. and global economies, our business, our employees, results of operations, financial condition, demand for our products, sales and implementation cycles, and the health of our customers’ and partners’ businesses; and
the other risks and uncertainties described under Part II, “Item 1A. Risk Factors.”

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We do not undertake any obligation to publicly update or review any forward-looking statement except as required by law, whether as a result of new information, future developments or otherwise.

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. You should specifically consider the factors identified in this report that could cause actual results to differ before making an investment decision to purchase our common stock. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.

i


Basis of Presentation

As used in this Quarterly Report on Form 10-Q unless the context otherwise requires, references to “we,” “us,” “our,” the “Company,” “Duck Creek,” and similar references refer to Duck Creek Technologies, Inc. together with its subsidiaries, and the following terms have the meanings or are calculated as set forth below:

We define “subscription revenue” as the revenue derived from the sale of our SaaS solutions through recurring fee arrangements for the period indicated.
We define “ACV” as the committed total contract value of new software sales in dollar terms divided by the corresponding minimum number of committed months, with the resultant minimum monthly commitment being multiplied by twelve.
We define “carriers” as property and casualty (“P&C”) insurance carriers.
We define “core systems” as the following key functions of carriers: policy administration, claims management and billing.
We define “customers” as buying entities that contract individually for our products and services. For example, multiple subsidiaries of a single carrier may each constitute a customer if each entity contracts with us separately. By contrast, a carrier that uses our products across multiple subsidiaries under a single enterprise license agreement would constitute a single customer.
We define “DWPs” as the gross dollar value of total premiums paid to carriers by policyholders.

Certain monetary amounts, percentages, and other figures included in this Quarterly Report on Form 10-Q have been subject to rounding adjustments. Percentage amounts included in this Quarterly Report on Form 10-Q have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this Quarterly Report on Form 10-Q may vary from those obtained by performing the same calculations using the figures in our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Certain other amounts that appear in this Quarterly Report on Form 10-Q may not sum due to rounding. When we state that we are a leading SaaS provider of core systems for the P&C insurance industry, we are basing our leadership on our subscription revenue for fiscal 2021.

Our fiscal year ends on August 31. Unless otherwise noted, any reference to a year preceded by the word “fiscal” refers to the fiscal year ended August 31 of that year. For example, references to “fiscal 2022” refer to the fiscal year ended August 31, 2022. Any reference to a year not preceded by “fiscal” refers to a calendar year. Accordingly, our first three fiscal quarters are the successor three-month periods following August 31 (i.e., November 30, February 28 and May 31).

ii


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Consolidated Balance Sheets

1

 

Consolidated Statements of Operations

2

 

Consolidated Statements of Other Comprehensive Income (Loss)

3

 

Consolidated Statements of Stockholders’ Equity

4

 

Consolidated Statements of Cash Flows

6

 

Notes to Unaudited Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

36

PART II.

OTHER INFORMATION

37

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 3.

Defaults Upon Senior Securities

37

Item 4.

Mine Safety Disclosures

37

Item 5.

Other Information

37

Item 6.

Exhibits

38

Signatures

39

 

 

 

iii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share information)

(Unaudited)

 

 

 

May 31,

 

 

August 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

141,683

 

 

$

185,657

 

Short-term investments

 

 

223,511

 

 

 

191,981

 

Accounts receivable, net

 

 

32,105

 

 

 

34,629

 

Unbilled revenue

 

 

29,380

 

 

 

24,423

 

Prepaid expenses and other current assets

 

 

13,194

 

 

 

14,381

 

Total current assets

 

 

439,873

 

 

 

451,071

 

Property and equipment, net

 

 

12,740

 

 

 

14,305

 

Operating lease assets

 

 

15,783

 

 

 

17,798

 

Goodwill

 

 

272,455

 

 

 

272,455

 

Intangible assets, net

 

 

53,502

 

 

 

65,359

 

Deferred tax assets

 

 

1,398

 

 

 

2,331

 

Unbilled revenue, net of current portion

 

 

916

 

 

 

1,401

 

Other assets

 

 

20,031

 

 

 

19,413

 

Total assets

 

$

816,698

 

 

$

844,133

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,048

 

 

$

2,070

 

Accrued liabilities

 

 

33,814

 

 

 

46,437

 

Contingent earnout liability

 

 

 

 

 

5,462

 

Lease liability

 

 

4,072

 

 

 

4,110

 

Deferred revenue

 

 

24,378

 

 

 

29,577

 

Total current liabilities

 

 

63,312

 

 

 

87,656

 

Lease liability, net of current portion

 

 

17,852

 

 

 

21,273

 

Deferred revenue, net of current portion

 

 

49

 

 

 

 

Other long-term liabilities

 

 

2,376

 

 

 

4,466

 

Total liabilities

 

 

83,589

 

 

 

113,395

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, 135,183,927 shares issued and 132,547,111 shares outstanding at May 31, 2022, 134,625,379 shares issued and 132,000,317 shares outstanding at August 31, 2021, 300,000,000 shares authorized at May 31, 2022 and August 31, 2021, par value $0.01 per share

 

 

1,352

 

 

 

1,346

 

Preferred stock, 0 shares outstanding, 50,000,000 shares authorized at May 31, 2022 and August 31, 2021, par value $0.01 per share

 

 

 

 

 

 

Treasury stock, common shares at cost; 2,636,816 shares at May 31, 2022 and
   
2,625,062 shares at August 31, 2021

 

 

(68,110

)

 

 

(67,764

)

Accumulated deficit

 

 

(47,216

)

 

 

(41,265

)

Accumulated other comprehensive income

 

 

169

 

 

 

64

 

Additional paid in capital

 

 

846,914

 

 

 

838,357

 

Total stockholders' equity

 

 

733,109

 

 

 

730,738

 

Total liabilities and stockholders' equity

 

$

816,698

 

 

$

844,133

 

 

See accompanying notes to consolidated financial statements.

1


 

DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except share and per share information)

(Unaudited)

 

 

 

Three Months Ended
May 31,

 

 

Nine Months Ended
May 31,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

$

38,049

 

 

$

33,552

 

 

$

113,347

 

 

$

92,069

 

License

 

 

2,877

 

 

 

2,474

 

 

 

9,438

 

 

 

7,412

 

Maintenance and support

 

 

6,038

 

 

 

6,329

 

 

 

18,519

 

 

 

18,404

 

Professional services

 

 

25,400

 

 

 

25,583

 

 

 

80,899

 

 

 

71,611

 

Total revenue

 

 

72,364

 

 

 

67,938

 

 

 

222,203

 

 

 

189,496

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

 

14,639

 

 

 

12,045

 

 

 

43,468

 

 

 

33,540

 

License

 

 

441

 

 

 

535

 

 

 

1,098

 

 

 

1,369

 

Maintenance and support

 

 

928

 

 

 

855

 

 

 

2,792

 

 

 

2,556

 

Professional services

 

 

16,061

 

 

 

14,315

 

 

 

47,751

 

 

 

42,857

 

Total cost of revenue

 

 

32,069

 

 

 

27,750

 

 

 

95,109

 

 

 

80,322

 

Gross margin

 

 

40,295

 

 

 

40,188

 

 

 

127,094

 

 

 

109,174

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

14,236

 

 

 

12,255

 

 

 

40,873

 

 

 

36,040

 

Sales and marketing

 

 

16,003

 

 

 

13,628

 

 

 

42,741

 

 

 

40,390

 

General and administrative

 

 

14,783

 

 

 

15,238

 

 

 

46,649

 

 

 

44,273

 

Change in fair value of contingent consideration

 

 

 

 

 

(389

)

 

 

67

 

 

 

(291

)

Total operating expenses

 

 

45,022

 

 

 

40,732

 

 

 

130,330

 

 

 

120,412

 

Loss from operations

 

 

(4,727

)

 

 

(544

)

 

 

(3,236

)

 

 

(11,238

)

Other income (expense), net

 

 

(913

)

 

 

546

 

 

 

(1,641

)

 

 

1,009

 

Interest income (expense), net

 

 

283

 

 

 

(6

)

 

 

130

 

 

 

(87

)

Loss before income taxes

 

 

(5,357

)

 

 

(4

)

 

 

(4,747

)

 

 

(10,316

)

Provision for income taxes

 

 

407

 

 

 

353

 

 

 

1,204

 

 

 

1,056

 

Net loss

 

$

(5,764

)

 

$

(357

)

 

$

(5,951

)

 

$

(11,372

)

Net loss per share information1

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share of common stock, basic and diluted

 

$

(0.04

)

 

$

(0.00

)

 

$

(0.05

)

 

$

(0.08

)

Weighted average shares of common stock, basic and diluted

 

 

132,523,919

 

 

 

131,613,003

 

 

 

132,131,077

 

 

 

130,992,672

 

 

1.
See Note 8—Net Loss Per Share for additional details.

See accompanying notes to consolidated financial statements.

2


 

DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Other Comprehensive Income (Loss)

(In thousands)

(Unaudited)

 

 

 

Three Months Ended
May 31,

 

 

Nine Months Ended
May 31,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net loss

 

$

(5,764

)

 

$

(357

)

 

$

(5,951

)

 

$

(11,372

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains on available-for-sale securities

 

 

169

 

 

 

85

 

 

 

105

 

 

 

79

 

Total other comprehensive income

 

 

169

 

 

 

85

 

 

 

105

 

 

 

79

 

Comprehensive loss

 

$

(5,595

)

 

$

(272

)

 

$

(5,846

)

 

$

(11,293

)

 

See accompanying notes to consolidated financial statements.

 

 

3


 

DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(In thousands, except share information)

(Unaudited)

 

 

 

Common stock

 

 

Treasury Stock

 

 

Additional
paid-in

 

 

Accumulated Other Comprehensive

 

 

Accumulated

 

 

Total
stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

Income

 

 

deficit

 

 

equity

 

Balance at August 31, 2021

 

 

134,625,379

 

 

$

1,346

 

 

 

2,625,062

 

 

$

(67,764

)

 

$

838,357

 

 

$

64

 

 

$

(41,265

)

 

$

730,738

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

692

 

 

 

692

 

Repurchase of common stock

 

 

 

 

 

 

 

 

3,301

 

 

 

(141

)

 

 

 

 

 

 

 

 

 

 

 

(141

)

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,481

 

 

 

 

 

 

 

 

 

2,481

 

Issuance of common stock upon exercise of stock options

 

 

4,897

 

 

 

 

 

 

 

 

 

 

 

 

132

 

 

 

 

 

 

 

 

 

132

 

Vesting of restricted stock awards

 

 

60,148

 

 

 

1

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

(13

)

Balance at November 30, 2021

 

 

134,690,424

 

 

$

1,347

 

 

 

2,628,363

 

 

$

(67,905

)

 

$

840,969

 

 

$

51

 

 

$

(40,573

)

 

$

733,889

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(879

)

 

 

(879

)

Repurchase of common stock

 

 

 

 

 

 

 

 

3,099

 

 

 

(95

)

 

 

 

 

 

 

 

 

 

 

 

(95

)

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,380

 

 

 

 

 

 

 

 

 

3,380

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted stock awards

 

 

434,689

 

 

 

4

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(51

)

 

 

 

 

 

(51

)

Balance at February 28, 2022

 

 

135,125,113

 

 

$

1,351

 

 

 

2,631,462

 

 

$

(68,000

)

 

$

844,345

 

 

$

 

 

$

(41,452

)

 

$

736,244

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,764

)

 

 

(5,764

)

Repurchase of common stock

 

 

 

 

 

 

 

 

5,354

 

 

 

(110

)

 

 

 

 

 

 

 

 

 

 

 

(110

)

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,569

 

 

 

 

 

 

 

 

 

2,569

 

Vesting of restricted stock awards

 

 

58,814

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

169

 

 

 

 

 

 

169

 

Balance at May 31, 2022

 

 

135,183,927

 

 

$

1,352

 

 

 

2,636,816

 

 

$

(68,110

)

 

$

846,914

 

 

$

169

 

 

$

(47,216

)

 

$

733,109

 

 

See accompanying notes to consolidated financial statements.

 

4


 

DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(In thousands, except share information)

(Unaudited)

 

 

 

Common stock

 

 

Treasury Stock

 

 

Additional
paid-in

 

 

Accumulated Other Comprehensive

 

 

Accumulated

 

 

Total
stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

Loss

 

 

deficit

 

 

equity

 

Balance at August 31, 2020

 

 

133,269,301

 

 

$

1,333

 

 

 

2,555,556