DUCK CREEK TECHNOLOGIES, INC. [DCT] Filings

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10-Q 1 dct-20220228.htm 10-Q 10-Q

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 February 28, 2022

☐ 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.

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 April 5, 2022, the registrant had 132,523,537 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.

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).

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	35
Item 4.	Controls and Procedures	35
PART II.	OTHER INFORMATION	36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
Signatures		38

iii

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share information)

(Unaudited)


	February 28,			August 31,
	2022			2021
Assets
Current assets:
Cash and cash equivalents	$	348,592		$	185,657
Short-term investments		—			191,981
Accounts receivable, net		39,065			34,629
Unbilled revenue		29,648			24,423
Prepaid expenses and other current assets		18,055			14,381
Total current assets		435,360			451,071
Property and equipment, net		13,333			14,305
Operating lease assets		16,653			17,798
Goodwill		272,455			272,455
Intangible assets, net		57,438			65,359
Deferred tax assets		1,334			2,331
Unbilled revenue, net of current portion		954			1,401
Other assets		20,446			19,413
Total assets	$	817,973		$	844,133
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	485		$	2,070
Accrued liabilities		31,976			46,437
Contingent earnout liability		—			5,462
Lease liability		4,057			4,110
Deferred revenue		24,155			29,577
Total current liabilities		60,673			87,656
Lease liability, net of current portion		19,033			21,273
Deferred revenue, net of current portion		56			—
Other long-term liabilities		1,967			4,466
Total liabilities		81,729			113,395
Commitments and contingencies
Stockholders' equity
Common stock, 135,125,113 shares issued and 132,493,651 shares outstanding at February 28, 2022, 134,625,379 shares issued and 132,000,317 shares outstanding at August 31, 2021, 300,000,000 shares authorized at February 28, 2022 and August 31, 2021, par value $0.01 per share		1,351			1,346
Preferred stock, 0 shares outstanding, 50,000,000 shares authorized at February 28, 2022 and August 31, 2021, par value $0.01 per share		—			—
Treasury stock, common shares at cost; 2,631,462 shares at February 28, 2022 and 2,625,062 shares at August 31, 2021		(68,000	)		(67,764	)
Accumulated deficit		(41,452	)		(41,265	)
Accumulated other comprehensive income		—			64
Additional paid in capital		844,345			838,357
Total stockholders' equity		736,244			730,738
Total liabilities and stockholders' equity	$	817,973		$	844,133

See accompanying notes to consolidated financial statements.

DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except share and per share information)

(Unaudited)


	Three Months Ended February 28,						Six Months Ended February 28,
	2022			2021			2022			2021
Revenue:
Subscription	$	39,593		$	30,608		$	75,298		$	58,517
License		4,649			3,588			6,561			4,938
Maintenance and support		6,204			5,885			12,481			12,075
Professional services		25,972			22,571			55,499			46,028
Total revenue		76,418			62,652			149,839			121,558
Cost of revenue:
Subscription		14,244			11,411			28,829			21,495
License		413			446			657			834
Maintenance and support		984			859			1,864			1,701
Professional services		16,448			14,826			31,690			28,542
Total cost of revenue		32,089			27,542			63,040			52,572
Gross margin		44,329			35,110			86,799			68,986
Operating expenses:
Research and development		14,316			12,681			26,637			23,785
Sales and marketing		13,571			14,165			26,738			26,762
General and administrative		16,831			14,617			31,866			29,035
Change in fair value of contingent consideration		—			95			67			98
Total operating expenses		44,718			41,558			85,308			79,680
Income (loss) from operations		(389	)		(6,448	)		1,491			(10,694	)
Other income (expense), net		(32	)		510			(728	)		463
Interest expense, net		(35	)		(38	)		(153	)		(81	)
Income (loss) before income taxes		(456	)		(5,976	)		610			(10,312	)
Provision for income taxes		423			388			797			703
Net loss	$	(879	)	$	(6,364	)	$	(187	)	$	(11,015	)
Net loss per share information1
Net loss per share of common stock, basic and diluted	$	(0.01	)	$	(0.05	)	$	(0.00	)	$	(0.08	)
Weighted average shares of common stock, basic and diluted		132,103,016			130,982,116			132,057,733			130,851,680

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

See accompanying notes to consolidated financial statements.

DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Other Comprehensive Income (Loss)

(In thousands)

(Unaudited)


	Three Months Ended February 28,						Six Months Ended February 28,
	2022			2021			2022			2021
Net loss	$	(879	)	$	(6,364	)	$	(187	)	$	(11,015	)
Other comprehensive loss:
Unrealized losses on available-for-sale securities		(51	)		(6	)		(64	)		(6	)
Total other comprehensive loss		(51	)		(6	)		(64	)		(6	)
Comprehensive loss	$	(930	)	$	(6,370	)	$	(251	)	$	(11,021	)

See accompanying notes to consolidated financial statements.

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 income																	(879	)		(879	)
Repurchase of common stock						3,099		(95	)											(95	)
Share-based compensation expense											3,380									3,380
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

See accompanying notes to consolidated financial statements.

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	$	(64,688	)	$	821,446		$	—		$	(24,334	)	$	733,757
Net loss		—		—		—		—			—			—			(4,651	)		(4,651	)
Repurchase of common stock		—		—		1,475		(57	)		—			—			—			(57	)
Share-based compensation expense		—		—		—		—			2,333			—			—			2,333
Vesting of restricted stock awards		142,193		1		—		—			(1	)		—			—			—
Balance at November 31, 2020		133,411,494	$	1,334		2,557,031	$	(64,745	)	$	823,778		$	—		$	(28,985	)	$	731,382
Net loss		—		—		—		—			—			—			(6,364	)		(6,364	)
Proceeds from follow-on offering, net of issuance costs		90,000		1		—		—			3,452						—			3,453
Share-based compensation expense		—		—		—		—			2,478									2,478
Issuance of common stock upon exercise of stock options		36,809		—		—		—			993			—			—			993
Vesting of restricted stock awards		543,170		6		—		—			(6	)		—			—			—
Unrealized loss on available-for-sale securities		—		—		—		—			—			(6	)		—			(6	)
Balance at February 28, 2021		134,081,473	$	1,341		2,557,031	$	(

DUCK CREEK TECHNOLOGIES, INC. [DCT] Filings
10-Q	[2022-04-07]
10-Q	[2022-01-13]
10-K	[2021-10-29]
10-Q	[2021-07-15]
10-Q	[2021-04-12]
S-1	[2021-01-26]
10-Q	[2021-01-13]
S-1	[2020-11-09]
10-K	[2020-11-03]
S-1	[2020-07-23]