10-Q 1 dct-20221130.htm 10-Q 10-Q
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f

 

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 November 30, 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 January 3, 2023, the registrant had 132,888,209 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,” those described in our Annual Report on Form 10-K for the year ended August 31, 2022, and those described from time to time in our future reports filed with the Securities and Exchange Commission (the “SEC”). 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;
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, including our ability to attract and retain our key professional employees;
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 (including the recent economic downturn, inflationary pressures and international political instabilities), 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; 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 the leading cloud-based SaaS provider of core systems for the global property and casualty (P&C) insurance industry, we are basing our leadership on our subscription revenue for fiscal 2022.

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 2023” refer to the fiscal year ended August 31, 2023. 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

34

Item 4.

Controls and Procedures

34

PART II.

OTHER INFORMATION

35

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 3.

Defaults Upon Senior Securities

35

Item 4.

Mine Safety Disclosures

35

Item 5.

Other Information

35

Item 6.

Exhibits

36

Signatures

37

 

 

 

iii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share information)

(Unaudited)

 

 

 

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

 

 

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
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 earnings (loss) per share information1

 

 

 

 

 

 

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

 

 

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
November 30,

 

 

 

2022

 

 

2021

 

Net income (loss)

 

$

(5,161

)

 

$

692

 

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

1,550

 

 

 

 

Unrealized losses on available-for-sale securities

 

 

(327

)

 

 

(13

)

Total other comprehensive income (loss)

 

 

1,223

 

 

 

(13

)

Comprehensive income (loss)

 

$

(3,938

)

 

$

679

 

 

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 (loss)

 

 

deficit

 

 

equity

 

Balance at August 31, 2022

 

 

135,370,279

 

 

$

1,353

 

 

 

2,684,316

 

 

$

(68,784

)

 

$

849,826

 

 

$

(393

)

 

$

(49,597

)

 

$

732,405

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,161

)

 

 

(5,161

)

Repurchase of common stock

 

 

 

 

 

 

 

 

54,715

 

 

 

(653

)

 

 

 

 

 

 

 

 

 

 

 

(653

)

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,489

 

 

 

 

 

 

 

 

 

3,489

 

Vesting of restricted stock awards

 

 

227,399

 

 

 

2

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,223

 

 

 

 

 

 

1,223

 

Balance at November 30, 2022

 

 

135,597,678

 

 

$

1,355

 

 

 

2,739,031

 

 

$

(69,437

)

 

$

853,313

 

 

$

830

 

 

$

(54,758

)

 

$

731,303

 

 

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

 

 

Income (loss)

 

 

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

)

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

(13

)

Balance at November 31, 2021

 

 

134,690,424

 

 

$

1,347

 

 

$

2,628,363

 

 

$

(67,905

)

 

$

840,969

 

 

$

51

 

 

$

(40,573

)

 

$

733,889

 

 

See accompanying notes to consolidated financial statements.

 

5


 

DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

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

 

Supplemental disclosure of other cash flow information:

 

 

 

 

 

 

Cash paid for income taxes

 

 

339

 

 

 

1,001

 

Purchases of property and equipment recorded in accounts payable and accrued liabilities

 

 

29

 

 

 

161

 

 

 

See accompanying notes to consolidated financial statements.

6


 

 

DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

(Unaudited)

(1)