DUCK CREEK TECHNOLOGIES, INC. The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the forward-looking statements included herein. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled Part II, "Item 1A. Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q.
Overview
We are the leading SaaS provider of core systems for the P&C insurance industry. We have achieved our leadership position by combining over twenty years of deep domain expertise with the differentiated SaaS capabilities and low-code configurability of our technology platform. We believe we are the first company to provide carriers with an end-to-end suite of enterprise-scale core system software that is purpose-built as a SaaS solution. Our product portfolio is built on our modern technology foundation, the Duck Creek Platform, and works cohesively to improve the operational efficiency of carriers' core processes (policy administration, claims management and billing) as well as other critical functions. The Duck Creek Platform enables our customers to be agile and rapidly capitalize on market opportunities, while reducing their total cost of technology ownership.
Our deep understanding of the P&C insurance industry has enabled us to develop a single, unified suite of insurance software products that is tailored to address the key challenges faced by carriers. Our solutions promote carriers' nimbleness by enabling rapid integration and streamlining the ability to capture, access and utilize data more effectively. The Duck Creek Suite includes several products that support the P&C insurance process lifecycle, such as:
• Duck Creek Policy: enables carriers to develop and launch new insurance
products and manage all aspects of policy administration, from product
definition to quoting, binding and servicing
• Duck Creek Billing: supports fundamental payment and invoicing capabilities
(such as billing and collections, commission processing, disbursement
management and general ledger capabilities) for all insurance lines and
bill types
• Duck Creek Claims: supports the entire claims lifecycle from first notice
of loss through investigation, payments, negotiations, reporting and
closure
In addition, we offer other innovative solutions, such as Duck Creek Rating, Duck Creek Insights, Duck Creek Digital Engagement, Duck Creek Distribution Management, Duck Creek Reinsurance Management, Duck Creek Anywhere Managed Integrations and Duck Creek Industry Content, which provide additional features and functionalities that further help our customers meet the increasing and evolving demands of the P&C industry. Our customers purchase and deploy Duck Creek OnDemand, our SaaS solution, either individually or as a suite.
We sell our SaaS solutions through recurring fee arrangements where revenue is
recognized on a monthly basis following deployment to the customer, which we
refer to as subscription revenue. Substantially all of our new bookings come
from the sale of SaaS subscriptions of Duck Creek OnDemand. For the three months
ended
We also derive revenue from maintenance and support services on our perpetual and term license products (primarily software updates, rights to unspecified software upgrades on a when-and-if-available basis and remote support services). We recognize revenue on a monthly basis as maintenance and support services are provided to customers. We generate revenue by providing professional services for both our SaaS solutions and perpetual and term license products (primarily related to implementation services) to the extent requested by our customers. The vast majority of our professional services revenue is recognized on a time and materials basis as the work is delivered to our customers. Our customers may also choose to obtain implementation services through our network of third-party SI partners who provide implementation and other related services to our customers. Our partnerships with leading SIs allow us to grow our business more efficiently by giving us scale to service our growing customer base. We continue to grow our services organization, including increasing the number of qualified consultants we employ and investing time and resources to develop relationships with new SI partners in existing and new markets.
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We sell our products and services to a wide variety of carriers, including many
of the largest and most recognizable brands in the P&C insurance industry, as
well as smaller national and regional carriers. Our direct sales team focuses on
obtaining new customers, which includes carriers that currently operate
internally developed or competing systems, as well as selling into our existing
customer base, which includes marketing our SaaS solutions to our term and
perpetual license customers to drive adoption of our SaaS solutions and
cross-selling additional applications. We are committed to continued training
and development in order to increase the productivity of our sales team, with
regional sales centers in
We believe our strong customer relationships are a result of our ability to develop innovative technology and incorporate our deep domain expertise into products that serve mission critical functions in our customers' day-to-day operations. We have over 150 insurance customers, of which over 60 have purchased one or more of our SaaS solutions. For customer concentration purposes, customers are assessed two ways: individual entities (customers) and combining customers that are under common control (consolidated entities). We had one consolidated entity that accounted for 10% of our total revenue in the first quarter of fiscal 2021 and a different consolidated entity that represented approximately 13% of our total revenue during the first quarter of fiscal 2020. These consolidated entities are large multinational corporations that do business with us through multiple subsidiaries.
Key Factors and Trends Affecting Our Results of Operations
Increased focus on the sale of our SaaS solutions and resulting changing revenue
mix. A central part of our strategy is to continue to grow our subscription
revenue by signing new SaaS customers and increasing sales to our existing SaaS
customers. Additionally, over time we also expect to migrate existing term and
perpetual license customers to our SaaS solutions. As a result, our software
revenue mix will continue to change over time as the portion of license revenue
(primarily recognized up-front) decreases and the portion of subscription
revenue (recognized monthly) increases, which may make our results in any one
period difficult to compare to any other period. For the three months ended
Continued and increased adoption of our solutions by customers. Strong customer relationships are a key driver of our success given the importance of customer references for new sales. Our long-term relationships with existing customers provide us with significant opportunities to reach customer decision-makers and sell our product offerings that address the specific customer's needs, allowing us to recognize incremental sales with lower sales and marketing spend than for a new customer. With the continued launch of new functionality for the Duck Creek Suite, we have the opportunity to realize incremental value by selling additional functionality to customers that do not currently utilize our full product portfolio and by encouraging existing term and perpetual license customers to adopt our SaaS solutions. As we demonstrate our value to customers, we believe we will have the opportunity to sell them additional solutions. Moreover, because our products are priced on the basis of the amount of DWP generated by our customers, we expect our revenue will grow as our customers grow their businesses.
Timing of license revenue recognition and changing contract terms. Because our
offerings are typically priced based on a customer's DWP, and our business
relies on a relatively small number of high-value contracts, the license
revenues recognized in any fiscal period in which we sign a term license with a
large global carrier may be disproportionally higher than revenues recognized in
a period in which we only sign term licenses with smaller carriers. We generally
experience lengthy sales cycles because potential customers typically undertake
a rigorous pre-purchase decision-making and evaluation process. Additionally,
our license revenue may significantly increase in any given period in which a
new license contract is signed. In fiscal 2018, we revised our contracting
practices and began to sell our term licenses with an initial two-year committed
term and optional annual renewals instead of our historical three to six year
committed terms. This contracting change has impacted historical
period-over-period revenue comparisons. However, because of our revenue mix
shift to subscription and since our existing newer contracts have, and our
contracts going forward are expected to have, initial two-year committed terms,
this change has not had, and is not expected to have a material impact on the
comparability of our results presented herein and in future periods. Our term
license revenue accounted for 4% and 3% of software revenue during the three
months ended
Investment in sales and marketing organization. We plan to continue to invest in
our sales and marketing efforts to grow our customer base, increase sales of
additional functionality to existing customers and encourage carriers who
currently operate legacy systems or use one or more of our competitor's
applications to adopt our SaaS solutions. We expect to add sales personnel and
expand our marketing activities. We also intend to continue to expand our
international sales and marketing organization, which we believe will be an
important factor in our continued growth. Our sales and marketing expenses
totaled
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Investment in SaaS operations. We will continue to invest in Duck Creek
OnDemand, including through our new SaaS operations center and continued growth
in the number of our cloud and SaaS operations experts, to further our goal of
delivering the best experience for our SaaS customers. Personnel related costs
of our SaaS operations team is the fastest growing component of our cost of
subscription revenue. Our cost of subscription revenue totaled
Investment in technology and research and development efforts. We are committed
to continuing to deliver market-leading software to carriers and believe that
maintaining our product leadership is critical to driving further revenue
growth. As a result, we intend to continue to make significant investments in
our research and development efforts to extend the functionality and breadth of
our current solutions as well as develop and launch new products and tools to
address the evolving needs of the P&C insurance industry. Our research and
development expenses totaled
Mix of professional services revenue. Our professional services teams ensure the
successful configuration and integration of our solutions and provide continuous
support to our customers. We recognize most of our professional services revenue
during initial deployment and recognize additional revenue for services provided
over the lifetime of a customer's use of our software. Over time, a customer's
spend on professional services decreases as a percentage of their overall spend
with us. In addition, although we plan on increasing our professional services
headcount in the long-term, we expect to shift an increasing percentage of
implementation work to our network of third-party SIs to better enable us to
meet growing market demand. As a result, we expect our overall professional
services revenue to increase in absolute dollars due to the growth in the number
of our SaaS customers, but to decrease as a percentage of total revenue. During
the three months ended
COVID-19 expenses. In
Components of Results of Operations
Revenue
We generate our revenue from selling subscriptions to our SaaS solutions, licensing our term and perpetual software applications, providing maintenance and support services (primarily software updates, rights to unspecified software upgrades on a when-and-if-available basis and remote support services) to our term and perpetual license customers and providing professional services (primarily related to implementation services) to the extent requested by either our SaaS or term and perpetual license customers. We generally price our SaaS and licenses arrangements based on the amount of a customer's DWP that will be managed by our software solutions and may include volume-based pricing for customers managing a higher amount of DWP with our solutions. Our SaaS and license contracts generally include provisions for additional fees when the amount of the customer's DWP managed by our software solutions exceed agreed-upon caps within defined reporting periods, which are recognized on an as incurred basis. Software revenue is comprised of subscription revenue and revenue from licenses and maintenance and support services. Total revenue is comprised of software revenue plus revenue from our professional services.
Subscription
Our subscription revenue is comprised of fees from customers accessing our Duck
Creek OnDemand platform and other SaaS solutions. Revenue for a reporting period
is generally recognized ratably in proportion to the total contractual DWP,
beginning when the service has been made available to the customer. Our
subscription revenue accounted for 79% and 72% of software revenue during the
three months ended
Licenses
On an increasingly limited basis, we sell licenses for our solutions on either a
renewable term basis or a perpetual basis. The total contractual consideration
allocated to the license is recognized as revenue upon delivery of the software
to a customer, assuming all other revenue recognition criteria are satisfied.
Historically, our term license contracts had terms of three to six years. We
began revising our contracting practices in fiscal 2018 by selling our term
licenses with an initial two-year committed term and optional annual renewals,
with the revenue allocated to the initial two-year license period recognized in
full upon delivery of the license. As a result of our revenue mix shift to
subscription, this change did not have, and is not expected to have a material
impact on our results presented herein or going forward. There is potential
volatility across quarters for our license revenue due to the timing of license
sales and renewals. Our license revenue accounted for 4% of software revenue
during both the three months ended
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Maintenance and Support
In connection with our term and perpetual license arrangements, we offer maintenance and support under renewable, fee-based contracts that include unspecified software updates and upgrades released when and if available, software patches and fixes and email and phone support. Our maintenance and support fees are typically priced as a fixed percentage of the associated license fees. We recognize maintenance and support revenue from customers ratably over the committed term of the contract. Substantially all term and perpetual license customers purchase an agreement for maintenance and support. We expect to continue to generate a relatively consistent stream of revenue from the maintenance and support services we provide to our existing license customers. However, we expect revenue from maintenance and support services to decrease as a percentage of software revenue as we continue to deemphasize license sales in favor of our SaaS solutions. Our maintenance and support revenue accounted for 17% and 24% of software revenue during the three months ended 2020 and 2019, respectively.
Professional Services
We offer professional services, primarily related to implementation of our
products, in connection with both our SaaS solutions and software license
products. The vast majority of professional services engagements are billed to
customers on a time and materials basis and revenue is generally recognized upon
delivery of our services. We expect our professional services revenue to grow
over time in absolute dollars due to customer growth and an increasing need for
implementation services, but decrease as a percentage of total revenue. We
believe the rate at which we sell our software will drive a greater need for
implementation services that will support both an increase in our professional
services revenue and an increase in demand for the services provided by our
third-party SIs. Our professional services revenue generates lower gross margins
than our software revenue and accounted for 40% and 47% of our total revenue the
three months ended
Cost of Revenue
Our cost of revenue has fixed and variable components and depends on the type of revenue earned in each period. Cost of revenue includes amortization expense associated with acquired technology and other operating expenses directly related to the cost of products and services, including depreciation expense. We expect our cost of revenue to increase in absolute dollars as we continue to hire personnel, to provide hosting services, technical support and consulting services to our growing customer base.
Cost of Subscriptions
Our cost of subscription revenue is primarily comprised of cloud infrastructure costs, royalty fees paid to third-parties, amortization of acquired technology intangible assets and personnel-related expenses for our SaaS operations teams, including salaries and other direct personnel-related costs.
Cost of Licenses
Our cost of license revenue is primarily comprised of royalty fees paid to third-parties and amortization of acquired technology intangible assets.
Cost of Maintenance and Support
Our cost of maintenance and support revenue is comprised of personnel-related expenses for our technical support team, including salaries and other direct personnel-related costs. While we expect the cost of maintenance and support revenue will increase in the near term, it may decrease in the future if we successfully transition our term and perpetual license customers to our SaaS solutions.
Cost of Professional Services
Our cost of professional services revenue is primarily comprised of personnel-related expenses for our professional service employees and contractors, including salaries and other direct personnel-related costs.
Gross Margins
Gross margins have been and will continue to be affected by a variety of factors, including the average sales price of our products and services, DWP volume growth, the mix of revenue between SaaS solutions, software licenses, maintenance and support and professional services and changes in cloud infrastructure and personnel costs. We expect near term gross margin declines based on investments in additional personnel in both SaaS operations and professional services. Over time, we expect gross margins to increase as we onboard additional customers, achieve growth within existing customers and realize greater economies of scale.
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Operating Expenses Research and Development
Our research and development expenses consist primarily of costs incurred for
personnel-related expenses for our technical staff, including salaries and other
direct personnel-related costs. Additional expenses include consulting and
professional fees for third-party development resources. We expect our research
and development expenses to increase in absolute dollars for the foreseeable
future as we continue to dedicate substantial resources to develop, improve and
expand the functionality of our solutions. Costs incurred in the preliminary
design and development stages of our SaaS projects are generally expensed as
incurred in accordance with FASB ASC 350-40,
Sales and Marketing Expenses
Our sales and marketing expenses consist primarily of personnel related costs for our sales and marketing functions, including salaries and other direct personnel-related costs. Additional expenses include marketing program costs, including costs related to our annual Formation conference and amortization of acquired customer relationships intangible assets. While we expect our sales and marketing expenses to increase on an absolute dollar basis in the near term as we continue to increase investments to support our growth, we also anticipate that sales and marketing expenses will remain relatively consistent as a percentage of total revenue.
General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel-related costs for our executive, finance, human resources, information technology and legal functions, including salaries and other direct personnel-related costs. Additional expenses include professional fees, amortization of acquired trademarks, tradenames and domain name intangible assets, insurance and acquisition-related costs. While we expect other general and administrative expense to increase on an absolute dollar basis in the near term as we continue to increase investments to support our growth and as a result of our becoming a public company, we also anticipate that general and administrative expenses will decrease as a percentage of total revenue.
Change in Fair Value of Contingent Consideration
Certain of our acquisitions have included a component of contingent consideration to be paid to the sellers if certain performance levels are achieved by the acquired entity over a specific period of time. Contingent consideration is initially recorded at fair value on the acquisition date based, in part, on a range of estimated probabilities for achievement of these performance levels. The fair value is periodically adjusted as actual performance levels become known and updates are made to the estimated probabilities for future performance. A gain or loss is recognized in the income statement for fair value adjustments. As a result of additional acquisitions, it is possible that we will incur gains or losses in the future due to the change in the fair value of contingent consideration.
Other Income (Expense), Net
Other income (expense), net consists primarily of foreign exchange gains and
losses resulting from fluctuations in foreign exchange rates on receivables and
payables denominated in currencies other than the
Interest Expense, Net
Interest expense, net comprise interest expense accrued or paid on our indebtedness, net of interest income earned on our cash balances. We expect interest income (expense) to vary each reporting period depending on the amount of outstanding indebtedness, average cash balances, and prevailing interest rates.
Provision for Income Taxes
We are subject to taxes in
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Results of Operations
Comparison of the Three Months Ended
The following table sets forth our consolidated results of operations for the
periods indicated, expressed in total dollar terms and as a percentage of total
revenue:
Three Months Ended November 30,
(dollars in thousands) 2020 2019
Revenue
Subscription $ 27,909 47 % $ 17,537 38 %
License 1,350 2 1,045 2
Maintenance and support 6,190 11 5,926 13
Professional services 23,457 40 22,062 47
Total revenue 58,906 100 46,570 100
Cost of revenue
Subscription 10,084 17 7,277 16
License 388 1 326 1
Maintenance and support 842 1 878 2
Professional services 13,716 23 12,042 26
Total cost of revenue 25,030 42 20,523 44
Gross margins 33,876 58 26,047 56
Operating expenses
Research and development 11,104 19 9,219 20
Sales and marketing 12,597 21 10,571 23
General and administrative 14,418 25 9,985 21
Change in fair value of contingent
consideration 3 - 44 -
Total operating expense 38,122 65 29,819 64
Loss from operations (4,246 ) (7 ) (3,772 ) (8 )
Other (expense) income, net (47 ) - 373 1
Interest expense, net (43 ) - (281 ) (1 )
Loss before income taxes (4,336 ) (7 ) (3,680 ) (8 )
Provision for income taxes 315 - 334 1
Net loss $ (4,651 ) (7 )% $ (4,014 ) (9 )%
The following table sets forth share-based compensation expense included in our results of operations for the periods indicated:
Three Months Ended
November 30,
2020 2019
Cost of subscription revenue $ 80 $ -
Cost of maintenance and support revenue 7 1
Cost of services revenue 610 26
Research and development 511 90
Sales and marketing 899 77
General and administrative 985 242
Total share-based compensation expense $ 3,092 $ 436
Revenue
Subscription
Subscription revenue increased
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License
License revenue increased
Maintenance and Support
Maintenance and support revenue increased
Professional services
Professional services revenue increased
Cost of Revenue
Cost of revenue increased
Cost of Subscriptions
Cost of subscription revenue increased
Cost of License
Cost of license revenue increased
Cost of Maintenance and Support
Cost of maintenance and support revenue decreased
Cost of Professional Services
Cost of professional services revenue increased
Gross Margins
Gross margins increased
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Operating Expenses
Research and Development Expense
Research and development expense increased
Sales and Marketing Expense
Sales and marketing expense increased
General and Administrative Expense
General and administrative expense increased
Change in Fair Value of Contingent Consideration
Change in fair value of contingent consideration reflected minor expense values
in both comparison periods and is due to present value calculations related to
the contingent consideration of the acquisition of
Other Income (Expense), Net
Other income (expense), net decreased
Interest Expense, Net
Interest expense, net decreased
Provision for Income Taxes
Provision for income taxes was relatively consistent in the three months ended
Liquidity and Capital Resources
To date, we have financed our operations primarily through cash provided by
operating activities, our revolving credit facility, and, most recently, through
a portion of the net proceeds received from our IPO. As of
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As of
Summary of Cash Flows for the Three Months Ended
The following summarizes our cash flows from operating, investing and financing activities for the periods indicated:
Three Months Ended
November 30,
($ in thousands) 2020 2019
Net cash used in operating activities $ (22,172 ) $ (8,141 )
Net cash used in investing activities (724 ) (2,498 )
Net cash (used in) provided by financing activities (5,822 ) 13,309
Net (decrease) increase in cash and cash equivalents (28,718 ) 2,670
Cash and cash equivalents, beginning of period 389,878 11,999
Cash and cash equivalents, end of period $ 361,160 $ 14,669
Operating Activities
We used
Non-cash charges in all periods include depreciation and amortization, share-based compensation expense, deferred taxes, and change in fair value of contingent earn-out liability.
Investing Activities
Net cash used in investing activities consists of purchases of property and equipment and capitalization of internal use software costs.
We used
Financing Activities
We used
Cash generated from financing activities during the three months ended
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Other Financial Data and Key Metrics
Non-GAAP Financial Measures
We report our financial results in accordance with accounting principles
generally accepted in
We believe that Adjusted EBITDA, Free Cash Flow, Non-GAAP Gross Margin, Non-GAAP Income from Operations and Non-GAAP Net Income (Loss) help investors and analysts in comparing our results across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our 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. For example, with respect to Adjusted EBITDA, some of these limitations include:
• it does not reflect our cash expenditures, or future requirements, for
capital expenditures or contractual commitments;
• it does not reflect changes in, or cash requirements for, our working
capital needs;
• it does not reflect interest expense, or the cash requirements necessary to
service interest or principal payments, on our indebtedness;
• it does not reflect our income tax expense or the cash requirements to pay
our taxes; and
• although depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will often have to be replaced in the
future, and Adjusted EBITDA does not reflect any cash requirements for such
replacements.
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 we do 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 our consolidated historical operating results, you should examine our non-GAAP financial measures in conjunction with our historical combined financial statements and notes thereto included elsewhere in this prospectus.
The non-GAAP financial measures and principal metrics we use in managing our business are set forth below:
Adjusted EBITDA. We define Adjusted EBITDA as net loss before interest expense,
net; other income (expense), net; provision for income taxes; depreciation of
property and equipment; amortization of intangible assets; share-based
compensation expense; and the change in fair value of contingent consideration.
We believe Adjusted EBITDA provides investors and other users of our financial
information consistency and comparability with our past financial performance
and facilitates period-to-period comparisons of operations. Adjusted EBITDA was
Three Months Ended
November 30,
($ in thousands) 2020 2019
GAAP Net Loss $ (4,651 ) $ (4,014 )
Provision for income taxes 315 334
Other (income) expense 47 (373 )
Interest expense, net 43 281
Depreciation of property and equipment 787 737
Amortization of intangible assets 3,994 3,994
Share-based compensation expense 3,092 436
Change in fair value of contingent earnout liability 3 44
Adjusted EBITDA $ 3,630 $ 1,439
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Free Cash Flow. We define Free Cash Flow as net cash provided by operating
activities, less purchases of property and equipment and capitalized internal
use software. We consider Free Cash Flow to be an important measure in
facilitating period-to-period comparisons of liquidity. We use Free Cash Flow in
conjunction with traditional GAAP measures as part of our overall assessment of
liquidity. Free Cash Flow was
Three Months Ended
November 30,
($ in thousands) 2020 2019
Net cash provided by operating activities $ (22,172 ) $ (8,141 )
Purchases of property and equipment (188 ) (1,636 )
Capitalized internal-use software (536 ) (862 )
Free Cash Flow $ (22,896 ) $ (10,639 ) Non-GAAP Gross Margin. We define Non-GAAP Gross Margin as GAAP gross margin
before the portion of share-based compensation expense; amortization of
intangible assets; and amortization of capitalized internal-use software that is
included in cost of revenue. We believe Non-GAAP Gross Margin provides investors
and other users of our financial information consistency and comparability with
our past financial performance and facilitates period-to-period comparisons of
gross margin. Non-GAAP Gross Margin was
Three Months Ended
November 30,
($ in thousands) 2020 2019
GAAP Gross Margin $ 33,876 $ 26,047
Share-based compensation expense 697 27
Amortization of intangible assets 1,186 1,186
Amortization of capitalized internal-use software 498 -
Non-GAAP Gross Margin $ 36,257 $ 27,260 Non-GAAP Income from Operations. We define Non-GAAP Income from Operations as
GAAP loss from operations before share-based compensation expense; amortization
of intangible assets; and the change in fair value of contingent consideration.
We believe Non-GAAP Income from Operations provides investors and other users of
our financial information consistency and comparability with our past financial
performance and facilitates period-to-period comparisons of operations. Non-GAAP
Income from Operations was
Three Months Ended
November 30,
($ in thousands) 2020 2019
GAAP Loss from Operations $ (4,246 ) $ (3,772 )
Share-based compensation expense 3,092 436
Amortization of intangible assets 3,994 3,994
Change in fair value of contingent earnout liability 3 44
Non-GAAP Income from Operations $ 2,843 $ 702
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Non-GAAP Net Income (Loss). We define Non-GAAP Net Income as GAAP net loss
before share-based compensation expense; amortization of intangible assets; and
change in fair value of contingent earnout liability. We believe Non-GAAP Net
Income provides investors and other users of our financial information
consistency and comparability with our past financial performance and
facilitates period-to-period comparisons of operations. Non-GAAP Net Income was
Three Months Ended
November 30,
($ in thousands) 2020 2019
GAAP Net Loss $ (4,651 ) $ (4,014 )
Share-based compensation expense 3,092 436
Amortization of intangible assets 3,994 3,994
Change in fair value of contingent earnout liability 3 44
Tax effect of adjustments (1) - -
Non-GAAP Net Income $ 2,438 $ 460
Non-GAAP Net Income per Share (Basic) (2) $ 0.02
Shares used in computing Non-GAAP Net Income per nm
Share (Basic) (2) 130,788,359
(1) Our 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. Accordingly, there is no tax
impact associated with the non-GAAP adjustments in the U.S. We have not
included the insignificant tax benefit associated with the non-GAAP
adjustments related to our foreign jurisdictions that are taxed on a
cost-plus basis.
(2) Prior to the IPO, there were no shares of common stock outstanding, and the
membership structure of Duck Creek Technologies consisted of limited
partnership units. The Company analyzed the calculation of earnings per unit
for periods prior to the IPO and determined that it resulted in values that
would not be meaningful to the users of the Company's consolidated financial
statements.
SaaS Net Dollar Retention Rate. We calculate SaaS Net Dollar Retention Rate by
annualizing SaaS revenue recorded in the last month of the measurement period
for those revenue-generating customers in place throughout the entire
measurement period (the latest twelve-month period). We divide the result by
annualized SaaS revenue from the month that is immediately prior to the
beginning of the measurement period, for all revenue-generating customers in
place at the beginning of the measurement period. Our SaaS Net Dollar Retention
Rate was 118% and 113% for the three months ended
SaaS Annual Recurring Revenue ("SaaS ARR"). We calculate SaaS ARR by annualizing
the recurring subscription revenue recognized in the last month of the
measurement period (the latest twelve-month period). Our SaaS ARR was
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Non-GAAP Subscription Gross Margin. We define Non-GAAP Subscription Gross Margin
as GAAP subscription gross margin before the portion of amortization of
intangible assets, amortization of capitalized internal-use software and
share-based compensation expense that is included in subscription gross margin.
We believe Non-GAAP Subscription Gross Margin provides investors and other users
of our financial information consistency and comparability with our past
financial performance and facilitates period-to-period comparisons of
subscription gross margin. Non-GAAP Subscription Gross Margin was
Three Months Ended
November 30,
($ in thousands) 2020 2019
Subscription gross margin $ 17,825 $ 10,260
Amortization of intangible assets 890 885
Amortization of capitalized internal-use software 498 -
Share-based compensation expense 80 -
Non-GAAP Subscription Gross Margin $ 19,293 $ 11,145 Non-GAAP Professional Services Gross Margin. We define Non-GAAP Professional
Services Gross Margin as GAAP professional services gross margin before the
portion of share-based compensation expense that is included in professional
services gross margin. We believe Non-GAAP Professional Services Gross Margin
provides investors and other users of our financial information consistency and
comparability with our past financial performance and facilitates
period-to-period comparisons of professional services gross margin. Non-GAAP
Professional Services Gross Margin was
Three Months Ended
November 30,
($ in thousands) 2020 2019
Professional services gross margin $ 9,741 $ 10,020
Share-based compensation expense 610 26
Non-GAAP Professional Services Gross Margin $ 10,351 $ 10,046 Non-GAAP Sales and Marketing Expense. We define Non-GAAP Sales and Marketing
Expense as GAAP sales and marketing expense before the portion of amortization
of intangible assets and share-based compensation expense that is included in
sales and marketing expense. We believe Non-GAAP Sales and Marketing Expense
provides investors and other users of our financial information consistency and
comparability with our past financial performance and facilitates
period-to-period comparisons of sales and marketing expense. Non-GAAP Sales and
Marketing Expense was
Three Months Ended
November 30,
($ in thousands) 2020 2019
Sales and marketing expense $ 12,597 $ 10,571
Amortization of intangible assets (2,570 ) (2,570 )
Share-based compensation expense (899 ) (77 )
Non-GAAP Sales and Marketing Expense $ 9,128 $ 7,924
30
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Three Months Ended
November 30,
($ in thousands) 2020 2019
Research and development expense $ 11,104 $ 9,219
Share-based compensation expense (511 ) (90 )
Non-GAAP Research and Development Expense $ 10,593 $ 9,129 Non-GAAP General and Administrative Expense. We define Non-GAAP General and
Administrative Expense as GAAP general and administrative expense before the
portion of amortization of intangible assets and share-based compensation
expense that is included in general and administrative expense. We believe
Non-GAAP General and Administrative Expense provides investors and other users
of our financial information consistency and comparability with our past
financial performance and facilitates period-to-period comparisons of general
and administrative expense. Non-GAAP General and Administrative Expense was
Three Months Ended
November 30,
($ in thousands) 2020 2019
General and administrative expense $ 14,418 $ 9,985
Amortization of intangible assets (238 ) (238 )
Share-based compensation expense (985 ) (243 )
Non-GAAP General and Administrative Expense $ 13,195 $ 9,504
Indebtedness
On
The credit agreement contains a number of customary restrictive covenants,
including limits on additional indebtedness, the creation of liens and limits on
making certain investments. Limits on our revolving credit facility also require
compliance with the following ratios: maintaining a minimum level of
consolidated EBITDA (ranging from
31
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We incurred
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements, as defined in Regulation
S-K, Item 303(a)(4)(ii) promulgated by the
Critical Accounting Policies and Estimates
The process of preparing our financial statements in conformity with
Recent Accounting Pronouncements
A summary of recent accounting pronouncements and our assessment of any expected impact of these pronouncements if known is included in Note 2 of our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
JOBS Act
In
We are in the process of evaluating the benefits of relying on other exemptions
and reduced reporting requirements under the JOBS Act. Subject to certain
conditions, as an emerging growth company, we intend to rely on certain of these
exemptions, including without limitation, not having to (1) provide an auditor's
attestation report on our system of internal controls over financial reporting
pursuant to Section 404(b) of the Sarbanes-Oxley Act or (2) comply with any
requirement that may be adopted by PCAOB regarding mandatory audit firm rotation
or a supplement to the auditor's report providing additional information about
the audit and the financial statements, known as the auditor discussion and
analysis. We will remain an emerging growth company until the earlier of (1) the
last day of the fiscal year in which we have more than
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