Prospectus Summary
PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus and does not contain all the information you should consider before making an investment decision. You should read the entire prospectus carefully, including the sections entitled “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” “Unaudited Pro Forma Consolidated Financial Information,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the accompanying notes included elsewhere in this prospectus, before making an investment decision. Unless otherwise indicated or the context otherwise requires, all references in this prospectus to “we,” “us,” “our,” the “Company,” “Duck Creek” and similar terms refer to Duck Creek Technologies, Inc. and its consolidated subsidiaries as a combined entity immediately following the Reorganization Transactions. See “—About this Prospectus—Basis of Presentation” for additional terms and the basis for certain information used herein. Unless otherwise noted, any reference to a year preceded by the word “fiscal” refers to the fiscal year ended August 31 of that year.Our Mission
We empower property and casualty insurance carriers to transform their information technology, business practices, insurance products, and customer experiences, making their organizations stronger and their customers safer and more satisfied. The SaaS solutions we provide are helping to modernize one of the most important industries in the world and, ultimately, revolutionizing insurance for the greater good.
Company Overview
We are the leading Software-as-a-Service (“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.
The core business functions of carriers are complex and data intensive, requiring large ongoing investments in domain specific technology. Heightened end-user expectations, increased competition, and new and evolving risks pose new challenges for carriers, creating the need for software that fosters agility, innovation and speed to market. However, a large portion of the P&C insurance market continues to rely on legacy technology systems that are costly and inefficient to maintain, difficult to upgrade, and lacking in functional flexibility. In recent years, some carriers have turned to newer alternatives to legacy systems. These systems have been designed for on-premise environments and lack the inherent benefits of purpose-built SaaS solutions, perpetuating the limitations, inflexibility and cost of legacy systems. By contrast, our SaaS solutions, offered through Duck Creek OnDemand, accelerate carriers’ agility and speed to market by enabling rapid, low-code product development, and protecting carriers’ unique content configurations and integrations while providing upgrades and updates via continuous delivery. We have developed a substantial SaaS customer base and believe that we have established a meaningful first-mover advantage by demonstrating the superiority of SaaS solutions for core systems in the P&C insurance industry. We began offering SaaS solutions for core systems in the P&C insurance industry in 2013 and signed our first customer in 2014.
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:
Our customers purchase and deploy Duck Creek OnDemand, our SaaS solution, either individually or as a suite. Historically, we have also sold our products through perpetual and term license arrangements, substantially all of which include maintenance and support arrangements. We offer professional services, primarily related to implementation of our products, in connection with both our SaaS solutions and perpetual and term license arrangements. Substantially all of our new bookings come from the sale of SaaS subscriptions of Duck Creek OnDemand. For the twelve months ended August 31, 2017, 2018 and 2019, SaaS ACV bookings represented 48%, 71% and 86% of our total ACV bookings, respectively, and for the nine months ended May 31, 2019 and 2020, SaaS ACV bookings represented 82% and 95% of our total ACV bookings, respectively.
Our customer base is comprised of a range of carriers, including some of the largest companies in the P&C insurance industry, such as Progressive, Liberty Mutual, AIG, The Hartford, Berkshire Hathaway Specialty Insurance, GEICO and Munich Re Specialty Insurance, as well as regional carriers, such as UPC, Coverys, Avant Mutual, IAT Insurance Group and Mutual Benefit Group. We have over 150 insurance customers worldwide, including the top five North American carriers.
We have a broad partner ecosystem that includes third-party solution partners who provide complementary capabilities as well as system integrators (“SIs”) who provide implementation and other related services to our customers. These partnerships help us grow our business more efficiently by enhancing our sales force through co-marketing efforts and giving us scale to service our growing customer base. We maintain longstanding partnerships with leading SIs, such as Accenture, Capgemini and Cognizant, as well as leading technology companies, such as Microsoft and Salesforce, and Insurtech start-ups, such as Arity, Slice Labs, and Cape Analytics.
Our subscription revenues have grown significantly in recent years, both in absolute terms and as a percentage of our business. For the fiscal year ended August 31, 2019, we generated subscription revenues of $56 million, an increase of 32% compared to subscription revenues of $42 million for the fiscal year ended August 31, 2018, and for the nine months ended May 31, 2020, we generated subscription revenues of $59 million, an increase of 49% compared to subscription revenues of $40 million for the nine months ended May 31, 2019. We generated total revenues of $171 million for the fiscal year ended August 31, 2019, an increase of 7% compared to total revenues of $160 million for the fiscal year ended August 31, 2018, and we generated total revenues of $153 million for the nine months ended May 31, 2020, an increase of 24% compared to total revenues of $123 million for the nine months ended May 31, 2019. We have made significant investments in our software platform and sales and marketing organization, and incurred net losses of $17 million and $8 million for the fiscal years ended August 31, 2019 and 2018, respectively, and $8 million and $14 million for the nine months ended May 31, 2020 and 2019, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information.
P&C Insurance Industry Overview
The P&C insurance industry is large, complex and highly regulated. In 2018, the industry serviced approximately $2.4 trillion of DWP spanning thousands of carriers globally. In addition to being one of the largest global industries, we believe it is also one of the most resilient. For a majority of businesses and consumers, insurance is a necessity rather than an amenity. As a result, overall spend on insurance products has continued to grow steadily over the long-term, even across periods of economic volatility.
Core systems, including policy, billing and claims, power carriers’ critical operations. Core systems house the insurance product structure, such as rates, rules and forms, and generate data that allows the actuarial and underwriting staff of carriers to continuously modify and improve product offerings and provide more personalized customer service. They also manage the claims lifecycle, from first notice of loss to settlement. In addition, core systems integrate with agent and broker portals, operational data stores and data warehouses as well as business intelligence and analytics systems.
It is not uncommon for a single carrier to use multiple vendors (or internally developed applications) to provide core systems for different insurance lines or geographies, or for discrete core system processes (e.g., policy, billing, claims) within a single insurance line and geography. A carrier may use our software for certain parts of its business, and deploy solutions from different vendors for other parts of its business. As a result, we have a market opportunity to both achieve greater penetration within our existing customer base as well as increase our customer base by servicing new customers who are not currently using our products. The following diagram provides a framework for understanding the multifaceted processes of carriers:
Our Market Opportunity
Carriers invest substantial time and resources to develop and maintain their information technology (“IT”) operations. We estimate that our total addressable market, representing the portion of this spending that is focused specifically on core system software, is approximately $6 billion in the United States and $15 billion globally. To estimate our total addressable market, we categorized the P&C insurance market into tiers based on DWP per carrier as reported by S&P Global, A.M. Best and Swiss Re, both within the United States and globally. We then estimated average price per DWP for our core systems solutions, accounting for tiered price discounts at different tiers, and multiplied the price per DWP by the total amount of DWP at each tier available both in the United States and globally.
Challenges Facing the P&C Insurance Industry and the Limitations of Legacy Systems
We believe reliance on legacy systems and other systems designed for on-premise environments limit carriers’ ability to respond to many of the significant challenges facing their industry, including:
These challenges are placing increased pressure on insurance carriers to improve consumer experience, business agility and speed to market. However, many carriers rely on legacy systems or alternatives designed for on-premise environments that are difficult to change, update or integrate without significant incremental custom-code development. Carriers relying upon these systems are generally unable to manage and analyze data at the pace required to effectively guide operational and risk decisions. These systems are difficult to update without significant IT spend and efforts, resulting in higher operating costs and slower speed to market for carriers.
We believe that carriers will increasingly look to adopt SaaS solutions, like Duck Creek OnDemand, that are designed to enhance their organizational agility, product innovation and consumer experience, allowing them to react quickly to evolving consumer preferences and efficiently capture market opportunity, while reducing their total cost of ownership. According to an October 2019 Novarica survey, more than 60% of insurance carriers plan to expand their migration of applications to the cloud in 2020.
The Duck Creek Approach
Our solutions provide us with a sustainable competitive advantage by helping our customers overcome the limitations of existing systems to meet the challenges of the current P&C insurance industry.
Our Growth Strategy
We intend to extend our position as the leading provider of SaaS solutions for the core systems of the P&C insurance industry. The key components of our strategy are:
Recent Developments
On November 13, 2019, the Operating Partnership issued and sold 31,059,222 Class E Preferred Units to Drake DF Holdings, LP, an entity affiliated with Dragoneer, Insight Partners and certain accounts and funds advised by Neuberger Berman Investment Advisers LLC in a private offering for $90.0 million. On November 27, 2019, the Operating Partnership used $72.0 million of such proceeds from the sale to redeem 14,908,429 Class A Units and 9,938,949 Class B Units held by Apax and Accenture, respectively. On November 27, 2019, the Operating Partnership issued and sold 10,353,074 Class E Preferred Units to an accredited investor in a private offering for $30.0 million. On November 29, 2019, the Operating Partnership used $26.0 million of such proceeds from the sale to redeem 5,383,600 Class A Units and 3,589,064 Class B Units from Apax and Accenture, respectively. On February 18, 2020, the Operating Partnership issued and sold 27,199,913 Class E Preferred Units to certain accredited investors in a private offering for $90.0 million. On February 26, 2020, the Operating Partnership issued and sold 3,022,213 Class E Preferred Units to an accredited investor in a private offering for $10.0 million. On February 27, 2020, the Operating Partnership used $100.0 million of the proceeds from the February 18, 2020 and February 26, 2020 sales to redeem 18,133,278 Class A Units and 12,088,848 Class B Units from Apax and Accenture, respectively. On June 5, 2020, the Operating Partnership issued and sold 50,603,459 Class E Preferred Units to certain accredited investors in a private offering for $200.0 million. On June 8, the Operating Partnership issued and sold 7,590,517 Class E Preferred Units to an accredited investor in a private offering for $30.0 million. On June 8, 2020, the Operating Partnership used $200.0 million of the proceeds from the sales on June 5, 2020 and June 8, 2020 to redeem 30,362,073 Class A Units and 20,241,374 Class B Units from Apax and Accenture, respectively. For additional information, see “Certain Relationships and Related Party Transactions—Sale of Class E Preferred Units.”
On October 2, 2019, we amended certain of the financial covenants and extended our revolving credit facility for two years to a maturity date of October 2, 2021.
COVID-19 Update
In December 2019, a novel strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China. In January 2020, COVID-19 spread to other countries, including the United States and others in which we operate, and efforts to contain the spread of COVID-19 intensified. In March 2020, the World Health Organization declared COVID-19 a global pandemic. The outbreak and certain preventative or protective actions that governments, businesses and individuals have taken in respect of COVID-19 have resulted in extended global business disruptions. The severity and duration of these business disruptions remain largely fluid and ultimately will depend on many factors, including the speed and effectiveness of containment efforts throughout the world.
In March 2020, we implemented various measures to ensure the safety of our employees, customers and suppliers. Over a two day period, we shifted 100% of our employee base to work from home. Additionally, our operational model has enabled us to minimize the impact to sales productivity or delivery of our solutions to customers to date. Since shifting to working remotely, we have successfully completed several product live launches and initiated new projects applying a fully virtual model.
While the full impact of COVID-19 remains unknown and COVID-19 has impacted certain companies’ decisions regarding technology spending, we have not experienced a material disruption on our bookings or sales to date. During the three months ended May 31, 2020, we generated growth of 9% in total revenue, 43% in subscription revenue and 76% in SaaS ARR as compared to the comparable period in 2019. Our ability to grow revenue within our existing customer accounts has remained strong, with a SaaS Net Dollar Retention Rate of 113% for the quarter ended May 31, 2020. Additionally, we generated net cash provided by operating activities of $18.8 million and Free Cash Flow of $17.5 million for the three months ended May 31, 2020, compared to $6.9 million and $5.7 million, respectively, for the three months ended May 31, 2019. However, due to COVID-19 we delayed certain of our planned investments, primarily related to our international expansion initiatives and restricted hiring in the short-term to revenue critical roles.
As of June 30, 2020, we had $82.6 million of liquidity, including $53.6 million in cash and cash equivalents and $29.0 million of availability under our revolving credit facility.
The magnitude of the effect of COVID-19 on our business will depend, in part, on the length and severity of the restrictions (including the effects of recently announced “re-opening” plans following a recent slowdown of the virus infection rate in certain countries and localities) and other limitations on our ability to conduct our business in the ordinary course. The longer the pandemic continues or resurges, the more severe the impacts described above will be on our business. In addition, because COVID-19 did not begin to affect our financial results until after the beginning of the third quarter of fiscal 2020, its impact on our results for the three months ended May 31, 2020 may not be indicative of its impact on our results for the remainder of fiscal 2020 or future periods. The extent, length and consequences of the pandemic are uncertain and impossible to predict, but could be material. See “Risk Factors—Risks Related to Our Business and Industry—Public health outbreaks, epidemics or pandemics, including the global COVID-19 outbreak, could harm our business, results of operations, and financial condition.”
Relationship with Apax
Apax is one of the world’s leading private equity investment groups. Apax operates globally and has more than 43 years of investing experience. As of December 31, 2018, Apax has raised private equity funds totaling $50 billion. Funds advised by Apax invest in companies across its global sectors of Tech & Telecom, Retail & Consumer, Media, Healthcare and Financial & Business Services. These funds provide long-term equity financing to build and strengthen world-class companies. Upon the completion of this offering, Apax will own approximately % of our common stock (or approximately % if the underwriters exercise their option to purchase additional shares of common stock in full).
Certain Agreements with Our Existing Investors
Pursuant to the Stockholders’ Agreement to be entered into prior to the consummation of this offering in connection with the Reorganization Transactions, we will be required to take all necessary action to cause our board of directors to include individuals designated by Apax and Accenture pursuant to certain ownership thresholds. Apax and Accenture, individually, will be required to vote all of their shares, and take all other necessary actions, to cause our board of directors to include the individuals designated as directors by Apax and Accenture (as applicable). Accordingly, after the completion of this offering, Apax and Accenture will control a majority of the voting power of shares of our common stock with respect to the election of our directors.
Following the completion of this offering, we will also have a registration rights agreement that will provide a framework for our ongoing relationship with certain of the Existing Holders.
For a description of these agreements, see “Certain Relationships and Related Party Transactions—Stockholders’ Agreement” and “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”
Summary Risk Factors
Our ability to implement our business strategy is subject to numerous risks, as more fully described under the heading “Risk Factors” in this prospectus. These risks include, among others, that:
Implications of Being an Emerging Growth Company
We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may take advantage of certain reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:
When we are no longer deemed to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above. We will remain an emerging growth company until the earliest of: (1) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (2) the date we qualify as a “large accelerated filer,” which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of the most recently completed second fiscal quarter; (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; and (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering.
We have availed ourselves in this prospectus of the reduced reporting requirements described above. We expect to continue to avail ourselves of the emerging growth company exemptions described above for so long as we remain an emerging growth company. As a result, the information that we provide to stockholders will be less comprehensive than what you might receive from other public companies.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. This permits an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have irrevocably elected not to avail ourselves of the exemption that allows emerging growth companies to extend the transition period for complying with new or revised financial accounting standards.