Q1 2021 Duck Creek Technologies Inc Earnings Call
Ladies is ever going to see the volume of seven nanometer again because of the standing by the beginning.
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Ladies and gentlemen, thank you standing by welcome to the Duck Creek technologies first quarter fiscal year 2021 are you all the time.
At this on all the people thought it was not the most of.
Obviously the presentation there will be a question on every step of.
The asked the question of that topic, Let's Star then one on your tech so the telephone.
Moving on todays call the college the recording.
I would now it's on the top the deals with the bond area of Investor Relations. Sir you may begin.
Great. Thank you good afternoon, and welcome a Duck Creek earnings Conference call for the first quarter of fiscal year 2021, which ended on November thirtyth on the <unk>.
With me today is Mike Schakowsky Duck Creek, Chief Executive Officer, and if any of your party Duck Creek CFO of comes.
The disclosure of our results can be found on our press release issued today, which is available on the Investor Relations section of our website.
This call is being recorded and a replay will be available following the conclusion of the call.
Statements made on this call may include forward looking statements regarding our financial results the products cost or the bad operations of the impact of cold the 19 on our business and other matters.
These statements are subject to risks uncertainties and assumptions on are based on management's current expectations as of today may not be updated in the future.
Therefore, these day, one should not be relied on relied upon as representing our views of any subsequent date.
The will often refer to certain non-GAAP financial measures to provide additional information to investors.
A reconciliation of non-GAAP to non-GAAP measure of the provided in our press release of the primary differences being stock based compensation expenses amortized.
Amortization of intangibles change in fair value of contingent earn out liabilities and the related tax effects of these adjustments.
Let me turn the call over to Mike.
Thank you, Brian and good afternoon, everyone I Hope you all remain safe and healthy from.
I'm pleased to report the Duck Creek got off to a fantastic start in fiscal year 2021, we.
We continue to have great momentum of our business as we further solidify our position as the SAS platform of choice in the global PNC industry.
Hi, I'm excited to share a quick overview of our financial results for the first quarter, which were above the guidance for all metrics. We reported total revenue of $58.9 million of 26% year over year.
And this was underpinned by subscription revenue, which is our revenue derived from cash of 27.9 million, which yielded 59% year over year growth.
And we were profitable in the quarter with adjusted EBITDA of 3.6 million.
We had strong sales performance in the quarter as well, which is an excellent demonstration of our market momentum with our SAS offerings Duck Creek on demand.
During the quarter, we had four new Duck Creek on demand core system wins and had four additional on demand add on product deals with existing customers.
I'm very pleased with our first quarter results as this has traditionally been the slowest quarter in our industry.
On today's call I would like to review the key drivers in the PNC industry, then on powering our performance and then provide some details on several of our key wins in the quarter.
Duck Creek the mission is to transform the global PNC insurance industry, which is the massive market with more than two trillion dollars of annual direct written premium.
Carriers today face, an increasingly dynamic and competitive marketplace, we're changing consumer preferences and heighten service expectations. The man the carriers innovate faster the provide a compelling digital experience.
The same time carries much also manage complex insurance products unique carrier specific business rules.
In the highly regulated nature of the PNC industry.
Core systems are the applications used to manage the policy billing and claims functions the hub.
The life blood of an insurance carriers business sort.
Traditional core system solutions are largely in flexible on premise code driven applications that can be difficult to maintain an often cannot meet the need of todays dynamic market.
In fact, the recent survey conducted by the Verica a respected insurance industry analysts in North America, modernizing core systems and retiring the legacy solutions were identified at the top I T priorities and challenges facing PNC insurers and 2021 and beyond.
This reinforces our belief the carriers recognize the move to the cloud is a matter of when not if and developing a long term digital transformation plan is top of mind them on their C level executives and board of directors.
Duck Creek is incredibly well positioned to address the fundamental business challenges facing carriers Duck Creek on demand our locum SAS offerings has been available from more than six years and enables customers to drive profitable growth by helping them accelerate product innovation reduce cost from greater efficiency.
The dramatically improve the engagement with their customers.
The key to our success in the cloud is on low code platform, which allows for total lives configuration that enables business users not teams of developers the quickly make changes the products and business rules to be rapidly changing market dynamics.
We have also built Duck Creek on the man to be fully extensible. So the third parties can directly integrate into our solutions and provide the more seamless user experience.
Duck Creek on demand customers essentially the future proof of themselves with the platform that can grow and evolve with their business over time.
We believe running Duck Creek on the man turns the carriers core systems into a driver of competitive differentiation and improved business performance.
The strength of our SaaS platform is being recognized by leading industry analysts like Gartner placed Duck Creek is a leader in its most recent magic quadrant for PNC core platforms in North America.
Gartner specifically side of our customized persona based user experience flexible integrations and ease of Upgradability as core strength of our SaaS platform. It's also important to note. According to Gartner, where we're the only featured vendor that sold its SAS offerings in 100% of its wins in Htwo.
On the line team.
On the first quarter of 20 Twond.
We believe this last point is an important area of differentiation for Duck Creek, we are fully committed to our strategy as a cloud first SaaS company and everything that we do.
Our go to market and sales efforts are solely focused on selling duck Creek on demand and elevating our brand profile as the leading SaaS platform for the PNC industry.
Our continued success in industry recognition reinforces the Duck Creek on the man. He is the leading cloud SaaS platform and the PNC industry with more than 60 customers on the platform and annual recurring SaaS revenue that is comfortably above the $100 million.
Our demonstrated track record of success on deployments puts us in a great position to be a primary beneficiary as the PNC industry makes is generational transition the cloud based core system platforms.
Our first quarter performance of the latest example of our market momentum and I'd like to spend a few moments highlighting some of these exciting customer wins from.
The first builders mutual insurance, a leading writer of commercial insurance products focused exclusively on the construction industry selected the full Duck Creek on demand suite, the modernize their entire core systems operation after an extensive and highly competitive evaluation process.
Builders mutual with the highly respected insurer, who is known to be experts in the construction industry and safety education.
Their digital transformation program will both enhancer on line customer experience and maximize internal efficiencies.
One of exciting aspect of this win is that we began a relationship with builders with our distribution management in reinsurance management solutions.
This is a great example of our ability to deliver value for customers using our non core standalone SaaS products, and then execute on our land and expand strategy.
Second we were also selected by a notable tier one carrier that will leverage Duck Creek on demand policy of billing the launch a new small business commercial product in early 2021.
This tier one insurer isn't the existing Duck Creek on premise customer. However, this contract represents the first on the man core system deployment.
One of the key Differentiators for this win was our ability to meet the very aggressive timeline to this part of launch.
Third we signed in the important new customer win with coal services, an organization that manages a financially and socially responsible workers compensation program for the new South Wales coal industry in Australia.
They will be implementing the full duck Creek on the man suite the complement their modernization program and support the Companys overall digital strategy.
The important win highlights our growing momentum in the Asia Pacific region.
And finally, one of the add on wins on the quarter was with another tier one carrier Great American insurance group and existing Duck Creek policy on demand customer the will expand its deployment during 2021 by adding distribution management to better manage its agent and broker relationships.
This win is yet. Another example of how we can expand on relationships in multiple ways.
And drive greater value for customers and for Duck Creek.
Now turning to our product strategy.
We continue to advance our on demand solutions and continuously deploying new capabilities to our customers. In addition to the investment in our SAS and low current platform, we invest heavily in both digital user experience design and data analytics.
We believe we are leading the way with our investments in digital design with our user experience tooling that enables insurers to bring these next gen experience, it's the life.
We discussed on our last earnings call our investment in page builder are low code configuration tool for you I design.
This tool Leverages, our design system, a library of persona specific themes responsive and mobile components and the common scalable standard build.
Building on our page builder platform, we recently brought a new product to market called Duck Creek producer on the front end application designed to serve the needs of the distribution channel.
Duck Creek producer enables PNC carriers to deliver modern and intuitive portal experiences. The result in more productive and loyal agents brokers and the other distribution partners duck.
Creek producer incorporates both extensive persona based user experience research and the cord based industry standards into its designed resulting in tools of workloads that are visually appealing mobile enabled and easy to use.
In the analytic space, we have recently extended our enterprise data offering Duck Creek insights to deliver enhance business intelligence across the carriers ecosystem duck.
Duck Creek insights now includes the detailed analytics and reporting for specific insurance product lines, such as reports for workers compensation that help carriers meet state mandated regulations.
This enables cares to create a true insurance data hub the integrates data from Duck Creek and the other third party sources and existing carrier systems.
The Duck Creek insights, we offer a platform that helps carriers drive real time change using advanced the analytics and the allowing them to quickly modifying streamline their core business processes.
We're also extending the ways in which carriers can leverage their data with the expansion of our third party ecosystem through the Duck Creek content exchange our online App store, we continue to invest in the ecosystem and add integrations with multiple leading and share Tech partners. As an example, we recently announced integrations with ensure pay.
Split limits studios, who both offer flexible pay as you go and payroll payment capabilities to better serve the workers compensation market.
This is a great example of how our open partner strategy provides flexibility of choice for our customers.
Before I turn it over the Vinny I'd like to wrap up by saying how pleased we are with our first quarter results customer interest in Duck Creek on demand continues to grow the we're delighted to see recent wins across an increasingly diverse set of insurance carriers product lines of geographies.
We are the leader in a dynamic multi billion dollar market that is embracing the positive operational and financial benefits of shifting to the cloud.
As excited as I am by our success to date I'm confident the we are only at the beginning of a substantial opportunity to deliver high levels of growth and improving profitability.
Like the finish by thanking our Duck Creek employees partners and customers for their commitment to our business hard work in helping us achieve such extraordinary success. During these challenging times of the pandemic I will now turn it over to our CFO Ben each apart Vinnie over to you.
Thanks, Mike.
I want to reiterate the we're pleased with the first quarter results and the overall performance of the business today I'll review, our first quarter fiscal 21 results in detail and provide guidance for the second quarter and full year fiscal 21.
Total revenue in the first quarter was $58.9 million of 26% from the prior year period.
Within total revenue subscription revenue, which is comprised solely of subscriptions to our SaaS products was 27.9 million.
The 9% year over year.
In Q1 subscriptions represented 79% of our software revenue and 47% of our total revenue.
License revenue was $1.3 million of 29% year over year due primarily to an add on sales to an existing on premise of customer.
Maintenance revenue total revenue tied to on premise licenses was $6.2 million of 4% year over year and in line with our expectations.
Services revenue was $23.5 million up 6% year over year services revenue performed well on the corner and continued to benefit from strong demand and the high utilization range.
Sorry, they are which we calculate by Annualizing recurring subscription revenue recognized in the last month of the period was $103.9 million as of November 30 of 2020 up 72% from the prior year.
Sam L.R. continues to show excellent momentum and reflects the strength of our SaaS business.
As a reminder, SAS airlines a snapshot in time of subscription contracts that are generating revenue during the last month of the period and they can be impacted by time.
For example, the large deal we had in Q4 began generating revenue in the quarter and was included in our Q4 and our our Conversely, our largest signing in Q1 began generating revenue in Q2 and did not generate any they are in Q1.
Sosh net dollar retention as of November Thirtyth 2020, with 118% at the high end of our historical range.
Over the past two years, our net dollar retention rate has been in the range of 113% to 118% true.
Moving by a combination of high growth retention rate sales of new products to existing customers and growth of DWP from products already operating on our SaaS platform.
Now, let's review the income statement of more detail as a reminder, unless otherwise noted all metrics are non-GAAP and we provided a reconciliation of GAAP to non-GAAP financials in our press release.
Adjusted gross profit in the quarter was $36.3 million or a gross margin of 61.6 per cent compared to a gross margin of 58.5 percentage in the first quarter fiscal 2020.
Subscription margins on the quarter approximated, 69% driven by scale benefits as we continue to generate strong subscription revenue growth.
On certain timing items.
This gross margin exceeded our expectations and did include a more pronounced benefit than in recent quarters from favorable timing both from expenses running lower than plan, an earlier revenue recognition from certain contracts.
While we are pleased with our recent subscription margin performance, which demonstrates the scalability of our SaaS solution. We do not believe our Q1 margin performance of sustainable on the near term and expect to see a decrease in Q2.
Professional services margin of 44% in the corner continues to track slightly above our long term expectations. We believe the current level of utilization remains on sustainably high for our services organization and does it moderates services margins will be decreasing towards the range of the high Thirtys the 40%.
Turning to operating expenses on.
R&D cost from a $10.6 million or 18% of revenue down slightly from prior year as a percentage of revenue.
R&D costs increased 16% from the prior year based on continued investment in product technologies.
Sales and marketing expenses were $9.1 million or 15% of revenue also down slightly on the percentage of revenue versus prior year.
Sales and marketing expense increased 15% from the prior year period, reflecting continued investments to expand our global sales footprint and engagement efforts to ensure we are properly covering all opportunities on the market.
This was partially offset by COVID-19 related savings on T.D. and events.
GNS expense was $13.2 million or 22% of revenue compared to 20% in the prior year period door.
During the quarter, we incurred $1.5 million of expense associated with the secondary stock offering completed in November 2020 ex.
Excluding this expense DNA was 20% of revenue in line with prior year on expectations.
Adjusted EBITDA for the quarter was $3.6 million or 6% adjusted EBITDA margin non.
Non-GAAP EPS for the quarter was two cents based on the 130.8 million weighted average shares outstanding.
On a GAAP basis, our gross profit for the quarter was $33.9 million and we had a loss from operations of $4.2 million, we had a net loss in the quarter of $4.7 million.
Turning to the balance sheet and cash flow, we ended the quarter with $361.2 million on cash and cash equivalents and no debt.
Free cash flow on the quarter was negative $22.9 million compared to negative $10.6 million in the prior year period.
The first quarter is typically the low point in the year for cash flow due to the timing of collections and annual bonus payments.
The increase from cash use this year compared to prior year is due to higher bonus payments of $7.6 million and $6.7 million for settlement on the international equity warrants related to our IPO.
I'd now like the finish with guidance beginning with the second fiscal quarter.
We expect total revenue of 58.5 to 59.5 million.
Subscription revenue is expected to be $28 million to $29 million.
Adjusted gross margins are projected at 57, the 57 and a half percentage.
We expect negative adjusted EBITDA of $1.5 million to $2.5 million and on non-GAAP net loss is expected to approximate three and a half the five and a half million dollars worth three cents per share.
For the full year fiscal 2021, we're raising our outlook to the following.
We expect total revenue of $246 million to $251 million and subscription revenue is expected to be $117 million to $119 million.
Adjusted gross margins are projected of 58, the 58 and a half percentage.
We expect positive adjusted EBITDA of three and a half the five and a half million and on non-GAAP net loss is expected to be between two and 4 million for fiscal 2021, where the non-GAAP loss per share of approximately two to three cents.
Overall, we're pleased with the updated outlook for the second quarter and the full fiscal year, particularly our subscription revenue growth there.
There are two things related to our professional services revenue that I would like to know.
First our expectation for professional services revenue for the full year was essentially unchanged. We continue to see strong demand for our services and have good visibility into the sizable new engagements in the second half of the year.
In the second quarter, there are two dynamics impacting our services revenue growth from.
The first from timing perspective, we have fewer new service engagements starting during the second quarter than we previously expected.
Second we faced the very difficult comp as our prior year Q2 was an exceptionally strong service. This quarter. It was the highest revenue quarter of the year and remains the highest services revenue quarter in company history.
To summarize Duck Creek got off to a very strong start in fiscal 2021 customer interest and Duck Creek on demand continues to grow and we believe we are well positioned to be a primary beneficiary of the teams the industry's transition to cloud based core systems. We were at the early stages of this transition, which we believe will support.
Hi, subscription revenue growth rates for the foreseeable future when.
When you combine this with the scalable cost structure and strong balance sheet. We believe we can generate long term growth and shareholder value.
With that we'd like to open the call from Q1 day operator.
Thank you.
Ladies and gentlemen, like duck the question.
Our than one on your thoughts on telephone again like duck the question.
Are the ones.
One moment please.
Our first question from.
Ah, Yes, <unk> Morgan your line is open.
Yeah, Thanks, happy new year guys maybe.
Maybe just to get kicked off the comment Mike that you made about top priority in terms of thinking about the migration to the cloud I want to marry that with your tier one wins for the brand new kind of SMB.
Product when in the quarter and what I mean by that is just wondering when we might see the expansion of instead of just cloud deployments for some of these new initiatives just seeing maybe what is the talk around the timing of of moving kind of the traditional bigger books of business over to the cloud book.
Looking like.
Thanks, Sterling I'm happy new year to you as well in terms of our cloud migration go let me break it down in the tier ones. You know, we're obviously always very excited anytime we have a new opportunity for on demand within the tier one you know it represents an opportunity for us to it.
That will set new type of relationship and then expand from there.
Now going back to your question on the migration of on premise over to on demand you know I mentioned this a bit in the past, but when we look at tier ones, we're seeing strong demand from tier ones.
A great interest in cloud as I see tier ones want and have in the overall cloud strategy, although they're starting out with smaller initiatives and being a little bit more cautious in terms of the first implementation. So in this case. It's an example, where this tier one on one of the stand up a new price.
Fixed line and do it with speed and the you know they looked at many alternatives to do that and Duck Creek on demand provided a solution for them that they could do that what's the use and I think it was a meaningful reason why we won the contract in terms of overall of conversions on what were seeing out the.
There.
Yeah, we do have experienced sterling with taking on premise customers and moving them into Duck Creek on the man and in fact, we've done that with three customers in the past the we've picked up the on premise installations installed them in the on demand and those are in production. So we know that we have the skill sets and we have.
All of the processes on the tooling to get that done now the one thing that we are focused on is making sure that we're doing that with our customers.
That is well aligned with their strategy. So what we did not do is bake that migration into our financial economics in an essence do anything to foresee issue for our customers.
I would like to leave them into the cloud with the current and on terms that they want as opposed to with the stick and with an approach that.
The forces that are have the mandate for them to do that so we are actually in deep discussions with several customers right now and I think you're going to see us make progress on that throughout the year.
Well that sounds good and then the one follow up question for you on the gross margins you mentioned that the expense run rate running a bit below what was expected where are you seeing those savings or is that timing of hiring or something else.
Hey, Sterling, it's a couple of things I'd say largely the biggest factor is timing of hiring a lot of which is you know already hiring has picked up in Q2. So we're getting some favorability on that that won't last through the year.
And then secondly, we had some cost of positive impact from a couple of deals that started generating revenue the hadn't really fully ramped their cost yet they're still kind of building onto the system and again. So there you know they are kind of real timing items that we'll see start catching back up in Q2.
Makes sense. Thank you guys.
Hey, Sterling thanks.
Thank you our next question.
The only on Barclays on both of them.
Okay, Great Hey, guys. Thanks for taking my questions here and I'll offer my happy new year to as well.
Mike maybe first for you.
Can you just talk a little bit of belt, the partner ecosystem and how you're thinking about increasing your engagement with the channel on professional services as you look out sort of the next 12 or 18 months.
Yeah. Thanks Saket.
Consistently noted in the past on carve out from Accenture, it's been one of our key strategic pillars to build out and scale our partnerships with the systems integrators and delivery partners and I think we've done that quite nicely, we scaled the overall practice and it allows them to take on a lot of the implementations in that implementation work for our.
Customers and is the we look at our business, it's our intention to grow our own services at a slower rate than our overall subscription revenue in the in essence bending the mix of the lean more towards a higher percentage of such subscription revenue in the future of.
And.
And then when we look at the as you know, we think we're doing quite well.
No we won't routinely always talk about our numbers on the ecosystem, but we think we've made a lot of progress as of late and we look at it today, we of about 16 systems integration and delivery partners.
And then within our partners they reported and within those organization. The report that they have over 4500 professionals that are formally part of the Duck Creek practice within those respective firms and then when we look at our own metrics internally.
And we looked at our training organization, we have seen the over 3300 of those professionals had come through Duck Creek University and of chosen to get trained directly from Duck Creek. So we think that that is a great sign and certainly socket. We are using our training and Duck Creek University as a means to really get them up to speed with our lead.
These products are SAS offerings, some of our new tech needs of how we want to integrate our product at our at our customer implementations and then in terms of your questions. How are we partnering with them. We continue the team with them in new ways of both our solution architects are working with them hand in hand, the estimate projects our go to market teams.
Our working collectively with our partners and our customers to identify new opportunities, but also opportunities, where we can uniquely shape of value proposition for our customers and help them the longer digital strategies and I think just to the note. We've done we still have a really really strong relationship and partnership with Accenture.
Sure they are helping us on many projects, including some of the larger tier one implementations that were doing and then recently you know weve seen cognizant of just make amends the best investments in their practice.
They're doing some great work at some tier ones for us, but then also some recent work with us in Asia Pacific and helping us quite a bit so we're getting some international tailwind with working with these partners as well.
Got it that's really helpful. The maybe from my follow up for you a little bit of a product and finance question. Combined you may have touched the thought of touched on this in the prior question, but can you just talk a little bit about the subscription gross margin. This quarter I think the I think we were we were over 70% the was there anything to note.
There in terms of the infrastructure or the product, that's helping that or should we think about more of the timing there that you've touched on earlier.
Yeah, Hi Tech and I I think you should think about of more as a timing issue and in addition of that kind of normal scale benefits. So what I mean by that is obviously the infrastructure is all built out.
The significant number of customers you know running and we're getting scale benefits for the installed base, but in the quarter, which actually came in at 69% margin on that benefited from the two timing items to timing items being expenses running a bit below plan and that ties back to my answer the sterling.
On which is a combination of hiring pace.
Pace of hiring and then not incurring some costs on a couple of deals that recently got signed so we do think subscription margins will.
It will come down a bit in Q2, but on a normalized basis, we're continuing to get scale benefits and year on year, we'll be moving up the little bit.
Got it very helpful. Thanks, guys.
Thank you.
Our net.
The Companys Marlin of Goldman Sachs Your line.
All right. Thanks, so much for taking my question I wanted to ask the bit about the low code platform you backed that out of the market for some time now, but I guess is business users are increasingly in the ones handling. This configuration, where are you seeing the implementation times go down at all and to the extent that they are good that the catalyst for more of these larger.
Scale system migrations, if carriers are more comfortable that the time and cost of the implementation could be could be less thanks.
Thanks, Chris for the question and you.
You are correct that it is our intent is our ambition to always lower implementation costs speed them up so carriers can get into production more quickly and.
And as you noted one benefit of our local platform is we do allow business users the log in and make a lot of rule changes now during the initial implementation sometimes it's the combination its business people looking at product design and overall product hierarchy risk appetite rules as well as rating.
Which is some pricing rules and then we have the technical the mentioned that maybe there's some more technical people that are doing some of the more advanced algorithms and user experience design as well one thing that we did add recently to our platform is what I called the page builder, which allows the now that low call code platform to be fully integrated with the.
Signing mobile centric and elegant designs, so going back to the speed you know we are seeing carriers implement with more speed.
You know I noted in the last earnings call a reference point with Munich re specialty insurance, where they were able to get live in about 90 days and we thought that was really an industry leading initiative and then we have another the tier one that I referenced the in today's call one reason.
Why we were awarded the contract is we could show the carrier that we could launch this product and I can't get into specific timeframe, because I'm not at liberty to disclose it but it is measured in months, a very short timeframe in which you're Gonna go live and I think they're seeing our platform in Saar platform as a differentiator to get lives.
So those are two really good examples.
Hi, great. Thanks, Mike maybe just a follow up from many net retention can really striking the last couple of quarters. It steps up again, a little bit sequentially on image.
As recently can you talk a bit about some of the specific drivers there, particularly as it relates to new product attach. Thanks.
Sure. So our net retention rate has been in the range of 113 to 118 for for the past eight quarters. So obviously thats at the top end of the range in any given quarter that might skew a little bit based on the.
The the profile of new deals booked in a quarter or the last couple of quarters.
Got it so happens that in the last quarter or quarter or two we've been a little more heavy in the in the expand versus the land. The category. So we've been getting a bump from the existing customer base on but.
But over the course of the longer periods, we do tend to run at about 50, 50 land and expand so we've just been a little skewed to to expand on the last quarters on.
Okay got it thank you.
And the next question comes from Brad sales of being a lot of <unk>.
Oh, Great Hey, guys. Thanks for taking my question and happy New year I wanted to ask about the comments made earlier Mike around.
Some of these new wins coming in with.
The things outside the core.
Pension distribution management reinsurance is this kind of is this the trend we should expect going forward, where you know customers kind of the they start out smaller.
And you see the interest level in the bigger expand on the road from perhaps going into the core to just give you a better view into more entry points into some of these accounts.
Yes, the answer the question and I'm glad you picked up on it.
Certainly it is our product strategy if.
The continued to develop and have new assets outside of the core the can run on a standalone basis, and we have we do have a lower entry point.
To enter the account build the relationship build confidence with the customer and then expand to our other software assets and I think the builders mutual is a great example of where we've done that and we have a couple of other customers now where we've landed in the accounts with non core assets and we hope that that leads to opportunities to it.
Spanned into our core offerings and then just to remind everyone. I think we've talked about in the past if we look at our sales bookings over the last.
Couple of years, you know, we see about 75% of our bookings coming from core assets of about 25% broadly from non core assets of those additional products.
So we think just having that balanced approach is going to serve us well it's difficult for me to say is this going to swing and be something that happens a lot on materially more.
I think the having more of an.
Assets to add value and having more reasons to engage in this conversation with customers is a good thing and that is also why it's important for me from a product strategy point of view the the Standalone assets you know the old the often don't only just run with Duck Creek. They can run across a variety of legacy products and the other plan.
Forms as well, just allowing terriers due to implement value very very quickly. So it is the part of the strategy.
Great. Thanks, Mike and then and one on one question if I may on on interest level on the multi tenancy option. It's been out now for I think almost a year and.
Yeah, I, just just curious to get your qualitative or quantitative commentary on on uptake in interest not just in new deals, but also in expand.
You know what I'll say is we're very pleased with the progress of Multitenant, we are seeing the growing interest and adoption of the platform and some of our recent wins in the quarter were were multi tenant.
I'm always going to say the carriers in terms of their preferences for single tenant or Multitenant. You know, we're seeing variation that's out there. So we expect to run in the Netcents is the operating this mixed mode of single tenant and multi tenant for the foreseeable future and I want to emphasize though that.
Our long term margin targets and you know that we are already at scale with over 60 Duck Creek on demand customers 30 over 30 of those customers are running core applications and of those running our core applications over two thirds of those are in production. So were really at scale and we feel.
But it isn't going to be dependent on multi tenancy the hit our long term partner SaaS target margin. So you know, we're very comfortable with where we're at we think multi tenancy will help us improve but we got to just watch what happens with adoption and as we see adoption take on than we might revise some of those future targets.
Thanks, Mike and then one follow up if I may I mean, if you step back and you think about kind of where the interest where the industry is with regard to receptivity on multi tenancy, it's not a feature per se that they're asking for but in many ways I'm sure customers Ceos of these insurance companies know they have to go they're going to have to go there eventually.
Is that kind of the the the conversation you have with customers or just glad to see something in the road map or even not even on the road map at the as as the release. The you have the available today and therefore, they know what this looks like what.
Just qualitatively what are the saying in terms of their interest and an ability to go multi tenancy and kind of share their roadmap.
Yeah, and you know even as you picked up on the because it's functional parity right. So when you're in the business conversation, it's really not much of the conversation, but it's more of an impact on the technology side or the CIO and their organization and I will say.
That you know I.
I think as we talk in the CIO. They can see that were investing quite heavily in our SaaS architecture that we're advancing it and I think that serves as the differentiator, but I you know I think the conversation leads to a place to where they're looking at the overall impacts to them and I'll say that in some of their processes depending on the care.
The year their processes to me may be much more optimizer aligned today, the certainly a single tenant solution, where they are more in control of upgrade and change and we're doing those things with them not under the covers to them because when when they moved the multi tenancy and many CIO is now our move.
On their own processes to more of a continuous integration continuous deployments of philosophy, where you have pipeline management, where you're feeding change into production on a more repeatable basis and they know that they have to eventually moving some of their processes on their end, but they may be years away from doing that so I think.
Going back to your question. There. We're pleased that we're working on this initiative I think its signals and shows of them that were looking forward, but we're not going to go force the issue with them and I think we know the realities of what the carriers in the CIO is are dealing with today and we're going to go to market with a model. The works for what they do today and want to day, but take.
From on a journey with us in terms of the moving the multi tenancy overtime that's.
That's great. Thanks, Mike.
Thank you on that.
Question comes from Alex.
RBC capital markets the line.
Hey, guys happy new year to you and your families and I'm not going to go in reverse order and the start was any.
Gary you mentioned that the larger deals signed in the yard Didnt did not counted in the SAS. There are number I realize that that number of fluctuates from quarter to quarter, but is it possible to just get a high level of of impact if it had been counted as you know is it a few million and.
And then you know you don't guides of this metric, but given the seasonality aspects of what's the right way to think about a sense. There are for next quarter is it the appropriate to look back the last two years of seasonal trends on a dollar basis give us some color there.
Yeah sure I on.
So the number one we're not going to give the individual deal size on that it was the it was the largest deal in Q1.
But it wasn't really outsized it was it was just the good solid deal.
It's it's hard to say you know in any given quarter. What you can expect for single deals. So I'm just kind of kind of go back through how a deal gets into the air or.
When we sign a deal or contract of deal that booking that begins recognizing revenue once the deal is provision to where the the soft the services available to the customer.
That generally takes about 30 days.
So if we sign a deal late in the quarter. It is more typical the not that it does not make it into the corner. So some of the quarter that really was a little bit of an outlier actually was Q4, where we had really strong air our growth because every deal. We sold in Q4 was provisioned in generating revenue by the end of Q4.
So so thats the.
That's the thing kind of way I think it'll take a look at that in terms of Q2. You know you can look at you know quarterly trend historically.
It really because we are you know low volume high dollar deals it is difficult to get a really consistent trend on a quarter to quarter basis. So we do tend to think about our growth in longer time periods end of quarter, obviously want to continue to give you the quarterly air on numbers, but.
But the according to court of trends are going to be a little bit inconsistent.
I'll say the Q1, you know without the Q1 of the larger Q1 deal in a growing by over $8 million from Q4, I was really positive Q1's, usually a very slow quarter in the industry. Historically, so we thought that kind of softer a really good start and you know we're you know we're still expecting really good growth through the year.
The year.
So you know quarters to two three and four we expect to be to be really positive.
That's awesome and then Mike I guess the question I'll ask here given the comments you made about services revenue in Q2, and maybe maybe of fewer starts what can you tell us about the pipeline in this kind of you know in this new normal in the.
The 2021 World, where maybe there's a little bit less.
You would which someone is looking to do a large transformation.
Yeah, how does the pipeline your pipeline coverage look like to you and kind of compare and contrast that with this time last year.
Well I would just say that the pipeline looks very strong and.
No. The services comment that I made was really one of timing you know as projects come to an end to end the new projects are starting up and when we're looking at.
The deals that we signed in the deals that are coming through the pipeline that we have a lot of confidence and we know the in the back half we're going to have really strong services demand. So our overall growth.
Items for the year, it's within our overall guidance, but.
But then I'll say on our pipeline.
Watch our pipeline continue to strengthen the quarter over quarter, and we watch it strength in since co beds. So we think that is a very very positive sign.
And the you know when we look at the impact of carriers on Cobi it impacted some segments of business.
Businesses or business lines within the industry, but I think at large it has.
Created a higher of a more important agenda with C level exact than in the boardroom around digital transformation as they're trying to react with you know the manage work from home employees on remote employees as well as more self service with their customers. So we think that trend is going to continue.
Perfect. Thank you guys the shift.
Okay.
Our net.
He brings a lot of okay.
Hi, gentlemen, happy new year. Thank you for taking my questions, Mike I'm going to just build on your last the.
Last question, you've gotten in your last answer.
With the question just a little bit deeper on the broader environment I mean, I guess, if I think about the the Q1 number overall era of growing over 70% as you mentioned there was that the million quarter on quarter, even without that big deal. It does seem like the pace of decision, making even in it you know seasonally what would she what should be a sealy slower Q1.
Seems like the pace of decision, making is ticking up a little bit and I I love for you to just maybe go a little bit deeper with with how of that is sort of playing out as it relates to new products and new geographies for your customers are you seeing them showing a desire to expand their business as it relates.
The new territories are again, new product lines.
On a way that perhaps they weren't ready for and how are those discussions you know the playing out as you look out of the rest of the year.
I would say the answer is yes, we're watching that play out because its forcing new conversations you know again within the C suite of these companies not only about being digital the to your point of launching new products and really looking at the customer needs and how they need to react to the current mark.
EBIT so on the commercial side, it's the time that we call a hard market and the hard market means the carriers are taking more rate are increasing their prices.
And when they do that they have to be more surgical if you will around how the price of products are they going to go after a certain segment of the market very differently and when they have to get more surgical they know that they need better technology, they need better product design, the need better loco tools to change the rates on risk appetite rules.
So we're seeing some carriers come to us because they know in this new hard market. They are going to have to in essence enable new tools in order to customize how they're bringing these products. The market. So we think thats leading to more opportunity, but then at the same time, even though we're seeing the increase in the pipeline.
It's not a short fuse, it's not something where we're watching it just dramatically increase by large percentages and I'll say that being a C. In the CIO share myself at an insurance carrier.
Understand how these large programs work within the carrier the half to work their way into a budget get budget approvals. They have to plan for these projects.
You know within their fiscal years, so what we see with that is it is increasing but its increasing kind of it on methodical rate and we're watching an increased number of deals come through the pipeline and we know we're going to continue to convert on a large percentage of those and I think thats just going to lead the continued growth of the business.
Yeah really helpful. And then a follow on on that just relative to the the number of different add on products. The have you did call out distribution management, a couple of different times on some key wins this quarter I think it's easy for us to the sit here and understand what the core of function.
Functions offer free of customers, but perhaps you could just take the second to educate us a little bit more on on you know that the challenges associated with the the distribution tiers of your customers and what it means the what the challenge is what their broker community might be how you're solving that and how big of market opportunity that is.
I'm glad you asked because you know obviously, we always talk a lot about the core and distribution management, it's been very very popular we're doing quite well with it.
And you know it.
In terms of the capabilities most carriers. The majority of insurance you know is sold through a distribution channel whether its captive agents independent agents or of the broker channel.
And you know carriers really wants better technology to better manage their channel and it's the end to end so our capabilities on distribution management help with the whole lifecycle of it from when the originate to bring on a new channel partner. So a new agent may want to appoint them to their book of health.
Identify them the work flow with the contracting.
Bringing them on board the education and the work flow associated with that and then once you are on board, helping the managing the licensing business the licensing requirements of sell certain products in certain geographies.
And then tied to that the commission management is well is ongoing education with the agents what are our products. How do we got to sell them. So we manage that end to end and it's a big problem for carriers because you know the majority of the carriers are using sub some type of distribution channel the go to market and the.
Need better technology data information to manage that so we think it's a great opportunity and again its a standalone product that we can get into a carrier without our core and then bridge back into the core because we can wire it all together and make their processes more seamless.
Yeah, that's great detail. Thank you for that nice job on the quarter appreciate it.
Thank you.
Thanks.
The long.
Well.
Hey, guys. Thanks for squeezing me in and when they look for the best sentiments.
The English for 2021, I guess I wanted to touch a little bit about the data piece first of all so you mentioned integration hub business idea of whether its from fraud claims of collecting data on the not just lost data on I'd love to know how you guys think about that and sort of how you approach that is that some of you guys are going.
Do do partner, how should we think about the greater data set that exists out there that can help these guys. The beat your end customers sort of improve both of the claims and the policy piece.
Especially on the PMC side, but but but the but it could even be some on the concerns of the could be on the commercial into the sometimes on how you think about that in the value of customer starting to integrate data using that hub.
Yeah, and it is a very very important area for us because when you look at the most successful of carriers in the industry. They really do a great job of marrying together not only all of the data they have and their transactional data like last date on claims but also out.
Syed data.
The they can merge with that to create insights and there's just a lot of very very successful.
Successful vendors and partners the play in that space on their partners with US you know these are partners like Verisk and Lexis nexis.
That really do a nice job of making data available.
The providing context for carriers and then we're providing a platform that really allows carriers to in essence merge all of the data that they have whether it's an outside data whether it's data from Duck Creek or whether it's data that exists in legacy systems and make better decisions on that and then to your point Theres the increased trend in.
Terms of using advanced analytics like AI machine learning and other techniques to automate decision, making and this is where the combination of our partners.
We have a great partner with the risks for instance, the fraud detection partner, where they can identify fraud using advanced models.
And have that wired into our low code platform, where carriers can dynamically changed their workloads.
They can route to different claims adjusters in that case or relative to what they call ESI you, who investigates fraud based on what the press is reporting back. So I think what you're going to see is more investment from Duck Creek in the future not only in the you know working with partners and looking at what we can do the use data and.
The use advanced analytics like a on the wiring that with our low code platform. The kids carriers much much more flexibility to use AI in new different and profound way. So that we know that that's going to be you know an increase the area of investment and focus of the company.
Gotcha Gotcha Gotcha, and then and then one other question just to follow up on on Tom's question. Alex question too you know you've talked about sort of the activity picking up the pipeline picking up.
As you think about just the driver around that so obviously cobot images of transformation and people say, okay, we need to get a cloud solution as opposed to a you know on premise system, which we might use like the citrix system to scrape with which which is not viable long term.
Or is it sort of the low code really fast implementation time, which means I could not going to product out faster, which has been driven by the changes like you've got a guy coming on saying, Okay were going to put out a new policy system of pricing system or whatever for small commercial I went to disrupt the commercial business, whether it's embedded geico Maverick what.
What are the fundamental drivers of this acceleration of pipeline you know it feels like the all three but love to get your sense of like is it cold. It is the someone else like geico disrupting the consumer space is it. The fact that you guys can get up and running faster.
How should we think about those those things driving the the pipeline growth yeah.
Yeah, as you know and I know, it's not always the answer of people want to hear but I would say it is on a bit of all of the above right because certainly.
You know carriers are looking at how do the re platform or revisit the overall core technology, but when we when we talk about digital transformation and we talk about you know all of the reasons why carriers are buying I.
I would say that plot launching new products or carriers getting into the new product lines is very very very popular reason and I think when they want to do it or they decided that they want to enter a new line of product line, that's when they'll come to us and maybe even shrink.
Our overall sales cycle of because they'll want to move with speed once they make that decision and when they do the estimates internally and look at trying to put the new product on some of the the legacy technology. There's a lot of coding per standard up in the cloud on Duck Creek and do it very very rapidly you know obviously, we of the most of you know very very appealing.
Solution for that so I think we're going to see that as an increased trend moving forward because carriers are trying to diversify the trying to enter new markets, they're trying to launch new products and I think thats going to drive continued growth in our pipeline.
Got you Okay. Thank you for taking my question Jim I appreciate the color.
Thank you on.
Income from Brian Peterson on line.
Okay.
Please note from your phone is on you.
Oh, sorry, guys I was of bamboozled by the met me button. So apologies. Thanks for taking the question I'll I'll keep it to one so I know on the international efforts that was the there was the big topic on you mentioned some partners are developing there any update on the hiring efforts and the growth expectations internationally. Thank you.
Thanks, I would say the we're making good progress on our investment in the International program. We're pleased with the quality of people that were tracking to the company and who we're hiring.
And we've seen some positive traction we've announced a couple of deals in Asia Pacific were watching the pipeline develop in Europe, and we think that's good you know the example of coal services in Australia is another. Good example of that I talked about earlier now I'm always going to temper it a little bit as I did last time, especially.
On some new markets like in Europe, where our brand and our relationships with prospects and customers isn't as strong and I think under a co bid environment that may take a bit more time for us to establish but yeah.
We already have a nice deals in the pipeline and we're working through them. So yes, we think it's a good opportunity, but I think the impact of these investments won't be felt really until fiscal year 2002, and beyond but we're going to continue to build a field presence in global brands. So we're excited about our long term prospects internationally, but.
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So it's not something we're going to see a lot of benefit in the short term from.
Understood. Thanks, Mike.
Thank you our next question.
Moving.
Okay.
If I can do the I think thanks, so much for taking my questions and squeezing in it and happy new year to you as well I'll also keep it to one of <unk>.
And just wanted to talk go back to the question of a cloud migrations.
Hi, it's actually the pandemic is created kind of accelerated those digital transformation tailwind does it does the pandemic also have potential to maybe accelerate existing customers to consider of cloud migration post pandemic and you know as you talked about this carrot and stick approach to the migration can you remind us of what those incentives to my guess.
Great overall or is it things like cloud first development cloud only products other things around the that'd be really helpful. Thank you.
Sure. Thanks for the question, Yes, I would say that the pandemic in of itself.
Probably does not serve as an accelerant for cloud migrations of if everything is working well for the carrier because even our on premise installations.
So everything is exactly the accessible via of browser web based you know it is a modern technology from their point of view.
And they're making that work. So we don't have any evidence of anyone that's running our on premise versions that are they're getting slowed down because their technology is not in the overall cloud right. I think you know the one thing that that.
So that makes those migrations more appealing is certainly just taking advantage of the iteration cycles and our ability to launch new products. So for instance, Duck Creek producer that I just talked about.
You know, obviously pure cloud based solution fully integrated of our cloud platform.
So if they want to take advantage of those new capabilities that would be a reason that they would make the move on.
And really get on that cadence of being able to take in some of those new features overtime and I'd say, that's a pretty pretty much of the bigger driver.
And I think most of you know a lot of our customers that we're talking to are excited about moving to the cloud is just about budgeting its timeframe, it's working things into their plans on their timeframe and we're going to be patient and do that and we're not going to force the issue.
All right great. Thank you.
The.
Hey.
Hi, Wally.
Okay.
Oh, great. Thank you Pat.
Some of it Super helpful. I guess, Michael Theres sort of a 100 to keeping you on.
Investors to take away from the whole list it maybe.
Thank you.
[noise] Yep, Hi, you broke up a little bit there Pat but I think the eye of your question of one or two the key themes for the in that for the investment community.
I think the thing I'm going to anchor on the most is there's no question that the industry at large is really focused on a transition in the midst of the the early innings of the transition to run core systems in the cloud.
And I think our decision to start building out our Duck Creek on demand platform in 2014, but really pivot to be a full on SaaS company and 2016 four years ago, It's put us in a position to be a leader in the market you know theres a lot of great questions on.
SaaS gross margins and the overall growth of our business and I'm again going to emphasize that we of over 60 on demand customers and we're scaling the business nicely. So that backplane is fully built.
Now it's about a scaling that moving forward. So we understand the model and we feel that we've already made the transition the.
On adding a ton of value to our customers and then the second thing I just want to emphasize is just the hard work of an incredibly talented management team and leadership team.
We have really revamp the everything in terms of our go to market processes I talked earlier about our our relationships with our systems integration partners and how we work with them and we are really working with customers and prospects in new ways to add a lot of value moving forward. So I think our recent success that I'm very excited about.
No. It's really because we had people very focused doing a great job. The it's shifting of the overall focus the Duck Creek and we're seeing the results of that success in the marketplace. So thanks for the question Pat.
Perfect very helpful. Thank you.
Thank you I'm showing no further questions at the time I, just kind of pull back on the like the path to bring them on.
Okay. Thank you everybody for participating in our Q1 earnings call. The as you can see we're pleased with the performance of the business and we're off to a great start in fiscal year 21, we continue to be very excited about leading the way with our on demand SaaS solutions as the insurance industry continues its important transition to run core systems on the cloud so.
Thank you for your time, we look forward to the continued dialogue with you moving forward and please be safe healthy and well take care.
Thank you, ladies and gentlemen that this is the right thing.
Yeah I have.
I have a dream.
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