Q3 2021 Duck Creek Technologies Inc Earnings Call

July 8, 2021

[music].

Thank you for standing by and welcome to the Duck Creek technologies third quarter and fiscal year 2021 earnings Conference call. At this time all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask a question. During this session you will need to press star 1 on your telephone as a reminder, today's program may be recorded I would now like to introduce your host for today's program. Brian did you Investor Relations. Please go ahead.

Good afternoon, and welcome to Duck Creek, earning conference call for the third quarter of fiscal year 2021, which ended on May 30, <unk> on that.

With me today are Mike Kathy.

Creek, Chief Executive Officer, and Brittany Chip Perry Duck Creek.

Okay. Please disclosure of our results can be found on our press release issued today, which is available on the Investor Relations section of our website.

Today's call is being recorded and a replay will be available from the conclusion of the call.

Statements made on this call may include forward looking statements regarding our financial results.

Customer demand operations, the impact of COVID-19 on our business and other matters.

Statements are subject to risks uncertainties and assumptions.

Based on management's current expectations as of today and may not be updated on the future.

Therefore, these statements should not be relied upon as representing our views as of any subsequent date.

We also refer to certain non-GAAP financial measures to provide additional information to investors.

A reconciliation of non-GAAP to GAAP measures is provided on our press release with the primary differences being stock based compensation expenses.

Amortization of intangibles change in fair value of contingent earn out liability and their related tax effects of these adjustments with that let me turn the call over to Mike.

The global P&C industry continues to embrace and move to the cloud and our SaaS market leadership puts us in a great position to disproportionately benefit from this trend.

I'll begin with a quick overview of our financial results from the third quarter, which were well ahead of our guidance for all metrics.

We reported total revenue of $67.9 million up.

Of 26% year over year.

And this was underpinned by subscription revenue, which is our revenue derived from SaaS of $33.6 million, which grew 56% year over year and we were also profitable in the quarter with adjusted EBITDA of $5.5 million.

We continue to see strong demand across all segments of the P&C market. Some of the deals we signed during the quarter included a meaningful win with access insurance.

A leading global provider of specialty lines insurance and reinsurance.

As an existing Duck Creek on premise customer access is expanding its investment with us choosing Duck Creek on demand to drive growth in their business by bringing new products to market faster than they could if they launch these products with their on premises installation.

With this new deal access is taking the important first steps towards the cloud and is utilizing duck Creek on demand as it SaaS platform of choice.

We also had a significant duck creek on demand by up with an existing tier 1 customer who is expanding the scope of their deployment on our on demand platform.

This builds on the great success of this tier 1 carrier who rapidly deployed a new product line on our SaaS platform in under 6 months.

This important expansion is an example of tier 1 insurers continuing to adopt SaaS technology and of the open ended opportunity in front of us that we have with our larger customers.

Also during the quarter, we announced that Argo group, an underwriter of specialty insurance products is currently engaged in the implementation of Duck Creek on demands policy billing claims industry content and insight solutions.

Argo's deploying duck Creek on demand as a component of its multi year initiative to integrate and simplify its technology and application stack to improve productivity and reduce expenses.

Our partner ecosystem has been leveraging the power of Duck Creek open architecture to enable customers to easily integrate with partner solutions. We built an extensive collection of prototypes integrations to the most widely utilized P&C industry data and service solutions, which helps to reduce time to market and deliver.

<unk> industry capabilities for our customers.

During the quarter, we had several upsell wins, where customers opted to take advantage of these new capabilities.

I would note our builders mutual and core specialty insurance. Additionally.

Additionally, we had 2 new carriers adopt Duck Creek standalone ancillary on demand products in the quarter, Texas mutual a tier 2 leading provider of workers' compensation insurance in the state of Texas selected Duck Creek distribution management to manage the on boarding compliance and compensation of their more than 9.

Agents.

<unk> insurance, a specialty insurance carrier writing business in 34 States will leverage Duck Creek reinsurance management to manage their ceded reinsurance.

We look forward to working with both these carriers to support their respective business strategies.

Each of these wins represent a carrier that is looking for the right tools to help them deliver more value to their customers quicker than ever. This type of thinking was front and center at our recent annual V formation users conference, which was held virtually and early June since moving to a virtual experience last year, we have built a vibrant community.

More than 3000 attendees that are engaging with 1 another on an ongoing basis to share best practices and learn more about duck Creek the ability to improve their visits.

<unk> of this year's event was creating the new standard which focused on the emerging transition to a flexible business approach that enables carriers to reinvent their businesses to meet the needs of customers now and in the future.

We don't view the new standard is a technical document or a checklist of tasks. Instead. It is a demonstrable ability for carriers to move from existing static business strategies to flexible and predictable service models.

The consistent feedback we get from customers is that their current it stack and rigid hard coated business rules prevent them from responding to the accelerated pace of the change in their markets.

<unk> eye opening stat that I discussed in my keynote speech included nearly 40% of all premium dollars in the U S are being consumed annually by operating in loss adjustment expenses. This hasnt materially changed in a decade, which means carriers are no longer driving efficiency gains from their current technology solutions.

60% of legacy it system upgrades ended up disrupting some aspect of the carrier's business during the modernization process.

61% of carriers indicated it is taking them 6 to 12 months to take a new product from idea to implementation, which is simply too long in today's dynamic market.

And 3 quarters of insurers believe they need to reengineer customer experiences to bring technology and people together in a more human centric manner.

Simply put the status quo and core systems is not sustainable carriers increasingly recognize that their core systems must provide them with the flexibility and ease of use needed to respond to new customer preferences and behaviors quickly and at scale.

Carriers will take different approaches to digital transformation and we designed duck Creek on demand to make it easy for them to follow the path that best fits their specific circumstances. Our low code platform is designed to externalized process rule development and let carriers establish a repeatable customizable end to end.

Factory, which allows them to iterate product rules and quickly and seamlessly.

A great example of this approach in action as UPC insurance, who has used duck Creek on demand to not only launch a new digital platform with new products for their core agency business, but has announced the launch of a new insurance startup Skyway technologies.

Skyway is an entirely new sales channel for UPC selling direct to consumer through an omnichannel experience that takes the consumer through a streamlined easy to use digital buying process that can issue a binding vote quote within 2 minutes.

By leveraging Duck Creek modern digital platform UPC is able to launch its new business model in a matter of months. This is a great example of how customers are able to quickly find new ways to drive value from their existing investments made on top of Duck Creek.

We're also very pleased with the continued adoption and customer success that we're seeing on our Duck Creek on demand platform. During the quarter. We had 20 customers successfully go live with Duck Creek products, including notable industry leaders like.

Auto owners insurance American National and the doctors company.

Like to highlight some specific examples that demonstrate our insurance technology leadership.

We are proud to announce that geico, the second largest private passenger auto insurer in the United States completed the rollout of their auto and motorcycle business on Duck Creek across all 50 states.

<unk> has executed a very ambitious strategy to modernize our core platforms for policy and billing to support their ongoing focus to deliver exceptional customer service.

Geico license Duck Creek policy and billing and deployed our solution in the Microsoft Azure cloud as the foundation to deliver a customized yet simplified user experience for their customers and their policyholders.

And <unk> has continued to expand their use of Duck Creek since they started in 2017. This commitment builds on our ongoing partnership and proven success and with Geico to day Geico has tens of billions of dollars of written premium deployed on Duck Creek, which we believe sets a new benchmark among large tier 1 personal lines insurers.

We're deploying a new core system across the enterprise.

This successful rollout positions geico to react quickly to future changes in customer demand and provide exceptional customer service.

We also continue to show success outside of the United States as a successful deployment at lockup a provider of professional indemnity insurance to law firms as we announced on our fourth quarter fiscal 2020 earnings call La cover selected the full Duck Creek on demand suite for their core system modernization effort.

We're proud to announce that law cover has successfully gone live on our core suite policy billing and claims in just 11 months.

Finally during this past quarter, we hit a significant milestone with the Hartford as they successfully deployed their new personal auto product in 2 states on our Duck Creek on demand SaaS platform. This new modern technology platform combined with the Hartford's product design is critical to improving the hartford's growth.

In personal lines by providing a contemporary digital and flexible experience from their customers. We are proud to partner with the Hartford and their product launch represents an important step on our journey together.

It's not only our customers that are recognizing the power of Duck Creek platform. We were pleased to have recently won 2 awards from sales.

The leading independent industry analyst for Duck Creek claims as the leading claims technology and service in the EMEA property and casualty sector.

<unk> cited discussions with Duck Creek claims users, who praise of functionality and speed of the system and our overall approach to partnering with customers as key differentiators.

As good as our solutions are today, we continue to invest in our platform and products to increase the value that we deliver to our customers.

1 example is the investment we are making an on demand operations and development capabilities to provide our customers with tools and solutions aimed at streamlining and improving their it operations and Dev ops processes we.

We recently announced the availability of our on demand control hub, a utility that enables our customers. It operations teams to independently deploy changes monitor and control their duck Creek SaaS applications as well as the extensions and integrations they built around those applications.

The control hub serves as a 1 stop shop for operators to manage a SaaS environments and see the status and health of their Duck Creek applications in 1 central location.

We also continue to focus on expanding the functionality of our products and deliver incremental capabilities specific to some common insurance lines of businesses.

We recently released several incremental enhancements aimed at the workers compensation market that allows us to more effectively approved medical invoices calculate injured worker benefits and reported data to regulatory bodies.

As we look to the fourth quarter and beyond we are incredibly excited about the opportunity ahead for Duck Creek intra.

Interest in moving to the cloud has never been higher among P&C insurers and Duck Creek has established itself as a SaaS platform of choice in the industry. We will continue to make investments in our low code platform that will further extend its value to carriers and enable them to deliver the product innovation and service experience that their customers require.

We remain early in this multibillion dollar market opportunity and we feel very good about our ability to deliver high levels of profitable growth for the foreseeable future I will now turn it over to our CFO <unk> <unk> over to you.

Thanks, Mike Today, I'll review, our third quarter fiscal 2021 results in detail and provide guidance for the fourth quarter and full year fiscal 'twenty 1.

Total revenue for the third quarter was $67.9 million up 26% from the prior year period.

Within total revenue subscription revenue, which is comprised solely of subscriptions to our SaaS products was $33.6 million up 56% year over year.

In Q3 subscriptions represented 79% of our software revenue and 49% of our total revenue.

Revenues from on premise software licenses of $2.5 million and maintenance of $6.3 million are showing modest growth as expected and are down to 13% of total revenue.

Services revenue was $25.6 million up 6% year over year.

Services revenue was in line with our expectation and reflects a notable step up from the prior quarter with the launch of several large service engagements.

SaaS <unk>.

<unk>, which we calculate by annualized recurring subscription revenue recognized in the last month of the period was $124 million as of May 31, 2021 up 64% from the prior year.

SaaS <unk> continues to show strong momentum and reflects the strength of our SaaS business.

As a reminder, SaaS.

<unk> is a snapshot in time of subscription contracts that are generating revenue during the last month of the period and can be impacted by timing.

For example, our largest deal on the quarter did not begin generating revenue within the quarter and was not included in our IRR number as of May 31.

SaaS net dollar retention as of May 31, 2021 was 133% well above our recent historical range.

Over the preceding 8 quarters, our quarterly SaaS net dollar retention has been in the range of 113% to 121% driven by a combination of high gross retention rates sales of new products to existing customers and growth of DWP from products already operating on our SaaS platform.

This quarter SaaS net dollar retention was well above this range driven primarily by several large sales to existing customers in recent quarters and a core system upsell to a customer who initially bought distribution management.

As mentioned on our prior calls while our sales over time include a relatively balanced mix of land and expand opportunities. It can vary period to period based on pipeline progression. We currently expect that net dollar retention will return to historical levels in Q4.

Now, let's review the income statement in more detail on these metrics are non-GAAP unless otherwise noted and we provided a reconciliation of GAAP to non-GAAP financials in our press release.

First on a GAAP basis, our gross profit for the quarter was $40.2 million and we had a loss from operations of 544000.

We had a net loss in the quarter of 357000 or zero cents per share based on weighted average basic shares outstanding of $131.6 million.

Turning to our non-GAAP results gross profit in the quarter was $42.2 million or a gross margin of 62, 2%.

Compared to 59, 2% in the third quarter of fiscal 'twenty.

Subscription margin in the quarter was 68, 5% driven by certain timing items and scale benefits as we continue to generate strong subscription revenue growth.

Gross margin favorability from the timing of new hires and Resourcing for new deals is expected to diminish in Q4. We are pleased with the continued strength in subscription margin, but I want to remind you there can be quarterly variation due to timing of when revenue recognition begins for certain contracts and the timing of expenses at the early stages of.

New deployments, we believe our subscription margins are an important demonstration of the scalability and performance of our SaaS platform.

Service margins of 45% in the quarter came in ahead of our expectations driven by a combination of sequential growth in professional services revenue and the timing of head count additions in this group.

We remain committed to bringing down our services margin by several points in the near term.

And longer term into the high <unk>, which we believe reflects the sustainable utilization rate for our professional services team.

Turning to operating expenses R&D costs were $12.5 million or 18% of revenue down slightly year over year as a percentage of revenue.

The 22% growth in R&D costs from the prior year reflect our continued investment product solutions from features that will generate additional value for customers.

Sales and marketing expenses were $10.9 million or 16% of revenue.

Down slightly with the prior year as a percentage of revenue.

Expense growth of 20% from the prior year reflects continued expansion of our go to market Resourcing in both U S and international markets, while travel related costs and certain marketing programs continue to run below normal levels due to COVID-19 impacts.

G&A expense was $14.1 million.

We're 21% of revenue up from 18% in the prior year period and in line with expectations.

The growth in G&A expense year over year is related primarily to public company costs that we began incurring following our IPO on August <unk>.

Over the course of this fiscal year, our G&A expenses have begun decreasing as a percentage of revenue and we expect this to be a highly leveraged cost area on moving forward.

Adjusted EBITDA for the third quarter was $5.5 million, which was well ahead of our guidance due primarily to a combination of better than expected revenue and lower than estimated costs and expenses tied to the pace of new hires adjust.

Adjusted EBITDA margin was 8% per the quarter up from 7% in the prior year period.

This represents our 10th consecutive quarter of adjusted EBITDA profitability, an important indication of our ability to profitably generate high levels of subscription revenue growth.

Non-GAAP net income per share for the quarter was <unk> <unk> based on approximately $135.2 million fully diluted weighted average shares outstanding.

Turning to the balance sheet and cash flow, we ended the quarter with $372 million in cash cash equivalents and short term investments and we remain debt free.

Free cash flow for the quarter was $6.6 million, which was in line with our expectations.

I'd like to finish by providing guidance for the fourth fiscal quarter.

We expect total revenue of 68, 5% to $69.5 million subscription revenue is expected to be 32 to $32.5 million.

Adjusted gross margins are projected at 59% to 59, 5%, we expect adjusted EBITDA of 3.5 to $4.5 million and our non-GAAP net income is expected to range from $1.5 million to $2.5 million or 1 to 2 per fully diluted share.

For the full year of fiscal 'twenty, 1 we are increasing our outlook to the following.

Total revenue of 258% to 269 million subs.

Subscription revenue is expected to be $1.24 to $124.5 million adjusted gross margins are projected at $65 to 61%.

We expect adjusted EBITDA of $15.6 million to $16.6 million and on non-GAAP. Net income is expected to range from $9.6 million to $10.6 million or 7% to 8 per fully diluted share.

Please note that our fourth quarter guidance reflects the impact of the contract that we have been excluding from our SaaS IRR calculation coming to an end.

We've long known this contract was winding down and he has been incorporated in our guidance throughout fiscal 'twenty 1.

In the near term that will have an impact on our year over year subscription revenue growth rates as we comp against prior year periods that include this contract.

To finish up Duck Creek delivered another strong quarter, we're pleased with how the business is performing and how we're positioned for the future. We are benefiting from broad based adoption and interest in Duck Creek on demand as the move to the cloud by the P&C insurance industry gains momentum. We are in the early stages of this re platforming and believe we are going.

Great position to deliver strong subscription revenue growth and improving profitability for years to come.

We'd now like to open up the call to Q&A operator.

Certainly ladies and gentlemen, if you have a question at this time. Please press Star then 1 on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key.

And our first question comes from the line of Sterling Auty from Jpmorgan. Your question. Please.

Yeah, Thanks, Hi, guys I'm kind of curious how well known through the industry is the geico deployment and if it is well known have you started to see an increase in inbound call volume similar to what Guidewire experience when nationwide went live all those years ago.

Hey, Thanks Sterling.

Yes, I would say that it is well known we did do a public press release I can't remember the exact date several years ago.

I would say that when we started this journey it was not well known because.

<unk> wanted to wait to have some proven success on our platform before we were allowed to disclose it publicly.

But then we did make the announcement, but we are very proud and very excited to be announcing that they have completed the rollout across all 50 states.

<unk>.

When I go look at what other top tier 1 carriers in the personal line space have done.

Relative to our ability to get this full deployment done and under a 5 year period with Geico. We think this is industry leading.

We think it's really demonstrable of what's capable on the Duck Creek platform. So we're very very proud of it.

That makes sense, 1 follow up you've announced.

Guidewire is theres been a number of companies that have used you guys to launch new products into the market on the cloud platform. How should we think about the increasing revenue contribution that could potentially come from those contracts as those businesses grow themselves.

Yes, I think when we look at the revenue contribution of those new startup businesses, sometimes sterling, there and Tom and atomic or a line of business is running with full autonomy. So the initial subscription opportunities start relatively small and then grows over time, but most of the time.

We're doing this with large tier 1 carriers that are starting with a smaller book of business and they're trying to get experience in the cloud and then we know that the real opportunity is to eventually convert or <unk>.

My great existing books of businesses over to our on demand platform. So again I think I've highlighted this in the past, but we're seeing a lot of tier 1 carriers start with new startup lines of businesses or smaller blocks of books of businesses to get experience with the cloud and then we know that those will lead to.

Larger opportunities for us here at Duck Creek.

That makes sense. Thank you guys.

Yes. Thank you.

Our next question comes from the line of Tom Roderick from Stifel. Your question. Please.

Great. Thank you gentlemen, appreciate the chance to ask a question.

Actually I wanted to kind of piggyback on steroids questions are on geico, because just the point about it being a cross deployed on on multiple lines, but across all 50 states. It brings up the regulatory question on the challenge carriers have been moving from state to state.

Can you talk a little bit about some of the complexities that you worked your way through and how that might scale to other carriers that are thinking about such expansion and then how does the cloud kind of play into that angle.

No. Thanks for the question and I don't want to get into the specifics of the geico deployment, but what I will do is highlight the advantages of Duck Creek and how we can execute on state to state deployments faster than I think our competitors can and we talk a lot about our low code platform.

And 1 element of our low code platform underneath that it's a technical term called inheritance and what it allows carriers to do is take a whole product set and a product set of rules inherit from it and then derive kind of just small changes so that they can launch either new derivative products or launch into new states.

So on legacy technology, what we find.

As carriers have a lot of hard coded logic. If then logic. If you will state by state if it's the state of New York then do this an issue. This document if the state of California then.

This document and in our overall platform. What we can do is more seamlessly reuse of common rule set so that carriers can launch across multiple states very very quickly and with minimal effort. So it reduces that launch time and I think thats a true advantage of our low code platform.

Yeah, that's great that's excellent detail and then Denny you you highlighted in the guidance and the discussion point here 1 of the sort of long anticipated contract. That's rolling off the books is in fact doing so next quarter. It seems like the subscription revenue guidance certainly baked that in.

Would you encourage us to think sort of directionally about net dollar retention.

Other ancillary metrics that go into that.

As you kind of work your way through that and then with that particular customer is that now kind of off the books or are there still opportunities ongoing to the.

To maintain and extend that relationship in the future with different product lines.

Yes, so Tom I'll address the first part of the question and ask Mike to jump in on the on the customer relationship and have it so.

Since we knew from the time, we carved out of Accenture that this was ultimately going away. We've always purposely excluded that account from both our IRR on net dollar retention metrics.

The departure of that that revenue stream for that particular contract won't impact to reported metrics.

What it will do is.

The GAAP debt has existed between <unk> growth and subscription revenue growth.

That will start coming together over the course of the next year or so as that contract the impact on that contract winds off so I think as.

As you suggested it has been it has been considered in our guidance of course.

And won't be impacting the other 2 metrics other than subscription revenue itself.

And then Tom to jump in on the second half of your question.

Say that they'd nonrenewed or rolled off of this because they had a change in strategy and this was consumed as a larger part of an accenture contract when we carved out but we do maintain a strong relationship with this customer and they continue to use other duck Creek products in other areas of the business.

And we're very hopeful of expanding the relationship within the account. So we do think there's future opportunity.

Wonderful great detail nice job on the quarter. Thank you gentlemen.

Alright, thank you.

Thank you. Our next question comes from line of Chris Merwin from Goldman Sachs. Your question. Please.

Okay. Thanks, so much for taking my question.

Wanted to ask 1 as it relates to the decision making process of your larger customers.

Obviously with the Geico deal you sort of mentioned the expansion there for some of these larger logos are you starting to see a more centralized process around picking vendors migrate systems to the cloud as opposed to I think what it has historically been more of a very decentralized approach with certain owners of lines of business, making there.

On decisions about which systems to use.

Is that pattern changing at all or how best to think about the success you're having at.

A large leather is like like geico.

Yeah, Chris I would say that we see both I think there is a trend to have a bit more of a centralized decision, making obviously insurance companies as long as as much as all companies are investing more in procurement and getting organized across the enterprise. But then also remember there are.

Some insurance carriers, especially from large tier ones that very much pride themselves around having.

P&L or distributing operating businesses that can make their own decisions. So I think and those types of carriers. We will find that there is distributed decision, making and they have their own.

On decision making rights.

They may share information across the enterprise in that case.

But I think with some larger tier ones, where we are expanding its because we are working with their group leadership with their enterprise leadership.

And they see the success on Duck Creek, and making broader commitments on a more centralized manner. So I think thats boding well for some of the expansions that we're undertaking right now.

Okay perfect. Thank you and then maybe just a follow up for <unk>.

Video on the <unk> it looks like it improved I think by about 6 million sequentially and on.

It's a big win in the quarter sequential improvement was a little less than a year ago just wondering.

How best to think about the seasonality here or any other puts and takes around deals moving it out of the quarter just anything else to note as it relates to <unk>. Thanks.

Yes, Chris I think the other thing.

The thing I'd kind of reiterate is obviously on a 1 quarter basis, we don't get too focused on the sequential changes just because of the.

Large deal sizes on small deal volume that said Q3 is typically a little bit seasonally low for us Q2, and Q4, our strongest seasonal quarters.

And in Q3 in particular.

If you remember we had a pretty strong quarter last quarter in Q2, when our large Q2 deal actually made it into Q2 <unk> and are on our larger Q3 deal did not make it into Q3, so I kind of chalk it up to timing.

And just continue to encourage people to look at the IRR changes over a longer period than just 1 quarter.

Understood. Thanks, a lot.

Sure.

Thank you. Our next question comes to a line notes to Curt <unk> from Barclays. Your question. Please.

Okay, Great Hey, guys. Thanks for taking my questions here.

Mike maybe maybe first for you.

I was wondering if you could talk a little bit about sort of the ebb and flow of conversion activity over the last couple of quarters, you've been pretty clear to say the conversions are going to be customer driven right not necessarily duck Creek, driven but I'm curious if you've seen any change in the pace of those conversion conversations at all this quarter.

Does that makes sense.

It does makes sense.

And I would say that I am not sure that I would say that theres a change in pace.

But I will say that and I'm glad that you highlighted our strategy, which is really for us to focus on our customers' strategy. What are the business objectives that they have and really align our efforts to perhaps move them from on premise into the cloud oriented Duck Creek on demand when they have a strategic <unk>.

<unk> point, whether they want to bring in new thing to market or do a digital transformation in a different way or launch in a new channel and we're finding that that strategy is working well, we're having very meaningful conversations with our customers about them adopting the cloud, we're having very meaningful conversations with our customers about their business.

Strategies and how we can help accelerate those business strategies like we did.

With this case that we just announced with access insurance and.

I would say that we're making meaningful progress with the announcement of axis. We now have 7 on premise core customers.

That are now migrating or adopting duck Creek on demand core solutions in a meaningful way. So we think it's showing good progress, but just note that because of this approach we're not in control of the timing our customers are in control of the timing and I think that's the way that we're going to continue to draw.

Our strategy.

Got it got it maybe from my follow up for you obviously, a lot of focus on that Geico contract. It's great to see it across 50 states, but I think I think Mike mentioned earlier that it was I think under a 5 year sort of rollout. So can you just talk about how the <unk> contribution there sort of as I understand you don't want to get into detail on a particular customer but.

As does the completion of a rollout mean, a meaningful <unk> contribution this quarter or have we seen most of that arrow contribution sort of happened in the past as the rollout was happening.

Well first as it specifically relates to Geico second I would point out that that was a license deal back in 2017.

That's not in our IRR number.

But more generally speaking.

The way, we've seen continual increases in our larger tier 1 and a lot of accounts and particularly on our tier 1 account as they add either new products or more DWP onto the system. So when EZ. Another point of reference on that it happens to be net dollar retention and a lot of times when you see net dollar.

Retention moving up it's based on a continued rollout or a.

Continued increased deployment in a large account.

So.

Think you see it both AD <unk>.

<unk> of $1 overtime, and large accounts as they grow and contribute to the net dollar retention.

Got it very helpful. Thanks for taking my questions here.

Thank you. Our next question comes from the line of Brad Sills from Bank of America. Your question. Please.

Hi, This is sherry Guo on for Brad sales. Thanks for taking my question.

Wanted to ask about the international opportunity, particularly in Europe, and APAC on can you share any insights on the demand environment there any notable activities.

These geographies in the quarter. Thank you.

Hi, Kerry Thanks for the question, we continue to make good progress on our international investments I will still say that as a result of COVID-19 and the lack of business travel still not ticking up.

We're still.

Cautious in terms of seeing progress in Continental Europe.

Although we are seeing continued.

Continued success in Asia Pacific.

As we talked about the go live at La cover.

In the pipeline.

<unk>.

Strengthening quite a bit in Asia Pacific and then in across Europe. We're also very pleased with some of the discussions with some of our larger tier 1 enterprise customers.

That are looking for new opportunities to launch new products enable and do digital transformations and European regions and we think.

That will help us as we enter fiscal year 'twenty, 2 as well so theres more to come and we know that with our current investments we knew that we weren't going to get results right away and some of these results would start to take hold in fiscal year 'twenty 2 and beyond.

Great. Thank you and.

The your new wins are up selling can you talk about how much debt.

Non core assets represent.

And what do you envision this to trend in the near and long term. Thank you, yes, what I would say on the non core products split is we don't give quarterly numbers or details on it but when we look over the last year or 2 or a period of time and our bookings roughly speaking about 75%.

Our bookings are from our core systems policy billing claims and then the non core additional assets about 25% of our bookings.

And that's really what we have been seeing.

I think right now I think that trend is going to hold for a while.

We're looking at some opportunities to expand some of our non core offerings. So that may change over time, but I think right now thats a safe assumption for us.

Got it thank you.

Thank you. Our next question comes from the line above considering from William Blair. Your question. Please.

Great. Thanks, guys.

Nice job again.

I wanted to touch a little bit on the expansion in Europe, but focus on it from a product side.

Side so.

So historically, we've seen Europe typically lag the U S in terms of cloud acceptance growth.

And as you look at the wins that you've had some good wins, but but that's an area of investment growth I guess, how much of the sale. There is evangelical still like the idea of cloud, but also the idea of low code No code writes a low code no code to get them get you above the U S. You are having a whole new way of deploying and letting customers manager on rules workflows temperatures et cetera.

How is that sort of conversation happening with clients in Europe and is there a lag or are they starting to get it and it sort of.

Starting to see them.

I will actually start to play out a little bit help us sort of think through how thats playing out on what youre seeing from a demand and acceptance perspective as you invest in Europe.

Great question, and I would definitely say that there is a lag.

And I think it is 1 reason why we're advancing more of these conversations with our larger global tier 1 customers because they have experience with a low code platform. They have confidence in SaaS now I will say that the flywheel is starting to spin in Europe, though so.

If I went back 4 or 5 years ago, I would say that.

In Europe.

They would entertain SaaS, but they really wanted an on premise offer when I fast forward today and I look at our pipeline. They are very open to SaaS, but they also want an on premise offer so they're balancing the 2 of which we will not provide an on premise offer so we will not.

Even give them an option.

With an on premise installation for a new customer in Europe.

And I think that is a little bit of a headwind for us, but I think the market is going to move fairly quick.

Especially as we start to get beyond the pandemic start traveling start meeting in person and start building our brand more effectively in Europe, I think that's going to help because I really think our success here at Duck Creek has helped accelerate the acceptance of SaaS here in the U S.

And I look forward to an opportunity of getting some momentum and traction in Europe, and I think once we get several proof points.

The market conditions will change considerably.

Got you got you and that's helpful.

But what I sort of expect it would be putting up there a little bit on the lag.

I just wanted to talk about.

The cyber opportunity.

And you and I've talked about from the past, but love to get an update here.

It's becoming more and more common to hear about these cyber tech ransomware et cetera.

And again I guess 2 part question..1 are you seeing your customers say, we need to have a cyber insurance products.

And then 2 like how do you address that do they have the algo the data the actuarial work done for that because it feels like that that's really early we don't know what the drivers are like exposure to how the network security based how much have you invested in security I don't know how you think about I would love to have that they are your customers think about products you offer there.

It's small DWP, obviously today, but that could be an area of growth and then how does duck duck.

You on demand fit in from a product perspective in that in that scope.

Yeah, and I think.

Look we work with several very large.

And successful cyber writers that have cyber products and cyber coverages on Duck Creek, and we're very very proud of our success in this space.

When we work with those carriers, we really focus on occupy the space of the product definition the pricing of the product.

Selling of the product through.

<unk>.

Because every carrier if you look at how they look at analyzing the risk of cyber they use very very different techniques different data different providers some very quite.

Quite often you'll find different mindsets in terms of how they think about cyber.

It is a rapidly growing product and I think on.

Our product configuration capability gives a lot of carriers confidence that they can tailor their products to fit their unique needs and how they want to go to market and I think thats a strength of Duck Creek.

And then they're just looking to the insured tech community.

A lot of providers debt.

Really provide data and analytics in this domain.

And some of them are very compelling some of them carriers will try and then move on to something else. So for us we're going to be about embraer continuing to embrace the ecosystem easy to plug these providers in.

Similar to way you would plug in a pay as you drive provider as well for usage based insurance to make sure that.

Carriers can use the advanced advanced algorithms for pricing. So that's going to be our strategy is to really maintain an open architecture approach to all of these ensure tech providers.

Gotcha.

Helpful. Thanks, guys I appreciate you taking the question.

Thank you. Our next question comes from the line of <unk> <unk> from Wolfe Research. Your question. Please.

Hey, guys. Thanks for taking the question.

Maybe just the first 1.

Around kind of piggybacking on Sterling's question around new customers launching new logos launching new brands when.

When they adopt Duck Creek, what roughly what when you think about the percentage of your new logo wins or Lance how many of those are resulting from that type of activity.

Versus maybe like a core system.

Transformation on replacement.

Boy, Alex it would be difficult for me to put a percentage to it.

Because we're just seeing that a variety of carriers are taking on different strategies and we're very pleased so for instance, this work that we announced with axis.

We've been working with them with this on premise relationship for many years.

And they have a new strategy of getting something new to the market very quickly and they saw on demand is a very very.

Rapid way of which they can.

Get something done.

So with that that's an example of US working with an existing customer that had a lot of experience with our on premise products, but in terms of new logos I would say the majority of our new logos is not launching a new business opportunity, it's really re platforming what they have.

So when I go look at our pipeline and what's coming through our pipeline, which I'm very excited about I would say allowed on the new logo opportunities our digital transformations, we want to replace our policy billing or claims system, we want to have a new <unk>.

Channel or distribution front end digital capability.

I would say that's still the vast majority of the opportunities that we're seeing.

Got it that's Super helpful. And then maybe just kind of digging in a little bit on.

On 2 metrics is it possible to just give you maybe a little bit more sizing or kind of some just rough financial impact on SaaS. There are this quarter from that comment about the larger largest deal on the third quarter not being in the number this quarter roughly what type of an impact.

How does it fit in with it.

That number would have changed and apologies for the to a question, but if you look at the guidance, maybe just a rough reminder of how much of the.

How much of that day.

Deal that's coming off the books in subscription revenue.

Like for like if that wasn't the case, what would the sequential kind of guide represent in terms of our growth.

Right.

Yes, Alex on the second question.

We really are not in a position from a confidentiality perspective of giving any details on the on the dollar value of that contract that's rolling off.

So I can't really do that yes, I can tell you that the impact on the growth rate if youre looking at recent growth quarterly growth rates versus the Q4 guide that's the majority of the change.

But we are.

Not position, where it can you give any specific details on the dollar value.

As it relates.

Sure.

I'm sorry can you remind me the first the first part of the question.

It depends really on our quarterly AOR growth, Yeah, again, I don't want we don't want to comment on the value of any 1 particular deal, but I think if you look at kind of over.

A longer time periods on a quarter and 234 quarters and look more in terms of what we've been averaging over the quarters, you can kind of get the sense of how it deal can can swing from quarter to quarter with the impact of that might be.

We.

We have said before.

A core system deal tends to run into the millions.

Low to mid low.

Low to mid single digit millions.

A deal like that moving from quarter to quarter.

Can make it a little lumpier.

That's why we had.

The big quarter in Q2, and not as much in Q3.

Makes sense.

Thank you guys.

Yeah.

Thank you. Our next question comes from the line of my on Tandon from Needham Your question. Please.

Hey, Good afternoon, guys. This is actually cow Peterson on for <unk>.

Just 1 from me, but just wanted to see some of that be upsell.

Yes, you guys have been making.

It's been really strong I was wondering if you guys could give any more detail.

In terms of how much of some of the upselling existing client is coming from client, adding additional product.

<unk> versus adding bring more DWP on the platform just so we could get a little bit of a sense for what's driving that growth.

Yeah, I would say that.

First off we're very very pleased with our ability to upsell and cross sell and continue to show expansion, particularly in these large tier 1 accounts and I think it's really demonstrates the success that they're having on Duck Creek and then upon that success going across and buying more.

We don't have the information to give you a percentage around how we grow within an account and whether it's new product more premium or a new.

Division or line of business, but what I will say is in order.

That I would rank it is.

Really a new division within a company.

Licensing of new geography, or a new division is probably our primary upsell opportunity then very close second would be cross licensing our major core product.

And I would say those are the 2 big drivers and then we get more.

Revenue subscription revenue quite often if carriers grow obviously, there are premium, but because that is a stair step manner.

That would probably be third in line in terms of revenue contribution. So that's really the rough order that I would give it.

Great that's really helpful. Thanks, guys.

Thank you. Our next question comes from the line of Robert Symons from RBC capital markets. Your question. Please.

Hi, Thanks on on for Rishi.

Could you talk to what's baked into your gross margin guidance for <unk>.

That's a pretty steep decline quarter over quarter is that just from the timing of hires or is there something else there.

Well thanks for the question.

The Q4 margin decline is a step down it's more about Q3 being unusually high than it is about whether Q4 as is normal.

Kind of more typical.

So we are big into that is an assumption that subscription margins, which have been running very high largely based on pace of hiring.

Do you come down in Q4 to a more normalized range in.

In the mid <unk> from running closer to more on the high <unk> of late.

And in addition, we've we've built in a slight anticipated decline in services margins in Q4, but I would say that while we're still committed to bringing down service margins over the long term because our utilization rates are running so high right now.

Q4 will remain reasonably pretty strong.

Might come down a little bit won't come down much from Q3.

Got it Okay, and then can you talk about.

Gross margins, how do we think about the difference between single tenant and multi tenant and how big of a driver cannot be over the next few years.

Yes, I think right now.

We are pleased with the success of our multi tenant offering and the take up of our multi multi tenant offering. However, many customers are still opting for a single tenant approach and we've decided as a company, but we're not going to do is.

Yeah.

<unk>, an issue where a customer is not comfortable yet that committing to a multi tenant platform. So that puts us in a position that we're in essence running and mixed mode right. We have some customers on multi tenant we have some on single tenant with a lot of Dev ops and a lot of automation and when we're in mixed mode. We don't get the full on.

CES of multi tenancy so right now on our long term plans there is not a commitment to improve margins because of multi tenancy.

I've stated this in the past, but I think as we look at buying behaviors and we look at migrations, mostly tied to the maturity of the operations of the carriers that we're serving and as.

If that starts to shift and we think we can get more progress on multi tenancy will of course revisit our margin profile, but right. Now there is no commitment that were ready to make on that.

Great. Thank you very much.

Thank you. Our next question comes from the line of Alex <unk> from Raymond James Your question. Please.

Great. Thank you, Mike a bigger picture industry question here, but what are you seeing in terms of broader IC budgets and if those grown at all.

Premiums this year and then within that are you seeing any increased wallet share of budget going towards core modernization products. Thanks.

I'm glad you're asking about the industry, it's important for me and.

I would say that we're seeing that it budgets are holding strong it's hard to tell if they've grown but.

I think they're holding strong just because of digital transformation and core system replacement, especially as the industry makes its way through the pandemic is still a top priority for.

Large insurers that are out there now when we go look at the industry and the effect of the pandemic I would say that the growth rate of the overall industry has dropped a little historically its average in the U S. About 4.5 to 5.5% growth in premium when you look at 2020 grew about 2.5%.

And that was mostly driven by the decline in personal lines auto premiums declined about 10%.

Now what we are seeing in those carriers is theyre not aggressively changing their budgets, they're still investing in digital transformation and they are really channel investments into core transformations in the way that that has resulted for us is a strengthening in our overall pipeline. So our pipeline is as strong as we've ever had it.

And it continues to grow quarter over quarter. So we're.

Pleased with the way the industry continues to look at digital transformation and technology investments.

Okay, great. Thank you and then 1 more SaaS <unk> question from me, but specifically on the Delta between subscription revenue annualized in SaaS. They are it looks like the largest it has been since kind of 4 quarters ago. So we know the 1 aspect is that expiring contract, but can you elaborate if there's anything else that might be impacting net spread.

Nothing really other than than deal timing, obviously, the largest impact as the legacy contract impact and anything else, you're just simply timing related.

Okay, great. Thank you.

Yes.

Thank you our final question for today comes from the line of Peter Heckmann from Davidson. Your question. Please.

Hey, good afternoon. Thanks for taking my questions just to go on to that last point, Michael on historical growth in DWP, given given the pricing in the market is hardening or it certainly getting quite a bit harder in certain lines would you expect DWP to grow at a rate, perhaps greater than that 4% to 5% over the next couple of <unk>.

Yes.

Well, it's tough to say if the whole industry will Peter.

I will expect commercial lines to grow and you'll think of commercial lines is roughly half the market, maybe a little bit less.

Now there has been a drag on growth rates on the commercial side because of workers' comp workers' comp has shrunk about 5% over the last 2 years, because it's directly tied to payroll.

But I do think in the hardening of the market, we're going to see commercial lines premiums grow.

At a higher rate over the next year, but it's tough to say now the good news for Duck Creek is I've said this in the past, but in a hard market carriers are trying to get more surgical in terms of where they take rate and how they take rate and increase rates and they want better technology to help them do that more flexibility in their product design more.

Flexibility in their use of data and visualization of data to drive their pricing algorithms and that always leads back to <unk>.

Technology conversation and I think this hard market is definitely helping with some of the conversations that we're having with carriers on their technology back plane and how we can help them deliver on their strategies as they react to the hardening of the market.

Okay. That's helpful. And then just as a reminder.

As we see travel.

Travel PV.

<unk>.

Starting to ramp back up post pandemic and we go back to doing marketing.

Would that represent.

Maybe about 100 basis points to get back to normal or might not even be larger given.

Marketing efforts internationally.

No I don't think it would be necessarily larger I think we've commented a quarter or 2 ago that we thought the impact.

It was probably roughly a point of revenue.

And is that kind of builds back up it's almost all contained within the sales and marketing line. So I think as we kind of get through fiscal 'twenty..2 we'll see that start coming back up a little bit as a percentage of revenue.

Okay. Thank you.

1 thing to add to that is there.

It will be a small effect on professional services as well as we baked back in rebuild expenses, which is a kind of a zero margin line item, but that'll be a small impact as well.

Okay makes sense. Thanks.

Thank you.

This concludes the question and answer session of today's program I'd like to hand, the program back to Mike Schakowsky for any further remarks.

Okay. Thank you everyone for participating in our Q3 earnings call and let me wrap up by again highlighting that we're very pleased with our current results and our market success, that's been demonstrated by our substantial growth in our subscription revenue.

Revenue of 56%, which we think continues to reflect the growing customer interest in our Duck Creek on demand products not only are we well positioned as the insurance industry continues to transition to run core systems in the cloud. We believe we are enabling and leading the migration across the industry, allowing insurance carriers to leverage of cloud and <unk>.

<unk> faster again I appreciate everyone. Joining today, thank you and please be safe and healthy and well take care.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect good day.

[music].

Thank you Christine on the buy and welcome to the Duck Creek technologies third quarter and fiscal year 2021 earnings Conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone.

Reminder, today's program May be recorded I would now like to introduce your host for today's program Brian W. Investor Relations. Please go ahead.

Good afternoon, and walk about Duck Creek earnings conference call for the third quarter of fiscal year, 2020, 1 which ended on May 30 <unk>.

On the call with me today are Mike the casket Duck Creek, Chief Executive Officer, and we need to Perry Duck Creek CFO.

Can I. Please disclosure of our results can be found on our press release issued today, which is available on the Investor Relations section of our website.

Today's call is being recorded and a replay will be available from the conclusion on the call.

Statements made on this call may include forward looking statements regarding our financial results products concert from an operations the impact from COVID-19 on our business and other matters.

How much are subject to risks uncertainties and assumptions.

The management's current expectations as of today.

It may not be updated on our future there.

Therefore at least stay on should not be relied upon as representing our views as of any subsequent day.

We also refer to certain non-GAAP financial measures to provide additional information to investors.

A reconciliation of non-GAAP to GAAP measures is provided on our press release with the primary differences being stock based compensation expenses.

Amortization of intangibles change in fair value of contingent earn out liability and the related tax effect of these adjustments with that let me turn the call over to Mike.

Thank you, Brian and good afternoon, everyone I'm pleased to report the Duck Creek continues to perform at a high level on the third quarter underpinned by the growing demand of our SaaS platform Duck Creek on demand the global P&C industry continues to embrace and move to the cloud and our SaaS market leadership puts us in a great position to disproportionately.

We benefit from this trend.

I'll begin with a quick overview of our financial results for the third quarter, which were well ahead of our guidance for all metrics.

We reported total revenue of $67.9 million up 26% year over year.

We continue to see strong demand across all segments of the P&C market. Some of the deals we signed during the quarter included a meaningful win with axis insurance.

A leading global provider of specialty lines insurance and reinsurance.

This new deal access is taking the important first steps towards the cloud and is utilizing duck Creek on demand as it SaaS platform of choice.

We also had a significant duck creek on demand by up with an existing tier 1 customer who is expanding the scope of their deployment on our on demand platform.

This builds on the great success of this tier 1 carrier who rapidly deployed a new product line on our SaaS platform in under 6 months.

This important expansion is an example of tier 1 insurers continuing to adopt SaaS technology and of the open ended opportunity in front of us that we have with our larger customers.

Argo's deploying duck Creek on demand as a component of its multi year initiative to integrate and simplify its technology and application stack to improve productivity and reduce expenses.

Our partner ecosystem has been leveraging the power of Duck Creek open architecture to enable customers to easily integrate with partner solutions. We built an extensive collection of product ties integrations to the most widely utilized P&C industry data and service solutions, which helps to reduce time to market and deliver.

Compelling industry capabilities for our customers.

During the quarter, we had several upsell wins, where customers opted to take advantage of these new capabilities.

I would note our builders mutual and core specialty insurance. Additionally.

And agents.

But insurance.

Specialty insurance carrier, writing business in 34 States will leverage Duck Creek reinsurance management to manage their ceded reinsurance.

We look forward to working with both these carriers to support their respective business strategies.

Each of these wins represent the carrier that is looking for the right tools to help them deliver more value to their customers quicker than ever. This type of thinking was front and center at our recent annual V formation users conference, which was held virtually and early June since moving to a virtual experience last year, we have built a vibrant community.

More than 3000 attendees that are engaging with 1 another on an ongoing basis to share best practices and learn more about duck Creek the ability to improve their visits.

Theme of this year's event was creating the new standard which focused on the emerging transition to a flexible business approach that enables carriers to reinvent their businesses to meet the needs of customers now and in the future.

The consistent feedback we get from customers is that their current it stack and rigid hard coated business rules prevent them from responding to the accelerated pace of the change in their markets.

I opening staff that I discussed in my keynote speech included nearly 40% of all premium dollars.

Are being consumed annually by operating in loss adjustment expenses. This hasnt materially changed in a decade, which means carriers are no longer driving efficiency gains from their current technology solutions.

60% of legacy it system upgrades ended up disrupting some aspect of the carrier's business during the modernization process.

61% of carriers indicated it is taking them 6 to 12 months to take a new product from idea to implementation, which is simply too long in today's dynamic market.

And 3 quarters of insurers believe they need to reengineer customer experiences to bring technology and people together in a more human centric manner.

Carriers will take different approaches to digital transformation and we designed duck Creek on demand to make it easy for them to follow the path that best fits their specific circumstances.

Our low code platform is designed to externalized process rule development and let carriers establish a repeatable customizable end to end product factory, which allows them to iterate product rules and quickly and seamlessly.

I'd like to highlight some specific examples that demonstrate our insurance technology leadership.

<unk> executed a very ambitious strategy to modernize our core platforms for policy and billing to support their ongoing focus to deliver exceptional customer service.

And <unk> has continued to expand their use of Duck Creek since they started in 2017. This commitment builds on our ongoing partnership and proven success and with Geico today Geico has tens of billions of dollars of written premium deployed on Duck Creek, which we believe sets a new benchmark among large tier 1 personal lines insurers.

For deploying a new core system across the enterprise.

This successful rollout positions geico to react quickly to future changes in customer demand and provide exceptional customer service.

We're proud to announce that law cover has successfully gone live on our core suite policy billing and claims in just 11 months.

Finally during this past quarter, we hit a significant milestone with the Hartford as they successfully deployed their new personal auto product in 2 states on our Duck Creek on demand SaaS platform.

This new modern technology platform combined with the Hartford's product design is critical to improving the hartford's growth in personal lines by providing a contemporary digital on flexible experience for their customers. We are proud to partner with the Hartford and their product launch represents an important step on our journey together.

Not only are customers that are recognizing the power of Duck Creek platform. We were pleased to have recently won 2 awards from Stella the leading independent industry analyst for Duck Creek claims as a leading claims technology and service in the EMEA property and casualty sector.

Sell inside of discussions with Duck Creek claims users, who praise of functionality and speed of the system and our overall approach to partnering with customers as key differentiators.

As good as our solutions are today, we continue to invest in our platform and products to increase the value that we deliver to our customers..1 example is the investment we're making in on demand operations and development capabilities that provide our customers with tools and solutions aimed at streamlining and improving their it operation.

<unk> and Dev ops processes.

We recently announced the availability of our on demand control hub, a utility that enables our customers. It operations teams to independently deployed changes monitor and control their duck Creek SaaS applications as well as the extensions and integrations they built around those applications.

The control hub serves as a 1 stop shop for operators to manage our SaaS environments and see the status and health of their Duck Creek applications in 1 central location.

We also continue to focus on expanding the functionality of our products and delivered incremental capabilities specific to some common insurance lines of businesses.

We recently released several incremental enhancements aimed at the workers compensation market that allows insurers to more effectively approved medical invoices calculate injured worker benefits and reported data to regulatory bodies.

As we look to the fourth quarter and beyond we are incredibly excited about the opportunity ahead for Duck Creek.

Interest in moving to the cloud has never been higher among P&C insurers and Duck Creek has established itself as a SaaS platform of choice in the industry.

We'll continue to make investments in our low code platform that will further extend its value to carriers and enable them to deliver the product innovation and service experience that their customers require.

Thanks, Mike.

I'll review, our third quarter fiscal 2021 results in detail and provide guidance for the fourth quarter and full year fiscal 'twenty 1.

Total revenue from the third quarter was $67.9 million up 26% from the prior year period within total revenue subscription revenue, which is comprised solely of subscriptions to our SaaS products was $33.6 million up 56% year over year.

In Q3 subscriptions represented 79% of our software revenue and 49% of our total revenue.

Revenues from on premise software licenses of $2.5 million and maintenance of $6.3 million are showing modest growth as expected and are down to 13% of total revenue.

Services revenue was $25.6 million up 6% year over year.

Services revenue was in line with our expectation and reflects a notable step up from the prior quarter with the launch of several large service engagements.

SaaS IRR, which we calculate by annualized recurring subscription revenue recognized in the last month of the period was $124 million as of May 31, 2021 up 64% from the prior year.

SaaS <unk> continues to show strong momentum and reflects the strength of our SaaS business.

As a reminder, SaaS.

<unk> is a snapshot in time of subscription contracts that are generating revenue during the last month of the period and can be impacted by timing.

For example, our largest deal on the quarter did not begin generating revenue within the quarter and was not included in our IRR number as of May 31.

Yeah.

SaaS net dollar retention as of May 31, 2021 was 133% well above our recent historical range.

Over the preceding 8 quarters, our quarterly SaaS net dollar retention has been on the range of 113% to 121% driven by a combination of high gross retention rates sales of new products to existing customers and growth of DWP for products already operating on our SaaS platform.

Now, let's review the income statement in more detail. These metrics are non-GAAP, unless otherwise noted and we provided a reconciliation of GAAP to non-GAAP financials in our press release.

First on a GAAP basis, our gross profit for the quarter was $40.2 million and we had a loss from operations of 544000.

We had a net loss in the quarter of 357000 or zero cents per share based on weighted average basic shares outstanding of $131.6 million.

Turning to our non-GAAP results gross profit in the quarter was $42.2 million or a gross margin of 62, 2%.

Compared to 59, 2% in the third quarter of fiscal 'twenty.

Subscription margin in the quarter was 68, 5% driven by certain timing items and scale benefits as we continue to generate strong subscription revenue growth.

New deployments we.

We believe our subscription margins are an important demonstration of the scalability and performance of our SaaS platform.

We remain committed to bringing down our services margin by several points in the near term and.

And longer term into the high <unk>, which we believe reflects a sustainable utilization rate for our professional services teams.

Turning to operating expenses R&D costs were $12.5 million or 18% of revenue down slightly year over year as a percentage of revenue.

The 22% growth in R&D costs from the prior year reflect our continued investment in product solutions and features that will generate additional value for customers.

Sales and marketing expenses were $10.9 million or 16% of revenue.

Down slightly with the prior year as a percentage of revenue.

Expense growth of 20% from the prior year reflects continued expansion of our go to market resources in both U S and international markets, while travel related costs and certain marketing programs continue to run below normal levels due to COVID-19 impacts.

G&A expense was $14.1 million.

Our 21% of revenue up from 18% in the prior year period and in line with expectations. The.

The growth in G&A expense year over year is related primarily to public company costs that we began incurring following our IPO on August 1.

Over the course of this fiscal year, our G&A expenses have begun decreasing as a percentage of revenue and we expect this to be a highly leveraged cost area and moving forward.

Adjusted EBITDA margin was 8% per the quarter up from 7% in the prior year period.

This represents our 10th consecutive quarter of adjusted EBITDA profitability, an important indication of our ability to profitably generate high levels of subscription revenue growth.

Non-GAAP net income per share for the quarter was <unk> <unk> based on approximately $135.2 million fully diluted weighted average shares outstanding.

Yes.

Turning to the balance sheet and cash flow, we ended the quarter with $372 million in cash cash equivalents and short term investments and we remain debt free.

Free cash flow for the quarter was $6.6 million, which was in line with our expectations.

I'd like to finish by providing guidance for the fourth fiscal quarter.

We expect total revenue of 68, 5% to $69.5 million subscription revenue is expected to be 32 to $32.5 million adjust.

For the full year of fiscal 'twenty, 1 we are increasing our outlook to the following.

Total revenue of 258% to 269 million subscription.

Revenue is expected to be $1.24 to $124.5 million adjusted gross.

Gross margins are projected at $65 to 61%.

We expect adjusted EBITDA of $15.6 million to $16.6 million and on non-GAAP net income is expected to range from $9.6 million to $10.6 million or.

We're 7% to 8 per fully diluted share.

Please note that our fourth quarter guidance reflects the impact of the contract that we have been excluding from our SaaS IRR calculation coming to an end.

We've long known this contract was winding down and it has been incorporated in our guidance throughout fiscal 'twenty 1.

In the near term it will have an impact on our year over year subscription revenue growth rates as we comp against prior year period that included this contract.

Great position to deliver strong subscription revenue growth and improving profitability for years to come.

We'd now like to open up the call to Q&A operator.

Good day, ladies and gentlemen, if you have a question at this time. Please press Star then 1 on you touched on telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key.

Our first question comes from the line of Sterling Auty from Jpmorgan. Your question. Please.

Yeah, Thanks, Hi, guys I'm kind of curious how well known through the industry is the geico deployment and if it is well known and have you started to see an increase in inbound call volume similar to what Guidewire experience when nationwide went live all those years ago.

Hey, Thanks Sterling.

Yes, I would say that it is well known we did do a public press release I can't remember the exact date several years ago.

I'd say that when we started this journey it was not well known because geico wanted to wait to have some proven success on our platform before we were allowed to disclose it publicly.

But then we did make the announcement, but we are very proud and very excited to be announcing that they have completed the rollout across all 50 states.

<unk>.

When I go look at what other top tier 1 carriers in the personal line space have done.

Relative to our ability to get this full deployment done and under a 5 year period with Geico. We think this is industry leading.

We think it's really demonstrable of what's capable on the Duck Creek platform. So we're very very proud of it.

That makes sense, 1 follow up you've announced.

Guidewire is theres been a number of companies that have used you guys to launch new products into the market on the cloud platform.

Should we think about the increasing revenue contribution that could potentially come from those contracts as those businesses grow themselves.

Yes, I think when we look at the revenue contribution of those new startup businesses, sometimes sterling, there and that Tom and atomic or a line of business is running with full autonomy. So the initial subscription opportunity starts relatively small and then grows over time, but most of the <unk>.

We're doing this with large tier 1 carriers that are starting with a smaller book of business and they're trying to get experience in the cloud and then we know that the real opportunity is.

Is to eventually convert or migrate existing books of businesses over to our on demand platform. So again I think I've highlighted this in the past, but we're seeing a lot of tier 1 carriers start with new startup lines of businesses or smaller blocks of books of businesses.

As to get experience with the cloud and then we know that those will lead to larger opportunities for us here at Duck Creek.

That makes sense. Thank you guys.

Yes. Thank you.

Thank you. Our next question comes from the line of Tom Roderick from Stifel. Your question. Please.

Great. Thank you gentlemen, appreciate the chance to ask a question.

I actually wanted to kind of piggyback on Sterling's question, there on Geico, because just the point about it being up.

Cross deployed on on multiple lines, but across all 50 states. It brings up the regulatory question on the challenge carriers have been moving from state to state.

Can you talk a little bit about some of the complexities that you work your way through and how that might scale to other carriers that are thinking about such expansion and then how does the cloud kind of play into that angle.

So thanks for the question and I don't want to get into the specifics of the geico deployment, but what I will do is highlight the advantages of Duck Creek and how we can execute on state to state deployments faster than I think our competitors scan and we talk a lot about on low code platform.

And 1 element of our low code platform underneath that it's a technical term called inheritance and what it allows carriers to do is take a whole product set and our product set of rules inherit from it and then derive kind of just small changes so that they can launch either new derivative products or launch into new states.

So on legacy technology, what we find.

As carriers have a lot of hard coded logic. If then logic. If you will state by state if it's the state of New York then do this an issue. This document if the state of California then.

Yeah, that's great that's excellent detail and then Vinnie you you highlighted in the guidance and the discussion point here 1 of the sort of long anticipated contract. That's rolling off the books is in fact doing so next quarter. It seems like the subscription revenue guidance certainly baked that in.

Would you encourage us to think sort of directionally about net dollar retention.

Other ancillary metrics that go into that.

As you kind of work your way through that and then with that particular customer is that now kind of off the books or are there still opportunities ongoing to.

To maintain and extend that relationship in the future with different product lines.

Yes, so Tom I'll address the first part of the question asked Mike to jump in on the on the customer relationship and have it so.

Since we knew from the time, we carved out of Accenture that this was ultimately going away. We've always purposely excluded that account from both our IRR on net dollar retention metrics.

The departure of that that revenue stream for that particular contract won't impact to reported metrics.

What it will do is.

The GAAP debt has existed between <unk> growth and subscription revenue growth.

That will start coming together over the course of the next year or so as that contract the impact on that contract winds on so I think.

As you suggested it.

Has been it has been considered in our guidance of course.

And won't be impacting the other 2 metrics other than subscription revenue itself.

And then Tom to jump in on the second half of your question.

Say that they've nonrenewed or rolled off of this because they had a change in strategy and this was consumed as a larger part of an accenture contracted wind carved out, but we do maintain a strong relationship with this customer and they continue to use other duck Creek products in other areas of the business.

And we're very hopeful of expanding the relationship within the account. So we do think there's future opportunity.

Wonderful great detail nice job on the quarter. Thank you gentlemen.

Alright, thank you.

Thank you. Our next question comes from the line of Chris Merwin from Goldman Sachs. Your question. Please.

Okay. Thanks, so much for taking my question.

Just wanted to ask 1 as it relates to the decision making process of your larger customers.

Obviously with the Geico deal you sort of mentioned the expansion there.

Some of these larger logos are you starting to see a more centralized process around picking vendors migrate systems to the cloud as opposed to I think what it has historically been more of a very decentralized approach with certain owners of lines of business, making their own decisions about which systems to use it.

Is that pattern changing at all or how best to think about the success you're having.

A large leather was like like Geico.

There are some insurance carriers, especially from large tier ones that very much pride themselves around having.

P&L or distributing operating businesses that can make their own decisions. So I think and those types of carriers. We will find that there is distributed decision, making and they have their own.

On decision making rights.

They may share information across the enterprise in that case.

But I think with some larger tier ones, where we are expanding its because we are working with their group leadership on their enterprise leadership.

And they see the success on Duck Creek, and making broader commitments on a more centralized manner. So I think thats boding well for some of the expansions that we're undertaking right now.

Okay perfect. Thank you and then maybe just a follow up for <unk>.

Video on the <unk> it looks like it improved I think by about $6 million sequentially and on.

I'd say big win in the quarter sequential improvement was a little less than a year ago just wondering.

How best to think about the seasonality here or any other puts and takes around deals moving it out of the quarter or just anything else to note as it relates to <unk>.

Yes, Chris I think the other thing the other.

The thing I'd kind of reiterate is obviously on a 1 quarter basis, we don't get too focused on the sequential changes just because of the.

Large deal sizes on small deal volume that said Q3 is typically a little bit seasonally low for us Q2, and Q4, our strongest seasonal quarters.

And in Q3 in particular.

If you remember we had a pretty strong quarter last quarter in Q2, when our large Q2 deal actually made it into Q2 and on our larger Q3 deal did not make it into Q3, so I kind of chalk it up to timing.

And just continue to encourage people to look at the IRR changes over a longer period from just 1 quarter.

Understood. Thanks, a lot.

Sure.

Thank you. Our next question comes to a line notes to get <unk> from Barclays. Your question. Please.

Okay, Great Hey, guys. Thanks for taking my questions here.

Mike maybe maybe first for you.

That makes sense.

It does makes sense.

And I would say that I am not sure that I would say that there is a change in pace.

But I will say that I'm on glad that you highlighted our strategy, which is really for us to focus on our customers' strategy. What are the business objectives that they have and really align our efforts to perhaps move them from on premise into the cloud oriented Duck Creek on demand when they have a strategic <unk>.

<unk> point, whether they want to bring a new thing to market or do a digital transformation in a different way or launch in a new channel and we're finding that that strategy is working well, we're having very meaningful conversations with our customers about them adopting the cloud.

Having very meaningful conversations with our customers about their business strategies and how we can help accelerate those business strategies like we did.

With this case that we just announced with access insurance and.

I would say that we're making meaningful progress with the announcement of access we now have 7 on premise core customers.

That are now migrating or adopting duck Creek on demand core solutions in a meaningful way. So we think it's showing good progress, but just note debt because of this approach we're not in control of the timing our customers are in control of the timing and I think thats the way that we're going to continue to draw.

Our strategy.

Got it got it maybe from my follow up for you obviously, a lot of focus on that Geico contract. It's great to see it across 50 states, but I think I think Mike mentioned earlier that it was I think under a 5 year sort of rollout. So can you just talk about how the <unk> contribution there sort of I understand you don't want to get into detail on a particular customer but.

As does the completion of a rollout mean, a meaningful <unk> contribution this quarter or have we seen most of that contribution sort of happened in the past as the rollout was happening.

Well first as it specifically relates to Geico second I would point out that that was a license deal back in 2017, So that's not in our IRR number.

But more generally speaking.

On the way, we've seen continual increases in our larger tier 1 and a lot of accounts with particularly in our tier 1 account as they add either new products or more DWP onto the system. So another point of reference on that happens to be net dollar retention and a lot of times when you see net dollar.

Retention moving up it's based on a continued rollout or continued.

Continued increased deployment in a large account.

So.

Think you see it both AD <unk>.

$1 overtime, and large accounts as they grow and contribute to the net dollar retention.

Got it very helpful. Thanks for taking my questions here.

Thank you. Our next question comes from the line of Brad Sills from Bank of America. Your question. Please.

Hi, This is sherry Guo on for Brad sales. Thanks for taking my question.

Wanted to ask about the international opportunity, particularly in Europe, and APAC and can you share any insights on the demand environment there any notable activities.

These geographies in the quarter. Thank you.

We're still.

Cautious in terms of seeing progress in Continental Europe.

Although we are seeing continued success in Asia Pacific.

As we talked about the go live at La cover.

And the pipeline.

Is.

Strengthening quite a bit in Asia Pacific and then in across Europe. We're also very pleased with some of the discussions with some of our larger tier 1 enterprise customers.

That are looking for new opportunities to launch new products.

Enable and do digital transformations and European regions, and we think.

Great. Thank you and.

The Ah <unk>.

Your new wins are up selling can you talk about how much the non.

Non core assets represent as a product and where do you envision this to trend in the near and long term. Thank you, yes, what I would say on the non core products split is we don't give quarterly numbers or details on it but when we look over the last year or 2 or a period of time and our bookings roughly.

Speaking about 75% of our bookings are from our core systems policy billing claims and then the non core additional assets about 25% of our bookings.

And that's really what we have been seeing.

I think right now I think that trend is going to hold for a while.

Looking at some opportunities to expand some of our non core offerings. So that may change over time, but I think right now thats a safe assumption for us.

Got it thank you.

Thank you. Our next question comes from the line of above <unk> from William Blair. Your question. Please.

Great. Thanks, guys.

It's Joe again.

I wanted to touch a little bit on the expansion in Europe, but focus on it from a product.

Side.

So historically have you seen Europe typically lag the U S in terms of cloud acceptance growth.

And as you look at the wins that you've had some good wins, but but but that's an area of investment growth I guess, how much of the sale. There is even jellicoe still like the idea of cloud, but also the idea of low code No code right. So look on getting above the U S. You are having a whole new way of deploying and letting customers manager on rules workflows temperatures et cetera.

How is that sort of conversation happening with clients in Europe and is there a lag or are they starting to get it and it's sort of.

We're starting to see them.

The flywheel Acura and they will start to play out a little bit help us sort of think through how thats playing out on what you're seeing from a demand and acceptance perspective as you invest in Europe.

Great question, and I would definitely say that there is a lag.

I went back 4 or 5 years ago, I would say that.

In Europe.

Even give them an option.

With an on premise installation for a new customer in Europe.

And I think that is a little bit of a headwind for us, but I think the market is going to move fairly quick.

I look forward to an opportunity of getting some momentum and traction in Europe, and I think once we get several proof points I think the market conditions will change considerably.

Gotcha got you Thats helpful.

But what I sort of expect it will be putting up there a little bit on the lag.

I just wanted to talk about.

The cyber opportunity.

You and I've talked about from the past, but love to get an update here.

It's becoming more and more common to hear about these cyber tech ransomware et cetera.

And again I guess 2 part question..1 are you seeing your customers say, we need to have a cyber insurance products.

And then 2 like how do you address that do they have the algo the data the actuarial work done for that because it feels like that that's really early on we don't know what the drivers are like exposure to how the network security based how much have you invested in security I don't know how you think about I would love to have debt. They are your customers think about products you offer there.

It's small DWP, obviously today, but that could be an area of growth and then how does duck duck.

A doctor you on demand fit in from a product perspective in that in that scope.

Yeah, and I think.

Look we work with several very large.

And successful cyber writers that have cyber products and cyber coverages on Duck Creek, and we're very very proud of our success in this space.

When we work with those carriers, we really focus on occupy the space.

The product definition, the pricing of the product.

Selling of the product through distribution.

Distribution.

Because every carrier if you look at how they look at analyzing the risk of cyber they use very very different techniques different data different providers some very.

Quite often youll find different mindsets in terms of how they think about cyber.

It is a rapidly growing product and I think.

And then they are just looking to the insured tech community. There is a lot of providers that.

Really provides data and analytics in this domain.

Similar to the way you would plug in a pay as you drive provider as well for usage based insurance to make sure that.

Carriers can use the advance advanced algorithms for pricing. So that's going to be our strategy is to really maintain an open architecture approach to all these insured tech providers.

Gotcha.

Helpful. Thanks, guys I appreciate you taking the question.

Thank you. Our next question comes from the line of Alex <unk> from Wolfe Research. Your question. Please.

Hey, guys. Thanks for taking the question.

It was just the first 1.

Around kind of piggybacking on Sterling's question around new customers launching new logos launching new brands.

They adopt Duck Creek, what roughly what when you think about the percentage of your new logo wins or Lance what how many of those are resulting from that type of activity.

Versus maybe like a core system transformation on replacement.

Well it would be difficult for me to put a percentage to it.

Because we're just seeing that a variety of carriers are taking on different strategies and we're very pleased so for instance, this work that we announced with axis, we've been working with them with this on premise relationship for many years.

And they have a new strategy of getting something new to the market very quickly and they saw on demand is a very very.

Rapid way of which they can.

Get something done.

So when I go look at our pipeline and what's coming through our pipeline, which I'm very excited about I would say a lot of the new logo opportunities our digital transformations, we want to replace our policy billing. Your claims system, we want to have a new.

Channel or distribution front end digital capability and I would say that's still the vast majority of the opportunities that we're seeing.

Got it that's Super helpful. And then maybe just kind of digging in a little bit on on 2 metrics is it possible to just give us maybe a little bit more sizing or kind of some just rough financial impact on SaaS. There are this quarter from that comment about the larger.

The largest deal on the third quarter not being in the number this quarter roughly what type of an impact.

<unk> been in with it.

Of that number would have changed and apologies for the to a question, but if you look at the guidance, maybe just a rough reminder of how much of the.

How much of that.

Deal that's coming off the books in subscription revenue.

Like for like if that wasn't the case, what would the sequential kind of guide represent in terms of.

Right.

Yes, Alex on the second question.

We really are not in a position from a confidentiality perspective of giving any details on the on the dollar value of that contract Thats rolling off.

So I can't really do that yes, I can tell you that the impact on the growth rate if youre looking at recent growth quarterly growth rates versus the Q4 guide that's the majority of the change.

But we're not positioned where we can give any specific details on the dollar value.

As it relates.

Sure.

I'm sorry on can you remind me the first the first part of the question.

Not really on our quarterly AOR growth, yes, again, I don't want we don't want to comment on the value of any 1 particular deal, but I think if you look at kind of over.

A longer time period than a quarter and 234 quarters and look more in terms of what we've been averaging over the quarters, you can kind of get the sense of how a deal can can swing from quarter to quarter with the impact of that might be so.

<unk>.

We have said before.

A core system deal tend to run into the millions.

Low to mid <unk>.

Low to mid single digit millions.

And a deal like that moving from quarter to quarter.

Can make it a little lumpier.

That's why we had.

The big quarter in Q2, and not as much in Q3.

Makes sense.

You guys.

Okay.

Thank you. Our next question comes from the line of my on Tandon from Needham Your question. Please.

Hey, Good afternoon, guys. This is actually Kyle Peterson on for <unk>.

Just 1 from me, but just wanted to see some of the upsell.

Progress that you guys have been making.

It's been really strong I was wondering if you guys could give any more detail.

Terms of how much of some of the upselling existing client is coming from clients, adding additional crop products versus adding bringing more DWP on the platform. Just so we can get a little bit of a sense for what's driving that growth.

Yeah, I would say that.

Sure.

We don't have the information to give you a percentage around how we grow within an account and whether it's new product more premium or a new.

Division or line of business, but what I will say is in order.

That I would rank it is.

Really a new division within our company.

<unk>, a new geography, or a new division is probably our primary upsell opportunity then very close second would be cross licensing of major core product.

And I would say those are the 2 big drivers and then we get more.

Revenue subscription revenue quite often if carriers grow obviously, there are premium, but because that is a stair step manner.

Would probably be third in line in terms of revenue contribution so thats really the rough order that I would give it.

Great that's really helpful. Thanks, guys.

Thank you. Our next question comes from the line of Robert Symons from RBC capital markets. Your question. Please.

Hi, Thanks on on for Rishi So.

So could you talk to what's baked into your gross margin guidance for <unk>.

It doesn't line up pretty steep decline quarter per quarter does that just from the timing of hires or is there something else there dealer.

Well thanks for the question.

The Q4 margin decline is a step down it's more about Q3 being unusually high than it is about whether Q4 as is normal kind of more typical.

So we are big into that is an assumption that subscription margins, which had been running very high largely based on pace of hiring.

Do you come down in Q4 to a more normalized range in.

In the mid <unk> from running closer to more on the high <unk> of late.

And in addition, we've.

Built in a slight anticipated decline in services margins in Q4, but I would say that while we're still committed to bringing down service margins over the long term because our utilization rates are running so high right now.

Q4 will remain reasonably pretty strong.

Might come down a little bit won't come down much from Q3.

Got it Okay, and then can you talk about.

Gross margins, how do we think about the difference between single tenant and multi tenant.

How big of a driver can that be over the next few years.

Yes, I think right now.

Force, an issue where a customer is not comfortable yet committing to our multi tenant platform. So that puts us in a position that we're in essence running and mixed mode right. We have some customers on multi tenant we have some on single tenant with a lot of Dev ops and a lot of automation and when we're in mixed mode. We don't.

Get the full on efficiencies of multi tenancy. So right now on our long term plans there is not a commitment to improve margins because of multi tenancy.

I've stated this in the past, but I think as we look at buying behaviors and we look at migrations, mostly tied to the maturity of the operations of the carriers that we're serving.

If that starts to shift and we think we can get more progress on multi tenancy. We will of course revisit our margin profile, but right. Now there is no commitment that were ready to make on that.

Great. Thank you very much.

Thank you. Our next question comes from the line of Alex <unk> from Raymond James Your question. Please.

Great. Thank you, Mike a bigger picture industry question here, but what are you seeing in terms of broader IC budgets and if those grown at all.

With premiums this year and then within net are you seeing any increased wallet share of budget going towards core modernization products. Thanks.

I'm glad you're asking about the industry, it's important for me and.

I would say that we're seeing that.

Budgets are holding strong it's hard to tell if they've grown but.

I think they are holding strong just because of digital transformation and core system replacement, especially as the industry makes its way through the pandemic is still a top priority for <unk>.

Large insurers that are out there now when we go look at the industry and the effect of the pandemic I would say that the growth rate of the overall industry has dropped a little historically its average in the U S. About 4.5% 5.5% growth in premium when you look at 2020 it grew about 2.5%.

And that was mostly driven by the decline in personal lines auto premiums declined about 10% now what we are seeing in those carriers is theyre not aggressively changing their budgets, they're still investing in digital transformations, and they're really channel investments into core transformations in the way that that has resulted.

<unk> for US is a strengthening in our overall pipeline. So our pipeline is as strong as we've ever had it.

And it continues to grow quarter over quarter. So we're quite pleased with the way the industry continues to look at digital transformations and technology investments.

Okay, great. Thank you 1.

1 more SaaS IRR question from me, but specifically on the Delta between subscription revenue annualized in fact, there are it looks like the largest it has been since kind of 4 quarters ago. So we know the 1 aspect as debt expiring contract, but can you elaborate if there's anything else that might be impacting that spread.

Nothing really other than the deal timing.

The largest impact as the legacy contract impact than anything else is just simply timing related.

Okay, great. Thank you.

Yes.

Thank you our final question for today comes from the line of Peter Heckmann from Davidson. Your question. Please.

Hey, good afternoon. Thanks for taking my questions just to go on to that last point, Michael on historical growth in DWP, given given the pricing in the market is hardening or it's certainly getting quite a bit harder in certain lines would you expect DWP to grow at a rate, perhaps greater than that 4% to 5% over the next couple of years.

Well, it's tough to say if the whole industry will Peter.

I will expect commercial lines to grow and think of commercial lines is roughly half the market, maybe a little bit less.

Now there has been a drag on growth rates on the commercial side because of workers' comp workers' comp has shrunk about 5% over the last 2 years, because it's directly tied to payroll.

But I do think in the hardening of the market, we're going to see commercial lines premiums grow.

Flexibility in their use of data and visualization of data to drive their pricing algorithms and that always leads back to <unk>.

Okay. That's helpful. And then just as a reminder, just.

As we see travel.

Travel.

<unk>.

Start to ramp back up post pandemic and we go back to doing marketing.

Would that represent maybe about 100 basis points to get back to normal or might not even be larger given.

Increased marketing efforts internationally.

No I don't think it would be necessarily larger I think we've commented a quarter or 2 ago that we thought the impact.

It was probably roughly a point of revenue.

Okay. Thank you, yes, the 1 thing to add to that is.

There will be a small effect on professional services as well as we baked back in rebuild expenses, which is a kind of a zero margin line item, but that'll be a small impact as well.

Okay makes sense. Thanks.

Thank you and this concludes the question and answer session of today's program I'd like to hand, the program back to Mike Tchiakovsky for any further remarks.

Faster again I appreciate everyone. Joining today, thank you and please be safe and healthy and well take care.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect good day.

Q3 2021 Duck Creek Technologies Inc Earnings Call

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