Q4 2021 Duck Creek Technologies Inc Earnings Call

October 14, 2021

[music].

Thank you for standing by and welcome to the Duck Creek technologies fourth quarter and full year fiscal 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question during the session you will

During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded should you require any further assistance. Please press star zero I would now like to hand, the conference over to your host Bryan to New Investor Relations. Good afternoon, and welcome to Duck Creek earnings Conference call for the fourth quarter of fiscal year 2021, which ended on August 31. On the call with me today is Mike Jackowski Duck Creek, Chief Executive Officer, and Vinvent Chippari Duck Creek Duck Creek, Chief Financial Officer.

Yeah.

Good afternoon, and welcome to <unk> earnings Conference call for the fourth quarter of fiscal year 2021, which ended on August 31.

On the call with me today is Mike to Caskey Duck Creek, Chief Executive Officer, and have any chip Perry Duck Creek Duck Creek, Chief Financial Officer.

A complete disclosure of our results can be found in 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 following the conclusion of the call. Statements made in this call may include forward looking statements regarding our financial results products customer demand operations the impact of COVID-19 on our business and other matters. These statements are subject to risks uncertainties and assumptions and are based on management's current expectations as of today and may not be updated in the future.

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

Statements made in this call may include forward looking statements regarding our financial results products customer demand operations the impact of COVID-19 on our business and other matters.

These statements are subject to risks uncertainties and assumptions and are based on management's current expectations as of today and may not be updated in the future.

Therefore, these statements should not be relied upon as representing our views as of any subsequent date. You should not rely on forward looking statements as predictions of future events as actual results and events may differ from any forward looking statements that management may make today. Additional information regarding the risks uncertainties and other factors. Such differences appear in our press release and the Duck Creek latest Form 10-K, and other subsequent reports filed by Duck Creek with the Securities and Exchange Commission.

You should not rely on forward looking statements as predictions of future events actual results and events may differ.

Or from any forward looking statements that management may make today.

Additional information regarding the risks uncertainties and other factors.

Such differences appear in our press release and the Duck Creek latest Form 10-K, and other subsequent reports filed by Duck Creek with the Securities and Exchange Commission.

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 in our press release, 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. Thank you, Brian and good afternoon, everyone.

A reconciliation of non-GAAP to GAAP measures is provided in our press release, the primary differences being stock based compensation expenses amortization of intangibles.

<unk> fair value of contingent earn out liability and their related tax effects of these adjustments.

Let me turn the call over to Mike.

Thank you, Brian and good afternoon, everyone.

I'm thrilled to report that Duck Creek fourth quarter performance was a strong finish to what was a strong year for the company. We are seeing all tiers of the global P&C insurance industry embraced the business operational and financial benefits from moving to the cloud. This trend drove great demand for our industry, leading SaaS platform Duck Creek on demand in fiscal 2021, and we believe that the continued trend of insurers moving to the cloud puts us in a great position to generate strong growth for the foreseeable future. Let me start with a quick overview of our financial results for both the fourth quarter and the full year. For the fourth quarter, we reported total revenue of $70.9 million.

We are seeing all tiers of the global P&C insurance industry embraced the business operational and financial benefits from moving to the cloud.

This trend drove great demand for our industry, leading SaaS platform Duck Creek on demand in fiscal 2021, and we believe that the continued trend of insurers moving to the cloud puts us in a great position to generate strong growth for the foreseeable future.

Let me start with a quick overview of our financial results for both the fourth quarter and the full year.

For the fourth quarter, we reported total revenue of $79.0 million.

Up 21% year over year. And this was underpinned by subscription revenue, which is our revenue derived from SaaS of $33.2 million up 35% year over year and we are also profitable in the quarter with adjusted EBITDA of $4.8 million. For the full year, we reported total revenue of $260.4 million. Up 23% year over year and subscription revenue of $125.3 million, which resulted in 49% year over year growth. And adjusted EBITDA of $16.9 million. Before reviewing the quarter in more detail I want to step back and highlight some of our key achievements in fiscal 2021, our first year as a public company we.

And this was underpinned by subscription revenue, which is our revenue derived from SaaS of $35.0 million up 35% year over year and we are also profitable in the quarter with adjusted EBITDA of $12.0 million.

For the full year, we reported total revenue of $264 million.

Up 23% year over year and subscription.

<unk> revenue of $128.0 million, which resulted in 49% year over year growth.

And adjusted EBITDA of $25.0 million.

Before reviewing the quarter in more detail I want to step back and highlight some of our key achievements in fiscal 2021, our first year as a public company we.

We increased our SaaS AAR to be more than $135 million, which represents 41% year over year growth. We signed important new customer wins with great brands like our Bella builders mutual coal services and Star International. We had a particularly strong year, expanding our engagement with existing customers, which helped drive our net dollar retention rate to 120% for the year, where we saw continued expansion of the use of Duck Creek on demand, including the adoption of our SaaS solutions from several notable tier one insurers. We also significantly strengthened our partner ecosystem and we ended the year with more than 5400 Duck Creek implementation experts across 19 services firms.

We signed important new customer wins with great brands like our Bella builders mutual coal services and Star International.

We had a particularly strong year, expanding our engagement with existing customers, which helped drive our net dollar retention rate to 120% for the year, where we saw continued expansion of the use of Duck Creek on demand, including the adoption of our SaaS solutions from several notable tier one insurers.

We also significantly strengthened our partner ecosystem and we ended the year with more than 5400 Duck Creek implementation experts across 19 services firms.

We're excited to see that the world's leading implementation partners are making significant investments in their respective Duck Creek practices. And we continue to extend our SaaS leadership through notable enhancements to our Duck Creek on demand solutions, such as the launch of our digital UX page builder, our producer product and our on demand control hub. This success is being driven by the strength of Duck Creek on demand are low code SaaS platform that is purpose built to empower our customers. The nuance and complexity of the insurance market means there is not a one size fits all approach to a carrier's digital transformation. Duck Creek on demand was designed with the insurance professional in mind, so that core systems that they use every day will serve as a tool that helps improve business performance and customer satisfaction.

And we continue to extend our SaaS leadership through notable enhancements to our Duck Creek on demand solutions, such as the launch of our digital UX page builder, our producer product and our on demand control hub.

This success is being driven by the strength of Duck Creek on demand are low code SaaS platform that is purpose built to empower our customers.

The nuance and complexity of the insurance market means there is not a one size fits all approach to a carrier's digital transformation.

Creek, our demand was designed with the insurance professional in mind, so that core systems that they use every day will serve as a tool that helps improve business performance and customer satisfaction.

As excited as we are by the accomplishments that we had in 2021, we know that we have barely scratched the surface of our overall market opportunity. We believe our performance in the fourth quarter, which was a record bookings quarter was a great example of the momentum we have in the market and the increasing opportunity for Duck Creek, we're very proud of some of the notable wins, we had in the quarter. I am pleased to announce that we have expanded our partnership with another prominent tier one insurer in Q1 of our fiscal year. We initially announced that this tier one existing customer began their journey to implement a new small commercial product on Duck Creek on demand. After we successfully launched this product in production in under four months, we're very proud that this insurer has committed to run a large segment of their commercial business on Duck Creek demand policy and billing.

We believe our performance in the fourth quarter, which was a record bookings quarter was a great example of the momentum we have in the market and the increasing opportunity for Duck Creek, we're very proud of some of the notable wins, we had in the quarter.

I am pleased to announce that we have expanded our partnership with another prominent tier one insurer in Q1 of our fiscal year. We initially announced that this tier one existing customer began their journey to implement a new small commercial product on Duck Creek on demand.

After we successfully launches product in production in under four months, we're very proud that this insurer has committed to run a large segment of their commercial business on Duck Creek demand policy and billing.

This will be an opportunity that will scale over time and continues to provide future revenue growth for Duck Creek. We also expanded our relationship with AIG. AIG of course is one of Duck Creek, most strategic customers and really we consider them a partner in many respects as we worked together throughout their enterprise transformation AIG 200. Which many in the industry considered to be the most significant digital transformation that the industry has seen. We're proud to be a key component of AIG 200. We signed an important full suite transaction with our Bella a leading regional insurer in new England. After conducting a thorough competitive evaluation of multiple vendors that lasted nearly a year. Our Bella selected Duck Creek policy billing and claims on demand to modernize their core systems across our entire business.

We also expanded our relationship with AIG AIG of course is one of Duck Creek, most strategic customers and really we consider them a partner in many respects as we worked together throughout their enterprise transformation AIG 200.

Which many in the industry considered to be the most significant digital transformation that the industry has seen.

We're proud to be a key component of AIG 200.

We signed an important full suite transaction with our Bella a leading regional insurer in new England. After conducting a thorough competitive evaluation of multiple vendors that lasted nearly a year. Our Bella selected Duck Creek policy billing and claims on demand to modernize their core systems across our entire business.

Their CIO noted two differentiators that made us the right choice for our Bella. The first was at our Bella considered Duck Creek to have a superior platform in particular Duck Creek proved to be much more configurable and promoted business agility compared to the other vendors that were evaluated. The second differentiator was the strength of our people throughout the process. It became clear to the team at our Bella that the Duck Creek team knows insurance and the challenges facing insurance professionals far better than our competitors. This combination of the superior platform and deep industry acumen made Duck Creek, an obvious choice for our Bella. We signed an important new win with Starr insurance companies, a leading global insurer star is one of the most sophisticated providers of complex specialty insurance products and needed a SaaS core systems platform that could easily support its multi language multi currency and multi geography business.

The first was at our Bella considered Duck Creek to have a superior platform in particular Duck Creek proved to be much more configurable and promoted business agility compared to the other vendors that were evaluated.

The second differentiator was the strength of our people throughout the process. It became clear to the team at our Bella that the Duck Creek team knows insurance and the challenges facing insurance professionals far better than our competitors.

This combination of the superior platform and deep industry acumen made Duck Creek, an obvious choice for our Bella.

We signed an important new win with Starr insurance companies, a leading global insurer stars one of the most sophisticated providers of complex specialty insurance products and needed a SaaS core systems platform that could easily support its multi language multi currency and multi geography business.

Duck Creek was selected after a thorough and detailed evaluation process, where we demonstrated our ability to meet their requirements and enable their distribution partners with a modern flexible user experience. We also signed an exciting distribution management win with FCCI a Florida based commercial insurer, serving 20 states in Washington DC FCCI is upgrading from a legacy distribution management system that is highly manual and difficult to integrate with its broader IT stack. This. This win is a great example of the number of ways. We can address specific business problems for customers and lay the foundation for a potentially larger engagement as customers execute on their digital transformation strategies. We're pleased to see the continued adoption of our platform in the industry with several significant new on demand customer go lives in the quarter as well as deployment that existing customers, who have been expanding the use of our platform to support their ongoing strategies.

We also signed an exciting distribution management win with Sci a Florida based commercial insurer, serving 20 states in Washington D. C F.

CCI is upgrading from a legacy distribution management system that is highly manual and difficult to integrate with its broader it stack. This.

This win is a great example of the number of ways. We can address specific business problems for customers and lay the foundation for a potentially larger engagement as customers execute on their digital transformation strategies.

We're pleased to see the continued adoption of our platform in the industry with several significant new on demand customer go lives in the quarter as well as deployment that existing customers, who have been expanding the use of our platform to support their ongoing strategies.

One notable example is core specialty our second quarter Duck Creek on demand win that include the migration of their existing on premises Duck Creek policy and billing deployments as well as deploying our full suite across new and existing product lines. This is a noteworthy go life as core specialty was able to launch a new commercial product liability line and migrate their entire claims operation under Duck Creek claims on demand in approximately four months. We also had several go lives with multiple tier-one carriers across diverse commercial books of business. Our ability to bring these customers live quickly are an important selling point and provides confidence for these customers as they consider expanding their engagement with us. In addition to these commercial carrier deployments. We also had significant go live events with three leading tier two carriers to support their growth in their personal lines books. These noteworthy go lives were with American National UPC insurance and West Band Insurance.

This is a noteworthy go lives as core specialty was able to launch a new commercial product liability line and migrate their entire claims operation under Duck Creek claims on demand in approximately four months.

We also had several go lives with multiple tier one carriers across diverse commercial books of business our ability to bring these customers live quickly are an important selling point and provides confidence for these customers as they consider expanding their engagement with us.

In addition to these commercial carrier deployments. We also had significant go live events with three leading tier two carriers to support their growth in their personal lines books.

These noteworthy go lives were with American National UPC insurance and less than insurance.

It's not just our customers recognize and appreciate the power of our platform. Gartner recently released their 2021 addition of the North American P&C core platform Magic quadrant, and we're thrilled to once again be included in the leaders quadrant for the seventh consecutive year. To be clear this is a top category in their quadrant. Gartner conducts an extremely detailed analysis into each of the vendors profiled in the quadrant, starting with specific inclusion criteria. Some of the key strengths the Duck Creek platform that was highlighted by Gartner include first, the maturity of our cloud offering in particular that we enable customers to promote configuration changes across environments on their own giving customers more control over their cloud environments.

To be clear this is a top category in their quadrant Gartner conducts an extremely detailed analysis into each of the vendors profiled in the quadrant, starting with specific inclusion criteria.

Some of the key strengths the Duck Creek platform that was highlighted by Gartner include first, the maturity of our cloud offering in particular that we enable customers to promote configuration changes across environments on their own giving customers more control over their cloud environments.

First the maturity of our cloud offering in particular that we enable customers to promote configuration changes across environments on their own giving customers more control over their cloud environments.

Our persona-based user experience, which is configured using advanced UX configuration tools and our design system, which offers both internal and external users a tailored experience based on their role. The breadth and depth of our partner ecosystem exposed through our partner App store, our content exchange or manage integrations and a restful API driven integrations. And finally, our insurance Bureau products industry content and circular adoption capabilities, which allows business users to decide what circular notices to accept and adopt into their operations.

The breadth and depth of our partner ecosystem exposed through our partner App store, our content exchange or manage integrations and a restful API driven integrations and finally, our insurance Bureau products industry content and circular adoption capabilities, which allows business users to decide what circular notices to axa.

And adopt into their operations.

As you can see from our fourth quarter and full year results Duck Creek is performing at a very high level. As we look ahead to fiscal 2022, our focus is building upon the success some of our key priorities. This year include first building upon the success of our land and expand strategy. We are seeing good traction leveraging both core and non-core assets to penetrate new accounts and provide future expansion opportunities. We had an excellent year in fiscal 2021, deepening our relationships with existing customers through cross-selling our product portfolio and we are still in the early stages of executing on this opportunity.

<unk>, both core and noncore assets to penetrate new accounts and provide future expansion opportunities.

We had an excellent year in fiscal 2021, deepening our relationships with existing customers through cross selling our product portfolio and we are still in the early stages of executing on this opportunity.

A specific area of focus for this year will be to deepen our focus on some important tier one accounts. As you can see from some of the customer examples I cited earlier, we have incredible momentum with these strategic customers. We believe that large tier ones with complex books of businesses provide a great growth opportunity for Duck Creek.

As you can see from some of the customer examples I cited earlier, we have incredible momentum with these strategic customers. We believe that large tier ones with complex books of businesses provide a great growth opportunity for Duck Creek.

We will continue to invest in international with a prioritized focus on large global carriers and opportunistically pursuing local markets as we see the SaaS market mature and we see strong opportunities to build relationships in a post pandemic world. Finally, we will continue to invest in our products to extend our differentiation as a leading low code SaaS provider, making it even easier to develop and launch insurance products and weaving advanced analytics into our platform.

Finally, we will continue to invest in our products to extend our differentiation as a leading low code SaaS provider, making it even easier to develop and launch insurance products and weaving advanced analytics into our platform.

Before I turn it over to Vinny, I'd like to provide an update on our senior leadership team. First, Vinny Chippari has decided to retire at the end of February 2022, after an incredibly successful career. Most recently as Duck Creek CFO for the past five years. Vinny was my first executive hire following our carve out from Accenture and he's been a terrific partner, who has been instrumental in scaling our SaaS business and leading the company through our successful IPO. Vinny will continue as CFO, while we conduct a search process for his successor and he is committed to ensuring a successful transition.

First <unk> has decided to retire at the end of February 2022, after an incredibly successful career. Most recently as Duck Creek CFO for the past five years.

Vinny was my first executive hire following our carve out from Accenture and he's been a terrific partner, who has been instrumental in scaling our SaaS business and leading the company through our successful IPO.

Many will continue as CFO, while we conduct a search process for his successor and he is committed to ensuring a successful transition.

I will greatly miss many. I am thrilled for him to enjoying the next chapter of his life. On behalf of everybody here at Duck Creek I want to thank Vinny for his leadership and his friendship and I wish him happiness in his retirement. I'd also like to welcome our new Chief Marketing Officer, Jeff Winter, who will lead our brand awareness demand generation events and customer and market communication efforts. Most recently he was the CMO of Rocket Software a global leader in the mainframe and legacy platform space. Prior to rocket. He served as divisional CMO for Pitney Bowes in software and data business, and earlier in his career held various senior marketing positions at SAP.

I am thrilled for him to enjoying the next chapter of his life on behalf of everybody here at Duck Creek I want to thank many for his leadership and his friendship and I wish him happiness in his retirement.

I'd also like to welcome our new Chief Marketing Officer, Jeff Winter, who will lead our brand awareness demand generation events and customer and market communication efforts. Most recently he was the CMO of rocket software a global leader in the mainframe and legacy platform space. Prior to rocket. He served as divisional CMO for Pitney Bowes is software.

data business, and earlier in his career held various senior marketing positions at SAP.

Finally, I am excited to announce that Bill Bloom recently joined our board of directors. Bill recently retired from the Hartford, where he was the executive Vice President of technology data and analytics claims and operations. And previously had significant roles at Accenture EXL and travelers.

<unk> recently retired from the Hartford, where he was the executive Vice President of technology data and analytics claims and operations and.

And previously had significant roles at Accenture EXL and travelers.

We're excited to have the benefits of Bill's insurance industry and technology acumen helped us shape and execute Duck Creek strategy moving forward. To wrap up the fourth quarter was a great finish to a strong year for Duck Creek, we continue to extend our leadership in the SaaS core systems market as we signed new customers to our platform and significantly expand our engagement with existing customers. We believe that our results demonstrate that the P&C industry is fully embracing the benefits of the cloud, which we are in great position to benefit from. We believe that our results demonstrate that the P&C industry is fully embracing the benefits of the cloud, which we are in great position to benefit from.

To wrap up the fourth quarter was a great finish to a strong year for Duck Creek, we continue to extend our leadership in the SaaS core systems market as we signed new customers to our platform and significantly expand our engagement with existing customers.

We believe that our results demonstrate that the P&C industry is fully embracing the benefits of the cloud, which we are in great position to benefit from.

We are excited about the opportunity ahead of us and our laser focus on executing to take full advantage of this multibillion dollar market opportunity.

With that let me turn the call over to Vinny to walk you through the numbers. Vinny, over to you.

Thanks, Mike. Today, I'll review, our fourth quarter fiscal '21 results in detail and provide guidance for the first quarter and full year of fiscal 2022.

Total revenue in the fourth quarter was $70.9 million up 21% from the prior year period. Within total revenue subscription revenue, which is comprised solely of subscriptions to our SaaS products was $33.2 million up 35% year over year. In Q4 subscriptions represented 76% of our software revenue and 47% of our total revenue. Please recall that our Q4 results were impacted by the completion of the legacy contract we have discussed previously.

In Q4 subscriptions represented 76% of our software revenue and 47% of our total revenue.

Please recall that our Q4 results were impacted by the completion of the legacy contract we have discussed previously.

Revenues from on premise software licenses of $4.8 million and maintenance of $5.9 million are showing modest growth as expected and our 15% of total revenue. We expect these line items to continue decreasing as a percentage of revenue given the strong growth in our subscription revenue. Services revenue was $27 million up 16%. Year over year, driven by continued high demand for implementation services and strong utilization rates.

Services revenue was $27 million up 16%.

Year over year, driven by continued high demand for implementation services and strong utilization rates.

SaaS IRR, which we calculate by annualized recurring subscription revenue recognized in the last month of the period was $135.3 million as of August 31, 2021 up 41% from the prior year.

As a reminder, SaaS ARR is a snapshot in time of subscription contracts that are generating revenue during the last month of a period and can be impacted by timing. SaaS net dollar retention as of August 31, 2021 was 120%. We're pleased with this result, which reflects the continued success, we're having upselling and cross selling into our expanding customer base. Our net retention is 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.

SaaS net dollar retention as of August 31, 2021 was 120%. We're pleased with this result, which reflects the continued success, we're having upselling and cross selling into our expanding customer base.

Our net retention is driven by a combination of high gross retention rate 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 GAAP basis, our gross profit for the quarter was $41.1 million and we had a loss from operations of $4.1 million. We had a net loss in the quarter of $5.6 million or four cents per share based on weighted average basic shares outstanding of $131.7 million. Turning to our non-GAAP results gross margin in the quarter was $43.6 million or 61.6% compared to 60.6% in the fourth quarter of fiscal 2020. Subscription margin in the quarter was 63.3%. As we've noted each quarter 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're pleased with our full year subscription margin of approximately 67% and believe this is an important demonstration of the scalability and performance of our SaaS platform.

We had a net loss in the quarter of $11.0 million or four cents per share based on weighted average basic shares outstanding of $138.0 million.

Turning to our non-GAAP results gross margin in the quarter was $49.0 million or 61, 6% compared to 66% in the fourth quarter of fiscal 2020.

Subscription margin in the quarter was 63, 3%.

As we've noted each quarter 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 were pleased with our full year subscription margin of approximately 67% and believe this is an important demonstration of the scalability and performance.

Of our SaaS platform.

Professional service margins of 48% in the quarter were notably strong and well above our target range driven in part by the acceleration of professional services revenue in the quarter. While we expect continued margin strength in Q1 of fiscal '22, we do not expect service margins to remain at these levels throughout fiscal 2022. We remain committed to bringing down our services margin by several points in the near term and longer term into the high 30s, which we believe reflects the sustainable utilization rate for our professional services team. Turning to operating expenses R&D costs were $12.6 million or 18% of revenue down slightly year over year as a percentage of revenue. The growth in R&D costs from the prior year reflects our continued investment in product solutions and features that will generate additional value for customers. Sales and marketing expenses were $10.4 million or 15% of revenue consistent with the prior year as a percentage of revenue.

While we expect continued margin strength in Q1 of fiscal 'twenty. Two we do not expect service margins to remain at these levels throughout fiscal 2022.

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 $18.0 million or 18% of revenue down slightly year over year as a percentage of revenue the.

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

Sales and marketing expenses were $14.0 million or 15% of revenue consistent with the prior year as a percentage of revenue.

Expense growth from the prior year reflects continued expansion of our go to market Resourcing in both US and international markets. While travel related costs continue to run below normal levels due to COVID-19 impacts. G&A expense was $16.6 million or 23% of revenue. Up from 22% in the prior year period. Included in Q4 expense is a nonrecurring charge of $2.6 million related to several offices that we do not plan to reopen. Excluding this charge G&A expenses would have decreased from the prior year as a percentage of revenue. We expect to see decreases in G&A as a percent of revenue going forward. As these costs are highly leverageable. Adjusted EBITDA for the fourth quarter was $4.8 million, which was ahead of our guidance due primarily to better than expected revenue, partially offset by increased cost due to the real estate charge discussed previously. Adjusted EBITDA margin was 7% for the quarter up from 5% in the prior year period.

While travel related costs continue to run below normal levels due to COVID-19 impacts.

G&A expense was $22.0 million or 23% of revenue.

Up from 22% in the prior year period.

Included in Q4 expense is a nonrecurring charge of $2.6 million related to several offices that we do not plan to reopen.

Excluding this charge G&A expenses would have decreased from the prior year as a percentage of revenue we expect to see decreases in G&A as a percent of revenue going forward. As these costs are highly levered to ball.

Yes.

Adjusted EBITDA for the fourth quarter was $12.0 million, which was ahead of our guidance due primarily to better than expected revenue, partially offset by increased cost due to the real estate charge discussed previously.

Adjusted EBITDA margin was 7% for the quarter up from 5% in the prior year period.

This represents our 11th consecutive quarter of adjusted EBITDA profitability, which we believe is an important indication of our ability to generate high levels of subscription revenue growth on a profitable basis. Non-GAAP net income per share for the quarter was two cents. Based on approximately $134.8 million fully diluted weighted average shares outstanding. Turning to the balance sheet and cash flow, we ended the quarter with $377 million in cash cash equivalents and short term investments and we remain debt free. Free cash flow was $6.9 million in the quarter and negative $11 million for the year. Free cash flow in fiscal '21 was well below the prior year due primarily to approximately $10 million paid in fiscal '21 for cash-settled international equity awards and the significant decrease in accrued liabilities.

Non-GAAP net income per share for the quarter was two <unk>.

Based on approximately $142.0 million fully diluted weighted average shares outstanding.

Turning to the balance sheet and cash flow, we ended the quarter with $377 million in cash cash equivalents and short term investments and we remain debt free.

Free cash flow was $15.0 million in the quarter and negative $11 million for the year.

Free cash flow in fiscal 'twenty, one was well below the prior year due primarily to approximately $10 million paid in fiscal 'twenty. One for cash settled international equity awards and the significant decrease in accrued liabilities.

The accrual decrease was primarily related to payments under our renegotiated hosting contract increased variable compensation payments from fiscal year, '20, and decreases in accrued PTO. Much of this fiscal '21 working capital change was nonrecurring in nature. I'd now like to finish with guidance beginning with the first fiscal quarter. We expect total revenue of $68 million to $70 million. Subscription revenue of $34 million to $35 million. Adjusted gross margins are projected at 58% to 59%. We expect adjusted EBITDA of $2.5 to $3.5 million. And our non-GAAP net income is expected to range from 1 million to $2 million or one cent per fully diluted share. For the full year fiscal 2022 we expect total revenue of $292 million to $300 million. Subscription revenue of $151 million to $155 million. Adjusted gross margins are projected at 58% to 59%. We expect adjusted EBITDA of $16 million to $18 million. And our non-GAAP net income is expected to range from 9 million to $11 million. We're seven to eight cents per fully diluted share. We continue to have strong underlying momentum in our business and significant growth in our sales pipeline.

I'd now like to finish with guidance beginning with the first fiscal quarter.

We expect total revenue of $68 million to $70 million subscription revenue of $34 million to $35 million.

Adjusted gross margins are projected at 58% to 59%.

We expect adjusted EBITDA of two five to $8.0 million.

And our non-GAAP net income is expected to range from 1 million to $2 million or one cent per fully diluted share.

For the full year fiscal 2022 we expect total revenue of $292 million to $300 million.

Subscription revenue of $151 million to $155 million adjusted gross margins are projected at 58% to 59%.

We expect adjusted EBITDA of $16 million to $18 million and.

And our non-GAAP net income is expected to range from 9 million to $11 million.

We're seven to eight cents per fully diluted share.

We continue to have strong underlying momentum in our business and significant growth in our sales pipeline.

There are few things that investors should keep in mind regarding our outlook for fiscal '22. First our subscription revenue growth outlook reflects the impact of the completion of the legacy contract we have been excluding from our SaaS MLR calculation. This is a high single digit impact to our subscription revenue growth rate for the year. Excluding the impact of this contract the high end of our guidance calls for subscription revenue growth in excess of 30%. The contract expired in June 2021, and will have an impact through Q4 of fiscal 2022. Second, our success with tier one carriers has greatly increased the strategic conversations we're having with both current and prospective customers. While we have great confidence in our ability to both land new tier one carriers and drive significant expansion with existing customers. We have forecasted the in-year revenue impact of these transactions conservatively. And finally, our profitability guidance includes two factors that are constraining annual profit growth. The decrease in professional services gross margins as we manage utilization rates to sustainable levels and year over year increases of several million dollars in COVID-19 impacted areas, such as TD and marketing programs. To wrap up Duck Creek delivered strong results in the fourth quarter and full year fiscal 2021, we believe the superiority of our SaaS platform is driving wins with carriers of all sizes looking for a modern flexible and scalable core system platform. We're confident in our ability to continue generating strong levels of growth and increasing profitability in the years to come and with that we'd like to open up the call for Q&A operator.

First our subscription revenue growth outlook reflects the impact of the completion of the legacy contract we have been excluding from our SaaS MLR calculation.

This is a high single digit impact to our subscription revenue growth rate for the year.

Excluding the impact of this contract the high end of our guidance calls for subscription revenue growth in excess of 30% the.

The contract expired in June 2021, and will have an impact through Q4 of fiscal 2010.

Second our success with tier one carriers has greatly increased the strategic conversations we're having with both current and prospective customers. While we have great confidence in our ability to both land new tier one carriers and drive significant expansion with existing customers. We have forecasted the in year revenue impact of these transactions conservative.

Okay.

And finally, our profitability guidance includes two factors that are constraining annual profit growth.

Decrease in professional services gross margins as we manage utilization rates to sustainable levels and year over year increases of several million dollars in COVID-19 impacted areas, such as TD and marketing programs.

To wrap up Duck Creek delivered strong results in the fourth quarter and full year fiscal 2021, we believe the superiority of our SaaS platform is driving wins with carriers of all sizes looking for a modern flexible and scalable core system platform. We're confident in our ability to continue generating strong levels of <unk>.

and increasing profitability in the years to come and with that we'd like to open up the call for Q&A operator.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster. Our first question comes from the line of William Blair. Your question please. Hey, Jim. Thanks for taking my question many best of luck. With your future endeavors. Hopefully, we'll see around this track again, but with regard to its best of luck.

Our first question comes from the line of bovine sorry.

William Blair Your question please.

Hey, Jim Thanks for taking my question many best of luck.

With your future endeavors.

Hopefully, we'll see around this track again, but with regard to its best of luck.

Thanks, I wanted to just of course I just wanted to touch first really quickly on something a little more tactical which was you talked about the legacy contract, adding roughly let's just say several hundred bps. If we normalize for it, can you just remind us what the impact of the legacy contract was? Because it had an impact in FY '21, and sort of how that played out and then sort of the impact in '22 again. Just a little more color would be helpful. I think. Sure so. Just let me remind everybody we do have a confidentiality agreement on that deal and we can't discuss specific the exact specifics of the dollar amount or the terms of the agreement. That said just to kind of recap what the situation was it was a legacy agreement that carved out from Accenture in 2016 that we've known for a long time is going away. It was never included in our SaaS IRR calculation. That contract expired in June of 2021. So we did have 10 months of revenue in 2021. And that will is creating A little bit of a headwind on the subscription revenue growth rate for fiscal '22.

Just a little more color would be helpful. I think.

Sure so.

Just let me remind everybody we do have a comprehensive agreement on that deal and we can't discuss specific the exact specifics of the dollar amount or the or the terms of the agreement.

That said just to kind of recap what the situation was it was a legacy.

Agreement that carved out from Accenture in 2016 that we've known for a long time is going away.

It was never included in our SaaS IRR calculation.

That contract expired in June of 2021.

So we did have 10 months of revenue in 2021.

And that will create is creating.

A little bit of a headwind on the subscription revenue growth rate for fiscal 'twenty two.

And the guidance, we've put out for fiscal '22. Just pointing to the high end of that guidance range. If you normalized out the 10 months of revenue for the prior year. It would push the revenue growth rate guide to a little bit above 30%. Gotcha. Gotcha, just to be clear. It was not included in SaaS ARR, but it's included subscription number for '21? That is correct, and just as a reminder, I think we've talked about this on a couple of calls in the past the kind of gap that has existed for the most part between the subscription revenue growth and SaaS ARR growth has been mostly related to disagreement. Disagreement in addition to some timing impacts that are not insignificant. So once we get through the periods, where we're at through the fourth quarter of this year, we expect those growth rates to become you know to start tracking closer together. Gotcha. Gotcha helpful. And then one just for Mike here, you've talked a little bit about some of the existing customers. Some big one certainly starting to transition some of the core book over.

Just pointing to the high end of that guidance range.

If you normalized out the 10 months of revenue for the prior year. It would push the revenue growth rate guide to a little bit above 30%.

Gotcha Gotcha, just to be clear. It was not included in SaaS <unk> included subscription number for 'twenty. One that is correct and just as a reminder, I think we've talked about this on a couple of calls in the past the kind of gap that has existed for the most part between the subscription revenue growth and SaaS <unk> growth has been mostly related to <unk>.

Disagreement in addition to some timing impacts that are not insignificant.

So once we get through the through the periods, where we're at through the fourth quarter of this year, we expect those growth rates to become you know to start tracking closer together.

Gotcha Gotcha helpful. And then one just for Mike here.

Talk a little bit about some of the existing customers. Some big one certainly starting to transition some of the core book over.

The one that you implemented very quickly you mentioned AIG, but how do you think about the mix of greenfield opportunity? Even in existing customer where they might open a new line of business. Business property owners. Your line versus the actual core book and the transition of that over to our Duck Creek on demand. How should we think about that? How does that play out over the long term? Thank you. Well. Thanks Pavan. Yeah in terms of the mix of the Greenfield opportunities, we would say that there is an increased trend of these. And it's not only with new companies or new customers, but it's also with existing customers and I think one of the most popular reasons why large carriers gravitate immediately to on demand or at least want to dip their toe in the water with a SaaS or cloud offering is because they want a bootstrap a line of business very very quickly and in example that I gave was on core specialty in the prepared remarks, where we have an agreement where we will migrate.

Business property owners.

Your line versus the actual core book and the transition of that over to our Duck Creek on demand how should we think about that make them how does that play out over the long term. Thank you.

Well.

Thanks Pavan.

Yeah in terms of the mix of the Greenfield opportunities, we would say that there is an increased trend of these and.

And it's not only with new companies or new customers, but it's also with existing customers and I think one of the most popular reasons why.

Large carriers gravitate immediately to on demand or at least want to dip their toe in the water with a SaaS or cloud offering is because they want a bootstrap a line of business very very quickly and in example that I gave was on core specialty in the prepared remarks, where we have an agreement where we will migrate.

They are on premise book to Duck Creek on demand, but what was really important for them was launching a new product line very very quickly so getting that to market getting that to market with speed. Which I highlighted that we did that within four months. I also talked about a notable tier one that we expanded with this quarter and we started that relationship because once again they wanted to get a new product a new greenfield product. If you will to market very quickly and we did that within about 100 days. So for us it's really a great opportunity to start a new relationship and then once we start that new relationship and prove what Duck Creek and what the cloud can do for them, then expand from there. So we're excited about the opportunities going forward. Got it, thanks, guys. Thanks. Thank you. Our next question comes from Jackson Ader of JPMorgan. Please go ahead. Oh, great. Thanks for taking my question.

Which I highlighted that we did that within four months.

I also talked about a notable tier one that we expanded with this quarter and we started that relationship because once again they wanted to get a new product a new greenfield product. If you will to market very quickly and we did that within about 100 days. So for us it's really a great opportunity to start a new relationship and then once we start that.

Our relationship and prove what Duck Creek and what the cloud can do for them then expand from there. So we're excited about the opportunities going forward.

Got it got it thanks, guys. Thanks, electrical weapons I'll jump back in queue. Thank you.

Thank you. Our next question comes from Jackson Ader of Jpmorgan. Please go ahead.

Oh, great. Thanks for taking my question.

First one on the. The competitive environment are you guys seeing any kind of a change in customer conversations? Or win rates or anything as it pertains to cloud deals? Well I would say that we haven't seen anything materially change in the marketplace. We treat every opportunity as if it's competitive and we're thrilled with the feedback that we've gotten from our customers in my prepared remarks, I highlighted some of the commentary from the CIO of our Vela in terms of our superior platform as well as our people. So we think we have a unique advantage still in the marketplace. And then beyond that we're continuing to see the pipeline strengthened for us so we like our prospects heading into fiscal year '22. Okay and then. Then of your comment on just being a little bit more conservative on tier one activity.

The competitive environment are you guys seeing any kind of a change in customer conversations or win rates or anything as it pertains to.

Cloud deals.

Well I would say that we haven't seen anything materially change in the marketplace.

We treat every opportunity as if it's competitive and we're thrilled with the feedback that we've gotten from our customers in my prepared remarks, I highlighted some of the commentary from the CIO of our Vela in terms of our superior platform as well as our people. So we think we have a unique advantage still in the marketplace.

And then beyond that we're continuing to see the pipeline strengthened for us so we like our prospects heading into fiscal year 'twenty two.

Okay and then.

Then of your comment on on just being a little bit more conservative on tier one activity.

Do you mind, giving us a little more detail on what? Is that because just conservatism for its own sake or. Susan's being in kind of sales cycle lengthening our conversation. Or people, just taking longer to decide or. What kind of the reason for being a little bit more conservative on the tier one? Why don't I start with this and then you can kind of back it up with any other commentary? This is Mike. In terms of the tier one opportunities that we have out in front of us. We're pleased with what we have in the pipeline, we are advancing discussions with several tier ones on different fronts, but what we also find is there's a lot more complexity and decision making in these accounts. There's a lot of budget allocation cycles. They quite often have to go through a very laborious governance. The decision making process. Which is quite different than when you're working with a very small tier four carrier. Where the executive team comes together quite readily.

Yeah, just conservatism for its own sake or.

Susan's being in kind of sales cycle lengthening our conversation.

People, just taking longer to decide or.

What kind of the reason for being a little bit more conservative on the tier one.

Why don't I start with this and then you can kind of back it up with any other commentary this is Mike.

In terms of the tier one opportunities that we have out in front of us.

We're pleased with what we have in the pipeline, we are advancing discussions with several tier ones on different fronts, but what we also find is there's a lot more complexity and decision making in these accounts. There's a lot of budget allocation cycles. They quite often have to go through a very laborious governance.

The decision making process.

Which is quite different than when you're working with a very small tier four carrier.

Where the executive team comes together quite readily.

They know that they have the budget so for some of our planning you know we've made some assumptions and we've looked at some of these deals that we thought were eminent and you could see sometimes timing becomes very difficult to predict. So it just led us to be a bit more conservative in terms of how do we layer in those deals and not in terms of getting done within the fiscal year, but how we layer them in and how they contribute to revenue in the same fiscal year. So we just are a little bit more on the conservative side of that. Okay. Okay alright, thank you. Thank you. Our next question comes from Saket Kalia of Barclays. Your question. Please. Okay. Great. Hey, guys. Thanks for taking my questions here and Vinny Echo my congrats on a well deserved retirement. Thanks. Mike maybe for you. Maybe maybe. Instead of talking about tier one versus non tier ones, maybe maybe I'll ask you a question just around sort of new logos versus sort of existing.

So it just led us to be a bit more conservative in terms of how do we layer in those deals and not in terms of getting done within the fiscal year, but how we layer them in and how they contribute to revenue in the same fiscal year. So we just are a little bit more on the conservative side of that.

Okay.

Okay alright, thank you.

Thank you. Our next question comes from <unk> <unk> of Barclays. Your question. Please.

Okay, Great Hey, guys. Thanks for taking my questions here and Vinny Echo my congrats on a well deserved retirement.

Thanks.

Mike maybe for you.

Maybe maybe.

Talking about tier one versus non tier ones, maybe maybe I'll ask you. The question just around sort of new new logos versus sort of.

Existing.

It sounded like you had a lot of success expanding within the existing base and you talk you talked a little bit about land and expand for next year. When you look back at '21, how do you think the year sort of did when you look at new business versus expansion? And how do you think about that mix next year qualitatively? Does that makes sense? Yeah, thanks for the question does make sense and overall I'm very happy with both our land and expand. If you've been tracking our net dollar retention quarter over quarter and again this year or this quarter very strong with 120% you can see that the business from a total bookings point of view and then revenue contribution is leaning a little bit more towards expand. But what I will say is we're very pleased with the new logos that we're getting onboard. I highlighted star this quarter, our Bella this quarter FCCI as a new customer. So these are three new logos that were not passed customers of Duck Creek. So we're pleased with that.

Yeah second thanks for the question does make sense and overall I'm very happy with both our land and expand if you've been tracking our net dollar retention quarter over quarter and again this year or this quarter very strong with 120% you can see that the business from a total.

<unk> bookings point of view and then revenue contribution is leaning a little bit more towards expand.

But what I will say is we're very pleased with the new logos that we're getting onboard I highlighted star this quarter, our Bella this quarter FCC I as a new customer. So these are three new logos that were not passed customers of Duck Creek.

So we're pleased with that.

New customer acquisition, but what is happening is I think from a customer count point of view when we look at our pipeline. There is really nice balance between new customer logos and cross selling within the base, but when we look at opportunities and then you cut it by bookings our potential bookings, it's leaning more towards expanding. I think that's happening for two reasons, number one is our success in these tier ones and so we're getting some gravity of add-on sales new business units and pulling those in so I think that's been contributing to the rise in net dollar retention and then also we talked a bit about leading with noncore assets. Trying to develop new relationships with carriers, where there's not such a hurdle to enter the overall business and then cross selling into the account and we've had several carriers. That we've been able to do that in the past. And in fact, even the tier one.

Towards expand and I think that's happening for two reasons number one is our success in these tier ones and so we're getting some gravity of add on sales new business units and pulling those in so I think that's been contributing to the rise in net dollar retention and then also we talked a bit about.

Leading with noncore assets.

Trying to develop new relationships with carriers, where there's not such a hurdle to enter the overall business and then cross selling into the account and we've had several carriers.

That we've been able to do that in the past.

And in fact, even the tier one.

Carrier that I talked about this quarter had a really we had a relationship with them and it is an existing customer, but it wasn't a core system. It was actually a noncore on premise solution. So we had a relationship and we were able to parlay that into something larger on the core side. So I think that's why coming into the next fiscal year when we look at our land and expand blend we will see the bookings start to lean much more towards expand but I'm still very pleased with the deal count and the customer count that's coming through the pipeline and our ability to convert them with new arrivals of new acquired customers as well. Got it got it that's very helpful. If any maybe for my follow up for you. And I know, we don't guide to ARR, but I'm curious I mean are there any puts and takes for fiscal '22 that that you'd have us think about when sort of thinking about AOR growth or net new ARR. I remember when we were looking at 'twenty-one versus 'twenty, there was a big deal in Q4 of 'twenty that it was something that we wanted to consider is there anything like that just open-ended. What we should kind of think about for AOR for next year?

Our land and expand blend we will see the bookings start to lean much more towards expand but I'm still very pleased with the deal count and the customer count that's coming through the pipeline and our ability to convert them.

With new arrivals of new acquired customers as well.

Got it got it that's very helpful. If any maybe for my follow up for you.

And I know, we don't guide to <unk>, but I'm curious I mean are there any puts and takes for fiscal 'twenty two that that you'd have us think about when sort of thinking about AOR growth or net new <unk> in all.

Remember when we were looking at 'twenty, one versus 'twenty, there was a big deal in Q4 of 'twenty that.

It was something that we wanted to consider is there anything like that just open ended.

What we should kind of think about for AOR for next year.

Yes, I think the short answer is not really. And you pointed out last year, we had that very significant air art jump in Q4 and that was the quarter that was a bit of an aberration in that it benefited from timing on both ends of Big Q3 deal fell into Q4, and our biggest Q4 deals stayed in Q4 last year. We had this Q4, what I would consider kind of a more normal cadence to the quarter, where we did have a couple of deals that closed late in the quarter that were reasonably significant that'll start generating quarter AOR in Q1. But not in an abnormal way. So I think I think this Q4, which was which is a really good bookings quarter from a timing perspective behaved relatively normally. And we don't know of any other specifics out on the horizon that could impacted so again just to kind of reiterate what I said a little earlier in the call I think after we get through the June period, when the legacy contracts has gone you'll start seeing AOR and subscription revenue growth come a little bit closer together.

And you pointed out last year, we had that very significant air art jump in Q4 and that was the quarter that was a bit of an aberration in that it benefited from timing on both ends of Big Q3 deal fell into Q4, and our biggest Q4 deals stayed in Q4 last year.

We had this Q4, what I would consider kind of a more normal.

Cadence to the quarter, where we did have a couple of deals that closed late in the quarter that were reasonably significant that'll start generating quarter.

In Q1.

But not in an abnormal way. So I think I think this Q4, which was which is a really good bookings quarter from a timing perspective behaved relatively normally.

And we don't know of any other specifics out on the horizon that could that could impacted so again just to kind of reiterate what I said a little earlier in the call I think after we get through the June period, when the legacy contracts has gone you'll start seeing <unk> and subscription revenue growth come a lot closer together.

Got it very helpful guys. Thank you. Thank you. Our next question comes from Alex Zukin of Wolfe Research. Your line is open. Hey, guys. Thanks for taking questions. So I wanted to piggyback on the last question because I actually think it's really important so. If we look at the first half of new ARR growth this year, it was up 40%. And if we look at the second half of new ARR growth over the past year. It was down 40% year over year. So I just want to understand I understand the Q4 commentary from the prior year being driven mostly by timing of both 3Q deal pushing and 4Q deal signing, but what's the magnitude Vinnie of the deals that you had expected to sign in the quarter that got pushed out? Because that is a is even from a dollar value perspective that second half number it's pretty substantially below from a new SaaS ARR perspective versus the year ago period, and even versus two years Ago, it's up maybe 10% that second half number so just calibrate that that timing differential for us there was magnified.

Okay.

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

Hey, guys. Thanks for taking questions. So I wanted to piggyback on the last question because I actually think it's really important so.

If we look at the first half of new IRR growth. This year. It was up 40% and if we look at the second half of new IRR growth over the past year. It was down 40% year over year. So I just want to understand I understand the Q4 commentary from the prior year being <unk>.

Driven mostly by timing of both <unk> deal pushing an <unk> deal signing but.

What's the magnitude Vinnie of the deals that you had expected to sign in the quarter that got pushed out because that is a is even from a dollar value perspective that second half number it's pretty substantially below from a new SaaS IRR perspective versus the year ago period, and even versus two years.

Ago, its up maybe 10% that second half number so just calibrate that that timing differential for us there was magnified.

And Alex I don't I don't really necessarily want to get into the specifics of the dollar value of specific deals that didn't start generating ARR, but I will say that that dynamic you're talking about. It's really driven by the magnitude of that Q4 fiscal '20 AOR growth, which was outsized relative to most other quarters by a pretty significant amount and again. Rather than talk about specific deals if you just took the dollar value of a substantive deal mid single digit millions and moved out one quarter, that makes the profile that you just commented look very different so again I think. Our AOR growth in this Q4 of $11 million and change. Obviously, if everything got generate ARR in the quarter would have been higher it was it was a strong bookings quarter. But not abnormally. Bad I think from a timing perspective and knows no supermajor deal move very likely it wasn't anything of the magnitude of the Q4, '20 deals, which individually were of a size greater than the Q4 '21 deals so I think. All things considered I think the you know.

It's really driven by the magnitude of that Q4 fiscal 'twenty <unk> growth, which was which was outsized relative to most other quarters by a pretty significant amount and again.

Rather than talk about specific deals if you just.

Took the dollar value of a substantive deal mid single digit millions and moved out one quarter that makes the profile that you just commented look very different so again I think.

Our AOR growth.

Q4 of $11 million and change.

Obviously, if everything got generate IRR in the quarter would have been higher it was it was a strong bookings quarter.

But not abnormally.

<unk> normally.

Bad I think from a timing perspective and knows no supermajor deal move very likely it wasn't.

Anything of the magnitude of the Q4, 'twenty deals, which individually were of a size greater than the Q4 'twenty one deals so I think.

All things considered I think the you know.

We've talked about this number of times, it's hard to look at individual quarters, sometimes even individual halves when you've got big deals that moved one way or another so I think. Again, I think we'd say that Q4 behaved about as we expected from a timing perspective, a couple of the Q4 deals will start generating revenue in Q1 and help Q1 AOR, and then we'll have to see how that the deal pacing goes within the quarters over the course of this year, but again not nothing obvious to us that would cause big swings. Okay, and then Mike maybe just a follow up for you. So then let's put this in the context of Covid. What we continue to hear from companies last year was a tough year to do large deals and large transactions. There was a lot of deals that were paused. If I look at your results is there anything on the opposite end, where last year because of Covid things happen at a different pacing that caused some of this?

Again, I think we'd say that Q4 behaved about as we expected from a timing perspective, a couple of the Q4 deals will start generating revenue in Q1 and help Q1, and then we'll have to see how that the deal pacing goes within the quarters over the course of this year, but again not nothing.

Obvious to us that would cause big swings.

Okay, and then Mike maybe just a follow up for you.

So then let's put this in the context of Covid.

What we continue to hear from companies last year was a tough year to do large deals and large transactions. There was a lot of deals that were paused.

If I look at your results is there anything on the opposite end, where last year because of Covid things happen at a different pacing that caused some of this.

Some magnification of IRR.

Last year that maybe you didn't repeat and then as we come out of the pandemic hopefully.

Your commentary around timing of large deals getting more conservative around the pacing of those for next year, how do we think about that and again in the context of a reopen a loosening environment, a greater willingness to do large transformational deals.

Yeah.

Alex I'll I'll have to say that I don't think it's COVID-19, that's creating an impact at all on the IRR trends that you're highlighting.

I think you know COVID-19 is really not impacted our business whether it was during the height of it in early on and even in the ASP aftermath of this.

It's amazing how many large deals we've been able to close even when we've done 100% of our work with the customer in a virtual manner.

I feel that they have confidence in that and I think actually because we've established such a strong brand and a strong reputation in the industry. It's actually helped us because I think carriers that are going to make a decision without you're getting in the room want to gravitate to somebody that's built such a strong brand like Duck Creek.

But as Vince said, the first half the second half a R. R. It is timing and I want to remind you that this is a low on a relative basis, a low deal volume and high deal value and you can have these swings quarter to quarter, one half to the second half, but I would say going back to your <unk>.

On Covid, the only thing that I would say it has somewhat impacted us is on international expansion, just because our ability to really meet new customers in new markets and build a brand in a new market. So I think it hasnt affected us where we had a strong brand I think it has affected us where we have not established our brand and I.

In the aftermath that should be helpful.

Understood. Thank you guys.

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

Okay.

Brad Please make sure. Your line is muted speaker phone lift your handset sorry about that can you guys hear me now.

Yes, we can hear you now grant okay, sorry about that great awesome guys well thanks for taking the question.

I wanted to ask about a comment you made earlier, Mike just on the kind of shift in focus towards noncore away from kind of that initial land going after perhaps a bigger transformational replacement deal or if claims are billings is that a relatively new focus for you is that bringing down deal sizes. It perhaps maybe we should expect down the road.

There is a cohort of customers there, where we could see some nice expansion activity accelerate.

Yeah, I'm not so sure that youre going to see a wild acceleration Brad because of this but I would stay in the last year, it's been a focus for us to take noncore assets like reinsurance management and distribution management.

And land into accounts build a relationship and the hurdle is just smaller you're talking about approvals on the customer side that range in.

The dollar values of hundreds of thousands of dollars on a annual basis versus millions of dollars on an annual basis and.

And I think that's really helped us in some accounts and I think last quarter I highlighted builders mutual is an example, where we landed there with distribution management built a strong relationship. They went live they love the product and then we had.

And expansion into core and we're seeing that happen at a couple of other accounts, where we've landed in with reinsurance management or distribution management and other assets.

And it's something we're going to keep our focus on so we're hoping it will lead to broadening those relationships and then also we think it helps us where perhaps our competitors are entrenched.

And they're the incumbent but if we can get a smaller asset in there at least we can develop a relationship and sometimes perhaps have an opportunity.

And our on premise migration or something that looks like that because we have a relationship with the accounts. So that's really the overall strategy behind it.

Great. Thanks, Mike and then one more if I may please just on the.

The consulting head count up nicely I think youre around just over 5000 now I think you were around 3000 at IPO. So I guess my question is where is the incremental.

Growth coming from in that number or is this global that size or are these more regional size specialty ones.

Any commentary on the global Si channel doesn't know how critical that is thank you.

Yeah, I would say that it's a combination of bulk we've added.

I don't know the exact account, but its probably four five S.

Size to our ecosystem within the last year.

Most of those were smaller Si system regional players with a focus but I'm also but I will say that a lot of the head count two is being driven just because the larger size are investing quite heavily in their practices.

We've done several nice deals with cognizant and cognizant has been helping us in fact, they're one of the leaders in terms of implementing our distribution management product. So they've had some nice wins there and.

And then Accenture continues to scale their practice as well so for us to have this very significant relationship with the largest systems integrator and Accenture is doing many of the large tier one implementation.

Implementations that we have going on right now so they continue to train and add to their head count and grow their practice. So I think we're seeing growth right across all of our partners.

Great to hear thanks, Mike.

Thank you. Our next question comes from Rishi.

Sure Laureus excuse me of RBC. Your line is open.

Wonderful. Thanks, guys. Thanks, so much for taking my questions and then he has been a pleasure working with you and wish you all the best.

And I want to start by talking about the SaaS gross margin line I know that number can obviously bounce around from accounting and timing and all that stuff, but I was a little surprised to see it.

The decline.

600 basis points or something sequentially.

And hit the lowest point at least we have seen in maybe six quarters anything particular to call out on that and maybe alongside that how should we be thinking about the SaaS gross margin line going forward and let say on a full year basis, just a normalized or for a lot of noise and then I've got a follow up.

Yeah sure so I.

I think the first thing I'd point out is I think we've observed prior to Q4 that the SaaS margins were running.

Much higher than we expected there were in the high Sixty's.

Not where we had targeted for the year there were some timing impacts that were favorable both on the revenue and the cost side.

And some of that reverse a bit in Q4 now the 63.63 three in Q4.

Probably took a little bit extra burden of cost in the quarter that fell off from a timing perspective, and I think where we continued to run on a normalized basis more like in the mid sixties right now.

And I think as we go forward.

We think that normalized mid sixties, we're continuing to add a lot of resources in terms of customer support.

And I think we'll see.

Maybe we'll certainly step up from where we saw the Q4 number because that was a little disadvantaged by timing but.

But I don't think we're going to see a notable increase in SaaS gross margin over the course of this year.

That said I think with the scale that we're at already having achieved numbers that are in the mid to high sixties, we're pretty confident that we can kind of hold in this mid sixty's to upper sixties range and have line of sight to getting it into the low seventies within the next couple of years. So I think our kind of view.

<unk> SaaS.

Margins hasn't really changed we have a line of sight towards moving it into the into the seventies with some more scale.

And this year I don't think we're going to see a notable step up and I would say Q4 was a little disadvantaged by timing.

Got it.

Okay.

I'd just add to that is when he said we're committed and we know we're going to incrementally improve margins over the mid term and drive it up into the low seventies.

But the way that we think about it is we're continuing to hire and invest on the expense side, because we know we're going to continue to scale. So that think of that as kind of fix we're going to continue to invest and bring those that personnel in and then last year. This past fiscal year, we benefited from that revenue upside and that had a kind of floated.

SaaS margins up above what our expectations were so that's why I think they're going to moderate this year, but just know that we're committed to this long term improvement over time and get it to the low seventies.

Got it no that's really helpful. I appreciate the additional commentary and then I wanted to turn back to International Mike I know you had mentioned international has maybe been a little tougher in the Covid environment.

But it is still at least has been growing as a percentage of the business at least in the first half of this fiscal year. How are you thinking about the international environment going forward. What are you seeing in terms of appetite for digital transformation and migration to the cloud over time, what's the right way to think about that mix of international.

<unk> domestic thanks.

Well I think in terms of the mix, you'll see us continue to make progress most notably in Australia and Asia Pacific.

You will be invested in our practice.

Five years ago, and we're seeing that pay off and we know we're going to get some more wins on the board.

I'm, a little bit more tempered.

With how fast we're going to move in EMEA.

We've made investments in country and landed some resources, but it's taking us some time to get some wins on the board greater reference base and build that brand. So I'm a little bit more tempered in terms of our progress there, but what I am seeing is that we're really advancing conversations and some of these large global carriers.

That have a need.

To replicate some of their success in the U S that we've had with them.

Large books of businesses on an international basis.

And with that I think even an example that I had in my earlier remarks is start international which is a global carrier.

That really <unk>.

<unk> business in many geographies and you know what.

What we what we know is we have a great fit for purpose offering for those accounts, we're going to put some energy towards investing into building those relationships and expansion.

Internationally with those accounts now you asked a specific question on what can we expect in terms of share of revenue and bookings on our books and some of that will depend on how we land. These contracts because sometimes we land on a global international piece of paper that gives them right to write in certain markets and I won't get classes.

<unk>.

I think over time Youll see us go from low single digits to mid to high single digits over several years, but that's what you can expect in terms of the business.

Alright, that's very helpful. Thank you so much.

Thank you. Our next question comes from Pat Wall Ravens of JMP Securities. Please go ahead.

Hi, This is Joe Goodwin on for Pat. Thank you so much for taking my questions first.

The product advantage that you have in the closet that you discuss how do you think about your ability to actually be able to sustain that advantage over time going forward.

I think it's quite strong.

Obviously, our competitors are investing quite heavily in the cloud right I think almost every.

A company that we do compete with has now got some sense of cloud offerings, our marketing cloud first.

And that is as expected and I think that Duck Creek played a big role and conditioning the market and having other companies shift their strategy, but I also like to emphasize this isn't just about running your solution in the cloud and being a cloud solution really what sets us apart is what I call our low code.

Offering.

We have a mechanism that each and every business rule that a carrier cares about not only what we provide out of the box, but how they maybe configure that or enhance it or make changes to our system is on our low code platform. So all of this critical business rules are external life from the software itself and that creates more business agility.

<unk> and what we're seeing in the marketplace is that's a very very difficult thing to.

That's the feedback that we're getting from our customers when we win like I highlighted from our Bella earlier in my comments. So we think we're going to keep maintain that advantage and we have many things in the works to enhance and extend that advantage in the marketplace as well.

Understood. Thanks, Mike and then just a quick follow up how would you describe the pricing power that Duck Creek has in its business and maybe just how that might be different when you actually specifically dealing with the tier ones.

Now here's what I'll say is you know in aggregate.

I would say that price is not the most important criteria of a buyer it's not the number one item.

Almost every buyer will say, we want to pick the right solution that meets our business needs first it's not the prices and important it is.

But I also say that Duck Creek, not known as the lowest cost provider in the industry.

There are other vendors that occupy that space, but I don't think those other vendors really carry our depth and our functionality and our flexibility. So it has allowed us to maintain the pricing that we need and that we want to go to market with but I also believe that we provide great value for our customers and were priced appropriately.

And I think it's a good fair price with great value. So you know I I think we know what the market will bear.

It's a given deal or customer can be more price sensitive than others, but I think at large we're doing a nice job at holding our price holding our pricing power and that's what's helping contribute to our successful SaaS gross margins today, and I think driving the efficiency and more levels of automation as well.

<unk> is going to help us drive that SaaS gross margin to where we want it to be in the low seventies and the near and the midterm.

Thank you.

Thank you. Our next question comes from Parker Lane of Stifel. Your line is open.

Yeah, Hi, Thanks for taking my question Mike.

Mike in the on premise World, we saw a fair share of multi vendor deployment for core systems as your customers and prospects come up for cloud migration or maybe I'm going to cloud for the first time are you seeing any change in consideration of wealth around the way they think about multi vendor deployments do you see customers, preferring an integrated approach.

Policy billings in claims and in a case, where a customer I guess chose to go into multi vendor approach for cloud what would be the core considerations that would push them in that direction.

Thanks Parker.

Look I would say that in the world of cloud aside from on premise. There is certainly a higher bias to run more.

I'm going to say cloud component to run more of the suite now that bias.

I'll still say that the smaller the carrier the more they want a homogenous suite from a single vendor the larger the carrier again, they have different P&L they have different divisions, they have divisional <unk>.

And they'll have a little bit more of a best of breed buying behavior. So we have plenty of customers, where we are integrated if you will with our competitors on one side, perhaps they're running our claims system and we're running a policy system.

So that's something that we will typically see will most typically see that in the tier twos and ones.

And then the smaller carriers have a bias for the cloud, but I think the cloud is actually.

Creating more of an attitude.

Of wanting to buy more pre integrated components, because it's just easier. So we're in deep discussions around cross selling and I think that's where the cross selling velocity and migrating carriers through our cloud and then upselling. Another component becomes a strong opportunity for Duck Creek moving forward.

Got it and one quick one on the.

The growth of the channel from an implementation standpoint, a big wave of digital transformation a lot of different technology priority is out there right now has there been any capacity constraints that you've run into as your customers consider making these moves that it may be.

A lot of very solid go lives. So far this year very timely ones, but have there been any times, where you've encountered customers struggling maybe just from a capacity standpoint on the implementation side.

You know I.

I want to say that there is areas, where our customers struggling on capacity you know the beautiful thing about these.

World, leading systems integrators is a world class in terms of Onboarding people training them getting them up to speed and building skills and that's why we keep scaling our practice and it's a wonderful thing that helps us scale our business. So I'm quite pleased with it.

Obviously, the one thing that we've had to do is we've been hiring resources with the intent of bringing utilization rates down, but because of demands from our customers. We've been staffing them out on projects. So its been driving up in the near term our professional services margins, but I would not.

Parker I would not say that that in any way as a constraint to our business I think we've been keeping up with demand and I think we have a world class professional services arm of our business that's doing a great job taking care of our customers right now.

Good to hear thanks again for taking the question.

Okay.

Thank you at this time I would like to turn the call back over to Mike Schakowsky for closing remarks.

Okay. Thank you everyone for participating in our Q4 and fiscal year end 'twenty, one earnings call and let me wrap up by reiterating that we ended our first fiscal year as a public company with great results delivering over $260 million of total revenue up 23% over prior year an increase.

<unk> or <unk> to more than $135 million were up 41% year over year and with a track record of winning new customers in transitioning these opportunities into cross sells and future opportunities and as the industry is looking to transition to use our cloud to run their core systems. We know we have a great <unk>.

Opportunity out in front of us So again I appreciate everyone. Joining today, thank you and please be safe healthy and well take care.

Okay.

This concludes today's conference call. Thank you for participating you may now disconnect.

Yeah.

Yes.

[music].

Yes.

[music].

So you will need to press star one on your telephone. Please be advised that today's conference is being recorded should you require any further assistance. Please press star zero I would now like to hand, the conference over to your host Bryan to New Investor Relations.

Good afternoon, and welcome to Dr. <unk> earnings conference call for the fourth quarter of fiscal year 2021, which ended on August 31.

On the call with me today is Mike to Cascade Duck Creek, Chief Executive Officer, and miniature Perry Duck Creek Duck Creek, Chief Financial Officer.

A complete disclosure of our results can be found in 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 following the conclusion of the call.

Statements made in this call may include forward looking statements regarding our financial results products customer demand operations the impact of COVID-19 on our business and other matters.

These statements are subject to risks uncertainties assumptions and are based on management's current expectations as of today and may not be updated in the future.

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

You should not rely on forward looking statements as predictions of future events and actual results and events may differ from any forward looking statements that management may make today.

Additional information regarding the risks uncertainties and other factors that could cause such differences appear in our press release and the Duck Creek latest Form 10-K, and other subsequent reports filed by Duck Creek with the Securities and Exchange Commission.

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

Reconciliation of non-GAAP to GAAP measures is provided in our press release, the primary differences being stock based compensation expenses amortization of intangibles and 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.

Thank you, Brian and good afternoon, everyone I am thrilled to report that Duck Creek fourth quarter performance was a strong finish to what was a strong year for the company.

We are seeing all tiers of the global P&C insurance industry embraced the business operational and financial benefits from moving to the cloud.

Let me start with a quick overview of our financial results for both the fourth quarter and the full year for the fourth quarter, we reported total revenue of $79 million.

Up 21% year over year.

And this was underpinned by subscription revenue, which is our revenue derived from SaaS of $35.0 million up 35% year over year.

And we are also profitable in the quarter with adjusted EBITDA of $12.0 million.

For the full year, we reported total revenue of $264 million up 23% year over year and subscription revenue of $128.0 million, which resulted in 49% year over year growth.

And adjusted EBITDA of $25.0 million.

Before reviewing the quarter in more detail I want to step back and highlight some of our key achievements in fiscal 2021, our first year as a public company.

We increased our SaaS AAR or to be more than $135 million, which represents 41% year over year growth.

We signed important new customer wins with great brands like our Bella builders mutual coal services and start international.

We had a particularly strong year, expanding our engagement with existing customers, which helped drive our net dollar retention rate to 120% for the year, where we saw a continued expansion of the use of Duck Creek on demand, including the adoption of our SaaS solutions from several notable tier one insurers.

We also significantly strengthened our partner ecosystem and we ended the year with more than 5400 Duck Creek implementation experts across 19 services firms.

We're excited to see that the world's leading implementation partners are making significant investments in their respective Duck Creek practices.

This success is being driven by the strength of Duck Creek on demand are low code SaaS platform that is purpose built to empower our customers.

The nuance and complexity of the insurance market means there is not a one size fits all approach to a carrier is digital transformation.

As excited as we are by the accomplishments that we had in 2021, we know that we have barely scratched the surface of our overall market opportunity.

After we successfully launched this product in production in under four months, we're very proud that this insurer has committed to run a large segment of their commercial business and Duck Creek demand policy and billing.

This will be an opportunity that will scale over time and continues to provide future revenue growth for Duck Creek.

Which many in the industry considered to be the most significant digital transformation that the industry has seen.

We're proud to be a key component of AIG 200.

We signed an important full suite transaction with our Bella a leading regional insurer in new England. After conducting a thorough competitive evaluation of multiple vendors that lasted nearly a year. Our bellies selected Duck Creek policy billing and claims on demand to modernize their core systems across our entire business.

Their CIO noted two differentiators that made us the right choice for our Bella.

This combination of the superior platform and deep industry acumen made Duck Creek, an obvious choice for our dollar.

We also signed an exciting distribution management win with Sci a Florida based commercial insurer, serving 20 states in Washington D C.

<unk> is upgrading from a legacy distribution management system that is highly manual and difficult to integrate with its broader it stack.

One. Notable example is core specialty our second quarter Duck Creek on demand when that includes the migration of their existing on premises Duck Creek policy and billing deployments as well as deploying our full suite across new and existing product lines.

This is a noteworthy go lives as core specialty was able to launch a new commercial product liability line and migrate their entire claims operation are the Duck Creek claims on demand in approximately four months.

We also had several go lives with multiple tier one carriers across diverse commercial books of business.

Our ability to bring these customers live quickly are an important selling point and provides confidence to these customers as they consider expanding their engagement with us.

In addition to these commercial carrier deployments. We also had significant go live events with three leading tier two carriers to support their growth and their personal lines books.

These noteworthy go lives were with American National UPC insurance and less than insurance.

Roderick.

Gartner conducts an extremely detailed analysis into each of the vendors profiled in the quadrant, starting with specific inclusion criteria.

Some of the key strengths of the Duck Creek platform that was highlighted by Gartner include <unk>.

Our persona based user experience, which is configured using advanced UX configuration tools and our design system, which offers both internal and external users a tailored experience based on their role.

<unk> and adopt into their operations.

As you can see from our fourth quarter and full year results Duck Creek is performing at a very high level. As we look ahead to fiscal 2022, our focus is building. Upon this success some of our key priorities. This year include first building upon the success of our land and expand strategy. We are seeing good traction.

<unk>, both core and noncore assets to penetrate new accounts and provide future expansion opportunities.

To that end a specific area of focus for this year will be to deepen our focus on some important tier one accounts.

Before I turn it over to Vinnie I'd like to provide an update on our senior leadership team.

First that each party has decided to retire at the end of February 2022. After an incredibly successful career. Most recently as Duck Creek CFO for the past five years.

When he was my first executive hire following our carve out from Accenture and he's been a terrific partner, who has been instrumental in scaling our SaaS business and leading the company through our successful IPO many.

Then he will continue as CFO, while we conduct a search process for his successor and he is committed to ensuring a successful transition.

Personally I will greatly Miss Vinnie.

I am thrilled for him to enjoy the next chapter of his life on behalf of everybody here at Duck Creek I want to thank many for his leadership and his friendship and I wish him happiness in his retirement.

I'd also like to welcome our new Chief Marketing Officer, Jeff Winter, who will lead our brand awareness demand generation events and customer and market communication efforts.

Most recently he was the CMO of rocket software a global leader in the mainframe and legacy platform space. Prior to rocket. He served as divisional CMO for Pitney Bowes is software and data business and earlier in his career held various senior marketing positions at SAP.

Finally, I am excited to announce that Bill Bloom recently joined our board of Directors Bill recently retired from the Hartford, where he was the executive Vice President of technology data and analytics claims and operations.

And previously had significant roles at Accenture EXL and travelers.

We're excited to have the benefits of bills insurance industry and technology acumen helped us shape and execute Duck Creek strategy moving forward.

We believe that our results demonstrate that the P&C industry is fully embracing the benefits of the cloud, which we are in great position to benefit from.

We are excited about the opportunity ahead of us and our laser focus on executing to take full advantage of this multibillion dollar market opportunity.

With that let me turn the call over to Vince to walk you through the numbers Vinny over to you.

Thanks, Mike Today, I'll review, our fourth quarter fiscal 'twenty, one results in detail and provide guidance for the first quarter and full year of fiscal 2022.

Total revenue in the fourth quarter was $79.0 million up 21% from the prior year period within total revenue subscription revenue, which is comprised solely of subscriptions to our SaaS products was $35.0 million up 35% year over year.

In Q4 subscriptions represented 76% of our software revenue and 47% of our total revenue.

Please recall that our Q4 results were impacted by the completion of the legacy contract we have discussed previously.

Revenues from on premise software licenses of $12.0 million and maintenance of $14.0 million are showing modest growth as expected and our 15% of total revenue. We expect these line items to continue decreasing as a percentage of revenue given the strong growth in our subscription revenue.

Services revenue was $27 million up 16% year over year, driven by continued high demand for implementation services and strong utilization rates.

SaaS IRR, which we calculate by annualized recurring subscription revenue recognized in the last month of the period was $138.0 million as of August 31, 2021 up 41% from the prior year.

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

Our net retention is driven by a combination of high gross retention rate 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 GAAP basis, our gross profit for the quarter was $42.0 million and we had a loss from operations of $5.0 million.

We had a net loss in the quarter of $11.0 million or <unk> <unk> per share based on weighted average basic shares outstanding of $138.0 million.

Turning to our non-GAAP results gross margin in the quarter was $49.0 million or 61, 6% compared to 66% in the fourth quarter of fiscal 2020.

Subscription margin in the quarter was 63, 3%.

Of our SaaS platform.

Professional service margins of 48% in the quarter were notably strong and well above our target range driven in part by the acceleration of professional services revenue in the quarter.

While we expect continued margin strength in Q1 of fiscal 'twenty. Two we do not expect service margins to remain at these levels throughout fiscal 2022.

Turning to operating expenses R&D costs were $18.0 million or 18% of revenue down slightly year over year as a percentage of revenue the.

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

Sales and marketing expenses were $14.0 million or 15% of revenue consistent with the prior year as a percentage of revenue.

Expense growth from the prior year reflects continued expansion of our go to market Resourcing in both U S and international markets.

Travel related costs continued to run below normal levels due to COVID-19 impacts.

G&A expense was $22.0 million or 23% of revenue.

Up from 22% in the prior year period.

Included in Q4 expense is a nonrecurring charge of $8.0 million related to several offices that we do not plan to reopen.

Okay.

Adjusted EBITDA margin was 7% for the quarter up from 5% in the prior year period.

Non-GAAP net income per share for the quarter was <unk>.

Based on approximately $142.0 million fully diluted weighted average shares outstanding.

Yes.

Turning to the balance sheet and cash flow, we ended the quarter with $377 million in cash cash equivalents and short term investments and we remain debt free.

Free cash flow was $15.0 million in the quarter and negative $11 million for the year.

Decrease was primarily related to payments under our renegotiated hosting contract increased variable compensation payments from fiscal year, 'twenty and decreases in accrued PTO much of this fiscal 'twenty, one working capital change was nonrecurring in nature.

I'd now like to finish with guidance beginning with the first fiscal quarter.

We expect total revenue of $68 million to $70 million subscription revenue of 34% to $35 million adjusted gross margins are projected at 58% to 59%.

We expect adjusted EBITDA of two five to $8.0 million.

And our non-GAAP net income is expected to range from 1 million to $2 million or <unk> <unk> per fully diluted share.

For the full year fiscal 2022, we expect total revenue of $292 million to $300 million.

Subscription revenue of $151 million to $155 million adjusted gross margins are projected at 58% to 59%.

We expect adjusted EBITDA of $16 million to $18 million.

And our non-GAAP net income is expected to range from $9 million to $11 million.

We're seven to eight per fully diluted share.

We continue to have strong underlying momentum in our business and significant growth in our sales pipeline.

There are a few things that investors should keep in mind regarding our outlook for fiscal 2002.

First our subscription revenue growth outlook reflects the impact of the completion of the legacy contract we have been excluding from our SaaS <unk> calculation.

This is a high single digit impact to our subscription revenue growth rate for the year.

Excluding the impact of this contract the high end of our guidance calls for subscription revenue growth in excess of 30%.

The contract expired in June 2021, and will have an impact through Q4 of fiscal 2002.

Emily.

And finally, our profitability guidance includes two factors that are constraining annual profit growth.

A decrease in professional services gross margins as we manage utilization rates to sustainable levels and year over year increases of several million dollars in COVID-19 impacted areas, such as <unk> and marketing programs.

An increasing profitability in the years to come and with that we'd like to open up the call for Q&A operator.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of bovine Suri of William Blair. Your question. Please.

Hey, Jim. Thank you, taking my question and best of luck.

With your future endeavors.

Hopefully, we'll see around this track again, but with regard to its best of luck.

Thanks, I wanted to just a core.

I just wanted to touch really quickly on something a little more tactical which was you talked about the legacy contract adding.

Roughly let's just say several hundred bps, if we normalize for it can you just remind us what the impact of the legacy contract was because it had an impact in FY 'twenty, one sort of how that played out and then sort of the impact in 'twenty. Two again, just a little more color would be helpful. I think.

Sure so.

Let me remind everybody we do have a confidentiality agreement on that deal and we can't discuss specific the exact specifics of the dollar amount toward where the terms of the agreement.

That said just to kind of recap what the situation was it was a legacy.

Agreement that carved out from Accenture in 2016 that we've known for a long time is going away.

It was never included in our SaaS IRR calculation.

That contract expired in June of 2021.

So we did have 10 months of revenue in 2021.

And that will create is creating.

A little bit of a headwind on the subscription revenue growth rate for fiscal 'twenty two.

And the guidance, we've put out for fiscal 'twenty two.

Just pointing to the high end of that guidance range.

If you normalized out the 10 months of revenue for the prior year. It would push the revenue growth rate guide to a little bit above 30%.

Gotcha Gotcha, and just to be clear. It was not included in SaaS <unk> included subscription number for 'twenty. One that is correct and just as a reminder, I think we've talked about this on a couple of calls in the past the kind of gap that has existed for the most part between subscription revenue growth and SaaS IRR growth has been mostly related to <unk>.

Disagreement in addition to some timing impacts that are not as significant.

So once we get through the through the periods, where we're at.

Through the fourth quarter of this year, we expect those growth rates to become to start tracking closer together.

Gotcha Gotcha helpful. And then one just for Mike here.

You've talked a little bit about some of the existing customers. Some big one certainly starting to transition some of the core book over the.

The one that you implemented very quickly you mentioned AIG, but how do you think about this mix of greenfield opportunity even in existing customer where they might have opened a new line of business.

Business property owners.

Your line versus the actual core book and the transition of that over to our Duck Creek on demand how should we think about that makes them how does that play out over the long term. Thank you.

Well.

Thanks <unk>.

Yes in terms of the mix of the Greenfield opportunities, we would say that there is an increased trend of these.

And it's not only with new companies or new customers, but it's also with existing customers and I think one of the most popular reasons why.

Which I highlighted that we did that within four months.

I also talked about a notable tier one.

We expanded with this quarter and we started that relationship because once again they wanted to get a new product a new greenfield product. If you will to market very quickly and we did that within about 100 days. So for us it's really a great opportunity to start a new relationship and then once we start that new relationship and prove what Duck Creek and what the.

Cloud can do for them and then expand from there. So we're excited about the opportunities going forward.

Got it got it thanks, guys, thanks, electrical weapons and I'll jump back in queue. Thank you.

Thank you. Our next question comes from Jackson Ader of Jpmorgan. Please go ahead.

Oh, great. Thanks for taking my question.

First one on the.

The competitive environment are you guys seeing any kind of a change in customer conversations or win rates or anything as it pertains to.

Cloud deals.

Well I would say that we haven't seen anything materially change in the marketplace.

We treat every opportunity as if it's competitive and we're thrilled with the feedback that we've gotten from our customers in my prepared remarks, I highlighted some of the commentary from the CIO of our Bella in terms of our superior platform as well as our people.

We think we have a unique advantage still in the marketplace and then beyond that we're continuing to see the pipeline strengthened for us. So we like our prospects heading into fiscal year 'twenty two.

Okay and then.

And then of your comment on just being a little bit more conservative on tier one activity.

Do you mind, giving us a little more detail on what is that excuse me a lot because.

Yes, just conservatism for its own sake or.

Susan's being in kind of sales cycle lengthening our conversation.

People, just taking longer to decide or what.

What's kind of the reason for being a little bit more conservative on the tier one.

Why don't I start with this and then you can kind of back it up with any other commentary this is Mike.

In terms of the tier one opportunities that we have out in front of us.

The decision making process.

Is quite different than when you're working with a very small tier four carrier.

The executive team comes together quite readily.

That they have the budget so for some of our planning we've made some assumptions and we've looked at some of these deals that we thought were eminent and you can see sometimes timing becomes very difficult to predict.

Okay.

Okay alright, thank you.

Thank you. Our next question comes from <unk> <unk> of Barclays. Your question. Please.

Okay, Great Hey, guys. Thanks for taking my questions here and Vinny Echo my congrats on a well deserved retirement.

Thanks.

Mike maybe for you.

Maybe maybe.

Talking about tier ones versus versus non tier ones, maybe maybe I'll ask you. The question just around sort of new new logos versus sort of.

Existing.

It sounded like you had a lot of success expanding within the existing base and you talk you talked a little bit about land and expand for next year. When you look back at 'twenty. One how does how do you think the year sort of did when you look at new business versus expansion and how do you think about that mix next year qualitatively that makes sense.

Yes second thanks for the question does makes sense and overall I'm very happy with both our land and expand if you've been tracking our net dollar retention quarter over quarter and again. This year. This quarter very strong with 120% you can see that the business from a toll.

<unk> bookings point of view and then revenue contribution is leaning a little bit more towards expand.

So we're pleased with that.

Towards expand and I think thats happening for two reasons number one is our success in these tier ones and so we're getting some gravity of add on sales new business units and pulling those in so I think that's been contributing to the rise in net dollar retention and then also we talked a bit about.

Leading with noncore assets.

Trying to develop new relationships with carriers, where there's not such a hurdle to enter the overall business and then cross selling into the account and we've had several carriers.

That we've been able to do that in the past.

And in fact, even the tier one.

Carrier that I talked about this quarter had we had a relationship with them and it is an existing customer, but it wasn't a core system. It was actually a noncore on premise solution. So we had a relationship and we were able to parlay that into something larger on the core side. So I think that's why coming into the next fiscal year when we look at.

With new arrivals of new acquired customers as well.

Got it got it that's very helpful. If any maybe for my follow up for you.

Yes.

No we don't guide to <unk>, but I'm curious I mean are there any puts and takes for fiscal 'twenty two that that you'd have us think about when sort of thinking about AOR growth or net new <unk>.

Remember when we were looking at 'twenty, one versus 'twenty, there was a big deal in Q4 of 'twenty that.

It's something that we wanted to consider is there anything like that just open ended.

That we should kind of think about for AOR for next year.

Yes, I think the short answer is not really.

And you pointed out last year, we had that very significant IRR jump in Q4 and that was the quarter that was a bit of an aberration in that it benefited from timing on both ends of Big Q3 deal fell into Q4, and our biggest Q4 deal stayed in Q4 last year.

We had this Q4, what I would consider kind of a more normal.

Cadence to the quarter, where we did have a couple of deals that closed late in the quarter that were reasonably significant that'll start generating quarter.

<unk> in Q1.

But not in an abnormal way. So I think I think this Q4, which was which is a really good bookings quarter from a timing perspective behaved relatively normally.

Got it very helpful guys. Thank you.

Thanks.

Thank you. Our next question comes from Alex Zukin of Wolfe Research. Your line is open.

Hey, guys. Thanks for taking questions. So I wanted to piggyback on the last question because I actually think it's really important so.

Driven mostly by timing of both <unk> deal pushing an <unk> deal signing but.

As the year ago period, and even versus two years ago, It's up maybe 10% that second half number. So just calibrate that that timing differential for us there was magnified.

I don't really necessarily want to get into the specifics of the dollar value of specific deals that didn't start generating IRR.

But I will say that that dynamic you're talking about.

It's really driven by the magnitude of that Q4 fiscal 'twenty <unk> growth, which was which was outsized relative to most other quarters by a pretty significant amount.

And <unk>.

Again.

<unk>.

Rather than talk about specific deals if you just took.

The dollar value of a substantive deal mid single digit millions and moved out one quarter that makes the profile that you just commented look very different so again I think.

Our growth in this Q4 of $11 million and change that obviously, if everything got generated IRR in the quarter would have been higher it was it was a strong bookings quarter.

But not.

Abnormally.

Bad from a timing perspective, and no no supermajor deal move that Ray like there wasn't.

Anything of the magnitude of the Q4, 'twenty deals, which individually were of a size greater than the Q4 'twenty one deals. So I think all things considered I think the.

Again, we've talked about this number of times, it's hard to look at individual quarters, sometimes even individual halves when you've got big deals that moved one way or another so I think.

Again, I think we'd say that Q4 behaved about as we expected from a timing perspective, a couple of the Q4 deals will start generating revenue in Q1 and help Q1.

And then we will have to see how the deal pacing goes within the quarters over the course of this year, but again not nothing.

Obvious to us that would cause big swings.

Okay, and then Mike maybe just a follow up for you.

So then let's put this in the context of Covid.

What we continue to hear from companies last year was a tough year to do large deals and large transactions. There was a lot of deals that were paused.

If I look at your results.

There anything on the opposite end, where last year because of Covid things happen at a different pacing that caused some of this.

Some magnification of IRR.

Last year that maybe you didn't repeat and then as we come out of the pandemic hopefully.

Your commentary around timing of large deals.

Any more conservative around the pacing of those for next year, how do we think about that and again in the context of a reopen a loosening environment, a greater willingness to do large transformational deals.

Yeah.

Alex I'll have to say that I don't think its COVID-19, that's creating an impact at all on the <unk>.

There are trends that you're highlighting.

I think COVID-19 is really not impacted our business whether it was during the height of it in early on and even in the aftermath of this.

It's amazing how many large deals we've been able to close even when we've done 100% of our work with the customer in a virtual manner.

And I feel that they have confidence in that and I think actually because we've established such a strong brand and a strong reputation in the industry. It has actually helped us because I think carriers that are going to make a decision without you're getting in the room want to gravitate to somebody that's built such a strong brand like Duck Creek.

But as Vince said, the first half the second half it is timing and I want to remind you that this is a low on a relative basis, a low deal volume and high deal value and you can have these swings quarter to quarter, one half to the second half.

I would say going back to your question on Covid. The only thing that I would say it has somewhat impacted us is on international expansion, just because our ability to really meet new customers in new markets and build a brand in a new market. So I think it hasnt affected us where we had a strong brand I think it has affected us where we have not.

Tableau Star brand.

And I think in the aftermath that should be helpful.

Understood. Thank you guys.

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

Okay.

Brad Please make sure. Your line is muted speaker phone lift your handset sorry about that can you guys hear me now.

Yes, we can hear you, okay, sorry about that great awesome guys well thanks for taking the question.

There is a cohort of customers there, where we could see some nice expansion activity accelerate.

Okay.

Yeah.

I'm not so sure that youre going to see a wild acceleration Brad because of this but I would stay in the last year, it's been a focus for us to take noncore assets like reinsurance management and distribution management.

And land into accounts build a relationship and the hurdle is just smaller you're talking about approvals on the customer side that range in.

The dollar values of hundreds of thousands of dollars on annual basis versus millions of dollars on an annual basis and.

And I think that's really helped us in some accounts and I think last quarter I highlighted builders mutual was an example, where we landed there with distribution management built a strong relationship. They went live they love the product and then we had.

And expansion into core and we're seeing that happen in a couple of other accounts, where we've landed in with reinsurance management or distribution management and other assets.

And it's something we're going to keep our focus on so we're hoping it will lead to broadening those relationships and then also we think it helps us where perhaps our competitors are entrenched.

And they're the incumbent but if we can get a smaller asset in there at least we can develop a relationship and sometimes perhaps have an opportunity.

And our on premise migration or something that looks like that because we have a relationship with the accounts. So that's really the overall strategy behind it.

Great. Thanks, Mike and then one more if I may please just on the.

The consulting head count up nicely I think youre around just over 5000 now I think you were around 3000 at IPO. So I guess my question is where is the incremental.

Growth coming from in that number or is this global that size or are these more regional S size specialty ones.

Any commentary on the global Si channel because I know how critical that is thank you yes.

Yeah, I would say that it's a combination of both we've added.

I don't know the exact account, but its probably four five.

Size to our ecosystem within the last year.

Most of those were smaller Si system regional players with a focus but im also but I will say that a lot of the head count two is being driven just because the larger size are investing quite heavily in their practices.

Done several nice deals with cognizant and cognizant has been helping us in fact, they're one of the leaders in terms of implementing our distribution management products. So they have had some nice wins there.

Accenture continues to scale their practice as well so for us to have this very significant relationship with the largest systems integrator and Accenture is doing many of the large tier one implementation.

Implementations that we have going on right now so they continue to train and add to their head count and grow their practice so.

We're seeing growth right across all of our partners.

Great to hear thanks, Mike.

Yeah.

Thank you. Our next question comes from ratio.

Sure Lori excuse me of RBC. Your line is open.

Wonderful. Thanks, guys. Thanks, so much for taking my questions and then he has been a pleasure working with you and wish you all the best.

I wanted to start my.

Talking about the SaaS gross margins line I know that number can obviously bounce around from accounting and timing and all that stuff, but it was a little.

Surprised to see it.

Declined.

600 basis points or something sequentially.

And hit the lowest point at least we've seen it in maybe six quarters anything particular to call out on that and maybe alongside that how should we be thinking about the SaaS gross margin line going forward and I must say on a full year basis, just a normalized for a lot of noise and then I've got a follow up.

Yes, sure so I.

I think the first thing I'd point out is I think we've observed prior to Q4 that the SaaS margins were running.

Much higher than we expected they are in the high <unk>.

Not where we had targeted for the year there were some timing impacts that were favorable both on the revenue and the cost side and.

And some of that reversed a bit in Q4 now the 63.63 three in Q4.

Probably took a little bit extra burden of cost in the quarter that fell out from a timing perspective, and I think we continue to run on a normalized basis more like in the mid <unk> right now.

And I think as we go forward.

We think that normalized mid sixties, we're continuing to add a lot of resources in terms of customer support.

And I think we'll see.

Maybe we'll certainly step up from where we saw the Q4 number because that was a little disadvantaged by timing but.

But I don't think we're going to see a notable increase in SaaS gross margin over the course of this year.

That said I think with the scale that we're at already having achieved numbers that are in the mid to high <unk>, we're pretty confident that we can kind of hold in this mid sixty's to upper 60% range and have line of sight to getting it into the low seventies within the next couple of years. So I think our kind of view.

<unk> SaaS.

Margins hasn't really changed we have a line of sight towards moving it into the into the <unk> with some more scale.

And this year I don't think we're going to see a notable step up and I would say Q4 was a little disadvantaged by timing.

Got it.

Okay.

I'd just add to that is of any said were committed and we know we're going to incrementally improve margins over the mid term and drive it up into the low seventies.

SaaS margins up above what our expectations were so that's why I think they are going to moderate this year, but just know that we're committed to this long term improvement over time and get it to the low seventies.

<unk> domestic thanks.

Well I think in terms of the mix, you'll see us continue to make progress most notably in Australia and Asia Pacific.

You will be invested in our practice.

Five years ago, and we're seeing that pay off and we know we're going to get some more wins on the board.

I'm, a little bit more tempered.

With how fast we're going to move in EMEA.

That have a need to.

To replicate some of their success in the U S that we've had with them.

Large books of businesses on an international basis.

And with that I think even an example that I had in my earlier remarks is start international which is a global carrier.

That really <unk>.

<unk> business in many geographies and you know what.

What we what we know is we have a great fit for purpose offering for those accounts, we're going to put some energy towards investing into building those relationships and expansion.

<unk>.

I think over time Youll see us go from low single digits to mid to high single digits over several years, but that's what you can expect in terms of the business.

Alright, that's very helpful. Thank you so much.

Thank you. Our next question comes from Pat Wall Ravens of JMP Securities. Please go ahead.

Hi, This is Joe Goodwin on for Pat. Thank you so much for taking our questions first.

The product advantage that you have in the closet that you discussed how do you think about your ability to actually be able to sustain that advantage over time going forward.

I think it's quite strong.

Obviously, our competitors are investing quite heavily in the cloud right I think almost every.

A company that we do compete with has now got some sense of cloud offerings, our marketing cloud first.

And that is as expected and I think that Duck Creek played a big role and conditioning the market and having other companies shift their strategy, but I also like to emphasize this isn't just about.

Running your solution in the cloud and being a cloud solution really what sets us apart is what I call our low code offering.

We have a mechanism that each and every business rule that a carrier cares about not only what we provide out of the box, but how they maybe configure that or enhance it or make changes to our system is on our low code platform. So all of this critical business rules are external life, when the software itself and that creates more business agility.

<unk> and what we're seeing in the marketplace is that as a very very difficult thing to.

Catch us on just because it requires a lot of re architecture from our competitors. So we think that gives us a unique advantage in a several multiple year lead in.

That's the feedback that we're getting from our customers when we win.

Like I highlighted from our Bella earlier in my comments. So we think we're going to keep maintain that advantage and we have many things in the works to enhance and extend that advantage in the marketplace as well.

Now here's what I'll say is you know in aggregate.

I would say that price is not the most important criteria of a buyer it's not the number one item.

Almost every buyer will say, we want to pick the right solution that meets our business needs first it's not the prices and important it is but I'll also say that Duck Creek, not known as the lowest cost provider in the industry.

And I think it's a good fair price with great value. So.

I think we know what the market will bear.

It's a given deal or customer can be more price sensitive than others, but I think at large we're doing a nice job of holding our price holding our pricing power and thats whats, helping contribute to our successful SaaS gross margins today, and I think driving the efficiency and more levels of automation as well.

Is going to help us drive that SaaS gross margin to where we want it to be in the low seventies and the near and the midterm.

Thank you.

Yeah.

Thank you. Our next question comes from Parker Lane of Stifel. Your line is open.

Yes, hi, thanks for taking my question.

And the on premise World, we saw a fair share of multi vendor deployments for core systems as your customers and prospects come up for cloud migration or maybe I'm going to cloud for the first time are you seeing any change in consideration of wealth around the way they think about multi vendor deployments do you see customers, preferring an integrated approach.

Policy billings in claims and in a case, where a customer I guess chose to go into multi vendor approach for cloud what would be the core considerations that would push them in that direction.

Thanks Parker.

Look I would say that.

In the world of cloud aside from on premise there is certainly a higher bias to run more.

I'm going to say cloud components or run more of the suite now that bias.

So that's something that we will typically see well most typically see that in the tier twos and ones.

And then the smaller carriers have a bias for the cloud, but I think the cloud is actually.

Creating more of an attitude of wanting to buy more pre integrated components, because it's just easier. So we're in deep discussions around cross selling and I think that's where the cross selling velocity and migrating carriers through our cloud and then upselling. Another component becomes a strong opportunity for Duck Creek moving forward.

Got it and one quick one on the.

The growth of the channel from an implementation standpoint.

Big wave of digital transformation, a lot of different technology priority is out there right now has there been any capacity constraints that you've run into as your customers consider making these moves that it may be.

Very solid go lives. So far this year very timely ones, but have there been any time, where even countered customers struggling maybe just from a capacity standpoint on the implementation side.

I won't say that there is areas, where our customers struggling on capacity.

Beautiful thing about these world leading systems integrators is a world class in terms of Onboarding people training them getting them up to speed and building skills and that's why we keep scaling our practice and it's a wonderful thing that helps us scale our business. So I am quite pleased with it.

Parker I would not say that that in any way as a constraint to our business I think we've been keeping up with demand and I think we have a world class professional services.

Arm of our business, that's doing a great job taking care of our customers right now.

Good to hear thanks again for taking the question.

Thank you at this time I would like to turn the call back over to Mike Schakowsky for closing remarks.

Our IRR to more than $135 million were up 41% year over year and with a track record of winning new customers in transitioning these opportunities into cross sells and future opportunities and as the industry is looking to transition to use the cloud to run their core systems. We know we have a great opt.

<unk> out in front of us So again I appreciate everyone. Joining today, thank you and please be safe healthy and well take care.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q4 2021 Duck Creek Technologies Inc Earnings Call

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