☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~July 13, 2021,~~June 28, 2022, the registrant had ~~131,712,321~~132,571,189 shares of common stock, $0.01 par value per share, outstanding.

Some of the information contained in the ~~sections~~section entitled “Item ~~1. Business” and “Item 7.~~2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Quarterly Report on Form 10-Q contain forward-looking statements that reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “target,” “projects,” “contemplates” or the negative version of those words or other comparable words. Any forward-looking statements contained in this report are based upon our historical performance and on our current plans, estimates and expectations in light of information currently available to us. The inclusion of this forward-looking information should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. For more information regarding these risks and uncertainties as well as certain additional risks that we face, refer to Part II, “Item 1A. Risk Factors” as well as the factors more fully described in “Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” and in our Annual Report on Form 10-K for the year ended August 31, ~~2020,~~2021, and those described from time to time in our future reports filed with the Securities and Exchange Commission. Accordingly, there are, or will be, important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to:

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We do not undertake any obligation to publicly update or review any forward-looking statement except as required by law, whether as a result of new information, future developments or otherwise.

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. You should specifically consider the factors identified in this report that could cause actual results to differ before making an investment decision to purchase our common stock. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.

As used in this Quarterly Report on Form 10-Q unless the context otherwise requires, references to “we,” “us,” “our,” the “Company,” “Duck Creek,” and similar references refer to Duck Creek Technologies, Inc. together with its subsidiaries, and the following terms have the meanings or are calculated as set forth below:

Certain monetary amounts, percentages, and other figures included in this Quarterly Report on Form 10-Q have been subject to rounding adjustments. Percentage amounts included in this Quarterly Report on Form 10-Q have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this Quarterly Report on Form 10-Q may vary from those obtained by performing the same calculations using the figures in our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Certain other amounts that appear in this Quarterly Report on Form 10-Q may not sum due to rounding. When we state that we are ~~the~~a leading SaaS provider of core systems for the P&C insurance industry, we are basing our leadership on our subscription revenue for fiscal ~~2020.~~2021.

Our fiscal year ends on August 31. Unless otherwise noted, any reference to a year preceded by the word “fiscal” refers to the fiscal year ended August 31 of that year. For example, references to “fiscal ~~2019”~~2022” refer to the fiscal year ended August 31, ~~2019.~~2022. Any reference to a year not preceded by “fiscal” refers to a calendar year. Accordingly, our first three fiscal quarters are the successor three-month periods following August 31 (i.e., November 30, February 28 and May 31).


	May 31,			August 31,			May 31,			August 31,
	2021			2020			2022			2021
Assets
Current assets:
Cash and cash equivalents	$	115,637		$	389,878		$	141,683		$	185,657
Short-term investments		256,028			—			223,511			191,981
Accounts receivable, net		37,177			29,149			32,105			34,629
Unbilled revenue		22,491			18,121			29,380			24,423
Prepaid expenses and other current assets		11,838			12,186			13,194			14,381
Total current assets		443,171			449,334			439,873			451,071
Property and equipment, net		16,008			18,113			12,740			14,305
Operating lease assets		15,498			18,171			15,783			17,798
Goodwill		272,455			272,455			272,455			272,455
Intangible assets, net		69,425			81,687			53,502			65,359
Deferred tax assets		2,226			1,550			1,398			2,331
Unbilled revenue, net of current portion		2,576			3,487			916			1,401
Other assets		16,679			16,303			20,031			19,413
Total assets	$	838,038		$	861,100		$	816,698		$	844,133
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,693		$	1,802		$	1,048		$	2,070
Accrued liabilities		42,485			58,202			33,814			46,437
Contingent earnout liability		4,878			3,701			—			5,462
Lease liability		3,007			3,611			4,072			4,110
Deferred revenue		28,743			30,397			24,378			29,577
Total current liabilities		80,806			97,713			63,312			87,656
Contingent earnout liability, net of current portion		—			3,391
Lease liability, net of current portion		18,342			21,739			17,852			21,273
Deferred revenue, net of current portion		4			379			49			—
Other long-term liabilities		4,285			4,121			2,376			4,466
Total liabilities		103,437			127,343			83,589			113,395
Commitments and contingencies (Note 13)
Commitments and contingencies
Stockholders' equity
Common stock, 134,217,410 shares issued and 131,660,379 shares outstanding at May 31, 2021, 133,269,301 shares issued and 130,713,745 shares outstanding at August 31, 2020, 300,000,000 shares authorized at May 31, 2021 and August 31, 2020, par value $0.01 per share		1,342			1,333
Preferred stock, 0 shares outstanding, 50,000,000 shares authorized at May 31, 2021 and August 31, 2020, par value $0.01 per share		—			—
Treasury stock, common shares at cost; 2,557,031 shares at May 31, 2021 and 2,555,556 shares at August 31, 2020		(64,745	)		(64,688	)
Common stock, 135,183,927 shares issued and 132,547,111 shares outstanding at May 31, 2022, 134,625,379 shares issued and 132,000,317 shares outstanding at August 31, 2021, 300,000,000 shares authorized at May 31, 2022 and August 31, 2021, par value $0.01 per share								1,352			1,346
Preferred stock, 0 shares outstanding, 50,000,000 shares authorized at May 31, 2022 and August 31, 2021, par value $0.01 per share								—			—
Treasury stock, common shares at cost; 2,636,816 shares at May 31, 2022 and 2,625,062 shares at August 31, 2021								(68,110	)		(67,764	)
Accumulated deficit		(35,706	)		(24,334	)		(47,216	)		(41,265	)
Accumulated other comprehensive income		79			—			169			64
Additional paid in capital		833,631			821,446			846,914			838,357
Total stockholders' equity		734,601			733,757			733,109			730,738
Total liabilities and stockholders' equity	$	838,038		$	861,100		$	816,698		$	844,133

For the Three Months Ended
May 31,

For the Nine Months Ended
May 31,

2021

2020

2021

2020

Revenue:

Subscription

$
33,552

$
21,555

$
92,069

$
59,368

License

2,474

2,160

7,412

5,431

Maintenance and support

6,329

6,064

18,404

17,791

Professional services

25,583

24,174

71,611

70,760

Total revenue

67,938

53,953

189,496

153,350

Cost of revenue:

Subscription

12,045

8,721

33,540

24,871

License

535

506

1,369

1,347

Maintenance and support

855

710

2,556

2,475

Professional services

14,315

13,459

42,857

38,839

Total cost of revenue

27,750

23,396

80,322

67,532

Gross margin

40,188

30,557

109,174

85,818

Operating expenses:

Research and development

12,255

10,197

36,040

29,424

Sales and marketing

13,628

11,723

40,390

33,539

General and administrative

15,238

10,184

44,273

29,916

Change in fair value of contingent consideration

(389
)

(190
)

(291
)

21

Total operating expenses

40,732

31,914

120,412

92,900

Loss from operations

(544
)

(1,357
)

(11,238
)

(7,082
)
Other income (expense), net

546

(316
)

1,009

(96
)
Interest expense, net

(6
)

(60
)

(87
)

(386
)
Loss before income taxes

(4
)

(1,732
)

(10,316
)

(7,564
)
Provision for income taxes

353

267

1,056

889

Net loss

$
(357
)

$
(1,999
)

$
(11,372
)

$
(8,453
)
Net loss per share information¹

Net loss per share of common stock, basic and diluted

$
0.00

$
—

$
(0.08
)

$
—

Weighted average shares of common stock, basic and diluted

131,613,003

—

130,992,672

—

1.

See Note 8—Net Loss Per Share for additionaldetails.


	For the Three Months Ended May 31,						For the Nine Months Ended May 31,						Three Months Ended May 31,						Nine Months Ended May 31,
	2021			2020			2021			2020			2022			2021			2022			2021
Net loss	$	(357	)	$	(2,000	)	$	(11,372	)	$	(8,453	)	$	(5,764	)	$	(357	)	$	(5,951	)	$	(11,372	)
Other comprehensive loss:
Unrealized gains on available-for-sale securities		85			—			79			—			169			85			105			79
Total other comprehensive gain		85			—			79			—
Total other comprehensive income														169			85			105			79
Comprehensive loss	$	(272	)	$	(2,000	)	$	(11,293	)	$	(8,453	)	$	(5,595	)	$	(272	)	$	(5,846	)	$	(11,293	)

Consolidated Statements of Stockholders’ ~~Equity/Redeemable Partners’ Interest and Partners’ Capital~~Equity

	Total redeemable partners’ interest and partners'		Common stock				Treasury Stock					Additional paid-in			Accumulated Other Comprehensive			Accumulated			Total stockholders' equity/ redeemable partners' interest and partners'
	capital		Shares		Amount		Shares		Amount			capital			(Loss) Income			deficit			capital			Common stock				Treasury Stock					Additional paid-in			Accumulated Other Comprehensive			Accumulated			Total stockholders'
Balance at August 31, 2020	$	—		133,269,301	$	1,333		2,555,556	$	(64,688	)	$	821,446		$	—		$	(24,334	)	$	733,757
																								Shares		Amount		Shares		Amount			capital			Income			deficit			equity
Balance at August 31, 2021																									134,625,379	$	1,346		2,625,062	$	(67,764	)	$	838,357		$	64		$	(41,265	)	$	730,738
Net income																									—		—		—		—			—			—			692			692
Repurchase of common stock																									—		—		3,301		(141	)		—			—			—			(141	)
Share-based compensation expense																											—		—		—			2,481			—			—			2,481
Issuance of common stock upon exercise of stock options																									4,897		—		—		—			132			—			—			132
Vesting of restricted stock awards																									60,148		1		—		—			(1	)		—			—			—
Unrealized loss on available-for-sale securities																									—		—		—		—			—			(13	)		—			(13	)
Balance at November 30, 2021																									134,690,424	$	1,347		2,628,363	$	(67,905	)	$	840,969		$	51		$	(40,573	)	$	733,889
Net loss																									—		—		—		—			—			—			(879	)		(879	)
Repurchase of common stock																									—		—		3,099		(95	)		—			—			—			(95	)
Share-based compensation expense																									—		—		—		—			3,380			—			—			3,380
Issuance of common stock upon exercise of stock options																									—		—		—		—			—			—			—			—
Vesting of restricted stock awards																									434,689		4		—		—			(4	)		—			—			—
Unrealized loss on available-for-sale securities																									—		—		—		—			—			(51	)		—			(51	)
Balance at February 28, 2022																									135,125,113	$	1,351		2,631,462	$	(68,000	)	$	844,345		$	—		$	(41,452	)	$	736,244
Net loss		—		—		—		—		—			—			—			(4,651	)		(4,651	)		—		—		—		—			—			—			(5,764	)		(5,764	)
Repurchase of common stock		—		—		—		1,475		(57	)		—			—			—			(57	)		—		—		5,354		(110	)		—			—			—			(110	)
Share-based compensation expense		—		—		—		—		—			2,333			—			—			2,333			—		—		—		—			2,569			—			—			2,569
Vesting of restricted stock awards		—		142,193		1		—		—			(1	)		—			—			—			58,814		1		—		—			—			—			—			1
Balance at November 30, 2020	$	—		133,411,494	$	1,334		2,557,031	$	(64,745	)	$	823,778		$	—		$	(28,985	)	$	731,382
Net loss	$	—		—	$	—		—	$	—		$	—		$	—		$	(6,364	)	$	(6,364	)
Proceeds from follow-on offering, net of issuance costs		—		90,000		1		—		—			3,452			—			—			3,453
Share-based compensation expense		—		—		—		—		—			2,478			—			—			2,478
Issuance of common stock upon exercise of stock options		—		36,809		—		—		—			993			—			—			993
Vesting of restricted stock awards		—		543,170		6		—		—			(6	)		—			—			—
Unrealized loss on available-for-sale securities		—		—		—		—		—			—			(6	)		—			(6	)
Balance at February 28, 2021	$	—		134,081,473	$	1,341		2,557,031	$	(64,745	)	$	830,695		$	(6	)	$	(35,349	)	$	731,936
Net loss	$	—		—	$	—		—	$	—		$	—		$	—		$	(357	)	$	(357	)
Share-based compensation expense		—		—		—		—		—			1,974			—			—			1,974
Issuance of common stock upon exercise of stock options		—		35,674		—		—		—			963			—			—			963
Vesting of restricted stock awards		—		100,263		1		—		—			(1	)		—			—			—
Unrealized gain on available-for-sale securities		—		—		—		—		—			—			85			—			85			—		—		—		—			—			169			—			169
Balance at May 31, 2021	$	—		134,217,410	$	1,342		2,557,031	$	(64,745	)	$	833,631		$	79		$	(35,706	)	$	734,601
Balance at May 31, 2022																									135,183,927	$	1,352		2,636,816	$	(68,110	)	$	846,914		$	169		$	(47,216	)	$	733,109

Consolidated Statements of Stockholders’ ~~Equity/Redeemable Partners’ Interest and Partners’ Capital~~Equity

Total
redeemable
partners’
interest
and partners' capital

Common stock

Treasury Stock

Additional
paid-in

Accumulated

Non-
controlling

Total
stockholders'
equity/
redeemable
partners'
interest and
partners'

Units

Amount

Shares

Amount

Shares

Amount

capital

deficit

interests

capital

Balance at August 31, 2019

470,210,869

$
389,066

—

$
—

—

$
—

$
—

$
—

$
—

$
389,066

Class A units redeemed

(20,292,029
)

(58,800
)

—

—

—

—

—

—

—

(58,800
)
Class B units redeemed

(13,528,013
)

(39,200
)

—

—

—

—

—

—

—

(39,200
)
Class D units and Phantom Units granted

—

—

—

—

—

—

—

—

—

—

Class D and Phantom Units forfeited

(622,031
)

—

—

—

—

—

—

—

—

—

Class E units issued

41,412,296

115,454

—

—

—

—

—

—

—

115,454

Equity-based compensation

—

436

—

—

—

—

—

—

—

436

Net loss

—

(4,014
)

—

—

—

—

—

—

—

(4,014
)
Balance at November 20, 2019

477,181,092

$
402,942

—

$
—

—

$
—

$
—

$
—

$
—

$
402,942

Class A units redeemed

(18,133,278
)

(60,000
)

—

—

—

—

—

—

—

(60,000
)
Class B units redeemed

(12,088,848
)

(40,000
)

—

—

—

—

—

—

—

(40,000
)
Class D units and Phantom Units granted

3,110,000

—

—

—

—

—

—

—

—

—

Class D and Phantom Units forfeited

(59,375
)

—

—

—

—

—

—

—

—

—

Class E units issued

30,222,126

97,437

—

—

—

—

—

—

—

97,437

Equity-based compensation

-

488

—

—

—

—

—

—

—

488

Net loss

-

(2,440
)

—

—

—

—

—

—

—

(2,440
)
Balance at February 28, 2020

480,231,717

$
398,427

—

$
—

—

$
—

$
—

$
—

$
—

$
398,427

Class D units and Phantom Units granted

660,000

—

—

—

—

—

—

—

—

—

Class D and Phantom Units forfeited

(155,781
)

—

—

—

—

—

—

—

—

—

Class E Units issuance costs

—

(64
)

—

—

—

—

—

—

—

(64
)
Equity-based compensation

—

480

—

—

—

—

—

—

—

480

Net loss

—

(1,999
)

—

—

—

—

—

—

—

(1,999
)
Balance at May 31, 2020

480,735,936

$
396,844

—

$
—

—

$
—

$
—

$
—

$
—

$
396,844


	For the Nine Months Ended May 31,						Nine Months Ended May 31,
	2021			2020			2022			2021
Operating activities:
Net loss	$	(11,372	)	$	(8,453	)	$	(5,951	)	$	(11,372	)
Adjustments to reconcile net loss to cash (used in) provided by operating activities:
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation of property and equipment		2,377			2,350			1,987			2,377
Amortization of capitalized software		1,506			205			1,684			1,506
Amortization of intangible assets		12,262			12,803			11,857			12,262
Amortization of deferred financing fees		85			106			93			85
Share-based compensation expense		9,305			1,404			6,729			9,305
Loss on change in fair value of contingent earnout liability		(291	)		21
Bad debt expense		664			65
Change in fair value of contingent earnout liability								67			(291	)
Payment of contingent earnout liability in excess of acquisition date fair value								(1,650	)		—
Changes to allowance for credit losses								2,243			664
Deferred taxes		(676	)		(146	)		932			(676	)
Other non-cash items		(37	)		—			—			(37	)
Changes in operating assets and liabilities
Accounts receivable		(8,693	)		(4,301	)		281			(8,693	)
Unbilled revenue		(3,459	)		(1,182	)		(4,471	)		(3,459	)
Prepaid expenses and other current assets		262			96			1,237			262
Other assets		(376	)		(4,101	)		(48	)		(376	)
Accounts payable		895			(304	)		(1,006	)		895
Accrued liabilities		(6,402	)		9,323			(9,910	)		(6,402	)
Deferred revenue		(2,029	)		214			(5,150	)		(2,029	)
Operating leases		(1,328	)		199			(1,444	)		(1,328	)
Cash settlement of vested phantom stock		(9,075	)		—			(1,011	)		(9,075	)
Other long-term liabilities		164			(52	)		(2,089	)		164
Net cash (used in) provided by operating activities		(16,218	)		8,247
Net cash used in operating activities								(5,620	)		(16,218	)
Investing activities:
Purchase of short-term investments		(287,912	)		—			(223,342	)		(287,912	)
Maturities of short-term investments		32,000			—			191,917			32,000
Capitalized internal-use software		(864	)		(2,440	)		(1,282	)		(864	)
Purchase of property and equipment		(834	)		(3,164	)		(841	)		(834	)
Net cash used in investing activities		(257,610	)		(5,604	)		(33,548	)		(257,610	)
Financing activities:
Proceeds from follow-on offering, net of issuance costs		3,452			—			—			3,452
Payment of deferred IPO costs		(3,650	)		—			—			(3,650	)
Payment of deferred Class E offering costs		(192	)		(2,552	)		—			(192	)
Proceeds from issuance of Class E Units, net of issuance costs		—			212,888
Payment on redemption of Class A and Class B Units		—			(198,000	)
Purchase of treasury stock		(57	)		—			(346	)		(57	)
Proceeds from stock option exercises		1,957			—			132			1,957
Payments of contingent earnout liability		(1,923	)		(3,555	)		(3,879	)		(1,923	)
Proceeds from revolving credit facility		—			5,000
Payments on revolving credit facility		—			(9,000	)
Payment of deferred financing costs		—			(228	)		(713	)		—
Net cash (used in) provided by financing activities		(413	)		4,553
Net (decrease) increase in cash and cash equivalents		(274,241	)		7,196
Net cash used in financing activities								(4,806	)		(413	)
Net decrease in cash and cash equivalents								(43,974	)		(274,241	)
Cash and cash equivalents – beginning of period		389,878			11,999			185,657			389,878
Cash and cash equivalents – end of period	$	115,637		$	19,195		$	141,683		$	115,637
Supplemental disclosure of other cash flow information:
Cash paid for income taxes		2,373			1,566			1,455			2,373
Cash paid for interest		—			269
Fair value of contingent consideration		5,028			6,981
Deferred IPO costs in accounts payable and accrued liabilities		—			5
Purchases of property and equipment recorded in accounts payable and accrued liabilities								—			306
Cash payments of contingent earnout liability								5,529			1,923

Duck Creek Technologies, Inc (the Company) is a leading provider of ~~Software-as-a-Service (SaaS)~~ core systems to the property and casualty (P&C) insurance industry through our cloud offering, Duck Creek OnDemand, delivered as software-as-a-service (SaaS). Products offered include Duck Creek Policy, Duck Creek Billing, Duck Creek Claims, Duck Creek Rating, Duck Creek Insights, Duck Creek Distribution Management, Duck Creek Producer, Duck Creek Reinsurance Management, Duck Creek Anywhere Managed Integrations, and Duck Creek Industry Content. The Company also provides its products via perpetual and term license arrangements to customers with legacy systems that have yet to ~~upgrade~~move to ~~SaaS.~~the cloud.

The Company was formed as a Delaware corporation on November 15, 2019, with no operating assets or operations for the purpose of facilitating an initial public offering (the IPO) and related Reorganization Transactions (as described below) in order to carry on the business of Disco Topco Holdings (Cayman), L.P. and its subsidiaries (the Operating Partnership). Unless otherwise indicated or the context otherwise requires, references to “Duck Creek Technologies” and the “Company” refer to (a) prior to the consummation of the Reorganization Transactions and the IPO, to Disco Topco Holdings (Cayman), L.P., and its subsidiaries, and (b) after the consummation of the Reorganization Transactions and IPO to Duck Creek Technologies, Inc, and its subsidiaries.

On August 14, 2020, the Company completed its IPO. It sold 17,250,000 shares of common stock (including shares issued pursuant to the exercise in full of the underwriters’ option to purchase additional shares) at a public offering price of ~~$27.00~~$27.00 per share for net proceeds of ~~$429.2~~$429.2 million, after deducting underwriting discounts, commissions, and estimated offering expenses.

The Company used (i) ~~$43.1~~$43.1 million of the net proceeds received from the IPO to redeem all of the outstanding LP Units of the Operating Partnership retained by Accenture plc (Accenture) and RBW Investment GmbH & Co. (RBW), after giving effect to the contributions that were part of the Reorganization Transactions, at a redemption price per LP Unit equal to the IPO price less underwriting discounts and commissions, (ii) ~~$64.7~~$64.7 million of the net proceeds received from the IPO to repurchase from Apax Partners L.P. (Apax) a portion of the shares in the Company received by Apax in the Reorg Merger (as described below) at a repurchase price per share equal to the IPO price less underwriting discounts and commissions, and (iii) ~~$6.7~~$6.7 million of net proceeds received from the IPO to cash settle outstanding equity awards of certain international employees.

The Company and the Operating Partnership completed a series of transactions concurrently with or immediately following the completion of the IPO (Reorganization Transactions) which are described below:

The Reorganization Transactions are considered transactions between entities under common control. As a result, Disco Topco Holdings (Cayman), L.P., is considered the predecessor of Duck Creek Technologies, Inc. for accounting purposes. This has resulted in the presentation of Disco Topco Holdings (Cayman), L.P.’s historical consolidated financial statements as the historical consolidated financial statements of Duck Creek Technologies, Inc. Duck Creek Technologies, Inc., has accounted for Disco Topco Holdings (Cayman), L.P.’s assets and liabilities at their historical carrying amounts.

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) set by the Financial Accounting Standards Board (FASB), and pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented have been reflected. References to GAAP issued by the FASB in these notes are to the FASB Accounting Standards Codification (FASB ASC).

These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended August 31, ~~2020~~2021 filed with the SEC on ~~November 3, 2020.~~October 29, 2021. Operating results for interim periods are not necessarily indicative of the results that may be expected for any future period or the entire fiscal year.

(c)

Principles of the restrictions (including the effects of recently announced “re-opening” plans following a recent slowdown of the virus infection rate in certain countries and localities) and other limitations on the Company’s ability to conduct its business in the ordinary course. The longer the pandemic continues or resurges, the more severe the impacts of COVID-19 will be on the Company’s business. The extent, length and consequences of the pandemic are uncertain and impossible to predict, but could be material. COVID-19 and other similar outbreaks, epidemics or pandemics could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows and prospects and could cause significant volatility in the trading prices of the Company’s common stock as a result of any of the risks described above and other risks that the Company is not able to predict.

Consolidation

~~(c)~~

~~Principles of Consolidation~~

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

(d)

Significant Accounting Policies

~~(d)~~

~~Significant Accounting Policies~~

The Company’s significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended August 31, ~~2020.~~2021. There have been no material changes to the significant accounting policies during the ~~nine-month period~~nine months ended May 31, ~~2021, other than those noted below relating to the adoption of~~ ~~ASU 2016-13,~~ 2022.~~Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ ~~(ASU 2016-13) effective September 1, 2020 and the accounting for investments~~.

Allowance for Credit Losses

The Company maintains an allowance for expected credit losses for its accounts receivable balance. The allowance reflects the expected collectability of the balance and is based on historical losses, customer-specific factors, and current economic conditions. Credit losses are recorded in general and administrative expense while billing and other revenue adjustments are recorded as a reduction to revenue.

Investments

At the time of purchase, the Company determines the appropriate classification of investments based upon its intent with regard to such investments. All of the Company’s investments are classified as available-for-sale. The Company classifies investments as short-term when their remaining contractual maturities are one year or less from the balance sheet date, and as long-term when the investment has a remaining contractual maturity of more than one year from the balance sheet date. The Company records investments at fair value with unrealized gains and losses recorded as a component of other comprehensive income (loss).

~~(f)~~

~~Recently Adopted Accounting Pronouncements~~

(e)

Recently Adopted Accounting Pronouncements

~~In June 2016,~~There have been no changes to our recently adopted accounting pronouncements since the ~~FASB issued ASU 2016-13,~~ ~~Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses~~Company’s Annual Report on ~~Financial Instruments~~ (ASU 2016-13). The new standard requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted this new standard on September 1, 2020. The impact to the consolidated financial statements as a result of adoption was not material.

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~ (ASU 2017-04). This new guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new standard, entities will perform goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment chargeForm 10-K for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company adopted this new standard on September 1, 2020. The impact to the consolidated financial statements as a result of adoption was not material.

Inyear ended August ~~2018, the FASB issued ASU No. 2018-15,~~ 31, 2021.

~~Customer’s~~

(f)

Recent Accounting ~~for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract~~ (ASU 2018-15). This new guidance requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. ASU 2018-15 generally aligns the guidance on recognizing implementation costs incurred in a cloud computing arrangement that is a service contract with that for implementation costs incurred to develop or obtain internal-use software, including hosting arrangements that include an internal-use software license. The Company adopted this new standard on September 1, 2020. The impact to the consolidated financial statements as a result of adoption was not material.

~~(g)~~

~~Recent Accounting~~ Pronouncements Not Yet Effective

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~ (ASU 2019-12). The new standard is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within ASU 2019-12 are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective

~~basis. The Company does not expect the adoption of this new standard to have a material impact on its consolidated financial statements~~

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial ~~Reporting~~ ~~(ASU 2020-04). The~~Reporting. This new ~~standard~~guidance provides temporary optional expedients and exceptions to ~~GAAP~~current guidance ~~on contract modifications~~ to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) to alternative reference rates. ~~The Company~~We may elect to apply the ~~amendments~~optional expedients and exceptions prospectively through December 31, 2022. The Company does not expect the ~~adoption of this~~ new standard to have a material impact on its consolidated financial statements.

Other recent accounting pronouncements that are or will be applicable to the Company did not, or are not expected to, have a material impact on the Company’s present or future financial statements.

(g)

Revenue Recognition

~~(h)~~

~~Revenue Recognition~~

The Company derives its revenues primarily from the following four sources, which represent performance obligations of the Company:

•

Sales of hosted software services (SaaS) under subscription arrangements.

•

Sales of software licenses. Software license revenue is derived from the sale of perpetual and term license arrangements to customers.

•

Sales of maintenance and support services. Maintenance and support services include telephone and web-based support, software updates, and rights to unspecified software upgrades on a when-and-if-available basis during the maintenance term.

•

Sales of professional services. Professional services primarily relate to the implementation of the Company’s SaaS offerings and software licenses.

•

~~Sales of hosted software services (SaaS) under subscription arrangements~~.

•

~~Sales of software licenses. Software license revenue is derived from the sale of perpetual and term license arrangements to customers.~~

•

~~Sales of maintenance and support services. Maintenance and support services include telephone and web-based support, software updates, and rights to unspecified software upgrades on a when-and-if-available basis during the maintenance term.~~

•

~~Sales of professional services. Professional services primarily relate to the implementation of the Company’s SaaS offerings and software licenses.~~

In accordance with ASC 606, the Company recognizes revenue from the identified performance obligations, as determined in its contracts with customers, as control is transferred to the customer in an amount that reflects the consideration the Company expects to receive. The Company applies the following five steps to achieve the core principle of ASC 606:

(1)

Identify the contract with the customer

~~(1)~~

~~Identify the contract with the customer~~

The Company considers the terms and conditions of the contracts and its customary business practices in identifying contracts under ASC 606. The Company has determined that a contract with a customer exists when the contract is approved, each party’s rights regarding the services to be transferred can be identified, payment terms for the services can be identified, the customer has the ability and intent to pay, and the contract has commercial substance. The Company applies judgment in determining the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer.

(2)

Identify the performance obligations in the contract

~~(2)~~

~~Identify the performance obligations in the contract~~

Performance obligations promised in a contract are identified based on the products and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from ~~third-parties~~third parties or

from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract.

(3)

Determine the transaction price

~~(3)~~

~~Determine the transaction price~~

The transaction price is determined based on the consideration to which the Company expects to be entitled in exchange for transferring products or services to the customer. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that no significant future reversal of cumulative revenue under the contract will occur. The sale of the Company’s software and SaaS products may include variable consideration relating to changes in a customer’s direct written premium (DWP) managed by these solutions. The Company estimates variable consideration based on historical DWP usage to the extent that a significant revenue reversal is not probable to occur.

In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that contracts generally do not include a significant financing component. The primary purpose of the

Company’s invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from customers or to provide customers with financing.

(4)

Allocate the transaction price to the performance obligations in the contract

~~(4)~~

~~Allocate the transaction price to the performance obligations in the contract~~

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price (SSP).

(5)

Recognize revenue when (or as) the Company satisfies a performance obligation

~~(5)~~

~~Recognize revenue when (or as) the Company satisfies a performance obligation~~

Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised product or service to a customer. Revenue is recognized when control of the products or services are transferred to the Company’s customers, in an amount that reflects the consideration that it expects to receive in exchange for those products or services.

The Company records revenue net of applicable sales taxes collected. Sales taxes collected from customers are recorded as part of accounts payable in the accompanying consolidated balance sheets and are remitted to state and local taxing jurisdictions based on the filing requirements of each jurisdiction.

Disaggregation of Revenue

The Company provides disaggregation of revenue based on product and service type on the consolidated statements of operations as it believes these categories best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

The following table summarizes revenue by geographic area based on the location of the customer contracting entity, regardless of where the products or services are used, for the three and nine months ended May 31, ~~2021~~2022 and ~~May 31, 2020:~~2021:


	For the Three Months Ended May 31,				For the Nine Months Ended May 31,				Three Months Ended May 31,				Nine Months Ended May 31,
	2021		2020		2021		2020		2022		2021		2022		2021
United States	$	62,604	$	51,498	$	172,688	$	145,644	$	66,799	$	62,604	$	206,648	$	172,688
All other		5,334		2,455		16,808		7,706		5,565		5,334		15,555		16,808
Total revenue	$	67,938	$	53,953	$	189,496	$	153,350	$	72,364	$	67,938	$	222,203	$	189,496

Subscription Arrangements

The transaction price allocated to subscription arrangements is recognized as revenue over time throughout the term of the contract as the services are provided on a continuous basis, beginning after the SaaS environment is provisioned and made available to customers. The Company’s subscription arrangements generally have terms of three to seven years and are generally payable on a monthly basis over the term of the subscription arrangement, which is typically noncancelable. Revenue is recognized ratably using contractual DWP as the measure of progress.

Software Licenses

The Company has concluded that its software licenses provide the customer with the right to functional intellectual property (IP), and are distinct performance obligations as the customer can benefit from the software licenses on their

own. The transaction price allocated to perpetual and term license arrangements is recognized as revenue at a point in time when control is transferred to the customer, which generally occurs at the time of delivery. Perpetual software license fees are generally payable when the contract is executed. Term license fees are generally payable in advance on an annual basis over the term of the license arrangement, which is typically noncancelable. Perpetual and term license arrangements are delivered before related services are provided, including maintenance and support services, and are functional without such services.

Maintenance and Support Services

Maintenance and support contracts associated with the Company’s software licenses entitle customers to receive technical support and software updates, on a when and if available basis, during the term of the maintenance and support contract. Technical support and software updates are considered distinct from the related software licenses but accounted for as a single performance obligation as they each constitute a series of distinct services that are substantially the same and have

the same pattern of transfer to the customer. The transaction price allocated to software maintenance and support is recognized as revenue over time on a straight-line basis over the term of the maintenance and support contract. Maintenance and support fees are generally payable in advance on a monthly, quarterly, or annual basis over the term of the maintenance and support contract. Maintenance and support contracts are priced as a percentage of the associated software license.

~~Professional Services~~

Professional Services

The Company’s professional services revenue is primarily comprised of implementation services provided to customers. The majority of professional services engagements are billed to customers on a time and materials basis. The Company has determined that professional services provided to customers represent distinct performance obligations. These services may be provided on a stand-alone basis or bundled with other performance obligations, including subscription arrangements, software licenses, and maintenance and support services. The transaction price allocated to these performance obligations is recognized as revenue over time as the services are performed. In those limited instances where professional services arrangements are sold on a fixed price basis, revenue is recognized over time using an input measure of time incurred to date relative to total estimated time to be incurred at project completion. Professional services arrangements are generally invoiced monthly in arrears.

The Company records reimbursable out-of-pocket expenses associated with professional services contracts in both revenue and cost of revenue.

Contracts with Multiple Performance Obligations

The Company’s contracts with customers can include multiple performance obligations, where the transaction price is allocated to each identified performance obligation based on their relative SSP. The Company’s contracts may also grant the customer an option to acquire additional products or services, which the Company assesses to determine whether or not any discount on the products or services is in excess of levels normally available to similar customers and, if so, accounts for the optional product or service as an additional performance obligation.

The Company typically determines SSP based on the observable prices of the promised goods or services charged when sold separately to customers, which are determined using contractually stated prices. In instances where SSP is not directly observable, the Company determines SSP based on its overall pricing objectives, taking into consideration market conditions and other factors, including customer size and geography. The various products and services comprising contracts with multiple performance obligations are typically capable of being distinct and accounted for as separate performance obligations. The Company allocates revenue to each of the performance obligations included in a contract with multiple performance obligations at the inception of the contract.

The SSP for perpetual or term license arrangements sold in contracts with multiple performance obligations is determined using the residual approach. The Company utilizes the residual approach because the selling prices for software licenses isare highly variable and a SSP is not discernible from past transactions or other observable evidence. Periodically, the Company evaluates whether the use of the residual approach remains appropriate for performance obligations associated with software licenses when sold as part of contracts with multiple performance obligations. As a result, if the SSP analysis illustrates that the selling prices for software licenses are no longer highly variable, the Company will utilize the relative allocation method for such arrangements.

~~Contract Modifications~~

Contract Modifications

The Company may enter into amendments to previously executed contracts which constitute a contract modification. The effect of a contract modification on the transaction price when the remaining products or services are not distinct is recognized to revenue on a cumulative catch-up basis. Contract modifications are accounted for prospectively when it results in the promise to deliver additional products and services that are distinct and the increase in the price of the contract corresponds to the SSP of the additional products or services.

~~Contract Balances~~

Contract Balances

Contract assets and liabilities are presented net at the contract level for each reporting period. Contract assets consist of unbilled revenue and represent amounts under contracts with customers where revenue recognized exceeds the amount billed to the customer. Contract liabilities consist of deferred revenue and include billings and payments received in advance of revenue recognized. Deferred revenue that will be realized during the succeeding 12-month period is recorded as current, and the remaining balance is recorded as noncurrent.

During the ~~quarter~~three months ended May 31, 2022 and 2021, $1.2 million and $2.4 million, respectively, and during the nine months ended May 31, 2022 and 2021, ~~a portion~~$21.4 million and $15.7 million, respectively of the Company’s unbilled revenue balance that was included in the corresponding unbilled revenue balance at the beginning of the period presented became an unconditional right to payment and was billed to its customers.

During the three months ended May 31, 2022 and 2021, ~~and 2020~~ the ~~amounts were~~Company recognized revenue of $~~2.4~~4.4 million and $~~3.0~~3.8 million, respectively, and for the nine months ended May 31, 2022 and 2021, ~~and 2020 they were~~ $~~15.7~~25.8 million and $~~12.6~~27.9 million, ~~respectively.~~

~~The Company also recognized revenue~~respectively, that was included in the corresponding deferred revenue balance at the beginning of the period during the three and nine months ended May 31, 2021 and 2020. For the three months ended May 31, 2021 and 2020, the amounts were $3.8 million and $4.3 million, respectively. For the nine months ended May 31, 2021 and 2020, the amounts were $27.9 million and $20.7 million, respectively.presented.

Transaction Price Allocated to the Remaining Performance Obligations

Remaining performance obligations represent contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. As of May 31, ~~2021,~~2022, approximately ~~$453.3~~$470.5 million of revenue is expected to be recognized from remaining performance obligations in the amount of approximately ~~$40.5~~$46.5 million in fiscal ~~2021~~2022 and approximately ~~$412.8~~$424.0 million ~~thereafter.~~thereafter. The estimated revenues do not include unexercised contract renewals. The Company applied the practical expedient in accordance with ASC 606 to exclude amounts related to professional services contracts that are on a time and materials basis.

(3)

Contingent Earnout Liability

~~(3)~~

~~Contingent Earnout Liability~~

The following table summarizes the changes in fair value of the Company’s contingent earnout liability during the nine months ended May 31, ~~2021:~~2022:

	Outline Systems, LLC
Balance at August 31, 2020	$	7,092
				Outline Systems, LLC
Balance at August 31, 2021				$	5,462
Change in fair value, including accretion		(291	)		67
Payments to sellers		(1,923	)		(5,529	)
Balance at May 31, 2021	$	4,878
Balance at May 31, 2022				$	—

The final earnout payment related to the Outline acquisition was made in November 2021. The total cumulative earnout paid to the Outline sellers was $10.3 million.

Available-for-sale investments within cash equivalents and short-term investments consist of the following (in thousands):

The Company has recorded the securities at fair value in its consolidated balance sheet and unrealized gains and losses are reported as a component of accumulated other comprehensive income (loss). The amount of realized gains and losses reclassified into earnings are based on the specific identification of the securities sold or securities that reached maturity date. There were 0 sales, 12 purchases, and 210 maturities of securities induring the ~~periods presented.~~nine months ended May 31, 2022.

The Company measures certain financial assets and liabilities at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market.

Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:

The following tables present the Company’s financial assets and liabilities measured and recorded at fair value on a recurring basis using the above input categories as of May 31, ~~2021~~2022 and August 31, ~~2020:~~2021:


	May 31, 2021								May 31, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money market funds - presented in cash and cash equivalents	$	64,103	$	—	$	—	$	64,103	$	44,575	$	—	$	—	$	44,575
U.S. Government agency securities - presented in short term investments		—		256,028		—		256,028
U.S. Government agency securities - presented in cash and cash equivalents									$	31,992					$	31,992
U.S. Government agency securities - presented in short-term investments										223,511		—		—		223,511
Total assets	$	64,103	$	256,028	$	—	$	320,131	$	300,078	$	—	$	—	$	300,078
Liabilities:
Liability classified awards	$	1,104	$	—	$	1,162	$	2,266	$	58	$	—	$	173	$	231
Contingent earnout liability		—		—		4,878		4,878
Total liabilities	$	1,104	$	—	$	6,040	$	7,144	$	58	$	—	$	173	$	231

The contingent earnout liability related to business combinations is recorded at fair value on the acquisition date and is adjusted each reporting period for changes in fair value, which can result from changes in anticipated payments and changes in assumed discount periods and rates. These inputs are unobservable in the market and therefore categorized as level 3 inputs as defined above. Quoted prices for liability classified stock appreciation rights are not readily available. Accordingly, the Company uses a Black-Scholes model to estimate the fair value of these awards, which utilizes level three inputs. The following table summarizes the changes in the estimated fair value of the Company’s level 3 categorized liability classified awards for the nine months ended May 31, ~~2021:~~

Depreciation expense related to property and equipment was ~~$0.8~~$0.6 million and ~~$0.8~~$0.8 million for the three months ended May 31, ~~2021~~2022 and ~~2020,~~2021, respectively and ~~$2.4~~$2.0 million and ~~$2.4~~$2.4 millionfor the nine months ended May 31, 2022 and 2021, ~~and 2020,~~ respectively.

The Company has determined the useful life of capitalized internal-use software to be three years. Amortization expense related to internal-use software was ~~$0.5~~$0.6 million and $0.5 ~~$1.5~~ millionfor the three months ended May 31, 2022 and 2021, respectively and $1.7 million and $1.5 million for the nine months ended May 31, 2022 and 2021, ~~respectively and $0.2 million~~respectively. ~~for both the three~~

(7)

Goodwill and ~~nine months endedMay 31, 2020.~~

Intangible Assets

~~(7)~~

~~Goodwill and Intangible Assets~~

The Company’s goodwill is the result of its acquisitions of other businesses and represents the excess of purchase consideration over the fair value of assets acquired and liabilities assumed. There has been no change to the ~~$272.5~~$272.5 million carrying amount of goodwill since August 31, ~~2020~~2019..

Intangible assets as of May 31, ~~2021~~2022 and August 31, ~~2020~~2021 consisted of the following:


	May 31, 2021							May 31, 2022
	Gross carrying amount		Accumulated amortization		Net carrying amount		Weighted average remaining life	Gross carrying amount		Accumulated amortization		Net carrying amount		Weighted average remaining life
Customer relationships	$	103,600		49,244	$	54,356	5.6 years	$	103,600		59,525	$	44,075	4.6 years
Acquired technology		32,235		22,344		9,891	2.1 years		32,235		26,811		5,424	1.3 years
Trademarks and tradenames		9,400		4,543		4,857	5.1 years		9,400		5,483		3,917	4.1 years
Domain name		100		48		52	5.1 years		100		58		42	4.2 years
Backlog		6,700		6,431		269	1.1 years		6,700		6,656		44	0.2 years
	$	152,035	$	82,610	$	69,425		$	152,035	$	98,533	$	53,502


	August 31, 2021
	Gross carrying amount		Accumulated amortization		Net carrying amount		Weighted average remaining life
Customer relationships	$	103,600		51,815	$	51,785	5.3 years
Acquired technology		32,235		23,509		8,726	1.8 years
Trademarks and tradenames		9,400		4,778		4,622	4.8 years
Domain name		100		50		50	4.8 years
Backlog		6,700		6,524		176	0.8 years
	$	152,035	$	86,676	$	65,359

August 31, 2020

Gross
carrying
amount

Accumulated
amortization

Net carrying
amount

Weighted
average
remaining
life
Customer relationships

$
103,600

41,535

$
62,065

6.5 years
Acquired technology

32,235

18,785

13,450

3.0 years
Trademarks and tradenames

9,400

3,838

5,562

6.0 years
Domain name

100

40

60

6.0 years
Backlog

6,700

6,150

550

2.0 years

$
152,035

$
70,348

$
81,687

Amortization expense was ~~$4.1~~$3.9 million and ~~$4.3~~$4.1 million for the three months ended May 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$12.3~~$11.9 million and ~~$12.8~~$12.3 million for the nine months ended May 31, 2022 and 2021, ~~and 2020,~~ respectively. Amortization expense is recorded on a straight-line basis over the estimated useful lives of the assets. Amortization expense associated with the backlog intangible asset is classified as a reduction of revenue in the accompanying consolidated statements of operations.

As of May 31, ~~2021,~~2022, the estimated future amortization of purchased intangible assets is as follows:


Fiscal year:
2021	$	4,066
2022		15,793	$	3,936
2023		15,225		15,225
2024		11,453		11,453
2025 and thereafter		22,888
2025				11,307
2026 and thereafter				11,581
Total	$	69,425	$	53,502

(8)

Net Loss Per Share

~~(8)~~

~~Net Loss Per Share~~

The Company calculates basic earnings per share by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. The diluted earnings per share is computed by assuming the exercise, settlement, and vesting of all potential dilutive common stock equivalents outstanding for the period using the treasury stock method.

The following table sets forth a reconciliation of the numerator and denominator used to compute basic earnings per share of common stock.


							Three Months Ended May 31,						Nine Months Ended May 31,
	Three Months Ended May 31, 2021			Nine Months Ended May 31, 2021			2022			2021			2022			2021
Numerator
Net loss	$	(357	)	$	(11,372	)	$	(5,764	)	$	(357	)	$	(5,951	)	$	(11,372	)
Denominator
Weighted average shares of common stock - basic and diluted		131,613,003			130,992,672			132,523,919			131,613,003			132,131,077			130,992,672
Net loss per share - basic and diluted	$	0.00		$	(0.08	)	$	(0.04	)	$	(0.00	)	$	(0.05	)	$	(0.08	)

Prior to the IPO, there were 0 shares of common stock outstanding, and the membership structure of Duck Creek Technologies consisted of limited partnership units. The Company analyzed the calculation of earnings per unit for periods prior to the IPO and determined that it resulted in values that would not be meaningful to the users of these consolidated financial statements. Therefore, earnings per share information has not been presented for the three-month and nine months periods ended May 31, 2020.

As of May 31, 2022, and 2021, ~~3,575,928~~1,505,492 and 2,405,177, respectively, shares outstanding of potential common stock, ~~prior to the use~~using of the treasury stock method, were excluded from the computation of diluted weighted-average shares of common stock outstanding because their effect would have been ~~antidilutive~~antidilutive..

Other assets as of May 31, ~~2021~~2022 and August 31, ~~2020~~2021 consisted of the following:


	May 31,		August 31,		May 31,		August 31,
	2021		2020		2022		2021
Deferred contract costs	$	13,073	$	12,440	$	13,504	$	14,056
Other noncurrent assets		3,606		3,863		6,527		5,357
Total other assets	$	16,679	$	16,303	$	20,031	$	19,413

The amortization related to deferred contracts costs was ~~$0.6~~$0.6 million and ~~$0.4~~$0.6 millionfor the three months ended May 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$1.6~~$1.8 million and ~~$1.0~~$1.6 millionfor the nine months ended May 31, 2022 and 2021, ~~and 2020, respectively, and there~~respectively. There was 0 impairment loss in relation to the costs capitalized.

The following table presents changes to the allowance for credit losses during the nine months ended May ~~21, 2021:~~31, 2022:

On October ~~2, 2019,~~22, 2021, the Company ~~extended the maturity date of its~~executed an amended and restated credit agreement for aits revolving credit facility, ~~from October 4, 2019 to October 2, 2021. The $30.0 million~~increasing its maximum borrowing capacity ~~under the~~from $30.0 million to $45.0 million.

~~The revolving credit facility~~has a term of five years and is secured by substantially all of the Company’s tangible assets. Interest accrues on the revolving credit facility at a variable rate based upon the type of borrowing made by the Company. Borrowings can either incur interest at a rate of LIBOR (as administered by ICE Benchmark Administration) plus an applicable margin, or incur interest at the higher of: (i) the Prime Rate, (2) the Fed Funds Rate plus ~~0.5%~~0.5%, or (3) LIBOR plus ~~1.0%~~1.0%, plus an applicable margin. The applicable margin ranges from ~~2.0%~~1.0% to ~~3.0%~~2.0% depending on the interest rate basis and type of borrowing elected. In addition to interest on the revolving credit facility, the Company pays a commitment fee of ~~0.5%~~0.5% per annum on the unused portion of the revolving credit facility. Repayment of any amounts borrowed are not required until maturity of the revolving credit facility, however the Company may repay any amounts borrowed at any time, without premium or penalty.

The Company is required to meet certain financial and nonfinancial covenants under the terms of the revolving credit facility. These covenants include limits on the creation of liens, limits on making certain investments, limits on incurring additional indebtedness, ~~maintaining a minimum level of consolidated EBITDA,~~ and maintaining a leverage ratio at or below a maximum level.The Company was in compliance with these financial and nonfinancial covenants as of May 31, ~~2021.~~2022.

There was 0 outstanding balance under the revolving credit facility at May 31, ~~2021~~2022 or August 31, ~~2020.~~2021. Letters of credit of ~~$0.9~~$0.7 million and ~~$1.0~~$0.9 millionwere outstanding under the revolving credit facility at May 31, ~~2021~~2022 and August 31, ~~2020,~~2021, respectively.

~~The Company incurred $0.2 million of costs directly related to the maturity extension, which were deferred~~

(13)

Commitments and ~~will be amortized over the term of the extension.~~

Contingencies

(a)

Litigation

~~(13)~~

~~Commitments and Contingencies~~

~~(a)~~

~~Litigation~~

From time to time, the Company is a party to or can be threatened with litigation in the ordinary course of business. The Company regularly analyzes current information, including, as applicable, the Company’s defenses and insurance coverage and, as necessary, provides accruals for probable and estimable liabilities for the eventual disposition of any matters. The Company was not a party to any material legal proceedings as of May 31, ~~2021~~2022 or ~~2020.~~2021.

(b)

Guarantees

~~(b)~~

~~Guarantees~~

The Company’s products are typically warranted to perform in a manner consistent with general industry standards that are reasonably applicable and substantially in accordance with the Company’s product documentation under normal use and circumstances. The Company’s services are generally warranted to be performed in a professional manner and to materially conform to the specifications set forth in the related customer contract. The Company’s arrangements also include certain provisions for indemnifying customers against liabilities if its products or services infringe a ~~third-party’s~~third party’s intellectual property rights.

To date, the Company has not incurred any material costs as a result of such indemnifications or commitments and has not accrued any liabilities related to such obligations in the accompanying consolidated financial statements.

(14)

Share-Based Compensation

~~(14)~~

~~Share-Based Compensation~~

Share-based compensation expense has been recorded in the accompanying consolidated statements of operations as follows for the three and nine months ended May 31, ~~2021~~2022 and ~~2020:~~2021:


	Three Months Ended May 31,				Nine Months Ended May 31,				Three Months Ended May 31,				Nine Months Ended May 31,
	2021		2020		2021		2020		2022		2021		2022		2021
Cost of subscription revenue	$	90	$	—	$	302	$	10	$	90	$	90	$	253	$	302
Cost of maintenance and support revenue		7		1		22		3		9		7		26		22
Cost of services revenue		253		36		2,003		103
Cost of professional services revenue										396		253		649		2,003
Research and development		285		97		1,505		284		539		285		1,281		1,505
Sales and marketing		199		93		2,493		257		338		199		726		2,493
General and administrative		863		253		2,980		747		1,035		863		3,794		2,980
Total share-based compensation expense	$	1,697	$	480	$	9,305	$	1,404	$	2,407	$	1,697	$	6,729	$	9,305

Upon closing of the underwritten public offering of the Company’s common stock on February 2, 2021, a market condition was achieved relating to Class D Restricted Common Stock, Leverage Restoration Options, Class D Phantom Stock

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the forward-looking statements included herein. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled Part II, “Item 1A. Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

We are ~~the~~a leading ~~SaaS~~ provider of core systems ~~for~~to the ~~P&C~~property and casualty (P&C) insurance ~~industry.~~industry through our cloud offering, Duck Creek OnDemand, delivered as software-as-a-service (SaaS). We have achieved our leadership position by combining over twenty years of deep domain expertise with the differentiated SaaS capabilities and low-code configurability of our technology platform. We believe we are the first company to provide carriers with an end-to-end suite of enterprise-scale core system software that is purpose-built as a SaaS solution. Our product portfolio is built on our modern technology foundation, the Duck Creek Platform, and works cohesively to improve the operational efficiency of ~~carriers’~~insurers’ core processes (policy administration, billing and claims ~~management and billing)~~management) as well as other critical functions. The Duck Creek Platform enables our customers to be agile and rapidly capitalize on market opportunities, while reducing their total cost of technology ownership.

Our deep understanding of the P&C insurance industry has enabled us to develop a single, unified suite of insurance software products that is tailored to address the key challenges faced by ~~carriers.~~carriers worldwide. Our solutions promote carriers’ ~~nimbleness~~agility, intelligence and efficiency by enabling rapid integration and streamlining the ability to capture, access and utilize data more effectively. The Duck Creek Suite includes several products that support the P&C insurance process lifecycle, such as:

In addition, we offer other innovative solutions, such as Duck Creek Rating,, Duck Creek Insights,, Duck Creek Digital Engagement,, Duck Creek Distribution Management, Duck Creek Producer, Duck Creek Reinsurance Management,, Duck Creek Anywhere Managed Integrations and Duck Creek Industry Content,, which provide additional features and functionalities that further help our customers meet the increasing and evolving demands of the P&C industry. Our customers purchase and deploy Duck Creek OnDemand, our SaaS solution, either individually or as a suite.

We sell our SaaS solutions through recurring fee arrangements where revenue is recognized on a monthly basis following deployment to the customer, which we refer to as subscription revenue. Substantially all of our new bookings come from the sale of SaaS subscriptions of Duck Creek ~~OnDemand~~.OnDemand. For the nine months ended May 31, ~~2021~~2022 and ~~2020,~~2021, SaaS ACV bookings represented ~~94%~~100% and ~~95%~~94% of our total ACV bookings, respectively. Historically, we have also sold our products through perpetual and term license arrangements, most commonly installed on-premise, where license revenue is typically recognized in full upon delivery of the software to the customer. We generally price our SaaS and license arrangements at individually negotiated rates based on the amount of a customer’s DWP that will be managed by our solutions with pre-determined fee adjustments as the customer’s DWP increases over the term of the contract, which typically ranges from three to seven years for our SaaS arrangements. We typically invoice our customers monthly, in advance, for SaaS fees whereas our term licenses are typically invoiced annually, in advance. The total cost of a perpetual license is billed in full upon contract signing.

We also derive revenue from maintenance and support services on our perpetual and term license products (primarily software updates, rights to unspecified software upgrades on a when-and-if-available basis and remote support services). We recognize revenue on a monthly basis as maintenance and support services are provided to customers. We generate revenue by providing professional services for both our SaaS solutions and perpetual and term license products (primarily related to implementation services) to the extent requested by our customers. The vast majority of our professional services revenue is recognized on a time and materials basis as the work is delivered to our customers. Our customers may also choose to obtain implementation services through our network of third-party SI partners who provide implementation and other related services to our customers. Our partnerships with leading SIs allow us to grow our business more efficiently by giving us scale to service our growing customer base. We continue to grow our

services organization, including increasing the number of qualified consultants we employ and investing time and resources to develop relationships with new SI partners in existing and new markets.

We sell our products and services to a wide variety of carriers, including many of the largest and most recognizable brands in the P&C insurance industry, as well as smaller national and regional carriers. Our direct sales team focuses on obtaining new customers, which includes carriers that currently operate internally developed or competing systems, as well as selling into our existing customer base, which includes marketing our SaaS solutions to our term and perpetual license customers to drive adoption of our SaaS solutions and cross-selling additional applications. We are committed to continued training and development in order to increase the productivity of our sales team, with regional sales centers in North America, Europe and Australia. Our sales team is complemented by our partnerships with third-party partners, including leading SIs and solution partners. These partners provide additional market validation to our offerings, enhance our sales force through co-marketing efforts and offer greater speed and efficiency of implementation capabilities and related services to our customers. We also engage in a variety of traditional and online marketing activities designed to provide sales support and build brand recognition and enhance our reputation as an industry leader.

We believe our strong customer relationships are a result of our ability to develop innovative technology and incorporate our deep domain expertise into products that serve mission critical functions in our customers’ day-to-day operations. We have over 150 insurance customers, over 70 of which ~~over 60~~ have purchased one or more of our SaaS solutions. For customer concentration purposes, customers are assessed two ways: individual entities (customers) and combining customers that are under common control ~~(consolidated~~(affiliated entities). We ~~had no consolidated~~did not have any affiliated entities that accounted for more than 10% of our total revenue in the third quarter of fiscal ~~2021~~2022 and one ~~consolidated~~affiliated entity that ~~represented approximately 11%~~accounted for more than 10% of our total revenue ~~during~~in the third quarter of fiscal ~~2020. These consolidated entities are large multinational corporations that do business with us through multiple subsidiaries.~~2021.

Increased focus on the sale of our SaaS solutions and resulting changing revenue mix. A central part of our strategy is to continue to grow our subscription revenue by signing new SaaS customers and increasing sales to our existing SaaS customers. Additionally, over time we also expect to migrate existing term and perpetual license customers to our SaaS solutions. As a result, our software revenue mix will continue to change over time as the portion of license revenue (primarily recognized up-front) decreases and the portion of subscription revenue (recognized monthly) increases, which may make our results in any one period difficult to compare to any other period. For the three months ended May 31, ~~2021~~2022 and ~~2020,~~2021, subscription revenue was ~~79%~~81% and ~~72%~~79% of software revenue, respectively. For the nine months ended May 31, ~~2021~~2022 and ~~2020,~~2021, subscription revenue was ~~78%~~80% and ~~72%~~78% of software revenue, respectively.

Continued and increased adoption of our solutions by customers. Strong customer relationships are a key driver of our success given the importance of customer references for new sales. Our long-term relationships with existing customers provide us with significant opportunities to reach customer decision-makers and sell our product offerings that address the specific customer’s needs, allowing us to recognize incremental sales with lower sales and marketing spend than for a new customer. With the continued launch of new functionality for the Duck Creek Suite, we have the opportunity to realize incremental value by selling additional functionality to customers that do not currently utilize our full product portfolio and by encouraging existing term and perpetual license customers to adopt our SaaS solutions. As we demonstrate our value to customers, we believe we will have the opportunity to sell them additional solutions. Moreover, because our products are priced on the basis of the amount of DWP generated by our customers, we expect our revenue will grow as our customers grow their businesses.

Timing of license revenue recognition and changing contract terms. Because our offerings are typically priced based on a customer’s DWP, and our business relies on a relatively small number of high-value contracts, the license revenues recognized in any fiscal period in which we sign a term license with a large global carrier may be disproportionally higher than revenues recognized in a period in which we only sign term licenses with smaller carriers. We generally experience lengthy sales cycles because potential customers typically undertake a rigorous pre-purchase decision-making and evaluation process. Additionally, our license revenue may significantly increase in any given period in which a new license contract is signed. In fiscal 2018, we revised our contracting practices and began to sell our term licenses with an initial two-year committed term and optional annual renewals instead of our historical three to six year committed terms. This contracting change has impacted historical period-over-period revenue comparisons. However, because of our revenue mix shift to subscription and since our ~~existing newer contracts have, and our~~ contracts going forward are expected to have, initial two-year committed terms, this change ~~has not had, and~~ is not expected to have a material impact on the comparability of our results ~~presented herein~~ and in future periods. Our term license revenue accounted for 6% ~~and 7%~~ of software revenue during both the three months ended May 31, 2022 and 2021, respectively, and for 7% and 6% of software revenue during the nine months ended May 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

Investment in sales and marketing organization. We plan to continue to invest in our sales and marketing efforts to grow our customer base, increase sales of additional functionality to existing customers and encourage carriers who currently operate legacy systems or use one or more of our competitor’s applications to adopt our SaaS solutions. We expect to add sales personnel and expand our marketing activities. We also intend to continue to expand our international sales and marketing organization, which we believe will be an important factor in our continued growth. Our sales and marketing expenses totaled ~~$13.6~~$16.0 million and ~~$11.7~~$13.6 million in the

three months ended May 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$40.4~~$42.7 million and ~~$33.5~~$40.4 million in the nine months ended May 31, ~~2021~~2022 and ~~2020,~~2021, respectively. We expect sales and marketing expenses ~~to continue~~ to increase in absolute dollars for the foreseeable future.

Investment in SaaS operations. We will continue to invest in Duck Creek OnDemand,, including ~~through our SaaS operations center and~~ continued growth in the number of our cloud and SaaS operations experts, to further our goal of delivering the best experience for our SaaS customers. Personnel related costs of our SaaS operations team isand data hosting costs are the fastest growing ~~component~~components of our cost of subscription revenue. Our cost of subscription revenue totaled ~~$12.0~~$14.6 million and ~~$8.7~~$12.0 million in the three months ended May 31, 2022 and 2021, respectively, and ~~2020, respectively,~~$43.5 million and $33.5 million ~~and $24.9 million for~~in the nine months ended May 31, 2022 and 2021, ~~and 2020,~~ respectively.

Investment in technology and research and development efforts. We are committed to continuing to deliver market-leading software to carriers and believe that maintaining our product leadership is critical to driving further revenue growth. As a result, we intend to continue to make significant investments in our research and development efforts to extend the functionality and breadth of our current solutions as well as develop and launch new products and tools to address the evolving needs of the P&C insurance industry. Our research and development expenses totaled ~~$12.3~~$14.2 million and ~~$10.2~~$12.3 million during the three months ended May 31, 2022 and 2021, respectively, and ~~2020, respectively,~~$40.9 million and $36.0 million ~~and $29.4 million for~~during the nine months ended May 31, ~~2021~~2022 and ~~2020,~~2021, respectively. We expect research and development expenses to increase in absolute dollars for the foreseeable future.

Mix of professional services revenue. Our professional services teams ensure the successful configuration and integration of our solutions and provide continuous support to our customers. We recognize most of our professional services revenue during initial deployment and recognize additional revenue for services provided over the lifetime of a customer’s use of our software. Over time, a customer’s spend on professional services decreases as a percentage of their overall spend with us. In addition, although we plan on increasing our professional services headcount in the long-term, we expect to shift an increasing percentage of implementation work to our network of third-party SIs to better enable us to meet growing market demand. As a result, we expect our overall professional services revenue to increase in absolute dollars due to the growth in the number of our SaaS customers, but to decrease as a percentage of total revenue. During the three months ended May 31, ~~2021~~2022 and ~~2020,~~2021, our professional services revenue was $25.4 million and $25.6 million, respectively, and ~~$24.2~~$80.9 million ~~respectively. During~~and $71.6 million during the nine months ended May 31, 2022 and 2021, ~~and 2020, our professional services revenues was $71.6 million and $70.8 million,~~ respectively.

COVID-19 expenses. In March 2020, we implemented various measures in response to the ongoing COVID-19 pandemic to ensure the safety of our employees. Over a two-day period, we shifted 100% of our employee base to work from home and suspended international and domestic travel. This policy remained largely in place throughout fiscal year 2021, with only certain exceptions being made on a case-by-case basis. In the beginning of fiscal year 2022, we began re-opening offices and resumed some business travel. As a result, there have been slight increases in travel-related expenses in fiscal year 2022.

Due to the success of our work from home program, we have ~~experienced~~established a ~~decrease in our sales and marketing expenses since~~remote-first policy for all employees. Under this policy, employees can work from home but have the onset of the pandemic, primarily related to a decrease in travel costs. We expect this trend to continue at least in the near term, however such savings may be offset by increased costs when employees returnoption to work ~~and we implement measures to ensure their safety.~~out of physical office locations when they would like.

Share-based Compensation. For the nine months ended May 31, 2022, a portion of our share-based compensation decreased due to liability-based awards whose value depends, in part, upon the Company’s stock price and other market-based metrics.

We generate our revenue from selling subscriptions to our SaaS solutions, licensing our term and perpetual software applications, providing maintenance and support services (primarily software updates, rights to unspecified software upgrades on a when-and-if-available basis and remote support services) to our term and perpetual license customers and providing professional services (primarily related to implementation services) to the extent requested by either our SaaS or term and perpetual license customers. We generally price our SaaS and licenses arrangements based on the amount of a customer’s DWP that will be managed by our software solutions and may include volume-based pricing for customers managing a higher amount of DWP with our solutions. Our SaaS and license contracts generally include provisions for additional fees when the amount of the customer’s DWP managed by our software solutions exceed agreed-upon caps within defined reporting periods, which are recognized on an as incurred basis. Software revenue is comprised of subscription revenue and revenue from licenses and maintenance and support services. Total revenue is comprised of software revenue plus revenue from our professional services.

Our subscription revenue is comprised of fees from customers accessing our Duck Creek OnDemand platform and other SaaS solutions. Revenue for a reporting period is generally recognized ratably in proportion to the total contractual DWP, beginning when the service has been made available to the customer. Our subscription revenue accounted for ~~79%~~81% and ~~72%~~79% of software revenue during the three months ended May 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and 80% and 78% ~~and 72%~~of software revenue during the nine months ended May 31, 2022 and 2021, ~~and 2020,~~ respectively.

On an increasingly limited basis, we sell licenses for our solutions on either a renewable term basis or a perpetual basis. The total contractual consideration allocated to the license is recognized as revenue upon delivery of the software to a customer, assuming all other revenue recognition criteria are satisfied. ~~Historically, our term license contracts had terms of three to six years.~~ We ~~began revising our contracting practices in fiscal 2018 by selling~~sell our term licenses with an initial two-year committed term and optional annual renewals, with the revenue allocated to the initial two-year license period recognized in full upon delivery of the license. ~~As a result of our revenue mix shift to subscription, this change did not have, and is not expected to have a material impact on our results presented herein or going forward. There is~~We expect potential volatility across quarters for our license revenue due to the timing of license ~~sales~~

renewals and ~~renewals.~~sales. Our license revenue accounted for 6% of software revenue during both the three months ended May 31, 2022 and 2021, respectively, and 7% and 6% of software revenue during the ~~both the three and~~ nine months ended May 31, 2022 and 2021, ~~and 2020,~~ respectively.

In connection with our term and perpetual license arrangements, we offer maintenance and support under renewable, fee-based contracts that include unspecified software updates and upgrades released when and if available, software patches and fixes and email and phone support. Our maintenance and support fees are typically priced as a fixed percentage of the associated license fees. We recognize maintenance and support revenue from customers ratably over the committed term of the contract. Substantially all term and perpetual license customers purchase an agreement for maintenance and support. We expect to continue to generate a relatively consistent stream of revenue from the maintenance and support services we provide to our existing license customers. However, we expect revenue from maintenance and support services to decrease as a percentage of software revenue as we continue to deemphasize license sales in favor of our SaaS solutions. ~~This decrease will be partially offset by a decrease in backlog revenue amortization, a contra-revenue purchase accounting adjustment.~~ Our maintenance and support revenue accounted for ~~15%~~13% and ~~20%~~15% of software revenue during the three months ended May 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and 13% and 16% ~~and 22%~~of software revenue during the nine months ended May 31, 2022 and 2021, ~~and2020.~~respectively.

We offer professional services, primarily related to implementation of our products, in connection with both our SaaS solutions and software license products. The vast majority of professional services engagements are billed to customers on a time and materials basis and revenue is generally recognized upon delivery of our services. We expect our professional services revenue to grow over time in absolute dollars due to customer growth and an increasing need for implementation services but decrease as a percentage of total revenue. We believe the rate at which we sell our software will drive a greater need for implementation services that will support both an increase in our professional services revenue and an increase in demand for the services provided by our third-party SIs. Our professional services revenue generates lower gross ~~margins~~margin than our software revenue and accounted for ~~38%~~35% and ~~45%~~38% of our total revenue for the three months ended May 31, 2022 and 2021, respectively, and ~~2020, respectively. It accounted for~~36% and 38% ~~and 46%~~ of our total revenue ~~during~~for the nine months ended May 31, 2022 and 2021, ~~and 2020,~~ respectively.

Our cost of revenue has fixed and variable components and depends on the type of revenue earned in each period. Cost of revenue includes amortization expense associated with acquired technology and other operating expenses directly related to the cost of products and services, including depreciation expense. We expect our cost of revenue to increase in absolute dollars as we continue to hire personnel, to provide hosting services, technical support and consulting services to our growing customer base.

Our cost of subscription revenue is primarily comprised of cloud infrastructure costs, royalty fees paid to third-parties, amortization of acquired technology intangible assets and personnel-related expenses for our SaaS operations teams, including salaries and other direct personnel-related costs.

Our cost of license revenue is primarily comprised of royalty fees paid to third-parties and amortization of acquired technology intangible assets.

Our cost of maintenance and support revenue is comprised of personnel-related expenses for our technical support team, including salaries and other direct personnel-related costs. While we expect the cost of maintenance and support revenue will increase in the near term, it may decrease in the future if we successfully transition our term and perpetual license customers to our SaaS solutions.

Our cost of professional services revenue is primarily comprised of personnel-related expenses for our professional service employees and contractors, including salaries and other direct personnel-related costs.

Gross ~~margins~~margin have been and will continue to be affected by a variety of factors, including the average sales price of our products and services, DWP volume growth, the mix of revenue between SaaS solutions, software licenses, maintenance and support and professional services and changes in cloud infrastructure and personnel costs. WeAs we transition our product mix to include more SaaS customers, we expect ~~near term~~our overall gross margin ~~declines based on investments~~percentages to decrease in ~~additional personnel in both~~the near-term due to our SaaS ~~operations and professional services.~~gross margin percentages being lower than our license gross margin percentages. Over time, we expect gross ~~margins~~margin to increase as we onboard additional customers, achieve growth within existing customers and realize greater economies of scale.

Our research and development expenses consist primarily of costs incurred for personnel-related expenses for our technical staff, including salaries and other direct personnel-related costs. Additional expenses include consulting and professional fees for third-party development resources. We expect our research and development expenses to increase in absolute dollars for the foreseeable future as we continue to dedicate substantial resources to develop, improve and expand the functionality of our solutions. Costs incurred in the preliminary design and development stages of our SaaS projects are generally expensed as incurred in accordance with FASB ASC 350-40, Internal-Use Software. Once a SaaS project has reached the application development stage, certain internal, external, direct and indirect costs may be subject to capitalization. Generally, costs are capitalized until the technology is available for its intended use. Subsequent costs incurred for the development of future upgrades and enhancements, which are expected to result in additional functionality, follow the same protocol for capitalization.

Our sales and marketing expenses consist primarily of personnel related costs for our sales and marketing functions, including salaries and other direct personnel-related costs. Additional expenses include marketing program costs, including costs related to our ~~annual~~ Formation (held annually, when possible) conference and amortization of acquired intangible assets related to customer ~~relationships intangible assets.~~relationships. While we expect our sales and marketing expenses to increase on an absolute dollar basis in the near term as we continue to increase investments to support our growth, we also anticipate that sales and marketing expenses will remain relatively consistent as a percentage of total revenue.

Our general and administrative expenses consist primarily of personnel-related costs for our executive, finance, human resources, information technology and legal functions, including salaries and other direct personnel-related costs. Additional expenses include professional fees, amortization of acquired trademarks, tradenames and domain name intangible assets, insurance and acquisition-related costs. While we expect other general and administrative expense to increase on an absolute dollar basis in the near term as we continue to increase investments to support our growth and as a result of our becoming a public company, we also anticipate that general and administrative expenses will decrease as a percentage of total ~~revenue.~~revenue over time.

Certain of our acquisitions have included a component of contingent consideration to be paid to the sellers if certain performance levels are achieved by the acquired entity over a specific period of time. Contingent consideration iswas initially recorded at fair value on the acquisition date based, in part, on a range of estimated probabilities for achievement of these performance levels. The fair value iswas periodically adjusted as actual performance levels become known and updates ~~are~~were made to the estimated probabilities for future performance. A gain or loss iswas recognized in the income statement for fair value adjustments. As a result of additional acquisitions, it is possible that we will incur gains or losses in the future due to the change in the fair value of contingent consideration.

Other income (expense), net consists primarily of foreign exchange gains and losses resulting from fluctuations in foreign exchange rates on receivables and payables denominated in currencies other than the U.S. dollar.

Interest ~~expense,~~income (expense), net comprises interest expense accrued or paid on our indebtedness, net of interest income earned on our cash ~~cash equivalents, and investments.~~balances. We expect interest income (expense) to vary each reporting period depending on the amount of outstanding indebtedness, cash, cash equivalents, and investment balances, and prevailing interest rates.

We are subject to taxes in the United States as well as other tax jurisdictions or countries in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may be subject to current U.S. income tax. Due to cumulative losses, we maintain a valuation allowance against our deferred tax assets, except in certain foreign subsidiaries that generate income. We consider all available evidence, both positive and negative, in assessing the extent to which a valuation allowance should be applied against our deferred tax assets. Realization of our U.S. deferred tax assets depends upon future earnings, the timing and amount of which are uncertain.

Comparison of the Three Months Ended May 31, ~~2021~~2022 and ~~May 31, 2020~~2021

The following table sets forth our consolidated results of operations for the periods indicated, expressed in total dollar terms and as a percentage of total revenue:


	Three Months Ended May 31,												Three Months Ended May 31,
(dollars in thousands)	2021						2020						2022						2021
				Percent of Total Revenue						Percent of Total Revenue						Percent of Total Revenue						Percent of Total Revenue
Revenue
Subscription	$	33,552			49	%	$	21,555			40	%	$	38,049			53	%	$	33,552			49	%
License		2,474			4			2,160			4			2,877			4			2,474			4
Maintenance and support		6,329			9			6,064			11			6,038			8			6,329			9
Professional services		25,583			38			24,174			45			25,400			35			25,583			38
Total revenue		67,938			100			53,953			100			72,364			100			67,938			100
Cost of revenue
Subscription		12,045			18			8,721			16			14,639			20			12,045			18
License		535			1			506			1			441			1			535			1
Maintenance and support		855			1			710			1			928			1			855			1
Professional services		14,315			21			13,459			25			16,061			22			14,315			21
Total cost of revenue		27,750			41			23,396			43			32,069			44			27,750			41
Gross margins		40,188			59			30,557			57
Gross margin														40,295			56			40,188			59
Operating expenses
Research and development		12,255			18			10,197			19			14,236			20			12,255			18
Sales and marketing		13,628			20			11,723			21			16,003			22			13,628			20
General and administrative		15,238			22			10,184			19			14,783			20			15,238			22
Change in fair value of contingent consideration		(389	)		—			(190	)		—			—			—			(389	)		—
Total operating expense		40,732			60			31,914			59			45,022			62			40,732			60
Loss from operations		(544	)		(1	)		(1,357	)		(2	)		(4,727	)		(7	)		(544	)		(1	)
Other income (expense), net		546			1			(316	)		(1	)		(913	)		(1	)		546			1
Interest expense, net		(6	)		—			(60	)		—
Interest income (expense), net														283			—			(6	)		—
Loss before income taxes		(4	)		—			(1,732	)		(3	)		(5,357	)		(7	)		(4	)		-
Provision for income taxes		353			1			267			1			407			1			353			1
Net loss	$	(357	)		(1	)%	$	(1,999	)		(4	)%	$	(5,764	)		(8	)%	$	(357	)		(1	)%

The following table sets forth share-based compensation expense included in our results of operations for the periods indicated:


	Three Months Ended May 31,				Three Months Ended May 31,				Nine Months Ended May 31,
	2021		2020		2022		2021		2022		2021
Cost of subscription revenue	$	90	$	—	$	90	$	90	$	253	$	302
Cost of maintenance and support revenue		7		1		9		7		26		22
Cost of services revenue		253		36		396		253		649		2,003
Research and development		285		97		539		285		1,281		1,505
Sales and marketing		199		93		338		199		726		2,493
General and administrative		863		253		1,035		863		3,794		2,980
Total share-based compensation expense	$	1,697	$	480	$	2,407	$	1,697	$	6,729	$	9,305

Subscription revenue increased ~~$12.0~~$4.5 million, or ~~56%~~13%, during the three months ended May 31, ~~2021~~2022 versus the three months ended May 31, ~~2020,~~2021, due to a combination of sales to new customers and increased revenue generated from existing customers, which includes sales of new services and contractual growth.

License revenue increased ~~$0.3 million, or 15%, during the three months ended May 31, 2021 versus the three months ended May 31, 2020 primarily due to the timing of multi-year term license renewals.~~

Maintenance and support revenue increased $0.3 million, or 4%, during the three months ended May 31, 2021 versus the three months ended May 31, 2020 primarily due to a $0.2 million decrease in backlog revenue amortization, a contra-revenue purchase accounting adjustment.

Professional services revenue increased $1.4 million, or 6%, during the three months ended May 31, 2021 versus the three months ended May 31, 2020 primarily due to an increase of $8.8 million from the launch of several large implementation projects, partially offset by a decrease of $7.2 million from completed project implementations, and a $0.1 million decrease in travel and entertainment expenses.

~~Cost of revenue increased $4.4 million, or 19%, in the three months ended May 31, 2021 compared to the three months ended May 31, 2020.~~

Cost of subscription revenue increased $3.3 million, or 38%, during the three months ended May 31, 2021 versus the three months ended May 31, 2020 primarily due to an increase in SaaS customers, and is comprised of a $1.3 million increase in hosting costs, a $0.8 million increase in payroll and related costs as we added employees to build out the SaaS operations team, a $0.5 million increase in professional services, a $0.4 ~~million increase in amortization expense associated with capitalized internal-use software costs, and a $0.3 million increase in computer software.~~

~~Cost of license revenue increased 6% in the three months ended May 31, 2021 versus the three months ended May 31, 2020 primarily due to an increase in royalties paid to third parties.~~

Cost of maintenance and support revenue increased $0.1 million, or 20%, in the three months ended May 31, 2021 versus the three months ended May 31, 2020 primarily due to an increase in personnel-related costs.

Cost of professional services revenue increased $0.9 million, or 6%, in the three months ended May 31, 2021 versus the three months ended May 31, 2020. Payroll-related costs increased $1.2 million, driven by increased headcount, and share-based compensation expense increased $0.2 million in the three months ended May 31, 2021 compared to the prior year period. These increases were offset by a $0.3 million decrease in contingent labor, as well as a $0.2 million decrease in travel and entertainment expenses.

Gross margins increased $9.6 million, or 32%, in the three months ended May 31, 2021 versus the three months ended May 31, 2020, primarily due to a $8.7 million increase in subscription gross margin, a $0.6 million increase in professional services gross margin, a $0.3 million increase in license gross margin, and a $0.1 million increase in maintenance and support gross margin.. The increase in subscription gross margins was driven by scale benefits from strong growth in subscription revenue, as well as cost growth below expected levels primarily based on the timing of new hires.

~~Our gross margin percentage increased from 57% for the three months ended May 31, 2020 to 59% for the three months ended May 31, 2021~~ ~~due to increases in subscription gross margin percentage,~~ ~~professional services gross margin percentage~~, ~~license gross margin~~ ~~percentage and maintenance and support gross margin percentage.~~

Research and development expense increased $2.1 million, or 20%, during the three months ended May 31, 2021 versus the three months ended May 31, 2020, primarily due to a $1.3 million increase in salaries and payroll-related costs from increased headcount and bonuses, a $0.8 million decrease in capitalized software costs, a $0.3 million increase in hosting costs, and a $0.2 million increase in share-based compensation. These increases were partially offset by a $0.4 million decrease in contingent labor, as well as a $0.1 million decrease in professional fees.

~~Sales and marketing expense increased $1.9~~ million, or 16%, during the three months ended May 31, ~~2021~~2022 versus the three months ended May 31, ~~2020,~~2021 primarily due to a ~~$1.6 million increase~~contractual increases on, as well as timing of, existing customer renewals, including multi-year license renewals which did not occur in the prior period.~~salaries~~

Maintenance and bonuses, a $0.2 million increase in marketing programs, a $0.1 million increase in commission expense, and a $0.1 million increase in share-based compensation, partially offset by a $0.1 million decrease in travel and entertainment expenses.

~~General and administrative expense increased $5.1~~support revenue decreased $0.3 million, or ~~50%~~5%, induring the three months ended May 31, 2022 versus the three months ended May 31, 2021 primarily due to timing of maintenance and support fees charged to customers during the period.

Professional services revenue decreased $0.2 million, or 1%, during the three months ended May 31, 2022 versus the three months ended May 31, ~~2020,~~2021 primarily due to decreases from completed project implementations, partially offset by continued work on several large implementation projects from our existing software customer base.

Cost of revenue increased $4.3 million, or 16%, during the three months ended May 31, 2022 compared to the three months ended May 31, 2021.

Cost of subscription revenue increased $2.6 million, or 22%, during the three months ended May 31, 2022 versus the three months ended May 31, 2021 primarily due to an increase in SaaS customers. This increase is comprised primarily of a $1.6 million increase in hosting costs from increased usage and a $1.1 million increase in payroll and related costs as we continue to build out the SaaS operations team and support customer growth.

Cost of license revenue decreased $0.1 million, or 18% during the three months ended May 31, 2022 versus the three months ended May 31, 2021 primarily due to a decrease in the amount of amortization on previously acquired technology intangible assets.

Cost of maintenance and support revenue increased $0.1 million, or 9%, during the three months ended May 31, 2022 versus the three months ended May 31, 2021 primarily due to an increase in personnel-related costs required to support our term and perpetual license customers.

Cost of professional services revenue increased $1.7 million, or 12%, during the three months ended May 31, 2022 versus the three months ended May 31, 2021, mainly attributable to an increase of $1.4 million in payroll and related costs, driven by increased headcount and an increase of $0.3 million in contingent labor.

Gross margin increased $0.1 million, or remained relatively flat, during the three months ended May 31, 2022 versus the three months ended May 31, 2021, primarily due to a $1.9 million increase in ~~professional fees related to IT, audit, tax and legal. In addition, there was a $1.5 million increase in insurance expense as a result of becoming a public company,~~ a ~~$0.9 million increase in salaries and payroll-related costs from increased headcount, a $0.6 million increase in share-based compensation,~~subscription gross margin and a $0.5 million increase in ~~bad debt expense~~license gross margin partially offset by a $1.9 million decrease in professional services gross margin and a $0.4 million decrease in maintenance and support gross margin. The increase in subscription gross margin was driven by strong growth in subscription revenue..

Our gross margin percentage decreased to 56% from 59% during the three months ended May 31, 2022 versus the three months ended May 31, 2021. The subscription gross margin percentage decreased to 62% from 64%, maintenance and support gross margin percentage decreased to 84% from 85%, and professional services gross margin percentage decreased to 37% from 44% while license gross margin percentage increased to 85% from 78%.

Research and development expense increased $2.0 million, or 16%, during the three months ended May 31, 2022 versus the three months ended May 31, 2021 primarily due to a $1.1 million increase in payroll costs from an increase in headcount.

Sales and marketing expense increased $2.4 million, or 17%, during the three months ended May 31, 2022 versus the three months ended May 31, 2021, primarily due to a $1.6 million increase in marketing programs driven by our annual user conference that took place in March 2022 but was not held in March 2021 due to the COVID-19 pandemic, and a $0.4 million increase in travel and entertainment expense period over period.

General and administrative expense decreased $0.5 million, or 3%, during the three months ended May 31, 2022 versus the three months ended May 31, 2021, primarily due to a $0.9 million decrease in professional service fees, a $0.6 million decrease in allowance for credit losses, and a $0.3 million decrease in facilities expense. These decreases were partially offset by a $0.5 million increase in payroll costs and a $0.4 million increase in computer hardware and software expense.

Change in fair value of contingent consideration is due to changes in estimated contingent consideration as well as present value calculations related to the contingent consideration estimates of the acquisition of Outline Systems LLC, a provider of P&C distribution channel management software and longstanding member of our partner ecosystem (now Duck Creek Distribution Management). The final contingent consideration was paid in full during the first quarter of fiscal year 2022.

Other income (expense), net ~~increased $0.9~~decreased $1.5 million during the three months ended May 31, ~~2021~~2022 as compared to the three months ended May 31, ~~2020,~~ 2021, primarily due to ~~a $0.5 million gain on the derecognition of a lease liability resulting from a sublease transaction, as well as~~ fluctuations in foreign exchange rates on receivables and payables denominated in currencies other than the U.S. dollar.

Interest Income (Expense), Net~~Foreign currencies fluctuated more during the current period as compared to the prior year.~~

~~Interest expense,~~income (expense), net ~~decreased slightly in~~increased $0.3 million during the three months ended May 31, ~~2021~~2022 versus the three months ended May 31, ~~2020.~~2021. Interest income received from cash, cash equivalents, and short-term investments was partially offset by interest expense, which consists of fees paid to maintain the revolving credit facility, though there were no outstanding borrowings in either period. ~~These expenses were partially offset by interest income received from cash, cash equivalents, and short-term investments.~~

Provision for income taxes increased ~~32% in~~15% during the three months ended May 31, 2022 versus the three months ended May 31, 2021 ~~versus the three months ended May 31, 2020~~primarily due to the impact of goodwill amortized for tax purposes versus book purposes, the impact of higher profits in foreign ~~subsidiaries.~~subsidiaries and higher state taxes.

Comparison of the Nine Months Ended May 31, ~~2021~~2022 and ~~May 31, 2020~~2021

The following table sets forth our consolidated results of operations for the periods indicated, expressed in total dollar terms and as a percentage of total revenue:


	Nine Months Ended May 31,												Nine Months Ended May 31,
(dollars in thousands)	2021						2020						2022						2021
				Percent of Total Revenue						Percent of Total Revenue						Percent of Total Revenue						Percent of Total Revenue
Revenue
Subscription	$	92,069			48	%	$	59,368			39	%	$	113,347			52	%	$	92,069			48	%
License		7,412			4			5,431			3			9,438			4			7,412			4
Maintenance and support		18,404			10			17,791			12			18,519			8			18,404			10
Professional services		71,611			38			70,760			46			80,899			36			71,611			38
Total revenue		189,496			100			153,350			100			222,203			100			189,496			100
Cost of revenue
Subscription		33,540			17			24,871			16			43,468			20			33,540			17
License		1,369			1			1,347			1			1,098			1			1,369			1
Maintenance and support		2,556			1			2,475			2			2,792			1			2,556			1
Professional services		42,857			23			38,839			25			47,751			21			42,857			23
Total cost of revenue		80,322			42			67,532			44			95,109			43			80,322			42
Gross margins		109,174			58			85,818			56
Gross margin														127,094			57			109,174			58
Operating expenses
Research and development		36,040			19			29,424			19			40,873			18			36,040			19
Sales and marketing		40,390			21			33,539			22			42,741			19			40,390			21
General and administrative		44,273			23			29,916			20			46,649			21			44,273			23
Change in fair value of contingent consideration		(291	)		—			21			—			67			1			(291	)		—
Total operating expense		120,412			63			92,900			61			130,330			59			120,412			63
Loss from operations		(11,238	)		(5	)		(7,082	)		(5	)
Income (loss) from operations														(3,236	)		(2	)		(11,238	)		(5	)
Other income (expense), net		1,009			—			(96	)		—			(1,641	)		(1	)		1,009			—
Interest expense, net		(87	)		—			(386	)		—
Loss before income taxes		(10,316	)		(5	)		(7,564	)		(5	)
Interest income (expense), net														130			1			(87	)		—
Income (loss) before income taxes														(4,747	)		(2	)		(10,316	)		(5	)
Provision for income taxes		1,056			(1	)		889			1			1,204			1			1,056			1
Net loss	$	(11,372	)		(6	)%	$	(8,453	)		(6	)%	$	(5,951	)		(3	)%	$	(11,372	)		(6	)%

The following table sets forth share-based compensation expense included in our results of operations for the periods indicated:


	Nine Months Ended May 31,				Nine Months Ended May 31,
	2021		2020		2022		2021
Cost of subscription revenue	$	302	$	10	$	253	$	302
Cost of maintenance and support revenue		22		3		26		22
Cost of services revenue		2,003		103
Cost of professional services revenue						649		2,003
Research and development		1,505		285		1,281		1,505
Sales and marketing		2,493		257		726		2,493
General and administrative		2,980		747		3,794		2,980
Total share-based compensation expense	$	9,305	$	1,404	$	6,729	$	9,305

Subscription revenue increased ~~$32.7~~$21.3 million, or ~~55%~~23%, during the nine months ended May 31, ~~2021~~2022 versus the nine months ended May 31, ~~2020,~~2021, due to a combination of sales to new customers and increased revenue generated from existing customers, which includes sales of new services ~~to existing customers~~ and contractual growth.

License revenue increased $2.0 million, or ~~36%~~27%, during the nine months ended May 31, ~~2021~~2022 versus the nine months ended May 31, ~~2020~~2021 primarily due to contractual increases on, as well as the timing of, existing customer renewals, including multi-year ~~term~~ license ~~sales and renewals.~~renewals which did not occur in the prior period.

Maintenance and support revenue increased ~~$0.6~~$0.1 million, or 3%1%, in the nine months ended May 31, 2022 versus the nine months ended May 31, 2021 primarily due to renewal term increases of maintenance and support fees charged to customers during the period.

Professional services revenue increased $9.3 million, or 13%, during the nine months ended May 31, ~~2021~~2022 versus the nine months ended May 31, ~~2020~~2021 primarily due to continued work on several large implementation projects and growth of our existing software customer base, partially offset by a ~~$0.6 million~~ decrease ~~in backlog revenue amortization, a contra-revenue purchase accounting adjustment.~~from completed project implementations.

~~Professional services~~Cost of revenue increased ~~$0.9~~$14.8 million, or 1% 18%, during the nine months ended May 31, ~~2021 versus the nine months ended May 31, 2020 primarily due to the absence of reimbursable expenses in 2021 due to the halt of travel during the COVID-19 pandemic.~~

~~Cost of revenue increased $12.8 million, or 19%, in the nine months ended May 31, 2021~~2022 compared to the nine months ended May 31, ~~2020.~~2021.

Cost of subscription revenue increased ~~$8.7~~$9.9 million, or ~~35%~~30%, during the nine months ended May 31, ~~2021~~2022 versus the nine months ended May 31, ~~2020~~2021 primarily due to an increase in SaaS customers, and is comprised of a ~~$2.8~~$5.8 million increase in hosting costs due to usage increase, a $3.1 million increase in payroll and related costs, as we added employees to build out the SaaS operations team, a $2.6 million increase in hosting costs, a $1.3 million increase in amortization expense associated with capitalized internal-use software costs,and a $1.1 million increase in ~~professional services fees, a $0.6 million increase in~~ computer hardware and software ~~and a $0.3 million increase in share-based compensation.~~costs.

Cost of license revenue ~~increased 2% in~~decreased $0.3 million, or 20% during the nine months ended May 31, 2022 versus the nine months ended May 31, 2021 primarily due to a decrease in the amount of amortization on previously acquired technology intangible assets and timing of royalty fees incurred to third parties.

Cost of maintenance and support revenue increased $0.2 million, or 9%, during the nine months ended May 31, 2022 versus the nine months ended May 31, ~~2020~~2021 primarily due to an increase in ~~royalties paid~~personnel-related costs required to ~~third parties.~~support our term and perpetual license customers.

Cost of ~~maintenance and support~~professional services revenue increased 3%$4.9 million, or 11%, induring the nine months ended May 31, 2022 versus the nine months ended May 31, 2021, mainly attributable to an increase of $5.0 million in payroll and related costs, driven by increased headcount, and an increase of $1.4 million in contingent labor. These increases were partially offset by a $1.3 million decrease in share-based compensation expense and a $0.5 million decrease in bonus expense.

Gross margin increased $17.9 million, or 16%, during the nine months ended May 31, 2022 versus the nine months ended May 31, ~~2020 primarily due to an increase in personnel-related costs.~~

~~Cost of professional services revenue increased $4.0 million, or 10%, in the nine months ended May 31,~~ 2021, versus the nine months ended May 31, 2020 primarily driven by a $4.7 million increase in payroll-related costs from increased headcount and bonuses, and a $1.8 million increase in share-based compensation. These increases were offset by a $1.4 million decrease in travel and entertainment expenses and a $1.0 million decrease in contingent labor.

~~Gross margins increased $23.4 million, or 27%, in the nine months ended May 31, 2021 versus the nine months ended May 31, 2020,~~ primarily due to a ~~$24.0~~$11.4 million increase in subscription gross margin, a ~~$2.0~~$4.4 million increase in professional services gross margin, a $2.3 million increase in license gross margin, and a ~~$0.5 million increase~~nominal decrease in maintenance and support ~~gross margin, partially offset by a $3.2 million decrease in professional services~~ gross margin. The increase in subscription gross ~~margins~~margin was driven by ~~scale benefits from~~ strong growth in subscription ~~revenue, as well as cost growth below expected levels primarily based on the timing of new hires.~~revenue.

Our gross margin percentage ~~increased~~decreased to 57% from ~~56% for~~58% during the nine months ended May 31, ~~2020 to 58% for~~2022 versus the nine months ended May 31, ~~2021~~ ~~due to increases in~~2021. The subscription gross margin percentage ~~license gross margin~~ ~~percentage,~~experienced a decrease to 62% from 64%, and maintenance and support gross margin percentage ~~partially offset by~~experienced a decrease in to 85% from 86%, while professional services gross margin percentage increased to 41% from 40% and license gross margin percentage increased to 88% from 82%. ~~percentage.~~

Research and development expense increased ~~$6.6~~$4.8 million, or ~~22%~~13%, during the nine months ended May 31, ~~2021~~2022 versus the nine months ended May 31, ~~2020,~~2021 primarily due to a ~~$4.1~~$3.8 million increase in ~~salaries and payroll-related~~payroll costs from increased headcount, ~~and bonuses,~~ a ~~$1.6 million decrease in capitalized software costs, a $1.2~~$0.5 million increase in ~~share-based compensation,~~computer hardware and software, and a $0.5 million increase in hosting costs. These increases were partially offset by a ~~$0.3 million reduction in travel and entertainment expenses and a $0.1~~$0.5 million decrease in ~~professional fees.~~bonus expense and a $0.4 million decrease in capitalized software.

Sales and marketing expense increased ~~$6.9~~$2.4 million, or ~~20%~~6% during the nine months ended May 31, 2022 versus the nine months ended May 31, 2021, primarily due to an increase of $1.6 million in payroll costs from increased headcount, a $1.0 million increase in marketing programs spend, a $0.8 million increase in travel and entertainment expense, and a $0.7 million increase in recruiting. These increases were partially offset by a $1.8 million decrease in share-based compensation and a $0.6 million decrease in bonus expense.

General and administrative expense increased $2.4 million, or 5%, during the nine months ended May 31, ~~2021~~2022 versus the nine months ended May 31, ~~2020~~2021, primarily due to a ~~$5.2~~$1.6 million increase in ~~salaries~~the allowance for credit losses, a $1.1 million increase in payroll related costs, a $0.9 million increase in computer hardware and ~~payroll-related costs from increased headcount,~~software expense, and a ~~$2.2~~$0.8 million increase in share-based compensation ~~and a $0.9 million increase in marketing programs,~~expense. These increases were partially offset by a ~~$1.4~~$1.8 million decrease in ~~travel and entertainment expenses.~~

~~General and administrative~~professional services expense, ~~increased $14.4~~$0.9 million ~~or 48%,~~decrease in ~~the nine months ended May 31, 2021 versus the nine months ended May 31, 2020 primarily due to~~ ~~a $4.6 million increase in insurance~~facilities expense, as a result of becoming a public company, a $2.8 million increase in professional fees, a portion of which is related to becoming compliant with certain provisions of The Sarbanes-Oxley Act, a $2.5 million increase in salaries and payroll-related costs from increased headcount, a $2.2 million increase in share-based compensation, $1.5 million in legal and audit fees related to the follow-on offering of our common stock in the first quarter, and a $0.6 million ~~increase~~decrease in ~~expense associated with the allowance for credit losses. These costs are partially offset by a $0.4 million reduction in~~ ~~travel and entertainment expenses.~~bonus expense.

Other income (expense), net ~~increased $1.1~~decreased $2.7 million during the nine months ended May 31, ~~2021~~2022 as compared to the nine months ended May 31, ~~2020,~~ 2021, primarily due to ~~a $0.5 million gain on the derecognition of a lease liability resulting from a sublease transaction as well as~~ fluctuations in foreign exchange rates on receivables and payables denominated in currencies other than the U.S. dollar.

Interest income (expense), net increased $0.2 million during the nine months ended May 31, ~~2021 as compared~~2022 versus the nine months ended May 31, 2021. Interest income received from cash, cash equivalents, and short-term investments was partially offset by interest expense, which consists of fees paid to maintain the ~~prior year.~~revolving credit facility, though there were no outstanding borrowings in either period.

Provision for income taxes increased 14% during the nine months ended May 31, 2022 versus the nine months ended May 31, 2021 ~~versus the nine months ended May 31, 2020~~ primarily due to ~~no outstanding net revolver borrowings during~~ the ~~nine months ended May 31, 2021.~~

~~Provision for income taxes increased 19% in the nine months ended May 31, 2021~~tax purposes versus ~~the nine months ended May 31, 2020 due to~~book purposes, the impact of higher profits in foreign ~~subsidiaries.~~subsidiaries, and higher state taxes.

To date, we have financed our operations primarily through cash provided by operating activities, our revolving credit facility, and, most recently, through net proceeds received from our IPO. As of May 31, ~~2021,~~2022, we had ~~$83.6~~$141.7 million in cash and cash equivalents, ~~$288.0 million of short-term investments,~~ no outstanding borrowings under our revolving credit facility, and ~~$0.9~~$0.7 million of outstanding letters of credit. We also had ~~$29.1~~$44.2 million of additional principal availability under our revolving credit facility. We believe that our existing cash and cash equivalents, ~~and short-term investments,~~ together with cash provided by operating activities and amounts available under our revolving credit facility, will be

sufficient to meet our operating working capital and capital expenditure requirements over at least the next twelve months. Our future cash requirements will depend on many factors, including our rate of revenue growth, the expansion of our sales and marketing activities, the timing and extent of our spending to support our research and development efforts, investments in cloud infrastructure and operating costs, and expansion into other markets. At any given time, we may be evaluating one or more potential investments in, or acquisitions of, businesses or technologies, which could require us to seek

additional equity or debt financing. Additional sources of liquidity and capital resources, including equity or debt financing, may not be available on terms favorable to us or at all.

As of May 31, ~~2021, $23.2~~2022, $55.3 million of cash ~~was~~and cash equivalents and $69.8 million of short-term investments were held by our foreign ~~subsidiaries.~~subsidiaries, $100.0 million of which is the result of repaying an intercompany loan during the three months ended November 30, 2021 and is held or invested in a U.S. dollar-based bank account. We currently do not anticipate a need to repatriate these funds to finance our U.S. ~~operations and it is our intention~~operations; however, we may utilize all or part of the $100.0 million to ~~indefinitely reinvest these funds outside the United States.~~finance future acquisitions.

Summary of Cash Flows for the ~~Nine~~Six Months Ended May 31, ~~2021~~2022 and ~~May 31, 2020~~2021

The following summarizes our cash flows from operating, investing and financing activities for the periods indicated:


	Nine Months Ended May 31,						Nine Months Ended May 31,
($ in thousands)	2021			2020			2022			2021
Net cash (used in) provided by operating activities	$	(16,218	)	$	8,247
Net cash used in operating activities							$	(5,620	)	$	(16,218	)
Net cash used in investing activities		(257,610	)		(5,604	)		(33,548	)		(257,610	)
Net cash (used in) provided by financing activities		(413	)		4,553
Net (decrease) increase in cash and cash equivalents		(274,241	)		7,196
Net cash used in financing activities								(4,806	)		(413	)
Net decrease in cash and cash equivalents								(43,974	)		(274,241	)
Cash and cash equivalents – beginning of period		389,878			11,999			185,657			389,878
Cash and cash equivalents – end of period	$	115,637		$	19,195		$	141,683		$	115,637

We used $5.6 million of cash from operating activities during the nine months ended May 31, 2022, primarily resulting from our net loss, after including the impact of non-cash benefits, of $20.0 million and $24.0 million of cash used in working capital activities. Cash used in working capital activities during the nine months ended May 31, 2022 was primarily due to annual bonus payments of $18.8 million, an increase in accounts receivable and unbilled revenue of $4.2 million, a decrease in accrued liabilities of $9.9 million, and a decrease in deferred revenue of $5.2 million.

We used $16.2 million of cash from operating activities during the nine months ended May 31, 2021, ~~compared to~~resulting from our net income, after including the impact of non-cash benefits, of $13.9 million and $30.0 million of cash ~~provided by operating~~used in working capital activities. Cash used in working capital activities ~~of $8.2 million~~ during the nine months ended May 31, ~~2020. This $24.5 million decrease in operating cash~~2021 was primarily due to ~~an increase in~~ annual ~~employee~~ bonus payments of ~~$7.6~~$18.2 million, ~~and the~~Phantom unit settlement payments of $9.1 million ~~cash settlement~~as result of ~~phantom equity awards~~our IPO in the prior period, and a decrease of $6.4 million in accrued ~~hosting fees.~~liabilities.

Non-cash charges in all periods include depreciation and amortization, share-based compensation expense, deferred taxes, and change in fair value of contingent earn-out liability.

~~Net cash used in investing activities consists of purchases of property and equipment, capitalization of internal use software costs, and investments in short-term, government backed securities.~~

We used ~~$257.6~~$33.5 million of cash infrom investing activities during the nine months ended May 31, ~~2021~~2022 compared to ~~$5.6~~cash used in investing activities of $257.6 million in the nine months ended May 31, ~~2020.~~2021. During ~~the second quarter of 2021, we invested $287.9 million of the cash received in the IPO in short-term, government-backed securities. Of these investments, $32.0 million matured during~~ the nine months ended May 31, ~~2021. Such investing~~2022, we had maturities of short-term investments of $191.9 million and purchases of short-term investments of $223.3 million compared to $32 million of maturities ~~did not occur~~and $287.9 million of purchasers of short-term investments in the ~~prior year period.~~ nine months ended May 31, 2021.

In the nine months ended May 31, ~~2021,~~2022, we ~~spent approximately~~used $0.8 million of cash on purchases of property, plant and equipment, compared to ~~$3.2~~$0.8 million during the nine months ended May 31, ~~2020.~~2021. Additionally, our capitalized costs for internal use software were ~~$1.6~~$1.3 million ~~less~~ during the nine months ended May 31, ~~2021~~2022 compared to $0.9 million during the ~~prior year period.~~nine months ended May 31, 2021.

We used ~~$0.4~~$4.8 million of cash in financing activities during the nine months ended May 31, ~~2021,~~2022, compared to cash ~~generated from~~used in financing activities of ~~$4.6~~$0.4 million during the nine months ended May 31, ~~2020.~~2021. Cash used in financing activities during the nine months ended May 31, ~~2021~~2022 primarily related to a $3.9 million contingent earnout liability payment, as compared to a $1.9 million

contingent earnout liability payment in the prior year. During the nine months ended May 31, 2021, the Company made $3.7 million in payments of deferred IPO costs ~~a $1.9 million payment of contingent earnout liability~~ and ~~a $0.2 million payment for deferred Class E units offering costs. These payments were offset by net proceeds of~~received $3.5 million ~~from the February 2021 follow-on offering and $2.0 million received from stock option exercises.~~

~~Cash generated from financing activities during the nine months ended May 31, 2020 consisted of $212.9 million of net~~in proceeds from ~~the issuance of Class E Units and borrowings under our revolving credit facility of $5.0 million partially offset by~~ a $118.8 million payment for the redemption of Class A Units and a $79.2 million payment for the redemption of Class B Units, payments of principal on our revolving credit facility of $9.0 million, payments of contingent earnout liabilities of $3.5 million and costs of $2.6 million relating to proceeding with our initial publicfollow-on offering.

We report our financial results in accordance with accounting principles generally accepted in the United States (“GAAP”); however, management believes evaluating the Company’s ongoing operating results may be enhanced if investors have additional non-GAAP financial measures. Specifically, management reviews Adjusted EBITDA, Free Cash Flow, Non-GAAP Gross Margin, Non-GAAP Income from Operations and Non-GAAP Net Income (Loss), each of which is a non-GAAP financial measure, to manage our business, make planning decisions, evaluate our performance and allocate resources and, for the reasons described below, considers them to be effective indicators, for both management and investors, of our financial performance over time.

We believe that Adjusted EBITDA, Free Cash Flow, Non-GAAP Gross Margin, Non-GAAP Income from Operations and Non-GAAP Net Income (Loss) help investors and analysts in comparing our results across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation from, or as a substitute for, the analysis of other GAAP financial measures, including net income and cash flows from operating activities. For example, with respect to Adjusted EBITDA, some of these limitations include:

These non-GAAP financial measures are not universally consistent calculations, limiting their usefulness as comparative measures. Other companies may calculate similarly titled financial measures differently than we do or may not calculate them at all. Additionally, these non-GAAP financial measures are not measurements of financial performance or liquidity under GAAP. In order to facilitate a clear understanding of our consolidated historical operating results, you should examine our non-GAAP financial measures in conjunction with our historical combined financial statements and notes thereto included elsewhere in this ~~10-Q.~~Quarterly Report.

The non-GAAP financial measures and principal metrics we use in managing our business are set forth below:

Adjusted EBITDA. We define Adjusted EBITDA as net loss before interest expense, net; other income (expense), net; provision for income taxes; depreciation of property and equipment; amortization of intangible assets; share-based compensation expense; ~~and~~ the change in fair value of contingent ~~consideration.~~consideration; and acquisition-related expenses. We believe Adjusted EBITDA provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations. Adjusted EBITDA was ~~$5.5~~$2.4 million and ~~$3.8~~$5.5 million for the three months ended May 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$12.1~~$17.5 million and ~~$8.7~~$12.1 million for the nine months ended May 31, ~~2021~~2022 and ~~2020,~~2021, respectively. A reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure, is presented below for the periods indicated.

Free Cash Flow. We define Free Cash Flow as net cash provided by operating activities, less purchases of property and equipment and capitalized ~~internal use~~internal-use software. We consider Free Cash Flow to be an important measure in facilitating period-to-period comparisons of liquidity. We use Free Cash Flow in conjunction with traditional GAAP measures as part of our overall assessment of liquidity. Free Cash Flow was ~~$6.6~~$16.5 million and ~~$16.8~~$6.6 million for the three months ended May 31, ~~2021~~2022 and ~~May 31, 2020,~~2021, respectively, and ($~~18.0)~~7.7) million and ~~$2.6~~($17.9) million for the nine months ended May 31, ~~2021~~2022 and ~~2020,~~2021, respectively. A reconciliation of Free Cash Flow to net cash provided by (used in) operating activities, the most directly comparable GAAP financial measure, is presented below for the periods indicated.


	Three Months Ended May 31,						Nine Months Ended May 31,						Three Months Ended May 31,						Nine Months Ended May 31,
($ in thousands)	2021			2020			2021			2020			2022			2021			2022			2021
Net cash used in operating activities	$	6,875		$	18,196		$	(16,218	)	$	8,247
Net cash provided by (used in) operating activities													$	17,406		$	6,875		$	(5,620	)	$	(16,218	)
Purchases of property and equipment		(162	)		(470	)		(834	)		(3,164	)		(268	)		(162	)		(841	)		(834	)
Capitalized internal-use software		(114	)		(885	)		(864	)		(2,440	)		(595	)		(114	)		(1,282	)		(864	)
Free Cash Flow	$	6,599		$	16,841		$	(17,916	)	$	2,643		$	16,543		$	6,599		$	(7,743	)	$	(17,916	)

Non-GAAP Gross Margin. We define Non-GAAP Gross Margin as GAAP gross margin before the portion of share-based compensation expense; amortization of intangible assets; and amortization of capitalized internal-use software that is included in cost of revenue. We believe Non-GAAP Gross Margin provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of gross margin. Non-GAAP Gross Margin was ~~$42.2~~$42.4 million and ~~$31.9~~$42.2 million for the three months ended May 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$116.6~~$133.0 million and ~~$89.7~~$116.6 million for the nine months ended May 31, ~~2021~~2022 and ~~2020,~~2021, respectively. A reconciliation of Non-GAAP Gross Margin to gross margin, the most directly comparable GAAP financial measure, is presented below for the periods indicated.


	Three Months Ended May 31,				Nine Months Ended May 31,				Three Months Ended May 31,				Nine Months Ended May 31,
($ in thousands)	2021		2020		2021		2020		2022		2021		2022		2021
GAAP Gross Margin	$	40,188	$	30,557	$	109,174	$	85,818
GAAP Gross margin									$	40,295	$	40,188	$	127,094	$	109,174
Share-based compensation expense		350		39		2,327		116		495		350		928		2,327
Amortization of intangible assets		1,186		1,187		3,559		3,559		1,084		1,187		3,302		3,559
Amortization of capitalized internal-use software		510		154		1,506		205		562		510		1,684		1,506
Non-GAAP Gross Margin	$	42,234	$	31,937	$	116,566	$	89,698
Non-GAAP Gross margin									$	42,436	$	42,235	$	133,008	$	116,566

Non-GAAP Income from Operations. We define Non-GAAP Income from Operations as GAAP loss from operations before share-based compensation expense; amortization of intangible assets; ~~and~~ the change in fair value of contingent ~~consideration.~~consideration; and acquisition-related expenses. We believe Non-GAAP Income from Operations provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations. Non-GAAP Income from Operations was ~~$4.8~~$1.8 million and ~~$2.9~~$4.8 million for the three months ended May 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$9.8~~$15.5 million and ~~$6.3~~$9.8 million for the nine months ended May 31, 2022 and 2021, ~~and 2020.~~respectively. A reconciliation of Non-GAAP Income from Operations to loss from operations, the most directly comparable GAAP financial measure, is presented below for the periods indicated.


	Three Months Ended May 31,						Nine Months Ended May 31,						Three Months Ended May 31,						Nine Months Ended May 31,
($ in thousands)	2021			2020			2021			2020			2022			2021			2022			2021
GAAP Loss from Operations	$	(544	)	$	(1,357	)	$	(11,238	)	$	(7,082	)
GAAP Loss from operations													$	(4,727	)	$	(544	)	$	(3,236	)	$	(11,238	)
Share-based compensation expense		1,697			480			9,305			1,404			2,407			1,697			6,729			9,305
Amortization of intangible assets		3,994			3,994			11,982			11,982			3,892			3,994			11,725			11,982
Change in fair value of contingent earnout liability		(389	)		(190	)		(291	)		21			—			(389	)		67			(291	)
Non-GAAP Income from Operations	$	4,758		$	2,927		$	9,758		$	6,325
Acquisition-related expenses														217			—			217			—
Non-GAAP Income from operations													$	1,789		$	4,758		$	15,502		$	9,758

Non-GAAP Net Income (Loss). We define Non-GAAP Net Income as GAAP net loss before share-based compensation expense; amortization of intangible assets; ~~and~~ change in fair value of contingent earnout ~~liability.~~liability; and acquisition-related expenses. We believe Non-GAAP Net Income provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations. Non-GAAP Net Income was ~~$4.0~~$0.9 million and ~~$1.9~~$4.0 million for the three months ended May 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$8.1~~$10.6 million and ~~$4.4~~$8.1 million for the nine months ended May 31, ~~2021~~2022 and ~~2020,~~2021, respectively. A reconciliation of Non-GAAP Net Income to net loss, the most directly comparable GAAP financial measure, is presented below for the periods indicated.

Three Months Ended
May 31,

Nine Months Ended
May 31,

($ in thousands)

2021

Per Share

2020

2021

Per Share

2020

GAAP Net Loss ⁽¹⁾

$
(357
)

$
—

��
$
(1,999
)

$
(11,372
)

$
(0.08
)

$
(8,453
)
Add: GAAP tax provision

353

267

1,056

889

GAAP pre-tax loss

(4
)

(1,732
)

(10,316
)

(7,564
)
Share-based compensation expense

1,697

480

9,305

1,404

Amortization of intangible assets

3,994

3,994

11,982

11,982

Change in fair value of contingent earnout liability

(389
)

(190
)

(291
)

21

Non-GAAP pre-tax income

5,298

2,552

10,680

5,843

Non-GAAP tax provision applied at a 24% tax rate ⁽²⁾

1,272

612

2,563

1,402

Non-GAAP Net Income ⁽¹⁾

$
4,026

$
0.03

$
1,940

$
8,117

$
0.06

$
4,441

Shares used in computing Non-GAAP income per share
amounts:⁽¹⁾

GAAP weighted-average shares - basic and diluted

131,613,003

130,992,672

Non-GAAP dilutive shares excluded from GAAP
income (loss) per share calculation

3,575,928

3,575,928

Non-GAAP weighted-average shares - diluted

135,188,931

134,568,600

(1)

Our GAAP tax provision is primarily related to state taxes and income taxes in profitable foreign jurisdictions. We maintain a full valuation allowance against our deferred tax assets in the U.S. For purposes of determining our Non-GAAP Net Income, we have applied a tax rate of 24% which represents our estimated effective tax rate.

SaaS Net Dollar Retention Rate. We calculate SaaS Net Dollar Retention Rate by annualizing ~~SaaS~~the recurring subscription revenue ~~recorded~~recognized in the last month of the measurement period for those revenue-generating customers in place throughout the entire measurement period (the latest twelve-month period). We divide the result by annualized SaaS revenue from the month that is immediately prior to the beginning of the measurement period, for all revenue-generating customers in place at the beginning of the measurement period. Our SaaS Net Dollar Retention Rate was ~~133.1%~~112.3% and ~~113.0%~~133.1% as of May 31, ~~2021~~2022 and ~~2020,~~2021, respectively. Our calculation excludes one existing contract for a service no longer offered on a standalone basis by the Company. We believe SaaS Net Dollar Retention Rate is an important metric for the Company because, in addition to providing a measure of retention, it indicates our ability to grow revenue within existing customer accounts. SaaS Net Dollar Retention Rate is included in a set of metrics that we calculate quarterly to review with management as well as periodically with members of our board of directors.

SaaS Annual Recurring Revenue (“SaaS ARR”). We calculate SaaS ARR by annualizing the recurring subscription revenue recognized in the last month of the measurement period (the latest twelve-month period). Our SaaS ARR was ~~$124.1~~$155.3 million and ~~$75.8~~$124.1 million as of May 31, ~~2021~~2022 and ~~2020,~~2021, respectively. Our calculation excludes one existing contract for a service no longer offered on a standalone basis by the Company. We believe SaaS ARR provides important information about our ability to acquire new subscription SaaS customers and to maintain and expand our relationship with existing subscription SaaS customers. SaaS ARR is included in a set of metrics that we calculate quarterly to review with management as well as periodically with members of our board of directors.

On October 4, 2016, we entered into a credit agreement with a group of lenders for a revolving credit facility with a maximum borrowing capacity of $30.0 million that was originally scheduled to mature on October 4, 2019. On October 2, 2019, we amended certain of the financial covenants and extended our credit agreement for two years to a maturity date of October 2, 2021. On October 22, 2021, the Company executed an amended and restated credit agreement for its revolving credit facility with a five-year term, increasing its maximum borrowing capacity from $30.0 million to $45.0 million.

Our revolving credit facility is guaranteed by the Company and certain of its domestic subsidiaries and secured by substantially all of our tangible and intangible assets. Interest accrues on our revolving credit facility at a variable rate based upon the type of borrowing made by us. Loans under our revolving credit facility bear interest at a rate of LIBOR (as administered by ICE Benchmark Administration) plus an applicable margin, or incur interest at the higher of: (i) the Prime Rate, (2) the Fed Funds Rate plus 0.5%, or (3) LIBOR plus 1.0%, plus an applicable margin. The applicable margin ranges from ~~2.0%~~1.0% to ~~3.0%~~2.0% depending on the interest rate basis and type of borrowing elected (eurocurrency rate loan, base rate loan, swing rate loan or letter of credit)~~. For the nine months ended May 31, 2021, the effective interest rate under our revolving credit agreement was 6.9%~~. In addition to interest on our revolving credit facility, we pay a commitment fee of 0.5% per annum on the unused portion of our revolving credit facility, as well as customary letter of credit fees. Repayment of any amounts borrowed are not required until maturity of our revolving credit facility, however we may repay any amounts borrowed at any time, without premium or penalty.

The Company is required to meet certain financial and nonfinancial covenants under the terms of the revolving credit ~~agreement contains a number of customary restrictive~~facility. These covenants ~~including~~include limits on ~~additional indebtedness,~~ the creation of liens, ~~and~~ limits on making certain ~~investments. Limits~~investments, limits on our revolving credit facility also require compliance with the following ratios: maintaining a minimum level of consolidated EBITDA (ranging from $5.0 million to $12.0 million depending on the applicable four quarter period),incurring additional indebtedness, and maintaining a leverage ratio ~~that does not exceed 3.25:1.00. We were~~at or below a maximum level. The Company was in compliance with these financial and nonfinancial covenants as of May 31, ~~2021.~~2022.

We incurred ~~$0.3~~$0.7 million of costs directly related to obtaining our revolving credit facility which have been recorded as deferred financing fees and are amortized to ~~interest~~legal expense on a straight-line basis over the term of our revolving credit facility. During fiscal 2017, we executed an irrevocable standby letter of credit totaling $0.8 million against our revolving credit facility in lieu of a cash security deposit for one of our office leases. Two additional irrevocable standby letters of credit were executed during fiscal 2019 for $0.2 million and $0.1 million, respectively, against our revolving credit facility in lieu of cash deposits for two of our office leases. In fiscal 2020, the $0.2 million letter of credit was reduced by $0.1 million. In fiscal 2022, the $0.8 million letter of credit was reduced to $0.5 million. Apart from the letters of credit, we did not have any borrowings outstanding on our revolving credit facility as of May 31, ~~2021~~2022 and ~~May 31, 2020.~~2021.

We did not have any off-balance sheet arrangements, as defined in Regulation S-K, Item 303(a)(4)(ii) promulgated by the SEC under the Securities Act, in the nine months ended May 31, 2022 and 2021, ~~and 2020,~~ respectively.

The process of preparing our financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and judgments are based on historical experience, future expectations and other factors and assumptions we believe to be reasonable under the circumstances. The most significant estimates and judgments are reviewed on an ongoing basis and are revised when necessary. Actual amounts may differ from these estimates and judgments. A summary of our significant accounting policies is contained in Note 2 of our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. There have been no material changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended August 31, ~~2020~~2021 filed with the SEC on ~~November 3, 2020.~~October 29, 2021.

A summary of recent accounting pronouncements and our assessment of any expected impact of these pronouncements if known is included in Note 2 of our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth company, we intend to rely on certain of these exemptions, including without limitation, not having to (1) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act or (2) comply with any requirement that may be adopted by PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (2) the date we qualify as a “large accelerated filer,” which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of the most recently completed second fiscal quarter; (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; and (4) the last day of the fiscal year ending after the fifth anniversary of the IPO.

We are exposed to market risks in the ordinary course of our business, including interest rate and foreign currency exchange risks.

As of May 31, ~~2021,~~2022, our cash and cash equivalents balance included one U.S. Treasury bill and no restricted cash, and we had no outstanding indebtedness under our revolving credit facility.

To date, we have not been exposed, nor do we anticipate being exposed, to material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements.

Our reporting currency is the U.S. dollar, and the functional currency of each of our subsidiaries is the U.S. dollar. Gains or losses due to transactions in foreign currencies are included in “Other Income (Expense)” in our consolidated statements of operations. We have not engaged in the hedging of foreign currency transactions to date, although we may choose to do so in the future. We do not believe that a 10% increase or decrease in the relative value of the U.S. dollar to other currencies would have a material effect on operating results.

Our market risks, and the way we manage them, are summarized in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report on Form 10-K for the fiscal year ended August 31, ~~2020~~2021 (filed ~~November 3, 2020)~~October 29, 2021). There have been no material changes to our market risks or to our management of such risks as of May 31, ~~2021.~~2022.

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of May 31, ~~2021,~~2022, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

In the ordinary course of conducting our business, we have in the past and may in the future become involved in various legal actions and other claims. We may also become involved in other judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of our businesses. Some of these matters may involve claims of substantial amounts. These legal proceedings may be subject to many uncertainties and there can be no assurance of the outcome of any individual proceedings. Although the outcomes of legal proceedings are inherently difficult to predict, we are not currently involved in any material legal proceedings that, if determined adversely to us, would have a material adverse effect on our financial position, results of operations or cash flows.

Our business involves significant risks. You should carefully consider the risks described in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended August 31, ~~2020, as updated in the Quarterly Report on Form 10-Q for the quarter ended May 31, 2021, and in our other public filings.~~2021. If any of these risks or uncertainties actually occur, our business, financial condition, prospects, results of operations and cash flow could be materially and adversely affected. In that case, the market price of our common stock could decline. These risks are not the only risks we face. Additional risks or uncertainties not currently known to us, or that we currently deem immaterial, may also have a material adverse effect on our business, financial condition, prospects, results of operations or cash flows, as well as the market price of our securities. We cannot assure you that any of the events discussed in the risk factors will not occur.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Delaware	84-3723837
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
Duck Creek Technologies, Inc. 22 Boston Wharf Road, Floor 10 Boston, MA	02210
(Address of principal executive offices)	(Zip Code)


		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Other Comprehensive ~~Loss~~Income (Loss)	3
	Consolidated Statements of Stockholders’ ~~Equity/Redeemable Partners’ Interest and Partners’ Capital~~Equity	4
	Consolidated Statements of Cash Flows	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2019
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3736
Item 4.	Controls and Procedures	3736
PART II.	OTHER INFORMATION	3837
Item 1.	Legal Proceedings	3837
Item 1A.	Risk Factors	3837
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3837
Item 3.	Defaults Upon Senior Securities	3837
Item 4.	Mine Safety Disclosures	3837
Item 5.	Other Information	3837
Item 6.	Exhibits	3938
Signatures		4039


Balance as of August 31, 2021	$	1,588
Additions due to new awards		—
Net change in the fair value		(1,415	)
Cash settlement of awards		—
Balance as of May 31, 2022	$	173

	May 31,		August 31,
	2021		2020		May 31,		August 31,
					2022		2021
Computer software and licenses					$	8,161	$	5,861
Directors and officers insurance	$	974	$	5,355		1,234		5,515
Computer, software, and licenses		8,092		2,603
Other		2,772		4,228		3,799		3,005
Total prepaid expenses and other current assets	$	11,838	$	12,186	$	13,194	$	14,381

	May 31, 2021
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Money market funds - presented in cash and cash equivalents	$	64,103	$	—	$	—	$	64,103
U.S. Government agency securities - presented in short-term investments		255,949		79		—		256,028
Total	$	320,052	$	79	$	—	$	320,131

	August 31, 2020
	Level 1		Level 2		Level 3		Total
Liabilities:
Liability classified awards	$	7,821	$	—	$	879	$	8,700
Contingent earnout liability		—		—		7,092		7,092
Total liabilities	$	7,821	$	—	$	7,971	$	15,792

Balance as of August 31, 2020	$	879
Additions due to new awards		—
Net change in the fair value		283
Cash settlement of awards		—
Balance as of May 31, 2021	$	1,162


	May 31,			August 31			May 31,			August 31,
	2021			2020			2022			2021
Leasehold improvements	$	11,166		$	11,216		$	10,323		$	10,572
Internal-use software		8,169			7,304			9,636			8,230
Computer equipment		5,066			4,310			5,179			4,849
Furniture and fixtures		2,312			2,181			1,818			2,304
Office equipment		499			478			370			496
Assets under construction		111			—			111			111
Total property and equipment	$	27,323		$	25,489		$	27,437		$	26,562
Less accumulated depreciation and amortization		(11,315	)		(7,376	)		(14,697	)		(12,257	)
Property and equipment, net	$	16,008		$	18,113		$	12,740		$	14,305

Allowance, August 31, 2020	$	(355	)
Net changes to credit losses		(664	)
Write-offs, net		7
Allowance, May 31, 2021	$	(1,012	)


Allowance, August 31, 2021	$	(1,425	)
Net changes to credit losses		(2,243	)
Write-offs, net		706
Recoveries of previously reserved amounts		340
Allowance, May 31, 2022	$	(2,622	)


Exhibit Number		Description

31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document

101.SCH		~~XBRL~~Inline Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document


	~~Company Name~~Duck Creek Technologies, Inc.

Date: ~~July 15, 2021~~June 30, 2022	By:	/s/ Michael A. Jackowski
		Michael A. Jackowski
		Chief Executive Officer
		(principal executive officer)
~~Date: July 15, 2021~~	~~By:~~	~~/s/ Vincent A. Chippari~~
Date: June 30, 2022	By:	~~Vincent A. Chippari~~/s/ Kevin R. Rhodes
		Kevin R. Rhodes
		Chief Financial Officer
		(principal financial officer and principal accounting officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company