eResearch | In August, Duck Creek Technologies (NASDAQ:DCT), a U.S. InsurTech company, listed publicly on the NASDAQ Global Select Market, raising $405 million after pricing its initial public offering (“IPO”) at $27 per share. At the close of its first trading day, DCT’s stock reached $40 per share, a 48% increase from the listing price.
DCT was acquired by Accenture (NYSE:ACN) in 2011, becoming a part of Accenture’s software business division. In 2016, Accenture turned DCT into an independent company through a joint venture (“JV”) agreement with Apax Partners. Through the JV agreement, Accenture sold 60% of DCT’s equity to Apax, while holding the remaining 40% stake.
In November, only a couple of months after its IPO, DCT announced a secondary public offering of 8 million shares to be sold by major stockholders, Accenture and Apax. The secondary public offering was priced at $41 per share, which provided a total of $328 million in proceeds paid to Accenture and Apax.
Following the secondary public offering, DCT’s capital structure is as follows:
- Apax – 29.4%
- Pre-IPO Investors – 24.8%
- Accenture – 19.6%
- Public Stockholders – 19.3%
- Management & Other Individuals – 6.9%
DCT’s most recent raise was in June when DCT announced a $230 million investment from investment firms including Kayne Anderson Rudnick Investment Management and Whale Rock Capital Management.
DCT is currently trading at $40.47 per share, a 48% increase since listing publicly, with a market capitalization of $5.3 billion and an EV/Revenue of 23x.
Duck Creek Technologies
DCT is an InsurTech company with over 20 years of operating experience in the Property & Casualty (“P&C”) insurance industry. DCT supports insurance carriers by consolidating insurance processes onto a single on-demand cloud platform while providing a modern user experience.
According to ResearchAndMarkets, the global InsurTech market was valued at $5.5 billion in 2019 and is forecasted to reach $10 billion by 2025, growing at a CAGR of 11%.
The platform provides an end-to-end suite of enterprise Software-as-a-Service (“SaaS”) solutions for core systems in insurance, such as policy administration, claims management, and billing.
FIGURE 1: Duck Creek Technologies – Platform Architecture
DCT’s core system products:
- Duck Creek Policy – supports the development and launch of new insurance products through the management of policy administration, including quoting, binding, and servicing.
- Duck Creek Billing – enables payment capabilities such as billing & collections, commission processing, disbursement management, and general ledger capabilities.
- Duck Creek Claims – supports the entire claims lifecycle, including first notice of loss, investigation, payments, negotiations, reporting, and closure.
Other innovative solutions offered by DCT include Duck Creek Rating, Duck Creek Insights, Duck Creek Digital Engagement, Duck Creek Distribution Management, Duck Creek Reinsurance Management, Duck Creek Anywhere Managed Integrations, and Duck Creek Industry Content.
A broad partnership network of third-party solutions allows DCT to offer and integrate complementary capabilities to its services. Key partners include Accenture, Capgemini (EPA:CAP), Cognizant Technology Solutions (NASDAQ:CTSH), Microsoft (NASDAQ:MSFT), and Salesforce (NYSE:CRM).
DCT’s customer base of over 150 insurance carriers includes the top five insurance carriers in North America. Significant customers include Progressive (NYSE:PGR), Liberty Mutual Insurance, AIG International Group (NYSE:AIG), The Hartford Financial Services Group (NYSE:HIG), Berkshire Hathaway Specialty Insurance, GEICO, and Munich Re Specialty Insurance.
FIGURE 2: Duck Creek Technologies – Ecosystem
Financials
DCT mainly generates revenue through Professional Services, which is related to product implementation, and through recurring Subscription fees, which are recognized on a monthly basis. In addition, DCT receives Maintenance and Support fees from customers.
For the fiscal year ended August 31, 2020, DCT reported revenue of $212 million, a 24% increase year-over-year. The growth in revenue was attributed to higher sales from Subscription and Professional Services, which increased by 50% and 21% year-over-year, respectively. Subscription and Professional Services together accounted for 88% of DCT’s total revenue.
However, DCT had a net loss of $30 million compared with $17 million in the prior year, due to increased investments in R&D and marketing. In addition, DCT incurred high general and administrative charges from costs related to its recent IPO.
InsurTech Market
InsurTech refers to innovative technologies designed to improve processes in the insurance industry.
As most traditional insurance carriers still rely on legacy systems and multiple vendors to support core systems, InsurTech companies such as DCT are expected to continue disrupting the industry.
FIGURE 3: Duck Creek Technologies – Stock Performance Since IPO
