10-K/A

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-K/A

(Amendment No. 1)

(Mark One)

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

For the fiscal year ended August 31, 2022

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

Commission File Number

001-39449

Duck Creek Technologies, Inc.

(Exact name of Registrant as specified in its Charter)


Delaware		84-3723837
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

22 Boston Wharf Road, Floor 10 Boston, MA		02210
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (888)

724-3509

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value per share	DCT	Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒

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, a 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the Registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the Registrant’s executive officers during the relevant recovery period pursuant to

§240.10D-1(b). ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). YES ☐ NO ☒

The aggregate market value of common stock held by

non-affiliates

of the Registrant, computed by reference to the closing price at which the common stock was sold on February 28, 2022, the last business day of the Registrant’s most recently completed second fiscal quarter, as reported on the Nasdaq Global Select Market, was approximately $3.2 billion. Shares of common stock held by each executive officer, director and holder of 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status does not reflect a determination that such persons are affiliates of the Registrant for any other purpose.

The number of shares of Registrant’s Common Stock outstanding as of October 25, 2022 was 132,740,018.

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EXPLANATORY NOTE

On October 28, 2022, Duck Creek Technologies, Inc. (“we”, “us”, “our”, or the “Company”) filed an Annual Report on Form

10-K

for the fiscal year ended August 31, 2022 (the “Original Form

10-K”).

This Amendment No. 1 on Form

10-K/A

(this “Amendment”) is being filed to update the certifications filed as Exhibits 31.1 and 31.2, respectively, to the Original Form

10-K,

to include certain required language with respect to internal control over financial reporting which was permitted to be omitted during the Company’s transition period, but was omitted subsequent to the Company’s transition period from the Original Form

10-K.

There has been no change to (i) the financial statements included in Part II, Item 8 hereof from those included in Part II, Item 8 of the Original Form

10-K,

nor (ii) Part II, Item 9A hereof from Part II, Item 9A of the Original Form

10-K.

Except as described above, this Amendment does not modify or update the disclosures presented in the Original Form

10-K

or in the previously filed exhibits to the Original Form

10-K

in any way. This Amendment speaks as of the date of the Original Form

10-K

and does not reflect events occurring after the filing of the Original Form

10-K.

As such, this Amendment should be read in conjunction with the Original Form

10-K,

as well as any other filings made by the Company with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13(a) or 15(d) of the Exchange Act subsequent to the filing of the Original Form

10-K.

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PART II

Item 8.

Financial Statements and Supplementary Data.

Duck Creek Technologies, Inc.

Index to Consolidated Financial Statements


	Page

Report of Independent Registered Public Accounting Firm (PCAOB ID 185)		4

Consolidated Balance Sheets as of August 31, 2022 and 2021		7

Consolidated Statements of Operations for the years ended August 31, 2022, 2021 and 2020		8

Consolidated Statements of Comprehensive Loss for the years ended August 31, 2022, 2021 and 2020		9

Consolidated Statements of Stockholders’ Equity/Redeemable Partners’ Interest and Partners’ Capital for the years ended August 31, 2022, 2021 and 2020		10

Consolidated Statements of Cash Flows for the years ended August 31, 2022, 2021 and 2020		12

Notes to Consolidated Financial Statements		14

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Duck Creek Technologies, Inc.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Duck Creek Technologies, Inc. and subsidiaries (the Company) as of August 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ equity/redeemable partners’ interest and partners’ capital, and cash flows for each of the years in the three-year period ended August 31, 2022, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of August 31, 2022, based on criteria established in

Internal Control – Integrated Framework

(2013)

issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of August 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended August 31, 2022, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2022 based on criteria established in

Internal Control – Integrated Framework (2013)

issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired Effisoft SAS and Prima Solutions Belgium SA during 2022, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of August 31, 2022, Effisoft SAS and Prima Solutions Belgium SA’s internal control over financial reporting associated with total assets of $14.8 million and total revenues of $2.1 million included in the consolidated financial statements of the Company as of and for the year ended August 31, 2022. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Effisoft SAS and Prima Solutions Belgium SA.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and

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testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of revenue contracts with

non-standard

terms

As discussed in Note 2 to the consolidated financial statements, revenue was derived from sales of hosted software services under subscription arrangements, software licenses, maintenance and support services, and professional services. The Company recognized total revenue of $302.9 million for the year ended August 31, 2022. Of this amount, $153.5 million related to sales of subscription arrangements. Subscription arrangements generally have terms of three to seven years and are generally payable on a monthly basis over the contract term. Revenue for subscription arrangements is recognized ratably using contractual direct written premium as the measure of progress.

We identified the sufficiency of audit evidence over revenue contracts with

non-standard

terms related to subscription arrangements as a critical audit matter. This matter required a higher degree of auditor judgment to determine the nature and extent of procedures to perform over

non-standard

terms in contracts and amendments.

The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over subscription arrangement revenue. We evaluated the design and tested the operating effectiveness of an internal control over the Company’s subscription arrangement revenue process relating to the identification of

non-standard

contract terms. For a sample of revenue transactions, we developed expectations of the revenue recognized based on the terms in contracts and amendments and compared them to the amounts recorded by the Company. We also evaluated the overall sufficiency of the audit evidence over revenue by assessing the results of our procedures.

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Evaluation of the acquisition date fair value of certain acquired intangible assets

As discussed in Notes 2 and 3 to the consolidated financial statements, on July 12, 2022, the Company consummated a business combination for total consideration of $112.0 million. In connection with the business combination, the Company recorded various intangible assets, which included customer relationship and developed technology intangible assets with an acquisition date fair value of $26.5 million and $7.7 million, respectively.

We identified the evaluation of the acquisition date fair value of the customer relationship and developed technology intangible assets as a critical audit matter. Subjective and complex auditor judgment was required to evaluate key assumptions used to value these acquired intangible assets. Specifically, the key assumptions included projected revenue growth rates for the customer relationship and the developed technology intangible asset. Changes to these assumptions could have had a significant impact on the fair value of such assets. In addition, valuation professionals with specialized skills and knowledge were needed to assist in the evaluation of the projected revenue growth rates.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s business combinations process, including controls related to the development of the projected revenue assumptions used in the Company’s valuations. We evaluated the projected revenue used by the Company by (1) comparing to historical results of the acquired entity and publicly available information for peer companies, (2) inquiring of individuals outside of the accounting department about projected revenue and the process used to develop the projections, and (3) comparing the Company’s historical projected revenue to actual revenue to evaluate the Company’s ability to forecast. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the reasonableness of the projected revenue growth rate by comparing them to certain comparable companies, and industry and macro-economic trend data.

/s/ KPMG LLP

We have served as the Company’s auditor since 2017.

Boston, Massachusetts

October 28, 2022

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

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

(In thousands, except share information)


	Total redeemable partners’ interest and partners’ capital			Common stock				Treasury Stock					Additional paid-in capital			Accumulated Other Comprehensive Income		Accumulated deficit			Non- controlling interests			Total stockholders’ equity
				Shares		Amount		Shares		Amount			Additional paid-in capital			Accumulated Other Comprehensive Income		Accumulated deficit			Non- controlling interests			Total stockholders’ equity
Balance at August 31, 2019	$	389,066			—	$	—		—	$	—		$	—		$	—	$	—		$	—		$	389,066
Class E Units issued, net of issuance costs		438,648			—		—		—		—			—			—		—			—			438,648
Class A Units redeemed prior to the Reorganization Transactions		(238,800	)		—		—		—		—			—			—		—			—			(238,800	)
Class B Units redeemed prior to the Reorganization Transactions		(159,200	)		—		—		—		—			—			—		—			—			(159,200	)
Share-based compensation expense prior to Reorganization Transactions		1,766			—		—		—		—			—			—		—			—			1,766
Net loss prior to Reorganization Transactions		(5,598	)		—		—		—		—			—			—		—			—			(5,598	)
Reorganization Transactions:
Exchange of LP interests for common stock and initial effect of Reorganization
Transactions on non-controlling interest		(425,882	)		115,996,833		1,160		—		—			425,556			—		—			(834	)		—
Initial Public Offering Transactions:
Issuance of common stock for IPO net of underwriting discounts and offering costs		—			17,250,000		173		—		—			429,067			—		—			—			429,240
Purchase of common stock from Apax		—			—		—		2,555,556		(64,688	)		—			—		—			—			(64,688	)
Purchase of non-controlling interests in Operating Partnership from Accenture and RBW		—			—		—		—		—			(43,959	)		—		—			834			(43,125	)
Issuance of common stock upon RSA’s vesting		—			22,468		—		—		—			—			—		—			—			—
Share based compensation expense subsequent to Reorganization Transactions		—			—		—		—		—			10,782			—		—			—			10,782
Net loss subsequent to Reorganization Transactions		—			—		—		—		—			—			—		(24,334	)		—			(24,334	)

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	Total redeemable partners’ interest and partners’ capital		Common stock				Treasury Stock					Additional paid-in capital			Accumulated Other Comprehensive Income			Accumulated deficit			Non- controlling interests		Total stockholders’ equity
			Shares		Amount		Shares		Amount			Additional paid-in capital			Accumulated Other Comprehensive Income			Accumulated deficit			Non- controlling interests		Total stockholders’ equity
Balance at August 31, 2020	$	—		133,269,301	$	1,333		2,555,556	$	(64,688	)	$	821,446		$	—		$	(24,334	)	$	—	$	733,757
Net loss		—		—		—		—		—			—			—			(16,931	)				(16,931	)
Proceeds from follow-on offering, net of issuance costs		—		90,000		1		—		—			3,452			—			—			—		3,453
Repurchase of common stock		—		—		—		69,506		(3,076	)		—			—			—			—		(3,076	)
Share-based compensation expense		—		—		—		—		—			9,406			—			—			—		9,406
Issuance of common stock upon exercise of stock options		—		150,559		1		—		—			4,064			—			—			—		4,065
Vesting of restricted stock awards		—		1,115,519		11		—		—			(11	)		—			—			—		—
Unrealized gain on available-for-sale securities		—		—		—		—		—			—			64			—			—		64

Balance at August 31, 2021	$	—		134,625,379	$	1,346		2,625,062	$	(67,764	)	$	838,357		$	64		$	(41,265	)	$	—	$	730,738
Net income		—		—		—		—		—			—			—			(8,332	)		—		(8,332	)
Repurchase of common stock		—		—		—		59,254		(1,020	)		—			—			—			—		(1,020	)
Share-based compensation expense		—		—		—		—		—			11,344			—			—			—		11,344
Issuance of common stock upon exercise of stock options		—		4,897		—		—		—			132			—			—			—		132
Vesting of restricted stock awards		—		740,003		7		—		—			(7	)		—			—			—		—
Other comprehensive loss		—		—		—		—		—			—			(457	)		—			—		(457	)

Balance at August 31, 2022	$	—		135,370,279		1,353		2,684,316	$	(68,784	)	$	849,826		$	(393	)	$	(49,597	)	$	—	$	732,405

See accompanying notes to consolidated financial statements.

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)


	Year Ended August 31,
	2022			2021			2020
Operating activities:
Net loss	$	(8,332	)	$	(16,931	)	$	(29,932	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation of property and equipment		2,646			3,136			3,143
Amortization of capitalized software		2,355			2,040			703
Amortization of intangible assets		16,516			16,328			17,070
Amortization of deferred financing fees		128			114			134
Impairment of right of use asset		—			1,883			1,660
Impairment of leasehold improvements		—			702			1,132
Share-based compensation expense		9,524			12,877			21,108
Change in fair value of contingent earnout liability		67			293			133
Payment of contingent earnout liability in excess of acquisition date fair value		(1,650	)		—
Changes to allowance for credit losses		3,566			1,105			97
Deferred taxes		814			(781	)		(690	)
Other non-cash items		—			12			—
Changes in operating assets and liabilities
Accounts receivable		3,637			(6,585	)		(3,796	)
Unbilled revenue		(5,392	)		(4,216	)		1,730
Prepaid expenses and other current assets		848			(2,310	)		(6,300	)
Other assets		(1,309	)		(3,110	)		(5,764	)
Accounts payable		(978	)		1,561			(181	)
Accrued liabilities		(2,673	)		(3,230	)		16,393
Deferred revenue		(4,554	)		(1,199	)		6,614
Operating leases		(1,657	)		(1,477	)		132
Cash settlement of vested phantom stock		(1,077	)		(9,243	)		—
Other long-term liabilities		(1,752	)		345			2,339

Net cash provided by (used in) operating activities		10,727			(8,686	)		25,725

Investing activities:
Purchase of short-term investments		(245,204	)		(287,912	)		—
Maturities of short-term investments		319,639			95,982			—
Payments for business acquisitions, net of cash acquired		(106,947	)		—			—
Capitalized internal-use software		(1,844	)		(926	)		(2,893	)
Purchase of property and equipment		(1,283	)		(1,355	)		(3,854	)

Net cash used in investing activities		(35,639	)		(194,211	)		(6,747	)

Financing activities:
Proceeds from IPO		—			—			433,657
Proceeds from follow-on offering, net of issuance costs		—			3,452			—
Payment of deferred IPO costs		—			(3,650	)		—
Proceeds from issuance of Class E Units, net of issuance costs		—			—			438,840
Payment of deferred Class E offering costs		—			(192	)		—
Payment on redemption of Class A and Class B Units		—			—			(398,000	)
Purchase of non-controlling interest		—			—			(43,125	)
Purchase of treasury stock		(1,020	)		(3,076	)		(64,688	)

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	Year Ended August 31,
	2022			2021			2020
Proceeds from stock option exercises		132			4,065			—
Payments of contingent earnout liability		(3,879	)		(1,923	)		(3,555	)
Proceeds from revolving credit facility		—			—			5,000
Payments on revolving credit facility		—			—			(9,000	)
Payment of deferred financing costs		(713	)		—			(228	)

Net cash (used in) provided by financing activities		(5,480	)		(1,324	)		358,901

Net (decrease) increase in cash and cash equivalents		(30,392	)		(204,221	)		377,879
Cash and cash equivalents – beginning of period		185,657			389,878			11,999

Cash and cash equivalents – end of period	$	155,265		$	185,657		$	389,878

Supplemental disclosure of other cash flow information:
Cash paid for income taxes		2,050			3,105			2,006
Cash paid for interest		—			—			269
Purchases of property and equipment recorded in accounts payable and accrued liabilities		238			210			227
Fair value of contingent consideration		—			5,529			7,452
Deferred IPO costs in accounts payable and accrued liabilities		—			—			3,650
Deferred Class E offering costs in accrued expenses		—			—			192

See accompanying notes to consolidated financial statements.

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

(1) Nature of Business

Duck Creek Technologies, Inc (the Company) is a provider of

Software-as-a-Service

(SaaS) core systems to the property and casualty (P&C) insurance industry, through

Duck Creek OnDemand

. Products offered include

Duck Creek Policy, Duck Creek Billing, Duck Creek Claims, Duck Creek Rating, Duck Creek Insights, Duck Creek Distribution Management, 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 to SaaS.

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.

The Company’s headquarters are located in Boston, Massachusetts. The Company also has sales offices in the United Kingdom, Spain, France and Australia, as well as a service center located in India.

Initial Public Offering

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 per share for net proceeds of $429.2 million, after deducting underwriting discounts, commissions, and estimated offering expenses.

The Company used (i) $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 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 million of net proceeds received from the IPO to cash settle outstanding equity awards of certain international employees.

Reorganization Transactions

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 Company adopted an amended and restated certification of incorporation that authorized, immediately prior to the IPO, one class of common stock and one class of preferred stock.

•

Apax contributed the entity that held all of Apax’s equity interests in the Operating Partnership and all of Apax’s interest in the general partner of the Operating Partnership (General Partner) to a newly-formed Cayman company (the Reorg Subsidiary) in exchange for shares in the Reorg Subsidiary.

DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

•

Accenture contributed to the Company, directly or indirectly, (i) a portion of its equity interests in the Operating Partnership and (ii) all of its interest in the General Partner in exchange for newly-issued common stock in the Company.

•

Certain members of management contributed to the Company, directly or indirectly, all of their respective equity interests in the Operating Partnership in exchange for (i) newly-issued common stock in the Company or (ii) restricted common stock in the Company and options to acquire common stock in the Company with an exercise price equal to the fair market value on the date of grant.

•

All other investors in the Operating Partnership (excluding Apax, Accenture, and RBW) contributed to the Company, directly or indirectly, all of their equity interests in the Operating Partnership in exchange for newly-issued common stock in the Company.

•

The Company contributed a portion of the net proceeds received from the IPO to the Operating Partnership and the Operating Partnership redeemed the outstanding LP Units of the Operating Partnership owned by Accenture and RBW that were not contributed to the Company.

•

Immediately following the completion of the IPO, (i) Apax exchanged all of its shares in the Reorg Subsidiary for newly-issued common stock in the Company and (ii) the Reorg Subsidiary merged with and into the Company (and subsequently ceased existence) (collectively, the Reorg Merger).

•

Following these transactions and the subsequent redemption of the outstanding LP Units owned by Accenture and RBW that were not contributed to the Company, the Company indirectly owns all of the LP Units of the Operating Partnership and all interest in the General Partner.

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.

(2) Summary of Significant Accounting Policies

The accompanying consolidated financial statements reflect the application of significant accounting policies as described below.

(a) Basis of Presentation

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). References to GAAP issued by the FASB in these notes are to the FASB Accounting Standards Codification (FASB ASC).

(b) Recently Adopted Accounting Pronouncements

In October 2021, the FASB issued ASU

No. 2021-08,

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

(ASU

2021-08).

This new guidance requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. ASU

2021-08

will be effective for fiscal years beginning after

DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

December 15, 2022, including interim periods within those fiscal years. The provisions of ASU

2021-08

should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The adoption of this new standard did not have a material impact on the Company’s consolidated financial statements.

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) Fiscal Year

The Company’s fiscal year ends on August 31 of each calendar year.

(e) Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates are used when accounting for certain items such as valuation of goodwill and intangible assets, the useful lives of intangible assets, share-based compensation, standalone selling prices in transactions with customers that include multiple performance obligations, assets acquired and liabilities assumed in business combinations, contingent earnout liabilities, and capitalized software development costs.

Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from management’s estimates if past experience or other assumptions are not substantially accurate.

(f) Foreign Currency

The determination of the functional currency of subsidiaries is based on the subsidiaries’ financial and operational environment. Gains and losses from foreign currency translation related to entities whose functional currency is not our reporting currency are credited or charged to accumulated other comprehensive income included in stockholders’ equity in the consolidated balance sheets. In all instances, foreign currency transaction and remeasurement gains or losses are credited or charged to the consolidated statements of operations as incurred as a component of other income (expense), net. There were net foreign currency transaction and remeasurement losses of $2.7 million in fiscal 2022. The net foreign currency transaction and remeasurement losses were immaterial in fiscal 2021 and 2020.

(g) 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.

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

•

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

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 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 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

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

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).

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

(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 contracting entity, regardless of where the products or services are used, for the years ended August 31,2022, 2021 and 2020:


	Twelve Months Ended August 31,
	2022		2021		2020
United States	$	279,365	$	238,912	$	200,373
All other		23,552		21,438		11,299

Total revenue	$	302,917	$	260,350	$	211,672

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.

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

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

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 is 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

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

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

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 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.

For the fiscal year ended August 31, 2022, 2021 and 2020 $21.9 million, $18.0 million and $15.2 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.

The Company also recognized revenue that was included in the corresponding deferred revenue balance at the beginning of the period presented. For the fiscal year ended August 31, 2022, 2021 and 2020, the Company recognized revenue of $28.0 million, $28.3 million and $22.8 million, respectively, that was included in the corresponding deferred revenue balance at the beginning of the period 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 August 31, 2022, approximately $500.8 million of revenue is expected to be recognized from remaining performance obligations in the amount of approximately $165.0 million in fiscal 2023 and approximately $335.8 million 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.

(h) Cost of Revenue

Cost of revenue is primarily composed of personnel costs and costs of external resources used in the delivery of professional services to customers, including software configuration, integration services, and training; customer support activities; third-party costs incurred related to hosting the Company’s software for its customers; amortization of acquired technology intangible assets; depreciation expense; and cost of software production and license fees paid to third parties.

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

(i) Contract Costs

The Company allocates the incremental costs to obtain a contract among the identified performance obligations that are included in the contract, on a relative basis to the allocated transaction price.

Incremental costs primarily comprise of commissions paid to the Company’s sales representatives. Any such costs that are allocated to performance obligations that are recognized at a point in time are expensed at that time. Any such costs that are allocated to performance obligations that are recognized over time are capitalized in the period in which they are incurred and amortized on a straight-line basis over the expected period of benefit of the associated contract. The Company determined to use the straight-line basis as the expected benefit will be realized uniformly over the amortization period. Commissions paid relating to contract renewals are deferred and amortized on a straight-line basis over the related renewal period. As a practical expedient, the Company recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that it otherwise would have recognized is one year or less.

The Company has estimated that the typical period of benefit for its contracts is 8 years, based on both qualitative and quantitative factors, including product lifecycle attributes and historical customer retention data. The Company assesses deferred contract costs for impairment on an annual basis. Amortization expense associated with deferred contract costs are recorded within selling, general, and administrative expenses on the accompanying consolidated statements of operations. Deferred contract costs are included within other assets on the Company’s consolidated balance sheets.

The Company does not incur

up-front,

direct fulfillment-related costs of a nature required to be capitalized and amortized.

(j) Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original maturities of 90 days or less at the time of purchase to be cash equivalents. At August 31, 2022, the Company had $88.3 million of cash equivalents and no restricted cash. At August 31, 2021, the Company did not have any cash equivalents and or restricted cash.

(k) Accounts Receivable and Payment Terms

Accounts receivable are stated at the amount management expects to collect from outstanding balances and are recorded when the right to consideration becomes unconditional. Payment terms and conditions vary by contract and the product and service being provided. Invoices are typically due within 30 days of receipt by a customer.

(l) Allowance for Credit Losses

The Company maintains allowances for expected credit losses for its accounts receivable and unbilled revenue balances. The allowances reflect 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. The allowance for accounts receivable was $3.0 million and $1.4 million as of August 31, 2022 and 2021, respectively, and a $1.9 million allowance for unbilled revenue as of August 31, 2022. There was no allowance for unbilled revenue as of August 31, 2021.

(m) 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

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

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).

(n) Unbilled Revenue, net

Revenues recognized in excess of the amounts invoiced to customers are classified as unbilled revenues in the accompanying consolidated balance sheets. The Company expects to invoice all of the unbilled revenue recorded at each reporting period over the term of the contract which ranges from two to six years.

Unbilled revenue, net as of August 31, 2022 and August 31, 2021, consisted of the following:


	August 31, 2022			August 31, 2021
Unbilled revenue	$	33,640		$	24,423
Allowance for credit losses		(1,944	)		—

Unbilled revenue, net	$	31,696		$	24,423

The following table presents changes to the allowance for credit losses during the year ended August 31, 2022:


Allowance, August 31, 2021	$	—
Net changes to credit losses		(1,944	)
Write-offs, recoveries and billings		—

Allowance, August 31, 2022	$	(1,944	)

(o) Concentration of Credit Risk

The Company maintains its cash in bank deposit accounts, which at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents. Concentration of credit risk, with respect to cash and cash equivalents, is limited because the Company places its investments in highly rated institutions.

The Company is potentially subject to concentration of credit risk primarily through its accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses which, when realized, have been within the range of management’s expectations. The Company generally does not require collateral. Credit risk on accounts receivables is minimized as a result of the large and diverse nature of the Company’s customer base.

The Company generates revenues in the capacity of a subcontractor to Accenture, a related party (as described in Note 19). Services provided to Accenture accounted for less than 1%, less than 1%, and 1% of the Company’s revenue for the years ended August 31, 2022, 2021 and 2020, respectively.

For customer concentration purposes, customers are assessed two ways: individual entities (customers) and combining customers that are under common control (consolidated entities). The Company had no single customer that accounted for over 10% of total revenue in fiscal 2022 or 2021 but one consolidated entity that represented approximately 11% of total revenue in 2020.

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

As of August 31, 2022, one customer accounted for greater than 13% of accounts receivable. As of August 31, 2021, one customer accounted for approximately 11% of accounts receivable. No other customer individually accounted for more than 10% of the Company’s accounts receivable for these reporting periods.

As of August 31, 2022, one customer accounted for approximately 16% of unbilled revenue. As of August 31, 2021, one customer accounted for approximately 11% of unbilled revenue. No other customer individually accounted for more than 10% of the Company’s unbilled revenue for these reporting periods.

(p) Fair Value of Financial Instruments

Financial instruments consist mainly of cash, cash equivalents, short-term investments, accounts receivable, unbilled revenue and borrowings under the Company’s credit facility. The carrying amount of accounts receivable and unbilled revenue is net of an allowance for doubtful accounts, which is based on historical collections and known credit risks, and approximates the fair value of accounts receivable.

(q) Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives as follows:


Computer equipment and purchased software		3 years
Furniture and fixtures		5 years
Office equipment		3 years
Leasehold improvements		Lesser of estimated useful life or life of lease

Expenditures for maintenance and repairs are expensed as incurred. Expenditures for renewals or betterments are capitalized.

(r) Software Development Costs

The Company has evaluated the establishment of technological feasibility of its perpetual and term license arrangements in accordance with FASB ASC

985-20,

Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed

. The Company sells software products in a market that is subject to rapid technological change, new product development, and changing customer needs. Accordingly, the Company has concluded that technological feasibility for most software products is not established until the development stage of the software product is nearly complete. The Company defines technological feasibility as the completion of a working model. The period of time during which costs could be capitalized, from the point of reaching technological feasibility until the time of general software product release, is very short; consequently, the amounts that are capitalized are not material to the Company’s financial position or results of operations.

With respect to the Company’s SaaS products sold to its customers, costs incurred in the preliminary design and development stages of a project are expensed as incurred in accordance with FASB ASC

350-40,

Internal-Use

Software

. Once a 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. Capitalized software development costs are recorded in property and equipment on the Company’s consolidated balance sheets.

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

Amortization of capitalized computer software development costs is provided on a

product-by-product

basis using the greater of (a) the amount computed using the ratio that current gross revenue for a product bears to total of current and anticipated future gross revenue for that product or (b) the straight-line method, beginning upon commercial release or available for the products intended use, and continuing over the remaining estimated economic life of the product, typically three years.

(s) Business Combinations

The Company uses its best estimates and assumptions to determine the fair value of tangible and intangible assets acquired and liabilities assumed in a business combination. Goodwill is calculated as the difference between the acquisition-date fair value of the consideration transferred and the fair values assigned to the assets acquired and liabilities assumed. During the measurement period, which may be up to one year from the acquisition date, if new information is obtained about facts and circumstances that existed as of the acquisition date, the Company may record adjustments to the fair value of these assets acquired and liabilities assumed, with a corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired and liabilities assumed, whichever comes first, subsequent adjustments, if any, are recorded to the Company’s consolidated statements of operations.

(t) Goodwill

The carrying amount of goodwill is not amortized, but rather tested for impairment annually in June of each fiscal year, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. The Company has determined that it is comprised of one reporting unit for purposes of its annual impairment evaluation. The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the

two-step

goodwill impairment test. If the Company determines that it is more likely than not that the fair value of its reporting unit is less than the carrying amount, or opts not to perform a qualitative assessment, then the

two-step

goodwill impairment test will be performed. The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair value, the second step will be performed; otherwise, no the second step is not required. The second step, measuring the impairment loss, compares the implied fair value of the reporting unit’s goodwill with its carrying amount. Any excess of the goodwill carrying amount over the implied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value. No impairment losses associated with goodwill impairment have been recorded by the Company to date.

(u) Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment, capitalized software development costs,

right-of-use

lease assets, and acquired intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. There were no impairments of long-lived assets, including acquired intangible assets, during the year ended August 31, 2022 or 2021. As discussed in Note 7, the Company recorded an impairment of right of use assets and leasehold improvements during the years ended August 31, 2021 and 2020.

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

(v) Deferred Financing Fees

Deferred financing fees include costs incurred primarily in connection with entering into the Company’s revolving credit facility (see Note 13). These costs are capitalized on the accompanying consolidated balance sheets in other assets and are amortized on a straight-line basis over the term of the revolving credit facility. Amortization expense is included as a component of interest expense on the accompanying consolidated statements of operations.

(w) Share-Based Compensation

The Company accounts for share-based compensation awards in accordance with FASB ASC 718,

Compensation: Stock Compensation

. FASB ASC 718 requires all share-based awards to employees to be recognized in the statements of operations based on their fair values.

The determination of the fair value of the Class D incentive units and Phantom Unit awards granted prior to the IPO was estimated by management using an income approach and through the use of an option pricing model, to allocate the estimated value of the Company to each of the classes of partnership units. The fair value of the Company’s restricted common stock awards and phantom stock awards is equal to the market value of the Company’s common stock on the date of grant. The fair value of the Company’s stock options and stock appreciation rights are estimated at the grant date using the Black-Scholes model. The inputs utilized in this model require judgments and estimates. Changes in these inputs could affect the measurement of the estimated fair value of the related compensation expense of these stock options and stock appreciation rights. The Company recognizes the compensation cost of share-based awards on a straight-line basis over the requisite service period (typically the vesting period) of the award. The Company recognizes forfeitures as they occur.

(x) Income Taxes

Income taxes are accounted for using the asset and liability method. Under this method, deferred tax asset and liabilities are recognized for differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards, by using enacted tax rates in effect in the year in which the differences are expected to reverse. All deferred tax assets and liabilities are classified as

non-current

on the Company’s consolidated balance sheets. Valuation allowances are provided if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Tax benefits from uncertain tax positions are recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense in its consolidated statements of operations.

Prior to the IPO, the Company was a limited partnership for income tax purposes. While the Company was a limited partnership, the subsidiaries were the primary entities from an income tax perspective. The Company based its income tax rate reconciliation and other tax disclosures on the fact that the U.S. is the predominant tax jurisdiction where the Company operates.

(y) Advertising Expenses

Advertising costs are expensed in the period in which the cost was incurred. Total advertising expenses were immaterial for the years ended August 31, 2022, 2021 and 2020.

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

(z) Leases

Effective September 1, 2019, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU)

2016-02,

Leases

(Topic 842), as amended (ASC 842). In accordance with ASC 842, at the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease. Most leases with a term greater than one year are recognized on the consolidated balance sheet as operating lease assets, lease liabilities and, if applicable, long-term lease liabilities. The Company elected not to recognize on the balance sheet leases with terms of one year or less. For contracts with lease and

non-lease

components, the Company has elected not to allocate the contract consideration and to account for the lease and

non-lease

components as a single lease component.

Lease liabilities are recorded based on the present value of lease payments over the expected lease term. The implicit rate within our operating leases are generally not determinable and therefore the Company uses the incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of our incremental borrowing rate requires judgment. The Company determines the incremental borrowing rate for each lease using its estimated borrowing rate, adjusted for various factors including level of collateralization, term and currency to align with the terms of the lease. The operating lease asset also includes any lease prepayments, offset by lease incentives. Certain of the Company’s leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the operating lease asset and lease liability when it is reasonably certain that the option will be exercised. An option to terminate is considered unless it is reasonably certain that the option will not be exercised.

(aa) Recent Accounting Pronouncements Not Yet Effective

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. This new guidance provides temporary optional expedients and exceptions to current guidance to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) to alternative reference rates. We may elect to apply the optional expedients and exceptions prospectively through December 31, 2022. The Company does not expect the 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.

(3) Business Combinations

Acquisition of Effisoft SAS and Prima Solutions Belgium SA

On July 12, 2022, the Company completed the acquisition of all the outstanding shares of Effisoft SAS and Prima Solutions Belgium SA (“Effisoft”), which includes the commercial reinsurance technology solution, Prima XL and a regulatory compliance management solution, Prima Compliance, for a total cash consideration of €111.2 million ($112.0 million). The purchase price includes €11.0 million ($11.1 million) paid into an escrow account as security for certain representations, warranties, and obligations of the sellers.

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

The following allocation of the initial purchase price includes a preliminary valuation of the acquired intangible assets and tangible assets:


Tangible assets acquired, net	$	3,041
Identifiable intangible assets:
Technology-related		7,650
Customer relationships		26,474
Goodwill		83,346
Deferred tax liabilities		(8,531	)

Total assets acquired	$	111,980

The amounts above represent the preliminary fair value estimates as of July 1, 2022 and are subject to subsequent adjustment as the Company obtains additional information during the measurement period and finalizes its fair value estimates for intangible assets and for certain components of working capital and deferred income taxes. The preliminary identifiable intangible asset estimate includes customer relationships of $26.5 million with a useful life of 15 years and technology of $7.7 million with a useful life of 8 years. Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill. The goodwill reflects the value of the assembled workforce and the company-specific synergies we expect to realize by selling Effisoft products and services to our existing customers. The results of operations of Effisoft have been included prospectively in our results of operations since the date of acquisition.

Contingent Earnout Liability

The following table summarizes the changes in fair value of the Company’s contingent earnout liability related to the Outline Systems LLC (“Outline”) acquisition during the years ended August 31, 2020, 2021, and 2022:


	Outline Systems, LLC
Balance at August 31, 2019	$	9,440
Change in fair value, including accretion		450
Payments to sellers		(2,798	)

Balance at August 31, 2020		7,092
Change in fair value, including accretion		293
Payments to sellers		(1,923	)

Balance at August 31, 2021		5,462
Change in fair value, including accretion		67
Payments to sellers		(5,529	)

Balance at August 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.

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

(4) Fair Value Measurements

Available-for-sale

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


	August 31, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Money market funds—presented in cash and cash equivalents	$	239	$	—	$	—	$	239
U.S. Government agency securities and treasuries - presented in cash and cash equivalents		88,045		—		—		88,045
U.S. Government agency securities and treasuries - presented in short-term investments		117,481		342		—		117,823

Total	$	205,765	$	342	$	—	$	206,107


	August 31, 2021
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
U.S. Government agency securities and treasuries—presented in short-term investments	$	191,917	$	64	$	—	$	191,981

Total	$	191,917	$	64	$	—	$	191,981

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. The remaining securities will mature before the end of the first quarter of fiscal year 2023.

Fair Value

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:

•

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

•

Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

•

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

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 August 31, 2022 and 2021:


	August 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds—presented in cash and cash equivalents	$	239	$	—	$	—	$	239
U.S. Government agency securities and treasuries—presented in cash and cash equivalents		88,045		—		—		88,045
U.S. Government agency securities and treasuries—presented in short-term investments		117,823		—		—		117,823

Total assets	$	206,107	$	—	$	—	$	206,107

Liabilities:
Liability classified awards	$	36	$	—	$	57	$	93

Total liabilities	$	36	$	—	$	57	$	93


	August 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
U.S. Government agency securities and treasuries—presented in short-term investments	$	—	$	191,981	$	—	$	191,981

Total assets	$	—	$	191,981	$	—	$	191,981

Liabilities:
Liability classified awards	$	1,448	$	—	$	1,588	$	3,036
Contingent earnout liability		—		—		5,462		5,462

Total liabilities	$	1,448	$	—	$	7,050	$	8,498

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 year ended August 31, 2022:


Balance as of August 31, 2021	$	1,588
Additions due to new awards		—
Net change in the fair value		(1,531	)
Cash settlement of awards		—

Balance as of August 31, 2022	$	57

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

(5) Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets as of August 31, 2022 and 2021 consisted of the following:


	August 31, 2022		August 31, 2021
Directors and officers insurance	$	—	$	5,515
Computer software and licenses		7,930		5,861
Other		5,425		3,005

Total prepaid expenses and other current assets	$	13,355	$	14,381

(6) Property and Equipment, Net

Property and equipment, net as of August 31, 2022 and 2021 consisted of the following:


	August 31, 2022			August 31, 2021
Leasehold improvements	$	10,280		$	10,572
Internal-use software		10,198			8,230
Computer equipment		6,951			4,849
Furniture and fixtures		2,018			2,304
Office equipment		768			496
Assets under construction		300			111

Total property and equipment	$	30,515		$	26,562
Less accumulated depreciation and amortization		(16,439	)		(12,257	)

Property and equipment, net	$	14,076		$	14,305

Depreciation expense related to property and equipment was $2.6 million, $3.1 million and $3.1 million for the years ended August 31, 2022, 2021 and 2020, respectively.

Amortization expense related to

internal-use

software was $2.4 million, $2.0 million, $0.7 million for the fiscal years ended August 31, 2022, 2021 and 2020.

(7) Leases

The Company’s lease obligations consist of operating leases for domestic and international office facilities with lease periods expiring between fiscal years 2022 and 2029. Some leases include one or more options to renew. Lease renewals are not assumed in the determination of the lease term until the exercise of the renewals are deemed to be reasonably certain. For the fiscal year ended August 31, 2022, the Company incurred $3.9 million of operating lease expense and $0.1 million of short term lease expense resulting in total lease expense of $4.0 million. For the fiscal year ended August 31, 2021, the Company incurred $4.5 million of operating lease expense and $0.3 million of short term lease expense resulting in total lease expense of $4.8 million. For the fiscal year ended August 31, 2020, the Company incurred $4.6 million of operating lease expense and $0.3 million of short term lease expense resulting in total lease expense of $4.9 million.

During the fourth quarter of fiscal 2021, the Company closed its London, Barcelona, Chandigarh, and Columbia offices. As a result of these decisions, the Company recorded an impairment in the amount of $2.6 million,

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

consisting of $1.9 million of right of use assets and $0.7 million of leasehold improvements, which is included in general and administrative expense on the consolidated statement of operations for the year ended August 31, 2021.

During the fourth quarter of fiscal 2020, the Company closed its New Jersey office. The Company also closed one floor of its South Carolina office.

As a result of these decisions, the Company recorded an impairment in the amount of $2.8 million, consisting of $1.7 million of right of use assets and $1.1 million of leasehold improvements, which is included in general and administrative expense on the consolidated statement of operations for the year ended August 31, 2020. During the third quarter of fiscal 2021, the Company recorded a $0.5 million gain on the derecognition of a lease liability resulting from a sublease transaction for the South Carolina office. This gain is included in other income (expense), net on the consolidated statements of operations for the year ended August 31, 2021.

Future operating lease payments as of August 31, 2022 were as follows:


Fiscal Year Ending August 31,
2023	$	5,400
2024		5,490
2025		5,132
2026		3,788
2027		2,470
Thereafter		2,540

Total future lease payments		24,821
Less imputed interest		(2,392	)

Total lease liability balance	$	22,429

Supplemental information related to leases was as follows:


	August 31, 2022			August 31, 2021
Operating lease assets	$	16,502		$	17,798

Current portion of lease liabilities	$	4,552		$	4,110
Non-current portion of lease liabilities		17,877			21,273

Total lease liabilities	$	22,429		$	25,383

Weighted average remaining lease term (years)		5.0			5.2
Weighted average discount rate		4.2	%		4.2	%

Supplemental cash and

non-cash

information related to operating leases was as follows:


	August 31, 2022		August 31, 2021
Cash payments for operating leases	$	5,112	$	4,056
Operating lease assets obtained in exchange for lease liabilities	$	—	$	—

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

(8) 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. The carrying amount of goodwill is not amortized, but rather tested for impairment annually. No impairment losses associated with goodwill impairment have been recorded by the Company to date. Goodwill for the periods ended August 31, 2022 and 2021 consist of the following:


	Gross Carrying Amount		Effect of Currency Translation			Net Carrying Amount
Balance at August 31, 2021	$	272,455	$	—		$	272,455
Goodwill from acquisitions		83,346		—			83,346
Foreign currency translation		—		(303	)		(303	)

Balance at August 31, 2022	$	355,801	$	(303	)	$	355,498


	Gross Carrying Amount		Effect of Currency Translation			Net Carrying Amount
Balance at August 31, 2020	$	272,455	$	—		$	272,455
Goodwill from acquisitions		—		—			—
Foreign currency translation		—		—			—

Balance at August 31, 2021	$	272,455	$	—		$	272,455

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


	August 31, 2022
	Gross carrying amount		Accumulated amortization			Effect of Currency Translation			Net carrying amount		Weighted average remaining life
Customer relationships	$	130,074	$	(62,535	)	$	(96	)	$	67,442		8.3 years
Acquired technology		39,885		(28,134	)		(28	)		11,724		5.3 years
Trademarks and tradenames		9,400		(5,718	)		—			3,682		3.9 years
Domain name		100		(60	)		—			40		4 years
Backlog		6,700		(6,700	)		—			—		0 years

	$	186,159	$	(103,147	)	$	(124	)	$	82,888


	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

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

Amortization expense was $16.3 million, $16.3 million and $17.1 million for the years ended August 31, 2022, 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 August 31, 2022, the estimated future amortization of purchased intangible assets is as follows:


Fiscal year:
2023	$	17,936
2024		14,164
2025		14,019
2026		13,068
2027		2,911
2028 and thereafter		20,790

Total	$	82,888

(9) 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. 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.


	Year Ended August 31,
	2022			2021
Numerator
Net loss	$	(8,332	)	$	(16,931	)
Denominator
Weighted average shares of common stock—basic and diluted		132,205,020			131,114,791
Net loss per share—basic and diluted	$	(0.06	)	$	(0.13	)

As of August 31, 2022 and 2021 1,273,972 and 3,022,585, respectively, shares outstanding of potential common stock, prior to the use 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.

Prior to the IPO, there were no shares of common stock outstanding, and the membership structure of Duck Creek Technologies consisted of limited partnership units. Basic earnings per share is applicable only for the period from August 14, 2020 through August 31, 2020, which is the period following the IPO and related

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

Reorganization Transactions (as described in Note 1) and presents the period that the Company had outstanding common stock. The following table sets forth a reconciliation of the numerator and denominator used to compute basic earnings per share of common stock for this period.


	Year Ended August 31, 2020
Numerator
Net loss	$	(29,932	)
Net loss attributable to the Operating Partnership before the Reorganization Transactions		(5,598	)

Net loss attributable to Duck Creek Technologies, Inc.	$	(24,334	)
Denominator
Weighted average shares of common stock—basic and diluted		130,702,511
Net loss per share—basic and diluted	$	(0.19	)

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 any period prior to August 31, 2020.

As of August 31, 2020, 4,594,242 shares outstanding of potential common stock, prior to the use 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.

(10) Other Assets

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


	August 31, 2022		August 31, 2021
Deferred contract costs	$	14,682	$	14,056
Other noncurrent assets		6,611		5,357

Total other assets	$	21,293	$	19,413

The amortization related to deferred contracts costs were $2.5 million, $2.1 million and $1.5 million for the fiscal year ended August 31, 2022, 2021 and 2020, respectively, and there was no impairment loss in relation to the costs capitalized.

(11) Accounts Receivable and Allowance for Credit Losses

Accounts receivable, net as of August 31, 2022 and August 31, 2021, consisted of the following:


	August 31, 2022			August 31, 2021
Accounts receivable	$	32,913		$	36,054
Allowance for credit losses		(2,974	)		(1,425	)

Accounts receivable, net	$	29,939		$	34,629

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

The following table presents changes to the allowance for credit losses during the year ended August 31, 2022:


Allowance, August 31, 2021	$	(1,425	)
Net changes to credit losses		(2,626	)
Write-offs, net		737
Recoveries of previously reserved amounts		340

Allowance, August 31, 2022	$	(2,974	)

(12) Accrued Liabilities

Accrued liabilities as of August 31, 2022 and 2021 consisted of the following:


	August 31, 2022		August 31, 2021
Accrued bonuses	$	14,146	$	18,831
Accrued vacation		5,490		5,572
Accrued hosting fees		7,122		7,500
Accrued withholding taxes		2,800		2,771
Liability-classified phantom units and SARs		93		3,036
Accrued professional service fees		425		369
Accrued commissions		1,458		1,429
Other		10,213		6,929

Total accrued liabilities	$	41,747	$	46,437

(13) Credit Facility

On October 22, 2021, the Company executed an amended and restated credit agreement for its revolving credit facility, increasing its maximum borrowing capacity 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%, or (3) LIBOR plus 1.0%, plus an applicable margin. The applicable margin ranges from 1.0% to 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% 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, and maintaining a leverage ratio at or below a maximum level. The Company was in compliance with these financial and nonfinancial covenants as of August 31, 2022. There was no outstanding balance under the revolving credit facility at August 31, 2022 or August 31, 2021. Letters of credit of $0.7 million and $0.9 million were outstanding under the revolving credit facility at August 31, 2022 and August 31, 2021, respectively.

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

(14) 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 August 31, 2022 or 2021.

(b) Guarantees

The Company’s products are typically warrantied 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 warrantied 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 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.

(15) Income Taxes

The Company’s loss before income taxes for the years ended August 31, 2022, 2021 and 2020 is as follows:


	August 31,
	2022			2021			2020
United States	$	(4,694	)	$	(21,193	)	$	(32,593	)
Foreign		(2,347	)		6,158			4,223

Loss before income taxes	$	(7,041	)	$	(15,035	)	$	(28,370	)

The provision for income taxes consisted of the following:


	August 31,
	2022		2021		2020
Current:
Federal	$	—	$	—	$	—
State		44		174		97
Foreign		529		1,059		896

Total current tax expense		573		1,233		993

Deferred:
Federal	$	47	$	—	$	—
State		67		—		—
Foreign		604		663		569

Total deferred tax expense		718		663		569

Total provision for income taxes	$	1,291	$	1,896	$	1,562

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

The table below reconciles the differences between income taxes computed at the U.S. federal statutory rate and the provision for income taxes:


	August 31,
	2022			2021			2020
Federal statutory tax rate		21.0	%		21.0	%		21.0	%
State taxes, net of federal benefit		(1.2	)%		(0.9	)%		(0.5	)%
Permanent differences		1.7	%		(0.8	)%		0.8	%
Share-based compensation		(3.8	)%		4.7	%		(2.0	)%
Non-deductible officer’s compensation		(1.3	)%		(2.4	)%		(2.1	)%
Federal research and development credits		13.8	%		9.4	%		2.1	%
Foreign rate differential		(11.5	)%		(3.7	)%		(2.1	)%
Change in valuation allowance		(37.0	)%		(39.9	)%		(22.7	)%

Total income tax expense%		(18.3	)%		(12.6	)%		(5.5	)%

Net deferred tax assets (liabilities) consist of the following:


	August 31,
	2022			2021
Assets:
Net operating loss carryforward	$	26,185		$	23,681
Intangible assets		23,049			24,571
Tax credits		5,464			4,496
Other nondeductible expenses		10,127			10,931
Share-based compensation		3,507			2,520
Interest expense carryforward		—			132
Lease liabilities		4,121			4,780
Depreciation		327			414

Gross deferred tax assets	$	72,780		$	71,525
Less valuation allowance		(61,229	)		(59,207	)

Total deferred tax assets	$	11,551		$	12,318

Liabilities:
Intangible assets		(10,798	)		(1,651	)
Operating lease assets		(2,703	)		(3,094	)
Capitalized items		(5,086	)		(5,019	)
Depreciation		(486	)		(858	)

Total deferred tax liabilities		(19,073	)		(10,622	)

Total net deferred tax (liabilities) assets	$	(7,522	)	$	1,696

The Company recognizes a net deferred tax asset for the future benefit of tax losses, tax credit carryforwards, and other deductible temporary differences to the extent that it is more likely than not that these assets will be realized. In evaluating the Company’s ability to recover these deferred tax assets, the Company considers all available positive and negative evidence, including its past operating results, the existence of cumulative income in the most recent years, changes in the business, the projected reversal of existing deferred tax liabilities, its forecast of future taxable income, and the availability of tax planning strategies. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

As of the years ended August 31, 2022 and 2021, the Company evaluated the likelihood that it would realize its deferred tax assets and concluded that a valuation allowance is necessary, except in certain foreign subsidiaries which generate income. The valuation allowance increased by $2.0 million for the fiscal year ended August 31, 2022 primarily due to operating losses generated during the year, tax credits, and other

non-deductible

expenses. The valuation allowance increased by $6.3 million for the fiscal year ended August 31, 2021 primarily due to operating losses generated during the year, tax credits, and other

non-deductible

expenses.

As of August 31, 2022, the Company had U.S. federal and U.S. state net operating loss carryforwards of $89.5 million and $58.3 million, respectively. The U.S. federal and U.S. state net operating loss carryforwards expire at various dates beginning in 2032. As of August 31, 2022, the Company had foreign net operating loss carryforwards of $21.4 million that can be carried forward indefinitely. The Company also had U.S. federal research and development credit carryforwards of $4.8 million, U.S. state research and development credit carryforwards of $0.8 million and a state investment tax credit carryforward of $0.1 million as of 2022. These credit carryforwards expire at various dates beginning in 2030.

Utilization of the net operating loss and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of net operating loss and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company assessed the impact of Section 382 through fiscal 2021 and determined that there are no material impact on the utilization of its available carryforwards. The Company is in the process of preparing a Section 382 assessment for fiscal 2022 and does not expect there to be a material impact on the utilization of its available carryforwards. The Company does not expect to be precluded from realizing the net operating loss carryforwards and tax credits but may be limited in the amount it could use in any given tax year in the event that the federal and state taxable income exceeds the limitation imposed by Section 382. The amount of the annual limitation is determined based on the Company’s value immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.

A reconciliation of unrecognized income tax benefits is as follows:


	Amount
Balance at August 31, 2020	$	395
No change—current year and prior year tax positions		—

Balance at August 31, 2021	$	395
No change—current year and prior year tax positions		—

Balance at August 31, 2022	$	395

The Company accounts for uncertain tax positions using a more-likely

than-not

threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors that include, but are not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity, and changes in facts or circumstances related to a tax position. The Company evaluates uncertain tax positions on an annual basis and adjusts the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. The Company elected an accounting policy to record interest and penalties related to income taxes as a component of income tax expense. There were no changes in uncertain tax positions in fiscal year 2022 or 2021. During the next 12 months, the Company does not expect any material changes to its uncertain tax positions other than the accrual of interest in the normal course of business.

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

In the normal course of business, the Company is subject to examination by U.S. federal and certain state and foreign taxing authorities. All tax periods remain subject to income tax examinations as of August 31, 2022. The statute of limitations for these jurisdictions is generally three to seven years. However, to the extent that the Company utilizes net operation losses or other similar carryforward attributes such as credits, the statute remains open to the extent of the net operation losses or credits that are utilized.

(16) Redeemable Partners’ Interest and Partners’ Capital and Stockholders’ Equity

Redeemable Partners’ Interest and Partners’ Capital

As of August 13, 2020, prior to the closing of the Reorganization Transactions and IPO (see Note 1 – Nature of Business), the following units of the partnership were authorized, issued and outstanding in accordance with the Company’s amended and restated Agreement of Exempted Limited Partnership Agreement (Partnership Agreement):


Description	Authorized		Issued and outstanding
Unit classes:
Class A		5,000,000,000		183,354,104
Class B		5,000,000,000		122,236,021
Class C		5,000,000,000		3,660,106
Class D		59,247,586		47,170,961
Class E		129,828,398		129,828,398

Of the 47,170,961 Class D Units outstanding noted in the table above, 27,356,428 were unvested as of August 13, 2020.

In October 2018, the Company issued 1,500,000 Class C Units, with an aggregate fair value of $2.0 million, as part of the purchase price of the Outline acquisition as further described in Note 3 – Business Combinations.

In November 2019, the Company issued 41,412,296 Class E Units in exchange for cash consideration of $120.0 million to certain accredited investors. Also in November 2019, the Company redeemed 20,292,029 Class A Units and 13,528,013 Class B Units in exchange for $98.0 million.

In February 2020, the Company issued 30,222,126 Class E Preferred Units in exchange for cash consideration of $0.1 million to certain accredited investors. Also in February 2020, the Company redeemed 18,133,278 Class A Units and 12,088,848 Class B Units in exchange for $0.1 million.

In June 2020, the Company issued 58,193,976 Class E Preferred Units in exchange for cash consideration of $230.0 million to certain accredited investors. Also in June 2020, the Company redeemed 30,362,073 Class A Units and 20,241,374 Class B Units in exchange for $199.9 million. The Company incurred $11.4 million in aggregate issuance costs associated with the Class E Units.

Additionally, the Company issued Class D incentive units and Phantom Unit incentive awards to certain employees and directors of the Company (see Note 17 – Share-Based Compensation).

The Class A, Class B, Class C, and Class E Units were held by the Company’s limited partners, with the exception of 100 Class A Units which were held by the Company’s general partner.

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

Prior to the Reorganization Transactions and IPO, profits and losses were allocated to each class in such a manner, as close as possible, to equal the amount that would be distributable to each partner upon dissolution of the Company. The rights and preferences of the Class A, Class B, Class C, Class D, and Class E Units were as follows:

Voting rights

: All units of the limited partners were deemed to be nonvoting units and did not entitle any holder thereof to any right to vote upon or approve any action to be taken by the Company. The Company’s general partner, Disco (Cayman) GP Co., had broad authority to act on behalf of the partnership.

Distribution preferences

: The partners of the Company were entitled to receive distributions in the following order priority: (1) first, 100% to the holders of Class A Units, Class B Units, Class C Units, and Class E Units in proportion to their unreturned capital amounts, (2) second, to all holders, on a ratable basis, of Class A Units, Class B Units, Class C Units, Class D, and Class E Units held at the time of distribution.

Liquidation preferences

: Upon any liquidation or dissolution of the Company, the partners were entitled to a distribution of the remaining assets of the Company after payment or provision for the Company’s liabilities has been made, in accordance with the distribution preferences described above.

Redemption rights

: The holders of the Class A Units, Class B Units, Class C Units, and Class D Units did not have the right to redeem the units, outside of the distribution and liquidation terms described above. The holders of the Class E Units had the right to redeem the units upon (i) the occurrence of the Company not achieving certain liquidity events by the fourth anniversary of the original issuance of the Class E Units, and (ii) notice to the Company’s general partner. Although units of the Company were not mandatorily redeemable, they were classified outside of partner’s capital because they were potentially redeemable upon certain events outside of the Company’s control, including a change in control, sale, dissolution, or winding up.

Repurchase rights

: In the event that an employee holding Class C Units was terminated for cause or upon breach of the agreement between the Company and the employee, the Company had the right to repurchase the Class C Units for the lower of the cost basis (to the holder) of the Class C Units, the fair value of the Class C Units at the date of termination or the fair value of the Class C Units at the date of repurchase. The Company also had the right to repurchase vested Class D Units upon termination as further described in Note 16 – Share-Based Compensation.

Reorganization Transactions and Initial Public Offering

Following the Reorganization Transactions and IPO as further described in Note 1 – Nature of Business, the holders of Class A, Class B, Class C, Class D and Class E Units retained all or a portion of their equity ownership in the Company through their ownership of common stock of the Company. The units of the partnership were converted into the following shares of common stock:


	Units Held Pre-IPO		Converted Shares Post-IPO
Class A		183,354,104		45,838,526
Class B		122,236,021		28,855,284
Class C		3,660,106		915,027
Class D		19,814,533		7,930,897
Class E		129,828,398		32,457,100

		458,893,162		115,996,833

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

Non-controlling

Interests

Following the Reorganization Transactions, the outstanding LP Units of the Operating Partnership owned by Accenture and RBW that were not contributed to the Company were treated as

non-controlling

interests. However, these outstanding LP Units of the Operating Partnership were subsequently redeemed using proceeds obtained from the IPO. Accordingly, the balance of

non-controlling

interests as of August 31, 2020 was $0.

Common Stock Reserved for Issuance

As of August 31, 2022, the Company was authorized to issue 300,000,000 shares of common stock with a par value of $0.01 per share and 132,686,867 shares of common stock were outstanding. As of August 31, 2022, the Company had 15,910,948 shares of common stock reserved for future issuance under the Company’s 2020 Omnibus Incentive Plan.

Follow-on

Offering

During the second quarter of 2021, the Company completed a

follow-on

offering of its common stock. The Company issued 90,000 shares in exchange for cash consideration of $3.5 million to certain accredited investors.

(17) Share-Based Compensation

2020 Omnibus Incentive Plan

As part of the Reorganizations Transactions, the Company adopted the Duck Creek Technologies, Inc. 2020 Omnibus Incentive Plan (the “Plan”). The purpose of the Plan is to provide additional incentives to selected officers, employees,

non-employee

directors, independent contractors and consultants, to strengthen their commitment to the Company and to attract and retain competent and dedicated persons who are essential to the success of the Company’s business. The maximum number of shares of the Company’s common stock reserved for issuance under the Plan is 18,000,000 shares. This reserve will automatically increase on January 1

of each calendar year, prior to the tenth anniversary of the effective date of the Plan, by an amount equal or lesser of (i) 4% of the number of shares of common stock issued and outstanding on December 31

of the preceding year and (ii) an amount determined by the Plan administrator. On January 1, 2022, the reserve was increased by 4% of the number of shares of common stock issued and outstanding on December 31, 2021, or 5,367,506 shares. The shares available for issuance are subject to adjustment in the event of a stock split, stock dividend or other defined changes in the Company’s capitalization.

Class D Units and Phantom Units

Prior to the IPO, the Company granted Class D incentive units (Class D Units) to certain employees and directors under the terms of Incentive Unit Award Agreements. The Company also granted Phantom Unit incentive awards (Phantom Units) to certain employees of its international subsidiaries. The Class D Units and Phantom Units were granted in three tranches, as follows:


Class D-1 Units		80% of the units granted
Class D-2 Units		10% of the units granted
Class D-3 Units		10% of the units granted

Vesting of the Class D Units was 50% time-based, quarterly, over a four year period from the vesting start date, and 50% based on the date in which the Class D Units become participating units. These vesting terms applied to each of the Class D-1, Class D-2 and Class D-3 tranches described above. Class D-1 Units would become

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

participating units upon the later of: (i) the date which aggregate distributions by the Company exceeded the minimum threshold equity value (as defined in each Incentive Unit Award Agreement), or (ii) when the total cumulative distributions made to the Class A Unit holders exceeded the aggregate investment made by the Class A Unit holders. Class D-2 and D-3 Units would become participating units upon the later of: (i) the date which aggregate distributions by the Company exceeded the minimum threshold equity value (as defined in each Incentive Unit Award Agreement), or (ii) when the total cumulative distributions made to the Class A Unit holders exceeded either three times (Class D-2 Units) or four times (Class D-3 Units) the aggregate investment made by the Class A Unit holders. The terms of the Phantom Unit awards were similar to the Class D Unit awards; however, they did not represent ownership of any class unit of the Company. The Phantom Units vested and became participating units in similar fashion to the Class D Units as described above. The holder of a vested and participating Phantom Unit was eligible to receive a distribution in the same form and consideration as a Class D Unit holder, however, only upon a change in control event. Upon receiving the distribution, the Phantom Units would cease to be outstanding.

Share-based compensation expense related to the issuance of Class D Units was calculated based upon the fair value of the Class D Units at the time of grant and recognized ratably over the requisite service period of the award. With respect to the Phantom Units, as a change in control event represents a contingent future event outside the control of the Company, the Company did not record any share-based compensation expense related to the Phantom Units until the contingency was resolved.

The following is a summary of the Company’s Class D Unit awards as of the date of the IPO:


	Number of Class D Units
Nonvested, August 31, 2019		30,391,861
Granted		3,420,000
Vested		(5,579,183	)
Forfeited		(876,250	)
Impact of conversion		(27,356,428	)

Nonvested, August 31, 2020		—

Outstanding Class D Units of 47,170,961 converted to 9,785,895 shares of restricted common stock on the IPO date.

The following is a summary of the Company’s Phantom Unit awards as of the date of the IPO:


	Number of Phantom Units
Nonvested, August 31, 2019		1,228,125
Granted		350,000
Vested		(197,969	)
Forfeited		(143,750	)
Impact of conversion		(1,236,406	)

Nonvested, August 31, 2020		—

Outstanding Phantom Units of 1,894,063 converted to 373,581 Phantom stock awards on the IPO date.

DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

Conversion of Class D Units and Phantom Units

On the date of the IPO, the

Class D-1

Units became participating units when the total cumulative distributions made to the Class A Unit holders exceeded the aggregate investment made by the Class A Unit holders. In addition, participating

D-1

Phantom Units became eligible for cash settlement. As part of the Reorganization Transactions; (i) Class D Units were converted to restricted common stock and

(ii) non-participating

Phantom Units were cancelled and replaced with new phantom stock awards. All converted and replaced awards retained the same vesting attributes as the original Class D Units and Phantom Units.

Vested and unvested Class D Units converted to an aggregate 9,785,895 shares of restricted common stock (“Class D Restricted Common Stock”). Of this amount, 7,930,897 were vested and 1,854,998 were unvested. The conversion was treated as a grant of a new award in exchange for cancellation of an old award, and therefore was accounted for as a modification. Accordingly, the Company compared the fair value of the Class D Units immediately prior to the conversion to the fair value of the Class D Restricted Common Stock granted. However, based on the conversion ratio in effect, no additional share-based compensation expense was recorded as the fair values were identical upon conversion.

As a result of the Participating

D-1

Phantom Units becoming eligible for cash settlement, the Company recorded share-based compensation expense and an accrued liability of $6.6 million during the fiscal year ended August 31, 2020 based on the fair value of the awards on the date of IPO.

Non-participating

D-2

and

D-3

Phantom Units were converted to 126,289 phantom stock awards (“Class D Phantom Stock Awards”). The grant date fair value of Class D Phantom Stock Awards is being recorded as share-based compensation expense over the requisite service period of the awards. The Company has concluded that Class D Phantom Stock Awards should be treated as liability classified share-based compensation awards because they will be settled in cash. Accordingly, the accrued liability balance associated with Class D Phantom Stock Awards is adjusted to fair value at each reporting period through earnings. During the fiscal year ended August 31, 2020, the Company recorded share-based compensation expense and an accrued liability of $1.2 million for Class D Phantom Stock Awards.

Leverage Restoration Options and SARs

In substitution for part of the economic benefit of the Class D Units that was not reflected in the conversion to Class D Restricted Common Stock, 1,802,216 stock options (“Leverage Restoration Options”) were granted to holders of Class D Units. The fair value of the Leverage Restoration Options is being recorded as share-based compensation expense over the requisite service period of the awards. During the fiscal year ended August 31, 2020, the Company recorded share-based compensation expense of $10.5 million for the Leverage Restoration Options.

Additionally, in substitution for part of the economic benefit of the Phantom Units that was not reflected in the conversion to Class D Phantom Stock Awards, 91,762 stock appreciation rights (“Leverage Restoration SARs”) were granted to holders of Phantom Units. The fair value of the Leverage Restoration SARs is being recorded as share-based compensation expense over the requisite period of the awards. The Company has concluded that the Leverage Restoration SARs should be treated as liability classified share-based compensation awards because they will be settled in cash. Accordingly, the accrued liability balance associated with Leverage Restoration SARs is adjusted to fair value at each reporting period through earnings. During the quarter ended August 31, 2020, the Company recorded share-based compensation expense and an accrued liability of $0.9 million for Leverage Restoration SARs.

DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

Class D Restricted Common Stock

The Class D Restricted Common Stock awards retain the vesting attributes (including original service period vesting start date) of the Class D Units. Unless the applicable award agreement provides otherwise, participants with restricted stock will generally have all the rights of a stockholder during the restricted period.

The following is a summary of the Company’s Class D Restricted Common Stock:


	Number of Class D Restricted Stock
Nonvested, August 31, 2021		763,973
Granted		—
Vested		(567,495	)
Forfeited		(82,904	)

Nonvested, August 31, 2022		113,574

Unrecognized share-based compensation expense of $0.2 million related to Class D Restricted Common Stock as of August 31, 2022 is expected to be recognized over a period of 1.8 years. Since the fair value of the Class D Units and the fair value of the Class D Restricted Common Stock were identical upon conversion, the $0.1 million of future share-based compensation relates to the aggregate grant date fair value of the Class D Units determined in prior periods. As such, the disclosure of the weighted average fair value of the Class D Restricted Common Stock is not meaningful.

Leverage Restoration Options

Leverage Restoration Options were granted on the IPO date, with an exercise price of $27.00, a

ten-year

contractual term and retained the vesting attributes (including original service period vesting start dates) of the Class D Units. The per share fair value of each option award was estimated on the grant date under the Black-Scholes valuation model that used the following assumptions:


Expected life	4 years
Risk-free rate	0.24	%
Volatility	35	%
Dividend yield	0.00	%

The following is a summary of the Company’s Leverage Restoration Options:


	Number of Stock Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Balance as of August 31, 2021		1,603,052		$	27.00		9		31,468
Granted		—			—
Exercised		(4,897	)	$	27.00				18
Forfeited		(27,413	)	$	27.00				—

Balance as of August 31, 2022		1,570,742		$	27.00		8		—
Vested and expected to vest as of August 31, 2022		1,570,742		$	27.00		8		—
Exercisable as of August 31, 2022		1,505,755		$	27.00		8		—

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

Aggregate intrinsic value represents of the Leverage Restoration Options was determined using the Company’s closing stock price of $11.90, $46.63 and $38.99 less the applicable weighted-average exercise price on August 31, 2022, August 31, 2021 and August 31, 2020, respectively

As of August 31, 2022, unrecognized share-based compensation expense of $0.4 million related to these stock options is expected to be recognized over a weighted average period of 1.8 years.

Class D Phantom Stock Awards

The Class D Phantom Stock Awards retain the vesting attributes (including original service period vesting start date) of the Phantom Units. These awards will be settled in cash equal to the fair market value of a share of the Company’s common stock, determined on the day that such award becomes fully vested.

The following is a summary of the Company’s Class D Phantom Stock Awards:


	Number of Class D Phantom Stock Awards
Nonvested, August 31, 2021	$	46,046
Granted		—
Vested		(30,074	)
Forfeited		(2,066	)

Nonvested, August 31, 2022	$	13,906

During the fiscal year ended August 31, 2022 and 2021, the Company recorded share-based compensation expense of ($0.2) million and $2.8 million, respectively for Class D Phantom Stock Awards. As of August 31, 2022 and 2021, the accrued liability associated with Class D Phantom Stock Awards was $0 and $1.5 million, respectively.

Leverage Restoration Stock Appreciation Rights

Leverage Restoration Stock Appreciation Rights (“SARs”) were granted on August 14, 2020 with an exercise price of $27.00, a

ten-year

contractual term and retained vesting attributes (including original service period vesting start dates) of the Phantom Units. SARs will be settled in cash equal to the excess of the fair market value of a share of the Company’s common stock, determined on the date of exercise, over the exercise price share of common stock underlying such SAR.

The per share fair value of each SAR was estimated on the grant date under the Black-Scholes option valuation model and

re-valued

as of August 31, 2020 using the following assumptions:


Expected life	4 years
Risk-free rate	0.24	%
Volatility	35	%
Dividend yield	0.00	%

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

The following is a summary of the Company’s outstanding balance of SAR’s as of the fiscal year ended August 31, 2022:


	Number of Stock Appreciation Rights Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Balance as of August 31, 2021		88,623		$	27.00		9		1,740
Granted		—			—
Exercised		—			—				—
Forfeited		(1,697	)	$	27.00

Balance as of August 31, 2022		86,926		$	27.00		8		—
Vested and expected to vest as of August 31, 2022		86,926		$	27.00		8		—
Exercisable as of August 31, 2022		75,134		$	27.00		8		—

Aggregate intrinsic value of the Leverage Restoration SARs was determined using the Company’s closing stock price of $11.90 and $46.63 less the applicable weighted-average exercise price on August 31, 2022 and August 31, 2021, respectively

During the fiscal year ended August 31, 2022, 2021 and 2020 the Company recorded share-based compensation expense of ($1.5) million, $0.7 million and $0.9 million, respectively, for Leverage Restoration SARs. As of August 31, 2022 and 2021, the accrued liability associated with Leverage Restoration SARs was $0.1 million and $1.6 million, respectively.

New Restricted Stock Awards and Restricted Stock Units

Subsequent to the IPO, the Company has granted Restricted Stock Awards (“RSAs”) to select US employees and outside directors and Restricted Stock Units (“RSUs”) to select international employees. While substantively the same from an economic standpoint, the RSUs represent the right to receive shares of the Company’s common stock as they vest; however, the holder of an RSU has no rights as a stockholder.

The following is a summary of the Company’s RSAs and RSUs:


	Restricted Stock Awards			Restricted Stock Units			Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Nonvested, August 31, 2021		619,383			36,177		$	28.02		30,569
Granted		975,444			36,283		$	28.45
Vested		(161,684	)		(11,728	)	$	27.00		—
Forfeited		(329,255	)		(4,222	)	$	27.00

Nonvested, August 31, 2022		1,103,888			56,510		$	28.02		13,809

These awards generally vest annually over a

4-year

requisite service period and are settled in shares of the Company’s common stock. The Company has concluded that the RSAs and RSUs should be treated as equity classified share-based compensation awards. During the years ended August 31, 2022, 2021 and 2020, the Company recorded aggregate share-based compensation expense of $9.5 million, $6.8 million and $0.3 million, respectively, related to these RSAs and RSUs.

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

Share-based compensation expense has been recorded in the accompanying consolidated statements of operations as follows for the years ended August 31, 2022, 2021 and 2020:


	Year Ended August 31,
	2022		2021		2020
Cost of subscription revenue	$	349	$	429	$	415
Cost of maintenance and support revenue		35		29		28
Cost of professional services revenue		1,063		2,708		4,683
Research and development		1,746		1,992		4,128
Sales and marketing		1,133		3,209		5,581
General and administrative		5,198		4,510		6,273

Total share-based compensation expense	$	9,524	$	12,877	$	21,108

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 and Leverage Restoration SARs. Accordingly, all remaining unrecognized share-based compensation expense associated with these awards totaling $1.2 million was immediately recognized on that date.

During the year ended August 31, 2022, the Company modified the vesting conditions for a subset of its share-based awards. The modification resulted in incremental share-based compensation expense of $0.3 million that will be recognized over the remaining requisite service period of the awards.

(18) Segment Information and Information about Geographic Areas

The Company considers operating segments to be components of the Company for which separate financial information is available and evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decision maker for the Company is the chief executive officer. The chief executive officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by product and geographic region, for purposes of allocating resources and evaluating financial performance. Accordingly, the Company has determined that it has a single operating segment.

Revenues by geographic area presented based upon the location of the customer are included in Note 2(g).

Property and equipment, net by geographic area are as follows:


	August 31, 2022		August 31, 2021
United States	$	11,306	$	12,814
All other		2,770		1,491

Total property and equipment, net	$	14,076	$	14,305

(19) Employee Benefit Plans

Defined Contribution Plan

The Company has a 401(k) plan covering all U.S.-based employees who meet certain eligibility requirements. Under the terms of the 401(k) plan, the employees can elect to make

tax-deferred

contributions to the 401(k) plan

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

and the Company can make discretionary contributions. Under this plan, discretionary contributions of $7.8 million, $6.6 million, and $5.3 million were made by the Company for the years ended August 31, 2022, 2021, and 2020 respectively.

Other Long-Term Obligations

The Company accrues for long-term termination obligations earned by employees of its subsidiary in India. The termination obligation would be payable to the employee in the event of termination without cause and is based upon the employee’s wage and years of service, and the applicable payment formula as dictated by statute. The liability is based on an actuarial estimate. The accrued obligation was $2.2 million and $1.8 million as of August 31, 2022 and 2021, respectively, and is included in other long-term liabilities in the accompanying consolidated balance sheets.

(20) Related-Party Transactions

Services Provided on Behalf of and by Accenture

As of August 31, 2022 and 2021, Accenture held 15.9% and 16.0% of the outstanding shares of common stock of the Company, respectively.

The Company provides certain professional services and software maintenance services to end customers as a subcontractor to Accenture as part of its typical revenue generating arrangements. During the years ended August 31, 2022, 2021 and 2020, the Company recognized immaterial amounts of revenue relating to services performed in this subcontractor capacity. In addition, the Company also engages Accenture to provide certain professional services on behalf of the Company as part of its typical revenue generating arrangements. During the years ended August 31, 2022, 2021 and 2020, the Company incurred immaterial expenditures relating to services performed by Accenture.

Revenue Contracts with Investors

The Company recognizes revenues from customers that invested in the Company’s Class E Preferred Units during the year ended 2020 whose shares converted to common stock in the IPO. For the years ended August 31, 2022, 2021 and 2020, the Company recognized aggregate revenues of $32.1 million, $31.2 million and $18.7 million from these customers, respectively and deferred revenue of $4.4 million and $4.1 million for the years ended August 31, 2022 and 2021, respectively.

As of August 31, 2022 and August 31, 2021, the Company had outstanding accounts receivables due from these customers of $10.1 million and $5.0 million, respectively.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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 Exchange Act, as of the end of the period covered by this Annual Report on Form

10-K/A.

Based on such evaluation, our CEO and CFO have concluded that as of August 31, 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

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DUCK CREEK TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands except unit and per unit and share and per share amounts)

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.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules

13a-15(f)

and

15d-15(f)

of the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of August 31, 2022 based on the criteria established in

Internal Control – Integrated Framework

(2013)

issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that as of August 31, 2022, our internal control over financial reporting was effective. Our evaluation excluded Effisoft SAS and Prima Solutions Belgium SA (“Effisoft”), which were acquired on July 12, 2022. Our Consolidated Statement of Operations for the year ended August 31, 2022 included revenue of approximately $2.1 million and our Consolidated Balance Sheet as of August 31, 2022 included total assets of approximately $14.8 million attributable to Effisoft. In accordance with guidance issued by the Securities and Exchange Commission, companies are allowed to exclude acquisitions from their assessment of internal control over financial reporting during the first year subsequent to the acquisition while integrating the acquired operations.

This Annual Report on Form

10-K/A

includes an attestation report of our independent registered public accounting firm regarding internal control over financial reporting, which appears in Part II, Item 8 of this Annual Report on Form

10-K/A.

Changes in Internal Control over Financial Reporting

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.

Limitations on the Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or the Company’s internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

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	Year Ended August 31,
	2022			2021			2020
Revenue:
Subscription	$	153,535		$	125,267		$	83,999
License		17,284			12,171			9,914
Maintenance and support		25,752			24,285			23,680
Professional services		106,346			98,627			94,079

Total revenue		302,917			260,350			211,672
Cost of revenue:
Subscription		59,592			47,266			34,902
License		1,386			1,888			1,853
Maintenance and support		3,676			3,410			3,338
Professional services		63,640			57,522			57,082

Total cost of revenue		128,294			110,086			97,175

Gross margin		174,623			150,264			114,497

Operating expenses:
Research and development		55,359			48,549			44,052
Sales and marketing		57,454			54,124			50,305
General and administrative		67,111			62,664			48,662
Change in fair value of contingent consideration		67			293			133

Total operating expenses		179,991			165,630			143,152

Loss from operations		(5,368	)		(15,366	)		(28,655	)
Other (expense) income, net		(2,277	)		431			641
Interest expense, net		604			(100	)		(356	)

Loss before income taxes		(7,041	)		(15,035	)		(28,370	)
Provision for income taxes		1,291			1,896			1,562

Net loss	$	(8,332	)	$	(16,931	)	$	(29,932	)

Net loss per share information1
Net loss per share of common stock, basic and diluted	$	(0.06	)	$	(0.13	)	$	(0.19	)
Weighted average shares of common stock, basic and diluted		132,205,020			131,114,791			130,702,511


EXHIBIT NO.		DESCRIPTION OF EXHIBIT

23.1*		Consent of KPMG LLP, Independent Registered Public Accounting Firm

31.1*		Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certifications 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

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)