Duck Creek Technologies (DCT) reported better-than-expected fiscal third-quarter results, topping both earnings and revenue estimates. However, despite the Q3 beat, shares of the software as a service (SaaS) provider to the P&C insurance industry are down over 23% today after the company slashed its FY-2022 guidance below analyst expectations. At one point, the stock was down about 27%.
Q3 Revenue and Earnings Beat
Adjusted earnings of $0.01 per share were a cent ahead of analysts’ expectations of break-even results. The company reported earnings of $0.03 per share in the prior-year period.
Further, revenues jumped 6.6% year-over-year to $72.36 million and exceeded consensus estimates of $72.15 million.
The increase in revenues reflected a surge in Subscription revenue, which increased 13% to $38 million, and 16% growth in License revenue to $2.9 million, offsetting declines of 1% and 5% in Professional Services revenue and Maintenance & Support revenue, respectively.
Lowered Outlook
Based on the near-term uncertainty in the market, Duck Creek Technologies management reduced its financial guidance for FY2022.
DCT now forecasts FY2022 revenues to be in the range of $295-$297 million, lower than the prior guidance of $301-$305 million and the consensus estimate of $302.4 million. The company now forecasts adjusted earnings in the range of $0.09-$0.10 per share, while the consensus estimate is pegged at $0.10 per share.
For the fiscal fourth quarter, revenues are projected to be in the range of $72.8 to $74.8 million, versus the consensus estimate of $80.37 million. The company now forecasts adjusted earnings in the range of $0.01-$0.02 per share, while the consensus estimate is pegged at $0.02 per share.
CEO’s Comments
In the earnings report, Duck Creek CEO Michael Jackowski also shared his views on the company’s recent acquisition of Prima XL and Prima Compliance. Prima XL is a commercial reinsurance technology solution, while Prima Compliance is a compliance solution. Both of these are cloud-based, SaaS solutions.
The CEO commented, “We are very well positioned with our core systems offerings and pursuing strategic expansion across the industry with the recent announcement of our intent to acquire Prima XL and Prima Compliance in France.”
He added, “This is an important milestone in Duck Creek’s strategic plan. The addition of these solutions will establish Duck Creek as a leader in the reinsurance technology market, accelerate our global expansion, and establish new relationships internationally with a number of top carriers.”
Wall Street’s Take
Following the reduced outlook, Stifel analyst Parker Lane decreased the price target on Duck Creek Technologies to $20 from $30 and reiterated a Buy rating.
The rest of Wall Street has a Strong Buy consensus rating based on seven Buys and two Holds. The average Duck Creek Technologies price forecast of $20.75 implies 44.6% upside potential from current levels.
Conclusion
Shares of Duck Creek Technologies have lost more than half of their market capitalization over the past year.
Though management reiterated its positive outlook on the long-term growth potential, the near-term outlook looks uncertain given the lower-than-expected FY2022 guidance that disappointed investors.
