DUCK CREEK TECHNOLOGIES, INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)

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

Insight

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

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

Duck Creek Policy: a solution that enables insurers to develop and launch new
insurance products and manage all aspects of policy administration, from product
definition to quoting, binding, and servicing

Duck Creek Billing: a solution that supports fundamental payment and invoicing
capabilities (such as billing and collections, commission processing,
disbursement management and general ledger capabilities) for all insurance lines
and bill types

Duck Creek Claims: a solution that supports the entire claims lifecycle from
first notice of loss through investigation, payments, negotiations, reporting
and closure

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

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

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

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

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

We believe our strong customer relationships are a result of our ability to
develop innovative technology and incorporate our deep domain expertise into
products that serve mission critical functions in our customers' day-to-day
operations. We have over 150 insurance customers, over 70 of which have
purchased one or more of our SaaS solutions. For customer concentration
purposes, customers are assessed two ways: individual entities (customers) and
combining customers that are under common control (affiliated entities). We did
not have any affiliated entities that accounted for more than 10% of our total
revenue in the third quarter of fiscal 2022 and one affiliated entity that
accounted for more than 10% of our total revenue in the third quarter of fiscal
2021.

Key Factors and Trends Affecting Our Results of Operations

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

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

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

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

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

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

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

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

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

Due to the success of our work from home program, we have established a
remote-first policy for all employees. Under this policy, employees can work
from home but have the option to work out of physical office locations when they
would like.

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

Components of operating results

Revenue

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

Subscription

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

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Licenses

On an increasingly limited basis, we sell licenses for our solutions on either a
renewable term basis or a perpetual basis. The total contractual consideration
allocated to the license is recognized as revenue upon delivery of the software
to a customer, assuming all other revenue recognition criteria are satisfied. We
sell our term licenses with an initial two-year committed term and optional
annual renewals, with the revenue allocated to the initial two-year license
period recognized in full upon delivery of the license. We expect potential
volatility across quarters for our license revenue due to the timing of license
renewals and sales. Our license revenue accounted for 6% of software revenue
during both the three months ended May 31, 2022 and 2021, respectively, and 7%
and 6% of software revenue during the nine months ended May 31, 2022 and 2021,
respectively.

Maintenance and Support

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

Professional services

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

Revenue cost

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

Cost of subscriptions

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

Cost of licenses

Our cost of licensing revenue primarily consists of royalties paid to third parties and amortization of acquired technology intangibles.

Cost of maintenance and support

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

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Cost of professional services

Our professional services cost revenue primarily includes personnel expenses of our professional services employees and contractors, including salaries and other direct personnel costs.

Gross margin

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

Functionnary costs

Research and development

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

Sales and marketing expenses

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

General and administrative expenses

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

Change in fair value of contingent consideration

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

Other income (expenses), net

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

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Interest income (expense), net

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

Provision for income taxes

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

Operating results

Comparison of the three months ended May 31, 2022 and 2021

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

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




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The following table shows the stock-based compensation expense included in our results of operations for the periods indicated:

                                            Three Months Ended          Nine Months Ended
                                                  May 31,                    May 31,
                                             2022          2021          2022         2021
Cost of subscription revenue              $       90      $    90     $      253     $   302
Cost of maintenance and support revenue            9            7             26          22
Cost of services revenue                         396          253            649       2,003
Research and development                         539          285          1,281       1,505
Sales and marketing                              338          199            726       2,493
General and administrative                     1,035          863         

3,794 2,980 Total stock-based compensation expense $2,407 $1,697 $6,729 $9,305



Revenue

Subscription

Subscription revenue increased $4.5 millioni.e. 13%, during the three months ended May 31, 2022 compared to the three months ended May 31, 2021due to a combination of sales to new customers and increased revenue from existing customers, which includes sales of new services and contract growth.

Licence

Licensing revenue increased $0.4 millioni.e. 16%, during the three months ended
May 31, 2022 compared to the three months ended May 31, 2021 primarily due to contract increases and the timing of existing customer renewals, including multi-year license renewals that did not occur in the prior period.

Maintenance and support

Maintenance and support revenue decreased $0.3 million, or 5%, during the three
months ended May 31, 2022 versus the three months ended May 31, 2021 primarily
due to timing of maintenance and support fees charged to customers during the
period.

Professional services

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

Revenue cost

Revenue cost increased $4.3 millioni.e. 16%, during the three months ended
May 31, 2022 compared to the three months ended May 31, 2021.

Cost of subscriptions

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

License cost

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

Cost of maintenance and support

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

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Cost of professional services

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

Gross margin

Gross margin increased $0.1 million, or remained relatively flat, during the
three months ended May 31, 2022 versus the three months ended May 31, 2021,
primarily due to a $1.9 million increase in subscription gross margin and a $0.5
million increase in license gross margin partially offset by a $1.9 million
decrease in professional services gross margin and a $0.4 million decrease in
maintenance and support gross margin. The increase in subscription gross margin
was driven by strong growth in subscription revenue.

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

Functionnary costs

Research and development costs

Research and development costs have increased $2.0 millioni.e. 16%, during the three months ended May 31, 2022 compared to the three months ended May 31, 2021
mainly due to a $1.1 million increase in personnel costs linked to the increase in the workforce.

Sales and Marketing Expense

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

General and administrative costs

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

Change in fair value of contingent consideration

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

Other Income (Expense), Net

Other income (expense), net decreased $1.5 million during the three months ended
May 31, 2022 as compared to the three months ended May 31, 2021, primarily due
to fluctuations in foreign exchange rates on receivables and payables
denominated in currencies other than the U.S. dollar.

Interest income (expense), net

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


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Provision for income taxes

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

Operating results

Comparison of the nine months ended May 31, 2022 and 2021

The following table sets forth our consolidated results of operations for the
periods indicated, expressed in total dollar terms and as a percentage of total
revenue:
                                                               Nine Months Ended May 31,
(dollars in thousands)                                 2022                                 2021
                                                        Percent of Total                     Percent of Total
                                                             Revenue                              Revenue
Revenue
Subscription                              $ 113,347                    52 %    $  92,069                    48 %
License                                       9,438                     4          7,412                     4
Maintenance and support                      18,519                     8         18,404                    10
Professional services                        80,899                    36         71,611                    38
Total revenue                               222,203                   100        189,496                   100
Cost of revenue
Subscription                                 43,468                    20         33,540                    17
License                                       1,098                     1          1,369                     1
Maintenance and support                       2,792                     1          2,556                     1
Professional services                        47,751                    21         42,857                    23
Total cost of revenue                        95,109                    43         80,322                    42
Gross margin                                127,094                    57        109,174                    58
Operating expenses
Research and development                     40,873                    18         36,040                    19
Sales and marketing                          42,741                    19         40,390                    21
General and administrative                   46,649                    21         44,273                    23
Change in fair value of contingent
consideration                                    67                     1           (291 )                   -
Total operating expense                     130,330                    59        120,412                    63
Income (loss) from operations                (3,236 )                  (2 )      (11,238 )                  (5 )
Other income (expense), net                  (1,641 )                  (1 )        1,009                     -
Interest income (expense), net                  130                     1            (87 )                   -
Income (loss) before income taxes            (4,747 )                  (2 )      (10,316 )                  (5 )
Provision for income taxes                    1,204                     1          1,056                     1
Net loss                                  $  (5,951 )                  (3 )%   $ (11,372 )                  (6 )%


The following table shows the stock-based compensation expense included in our results of operations for the periods indicated:

                                            Nine Months Ended
                                                 May 31,
                                             2022         2021
Cost of subscription revenue              $      253     $   302
Cost of maintenance and support revenue           26          22
Cost of professional services revenue            649       2,003
Research and development                       1,281       1,505
Sales and marketing                              726       2,493
General and administrative                     3,794       2,980

Total stock-based compensation expense $6,729 $9,305

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Revenue

Subscription

Subscription revenue increased $21.3 millionor 23%, during the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021due to a combination of sales to new customers and increased revenue from existing customers, which includes sales of new services and contract growth.

Licence

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

Maintenance and support

Increased maintenance and support revenue $0.1 millionor 1%, during the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021 primarily due to increased maintenance and support fee renewal periods charged to customers during the period.

Professional services

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

Cost of Revenue

Revenue cost increased $14.8 millionor 18%, during the nine months ended
May 31, 2022 compared to the nine months ended May 31, 2021.

Cost of subscriptions

Cost of subscription revenue increased $9.9 million, or 30%, during the nine
months ended May 31, 2022 versus the nine months ended May 31, 2021 primarily
due to an increase in SaaS customers, and is comprised of a $5.8 million
increase in hosting costs due to usage increase, a $3.1 million increase in
payroll and related costs, and a $1.1 million increase in computer hardware and
software costs.

Cost of License

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

Cost of maintenance and support

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

Cost of professional services

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

Gross margin

Gross margin increased $17.9 million, or 16%, during the nine months ended May
31, 2022 versus the nine months ended May 31, 2021, primarily due to a $11.4
million increase in subscription gross margin, a $4.4 million increase in
professional services gross margin, a $2.3 million increase in license gross
margin, and a nominal decrease in maintenance and support gross margin. The
increase in subscription gross margin was driven by strong growth in
subscription revenue.

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

Functionnary costs

Research and development costs

Research and development expense increased $4.8 million, or 13%, during the nine
months ended May 31, 2022 versus the nine months ended May 31, 2021 primarily
due to a $3.8 million increase in payroll costs from increased headcount, a $0.5
million increase in computer hardware and software, and a $0.5 million increase
in hosting costs. These increases were partially offset by a $0.5 million
decrease in bonus expense and a $0.4 million decrease in capitalized software.

Sales and marketing expenses

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

General and administrative costs

General and administrative expense increased $2.4 million, or 5%, during the
nine months ended May 31, 2022 versus the nine months ended May 31, 2021,
primarily due to a $1.6 million increase in the allowance for credit losses, a
$1.1 million increase in payroll related costs, a $0.9 million increase in
computer hardware and software expense, and a $0.8 million increase in
share-based compensation expense. These increases were partially offset by a
$1.8 million decrease in professional services expense, $0.9 million decrease in
facilities expense, and a $0.6 million decrease in bonus expense.

Change in fair value of contingent consideration

Change in fair value of contingent consideration is due to changes in estimated
contingent consideration as well as present value calculations related to the
contingent consideration estimates of the acquisition of Outline Systems LLC, a
provider of P&C distribution channel management software and longstanding member
of our partner ecosystem (now Duck Creek Distribution Management). The final
contingent consideration has been paid in full as of May 31, 2022.

Other income (expenses), net

Other income (expense), net decreased $2.7 million during the nine months ended
May 31, 2022 as compared to the nine months ended May 31, 2021, primarily due to
fluctuations in foreign exchange rates on receivables and payables denominated
in currencies other than the U.S. dollar.

Interest income (expense), net

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


Provision for Income Taxes

Provision for income taxes increased 14% during the nine months ended May 31,
2022 versus the nine months ended May 31, 2021 primarily due to the impact of
goodwill amortized for tax purposes versus book purposes, the impact of higher
profits in foreign subsidiaries, and higher state taxes.

Liquidity and capital

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

                                       29
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sufficient to meet our operating working capital and capital expenditure
requirements over at least the next twelve months. Our future cash requirements
will depend on many factors, including our rate of revenue growth, the expansion
of our sales and marketing activities, the timing and extent of our spending to
support our research and development efforts, investments in cloud
infrastructure and operating costs, and expansion into other markets. At any
given time, we may be evaluating one or more potential investments in, or
acquisitions of, businesses or technologies, which could require us to seek
additional equity or debt financing. Additional sources of liquidity and capital
resources, including equity or debt financing, may not be available on terms
favorable to us or at all.

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

Summary of cash flows for the six months ended May 31, 2022 and 2021

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

                                                     Nine Months Ended
                                                          May 31,
($ in thousands)                                    2022           2021
Net cash used in operating activities             $  (5,620 )   $  (16,218 )
Net cash used in investing activities               (33,548 )     (257,610 )
Net cash used in financing activities                (4,806 )         (413 )
Net decrease in cash and cash equivalents           (43,974 )     (274,241 )

Cash and cash equivalents – beginning of period 185,657 389,878 Cash and cash equivalents – end of period $141,683 $115,637



Operating Activities

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

We used $16.2 million of cash from operating activities during the nine months
ended May 31, 2021, resulting from our net income, after including the impact of
non-cash benefits, of $13.9 million and $30.0 million of cash used in working
capital activities. Cash used in working capital activities during the nine
months ended May 31, 2021 was primarily due to annual bonus payments of $18.2
million, Phantom unit settlement payments of $9.1 million as result of our IPO
in the prior period, and a decrease of $6.4 million in accrued liabilities.

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

Investing activities

We used $33.5 million of cash from investing activities during the nine months
ended May 31, 2022 compared to cash used in investing activities of $257.6
million in the nine months ended May 31, 2021. During the nine months ended May
31, 2022, we had maturities of short-term investments of $191.9 million and
purchases of short-term investments of $223.3 million compared to $32 million of
maturities and $287.9 million of purchasers of short-term investments in the
nine months ended May 31, 2021.

In the nine months ended May 31, 2022, we used $0.8 million of cash on purchases
of property, plant and equipment, compared to $0.8 million during the nine
months ended May 31, 2021. Additionally, our capitalized costs for internal use
software were $1.3 million during the nine months ended May 31, 2022 compared to
$0.9 million during the nine months ended May 31, 2021.

Fundraising activities

We used $4.8 million of cash in financing activities during the nine months ended May 31, 2022compared to cash used in financing activities of $0.4 million in the nine months ended May 31, 2021. Cash flows used in financing activities during the nine months ended May 31, 2022 mainly related to $3.9 million the possible payment of the earn-out liability, in relation to a $1.9 million

                                       30
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contingent earnout liability payment in the prior year. During the nine months
ended May 31, 2021, the Company made $3.7 million in payments of deferred IPO
costs and received $3.5 million in proceeds from a follow-on offering.

Other financial data and key indicators

Non-GAAP Financial Measures

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

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

it does not reflect our cash expenditures or future capital expenditure needs or contractual commitments;

it does not reflect changes or cash requirements for our working capital requirements;

it does not reflect interest charges, or cash requirements to service interest or principal payments, on our debt;

it does not reflect our income tax expense or cash requirements to pay our taxes; and

although depreciation and amortization are non-cash charges, depreciated assets will often need to be replaced in the future, and Adjusted EBITDA does not reflect the cash requirements for such replacements.

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

The non-GAAP financial measures and key metrics we use in managing our business are shown below:

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

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                                              Three Months Ended            Nine Months Ended
                                                    May 31,                      May 31,
($ in thousands)                              2022           2021          2022          2021
GAAP Net loss                              $    (5,764 )   $    (357 )   $  (5,951 )   $ (11,372 )
Provision for income taxes                         407           353         1,204         1,056
Other income (expense), net                        913          (546 )       1,641        (1,009 )
Interest (income) expense, net                    (283 )           6          (130 )          87
Depreciation of property and equipment             623           790         1,987         2,377
Amortization of intangible assets                3,892         3,994        11,725        11,982
Share-based compensation expense                 2,407         1,697         6,729         9,305
Change in fair value of contingent
earnout liability                                    -          (389 )          67          (291 )
Acquisition-related expenses                       217             -           217             -
Adjusted EBITDA                            $     2,412     $   5,548     $  17,489     $  12,135
Adjusted EBITDA as a percent of total
revenue                                              3 %           8 %           8 %           6 %



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

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



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

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




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

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

15,502 $9,758



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

                                                        Three Months Ended                                         Nine Months Ended
                                                              May 31,                                                   May 31,
                                                                Per                           Per                         Per                           Per
($ in thousands)                                2022           Share          2021           Share        2022           Share          2021           Share
GAAP Net loss                               $      (5,764 )   $ (0.04 )   $        (357 )   $ (0.00 ) $      (5,951 )   $ (0.05 )   $     (11,372 )   $ (0.08 )
Add: GAAP tax provision (1)                           407                           353                       1,204                         1,056
GAAP pre-tax loss                                  (5,357 )                          (4 )                    (4,747 )                     (10,316 )
Share-based compensation expense                    2,407                         1,697                       6,729                         9,305
Amortization of intangible assets                   3,892                         3,994                      11,725                        11,982
Change in fair value of contingent
earnout liability                                       -                          (389 )                        67                          (291 )
Acquisition-related expenses                          217                             -                         217                             -
Non-GAAP pre-tax income                             1,159                         5,298                      13,991                        10,680
Non-GAAP tax provision applied at a 24%
tax rate (1)                                          278                         1,272                       3,358                         2,563
Non-GAAP Net Income (1)                     $         881     $  0.01     $       4,026     $  0.03   $      10,633     $  0.08     $       8,117     $  0.06

Shares used in computing Non-GAAP net
income per share
   amounts (2):
GAAP weighted-average shares - basic and
diluted                                       132,523,919                   131,613,003                 132,131,077                   130,992,672
Non-GAAP dilutive shares (using the
treasury stock method)                          1,505,488                     2,405,177                   1,505,488                     2,405,177
Non-GAAP weighted-average shares -
diluted                                       134,029,407                   134,018,180                 133,636,565                   133,397,849



(1)
Our GAAP tax provision is primarily related to state taxes and income taxes in
profitable foreign jurisdictions. We maintain a full valuation allowance against
our deferred tax assets in the U.S. For purposes of determining our Non-GAAP Net
Income, we have applied a tax rate of 24% which represents our estimated
effective tax rate.
(2)
For all periods presented, the Company had a GAAP net loss and non-GAAP net
income. As such, outstanding potential shares of common stock are only included
for the calculation of Non-GAAP earnings per share since these shares would be
anti-dilutive for the calculation of GAAP earnings per share.

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

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

Debt

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

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

The Company is required to meet certain financial and nonfinancial covenants
under the terms of the revolving credit 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 May 31, 2022.

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

Off-balance sheet arrangements

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

Significant Accounting Policies and Estimates

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

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Recent accounting pronouncements

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

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