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Duck Creek Technologies, Inc. (DCT) Q1 2021 Earnings Call Transcript

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Duck Creek Technologies, Inc. (NASDAQ: DCT)
Q1 2021 Earnings Call
Jan 07, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Duck Creek Technologies' first-quarter and fiscal year 2021 earnings conference call. [Operator instructions] As a reminder, today's conference call is being recorded. I would now like to turn the conference to your host, Mr. Brian Denyeau of investor relations.

Sir, you may begin.

Brian Denyeau -- Investor Relations

Great. Thank you. Good afternoon, and welcome to Duck Creek's earnings conference call for the first quarter of fiscal year 2021, which ended on November 30th. On the call with me today is Mike Jackowski, Duck Creek's chief executive officer; and Vinny Chippari, Duck Creek's CFO.

A complete disclosure of our results can be found in our press release issued today, which is available on the investor relations section of our website. Today's call is being recorded, and a replay will be available following the conclusion of the call. Statements made on this call may include forward-looking statements regarding our financial results, products, customer demand, operations, the impact of COVID-19 on our business and other matters. These statements are subject to risks, uncertainties and assumptions, and are based on management's current expectations as of today and may not be updated in the future.

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Therefore, these statements should not be relied upon as representing our views as of any subsequent date. We will also refer to certain non-GAAP financial measures to provide additional information to investors. A reconciliation of non-GAAP to GAAP measures is provided in our press release, with the primary differences being stock-based compensation expenses, amortization of intangibles, change in fair value of contingent earn-out liability and the related tax effects of these adjustments. With that, let me turn the call over to Mike.

Mike Jackowski -- Chief Executive Officer

Thank you, Brian, and good afternoon, everyone. I hope you all remain safe and healthy. I'm pleased to report that Duck Creek got off to a fantastic start in fiscal year 2021. We continue to have great momentum in our business as we further solidify our position as a SaaS platform of choice in the global P&C industry.

I'm excited to share a quick overview of our financial results for the first quarter, which were above guidance for all metrics. We reported total revenue of $58.9 million, up 26% year over year. And this was underpinned by subscription revenue, which is our revenue derived from SaaS of $27.9 million, which yielded 59% year-over-year growth. And we are profitable in the quarter with adjusted EBITDA of $3.6 million.

We had strong sales performance in the quarter as well, which is an excellent demonstration of our market momentum with our SaaS offering, Duck Creek OnDemand. During the quarter, we had four new Duck Creek OnDemand core system wins and had four additional OnDemand add-on product deals with existing customers. I'm very pleased with our first-quarter results as this has traditionally been the slowest quarter in our industry. On today's call, I would like to review the key drivers in the P&C industry that are powering our performance, and then provide some details on several of our key wins in the quarter.

Duck Creek's mission is to transform the global P&C insurance industry, which is a massive market with more than $2 trillion of annual direct written premium. Carriers today face an increasingly dynamic and competitive marketplace. We're changing consumer preferences and heightened service expectations, demand the carriers innovate faster and provide a compelling digital experience. At the same time, carriers must also manage complex insurance products, unique carrier-specific business rules and the highly regulated nature of the P&C industry.

Core systems are the applications used to manage the policy, billing and claim functions that are the lifeblood of an insurance carrier's business. Traditional core system solutions are largely inflexible, on-premise, code-driven applications that can be difficult to maintain and often cannot meet the need of today's dynamic market. In fact, a recent survey conducted by Novarica, a respected insurance industry analyst in North America, modernizing core systems and retiring legacy solutions were identified as a top IT priorities and challenges facing P&C insurers in 2021 and beyond. This reinforces our belief that carriers recognize the move to the cloud as a matter of when, not if, and developing a long-term digital transformation plan is top of mind among their C-level executives and boards of directors.

Duck Creek is incredibly well positioned to address these fundamental business challenges facing carriers. Duck Creek OnDemand, our low-code SaaS offering, has been available for more than six years and enables customers to drive profitable growth by helping them accelerate product innovation, reduce costs of greater efficiency and dramatically improve the engagement with their customers. The key to our success in the cloud is our low-code platform, which allows for codeless configuration that enables business users, not teams of developers, to quickly make changes to products and business rules to meet rapidly changing market dynamics. We have also built Duck Creek OnDemand to be fully extensible, so third parties can directly integrate into our solutions and provide a more seamless user experience.

With Duck Creek OnDemand, customers essentially future proof themselves with a platform that can grow and evolve with their business over time. We believe running Duck Creek OnDemand turns a carrier's core systems into a driver of competitive differentiation and improve business performance. The strength of our SaaS platform is being recognized by leading industry analysts like Gartner, who placed Duck Creek as a leader in its most recent Magic Quadrant for P&C core platforms in North America. Gartner specifically cited our customized persona-based user experience, flexible integrations, and ease of upgradability as core strengths of our SaaS platform.

It's also important to note, according to Gartner, we were the only featured vendor that sold its SaaS offering in 100% of its wins in 2019, and in the first quarter of 2020. We believe this last point is an important area of differentiation for Duck Creek. We are fully committed to our strategy as a cloud-first SaaS company in everything that we do. Our go-to-market and sales efforts are solely focused on selling Duck Creek OnDemand and elevating our brand profile as the leading SaaS platform for the P&C industry.

Our continued success in industry recognition reinforces that Duck Creek OnDemand is a leading cloud SaaS platform in the P&C industry with more than 60 customers on the platform, and annual recurring SaaS revenue that is comfortably above $100 million. Our demonstrated track record of successful deployments puts us in a great position to be a primary beneficiary as the P&C industry makes its generational transition to cloud-based core system platforms. Our first-quarter performance is the latest example of our market momentum, and I'd like to spend a few moments highlighting some of these exciting customer wins. First, Builders Mutual Insurance, a leading writer of commercial insurance products focused exclusively on the construction industry, selected the full Duck Creek OnDemand suite to modernize their entire core systems operation after an extensive and highly competitive evaluation process.

Builders Mutual is a highly respected insurer, who is known to be experts in the construction industry and safety education. Their digital transformation program will both enhance our online customer experience and maximize internal efficiencies. One exciting aspect of this win is that we began our relationship with Builders with our distribution management and reinsurance management solutions. This is a great example of our ability to deliver value for customers using our noncore stand-alone SaaS products and then execute on our land-and-expand strategy.

Second, we were also selected by a notable Tier 1 carrier that will leverage Duck Creek OnDemand policy and billing to launch a new small business commercial product in early 2021. This Tier 1 insurer is an existing Duck Creek on-premise customer. However, this contract represents their first on demand core system deployment. One of the key differentiators for this win was our ability to meet the very aggressive timeline for this product launch.

Third, we signed an important new customer win with Coal Services, an organization that manages a financially and socially responsible workers' compensation program for the New South Wales coal industry in Australia. They will be implementing the full Duck Creek OnDemand suite to complement their modernization program and support the company's overall digital strategy. This important win highlights our growing momentum in the Asia Pacific region. And finally, one of the add-on wins in the quarter was with another Tier 1 carrier, Great American Insurance Group, an existing Duck Creek Policy on demand customer that will expand its deployment during 2021 by adding distribution management to better manage its agent and broker relationships.

This win is yet another example of how we can expand our relationships in multiple ways and drive greater value for customers and for Duck Creek. Now, turning to our product strategy. We continue to advance our on-demand solutions and continuously deploying new capabilities to our customers. In addition to the investment in our SaaS and low-code platform, we invest heavily in both digital user experience design and data analytics.

We believe we are leading the way with our investments in digital design with our user experience tooling that enables insurers to bring these next-gen experiences to life. We discussed on our last earnings call our investment in Page Builder, our low-code configuration tool for UI design. This tool leverages our design system, a library of persona-specific features, responsive and mobile components in a common scalable standard. Building on our Page Builder platform, we recently brought a new product to market called Duck Creek Producer, a front-end application designed to serve the needs of the distribution channel.

Duck Creek Producer enables P&C carriers to deliver modern and intuitive portal experiences that result in more productive and loyal agents, brokers and other distribution partners. Duck Creek Producer incorporates both extensive persona-based user experience research and the core-based industry standards into its designs resulting in tools and workflows that are visually appealing, mobile-enabled and easy to use. In the analytics space, we have recently extended our enterprise data offering, Duck Creek Insights, to deliver enhanced business intelligence across a carrier's ecosystem. Duck Creek Insights now includes detailed analytics and reporting for specific insurance product lines, such as reports for workers' compensation that help carriers meet state-mandated regulations.

This enables carriers to create a true insurance data hub that integrates data from Duck Creek, other third-party sources and existing carrier systems. With Duck Creek Insights, we offer a platform that helps carriers drive real-time change using advanced analytics and allowing them to quickly modify and streamline their core business processes. We are also extending the ways in which carriers can leverage their data with the expansion of our third-party ecosystem through the Duck Creek Content Exchange, our online app store. We continue to invest in the ecosystem and add integrations with multiple leading insurtech partners.

As an example, we recently announced integrations with InsurePay and Split Limit Studios, who both offer flexible pay-as-you-go and payroll payment capabilities to better serve the workers' compensation market. This is a great example of how our open partner strategy provides flexibility and choice for our customers. Before I turn it over to Vinny, I'd like to wrap up by saying how pleased we are with our first-quarter results. Customer interest in Duck Creek OnDemand continues to grow, and we are delighted to see recent wins across an increasingly diverse set of insurance carriers, product lines and geographies.

We are the leader in a dynamic multibillion-dollar market that is embracing the positive operational and financial benefits of shifting to the cloud. As excited as I am by our success to date, I'm confident that we are only at the beginning of a substantial opportunity to deliver high levels of growth and improving profitability. I'd like to finish by thanking our Duck Creek employees, partners and customers for their commitment to our business, hard work and helping us achieve such extraordinary success during these challenging times of the pandemic. I will now turn over to our CFO, Vinny Chippari.

Vinny, over to you.

Vinny Chippari -- Chief Financial Officer

Thanks, Mike. I want to reiterate that we are pleased with our first-quarter results and the overall performance of the business. Today, I will review our first-quarter fiscal '21 results in detail and provide guidance for the second quarter and full year of fiscal '21. Total revenue in the first quarter was $58.9 million, up 26% from the prior-year period.

Within total revenue, subscription revenue, which is comprised solely of subscriptions to our SaaS products, was $27.9 million, up 59% year over year. In Q1, subscriptions represented 79% of our software revenue and 47% of our total revenue. License revenue was $1.3 million, up 29% year over year, due primarily to an add-on sale to an existing on-premise customer. Maintenance revenue, our revenue tied to on-premise licenses, was $6.2 million, up 4% year over year and in line with our expectations.

Services revenue was $23.5 million, up 6% year over year. Services revenue performed well in the quarter and continued to benefit from strong demand and high utilization rates. SaaS ARR, which we calculate by annualizing recurring subscription revenue recognized in the last month of the period, was $103.9 million as of November 30, 2020, up 72% from the prior year. SaaS ARR continues to show excellent momentum and reflects the strength of our SaaS business.

As a reminder, SaaS ARR is a snapshot in time of subscription contracts that are generating revenue during the last month of a period and they can be impacted by timing. For example, a large deal we had in Q4 began generating revenue in that quarter and was included in our Q4 ARR. Conversely, our largest signing in Q1 began generating revenue in Q2 and did not generate any ARR in Q1. SaaS net dollar retention as of November 30, 2020, was 118% at the high end of our historical range.

Over the past two years, our net dollar retention rate has been in a range of 113 to 118%, driven by a combination of high gross retention rates, sales of new products to existing customers and growth of DWP for products already operating on our SaaS platform. Now, let's review the income statement in more detail. As a reminder, unless otherwise noted, all metrics are non-GAAP, and we provided a reconciliation of GAAP to non-GAAP financials in our press release. Adjusted gross profit in the quarter was $36.3 million or a gross margin of 61.6% compared to a gross margin of 58.5% in the first quarter of fiscal 2020.

Subscription margins in the quarter approximated 69% driven by scale benefits as we continue to generate strong subscription revenue growth and certain timing items. This gross margin exceeded our expectations and did include a more pronounced benefit than in recent quarters from favorable timing, both from expenses running lower than planned and earlier revenue recognition from certain contracts. While we are pleased with our recent subscription margin performance, which demonstrates the scalability of our SaaS solution, we do not believe our Q1 margin performance is sustainable in the near-term and expect to see a decrease in Q2. Professional services margin of 44% in the quarter continues to track slightly above our long-term expectations.

We believe the current level of utilization remains unsustainably high for our services organization. And as it moderates, services margins will be decreasing toward a range of the high 30s to 40%. Turning to operating expenses, R&D costs were $10.6 million or 18% of revenue down slightly from prior year as a percentage of revenue. R&D costs increased 16% from the prior year based on continued investment in product technologies.

Sales and marketing expenses were $9.1 million or 15% of revenue, also down slightly as a percentage of revenue versus prior year. Sales and marketing expense increased 15% from the prior-year period, reflecting continued investments to expand our global sales footprint and engagement efforts to ensure we are properly covering all opportunities in the market. This was partially offset by COVID-19-related savings on T&E and events. G&A expense was $13.2 million or 22% of revenue compared to 20% in the prior-year period.

During the quarter, we incurred $1.5 million of expense associated with the secondary stock offering completed in November 2020. Excluding this expense, G&A was 20% of revenue, in line with prior year-end expectations. Adjusted EBITDA for the quarter was $3.6 million or a 6% adjusted EBITDA margin. Non-GAAP EPS for the quarter was $0.02 based on 130.8 million weighted average shares outstanding.

On a GAAP basis, our gross profit for the quarter was $33.9 million, and we had a loss from operations of $4.2 million. We had a net loss in the quarter of $4.7 million. Turning to the balance sheet and cash flow, we ended the quarter with $361.2 million in cash and cash equivalents and no debt. Free cash flow in the quarter was negative $22.9 million compared to negative $10.6 million in the prior-year period.

The first quarter is typically the low point in the year for cash flow due to the timing of collections and annual bonus payments. The increase in cash used this year compared to prior year is due to higher bonus payments of $7.6 million and $6.7 million for settlement of international equity awards related to our IPO. I'd now like to finish with guidance beginning with the second fiscal quarter. We expect total revenue of 58.5 to 59.5 million; subscription revenue is expected to be 28 to $29 million; adjusted gross margins are projected at 57 to 57.5%; we expect negative adjusted EBITDA of 1.5 to $2.5 million; and our non-GAAP net loss is expected to approximate 3.5 to $5.5 million or $0.03 per share.

For the full-year fiscal 2021, we're raising our outlook to the following: We expect total revenue of 246 to $251 million; and subscription revenue is expected to be 117 to $119 million; adjusted gross margins are projected at 58 to 58.5%; we expect positive adjusted EBITDA of 3.5 to 5.5 million; and our non-GAAP net loss is expected to be between 2 and 4 million for fiscal 2021 or a non-GAAP loss per share of approximately $0.02 to $0.03. Overall, we're pleased with our updated outlook for the second quarter and the full fiscal year, particularly our subscription revenue growth. There are two things related to our professional services revenue that I would like to know. First, our expectation for professional services revenue for the full year is essentially unchanged.

We continue to see strong demand for our services and have good visibility into sizable new engagements in the second half of the year. In the second quarter, there are two dynamics impacting our services revenue growth. First, from a timing perspective, we have fewer new service engagements starting during the second quarter than we previously expected. Second, we face a very difficult comp as our prior-year Q2 was an exceptionally strong services quarter.

It was the highest revenue quarter of the year and remains the highest services revenue quarter in company history. To summarize, Duck Creek got off to a very strong start in fiscal 2021. Customer interest in Duck Creek OnDemand continues to grow, and we believe we are well positioned to be a primary beneficiary of the P&C industry's transition to cloud-based core systems. We are at the early stages of this transition, which we believe will support high subscription revenue growth rates for the foreseeable future.

When you combine us with a scalable cost structure and strong balance sheet, we believe we can generate long-term growth and shareholder value. With that, we would like to open the call for Q&A. Operator?

Questions & Answers:


Operator

[Operator instructions] Our first question is from Sterling Auty of J.P. Morgan. Your line is open.

Sterling Auty -- J.P. Morgan -- Analyst

Yeah, thanks. Happy new year, guys. Maybe just to get kicked off. The comment, Mike, that you made about top priority in terms of thinking about the migration to the cloud, I want to marry that with your Tier 1 win for the brand new kind of SMB product win in the quarter.

And what I mean by that is, just wondering when we might see the expansion instead of just cloud deployments for some of these new initiatives, just seeing maybe what is the talk around the timing of moving kind of the traditional bigger books of business over to the cloud looking like.

Mike Jackowski -- Chief Executive Officer

Thanks, Sterling. Happy new year to you as well. In terms of our cloud migration, well, let me break it down. In the Tier 1s, we're obviously always very excited any time we have a new opportunity for on demand within a Tier 1.

It represents an opportunity for us to establish that new type of relationship and then expand from there. Now, going back to your question on the migration of on-premise over to on demand. I mentioned this a bit in the past, but when we look at Tier 1s, we're seeing strong demand from Tier 1s. A great interest in cloud, as I see Tier 1s want and have an overall cloud strategy.

Although they're starting out with smaller initiatives and being a little bit more cautious in terms of their first implementation. So in this case, it's an example where this Tier 1 wanted to stand up a new product line and do it with speed. And they looked at many alternatives to do that. And Duck Creek OnDemand provided a solution for them that they could do that with speed.

And I think it was a meaningful reason why we won the contract. In terms of overall conversions and what we're seeing out there, we do have experience, Sterling, with taking on-premise customers and moving them into Duck Creek OnDemand. And in fact, we've done that with three customers in the past. We've picked up their on-premise installations, installed them in on demand, and those are in production.

So we know that we have the skill sets and we have all of the processes and the tooling to get that done. Now, the one thing that we are focused on is making sure that we're doing that with our customers that's well aligned with their strategy. So what we did not do is bake that migration into our financial economics, and in essence, do anything to force the issue for our customers. We would like to lead them into the cloud with the carrot and on terms that they want as opposed to with the stick and with an approach that forces them or have a mandate for them to do that.

So we are actually in deep discussions with several customers right now, and I think you're going to see us make progress on that throughout the year.

Sterling Auty -- J.P. Morgan -- Analyst

That sounds good. And then, Vinny, one follow-up question for you. On the gross margins, you mentioned that the expense run rate running a bit below what was expected. Where are you seeing those savings? Or is that timing of hiring? Or something else?

Vinny Chippari -- Chief Financial Officer

Sterling, it's a couple of things. I'd say largely, the biggest factor is timing of hiring. A lot of which is already -- hiring has picked up in Q2, so we're getting some favorability on that. That won't last through the year.

And then, secondly, we had some cost-positive impact from a couple of deals that started generating revenue that hadn't really fully ramped their costs yet. They're still kind of building on to the system. And again, so they're kind of real timing items that we'll see start catching back up in Q2.

Sterling Auty -- J.P. Morgan -- Analyst

Makes sense. Thank you, guys.

Vinny Chippari -- Chief Financial Officer

Thanks, Sterling.

Operator

Thank you. Our next question comes from Saket Kalia of Barclays. Your line is open.

Saket Kalia -- Barclays -- Analyst

OK. Great. Hey, guys. Thanks for taking my questions here.

And I'll offer my happy new year as well. Mike, maybe first for you. Can you just talk a little bit about the partner ecosystem, and how you're thinking about increasing your engagement with the channel on professional services as you look out sort of the next 12 or 18 months?

Mike Jackowski -- Chief Executive Officer

Yeah. Thanks, Saket. I've consistently noted in the past, upon carve-out from Accenture, it's been one of our key strategic pillars to build out and scale our partnerships with the systems integrators and delivery partners. And I think we've done that quite nicely.

We scaled the overall practice. And it allows them to take on a lot of the implementations and that implementation work for our customers. And as we look at our business, it's our intention to grow our own services at a slower rate than our overall subscription revenue, and in essence, bending the mix to lean more toward a higher percent of subscription revenue in the future. And then, when we look at this, we think we're doing quite well.

We won't routinely always talk about our numbers in the ecosystem, but we think we've made a lot of progress as of late. And when we look at it today, we have about 16 systems integration and delivery partners. And then, within our partners, they report -- and within those organizations, they report that they have over 4,500 professionals that are formally part of the Duck Creek practice within those respective firms. And then, when we look at our own metrics internally, and we look at our training organization, we have seen that over 3,300 of those professionals have come through Duck Creek University and have chosen to get trained directly from Duck Creek.

So we think that that is a great sign. And certainly, Saket, we're using our training in Duck Creek University as a means to really get them up to speed with our latest products, our SaaS offering, some of our new techniques of how we want to integrate our product at our customer implementations. And then, in terms of your questions, how are we partnering with them. We continue to team with them in new ways, and both our solution architects are working with them hand-in-hand to estimate projects.

Our go-to-market teams are working collectively with our partners and our customers to identify new opportunities, but also opportunities where we can uniquely shape a value proposition for our customers and help them along their digital strategies. And I think just two to note, we've done -- we still have a really, really strong relationship and partnership with Accenture. They're helping us on many projects, including some of the larger Tier 1 implementations that we're doing. And then, recently, we've seen Cognizant just make immense investments in their practice.

They're doing some great work at some Tier 1s for us, but then also some recent work with us in Asia Pacific and helping us quite a bit. So we're getting some international tailwind with working with these partners as well.

Saket Kalia -- Barclays -- Analyst

Got it. That's really helpful. Vinny, maybe for my follow-up for you. A little bit of a product and finance question combined.

You may have touched on this in the prior question. But can you just talk a little bit about the subscription gross margin this quarter. I think that's -- I think we were over 70%. Is there anything to note there in terms of the infrastructure or the product that's helping that? Or should we think about more of the timing there that you touched on earlier?

Vinny Chippari -- Chief Financial Officer

Yeah. Saket, I think you should think about it more as a timing issue. And in addition to that kind of normal scale benefits. So what I mean by that is, obviously, the infrastructure's all built out, we have a significant number of customers running, and we're getting scale benefits for the installed base, but in the quarter, which actually came in at 69% margin, that benefited from the two timing items, two timing items being expenses running a bit below plan.

And that ties back to my answer to Sterling, which is a combination of hiring, pace of hiring and then not incurring some costs on a couple of deals that recently got signed. So we do think subscription margins will come down a bit in Q2. But on a normalized basis, we're continuing to get scale benefits. And year-on-year, we'll be moving up a little bit.

Saket Kalia -- Barclays -- Analyst

Got it. Very helpful. Thanks, guys.

Vinny Chippari -- Chief Financial Officer

Sure. Thank you.

Operator

Thank you. Our next question comes from Chris Merwin of Goldman Sachs. Your line is open.

Chris Merwin -- Goldman Sachs -- Analyst

All right. Thanks so much for taking my question. I wanted to ask a bit about the low-code platform. You've had that out in the market for some time now, but I guess, as business users are increasingly the ones handling this configuration, are you seeing implementation times go down at all? And to the extent that they are, could that be a catalyst for more of these larger scale system migrations if carriers are more comfortable that the time and cost of the implementation could be less?

Mike Jackowski -- Chief Executive Officer

Thanks, Chris, for the question. And you are correct that it is our intent, and it's our ambition to always lower implementation cost, speed them up so carriers can get into production more quickly. And as you noted, one benefit of our low-code platform is we do allow business users to log in and make a lot of rule changes. Now, during the initial implementation, sometimes it's a combination.

It's business people looking at product design and overall product hierarchy, risk appetite rules as well as rating, which is some pricing rules. And then, we have a technical dimension that maybe there's some more technical people that are doing some of the more advanced algorithms and user experience design as well. One thing that we did add recently to our platform is what I call Page Builder, which allows now that low-code platform to be fully integrated with designing mobile-centric and elegant designs. So going back to the speed, we are seeing carriers implement with more speed.

I noted in the last earnings call, a reference point with Munich Re Specialty Insurance where they were able to get live in about 90 days, and we thought that was really an industry-leading initiative. And then, we have another, the Tier 1 that I referenced in today's call. One reason why we were awarded that contract is we could show the carrier that we could launch this product, and I can't get into the specific time frames because I'm not at liberty to disclose it. But it is measured in months, a very short time frame in which they're going to go live.

And I think they're seeing our platform and saw our platform as a differentiator to get live. So those are two really good examples.

Chris Merwin -- Goldman Sachs -- Analyst

OK. Great. And maybe just a follow-up for Vinny. Net retention has been really strong in the last couple of quarters.

It stepped up again a little bit sequentially most recently. Can you talk a bit about some of the specific drivers there, particularly as it relates to new product attached.

Vinny Chippari -- Chief Financial Officer

Sure. So our net retention rate has been in the range of 113 to 118% for the past eight quarters. So obviously, that's at the top end of the range. In any given quarter, that might skew a little bit based on the profile of new deals booked in a quarter or the last couple of quarters.

It so happens that in the last quarter or a quarter or two, we've been a little more heavy in the expand versus the land category, so we've been getting a bump from the existing customer base. But over a course of longer periods, we do tend to run at about 50-50 land and expand. So we've just been a little skewed to expand in the last quarter or so.

Chris Merwin -- Goldman Sachs -- Analyst

OK. Got it. Thank you.

Operator

Our next question comes from Brad Sills of BofA Securities. Your line is open.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Oh, great. Hey, guys. Thanks for taking my questions, and happy New Year. I wanted to ask about the comments made earlier, Mike, around some of these new wins coming in with things outside the core.

You mentioned distribution management, reinsurance. Is this kind of -- is this a trend we should expect going forward, where customers kind of -- they start out smaller and you see the interest level in bigger expand down the road, perhaps going into the quarter, just give you a better view into more entry points into some of these accounts?

Mike Jackowski -- Chief Executive Officer

Yeah. Thanks for the question. And I'm glad you picked up on it. Certainly, it is our product strategy to continue to develop and have new assets outside of the core that can run on a stand-alone basis.

And we have -- we do have a lower entry point to enter the account, build a relationship, build confidence with the customer and then expand to our other software assets. And I think Builders Mutual is a great example of where we've done that. And we have a couple of other customers now where we've landed in the accounts with noncore assets. And we hope that that leads to opportunities to expand into our core offerings.

And then, just to remind everyone, I think we've talked about in the past, if we look at our sales bookings over the last couple of years, we see about 75% of our bookings coming from core assets and about 25% broadly from noncore assets of those additional products. And so we think just having that balanced approach is going to serve us well. It's difficult for me to say, is this going to swing and be something that happens a lot or materially more. But I think having more assets to add value and having more reasons to engage in this conversation with customers is a good thing.

And that is also why it's important for me from a product strategy point of view, that these stand-alone assets, they often don't only just run with Duck Creek. They can run across a variety of legacy products and other platforms as well. Just allowing carriers to implement value very, very quickly. So it is a part of our strategy.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Great. And then, one question, if I may, on interest level and the multi-tenancy option. It's been out now for, I think, almost a year. And just curious to get your qualitative or quantitative commentary on uptake and interest, not just in new deals, but also in expand.

Mike Jackowski -- Chief Executive Officer

What I'll say is we're very pleased with the progress on multi-tenant. We are seeing growing interest and adoption of the platform. And some of our recent wins in the quarter were multi-tenant. I'm always going to say that carriers, in terms of their preferences for single tenant, multi-tenant, we're seeing variation that's out there.

So we expect to run in essence is operating this mixed mode of single tenant and multi-tenant for the foreseeable future. And I want to emphasize, though, that our long-term margin targets and that we are already at scale with over 60 Duck Creek OnDemand customers, 30 -- over 30 of those customers are running core applications. And of those running our core applications, over two-thirds of those are in production. So we're really at scale.

And we feel that it isn't going to be dependent on multi-tenancy to hit our long-term SaaS target margins. So we're very comfortable with where we're at. We think multi-tenancy will help us improve, but we got to just watch what happens with adoption. And as we see adoption take on, then we might revise some of those future targets.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

And then one follow-up, if I may. I mean, if you step back and you think about kind of where the interest -- where the industry is with regard to receptivity on multi tenancy. It's not a feature per se that they're asking for. But in many ways, I'm sure customers, CIOs of these insurance companies know they're going to have to go there eventually.

Is that kind of the conversation you have with customers are just glad to see something in the road map -- or not even in the road map, but as a release that you have available today, and therefore, they know what this looks like. Just qualitatively, what are they saying in terms of their interest and ability to go multi-tenancy and kind of their road map.

Mike Jackowski -- Chief Executive Officer

Yeah. Yeah. And even as you picked up on it because it's functional parity, right? So when you're in the business conversation, it's really not much of a conversation, but it's more of an impact on the technology side or the CIO and their organization. And I will say that -- I think as we talk into CIOs, they can see that we're investing quite heavily in our SaaS architecture, that we're advancing it, and I think that serves as a differentiator.

But I think the conversation leads to a place to where they're looking at the overall impacts to them. And I'll say that in some of their processes, depending on the carrier, their processes may be much more optimized or aligned today to certainly a single-tenant solution where they're more in control of upgrades and change, and we're doing those things with them, not under the covers to them. Because when they move to multi-tenancy -- and many CIOs now are moving their own processes to more of a continuous integration, continuous deployment philosophy where you have pipeline management where you're feeding change into production on a more repeatable basis. And they know that they have to eventually move some of their processes on their end, but they may be years away from doing that.

So I think going back to your question, they're pleased that we're working on this initiative. I think it signals and shows of them that we're looking forward. But we're not going to go force the issue with them. And I think we know the realities of what carriers and CIOs are dealing with today, and we're going to go to market with a model that works for what they do today and want today, but take them on a journey with us in terms of moving the multi-tenancy over time.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

That's great. Thanks Mike.

Operator

Thank you. Our next question comes from Alex Zukin of RBC Capital Markets. Your line is open.

Alex Zukin -- RBC Capital Markets -- Analyst

Hey, guys. Happy New Year to you and your families. And I'm going to go in reverse or I'm going to start with Vinny. Vinny, you mentioned that the larger deal signing that you had didn't get counted in the SaaS ARR number.

I realize that that number fluctuates from quarter-to-quarter. But is it possible to just get a high level of impact if it had been counted? Is it a few million? And then you don't guide to this metric, but given that seasonality aspect, what's the right way to think about SaaS ARR for next quarter. Is it appropriate to look back the last two years of seasonal trends on a dollar basis? Give us some color there.

Vinny Chippari -- Chief Financial Officer

Yeah, sure, Alex. So No. 1, we're not going to give the individual deal size on that. It was the largest deal in Q1, but it wasn't really outsized.

It was just a good solid deal. It's hard to say in any given quarter what you can expect for single deals. So I'm just going to kind of go back through how a deal gets into ARR. When we sign a deal -- or contracted deal, that booking, that begins recognizing revenue once the deal is provisioned or the service is available to the customer.

That generally takes about 30 days. So if we sign a deal late in the quarter, it is more typical than not that it does not make it into the quarter. So the quarter that really was a little bit of an outlier actually was Q4 where we had really strong ARR growth because every deal we sold in Q4 was provisioned in generating revenue by the end of Q4. So that's the way I think I'd look at that.

In terms of Q2, you can look at quarterly trends historically. It really -- because we are low-volume, high-dollar deals, it is difficult to get a really consistent trend on a quarter-to-quarter basis. So we do tend to think about ARR growth in longer time periods than a quarter. Obviously, we want to continue to give you the quarterly ARR numbers.

But the quarter-to-quarter trends are going to be a little bit inconsistent. I'll say that Q1, without the Q1 -- the larger Q1 deal in it, growing by over $8 million from Q4 was really positive. Q1 is usually a very slow quarter in the industry historically. So we thought that got us off to a really good start.

And we're still expecting really good growth through the year. So quarters two, three and four, we expect to be really positive.

Alex Zukin -- RBC Capital Markets -- Analyst

That's awesome. And then, Mike, I guess the question I'll ask here. Given the comments that you made about services revenue in Q2 and maybe fewer starts, what can you tell us about the pipeline in this kind of -- in this new normal in a 2021 world, where maybe there's a little bit less speed with which someone is looking to do a large transformation. How does the pipeline, your pipeline coverage look to you, and kind of compare and contrast that with this time last year.

Mike Jackowski -- Chief Executive Officer

Well, I would just say that the pipeline looks very strong. And the services comment that I made was really one of timing. As projects come to an end and new projects are starting up. And when we were looking at the deals that we've signed, and the deals that are coming through the pipeline that we have a lot of confidence in, we know that in the back half, we're going to have really strong services demand.

So our overall guidance for the year, it's within our overall guidance. But then I'll say on our pipeline. We've watched our pipeline continue to strengthen quarter over quarter. And we watch it strengthened since COVID.

So we think that is a very, very positive sign. And when we look at the impact of carriers on COVID, it impacted some segments of businesses or business lines within the industry. But I think at large, it has created a higher -- a more important agenda with C-level execs and in the boardroom around digital transformation, as they're trying to react with -- to manage work-from-home employees and remote employees as well as more self-service with their customers. So we think that trend is going to continue.

Alex Zukin -- RBC Capital Markets -- Analyst

Perfect. Thank you, guys. Stay safe.

Operator

Thank you. Our next question comes from Tom Roderick with Stifel. Your line is open.

Tom Roderick -- Stifel Financial Corp. -- Analyst

Hey, gentlemen. Happy New Year. Thank you for taking my questions. Mike, I'm going to just build on your last -- the last question you got and your last answer, with the question just a little bit deeper around the broader environment.

I mean, I guess if I think about the Q1 number, overall ARR growing over 70%, as you mentioned, it was up $8 million quarter on quarter even without that big deal. It does seem like the pace of decision-making, even in a seasonally -- what should be a seasonally slower Q1, seems like that pace of decision-making is picking up a little bit. And I'd love for you to just maybe go a little bit deeper with how that is sort of playing out as it relates to new products and new geographies for your customers. Are you seeing them showing a desire to expand their business as it relates to new territories or again, new product lines in a way that perhaps they weren't ready for.

And how are those discussions playing out as you look out over the rest of the year?

Mike Jackowski -- Chief Executive Officer

I would say the answer is, yes, we're watching that play out because it's forcing new conversations, again, within the C-suite of these companies. Not only about being digital, but to your point, of launching new products and really looking at customer needs and how they need to react to the current market. So on the commercial side, it's a time that we call a hard market and a hard market means that carriers are taking more rate or increasing their prices. And when they do that, they have to be more surgical, if you will, around how they price their products.

Are they going to go after a certain segment of the market very differently. And when they have to get more surgical, they know that they need better technology. They need better product design. They need better low-code tools to change the rates and risk appetite rules.

So we're seeing some carriers come to us because they know in this new hard market, they're going to have to, in essence, enable new tools in order to customize how they're bringing these products to market. So we think that's leading to more opportunities. But then at the same time, even though we're seeing this increase in the pipeline, it's not a short fuse. It's not something where we're watching it just dramatically increased by large percentages.

And I'll say that being in the CIO chair myself at an insurance carrier, I understand how these large programs work within the carrier. They have to work their way into a budget, get budget approvals. They have to plan for these projects within their fiscal years. So what we see with that is it is increasing, but it's increasing kind of at a methodical rate and we're watching an increased number of deals come through the pipeline.

And we know we're going to continue to convert on a large percentage of those. And I think that's just going to lead to continued growth of the business.

Tom Roderick -- Stifel Financial Corp. -- Analyst

Yeah, really helpful. And then, a follow-on on that, just relative to the number of different add-on products that you have. You did call out distribution management a couple of different times and some key wins this quarter. I think it's easy for us to sit here and understand what the core functions offer for your customers.

But perhaps you could just take a second to educate us a little bit more on the challenges associated with the distribution tiers at your customers. And what it means with the challenges, what their broker community might be. How you're solving that and how big a market opportunity that is.

Mike Jackowski -- Chief Executive Officer

I'm glad you asked because, obviously, we always talk a lot about the core. And distribution management has been very, very popular. We're doing quite well with it. And in terms of the capabilities, most carriers, the majority of insurance is sold through a distribution channel, whether it's captive agents, independent agents or the broker channel.

And carriers really want better technology to better manage their channel. And it's the end-to-end -- so our capabilities in distribution management help with the whole life cycle of it from when they originate to bring on a new channel partner. So a new agent, and they want to appoint them to their book. It helps identify them the workflow with the contracting, bringing them on board, the education and the workflow associated with that.

And then, once they're on board, helping them managing the licensing because there's licensing requirements to sell certain products in certain geographies. And then, tied to that, the commission management as well as ongoing education with the agents. What are our products? How do we got to sell them? So we manage that end-to-end, and it's a big problem for carriers because the majority of the carriers are using some type of distribution channel to go to market and they need better technology, data, information to manage that. So we think it's a great opportunity.

And again, it's a stand-alone product that we can get into a carrier without our core and then bridge back into the quarter because we can wire it all together and make their processes more seamless.

Tom Roderick -- Stifel Financial Corp. -- Analyst

Yeah. That's great detail. Thank you for that. Nice job in the quarter.

Appreciate it.

Mike Jackowski -- Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Bhavan Suri of William Blair. Your line is open.

Bhavan Suri -- William Blair -- Analyst

Hey, guys. Thanks for squeezing me in. And I want to show the best sentiment to you in 2021. I guess I want to touch a little bit about the data piece, first of all.

So you mentioned integration hub. There's this idea of whether it's from fraud or claims of collecting data that's not just lost data. I'd love to know how you guys think about that and sort of how you approach that. Is that something you guys are going to do? Do you partner? How should we think about that greater data set that exists out there that can help these guys -- your end customers sort of improve both the claims and the policy piece, especially on the P&C side, but it could even be some -- on the consumer side, it could be on the commercial lines too.

Just wanted to understand how you think about that and the value. And our customers starting to integrate data using that hub.

Mike Jackowski -- Chief Executive Officer

Yeah. And it is a very, very important area for us because when you look at the most successful carriers in the industry, they really do a great job at marrying together not only all of the data they have and their transactional data like lost data on claims, but also outside data that they can merge with that to create insights. And there is just a lot of very, very successful vendors and partners that play in that space and they're partners with us. These are partners like Verisk and LexisNexis that really do a nice job of making data available and providing context for carriers.

And then, we're providing a platform that really allows carriers to, in essence, merge all of the data that they have, whether it's an outside data, whether it's data from Duck Creek or whether it's data that exists in legacy systems and make better decisions on that. And then, to your point, there's an increased trend in terms of using advanced analytics, like AI, machine learning and other techniques to automate decision-making. And this is where the combination of our partners. We have a great partner with FRISS.

FRISS is a fraud detection partner where they can identify fraud using advanced models. And have that wired into our low-code platform, where carriers can dynamically change their workflows. They can route to different claims adjusters in that case or route to what they call SIU, who investigate fraud, based on what FRISS is reporting back. So I think what you're going to see is more investment from Duck Creek in the future, not only in the working with partners and looking at what we can do to use data and use advanced analytics like AI, but wiring that with our low-code platform that gives carriers much, much more flexibility to use AI in new, different and profound ways.

So that's -- we know that that's going to be an increased area of investment and focus for the company.

Bhavan Suri -- William Blair -- Analyst

Got you. Got you. Got you. And then, one other question, just a follow-up on Tom's question and Alex' question too.

You've talked about sort of the activity the pipeline picking up. As you think about just a driver around that. So obviously, COVID and the digital transformation and people say, OK, we need to get a cloud solution as opposed to an on-premise system, which we might use like a Citrix system to scrape it, which is not viable long term. Or is it sort of the low-code, really fast implementation time, which means I can now get a product out faster, which is being driven by the changes like you've got a guy coming out and saying, OK, we're going to put out a new policy system or pricing system or whatever for small commercial.

And we're going to disclose the commercial business, whether it's embedded in GEICO or whomever. What are the fundamental drivers of this acceleration of this pipeline? It feels like they're all three, but I'd love to get your sense of like, is it COVID? Is it someone else like GEICO disrupting the consumer space? Is it the fact that you guys can get up and running faster? How should we think about those things driving this pipeline growth?

Mike Jackowski -- Chief Executive Officer

Yeah. And I know it's not always the answer people want to hear, but I would say it is a bit of all of the above, right? Because certainly, carriers are looking at how do they replatform or revisit their overall core technology. But when we talk about digital transformation, and we talk about all of the reasons why carriers are buying, I would say that launching new products -- or carriers getting into new product lines is very, very -- a very popular reason. And I think when they want to do it -- or they decided that they want to enter a new line -- product line, that's when they'll come to us, and maybe even shrink our overall sales cycle because they'll want to move with speed once they make that decision.

And when they do the estimates internally and look at trying to put a new product on some of the legacy technology, there's a lot of coding for stand it up in the cloud on Duck Creek and do it very, very rapidly. Obviously, we have a very, very appealing solution for that. So I think we're going to see that as an increased trend moving forward because carriers are trying to diversify. They're trying to enter new markets.

They're trying to launch new products. And I think that's going to drive continued growth in our pipeline.

Bhavan Suri -- William Blair -- Analyst

Got you. Got you. Thank you for taking my questions. Appreciate the color.

Operator

Thank you. Our next question comes from Brian Peterson of Raymond James. Your line is open. Please make sure your phone isn't on mute.

Brian Peterson -- Raymond James -- Analyst

Sorry, guys. I was bamboozled by that mute button. So apologies. Thanks for taking the questions.

I'll keep it to one. So I know on the international efforts, that was a big topic. I think you mentioned some partners are developing there. Any update on the hiring efforts and the growth expectations internationally.

Mike Jackowski -- Chief Executive Officer

Yeah. Thanks. I would say that we're making good progress on our investment in the international program. We're pleased with the quality of people that we're attracting to the company and who we're hiring.

And we've seen some positive traction. We've announced a couple of deals in Asia Pacific. We're watching the pipeline develop in Europe, and we think that's good. The example of Coal Services in Australia is another good example that I talked about earlier.

Now, I'm always going to temper it a little bit, as I did last time, especially in some new markets like in Europe where our brand and our relationships with prospects and customers isn't as strong. And I think under a COVID environment, that may take a bit more time for us to establish. But we already have nice deals in the pipeline, and we're working through them so we think it's a good opportunity. But I think the impact of these investments won't be felt really until fiscal year '22 and beyond.

But we're going to continue to build field presence and global brands. So we're excited about our long-term prospects internationally. But it's not something we're going to see a lot of benefit in the short term from.

Brian Peterson -- Raymond James -- Analyst

Understood. Thanks, Mike.

Operator

Thank you. Our next question comes from Rishi Jaluria of D.A. Davidson. Your line is open.

Rishi Jaluria -- D.A. Davidson -- Analyst

Hey, Mike and Vinny. Thanks so much for taking my question and squeezing me in as well. And happy New Year to you as well. I'll also keep it to one.

And just wanted to talk -- go back to the question of cloud migrations. I know you talked about the pandemic has created -- kind of accelerated those digital transformation tailwinds. Does the pandemic also have potential to maybe accelerate existing customers to consider cloud migrations post pandemic. And as you talked about this carrier stick approach to migrations, can you remind us of what those incentives to migrate overall.

Is it things like cloud-first development, cloud-only products, other things around there. That would be really helpful.

Mike Jackowski -- Chief Executive Officer

Sure. Thanks for the question. I would say that the pandemic in of itself probably does not serve as an accelerant for cloud migrations if everything is working well for the carrier. Because even our on-premise installations, everything is accessible via browser, web based, it is modern technology from their point of view.

And they're making that work. So we don't have any evidence of anyone that's running our on-premise versions that they're getting slowed down because their technology is not in the overall cloud, right? I think the one thing that makes those migrations more appealing is certainly just taking advantage of the iteration cycles and our ability to launch new products. So for instance, Duck Creek Producer that I just talked about is, obviously, pure cloud-based solution, fully integrated with our cloud platform. So if they want to take advantage of those new capabilities, that would be a reason that they would make the move.

And really get on that cadence of being able to take in some of those new features over time. And I'd say that's pretty much the bigger driver. And I think most of -- a lot of our customers that we're talking to are excited about moving to the cloud. It's just about budgeting its time frame.

It's working things into their plans on their time frame. And we're going to be patient and do that, and we're not going to force the issue.

Rishi Jaluria -- D.A. Davidson -- Analyst

All right. Great. Thank you.

Operator

Thank you. Our next question caller is Pat Walravens from JMP Securities. Your line is open.

Pat Walravens -- JMP Securities -- Analyst

Great. Thank you. It's Pat. So it's been super helpful.

I guess, Michael, if there's sort of one or two key things that you would love investors to take away from all this to maybe help them understand maybe?

Mike Jackowski -- Chief Executive Officer

Yeah. You broke up a little bit there, Pat, but I think I have your question of one or two key themes for the investment community. I think the thing I'm going to anchor on the most is there's no question that the industry at large is really focused on a transition and in the midst of the early innings of a transition to run core systems in the cloud. And I think our decision to start building out our Duck Creek OnDemand platform in 2014, but really pivot to be a full-on SaaS company in 2016, four years ago, has put us in a position to be a leader in the market.

There's a lot of great questions on SaaS gross margins and the overall growth of our business, and I'm again going to emphasize that we have over 60 on-demand customers, and we're scaling the business nicely. So that back plane is fully built. Now, it's about us scaling that moving forward. So we understand the model.

And we feel that we've already made the transition and adding a ton of value to our customers. And then, the second thing I just want to emphasize is just the hard work of an incredibly talented management team and leadership team. We have really revamped everything in terms of our go-to-market processes. I talked earlier about our relationships with our systems integration partners and how we work with them.

And we're really working with customers and prospects in new ways to add a lot of value moving forward. So I think our recent success that I'm very excited about is really because we have people very focused, doing a great job at shifting the overall focus of Duck Creek, and we're seeing the results of that success in the marketplace. So thanks for the question, Pat.

Pat Walravens -- JMP Securities -- Analyst

Yeah, perfect. Very helpful. Thank you.

Operator

Thank you. I'm showing no further questions. At this time, I'd like to turn the call back over to Mike Jackowski for any closing remarks.

Mike Jackowski -- Chief Executive Officer

OK. Thank you, everybody, for participating in our Q1 earnings call. As you could see, we're pleased with the performance of the business, and we're off to a great start in fiscal year '21. We continue to be very excited about leading away with our on-demand SaaS solutions as the insurance industry continues.

It's important transition to run core systems in the cloud. So thank you for your time. We look forward to the continued dialogue with you moving forward. And please be safe, healthy and well.

Take care.

Operator

[Operator signoff]

Duration: 65 minutes

Call participants:

Brian Denyeau -- Investor Relations

Mike Jackowski -- Chief Executive Officer

Vinny Chippari -- Chief Financial Officer

Sterling Auty -- J.P. Morgan -- Analyst

Saket Kalia -- Barclays -- Analyst

Chris Merwin -- Goldman Sachs -- Analyst

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Alex Zukin -- RBC Capital Markets -- Analyst

Tom Roderick -- Stifel Financial Corp. -- Analyst

Bhavan Suri -- William Blair -- Analyst

Brian Peterson -- Raymond James -- Analyst

Rishi Jaluria -- D.A. Davidson -- Analyst

Pat Walravens -- JMP Securities -- Analyst

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