Duck Creek Technologies, Inc. (DCT) Q4 2021 Earnings Call Transcript

Duck Creek Technologies, Inc. (DCT)
Q4 2021 Earnings Call
Oct 14, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by, and welcome to the Duck Creek Technologies fourth-quarter and full-year fiscal-2021 earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your host, Brian Denyeau, Investor relations.

Brian Denyeau -- Investor Relations

Good afternoon, and welcome to Duck Creek's earnings conference call for the fourth quarter of fiscal-year 2021, which ended on August 31. On the call with me today is Mike Jackowski, Duck Creek's chief executive officer; and Vinny Chippari, Duck Creek's chief financial officer. 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 for 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. Therefore, these statements should not be relied upon as representing our views of any subsequent date. You should not rely on forward-looking statements as predictions of future events as actual results and events may differ from any forward-looking statements that management and make today.

Additional information regarding the risks, uncertainties and other factors that could cause such differences appear in our press release and the Duck Creek's latest Form 10-K and other subsequent reports filed by Duck Creek with the Securities and Exchange Commission. We'll 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, 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 am thrilled to report that Duck Creek's fourth-quarter performance was a strong finish to what was a strong year for the company. We are seeing all tiers of the global P&C insurance industry embrace the business, operational and financial benefits from moving to the cloud. This trend drove great demand for our industry-leading SaaS platform, Duck Creek OnDemand, in fiscal 2021 and we believe that the continued trend of insurers moving to the cloud puts us in a great position to generate strong growth for the foreseeable future.

Let me start with a quick overview of our financial results for both the fourth quarter and the full year. For the fourth quarter, we reported total revenue of $70.9 million, up 21% year over year. And this was underpinned by subscription revenue, which is our revenue derived from SaaS, of $33.2 million, up 35% year over year. And we were also profitable in the quarter with adjusted EBITDA of $4.8 million.

For the full year, we reported total revenue of $260.4 million, up 23% year over year; and subscription revenue of $125.3 million, which resulted in 49% year-over-year growth, and adjusted EBITDA of $16.9 million. Before reviewing the quarter in more detail, I want to step back and highlight some of our key achievements in fiscal 2021, our first year as a public company. We increased our SaaS ARR to be more than $135 million, which represents 41% year-over-year growth. We signed important new customer wins with great brands like Arbella, Builders Mutual, Coal Services and Starr International.

We had a particularly strong year, expanding our engagement with existing customers, which helped drive our net dollar retention rate to 120% for the year, where we saw continued expansion of the use of Duck Creek OnDemand, including the adoption of our SaaS solutions from several notable Tier 1 insurers. We also significantly strengthened our partner ecosystem, and we ended the year with more than 5,400 Duck Creek implementation experts across 19 services firms. We are excited to see that the world's leading implementation partners are making significant investments in their respective Duck Creek practices. And we continue to extend our SaaS leadership through notable enhancements to our Duck Creek OnDemand solutions, such as the launch of our digital UX page builder, our producer product and our on-demand control hub.

This success is being driven by the strength of Duck Creek OnDemand, our low-code SaaS platform that is purpose-built to empower our customers. The nuance and complexity of the insurance market means there is not a one-size-fits-all approach to a carrier's digital transformation. Duck Creek OnDemand was designed with the insurance professional in mind so that core systems that they use every day will serve as a tool that helps improve business performance and customer satisfaction. As excited as we are by the accomplishments that we had in 2021, we know that we have barely scratched the surface of our overall market opportunity.

We believe our performance in the fourth quarter, which was a record bookings quarter, was a great example of the momentum we have in the market and the increasing opportunity for Duck Creek. We're very proud of some of the notable wins we had in the quarter. I'm pleased to announce that we have expanded our partnership with another prominent Tier 1 insurer. In Q1 of our fiscal year, we initially announced that this Tier 1 existing customer began their journey to implement a new small commercial product on Duck Creek OnDemand.

After we successfully launched this product in production in under four months, we're very proud that this insurer has committed to run a large segment of their commercial business on Duck Creek demand policy and billing. This will be an opportunity that will scale over time and continues to provide future revenue growth for Duck Creek. We also expanded our relationship with AIG. AIG, of course, is one of Duck Creek's most strategic customers.

And really, we consider them a partner in many respects as we work together throughout their enterprise transformation, AIG 200, and which many in the industry consider to be the most significant digital transformation that the industry has seen. We're proud to be a key component of AIG 200. We signed an important full suite transaction with Arbella, a leading regional insurer in New England. After conducting a thorough competitive evaluation of multiple vendors that lasted nearly a year, Arbella selected Duck Creek Policy, Billing and Claims on demand to modernize their core systems across their entire business.

Their CIO noted two differentiators that made us the right choice for Arbella. The first was that Arbella considered Duck Creek to have a superior platform. In particular, Duck Creek proved to be much more configurable and promoted business agility compared to the other vendors that were evaluated. The second differentiator was the strength of our people.

Throughout the process, it became clear to the team at Arbella that the Duck Creek team knows insurance and the challenges facing insurance professionals far better than our competitors. This combination of a superior platform and deep industry acumen made Duck Creek an obvious choice for Arbella. We signed an important new win with Starr Insurance Companies, a leading global insurer, Starr is one of the most sophisticated providers of complex specialty insurance products and needed a SaaS core systems platform that could easily support its multi-language, multicurrency and multi-geography business. Duck Creek was selected after a thorough and detailed evaluation process, where we demonstrated our ability to meet their requirements and enable their distribution partners with a modern, flexible user experience.

We also signed an exciting distribution management win with SCCI, a Florida-based commercial insurer serving 20 states in Washington, D.C. SCCI is upgrading from a legacy distribution management system that is highly manual and difficult to integrate with its broader IT stack. This win is a great example of the number of ways we can address specific business problems for customers and lay the foundation for a potentially larger engagement as customers execute on their digital transformation strategies. We're pleased to see the continued adoption of our platform in the industry, with several significant new on-demand customer go-lives in the quarter, as well as deployments at existing customers who have been expanding the use of our platform to support their ongoing strategies.

One notable example is Core Specialty, a second-quarter Duck Creek OnDemand win that includes the migration of their existing on-premises Duck Creek policy and billing deployments, as well as deploying our full suite across new and existing product lines. This is a noteworthy go-live as Core Specialty was able to launch a new commercial product liability line and migrate their entire claims operation onto Duck Creek Claims OnDemand in approximately four months. We also had several go-lives with multiple Tier 1 carriers across diverse commercial books of business. Our ability to bring these customers live quickly are an important selling point and provides confidence to these customers as they consider expanding their engagement with us.

In addition to these commercial carrier deployments, we also had significant go-live events with three leading Tier 2 carriers to support their growth in their personal lines books. These noteworthy go-lives were with American National, UPC Insurance and West Bend insurance. It's not just our customers that recognize and appreciate the power of our platform. Gartner recently released their 2021 edition of the North American P&C Core Platform Magic Quadrant, and we're thrilled to once again be included in the Leaders Quadrant for the seventh consecutive year.

To be clear, this is a top category in their quadrant. Gartner conducts an extremely detailed analysis into each of the vendors profiled in the quadrant, starting with specific inclusion criteria. Some of the key strengths of the Duck Creek platform that was highlighted by Gartner include: first, the maturity of our cloud offering, in particular, that we enable customers to promote configuration changes across environments on their own, giving customers more control over their cloud environments. Our persona-based user experience, which is configured using advanced UX configuration tools and our design system, which offers both internal and external users a tailored experience based on their role.

The breadth and depth of our partner ecosystem exposed through our partner App Store, our Content Exchange, our managed integrations and our API-driven integrations. And finally, our insurance bureau products, industry content and circular adoption capabilities, which allows business users to decide what circular notices to accept and adopt into their operations. As you can see from our fourth-quarter and full-year results, Duck Creek is performing at a very high level. As we look ahead to fiscal 2022, our focus is building upon this success.

Some of our key priorities this year include: first, building upon the success of our land and expand strategy. We are seeing good traction leveraging both core and noncore assets to penetrate new accounts and provide future expansion opportunities. We had an excellent year in fiscal 2021, deepening our relationships with existing customers through cross-selling our product portfolio, and we are still in the early stages of executing on this opportunity. To that end, a specific area of focus for this year will be to deepen our focus on some important Tier 1 accounts.

As you can see from some of the customer examples I cited earlier, we have incredible momentum with these strategic customers. We believe that large Tier 1s with complex books of businesses provide a great growth opportunity for Duck Creek. We will continue to invest in international with a prioritized focus on large global carriers and opportunistically pursuing local markets as we see the SaaS market mature, and we see strong opportunities to build relationships in a post-pandemic world. Finally, we will continue to invest in our products to extend our differentiation as the leading low-code SaaS provider, making it even easier to develop and launch insurance products and weaving advanced analytics into our platform.

Before I turn it over to Vinny, I'd like to provide an update on our senior leadership team. First, Vinny Chippari has decided to retire at the end of February 2022, after an incredibly successful career most recently as Duck Creek's CFO for the past five years. Vinny was my first executive hire following our carve-out from Accenture. He's been a terrific partner who has been instrumental in scaling our SaaS business and leading the company through our successful IPO.

Vinny will continue as CFO while we conduct a search process for his successor, and he is committed to ensuring a successful transition. Personally, I will greatly miss Vinny. I am thrilled for him to enjoy the next chapter of his life. On behalf of everybody here at Duck Creek, I want to thank Vinny for his leadership and his friendship, and I wish him happiness in his retirement.

I'd also like to welcome our new chief marketing officer, Jeff Winter, who will lead our brand awareness, demand generation, events and customer and market communication efforts. Most recently, he was the CMO of Rocket Software, a global leader in the mainframe and legacy platform space. Prior to Rocket, he served as divisional CMO for Pitney Bowes' software and data business and earlier in his career, held various senior marketing positions at SAP. Finally, I'm excited to announce that Bill Bloom recently joined our board of directors.

Bill recently retired from The Hartford, where he was the Executive Vice President of Technology, Data and Analytics, Claims and Operations, and previously had significant roles at Accenture, EXL and Travelers. We're excited to have the benefits of Bill's insurance industry and technology acumen help us shape and execute Duck Creek's strategy moving forward. To wrap up, the fourth quarter was a great finish to a strong year for Duck Creek. We continue to extend our leadership in the SaaS core systems market as we sign new customers to our platform and significantly expand our engagement with existing customers.

We believe that our results demonstrate that the P&C industry is fully embracing the benefits of the cloud, which we are in great position to benefit from. We are excited about the opportunity ahead of us and are laser focused on executing to take full advantage of this multibillion-dollar market opportunity. With that, let me turn the call over to Vinny to walk you through the numbers. Vinny, over to you.

Vinny Chippari -- Chief Financial Officer

Thanks, Mike. Today, I'll review our fourth-quarter fiscal-'21 results in detail and provide guidance for the first quarter and full year of fiscal 2022. Total revenue in the fourth quarter was $70.9 million, up 21% from the prior-year period. Within total revenue, subscription revenue, which is comprised solely of subscriptions to our SaaS products, was $33.2 million, up 35% year over year.

In Q4, subscriptions represented 76% of our software revenue and 47% of our total revenue. Please recall that our Q4 results were impacted by the completion of the legacy contract we have discussed previously. Revenues from on-premise software licenses of $4.8 million and maintenance of $5.9 million are showing modest growth as expected and are 15% of total revenue. We expect these line items to continue decreasing as a percentage of revenue, given the strong growth in our subscription revenue.

Services revenue was $27 million, up 16% year over year, driven by continued high demand for implementation services and strong utilization rates. SaaS ARR, which we calculate by annualizing recurring subscription revenue recognized in the last month of the period, was $135.3 million as of August 31, 2021, up 41% from the prior year. 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 can be impacted by timing. SaaS net dollar retention as of August 31, 2021, was 120%.

We're pleased with this result, which reflects the continued success we're having upselling and cross-selling into our expanding customer base. Our net retention is 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. These metrics are non-GAAP unless otherwise noted, and we provided a reconciliation of GAAP to non-GAAP financials in our press release.

First, on a GAAP basis, our gross profit for the quarter was $41.1 million, and we had a loss from operations of $4.1 million. We had a net loss in the quarter of $5.6 million or $0.04 per share based on weighted average basic shares outstanding of 131.7 million. Turning to our non-GAAP results. Gross margin in the quarter was $43.6 million or 61.6%, compared to 60.6% in the fourth quarter of fiscal 2020.

Subscription margin in the quarter was 63.3%. As we've noted each quarter, there can be quarterly variation due to timing of when revenue recognition begins for certain contracts and the timing of expenses at the early stages of new deployments. We're pleased with our full-year subscription margin of approximately 67% and believe this is an important demonstration of the scalability and performance of our SaaS platform. Professional service margins of 48% in the quarter were notably strong and well above our target range, driven in part by the acceleration of professional services revenue in the quarter.

While we expect continued margin strength in Q1 of fiscal '22, we do not expect service margins to remain at these levels throughout fiscal 2022. We remain committed to bringing down our services margin by several points in the near term and longer term into the high 30s, which we believe reflects the sustainable utilization rate for our professional services team. Turning to operating expenses. R&D costs were $12.6 million or 18% of revenue, down slightly year over year as a percentage of revenue.

The growth in R&D costs from the prior year reflects our continued investment in product solutions and features that will generate additional value for customers. Sales and marketing expenses were $10.4 million or 15% of revenue, consistent with the prior year as a percentage of revenue. Expense growth from the prior year reflects continued expansion of our go-to-market resourcing in both U.S. and international markets, while travel-related costs continue to run below normal levels due to COVID-19 impacts.

G&A expense was $16.6 million or 23% of revenue, up from 22% in the prior-year period. Included in Q4 expense is a nonrecurring charge of $2.6 million related to several offices that we do not plan to reopen. Excluding this charge, G&A expenses would have decreased from the prior year as a percentage of revenue. We expect to see decreases in G&A as a percent of revenue going forward as these costs are highly leverageable.

Adjusted EBITDA for the fourth quarter was $4.8 million, which was ahead of our guidance due primarily to better-than-expected revenue, partially offset by increased costs due to the real estate charge discussed previously. Adjusted EBITDA margin was 7% for the quarter, up from 5% in the prior-year period. This represents our 11th consecutive quarter of adjusted EBITDA profitability, which we believe is an important indication of our ability to generate high levels of subscription revenue growth on a profitable basis. Non-GAAP net income per share for the quarter was $0.02 based on approximately 134.8 million fully diluted weighted average shares outstanding.

Turning to the balance sheet and cash flow, we ended the quarter with $377 million in cash, cash equivalents and short-term investments, and we remain debt free. Free cash flow was $6.9 million in the quarter and negative $11 million for the year. Free cash flow in fiscal '21 was well below the prior year, due primarily to approximately $10 million paid in fiscal '21 for cash settled international equity awards and a significant decrease in accrued liabilities. The accrual decrease was primarily related to payments under our renegotiated hosting contract, increased variable compensation payments from fiscal-year '20 and decreases in accrued PTO.

Much of this fiscal '21 working capital change was nonrecurring in nature. I'd now like to finish with guidance, beginning with the first fiscal quarter. We expect total revenue of $68 million to $70 million; subscription revenue of $34 million to $35 million; adjusted gross margins are projected at 58% to 59%; we expect adjusted EBITDA of $2.5 million to $3.5 million; and our non-GAAP net income is expected to range from $1 million to $2 million or $0.01 per fully diluted share. For the full-year fiscal 2022, we expect total revenue of $292 million to $300 million; subscription revenue of $151 million to $155 million; adjusted gross margins are projected at 58% to 59%; we expect adjusted EBITDA of $16 million to $18 million; and our non-GAAP net income is expected to range from $9 million to $11 million or $0.07 to $0.08 per fully diluted share.

We continue to have strong underlying momentum in our business and significant growth in our sales pipeline. There are a few things that investors should keep in mind regarding our outlook for fiscal '22. First, our subscription revenue growth outlook reflects the impact of the completion of the legacy contract we have been excluding from our SaaS ARR calculation. This is a high single-digit impact to our subscription revenue growth rate for the year.

Excluding the impact of this contract, the high end of our guidance calls for subscription revenue growth in excess of 30%. The contract expired in June 2021 and will have an impact through Q4 of fiscal '22. Second, our success with Tier 1 carriers has greatly increased the strategic conversations we're having with both current and prospective customers. While we have great confidence in our ability to both land new Tier 1 carriers and drive significant expansion with existing customers, we have forecasted the in-year revenue impact of these transactions conservatively.

And finally, our profitability guidance includes two factors that are constraining annual profit growth: a decrease in professional services gross margins as we manage utilization rates to sustainable levels; and year-over-year increases of several million dollars in COVID-impacted areas, such as T&E and marketing programs. To wrap up, Duck Creek delivered strong results in the fourth-quarter and full-year fiscal 2021. We believe the superiority of our SaaS platform is driving wins with carriers of all sizes, looking for a modern, flexible and scalable core system platform. We're confident in our ability to continue generating strong levels of growth and increasing profitability in the years to come.

And with that, we'd like to open up the call for Q&A. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Bhavan Suri of William Blair. Your question, please.

Bhavan Suri -- William Blair -- Analyst

Hey, gents. Thanks for taking my question. And Vinny, best of luck with your future endeavors. Hopefully, we'll see you around this track again, but regardless best of luck.

Vinny Chippari -- Chief Financial Officer

Yeah. Thanks, Bhavan.

Bhavan Suri -- William Blair -- Analyst

I wanted to just -- of course, I just want to touch first really quickly on something a little more tactical, which was you talked about the legacy contract adding roughly, let's just say, several hundred bps if we normalize for it. Can you just remind us what the impact of legacy contract was? Because it had an impact in FY '21, sort of how that played out and then sort of the impact in '22 again? Just a little more color would be helpful, I think.

Vinny Chippari -- Chief Financial Officer

Sure. So just let me remind everybody, we do have a confidentiality agreement on that deal, and we can't discuss specific -- the exact specifics of the dollar amount or the terms of the agreement. That said, just to kind of recap what the situation was, it was a legacy agreement that carved out from Accenture in 2016 that we've known for a long time is going away. It was never included in our SaaS ARR calculation.

That contract expired in June of 2021, so we did have 10 months of revenue in 2021. And that will create -- is creating a little bit of a headwind on the subscription revenue growth rate for fiscal '22. And the guidance we've put out for fiscal '22, if you just point to the high end of that guidance range. If you normalize out the 10 months of revenue for the prior year, it would push the revenue growth rate guide to a little bit above 30%.

Bhavan Suri -- William Blair -- Analyst

Gotcha. Gotcha. And just to be clear, it was not included in SaaS ARR, but it's included in the subscription number for '21?

Vinny Chippari -- Chief Financial Officer

That is correct. And just as a reminder, I think we've talked about this on a couple of calls in the past. The kind of gap that has existed for the most part between subscription revenue growth and SaaS ARR growth has been mostly related to this agreement in addition to some timing impacts that are not significant. So once we get through the periods where it's through the fourth quarter of this year, we expect those growth rates to become -- to start tracking closer together.

Bhavan Suri -- William Blair -- Analyst

Gotcha. Gotcha. Helpful. And then one just for Mike here.

You've talked a little bit about some of the existing customers, some big ones certainly starting to transition some of the core book over the one that you implemented very quickly, you mentioned AIG. But how do you think about this mix of greenfield opportunity, even an existing customer where they might open a new line of business or say a business policy owners line versus the actual core book and the transition of that over to Duck Creek OnDemand? How should we think about that mix? And how does that play out over the long term? Thank you.

Mike Jackowski -- Chief Executive Officer

Thanks, Bhavan. Yeah, in terms of the mix of the greenfield opportunities, we would say that there is an increased trend of these. And it's not only with new companies or new customers, but it's also with existing customers. And I think one of the most popular reasons why large carriers gravitate immediately to OnDemand or at least want to dip their toe in the water with a SaaS or cloud offering is because they want to bootstrap a line of business very, very quickly.

And an example that I gave was on Core Specialty in this prepared remarks, where we have an agreement where we will migrate their on-premise book to Duck Creek OnDemand, but what was really important for them was launching a new product line very, very quickly. So getting that to market, getting that to market with speed, of which I highlighted that we did that within four months. And then I also talked about a notable Tier 1 that we expanded with this quarter. And we started that relationship because once again, they wanted to get a new product, a new greenfield product, if you will, to market very quickly, and we did that within about 100 days.

So for us, it's really a great opportunity to start a new relationship. And then once we start that new relationship and prove what Duck Creek and what the cloud can do for them, then expand from there. So we're excited about the opportunities going forward.

Bhavan Suri -- William Blair -- Analyst

Gotcha. Gotcha. Thanks, guys. Thanks very much for questions.

I will jump back in queue. Thank you.

Operator

Thank you. Our next question comes from Jackson Ader of J.P. Morgan. Please go ahead.

Jackson Ader -- J.P. Morgan -- Analyst

Great. Thanks for taking my questions. First one on the competitive environment. Are you guys seeing any kind of a change in customer conversations or win rates or anything as it pertains to cloud deals?

Mike Jackowski -- Chief Executive Officer

I would say that we haven't seen anything materially change in the marketplace. We treat every opportunity as if it's competitive. And we're thrilled with the feedback that we've gotten from our customers. In my prepared remarks, I highlighted some of the commentary from the CIO of Arbella in terms of our superior platform, as well as our people.

So we think we have a unique advantage still in the marketplace. And then beyond that, we're continuing to see the pipeline strengthen for us. So we like our prospects heading into fiscal-year '22.

Jackson Ader -- J.P. Morgan -- Analyst

OK. And then Vinny, your comment on just being a little bit more conservative on Tier 1 activity. Do you mind giving us a little more detail on that? Is that because just conservatism for its own sake or are decisions being in kind of sales cycles lengthening our conversations or people just taking longer to decide? Or what's kind of the reason for being a little bit more conservative on the Tier 1 activity?

Mike Jackowski -- Chief Executive Officer

Vinny, why don't I start with this and then you can kind of back it up with any other commentary. This is Mike. But in terms of the Tier 1 opportunities that we have out in front of us, we're pleased with what we have in the pipeline. We're advancing discussions with several Tier 1s on different fronts.

But what we also find is there's a lot more complexity in decision-making in these accounts. There's a lot of budget allocation cycles, they quite often have to go through a very laborious governance decision-making process, which is quite different than when you're working with a very small Tier 4 carrier, where the executive team comes together quite readily. They know that they have the budget. So for some of our planning, we've made some assumptions, and we've looked at some of these deals that we thought were imminent, and you could see sometimes, timing becomes very difficult to predict.

So it just led us to be a bit more conservative in terms of how do we layer in those deals, not in terms of getting done within the fiscal year, but how we layer them in and how they contribute to revenue in the same fiscal year. So we just erred a little bit more on the conservative side of that.

Jackson Ader -- J.P. Morgan -- Analyst

Got it. OK. All right. Thank you.

Operator

Thank you. Our next question comes from Saket Kalia of Barclays. Your question, please.

Saket Kalia -- Barclays -- Analyst

OK. Great. And Vinny, echo my congrats on a well-deserved retirement.

Vinny Chippari -- Chief Financial Officer

Thanks.

Saket Kalia -- Barclays -- Analyst

Mike, maybe for you. I just -- maybe instead of talking about Tier 1 versus non-Tier 1s, maybe I'll ask you the question just around sort of new logos versus sort of existing. It sounds like you had a lot of success expanding within the existing base. And you talked a little bit about land and expand for next year.

When you look back at '21, how do you think the year sort of did when you look at new business versus expansion? And how do you think about that mix next year qualitatively? Does that make sense?

Mike Jackowski -- Chief Executive Officer

Yeah, Saket. Thanks. The question does make sense. And overall, I'm very happy with both our land and our expand.

If you've been tracking our net dollar retention quarter over quarter, and again, this year -- or this quarter, very strong with 120%, you can see that the business from a total bookings point of view and then revenue contribution is leaning a little bit more toward expand. But what I will say is we're very pleased with the new logos that we're getting on board. I highlighted Starr this quarter, Arbella this quarter, FCCI is a new customer, so these are three new logos that were not past customers of Duck Creek. So we're pleased with that new customer acquisition.

But what is happening is, I think from a customer count point of view, when we look at our pipeline, there's really nice balance between new customer logos and cross-selling within the base. But when we look at opportunities and then you cut it by bookings or potential bookings, it's leaning more toward expand, and I think that's happening for two reasons. Number one is our success in these Tier 1s. And so we're getting some gravity of add-on sales, new business units and pulling those in.

So I think that's been contributing to the rise in net dollar retention. And then also, we talked a bit about leading with noncore assets trying to develop new relationships with carriers where there's not such a hurdle to enter the overall business and then cross-selling into the account. And we've had several carriers that we've been able to do that in the past. And in fact, even the Tier 1 carrier that I talked about this quarter, had a -- we had a relationship with them as an existing customer but it wasn't a core system.

It was actually a noncore on-premise solution. So we had a relationship and we were able to parlay that into something larger on the core side. So I think that's why coming into the next fiscal year, when we look at our land and expand blend, we'll see the bookings start to lean much more toward expand but I'm still very pleased with the deal count and the customer count that's coming through the pipeline and our ability to convert them with new arrivals of new acquired customers as well.

Saket Kalia -- Barclays -- Analyst

Got it. Got it. That's very helpful. And Vinny, maybe for my follow-up for you, I know we don't guide to ARR, but I'm curious, I mean, are there any puts and takes for fiscal '22 that you'd have us think about when sort of thinking about ARR growth or net new ARR? I mean I remember when we were looking at '21 versus '20, there was a big deal in Q4 of '20 that was something that we wanted to consider.

Is there anything like that, just open ended, that we should kind of think about for ARR for next year?

Vinny Chippari -- Chief Financial Officer

Yeah. Saket, I think the short answer is not really. And you pointed out last year, we had that very significant ARR jump in Q4. And that was the quarter that was a bit of an aberration, in that it benefited from timing on both ends, a big Q3 deal fell into Q4, and our biggest Q4 deal stayed in Q4 last year.

We had this Q4, what I would consider kind of a more normal cadence to the quarter, where we did have a couple of deals that closed late in the quarter, that were reasonably significant, that will start generating quarter ARR in Q1, but not in an abnormal way. So I think this Q4, which was -- which is a really good bookings quarter from a timing perspective behaved relatively normally. And we don't know of any other specifics out on the horizon that could impact it. So again, just to kind of reiterate what I said a little earlier in the call, I think after we get through the June period when the legacy contract is gone, you'll start seeing ARR and subscription revenue growth come a little bit closer together.

Saket Kalia -- Barclays -- Analyst

Got it. Very helpful, guys. Thank you.

Operator

Thank you. Our next question comes from Alex Zukin of Wolfe Research. Your line is open.

Alex Zukin -- Wolfe Research -- Analyst

Hi, guys. Thanks for taking questions. I want to piggyback on the last question because I actually think it's really important. So if we look at the first half of new ARR growth this year, it was up 40%.

And if we look at the second half of new ARR growth over the past year, it was down 40% year over year. So I just want to understand -- I understand the Q4 commentary from the prior year being driven mostly by timing of both 3Q deal pushing and 4Q deal signing. But how -- what's the magnitude, Vinny, of the deals that you had expected to sign in the quarter that got pushed out? Because that is a -- even from a dollar value perspective, that second-half number is pretty substantially below from a new SaaS ARR perspective versus the year-ago period. Even versus two years ago, it's up maybe 10%, that second-half number.

So just calibrate that timing differential for us as it was magnified.

Vinny Chippari -- Chief Financial Officer

And Alex, I don't really necessarily want to get into the specifics of the dollar value specific deals that didn't start generating ARR. But I will say that the dynamic you're talking about is really driven by the magnitude of that Q4 fiscal '20 ARR growth, which was outsized relative to most other quarters by a pretty significant amount. And again, rather than talk about specific deals, if you just took it, the dollar value of a substantive deal, mid-single-digit millions and move that one quarter, that makes the profile that you just commented look very different. So again, I think our ARR growth in this Q4 of $11 million and change, that -- obviously, if everything got -- generated ARR in the quarter would have been higher, it was a strong bookings quarter.

But not abnormally bad from a timing perspective. And no super major deal move there, right? Like it wasn't anything of the magnitude of the Q4 '20 deals, which individually were of -- with size greater than the Q4 '21 deals. So I think all things considered, I think the -- again, we've talked about this a number of times. It's hard to look at individual quarters, sometimes even individual halves, when you've got big deals that move one way or another.

So I think again, I think we'd say that Q4 behaved about as we expected from a timing perspective. A couple of the Q4 deals will start generating revenue in Q1 and help Q1 ARR. And then we'll have to see how the deal pacing goes within the quarters over the course of this year. But again, nothing obvious to us that would cause big swings.

Alex Zukin -- Wolfe Research -- Analyst

OK. And then, Mike, maybe just a follow-up for you. So then let's put this in the context of COVID. I mean for us, what we continue to hear from companies last year was a tough year to do large deals and large transactions.

There was a lot of deals that were paused. If I look at your results, is there anything on the opposite end, where last year, because of COVID, things happened at a different pacing that caused some of this, some magnification of ARR in last year that maybe didn't repeat? And then as we come out of the pandemic, hopefully, your commentary around timing of large deals getting more conservative around the pacing of those for next year. How do we think about that? And again, in the context of a reopen, a loosening environment of greater willingness to do large transformational deals?

Mike Jackowski -- Chief Executive Officer

Yeah. Alex, I'll have to say that I don't think it's COVID that's creating an impact at all on the ARR trends that you're highlighting. I think COVID has really not impacted our business, whether it was during the height of it and early on, and even in the aftermath of this. It's amazing how many large deals we've been able to close, even when we've done 100% of our work with the customer in a virtual manner.

And I feel that they have confidence in that. And I think actually, because we've established such a strong brand and a strong reputation in the industry, it's actually helped us because I think carriers that are going to make a decision without you getting in the room want to gravitate to somebody that's built such a strong brand like Duck Creek. But as Vinny said, the first-half to second-half ARR, it is timing. And I want to remind you that this is a low -- on a relative basis, a low deal volume and high deal value, and you can have these swings quarter to quarter, one half to the second half.

But I would say, going back to your question on COVID, the only thing that I'd say it has somewhat impacted us is on international expansion just because our ability to really meet new customers in new markets and build a brand in a new market. So I think it hasn't affected us where we had a strong brand. I think it has affected us where we have not established our brand. And I think in the aftermath, that should be helpful.

Alex Zukin -- Wolfe Research -- Analyst

Understood. Thank you, guys.

Operator

Thank you. Our next question comes from Brad Sills of Bank of America Securities. Your question, please. 

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

OK. Sorry about that. Great. Awesome, guys.

I wanted to ask about a comment you made earlier, Mike, just on the kind of shift in focus toward noncore, away from kind of that initial land, going after perhaps a bigger transformational replacement deal of claims or billings. Is that a relatively new focus for you? Is that bringing down deal sizes that perhaps maybe we should expect down the road there's a cohort of customers there where we could see some nice expansion activity accelerate?

Mike Jackowski -- Chief Executive Officer

Yeah. I'm not so sure that you're going to see a wild acceleration, Brad, because of this. But I would say in the last year, it's been a focus for us to take noncore assets like reinsurance management and distribution management, and land into accounts, build a relationship. And the hurdle is just smaller.

You're talking about approvals on the customer side that range in dollar values of hundreds of thousands of dollars on an annual basis versus millions of dollars on an annual basis. And I think that's really helped us in some accounts. And I think last quarter, I highlighted Builders Mutual was an example, where we landed there with distribution management. Built a strong relationship, they went live, they love the product, and then we had an expansion in the core.

And we're seeing that happen in a couple of other accounts, where we've landed in with reinsurance management or distribution management and other assets. And it's something we're going to keep our focus on. So we're hoping it will lead to broadening those relationships. And then also we think it helps us where perhaps our competitors are entrenched and they're the incumbent, but if we can get a smaller asset in there, at least we can develop a relationship and sometimes perhaps have an opportunity at an on-premise migration or something that looks like that because we have a relationship with the account.

So that's really the overall strategy behind it.

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

That's great. Thanks, Mike. And then one more, if I may, please, just on the consulting headcount up nicely. I think you're around -- you said over 5,000.

Now I think you were around 3,000 at IPO. So I guess my question is where is the incremental growth coming from in that number? Is this global SIs? Are these more regional SIs, specialty ones? Any commentary on that global SI channel, because I know how critical that is. Thank you.

Mike Jackowski -- Chief Executive Officer

Yeah. I would say that it's a combination of both. We've added -- I don't know the exact account, but it's probably four or five SIs to our ecosystem within the last year. Most of those were smaller SIs, so some regional players with a focus.

But I'm also -- but I will say that a lot of the headcount too is being driven just because the larger SIs are investing quite heavily in their practices. We've done several nice deals with Cognizant and Cognizant has been helping us. In fact, they're one of the leaders in terms of implementing our distribution management products. So they've had some nice wins there.

And then Accenture continues to scale their practice as well, so to have this very significant relationship with the largest systems integrator -- and Accenture is doing many of the large Tier 1 implementation implementations that have going on right now, so they continue to train and add to their headcount and grow their practice. So I think we're seeing growth right across all of our partners.

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

It's great to hear. Thanks, Mike.

Operator

Thank you. Our next question comes from Rishi Jaluria of RBC. Your line is open.

Rishi Jaluria -- RBC Capital Markets -- Analyst

Hi. Wonderful. Thanks, guys. Thank you so much for taking my questions.

And Vinny, it has been a pleasure working with you and wish you all the best. I want to start by talking about the SaaS gross margins line. I know the number can obviously bounce around from accounting and timing and all that stuff. But I was a little surprised to see it decline what, 600 basis points or something sequentially and hit the lowest point at least we've seen it in maybe six quarters.

Anything in particular to call out on that? And maybe alongside that, how should we be thinking about the SaaS gross margin line going forward and let's say on a full-year basis, just to normalize for a lot of noise? And then I've got a follow-up.

Vinny Chippari -- Chief Financial Officer

Yeah, sure. So I think the first thing I'd point out is, I think we've observed prior to Q4 that the SaaS margins were running much higher than we expected. They're in the high 60s. That's not where we had targeted for the year.

There were some timing impacts that were favorable, both on the revenue and the cost side. And some of that reversed a bit in Q4. Now the 63.3% in Q4, I think probably took a little bit extra burden of cost in the quarter that fell in from a timing perspective. And I think we're -- we continue to run on a normalized basis, more like in the mid-60s right now.

And I think as we go forward, we think that normalized mid-60s, we're continuing to add a lot of resources in terms of customer support. And I think we'll see -- maybe we'll certainly step up from where we saw the Q4 number because that was a little disadvantaged by timing. But I don't think we're going to see a notable increase in SaaS gross margin over the course of this year. That said, I think with the scale that we're at, already having achieved numbers that are in the mid- to high 60s, we're pretty confident that we can kind of hold in this mid-60s to upper 60s range and have line of sight to getting it into the low 70s within the next couple of years.

So I think our kind of view on SaaS margins hasn't really changed. We have a line of sight toward moving it into the 70s with some more scale. And this year, I don't think we're going to see a notable step up, and I'd say Q4 was a little disadvantaged by timing.

Rishi Jaluria -- RBC Capital Markets -- Analyst

Got it. That's really helpful. Thanks.

Mike Jackowski -- Chief Executive Officer

Just to add to that, as Vinny said, we're committed and we know we're going to incrementally improve margins over the midterm and drive it up into the low 70s. But the way that we think about it is we're continuing to hire and invest on the side because we know we're going to continue to scale. So that -- think of that as kind of fixed. We're going to continue to invest.

And bring those -- that personnel in. And then last year, this past fiscal year, we benefited from that revenue upside and that had a -- it kind of floated SaaS margins up above what our expectations were. So that's why I think they're going to moderate this year, but just know that we're committed to this long-term improvement over time and get it to the low 70s.

Rishi Jaluria -- RBC Capital Markets -- Analyst

Got it. No, that's really helpful. I appreciate the additional commentary. And then I wanted to turn back to international.

Mike, I know you had mentioned International has maybe been a little tougher for in the COVID environment. But it's still at least been growing as a percentage of the business, at least in the first half of this fiscal year. How are you thinking about the international environment going forward? What are you seeing in terms of appetite for digital transformation and migration to the cloud? And over time, what's the right way to think about that mix of international versus domestic? Thanks.

Mike Jackowski -- Chief Executive Officer

Well, I think in terms of the mix, you'll see us continue to make progress, most notably in Australia and Asia Pacific. We invested in our practice four or five years ago, and we're seeing that pay off. And we know we're going to get some more wins on the board. I'm a little bit more tempered with how fast we're going to move in EMEA.

We've made investments in-country and landed some resources, but it's taking us some time to get some wins on the board, create a reference base and build that brand. So I'm a little bit more tempered in terms of our progress there. But what I am seeing is that we're really advancing conversations in some of these large global carriers that have a need to replicate some of their success in the U.S. that we've had with them and launch books of businesses on an international basis.

And with that, I think even an example that I had in my earlier remarks is Starr International, which is a global carrier that really writes business in many geographies. And what we know is we have a great fit-for-purpose offering for those accounts. We're going to put some energy toward investing into building those relationships and expansion internationally with those accounts. Now you asked a specific question on what can we expect in terms of share of revenue and bookings on our books.

And some of that will depend on how we land these contracts because sometimes we land on a globe -- international piece of paper that gives them right to write in certain markets, and it won't get classified. But I think over time, you'll see us go from low single digits to mid- to high single digits over several years, but that's what you can expect in terms of the business.

Rishi Jaluria -- RBC Capital Markets -- Analyst

All right. That's very helpful. Thank you so much.

Operator

Thank you. Our next question comes from Pat Walravens of JMP Securities. Please go ahead.

Joe Goodwin -- JMP Securities -- Analyst

Hi. This is Joe Goodwin on for Pat. Thank you so much for taking our questions. First, just the product advantage you have in the cloud that you discussed, how do you think about your ability to actually be able to sustain that advantage over time going forward?

Mike Jackowski -- Chief Executive Officer

I think it's quite strong. Obviously, our competitors are investing quite heavily in the cloud, right? I think almost every company that we do compete with has now got some sense of cloud offering, they're marketing cloud first. And that's as expected. And I think that Duck Creek played a big role in conditioning the market and having other companies shift their strategy.

But I'd also like to emphasize, this isn't just about running your solution in the cloud and being a cloud solution. Really, what sets us apart is what I call our low-code offering. We have a mechanism that each and every business rule that a carrier cares about, not only what we provide out of the box, but how they maybe configure that or enhance it or make changes to our system, is on our low-code platform. So all of those critical business rules are externalized from the software itself and that creates more business agility.

And what we're seeing in the marketplace is that's a very, very difficult thing to catch us on, just because it requires a lot of rearchitecture from our competitors. So we think that gives us a unique advantage and a several multiple year lead and that's the feedback that we're getting from our customers when we win, like I highlighted from Arbella earlier in my comments. So we think we're going to keep maintaining that advantage and we have many things in the works to enhance and extend that advantage in the marketplace as well.

Joe Goodwin -- JMP Securities -- Analyst

Understood. Thanks, Mike. And then just a quick follow-up. How would you describe the pricing power that Duck Creek has in its business? And maybe just how that might be different when you're actually specifically dealing with the Tier 1s?

Mike Jackowski -- Chief Executive Officer

Here's what I'll say is, in aggregate, I would say that price is not the most important criteria of a buyer. It's not the No. 1 item. Almost every buyer will say, we want to pick the right solution that meets our business needs first.

It's not that price isn't important. It is. But I'll also say that Duck Creek is not known as the lowest-cost provider in the industry. There are other vendors that occupy that space, but I don't think those other vendors really carry our depth and our functionality and our flexibility.

So it has allowed us to maintain the pricing that we need and that what we want to go to market with, but I also believe that we provide great value for our customers, and we're priced appropriately. And I think it's a good fair price with great value. So I think we know what the market will bear. It's a given deal, our customer can be more price sensitive than others.

But I think at large, we're doing a nice job at holding our price, holding our pricing power, and that's what's helping contribute to our successful SaaS gross margins today. And I think driving the efficiency and more levels of automation as well is going to help us drive that SaaS gross margin to where we want it to be in the low 70s in the midterm.

Joe Goodwin -- JMP Securities -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Parker Lane of Stifel. Your line is open.

Parker Lane -- Stifel Financial Corp. -- Analyst

Yeah. Hi. Thanks for taking my question. Mike, in the on-premise world, we saw a fair share of multi-vendor deployments for core systems.

As your customers and prospects come up for cloud migration or maybe even going to cloud for the first time, are you seeing any change in consideration around the way they think about multi-vendor deployments? Do you see customers preferring an integrated approach of policy, billing and claims? And in a case for a customer, I guess, chose to go in a multi-vendor approach for cloud, what would be the core considerations that would push them in that direction?

Mike Jackowski -- Chief Executive Officer

Thanks, Parker. Look, I would say that in the world of cloud, aside from on-premise, there is certainly a higher bias to run more, I'm going to say, cloud components or run more of the suite. Now that bias, I'll still say that the smaller the carrier, the more they want a homogenous suite from a single vendor. The larger the carrier again, they have different P&Ls, they have different divisions, they have divisional CIOs and they'll have a little bit more of a best-of-breed buying behavior.

So we have plenty of customers where we are integrated, if you will, with our competitors on one side, perhaps they're running a claims system and we're running a policy system. So that's something that we will typically see. We'll most typically see that in the Tier 2s and 1s, and then the smaller carriers have a bias for the cloud. But I think the cloud is actually creating more of an attitude of wanting to buy more pre-integrated components because it's just easier.

So we're in deep discussions around cross-selling. And I think that's where the cross-selling velocity and migrating carriers to our cloud and then upselling another component becomes a strong opportunity for Duck Creek moving forward.

Parker Lane -- Stifel Financial Corp. -- Analyst

Got it. And then one quick one on the growth of the channel from an implementation standpoint, big wave of digital transformation, a lot of different technology priorities out there right now. Have there been any capacity constraints that you've run into as your customers consider making these moves that may be a lot of very solid go-live so far this year, very timely ones? But have there been any times where you've encountered customers struggling maybe just from a capacity standpoint on the implementation side?

Mike Jackowski -- Chief Executive Officer

I won't say that there's areas where a customer is struggling on capacity. The beautiful thing about these world-leading systems integrators, is they're world-class in terms of onboarding people, training them, getting them up to speed and building skills. And that's why we keep scaling our practice. And it's a wonderful thing that helps us scale our business.

So I'm quite pleased with it.Obviously, the one thing that we've had to do is we've been hiring resources with the intent of bringing utilization rates down. But because of demands from our customers, we've been staffing them out on projects. So it's been driving up the near term our professional services margins. But I would not -- Parker, I would not say that that in any way is a constraint to our business.

I think we've been keeping up with demand. And I think we have a world-class professional services arm of our business. It's doing a great job taking care of our customers right now.

Parker Lane -- Stifel Financial Corp. -- Analyst

Good to hear. Thanks again for taking the questions.

Operator

Thank you. At this time, I'd like to turn the call back over to Mike Jackowski for closing remarks.

Mike Jackowski -- Chief Executive Officer

OK. Thank you, everyone, for participating in our Q4 and fiscal year-end '21 earnings call. And let me wrap up by reiterating that we ended our first fiscal year as a public company with great results, delivering over $260 million of total revenue, up 23% over prior year and increasing our ARR to more than $135 million or up 41% year over year. And with a track record of winning new customers and transitioning these opportunities into cross-sells and future opportunities and as the industry is looking to transition to use the cloud to run their core systems, we know we have a great opportunity out in front of us.

So again, I appreciate everyone joining today. Thank you, and please be safe, healthy and well. Take care.

Operator

[Operator signoff]

Duration: 64 minutes

Call participants:

Brian Denyeau -- Investor Relations

Mike Jackowski -- Chief Executive Officer

Vinny Chippari -- Chief Financial Officer

Bhavan Suri -- William Blair -- Analyst

Jackson Ader -- J.P. Morgan -- Analyst

Saket Kalia -- Barclays -- Analyst

Alex Zukin -- Wolfe Research -- Analyst

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

Rishi Jaluria -- RBC Capital Markets -- Analyst

Joe Goodwin -- JMP Securities -- Analyst

Parker Lane -- Stifel Financial Corp. -- Analyst

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