Several insurance technology companies have gone public in 2020, with the insurtech Lemonade (LMND 0.38%) turning in the largest IPO of the year so far. Now Duck Creek Technologies has filed a prospectus with the Securities and Exchange Commission to go public as well.
The Boston-based company, which was founded in 2000, is planning to raise at least $200 million in the offering. Duck Creek plans to use the proceeds to rearrange its organizational structure and for general corporate purposes such as pursuing acquisitions. It's expected to trade on the Nasdaq with the ticker DCT.
Let's meet Duck Creek Technologies.
Image Source: Business Wire.
Business model
Unlike Lemonade, which sells insurance directly to consumers, Duck Creek Technologies is a software-as-a-service (SaaS) company that sells its core systems to some of the largest property and casualty (P&C) insurance companies in the country. The list includes Progressive, Liberty Mutual, AIG, The Hartford, Berkshire Hathaway Specialty Insurance, and GEICO, among many others.
The system that Duck Creek sells provides a "single, unified suite of insurance software products" to its business clients. The suite includes products that allow companies to create new insurance products and manage those products from quoting, binding, and servicing. The suite can also assist with important billing and payment activities and helps carriers through the entire claims lifecycle, among other services.
Duck Creek can sell these capabilities as a full suite or individually through a subscription model. The company also licenses these products and makes money through maintenance and other professional services. Duck Creek values its total addressable market regarding core insurance software at $15 billion globally and $6 billion in the U.S.
Earnings
The company has not been profitable in the last three years, with a net loss of nearly $17 million for the year ended Aug. 31, 2019. But revenue has been growing steadily, and as of the nine months ending May 31, Duck Creek is projected to see its largest revenue increase yet and potentially top $200 million in total revenue this year. However, its expenses and cost of revenue have grown as well. Still, its net loss through the nine months ending May 31 of this year is down by nearly $6 million compared to the same nine-month period in 2019.
Duck Creek said in its prospectus that its revenue and profits have not really been impacted by the pandemic, a good sign for the company. Additionally, Duck Creek has been able to roll out new products and projects while the staff has been working fully remotely. And while huge losses could be coming to insurance carriers as a result of potential coronavirus claims, Duck Creek is not an insurance carrier and therefore will not be directly affected by any incurred losses.
The company plans to grow by pursuing more P&C insurance customers across a wider geography. Duck Creek also believes there is an opportunity to sell more of its current products to existing customers, add new products to its offerings, transition more customers licensing its products into SaaS customers, and pursue acquisitions.
Is it a buy?
Like banking, the insurance sector has been hit hard by the coronavirus pandemic, with many insurance stocks down considerably since the beginning of the year. The industry could be facing heavy losses if insurers have to pay out on certain claims due to the pandemic, but all of that is uncertain right now. The good news for Duck Creek is that the company won't get hit with any claims because it isn't a carrier, and it hasn't seen a material impact on its business so far.
While the performance of large carriers could certainly impact Duck Creek down the line, part of what this company does is provide data solutions for the entire insurance cycle, so its services could still be considered useful even if companies are paying out large claims. Considering the discount most P&C insurers are trading at right now, I do see Duck Creek as an attractive investment.
