DCT (2021 - Q1)

Ladies and gentlemen, thank you standing by and welcome to the Duck Creek Technologies First Quarter and Fiscal Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. . As a reminder, today's conference call is being recorded. I would now like to turn the conference over to your host, Mr. Brian Denyeau of Investor Relations. Sir, you may begin. Brian De

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 30. On the call with me today is Mike Jackowski, Duck Creek's Chief Executive Officer; and Vinnie 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 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 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.

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 the 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 are 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 were 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.

Thanks, Mike. I want to reiterate that we are pleased with our first quarter results and the overall performance of the business. Today I'll review our first quarter fiscal 2021 results in detail and provide guidance for the second quarter and full year of fiscal 2021. 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.

. Our first question is from Sterling Auty of J.P. Morgan.

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 one 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 to seeing maybe what is the talk around the timing of moving kinds of traditional bigger books of business over to the cloud looking like?

In terms of our cloud migration, well, let me break it down. In the tier ones, we're obviously always very excited anytime we have a new opportunity for OnDemand within a tier one. 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 ones, we're seeing strong demand from tier ones, a great interest in cloud as I see tier ones 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 there's tier one 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 leave 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 has 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.

And then, Vinnie, 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?

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.

Our next question comes from Saket Kalia of Barclays.

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?

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've 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 towards 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 – 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 still have a really, really strong relationship and partnership with Accenture. They're helping us on many projects, including some of the larger tier one 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 ones 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.

Vinnie, maybe for my follow-up for you. A little bit of 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?

I think you should think about it more as a timing issue 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.

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

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?

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 one 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.

Maybe just a follow-up for Vinnie. 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?

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.

Our next question comes from Brad Sills of BofA Securities.

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 a trend we should expect going forward where customers kind of – they start out smaller and you see the interest level and bigger expand down the road, perhaps going into the quarter, does this give you a better view into more entry points into some of these accounts?

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 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 non-core 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 non-core 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.

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

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 or multi-tenant, we're seeing variation that's out there. So, we expect to run in essence this – 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 that we are already at scale with over 60 Duck Creek OnDemand customers, 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've got to just watch what happens with adoption. And as we see adoption take on, then we might revise some of those future targets.

And then one follow-up, if I may. 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?

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 takes them on a journey with us in terms of moving the multi-tenancy over time.

Our next question comes from Alex Zukin of RBC Capital Markets.

I'm going to go in reverse order. I'm going to start with Vinnie. Vinnie, 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.

Number one, 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. 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.

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?

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've watched 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.

Our next question comes from Tom Roderick with Stifel.

Mike, I'm going to just build on the last question you got and your last answer, with the question just a little bit deeper around the broader environment. 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?

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 increase 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.

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?

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 standalone 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.

Nice job in the quarter. Appreciate it.

Our next question comes from Bhavan Suri of William Blair.

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 are customers starting to integrate data using that hub?

Yeah. 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. We know that that's going to be an increased area of investment and focus for the company.

One other question, just to follow-up on Tom's question and Alex' question too. You've talked about sort of the activity picking up, the pipeline picking up. As you think about just a driver around that, so obviously, COVID and the digital transformation and people say, okay, we need to get a cloud solution as opposed to an on-premise system, which we might use like a Citrix system to scrape, 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, okay, we're going to put out a new policy system or pricing system or whatever for small commercial and we're going to disrupt 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?

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 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.

Our next question comes from Brian Peterson of Raymond James.

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.

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 2022 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.

Our next question comes from Rishi Jaluria of D.A. Davidson.

I'll also keep it to one. And just wanted to go back to the question of cloud migrations. I know you talked about the pandemic has 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 carrot and 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.

I would say that the pandemic in and 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 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.

Our next question caller is Pat Walravens from JMP Securities.

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?

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.

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.

Okay. 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 2021. 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.

Ladies and gentlemen, this does conclude today's conference call. Thank you for participating. And you may all disconnect.