DCT (2021 - Q3)

Thank you for standing by, and welcome to the Duck Creek Technologies' Third Quarter and Fiscal Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. . As a reminder, today's program may be recorded. I would now like to introduce your host for today's program, Brian Denyeau, Investor Relations. Please go ahead. Brian De

Good afternoon, and welcome to Duck Creek's earnings conference call for the third quarter of fiscal year 2021, which ended on May 31. On the call with me today are Mike Jackowski, Duck Creek's Chief Executive Officer; and Vinny Chippari, Duck Creek's CFO. A complete disclosure of our results can be found on our press release issued today, which is available on the Investor Relations section of our website. Today's call is being recorded and a replay will be available following the conclusion of the call. Statements made on this call may include forward-looking statements regarding our financial results, products, customer demand, operations, the impact of COVID-19 on our business and other matters. These statements are subject to risks, uncertainties and assumptions that 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 also will 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'm pleased to report that Duck Creek continues to perform at a high level in the third quarter, underpinned by the growing demand of our SaaS platform, Duck Creek OnDemand. The global P&C industry continues to embrace the move to the cloud, and our SaaS market leadership puts us in a great position to disproportionately benefit from this trend. I'll begin with a quick overview of our financial results for the third quarter, which are well ahead of our guidance for all metrics. We reported total revenue of $67.9 million, up 26% year-over-year. And this was underpinned by subscription revenue, which is our revenue derived from SaaS, of $33.6 million, which grew 56% year-over-year. And we were also profitable in the quarter with adjusted EBITDA of $5.5 million. We continue to see strong demand across all segments of the P&C market. Some of the deals we signed during the quarter included a meaningful win with AXIS Insurance, a leading global provider of specialty lines insurance and reinsurance. As an existing Duck Creek on-premise customer, AXIS is expanding its investment with us, choosing Duck Creek OnDemand to drive growth in their business by bringing new products to market faster than they could if they launched these products with their on-premises installation. With this new deal, AXIS is taking the important first steps towards the cloud and is utilizing Duck Creek OnDemand as its SaaS platform of choice.

Thanks, Mike. Today, I'll review our third quarter fiscal 2021 results in detail and provide guidance for the fourth quarter and full year fiscal '21. Total revenue for the third quarter was $67.9 million, up 26% from the prior year period. Within total revenue, subscription revenue, which is comprised solely of subscriptions to our SaaS products, was $33.6 million, up 56% year-over-year.

. And our first question comes from the line of Sterling Auty from JPMorgan.

I'm kind of curious, how well known through the industry is the GEICO deployment? And if it is well known, have you started to see an increase in inbound call volume similar to what Guidewire experienced when Nationwide went live all those years ago?

Thanks, Sterling. Yes, I would say that it is well known. We did do a public press release, I can't remember the exact date, several years ago. I would say that when we started this journey, it was not well known because GEICO wanted to wait to have some proven success on our platform before we were allowed to disclose it publicly. But then we did make the announcement. But we are very proud and very excited to be announcing that they've completed their rollout across all 50 states. When I go look at what other top Tier 1 carriers in the personal line space have done relative to our ability to get this full deployment done in under a 5-year period with GEICO, we think this is industry-leading, and we think it's really demonstrable of what's capable on the Duck Creek platform so we're very, very proud of it.

That makes sense. One follow-up. You've announced, as has Guidewire, there's been a number of companies that have used you guys to launch new products into the market on the cloud platform. How should we think about the increasing revenue contribution that could potentially come from those contracts as those businesses grow themselves?

Yes. I think when we look at the revenue contribution of those new startup businesses, sometimes, Sterling, they're autonomic or a line of business that is running with full autonomy. So the initial subscription opportunity starts relatively small and then grows over time. But most of the time, we're doing this with large Tier 1 carriers that are starting with a smaller book of business and they're trying to get experience in the cloud. And then we know that the real opportunity is to eventually convert or migrate existing books of businesses over to our OnDemand platform. So again, I think I've highlighted this in the past, but we're seeing a lot of Tier 1 carriers start with new startup lines of businesses or smaller blocks of books of businesses to get experience of the cloud and then we know that those will lead to larger opportunities for us here at Duck Creek.

Our next question comes from the line of Tom Roderick from Stifel.

I actually wanted to kind of piggyback on Sterling's questions around GEICO because just the point about it being across -- deployed on multiple lines but across all 50 states, it brings up the regulatory question and the challenge carriers have in moving from state to state. Can you talk a little bit about some of the complexities that you worked your way through and how that might scale to other carriers that are thinking about such expansions? And then how does the cloud kind of play into that angle?

Thanks for the question. And I don't want to get into the specifics of the GEICO deployment, but what I will do is highlight the advantages of Duck Creek and how we can execute on state-to-state deployments faster than I think our competitors can. And we talk a lot about our low-code platform. And one element of our low-code platform underneath it is a technical term called inheritance. And what it allows carriers to do is take a whole product set and a product set of rules, inherit from it and then derive kind of just small changes so that they can launch either new derivative products or launch it in new states. So on legacy technology, what we find is carriers have a lot of a hard-coded logic, if-then logic, if you will, state by state. If it's the state of New York, then do this and issue this document. If it's the state of California, then issue this document. And then our overall platform, what we can do is more seamlessly reuse a common rule set so that carriers can launch across multiple states very, very quickly and with minimal effort. So it reduces that launch time, and I think that's a true advantage of our low-code platform.

Yes, that's great. That's excellent detail. And then, Vinny, you highlighted in the guidance and the discussion point here, one of the sort of long anticipated contract that's rolling off the books is, in fact, doing so next quarter. Seems like the subscription revenue guidance certainly bakes that in. How would you encourage us to think sort of directionally about net dollar retention and ARR, some other ancillary metrics that go into that as you kind of work your way through that? And then with that particular customer, is that now kind of off the books? Or are there still opportunities ongoing to maintain and extend that relationship in the future with different product lines?

Yes. So Tom, I'll address the first part of the question and ask Mike to jump in on the customer relationship end of it. So since we knew from the time we carved out of Accenture that this was ultimately going away, we've always purposely excluded that account from both our ARR and net dollar retention metrics. So the departure of that revenue stream for that particular contract won't impact the 2 reported metrics. What it will do is the gap that has existed between ARR growth and subscription revenue growth, that will start coming together over the course of the next year or so as that contract -- the impact of that contract winds off. So I think as you suggested, it has been considered in our guidance, of course, and won't be impacting the other 2 metrics other than subscription revenue itself.

Yes. And then, Tom, to jump in on the second half of your question, I'll say that they non-renewed or rolled off of this because they had a change in strategy, and this was consumed as a larger part of an Accenture contract when we carved out. But we do maintain a strong relationship with this customer, and they continue to use other Duck Creek products in other areas of the business. And we're very hopeful of expanding the relationship within the account, so we do think there's future opportunity.

Our next question comes from the line of Chris Merwin from Goldman Sachs.

I just wanted to ask one as it relates to the decision-making process of your larger customers. Obviously, with the GEICO deal, you sort of mentioned the expansion there. For some of these larger logos, are you starting to see a more centralized process around picking vendors to migrate systems to the cloud as opposed to, I think, what it's historically been more of a very decentralized approach with certain owners of lines of business making their own decisions about which systems to use? Is that pattern changing at all? Or how best to think about the success you're having in large logos like GEICO?

Yes, Chris, I would say that we see both. I think there's a trend to have a bit more of centralized decision-making. Obviously, insurance companies, as long as -- as much as all companies are investing more in procurement and getting organized across the enterprise. But then also remember there are some insurance carriers, especially some large Tier 1s, that very much pride themselves around having P&Ls or distributing operating businesses that can make their own decisions. So I think in those types of carriers, we'll find that there is distributed decision-making and they have their own decision-making rights. They may share information across the enterprise in that case. But I think with some larger Tier 1s where we are expanding, it's because we are working with their group leadership or their enterprise leadership, and they see the success on Duck Creek and making broader commitments in a more centralized manner. So I think that's boding well for some of the expansions that we're undertaking right now.

Okay, perfect. And then maybe just a follow-up for Vinny on the ARR. It looks like it improved, I think, by about $6 million sequentially and obviously a big win in the quarter. The sequential improvement was a little less than a year ago. Just wondering how best to think about the seasonality here. Any other puts and takes around deals moving in and out of the quarter? Just anything else to note as it relates to ARR.

Yes. Chris, I think the other thing -- the thing I'd kind of reiterate is obviously on a 1-quarter basis, we don't get too focused on the sequential changes just because of the large deal sizes and small deal volume. That said, Q3 is typically a little bit seasonally low for us. Q2 and Q4 are stronger seasonal quarters. And in Q3, in particular, if you remember, we had a pretty strong quarter last quarter in Q2 when our large Q2 deal actually made it into Q2 ARR and our larger Q3 deal did not make it into Q3. So I'd kind of chalk it up to timing and just continue to encourage people to look at the ARR changes over a longer period than just 1 quarter.

Our next question comes from the line of Saket Kalia from Barclays.

Mike, maybe first for you. I was wondering if you could talk a little bit about sort of the ebb and flow of conversion activity over the last couple of quarters. You've been pretty clear to say that conversions are going to be customer-driven, right, not necessarily Duck Creek driven. But I'm curious if you've seen any change in the pace of those conversion conversations at all this quarter. Does that make sense?

It does make sense, Saket. And I would say that I'm not sure that I would say that there's a change in pace. But I will say that -- and I'm glad that you highlighted our strategy, which is really for us to focus on our customers' strategy, what are the business objectives that they have, and really align our efforts to perhaps move them from on-premise into the cloud or into Duck Creek OnDemand when they have a strategic inflection point, where they want to bring a new thing to market or do a digital transformation in a different way or launch in a new channel. And we're finding that, that strategy is working well. We're having very meaningful conversations with our customers about them adopting the cloud. We're having very meaningful conversations with our customers about their business strategies and how we can help accelerate those business strategies like we did with this case that we just announced with AXIS Insurance. And I would say that we're making meaningful progress. With the announcement of AXIS, we now have 7 on-premise core customers that are now migrating or adopting Duck Creek OnDemand core solutions in a meaningful way. So we think it's showing good progress. But just note that because of this approach, we're not in control of the timing. Our customers are in control of the timing, and I think that's the way that we're going to continue to drive our strategy.

Got it, got it. Vinny, maybe for my follow-up for you. Obviously, a lot of focus on that GEICO contract. It's great to sort of see it across 50 states. But I think Mike mentioned earlier that it was, I think, under a 5-year sort of rollout. So can you just talk about how the ARR contribution there sort of works? I understand you don't want to get into detail on a particular customer, but does the completion of a roll-up mean a meaningful ARR contribution this quarter? Or have we seen most of that ARR contribution sort of happen in the past as the rollout was happening?

Well, first, as it specifically relates to GEICO, Saket, I would point out that, that was a license deal back in 2017 so that's not in our ARR number. But more generally speaking, the way we've seen continual increases in our larger Tier 1 -- in a lot of accounts but particularly in our Tier 1 accounts as they add either new products or more DWP onto the system. So 1 easy -- another point of reference on that happens to be net dollar retention. And a lot of times, when you've seen that dollar retention moving up, it's based on a continued rollout or a continued increased deployment in a large account. So I think you see it both add ARR dollars over time in large accounts as they grow and contribute to the net dollar retention.

Our next question comes from the line of Brad Sills from Bank of America.

This is Sherry Guo on for Brad Sills. I wanted to ask about the Sills. I wanted to ask about the international opportunity, particularly in Europe and APAC. Can you share any insights on the demand environment there or any notable activity from these geographies in the quarter?

Sherry, thanks for the question. We continue to make good progress on our international investments. I will still say that as a result of COVID and the lack of business travel still not ticking up, we're still cautious in terms of seeing progress in Continental Europe, although we are seeing continued success in Asia Pacific as we -- I talked about the go-live at Lawcover and the pipeline is strengthening quite a bit in Asia Pacific. And then in -- across Europe, we're also very pleased with some of the discussions with some of our larger Tier 1 enterprise customers that are looking for new opportunities to launch new products, enable and do digital transformations in European regions. And we think that will help us as we enter fiscal year '22 as well. So there's more to come. And we know that with our current investments, we knew that we weren't going to get results right away and some of these results would start to take hold in fiscal year '22 and beyond.

Great. And in terms of the -- your new wins or upselling, can you talk about how much the noncore assets represent as a product split? And where do you envision this to trend in the near and long-term?

Yes. What I would say on the noncore product split is we don't give quarterly numbers or details on it. But when we looked over the last year or 2 or a period of time in our bookings, roughly speaking, about 75% of our bookings are from our core systems, policy, billing claims and then the noncore additional assets, about 25% of our bookings. And that's really what we have been seeing. I think right now, I think that trend is going to hold for a while. We're looking at some opportunities to expand some of our noncore offerings, so that may change over time. But I think right now, that's a safe assumption for us.

Our next question comes from the line of Bhavan Suri from William Blair.

Nice job again. I want to touch a little bit on the expansion in Europe but focus on it from a product side. So historically, you've seen Europe typically lag the U.S. in terms of cloud acceptance, growth. And as you look at the wins and you've had some good wins but that's an area of investment growth, I guess how much of the sale there is evangelical still like the idea of cloud but also the idea of low-code, no-code, right? The low-code no-code getting to be a buzz in the U.S. You're having a whole new way of deploying and letting customers manage their own rules, workflows, templates, et cetera. How is that sort of conversation happening with clients in Europe? And is there a lag or are they starting to get it and sort of starting to see them -- the flywheel actual there start to play out a little bit? Help us sort of think through how that's playing out and what you're seeing from a demand and acceptance perspective as you invest in Europe?

Great question. And I would definitely say that there is a lag. And I think it is 1 reason why we're advancing more of these conversations with our larger global Tier 1 customers because they have experience with the low-code platform, they have confidence in SaaS. Now I will say that the flywheel is starting to spin in Europe though. So if I went back 4 or 5 years ago, I would say that in Europe, they would entertain SaaS but they really wanted an on-premise offer. When I fast forward today and I look at our pipeline, they are very open to SaaS but they also want an on-premise offer. So they're balancing the 2, of which we will not provide an on-premise offer. So we will not even give them an option with an on-premise installation for a new customer in Europe. And I think that is a little bit of a headwind for us. But I think the market is going to move fairly quick, especially as we start to get beyond the pandemic, start traveling, start meeting in person, start building our brand more effectively in Europe, I think that's going to help, because I really think our success here at Duck Creek has helped accelerate the acceptance of SaaS here in the U.S. And I look forward to an opportunity of getting some momentum and traction in Europe. And I think once we get several proof points, I think the market conditions will change considerably.

Got you, got you. That's helpful. Kind of what I sort of expected would be playing out a little bit on the lag part. I just want to talk to you about the cyber opportunity. And you and I talked about this in the past but I'd love to get an update here. It's becoming more and more common to hear about these cyber attacks, ransomware, et cetera. And again, I guess, 2-parts to the question. One, are you seeing your customers say, "We need to have a cyber insurance product." And then two, like how do you address that? Do they have the algos, the data, the actuarial work done for that? Because it feels like that's really early, and we don't know what the drivers are like exposure to how the network is security based, how much have we invested in security. I don't know how you think about it, but I'd love to understand, say, are your customers thinking about products that you offer there? It's small DWP, obviously today but that could be an area of growth. And then how does Duck Creek OnDemand fit in from a product perspective in that scope?

Yes. And I think -- look, we work with several very large and successful cyber riders that have cyber products and cyber coverages on Duck Creek, and we're very, very proud of our success in the space. When we work with those carriers, we really focus and occupy the space of the product definition, the pricing of the product, the selling of the product through distribution. Because every carrier, if you look at how they look at analyzing the risk of cyber, they use very, very different techniques, different data, different providers, some very -- quite often, you'll find different mindsets in terms of how they think about cyber. It is a rapidly growing product. And I think our product configuration capability gives a lot of carriers confidence that they can tailor capability gives a lot of carriers confidence that they can tailor go to market, and I think that's a strength of Duck Creek. And then they're just looking to the insurtech community. There's a lot of providers that really provide data and analytics in this domain. And some of them are very compelling. Some of them carriers will try and then move on to something else. So for us, we're going to be about continuing to embrace the ecosystem, easy to plug these providers in, similar to the way you would plug in a pay-as-you-drive provider as well for usage-based insurance to make sure that carriers can use the advanced algorithms for pricing. So that's going to be our strategy is to really maintain an open architecture approach to all these insurtech providers.

Our next question comes from the line of Alex Zukin from Wolfe Research.

Maybe just the first 1 around kind of piggybacking on Sterling's question around new customers launching new logos, launching new brands when they adopt Duck Creek. What -- roughly what -- when you think about the percentage of your new logo wins or lands, what -- how many of those are resulting from that type of activity versus maybe like a core system transformation or replacement?

Well, Alex, it would be difficult for me to put a percentage to it because we're just seeing that a variety of carriers are taking on different strategies. And we're very pleased. So for instance, this work that we announced with AXIS, we've been working with them with this on-premise relationship for many years. And they have a new strategy of getting something new to the market very quickly, and they saw OnDemand is a very, very rapid way of which they can get something done. So with that, that's an example of us working with an existing customer that had a lot of experience with our on-premise products. But in terms of new logos, I would say the majority of our new logos is not launching a new business opportunity. It's really replatforming what they have. So when I go look at our pipeline and what's coming through our pipeline, which I'm very excited about, I would say a lot of the new logo opportunities are digital transformations. We want to replace our policy billing or claims system. We want to have a new channel or distribution front-end and the digital capability. And I would say that's still the vast majority of the opportunities that we're seeing.

Got it. That's super helpful. And then, Vinny, maybe just kind of digging in a little bit on 2 metrics. Is it possible to just get maybe a little bit more sizing or kind of some just rough financial impact on SaaS ARR this quarter from that comment about the largest deal in the third quarter not being in the number this quarter? Roughly what type of an impact had it been in? Would it -- how that number would have changed. And apologies for the 2A question, but if you look at the guidance, maybe just a rough reminder of how much of the deal that's coming off the books in subscription revenue, if that -- like-for-like, if that wasn't the case, what would the sequential kind of guide represent in terms of a growth rate?

Yes. Alex, on the second question, we really are not in a position, from a confidentiality perspective, of giving any details on the dollar value of that contract that's rolling off. So I can't really do that. I can tell you that the impact on the growth rate, if you look at recent growth -- quarterly growth rates versus the Q4 guide, that's the majority of the change. But we're not in a position where we can give you any specific details on the dollar value. As it relates -- sorry, can you remind me the first part of the question?

Quarterly ARR growth.

Quarterly ARR growth. Yes. Again, I don't want to -- we don't want to comment on the value of any 1 particular deal. But I think if you look at kind of over a longer time period than a quarter and 2, 3, 4 quarters and look more in terms of what we've been averaging over the quarters, you can kind of get the sense of how a deal can swing from quarter to quarter, what the impact of that might be. So we have said before, a core system deal tends to run into the millions, low to mid-single-digit millions. And a deal like that moving from quarter to quarter can make it a little lumpier. That's why we had the big quarter in Q2 and not as much in Q3.

Our next question comes from the line of Mayank Tandon from Needham.

It's actually Kyle Peterson on for Mayank. Just 1 for me, but just wanted to see in terms of the upsell progress you guys have been making has been really strong. I was wondering if you guys could give any more detail in terms of how much of some of the upselling with existing clients is coming from clients adding additional products versus adding -- bringing more DWP on the platform, just so we could get a little bit of sense for what's driving that growth.

Yes. I would say that, first off, we're very, very pleased with our ability to upsell and cross-sell and continue to show expansion particularly in these large Tier 1 accounts. And I think it really demonstrates the success that they're having on Duck Creek and then upon that success going across and buying more. We don't have the information to give you a percentage around how we grow within an account and whether it's new product, more premium or a new division or line of business. But what I will say is in order that I would rank it is really a new division within a company, licensing a new geography or a new division is probably our primary upsell opportunity. Then very close second would be cross-licensing a major core product. And I would say those are the 2 big drivers. And then we get more revenue, subscription revenue quite often, if carriers grow, obviously, their premium. But because that is a stair-step manner, that would probably be third in line in terms of revenue contribution. So that's really the rough order that I would give it.

Our next question comes from the line of Robert Simmons from RBC Capital Markets.

I'm on for Rishi. So could you talk to what's baked into your gross margin guide for 4Q? It seems like a pretty steep decline quarter-over-quarter. Is that just from the timing of hires or is there something else there to be aware of?

Well, thanks for the question. The Q4 margin decline is a step down. It's more about Q3 being unusually high than it is about whether Q4 is kind of more typical. So we are -- baked into that is an assumption that subscription margins, which have been running very high, largely based on pace of hiring, do come down in Q4 to a more normalized range in the mid-60s, and it's been running closer to more in the high 60s of late. And in addition, we've built in a slight anticipated decline in services margins in Q4. But I would say that while we're still committed to bringing down service margins over the long term because our utilization rates are running so high right now, Q4 will remain reasonably -- pretty strong, might come down a little but it won't come down much from Q3.

Got it, okay. And then can you talk about in gross margins, how do we think about the difference between single tenant and multi-tenant? And how big of a driver can that be over the next few years?

Yes. I think right now, we are pleased with the success of our multi-tenant offering and the take-up of our multi-tenant offering. However, many customers are still opting for a single-tenant approach. And we've decided as a company, what we're not going to do is force an issue where a customer is not comfortable yet at committing to our multi-tenant platform. So that puts us in a position that we're, in essence, running in mixed mode, right? We have some customers on multi-tenant. We have some on single tenant with a lot of DevOps and a lot of automation. And when we're in mixed mode, we don't get the full on efficiencies of multi-tenancy. So right now in our long-term plans, there's not a commitment to improve margins because of multi-tenancy. I've stated this in the past but I think as we look at buying behaviors and we look at migrations, mostly tied to the maturity of the IT operations of the carriers that we're serving. And if that starts to shift and we think we can get more progress on multi-tenancy, we'll, of course, revisit our margin profile. But right now, there's no commitment that we're ready to make on that.

Our next question comes from the line of Alex Sklar from Raymond James.

Mike, a bigger picture industry question here, but what do you see in terms of broader IT budgets? Have those grown at all with premiums this year? And then within that, are you seeing any increased wallet share of IT budgets going towards core modernization products?

I'm glad you're asking about the industry. It's important for me. And I would say that we're seeing that IT budgets are holding strong. It's hard to tell if they've grown, but I think they're holding strong just because a digital transformation and core system replacement, especially as the industry makes its way through the pandemic, is still a top priority for large insurers that are out there. Now when we go look at the industry and the effect of the pandemic, I would say that the growth rate of the overall industry has dropped a little. Historically, it's averaged in the U.S. about 4.5% to 5.5% growth in premium. When you look at 2020, it grew about 2.5%. And that was mostly driven by the decline in personal lines auto premium. It declined about 10%. Now what we are seeing in those carriers is they're not aggressively changing their budgets. They're still investing in digital transformations. And they're really channeling investments into core transformations. And the way that, that has resulted for us is a strengthening in our overall pipeline. So our pipeline is as strong as we've ever had it and it continues to grow quarter-over-quarter. So we're quite pleased with the way the industry continues to look at digital transformations and technology investments.

And Vinny, 1 more SaaS ARR question for me. But specifically the delta between subscription revenue annualized and SaaS ARR looks like it's the largest it's been since kind of 4 quarters ago. So we know the 1 aspect is that expiring contract, but can you elaborate if there's anything else that might be impacting that spread?

Nothing really other than deal timing. Obviously, the largest impact is the legacy contract impact and anything else is just simply timing-related.

Our final question for today comes from the line of Peter Heckmann from Davidson.

Just to go to that last point, Michael, on historical growth in DWP. Given the pricing in the market is hardening or is certainly getting quite a bit harder in certain lines, would you expect DWP to grow at a rate perhaps greater than that 4% to 5% over the next couple of years?

Well, it's tough to say if the whole industry will, Peter. I will expect commercial lines to grow and think of commercial lines as roughly half the market, maybe a little bit less. Now there has been a drag on growth rates on the commercial side because of workers' comp. Workers' comp has shrunk about 5% over the last 2 years because it's directly tied to payroll. But I do think in the hardening of the market, we're going to see commercial lines premiums grow at a higher rate over the next year. But it's tough to say. Now the good news for Duck Creek is I've said this in the past, but in a hard market, carriers are trying to get more surgical in terms of where they take rate and how they take rate and increase rates. And they want better technology to help them do that, more flexibility in their product design, more flexibility in their use of data and visualization of data to drive their pricing algorithms. And that always leads back to a technology conversation. And I think this hard market is definitely helping with some of the conversations that we're having with carriers on their technology backplane and how we can help them deliver on their strategies as they react to the hardening of the market.

Okay, that's helpful. And then just as a reminder, just as we see travel, T&E start to ramp back up post pandemic and we go back to doing marketing, would that represent maybe about 100 basis points to get back to normal? Or might that even be larger, given increased marketing efforts internationally?

No, I don't think it would be necessarily larger. I think we had commented a quarter or 2 ago that we thought the impact was probably roughly a point of revenue. And as that kind of builds back up, it's almost all contained within the sales and marketing line. So I think as we kind of get through fiscal '22, we'll see that start coming back up a little bit as a percentage of revenue.

Yes. The 1 thing to add to that is there will be a small effect on professional services as well as we bake back in rebuild expenses, which is a kind of a zero margin line item, but that will be a small impact as well.

And this concludes the question-and-answer session of today's program. I'd like to hand the program back to Mike Jackowski for any further remarks.

Okay. Thank you, everyone, for participating in our Q3 earnings call. And let me wrap up by again highlighting that we're very pleased with our current results and our market success that's been demonstrated by our substantial growth in our subscription revenue of 56%, which we think continues to reflect the growing customer interest in our Duck Creek OnDemand products. Not only are we well positioned as the insurance industry continues to transition to run core systems in the cloud, we believe we are enabling and leading the migration across the industry, allowing insurance carriers to leverage the cloud and innovate faster. Again, I appreciate everyone joining today. Thank you, and please be safe and healthy and well. Take care.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.