Duck Creek Technologies Inc., a maker of specialized software-as-a-service products for the insurance sector, raised $405 million in a Thursday initial public offering priced above the expected range.
The company’s momentum continued into today, pushing its shares nearly 56% higher than their IPO price in their trading debut on the Nasdaq stock exchange.
Duck Creek raised $405 million by selling 15 million shares at $27 apiece. The company’s original target price range was $23 to $25 per share. The total value of the IPO could increase even further, to $465.8 million at the top end, if the underwriters exercise their option to purchase additional shares at the IPO price.
Boston-based Duck Creek is majority-owned by private equity firm Apax Partners and Accenture Plc. The company sells a suite of software applications that insurance companies use to automate day-to-day business operations such as processing claims. Duck Creek focuses specifically on serving carriers in the so-called property and casualty market that offer policies covering homes, automobiles and other property.
Duck Creek generated a loss of $8 million on revenue of $153 million in the nine months through May 1. The company grew sales by 24% in that period, a relatively modest rate compared with some of the other software firms that have hit the stock market lately, but the top-level number tells only part of a story.
Duck Creek was founded about 20 years ago and is currently shifting its product portfolio to a software-as-a-service model. The part of its revenue that comes from subscriptions is growing at an accelerating pace. Subscription revenue grew 32% during Duck Creek’s full 2019 fiscal year, while in the nine-month ended May 31, that growth rate jumped to 49%.
Partly thanks to the software-as-a-service shift, the company’s gross margins improved 20% in the period. But Duck Creek warned in the IPO filing that “we expect to continue to incur losses for the foreseeable future as we expend substantial financial and other resources” on growth activities such as product development.
One of Duck Creek’s core product differentiators is a set of so-called low-code configuration tools built into its insurance application suite. According to the software maker, business users at insurance companies can employ those tools to make changes to core systems without help from developers. Duck Creek said in the IPO filing that, as part of its growth activities, it plans to keep expanding its applications’ feature set and expects “research and development expenses to increase in absolute dollars for the foreseeable future.”
Duck Creek’s public offering is the latest in a series of successful software IPOs. Among the other companies that hit the stock market in recent weeks was Lemonade Inc., another insurance-focused firm, which raised $319 million in its July listing. Like Duck Creek, Lemonade priced its shares above the original target range.
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