Remaining Performance Obligation (RPO)

A company’s Remaining Performance Obligation represents the total future performance obligations arising from contractual relationships. More specifically, RPO is the sum of the invoiced amount and the future amounts not yet invoiced for a contract with a customer. The former amount resides on the balance sheet as Deferred Revenue and has always been reported as required by GAAP. The latter obligation, also referred to as Backlog, makes up the non-invoiced amount of the Total Contract Value metric. Thus, RPO equals the sum of Deferred Revenue and Backlog. For more on this subject, you can read our article on The Remaining Performance Obligation (RPO) SaaS Metric.

Adoption of Accounting Standards Update No. 2014-09, Accounting Standards Codification (ASC) number 606: “Revenue From Contracts With Customers” was required for public companies with annual periods that began after December 15th, 2017.

One of the early SaaS adopters was Splunk Inc. which implemented ASC 606 on February 1, 2018, provides a good reference for RPO. For the fiscal year ended January 31, 2019, Splunk reported Total Revenues of $1.80B, Deferred Revenue of $0.88B and RPO of $1.26B. For the following fiscal year, Splunk reported Total Revenues of $2.36B, Deferred Revenue of $1.00B and RPO of $1.80B. Year-over-year growth in RPO was 43% and this exceeded the growth in Total Revenues by 12 points. Since RPO serves as a proxy for future revenue, the RPO growth rate provides a leading indicator of growth. In Splunk’s case, the RPO growth indicates that the company will show Total Revenue growth in fiscal year 2021.

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