I actually find their discussion of this metric to be confusing and not particularly helpful in trying to evaluate their business.
They described it on yesterday’s call (if it better defined somewhere else in their filings, let me know):
from the seekingalpha transcript here
Now turning to RPO or Remaining Performance Obligations - an indicator of our future revenue streams. RPO provides a comprehensive view and visibility, as it represents the estimated value of our billed and unbilled subscriptions and services, on and off the balance sheet. We finished the quarter with $790 million of RPO and we expect approximately 50% of these obligations to be realized in the next twelve months.
As a reminder, we expect seasonality in RPO with variability quarter-to-quarter from a peak in Q4, relative to subsequent quarters. Separately, we expect the strength we are seeing in the federal sector, to impact RPO as the contracts typically have a one year term which is shorter than our historical averages.
Short term and total deferred revenue, which are components of RPO, can vary from quarter-to-quarter due to contract start dates, timing and multi-year prepayments. RPO smoothes the lumpiness associated with deferred revenue quarter-to-quarter.
Ok, so you’re telling us you’ve locked in about $400m of revenue for the next twelve months, assuming you can execute and perform on those agreements.
In both Q1 and Q2, you called it “estimated”…why is it estimated? Why not just give us the contractual numbers? Are they not confident enough that they can fulfill all of your obligations to earn those revenues?
How much is subscription vs service?
- I have to believe they have this when they calculate the RPO but currently are not willing to share with their owners/shareholders
- How much is billed vs unbilled?
- Again, I’m sure they have this
Even better, how much have we already been paid for (e.g. how much of the deferred revenue is expected to move to P&L revenue over the next 12 months, both for subscription vs service) and how much is billed but not paid (e.g. in accounts receivable) and how much is unbilled (deal has been signed but based on the payment terms in the agreement, some of the money is not due until a future period and therefore wouldn’t have been invoiced yet).
better yet, how much falls into year 1 vs year 2 vs year 3, etc (similar to a future year committment or rent schedule that many companies put in their SEC filings) to help give us a better understanding of the length of their agreements
This RPO metric frankly just isn’t very good or helpful. Even if we had the answers to the above, it wouldn’t help us understand how much of their estimated future revenue that isn’t already in their RPO number is expected to come from existing customers vs new customers, etc.
This is another reason I’m not as confident in this management team as I’d like to me, for telling us we should be using RPO, when RPO doesn’t really tell us much that would help value the company
-mekong (trying not to talk himself out of holding on the remaining 50% of his shares for another quarter, although the more I think, the more I wonder if I’m being a small “f” fool for holding)