Remaining performance obligations (RPO)

What is remaining performance obligations (RPO)?

Remaining performance obligations (RPO) is contracted revenue a company has not yet recognized, which public companies disclose under ASC 606 with an explanation of when it will become revenue. Timing can be shown in time bands or described in words. It is often called the backlog disclosure. It covers only the enforceable, noncancellable term of each contract, and companies may exclude contracts of one year or less.

Why it matters to a revenue leader

RPO is the accounting version of backlog. It tells investors how much future revenue is already under contract, which is why many software companies report it as a signal of future revenue, and it gives the CFO a floor to build guidance on. For a revenue leader, RPO rewards longer, noncancellable terms. A three-year service agreement that the customer can cancel on 60 days' notice may add only its noncancellable portion to RPO, far less than its headline value.

A public fire protection company ends the year with $900 million of RPO. It discloses that about 60%, or $540 million, will be recognized in the next 12 months. Against full-year revenue guidance of $1.5 billion, roughly 36% of next year's revenue is already under contract before the sales team books anything new.