Translation: Backlog = Backlog

Backlog is the total value of confirmed work or contracts that a company has secured but has not yet completed or recognized as revenue. The term is used particularly for companies that rely on long-term contracts and projects, such as drilling, construction, and engineering services companies.

Simple definition: It is like a restaurant’s list of confirmed orders; if a restaurant has 100 confirmed orders that have not yet been prepared, they represent upcoming work that the restaurant knows it will undertake. Similarly, a company’s backlog represents confirmed contracted work awaiting execution.

Note: The value of the backlog does not mean that the revenue has already been realized; it represents future work associated with existing contracts and gradually converts into revenue as the contractual obligations are fulfilled.

Example:

Suppose a drilling company signed contracts worth SAR 5 billion to carry out drilling work over several years, but has so far completed work worth only SAR 1.2 billion.

In this case, the remaining backlog would be approximately SAR 3.8 billion.

Therefore, when the company announces that a new deal has added SAR 3.8 billion to its backlog, this means that the deal has added future work under existing contracts that can convert into revenue as it is executed.

What does this mean for you?

Visibility into future revenue: Backlog helps provide an indication of the volume of work that could support the company’s revenue in upcoming periods.

Better visibility into business growth: A higher backlog may reflect a larger volume of contracted future work, although the duration and terms of the contracts must also be considered.

Understanding the performance of contract-based companies: This metric is particularly important for companies that rely on long-term contracts because it indicates the volume of work that has not yet been executed.

Frequently asked question: Does a higher backlog mean that the company has already realized this revenue?

Answer: No. Backlog represents contracted work that has not yet been fully executed, not realized revenue. Revenue is recognized gradually in accordance with the execution of the work and the obligations stipulated in the contracts.