Translation: Remaining Performance Obligations (RPO) = Remaining Performance Obligations

Remaining Performance Obligations (RPO) are the value of goods or services that a company has committed to provide to customers under existing contracts, but that have not yet been fulfilled or whose related revenue has not yet been recognized. The term is used by companies with contracts spanning multiple periods, where obligations are fulfilled and revenue is recognized gradually.

Simplified definition: It is like a one-year service subscription: if a customer pays for the service but the company has provided it for only three months, the remaining months represent obligations that have not yet been fulfilled. Similarly, RPO represents the services or work that the company remains committed to providing in the future under its contracts.

Note: The value of remaining performance obligations does not mean that the revenue has already been realized; rather, it represents value associated with future contractual obligations. Revenue is recognized when these obligations are fulfilled in accordance with the contract terms and applicable accounting standards.

Example:

Suppose a technology company signed a contract worth SAR 60 million to provide support and development services for 36 months, and has so far performed services worth SAR 20 million, for which revenue has been recognized.

In this case, the value of the remaining obligations is SAR 40 million, representing the value of the services that the company remains committed to providing in the future under the contract.

Therefore, when a company has long-term contracts, a high RPO value may indicate future contractual obligations that have not yet been fulfilled, while it is also necessary to consider the timing of fulfillment and the terms of the contracts.

What does this mean for you?

Greater visibility into future revenue: RPO helps clarify the volume of services or work that the company remains committed to providing under its contracts.

Understanding contractual obligations: It shows the amount of work the company has not yet performed, rather than just the value of the contracts it has signed.

Estimating the timing of revenue: Analyzing RPO and its distribution across different periods can help determine when obligations may be fulfilled and revenue recognized.

Greater relevance for long-term contracts: The term is particularly useful for companies that provide services or projects spanning several years, since the full contract value is not recognized as revenue when the contract is signed.

Frequently asked question:

Does Remaining Performance Obligations mean that the company has already earned this revenue?

Answer: No. Remaining Performance Obligations represent the value of the work or services that the company remains committed to providing in the future. They become realized revenue only when the obligations are fulfilled and revenue is recognized in accordance with the contract terms and accounting standards.