Annual recurring revenue

Normalise active recurring contracts to an annual value using a documented contract perimeter and reconcile the metric to billing and recognised revenue.

Quick answer

Annual recurring revenue, or ARR, is an operating metric that annualises the recurring value of active customer contracts at a measurement date. Company definitions differ on usage, services, short-term contracts and other components, so the calculation requires a stated perimeter and contract-level reconciliation.

Use the worked example

Meaning and transaction use

An SEC filing defines ARR as the annualised value of customer recurring charges at period end and calculates it as month-end MRR multiplied by 12. [S1]

Another SEC filing defines ARR from subscription agreements at a point in time and states that it is an operating metric rather than annualised GAAP revenue or a revenue forecast. [S2]

Proposed control method: maintain a contract-level ARR bridge from opening balance through new business, expansion, contraction, churn and currency effects.

Worked example

Illustrative month-end ARR only. Assume 400 annual subscriptions at 12,000 each and 250 monthly subscriptions at 800 per month.

Scroll the table horizontally to view all columns.

Measure	Calculation	Result
Annual-contract ARR	400 x 12,000	4.8m
Monthly-contract MRR	250 x 800	0.2m
Annualised monthly contracts	0.2 x 12	2.4m
Total illustrative ARR	4.8 + 2.4	7.2m

Illustrative ARR is 7.2 million under the stated active-contract perimeter.

Proposed transaction review process

Define ARR

Set recurring products, active status, usage, services, currency and exclusions.

Reconcile contracts

Tie customer, product, term and recurring value to billing records.

Build the bridge

Track new, expansion, contraction, churn and currency movements.

Review quality

Compare ARR with revenue, billings, collections, retention and concentration.

Evidence checklist

Contracts

Active dates, recurring rights, price, term and amendments.

Billing

Invoices, credits, usage and currency translation.

Bridge

Opening ARR and classified customer-level movements.

Reconciliation

ARR-to-revenue and ARR-to-billing explanations.

Decision framework

Situation	Proposed action
Definitions differ across periods	Restate comparable periods or disclose the change.
Usage is material	Separate committed and estimated components.
Short-term contracts are included	Disclose renewal and annualisation treatment.
ARR grows while cash weakens	Review billing terms, collections and cash conversion.

Common errors to check

Presenting ARR as GAAP revenue.
Including inactive contracts.
Mixing committed and forecast value without disclosure.
Changing the metric perimeter without a bridge.

Reconcile the ARR bridge

Bring the contract register, billing records and customer movements to an ARR review. Standardise the perimeter and reconcile reported growth.

Discuss the transaction

Primary references and editorial scope

SEC filing: ARR and MRR relationship
Example definitions of MRR and ARR, including ARR as MRR multiplied by 12 and stated limitations. Reference checked 17 September 2026.
SEC filing: ARR operating-metric limitations
Example point-in-time ARR definition and distinction from GAAP revenue and forecasts. Reference checked 17 September 2026.

Editorial qualification

General transaction education using public United States filings. Figures are hypothetical. ARR is a non-standard operating metric whose definition can differ by company.

General business information. Obtain advice appropriate to the legal, tax, accounting and financing facts. No offer, lender commitment or transaction outcome is represented. All worked examples use expressly assumed figures. Editorial draft date: 17 September 2026.