financial-metrics
ARR is a non-GAAP operating metric: the annualised value of contracted recurring revenue at a point in time. It is a run-rate, not IFRS 15 revenue and not cash collected this year.
IFRS 15 spreads multi-year licences and implementation work across the period of transfer. Buyers of subscription businesses still want a point-in-time answer: if nothing else changes, what recurring revenue is already under contract? That answer is ARR.
ARR is not defined by IFRS, FASB or the IVSC. Definitions are a matter of policy in the data room. Get the policy in writing.
A common construction:
ARR = MRR × 12
or, for a book of annual and multi-year contracts:
ARR = Σ (contracted recurring fee annualised, excluding one-off services)
Include only revenue that is recurring by contract (SaaS subscription, maintenance, retainers). Exclude implementation, hardware, and usage that is not committed. Some companies include committed usage; some do not. State it.
Illustration only. Hypothetical B2B SaaS at 31 December.
| Building block | Monthly | Annualised |
|---|---|---|
| Subscription MRR | €410k | €4.92m |
| Committed support retainers | €40k | €0.48m |
| ARR | €5.40m | |
| Professional services (not in ARR) | €0.90m (IFRS, that year) | |
| IFRS revenue | €5.85m |
If a buyer applies 6× to ARR, implied equity value talk is really 6 × €5.40m of run-rate, not 6 × last year’s IFRS sales. Churn of 1.5% monthly would already challenge that run-rate before any CAGR story.
ARR quality lives in net revenue retention, logo concentration, remaining term, and whether “recurring” is cancellable monthly. A steep ARR CAGR funded by heavy discounts and quarterly prepay spikes is not the same as organic expansion.
SaaS and other subscription valuations; revenue multiples in growth processes; lender borrowing-base style covenants on contracted revenue (less common than EBITDA, but used).
ARR ignores cost to serve, capitalised commissions, and the gap between contracted and collectible. Multi-year deals with heavy year-one discounts can overstate economic ARR. FX and M&A “inorganic ARR” should be split.
Dazur treats ARR as a first-class field with a definition note (what is in, what is out) so investor matching does not compare one company’s billings to another’s IFRS revenue under the same “ARR” label.