CFO’s Guide to Disclosing Headline ARR Numbers

This ARR guide is written for CFOs, finance leaders, founders, CEOs, and investor-facing software operators who want to disclose Annual Recurring Revenue (ARR) clearly, credibly, and consistently.

I’ve collected and personally reviewed hundreds of public tech company ARR definition and calculations. I identified what actually works versus what creates confusion for investors, analysts, and internal teams.

Download my ARR Disclosure Checklist below.

Why ARR Disclosure Matters

ARR is not a GAAP metric. That makes how you define it more important than the number itself. In press releases, usually see the ARR disclosure under Non-GAAP notes. It starts something like this “Annual Recurring Revenue (“ARR”) is a non-GAAP operating metric that represents…”

Poor ARR disclosure leads to:

• Investor confusion
• Analyst misinterpretation
• Inconsistent internal reporting and resulting metrics
• Loss of credibility over time

Strong ARR disclosure does the opposite:

• Builds trust
• Improves comparability
• Reduces follow-up questions
• Makes your growth story clearer
• Creates accurate financial metrics

The 5 Questions Every ARR Definition Must Answer

A best-in-class ARR disclosure explicitly answers all five of these questions. I’ve read 250+ ARR definitions. Some are crystal clear and some make me wonder they even defined. No transparency.

1. What revenue is included?

This is the big one! Be explicit. Do not assume the reader understands your business model.

Examples:

• Subscription revenue
• Usage revenue
• Processing revenue
• Consumption revenue
• Recurring services revenue

Bad: “ARR represents our recurring revenue.”

Good: “ARR includes recurring subscription fees and usage-based charges. Professional services are excluded.”

Yes, some companies do include recurring services revenue. I can’t say that I’m a big fan of that. However, more disclosure by these companies would be helpful to understand why services work is key to their business model.

2. What revenue is excluded?

Exclusions are just as important as inclusions.

Common exclusions to state explicitly:

• Professional services
• One-time fees
• Hardware
• Overages

Rule: If it exists in the revenue portion of your P&L, state whether it is in or out of ARR.

Overage is interesting. You do see this explicitly included but you also see this excluded. With exclusion, my guess is that overages are not material to total ARR.

3. Is ARR based on contracts, revenue, or both?

Clarify the data source of your ARR calculation:

• Contract-based ARR: Annualized contractual value (TCV, ACV)
• Revenue-based ARR: Current-period recurring revenue run-rate
• Hybrid ARR: Contracts for subscriptions, revenue for usage; for example

Bad: “ARR is annualized recurring revenue from customer contracts.”

Good: “ARR is calculated using contracted subscription value and annualized usage revenue based on recent consumption.”

My data shows it’s about 50/50 split on a revenue build of ARR or a contract build. I do see the hybrid build more common in companies that offer subscription and usage revenue.

4. What is the exact annualization formula?

This is the most commonly missed — and most important — element of disclosure.

If math is involved, state the math.

Clear examples:

• TCV / contract days × 365
• Monthly recurring revenue × 12
• Quarterly recurring revenue × 4

Rule: Timing language (“as of period end”) is not a formula. The simple math makes your disclosure incredibly useful.

I see at lot of companies “annualize revenue as of period end” or “annualize contracts as of a measurement date.” It’s very vague about the period of measurement which does matter.

5. How is variable or usage-based revenue handled?

If variable revenue is included in ARR, you must explain how it is annualized. Variable revenue could include usage, processing, consumption, and overages.

Common approaches:

• Trailing 90 days × 4 (most popular)
• Last month usage × 12
• Trailing twelve months (TTM)
• Explicit forward-looking run-rate estimate

If you do not disclose the method, expect analysts or readers of your financials to assume ambiguity.

The ARR Disclosure Template (Use This)

You can copy and adapt the following template:

“Annual Recurring Revenue (ARR) represents the annualized value of recurring revenue from active customer contracts as of period end. ARR includes recurring subscription fees and usage-based revenue. Professional services and other non-recurring revenue are excluded. Subscription ARR is calculated by dividing total contract value by contract duration and annualizing to 365 days. Usage-based ARR is calculated by annualizing the prior 90 days of their actual consumption, assuming no increases or reductions in their subscriptions or usage. ARR is a non-GAAP operating metric and may differ from GAAP revenue and from similarly titled metrics used by other companies.”

Common ARR Disclosure Mistakes (And How to Avoid Them)

Mistake 1: Pricing model = ARR model

Usage-based pricing does not automatically mean usage-based ARR. You see a lot of subscription models in usage-based or AI-first companies.

Fix: Disclose what is actually included.

Mistake 2: Using “annualized” without saying what

Fix: Annualized what? Contracts? Revenue? Run rate? What period?

Mistake 3: Hiding variable revenue mechanics

Fix: If included, explain the methodology. If not disclosed, expect skepticism.

Mistake 4: Changing definitions over time

Fix: Consistency beats optimization. If you change it, explain why. I’m noticing “ARR restatements” in press releases and definitions as companies become better at disclosing ARR.

Best-in-Class ARR Disclosure Characteristics

Strong ARR disclosures share these traits:

• Explicit inclusions and exclusions
• Clear data source (contract vs revenue)
• Formula-based annualization
• Clear handling of variable revenue
• Stable definitions over time; if changed, restate prior periods

ARR is not about being clever with your definition. It’s about being understood.

Strong Examples of ARR Disclosure (Models to Copy)

I included real ARR definitions from public tech companies in this dataset. These are strong examples because they explicitly define what is included, how ARR is calculated, and how to interpret the number.

Commvault

Why this is strong

• Explicit mathematical formula
• Clear subscription focus
• No reliance on vague timing language

Company-defined ARR disclosure

“Annualized recurring revenue (ARR) is defined as the annualized recurring value of all active contracts at the end of a reporting period. It includes recurring subscription offerings (including term licenses, SaaS, and utility software), maintenance related to perpetual and term licenses, extended maintenance contracts (enterprise support), and managed services. It excludes non-recurring elements such as perpetual licenses and professional services which are typically delivered at a point in time. ARR is calculated by dividing the total contract value by the number of days in the contract term and multiplying by 365. Subscription ARR includes only term licenses, SaaS, and utility arrangements, calculated using the same methodology as ARR. SaaS ARR includes only the cloud-hosted portion of Subscription ARR and is calculated using the same methodology.”

Atlassian

Why this is strong

• Clear definition of cloud ARR
• Explicit acknowledgment of timing effects
• Revenue or contract-based disclosure

Company-defined ARR disclosure

We define Cloud ARR as the annualized recurring revenue run-rate of Cloud subscription agreements at a point in time. We calculate Cloud ARR by taking the Cloud monthly recurring revenue (“Cloud MRR”) run-rate and multiplying it by 12. Cloud MRR for each month is calculated by aggregating monthly recurring revenue from committed contractual amounts at a point in time. Cloud ARR and Cloud MRR should be viewed independently of revenue and do not represent our revenue under GAAP, as they are operational metrics that can be affected by contract start and end dates and renewal rates

Common ARR Disclosure Nuances (You Should Expect These)

Many high-quality ARR disclosures include assumptions and clarifications that are easy to miss but critically important for interpretation. These nuances do not weaken ARR. They strengthen credibility in their ARR number.

1. Assumption of Full Renewal

A very common (and reasonable) assumption:

ARR assumes that all active recurring contracts renew as of their measurement date.

Why companies disclose this

• ARR is a snapshot metric, not a forecast
• It avoids embedding churn assumptions into a non-GAAP metric

Teaching point

ARR assumes continuity. Churn is analyzed separately.

2. No Assumed Expansion or Contraction

Many companies explicitly state:

ARR renews at the same levels. It does not assume future expansion or contraction.

Why this matters

• Keeps ARR grounded in current commitments or run-rate
• Prevents optimistic bias

Teaching point

ARR reflects what exists today, not what management hopes will happen.

3. Point-in-Time Measurement

You’ll often see language like:

• “As of period end”
• “At the end of the reporting period”

This clarifies that ARR:

• Is not an average
• Is not cumulative
• Is not forward-looking

4. ARR Is Not a Forecast

Strong disclosures explicitly separate ARR from guidance:

ARR is an operating metric and should not be interpreted as a forecast of future revenue.

This protects both the company and the reader. However, some companies seem to blend exit ARR and CARR which does make it harder when using a CARR foundation.

Interesting ARR Disclosure Nuances (Advanced but Insightful)

These nuances aren’t required, but when disclosed, they add depth and sophistication.

1. Variable Revenue Volatility Acknowledgment

Some companies note:

• Usage may fluctuate
• Consumption patterns can change
• ARR based on usage is inherently less stable

Why this is strong

It signals honesty about uncertainty.

2. Segment-Level ARR Definitions

Examples:

• Cloud ARR vs total ARR
• Subscription ARR vs usage ARR
• AI-influenced ARR vs core ARR

Why this matters

• Improves comparability
• Helps investors understand growth drivers
• See my case study on Verint’s AI disclosures.

3. Currency and FX Treatment

Occasionally disclosed:

• Constant currency ARR
• FX-neutral ARR growth

This helps isolate operational performance from macro noise.

4. Minimum Contract Thresholds

Some companies define ARR only above certain deal sizes (e.g. >$10k ARR).

Why this exists

• Reduces noise from very small customers
• Focuses ARR on meaningful recurring relationships
• However, this could be slightly selective to show better performance.

5. AI-Influenced or Product-Specific ARR

An emerging nuance:

• Separately disclosed ARR tied to AI features
• ARR attributed to new modules or capabilities

Why this is interesting

ARR is evolving as a storytelling metric, not just a finance metric. This about proving traction that can only be seen at segment levels.

Final Takeaway

ARR is a communication metric as much as a financial one.

The best disclosures:

• State assumptions clearly
• Avoid embedding forecasts
• Acknowledge limitations
• Embrace transparency
• Basic formula logic
• Define the period of measurement

If investors and analysts have to reverse-engineer your definition, you’ve already lost. A lot of folks say “ARR is dead,” but that’s because we are doing a poor job of defining, calculating, and disclosing ARR.

Download my ARR Disclosure Checklist below.

Ben Murray

I have worked in finance and accounting for 25+ years.  I’ve been a SaaS CFO for 9+ years and began my career in the FP&A function.  I hold an active Tennessee CPA license and earned my undergraduate degree from the University of Colorado at Boulder and MBA from the University of Iowa.  I offer coaching, fractional CFO services, and SaaS finance courses.