PortCo target metrics

• Background
• Key metrics
• Management bonus plan
• Churn calculations
• Abbreviations

Background

We are planning to standardise the key metrics and management bonus plans across the different software businesses.

Key metrics

1. ARR Growth > 15%. This can come from:
• Price increases - existing customers
• Cross-sell / up-sell - existing customers
• New logo sales - new customers
2. EBITDA margin > 30%
3. Organic growth > 15%
4. RR renewal price increases
• >12% in Y1 post acquisition
• >8% after Y1
5. Net revenue churn >0% over a period. See definition below
6. PS revenue > 2 x PS loaded costs.
7. WC improvement YoY > 10%. WC = Trade Debtors + Prepayments - Trade Creditors - Deferred Income. You want this number to be as small as possible.

Management bonus plan

• 40% - Metric 1 - ARR Growth
• 40% - Metric 2 - M+G
• 20% - Metrics 3-6

Churn calculations

Recurring Revenue Churn

• OpenRR: Total recurring revenue from all customers in Year X
• Definitions
• ERRGrowth: Recurring revenue from customers in Year X* where the RR has grown in Year X+1
• ERRShrinkage: Recurring revenue from customers in Year X* where the RR has shrunk in Year X+1
• ERRLost**: Recurring revenue from customers in Year X* where we have lost the customer as of end of year X+1
• NewRR: Recurring revenue from new customers won in Year X+1

• Three types of Churn
• Gross Revenue Churn
• = (ERRShrinkage + ERR Lost) / OpenRR
• Focuses on the financial impact of churn, helping to assess the business's revenue stability. It is a more comprehensive measure than logo churn as it accounts for the revenue generated from each customer.
• Net Revenue Churn
• = (ERRShrinkage + ERR Lost + ERRGrowth) / OpenRR
• Offers a more nuanced view of the financial impact by accounting for up-sells, cross-sells, and expansion revenue offsetting lost revenue.
• Customer churn
• = (Customers lost during year X+1*** / Customers during Year X) * 100.
• This metric measures the percentage of customers who cancel their subscriptions or fail to renew their contracts. It provides an overall view of customer retention and the health of your customer base.

Notes:

• *Total recurring revenue from the same customers in Year X where they were also customers in year X+1. If the customer was a new customer in the year X+1, exclude from this value.
• **Customer lost is defined by customers that were with us during Year X but were not with with us at the end of Year X+1
• ***Customers that existed in Year X. Excludes new customers won in Year X+1.
• Each of the three measures has its importance and use case. In our experience, a gross revenue churn of less than 10% is considered acceptable. If it is more than 10% consistently, then you might want to carefully evaluate the reasons and resolve them.

Abbreviations