Ann: Software Subscription TCV and ARR Update, page-20

@MarsC

No, support/maintenance revenue will continue with subscriptions.

The way the contracts are structured, the "subscription" component - as you point out - completely replaces the upfront sales component. So, instead of customer X handing over $1m on day 1 for a "perpetual" (really 3 years) license, they instead will sign a 3-year subscription agreement requiring minimum payments of $300k p.a. or something like that. If they don't pay the minimum, the service gets turned off remotely by RPM.

Then, the second leg to the same contract is the maintenance component - the customer has the right (but not the obligation) for 3 years to get RPM's upgrades, extra bells and whistles, have RPM perform repairs etc. along the way. Practically what happens is, RPM constantly develops new patches, small upgrades and features etc. to their software modules, and they'll say to the customer: "hey, we've modified the Mine Simulator software you're using - do you want to upgrade so you've got the new features?", and the customer can either tell RPM to go away, or agree to the upgrade. If they agree to the upgrade, that's the "maintenance" revenue stream. The game of RPM (or any other subscription software provider), of course, is to constantly make small, incremental enhancements to the software product suite, to essentially force the customer to upgrade - the customer can delay the upgrades if it chooses, but after a few years the idea for RPM is you do enough regular enhancements such that customers are, in effect, eventually left with no choice (i.e. they have to do the "maintenance" because their product suite becomes obsolete).

So, the way to think about the subscription revenue streams is:

- Subscription is true, contracted, guaranteed minimum revenue - customer must pay this or they lose access. It is the highest quality revenue stream for RPM; and
- Maintenance is also "recurring" in the sense that customers agree to upgrades/maintenance on an ongoing basis, but it can bounce around from period to period depending on when RPM are releasing product upgrades, and when customers agree to do the upgrades. All else equal I would expect maintenance revenue to be pressured in 2H20 / 1H21 due to the COVID-19 recession, because mining customers will want to conserve cash and will do so by deferring maintenance of RPM's software...but eventually, after perhaps 6-12 months of deferrals, the customers will have to do the maintenance to avoid their software becoming obsolete, so it'll snap back.

Even though mining is a highly cyclical industry, RPM's maintenance revenue has been surprisingly steady in its growth (see below) - to me this indicates that RPM has pretty good pricing power / sticky customers who will tend to (begrudgingly) hand over more money every year to keep their software up-to-date:

- 2013: $11.3M
- 2014: $12.5M
- 2015: $13.7M
- 2016: $15.0M
- 2017: $17.3M
- 2018: $19.6M
- 2019: $21.8M