Subscription-Revenue Quality-of-Earnings Director — Vertical Software

The mandate

The target combines annual subscriptions, minimum commitments, usage charges, implementation work and reseller arrangements across four products. Management’s recurring-revenue bridge begins with billing labels rather than enforceable performance obligations, while gross retention excludes some migrations and cost of revenue omits substantial customer-specific cloud consumption. The investor needs a decision-grade earnings view before final price and debt sizing.

The engagement deliverable is a Subscription Revenue Quality-of-Earnings Memorandum and Reconciled Cohort Data Book. It will bridge audited revenue to contract, entitlement, usage, invoice, cash, deferred balance and direct service cost; distinguish recurring, repeatable and non-recurring economics; recalculate gross and net retention; and identify purchase-agreement definitions requiring precision rather than merely adjust EBITDA.

Milestone one at day twelve provides ledger reconciliation, revenue-stream taxonomy and unresolved data exceptions. Day thirty concludes milestone two with customer-level earnings, retention and working-capital analyses plus management challenge. The signed memorandum, investment-committee bridge, sensitivity cases and diligence archive form milestone three at day fifty-five, before the binding offer and financing papers are finalised.

Acceptance requires Finance to reproduce the revenue and deferred-revenue bridge to the audited trial balance; the investment team must trace the twenty largest adjustments to contract and usage evidence; and three unseen customer migrations must classify consistently. The deal partner accepts after downside cases reconcile earnings, cash conversion, churn and cost-to-serve without consultant-only logic.

The client will provide data-room access, audited statements, trial balances, revenue and deferred schedules, contracts, billing, usage, cash, product and cloud-cost records, management access and named legal and tax advisers. The target retains accounting judgements. The engagement excludes audit opinion, valuation, tax or legal advice, purchase-agreement drafting, cyber diligence and assurance over management forecasts.

Why this is external work

The deal team understands investment risk but lacks capacity and independence to rebuild customer economics while negotiating price. Target Finance designed the reported measures and cannot objectively redefine them. External work supplies a reproducible bridge and transaction-specific challenge without auditing the company, writing the contract or recommending an investment outcome.

What you will own

• Reconcile reported revenue to contracts, entitlements, usage, billing, cash, deferred balances and general-ledger recognition by product.
• Reclassify recurring, consumption, implementation, reseller, pass-through and exceptional income using documented economic tests.
• Rebuild customer cohorts for acquisition, expansion, contraction, migration, churn, reactivation and foreign-exchange movement.
• Quantify cloud, support, partner and implementation costs omitted from reported gross margin and contribution economics.
• Test cut-off, credits, concessions, minimum commitments, unused entitlements, manual invoices and post-period cash evidence.
• Translate findings into earnings, debt, working-capital and purchase-agreement sensitivities without providing legal drafting.
• Deliver a data book whose formulas, source lineage and exception treatment the investment team can rerun after close.

Candidate qualifications

• Led buy-side or sell-side quality-of-earnings work on scaled subscription and usage-based software transactions under compressed exclusivity periods.
• Reconciled contract obligations, entitlements, consumption, billing, cash and revenue recognition across complex product and reseller arrangements.
• Rebuilt gross and net retention where migrations, pauses, reactivations, acquisitions and foreign exchange distorted management metrics.
• Quantified customer-specific infrastructure and service cost sufficiently to challenge reported recurring gross margins and EBITDA adjustments.
• Presented high-consequence findings to investment committees, lenders, management teams and transaction counsel without overstating audit assurance.
• Produced transparent customer-level analyses that deal and operating teams successfully used for price, covenant and post-close planning.

Non-negotiables

• The named director must lead New York management challenge and remain available through the binding-offer decision.
• No current engagement or financial interest may involve the target, its controlling shareholders or a competing bidder.
• The team must work within the authorised clean-room and data-room boundaries for customer and pricing evidence.
• Audit opinion, valuation conclusion, legal advice and investment recommendation remain explicitly outside the engagement.

1. 49 words maximum. Describe a subscription quality-of-earnings adjustment that changed after usage and direct service cost were reconciled.
2. 49 words maximum. How would you treat a customer migration that management reports as both retained and newly won?
3. 49 words maximum. Which data-room extracts are essential before you commit to a customer-level earnings bridge?