It looks like updates can count as a first annual install:

A first annual install may result from an app’s first-time install, a reinstall, or an update from any iOS app distribution option — including the App Store, an alternative app marketplace, TestFlight, an App Clip, volume purchases through Apple Business Manager and Apple School Manager, and/or a custom app.

However, there's extra mumbo jumbo about "it doesn't count for 12 months after a first install is counted. But the next one after starts a new first annual install."

So it's essentially some kind of twisted Orange County MLM logic.