How does Aerus recognize revenue from the sale of individual franchises?

According to the 2025 Aerus Franchise Disclosure Document, revenue from the sale of individual franchises is recognized as deferred revenue when received. This revenue is then recognized over the contractual term of the franchise agreements, which is three years. This accounting practice means that Aerus does not immediately recognize the entire franchise fee as revenue when it's collected. Instead, it spreads the recognition of the revenue over the life of the franchise agreement.

For a prospective Aerus franchisee, this revenue recognition method has implications for understanding Aerus's financial statements. The initial franchise fee paid will not be reflected as immediate revenue for Aerus but will be accounted for over the three-year franchise term. This approach provides a more accurate representation of Aerus's financial performance, aligning revenue with the period during which the franchisee operates under the Aerus franchise.

Additionally, Aerus recognizes revenue from franchise renewals in the same manner as the initial franchise fees, deferring the revenue and recognizing it over the three-year contractual term. Revenue from royalties and administration fees is recognized when the related services are performed, and revenue from closing and transfer fees is recognized when Aerus accepts the terms of the franchise. This comprehensive approach to revenue recognition ensures that Aerus's financial reporting accurately reflects the timing and nature of its various revenue streams.