How does Alloy handle upfront fees paid by franchisees for development rights (MUDAs)?

According to Alloy's 2025 Franchise Disclosure Document, upfront fees paid by franchisees for development rights, referred to as MUDAs (Multi-Unit Development Agreements), are handled in a specific manner. Alloy recognizes that these development rights are not distinct from the franchise agreements themselves. Therefore, the upfront fees paid for these development rights are deferred and then apportioned to each individual franchise agreement that is eventually signed by the franchisee. This means that the initial lump sum payment is not immediately recognized as revenue by Alloy but is instead spread out over the life of each franchise agreement.

The pro-rata amount, which is the portion of the initial fee allocated to each specific franchise agreement, is recognized as revenue in the same way as the initial and renewal franchise fees. This approach aligns the revenue recognition with the actual execution and operation of each franchise unit under the multi-unit development agreement. In essence, Alloy treats the upfront fee as a prepayment for future franchise rights, recognizing the revenue as those rights are exercised through the opening and operation of individual Alloy facilities.

This accounting method has implications for both Alloy and its franchisees. For Alloy, it ensures a steady stream of revenue recognition over time as franchisees develop and operate their units. For franchisees, it means that the initial investment is tied to the actual performance and operation of each franchised location, which may provide a degree of financial security knowing that Alloy's revenue is dependent on their success. Prospective franchisees should carefully review the terms of the Development Agreement and Franchise Agreement to fully understand the obligations and revenue recognition related to MUDAs.