How does Brightstar Care recognize revenue for royalty fees received under franchise agreements?
Brightstar_Care Franchise · 2025 FDDAnswer from 2025 FDD Document
The standard specifically identifies franchise rights as an example of a symbolic license. This type of license is satisfied over time since the customer simultaneously receives and consumes the benefit as the entity performs its obligation to provide access and, therefore, meets the criterion of recognizing revenue over time. Royalty fees represent the majority of consideration the Company receives under franchise agreements and are recognized over time at the greater of the actual royalty earned or the contract monthly minimum each month. Revenue related to upfront fees allocated to this single-performance obligation is recognized over time using a straight-line (time-lapse) measure of progress as the control of various services is provided to the customer ratably over the term of the contract for the initial upfront fee. The renewal option provides continued access for the franchise rights (symbolic license) for an extended period of time and, therefore, would also be recognized over time (over the course of the renewal term) as it meets the above-mentioned criterion. The Company allocates the consideration between the pre-opening services and symbolic license based upon relative standalone selling prices.
For the pre-opening services, primarily related to setup and training, the Company also recognizes revenue over time since the customer simultaneously receives and consumes the benefit as the entity provides the services. Revenue for this performance obligation is recognized over time using an input measure of progress based upon when the service is performed.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 117)
What This Means (2025 FDD)
According to Brightstar Care's 2025 Franchise Disclosure Document, royalty fees, which constitute the majority of the consideration Brightstar Care receives under franchise agreements, are recognized over time. Specifically, Brightstar Care recognizes revenue for royalty fees at the greater of the actual royalty earned or the contract monthly minimum each month. This approach aligns with the recognition of franchise rights as a symbolic license, which is satisfied over time as the franchisee simultaneously receives and consumes the benefits of accessing the Brightstar Care system.
Brightstar Care also recognizes revenue over time for the combined franchise license performance obligation and for pre-opening services, as these performance obligations involve a continuous transfer of control to the customer. For pre-opening services, which primarily relate to setup and training, revenue is recognized over time using an input measure of progress based upon when the service is performed.
In addition to royalty fees, Brightstar Care receives other fees, including initial fees, general marketing fund fees, monthly technology fees, renewal fees, and transfer fees. The general marketing fund fees are recognized as revenue over time at the greater of the actual GMF fees earned or the contract monthly minimum each month. This comprehensive approach to revenue recognition ensures that Brightstar Care accurately reflects the ongoing value provided to franchisees throughout the term of the franchise agreement.