How does Carvel generally recognize revenue associated with franchise and development fees of open SBRs?

According to Carvel's 2025 Franchise Disclosure Document, the company generally recognizes revenue associated with franchise and development fees for open SBRs (Small Business Restaurants) over time. This means that instead of recognizing the full amount of these fees as revenue immediately upon receipt, Carvel spreads the recognition of revenue over a specific period.

Specifically, development fees are initially recorded as deferred franchise revenue when they are received. Carvel then recognizes this revenue on a straight-line basis over the term of each underlying franchise agreement, starting when the SBR is opened. Similarly, franchise fees are also recorded as deferred revenue upon receipt and are recognized as revenue on a straight-line basis over the term of the respective franchise agreement, beginning when the SBR opens.

This accounting practice has implications for prospective Carvel franchisees. It means that Carvel's reported revenue in any given period will reflect a portion of the franchise and development fees related to SBRs that are open and operating, rather than the total amount of fees collected upfront. For potential franchisees, understanding this revenue recognition method can provide a clearer picture of Carvel's financial performance and how franchise fees contribute to their revenue stream over time.