How does Chatime recognize initial and renewal franchise fees as revenue?

According to Chatime's 2025 Franchise Disclosure Document, initial and renewal franchise fees, specifically those allocated to the right to access Chatime's intellectual property, are recognized as revenue on a straight-line basis over the term of the respective franchise agreement. This means that instead of recognizing the entire fee as revenue immediately upon receipt, Chatime spreads the recognition of the revenue evenly over the duration of the franchise agreement.

For franchisees entering into Multi-Unit Development Agreements (MUDAs), which grant the right to open multiple units, the upfront fees paid for these development rights are deferred. These fees are then apportioned to each individual franchise agreement signed under the MUDA. The pro-rata amount allocated to each franchise agreement is then recognized as revenue in the same manner as the standard initial and renewal franchise fees, i.e., on a straight-line basis over the term of each franchise agreement.

This accounting practice has implications for both Chatime and its franchisees. For Chatime, it ensures a consistent revenue stream over the life of the franchise agreement. For franchisees, it means that the initial and renewal fees are treated as revenue by Chatime gradually, aligning with the ongoing provision of franchise rights and support. This approach is common in the franchise industry, as it reflects the long-term nature of the franchise relationship and the continuous value provided by the franchisor.