According to Clear Pest Pros, when is revenue recognized?
Clear_Pest_Pros Franchise · 2025 FDDAnswer from 2025 FDD Document
ny accounts and transactions have been eliminated in consolidation.
Revenue and Cost Recognition
Revenue is recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Sales-based taxes are excluded from revenue. Goods and services may be transferred to customers either at a point in time or over time, as discussed below. Of the $29,538 of revenue recognized from contracts with customers for the year ended December 31, 2024, revenue recognized over time amounted to $10,454, while the remainder was recognized at a point in time. Of the $31,072 of revenue recognized from contracts with customers for the year ended December 31, 2023, revenue recognized over time amounted to $11,642, while the remainder was recognized at a point in time. Of the $33,483 of revenue recognized from contracts with customers for the year ended December 31, 2022, revenue recognized over time amounted to $13,455, while the remainder was recognized at a point in time.
Nature of Promises to Transfer
The Company's revenue streams are described below:
Franchise Rights, Royalties, Monthly Franchise Fees, and Other Support Fees
The Company sells individual franchises that grant the right to service customers within a defined territory using the franchise name. The initial term of franchise agreements is typically 5 to 10 years, with an option to renew for a fee or transfer the franchise agreement to a new or existing franchisee, at which point a transfer fee is typically paid. Additionally, the Company sells master franchises rights in foreign countries with an initial term of typically ten years, with an option to renew for a fee or transfer the right. The Company has performance obligations to provide franchisees with the franchise rights to service customers, as well as provide customized software, for which a technology fee is charged. Initial franchise fees for each agreement are allocated to each individual franchise and recognized over the term of the respective franchise agreement from the date the agreement is entered. Renewal fees are recognized over the renewal term for the respective franchise from the start of the renewal period. Transfer fees are recognized at the time the transfer occurs. Royalty income and monthly franchise fee income is recognized over the term of the respective franchise agreement as the underlying sales occur. The Company also provides other services for a fee, as outlined in the franchise agreement. The Company has concluded these represent separate single performance obligations. Therefore, revenue is recognized when the support services are performed.
Merchandise Revenue
The Company recognizes revenue from the sale of products, net of sales taxes, when the customer takes ownership of the products sold and assumes the risk of loss. The customer takes ownership and assumes risk of loss at the point of shipping for products other than equipment. Equipment is typically shipped "FOB Destination," and, as such, ownership and risk of loss remain with the Company until the equipment is delivered.
Notes to Consolidated Financial Statements (dollars in thousands)
Corporate Services
This includes services in connection with securing residential, commercial, and insurance work for franchisees through CDCS through national account relationships in the United States and Canada. Revenue is recognized at the point in time the franchisee
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 67)
What This Means (2025 FDD)
According to Clear Pest Pros' 2025 Franchise Disclosure Document, the company recognizes revenue based on when control of goods or services is transferred to customers, reflecting the expected consideration. Sales taxes are excluded from revenue. Revenue can be recognized either at a specific point in time or over a period. In 2024, Clear Pest Pros recognized $29,538 in revenue from customer contracts, with $10,454 recognized over time and the remainder at a point in time. In 2023, revenue from customer contracts totaled $31,072, with $11,642 recognized over time and the rest at a point in time. For 2022, the company recognized $33,483 in revenue from customer contracts, with $13,455 recognized over time and the remainder at a point in time.
Clear Pest Pros recognizes revenue from franchise rights, royalties, monthly franchise fees, and other support fees over the term of the franchise agreement as the underlying sales occur. Initial franchise fees are recognized over the franchise agreement's term from when the agreement is entered. Renewal fees are recognized over the renewal term, and transfer fees are recognized when the transfer happens. Revenue from the sale of products, net of sales taxes, is recognized when the customer takes ownership and assumes the risk of loss. For products other than equipment, this occurs at the point of shipping. Equipment revenue is recognized upon delivery to the customer.
For corporate services, which include securing residential, commercial, and insurance work for franchisees through CDCS and national account relationships, revenue is recognized when the franchisee completes the work. Clear Pest Pros acts as an agent in these transactions and recognizes revenue on a net basis. Understanding these revenue recognition policies is crucial for prospective franchisees to grasp how Clear Pest Pros accounts for its income streams and how various fees and sales contribute to the company's financial performance.