Under the accounting standards used by Eos Worldwide, when is revenue recognized?
Eos_Worldwide Franchise · 2025 FDDAnswer from 2025 FDD Document
Revenue recognition: The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, which provides a five-step model for recognizing revenue from contracts with customers as follows:
- Identify the contract with a customer
- · Identify the performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price to the performance obligations in the contract
- Recognize revenue when or as the performance obligations are satisfied
Under ASC 606, revenue is recognized when control of the promised goods or service is transferred to the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or service.
Note 1. Nature of Operations and Summary of Significant Accounting Policies (Continued)
Revenue is primarily derived of the following:
Membership/subscriptions: The Company generates revenues by billing its franchisees for subscribed monthly membership fees. The franchisees are billed monthly upfront at their respective subscription renewal date and revenue is recognized at the renewal date. Any membership periods that overlap year-end are reclassified to deferred revenue. Deferred revenue is typically recognized within one year.
Boot Camp: Boot Camp event revenue is billed and received as part of the initial franchise agreement with new franchisees. These fees received are carried as deferred revenue until it is recognized when the respective franchisee attends the Boot Camp training.
Store income: The Company generates revenues by selling training materials, educational literature and other various products through their website. Revenue is recognized upon shipment, as that is when the customer obtains control of the promised good. The Company has elected to treat shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated product and not as a separate performance obligation.
Warm lead referral: The Company generates revenues by referring general inquiries for coaching services to its franchisees. Once the member holds an initial meeting with the prospect and the relationship is deemed to have substance, the Company records revenue for the referral fee, which varies based on the go forward level of service.
Franchise fee: The Company bills and receives revenue associated with new franchisee agreements. This revenue is deferred and is recognized monthly pro rata over the life of the agreement, typically 45 months.
Source: Item 22 — CONTRACTS (FDD page 74)
What This Means (2025 FDD)
According to the 2025 FDD, Eos Worldwide recognizes revenue based on Accounting Standards Codification (ASC) Topic 606, "Revenue from Contracts with Customers," which uses a five-step model. Under this standard, revenue is recognized when control of the promised goods or service is transferred to the customer, reflecting the consideration Eos Worldwide expects to receive in exchange for those goods or services. This is a common practice that ensures revenue is recorded when it is earned and realized.
Specifically, Eos Worldwide's revenue recognition varies depending on the source of revenue. For membership/subscription fees, revenue is recognized at the subscription renewal date, with any amounts covering periods beyond the year-end classified as deferred revenue. Boot Camp event revenue is initially deferred and recognized when the franchisee attends the training. Revenue from store income, which includes sales of training materials and educational literature, is recognized upon shipment of the goods. For warm lead referrals, revenue is recorded once the franchisee holds an initial meeting with the prospect and the relationship is deemed substantive.
Franchise fee revenue is treated differently; it is deferred and recognized monthly on a pro rata basis over the typical 45-month term of the franchise agreement. This approach aligns the revenue recognition with the ongoing benefit the franchisee receives from the franchise agreement. This method of deferring and recognizing revenue over the life of the agreement is a standard accounting practice in the franchise industry, reflecting the continuous support and brand usage provided to the franchisee.
Prospective franchisees should understand these revenue recognition policies, as they reflect how Eos Worldwide accounts for its income and can provide insights into the company's financial performance. Understanding when and how revenue is recognized for different services and products can help franchisees assess the financial stability and operational practices of Eos Worldwide.