What are the Company's performance obligations under the management agreement for Exit franchisees?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company's performance obligations under the management agreement are to oversee franchise sales, provide leadership for franchisees, oversee compliance issues, and plan the expenditures of marketing funds for the USA regions as well as work with EXIT's marketing and social media staff to promote the USA regions. All the services the Company provides are highly interrelated and not distinct within the contract and are therefore accounted for under ASC 606 as a single performance obligation, which is satisfied over a period of time.
Under ASC 606, management fee income is recognized as revenue on a straight-line basis over the term of the respective management agreement which commenced on September 10, 2023, and is set to expire on September 10, 2033. Consideration received in advance of performing all significant services is included in deferred revenue and recorded as a liability.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the company has specific performance obligations under the management agreement. These obligations include overseeing franchise sales, providing leadership for franchisees, overseeing compliance issues, and planning the expenditures of marketing funds for the USA regions. Additionally, Exit is required to work with its marketing and social media staff to promote the USA regions.
Exit accounts for these services as a single performance obligation because they are highly interrelated and not distinct within the contract. This single obligation is satisfied over a period of time. As a result, Exit recognizes management fee income as revenue on a straight-line basis over the term of the management agreement.
The management agreement commenced on September 10, 2023, and is set to expire on September 10, 2033. Any consideration received in advance of performing all significant services is included in deferred revenue and recorded as a liability. This means that Exit recognizes revenue proportionally over the life of the agreement, rather than recognizing the full amount upfront.