How is management fee income recognized as revenue for Exit under ASC 606?

According to Exit's 2025 Franchise Disclosure Document, management fee income is recognized as revenue on a straight-line basis over the term of the management agreement, in accordance with ASC 606. The management agreement commenced on September 10, 2023, and is set to expire on September 10, 2033. This means that Exit recognizes a portion of the management fee revenue evenly over the ten-year period.

Exit's performance obligations under the management agreement include overseeing franchise sales, providing leadership for franchisees, overseeing compliance issues, and planning the expenditures of marketing funds for the USA regions, as well as working with EXIT's marketing and social media staff to promote the USA regions. All of these services are considered highly interrelated and not distinct within the contract. Therefore, they are accounted for as a single performance obligation under ASC 606, which is satisfied over time.

Any consideration received in advance of performing these services is included in deferred revenue and recorded as a liability. This deferred revenue is recognized as income as Exit fulfills its obligations over the term of the agreement. This accounting treatment ensures that revenue recognition aligns with the delivery of services, providing a clear picture of Exit's financial performance related to management fees.