What are the primary sources of revenue that Exit recognizes?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
require judgment, generally relative standalone selling prices and the separate performance obligations are readily identifiable as the Company sells those performance obligations unaccompanied by other performance obligations.
Franchise revenue
Franchise revenues consist of the initial franchise fee, renewal fees, and franchise commission income.
Upper Midwest Realty, Inc. d.b.a. Exit Realty Upper Midwest 10 Notes to Financial Statements (continued) December 31, 2024, 2023, and 2022
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
Franchise revenue (continued)
The Company's primary performance obligation under the franchise license is granting certain rights to use the Company's intellectual property, and all the other services the Company provides are highly interrelated and not distinct within the contract, and therefore accounted for under ASC 606 as a single performance obligation, which is satisfied by granting rights to use the Company's intellectual property over the term of the franchise agreement.
Under ASC 606, initial and renewal fees, are recognized as revenue on a straight-line basis over the term of the respective franchise agreement. Consideration received in advance of performing all significant services is included in deferred revenue and recorded as a liability.
Revenue from commissions and transaction fees is recognized in the period in which the franchisee earns the revenue upon which this fee is based and collectability from the customer is reasonably assured. Commissions are computed as a percentage of net sales earned by the franchisee. Transaction fees are flat fees for each transaction, the rates of which vary based on the amount of revenue generated by the franchisee.
Revenue from sponsorships is recognized over the period the related sponsorship lasts.
Management fees
Management fees consist of revenue derived from the Company providing certain sales and management services in specified regions of Exit USA (USA), an agent of Exit Realty Corp. International (EXIT).
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.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the company recognizes revenue from several primary sources. These include initial franchise fees, renewal fees, and franchise commission income. The initial and renewal fees are recognized as revenue on a straight-line basis over the term of the respective franchise agreement. This means that the revenue is recognized evenly over the life of the agreement, rather than all at once. Any consideration received in advance of performing all significant services is treated as deferred revenue and recorded as a liability, indicating that Exit has an obligation to provide services in the future.
Exit also generates revenue from commissions and transaction fees. These are recognized in the period in which the franchisee earns the revenue upon which the fee is based, assuming that collectability from the customer is reasonably assured. Commissions are calculated as a percentage of the net sales earned by the franchisee, while transaction fees are flat fees for each transaction, with rates varying based on the revenue generated by the franchisee. Additionally, Exit recognizes revenue from sponsorships over the period the related sponsorship lasts.
Management fees also contribute to Exit's revenue. These fees are derived from the company providing sales and management services in specified regions of Exit USA. The services include overseeing franchise sales, providing leadership for franchisees, overseeing compliance issues, and planning the expenditures of marketing funds for the USA regions. These services are considered a single performance obligation and are recognized as revenue on a straight-line basis over the term of the management agreement, which commenced on September 10, 2023, and is set to expire on September 10, 2033. Similar to franchise fees, advance payments are treated as deferred revenue.
Finally, Exit recognizes assignment income, which comes from the transfer of rights or obligations under an existing franchise agreement or ownership interests in a franchisee entity. Revenue from assignment income is recognized when control of the franchise rights or ownership is transferred to the new franchisee, and Exit has satisfied its performance obligations under the agreement. This comprehensive approach to revenue recognition ensures that Exit's financial statements accurately reflect the timing and nature of its income streams.