When does Kidokinetics recognize the fair value of pre-opening services?

According to Kidokinetics's 2024 Franchise Disclosure Document, the company recognizes the fair value of pre-opening services upon the delivery of all pre-opening services, which is generally the commencement of operations. These pre-opening services include assistance in site selection, obtaining and preparing facilities, training, providing manuals, and offering bookkeeping and advisory services. Kidokinetics has determined the fair value of these pre-opening services. The remaining fees that are not allocated to pre-opening services are then amortized over the life of the franchise agreement.

This means that Kidokinetics franchisees will not see the value of these services fully recognized by Kidokinetics until their franchise location begins its operations. This accounting practice aligns with the practical expedient for private company franchisors outlined in ASC 952-606, which allows franchisors to account for pre-opening services as a single distinct performance obligation.

For a prospective franchisee, this accounting method means that Kidokinetics defers recognizing revenue from the initial franchise fee until it has fulfilled its obligations to provide the outlined pre-opening services. This could be beneficial for franchisees as it ensures that Kidokinetics is incentivized to provide these services effectively before recognizing the revenue associated with them. Franchisees should ensure they understand exactly what pre-opening services are included and the timeline for their delivery to align expectations with Kidokinetics's revenue recognition policy.