What are the five steps Learningrx uses to evaluate all revenue sources when implementing ASC 606?

According to Learningrx's 2025 Franchise Disclosure Document, when implementing ASC 606, the company uses a five-step approach to evaluate all revenue sources. These five steps are: identify the contract, identify the performance obligations, determine the transaction price, allocate the transaction price, and recognize revenue. This approach is used to ensure that revenues are recognized when control of promised goods or services is transferred to a customer, reflecting the consideration expected to be received for those goods or services.

For Learningrx franchisees, this means that the initial franchise fee, ongoing royalties, marketing fees, and technology fees are all evaluated under this five-step framework. The franchise agreement outlines the transaction price and Learningrx's performance obligations. The implementation of ASC 606 did not have a material effect on Learningrx's financial statements, according to management.

Notably, Learningrx has elected to adopt a practical expedient for private company franchisors, as outlined in ASC 952-606, specifically for allocating the transaction price and recognizing revenue from initial franchise fees. This allows Learningrx to account for pre-opening services, such as site selection assistance, facility preparation, franchisee training, and provision of operational materials, as a single distinct performance obligation. Since the fair value of these pre-opening services exceeds the initial fees, the initial fees are allocated to these services and recognized as revenue upon the commencement of operations.