When are the initial franchise fees recognized as revenue by Learningrx, considering the fair value of pre-opening services?

According to the 2025 Learningrx Franchise Disclosure Document, the corporation recognizes initial franchise fees as revenue upon commencement of operations. This is because Learningrx has elected to adopt a practical expedient for private company franchisors, as outlined in ASC 952-606, which allows them to account for pre-opening services as a single distinct performance obligation. These pre-opening services include site selection assistance, help with facilities, training, manuals, and advisory services.

Learningrx has determined that the fair value of these pre-opening services exceeds the initial fees they receive. Therefore, the initial fees are allocated to these pre-opening services. This means that Learningrx does not recognize the initial franchise fee as revenue immediately upon signing the franchise agreement.

Instead, Learningrx recognizes the revenue associated with these fees only when the franchisee commences operations. This accounting method reflects the fact that Learningrx provides substantial pre-opening support and services to its franchisees, and the revenue recognition is tied to the delivery of these services.