How does Mrcool recognize the initial franchise fee paid by the franchisee?

According to Mrcool's 2025 Franchise Disclosure Document, the company recognizes revenue from the initial franchise license fee as a performance obligation satisfied over time. This means that Mrcool does not recognize the entire initial franchise fee as revenue immediately upon receiving it. Instead, it recognizes the revenue gradually over the life of the franchise agreement.

This accounting practice aligns with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606, which Mrcool adopted. ASC 606 governs how companies recognize revenue from contracts with customers. By recognizing the initial franchise fee over time, Mrcool spreads the revenue recognition to match the period during which it provides ongoing support and services to the franchisee.

For a prospective Mrcool franchisee, this means that the initial franchise fee paid to Mrcool is not immediately recognized as revenue by the company. Instead, it is recognized over the term of the franchise agreement. This approach reflects the ongoing obligations Mrcool has to support the franchisee throughout the duration of the agreement. The FDD also mentions that Mrcool generates revenues by selling franchise licenses, selling products to franchisees, and through royalties. Revenue from the sale of MRCOOL products and royalties are recognized at a point in time.