How does Noodles & Company amortize reacquired franchise rights?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
Royalties from franchise restaurants are based on a percentage of restaurant revenues and are recognized in the period the related franchised restaurants' sales occur. Development fees and franchise fees, portions of which are collected in advance, are nonrefundable. The Company has determined that the initial franchise services are not distinct from the continuing rights or services offered during the term of the franchise agreement and should be treated as a single performance obligation; therefore, such fees are recognized in income ratably over the term of the related franchise agreement or recognized upon the termination of the agreement between the Company and the franchisee.
Source: Item 22 — CONTRACTS (FDD pages 98–99)
What This Means (2025 FDD)
Based on the 2025 Noodles & Company Franchise Disclosure Document, the company recognizes revenue from franchise fees ratably over the term of the franchise agreement or upon termination of the agreement. Specifically, Noodles & Company collects development and franchise fees, portions of which are collected in advance and are nonrefundable.
The document states that Noodles & Company has determined that the initial franchise services are not distinct from the continuing rights or services offered during the term of the franchise agreement. Therefore, these fees are treated as a single performance obligation. This means that instead of recognizing the full franchise fee as revenue upfront, Noodles & Company spreads the recognition of this revenue over the entire length of the franchise agreement.
For a prospective franchisee, this accounting practice means that Noodles & Company's reported revenue in any given period reflects the ongoing value provided to franchisees rather than a large initial payment. If a franchise agreement terminates early, any unearned portion of the franchise fee is then recognized as revenue at that time. This approach aligns the revenue recognition with the delivery of services and rights granted to the franchisee over the life of the agreement.