How does Noodles & Company recognize revenue from initial franchise fees?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
an estimate of the value of reward redemptions, we defer revenue associated with points earned, net of estimated points that will not be redeemed. Points generally expire after six months. Revenue is recognized in a future period when the reward points are redeemed.
Franchise Royalties
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.
As of December 31, 2024, January 2, 2024 and January 3, 2023, there were 92, 90 and 93 franchise restaurants in operation, respectively. Franchisees opened three restaurants in 2024, no restaurants in 2023 and three in 2022. Seven franchise restaurants closed in 2024, three franchise restaurants closed in 2023 and one closed in 2022.
Source: Item 22 — CONTRACTS (FDD pages 98–99)
What This Means (2025 FDD)
According to the 2025 Noodles & Company Franchise Disclosure Document, the company recognizes initial franchise fees as revenue over the term of the franchise agreement. Noodles & Company considers the initial franchise services as a single performance obligation, not distinct from the continuing rights and services offered during the franchise term.
Specifically, Noodles & Company recognizes revenue from initial franchise fees ratably over the term of the franchise agreement or upon the termination of the agreement. The term of the franchise agreement is typically 20 years.
In 2024, 2023, and 2022, Noodles & Company recognized revenue of $0.3 million, $0.2 million, and $0.1 million, respectively, related to initial fees from franchisees that were included in the contract liability balance at the beginning of the year. Noodles & Company expects to recognize approximately $0.1 million each fiscal year through fiscal 2029 and approximately $0.6 million thereafter related to performance obligations that are unsatisfied as of December 31, 2024.