What is the impact of observable outputs on the revenue recognition process for The Standardx?
The_Standardx Franchise · 2025 FDDAnswer from 2025 FDD Document
For each performance obligation satisfied over time, we recognize revenues using an output method based on the value transferred to the customer. Revenues are recognized based on the transaction price and the observable outputs related to each performance obligation. We deem the following to represent our progress in satisfying these performance obligations:
- revenues and operating profits earned by the hotels during the reporting period for access to Hyatt's IP as it is indicative of the value third-party owners and franchisees derive;
- revenues and operating profits of the hotels for the promise to provide services to the hotels under management and hotel services agreements;
- award night redemptions or point redemptions with third-party partners for the administration of the loyalty program performance obligation; and
- cardholder spend for the license to the Hyatt name through our co-branded credit card programs as it is indicative of the value our partner derives from the use of our name.
Within our management and hotel services agreements, we have two performance obligations: providing access to Hyatt's IP and providing management and hotel services. Although these constitute two separate performance obligations, both obligations represent services that are satisfied over time, and we recognize revenues using an output method based on the performance of the hotel. Therefore, we have not allocated the transaction price between these two performance obligations as the allocation would result in the same pattern of revenue recognition.
Source: Item 23 — Receipts (FDD pages 85–132)
What This Means (2025 FDD)
According to The Standardx's 2025 Franchise Disclosure Document, observable outputs play a crucial role in how the company recognizes revenue for performance obligations satisfied over time. The Standardx uses an output method based on the value transferred to the customer, with revenues recognized based on the transaction price and the observable outputs related to each performance obligation. This means that revenue recognition is directly tied to measurable progress in delivering services or value to the customer.
For The Standardx, observable outputs that indicate progress in satisfying performance obligations include revenues and operating profits earned by hotels for access to The Standardx's intellectual property, revenues and operating profits of the hotels for services provided under management and hotel services agreements, award night or point redemptions with third-party partners for loyalty program administration, and cardholder spending for the license to The Standardx name through co-branded credit card programs. These metrics serve as direct indicators of the value that third-party owners, franchisees, and partners derive from their association with The Standardx.
In the context of management and hotel services agreements, The Standardx identifies two performance obligations: providing access to its intellectual property and providing management and hotel services. While these are separate obligations, The Standardx does not allocate the transaction price between them because both are satisfied over time and use the same output method based on hotel performance. This simplifies the revenue recognition process without affecting the overall pattern of recognition. The use of observable outputs ensures that revenue is recognized in proportion to the value delivered to customers, aligning revenue recognition with the actual performance of services and the utilization of The Standardx's brand and resources.