How does The Standardx recognize revenues for performance obligations satisfied over time?
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.
Revenues are adjusted for the effects of a significant financing component when the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year.
We have applied the practical expedient that permits the omission of prior-period information about revenues allocated to future performance obligations, and we do not estimate revenues allocated to remaining performance obligations for the following:
- • deferred revenue related to the loyalty program, base management fees, and incentive management fees as the revenues are allocated to a wholly unperformed performance obligation in a series;
- revenues related to royalty fees as they are considered sales-based royalty fees;
- revenues received for free nights granted through our co-branded credit card programs as the awards have an original duration of 12 months;
- revenues related to advanced bookings at owned and leased hotels as each stay has a duration of 12 months or less; and
- revenues related to ALG Vacations and Mr & Mrs Smith distribution services as bookings are generally for travel within 12 months or less.
Source: Item 23 — Receipts (FDD pages 85–132)
What This Means (2025 FDD)
According to The Standardx's 2025 Franchise Disclosure Document, the company recognizes revenues for performance obligations satisfied over time using an output method based on the value transferred to the customer. Revenues are based on the transaction price and observable outputs related to each performance obligation. The Standardx identifies specific indicators to represent progress in satisfying these obligations. These indicators include revenues and operating profits earned by hotels for access to The Standardx's intellectual property, revenues and operating profits 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.
For management and hotel services agreements, The Standardx identifies two performance obligations: providing access to its IP and providing management and hotel services. Although these are separate obligations, The Standardx does not allocate the transaction price between them because both are satisfied over time and recognized using an output method based on hotel performance. This approach simplifies revenue recognition, as allocating the price would result in the same pattern of recognition.
In instances where the period between transferring goods or services and customer payment exceeds one year, The Standardx adjusts revenues for the effects of any significant financing component. The Standardx also applies a practical expedient, omitting prior-period information about revenues allocated to future performance obligations and not estimating revenues allocated to remaining performance obligations for specific items. These items include deferred revenue related to the loyalty program, base management fees, incentive management fees, royalty fees, revenues for free nights granted through co-branded credit card programs, revenues related to advanced bookings at owned and leased hotels, and revenues related to ALG Vacations and Mr & Mrs Smith distribution services, provided bookings are generally for travel within 12 months or less.
For a potential franchisee, this means that The Standardx recognizes revenue as services are provided and value is transferred to the customer, using observable outputs to measure progress. This revenue recognition method affects how franchise fees, royalties, and other service-related revenues are accounted for, impacting the financial reporting and potential profitability assessments for franchisees.