Annual report pursuant to Section 13 and 15(d)

Contract Liabilities and Costs from Contracts with Customers

v3.22.4
Contract Liabilities and Costs from Contracts with Customers
 12 Months Ended
Dec. 31, 2022
Revenue from Contract with Customer [Abstract]  
Contract Liabilities and Costs from Contracts with Customers

Note 4 – Contract Liabilities and Costs from Contracts with Customers

Contract liabilities – Contract liabilities consist of deferred revenue resulting from franchise fees, development fees and master franchise fees paid by franchisees, which are recognized over time on a straight-line basis over the franchise agreement term. The Company also receives upfront payments from vendors under agreements that give the vendors access to franchisees’ members to provide certain services to the members (“brand fees”). Revenue from the upfront payments is recognized on a straight-line basis over the agreement term and is reported in other service revenue. Also included in the deferred revenue balance are non-refundable prepayments for merchandise and equipment, as well as revenues for training, service revenue and on-demand fees for which the associated products or services have not yet been provided to the customer. The Company classifies these contract liabilities as either current deferred revenue or non-current deferred revenue in the consolidated balance sheets based on the anticipated timing of delivery. The following table reflects the change in franchise development and brand fee contract liabilities for the years ended December 31, 2022, 2021 and 2020. Other deferred revenue amounts of $18,576 and $11,805 for the years ended December 31, 2022 and 2021, respectively, are excluded from the table as the original expected duration of the contracts is one year or less.

 

 

 

Franchise
development
fees

 

 

Brand fees

 

 

Total

 

Balance at January 1, 2020

 

$

72,359

 

 

$

—

 

 

$

72,359

 

Revenue recognized that was included in deferred
   revenue at the beginning of the year

 

 

(7,921

)

 

 

—

 

 

 

(7,921

)

Deferred revenue recorded as settlement in
   purchase accounting

 

 

(1,329

)

 

 

—

 

 

 

(1,329

)

Increase, excluding amounts recognized as revenue
   during the year

 

 

13,262

 

 

 

5,385

 

 

 

18,647

 

Balance at December 31, 2020

 

 

76,371

 

 

 

5,385

 

 

 

81,756

 

Revenue recognized that was included in deferred
   revenue at the beginning of the year

 

 

(11,320

)

 

 

(1,897

)

 

 

(13,217

)

Deferred revenue recorded as settlement in
   purchase accounting

 

 

(667

)

 

 

—

 

 

 

(667

)

Increase, excluding amounts recognized as revenue
   during the year

 

 

36,269

 

 

 

2,492

 

 

 

38,761

 

Balance at December 31, 2021

 

 

100,653

 

 

 

5,980

 

 

 

106,633

 

Revenue recognized that was included in deferred
   revenue at the beginning of the year

 

 

(20,631

)

 

 

(3,445

)

 

 

(24,076

)

Deferred revenue recorded as settlement in
   purchase accounting

 

 

(395

)

 

 

—

 

 

 

(395

)

Increase, excluding amounts recognized as revenue
   during the year

 

 

36,617

 

 

 

4,106

 

 

 

40,723

 

Balance at December 31, 2022

 

$

116,244

 

 

$

6,641

 

 

$

122,885

 

 

The following table illustrates estimated revenue expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of December 31, 2022. The expected future recognition period for deferred franchise development fees related to unopened studios is based on management’s best estimate of the beginning of the franchise license term for those studios. The Company elected to not disclose short term contracts, sales and usage-based royalties, marketing fees and any other variable consideration recognized on an “as invoiced” basis.

 

Contract liabilities to be recognized in revenue in

 

Franchise
development
fees

 

 

Brand fees

 

 

Total

 

2023

 

$

9,178

 

 

$

4,250

 

 

$

13,428

 

2024

 

 

9,558

 

 

 

1,564

 

 

 

11,122

 

2025

 

 

10,693

 

 

 

414

 

 

 

11,107

 

2026

 

 

11,894

 

 

 

413

 

 

 

12,307

 

2027

 

 

11,803

 

 

 

—

 

 

 

11,803

 

Thereafter

 

 

63,118

 

 

 

—

 

 

 

63,118

 

 

 

$

116,244

 

 

$

6,641

 

 

$

122,885

 

 

The following table reflects the components of deferred revenue:

 

 

 

December 31,

 

 

 

2022

 

 

2021

 

Franchise and area development fees

 

$

116,244

 

 

$

100,653

 

Brand fees

 

 

6,641

 

 

 

5,980

 

Equipment and other

 

 

18,576

 

 

 

11,805

 

Total deferred revenue

 

 

141,461

 

 

 

118,438

 

Non-current portion of deferred revenue

 

 

109,465

 

 

 

95,691

 

Current portion of deferred revenue

 

$

31,996

 

 

$

22,747

 

 

Contract costs – Contract costs consist of deferred commissions resulting from franchise and area development sales by third-party and affiliate brokers and sales personnel. The total commission is deferred at the point of a franchise sale. The commissions are evenly split among the number of studios purchased under the development agreement and begin to be amortized when a subsequent franchise agreement is executed. The commissions are recognized on a straight-line basis over the initial ten-year franchise agreement term to align with the recognition of the franchise agreement or area development fees. The Company classifies these deferred contract costs as either current deferred costs or non-current deferred costs in the consolidated balance sheets. The associated expense is classified within costs of franchise and service revenue in the consolidated statements of operations. At December 31, 2022 and 2021, there were approximately $3,589 and $3,071 of current deferred costs and approximately $43,445 and $41,941 in non-current deferred costs, respectively. The Company recognized approximately $11,049, $6,006 and $4,234 in franchise sales commission expense for the years ended December 31, 2022, 2021 and 2020, respectively.