Quarterly report [Sections 13 or 15(d)]

Contract Liabilities and Costs from Contracts with Customers

v3.25.2
Contract Liabilities and Costs from Contracts with Customers
 6 Months Ended
Jun. 30, 2025
Revenue from Contract with Customer [Abstract]  
Contract Liabilities and Costs from Contracts with Customers

Note 5 – Contract Liabilities and Costs from Contracts with Customers

Contract liabilities – Contract liabilities consist of deferred revenue resulting from franchise and area development fees (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 condensed consolidated balance sheets based on the anticipated timing of delivery. The following table reflects the change in franchise and area development and brand fee contract liabilities for the six months ended June 30, 2025. Other deferred revenue amounts of $13,111 are excluded from the table as the original expected duration of the contracts is one year or less.

 

 

 

Franchise and area development fees

 

 

Brand fees

 

 

Total

 

Balance at December 31, 2024

 

 

115,679

 

 

 

920

 

 

 

116,599

 

Revenue recognized that was included in deferred revenue at the beginning of the year (1)

 

 

(6,844

)

 

 

(299

)

 

 

(7,143

)

Increase, excluding amounts recognized as revenue during the period

 

 

1,386

 

 

 

559

 

 

 

1,945

 

Balance at June 30, 2025

 

$

110,221

 

 

$

1,180

 

 

$

111,401

 
(1)
Includes revenue recognized as a result of terminations of $1,447 for the six months ended June 30, 2025.

 

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 June 30, 2025. The expected future recognition period for deferred franchise and area 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

 

Franchise and area development fees

 

 

Brand fees

 

 

Total

 

Remainder of 2025

 

$

5,097

 

 

$

766

 

 

$

5,863

 

2026

 

 

10,428

 

 

 

414

 

 

 

10,842

 

2027

 

 

10,871

 

 

 

—

 

 

 

10,871

 

2028

 

 

11,713

 

 

 

—

 

 

 

11,713

 

2029

 

 

11,312

 

 

 

—

 

 

 

11,312

 

Thereafter

 

 

60,800

 

 

 

—

 

 

 

60,800

 

 

$

110,221

 

 

$

1,180

 

 

$

111,401

 

 

The following table reflects the components of deferred revenue:

 

 

 

June 30,

 

 

December 31,

 

 

 

2025

 

 

2024

 

Franchise and area development fees

 

$

110,221

 

 

$

115,679

 

Brand fees

 

 

1,180

 

 

 

920

 

Equipment and other

 

 

13,111

 

 

 

15,248

 

Total deferred revenue

 

 

124,512

 

 

 

131,847

 

Non-current portion of deferred revenue

 

 

100,050

 

 

 

105,935

 

Current portion of deferred revenue

 

$

24,462

 

 

$

25,912

 

 

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 or initial 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 condensed consolidated balance sheets. The associated expense is classified within costs of franchise and service revenue in the condensed consolidated statements of operations. At June 30, 2025 and December 31, 2024, there were approximately $3,899 and $3,940 of current deferred commission costs and approximately $37,444 and $39,684 in non-current deferred commission costs, respectively. The Company recognized franchise sales commission expense of approximately $1,313 and $2,681 for the three and six months ended June 30, 2025, respectively, and $3,292 and $6,137 for the three and six months ended June 30, 2024, respectively.