Quarterly report [Sections 13 or 15(d)]

Revenue Disclosures

v3.25.1
Revenue Disclosures
 3 Months Ended
Mar. 31, 2025
Revenue from Contract with Customer [Abstract]  
Revenue Disclosures Revenue Disclosures
Franchising Fees, Royalty Fees, Advertising Fund Revenue, and Software Fees
As of March 31, 2025, we had 847 franchised clinics in operation, 94 clinic licenses sold but not yet developed and 52 executed letters of intent for future clinic licenses. The franchise arrangement is documented in the form of a franchise agreement. The franchise arrangement requires the Company to perform various activities to support the brand that do not directly transfer goods and services to the franchisee, but instead represent a single performance obligation, which is the transfer of the franchise license. The intellectual property subject to the franchise license is symbolic intellectual property as it does not have significant standalone functionality and substantially all of the utility is derived from its association with the Company’s past or ongoing activities. The nature of the Company’s promise in granting the franchise license is to provide the franchisee with access to the brand’s symbolic intellectual property over the term of the license. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation.
The transaction price in a standard franchise arrangement primarily consists of (a) initial franchise fees, (b) continuing franchise fees (royalties), (c) advertising fees, and (d) software fees. The revenue accounting standard provides an exception for the recognition of sales-based royalties promised in exchange for a license (which otherwise requires a reporting entity to estimate the amount of variable consideration to which it will be entitled in the transaction price).
The Company recognizes the primary components of the transaction price as follows:
•Initial and renewal franchise fees, as well as transfer fees, are recognized as revenue ratably on a straight-line basis over the term of the respective franchise agreement, commencing with the execution of the franchise, renewal or transfer agreement. As these fees are typically received in cash at or near the beginning of the contract term, the cash received is initially recorded as a contract liability until recognized as revenue over time.
•The Company is entitled to royalties and advertising fees based on a percentage of the franchisee’s gross sales as defined in the franchise agreement. Royalty and advertising revenue are recognized when the franchisee’s sales occur. Depending on timing within a fiscal period, the recognition of revenue results in either what is considered a contract asset (unbilled receivable) or, once billed, accounts receivable, on the consolidated balance sheet.

•The Company is entitled to a software fee, which is charged monthly. The Company recognizes revenue related to software fees ratably on a straight-line basis over the term of the franchise agreement.
In determining the amount and timing of revenue from contracts with customers, the Company exercises significant judgment with respect to collectability of the amount; however, the timing of recognition does not require significant judgment as it is based on either the franchise term or the reported sales of the franchisee, neither of which requires estimation. The Company believes its franchising arrangements do not contain a significant financing component.
The Company recognizes advertising fees received under franchise agreements as advertising fund revenue.
Capitalized Sales Commissions
Sales commissions earned by the regional developers and the Company’s sales force are considered incremental and recoverable costs of obtaining a franchise agreement with a franchisee. These costs are deferred and then amortized as the respective franchise fees are recognized ratably on a straight-line basis over the term of the franchise agreement.
Disaggregation of Revenue
The Company believes that the captions contained on the condensed consolidated income statements appropriately reflect the disaggregation of its revenue by major type for the three months ended March 31, 2025, and 2024. Other revenues primarily consist of merchant income associated with preferred vendor royalties associated with franchisees’ credit card transactions.
The following table shows the Company’s revenues disaggregated according to the timing of transfer of services:
Three Months Ended
March 31,
2025 2024
Revenue recognized at a point in time $ 10,787,104  $ 10,142,066 
Revenue recognized over time 2,290,486  2,042,650 
Total Revenue $ 13,077,590  $ 12,184,716 
Rollforward of Accounts Receivable
Changes in the Company’s accounts receivable, net during the three months ended March 31, 2025 were as follows:
Accounts Receivable, Net
Balance at December 31, 2023 $ 2,580,589 
Balance at December 31, 2024 $ 2,586,381 
Cash received against accounts receivable included at the beginning of the year (2,154,256)
Net increase during the three months ended March 31, 2025 2,537,972 
Balance at March 31, 2025 $ 2,970,097 
Rollforward of Contract Liabilities and Contract Assets
Changes in the Company’s contract liability for deferred franchise fees during the three months ended March 31, 2025 were as follows:
Deferred Revenue
short and long-term
Balance at December 31, 2023 $ 16,113,879 
Balance at December 31, 2024 $ 14,997,105 
Revenue recognized that was included in the contract liability at the beginning of the year (845,978)
Net increase during the three months ended March 31, 2025 311,285 
Balance at March 31, 2025 $ 14,462,412 
The Company’s deferred franchise and development costs represent capitalized sales commissions. Changes during the three months ended March 31, 2025 were as follows:
Deferred Franchise and Development Costs
short and long-term
Balance at December 31, 2023 $ 6,251,366 
Balance at December 31, 2024 $ 5,569,473 
Cost of revenue recognized that was included in the contract asset at the beginning of the year (363,559)
Net increase during the three months ended March 31, 2025 108,574 
Balance at March 31, 2025 $ 5,314,488 
The following table illustrates estimated revenues expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of March 31, 2025:
Contract liabilities expected to be recognized in Amount
2025 (remainder) $ 1,912,155 
2026 2,464,407 
2027 2,358,259 
2028 2,193,584 
2029 1,839,251 
Thereafter 3,694,756 
Total $ 14,462,412