Revenue Recognition

12 Months Ended

Dec. 29, 2020

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Revenue Recognition

Revenue

The Company adopted the revenue recognition standards under Topic 606 at the beginning of the first quarter of 2018 using the modified retrospective method. The adoption of these standards did not have an impact on the Company’s recognition of revenue from company-owned restaurants or its recognition of continuing royalty fees from franchisees, which are based on a percentage of restaurant revenues and are recognized in the period the related franchised restaurants’ sales occur. Additionally, the adoption of Topic 606 did not have an impact on the Company’s recognition of revenue from gift cards, including the recognition of gift card breakage, as the new standard requires the use of the “proportionate” method for recognizing breakage, which the Company has historically utilized.

Gift Cards

As of December 29, 2020 and December 31, 2019, the current portion of the gift card liability, $2.6 million and $2.4 million, respectively, is included in accrued expenses and other current liabilities, and the long-term portion, $0.6 million and $0.9 million, respectively, is included in other long-term liabilities in the Consolidated Balance Sheets.

Revenue recognized in the Consolidated Statements of Operations for the redemption of gift cards was $3.5 million, $5.3 million and $5.9 million in 2020, 2019 and 2018, respectively. The Company recognized gift card breakage in restaurant revenue of approximately $0.3 million, $0.4 million and $1.0 million in 2020, 2019 and 2018, respectively.

Franchise Fees

The adoption of Topic 606 impacted the Company’s accounting for initial fees charged to franchisees. In the past, the Company recognized initial franchise fees when all material services or conditions relating to the sale of the franchise had been substantially performed or satisfied by the Company, which was generally when a new franchise restaurant opened. In accordance with the new guidance, the Company has determined that the initial franchise services are not distinct from the continuing rights or services offered during the term of the franchise agreement and should be treated as a single performance obligation. Therefore, initial fees received from franchisees will be recognized as revenue over the term of each respective franchise agreement, which is typically 20 years.

An adjustment to beginning retained earnings and a corresponding contract liability of $1.5 million was established on the date of adoption, at the beginning of the first quarter of 2018, associated with the initial fees received through December 31, 2019 that would have been deferred and recognized over the term of each respective franchise agreement if the new guidance had been applied in the past.

The Company recognized revenue of $0.1 million in 2020 related to initial fees from franchisees that were included in the contract liability balance at the beginning of the year. The Company expects to recognize approximately $0.1 million each fiscal year through fiscal 2025 and approximately $0.6 million thereafter related to performance obligations that are unsatisfied as of December 29, 2020.

Loyalty Program

The Company operates the Noodles Rewards program, which is primarily a spend-based loyalty program. With each purchase, Noodles Rewards members earn loyalty points that can be redeemed for rewards, including free products. Using an estimate of the value of reward redemptions, we defer revenue associated with points earned, net of estimated points that will not be redeemed. Points generally expire after six months. Revenue is recognized in a future period when the reward points are redeemed. As of December 29, 2020 and December 31, 2019, the deferred revenue related to the rewards was $0.4 million and $0.6 million, respectively, and was included in accrued expenses and other current liabilities in the Consolidated Balance Sheets.