Revenue Recognition

3 Months Ended

Mar. 29, 2020

Revenue Recognition

Revenue Recognition

5. Revenue Recognition

Contract Balances

Our contract liabilities primarily relate to franchise fees and unredeemed gift card liabilities, which we classify as Deferred revenue, and customer loyalty program obligations which are classified as Accrued expenses and other current liabilities.  During the three months ended March 29, 2020 and March 31, 2019, the Company recognized $8.0 million and $7.4 million in revenue, respectively, related to deferred revenue and the customer loyalty program.

The contract liability balances are included in the following (in thousands):

	Contract Liabilities
		March 29, 2020		December 29, 2019		Change
Deferred revenue	$	18,944	$	20,346	$	(1,402)
Customer loyalty program		11,868		12,049		(181)
Total contract liabilities	$	30,812	$	32,395	$	(1,583)

Our contract assets consist primarily of equipment incentives provided to franchisees.  Equipment incentives are related to the future value of commissary revenue the Company will receive over the term of the agreement.  As of March 29, 2020, and December 29, 2019, the contract assets were approximately $5.4 million and $6.0 million, respectively.  For the three months ended March 29, 2020 and March 31, 2019, revenue was reduced approximately $0.9 million and $0.8 million,

respectively, for the amortization of contract assets over the applicable contract terms.  Contract assets are included in Prepaid expenses and other current assets and Other assets on the Condensed Consolidated Balance Sheets.

Transaction Price Allocated to the Remaining Performance Obligations

The following table (in thousands) includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied at the end of the reporting period.

		Performance Obligations by Period
	Less than 1 Year		1-2 Years		2-3 Years		3-4 Years		4-5 Years		Thereafter		Total
Franchise fees	$	2,335	$	2,138	$	1,922	$	1,636	$	1,404	$	3,264	$	12,699

Approximately $1.8 million of area development fees related to unopened stores and international unearned royalties are included in Deferred revenue. Timing of revenue recognition is dependent upon the timing of store openings and franchisees’ revenues. Gift card liabilities of approximately $4.4 million, included in Deferred revenue, will be recognized in Company-owned restaurant revenues when gift cards are redeemed. The Company will recognize redemption fee revenue in Other revenues when cards are redeemed at franchised restaurant locations.  

The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.