Revenue Recognition

9 Months Ended

Sep. 24, 2023

Revenue from Contract with Customer [Abstract]

Revenue Recognition

5. Revenue Recognition

Contract Balances

Our contract liabilities primarily relate to franchise fees, unredeemed gift card liabilities, and loyalty program obligations, which we classify as Deferred revenue on the Condensed Consolidated Balance Sheets. During the three and nine months ended September 24, 2023, the Company recognized $8.1 million and $24.4 million in revenue, respectively, related to deferred revenue compared to $8.0 million and $25.6 million for the three and nine months ended September 25, 2022.

The following table includes a breakout of contract liability balances (in thousands):

	Contract Liabilities
	September 24, 2023		December 25, 2022		Change
Franchise fees and unredeemed gift card liabilities	$	27,189	$	30,710	$	(3,521)
Customer loyalty program obligations	13,075		13,766		(691)
Total contract liabilities	$	40,264	$	44,476	$	(4,212)

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 incentive agreement. As of September 24, 2023 and December 25, 2022, the contract assets were approximately $6.7 million and $6.2 million, respectively. For the three and nine months ended September 24, 2023, revenue was reduced approximately $0.9 million and $2.7 million, respectively, for the amortization of contract assets over the applicable contract terms. For the three and nine months ended September 25, 2022, revenue was reduced approximately $0.8 million and $2.7 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	$	3,015	$	2,774	$	2,566	$	2,308	$	2,033	$	5,631	$	18,327

At September 24, 2023, approximately $3.5 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 $5.4 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, “Revenue Recognition” and does not disclose information about remaining performance obligations that have original expected durations of one year or less.