5. Revenue Recognition
Contract Balances
Our contract liabilities primarily relate to franchise fees, unredeemed gift card liabilities, and loyalty program obligations, which we classify within Current deferred revenue and Deferred revenue on the Consolidated Balance Sheets. During the years ended December 28, 2025 and December 29, 2024, the Company recognized $32.9 million and $36.9 million in revenue, respectively, related to deferred revenue.
The following table includes a breakout of contract liability balances:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | December 28, 2025 | | December 29, 2024 | | Change |
| Unearned franchise fees and royalties | | $ | 19,678 | | $ | 21,860 | | $ | (2,182) |
| Unredeemed gift card liabilities | | 7,742 | | 7,694 | | 48 |
| Customer loyalty program obligations | | 4,970 | | 7,252 | | (2,282) |
| Total contract liabilities | | $ | 32,390 | | $ | 36,806 | | $ | (4,416) |
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 December 28, 2025 and December 29, 2024, the contract assets were approximately $19.1 million and $16.6 million, respectively. For the years ended December 28, 2025 and December 29, 2024, revenue was reduced approximately $7.3 million and $5.9 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 Consolidated Balance Sheets.
Transaction Price Allocated to the Remaining Performance Obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied at the end of the reporting period.
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| (In thousands) | Performance Obligations by Period |
| Less than 1 Year | | 1-2 Years | | 2-3 Years | | 3-4 Years | | 4-5 Years | | Thereafter | | Total |
| Unearned franchise fees and royalties | $ | 3,169 | | $ | 2,848 | | $ | 2,604 | | $ | 2,389 | | $ | 2,175 | | $ | 3,981 | | $ | 17,166 |
Approximately $2.5 million of area development fees related to unopened restaurants and International unearned franchise fees are included in Deferred revenue. Timing of revenue recognition is dependent upon the timing of restaurant openings and franchisees’ revenues. Unredeemed gift card liabilities, which are 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.
About Revenue Disclosures
Revenue disclosures under ASC 606 explain how a company identifies performance obligations, allocates transaction prices, and determines when revenue is recognized. This section is essential for understanding whether reported revenue reflects genuine economic activity or aggressive accounting choices. Analysts examine the mix of point-in-time versus over-time recognition, which directly affects revenue timing and comparability.
Key signals: rising contract liabilities (deferred revenue) suggest strong future revenue visibility, while declining contract assets may indicate slowing project milestones. Watch for variable consideration estimates — rebates, returns, and performance bonuses that require management judgment. Significant changes in disaggregated revenue by geography or product line can reveal shifting business mix before it appears in headline numbers. Compare revenue growth against contract liability growth to assess sustainability, and scrutinize any changes in the timing of recognition that coincide with earnings pressure.