REVENUE

Revenue is recognized when obligations under the terms of a contract with the customer are satisfied; generally, this occurs with the transfer of control of products or services. The Company satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing services. Applicable sales tax collected concurrent with revenue-producing activities are excluded from revenue.

U.S. and Canada Revenue

The following is a summary of revenue disaggregated by major source in the U.S. and Canada segment:



	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
U.S. company-owned product sales: ⁽¹⁾	(in thousands)
Protein	$	76,738	$	83,652	$	251,480	$	266,621
Performance supplements	68,809		69,770		217,525		217,787
Weight management	29,575		32,622		108,048		112,897
Vitamins	48,322		51,015		148,188		154,363
Herbs / Greens	15,872		16,817		48,975		49,552
Wellness	46,245		47,888		143,626		147,484
Health / Beauty	43,332		48,027		138,911		145,624
Food / Drink	28,325		23,248		82,394		72,818
General merchandise	5,637		6,732		18,577		21,941
Total U.S. company-owned product sales	$	362,855	$	379,771	$	1,157,724	$	1,189,087
Wholesale sales to franchisees	58,199		59,413		176,034		189,776
Royalties and franchise fees	7,939		8,649		25,219		27,472
Sublease income	11,087		12,170		34,485		37,128
Cooperative advertising and other franchise support fees	4,739		5,769		16,245		18,159
Gold Card revenue recognized in U.S.⁽²⁾	—		—		—		24,399
Other ⁽³⁾	31,700		26,611		96,543		70,797
Total U.S. and Canada revenue	$	476,519	$	492,383	$	1,506,250	$	1,556,818


(1)	Includes GNC.com sales.


(2)	The Gold Card Member Pricing program in the U.S. was discontinued in December 2016 in connection with the launch of the One New GNC which resulted in $24.4 million of deferred Gold Card revenue being recognized in the first quarter of 2017, net of $1.4 million in applicable coupon redemptions.


(3)	Includes revenue primarily related to Canada operations and loyalty programs, myGNC Rewards and PRO Access. The increase compared to the prior year period primarily relates to the Company's loyalty programs.

International Revenue

The following is a summary of the revenue disaggregated by major source in the International reportable segment:



	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
	(in thousands)
Wholesale sales to franchisees	$	32,321	$	28,941	$	81,266	$	80,747
Royalties and franchise fees	7,150		6,509		20,347		19,360
Other^(*)	11,936		13,008		38,494		31,915
Total International revenue	$	51,407	$	48,458	$	140,107	$	132,022

(*) Includes revenue primarily related to China operations and company-owned stores located in Ireland.

Manufacturing / Wholesale Revenue

The following is a summary of the revenue disaggregated by major source in the Manufacturing / Wholesale reportable segment:



	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
	(in thousands)
Third-party contract manufacturing	$	31,212	$	29,260	$	94,514	$	97,222
Intersegment sales	63,695		58,037		193,596		175,335
Wholesale partner sales	21,047		22,026		64,791		65,895
Total Manufacturing / Wholesale revenue	$	115,954	$	109,323	$	352,901	$	338,452

Revenue by Geography

The following is a summary of the revenue by geography.



	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Total revenues by geographic areas:	(in thousands)
United States	$	545,332	$	574,053	$	1,696,887	$	1,808,745
Foreign	34,853		38,900		108,775		109,394
Total revenues (*)	$	580,185	$	612,953	$	1,805,662	$	1,918,139

(*) Prior year revenue includes revenue from Lucky Vitamin, which was sold on September 30, 2017.

Revenue Recognition Policies

Within the U.S. and Canada segment, retail sales in company-owned stores are recognized at the point of sale. Revenue related to e-commerce sales is recognized upon shipment based on meeting the transfer of control criteria. The Company has made a policy election to treat shipping and handling as costs to fulfill the contract, and as a result, any fees received from customers are included in the transaction price allocated to the performance obligation of providing goods with a corresponding amount accrued within cost of sales for amounts paid to applicable carriers. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue. A provision for anticipated returns is recorded through a reduction of sales and cost of sales (for product that can be resold or returned to vendors) in the period that the related sales are recorded.

Effective with the launch of the One New GNC on December 29, 2016, the Company introduced myGNC Rewards, a free points-based loyalty program while discontinuing its Gold Card Member Pricing program system-wide in the U.S. The loyalty program enables customers to earn points based on their purchases. Points earned by members are valid for one year and may be redeemed for cash discounts on any product the Company sells at both company-owned or franchise locations. The Company defers the estimated standalone selling price of points related to this program as a reduction to revenue as points are earned by allocating a portion of the transaction price the customer pays to a loyalty program liability within deferred revenue and other current liabilities on the Consolidated Balance Sheet. The estimated selling price of each point is based on the estimated value of product for which the point is expected to be redeemed, net of points not expected to be redeemed, based on historical redemption rates. When a customer redeems earned points, revenue is recognized with a corresponding reduction to the program liability.

Also effective with the launch of the One New GNC, the Company began offering a paid membership program, PRO Access, for $39.99 per year, which provides members with the delivery of sample boxes throughout the membership year, as well as the offering of certain other benefits including the opportunity to earn triple points on a periodic basis. The boxes include sample merchandise and other materials. The Company allocates the transaction price of the membership to the sample boxes and other benefits based on estimated relative stand-alone prices. The membership price paid is recorded within deferred revenue and other current liabilities on the Consolidated Balance Sheet and recognized as revenue as the underlying performance obligations are satisfied.

Revenue from gift cards is recognized when the gift card is redeemed. Gift cards do not have expiration dates and are not required to be escheated to government authorities. Utilizing historical redemption rates, the Company recognizes revenue for amounts not expected to be redeemed proportionately as other gift card balances are redeemed.

Revenues from domestic and international franchisees include wholesale product sales, franchise fees and royalties, as well as cooperative advertising and other franchise support fees specific to domestic franchisees. Revenues are recorded within the U.S. and Canada segment for domestic franchisees and the International segment for international franchisees. The Company's franchisees purchase a significant amount of the products they sell in their retail stores from the Company at wholesale prices. Revenue on product sales to franchisees and other franchise support fees (including construction, equipment and other administrative fees) are recognized upon transfer of control to the franchisee, net of estimated returns and allowances. Franchise license fees, royalties and continuing services, such as cooperative advertising, are not separate and distinct performance obligations as they are highly dependent on each other in supporting the overall brand. Franchise fees for the license are paid in advance, and are deferred and recognized over the applicable license term as the Company satisfies the performance obligation of granting the customer access to the rights of its intellectual property. Franchise royalties and cooperative advertising contributions are variable consideration based on a percentage of the franchisees' retail sales, which are recognized in the period the franchisees' underlying sales occur, and are not included in the upfront transaction price for the overall performance obligation relating to providing access to the Company's intellectual property.

The Manufacturing / Wholesale segment sells product to the Company's other segments, which is eliminated in consolidation, and third-party customers. Revenue is recognized over time, net of estimated returns and allowances, as manufacturing occurs if the customized goods have no alternative use (specially made for the end customer) and the Company has an enforceable right to payment for performance completed to date (even if such right is not enforced in practice). The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company uses the cost-to-cost measure of progress for its contracts because it best depicts the transfer of control to the customer which occurs as the Company incurs costs on its contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Costs to fulfill include labor, materials, other direct costs and an allocation of indirect costs, which are recognized as cost of sales as revenue is recognized. Services for specialty manufacturing contracts typically have an expected duration of less than one year.

Balances from Contracts with Customers

Contract assets relating to specialty manufacturing include amounts related to the Company's contractual right to consideration for completed performance obligations not yet invoiced, and were $27.9 million and $24.3 million at September 30, 2018 and December 31, 2017, respectively, recorded within prepaid and other current assets on the accompanying Consolidated Balance Sheets (with a corresponding reduction to inventory at cost). Contract liabilities include payments received in advance of performance under the contract.

The following table presents changes in the Company’s contract liabilities:



	Nine months ended September 30, 2018
	Balance at beginning of period		Recognition of revenue included in beginning balance			Contract liability, net of revenue recognized during the period		Balance at end of period
	(in thousands)
Deferred franchise and license fees	$	38,011	$	(7,739	)	$	4,128	$	34,400
PRO Access and loyalty program points	24,464		(22,942		)	24,512		26,034
Gift card liability ^(*)	4,172		(2,430		)	159		1,901

(*) Net of estimated breakage

The Company's PRO Access and loyalty program points are recorded within deferred revenue and other current liabilities on the Consolidated Balance Sheets. Deferred franchise and license fees are recorded within deferred revenue and other current liabilities and other long-term liabilities on the Consolidated Balance Sheets. As of September 30, 2018, the Company had deferred franchise and license fees with unsatisfied performance obligations extending throughout 2028 of $34.4 million, of which $7.2 million is expected to be recognized over the next 12 months. The Company has elected to use the practical expedient allowed under the rules of adoption to not disclose the duration of the remaining unsatisfied performance obligations for contracts with an original expected length of one year or less.