REVENUE FROM CONTRACTS WITH CUSTOMERS

12 Months Ended

Dec. 27, 2023

REVENUE FROM CONTRACTS WITH CUSTOMERS

REVENUE FROM CONTRACTS WITH CUSTOMERS

15. REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue Recognition

Nature of products and services

The Company has two revenue streams, company-operated restaurant revenue and franchise related revenue. See Note 2 “Summary of Significant Accounting Policies” for a description of the revenue recognition policies.

Franchise and franchise advertising fee revenue

Franchise revenue consists of franchise royalties, initial franchise fees, license fees due from franchisees, IT support services, and rental income for subleases to franchisees. Franchise advertising fee revenue consists of advertising contributions received from franchisees.

Disaggregated revenue

The following table presents the Company’s revenues for the years ended December 27, 2023, December 28, 2022 and December 29, 2021 disaggregated by revenue source and market (in thousands):

	December 27, 2023		December 28, 2022		December 29, 2021
Core Market(1):
Company-operated restaurant revenue	$	381,319	$	384,504	$	371,067
Franchise revenue		19,805		17,953		16,062
Franchise advertising fee revenue		13,520		13,223		12,017
Total core market	$	414,644	$	415,680	$	399,146
Non-Core Market(2):
Company-operated restaurant revenue	$	17,118	$	18,714	$	23,666
Franchise revenue		21,197		20,272		17,667
Franchise advertising fee revenue		15,705		15,293		13,884
Total non-core market	$	54,020	$	54,279	$	55,217
Total revenue	$	468,664	$	469,959	$	454,363

(1) Core Market includes markets with existing company-operated restaurants at the time of the Company’s Initial Public Offering ("IPO") on July 28, 2014.

(2) Non-Core Market includes markets entered into by the Company subsequent to the IPO date.

The following table presents the Company’s revenues disaggregated by geographic market for the years ended December 27, 2023, December 28, 2022 and December 29, 2021:

	December 27, 2023		December 28, 2022		December 29, 2021
Greater Los Angeles area market	71.3	%	71.2	%	70.9	%
Other markets	28.7	%	28.8	%	29.1	%
Total	100	%	100	%	100	%

Contract balances

The following table provides information about the change in the franchise contract liability balances during the year ended December 27, 2023 and December 28, 2022 (in thousands):

December 29, 2021	$	6,328
Revenue recognized - beginning balance		(744)
Additional contract liability		793
December 28, 2022	$	6,377
Revenue recognized - beginning balance		(791)
Additional contract liability		1,411
December 27, 2023	$	6,997

The Company’s franchise contract liability includes development fees, initial franchise and license fees, franchise renewal fees, lease subsidies and royalty discounts and is included within other accrued expenses and current liabilities and other noncurrent liabilities within the accompanying consolidated balance sheets. The Company receives area development fees from franchisees when they execute multi-unit area development agreements. Initial franchise and license fees, or franchise renewal fees, are received from franchisees upon the execution of, or renewal of, a franchise agreement. Revenue is recognized from these agreements as the underlying performance obligation is satisfied, which is over the term of the agreement.

For the year ended December 27, 2023, there was an increase to the contract liability balance due to the Company’s completion of the sale of 18 company-operated restaurants within the California, Utah and Texas to an existing franchisee. This resulted in a net gain on sale of restaurant of $5.0 million including an additional contract liability of $0.3 million, relating to allocation of the transaction price to various performance obligations under the applicable contracts of the sale. For the year ended December 28, 2022, there was an increase to the contract liability balance due to the Company’s completion of the sale of three company-operated restaurants within the Orange County area to an existing franchisee. This resulted in additional contract liability of $0.8 million, relating to allocation of the transaction price to various performance obligations under the applicable contracts of the sale.

The following table illustrates the estimated revenue to be recognized in the future related to performance obligations that are unsatisfied as of December 27, 2023 (in thousands):

Franchise revenues:
2024	$	600
2025		555
2026		533
2027		513
2028		484
Thereafter		4,312
Total	$	6,997

Changes in the loyalty rewards program liability included in other accrued expenses and current liabilities on the consolidated balance sheets were as follows (in thousands):

	December 27, 2023		December 28, 2022		December 29, 2021
Loyalty rewards liability, beginning balance	$	526	$	687	$	900
Revenue deferred		2,065		2,754		2,677
Revenue recognized		(1,904)		(2,915)		(2,890)
Loyalty rewards liability, ending balance	$	687	$	526	$	687

The Company expects all loyalty points revenue related to performance obligations unsatisfied as of December 27, 2023 to be recognized within one year.

Gift Cards

The gift card liability included in other accrued expenses and current liabilities on the consolidated balance sheets was as follows (in thousands):

	December 27, 2023		December 28, 2022
Gift card liability	$	4,877	$	4,667

Revenue recognized from the redemption of gift cards that was included in other accrued expenses and current liabilities at the beginning of the year was as follows (in thousands):

	December 27, 2023		December 28, 2022		December 29, 2021
Revenue recognized from gift card liability balance at the beginning of the year	$	1,064	$	1,145	$	1,218

Contract Costs

The Company does not currently incur costs to obtain or fulfill a contract that would be considered contract assets under Topic 606.