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Note 12 - Revenue From Contracts With Customers
 9 Months Ended
Sep. 30, 2025
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]

NOTE 12 REVENUE FROM CONTRACTS WITH CUSTOMERS

 

Revenue from contracts with customers relates to the Extended Warranty and Kingsway Search Xcelerator segments and includes: vehicle service agreement fees, guaranteed asset protection products ("GAP") commissions, maintenance support service fees, warranty product commissions, business services consulting revenue, healthcare services revenue, software license and support revenue, skilled trades repair and service revenue and motor sales and repair service revenue.  Revenue is based on terms of various agreements with credit unions, consumers and businesses. Customers either pay in full at the inception of a warranty contract or commission product sale, or when consulting, healthcare, skilled trades, software license and support services are billed, or on terms subject to the Company’s customary credit reviews.

 

The following table disaggregates revenues from contracts with customers by revenue type for the three and nine months ended September 30, 2025 and September 30, 2024:

 

(in thousands)

  

Three months ended September 30,

  

Nine months ended September 30,

 
   

2025

  

2024

  

2025

  

2024

 
                  

Vehicle service agreement fees and GAP commissions

IWS, Geminus and PWI

 $15,504  $15,215  $45,538  $45,195 

Maintenance support service fees

Trinity

  1,203   1,300   3,299   2,941 

Warranty product commissions

Trinity

  1,491   1,328   3,673   3,496 

Business services consulting fees

Ravix, CSuite and Image Solutions

  5,474   4,026   17,405   12,958 

Healthcare services fees

SNS and DDI

  4,334   4,240   13,493   12,554 

Software license and support fees

SPI and ATWI

  895   1,027   2,732   2,598 

Skilled trades repair and service fees

Bud's Plumbing, Advanced Plumbing and Southside Plumbing

  3,384   —   5,413   — 

Motor sales and repair service fees

Roundhouse

  4,888   —   4,888   — 

Service fee and commission revenue

 $37,173  $27,136  $96,441  $79,742 

 

Vehicle service agreement fees include the fees collected to cover the costs of future automobile mechanical breakdown claims and the associated administration of those claims. Vehicle service agreement fees are earned over the duration of the vehicle service agreement contracts as the single performance obligation is satisfied. Vehicle service agreement fees are initially recorded as deferred service fees with revenues recognized over the term of the contract based on the proportion of expected claims to total overall claims to be incurred over the life of the contract.  The Company believes this reasonably represents the transfer of services to the vehicle service contract holder over the warranty term. The Company compares the remaining deferred service fees balance to the estimated amount of expected future claims under the vehicle service agreement contracts and records an additional accrual if the deferred service fees balance is less than expected future claims costs.

 

In certain jurisdictions the Company is required to refund to a customer a pro-rata share of the vehicle service agreement fees if a customer cancels the agreement prior to the end of the term. Depending on the jurisdiction, the Company may be entitled to deduct from the refund a cancellation fee and/or amounts for claims incurred prior to cancellation. While refunds vary depending on the term and type of product offered, historically refunds have averaged 6.25% to 12.00% of the original amount of the vehicle service agreement fee. Revenues recorded by the Company are net of variable consideration related to refunds and the associated refund liability is included in accrued expenses and other liabilities. The Company estimates refunds based on the actual historical refund rates by warranty type taking into consideration current observable refund trends in estimating the expected amount of future customer refunds to be paid at each reporting period.

 

Maintenance support service fees include the service fees collected to administer equipment breakdown and maintenance support services and are earned as services are rendered.

 

Warranty product commissions include the commissions from the sale of warranty contracts for certain new and used heating, ventilation, air conditioning ("HVAC"), standby generator, commercial LED lighting and commercial refrigeration equipment. The Company acts as an agent on behalf of the third-party insurance companies that underwrite and guaranty these warranty contracts. The Company does not guaranty the performance underlying the warranty contracts it sells. Warranty product commissions are earned at the time of the warranty product sales.

 

Business services consulting fees include the revenue from providing outsourced finance and human resources consulting services and information technology ("IT") managed services. The Company invoices for business services revenue based on contracted rates.  Revenue is earned over time as services are provided.

 

Healthcare services fees include revenue from providing healthcare professional staffing services and outsourced cardiac telemetry services for long-term acute care and inpatient rehabilitation hospitals. The Company invoices for healthcare services revenue based on contracted rates.  Revenue is earned over time as services are provided.

 

Software license and support fees include revenue from the sale or rental of software products created exclusively to serve the management needs of all types of shared-ownership properties.  Software licenses are on-premise at customer locations and considered fully functional when made available and delivered to the customer. As the customer can use and benefit from the license on its own, software licenses represent distinct performance obligations. Revenue is recognized upfront at the point in time when control is transferred, which is defined as the point in time when the customer can use and benefit from the license.  The Company's software licenses are sold as term licenses, and the contracts include software support services, which are accounted for as separate performance obligations. Software support revenue is recognized ratably over the contract period as services are rendered.  For certain SPI contracts, the transaction price of the software license is billed in installments, typically over a three to five year period.  The Company allocates a portion of the consideration received from these arrangements to a financing component when it determines that a significant financing component exists.  The financing component is subsequently recognized as interest income separate from software license and support fee revenue over the term of the arrangement with the customer.  Pursuant to practical expedients afforded under ASC 606, the Company does not recognize a financing component for software license sales that have a term of one year or less.

 

Skilled trades repair and service revenue include the service fees collected to administer plumbing repairs and maintenance support services and are earned as services are rendered.

 

Motor sales and repair service revenue include the service fees collected from the sale of new electric motors, in-shop repair and refurbishment of customer-owned electric motors, transformers, switchgear, ancillary parts, and on-site services for customers, including preventative maintenance, infrared scans, VLF cable testing, and vibration analysis for various types of electrical equipment.  Motor sales and repair service revenue is earned as motors are delivered to the customer or as repair services are rendered.

 

The Company's revenue recognition policies are further described in Note 2(r), "Summary of Significant Accounting Policies - Revenue recognition," to the consolidated financial statements in the 2024 Annual Report.

 

Service fee receivables

 

Receivables from contracts with customers are reported as service fee receivable, net in the consolidated balance sheets and at September 30, 2025 and December 31, 2024 were $14.7 million and $9.4 million, respectively.  The increase in receivables from contracts with customers is primarily due to receivables related to Roundhouse, Advanced Plumbing and Southside Plumbing, which were acquired during the third quarter of 2025, as well as due to the timing difference between the Company's satisfaction of performance obligations and customer payments.

 

Service fee receivable is reported net of an estimated allowance for credit losses at September 30, 2025 and December 31, 2024 of $1.2 million and $0.6 million, respectively. During the three months ended  September 30, 2025 and  September 30, 2024, the Company recorded an increase to its allowance for credit losses of $0.4 million and $0.1 million, respectively ($0.5 million and $0.2 million for the nine months ended September 30, 2025 and  September 30, 2024, respectively). Service fee receivables that are deemed to be uncollectible are written off against the allowance for credit losses when identified.  The Company recorded write-offs of service fee receivables that were deemed to be uncollectible of $0.1 million and zero for the three months ended  September 30, 2025 and  September 30, 2024, respectively ($0.1 million and $0.1 million for the nine months ended September 30, 2025 and  September 30, 2024, respectively).

 

Contract asset

 

The Company records a contract asset, which is included in other assets in the consolidated balance sheets, when revenue is recognized prior to billing the customer. Upon billing, which typically occurs over a three to five year installment period, the value of the contract asset is reversed and service fee receivable is recorded.  Changes in the contract asset for the nine months ended September 30, 2025 were as follows: 

 

(in thousands)

 

Nine Months Ended September 30, 2025

 

Balance, December 31, 2024

 $1,878 

Contract asset additions

  405 

Amounts transferred to service fee receivables

  (358)

Write-off of contract asset balances

  (10)

Balance, September 30, 2025

 $1,915 

 

The contract asset is reported net of an estimated allowance for credit losses of zero at September 30, 2025 and December 31, 2024.  During each of the three months ended  September 30, 2025 and  September 30, 2024, the Company recorded an increase to the contract asset allowance for credit losses of zero (zero and less than $0.1 million for the nine months ended September 30, 2025 and  September 30, 2024, respectively). Contract assets that are deemed to be uncollectible are written off against the allowance for credit losses when identified. During each of the three months ended  September 30, 2025 and  September 30, 2024, the Company recorded write-offs to the contract asset for amounts that were deemed to be uncollectible of zero (zero and less than $0.1 million for the nine months ended September 30, 2025 and  September 30, 2024, respectively).  

 

Deferred service fees

 

The Company records deferred service fees resulting from contracts with customers when payment is received in advance of satisfying the performance obligations. Changes in deferred service fees for the nine months ended  September 30, 2025 were as follows:

 

(in thousands)

 

Nine Months Ended September 30, 2025

 

Balance, December 31, 2024

 $83,108 

Deferral of revenue

  49,276 

Recognition of deferred service fees

  (44,969)

Balance, September 30, 2025

 $87,415 

 

 

The increase in deferred service fees between December 31, 2024 and September 30, 2025 is primarily due to additions to deferred service fees in excess of deferred service fees recognized during the nine months ended September 30, 2025.

 

Approximately $34.7 million and $35.3 million of service fee and commission revenue recognized during the nine months ended September 30, 2025 and September 30, 2024 was included in deferred service fees as of December 31, 2024 and December 31, 2023, respectively.

 

Remaining performance obligations

 

The Company expects to recognize within one year as service fee and commission revenue approximately 46.7% of the outstanding performance obligations as of September 30, 2025.  The balance relates primarily to vehicle service agreement fees.

 

Deferred contract costs

 

Deferred contract costs represent the deferral of incremental costs to obtain or fulfill a contract with a customer.  Incremental costs to obtain a contract with a customer primarily include sales commissions.  The Company capitalizes costs incurred to fulfill a contract if the costs are identifiable, generate or enhance resources used to satisfy future performance obligations and are expected to be recovered.  Costs to fulfill a contract include labor costs for set-up activities directly related to the acquisition of vehicle service agreements.  Contract costs are deferred and amortized over the expected customer relationship period consistent with the pattern in which the related revenues are earned. Amortization of incremental costs to obtain a contract and costs to fulfill a contract with a customer are recorded in commissions and cost of services sold, respectively, in the unaudited consolidated statements of operations.  No impairment charges related to deferred contract costs were recorded during the three and nine months ended September 30, 2025 and September 30, 2024.

 

The deferred contract costs balances and related amortization expense for the three months ended  September 30, 2025 and September 30, 2024 are comprised as follows:

 

(in thousands)

 

Three months ended September 30, 2025

  

Three months ended September 30, 2024

 
  

Costs to Obtain a Contract

  

Costs to Fulfill a Contract

  

Total

  

Costs to Obtain a Contract

  

Costs to Fulfill a Contract

  

Total

 

Balance at June 30, net

 $14,484  $86  $14,570  $13,912  $81  $13,993 

Additions

  2,982   6   2,988   2,384   6   2,390 

Amortization

  (2,645)  (5)  (2,650)  (2,285)  (4)  (2,289)

Balance at September 30, net

 $14,821  $87  $14,908  $14,011  $83  $14,094 

 

The deferred contract costs balances and related amortization expense for the nine months ended  September 30, 2025 and September 30, 2024 are comprised as follows:

 

(in thousands)

 

Nine months ended September 30, 2025

  

Nine months ended September 30, 2024

 
  

Costs to Obtain a Contract

  

Costs to Fulfill a Contract

  

Total

  

Costs to Obtain a Contract

  

Costs to Fulfill a Contract

  

Total

 

Balance at December 31, net

 $13,808  $81  $13,889  $13,653  $81  $13,734 

Additions

  8,583   19   8,602   7,267   19   7,286 

Amortization

  (7,570)  (13)  (7,583)  (6,909)  (17)  (6,926)

Balance at September 30, net

 $14,821  $87  $14,908  $14,011  $83  $14,094