Note 14 - Revenue From Contracts With Customers

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

Revenue from contracts with customers relates to the Extended Warranty and Kingsway Search Xcelerator segments and includes: vehicle service agreement fees, GAP commissions, maintenance support service fees, warranty product commissions, homebuilder warranty service fees, homebuilder warranty commissions and business services consulting revenue.  Revenue is based on terms of various agreements with credit unions, consumers, businesses and homebuilders. Customers either pay in full at the inception of a warranty contract, commission product sale, or when consulting 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:

(in thousands)		Years ended December 31,
		2022		2021
Vehicle service agreement fees and GAP commissions	IWS, Geminus and PWI	$	58,775	$	57,756
Maintenance support service fees	Trinity		5,815		4,871
Warranty product commissions	Trinity		4,564		4,317
Homebuilder warranty service fees	PWSC (a)		4,348		7,099
Homebuilder warranty commissions	PWSC (a)		540		876
Business services consulting fees	Ravix, CSuite and SNS		19,238		3,482
Service fee and commission revenue		$	93,280	$	78,401

(a) Through the July 29, 2022 disposal

During the first quarter of 2022, IWS recorded a net charge of $0.9 million relating to a change in estimate in accounting for deferred revenue and deferred contract costs associated with vehicle service agreement fees, resulting in an increase to deferred service fees of $1.1 million and an increase in deferred contract costs of $0.2 million.

Receivables from contracts with customers are reported as service fee receivable, net in the consolidated balance sheets and at December 31, 2022 and December 31, 2021 were$10.3 million and $6.7 million, respectively. The increase in receivables from contracts with customers is primarily due to receivables related to CSuite and SNS, which were acquired on November 1, 2022 and November 18, 2022, respectively, and the timing difference between the Company's satisfaction of performance obligations and customer payments; partially offset by a decrease due to the disposal of PWSC on July 29, 2022.  

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 years ended  December 31, 2022 and December 31, 2021 were as follows:

(in thousands)	Years ended December 31,
Balance, December 31, 2020	$	87,945
Deferral of revenue		60,415
Recognition of deferred service fees		(59,143	)
Balance, December 31, 2021		89,217
Deferral of revenue		61,058
Recognition of deferred service fees		(59,966	)
Deferred service fees disposed of related to PWSC		(7,596	)
Balance, December 31, 2022	$	82,713

The decrease in deferred service fees during the year ended December 31, 2022 is primarily due to the disposal of PWSC on July 29, 2022, partially offset by additions to deferred service fees in excess of deferred service fees recognized during the year ended December 31, 2022 as cash sales have begun to increase.  The increase in deferred service fees during the year ended December 31, 2021 is primarily due to additions to deferred service fees in excess of deferred service fees recognized during the year ended December 31, 2021, that was partially offset by the adjustment recorded in the third quarter of 2021 of $3.6 million to reduce PWI’s acquisition date deferred revenue to fair value.  

The Company expects to recognize within one year as service fee and commission revenue approximately 52.7% of the deferred service fees as of December 31, 2022. Approximately $43.2 million and $44.2 million of service fee and commission revenue recognized during the years ended December 31, 2022 and December 31, 2021 was included in deferred service fees as of December 31, 2021 and December 31, 2020, respectively.

Deferred contract costs

Deferred contract costs represent the deferral of incremental costs to obtain or fulfill a contract with a customer.  The deferred contract costs balances and related amortization expense for the years ended  December 31, 2022 and December 31, 2021 are comprised as follows:

(in thousands)	Years ended December 31, 2022									Years ended December 31, 2021
	Costs to Obtain a Contract			Costs to Fulfill a Contract			Total			Costs to Obtain a Contract			Costs to Fulfill a Contract			Total
Balance at January 1, net	$	10,850		$	80		$	10,930		$	8,759		$	76		$	8,835
Additions		9,273			21			9,294			8,674			27			8,701
Amortization		(6,949	)		(18	)		(6,967	)		(6,583	)		(23	)		(6,606	)
Balance at December 31, net	$	13,174		$	83		$	13,257		$	10,850		$	80		$	10,930

No impairment charges related to deferred contract costs were recorded in 2022 or 2021.