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Revenues

9 Months Ended

Sep. 30, 2019

NOTE 3 Revenues

The following tables present the revenues disaggregated by revenue source:

	Three months ended September 30, 2019
(in thousands)	Retail			National Programs			Wholesale Brokerage		Services		Other ⁽⁸⁾			Total
Base commissions ⁽¹⁾	$	248,488		$	92,224		$	68,162	$	—	$	—		$	408,874
Fees ⁽²⁾		65,501			44,984			15,850		50,069		(288	)		176,116
Incentive commissions ⁽³⁾		12,852			258			449		—		5			13,564
Profit-sharing contingent commissions ⁽⁴⁾		7,848			4,412			1,927		—		—			14,187
Guaranteed supplemental commissions ⁽⁵⁾		3,415			609			598		—		—			4,622
Investment income⁽⁶⁾		28			375			48		35		1,182			1,668
Other income, net ⁽⁷⁾		(420	)		(8	)		75		2		3			(348	)
Total Revenues	$	337,712		$	142,854		$	87,109	$	50,106	$	902		$	618,683

	Nine months ended September 30, 2019
(in thousands)	Retail		National Programs			Wholesale Brokerage		Services		Other ⁽⁸⁾			Total
Base commissions ⁽¹⁾	$	755,108	$	254,495		$	187,388	$	—	$	13		$	1,197,004
Fees ⁽²⁾		178,205		109,702			42,299		150,276		(863	)		479,619
Incentive commissions ⁽³⁾		68,342		(669	)		947		—		23			68,643
Profit-sharing contingent commissions ⁽⁴⁾		26,054		9,365			6,073		—		—			41,492
Guaranteed supplemental commissions ⁽⁵⁾		9,211		10,225			1,564		—		—			21,000
Investment income⁽⁶⁾		45		1,071			131		117		2,910			4,274
Other income, net ⁽⁷⁾		716		42			387		2		3			1,150
Total Revenues	$	1,037,681	$	384,231		$	238,789	$	150,395	$	2,086		$	1,813,182

(1)

Base commissions generally represent a percentage of the premium paid by an insured and are affected by fluctuations in both premium rate levels charged by insurance companies and the insureds’ underlying “insurable exposure units,” which are units that insurance companies use to measure or express insurance exposed to risk (such as property values, or sales and payroll levels) to determine what premium to charge the insured. Insurance companies establish these premium rates based upon many factors, including loss experience, risk profile and reinsurance rates paid by such insurance companies, none of which the Company controls.

(2)	Fee revenues relate to fees for services other than securing coverage for the Company's customers and fees negotiated in lieu of commissions.

(3)	Incentive commissions include additional commissions over base commissions received from insurance carriers based on predetermined production levels mutually agreed upon by both parties.

(4)	Profit-sharing contingent commissions are based primarily on underwriting results, but may also reflect considerations for volume, growth and/or retention.

(5)	Guaranteed supplemental commissions represent guaranteed fixed-base agreements in lieu of profit-sharing contingent commissions.

(6)	Investment income consists primarily of interest on cash and investments.

(7)	Other income consists primarily of legal settlements and other miscellaneous income.

(8)	Fees within other reflects the elimination of intercompany revenues.

Contract Assets and Liabilities

The balances of contract assets and contract liabilities arising from contracts with customers as of September 30, 2019 and December 31, 2018 were as follows:

(in thousands)	September 30, 2019		December 31, 2018
Contract assets	$	297,696	$	265,994
Contract liabilities	$	55,138	$	53,496

Unbilled receivables (contract assets) arise when the Company recognizes revenue for amounts which have not yet been billed in the Company's systems and are reflected in premiums, commissions and fee receivables in the Company's Condensed Consolidated Balance Sheet. Deferred revenue (contract liabilities) relates to payments received in advance of performance under the contract before the transfer of a good or service to the customer. Deferred revenue is reflected within accrued expenses and other liabilities for those to be recognized in less than 12 months and in other liabilities for those to be recognized more than 12 months from the date presented in the Company's Condensed Consolidated Balance Sheet.

As of September 30, 2019, deferred revenue consisted of $37.5 million as current portion to be recognized within one year and $17.6 million in long term to be recognized beyond one year. As of December 31, 2018, deferred revenue consisted of $37.0 million as current portion to be recognized within one year and $16.5 million in long-term deferred revenue to be recognized beyond one year.

During the nine months ended September 30, 2019, the amount of revenue recognized related to performance obligations satisfied in a previous period, was $14.0 million. This revenue is primarily related to variable consideration and is inclusive of changes due to estimates.

Other Assets and Deferred Cost

Incremental cost to obtain - The Company defers certain costs to obtain customer contracts primarily as they relate to commission-based compensation plans in the Retail Segment, in which the Company pays an incremental amount of compensation on new business. These incremental costs are deferred and amortized over a 15-year period. The cost to obtain balance within the other assets caption in the Company's Condensed Consolidated Balance Sheet was $23.4 million and $13.2 million as of September 30, 2019 and December 31, 2018, respectively. For the nine months ended September 30, 2019, the Company deferred $11.6 million of incremental cost to obtain customer contracts. The Company recorded an expense of $1.4 million associated with the incremental cost to obtain customer contracts for the nine months ended September 30, 2019.

Cost to fulfill - The Company defers certain costs to fulfill contracts and recognizes these costs as the associated performance obligations are fulfilled. The cost to fulfill balance within the other current assets caption in the Company's Condensed Consolidated Balance Sheet was $68.0 million and $69.8 million as of September 30, 2019 and December 31, 2018, respectively. For the nine months ended September 30, 2019, the Company had net expense of $1.9 million related to the release of previously deferred contract fulfillment costs associated with performance obligations that were satisfied in the period, net of current year deferrals for costs incurred that related to performance obligations yet to be fulfilled.