NOTE 13 REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue from contracts with customers relates to the Kingsway Search Xcelerator and Extended Warranty segments and includes: business services revenue, healthcare services revenue, software license and support revenue, motor sales and repair service revenue, skilled trades repair and service revenue, vehicle service agreement fees, maintenance support service fees and warranty product commissions, based on terms of various agreements with consumers, businesses and credit unions. Customers either pay in full when business and healthcare services, software license and support, motor sales and skilled trades services are billed, or at the inception of a warranty contract or commission product sale, 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 six months ended June 30, 2026 and June 30, 2025:

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 6.65% to 11.20% 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 revenue includes the revenue from providing outsourced finance and human resources services and information technology managed services. The Company invoices for business services revenue based on contracted rates.  Revenue is earned over time as services are provided to the customer.

Healthcare services revenue includes revenue from providing healthcare professional staffing services and outsourced cardiac telemetry services for general acute care, 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 to the customer.

Software license and support revenue includes 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.

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 provided to the customer.

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

The Company's revenue recognition policies are further described in Note 2(q), "Summary of Significant Accounting Policies - Revenue recognition," to the consolidated financial statements in the 2025 Annual Report.

Service fee receivables

Receivables from contracts with customers are reported as service fee receivable, net in the consolidated balance sheets and at June 30, 2026 and December 31, 2025 were $15.0 million and $13.8 million, respectively.  The increase in receivables from contracts with customers is primarily 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 June 30, 2026 and December 31, 2025 of $1.1 million and $1.1 million, respectively. During the three months ended  June 30, 2026 and  June 30, 2025, the Company recorded an increase to its allowance for credit losses of less than $0.1 million and $0.1 million, respectively ($0.3 million and $0.1 million for the six months ended June 30, 2026 and June 30, 2025, 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 $0.2 million and less than $0.1 million for the three months ended  June 30, 2026 and  June 30, 2025, respectively ($0.2 million and less than $0.1 million for the six months ended June 30, 2026 and 2025, respectively).

Contract asset

Contract asset is included in the Company's consolidated balance sheets as of  June 30, 2026 and December 31, 2025 as follows:

The Company records a contract asset 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 six months ended June 30, 2026 were as follows: 

The contract asset is reported net of an estimated allowance for credit losses of zero at June 30, 2026 and December 31, 2025.  Contract assets that are deemed to be uncollectible are written off against the allowance for credit losses when identified. During each of the three and six months ended  June 30, 2026 and  June 30, 2025, the Company recorded write-offs to the contract asset for amounts that were deemed to be uncollectible of zero. 

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 six months ended  June 30, 2026 were as follows:

Approximately $23.6 million and $24.9 million of revenues from contracts with customers recognized during the six months ended June 30, 2026 and June 30, 2025 was included in deferred service fees as of December 31, 2025 and December 31, 2024, respectively.

Remaining performance obligations

The Company expects to recognize within one year as revenue approximately 47.6% of the outstanding performance obligations as of June 30, 2026.  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 cost of services in the unaudited consolidated statements of operations.  No impairment charges related to deferred contract costs were recorded during the three and six months ended June 30, 2026 and June 30, 2025.

The deferred contract costs balances and related amortization expense for the three months ended  June 30, 2026 and June 30, 2025 are comprised as follows:

The deferred contract costs balances and related amortization expense for the six months ended  June 30, 2026 and June 30, 2025 are comprised as follows: