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Revenues

3 Months Ended

Mar. 31, 2020

NOTE 3 Revenues

The following tables present the revenues disaggregated by revenue source:

	Three months ended March 31, 2020
(in thousands)	Retail		National Programs			Wholesale Brokerage		Services		Other ⁽⁸⁾			Total
Base commissions ⁽¹⁾	$	315,888	$	88,582		$	55,563	$	—	$	—		$	460,033
Fees ⁽²⁾		57,483		34,659			15,641		44,452		(322	)		151,913
Incentive commissions ⁽³⁾		52,802		197			3,759		—		1			56,759
Profit-sharing contingent commissions ⁽⁴⁾		16,095		5,711			2,136		—		—			23,942
Guaranteed supplemental commissions ⁽⁵⁾		4,432		(1,013	)		437		—		—			3,856
Investment income⁽⁶⁾		83		263			50		—		765			1,161
Other income, net ⁽⁷⁾		706		13			112		—		—			831
Total Revenues	$	447,489	$	128,412		$	77,698	$	44,452	$	444		$	698,495

	Three months ended March 31, 2019
(in thousands)	Retail		National Programs		Wholesale Brokerage		Services		Other ⁽⁸⁾			Total
Base commissions ⁽¹⁾	$	287,200	$	77,178	$	54,173	$	—	$	(12	)	$	418,539
Fees ⁽²⁾		43,877		30,246		12,510		49,444		(288	)		135,789
Incentive commissions ⁽³⁾		42,775		919		373		—		111			44,178
Profit-sharing contingent commissions ⁽⁴⁾		11,547		860		2,915		—		—			15,322
Guaranteed supplemental commissions ⁽⁵⁾		3,240		4		391		—		—			3,635
Investment income⁽⁶⁾		—		316		40		48		677			1,081
Other income, net ⁽⁷⁾		592		37		107		—		—			736
Total Revenues	$	389,231	$	109,560	$	70,509	$	49,492	$	488		$	619,280

(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 we control.

(2)	Fee revenues relate to fees for services other than securing coverage for our customers, fees negotiated in lieu of commissions, and F&I.

(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 March 31, 2020 and December 31, 2019 were as follows:

(in thousands)	March 31, 2020		December 31, 2019
Contract assets	$	357,567	$	289,609
Contract liabilities	$	53,791	$	58,126

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 March 31, 2020, deferred revenue consisted of $37.2 million as current portion to be recognized within one year and $16.6 million in long term to be recognized beyond one year. As of December 31, 2019, deferred revenue consisted of $41.2 million as current portion to be recognized within one year and $16.9 million in long-term deferred revenue to be recognized beyond one year.

During the three months ended March 31, 2020, the amount of revenue recognized related to performance obligations satisfied in a previous period, was $9.0 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 $31.1 million and $26.9 million as of March 31, 2020 and December 31, 2019, respectively. For the three months ended March 31, 2020, the Company deferred $4.7 million of incremental cost to obtain customer contracts. The Company recorded an expense of $0.5 million associated with the incremental cost to obtain customer contracts for the three months ended March 31, 2020.

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 $62.9 million and $73.3 million as of March 31, 2020 and December 31, 2019, respectively. For the three months ended March 31, 2020, the Company had net expense of $10.4 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.