Costs to Obtain Contracts with Customers — The Company expects that commission costs incurred by its MGA subsidiaries in order to obtain new insurance policies are recoverable. As such, the incremental commission paid on new policies over renewal policies is recorded within "Other assets" on the Consolidated Balance Sheets when they are paid and are subsequently amortized to "Sales expense" in the Consolidated Statements of Operations based on the average expected life of the underlying insurance policy.
Revenue Recognition
Contract Assets
Contract assets, primarily consisting of CUC receivables, are reported within "Commissions receivable" on the Consolidated Balance Sheets. As of December 31, 2025 and 2024, the Company had contract assets of $20.8 million and $15.9 million, respectively.
Contract Liabilities
Contract liabilities consist of cash collected in advance of revenue recognition and primarily relates to the unrecognized portion of HDC membership fees, the unrecognized portion of the advanced commission payment received from State Farm Mutual Automobile Insurance Company ("State Farm"), and, to a much lesser extent, cash collected in advance of the completion of marketplace private sales. As of December 31, 2025 and 2024, the Company had contract liabilities of $46.5 million and $47.2 million, respectively.
Contract liabilities related to HDC membership fees and marketplace private sales have a duration of one year or less. For contracts that are long-term in nature, the Company recognized approximately $2.0 million of revenue during the year ended December 31, 2025, which represents revenue related to the advanced commission payment received from State Farm. Refer to Note 24 — Related-Party Transactions for additional information regarding the Company's master alliance agreement with State Farm.
About Revenue Disclosures
Revenue disclosures under ASC 606 explain how a company identifies performance obligations, allocates transaction prices, and determines when revenue is recognized. This section is essential for understanding whether reported revenue reflects genuine economic activity or aggressive accounting choices. Analysts examine the mix of point-in-time versus over-time recognition, which directly affects revenue timing and comparability.
Key signals: rising contract liabilities (deferred revenue) suggest strong future revenue visibility, while declining contract assets may indicate slowing project milestones. Watch for variable consideration estimates — rebates, returns, and performance bonuses that require management judgment. Significant changes in disaggregated revenue by geography or product line can reveal shifting business mix before it appears in headline numbers. Compare revenue growth against contract liability growth to assess sustainability, and scrutinize any changes in the timing of recognition that coincide with earnings pressure.