Good afternoon and welcome to the Fathom Realty Holdings First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Roger Pondel, Investor Relations for Fathom Holdings. Please go ahead..

Thank you, Chad and welcome, everyone to Fathom Holdings 2021 first quarter conference call. I'm Roger Pondel with PondelWilkinson, Fathom's Investor Relations firm. It's my pleasure to shortly introduce the company's Founder and CEO, Joshua Harley; and Fathom's President and Chief Financial Officer, Marco Fregenal.

Before I turn things over to Josh, I must remind everyone that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such statements are subject to numerous conditions, many of which are beyond the company's control, including adding new capabilities, the ability to reduce costs and drive sustainable growth, the type of new revenue generating opportunities identified by the company as well as the company's timing of identifying and completing them.

And those set forth in the Risk Factors section of the company's annual report on Form 10-K for the year ended, December 31, 2020, as filed with the SEC and copies of which are available on the SEC's website at www.sec.gov along with other company filings made with the SEC from time to time.

As a result of those forward-looking statements, actual results could differ materially. Fathom undertakes no obligation to update any forward-looking statements after today's call, except as required by law.

So please also note that during this call, we will be discussing adjusted EBITDA which is a non-GAAP financial measure as defined by SEC Regulation G. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure is included in today's press release, which is now posted on Fathom's website.

And with that, it's my pleasure to turn things over to Josh Harley.

Josh?.

Thank you, Roger. Of course, thank you to everyone who's on today's call. You know our entire team really appreciate your support and your faith in us. We're really proud that you're part of our Fathom family. In our first quarter results once again demonstrate the power of our truly disruptive model.

And as you know, we recently acquired a mortgage company, an insurance company, a lead generation and lead nurturing call center, a technology company specializing in big data aggregation and content creation, as well as a technology company building home search and CRM tools to help us attract more home buyers and sellers, which also helps us attract more agents.

To say that, we've been busy building Fathom to be an ultimate finding machine with an understatement. On our very first earnings call the fact just eight months ago, I made the statements that we now had jet fuel to pour on the fire. And hopefully we've proven that we're not just hype, we're delivering on what we say we will.

Ahead all of that, on top of our entry into the title insurance sector back in November and we now have all the pieces of the puzzle we need to make real and significant change in the real estate space. We may still be small, but we have elite team and we're growing at a pace that will make people notice.

On top of that, our cash position remains strong. And we're committed to adding to that position by focusing on operational cash generation.

Now since going public, we have substantially increased revenue, continued the expansion of our agent network, improved age retention, entered new geographic markets and completed strategic acquisitions that further solidify our market position.

Plus, with our attractive agent commission structure, we believe that we're in a unique position to grow even faster in a time where many investors are worried about possible headwinds in the real estate sector. I'd like to remind you most of these possible headwinds can prove to be tailwinds for Fathom's growth.

Now, I'll touch on that a little more later. But for now, I'll just say that we're killing it. Now, yes, I know I'm a little biased, but I believe our numbers back me up. Now before I go too much further, there are a lot of names on this call that I've never seen before. And there's a lot of people watching us who don't really know our story.

And I can't tell you how many times I take a call from a potential investor who doesn't want to hear the story, just wants to simply jump into questions. But then by the end of the call after I've shared the story along the way, they tell me that they went from interested, to excited about Fathom.

And I want to make sure that everyone here knows our story so that you too can be excited and not just interested. Now to understand Fathom, it's important to understand that like many of our competitors, Fathom Realty is a full service, residential real estate brokerage.

However, and I think this is really the key, we leverage an innovative platform-as-a-service model, which is powered by a proprietary cloud-based technology called intelliAgent.

This technology platform allows us to operate virtually, while providing our agents with all the major functions that they could otherwise get from a traditional brick-and-mortar brokerage.

Not only does our technology aid our agents, it also allows Fathom to streamline and automate our operations, significantly reduce our costs and personal requirements, and allows us to scale and expand the business into new markets without the excessive spend that usually companies grow.

Now, with the addition of mortgage, title insurance and additional SaaS product offerings, we have the potential to significantly increase our revenue and profitability per transaction. I don't want to just grow our agents' transactional revenue, I also want to grow our profitability. And I believe that we're on the right path to do just that.

Now, it was interesting to see one of the analysts who follows Fathom Holdings, compare us in part to Shopify, and how we attract real estate agents who act as a small business owners to our low cost platform and then generate more revenue from a host of ancillary services that allows to better monetize our growing agent base and the transactions they bring with them.

I couldn't agree more with this assessment. I'm glad that he said it so that I didn't have to, right. Because I don't want to be one of those companies who claim to be the Uber of this industry or the Shopify of that industry, it gets a little silly. We are who we are, and we're poised to dominate in our own way.

But we're constantly learning and by watching others. Now as a result of our technology platform and streamlined operations, we're able to charge our agents a fraction of what other brokerages charge their agents putting more money into agents' pockets to help them reinvest in and grow their businesses.

We believe this also gives us a faster path to profitability than many of our competitors who are charging monthly fees and large percentage commission splits.

We're excited about the advantage that intelliAgent creates, including attracting new agents and helping them become more productive, while adding even more robust technology to further reduce costs and improve our operational efficiency.

Now, I want to reiterate that last point, our focus is not just in adding more agents, but also helping our agents become more productive and close more sales. We don't want to be just another brokerage hanging agents' licenses.

We believe that we can accomplish that by providing more training and more technology to help our agents get in front of more buyers and sellers, as well as reduce the amount of time required to manage the transaction, process, giving them more time to network and sell.

Now, as you saw from our acquisitions of Naberly, our home search technology platform and Real Results, which is the lead generation and lead nurturing company we acquired in time, we also intend to generate real estate leads for agents, which in turn, will help our agents close more sales, help us further increase our revenue and profitability per transaction, attract even more agents who are looking for leads and allow our current agents to stop spending their hard-earned money with these large portals who are actually their competition.

Now one of the unique things about Fathom that I alluded to earlier, is the fact that we offer a small flat fee commission structure to our agents versus a large percentage split that our competition charges their agents. In fact, that's what most agents focus on when thinking about joining Fathom.

Our model allows our agents to make more money and reinvest those dollars into their marketing efforts to grow their sales. And as you can imagine, this makes us highly attractive to real estate agents. In fact, for Q1, we saw a 42% growth in agent count, and in the quarter with over 6,000 agents.

One of the beautiful things about our growth is that, our cost to acquire one agent during that period is only $920, making our breakeven on each agent less than we will make on just a first sale. And that's a tremendous plan that we're able to make and back up. I also want to point out that the lifetime value of an agent is over $18,000 to us.

The ratio that lifetime value to our cost of any acquisition is over 20x. And that's just by the way, just the revenue that's generated on the real estate side of our business. It doesn't take into account the revenue from our mortgage, our title and insurance companies or potential revenue from leads that we can generate for our agents.

By the way, we expect that our cost of agent acquisition may increase as we devote additional resources investments to help drive our growth. But again, you know, 20 times LTV to CAC, I think we've got plenty of room to work with. We often hear our agents say that they joined Fathom to earn more commission, but they stay for the culture.

And while I don't want to make too much of our Glassdoor rating, it does validate this feedback. Our incredibly high Glassdoor rating of 4.8 puts us in the very top of all large residential real estate brokerages.

Although this is just one example that shines a light in our culture of service, it also - I'm also proud that we have one of the lowest agent attrition rates in the industry, you know Glassdoor is nice, but if you want a true representation of whether agents are happy, our annual attrition rate is the best indicator.

And to that point, not only are we growing our agent base at a faster pace than ever before. I'm also extremely proud that our agent retention of higher producing agents improved greatly between 2019 and 2020.

In fact, agents who close less than one sale per year make up over 75% of agent attrition, with only 1% of the agents who leave, right above our agent attrition coming from agents who close 20 sales per year. So it's tiny, very tiny. During our IPO, we talked about acquiring a mortgage company, title company and insurance companies.

We accomplished that and then some and we did it in just nine and a half months. These are not simple joint ventures like some real estate companies are structured.

These are full companies where we control the quality, recognize the full revenue and can build innovations into these companies to our technology to begin disrupting those first quarter as well. And as you can probably hear my voice, I'm stoked and even more excited today than I'd ever been. And I hope you are too.

Now I understand the real estate market is crazy right now. And a few people have talked about a possible housing bubble. But most experts effectively demonstrate that this market is different. And we personally do not expect to see a bubble. With that said, we do believe that crazy markets are to our advantage.

In fact, I want to spend a minute on this point, because I think it's more important than most people understand. I know I had briefly touched on this in the beginning, but I can't stress this enough.

While other real estate companies may begin to see strong headwinds as home prices rise, mortgage rates rise and housing remains and low supply, I believe strongly that Fathom could benefit significantly.

You see, there's only two ways for an agent to make more money, increase the revenue by selling more homes or decrease the costs, and of course, the biggest cost of an agent is usually his brokerage fees and splits.

In a market where it's hard to find homes to sell or buy, agents should be attracted to Fathom to make up for any loss income by decreasing the fees they pay. In fact, if an agent closes 20% fewer homes due to market conditions, but moves over to Fathom from a brokerage who's charging them 30% split, they will actually earn around 9% more income.

And that sounds like a win to me, and I believe most agents would agree. I mean, do you believe that fact would be exciting for agents and convince them to get off the fence and join Fathom? I know, I sure do. And if the market does indeed move in that direction, you can be sure that we're going to be marketing that point heavily.

We'll be shouting it from every rooftop and focusing even more on growing our agent base. We should continue to cannibalize the real estate companies with the old traditional commission model at a faster rate. And as our agent base grows, those agents bring more transactions with them.

And as we add more transactions, we have more opportunities to capture mortgage, title and insurance revenue turning a possible headwind into a tailwind for Fathom.

Fathom's ability to attract an ever increasing number of real estate agents by providing them with greater income potential along with the technology, training and support they need to grow their business is even more evident today, even during these unprecedented times. The fact continues to drive our growth.

As I mentioned earlier for Q1, we saw a 42% increase in our agent growth year-over-year. We also saw a 60% transaction growth and 72% revenue growth.

So clearly, Fathom is moving in a very positive direction, attracting higher pricing agents and selling more homes in higher priced markets that we move into, which by the way, should significantly benefit our mortgage, title and insurance companies as well as the leads business even more than it benefits our real estate brokerage operation.

Now speaking of markets, Fathom Realty is now in 29 states and we plan to open several more in the coming months. Encompass Lending, our mortgage company is operating in 10 states, Dagley Insurance in 34 states, Verus Title in 18 states. Our title business now includes Texas, as of this month, one of the biggest real estate markets we have.

Our virtual model and technology platform allows us to launch new markets quickly, efficiently and for very low costs.

Now, I love our technology platform, because it also helps us eliminate our reliance on third-party tech providers, which reduces our cost significantly, while offering more robust tech to our agents to help them really grow their business.

IntelliAgent gives us the power to control the full lifecycle of the home buyer and the seller, and gain a greater understanding of our data, and how to use it to further improve our offering, while generating leads for agents.

Plus, we can now begin to identify potential clients for our mortgage, insurance and title companies long before they're under contract. And even before an agent has - have made an introduction, and right, that's really the holy grail for these types of companies. Now, clearly, we've made a lot of the acquisitions in a short period of time.

At this point, we have all the puzzle pieces we need. Now we need time to put the puzzle together in the most effective way possible ensure strong capture rates. Now acquisitions will continue to play an instrumental role in Fathom's growth as you move forward.

But we will be focusing our acquisitions on real estate agents, insurance agents, loan officers and title personnel to help support our vision and grow even faster. This is not a rule of strategy by any means or any stretch of imagination. I don't want to play that game, especially when we're able to grow organically, and so effectively.

But acquisition doesn't make a lot of sense in opening new markets, take critical mass faster, which also helps growth through name recognition and agent referrals. So while acquisitions are going to continue to play a role, I do want to assure you that we will continue to be good stewards of the money that you entrust us with.

We intend to grow strategically and not overpay for growth. Nor do we like dilution any more than you do, especially with my own family, owning over 50% of Fathom's stock. So we take dilution very seriously. Now I'm coming to an end, I promise. Some of you may ask about getting guidance.

But as you know, newly public companies do not typically give guidance this early after an IPO, especially after making multiple acquisitions which are still being integrated. Therefore, we will not be giving guidance at this time.

However, we are extremely confident in our leadership team in our vision, and in our ability to execute and feel incredibly optimistic for the future. So let me get off my soapbox and turn the call over to Marco Fregenal, our President and CFO. Marco, it's all yours, brother..

Thank you, Josh. I'll start by discussing some of our key financial results for the quarter. Our Q2 revenues grew 72% year-over-year to $49.6 million from $28.8 million last year, same quarter.

The increase resulted from growth in real estate transactions, average revenue per transaction and their contribution from their recital, which is part of the Fathom family for the full quarter. Supported by our ongoing strong residential real estate market and continue rising home prices that we've seen.

As a reminder, home sales in Q4 and Q1 are seasonally lowered during than compared to the rest of the year. GAAP net loss for the quarter was $3.4 million or a loss of $0.25 per share, compared with a GAAP net loss of $43,000 or breakeven per share for the same period last year.

Our weighted average outstanding share count increased 35% between the period-to-period primarily due to the impact of our IPO and acquisition. Adjusted EBITDA loss or a non-GAAP measure was $2.5 million for the first quarter versus an adjusted EBITDA profit of $135,000 last year.

G&A expense increased to $6.2 million compared with $1.8 million last year, due mainly to the complete acquisitions, costs related to being a public company and an ongoing marketing effort to support our growth.

G&A expense is expected to increase going forward for the same reasons as we continue to scale and integrate all the business that we've just acquired.

Expenses related to marketing activities increased to $402,000 from $230,000 in last year's first quarter, mostly driven by growth in our talent acquisition team and higher levels of investment in advertising and PR. We believe this efforts have been very fruitful.

We closed approximately 6,900 real estate transactions this quarter, a 60% increase from the same quarter last year. This increase is a great example of the power of the truly disruptive model that we have.

The fact that our transaction growth is higher than the agent growth proves the point that we have made in the past that agents will come to Fathom and will close the market transactions after they join Fathom, because they invest their savings into their business, and therefore creating more transactions.

Q1 average home prices increased to approximately $284,000 from $241,000 Q1 of last year. As we discussed earlier, our agent network increased to just over 6,000 agents, an increase of 42% from the 4,250 agents a year ago.

Our balance sheet remains strong, it bears repeating that we will always be a good steward over your investment in Fathom, reiterating what Josh has said, we're not believers in growth simply for the sake of growing.

Now our first quarter was a fantastic quarter, it was actually the best combined showing of our KPIs ever in the history of the company. For the second quarter, we expect to see significant year-over-year revenue growth, primarily as a result of the contributions from the acquirer companies.

In fact, our financial statements will look very different next quarter, as we work to provide you with additional transparency in all the different businesses.

It is important to remember, however, that as I said earlier, the G&A costs will continue to increase as a result of other acquisitions, public company costs, and, of course, further investments in our growth.

We do believe that future remains extremely bright, especially as we continue to integrate those acquirer businesses and identify new opportunities to continue our growth. Now I'll turn the call back over to Josh, and he would - and then we'll take your questions..

Thank you, Marco. As you can tell, we're incredibly excited about our prospects. We've been working hard to deliver on our promises and grow Fathom in accelerated and yet sustainable fashion for long-term, right. This is not a short game. This is a long-term operation and we're excited about it.

For those of you who are our shareholders, thank you for trusting and being part of our Fathom family. Now, operator, we're now ready to open up the call to questions..

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Darren Aftahi with ROTH Capital Partners. Please go ahead..

Hi, this is [Dylan] [ph] on for Darren, thanks for taking my questions. First one, with all the acquisitions that you've been working on and completed.

Could you talk a little bit about the timeline for when you expect all these to be integrated into the market you currently covered? I think you said there's like, you're up to 29?.

Hey, Dylan. That's a great question. Thank you for asking. It's going to take some time, right. So if you recall, we're now in 29. Just real estate Fathom, the real estate companies in 29 states. And then we are already, Verus Title is already operation in about four or five states in which Fathom is there operating.

So we're rolling out Verus already, we have one quarter of Verus. And we are quickly already implementing Encompass and our DIA into the other markets. So if you think about the rollout, right, it's going to take some time to roll out all these businesses in every state, right. It is going to take some time to do that.

Having said that, we will quickly see results of the rollout, right. So it's clearly in Q2, we'll see an increase in revenue from these businesses as they are existing businesses. And then we'll go ahead and see additional revenue coming in from the integration with Fathom. So think of it as layers to the increase in the financial statements.

So the first one is, of course, just aggregating the revenue from all the businesses. And then the second one will be the additional revenue coming in from the integration and the tax rates that we'll see going forward. So it will take some time to roll this out across all the states.

And then on top of that, you know, Fathom needs to continue to add another 21 states to our rollout. So this rollout will take different multiple phases. But we are already seeing early signs of great results.

And I think when we show our Q2 numbers, we feel very good about those and I think we'll begin to be able to show how we are rolling out these acquisitions and how well they integrate with the Fathom Realty division of our company..

And one thing I'll add to that, Marco is the fact that now as we roll out our technology more and start fully integrating those companies into our technology through our real estate operation, we'll start to see the attached rates and the growth grow even faster, we believe. So it takes some time.

Number one, to get those markets open, get the, you know, get the licenses for those markets, get them introduced to our agents. And then once we get in, you know, integrate the technology, then we'll be able to start capturing the leads in other ways as well.

So not just purely reliant on our agents to send business over, but also capturing it on our own as well..

Great, thank you.

What is the current cash balance as of today? I mean, post all the acquisitions? And then how much revenue the title amount for in Q1 of the $49.6 million?.

Marco, I think you're muted..

I apologize. Our cash position as we stated on March 31st, our financials is approximately $25 million. And then there's some - actually almost $26 million with about $1 million dollar in restricted cash. The various percentage of revenue for Q1, it was about $400,000 or so. Q1, again, is the lowest revenue quarter.

So it's about $400,000 in terms of Q1..

Are you willing to share what like cashes in currently?.

Not at this point..

Got you. One more for me, and then I'll turn it over.

How should we think about some of the add-on businesses going forward in terms of them being a little bit more profitable? And your thought process between flowing that profit down to the bottom line and investing for more growth?.

That's a great question. And I think each business is a little different, right. So and keep in mind again, that we are going into the two busiest quarters of the year, right, Q2 and then Q3 being the business quarter, right. And so we look at each business in a very different manner. We have to make some investments in the mortgage business.

But for mortgage and title, we will see an impact to the bottom line in probably by Q3, Q2, we're still making some investments. So probably by Q3 we'll start seeing an impact, a positive impact in the cash flow of the business from two businesses.

From the IntelliAgent, which is currently the LiveBy, we're still evaluating how quickly we're going to grow the business as there are enormous potential for their business as well. And as you know, that's a fast business. It's a recurring revenue businesses. And we will see how that affects our business.

And then from an insurance perspective, the insurance business is a very interesting business, because it's also a recurring revenue business. And at this point, we're probably running that business at a breakeven going forward.

But we'll see and that's just a matter of controlling the growth of that business, that business can grow significantly for us, when we start seeing an attach rate coming in from the Fathom, the Fathom Real Estate division. But again, I, from a mortgage and title, we will start seeing a cash flow impact in Q3..

I want to kind of, I know the question you're asking, Dylan. I know I didn't quite give you what you're looking for and apologize for that. But I will say that, look, our cash position remains really strong. And we're committed to actually adding to that position by focusing on that you know the cash generation.

So one thing you'll remember is that, this industry is cyclical and seasonal, rather. And so you know, as we go from Q1, which tend to be the lowest, and we start moving to Q2, Q3 and so forth, we're able to generate more revenue and possibly to add to that cash position, so we feel really good about it..

Great, appreciate it, guys. Thank you..

[Operator Instructions].

You know, Chad, I'm just - we're so good on our call that they - no one has questions, because we just - we've answered them all ahead of time..

Thank you, sir. And we do have a question and it's from Will Hamilton with Manatuck Hill. Please go ahead..

Yes. Hey, Will..

Hey, guys. Just a question on SG&A. Apologize if I missed this.

But can you break down the $6.2 million a little bit more in the sense of maybe what was related to the acquisitions versus other growth investments? That didn't look like in the EBITDA breakdown that had anything's broken out?.

Yeah. Hey, Will. Good to hear from you. So that when you look at the $6.2 million - a $6.3 million G&A - a $6.2 million from G&A. About - we spent about between $1 million and $1.2 million in acquisitions and related acquisition costs. Some of those costs are legal fees that are actually for the acquisition that happen in Q2 as well.

So when you look at the total costs in G&A related to, everything related to acquisitions, it was about $1.2 million. And then you can also see there's an increase in stock compensation also related to, which is, the majority of the increase is related to acquisitions as well for another $500,000 or so.

So when you put all that together, you're looking about $1.6 million between all the costs related to the acquisitions, not only in Q1, but in Q2 that closed in Q2 as well of the compensation for stock related to the acquisitions.

Having said that, we also invested, because as you know, this is a seasonal business, right and then Q2 and Q3 are the busiest month for us. We've also made investments in staff preparing for that increase in business, we also made investments in staff preparing for the aggregate of having all the other businesses as part of Fathom.

So their investments made also in staff, and then preparing the company for having these multiple divisions. So we can benefit from the attach rate as quickly as possible.

So the increase in G&A was related to the acquisitions, as well as an increase in staff preparing us for having all these additional business, so we can benefit from them as quickly as possible..

Okay, it's helpful.

So it's like - on a go-forward basis like $4.5 million to $5 million, maybe reasonable? I know you don't like to guide, but just yet in terms of a run rate?.

That's a great question. So keep in mind that, once we add all the other business, they have G&A costs as well, right..

Yeah..

And so the number will be larger than that, because you know, we have an insurance business, a mortgage business, the title business is going to increase as well. So, the number will be bigger than that just because we're increasing and adding all those businesses, but you also get the revenue, right.

And so there will be significant revenue added as well that will correlate to the G&A.

As a percentage of, when we look at G&A as a percentage to the revenue that's going to increase in the next two quarters significantly compared to this, the G&A percentage will decrease, right, because you don't have these additional costs that are related to the acquisition, but as a whole, the number will increase, because again, we're adding all these other businesses that have G&A expenses as well.

But again over time, the G&A percentage will decrease. And again, keep in mind, that Q2 and then Q3 have much stronger revenue numbers for us. And I think that's when we're start seeing, again, the benefit of having all these businesses, as well as the increase in the tax rate.

And so, Josh and I are very excited about how, by having all the companies that we always wanted to have as part of our family, how this is going to affect the bottom line of the business. And so I think that once we're done with Q2 and Q3, I think everyone will be very pleased about the results..

Okay. Thank you..

Thank you..

[Operator Instructions] Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Josh Harley for any closing remarks..

Thank you, Chad. I really appreciate it. And, of course, thanks to all of you for joining our call today and for your continued support. You know 2020 was a watershed year for us and Q1 proved that we're just getting started. You know we're extremely proud of what we've accomplished.

And we look forward to taking additional actions that will add even more value to our company and to benefit all of our stakeholders. We're excited about the long-term prospects for our company and we anticipate even more growth ahead.

Now with our culture of service and everything that we do at Fathom, we will also and always focus on enhancing value to our agents, and, of course, to our shareholders. So have a wonderful evening. And thank you again..

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..