Fathom Holdings Inc.

Good afternoon and welcome to the Fathom Realty Holdings first quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Roger Pondell, 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 Pondell with Pondell Wilkinson, Fathom's Investor Relations firm. It's my pleasure to shortly introduce the company's founder and CEO, Josh Harley, and Fathom's president and chief financial officer, Marco Freschinal. 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 cost 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 gap measure is included in today's press release, which is now posted on Fathom's website. And with that, it is my pleasure to turn things over to Josh Harley. Josh?

Thank you, Roger, and of course, thank you to everyone who's on today's call. Our entire team really appreciates your support and your faith in us. We're really proud that you're part of our Fathom family. Now, 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 fighting machine would be an understatement. On our very first earnings call, in fact, just eight months ago, I made the statement 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. add 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 an 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 expansion of our agent network, improved agent 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 are 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 Fountain'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 and 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 Intel Agents. 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 Fountain 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 excess of spending that usually accompanies growth. 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' transactions and revenues. 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 small business owners to our low-cost platform and then generate more revenue from a host of ancillary services that allows us to better monetize our growing agent base and the transactions they bring with them. I couldn't agree more with his assessment, and I'm glad that he said it so that I didn't have to. 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 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 advantages that IntelliAges 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. 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 Neighborly, our home search technology platform, and RealResults, 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, highly attractive to real estate agents. In fact, for Q1, we saw 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 was only $920, making our break even on each agent less than we would make on just a first sale. And that's a tremendous claim 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 of that lifetime value to our cost of agent acquisition is over 20X. And that's just, by the way, that's 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. Now, by the way, we expect that our cost of agent acquisition may increase as we devote additional resources and 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 join Fountain 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 at 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, I'm also proud that we have one of the lowest agent attrition rates in the industry. Glassdoor is nice, but if you want a true representation of whether agents are happy, our agent 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 our agent attrition, with only 1% of the agents who leave, of 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 company. 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 through our technology to begin disrupting those verticals as well. And as you can probably hear in my voice, I'm stoked. I'm even more excited today than I've 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 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 in 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 their revenue by selling more homes or decrease their costs. And of course, the biggest cost of an agent is usually the 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 lost 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 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. Veris 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 costs significantly while offering more robust tech to our agents to help them really grow their business. Intel Agent 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 our agents. Plus, we can now begin to identify potential clients for our mortgage, insurance, and telecom companies long before they're under contract and even before an agent has made an introduction. And that's really the holy grail for these types of companies. Now, clearly, we've made a lot of acquisitions in a short period of time. At this point, we have all of 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 fabulous growth as we 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 roll-up strategy by any means or any strats of the imagination. I don't want to play that game, especially when we're able to grow organically and and so effectively, but acquisitions make a lot of sense in opening new markets to hit 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 stock. So we take dilution very seriously. Now, I'm coming to an end, I promise. Some of you may ask about giving 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 Fresno, our president and CFO. Marco, it's all yours, brother.