Fathom Holdings Inc.

good afternoon and welcome to the fathom holdings inc second quarter 2021 earnings conference call all participants will be in 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 touchtone phone 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, Ali, and welcome everyone to Fathom Holdings 2021 Second Quarter Conference Call. I'm Roger Pondell with Pondell Wilkinson, Fathom's Investor Relations firm, and it is my pleasure shortly to introduce the company's founder and Chief Executive Officer, Josh Howley. and FAMS President and Chief Financial Officer, Marco Fresno. Before I turn things over to Josh, I want to remind all listeners that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the risk factors section of the company's IPO registration statement, its latest form 10-K, and other company filings made with the SEC, copies of which are available on the SEC's website at www.sec.gov. 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. Please also note that during this call, we will be discussing adjusted EBITDA, a non-GAAP financial measure as defined by SEC Regulation G. The reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure is included in today's press release, which is posted on Fathom's website. And with that, it was my pleasure to turn things over to Josh Howley. Josh?

Thank you, Raj. And of course, thank you to everyone who's on today's call. Our entire team really appreciate your support and your faith in us. We're really proud that you're part of our Fathom family. Quarter over quarter, our results continue to demonstrate the power of our truly disruptive model. And I'm proud to stand here and share our incredible growth in every key metric of our business. And to know that we did it without using gimmicks to get here. We're winning the right way through hard work, continuing true innovation, and providing really long-term value to our agents, our employees, clients, and our shareholders. As you saw, year over year, our revenue grew by 118%. Our transactions grew by 74%. And our agent count grew by 53%. And all of our publicly traded real estate companies out there, of all the companies out there, only a couple of the companies performed at this level, and they've been public for a very long time, while we've only been public for a year. We're killing it, and we're just getting started. Too many people try to compare us to other real estate companies out there, but that's a huge mistake in my opinion. And I get it, though. They don't really understand who we are yet, and I believe the operative word here is yet. A few more quarters like this, and I think that people will truly understand that our business and our value, and really value us accordingly. If you really dig into our story, you'll realize that not only have we generated impressive performance to date, but still have an incredible path ahead of us. Fathom is unique in that we continue to grow at these incredible rates while also quickly becoming a profitable company. You have to ask yourself, how many of our competitors actually have the ability to double their business and ultimately double their market cap? Then ask yourself whether Fathom can do that. And I believe we can. More importantly, I believe that we can actually grow our company 5X over the next five years. The question is, how do we get there? As you know, we recently acquired a mortgage company, a title company, an insurance company, a lead generation and lead nurturing company, and two technology companies. One specializing in big data aggregation and content creation, and the other specializes in home search and CRM tools to really help us attract more buyers and sellers, which also helps us attract more agents you know we didn't take the easy way these aren't joint ventures we fully own each of these companies that means that we're not giving up half the revenue or profitability it means that we have greater control over the quality of these services and that matters it matters to our clients it matters to our agents and it should matter to you too because that is how we believe that we can achieve a greater tax rate for our new businesses so clearly can you tell them on fire for this company Look, I know I'm not the only one. We're all incredibly excited. We have an incredible team of leaders who are executing our vision every single day, and they're just as fired up. We have nearly 7,000 agents with one of the highest agent retention rates in the industry. Our agents are quickly becoming evangelists for the company, which we believe should further accelerate our growth over time. And I believe that Fathom is a company you want to bet on, not against. To say that we've been busy building Fathom up to be the ultimate filing machine would be an understatement. On our very first earnings call just a year 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 deliver on our promises. As I mentioned on our last earnings call, we now have all the puzzle pieces we need to make a real and significant change in the real estate space. We may be small compared to some of these old guard brands, but we have an elite team and we're growing at a pace that will make people notice. A lot of companies sacrifice profitability for growth, but I'm proud to say that we don't have to operate that way. We can do both. Our cash position remains strong and we're committed to adding to that position by focusing on operational cash flow generation. And we're moving in the right direction because we're disciplined and we're good stewards of the money that you've entrusted us with. Since going public, we have substantially increased revenue, continued the expansion of our agent network, improved agent retention, entered two geographic markets, and completed strategic acquisitions that further solidify our market position. That's an awful lot to accomplish in just one year, but it demonstrates our focus, our commitment, and our ability to get things done. 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. Most of these possible headwinds, however, can actually prove to be tailwinds for Fathom's growth. Now, before I go too much further, there are a lot of people listening right now who really don't know our story or understand why we're different. I know some of you heard this before, sorry, but until I know that everyone gets it, I'm going to keep beating this drum. although this time I promise I'll keep it short. To fully understand Fathom, it's important to understand that, like many of our competitors, Fathom Realty is a full-service 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 our proprietary cloud-based technology called IntelliAgent. This technology platform allows us to operate virtually while providing our agents with all of the major functions they could otherwise get from a traditional brick-and-mortar company. Not only does our technology aid our agents, it also allows them to streamline and automate our operations, significantly reduces costs and personnel requirements, and allows us to scale and expand our business into new markets without the excessive spending that usually accompanies growth. This fact is why we can charge our agents one-fifth, a fifth of what many of our competitors charge their agents, and yet get the profitability significantly faster than they ever did. 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 agent network, transactions, and revenue. I want to grow our profitability, and I believe that we're on the right path to do just that. As a result of our technology platform and streamlined operations, we're able to charge our agents a fraction of of what other brokerages charge their agents, putting more money into agents' pockets to help them reinvest in and grow their businesses. This is exciting and important because it allows us to grow our agent base and transactions quickly and organically. Now, 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. I want to reiterate that last point. We don't want to be just another brokerage hanging agents licenses. There's too many of them already. Our focus is not just in adding more agents, but also in helping our agents become more productive and close more sales. We believe that we can accomplish that by providing more training, 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 even more time to network and sell. Now, as you saw from our acquisition of Neighborly, our home search technology platform, and of course, from RealResults, which is the lead generation, lead nurturing company that we acquired, in time, we also intend to generate real estate leads for agents, which in turn should help our agents close even more sales, help us to 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, as I mentioned, for Q2, we saw 53% growth in agent counts, ending the quarter with over 6,950 agents. One of the beautiful things about our growth is that our cost to acquire just one agent during that period was approximately $950, making our break-even on each agent the same as what we make on just our first sale. I also want to point out that the lifetime value of an agent is over $18,000 on just on just the real estate side of the business. The ratio of that lifetime to value to our cost of agent acquisition is over 20X, and that doesn't take into account revenue from our mortgage, title, and insurance companies, or really the potential revenue from the leads that we can generate for our agents. By the time, by the way, we expect that our cost of agent acquisitions may increase as we devote additional resources and investments to help our growth and really help drive our growth. But again, at 20 times LTV to CAC, I think we've got plenty of room to work with. Now, we often hear our agents say that they joined Fathom to earn more commission. But ultimately, they stay for the culture. And I'm incredibly, incredibly, incredibly proud that we have one of the lowest agent attrition rates in the industry. If you want a true representation of whether agents are happy, low agent attrition, such as Fathom has, is really the best indicator. And I'm extremely proud that our retention of higher producing agents improved greatly between 2019 and 2020. And we're seeing the same improvements so far in 2021. This quarter, we improved our agent attrition rate by around 20% for the quarter, right, from 1.7%, which is already ridiculously low, down to only 1.37%. In fact, agents who close less than one sale per year make up over 75% of our agent attrition. with only 2.5% of our agents attrition coming from agents who close 10 sales per year. Now that's a minuscule number at just 2.5% of 1.37%. Like tiny and we're killing it. We're doing an amazing job and I'm very proud of our team. I'm not sure why other real estate companies hide their agent attrition numbers, but I can tell you right now we have nothing to hide. Now I understand that the real estate market is crazy and there's, there's a lot of uncertainty. With that said, I do believe that these market conditions will prove to benefit Fathom's real estate business, while many others find it to be a headwind. For example, with COVID-19 and now, of course, the Delta variant in play, many real estate offices are either staying closed or considering closing again. Agents are beginning to ask themselves why the heck they're still paying their brokers monthly fees and yet without the use of their office, on top of their high commission splits, right? When they can get everything they need from Fathom and in a small flat fee, Fathom becomes more and more attractive as time goes by. Even worse for those who don't operate virtually, these offices may be closed, but the brokerage is still having to pay that rent. We don't have that issue. A few people have talked about possible housing bubbles, so I'll go there next. But most experts effectively demonstrate that this market is different. And we personally do not expect to see a bubble. We do, however, see home sales and prices normalizing. We believe this is healthy. In fact, we actually may see home prices come down a hair, which is important for first-time home buyers. That's a good thing. And as I've mentioned many times, we do believe that crazy markets are to fathom's advantage. In fact, I want to spend just a minute on that point because I think it's more important than people realize. I know that I briefly touched on it earlier, but I can't stress this enough. While other real estate companies may see strong headwinds, As prices rise or fall, as mortgages rates rise, as housing remains in low supply, I believe strongly that Fathom could significantly benefit from it. You see, there's only two ways to make more money for real estate agents. You've got to increase your revenues by selling more homes, or you decrease your costs. And the biggest cost an agent usually has is their broker 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 shipping market conditions but moves over to Fathom from a brokerage who's charged them a 30% split, they will actually earn around 9% more income. That sounds like a win to me, and I believe most agents would completely agree with that. Even if home prices fall, many of our competitors would likely see a strain on their profitability, while that would not be the case for Fathom. We earn the same fee from an agent regardless whether the agent earns $10,000 in commission, $9,000 commissions, or even $6,000 in commission. Now, this should also allow us to continue to take more market share quickly from real estate companies with an old traditional commission model. As our agent base grows, those agents bring more transactions with them. As we add more transactions, we have more opportunities to capture mortgage, title, insurance revenue, turning a possible headwind for others into a tailwind for Fathom. Now, Fathom's ability to attract even rather ever-increasing number of real estate agents by providing them with greater income potential along with technology, training, and support they need to grow their business is even more evident today, especially during these unprecedented times. This fact continues to drive our growth. As I mentioned earlier, our results and key performance indicators for Q2 were outstanding. Clearly, Fathom is moving in a very positive direction, attracting higher-pricing agents and selling more homes in higher-priced markets, which, by the way, should also significantly benefit our mortgage, title, and insurance companies, as well as the leads business that we're currently building. Fathom Realty now operates in 31 states and the District of Columbia, and we plan to open several more states in the coming months. One of the most recent states we opened was through an acquisition of Epic Realty in Idaho. I've had the pleasure of spending time with many of their agents, and I could not be more pleased at the caliber of these agents and the staff that manages the day-to-day operations. We really scored huge in this acquisition. It's more of a merger. I hate to use the word acquisition, but we love these people, and they've been an incredible part of our Fathom family already. We also expanded deeper into the Las Vegas market when we brought over Flavio Jimenez and his team of 20 agents to help us lead a new Hispanic division at Fathom. We recognize that there are many underserved communities in this country, and it's refreshing. It really is refreshing to see so many companies take more intentional steps to address these issues. However, we believe that the Spanish-speaking community is still rarely talked about in the real estate space, and it's our desire to fill that void. Our industry needs to evolve in new and creative ways to remove barriers and meet the growing needs of demands of the Hispanic homebuyers. Now, speaking of markets, Encompass Lending, our mortgage company, is now operating in 43 states. Dagley Insurance is in 47 states. And Verist Title is in 19 states. Each of these fathom companies have incredible leadership teams to help guide their growth, and it gives me great confidence that we'll be able to accomplish our long-term goals. Our technology platform allows us to eliminate our reliance on third-party technology and providers, which reduces our costs significantly while offering more robust technology to our agents, employees, and our clients. IntelliAgent gives us the power to really control the full lifecycle of the home buyer and seller and gain a greater understanding of our data and how to use it to further improve our offerings 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 even under contract. even before an agent has to make an introduction. Speaking of introductions, our mortgage company, Encompass Lending, is growing quickly and with significant potential. This operation for Fathom, we made several strategic investments and improvements in both leadership and operations to prepare our mortgage company to capture even more market share. So great strategic investments in this company. We're very excited about it. We also enjoyed significant growth in both title insurance, in fact, Our title company, Varus Title, is growing exceptionally as well, and I could not be more proud of our team's efforts. Plus, the deeper I dive into the insurance industry, the more encouraged I am by the incredible effect that Dagley Insurance can have on our long-term profitability, while also helping to balance out slower months due to the cyclical nature of the real estate industry. For Intel Agent, we've actually begun generating meaningful SaaS revenue starting in Q2, and we plan to roll out another SaaS offering in the coming months called Live by Local, which we believe will be available to even more agents and brokerages. We're excited that for the first time, our SaaS revenue is over $500,000, and that's before we even started licensing our core product. Now, I've had several people ask if we plan to make any more acquisitions. Clearly, we've made a lot of acquisitions in a short period of time. And at this point, as I said, we have all the puzzle pieces we need. We're working diligently to put the puzzle pieces together in the most effective way possible to ensure really strong attach rates and a great experience for our clients and our agents. Moving forward, acquisitions we consider will primarily be focused around 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 you've entrusted us with. We intend to grow strategically. This is not some roll up strategy and we have no intention of overpaying for growth, nor do we like dilution any more than you do, especially with my own family owning over 50% of Fathom stock. We believe in the company and we take dilution very seriously. Now, To address questions about our ownership in recent stock sales, let me point out that my father-in-law, Glenn Sampson, who is also on our board of directors, is one of the insiders that's been selling stock. He was an early investor in Fathom. He's now in his 80s. Like me, a large portion of his network is wrapped up in Fathom stock, but he's only selling a tiny amount of his stock each month. And that's true for me too. Although we may sell small amounts of stock from time to time, through a qualified 10b5-1 plan, I want to assure you that this is minimal prudent diversification that has absolutely nothing, let me repeat that, absolutely nothing to do with our view on Fathom's future. We still own nearly 50% of Fathom's stock, and the company's success remains our focus. I think my comments today and our recent results prove not only how excited we are, but how committed we are to continuing on the growth path we've set. Now, honestly, We couldn't be more excited for the future of this company. All right, all right. So let me get off my soapbox and turn the call over to Marco. Marco, it's all yours.

Thank you, Josh.

As we indicated last quarter, our financials will look a bit different this quarter in order to provide additional visibility into the many businesses we have acquired. And I'm going to take some time here to review the numbers in more detail with you. Total second quarter revenues grew 118% year-over-year to $84.2 million from $38.7 million. The increase resulted from growth in real estate transactions, average revenue per real estate transaction, and revenue contributions from Encompass Lending, which is a mortgage company, IntelliAgent, which is our SaaS technology company, Bagley Insurance, which is an insurance company, and finally, Verist title, which is our title company. Gap net loss for the quarter was $2.1 million, or a loss of $0.15 per share, compared with a gap profit of $161,000, or $0.02 per diluted share for the same period last year, which was, as you know, again, prior to our IPO. The change from last year's second quarter was due primarily to increases in costs related to operations, marketing, G&A, and expenses related to being a public company. partially offset by a tax benefit of approximately 2.6 million attributable to the release of the company's valuation allowance against its deferred tax access as a result of the company's second quarter acquisitions. Adjusted EBITDA loss, which is a non-GAAP measure, was 2.3 million for the quarter versus an adjusted EBITDA profit, $329,000 for last year's second quarter, again, prior to our IPO. And while we recorded a loss in total adjusted EBITDA, our real estate division was profitable, which I'll discuss in a moment. In Q2, our G&A decreased to 11.2% of our total revenue from 12.3 during first quarter of 2021. Total G&A expense increased to $9.4 million compared with $2 million last year due mainly to the completed acquisitions, costs related to being a public company, and of course, stock compensation. As we discussed in our last call, G&A expense is expected to continue to increase going forward, but as we continue to scale and integrate our vertical businesses. However, as we have demonstrated in Q2, G&A as a percentage of total revenue should continue to decrease. Expense related to marketing activities increased to $378,000 from $138,000 in last year's second quarter, mostly driven by growth in our talent acquisition team, higher levels of investments in advertising and PR, to help attract new agents. Now I'll review some of the key results from our business units. As Josh indicated earlier, our real estate division finished the quarter with 6,950 agents, an increase of 53% of the same period last year. We closed over 10,000 real estate transactions for the quarter, a 74% increase from the same quarter last year. This increase is a great example of the power of our truly disruptive model. The fact that our transaction growth is significantly higher than our agent growth proves the point that we have made in the past, that agents will close more transactions after joining Fathom by investing their savings back into their businesses. Perhaps the most significant accomplishment in the quarter was that our real estate division reached profitability with almost $500,000 in the trust that he bid up. Now, this should not come as a surprise to both of those of you who have been following us since the IPO. Josh and I have stated that we believe that our real estate business would reach break-even between 9,000 and 10,000 transactions, and I think we have been consistent on delivering on what we say. We made significant investments in our mortgage operation. For the quarter, revenues exceeded $1.5 million with an adjusted EBITDA loss of $890,000. Please keep in mind that we own this business only for part of the quarter, and at this time we believe that we made the necessary investments to grow the business, including adding to the team, applying for necessary state licenses, and enhancing the systems needed to be able to deliver rapid growth going forward. This very strategic investment should bring a greater return to our shareholders over time. In Q2, the revenues of our IntelliAgent SaaS platform increased to just over half a million, with an adjusted EBITDA loss of $307,000. Currently, our primary Intel agent product is our offering LiveByData solution. As Josh indicated, in short order, we'll be releasing a new offering called LiveByLocal, which will deliver hyperlocal information at the neighborhood level. This is an exciting new offering, and we expect our SAS revenues to continue to increase after this release. Our insurance company and title companies continue to grow as well, with combined revenues of almost $2 million for the quarter and adjusted EBITDA and loss of just about $21,000. Going forward, both businesses should contribute significantly to our adjusted EBITDA. Our balance sheet remains strong. It bears repeating that we will always be a good steward of your investment in FADM. Reiterating Josh has said many times, we're not believers in growth simply for growth's sake. By any measure, our second quarter is a fantastic quarter. We deliver profitability for our real estate division. We continue to successfully integrate all of our new businesses and increase their revenue. We made the necessary investments to increase capacity at our mortgage company. We lowered our agent turnover to the lowest number in the company's history. I am incredibly proud of our team. Now, as for guidance, as we are concluding our first year as a public company and have achieved the strategic acquisition goals set for at the time of IPO, we're now in a position to begin to give investors a better view of how scalable our business can be, and we feel confident that we can now offer long-term operating targets. Assuming that we can reach between 100,000 and 110,000 transactions per year, we believe that we can generate adjusted EBITDA exceeding $40 million per year. While we are not prepared to provide a timeline for this transaction milestone, we do feel confident that we can maintain the strong transaction growth that we have demonstrated in the last year since our IPO. With that kind of growth rate in the years to come, it's possible that we could see hundreds of thousands of closings per year. I want to thank our entire team of employees and agents for an incredible quarter. Achieving this impressive result is only the direct byproduct of their hard work. Our employees and agents share the same vision, passion, culture, and work ethic as we do, and we can't even wait to see how much more they can accomplish. I'll now turn the call back to Josh so we can answer your questions.

Thank you, Marco. As you can tell, we're incredibly excited about our incredible long runway for the company and our future prospects. We've been working really hard to deliver on our promise to grow Fathom in an accelerated and yet sustainable fashion for the long term. For those of you who are shareholders, thank you for your trust and being part of our Fathom family. All right, operator, we are now ready to open the call to questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. Our first question today comes from Darren Aftahi with Roth Capital Partners.

Hey, guys. Thanks for taking my questions, and congrats on the quarter. So thanks for the detail of segment breakout and the long-term targets. I just wanted to kind of make sure I had the growth assumptions right on your quote-unquote guidance. So is the right math taking kind of the trailing 12-month transactions since the IPO and then kind of growing over the prior year, I think they kind of come up with 59% growth. Is that correct? Yes. Yeah, that's correct. Got it. So if that math is right, it kind of implies roughly two and a half years to get to roughly 100,000 transactions. I guess my question – go ahead.

So a couple of things. It is looking backward, that average, but I think you can see, if you look at the last three quarters, when you look at transaction growth, right, you're looking at Q4 was 50%, Q1 60%, and Q2 74%. So you can see that the transaction growth is also accelerating, right? So it is taking consideration of the past, but it's also taking some consideration to the acceleration of the transaction growth as well.

Fair enough. So it takes some time to get to that 100,000 transaction and 40 million of EBITDA. My real question is, what's the underlying attach rate assumption on your various service portfolio to get to that number?

So the way that we look at this is more of, if you look at the 100,000 transactions, is to look at around 10% across the board. Now, keep in mind that some businesses are going to do more than 10%, some are going to do less than 10%, but we are making assumptions using a modest attach rate of 10%.

Got it. That's helpful. Thanks. Beyond some of your tentpole geographies like Texas and North Carolina, where are you seeing over-indexed traction in some of your newer markets? That's a great question.

Honestly, we've seen growth everywhere right now. The industry, as you know, is really hot. Now, keep in mind that we are not, you know, we currently don't have a presence in the Northeast, right? We're not in New York, Connecticut, Massachusetts. So we're not in some of the areas that we've seen transitions of people migrating from, right? We are primarily in the states where people are migrating to. So, for example, if you look at our recent merger with Epic in Idaho, Boise, Idaho, or the state of Idaho, is one of the top 10 new markets in the country in terms of growth, right? So we see significant growth in Idaho. We're seeing significant growth in Florida, Tennessee, Texas. So there are a variety of states in which are increasing significantly. And to a certain extent, we have limited exposure in the states that are losing market share, in a sense, against the whole country, right? So we're not, again, in the Northeast. But We're seeing really there are many, even North Carolina, the Raleigh area is seeing significant increase in people moving into the area. So there are many markets that are seeing a significant increase. Certainly the California market, the population is moving away from California, certainly in the Northeast to a certain extent. But we have at least eight or nine markets that we're seeing some significant increases.

And we're also seeing significant increases just in the markets we're currently in, just really starting to see some incredible penetration in each of these markets we're in.

Great. And maybe if I could put you on the spot, you're sort of 12 months removed from your IPO. What are kind of your one, two, or three top strategic priorities kind of over the next 12 months if we're talking, you know, August 2022?

I think priority number one right now, which, by the way, when I talk about priority one, two, and three, it doesn't mean we have to do one at a time. We've got an incredible team that we can do all of these at the exact same time. But there's two huge priorities. One is we've got these great companies now. Fathom is no longer Fathom Realty. Fathom is now Fathom Realty, Encompass Lending, Verist Title, IntelliAgent, Dagley Insurance. We've got all these companies now. So to go back to be able to get that patchwork we talked about, it's about fully integrating these companies into our technology, fully integrating the companies and their employees into our real estate business to where they became a really tight, cohesive unit. And that's really focus number one is making sure that we're not playing loose with these acquisitions. We want to do it the right way, take our time, do some very strategic investments into making sure that we can accomplish that goal. And so that's a huge focus for us right now. And the other piece is that we want to continue to grow. I mean, I'm not going to lie. Obviously, we want to grow just like everyone else does. One of the mistakes I think a lot of people do is they just grow for the sake of growth. They're just trying to add body count. And then what happens is you have a lot of agents who are closing no transactions, and it starts to diminish your transactions per agent. It starts to hurt your reputation. That's not who we are. I'd rather have 53% increase in agent count, agent growth, And an 80% increase in transaction growth, then they have it the opposite, right? An 80% increase in agent growth and a 50% increase in transaction growth. So we want to grow with purpose. We want to grow with the right people that help us maintain a strong brand, a great reputation, because agents care. The agents care, the loan officers care, the insurance agents. Everyone cares about the reputation. It matters. So the more we protect that reputation by growing with the right people, I think actually the faster we'll actually grow. So... it kind of goes two sides, but number one, I think is, is making sure that we can fully integrate the companies. Number two is making sure we continue growth with, with continue our growth, but in a way that, that makes a lot of sense. And of course, number three, and again, I'm not saying one is more important. The other is making sure that we can be incredibly profitable. You know, we don't want to be that company that is just growing, growing, growing, and never has a path of profitability. The fact that our real estate business was profitable at just 10,000 transactions this quarter is You know, that speaks volumes. How many other real estate companies can do that? How many other real estate companies are profitable at 100,000 transactions per quarter? Can you name one? There's not many. In fact, I can't name off the top of my head. So I think that's incredibly important. So profitability, attach rates, you know, really integrating the companies and continuing that growth, strategic growth. Mark, is there anything you want to add to that?

No, I think we're good. I think those are it. Yeah.

In other words, Mark is saying, I know.

Thanks for the detailed response. I'll pass it on. Thanks.

Thank you, Dennis. Good talking to you.

As a reminder, if you have a question, you can press star, then 1 to join our queue. Our next question comes from Tom White with DA Davidson.

Hey, Tony. Good to hear from you again.

This is Kevin Robinson on for Tom. Um, I was just wondering if I could have two questions for your time. So I was wondering since you're going, since going public, you've added, you know, your encompass title. Uh, I mean the various title encompass lending, exactly insurance. And I've seen incredible growth through that. I was wondering if you could talk a bit more on the near term and longterm growth for those plans and what you expect these ancillary services will represent as a percentage of your business. And I have a followup question after that.

Sure. Uh, Thank you, Kevin. Look, we are going to see significant growth. I mean, one of the things that we did, as you saw, we made a significant investment in encompassed lending in Q2. We felt that for us to be able to see the kind of growth that we want to see, we wanted to make that investment. So I think that revenues going forward for all of our, as Josh indicated, that is going to be a key priority for us. I think we're going to see significant growth. revenue growth going forward for the next 12 to 18 months. For us, these acquisitions are very key in terms of making Fathom a very profitable company. So if you look at the statement that we made earlier that we believe that between 100 to 110,000 transactions, we believe that our adjusted EBITDA will be about 40 million. More than half of that adjusted EBITDA is coming from the mortgage, title, insurance, and technology companies. So you can see that in the next, you know, 24 to 30 months, you know, a lion's share of the profitability is going to come from those businesses. So I think that should be in a statement in a sense that shows, you know, how profitable we expect these business units to be for our businesses.

Great. Awesome. Thank you. And congrats on the agent growth. I was wondering, has your value proposition changed at all, especially given the competition of their tweaking their offerings by adding other benefits like a dividend or anything else? Is there anything else you see for adding to your value prop for agents over time?

That's a fantastic question. So the answer is no, we haven't had to. When you think about it, we don't have to. if you look at what we're doing compared to any of the competition out there that's publicly traded, ones you can actually look at what they're doing, we can provide everything we're providing. It's so far greater value to agents that they have to provide all those things to be able to compete with us, not us having to add more to compete with them, if that makes any sense. So, you know, ultimately long-term, you know, are there things we can do? Absolutely. But right now, You know, we've got, I believe, I truly believe, I know I'm biased, but I'm trying not to be, one of the greatest value propositions of any company out there. And so, you know, they're trying to play catch up, I believe, because we really do have a strong value proposition. So right now, I think our focus is how to provide more tools and resources to agents, more than anyone else provides. And we can do that through technology. We can do that through lead gen. There's a lot of what we can do after training. There's a lot of things that we can do that a lot of our competition doesn't talks about doing but don't actually do. And so that's been really our focus. How do we take the technology we have? Because we're one of the only companies that actually has a full technology suite for their agents. We're not licensing other technology platforms. So we're able to take that technology and start providing more ways to help the agents spend less time in front of the computer, more time in front of clients, and be able to generate more business through their sphere and through their marketing. That's what agents want, more than even better splits or more than a small dividend. They want more leads because one more closing could be $9,000 to them, not a couple hundred dollars per year in something else. So that's our focus is really we'll provide more value. We already got one of the greatest value propositions. We'll provide more value by helping them close more business. That's key. That's what they want. They're not looking for gimmicks.

Kevin, let me also add that how we look at value is also by looking at turnover, right? So turnover is an indicator of value in the sense that are agents leaving you, right? To attract agents is one thing, but at the end of the day, it's about keeping them, right? And so when we look at the value exchange, we're looking at who are the agents that are leaving FAB and what is our turnover. And I think Josh indicated our turnover for Q2 is 1.37%, which we would argue as one of the lowest in the industry, although we don't know what other companies are because they don't post theirs. But if you look at that and given that a significant majority of that 1.37% agents that leave Fathom close very little business. So clearly the agents that were within Fathom perceived that the value exchange that they're receiving is a positive one. And then the other thing that we're very proud of is the agent referrals. So the Fathom agents are referring other agents and that number continues to increase as a percentage. And in the future quarters we're going to share those numbers And I think people will see, you know, again, that's the issue about value exchange. You know, how are agents, you know, representing, how are agents staying with the company and then how are agents are referring other agents. You know, other companies talk about net promoter score. And to me, at the end of the day, net promoter score is about are agents referring other agents. And we're going to start showing that number going forward. I think that shows the kind of benefit that agents are seeing from the value that they're getting from Fathom, which As we continue to grow, that will continue to benefit everyone.

Great. Thanks so much, and congrats on an awesome quarter. Thank you, Kevin.

Our next question comes from Chris Tuttle with IPO Candy.

Hey, guys. Thanks for taking my questions. I just have two. But before I say that, you guys, congratulations again on everything you've done over the last year. You know, our clients are very happy. And I'd say if there was a ratio of sort of management execution to market cap, you guys would rank very highly on that from an IPO standpoint. Thank you. So I had two questions for you, one pretty basic and then one a little more long-term. The basic one is when you guys talk to agents who, you know, you would like to have come over to the platform, in cases where they decide not to, I'm curious to know what you generally hear as sort of the top one or two reasons why someone might stay at a traditional brokerage firm like a Weikert or something like that.

Sure. That's a fantastic question. It really comes down to kind of psychology, doesn't it? First of all, when we get in front of an agent, we rarely lose them. You know, if an agent's actually thinking about actively moving somewhere else, if they're talking to us versus talking to someone else, it's very rare they choose someone else over us. It happens, but it's pretty rare. But the question becomes, what about those agents who aren't thinking about moving that we're talking to, that either another agent's trying to reach out to or that we're actively trying to recruit? It usually comes down to fear. Fear of the unknown, fear of loss. Right now they're being told because some of these traditional brokers are scared, and I'm not saying that loosely. I hear it. They're scared of us coming into the market. They're scared of us taking all their agents. They see us cannibalizing a lot of their agents, and so they're telling their agents that if you come to fathom, you're not going to close any business. Clients care about the brand. They care about the logo, and that's just so far from the truth. And so, in fact, NAR has proved that time and time again that clients care about the agent. That's who's actually attracting the client, not the brand they're with. In fact, only 1% of all homebuyers chose an agent based on what brand they're with. The other 99% chose the agent. But that's not what the brokers are telling the agents. The broker's saying you have to be part of the brand. So it's scaring them. They're thinking, okay, I'm closing 15 homes this year. If I leave, will I lose business? Is that a thing? So they don't know. And so what sometimes has to happen is they have to watch their friends or someone else they trust move over, watch their business rise. Oh, their business did not only not shrink, it actually grew. And then now they jump off the fence as well. And so sometimes we're trying to deal with a lot of misinformation because the competition scared it. And I get it. You know, I'm not one to lie to people, but, you know, I get it. You want to do whatever you can to protect your base and make sure agents aren't leaving. And so sometimes people tell them whatever they can to keep them. But I've got a good friend of mine. I'll tell you the story. I've got a good friend of mine. She ran a very large traditional brokerage, about 500 agents, and I sat down to her with coffee because we're friends, and she said, I hate you. I said, why do you hate me? She said, because every time I have an agent say I'm leaving to fathom, all I can do is say, let me get you a box. It's just, you know, at the end of the day, we've got an incredible value proposition, and it's becoming harder and harder as the longer we're in a market for for agents to not take notice and not want to make a change. So that's usually it. Hopefully I answered it, didn't go too long-winded.

Yeah, I appreciate that. And, you know, I'll just share one thing. The only thing I've heard that's, you know, a wrinkle, not a wrinkle even, just a niche thing, is some of these more established brokerages, and I'll turn this into a question, They have some established relocation business with large companies. And a few of the agents I've talked to have said, you know, it's not that big, but they throw me a few of these relocation clients every, you know, quarter. And, you know, it's enough of a, you know, it provides a little bit of a inducement, I guess, for them to stay, you know,

know with an established agent and i'm so i'll turn it into a question to just ask you are you guys looking at relocation or have you thought about that as something you might be able to you know add into your mix the answer is absolutely yes it's something we've explored and looked into more than just an internal talk we've actually you know gone further exploring opportunities um however i will tell you that there's a bit of a um caveat to that, I guess. I'm not sure the best way to put it, but there's very few companies. There's one big brand, but there's very few companies that actually do any real amount of relocation. And then in those companies, there's only a small number of agents inside the company who actually receive those relocation leads. And then the number of leads they typically get are actually very small. We've had a lot of agents come over that got one per year or two per year. Very few got a lot. Now, some do, I'm sure. I've got no doubt that some get a lot, but it's not every single agent in that company. And so if you think about, you know, if an agent gets two relocation deals, relocation deals, typically, you know, you're giving up 50% of the relocation company, then your broker's taking 30% of your 50%, right? So how much are you left with? You're left with very little, right? You'd have to do three deals from them to equate to one deal with Fathom. So if you're only giving up $6,000 because you're giving up those two relocation deals, total of $6,000, but you move over to Fathom and the average agent saves $12,000 to $15,000, You might do two less deals, but you're still making a significantly more amount of money. So sometimes it takes time to just sit down with them, show them the math, help them understand the truth, not the emotion, not what they feel, but the actual facts. Facts don't care about your feelings kind of idea. So we walk them through that, and once we show them the numbers, like, ah, it makes sense, I got it. But unfortunately, sometimes it takes time to actually, you have to actually sit down with the person and help them understand the numbers.

All right. Yeah, that makes sense. I appreciate that. And my final question, and you can, you know, don't have to go into too much detail on this, but, you know, there's, you know, certainly an interest, if not a fixation, in some of the markets in real estate around this, you know, this more transactional model, you know, the Open Doors and Zillow and some of these guys have been, you know, and the Cathie Woods and the ARCs are out there around, you know, fungible real estate and And I understand it as a segment of the market, but I just wanted to take the opportunity to ask you guys if you have some thoughts about how you kind of see this more liquid, more efficient sort of transactional real estate market and if that plays a role in how you see your long-term growth.

Sure. No, actually, so look, iBuyers, kind of the term we've given those companies, iBuyers are here to stay. I don't think they're going anywhere. They've been around for I don't know, 40, 50 years. I mean, we buy ugly homes, kind of beat them to the punch. That model's been around forever. Now it's got a prettier spin to it, and there's a lot more money backing it up, but they've been around forever. And I don't think they're going anywhere. I know they're struggling to, a lot of struggles relating to that model, but I don't think they're going anywhere. So the question is, you can freak out and try to compete against them, or you can use them to your advantage. And so we actually have a lot of agents, and we encourage agents to use them to our advantage. So what we do is, for example, we've got agents who will promote the iBuyer, the instant offer. We can offer you a home just like they can immediately. Now, it's not Fathom that's buying the property, but we can utilize investors and Zillow and Open Doors West to be able to do that. So we market it. That allows us to get in front of 10 homes, for example, as an agent markets that property or that offering. They go into those 10 different listing appointments with the instant offers, they might walk in with three instant offers, but they also walk in with, here's what an actual listing will look like as well. So offer number one, offer number two, offer number three, or list with me, and it might take 30 days, but here's what you net at the end of the day. And what we find is that typically the ones who actually opt for that instant offer, it's like one out of 10 or one out of 20 people. The rest of them become great opportunities for listings, for new listings for our agents. So our agents are using them to actually generate more business. And then the ones who do opt for that instant offer, that's okay because our agent's got nine other listings potentially, but also they typically still get their full commission from that iBuyer. So whether they choose the instant offer or they go the listing route, our agent still gets paid and Fathom still makes a profit. So why fight against them? Let's work together. Let's use them to make more money, become more profitable, and that's what we do.

All right, very good. Well, hey, listen, I'll step down. Just congrats again, and I'll circle back with you guys and Marco on some more detailed questions about the month.

Well, those are great questions.

Thank you. Thanks, Chris.

Our next question comes from Greg Kitt with Pinnacle Fund.

Hi, Josh and Marco. Thank you very much for your hard work in taking my question. Always. One one comment and one question. First, I was very excited to see your long term guidance of 40 million in adjusted EBITDA and building on Darren's question from earlier, it sounds like that could be possible, even maybe as early as 2024 ish. And so that's exciting to me, because I love businesses that have good incremental margins. And as you grow revenues, you grow EBITDA as well. And Further, one of your virtual brokerage peers is trading for 75 times plus current year EBITDA. If these multiples hold up, I would love to see you earn 75 times $40 million of EBITDA and be a $3 billion company in a couple years, especially compared to your $400 million enterprise value today. So if I heard Marco correctly, I think I heard a lot of the growth could be coming from your services businesses, and that those could be nicely profitable over the next couple of years. I also heard that you were making some investments to get licensed and prepare those businesses, especially the mortgage business, to handle a lot of growth. What work is left to do for you to prepare the services businesses that you've acquired for that future growth that you're expecting to see?

Well, let me, let me first step back one second, you know, on the a hundred thousand transactions, you know, just one thing I think is really key for people to understand that a hundred thousand transactions, just the real estate business alone could see, you know, 10 to 15 million in operating profits. I mean, that just by itself is incredibly strong. So I think that's, that's key for people to understand. So it ended being about 20, 25% of, of that 40 million. So I think the reason I say it's key for people to understand is because there's a lot of companies out there that aren't making any profit whatsoever or off, I'm sorry, EBITDA, right, off of just the real estate transactions. They're depending on everything else to be able to carry the load. And yet each one of our businesses can be very strong by itself. I know Mark needs to correct me on how I phrased that. I know for a fact as soon as I said it, I said it wrong. But the other piece is that... I can just see Marco. The other piece to that is the focus is really in how do we, now that we've got the operations in place, how do we fully integrate them? How do we get the relationships built between the agents, the loan officers, the escrow officers, the insurance agents, and so on? Relationships matter. Even though we own the business, we can't just force these solutions down our agents' throats, right? We still have to earn the business. And the way we do that is making sure we hire the best people. So we made investments in strong leadership. We made investments in strong loan officers, title, you know, title and so on. So those investments are really important because if you want agents to actually give you that business, you have to have the best. And so we think about, we hear about a lot of these other companies and they tend to hide that attached rate or don't talk with attached rate. it's because their tax rate's weak. Their tax rate's weak is because they're trying to force it down people's throats versus earning that business. And so our focus is really making sure we've got a strong operation, strong business, and strong people, so that way our agents want to send the business over, not that we're forcing them and begging them to send the business over. And I think that's going to be really key when it comes to tax rate. And so that's really the focus right now is strong investments in both time and money in those operations to make sure we've got the best of the best to help the real estate agents really want to attach and really want to work with those people. Marco, what do you want to add to that?

I know I'm... Well, great question, by the way. So if you look at, you know, one of the things we try to do is by looking at segmentation and look at each business to try to give everyone visibility, right? So, for example, you know, you look at the real estate and the adjusted EBITDA was almost half a million dollars, right, for the quarter. um you look at um when you look at and we talked about title and and um and mortgage and the adjusted that was was about breakeven right and then on the mortgage side yes we had a loss of almost you know 890 000 but most of that was related to the investments necessary to really scale the business which we feel that going forward those investments are going to pay off so i think in very short order Most of our businesses are going to contribute in terms of positive adjusted EBITDA to the business. We feel very confident that in that number of 100,000 to 110,000 that we'll see adjusted EBITDA over 40 million. Yes, we feel very good about that. As Josh indicated, we think about 15 million will come from real estate and the other 25 million will come from the businesses units. And then we're looking at around about a 10% attach rate. And so I think in some businesses, we'll be able to see more and perhaps some a little less. But the attach rate, we're using a very modest rate. And so we feel very confident. In terms of the timing, if you look at the last three quarters, we grew transactions by an average around 61%, 62%. If someone applies the same growth rate in transactions for the last couple of years, I think they'll be able to see when we're going to, you know, perhaps hit the 100,000 to 110,000 transactions. So we feel very confident that within that timeframe, you know, we'll see EBITDA, adjusted EBITDA to $40 million, which I think, you know, hopefully by that time and sooner, investors would value this company in a different way than we currently are being valued.

Thank you very much. And I think just to touch on one thing, My follow-up question was, how do you incentivize agents to use these services? And I think, Josh, you touched on it very well, is that you're not forcing this down any of your agents' throats. You're trying to build a really high-quality service offering now that you've taken the time to acquire, to vertically integrate title, insurance, mortgage, that you're going to build – your goal is to try and build a really high-quality service service that your agents are looking forward to using because your agents are seeing a good experience every time that they refer a client to use any of the Fathom-owned service businesses. Is that the right way to think about it?

It is. You said it better than I did. If you ever need a job, you let me know. There is one added benefit. I wish we could legally incentivize the agents directly for sending business over. That can't happen. I wish we could, but there's rules against that. However, there is an indirect way that we can incentivize agents, and it's something we're doing that right now no other company is doing, and that is the fact that not some of our agents, but every single one of our agents from the time they close their first transaction owns stock in Fathom. They all become shareholders in the company. And there's no other company that I know of right now that can say that, every single one. Not some, but every one. And so that means that the more they send business to mortgage, title, insurance, leads, and so on, the more revenue we generate, the more profit we're able to create, which brings more value to their stock potentially, right? There's never ever going to be, but potentially, right? So that means that there is a benefit in some way for them as it utilizes services, you know, they are shareholders as well. If they want to see their shares go up in value, then we all have to do our part to bring more value to our shareholders as a whole.

Thank you both very much.

It's our pleasure.

Good talking to you.

This concludes our question and answer session. I'd like to turn the call back over to Josh Harley for any closing remarks.

Thank you so much. And, of course, thank you all for joining our call today. and for your continued support. We are extremely proud of all that we've accomplished, and we look forward to taking additional actions that will add even greater value to our company and benefit all of our stakeholders. So with that, have a wonderful evening, and thank you again.

Now concluded. Thank you for attending today's presentation. You may now disconnect.