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.