Fathom Holdings Inc.

Good afternoon, everyone, and welcome to the Fathom Holdings 3Q21 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 and then one. To withdraw your questions, you may press star and two. Please also note that today's event is being recorded. At this time, I'd like to turn the conference call over to Roger Pondell, investor relations for Fathom Holdings. Sir, please go ahead.

Thank you very much, Jamie, and welcome everyone to Fathom Holdings 2021 third quarter conference call. I'm Roger Pondell with Pondell Wilkinson, Fathom's investor relations firm. It will be my pleasure momentarily to introduce the company's founder and chief executive officer, Josh Harley. and Fathom's President and Chief Financial Officer, Marco Frisianol. 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 statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the risk factor section of Fathom's IPO registration statement, its latest Form 10-K and subsequent Form 10-Qs, 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. But please also note that during today's call, management will be discussing adjusted EBITDA, which is a non-GAAP financial measure as defined by SEC Regulation G, and a reconciliation of this non-GAAP financial measure to the most comparable gap measure is included in today's press release, which is now posted on Fathom's website. And with that, it's my pleasure to turn the call 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 proud that you're a part of our Fathom family. Now, quarter after quarter, our results continue to demonstrate the power of our truly disruptive business model. And I'm proud to be here to share our significant growth. We're winning through innovation and by delivering real long-term value to our agents, employees, clients, and of course, our shareholders. For the third quarter, year over year, revenue grew by 81%. Our agent count grew by 50%. and our transactions grew by 42%. We also reduced adjusted EBITDA losses by over 20% from Q2 to Q3, getting us even closer to adjusted EBITDA breakeven. And while we're continuing to invest in enhancing our foundation for the sustained long-term growth of our newer business lines, those investment dollars are quickly becoming a smaller percentage of our ongoing expenses. There are some who don't really know who we are yet. But with time, I believe more investors will truly understand our business and value us accordingly. If you really dig into our story, you'll realize that not only has Fathom generated impressive performance to date, but we still have an extraordinary path ahead of us. A lot of companies sacrifice profitability for growth. But I'm proud to say that we do not have to operate that way. We can do both. Our cash position remains strong, and we plan to continue to focus on operational cash flow generation Our steadfast discipline allows us to be good stewards of the money with which you've entrusted us. We believe Fathom is on track to more than double its revenue for the foreseeable future, and we look forward to proving it. The question is, how do we get there? Now, since going public, we've substantially increased revenue, continued the expansion of our agent network, improved agent retention, entered new geographic markets, and completed strategic acquisitions designed to 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. With the recent addition of our own in-house mortgage, title, and insurance companies, along with additional SaaS product offerings, we now have the potential to dramatically increase our revenue and, importantly, our profitability per transaction. I want to reiterate that these companies are not joint ventures. We fully own each of them. That means that we're not giving up any of the revenue and profitability, and it means we have complete control over the quality of service. That matters a lot. It matters to our clients. It matters to our agents. And it should matter to you because that's how we believe that we can achieve a greater attach rate for these new businesses. Now, as you know, we also recently acquired a lead generation and nurturing company and two technology companies, one specializing in big data aggregation and content creation, and the other specializing in home search and CRM tools to help us attract more buyers and sellers, which in turn also helps to attract more agents. Now, speaking of attracting more agents, we believe that Fathom continues to have one of the most attractive agent commission plans and overall offerings in the industry. I truly believe our comp plan for agents is superior to every other publicly traded brokerage, hands down. Our focus is not just in adding more agents, though, but also helping those agents become more productive, close more sales, and ultimately earn more money. We believe we're accomplishing that by providing more training and more technology to help our agents get in front of more buyers and sellers. As well, we're helping agents reduce the amount of time required to manage the transaction process, giving them more time to network and sell. To prove that point, agents who join Fathom increase their sales by an average of nearly 49% after four years. Many of our agents report doubling their sales after the first year of Fathom. We often hear our agents say that they join Fathom to earn more commission, but they stay for the culture. And I'm proud that we still have one of the lowest agent attrition rates in the industry. And if you want a true representation of whether Fathom agents are happy, our low agent attrition rate is the best indicator. I'm extremely proud that our retention of higher producing agents improved greatly between 2019 and 2020. And we're seeing continued improvements throughout 2021. This quarter, our agent attrition rate remained at less than 1.4%. Digging deeper, agents who close less than one sale per year make up over 75% of the agent attrition, and only 2.5% of our agent attrition comes from agents who close 10 sales per year or more. Said differently, with over 7,500 agents, only nine, nine of those agents closed 10 or more transactions per year in less than Q3, right? It's a very small number. We're very proud of that fact. As some of you know, our agents are quickly becoming evangelists for the company, which we believe should further accelerate our growth over time. Now, as I mentioned, for Q3, We experienced 50% growth in agent count ending the quarter with more than 7,500 agents. One of the beautiful things about this growth is that our cost to acquire one agent during the period was approximately $985, making our breakeven on each agent close to what we make on just their first sale alone. I also want to point out that the average lifetime value of an agent is over $18,000 on just the real estate side of the business. the ratio of that lifetime value to our cost of agent acquisition is over 20X. And that doesn't take into account the revenue from a recently acquired mortgage, title, and insurance companies, or the potential revenue from the leads that we can generate for our agents. Now, we believe that Fathom is in a unique position to grow even faster at a time when the real estate market is turbulent, even if house prices decline. it should not be a headwind for Fathom Realty. In fact, it could actually prove to be a tailwind for Fathom's growth. I want to spend just a minute on this point because I think it's more important than most people realize. While other real estate companies may see strong headwinds as home prices fall or rise, for that matter, as mortgage rates rise and housing remains in low supply, I strongly believe that Fathom could benefit significantly, and here's why. there's only two ways for real estate agents to make more money. One, increase their revenue by selling more homes or decrease their costs. And the biggest cost an agent has is usually their brokerage fees and splits. In a market, where it's hard to find homes to sell or buy, we believe that due to our financial model, agents will be attracted to Fathom in order to make up for any lost income by decreasing the fees they pay. In fact, if an agent closes 20% fewer homes due to the shifting market conditions, but moves to Fathom from a brokerage who's charging them 30% split, they'll actually earn approximately 9% more income. Again, 20% fewer sales, but 9% more income. That sounds like a win to me. And of course, most agents would agree. In fact, we're already seeing some of that benefit through our site traffic. Our careers website traffic is up over 300% year over year as we continue to see interest and fathom growth. Last quarter, I talked about how we were beginning to see home sales and prices normalizing and that we may even see home prices in some areas come down. And that's exactly what we saw this quarter. Prices have come down in many of our markets with homes sitting in the market a little bit longer. But again, I truly believe that this is positive for Fathom long term. It's also important to note that as home prices fall, many of our competitors may see a strain on our profitability because they take a percentage fee on every single transaction, but that would not be the case for Fathom. We earn the same transaction fee from the agent regardless of whether the agent earns a $10,000 commission or an $8,000 commission. This should allow us to continue to capture more market share from real estate companies with the old traditional commission models. 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, and insurance revenue. 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 businesses is even more evident today, especially during these unprecedented and changing times. As I mentioned earlier, our results for Q3 were outstanding. Clearly, Fathom is moving in a very positive direction, attracting higher-producing agents and selling more homes in higher-priced markets, which, by the way, should significantly benefit our mortgage title insurance operations as well as the lead business that we're building. In Q3, Fathom Realty added New Mexico and Minnesota, and so now we're actually licensed in 34 states and D.C. We plan to open several more markets in the coming months with longer-term plans to be in all 50 states and eventually move into Canada as well. Now, part of our secret sauce is the advantage that our IntelliAgent platform creates. The obvious being that it helps us attract new agents while helping them become more productive. We're very excited that our technology also allows Fathom to reduce our cost per agent over time while improving our operational efficiencies. We're continuing to work hard in the development of a national real estate search portal as well, Neighborly, which we believe will play a significant role in helping us attract even more agents, as well as homebuyers, while generating greater revenue and profitability from the leads that we generate, along with the mortgage title and insurance business that comes with it. Now, ultimately, our technology platform allows us to eliminate our reliance on third-party tech providers. which reduces our costs significantly. At the same time, provides more robust technology to our agents, employees, and our clients. Intel Agent gives us the power to control the full lifecycle of the home buyer and the seller, 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 title companies long before they're under contract. Our SaaS company, LiveBuy, is also making some incredible headway. We now provide tech and or data to more than 750 companies across the country with over 100,000 agents. Some of our customers include CoreLogic, Berkshire Hathaway Home Services, Sotheby's, and App Properties. For encompassed lending, we increased the number of loan officers by 17% with plans to continue adding more loan officers each month to help grow our mortgage operation across the 41 states in which we're currently licensed for mortgage. We've also made significant investments in a mortgage operation, and we're already seeing a great return on that investment in the form of improved tax rate and market share. Our title company, Veris Title, is growing exceptionally as well and i could not be more proud of our team's efforts various is licensed in 29 states now and we're seeing impressive improvements in our attach rate every single month in fact our q3 title revenue alone was almost as high as what we made what they generated in all of 2020 before acquisition industry-wide online notarization was up 547 percent in 2020 And while 2021 numbers for this online trend are not out yet, the industry is seeing that trend continue. Important to note, that trend benefits our title model as more agents accept this new normal. Our insurance company, Dagley Insurance, is currently licensed in 47 states and D.C., and we're gaining traction with Fathom agents every single month as well. one amazing important statistic is that over 43 percent of the insurance quotes that go out are converted in policies we believe that over time our insurance operation could help us improve our revenue and profitability during the seasonally slower winter months and help us through the cyclical nature of the real estate industry total personal lines grew by over 26 percent in the third quarter year over year and total premiums grew by over 12%, rather. This is essentially recurring revenue, and we're just getting started there. As you know, our mortgage, title, and insurance operations were all added through strategic acquisitions, and we've also made several strategic brokerage acquisitions as well in a very short period of time. I bring this up because I think it's important to clarify that at this point, we have all the puzzle pieces we need to build a solid and profitable company. We're working diligently to integrate each business fully to ensure strong attach rates. Moving forward, we expect that any future acquisition we consider will primarily be focused around opening new markets or expanding in the smaller current markets to hit critical mass faster, which also helps growth through name recognition and agent referrals in those new markets. markets that would normally take years to get to a solid foothold. We intend to continue growing quickly and we will use acquisitions strategically as opportunities arise. Now, last quarter, we were able to demonstrate that at only 10,000 real estate transactions, our real estate business achieved adjusted EBITDA breakeven. If we had not made the extra strategic investments into our ancillary businesses, we would have been able to demonstrate adjusted EBITDA breakeven for the whole company. But again, We're playing to win long term, and that requires investments in the business, investments that are already proving to be the right moves. On our last call, we shared that assuming we reach between 100,000, 110,000 transactions per year, we believe we can generate adjusted EBITDA exceeding $40 million. While we're not prepared to provide a timeline for this transaction milestone, we do feel confident we can maintain the strong agent and transaction growth that we've demonstrated since our IPO a year ago, July, and over the last 12 years since our inception. In addition to this, we have decided it's time to provide some additional guidance, which Marco will share shortly. As you can tell, we believe Fathom has a great future, and we're incredibly excited and proud. So with that, I'll turn the call over to Marco. Marco, it's all yours.