Fathom Holdings Inc.

Good day and welcome to the Fathom Holdings' fourth quarter and year-end 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists 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 the telephone keypad. To withdraw your question, please press star then two. Please note that this event is being recorded. I'd like to turn the conference over to Alex Kovtun with Gateway Group. Please go ahead, sir.

Thank you, operator, and welcome everyone to the Fathom Holdings 2022 fourth quarter and year-end conference call. I'm Alex Kovtun with Gateway Group, Fathom's investor relations firm. Before I turn things over to the Fathom management team, I want to remind 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 latest Form 10-Q and its upcoming 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 these forward-looking statements, actual results may 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, which is a non-GAAP financial measure as defined by SEC Regulation G. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure is included in today's press release, which is now posted on Fathom's website. With that, I'll turn the call over to Fathom's founder, chairman, and CEO, Josh Harley. Josh?

Thank you, Alex. Good afternoon, and welcome everyone to our fourth quarter and full year 2022 earnings call. I want to start by thanking our agents and our employees across each of our businesses for their ongoing hard work and dedication during this challenging time for our industry. Their commitment to supporting our growth, vision, and serving others in the communities we operate in is a testament to the Fathom culture. Our agents have worked hard to continue to grow and thrive, even with all the market uncertainties, and we're proud of how they have adjusted and overcome this constantly shifting market. As a testament to their success, Fathom Realty continued to climb in the latest Riz Media Power Broker Report, For 2022, Fathom Realty ranked 12th in sales volume, up from 16th in 2021. And we also ranked 10th in the total number of transactions in 2022. Now, before turning the call over to our president and CFO, Marco Fresno, for a detailed review of our financial results, I'd like to touch on a few key highlights from our results and why we remain optimistic about the business and year ahead, regardless of what happens in the housing market. 2022 was an extremely challenging year for residential real estate as rapidly increasing mortgage rates combined with limited inventory led to an all-time low in housing affordability and a double-digit decline in transactions in the U.S. industry-wide. Although we felt this pressure within our business, we still managed to deliver solid financial results. For the full year 2022, total revenue grew 25% as Fathom Realty continued to take market share from legacy brokerage firms despite the volatile environment. Fathom completed approximately 44,700 real estate transactions in 2022, up approximately 14% compared to the prior year. Importantly, the double-digit percentage increase in transactions on our platform compares favorably to the entire U.S. residential real estate market, which according to the National Association of Realtors saw an overall transaction decline 18% in 2022. We also increased our agent network to over 10,000 agents at the end of the year, which further validates that we're winning through innovation and a truly disruptive business model that continues to resonate among agents. Even with today's economic uncertainty and subdued real estate market conditions, we believe that Fathom has a long positive runway ahead of us. So let's start first with our realty business. During the last housing recession, specifically in 2010, I started Fathom as an asset-light, technology-enabled business because I wanted to build a company that can endure all market environments while empowering agents to realize their full potential. Today, Fathom Realty operates in 37 states and the District of Columbia, and we anticipate entering all 50 states within the next 18 months. Our presence continues to grow across the country, and I believe that our opportunities and ability to serve agents are greater than they ever have been. Fathom Realty is among the fastest growing residential real estate brokerages in the United States. We are uniquely positioned to offer an industry leading agent commission model without having to sacrifice the agent experience, which is especially important for agents who are price sensitive during downturns in the industry. Our focus is not just on adding more agents, but also helping our agents become more productive with the right training and technology, close more sales and ultimately earn more money. Even though we charge a small fraction of what other brokerages charge their agents, our realty business delivered six consecutive quarters of adjusted EBIT profitability prior to this last quarter where we saw an increased number of real estate transactions terminate. On a positive note, existing home sales in the United States increased 14.5% in February, ending a 12-month streak of declines. While we are hopeful that trends continue to move in the right direction, we remain focused on what we can control, and we believe we are positioned to thrive both today and into the future. The technology that powers our realty operations remains a key point of differentiation that sometimes gets overlooked. As we've highlighted before, by owning our technology, we can generate long-term savings and ultimately charge our agents far less than others with a competitive agent commission structure while building a model to generate margins similar to, or even better than our peers over time. In addition, we license our proprietary technology to outside agents and brokerage through a recurring revenue subscription model, further increasing the long-term revenue potential for Fathom and the differentiation of our brand within the industry. Today there are over 750 brokerages licensing our technology and data touching over 450,000 agents. Now let me touch on our agent trends and steps we're taking to grow the Fathom network. We focus to a great degree on serving our agents so that we attract and retain the best in the industry. When it comes to providing the greatest value to agents, we believe that Fathom wins hands down. When you combine our competitive agent commission structure, new agent referral program, and the technology and training we offer to agents, we believe it's a very strong proposition that is resonating well in this environment. Last quarter, we launched an enhanced agent referral program called Free for Life and a revised agent commission structure. Both initiatives were well received and our agents referral program continues to have a positive impact on our recruiting efforts. Even with the changes that we implemented on January 1st to the commission structure, agents will still save an average of well over $2,500 per cell versus the industry average commission split. We're also excited about our new agent referral program, which we believe is the most attractive incentive in the industry as it's based solely on an individual agent's efforts. So while the market is in a downturn currently, we remain well positioned to attract agents help grow their book of business and put more money in their pockets, especially in a time where inflation is placing pressure on their bank accounts. We can make this claim given our track record of supporting agents on our platform. Historically, the average agent who joins Fathom increases their sales transactions by 49% within four years of joining. And the average lifetime value of an agent is currently over 21,000 dollars on just the real estate side of the business, demonstrating the power of our model. Our cost to acquire one agent during Q4 remained low at approximately $1,000, making our break even on each agent less than the $1,150, which we'll earn back on their first sale. We also maintained our strong retention rates, which are approximately twice the national average and remain exceptionally strong given the backdrop of agents leaving the industry over the last year. During Q4 of 2022, our attrition rate averaged approximately 1.6% per month. More importantly, 90% of the agents who left Fathom sold four homes or less per year. Given the current market conditions and historical examples, we do anticipate the industry attrition rate to increase as more agents struggle. We certainly will not be immune and may see an increase as well, but we believe it will continue to be primarily from low-producing agents. during 2022 we also launched several initiatives to bring together our agents including in our inaugural teams think tank to discuss strategies for building and running successful real estate teams we also launched our veteran division to provide specialized resources support and opportunities for fathoms current and former military service members as well as veteran home buyers and sellers and those still in active duty we've also received a lot of positive feedback from our chaplaincy program And we're exploring ways to expand it in ways to touch even more of our people. These are just a few of the examples of the many ways in which we support agents and our communities. Now, in spite of the market conditions, we remain optimistic about the year ahead and believe that Fathom as a whole is on track for revenue agent transaction growth in 2023. As we look ahead, we expect to turn the corner towards profitable growth in the coming quarters while starting to really show the operating leverage in our business. While our mortgage, title, and insurance companies are relatively small today, they have the potential to dramatically increase revenue and profitability per transaction over time. As we navigate the current challenging market, Fabulous continues to identify opportunities to optimize expenses across our business segments. We've already reduced expenses by approximately $3 million per quarter, which we should see the full benefit of in the first quarter of 2023. Importantly, we believe these cost reductions were made without sacrificing our ability to grow. Fathom was built to thrive in both good times and challenging times. We remain focused to reaching total company adjusted EBITDA breakeven in the second quarter of 2023 and generating cash flow in the third quarter of 2023. Let me repeat that because I think it's important. We remain focused on reaching total company adjusted EBITDA breakeven in the second quarter of 2023 and generating cash flow positive in the third quarter of 2023, even in today's market environment. With that, I'd like to pass over to Marco for a financial update.