Fathom Holdings Inc.

And welcome to the Fathom Realty Holdings Inc. Third Quarter 2023 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 from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Alex Cuffton with Gateway Group. Please go ahead.

Great. Thank you, operator, and welcome everybody to the Fathom Holdings 2023 third quarter conference call. I'm Alex Cuffton 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 Form 10-K for the year ended December 31, 2022, as well as our latest Form 10-Q 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, 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.

Thanks, Alex. Good afternoon. Welcome everyone to our third quarter 2023 earnings call. We're pleased to share the recent progress we've made advancing our growth strategy, despite the volatility in the interest rates and the broader residential real estate market. I want to start by thanking our Fathom family across each of our businesses for their hard work and dedication as we continue to navigate the real estate market. This has been one of the most difficult years in Fathom's history, but through the hard work of our team, we've been able to demonstrate that we can adapt and thrive even in the challenging economic times. 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 during the quarter and the steps we're taking to adjust to the current environment. During the third quarter, we witnessed continued pressure on transactions throughout the industry. In September, the residential real estate market changed rapidly as mortgage rates exceeded 8%, and we experienced an increase in cancellations, which impacted our transactions during the quarter. Despite this volatility and the highest mortgage rates in 20 years, we were encouraged by performance and agent growth in a very difficult market environment. During the third quarter, FAFSA delivered revenue of $93.5 million, which was in line with our guidance range. We also completed approximately 10,303 real estate transactions, and while down 15% from the prior year's third quarter transaction number of 12,077, we do feel good about this number when compared to the entire U.S. residential real estate market. We continue to take market share from legacy brokerage firms and even saw year over year transaction growth in several of our markets. We also increased our agent network 13% to over 11,333 agents at the end of the quarter, which compares favorably to all but one of our public peers domestic agent growth. While the residential real estate industry remains challenging, We continue to believe that our future remains bright and by continuing to grow our agent base, we're positioning Fathom for continued success once the industry rebounds. We're making meaningful progress in advancing our growth strategy, expanding our agent network, optimizing our business for profitable growth and taking market share with an industry leading commission model that continues to resonate well in this environment. And we believe we'll continue to do so going forward. Elevated interest rates continue to put pressure on home affordability, so the recent decline in mortgage rates following the Federal Reserve's November rate pause is encouraging. While we don't have a crystal ball to predict if we've reached the bottom of this current cycle in the industry or if rates will start to normalize in the near term, what we do know is that the industry will eventually recover and Fathom is well positioned to continue growing market share regardless of when that happens. Let me provide an update on our realty business and why we remain well positioned today to grow our agent network and also expand our reach during this difficult market environment. Fathom Realty continues to be among the fastest growing residential real estate brokerages in the U.S. and we're proud of our growth this year as we expand our presence nationwide to reach more buyers and sellers. Today, Fathom Realty operates in 37 states and the District of Columbia. We believe our model allows us to succeed irrespective of the market environment, and we're well positioned to attract an ever-increasing number of real estate agents from legacy firms during downturns in the industry when agents struggle to generate leads and close sales. We continue to believe that we're the most attractive home for agents long-term as we help them ultimately earn more money with an industry-leading flat fee commission split to agents. During the third quarter, we grew our agent network by 13%, which included the existing agent referral efforts underway. We also recently announced three walkovers so far in Q4 in Louisiana, Massachusetts, and California. We promised to grow across all 50 states as well as deeper into each state, and we continue to take steps to deliver on that promise. Our agent growth this quarter further validates that we're winning through innovation and a truly disruptive business model that continues to resonate among agents. Our new agents will have full access to Fathom's proprietary cloud-based software, Intel Agent, and will also benefit from having additional Fathom services to offer their clients, including mortgage and insurance services, as we continue to help all of our agents grow their business. We see a strong pipeline of walkover opportunities and believe that we'll continue to attract high-quality agent teams and brokerages to our unique, low-cost, and disruptive model. So while most of our peers are experiencing flat or declining agent numbers domestically, our agent value proposition remains compelling and allows us to take share now to better position Fathom for a higher overall growth rate once the market recovers. Our cost to acquire one agent during Q3 remained low at approximately $1,000, making our break even on each agent less than the $1,150 that we'll earn back on the first sale. We also maintain strong retention rates, which we believe exceptionally positive news given the backdrop of agents leading the industry. As most of you have no doubt seen, the National Association of Realtors, along with several of our country's largest brokerages, were found liable in a recent legal battle over agent commissions. I have no doubt that we will see this go to the appeals court and even higher should it be necessary. It might be years before we see any changes in the real estate industry as a result of these lawsuits. But what I can say is that we might be one of the only real estate brokerages to be a beneficiary of any changes that compress agent commissions. Unlike our peers who are accused of conspiring and colluding to keep commissions high, we do not put pressure on our agents to maintain higher commission percentages. The fact is our flat fee commission model does not change regardless of whether an agent charges 3% or 2%. or even 1%. Lastly, let me briefly touch on our path to profitability, profitable growth, and the steps that we're taking to optimize our business in the current environment. In Q2, we achieved our goal of adjusted EBITDA breakeven, and we've continued to make tremendous progress in reducing our cash burn. In Q3, we fell short of maintaining adjusted EBITDA due to the slower home sales in September as a result of further Fed rate increases. but we have since identified additional opportunities to further right-size our cost structure for the current environment and better position Fathom for improved operating leverage when the residential real estate market rebounds. With current market conditions in mind, we're working with each of our business heads to reduce company-wide expenses by a total of $1.2 million per quarter going forward, which we expect to see the full benefit of in Q1 of next year. By further right-sizing the company's expenses, We've set a target to achieve cash flow breakeven as early as Q2 of next year, while remaining committed to getting back to positive adjusted EBITDA in Q1 of next year and going forward. It's important to note that even though we are finding ways to cut costs, we will not sacrifice our ability to continue growing and attracting agents. As a matter of fact, we've increased the size of our recruiting team and plan to continue doing so by growing that recruiting team in 2024. In summary, we remain encouraged by the trends we're seeing across our business, despite a challenging quarter for Fathom and the real estate industry. With that, I'd like to pass it over to Marco for a financial update.