Fathom Holdings Inc.

Good afternoon and welcome to the Fathom Holdings, Inc. Fourth Quarter 2023 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 then one on your telephone keypad. 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 Alex Kustin with Gateway Group. Please go ahead.

Great. Thank you, operator, and welcome everyone to the Fathom Holdings fourth quarter and year-end 2023 conference call. I'm Alex Kustin with Gateway Group, Fathom's investor relations firm. Before I turn things over to the Fathom management team, I would want to remind listeners That today's call may include forward-looking statements within the meaning of the 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 factor section of the company's Form 10-K for the year ended December 31st, 2022, as well as the company's subsequent Form 10-Qs, the company's upcoming Form 10-K for the year ended December 31st, 2023, 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 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. So with that, I'll turn the call over to Fathom's President and CEO, Marco Fragonard. Marco?

Thank you, Alex, and good afternoon, everyone, and a warm welcome to everyone joining us for our fourth quarter and four-year 2022 earnings call. I am incredibly proud of our Fathom family, and I am grateful for your unwavering dedication, hard work, and commitment to excellence. Your efforts have played a pivotal role in shaping Fathom into the exceptional company it is today. Despite the challenges facing 2023, our team's resilience and determination have been truly remarkable. I am deeply thankful for all of you and your significant contributions to our continued success. I am proud of what Fathom has accomplished in 2023, despite the challenging conditions in the residential real estate market. Our team's commitment to our growth strategy allowed us to navigate the obstacles and make significant strides to position Fathom favorably for the coming year. Fathom's total fourth quarter revenue was $74.1 million, a decrease of 11.2% from $83.4 million for the 2022 fourth quarter. The 10.1 decrease in brokerage revenue was primarily due to the decline in brokerage transactions, but it was partially offset by the 20.5 increase in Fathom's ancillary services, particularly in Fathom's mortgage business. Total revenue for 2023 was $345.2 million, a decrease of 16% from $412.9 million for 2022. Adjusted EBITDA loss, a non-GAAP measure, improved to a total loss of $2.9 million in the fourth quarter of 2023, compared with an adjusted EBITDA loss of approximately $5.9 million in the fourth quarter of 2022. The improvement in adjusted EBITDA reflects our continued commitment to achieving and remaining adjusted EBITDA positive moving forward. For the full year, adjusted EBITDA loss was 4.1 million in 2023 versus an adjusted EBITDA loss of 12.2 million for 2022. Our focus on market share expansion from legacy brokerage firms throughout the year remains that fact. Notably, we experienced a substantial 13.7% growth in our agent network for the full year, which stands out compared to the reported domestic agent growth for all but one of our public peers. Both ongoing agent referral efforts and an introduction of walkovers in key regions, including Louisiana, Massachusetts, California, feel this growth. In the fourth quarter of 2023, we implemented various programs to enhance agent recruitment, including the reintroduction of our producer perks in October, a program designed to attract high-performing agents that has yielded promising early results. We also observed a remarkable increase of over 200% in visitors to Fathom's careers page, surging from 2,100 visitors in Q3 of 2023 to an impressive 6,600 visitors in Q4 of 2023. Additionally, our onboarding starts continue to gain momentum in Q4 of 2023, increasing by over 7% from Q3 of 2023. Our agent growth in the fourth quarter further validates that we're winning through innovation and truly disrupt the business model that continues to resonate among agents. Our new agents will value Fathom's proprietary cloud-based software, IntelliAgent. They will also benefit from having additional Fathom services to offer their clients, including mortgage and insurance services, as we continue to help our agents grow their businesses. Our cost to acquire one agent through Q4 remained low at approximately $1,050, making our breakeven on each agent less than $1,150 we'll earn on their first sale. We also maintain a strong retention rate, which is exceptionally positive news given the backdrop of agents leaving the industry. Fathom completed approximately 38,139 real estate transactions in 2023. They declined of approximately 14.6% compared to the previous year. Despite the challenges posed by elevated interest rates, which impacted transaction volumes across the real estate market and led to the lowest level of existing home sales in almost three decades, FADM exhibits resilience. We also observed year-over-year transaction growth in key markets such as Nevada, Missouri, and Utah. This notably accomplishment underscores our ability to seize market share from legacy brokerage firms, showcasing our adaptability in a volatile environment. Looking ahead, we're optimistic about the anticipated impact of our producer perks program on agent transactions in 2024. This initiative will further enhance our market position and contribute to sustained growth in the coming year. Now let's discuss our mortgage business. We're acknowledging its significant negative impact in our financial performance in 2023. Our dedicated team has exerted tremendous effort to turn things around in 2024. One notable stride is our strategic expansion of our mortgage operations in Texas by acquiring Austin-based Elite Financing Group. This move fortifies our existing presence in Dallas for Work market and extends our reach into Austin, enabling us to cater to a broader clientele across Texas. Recognizing the increase in demand in the Latino segment, we have established a dedicated division with an encompassed lending group to work closely with our Latino division at Fathom. Thus far, we're encouraged by the results for the first two months of this year, which showed an impressive 89% increase in file starts compared to the same period in 2022. This positive momentum fuels our optimism for our mortgage business' continued success and growth in the months ahead. While Q4 is a challenging quarter for Veristido, we are encouraged given the 16% increase in Filestars for the first two months compared to last year. Moreover, we expect our recent announcement regarding the joint venture with agents in Texas to significantly improve our attachment rate and EBITDA. During 2023, we're pleased that Fathom continues outperforming many of its peers regarding agent growth and transactions in a challenging market environment. Although the residential real estate industry remains difficult, we believe that our future remains bright, and by continuing to grow our agent base, we're positioning Fathom to continue success once the industry rebounds. We are making meaningful progress in advancing our growth strategy, expanding our agent network, optimizing our business for profitable growth, and creating an industry-leading commission model that continues to resonate well in the current real estate environment and will continue to do so going forward. Now, let's briefly discuss our goals for 2024. First, we remain focused on accelerating Fathom's agent growth with the goal of returning a historical agent growth rate of 25 to 30%. Moving ahead, we focus more on attracting high-quality agents, teams, and brokerages as our agent value proposition remains compelling in the current environment and our pipeline of opportunities remains robust. We believe we are the most attractive home for agents in the long term, as we help them ultimately earn more money with an industry-leading flat fee commission split to agents. Our goal remains to be one of the top four or five brands in every market where we operate, and we continue to progress towards those targets. We are now in 41 states, and we're striving to be in all 50 states by the end of the year. We also plan to launch various marketing programs and new technology enhancements in the coming months to provide greater value to our agents, improve productivity, and ultimately make them more successful. Our second goal is to achieve operating cash flow breakeven as early as the second quarter of 2024, while we remain committed to returning to positive adjusted EBITDA for the full year in 2024. During the fourth quarter, we announced we revised an agent commission structure that we believe will add an estimated 3.1 million in EBITDA for 2024. We believe this slight increase in agent fees will have a minimum impact on our agents who are helping FADM achieve our objectives and provide our agents with an ever-improving agent offering. We also remain focused on identifying additional opportunities for operational efficiency to further reduce our expenses. In Q4 of 2023, we implement cost reductions totaling approximately $1 million per quarter, which will take full effect in Q1 of 2024. More importantly, this cost reduction should not sacrifice our growth trajectory, as we have increased the size of our recruiting team and plan to continue growing the recruiting team in 2024 to support age and growth efforts. Now, turning our attention to ancillary businesses, we recognize the potential for these businesses to significantly augment our revenue and enhance profitability for transactions over time. Early indicators for 2024 are promising, suggesting the initiatives implemented in Q4 are starting to yield positive results. Notably, we are witnessing a substantial increase in Firestars for our mortgage and title businesses. This positive trend aligns with our strategic objectives and reinforces our belief in our ancillary business' long-term viability. We do expect both businesses to outpace the growth of our core brokerage business and contribute in a significant matter to our EBITDA in 2024 and beyond. This week, we also announced a new joint venture between our title subsidiary and Fathom Real stock producers in Texas called Varus Titles Elite to improve agent productivity and ultimately enhance profitability. This strategic collaboration should elevate agent productivity, enhancing profitability for all parties involved. Baris Elite aims to provide our agents with elevated support, creative platforms that foster success and presents lucrative opportunities for increased earnings. By forging this joint venture, we're confident we can further bolster our tax rates going forward. This will be the first of such joint ventures and we look forward to creating others in the coming months. Finally, we continue to focus our balance sheet to navigate the current environment and position fathoms for growth opportunities in 2024. We believe our current cash position and overall liquidity provides us with a runaway to grow the business and execute our strategy through operating cash flow break-even. In the last few quarters, we have seen an increase in the number of smaller real estate brokerages interested in merging with larger companies. We believe that market consolidation will increase in 2024 and 2025. It is with that in mind that we'll continue to be opportunistic in our approach in acquiring smaller brokerages. In summary, we remain encouraged by the trends we're seeing across our business despite a more challenging quarter and year for Fadman and real estate industry. Even with today's economic uncertainty and subdued real estate market conditions, We believe that Fathom has a long and positive runaway ahead, and we expect to turn the corner towards profitability growth in the coming quarters, while starting to show the operating leverage in our business. We are entering 2024 in a position of strength and optimism for the opportunities in front of us. With that, I'd like to pass the call over to Joanne Zak, our Senior Vice President of Finance, so she can discuss our financial results in more detail.