Fathom Holdings Inc.

Good day and welcome to the Fathom Holdings first quarter 2024 earnings conference call. Please note that this event is being recorded. I would now like to turn the conference over to Alex Cufton with Gateway Group. Please go ahead.

Great. Thank you, operator, and welcome everyone to Fathom Holdings first quarter 2024 conference call. I'm Alex Cufton with Gateway Group, Fathom's Investor Relations firm. Before I turn things over to the FAB, the management team, I would like to remind listeners that today's call may include forward-looking statements within the meeting 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 factor section of the company's Form 10-K for the year ended December 31, 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 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 President and CEO, Marco Fraginelle. Marco?

Thank you, Alex. Good afternoon and a warm welcome to everyone joining us for our first quarter of 2024 earnings call. I want to extend my heartfelt gratitude to each one of you for your incredible hard work and dedication, especially in the face of such trying circumstances. Despite the challenging market conditions, our teams have remained steadfast in carrying out the essential work needed to propel us toward our goals for 2024. During our previous earnings call, I outlined four key goals for 2024. These included enhancing our balance sheet, achieving positive EBITDA and operational cash flow, reinstating agent growth to an annual rate of 20-25% while prioritizing high-quality agents, and launching additional initiatives to further support our agents in growing their businesses. I am pleased to update you on our progress and announce the successful completion of our first goal, enhancing our balance sheet. The sale of Dagley Insurance Agency is a significant milestone in bolstering our financial position. This strategic move enhances our financial stability and positions us well to advance our agent growth strategy for the remainder of the year. The capital infusion from this transaction equips us with essential resources to confidently tackle any potential challenges. Additionally, I am delighted to share that we will continue collaborating with Nathan Dagley and his team to ensure a seamless service to our real estate clients. Badman Realty's agents can expect no disruption in their current working relationship with Dagley. In Q1, we also made progress towards achieving profitability. We saw a meaningful increase in gross profit margin, rising about 160 basis points to 10.3% in Q1 of 2024 from 8.7% in Q1 of 2023. We anticipate this positive trend to continue in the upcoming quarters as we increase revenues from our ancillary businesses, which we have greater gross profit margins. Furthermore, in Q1, we made strides in achieving our goal of positive operational cash flow by reducing our operational cash burn to $974,000 from approximately $40 million in Q4 of 2023. BADM's total revenue decreased 9%, for the 2024 first quarter to 70.5 million from 77.5 million for the 2023 first quarter. Fathom completed 7,703 real estate transactions for the first quarter of 2024, a decrease of 9.7% compared to 8,532 transactions for the first quarter of 2023. Real estate transactions decreased primarily due to the continuation of high interest rates, especially in the last few weeks of the quarter. Our dedication to expanding market share from legacy brokerage firms throughout the year remained unwavering. Notably, we achieved a 13% year-over-year growth in our agent network. Traditionally, KeyOne poses challenges for agent growth across our real estate brokerages, with many low-producing agents exiting the industry. Despite this trend, Fathom persevered, and our members reflect positive growth strategy going forward. During our last earnings call, I mentioned implementing programs to refine our agent recruitment to high-performing agents. The reintroduction of producer perks, a tailor to attract high-performance agents, is yielding promising early results in Q1 and continuing to early Q2. Our sustained efforts in agent referrals, strategic walkovers, and the diligent work of our dedicated local managers and recruiting teams have driven our growth. Ultimately, We aim to restore our annual agent growth to about 20% to 25%, and are encouraged by the progress this quarter towards achieving that goal. It is worth emphasizing that we believe the industry will see significant M&A activity in the next few quarters and years, and the brokerage consolidation will be prevalent in 2024 and 2025. We are focused on pursuing opportunities that immediately enhance our business, contribute positively to EBITDA, and offer the greatest potential for long-term success and sustainability. We will remain opportunistic with our capital deployment in pursuing this opportunity. Now let's move on to the ancillary businesses. Despite the challenges facing the mortgage business in 2023, encompassed lending groups revenue surged by 55% from 1.5 million in Q1 of 2023 to 2.3 million in the most recent quarter. This growth is a testament to the dedication and strategic initiatives implemented by our team in the past quarters. Recognizing the increase in demand within the Latino segment, we launched a dedicated division within Encompass Lending, aligning it closely with our Latino division at FADM. The early outcomes of this collaboration have been very positive, reaffirming our commitment to serving diverse communities. Building on our commitment to support local heroes, we expanded the Hometown Heroes program with over 700 agents now authorized to promote in this partnership with Encompass Lending Team. The program's early success underscores its value, and we're eager to further its reach. The first quarter of 2024 witnessed a 114% increase in file starts compared to the same period last year, signaling strong momentum for ELG. These promising results fuel our optimism for sustained success and growth in the mortgage business going forward. I am pleased to share that April marked a historic milestone for ELG, with the highest number of monthly calls in our company's history. Given this momentum, we anticipate Encompass Lending will achieve positive EBITDA in the second quarter of this year. While Q4 posed challenges for Vera's title, Q1 ushered a much-needed growth. VeriStyle's revenue surged by 9.5% to 652,000, an increase from 595,000 in Q1 of 2023. On March 12, we announced the establishment of our first VeriStyle joint venture, VeriStyle Elite, and its initial results have exceeded expectations. This strategic collaboration is poised to elevate Asian productivity and bolster all stockholders' profitability. It represents the first of many such planned joint ventures nationwide, reflecting our commitment to forge an impactful partnership with the local agents to enhance the tax rate and overall performance. We're also optimistic about various title prospects for achieving positive EBITDA in Q2, based on the performance of the first quarter. Our title business's positive trajectory underscores our focus on strategic growth initiatives, and continue to optimize our ancillary businesses for profitability in the current environment. Now looking ahead, our primary emphasis will be attracting top tier agents, teams and brokerages leveraging our compelling Asian value proposition tailored to the current market condition. With a robust pipeline of opportunities, we look forward to returning to the 20 to 25% annual Asian growth in the second half of 2024. At Fathom Realty, we pride ourselves on being a premier destination for agents. We offer an unmatched value proposition that empowers them to maximize their earnings. Our industry-leading flat fee commission split underscores our commitment to agent success in the long term. Our overreach objective remains clear, establishing Fathom Realty as one of the top five brands in every market, to serve while continuing to expand our footprint nationwide with the goal of reaching all 50 states by the end of this year. In the coming months, we'll roll out various marketing initiatives and technology enhancements to deliver added value to our agents. These efforts should enhance productivity and contribute to our agents' overall success. Now, before I pass the call to Joanne, I'd like to touch on the industry lawsuits. While numerous companies have reached settlements since the start of the year, we are currently engaged in active discussions and therefore unable to disclose any specifics at this time. Nevertheless, we're eager to resolve this matter swiftly to alleviate investor concerns regarding the potential impact on our business. Our priority is to continue focusing on the future, which you are genuinely enthusiastic about. With that, I'd like to pass the call to Joanne Zak, our Senior Vice President of Finance, to seek and discuss our financial results in more detail. Joanne?