Q3 2020 Fathom Holdings Inc Earnings Call
Good afternoon, and welcome to Fathom Holdings third quarter 2020 earnings Conference call.
Yes.
It 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 todays presentation, there will be an opportunity to ask questions.
Please note this event is being recorded.
I would now like to turn the conference over to Roger Pondel Investor Relations for Fab.
Rather holdings. Please go ahead Sir.
Thank you Chad Hi, everyone I'm, Roger Pondel with Pando Wilkinson Fathoms Investor Relations firm and it is my pleasure to introduce the company's founder and CEO, Josh Harley and fathoms, President and CFO Wilco, freshly NOL, but before I turn.
Things over to Josh I want to remind all listeners that todays 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 adding new capabilities and the ability to reduce costs and drive sustainable growth as well as those set forth in the risk factors section.
Fathoms registration statement for its initial public offering has was filed with the FCC and copies of which are available.
Okay, and the Fccs website at Www FCC Dot Gov, along with other company filings made with the SEC from time to time as a result actual results could differ materially from those included in the forward looking statements Fathom undertakes no obligation.
Update any forward looking statements after today's call except as required by law.
Please also note that during this call management 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 as to the most directly comparable GAAP measure is included in todays press release, which is now posted on the company's website and with that I am happy to turn things over to Dr. Charlie trash.
Thank you Roger and thank you to everyone Who's joined the call I see several investors who have come to know and truly value over the last few months. So yes. Thank you replace your faith in thousands of course for your continued interest as you know today's veterans day, and yesterday was memory corporate thanks, So little bias. There 12, those who served our great country. Thank you for your service.
As a marine Corps veteran I can fully appreciate your servicing their sacrifice, thank you and God bless.
I want to take a moment to also think our agent center employees for their continued dedication to truly serving and placing others first I noticed for those who are listening outside the company that this may sound strange altruistic I can't stress enough the importance of this place.
Sales in the success of our business and of course in our company's culture. So thank you replace your trust in US and of course choosing to be part of our fathom family.
We often hear agents say that they joined to earn more commission, but they stay for the culture and I can't even begin to tell you how much that means to me today I'm excited to share.
Boston third quarter results with revenue growth of 74% repeat asked as part of a 100% and I believe this clearly shows our model works, especially in light of the craziness surrounding the pandemic, but as as horrible as cobot is it continues to prove that our company was built to defend against times like these.
We've been very busy since our last call, adding bench strength entering new markets and making plans to have service that should give that have made us a stronger competitive advantage while of course, increasing our revenue per transaction now as I mentioned earlier, our impressive third quarter performance included high double digit revenue growth of 17.
4% adjusted EBITDA profitability, and solid improvements and all of our key metrics, including agent count real estate transactions and revenue per transaction no. Marco will review the numbers in more detail with you in a moment, but I want to point out that our.
Over time, our IPO closed and funded we were only public for the last.
Half of the third quarter, so our quarter growth did not really benefit from the funds we raised that.
I think it's fair to say that we may hope this quarter right well below operating on a bootstrap budgeting spending an incredible amount of time on IPO Road shows Needless to say, we were burning I won't say literally.
Figure to be burning the candle both ends but we strive on good obviously, we thrive on good challenges and we'll continue to work hard and just hard and growing our business now I love that I can say probably that we came in with a second highest revenue increase of all publicly traded residential real estate brokerages again without having the benefit.
I've been flushed with cash yet I.
I think it's important to set proper expectations I can just hear people say already that you raised over $30 million in what's taking so long while yes, we now have money in the bank. We do believe it will take some time to effectively and strategically put those funds to work with that said I'm looking forward to showing you what.
What we can do with it.
For those of you who are not familiar fathom I'll spend just a few minutes talking about Wildwood why were different why we're different kind of real estate brokerage and why we believe that we are disruptive in this industry.
For those of you who already know us I apologize in advance for making you sit through this but I'll keep it short I promise.
Now like.
Others follow them as a full service residential real estate brokerage.
But those are dime a dozen in fact, they are around 86000 brokers across the United States. Unlike others. However, we leverage and innovative platform as a service model, which is powered by our proprietary cloud based technology called Impella agent.
Our technology platform allows us to operate virtually while providing our agents with all of the major functions that they would otherwise get from traditional brick and motor company not only does our technology aid our agents and also lot starting to streamline and automate our operations and significantly reduce our costs and personnel requirements. As a result, we're able.
Charge, a fraction of what other broker just charge their ages, putting more money in our agents pockets to help them reinvest in their business. This also gives us a faster path to profitability than many of our company our competitors, who are charging monthly fees and large commission splits.
So we recently added new talent to.
Its carbon family to continue solidifying our market position, we created a new position of Chief Technology officer of intelligent Grady ligand, whose has more than a decade of real estate technology experience joined us in August to further develop our platform as a fully integrated real estate search transaction technology and communication hub.
Works.
If I could about the event they advantages intelligent creates including attracting new agents and helping them become more productive while adding more robust technology to further reduce costs and improve our operational efficiency.
Now I want to reiterate that the previous point about increasing agent productivity through improvements our technology to our field.
Focus is not just in adding more agents, but also in developing more productive agents I believe we can accomplish that by providing more tools that help raise was getting in front of more buyers and sellers as well as reduced the amount of time required to manage the transaction process. In time, we also intend to generate real estate lease for 80.
Agents, which in turn will help establish further increase our revenue per transaction.
Now one of the unique things about found them is that we offer a small flat the commission structure to our agents versus the large percentage split that our competition charges. Their agents our model allows agents to make more money and reinvest those dollars.
Dollars into their marketing efforts to grow their sales and as you can imagine this makes us highly attractive to agents. In fact, we saw a 38% growth in agent count in Q3 year over year during a pandemic ending the quarter with over 5000 agents are low fee model attracts more agents to our platform generating more trend.
Transactions that we can then capture for future potential services, such as title mortgage insurance and so on.
Now as I mentioned earlier, we often hear agent stated the joint found them to earn more commission, but they stay for the culture, while I don't want to make too much of our glass door rating. It does validate this feedback.
Our almost perfect last or rating of 4.9 puts us at the very top of all rent of all large residential real estate brokerages and helps with recruiting retention efforts. Although this is just one example that shines light on our culture of service I'm very proud of what we're creating.
I'm also proud that we have one of the lowest.
In attrition rates in the industry of just 1.5% per month glass doors nice, but if you want a true representation of whether agents are happy and attrition rate is the best indicator now we we see we might see that number increase a little when or if we make a large brokerage acquisitions simply because it takes time.
And to bring their level of agent service and satisfaction, our level, but with time I feel confident we'll be able to continue to maintain an industry leading number.
To further drive as recruitment and retention. We also recently added a vice president of recruiting and promoted a tenure fathom veteran to vice president of broker operations.
As vice President of recruiting Russell Laggan is now response with day to day operations of our agent growth initiative known as talent acquisition and Russell. His team are working to share our value proposition with agents across the country could benefit from affiliated with fathom.
Given his expertise is also acting as a business coat sales management.
Manager and of course subject matter expert on the topic recruiting attracting agents. He has been absolutely fantastic for our company and we're very pleased to have him.
As vice President broker operations, the zenker who's been with US for 10 years will provide support to our growing network of agents, including Onboarding and training. She is an amazing leader and I'm proud.
That we were able to promote we're into this will shoot absolutely fantastic.
Yes, adding new agents is not only a function of recruiting but also entering new geographic markets. Most recently, we launched operations in the Oklahoma and West Virginia, increasing our reach to 26 states and 112 local markets our virtual software driven.
Which I described earlier is highly scalable, allowing us to quickly expand in new markets at a very low cost I think thats key this will serve us well as we continue to expand across all 50 states and of course, Canada as well now West Virginia represented an act will hire of a great leader, who is running a small operation she helped us.
In the state and we've already begun recruiting helping her grow that market, Oklahoma is a little bit different. It was a licensing played a pretty open the market. So that once we hire the right leader, we can hit the ground running in that state. We currently interviewing leaders in Oklahoma. So you know someone you think a strong please send them our way where we're actively interviewing right now.
But during the third quarter, our cost acquire one agent was $920, making our breakeven each agent less than what we generate on just the first sale and Thats a tremendous claim to be able to make I also want to reiterate that the lifetime value of an agent is over $18000 to us and the ratio of.
That lifetime value to our cost of these acquisitions over 20 times as we get bigger we expect our cost per agent to improve even further however in the near term. We do expect this number to increase as we devote additional resources and investments to help drive our growth, but again at 20 times LTV to CAC.
No I think we got a little bit of room to grow now.
Now before I get off my Soapbox and turn the call over to Marco I do I discuss our recent announcement about the planned acquisition of theirs title.
For those of you, who followed us since our IPO entering the title business and signed a definitive agreement for acquisition should not come as surprise during.
A road show, we said we were looking to add title service to Fathom via acquisition and I'm, a big believer in doing what we're saying we're going to do and we're doing just that I'm, even more proud of the fact that we were able to do that in four months, which should have taken six to eight rather six to nine months and thats something to brag about.
If I was that bragging kind of course.
So there is a small but growing and very profitable company.
Their technology focus matches ours their virtual model matches ours importantly, our core beliefs are sort of leadership or light as well.
Chris will continue to be managed by its current team led by its founder and CEO, Paul you're it's that's cool.
Who will report directly to our.
Hi, guys and CFO Mark of fragile I was immediately impressed by Paul and his team Paul is an excellent leader. Unlike me Paul is driven to win and has a strong passion for serving others I admire Paul and I'm proud to have them on our team as well.
Now I don't want to take and it would take your time today by repeating what was already in the press release, so I'll stick to a few salient points.
Our previous time currently operates in 19 states of the base close to our home office in North Carolina, Our plan is to roll them out across all thousands over how the markets focusing first on title states as.
I firmly believe that our experience in our resources should be able to help them reach that goal now is our goal to acquire tower company to have.
It reach and licensing and many of the current markets, but we didn't want to pay for size. So this is a very strategic acquisition. So we'll make sure I clarify that as we knew that we can leverage our size to scale them up quickly. This kept the acquisition costs will ultimately, leaving more funds available for us for additional acquisitions and growth initiatives.
Actives.
Additionally, we plan to work with our software developers to find new ways to further streamline their sales operations and services as well as provide more value to our clients and our agents of course, our shareholders. Now one question I've seen a few times already is if they are different than in non or the rather than a traditional title company in that.
Had contract our underwriting portion the first I want to say that it's a misconception to assume that all title companies do the underwriting various operates the same as every other title agency and that they operate as an agency that present agent not as an underwriter in general for title agencies, and we have a few large underwriters.
They will work with then you may have a few underwriters who also operate as wholly owned agencies such as Fidelity National title Group, who has local Fidel with title agencies again, there's operates as an agency with relationships with many of largest underwriters to include Fidelity National title Group first American Stewart title among others part of the.
They all you that I want to point out reported by the various brings to the market is that they have relationships with various underwriters and ARPI homes. Just one so one doesn't want to ensure the transaction various can underwrite through another that makes it very much more competitive with agents before agents now another thing everyone's going to be asking about is it.
Okay, Great and I can certainly appreciate that obviously, we can't give any predictions of what we think it will be but I'll try to add a little color here as you look at other brokerages and their attach rate for title you'll find numbers all over the place for example, real estate companies that operate in the franchise generally have a much lower attach rate for many reasons.
I could talk for an hour about Pat but I'll spare you the psychology in resulting poor execution.
We've studied the market and also reviewed research conducted by industry analyst and we believe that with our model and by not operating as as a franchise will be able to enjoy a much higher attach rate than many of our competitors again im not ready.
Now to identify what that is.
Yes, everything we do is the support of our agent. So the addition of title services should give them additional and significant competitive advantage, providing them with tools that help make the home buying and selling process even easier for clients Marco will provide more color later, but since the transaction.
It's a closed there's not too much more than we can say at this point, we do believe that adding title services will help increase our revenue per transaction in a meaningful way and I think thats the key takeaway.
We're focused right now and identify new areas of opportunity, which could include mortgage insurance lead sales to file them and non fathom agents as well.
His nose additional technology everything we're exploring is designed to bring more value to our agents increase our revenue per transaction and shorten our path to profitability. So with that not sure Lester for that lots of short opening our government's soapbox. It's my pleasure to news fathoms, President and Chief Financial Officer, Mark a fragile market.
Thats all everybody.
Thank you Josh let.
Let me start with a brief review of our third quarter results.
Josh indicator earlier revenues grew 74% year over year for Q3 to 59.9 million from 28 from $32.1 million of the previous year. This increase was primarily.
Mainly driven by growth in transactions and average revenue per transaction supported by a strong residential real estate marketing continues right rising home prices.
GAAP net loss for the quarter narrowed to 184000 or a loss of two cents per share compared with a GAAP net loss of 239000 or two cents.
Per share for the previous for the same period last year.
Adjusted EBITDA, a non-GAAP measure increased to $5800 for Q3 versus the adjusted EBITDA loss of 170000 for last years third quarter.
Profitability decreased on a sequential basis, resulting principally from the investments.
We made in driving for future growth and the cost associated with being a public company.
Remind everyone that Q3 was the first quarter that we are a public company.
As planned ginning expenses increased to 2.9 million compared with 1.9 billion for Q3 2019.
This increase was primarily.
To an increase in expenses related to being a public company and an increasing growth related expenses. However, the increase demonstrates the scalability of our model as G. any expenses decreased to 5.2% of revenue from 6% of revenue in Q3 of 2019.
Our.
Cutting expenses increased to 2.2 hundred 17000 from 55000 in Q3 of 2019 and this is mostly due to an increase in our talent acquisition team and an increase in advertising.
We closed nearly 8100 real estate transactions this quarter, a 50% to 56% increase from last year.
We are transactions grew 38% sequentially.
Average revenue per transaction includes increased 12% to almost $6900 from about 60 to $100 for last years third quarter.
Q3 average home prices increased approximately 270 272000.
More on 247000, we saw rising home prices in more mature markets as well as our newer markets.
Our our agent network grew to 5026 agents up 38% from 3629 agents a year ago.
Now regarding seasonality into real.
Say market I'll remind you that home sales often follow a bell curve for example nationwide Q4, and Q1 will likely always have a significant fewer sales in Q2 in Q3. However, when a business is growing in school because we are the bell curve is turned on its axis, which can create disappear.
Paint that there is little or no growth between Q3 and Q4 when reality, we are in fact outpacing the normal seasonal decrease.
Moving to our acquisition announcement of last week I'll provide some additional color on the various tidal transaction.
We plan to acquire shares for about 1.7 million, including approximately.
Nearly $700000 in cash and $1 million in Fathom holdings common stock.
90000 of the cash portion of the purchase price will be held back for closing to settle any working capital adjustments.
We do expect the transaction to close before the end of the year subject to customary closing conditions.
When.
Some complete pairs will become a wholly owned subsidiary of Fathom Holdings.
While we're not providing additional details about various financials, yet we do expect this acquisition to be immediately accretive various is small but growing company and is currently profitable.
Well to help you put this acquisition to context.
Hypothetically with about 5000 total closings transactions per year, we could add about $2 million of EBIT. It closing transactions growth to 10000 per year, we could add about $40 million of EBIT and what about 25000 pilot transactions, we could see EBIT. The EBIT number in excess of 12 and a half.
Wendy Williams, hopefully that gives you a view of the potential profitability of this business to be clear. These are hypothetical forward looking statements and year to date. There is has completed just over 900 transactions.
No.
Josh has indicated we're very excited about adding title as a critical service to our age.
Ms that can add to their toolbox, making them and fab them, even more attractive in the eyes of home buyers and sellers.
We are continue to experience a very strong residential real estate market as well as improvement in the west unemployment rate and hopefully a calming of our nation following the election for.
So many variables.
Hey, Jay to depend damage and potentially new political policies as well as a host of unpredictable economic factors can still pose a high level of uncertainty over the near term.
For those reasons as well as many other as many other public traders have done we're not providing specific financial guidance.
With that said.
We believe that all by all measures our third quarter results were fantastic with a much stronger balance sheet and additional resources to fuel our growth, we look forward to the future with excitement and optimism.
The entire finance team again deserves our thanks and praise for their hard work and dedication for making fathoms incredible company.
With that I'll turn back to Josh.
Thank you Mark and yes, they definitely deserve it.
As you can probably tell by my excitement we were moving ahead full steam with the resources providers to us through the successful IPO. Our balance sheet is solid we plan to put to work strategically by continued expand our agent base both in existing.
It gets into the new ones.
We've already begun to vertically integrate as we said, we would and look forward to die identifying additional opportunities to make from an even stronger whether that be through adding ancillary services enhancing our technology platform or finding new ways to increase agent productivity, it's all about leveraging the high efficient.
Martin model that we've built to generate sustained future growth now, let's open the call to questions operator.
Thank you we will.
We'll now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to.
Sure. Your question. Please press Star then too.
We please ask that you limit yourself to one question and one follow up if you have additional questions you may and re enter the question queue.
And the first question will come from Tom White with D.A. Davidson. Please go ahead.
Yes.
Hey, guys. Thanks for taking my question.
The high level one for me.
It seems like depend demick is.
Celebrating some of the digital transformation.
Kind of trends in the residential real estate market and you know sometimes wouldn't.
Technology disruption industry, you can see spreads compress like for example in the industry that that I work in institutional brokerage that's happened over the last several years just curious whether you think that this kind of pick up in <unk> and in disruption that we're seeing in the residential real estate space at.
Moment is this kind of the catalyst that maybe finally starts to compress spreads in your industry and curious what you think that means for your business is if that happens.
So in terms of question. Thank you so much.
First of all the answers is no.
I mean, that's a very short answer [laughter], but let me let me address it this way.
Technology is advancing even faster and real estate because it depends on the cuts it didnt, but things have changed things just speeding up how fast those things change. The main change thing. We've seen is not really compression in for example, commissions, but really help.
Fast a transaction happened right, we've moved to a lot of virtual showing so instead of a buyer getting in the car and going and seeing 20 homes over a weekend God forbid, but it does happen, but at 20 homes over a weekend now they can look at how those homes using much higher level technology virtual tours and so forth to say you know what that the homes up.
I could from not only the expose expose my family the coated summer look at 10 homes or five homes. Instead, so technology has done a great job at making the process easier for the agent and the consumer is really in some ways sped up the actual transaction process the buying process viewing the closing process, but I haven't seen it.
Trey a compression on commissions now if that were to happen. There's two things first of all there's two ways to look at the market is compression on the number of sales, where we're actually seeing an increase in sales now of course, we're starting to see a decline in mortgages because of lot of the things they market that will just embedded I can.
But what we're seeing.
Good thing, though is let's say for example, the market took a downturn so let's say the 20% fewer homes to be sold in that scenario that could actually benefit from that because of our model. So what happens when agents currently paying a 70 30 split with another brokerage if they were to move over to file them, even though they close 20% fewer homes.
I see and paying the profit before they're on a 70 30 split and moving to Fathom now, we're paying $450 per transaction, even though they close 20% fewer homes. They still make 8% more income so even if there is a compression on the market right, there's fewer homes and so forth that could actually benefit found them and help us grow even faster.
Because again, there's only two ways make more money writers increase your sales or decrease your costs and during the during the pandemic during economic downturn, it's hard to increase your sales the only other options decreased cost and that's without insurance.
Great. Thanks, maybe I'll try to slip in one more if I could.
Also sort of another high level one but.
Sure.
Curious, whether you're seeing any signs.
The pandemic.
Maybe kind of the catalyst for that causes some of the large kind of bricks and mortar incumbent brokerages.
To sort of finally disrupt themselves and maybe try to more.
Aggressively adopt elements of a model that you know looks like yours or other tenants.
Virtually operated brokerages and any view on on that yeah.
I Love that question, because actually just Dave and Kevin.
Gave a talk on that very subject.
One of the more I think the changes that that should come from this is the elimination of office. So I really like we've been operating virtually for the last you know over 10 years almost going on 11 years now and yet during this pandemic companies have been scrambling to figure out how to do what we've been doing for so long.
And so it's actually even normal times a lot of these traditional brokerage.
More charged $100 per month, 70, 30 split right $3500 per transaction, they're making so much money from their agents and yet they can't pay their bills and usually the reason for that big piece of that is their office costs. Their offices use the biggest expect I wish it was marketing I wish it was agent recruiting but its not its good offices and I think.
In this with this we're starting to see more brokerages realize you know what agents can operate from home they don't need to come in office in fact, the National Association of Realtors has proven this for years it showed that but only one or 2% of all clients walk into and find a realtor by walking into a real estate office.
Revenue.
The 1% of our clients find the agent to the edges relationships with agents marketing. So offices are unnecessary. So if if these brokerage is one to survive even with even regardless of this pandemic if they want to survive they need eliminate their offices I think that this pandemic is really help them start to quickly almost forced them to figure out the technology and they were you know a post.
Understood are pushing it off because they were confused by it.
It's forcing them to embrace it.
What's interesting about that though is that if they do that if they limit their offices some of our competitors who have that same traditional splits and our virtual ambacs there they're big claim.
Claim to being different the thing did.
Projector that differentiation that differentiation goes away.
Suddenly.
If tell him has dropped all of our offices comes a fantastic company. If they dropped all their offices expense no real differentiator in more lights things like that so I do believe by both comes a great I don't mean to dismiss them anywhere I think they're fantastic companies.
But if.
Colin is did that or any sort of big companies did that a lot of the a lot of the differentiation goes away and I think I think covert the pandemic is proving that out.
Great. Thanks for the call appreciate it.
The next question will come from Darrin.
Aftahi with Roth.
Capital Partners. Please go ahead.
Hey, guys. Good afternoon, thanks for taking my questions and congrats on the quarter.
I guess first one for me you know in a in a normal world Marco to your commentary about sort of a seasonal drop off in the fourth quarter I guess, we're not sort of living in.
In a normal world right now so.
Given that could you, possibly shed some light.
And I know you don't want to give guidance on just.
What you're seeing quarter to date.
In in your bigger markets and as that.
Strong demand you saw in the third quarter kind of spilling over into the fourth.
Hey, Darren Thank you.
I think when you look at Q3 with a 74% growth and I think every real estate company had similar experiences right part of the Q3 growth is related to some growth that came from Q2. They got the late right. So I think we have to pay attention to that and there is seasonality.
Two to that so typically Q4, you know there's a reduction in Q4 compared to Q3, having said that this is a great year right and so there is no question that to 2020 or go down in history as one of the great. This year.
So we're not seeing.
That's seasonality decrease like it to be.
What we see in the previous year. So there will be some but it will not be as drastic as previous years I think thats. The best thing we can profitably say.
In terms of that so I think we can look back and in previous years see what that number looks like and I think we can look at this year for US now other companies may face some some different.
The percentage numbers, but for us.
We're seeing that decrease from Q4 to Q3, thus far and it was still early in Q4 is not going to be similar to previous years right because of this sort of delayed.
You know issue with the pandemic, having said that we.
Very much affected by supply right and supply of homes deal is still an issue.
In the country, even though I think we've seen a reduction in our new mortgages applications.
To have a low interest rate, but but let's not you know.
Misunderstand terms of the numbers are in terms of supply.
Still and so, but I think but I think again two two compared Q4 of this year looking back at Q4 of last year. We believe the decrease is going to be lower.
Lower than last year.
Got it that's that's helpful Sean.
So on the transactions above.
Consummated.
During the quarter.
Is there a way to kind of de duplicate what was in mature 10 pull markets for you guys versus perhaps newer markets.
Yeah. That's a great question you know we eat a week, we continue to grow rapidly and so the child.
Allergy is what is on the market right and so how should I look at these numbers all the time and we're trying to you know is that is that is 25 inches of snow markets fit the ages and no Mark is 100 agents in the market. So we don't really look at that yet having said that we did have in our history of our company a greater number of market.
Did that hit well, we'd like to call number 58, as we see them Wanna Mark a hit from on 50 agents then they start seeing a or even more increasing rate. So we did see a greater number of our markets hitting 50 agents and I think that as we go forward, that's probably a number that we're going to share. So we'll get some some.
Sort of flavor to our growth, but that's the magic number that we've seen in our history is is that 50 50.
50 number.
Great and I forget to squeeze one more in Krasik, you mentioned, an actor higher in West, Virginia, I'm, just kind of curious.
That's a far away.
We.
Talk to investors a lot about.
What is the general kind of thought process about Aqua hires as you try and ramp from sort of roughly half the.
The U.S. in terms of presses to to all 50 states.
Sure I appreciate the questions. Its great question. So when we're looking.
Can you expand the obviously, we can we can look to hire one agent Im sorry, one manager and then slowly they add one agent than two and four than five of just the growth is slow.
Unlike some of our other side of that we can do and actual acquisition acquiring an office. There has 30 or 50 agents and that's an area that theres a lot more color.
To that and then sometimes we find a small operation that has five or six agents. They're just they're just getting there they're coming off the ground. They are wanting to do what fabs are doing they learn about us like that's what I want to build and I'd, rather do that with this company.
They may already have 10, 15 agents or could be a team that they're running at currently running.
They are very successful and they will go to next level being a brokerage and so in that case whats nice is that you're not having to make critical acquisition, you're not paying tens of thousands or hundreds of thousands of dollars to make an acquisition of agents. So really you're hiring this person and they bring a group of 10 or 15 agents with them in this case, that's what happened.
We met Hershey's fantastic Great leader, we're really proud to have her and she brought agents with there. So that's what we mean by acquire.
Great. Thank you.
Once again, if you have a question. Please press Star then one.
The next question will come from Greg.
Hit with Pinnacle from please go ahead.
Hi, Josh and Marco Thank you very much for taking my questions and congratulations on a great quarter. Thank you.
Thanks first question is just on agent recruiting spend I'm recalling.
Hey, you spent one point.
$4 million on agent recruiting in 2019 and I. Appreciate you pointing out that 20 times LTV to CAC, which is outstanding and you provided some commentary about putting plans in place.
To use the proceeds from Europe.
No the $31 million in race from your IPO.
And one of those proceeds one of those uses of proceeds would be agent recruiting spend or investment.
Can you please help us understand it.
Russell Laggan you hire you outlined with the.
And new hire to help build out the team is.
Is he an important part.
Building out that strategy to come up with.
Your your plans that you want to put in place to increase your agent recruiting investment and.
What are the barriers to getting that done is that something that you think you you.
Our able to finish by the end of this year.
Or is that something that might take longer.
Yes, I think it's a fantastic question first of all with Ross, Yes. He is a great higher I'm very excited to have them, but he's not detrimental to us to accomplish that we were already doing that before we bought in that yes. He just really helps take that to the next level.
We are executing already bring him then we're helping.
We're hoping to continue to build that team around that we've already made some additional hires around him as well additional recruiters and so we've got a great place, but recruiting is not the only way we grow I just wanted to kind of point out first it's a piece of our growth. Another piece of our growth is very important is through agents referrals in fact about 35% to 40% of our growth is.
From ages, referring other agents since that's a big part of our strategy as well and part of that comes down to how you serve your agents right. How you how you love them, a service and make them feel like the part of the family. So all these studies are very important to us being able to achieve our ultimate strategy.
Recruiting team is very important because as we open up a brand new market.
And with a brand new leader there Theyre just learning the thousand store themselves are learning how to pitch. The story tell the story and so the recruiting team can come up behind them and help help feed leads to them as they're making phone calls as well since one person, making phone calls youve got two or three people, making phone calls getting getting cabin introduced to more people to help feed that.
Market faster.
As well as more mature markets now, they're really focused more on the newer markets, but they still do helped us in the mature markets as well, where we need help north of where we see big opportunities like take for example, we hear about a brokerage that may be shuttering or they're struggling financially will pull Oliver our recruiters together so okay. He.
As a group of agents, who are about to be forced to find a new broker.
That's right, it's had a little bit of fun with that but.
Yes, it was.
Ross is a great acquisition are great hire, but he's not vital to what we're doing but I do think I'm very excited to have them. So I don't want to hopefully is not listening. Thank you know nellix, let's bring it on.
We actually.
He loves him there so again the other piece that Directionally learning and we weren't doing before his PR. So when the foresight we hired her she's another fantastic higher love her to death, she's coming with some ideas that we will never really we never really knew how to execute on thats with the public relations PR.
Getting us get us into.
Finally, I tend to be very humble and modest and I don't like to be in front of people that'll happen like agile till they have done to work and she is good about pulling me out of my shell and making me give interviews and speak in front of people things like that and so we're already we don't know what that ROI is going to be of those of those PR initiatives. However, we're already.
Starting to see a lot of opportunities come out of it. So we know it's going to be they're successful and thats because of her and because of that higher. So obviously hiring the right people is going to improve every one of our growth initiatives.
So it really comes down to execution, it's more than just one person. It takes the whole team and we're very blessed to have a really strong team.
Thank you so it sounds like if I'm understanding correctly it sounds like.
A lot of your agent growth has been through the traditional recruiting channel that you've been.
And claim for multiple years, and then referrals, but.
Investors that on your stock today haven't yet seen the growth.
The agent growth from your.
From your early incremental agent recruiting investment Thats.
Getting deployed as we speak now and so thats kind of that that will show up in the coming months, yes, actually will add some color to that because that's a fantastic question and I think a lot of people needless to say well gosh they raised.
All this money.
They are loaded.
Not quite that we've got the money to be able to do a lot of great things now, but it takes time, but it takes time to actually spend that money to put together new initiatives actually spend the money in it and so we have them. If you look you can look at the balance sheet, we sell almost all the money there outside of paying for DNA, though and.
Paying off alone I mean, it's all there. So we've got a lot of great opportunities things that we're working on currently but it takes time and so when people know that when they know that we've got the funds to be able to invest.
It does take time, she moccasin instant gratification and like you alluded to even from the time, we start having the conversation with a new agent it takes time.
Them to decide to come over but once they are ready to come over we can onboard them in the same day right in most cases or the next day. So it's very very quick but the conversation takes time to get them to get off the fence and make a move so all of that it could take some time, but we are we are excited about having the opportunity. We're excited by all investors who put their faith in us because now we have.
Funds to be able actually all the things we wanted to be able execute on as well as acquisitions of of small medium and large brokerages are those conversations are happening and I'm excited that we can you can have those conversations now.
Thank you for treating investors' capital with respect to because I think one of the fastest ways to lose investor interest.
Have you.
When you treat your.
Your wallet like there is a hole in it and you just got to go out and spend the money. So I appreciate you being Huntsville, Ashley Urease, yes, Mark it tends to all those pool table orders [laughter] I'm glad I said that.
And the Atwood that would that would never happen Trust me [laughter].
On on agent retention, so I am understanding that agent recruiting investment was historically somewhat constrained by your balance sheet and you're removing that governor with calculated investment going forward on your Q2 earnings call.
Highlighted that Youre agent attrition is half of the industry average and that you and you reiterated today that a lot of agents come to fathom for the commission structure, but stay for your company culture I noticed the agents can now receive stock on.
As a part of their commission rather than just.
Hi, Josh do you think that agents are going to align themselves to fathom by choosing to receive some of their commission dollars and fathom stock rather than cash and how do you think about the effect that enabling agents to become fathom shareholders will have on agent acquisition and retention.
I think it's a great question again.
First of all right now.
Now the answer is no because were not allowing agents to buy stock in lieu of commissions. Although that is something we've considered can you consider but part of the reason why people do that is because they need to raise funds. It's of a raise funds from their agents one of our competitors. That's how they were funded for the first five years of being public.
They're on LTC, so they don't really have that.
Cash that the agents funded them through exchanging their commissions for stock and that really one flow for a lot of places there their stock has really grown since then so kudos for them.
It's something we've considered we'll continue to consider but right now we don't need to do that if we do that it's purely to benefit the agents not because it's something we need to do to help raise additional funds.
With that said, we do give agents stock for every agent they refer and for every sale they close and that makes every agent to shareholder and we but we do believe that that will help keep agents with our company stock comes if we stopped we give them comes a three year vesting. So they may not want to walk away because they see our stock in the last.
Several months go up 100%, we're excited right and so they don't want to make a move because they believe in the company and they can see first hand that we actually live and do what we say where you guys could hear say things that they get to live it. They know that we actually do what we say, we're going to do and so they have a little bit of insight and right click they know what they experience it.
But part of the reason we did that also is because it shows the ages that we really value them, we recognize that that all of our transaction revenue comes from our agents and we recognize we also like as a 35 or 40% of our growth comes from our agents, referring other agents and we won't let them know that not only we think if we show it there are actions.
And by giving them that stock to be able to get to reward them and.
And so yes, it gets them excited.
And more importantly, it really helps them feel like a part of the part of the company the owners of the company and that there is nothing but good things.
I I have thank you Josh I have two more quick ones I was unaware.
The higher of Grady like on and I looked at his background and now it's highly impressed to see that he was the chief Information Officer, Berkshire Hathaway home services came quickly touch on why Grady chose to join Fathom and what he saw as the opportunity here.
I I want to be very clear.
Careful not to put words in his mouth that we've had a lot of conversations and one of the thing about being an insider of just these really big organization as you see it.
You see that there's time for change right I I kind of chance and listen to every one of the other.
Earnings calls for all the competitors and the fact that competitors are getting excited about 2%.
Gross I never want to be that person gets excited about 2% growth and I think there is a similar position. He saw that look there's there's opportunities disrupt this industry is opportunistic change there's opportunities through their new models to technology and he wanted to be part of that he wanted to be part of something that's going to actually revolutionize the industry assess things we talked about.
I said I can't pay as much you, making before is like Thats, Okay, I want to be part of something that's going to change industry and that's what he was excited about and works out of hand, because he comes with a significant amount of knowledge knowledge that we have been gaining over the years, but he's got a decade of it. He has got connections that we didnt have for he's able to get things done quicker.
Because he he has those connections and that knowledge and experience and so.
Just an amazing guy and he's in Houston right now he is actually moving up to our Dallas market and we're we're very pleased about because yes. This is resumes legit, but more importantly, he is the real deal.
It's a really exciting and.
Okay, and just last last comment or last question from me was around various title I heard you say that you're not ready to talk about an attach rate.
But Marco I appreciated the commentary I wanted to make sure that I heard you correctly, if you were generating.
Generating revenue from 25000.
Title transact.
In sum did I hear you correctly state that that would be 12, and a half million dollars of EBIT.
That's correct, yes, and that's based on I think we talked earlier that title is different pricing in every state right and then the difference in terms of pricing why there is a title state.
This is an attorney stay so thats a blended rate, but that is correct. The 25000 closings.
We do believe we can see a bit of a 12 and a half million dollar.
But that that would be really exciting clearly theres seasonality in your business, but you did a annualized 32000 transactions in this quarter.
And I don't think anybody would would encourage investors to look at this as an annualized quarter, but I wouldn't I would.
Yes, I would love to see if you were able to get 100% attached and clearly there's an opportunity there.
There for less than that so that's also unrealistic, but there is clearly an opportunity where this could be a very real.
Okay business and a real contributor.
On to.
Here are we are we are very we are very excited about the future of eris title plant and very blessed to have him as part of our team Paul is a great leader and.
So it's it's a it's a great acquisition.
There is actually a report to a research report done.
Hi in the news and 1001 consulting is couple of years ago can.
And you can find a few Google it but actually talked about attach rates of both mortgage and title title tends to be much much greater attach rate than the mortgages because with mortgage.
You're going to be pushing back half.
Bonds create lender I love this lender, but the consumer ultimately picks who that is it's a much bigger part of their life right with title II six one half of the estimated fair with carriers like a change how much state how much if they have to pay to close on a deal. So the agent says this what I want to use so I recommend use like okay, whatever you say.
And so our goal.
The goal really our job is to just teach our agents on the buyer side to write in our title company on the contract and then the listing side to fight for our our company. So most most I just don't have a relationship with a.
Hey, my relation, but they'll have a financial relationship with title.
Company, because how companies can't pay agents to some business over so well.
Well an agent May sound really like this company over here capital title whoever they are not going to die on the hill to make sure that that company gets to deal.
But if we can show our agents that that there is real value as you use our company.
Hopefully print generate more revenue net revenue hopefully generates higher stock value, which means your stock is worth more right. If we can show them the value in the business over and build those relationships and I do think we have a very strong attach rate and then the numbers marker gave his ultra ultra conservative. So I'm really excited about what we can accomplish but take a look at that but I think it'll it'll be.
Enlightening.
You will see I think you'll see that the company is to operate as a franchise struggle on both a mortgage side and the title side on.
With with their tax rate, but we don't operate as a franchise right. So we can have little bit more control on that so I think we'll be able to do a much better than some of the competition has been doing.
Thank you I'm very excited.
What about your opportunity to capture more dollars per transaction and I'm looking forward to seeing if there are any other ancillary services.
That you can attach you mentioned mortgage insurance and lead generation or lead sales to agents with.
With that I'll, just say, thank you very much and we're very excited to shareholders.
And in good luck for the year.
Thank you. Thank you.
And our last question will come from Kris Tuttle with IPO Kenny. Please go ahead.
Hey, Chris Hey, Thanks, Thanks, guys can you send justifiably happy.
Clearly public company.
Yes.
<unk>.
I did have one question also on the title business and my question is basically.
No.
I'm like who actually sort of is the decision like the buyer or decision maker for that business and in <unk>.
In some cases I imagine in some states.
The company Who's leading the charge on the mortgage sometimes they sort of make that choice.
And I wanted to understand a little bit better like what percentage do you think of agents are involved in that decision process with the consumer.
Mervyn versus mortgage companies are lawyers or that kind of thing.
Yes, so that's a fantastic question and it's there's lot of misunderstanding because ultimately yes.
And it really because it really depends on the contract itself, but the contract May say, yes that the seller is going to pay for the time right. They owned the home.
So basically ensuring that it.
It is what we said is so often times that the seller will pay for the insurance will pay for the time.
Insurance to me, but the buyers have to live with it. So if the buyer sales going to know I'm going to live with it no I want to use mine. So in that case. The sellers can say on his line, we're going to have to pay for it.
The buyer say known as Mike just live with it.
And while that sounds good and fair Thats not really happens what really happens is the the the listing agent will put in the MLS Here's the recommended title company and by the way. This is bizarre, but how most people pick the topic I think most of you just pick the pellet company based on which several.
That has a location its closest to the house with the closing how much does it that there is no there's no emotional but there's no nothing like that just it's convenient well with various we can compete with that because we can come to you. It's actually even more convenient don't go to the title office was killed in or whatever we're going to come to you to remote closings and so forth. So.
But what I can back to make it even easier than before so ultimately what happens is the seller the lifting angel, putting MLS tier one telecom to recommend however.
The buyer agent is the one actually likes to contract and so on the contractors are placing fill in the preferred title company. So either they can just copy what's on them less or they can.
From a blank of who they want that's why we've got to do the job teaching our agents to fill in the blank well Theres title and then showing and demonstrating why in building these relationships to really.
It really forced dot com and on so if we own the buyer side, it's easy because we can fill in the blanks right. If a work on the seller side the listing agent make it a contract.
Films and it says fidelity title.
San Diego says you know guys, we want to use various because of a BMC, they're gonna come to us we're going to make it easier. So we will test the buyers I just say.
Okay. So we're finding right now on price and these inspection report issues I'm not going to get back to before.
Hi on the hill over who the counter companies that I'm in different and being paid and the clients not paying any more or less so why do I care.
Hopefully that helps okay, yes, I understand it much better and I'm sure I'll be learning more so I appreciate that and.
Again, congratulations and well look forward to talking again soon thank you I appreciate you.
Thank you.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Josh partly for any closing remarks.
Thank you so much and thank you everyone for your support and of our mission to revolutionize the residential real estate market. What continue to work hard for you we will never lose.
Site on our long term goal of growing shareholder value Mark when I look forward to updating on next quarter's call effect right excited for the next call. So thank you again for spending his time to stay and of course have a happy Thanksgiving Douglas.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yes.
Okay.
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