Q4 2020 Fathom Holdings Inc Earnings Call

Good day and welcome to the Fathom Holdings fourth quarter 2020 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please.

Signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one. Please note that this event is being recorded I would now like to share in the conference of Roger Pando instead.

The Investor Relations for Fathom Holdings. Please go ahead.

Thank you cole.

And welcome everyone to Fathom holdings, 2024th quarter, and full year conference call I'm, Roger Parnell with Pinedale Wilkinson with Fathom Investor Relations firm. It is my pleasure today to introduce the company's founder and CEO, Josh Harley and fans, President and Chief Financial Officer Michael.

I'll go fishing all.

Before I turn things over to Josh I wanted to remind all listeners that today's call may include forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95.

Such forward looking statements are subject to numerous conditions.

Many of which are beyond the company's control, including adding new capabilities, the ability to reduce costs and drive sustainable growth. The types of new revenue generating opportunities identified by fathom, along with the company's timing of identifying and completing them as well as those set forth in the risk.

Risk factors section of the company's IPO registration statement as filed with the SEC copies of which are available on the SEC's website at www Dot FCC Dot Gov, along with other fathom founding filings made with the SEC from time to time.

Time.

As a result of those forward looking statements actual results could differ materially and fathom undertakes no obligation to update any forward looking statements. After today's call except as required by law. Please also note that during today's call management will be.

<unk> adjusted EBITDA, which is of 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.

Scott posted on <unk> website, and with that I will turn the call over to Josh Josh.

Thank you Roger and of course, thank you to everyone who is on todays call I see subtle of use of patents of rebuild of kind of known value over the last eight months now Marco and I and of course, our entire team really appreciate your support and your faith in.

We're happy that you are part of our Fathom family before we review the significant progress of starboard made since our last call I want to thank our agents and employees for their continued hard work not just to our overall vision, but also in helping us grow while adding value to all of our stakeholders I also want to say thanks to our fathom family.

For their unwavering dedication to creating a culture built on service and more specifically serving in placing other is first I cannot begin to express how important that is and the role. It's played in our success one of the things that I love the here and especially out here. The alright lets say they joined Fathom for the commission.

They stay for the culture that stacked plays a significant role in why we have one of the lowest agent turnover rates among any residential real estate brokerage so with that we had an awesome year and what a great quarter right. I know you can't see me right now, but I'm sure I have kind of goofy looking smile on my face in part because of a greater.

Right results, but also for the fact that we're just getting started.

Already looking forward to next earnings call.

Is that yeah, I'll, let mark of review our financial results soon but first I'd like to take a few minutes to discuss our recent highlights which we believe provide a good road map of our direction first I can't help of steel just.

Little bit of Mark of standard because I'm proud of our results sorry Buddy.

As you saw revenues from the quarter grew 61% and were up 59% for the full year and that's of Covid shutting almost everything down for a couple of months.

I love that I can proudly say that we came in with the second highest revenue increase of.

Just the publicly traded residential real estate brokerages and that's the only five months of being public.

We registered solid gains in virtually all performance measurements with which of course, mark who's going to share soon.

Now I want to reiterate that last point that I made our first day as a publicly traded company was July 31 two.

<unk> 2020.

So we only had five months of being public and as I'm sure. You know it takes time to put our newly raised capital to use many of you are getting the no fathom and of course, why we're different than really more different than other real estate brokerages, but for those of you who are new to our story I'd like to spend just a few minutes to help you see why fathom is disrupting.

And the industry.

Like others Fathom is of full service residential real estate brokerage however.

I think this is really the key we leverage an innovative platform as a service model, which is powered by our proprietary cloud based technology called until the agent.

Our tech platform allows us to operate virtually while providing.

Adding our agents with all of the major functions that could otherwise get from a traditional brick and mortar company not only does our technology eight of our agents. It also allows for them to streamline and automate our operations significantly reduce costs and personnel requirements and allows us the scale and expand the business without the access of spending that usually accompanies.

Companys growth.

As a result, we're able to charge a fraction of what other brokerages charges their agents, putting more money in agents pockets to help them reinvest in and grow their business. So we believe this also gives us a faster path of profitability, especially more than many of the competitors, who are charging monthly fees and large.

Commission splits.

We're excited about the advantages of the intelligent groups, including attracting new agents in 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 last the previous point, because the really about the increasing use of productivity through.

And our technology, our focus is not just in adding more agents, but also developing more productive agents. We don't want to just be another brokerage hanging agents licenses. We believe we can accomplish that by providing more tools and actually help our agents and getting in front of more buyers and sellers as well as.

<unk> reduced the amount of time required to manage the transaction process, giving them more time of network and sell in time, we also intend to generate real estate leads for agents, which in turn will help fathom further increase our revenue per transaction attract even more agents who are looking for leads and allow our current agents of stop spending the harder.

Order of money with these large portals, who are actually the competition.

And one of the unique things about fathom is the fact that we offer a small flat fee commission structure for agents versus a large percentage split that of competition charges their agents.

In fact, that's what most agents focus in on our model allows us to.

And make more money rather allows the acres to make more money and reinvest those dollars into their marketing efforts to grow their sales and as you can imagine this makes us highly attractive the agents in fact in 2020, we saw of greater than 37% growth in agent count ending the year with nearly 5500 agents and these numbers exclude.

Glued the impact of our recent acquisition of Red barn, which will add another 230 agents to our agent base in Q1 on top of our normal growth strategies.

Now during the fourth quarter, our cost to acquire one agent was $920, making our breakeven on each agent less less than what we make.

I'm just the for sale, but thats tremendous claim that we able to make I also want to point out that the lifetime value of an agent is over $18000 to us and the ratio of that lifetime value to our cost of Aegean acquisition is over 20 times and Thats just the revenue that's generated on the real estate side of.

Of the business it doesn't take into account potential revenue from title or potential revenue from future mortgage and insurance revenue and as we get bigger we expect our cost per agent to further to really improve even more. So however, I do recognize that in the near term. We expect this number may actually increase as we devote additional resources and investments to help drive our growth.

Growth, but again at 20 times LTV to CAC I think we've got some room to work.

Now as I mentioned earlier, we often hear or even say that the joined fathom to earn more commission, but they stay for the culture and while I don't want to make too much out of our Glassdoor rating. It does validate the feedback are incredibly high glassdoor rating of <unk>.

For eight puts us at the very top of all large residential real estate brokerages. Although this is just one example, the shines a light and our culture of service I'm also proud that we have one of the lowest agent attrition rates in the industry at just one seven per cent per month.

The store is nice, but if you want a true representation.

Of whether agents are happy hour.

Our agent attrition rate is the best indicator of really exciting stat that I'd love to share with you is the fact that our agent retention of higher producing agents or other agents that are closing more than 10 transactions per year improved significantly from 10% of the overall nutrition.

In 2019 down to only two five per cent of the overall attrition throughout 2020, that's basically there's essentially 2.5% of one seven per cent simply put we're doing a great job keeping high producing agents and by the way, let's be honest here are there any other real estate brokerage of sharing these data points.

Now as you can tell I'm on fire for Fathom and I loved this company. So I can go on and on but for the interest of time I'll just touch on a few more key operating highlights from recent months.

We are now in 27 states and 113 markets. Thanks to our virtual model and technology platform, we're able to launch new.

It's quickly, especially in for very low cost the top priority for us when entering the market is actually in finding the right leader I think you've all seen this the leadership matters and we've found that the right leader in a small market can outgrow a large market with the weak leader. So that's a huge focus for us.

Because of strong leaders, we were very happy to announce.

<unk> earlier this month that reveal of group was named to our board of directors reveal is an experienced executive with impressive track record in strategic planning business development leadership development marketing and culture, plus she's just an awesome person. So we are really fortunate to have found her.

And as I mentioned earlier during the.

The fourth quarter, we netted of additional 445 day, just giving us the total of almost 5500 agents at yearend of number that as you can imagine has grown even further giving us data points nearly three months old.

As we we also introduced an expanded agent referral program to reward fathom agents for bringing new.

Wages for the company approximately one third of our agent growth is actually from agents, referring other agents to fathom and we've already seen a lot of excitement of movement from this change but please note that while we are providing stock awards for these referrals I assure you that we're very careful about dilution even including exactly.

The board and I'm, sorry, executive and board compensation agent stock for closing transactions as well as this new referral program total dilution is the only between two and 3%.

Both Marco and my family owned a large percentage of fathom stock. So rest assured our interest are completely aligned with yours.

Exactly all the if minimal dilution can turn into significant growth and I believe it's something that we can all be happy with.

Now, we had a great quarter and a great year, but we also we've also been very busy since the close of the year. So like we like we said.

We would be entering the title insurance business with the acquisition of.

We know North Carolina based various title, adding there is was highly strategic and it's already proving to have our I'd rather on improvement of <unk> to be the right move.

The various team is fantastic and that and the company is performing well as we are integrating them to various other markets.

<unk> is licensed in many of our existing markets, giving our agents.

Of the competitive advantage and of course, we're in the process of getting licenses for title and title services in Texas, which as you know is our largest market.

We partnered with <unk>, which is enabling our agents to take full advantage of eye buyers versus trying to compete with them right. We've already heard many of our agents share the positive.

Agency impact of this has had on the marketing and lead generation and we believe that I buyers in one form or another are here to stay so why not profit from that relationship and we're doing just that and.

And lastly, I do want to mention two additional exciting transactions first we acquired the technology platform of Neighborly solutions through Fathom and tell agents.

Part of it to eliminate its really the help eliminate our reliance on third party tech providers and reduce our costs significantly while offering more robust tech tour agents to help them really grow their business. It's uncommon to find a tech company who's built out of a full technology offering prior to generating lead of rather generate revenue.

Subsidiaries, that's what we've found of neighborly.

And it allowed us to pay a very reasonable price for a fantastic asset and a great team not only will our agents benefit greatly but we'll be able to leverage neighborly to build of national home search web site to start generating leads for our agents and to really effectively compete at least for some small.

Scale with the large national home search for US long term, we plan to actually sell leads to non stop of the maintenance as well in the markets we're not in yet.

Another key factor is the acquisition in the factories, rather as the potential power. It gives us to control of the full lifecycle of the home buyer and seller and gained greater understanding of our data and how to use.

To further improve our offering plus the fact that we can now begin to identify potential clients for mortgage insurance entitled long before the under contract and even before the agent has made an introduction for it that's the Holy Grail for these companies as most spend huge marketing budgets on attracting clients, while still being reliant on realtors.

<unk> to refer them over.

And second as I mentioned earlier, we completed the acquisition of Red barn real estate of growing Atlanta based brokerage more than doubling the number of fathom agents in that market from around 200 agents to around 430 agents, what really impressed us with Red barn was the amazing leadership and culture and it certainly didn't hurt.

Hurt that theyre already of a great title and mortgage attach rates, which is important to our growth strategy over the long term.

No acquisitions will continue to play an instrument instrumental role in Fabulous growth. So we plan to add mortgage and title insurance services and continue to acquire smaller brokerages similar to Red barn acquisition. So.

So during our IPO Roadshow, we discussed the six to nine month timeline for acquiring title services and we got that done just four months. We also discussed the nine to 12 months of timeline for acquiring mortgage services and we feel pretty confident we'll be able to hit that as well so while acquiring of rather while acquisitions are going to continue to play a role I do.

Do want to assure you that we will continue to be good stewards of the money you can trust us with we want to grow but we intend to do it strategically and not overpay, especially when we've been so effective with our own organic growth alright.

I wanted to make sure we leave plenty of time for questions. So let me get off of my Soapbox and I'll turn the call to Marco our President and CFO Barcodes.

Of course.

Thank you Josh the thing as Josh stole some of my Thunder, Let me.

The key details of our financial results and of course add some additional color.

Revenue grew 61% of year over a year for Q4 to $53 $40 million from $33 2 million. This increase was.

The only by growth in transactions and average revenue per transaction supported by a strong residential real estate market and continue rising home prices are quickly minded the home sales in Q4, and Q1 are seasonally lower than during the rest of the year as I mentioned in our call our last call. When the business is growing as quickly as we are.

Three of them at the appearance that there is little to no growth between Q3 and Q4 when in reality, we are in fact outpacing normal seasonal decrease GAAP.

GAAP net loss for the quarter was $1 3 million or a loss of nine cents per share compared with the GAAP net loss of about 1.3 mailing of or a loss of <unk> 14 per share.

It can't grow at the same period last year, our weighted average outstanding share count increased 36% between the two periods, primarily due to the impact of our IPO.

Adjusted EBITDA loss and non-GAAP measure of narrowed to $850000 for Q4 versus an adjusted EBITDA loss of $1 2 million for the last.

Sure it's fourth quarter.

Non-GAAP of profitability increase due to gross profit expansion, partially offset by an increase in G&A, primarily attributed to costs associated with being a public company.

G&A expense increased to $3 9 million compared to $2 3 million for Q4 of 2019 the.

This increase of the gain was primarily due to expenses related to being a public company.

Our marketing expenses increased to approximately $384000 from 181000 in the fourth quarter of 2019.

Was mostly due to the increase in our talent acquisition team and higher investments in advertising and PR, which are already paying off.

Last years of adding agents in helping fathom become more well known in the industry.

We closed approximately 7500 real estate transactions this quarter, which is about 50% of inquiries from the same quarter last year transactions decreased sequentially sequentially related to the seasonality, which I described earlier.

Q.

In terms of leverage home prices increased to approximately 286000 from 245000 in Q4 of 2019.

As Josh mentioned earlier, our agent network grew to almost 5500 agents up 35 per cent from 4006 agents a year ago and as just mentioned subsequent to the end of the quarter.

For all of adding the Red barn agents.

We maintain a very strong balance sheet with about 28 6 million of cash and equivalents. We believe that we have enough firepower to fund future growth without the need to tap the capital markets. However, should we have an amazing acquisition opportunity, we could use that option.

Josh.

Quarter, when many times, we want to be of good steward of our investment in us and we're only raise additional capital for good reason.

The company and we do not believe in growth simply for growth's sake.

We have share with all of you our full year financials and the price at least that we issued earlier today.

Next I'd like to.

I'll say, a little bit about Bob about the various in the in the acquisition. We made late last year and remind you about how profitable adding title to our business could be.

Our hypothetical forward looking statements, but they should help you to put into the acquisition the perspective.

With five pilot thousands of closing transactions, we could potentially add to millions.

To talk dollars in EBIT annually, if closing transactions grew to 10000 per year, we could potentially add 40 million EBIT and with 25000 transactions, we could potentially of $10 million in EBIT.

You can see title the title business can be very profitable and we are very excited about the future for virus.

But you need to experience of very strong residential real estate market and even with rising interest rates as the wells I mean prelim in the U S unemployment rate and hopefully of continue calming of our nation. Following the election, but many variables of still remain related to the related to the pandemic and potentially no political policy as well as a host of unpredictable.

Couple of economic factors that still pose the high level of uncertainty over the near term for those reasons as with many of the public traded companies, we're not providing specific financial guidance at this point.

By all measures of our fourth quarter and full year results were excellent and we are very proud and excited about the future for before turning back the call for.

We're kind of I like to add my thanks, and gratitude for the entire fathom team. We are building something great and leading discharging disrupting this industry of which needs a great deal of change I'll turn the call back to Josh and then we can do Q&A.

Thanks, Marcos as you can tell we're incredibly excited about our prospects we've been working hard since.

Of our IPO to deliver on our promises and grow fathom and accelerated and you have sustainable fashion for the long term.

We're honored to have you on this journey with US and of course for those of you who are who are our shareholders. Thank you for your trust and being part of the founding family.

Later, we are now ready to open the call for questions.

Have you ever will now begin the question.

<unk> and answer session to ask a question you May press. The Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two and at this time, we will pause momentarily to assemble the rough.

The first question today will come from Darrin after her with Roth Roth Capital Partners. Please go ahead.

Hey, guys. Good afternoon, thanks for taking my questions and the nice nice quarter, a few if I may can we just start.

Of the.

Snow storms and the weather in the down in Texas.

I'm just kind of curious I know you guys aren't giving guidance, but how much of an impact was that on your your agent agents business.

Q1.

Mark of you're muted.

The second sorry about that.

We want to answer your question I promise [laughter] debt.

Thank you I I do myself, we did see a little bit of an impact.

But that was you know just a few days after the storm and then the real estate agents and in our mortgage partners quickly.

The recover and so I don't think it was the you know at the end of the quarter I don't think it was the significant impact.

But we did see a little bit, but I think that the team recovered rather quickly.

And so for the entire quarter I think the impact was minimal.

Well one of all of that sort of color to that one of the things I was talking to our agents. What we found is that.

The.

There was a temporary blip bright people are waiting because they can't get out on the street to go see homes or we're not ready to list the home because they have the replace some pipes that leaked so that there is a little bit of blip, but didn't change the trajectory of that still these people are one of the sales still on the sell the people on the buy someone to buy but there is basic came in after.

Wild Who's got made in the snow cleared so so usual for Texas I grew up in Alaska.

You don't get that kind of weather here in Texas. It was interesting to see.

Great and then just on Neighbourly, Josh you touched on the the lead component.

To the business and you know obviously that.

Some of the rupee incremental piece.

Piece of revenue for you as a company how quickly can you have a kind of realistic.

The lead generation.

Tool out there are kind of impacting the P&L.

Going forward.

Yes, I'll, let mark address timeframe at all.

It would be some color to it.

Yeah, I think that we second half of the C. A war go what we are going to begin the lead generation business and we will do that even with the current fathom website. So one of the reasons one of the many reasons we looked at Red Bar for example, because they had a very nice the generation business.

The second half of this year, we will begin a.

To see Allegiant in of some some financial impact positive impact for lead generation and then and then once we transition for <unk>. The Neighborly, then will significantly increase that AR and the timing for four for neighbourly is more.

And so at the end of the year early next year.

But that you are not necessarily are happening of the same time. So we will begin to the lead generation earlier beginning of the second half of this year and then neighborly, you'll probably come at the end of the year early next year.

Bank of America.

So yeah.

I would like to.

The kind of just touch on this end of things importantly, the.

Enabling the allows us to a lot more of that leaves how much greater control and be able to generate higher in other words more leads for last dollar spent so it adds a lot to it but again as Mark indicated we don't have to wait for it to be finished for us to be able to start generating leads for the lease part of an important part I think of our story because.

More like it does several things number one agents want leads right now we've got agents that are spending.

And thousands of dollars per month with some of these external portals, which I'm sure you know who referring to and they don't want to or they see the most competition, but they don't know how to get off of that and they want to be able to investment money internally as possible. So we've had a lot of agents.

Cause interest say, we'd love to buy leads from you. You know is there something we can do internally and something that debt. That's my background and so we want to be able to do that for the agent. So we're gonna start that process. We do believe once we start sharing leads not only will it help us generate more revenue because we're generally the leads and we're able to now provide those we used the agents, but except for the 450 on the transaction fee we can charge.

<unk> also a commission split on top of that but this is the business that they didn't generate the business regenerative for them. So again more revenue per transaction for the transaction of regenerate, but the other piece of that is agents want leads and there's a lot of agents, who will leave their brokerage to go to the brokerage who provides the leaves and right. Now there are very few outside of the teams Theres very few brokerages.

The fact, I can't think of any specifically actually provide leads of masks to their agents.

Great. The tumor if I may of you mentioned in the release Canada.

I think for the first time I'm, just kind of curious if you'd give us some more insights and kind of when they actually come to come.

Bridges all day.

Yeah. So first of all we've got a lot of room to grow here in United States right, there's whereas we're still got half the states of tap into.

Yeah, There's 1.4 million real tours, Theres 2 million real estate agency, United States and we're just over 5000 right. So 5500, so we.

We've got a long ways to go in United States.

The reality not really wants to be our focus however, the right opportunity came across in Canada, we jump on that opportunity. So you know right now again it comes down of leadership, the right opportunity, but our first focus is let's let's dominate the United States' first and then add in Canada as it makes sense now could that be before the end of the air you know again right deal comes along and certainly.

States, but at the end of the day it really comes down to finding the right opportunity and really tackling all of our primary focus of talking like states first.

Sorry, I missed the last one for me you know in terms of expansion plans during the 27 states.

I guess chip for question one what's the expectation.

Certainly exiting 2021 in terms of your presence in the United States and then two how contingent is that on making you know red barn type deals as opposed to just organically growing and getting referrals.

Okay.

I think the.

End of 2021 of you know given the number of agents that were already in the rest of our states of we're already working in terms of licensing and all of that I think that the reasonably we could see.

The 40 states are sold by the end of 2021, if not more.

And so we feel pretty comfortable about that number.

And then.

By the end you know certainly by 2022.

He will cover the entire country.

As for how we expand I think that.

Some states are we will it will be through an acquisition like Red bar I think some states will be through smaller acquisitions of or in a sense.

Then aqua hires like when we did the west West, Virginia, which was the smaller operation the decided to join us.

In some states. It's just finding the right individuals. So I think I think there'll be a combination of both the week.

Certainly it will be other opportunities like Red bar, we've been approached by many companies where interest enjoining our.

All of our platform.

And we'll certainly take advantage of that in the future. So I think it's a combination of all three and so I would say about 40 states by the end of the year and certainly all 50 by <unk> by 2022.

Great. Thanks, guys Congrats again.

Thank you.

And our next.

Our I'm going to come from Tom White with D. A Davidson. Please go ahead.

Oh, great. Thanks, guys for taking my question good afternoon for instead of few on I.

I guess, it sort of agent retention and agent growth and kind of the value prop for agents.

I guess the the the comment.

Question proved retention for for top performing agents and the metrics you guys share their kind of caught my eye I was curious if you could just provide some color on.

On what you think is driving that I mean were there kind of specific do you know either tweaks to the to the to the model or you know of productivity.

The tools.

The changes that you made the kind of increased.

The appeal for those top producers or is it just kind of a natural byproduct of of you know of the of the platform scaling and then I think you said one third of agents are from referral do you think.

And put that meaningfully higher end and kind of what would you need to do to.

The higher per cent that percentage.

Absolutely. So appreciate the question the first of all of the kind of go back to one of the things we're talking about so the the productive. So we look at age of attrition, which we already noted we've got one of the best in the industry No 1.7 per cent per month is incredibly low.

You can get very proud of that number but really I think the important piece for people understand as debt, 77.5% of that one seven per cent for agents, who closed zero or one sales per year right. If you look at agents of close north of 20 sales per year, and it's only 1% of one seven per cent. So that the numbers of really small.

And then the 19, it's one five per cent of one seven per cent right. So the these are very very small numbers of high producers. So the question is why why did it go or how did it go from 10% of overall attrition 22, 5% I think it's a couple of things one is as we flush out of our technology, we do a better job at really showing our value proposition.

To a lot of times when you lose these high high producing agents the ones or the closing 30, 40, 50 homes a year of lot of times around the losing them to other brokerages were losing them to them starting their own little brokerage and what we've been able to demonstrate over time, especially the technology is that they can actually run almost essentially run of brokerage under fathom for.

The less.

Less than they would constitute on their own and yet now we handle complaints in insurance and all of the other headaches that come with running of brokerage. So allows them to essentially run of brokerage under the south of the model. So we've been able to show much greater value proposition value exchange to them, but the other piece too I think it really just be honest the kindle. The fact that we went public.

These are the ones that generate the most and received the most stock in our company and it's a three year vesting period. They they believe in the vision there excited about what fathom is doing and they see what's happening with our stock in there. They're just excited so why leave why leave to save 50 Bucks in the transaction of $10 per transaction right I always joke at the kind of.

Comes down to the seven minute apps for some five minute or three of them at some point Theres no value left in that one minute or so.

We've got an incredible product, we're not the cheapest, but I do believe we provide the greatest value for what we charge and the agents are starting to recognize that so I think it's a whole host of things, but I think of it that plays a big part of it.

And then just like you asked the question about <unk> 30 per cent yeah, sorry.

Alright, So look we're very proud of our agent referral rates and not a lot of that comes down to the fact that we take such good care of our agents like think about the agent's role and how they take care of the clients the more of they truly serve and love their clients the more likely.

Those clients sort of refer friends and family to them and we found the same thing's true with our agents write the more we truly serve and love our agents the more likely they are to refer other agents to us.

Number one I think we've got I'm always make sure that we're not waiting to be reactive that'd be very proactive in how we take care of our agents and a lot of times, especially on.

Of the pandemic agents, you'll no longer come to events and they stay home and so we've got to do a good job of reaching out to them and being proactive in and finding ways that we can better serve them versus waiting for them to come to us with issues, sometimes they just don't they just leased so we were doing a much better job being proactive the other piece we talked about is the the referral program that we.

The rollout we used to provide $500 of stock grants every time, an agent reported another agent.

We took that and put it on steroids. So now the first time an agent refers of other agents. It's 500 all of the stock perhaps nuts three year vesting period.

But the second third fourth and fifth agent they refer it now of $1000 of stock grants.

The fifth sixth seventh to eighth I'm, sorry of the six somebody at the ninth and 10th agent. They refer it's 500 and then every agent after that is $2000 and of course resets at the beginning of next year, but what that does it you know the majority of Vegas for refer another agent referred just one agent per year now we've got something like last year I think we have an agent for 19 with.

The three agents refer over 12 mm, but how do we get more to do that how do we get a higher percent of agents instead of referring one to for a second or third and so one is just asking for the business Ashland or for but the other part of incentivizing them.

Making sure obviously I'm sure you know the $500 is not a huge amount of money, but it's not going to make them go out and recruit.

For us, but it's enough that that if they love fathom there'll be more likely to get off the fence of them actually say something to another agent they're working with.

Got it. Thank you that's really helpful. Maybe just one follow up on some of the.

The overall value prop for agents you mentioned that you guys aren't the cheapest out there.

Fruitful in the kind of the the front end monetization for for a fall of the major news at least relative to kind of a lot of the other public guys. This.

It's really tough to beat so I guess I'm just curious as you look over say the next two to three years do you envision that you're going to either have to sort of Sweden or otherwise kind.

But the either the compensation to agents or.

Perhaps introduce additional perks or support or services or.

Do you think you've kind of can continue to grow at a healthy clip here with with more or less of the kind of the same kind of comp program you guys have now.

I.

End of Twitters.

A loaded question sort of I'm going to do my best to address them I'm excited about the spectrum question itself, because we are doing more like where we're not sitting idly by waiting for the slowdown and then try to act and provide more services more tools and sweeten the pot and we're always looking for ways to make some of them better to keep the pot getting sweeter.

I think to use your words, so we're always working to get better and better and better so that by itself should be enough to not only maintain but better accelerant of growth even further.

The last number we shared of.

37% growth was based on just five months of being public so we've got a.

Sweden, we can do to be able to generate more tools and resources and incentives for agents to help us grow but you've got one leader in the market how fast can they grow that market versus the 50 agents that become evangelists for the company, helping to refer right. So we really want to do a lot internally, but also incentivize the agents to keep those and then going.

A lot of passion about do we need to get cheaper I think the answer is no. We don't mean to get cheaper I've actually had a lot of of potential investors of investors asked us when not if but when we raise your fees.

And to be honest I don't want a range of fees now we can we certainly can still be way cheaper than the other competitors, but I don't want to and the question is could we actually.

Back to the cheaper not because we have to sweeten the pot, because we have to but how many more agents could we grow by making it a little bit cheaper or keeping it the same end markets.

So that that really you got of kind of weigh those two how much more could you growth you. If you every time you raise the rates the growth slows a little bit so we instead of us raising the rates.

Actually getting the considered low even now we haven't had the discussion we haven't decided yet and I'm not hinting towards the future because again, we haven't had that discussion, but the point is if we change our fees it would be more likely to go down than up but right now we feel very confident where we are.

Especially as we go into new markets, where the prices are higher.

And most of the markets.

We made one price is 200 and $300000 that's of great incentive for ages to only pay for 50, but what happens when the market. The average home price was 500 right now all of these agents are saving $4000 not $2000. So the incentive becomes even greater and those of lot of markets. We start to grow into so as we grow into higher and more expensive.

The average kits are offering is already sweeter when he gets sweeter and sweeter as the as the home prices go up.

Great. Thanks, so much and congrats on the on a great year.

Thank you.

And once again, if you'd like to ask a question. Please press Star then one.

Our next question.

Of Mark come from Greg Kit with clinical phone. Please go ahead.

Hi, Josh and Marco Thank you very much for your time and your hard work.

Of course, thank you so much thank you Greg.

I've told you before the I really like that you're providing the I think the best valued of real estate agents by helping them keep more of.

Shouldn't that they make through your flat commission structure, while providing support and service to help them be successful.

I'm, even more excited potentially day see you vertically integrating the services the U.

You can offer per transaction and capture more dollars per transaction I was excited to hear the.

Of the money that you think you can achieve.

Achieve that nine to 12 month timeline to acquire a mortgage company that you outlined at the time of the IPO and I was trying to do math and if I did my math right I think by the end of this month you will have been public for eight months and I'm excited if you will in fact be able to meet that nine to 12 months of timeline that you laid out.

Eight months ago.

I had two questions after that.

Sort of ramble.

First was the follow up two of them to the question that Tom just asked about.

The point that you were making about the referral program.

I'm excited that you're aligning yourself.

Ah you're aligning your.

And so fathom success.

And you mentioned I think I heard you correctly that the average age and is recurring one agent per year, which would equate to a 500 dollar referral fee per referred agent in.

Just isn't the assumption.

The let's say your your.

The acreage referral.

Referring agent would referred to agents of year, and so you would be paying $1000 per agent.

To that referring agent $2000 total.

If I think about that.

Initially I was I'm trying to work through that math, if your agents to refer.

<unk> thousand agents in 2021.

That'd be about 20 per cent gross to the company, but in $1000 an agent times of thousand referred agents, that's a million dollars.

And at today's share price, that's like 20, or 25000 shares of dilution to shareholders. So the <unk>.

<unk> is not material in my thinking through that correctly.

Yes and no.

I know Marcos secret of Choppiness too, but what the out I want to point out is the average agent who refers refers one not the average agent refers one.

Love for every single engine of our company to refer one that'd be fantastic.

<unk>.

So just want to make sure that was clarified in one of the leading when the wrong direction, but we've got a lot of agents of receptor referred three 610 mm.

But again Theres, a large percentage of the only referred one of the question is how do we get them to two and so forth, but going back to the dilution part you're exactly right Mark when I Marco is a complete geek when.

Fantastic Spreadsheets, I love that about it but.

But we've run so many scenarios of how will this affect dilution because we care about it too I think March shareholders I don't want to do it myself out of existence and what would this mean and so we ran a lot of them realize that even with substantial agent referrals doubling tripling it barely moves the needle when it comes to.

It comes on like you said, it's not material and so we're excited because like you said it aligns the agents with US we want the agents to be shareholders. We want them to be excited about our growth we want them to refer more business and more agents to us because as they do theoretically hopefully right for generates more revenue more revenue hopefully generates higher stock value.

And so it brings greater value to our shareholders in two of our agents. So I'm excited about that as well.

Thank you that was helpful. Josh in my my last question is about mortgage rates.

I've seen them vary a little bit over the last six months and I was wondering if you can help me think about.

Value of all.

You know mortgage rates could potentially affect your business or how you think it affects your end market.

Yeah, No I think the penthouse question. The fact is the question that I've heard of.

A few of few investors raise of as over calls of I get calls every now and then we try to do the best for cannot be as transparent as possible and take as many calls as we can now I.

How the concerns that the rising mortgage rates will hurt the momentum we've seen however, that's not what we're actually seeing on the ground or in the trenches I understand that I am certainly no expert by any means but I believe that as long as the 30 year rate stays below 4% I personally remain confident in the market. If 2020 is strong.

Understand housing performance had been driven just by low mortgage rates and the growth. We saw would have been far less pronounced. So clearly there's other factors of play into why we've had such great results.

We're just not seeing pain in our business from the rates and I remain hopeful that it doesn't change so like you I see the mortgage.

Strong of the mortgage apps for down also in the interest rates were up from $2 75 to just a hair over 3%, but of low 3% rate hasnt really been scaring most people away. So when people think that that's why mortgage apps you down I don't believe that's my mortgage apps for them out now.

I, maybe wrong, but that's what I believe many people list listening to this call can.

The Red time, when we were excited about a 7% of rate so of paying 3.08 or 3.1 for you know it is not free can people out.

Right now we're seeing the most listings have multiple offers for multiple buyers that does two things. It disheartens, it's very disheartening to potential buyers.

They.

Can remember side to wait until the market cools and therefore, they don't ever apply which.

It comes back down to fewer mortgage apps and the multiple offers scares potential sellers because what if they sell their home and they can't find the new home right. So you start having this kind of a self fulfilling prophecy you start having fewer lower inventory.

They made the so honestly I see rates going up a little at the good thing.

We need a few less buyers in the market and that's not a bad thing that debt easing could actually generate more inventory from sellers, who are now willing to come back in the market because they feel confident but there'll be able to replace the find replacement home.

Point is we're not actually selling less homes right now from an increase in rates or a decrease in mortgage apps. It just means that instead of having five offers on a home. The only for offers in the home still of lot of offers in the home right, we need that to come down to one or two offers on a home.

And we need to see inventory improve but what it.

Thanks for the play the Wolfcamp, but lets say for argument sake that we start to see fewer sales overall in our markets and I'd love to remind you that it should actually prove to the good thing for fathom of future tailwind instead of a headwind right. The reason I say that is simple.

Only two ways for realtor to make more money increase.

Let's let the revenue or decrease the cost if an agent with the traditional brokerage who's charging them, 30% of that agent Commission experience of 20% decline in the real estate business simply moving over to fathom.

The.

20% less business simply moving out of fathom. They can earn 8% more income right 20 per cent.

Fewer sales, 8% more income so that makes fathom very attractive. So if we do see fewer sales fathom may actually net more sales over time by netting more agents turning that potential headwind into a tailwind.

Thank you Josh that was very helpful.

My pleasure.

And our next question will come from Tom White with D. A Davidson. Please go ahead.

Thanks for letting me put back into the queue here just.

I wanted to get one in on on kind of of the trajectory for for gross margins and I realize you guys aren't giving guidance.

You expanded gross margins a bit in 2020 versus 2019.

In 2021, you've got some of these new offerings like lead Gen and title that presumably would boost gross margin.

But some of those seem kind of more back half weighted for the year.

But is there any kind of color you can.

Your sense, you can give me as to whether.

You know, we'll see gross margin expansion this year at sort of a similar pace than maybe what we saw last year or maybe a little bit better if if some of those products kind of kick in and make a difference in the back half of any.

Kind of color you can share there.

For modeling purposes.

Great Great Great question.

So yeah, we did we did increase.

And our business is a little different than that.

The other public real estate companies, we did increase gross profit margin in Q4 over Q4 of last year, and then keep in mind that the way our.

Our business operates that the first few trends that first of all transactions of an agent. They are paying $450 versus 99. So typically we see higher gross profit margins in Q1, and Q2 and then a.

They decreased in Q3, and Q4, and then of course, we're going to add.

On top of that you.

We're going to see there is and at some point we will.

See you know our mortgage business come in in our insurance business coming in which that will take some time.

Two the hopefully develop in Q3 and Q4, so you're you're definitely we're definitely going to see higher gross profit margins.

Already in Q.

One just because again of the.

A higher percentage of our transactions of $450 and very few transactions or of 99. So you definitely see see an increase in debt and then from what I don't think we're going to see is a decrease in the gross profit margins beginning in Q2 and.

And then Q2 in Q4, because as we add title and and as we add a mortgage that was sort of a.

We're creating the baseline so I think the baseline for our gross profit margin is going to be Q1, and you can take a look at sort of Q1 of of the of our 'twenty.

As an example, and that'll become there'll be the sort of baseline.

Base line for gross profit margins, then we will see a.

They can increase on gross margins again, as we had tightened which are very profitable title has a gross profit margin of 80% or so.

We had a mortgage which is close to that as well and so I think the Q1 will see sort of the baseline and we're not going to.

Adoption of Q2 Q3, two for we actually see an increase of.

And in the hopefully.

You know our goal is to is to be in the once more.

Mortgage and title insurance is fully the the develop of.

We will see gross profit margins in the in the high teens.

Great. Thanks, guys.

Okay.

Yes.

And this will conclude our question and answer session I'd like to turn the conference back over to Josh Harley for any closing remarks.

Thanks, operator, and thanks to all of you for joining our call today and for your continued support we're excited about the long term prospects for our company and we anticipate.

For growth ahead, with our culture of service and everything that we do have some of them. We will always focus on enhancing value to our agents and of course to our shareholders. Please know that we are available to take your questions and hop on calls as time permits. So if you want to learn more about fathom. Please reach out and have a wonderful evening, everyone and thank you.

Even for the conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Your lines of this time.

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