Q1 2021 Fathom Holdings Inc Earnings Call
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Good afternoon, and welcome to the Fathom royalty of Holdings first quarter 2021 earnings Conference call all participants will be in a listen only mode.
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After todays presentation, there will be an opportunity to ask questions to ask the question. You May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please.
Please note this event is being recorded.
I would now like to turn the conference over the Roger Palmdale Investor Relations, who of Fathom Holdings. Please go ahead.
Thank you Chad and welcome everyone to Fathom Holdings two O. Two one of the first quarter conference call I'm, Roger Pinedale with Ponder Wilkinson Fathoms Investor Relations firm.
My pleasure to shortly introduce the company's founder and CEO, Josh Harley and Fathoms, President and Chief Financial Officer, Mark of pressure now before I turn things over to Josh I must remind everyone that today's call may include.
Forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, such statements are subject to numerous conditions, many of which are beyond the company's control, including adding new capabilities, the ability to reduce cost and drive sustainable growth.
The type of new revenue generating opportunities identified by the company as well as the company's timing of identifying and completing them and those set forth in the risk factors section of the company's annual report on form 10-K for the year ended December 31 2020.
As filed with the SEC and copies of which are available on the SEC's website at Www Dot S. E C Dot Gov, along with other company filings made with the SEC from time to time.
As a result of those forward looking statements actual results could differ materially fathom undertakes no obligation to update any forward looking statements. After today's call except as required by law. So please also note that during this call we will be discussing adjusted EBITDA, which is the non-GAAP.
Actual measure as the <unk> as defined by SEC regulation G of.
A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure is included in today's press release, which is now posted on fathoms website and with that as my pleasure to turn things over to Josh Harley Josh.
Thank you Roger and of course, thank you to everyone who's on today's call.
Our entire team really appreciate your support and your faith in US we were really proud of that you are part of our fathom family now.
Our first quarter results once again demonstrate the power of our truly disruptive model and as you know, we recently acquired a mortgage company, an insurance company and lead generation and lead nurturing call Center, a technology company specializing in big data aggregation of concentration as well as a technology company building home.
Search and CRM tools to help us attract more homebuyers and sellers, which also helps us attract more agents to say that we've been busy building fathom to be an ultimate fighting machine with Ping an understatement.
The very first earnings call. The fact, just eight months ago I made the statement that we now had jet fuel to pour on the fire and hopefully we've proven that we're not just hype, we're delivering on what we say we will.
And all of that on top of our entry into the title insurance sector back in November and we now have all of the pieces of the puzzle we need to make real and significant change in the real estate space, We may still be small.
But we have of leap team and we're growing at a pace that will make people notice on top of that our cash position remains strong and were committed to adding to that position by focusing on operational cash generation now since going public we have substantially increased revenue continued the expansion of our agent network improved agent retention.
<unk> entered new geographic markets and completed strategic acquisitions that further solidify our market position plus with our attractive agent Commission structure. We believe that we are in a unique position to grow even faster on a time, where many investors are worried about possible headwinds in the real estate sector.
I'd like to remind you most of these possible headwinds can prove to be tailwind for fabless gross now I'll touch on that a little more later, but for now I'll, just say that we're killing it net yes I know.
All of them, a little biased, but I believe our numbers back me up.
Now before I go too much further there are a lot of names on this call, but I've never seen before and there's a lot of people watching us who who don't really know our story and I can't tell you how many times I take a call from the potential investor who doesn't want to hear the story and just want to simply jump into questions. But then by the end of the call. After I've shared the story along the way.
They tell me that they went from interested too excited about fathom and I want to make sure that everyone. Here knows our story. So that you too can be excited of not just interested.
Now to understand fathom, it's important to understand that like many of our competitors Fathom Realty is a full service real of residential real estate brokerage. However, and I think this is really the key we leverage an innovative platform as the service model, which is powered by a proprietary cloud based technology called intelligent. This technology platform allows us to.
Operating virtually while providing our agents with all of the major functions that they could otherwise get from a traditional brick and mortar brokerage not only does our technology eight of our agents and also allows thousands of streamline and automate our operations significantly reduce our cost and personnel requirements and allows us to scale and expand the <unk>.
This into new markets without the access of spending that usually companies gross net.
Now with the addition of mortgage title insurance and additional SaaS product offerings, we have the potential to significantly increase our revenue on profitability per transaction I don't want to just grow our agents' transactions revenue I also want to grow our profitability and I believe that we're on the right path to do just that.
It was interesting to see one of the analysts who follows Fathom holdings comparison in parts of Shopify and how we attract real estate agents, who act as a small business owners to our low cost platform and then generate more revenue from a host of excellent of services that allows the better monetize our growing agent base and the transactions they bring with them.
I Couldnt agree more of this assessment I am glad that you said, it but I didn't have to but because I don't want to be one of those companies of claimed to be the Uber of this industry or the shopify that industry. It gets a little silly.
We are of who we are and we're poised to dominate in our own way, but we're constantly learning by watching others now as the result of our technology platform and streamlined operations, we're able to charge our agents a fraction of what other brokerages charges their agents, putting more money in the agents pockets to help them, we invest in and grow their businesses.
We believe this also gives us a faster path of profitability than many of our competitors who are charging monthly fees on large large percentage of commission splits.
We're excited about the vantage the intelligence creates including attracting new agents and helping them become more productive while adding even more robust technology to further reduce cost and improve our operational efficiency.
Now I want to reiterate that last point, our focus is not just the adding more agents, but also helping our agents become more productive and close more sales. We don't want to be just some of the brokerage hanging aegis licenses. We believe that we can accomplish that by providing more training and more technology to help our agents getting funded.
More buyers and sellers as well as reduced the amount of time required to manage the transaction process, giving them more time to network itself.
Now as you saw from our acquisitions of Neighborly, our home search technology platform and real results, which is the lead generation and lead nurturing company. We acquired in time, we also intend to generate real estate leads for agents, which in turn will help our agents close more sales help us further increase our revenue of profitability per transaction.
Attract even more agents, who are looking for leads and allow our current agents of stop spending the harder money with these large portals, who are actually the competition.
Now one of the unique things about fathom that I alluded to earlier is the fact that we offer of small flat fee commission structure to our agents versus a large percentage split that on our competition charges. Their interest in fact, that's what most of you just focus on when thinking about joining fathom.
Our model allows our agents to make more money and reinvest those dollars into the marketing efforts to grow their sales and as you can imagine this makes us highly highly attractive to real estate agents. In fact for Q1, we saw 42% growth in agent count any of the core with over 6000 agents.
One of the beautiful things about our growth is that our cost to acquire one agent during that period of only $920, making a breakeven on each agent less than we'll make on just the first sale and that's a tremendous claim that we're able to make and backup.
I also want to point out of the lifetime value of an agent is over $18000 to us the ratio of that lifetime value to our cost of acquisition is over 20 ex and Thats just by the way. It's just the revenue that's generated on the real estate side of our business. It doesn't take into account the revenue from our mortgage title and insurance companies or potential.
Revenue from leads that we can generate for our agents.
And by the way, we expected our cost of agent acquisition May increase as we devote additional resources of investments helped drive our growth, but again 20 times LTV to CAC I think we've got plenty of room to work with.
We often hear I, just say that the joint found the Earth to earn more commission, but they stay for the culture and while I don't want to make too much of our Glassdoor rating. It does validate this feedback are incredibly high glassdoor rating of four eight purchase of the very top of all large residential real estate brokerages. Although this is just one example that shines a light on our culture.
Of service. It also I'm also proud that we have one of the lowest agent attrition rates in the industry. The glass doors nice, but if you want the true representation of whether agents are happy hour agent attrition rate is the best indicator.
To that point not only are we growing our agent base on a faster pace than ever before I'm.
I'm also extremely proud that our agent retention of higher producing agents improved greatly between 2019 of 2020 in fact agents who closed less than one sale per year make up over 75 per cent of our agent attrition with only 1% of the agents who leave quite of our age of attrition coming from agents, who closed 20 sales per year. So it's.
Tiny very tiny.
During our IPO, we talked about acquiring a mortgage company title company of insurance companies, we accomplish that and then some and we did it in just nine of half months.
These are not simple joint ventures like some real estate companies of structured these of food companies, where we control the quality recognize the full revenue and can build innovations and of these companies through our technology to begin disrupting those verticals as well and as you can probably hear in my voice I'm stoked I'm, even more excited today than I.
Ever been and I Hope you are too now I understand the real estate market is crazy right now and a few people have talked about a possible housing bubble, but most experts effectively demonstrate that this market is different and we personally do not expect to see a bubble with that said, we do believe that crazy markets our tour of advantage.
In fact, I'm going to spend a minute on this point because I think it's more important than most people understand.
I know I briefly touched on this in the beginning but I can't stress. This enough while other real estate companies may begin to see strong headwinds as home prices wise mortgage rates rise and housing remains in the low supply I believe strongly that fathom could benefit significantly you see there's only two ways for an agent to make more money.
Increase the revenue by selling more homes or decrease the costs and of course, the biggest cost of an agent is usually the brokerage fees splits in a market, where it's hard to find homes to sell or buy agents should be attracted the fathom the make up for any loss of income by decreasing the fees they pay in fact.
If an agent close of 20% fewer homes due to market conditions the moves over to fathom from of brokerage who's charging them, 30% split they will actually earn around 9% more income.
And that sounds like a win the mean I believe most agents would agree I mean do you believe that fact would be exciting for agents and convince them to get out the sanction joined fathom.
I sure do and if the market does indeed, moving that direction you can be sure that we're going to be marketing that heavily will be shouting. It from every rooftop and focusing even more on growing our agent base. We should continue to cannibalize the real estate companies with the old traditional commission model at a faster rate than that.
As our agent base grows those agents bring more transactions with them and as we add more transactions, we have more opportunities to capture mortgage title and insurance revenue turning of possible headwind into a tailwind for fathom.
<unk> ability to attract and ever increasing number of real estate agents by providing them with greater income potential along with the technology training and support they need to grow their business is even more evident today, even during these unprecedented times the.
The fact continues to drive our growth as I mentioned earlier for Q1, we saw a 42 per cent increase in our agent growth year over year.
We also saw 60 per cent of transaction growth of 72% revenue growth. The clearly fathom is moving in a very positive direction of tracking higher producing agents and selling more homes in higher priced markets that we move into which by the way should significantly benefit our mortgage title and insurance companies as well as the leads business even more.
Then it benefits on real estate brokerage operation.
Now speaking of markets Fathom royalties now in 29 States and we plan to open several more on the coming months encompass lending our mortgage company is operating in 10 States Dagley insurance in 34 States Theres title in 18 States. Our title business now includes Texas as of this month, one of the biggest real estate Mark.
We have.
Our virtual model and technology platform allows us to launch new markets quickly efficiently and for very low cost, but I love our technology platform because it also helps us eliminate our reliance on third party tech providers, which reduces our cost significantly while offering more robust tech tour agents to help them really grow their business.
Intel agents gives us the power to control of the full lifecycle of the home buyer and the seller and gain a greater understanding of our data and how to use the further improve our offering while generating leads for our agents plus we can now begin to identify potential clients for our mortgage insurance of telecom base long before the under.
And even before an agent has have made the introduction and right. That's really the Holy Grail for these types of companies.
Now clearly we've made a lot of acquisitions in the short period of time at this point, we of all of the puzzle pieces, we need now when the time to put the puzzle together in the most effective way possible and shore strong capture rates.
The acquisitions will continue to play an instrumental role in <unk> growth as we move forward, but we will be focusing on acquisitions on real estate agents insurance agents loan officers entitled personnel to help support our vision and grows faster. This is not a roll up strategy by any means or any stretch of the much imagination I don't want to play.
That game, especially when we're able to grow organically and so effectively but afterwards just to make a lot of sense on opening new markets take critical mass faster, which also helps gross through name recognition and agent referrals. So while acquisitions are going to continue to play a role I do want to assure you that we will continue to be good stewards of.
The money that you entrust us with we intend to grow strategically and not overpay for growth nor do we like dilution anymore than you do especially with my own family only over 50% of Fathom stock. So we take dilution very seriously.
I'm coming to an end of the promise.
Some of you may ask about giving guidance, but as you know newly public companies do not typically give guidance. This early after the IPO of especially after making multiple acquisitions, which are still being integrated therefore, we will not be giving guidance. At this time. However, we are extremely confident in our leadership team and our vision and in our ability to execute on.
Feel incredibly optimistic for the future. So let me get on my Soapbox and turn the call over to Mark of fractional, our president and CFO Mark of its all yours brother.
Yeah.
Thank you Josh I'll start by discussing some of our key financial results for the quarter.
Q2 revenues grew 72% year over year to $49 6 million from $28 90 million of last year same quarter the.
Increase resulted from growth in real estate transactions average revenue per transaction.
And the contribution from there in spite of which is part of the fathom family for the full quarter.
Supported by our ongoing strong residential real estate market and continue of rising home prices that we've seen as a reminder of home sales in Q4, and Q1 of our seasonally lower are doing I think compared to the rest of the year.
GAAP net loss for the quarter was $3 4 million or a loss of 2025 cents per share compared with the GAAP net loss of 43000 of breakeven per share for the same period last year, our weighted average outstanding share count increased 35% between the periods, primarily due to the impact of our IPO.
L a and acquisition.
Adjusted EBITDA loss of our non-GAAP measure was $2 5 million per the first quarter versus an adjusted EBITDA profit of $135000 last year.
<unk> expense increased to $6 2 million compared with one point.
8 million last year, due mainly to the complete acquisitions cost related to being a public company and an ongoing marketing effort to support our growth generics.
G&A expense is expected to increase going forward for the same reasons as we continued to scale of integrate all of the business that we just acquired.
Expenses related to market activities increased to 403000 from 230 to 230000 in last year's first quarter, mostly driven by growth in our talent acquisition team and higher levels of investment in advertising and PR. We believe these efforts have been very fruitful.
We closed approximately 6900 of real estate transactions this quarter, a 60% increase from the same quarter last year.
This increase is a great example of the power of all of the truly disrupt the model that we have the fact that our transaction growth is higher than the agent growth proves the point that we have made in the past that agents will come to fathom will close the bark transactions. After they joined fathom because the investors save us into there.
Business of therefore, creating more transactions can.
Q1 average home prices increased to approximately 284000 from 241000 in Q1 of last year.
As we discuss the early hours of network increased to just over 6000 agents, an increase of 42% from the 4258 agents or a year ago.
Our balance sheet.
Remains strong it bears repeating that we will always be a good stewards of your investment even fathom what do you learn anything what Josh has said, we're not believers in gross simply for the sake of growing.
Our first quarter was a fantastic quarter. It was actually the best combined showing of our Kpis are ever in the history of of the company for the second quarter, we expect to see significant year over year revenue growth, primarily as a result of the contribution from the acquirer of companies in fact, our financial statements will look very different.
Current next quarter as we work to provide you with addition of transparency and all of the different businesses.
It is important to remember however that as I said earlier, the G&A costs will continue to increase as the result of other acquisitions public company costs and of course for the investments in our growth. We do believe the future of remains extremely bright, especially as we continue to integrate those acquirer of businesses and identify new opportunities to come.
Our growth now I'll turn the call back over to Josh and he would and then we'll take your questions.
Thank you Marc as you can tell we're incredibly excited about our prospects and we've been working hard to deliver on our promises and gross fathom and accelerated and yet sustainable fashion for the long term right. This is not a short game. The so there's a long term operation and were excited about it for those of you who are on our shareholders. Thank you for your trust and being part of our fabric family now.
Operator, we're now ready to open up the call to questions.
Thank you Sir we will now begin the question and answer session to ask the question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before Christmas of the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
And the first question will come from Darrin after he with what the capital partners. Please go ahead.
Hi, This is Dylan on for Darren Thanks for taking my questions.
The first one.
With all of the acquisitions that you've been working on and completed could you talk a little about the timeline for when.
When you expect all of these to be integrated into the markets. You. Currently covered I think he said there's like you are up to 29.
Yeah.
Hey, Dale and that's the that's a great question. Thank you for asking Scott.
Got it takes some time right. So if you recall, we're now in 2019, just real estate Fathom the real estate companies in 29 States and then we are already very Steidel is already operation of about four or five states, which fathom is there operating so we're rolling out of there. So already we have one quarter of arris.
And we award our quickly already implementing encompass and a D I into the other market. So if you think about the rollout right. It's going to take some times the rollout all of these businesses and in every in every state right. It is going to take some time to do that having said that we will quickly see.
The results of the of the rollout right. So it's clearly Q on Q2, we'll see we'll see an increase in revenue from the business as they are existing businesses and then we'll go ahead and see additional revenue coming in from the integration with Fathom. So think of it as layers to the increase of the end to end the financial statement. So the first one is of course.
Just on aggregating the revenue from all of the businesses and then the second one will be the they are the addition of our revenue coming in from the integration of the attach rates that we'll see going forward. So it will take some time to roll this out across all of the the state and then on top of that you know fathom each of the continued to add another 21 states.
The two hour rollout so there's rollout the different multiple phases, but we already see the early signs of a great results and I think when we are on a show our Q2 numbers, we feel very good about those and I think we'll begin to be able to show how we are rolling out the is this acquisition.
And how well they integrate with the with the Fathom Realty.
And of our company.
And one thing I'll add to that market was the fact that you know.
As we rollout of our technology more and start fully integrating those companies into our technology to our real estate operation.
We will start to see the attach rates on the growth grew even faster we believe so.
So it could take some time number one get those markets open get the get the licenses for those markets get them introduced to our agents and then once we can you know.
Integrate the technology, then we'll be able to start capturing leads in other ways as well so not just purely reliant on our agents to some business over but also capturing on on our own as well.
Great. Thank you.
What what.
The the current cash balance as of today, I mean post close to all of the acquisitions and then how much revenue the title.
The four in Q1 of the 49.6.
Yeah.
Mark I think you're muted.
Yeah.
I apologize on.
Our cash position as we stayed on on March 31st our financials is approximately $25 million.
And then there's some actually almost 26 million of with the with about $1 billion of what you're supposed to cash.
On the debt there is a percentage of of revenue for Q1. It was about $400000 of so Q1 again he has the lowest revenue quarter on so it's about $400000 in terms of Q1.
Are you willing to share of what like classes in currently.
And not at this point.
Gotcha, one more for me and then I'll turn it over.
How should we think about.
Some of the add on businesses going forward in terms of them being a little bit more profitable and your thought process between.
Slowing that profit down to the bottom line and investing for more growth.
That's a great question and.
I think each business a little different right, so and keep in mind again that we are going into the the two busiest quarters of the of our Q2, and then Q3 being the busiest quarter right. So and so we look at each of business are in a very different manner.
We have to make some investments in the in the mortgage business, but for our mortgage and title we will see a named packs of the bottom lining in probably by Q3 Q.
Q2 was still making some investments so probably by Q3, we'll start seeing and impact the positive impact in the in the cash flow of the business from those two from two businesses from the Intel age of which is currently the live by.
We're still evaluating how of how quickly we're going to grow the business, that's an enormous potential for that business as well and as you know that the fast business its a recurring revenue businesses.
And we will see how that affects our business and then from the insurance perspective.
Insurance business of very interesting because that's also a recurring revenue business.
And at this point of pardon me of running that business out of breakeven.
Going forward, but we'll see and that's just a matter of <unk>.
Trolling the growth of that business that business can grow significantly for us when we start seeing an attach rate coming in from the the fathom Fathom real estate Division.
But again I from a mortgage and title we will start seeing a cash flow impact in Q kind of Q3.
Yeah.
I know the question you asked me the other annuity quite give you of what Youre looking for and I apologize for that but I will say that our cash position remains really strong and we're committed to actually adding to that position by focusing on the cash.
Cash generation. So one thing Youll remember is that this industry is cyclical and seasonal around them and so you know as we go from Q1, which tends to be the lowest and we start moving to Q2 Q3, and so forth, we're able to generate more revenue and possibly to add to that net cash position. So we feel really good about it.
Great appreciate it guys. Thank you.
Again, if you have a question. Please press Star then one.
Again, Chris on Star then one more line to ask a question.
Yeah.
Yeah.
Chad.
We're so good on our call that they don't know hows the questions because we just sort of answered them all of our head of stock [laughter]. Thank you, Sir and we do have the question and Oh, we don't Hamilton.
Net of Tuck Hill. Please go ahead, yes.
Hey, guys.
Just a question on on the SG&A.
Apologize if I missed this but.
Can you break down the six point to a little bit more in the sense of maybe.
What was related to the acquisitions.
Versus on the other growth investments.
It didn't look like in the EBITDA breakdown the anything's broken out.
Yeah, I didn't pay will get too good to hear.
From you so the when you look at the $6 two mills of $6 3 million in G&A.
$6 2 million on Janet about we spent about about between one of $1 $2 million in acquisitions and related acquisition costs. Some of those costs of legal fees that are actually for the acquisitions. There are the happening in Q2 as well. So when you look at the total cost in G&A related to.
Everything related to acquisitions it.
It was about $1.2 million and then you can also see those are on increase in stock compensation also related to a which is the majority of the increase related to acquisitions as well for another 500000 or so so when you put all that together you're looking at about $1 6 million in between.
All of the cost related to the acquisitions.
On not only in Q1 and Q2, the hope that closed in Q2 as well all of the the compensation for a per stock related to the acquisitions.
Having said that we also invest it.
Because as you know this is the seasonal business right and then Q2 and Q3 are the the busiest month for US also made investments in staff preparing for that increase in business. We also made investments in staff preparing for the aggregate of having all the other businesses as part of Fathom. So the reinvestments.
They'd also on staff and then preparing the company for having these multiple divisions. So we can benefit from the attach rate as quickly as possible. So the the increase in G&A was related to the acquisition as well as an increase in staff preparing us for having all of these additional business of weaker.
And we can benefit from them as quickly as possible.
Okay. That's helpful. So it was like a <unk>.
On a go forward basis like for an of half.
Millions of 5 million maybe of a reasonable.
Or you don't like the guide, but just yet in terms of of rat race.
That's that's a great question so keep in mind that once we add all of the other business. They have G&A cost is about right and so the number would be larger than that because you know what we have on insurance business. The mortgage business on the more the the title business is going to increase as well. So the number would be bigger than that just because we are increasing.
And adding all of those businesses, but you also get the revenue right and so that would be significant revenue added on as well that will correlate to the G&A I think as a percentage of when we look at G&A as a percentage of the the revenue there is going to increase in the next two quarters significantly compared to the the G&A percentage of will decrease right because you don't have.
These additional costs are related to the acquisition.
But as a whole of the number will increase because again, we're adding all these other businesses that have G&A expenses as well, but again over time, the G&A percentage will decrease and again keep in mind. The Q2, and then Q3 have much stronger revenue numbers for us and I think that's when we start seeing again the benefit of.
Having all of these businesses as well as the increase on the attach rate and so the Josh and I are very excited about how by having all of the companies that we always wanted to have as part of our family. How this is going to affect the bottom line of the business and so I think that once we're done with Q2 and Q3 I think everyone will be very pleased about the results.
Okay.
<unk>.
Thank you.
And again, if you have a question. Please press Star then one.
Okay.
Yeah.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Josh Harley or interest.
Closing remarks.
Thank you Chad I really appreciate it and of course face to all of you for joining our call today and for your continued support and of 2020 was a watershed of your force in Q1 proved that we're just getting started and we're extremely proud of what we've accomplished and we look forward of taking additional actions that will add even more value to our company and the benefit all of our stakeholders.
We're excited about the long term prospects for our company and we anticipate even more growth ahead now with our culture of service and everything that we do at Fathom. We will also always focus on enhancing value to our agents and of course to our shareholders. So have a wonderful evening and thank you again.
And thank you Sir the cut off of.
<unk> has now concluded. Thank you for attending today's presentation you may now disconnect.
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