Q2 2021 Fathom Holdings Inc Earnings Call

Good afternoon, and welcome to the Fathom Holdings, Inc. Second quarter 2021 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask a question.

To ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded.

I would now like to turn the conference over to Roger Pantel Investor Relations for Fathom Holdings. Please go ahead.

Thank you Ali and welcome everyone to solve them holdings totaled 21 second quarter conference call.

Tom Gallagher with tons of Wilkinson Investor Relations and it is my pleasure to introduce the company's founder and Chief Executive Officer, Robert Lee <unk>.

President and Chief Financial Officer, Michael <unk>.

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 for the Covid 1995, such forward looking statements are subject to numerous conditions many of which are beyond the company's control.

Including those set forth in the risk factors section of the company's IPO registration statement.

<unk> Form 10-K, and other company filings made with the SEC copies of which are available on the SEC's website.

Www SEC Gov.

As a result of those forward looking statements.

It could differ materially.

<unk> undertakes no obligation.

Any forward looking statements after todays call.

As required by law.

Please also note that during this call we will be discussing adjusted EBITDA non-GAAP financial measures.

Regulation G.

A reconciliation of these non-GAAP Lutheran measure most directly comparable GAAP measure is included in today's press release, which is posted on <unk> website and with that it is my pleasure to turn things over to Josh Josh.

Thank you Raj and of course, thank you to everyone who is on todays call. Our entire team really appreciate your support and your faith in US you know, we're we're really proud that you are part of our fathom family a quarter over quarter. How results continue to demonstrate the power of our truly disruptive model and I'm proud to stand here and share our incredible growth in.

Every key metric of our business and to know that we did it without using gimmicks get here, we're winning the right way.

Through hard work, continuing true innovation, and providing you know really long term value to our agents our employees clients and our shareholders. As you saw year over year. Our revenue grew by 118% our transactions grew by 74% and our agent count grew by 53.

3%.

And all in all of our publicly traded real estate companies out there of all the companies out there only a couple of the companies performed at this level and they've been public for a very long time, while we've only been public for a year and we're killing it and we're just getting started.

Too many people try to compare us to other real estate companies out there, but that's a huge mistake in my opinion and I get it though you know they don't really understand who we are yet and I believe the operative word here is yet.

Few more quarters like this and I think that people will truly understand our business and our value really values. Accordingly, if you really dig in tour story, you'll realize that not only have regenerative impressed the performance to date.

But still have an incredible path ahead of US fathom is unique in that we continue to grow at these incredible rates, while also quickly becoming a profitable company.

You'd have to ask yourself, how many of our competitors actually have the ability to double their business and ultimately double the market cap then ask yourself, whether fathom can do that and I believe we can more importantly, I believe that we can actually grow our company five X over the next five years. The question is how do we get there as you know we recently.

Third a mortgage company a title company, an insurance company, a lead generation and lead nurturing company and two technology companies.

One specializing in big data aggregation and content creation and the other specializes in home search and CRM tools to really help us attract more buyers and sellers, which also helps us attract more agents, we didnt take the easy way. These are joint ventures, we fully own each of these companies that means that.

We're not giving up half the revenue or profitability. It means that we have greater control over the quality of these services and that matters. It matters to our clients it matters to our agents and it shouldn't matter to you too because that is how we believe that we can achieve a greater attach rate for our new businesses.

So.

Could you tell him on fire for this company right.

I know I'm not the only one we're all incredibly excited we have an incredible team of leaders who are executing our vision every single day and they are just as fired up we have nearly 7000 agents with one of the highest agent a trick I'm, sorry, rather agent retention rates in the industry.

Our agents are quickly becoming evangelists for the company, which we believe should further accelerate our growth over time and I believe that fathom is a company you want to bet on not against to say that we have been busy building filed them up to be the ultimate fighting machine would be an understatement.

First our very first earnings call just a year ago I made the statement that we now have jet fuel to pour on the fire and hopefully we've proven that we're not just hype we deliver on our promises.

As I mentioned on our last earnings call. We now have all the puzzle pieces, we need to make a real and significant change in the real estate space, we may be small compared to some of these old guard brands, but we have an elite team and we're growing at a pace that will make people notice.

A lot of companies sacrifice profitability for growth, but I'm proud to say that we don't have to operate that way. We can do both our cash position remains strong and were committed to adding to that position by focusing on operational cash flow generation and we're moving the right direction, because we're disciplined and we're good stewards of the money that you've entrusted us with.

Since going public we have substantially increased revenue continued the expansion of our agent network improved agent retention entered in two geographic markets and completed strategic acquisitions that further solidify our market position, that's an awful lot to accomplish in just one year, but it demonstrates our focus or commitment.

And our ability to get things done.

Plus with our attractive agent Commission structure, where they believe that we're in a unique position to grow even faster in a time, where many investors are worried about possible headwinds on the real estate sector. Most of these possible headwinds. However, can actually proved to be tailwind for fathoms growth now before I go too much further there are a lot of people listening.

Right now, who really don't know our story or understand why we're different.

Some of you heard this before sorry, but until I know that everyone gets it and I keep beating this drum although at this time I promise I'll keep it short took them fully understand fathom, it's important understand that like many of our competitors Fathom Realty is a full service real estate brokerage. However, I think is really the key we leverage an innovative.

<unk> as a service model, which is powered by our proprietary cloud based technology called Intel agent. This technology platform allows us to operate virtually while providing our agents with all of the major functions. They could otherwise get from a traditional brick and mortar company not only does our technology aid our agents. It also allows us to streamline and automate our.

<unk> significantly reduces costs and personnel requirements and allows us to scale and expand our business into new markets without the excessive spending that usually accompanies growths.

This fact is why we can charge our agents one fifth.

Fifth of what many of our competitors charges their agents and yet get the profitability significantly faster than they ever did.

Now with the addition of mortgage title insurance and additional SaaS product offerings, we have the potential to significantly increase our revenue and profitability per transaction I don't want to just grow our agent network transactions revenue I want to grow our profitability and I believe that we're on the REIT, perhaps do just that.

As a result of our technology platform and streamlined operations, we're able to charge our agents a fraction of what other brokerage is charged their agents, putting more money into agents pockets to help them reinvest in and grow their businesses. This is an exciting and important because it allows us to grow our agent base and transactions quickly and organically.

Now we're excited about the advantage that Intel agent creates including attracting new agents in helping them become more productive while adding even more robust technology to further reduce costs and improve our operational efficiency now.

Wanted to reiterate that last point, we don't want to be just another brokerage hanging agents licenses, there's too many of them already our focus is not just in adding more agents, but also in helping our agents become more productive and close more sales. We believe that we can accomplish that by providing more training more technology to help our agents get in front of more.

Buyers and sellers as well as reduced the amount of time required to manage the transaction process, giving them, even more time to network and so now as you saw from our acquisition of Neighborly, Our home search technology platform and of course from real results, which is the lead generation lead nurturing company that we acquired in time, we also have.

Tend to generate real estate leads for agents, which in turn should help our agents close even more sales help us to further increase our revenue and profitability per transaction attract even more agents who are looking for leads and allow our current agents to stop spending the harder and money with these large portals, who are actually their competition.

Now as I mentioned for Q2, we saw 53% growth in agent count ending the quarter with over 6950 agents one of the beautiful things about our growth is that our cost.

To acquire just one agent during that period was approximately $950, making a breakeven on each agent the same as what we make on just our first sale.

I also want to point out that the lifetime value of an agent has over $18000 on just on just the real estate side of the business right the ratio of that lifetime value to our cost of agent acquisitions over 20 X and that doesn't take into account revenue from our mortgage title and insurance companies.

Or really the potential revenue from the leads that we can generate for our agents.

By the time, a rich by the way, we expect that our cost of Asian equities may increase as we devote additional resources and investments to help our growth and really help drive our groups, but again at 20 times LTV to CAC I think we've got plenty of room to work with.

Now, we often hear our agents say that they joined fathom to earn more commission, but ultimately they stay for the culture and I'm incredibly incredibly incredibly proud that we have one of the lowest agent attrition rates in the industry.

If you want a true representation of whether agents are happy.

So agent attrition such as the Fathom House is really the best indicator.

I'm extremely proud that our retention of higher producing agents improved greatly between 2019 and 2020 and we're seeing the same improvements so far in 2021. This quarter, we improved our agent attrition rate by around 20% for the quarter right from one 7%, which is already ridiculously low down to <unk>.

Only 1.37%.

In fact agents, who close less than one sale per year makeup over 75% of our agent attrition with only 2.5% of our agents attrition coming from agents to close 10 cells per year.

Now that's a miniscule number it just 2.5% of 1.37% like tiny and we're killing it where we're doing an amazing job and I'm very proud of our team.

I'm not sure why other real estate companies hide their agent attrition numbers, but I can tell you right now we have nothing to hide now I understand that the real estate market is crazy and there's there's a lot of uncertainty with that said I do believe that these market conditions will prove to benefit fathoms real estate business, while many others find it to be a headwind for example.

With COVID-19, and now of course, the Delta variant and play many real estate offices are either staying closed or considering closing again.

Agents will begin to ask themselves why the heck, they're still paying their brokerage monthly fees and yet without the use of their office on top of their high Commission splits right.

When they can get everything they need from fathom and at a small flat fee.

Robin becomes more and more attractive as time goes by even worse for those who don't operate virtually these offices may be closed, but the brokerage is still having to pay that rent.

We don't have that issue a.

A few people have talked about possible housing bubble. So I'll go there next.

But most experts effectively demonstrate that this market is different and we personally do not expect to see a bubble. We do however, see home sales and prices normalizing. We believe this is healthy in fact, we actually may see home prices come down here, which is important for first time homebuyers. That's a good thing.

And as I've mentioned, many times, we do believe that crazy markets are to fathoms advantage in fact, I want to spend just a minute on that point, because I think it's more important that people realize.

No that I briefly touched on it earlier, but I can't stress this enough while other real estate companies may see strong headwinds as prices rise or fall as mortgages rates rise as housing remains in the low supply I believe strongly that fathom could significantly benefit from it you see there's only two ways to make more money for real estate agents right. There's you make you got.

The increase your revenues by selling more homes, we decrease our costs and our biggest cost in agent usually has is the broker fees and splits in a market, where it's hard to find homes and to sell or buy agents should be attracted to fathom to make up for any lost income by decreasing the fees. They pay in fact, it's an agent close to 20% fewer homes.

Due to shifting market conditions, but moves over to fathom from a brokerage who's charged them a 30% split they will actually earn around 9% more income.

That sounds like a Wyndham and I believe most agents would completely agree with that.

Even if home prices fall many of our competitors would likely see a strain on our profitability while that would not be the case for fathom. We earn the same fee from an agent regardless, whether the agent earns $10000 in commission 9000 orders commissions were even $6000 of commission.

Now this should also allow us to continue to take more market share quickly from real estate companies with an old traditional commission model as our agent base grows those agents bring more transactions with them as we add more transactions, we have more opportunities to capture mortgage title insurance revenue, turning a parcel headwind for other.

Into a tailwind for fathom.

Thousands of bill too to attract even rather ever increasing number of real estate agents by providing them with greater income potential along with technology training and support they need to grow their business is even more evident today, especially during these unprecedented times.

This fact continues to drive our growth as I mentioned earlier, our results and key performance indicators for Q2 were outstanding clearly fathom is moving in a very positive direction, attracting higher producing agents and selling more homes in higher priced markets, which by the way should also significantly benefit our mortgage title and insurance company.

As well as the leads business that we're currently building.

Saddam Realty now operates in 31 states and the district of Columbia, and we plan to open several more states in the coming months one of the most recent states. We opened was through an acquisition of epic Realty in Idaho, I've had the pleasure of spending time with many of their agents and I could not be more pleased with the caliber of these agents and the staff that manages the day to day off.

Operations, we really scored huge in this acquisition as it's more of a merger I hate to use the word acquisition, but we love these people and they've been incredible part of our fathom family already.

We also expanded deeper into the Las Vegas market, when we brought over Flavio Jimenez and his team of 20 agents to help US lead our new Hispanic division at Fathom, we recognize that there are many underserved communities in this country and its refreshing. It really is refreshing to see so many companies take more intentional steps to address these issues.

However, we believe that the Spanish speaking community still rarely talked about in the real estate space and it's our desire to fill that void.

Our industry needs to evolve in new and creative ways to remove barriers and meet the growing needs of demands of the Hispanic homebuyers.

Now speaking of markets encompass lending our mortgage company is now operating in 43 States Dagley insurances in 47 states and various title is in 19 states. Each of these fathom companies have incredible leadership teams to help guide their growth and it gives me great confidence that we'll be able to accomplish our long.

Term goals.

Our technology platform allows us to eliminate our reliance on third party technology providers, which reduces our cost significantly while offering a more robust technology to our agents employees and our clients and tell agent gives us the power to to really control the full lifecycle of the home buyer and seller and gain a greater understanding.

All of our data and how to use it to further improve our offerings, while generating leads for our agents us. We can now begin to identify potential clients for our mortgage insurance and telecom. Please long before they're even under contract in before an agent has to make an introduction speech.

Speaking of introductions, our mortgage company encompass lending is growing quickly and with significant potential this operation animal fat for Fathom, we made several strategic investments and improvements in both leadership and operations to prepare our mortgage company to capture even more market share so great strategic investments in this company and we're very excited about it.

We're also enjoyed significant growth in both title insurance in fact, our title company versus title is growing exceptionally as well and I could not be more proud of our team's efforts plus the deeper dive into the insurance industry. The more encouraged I am by the incredible effect of Dagley insurance can have in our long term profitability. While also I think is key.

While also helping to balance out slower months due to the cyclical nature of the real estate industry.

For intelligent, we've actually begin generating meaningful SaaS revenue starting in Q2, and we plan to roll another SAP software offering in the coming months called live by local which we believe will be available to actually which will be available to even more agents and brokerages were excited that for the first time, our SaaS revenue is over.

$500000 and that's before we even started licensing our core products.

Now I've had several people asked if we plan to make any more acquisitions are clearly we've made a lot of acquisitions in a short period of time and at this point as I said, we have all the puzzle pieces, we need we're working diligently to put the puzzle pieces together in the most effective way possible to ensure really strong attach.

And a great experience for our clients and our agents moving forward acquisitions. We consider were primarily be focused around opening new markets to hit critical mass faster, which also helps grow 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 store.

Where's the money you've entrusted us with we intend to grow strategically this is not some roll up strategy and we have no intention of overpaying for growth nor do we like dilution any more than you do especially with my own family owning over 50% of Fathom stock. We believe in the company and we take dilution very seriously.

Now to address questions about our ownership and recent stock sales, let me point out that my father in law blend Samson who is also on our board of directors of directors is one of the insiders that had been selling stock. He was an early investor in Fathom and he is now in his eighties like me a large portion of his network is wrapped up in fathom stock, but he is.

Only selling a tiny amount of the stock each month and that's true for me too. Although we may sell small amounts of stock stock from time to time to REIT qualified can be five one plan I want to assure you that this is minimal prudent diversification that has absolutely nothing let me repeat that absolutely nothing to do with our view on fathoms future.

We still own nearly 50% of thousand stock and the company success remains our focus I think my comments today and our recent results prove not only how excited we are but how committed we are to continuing on the growth path. We've set now.

Now honestly, we couldnt be more excited for the future of this company.

So let me get off my Soapbox and turn the call over to Marco Marco It's all yours.

Thank you Josh as we indicated last quarter, our financials will look a bit different this quarter in order to provide additional visibility into the many businesses, we have acquired and I'm going to take some time here to review the numbers in more detail with you.

Total second quarter revenues grew 118% year over year to $84.4 million $84.2 million from $38.7 million. The increase resulted from growth in real estate transactions average revenue per real estate transaction and revenue contributions from encompass landing, which is a mortgage company in Sally agent, which is our <unk>.

Fast technology company that reinsurance, which is an insurance company and finally, there is data which is our title company.

GAAP net loss for the quarter was $2.1 million or a loss of 15 cents per share compared with a GAAP profit of $161000 or two cents per diluted share for the same period last year, which was as you know again prior to our IPO.

The change from last year's second quarter was due primarily to increases in costs related to operations marketing G&A and expenses related to being a public company, partially offset by a tax benefit of approximately $2.6 million attributable to the release of the company's valuation allowance against deferred tax assets.

As a result of the company's second quarter acquisitions.

Adjusted EBITDA loss, which is a non-GAAP measure was $2.3 million for the quarter versus an adjusted EBITDA profit $329000 for last year's second quarter again prior to our IPO.

In Hawaii, we recorded a loss in total adjusted EBIT that our real estate division was profitable, which I'll discuss in a moment.

In Q2 of G&A decreased to 11, 2% of our total revenue from $12 three during the first quarter of 2021.

Total G&A expense increased to nine point 40 million compared with 2 million last year due mainly to the completed acquisitions cost related to being a public company and of course stock compensation as we discussed in our last call G&A expense is expected to continue to increase going forward, but as we continue to scale and integrate them.

Article businesses. However, as we have demonstrated in Q2 G&A as a percentage of total revenue should continue to decrease.

Expenses related to marketing activities increased 378000 from 138000 in last year's second quarter, mostly driven by girls, they're not talent acquisition team higher levels of investments in advertising and PR to help attract new agents.

Now I'll review some of the key results from our business units as Josh indicated early on earlier, our real estate Division finished the quarter with 6950 agents an increase of 53% of the same period last year.

We closed over 10000 real estate transactions for it for the quarter, a 74% increase from the same quarter last year. The increase this increase is a great example of the power of a truly disruptive model. The fact that our transaction growth is significantly higher than our agent growth proves the point that we have made in the past that.

Agents will close more transactions after joining fathom by investing those savings back into their businesses.

Perhaps the most significant accomplish in the quarter was that our real estate division reached profitability with almost $500000 in adjusted EBITDA now this should not come as a surprise to both of those of you have been following us since the IPO, Josh and I had stated that we believe that our real estate business would reach breakeven between 9000.

10000 transactions and I think we have been consistent on delivering on what we say.

We made significant investments in our mortgage operations for the quarter revenues exceeded $1.5 million with an adjusted EBITDA loss of 890000. Please keep in mind that we owned this business only for part of the quarter and at this time, we believe that we made the necessary investments to grow the business, including adding to the team applying.

For necessary state licenses and enhancing the systems needed to be able to deliver rapid growth going forward. This very strategic investments she'll bring a greater return to our shareholders over time.

In Q2, the revenues of our Intel agent SaaS platform increased to just over half a million dollars with an adjusted EBITDA loss of 307000 currently our primary Intel agent product is often live by live by data solution as Josh indicated or in short order, we will be releasing a new offering called the buy local which you'll do.

Live a hyperlocal information at the neighborhood level. This is an exciting new offering and we expect our SaaS revenue to continue to increase after this release.

Our insurance company entitled companies continue to grow as well.

Buying revenues of almost $2 million for the quarter and adjusted EBITDA loss of just about $21000 go forward bolt business should contribute significantly to our adjusted EBITDA.

Our balance sheet remains strong it bears repeating that we will always be a good steward of your investment in Fathom reiterating Josh has said has said many times, we're not believers in growth simply for growth's sake.

By any measure our second quarters, a fantastic quarters, we deliver profitability for our real estate Division. We continued to successfully integrate all our brand new businesses and increase their revenue we've made the necessary investments to increase capacity at our mortgage company, we lowered our agent turnover to the lowest number in the company's history I am incredibly.

Really proud of our team.

Now for guidance as we are concluding our first year as a public company and have achieved the strategic acquisition goals set for at the time of IPO were now in a position to begin to give the investors a better view of how scalable are our business can be and we feel confident that we can now offer a long term operating targets.

Assuming that we can reach between 100900.10000 transactions per year, we believe that we can generate adjusted EBITDA exceeding $40 million per year, while we're not prepared to provide a timeline for this transaction milestone we do feel confident that we can maintain the strong transaction growth that we have demonstrated in there.

Last year since our IPO with that kind of growth rate in the years to come it's possible that we could see hundreds of thousands of closings for a year.

I want to thank our entire team of employees and agents for an incredible quarter are achieving these impressive result is only the direct byproduct of their hard work.

Our employees and agents share the same vision passion culture and work ethic as we do and we can either wait to see how much more they can accomplish I will now turn the call back to Josh. So we can answer your questions.

Thank you Marco as you can tell we're incredibly excited about our incredible long runway for the company and our future prospects, we've been working really hard to deliver on our promise to grow fathom and accelerated and yet sustainable fashion for the long term.

For those of you who are shareholders. Thank you for your trust and them being part of our Fathom family Alright, operator, we're now ready to open the call to questions.

We will now begin the question and answer session.

Ask a question you May press Star then one on your Touchtone phone.

You are using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

Our first question today comes from Darren <unk> with Roth Capital partners.

Hey, guys. Thanks for taking my questions and congrats on the quarter.

So.

Thanks for the detail segment break out in our long term targets I just wanted to kind of make sure I.

Growth assumptions.

Right on your quote unquote guidance, though.

The REIT math, taking kind of the trailing 12 months.

Transactions.

Since the IPO and then kind of growing over the prior year I think that kind of come up with 59% growth is that correct.

Yes, yes, that's correct.

Got it so if that math is right it kind of implies.

Roughly two and a half years to get to roughly 100000 transaction.

Yes. My my question go ahead.

So a couple of things it is looking back when that that average, but I think if you see if you look at the last three quarters. When you look at transaction growth right you.

You're looking at a Q4 was 50% Q1, 60% in Q2, 74%. So you can see that that transaction growth is also accelerating right. So it is taking in consideration the past, but it has also taken some consideration to the acceleration of the transaction growth as well.

Fair enough. So it takes them some time to get to that 100000 transaction 40 million of EBITDA. My My real question is what's the underlying attach rate assumption on your various service portfolio to get to that number.

So the way that we look at this is is is more of if you look at the hundred thousand transaction is still look at around 10%.

Across the board average now keep in mind that some bids and theyre going to do more than 10%. So I'm going to have less than 10%, but it's we are making assumptions using a modest attach rate of a 10%.

Got it that's helpful. Thanks.

Yeah beyond kind of some of your tempo of geographies like Texas and North Carolina.

Where are you seeing kind of over index traction in some of your newer markets.

That's a great question honestly, we're seeing growth everywhere right now the industry as you know is really hot now.

Now keep in mind that we are not you know we currently don't have a presence in the northeast REIT, we're not in New York, Connecticut, Massachusetts. So we're not in some of the areas that we've seen transitions of people migrating for all right. We are primarily in the states where people migrating to so for example, you can look at our recent merger with epic.

Idaho.

Boise, Idaho or the state of Idaho was one of the top 10, new markets in the country in terms of girls REIT. So we see significant growth.

In Idaho, we see significant growth in Florida.

Tennessee, Texas. So it's there are a variety of states, which are increasing significantly and to a certain extent, we have limited exposure in the states there are losing.

Market share in defense against the whole country right.

So we're not again in the northeast, but we're seeing a really there there are many even in North Carolina.

The Raleigh area is seeing significant increase in people moving into the area. So there are many market, they're seeing a significant increase certainly the California market people are the population is moving away from California.

Certainly in the northeast to certain extent.

But that we have at least eight or nine markets that we're seeing some significant increases.

And we're also seeing cigarette increases just in the markets. We're currently I'm, just really starting to see some incredible penetration in each of these markets. We're in.

Great and maybe if I could put you on the spot. So you sort of 12 months removed from your IPO.

What are kind of your one two or three top strategic priorities.

For the next 12 months, if we're talking August 2022.

Yeah.

I think priority number one right now.

Which by the way when I talk about priority one two and three it doesn't mean, we have two one at a time right. We've got incredible team that we can do all of these are the exact same time, but there is two huge priorities. One is we've got these great companies now quite fathom is no longer fathom royalty Fathom is now fathom realty encompass lending various title.

Intel agent Dagley insurance, because we had all these companies now so to go back to be able to get that Patrick we talked about it's about fully integrating these companies into our technology fully integrating the companies and their employees into our real estate business towards they became a really tight cohesive unit and Thats really focus.

Number one is making sure that we're not.

We're not playing loose with these acquisition, we won't do it the right way take our time do some very strategic investments into making sure that we can accomplish that goal and so thats a huge focus for us right now and the other pieces that we want to continue to grow I mean, I'm not going to lie.

Obviously, when it grows like everyone else does.

One of them stake I think a lot of people do is they just grocery cyclical like they just trying to add body count and then what happens is you have a lot of agents are closing no transactions and it starts to diminish our transactions per agent. It starts to hurt your reputation that's not who we are I would rather have you know 57% increase in agent count.

Growth and an 80% increase in transaction growth.

Saturday It doesn't have it the opposite about an 80% increase in agent growth and a 50% increase in transaction growth. So we want to grow with purpose, we want to grow with a white people that help us maintain a strong brand great reputation because agents care. They just care of the loan officers care of the insurance everyone cares about the reputation that matters. So the more we protect.

That reputation by growing with the right people I think they're actually the faster will actually grow so.

Kind of goes two sides, but.

Number one I think is making sure that we can fully integrate the companies number two is making sure. We continued growth with Swift casino our growth, but in a way that that makes a lot of sense and of course number three and again I'm not saying one is more important the other is making sure that we can be incredibly profitable. We don't want to be that company that is just growing growing growing and never has.

The profitability of the fact that our real estate business was profitable and just 10000 transactions this quarter.

Speaks volumes, how many other how many other real estate companies can do that how many other real estate companies will profit of about 100000 transactions per quarter can you name one.

There's not many.

I can't name off top my head.

No.

That's incredibly important so profitability attach rates, you know really integrating the companies and continuing that growth strategic.

Strategic growth.

<unk> anything to add to that.

No I think we're good I think those are at it.

In other words, Mark is saying.

[laughter].

Thanks for the detailed response.

Thanks.

Thank you Dan and good talking to you.

As a reminder, if you have a question you can press Star then one to join our Q.

Our next question comes from Tom White with D. A Davidson.

Hey, try then to hear from you.

This is Kevin Robinson on for Tom I'm wondering.

Wondering if I can have two question for your time.

I was wondering since you're going and going public you've added you don't your income title.

I mean, the various title encompass lending, Doug reinsurance and I've seen incredible growth through that I was wondering if you could talk a bit more on the near term and long term growth plans and what you expect these athletes services will represent as a percentage of your business and I have a follow up question after that.

Sure.

Thank you Kevin.

We are going to see significant growth I mean, one of the things that we did as you saw we made a significant investment in encompass.

Encompass lending in Q2, we felt that for us to be able to see that kind of growth that we want to see we wanted to make that investment. So I think that revenues going forward for all of our Josh indicated that he's got a key priority for us I think we're going to see significant revenue growth.

Going forward for the next 12 to 18 months.

For us.

Acquisitions are a very key in terms of making fathom a very profitable company. So if you look at the statement that we made earlier that we believe that between 100.410000.

Transactions, we believe that our adjusted you'd be that'll be about $40 million.

More than half of that.

Our adjusted EBITDA is coming from the.

The mortgage title insurance and <unk>.

Technology companies. So so you can see that in the next 24 to 30 months.

You know lets see I E. A lion's share of the profitability is going to come from those businesses. So I think that should be in a statement in the center shows how how profitable we expect that these viewed this business unit to be for our business.

Great Awesome. Thank you and congrats on the agent growth I was wondering as your value proposition changed at all since.

Especially given the competition up there tweaking their offerings by adding other benefits like a dividend.

Is there anything else you are the.

Or adding to your value prop for agent overtime.

It's a fantastic question. So the answer is no we haven't had to when you think about it.

We don't have to.

If you look at what we're doing compared to.

Any of the competition out there that has that's publicly traded once you can actually look at what they're doing.

We can provide everything we're providing it so far greater value to agents that they have to provide all of those things to be able to compete with us not us having to add more to compete with them if that makes any sense.

So.

Ultimately long term are there things, we can do absolutely, but right now we've got I believe I truly believe I know I'm biased, but I'm trying not to be one of the greatest value propositions of any company out there and so theyre trying to play catch up I believe because we really do have a strong value proposition.

Right now I think our focus is how do we provide more tools and resources to agents more than anywhere else provides and we can do that through technology, we can drive through lead Gen.

A lot of weight, we conducted training theres lot of things that we can do a lot of our competition talks about doing but don't actually do and so that's been really our focus how do we take the technology. We have because we're one of the only companies that actually has a full technology suite for their agents, we're not licensing other other.

Technology platforms. So we're able to take that technology and start providing more ways to help the agents spend less time and for the computer more time in front of clients and be able to generate more business through their sphere and through their marketing that's what agents want more than even better split some more than a small dividend.

They want more leads because one more closing could be $9000 to them.

Not a couple of hundred dollars per year and something else. So that's our focus is really will provide more value really got one of the greatest value propositions will provide more value by helping them close more business. That's T. That's what they want they're not looking for gimmicks.

Kevin Let me let me also add that how how we look at values and also by looking at turnover rates of turnover as an indicator about you in a sense that our agents, leaving you REIT to attract agents is one thing, but then a days about keeping them right and so when we look at the value exchange. We're looking at who are the agents who are leaving fathom what is our <unk>.

Turnover and I think Josh indicators are turned over for Q2 was 137%, which we would argue is one of the lowest in the industry. Although we don't know what other companies are because they don't pulse theirs, but if you look at that and given that the significant majority of that 1.37 percentages that lead bad them close very little business. So clearly the agents there within.

Bathroom perceived that the value exchange that that they're receiving is a positive one and then the other thing that I'm that we're very proud of is the agent referral. So the fathom Asians are referring other agents and that number continues to increase as a percent that Jim in the future quarters, we're going to share those numbers and I think people.

We will see you know again, that's the the issue about value exchange you know how how are agents.

Representing how he just staying with the company and then how agents are refining all of their agents.

Other companies talk about net promoter score and show me at the end of the day net promoter scores about our agent reporting other agents and we're going to start showing that number going forward I think that.

Does that kind of benefit that agents I've seen from the value that they're getting from fathom, which as we continue to grow that will continue to benefit everyone.

Great. Thanks, so much and congrats on another important.

Thank you Kevin.

Our next question comes from Kris Tuttle with IPO Candy.

Hey, guys.

Yeah.

Hey, yeah. Thanks for taking my questions I, just have to but before I say that you guys.

Congratulations again on everything you've done over the last year.

You know our clients are very happy and I'd say, if there was a ratio of sort of management execution to market cap you guys would would rank very highly on that from an IPO standpoint.

Thank you.

I had two questions for you one I'm pretty basic.

And then one a little more long term. The basic one is when you guys talk to agents, who you know.

You would like to have them over to the platform.

In cases, where they decide not to I'm I'm curious to know what what you generally hear as sort of the top one or two reasons why someone might stay at a traditional brokerage firm like a weichert or something like that.

Sure. It's a fantastic question it really comes down to kind of psychology doesn't it.

First of all when we get in front of an agent, we rarely lose them, if and agents actually thinking about actively moving somewhere else if they're talking to us for us talking to someone else, it's very rare they choose someone else over us it happens, but it's pretty rare.

But the question becomes what about those agents, who aren't thinking about moving that we're talking to that either another agents trying to reach out to or that were actively trying to recruit it usually comes down to fear fear of the unknown fear of loss.

Now, they're being told because of the.

Some of these traditional brokerage and you're scared right.

I'm, not saying that loosely here.

They're scared of us coming into the market. They are scared of us taking all of their agents. They see us cannibalizing a lot of their agents, so they're telling their agents, but if you come to fathom youre not you'll close knit business clients care about the brand they care about the logo and that's just so far from the truth and so in fact NAR has proven that time and time again that clause.

Its care about the agents that she was actually attracting the client not the brand that was in fact, only 1% of all homebuyers chosen agents based on what Brenda with IPO.

Over 99% chose the agent, but that's not what the brokers are telling the agents. The brokers then you have to be part of the brand scaring them. They think okay. I'm closing 15 homes. This year, if I leave will I lose business is that a thing so they don't know and so it sometimes has to happen is they have to watch their friends or someone else. They trust move over watched.

Their business you realize oh, they're business did not only not shrink it actually grew and then now they jump off the fence as well and so sometimes what we're trying to deal with a lot of misinformation because the competition scared and I get it you know what I'm.

Not wanted to lie to people, but you know I get it you you want to do it if it tended to protect your base and make sure agents aren't leaving and so sometimes people tell them whatever they can to keep them.

But I've got a I've got a good friend of mine they'll play the store front of mind. She she ran a very large traditional brokerage about 500 agents and I sat down to her with coffee because we're friends and she said I hate you.

Why do you hate me show because every time I have an agent say I'm, leaving to fathom. All I can do is say, let me get your box.

It's just.

Dave We've got an incredible value proposition, and it's becoming harder and harder as the longer in the market for for agents to not take notice and not want to make a change so that's usually it.

Hopefully I answered it didn't go too long winded.

Yeah, Hi, I appreciate that and.

I'll just share one thing the only thing I have heard that.

Wrinkle not a wrinkle even just the niche thing is some of these.

More established brokerages and I'll turn this into a question they have some established relocation business with large companies.

And beauty AIDS since I've talked to have said.

It's not that big but they throw me a few of these relocation clients every quarter and you know it is enough of a you know it provides a little bit.

Inducement I guess for them to stay.

With an established agent so I'll turn it into a question and just ask you are you guys looking at relocation or have you thought about that.

And you might be able to add into your mix.

The answer is absolutely, yes, it's something we've explored and looked into more just an internal talk we've actually gone further exploring opportunities.

However, I will tell you that there's a bit of a.

Caveat to that I guess I'm not sure the best way to put it but there's very few companies. There's one big brand, but there's very few companies that actually do any real.

Real amount of relocation and then in those companies, there's only a small number of agents inside the company, who actually receive those relocation leads.

And then the number of leads they typically get are actually very small and we've had a lot of it just come over they got one per year or two per year very few got now somebody I'm sure I've got no doubt some of it a lot, but it's not every single agent in that company.

And so if you think about if an agent gets to relocation deals relocation deals typically youre getting up 50% of the relocation company than your brokers, taking 30% of your 50% right. So how much he left when you're left with very little REIT you'd have to do three deals from them to equate to one deal with fathom, So if you're only giving up.

$6000, because you're giving up those two relocation deals total of $6000, but you move over to fathom and the average agent saves 12 to $15000 you might do to less deals, but you're still making a significantly more amount of money. So sometimes it takes time to just sit down with them show them the mouth help them understand the truth not.

The emotion not only feel but the actual facts.

Facts don't care about your feelings kind of idea. So we walk them through that and once we showed in the numbers like Oh, okay. It makes sense I got it but unfortunately, sometimes it takes time to actually you have to actually sit down with a person and help them understand the numbers.

Alright, yeah that makes sense I appreciate that and my final question and you can you know don't have to go into too much detail on this but you know.

There's a.

Certainly an interest on our fixation in some of the markets and real estate around this.

You know this is more transactional model you know the open doors and Zillow and some of these guys have been you know Kathy woods in the arts or out there around fungible real estate and I understand it is a segment of the market, but I just wanted to take the opportunity to ask you guys. If.

If you have some thoughts about how you kind of see this.

You know more liquid more efficient sort of transactional real estate market and if that plays a role in how you see your long term growth.

Sure no actually so look I buyers kind of a term we've given those companies I buyers are here to stay I don't think they're going to where they've been around for I don't know 40.50 years.

We buy homes kind of beat them to the punch that that model has been around forever now its got a prettier spin to it and there's a lot more money backing it up but they've been around forever and I don't think they're going anywhere.

They are struggling to to.

A lot of struggles.

Relating to that model, but I don't think they're going anywhere. So the question is you can freak out and try to compete against them or you can use them to your advantage and so we actually have a lot of agents and we encourage agents to use them to our advantage. So what we do is for example, we we've got agents who will promote the eye by the instant offer we can offer you a homes just like the.

I can immediately now it's not fathom, that's buying the property, but we can utilize investors and zillow and opened over the last I'd be able to do that so we marketed that allows us to get in front of 10.

10 homes for example, as an agent markets that property or that that offering. They go into those 10 different listing appointments with the instant offers they might work with three instant offers but they also work in with here's what actual listing looked like as well. So offer number one off number two off number three or list with me and it might take 30 days, but here's here's what you can.

At the end of the day.

And what we find is that typically the the once who actually opt for that instant offer it's like one out of 10 or one out of 20 people the rest of them become great opportunities for listing for listings for new listings for our agents. So our agents are using them to actually generate more business and then the ones who do opt for an instant offer.

That's okay, because our agents got nine other listings potentially but also they typically still get their full commission from that buyer, so whether they choose the instant offer or they go. The lifting route are agents that gets paid in fathom still makes a profit so why fight against them, let's work together, but you use them to make.

More money become more profitable and that's.

That's what we do.

Alright, very good well I hate listen I'll I'll step down just a.

Congrats again and I'll circle back with the with you guys and Marc answer more detailed questions about them all right well those are great questions. Thank you. Thanks, Chris.

Our next question comes from Greg Kit with Pinnacle Fund.

Hi, Josh and Marco Thank you very much for your hard work and taking my question.

Luis.

One one comment and one question first I was very excited to see your long term guidance of $40 million in adjusted EBITDA and building on <unk> question from earlier, it sounds like that could be possible.

And maybe as early as 2024 ish and so that's exciting to me because I love businesses that have good incremental margins and as you grow revenue as you grow EBITDA as well and.

Further one of your virtual brokerage peers is trading for 75 times plus current your EBITDA at these multiples hold up I would love to see you earn 75 times $40 million of EBITDA and be a $3 billion company in a couple of years.

Especially compared to your $400 million enterprise value today, So if I heard Marco correctly, I think I heard a lot of the growth.

Could be coming from your services businesses.

And and that those could be nicely profitable over the next couple of years I also heard.

That you were making some investments to.

To get licensed and prepare those businesses, especially the mortgage business to grow to handle a lot of growth. What work is left to do for you to prepare the services businesses that you've acquired them for for that future growth that youre expecting to see.

Well, let me let me first step back one second on the 100000 transactions. Just one thing I think is really key for people understand at 100000 transactions just the real estate business alone could see $10 million to $15 million and operating profit. So we had that just by itself is incredibly strong.

So I think that's the key for people to understand so it onto thing about 20, 25% of of that $40 million. So that's I think real estate is cheaper people understand is because theres a lot of companies out there that aren't making any profit whatsoever or oh I'm sorry.

EBITDA right off of just a real estate transactions, there depending on everything else to be able to carry the load.

And yet each one of our businesses can be very strong by itself.

I know marketing is a correct me on how it's a phrase that.

I know for a fact as soon as I said and like I said, it wrong, but the other pieces of that.

I can see Marco.

The other piece to that is no.

The focus is really in how do we know now that we've got the operations place how do we fully integrate them how do we get the relationships built between the agents the loan officers the escrow officers.

Insurance agents and so on relationship matter, even though we own the business. We can't just force. These off these solutions down our agents throws when do we start to earn the business and the way we do that is making sure. We hire the best people. So we made investments in strong leadership, we made investments in strong loan officers title title and so.

So those investments are really important because if you want agents to actually give you that business you have to have the best and so we think about when you hear about a lot of these other companies.

They tend to hide that attach rate or don't talk with attach rate, it's because the attach rates week, Patrick its weakest because they're trying to force it down people's throats versus earning that business and so our focus is really making sure. We've got a strong operations strong business with strong people so that way our agents want to send the business over and not that were forcing them begging them to send the business over.

And I think that's gonna be really key when it comes to attach rate.

And so that that's really the focus right now is strong and investments in both time and money in those operations to make sure. We got the best of the best to help the real estate agents really want to attach and really want to work with those people market. What do you want to add to that I know them.

Well.

Great Great Great question by the way. So if you look at you know one of the things. We tried to do is by looking at segmentation and look at each business to try to give everyone visibility right. So for example, you know you look at the real estate and adjusted EBITDA was almost happened millions of dollars right for.

For the quarter.

You look at when you look at and we talked about title and and mortgage and adjust EBITDA was about breakeven right and then on the mortgage side, Yes, we had a loss of almost 890000, but most of that was related to the investments necessary to really scale the business, which we.

We feel that going forward.

Those investments are going to pay off so I think in very short order.

Most of our businesses are going to contribute income was.

Positive adjusted EBITDA for the business right. So we feel very confident that in that number of 100000 to 110000 that will see adjusted EBITDA over over 40 million. So yes, we feel very good about that and as Josh indicated we think about 15 million will come from real estate and the other 25 million will come from.

The businesses units and then we're looking at at around about a 10% attach rate and so I think in some in some businesses, we will be able to see more and perhaps something a little less but the attach rate, we're using a very modest rate.

And so we feel very confident in terms of a tiny if you look at the last three quarters. We grew transactions by an average of around 61, 62%. If you you know someone applies the same growth rate in transactions for the last couple of years, I think there'll be able to see and when we're going to perhaps hit the hundred thousand 410000 transactions.

So we feel very confident that within that timeframe, we'll see EBITDA adjusted EBITDAX of $40 million, which I think that you know hopefully by that time in sooner our investors would value. This company in a different way than we than we currently are being valued.

Thank you very much and I think just to touch on one thing.

And my follow up question was how do you incent them, how do you incentivize agents to use these services and I think Josh you touched on it very well.

Is that you're not forcing this down any of your agents throats, you're trying to build a really high quality service offering now that you've taken the time to acquire to vertically integrate.

Title insurance mortgage.

You're going to build it.

Your goal is to try and build a really high quality service that your agents are looking forward to using because your agents are getting are seeing a good experience every time they refer.

To use any of the fathom owned service businesses is that is that the right way to think about it.

It is and you said it better than I did if you ever need a job you'll have me though.

[laughter].

There is there is one added benefit.

I wish we could legally incentive IV agents directly for sending business over that can't happen.

Wish we could but there's rules in Europe. However, there is an indirect way that we can incentivize interest and it's something we're doing that right now no. Other company is doing and that is the fact that not not some of our agents, but every single one of our agents and the time they close the first transaction one stock in fathom all become shareholders of the company and there is no other company that I know of.

Now that can say that every single one not some but everyone and so that means that the more they send business to mortgage title insurance leads and so on.

The more revenue we generate the more profit, we're able to create which brings more value to their stock potentially right. There's never ever again carefully but potentially right. So that means that there is an a.

A benefit in some way for them as they utilize the services they are shareholders as well if they want to see their shares go up in value. Then we all have to do our part to bring more value to our shareholders as a whole.

Thank you both very much.

It's my pleasure. Thank you.

Thank you.

This concludes our question and answer session I would like to turn the call back over to Josh Harley for any closing remarks.

Thank you so much and of course, thank you all for joining our call today and for your continued support we are extremely proud of all that we've accomplished and we look forward to taking additional actions that will add even greater value to our company and benefit all of our stakeholders. So with that have a wonderful evening and thank you again.

Now concluded. Thank you for attending today's presentation you may now disconnect.