Q2 2022 Fathom Holdings Inc Earnings Call
Good day and welcome to the Farmer Holdings, Inc, 22nd quarter of 2022 earnings Conference call.
All participants will be in Russia.
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Please note. This event is being recorded I would now like to turn the conference over to Roger <unk> Investor Relations with album holding please go ahead.
Thank you Sarah and welcome everyone to today's call I'm, Roger Pond L with Pinedale Wilkinson Saddams Investor Relations firm and this is my pleasure today to introduce the company's founder and Chief Executive Officer, Josh Harley If Adams, President and Chief Financial Officer, Marco Fresh at all.
Before I turn the call over to Josh.
I want to remind everyone that today's call may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, such forward looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the risk factors.
Section our fathoms latest Form 10-K, subsequent form 10, Qs and other company filings made with the SEC copies of which are available on the SEC's website at Www S. E C. Dot Gov as a result of those forward looking statements actual.
Results could differ materially.
<unk> undertakes no obligation to update any forward looking statements after today's call except as required by law.
In addition results discussed for the second quarter and for any portion of the 2022 third quarter are not necessarily indicative of results for the full third quarter or any other future period. Please also note that during this call we will be discussing <unk>.
<unk> EBITDA, which is a non-GAAP financial measure as defined by SEC regulation G.
Important disclosures about this measure and a reconciliation of it to the most recently are the most directly comparable GAAP measure is included in today's press release, which is now posted unfathomable website and with that it is my pleasure to turn the call over to Josh Harley Josh.
Thank you Roger and of course, thank you to everyone on today's call. Our entire team really appreciate your support I'm going to start by thanking our agents and employees for their ongoing hard work not just toward our vision, but also helping US quote I also want to say, thank you to our fathom family for their unwavering dedication to creating a culture built on <unk>.
Service and more specifically serving in placing others first before turning the call over to Marcos. So he can review our financial results in detail I'd like to touch on several subjects. This afternoon first the key attributes of our model that are enabling growth and a changing climate second our recent growth some challenges.
We faced in the second quarter and are likely to face the rest of the year.
Present market conditions and fourth why we believe fathom can actually benefit from the broader market headwinds over the long term I'll also provide a quick update on our progress with integrating past acquisitions as well as any M&A activity.
We'd have the opportunity to speak with a lot of investors over the last few months, who are new to solve them and how we operate.
Really gratifying with Investor has that Aha moment as they realize how different we are from other publicly traded real estate companies.
We acknowledge that fathom is not immune to the challenges being felt around our industry. We continue to believe that we've built a better mousetrap.
First fathom Realty is among the fastest growing residential real estate brokerages in the United States. In fact in just 12 years, we've grown to become the 10th largest brokerage in the country out of over 86000, brokerages and the sixth largest independent brokerage with.
What's truly unique about our real estate brokerage is that we offer agents the opportunity to keep significantly more of their hard earned commission dollar story disruptive and differentiated flat fee Commission model.
Fact, it's so differentiated that we're the only publicly traded real estate brokerage platform with this commission model.
To address it in practical terms the average agent who joined Starbucks from the traditional model brokerage takes home around $12000 more in commission annually.
This makes us highly attractive to agents and allows us to enjoy agent retention rates approximately twice the national average, we don't just attract more agents, we keep them. The overall value we provide agents who joined fathom is unmatched by our peers.
In addition, as we attract more agents to our low cost Commission model, a proprietary technology platform and wholly owned mortgage title and insurance businesses Fathom should allow us rather should allow fathom to generate significantly more revenue and profit per transaction overtime further we license our proprietary.
<unk> technology to outside agents, Eddie brokerages, the recurring revenue subscription offering further increasing the long term revenue potential for Fathom holdings and the stickiness of our brand.
When you combine our asset Lite virtual model.
With the savings we generate long term from owning our own technology, you get an important key distinction for fathom, we're able to charge our agents less than other brokerages, while building a model to generate margins similar to our peers overtime, even those who charge agents seven to 10 times more than we do.
As some of our earliest investors were quick to realize it's not just that southern wins because of our unique Commission model.
Because of the walls that we built around their business. We believe it would be extremely challenging if not impossible for most of our competitors to change to thousands model given their cost and franchise structures.
In spite of softening market conditions for the second quarter year over year revenue grew by 52, 2%.
Totally for the fifth quarter in a row, our real estate business with adjusted EBIT of profitable think about that we charge a smaller fraction of what other brokerages charges their agents and yet we believe that over the long term, we can achieve profitability far faster than they have even with today's economic uncertainty. We believe fathom has.
Long runway ahead of us.
In Q2, our agent Count grew by 37, 6%, which we believe is positive as we had tough comparisons to last year's second quarter during which we made a sizeable brokerage acquisition. In addition, our transactions grew by over 31, 5% again coming off a 74% growth in the previous.
Q2.
Not only is our agent growth continuing to outpost up pace most of our competitors. We're seeing increased interest from agents on a career site and we actively track you need unique visits and activity on the site and we saw a 65% increase in page views in Q2 compared with the same quarter.
<unk> of 2021.
In fact page views jumped more than 14% just from May to June of this year agents.
The agents would begin to feel the proverbial squeeze and we believe that our Chris site traffic is a strong indicator of future growth.
As I stated earlier adjusted EBITDA for our real estate business was positive. This quarter. However, total adjusted EBITDA was negatively impacted primarily by our mortgage operations due to the unprecedented speed of interest rate hikes.
Mark will speak in more detail about that in a few minutes.
Our cost to acquire one agent during Q2 remained low at approximately $985, making a breakeven on each agent less than $1100. We earn on just their very first sale.
I also want to point out that the average lifetime value of an agent is currently over $21000 on just the real estate side of the business.
The ratio of that lifetime value to our cost of agent acquisition is more than 21 X and that does not take into account the revenue, we're generating from mortgage title and insurance companies.
A few minutes ago, I referenced soft market conditions, a lot a few thoughts to clarify what I meant.
We're living through unprecedented times right now inflation is at a 40 year high.
Inventory is still in relatively short supply and we've not seen interest rates rise this quickly and well over 50 years, which is concerning from potential buyers and hurting mortgage companies.
These outside influences are having a negative impact on all real estate companies and as I said earlier, we're not immune to these market conditions. Moreover, none of us have an accurate crystal ball to distill whats to come although we are assuming that we will continue to see some pressure throughout the end of this year.
While we believe these macroeconomic conditions were proving much more impactful on our competitors than it has been to US we are mindful of the challenges that remain.
Over time, we do believe that we can turn the otherwise adverse market conditions into a tailwind for us our conviction to this thesis has not changed in fact, it's only strengthened.
Due to these market conditions, our focus remains on reaching adjusted EBITDA profitability I've asked our CFO to walk with each of our business heads to reduce expenses by a total of $750000 per quarter by Q1 of next year, we're determined to right size the company's expenses.
The principal reason these kinds of market conditions could benefit fathom is that we could see more agents joining our brokerage when those agents begin to see their income affected in fact July was our second best recruiting month, and fathoms history with a 35% increase compared to July of last year. This is especially note.
Worthy because generally.
Summer months are the busiest time of year for agents. So there are less prone to change brokerages.
Remember there are only two ways for a real estate agent to net more income increased our revenue by closing more sales, which is hard to do in a downturn or decrease our expenses. We believe that we can help agents to both.
So the majority of real estate agents their largest expense is not their marketing I wish it was but in fact, if the splits they pay their brokerage.
With Fathom and agent has access to all the technology training resources and support they are used to getting one of the legacy brands get saves an average of $12000 or more per year and commission splits paid to the brokerage in essence, and Asia could close 20% fewer homes and still earn.
More income than they did the year before.
We believe that this is a key reason why our agent count continues to rise and why so many brokerages are interested in joining the southern family.
As you know our mortgage title and insurance operations were all added through strategic acquisitions, and we're continuing to work diligently to integrate each business fully to ensure strong attach rates. While this process has been slower than we'd like due to our focus on achieving breakeven for the entire company. We are highly committed to.
Getting there as soon as possible.
And then making sure the expenses throughout the company are in line with the current environment and our long term goals.
Since taking fathom public. We've also made several strategic real estate brokerage acquisitions, we're receiving a fair number of inquiries on a regular basis from smaller brokerages, who are interested in joining us while we're eager to move forward on many of these opportunities we remain very selective and thorough in our due diligence process prior.
To proceeding with any particular acquisition and we've been very careful to educate potential acquisition candidates and help them to reevaluate their expectations as virtually all company valuations have decreased across the board.
Although this has added some time to the acquisition process, we expect to continue evaluating completing strategic acquisitions over the coming quarters.
We believe valuations could become even more attractive if current macro headwinds persist or accelerate.
The person that prevail I'm sorry, the prevailing wisdom is that real estate broker just can't grow or gained market share right now due to some of the unprecedented macro changes we discussed while fathom is certainly not exempt from those challenges our model and our execution continue to drive solid growth today.
Right.
Last but not least leased.
I want to acknowledge stock market volatility and its impact on families price per share.
No. It's a little consolation to you that other publicly traded real estate brokerage platforms are also experiencing dramatic decreases in their public market valuations Trust me and my family still owns around 38% of Fathom I feel exactly what you feel that said I'm incredibly confident that we will deliver sustainable long term value.
And in fact, I'm excited about saddam's future. Thank you so much to all of you who share out through sharing that vision with that I'll turn the call over to Marco Marco It is all yours.
Thank you Josh I'll start with a detailed review of our second quarter results.
You will find our year to date results in today's press release.
Second quarter revenues grew more than 52% year over year to $128 2 million compared with $84 2 million for last year's second quarter.
The increase resulted from growth in real estate transactions higher average revenue per real estate transaction and revenue contributions from our newly acquired businesses.
GAAP net loss GAAP net loss for the quarter was $5 6 million or a loss of 35 cents per share compared with a loss of $2 1 million or <unk> 15 per share for the 2021 second quarter.
Our loss narrowed slightly in absolute terms from 6 million for the first quarter of this year and decreased as a percentage of revenue given our topline growth.
Year over year change in GAAP net loss resulted principally from investments in future growth operational and overhead costs related to acquire a company increases in noncash stock compensation and noncash amortization of acquired intangible assets.
Our adjusted EBITDA loss, and non-GAAP measure was $1 9 million versus an adjusted EBITDA loss of $2 3 million for the second quarter of 2021.
$2 1 million for the first quarter 2022.
While these results came in below the guidance, we gave last quarter profits in our core real estate business exceeds our estimates.
Approximately 80% of our adjusted EBITDA Miss was attributed to our mortgage business, which is not surprising given rising interest rates and the current real estate market I'll provide more color during my review of our business lines.
And the 2022 second quarter, G&A was $2 4 million or approximately $9 6 million total revenues compared with $8 7 million or approximately $10 for a total revenues for the 2021 second quarter.
On a sequential basis G&A as a percentage of total revenues declined from about 12%. The increase in G&A dollars is primarily attributed to recently completed acquisitions and increases in noncash stock compensation expense.
Expenses related to marketing activities were $1 3 million for the current second quarter versus 378000 for last year's second quarter. The change was mostly driven by an increase in marketing activities related to new market openings and recruiting expenses.
Now I'll report our business units' results.
Our real estate division continues to perform very well.
Our agent count by 38%, finishing the quarter with nearly 9600 agents as Josh mentioned earlier agents can make more money with fathom in a down market than they might make with a traditional brokerage firm, which we believe is why we're seeing a nice uptick in our recruiting.
Additionally, we closed more than 13200 real estate transactions for the quarter, a 32% increase from last year's second quarter. These results are gratifying considering the state of today's market.
Adjusted EBITDA for our real estate Division was $1 8 million, making it our fifth consecutive quarter of adjusted EBITDA profitability.
One of the things. We're most excited about is the gross profit in the business grew by about 1.2 million from the first quarter of this year and about 820000 or 70% of this increase in gross profit fell to the adjusted EBITDA line demonstrating the operational leverage we have created in our real estate business.
Our mortgage business generated revenues of $2 6 million for the second quarter down slightly from our 2022 first quarter results, which not surprising given the reduction in mortgage originations across the country.
The adjusted EBITDA loss in the business of approximately 860000 compared with 890000 in the first quarter of this year as I mentioned earlier, our mortgage results for Q2 were the primary reason for adjusted EBITDA Miss.
Driven by market slowed down in interest rates that rose faster than at any other time in over 50 years.
That said, we have a lot of faith in our mortgage business and believe will perform well over the long term on a positive note. There's too many of the enhancements that we had been making to our mortgage business. We grew the business by 30% in July versus June of this year.
Moving to our technology segment second quarter 'twenty to 'twenty, two revenues were 656000 and slightly higher than the 644 for the first quarter 2022, adjusted EBITDA loss in our technology segment, approximately 325000 versus a loss of 400000 for the 2020 to first quarter.
Our insurance entitled Business had combined revenues of approximately $2 8 million about 300000 more than the first quarter. This year adjusted EBITDA for these businesses totaled 130000, compared with 154000 for the first quarter of 2022.
Breaking down further their cyber generate adjusted EBITDA of 23000 versus 54000 for the.
Prior sequential quarter and adjusted EBITDA for Bagley insurance was 107000 versus 100000 for the prior sequential quarter. We ended the quarter with a solid cash position of $19 5 billion, which gives us plenty of runway to execute our strategy now.
And I'll spend some time on the attach rates given.
Given the difficulty of market conditions for Q2, we chose not to roll out new markets for encompass lending. We did however, open Colorado as a new market for various title.
But their side and we did not see a significant decrease in attach rate for Q2, but we did see a decrease in attach rate for encompass in the second quarter.
Second half the second half.
Of the of the second quarter. However, as I mentioned previously we saw a 30% increase in closed transactions for encompass in July with strict driven mostly from the relationship between encompass and found them loyalty.
We believe that we can reach attach rates of 10% or better over the long term.
Related to our share repurchase plan year to date.
As of June 30, we purchased a total of just over 686000 shares for about $6 million approximately $40 million remained under the plan at the end of the second quarter.
I'll finish with our guidance for the quarter for the third quarter of 2022 as well as updated guidance for the full year.
This guidance does assume that there was a danger of real estate market will continue to soften and the interest rates remain at current levels or increase the company believes that if market conditions improve it may generate result, there are better than currently anticipated.
But the third quarter of 2020 to Fathom expects total revenue in the range of 105 million to $110 million and adjusted EBITDA in the range of a loss of $1 six to a loss of $1 5 million for.
For the full 2022 year Fathom is now expecting revenue guidance in the range of 425 million to $435 million and adjusted EBITDA is now expected to range from a loss of $6 8 million, so lots of $6 6 million.
The company reiterated that he believes he can generate adjusted EBITDA exceeding $40 million per year at 100, 110000 annual transactions wildfire them has not provided timeline for reaching this target. The company believes it can maintain transaction growth rates similar to those since the IPO.
As a reminder guidance as a forward looking statement, which as Roger noted at the start of this call is subject to certain risks and uncertainties.
Now before I hand, the call back to Josh I would like to add my thanks to the entire fathom family even in this uncertain market. Our teams are working hard to gradually transaction and provide the best possible service to our agents homebuyers and home sellers.
Most real estate cycles. This one will improve over time and with our unique business model and served in leadership by them is poised to excel now I'd like to turn the call back to Josh. So we can take your questions.
Thank you Marco we believe fathom has a clear visible and long runway with solid growth prospects no matter. What the market holds we believe our model is positioned to win over the long term. Thank.
Thank you again for your trust and being part of the founding family with that operator, we are ready to open the call to questions.
Thank you.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
Our first question comes from Darren after he with Roth Capital Partners. Please go ahead.
Hey, guys. Thanks for taking my questions.
Maybe mark could you speak to kind of the cadence of file starts by month in the second quarter and then how that kind of compares to I guess the month of July since it's all the other data we probably have right now.
Sure So second quarter for us, we did not really see a significant decrease.
And I'll, let you know let me just say its about.
Q2 would have to sort of guide to quarters within one quarter. The first two months April and May perform.
Typically the same as previous years June or really even the last three weeks of June was that we start seeing a reduction in files Fox, which then continuing into July and so we did not really see at least for US we did not really see a significant impact in the in this sort of file starts until let's say.
Last three weeks of June .
And what we're seeing right now.
Is a.
We are increasing our business relatively around 45% you know what we've seen in terms of five stars right now is probably to increase of around 30% and so we're seeing a decrease in fire starts between that Delta one of the things that makes fathom interesting compared to other companies that because we'll continue to add agents and then you know we're adding those agents they're bringing in.
Spark, but the best way I think the day to answer the question is that when we were running a fire started growing around 45%. We're now increasing fire starts at around that 30% to 35%.
That's helpful. Thanks.
And then your comments about mortgage originations so.
I appreciate that with how interest rates move but are you seeing compression within the mortgage business is still on gross margin as well.
Oh, absolutely. So there are three key factors in the mortgage company typically how they one is you know how much you eat your margins right second is fees that you charge and the third is if you do what you hedged and you can some companies can make a little bit of from hedging, but what has happened is there.
That because of the significant decrease in the sort of second half of June into July volumes have decreased significantly and so what happens is that the volume decreases. The company also has less revenue, but then affects the margins are some companies.
How much more competitive and they're trying to gain any business at any price and so margins also compressed. So you see that is fairly typical whenever you see a significant in the mortgage industry.
For about two or three four months, you're going to see compression of margin until the market stabilizes and then those margins come back up again, and so yes, we did see and continue to see some compression in and in margins.
For the full mortgage yes.
Yeah.
Got it I guess just last one for me and then I'll pass it on you talked about.
Expenses in the go 750 per quarter by Q1, I guess, what's kind of the low hanging fruit and given how quickly the market changed you know if you're sort of looking back Monday morning quarterback was there some over hiring and ancillary services that you know will be sort of a first thing.
To go I'm, just kind of curious where some of these customers they come from and what's kind of the quickest path to getting there.
Sure. It's a great question Glenn.
Josh.
Well, what I can say I was actually I'm here implement conference today and had a chance to speak to a lot of broker owners and they they asked what do we do moving forward like how do we.
What should we do with broker owners moving forward in this market one of the things I would expect that as a broker you should be looking for opportunities in this market to reduce expenses every business without fail, including fathom like we are incredibly frugal and our business, but even we have float somewhere theres always some fact that can be called somewhere what we do.
Don't want to do is do it some of these mortgage companies done other companies have this massive layoffs I think it's it's not the right thing to do it. It just shows poor hiring in the first place.
That's not our intention.
We're looking for other opportunities too.
To.
Be more profitable through.
Dusing unnecessary expenses, we all have things that we like so we want to do a really good job, we're very thoughtful in how we do it but it's amazing if you really put the microscope to the business where you can find 10000 here 8000, there are $500.
We've gone to every single business hadn't said, Hey, where can you find fact that doesn't need to be here. That's just it's a nice to have not a need to have it doesn't affect your ability to grow the business and some market has done a good job.
Whipping, the proverbial bullet to get them in shape, but they've all been very receptive they've all been very positive to do their part to help us make this happen. So I've been very proud of our groups.
Derek let me add that the best way to look at this I think is to say look at the company we've been growing at 45% a year for many years and it's now we're going to grow at 30% or 35%. It's just not the ability to reduce the expenses to match their revenue growth and so by doing that as part of it now when you're running a grow.
<unk> business you always had I you have to hire ahead of that growth and so we're going to slow down some hiring just to make sure that our cost structure is aligned to our revenue growth curve, that's all and with that we'll be able to say that it's not a it's a little different than some other companies and the other the other thing is if you look at some of the news and mortgage companies we know.
Mortgage is very small component for our business you know and a lot of mortgage companies were primarily mortgage companies are going through significant pain right. Now for US is just adjusting continues to get the attach rate as I indicated July was a very good months in a sense of the increase in the attach rate and increasing their revenue by 30%, we anticipate a debt.
Revenue for EOG will continue to grow in August as well and so I think it's just that this is a maybe a two quarter adjustment that has to take place.
But in terms of reduction of expenses really aligning the expense growth curve to the to the new revenue growth curve at least for the next few quarters until things get back to normal.
Great. Thanks.
Our next question comes from John Campbell with Stephens. Please go ahead.
Hey, guys good afternoon.
Hey, John Hey.
After pulling back the onion here I mean, it seems like everything is healthy outside of the mortgage business. The guidance I mean, it does seem like you've got an expectation for pressure continuing there at least on the EBITDA side I totally get that I'm, a little perplexed by the revenue guidance. So I'm thinking you know to get down to your second half revenue kind of frame I think you've either got to lose.
Gents, which doesn't seem like that's the case I mean, just given the commentary about such a strong July or you might.
I'm guessing, maybe you're assuming a pretty steep drop in transactions per agent and maybe price as well. So just as a starting point, maybe if you could walk through kind of those key factors for the for the annual revenue guidance.
Well I'll say, one thing first and Mark like we can take it.
I actually had an opportunity of looking at every one of our competitors press releases listening to every call I can listen to so far.
The milk.
I've seen a lot of them decrease was significant the amount that we decreased our revenue was very small very very nominal so it wasn't a big number but we felt it was the right number Mark I'll, let you kind of go a little bit more detail about why why would you try sure. Yeah. We're not anticipate what we're certainly not anticipating a higher turnover.
From Dover continues to stay consistent to the past.
As we indicated Jon we had our second best quarter second best month in recruiting in July but do you think as we add those agents those agents take time to buy the time to join start doing transactions right.
Really our decrease in in in revenue our adjustment to revenue our guidance is really more related to the some of the uncertainty in the market related to as you know the the revenue per transaction is really related to prices of houses, we're beginning to see some significant changes in our prices.
The houses in the West Coast, Idaho, Ah parts of California, and so we just don't know how far that is going to you know how we're going to continue across the country, where we learned over time is that changes typically happened in the west coast and they sort of you know.
Navigate through the rest of the country and so there are cities in the West Coast, where we're seeing a significant reduction as you know that's how revenues calculated it doesn't really change our gross profit per se, but we wanted to be conservative in our guidance because there's so much uncertainty in the market still but it's really more related to every average per transaction per se.
As opposed to the number of transactions, whereas opposed to be losing agents or or all of that and that is one of the components that we just don't know how much that acceleration of reduction of prices going to take place.
So we wanted to be conservative in our estimate yeah.
Once you get to know us better you'll realize that we try to be as conservative as possible.
It says that but not ever actually doesn't we do try to be very conservative in our approach. The problem. As you know we try to look at the Crystal ball, but the more of the government and the more the fed try this quote unquote help the more murky that crystal ball becomes it becomes very difficult to start forecasting them and really understanding what's going to change I wish that wasn't the case.
But it is if the world we live in right now so we're doing the very best we can but we want to make sure that we're putting numbers out there that we feel good about that no matter what happens we feel strong.
Okay that makes sense, and then I'm trying to get a little bit of a better grip on gross margin in the back half and I know a lot of that is gonna be influence about what you guys actually see from the top line and the mix and whatnot, but I mean, I guess just conceptually.
If transaction volumes, our gross commissions per agent drop as much as you guys, maybe you're expecting in the guidance would you expect to see relief in gross margin I guess at least in the brokerage business.
Well I think you know because gross margin of sensors, a percentage right and because we charge a flat fee. So if revenues do decreased top line and a 500 dollar stood at $500 in a sense, our gross margins would increase right.
As a percentage right and so we think that the worst case scenario does stay the same but actually they could increase I E.
If in fact this happens that the average revenue per transaction decreases which may not right and if it doesn't then then you know our top line will be you know it'll be hired that we're anticipating but I don't think our gross profit our gross profit dollars per transaction I'm not going to change in terms of percentage it'll depend in terms of what the top line is.
Because it's basically a percentage.
So that's kind of how we feel about that so I don't know if I answered your question, but no. That's okay. It would depend on the top yeah. So yeah. I think we all tend to focus on a little bit too much on a per cent and not the dollar amount but.
Last question from me, just getting a better grip on the on the mortgage impact you you've mentioned it.
It certainly impacted the gross margin.
Could you maybe shortcut that for us and just I mean, what what would have adjusted EBITDA and gross profit Ben This quarter had you not had to step back in the mortgage business.
So that's a great question. So we anticipated that our AR for the mortgage business. If if we did not have well what happens, especially in the second half of June our.
Our adjusted EBITDA for mortgage you would've probably being around one point.
Ah well it would be about 303, 300 or 400000 positive. So that swing was about $1 3 million to $1 49.
Okay very helpful. Thank you guys. So you. So you can so you can see that the majority of the Miss It was really related to mortgage or real estate business continues to do well.
It is really.
Most of the story underneath it.
It was related to the mortgage business.
Got it thank you guys.
Thank you.
Thank God, if you'd like to ask a question. Please press Star then one our next question comes from Tom White with D. A Davidson. Please go ahead.
Hey, great.
Hey, guys how are you good.
Good afternoon.
Two two for me if I could just you just mentioned crystal ball so.
And maybe I'll ask you to dust it off again and.
I'm curious to hear your thoughts your thoughts about about agent count and agent additions over the next few quarters.
It sounds like July was great from you guys for you guys from a recruiting perspective, we heard from.
Another brokerage last night, it sounds like they're seeing that kind of a.
Pretty steep slowdown in an agent adds.
Just kind of curious on.
On one hand, it would seem like a platform like yours would.
Arguably maybe accelerate agent attraction in a in a market like this but.
Just curious if you feel maybe incrementally confident that that that could happen or our agents.
I dunno, maybe susceptible to kind of sitting on their hands when.
You know when the market slows down for a little bit and then I had a quick follow up on the expenses.
Sure I think first of all.
You raise a good point, so I try to think about the last quarter or the.
Year over year growth. So we had 30 about 38% growth.
For agent growth, if you think about it.
If we removed that that acquisition, we made last year this quarter, we'd be pretty high so we've been averaging high thirties, 40%, 30% 38% for the.
The last several years.
And so.
When you remove acquisition out of it so we feel really good that if you remove the acquisition out of the last one we'd still be maintaining pretty strong.
Equal growth quarter over quarter.
Year over year for us and so we feel really confident moving forward that that will continue.
But as I mentioned, when you think about all the leading indicators when you look at the traffic to our website look at brokerage is reaching out to us thinking about joining our company all of those numbers are increasing.
An increasing more and more and so it actually gets it.
I'm trying to come on this call and not be overly excited because there's good there's positive and there's also negatives, but at the same time I'm excited for the future because all this that we're seeing coming in so that there's no saying never let a disaster go to waste.
I I don't come across harsh, but there's some huge opportunities that could come out of this so we feel really good that one just maintaining a really strong recruiting we just added I believe 10 recruiters to the team.
So we were adding more recruiters to help get the word out to help talk to more people.
We're putting more out there in regards to feelers talking to companies about possible work overs and acquisitions as I mentioned on our previous call walkover has a nice because they're quick and easy that can be done in a very you know 30, 60 days, whereas an acquisition might take four to six months and so quite a lot more legal and headaches and so we can some of these small language.
So 40, 50, 60 or 80 agents very quickly. So you know our focus has been we've expect we actually put together a team that's dedicated to seeking out and talking to possible work overs. So we're doing a lot to not only grow organically just through agent referrals through just the natural people, reaching out to us as they care about.
It's in the market, but also being very proactive in reaching out to people and saying Hey have you ever heard of fathom.
We're gonna be support something growing them bigger so we've been very very proactive and so we feel good as we move forward and as more and more people feel that squeeze that they'll seek it out and then seek us out. The problem is we're still small you know even at almost 9600 agents.
Over one 6 million Realtors out there so the greater scheme of things people have never heard of us. So big part of that is just making sure. We can get out in front of them one of the things. We found we track. This religiously it takes about 14 points of contact before someone actually pulls the trigger and joins fathom.
So.
Making sure that we can get out in front of them, sometimes it takes two or three months, sometimes four months longer because they've got transactions closing so one of the benefits, even though there's not great, but one of the benefits to fewer closings.
Is that they've become openings windows of opportunity for agents to actually make a move.
Last year, when things were hectic and crazy they didn't have a window to make a move if they had closing up to closing after closing after closing and so we don't really have a window for it took to make that transition now suddenly found themselves with two weeks or three weeks between the closing which gives them the perfect opportunity to go out and make that move. So there are there are pros and cons obviously the every single.
Whether it's in a market or a down market, we want to do the best we can to leverage Downmarket as best we can I think we're doing that.
Got it.
Let me, let me just add something the best to recruiting months of the year is Q4, and Q1 and I think that given the economic factors that are affecting every real estate agent.
We certainly believe that Q4, and Q1 would be stellar stellar months of solid quarters for us to continue to increase recruiting.
And because Thats you know our history, we know that those are the two best quarters to recruit agents.
Okay, maybe just a quick follow up any any sense on the on the recruiting in July .
Whether like agent kind of tenure agent quality was was comparable with.
Prior quarters, I guess I'm just wondering.
If you guys might see a big influx of agents you know over the coming quarters.
Guys, we're sitting at other desks that other firms realize they're going to have a really low production year and.
You know are looking to hang their license somewhere that will.
It will be a better value prop I know in the past you guys have.
You don't want just agents you want quality agents, but just curious whether.
July looked like maybe on that front.
Yes, I'll add something I'd love to add some color as well.
First you're right. We don't want just any agents, we don't want to be that brokers and there's a lot of them out there that have three or four or 5000 agents, which sounds like a great number but the average age of close one or two homes per year.
Not just its not good because.
From a reputation standpoint people start to think of that brokerage as.
Brokerage just doesn't look we're doing a bunch of agents who are nonproductive. They don't do enough transactions per year to really stay on top of market changes contract changes and so on and so we want to avoid that but at the same time, we're not full light in Asia, who closed three transactions are still profitable for us. So we don't want to we just want ticket with.
Each agent one at a time you know, it's an agent closes one home a year, we probably won't take them.
Always been the way it is too they've got to show us that they've got a desire to grow their business three will probably take them, but try to coach them to get to 5678.
One our average transactions per agent to be in the high getting closer to 10 than being closer to one or two with some companies.
So that's part of it but.
As we do bring in agents that are lower producing we want to make a very strong focus on training them and helping them get their productivity up if they just don't want to grow and we're gonna say no. All day long just it's not worth their time, it's not worth our time.
<unk> talked to a lot of broker owners, while I was here and a lot of our.
Most of their agents that they are losing their agents who are low producing so as we see a downturn in the number of transactions closed.
We're seeing a lot of the agents who close their homes are one home or two homes. Just say you know what I'm out of the business and so a lot of the companies Youre seeing an increase in their agent attrition is coming from these low producer not producing it's not that they're coming over to companies like ours have better value, they're just getting out to the business because I think of a day two closings, whether youre, making 100% can.
<unk> or you're making.
80% of the commission and still not have to pay the bills.
Yeah.
So so Tom keep in mind that again July August are the highest month in the industry right. So producing agents typically close most of their transactions with July August September so but to answer. Your question July has been a you know.
An average month in terms of speed similar similar numbers for us in terms of average per transaction, then and all of that so it hasn't changed those higher producing agents.
We are going to and it's at July you know typically July August a lot the basketball for recruiting even though we had our second best month ever those higher producing agents are going to start changing in Q2. We ended Q3 and Q4, that's when we're going to start seeing the higher producing agents make a change given that their business has decreased and so for July August and Sept.
And we're primarily going to see just a higher quantity that they just joining us, but they're going to be sort of the same agents that we've had in the past the higher producing agents should come in Q4 as their business decrease and then they are looking for a better a better compensation and commission and that's when we're going to start seeing those higher producing agents joining fab.
And we typically have that that's one that's going to happen and that's what we anticipate.
Great maybe I'll slip in one more if I can and thanks for.
All the time.
You made a comment.
The attach rates for ancillary is were maybe sort of lagging relative to your kind of long term ambitions due in part to you know kind of the.
Our focus on getting to profitability just curious if profitability was kind of not an issue like how and where would you be spending to improve the attach rates is it just kind of like launching in more markets and getting these brands out there are there.
Is there kind of technology spend that you would deploy to.
Improve attach rates just any color there. Thanks.
Mark I'll take the first part.
Color, but.
You nailed it when you asked the question when.
When we go into a brand new market with mortgage or title. There there was a sizable upfront costs.
To be able to bring people into that market. So you hire a branch manager hire loan officers all the people that are behind the scenes that can make a mortgage work. So there's that large cost and so we've been a little slower to open new markets, which we indicated.
Haven't done as much of so that was part of it.
The more markets, we opened up the greater the attach rate over all becomes and the markets. We currently have there is some some financial spend as well to get in front of agents getting a budget to some of the loan officers. So they can go meet one on one for coffee take people to lunch build the relationships because relationships of how mortgages are referred.
So all that these are all cost the additional cost that we've been trying to be very very thoughtful on the market or you want to add any more color to that.
Yeah, I mean, there's initial cost opening new markets. So we have we you know given what's happening in the you know the.
Second half for the second quarter, we did not opening new markets for mortgage we focus on the current markets and as I mentioned earlier, Tom July we saw an increase of 30% in terms of revenue over June and that's and that increase primarily came from platinum agents. So we definitely are.
Seeing an increase in the attach rate in July and I think we'll continue to do that.
In August and September . So so that has been positive I think the best way to look at this just look at Theres more of a delay of one quarter in terms of attach rate as we adjust our mortgage business for title. We continued to see an increase so I think where you know we haven't seen an effect on that but I think for mortgage is probably a one <unk>.
One or two quarter a.
Slowed down but that we quickly are picking up the attach rate as well the mortgage team has done a really good job of dealing with this again. These are unprecedented times and every mortgage companies going through a lot of challenges in and so our mortgage team has worked really hard with our hotel real estate agents in some specific markets. So so we feel confident over in a couple of quarters.
Get back to the normal tax rate and we'll continue to deliver on that 10%, which is our long term goal.
Great. Thanks, so much good.
Yeah.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Josh surely for any closing remarks.
Thank you operator.
And thank you of course to all of you joining our call today and for your continued support and we're extremely proud of all we've accomplished and will continue to work diligently toward achieving our objective of adding greater value to our company for the benefit of all our stakeholders. So with that have a wonderful evening and thank you again.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.