Q2 2023 Fathom Holdings Inc Earnings Call
Good day and welcome to the <unk> Holdings second quarter 2023 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 that's zero on your telephone keypad.
After today's presentation there'll be an opportunity to ask questions.
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I would now like to turn the conference over to Alex cooked on that.
Gateway Group. Please go ahead.
Thank you operator, and welcome everyone to the Fathom Holdings' 2023 second quarter Conference call.
Alex customer Gateway group Fathom Investor Relations firm.
Before I turn things over to the bad the management team I want to remind listeners that today's call may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 95.
Such forward looking statements are subject to various conditions, many of which are beyond the company's control.
Adding those set forth in the risk factors section of the company's Form 10-K for the year ended December 31st 2022, as well as our latest Form 10-Q, and other company filings made with the SEC copies of which are available on the SEC's website at Www Dot S E C Dot Gov.
As a result of those forward looking statements actual results could differ materially.
Fathom undertakes no obligation to update any forward looking statements. After this call except as required by law.
Please also note that during this call will be discussing adjusted EBITDA, which is a non-GAAP financial measure as defined by S. E T regulation G. A.
A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure is included in today's press release, which is now posted on patterns website.
So with that I'll turn the call over to <unk>, founder Chairman and CEO , Josh Horowitz Josh.
Thanks, Alex Good afternoon, and welcome everyone to our second quarter 2023 earnings call. Our entire team really appreciate your support and encouragement throughout the quarter. We're pleased to report another strong quarter as compared to the overall market share. The recent progress we've made in advancing our growth strategy I want to start by thanking our fab.
Some family across each of our businesses for their hard work and dedication as we continue to navigate the real estate market their commitment to supporting our growth our vision and serving others in the communities. We operate in is a testament to the fathom culture.
We recently had the honor of ringing the NASDAQ opening bell to celebrate our third anniversary of our public listing and our significant achievements to date. This milestone is a tribute to the collective effort and unwavering commitment to drive us toward and allows for them to adapt and thrive in a rapidly evolving restaurant.
The real estate industry, we extend our heartfelt gratitude to every fathom employee and agent who have poured their dedication passion and hard work into the journey and interesting thing fathom success.
I'd also like to briefly mention the addition of Steve Murray to our board of Directors, which we announced a few weeks ago, Steve has become a great friend that brings in valuable experience and the residential brokerage industry to sovereign and should be a tremendous asset as we continue just to disrupt the real estate market and execute our growth strategy.
Before turning the call over to our President and CFO Marco Fresno for a detailed review of our financial results I'd like to touch on a few key highlights during the quarter and what gives us confidence in our business going forward.
While the second quarter remained challenging for residential real estate overall, we're encouraged by some recent signs of stabilization across our markets along with the moderation in interest rates during the quarter.
Consumers continue to adjust to higher mortgage rates and while transactions across the industry were down we remain encouraged by the trends, we're seeing across our markets and we believe we are well positioned to continue growing market share regardless, what happens to interest rates.
I'm sure you've all seen the talking heads state that with so many homeowners currently enjoying historically low interest rates, we have no plans to move any time soon.
What people planning to do under ideal personal circumstances, and what they actually do in the real world are rarely the same thing. The fact is not everyone has the luxury of being rate sensitive lie.
Life happens people getting married or they havent blown families need more space and God forbid sometimes they get divorced people relocate for work and her family Theres always a need.
And when that need arises we will be there.
Our results this quarter continue to demonstrate the power of our truly disruptive business model and how we're able to succeed in a difficult market environment.
During the second quarter Fathom complete approximately 11000 real estate transactions and while down 16.7% from the prior years second quarter of approximately 13200 <unk>. We feel good about this number when comparing it to the overall market declines even that as I've mentioned, our decrease compares favorably to <unk>.
Most of our peers and the entire U S residential real estate market.
According to the National Association of Realtors, the U S residential real estate market saw overall transactions a quarter declined 18, 6% compared to two two of last year.
As our transaction volume reflects we continue to take market share from legacy brokerage firms. Despite the volatile environment and actually saw year over year transaction growth in several of our markets.
We also increased our agent network, 14% to approximately 10930 agents at the end of the quarter, which compares very favorably to all but one of our public peers, especially when many of our peers saw decline in agent count domestically.
We feel optimistic as we continue to provide a compelling value proposition through innovation and industry, leading commission model that continues to resonate well in this environment and we believe that we'll continue to do so going forward.
We're excited to achieve our goal of adjusted EBITDA breakeven in Q2.
During the second quarter, we continued to see the benefits from our cost reduction measures, we implemented along with improved performance across all of our divisions. In fact, we made tremendous progress in reducing our cash burn from over $5 million in Q4 of 2022 to less than $1 million this quarter.
Importantly, we believe that these cost reductions were made without sacrificing our ability to grow and in fact, we have allocated some of these savings to further strengthen our recruitment efforts and our technology platform.
We're continuing to optimize our cost structure for current environment and better position fathom for improved operating leverage as our residential real estate market returns.
We continue to be committed to maintaining adjusted EBITDA.
Profitability going forward and ultimately achieving cash flow positive as well, although the latter may not be reached until Q3, we anticipate continued cash investments to fuel the growth of our mortgage division, our agent recruiting and potential acquisitions.
Let me now spend some time discussing our progress across the businesses.
Now the royalty has been one of the fastest growing residential real estate brokerages in the U S for over a decade and that growth does not happen by accident, we have an incredibly talented and dedicated team who truly live our guiding principles of support our unique culture every day.
We will continue to innovate disrupt the residential real estate industry and believe that our best years are still ahead of us as we continue to grow our agent network and capture market share from legacy firms.
Today's fathom royalty operates in 37 states in the just Colombia.
We continued to expand our reach with a unique business model to the residential real estate market as we offer agents all the tools the technology training and resources and support our larger traditional peers do but at an industry, leading flat fee Commission split to agents our business model allows us to succeed.
Cid irrespective irrespective of the market environment, and we believe we're well positioned to attract an ever increasing number of real estate agents. During these unprecedented times when agents struggle to generate leads and close sales.
We also hear agents say they join to earn more commission, but they stay for the culture.
Our unique low cost and disruptive business model has allowed us to attract high quality agents and enjoy agent retention rates approximately twice the national average.
Even though we charge a small fraction of what other brokerages charge. Their agents, we believe that all royalty business can be profitable with smaller number of transactions than our peers.
Our technology also remains a key point of differentiation and we can generate long term savings and ultimately charge, our agents far less than others by owning it outright.
We also license our proprietary technology to over 750 brokerages three recurring revenue subscription model that drives incremental high margin revenue, while enhancing awareness of and differentiation of our brand within the industry.
Let me now provide an update on our agent trends and steps, we're taking to grow fathom networks.
Our cost to acquire one agent during Q2.
Remained low at approximately $980, making our breakeven on each agent still left me 1100, 50 that will earn on their first sale.
We also maintained strong retention rates, which are approximately twice the national average and remain exceptionally strong given the backdrop of agents, leaving the industry.
During the second quarter of 2023, our attrition rate averaged approximately 1.85% per month, which again compares favorably to the industry average of over 3% more importantly, 80% of the agents, who left fathom, so zero or one sale per year based on historic trends, we anticipate an additional attrition coming year.
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We will continue to be primarily from low producing agents.
Right.
Our enhanced agent referral program called free for life and revised agent Commission structure continued to show traction among our agents and we're pleased to announce that we've continued to see a stronger agent referral rate the free for life program as a testament to our commitment to fostering a supportive and rewarding.
<unk> four agents and this program is a true win win.
<unk> thousand royalty, we believe in empowering our aegis to reach new heights of success by providing them with unrivaled opportunities and benefits.
What's an agent cheese free for life status, they experienced a dramatic transformation of their business potential at Fathom Realty and will never have to worry about paying transaction fees again, well substantially enhancing their earning potential.
Now remember, there's only two ways for a real estate agent to net more income increase their revenue by closing more sales, which is hard to do in a downturn or decreased our expenses. We can help they just do both in this environment and this is why our agent referral program continues to have a positive impact on our recruiting efforts. We're also excited too.
Our inaugural starboard serves of that in August , which illustrates how fathom can unite.
Make a tangible difference in our local areas beyond real estate. The weeklong event will allow agents and staff to give back to the local community.
Our favorite charitable organizations by choosing it cause a service projects that are lined with three of the company's guiding principles of service support and charity we're committed to positively impacting the areas. We serve and are excited to see what meaningful change we can make through our annual event.
Lastly, let me briefly touch on our path to profitable growth.
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 this quarter, we achieved adjusted EBITDA breakeven even in today's difficult market environment. We believe that 2023 will be a pivotal year for fathom as we strive to turn the corner on profitability and really start to show.
The operating leverage in our business, which mark will cover in his remarks.
Our ancillary businesses have the potential to dramatically increase our revenue and profitability per transaction over time and even in this tough market, we're continuing to see progress across those businesses, giving us increased confidence in our growth strategy. During the second quarter, we saw improved attach rates within our title and mortgage businesses as you can.
Continue to go deeper in the markets in which we operate to close we believe that we're well positioned to grow revenue agents and transactions through the remainder of 2023 with that I'd like to pass over Marco for a financial update.
Thank you Josh I'll start a detailed review of our second quarter of 2023 results and then we'll finish with a discussion on guidance.
Second quarter revenue declined by 22% year over year, $100 1 million compared with $128 2 million for last year's first quarter.
Discrete was primarily attributed to a 16.7 decrease in transactional volume along with a 6% decrease in the average home prices during the quarter.
GAAP net loss for the second quarter was $4 3 million or 27 cents per share compared with a loss of $5 7 million or 35 cents per share for the 2022 second quarter.
Adjusted EBITDA and non-GAAP measure was 458000 in the second quarter versus the adjusted EBITDA loss of 2 million for the second quarter of 2022.
$2 4 million improvement in adjusted EBITDA. This quarter was largely driven by a reduction in expenses and additional agent fees that went into effect in January .
Notably this improvement was achieved despite the 22% decrease in revenues this quarter compared to Q2 of 2022.
One of the most important achievements. This quarter is up is that approximately 70% of the increase in gross profit from Tijuana flowed through there.
Adjusted EBITDA line.
This highlights the operational leverage of our company has reached in this quarter. We believe that going forward. We will continue to drive a similar percentage of the increase in gross profit contribution to the bottom line.
G&A expense standpoint, you're building into the second quarter or 10, 7% of revenue compared with $12 40 million or 10, 1% of revenue for the same period a year ago.
On a sequential basis G&A improved from $12 four of revenue to 10, 7% of revenue.
In total our operations that support technology and development and G&A expenses decreased by almost $1 3 million from 15 million in Q2 of 2022 to $13 7 million in Q2 of 2023.
That reflects the benefits of our expense reduction initiatives that commenced earlier this year.
Expenses related to marketing activities were 927000 for the quarter.
Paired with $1 3 million for last year's second quarter. The decrease in marketing expenses related to leveraging internal resources and optimizing advertising expenditure.
Now, let me spend some time reviewing our business segment results in more detail.
We closed approximately 11000, we state transactions in the quarter, a 16.7 decreased from last year's second quarter, well below the 18.6 reduction of the overall market.
We ended Q2 with approximately 10930 agents, which represents a 14 point pretty growth rate over Q2 of 2022.
The National Association of Realtors saw a membership decline of approximately one 5%.
Revenue for the real estate Division was $94 6 million compared to 122 million for the same period last year.
This is a decrease of 22% of which about 6% is related to a decrease in the price of homes and 16% is attributed to a decrease in transactions.
Adjusted EBITDAR in the real estate Division was approximately $2 5 million an increase of 800000 compared to adjusted EBITDA of $1 7 billion and get you a 2022.
The increase was achieved despite the 16, 7% decrease in transactions this quarter compared to the same quarter last year and it reflects our increasing fees and favorable impact of cost cutting measures.
Now that we've reached a breakeven adjusted EBITDA, we can begin to show the operating operating leverage of our business going forward, we estimate that 70% of the increases in gross profit will flow to the bottom line.
Our mortgage business generated revenues of 2 million in the second quarter compared to $2 6 million in the prior year period.
Adjusted EBITDA for Q2 was a loss of 240000 compared to an adjusted EBITDA loss of 860000 for the same period last year. Our team continues to identify opportunities to reduce expenses to rightsize, our mortgage business going forward as well as increased revenues by recruiting additional loan officer.
The I E. Our insurance business generated revenues of $1 7 million for the quarter compared to revenues of $1 6 million for the same period a year ago. This represents an increase of 6% of revenue.
Adjusted EBITDA increased 348% from 107000 in Q2 of 2022 to 480000 in Q2 of 2023.
This reflects the great work our D. I a team has done under Nathan's leadership to significantly increase adjusted EBITDA This quarter.
Their side will have revenues of 960000 for the quarter compared to about $1 million of revenue for Q2 of 2022.
Adjusted EBITDA was negative 25000 compared to 22000 of positive adjusted EBITDA in Q2 of 2022.
The decrease in revenue and adjusted EBITDA is primarily due to the significant decrease in the purchase and refi business due to higher interest rates. However, we continue to see an increase in the number of five star from father majors in North Carolina, Dallas, Utah, and Indiana markets.
Markets, which we believe will improve adjusted EBITDA going forward.
Moving to our technology segment revenues increased 20% to 792000 compared to 656000 for last year's second quarter adjusted EBITDA loss for the quarter increased by 28% from a loss of 325000 in the second quarter of last year to a loss of 418000 in the current quarter.
I'll live by team continues to increase its footprint across the country to reach over 240 ml licensed in 425 agents at the end of the quarter live by powers more than 40 million community pages with 125000 neighborhood reports created.
We continue to focus on our balance sheet, given the dynamic real estate market conditions, we have made tremendous progress on reducing our cash burn from over $5 million in Q4 of 2022 less than a million. This quarter. We ended the quarter with a cash position of $9 1 million.
We believe that our cash position and overall liquidity provide us with adequate runway to grow the business and execute our strategy through operating cash flow breakeven.
Did not purchase any shares in the second quarter under the stock repurchase plan and approximately $40 million remaining under the authorization.
Before turning the call back to Josh Let me briefly touch on guidance.
Given the continued uncertainty in the macro environment, we're only providing guidance for the third quarter ending September 32023.
For the third quarter, we expect revenues in the range of 93 million to 95 million and adjusted EBITDA in the range of 200000 to 350000.
Minder guidance as a forward looking which as we noted in the beginning of the call is subject to risks and uncertainties.
I want to thank and congratulate the entire team in achieving positive adjusted EBITDA.
Our entire team has worked very hard to achieve some important milestone and a very challenging economic period with that I'll turn the call back to Josh for closing remarks.
Thank you Marco sometimes you have to be the last short term victory in order to ultimately deliver long term success and market domination, we remain dedicated to executing on our growth plans and doubling down where we can bring the greatest long term value to our employees our agents and of course, our shareholders with that operator.
Open up the call to questions.
Thank you.
I'll begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Youre using a speakerphone please pick up your handset before pressing the keys.
But anytime you're your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Darren.
Oh he went.
Roth Capital Partners. Please go ahead.
Hey, there.
This is dylan on for Darren Thanks for taking my questions Hey, Dan.
Okay.
First on the on the agent acquisition side, I guess could you talk about what you might be seeing from agents.
Given the housing environment are they sort of staying put as to not rock the boat and sort of get to a point, where there's some more stabilization to sort of the the supply and demand for them its agents and.
And then.
That's sort of an adjacent question to that like of the agents you did add in the quarter I guess, how does their productivity compared to your base level needs.
No those are great questions. So I think first thing to understand is you know the market saw a decline of one 5%. So the overall industry weather.
U S space.
We saw an increase of 14%. So we definitely helped produce the market we feel really good about our numbers.
But even then you kind of touched on something I think is really important there's a lot of agents right now have seen a substantial 20% to 30% reduction in their personal and business.
When that happens a lot of times when you make a change to corporate and this is something we're learning along the way as well.
When when the agent wants to make a change in their business. There's always that concern that I don't know what I don't know what if I make a change.
And you know it takes a while to get set up of the new brokerage and I might miss out on business or whatever it is or I've got a couple of deals working right now I've got one that's that's under contract one of my broker doesn't pay me because they're struggling to.
And so where we're seeing that so as we're talking to agents were talking to a lot of vacancy I want to come over I love. The story. It makes a lot of sense, but I've got a deal on the on the sidelines here that maybe coming to fruition and it's under contract wanted to get it closed and I'm worried about not getting paid so we've heard that time and time again, that's not every deal of course, but we hear that a lot.
As I mentioned, there's a lot of agents to it just worried about what happens if I make a move my business declines right.
Here.
People say don't go to fathom, yes, we save money, but so there's always that ridiculous argument that people make because there are frankly scared of us.
But the fact is you know we still beat the market significantly and just.
Paul Paul rise the market in regards to our growth compared to everyone else and so I think I said, there's only one other company that beat US first agent growth. So we feel really good about that number even in this market we feel good.
And I think it's going to take some time, obviously, but theres been more we're seeing more and more just finally getting off the fence financing, okay, they're either getting out of the industry altogether, which we were seeing more and more of or they're saying, okay I'm ready to make a move so we feel really good positive about the progress moving forward.
Starting to see an accelerated number of eggs coming over.
So we saw it dipped a little bit there in Q2, but again, we still feel really good about that.
Now I'm a little bit idea what was the second part of the question.
I'm just on the productivity side of the new agents added in the quarter versus your existing base.
No. We're not we're not seeing a difference honestly, we are seeing agents that are coming in closing less transactions than we're used to.
But not any different in that the agents the reduction of an agent that we currently have with us what that makes some sense right. So if our agents are down.
20% or 30% individually then we're seeing a lot of items come in closing a lot less than we used to but again, that's just reflective of the overall market. So.
Well. Unfortunately, that's just the industry right now where the market we're in right now.
Got it if I could ask one more maybe maybe for Marco I appreciate the color on sort of the flow through gross profit.
On the real estate side of things.
But that goes to the bottom line, yes, how much wiggle room is there in the Opex side.
Or are you sort of managing it to the point where the.
So a pretty tight guidance on EBITDA is sort of.
Based upon your goals of staying adjusted EBITDA positive, but sort of managing it.
Sort of right to align us to stay positive, but I mean.
Still near breakeven, so I guess like how much how much actual.
Yeah Yeah.
Yeah, Great question. So the 70% is companywide does not just mistake that 70% we increased gross profit.
To do you want to catch you by about $2 5 million and about 70% of that and that's what their numbers were all conference and in all companies and I think that's one of the key points. We should be driving is that all companies have reached that inflection point, even though mortgage company look at the if you look at the reduction in our in the in the loss of EBIT.
From Q1 to Q2 from the mortgage REIT and so that 70% is across all companies.
We are.
I think he used the word wiggle room, yes, we have so yeah. It is not.
We now have crossed the EBITDA line that we do have some room on that it is not something that we have to manage it carefully.
Certainly continued to grow our business and we still make any investments to continue to grow our business, but it's not something that we have to watch it very carefully.
We do we continue to hire people, we continue to hire loan officers I think we're up to about 45 loan officers now we probably hired 15 old options. This past quarter and we'll continue to hire more so it is not something that we have to manage with extra care. We continue to run our business the same way.
And because again I think we passed that inflection point and and I think that's why we believe that going forward. We will continue to drive 70% of the gross profit increase to the bottom line.
Yes.
Great I appreciate I appreciate the help thank you.
Thank you the next question.
Your next question comes from Tom White with D. A Davidson. Please go ahead.
Hey, this is why it's once in on for Tom Thanks for taking our questions and congrats on achieving positive adjusted EBITDA.
We're seeing some signs that the momentum you and some of the other cloud based brokerages are enjoying is triggering a bit of a competitive response at some other larger brokerages with similar models yours.
I mean in terms of them having to sweeten the value prop for their agents Josh are curious to hear about how you think about needing to stay on par or ahead of some of the larger brokerages, you're competing with when it comes to the overall appeal of your value prop or financial package.
Can you give me a specific I mean, you're referring to other companies with the exact same commission model we have.
I'm I'm, referring to similar similar like cloud based brokerages.
Yeah. When you think about cloud based brokerages, where public peers theres only two of them.
And they are both it's kind of hard you're not comparing apples to apples, it's hard because you know they while they are cloud based they have a traditional model. They have the basically the same model as a <unk> or do you think about public peers is really any of their religion brands I guess now anywhere brands.
Aside from the fact that they've got caps. So they still charge. The 80 20 split or 80, 515 split or 70 30 split.
So it's not really apples to apples now as far as what ends up you know bottom line to the brokerage.
Little different but you know for us when you think about the agents and agents. The one that we're trying to attract.
That agent. We're a company that has an 80 20 split into their cloud based there's still an 80 20 split they're still paying 20% of the commission, let's say 2000 $2500 on one transaction versus paying us $550 that one transaction. So it's it's going to be hard for them to compete in regards to the monetary.
Value.
And then the rest of it you know what can they provide that we can't do we have all this basically the same tools technology training resources, so while I'm not going to say that ours is a better what I can say is they don't provide more than we do so if all things are equal. The only thing left is the commission side, and that's where I think we win hands down and they can't compete not without.
Fundamentally changing their whole business model and all of a sudden you're going to see a massive decline in what they've been promoting as far as profitability and so on so I feel really good about that today I feel really good about that moving forward and I don't think that they can make a pivot to match us I just I don't think they can do that not without again.
Massive chaos that would ensue after that.
Let me also add.
Couple more things to do let me add a couple more things to that as well.
We of all the public companies, we are very unique all models very different right.
There are thousands of small companies like us across the country and I think when you look at this flat model, 100% Commission flip model. Unfortunately that that you know you have to kind of look at the data to kind of realize that what is actually the fastest growing model in terms of the net agents roll across all companies like us.
That we are the only public one but.
But I think you know there is a great desire from agents to join companies like us and many others like US who are private and our model. The hundred percent conventional model. He is going to continue to grow significantly across the country.
And eventually it will be you know a model that would have a significant percentage of the agents and there are no there'll be different models and a lot of models will be successful there isn't such thing one model point of view one.
But the 100% model flat model is going to continue to grow there's no question about that we've seen that across the countries that we see more and more regional or local companies like us who are growing very quickly and so it's just that they're not public and therefore, they don't get a lot of attention.
I think what I think you're seeing the other cloud based growing exponentially not necessarily because of the cloud based or because theyre similar to us they are growing because they have a pitch.
Pitch that no one else has that MLM type aspect of the business you know where your profit sharing a revenue sharing and so it's right now it's exciting but at some point it becomes less and less exciting, especially as as that business grows to a point, where it kind of hit this plateau, yeah, there's really no more room for people on the bus.
To benefit from that from that model and so youre seeing one start to plateau and you're seeing the other ones still hit its stride and doing fantastic and we're cheering them on and it's fun to see.
I think they've got a great CEO and a great team, but at the end of the day there.
That only last for so long I think this model that we house of Saddam long term will be the future of this industry and I truly believe that that's not lip service.
That's great to hear thank you very much I appreciate the color and congrats again.
Thank you.
Your next question comes from John Campbell with Stephens. Please go ahead.
Hey, guys, it's Jonathan on for John Campbell.
You speak to the gain on sale margins in the mortgage business, what you're seeing there and if you have any outlook on that.
Sure Great question.
You know, it's it's honestly, it's all over the place. It. It's it started you know you go back to Q2 of last year, it's probably the worst quarter like Q3 of last year.
And the big banks, who basically by all the mortgages really squeeze the market out and then and over the last few quarters. It has significantly changed.
What are the things that's happening is that a lot of banks are for a variety of reasons and that'll be a much longer call aren't having some cash challenges right and so one of the things to pay attention to is to look at that the gap between.
The 10 year note and mortgage rates.
And historically that gap has been about 150 to 200 basis points and that will probably over you know in some cases 300 and 350 basis points. So banks are in a sense, we do it.
Increasing that the interest rate on mortgages to slow down the intake of mortgages and so that's already happening and in some cases, they're also reducing the payout. So there yes, there's absolutely some compression on a number of commissions from the big banks paying for mortgages and companies like us and others are adjusting.
Linked to compensation and other costs within the company right and so there's definitely a so some forces pushing back compression and it varies from month to month and quarter to quarter and companies like us are learning how to do with it I would say that our our leadership in a mortgage under Sean Salmon and Pall Mall.
They've done a really great job. If you look for example at the comparison of the EBITDA loss in Q2 compared to Q1 and.
And we've done significant work in reducing that in and we look forward to two adjusted our breakeven in our mortgage business hopefully within a few quarters.
Yeah, Yeah, there's definitely some compression on commissions.
And in the mortgage business.
Thank you that that's a very helpful. And then are you guys seeing any noteworthy regional differences in terms of home sales and price change dynamics.
Yes, so historically.
In this industry every transpire on the west coast and moves from the West coast to the East Coast and we've seen this for the last 10 years and there are so many trends.
Certainly the increase in prices two years ago, we've seen a much greater increase in prices of houses in the west coast markets like California.
Utah, Idaho, Oregon, Nevada.
And so we saw gas prices increasing more rapidly.
We are now therefore seen them decrease more rapidly and so.
In those markets, we're seeing a greater decrease in prices that auto market and the question I guess it will be will you know will these reductions followed the normal trend that we've seen in the past the things started the west coast and that will occur.
Across the country or this is really more related to the west coast because the prices are so much there and they're going to just adjust so the jury is still out on that but we absolutely have seen greater decreases in the west coast, having said that there are some pockets across the country that we seen some decreases.
But there's going to be more smaller pockets as opposed to a trend the trend really used primarily in the west coast and that's where we've seen the largest decrease in home prices.
Okay, great. Thank you.
Thank you.
Kim.
The next question comes from Ross Sharma with B Riley. Please go ahead.
Yeah.
Hello. Good afternoon. Thank you for taking my questions and congratulations on hitting breakeven here.
Yeah I just.
I have a few questions just trying to understand your unique mess here footfall can you touch upon them.
Your referral tiers and how are they better than an M. S M and L. M M. L M type of a marketing.
Why does that the referral appears not get impacted when you gained a lot of share in the market.
Assuming there's a lot of share in the market.
Well first of all I wouldn't say better. The fact is we've had a lot of investors are saying why don't you do what you know a b C. In Xyz company do why don't you do that you know the MLM business.
Fact is we don't take enough money theyre, not taking 20% or 30% of the commission to be able to do that.
So we had to come up with something that was different so it's obviously better. It's just different I will say, though and the one side you're being rewarded for what other people are doing and therefore, you are dependent on other people to perform I know plenty of people who come over to our company from companies like that who said I referred eight people and never made any money or barely made any money.
Because they just were not producing agents alright says they have to produce feed them make anything.
And in our scenario you're rewarded for your efforts not someone else's out there. So that's why I think from that standpoint, its superior right. So the more I'm willing to more harder I'm willing to work the more benefit I get from it not necessarily related to how much money. They can make on the transaction to close by so.
So I think number one there's a benefit youre not dependent on someone else closing business for you to be financially rewarded.
You have to close business be flashing warning because it comes down to savings.
The other issue is that you.
You've got in some of those cases, you've gotta refer you know eight to 10 eight to 12 agents just to break even with what we gave you from day one right.
So you have the younger for a lot of agents in that model just to get what we get from day. One. So that's I think that's important to start let's start with.
So now with us.
First for people to fathom that of course, we have a minimum requirement of how many transactions. They can close before they get that benefit but they were for more people.
Let's say on average close what they do I think on average close five transactions. Each that's 20 transactions that came into the into the company.
And they are now capped for life, which means they're not free they start to pay their annual fee. They start to pay the 150 dollar transaction fee.
<unk> fee.
Hum.
So at the end of the day, though it.
It's a huge win win because they're saving money and we're getting a lot of transactions right on the free for life, they've gotta refer eight agents right.
Alright to become free now once they from free Theres no transaction fees of any kind there is no and youll see either they're truly free but they brought in a agents who close let's say five transactions. Each right. So you can imagine we start doing the math, we're giving up to five transactions in exchange for 40 trends on us plus everyone's annualize.
And so on so it's a massive win for us and it's a win for them as well.
Got it got it that's that's very helpful.
Then onto the phone tiers I mean, they're very unique referral tiers, how do you internally measure whether these are working and also.
What is the what was the referral as a percentage of the new agent.
Granted I know left yeah, I'm sorry go ahead Marco.
Yeah. So we typically average between 35 and 40% of our agents coming in to Fathom.
Our referring by other agents, Okay second historically.
Our agents are the Asia refer by other agents okay.
Historically closed a higher number of transactions than the.
Average agent out there.
So when in fact, a major refers the nonfat them Megan's, who joined the company historically that agent that has a higher producing number of transactions and the reason for that would make sense right typically agents know other agents because they're closing business right. They're working on the other side of a transaction. So that agents typically is more productive for us.
And we have increased the number after we introduced a new program in October and November last year now we're up to about 40% we used to be about a 28% to 30% and now we're increasing to 40% and we think we couldn't even get as high as 50% as we continue to market the program internally.
We actually one quarter, we hit as high as 60, I think 65% one quarter.
So it's clearly if there's a there's a benefit agents get excited about it we need to do a better job of keeping them excited items. So we've been working with our district directors.
Finding activities and programs you know every time someone does become a free for life or capped for life, we make sure to promote that saying Hey, you can do this too I just keep them engaged and keep them excited. So we we we've seen a lot of great benefit coming from it. So we're pleased.
Got it got it thank you and then.
If I could ask you on an agent growth clearly.
Your model is seems very attractive to an agent.
Yeah.
In terms of the hundred percent Commission and also the infrastructure you provide.
There's also a churn even though it's lower than the industry you know you're still it's one 8% a month or so about a yearly your you know 20% of the agent is churning away. So how much what kind of a growth rate do you think it's.
Or what kind of growth rates that are out there. What you know for you to grab at and what kind of net growth do you think we should kind of.
See from you going forward, if it's possible to comment on that yeah.
So we still you know Josh mentioned earlier, one of the things Thats happening is agents are still.
So you don't think about it you can understand why some agents are still worried about moving all right as a matter of fact, one of the things that we've seen in the last let's say 45 day is that our Onboarding starts right Onboarding starts when an agent.
Actually starts filling out the paperwork that they want to move all right. So there's.
That's basically starting the process, yes, I would like to do to join Fad and let me start the process right in the process can take a you know a day in the parks can take two months right.
Our own boarding started last 45 days have increased significantly right.
And so but what happens is the agents are still waiting to to close an additional transactions because they're doing less friends accident. So that extra transactions. They are about to close is really important to them and so we've seen a delay a greater delays historically on historical in terms of the.
The gap between an agent Onboarding starts with the agent complete and we're working on a variety of different ways to improve that but that is a good sign onboarding starts are significantly increases so that's number one.
Look historically the company has grown prior to this significant change in interest rates the company who's growing 35% a year right. We think that you know once the market saddles again, what you're probably looking at sometime next year right.
Just rates that will come down a little that will be you know will begin to see the 35% growth again, but that's not going to happen until until we see interest rates are coming down. So right now we're not talking about you guys coming down to 3% right I don't think what.
Whatever kind of I don't think I would say that in my lifetime, 3% interest rates again, right, but certainly what you know in the low sixes high fives low six days a week.
We believe anybody like others in danger believes that if interest rates come down to a high five year fix it we're going to see a you know that that that that segment of the market that sort of frozen and don't want to sell their houses because they have a three 5% interest rate that's going to open up right and so so to answer your question, we believe that once the market.
Back to some normal equilibrium.
We should see you know, 30% to 35% growth rate for fab as we have seen in the past.
And these are you.
You got a net of churn right.
That is correct that upturn that's correct what got it.
And then lastly, the transactions per agent ticked up or are these just indicative of the market or the percentage of more productive you know our.
Agents and your mix is going up.
Part of it how should we be part of it.
Part of it we're seeing as I mentioned, 80% of the agents, who left us close to zero or one sell for here.
So the.
While that one 5% by the way is higher for us it's not normally what we see in Q2.
That's usually something reserved for Q1, you know when people have to pay their dues.
So we did see an increase in Las Vegas from typically 1516 to one eight.
But again those agents are closing very few transactions. So the more of them get out of the business our transaction per agent you know as you calculate it actually.
Looks like it improves.
Part of that's just the fact that they're getting out of the business.
Yeah, that's right. So thank you so much for answering my so I'll take it offline.
I did want to address one more thing the potential for growth.
30%, because we do 40% or 50% growth one of the things we're seeing right now because the market is tough where we're in a position where we're growing in spite of the market.
That's not true for a lot of companies in fact, it's not true for most companies out there.
And so we're finding ourselves in a position, where we're having more and more people reach out to us saying, okay I've been watching us for a long time I Love Your story our business is struggling.
Would you consider an acquisition would you consider a merger or whatever they tend to call it anything acquisition.
The opportunities out there, we're seeing more and more we're seeing an accelerated rate of people reaching out to us. So the potential is fantastic.
We could see greater growth, but there's a lot more and by the way even if we don't acquire them at some point some of them either are going to be acquired by someone else or they may just shutter and go out of business, which case those agents have to suddenly we see that actually happened a lot. We see a lot of unfortunate la Porte because you've got a business. The shutter and also in Adas are scrambling to find a new home.
So we could be the beneficiary either through an acquisition or it can be the beneficiary through agents just looking for a new home.
Again, if you'd like to ask a question. Please press Star then one.
There are no further questions. This concludes our question and answer session I would like to turn the conference back over to Josh Harley for any closing remarks.
Thank you for joining our call today and for your interest in Fathom for those of you who are shareholders. Thank you for your trust. We will continue to work hard and look forward to sharing future updates with you so with that have a wonderful week. Thank you.
But I don't think he's now concluded. Thank you for attending today's presentation you may now disconnect.