Q4 2023 Fathom Holdings Inc Earnings Call

Operator: Day. Day. Day. The Ultimate Parody Site! Good afternoon, and welcome to the Fathom Holdings Inc. fourth quarter 2023 earnings conference call. All participants will be in a listen-only mode.

Good afternoon, and welcome to the Fathom Holdings, Inc. Fourth quarter 2023 earnings Conference call.

All participants will be in a listen only mode.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then 1 on your telephone keypad.

Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

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Operator: To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Alex Kovtun with Gateway Group. Please go ahead.

To withdraw your question. Please press Star then two.

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I'd now like to turn the conference over to Alex Huston with Gateway Group. Please go ahead.

Alex Kovtun: Great. Thank you, operator, and welcome everyone to the Fathom Holdings fourth quarter and year-end 2023 conference call. I'm Alex Kovtun with Gateway Group, Fathom's investor relations firm. Before I turn things over to the Fathom management team, I would want to remind listeners that today's call may include forward-looking statements within the meaning of the 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 factor section of the company's Form 10-K for the year ended December 31, 2023, as well as the company's subsequent Form 10-Qs, the company's upcoming Form 10-K for the year ended December 31, 2023, and other company filings made with the SEC, copies of which are available on the SEC' Fathom undertakes no obligation to update any forward-looking statements after today's call, except as required by law.

Great. Thank you operator, and welcome everyone. The Fathom holdings fourth quarter and year end 2023 conference call I'm, Alex coupling with gateway groups Fathoms Investor Relations firm.

Before I turn things over to the fab the magic team.

Want to in a mine our listeners that today's call may include forward looking statements within the meaning of the Securities litigation.

Reform Act a nice 95, such forward looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the risk factors section of the company's Form 10-K for the year ended December 31 'twenty.

As well as the Companys subsequent form 10, Qs the companys upcoming Form 10-K for the year ended December 31, 2023, and other company filings made with the SEC copies of which are available on the Sec's website at Www Dot S E T Dot Gov.

As a result of these forward looking statements actual results could differ materially fathom.

Fathom undertakes no obligation to update any forward looking statements after today's call except as required by law.

Alex Kovtun: Please also note that during this call, we will be discussing Adjusted EBITDA, which is a non-gap financial measure, as defined by SEC Regulation G. A reconciliation of this non-gap financial measure to the most directly comparable gap measure is included in today's press release, which is now posted on Fathom's website. So with that, I'll turn the call over to Fathom's president and CEO, Marco Fregen

Please also note that during this call we will be discussing adjusted EBITDA, which is a non-GAAP financial measure as defined by S&P regulation G. A reconciliation of this non-GAAP financial measures. The most directly comparable GAAP measure is included in today's press release, which is now posted on fathoms website. So.

So with that I'll turn the call over to Fathom, President and CEO, Michael Frager Marco.

Marco Fregenal: Thank you, Alex. And good afternoon, everyone. And a warm welcome to everyone joining us for our fourth quarter and four year 2022 earnings call. I am incredibly proud of our Fathom family, and I am grateful for your unwavering dedication, hard work, and commitment to excellence. Your efforts have played a pivotal role in shaping Fathom into the exceptional company it is today. Despite the challenges facing 2023, our team's resilience and determination have been truly remarkable.

Thank you, Alex and good afternoon, everyone and while warm welcome to everyone joining us for our fourth quarter and full year 2023 earnings call.

I'm incredibly proud of our fathom family and I'm Grateful for your unwavering dedication hard work and commitment to excellence. Your efforts have played a pivotal role in shaping that that means that the exceptional company. It is today.

Despite the challenges facing 'twenty to 'twenty three our team's resilience and determination have been truly remarkable I am deeply thankful for all of you and your significant contributions to our continued success.

Marco Fregenal: I am deeply thankful for all of you and your significant contributions to our continued success. I am proud of what Fathom has accomplished in 2023, despite the challenging conditions in the residential real estate market. Our team's commitment to our growth strategy allowed us to navigate the obstacles and make significant strides to position Fathom favorably for the upcoming year. Fathom's total fourth-quarter revenue was $74.1 million, a decrease of 11.2% from $83.4 million for the 2022 fourth quarter. The $10.1 million decrease in brokerage revenue was primarily due to the decline in brokerage transactions, but it was partially offset by the $20.5 million increase in Fathom's ancillary services, particularly in Fathom's mortgage business. Total revenue for 2023 was $345.2 million, a decrease of 16% from $412.9 million for 2022.

I am proud of us that don't have to accomplish in 2023, despite the challenging conditions in the residential real estate market, our team's commitment to our growth strategy allowed us to navigate the obstacles and make significant strides to position fathom favorably for the coming year.

Fathoms total fourth quarter revenue was $74 1 million a decrease of 11, 2% from 83 point 40 million for the 2022 fourth quarter. The 10.1 decrease in brokers revenue was primarily due to the decline in brokerage transaction, but it was partially offset by the 25 increase.

And Furthermore, in Philly already services, particularly in Fathom is the mortgage business.

Total revenue for 2023, it was $345 2 million a decrease of 16% from $412 9 million for 2022.

Marco Fregenal: Adjusted EBITDA, a non-gap measure, improved to a total loss of $2.9 million in the fourth quarter of 2023, compared with an Adjusted EBITDA loss of approximately $5.9 million in the fourth quarter of 2022. The improvement in Adjusted EBITDA reflects our continued commitment to achieving and remaining Adjusted EBITDA positive moving forward. For the full year, Adjusted Ebitda loss was $4.1 million in 2023 versus an Adjusted Ebitda loss of $12.2 million in 2022.

Adjusted EBITDA loss, a non-GAAP measure improved.

To a loss of $2 9 million in the fourth quarter of 2023, compared with an adjusted EBITDA loss of approximately five point million type one 9 million in the fourth quarter of 2022 the improvement in adjusted EBITDA reflects our continued commitment to achieving and remaining adjusted EBITDA positive moving forward.

Okay.

For the full year adjusted EBITDA loss was $4 1 million in 2023 person adjusted EBITDA loss of $12 2 million for 2022.

Marco Fregenal: Our focus on market share expansion from legacy brokerage firms throughout the year remains that fact. Notably, we experienced a substantial 13.7% growth in our agent network for the full year, which stands out compared to the reported domestic agent growth for all for one of our public peers. Both ongoing agent referral efforts and introductions of walkovers in key regions, including Louisiana, Massachusetts, and California, fuel this growth.

Our focus on market share expansion from legacy brokerage firms throughout the year remains steadfast.

Italy, we experienced a substantial $313 seven growth in our agent network for the full year, which sends out compared to the reported domestic agent growth for all but one of our public peers.

Ongoing agent referral efforts and our introduction of work overs in key regions, including Louisiana, Massachusetts, California field this growth.

Marco Fregenal: In the fourth quarter of 2023, we implemented various programs to enhance agent recruitment, including the reintroduction of Producer Perks in October, a program designed to attract high-performing agents that has yielded promising early results. We also observed a remarkable increase of over 200% in visitors to Fathom's careers page, surging from 2,100 visitors in Q3 of 2023 to an impressive 6,600 visitors in Q4 of 2021. Additionally, our onboarding starts continue to gain momentum in Q4 of 2023, increasing by over 7% from Q3 of 2023. Our agent growth in the fourth quarter further validates that we're winning through innovation and truly disrupting the business model that continues to resonate among agents. Our new agents will value Fathom's proprietary cloud-based software, IntelliAgent. They will also benefit from having additional Fathom services to offer their clients, including mortgage and insurance services, as we continue to help our agents grow their business. Our costs to acquire one agent during Q4 remain low at approximately $1,050, making our break-even on each agent less than the $1,150 we'll earn on their first sale.

In the fourth quarter of 2023, and we implemented various programs the has the agent recruitment, including the reintroduction of our producer parks in October.

Grand designs to attract high performing agent that has yielded promising early results.

We also observed a remarkable increase of over 200 per se in dessert two fathoms career stage judging from 'twenty 100 visitors in Q3 of 2023. So an impressive 6600 visitors in Q4 of 2023. Additionally, our own boarding starts continued to gain momentum in Q4 of 2023.

Increasing by over 7% from Q3 of 2023.

Our agent growth in the fourth quarter further validates that we're winning through innovation and truly disruptive business model that continues to resonate among agents.

Our new agents, who value Fabulous proprietary cloud based software Intel I agent. They will also benefit from having an additional fab them services to offer their clients, including mortgage and insurance services as we continue to help our cause our agents grow their businesses.

Our cost to acquire one Adrian during Q4 remains low at approximately $1050, making a breakeven on each agent less than 1150 will earn on their first sale. We also maintain a strong retention rate, which is exceptionally positive news given the backdrop of agents, leaving the industry.

Marco Fregenal: We also maintain a strong retention rate, which is exceptionally positive news given the backdrop of agents leaving the industry. Fathom completed approximately 38,139 real estate transactions in 2023, a decline of approximately 14.6% compared to the previous year. Despite the challenges posed by elevated interest rates, which impacted transaction volumes across the real estate market and led to the lowest level of existing home sales in almost three decades, Fathom exhibits resilience. We also observed... Year over year, transaction growth in key markets such as Nevada, Missouri, and Utah. This notable accomplishment underscores our ability to seize market share from legacy brokerage firms, showcasing our adaptability in a volatile environment. Looking ahead, we're optimistic about the anticipated impact of our Producer Perks program on Asian transactions in 2024. This initiative will further enhance our market position and contribute to sustained growth in the coming year. Now, let's discuss our mortgage business. We're acknowledging its significant negative impact on our financial performance in 2023.

Adam complete approximately 38139 real estate transactions in 2023, a decline of approximately 14, 6% compared to the previous year.

As part of the challenges posed by elevated interest rates, which impacted transaction volumes across the state market and led to the lowest level of existing home sales in almost three decades fathom exhibit resilience.

We also observed.

Year over year transaction growth in key markets, such as Nevada, Missouri in Utah is notably accomplishment underscores our ability to seize market share from legacy brokerage firms showcasing our adaptability in a volatile environment.

Looking ahead, we're optimistic about the anticipated impact of our produce our perks program on agent transactions in 2024.

This initiative will further enhance our market position and contribute to sustained growth in the coming year.

Now, let's discuss our mortgage business, while acknowledging a significant negative impact on our financial performance in 2023 our dedicated team has had exerted a tremendous effort to turn things around the 'twenty 'twenty four.

Marco Fregenal: Our dedicated team has exerted tremendous effort to turn things around in 2024. One notable stride is our strategic expansion of our mortgage operations in Texas by acquiring Austin-based elite financing groups. This move fortifies our existing presence in Dallas for work and market and extends our reach into Austin, enabling us to cater to a broader clientele across Texas. Recognizing the increase in demand in the Latino segment, we have established a dedicated division within Encompass Landing Group to work closely with our Latino division at Fathom.

One notable Friday is our strategic expansion of our mortgage operations in Texas by acquiring Austin based elite financing group.

This move Fortifies, our existing presence in Dallas Fort worth market and extends our reach into Austin, enabling us to cater to a broader clientele across Texas.

Recognizing the increasing demand in the Latino segment, we have established a dedicated division, which encompass lending group to work closely with our Latino Division at Fathom.

Marco Fregenal: Thus far, we're encouraged by the results for the first two months of this year, which showed an impressive 89% increase in file starts compared to the same period in 2022. This positive momentum fuels our optimism for our mortgage business' continued success and growth in the months ahead. While Q4 is a challenging quarter for various titles, we are encouraged given the 16% increase in file starts for the first two months compared to last year.

Thus far we're encouraged by the results for the first two months of this year, which showed an impressive 89% increase in file start compared to the same period in 2022.

Positive momentum fuels, our optimism for our mortgage business continued success and growth in the months ahead.

While Q4 is a challenging quarter for various title we are encourage given the 16% increase in file star with the first two months compared to last year. Moreover.

Marco Fregenal: Moreover, we expect our recent announcement regarding the joint venture with agents in Texas to significantly improve our attachment rate and EBITDA. Furthermore, during 2023, we're pleased that Fathom continues outperforming many of its peers regarding agent growth and transactions in a challenging market environment. Although the residential real estate industry remains difficult, we believe that our future remains bright, and by continuing to grow our agent base, we're positioning Fathom to continue to succeed once the industry recovers. We are making meaningful progress advancing our growth strategy, expanding our agent network, optimizing our business for profitable growth, and creating an industry-leading commission model that continues to resonate well in the current real estate environment and will continue to do so going forward. Now, let's briefly discuss our goals for 2024.

Moreover, we expect our recent announcement regarding the joint venture with age I think Texas to significantly improve our attachment rate and EBITDA.

During 2023 or eight we're pleased the fathom continue outperforming many of which theaters regarding agent growth and transactions in a challenging market environment, although the residential real estate interest remains difficult. We believed our future remains bright and by continued to grow our agent base, we're positioning them for continued success.

Once the industry rebounds.

We are making meaningful progress in advancing our growth strategy, expanding our agent network optimizing our business for profitable growth and creating an industry leading commission model that continues to resonate well in the current real estate environment and we'll continue to do so going forward.

Now, let's briefly discuss our goals for 2024.

Marco Fregenal: First, we remain focused on accelerating Fathom's agent growth with the goal of returning a historical agent growth rate of 25% to 30%. Moving forward, we'll focus more on attracting high-quality agents, teams, and brokerages as our agent value proposition remains compelling in the current environment and our pipeline of opportunities remains robust. We believe we are the most attractive home for agents in the long term, as we help them ultimately earn more money with an industry-leading flat fee commission split to agents. Our goal remains to be one of the top four or five brands in every market where we operate, and we continue to progress towards those targets. We are now in 41 states, and we're striving to be in all 50 states by the end of the year.

First we remain focused on accelerating fathoms agent growth with the goal of returning to our historical agent growth rate of 25% to 30% moving ahead with focus more on attracting high quality agents teams and brokerages as our agent value proposition remains compelling and the current environment and our pipe.

Your line of opportunities remains robust.

I believe we are the most attractive home for agents in the long term as we help them ultimately earn more money with an industry leading flat the commission split to agents. Our goal remains to be one of the top four or five brands in every market, where we operate and we continue to progress towards this target. We are now in 41 states and what's driving it.

To be in all 50 states by the end of the year.

Marco Fregenal: We also plan to launch various marketing programs and new technology enhancements in the coming months to provide greater value to our agents, improve productivity, and ultimately make them more successful. Our second goal is to achieve operating cash flow breakeven as early as the second quarter of 2024, while remaining committed to returning to positive adjusted EBITDA for the full year in 2024. During the fourth quarter, we announced we revised an agent commission structure that we believe will add an estimated $3.1 million in EBITDA for 2024. We believe this slight increase in agent fees will have a minimal impact on our agents while helping Fathom achieve its objectives and provide our agents with an ever-improving agent offer. We also remain focused on identifying additional opportunities for operational efficiency to further reduce our expenses.

We also plan to launch bar areas marketing programs and new technology enhancements in the coming months to provide greater value to our agents improve productivity and ultimately make them more successful.

Our second goal is to achieve operating cash flow break even as early as the second quarter of 2024, while we remain committed to returning to positive adjusted EBITDA for the full year in 2024.

During the fourth quarter, we announced we were advised.

Agent Commission structure that we believe will add an estimated $3 1 million in EBITDA for 2024, we believe this slight increase in agent fees will have a minimal impact on our agents well.

In fact, I'm achieve our objectives and provide our agents with an ever improving Asian offering.

We also remain focused on identifying additional opportunities for operational efficiencies to further reduce our expenses.

Marco Fregenal: In Q4 of 2023, we will implement cost reductions totaling approximately 1 million per quarter, which will take full effect in Q1 of 2024. More importantly, this cost reduction should not sacrifice our growth trajectory, as we have increased the size of our recruiting team and plan to continue growing the recruiting team in 2024 to support agent growth efforts. Now turning our attention to ancillary businesses, we recognize the potential for these businesses to significantly augment our revenue and hence profitability for transactions over time. Early indicators for 2024 are promising, suggesting the initiatives implemented in Q4 are starting to yield positive results.

In Q4 of 2023, we implement cost reductions totaling approximately 1 billion per quarter, which will take full effect in Q1 of 2024 more importantly, these cost reduction should not sacrifice our growth trajectory as we have increased the size of our recruiting team and plan to continue growing our recruiting team in 'twenty.

For to support agent growth efforts now.

Now turning our attention to and ciliary businesses, we recognize the potential for these businesses to significantly augment our revenue and hence profitability per transaction over time.

Early indicators for 'twenty 'twenty four are promising suggestion the initiatives implemented in Q4 are starting to yield positive results, notably we're witnessing a substantial increase in buyer starts for our mortgage and title businesses. This positive trend aligns with our strategic objectives and reinforces our belief in our.

Marco Fregenal: Notably, we are witnessing a substantial increase in file starts for our mortgage and title business. This positive trend aligns with our strategic objectives and reinforces our belief in our ancillary business' long-term viability. We do expect both businesses to outpace the growth of our core brokerage business and contribute in a significant manner to our EBITDA in 2024 and beyond. This week, we also announced a new joint venture between our title subsidiary and Fathom Real stock producers in Texas called Veristyles Elite to improve agent productivity and ultimately enhance profitability. This strategic collaboration should elevate agent productivity, enhancing profitability for all parties involved. Ferris Elite aims to provide its agents with elevated support, creative platforms that foster success, and present lucrative opportunities for increased earnings. By forging this joint venture, we're confident we can further bolster our tax rates going forward. This will be the first of such joint ventures, and we look forward to creating others in the coming months.

Ciliary business has long term viability, we do expect both businesses to outpace the growth of our core brokerage business and contribute in a significant matter to our EBITDA in 'twenty 'twenty four and beyond.

This week, we also announced a new joint venture between our title subsidiary and Fad number you'd stop producers in Texas called various styles of elite.

To improve agent productivity and ultimately enhance profitability. These strategic collaborations should elevate agent productivity enhancing profitability for all parties involved.

Barrish elite aims to provide our agents with elevated support creating a platform that foster success and presents a lucrative opportunities for increased earnings.

By forging gives joint venture we're confident we can fall there are further bolster attach rates going forward. This will be the first of such joint ventures, and we look forward to it by creating others in the coming months.

Marco Fregenal: Finally, we continue to focus our balance sheet to navigate the current environment and position Fathom for growth opportunities in 2024. We believe our current cash position and overall liquidity provide us with a runway to grow the business and execute our strategy through operating cash flow breakeven. In the last few quarters, we have seen an increase in the number of smaller real estate brokerages interested in merging with larger companies. We believe that market consolidation will increase in 2024 and 2025. It is with that in mind that we'll continue to be opportunistic in our approach to acquiring smaller brokers.

Finally, we continue to focus our balance sheet to navigate the current environment and position them for growth opportunities in 2024, we believe our current cash position and overall liquidity provides us with a runaway to grow the business and execute our strategy through operating cash flow breakeven.

In the last few quarters, we have seen an increase in the number of smaller real estate broker just interested in merging with larger companies. We believe that market consolidation will increase in 2024 and 2025. It is we'd that my that will continue to be opportunistic in our approach in acquiring smaller brokerages and such.

Marco Fregenal: In summary, we remain encouraged by the trends we're seeing across our business despite a more challenging quarter and year for Fathom and the real estate industry. Even with today's economic uncertainty and subdued real estate market conditions, we believe that Fathom has a long and positive runway ahead, and we expect to turn the corner towards profitability growth in the coming quarters while starting to show operating leverage in our business. We are entering 2024 in a position of strength and optimism about the opportunities in front of us. With that, I'd like to pass the call over to Joanne Zak, our Senior Vice President of Finance, so she can discuss our financial results in more detail. Thanks, Marco.

We remain encouraged by the trends, we're seeing across our business. Despite a more challenging quarter and year for Fad when are we going to say the industry.

Even with today's economic uncertainty and subdued real estate market conditions. We believe the fathom has a long and positive runaway ahead, and we expect to turn the corner towards profitability growth in the coming quarters, while it's starting to show the operating levers in our business.

We are entering 2024 in a position of strength and optimism, but the opportunities in front of us with that I'd like to pass the call over to Joe and Zach Our senior Vice President of finance. So she can discuss our financial results in more detail.

Thanks, Michael I'll start with a detailed review of our fourth quarter and full year 2023 results.

Joanne Zak: I'll start with a detailed review of our fourth quarter and full year 2023 results. Fourth quarter total revenue declined 11% year over year to $74 million compared with $83 million for last year's fourth quarter. This decline was primarily due to a 13% decrease in brokerage revenues that was partially offset by a 21% increase in ancillary revenues, which were primarily related to our mortgage business, which benefited from slightly declining interest rates in the later part of Q4 and from our strategic expansion of mortgage operations in Texas. For the 2023 year, total revenue decreased 16% to $345 million compared to $413 million in the prior year. For the year, brokerage revenues declined by 17%, and ancillary revenues declined by 11%.

Fourth quarter total revenue declined 11% year over year to $74 million compared with $83 million for last year's fourth quarter. This decline was primarily due to a 13% decrease in brokerage revenues that was partially offset by a 21% increase in ancillary revenue.

Is which are primarily related to our mortgage business, which benefited from slightly declining interest rates in the later part of Q4 and from our strategic expansion of mortgage operations in Texas.

For the 2023 year total revenue decreased 16% to 345 million compared to $413 million in the prior year.

For the year brokerage revenues declined by 17% and ancillary revenues declined by 11% overall revenues are lower in 2023 compared to 2022 due to lower transaction volumes attributable to rising home prices and for much of the year surge in mortgage rates.

Joanne Zak: Overall revenues were lower in 2023 compared to 2022 due to lower transaction volumes, attributable to rising home prices and, for much of the year, surging mortgage rates that made 2023 the least affordable market in decades. Gap's net loss for the fourth quarter 2023 was $8.4 million, or a loss of $0.50 per share, compared with a loss of $9.9 million, or a loss of $0.63 per share for the 22nd quarter. Our net loss was lower in Q4-23 due to improved margins on our brokerage transactions attributable to our fee increase initiated in January 2023 and to our cost savings efforts that began in 22 and carried forward in 23, partially offset by an increase in stock compensation costs and increases in interest and income tax expenses. Gap net loss for the full 23 years was $24 million, or a loss of $1.47 per share, compared with a gap net loss of $27.6 million, or a loss of $1.73 per share, for 2022.

May 2023 the least affordable market in decades.

GAAP net loss for the fourth quarter 2023, with $8 4 million or a loss of 50 cents per share compared with a loss of $9 9 million or a loss of 63 cents per share for the 22 fourth quarter.

Our net loss was lower in Q4 twenty-three due to improved margins on our brokerage transactions attributable to our fee increase initiated in January 2023, and two our cost savings efforts that began in 'twenty two and carried forward in twenty-three, partially offset by an increase in stock.

Station cost and increases in interest and income tax expenses.

GAAP net loss for the full 23 here was 24 million or a loss of 1.47 per share compared with a GAAP net loss of $27 6 million or a loss of 1.73 per share for 2022.

Joanne Zak: This reduction in net loss was attributable to strategic cost-saving efforts in all areas, which included reductions in headcount, reductions in third-party vendor costs, and payroll reductions for the management team, partially offset by an increase in stock compensation costs, Amortization of Intangible Assets, and Increases in Interest and Income Tax Expenses. Adjusted EBITDA loss, a non-GAAP measure, was $2.9 million in the 2023 fourth quarter, versus an adjusted EBITDA loss of $5.9 million for the fourth quarter of 2022, primarily due to a $1.5 million reduction in net loss, which included an increase in non-cash stock compensation cost of $1 million, and an increase in income tax expense and interest expense of $0.3 million and $0.1 million, respectively. For the full year 23, adjusted EBITDA loss was $4.1 million versus an adjusted EBITDA loss of $12.2 million for 22 due to a $3.6 million reduction in net loss, which included an increase in non-cash stock compensation cost of $3.9 million and an increase in non-cash depreciation and amortization of $0.6 million. DNA expense totaled $10.1 million for the 2023 fourth quarter, a decrease of 6.3% compared with $10.8 million for the fourth quarter of 2022.

This reduction in net loss was attributable to our strategic cost saving efforts in all areas, which included reductions in head count reductions in third party vendor costs.

And payroll reductions for the management team.

Partially offset by an increase in stock compensation costs and amortization of intangible assets and increases in interest and income tax expenses.

Yeah.

Adjusted EBITDA loss.

non-GAAP measure was $2 9 million in the 2023 fourth quarter versus adjusted EBIT down loss of $5 9 million for the fourth quarter and 22.

Primarily due to a $1 5 million reduction in net loss, which included an increase in noncash stock compensation costs of 1 million and an increase in income tax expense and interest expense of <unk> 3 million in point 1 million respectively.

For the full year 'twenty three.

Adjusted EBITDA loss was $4 1 million versus an adjusted EBITDA loss of $12 2 million for 'twenty two due to a $3 6 million reduction in net loss, which included an increase in noncash stock compensation cost of $3 9 million and an increase in noncash depreciation and amortization.

$6 million.

G&A expense totaled $10 1 million for the 2023 fourth quarter, a decrease of six 3% compared with $10 8 million for the fourth quarter of 'twenty two.

Joanne Zak: General and administrative expenses totaled $38.8 million for the full 2023 year, a decrease of 10.3% compared with $43.2 million for the full 2022 year due to our cost-cutting initiatives partially offset by a $2.5 million increase in stock compensation costs in 2023 compared to 2022. On a sequential basis, G&A increased by 300,000 primarily due to the additional G&A brought on by a mortgage operations expansion in Texas and to increased expenditures related to agent recruiting. Expenses related to marketing activities were $0.9 million in the fourth quarter of 2023 compared to $1.3 million in the fourth quarter of 2022.

General and administrative expenses totaled $38 8 million for the full 2023 year, a decrease of 10, 3% compared with $43 2 million for the full 2022 year due to our cost cutting initiatives, partially offset by a $2 5 million increase in stock compensation costs in 'twenty three.

Third to 2020 two.

On a sequential basis G&A increased by 300000, primarily due to the additional G&A brought on by our mortgage operations expansion in Texas and two increased expenditures related to agent recruiting.

Expenses related to marketing activities, whereas there was <unk> 9 million for the fourth quarter of 23 compared to $1 3 million in the fourth quarter of 22.

Joanne Zak: For the full year, 2023 marketing expenses decreased by $1.9 million to $3.3 million in 2023, compared to $5.2 million for the full year of 2022. The 28.5% and 35.8% reduction in marketing expenses in Q4 and for the full year, respectively, reflect the benefits of our expense reductions implemented in late 2022 and early 2023. Now I'll spend some time reviewing our business segment results in more detail. As with all real estate companies, Q4 was a difficult quarter for our real estate division. We closed approximately 8,290 real estate transactions in the quarter, an 11% decrease from last year's fourth quarter.

For the full year 2023, marketing expenses decreased by $1 9 million to $3 3 million in 2023 compared to $5 2 million for the full year of 2022 to.

28, 5% and 35, 8% reduction in marketing expenses in Q4 and for the full year, respectively reflect the benefits of our expense reductions implemented in late 'twenty two in early 2023.

Now I'll spend some time reviewing our business segment results in more detail.

As with all real estate companies Q4 was a difficult quarter for our real estate Division, we closed approximately 8290 real estate transactions in the quarter and 11% decrease from last year's fourth quarter for.

Joanne Zak: For the full year, we closed approximately 38,140 real estate transactions, a 14.7% decrease relative to the prior year. We ended the fourth quarter with 11,795 agents, which represented a 13.7% growth rate over the fourth quarter of 22, while the National Association of Realtors saw a membership decline of approximately 1.6%. We have seen an increase of 26% in onboarding starts year to date over Q4, which should result in an increase in the number of agents joining Fathom going forward. Revenue for the real estate division was approximately $69.4 million in the fourth quarter compared to $79.5 million for the same period last year, which represents a 12.8% decrease attributable to a decrease in transactions and the price of homes.

For the full year, we closed approximately 38140 real estate transactions, a 14, 7% decrease relative to the prior year.

We ended the fourth quarter with 11795 agents, which represented a 13, 7% growth rate over the fourth quarter of 'twenty to well the Nashville Association of Realtors membership decline of approximately one 6%.

We have seen an increase of 26% and onboarding starts in year to date.

Although Q4, which should result in an increase in the number of agents joining fathom going forward.

Revenue for the real estate Division was approximately $69 4 million in the fourth quarter compared to $79 5 million for the same period last year, which represents a 12, 8% decrease.

Notable to a decrease in transactions and the pace at home.

Joanne Zak: Adjusted EBITDA income in the real estate division was approximately $0.2 million in Q4 of 2023, an increase of $1.5 million compared to an adjusted EBITDA loss of $1.3 million in Q4 of 2022. For the full year, Adjusted EBITDA income was $5.7 million in 2023 compared to $2 million for the full year 2022. These improvements were achieved despite the decrease in transactions for Q4'23 and for the 2023 year and reflect our increase in fees implemented in January 2023 and the favorable impact of our continued cost-cutting measures. Our mortgage business generated revenues of $1.8 million in Q4 2023 compared to $1.3 million in the prior year period. Mortgage-adjusted EBITDA for Q4 2023 was a loss of $0.8 million compared to an adjusted loss of $1.1 million for the same period last year.

Adjusted EBITDA income and the real estate Division was approximately 0.2 million in Q4 23, an increase of $1 5 million compared to adjusted EBITDA loss of $1 3 million in Q4 of 2022.

For the full year adjusted EBITDA income was $5 7 million in 2023 compared to $2 million for the full year 2022.

These improvements were achieved despite the decrease in transactions for Q4, 'twenty three and for the 2023 year and reflect our increase in fees implemented in January 2023, and the favorable impact of our continued cost cutting measures.

Our mortgage business generated revenues of $1 8 million in Q4, 2023 compared to $1 3 million in the prior year period.

Mortgage adjusted EBITDA for Q4, 2023, with a loss of 0.8 million compare to an adjusted loss of $1 1 million for the same periods last year.

Joanne Zak: For the 2023 year, although our mortgage business revenues declined by $1.1 million to $7.3 million, compared to $8.3 million in the prior year, the adjusted EBITDA loss for 2023 improved to $1.9 million, compared to a $2.9 million adjusted EBITDA loss in 2022. This is due to continued strategic cost-cutting measures. Our team continues to identify opportunities to reduce expenses to right-size our mortgage business going forward, as well as to increase revenues by recruiting additional loan officers. DIA, our insurance business, generated revenues of $1.4 million for the quarter and a total of $6.3 million in revenues for the year.

But the 'twenty to 'twenty three year, although our mortgage business revenues declined by 1.1 million to $7 3 million compared to $8 3 million in the prior year.

Adjusted EBITDA loss for 2023 improved to one 9 million compared to a $2 9 million adjusted EBITDA loss. In 2022. This is due to continued strategic cost cutting measures I team continues to identify opportunities to reduce expenses to right size, our mortgage business going forward as well.

The increased revenues by recruiting additional loan officers.

D I E our insurance business.

Generated revenues of $1 4 million for the quarter and a total of $6 3 million in revenues for the year.

Joanne Zak: DIA had positive adjusted EBITDA of $0.2 million for the 2023 quarter and $1.6 million for the full 2023 year, compared to an adjusted EBITDA loss of approximately $0.1 million for the 2022 fourth quarter and $0.5 million of adjusted EBITDA income for the full year. VAERS Title had revenues of $0.7 million for the quarter and $3.1 million for the year. VAERS Title's adjusted EBITDA for the 2023 quarter was a negative $0.2 million and a negative $0.6 million for the full year. We anticipate that our new Texas joint venture, scheduled to commence business in early Q2 2024 and similar joint ventures with our top producing real estate agents, will add meaningful revenues and adjust the BDOT for our title business. Moving to our technology segment, revenues increased 10% to approximately $0.8 million compared to $0.7 million for last year's fourth quarter. Adjusted EBITDA losses increased from a loss of $0.2 million in the fourth quarter of last year to a loss of $0.5 million in the current quarter, reflecting our increased investment in managing and enhancing our technology platform.

D. I E had positive adjusted EBITDA of <unk> 2 million for the 'twenty, two 'twenty three quarter and $1 6 million for the full 2023 year compared to adjusted EBITDA loss of approximately <unk> 1 million for the 2022 fourth quarter and 0.5 million of adjusted EBITDA income for the full year 'twenty two.

Theres tidal had revenues of <unk> 7 million for the quarter and $3 1 million for the year Terrace.

Terrace, titled adjusted EBITDA for the 'twenty two 'twenty three quarter was a negative zero point $2 million and a negative 0.6 million for the full year.

We anticipate that our new Texas joint venture capital to commence business in early Q2, 'twenty 'twenty four and similar joint ventures without top producing real estate agents will add meaningful revenues and adjusted EBITDA for our title business.

Moving to our technology segment revenues increased 10% to approximately 0.8 million compared to <unk> 7 million for last year's fourth quarter.

Adjusted EBITDA loss increased from a loss of 0.2 million in the fourth quarter of last year.

Losses, there, it's like $5 million in the current quarter, reflecting our increased investment in managing and enhancing our technology platform.

Joanne Zak: Our Live By team has significantly increased its footprint across the country to reach over 245 MLSs and 420,000 agents at the end of the quarter. Live By powers more than 4 million community pages with over 125,000 neighborhood reports created. We continue to be keenly focused on the balance sheet given the dynamic real estate market conditions. We ended the quarter with a cash position of $7.4 million, which includes $4.2 million in net proceeds from the offering we completed in December. We did not purchase any shares in the fourth quarter under the stock repurchase plan, and approximately 4 million remain under that authorization.

I live by team has significantly increased its footprint across the country to reach over 245 ml lessons and 420000 agents at the end of the quarter.

Live by powers more than 4 million in communion pages.

With over 125000 neighborhood reports created.

We continue to be keenly focused on our balance sheet, given the dynamic real estate market conditions. We ended the quarter with a cash position of $7 4 million, which includes the $4 2 million in net proceeds from the offering we completed in December.

We did not purchase any shares in the fourth quarter under the stock repurchase plan and approximately 4 million remains under that authorization.

Marco Fregenal: With that, I will turn the call back over to Marco for his closing remarks. Thank you, Joanne. We remain focused on executing and taking the necessary steps to better position Fathom in the current environment in preparation for when the market recovers. I want to thank the entire Fathom team for its hard work as we navigate this market and continue to serve our clients. With that, Operator, let's open the call for questions. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.

With that I will turn the call back over to Mark <unk> for closing remarks.

Thank you Joanne.

We remain focused on executing and have taken necessary steps to better position fathom in the current environment in preparation for when the market recovers.

Want to thank the entire fathom team when its hard work as we navigate this market and continue to serve our clients with that operator, let's open the call for questions.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

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

Operator: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster, and our first question will come from John Campbell of Stevens. Please go ahead. Hey guys. Good afternoon. Hey John, how are you?

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble the roster.

And our first question will come from John Campbell of Stephens. Please go ahead.

Hey, guys good afternoon.

Hey, John how are you doing.

Doing well doing well, thanks, Mark I'm, hoping you could provide a little bit of direction on gross margin for the year I mean, there's some moving pieces with the agencies are it does sound like youre going to be in for a better year on ancillary services revenue. So I know that's going to have some degree of an impact, but maybe as a starting point and you know if you held Rev flat year over year.

John Robert Campbell: Doing well, doing well. Thanks. Marco, I'm hoping you could provide a little bit of direction on gross margin for the year. I mean, there are some moving parts with the agent fees. It does seem like you're going to be in for a better year on insurance services revenues, so I know that's going to have some degree of an impact. But maybe, as a starting point, if you held REV flat year over year, what kind of impact would you expect from gross margin just from the fee increases? And however you want to frame it up from there, just assuming any kind of revenue growth scenario. Yeah, absolutely. So, a great question.

It would.

What kind of impact would you expect from gross margin just from the fee increases and then however, you want to frame it up from there just assuming any kind of you know revenue growth scenario for sure.

Yeah, absolutely. So so great question feet excuse increase is going to give us about one to one and a half points on gross margin just that by itself.

Marco Fregenal: The fee increase is going to give us about one to one and a half points on gross margin, just that by itself, over the year, okay? And that's, of course, on the realty side, right? And then, as we mentioned in the call, one of the things we are really, really excited about is the growth in file starts for mortgage and title, especially under the JV. So, you know, as we mentioned in the call, we think that mortgage and title is going to outpace the growth of brokerage and therefore drive significant margin increases. So, we could see, you know, gross profit margins when you look at the combined businesses, north of, you know, 11% and probably by the end of the year could be as high as 12 or 13%, depending on how well our mortgage business does. And one of the things I want to make sure, you know, in our mortgage growth, it's not so much, we're not really counting on a decrease in interest.

Over the year, Okay, and that's of course on the on the royalty side right.

And then as we you know what are the things. We are are really really excited about is the growth in five stars for mortgage and title, especially with new JV. So you know as we mentioned in the call. We think that mortgage and title is going to outpace the growth of our brokerage.

And therefore drive significant margin increase.

Increase in gross profit margins. So we could see you know gross profit margins. When you look at our combined businesses, yeah, north up 11% and probably by the end of the year could see as high as 12 or 13%, depending how well our mortgage business then and what are the things that I want to make sure you know in our mortgage growth, it's not so much well not really.

Counting on a decrease in interest rate. The reason why our mortgage businesses is is doing so well.

Marco Fregenal: The reason why our mortgage business is doing so well is because we're growing and adding more loan officers. Under the leadership of Sean Varon and Paul Marsh, we've been able to almost double the number of LOs into a business, and therefore really growing the business. So if then the rates come down in the second half, we can really see a significant increase in our mortgage business. So we're very excited about that. But in terms of margins, certain 10-11% when you look at the combined businesses, and then, depending how the rates change later in the year, we could see as high as 12-13%. Okay, that's helpful. And then on the agent additions, I mean, from a sequential standpoint, that was the best net add you guys have had since the second quarter of 2022. Obviously, that was against a far better kind of macro backdrop.

It's because we're growing any more loan officers out on.

Under the leadership of Sean Sean Barry and Paul Marsch States, we've been able to almost double their number of that Lowe's into our business and therefore, it really growing the business. So you know if then the rates come down second half you know, we could really see a significant increase in our mortgage business. So we're very excited about that but in terms of margin.

It certainly 10% to 11% when you look at the combined businesses and then depending how are the rates change later in the year, we could see as high as 12 or 13%.

Okay. That's helpful and then on the agent additions I mean from a sequential standpoint that was the best net adds you guys have had since the second quarter of 2022 obviously that was.

And in a far better kind of macro backdrop.

Marco Fregenal: So I'm hoping you can maybe unpack your strengths there and just maybe start off by just roughly how much of that was inorganic. And then if you can talk to the underlying attrition rate and how that's looked versus prior periods. Yeah, absolutely. Great question.

I'm, hoping you can maybe unpack the strength there and just maybe starting off just roughly how much of that was inorganic and then if you could talk to the underlying attrition rate and how that's looked versus prior periods.

Yeah, Yeah, absolutely great question. So yes. It is the the best months on sequential basis for our 2023.

Marco Fregenal: So yes, it is the best month on a sequential basis for 2023. There are several key factors there. So first of all, our onboarding starts have significantly increased. We talked about their onboarding starts in Q4 being basically 7% higher than Q3. And so we are definitely attracting more agents, and we actually had the highest number of gross number in terms of adding to the company, right? And now, having said that, turnover is higher than expected. We are losing more agents like everyone else, especially non-producing agents. And so that is part of the formula, if you will. But definitely, we had the highest number of gross ads.

Several key factors there. So first of all our all 40 starts have significantly increase we talked about their own boarding charge in Q4, or basically 7% to 7% higher than Q3, and so we are definitely attracting more agents are and we actually had the highest number of gross number in terms of.

Adding to the company right.

And then now having said that our turnover is higher than expected we are losing more as just like everyone else, especially non producing agents and so that is part of the formula. If you will but definitely we had the highest number of gross adds.

Marco Fregenal: And part of that is part of our, you know, variety of different marketing programs that we started very late in Q3, really in Q4 that we're continuing in Q1. So, you know, we feel good about our agent growth going forward. We are going to be more focused on higher-producing agents. They have a variety of programs focused on that, including producer perks. And some of them have yielded, you know, very early, some really good results.

And part of that is part of our you know a variety of different marketing programs that we started.

Very late Q3 really in Q4 that will continue in Q1.

We feel good about our agent growth going forward, we are going to be more focused on higher producing agents that have a variety of programs focus on that the people who produce our perks and some of them have yield.

You know very early from some really good results. So.

Marco Fregenal: So yeah, we, you know, feel good about our agent growth. And, you know, a lot of it has to do with our significant increase in business coming to Fathom careers. We, you know, significantly increased that traffic coming in.

So yeah, we we we feel good about our agent growth.

And you know a lot of it has to do with our significant increase in bidders come to fathom careers. We you know we significantly increased that traffic coming in and so all of that is going to contribute to a higher agent growth and that's why one of the goals for this year, you still come back to our historical 25% to 30% agent growth.

Marco Fregenal: And so all of that is going to contribute to higher agent growth. And that's why one of the goals for this year is to come back to our historical 25 to 30% agent growth. Okay, thank you. The next question comes from Darren Asate of Roth MKM. Please go ahead. Hey, this is Dillon on behalf of Darren.

Okay. Thank you.

The next question comes from Darren <unk> of Roth M. Kam. Please go ahead.

Hey, this is doing on for Darren Thanks for taking my questions.

Dillon Griffin Heslin: Thanks for taking the question. I wanted to follow up first on the commentary you made about, I think it was Q1, year-to-date onboarding being up 26%. Could you just clarify that? If that is the case, what do you have to do to execute on the bulk of that number so they don't slip through the cracks?

I wanted to follow up first on the commentary you made about.

I think it was Q1 year to day Onboarding being up 26% could you just first clarify that and then.

If that is the case, where you have to do to execute on the bulk of that number so they don't slip through the cracks.

Marco Fregenal: Yeah, actually, that was the onboarding growth in Q4, right? It was more onboarding growth over that. Look, execution is, you know, this is one of the key things why we increased our recruiting team. You know, we early on realized that our Fathom Careers page significantly increased the traffic from like 2,100 visitors to 6,600 visitors. So, therefore, we hired more recruiters to be able to follow up on that, right? So, the execution really comes from just having a bigger team.

Yeah.

That was the all boarding into that was the on boarding royalty in Q4. It right. It was Q4 on boarding growth over that.

Look execution as you know this is one of the key things why we push our recruiting team.

We are early on and realize that or.

Our our fathom careers page you know has significantly increased the traffic from like 2100 visitors to 6600 visitors. So therefore, we hired more recruiters to be able to follow up on that right. So the execution really comes from just having a bigger team.

Marco Fregenal: And having the ability to go execute on that, and, you know, the recruiting team is under Samantha Giugia, and she does a phenomenal job of making sure that that happens, right? And so, to clarify that, that is the growth in Q4. Now that that has continued in Q1, so we are seeing a significant growth in onboarding stars and traffic. So I think that the pattern that we've seen in Q4 will continue through 2024. And this is why, again, we want to go back to 25 to 30 percent agent growth as one of our key goals for 2025. And on the cost side, I guess with the $1 million cost savings, like, how much of that did you realize in 4Q so we can sort of get a better idea as to what Q1 might look like? Great question.

Having the ability to go execute on that and they're recruiting team is under Samantha Judy and she does a phenomenal job of making sure that that happens right and so but to clarify that that is the growth in Q4 now that that has continued in Q1. So we are seeing a significant growth in an onboarding stars in traffic.

So I think that the pattern that we've seen in Q4 will continue through 2024 and this is why again, we want to go back to 25% to 30% agent growth I was one of our key goals for 2024.

Got you and then on the cost side, I guess with the 1 million.

Cost savings like how much of that did you realize that in for Q. So we can sort of get a better idea as to what Q1 might look like.

Great question, almost a very little in Q4.

Marco Fregenal: Almost very little in Q4, the full million will be, you know, we'll see that in Q1. And so as you look from Q4 to Q1, I think 90% to 95% will be, you know, so 5% to 10% when in Q4, and in Q1, you see 100%. So when comparing quarters, you can almost compare the entire million as cost per dollar. Thank you for watching. Bye.

The the full meals will be you will see that in Q1, and so as you look from Q4 to Q1, you know I think 90% to 95% will be a you know a five to 10 per cent one in Q4.

In Q1, and you see 100%.

So when you're comparing quarters, you can almost compared to the entire Neal units cost reduction.

Marco Fregenal: Okay, perfect. Thank you. The next question comes from Tom White of D.A. Davidson.

Okay perfect. Thank you.

The next question comes from Tom White of D. A Davidson. Please go ahead.

Tom White: Please go ahead. Great. Thanks for taking my questions. Maybe just a quick follow-up on the agent growth commentary. Marco, I'm just curious, would you say that... You know, most of the attraction is the result of, kind of, you know, corporate-led sort of initiatives, or I'm curious whether some of the, kind of, the rank-and-file existing agents of yours, you know, them doing a bit more recruitment is the main driver. And then I've got a couple of follow-ups. There are two key factors, one is our agent referring other agents, that continues to be roughly 40% of our agent growth, so we continue to do that, it really is a combination of both, because what happens is as we drive visitors to come to Fathom Careers, those registering are distributed to our district directors across the country and our recruiters across the country, so they go hand in hand, also organically across the country, our district directors and recruiters are talking to agents and they drive those agents to the Fathom Careers, so it's a fairly cohesive process, and it's very collaborative between the field and the home office continues to drive the traffic, so I would say nothing really has changed other than us spending a little bit more money in marketing and Fathom continues to be viewed as a good place to land when you compare our commission flat fee compared to other companies, so it's really a collaborative effort between everybody working together to make sure that we can continue to grow and really get back to the 25-30% agent growth that we have historically. Okay, great. Appreciate that color.

Oh, great. Thanks for taking my questions, maybe just a quick follow up on the Asian growth commentary Mercury I'm. Just curious would you say that you know most of the attraction is result of.

Corporate led sort of initiatives or curious, whether some of that kind of the rank and file existing agents of yours.

Yes.

I'm doing a bit more with the main driver and then I've got a couple of follow ups, Yeah, Yeah, Hey, Tom Good to talk to you. So there are two key factors right. One is and is our Asia I'm, referring to other agents that continues to be roughly 40% of our agent growth, Okay, and so that we continue to choose to do that.

It really is a combination of both right because what happens is you know as we move from sort of the home office as we drive visitors who come to fathom careers.

Those you know agents registering they are distributed to our additional directors across the country and our recruiters are consequences. So they go hand in hand, right also organically across the country, our dishes directors and recruiters are talking to agents and they drive those agents to the patent court. So it's a it's a fair.

Italy cohesive process, you know and it's very collaborative between the field and sort of the home office continued to drive the traffic right. So I would say nothing really has changed other than I'll, just spend a little bit more money in marketing and have them continue to be viewed as a.

You know it was a good place to land.

When you compare our commission you know flat fee compared to other companies right and so it's really a collaborative effort between everybody working together to make sure that we can continue to grow and really get back to the 25% to 30% agent growth that we you know we had historically.

Okay, Great I appreciate the color and then I guess just on the kind of your liquidity position is it sounds like you guys still kind of comfortable after the offering in the fourth quarter, but you know the housing market is still a little slowest to recover and I guess, there seems like looming question mark around with permission lawsuits and stuff like that.

Marco Fregenal: And then I guess just on the kind of your liquidity position, it sounds like you guys feel kind of comfortable after the, you know, the offering in the fourth quarter. But you know, the housing market's still a little slowish to recover. And I guess there's sort of a looming question mark around like commission lawsuits and stuff like that. Like, I'm just curious, like, are you guys feeling like you're in a position where you can kind of go on offense a bit around, you know, agent growth and, and kind of leaning into that? Or are you still kind of in maybe a bit more of a defensive posture?

I'm just curious like are you guys feeling like you're in a position where you can kind of go on offense a bit around the agent growth and kind of leaning into that are you still kind of maybe a bit more of a defensive posture.

Marco Fregenal: Yeah, a great question. No, we're definitely a fan. That's why we spent a little bit of money on marketing in Q4 and saw that significant increase in traffic to Fathom Careers, right? From a liquidity standpoint, you know, when you look at the cash burn in Q4, and then you take into effect the increasing fees for Q1, combined with the cost reduction, combined with the results that we've had, we feel very good about our position. One of the things that we really feel great about is the mortgage-entitled business, just in terms of the turnaround and the significant increase, because, as you know, those businesses can be very profitable, and so this is one of the highlights of Q4, and then some of the updates we're giving to Q1 are the significant increase in those businesses, and so we feel very excited about the growth of those businesses, and then combine that with our brokerage business, and insurance, and Okay, that's great.

Yeah, Great question No. We're definitely in fact, that's why we we spent a little money in marketing in Q4, and and seemed a significant increase in traffic to fathom careers right.

From a liquidity standpoint, you know when you look at the the cash burn in Q4, and then you take into effect the increasing fees for Q1 combined with the cost reduction combined to a you know the results that we described in terms of five stars for mortgage and title, which you know should have.

Have a positive effect on EBITDA and revenue for both of those businesses. So when you combine all of that you know we feel that cash burn in Q1 is going to improve significantly and our goal by it for Q2, we used to be operational cash flow positive and so you know when you put those two things together, we feel very good about our.

And to you know continue to be aggressive and continue to invest.

Invest more in marketing and recruiting agents. So you know we feel very good about position one of the things that we really feel great about is really the mortgage and title business just in terms of their turnarounds right. This significant increase because as you know those business can be very profitable and are and so this is one.

That's one of the highlights of Q4, and then you know some of the updates again Q1 is is the significant increase in those businesses and so we feel very excited about the growth of those and then combine that with our brokerage business and insurance and technology is beginning to put together their the recipe for a very successful 2024.

Marco Fregenal: Maybe just one last one, if I could, you know, your kind of targets around operating cash flow positive and adjusting EBITDA positive for the year. I mean, are you assuming any significant improvement in the broader housing market or just kind of the status quo? Yep, great, great question.

Okay. That's great maybe just one last one if I could you know you're you're kind of targeting around operating cash flow positive in and adjusted EBITDA positive for the year. I mean are you assuming any significant improvement in kind of a broader broader housing market or just kind of status quo.

Yeah no great. Great question, we are not into our equation, we do not.

Marco Fregenal: We are not factoring in any significant improvement in the market; it's really a combination of, you know, we think that the real estate market this year may go up a few percentage points in terms of growth, but in our, you know, in our internal growth model, we're modeling the business to stay flat. And so if the business improves, fantastic. We'll pick up the upside from that.

Factor any significant improvement in tomorrow, Okay really is a combination of you know, we we think that the real estate market. This year may go up a few percentage points in terms of growth, but in our you know with our internal growth model.

We are modeling the business to stay flat and so if the business improves fantastic will pick up the upside from that but we are looking at the improvement in EBITDA and cash flow from the combined efforts of the cost reduction increasing fees and a significant improvement in our mortgage and.

Marco Fregenal: But we are looking at the improvement in EBITDA and cashflow from the combined efforts of cost reduction, increasing fees, and the significant improvement in our mortgage and title businesses. When you put all that together, we feel very good about operational cashflow positives for 2021. Great, appreciate it guys, thank you. The next question comes from Raj Sharma of B. Riley. Please go ahead.

Title businesses when you put all that together, we feel very good about operational cash flow positive for 2024.

But should it go thanks.

The next question comes from Raj Sharma of B Riley. Please go ahead.

Rajiv Sharma: Yeah, thank you for taking my questions. My questions are, hi, Marco. Hi, Raj. How are you?

Yeah. Thank you for taking my questions my questions.

Hi, Marco.

Hi, Raj how are you I hope you're well.

Marco Fregenal: I hope you're doing well. Yeah, I'm doing great. Thank you. So, you know, there is agent growth. Your acquisition is going to come from acquisition of groups or individuals. I'm just trying to reconcile the gap of, you know, the 11% growth you're having right now. You're on year 225 for the year.

I'm doing great. Thank you. So you know one is there is an agent growth your.

Your acquisition that he was going to come from acquisition of groups or individuals I'm just trying to reconcile the GAAP.

Of the 11% growth Youre, having right now year on year to 25 for the year. So how much of that will come from referrals.

Marco Fregenal: So how much of that will come from referrals? And then I've got another follow-on question. Yeah, absolutely. So it's a combination of various factors.

And then I've got another follow on question.

Yeah, absolutely. So it's a combination of very factor so.

Marco Fregenal: So, you know, we should certainly try to illustrate in our call that, you know, in the last four or five months, we've been approached by a lot of small brokerages, large teams, looking for opportunities to move, right? And so the number of engagements in terms of the number of conversations we have really has significantly increased, right? And so we're going to be very opportunistic. We think that we'll get back to 25-30% growth primarily through two factors. One, continue to drive more people to Fathom careers through a variety of marketing programs, the producer process we introduced, and offering bigger incentives for our agents to refer other agents. So basically, do what we've been doing, but sort of take it to the next level. Second, we like the walkover process because, typically, it can happen in 30-60 days. We did several of those last year.

You know what we should probably tried to illustrate in our call that you know in the last four or five months, we've been approached by a lot of companies small brokerages large teams you know looking for opportunities to move right and so they eat the the number of <unk>.

Gage Mrs. In terms of the conversations you had really has significantly increase right and so we're gonna be very opportunistic we think that we'll get back to $25 30 per cent grow by primarily two factors one continue to drive.

More people to fathom careers for a variety of marketing programs that produce approaches we introduced.

You know offering bigger incentives for our agents to refer all their age and so basically what we've been doing it but sort of take it to the next level.

It used to.

Be opportunistic in some of these you know a walkover. It's you know we like their walkover.

Process, because typically can happen in 30 60 days, we've done several of those last year will do several of these this year in some cases, you know in the 100 or 200 agents and so it'll be a combination of both it would be basically taking what we did last year and take it to the next level and then with a combination of all being strategic.

Marco Fregenal: We'll do several of these this year, in some cases, you know, in the 100-200 agents. And so Rajiv, it will be a combination of both. It will be basically taking what we did last year and taking it to the next level, and then with a combination of being strategic, especially going into markets that we don't have a strong presence in. That's one of the things we really enjoy about walkovers is that when we can, you know, do a walkover with someone in a company that has 100-200 agents in a market that we just don't have a strong presence, it's a great way to enter the market. And so we have, you know, a variety of conversations going on right now, but to answer your question, it will be a combination of taking Got it. And then, you're not. I mean, I just heard you answering another call, another question.

Actually going into markets that we don't have a strong presence.

One of the things, we really enjoy boardwalk whole versus that one way you can do a work over at someone in a company that has a 102 hundred agents in a market that we just don't have a strong presence, it's a great way to enter into that market and so we haven't seen a variety of conversations going on right now but to answer. Your question is it'll be a combination of taking what we've done and increasing there.

The level of activity and being opportunistic in some of these work overs and acquisition.

Got it and then you are not I mean, I I just heard you answering another another question so you're not assuming a pick up in the transactions per agent for the rest of the year.

Marco Fregenal: So you're not assuming a pickup in transactions per agent for the rest of the year. I think that the new agents are going to be more productive, or you're going to have far more productivity. So it's not so much what I'm picking up, it's not so much that we're modeling that there'll be more transactions in the market, right? So let's take it from a macro standpoint.

I think that.

Yeah that the new agents are going to be more productive or you're gonna have fallen productivity.

So so it's not so much I'm picking up is not so much that we're modeling that there'll be more transactions in the market right. So let's take it from a macro standpoint or from a macro standpoint, we're going to make the assumption that the market is not going to increase significantly as a macro.

Marco Fregenal: From a macro standpoint, we're going to make the assumption that the market is not going to increase significantly, as a matter of fact. We will increase the number of transactions because, again, if we're going to, one of the things we're doing is really focusing on higher producing agents. We're also helping some of our agents increase the number of transactions. So, we'll probably see, and I want to, I need to clarify, we'll probably see an increase in productivity from our agents. Because of those two factors, right in recruiting more higher-producing agents as well as helping some of our agents. We have a variety of marketing programs coming on the next, This is almost no growth in the market. If interest rates come down in the second half, and we can probably have a two-hour conversation about whether we believe that's going to happen or not, then we'll probably see an upside. But from a budgeting standpoint and a modeling standpoint, we are looking at a flat macro market.

We will increase number of transactions because again, if we're going to you know one of the things. We're doing is really focusing on higher producing agents. We're also helping some of our agents increase the number of transactional, we'll probably see and one of them, maybe I need to clarify Mike, we'll probably see an increase in productivity from our agents.

Because of those two factors right at recruiting more higher producing agents as well that's helping some of our agents we have a variety of marketing programs coming out of the next.

60 to 120 days, that's going to help our agents are some of our agents depending on the market. They are then if they take advantage and so that'll be a it'll be a combination of that but from a macro standpoint.

I don't think you know accurately put its like we are modeling not.

Almost no growth in the market if interest rates come down in the second half and we can probably have a two hour conversation rather we believe that's going to happen or not.

And we'll probably see an upside from a budgeting standpoint, and a modeling standpoint, we are looking at a flat macro market are and so that hopefully that clarifies dance.

Marco Fregenal: And so hopefully, that clarifies the answer. So I understand that it's going to come from a combination of fees, this improvement, and I'm talking about the cash flow positive and the EBITDA. It's going to come from the improvement in fees, the cost reductions, and the mortgage and title business. Can you quantify these three areas?

Right. So so so I guess I understand that is going to come from a combination of PS.

This improvement and I'm talking about a cash flow positive in EBITDA.

Is going to come from improvement in fees the cost reductions in the mortgage entitled business can you quantify these three areas.

Marco Fregenal: in terms of, for example, the cost-benefit analysis you're looking to do. Well, the cost reduction is a million dollars per quarter across the board. So, you know, we already implemented that, and that will continue to do that. The mortgage business, if the mortgage business continues, like I said, if you just think about the numbers, we grew, file starts January, February by almost 100%, right? And so you can take a look at the mortgage, you know, the revenue that we did last year in mortgage, right? And, you know, if we can continue to grow that business by roughly 100%, then it will have a significant effect, right? So mortgage last year, I believe it was about $8.4 million in total revenue. I'm sorry, this year is $7.2 million in total revenue.

In terms of for example.

You're looking to do.

The cost reduction is a million dollars per quarter across the board. So that you know we already implemented that and that will continue to do that.

The mortgage business if the mortgage business continues like I said you know if you just think about the numbers. We grew pilot starts January February by almost 100% right.

So you can take a look at the mortgage you know the revenue that we did last year and mortgage REIT and you know if we can continue to grow that business by roughly a 100%.

And it will have a significant effect right. So mortgage last year I believe was about $8 $4 million in total rather I'm sorry, This year's last year's $7 $2 million in total revenue.

Marco Fregenal: You know, if we're able to increase that by, you know, 50, 60, 70%, a significant percentage of that will go to the bottom line, right? And so that's part of it. Same thing with titles.

If we're able to increase that by you know 50, 60 70 per se.

Significant percentage that will go to the bottom line right.

And so that's part of the same thing with title.

You know we are really up for you know.

Marco Fregenal: It's, you know, we are really, you know. Carefully, you know, in the next few months, we'll certainly do other ones. A significant percentage of this increase in EBITDA will come from mortgage and title because of the increase in business. And again, it will come from the reductions in cost and then the $3.1 million increase in fees. If you look at the math, you have $3.1 million increase in fees, $4 million cost reduction, and then several million dollars increase in EBITDA from title and mortgage. When you put all that together, I think it will show a very favorable year.

Carefully you know are opportunistic about the title in the joint venture we doing if that goes well in the next few months, we certainly do other ones. So I significant percentage of this increasing EBITDA will come from mortgage entitled because of the increase in business now and again will come from the reductions in cost.

And then the $3 $1 million increasing piece right. So if you look at the math you have $3 $1 million, increasing fees $4 million cost reduction and then you know several million dollars and increase EBITDA from title and mortgage when you put all that together I think it'll it'll it'll show up every favorable ear.

Marco Fregenal: Got it. That's very helpful. And then just lastly, the title, mortgage, and gross margins, how are they tracking? I'm assuming you expect an increase in margins on title and mortgage too. No question. I mean, those businesses are very profitable, right? Especially, and again, title is a very complex business because every state is different. As you and I talked about before, every state is different. Some states are attorney states, some states are title states, and fees are different. All of that, right?

Got it that's very helpful. And then just lastly, the titled mortgage gross margins how are they tracking and.

I'm, assuming you're going to you expect to incur.

Increase in margins on title and mortgage to the growth no question I mean that that those business are very profit right, especially and again tightened its a very complex business. Because every state is different as you and I talked before every state is different some theater for any stay some paper titled States are different and all of that right, but the gross margin on <unk>.

Marco Fregenal: But the gross margin on title is, the gross profit margin on title could be 70%, and the gross profit margin on mortgage could be 60, 70% as well, right? And so those are very profitable businesses. If they operate effectively and efficiently, they could be very profitable businesses, right?

I'd always you know the gross profit margin tighter it could be 70% and the gross profit margin and mortgage could be 60, 70% is about right and so those are very profitable business. If they you know if there are no operate effectively and efficiently there can be very profitable businesses right and so we're being very opportunistic and we have a great team.

Marco Fregenal: And so we're being very opportunistic, and we have a great team. One of the things about Fathom, as you know, 2023 was a painful year for us, especially in our mortgage business. The mortgage business was a significant percentage of our losses.

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You know one of the things about Fathom is you know you know 2023, it was a painful year for us, especially in our mortgage business. Our mortgage business was a significant percentage of our loss I think all mortgage business entitled business may be turned out to be incredibly positive for us going forward and that's I believe that Josh and I've always had right.

Marco Fregenal: I think our mortgage business and title business may turn out to be incredibly positive for us going forward. That's the belief that Josh and I have always had, right? And so I think that this is going to begin to demonstrate itself in 2024 and beyond, how much those two businesses can work hand-in-hand with a real estate company, right? And we look forward to continuing to showing that. Right. Perfect. Thank you so much for answering my questions. I'll take it offline.

And so I think that you know this is going to begin to demonstrate itself in 'twenty 'twenty four and beyond you know how much those two businesses can work hand in hand, with our real estate right and we look forward to continuing to show them that.

Right perfect. Thank you so much with answering my questions I'll take it offline. Thank you. Good luck. Thank you Raj. Thank you.

Marco Fregenal: Thank you. Good luck. Thank you, Raj. Thank you. Once again, if you would like to ask a question, please press star, then 1. This concludes our question and answer session. I would like to turn the conference back over to Marco Fregenal for any closing remarks.

Once again, if you would like to ask a question. Please press Star then one.

This concludes our question and answer session I would like to turn the conference back over to Marco for Chanel for any closing remarks.

Marco Fregenal: Thank you, Operator. Thank you, all of you, for joining our call and your interest in Fathom. For those of you who are shareholders, thank you for your trust. We continue to work very hard, and look forward to sharing future updates with you. And I want to thank the entire Fathom family for all their hard work and dedication. It really takes a great group of individuals to be really focused on executing, especially in difficult times.

Thank you operator, and thank you all of you for joining our call and your interesting fathom for those of you our shareholders. Thank you for your trust. We continue to work very hard and look forward to sharing future updates with you and I want to thank the entire fathom family for all their hard work and dedication you really takes off.

Great Group play in there just to be really focused in executing especially in difficult times and I'm very grateful for all their hard work and passion commitment and that that's what makes fathom a great company and with that I. Thank everyone and I hope everyone has a great rest of the week. Thank you.

Operator: And I'm very grateful for all their hard work and passionate commitment, and that's what makes Fathom a great company. And with that, I thank everyone, and I hope everyone has a great rest of the week. Thank you. The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

Yeah.

Hmm.

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