Fathom Holdings Inc. Price & Performance (FTHM)

With that, I will now turn the call over to Fathom's CEO, Marco Frigonal. Please proceed. Thank you, Paul. Afternoon, everyone, and welcome to Fathom Holdings fourth Quarter twenty twenty four Conference Call. Thank you for joining us today.

Before I go into the details of our performance, I want to acknowledge the remarkable commitment adaptability resilience of our entire Fathom team, our agents, staff, and leadership team. This past year has challenges all of us with a high mortgage rates fits in buyer behavior, regulatory changes and of course ongoing litigation. The broader market headwinds have certainly made it difficult for this year for last year. However, I want to stress that we remain confident about our future. We believe 2025 will be a breakout year for Fathom and that we have laid our strong foundation to help us push through the market volatility. Let me start by reviewing our fourth quarter results for 2024. Our total revenue grew approximately 24% reaching $91,700,000 up from 74,100,000.0 in Q4 of twenty twenty three. Gross profit increased by 25% growing from $5,300,000 in Q4 twenty twenty three to $6,700,000 this quarter. Excluding DAGLY Insurance, which we sold in May of twenty twenty four, gross profit rose 59% from $4,200,000 to $6,700,000 GAAP net loss for twenty twenty four first quarter was $6,200,000 or $0.29 per share compared with a loss of $8,400,000 or $0.5 per share for the twenty twenty three fourth quarter.

While we're pleased with the revenue gross profit growth, our EBITDA loss is not where we would like it to be. Adjusted EBITDA loss and non GAAP measure came in at $2,900,000 for the fourth quarter of twenty twenty four, matching the loss of $2,900,000 from the same period in 2023. Rising mortgage rates ended last quarter of twenty twenty four combined with an approximately $1,300,000 onetime expenses kept us from moving into positive EBITDA territory. Despite these challenges, we remain dedicated to achieving potentially as early as the second quarter of twenty twenty five. Agent count increased by 21% from approximately 11,795 to approximately 14,300 agent licenses at year end. And transactions rose by 22% from 8,114 to 9,903 indicated our Asia network still generating solid activity. Turning to the broader real estate market, we've noticed a slight decline in mortgage rates from their unexpected spike late last year. If rates stabilize or continue, to drop, we think it will provide a tailwind as we move into the spring buying season. In some markets, transactions in the first two months of 2025 are running at about 3% below comparable periods in 2024. While we anticipate rate change declines, we may help close the gap.

Price reductions on listings have ticked up slightly about 33% of listings in March have had a price drop. Compared to 30% last year. Actual home sale prices overall still see modest gains of 2% to 3% year over year. In some regions, however, prices are flat. Which may help affordability. Inventory has increased about 30% compared to a year ago, signaling a shift toward a more balanced or even buyer friendly market in some areas.

According to NARC's chief economist, if rates hold lower, the industry could see transactions in the second half of the year outpaced last year by as much as 9%. [indiscernible] Fathom stands out having one of the lowest direct cost per transaction at just $264 per transaction. While many of our peers averaged $1,200 to $1,800 per transaction. This advantage enable us to stay lean of our Looking ahead to 2025, we see three primary avenues for reaching EBITDA [indiscernible] First, increased revenue from acquisitions. In November 2024, we acquired My Home Group, which will bring us about $110,000,000 in revenue in 2025. We're also exploring additional acquisitions and walkovers of smaller brokerages. Second is through higher gross profit Our mortgage, title and other ancillary services have been growing faster than our real estate revenue, enhancing cross selling opportunities and strengthening our bottom line. And third is expense management through anticipated cost reduction of about $2,000,000 on an annualized basis. Now let me now shift to our focus on ancillary businesses where we have been increasing our attach rate and driving higher year over year revenue and gross profit. Our mortgage division, Encompass Lending Group, saw a revenue increase of 11.1% to $2,000,000 compared to $1,800,000 in Q4 of twenty twenty three.

While year while late year mortgage rates spiked dampening our initial expectations, we are confident in our roadmap for higher volume and better profitability going forward. The fourth quarter, Encompass Lending reported EBITDA loss of $700,000 compared to an $800,000 loss in the same quarter last year. Now for our title decision, VeriSign, our revenue reached $1,300,000 up from $700,000 last year. An 80% increase. While adjusted EBITDA remains in a loss position in this business, we are seeing strong demand for our title services, especially as our agent network expands. In the fourth quarter, Vericital reported an EBITDA loss of $300,000 or about 15% of related revenue. Compared to a $200,000 loss or almost 29% of related revenue in the same quarter last year. Now in the effort to improve Asian growth and retention we rolled out our new revenue share model in Q3 of twenty twenty four. To date, about 5% of our new agents have joined the share program. In addition, we plan to soon launch a new program specifically designed to help agents close more business with nearly 90% of all agent surveys stating that they want more are confident this new program will have significant impact for agents looking to get more from their brokerages.

As many of you know, Rocket Mortgage recently announced that it's acquiring Redfin, demonstrating once again that consolidation remains a central theme in this industry. We expect to see more deals on the horizon. On our side, in November, we acquired My Home Group, which was an important addition to the Thadim team. We do plan to continue to pursue strategic opportunities to help us grow in Before moving on, I want to address our CFO transition. We recently announced the departure of ZOENZAC, who made important contributions to our organization, and we certainly wish her all the best. As of now, I'll be serving as CFO for the next few months while our finance team continues its high level of performance under guidance of Vice President, Daniel Weymouth. We anticipate beginning a formal search process soon And in the meantime, we do expect we do not expect any disruption or negative impact on our day to day financial operations or strategic initiatives. Now let's review our financial results. Again, fourth quarter total revenue was $91,700,000 a 24% increase year over year compared to $74,100,000 dollars for last year's fourth quarter. The increase in revenue is primarily due to a 26% increase in brokers revenue as well as an increase in revenue For the 2024 year, total revenue decreased by approximately 3% to $335,000,000 compared to $345,000,000 in the prior year.

Overall revenue was lower in 2024 compared to '23 due to lower transaction volumes attributed to high home prices high mortgage rates than May 2024, the worst year for homes sales since 1995. Total gross profit percentage for the fourth quarter of twenty twenty four is excluding our sold insurance business, increased to 7.2% compared to 5.4% for the twenty twenty three fourth quarter. For the 2024 year, excluding our sold insurance business, gross profit percentage increased to 8% compared to 7% for 2023. Technology and development expenses were approximately $1,800,000 for the fourth quarter of twenty twenty four compared to $1,700,000 for the fourth quarter of twenty twenty three. For the 2024 year, technology and development expenses increased to $6,600,000 compared to $6,300,000 for 2023. The approximately increase of $300,000 increase was primarily due to our continued investment in technology platforms, including the build out of our new revenue share program. General and administrative expenses totaled $8,400,000 for the twenty twenty four fourth quarter compared to $10,000,000 for the fourth quarter in 2023. For the full year 2024, general and administrative expenses decreased to $33,500,000 compared to $38,700,000 for 2023. The decrease is primarily due to an to the absence of costs related to the sale of our insurance segment business, effective 05/03/2024 and cost cutting initiatives.

Marketing activities expenses totaled $1,900,000 for the twenty twenty four fourth quarter compared with $900,000 for the fourth quarter of twenty twenty three. For the 2024 year, marketing expenses increased to $5,800,000 compared to $3,300,000 for 2023. The increase is primarily due to increase in marketing investments for our ancillary businesses. GAAP net loss for the fourth quarter of twenty twenty four totaled $6,200,000 or $29 per share compared with a loss of $8300000.0.0.5 dollars per share for the fourth quarter of twenty twenty three. The decrease in net loss is primarily due to our cost savings efforts. GAAP net loss for the full twenty four year was $2,216,000 or a loss of $1.7 per share compared with a GAAP net loss of $2,040,000,000 dollars or a loss of $1.47 per share for the twenty twenty three year. The decrease is primarily due to the absence of costs related to the sale of the insurance segment business effective 05/03/2024, and cost cutting initiatives.

Adjusted EBITDA loss and non GAAP measure for Q4 twenty twenty four remain unchanged at $2,900,000 compared to Q4 twenty twenty three. For the full year 2024, adjusted EBITDA loss was 5,700,000.0 compared to adjusted EBITDA loss of $4,100,000 for 2023. Due to lower brokerage revenues, lower margins on mortgages and higher expenses. Now spend some time reviewing our business segment results in more detail. Brokerage, closed approximately 9,903 real estate transactions during the fourth quarter, an increase of 22% compared to 8,114 transactions during the fourth quarter twenty twenty three. For the full year, we closed approximately 37,000 Reestate transactions about a 2.2% decrease relative to the prior year. We ended the fourth quarter with approximately 14,300 agent licenses, an increase of 21% compared to 11,795 agents at the end of the prior year. Revenue for the real estate division is approximately $87,700,000 in the fourth quarter compared to $69,400,000 for the same period last year, which represented 26% increase primarily attributed to the additional MyHome group. For the full year, revenue decreased by 3% to $3.51 $315,000,000 compared to $325,000,000 in 2023. The decreases was due to a challenging real estate market with high home prices and high mortgage rates.

Gross profit margin for our real estate division improved to 5.3% from 4.2% for the fourth quarter of twenty twenty four. Compared to the fourth quarter of twenty twenty three. For the full year, gross profit margin improved to 5.7% relative to 5.2% the prior year. This increase in margin was largely due to our increase in our agents' annual fee from $600 to $700 and implementing our new high value property fee commencing in 01/01/2024. Adjusted EBITDA loss in the Real Estate division was approximately 40 loss in Q4 of twenty twenty four compared to EBITDA of $200,000 in Q4 twenty twenty three. For the full year, adjusted EBITDA and income was $3,200,000 in 2024, compared to $5,600,000 for full year 2023. This was largely due to decrease in transactions in in the early part of twenty twenty four to internal charges from technology division of Fathom Realty and for transaction management and CRM services provided. Our mortgage business generated revenues of $2,000,000 in Q4 of twenty twenty four compared to $1,400,000 in Q4 of twenty twenty three. Mortgage adjusted EBITDA for Q4 twenty twenty four was a loss of $7,700,000 compared to an adjusted EBITDA loss of $800,000 for the same period last year.

For the 2024 year, revenue grew by 49.3% to $10,900,000 compared to $7,300,000 in the [indiscernible] prior.

Adjusted EBITDA loss for 2024 improved to $1,500,000 compared dollars compared to $1,900,000 adjusted EBITDA loss in 2023. To continued strategic cost cutting measures.

Now let's turn to Veracyto. Veracyto had revenue of $1,300,000 for the fourth quarter of twenty twenty four compared to $700,000 for the fourth quarter of twenty twenty three. An increase of 86%. The increase in revenue was driven by organic growth and walkovers. Very solid adjusted EBITDA for the twenty twenty four fourth quarter was a loss of $300,000 compared to an adjusted EBITDA loss of $200,000 for the fourth quarter twenty twenty three. For the full year 2024, revenue grew by 50% to $4,500,000 compared to $3,000,000 in the prior year. Adjusted EBITDA loss for the 2024 improved to $500,000 compared to $600,000 adjusted EBITDA loss in 2023. Moving to our Technology segment, third party revenues remain relative constant at $800,000 in Q4 for 2024 and Q3 of twenty twenty three. Adjusted EBITDA for the fourth quarter of $200,000 compared to an adjusted EBITDA loss of $500,000 for the fourth quarter twenty twenty three. For the full twenty twenty four year, revenue stayed relatively flat at 3,000,000 compared to 2023. We are increasingly building enhancements to our technology platform to better serve our agents and drive revenues. We continue to clearly focus on our balance sheet given the dynamic risk same market conditions.

We ended the quarter with cash position of $7,100,000 which includes $4,900,000 of proceeds from a senior secured convertible promissory notes issued November. We did not purchase any shares in the fourth quarter under the stock repurchase plan. On 03/10/2025, the company entered into a $3,000,000 securities purchase agreement with certain investors including two Board members, Scott Flanders and Stephen Murray. The offer is expected to close on 03/14/2025, subject to customary closing conditions. Now we know this past quarter was challenging. And while we were pleased by the increasing revenue and gross profit, we recognize that we have much work to do in an EBITDA front. However, we believe that we have a plan that we laid out will help us achieve EBITDA by Q2 of this year. Our strategy for goals our low cost per transaction, our expanding suite of ancillary services, our upcoming agent focus program and our continued focus on profitability should position us well in this ever evolving market. With that operator, we are ready to take questions.

Thank you. At this time, we will be conducting a question and answer session. First question is from Darren Aftahi with ROTH Capital. Please proceed.

Hi, Marco. How are you? Thanks for taking my questions. Just two if I may. Can you talk a little bit about how MAX and share commission plans have affected aging recruitment retention since they launched And then just any measurable improvement in agent satisfaction retention?

Hey there, it's [indiscernible] we're about from Fathom here, really, if you think about Fathom Max is every new agent is joining Fathom Max. Right? Or in Fathom Share. So what we see is about 5% of our new agents joining Fathom Share. And 95% of our agents joining Fathom X. So it's a little early to tell the impact. So Q4 didn't really have much impact in revenue. From those because as those agents are enjoying typically very few closed transactions in Q4. They will start closing transactions in Q1. So we'll begin to see the impact of the Asian joining Fathom share in Q1 and of course even more in Q2 and Q3 as we go forward. In terms of retention, we are still seeing a little higher turnover, but 90% of our turnover is still on either zero production agents or agents that have very little production. So not unlike most of other companies in the market, I think everyone is seeing turnover a little higher. But I think the higher turnover is specifically focused on either zero producing agents or low producing agents. And we continue to have about a 90% of agents leaving PADD and doing zero in one transaction.

So percent hasn't changed, but definitely a higher number of low producing agents leaving the industry.

That's helpful. Thanks. And just one more if I could. Can you just talk about any strategic initiatives and programs that are being implemented or will be implemented in 2025 to kind of help accelerate adoption on mortgage and title. And then any are there any specific challenges outside of just broader market softness and interest rates that are kind of impacting adoption space? Thanks.

So you've seen our mortgage our Ciliary business have really outperformed our real estate brokerage growth, right, both now mortgage not so much in Q4, but certainly for the year they have. And title, I believe again in Q4 grew by 86%. So we believe that we're going to continue to have a higher growth rate in terms of mortgage title in 2025. We're doing a lot of work One of the programs that we are running is called the Ambassador Program. We're already seeing some great results from that. We have a pilot program that it will soon be announced that we believe also have an increase in the rate of adoption in terms of mortgage and title, most specifically entitled than mortgage.

So we estimate that our growth rate next year in terms of mortgage growth and title growth is going to continue to outpace real estate brokers growth. And so and as you know, this is going to significantly positively affect gross profit And that's one of the ways that we're going to that we expect to reach EBITDA positive in Q2. So those are the programs that we have implemented that already running in 2024 and that's why we've seen that increase. Especially for Tostairo and again, we're going to continue to see that increase in 2025 and beyond.

Thanks.

We have no further questions in queue. I'd like to turn the floor back to management for any closing remarks.

Thank you all of you for joining our call today. We appreciate your time. We look forward to continue to update you as our progress and And as always, I'm available for individual meetings. So I hope hope you guys have a great day and thank you for joining.

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