Fathom Holdings Inc. (FTHM) This autumn 2023 Earnings Name Transcript

Fathom Holdings Inc. (NASDAQ:FTHM) This autumn 2023 Earnings Convention Name March 14, 2024 5:00 PM ET

Firm Members

Alex Kovtun – Gateway Group

Marco Fregenal – Chief Govt Officer

Joanne Zach – Senior Vice President-Finance

Convention Name Members

John Campbell – Stephens

Tom White – D.A. Davidson

Raj Sharma – B. Riley

Operator

Good afternoon and welcome to the Fathom Holdings Inc. Fourth Quarter 2023 Earnings Convention Name. All contributors can be in a listen-only mode. [Operator Instructions] After as we speak’s presentation, there can be a chance to ask questions. [Operator Instructions] Please word, this occasion is being recorded.

I might now like to show the convention over to Alex Kovtun with Gateway Group. Please go forward.

Alex Kovtun

Nice. Thanks, operator and welcome everybody to the Fathom Holdings fourth quarter and year-end 2023 convention name. I am Alex Kovtun with Gateway Group, Fathom’s Investor Relations agency. Earlier than I flip issues over to the Fathom administration workforce, I need to remind listeners that as we speak’s name could embrace forward-looking statements throughout the that means of the Securities Litigation Reform Act of 1995. Such forward-looking statements are topic to quite a few circumstances, a lot of that are past the corporate’s management, together with these set forth within the Threat Components part of the corporate’s Type 10-Okay for the 12 months ended December 31, 2022, in addition to our newest Type 10-Qs, the corporate’s upcoming 10-Okay for the 12 months ended December 31, 2023 and different firm filings made with the SEC, copies of which can be found on the SEC’s web site at www.sec.gov.

Because of these forward-looking statements, precise outcomes may differ materially. Fathom undertakes no obligation to replace any forward-looking statements after as we speak’s name, besides as required by legislation. Please additionally word that in this name, we can be discussing adjusted EBITDA, which is a non-GAAP monetary measure as outlined by SEC Regulation G. A reconciliation of this non-GAAP monetary measure to essentially the most straight comparable GAAP measure is included in as we speak’s press launch, which is now posted on Fathom’s web site.

So with that, I will flip the decision over to Fathom’s President and CEO, Marco Fregenal. Marco?

Marco Fregenal

Thanks, Alex, and good afternoon everybody, and a heat welcome to everybody becoming a member of us for our fourth quarter and full 12 months 2023 earnings name. I am extremely pleased with our Fathom household and I am grateful in your unwavering dedication, laborious work, and dedication to excellence. Your efforts have performed a pivotal position in shaping Fathom into the distinctive firm it’s as we speak.

Regardless of the challenges going through 2023, our workforce’s resilience and willpower have been really exceptional. I’m deeply grateful for all of you and your important contributions to our continued success. I’m pleased with what Fathom has achieved in 2023.

Regardless of the difficult circumstances within the residential actual property market, our workforce’s dedication to our development technique allowed us to navigate the obstacles and make important strides to place Fathom favorably for the upcoming 12 months. Fathom’s whole fourth quarter income was $74.1 million, a lower of 11.2% from $83.4 million for the 2022 fourth quarter.

The ten.1% lower in brokerage income was primarily because of the decline in brokerage transactions, however it was partially offset by the 20.5% enhance in Fathom’s ancillary companies, significantly in Fathom’s mortgage enterprise. Whole income for 2023 was $345.2 million, a lower of 16% from $412.9 million for 2022.

Adjusted EBITDA loss, a non-GAAP measure improved to a complete lack of $2.9 million within the fourth quarter of 2023, in contrast with an adjusted EBITDA lack of roughly $5.9 million within the fourth quarter of 2022. The advance in adjusted EBITDA displays our continued dedication to attaining and remaining adjusted EBITDA constructive transferring ahead.

For the total 12 months, adjusted EBITDA loss was $4.1 million in 2023 versus an adjusted EBITDA lack of $12.2 million for 2022. Our concentrate on market share growth from legacy brokerage companies all year long stays steadfast. Notably, we skilled a considerable 13.7% development in our agent community for the total 12 months, which stands out in comparison with the reported home agent development to all however one in all our public friends.

Each ongoing agent referral efforts and introduction of walkovers in key areas together with Louisiana, Massachusetts, California, subject this development. Within the fourth quarter of 2023, we applied varied applications to reinforce agent recruitment, together with the reintroduction of our producer perks in October, a program designed to draw excessive performing brokers that had yield promising early outcomes. We additionally noticed a exceptional enhance of over 200% in guests to Fathom’s careers web page, surging from 2,100 guests in Q3 of 2023 to a powerful 6,600 guests in This autumn of 2023.

Moreover, our onboarding begins continued to realize momentum in This autumn of 2023, growing by over 7% from Q3 of 2023. Our agent development within the fourth quarter additional validates that we’re profitable by way of innovation and really disrupted enterprise mannequin that continues to resonate amongst brokers. Our new brokers will worth Fathom’s proprietary cloud primarily based software program intelliAgent. They will even profit from having extra Fathom companies to supply their purchasers, together with mortgage and insurance coverage companies as we proceed to assist our brokers develop their companies.

Our value to amass one agent throughout This autumn stay low at roughly $1,050, making our break-even on every agent lower than 1,150 will earn on their first sale. We additionally preserve a robust retention charge, which is exceptionally constructive information given the backdrop of brokers leaving the {industry}.

Fathom accomplished roughly 38,139 actual property transactions in 2023, a decline of roughly 14.6% in comparison with the earlier 12 months. Regardless of the challenges posed by elevated rates of interest, which impacted transaction volumes throughout the actual property market and led to the bottom stage of present house gross sales in nearly three a long time, Fathom exhibit resilience.

We additionally noticed year-over-year transaction development in key markets similar to Nevada, Missouri and Utah. This notable accomplishment underscores our capability to grab market share from legacy brokerage companies, showcasing our adaptability in a unstable surroundings. Trying forward, we’re optimistic concerning the anticipated impression of our producer perks program on agent transactions in 2024. This initiative will additional improve our market place and contribute to sustained development within the coming 12 months.

Now, let’s focus on our mortgage enterprise. Whereas acknowledging its important destructive impression on our monetary efficiency in 2023, our devoted workforce has exerted super effort to show issues round in 2024. One notable stride is our strategic growth of our mortgage operations in Texas by buying Austin primarily based Elite Financing Group. This transfer fortifies our present presence in Dallas for work market and extends our attain into Austin, enabling us to cater to a broader clientele throughout Texas.

Recognizing the rise in demand in Latino phase, we have now established a devoted division inside Embody Lending Group to work carefully with our Latino division at Fathom. To date, we’re inspired by the outcomes for the primary two months of this 12 months, which confirmed a powerful 89% enhance in file begin in comparison with the identical interval in 2022. This constructive momentum fuse our optimism for our mortgage enterprise continued success and development within the months forward. Whereas This autumn is a difficult quarter for Verus Title, we’re inspired given the 16% enhance in file begins for the primary two months in comparison with final 12 months.

Furthermore, we count on our current announcement relating to the three way partnership with brokers in Texas to considerably enhance our attachment charge and EBITDA. Throughout 2023, we’re happy that Fathom proceed outperforming a lot of its friends relating to agent development and transactions in a difficult market surroundings. Though, the residential actual property {industry} stays tough, we imagine that our future stays vibrant and by persevering with to develop our agent base, we’re positioning Fathom to proceed success as soon as the {industry} rebounds.

We’re making significant progress, advancing our development technique, increasing our agent community, optimizing our enterprise for worthwhile development and creating an industry-leading fee mannequin that continues to resonate nicely within the present actual property surroundings and can proceed to take action going ahead.

Now, let’s briefly focus on our targets for 2024. First, we stay targeted on accelerating Fathom’s agent development with the objective of returning a historic agent development charge of 25% to 30%. Transferring forward, we focus extra on attracting prime quality brokers, groups and brokerages as our agent worth proposition stays compelling within the present surroundings and our pipeline of alternatives stays strong.

We imagine we’re essentially the most engaging house for brokers within the long-term as we assist them finally earn more cash with an industry-leading flat charge fee break up to brokers. Our objective stays to be one of many prime 4 or 5 manufacturers in each market the place we function and we proceed to progress in direction of these targets. We at the moment are in 41 states and we’re striving to be in all 50 states by the top of the 12 months.

We additionally plan to launch varied advertising applications and new expertise enhancements within the coming months to supply better worth to our brokers, bettering productiveness and finally make them extra profitable. Our second objective is to attain working money stream breakeven as early because the second quarter of 2024, whereas stay dedicated to returning to constructive adjusted EBITDA for the total 12 months in 2024.

In the course of the fourth quarter, we introduced we revised an agent fee construction that we imagine will add an estimated $3.1 million in EBITDA for 2024. We imagine this slight enhance in agent charges can have a minimal impression on our brokers, whereas serving to Fathom obtain our goals and supply our brokers with an ever bettering agent providing.

We additionally stay targeted on figuring out extra alternatives for operational effectivity to additional scale back our bills. In This autumn of 2023, we applied value reductions totaling roughly $1 million per quarter, which ought to take full impact in Q1 of 2024. Extra importantly, this value discount mustn’t sacrifice our development trajectory as we have now elevated the scale of recruiting workforce and plan to proceed rising the recruiting workforce in 2024 to assist agent development efforts.

Now turning our consideration to ancillary companies, we acknowledge the potential for these companies to considerably increase our income improve profitability per transaction over time. Early indicators for 2024 are promising, suggesting the initiatives applied in This autumn are beginning to yield constructive outcomes. Notably, we’re witnessing a considerable enhance in file sarts for our mortgage and title companies. This constructive pattern aligns with our strategic goals and reinforces our perception in our ancillary companies long-term viability. We do count on each companies to outpace the expansion of our core brokerage enterprise and contribute in a big method to our EBITDA in 2024 and past.

This week, we additionally introduced a brand new three way partnership between our title subsidiary and Fathom Realty prime producers in Texas referred to as Verus Title Elite to enhance agent productiveness and finally improve profitability. This strategic collaboration ought to elevate agent productiveness, enhancing profitability for all events concerned. Verus Elite goals to supply our brokers with elevated assist, creating platforms that foster success and presents profitable alternatives for elevated earnings. By forging this three way partnership, we’re assured we are able to additional bolster connect charges going ahead. This would be the first of such joint ventures and we glance ahead by creating others within the coming months.

Lastly, we proceed to focus our steadiness sheet to navigate the present surroundings and place Fathom for development alternatives in 2024. We imagine our present money place and total liquidity offers us with a runaway to develop the enterprise and execute our technique by way of working money stream breakeven. In the previous few quarters, we have now seen a rise within the variety of smaller actual property brokerages concerned about merging with bigger corporations. We imagine that market consolidation will enhance in 2024 and 2025. It’s with that in thoughts that we’ll proceed to be opportunistic in our method in buying smaller brokerages.

In abstract, we stay inspired by the developments we’re seeing throughout our enterprise, regardless of a tougher quarter and 12 months for Fathom and actual property {industry}. Even with as we speak’s financial uncertainty and subdued actual property market circumstances, we imagine that Fathom has an extended and constructive runaway forward and we count on to show the nook in direction of profitability development within the coming quarters, whereas beginning to present the working leverage in our enterprise. We’re getting into 2024 ready of energy and optimism for the alternatives in entrance of us.

With that, I’d wish to go the decision over to Joanne Zach, our Senior Vice President of Finance, so she will focus on our monetary leads to extra element.

Joanne Zach

Thanks, Marco. I’ll begin with an in depth assessment of our fourth quarter and full 12 months 2023 outcomes. Fourth quarter whole income declined 11% year-over-year to $74 million in contrast with $83 million for final 12 months’s fourth quarter. This decline was primarily as a consequence of a 13% lower in brokerage revenues that was partially offset by a 21% enhance in ancillary revenues, which have been primarily associated to our mortgage enterprise, which benefited from barely declining rates of interest within the later a part of This autumn and from our strategic growth of mortgage operations in Texas.

For the 2023 12 months, whole income decreased 16% to $345 million in comparison with $413 million within the prior 12 months. For the 12 months, brokerage revenues declined by 17% and ancillary revenues declined by 11%. General revenues are decrease in 2023 in comparison with 2022 as a consequence of decrease transaction volumes attributable to rising house costs and for a lot of the 12 months surging mortgage charges that made 2023 the least reasonably priced market in a long time.

GAAP internet loss for the fourth quarter 2023 was $8.4 million or a lack of $0.50 per share in contrast with a lack of $9.9 million or a lack of $0.63 per share for the 2022 fourth quarter. Our internet loss was decrease in This autumn 2023 as a consequence of improved margins on our brokerage transactions attributable to our charge enhance initiated in January 2023 and to our value financial savings efforts that started in 2022 and carried ahead in 2023, partially offset by a rise in inventory compensation prices and will increase in curiosity and revenue tax bills.

GAAP internet loss for the total 2023 12 months was $24 million or a lack of $1.47 per share, in contrast with a GAAP internet lack of $27.6 million or a lack of $1.73 per share for 2022. This discount in internet loss was attributable to our strategic value saving efforts in all areas, which included reductions in headcount, reductions in third-party vendor prices and payroll reductions for the administration workforce, partially offset by a rise in inventory compensation value, an amortization of intangible property and will increase in curiosity and revenue tax bills.

Adjusted EBITDA loss, a non-GAAP measure was $2.9 million within the 2023 fourth quarter versus adjusted EBITDA lack of $5.9 million for the fourth quarter in 2022, primarily as a consequence of a $1.5 million discount in internet loss, which included a rise in non-cash inventory compensation value of $1 million and a rise in revenue tax expense and curiosity expense of $0.3 million and $0.1 million, respectively.

For the total 12 months 2023 adjusted EBITDA loss was $4.1 million versus an adjusted EBITDA lack of $12.2 million for 2022 as a consequence of a $3.6 million discount in internet loss, which included a rise in non-cash inventory compensation value of $3.9 million and a rise in non-cash depreciation and amortization of $0.6 million.

G&A expense totaled $10.1 million for the 2023 fourth quarter, a lower of 6.3% in contrast with $10.8 million for the fourth quarter of 2022. Common and administrative bills totaled $38.8 million for the total 2023 12 months, a lower of 10.3% in contrast with $43.2 million for the total 2022 12 months as a consequence of our value slicing initiatives, partially offset by a $2.5 million enhance in inventory compensation value in 2023 in comparison with 2022.

On a sequential foundation G&A elevated by $300,000, primarily because of the extra G&A introduced on by a mortgage operations growth in Texas and to elevated expenditures associated to agent recruiting. Bills associated to advertising actions have been $0.9 million for the fourth quarter of 2023 in comparison with $1.3 million within the fourth quarter of 2022. For the total 12 months 2023 advertising bills decreased by $1.9 million to $3.3 million in 2023 in comparison with $5.2 million for the total 12 months 2022. The 28.5% and 35.8% discount in advertising bills in This autumn and for the total 12 months, respectively, mirror the advantages of our expense reductions applied in late 2022 and early 2023.

Now I’ll spend a while reviewing our enterprise phase leads to extra element. As with all actual property corporations This autumn was a tough quarter for our actual property division. We closed roughly 8,290 actual property transactions within the quarter, an 11% lower from final 12 months’s fourth quarter. For the total 12 months, we closed roughly 38,140 actual property transactions, a 14.7% lower relative to the prior 12 months.

We ended the fourth quarter with 11,795 brokers, which represented a 13.7% development charge over the fourth quarter of 2022, whereas The Nationwide Affiliation of Realtors noticed a membership decline of roughly 1.6%. We have now seen a rise of 26% in onboarding begins in year-to-date over This autumn, which ought to end in a rise within the variety of brokers becoming a member of Fathom going ahead.

Income for the Actual Property division was roughly $69.4 million within the fourth quarter in comparison with $79.5 million for a similar interval final 12 months, which represents a 12.8% lower attributable to a lower in transactions within the worth of properties.

Adjusted EBITDA revenue within the Actual Property division was roughly $0.2 million in This autumn 2023, a rise of $1.5 million in comparison with adjusted EBITDA lack of $1.3 million in This autumn of 2022. For the total 12 months, adjusted EBITDA revenue was $5.7 million in 2023 in comparison with $2 million for the total 12 months 2022. These enhancements have been achieved regardless of the lower in transactions for This autumn 2023 and for the 2023 12 months and mirror our enhance in charges applied in January 2023 and the favorable impression of our continued value slicing measures.

Our mortgage enterprise generated revenues of $1.8 million in This autumn 2023 in comparison with $1.3 million within the prior 12 months interval. Mortgage adjusted EBITDA for This autumn 2023 was a lack of $0.8 million in comparison with an adjusted lack of $1.1 million for a similar interval final 12 months. For the 2023 12 months, though our mortgage enterprise revenues declined by $1.1 million to $7.3 million in comparison with $8.3 million within the prior 12 months. Adjusted EBITDA loss for 2023 improved to $1.9 million in comparison with a $2.9 million adjusted EBITDA loss in 2022.

This is because of continued strategic value slicing measures. Our workforce continues to determine alternatives to scale back bills to proper measurement our mortgage enterprise going ahead, in addition to to extend revenues by recruiting extra mortgage officers.

DIA, our insurance coverage enterprise generated revenues of $1.4 million for the quarter and a complete of $6.3 million in revenues for the 12 months. DIA had constructive adjusted EBITDA of $0.2 million for the 2023 quarter and $1.6 million for the total 2023 12 months, in comparison with adjusted EBITDA lack of roughly $0.1 million for the 2022 fourth quarter and $0.5 million of adjusted EBITDA revenue for the total 12 months 2022.

Verus Title had revenues of $0.7 million for the quarter and $3.1 million for the 12 months. Verus Title’s adjusted EBITDA for the 2023 quarter was a destructive $0.2 million and a destructive $0.6 million for the total 12 months. We anticipate that our new Texas three way partnership, scheduled to begin enterprise in early Q2 2024 and related joint ventures with our prime producing actual property brokers will add significant revenues and adjusted EBITDA for our title enterprise.

Transferring to our Know-how phase. Revenues elevated 10% to roughly $0.8 million in comparison with $0.7 million for final 12 months’s fourth quarter. Adjusted EBITDA loss elevated from a lack of $0.2 million within the fourth quarter of final 12 months to a lack of $0.5 million within the present quarter reflecting our elevated funding in managing and enhancing our expertise platform.

Our LiveBy workforce has considerably elevated its footprint throughout the nation to achieve over 245 MLSs and 420,000 brokers on the finish of the quarter. LiveBy powers greater than 4 million group pages with over 125,000 neighborhood stories created. We proceed to be keenly targeted on our steadiness sheet given the dynamic actual property market circumstances. We ended the quarter with a money place of $7.4 million, which incorporates the $4.2 million in internet proceeds from the providing we accomplished in December. We didn’t buy any shares within the fourth quarter beneath the inventory repurchase plan and roughly $4 million stays beneath that authorization.

With that, I’ll flip the decision again over to Marco for closing remarks.

Marco Fregenal

Thanks, Joanne. We stay targeted on executing and taking needed steps to raised place Fathom within the present surroundings in preparation for when the market recovers. I need to thank all the Fathom workforce on its laborious work as we navigate this market and proceed to serve our purchasers.

With that operator let’s open the decision for questions.

Query-and-Reply Session

Operator

[Operator Instructions] And our first query will come from John Campbell of Stephens. Please go forward.

John Campbell

Hey, guys, good afternoon.

Marco Fregenal

Hey, John, how are you?

John Campbell

Doing nicely, doing nicely, thanks. Marco, I am hoping you can present just a little little bit of course on gross margin for the 12 months. I imply, there’s some transferring items with the agent charges. It does sound like you are going to be in for a greater 12 months on insulator [ph] companies income. So, I do know that is going to have a point of an impression. However possibly as a place to begin, when you held Rev flat year-over-year, what sort of impression would you count on from gross margin? Simply from the charge will increase after which nevertheless you need to body it up from there, simply assuming any form of income development situations?

Marco Fregenal

Certain. Sure, completely. So – nice query. Charges enhance goes to offer us about 1 level to 1.5 factors on gross margin. Simply that by itself over the 12 months. Okay? And that is in fact, on the realty aspect. Proper. After which as we – one of many issues we’re actually, actually enthusiastic about is the expansion in file stars for mortgage and title, particularly the JV. In order we talked about within the name, we expect that mortgage and title goes to outpace the expansion of brokerage and due to this fact drive important margins – growing in gross revenue margins.

So we may see gross revenue margins whenever you have a look at a mixed companies north of 11% and possibly by the top of the 12 months may see as excessive as 12% or 13%, relying how nicely our mortgage enterprise. And one of many issues I need to ensure in our mortgage development, it isn’t a lot, we’re not likely relying on a lower in rate of interest. The explanation why our mortgage enterprise is doing so nicely is, as a result of we’re rising, including extra mortgage officers. Below the management of Sean Varin and Paul Marsh, we have been capable of nearly double the variety of LOs right into a enterprise and due to this fact actually rising the enterprise.

So if then the charges come down second half, we are able to actually see a big enhance in our mortgage enterprise. So we’re very enthusiastic about that. However when it comes to margins turning 10% to 11%, whenever you have a look at the mixed companies. After which relying how the charges change later within the 12 months, we may see as excessive as 12%, 13%.

John Campbell

Okay, that is useful. After which on the agent additions, I imply, from a sequential standpoint, that was the perfect internet advertisements you guys have had because the second quarter of 2022. Clearly, that was in a much better form of macro backdrop. So, I am hoping you may possibly unpack your energy there and simply possibly beginning off simply roughly how a lot of that was inorganic. After which when you can discuss to the underlying attrition charge and the way that is regarded versus prior intervals.

Marco Fregenal

Sure, completely. Nice query. So, sure, it’s the finest month on sequential foundation for 2023. There are a number of key components there. So, to start with, our onboarding stars have considerably elevated. We talked about that our onboarding stars in This autumn are principally 7% larger than Q3. And so we’re positively attracting extra brokers. And we truly had the very best variety of gross quantity when it comes to including to the corporate. Proper.

After which now, having mentioned that, turnover is larger than anticipated. We’re shedding extra brokers like everybody else, particularly non-producing brokers. And so that’s a part of the system, if you’ll. However positively we had the very best variety of gross provides. And a part of that’s a part of quite a lot of completely different advertising applications that we began very late Q3, actually in This autumn that we’re persevering with Q1. So we be ok with our agent development going ahead. We’re going to be extra targeted on larger producing brokers. They’ve quite a lot of applications targeted on that, together with Producer Perks. And a few of them have yield very early, some actually good outcomes. So, sure, we be ok with our agent development and a whole lot of it has to do with our important enhance in guests come to Fathom Careers. We considerably enhance that site visitors coming in. And so all of that’s going to contribute to a better agent development. And that’s why one of many targets for this 12 months is to return again to our historic 25% to 30% agent development.

John Campbell

Okay. Thanks.

Operator

The following query comes from Darren Aftahi of ROTH MKM. Please go forward.

Unidentified Analyst

Hey, that is Dillon on for Darren. Thanks for taking my questions. I needed to comply with up first on the commentary you made about I feel it was Q1 year-to-date onboarding being up 26%. Might you simply first make clear that? After which if that’s the case, what do it’s a must to do to execute on the majority of that quantity so that they don’t slip by way of the cracks?

Marco Fregenal

Sure, truly that was the onboarding in Q – that was the onboarding development in This autumn, proper. It was This autumn onboarding development over that. Look, execution is, this is likely one of the key issues why we enhance our recruiting workforce. We early on realized that our Fathom Careers web page has considerably elevated the site visitors from 2,100 guests to six,600 guests. So due to this fact, we rent extra recruiters to have the ability to comply with up on that, proper. So the execution actually comes from simply having an even bigger workforce, being able to go execute on that. And the recruiting workforce is beneath Samantha Giuggio. And she or he does an exceptional job of creating positive that occurs, proper.

And so – however to make clear that that’s the development in This autumn. Now that has continued in Q1. So we’re seeing a big development in onboarding begins in site visitors. So I feel that the sample that we’ve seen in This autumn will proceed by way of 2024. And for this reason, once more, we need to return to 25% to 30% agent development as one in all our key targets for 2024.

Unidentified Analyst

Acquired you. And on the price aspect, I assume with the $1 million value financial savings like, how a lot of that did you notice in 4Q, so we are able to kind of get a greater thought as to what Q1 would possibly seem like?

Marco Fregenal

Nice query. Nearly little or no in This autumn. The 4 million, we’ll see that in Q1. And in order you look from This autumn to Q1, I feel 90% to 95% can be, so 5% to 10% went in This autumn. In Q1, you see 100%. So when evaluating quarters, you may nearly evaluate all the $1 million as value discount.

Unidentified Analyst

Okay, excellent. Thanks.

Operator

The following query comes from Tom White of D.A. Davidson. Please go forward.

Tom White

Nice. Thanks for taking my questions. Possibly only a fast follow-up on the agent development commentary. Marco, I’m simply curious, would you say that many of the attraction is the results of form of company led kind of initiatives or I’m curious whether or not a number of the form of the rating file present brokers of yours, them doing a bit extra recruiting is the principle driver. After which I obtained a few follow-ups.

Marco Fregenal

Sure. Hey, Tom, good discuss to you. So there are two key components, proper? One is our agent referring different brokers. That continues to be roughly 40% of our agent development. Okay. And in order that we proceed to try this. It truly is a mixture of each, proper, as a result of what occurs is as we from kind of the house workplace, as we drive guests to return to Fathom Careers, these brokers registering, they’re distributed to our district administrators throughout the nation and our recruiters throughout the nation. So that they go hand in hand, proper. Additionally organically, throughout the nation, our district administrators and recruiters are speaking to brokers they usually drive these brokers to the Fathom Careers.

So it’s a reasonably cohesive course of and it’s very collaborative between the sphere and kind of the house workplace proceed to drive the site visitors, proper. So I might say nothing actually has modified apart from us to spend just a little bit more cash in advertising and Fathom proceed to be considered as an excellent place to land whenever you evaluate our fee, flat charge in comparison with different corporations, proper. And so it’s actually a collaborative effort between all people working collectively to make it possible for we are able to proceed to develop and actually get again to the 25%, 30% agent development that we had traditionally.

Tom White

Okay, nice. Respect that coloration. After which I assume simply on the form of your liquidity place, it sounds such as you guys really feel form of snug after the providing within the fourth quarter, however the housing market remains to be just a little slowish to recuperate. And I assume there’s kind of like looming query marks round like fee lawsuits and stuff like that. I’m simply curious, are you guys feeling such as you’re ready the place you may form of go on offense a bit across the agent development and form of leaning into that, or are you continue to form of, possibly a bit extra of a defensive posture?

Marco Fregenal

Sure, nice query. No, we’re positively offensive. That’s why we spent just a little bit more cash in advertising in This autumn and seen that important enhance in site visitors to Fathom Careers, proper. From a liquidity standpoint, whenever you have a look at the money burn in This autumn, and then you definately take into impact the growing charges for Q1, mixed with the price discount, mixed to the outcomes that we described when it comes to file begins for mortgage and title, which ought to have a constructive impact on EBITDA and income for each of these companies. So whenever you mix all of that, we really feel that money burn in Q1 goes to enhance considerably, and our objective for Q2 is to be operational money stream constructive.

And so whenever you put these two issues collectively, we really feel excellent about our place to be aggressive and proceed to speculate extra in advertising and recruiting brokers. So we really feel excellent about our place. One of many issues that we actually really feel nice about is de facto the mortgage and title enterprise, simply when it comes to the turnaround, proper, the numerous enhance, as a result of, as you realize, these enterprise will be very worthwhile. And so this is likely one of the kind of the highlights of This autumn after which a number of the updates we’re giving to Q1 is the numerous enhance in these companies. And so we really feel very excited concerning the development of these after which mix that with our brokerage enterprise and insurance coverage and expertise. It’s starting to place collectively the recipe for a really profitable 2024.

Tom White

Okay, that’s nice. Possibly only one final one, if I may. Your form of targets round working money stream constructive and adjusted EBITDA constructive for the 12 months, I imply, are you assuming any important enchancment in form of the broader housing market or simply form of establishment? Thanks.

Marco Fregenal

Sure. No. It’s nice query. We aren’t – into our equation, we don’t issue any important enchancment available in the market, okay. Actually is a mixture of, we expect that the actual property market this 12 months could go up a number of proportion factors when it comes to development, however in our inner development mannequin, we’re modeling the enterprise to remain flat. And so if the enterprise improves, implausible. We’ll decide up the upside from that. However we’re taking a look at enchancment in EBITDA and money stream from the mixed efforts of value discount, growing charges and the numerous enchancment in our mortgage and title companies. If you put all that collectively, we really feel excellent about operational money stream constructive for 2024.

Tom White

Nice. Respect it, guys. Thanks.

Operator

The following query comes from Raj Sharma of B. Riley. Please go forward.

Raj Sharma

Sure, thanks for taking my questions. My questions. Hello, Marco.

Marco Fregenal

Hello, Raj. How are you? I hope you are nicely.

Raj Sharma

Sure, I am doing nice. Thanks. So, there’s an agent development, your acquisition goes to return from acquisition of teams or particular person. I am simply making an attempt to reconcile the hole of the 11% development you are having proper now, year-on-year to 25% for the 12 months. So how a lot of that may come from referrals? After which I’ve obtained one other comply with on query.

Marco Fregenal

Sure, completely. So it is a mixture of varied components. So we must always actually attempt to illustrate in our name that within the final 4 or 5 months, we have been approached by a whole lot of corporations, small brokerages, giant groups, in search of alternatives to maneuver. Proper. And so the variety of engagements when it comes to dialog we had actually has considerably elevated.

Proper. And so we will be very opportunistic. We expect that we’ll get again to 25%, 30% development by primarily two components. One, proceed to drive extra individuals to Fathom careers by way of quite a lot of advertising applications. The Producer Perks as we introduce, providing greater incentives for our brokers to refer different brokers. So principally what we have been doing it, however kind of taking to the following stage.

Second is to be opportunistic in a few of these walkovers. We just like the walkover course of as a result of usually can occur in 30, 60 days. We have carried out a number of of these final 12 months. We’ll do a number of of those this 12 months, in some instances within the 100 or 200 brokers. And so, Raj, it will likely be a mixture of each. It is going to be principally taking what we did final 12 months and taking it to the following stage, after which with a mixture of being strategic, particularly going into markets that we do not have a robust presence.

That is one of many issues we actually get pleasure from about walkovers, is that after we can do a walkover with somebody in an organization that has 100 brokers, 200 brokers in a market that we simply do not have a robust presence, it is a good way to enter into that market. And so we have now quite a lot of conversations happening proper now. However to reply your query is it will likely be a mixture of take a transfer carried out and growing the kind of stage of exercise and being opportunistic in a few of these walkovers and acquisitions.

Raj Sharma

Acquired it. After which you aren’t if, I imply I simply heard you answering one other query. So you are not assuming a pickup within the transactions per agent for the remainder of the 12 months. The brand new brokers are going to be extra productive or you are going to have much more productiveness.

Marco Fregenal

So it isn’t a lot I’m choosing up, it’s not a lot that we’re modeling that there will be extra transactions available in the market. Proper. So let’s suppose from a macro standpoint first. From a macro standpoint, we will make the idea that the market is just not going to extend considerably as a macro; we are going to enhance variety of transactions, as a result of once more, if we’re going to one of many issues we’re doing is de facto specializing in larger producing brokers.

We’re additionally serving to a few of our brokers enhance the variety of transactions. So we’ll most likely see, and I need to possibly must make clear would possibly, we’ll most likely see a rise in productiveness from our brokers due to these two components. Proper. Recruiting extra larger producing brokers, in addition to serving to a few of our brokers. We have now quite a lot of advertising applications popping out the following 60 days to 120 days. That is going to assist our brokers, a few of our brokers, relying in the marketplace they’re, then in the event that they take benefit.

And so it’s going to be a mixture of that. However from a macro standpoint, I do not suppose, let me put this manner, we’re modeling nearly no development available in the market. If rates of interest come down the second half, and we are able to most likely have a two hour dialog whether or not we imagine that is going to occur or not, then we’ll most likely see an upside. However from a budgeting standpoint and a modeling standpoint, we’re taking a look at a flat macro market. And in order that – hopefully that clarifies the reply.

Raj Sharma

Proper. So I perceive that it will come from a mixture of charges, this enchancment, and I am speaking concerning the money stream constructive and the EBITDA. It is going to come from an enchancment in charges, the price reductions, and the mortgage and title enterprise. Are you able to quantify these three areas when it comes to, for instance, in search of value discount, seeking to do.

Marco Fregenal

Effectively, the price discount is a $1 million per quarter throughout the board. So we already applied that and that may proceed to try this. If the mortgage enterprise continues, like I mentioned, when you simply take into consideration the numbers we grew, file begins January, February by nearly 100%. Proper. And so you may check out the mortgage, the income that we did final 12 months in mortgage. Proper. And if we are able to proceed to develop that enterprise by roughly 100%, then it should have a big impact. Proper.

So mortgage final 12 months, I imagine, was about $8.4 million in whole income – sorry this 12 months, final 12 months, $7.2 million in whole income. If we’re capable of enhance that by 50%, 60%, 70%, a big proportion that may go to the underside line. Proper. And in order that’s a part of it. Identical factor with title. We’re actually rigorously opportunistic concerning the title, the three way partnership we’re doing. If that goes nicely within the subsequent few months, we actually do different ones.

So a big proportion of this enhance in EBITDA will come from mortgage and title due to the rise in enterprise once in a while will come from the reductions in value after which the $3.1 million enhance in charges. Proper. So when you have a look at the maths, you’ve got $3.1 million growing charges, $4 million value discount, after which a number of million {dollars} in elevated EBITDA from title and mortgage. If you put all that collectively, I feel it should present a really favorable 12 months.

Raj Sharma

Acquired it. That is very useful. After which simply lastly, the title mortgage, gross margins, how are they monitoring? And I am assuming you count on a rise in margins on title and mortgage, too? The gross margin…

Marco Fregenal

No query. I imply, these enterprise are very worthwhile. Proper. Particularly and once more, title is a really complicated enterprise as a result of each state is completely different. As you and I talked earlier than, each state is completely different. Some states are lawyer states, some states are title states, and charges are completely different. All of that. Proper. However the gross margin on title is the gross revenue margin title might be 70%, and the gross revenue margin in mortgage might be 60%, 70% as nicely. Proper.

And so these are very worthwhile enterprise. In the event that they function successfully and effectively, they might be very worthwhile companies. Proper. And so we’re being very opportunistic, and we have now an ideal workforce. One of many issues about Fathom, as you realize, 2023 was a painful 12 months for us, particularly in our mortgage enterprise. Our mortgage enterprise was a big proportion of our loss. I feel our mortgage enterprise, and title enterprise, could transform extremely constructive for us going ahead. That is the idea that Josh and I’ve all the time had. Proper.

And so I feel that that is going to start to show itself in 2024 and past, how a lot these two enterprise can work hand in hand with the actual property firm. Proper. And we sit up for persevering with to indicate in that.

Raj Sharma

Proper. Excellent. Thanks a lot for answering my questions. I will take it offline. Thanks. Good luck.

Marco Fregenal

Thanks, Raj. Thanks.

Operator

[Operator Instructions]. This concludes our question-and-answer session. I wish to flip the convention again over to Marco Fregenal for any closing remarks.

Marco Fregenal

Thanks, Operator. Thanks all of you for becoming a member of our name and your curiosity in Fathom. For these of you might be shareholders, thanks in your belief. We proceed to work very laborious and sit up for sharing future updates with you. And I need to thank all the Fathom household for all their laborious work and dedication. It actually takes an ideal group of people to be actually targeted in executing, particularly in tough instances. And I am very grateful for all their laborious work and passionate dedication. And that is what makes Fathom an ideal firm.

And with that, I thank everybody and I hope everybody has an ideal remainder of the week. Thanks.

Operator

The convention has now concluded. Thanks for attending as we speak’s presentation and it’s possible you’ll now disconnect.