Fathom Holdings Inc. Q2 FY2024 earnings call

Management Statement and Operational Highlights

• New Agent Plans: Launched Fathom Max and Fathom Share commission plans with innovative revenue share programs to boost agent recruitment, retention, and sustainable growth.
• Financial Results: Total revenue for Q2 2024 was $89.2 million, a 10.9% decrease from Q2 2023. Adjusted EBITDA was $189,000. Real estate agent network grew 12% to ~12,224 agents as of June 30, 2024.
• Business Developments: Sold Dagley Insurance in May 2024, bolstering the balance sheet. Mortgage business grew 82%, and Verus Title saw revenue growth and improved adjusted EBITDA.
• Market Trends: Lower home prices and mortgage rates expected to positively impact home sales. Addressing the impact of the commission lawsuit settlement with agent training.

Segment Performance

• Real Estate: Revenue was approximately $83.1 million in Q2 2024, a 12% decline from Q2 2023, primarily due to an 8% decrease in transaction volume. Average revenue per transaction was $8,200, a 5% decrease. Gross profit margin remained relatively constant at 6.1%. Adjusted EBITDA income in the real estate division was approximately $1.5 million in Q2 2024, down from $2.6 million in Q2 2023.
• Mortgage: Revenue grew 85% to $3.7 million in Q2 2024 from $2 million in Q2 2023. File start loan volume was up 72%. Adjusted EBITDA for Q2 2024 was positive $0.02 million compared to a loss of $0.2 million in Q2 2023.
• Title (Verus Title): Revenue was $1.1 million in Q2 2024, a 10% increase from Q2 2023. Adjusted EBITDA was $108,000 in Q2 2024 compared to a negative $25,000 in Q2 2023.
• Insurance (Dagley Insurance): Sold in May 2024, adding $7.8 million at closing and $7 million over the next 24 months, strengthening the balance sheet.

Guidance

• Withheld guidance for Q3 2024 ending September 30, 2024, due to the yet-to-be-determined impact of the new revenue share models. Management plans to reassess and potentially reinstate guidance expectations in Q4 2024 to evaluate the performance of the new models.

Risks

• Real estate market conditions including mortgage rate fluctuations and buyer-seller dynamics. Impact of ongoing industry lawsuits and settlements. Delayed impact of new agent plans on financial metrics as agents transition and close transactions.

Q: John Campbell asked about housing recovery, Fathom Share, and agent growth.

A: Marco Fregenal responded that the company is focused on agent growth, not solely relying on real estate market improvement, and discussed the unique aspects of Fathom Share and expected agent growth from the new plans.

Q: Raj Sharma inquired about Fathom Share, referral programs, and margin impact.

A: Marco Fregenal explained the structure of the revenue share levels, the validity of old referral programs until December, and how the new plans would gradually impact gross profit margins and EBITDA.

Q: Unidentified Analyst asked about NAR settlement, agent navigation of settlement, and margin impact of new revenue models.

A: Marco Fregenal discussed agents navigating the settlement through training, ongoing negotiations for a lawsuit settlement, and the expected delayed impact of new revenue models on margins over the next few quarters