Fathom Holdings Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Acknowledged the team's commitment, adaptability, and resilience in facing challenges like high mortgage rates, buyer behavior, regulatory changes, and litigation.
• Fourth quarter 2024 total revenue grew ~24% to $91.7 million, gross profit increased 25% to $6.7 million. Excluding Dagley Insurance, gross profit rose 59%.
• GAAP net loss for Q4 2024 was $6.2 million, an improvement from the prior year. Adjusted EBITDA loss for Q4 2024 was $2.9 million, matching the prior year.
• Agent count increased 21% to ~14,300 at year-end, transactions rose 22%.
• Plan for 2025 includes increased revenue from acquisitions (e.g., acquisition of My Home Group expected to bring ~$110 million in 2025), higher gross profit from mortgage, title, and ancillary services, and expense management with annualized cost reductions of ~$2 million.
• Rolled out new revenue share model in Q3 2024 and plans to launch a new program to help agents close more business.

Segment Performance

• Brokerage:
  • Fourth quarter 2024: Closed approximately 9,903 real estate transactions, an increase of 22% from Q4 2023. Revenue was approximately $87.7 million, a 26% increase year-over-year. For the full-year, closed approximately 37,000 real estate transactions, a 2.2% decrease relative to the prior year. Gross profit margin improved to 5.3% in Q4 2024 from 4.2% in Q4 2023, and to 5.7% for the full-year 2024 from 5.2% the prior year.
• Mortgage (Encompass Lending Group):
  • Fourth quarter 2024: Revenue increased 11.1% to $2 million from $1.8 million in Q4 2023. Adjusted EBITDA loss was $700,000 in Q4 2024 compared to $800,000 loss in the same quarter last year. For the full-year 2024: Revenue grew 49.3% to $10.9 million from $7.3 million, and adjusted EBITDA loss improved to $1.5 million from $1.9 million in 2023.
• Title (Verus Title):
  • Fourth quarter 2024: Revenue reached $1.3 million, an 80% increase from $700,000 last year. Adjusted EBITDA loss was $300,000 in Q4 2024 compared to $200,000 loss in the same quarter last year. For the full-year 2024: Revenue grew 50% to $4.5 million from $3 million, and adjusted EBITDA loss improved to $500,000 from $600,000 in 2023.

Guidance

• Believes 2025 will be a breakout year and has a strong foundation to push through market volatility.
• Anticipates achieving sustainable, positive adjusted EBITDA potentially as early as the second quarter of 2025.
• Sees growth in mortgage, title, and other ancillary services outpacing real estate revenue, enhancing cross-selling opportunities and bottom line.
• Plans to achieve positive adjusted EBITDA through increased acquisitions, higher gross profit, and expense management.

Risks

• Broader market headwinds including high mortgage rates.
• Regulatory changes.
• Ongoing litigation.

Q: How have the Max and Share commission plans affected agent recruitment and retention, and any measurable improvement from agent satisfaction and retention?

A: About 5% of new agents have joined the Share program. It's early to tell the impact as Q4 had few closed transactions from new agents. Retention still has higher turnover, but 90% of turnover is from zero production or low producing agents.

Q: Can you talk about any strategic initiatives and programs being implemented or will be implemented in 2025 to help accelerate adoption on mortgage and title, and any specific challenges outside of broader market softness and interest rates impacting adoption?

A: Have the Ambassador Program running, and a pilot program soon to be announced. Expect mortgage and title growth to outpace real estate brokers' growth in 2025, which will positively affect gross profit and help achieve positive adjusted EBITDA in Q2. The growth in title is expected to be more significant than mortgage.