Good afternoon, everyone and welcome to the Fathom Holdings 3Q '21 Earnings Conference Call. [Operator Instructions] Please also note that today's event is being recorded. At this time, I'd like to turn the conference call over to Roger Pondel, Investor Relations for Fathom Holdings. Sir, please go ahead.

Thank you very much, Jamie, and welcome, everyone to Fathom Holdings 2021 third quarter conference call. I'm Roger Pondel with PondelWilkinson, Fathom's Investor Relations firm. And it will be my pleasure momentarily to introduce the company's Founder and Chief Executive Officer, Josh Harley; and Fathom's President and Chief Financial Officer, Marco Fregenal. Before I turn things over to Josh, I want to remind all listeners that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such 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 Fathom's IPO registration statement, its latest Form 10-K and other subsequent form 10-Qs and other company filings made with the SEC, copies of which are available on the SEC's website at www.sec.gov. As a result of those forward-looking statements, actual results could differ materially, and Fathom undertakes no obligation to update any forward-looking statements after today's call, except as required by law. Please also note that during this call, management will be discussing adjusted EBITDA, which is a non-GAAP financial measure, as defined by SEC Regulation G. A reconciliation of this non-GAAP financial measure to the most comparable GAAP measure is included in today's press release, which is now posted on Fathom's website. And with that, it is my pleasure to turn the call over to Josh Harley. Josh?

Thank you, Roger. And of course, thank you to everyone who's on today's call. Our entire team really appreciates your support and your faith in us. We're proud that you're a part of our Fathom family. Now quarter after quarter, our results continue to demonstrate the power of our truly disruptive business model. And I'm proud to be here to share our significant growth. We're winning through innovation and by delivering real long-term value to our agents, employees, clients and of course our shareholders. For the third quarter year over year, revenue grew by 81%. Our agent count grew by 50% and our transactions grew by 42%. We also reduced adjusted EBITDA losses by over 20% from Q2 to Q3, getting us even closer to adjusted EBITDA breakeven. And while we're continued to invest in enhancing our foundation for the sustained long-term growth of our newer business lines, those investment dollars are quickly becoming a smaller percentage of our ongoing expenses. There are some who don't really know who we are yet, but with time I believe more investors will truly understand our business and value us accordingly. If you really dig into our story, you'll realize that not only has Fathom gendered impressive performance to date, but we still have an extraordinary path ahead of us. A lot of companies sacrifice profitability for growth, but I'm proud to say that we do not have to operate that way. We can do both. Our cash position remains strong and we plan to continue to focus on operational cash flow generation. Our steadfast discipline allows us to be good stewards of the money with which you've entrusted us. We believe Fathom is on track to more than double its revenue for the foreseeable future and we look forward to proving it.…

Thank you, John. I'll start with a review of our third quarter results in some detail. Third quarter revenues grew 81% year over year reaching more than a hundred million for the first time in our history. Third quarter 21 revenues were a $109 million compared to $55.8 million for third quarter of 2020. The increased resulted from growth in real estate transactions to average revenue for real estate transaction and revenue contributions from our newly acquired businesses gap in that loss for the quarter was $3.4 million or a loss of $0.24 per share compared with a loss of $184,000 or a loss of $0.02 per share for the 2020 third quarter. This delta from last year's third quarter is due primarily to increase in cost related to operations, marketing and G&A. The get net loss for the third quarter was 3.4 million or a loss of 24 cents per share compared with a loss of 184,000 or a loss of 2 cents per share for the 2020 third quarter. This Delta from Lester quarters, primarily due to increasing cost related to operations and marketing G adjusted bit that loss a non-AP measure of 1.8 million versus adjusted. You bid that profit of $5,800 for last year's third quarter. As Josh mentioned, we saw an improvement in the adjusted EBITDA loss on a sequential basis. Once again, our real estate segment had positive adjusted, be that as our technology segment in the third quarter G increased on an absolute basis. And as a percentage of revenue, G was nine point million or 9.7% of revenue compare with $2.9 million or 5.2% of revenue for a year ago. However, on a sequential basis, G&A is a percentage of revenue declined from $11.2 in Q2 of 2021 to $9.7 in Q3,…

Thank you, Marco. We, we believe fathom is a clear, visible and long runway with tremendous growth prospects. We've been working hard to deliver on our promise to grow fathom in an accelerated yet sustainable fashion for the long term. So thank you again for your trust and being part of the fathom family. So with that operator, we're now ready to open the call to questions,

And our first question today comes from Tom White from D.A. Davidson. Please go ahead with your question.

Oh, great. Thank for taking my question guys. And congrats on a really nice quarter, I guess, first off on the 2022 outlook, could you maybe share a little bit of insight into, what it might contemplate in terms of kind of organic versus inorganic i.e., is there kind of brokerage M&A baked into that? And then I guess a follow up on M&A, I wanted to confirm that it's mostly, or kind of other a 100% commission brokerages that you guys are targeting and not kind of legacy and incumbents, and maybe just kind of comment on what you're seeing in terms of valuation for those other kind of a 100% commission targets out there.

Yeah. Let me answer the second part of the question first. I'll let Marco answer the second part. When we are thinking about acquisitions you're right in that the one that tend to make the most sense or other a 100% commission companies. With that said, though, we're not closed off to the idea of speaking with and acquiring companies who have the traditional split model. In fact, from an agent standpoint, our model is incredibly attractive to those agents. And so, the idea of making that acquisition and any fear of any other agents leading because they're worried about getting a better deal that goes off the table. We we're immediately offering every one of the agents a better deal they ever had before. And so those title acquisitions make a lot of sense. However, you tend to have an issue with the ownership, the ownership, the owners tend to think that they're worth more than they really are. And so that sometimes can be the struggle in have those conversations. On the other hand, other brokerages that a 100% model, they already speak our language. The agents are used to it. That's what they're familiar with. That's what they're interested in. We think about the reverse happening, right? No traditional company can buy a 100% commission company. If they did that, every single agent would just exodus immediately. There's no way they're going to go from paying $450 per transaction to a 20% split or $2,000 or $3,000 per transactions. It's not going to happen. So, us making acquisitions of other 100% commission companies makes a lot of sense. Typically though, we've been so focused on the business. A lot of these acquisitions are people who've approached us, not the other way around, we have a lot of, of opportunities. A lot of people constantly approaching us for opportunities of, hey, we we'd love to be part of we love the vision. We like what you're doing. We want to be part of that growth. And so the, the companies that tend to approach us tend to be that in the a hundred percent realm, which is honestly a much easier acquisition anyways. So hopefully that answer that. Second part of the question I'll let Marco address the first part.

Hey Tom, great question. In terms of the, the, the guidance it's primarily organic. We do not think include any in these numbers. We have not included any significant acquisitions. So these are organic numbers. In terms of your second part about the multiples as you can manage for competitive advantage, we like not to discuss multiples as you know, there will be sharing information. There's lots of activity out there. There are lots of companies out there. We, definitely have seen an increase in activity from companies looking to you know, to, to, to make sort of an acquisition. But we typically don't disclose you know, what, what the kind of terms are just for competitive advantage.

Yeah. We, don't want to be selling against ourselves.

Yep. Makes sense. Maybe I'll just slip in one follow up if I could. Josh, you mentioned you know, that you're increasingly seeing fathom agents kind of become evangelists for the company, you know, curious if there's any kind of additional ways you guys can look to, I guess, incentivize that behavior or compensate agents for that behavior just to kind of accelerate it even more

For sure. So one of the things that we rolled out last quarter was the, the idea this, like the compensation plan, the stock comp plan for the agents. So before it was the simple $500 for every agent refer. And so we rolled out a new plan where, you know, the first agency refers the 500, the next five agency refer and then is, is I think Josh has lost sound. So I think what you're saying is that the, the next agent is a thousand. And then so, so first is 500, two to five is a thousand. And then, from that, we continue to grow. So we, now we implemented this in beginning or mid Q1, and we have seen a an increase in the percentage of agents referring other agents. So we've definitely seen some uptake on that. And if you look at the, the agent growth we've been averaging, if you look at Q2 and Q3, roughly around 50% Q1, 41%. So if you look at Q1 and 41%, and you look at Q2 and 52, and then basically 50, you can see that from Q1 to Q2 is about a 20% increase. So we definitely haven't seen an increase and we are evaluating other things that we can do, Tom. So there definitely there's upside for us to continue to leverage our agent. But having said that, you know, we feel very comfortable about, about 50% growth, 50% growth year over year. And, and we feel that, that we can maintain the growth for many years to come but certainly are there things that we can do and we're evaluating those to, to perhaps increase that number, but we have seen an increase from Q1 when we implemented a new program.

Can you hear me now much? Yes. Okay. Yeah. Going back to what I'm saying though, as, as far the agent referral plan the first agent to refer is $500. The second through fifth agent route that is referred, the agent gets a thousand dollars in stock. These are stock grants six through 10 agents is $1,500 in stock grants. And then 11 plus is $2,000 in stock grants. One thing I do want to say about that is that, you know, we, we really, we care about dilution. And so, we look at this plan, we, we review this plan. We compare this plan with, as well as the stock we give for transactions, the stock we give for executive compensation, board compensation. It's still an incredibly small amount of dilution. So we take dilution very seriously, especially with my own family owning about 49% of the company still. We're very, thoughtful about that dilution and we, we don't want to, you know, overextend that, but we think it's a great plan and the agents have really taken to it. It's been a great incentive for them to, first of all, want to make sure you understand that agents are referring to their agents because they love the company. Not because we're getting them $500 in stock, right? That's not enough, but it, we found it is enough to help get them off the fence. If they're already low fathom and they already want to share it gets them off the fence to take the next step and actually go out and, and share it. We've actually had several agents in a very short order, you know, refer over 10 agents in just a few months. And clearly there's a lot of agents who have really taken to that plan. But even without that plan, we saw a really incredible agent referral program. It's not like we started this program and suddenly started having agent referrals about 35% of our growth is through agent referrals. And so we're very proud of that package.

[Operator instructions] Our next question comes from Darren Aftahi from Roth Capital Partners. Please go ahead with your question.

Hey guys thanks for taking my question. Nice quarter and thanks for providing guidance. A few if I may. So now you've had these ancillary services under your belt for a little while. I, I'm just kind of curious if you can maybe talk high level about tax rates you're, you're seeing kind of, what's working, what's not maybe where there's more work to do. Yeah,

Yeah, yeah. So, Hey, Darren. Great. Thank you. Good to talk to you and thank you for your question. It's still a little early, right? I mean, we made these acquisitions mid Q. Well, title's been interested since Q4 last year, but the other ones were to mid Q2, certainly title. You know, if you, if you look at the growth rate, I think Josh mentioned earlier, right? All of last Q3 of this year title did Al you know did almost all the revenue that they did last year. So we definitely are seeing a very nice attached rate in the market. It's a rent, right? And so title is, I would say title is number one for now an tax rate. And, and without we're clear, not the goal that we want to be, but, but we're making really great progress in the markets that we're fully, which are certainly Texas North Carolina, Virginia, South Carolina, Georgia, and a few others. So in those, and I think that if the trend continues, I think we are going to be able to meet the numbers that we expect from, from title mortgage and insurance is it's not at the same level ever, because again, we only had one full quarter now, Q3. We are seeing very nice. I think Josh mentioned earlier that on insurance, on we're closing 43% of quota, and we're already seeing a significant increase in the number of transactions that fat agents are introducing our insurance company to. And we're certainly are very surprised about the closing ratio of 43% and that's a very nice number. And, and so that has been a number that has surpassed our expectations. We now need to continue to go execute. We, we believe that will take a full year to get the mortgage title insurance to the level that, that we want. And so this is why we talk about giving sort of the a hundred thousand to 110,000 operational leverage to the business you know, would take us to, to get there. And I think at that point, we are going to see all these necessary services at the attach rate that, that, that we expect. And I think perhaps Sur path that, but, so to answer your question, I think that we are definitely in our, in our way to reach, to reach in the numbers we expect, but certainly it's a little early to, to say that we're there. We still have a lot of work to do but certainly we're very pleased with the, with the results thus far.

Great. maybe a couple more on your '22 guidance, just taking the midpoint at $415 million. I think ancillary services were about 5% of mix this quarter. So how do we kind of extrapolate and think about ancillary services out of that $410 million to $420 million?

Yeah, great question. So that percentage will increase. So we believe that over time ancillary services will continue to be a bigger percentage. And so, you know, it, if in, in 2021 we're 5%, we certainly believe that number will continue to increase over time. So it certainly is a bigger percentage of the $415 million, if you use that as a, as a midpoint.

Great. And then this last one for me, and I don't know if Josh is having audio problems, but I think when you went public you talked about potentially having a, a mobile application. I still don't see in the app store. I'm just kind of curious how strategic that is and what, if any, there's a timeline on that. Thanks.

Yeah, no, I'm back. I had to change out AirPods, I think is a solution. I'd love technology speak out technology. Yes, it is on our path you know, on our development path. However, it's not the first thing that we're focused on. The first thing we're focused on is you know, finishing out, building out and rolling out our agent websites, brokerage website, the national portal the CRM, getting it fully integrated. The next, focus is what we're actually working on right now as well is making sure that we're fully integrating mortgage title and insurance as well to help use that, to improve the attach rate. And then from there, the focus is on the, on the development side of the mobile app. You know, unfortunately fortunate, unfortunately I'd love to go out there and hire a bunch of mobile developers, but, you know, as we've said from the beginning, we're really focused on, you know, reaching profitability, certainly adjust the bit of profitability as quickly as we can. And so you can't do that when you go out and hire, you know, 50 new developers to, to build out mobile side. So we, want to do that. It's on our A list of things to do. But we're building out the, the rest of it to really make sure we've got a strong product offering for our agents. And then eventually of course, a strong offering that we can start providing other companies as well for additional SaaS revenue.

Thanks guys. I'll pass it on.

[Operator instructions] And ladies and gentlemen at this time and showing no additional questions. I'd like to turn the floor back over to Josh Harley for any closing remarks.

Thank you operator, thanks to all of you for joining our call today. And of course, for your continues to support, we're extremely proud of all we've accomplished, but we will never stand on our laurels and we'll continue to work diligently towards achieving our collective objective and, and adding of adding value to our company for the benefit of all our stakeholders with today being the Marine Corps birthday, I do have to give a shout out and, and wish a happy birthday to my fellow Marines S fly. So thank you for being on a call and have a wonderful upcoming Thanksgiving. Thank everybody

Ladies and gentlemen, with that, we'll conclude today's conference call. We thank you for joining today's presentation. You may now disconnect your line.