Good day and welcome to the Fathom Holdings Fourth Quarter and Year End 2021 earnings conference call. [Operator instructions] Please also note that today's event is being recorded. I'd now like to turn the conference over to Roger Pondel with PondelWilkinson. Please go ahead sir.

Thank you very operator and welcome, everyone, to Fathom Holdings 2021 fourth quarter and year-end conference call. I'm Roger Pondel with Pondelwilkinson, Fathom's investor relations firm. This is my pleasure shortly 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 Factors section of the company’s IPO registration statement, its latest Form 10-K 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. Fathom undertakes no obligation to update any forward-looking statements after today's call, except as required by law. But please also note that during today's call, we 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 directly comparable GAAP measure is included in today's press release, which is now posted on Fathom's website. And with that, it's my pleasure to turn the things 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. Before we review the significant progress Fathom has made since our last call. I want to thank our agents and employees for their ongoing hard work, not just toward our vision, but also helping us grow while generating value for all of our stakeholders. I also want to say thank you to our Fathom family, for their unwavering dedication, to creating a culture built on service and more specifically serving and placing others first. I cannot begin to express how important that is and the role it's played in our success. One of the things I love is when I hear our agents say that they join Fathom for the commission, but they stay for the culture. That fact plays a significant role in why we have one of the lowest agent attrition rates among residential real estate brokerages. And if you want a true representation of whether Fathom agents are happy, our low agent attrition rate is the best indicator. I'm extremely proud that our average monthly attrition rate across all of 2021 is only 1.5%, half of the industry average. The quarter-after-quarter and year-after-year, our results continue to demonstrate the power of our truly disruptive business model. And I'm proud to be here sharing our significant growth. We are winning through innovation and by delivering real long-term value to our agents, employees, clients, and of course our shareholders. For the fourth quarter year-over-year, revenue grew by 79%. Our agent count grew by over 48% and our transactions grew by over 43%. Importantly for the third quarter in a row, our real estate business was adjusted EBITDA profitable. I don't believe that any…

Thank you, Josh. I’ll start with a detail review of our fourth quarter results and we’ll finish with an updated increase in guidance. Fourth quarter revenues grew 79% year-over-year to $95.5 million compared with $53.4 million for last year’s fourth quarter. The increase resulted from growth in real estate transactions to average revenue per real estate transactions and revenue contributions from our newly acquired businesses. GAAP net loss for the quarter was $3.6 million or a loss of $0.24 per share compared with a loss of $1.3 million or a loss of $0.09 per share for the 2020 fourth quarter. The year-over-year changing GAAP net loss resulted principally from investments in future growth, operational and overhead costs related to acquired companies, incremental costs due to transition into being a public company into increases in non cash stock compensation and expense to non cash amortization of acquired intangible assets. Adjusted EBITDA loss, a non-GAAP measure was $2 million versus an adjusted EBITDA loss of 850,000 for the fourth quarter of 2020. Our real estate segment continues to be adjusted EBITDA positive. In the 2021 fourth quarter, G&A increased Fathom in an absolute basis as well as a percentage of revenue. G&A was $9.1 million in Q4 or 9.5% of revenue compared with $3.6 million or 6.8% of revenue for the same period a year ago. The increase in G&A is primarily attributed to recently completed acquisitions and to increases in non cash stock compensation expenses. It is anticipated that G&A expense will increase to an absolute dollar basis going forward driven by acquisition, cost related to scaling generating in integrating the company’s business lines. G&A as a percentage of revenue is expected to decline over the long term as revenue increases. Expenses related to marketing activities were 524,000 versus 383,000 for…

Thank you, Marco. We believe Fathom has a clear, visible and long runway with tremendous growth perspectives – prospects. We, no matter what the market holds, we believe that that our model is positioned to win. 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 our Fathom family. So operator we’re now ready to open the call to questions.

Thank you. [Operator Instructions] Our first question will come from Darren Aftahi with Roth Capital Partners. Please go ahead.

Hey guys. Good afternoon and thank for taking my questions. Few if I may. First, can you give us a general sense on ancillary services? How much of that came from Fathom agents versus non-Fathom agents?

Hey Darren, great question. It varies from business to business. In our title business is about 50% coming from Fathom, mortgage business about one third coming from Fathom and same on the insurance. So the remember Verus Title we purchased over a year ago, right? So that company’s more advanced in the attach rate. So that’s why it’s about 50%. The other two companies are about one third coming from Fathom. We think that over time we will exceed that 50% mark.

By the way, I’d like to add some more color to that. And that is we don’t necessarily want Fathom to ever represent a 100% of the business. I mean, to us, we want Fathom to always represent 50% to 60% or so of the business. That means that we’re getting not just Fathom business, but business outside of Fathom business from other real estate brokerages, which is why we didn’t name it, Fathom Lending or Fathom Title or Fathom, whatever. We want to make sure that we can service other real estate agents across other companies. The more we provide great service, the more revenue we can generate outside of just the attach rate we can capture.

Great. Thanks for that. On the agents added outside of M&A can you just speak to how they skew, whether that’s from traditional brick and mortar or online or more PropTech competitors that you guys have?

Yeah, sure. So what we’re typically see is that, most of the agents that join our company are coming from more of the big name brand come companies, without putting names out there, we typically see, a lot of the larger publicly traded with the traditional brick – the traditional brick and mortar and traditional splits. So very large percentage from there, we get a lot of agents also from some of the more virtual companies as well. And then it’s really the mom and pops that kind of come secondary. So we tend to attract a lot of the companies from some of the biggest brands. When you think about PropTech, you think about companies, that are know, mostly not just online, but generating leads for their agents. We don’t get a whole lot of those agents. We do get those agents and I’ll actually name that Redfin for example, would be a great example of that kind of PropTech, great organization. We don’t get a lot of their agents. They do a great job at feeding their agents with leads. We do get some of their agents, but that type of company, most companies don’t get a lot from. But all the rest that have the traditional split models that typically where most of ranges come from. And again, mostly the larger brands than the small mom and pops.

Great. And then just last one for me. Marco, maybe you could talk on gross margins. So into quarter, what was the gross margin on the – excuse me, real estate business versus the other components.

Sure. They’re in the real estate business about 4%, keep in mind as you know that because of the way our cap works and we have still significant percentage of our agents there January to December and this was probably the last year that this is going to happen. If you look at the margins from Q1 all the way to Q4, they decrease, right? Because we have more agents there and the $99 per transaction, right. We probably – this is probably the last year that you're going to see a decrease, I think next year, I'm sorry, last year, 2022. I think we're going to see more of even EBIT as a larger percentage of our agents have cap used throughout the year. So they're not going to all be finishing on December 31. So on the ancillary services, we've probably seen margins of 75% to 80%.

Great. Thank you. Congrats.

Thank you.

Our next question will come from Tom White with D.A. Davidson. Please go ahead.

Great. Thanks guys. And nice end to the year. A couple, if I could maybe just appreciate the color you guys gave on kind of the current attach rates for Encompass and Verus and kind of the target. Can you maybe just give a little bit more color on like how specifically you can improve attach rates? Is it certain best practices when dealing with agents? Is it sort of financial incentives? Like how do you get from kind of five to six to 10 plus?

Sure. It's actually all of the above. Part of it, let me start with, for example, on the mortgage side. A lot of our competitors, they tend to go, the joint venture route. First of all, which means you don't get to control the quality and to the agents that's important. On top of that, a lot of them, not all of them, but a lot of them go the route of call center. And so when you've got a call center, you don't necessarily have a go-to person. So what we try to do is we we'll actually go to our agents in each market and say, hey, we're getting ready to launch mortgage in this market. Who's your favorite loan officer? Who do you like to work with? Who provides great service? So now we already know there is attach rate coming into that. And then we'll go to those loan officers say, hey, we'd like to hire you. We'd love to bring into the Fathom family a higher Encompass. And so by doing that, number one, you are – you automatically have an attach rate coming in because they already have business from a few Fathom agents. On top of that, you've got that quality of service. So as other Fathom agents use them, and it's not a call center. As they use them that they've got great quality of service, that's who they want to refer their clients to. Because if you refer your client to someone that provides really poor service, it doesn't just hurt the deal. You'd think that who cares the deals over anyways, but you really think about ongoing referral business. So that the better you service your client, the better the people you recommend serve your client. The more likely that…

That's super helpful. Maybe just a follow up from Marco on the guidance. So the calendar 2022 revenue outlook was raised is that just kind of starting the year, maybe with more agents because you kind of outperformed maybe on agent attraction here the last few months. Is it because, some of the new acquisitions, just any color you can give on kind of the moving pieces behind the guidance increase?

Yes. I think it's several things. I think one is that our recruiting as we've been looking getting some visibility into Q1. We feel very good. I think part of is acquisitions as well. And I think part of it is the – as we look at files starts. We have had strong file starts in Q1. So I think when we look at all three key elements of that could have a positive effect in our revenue. They're all looking in upwards now. There's always the risk of the market tightening and as interest rates rise. So we just took a look at all the positive trends we're seeing versus the potential of slow down. And we still feel very confident about increasing our guidance for the year. But it's based on all those key factors.

Okay. That's great. One last one for me, and then maybe we'll jump back in the queue. Josh, thank you for kind of walking through the reasons why your business is going to be kind of more resilient if transaction volume, growth slows or declines, the one thing you didn't kind of touch, I guess, maybe on what it maybe means for like your M&A strategy, like curious whether, that's an environment where there's going to be a lot of interesting targets for you guys, or maybe you'd be less inclined to be inquisitive, just any color there would be helpful?

Yeah. You actually, you raised a fantastic point. I think right now, even before during this last quarter, last several quarters, we've had an increase in companies reaching out to us saying, hey, love the Fathom story. I know you're going to be moving to my – into my market. I don’t want to compete with you, instead like to work with you and help grow the Fathom brand, would you consider an acquisition. That story happens over and over and over again. Mark, like I’d say, you've got to kiss a lot of frogs before you find that prince. And so we talk to a lot of people for the – few that we actually end up acquiring. One of the things that we look at those we want to make sure we've got, talking to companies and going, in other words not wasting our time. If the company doesn't have great leadership, have some kind of growth trajectory, have a similar model that we have and then could also be immediately accretive to our business. So with that point and to your point, as a lot of brokerages struggle to generate or I guess attract more agents, generate enough sales to close, to make enough revenue, to make enough profit to pay their bills. I think we're going to have an increase of those companies calling us. I didn't bring that up because to me that's just a, would be, could be. We do believe that's going to happen. That's potential. But we're not ready to put our stamp on say that is going to happen, because we haven't seen that increase yet. Whereas we have a very strong belief that, our model is very attractive in downturns because I started in this industry during downturn, I started Fathom during the last housing recession a big part of why we had such amazing early success was because a lot of agents were seeking opportunities to recoup the losses that they had coming out of 2007 and 2008, and 2009. So that's why we feel so confident that we'll be able to see the same thing happen. So hopefully that answers that question.

Yep. Appreciate it. Thanks guys.

[Operator Instructions] Our next question will come from [indiscernible] with Cole Capital. Please go ahead.

Good afternoon, gentlemen. Thank you for doing the call and best of luck here in 2022, just kind of a quick four part question. You acquired a number of broker – real estate brokerage firms here later in the year. Could you just kind of quantify the revenue and gross margin dollars you believe they will add to the business in the first quarter? And then a second part is, as you mentioned, you raised prices for your agents for starting in January, approximately what's the revenue and gross margin dollar lift you'll be getting from that in the first quarter?

Yeah, we have not – we have not got into details yet in terms of what they list for the increasing transaction price. Part of it, because we wanted to see, what would be, if there would be any negative effect to it and we haven't seen any. So I think when we announced our Q1 results, we'll update our guidance for Q2 and for the full-year based on what we see the positive effect that we'll see from the increase in the transaction fees. Keep in mind also that part of the increase in transaction fees are also related to inflation and increase in expenses, right? Inflation is affecting all companies and all companies have to increase payroll to be able to not only attract and keep talent. So part of that is, it goes towards that. On the acquisition front, we just acquired iPro in February. It's a little too worldly to be able to tell what the impact is going to be. Every time you do an acquisition, there's always some uncertainty on the acquisition as we do – as we move agents over. And so again, when we announce Q2 – Q1 results we'll be able to update our guidance for the full year and certainly for Q2 and be able to give everyone a greater visibility and very accurate numbers in terms of the impact for Q2 and for the full year. This is why partly, we feel confident about the increase in guidance already for the full year that we just gave in part is because of some of this positive trends we've seen, but I think we'll be able it to give much greater visibility once we finish Q1 and beginning of Q2. And then when we report Q1 in a few weeks.

Okay. And then just one follow-on, for 2022, to what degree have you improved or changed some of your hiring practices for new agents? Obviously you did a nice job in 2021, but I'm just wondering what sort of additional innovations you're doing in 2022 to allow you possibly to hire more agents than last year, and maybe even hire them at a lower cost?

Sure. Yeah. I think it's a fantastic question. So first of all, a couple of things we've done, not necessarily hiring practices, but what we've done to continue to increase our hiring is number one, we've even proved our agent referral model. So that way, when agents refer other agents they receive greater value for those referrals because we want, right now we've always had really strong agent referrals, but we wanted to take advantage and really grow that, because there's no greater referrals to your business especially to our business than another agent referring an agent to our business. And so taking, the agents we already have, providing great service is important, providing great value is important. And then on top of that, incentivizing them and essentially turning your 8,000 agents into a recruiting force, a group of evangelists who love the company and want to share the company. So I think part of it is making sure that, we provide great value to the agents to be able to grow and accelerate our growth rate from internal agent referrals. We continue to invest in hire more salespeople, essentially recruiters, on our recruiting team to start bolstering that recruiting department and doing a better job at training them to improve the conversion ratio as well for the recruiting team. I know that's not exactly what you asked. But I want to start there because one is, not just how do you improve the hiring process, but how do you also accelerate the hiring? So that's a big part of it. And then once agents come in, we've done a great job. We've got a fantastic internal staff that focus on serving agents. And so we've got great support staff, a great accounting team, people that are just dedicated to…

Great. Thank you. And best of luck. Thanks again.

Thank you

[Operator Instructions] As there are no more questions, this concludes your question-and-answer session. I would like to turn the conference back over to Josh Harley for any closing remarks.

Thank you operator. Of course, thank you to all of you for joining our call and for all the questions we had. We do appreciate your continued support. We are extremely proud of all that we've accomplished and will continue to work diligently toward achieving our objective of adding greater value to our company, to the benefit of all of our stakeholders. So with that have a wonderful week. And thank you again.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.