Good day, and welcome to the Fathom Holdings First Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Roger Pondel with PondelWilkinson. Please go ahead.

Thank you, Matt, and welcome everyone, to Fathom Holdings 2022 first quarter conference call. I am Roger Pondel with PondelWilkinson, Fathom's investor relations firm. And it is my pleasure today 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 forward-looking 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 latest Form 10-K and subsequent Form 10-Qs 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, a non-GAAP financial measure as defined by SEC Regulation G. A reconciliation of this non-GAAP financial measure to the most recently comparable GAAP measure is included in today's press release, which is now posted on Fathom's website. And with that, I will turn 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 deeply appreciates your support and of course, your faith in us. Before we review the significant business and financial progress Fathom has made since our last call, I want to thank our agents and our employees for their unwavering hard work and success in moving us forwards toward our vision and of course in helping us grow with the company. Quarter-after-quarter, our results continue to demonstrate the power of our truly disruptive business model and I am proud to be here sharing the reasons why we have and believe we will continue to achieve significant growth. We are winning through innovation and by delivering real long-term value to our agents, our employees, our clients and our shareholders. Now the latest RealTrends brokerage rankers that came out reported that Fathom Realty is now the sixth largest independent real estate brokerage in America and the tenth largest brokerage overall, which includes franchise. Over the last four years, we’ve jumped from the 16th spots to the 11th, to the 9th and now the 6th largest and there is no – and that’s by the way, that’s a very good reason why we are skylocking up the charts mainly due to the fact that the value we provide agents who joined Fathom is unmatched by our peers. I once heard someone state that an agent’s commission split only matters in the absence of value. But what if all things were equal in regard to technology, resource, support, et cetera, [Indiscernible] matter a lot and that’s why I believe we are winning. There is really nothing outside of empty offices that our peers can give their agents that we cannot and yet we can offer everything to our…

Thank you, Josh. Good afternoon, everyone. I'll start with a detailed review of our first quarter results, and we'll finish with our updated guidance for this year. First quarter revenues grew 81.4% year-over-year to $90.1 million, compared with $49.6 million for last year's first quarter. The increase resulted from growth in real estate transactions, increase average revenue per real estate transaction and revenue contributions from our newly acquired businesses. GAAP net loss for the quarter was $6 million or a loss of $0.37 per share, compared with a loss of $3.4 million or $0.25 per share for the 2021 first quarter. The year-over-year change in GAAP net loss resulted principally from investments in future growth, operational and overhead costs related to acquired companies, incremental costs due to transition to a public company, and increases in noncash stock compensation and noncash amortization of acquired intangible assets. Adjusted EBITDA loss, a non-GAAP measure was $2.1 million versus adjusted EBITDA loss of $2 million for the first quarter of 2021. In the 2022 first quarter, G&A was $10.8 million or about 12% of revenue, compared with $6.1 million or 12.3% of revenue for the same period a year ago. The increase in G&A in absolute terms was primarily attributed to recently completed acquisitions and increases in noncash stock compensation expense. The anticipated that G&A expense will continue to increase on an absolute dollar basis going forward, driven by acquisitions and costs related to scaling integrating our business lines. However, as we did this quarter compared to last year, G&A as a percentage of revenue is expected to decline over the long-term as revenue increases. Expenses related to marketing activities were $1.1 million versus $402,000 for the last year's first quarter, mostly driven by an increase in marketing activities related to new market openings…

Thank you, Marco. We believe that Fathom has a clear visible and long runway with tremendous growth prospects, no matter what the market holds, we believe 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 a part of our Fathom family. So, with that, operator, we're now ready to open the call to questions.

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

Hey guys. Thanks for taking my questions and a nice quarter. So, a couple if I may. First, I am just kind of curious, I know interest rates have been creeping up throughout the year. I am just kind of curious what your general thoughts? Or if you have seen any changes in your business in the second quarter to-date? And then, I’ve got two more follow-ups.

Yeah, let me address the first part of that and have Marco address the second part. Our friends today sent me a chart showing that buyer sentiment is down, how they feel about the market, is today the right time to buy and it’s pretty low right now. However, what’s interesting is that, buyer sentiment does not actually connect with what we are actually seeing in the street. So, as we talk to buyers in the street, as our agents are talking to buyers, we are not really seeing a reduction in people raise their hands saying I want to look for homes. And I think when we ask them it will feel that great about the market, why you are still looking to buy a home and the reason is because, that whole fear of loss, because I think it’s going to – prices keep going up and if I wait then the $400,000 home I am looking for is not going to be $420,000 or $430,000. So, yes, I don’t love these illustrates but I also don’t love the idea of buying the same home for $430,000 now. So, it’s interesting to see how the sentiment can be disconnected from what’s actually happened in real life. But Marco, do you want to address the second part of that how we are actually seeing an effect of Q2?

Yeah. Thank you, Darren. Thank you for your question. We track file starts almost on a daily basis and up to April of this year we have not seen a reduction in file starts. Now, that does not mean that in May that would change. But from January, all the way to end of April, we have not seen – we are still consistently had the same increase in file starts that we actually had last year – in Q1 of last year, as well. So, that doesn’t mean that it may change by the end of May, but thus far, we have not seen a decrease in that.

That’s helpful. Thanks. Two more so - on, you raised revenue for the full year by, I think $20 million if my math is right. But you kept the adjusted EBITDA range with the same – maybe just the commentary around that contracts, maybe any kind of puts and takes on cost?

Yeah. So, the reason for that is that we are seeing some compressions in margins in the mortgage business and we don’t know if those are going to continue to accelerate or are they going to stay consistent. So, we did increase our revenue guidance for the year. But we want to be cautious given that we are beginning to see some compression in the mortgage business. The mortgage business is still very small part of our business, right. And so, but we want to kind of hedge that and make sure that we are conservative in our adjusted EBITDA guidance. We are very keen in making sure we make our numbers when we say we are going to make them that. So that’s the reason for that.

Great. And then just last one from me. Can you just talk about where you guys stand on lead generation and kind of how you decide which markets to roll that out to and how fast you are taking kind of greater scales in the markets and kind of what impact that’s having on other areas of the business with the attach rates? Thanks.

Marco, let me just kind of part of it – I want you address how we look at markets and how fast we are rolling out markets. One of the things that we are being very careful about is that while lead generation has a great return on investment long-term, the initial upfront cost can be great. And so, we want to always be good stewards right now. We are pushing for profitability. And so, we are trying to balance the two. How fast we spend the dollars to generate the leads, but knowing that the dollar I spend today may convert – that lead may convert nine months from now or 12 months from now. And so we want to be very careful about how we do that. So, we are trying to be very thoughtful about how quickly rolled out if this was a different era, we’d probably rolling it out much, much faster. Right now we are taking the time to really prove it out and we got a great team that works with the leads that come in. They nurture those leads then they assign those leads to agents. We are spending a lot more time training the agents, working through scripts and what works the best to get the highest conversion ratio. So in other words, for every dollar we do spend, even though it may take nine months or more to actually convert into a closing, we want to make sure we convert higher percentage of those leads into closings. So we are very thoughtful about how we do that to source markets. Why don’t you address that Marco?

Sure. So we generally, our leads program is comprised of three different, with general leads some more and through just regular pay-per-click and ads. Second is use our live by data and third is our Hispanic division. So, again we generate leads in three different ways. We are currently are in five to six markets across the country, markets like Las Vegas, Southern California, Houston, Atlanta, Charlotte and I believe Chicago now. And so, those are the markets that we are in. As we continue to prove the financial results of the pilot, they will go ahead and look into other markets. So we did increased from three to six and thus far continues to go out, but discussion indicated there is a significant investment into lead generation that typically takes six to nine months to prove itself. And so, right now we are currently with six markets. We think we’ll probably continue into six markets for the rest of the year, prove our model and then probably increase that either later in the year or early next year.

Thank you.

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

Good evening guys. Thanks for taking my questions. And maybe just a follow-up on the topic of rising rates and sentiment and it sounds like the transaction pipeline looks fine. I was curious whether you are seeing or whether you anticipate sort of any change in kind of the M&A pipeline and how you are thinking about that over the next few quarters? And then, I had a follow-up or two.

Sure. No, thanks asking the question. So, from an M&A standpoint, we are thinking about brokerages is really a focus of our M&A is on real estate brokerages. There is two ways of doing it, one is through acquisition and the other is through a walkover. So those if you don’t know a walkover is, a walkover be a group of let’s say 50 agents or 90 agents that instead of acquiring their company and going through all of the auditing of their books and make show that, we basically acquire the company or acquire the group by moving them over – moving all the licensing over to Fathom makes it easier. It’s faster instead of taking 4, 5, 6 months to go through the whole process of the acquisition. Sometimes we get that done in 60 days or 90 days. So it cuts the time in-house. It’s faster and it obviously costs less because we don’t have as many legal fees and part of increase all the other funds that they go into it. So, those are nice – we like to focus more on the walkovers. And so, I think over time you will still see acquisitions that we make, we are actively pursuing acquisitions. What’s interesting to know is usually acquisitions pursue us as the walkovers. It’s not as often that we are reaching out the people saying hey, that you are thought about selling, we’d love to have you join our Fathom family? Excuse me. The other way around it. Hey, I see guys in the market. I love what you are doing. We are struggling over here. I’d love to be - actually don’t, they never say that they are struggling, but we can see they are struggling if we look at their numbers. But,…

Great. Thanks. Thanks for that. Maybe just one follow-up on the buyback. I realize you guys announced the program I think in mid March. But the balance sheet is healthy and I realize you’ve got a bunch of different kind of growth investment opportunities in parts of the business. But just curious if what are your thoughts on maybe getting more aggressive on buying back stock or given kind of what’s happening with it?

Sure. As far as the aggressive and we are kind of – our hands are tied a little bit because of the qualified plan that we had under that SEC rule, we can only sell so much per day, like we had no control over what was sold – what was bought per day. So we had no control over it. It just happened the way it happened. Can we get more aggressive? I don’t - honestly I don’t have the answer to that. I think Marco might be able to speak to that a little better than I do. I know that we created a plan, we said we want to be aggressive and honestly, I think we are – if we look at what we are buying per day, we were doing just that as far as what we are allowed to do. The problem is we don’t have as much activity in our stock. So we are not selling, I think our average is about 70,000 to 80,000 shares per day and so, we are kind of limited there. But yes, if we have the ability, we’d love to be a bit more aggressive on it, especially right now where the stock is still incredibly desirable where it is right now. We think it’s incredible opportunity. So, one of the things, kind of go back to your first question is, we’ve got a pretty healthy balance sheet and where do we best spend that dollar, right. Is it better to buy back a share? Or is it better to buy another agent? Like how do we grow and I think we can – as my saying goes chew gum and walk at the same time, I think we continue to be aggressive and buy back more stock as well as making acquisitions or walkovers. And so that’s kind of what we are pursuing. But there is probably lot of data goes by that Marco and I don’t have a conversation with sometimes with some of our Board members as well about how we best move forward in this avenue or that avenue or this lane or that lane. And so we are trying to be very thoughtful and making sure we are always doing the best for our shareholders.

Tom, I think one of the things that makes our position interesting is that, given our guidance for Q2 to be adjusted EBITDA positive, and then if we reach our adjusted EBITDA positive for the year it means that, for Q2, 3 and 4 are all going to be adjusted EBITDA positive, right. And so, it puts us in a very strong position then we are not going to burn cash anymore and give our strong balance sheet. So we have a variety of the opportunities here to look at not only a cash buyback, continuing to do that, but also if you look at all the interesting opportunities in the market as Josh mentioned earlier, we are beginning to see more and more companies between 25 and 100 agents, right. And I think that’s going to be – one of the things that are going to sort of change the slope of the curve for our growth curve going forward, is the number of these walkovers that we are going to see in the second half of this year and first half of next year. I think that’s one of the things that – the reason we raised capital at the end of last year is because to a certain extent we anticipated somewhat that will be more company that will be interested in doing this. So, I think when you put all together, I think it puts us in a very strong position. We are estimating reaching adjusted EBITDA in Q2. We have a strong balance sheet. You put those things together, it gives us the ability to go execute, continue to grow at a significant pace and still look at continue to buy stock. So, we feel very good about our position right now.

Great. Thank you guys.

Thank you.

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

Thank you so much operator, appreciated. Thank you again for everyone that’s been on the call today and of course for your continued support. We are extremely proud of all that we've accomplished, and we'll continue to work diligently toward achieving our objective of adding greater value to our company for the benefit of all of our stakeholders. And so with that, have a wonderful week, and May the 4th be with you.

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