Good afternoon, and welcome to Fathom Holdings Third Quarter 2024 Conference Call. Joining us today are the company's CEO, Marco Fregenal; and CFO, Joanne Zach. Before I turn the call over to management, I want to remind 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 outlined in the Risk Factors section of the company's Form 10-K for the year ended December 31, 2023, 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. Please also note that during this call, we will discuss adjusted EBITDA, 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. With that, I'll turn the call over to Fathom's President and CEO, Marco Fregenal. Sir, you may proceed.

Thank you, operator. Good afternoon, everyone, and welcome to Fathom Holdings Third Quarter 2024 Conference Call. Before diving into our results and new developments, I want to express my deepest gratitude to the Fathom family. You have shown unwavering commitment and resilience in a year filled with considerable challenges, marked by fluctuating mortgage rates, shift in buyer behavior, economic pressures, lawsuits and new rules that have changed the industry. Your exceptional efforts have propelled us forward building a strong foundation that positions us for even greater success in 2025. Our team's adaptability and innovative spirit has set us apart despite a lower housing market shaped by persistent affordability issues, tighter lending standards and a highly competitive landscape. We haven't simply weathered these conditions. We have leveraged them as opportunities to refine our strategy, seek new growth avenues and evaluate our standards. Your dedication to executing critical initiatives and maintaining high levels of service has been the cornerstone of our progress. Together, we have not only adapted to market changes, but we position Fathom to capture growth and conditions improve, setting the stage for sustained long-term success. Before we review our third quarter results, let's discuss the significant development of the acquisition of My Home Group. As discussed in prior quarters, one of our goals was to return agent growth to 25% plus annually. My Home Group is a top Arizona-based brokers ranked 27th in the nation by transaction volume. This acquisition makes a significant step in expanding our national footprint and strengthening our presence in Arizona's rapidly growing real estate market. With over 2,200 agents joining from My Home Group, the Fathom family has grown to approximately 14,500 agents nationwide. Completing over 12,000 transactions annually, My Home Group has built a strong reputation in Phoenix and surrounding markets. Given their…

Thank you, Marco, for the kind words and the confidence you have placed in me. I'm truly honored and dedicated to take on this role at Fathom. Working alongside Marco and the incredibly talented and committed Fathom team, I look forward to building on the solid foundation we've created together to date. As we enhance our financial strategies and leverage our technology, I'm excited to drive Fathom's growth, innovation and value creation for our clients agents, partners, employees and shareholders. Today, I'll walk you through our financial performance this quarter highlighting the key drivers that continue to propel us forward and share updates on the strategic priorities that are setting the stage for our future success. With that, let's dive into our financial results. Third quarter total revenue was $83.7 million, a 10% decline year-over-year compared to $93.5 million for last year's third quarter. The decrease in total revenue was primarily due to an 11% decrease in brokerage revenue and to the absence of revenue from our insurance business, which we sold on May 3, 2024. Offsetting the decline in total revenue was a $1.6 million or 44% increase in revenue from our ancillary businesses as well as the positive impact from our newly implemented high-value property fee. Despite the decrease in total revenue, our total gross profit percentage for the 2024 third quarter, excluding our sold insurance business increased to 9% from 7% for the 2023 third quarter. Technology and development expenses were approximately $2 million for the 2024 third quarter compared to $1.7 million for the third quarter of 2023. The approximate $0.3 million increase was primarily due to our continued investment in our technology platforms, including the build-out for our new revenue share program. General and administrative expense totaled $8.7 million for the 2024 third quarter compared…

Thank you, Joanne. Looking forward, our focus remains squarely on increasing revenue, agent count and transactions by over 25% annually. We believe we can accomplish this by attracting top-tier agents, teams and brokerages to a stronger-than-ever value proposition with our new agent commission plan. Tailor to the current market dynamics, these plans aren't just about reshaping Fathom, they are poised to implace the entire industry. At Fathom, we have worked hard to create a premier destination for agents and our Fathom Max and Fathom Share plan exemplifies that commitment. These offerings allow agents to maximize their earnings combined an industry-leading flat fee commission structure with an innovative revenue share program. Our vision is clear, establish Fathom Realty as a leading brand in every market we serve, reaching 50 states by 2025 with a new plan as a critical driver of this expansion. Execution is essential to achieving this vision. Our industry-leading commission structure and revenue share program are a source of competitive advantage and remain at the core of our growth strategy, equipped us to drive profitability. We provide a powerful value proposition for agents and clients with our scalable and asset-light model, proprietary technology platform and integrated mortgage and Title and SaaS services. These advantages, along with our experienced management team, strategic insight, position us well for sustained growth in the real estate industry. I'd like to express my gratitude to the entire Fathom team. Your dedication and hard work, particularly around implementing our transformative plans and essential to our growing success. Together, we're not just adapting to change,we're driving it with a clear strategy, commitment to innovation and unwavering agent-focused approach. We're positioned to lead the real estate industry into a new era of growth and profitability. Over the past months, I've doubled down on bringing in and…

[Operator Instructions]. Our first question comes from Darren Aftahi

This is Dillon on for Darren. First, to start, on the My Home Group acquisition, could you give us some more color? Did you approach them? Did they approach you? And then like what else do you see that's out there on that front? It seems like that organization specifically skewed a bit higher than your existing agent base in terms of productivity? Do you think there's other options out there? Or just how are you thinking about sort of your walkover approach or first acquisition?

Dillon, thank you for your question. We were introduced to the My Home Group by Remo, which is a real estate mergers and acquisition company that we've been working with. And we introduced them about 6, 7 months ago. Initially, the conversation was just getting to get to know each other. And after we continue that discussion, it was so clear that it would make sense for us to merge. And I described many of the reasons why they felt compelled to do that. They are a great organization. They have a higher productivity in terms of transactions per agent. And so we feel very blessed to be able to work with them now. We are seeing -- since we launched the revenue share program. We certainly have seen an increase in the number of companies approaching us. And so yes, we are definitely seeing an increase in number of companies. We are, as I discussed in my -- in the earnings call, we are in other discussions with other companies, and that's why we have confidence that we'll be able to grow agent count by 25% going forward given that these discussions and the high interest from brokerages, teams, both in terms of walkovers and in terms of acquisitions.

Great. And as a follow-up, I know you're working on your recruiting efforts. Can you talk about a little bit what's working and what you're doing differently than before? And then is there anything you think you can do maybe on the educational front or technology side of things that can help your existing agents continue to be productive despite some of the market trends?

Absolutely. So yes, we certainly have seen an increase in agents interested in learning about our revenue share model. As you know, our revenue share model is unique because we have 2 different plans, right? Unlike most companies out there that have revenue share models with just one plan, a traditional split. We have a program that has both, a flat fee and a traditional split. And so a lot of agents are interested in learning, and we are spending a lot of time educating prospective agents on that. In terms of helping our agents grow their business, we are working on several programs that we are going to announce in the next 60 to 90 days. We have the Fathom Summit next week. Some of those will be announced next week. And all these programs are designed to help our agents increase their business. They are branding programs and marketing programs, and we certainly look forward to implementing these in the next 90 days. And we believe that they would be incredibly helpful to help our agents increase that. I will also point out, as I did in our earnings call, then when we look at October numbers, our October transactions compared to last year are pretty much right on in terms of the -- and so we are -- the efforts that we began implementing in Q1 of this year to focus on higher-producing agents is beginning to pay off. And so now that as we look into Q4, we believe that we'll see an increased number of transactions per agent because of the quality of the agents that we brought on in the beginning of this year. And so I think we've sort of turned the tide in terms of agent productivity. We're about to announce some specific programs to do that and certainly the addition of My Home Group all those will contribute to an increased number of transactions in Q4 and beyond into next year.

Our next question comes from Raj Sharma with B. Riley.

I just wanted to understand, congratulations on the acquisition. The addition of these agents, you just briefly kind of touched upon, Marco, that can you talk about how much was paid or was it cash? Was it -- and how ongoing compensation incentives are structured for an agents groups coming on.

Sure. For competitive reasons, given that we are in negotiations with several other companies we certainly don't want to disclose what the payment was. What I will share is that the cash component was minimal in terms of the total purchase price. Both Jereme and Mark believe in the future of the combined companies until the majority of the purchase price was in stock, and it was paid over a couple of years. And so we feel -- I think both parties feel very good about the transaction. And because, again, we are engaged with several other companies we prefer not to disclose what the total price is. So to answer your question in terms of potential future acquisitions, yes, we are engaged in a variety of conversations with other companies. Since we announced revenue share, we've been approached by a great number of small brokers, large brokerages, teams and those conversations will continue. This is critical to us as we return to 25% agent growth on an annual basis. And that's how we feel confident that we'll be able to get back to those numbers.

That's very helpful. And so is it fair to assume that the 25% growth in agents you are anticipating starts pretty soon, and that the payment for the growth in agents would be similar, minimal cash and mostly stock.

Well, we're certainly feel that way, right? I mean, I think it's -- when you enter negotiations, there are -- everyone is a little different. But we certainly won to bring in companies where the current owners believe in the long-term value that this will bring, right? Therefore, a significant higher percentage in stock, it's advantageous to both parties. In terms of 25% growth with the acquisition of My Home Group, we're probably pretty close to that kind of growth already this year. And so as we look forward into 2025, I think starting in Q1, you're going to see an increase in agent count as well. And so we feel fairly confident that, that 25% agent growth will continue as we enter into Q1 and beyond.

Got it. And then, Marco, you mentioned that this would add an incremental $100 million in revenues starting 2025. This is $100 million from the My Home.

That's correct. Yes. When you look at the total number of transactions and revenue per transaction, this acquisition would have roughly $100 million in revenue for 2025.

And spread in a similar cadence to the existing business or through the year?

That's correct.

Also, the assumptions you're using for the $100 million are sort of similar agents -- transactions for agents and commission per transaction or basically, it'll be higher?

No. My Home Group has a higher productivity. My Home Group has done a very good job of having a higher productivity transactions per agent. So that's incredibly attractive. Second, their transactions are a bit higher. The Arizona market is a hot market. And so revenue per transaction there -- the average transaction there is a bit higher than ours because, again, we're a national company, right? So we are in a lot of markets in which the transactions are -- the average transaction is a bit lower. So -- but focus on the Arizona market, they have a higher transaction price per transaction in a higher productivity transactions per agents. So both of those are going to have a significant positive impact in the overall performance of Fathom.

Got it. And then just lastly, Marco, is it too early to comment on or pontificate on the impact of the cuts today, the earlier cut on your transactions?

Sure, the 25 basis cut that was done today. So it's probably a little too early, right? We know what happened after 50 basis cut a couple of months ago. And the 10-year note went up. And I think everyone anticipated it to go up a little. I don't think anyone -- well, I shouldn't say anymore. But I think most of us did not anticipate rates to go up so much higher. And so given that, I would hold judgment on what the impact will be on the 25 basis points. I think we have to see -- I think the 10-year came down a little bit after that. I think that there's some recent comments about how the new administration is going to affect the inflation. So I think there's a lot of moving parts to this. We are going to assume that rates are going to be where rates are. And our focus is going to be on growing transactions, therefore, growing revenue and consequently growing EBITDA. And we're going to do that by accelerating our growth, getting us focused on growing our business by 25% plus per year, and then the rest will take care for itself. We don't have control of interest rate I only have control about the things that I can do, which is focus on our entire team on growing the business and getting us back to this 25% plus growth a year, which as we continue to do that, it will take care of our profitability. So that's our focus.

Thank you for your questions. With that, we will be concluding today's question-and-answer session. I'd like to turn the call over to Mr. Fregenal, for his closing remarks. Sir, please proceed.

Thank you, everyone, for joining us today. We appreciate everybody's focus. I certainly want to thank the entire team for all their hard work and continued commitment. As always, I'm available for calls. And I hope everyone has a great rest of the week and weekend. Thank you all.

Ladies and gentlemen, with that, we'll conclude today's conference call. Thank you for joining. You may now disconnect your lines. Have a pleasant evening.