Fathom Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 14, 2024

Key Takeaways

  • Fathom reported Q4 2023 revenue of $74.1 M (down 11.2% YoY) and full-year revenue of $345.2 M (down 16%), while improving adjusted EBITDA loss to $2.9 M in Q4 (vs. $5.9 M) and $4.1 M for the year (vs. $12.2 M).
  • The agent network grew 13.7% in 2023, driven by enhanced recruitment programs (e.g., Producer Perks), a >200% surge in Careers page traffic, and a 7% increase in Q4 onboarding starts, with acquisition cost per agent $10.50 (breakeven < $11.50).
  • Mortgage file starts jumped 89% in Jan–Feb, aided by the acquisition of Elite Financing Group in Texas and a dedicated Latino division, while Verus Title saw a 16% increase in early-2024 filings and is launching JVs to boost attachment rates and EBITDA.
  • Fathom aims to accelerate agent growth back to 25–30%, expand to all 50 states (currently in 41), and be a top 4–5 brand in each market, with plans to launch marketing campaigns and technology upgrades to drive productivity.
  • The company targets operating cash flow breakeven by Q2 2024 and full-year positive adjusted EBITDA, supported by $1 M in quarterly cost reductions, a recent commission-structure revision adding an estimated $3.1 M in EBITDA, and anticipated outsized contributions from ancillary services.
AI Generated. May Contain Errors.
Earnings Conference Call
Fathom Q4 2023
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good afternoon, and welcome to the Fathom Holdings, Inc. 4th Quarter 2023 Earnings Conference Call. All participants will be in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Alex Kustin with Gateway Group.

Operator

Please go ahead.

Speaker 1

Great. Thank you, operator, and welcome, everyone, to the Fathom Holdings 4th quarter year end 2023 conference call. I'm Alex Kustin with Gateway Group, Fathom's Investor Relations firm. Before I turn things over to the Fathom management team, I would want to remind listeners that today's call may include forward looking statements within the meaning of the 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 Form 10 ks for the year ended December 31, 2020, as well as the company's subsequent Form 10 Qs, the company's upcoming Form 10 ks 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.

Speaker 1

As a result of these 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 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. So with that, I'll turn the call over to Fathom's President and CEO, Marco Frigonol.

Speaker 1

Marco?

Speaker 2

Thank you, Alex, and good afternoon, everyone, and a warm welcome to everyone joining us for our Q4 full year 2022 earnings call. I'm incredibly proud of our Fathom family and I'm grateful for your unwavering dedication, hard work and commitment to excellence. Your efforts have played a pivotal role in shaping Fathom into the exceptional company it is today. Despite the challenges faced in 2023, our team's resilience and determination have been truly remarkable. I am deeply thankful for all of you and your significant contributions to our continued success.

Speaker 2

I am proud of what FADO has accomplished in 2023 despite the challenging conditions in the residential real estate market. Our team's commitment to our growth strategy allowed us to navigate the obstacles and make significant strides to position Fathom favorably for the upcoming year. Fathom's total 4th quarter revenue was $74,100,000 a decrease of 11.2% from $83,400,000 for the 2022 Q4. The $10,100,000 decrease in brokers revenue was primarily due to the decline in brokers transactions, but it was partially offset by the 20.5% increase in Fathom's ancillary services, particularly in Fathom's mortgage business. Total revenue for 2023 was $345,200,000 a decrease of 16% from $412,900,000 for 2022.

Speaker 2

Adjusted EBITDA loss, a non GAAP measure improved to a total loss of $2,900,000 in the Q4 of 2023, compared with an adjusted EBITDA loss of approximately $5,900,000 in the Q4 of 2022. The improvement in adjusted EBITDA reflects our continued commitment to achieving and remaining adjusted EBITDA positive moving forward. For the full year, adjusted EBITDA loss was $4,100,000 in 2023 versus an adjusted EBITDA loss of $12,200,000 for 2022. Our focus on market share expansion from legacy brokerage firms throughout the year remains that fast. Notably, we experienced a substantial 13.7% growth in our agent network for the full year, which stands out compared to the reported domestic agent growth for all, but one of our public peers.

Speaker 2

Both ongoing agent referral efforts and our introduction of walkovers in key regions, including Louisiana, Massachusetts, California, fueled this growth. In the Q4 of 2023, we implemented various programs to enhance agent recruitment, including the reintroduction of our producer Perks in October, a program designed to attract high performing agents that has yields promising early results. We also observed a remarkable increase of over 200% in visitors to Fathom's Careers page, surging from 2,100 visitors in Q3 of 2023 to an impressive 6,600 visitors in Q4 of 2023. Additionally, our onboarding starts continue to gain momentum in Q4 of 2023, increasing by over 7% from Q3 of 2023. Our agent growth in the 4th quarter further validates that we're winning through innovation and truly disrupt the business model that continues to resonate among agents.

Speaker 2

Our new agents will value Fathom's proprietary cloud based software, IntelliAgent. They will also benefit from having additional Fathom services to offer their clients, including mortgage and insurance services as we continue to help our agents grow their businesses. Our cost to acquire 1 agent during Q4 remain low at approximately $10.50 making our breakeven on each agent less than $11.50 will earn on their first sale. We also maintain a strong retention rate, which is exceptionally positive news given the backdrop of agents leaving the industry. FASM completed approximately 38,100 and 39 real estate transactions in 2023, a decline of approximately 14.6 year over year transaction growth in key markets such as Nevada, Missouri and Utah.

Speaker 2

This notably accomplishment underscores our ability to seize market share from legacy brokerage firms, showcasing our adaptability in a volatile environment. Looking ahead, we're optimistic about the anticipated impact of our producer perks program on agent transactions in 2024. This initiative will further enhance our market position and contribute to sustained growth in the coming year. Now let's discuss our mortgage business. While acknowledging its significant negative impact in our financial performance in 2023, our dedicated team has exerted tremendous effort to turn things around in 2024.

Speaker 2

One notable stride is our strategic expansion of our mortgage operations in Texas by acquiring Austin based Elite Financing Group. This move fortifies our existing presence in Dallas for work market and extends our reach into Austin, enabling us to cater to a broader clientele across Texas. Recognizing the increase in demand in the Latino segment, we have established a dedicated division within Encompass Lending Group to work closely with our Latino division at Fathom. Thus far, we're encouraged by the results for the 1st 2 months of this year, which showed an impressive 89% increase in file start compared to the same period in 2022. This positive momentum fuels our optimism for our mortgage business continued success and growth in the months ahead.

Speaker 2

While Q4 is a challenging quarter for Verus Title, we are encouraged given the 16% increase in Filestar for the 1st 2 months compared to last year. Moreover, we expect our recent announcement regarding the joint venture with agents in Texas to significantly improve our attachment rate and EBITDA. During 2023, we're pleased that Fathom continue outperforming many of its peers regarding agent growth and transactions in a challenging market environment. Although the residential real estate industry remains difficult, we believe that our future remains bright and by continuing to grow our agent base, we're positioning Fathom to continue success once the industry rebounds. We are making meaningful progress advancing our growth strategy, expanding our agent network, optimizing our business for profitable growth and creating an industry leading commission model that continues to resonate well in the current real estate environment and will continue to do so going forward.

Speaker 2

Now let's briefly discuss our goals for 2024. 1st, we remain focused on accelerating Fathom's agent growth with the goal of returning our historical agent growth rate of 25% to 30%. Moving ahead, we focus more on attracting high quality agents, teams and brokerages as our agent value proposition remains compelling in the current environment and our pipeline of opportunities remains robust. We believe we are the most attractive home for agents in the long term as we help them ultimately earn more money with an industry leading flat fee commission split to agents. Our goal remains to be one of the top 4 or 5 brands in every market where we operate, and we continue to progress towards those targets.

Speaker 2

We are now in 41 states, and we're striving to be in all 50 states by the end of the year. We also plan to launch various marketing programs and new technology enhancements in the coming months to provide greater value to our agents, improving productivity and ultimately make them more successful. Our second goal is to achieve operating cash flow breakeven as early as the Q2 of 2024, while we remain committed to returning to positive adjusted EBITDA for the full year in 2024. During the Q4, we announced we revised an agent commission structure that we believe will add an estimated $3,100,000 in EBITDA for 2024. We believe this slight increase in agent fees will have a minimum impact on our agents who are helping Fathom achieve our objectives and provide our agents with an ever improving agent offering.

Speaker 2

We also remain focused on identifying additional opportunities for operational efficiency to further reduce our expenses. In Q4 of 2023, we implement cost reductions totaling approximately $1,000,000 per quarter, which will take full effect in Q1 of 20 More importantly, this cost reduction should not sacrifice our growth trajectory as we have increased the size of our recruiting team and plan to continue growing the recruiting team in 2024 to support agent growth efforts. Now turning our attention to ancillary businesses. We recognize the potential for these businesses to significantly augment our revenue and hence profitability per transaction over time. Early indicators for 2024 are promising, suggesting the initiatives implemented in Q4 are starting to yield positive results.

Speaker 2

Notably, we are witnessing a substantial increase in file starts for our mortgage and title businesses. This positive trend aligns with our strategic objectives and reinforces our belief in our ancillary businesses long term viability. We do expect both businesses to outpace the growth of our core brokerage business and contribute in a significant matter to our EBITDA in 2024 and beyond. This week, we also announced a new joint venture between our title subsidiary and Fathom Rio's stock producers in Texas called Verus Title Elite to improve agent productivity and ultimately enhance profitability. This strategic collaboration should elevate agent productivity, enhancing profitability for all parties involved.

Speaker 2

Verisk Elite aims to provide our agents with elevated support, creating platforms that foster success and presents lucrative opportunities for increased earnings. By forging this joint venture, we're confident we can further bolster our tax rates going forward. This will be the first of such joint ventures and we look forward by creating others in the coming months. Finally, we continue to focus our balance sheet to navigate the current environment and position Fathom for growth opportunities in 2024. We believe our current cash position and overall liquidity provides us with a runaway to grow the business and execute our strategy through operating cash flow breakeven.

Speaker 2

In the last few quarters, we have seen an increase in the number of smaller real estate brokerages interested in merging with larger companies. We believe that market consolidation will increase in 2024 and 2025. It is with that in mind that we'll continue to be opportunistic in our approach in acquiring smaller brokerages. In summary, we remain encouraged by the trends we're seeing across our business despite a more challenging quarter and year for fab in the real estate industry. Even with today's economic uncertainty and subdued real estate market conditions, we believe that Fathom has a long and positive runway ahead, and we expect to turn the corner towards profitability growth in the coming quarters, while starting to show the operating leverage in our business.

Speaker 2

We are entering 2024 in a position of strength and optimism with the opportunities in front of us. With that, I'd like to pass the call over to Joanne Szack, our Senior Vice President of Finance, so she can discuss our financial results in more detail.

Speaker 3

Thanks, Mao. I'll start with a detailed review of our Q4 and full year 2023 results. 4th quarter total revenue declined 11% year over year to $74,000,000 compared with $83,000,000 for last year's Q4. This decline was primarily due to a 13% decrease in brokerage revenues that was partially offset by a 21% increase in ancillary revenues, which were primarily related to our mortgage business, which benefited from slightly declining interest rates in the later part of Q4 and from our strategic expansion of mortgage operations in Texas. For the 2023 year, total revenue decreased 16% to $345,000,000 compared to $413,000,000 in the prior year.

Speaker 3

For the year, brokerage revenues declined by 17% and ancillary revenues declined by 11%. Overall revenues are lower in 2023 compared to 2022 due to lower transaction volumes attributable to rising home prices and for much of the year surging mortgage rates that made 2023 the least affordable market in decades. GAAP net loss for the Q4 2023 was 8,400,000

Speaker 2

or a loss of

Speaker 3

$0.50 per share compared with a loss of $9,900,000 or a loss of $0.63 per share for the 2022 Q4. Our net loss was lower in Q4, 2023 due to improved margins on our brokerage transactions attributable to our fee increase initiated in January 2023 and to our cost savings efforts that began in 2022 and carry forward in 2023, partially offset by an increase in stock compensation costs and increases in interest and income tax expenses. GAAP net loss for the full 23 year was CAD 24,000,000 or a loss of CAD 1.47 per share compared with a GAAP net loss of CAD 27,600,000 or a loss of CAD 1 point $7.3 per share for 2022. This reduction in net loss was attributable to our strategic cost saving efforts in all areas, which included reductions in headcount, reductions in third party vendor costs and payroll reductions for the management team, partially offset by an increase in stock compensation costs and amortization of intangible assets and increases in interest and income tax expenses. Adjusted EBITDA loss, a non GAAP measure was $2,900,000 in the 2023 4th quarter versus adjusted EBITDA loss of $5,900,000 for the 4th quarter in 2022, primarily due to a 1 point $5,000,000 reduction in net loss, which included an increase in non cash stock compensation cost of 1,000,000 dollars and an increase in income tax expense and interest expense of $300,000 $100,000 respectively.

Speaker 3

For the full year 'twenty three, adjusted EBITDA loss was $4,100,000 versus an adjusted EBITDA loss of $12,200,000 for 'twenty two due to a CAD 3,600,000 reduction in net loss, which included an increase in non cash stock compensation cost of CAD 3,900,000 dollars and an increase in non cash depreciation and amortization of 600,000 dollars G and A expense totaled $10,100,000 for the 2023 Q4, a decrease of 6.3% compared with $10,800,000 for the Q4 of 2022. General and administrative expenses totaled $38,800,000 for the full twenty 23 year, a decrease of 10.3% compared with $43,200,000 for the full twenty 22 year due to our cost cutting initiatives, partially offset by a $2,500,000 increase in stock compensation costs in 2023 compared to 2022. On a sequential basis, G and A increased by $300,000 primarily due to the additional G and A brought on by a mortgage operations expansion in Texas and to increased expenditures related to agent recruiting. Expenses related to marketing activities were $900,000 for the Q4 of 2020 3 compared to $1,300,000 in the Q4 of 2022. For the full year, 2023 marketing expenses decreased by $1,900,000 to $3,300,000 in 2023 compared to $5,200,000 for the full year 2022.

Speaker 3

The 28.5% and 35.8% reduction in marketing expenses in Q4 and for the full year respectively reflect the benefits of our expense reductions implemented in late 2022 early 2023. Now I'll spend some time reviewing our business segment results in more detail. As with all real estate companies, Q4 was a difficult quarter for our real estate division. We closed approximately 8,290 real estate transactions in the quarter, an 11% decrease from last year's Q4. For the full year, we closed approximately 38,140 real estate transactions, a 14.7% decrease relative to the prior year.

Speaker 3

We ended the Q4 with 11,795 agents, which represented a 13.7% growth rate over the Q4 of 2022, while the National Association of Realtors saw a membership decline of approximately 1.6%. We have seen an increase of 26% in onboarding starts in year to date over Q4, which should result in an increase in the number of agents joining Fathom going forward. Revenue for the Real Estate division was approximately $400,000 in the 4th quarter compared to $79,500,000 for the same period last year, which represents a 12.8% decrease attributable to a decrease in transactions in the price of homes. Adjusted EBITDA income in the Real Estate division was approximately $200,000 in Q4 of 2023, an increase of $1,500,000 compared to adjusted EBITDA loss of $1,300,000 in Q4 of 2022. For the full year, adjusted EBITDA income was $5,700,000 in 2023 compared to $2,000,000 for the full year 2022.

Speaker 3

These improvements were achieved despite the decrease in transactions for Q4 2023 and for the 2023 year and reflect our increase in fees implemented in January 2023 and the favorable impact of our continued cost cutting measures. Our mortgage business generated revenues of $1,800,000 in Q4 2023 compared to $1,300,000 in the prior year period. Mortgage adjusted EBITDA for Q4 2023 was a loss of $800,000 compared to an adjusted $1,000,000 to $7,300,000 compared to $8,300,000 in the prior year, adjusted EBITDA loss for 2023 improved to $1,900,000 compared to a $2,900,000 adjusted EBITDA loss in 2022. This is due to continued strategic cost cutting measures. Our team continues to identify opportunities to reduce expenses to right size our mortgage business going forward, as well as to increase revenues by recruiting additional loan officers.

Speaker 3

DIA, our insurance business, generated revenues of $1,400,000 for the quarter and a total of $6,300,000 in revenues for the year. DIA had positive adjusted EBITDA of $200,000 for the 2023 quarter and 1 point $1,000,000 for the full 2023 year compared to adjusted EBITDA loss of approximately $100,000 for the 2022 4th quarter and $500,000 of adjusted EBITDA income for the full year 2022. Verus Title had revenues of $700,000 for the quarter $3,100,000 for the year. Verus Title's adjusted EBITDA for the 2023 quarter was a negative $200,000 and a negative $600,000 for the full year. We anticipate that our new Texas joint venture scheduled to commence business in early Q2 2024 and similar joint ventures with our top producing real estate agents will add meaningful revenues and adjusted EBITDA for our title business.

Speaker 3

Moving to our Technology segment, revenues increased 10% to approximately 800,000 dollars compared to $700,000 for last year's 4th quarter. Adjusted EBITDA loss increased from a loss of $200,000 in the Q4 of last year to a loss of $500,000 in the current quarter, reflecting our increased investment in managing and enhancing our technology platform. Our LiveVite team has significantly increased its footprint across the country to reach over 245 MLSs and 420,000 agents at the end of the quarter. Liveby powers more than 4,000,000 community pages with over 125,000 neighborhood reports created. We continue to be keenly focused on our balance sheet given the dynamic real estate market conditions.

Speaker 3

We ended the quarter with a cash position of $7,400,000 which includes the $4,200,000 in net proceeds from the offering we completed in December. We did not purchase any shares in the Q4 under the stock repurchase plan and approximately $4,000,000 remains under that authorization. With that, I will turn the call back over to Marco for closing remarks.

Speaker 2

Thank you, Joanne. We remain focused on executing and taking necessary steps to better position Fathom in the current environment in preparation for when the market recovers. I want to thank the entire SABOM team on its hard work as we navigate this market and continue to serve our clients. With that, operator, let's open the call for questions.

Operator

We will now begin the question and answer session. And our first question will come from John Campbell of Stephens. Please go ahead.

Speaker 4

Hey, guys. Good afternoon.

Speaker 2

Hey, John. How are you?

Speaker 4

Doing well. Doing well. Thanks. Good. Mark, I'm hoping you could provide a little bit of direction on gross margin for the year.

Speaker 4

I mean, there's some moving pieces with the agencies. Doesn't like you're going to be in for a better year on ancillary services revenue. So I know that's going to have some degree of an impact. But maybe as a starting point, if you held rev flat year over year, what would what kind of impact would you expect from gross margin just from the fee increases? And then however you want to frame it up from there, just assuming any kind of revenue growth scenarios?

Speaker 2

Sure. Yes, absolutely. So great question. Fees increase is going to give us about 1 to 1.5 points on gross margin, just that by itself over the year, okay? And that's, of course, on the Realty side, right?

Speaker 2

And then as we one of the things we are really, really excited about is the growth in final stars for mortgage and title, especially the JV. So as we mentioned in the call, we think that mortgage and title is going to outpace the growth of brokerage and therefore drive significant margin increase in gross profit margin. So we could see gross profit margins when you look at our combined businesses north of 11% and probably by the end of the year could see as high as 12% or 13%, depending how well our mortgage business. And one of the things I want to make sure, in our mortgage growth, it's not so much we're not really counting on a decrease in interest rate. The reason why our mortgage business is doing so well is because we're growing adding more loan officers.

Speaker 2

Under the leadership of Sean Barron and Paul Marr, we've been able to almost double their number of LOs into our business and therefore really growing the business. So if then the rates come down second half, we can really see a significant increase in our mortgage business. So we're very excited about that. But in terms of margins, turning 10% to 11% when you look at the combined businesses. And then depending how the rates change later in the year, we could see as high as 12%, 13%.

Speaker 4

Okay. That's helpful. And then on the agent additions, I mean, from a sequential standpoint, that was the best net adds you guys have had since the second quarter of 2022. Obviously, that was in a far better kind of macro backdrop. So I'm hoping you can maybe unpack strength there and just maybe starting off just roughly how much of that was inorganic and then if you can talk to the underlying attrition rate and how that's looked versus prior periods?

Speaker 2

Yes, absolutely. Great question. So yes, it is the best month on sequential basis for 2023. There are several key factors there. So first of all, our onboarding starts have significantly increased.

Speaker 2

We talked about their onboarding starts in Q4 basically 7% higher than Q3. And so we are definitely attracting more agents. And we actually had the highest number of gross number in terms of adding to the company, right? And then now having said that, turnover is higher than expected. We are losing more agents like everyone else, especially non producing agents.

Speaker 2

And so that is part of the formula, if you will. But definitely, we had the highest number of gross adds. And part of that is part of our a variety of different marketing programs that we started very late Q3, really in Q4 that will continue in Q1. So we feel good about our agent growth going forward. We are going to be more focused on higher producing agents.

Speaker 2

They have a variety of programs focused on that, including producer perks. And some of them have yield very early some really good results. So yes, we feel good about our agent growth and a lot of it has to do with our significant increase in visitors come to Fathom Careers. We significantly increased that traffic coming in. And so all of that is going to contribute to a higher agent growth.

Speaker 2

And that's why one of the goals for this year is to come back to our historical 25% to 30% agent growth.

Speaker 4

Okay. Thank you.

Operator

The next question comes from Darren Fati of ROTH MKM. Please go ahead.

Speaker 5

Hey, this is Dylan on for Darren. Thanks for taking the questions. I wanted to follow-up first on the commentary you made about, I think it was Q1 year to date onboarding being up 26%. Could you just first clarify that? And then if that is the case, what do you have to do to execute on the bulk of that number so they don't slip through the cracks?

Speaker 2

Yes. Actually, that was the onboarding growth in Q4, right? It was Q4 onboarding growth over that. Look, execution is this is one of the key things why we increased our recurring team. We early on realized that our Fathom Currys page has significantly increased the traffic from like 2,100 visitors to 6,600 visitors.

Speaker 2

So therefore, we hire more recruiters to be able to follow-up on that, right? So the execution really comes from just having a bigger team and having the ability to go execute on that. And the recurring team is under Samantha Juja and she does a phenomenal job of making sure that that happens, right? And so but to clarify that, that is the growth in Q4. Now that has continued in Q1.

Speaker 2

So we are seeing a significant growth in onboarding starts and traffic. So I think that the pattern that we've seen in Q4 will continue through 2024. And this is why, again, we want to go back to 25% to 30% agent growth as one of our key goals for 2024.

Speaker 5

Got it. And on the cost side, I guess with the 1,000,000 dollars cost savings, like how much of that did you realize in 4Q, so we can sort of get a better idea as to what Q1 might look like?

Speaker 2

Great question. Almost very little in Q4. The $4,000,000 will be we'll see that in Q1. And so as you look from Q4 to Q1, I think 90% to 95% will be so 5% to 10% when in Q4. In Q1, you see 100%.

Speaker 2

So when comparing quarters, you can almost compare the entire million as cost reduction.

Speaker 5

Okay, perfect. Thank you.

Operator

The next question comes from Tom White of D. A. Davidson. Please go ahead.

Speaker 6

Great. Thanks for taking my questions. Maybe just a quick follow-up on the agent growth commentary. Marco, I'm just curious, would you say that most of the attraction is the result of kind of corporate led sort of initiatives and or I'm curious whether some of the kind of the rank and file existing agents of yours, them doing a bit more recruiting is the main driver? And then I got a couple of

Speaker 2

ups. Yes. Hey, Tom, good to talk to you. So there are 2 key factors, right? One is our agent referring other agents.

Speaker 2

That continues to be roughly 40% of our agent growth, okay? And so that we continue to do that. It really is a combination of both, right? Because what happens is, as we from sort of the home office, as we drive visitors to come to Fathom Careers, those agents registering, they are distributed to our additional directors across the country and our recruiters across country. So they go hand in hand, right?

Speaker 2

Also organically across the country, our DISHIA Directors and recruiters are talking to agents and they drive those agents to the path of inquiry. So it's a fairly cohesive process and it's very collaborative between the field and sort of the home office continue to drive the traffic, right. So I would say nothing really has changed other than us to spend a little bit more money in marketing And Fathom continues to be viewed as a good place to land when you compare our commission flat fee compared to other companies, right? And so it's really a collaborative effort between everybody working together to make sure that we can continue to grow and really get back to the 25%, 30% agent growth that we had historically.

Speaker 6

Okay, great. Appreciate that color. And then I guess just on the kind of your liquidity position, it sounds like you guys feel kind of comfortable after the offering in

Speaker 2

the Q4.

Speaker 6

But the housing market is still a little slowish to recover. And I guess there's sort of like looming question mark around like commission lawsuits and stuff like that. Like I'm just curious, like are you guys feeling like you can you're in a position where you can kind of go on offense a bit around the agent growth and kind of leaning into that? Or are you still kind of maybe a bit more of a defensive posture?

Speaker 2

Yes, great question. No, we're definitely that's why we spent a little bit more in marketing in Q4 and seen that significant increase in traffic to Fathom Careers, right? From a liquidity standpoint, when you look at the cash burn in Q4 and then you take into effect the increasing fees for Q1 combined with the cost reduction combined to the results that we described in terms of file for mortgage and title, which should have a positive effect on EBITDA and revenue for both of those businesses. So when you combine all of that, we feel that cash burn in Q1 is going to improve significantly. And our goal for Q2 is to be operational cash flow positive.

Speaker 2

And so when you put those two things together, we feel very good about our position to continue to be aggressive and continue invest more in marketing and recruiting agents. So we feel very good about position. One of the things that we really feel great about is really the mortgage and title business, just in terms of the turnaround, right, the significant increase, because as you know, those business can be very profitable. And so this is one of the sort of the highlights of Q4 and then some of the updates we've given to Q1 is the significant increase in those businesses. And so we feel very excited about the growth of those and then combine that with our brokerage business and insurance and technology, it's beginning to put together the recipe for a very successful 2024.

Speaker 6

Okay, that's great. Maybe just one last one, if I could. Your kind of targets around operating cash flow positive and adjusted EBITDA positive for the year. I mean, are you assuming any significant improvement in kind of the broader housing market or just kind of status quo? Thanks.

Speaker 2

Yes. No, great question. We are not into our equation. We do not factor any significant improvement in the market, okay. Really is a combination of we think that the real estate market this year may go up a few percentage points in terms of growth, But in our internal growth model, we are modeling the business to stay flat.

Speaker 2

And so if the business improves, fantastic. We'll pick up the upside from that. But we are looking at the improvement in EBITDA and cash flow from the combined efforts of a cost reduction, increasing fees and the significant improvement in our mortgage and title businesses. When you put all that together, we feel very good about operational cash flow positive for 2024.

Speaker 6

Great. Appreciate it, guys. Thank you.

Operator

The next question comes from Raj Sharma of B. Riley. Please go ahead.

Speaker 7

Yes. Thank you for taking my questions. My questions are hi, Marco.

Speaker 2

Hi Raj, how are you? I hope you're well.

Speaker 7

Yes, I'm doing great. Thank you. So, there is an agent growth. Your acquisition is going to come from acquisition of groups or individual. I'm just trying to reconcile the gap of the 11% growth you're having right now year on year to 25% for the year.

Speaker 7

So how much of that will come from the referrals? And then I've got another follow on question.

Speaker 2

Yes, absolutely. So it's a combination of very factors. So we should certainly try to illustrate in our call that in the last 4 or 5 months, we've been approached by a lot of companies, small brokerages, large teams, looking for opportunities to move, right? And so the number of engagements in terms of conversation we had really have significantly increased, right? And so we're going to be very opportunistic.

Speaker 2

We think that we'll get back to 25%, 30% growth by primarily two factors. 1, continue to drive more people to have them careers through a variety of approaches we introduced, offering bigger incentives for our agents to refer all their agents. So basically, what we've been doing is, but sort of take it to the next level. 2nd is to be opportunistic in some of these walkovers. We like the walkover process because typically it can happen in 30, 60 days.

Speaker 2

We've done several of those last year. We'll do several of these this year, in some cases, in the 100 to 200 agents. And so, Roger, it will be a combination of both. It will be basically taking what we did last year and taking to the next level. And then with a combination of being strategic, especially going into markets that we don't have a strong presence.

Speaker 2

That's one of the things we really enjoy about walkovers is that when we can do a walkover with someone in a company that has 100, 200 agents in a market that we just don't have a strong presence, it's a great way to enter into that market. And so we have seen a variety of conversations going on right now. But to answer your question, it will be a combination of take and move done and increasing the sort of level of activity and being opportunistic in some of these walkovers and acquisitions.

Speaker 7

Got it. And then, you are not I mean, I just heard you answering another question. So you're not assuming a pickup in the transactions per agent for the rest of the year?

Speaker 2

I think that Are you thinking that

Speaker 7

the new agents are going to be more productive or you're going to have follow-up productivity?

Speaker 2

So it's not so much I'm picking up. It's not so much that we're modeling that there'll be more transactions in the market, right? So let's take it from a macro standpoint first. From a macro standpoint, we're going to make the assumption that the market is not going to increase significantly as a macro. We will increase number of transactions because, again, if we're going to one of the things we're doing is really focusing on higher producing agents.

Speaker 2

We're also helping some of our agents increase the number of transactions. So we'll probably see and I want to maybe I need to clarify my answer. We'll probably see an increase in productivity from our agents because of those two factors, right? Recruiting more higher producing agents as well as helping some of our agents. We have a variety of marketing programs coming out in the next 60 to 120 days that's going to help our agents.

Speaker 2

Some of our agents depending on the market they are, then if they take advantage. So there will be a combination of that. But from a macro standpoint, I don't think let me put it this way. We are modeling not a almost no growth in the market. If interest rates come down in the second half and we can probably have a 2 hour conversation whether we believe that's going to happen or not, then we'll probably see an upside.

Speaker 2

But from a budgeting standpoint and a modeling standpoint, we are looking at a flat macro market. And so that hopefully that clarifies the answer.

Speaker 7

Right. So I understand that it's going to come from a combination of fees, this improvement and I'm talking about the cash flow positive and the EBITDA, it's going to come from the improvement in fees, the cost reductions in the mortgage and title business. Can you quantify these three areas in terms of, for example, cost reduction you're looking to do?

Speaker 2

Well, the cost reduction is $1,000,000 per quarter across the board. So that we already implemented that and that will continue to do that. The mortgage business if the mortgage business continues, like I said, if you just think about the numbers, we grew file starts January, February by almost 100%, right? And so you can take a look at the mortgage the revenue that we did last year in mortgage, right? And if we can continue to grow that business by roughly 100%, then it will have a significant effect, right?

Speaker 2

So mortgage last year, I believe, was about $8,400,000 in total revenue I'm sorry, this year, last year, dollars 7,200,000 in total revenue. If we're able to increase that by 50%, 60%, 70%, a significant percentage that will go to the bottom line, right? And so that's part of it. Same thing with title. We are really carefully opportunistic about the title in the joint venture we're doing.

Speaker 2

If that goes well in the next few months, we certainly do other ones. So a significant percentage of this increase in EBITDA will come from mortgage and title because of the increase in business. Now and again, we'll come from the reductions in cost and then the $3,100,000 increase in fees, right? So if you look at the math, you have $3,100,000 increase in fees, dollars 4,000,000 cost reduction and then several $1,000,000 in increased EBITDA from title and mortgage. When you put all that together, I think it will show a very favorable year.

Speaker 7

Got it. That's very helpful. And then just lastly, the title mortgage gross margins, how are they tracking? And I'm assuming you're going to you expect the increase in margins on title and mortgage too, the gross margin?

Speaker 2

No question. I mean that those businesses are very profitable, right? Especially and again, title is a very complex business because every state is different. As you and I talked before, every state is different. Some state are attorney states, some states are title states, and fees are different, all of that, right?

Speaker 2

But the gross margin on title is the gross profit margin on title could be 70% and the gross profit margin in mortgage could be 60%, 70% as well, right? And so those are very profitable business. If they operate effectively and efficiently, they can be very profitable businesses, right? So we're being very opportunistic and we have a great team. One of the things about Fathom as you know, 2023 was a painful year for us, especially in our mortgage business.

Speaker 2

Our mortgage business was a significant percentage of our loss. I think our mortgage business and title business may turn out to be incredibly positive for us going forward. That's the belief that Josh and I have always had, right? And so I think that this is going to begin to demonstrate itself in 2024 and beyond, how much those two businesses can work hand in hand with the real estate company, right? And we look forward to continue to showing that.

Speaker 7

Right. Perfect. Thank you so much for answering my questions. I'll take it offline. Thank you.

Speaker 7

Good luck.

Speaker 2

Thank you, Raj. Thank you.

Operator

Turn the conference back over to Marco Frigenal for any closing remarks.

Speaker 2

Thank you, operator. Thank you all of you for joining our call and your interest in Fathom. For those of you who are shareholders, thank you for your trust. We continue to work very hard and look forward to sharing future updates with you. And I want to thank the entire Fathom family for all their hard work and dedication.

Speaker 2

It really takes a great group of individuals to be really focused in executing, especially in difficult times. And I'm very grateful for all their hard work and passionate commitment and that this will make Fathom a great company. And with that, I thank everyone and I hope everyone has a great rest of the week. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

Powered by Quartr