Good day, welcome to the Fathom Holdings Q1 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the call over to Alex Kovtun with the Gateway Group. Please go ahead, sir. Thank you operator. Welcome everyone to Fathom Holdings 2023 Q1 conference call. I'm Alex Kovtun with Gateway Group, Fathom's investor relations firm. Before I turn things over to the Fathom management team, I wanna 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 set forth in the Risk Factors section of the company's Form 10-K for the year ended December 31st, 2022, as well as our latest Form 10-Q 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'll 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. With that, I'll turn the call over to Fathom's founder, chairman, and CEO, Josh Harley. Josh? Thanks, Alex. Good afternoon. Welcome to our Q1 2023 earnings call. We're pleased to report a strong Q1 as compared to the overall market and what we feel is a great start to the year. I wanna start by thanking our agents and employees across each of our businesses for their hard work and dedication as we navigate the real estate market. Their commitment to supporting our growth, vision, and serving others in the communities we operate is a testament to the Fathom culture. I'm proud of them. The market's been tough for a lot of agents. You wouldn't know it talking to some of them. Many agents I've talked to see this market as an opportunity to take greater market share by reinvesting the savings they get from being a Fathom agent into their marketing while many other competitors are pulling back on their spend. I love to hear that because that's exactly why I started Fathom in the first place. Our agents have worked hard to continue to grow and thrive, even with all the market uncertainties, and we're proud of our recent awards and recognitions within the industry. We were recently ranked 2nd by RealTrends 500 as an industry top mover for 2023 and ranked as the 4th largest public independent brokerage, another notable category up from 6th place last year. We're also proud to be ranked as the 10th largest brokerage in transactions in the recent T3 Sixty Mega 1000. These achievements are a testament to Fathom's commitment to providing top-notch service and support to our agents and our clients, our ability to adapt and thrive in a rapidly evolving residential real estate industry. Before turning the call over to Marco Fregenal, our President and CFO, for a detailed review of our financial results, I'd like to touch on a few key highlights during the market during the quarter and what gives us confidence in our business regardless of what happens in the housing market or interest rates this year. While the Q1 is typically the slowest quarter for transactions and was a challenging quarter for residential real estate overall, we're encouraged by some recent signs of stabilization across our markets, along with the moderation in interest rates during the quarter to improve housing affordability. It's interesting to see that even in this market, 60% of listings are still selling within 30 days, and 28% are still seeing multiple offers. While we don't know where interest rates will go this year or whether we're close to the bottom in the housing market, we believe that Fathom has a long and positive runway ahead. With the latest rate increase, the Federal Reserve signaled that they may be done raising rates, and inflation appears to be moving in the right direction. Our results this quarter continue to demonstrate the power of our truly disruptive business model and how we're able to succeed irrespective of the market environment. During the Q1, Fathom completed approximately 8,532 real estate transactions, and while down 15.4% from prior year's Q1, the decrease compares favorably to our peers in the entire U.S. residential real estate market. In fact, according to the National Association of Realtors, the U.S. residential real estate market saw overall transactions this quarter decline 25% compared to Q1 of last year. I'm sure you can see why I'll count that as a win for Fathom. As our transaction volume reflects, we continue to take market share from the legacy brokerage firms despite the volatile environment and saw year-over-year transaction growth in several of our markets, including Miami, Las Vegas, the Bay Area, and even Boston. We also increased our agent network 18% to over 10,628 agents at the end of the quarter, significantly beating the domestic growth of all of our public peers, but one who's reported so far. I'm proud that we're able to continue providing compelling value proposition through innovation and an industry-leading commission model that's resonating well in this market, in this environment. We also made significant strides towards achieving our goal of adjusted EBITDA break-even in Q2 and cash flow profitability in Q3 of this year. During the Q1, we began to see the benefits from the cost reduction measures we've implemented and expect to see the full benefit of these actions in Q2. We're also continuing to identify opportunities to further right-size our cost structure for the current environment and better position Fathom for improved operating leverage as the residential real estate market returns. Importantly, we believe these cost reductions were made without sacrificing our ability to grow. In fact, we have allocated some of those savings to further strengthening our recruitment efforts. These cost reduction initiatives, combined with the increase in agent transaction fees that became effective in January of this year, have positioned our business for profitable growth ahead. Fathom Realty continues to be among the fastest-growing residential real estate brokerages in the U.S., and we're proud of our growth as we expand our reach nationwide. Today, Fathom Realty operates in 37 states and the District of Columbia. Fathom brings a unique model to the residential real estate market as we offer agents all the tools, the technology, training, and resources our larger traditional peers do at an industry-leading flat fee commission split to agents. More than ever, that remains a key point of differentiation during this period of high inflation and interest rates when agents across the industry struggle to generate leads and close sales. With our focus on servant leadership, our agents often say that they join Fathom for the higher income potential, but they stay for the culture. Our unique, low cost, and disruptive model has allowed Fathom to attract high-quality agents and enjoy agent retention rates approximately twice the national average. Even though we charge our agents a small fraction of what other brokerages charge their agents, we believe our Realty business can be profitable with smaller number of transactions. The technology that powers our Realty operations remains a key point of differentiation as well as we can generate long-term savings and ultimately charge our agents far less than others by owning it outright. We also license our proprietary technology to over 750 brokerages through a recurring revenue subscription model that drives incremental high-margin revenue while enhancing awareness and differentiation of our brand within the industry. I'd like to provide an update of our agent trends and the steps we're taking to grow the Fathom network. Our cost to acquire one agent during Q1 remained low at approximately $900, making our break even on each agent less than the $1,150 that we'll earn back on their first sale. We also maintain strong retention rates, which are approximately twice the national average, and remain exceptionally strong given the backdrop of agents leaving the industry. More importantly, 71% of agents who left Fathom sold zero or only one home per year. Based on historic trends, we anticipate an additional attrition in the coming year will continue to be primarily from low-producing agents. We recently launched an enhanced agent referral program called Free4Life and a revised agent commission structure. Both initiatives have been well-received, and our agent referral program continues to have a positive impact on our recruiting efforts. In fact, this March brought us our strongest growth through agent referrals in our company's history. We remain confident that Fathom is well-positioned to achieve adjusted EBITDA break-even next quarter. As we mentioned on our last call, we believe 2023 will be a pivotal year for Fathom as we turn the corner on profitability and really start to show the operating leverage in our business. Our ancillary businesses have the potential to dramatically increase our revenue and profitability per transaction over time, and we're continuing to see progress across those businesses, giving us increased confidence in our growth strategy. During the Q1, we also saw improved attach rates within our title and mortgage businesses as we continue to go deeper in the markets where we operate, and we recently expanded our title operations in Utah. To close, we remain optimistic about the year ahead and believe that we're well-positioned to continue growing our business in 2023. With that, I'd like to pass it over to Marco for our financial update. Thank you, Josh. I'll start with a detailed review of our Q1 2023 results. We'll finish with the discussion on guidance. Q1 revenue declined 14% year-over-year to $77.5 million, compared with $90.1 million for last year's Q1. GAAP net loss for the Q1 was $5.7 million, or a loss of $0.36 per share, compared with a loss of $6 million or a loss of $0.38 per share for the 2022 Q1. Adjusted EBITDA loss, a non-GAAP measure, was $1.4 million in the Q1 versus adjusted EBITDA loss of $2.1 million for the Q1 of 2022. The $700,000 improvement in adjusted EBITDA this quarter was largely driven by a reduction in expenses and additional agent fees that went into effect in January. Notably, this improvement was achieved despite the 14% decrease in revenue this quarter compared to Q1 of 2022. G&A expense was $9.6 million in the Q1 or 12.4% of revenue, compared with $10.9 million or 12% of revenue for the same period a year ago. Again, to be noted that GNA did not meaningfully increase as a percentage of revenue despite the 14% decrease in revenue. In total, our operations and support, technology and development, and G&A expenses decreased by almost $2 million from $14.5 million in Q1 of 2022 to twelve and a half million in Q1 of 2023. This reduction reflects the benefits of our expense reduction initiative that commenced last quarter. Expense related to marketing activities were $716,000 for the Q1, compared with $1.2 million for last year's Q1. The decrease in marketing expenses is related to leveraging internal resources and optimizing advertising expenditures. I'll spend some time reviewing our business segment results in more detail. We closed 8,532 real estate transactions in the quarter, a 15.4% decrease from last year's Q1, but well below the 25% reduction the overall market experienced. We ended Q1 with 10,628 agents, which represents an 18% growth over Q1 of 2022. Adjusted EBITDA in the real estate division was approximately $1.3 million, an increase of $400,000 compared to adjusted EBITDA of $900,000 in Q1 of 2022. This increase was achieved despite the 15% decrease in transactions this quarter compared to the same quarter last year, and reflects an increase in fees and favorable impact of cost-cutting measures. Our mortgage business generated revenues of $1.5 million in the Q1, compared to $2.9 million in prior-year period. Mortgage adjusted EBITDA for Q1 was -$600,000. Our team continues to identify opportunities to reduce expenses to right-size the mortgage business going forward, as well as increase revenues by increasing additional loan officers. DIA, our insurance business, generated revenues of $1.6 million for the quarter, compared to revenues of $1.4 million for the same period a year ago. This represents an increase of 7.5%. Adjusted EBITDA increased 265% from $100,000 in Q1 of 2022 to $391,000 in Q1 of 2023. This reflects the great work our DIA team has done in Q1 to adjust expenses while still growing revenue. Veros Title had revenues of $596,000 for the quarter, compared to $1.1 million in revenue for Q1 of 2022. Adjusted EBITDA was negative $330,000, compared to a $50,000 positive Adjusted EBITDA in Q1 of 2022. The decrease in revenue and adjusted EBITDA is primarily due to the significant decrease in purchase and the refi business due to higher interest rates. In March and April, we have seen a significant increase in the number of file starts from Fathom agents in the North Carolina and Dallas markets, which should represent an increase in attach rate in Q2. Let's move on to our technology segment. Revenues increased 17% to $756,000, compared to $645,000 for last year's Q1. Adjusted EBITDA loss for the quarter decreased by 46% from $395,000 in Q1 of last year to $212,000 in the current quarter. Our LiveBy team continues to increase its footprint across the country to reach over 235 MLSs and 400 and 1,000 agents at the end of the quarter. LiveBy powers more than 3.6 million community pages with over 125,000 neighborhood reports created. We continue to focus on our balance sheet given the dynamic real estate market conditions and ended the quarter with a cash position of $6.7 million. We recently completed a convertible note private placement to provide additional operating liquidity and flexibility as we execute our goal of getting to breakeven. We believe our cash position and additional private placement provides us with the adequate runway to grow the business and execute our strategy through profitability. We did not purchase any shares in the Q1 under the stock repurchase plan. Approximately $40 million remain under that authorization. Before turning the call back to Josh, let me briefly touch on guidance. Given the continuing uncertainty in the macro environment, we are only providing guidance for the Q2 ending on June 30, 2023. For the Q2, we expect revenues in the range of $88 million-$90 million and adjusted EBITDA in the range of breakeven to $100,000-$200,000 positive. As a reminder, guidance is a forward-looking, which as we noted in the beginning of the call, is subject to risks and uncertainties. I want to thank the entire team at Fathom for their hard work, passion, and commitment to excellence. The last six months have been some of the most difficult months in Fathom's history. Through the hard work of our team, we have been able to demonstrate that we can outperform the market even in challenging economic times. With that, I'll turn the call back to Josh for closing remarks. Thank you, Marco. We remain focused on execution and are well-positioned to achieve a breakeven profitability in Q2 with our model and can thrive throughout various real estate cycles. With that, operator, let's open up the call for questions. We will now begin the question and answer session. To ask a question, you may press star one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question will come from John Campbell with Stephens Inc. You may now go ahead. Hey, this is A.J. Heise stepping in for John Campbell. Congrats on the quarter, appreciate you guys taking our questions. First thing on your guys' EBITDA inflection, just kind of wanted to see, like, is there any additional steps needed to get there? How dependent on the market, is this outlook? How dependent is that on kind of your outlook for the market in your brokerage business? How dependent is it on a recovery in mortgage and better attach rates and maybe mortgage gain on sale? Just trying to get a sense of what assumptions, underlying assumptions may be built into this outlook here. Thank you. Thank you for your question. You know, as we are today on, you know, May 10th, we have a good feel for the quarter. That's the first and foremost. We are definitely seeing an improvement in file starts in Q2 compared to Q1. There are two components to this. First is certainly season, you know, seasonality. Second, I think Josh mentioned earlier that many of the Fathom agents are using their savings that they get from Fathom, and they invest in marketing. We are anticipating an increase in revenue and transactions. In terms of the cost structure, I believe about 85%-90% of our $3 million has been already, it's already built in the Q1 numbers, so there's a little bit more in Q2. I think the overall answer to your question is that we feel pretty good about the guidance we're giving, and we're not assuming a significant increase in the market. If the market does continue to increase even in a greater way than we are anticipating, I think then our numbers could be even better. We feel fairly confident about the guidance we're giving given what the market conditions are today. Gotcha. Then maybe shifting the focus kind of to hitting positive cash flow in 3Q23. You guys reiterated that target again, which is great to hear. Given the uptick in interest expense as a result of that new convert, can you kind of walk us through the moving pieces there? Did you change your underlying assumptions needed to hit this target, you know, such as the macro, the existing home sales, maybe mortgage gain on sale? This might be much of the same as kind of what you answered in the last question, but maybe trying to get a sense was there may be already a degree of conservatism or wiggle room in that inflection. Any color there would be much appreciated. Sure. Great question. Let me- Go ahead. I don't want to step on your toes, Marco. Go ahead. Well, I think, look, we continue to apply the same model, right, in terms of Q3. The components that lead us to if you continue the curve of adjusted EBITDA in Q2, to the profitability in terms of our cash flow, positive in terms of Q3, one aspect of that is the seasonality of the industry. Second, when we look at the ancillary businesses, all our ancillary business continue to grow. Even in a tough market, they continue to gain market share. DIA, for example, has done a really great job in continuing to increase its revenue and EBITDA. A 265% in EBITDA increases is a phenomenal result. It's a combination of our ancillary business continuing to gain market share and continue to grow. The combination of the full execution of our $3 million per quarter in cost reduction, and certainly the aspect of the seasonality. We are not anticipating in our numbers, a significant increase in the market in terms of upside. Some have argued that the Fed may start lowering interest rates in Q3 and Q4. We are not putting that into our model. We are really somewhat conservative in terms of the upside in terms of getting to the cash flow breakeven in Q3. It's really a combination of all those factors. I want to add some color if I may, though. I wanna make sure you understand that we didn't do that because we were worried about not being able to reach, you know, the breakeven or reach cash flow profitability. It is really just out of just being wise. You know, you don't know what you don't know. We don't want to be foolish. We wanna make sure that we had, you know, some additional buffer there for the just in case it sometimes happens in this world, especially in this market. We're just trying to be prudent, trying to be thoughtful, you know, about the business. We at the same time, you know, we have to ask ourselves, do we really wanna do this? Because we feel very confident that we're gonna be able to continue to achieve what we've said we've been able to achieve. So far, that hasn't changed. Again, so raising, you know, bringing that extra capital, was really just to, I guess, add a little extra touch of wisdom in the business. That makes sense. Thank you for the color there. One more question, if I may, and then I'll pass the mic along. I wanted just to narrow in on the mortgage business here for a second. Josh, you had said attached rates improved in mortgage as well as title, but can you maybe provide an exact number for mortgage and maybe title or maybe just like a general kind of estimate there? Marco, you may have briefly touched on this, but what was this improvement attributable to? Was it anything specific? Also, is gain on sale, is that something that's starting to normalize? What's maybe your updated outlook in terms of gain on sale? First part of the question was directed at me. As far as attach rate goes, we haven't shared the attach rate and what the exact numbers or attach rate, you know, other than the fact that we're seeing improvements. You know, I feel strongly that we probably need to keep it that way for right now. I know none of our peers actually share those specific numbers either. I start to realize there's a reason for that. You know, things kind of ebb and flow, you know, we are seeing improvements. We do feel a lot better about the attach rates. We're starting to see a lot more agents, you know, really buy into and understand the fact that BB is a part of our Fathom family. The more we support, you know, our ancillary services, the more we support that Fathom family, the more it benefits everybody. You know, while we're not prepared to give the exact attach numbers, you know, we are, we are definitely seeing improvements. Our improvement in the mortgage business is a combination of several factors. One, the leadership in our mortgage company continues to recruit more loan officers and continue to grow the revenue base. I think I look forward to demonstrating that when we announce our Q2 numbers and subsequently Q3 numbers. It's a combination of adding, you know, more loan officers to the team. Second, we focus the attach rate. To a certain extent, we took a more focused approach and focused our mortgage business to a certain extent in the North Carolina and in the Texas area. Therefore giving us the ability to grow our market share into those states much deeper. That certainly has helped the attach rate. We've also implement a variety of pilot programs in Q1 in terms of marketing programs, and we'll be able to give an update of those in Q2 once they're fully executed, and we'll be able to do that. The last part is the gain on mortgage. Certainly the market has become a little more consistent and stable. If you go back to Q3 and Q4 last year, it was a highly, you know, unstable market in terms of the gain on mortgage. There's plenty of data out there that shows how profitability of mortgage companies have decreased significantly in terms of what happened in Q3 and Q4. Yes, we're definitely seeing a more stable market, not a great market yet, certainly not compared to Q1 of last year in Q2, but it's definitely more stable. We're not seeing the ups and, you know, and downs in profitability of a loan, and I think that's a good start. We're hoping that by, you know, Q2 and Q3 things continue to get even more stabilized and easier to sort of anticipate what the market would do. We certainly feel better today about our mortgage business than we did in Q4. We are very hopeful that as we continue to work hard, we'll see better results in Q2 and Q3. Great. Thank you so much and good luck the rest of the year. Thank you. Thank you. Our next question will come from Darren Aftahi with Roth Capital Partners. You may now go ahead. Hey, this is Dylan for Darren. Thanks for taking the questions. If I start firstly with marketing, could you sort of talk about both the reduction in marketing spend, but then sort of the confidence you may have with referrals to sort of offset that lower spend and still grow agents? Great question. Hey, Dylan. Great question. The reduction in marketing is not so much focused on so much on recruiting. It's really more focused on a variety of really optimizing our marketing machine if you will. We have, we've optimized a lot of our internal resources. We've optimized on how we spend dollars in terms of our advertising campaigns. A combination of that, plus some shifting of dollars resulted in that decrease in marketing. However, we actually have increased our recruiting team. Where the dollars look like have been decreased, which they are, we actually have increased our recruiting team. The second part of your question was the referral rate. As Josh indicated, the month of March, we had the highest internal referral rate ever in our history, and we feel confident that's going to continue as agents continue to see the benefit of our Free4Life program. We've always said it, that's going to take some time for agents to fully benefit that, right? But certainly in Q1 in March, we've seen a significant increase in that. We anticipate that continue to maintain itself as we continue to increase the number of agents that we recruit. Yeah, just to sort of touch on that. The sequential net adds in agents, sort of how many were from referrals versus, I guess, what you could call more organic? For March, it was 60%. For the whole quarter, Marco, do you have that number off the top of your head? Yeah. We don't give the net number, Dylan, in terms of that. We can give you that on the gross number, the net was the internal referral was at 60% on the gross number. When you look at the net number, keep in mind that Q1 has the highest turnover, right? Number of agents leaving the industry. Our churn rate in Q1 was 2.2%, which is significantly higher than our average around 1.5%-1.6%, right? So the two things to keep in mind, one, about 60% of our agents came from internal referrals, which is the highest we've ever seen. Second, that in Q1, we, not only Fathom, but the whole industry sees a significant higher churn percentage as agents leave the industry because they don't want to pay all their annual fees that they have to pay in Q1. By the way, if you go back in time and you listen to some of our earlier, you know, especially like Q1 of last year or even earlier than that, you'll see, you know, we actually spoke that about 35% of our growth was agents referring other agents. Now to see that number hit 60% is pretty exciting. Yeah, no, I appreciate the color. That's helpful. Then just the follow-up for me. On the productivity side, I mean, obviously the demand is down from lower home sales in the market. Could you sort of talk about, I guess, the type of agents you're recruiting, or your existing base? Like, how are you seeing their pro-productivity evolve over time as in improving in the potential number of transactions they can handle? For Q1, it was fairly consistent across the board for 15%. I mean that, we've seen that pretty much. Some states are a little higher than others, and some states are less. That decrease in the number of transactions and the productivity was fairly consistent across. When you compare that against, you know, the other public companies, I think you see that our decrease in percentage was, you know, about half of what everyone's seeing. What we see in the market is fairly consistent, around 25%. I guess, some states in the West Coast are seeing a higher percentage, and some states in the East Coast are seeing a lower percentage. Across the board it's 25%. Across our agents, it's fairly consistent on the 15%. Great. I'll, pass it on. Thank you. Thank you, Dylan. If you have a question, please press star then one. Our next question will come from Tom White with D.A. Davidson. You may now go ahead. Hey, this is Wyatt Swanson on for Tom. Thanks for taking our questions. I've just got a quick one here, more on the longer term, regarding the agent value proposition. You know, if you look two to three years out, what do you think are the most likely areas that are likely to see some meaningful evolution or improvement in terms of the ways for you guys to add value to agents? I think it really comes down to probably better training. When you think about number one, obviously, how do we add more agents? Once we add those agents, how do we help them improve their productivity per agent? One of the things we've said in the past is the average agent who joins Fathom increases their business by 49% over a 4-year period. That happens naturally, just simply the fact they've got more money to be able to reinvest back in their business. A lot of agents will pocket the money and, you know, pay bills with it or feed the family or, you know, take vacations. A lot of agents, you know, they run businesses, right? They will reinvest that money back into their business. That just happens naturally. One area that I think we can see great improvement, and we've been exploring this more, is increased training, increased coaching for individual agents to say, "Okay, you have this savings, now what?" You know, not everyone knows where to spend that money. Can we help coach them and show them how and where? Can we help train them to be better at their job, you know, be better at their craft? I think that's an area that we can dramatically improve, you know, inside our own house. I think that will dramatically improve the productivity per agent. Obviously, we wanna increase transactions by increasing agents, but we also increase transactions by making our agents better. Then the third way, of course, is by offering, you know, even more solutions, more training, more resources to our agents. We should also be able to attract higher producing agents. I think there's three really strong ways that we can do to be able to increase the number of transactions per agent. Great. Thank you very much. Again, if you have a question, please press star then one. Ladies and gentlemen, 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. Of course. Thank you for joining our call today and your interest in Fathom. For those of you who are Fathom shareholders, thank you for your trust. We will continue to work hard and look forward to sharing future updates with you. Have a wonderful week.