Fathom Holdings Announces $5 Million Convertible Note Private Placement to Accelerate Agent and Transaction Growth

Rhea-AI Summary

Fathom Holdings Inc. (Nasdaq: FTHM) has announced a $5 million convertible note private placement to accelerate agent and transaction growth. The company sold senior secured convertible promissory notes to an existing shareholder and the chairman of the Board of Directors. Key details include:

- Interest rate: Monthly average SOFR + 4% per annum (minimum 8%)
- Conversion price: $4.25 per share (85% premium above last reported sale price)
- Maturity date: October 1, 2026
- Quarterly interest payments starting October 1, 2025

CEO Marco Fregenal stated that this capital will help fast-track plans for agent and transaction growth, focusing on targeted walkovers and acquisitions. The demand for Fathom's revenue share model across agent fee plans demonstrates the company's momentum.

Positive

• Secured $5 million in additional funding through convertible notes
• Capital to be used for accelerating agent and transaction growth
• Strong investor confidence demonstrated by existing shareholder and Board chairman participation
• High conversion premium of 85% above current stock price

Negative

• Potential dilution of existing shareholders if notes are converted to common stock
• Increased debt burden with minimum 8% interest rate

Insights

Financial Analyst

The $5 million convertible note private placement is a significant development for Fathom Holdings, given its current market cap of about $49.5 million. This capital injection represents approximately 10% of the company's market value, indicating a substantial financial boost.

Key points to consider:

• The notes have a 8% minimum interest rate, which is relatively high, reflecting the company's need for capital and the current interest rate environment.
• The conversion price of $4.25 per share is set at a 85% premium to the current stock price, suggesting confidence in future stock appreciation.
• The involvement of a major shareholder and the board chairman in this placement demonstrates insider confidence but also raises questions about broader market interest.
• The focus on agent and transaction growth through targeted walkovers and acquisitions suggests a strategic expansion plan, which could drive future revenue growth if executed successfully.

While this financing provides Fathom with needed capital for growth, investors should monitor the company's ability to translate this investment into tangible results in agent recruitment and transaction volume.

Real Estate Market Expert

Fathom's move to raise capital for agent and transaction growth comes at a important time in the real estate market. The industry is facing challenges such as rising interest rates and affordability issues, which have slowed transaction volumes in many regions. However, Fathom's focus on its revenue share model could be appealing to agents in this environment.

Key considerations:

• The company's emphasis on "targeted walkovers and acquisitions" suggests a strategic approach to growth rather than broad-based expansion, which could be more cost-effective.
• Fathom's technology-driven platform may provide a competitive advantage in attracting tech-savvy agents and streamlining operations.
• The success of this growth strategy will largely depend on the company's ability to differentiate its offering in a crowded market and provide value to agents that exceeds traditional brokerage models.

Investors should watch for metrics such as agent retention rates, transaction volumes per agent and market share gains in key regions to gauge the effectiveness of Fathom's growth initiatives fueled by this new capital.

CARY, N.C., Sept. 26, 2024 /PRNewswire/ -- Fathom Holdings Inc. (Nasdaq: FTHM) ("Fathom" or the "Company"), a national, technology-driven, end-to-end real estate services platform integrating residential brokerage, mortgage, title, and SaaS offerings for brokerages and agents, has entered into a securities purchase agreement, under which the Company sold and issued senior secured convertible promissory notes in aggregate principal amount of $5 million (the "Notes") to an existing shareholder, who owns more than 5% of Fathom's common stock, and the chairman of the Company's Board of Directors.

Interest on the Notes will be paid quarterly commencing on October 1, 2025, in cash on the principal amount at a rate which fluctuates every calendar month and is equal to (i) the monthly average Secured Overnight Financing Rate (SOFR) plus (ii) 4% per annum, subject to certain adjustments and a minimum rate of 8%. The Notes have a conversion price of $4.25 per share of common stock, representing an initial conversion premium of approximately 85% above the last reported sale price of Fathom's common stock on September 26^th, 2024. The Notes will mature on October 1^st, 2026, unless repurchased or converted in accordance with their terms prior to such date.

Fathom intends to use the net proceeds from the private placement to accelerate agent and transaction growth.

"This capital allows us to fast-track our plans for agent and transaction growth, focusing on targeted walkovers and acquisitions," said Fathom CEO Marco Fregenal. "The demand for our revenue share model across both agent fee plans highlights our momentum, and this investment affirms our shareholders' belief in our direction."

The securities being issued and sold in the private placement have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any states' securities laws and may not be offered or sold in the United States, except pursuant to an effective registration statement or an applicable exemption from the registration requirements of the Securities Act. This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of securities of Fathom in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state or jurisdiction.

About Fathom Holdings Inc.
Fathom Holdings Inc. is a national, technology-driven, real estate services platform integrating residential brokerage, mortgage, title, insurance, and SaaS offerings to brokerages and agents by leveraging its proprietary cloud-based software, intelliAgent. The Company's brands include Fathom Realty, Encompass Lending, intelliAgent, LiveBy, Real Results, and Verus Title. For more information, visit www.FathomInc.com.

Cautionary Note Concerning Forward-Looking Statements
This press release contains "forward-looking statements," made pursuant to the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to numerous conditions, many of which are beyond the control of the Company, including liquidity risk and the possibility the Company might have to raise more money, including to service payments on the Notes; risks related to acquisitions and the integration of acquisition; risks related to general economic conditions, including interest rates; risks in effectively managing rapid growth in our business; reliance on key personnel; competitive risks; and the other risk factors set forth from time to time in our SEC filings, copies of which are available on the SEC's website, www.sec.gov. The Company undertakes no obligation to update these statements for revisions or changes after the date of this release, except as required by law.

Investor Contact:
Matt Glover and Clay Liolios
Gateway Group, Inc.
949-574-3860
FTHM@gatewayir.com

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SOURCE Fathom Holdings Inc.

FAQ

What is the purpose of Fathom Holdings' $5 million convertible note private placement?

Fathom Holdings (FTHM) intends to use the net proceeds from the $5 million convertible note private placement to accelerate agent and transaction growth, focusing on targeted walkovers and acquisitions.

What are the key terms of Fathom Holdings' (FTHM) convertible notes issued on September 26, 2024?

The convertible notes have a conversion price of $4.25 per share, an interest rate of SOFR plus 4% per annum (minimum 8%), and will mature on October 1, 2026. Interest payments will be made quarterly starting October 1, 2025.

Who participated in Fathom Holdings' (FTHM) $5 million convertible note private placement?

The $5 million convertible notes were sold to an existing shareholder who owns more than 5% of Fathom's common stock and the chairman of the Company's Board of Directors.

What is the conversion premium for Fathom Holdings' (FTHM) convertible notes issued on September 26, 2024?

The conversion price of $4.25 per share represents an initial conversion premium of approximately 85% above the last reported sale price of Fathom's common stock on September 26, 2024.