Fathom Holdings Reports First Quarter 2024 Results
Fathom Holdings Inc. (Nasdaq: FTHM) reported financial results for the first quarter of 2024, noting progress towards its 2024 goals. Despite a decrease in real estate transactions, total revenue declined by 9.0% to $70.5 million. The company's gross margin increased to 10.3%, positioning it well for positive EBITDA and operational cash flow. Fathom's net loss was $5.9 million for the quarter, with technology and development expenses rising. The company remains committed to achieving and remaining Adjusted EBITDA positive.
Fathom's gross margin increased to 10.3% during the first quarter of 2024, showing progress towards achieving positive EBITDA and operational cash flow.
The recent sale of Dagley Insurance Agency for $15 million provides vital resources to tackle potential challenges and support growth initiatives.
Fathom expanded its real estate agent network by 12.8% and established strategic joint ventures to drive revenue and profitability.
The company's commitment to achieving and remaining Adjusted EBITDA positive reflects a focus on cash flow performance and financial stability.
Fathom's total revenue decreased by 9.0% for the first quarter of 2024, primarily due to a decline in brokerage revenue and real estate transactions.
The company reported a net loss of $5.9 million for the quarter, with technology and development expenses increasing compared to the previous year.
Despite revenue declines, Fathom's Adjusted EBITDA loss remained relatively constant at $1.5 million, indicating ongoing challenges in achieving profitability.
Insights
Examining Fathom Holdings' latest earnings report, the growth in gross margin to 10.3% is a silver lining amidst broader industry downturns. A higher margin indicates operational efficiency and the ability to generate profit from revenues. However, the report also shows a 9.7% decrease in transactions and a 9.0% drop in total revenue, painting a challenging picture for growth in the real estate sector. The growth in ancillary services revenue, particularly in the mortgage business, suggests diversification efforts are bearing fruit.
Looking forward, it will be critical for investors to track Fathom's ability to achieve the targeted Adjusted EBITDA positive status in future quarters. The strategic sale of Dagley Insurance Agency, potentially boosting liquidity with $15 million, could empower Fathom in executing targeted growth strategies. Yet, their optimism in the annual guidance despite the current downturn should be viewed cautiously by investors.
For retail investors, the rating for this report leans towards cautious optimism. While there are positive signs in margin growth and strategic asset sales, the real estate market's instability and the current revenue decrease are noteworthy. It is essential to monitor whether the company can sustain its growth targets in agent recruitment and the successful integration of their earnings from the diversified services such as mortgage and technology.
The real estate sector, as indicated by Fathom Holdings' report, is experiencing headwinds, notably due to high interest rates affecting transactions. The expansion of the agent network by 12.8% signifies a potentially stronger future presence, yet this didn't translate into increased transactions due to the broader market conditions.
Notably, the significant investment in technology and development, with expenses rising to $2.0 million, could offer a long-term strategic advantage, but may pressure short-term financials. For investors, the critical aspect to watch is whether these investments in technology will streamline operations and create a sustainable competitive edge that could pay dividends in the future.
The forecast for Q2 2024 revenue between $86 million – $89 million and a modest Adjusted EBITDA suggest that management is expecting some recovery. Still, retail investors should weigh these projections against broader economic indicators and real estate market trends.
High-value property fees and increased annual fees for agents could deter some potential new recruits or current agents if they perceive diminished value from the brokerage. Yet, this strategic move increases revenue per transaction, which, combined with the expansion into new markets such as Rhode Island, reveals Fathom's aggressive growth strategy in a tough market.
Investors should note Fathom's strategic joint ventures, like Verus Title Elite, which can result in enhanced revenues and profitability. However, it's important to monitor if these ventures align with market demands and trends in the high-competition real estate environment.
– Company Targets Achieving and Remaining Adjusted EBITDA Positive Moving Forward–
"We made progress during the first quarter towards achieving our 2024 goals despite seasonality and broader industry challenges that continue to impact our results," remarked Marco Fregenal, CEO of Fathom. "Gross margin increased to
First Quarter 2024 Financial Results
Fathom's real estate agent network grew
Fathom closed 7,703 transactions for the 2024 first quarter, a decrease of
Fathom's total revenue decreased
Gross profit for the 2024 first quarter increased approximately
Segment revenue for the 2024 first quarter, compared with the 2023 first quarter was as follows:
Revenue | ||||
Three months ended | ||||
(Revenue $ in millions) | 2024 | 2023 | ||
UNAUDITED | ||||
Real Estate Brokerage | $ 65.4 | $ 73.2 | ||
Mortgage | 2.3 | 1.5 | ||
Technology | 1.1 | 0.7 | ||
Corporate and other services (a) | 1.7 | 2.1 | ||
Total revenue | $ 70.5 | $ 77.5 | ||
(a) | Transactions between segments are eliminated in consolidation. Such amounts are eliminated through the Corporate and other services line. |
GAAP net loss for the 2024 first quarter was
Technology and development expenses were approximately
General and administrative expense totaled
Despite the decrease in the current first quarter revenues, Adjusted EBITDA loss, a non-GAAP measure, was relatively constant at
Fathom provides Adjusted EBITDA, a non-GAAP financial measure, because it offers additional information for monitoring the Company's cash flow performance. A table providing a reconciliation of Adjusted EBITDA to its most comparable GAAP measure, as well as an explanation of, and important disclosures about, this non-GAAP measure, is included in the tables at the end of this press release.
Q1 2024 and Recent Highlights
- Fathom Realty expanded into
Rhode Island . - Fathom Realty announced the promotions of DeJane Kerr to Senior Vice President of Operations and Daniel Lang to Regional Director.
- Established Verus Title Elite, a strategic joint venture with individual teams and top producing agents of Fathom Realty throughout
Texas that is expected to increase Verus's and thereby Fathom's revenue and profitability. - Commencing January 1, 2024, the agent's annual fee which is charged on an agent's first transaction of each anniversary year increased from
$600 $700 $600,000 $200 $600,000 $999,999 $250 $500,000 $1,000,000 - In May 2024, Fathom entered into a purchase and sale agreement for the sale of Dagley Insurance Agency to its founder, Nathan Dagley. Pursuant to the agreement, the sale price of Dagley Insurance Agency was
$15 million $8 million $7 million
Guidance/Long-Term Targets
Without giving a timeline for reaching this target, the Company reiterated that it believes it can generate Adjusted EBITDA exceeding
For the second quarter of 2024, Fathom expects total revenue in the range of
Conference Call
Fathom management will hold a conference call at 6:30 p.m. Eastern time (3:30 p.m. Pacific time) today to discuss its financial results for the first quarter ended March 31, 2024.
Call Date: Thursday, May 9 2024
Time: 6:30 p.m. Eastern time (3:30 p.m. Pacific time)
International dial-in: 412-317-5742
Please call the conference telephone number five minutes prior to the start time. An operator will register your name and organization.
A live audio webcast of the conference call will be available in listen-only mode simultaneously and available via the investor relations section of the Company's website at www.FathomInc.com.
A telephone replay of the call will be available through May 16, 2024.
International replay dial-in: 412-317-0088
Replay ID: 9685963
About Fathom Holdings Inc.
Fathom Holdings Inc. is a national, technology-driven, real estate services platform integrating residential brokerage, mortgage, title, 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, Verus Title, and Cornerstone. For more information, visit www.FathomInc.com.
Cautionary Note Concerning Forward-Looking Statements
This press release contains "forward-looking statements" that involve risks and uncertainties which we expect will or may occur in the future and may impact our business, financial condition and results of operations. Forward-looking statements are subject to numerous conditions, many of which are beyond the control of the Company, including: risks associated with general economic conditions, including rising interest rates; its ability to generate positive operational cash flow; risks associated with the Company's ability to continue achieving significant growth; its ability to continue its growth trajectory while achieving profitability over time; risks related to ongoing and future litigation; and other risks as set forth in the Risk Factors section of the Company's most recent Form 10-K as filed with the SEC and supplemented from time to time in other Company filings made with the SEC. Copies of Fathom's Form 10-K and other SEC filings 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:
Alex Kovtun and Matt Glover
Gateway Group, Inc.
949-574-3860
FTHM@gateway-grp.com
FATHOM HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data) | ||||||
Three Months Ended March 31, | ||||||
2024 | 2023 | |||||
UNAUDITED | ||||||
Revenue | ||||||
Gross commission income | $ | 65,385 | $ 73,170 | |||
Other service revenue | 5,118 | 4,371 | ||||
Total revenue | 70,503 | 77,541 | ||||
Operating expenses | ||||||
Commission and other agent-related costs | 61,167 | 69,172 | ||||
Operations and support | 2,109 | 1,614 | ||||
Technology and development | 1,950 | 1,579 | ||||
General and administrative | 9,602 | 9,312 | ||||
Marketing | 600 | 715 | ||||
Depreciation and amortization | 728 | 695 | ||||
Total operating expenses | 76,156 | 83,087 | ||||
Loss from operations | (5,653) | (5,546) | ||||
Other expense (income), net | ||||||
Interest expense (income), net | 105 | (16) | ||||
Other nonoperating expense, net | 152 | 159 | ||||
Other expense, net | 257 | 143 | ||||
Loss before income taxes | (5,910) | (5,689) | ||||
Income tax expense (benefit) | 17 | 12 | ||||
Net loss | $ | (5,927) | $ | (5,701) | ||
Net loss per share: | ||||||
Basic | $ | (0.31) | $ | (0.36) | ||
Diluted | $ | (0.31) | $ | (0.36) | ||
Weighted average common shares outstanding: | ||||||
Basic | 19,178,474 | 16,011,068 | ||||
Diluted | 19,178,474 | 16,011,068 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements. | ||||||
FATHOM HOLDINGS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) | ||||||
March 31, | December 31, | |||||
2024 | 2023 | |||||
(UNAUDITED) | ||||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 5,682 | $ | 7,399 | ||
Restricted cash | 280 | 141 | ||||
Accounts receivable | 2,996 | 3,352 | ||||
Mortgage loans held for sale, at fair value | 8,731 | 8,602 | ||||
Prepaid and other current assets | 4,601 | 3,700 | ||||
Total current assets | 22,290 | 23,194 | ||||
Property and equipment, net | 2,224 | 2,340 | ||||
Lease right of use assets | 4,997 | 4,150 | ||||
Intangible assets, net | 23,080 | 23,909 | ||||
Goodwill | 25,607 | 25,607 | ||||
Other assets | 50 | 58 | ||||
Total assets | $ | 78,248 | $ | 79,258 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 3,830 | $ | 3,396 | ||
Accrued and other current liabilities | 3,710 | 2,681 | ||||
Warehouse lines of credit | 8,518 | 8,355 | ||||
Lease liability - current portion | 1,507 | 1,504 | ||||
Long-term debt - current portion | 246 | 416 | ||||
Total current liabilities | 17,811 | 16,352 | ||||
Lease liability, net of current portion | 4,630 | 3,824 | ||||
Long-term debt, net of current portion | 3,490 | 3,467 | ||||
Other long-term liabilities | 386 | 381 | ||||
Total liabilities | 26,317 | 24,024 | ||||
Commitments and contingencies (Note 18) | ||||||
Stockholders' equity: | ||||||
Common stock (no par value, shares authorized, 100,000,000; shares issued and outstanding, | ||||||
20,838,420 and 20,671,515 as of March 31, 2024 and December 31, 2023, respectively) | - | - | ||||
Additional paid-in capital | 129,444 | 126,820 | ||||
Accumulated deficit | (77,513) | (71,586) | ||||
Total stockholders' equity | 51,931 | 55,234 | ||||
Total liabilities and stockholders' equity | $ | 78,248 | $ | 79,258 | ||
The accompanying notes are an integral part of the condensed consolidated financial statements. | ||||||
FATHOM HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) | ||||
Three Months Ended March 31, | ||||
2024 | 2023 | |||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||
Net loss | $ (5,927) | $ (5,701) | ||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||
Depreciation and amortization | 1,480 | 1,357 | ||
Non-cash lease expense | 529 | 337 | ||
Gain on sale of mortgages | (1,215) | (831) | ||
Stock-based compensation | 2,652 | 2,820 | ||
Deferred income taxes | 5 | — | ||
Change in operating assets and liabilities: | ||||
Accounts receivable | 356 | (336) | ||
Prepaid and other current assets | (901) | 202 | ||
Other assets | 8 | (3) | ||
Accounts payable | 434 | 644 | ||
Accrued and other current liabilities | 1,112 | 411 | ||
Operating lease liabilities | (566) | (374) | ||
Mortgage loans held for sale | (49,598) | (37,179) | ||
Proceeds from sale and principal payments on mortgage loans held for sale | 50,684 | 37,083 | ||
Net cash used in operating activities | (947) | (1,570) | ||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||
Purchase of property and equipment | (1) | (9) | ||
Purchase of intangible assets | (534) | (579) | ||
Net cash used in investing activities | (535) | (588) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||
Principal payments on debt | (148) | (318) | ||
Borrowings from warehouse lines of credit | 49,440 | 29,826 | ||
Deferred acquisition consideration payments | (83) | — | ||
Repayments on warehouses lines of credit | (49,277) | (28,929) | ||
Payment of offering cost in connection with issuance of common stock in connection with public offering | (28) | — | ||
Net cash provided by (used in) financing activities | (96) | 579 | ||
Net decrease in cash, cash equivalents, and restricted cash | (1,578) | (1,579) | ||
Cash, cash equivalents, and restricted cash at beginning of period | 7,540 | 8,380 | ||
Cash, cash equivalents, and restricted cash at end of period | $ 5,962 | $ 6,801 | ||
Supplemental disclosure of cash and non-cash transactions: | ||||
Cash paid for interest | $ 90 | $ 11 | ||
Right of use assets obtained in exchange for new lease liabilities | 1,284 | 4 | ||
Reconciliation of cash and restricted cash: | ||||
Cash and cash equivalents | $ 5,682 | $ 6,723 | ||
Restricted cash | 280 | 78 | ||
Total cash, cash equivalents, and restricted cash shown in statement of cash flows | $ 5,962 | $ 6,801 | ||
The accompanying notes are an integral part of the condensed consolidated financial statements. | ||||
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (UNAUDITED) (In thousands) | |||
Three Months Ended | |||
2024 | 2023 | ||
Net loss | $ (5,927) | $ (5,701) | |
Stock based compensation | 2,652 | 2,820 | |
Depreciation and amortization | 1,480 | 1,357 | |
Other expense, net | 257 | 143 | |
Income tax expense | 17 | 12 | |
Adjusted EBITDA | $ (1,521) | $ (1,369) | |
Note about Non-GAAP Financial Measures
To supplement Fathom's consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company uses Adjusted EBITDA, a non-GAAP financial measure, to understand and evaluate our core operating performance. This non-GAAP financial measure, which may be different than similarly titled measures used by other companies, is presented to enhance investors' overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
Fathom defines the non-GAAP financial measure of Adjusted EBITDA as net income (loss), excluding other income and expense, income taxes, depreciation and amortization, share-based compensation expense, and transaction-related cost.
Fathom believes that Adjusted EBITDA provides useful information about the Company's financial performance, enhances the overall understanding of its past performance and future prospects, and allows for greater transparency with respect to a key metric used by Fathom's management for financial and operational decision-making. Fathom believes that Adjusted EBITDA helps identify underlying trends in its business that otherwise could be masked by the effect of the expenses that the Company excludes in Adjusted EBITDA. In particular, Fathom believes the exclusion of share-based compensation expense and transaction-related costs associated with the Company's acquisition activity, provides a useful supplemental measure in evaluating the performance of its operations and provides better transparency into its results of operations. Adjusted EBITDA also excludes other income and expense, net which primarily includes nonrecurring items, such as, minor legal settlement claims, certain legal fees, severance costs, professional fees related to investigating potential financing opportunities, if applicable, and other non-cash items.
Fathom is presenting the non-GAAP measure of Adjusted EBITDA to assist investors in seeing its financial performance through the eyes of management, and because the Company believes this measure provides an additional tool for investors to use in comparing Fathom's core financial performance over multiple periods with other companies in its industry.
Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA compared to net income (loss), the closest comparable GAAP measure. Some of these limitations are that:
- Adjusted EBITDA excludes share-based compensation expense related to restricted stock and restricted stock unit awards and stock options, which have been, and will continue to be for the foreseeable future, significant recurring expenses in Fathom's business and an important part of its compensation strategy;
- Adjusted EBITDA excludes transaction-related costs primarily consisting of professional fees and any other costs incurred directly related to acquisition activity, which is an ongoing part of Fathom's growth strategy and therefore likely to occur; and
- Adjusted EBITDA excludes certain recurring, non-cash charges such as depreciation and amortization of property and equipment and capitalized software, and acquisition related intangible asset costs, however, the assets being depreciated and amortized may have to be replaced in the future.
RECONCILIATION OF GAAP TO NON-GAAP FORWARD LOOKING GUIDANCE (UNAUDITED) (In thousands) | |||
Three Months Ended | |||
Low | High | ||
Net loss* | $ (4,520) | $ (4,730) | |
Stock based compensation | 2,800 | 3,100 | |
Depreciation and amortization | 1,600 | 1,700 | |
Other expense, net* | 300 | 400 | |
Income tax expense (benefit)* | 20 | 30 | |
Adjusted EBITDA | $ 200 | $ 500 | |
*Excludes approximately |
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SOURCE Fathom Realty
FAQ
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