In reporting a $9.9 million fourth-quarter loss, Fathom executives said they see a path to profitability without saying exactly when that might happen.
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Fathom Realty continues to attract new agents even as losses mounted in the final three months of 2022, and the company followed through on plans to kick off the new year by raising agent transaction fees by 10 percent.
In reporting a $9.9 million fourth-quarter loss Wednesday, executives at parent company Fathom Holdings emphasized year-over-year results and reassured investors that they see a path to profitability — without saying exactly when that might happen.
“The fourth quarter of 2022 was difficult for the real estate industry as a whole and Fathom was not immune,” the company said in an earnings release. “The second half of the quarter saw a significant number of transactions being canceled as a result of the significant increase in interest rates during the year.”
Fourth quarter revenue at the Cary, North Carolina-based real estate brokerage and technology platform was down 12.7 percent from a year ago to $83.4 million as transactions fell 14 percent over the same period to 9,250.
Fathom posted a $27.6 million net loss for the year, but revenue was up 25 percent to $412.9 million, thanks largely to a 14 percent increase in transactions to 44,700.
Fathom revenue by source
Source: Fathom Holdings earnings release
Fathom Holdings’ brands include Fathom Realty, Dagley Insurance, Encompass Lending, intelliAgent, LiveBy, Real Results, Verus Title and Cornerstone.
Brokerage services provided by Fathom Realty accounted for 95 percent of its parent company’s fourth-quarter revenue. But Fathom’s goal is to create an end-to-end real estate services platform that integrates residential brokerage, mortgage, title, insurance and software-as-a-service offerings to brokerages and agents.
On a call with investment analysts, Fathom CEO Josh Harley said the company’s mortgage, title and insurance businesses “are relatively small today” but have the potential “to dramatically increase revenue” over time.
The company said it expects first-quarter revenue of $75 million to $77 million and an adjusted loss of $1.3 million to $1.5 million (adjusted earnings before interest, taxes, depreciation and amortization or EBITDA).
Having cut general and administrative expenses by $3 million from the third quarter, Fathom executives say they remain “committed to reaching adjusted EBITDA breakeven” in the second quarter of 2023.
Fathom is sticking with past projections that it’s capable of generating more than $40 million a year in adjusted EBITDA on 100,000 to 110,000 transactions per year, although the company isn’t providing a timeline for achieving that goal.
Shares in Fathom Holdings, which have traded for as much as $12.32 and as little as $3.25 over the last 52 weeks, gained 7 percent Wednesday in after-hours trading following the release of earnings results.
Shares in Fathom touched an all-time low of $3.25 on March 13 — the same day the company released preliminary fourth-quarter and full-year results.
Fathom’s real estate agent network grew by 28 percent from a year ago to 10,370 agents as of Dec. 31. That’s slower than the 33 percent annual agent growth the company reported for the third quarter, which it finished with 9,991 agents.
Fathom raised transaction fees on Jan. 1, with agents now paying $550 for each of their first 15 completed transactions, up from $500 on their first 12 transactions. After the first 15 transactions, agents pay $150, up from $99.
But Fathom hopes its new agent referral program, Free4Life, will help the company continue to grow. Although Free4Life offers less generous stock grants than the program it replaces, it waives or caps transaction fees for agents who recruit new agents to the company.
“As far as agent attrition goes, I can count on two hands the number of agents who reached out to me directly and to senior leadership complaining about a fee increase,” Harley said.
Harley said that compared to competitors, who he said have increased fees by $450 per transaction over the last several years, “we didn’t really raise fees very much.”
Fathom executives didn’t have metrics on the success of the new agent referral program — Chief Financial Officer Marco Fregenal said the company will be able to shed more light on the program on the next earnings call.
But Harley said “it’s important to understand this is one of those programs that you can’t just flick a switch and all of a sudden overnight you see the numbers … because ultimately it takes time for agents to start sharing with other agents across transactions.”
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