Fathom Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 12, 2024

There are 6 speakers on the call.

Operator

Good afternoon, everyone, and welcome to the Fathom Holdings Second Quarter 2024 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Matt Glover with Gateway Group. Please go ahead, sir.

Speaker 1

Thank you, Jamie, and welcome to the Fathom Holdings' Q2 2024 Conference Call. I'm Matt Glover with Gateway Group, Fathom's Investor Relations firm. Before I turn the call over to management, I want to 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 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 dotgov. As a result of those forward looking statements, actual results could differ materially.

Speaker 1

Fathom undertakes no obligation to update any forward looking statements after today's call except as required by law. Please also note that during the 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. With that, I'll now turn the call over to Fathom's President and CEO, Marco Frasgenault. Marco?

Speaker 2

Thank you, Matt, and thank you everyone for joining us for our Q2 earnings call. Before we review our Q2 results and our exciting new developments, I want to express my heartfelt gratitude to the Fathom team. Your unwavering commitment and exceptional efforts have been remarkable, particularly in these challenging market conditions. Each of you has been instrumental in driving us towards our 2024 objectives and building a solid foundation for even greater success in 2025. Despite the hurdles the real estate market presented this year, our team's resilience and adaptability have been outstanding.

Speaker 2

We haven't just weathered the storm, but as you saw from last week's announcement, continue to innovate and push forward. Their tireless dedication to execute while maintaining our high standards for service have been one of the cornerstones of our progress. Today, we're just not sharing our quarterly results. We are also sharing the transformative evolution in Fathom's business model. We're embarking on a journey that we believe will redefine our industry position with the potential of creating unprecedented growth and success opportunities.

Speaker 2

Last week, Fathom Realty unveiled 2 new aging commission plans, Fathom Max and Fathom Share. These two new plans feature an innovative and reimagined revenue share program. This program is designed to boost agent recruitment and further improve retention while accelerating sustainable growth and long term profitability for the company. Our industry has witnessed an impressive growth for a small handful of companies who are offering a revenue share model. Each of these companies' models are all very similar in nature.

Speaker 2

As we listen closely to what agents are looking for, we took what we believe is the most innovative approach to this revenue share concept as we merit it to our industry low commission plans. At Fathom, our mission has always been to provide agents with the greatest value. One way to do this is by empowering agents to earn and retain more of their hard earned money. Our new revenue share plans are a natural extension of this commitment. Our new plans combine the best of both worlds.

Speaker 2

The Fathom X plan offers a highly competitive 4.65 dollars flex fee fee with a $9,000 annual cap. This not only attracts agents with the affordability, but also improves our gross profit margin potential compared to our legacy flat fee plan. For news seeking even greater earnings potentials, our Fathom share plans features an industry load traditional commission split of only 12% with a $12,000 annual cap and a revenue share opportunity that offers twice the revenue share potential over the MAX plan and higher first level percentages than any of our peers. In simpler terms, our agents have the potential to significantly increase their earnings on their own transactions, while also building passive income through a highly competitive revenue model share. What sets our 2 new models apart from the rest of the industry are their flexibility and inclusivity.

Speaker 2

Starting last week, all of our agents can participate in our revenue share program, regardless of their plan they choose. This program offers tiered benefits based on a number of agents refer, allowing our agents to unlock additional revenue share as their network grows within Fathom. Our founder, Josh Harley envisioned transforming the industry through radical innovation and fostering a culture of caring for our agents. We believe this new revenue share programs embody the vision. By offering our agents flexibility, choice and a higher income potential, we believe we grow our business while also empowering our real estate professionals to thrive in their careers.

Speaker 2

The strategic move positions Fathom at the forefront of industry trends, setting the stage for sustainable growth and increased market share. We are not just adapting to the future of real estate, we're actively shaping it. As we do so, we create a win win scenario where our agent success directly contributes to Fathom's success and vice versa. We believe that this dual approach is the future of real estate. Our new agent commission plans directly addresses 2 of our key 2024 objectives, launching additional initiatives to further support our agents in growing their businesses and restating agent growth to at least 30%, while prioritizing high quality professionals.

Speaker 2

As you may recall, in March, we introduced 4 strategic goals for 2024. Beyond the 2 agent folks' objectives, we're also committed to enhancing our balance sheet and achieving positive EBITDA and operational cash flow. These new agent plans are not just about growth, they are about smart, sustainable growth that align with our financial objectives to strengthen Fabian's position in the market. We successfully enhanced our balance sheet in May through the sale of DAGLY Insurance. The sale added $7,000,000 to our balance sheet at closing and would add another $7,000,000 over the next 24 months.

Speaker 2

We ended Q2 with $10,400,000 in cash, giving us the confidence in our financial position. In parallel with our strategic initiatives, I'm pleased to report that we continue to make significant strides towards our profitability goal. This quarter, we generated $180,000 in adjusted EBITDA, a notable achievement driven by solid gross profit margins of 9.5%. More importantly, our real estate, mortgage and title divisions all reached positive adjusted EBITDA this quarter. Total revenue for the quarter was $89,200,000 a decrease of 10.9% from $100,100,000 in Q2 of 2023.

Speaker 2

Adjusted EBITDA and non GAAP measure for the quarter up to Q2 of 2024 totaled $189,000 compared to $500,000 in the Q2 of 2023. Fathom completed approximately 10,137 transactions for the quarter, a decrease of approximately 7.9% compared to Q2 of 2023. Baton Rouge State Agent Network grew 12% to approximately 12,224 agent licenses as of June 30, 2024 from approximately 10,900 and 30 on June 30, 2023. We believe these results coupled with our new commission plans and revenue sharing program position us well sustainable growth and increased profitability. We are not just focused on top line growth, we are building a more robust, efficient and profitable operation that we believe can deliver long term value to our shareholders, agents and clients.

Speaker 2

As we move forward, we remain committed to prudent financial management while understanding the need and wisdom and continue to invest in areas that will drive our future success. Our team's ability to execute on multiple fronts, growing our agent base, improving our profit margins and managing our cash flow speaks to the strength of our leadership team, our business model and the dedication of our entire organization. Let me briefly comment on our ancillary businesses and then Joelle will provide more financial detail. We have seen an impressive growth in our mortgage business with revenues increasing by 82% or $1,700,000 from $2,000,000 in Q2 of last year to $3,700,000 in Q2 of this year. This growth is a direct result of the strategic initiatives our team has implemented over the past quarter.

Speaker 2

Recognizing the growing demand in the Latino segment, we launched a dedicated division within Encompass Lending, working in close alignment with our Latino division at Fathom. The results of this collaboration have been exceptionally positive, reinforcing our commitment to serving diverse communities. We have also continued to expand our Home to our U. S. Program, building our commitment to support local veterans, first responders and teachers.

Speaker 2

I'm particularly pleased to share the Q2 marked a significant milestone for Encompass Landing as it achieved positive EBITDA. This accomplishment not only validates our strategic direction, but also contributes to our overall growth of improving profitability across all our business segments. These developments in our mortgage division exemplify our commitment to diversifying our revenue streams and enhancing our value to both agents and clients. As we continue to innovate and expand our offerings, we're confident in our ability to capture larger share of the mortgage market and drive synergies across our integrated real estate services platform. I'm also pleased to report that we continue to make improvements to our various title business in Q2.

Speaker 2

Revenues reached $1,100,000 which is an increase of 10% from Q2 of 2023. But our Q2 results represent a 67% increase over the prior quarter, which is encouraging. More importantly, Verast Title generated $108,000 in adjusted EBITDA. This performance is a clear indication that our strategic growth initiatives are paying off and we are successfully optimizing our ancillary business for profitability. We have also seen impressive increase in file start and Joanne will detail those in a few minutes.

Speaker 2

Let me spend a few minutes to discuss the overall market trends. The Q2 of 2024 has seen significant swings in the mortgage interest rate. However, more recently, we have seen mortgage rates decrease to about 6.5%. We believe these improvements in rate could translate to some buyers coming back to the market. We have also seen a small shift in the power from sellers to buyers.

Speaker 2

In recent months, over 20% of all listings have seen a price reduction and in some states like Texas, Florida and Colorado, days on market have increased by over 15%, while median home prices decreased by 3% to 5%. Ultimately, the combination of lower home prices and lower mortgage interest rates should have a positive effect in the number of homes sold due to lower mortgage payments. We have also started seeing some early effects from the settlement of the commission's lawsuit and the rules that were imposed. At Adam, we are committed to helping our agents and have already began to implement training classes and seminars to ensure that all our agents adhere to the new rules. Now before I turn the call to let me make one final point regarding our new plan.

Speaker 2

Since announcing the new agent commission plans, the response has been exceptionally positive. We have heard from agents as well as non Fathom agents, teams and small brokers that have demonstrated interest in our new offering. We feel strongly that our new commission plans with revenue sharing will lead us regarding to pass our agent growth back to 30% or even higher. We also believe it will take a few quarters for us to see the full benefit of our new plan as agents learn how to discuss the program and we work through the early conversations on more walkovers from our small brokerages and team. With that, I would like to pass the call over to Joanne, our Senior Vice President of Finance, so she can discuss our financial results in more detail.

Speaker 2

Joanne?

Speaker 3

Thank you, Marco. I will start with a general overview of our results for the Q2 of 2024 and will then provide a more detailed review by segment. Total revenue for the Q2 of 2024 decreased 11% to $89,200,000 compared to $100,100,000 in the Q2 of 2023. The decrease in total revenue due to a 12% decrease in brokerage revenue, resulting primarily from fewer transactions and an increase in lease transactions compared to title businesses, offset by the absence of the company's insurance business, which was sold on May 3, 2024. Overall, gross profit for the 2024 Q2 decreased approximately 8.6 percent to $8,500,000 from $9,300,000 for the 2023 Q2.

Speaker 3

This decrease was primarily attributable to the impact of selling the company's insurance business. However, our overall gross profit percentage, excluding our insurance business, improved to 9% in the Q2 of 2024, up from 8% in the Q2 of 2023, primarily as a result of higher contributions from our mortgage and title businesses. Our brokerage business gross profit percentage remained relatively constant at 6% for the Q2 of 2024 compared to the Q2 of 2023. Excluding our insurance business, gross profit percentage in our ancillary businesses dipped slightly to 53% in the Q2 of 2024 from 57% in the Q2 of 2023, primarily related to ramp up costs associated with expansion of these businesses. Technology and development expenses remain relatively constant at approximately $1,900,000 for the Q2 of 20242023.

Speaker 3

These costs will continue and likely increase over time as we mindfully increase our spend to enhance our technology platform to drive revenue growth. General and administrative expense totaled $8,900,000 for the Q2 of 2024 or 10% of revenue compared with $9,900,000 or 9.9 percent of revenue for the Q2 of 2023. This $1,000,000 decrease was primarily due to the absence of costs associated with our insurance business in addition to other cost reductions such as business insurance. Marketing activities expense was $750,000 for the Q2 of 2024 compared to $900,000 in the Q2 of 2023. The 18% decrease in marketing expenses was primarily related to leveraging internal resources and optimizing advertising expenditure.

Speaker 3

GAAP net loss for the Q2 of 2024 totaled $1,300,000 or $0.07 per share, an improvement compared with a net loss of 4,300,000 dollars or $0.27 per share for the Q2 of 'twenty 3. The significant reduction in net loss was primarily due to the gain generated from the sale of the company's insurance business and improved net operating results, partially offset by an increase in non operating expenses. Adjusted EBITDA, a non GAAP measure, for the Q2 of 2024 totaled a positive $200,000 compared to $500,000 in the Q2 of 2023. The Q2 of 2024 marked the company's 1st positive adjusted EBITDA quarter since the Q2 of 2023. Now I'll spend some time reviewing our business segment results in more detail.

Speaker 3

Revenue for the Real Estate division was approximately $83,100,000 in the Q2 of 2024 compared to $100,100,000 for the same period last year, which represents a 12% decline, primarily attributable to an 8% decrease in transaction volume. As Marco noted, we completed 10,137 real estate transactions during the 3 months ended June 30, 2024, compared to 11,010 transactions during the 3 months ended June 30, 2023. Our transaction volume decreased primarily due to the continuation of high mortgage interest rates in the Q2 of 'twenty four. During the 3 months ended June 30, 2024, average revenue per transaction was $8,200 a 5% decrease compared to $8,593 during the 3 months ended June 30, 2023, primarily due to an increase in lease transactions compared to sale transactions and a slight decrease in commission percentage. Fathom is addressing these declines by continuing its strategic recruiting efforts powered by its recently announced new revenue share models and its service commitment to its agents.

Speaker 3

Gross profit margin for our Real Estate division remained relatively constant at 6.1% in the Q2 of 2024 compared to the Q2 in 2023. Adjusted EBITDA income in the Real Estate division was approximately $1,500,000 in the Q2 of 2024, a decrease of approximately $1,100,000 compared to adjusted EBITDA income of $2,600,000 in the Q2 of 2023. This was due to the decrease in transaction revenue in the Q2 of 2024 and to the commencement of internal charges of approximately $350,000 from our technology vision to Fathom Realty for transaction management and CRM services provided. We are pleased about the significant improvement made in our mortgage business. Mortgage revenue grew 85% to approximately $3,700,000 in Q2 2024 compared to $2,000,000 in Q2 2023.

Speaker 3

This revenue growth was primarily driven by our strategic increase in our loan officer base, which has almost doubled from the prior year. Q222 2024 file start loan volume was up 72% compared to Q2 2023. Mortgage adjusted EBITDA for Q2 2024 was a positive $200,000 compared to an adjusted EBITDA loss of $200,000 in Q2 2023. DIA, our insurance business, was sold in May 2024 for approximately $15,000,000 in cash with $7,800,000 received at closing and $7,000,000 recorded as other receivables due over the subsequent 24 months, significantly bolstering our balance sheet. Verus Title had revenues of $1,100,000 for the Q2 of 2024 compared to $1,000,000 for the Q2 of 2023, an increase of 10%.

Speaker 3

Ferrous Title's adjusted EBITDA for the Q2 of 2024 was $108,000 compared to a negative $25,000 for the Q2 of 2023. We are pleased by the membership growth in our new Texas joint venture, which began in April 2024. Overall, Verus Title's open orders are currently approximately 60% higher than they were at the end of last quarter. We are also happy to say that Salt Lake City Utah based LW Traveling Title is now part of Verus Title. Traveling Title is a strategic addition to our geographic presence in Utah, Colorado and Virginia.

Speaker 3

Moving to our Technology segment. 3rd party revenues remain consistent in the Q2 of 2024 compared to the same period in 2023. Adjusted EBITDA improved primarily attributable to approximately $350,000 in internal charges to Fathom Realty for transaction management and CRM services. We are continuously making enhancements to our technology platform to better serve our agents and drive revenues, with our new revenue share functionality being a prime example. Our LiveVite team has significantly increased its footprint across the country, working with over 300 MLSs and touching 320,000 agents at the end of the 2nd quarter.

Speaker 3

Live 5 powers more than 5,900,000 community pages with over 145,000 neighborhood reports created. We continue to keenly focus on our balance sheet given the dynamic real estate market conditions. We ended the quarter with an unrestricted cash position significantly strengthens our balance sheet. Significantly strengthens our balance sheet. Regarding our financial outlook, in light of the recent introduction of 2 new revenue share models and their yet to be determined impact on future revenues and adjusted EBITDA, the company has expectations in the Q4 of 2024, allowing time to evaluate the performance of these new models.

Speaker 3

With that, I will turn the call back over to Marco for closing remarks.

Speaker 2

Thank you, Joanne. We believe we're embarking on a journey that will redefine our industry position with the potential of creating unprecedented growth and success opportunities. Our focus has been and will continue to be on providing the greatest value to our agents and team members. I want to thank all our team members for their hard work and commitment these past few months, especially the team members that worked tirelessly implementing our 2 new agent plans. Our future is bright and we're looking forward to the challenges ahead.

Speaker 2

With that, we'll take your questions now.

Operator

Our first question today comes from John Campbell with Tom Stevens. Please go ahead with your question.

Speaker 4

Hey guys, good afternoon.

Speaker 2

Good afternoon, John. Hope all is well.

Speaker 4

Hey, likewise, Marco. Okay, let's just start on maybe the first half of the year performance. So it looks like revenue is down $18,000,000 or so versus the first half of last year. Obviously, you got higher interest expense as well. You've been able to hold that cash burn rate to a pretty similar rate as last year.

Speaker 4

But Mark, I know you aren't banking on a housing recovery, and there's clearly a lot of moving parts to consider here. You've got mortgage businesses doing really, really well. But as best as you can see, just kind of looking out, what degree of a housing recovery, again, just kind of holding all else equal, do you think you might need to see to get back to positive free cash flow?

Speaker 2

Well, actually, as I mentioned to you earlier, I think a few months back, we are building our plan without having an impact of a recovery, right? We don't know when the recurve is going to be. I do see some improvement. When you start seeing the an equal year been coming back to buyers, right, from sellers, think that's the beginning of perhaps an improvement in the housing market. I think one of the things we have to be cautious is that when buyers believe that interest rates are going to decrease, they may withhold buying a house because they're waiting for the interest rate to come down, right?

Speaker 2

And so that's part of one of the things we have to be cautious when interest rates are going to decrease or people feel like going to decrease. But going back to your question, we believe that we'll get back to a positive cash flow and significant adjusted EBITDA by really increasing the number of agents, right? I think that's our growth and that's why we implemented these 2 new revenue share programs. And as you know, it's very unique because we're the only company, certainly national public company that actually has 2 different programs, right, a flat fee revenue share program and a traditional split revenue share program. So for us, if when the market comes back, we'll definitely see some upside, but we are really focused on building our agent network to continue to grow the number of agents.

Speaker 2

We're also focused on recruiting the right kind of agents. I think as I mentioned earlier, I think at the second half of last year, we took our eye off the ball in terms of the focus of the kinds of agents. And if you look at the decrease in transactions quarter over quarter, you see that we continue to improve and better that decrease. And so we think that by Q3 and Q4, we will get back to positive numbers in terms of transaction growth. But that is really primarily being as a result of additional agents joining our company as opposed to counting on an improvement in the industry in the risk pay market.

Speaker 2

I think that's going to come more next year. And I think so for us is really focused on the agent growth.

Speaker 4

Okay. That's helpful. And then on Fathom Share, I mean, obviously, that's, as you mentioned, bringing in a little bit more of a traditional splits model. You guys have always been the hallmark of the model has always been the flat fee model. So I'm curious about maybe the conversations or I don't know if it was focus groups or surveys or whatever you guys did to arrive at that decision.

Speaker 4

Maybe take us through that process of how you assessed it and what you expect to accomplish?

Speaker 2

Sure. That's a great question. Look, we are a 100% commission company and we think the future of the industry is the 100% commission. Even as we implement these 2 new programs, we believe that a significant majority of the agent joining are going to be in the Fathom X plan, not the Fathom share. We think the Fathom share probably be around 20% to 30% of our agents joining.

Speaker 2

What we found over the last 6 months or so, as we spoke with small brokerages, teams, high producing agents is that a percentage of those individuals were very interested in some sort of revenue share program. We also were limited in terms of acquiring or walkovers with small brokerages that were an eightyfivefifteen or an eightytwenty split. And now, we become a very attractive home for them. And so it was really a combination of just listening to some of our agents and listening to small brokerages and teams that were really interested in the revenue share program. So we believe that we have a very we're creating a very innovative program that actually is based on 100% commission model, but offers the ability of our agents to have a choice.

Speaker 2

I think the other thing that makes our program very unique is that agents are able to once a year change from one to the other model. And so an agent that joins Fathom in one program and they think about leaving because another company offers a different program. Now we offer both programs within the same company. And that's one of the comments that we heard from a lot of agents is that having the flexibility. So we implemented that as part of our program and we believe that we have created something that's very unique and something that look, since we announced this past Wednesday, we've had a significant response from non Fathom agents, teams, small brokerages, actually some brokers up to 3,000 agents that have demonstrated a significant interest in having conversations with us about perhaps joining us down the line.

Speaker 2

So we think that the response immediately after our announcement has been incredibly positive And we think that this is going to manifest itself in a getting the patent back to a 30% agent growth. So I think that those are the main reasons why we decided to create this hybrid model.

Speaker 4

Okay. That's helpful. Thank you, guys.

Speaker 2

Thank you.

Operator

Our next question comes from Raj Sharma from B. Riley. Please go ahead with your question.

Speaker 2

Hi. Thank you

Speaker 5

for taking my questions. Again, I want to follow-up the last caller. The motivation behind switching the plans and if you could lay out how I see how there is an option now in the MAX and the share between flat and revenue share, how does that make your gross profits higher? Is that simply from attracting more agents or?

Speaker 2

Hey, Raj, it's great to hear from you. Great question. It's a combination of attracting more agents, higher producing agents as well, which certainly will help the number of transactions per agent. It's also a combination that we believe we're estimating right now based on conversations that 20% to 30% of our agents, new agents joining will join the company in the 12% program. So when you combine a percentage of agents joining the 12% program, as well as a higher number of agents joining the company, we'll be able to increase our gross profit margins.

Speaker 2

As you recall, we Fathom is in a position where we are right at that inflection point, right, that a significant percentage of our gross profit dollars will also follow to the bottom line in EBITDA. And so by increasing the number of agents coming in, we'll also have a higher level of transactions per agent. It's going to have a significant effect in our gross profit margin as well as our EBITDA going forward. And given the response we've had since we announced this past Wednesday, I think within a few quarters, we'll be able to demonstrate that.

Speaker 5

Thank you. And then what are the levels 1 through 5? What were the cutoffs in transactions?

Speaker 2

It's not so much I mean, it's 5 levels in terms of on both programs, there's 5 levels, right, which means that we go 5 levels in terms of agents recruiting. It's not so much in terms of transaction, right? And so in a sense is if I recruit you and you recruit somebody else, then somebody else recruits the 4th. So in our programs, we felt that 5 levels was the appropriate number in order to do that. And if you look at the press release, you can see that the Fathom share plan offers a significant higher level of revenue share, right.

Speaker 2

On the first level is 35% and then 25% compared to 10% on the Fathom X plan. So what we agree, what we decided that after doing some research and speaking with teams and agents who are, by doing other revenue share companies. We have had numerous conversations with agents that are members of other companies as well as teams and small brokerages. We felt like 5 levels was the appropriate number for us, and so that's what we decided to do.

Speaker 5

Got it. And then to the old referral agent referral programs of Capital Life, Free For Life, those are still valid or not valid?

Speaker 2

It's a great question. Those are going to be valid until December of this year. So any agent that reaches Cap For Life or Free For Life, they'll be grandfathered, and then they will be Cap For Life or Free For Life forever. On January 1, those two programs go away and therefore the revenue share program becomes the new program. We are giving agents another 5 months in order to be able to reach Cap For Life and Free For Life.

Speaker 2

We felt that was the appropriate thing to do. And so all our agents still have the opportunity to reach capital life and free for life until December 31. After that, whatever position they are, if they already reached either one, they're their grandfather for life. If they're not, then every agent can continue to earn revenue share. As of last week, agents that are already earning revenue share for any new agent that joins the company regardless in which plan you're at.

Speaker 2

And so we feel that we're creating a significant enhancement in terms of how do we work with our agents to refer other agents. And I think some of our agents are going to take advantage of this and build some significant revenue stream for themselves and their family.

Speaker 5

Got it. And then my last question, Marco, is you just indicated that you're looking for agent growth of 30% in the next several quarters. What gives you the confidence that you can get 30% growth? Is it acquisitions? Is it walkovers?

Speaker 5

Or is something changing in the market? Or you need some market change?

Speaker 2

Sure. Look, our goal has always been, as we mentioned in the last few quarters, to go back, Fathom had 30% growth for many years. And so our goal is has been to get back to that 30% agent growth. What gives us confidence that we can get back to that hopefully within 2 or 3 quarters is that the number of discussions that we've had, our pipeline in terms of agent growth. Since we announced this, as I said on Wednesday, we've had discussions with numerous organizations and teams, agents in other companies under revenue share program, more brokerages, medium sized brokerages, regular agents.

Speaker 2

And so we feel that given this conversation and the existing pipeline that within 2 to 3 quarters, we should be able to get back to 30% growth and perhaps more. But that's what gives us confidence to be able to make that announcement.

Speaker 5

All right, great. Thank you. I'll take my thank you for answering my questions. I'll take it offline. Thank you.

Speaker 2

Thank you, Raj.

Operator

And our next question comes from Tom White from D. A. Davidson. Please go ahead with your question.

Speaker 4

Hey, this is Wyatt on for Tom. Thanks for taking our questions. I had one on industry changes related to the NAR settlement. Can you just talk about what Fathom is telling their agents in terms of how to navigate this as August 17 approaches? And does your best practices around things like buyer rep agreements differ in any meaningful ways than peers?

Speaker 2

Yes. Look, I think that there are still a lot of moving parts to all of this, right? I go back and I think about when the government, you may recall this when the government changed from the HUD to the CD and implemented a total new form for closing transactions. And it took approximately 3 to 6 months to just work out all the kinks out of this, right, out of that process. I think the same thing is going to happen here.

Speaker 2

I think there's a lot of confusion. I think that MLSs are going to enforce this in a variety of different ways. And so in a sense is not only we have to build our own set of rules, but then we have to look at every MLS and every board and see what they're going to enforce locally. And we're already seeing that different MLSs across the country in different boards are looking at things differently. Certainly, we're not going to be able to put the buyer size commission on websites and the MLS.

Speaker 2

That's a given and Fathom is going to enforce that and we're already working with our agents to do that. We are in discussions about creating our own documents in terms of buyers agreements and we're already in the process of doing that, working with every state broker and every MLS and every board because everyone is going to be somewhat different. So I think it's a little early to speak specifically about the totality of all the things we're going to do. We're already progressing this. We have been working on this.

Speaker 2

Samantha Gucci, who is our COO for Fathom Realty is working with our legal team and our state brokers and implementing this. And it's going to take a little while in order to work itself out. We certainly are adhering by the rules and our interpretation of the rules and we're working with our agents to do that. But it is going to take a little bit of time to kind of work itself out and to making sure that we can train our agents accordingly. And some of it and every company is going to do things a little different.

Speaker 2

Some companies are creating their documents. Some companies are just using the new state documents or board documents. So we are working with our team to try to find the best approach to this. We are already working on our own documents and we'll probably implement those rather quickly. But I think we still have some time to go before everyone fully comprehends the impact that's going to have in the industry.

Speaker 2

And so I caution everyone in terms of jumping to conclusions about how everything is going to change. I think there's a lot of moving parts still and we're working through the process with our team.

Speaker 4

That makes sense. Thank you. And then do you have any update around a possible settlement regarding the industry lawsuit?

Speaker 2

Sure. As everyone can imagine, we still are in negotiations. And for that reason, I can't really disclose where we are in terms of that. But we look forward to announce a settlement as quickly as possible. We think that we can reach that settlement with an amount that would be that we can can we survive and price, especially given some of the recent settlements and the size of those companies.

Speaker 2

And I think when you look at our company and our size, you're able to kind of figure out what that number is. So we look forward to announcing this soon, but given that we are in still discussions, I'd rather just leave my comment at that.

Speaker 4

Understood. That makes complete sense. And then I just have one final follow-up regarding like the new revenue share models. I think I missed this, but could you just give some more color into like the expected margin impact over like the next several quarters for both gross margins and EBITDA margins?

Speaker 2

Sure. I think it's going to take a little bit of time. We are going to start already start onboarding agents in the new models. I think it's going to take a little bit of time for this to work itself out, right? I think in the next certainly in Q3 and perhaps in Q4, I don't think we're going to be seeing significant changes because again, when we onboard an agent, it may take a few weeks, if not a month for that agent to actually close their first transaction, right.

Speaker 2

And so there always a delay from onboarding an agent to the agent closing their first transaction and then to have a positive effect in terms of gross profit margin EBITDA. We do believe that over time, over the next year or so, we're going to see an increase in gross profit margins, not only because of the new models, but also because our continued improvement in the mortgage business and our title business. We do think within a couple of years, we'll probably see margins in the mid teens. But I will go back specifically to your question about the next two quarters. I would not anticipate a significant change in gross profit margins or EBITDA because I think it's a little too early for the new plants to have that kind of impact.

Speaker 2

I think that impact is going to be more will be experienced more in Q1 starting Q1 of next year. That's where we believe that we'll have a higher impact in gross profit margins and EBITDA from the new plan.

Speaker 4

Okay. That makes sense. Thanks, Marco.

Speaker 2

Thank you.

Operator

And ladies and gentlemen, with that, we'll be concluding today's question and answer session. I'd like to turn the call back over to Mr. Frasgenel for closing remarks. Mr. Prechnell, you may make closing remarks at this time.

Speaker 2

Thank you. I want to thank everyone for joining our call. We appreciate everyone's support in Trust. As always, I am available to meet with you on a 1 on 1 basis. And I hope all of you have a great week.

Speaker 2

So thank you for joining us today.

Operator

Ladies and gentlemen, with that, we'll be concluding today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

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Earnings Conference Call
Fathom Q2 2024
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