Fathom Holdings Inc. — Q1 2023 Form 10-Q
Business and period: Fathom is a technology-enabled real estate services platform spanning residential brokerage, mortgage, title, insurance and software. This unaudited report covers the three months ended March 31, 2023, compared with Q1 2022; balance-sheet figures are compared with December 31, 2022. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $77.5 million | $90.1 million; down 14% |
| Operating loss | $5.5 million | $5.6 million |
| Net loss | $5.7 million; $0.36 per share | $6.0 million; $0.37 per share |
| Adjusted EBITDA (non-GAAP) | $(1.4) million | $(2.1) million |
| Operating cash flow | $(1.6) million | $1.6 million provided |
| Cash and cash equivalents at March 31 | $6.7 million | $8.3 million at December 31, 2022 |
| Net working capital | $4.1 million | $6.3 million at December 31, 2022 |
Gross commission income was $73.2 million, down 13%; other service revenue was $4.4 million, down 28%. The filing attributes lower revenue mainly to weaker transaction and mortgage/title volumes amid rising interest rates. Real estate transactions fell 15.4% to 8,532, while average revenue per transaction rose 2.9% to $8,576. The agent network grew 18% year over year to approximately 10,628 licenses.
Operating expenses declined 13% to $83.1 million, reflecting lower agent-related costs with volume, headcount and other cost reductions, and lower marketing spend. Depreciation and amortization increased 22% to $0.7 million. The filing does not provide a clear consolidated gross-margin figure.
Liquidity, debt and balance sheet
- Current assets were $18.3 million and current liabilities $14.2 million; working capital decreased $2.2 million during the quarter.
- Warehouse-line borrowings were $4.5 million at March 31. Three facilities had agreements expiring in July or September 2023; the filing reports covenant compliance at quarter-end. Their stated maximum availability had been reduced from year-end levels.
- Other debt totaled $0.4 million, including $0.3 million current. Lease liabilities totaled $6.5 million.
- Cash, cash equivalents and restricted cash totaled $6.8 million at quarter-end. Investing cash use was $0.6 million and financing provided $0.6 million.
Outlook, risks and unusual items
- Management targeted total-company Adjusted EBITDA breakeven in Q2 2023 and positive cash flow in Q3 2023. These are targets, not guarantees. Management cited approximately $3.0 million of quarterly expense reductions, increased agent transaction fees effective January 2023, and expected referral growth.
- Management stated existing cash, planned spending and expected operating cash flows should support operations for at least one year after issuance of the statements. The filing also notes a history of operating losses and negative operating cash flows, and that additional financing may be needed if conditions deteriorate.
- On April 13, 2023, after quarter-end, the company issued a $3.5 million senior secured convertible note and received $3.3 million net of fees and expenses. It is secured by existing and future company assets, bears interest at monthly average SOFR plus 5% with an 8% floor, matures April 12, 2025, and is convertible at an initial $6 per share, subject to adjustments. Conversion could dilute shareholders; the collateral and payment terms are material financing risks.
- Higher interest rates, inflation, weaker housing demand and mortgage volumes, competition, and potential financing availability are identified risks. The filing reports no material litigation and no material changes to the risk factors in the 2022 Form 10-K. No goodwill impairment indicator was identified in the quarter.
- Management reported effective disclosure controls as of March 31, 2023, while noting implementation of new accounting systems and related process updates. Stock-based compensation was $2.8 million in Q1.
Important facts for investors to verify
- Whether the Q2 Adjusted EBITDA and Q3 positive-cash-flow targets were achieved, and the assumptions behind them.
- Liquidity and refinancing status of warehouse facilities expiring in July and September 2023, including availability and covenant compliance.
- The convertible note’s effective interest cost, collateral, conversion adjustments, and potential dilution.
- Cash burn, working-capital trends, mortgage/title volumes, and the durability of cost reductions and agent-fee increases.
- Share-count changes: 18,071,111 common shares were outstanding on March 31, 2023, versus 17,468,562 at year-end; confirm subsequent dilution and equity awards.