Fathom Holdings Inc. — Q1 2021 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three months ended March 31, 2021, compared with Q1 2020. Fathom operates a technology-enabled real estate brokerage and related title and settlement services business. Revenue is principally recognized when real estate transactions close.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Revenue | $49.65 million | $28.84 million | Up 72% |
| Gross profit | $3.18 million | $2.06 million | Gross margin about 6.4%, versus 7.1% |
| Operating expenses | $6.63 million | $2.07 million | Up 221%; G&A rose 239% and marketing 75% |
| Operating loss | $3.45 million | $8,934 | Operating margin about -6.9%, versus approximately break-even |
| Net loss | $3.40 million | $42,771 | Loss per share: $0.25 versus approximately $0.00 |
| Adjusted EBITDA (non-GAAP) | -$2.48 million | $135,062 | Reconciliation is provided in the filing; this measure excludes share-based compensation and other items |
| Operating cash flow | -$981,214 | $303,083 | Cash used in Q1 2021 |
| Investing cash flow | -$2.67 million | -$116,818 | Primarily acquisitions and equipment |
Revenue growth reflected an increase in closed transactions, from approximately 4,290 to 6,874, higher agent numbers, and revenue from title and settlement services. Agents increased 42% year over year to 6,045. Cost of revenue grew 74%, faster than revenue, largely due to agent commissions and higher transaction volume and home prices.
At March 31, cash and cash equivalents were $24.92 million, with restricted cash of $992,205. Net working capital was $21.78 million, down from $27.87 million at year-end 2020. Total assets were $37.36 million and total liabilities $9.07 million. Long-term debt was $505,460, including $244,922 current; lease liabilities totaled $2.23 million, including $252,404 current. The company reported a $10.89 million accumulated deficit.
Material changes, outlook and risks
- Operating costs expanded substantially, particularly G&A, which management attributed to growth, public-company costs, staffing, professional fees, and share-based compensation.
- In March, Fathom acquired Red Barn Real Estate and substantially all assets of Naberly. Naberly was accounted for as an asset acquisition, with $2.76 million in total cost recorded as software intangible assets. Red Barn was accounted for as a business combination.
- After quarter-end, Fathom acquired E4:9 on April 20 for approximately $28.9 million, subject to working-capital adjustments, and LiveBy on April 26 for approximately $9.3 million, also subject to adjustments. Purchase-price allocations were incomplete at filing. The filing describes cash and stock consideration for both transactions.
- Management said existing cash, planned budgets, and expected operating cash flows were expected to fund operations for at least 12 months from issuance of the statements. No specific revenue or earnings guidance was provided. Management noted additional capital could be needed if markets deteriorate or growth and acquisition needs exceed available resources; financing may be unavailable or dilutive.
- The company reported continuing net losses and a history of negative operating cash flow. COVID-19, housing-market conditions, interest rates, transaction activity, mortgage availability, and consumer demand could affect results; management said the future effects of the pandemic could not be estimated.
- Disclosure controls and procedures were deemed ineffective as of March 31, 2021 because of previously identified material weaknesses, including insufficient accounting/reporting expertise and ineffective revenue reconciliation and recording controls. Management described hiring and process improvements as remediation steps.
- The company had applied for forgiveness of its $303,681 PPP loan; as of the filing, SBA approval was not assured. A separate $50,600 PPP loan assumed with the Verus acquisition was forgiven in January, producing a $50,936 gain on extinguishment in Q1.
- Management reported no material litigation as of March 31 and no material changes to the risk factors in its latest Form 10-K. Net operating loss carryforwards may be subject to statutory limitations; the company maintained a full valuation allowance on deferred tax assets.
Important facts for investors to verify
- Whether agent and transaction growth can translate into improved gross margins and lower operating losses as a percentage of revenue.
- Cash burn and liquidity after the April acquisitions, including final consideration, working-capital adjustments, integration costs, and any financing needs.
- Progress remediating the disclosed material weaknesses and the effectiveness of revenue accounting controls.
- Status of forgiveness for the remaining PPP loan and the effect of debt and lease obligations on future cash requirements.
- Acquisition purchase-price allocations, including valuation assumptions for acquired software, agent relationships, and goodwill.
- Performance of the company’s non-GAAP Adjusted EBITDA alongside GAAP losses and cash flows, recognizing the measure excludes recurring share-based compensation.