Fathom Holdings Inc. — FY2022 Form 10-K
Business context and reporting period. This annual filing covers the fiscal year ended December 31, 2022, with comparisons to FY2021. Fathom operates a technology-enabled real estate platform spanning brokerage, mortgage, title, insurance and SaaS services. Brokerage remains the core business. At year-end, the company reported approximately 10,370 licensed agents and brokers, up 28% from approximately 8,100 a year earlier. It completed acquisitions of Cornerstone Financial and iPro Realty Network in 2022.
Key financial metrics
| Metric | FY2022 / Dec. 31, 2022 | FY2021 / Dec. 31, 2021 |
|---|---|---|
| Total revenue | $413.0 million, up 25% | $330.2 million |
| Gross commission income | $390.6 million, up 24% | $314.4 million |
| Other service revenue | $22.3 million, up 41% | $15.9 million |
| Operating loss | $26.8 million | $16.1 million |
| Net loss | $27.6 million; $1.73 per share | $12.5 million; $0.88 per share |
| Adjusted EBITDA (non-GAAP) | Loss of $12.2 million | Loss of $8.2 million |
| Operating cash flow | Cash used: $6.6 million | Cash used: $11.7 million |
| Cash and cash equivalents | $8.3 million | $37.8 million |
| Net working capital | $6.3 million | $33.4 million |
| Total liabilities | $18.2 million | $24.8 million |
Gross commission income growth reflected a 14% increase in transaction volume to approximately 44,700 transactions and a 9% increase in average revenue per transaction to $8,739. Commission and agent-related costs were $372.2 million. Stock-based compensation, a non-cash expense, was $9.1 million, compared with $4.0 million in FY2021.
Cash used in investing activities was $7.1 million, primarily for acquisitions, deferred acquisition payments, technology/intangible assets and equipment. Cash used in financing activities was $15.9 million, including $6.0 million of share repurchases. The company had $3.6 million outstanding on warehouse lines of credit and $0.7 million of other debt at year-end; lease liabilities totaled $6.9 million. Current assets were $18.8 million and current liabilities were $12.5 million.
Material changes versus FY2021
- Revenue increased 25%, but operating and net losses widened as expenses rose 27% to $439.7 million. General and administrative expense increased 32%, technology and development expense 97%, and marketing expense 175%, with acquisitions, platform investment, compensation and expansion among the stated drivers.
- Growth slowed in the second half of 2022 amid sharply higher mortgage rates, inflation, weaker consumer sentiment and lower housing-market activity. Mortgage loan volumes, particularly refinancing, also declined.
- Operating cash use improved by $5.1 million, but cash and working capital fell substantially year over year, including from operating losses, repurchases, investment and acquisition payments.
- The company repurchased 686,097 shares for approximately $6.0 million during 2022. Approximately $4.0 million remained authorized at year-end; management said it had no current plans for further repurchases.
Outlook, management commentary and risks
Management targeted total-company Adjusted EBITDA breakeven in Q2 2023 and positive cash flow in Q3 2023. It reported approximately $3.0 million in quarterly expense reductions implemented by year-end 2022, with the full benefit expected in Q1 2023, and cited higher agent transaction fees effective January 2023 as additional support. These are management targets, not guarantees. Management stated that cash, planned cost actions and expected operating cash flows should fund operations for at least 12 months from issuance of the financial statements.
Key risks include continued housing-market weakness and elevated mortgage rates; the company’s history of losses and limited cash relative to prior year; its ability to attract and retain agents, integrate acquisitions and achieve profitability; competition and listing-platform market power; cybersecurity and privacy incidents; and extensive real estate, mortgage and insurance regulation. The mortgage warehouse facilities also create funding and covenant risks: two facilities were out of compliance with earnings-related covenants at year-end, but amendments signed March 9, 2023 provided waivers. The filings state that one facility expires in April 2023 and the others in July and September 2023.
Other notable items: the company reported no material litigation at December 31, 2022. Its financial statements received an unqualified audit opinion; management concluded disclosure controls and internal control over financial reporting were effective. The auditor was not engaged to audit internal control effectiveness. The company reported federal and state net operating loss carryforwards of approximately $40.8 million and $20.8 million, respectively; use may be limited, and a valuation allowance remains against deferred tax assets.
Important facts for investors to verify
- Progress against the Q2 2023 Adjusted EBITDA and Q3 2023 positive-cash-flow targets, including the realized impact of cost reductions and revised agent fees.
- Cash burn, working capital, available liquidity and financing needs if housing activity or mortgage operations weaken further.
- Status, renewal and covenant compliance of the warehouse credit facilities, including the effect and duration of the March 2023 waivers.
- Whether agent growth, transaction volume and revenue per transaction hold up as market conditions change, and whether acquired businesses improve profitability.
- Share-based compensation and potential dilution; remaining share-repurchase authorization; and the realizability and any limitations on tax loss carryforwards.