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What changed in Fathom Holdings Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Fathom Holdings Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+327 added−295 removedSource: 10-K (2024-03-19) vs 10-K (2023-03-30)

Top changes in Fathom Holdings Inc.'s 2023 10-K

327 paragraphs added · 295 removed · 233 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

62 edited+12 added−15 removed42 unchanged
Biggest changeWe currently operate in 37 states plus the District of Columbia: ​ ​ ​ ​ ​ Alabama Louisiana Ohio ​ ​ ​ ​ ​ Arizona Maryland Oklahoma ​ ​ ​ ​ ​ Arkansas Massachusetts Oregon ​ ​ ​ ​ ​ California Michigan South Carolina ​ ​ ​ ​ ​ Colorado Minnesota Tennessee ​ ​ ​ ​ ​ Florida ​ Missouri ​ Texas ​ ​ ​ ​ ​ Georgia ​ Montana ​ Utah ​ ​ ​ ​ ​ Hawaii ​ Nebraska ​ Virginia ​ ​ ​ ​ ​ Idaho ​ Nevada ​ Washington ​ ​ ​ ​ ​ Illinois New Hampshire West Virginia ​ ​ ​ ​ ​ Iowa ​ New Jersey ​ Wisconsin ​ ​ ​ ​ ​ Indiana ​ New Mexico ​ Washington D.C. ​ ​ ​ ​ ​ Kentucky ​ North Carolina ​ ​ ​ We primarily target urban or suburban cities or regions with populations of at least 50,000, of which there are approximately 775 in the United States.
Biggest changeWe currently operate in 40 states plus the District of Columbia: Alabama Kentucky Ohio Arizona Louisiana Oklahoma Arkansas Maryland Oregon California Massachusetts Rhode Island Colorado Michigan Pennsylvania Delaware Minnesota South Carolina Florida Missouri Tennessee Georgia Montana Utah Hawaii Nebraska Virginia Idaho Nevada Washington Illinois New Hampshire West Virginia Iowa New Jersey Wisconsin Indiana New Mexico Washington D.C.
We are a national, technology-driven, real estate services platform integrating residential brokerage, mortgage, title, insurance, and Software as a Service (“SaaS”) offerings to brokerages and agents by leveraging our proprietary cloud-based software, intelliAgent. The Company’s brands include Fathom Realty, Dagley Insurance, Encompass Lending, intelliAgent, LiveBy, Real Results, and Verus Title.
We are a national, technology-driven, real estate services platform integrating residential brokerage, mortgage, title, insurance, and Software as a Service (“SaaS”) offerings to brokerages and agents by leveraging intelliAgent, our proprietary cloud-based software. The Company’s brands include Fathom Realty, Dagley Insurance, Encompass Lending, intelliAgent, LiveBy, Real Results, and Verus Title.
Through our website, we provide buyers, sellers, landlords, and tenants with access to all of the available properties for sale or lease on the multiple listing service, or MLS, in each of the markets in which we operate. We provide each of our agents their own personal website that they can modify to match their personal branding.
Through our website, we provide buyers, sellers, landlords, and tenants with access to all available properties for sale or lease on the multiple listing service, or MLS, in each of the markets in which we operate. We provide each of our agents their own personal website that they can modify to match their personal branding.
IntelliAgent has since grown to include brokerage and agent level websites, content creation and management, customer relationship management, social media marketing, agent reviews, training platform, and marketing repository. Our technology roadmap includes our own fully-integrated e-signature platform, goal setting and accountability for agents, expense tracking for agents, and APIs for integration with additional third-party tools.
IntelliAgent has since grown to include brokerage and agent-level websites, content creation and management, customer relationship management, social media marketing, agent reviews, a training platform, and marketing repository. Our technology roadmap includes our own fully-integrated e-signature platform, goal setting and accountability for agents, expense tracking for agents, and APIs for integration with additional third-party tools.
This should allow us to monetize a portion of our technology and generate revenue from small to medium sized brokerages and agents who would not otherwise join our company. We believe that intelliAgent also provides us with the platform needed to more fully integrate our mortgage, title, and insurance companies that are part of Fathom Holdings.
This should allow us to monetize a portion of our technology and generate revenue from small-to-medium sized brokerages and agents who would not otherwise join our company. We believe that intelliAgent also provides us with the platform to more fully integrate our mortgage, title, and insurance companies that are part of Fathom Holdings.
Third-Party Rules Beyond federal, state and local governmental regulations, the real estate industry is subject to rules established by private real estate groups and/or trade organizations, including, among others, state Associations of REALTORS(R) (AOR), and local Associations of REALTORS(R) (AOR), the National Association of Realtors(R) (NAR), and local Multiple Listing Services (MLSs).
Third-Party Rules Beyond federal, state and local governmental regulations, the real estate industry is subject to rules established by private real estate groups and/or trade organizations, including, among others, state Associations of REALTORS ® (AOR), and local Associations of REALTORS ® (AOR), the National Association of Realtors ® (NAR), and local Multiple Listing Services (MLSs).
Specifically, using advanced Internet-based software, we can improve compliance and oversight while providing, at no cost to our agents, technology tools and services to our agents and their customers, including: ● a robust, mobile-friendly, customer-facing corporate website providing access to view all homes for sale and lease in the markets that we serve, with the ability to search and save favorite properties and receive alerts for new properties that fit their criteria; ● a customizable, mobile-friendly, agent website with home search, lead capture, and blogging capabilities; ● an advanced customer relationship management system, with visitor tracking, property alerts, and customer communication, all designed to help convert leads into customers; ● social media tools to enhance agent marketing and visibility; 9 Table of Contents ● streamlined solicitation, collection, verification and posting of customer testimonials; ● single property websites for our agents’ listings; ● a wide array of on-demand training modules for the professional development of agents at all levels of experience; and ● agent access to intelliAgent(R), which is described in more detail below.
Specifically, using advanced Internet-based software, we can improve compliance and oversight while providing, at no cost to our agents, technology tools and services to our agents and their customers, including: • a robust, mobile-friendly, customer-facing corporate website providing access to view all homes for sale and lease in the markets that we serve, with the ability to search and save favorite properties and receive alerts for new properties that fit their criteria; • a customizable, mobile-friendly agent website with home search, lead capture, and blogging capabilities; • an advanced customer relationship management system, with visitor tracking, property alerts, and customer communication, all designed to help convert leads into customers; • social media tools to enhance agent marketing and visibility; • streamlined solicitation, collection, verification and posting of customer testimonials; • single property websites for our agents’ listings; • a wide array of on-demand training modules for the professional development of agents at all levels of experience; and • agent access to intelliAgent(R), which is described in more detail below.
The acquisition of iPro, a real estate brokerage business, has helped us to expand our reach in the Utah real estate market. In February 2022, the Company completed its acquisition of Cornerstone Financial (“Cornerstone”). The acquisition of Cornerstone, a real estate mortgage business, has helped us to expand our reach in the DC and surrounding markets.
The acquisition of iPro, a real estate brokerage business, has helped us to expand our reach in the Utah real estate market. Also in February 2022, the Company completed its acquisition of Cornerstone Financial (“Cornerstone”). The acquisition of Cornerstone, a real estate mortgage business, has helped us to expand our reach in the DC and surrounding markets.
For our core business, Fathom Realty, our low-overhead business model leverages our proprietary software platform for management of real estate brokerage back-office functions, without the cost of physical brick and mortar offices or of redundant personnel.
For Fathom Realty, our core business, our overhead business model leverages our proprietary software platform for management of real estate brokerage back-office functions, without the cost of physical brick and mortar offices or of redundant personnel.
Our Strategy Our goal is to be one of the leading 100% commission real estate brokerages in the United States while offering superior customer service, state of the art technology, and a great company culture.
Our Strategy Our goal is to be the leading 100% commission real estate brokerages in the United States while offering superior customer service, state of the art technology, and a great company culture.
Item 1. Business. Overview Fathom Realty LLC was originally founded in January of 2010 and later incorporated as Fathom Holdings Inc. in the state of North Carolina on May 5, 2017.
Item 1. Business. Overview Fathom Realty LLC was founded in January 2010 and later incorporated as Fathom Holdings Inc. in the state of North Carolina on May 5, 2017.
States require a real estate broker to be employed by the brokerage firm or permit an independent contractor classification, and the broker may work for another broker conducting business on behalf of the sponsoring broker. 14 Table of Contents States may require a person licensed as a real estate agent, sales associate or salesperson to be affiliated with a broker in order to engage in licensed real estate brokerage activities or allow the agent, sales associate or salesperson to work for another agent, sales associate or salesperson conducting business on behalf of the sponsoring agent, sales associate or salesperson.
States require a real estate broker to be employed by the brokerage firm or permit an independent contractor classification, and the broker may work for another broker conducting business on behalf of the sponsoring broker. 12 Table of Contents States may require a person licensed as a real estate agent, sales associate or salesperson to be affiliated with a broker in order to engage in licensed real estate brokerage activities or allow the agent, sales associate or salesperson to work for another agent, sales associate or salesperson conducting business on behalf of the sponsoring agent, sales associate or salesperson.
We have grown rapidly since inception, and plan to accelerate our growth through the following aspects of our vision: ● offer full brokerage services via our technology-enabled, low-overhead business model; ● attract and retain high-producing agents by offering high compensation per transaction and industry-leading benefits; ● use our publicly traded stock to further incentivize agents; ● continue to enhance and develop our proprietary software platform to facilitate our own business and potentially increase our revenue by licensing it to others; and ● pursue further growth through potential acquisitions, including potentially using our publicly traded stock as consideration, depending on its then current value.
We have grown rapidly since inception, and plan to accelerate our growth through the following aspects of our vision: • offer full brokerage services via our technology-enabled, low-overhead business model; • attract and retain high-producing agents by offering high compensation per transaction and industry-leading benefits; • use our publicly traded stock to further incentivize agents; • continue to enhance and develop our proprietary software platform to facilitate our own business and potentially increase our revenue by licensing it to others; and • pursue further growth through potential acquisitions, including potentially using our publicly traded stock as consideration, depending on its value at the time.
We believe we offer agents further opportunity to increase their overall revenue and income, because they can invest the additional income earned under our fee structure in incremental marketing. 11 Table of Contents Our Markets Currently, our market is the United States.
We believe we offer agents further opportunity to increase their overall revenue and income, because they can invest the additional income earned under our fee structure in incremental marketing. 9 Table of Contents Our Markets Currently, our market is the United States.
Our revenue and operating margins each quarter will remain subject to seasonal fluctuations, poor weather, natural disasters and macroeconomic market changes that may make it difficult to compare or analyze our financial performance effectively across successive quarters. 13 Table of Contents Furthermore, the residential real estate market and the real estate industry in general is often cyclical, characterized by protracted periods of depressed home values, lower buyer demand, inflated rates of foreclosure and often changing regulatory or underwriting standards applicable to mortgages.
Our revenue and operating margins each quarter will remain subject to seasonal fluctuations, poor weather, natural disasters and macroeconomic market changes that may make it difficult to compare or analyze our financial performance effectively across successive quarters. 11 Table of Contents Furthermore, the residential real estate market and the real estate industry in general are often cyclical, characterized by protracted periods of depressed home values, lower buyer demand, inflated rates of foreclosure and often changing regulatory or underwriting standards applicable to mortgages.
In the future, we also intend to roll out an enhanced version of the Naberly platform to launch a national real estate portal to help generate leads for our Fathom agents, as well as non-Fathom agents, in the markets in which we are not currently operating.
In the future, we 8 Table of Contents also intend to roll out an enhanced version of the Naberly platform to launch a national real estate portal to help generate leads for our Fathom agents, as well as non-Fathom agents, in the markets in which we are not currently operating.
Consequently, this higher commission paid to our agents combined with our unique delivery of support services and the flexibility it provides for agents has facilitated our growth over the past several years. We also differentiate ourselves by not charging our agents royalties or franchise fees.
Consequently, this higher commission retained by our agents combined with our unique delivery of support services and the flexibility it provides for agents has facilitated our growth over the past several years. We also differentiate ourselves by not charging our agents royalties or franchise fees.
Real Estate Regulation - State and Local Level Real estate and brokerage licensing laws and requirements vary from state to state. In general, all individuals and entities lawfully conducting businesses as real estate agents or sales associates must be licensed in the state in which they carry on business and must at all times be in compliance.
Real Estate Regulation - State and Local Level Real estate and brokerage licensing laws and requirements vary by state. In general, all individuals and entities lawfully conducting businesses as real estate agents or sales associates must be licensed in the state in which they carry on business and must at all times be in compliance.
Human Capital As of December 31, 2022, we had 279 full-time employees. Our operations are overseen directly by management. Our management oversees all responsibilities in the areas of corporate administration, training, agent relations, business development, technology, and research. We intend to expand and retain our current management and skilled employees with experience relevant to our businesses.
Human Capital As of December 31, 2023, we had 241 full-time employees. Our operations are overseen directly by management. Our management oversees all responsibilities in the areas of corporate administration, training, agent relations, business development, technology, and research. We intend to expand and retain our current management and skilled employees with experience relevant to our businesses.
The SEC maintains an Internet site that contains these reports at www.sec.gov. Our corporate website address is www.fathominc.com . The information contained in, or that can be accessed through, our website is not part of this Report. 16 Table of Contents
The SEC maintains an Internet site that contains these reports at www.sec.gov. Our corporate website address is www.fathominc.com . The information contained in, or that can be accessed through, our website is not part of this Report.
While we currently utilize these vendors to provide our services in the short-term, we believe other alternatives are available in the longer term, should they be needed, to license or develop replacement technology. Our March 2021 acquisition of Naberly is designed to reduce our need for third party software.
While we currently utilize these vendors to provide our services in the short-term, we believe other alternatives are available in the longer term, should they be needed, to license or develop replacement technology. Our March 2021 acquisition of Naberly was intended to reduce our need for third party software.
We intend for intelliAgent to be more than just a technology platform for Fathom; we might someday use a simplified version of intelliAgent as a platform to unify independent brokerages through a smarter broker network allowing them to effectively compete against larger regional and national brands.
We intend for intelliAgent to be more than just a technology platform for Fathom; we might someday use a simplified version of intelliAgent as a platform to unify independent brokerages through a smarter broker network, which would help them effectively compete against larger regional and national brands.
This is an example of potential commission savings and results similar to the example below are not guaranteed. 6 Table of Contents We believe our commission model also allows agents to directly compete against discount brokerages and other disruptive new competitors.
This is an example of potential commission savings and results similar to the example below may vary and are not guaranteed. 5 Table of Contents We believe our commission model also allows agents to directly compete against discount brokerages and other disruptive new competitors.
In order to develop and accelerate the growth of agents joining Fathom, we developed the Fathom Talent Acquisition Platform. The Fathom Talent Acquisition Platform combines people, technology and process. Fathom has built an extensive database of potential agents who we believe would fit the Fathom culture and benefit from joining the Company.
To develop and accelerate the growth of agents joining Fathom, we developed the Fathom Talent Acquisition Platform. The Fathom Talent Acquisition Platform combines talented agents, technology and process. Fathom has built an extensive database of potential agents who we believe would fit the Fathom culture and benefit from joining the Company.
A content marketing strategy keeps these candidates up to date on the latest developments and offers that may be of interest to them in growing their business. Additionally, a team of experienced recruiters focuses on personally introducing and sharing the Fathom brands value proposition with real estate professionals across the country.
A content marketing strategy updates candidates on the latest developments and offers that may be of interest to them in growing their business. Additionally, a team of experienced recruiters focuses on personally introducing and sharing the Fathom brands value proposition with real estate professionals across the country.
Our website also gives consumers access to our network of professional real estate agents and vendors. Through a combination of our proprietary technology platform and a few third-party systems, we provide our agents with marketing, training, and other support services, as well as client and transaction management.
Our website also gives consumers access to our network of professional real estate agents and vendors. Through a combination of our proprietary technology platform and several third-party systems, we provide our agents with marketing, training, and other support 7 Table of Contents services, as well as client and transaction management.
More importantly, agents are able to take that increase and reinvest it into their marketing thereby increasing their number of transactions and revenue which also benefits Fathom. Generally speaking, there are only two ways to make more money in real estate: increase revenue or decrease expenses.
More importantly, agents are able to take that increase and reinvest it into their marketing thereby increasing their number of transactions and revenue which also benefits Fathom. Generally speaking, there are only two ways to make more money in real estate: increase revenue or decrease expenses. In a slowing housing market, it’s difficult to increase revenue.
Our intelliAgent rollout strategy began with the core technology needed by every real estate brokerage to manage its agents, its agents’ transactions, commission structures, payments, and compliance, as well as the ability to gain a better understanding as to what is happening in the business through business intelligence and robust reporting.
Our intelliAgent rollout strategy began with the core technology needed by every real estate brokerage to manage its agents, its agents’ transactions, commission structures, payments, and compliance, as well as the ability to gain a better understanding of the operations of the business through business intelligence and robust reporting.
In 2022, our average cost to recruit a new agent was $1,000 and our annual cost associated with each agent was $300, so we break even in an agent’s first year if he or she completes just two sales.
In 2023, our average cost to recruit a new agent was $1,050 and our annual cost associated with each agent was $1,150 so we break even in an agent’s first year if he or she completes just two sales.
In March of 2022, we were ranked the #6 largest independent real estate brokerage firm and the #10 overall largest brokerage firm in the United States. These rankings were published by The Real Trends Five Hundred based on several criteria including transaction sides, sales volume, affiliation, top movers, core services, and others.
In March 2023, we were ranked the #6 largest independent real estate brokerage firm and the #10 overall largest brokerage firm in the United States (per available data). These rankings were published by The Real Trends Five Hundred based on several criteria including transaction size, sales volume, affiliation, top movers, core services, and others.
Industry Trends In addition to the negative impacts of recent economic uncertainty and increased interest rates, we believe the following trends have impacted the U.S. real estate market and that their impact will continue to accelerate: ● according to NAR, 95% of homebuyers use the Internet to search for homes, illustrating the importance of technology and lack of importance of expensive brick and mortar offices to the industry, while only 1% found their agent through the agent’s office; ● nevertheless, according to NAR, 86% of home buyers and 86% of home sellers still used an agent or broker in 2022, down from 87% and 90% in 2021, for various reasons, including the relative size, importance and infrequency of a home sale for any individual; 8 Table of Contents ● the complexity of the home sale process continues to require the best personal service possible, while technology can make the process and business more efficient; and ● downturns like the current one are inevitable, favoring companies with lower cost business models that also pay agents higher commissions.
Industry Trends In addition to the negative impacts of recent economic uncertainty and increased interest rates, we believe the following trends have impacted the U.S. real estate market and that their impact will continue to accelerate: • according to the NAR, 97% of homebuyers use the Internet to search for homes, illustrating the importance of technology and transition away from expensive brick-and-mortar offices in the industry, while only 2% found their agent through the agent’s office; • nevertheless, according to the NAR, 89% of home buyers and 89% of home sellers still used an agent or broker in 2023, up from 86% for both buyers and sellers in 2022, for various reasons, including the relative size, importance and infrequency of a home sale for any individual; • the complexity of the home selling or buying process continues to require the best personal service possible, while technology can make the process and business more efficient; and • downturns like the current one are inevitable, and favor companies with lower cost business models that also pay agents higher commissions.
Effective January 1, 2023, our agents pay $550 for each of their first 15 completed sales transactions, up from $500 on their first 12 sales transactions. For each sales transaction after the first 15, our agents will pay $150, up from $99 for the rest of their anniversary year.
In 2023, our agents paid $550 for each of their first 15 completed sales transactions, up from $500 on their first 12 sales transactions. For each sales transaction after the first 15, our agents will pay $150 for the rest of their anniversary year, up from $99 in 2022.
Industry Background We primarily operate in the U.S. residential real estate industry, with a market size of over $3.5 trillion with over 6.5 million new and existing properties sold in the United States in 2022. Our agents also opportunistically engage in commercial real estate transactions. We derive the majority of our revenues from serving buyers and sellers of existing homes.
Industry Background We primarily operate in the U.S. residential real estate industry, with a market size of over $2.5 trillion with over 4.8 million new and existing properties sold in the United States in 2023. Our agents also opportunistically engage in commercial real estate transactions. We derive most of our revenues from serving buyers and sellers of existing homes.
Our proprietary intelliAgent(R) real estate technology platform is designed to provide a suite of brokerage and agent level tools, technology, business processes, business intelligence and reporting, training.
Our proprietary intelliAgent(R) real estate technology platform provides a suite of brokerage and agent level tools, technology, business processes, business intelligence and reporting, training.
Our technology, services, data, lead generation, and marketing tools are designed to allow our agents to leverage them to represent their real estate clients with best-in-class service.
Our technology, services, data, lead generation, and marketing tools are designed to be used by our agents to represent their real estate clients with best-in-class service.
With our low flat transaction fee, even during a decline in the housing market where home sales decline by 20%, we believe most real estate agents can net as much income as they did the year before at a traditional brokerage. In other words, they may close 20% fewer homes but could earn the same income as before.
With our low flat transaction fee, even during a decline in the housing market where home sales decline by 20%, we believe most real estate agents can net as much income as they did the year before at a traditional brokerage.
None of our employees or agents are represented by unions, and we believe our employee and agent relations are good. 15 Table of Contents Information about our Executive Officers The following table sets forth current information concerning our executive officers: ​ ​ ​ ​ ​ Name Age Position Joshua Harley 46 Chairman, Chief Executive Officer, Director ​ ​ ​ ​ ​ Marco Fregenal 59 President and Chief Financial Officer, Director ​ ​ ​ ​ ​ Samantha Giuggio 53 Chief Operations Officer of Fathom Realty ​ Joshua Harley – Chairman, Chief Executive Officer, Director Joshua Harley, our founder, has been our Chairman and Chief Executive Officer since 2010.
None of our employees or agents are represented by unions, and we believe our employee and agent relations are good. 13 Table of Contents Information about our Executive Officers The following table sets forth current information concerning our executive officers: Name Age Position Marco Fregenal 60 Chief Executive Officer, President and Chief Financial Officer Samantha Giuggio 54 Chief Operations Officer of Fathom Realty Marco Fregenal – President and Chief Executive Officer, Director Marco Fregenal has been our Chief Executive Officer since November, 2023, and our Chief Financial Officer since 2012.
This data includes the significant and lengthy downturn from the second half of 2005 through 2011, and in that time frame, the number of annual U.S. existing home sale transactions declined by approximately 39%.
This data includes the significant and lengthy downturn from the second half of 2005 through 2011, and in that time frame, the number of annual U.S. existing home sale transactions declined by approximately 39%. Beginning in 2012, the U.S. residential real estate industry began its recovery, and the number of annual U.S. existing home sale units improved.
We compete with three major categories of competitors: ● national independent real estate brokerages, franchisees of national and regional real estate franchisors, regional independent real estate brokerages, and discount and limited-service brokerages; ● companies that employ technologies intended to disrupt the traditional brokerage model or eliminate agents from, or minimize the role they play in, the home sale transaction, such as through the reduction of brokerage commissions; and ● other non-traditional models that operate outside of the brokerage industry, such as companies that leverage capital to purchase homes directly from sellers. 12 Table of Contents Many of our competitors are much larger than us, with more capital to fund growth and survive downturns like the current one, and greater brand awareness.
We compete with three major categories of competitors: • national independent real estate brokerages, franchisees of national and regional real estate franchisors, regional independent real estate brokerages, and discount and limited-service brokerages; • companies that employ technologies intended to disrupt the traditional brokerage model or eliminate agents from, or minimize the role they play in, the home sale transaction, such as through the reduction of brokerage commissions; and 10 Table of Contents • other non-traditional models that operate outside of the brokerage industry, such as companies that purchase homes directly from sellers.
In 2022, every agent also paid a fee of $600 on their first sale (recognized in Commission and other agent-related costs over the year), which helps cover our operating costs such as technology, errors and omissions insurance, training, and oversight.
Every agent also pays a $600 annual fee on their first sale (recognized as a reduction to Commission and other agent-related costs over the following twelve months), which helps cover our operating costs such as technology, errors and omissions insurance, training, and oversight.
As of December 31, 2022, we had approximately 10,370 licensed agents and brokers whom we classify as independent contractors.
As of December 31, 2023, we had approximately 11,795 licensed agents and brokers whom we classify as independent contractors.
We believe our commission structure, business model, advanced technology offerings, and our focus on treating our agents well attract more agents and higher producing agents to join and stay with our Company.
We also offer our agents valuable benefits, including equity in our Company if they achieve growth goals. We believe our commission structure, business model, advanced technology offerings, and our focus on treating our agents well attract more agents and higher producing agents to join and stay with our Company.
We believe this provides us opportunity for continued growth. We have expanded rapidly since our inception thirteen years ago. As we continue to expand, we might also target smaller rural markets as well as move into Canada. Competition The residential real estate brokerage industry is highly competitive with low barriers to entry for new participants.
As we continue to expand, we might also target smaller rural markets as well as move into Canada. Competition The residential real estate brokerage industry is highly competitive with low barriers to entry for new participants.
According to the National Association of Realtors, or NAR, existing home sales represent approximately 86% of the overall market by number of transactions. The U.S. residential real estate industry has a long history of growth over time, despite periodical downturns like the current one. The following information is based on data published by NAR.
According to the National Association of Realtors, or the NAR, existing home sales represent approximately 90% of the overall market by number of transactions. 6 Table of Contents The U.S. residential real estate industry has a long history of growth, despite periodical downturns.
In a slowing housing market, it’s difficult to increase revenue when agents are fighting over a piece of a smaller pie. Our low flat transaction fee provides agents money to outspend their competition on marketing while netting the same amount of money as an agent at a traditional brokerage.
Our low flat transaction fee provides agents money to outspend their competition on marketing while netting the same amount of money as an agent at a traditional brokerage.
As a result, we are able to offer our agents the ability to keep significantly more of their commissions compared to traditional real estate brokerage firms; we do not split our agents’ commissions, but rather charge a flat fee per real estate transaction.
As a result, we can offer our agents significantly more of their commissions compared to traditional real estate brokerage firms; we do not split our agents’ commissions, but instead charge a flat fee per real estate transaction. We believe we offer our agents some of the best technology, training, and support available in the industry.
She also served as our District Director RDU from February 2013 to April 2014. She served as an Agent and Group Leader Training Coordinator with us prior to this. Ms. Giuggio received an associate’s degree in hospitality management from Holyoke Community College.
From April 2014 to October 2015, Ms. Giuggio served as our Regional Vice President and Vice President of Operations. She also served as our District Director RDU from February 2013 to April 2014. She served as an Agent and Group Leader Training Coordinator with us prior to this. Ms.
We achieved gross commission income of approximately $390.6 million on $16 billion in real estate sales volume in 2022. As of December 31, 2022, we had approximately 10,370 licensed agents or brokers working for us.
We achieved gross commission income of approximately $325.4 million on $13.3 billion in real estate sales volume for the year ended December 31, 2023. As of December 31, 2023, we had approximately 11,795 licensed agents or brokers working for us.
Samantha Giuggio — Chief Broker Operations Officer Samantha Giuggio has served as our Chief Operations Officer for Fathom Realty since June 2019. Prior to this, she served as Senior Vice President from October 2015 to June 2019. From April 2014 to October 2015, Ms. Giuggio served as our Regional Vice President and Vice President of Operations.
Fregenal received a B.S. in economics from Rutgers University and a Masters in Econometrics and Operations Research from Monmouth University. Samantha Giuggio — Chief Broker Operations Officer Samantha Giuggio has served as our Chief Operations Officer for Fathom Realty since June 2019. Prior to this, she served as Senior Vice President from October 2015 to June 2019.
These elements are designed to build brand awareness and position Fathom as the brokerage of choice for agents when making career choices. 10 Table of Contents Our Focus on Agents We believe that agents deliver unique value to the specific customers they serve in different ways depending upon the knowledge, skills or niche of the agent and the needs and desires of the customers.
Our Focus on Agents We believe that agents deliver unique value to the specific customers they serve in different ways depending upon the knowledge, skills or expertise of the agent and the needs and desires of the customers.
Prior to this, Mr. Fregenal served as our Chief Operating Officer and Chief Financial Officer from May 1, 2012 to December 31, 2017. Prior to joining our company, Mr. Fregenal served as Chief Operating Officer and Chief Financial Officer of EvoApp Inc, a provider of social media business intelligence, from 2009 to 2012.
He has also served as our President since January 1, 2018. Prior to this, Mr. Fregenal served as our Chief Operating Officer and Chief Financial Officer from May 1, 2012 to December 31, 2017. Prior to joining our company, Mr.
Annually for each agent, this $500 transaction fee was charged for the agent’s first 12 sales per agent’s anniversary year and then $99 per sale for the rest of their anniversary year. For leases, we recognized revenue through lease commissions negotiated between our agents and landlords, and we retained $85 per transaction and the remainder is paid to the agent.
For leases, we recognized revenue through lease commissions negotiated between our agents and landlords, and we retained $85 per transaction with the remainder paid to the agent.
Under our new Fee Lock Guarantee, our transaction fees will not increase for at least two years from the effective date of the revised fee schedule. We have also discontinued our agent stock grant program effective December 31, 2022, which had provided for our agents to receive $200 in stock grants for every five transactions completed.
We have also discontinued our agent stock grant program effective December 31, 2022, which had provided for our agents to receive $200 in stock grants for every five transactions completed. We currently plan to continue to provide stock grants to agents based on metrics achieved for recruiting new agents.
Some of our competitors are also increasingly well-funded, which strengthens their competitive position and ability to offer aggressive compensation arrangements to top-performing sales agents. Moreover, a growing number of companies are competing in non-traditional ways for a portion of the gross commission income generated by home sale transactions.
Moreover, a growing number of companies are competing in non-traditional ways for a portion of the gross commission income generated by home sale transactions.
He was also the Chief Executive Officer and Chief Financial officer of Carpio Solutions, an information technology solutions company, from 2007 to 2009. Mr. Fregenal received a B.S. in economics from Rutgers University and a Masters in Econometrics and Operations Research from Monmouth University.
Fregenal served as Chief Operating Officer and Chief Financial Officer of EvoApp Inc., a provider of social media business intelligence, from 2009 to 2012. He was also the Chief Executive Officer and Chief Financial officer of Carpio Solutions, an information technology solutions company, from 2007 to 2009. Mr.
We believe our business model is particularly attractive to productive agents, as illustrated by the Fathom agent information set forth in the following chart: Cost Structure The lower overall cost of operating our business virtually has enabled us to offer our agents a 100% commission model. We charge each agent a flat fee per real estate transaction.
To capitalize on this, we focus on helping our agents improve professionally and increase their financial ability to invest in their personal marketing. Cost Structure The lower overall cost of operating our business primarily virtually enables us to offer our agents a 100% commission model. We charge each agent a flat fee per real estate transaction.
Fathom also was listed in the top three of the Top 100 Places to Work in Dallas Fort Worth, five years in a row by the Dallas Morning News. In November of 2020, we finalized our acquisition of Verus Title Inc., a technology-based provider of title insurance services for the residential real estate market (“Verus”).
Fathom also was listed in the top three of the Top 100 Places to Work in Dallas Fort Worth, five years in a row by the Dallas Morning News. In February 2022, the Company completed its acquisition of iPro Realty Network (“iPro”).
We also believe that customers work with agents because of the agent’s skills and service individually and generally place greater weight on those individual skill sets, service levels and style than they do on the brokerage brand with which the agent is affiliated.
We also believe that customers who choose agents because of the agent’s skills and service prioritize the agent's skill service levels and style over the brokerage brand with which the agent is affiliated. Therefore, we heavily emphasize serving our agents, so that we attract and retain the best in the industry.
We currently plan to continue to provide stock grants to agents based on metrics achieved for recruiting new agents. In just thirteen years since we launched our Company, we have grown rapidly with operations in 38 states plus the District of Columbia.
(Se e our Current Report on Form 8K filed with the SEC on November 28, 2023 for further information). In just fourteen years since we launched our Company, we have grown rapidly with operations in 40 states plus the District of Columbia.
The flat transaction fee that we charge to our agents allows our agents to charge whatever commission they need to be highly competitive. We recognize revenue primarily through the commissions that our agents charge their clients. During 2022, from the gross commission income, we kept a flat transaction fee of $500 and the remainder was paid to the agent.
The flat transaction fee that we collect allows our agents to adjust the commission the charge accordingly to be highly competitive. The commission we collect from our agents is our primary source of revenue.
We believe this can prove to be a tailwind for Fathom while it could be a headwind for many traditional brokerages. Traditional brokerage companies retain between 20% and 50% in commission splits from their agents. Below is an example of a traditional brokerage company’s commission model assuming a 30% split, versus our commission model.
Below is an example of a traditional brokerage company’s commission model assuming a 30% split, versus our commission model.
We believe home buyers and sellers choose the agent because of their individual marketing prowess, professionalism, and personality. To capitalize on this, we focus on helping our agents improve professionally and increase their financial ability to invest in their personal marketing, and therefore capture a greater market share.
In a recent study by the NAR, only 3% of home sellers chose their agent because of the agent's brokerage. We believe home buyers and sellers choose an agent because of the agent's marketing prowess, professionalism, and personality.
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We believe we offer our agents some of the best technology, training, and support available in the industry. We also offer our agents valuable benefits, including equity in our Company if they achieve growth goals, as well as what we believe is relatively broad and affordable healthcare coverage in many of our markets.
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In other words, they may close 20% fewer homes but could earn the same income as before under our fee model compared to being at a traditional brokerage. We believe this is a competitive advantage we can continue to leverage in our industry. Traditional brokerage companies retain between 20% and 50% of the commission of their agents.
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Verus currently operates in 30 states plus the District of Columbia, utilizing a virtual model with minimal offices, with plans for a full U.S. rollout over the long-term.
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During 2022, from the gross commission income, we maintained a flat transaction fee of $500 per transaction and the remainder of any commission was retained by the agent. The $500 transaction fee was charged for each of the agent’s first 12 sales per agent’s anniversary year, and then $99 per sale for the rest of their anniversary year.
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We have seen and believe this acquisition will continue to have the potential to increase our revenue per agent and per transaction as we integrate Verus into our various markets across the United States. 7 Table of Contents In March 2021, the Company completed its acquisitions of Red Barn Real Estate, LLC (“Red Barn”) and Naberly Inc. (“Naberly”).
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Starting in January 2024, there will be an increase of the agent’s annual fee which is charged on an agent’s first transaction of each anniversary year from $600 to $700. A second change includes a new fee which affects sales of properties over $600,000 and will be in addition to the agent’s transaction fee of $550.
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The acquisition of Red Barn, a real estate brokerage business, has helped to expand our reach in the Atlanta region real estate market. The acquisition of Naberly is facilitating our further development of our proprietary intelliAgent platform to enhance offerings and improve operational efficiency. In April 2021, the Company completed its acquisition of E4:9 Holdings, Inc. (“E4:9).
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This new ‘High-Value Property Fee’ will consist of an additional $200 on properties priced between $600,000 and $999,999. Then, there will be an additional fee of $250 charged for each $500,000 tier range over a $1,000,000 property price. The Company expects these changes could add an estimate d $3.1 million in EBITDA for the year ended December 31, 2024.
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The acquisition of E4:9 is part of our vision to build a vertically integrated, end-to-end real estate operation by offering mortgage and insurance services to our agents to further serve our customers. Also in April 2021, the Company completed its acquisition of LiveBy, Inc. (“LiveBy”).
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Period downturns, like the current one, can often be defined by things over which the industry has no control, such as economic uncertainty and increased interest rates. (see "Industry Trends" for further detail below). The following information is based on data published by the NAR.
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We believe the acquisition of LiveBy and its hyperlocal data and technology platform builds credibility for our real estate agents in their respective geographic areas by showcasing their local expertise and helping customers discover the best locations in which to live. In June 2021, the Company completed its acquisition of Epic Realty (“Epic”).
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However, there was another housing downturn beginning in 2022, when severe inflation gave rise to high interest rates which caused U.S. existing home sale transactions to decline by approximately 33.5% in 2023, according to Realtor.com.
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The acquisition of Epic, a real estate brokerage business, has helped us to expand our reach in the Idaho real estate market. We further augmented our realty presence in Idaho with the addition of Woodhouse Group Realty (“Woodhouse”) in November 2021. In February 2022, the Company completed its acquisition of iPro Realty Network (“iPro”).
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The team works within a customer relationship management system to nurture longer term opportunities, and help recruit agents who want to join our team of independent contractors. These elements are designed to build brand awareness and position Fathom as the brokerage of choice for agents making career decisions.
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Beginning in 2012, the U.S. residential real estate industry began its recovery, and the number of annual U.S. existing home sale units improved by approximately 32% by 2020. Despite this industry growth, we believe that many traditional real estate brokerage companies have business models and practices that hinder their growth and profitability.
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Kansas North Carolina We primarily target urban or suburban areas or regions with populations of at least 50,000, of which there are approximately 775 in the United States. We believe this provides us opportunity for continued growth. We have expanded rapidly since our inception fourteen years ago.
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They often have numerous physical offices throughout the territories they cover, with the associated personnel overhead costs, and have been slow to adopt cost-saving technology in an increasingly price-sensitive and competitive environment.
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Many of our competitors are much larger than us, with more capital to fund growth and survive downturns like the current one, and many of them have greater brand awareness. Some of our competitors are also increasingly well-funded, which strengthens their competitive position and ability to offer aggressive compensation arrangements to top-performing sales agents.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAny failure of, or delay in, these efforts could cause impaired system performance and reduced satisfaction from our agents. These issues could result in difficulty in both attracting and retaining agents. Even if we are able to upgrade our systems and expand our staff, such expansion may be expensive, complex, and place increasing demands on our management.
Biggest changeIn addition, we will need to appropriately scale our internal business systems and our services organization, including support of our affiliated agents as our demographics expand over time. Any failure of, or delay in, these efforts could impair system performance and negatively impact our agents' satisfaction. These issues could result in difficulty in both attracting and retaining agents.
Spring and summer seasons historically reflect greater sales activity in comparison to fall and winter seasons. We have historically experienced lower revenues during the fall and winter seasons, as well as during periods of unseasonable weather, which reduces our operating income, net income, operating margins and cash flow.
Historically, spring and summer reflect greater sales activity in comparison to fall and winter. We have historically experienced lower revenues during the fall and winter seasons, as well as during periods of unseasonable weather, which reduces our operating income, net income, operating margins and cash flow.
As the number of our agents and acquired companies and business lines grow, our success will depend on our ability to expand, maintain and improve the technology that supports our business operations, including, but not limited to, our cloud office platform.
As the number of our agents, acquired companies and business lines grow, our success will depend on our ability to expand, maintain and improve the technology that supports our business operations, including, but not limited to, our cloud office platform.
In the future, we might identify future material weaknesses in our internal controls over financial reporting or fail to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, and we may be unable to accurately report our financial results, or report them within the timeframes required by law or stock exchange regulations.
In the future, we might identify material weaknesses in our internal controls over financial reporting or fail to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, and we may be unable to accurately report our financial results, or report them within the timeframes required by law or stock exchange regulations.
The real estate industry often involves litigation, ranging from individual lawsuits by unhappy buyers or sellers to large class actions and government investigations, like those some of our biggest competitors are currently facing for alleged anti-trust law violations. We often are involved in various lawsuits and legal proceedings that arise in the ordinary course of business.
The real estate industry often involves litigation, ranging from individual lawsuits by unhappy buyers or sellers to large class actions and government investigations, like those some of our biggest competitors are currently facing for alleged anti-trust law violations. We are often involved in various lawsuits and legal proceedings that arise in the ordinary course of business.
One dominant listing aggregator has introduced an iBuying offering to consumers and recently launched a brokerage with employee sales agents in several locations to support this offering, and has joined many local MLSs as a participating broker to gain electronic access directly to real estate listings rather than relying on disparate electronic feeds from other brokers participating in the MLSs or MLS syndication feeds.
One dominant listing aggregator has introduced an iBuying offering to consumers and recently launched a brokerage with employee sales agents in several locations to support this offering, and has joined many local MLSs as a participating broker to gain electronic access directly to real estate listings rather than relying on disparate electronic feeds from other brokers participating in MLS or MLS syndication feeds.
Any of the following could cause further decline in the housing or mortgage markets and have a material adverse effect on our business by causing periods of lower growth or a decline in the number of home sales or home prices which, in turn, could adversely affect our revenue and profitability: ● an increase in the unemployment rate; ● a decrease in the affordability of homes due to changes in interest rates, home prices, and rates of wage and job growth; ● slow economic growth or recessionary conditions; ● weak credit markets; ● low consumer confidence in the economy or the residential real estate market; ● instability of financial institutions; ● legislative, tax or regulatory changes that would adversely impact the residential real estate or mortgage markets, including but not limited to potential reform relating to Fannie Mae, Freddie Mac and other government sponsored entities, or GSEs, that provide liquidity to the U.S. housing and mortgage markets; ● increasing mortgage rates, like we have experienced recently, and increasing down payment requirements or constraints on the availability of mortgage financing, including but not limited to the potential impact of various provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, or other legislation and regulations that may be promulgated thereunder relating to mortgage financing, including restrictions imposed on mortgage originators, as well as retention levels required to be maintained by sponsors to securitize certain mortgages; ● excessive or insufficient home inventory levels on a regional level; ● high levels of foreclosure activity, including but not limited to the release of homes already held for sale by financial institutions; ● adverse changes in local or regional economic conditions, including potential impacts from the COVID-19 pandemic; ● the inability or unwillingness of homeowners to enter into home sale transactions due to negative equity in their existing homes; ● demographic changes, such as a decrease in household formations, lower turnover in the housing market due to homeowners staying in the same home longer than in the past, or slowing rate of immigration or population growth; ● decrease in home ownership rates, declining demand for real estate and changing social attitudes toward home ownership; ● changes in local, state and federal laws or regulations that affect residential real estate transactions or encourage ownership, including but not limited to changes in tax law in late 2017 that limit the deductibility of certain mortgage interest expense, the application of the alternative minimum tax, and real property taxes and employee relocation expense; or 30 Table of Contents ● acts of nature, such as hurricanes, earthquakes and other natural disasters that disrupt local or regional real estate markets and which may, in some circumstances lead us to waive certain fees in impacted areas.
Any of the following could cause further decline in the housing or mortgage markets and have a material adverse effect on our business by causing periods of lower growth or a decline in the number of home sales or home prices which, in turn, could adversely affect our revenue and profitability: • an increase in unemployment; • a decrease in the affordability of homes due to changes in interest rates, home prices, the cost and availability of building materials, and rates of wage and job growth; • slow economic growth or recessionary conditions; • weak credit markets; • low consumer confidence in the economy or the residential real estate market; • instability of financial institutions; 27 Table of Contents • legislative, tax or regulatory changes that would adversely impact the residential real estate or mortgage markets, including but not limited to potential reform relating to Fannie Mae, Freddie Mac and other government sponsored entities, or GSEs, that provide liquidity to the U.S. housing and mortgage markets; • increasing mortgage rates, like we have experienced recently, and increasing down payment requirements or constraints on the availability of mortgage financing, including but not limited to the potential impact of various provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, or other legislation and regulations that may be promulgated thereunder relating to mortgage financing, including restrictions imposed on mortgage originators, as well as retention levels required to be maintained by sponsors to securitize certain mortgages; • excessive or insufficient home inventory levels on a regional level; • high levels of foreclosure activity, including but not limited to the release of homes already held for sale by financial institutions; • adverse changes in local or regional economic conditions, including potential impacts from the COVID-19 pandemic; • the inability or unwillingness of homeowners to enter into home sale transactions due to negative equity in their existing homes; • demographic changes, such as a decrease in household formations, lower turnover in the housing market due to homeowners staying in the same home longer than in the past, or slowing rate of immigration or population growth; • decrease in home ownership rates, declining demand for real estate and changing social attitudes toward home ownership; • changes in local, state and federal laws or regulations that affect residential real estate transactions or encourage ownership, including but not limited to changes in tax law in late 2017 that limit the deductibility of certain mortgage interest expense, the application of the alternative minimum tax, and real property taxes and employee relocation expense; or • acts of nature, such as hurricanes, earthquakes and other natural disasters that disrupt local or regional real estate markets and which may, in some circumstances lead us to waive certain fees in impacted areas.
Our mortgage business might be unable to sell its originated loans and, in that situation, Fathom will need to service the loans and potentially foreclose on the home by itself or through a third party, and either option could impose significant costs, time, and resources on Fathom.
Our mortgage business might be unable to sell its originated loans and, in that situation, Fathom will need to service the loans and potentially foreclose on the home by itself or through a third party, and either option could impose significant costs, time on Fathom.
More recently, while U.S. residential home sales rebounded sharply beginning in June 2020 and overall 2020, they declined sharply in the latter half of 2022 as interest rates rose and economic uncertainties increased. We cannot predict whether the market will improve.
More recently, while U.S. residential home sales rebounded sharply beginning in June 2020, they declined sharply in the latter half of 2022 as interest rates rose and economic uncertainties increased. We cannot predict whether the market will improve.
Like others in our industry, we experience privacy/data security incidents, such as cybersecurity incidents and other attempts to disrupt or gain unauthorized access to our systems on a regular basis and instances of unauthorized or inadvertent access to or disclosure of sensitive personal information.
Like others in our industry, we experience immaterial privacy/data security incidents, such as cybersecurity incidents and other attempts to disrupt or gain unauthorized access to our systems on a regular basis and instances of unauthorized or inadvertent access to or disclosure of sensitive personal information.
We could be an “emerging growth company” for up to five years following the completion of our initial public offering (“IPO”) in 2020, although, if we have more than $1.07 billion in annual revenue, if the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 of any year, or we issue more than $1.0 billion of non-convertible debt over a three-year period before the end of that five-year period, we would cease to be an “emerging growth company” as of the following December 31.
We could be an “emerging growth company” for up to five years following the completion of our initial public offering (“IPO”) in 2020, although, if we have more than $1.235 billion in annual revenue, if the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 of any year, or if we issue more than $1.0 billion of non-convertible debt over a three-year period before the end of that five-year period, we would cease to be an “emerging growth company” as of the following December 31.
These factors include: ● our operating performance and the operating performance of similar companies; ● our non-GAAP operating performance, as reported using Adjusted EBITDA, is not equivalent to net income (loss) from operations as determined under GAAP and shareholders may consider GAAP measures to be more relevant to our operating performance; ● the overall performance of the equity markets; ● announcements by us or our competitors of acquisitions, business plans, or commercial relationships; ● threatened or actual litigation; ● any major change in our board of directors or management; ● publication of research reports or news stories about us, our competitors, or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts; ● large volumes of sales of our shares of common stock by existing shareholders; and ● general political and economic conditions, including lingering impacts from the COVID-19 pandemic.
These factors include: • our operating performance and the operating performance of similar companies; • our non-GAAP operating performance, as reported using Adjusted EBITDA, is not equivalent to net income (loss) from operations as determined under GAAP and shareholders may consider GAAP measures to be more relevant to our operating performance; • the overall performance of the equity markets; 30 Table of Contents • announcements by us or our competitors of acquisitions, business plans, or commercial relationships; • threatened or actual litigation; • any major change in our board of directors or management; • publication of research reports or news stories about us, our competitors, or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts; • large volumes of sales of our shares of common stock by existing shareholders; and • general political and economic conditions, including lingering impacts from the COVID-19 pandemic.
The application, disclosure and safeguarding of this information is regulated by federal and state privacy laws. To comply with privacy laws, we invested resources and adopted a privacy policy outlining policies and procedures for the use of safeguarding personal information.
The application, disclosure and safeguarding of this information is regulated by federal and state privacy laws. To comply with privacy laws, we invested resources and adopted a privacy policy outlining procedures for the use and safeguarding of personal information.
The residential real estate market tends to be cyclical and typically is affected by changes in general macroeconomic conditions which are beyond our control. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets, levels of unemployment, consumer confidence, geopolitical stability and the general condition of the U.S. and the global economy.
The residential real estate market tends to be cyclical and typically is affected by changes in general macroeconomic conditions which are beyond our control. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets, levels of unemployment, consumer confidence and the general condition of the U.S. and the global economy.
We compete with many other real estate brokerages for qualified agents and if agents do not understand the elements of our agent value proposition, or do not perceive it to be more valuable than the models used by most competitors, we might not be able to attract, retain and incentivize new and existing agents to grow our revenues.
We compete with many other real estate brokerages for qualified agents and if agents do not understand the elements of our agent value proposition, or do not perceive it to be more valuable than the models used by most competitors, we might not be able to attract, retain and incentivize new and existing agents to grow our revenue.
Such tactics could further increase pressures on our revenues and profitability, and the profitability of our agents, which could harm our business and results of operations. Our operating results are subject to seasonality and vary significantly among quarters during each calendar year, making meaningful comparisons of successive quarters difficult. Seasons and weather traditionally impact the real estate industry.
Such tactics could further increase pressures on our revenue and profitability, and the profitability of our agents, which could harm our business and results of operations. Our operating results are subject to seasonality and vary significantly among quarters during each calendar year, making meaningful comparisons of successive quarters difficult. Seasons and weather traditionally impact the real estate industry.
We operate in a heavily regulated industries with regulated labor classifications which present significant risk in general for each potential instance where we fail to maintain compliance. Our agents can be classified as either employees or independent contractors, and we could potentially misclassify or fail to consistently achieve compliance.
We operate in a heavily regulated industry with regulated labor classifications which present significant risk in general for each potential instance where we fail to maintain compliance. Our agents can be classified as either employees or independent contractors, and we could potentially misclassify or fail to consistently achieve compliance.
If we fail to properly integrate these acquisitions, we might not achieve the anticipated benefits of these acquisitions or future acquisitions. Our future revenues and growth prospects could be adversely affected by our dependence on other contractors. Our business is highly dependent on a few significant technology vendors.
If we fail to properly integrate these acquisitions, we might not achieve the anticipated benefits of these acquisitions or future acquisitions. Our future revenue and growth prospects could be adversely affected by our dependence on other contractors. Our business is highly dependent on a few significant technology vendors.
Finally, if a homeowner were unable to make his or her mortgage payments, then we may be required to foreclose on the home securing the loan. We do not currently have processes to foreclose a home, and we may be unable to establish such processes or retain a third party on economically feasible terms to foreclose the home.
Finally, if a homeowner was unable to make his or her mortgage payments, then we may be required to foreclose on the home securing the loan. We do not currently have processes to foreclose a home, and we may be unable to establish such processes or retain a third party on economically feasible terms to foreclose the home.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. To maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required.
In general, the laws, rules and regulations that apply to our business practices include, without limitation, the federal Real Estate Settlement Procedures Act, or RESPA, the federal Fair Housing Act, the Dodd-Frank Act, and federal advertising and other laws, as well as comparable state statutes; rules of trade organization such as NAR, local MLSs, and state and local AORs; licensing requirements and related obligations that could arise from our business practices relating to the provision of services other than real estate brokerage services, including our title, insurance and mortgage businesses ; privacy regulations relating to our use of personal information collected from the registered users of our websites; laws relating to the use and publication of information through the Internet; and state real estate brokerage licensing requirements, as well as statutory due diligence, disclosure, record keeping and standard-of-care obligations relating to these licenses.
In general, the laws, rules and regulations applicable to our business practices include, without limitation, the federal Real Estate Settlement Procedures Act, or RESPA, the federal Fair Housing Act, the Dodd-Frank Act, and federal advertising and other laws, as well as comparable state statutes; rules of trade organization such as the NAR, local MLSs, and state and local AORs; licensing requirements and related obligations that could arise from our business practices relating to the provision of services other than real estate brokerage services, including our title, insurance and mortgage businesses ; privacy regulations relating to our use of personal information collected from the registered users of our websites; laws relating to the use and publication of information through the Internet; and state real estate brokerage licensing requirements, as well as statutory due diligence, disclosure, record keeping and standard-of-care obligations 18 Table of Contents relating to these licenses.
In the event we were to lose one of our significant vendor partners, our business could be adversely affected because we could be forced to move this technology to another vendor, which would take significant time away from management running our core business.
In the event we were to lose one of our significant vendor partners, our business could be adversely affected because we could be forced to source this technology from another vendor, which would take significant time away from management running our core business.
Our business, results of operations and financial condition could be materially adversely affected by the loss of one key relationship, as it would take a significant amount of time to replace this relationship with uncertain results. 27 Table of Contents We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.
Our business, results of operations and financial condition could be materially adversely affected by the loss of one key relationship, as it would take a significant amount of time to replace this relationship with uncertain results. We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.
Moreover, defending a suit, regardless of its merits, could entail substantial expense and require the time and attention of key management personnel. 28 Table of Contents We might experience significant claims relating to our operations, and losses resulting from fraud, defalcation or misconduct. We issue title insurance policies covering real property to mortgage lenders and buyers of real property.
Moreover, defending a suit, regardless of its merits, could entail substantial expense and require the time and attention of key management personnel. We might experience significant claims relating to our operations, and losses resulting from fraud, defalcation or misconduct. We issue title insurance policies covering real property to mortgage lenders and buyers of real property.
If we are not effective in hedging this volatility, we may experience an increase in our costs of borrowing and our business could be materially adversely affected. Part of our technology is currently being developed in foreign countries, including Brazil, which makes us subject to certain risks associated with foreign laws and regulations.
If we are not effective in hedging this volatility, we may experience an increase in our costs of borrowing and our business could be materially adversely affected. Part of our technology is currently being developed in foreign countries, including Brazil, India, and the Philippines, which makes us subject to certain risks associated with foreign laws and regulations.
In particular, we believe the exclusion of share-based compensation expense related to restricted stock awards and stock options provides a useful supplemental measure in evaluating the performance of our operations and provides better transparency into our results of operations.
We believe the exclusion of share-based compensation expense related to restricted stock awards and stock options provides a useful supplemental measure in evaluating the performance of our operations and provides better transparency of our results of operations.
We might not become aware of all privacy laws, changes to privacy laws, or third-party privacy regulations governing the real estate business or be unable to comply with all of these regulations, given the rate of regulatory changes, ambiguities in regulations, contradictions in regulations between jurisdictions, and the difficulties in achieving both company-wide and region-specific knowledge and compliance.
We might not become aware of all privacy laws, changes to privacy laws, or third-party privacy regulations governing the real estate business or be unable to comply with all of these regulations, given the rate of regulatory changes, 19 Table of Contents ambiguities in regulations, contradictions in regulations between jurisdictions, and the difficulties in achieving both company-wide and region-specific knowledge and compliance.
Additionally, the Dodd-Frank Wall Street Reform and Consumer Protection Act contains the Mortgage Reform and Anti-Predatory Lending Act, or the Mortgage Act, which imposes a number of additional requirements on lenders and servicers of residential mortgage loans, by amending certain existing provisions and adding new sections to RESPA and other federal laws.
Additionally, the Dodd-Frank Wall Street Reform and Consumer Protection Act contains the Mortgage Reform and Anti-Predatory Lending Act, or the Mortgage Act, which imposes several additional requirements on lenders and servicers of residential mortgage loans, by amending certain existing provisions and adding new sections to RESPA and other federal laws.
The concentration and market power of the top real estate listing aggregators allow them to monetize their platforms by a variety of actions, including expanding into the brokerage business, charging significant referral fees, charging listing and display fees, diluting the relationship between agents and brokers and between agents and the consumer, tying referrals to use of their products, consolidating and leveraging data, and engaging in preferential or exclusionary practices to favor or disfavor other industry participants.
The concentration and market power of the top real estate listing aggregators allow them to monetize their platforms by expanding into the brokerage business, charging significant referral, listing, and display fees, charging listing and display fees, diluting the relationship between agents and brokers and between agents and the consumer, tying referrals to use of their products, consolidating and leveraging data, and engaging in preferential or exclusionary practices to favor or disfavor other industry participants.
The continued decline in global economic conditions could also materially impact the revenue of our recently acquired businesses, including insurance, title insurance, mortgage, lead generation, and other ancillary services. For example, revenues of our newly acquired insurance business rely on premiums and commission rates set by insurers.
The continued decline in global economic conditions could also materially impact the revenue of our recently acquired businesses, including insurance, title insurance, mortgage, lead generation, and other ancillary services. For example, revenue of our newly acquired insurance business relies on premiums and commission rates set by insurers.
Specifically, we use Adjusted EBITDA, which we use to mean net income (loss), excluding other income (expense), income taxes expense (benefit), depreciation and amortization, share-based compensation expense and transaction-related costs.
Specifically, we use Adjusted EBITDA, which we use to represent net income (loss), excluding other income (expense), income taxes expense (benefit), depreciation and amortization, share-based compensation expense and transaction-related costs.
Since December 2015, the Federal Open Market Committee of the Federal Reserve Board has raised the target range for federal funds 18 times, including three times in 2017, four times in 2018, seven times in 2022 and two times in 2023, after leaving the federal funds interest rate near zero since late 2008.
Since December 2015, the Federal Open Market Committee of the Federal Reserve Board has raised the target range for federal funds 18 times, including three times in 2017, four times in 2018, seven times in 2022 and four times in 2023, after leaving the federal funds interest rate near 0% since late 2008.
Tens of thousands of consumers, independent contractors, and employees have shared personal information with us during the normal course of our business processing residential real estate transactions. This includes, but is not limited to, social security numbers, annual income amounts and sources, consumer names, addresses, telephone and cell phone numbers, and email addresses.
Tens of thousands of consumers, independent contractors, and employees have shared personal information with us during the normal course of our business processing residential real estate transactions. Such information includes, but is not limited to, social security numbers, annual income amounts and sources, consumer names, addresses, phone numbers, and email addresses.
We compete to attract real estate professionals primarily on the basis of the quality of the website and mobile products, the size and attractiveness of the consumer audience, the quality and measurability of the leads we generate, the perceived return on investment we deliver, and the effectiveness of marketing and workflow tools.
We compete to attract real estate professionals through the quality of the website and mobile products; the size and attractiveness of the consumer audience; the quality and measurability of the leads we generate; the perceived return on investment we deliver, and the effectiveness of marketing and workflow tools.
As part of our reporting of our annual and quarterly results of operations, we publish and intend to continue to publish measures compiled in accordance with GAAP as well as non-GAAP financial measures, along with a reconciliation between the GAAP and 19 Table of Contents non-GAAP financial measures.
As part of our reporting of our annual and quarterly results of operations, we publish and intend to continue to publish measures compiled in accordance with GAAP as well as non-GAAP financial measures, along with a reconciliation between the GAAP and non-GAAP financial measures.
Our competitors may have access to greater financial resources than us, allowing them to undertake expensive local advertising or marketing efforts. In addition, our competitors may be able to leverage local relationships, referral sources, and strong local brand and name recognition that we have not established.
Our competitors may have access to 15 Table of Contents greater financial resources than us, allowing them to undertake expensive local advertising or marketing efforts. In addition, our competitors may be able to leverage local relationships, referral sources, and strong local brand and name recognition that we have not established.
We might not be successful in our efforts to do any of the foregoing, and any failure to be successful in these matters could materially and adversely affect our revenue growth. Our past revenue growth should not be considered to be indicative of our future growth.
We might not be successful in our efforts to do any of the foregoing, and any failure to be successful in these matters could materially and adversely affect our revenue growth. Our past revenue growth is not indicative of our future growth.
We compete to attract consumers primarily on the basis of the number and quality of listings; user experience; the breadth, depth, and relevance of insights and other content on homes, neighborhoods, and professionals; brand and reputation; and the quality of mobile products.
We compete to attract consumers by the number and quality of listings; user experience; the breadth, depth, and relevance of insights and other content on homes, neighborhoods, and professionals; brand and reputation; and the quality of mobile products.
We cannot assure our shareholders that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging of these transactions will not result in losses.
We cannot assure our shareholders that our hedging strategy and the derivatives that we use will adequately offset the risk of interest 26 Table of Contents rate volatility or that our hedging of these transactions will not result in losses.
In addition, we may be required to enter into licensing agreements (if available on acceptable terms) and be required to pay royalties. The real estate industry generates a lot of litigation, which could harm our business, reputation, operating results, and liquidity.
In addition, we may be required to enter into licensing agreements (if available on acceptable terms) and be required to pay royalties. The real estate industry generates frequent litigation, which could harm our business, reputation, operating results, and liquidity.
We currently develop portions of our technology in Brazil and could in the future conduct operations in foreign jurisdictions.
We currently develop portions of our technology in Brazil, India, and Philippines and could conduct operations in foreign jurisdictions in the future.
Our business is significantly impacted by the availability of financing at favorable rates or on favorable terms for homebuyers, which may be affected by government regulations and policies. For example, residential mortgage interest rates rose significantly through the end of 2022, negatively impacting our business.
Our business is significantly impacted by the availability of financing at favorable rates or on favorable terms for homebuyers, which may be affected by government regulations and policies. For example, residential mortgage interest rates rose significantly through most of 2023, negatively impacting our business.
Joshua Harley, our Chief Executive Officer and Executive Chairman of the Board, together with Marco Fregenal, our President and Chief Financial Officer, and a director, and Glenn Sampson, a significant shareholder and director, own a significant percentage of our stock, and as a result, they can take actions that may be adverse to the interests of the other shareholders and the trading price for our common stock may be depressed.
Joshua Harley, our Founder and former Chief Executive Officer, together with Marco Fregenal, our President and Chief Executive Officer, and a director, and Glenn Sampson, a significant shareholder and director, own a significant percentage of our stock, and as a result, they can take actions that may be adverse to the interests of the other shareholders and the trading price for our common stock may be depressed.
If such claims are successful, our business and operating results could be harmed. Even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and materially harm our business, operating results, and financial condition.
Even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and materially harm our business, operating results, and financial condition.
The trading price of our common stock has ranged from $3.70 to $56.81 and is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control.
The trading price of our common stock has ranged from $2.10 to $56.81 and is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control.
Policies of the Federal Reserve Board can affect interest rates available to potential homebuyers. Further, we are affected by any rising interest rate environment.
Policies of the Federal Reserve Board can affect 28 Table of Contents interest rates available to potential homebuyers. Further, we are affected by any rising interest rate environment.
If the residential real estate market or the economy as a whole does not continue to improve, we may experience adverse effects on our business, financial condition and liquidity, including our ability to access capital and grow our business.
If the residential real estate market or the economy does not improve, we may experience adverse effects on our business, financial condition and liquidity, including our ability to access capital and grow our business.
We may bring lawsuits to protect against the potential infringement of our intellectual property rights and other companies, including our competitors, could make claims against us alleging our infringement of their intellectual property rights. There can be no assurance that we would prevail in such lawsuits. Any significant impairment of our intellectual property rights could harm our business.
We may bring lawsuits to protect against the potential infringement of our intellectual property rights and other companies, including our competitors, could make claims against us alleging our infringement of their intellectual property rights. There can be no assurance that we would prevail in such lawsuits.
An acquisition could negatively impact our culture or undermine its core values. Acquisitions could disrupt our existing operations or cause management to divert its focus from our core business. An acquisition could cause potentially dilutive issuances of equity securities, incurrence of debt, contingent liabilities or could cause us to assume or incur unknown or unforeseen liabilities.
Acquisitions could disrupt our existing operations or cause management to divert its focus from our core business. An acquisition could cause potentially dilutive issuances of equity securities, incurrence of debt, contingent liabilities or could cause us to assume or incur unknown or unforeseen liabilities.
Our expansion into these markets will place us in competitive environments with which we are unfamiliar and involves various risks, including the need to invest significant resources and the possibility that returns on such investments will not be achieved for several years, or at all.
We may incur losses or otherwise fail to enter these markets successfully. Our expansion into these markets will place us in competitive environments with which we are unfamiliar and involves various risks, including the need to invest significant resources and the possibility that returns on such investments will not be achieved for several years, or at all.
This concentration of ownership could have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination that could be favorable to our other shareholders.
Fregenal controls the management of our business and affairs. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination that could be favorable to our other shareholders.
Further, if we lose our ability to obtain and maintain all of the regulatory approvals and licenses necessary to conduct business as we currently operate, our ability to conduct business may be harmed. Lastly, any lobbying or related activities we undertake in response to mitigate liability of current or new regulations could substantially increase our operating expenses.
Further, if we lose our ability to obtain and maintain every regulatory approval and license necessary to conduct business as we currently operate, our ability to conduct business may be harmed. Lastly, any lobbying or related activities we undertake in response to mitigate liability of current or new regulations could substantially increase our operating expenses.
Any or all of these consequences would result in meaningful unfavorable impact on our brand, business model, revenue, expenses, income and margins. We participate in a highly competitive market, and pressure from existing and new companies might adversely affect our business and operating results.
Any of these consequences could result in a material unfavorable impact on our brand, business model, revenue, expenses, income and margins. We participate in a highly competitive market, and pressure from existing and new companies might adversely affect our business and operating results.
If any analyst who may cover us were to cease coverage of the Company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
If any analyst who may cover us were to cease coverage of the Company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Item 1B. Unresolved Staff Comments. Not applicable.
We experienced net losses of approximately $27.6 million and $12.5 million for the years ended December 31, 2022 and December 31, 2021, respectively. We cannot guarantee when or if we will achieve sustained profitability, particularly in light of current economic uncertainty and increased interest rates. We expect to make significant future expenditures to develop and expand our business.
We experienced net losses of approximately $24.0 million and $27.6 million for the years ended December 31, 2023 and 2022, respectively. We cannot guarantee when or if we will achieve sustained profitability, particularly considering current economic uncertainty and increased interest rates. We expect to make significant future expenditures to develop and expand our business.
As of December 31, 2022, Joshua Harley, Marco Fregenal, and Glenn Sampson beneficially owned approximately 29.4%, 6.4%, and 8.9% of our outstanding common stock, respectively. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors may perceive disadvantages in owning stock in companies with controlling shareholders.
As of December 31, 2023, Joshua Harley, Marco Fregenal, and Glenn Sampson beneficially owned approximately 20.2%, 7.2%, and 7.4% of our outstanding common stock, respectively. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors may perceive disadvantages in owning stock in companies with controlling shareholders.
To the extent that one or more of our top executives or other key management personnel depart from our company, our operations and business prospects may be adversely affected. In addition, changes in executives and key personnel could be disruptive to our business.
To the extent that one or more of our top executives or other key management personnel depart from our company, our operations and business prospects may be adversely affected. In addition, changes in executives and key personnel could be disruptive to our business . We do not have any key person insurance.
In addition, this listing aggregator may attempt to use its growing access to key data spanning the home buying experience to displace or pre-empt its competitors before they can reach customers. 21 Table of Contents Aggregators could intensify their current business tactics or introduce new programs that could be materially disadvantageous to our business and other brokerage participants in the industry including, but not limited to: ● broadening and/or increasing fees for their programs that charge brokerages and their affiliated sales agents fees including, referral, listing, display, advertising and related fees or introducing new fees for new or existing services; ● setting up competing brokerages and/or expanding their offerings to include products (including agent tools) and services ancillary to the real estate transaction, such as title, escrow and mortgage origination services, that compete with services offered by us; ● not including our or our franchisees’ listings on their websites; ● controlling significant inventory and agent referrals, tying referrals to use of their products, and/or engaging in preferential or exclusionary practices to favor or disfavor other industry participants; ● utilizing their aggregated data for competitive advantage and/or establishing oppressive contract terms, including with respect to data sharing requirements; and/or ● disintermediating our relationship with affiliated franchisees and independent sales agents and/or the relationship between the independent sales agent and the buyers and sellers of homes.
Aggregators could intensify their current business tactics or introduce new programs that could be materially disadvantageous to our business and other brokerage participants in the industry including, but not limited to: • broadening and/or increasing fees for their programs that charge brokerages and their affiliated sales agents fees including, referral, listing, display, advertising and related fees or introducing new fees for new or existing services; • setting up competing brokerages and/or expanding their offerings to include products (including agent tools) and services ancillary to the real estate transaction, such as title, escrow and mortgage origination services, that compete with services offered by us; • not including Fathom's or our franchisees’ listings on their websites; • controlling significant inventory and agent referrals, tying referrals to use of their products, and/or engaging in preferential or exclusionary practices to favor or disfavor other industry participants; • utilizing their aggregated data for competitive advantage and/or establishing oppressive contract terms, including with respect to data sharing requirements; and/or • disintermediating our relationship with affiliated franchisees and independent sales agents and/or the relationship between the independent sales agent and the buyers and sellers of homes.
We believe that our future revenue growth will depend, among other factors, on our ability to: ● acquire additional agents and collect additional commissions to existing agents; ● attract a growing number of agents to our website and other cloud-based applications; ● increase our brand awareness; ● successfully develop and deploy new products for the residential real estate industry; ● integrate acquired companies, including those offering new ancillary services, such as title, insurance, and mortgage into our product offerings to increase our revenue per agent transaction; ● maximize our sales personnel’s productivity; ● respond effectively to competitive threats; and ● successfully expand our business into adjacent markets.
We believe that our future revenue growth will depend, among other factors, on our ability to: • recruit additional agents and collect additional commissions from existing agents; • increase our brand awareness; • successfully develop and deploy new products for the residential real estate industry; • integrate acquired companies, including those offering new ancillary services, such as title, insurance, and mortgage into our product offerings to increase our revenue per agent transaction; • respond effectively to competitive threats; and • successfully expand our business into adjacent markets.
The consequences of a material privacy/data security incident can include violations of applicable privacy or data security laws, reputational damage, loss of market value, costly litigation with third parties (which could result in our exposure to material civil or criminal liability) and regulatory investigations, diminution in the value of the services we provide to our customers, and increased cybersecurity protection and remediation costs (that may include liability for stolen assets or information), which in turn could have a material adverse effect on our competitiveness and results of operations. 23 Table of Contents Our business, financial condition and reputation may be substantially harmed by security breaches, interruptions, delays and failures in our systems and operations.
The consequences of a material privacy/data security incident can include violations of applicable privacy or data security laws, reputational damage, loss of market value, costly litigation with third parties (which could result in our exposure to material civil or criminal liability) and regulatory investigations, diminution in the value of the services we provide to our customers, and increased cybersecurity protection and remediation costs (that may include liability for stolen assets or information), which in turn could have a material adverse effect on our competitiveness and results of operations.
We compete primarily on the basis of the size and attractiveness of the audience; pricing; and the ability to target desired audiences. 20 Table of Contents Many of our existing and potential competitors have substantial competitive advantages, such as: ● greater scale; ● stronger brands and greater name recognition; ● longer operating histories; ● more financial, research and development, sales and marketing, and other resources; ● more extensive relationships with participants in the residential real estate industry, such as brokers, agents, and advertisers; ● strong relationships with third-party data providers, such as multiple listing services and listing aggregators; ● access to larger user bases; and ● larger intellectual property portfolios.
Many of our existing and potential competitors have substantial competitive advantages, such as: • greater scale; • stronger brands and greater name recognition; • longer operating histories; • more financial, research and development, sales and marketing, and other resources; • more extensive relationships with participants in the residential real estate industry, such as brokers, agents, and advertisers; • strong relationships with third-party data providers, such as multiple listing services and listing aggregators; • access to larger user bases; and • larger intellectual property portfolios.
This could also negatively impact our agent growth rate. Our net licensed agent and broker base grew by approximately 28% from 8,100 licensed agents and brokers at December 31, 2021, to 10,370 licensed agents and brokers at December 31, 2022.
This could also negatively impact our agent growth rate. Our net licensed agent and broker base grew by approximately 14% from 10,370 licensed agents and brokers at December 31, 2022, to 11,795 licensed agents and brokers at December 31, 2023.
We could incur significant losses in the future for a number of reasons, including the other risks described in this Report, and we may encounter unforeseen expenses, difficulties, complications and delays and other unknown events. Accordingly, we might not be able to achieve or maintain profitability and we may incur significant losses for the foreseeable future.
We might not achieve sufficient revenue to achieve or maintain profitability. We could incur significant losses in the future for many reasons, including the other risks described in this Report, and we may encounter unforeseen expenses, difficulties, complications and delays and other unknown events.
This policy includes informing consumers, independent contractors and employees that we will not share their personal information with third parties without their consent unless required by law. Privacy policies and compliance with federal and state privacy laws presents risk and we could incur legal liability for failing to maintain compliance.
This policy includes informing consumers, independent contractors and employees that we will not share their personal information with third parties without their consent unless required by law. Privacy policies and compliance with federal and state privacy laws present risks including legal liability for failure to comply.
We do not have any key person insurance. 26 Table of Contents Employee or agent litigation and unfavorable publicity could negatively affect our future business. Our employees or agents may, from time to time, bring lawsuits against us alleging injury, creating a hostile workplace, discrimination, wage and hour disputes, sexual harassment, or other employment issues.
Employee or agent litigation and unfavorable publicity could negatively affect our future business. Our employees or agents may, from time to time, bring lawsuits against us alleging injury, creating a hostile workplace, discrimination, wage and hour disputes, sexual harassment, or other employment issues.
Continued growth could also strain our ability to maintain reliable service levels for our users and advertisers, develop and improve our operational, financial, and management controls, enhance our reporting systems and procedures, and recruit, train, and retain highly skilled personnel. Our products are accessed by a large number of users often at the same time.
Continued technological and geographic growth could also strain our ability to maintain reliable service levels for our users and advertisers, develop and improve our operational, financial, and management controls, enhance our reporting systems and procedures, and recruit, train, and retain highly skilled personnel. Our products are accessed by many users, often simultaneously.
While we are continuing to evaluate all aspects of legislation, regulations and policies affecting the domestic real estate market, we cannot predict whether or not such legislation, regulation and policies may increase down payment requirements, increase mortgage costs, or result in increased costs and potential litigation for housing market participants, any of which could have a material adverse effect on our financial condition and results of operations. 31 Table of Contents Potential reform of Fannie Mae or Freddie Mac or certain federal agencies or a reduction in U.S. government support for the housing market could have a material impact on our operations.
While we are continuing to evaluate all aspects of legislation, regulations and policies affecting the domestic real estate market, we cannot predict whether such legislation, regulation and policies may increase down payment requirements, increase mortgage costs, or result in increased costs and potential litigation for housing market participants, any of which could have a material adverse effect on our financial condition and results of operations.
Joshua Harley, our Chief Executive Officer and Executive Chairman of the Board, Marco Fregenal, our President and Chief Financial Officer, and a director, and Glenn Sampson, a significant shareholder and director, have previously engaged in sales of our stock under Rule 10b5-1 trading plans, which have put pressure on our stock price. On October 11, 2021, Mr. Harley and Mr.
Joshua Harley, our Founder and former Chief Executive Officer , Marco Fregenal, our President and Chief Executive Officer, and a director, and Glenn Sampson, a significant shareholder 31 Table of Contents and director, have previously engaged in sales of our stock under Rule 10b5-1 trading plans, which have put pressure on our stock price. In November 2021, Mr.
We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Loss of our current executive officers or other key management could significantly harm our business.
We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Additionally, if we borrowed under a warehouse credit facility for the loan, then we will be required to repay the borrowed amount, which reduces our cash on hand that is available for other corporate uses.
For example, we may be required to write down the value of the loan, which reduces the amount of our current assets. Additionally, if we borrowed under a warehouse credit facility for the loan, then we will be required to repay the borrowed amount, which reduces our cash on hand available for other corporate uses.
If competitors follow our practices or develop more innovative practices, our ability to achieve profitability may diminish or erode. For example, certain other brokerages could develop or license cloud-based office platforms that are equal to or superior to ours.
Innovation has been critical to our ability to compete for clients and real estate agents. If competitors follow our practices or develop more innovative practices, our ability to achieve profitability may diminish or erode. For example, other brokerages could develop or license cloud-based office platforms that are equal to or superior to ours.
Our noncompliance could result in significant defense costs, settlement costs, damages and penalties. Additionally, our business licenses could be suspended or revoked, our business practices enjoined, or we could be required to modify our business practices, which could materially impair, or even prevent, our ability to conduct all or any portion of our business.
Additionally, our business licenses could be suspended or revoked, our business practices enjoined, or we could be required to modify our business practices, which could materially impair, or even prevent, our ability to conduct all or any portion of our business.
We depend on the industry experience and talent of our current executives, including our Founder and Chief Executive Officer Joshua Harley, and President and Chief Financial Officer Marco Fregenal. We also rely on individuals in key management positions within our operations, finance, and technology teams.
Loss of our current executive officers or other key management could significantly harm our business We depend on the industry experience and talent of our current executives, including our President and Chief Executive Officer Marco Fregenal. We also rely on individuals in key management positions within our operations, finance, and technology teams.
If we are not able to compete effectively, our business and operating results will be materially and adversely affected. Listing aggregator concentration and market power creates, and is expected to continue to create, disruption in the residential real estate brokerage industry, which might have a material adverse effect on our results of operations and financial condition.
Listing aggregator concentration and market power creates, and is expected to continue to create, disruption in the residential real estate brokerage industry, which might have a material adverse effect on our results of operations and financial condition.
If we were unable to receive the necessary capacity on acceptable terms and did not have sufficient liquidity or established operations to fund originations ourselves, then we may be unable to maintain or increase the amount of mortgage loans that we originate, which will adversely affect the growth of our mortgage business. 25 Table of Contents We might identify material weaknesses in the future that might cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements.
If we were unable to receive the necessary capacity on acceptable terms and did not have sufficient liquidity or established operations to fund originations ourselves, then we may be unable to maintain or increase the amount of mortgage loans that we originate, which will adversely affect the growth of our mortgage business.
As such, the choice of forum provision does not apply to any actions arising under the Securities Act or the Exchange Act. 33 Table of Contents These choice of forum provisions may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees.
These choice of forum provisions may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees.
The three shareholders voting together can significantly influence all matters requiring approval by our shareholders, including the election and removal of directors and any proposed merger, acquisition, consolidation or sale of all or substantially all of our assets.
The three shareholders voting together can significantly influence all matters requiring approval by our shareholders, including the election and removal of directors and any proposed merger, acquisition, consolidation or sale of all or substantially all of our assets. In addition, due to his significant ownership stake and his service as our Chief Executive Officer, Mr.
Lack of available credit or lack of confidence in the financial sector could impact the residential real estate market, which in turn could materially and adversely affect our business, financial condition and results of operations. 29 Table of Contents For example, although the U.S. residential real estate market has improved in the years after the significant and prolonged downturn that began in the second half of 2008 and continued through 2011, the COVID-19 pandemic significantly impacted the U.S. residential real estate market during the spring of 2020 with home sales in April and May declining to levels unseen since the recession of the late 2000’s.
For example, although the U.S. residential real estate market has improved in the years after the significant and prolonged downturn that began in the second half of 2008 and continued through 2011, the COVID-19 pandemic significantly impacted the U.S. residential real estate market during the spring of 2020 with home sales in April and May declining to levels unprecedented since the recession of the late 2000’s.
We might not be aware of all the laws, rules and regulations that govern our business, or be able to comply with all of them, given the rate of regulatory changes, ambiguities in regulations, contradictions in laws and regulations between jurisdictions, and the difficulties in achieving both company-wide and region-specific knowledge and compliance. 24 Table of Contents If we fail, or we have been alleged to have failed, to comply with any existing or future applicable laws, rules and regulations, we could be subject to lawsuits and administrative complaints and proceedings, as well as criminal proceedings.
We might not be aware of all the laws, rules and regulations that govern our business, or be able to comply with all of them, given the rate of regulatory changes, ambiguities in regulations, contradictions in laws and regulations between jurisdictions, and the difficulties in achieving both company-wide and region-specific knowledge and compliance.
The market to provide home listings and marketing services for the residential real estate industry is highly competitive and fragmented. Homes are not typically marketed exclusively through any single channel. Consumers can access home listings and related data through more than one source. Accordingly, current and potential competitors could aggregate a set of listings similar to ours.
The market to provide home listings and marketing services for the residential real estate industry is highly competitive and fragmented. Homes are not typically marketed exclusively through any single channel. Accordingly, current and potential competitors could aggregate a set of listings similar to ours. We compete with online real estate marketplaces, such as Zillow and Realtor.com, and traditional offline media.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Removed
Item 3. Legal Proceedings. We are not involved in any litigation that we believe could have a material adverse effect on our financial position or results of operations.
Added
As previously reported by us in a Current Report on Form 8-K filed on November 28, 2023, we have been named as a defendant in a purported class action complaint in the United States District Court for the Eastern District of Texas Sherman Division, filed on November 13, 2023, by plaintiffs QJ Team, LLC and Five Points Holdings, LLC, individually and on behalf of all other persons similarly situated.
Removed
There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of our executive officers, threatened against or affecting our Company or our officers or directors in their capacities as such. Item 4. Mine Safety Disclosures.
Added
A second purported class action complaint was filed on December 14, 2023, by plaintiffs Julie Martin, Mark Adams and Adelaida Matta in the same court, naming us as a defendant along with others, many of whom are also named in the first lawsuit.
Removed
Not applicable. ​ 35 Table of Contents PART II
Added
These lawsuits are purportedly brought on behalf of a class consisting of all persons who listed properties on a Multiple Listing Service in Texas (the “MLS) using a listing agent or broker affiliated with one of the defendants named in the lawsuits and paid a buyer broker commission beginning on November 13, 2019.
Added
The lawsuits allege unlawful conspiracy in violation of federal antitrust law and, against certain defendants (but not us) deceptive trade practices under the Texas Deceptive Trade Practices Act.
Added
We expect additional lawsuits to be filed, given the breadth of the residential real estate industry and the volume of participants in the residential real estate industry in Texas and the rest of the United States.
Added
Though we intend to vigorously defend ourselves as we believe the lawsuits are particularly without merit with respect to us because of our flat fee business model, we cannot predict with certainty the cost of our defense, the cost of prosecution, insurance coverage, or the ultimate outcome of the lawsuits and any others that might be filed in the future, including remedies or damage awards.
Added
Adverse results in such litigation might harm our business and financial condition. 33 Table of Contents Moreover, defending these lawsuits, regardless of their merits, could entail substantial expense and require the time and attention of our key management personnel. Item 4. Mine Safety Disclosures. Not applicable. 34 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThere were no equity repurchases for the quarter ended December 31, 2022. The approximate dollar value of shares that may yet be purchased pursuant to the repurchase program is $4.0 million. Management has no plans to repurchase additional shares at this time.
Biggest changeThere were no equity repurchases for the year ended December 31, 2023. The approximate dollar value of shares that may yet be purchased pursuant to the repurchase program is $4.0 million. Management has no plans to repurchase additional shares at this time. Item 6. [Reserved] 35 Table of Contents
Issuer Repurchases of Equity Securities On March 10, 2022, the Company’s board of directors authorized an expenditure of up to $10.0 million for the repurchase of shares of the Company’s common stock in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or in privately negotiated transactions.
Issuer Repurchases of Equity Securities On March 10, 2022, the Company’s Board authorized an expenditure of up to $10.0 million for the repurchase of shares of the Company’s common stock in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or in privately negotiated transactions.
The information regarding our equity compensation plans required by this Item 5 is incorporated by reference to the information under the section captioned “Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters” contained in our proxy statement related to the 2023 Annual Meeting of Shareholders (the “Proxy Statement”).
The information regarding our equity compensation plans required by this Item 5 is incorporated by reference to the information under the section captioned “Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters” contained in our proxy statement related to the 2024 Annual Meeting of Shareholders (the “Proxy Statement”).
Market Information Our common stock trades on The Nasdaq Capital Market under the symbol “FTHM”. Holders of Common Stock As of December 31, 2022, we had approximately 3,213 shareholders of record of our common stock.
Market Information Our common stock trades on The Nasdaq Capital Market under the symbol “FTHM”. Holders of Common Stock As of December 31, 2023, we had approximately 1,363 shareholders of record of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeIt is also important to note that, as described above under “Rising Interest Rates, COVID-19 and Other Risks,” our growth slowed during the second half of 2022 as a result of increased interest rates and economic uncertainties impacting the number of home sales and mortgage refinancings. 41 Table of Contents Operating Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Change ​ 2022 2021 Dollars Percentage Commission and other agent-related costs ​ $ 372,246 ​ $ 300,509 ​ $ 71,737 ​ 24 % Operations and support ​ ​ 8,249 ​ ​ 5,470 ​ ​ 2,779 ​ 51 % Technology and development ​ ​ 7,715 ​ ​ 3,911 ​ ​ 3,804 ​ 97 % General and administrative ​ ​ 43,217 ​ ​ 32,733 ​ ​ 10,484 32 % Marketing ​ 5,218 ​ 1,895 ​ 3,323 175 % Depreciation and amortization ​ ​ 3,096 ​ ​ 1,817 ​ ​ 1,279 ​ 70 % Total operating expenses ​ $ 439,741 ​ $ 346,335 ​ $ 93,406 27 % ​ For the year ended December 31, 2022, commission and other agent-related costs increased by approximately $71.7 million, or 24%, as compared with the year ended December 31, 2021.
Biggest changeOperating Expenses Year Ended December 31, Change 2023 2022 Dollars Percentage Commission and other agent-related costs $ 308,094 $ 372,246 $ (64,152) (17 %) Operations and support 7,513 8,249 (736) (9 %) Technology and development 7,609 7,715 (106) (1 %) General and administrative 38,751 43,217 (4,466) (10 %) Marketing 3,348 5,218 (1,870) (36 %) Depreciation and amortization 3,164 3,096 68 2 % Total operating expenses $ 368,479 $ 439,741 $ (71,262) (16 %) For the year ended December 31, 2023, commission and other agent-related costs decreased by approximately $64.2 million, or 17%, as compared with the year ended December 31, 2022.
In the context of purchase accounting, the determination of fair value often involves significant judgments and estimates by management, including the selection of valuation methodologies, estimates of future revenues, costs and cash flows, discount rates, and selection of comparable companies.
In the context of purchase accounting, the determination of fair value often involves significant judgments and estimates by management, including the selection of valuation methodologies, estimates of future revenues, costs and cash flows, discount rates, and the selection of comparable companies.
Insurance Agency Service Revenues The revenue streams for the Company’s home and other insurance agency services business are primarily comprised of new and renewal commissions paid by insurance carriers.
Insurance Agency Service Revenue The revenue streams for the Company’s home and other insurance agency services business are primarily comprised of new and renewal commissions paid by insurance carriers.
We anticipate that our existing balances of cash and cash equivalents and future expected cash flows generated from our operations will be sufficient to satisfy our operating requirements for at least the next twelve months from the date of the issuance of the consolidated financial statements for the year ended December 31, 2022.
We anticipate that our existing balances of cash and cash equivalents and future expected cash flows generated from our operations will be sufficient to satisfy our operating requirements for at least the next twelve months from the date of the issuance of the consolidated financial statements for the year ended December 31, 2023.
Some of these limitations are that: ● Adjusted EBITDA excludes share-based compensation expense related to restricted stock awards and stock options, which have been, and will continue to be for the foreseeable future, significant recurring expenses in our business and an important part of our compensation strategy; ● Adjusted EBITDA excludes transaction-related costs primarily consisting of professional fees and any other costs incurred directly related to acquisition activity, which is an ongoing part of our growth strategy and therefore likely to occur; and 44 Table of Contents ● Adjusted EBITDA excludes certain recurring, non-cash charges such as depreciation and amortization of property and equipment and capitalized software costs, however, the assets being depreciated and amortized may have to be replaced in the future.
Some of these limitations are that: • Adjusted EBITDA excludes share-based compensation expense related to restricted stock awards, restricted stock unit awards, and stock options, which have been, and will continue to be for the foreseeable future, significant recurring expenses in our business and an important part of our compensation strategy; • Adjusted EBITDA excludes transaction-related costs primarily consisting of professional fees and any other costs incurred directly related to acquisition activity, which is an ongoing part of our growth strategy and therefore likely to occur; and • Adjusted EBITDA excludes certain recurring, non-cash charges such as depreciation and amortization of property and equipment and capitalized software costs, however, the assets being depreciated and amortized may have to be replaced in the future.
These assumptions may vary based on future events, perceptions of different market participants and other factors outside the control of management, and such variations may be significant to estimated values. 45 Table of Contents The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed are based on various assumptions and valuation methodologies requiring considerable management judgment.
These assumptions may vary based on future events, perceptions of different market participants and other factors outside the control of management, and such variations may be significant to estimated values. The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed are based on various assumptions and valuation methodologies requiring considerable management judgment.
Our mortgage business also experienced significant declines in loan volumes beginning in the second quarter of 2022, particularly from refinancing prior mortgages. In response to these macroeconomic and consumer demand developments, we took action to adjust our operations and manage our business towards longer-term profitability despite these adverse macroeconomic factors.
Our mortgage business also experienced significant declines in loan volumes beginning in the second quarter of 2022, particularly from declines in refinancing prior mortgages. In response to these macroeconomic and consumer demand developments, we took action to adjust our operations and manage our business towards longer-term profitability despite these adverse macroeconomic factor s.
In the event of a sustained market deterioration, we may need or seek advantageously to obtain additional funding through equity or debt financing, which might not be available on favorable terms or at all and could hinder our business and dilute our existing shareholders.
In the event of a sustained market deterioration, we may need or seek 42 Table of Contents advantageously to obtain additional funding through equity or debt financing, which might not be available on favorable terms or at all and could hinder our business and dilute our existing shareholders.
General and administrative General and administrative expenses consist primarily of personnel costs, including base pay, bonuses, benefits, and share based compensation, and fees for professional services. Professional services principally consist of external legal, audit, and tax services.
General and administrative General and administrative expenses consist primarily of fees for professional services and personnel costs, related to including base pay, bonuses, benefits, and share based compensation. Professional services principally consist of external legal, audit, and tax services.
The economic conditions influencing the housing markets primarily include economic growth, interest rates, unemployment, consumer confidence, mortgage availability, and supply and demand. 37 Table of Contents In periods of economic growth, demand typically increases resulting in increasing home sales transactions and home sales prices. Similarly, a decline in economic growth, increasing interest rates and declining consumer confidence generally decreases demand.
The economic conditions influencing the housing markets primarily include economic growth, interest rates, unemployment, consumer confidence, mortgage availability, and supply and demand. In periods of economic growth, demand typically increases resulting in increasing home sales transactions and home sales prices. Similarly, a decline in economic growth, increasing interest rates and declining consumer confidence generally decreases demand.
However, in the long term, we anticipate general and administrative expenses as a percentage of revenue to decrease over time, if and as we are able to increase revenue. Marketing Marketing expenses consist primarily of expenses for online and traditional advertising, as well as costs for marketing and promotional materials. Advertising costs are expensed as they are incurred.
However, in the long term, we anticipate general and administrative expenses as a percentage of revenue to decrease over time, if and as revenue increases. Marketing Marketing expenses consist primarily of online and traditional advertising, as well as costs for marketing and promotional materials. Advertising costs are expensed as they are incurred.
Agent Equity Ownership Effective January 1, 2019, agents could receive stock grants, which vest in three years based on continued affiliation with the Company, in two ways: 1) when the agent closed a sale of a property for the Company; and 2) when the agent referred another agent to join the Company. These stock grants were granted quarterly.
Agent Equity Ownership Effective January 1, 2019, agents could receive stock grants, which vest in three years based on continued affiliation with the Company, in two ways: 1) when the agent closed a sale of a property for the Company; and 2) when the agent referred another agent to join the Company as independent contractor.
In January 2022, the Company completed its acquisition of Cornerstone Financial (“Cornerstone”). The acquisition of Cornerstone, a real estate mortgage business, has helped us to expand our reach in the DC and surrounding markets. In February 2022, the Company completed its acquisition of iPro Realty Network (“iPro”).
The acquisition of Cornerstone, a real estate mortgage business, has helped us to expand our reach in the DC and surrounding markets. In February 2022, the Company completed its acquisition of iPro Realty Network (“iPro”). The acquisition of iPro, a real estate brokerage business, has helped us to expand our reach in the Utah real estate market.
The transaction price is set as the estimated commissions to be received over the term of the policy based upon an estimate of premiums placed, policy changes and cancellations, net of restraint. The commissions are earned at the point in time upon effective date of the associated policies when control of the policy transfers to the client.
The transaction price is set to be the estimated commissions to be received over the term of the policy based on an estimate of premiums placed, policy changes and cancellations, net of restraint. The commissions are earned upon effective date of the associated policies, which is when control of the policy transfers to the client.
Depreciation and amortization Depreciation and amortization represent the depreciation charged on our fixed assets and intangible assets other than capitalized software. Depreciation expense is recorded on a straight-line method, based on estimated useful lives of five years for computer 40 Table of Contents hardware, seven years for furniture and equipment and seven years for vehicles.
Depreciation and amortization Depreciation and amortization represent how we expense our fixed and intangible assets other than capitalized software. Depreciation expense is recorded on a straight-line method, based on estimated useful lives of five years for computer hardware, seven years for furniture and equipment and seven years for vehicles.
We expect commission and other agent-related costs to continue to rise in proportion to the expected growth in our operations. Operations and support Operations and support consist primarily of direct cost to fulfill the services from our mortgage lending, title services, insurance services and other services provided.
Operations and support Operations and support consist primarily of the direct cost to perform the services from our mortgage lending, title services, insurance services and other services provided. We expect operations and support to continue to rise in proportion to the expected growth in our operations.
Effective January 1, 2023, agents will only be able to earn stock 38 Table of Contents grants in the form of stock units based on agent referral metrics achieved. These stock grants will be granted quarterly and will vest in two years.
We granted such stock grants quarterly. Effective January 1, 2023, agents will primarily be able to earn stock grants in the form of stock units based on agent referral metrics achieved. These stock grants will be granted quarterly and will vest in two years.
We expect marketing expenses to increase in absolute dollars as we continue to expand our advertising programs, including promotion of our newly acquired business lines and we anticipate marketing expenses as a percentage of revenue to decrease over time, if and as we are able to increase revenue.
We expect marketing expenses to increase in absolute dollars as we continue to expand our advertising programs, and promote of our newly acquired business lines, but we anticipate marketing expenses as a percentage of revenue to decrease over time, if and as our revenue increases.
We believe our business model and our focus on treating our agents well will attract more agents and higher-producing agents. Fathom’s real estate agent network grew 28% to approximately 10,370 agent licenses at December 31, 2022, up from approximately 8,100 at December 31, 2021.
We believe our business model and our focus on treating our agents well will attract more agents and higher-producing agents. Fathom’s real estate agent network grew 14% to approximately 11,795 agent licenses at December 31, 2023, up from approximately 10,370 at December 31, 2022.
Generally Accepted Accounting Principles (“GAAP”), we do not amortize goodwill. Income Taxes U.S. federal and state income tax benefits for a portion of historical net losses has been recognized in the period ended December 31, 2022. Previously the tax benefits had not been recognized due to our uncertainty of realizing a benefit from those items.
Generally Accepted Accounting Principles (“GAAP”), we do not amortize goodwill. Income Taxes U.S. federal and state income tax benefits for a portion of historical net losses was recognized in the period ended December 31, 2022. Previously, we have not recognized the tax benefits because of the uncertainty of realizing a future benefit from those items.
Fathom Realty Holdings, LLC, a Texas limited liability company (“Fathom Realty”), is a wholly owned subsidiary of Fathom Holdings Inc. Fathom Realty owns 100% of 39 subsidiaries, each an LLC representing the state in which the entity operates (e.g. Fathom Realty NJ, LLC).
Fathom Realty Holdings, LLC, a Texas limited liability company (“Fathom Realty”), is a wholly owned subsidiary of Fathom Holdings Inc. Fathom Realty owns 100% of 39 subsidiaries, each an LLC representing the state in which the entity operates (e.g. Fathom Realty NJ, LLC). Company Acquisitions In January 2022, the Company completed its acquisition of Cornerstone Financial (“Cornerstone”).
For the year ended December 31, 2022, general and administrative expenses increased by approximately $10.4 million, or 32%, as compared with the year ended December 31, 2021.
For the year ended December 31, 2023, general and administrative expenses decreased by approximately $4.5 million, or 10%, as compared with the year ended December 31, 2022.
The following table presents a reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP financial measure, for each of the periods presented (amount in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 Net loss ​ $ (27,626) ​ $ (12,491) Depreciation and amortization ​ ​ 5,346 ​ ​ 2,748 Other expense (income), net ​ 903 ​ (366) Income tax expense (benefit) ​ (54) ​ (3,247) Stock based compensation ​ ​ 9,131 ​ ​ 4,011 Transaction-related cost ​ ​ 73 ​ ​ 1,186 Adjusted EBITDA ​ $ (12,227) ​ $ (8,159) ​ Critical Accounting Estimates Discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP.
The following table presents a reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP financial measure, for each of the periods presented (amount in thousands): Year Ended December 31, 2023 2022 Net loss $ (23,981) $ (27,626) Depreciation and amortization 5,947 5,346 Other expense (income), net 580 903 Income tax expense (benefit) 148 (54) Stock based compensation 12,994 9,131 Other non-cash and transaction-related cost 201 73 Adjusted EBITDA $ (4,111) $ (12,227) Critical Accounting Estimates Discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP.
We expect operations and support to continue to rise in proportion to the expected growth in our operations. Technology and development ​ Technology and development expenses primarily include personnel costs, including base pay, bonuses, benefits, and share based compensation, related to ongoing development and maintenance of our proprietary software for use by our agents, customers, and support staff.
Technology and development Technology and development expenses primarily include personnel costs, related to ongoing development and maintenance of proprietary software for use by our own agents, customers, and support staff. Such personnel costs including base pay, bonuses, benefits, and share based compensation.
As a result of certain acquisitions this period, we realized a portion of the pre-existing deferred tax assets due to the reversal of taxable temporary differences. As of December 31, 2022, we had federal net operating loss carryforwards of approximately $40.8 million and state net operating loss carryforwards of approximately $20.8 million. The federal net operating losses carry forward indefinitely.
As a result of certain acquisitions during the period ended December 31, 2022, we realized a portion of the pre-existing deferred tax assets due to the reversal of taxable temporary differences. As of December 31, 2023, we had federal net operating loss carryforwards of approximately $49.4 million and state net operating loss carryforwards of approximately $26.0 million.
Contingent consideration is generally received in the first quarter of the subsequent year. 39 Table of Contents Title Service Revenues Title services revenue includes fees charged for title search and examination, property settlement and title insurance services provided in association with property acquisitions and refinance transactions.
Contingent consideration is generally received in the first quarter of the subsequent year. Title Service Revenue Title services revenue includes fees charged for title search and examination, property settlement and title insurance services provided in association with property acquisitions and refinance transactions. SaaS Revenue The Company generates revenue from subscription and services related to the use of the LiveBy platform.
Additionally, as the impact of COVID-19 and other world events, such as the ongoing conflict in Ukraine, on the economy and our operations evolves, we will continuously assess our liquidity needs.
Additionally, as other world events, such as the ongoing conflict in Ukraine and in the Middle East, may impact the economy and our operations in new ways, we will continuously assess our liquidity needs.
Revenue for contingent commissions is estimated based on historical and current evidence of achievement towards each insurer’s annual respective metrics and is recorded as the underlying policies that contribute to the achievement are placed.
Revenue for contingent commissions is estimated based on historical and current evidence of achievement towards each insurer’s annual respective metrics and is recorded as the underlying policies that contribute to the achievement are placed. Due to the uncertainty of the amount of contingent consideration we constrain estimated revenue to an amount for which a significant negative adjustment is not probable.
Operating Expenses Commission and other agent-related costs Commission and other agent-related costs consists primarily of agent commissions, less fees paid to us by our agents, order fulfillment, share-based compensation for agents, title searches, and direct cost to fulfill the services provided.
Operating Expenses Commission and other agent-related costs Commission and other agent-related costs consists primarily of agent commissions, less fees paid to us by our agents, order fulfillment, share-based compensation for agents, title searches, and the direct costs to perform the services provided. 39 Table of Contents We expect commission and other agent-related costs to continue to rise in proportion to the expected growth in our operations.
In November 2021, the Company, completed an offering of common stock, which resulted in the issuance and sale by the Company of 1,750,000 shares of common stock, at a public offering price of $25.00 per share, generating gross proceeds of approximately $35 million, of which the Company received approximately $32.5 million, after deducting underwriting discounts and other offering costs (the “2021 Equity Offering”).
Stock Offering In December 2023, the Company completed an offering of common stock, which resulted in the issuance and sale by the Company of 2,450,000 shares of common stock, at a public offering price of $2.00 per share, generating gross proceeds of approximately $4.9 million, of which the Company received approximately $4.2 million, after deducting underwriting discounts and other offering costs.
We also have other service revenue, including mortgage lending, title insurance, home and other insurance, and SaaS revenues. Gross commission income We recognize commission-based revenue on the closing of a transaction, less the amount of any closing-cost reductions. Revenue is affected by the number of real estate transactions we close, the mix of transactions, home sale prices, and commission rates.
We also have other service revenue, including mortgage lending, title insurance, home and other insurance, and SaaS revenues. 38 Table of Contents Gross commission income We recognize commission-based revenue on the closing of a transaction, less the amount of any closing-cost reductions.
As of December 31, 2022, our cash totaled approximately $8.3 million, which represented a decrease of $29.5 million compared to December 31, 2021. As of December 31, 2022, we had net working capital of approximately $6.3 million, which represented a decrease of $27.1 million compared to December 31, 2021.
As of December 31, 2023, our cash totaled approximately $7.4 million, which represented a decrease of $0.9 million compared to December 31, 2022. As of December 31, 2023, we had net working capital of approximately $6.8 million, which represented an increase of $0.5 million compared to December 31, 2022.
Cash Flows Comparison of the Years Ended December 31, 2022 and 2021 (amount in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Change ​ 2022 2021 Dollars Percentage Net cash used in operating activities ​ $ (6,583) ​ ​ (11,697) ​ $ 5,114 44 % Net cash used in investing activities ​ $ (7,096) ​ ​ (14,560) ​ $ 7,464 51 % Net cash (used in) provided by financing activities ​ $ (15,862) ​ ​ 34,616 ​ $ (50,478) 146 % ​ Cash Flows from Operating Activities Net cash used in operating activities for the year ended December 31, 2022 consisted of a net loss of $27.6 million, including non-cash charges of $ $9.1 million of share-based compensation and $5.3 million of depreciation and amortization, and a $3.8 million gain on sale of mortgages.
Cash Flows Comparison of the Years Ended December 31, 2023 and 2022 (amount in thousands) Year Ended December 31, Change 2023 2022 Dollars Percentage Net cash used in operating activities $ (10,572) $ (6,583) $ (3,989) (61) % Net cash used in investing activities $ (1,868) $ (7,096) $ 5,228 74 % Net cash provided by (used in) financing activities $ 11,600 $ (15,862) $ 27,462 173 % Cash Flows from Operating Activities Net cash used in operating activities for the year ended December 31, 2023 consisted of a net loss of $24.0 million, including non-cash charges of $13.0 million of share-based compensation, $5.9 million of depreciation and amortization, and a $3.7 million gain on sale of mortgages.
Adjusted EBITDA also excludes other income and expense, net which primarily includes nonrecurring items, such as, gain on debt extinguishment and severance costs, if applicable.
Adjusted EBITDA also excludes other income and expense, net which primarily includes nonrecurring items, 43 Table of Contents such as, gain on debt extinguishment, severance costs, and non-cash items representing reserves on certain agent fee collection, if applicable.
Direct loan origination costs and expenses associated with the loans are charged to expenses when the loans are sold. Interest income is interest earned on originated loans prior to the sale of the asset.
Retail origination fees are principally revenues from loan originations and recorded in the statement of operations in other service revenue. Direct loan origination costs and expenses associated with the loans are charged to expenses when the loans are sold. Interest income is interest earned on originated loans prior to the sale of the asset.
A fair value measurement is determined as the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date.
The estimated fair value of net assets acquired, including the allocation of the fair value to identifiable assets and liabilities, was determined using established valuation techniques. A fair value measurement is determined as the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date.
As such, the increase in commission and other agent-related costs compared to the same period in 2021 was primarily attributable to an increase in agent commissions paid due to higher transaction volume and rising home prices.
As such, the decrease in commission and other agent-related costs compared to the same period in 2022 was primarily due to a decrease in agent commissions paid due to lower transaction volume mainly due to rising interest rates.
Changes in assets and liabilities were primarily driven by $13.5 million net effect of sale and payment of mortgage loans held for sale, $2.0 million decrease in accounts payable, $1.1 million decrease in accrued liabilities, and $1.9 million decrease in operating lease right of use liabilities, partially offset by a $0.5 million increase in accounts receivable, and $0.6 million decrease in lease liabilities.
Non-cash lease expense was $1.7 million and was offset by a $1.8 million decrease in operating lease right of use liabilities. Other principal changes in operating assets and liabilities were the $1.2 million negative net effect of sale and payment of mortgage loans held for sale, $0.3 million increase in accounts receivable, and a $0.4 million decrease in accrued liabilities.
However, a change in facts and circumstances as of the acquisition date can result in subsequent adjustments during the measurement period, but no later than one year from the acquisition date. Recent Accounting Standards For information on recent accounting standards, see Note 2 to our consolidated financial statements included elsewhere in this report.
However, a change in facts and circumstances as of the acquisition date can result in subsequent adjustments during the measurement period, but no later than one year from the acquisition date.
JOBS Act Transition Period In April 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
Business Combinations The Company accounts for its business combinations under the provisions of Accounting Standards Codification (“ASC”) Topic 805-10, Business Combinations (“ASC 805-10”), which requires that the purchase method of accounting be used for all business combinations. Assets acquired and liabilities assumed are recorded at the date of acquisition at their respective fair values.
For further information on goodwill, see Note 4 - Goodwill. Business Combinations The Company accounts for its business combinations under the provisions of Accounting Standards Codification (“ASC”) Topic 805-10, Business Combinations (“ASC 805-10”), which requires that the purchase method of accounting be used for all business combinations.
For transactions that are business combinations, the Company evaluates the existence of goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill.
ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred.
The Company maintains a valuation allowance on the remaining net deferred tax assets at year-end due to historical operating losses. 42 Table of Contents Liquidity and Capital Resources (amount in thousands) Capital Resources ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ Change ​ 2022 2021 Dollars Percentage Current assets ​ $ 18,816 ​ $ 54,450 ​ $ (35,634) (65) % Current liabilities ​ 12,499 ​ 21,072 ​ (8,573) (41) % Net working capital ​ $ 6,317 ​ $ 33,378 ​ $ (27,061) (81) % ​ To date, our principal sources of liquidity have been revenues and the net proceeds we received through public offerings and private sales of our common stock, as well as proceeds from loans.
Liquidity and Capital Resources (amount in thousands) Capital Resources December 31, 2023 December 31, 2022 Change Dollars Percentage Current assets $ 23,194 $ 18,816 $ 4,378 23 % Current liabilities 16,352 12,499 3,853 31 % Net working capital $ 6,842 $ 6,317 $ 525 8 % To date, our principal sources of liquidity have been revenues and the net proceeds we received through public offerings and private sales of our common stock, as well as proceeds from loans.
SaaS Revenues The Company generates revenue from subscription and services related to the use of the LiveBy platform. The SaaS contracts are generally annual contracts paid monthly in advance of service and cancellable upon 30 days’ notice after the first year.
The SaaS contracts are generally annual contracts paid monthly in advance of service and cancellable upon 30 days’ notice after the first year. The Company’s subscription arrangements do not provide customers with the right to take possession of the software supporting the platform.
For the year ended December 31, 2022, operations and support expenses were approximately $8.2 million as compared with $5.5 million for the year ended December 31, 2021.
For the year ended December 31, 2023, operations and support expenses were approximately $7.5 million as compared with $8.2 million for the year ended December 31, 2022. This decrease was primarily attributable to strategic decreases in headcount in our mortgage, insurance, and title businesses.
Cash Flows from Financing Activities Net cash used in financing activities for the year ended December 31, 2022 consisted of $6.0 million of stock repurchases, $9.4 million of net borrowing on warehouse lines of credit, and $0.9 million proceeds from notes payable attributable to financing our director and officer insurance, partially offset by $0.9 million in principal payments on an outstanding notes payable.
Cash Flows from Financing Activities Net cash used in financing activities for the year ended December 31, 2023 consisted of $4.8 million of net borrowings on warehouse lines of credit, $4.0 million in debt proceeds from the issuance of a $3.5 million convertible note payable and approximately $0.5 million in notes payable attributable to financing certain insurance premiums, plus $4.2 million in net proceeds from our December 2023 equity offering, partially offset by $0.7 million in debt payments, $0.2 million in debt issuance cost payments, and $0.5 million in deferred acquisition consideration payments.
For the year ended December 31, 2022, technology and development expenses increased by approximately $3.8 million, or 97%, as compared with the year ended December 31, 2021.
For the year ended December 31, 2023, depreciation and amortization expenses increased by approximately $0.1 million or 2% from the year ended December 31, 2022.
The acquisition of iPro, a real estate brokerage business, has helped us to expand our reach in the Utah real estate market. Rising Interest Rates, COVID-19, and Other Risks Our business is dependent on the economic conditions within the markets in which we operate. Changes in these conditions can have a positive or negative impact on our business.
Market Conditions and Industry Trends Our business is dependent on the economic conditions within the markets in which we operate. Changes in these conditions can have a positive or negative impact on our business. The economic conditions influencing the housing markets primarily include economic growth, interest rates, unemployment, consumer confidence, mortgage availability and supply and demand.
Other Services Revenue Mortgage Lending We recognize revenue streams for our mortgage lending services business which are primarily comprised of loans sold, origination and other fees. The gain on sale of mortgage loans represents the difference between the net sales proceeds and the carrying value of the mortgage loans sold and includes the servicing rights release premiums.
Revenue is affected by the number of real estate transactions we close, the mix of transactions, home sale prices, and commission rates. Other Services Revenue Mortgage Lending We recognize revenue streams for our mortgage lending services business which are primarily comprised of loans sold, origination and other fees.
This increase was primarily attributable to an increase in transaction volume and to an increase in average revenue per transaction due to rising home prices. During the year ended December 31, 2022, transaction volume increased by 14% to approximately 44,700 transactions compared to approximately 39,200 transactions for the year ended December 31, 2021.
This decrease was primarily attributable to a decrease in transaction volume caused by higher mortgage interest rates. During the year ended December 31, 2023, transaction volume decreased by 15% to approximately 38,139 transactions compared to approximately 44,700 transactions for the year ended December 31, 2022.
The increase was attributable to an increase in direct advertising costs primarily related to the Company’s expansion in new regions and markets and to promoting its newly acquired businesses. Income Taxes The Company recorded an income tax benefit of $0.1 million and $3.2 million for the years ended December 31, 2022 and 2021, respectively.
Income Taxes The Company recorded an income tax expense of $0.1 million and an income tax benefit of $0.1 million for the years ended December 31, 2023 and 2022, respectively.
Net cash used in investing activities for the year ended December 31, 2021 consisted of $11.0 million for business and asset acquisitions, net of cash acquired, $0.9 million for the purchase of property and equipment, and $2.6 million for purchases of intangible assets.
Cash Flows from Investing Activities Net cash used in investing activities for the year ended December 31, 2023 consisted primarily of $1.9 million for costs incurred related to developing intangible assets.
In response to COVID-19, the Company implemented cost-saving measures early on to include the elimination of non-essential travel and in-person training activities, and deferral of certain planned expenditures. For the years ended December 31, 2021 and 2022, due in part to the widespread availability of multiple COVID-19 vaccines, the effects of the COVID-19 on business worldwide lessened.
Looking ahead, we remain focused on getting back to positive total company Adjusted EBITDA for the full year 2024. For the years ended December 31, 2023 and 2022, due in part to the widespread availability of multiple COVID-19 vaccines, the effects of the COVID-19 on business worldwide lessened.
Servicing rights release premiums represent one-time fee revenues earned for transferring the risk and rewards of ownership of servicing rights to third parties. Retail origination fees are principally revenues earned from loan originations and recorded in the statement of operations in other service revenue.
The gain on the sale of mortgage loans represents the difference between the net sales proceeds and the carrying value of the mortgage loans sold and includes the servicing rights release premiums. Servicing rights release premiums represent one-time fee revenues earned for transferring the risk and rewards of ownership of servicing rights to third parties.
Results of Operations Comparison of the Years Ended December 31, 2022 and 2021 (amount in thousands) Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Change ​ ​ 2022 2021 Dollars Percentage Gross commission income ​ $ 390,615 ​ ​ 314,373 ​ $ 76,242 ​ 24 % Other service revenue ​ ​ 22,349 ​ ​ 15,857 ​ ​ 6,492 ​ 41 % Total revenue ​ $ 412,964 ​ $ 330,230 ​ $ 82,734 25 % ​ For the year ended December 31, 2022, gross commission income increased by approximately $76.2 million or 24%, as compared with the year ended December 31, 2021.
Utilization of the net operating loss carryforwards may be subject to an annual limitation according to Section 382 of the Internal Revenue Code of 1986 as amended, and similar state law provisions. 40 Table of Contents Results of Operations Comparison of the Years Ended December 31, 2023, and 2022 (amount in thousands) Revenue Year Ended December 31, Change 2023 2022 Dollars Percentage Gross commission income $ 325,405 $ 390,615 $ (65,210) (17) % Other service revenue 19,821 22,349 (2,528) (11) % Total revenue $ 345,226 $ 412,964 $ (67,738) (16) % For the year ended December 31, 2023, gross commission income decreased by approximately $65 million or 17%, as compared with the year ended December 31, 2022.
Removed
Corporate Developments During 2021 and 2022 In March 2021, the Company completed its acquisitions of Red Barn Real Estate, LLC (“Red Barn”) and Naberly Inc. (“Naberly”). The acquisition of Red Barn, a real estate brokerage business, has helped us to expand our reach in the Atlanta region real estate market.
Added
In periods of economic growth, demand typically increases resulting in higher home sales transactions and home sales prices. Similarly, a decline in economic growth, increasing interest rates and declining consumer confidence generally decreases demand. Additionally, regulations imposed by local, state and federal government agencies and geopolitical instability, can also negatively impact the housing markets in which we operate.
Removed
The acquisition of Naberly is facilitating our further development of our proprietary intelliAgent platform to enhance offerings and improve operational efficiency. In April 2021, the Company completed its acquisition of E4:9 Holdings, Inc. (“E4:9).
Added
Due to the increasing interest rates and increasing inflation, the market began a contraction trend beginning in the second quarter of 2022. In 2023, the existing home sales market declined 6.2%, according to the NAR. which is the lowest the market has been since 1995.
Removed
The acquisition of E4:9 is part of our vision to build a vertically integrated, end-to-end real estate operation by offering mortgage and insurance services to our agents to further serve our customers. Also in April 2021, the Company completed its acquisition of LiveBy, Inc. (“LiveBy”).
Added
However, according to. the NAR, pending home sales increased by 8.3% in December 2023 compared to November 2023. The pending home sales index measures housing contract activity and is based on signed real estate contracts for existing single-family homes and condos.
Removed
We believe the acquisition of LiveBy and its hyperlocal data and technology platform builds credibility for our real estate agents in their respective geographic areas by showcasing their local expertise and helping customers discover the best locations in which to live. In June 2021, the Company completed its acquisition of Epic Realty (“Epic”).
Added
The Company believes that it continues to be well positioned for growth in all of its businesses in the current economic climate. We have a strong base of agent support, which should drive organic market share growth, retention and productivity.
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The acquisition of Epic, a real estate brokerage business, has helped us to expand our reach in the Idaho real estate market. We further augmented our realty presence in Idaho with the addition of Woodhouse Group Realty (“Woodhouse”) in November 2021.
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Additionally, we have an efficient operating model with lower fixed costs driven by our cloud-based model, with minimum brick-and-mortar locations. 36 Table of Contents Regardless of whether the housing market continues to slow or grow, we continue to believe that we are positioned to leverage our low-cost, high-engagement model, affording agents and brokers increased income and ownership opportunities while offering a scalable solution to brokerage owners looking to prosper in a series of fluctuations in economic activity.
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Looking ahead, we remain focused on reaching total company Adjusted EBITDA breakeven in the second quarter of 2023 and generating positive cash flow in the third quarter of 2023, even in today’s market environment.
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National Housing Inventory Throughout 2023, increased mortgage interest rates and higher home prices have caused inventory levels, as measured in months of supply, to rise. Construction of new homes continues to slow also due to rising mortgage rates and the strained availability of labor and materials.
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We continue to identify opportunities to streamline our overhead and, as of December 31, 2022, have already reduced expenses by approximately $3.0 million per quarter which we should see the full benefit of in the first quarter of 2023. Importantly, we believe these cost reductions were made without sacrificing our ability to continue to grow.
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According to the NAR, inventory of existing homes for sale in the U.S. was 990,000 at the end of December 2023 compared to 970,000 at the end of December 2022. Mortgage Rates The sharp increase in mortgage rates is negatively impacting the demand for homebuying.
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This is well ahead of our initial plan to reduce expenses by $1.5 million per quarter.
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Based on Freddie Mac data, the average rate for a 30-year, conventional fixed rate mortgage was 6.61% in December 2023 compared to 6.42% in 2022. If inflation continues to moderate into 2024 as anticipated, mortgage rates should decline, which we expect to boost homebuyer demand and homebuilder sentiment.
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We believe that these cost reduction initiatives, combined with the increase in agent transaction fees that became effective in January of this year, have positioned our business for profitable growth and we remain on track to reach Adjusted EBITDA breakeven in the second quarter of 2023. In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China.
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According to the NAR, as home prices and interest rates have increased, seasonally adjusted existing home sale transactions for the year ended December 2023 (preliminary) decreased to 3.78 million compared from 4.02 million for the year ended December 2022. The NAR anticipates transactions to increase slightly in 2024 due to mortgage rates decreasing in the latter part of the year.
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This new coronavirus caused a global health emergency and was declared a pandemic by the World Health Organization in March 2020 (“COVID-19’’ or the “Pandemic”). We are continually monitoring the lingering effects COVID-19 could have on our business.
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According to the NAR, nationwide existing home sales average price for December 2023 (preliminary) was $382,600, up 4.3% from $366,900 December 2022. Rising Interest Rates, and Other Risks Our business is dependent on the economic conditions within the markets in which we operate. Changes in these conditions can have a positive or negative impact on our business.
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We believe that in the states and regions in which we operate the social and economic impacts, which include, but are not limited to, the following, could have a significant bearing on our future financial condition, liquidity, and results of operations: (i) restrictions on in-person activities associated with residential real estate transactions arising from shelter-in-place, or similar isolation orders; (ii) decline in consumer demand for in-person interactions and physical home tours; and (iii) deteriorating economic conditions, such as increased unemployment rates, recessionary conditions, lower yields on individual investment portfolios, and more stringent mortgage financing conditions.
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On October 31, 2023, a federal jury in Missouri found that the NAR and certain companies conspired to artificially inflate brokerage commissions, which violates federal antitrust law. The judgment was appealed on October 31, 2023, while the plaintiffs have now sued a number of other companies, although not us yet.
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Due to the uncertainty of the amount of contingent consideration that will be received, the estimated revenue is constrained to an amount that is probable to not have a significant negative adjustment.
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On or about March 15, 2024, NAR 37 Table of Contents agreed to settle these lawsuits, by agreeing to pay $418 million over approximately four years, and changing certain of its rules surrounding agent commissions. This settlement is subject to court approval. Due to this litigation, there may be rule changes for the NAR.
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The Company’s subscription arrangements do not provide customers with the right to take possession of the software supporting the platform.

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