Good evening, and welcome to the Fathom Realty Holdings Inc. Third Quarter 2023 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Alex Kovtun with Gateway Group. Please go ahead.

Great. Thank you, operator, and welcome, everyone, to the Fathom Holdings 2023 third quarter conference call. I'm Alex Kovtun with Gateway Group, Fathom's Investor Relations firm. Before I hand it over to the Fathom management team, I want to remind listeners that today's call may include forward-looking statements. These statements are subject to many conditions, many of which are beyond the company's control, including those outlined in the Risk Factors section of the company's Form 10-K for the year ended December 31, 2022, as well as our latest Form 10-Q and other filings with the SEC, which are available on the SEC's website. Consequently, actual results could differ materially from those anticipated. Fathom has no obligation to update any forward-looking statements after today's call, except as required by law. Please also note that during this call, we will discuss adjusted EBITDA, a non-GAAP financial measure as defined by SEC Regulation G. A reconciliation of this measure to the most directly comparable GAAP measure is included in today's press release, which is now posted on Fathom's website. With that, I'll turn the call over to Fathom's Founder, Chairman and CEO, Josh Harley. Josh?

Thanks, Alex. Good afternoon, everyone, and welcome to our third quarter 2023 earnings call. We're happy to share the recent progress we've made in advancing our growth strategy despite the variability in interest rates and the overall residential real estate market. I want to start by expressing my gratitude to our Fathom family across all our businesses for their hard work and commitment as we continue to navigate the real estate landscape. This year has been one of the toughest in Fathom's history. However, through the efforts of our team, we've shown that we can adapt and succeed even during challenging economic times. Before I hand the call over to our President and CFO, Marco Fregenal, for a detailed review of our financial results, I'd like to highlight a few key points from the quarter and the steps we've taken to adjust to the current environment. In the third quarter, we faced continued pressure on transactions throughout the industry. In September, the residential real estate market shifted quickly as mortgage rates surpassed 8%, leading to an increase in cancellations that affected our transactions during the quarter. Despite this volatility and the highest mortgage rates in two decades, we were pleased with our agent growth performance in such a tough environment. During the third quarter, Fathom generated revenue of $93.5 million, which aligned with our guidance range. We executed approximately 10,303 real estate transactions, and while this reflects a 15% decline from the prior year's third quarter total of 12,077, we feel optimistic about this figure compared to the overall U.S. residential real estate market. We continue to gain market share from traditional brokerage firms and even observed year-over-year transaction growth in several markets. Additionally, we expanded our agent network by 13%, reaching over 11,333 agents by the end of the quarter, which is favorable compared to all but one of our public peers in domestic agent growth. While the residential real estate industry remains tough, we are confident in a bright future. By continuing to enhance our agent base, we position Fathom for continued success when the industry rebounds. We are making significant strides in executing our growth strategy, expanding our agent network, optimizing for profitable growth, and capturing market share with a commission model that stands out in today's environment, and we expect this trend to continue. Elevated interest rates are still impacting home affordability, so the recent drop in mortgage rates following the Federal Reserve's November rate pause is promising. We cannot predict with certainty if we've reached the bottom of this cycle or if rates will normalize soon, but we know that the industry will eventually recover, and Fathom is well-positioned to continue growing market share, regardless of when that happens. I want to update you on our Realty business and why we believe we are well-placed to grow our agent network and expand our reach amid this difficult market. Fathom Realty continues to rank among the fastest-growing residential real estate brokerages in the U.S, and we are proud of our growth as we expand our nationwide presence. Currently, Fathom Realty operates in 37 states and Washington D.C. We believe our model enables us to thrive regardless of market conditions, and we are well-situated to attract more real estate agents from traditional firms during industry downturns when agents struggle with lead generation and sales. We are confident that we offer the most appealing long-term home for agents, allowing them to earn more through our industry-leading flat fee commission structure. During the third quarter, we grew our agent network by 13%, including efforts to refer existing agents. We've also announced three new offices in Q4 located in Louisiana, Massachusetts, and California. We are committed to expanding across all 50 states and deeper within each state, and we are taking the necessary steps to fulfill that commitment. Our agent growth this quarter reinforces our success through innovation and a truly disruptive business model that resonates with agents. New agents will benefit from full access to Fathom's proprietary cloud-based software, intelliAgent, and will also have additional Fathom services to offer their clients, including mortgage and insurance options, as we aim to help our agents build their businesses. We have a solid pipeline of walkover opportunities and believe we will continue to attract high-quality agent teams and brokerages to our unique low-cost, disruptive model. While many of our peers are facing stagnant or declining agent numbers domestically, our agent value proposition remains strong, allowing us to gain market share now and position Fathom for higher overall growth once the market recovers. Our cost to acquire one agent during Q3 remained low at about $1,000, which allows us to breakeven on each agent at less than the $1,150 we will recoup from their first sale. We also maintained robust retention rates, which is very encouraging considering the backdrop of agents leaving the industry. As many of you may have seen, the National Association of REALTORS and several of the largest brokerages were found liable in a recent legal matter regarding agent commissions. I expect this will go to the appeals court and possibly further if needed. It may take years to see any changes in the real estate industry due to these lawsuits, but we could be one of the few brokerages that benefits from any adjustments that lower agent commissions. Unlike our peers, who are accused of conspiring to keep commissions high, we do not pressure our agents to maintain higher commission percentages. Our flat fee commission model remains unchanged, irrespective of whether an agent charges 3%, 2%, or even 1%. Lastly, I want to briefly discuss our path to profitability and the actions we are taking to optimize our business in the current environment. In Q2, we achieved our goal of adjusted EBITDA breakeven and have made significant progress in reducing our cash burn. In Q3, we did not maintain adjusted EBITDA due to slower home sales in September as a result of additional Federal rate increases. However, we have identified more opportunities to rightsize our cost structure for the current environment and better position Fathom for improved operating leverage when the residential real estate market recovers. Given the current market conditions, we are working with our business leaders to reduce overall company expenses by $1.2 million per quarter moving forward, and we expect to see the full benefits of these changes in Q1 of next year. By further managing the company's expenses, we aim to achieve cash flow breakeven as early as Q2 of next year while remaining focused on returning to positive adjusted EBITDA in Q1 and beyond. It's crucial to note that while we are finding cost-cutting measures, we will not compromise our ability to keep growing and attracting agents. In fact, we have expanded our recruiting team and intend to continue growing that team in 2024. In summary, we feel positive about the trends we're observing across our business, despite a challenging quarter for Fathom and the real estate industry overall. With that, I'll hand it over to Marco for a financial update.

Thank you, Josh. I will begin with a detailed overview of our third quarter 2023 results and then conclude with guidance discussion. Third quarter revenue decreased by 16% year-over-year to $93.5 million, down from $111.3 million in the same quarter last year. This decline was mainly due to a 15% drop in transaction volume, alongside a 3% reduction in average home prices during the quarter. Our GAAP net loss for this quarter was $5.5 million, or $0.34 per share, compared to a loss of $6 million, or $0.38 per share, in the third quarter of 2022. The adjusted EBITDA loss, a non-GAAP measure, was $253,000 this quarter compared to a loss of $2.3 million in the third quarter of 2022. This $2 million improvement in adjusted EBITDA was significantly influenced by expense reductions and additional agent fees that began in January. This enhancement occurred even with the 16% revenue decrease compared to Q3 of 2022. Although we recorded an adjusted EBITDA loss this quarter, our target is to achieve adjusted EBITDA breakeven by Q1 of 2024. We anticipate that after Q1, we will contribute about 70% of the increase in gross profit to the adjusted EBITDA line. General and administrative expenses were $9.8 million in the third quarter, representing 10.5% of revenue, compared to $11.5 million or 10.4% of revenue in the same period last year. It's important to note that G&A did not noticeably increase as a percentage of revenue despite a 16% revenue decline. Overall, our operational costs, including support, technology development, and G&A expenses fell by nearly $2 million, from $15.4 million in Q3 of 2022 to $13.4 million in Q3 of 2023. This reduction reflects the benefits of our earlier implemented expense reduction strategies, and we expect to see continued decreases into Q1 of 2024. As Josh mentioned, we aim to trim company-wide expenses by $1.2 million quarterly moving forward to better align with the current market conditions. Marketing expenses amounted to $796,000 in the third quarter, down from $1.5 million in the same quarter last year. This reduction stemmed from leveraging internal resources and optimizing advertising costs. Now, I will go over our business segment results in detail. We completed 10,303 real estate transactions this quarter, marking a 15% decline from last year but faring better than the 20% market reduction. At the end of Q3, we had 11,333 agents, reflecting a growth rate of 13% compared to Q3 of 2022, while the National Association of REALTORS saw a membership decline of about 1.6%. We have observed a 25% increase in onboarding starts in Q3 compared to Q2, which should lead to more agents joining Fathom in the future. Revenue for the Real Estate division was $88.2 million, down from $105 million during the same period last year, representing a 16% decline, of which approximately 3% was due to reduced home prices and 13% from decreased transactions. The adjusted EBITDA for the Real Estate division was around $1.6 million, up by $1 million from an adjusted EBITDA of $566,000 in Q3 of 2022. This increase was accomplished despite a 15% drop in transactions this quarter compared to last year and highlights our increased fees and effective cost-cutting measures. Our mortgage sector generated revenues of $1.9 million in Q3 compared to $2.8 million the previous year. The mortgage adjusted EBITDA for Q3 showed a loss of $293,000, improving from a loss of $406,000 in the same period last year. Our team is actively finding ways to streamline expenses and improve revenues by adding more loan officers. We anticipate growth in our mortgage business with the addition of the Elite Financial Group and its 21 mortgage professionals. Additionally, we've observed some favorable changes in interest rates, offering borrowers attractive options. This, combined with our team expansions, has resulted in a 64% increase in mortgage applications in Q3 of 2023 compared to Q3 of last year. Our DIA in the insurance business generated revenues of $1.7 million this quarter compared to $1.8 million a year ago, a decrease of about $100,000. However, adjusted EBITDA rose 50% from $370,000 in Q3 of 2022 to over $558,000 in Q3 of 2023, reflecting the effective adjustments made by our DIA team to manage expenses while boosting revenue. Verus Title recorded revenues of $883,000 this quarter compared to $958,000 in Q3 of 2022. Adjusted EBITDA was a loss of $22,000, improving from a loss of $24,000 in the same quarter last year. Turning to our Technology segment, revenues increased by 19% to $836,000 compared to $702,000 in the last year's third quarter. The adjusted EBITDA loss for the quarter increased by 38% from a loss of $372,000 in the third quarter last year to a loss of $514,000 this quarter. This increase is due to higher investments in agent technologies. Our LiveBy team continues to expand its reach, covering over 245 MLSs and 420,000 agents by the end of the quarter. LiveBy manages more than 4 million community pages, generating over 125,000 neighborhood reports. We remain focused on maintaining a strong balance sheet amidst the dynamic real estate market conditions. Our cash burn for the quarter was $2.5 million, primarily due to a $1.3 million decrease in accounts payable, an additional $500,000 investment in our SaaS platforms for our agents, along with other increases in prepaid and financing payments. We concluded the quarter with a cash position of $6.6 million. Given our planned cost reductions of $1.2 million per quarter coupled with expected revenue growth from more agents, we believe our cash position and overall liquidity provide a sufficient runway for business growth and enable us to reach operating cash flow breakeven by Q2 of 2024. We did not repurchase any shares in the third quarter under the stock repurchase program, and there is approximately $4 million remaining under the authorization. Before I hand the call back to Josh, I want to briefly discuss guidance. Due to ongoing uncertainty in the macro environment, we will not be providing guidance for the fourth quarter ending December 31, 2023. We will revisit guidance expectations next year. With that, I will return the call to Josh for his closing remarks.

Thank you, Marco. We remain focused on execution and are taking necessary steps to better position Fathom in the current environment and once the market recovers. I want to thank the entire Fathom team for their hard work as we navigate this market and continue to serve our clients. With that, operator, let's open the call up for questions.

We’ll now begin the question-and-answer session. The first question is from Tom White of D.A. Davidson. Please go ahead.

This is Wyatt on for Tom. Thanks for taking our question. My first one is for Josh. Curious whether you guys think this latest round of lawsuits targeting the NAR and more recently, a broader set of brokerages might result in any meaningful shakeup in where agents decide to hang their license or which platforms they migrate to?

That's an excellent question. I've been closely following the lawsuits even before they started appearing in the news. First, I want to emphasize that we still have a long way to go before any changes occur. As I mentioned earlier, we will likely go through appeals, and if we lose, we will take it to the next level. When considering the claims made, there was considerable bias in the lawsuit. The plaintiffs shared information that they shouldn't have been permitted to, while the defense was restricted from presenting certain facts, which struck me as odd. For instance, one claim suggested that sharing commissions was unfair, yet in Missouri, where the lawsuits were filed, it's perfectly legal. The judge, however, didn't allow the defense to inform the jury of this fact, which I found to be very unusual. There were numerous aspects of the trial that, if we could do it over again, might yield a different outcome. Even if they don't, I believe we'll see some changes. First, in the listing agreements between agents and sellers, it's already stated that commissions are negotiable, and there's a blank for the amount paid to the buyer's agent. We just need to clarify to sellers that commissions are negotiable and that they don't have to pay buyer's agents. Implementing these changes could address many concerns raised in the lawsuit. Second, regarding commission sharing, if the industry strays away from it, I believe it could harm consumers, which I try to remain impartial about. We need to carefully consider how we amend laws and rules to ensure consumer protection. Ultimately, if sellers realize they don’t have to pay a commission to buyer's agents, they may reduce their offers. Traditionally, buyers’ agents have an agreement with buyers stating that if the seller doesn’t pay their agreed commission, the buyer is responsible for it, which has always been negotiable. People have become accustomed to this system, which discourages negotiation. This mindset might change, and if buyers become aware that they need to pay their agents because sellers won’t, there could be some steering from consumers. They might compare properties, opting for those that cover their agent's commission. Regardless, if there ends up being pressure on buyer's agents' commissions because they now need to be paid directly by buyers who may have tighter budgets due to closing costs, we could see a reduction in those commissions. Our fundamental theory since my time at Fathom has been that if agents experience reduced commissions, moving to Fathom can help them recover that lost income. It’s about working smarter rather than harder. Therefore, I believe that long-term, Fathom could benefit from these changes, although I don’t support these changes since they could negatively affect our clients. Nonetheless, if they do occur, Fathom may find itself in a favorable position.

Got it. Thank you for the detail. I really appreciate it. And just one follow-up. There's been some chatter about how some of these smaller independent brokerages out there faced with the prospect of another year of low total sales turnover may finally decide to move their businesses over to some of the virtual or lower-cost offerings like Fathom and others. How do you guys make sure that Fathom maximizes its capture of these smaller independents or teams if, in fact, this does happen?

That's a great question. We recently issued three press releases, and we are seeing an increasing number of what we call walkovers. Walkovers are similar to acquisitions; however, instead of purchasing a business, the broker owner is shutting down their operations and transferring their agents to us. Sometimes they take on a managing role under Fathom, while others just lead a team, and the remaining agents join Fathom. More small broker owners are approaching us, and we are also actively reaching out to many of them, leading to more opportunities. The decision regarding these opportunities often revolves around opportunity costs. Some of these scenarios don't require any payment from us, while others involve larger operations where we do incur costs, but we avoid the expenses tied to a full acquisition. The due diligence required is significantly less, resulting in lower costs overall. We're indeed witnessing more interest from prospective partners, and to ensure that we are among the main beneficiaries, we have been enhancing our recruiting efforts. A dedicated part of our team focuses on small broker owners, whether they have 20, 70, 100, or 150 agents. Their role is to reach out and offer support, sharing that we've been in their position and understand their challenges. We emphasize that they don’t have to face this alone and invite them to join Fathom for mutual success. Many of these individuals are struggling to survive, and making the switch to Fathom enables them to keep their teams intact and potentially earn income as brokers or managing brokers with us. This transition can truly be beneficial for them.

That’s really helpful. Thank you.

Hi, guys. Good afternoon.

Good afternoon. How are you?

I’m well. Thank you. I’m doing well. Thank you. Look forward to seeing you guys next week. On the brokerage additions, let's stay on that topic real fast. Obviously, your press machine has been on fire lately. You've had a flurry of those additions. Josh, you referred to those as walkovers. I'm assuming at least the ones of late, those are all organic additions, so no cash or equity payouts.

I'm going to let Marco speak to that part of it.

Yes, that depends on the size. In some instances, there may be a small cash component along with some stock. However, we are not pursuing acquisitions. We do offer signing bonuses for some of the larger cases to facilitate the transition, but the cost is significantly lower than a full acquisition. This arrangement is beneficial for both parties involved. As I mentioned earlier, we've observed a 25% increase in onboarding starts this quarter, which includes both individual agents and smaller companies. Both Josh and I are confident that this trend will continue to grow, as evidenced by the rising interest in discussions, and this is happening nationwide.

Okay. Makes sense. You guys, I'm sure, given the conditions, probably a little bit more of a price maker at this point. But I want to touch also on the agent count additions. I think in the press release, you might have outlined a couple of those. But maybe if you could shortcut us how much of those agent additions hit in the third quarter versus those agents coming over into 4Q?

The announcements we made on those press releases were all Q4.

All Q4. Okay. So that's coming. Okay. Great. And then, Josh, you hit on this a couple of different ways, but as far as the trigger point, what exactly would you point to? Is that mostly macro driven, just prolonged pressures where people are seeking ways to help grow their business and maybe find ways to reduce costs, get better technology or is it maybe a little bit also of kind of growing fears around the legal landscape and potential large-scale industry changes?

Are you referring specifically to the walkovers like the trigger point of why they would move over?

Right.

It really comes down to the situation of many broker owners. A lot of these owners need to also be producing agents themselves. They might close 20 or 30 homes a year on their own, while their 20 or 30 agents each close 5, 10, or 15 homes a year. Unfortunately, the agents on their teams don't generate enough business for them to cover their expenses. This means they have to keep producing. If both their business and their agents' business decline by 20%, many of them find themselves in a situation where they were previously earning decent money but are now losing money due to office space costs, technology for their agents, and other expenses. They realize that with 20 or 30 agents, they are actually losing money because they need to provide leads, technology, training, and office space. If they can eliminate those expenses and transition to Fathom, we can offer them compensation to be the managing broker for their agents. This is particularly true in markets where we don't have a presence, like Stockton. We have a nearby presence, but not in Stockton, so that group there has created a solid operation. Ultimately, it boils down to finances. Many can't sustain their business alone, and their options often come down to shutting down or merging. Joining forces is usually the preferable choice rather than giving up something they have worked hard to build.

Yes, makes sense. I feel like you've preached this message for the last couple of years. And unfortunately, it takes a fallout in the macro to see some of this come out. But I think a lot of it's playing out as you've kind of called out. On the gross margin, maybe this is for Marco, but you've got a lot of moving parts there, below the surface, you've got the fee increases and whatnot. I was hoping you could help us kind of piece out why it's sequentially declined as much as it did? And then I know again, a lot can change as you look out the next year, but maybe if you could give some kind of indication just broadly of what you're expecting out of gross margins for next year?

Gross margin is somewhat more complicated for us than for other companies due to various ancillary businesses. As you may remember, when agents hit a certain volume, their commissions cap, causing transaction fees to drop from $550 to $150. Therefore, during Q3 and Q4, we typically experience a slight decrease in gross profit. However, we have noted that as new agents join throughout the year, this tends to balance out. We expect the market to stabilize, potentially returning to around 5 million transactions annually, which would help Fathom continue its growth. Our goal is to reach gross profit margins of 13% to 14%. Currently, our margins hover around 10.5% to 11%, but we aim for that 13% to 14% range. Achieving that would be beneficial, especially as our mortgage and title companies reach adjusted EBITDA positivity, enabling us to retain $0.70 of every dollar at the bottom line. We believe that over the next couple of years, we could see margins between 14% and 15%. While there's potential for growth beyond that, those figures are what we're targeting in our budgeting and forecasting.

Okay. Very helpful. Thank you.

The next question is from Darren Aftahi of ROTH MKM. Please go ahead.

Hi. This is Dillon on for Darren. Thanks for taking our questions. I wanted to sort of start with the commentary about guidance and not giving guidance. So just sort of walk us through how you get to your other outlook of cash from operations being positive as early as 2Q of next year and a return to adjusted EBITDA in 1Q when sort of seasonally Q1 transactions are typically lower than they are in 4Q? Just sort of where the puts and takes, I know you talked about the $1.2 million in cost savings.

Yes, let's discuss Q1. Our adjusted EBITDA for Q1 of 2023 is around negative $1.4 million. We are cutting costs by $1.2 million each quarter. Considering the negative $1.4 million, along with these cost savings, and the fact that Q1 saw a decline in transactions, we expect to see increased revenue in 2024 as we have added more agents throughout 2023. This combination gives us confidence that we will achieve positive adjusted EBITDA for Q1 of 2023. Moving on to Q2, our adjusted EBITDA was $462,000, and factoring in the $1.2 million cost reduction, we believe we can reach operational cash flow breakeven. It's important to note that while we feel positive about our projections, the market remains uncertain. Recently, there has been some improvement in interest rates, and futures in the bond market suggest potential cuts in April and May of next year. As our mortgage business sees improved par rates, we are optimistic about our growth. Overall, when we consider the improvements in our business, the measures we've taken in Q1, and the cost cuts, we are confident in our ability to reach adjusted EBITDA breakeven in Q1 and operational cash flow breakeven in Q2.

Thank you. And as a second question, obviously, the transaction number is down sequentially, but could you provide any color on sort of attach rates or take rates, however you want to define them on some of your ancillary services? Are you at least being able to see more interest from consumers being talked into using some of your services from agents where those are live?

There’s no doubt that towards the end of September, we experienced a rise in interest rates that exceeded 8%, causing many buyers to back out of transactions. However, they are starting to resume their activity in October. The mortgage sector is currently facing challenges with attachment rates, as buyers are meticulously comparing every option. A slight increase in interest rates can significantly impact whether someone can finalize a home purchase. Nonetheless, we are still observing a solid attach rate for Verus and definitely for DIA. In fact, DIA's mortgage business has managed to boost its profit adjusted EBITDA by 50% while maintaining its revenue levels, showcasing strong operational performance. Additionally, as we receive more business from Fathom, we don’t have to allocate extra funds for lead generation, which greatly benefits our attach rates in the insurance sector. Overall, we are seeing promising attach rates in insurance and decent ones for Verus, but the mortgage sector is currently very challenging due to buyers scrutinizing every detail. I believe that if interest rates were to drop into the sixes, it would positively influence our attach rates.

Got it. Thank you. That’s it from me. I’ll pass it on.

The next question is from Raj Sharma of B. Riley. Please go ahead.

Hi. Thank you for taking my questions. How are you guys doing?

Good, Raj. How are you?

We're doing great. Hope you're doing well as well.

Yes. I am. I had a couple of questions, which have already been answered. And then on the referral rates, can you talk about your referral programs and how well they're doing and how you're kind of measuring them? And what percentage of the 17% agent growth can be attributed to referrals? And also, can you comment on churn?

Yes. Let me touch on the program itself. I'm not sure how much detail we can share about the specific numbers related to referrals. The program is designed to encourage our agents to refer more agents to the company. For the first three agents they refer, they receive $250 in stock grants. Once they refer a fourth agent, if all four agents close at least two transactions each, they become CAP4Life, reducing their transaction fees from $550 to $150. They still pay their annual fee and any other applicable fees, but upon reaching eight referrals, with each closing at least two transactions, they move to FREE4Life, with no fees at all. The goal is to encourage more agents to participate. Many agents currently refer at least one agent per year, and we're eager to see how many will achieve CAP4Life or FREE4Life compared to those who will just try. For every person who achieves CAP4Life, we hope there will be many others who, even if they don’t reach it, will at least refer someone. Some may get excited about the program, refer one or two, and then stop, while others may push through to reach CAP4Life. We have several agents who have reached CAP4Life and a few who have attained FREE4Life, but the numbers remain low. However, the number of referrals has increased significantly. I don’t have the exact figures at the moment, but I know Marco has that information. I’ll turn it over to Marco for further details.

Before we implemented the program, our referral rate was between 30% and 33%. After the program was put in place, we've seen it exceed 40%. This indicates a substantial increase in recruiting as a result of implementing the program late last year.

I think what I observed was an increase of about 25% to 35% higher than what we were previously seeing. So it's been effective. I would like to see even greater effectiveness, but I believe we are very satisfied with the effective chat so far. It has definitely been worth the effort.

Great. And then the churn number, is that sequentially lower, higher, same?

Yes. I just realized we didn't actually hit that in this script, did we?

Yes. No. Churn for the quarter was 1.9%, so a little higher, but the significant increase came from agents that did one and one transactions, we saw an increase of 73% of agents that from Q3 of this year compared to Q2 of this year, the agents that closed zero to one transactions prior when leaving. So the increase in churn from typically 1.3%, 1.4% to about 1.9%, 74% of that really came in that increase in the one to one transactions. And if we go to zero to three transactions, it's probably close to 85% increase. So the message is, yes, we lost a few more agents, but the agents that we lost were typically lower producing agents.

It's aligned with what was happening in the industry. The industry saw a 1.6% decrease in agent population from the end of September last year to the end of September this year. We are not immune to that, so we experienced a similar 1.6% decrease while also growing by 13%. That number could have been even higher without that pressure.

Thank you. I understand you're not providing guidance, especially given the current volatile conditions, which makes it challenging to predict. However, could you provide any insight into what ongoing agent growth we might anticipate in this environment? Is it reasonable to expect mid-teens growth for the next few quarters?

I think it's safe to say that we can continue to maintain our growth rate. Looking at last quarter, we had 14%, and this quarter, it's 13%. Our goal is to push beyond that. I've been working closely with the team to try and improve those numbers through these walkovers. We are confident that we can at least maintain what we have been sharing, but ultimately, our goal is to increase that significantly. We are not satisfied with 13% growth. While many others might be pleased with it, we are not.

We strive to be as transparent as possible, which is why we reported a 25% increase in our onboarding starts. This increase provides some insight, although it does not indicate that these individuals have completed the joining process; it simply means they have begun the onboarding journey. While we are not offering formal guidance, we aim to share as much information as we can to assist you in modeling the business. This is the reason we disclosed the 25% increase in onboarding starts.

And this is for the month of October or...

That's Q3 compared to Q2.

Got it. Sequentially, that's the agent growth. Regarding transactions, is the number of transactions purely a function of the market, or do you address that in the walkovers you accept when acquiring agencies? As your referral rates increase, can we assume that agents are also becoming more productive, leading to more transactions where you have a larger share? Any insight on this would be appreciated.

Typically, the fourth quarter is a slower period due to the seasonality of the industry, which usually sees about a 20% decrease from the third to the fourth quarter. However, this year has been somewhat unique as seasonality hasn't played as significant a role due to interest rates. You can consider the usual seasonal trends as somewhat discounted this year. We are also adding more agents, and if you look at the net increase of agents quarter-over-quarter throughout the year, that number has been consistently rising. As a result, we expect more transactions from these new agents. There will be a decline in transactions from the third to the fourth quarter, but we hope to maintain parity or even achieve similar numbers to last year. It's important to highlight that the market is very fluid, and numerous external factors could impact it. Therefore, providing guidance is challenging; while we understand our business well, there are many influencing factors beyond just interest rates that make it prudent not to issue guidance.

Right. Right. Fair enough. Thank you again for answering my questions. I will take this offline. Thank you.

There are no further questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Josh Harley for closing remarks.

Thank you for joining our call today and for your interest in Fathom. For those of you who are Fathom shareholders, thank you for your trust. We'll continue to work hard and look forward to sharing future updates with you. So with that, have a wonderful week.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.