Fathom Holdings Inc. Q2 FY2024 Earnings Call

Good afternoon, everyone, and welcome to the Fathom Holdings Second Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Please note, today's event is being recorded. At this time, I'd like to turn the floor over to Matt Glover with Gateway Group. Please go ahead, sir.

Thank you, Jamie, and welcome to the Fathom Holdings second quarter 2024 conference call. I'm Matt Glover with Gateway Group, Fathom's Investor Relations firm. Before I turn the call over to management, I want to remind listeners that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the Risk Factors section of the company's Form 10-K for the year ended December 31, 2023, and other company filings made with the SEC, copies of which are available on the SEC's website at www.sec.gov. As a result of those forward-looking statements, actual results could differ materially. Fathom undertakes no obligation to update any forward-looking statements after today's call except as required by law. Please also note that during the call, we will be discussing adjusted EBITDA, which is a non-GAAP financial measure as defined by SEC Regulation G. A reconciliation of this non-GAAP financial 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 now turn the call over to Fathom's President and CEO, Marco Fregenal.

Thank you, Matt, and thank you everyone for joining us for our Q2 earnings call. Before we review our Q2 results and our exciting new development, I want to express my heartfelt gratitude to the Fathom team. Your unwavering commitment and exceptional efforts have been remarkable, particularly in these challenging market conditions. Each of you has been instrumental in driving us toward our 2024 objectives and building a solid foundation for even greater success in 2025. Despite the hurdles the real estate market presented this year, our team's resilience and adaptability have been outstanding. We haven't just weathered the storm, but as you saw from last week's announcement, continue to innovate and push forward. Their tireless dedication to executing while maintaining our high standards for service has been one of the cornerstones of our progress. Today, we're not just sharing our quarterly results; we are also sharing the transformative evolution in Fathom's business model. We're embarking on a journey that we believe will redefine our industry position with the potential of creating unprecedented growth and success opportunities. Last week, Fathom Realty unveiled two new agent commission plans, Fathom Max and Fathom Share. These two new plans feature an innovative and reimagined revenue share program. This program is designed to boost agent recruitment and further improve retention while accelerating sustainable growth and long-term profitability for the company. Our industry has witnessed impressive growth for a small handful of companies who are offering a revenue share model. Each of these companies' models are very similar in nature. As we listened closely to what agents are looking for, we took what we believe is the most innovative approach to this revenue share concept as we aligned it with our industry-low commission plans. At Fathom, our mission has always been to provide agents with the greatest value. One way to do this is by empowering agents to earn and retain more of their hard-earned money. Our new revenue share plans are a natural extension of this commitment. Our new plans combine the best of both worlds. The Fathom Max plan offers a highly competitive $465 flat-fee with a $9,000 annual cap. This not only attracts agents with its affordability but also improves our gross profit margin potential compared to our legacy flat fee plan. For those seeking even greater earnings potential, our Fathom Share plans feature an industry-low traditional commission split of only 12% with a $12,000 annual cap and a revenue share opportunity that offers twice the revenue share potential over the Max plan and higher first-level percentages than any of our peers. In simpler terms, our agents have the potential to significantly increase their earnings on their own transactions while also building passive income through a highly competitive revenue share model. What sets our two new models apart from the rest of the industry are their flexibility and inclusivity. Starting last week, all of our agents can participate in our revenue share program, regardless of the plan they choose. This program offers tiered benefits based on the number of agents referred, allowing our agents to unlock additional revenue share as their network grows within Fathom. Our founder, Josh Harley, envisioned transforming the industry through radical innovation and fostering a culture of caring for our agents. We believe these new revenue share programs embody that vision. By offering our agents flexibility, choice, and higher income potential, we believe we can grow our business while also empowering our real estate professionals to thrive in their careers. This strategic move positions Fathom at the forefront of industry trends, setting the stage for sustainable growth and increased market share. We are not just adapting to the future of real estate; we're actively shaping it. As we do so, we create a win-win scenario where our agents' success directly contributes to Fathom's success and vice versa. We believe that this dual approach is the future of real estate. Our new agent commission plans directly address two of our key 2024 objectives: launching additional initiatives to further support our agents in growing their businesses, and restoring agent growth to at least 30%, while prioritizing high-quality professionals. As you may recall, in March, we introduced four strategic goals for 2024. Beyond the two agent-focused objectives, we're also committed to enhancing our balance sheet and achieving positive EBITDA and operational cash flow. These new agent plans are not just about growth; they're about smart, sustainable growth that aligns with our financial objectives to strengthen Fathom's position in the market. We successfully enhanced our balance sheet in May through the sale of Dagley Insurance. The sale added $7.8 million to our balance sheet at closing and will add another $7 million over the next 24 months. We ended Q2 with $10.4 million in cash, giving us confidence in our financial position. In parallel with our strategic initiatives, I'm pleased to report that we continue to make significant strides towards our profitability goal. This quarter, we generated $180,000 in adjusted EBITDA, a notable achievement driven by solid gross profit margins of 9.5%. More importantly, our real estate, mortgage, and title divisions all reached positive adjusted EBITDA this quarter. Total revenue for the quarter was $89.2 million, a decrease of 10.9% from $100.1 million in Q2 of 2023. Adjusted EBITDA for the second quarter of 2024 totaled $189,000 compared to $500,000 in the second quarter of 2023. Fathom completed approximately 10,137 transactions for the quarter, a decrease of approximately 7.9% compared to the second quarter of 2023. The Fathom real estate agent network grew 12% to approximately 12,224 agent licenses as of June 30, 2024, from approximately 10,930 on June 30, 2023. We believe these results, coupled with our new commission plans and revenue sharing program, position us well for sustainable growth and increased profitability. We are not just focused on top-line growth; we are building a more robust, efficient, and profitable operation that we believe can deliver long-term value to our shareholders, agents, and clients. As we move forward, we remain committed to prudent financial management while understanding the need and wisdom in continuing to invest in areas that will drive our future success. Our team's ability to execute on multiple fronts—growing our agent base, improving our profit margins, and managing our cash flow—speaks to the strength of our leadership team, our business model, and the dedication of our entire organization. Let me briefly comment on ancillary businesses and then Joanne will provide more financial detail. We have seen impressive growth in our mortgage business with revenues increasing by 82% or $1.7 million from $2 million in Q2 of last year to $3.7 million in Q2 of this year. This growth is a direct result of the strategic initiatives our team has implemented over the past quarter. Recognizing the growing demand from the Latino segment, we launched a dedicated division within Encompass Lending, working in close alignment with our Latino division at Fathom. The results of this collaboration have been exceptionally positive, reinforcing our commitment to serving diverse communities. We have also continued to expand our Hometown Heroes program, solidifying our commitment to support local veterans, first responders, and teachers. In particular, I'm pleased to share that Q2 marked a significant milestone for Encompass Lending, as it achieved positive EBITDA. This accomplishment not only validates our strategic direction but also contributes to our overall growth of improving profitability across all our business segments. These developments in our mortgage division exemplify our commitment to diversifying our revenue streams and enhancing our value proposition to both agents and clients. As we continue to innovate and expand our offerings, we're confident in our ability to capture a larger share of the mortgage market and drive synergies across our integrated real estate services platform. I'm also pleased to report that we continue to make improvements to our Verus Title business in Q2. Revenues reached $1.1 million, which is an increase of 10% from Q2 of 2023. Our second quarter results represent a 67% increase over the prior quarter, which is encouraging. More importantly, Verus Title generated $108,000 in adjusted EBITDA. This performance is a clear indication that our strategic growth initiatives are paying off and we are successfully optimizing our ancillary business for profitability. We have also seen impressive increases in file starts, and Joanne will detail those in a few minutes. Let me spend a few minutes discussing the overall market trends. The second quarter of 2024 has seen significant swings in mortgage interest rates. However, more recently, we have seen mortgage rates decrease to about 6.5%. We believe these improvements in rates could translate to some buyers coming back to the market. We have also seen a small shift in power from sellers to buyers. In recent months, over 20% of all listings have seen a price reduction, and in some states like Texas, Florida, and Colorado, days on market have increased by over 15%, while median home prices decreased by 3% to 5%. Ultimately, the combination of lower home prices and lower mortgage interest rates should have a positive effect on the number of homes sold due to reduced mortgage payments. We have also started seeing some early effects from the settlement of the commissions lawsuit and the rules that were imposed. At Fathom, we are committed to helping our agents, and we have already begun to implement training classes and seminars to ensure that all our agents adhere to the new rules. Now, before I turn the call to Joanne, let me make one final point regarding our new plan. Since announcing the new agent commission plans, the response has been exceptionally positive. We have heard from agents as well as non-Fathom agents, teams, and small brokers that have demonstrated interest in our new offering. We feel strongly that our new commission plans with revenue sharing will lead us back to our agent growth of 30% or even higher. We also believe it will take a few quarters for us to see the full benefits of our new plan as agents learn how to discuss the program and we work through the early conversations on more walkovers from our small brokerages and teams. With that, I would like to pass the call over to Joanne, our Senior Vice President of Finance, so she can discuss our financial results in more detail.

Thank you, Marco. I will start with a general overview of our results for the second quarter of 2024 and will then provide a more detailed review by segment. Total revenue for the second quarter of 2024 decreased 11% to $89.2 million compared to $100.1 million in the second quarter of 2023. The decrease in total revenue was due to a 12% decrease in brokerage revenue, resulting primarily from fewer transactions and an increase in lease transactions compared to sales transactions. Offsetting the decline in total revenue was an 11% increase in other service revenue, driven by improved performance from Fathom's mortgage and title businesses, offset by the absence of the company's insurance business, which was sold on May 3, 2024. Overall, gross profit for the second quarter of 2024 decreased approximately 8.6% to $8.5 million from $9.3 million for the second quarter of 2023. This decrease was primarily attributable to the impact of selling the company's insurance business. However, our overall gross profit percentage, excluding our insurance business, improved to 9% in the second quarter of 2024, up from 8% in the second quarter of 2023, primarily as a result of higher contributions from our mortgage and title businesses. Our brokerage business gross profit percentage remained relatively constant at 6% for the second quarter of 2024 compared to the second quarter of 2023. Excluding our insurance business, gross profit percentage in our ancillary businesses dipped slightly to 53% in the second quarter of 2024 from 57% in the second quarter of 2023, primarily related to ramp-up costs associated with the expansion of these businesses. Technology and development expenses remained relatively constant at approximately $1.9 million for the second quarter of 2024 and 2023. These costs will continue and likely increase over time as we mindfully increase our spend to enhance our technology platform to drive revenue growth. General and administrative expenses totaled $8.9 million for the second quarter of 2024 or 10% of revenue compared with $9.9 million or 9.9% of revenue for the second quarter of 2023. This $1 million decrease was primarily due to the absence of costs associated with our insurance business in addition to other cost reductions such as business insurance. Marketing activities expense was $0.75 million for the second quarter of 2024 compared to $0.9 million in the second quarter of 2023. The 18% decrease in marketing expenses was primarily related to leveraging internal resources and optimizing advertising expenditure. GAAP net loss for the second quarter of 2024 totaled $1.3 million or $0.07 per share, an improvement compared with a net loss of $4.3 million or $0.27 per share for the second quarter of '23. The significant reduction in net loss was primarily due to the gain generated from the sale of the company's insurance business and improved net operating results, partially offset by an increase in non-operating expenses. Adjusted EBITDA, a non-GAAP measure, for the second quarter of 2024 totaled a positive $0.2 million compared to $0.5 million in the second quarter of 2023. The second quarter of 2024 marked the company's first positive adjusted EBITDA quarter since the second quarter of 2023. Now, I'll spend some time reviewing our business segment results in more detail. Revenue for the real estate division was approximately $83.1 million in the second quarter of 2024 compared to $100.1 million for the same period last year, representing a 12% decline primarily attributable to an 8% decrease in transaction volume. As Marco noted, we completed 10,137 real estate transactions during the three months ended June 30, 2024, compared to 11,010 transactions during the three months ended June 30, 2023. Our transaction volume decreased primarily due to the continuation of high mortgage interest rates in the second quarter of '24. During the three months ended June 30, 2024, average revenue per transaction was $8,200, a 5% decrease compared to $8,593 during the three months ended June 30, 2023, primarily due to an increase in lease transactions compared to sale transactions and a slight decrease in commission percentage. Fathom is addressing these declines by continuing its strategic recruiting efforts, powered by its recently announced new revenue share models and its service commitment to its agents. Gross profit margin for our real estate division remained relatively constant at 6.1% in the second quarter of 2024 compared to the second quarter in 2023. Adjusted EBITDA income in the real estate division was approximately $1.5 million in the second quarter of 2024, a decrease of approximately $1.1 million compared to adjusted EBITDA income of $2.6 million in the second quarter of 2023. This was due to the decrease in transaction revenue in the second quarter of 2024 and to the commencement of internal charges of approximately $350,000 from our technology division to Fathom Realty for transaction management and CRM services provided. We are pleased about the significant improvement made in our mortgage business. Mortgage revenue grew 85% to $3.7 million in Q2 2024 compared to $2 million in Q2 2023. This revenue growth was primarily driven by our strategic increase in our loan officer base, which has almost doubled from the prior year. Q2 2024 file start loan volume was up 72% compared to Q2 2023. Mortgage adjusted EBITDA for Q2 2024 was a positive $0.02 million compared to an adjusted EBITDA loss of $0.2 million in Q2 2023. DIA, our insurance business, was sold in May 2024 for approximately $15 million in cash, with $7.8 million received at closing and $7 million recorded as other receivables due over the subsequent 24 months, significantly bolstering our balance sheet. Verus Title had revenues of $1.1 million for the second quarter of 2024 compared to $1 million for the second quarter of 2023, an increase of 10%. Verus Title's adjusted EBITDA for the second quarter of 2024 was $108,000 compared to a negative $25,000 for the second quarter of 2023. We are pleased by the membership growth in our new Texas joint venture, which began in April 2024. Overall, Verus Title's open orders are currently approximately 60% higher than they were at the end of last quarter. We are also happy to say that Salt Lake City, Utah-based LW Traveling Title is now part of Verus Title. Traveling Title is a strategic addition to our geographic presence in Utah, Colorado, and Virginia. Moving to our technology segment, third-party revenues remain consistent in the second quarter of 2024 compared to the same period in 2023. Adjusted EBITDA improved primarily attributable to approximately $350,000 in internal charges to Fathom Realty for transaction management and CRM services. We are continuously making enhancements to our technology platform to better serve our agents and drive revenues, with our new revenue share functionality being a prime example. Our LiveBy team has significantly increased its footprint across the country, working with over 300 MLSs and reaching 320,000 agents by the end of the second quarter. LiveBy powers more than 5.9 million community pages with over 145,000 neighborhood reports created. We continue to keenly focus on our balance sheet given the dynamic real estate market conditions. We ended the quarter with an unrestricted cash position of approximately $10.4 million, which, combined with the $7 million in cash to be received between now and early May 2025, significantly strengthens our balance sheet. Regarding our financial outlook, in light of the recent introduction of two new revenue share models and their yet-to-be-determined impact on future revenues and adjusted EBITDA, the company has elected to withhold guidance for the third quarter ending September 30, 2024. Management plans to reassess and potentially reinstate guidance expectations in the fourth quarter of 2024, allowing time to evaluate the performance of these new models.

Thank you, Joanne. We believe we're embarking on a journey that will redefine our industry position with the potential of creating unprecedented growth and success opportunities. Our focus has been and will continue to be on providing the greatest value to our agents and team members. I want to thank all our team members for their hard work and commitment over these past few months, especially those who have worked tirelessly implementing our two new agent plans. Our future is bright, and we're looking forward to the challenges ahead. With that, we'll take your questions now.

Our first question today comes from John Campbell from Stephens. Please go ahead with your question.

Hey, guys. Good afternoon.

Good afternoon, John. Hope all is well.

Hey, likewise, Marco. Okay, let's just start on maybe the first half of the year performance. So, it looks like revenue is down $18 million or so versus the first half of last year. Obviously, you got higher interest expenses as well. You've been able to hold that cash burn rate to a pretty similar rate as last year. But Marco, I know you aren't banking on a housing recovery and there's clearly a lot of moving parts to consider here. You've got mortgage businesses doing really, really well. But as best as you can see just kind of looking out, what degree of a housing recovery, again, just kind of holding all else equal, do you think you might need to see to get back to positive free cash flow?

Well, actually, as I mentioned to you earlier, I think a few months back, we are building our plan without having an impact of a recovery, right? We don't know when the recovery is going to be. I do see some improvement. When you start seeing an equilibrium coming back to buyers, right, from sellers, I think that's the beginning of perhaps an improvement in the housing market. One of the things we have to be cautious about is when buyers believe that interest rates are going to decrease, they may withhold buying a house because they're waiting for the interest rate to come down, right? And so, that's part of one of the things we have to be cautious about when interest rates are going to decrease or people feel they're going to decrease. But going back to your question, we believe that we'll get back to a positive cash flow and, say, significant adjusted EBITDA by really increasing the number of agents, right? I think that's our growth, and that's why we implemented these two new revenue share programs. And as you know, it's very unique because we're the only company, certainly a national public company, that actually has two different programs, right—a flat fee revenue share program and a traditional split revenue share program. So for us, when the market comes back, we'll definitely see some upside, but we are really focused on building our agent network to continue to grow the number of agents. We're also focused on recruiting the right kind of agents. I think as I mentioned earlier, I think in the second half of last year, we took our eye off the ball in terms of the focus on the kinds of agents. If you look at the decrease in transactions quarter-over-quarter, you see that we continue to improve and better that decrease. And so, we think that by Q3 and Q4, we will get back to positive numbers in terms of transaction growth, but that is really primarily being a result of additional agents joining our company as opposed to counting on an improvement in the industry, in the real estate market. I think that's going to come more next year, and I think for us it's really focused on the agent growth.

Okay, that's helpful. And then, on Fathom Share, I mean, obviously that's, as you mentioned, bringing in a little bit more of a traditional splits model. So, you guys have always been—the hallmark of the model has always been the flat fee model. So, I'm curious about maybe the conversations or I don't know if it was focus groups or surveys or whatever you guys did to arrive at that decision. Maybe take us through that process of how you assessed it and what you expect to accomplish?

Sure. That's a great question. Look, we are a 100% commission company, and we think the future of the industry is the 100% commission. Even as we implement these two new programs, we believe a significant majority of the agents joining are going to be in the Fathom Max plan, not the Fathom Share. We think the Fathom Share will probably be around 20% to 30% of our agents joining. What we found over the last six months or so, as we spoke with small brokerages, teams, and high-producing agents, is that a percentage of those individuals were very interested in some sort of revenue share program. We also were limited in terms of acquiring or walkovers with small brokerages that were on an 85/15 or an 80/20 split, and now we become a very attractive home for them. It was really a combination of just listening to some of our agents and listening to small brokerages and teams that were really interested in the revenue share program. So, we believe that we have a very— we're creating a very innovative program that actually is based on a 100% commission model but offers the ability for our agents to have a choice. I think the other thing that makes our program very unique is that agents are able to once a year change from one to the other model. So, an agent that joins Fathom in one program and thinks about leaving because another company offers a different program can now switch within the same company. That was one of the comments we heard from a lot of agents—having that flexibility. So, we implemented that as part of our program. We believe we have created something that's very unique and something that—look, since we announced this past Wednesday, we've had a significant response from non-Fathom agents, teams, and small brokerages, even some brokers with up to 3,000 agents that have demonstrated significant interest in having conversations with us about perhaps joining us down the line. We think that the response immediately after our announcement has been incredibly positive, and we believe this is going to manifest itself in getting Fathom back to 30% agent growth. So, I think those are the main reasons why we decided to create this hybrid model.

Okay. That's helpful. Thank you, guys.

Thank you.

Hi. Thank you for taking my questions. Again, I want to follow up on the last caller. The motivation behind switching the plans, and if you could lay out how—I see how there is an option now in the Max and the Share, between flat and revenue share, how does that make your gross profits higher? Is that simply from attracting more agents?

Hey, Raj, it's great to hear from you, great question. It's a combination of attracting more agents, higher-producing agents as well, which certainly will help the number of transactions per agent. It's also a combination that we believe we're estimating right now based on conversations that 20% to 30% of our new agents joining will come in the 12% program. So, when you combine a percentage of agents joining the 12% program with a higher number of agents joining the company, we'll be able to increase our gross profit margins. As you recall, Fathom is at that inflection point where a significant percentage of our gross profit dollars will also flow to the bottom line in EBITDA. By increasing the number of agents coming in, we'll also have a higher level of transactions per agent, which will have a significant effect on our gross profit margin, as well as our EBITDA going forward. Given the response we've had since we announced this past Wednesday, I believe within a few quarters, we'll be able to demonstrate that.

Thank you. And then, what are—the levels 1 through 5, what were the cutoffs in transactions?

Well, it's not so much—I mean, it's five levels in terms of the—in both programs, there are five levels, right? Which means that we go five levels in terms of agents recruiting. It's not so much about transaction volume, right? If I recruit you, and you recruit somebody else, and somebody else recruits the fourth level. We felt that five levels was the appropriate number for us. In our programs, if you look at the press release, you can see that the Fathom Share plan offers a significantly higher level of revenue share, right? The first level is 35%, and then 25%, compared to 10% on the Fathom Max plan. What we agreed upon after doing some research and speaking with teams and agents who are members of other companies with similar revenue shares, we felt like five levels was the appropriate number for us, and so that's what we decided to do.

Got it. And then, to the old referral—agent referral programs of CAP 4 LIFE, Free 4 Life, those are still valid or not valid?

It's a great question. Those will be valid until December of this year. Any agent that reaches CAP 4 LIFE or Free 4 Life will be grandfathered, meaning they will retain those benefits forever. On January 1, those two programs will go away and the revenue share program becomes the new program. We are giving agents another five months to reach CAP 4 LIFE or Free 4 Life, which we felt was the appropriate thing to do. So, all our agents still have the opportunity to reach CAP 4 LIFE or Free 4 Life until December 31. After that, whatever position they are in—if they already reached either one, they're grandfathered for life; if they're not, then every agent can continue to earn revenue share. As of last week, agents that are already earning revenue share can do so for any new agent that joins the company, regardless of which plan they're in. We feel that we're creating a significant enhancement in how we work with our agents to refer other agents. I believe some of our agents will take advantage of this and build substantial revenue streams for themselves and their families.

Got it. And then my last question, Marco, is—you just indicated that you're looking for agent growth of 30% in the next several quarters. What gives you the confidence that you can achieve that? Is it acquisitions? Is it walkovers? Or is something changing in the market? Or do you need the market to change?

Yeah, great question. Sure. Look, our goal has always been, as we mentioned in the last few quarters, to go back to Fathom, which had 30% growth for many years. Our goal has been to get back to that 30% agent growth. What gives us confidence that we can achieve that hopefully within two or three quarters is the number of discussions we've had and our pipeline of agent growth. Since we announced this on Wednesday, we've had discussions with numerous organizations and teams, agents in other companies under revenue share programs, small brokerages, medium-sized brokerages, regular agents. We feel given this conversation and the existing pipeline that within two to three quarters, we should be able to get back to 30% growth and perhaps more. That's what gives us confidence to make that announcement.

All right, great. Thank you. I'll take my—thank you for answering my questions. I'll take it offline. Thank you.

Thank you, Raj.

And our next question comes from Tom White from D.A. Davidson. Please go ahead with your question.

Hey, this is Wyatt on for Tom. Thanks for taking our questions. I had one on industry changes related to the NAR settlement. Can you just talk about what Fathom is telling their agents in terms of how to navigate this as August 17th approaches? And do your best practices around things like buyer rep agreements differ in any meaningful ways than peers?

Yeah. Look, I think there are still a lot of moving parts to all of this, right? I go back to when the government changed from HUD to CD and implemented a totally new form for closing transactions, which took approximately three to six months to work through all the details. I think the same thing is going to happen here. There's a lot of confusion, and I believe MLSs are going to enforce this in various ways. Not only do we need to build our own set of rules, but we also have to look at every MLS and every board to see how they will enforce things locally. We are already seeing that different MLSs across the country and different boards are looking at things differently. Certainly, we're not going to be able to put the buyer-side commission on the website and the MLS—that's a given, and Fathom is going to enforce that. We're already working with our agents to do that. We are in discussions about creating our own documents regarding buyers' agreements and are in the process of doing that, working with every state broker and every MLS as well as every board because everyone will be somewhat different. I think it's a little early to speak specifically about the totality of all the things we're going to do. We're already progressing with this. Samantha Giuggio, our COO at Fathom Realty, is working with our legal team and our state brokers to implement these changes, and it's going to take a little while to work itself out. We are adhering to the rules and are interpreting them accordingly. It will take some time before everyone fully understands the impact it's going to have in the industry. I caution everyone against jumping to conclusions about how everything will change—there are still a lot of moving parts.

That makes sense. Thank you. And then, do you have any update around a possible settlement regarding the industry lawsuit?

Sure. As everyone can imagine, we are still in negotiations. For that reason, I can't really disclose where we are in those discussions. But we look forward to announcing a settlement as quickly as possible. We believe we can reach a settlement amount that we can survive and price, especially given some of the recent settlements and the size those companies are. When you look at our company and our size, you can estimate what that number is. So, we look forward to announcing this soon, but given that we are still in discussions, I would rather leave my comment at that.

Understood. That makes complete sense. And then, I just have one final follow-up regarding the new revenue share models. I think I missed this, but could you give some more color into the expected margin impact over the next several quarters for both gross margins and EBITDA margins?

Sure. I think it's going to take a little bit of time. We're going to start onboarding agents in the new models already; I think it's going to take a little while for this to work itself out. In Q3 and perhaps Q4, I don't think we're going to see significant changes because, again, when we onboard an agent, it may take a few weeks if not a month for that agent to close their first transaction. There is always a delay from onboarding an agent to that agent closing their first transaction and then to have a positive effect in terms of gross profit margin and EBITDA. We do believe that over time, over the next year or so, we'll see an increase in gross profit margins, not only because of the new models but also due to our continued improvement in the mortgage and title businesses. We do expect that within a couple of years, we'll see margins in the mid-teens. However, I will go back specifically to your question about the next two quarters; I would not anticipate a significant change in gross profit margins or EBITDA since it may be too early for the new plans to have that kind of impact. The impact is expected to be more experience starting in Q1 of next year. That's when we believe we'll see a higher impact in gross profit margins and EBITDA from the new plan.

Okay, that makes sense. Thanks, Marco.

Thank you.

And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the call back over to Mr. Fregenal for closing remarks. Mr. Fregenal, you may make closing remarks at this time.

Thank you. I want to thank everyone for joining our call. We appreciate everyone's support. As always, I am available to meet with you on a one-on-one basis. I hope all of you have a great week. So, thank you for joining us today.

Ladies and gentlemen, with that, we'll be concluding today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.