# Fathom Holdings Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Fathom Holdings Inc.](/companies/fthm.md) (CIK 1753162)
- Form: 10-Q
- Filed: 2024-11-12
- Accepted by EDGAR: Nov 12, 2024, 12:01 ET
- Period: 2024-09-30
- Accession: 0001628280-24-046829
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1753162/000162828024046829/fthm-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1753162/000162828024046829/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $83.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $243.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$7.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$14.4m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $17.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $28.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$8.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$15.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.40 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.78 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.40 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.78 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 20,429,791 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 19,792,773 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$4.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $46.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $13.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $35.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $80.9m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $22.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $33.8m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $5.1m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $3.7m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | $47.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 41,029 characters.

*The information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s consolidated financial statements and the related notes set forth in Item 1 of Part I of this Quarterly Report on Form 10-Q, our MD&A set forth in the Form 10-K, and our audited consolidated financial statements and related notes set forth in the Form 10-K. See Part II, Item 1A, “Risk Factors,” below, and “Special Note Regarding Forward-Looking Information,” above, and the information referenced therein, for a description of risks that we face and important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. All statements herein regarding potential risks constitute forward-looking statements. When we cross-reference to a “Note,” we are referring to our “Notes to Unaudited Condensed Consolidated Financial Statements,” unless the context indicates otherwise. All amounts noted within the tables are in thousands except per share amounts or where otherwise noted and percentages are approximate due to rounding.*

### Overview

Fathom Holdings Inc. (the “Company”, “Corporate”, “Our”, “We”), headquartered in Cary, North Carolina, is a national, technology-driven, end-to-end real estate services company integrating residential brokerage, mortgage, title, and SaaS offerings for brokerages and agents. The Company’s brands include Fathom Realty, Encompass Lending, intelliAgent, LiveBy, Real Results, Verus Title and Cornerstone. Our primary operation, Fathom Realty (as defined below), operates as a real estate brokerage company, working with real estate agents to help individuals purchase and sell residential and commercial properties, primarily in the South, Atlantic, Southwest, and Western parts of the United States, with the intention of expanding into all states.

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 41 subsidiaries, each an LLC representing the state in which the entity operates (e.g. Fathom Realty NJ, LLC).

### Corporate Developments During 2024

Starting in January 2024, we increased the agent’s annual fee which is charged on an agent’s first transaction of each anniversary year from $600 to $700. We also added a fee which affects sales of properties over $600,000 in addition to the agent’s existing transaction fee of $550 (the "High-Value Property Fee"). The ‘High-Value Property Fee’ consists of an additional $200 on properties priced between $600,000 and $999,999, and an additional fee of $250 charged for each $500,000 tier range in property price. (see our Current Report on Form 8-K filed with the SEC on November 28, 2023 for further information).

In August 2024, we introduced two competitive agent commission plans, Fathom Max and Fathom Share, complementing the Company's existing plan and showcasing Fathom Realty's new revenue share program. The strategic initiative is designed to enhance agent recruitment and retention, drive accelerated and sustainable growth, and boost long-term profitability for the Company, while reinforcing Fathom's commitment to providing flexible, attractive options for real estate professionals.

Effective May 3, 2024, the Company sold its wholly-owned insurance agency, Dagley Insurance Agency, to its original owner.

Verus Title expanded its footprint in Utah, Colorado, and Virginia through the addition of LW Traveling Title, an established title insurance agency with nine team members.

Verus Title expanded its footprint into Rhode Island extending its operations to 29 states across the U.S.

On September 26, 2024, the Company entered into a securities purchase agreement, under which the Company issued senior secured convertible promissory notes in aggregate principal amount of $5 million (the "Notes") to an existing shareholder, who owns more than 5% of Fathom's common stock, and the chairman of the Company's Board of Directors.

On October 31, 2024, the Company announced the acquisition of My Home Group, a leading Arizona-based brokerage ranked 27th in the nation by transaction volume. The acquisition expands Fathom's market reach, strengthens its agent network, and supports its commitment to delivering comprehensive real estate solutions nationwide. My Home Group brings over 2,200 agents and is estimated to complete approximately 12,000 transactions in 2024. Recognizing the strength of My Home Group's local brand, Fathom plans to retain the name and have the co-founders continue to oversee daily operations.

### 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. 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, uncertainty surrounding interest rates and declining consumer confidence generally decreases demand. These are the trends we have been facing. Additionally, industry litigation, and regulations imposed by local, state, and federal government agencies can also negatively impact the housing markets in which we operate. Finally, national and global events, geopolitical instability, that impact economic conditions and financial markets, including interest rates, can adversely impact the housing market.

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, including us. See Part II, Item I below. On or about March 15, 2024, NAR agreed to settle these lawsuits, by agreeing to pay $418 million over approximately four years, and changing certain of its rules surrounding agent commissions. In accordance with the terms of the settlement, effective August 17, 2024, NAR put in place a new rule prohibiting offers of compensation on the MLS and adopted new rules requiring written agreements between buyers and buyers’ agents. However, the direct and indirect effects, if any, of the litigation upon the real estate industry are not yet entirely clear.

There could also be further changes in real estate industry practices. All of this has prompted discussion of changes to rules established by local or state real estate boards or multiple listing services. All of this may require changes to many brokers’ business models, including changes in agent and broker compensation. For example, many of our competitors may need to develop mechanisms and a plan that enable buyers and sellers to negotiate commissions. In contrast, our flat fee per real estate transaction model has always enabled our agents to negotiate their own fees. Our flat fee allows our agents greater ability to negotiate commissions, and we have no direct incentive to interfere with their doing so. Our flat fee per real estate transaction model enables our agents to freely settle their transaction commissions at their own discretion. Beginning in August 2024, our new revenue share models will continue to enable our agents to freely settle their transaction commissions at their own discretion. The Company will continue to monitor ongoing and similar antitrust litigation against our competitors, however, as our agent compensation model fully supports commission negotiation, we do not expect to have to change our compensation model in a manner that would adversely affect our financial condition and results of operations. However, the litigation and its ramifications could cause unforeseen turmoil in our industry, the impacts of which could have a negative effect on us as an industry participant.

We believe that our strategic recruiting and acquisition strategy supported by our new competitive revenue share program have positioned our businesses for profitable growth in the future.

### Real Estate Agents

Due to our low-overhead business model, which leverages our proprietary technology, we can offer our agents the ability to keep significantly more of their commissions compared to traditional real estate brokerage firms. We believe we offer our agents some of the best technology, training, and support available in the industry. We believe our business model and our focus on treating our agents well will attract more agents and higher-producing agents.

As of September 30, 2024 and September 30, 2023, we had approximately 12,383 and 11,333 agent licenses, respectively. These figures represent growth of approximately 9% year-over-year.

### Reportable Segments

Our Chief Operating Decision Maker makes operating decisions and assesses performance based on the services of identified operating segments and has identified three reportable segments: Real Estate Brokerage; Mortgage; and Technology. Through its Real Estate Brokerage segment, the Company provides real estate brokerage services. Through its Mortgage segment, the Company provides residential loan origination and underwriting services. Through its Technology segment, the Company provides SaaS solutions and data mining for third party customers and continues to develop its intelliAgent platform for current use by the Company’s real estate agents.

### Components of Our Results of Operations

### Revenue

Our revenue primarily consists of commissions generated from real estate brokerage services. We also have other service revenue, including mortgage lending, title 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.

### 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.

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. 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.

### 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. 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 upon the effective date of the associated policies when control of the policy transfers to the client. This income stopped on May 3, 2024 upon our sale of Dagley Insurance Agency.

### 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.

### 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 Company’s subscription arrangements do not provide customers with the right to take possession of the software supporting the platform. Subscription revenue, which includes support, is recognized on a straight-line basis over the non-cancellable contractual term of the arrangement, generally beginning on the date that the Company’s service is made available to the customer and is recorded as other service revenue in the statement of operations.

### 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. We expect commission and other agent-related costs to continue to rise over the longer term 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 (until May 2024), and other services provided. We expect operations and support to continue to rise over the longer term 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 expenses also include amortization of capitalized software and development costs, data licenses, other software, and equipment costs, as well as infrastructure and operational expenses, such as, for data centers, communication, and hosted services.

### 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. We anticipate general and administrative expenses as a percentage of revenue to decrease over time, if and as we are able to increase revenue.

### Litigation contingency

Litigation contingency expenses consist primarily of litigation costs related to the settlement related to claims asserted in Burnett v. The National Association of Realtors., et al.

### 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. We expect marketing expenses to increase in absolute dollars as we continue to expand our advertising programs, including promotion of our recently 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.

### 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 three to five years for computer hardware, seven years for furniture and equipment and seven years for vehicles. Leasehold improvements are depreciated over the lesser of the life of the lease term or the useful life of the improvements. Amortization expense consists of amortization recorded on acquisition-related intangible assets, excluding purchased software. Customer relationships are amortized on an accelerated basis, which coincides with the period of economic benefit we expect to receive. All other finite-lived intangibles are amortized on a straight-line basis over the term of the expected benefit. Purchased software and capitalized software development costs are amortized on a straight-line basis over the term of the expected benefit and the respective amortization expense is included in technology and development expense. In accordance with GAAP, we do not amortize goodwill.

### Income Taxes

Income tax expense primarily consists of deferred tax liabilities in excess of the Company's deferred tax assets and also includes current state income tax expense not offset by state net operating loss carryforwards.

### Results of Operations

### Comparison of the Three Months Ended September 30, 2024 and 2023 (dollar amounts in thousands)

#### Revenue

|  | Three Months Ended September 30, 2024 | 2023 | Change Dollars | Percentage |
| --- | ---: | ---: | ---: | ---: |
| Gross commission income | $78,563 | $88,247 | $(9,684) | (11)% |
| Other service revenue | 5,170 | 5,277 | (107) | (2)% |
| Total revenue | $83,733 | $93,524 | $(9,791) | (10)% |

For the three months ended September 30, 2024, gross commission income decreased by approximately $9.7 million, or 11%, as compared with the three months ended September 30, 2023. This decrease was primarily attributable to a 9% decrease in transaction volume; there were 9,331 real estate transactions during the three months ended September 30, 2024, compared to 10,303 transactions during the three months ended September 30, 2023. Our transaction volume decreased primarily due to the continuation of higher home prices and uncertainty surrounding mortgage interest rates. During the three months ended September 30, 2024, average revenue per transaction was $8,420, a 2% decrease compared to $8,565 during the three months ended September 30, 2023, primarily attributable to an increase in lease transactions compared to sale transactions, and a small decrease in commission percentages.

For the three months ended September 30, 2024, other service revenue decreased by approximately $0.1 million, or 2%, as compared with the three months ended September 30, 2023. This decrease reflects a $1.6 million increase in other service revenue from our mortgage and title businesses that was offset by the absence of revenues attributable to the sale of our insurance business effective May 3, 2024.

|  | Three Months Ended September 30, 2024 | 2023 | Change Dollars | Percentage |
| --- | ---: | ---: | ---: | ---: |
| Commission and other agent-related costs | $74,187 | $83,770 | $(9,583) | (11)% |
| Operations and support | 2,293 | 1,886 | 407 | 22% |
| Technology and development | 2,044 | 1,760 | 284 | 16% |
| General and administrative | 8,660 | 9,793 | (1,133) | (12)% |
| Litigation contingency | 3,099 | — | 3,099 | (100)% |
| Marketing | 767 | 796 | (29) | (4)% |
| Depreciation and amortization | 444 | 891 | (447) | (50)% |
| Total operating expenses | $91,494 | $98,896 | $(7,402) | (7)% |

For the three months ended September 30, 2024, commission and other agent-related costs decreased by approximately $9.6 million, or 11%, as compared with the three months ended September 30, 2023. Commission and other agent-related costs primarily includes costs related to agent commissions, net of fees paid to us by our agents. These costs generally correlate with recognized revenues. As such, the decrease in commission and other agent-related costs compared to the same period in 2023 was primarily attributable to a decrease in agent commissions paid due to lower transaction volume mainly due to the continuation of higher home prices and uncertainty surrounding mortgage interest rates. We also received increased fees from our new fee structure that started in 2024, which added a "High-Value Property Fee" to certain properties and partially offset the decrease in commission and other agent related costs.

For the three months ended September 30, 2024, operations and support expenses were $2.3 million, an increase of approximately $0.4 million, or 22%, as compared with the three months ended September 30, 2023. This increase was due to the increase in revenues in the Company's mortgage and title businesses, partially offset by the absence of costs for our insurance business that we sold effective May 3, 2024.

For the three months ended September 30, 2024, technology and development expenses attributable to our ongoing investment in the intelliAgent platform and our LiveBy business were $2.0 million, an increase of approximately $0.3 million or 16% as compared to the three months ending September 30, 2023.

For the three months ended September 30, 2024, general and administrative expenses decreased by approximately $1.1 million, or 12%, as compared with the three months ended September 30, 2023. The decrease was primarily due to a $1.0 million decrease in stock compensation expense and to the absence of costs attributable to the sale of our insurance business effective May 3, 2024, partially offset by an increase in compensation expense relative to the Company's investment in growth. The decrease in stock compensation cost was due to a lower stock price at date of grant as well as to fewer grants being made.

For the three months ended September 30, 2024, litigation contingency expenses increased by $3.1 million due to the accrued NAR settlement and related legal expenses.

For the three months ended September 30, 2024, total marketing expenses were consistent to the three months ended September 30, 2023. Marketing service expense paid to third parties increased in the three months ending September 30, 2024, however, this increase was offset by a decrease in employee marketing compensation cost and the absence of costs for our insurance business that we sold effective May 3, 2024.

For the three months ended September 30, 2024, depreciation and amortization expenses decreased by approximately $0.4million largely due to the absence of amortization related to our insurance business that we sold effective May 3, 2024.

#### Income Taxes

The Company recorded income tax (benefit) expense of approximately $0.02 million for each of the three months ended September 30, 2024 and 2023. This tax expense is primarily the result of current state income tax liabilities and deferred tax expense related to deferred tax liabilities that cannot be fully offset by deferred tax assets.

### Comparison of the Nine Months Ended September 30, 2024 and 2023 (dollar amounts in thousands)

#### Revenue

|  | Nine Months Ended September 30, 2024 | 2023 | Change Dollars | Percentage |
| --- | ---: | ---: | ---: | ---: |
| Gross commission income | $227,073 | $256,050 | $(28,977) | (11)% |
| Other service revenue | 16,370 | 15,104 | 1,266 | 8% |
| Total revenue | $243,443 | $271,154 | $(27,711) | (10)% |

For the nine months ended September 30, 2024, gross commission income decreased by approximately $29 million, or 11%, as compared with the nine months ended September 30, 2023. This decrease was primarily attributable to a 8.9% decrease in transaction volume; there were 27,171 real estate transactions during the nine months ended September 30, 2024 compared to 29,835 transactions during the nine months ended September 30, 2023. Our transaction volume decreased primarily due to the continuation of higher home prices and uncertainty surrounding mortgage interest rates. During the nine months ended September 30, 2024, average revenue per transaction was $8,357, a 3% decrease compared to $8,582 during the nine months ended September 30, 2023 primarily attributable to an increase in lease transactions compared to sale transactions and a small decrease in commission percentages.

For the nine months ended September 30, 2024, other service revenue increased by approximately $1.3 million, or 8%, as compared with the nine months ended September 30, 2023. This increase was attributable to an increase in activity of our mortgage business segment and in our title business and was partially offset by the absence of revenues attributable to the sale of our insurance business effective May 3, 2024.

#### Operating Expenses

|  | Nine Months Ended September 30, 2024 | 2023 | Change Dollars | Percentage |
| --- | ---: | ---: | ---: | ---: |
| Commission and other agent-related costs | $213,399 | $241,834 | $(28,435) | (12)% |
| Operations and support | 7,079 | 5,404 | 1,675 | 31% |
| Technology and development | 5,900 | 4,674 | 1,226 | 26% |
| General and administrative | 27,166 | 29,552 | (2,386) | (8)% |
| Litigation contingency | 3,437 | — | 3,437 | (100)% |
| Marketing | 2,126 | 2,439 | (313) | (13)% |
| Depreciation and amortization | 1,718 | 2,406 | (688) | (29)% |
| Total operating expenses | $260,825 | $286,309 | $(25,484) | (9)% |

For the nine months ended September 30, 2024, commission and other agent-related costs decreased by approximately $28 million, or 12%, as compared with the nine months ended September 30, 2023. The change was primarily attributable to a decrease in agent commissions paid due to lower transaction volume mainly due to continued high mortgage interest rates. We also received increased fees from our new fee structure that started in 2024, which added a "High-Value Property Fee" to certain properties and partially offset the decrease in commission and other agent related costs.

For the nine months ended September 30, 2024, operations and support expenses were $7.1 million, an increase of approximately $1.7 million, or 31%, as compared with the nine months ended September 30, 2023. This increase was primarily the result of increased activity in the Company's mortgage and title businesses.

For the nine months ended September 30, 2024, technology and development expenses increased by approximately $1.2 million, or 26%, as compared with the nine months ending September 30, 2023. The increase was attributable to our ongoing investment in the intelliAgent platform and our LiveBy business, and to higher amortization related to capitalized technology development costs.

For the nine months ended September 30, 2024, general and administrative expenses decreased by approximately 2.4 million, or 8%, as compared with the nine months ended September 30, 2023. The decrease was primarily due to a $1.6 million decrease in stock compensation expense and to the absence of costs attributable to the sale of our insurance business effective May 3, 2024. The decrease in stock compensation cost was due to a lower stock price at date of grants as well as to fewer grants being made.

For the nine months ended September 30, 2024, litigation contingency expenses increased by $3.4 million due to the accrued NAR settlement and related legal expenses.

For the nine months ended September 30, 2024, marketing expenses decreased by approximately $0.3 million, or 13%, as compared with the nine months ended September 30, 2023. The decrease in marketing expenses is primarily related to leveraging internal resources and optimizing advertising expenditure.

For the nine months ended September 30, 2024, depreciation and amortization expenses decreased by approximately $0.7 million, or 29% as compared to the nine months ended September 30, 2023. The decrease is primarily related to the sale of our insurance business effective May 3, 2024.

Included in loss in operations for the nine months ended September 30, 2024 was the gain on sale of business of $3.0 million.

#### Income Taxes

The Company recorded income tax expense of approximately $0.03 million and $0.06 million for the nine months ended September 30, 2024 and 2023, respectively. This tax expense is primarily the result of current state income tax liabilities and deferred tax expense related to deferred tax liabilities that cannot be fully offset by deferred tax assets.

### Liquidity and Capital Resources (dollar amounts in thousands)

#### Capital Resources

|  | September 30, 2024 | December 31, 2023 Dollars | Change Percentage |  |
| --- | ---: | ---: | ---: | ---: |
| Current assets | $35,005 | $23,194 | $11,811 | 51% |
| Current liabilities | 22,649 | 16,352 | 6,297 | 39% |
| Net working capital | $12,356 | $6,842 | $5,514 | 81% |

To date, our principal sources of liquidity have been the net proceeds we received through public offerings and private sales of our common stock, the sale of one of our businesses, as well as proceeds from loans. As of September 30, 2024, our cash and cash equivalents (including restricted cash) totaled approximately $13.4 million, which represented an increase of approximately $5.9 million compared to December 31, 2023. As of September 30, 2024, we had net working capital of approximately $12.4 million, which represented an increase of $5.5 million compared to December 31, 2023. As noted above, in May 2024 we sold our wholly-owned subsidiary Dagley Insurance Agency for approximately $15.0 million in cash, $7.8 million of which we received at closing, bolstering our current cash position.

We anticipate that our existing balances of cash and cash equivalents and future expected cash flows generated from our operations and from the sale of our insurance business will be sufficient to satisfy our operating requirements for at least the next twelve months from the date of the issuance of the unaudited interim consolidated financial statements.

Our future capital requirements depend on many factors, including any future acquisitions, our level of investment in technology, and our rate of growth into new markets. Our capital requirements might also be affected by factors which we cannot control such as the residential real estate market, litigation, interest rates, and other monetary and fiscal policy changes, any of which could adversely affect the manner in which we currently operate. Additionally, as the impact of national and other world events, such as the crises in Ukraine and in the Middle East, on the economy and our operations evolves, we will continuously assess our liquidity needs. 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.

### Cash Flows

### Comparison of the Nine Months Ended September 30, 2024 and 2023 (dollar amounts in thousands)

|  | Nine Months Ended September 30, 2024 | 2023 | Change Dollars | Percentage |
| --- | ---: | ---: | ---: | ---: |
| Net cash used in operating activities | $(4,371) | $(6,206) | $1,836 | 30% |
| Net cash provided by (used in) investing activities | $5,099 | $(1,358) | $6,457 | 475% |
| Net cash provided by financing activities | $5,157 | $5,946 | $(789) | 13% |

#### Cash Flows from Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2024 consisted of a net loss of $15.3 million, a gain on sale of a business of $2.9 million, non-cash charges of $7.5 million, including $7.1 million of stock-based compensation expense and $4.0 million of depreciation and amortization, partially offset by $5.0 million in gains on the sales of mortgages. Changes in assets and liabilities were primarily driven by $192.2 million in mortgage loan originations, partially offset by $196.8 million in proceeds from the sales and principal payments on mortgage loans held for sale, and a $1.7 million increase in prepaid and other current assets as well as an aggregate increase of $3.1 million in accounts payable and accrued and other current liabilities.

Net cash used in operating activities for the nine months ended September 30, 2023 consisted of a net loss of $15.5 million, non-cash charges of $11.3 million, including $9.3 million of stock-based compensation expense and $4.5 million of depreciation and amortization, offset by $2.8 million in gains on the sales of mortgages. Changes in assets and liabilities were primarily driven by $111.7 million in mortgage loan originations, partially offset by $111.0 million in proceeds from the sales and principal payments on mortgage loans held for sale, as well as a $1.1 million increase in accounts receivable.

#### Cash Flows from Investing Activities

Net cash provided by investing activities for the nine months ended September 30, 2024 primarily consisted of proceeds from the sale of Dagley Insurance Agency of $7.8 million, partially offset by the purchases of intangible assets related to technology development of $2.2 million.

Net cash used in investing activities for the nine months ended September 30, 2023 primarily consisted of $1.3 million for purchases of intangible assets related to technology development.

#### Cash Flows from Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2024 consisted primarily of the $4.9 million in Notes net proceeds.

Net cash provided by financing activities for the nine months ended September 30, 2023 consisted primarily of the change of $3.3 million on our warehouse lines of credit and the $3.8 million in the debt proceeds, net of $0.6 million in principal payments on debt, $0.4 million in deferred acquisition consideration payments, and $0.2 million in debt issuance costs.

### NON-GAAP FINANCIAL MEASURE

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use Adjusted EBITDA, a non-GAAP financial measure, to understand and evaluate our core operating performance. This non-GAAP financial measure, which may be different than similarly titled measures used by other companies, is presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We define the non-GAAP financial measure of Adjusted EBITDA as net income (loss), excluding other expense, income tax benefit, depreciation and amortization, stock-based compensation expense, other non-cash items and transaction costs.

We believe that Adjusted EBITDA provides useful information about our financial performance, enhances the overall understanding of our past performance and future prospects, and allows for greater transparency with respect to a key metric used by our management for financial and operational decision-making. We believe that Adjusted EBITDA helps identify underlying trends in our business that otherwise could be masked by the effect of the expenses that we exclude in Adjusted EBITDA. In particular, we believe the exclusion of share-based compensation expense and transaction-related costs associated with our acquisition activity provides a useful supplemental measure in evaluating the performance of our operations and provides better transparency into our results of operations. Adjusted EBITDA also excludes other income and expense, net which primarily includes typically nonrecurring expense items, such as, professional fees related to investigating potential financing and acquisition opportunities, if applicable.

We are presenting the non-GAAP measure of Adjusted EBITDA to assist investors in seeing our financial performance through the eyes of management, and because we believe this measure provides an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA compared to net income (loss), the closest comparable GAAP measure. Some of these limitations are that:

- Adjusted EBITDA excludes stock-based compensation expense related to restricted stock awards, restricted stock units, 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.

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):

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(8,121) | $(5,496) | $(15,342) | $(15,542) |
| Gain on sale of business | - | - | (2,958) | - |
| Stock based compensation | 1,967 | 3,320 | 7,118 | 9,325 |
| Depreciation and amortization | 1,251 | 1,599 | 4,050 | 4,466 |
| Litigation contingency | 3,099 | — | 3,437 | — |
| Other expense, net | 342 | 106 | 890 | 332 |
| Other non-cash items and transaction costs | - | 200 | - | 200 |
| Income tax expense | 17 | 18 | 28 | 55 |
| Adjusted EBITDA | $(1,445) | $(253) | $(2,777) | $(1,164) |

### Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Our Annual Report on Form 10-K for the year ended December 31, 2023 contains a discussion of our critical accounting estimates in the Management's Discussion and Analysis of Financial Condition and Results of Operations section. There have been no material changes to these estimates during the nine months ended September 30, 2024.

### Recent Accounting Standards

For information on recent accounting standards, see Note 3 to our consolidated financial statements above.

### 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 of 1933 (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. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

Subject to certain conditions, as an emerging growth company, we may rely on certain other exemptions and reduced reporting requirements under the JOBS Act. Certain of these exemptions are, including without limitation, from the requirements of (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier to occur of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO in 2020, (b) in which we have total annual gross revenues of at least $1.07 billion, or (c) in which we are deemed to be a “large accelerated filer” under the rules of the U.S. Securities and Exchange Commission, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

The Company is also considered a small reporting company ("SRC") as of September 30, 2024. Under the terms of the JOBS Act, a SRC has public float of less than $250 million or has less than $100 million in annual revenue and no public float or public float less than $700 million. Being a SRC allows the Company to include less extensive narrative disclosure than required of other reporting companies, particularly concerning executive compensation. Being a SRC also only requires providing audited financial statements for two fiscal years, in contrast to non-SRCs, which must provide audited financial statements for three fiscal years.

## Controls and procedures

As filed, 2,275 characters.

### (a) Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on the evaluation of our Chief Executive Officer and Chief Financial Officer, it was concluded that, as of September 30, 2024, our disclosure controls and procedures were effective at the reasonable assurance level in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

### (b) Changes in Internal Control Over Financial Reporting

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recently completed fiscal quarter.

We are in the process of implementing new accounting systems. We have updated and continue to update our processes related to internal control over financial reporting, as necessary, to accommodate applicable changes in our business processes resulting from the implementation of the new accounting systems.

There were no changes, other than described above, in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 512 characters.

There have been no material changes to the risk factors that we have previously disclosed in our most recent Annual Report on Form 10-K, as filed with the SEC on March 19, 2024. The risks described in our Annual Report are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results of operations and the trading price of our common stock.

Filed Nov 12, 2024.
Source: SEC EDGAR, the filing index for accession 0001628280-24-046829. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.