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Fathom Holdings Inc. (FTHM 6.02%)
Q4 2020 Earnings Call
Mar 23, 2021, 5:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good day, and welcome to the Fathom Holdings fourth-quarter 2020 earnings conference call. [Operator instructions] Please note that this event is being recorded. I would now like to turn the conference over to Roger Pondel, investor relations for Fathom Holdings. Please go ahead.

Roger Pondel -- Investor Relations

Thank you, Cole, and welcome, everyone, to Fathom Holdings' 2020 fourth-quarter and full-year conference call. I'm Roger Pondel with PondelWilkinson. We're Fathom's investor relations firm. It is my pleasure today to introduce the company's founder and CEO, Josh Harley; and Fathom's president and chief financial officer, Marco Fregenal.

Before I turn things over to Josh, I want to remind all 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 adding new capabilities, the ability to reduce costs and drive sustainable growth, the types of new revenue-generating opportunities identified by Fathom, along with the company's timing of identifying and completing them, as well as those set forth in the Risk Factors section of the company's IPO registration statement as filed with the SEC, copies of which are available on the SEC's website at www.sec.gov, along with other Fathom filings made with the SEC from time to time. As a result of those forward-looking statements, actual results could differ materially, and Fathom undertakes no obligation to update any forward-looking statements after today's call except as required by law. Please also note that during today's call, management will be discussing adjusted EBITDA, which is a non-GAAP financial measure as defined by SEC Regulation G.

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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. And with that, I will turn the call over to Josh. Josh?

Josh Harley -- Founder and Chief Executive Officer

Thank you, Roger. And of course, thank you to everyone who's on today's call. I see several of you who've been -- who've recently come to know and value over the last eight months. Now Marco and I and, of course, our entire team really appreciate your support and your faith in us.

We're happy that you're part of our Fathom family. Before we review the significant progress that Fathom made since our last call, I want to thank our agents and employees for their continued hard work not just to our overall vision, but also in helping us grow while adding value to all of our stakeholders. I also want to say thanks to our Fathom family for their unwavering dedication to creating a culture built on service and more specifically, serving and placing others first. I cannot begin to express how important that is and the role it's played in our success.

One of the things that I love to hear and especially love to hear that our agents say that they joined Fathom for the commission, but they stayed for the culture. That fact plays a significant role in why we have one of the lowest agent turnover rates among any residential real estate brokerage. So with that, we had an awesome year, and what a great quarter, right? I know you can't see me right now, but I'm sure I got a goofy-looking smile in my face in part because of our great results, but also for the fact that we're just getting started. And I'm already looking forward to the next earnings call.

How nuts is that? I'll let Marco review our financial results soon. But first, I'd like to take a few minutes to discuss our recent highlights, which we believe provide a good road map of our direction. First, I can't help but steal just a little bit of Marco's thunder because I'm proud of our results. Sorry, buddy.

As you saw, revenues from the quarter grew 61% and were up 59% for the full year. And that's with COVID shutting almost everything down for a couple of months. I love that I can proudly say that we came in with the second highest revenue increase of all publicly traded residential real estate brokerages, and that's with only five months of being public. We registered solid gains in virtually all performance measurements with -- which, of course, Marco is going to share soon.

Now I want to reiterate that last point that I made. Our first day as a publicly traded company was July 31, 2020. So we only had five months of being public. And as I'm sure you know, it takes time to put our newly raised capital to use.

Many of you are getting to know Fathom, and of course, why we're different than -- really more different than other real estate brokerages. But for those of you who are new to our story, I'd like to spend just a few minutes to help you see why Fathom is disrupting the industry. So like others, Fathom is a full-service residential real estate brokerage. However, I think this is really the key, we leverage an innovative platform as a service model, which is powered by our proprietary cloud-based technology called IntelliAgent.

Our tech platform allows us to operate virtually while providing our agents with all of the major functions they could otherwise get from a traditional brick-and-mortar company. Not only does our technology aid our agents, it also allows Fathom to streamline and automate our operations, significantly reduce costs and personnel requirements and allows us to scale and expand the business without the excessive spending that usually accompanies growth. As a result, we're able to charge a fraction of what other brokerages charge their agents, putting more money in agent's pockets to help them reinvest in and grow their business. So we believe this also gives us a faster path to profitability especially more than many of our competitors who are charging monthly fees and large commission splits.

We're excited about the advantages that IntelliAgent creates, including attracting new agents and helping them become more productive while adding more robust technology to further reduce costs and improve our operational efficiency. Now I want to reiterate that last -- that previous point because it's really about increasing agent productivity through improvements in our technology. Our focus is not just in adding more agents, but also developing more productive agents. We don't want to just be another brokerage hanging agent licenses.

We believe we can accomplish that by providing more tools and actually help our agents get in front of more buyers and sellers, as well as reduce the amount of time required to manage the transaction process, giving them more time to network and sell. In time, we also intend to generate real estate leads for agents, which in turn, will help Fathom further increase our revenue per transaction, attract even more agents who are looking for leads and allow our current agents to stop spending their hard-earned money with these large portals who are actually their competition. Now one of the unique things about Fathom is the fact that we offer a small flat fee commission structure to our agents versus a large percentage split that our competition charges their agents. In fact, that's what most agents focus in on.

Our model allows us to make more money -- or rather allows the agents to make more money and reinvest those dollars into their marketing efforts to grow their sales. And as you can imagine, this makes us highly attractive to agents. In fact, in 2020, we saw a greater than 37% growth in agent count, ending the year with nearly 5,500 agents. And these numbers exclude the impact of our recent acquisition of Red Barn, which will add another 230 agents to our agent base in Q1 on top of our normal growth strategies.

Now during the fourth quarter, our cost to acquire one agent was $920, making our breakeven on each agent less than what we make on just their first sale, right? That's a tremendous claim that we're able to make. I also want to point out that the lifetime value of an agent is over $18,000 to us. And the ratio of that lifetime value to our cost of agent acquisition is over 20 times, and that's just the revenue that's generated on the real estate side of the business. It doesn't take into account potential revenue from title or potential revenue from future mortgage and insurance revenue.

And as we get bigger, we expect our cost per agent to further -- to really improve even more. So however, I do recognize that in the near term, we expect this number may actually increase as we devote additional resources and investments to help drive our growth. But again, at 20 times LTV to CAC, I think we've got some room to work. Now as I mentioned earlier, we often hear or even say that they joined Fathom to earn more commission, but they stay for the culture.

And while I don't want to make too much out of our Glassdoor rating, it does validate this feedback. Our incredibly high Glassdoor rating of 4.8 puts us at the very top of all large residential real estate brokerages. Although this is just one example that shines a light in our culture of service. I'm also proud that we have one of the lowest agent attrition rates in the industry at just 1.7% per month.

Glassdoor is nice, but if you want a true representation of whether agents are happy, our agent attrition rate is the best indicator. A really exciting step that I'd love to share with you is the fact that our agent retention of higher producing agents or rather agents that are closing more than 10 transactions per year, improved significantly from 10% of the overall attrition in 2019, down to only 2.5% of the overall attrition throughout 2020. That's basically -- it's essentially 2.5% of 1.7%. Simply put, we're doing a great job keeping high producing agents.

And by the way, let's be honest here. Are there any other real estate brokerages sharing these data points? Now as you can tell, I'm on fire for Fathom, and I love this company. So I can go on and on. But for the interest of time, I'll just touch on a few more key operating highlights from recent months.

We are now in 27 states and 113 markets, thanks to our virtual model and technology platform, we're able to launch new markets quickly, efficiently and for very low cost. The top priority for us when entering a market is actually finding the right leader. I think you've all seen this, leadership matters. And we found that the right leader in a small market can outgrow a large market with a weak leader.

So that's a huge focus for us. Speaking of strong leaders, we were very happy to announce earlier this month that Ravila Gupta was named to our board of directors. Ravila is an experienced executive with impressive track record in strategic planning, business development, leadership development, marketing and culture, plus she's just an awesome person. So we are really fortunate to have found her.

And as I mentioned earlier, during the fourth quarter, we netted an additional 445 agents, giving us a total of almost 5,500 agents at year-end. A number that, as you can imagine, has grown even further given this data point is nearly three months old. We also introduced an expanded agent referral program to reward Fathom agents from bringing new agents to the company. Approximately a third of our agent growth is actually from agents referring other agents to Fathom.

And we've already seen a lot of excitement and movement from this change, but please note that while we are providing stock awards for these referrals, I assure you that we're very careful about dilution. Even including executive board and -- I'm sorry, executive and board compensation, agent stock for closing transactions, as well as this new referral program, total dilution is only between 2% and 3%. Both Marco and my family own a large percentage of Fathom stock. So rest assured our interests are completely aligned with yours.

But we know that if minimal dilution can turn into significant growth, then I believe it's something that we can all be happy with. Now we had a great quarter and a great year, but we also -- we've also been very busy since the close of the year. So like we said, we would be entering the title insurance business with the acquisition of North Carolina-based Verus Title. Adding Verus was highly strategic, and it's already proven to have -- or rather already proven to be the right move.

The Verus team is fantastic, and the company is performing well as we're integrating them to various Fathom markets. Verus' license in many of our existing markets is giving our agents a competitive advantage. And of course, we're in the process of getting a license in -- for titling -- title service in Texas, which, as you know, is our largest market. We partnered with zavvie, which is enabling our agents to take full advantage of iBuyers versus trying to compete with them.

Right? We've already heard many of our agents share the positive impact that it has had on our marketing and lead generation. And we believe that iBuyers, in one form or another, are here to stay. So why not profit from that relationship, and we're doing just that. And lastly, I do want to mention two additional exciting transactions.

First, we acquired the technology platform of Naberly Solutions through Fathom's IntelliAgent subsidiary to eliminate -- to really help eliminate our reliance on third-party tech providers and reduce our cost significantly while offering more robust tech to our agents to help them really grow their business. It's uncommon to find a tech company who's built out a full technology offering prior to generating lead or rather generating revenue, but that's what we found in Naberly. And it allowed us to pay a very reasonable price for a fantastic asset and a great team. Not only will our agents benefit greatly, but we'll be able to leverage Naberly to build a national home search website to start generating leads for our agents and to really effectively compete, at least to some small-scale with the large national home search portals.

Long term, we plan to actually sell leads to non-Fathom agents as well in the markets we're not in yet. Another key factor is the acquisition -- in this acquisition, rather, is the potential power it gives us to control the full life cycle of the home buyer and seller and gain greater understanding of our data and how to use it to further improve our offering. Plus the fact that we can now begin to identify potential clients for mortgage, insurance and title long before they're under contract and even before the agent has made an introduction. But that's the holy grail for these companies as most spend huge marketing budgets on attracting clients while still being reliant on realtors to refer them over.

And second, as I mentioned earlier, we completed the acquisition of Red Barn Real Estate, a growing Atlanta-based brokerage, more than doubling the number of Fathom agents in that market from around 200 agents to around 430 agents. What really impresses with Red Barn was their amazing leadership and culture. It certainly didn't hurt that they already have a great title and mortgage attach rates, which is important to our growth strategy over the long term. Now acquisitions will continue to play an instrumental role in Fathom's growth so we plan to add mortgage and insurance services and continue to acquire smaller brokerages similar to Red Barn acquisition.

So during our IPO roadshow, we discussed a six- to nine-month time line for acquiring title services. And we got that done in just four months. We also discussed a nine- to 12-month time line for acquiring mortgage services, and we feel pretty confident we'll be able to hit that as well. So while acquiring -- or rather, while acquisitions are going to continue to play a role, I do want to assure you that we will continue to be good stewards of the money you entrust us with.

We want to grow, but we intend to do it strategically and not overpay, especially when we've been so effective with our own organic growth. All right. I want to make sure we leave plenty time for questions. So let me get off my soap box, and I'll turn the call over to Marco, our president and CFO.

Marco, it's all yours.

Marco Fregenal -- President and Chief Financial Officer

Thank you, Josh. Seeing as Josh stole some of my thunder, let me repeat some of the key details of our financial results and, of course, add some additional color. Revenues grew 61% year over year for Q4 to $53.4 million from $33.2 million. This increase was driven by growth in transactions and average revenue per transaction, supported by a strong residential real estate market and continuing rising home prices.

A quick reminder that home sales in Q4 and Q1 are seasonally lower than during the rest of the year. As I mentioned in our call -- our last call, when a business is growing as quickly as we are, it can create the appearance that there is little to no growth between Q3 and Q4, when in reality, we are, in fact, outpacing normal seasonal decrease. GAAP net loss for the quarter was $1.3 million or a loss of $0.09 per share, compared with a GAAP net loss of about $1.3 million or a loss of $0.14 per share for the same period last year. Our weighted average outstanding share count increased 36% between the two periods, primarily due to the impact of our IPO.

Adjusted EBITDA loss and non-GAAP measure narrowed to $850,000 for Q4 versus an adjusted EBITDA loss of $1.2 million for last year's fourth quarter. Non-GAAP profitability increased due to gross profit expansion, partially offset by an increase in G&A, primarily attributed to costs associated with being a public company. G&A expense increased to $3.9 million, compared to $2.3 million for Q4 of 2019. This increase, again, was primarily due to expenses related to being a public company.

Our marketing expenses increased to approximately $384,000 from $181,000 in fourth quarter of 2019. This was mostly due to an increase in our talent acquisition team and higher investments in advertising and PR, which are already paying off in terms of adding agents and helping Fathom become more well-known in the industry. We closed approximately 7,500 real estate transactions this quarter, which is about a 50% increase from the same quarter last year. Transactions decreased sequentially related to the seasonality, which I described earlier.

Q4 average home prices increased to approximately $286,000 from $245,000 in Q4 of 2019. As Josh mentioned earlier, our agent network grew to almost 5,500 agents, up 35% from 4,006 agents a year ago. And as Josh mentioned, subsequent to the end of the quarter, we're adding the Red Barn agent. We maintain a very strong balance sheet with about $28.6 million in cash and equivalents.

We believe that we have enough firepower to fund future growth without the need to tap the capital markets. However, should we have an amazing acquisition opportunity, we could use that option. As Josh has said many times, we want to be a good steward of our investment in us, and we'll only raise additional capital for a good reason. As a company, we do not believe in growth simply for growth's sake.

We have shared with all of you our full-year financials in the press release that we issued earlier today. Next, I'd like to talk a little bit about Verus and the acquisition we made late last year and remind you about how profitable adding title to our business could be. These are hypothetical forward-looking statements, but they should help you to put in the acquisition to prospective. With 5,000 closing transactions, we could potentially add $2 million in EBIT annually.

If closing transactions grew to 10,000 per year, we could potentially add $4 million EBIT. And with 25,000 transactions, we could potentially add $10 million in EBIT. So as you can see, title -- the title business can be very profitable, and we are very excited about the future for Verus. We are continuing to experience a very strong residential real estate market, and even with rising interest rates, as well as an improvement in the U.S.

unemployment rate, and hopefully a continued calming of our nation following the election. But many variables still remain related to the pandemic and potentially new political policies, as well as a host of unpredictable economic factors that still pose a high level of uncertainty over the near term. For those reasons, as with many other publicly traded companies, we're not providing specific financial guidance at this point. By all measures, our fourth-quarter and full-year results are excellent, and we are very proud and excited about the future.

But before turning back the call to Josh, I'd like to add my thanks and gratitude to the entire Fathom team. We are building something great and leading this charge in disrupting this industry, which needs a great deal of change. I'll turn the call back to Josh, and then we can do Q&A.

Josh Harley -- Founder and Chief Executive Officer

Thanks, Marco. As you can tell, we're incredibly excited about our prospects. We've been working hard since our IPO to deliver on our promises and grow Fathom in an accelerated and yet sustainable fashion for the long term. We're honored to have you on this journey with us.

And of course, for those of you who are our shareholders, thank you for your trust in being part of the Fathom family. Operator, we're now ready to open the call to questions.

Questions & Answers:


[Operator instructions] And our first question today will come from Darren Aftahi with ROTH Capital Partners. Please go ahead.

Darren Aftahi -- ROTH Capital Partners -- Analyst

Hey, guys. Good afternoon. Thanks for taking my questions, and nice quarter. A few, if I may.

Could we just start -- the snowstorms and the weather in -- down in Texas. I'm just kind of curious, I know you guys aren't giving guidance, but how much of an impact was that on your agent's business in Q1?

Josh Harley -- Founder and Chief Executive Officer

Marco, you're muted. I can see Marco is talking.

Marco Fregenal -- President and Chief Financial Officer

Sorry about that.

Josh Harley -- Founder and Chief Executive Officer

We want to answer your question, I promise.

Marco Fregenal -- President and Chief Financial Officer

Thank you. I muted my phone. We did see a little bit of an impact, but that was just a few days after the storm. And then real estate agents and our mortgage partners quickly recovered.

And so I don't think it was a -- at the end of the quarter, I don't think it was a significant impact. But we did see a little bit, but I think the team recovered rather quickly. And so for the entire quarter, I think the impact was minimal.

Josh Harley -- Founder and Chief Executive Officer

Yeah. Well, I'll add some color to that. One of the things is talking to our agents, what we found is that while there was a temporary blip, right? People are waiting because they can't get out. From the street, they go see homes, or they're not ready to list the home because they have to replace some pipes that leaked.

So there's a little bit of blip that didn't change the trajectory. There's still -- these people that want to sell, still want to sell, people want to buy, still want to buy, but they're basically came in after some of the repairs got made and the snow cleared. So unusual for Texas. I grew up in Alaska.

So we don't get that kind of weather here in Texas. It was interesting to see.

Darren Aftahi -- ROTH Capital Partners -- Analyst

Great. And then just on Naberly, Josh, you touched on the lead component to the business. And obviously, that would be an incremental piece of revenue for you as a company. How quickly can you have a kind of realistic lead generation tool out there kind of impacting the P&L going forward?

Josh Harley -- Founder and Chief Executive Officer

Yeah. I'm going to let Marco address time frame, and I'll kind of add some color to it.

Marco Fregenal -- President and Chief Financial Officer

Yeah. I think that we -- second half of this year, we are going to begin the lead generation business. And we'll do that even with the current Fathom website. So one of the reasons -- one of the many reasons we looked at Red Barn, for example, is because they had a very nice lead generation business.

And so second half of this year, we will begin a -- to see a lead -- some financial impact, positive impact for lead generation. And then once we transition to Naberly, then we'll significantly increase that. And the timing for Naberly is more like at the end of the year or early next year. But the two are not necessarily happening at the same time.

So we'll begin the lead generation earlier, beginning of the second half of this year, and then Naberly will probably come at the end of the year, early next year.

Josh Harley -- Founder and Chief Executive Officer

Thank you, Marco. Let me add some color to that. So I would like to kind of just touch on this because I think it's important. Naberly allows us to do a lot more of the leads, have much greater control, be able to generate higher, in other words, more leads for less dollar spend.

So it adds a lot to it. But again, as Marco indicated, we don't have to wait for it to be finished for us to be able to start generating leads. But the leads part is an important part, I think, of our story because it does several things. Number one, agents want leads.

Right now, we've got agents that are spending thousands and thousands of dollars per month with some of these external portals, which I'm sure you know who we're referring to. And they don't want to. They see them as competition, but they don't know how to get off of that, and they want to be able to invest that money internally, if possible. So we've had a lot of agents approach and say, we'd love to buy leads from you.

Is there something we can do internally? And it's something that that's my background. And so we want to be able to do that for the agent. So we're going to start that process. We do believe once we start generate leads, not only will it help us generate more revenue, because we're generating the leads and we're able to now provide those leads to agents.

Been said, for a $450 transaction fee, we can charge also a commission split on top of that. But this is a business that they didn't generate. This is a business we generated for them. So again, more revenue per transaction for the transaction we generate.

But the other piece of that is agents want leads and there's a lot of agents who will leave their brokerage to go to the broker who provides leads. And right now, there are very few. Outside of the teams, there's very few brokerages that -- I can't think of any specifically that actually provide leads and mass to their agents.

Darren Aftahi -- ROTH Capital Partners -- Analyst

Great. Just two more, if I may. You mentioned in the release, Canada, I think, for the first time. I'm just kind of curious if you could give us some more insights and when that actually could become a reality.

Josh Harley -- Founder and Chief Executive Officer

Yeah. So first of all, we've got a lot of room to grow here in the United States, right? There's -- we still got half of the states to tap into. There's 1.4 million realtors. There's 2 million real estate agents in the United States.

And we're just over 5,000, right? So 5,500. So we've got a long ways to go in the United States. And that really was to be our focus. However, if the right opportunity came across in Canada, we jump on that opportunity.

So right now, again, it comes down to leadership, the right opportunity. But our first focus is let's dominate the United States first and then add in Canada as it makes sense. Now could that be before the end of the year? Again, if a right deal comes along then certainly, but at the end of the day, it really comes down to finding the right opportunity and really tackling it. Our primary focus is tackling United States first.

Darren Aftahi -- ROTH Capital Partners -- Analyst

Great. And just last one for me. In terms of expansion plans, you're in 27 states, I guess two quick questions. One, what's the expectation exiting 2021 in terms of your presence in the United States? And then two, how contingent is that on making Red Barn type deals as opposed to just organically growing and getting referrals?

Marco Fregenal -- President and Chief Financial Officer

I think that by the end of 2021, given the number of agents that we already -- the number of our states that we already work in terms of licensing and all of that, I think that reasonably, we could see 40 states or so by the end of 2021, if not more. And so we feel pretty comfortable about that number. And then certainly, by 2022, we will cover the entire country. As for how we expand, I think that some states, we will -- it will be through an acquisition like Red Barn.

I think some states will be through smaller acquisitions. Or in a sense of acqui-hires, like when we did West Virginia, which was a smaller operation that decided to join us. In some states, it's just finding the right individual. So I think it will be a combination of all three.

Certainly, will be other opportunities like Red Barn, and we've been approached by many companies who are interested in joining our platform. And we'll certainly take advantage of that in the future. So I think it's a combination of all three. And so I would say about 40 states by the end of the year and certainly all 50 by 2022.

Darren Aftahi -- ROTH Capital Partners -- Analyst

Great. Thanks, guys. Congrats again.

Marco Fregenal -- President and Chief Financial Officer

Thank you.

Josh Harley -- Founder and Chief Executive Officer

Thank you.


And our next question will come from Tom White with D.A. Davidson. Please go ahead.

Tom White -- D.A. Davidson -- Analyst

Great. Thanks, guys, for taking my question. Good afternoon. I just had a few on, I guess, sort of agent retention, agent growth and kind of the value prop for agents.

I guess the comment about improved retention for top-performing agents and the metrics you guys shared there kind of caught my eye. I was curious if you could just provide some color on what you think is driving that. I mean were there kind of specific, either tweaks to the model or productivity tools changes that you made that's kind of increased the appeal for those top producers? Or is it just kind of a natural by-product of the platform scaling? And then I think you said a third of agents are from referral. Do you think you can get that meaningfully higher? And kind of what would you need to do to get that higher, that percentage?

Josh Harley -- Founder and Chief Executive Officer

Yeah, absolutely. So I appreciate the question. First of all, we'll kind of go back to one of the things you're talking about. So the productive.

So we look at agent attrition, which we already know we've got one of the best in the industry. 1.7% per month is incredibly low, and we're very proud of that number. But really, I think the important piece for people to understand is that 77.5% of that 1.7% are agents who closed zero or one sale per year, right? If you look at agents who closed north of 20 sales per year, it's only 1% of 1.7%. So the numbers are really small.

10% to 19%, it's 1.5% of 1.7%, right? So these are very, very small numbers of high producers. So the question is why? Why did it go? Or how do they go from 10% of overall attrition to only 2.5%. And I think it's a couple of things. One is as we flesh out our technology, we do a better job at really showing our value proposition.

Two, a lot of times when we lose these high producing agents, the ones that are closing 30, 40, 50 homes a year, a lot of times, we're not losing them to other brokerages, we're losing them to them starting their own little brokerage. And we've been able to demonstrate over time, especially our technology is that they can actually run -- almost essentially run a brokerage under Fathom for less than it would cost to do it on their own. And yet now we handle compliance and insurance and all the other headaches that come with running a brokerage. So allows them to essentially run a brokerage under the Fathom model.

So we've been able to show much greater value proposition, value exchange to them. But the other piece, too, I think it really -- to be honest, it came down to the fact that we went public. These are the ones that generate the most and receive the most stock in our company. And it's a three-year vesting period.

And they believe in the vision, they're excited about what Fathom is doing, and they see what's happening with our stock, and they're just excited. And so why leave? Why leave to save $50 in a transaction or $10 in a transaction. Right? I always joke, it kind of comes down with that seven-minute abs versus five minutes or three minutes. At some point, there's no value left in that one-minute ab.

So we've got an incredible product. We're not the cheapest, but we -- I do believe we provide the greatest value for what we charge. And the agents are starting to recognize that. So I think it's a whole host of things, but I think that plays a big part of it.

And then, sorry you asked a question about the 30%. Yes, the 34. Sorry. All right.

So look, we are very proud of our agent referral rate. And that -- a lot of that comes down to the fact that we take such good care of our agents. When I think about the agent's role and how they take care of the clients, the more they truly serve and love their clients, the more likely those clients are to refer friends and family to them. And we found the same thing is true with our agents, right? The more we truly serve and love our agents, the more likely they ought to refer other agents to us.

So number one, I think we've got to always make sure that we're not waiting to be reactive, but be very proactive in how we take care of our agents. A lot of times, especially during the pandemic, agents no longer come to events and they stay home. And so we've got to do a good job reaching out to them and being proactive in finding ways that we can better serve them versus waiting for them to come to us with issues. Sometimes they just don't, they just leave.

So we're doing a much better job being proactive. The other piece we talked about is the referral program that we rolled out. We used to provide $500 in stock grants every time an agent referred another agent. We took that and put it on steroids.

So now the first time an agent refers another agent, it's $500 of stock grants. That's a three-year vesting period. But the second, third, fourth and fifth agent they refer, it's now $1,000 of stock grants. And the fifth, sixth, seventh, eighth -- I'm sorry, the sixth, seventh, eight, ninth and tenth agent they refer, it's $1,500.

And then every agent after that, it's $2,000. And of course, resets at the beginning of next year. But what that does, the majority of agents who refer another agent referred just one agent per year. Now we've got some like last year, I think we have an agent who referred 19.

We have three agents who referred over 12. But how do we get more to do that? How do we get a higher percent of agents instead of referring one to refer a second or a third. And so one is just asking for the business, asking them to refer, but the other part is incentivizing them, making sure -- obviously, I'm sure you know that $500 is not a huge amount of money. Right? It's not going to make them go out and recruit for us.

But it's enough that if they love Fathom, they'll be more likely to get out the fence and actually say something to another agent they're working with.

Tom White -- D.A. Davidson -- Analyst

Got it. Thank you. That's really helpful. Maybe just one follow-up on kind of the overall value prop for agents.

You mentioned that you guys aren't the cheapest out there. But kind of the front end monetization for a Fathom agent is, at least relative to kind of a lot of the other public guys, is really tough to beat. So I guess I'm just curious, as you look over, say, like the next two to three years, do you envision that you're going to either have to sort of sweeten or otherwise kind of tweak either the compensation to agents or perhaps introduce additional perks or support or services? Or do you think you kind of continue to grow at a healthy clip here with more or less the kind of the same kind of comp program you guys have now?

Josh Harley -- Founder and Chief Executive Officer

Yeah. I think there's -- that's a lot of questions. So I'm going to do my best to address them. I'm excited about this actual question itself because we are doing more, like we're not sitting idly by waiting for it to slow down and then try to act and provide more services, more tools and sweeten the pot.

We're always looking for ways to make Fathom better to keep the pot getting sweeter, to use your words. So we're always working to get better and better and better. So that by itself should be enough to not only maintain but better accelerate our growth even further, right? This last number we shared of 37% growth was based on just five months of being public. So we've got a lot that we can do to be able to generate more tools and resources and incentives for agents to help us grow.

You've got one leader in a market, how fast can they grow that market versus their 50 agents that become evangelists for the company, helping to refer, right? So we really want to do a lot internally, but also incentivize the agents to keep those. And then going back to the question about do we need to get cheaper? I think the answer is no. We don't need to get cheaper. I've actually had a lot of potential investors and investors ask us when, not if, but when will you raise your fees.

And to be honest, I don't want to raise the fees. Now we can. We certainly can, still be way cheaper than a lot of our competitors, but I don't want to. And the question is, could we actually get cheaper not because we have to sweeten the pot because we have to, but how many more agents could we grow by making it a little bit cheaper or keeping it the same in markets.

And so that really -- you got to kind of weigh those two. How much more could you grow -- every time you raise the rates, your growth slows a little bit. So we -- instead of us raising the rates, we may want to consider lowering them. Now we haven't had the discussion.

We haven't decided to do that. And I'm not hinting toward the future because, again, we haven't had that discussion. But the point is if we change our fees, it'd be more likely to go down than up. But right now, we feel very confident where we are, especially as we go into new markets where the prices are higher.

I mean, imagine, in most of our markets, the average home price is $200,000, $300,000. That's a great incentive to agents to only pay $450, but what happens in the market, the average home price is $500,000, right? Now these agents are saving $4,000, not $2,000. So the incentive becomes even greater, and those are a lot of markets we start to grow into. So as we grow into higher and more expensive markets, our offering is already sweeter, right? It gets sweeter and sweeter as the home prices go up.

Tom White -- D.A. Davidson -- Analyst

Great. Thanks so much. And yeah, congrats on a great year.

Josh Harley -- Founder and Chief Executive Officer

Thank you.

Marco Fregenal -- President and Chief Financial Officer

Thank you.


[Operator instructions] Our next question will come from Greg Kitt with Pinnacle Fund. Please go ahead.

Greg Kitt -- Pinnacle Fund -- Analyst

Hi, Josh and Marco. Thank you very much for your time and your hard work.

Josh Harley -- Founder and Chief Executive Officer

Of course. Thank you so much.

Marco Fregenal -- President and Chief Financial Officer

Thank you, Greg.

Greg Kitt -- Pinnacle Fund -- Analyst

I've told you before that I really like that you're providing, I think, the best value to real estate agents by helping them keep more of the money that they make through your flat commission structure while providing support and service to help them be successful. I'm even more excited potentially to see you vertically integrating the services that you can offer per transaction and capture more dollars per transaction. I was excited to hear that you think you can achieve that nine- to 12-month time line to acquire a mortgage company that you outlined at the time of the IPO and I was trying to do math. And if I did my math right, I think by the end of this month, you will have been public for eight months, and I'm excited if you will, in fact, be able to meet that nine- to 12-month time line that you lay out eight months ago.

I had two questions after that sort of ramble. First was a follow-up to the question that Tom just asked about -- or the point that you were making about the referral program. I'm excited that you're aligning yourself, you're aligning your agents to Fathom's success. And you mentioned, I think I heard you correctly that the average agent is referring one agent per year, which would equate to a $500 referral fee per referred agent.

And just as an assumption, let's say, your average referral -- referring agent would refer two agents a year, and so you would be paying $1,000 per agent to that referring agent, $2,000 total. If I think about that, initially, I was -- I'm trying to work through that math. If your agents referred 1,000 agents in 2021, and that would be about 20% growth to the company, but at a $1,000 an agent times 1,000 referred agents, that's $1 million. And at today's share price, that's like 20,000 or 25,000 shares of dilution to shareholders.

So the dilution is not material. Am I thinking through that correctly?

Josh Harley -- Founder and Chief Executive Officer

Yes and no. So I know Marco is eager to chop with this, too. But I want to point out is the average agent who refers, refers one, not the average agent refers one. I'd love for every single agent in our company to refer one.

That would be fantastic. So I just want to make sure that we clarify that. I don't want to lead you in the wrong direction. But we've got a lot of agents who refer three, six, 10.

But again, there's a large percentage that only referred one. The question is how to get them to two and so forth. But going back to the dilution part, you're exactly right. Marco and I -- Marco is a complete geek when it comes to spreadsheets.

I love that about him. But we've ran so many scenarios of how would this affect dilution because we care about, say, the large shareholders. I don't want to do it myself out of existence. And what would this mean? And so we ran a lot of it.

We realized that either with substantial agent referrals doubling, tripling, it barely moves the needle when it comes to -- like you said, it's not material. And so we're excited because, like you said, it aligns the agents with us. We want the agents to be shareholders. We want them to be excited about our growth.

We want them to refer more business and more agents to us because as they do, theoretically, hopefully, right, it generates more revenue, and more revenue hopefully generates higher stock value. And so it brings greater value to our shareholders and to our agents. So I'm excited about that as well.

Greg Kitt -- Pinnacle Fund -- Analyst

Thank you. That was helpful, Josh. And my last question is about mortgage rates. I've seen them vary a little bit over the last six months.

And I was wondering if you can help me think about how mortgage rates could potentially affect your business or how you think it affects your end market.

Josh Harley -- Founder and Chief Executive Officer

Yeah. I think a fantastic question. In fact, that's a question that I've heard a few investors raise over calls. I get calls every now and then.

And we try to do the best we can to be as transparent as possible and take as many calls as we can. I understand the concerns that rising mortgage rates will hurt the momentum we've seen. However, that's not what we're actually seeing on the ground or in the trenches. I understand that I'm certainly no expert, by any means, but I believe that as long as the 30-year rate stays below 4%, I personally remain confident in the market.

If 2020's strong housing performance had been driven just by low mortgage rates, then the growth we saw would have been far less pronounced. So clearly, there's other factors at play into why we've had such great results. But we're just not seeing pain in our business from the rates. And I remain hopeful that it doesn't change.

So like you, I see the mortgage rate -- the mortgage apps were down also, and the interest rates were up from 2.75% to just a hair over 3%. But a low 3% rate hasn't really been scaring most people away. So when people think that that's why mortgage apps are down, I don't believe that's why mortgage apps are down. Now I may be wrong, but that's what I believe.

Many people listening to this call can remember a time when we were excited about a 7% rate. So paying 3.08% or 3.14% is not freaking people out. Right now, we're seeing that most listings have multiple offers from multiple buyers. That does two things.

It disheartens -- it's very disheartening to potential buyers, and they may decide to wait until the market cools. And therefore, they don't ever apply, which comes back down to fewer mortgage apps. And the multiple offers scare potential sellers because what if they sell their home and they can't find a new home, right? So you start having this kind of self-fulfilling prophesy, you start having fewer -- lower inventory. So honestly, I see rates going up a little as a good thing.

We need a few less buyers in the market, and that's not of that thing. That easing could actually generate more inventory from sellers who are now willing to come back in the market because they feel confident that they'll be able to replace and find a replacement home, right? So the point is we're not necessarily selling less homes right now from an increase in rates or a decrease in mortgage apps, it just means that instead of having five offers in a home, there are only four offers in the home. There's still a lot of offers in a home, right? We need that to come down to one or two offers in a home, and we need to see inventory improve. But what if, let's play the what if game, right? Let's say for argument's sake that we start to see fewer sales overall in our markets.

Then I'd love to remind you that it should actually prove to be a good thing for Fathom, a future tailwind instead of a headwind. Right? The reason I say that is simple, there's only two ways for a realtor to make more money, increase their revenue or decrease their cost. If an agent with a traditional brokerage who's charging them 30% of that agent's commission experienced a 20% decline in the real estate business, simply moving over to Fathom, again, 20% less business, simply move over to Fathom, they could earn 8% more income. Right? 20% fewer sales, 8% more income.

So that makes Fathom very attractive. So if we do see fewer sales, Fathom may actually net more sales over time by netting more agents, turning that potential headwind into a tailwind.

Greg Kitt -- Pinnacle Fund -- Analyst

Thank you, Josh. That was very helpful.

Josh Harley -- Founder and Chief Executive Officer

My pleasure.


And our next question will come from Tom White with D.A. Davidson. Please go ahead.

Tom White -- D.A. Davidson -- Analyst

Thanks for letting me pop back in the queue here. Just I wanted to get one in on kind of the trajectory for gross margins. And I realize you guys aren't giving guidance, but you expanded gross margins a bit in 2020 versus 2019. In 2021, you've got some of these new offerings like lead gen and title that presumably would boost gross margin, but some of those seem kind of more back half weighted for the year.

So is there any kind of color you can or sense you can give me as to whether we'll see gross margin expansion this year at sort of a similar pace to maybe what we saw last year? Or maybe a little bit better if some of those products kind of kick in and make a difference in the back half? Any kind of color you can share there for modeling process? That would be great.

Marco Fregenal -- President and Chief Financial Officer

Yeah, great question. So yeah, we did increase -- and our business is a little different than other public real estate companies. We did increase gross profit margin in Q4 over Q4 of last year. And then keep in mind that the way our business operates, that the first few -- the first 12 transactions of an agent, they're paying $450 versus $99.

So typically, we see higher gross profit margins in Q1 and Q2. And then they decrease in Q3 and Q4. And then, of course, we're going to add -- on top of that we're going to see Verus. And at some point, we will see our mortgage business come in and our insurance business come in, which they will take some time to hopefully develop in Q3 and Q4.

So you're definitely -- we're definitely going to see higher gross profit margins starting in Q1, just because, again, of the -- a higher percentage of our transactions are $450 and very few transactions are at $99. So you definitely see an increase in that. And then from -- what I don't think we're going to see is a decrease in the gross profit margins beginning in Q2 and then Q3 and Q4, because as we add title and as we add mortgage, we sort of we're creating the baseline. So I think the baseline for our gross profit margin is going to be Q1, and you can take a look at sort of Q1 of '20 as an example.

And that will become -- that will be the sort of baseline for gross profit margins, then we'll see a significant increase on gross profit margins, again, as we had title, which is very profitable. Title has a gross profit margin of 80% or so as we add mortgage which is close to that as well. And so I think that Q1 will see sort of the baseline, and we're not going to see a reduction in Q2, Q3, Q4. We actually see an increase.

And hopefully, our goal is to be in the -- once mortgage and title insurance is fully developed, we will see gross profit margins in the high teens.

Tom White -- D.A. Davidson -- Analyst

Great. Thanks, guys.


And this will conclude our question-and-answer session. I'd like to turn the conference back over to Josh Harley for any closing remarks.

Josh Harley -- Founder and Chief Executive Officer

Thanks, operator, and thanks to all of you for joining our call today and for your continued support. We're excited about the long-term prospects for our company, and we anticipate even more growth ahead. With our culture of service and everything that we do at Fathom, we will always focus on enhancing value to our agents and, of course, to our shareholders. Please note that we are available to take your questions and hop on calls if time permits.

So if you want to learn more about Fathom, please reach out. Have a wonderful evening, everyone. And thank you.


[Operator signoff]

Duration: 51 minutes

Call participants:

Roger Pondel -- Investor Relations

Josh Harley -- Founder and Chief Executive Officer

Marco Fregenal -- President and Chief Financial Officer

Darren Aftahi -- ROTH Capital Partners -- Analyst

Tom White -- D.A. Davidson -- Analyst

Greg Kitt -- Pinnacle Fund -- Analyst

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