Fathom Holdings will pay at least 8 percent interest on a convertible note company executives say will provide more flexibility as they seek “cash flow profitability” by Q3.

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The parent company of Fathom Realty has borrowed $3.5 million from an existing investor, which the company says will give it more resources as it seeks “cash flow profitability” by the third quarter of this year.

Cary, North Carolina-based Fathom Realty kicked off the new year by raising agent transaction fees by 10 percent in the wake of a $9.9 million fourth quarter loss.

In reporting fourth quarter earnings in March, executives with parent company Fathom Holdings said they expected to rack up a first quarter adjusted loss of $1.3 million to $1.5 million (adjusted earnings before interest, taxes, depreciation and amortization or EBITDA).

According to the company’s 2022 annual report to investors, Fathom Holdings finished the year with $8.3 million in cash, down from $37.8 million at the end of 2021. In addition to operating losses, the decrease was attributed to $6 million in stock repurchases, $4 million in technology and business investments, and $3 million for acquisitions.

“We anticipate that our existing balances of cash and cash equivalents and future expected cash flows generated from our operations will be sufficient to satisfy our operating requirements for at least the next twelve months,” the company said in the March 30 report.

In announcing the new funding Thursday, Fathom said it will pay a minimum interest rate of 8 percent on the senior secured convertible promissory note, which matures in two years. The note can also be repurchased or converted into common stock at a conversion price of $6 per share.

Josh Harley

“Given the dynamic real estate market conditions, this capital provides us with additional operating liquidity and flexibility as we drive toward achieving adjusted EBITDA breakeven in Q2 and cash flow profitability in Q3 of this year,” Fathom CEO Josh Harley said, in a statement. “We are confident in reiterating our guidance for the next two quarters and remain optimistic about our business.”

Shares in Fathom Holdings, which have traded for as little as $3.25 and as much as $11.85 over the last 12 months, closed at $5.50 Thursday before the funding was announced.

Fathom Realty’s agent network grew by 28 percent last year, to 10,370 agents as of Dec. 31, and brokerage services accounted for 95 percent of Fathom Holdings’ fourth-quarter revenue.

But in the long run, Fathom is seeking to build an end-to-end real estate services platform that integrates residential brokerage, mortgage, title, insurance and software-as-a-service offerings to brokerages and agents. In addition to Fathom Realty, parent company Fathom Holdings’ brands include Dagley Insurance, Encompass Lending, intelliAgent, LiveBy, Real Results, Verus Title and Cornerstone.

On a March call with investment analysts, Harley said the company’s mortgage, title and insurance businesses “are relatively small today” but have the potential “to dramatically increase revenue” over time.

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Email Matt Carter

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