Q4 2023 Fathom Holdings Inc Earnings Call

Participants

Alex Kovtun; IR; Gateway Group, Inc.

Marco Fregenal; Predisent & CEO; Fathom Holdings Inc

Joanne Zach; Senior Vice President, Finance; Fathom Holdings Inc

John Campbell; Analyst; Stephens Inc.

Tom White; Analyst; D.A. Davidson & Co.

Raj Sharma; Analyst; B.Riley Securities

Presentation

Operator

Good afternoon, and welcome to the Fathom Holdings Inc. Fourth quarter 2023 earnings conference call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Alex Kovtun with Gateway group. Please go ahead.

Alex Kovtun

Great. Thank you operator, and welcome everyone, to Fathom Holdings fourth quarter and year end 2023 conference call. I'm Alex Kovtun with Gateway Group, Fathom's investor relations firm.
Before I turn things over to this of the management team, I want to remind our listeners that's (technical difficulty) Reform Act of 1995. Such forward-looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the Risk Factors section of the Company's Form 10 K for the year ended December 31st, 2020, as well as the company's subsequent Form 10-Q's, the Company's upcoming Form 10 K for the year ended December 31st, 2023, and other Company filings made with the SEC. Copies of which are available on the SEC's website at www.SEC.gov. as a result of these 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 this call, we will be discussing adjusted EBITDA, which is a non-GAAP financial measure as defined by SEC Regulation G. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure is included in today's press release, which is now posted on Fathom's website.
So with that, I'll turn the call over to Fathom's President and CEO, Marco Fregenal. Marco?

Marco Fregenal

Thank you, Alex, and good afternoon, everyone, and a well warm welcome to everyone joining us for our fourth quarter and full year 2022 Earnings Call. I am incredibly proud of our Fathom family, and I'm grateful for your unwavering dedication, hard work and commitment to excellence. Your efforts have played a pivotal role in shaping that them into the exceptional company it is today.
Despite the challenges facing 2023, our team's resilience and determination have been truly remarkable. I am deeply thankful for all of you and your significant contributions to our continued success. I am proud of what Fathom has accomplished in 2023. Despite the challenging conditions in the residential real estate market, our team's commitment to our growth strategy allowed us to navigate the obstacles and make significant strides to position Fathom favorably for the upcoming year.
Fathom's total fourth quarter revenue was $74.1 million, a decrease of 11.2% from $83.4 million for the 2022 fourth quarter. The 10.1% decrease in brokerage revenue was primarily due to the decline in brokerage transactions, but it was partially offset by the 20.5% increase in ancilliary services, particularly in Fathom's mortgage business.
Total revenue for 2023 was $345.2 million, a decrease of 16% from $412.9 million for 2022. Adjusted EBITDA loss in non-GAAP measure improved for a total loss of $2.9 million in the fourth quarter of 2023 compared with an adjusted EBITDA loss of approximately $5.9 million in the fourth quarter of 2022. The improvement in adjusted EBITDA reflects our continued commitment to achieving and remaining adjusted EBITDA positive moving forward.
For the full year, adjusted EBITDA loss was $4.1 million in 2023 versus an adjusted EBITDA loss of $12.2 million for 2022. Our focus on market share expansion from legacy brokerage firms throughout the year remains steadfast. Notably, we experienced a substantial 13.7% growth in our agent network for the full year, which stands out compared to the reported domestic agent growth for all, but one of our public peers.
Both ongoing agent referral efforts and our introduction of workovers in key regions, including Louisiana, Massachusetts, California fields This growth.
In the fourth quarter of 2023, we implemented various programs to enhance agent recruitment, including the reintroduction of our producer parks in October, a program designed to attract high-performing agents that has yielded promising early results. We also observed a remarkable increase of over 200% in visitors to Adam's career space, starting from 2,100 visitors in Q3 of 2023. So an impressive 66 hundred visitors in Q4 of 2023. Additionally, our onboarding starts continued to gain momentum in Q4 of 2023, increasing by over 7% from Q3 of 2023.
Additionally in the fourth quarter further validates that we're winning through innovation and truly disruptive business model that continues to resonate among agents. Our new agents will value femtos proprietary cloud-based software, Intel agent, and they will also benefit from having additional Fathom services to offer the clients, including mortgage and insurance services as we continue to help our cost our agents grow their businesses, our cost to acquire one agent during Q4 remain low at approximately $1,050, making our breakeven on each agent less than $1,150 We'll earn on their first sale. We also maintain a strong retention rate, which is exceptionally positive news. Given the backdrop of agents leaving the industry.
Fathom completed approximately 38,139 real estate transactions in 2023, a decline of approximately 14.6% compared to the previous year, despite the challenges posed by elevated interest rates, which impacted transaction volumes across the real estate market and led to the lowest level of existing home sales in almost three decades fandom exhibit resilience. We also observed year-over-year transaction growth in key markets such as Nevada, Missouri and Utah, notably accomplishment underscores our ability to seize market share from legacy brokerage firms, showcasing our adaptability in a volatile environment.
Looking ahead, very optimistic about the anticipated impact of our producer Perks program on Asian transactions in 2024. This initiative will further enhance our market position and contribute to sustained growth in the coming year.
Now let's discuss our mortgage business while acknowledging its significant negative impact in our financial performance in 2023, our dedicated team has exerted a tremendous effort to turn things around in 2024 one notable Stride is our strategic expansion of our mortgage operations in Texas by acquiring Austin-based elite financing group. This move fortifies our existing presence in Dallas-Fort Worth market and extends our reach into Austin, enabling us to cater to a broader clientele across Texas. Recognizing the increasing demand and Latino segment, we have established a dedicated division within Encompass Lending Group to work closely with our Latino division at Phathom thus far, we're encouraged by the results for the first two months of this year, which showed an impressive 89% increase in file start compared to the same period in 2022. This positive momentum fueled our optimism for our mortgage business, continued success and growth in the months ahead. While Q4 is a challenging quarter for various title. We are encouraged given the 16% increase in BioSTAR for the first two months compared to last year. Moreover, we expect our recent announcement regarding the joint venture with agents in Texas to significantly improve our attachment rate and EBITDA. And during 2023 or eight, we're pleased that Fathom continue outperforming many of its peers regarding agent growth and transactions in the challenging market environment. Although the residential real estate industry remains difficult, we believe our future remains bright and by continued to grow our agent base. We're positioning them to continue success once the industry rebounds, we are making meaningful progress, advancing our growth strategy, expanding our agent network, optimizing our business for profitable growth and creating an industry leading commission model that continues to resonate well in the current real estate environment, and we'll continue to do so going forward.
So let's briefly discuss our goals for 2024. First, we remain focused on accelerating A.D.A.M.'s agent growth with the goal of returning our historical Asian growth rate of 25% to 30%.
Moving ahead, we'll focus more on attracting high-quality agents, teams and brokerages as our agent value proposition remains compelling in the current environment and our pipeline of opportunities remains robust. We believe we are the most attractive home for agents in the long term as we help them ultimately earn more money with an industry leading flat fee commission split to agents. Our goal remains to be one of the top four or five brands in every market where we operate, and we continue to progress towards those targets. We are now in 41 states and we're striving to be in all 50 states by the end of the year. We also plan to launch various marketing programs and new technology enhancements in the coming months to provide greater value to our agents, improving productivity and ultimately make them more success.
Our second goal is to achieve operating cash flow breakeven as early as the second quarter of 2024. While we remain committed to returning to positive adjusted EBITDA for the full year in 2024.
During the fourth quarter, we announced we revised an agent commission structure that we believe will add an estimated $3.1 million in EBITDA for 2024. We believe this slight increase in agent fees will have a minimal impact on our agents while helping them achieve our objectives and provide our agents with an ever improving agent offering. We also remain focused on identifying additional opportunities for operational efficiency to further reduce our expenses. In Q4 2023, we implement cost reductions totaling approximately $1 million per quarter, which should take full effect in Q1 of 2024. More importantly, this cost reduction should not sacrifice our growth trajectory as we have increased the size of our recruiting team and plan to continue growing the recruiting team in 2024 to support agent growth efforts.
Now turning our attention to ancillary businesses. We recognize the potential for these businesses to significantly augment our revenue enhanced profitability per transaction over time. Early indicators for 2024 are promising, suggesting the initiatives implemented in Q4 are starting to yield positive results. Notably, we are witnessing a substantial increase in fire stars for our mortgage and title businesses. This positive trend aligns with our strategic objectives and reinforces our belief in our ancillary businesses long-term viability. We do expect both businesses to outpace the growth of our core brokerage business and contribute in a significant manner to our EBITDA in 2024 and beyond. This week, we also announced a new joint venture between our title subsidiary And furthermore, YieldStar producers in Texas called various styles, Elite to improve agent productivity and ultimately enhance profitability. This strategic collaboration should elevate agent productivity, enhancing profitability for all parties involved. Their affiliate aims to provide our agents with elevated support, creating a platform that foster success and presents lucrative opportunities for increased earnings by forging this joint venture with confidence, we can further further bolster attach rates going forward. This will be the first of such joint ventures, and we look forward to it by creating others in the coming months.
Finally, we continue to focus our balance sheet to navigate the current environment and position them for growth opportunities in 2024. We believe our current cash position and overall liquidity provides us with a runway to grow the business and execute our strategy through operating cash flow breakeven in the last few quarters. And we have seen an increase in the number of smaller real estate brokerages interested in merging with larger companies. We believe that market consolidation will increase in 2024 and 2025. It is with that in mind that we'll continue to be opportunistic in our approach in acquiring smaller brokers in summary, we remain encouraged by the trends we're seeing across our business despite a more challenging quarter and year for family real estate industry. Even with today's economic uncertainty and subdued real estate market conditions. We believe the Fathom has a long and positive runway ahead, and we expect to turn the corner towards profitability growth in the coming quarters, while starting to show the operating leverage in our business. We are entering 2024 in a position of strength and optimism with the opportunities in front of us.
With that, I'd like to pass the call over to Joanne Zach, our Senior Vice President of Finance, So she can discuss our financial results in more detail.

Joanne Zach

Thanks, Marco. I'll start with a detailed review of our fourth quarter and full year 2023 results. Fourth quarter total revenue declined 11% year over year to $74 million compared with $83 million for last year's fourth quarter. This decline was primarily due to a 13% decrease in brokerage revenues. That was partially offset by a 21% increase in ancillary revenues, which were primarily related to our mortgage business, which benefited from slightly declining interest rates in the later part of Q4. And from our strategic expansion of mortgage operations in Texas.
For the 2023 year. Total revenue decreased 16% to $345 million compared to $413 million in the prior year. For the year, brokerage revenues declined by 17% and ancillary revenues declined by 11%. Overall revenues are lower in 2023 compared to 2022 due to lower transaction volumes attributable to rising home prices and for much of the year surging mortgage rates that May 2023, the least affordable market in decades.
Gaap net loss for the fourth quarter 2023 was $8.4 million or a loss of $0.5 per share compared with a loss of $9.9 million or a loss of $0.63 per share for the '22 4th quarter. Our net loss was lower in Q4 23 due to improved margins on our broker transactions attributable to our fee increase initiated in January 2023 and to our cost savings efforts that began in '22 and carry forward in '23, partially offset by an increase in stock compensation costs and increases in interest and income tax expenses. Gaap net loss for the full '23 year was $24 million or a loss of $1.47 per share compared with a GAAP net loss of $27.6 million or a loss of $1.73 per share for 2022. This reduction in net loss was attributable to our strategic cost saving efforts in all areas which included reductions in headcount reductions and third party vendor costs and payroll reductions for the management team, partially offset by an increase in stock compensation costs and amortization of intangible assets and increases in interest and income tax expenses.
Adjusted EBITDA loss, a non-GAAP measure was $2.9 million in the 2023 fourth quarter versus adjusted EBITDA loss of $5.9 million for the fourth quarter and 22, primarily due to a $1.5 million reduction in net loss, which included an increase in noncash stock compensation cost of $1 million and an increase in income tax expense and interest expense of $0.3 million and $0.1 million, respectively.
For the full year 23 adjusted EBITDA loss was $4.1 million versus an adjusted EBITDA loss of $12.2 million for '22 due to a $3.6 million reduction in net loss, which included an increase in noncash stock compensation cost of $3.9 million and an increase in noncash depreciation and amortization of $0.6 million.
G&a expense totaled $10.1 million for the 2023 fourth quarter, a decrease of 6.3% compared with $10.8 million for the fourth quarter of '22.
General and administrative expenses totaled $38.8 million for the full 2023 year, a decrease of 10.3% compared with $43.2 million for the fall 2022 year due to our cost cutting initiatives, partially offset by a $2.5 million increase in stock compensation costs in '23 compared to 2022. On a sequential basis, G&A increased by 300,000, primarily due to the additional G&A brought on by our mortgage operations expansion in Texas and to increase expenditures related to agent recruiting.
Expenses related to marketing activities with $0.9 million for the fourth quarter of 23 compared to $1.3 million in the fourth quarter of 22. For the full year 2023, marketing expenses decreased by $1.9 million to $3.3 million in 2023 compared to $5.2 million for the full year 2022. The 28.5% and 35.8% reduction in marketing expenses in Q4 and for the full year, respectively, reflect the benefits of our expense reductions implemented in late 22 and early 2023.
Now I'll spend some time reviewing our business segment results in more detail. As with all real estate companies, Q4 was a difficult quarter for our real estate division. We closed approximately 8,290 real estate transactions in the quarter, an 11% decrease from last year's fourth quarter. For the full year, we closed approximately 38,140 real estate transactions, a 14.7% decrease relative to the prior year. We ended the fourth quarter was 11,795 agents, which represented a 13.7% growth rate over the fourth quarter of 22. While the National Association of Realtors saw membership declines of approximately 1.6%, we have seen an increase of 26% and onboarding of starts in year to date over Q4, which should result in an increase in the number of agents joining Fathom going forward, revenue for the Real Estate division was approximately $69.4 million in the fourth quarter compared to $79.5 million for the same period last year, which represents a 12.8% decrease attributable to a decrease in transactions and the price of homes.
Adjusted EBITDA income in the real estate division was approximately $0.2 million in Q4 23, an increase of $1.5 million compared to adjusted EBITDA loss of $1.3 million in Q4 of 2022. For the full year, adjusted EBITDA income was $5.7 million in 2023 compared to $2 million for the full year of 2022. These improvements were achieved despite the decrease in transactions for Q4 23 and for the 2023 year and reflects our increase in fees implemented in January 2023 and the favorable impact of our continued cost-cutting measures.
Our mortgage business generated revenues of $1.8 million in Q4 2023 compared to $1.3 million in the prior year period. Mortgage adjusted EBITDA for Q4 2023 was a loss of $0.8 million compared to an adjusted loss of $1.1 million for the same period last year. For the 2023 year, although our mortgage business revenues declined by $1.1 million to $7.3 million compared to $8.3 million in the prior year, adjusted EBITDA loss for 2023 improved to $1.9 million compared to a $2.9 million adjusted EBITDA loss in 2022. This is due to continued strategic cost cutting measures our team continues to identify opportunities to reduce expenses to rightsize our mortgage business going forward, as well as to increase revenues by recruiting additional loan officers.
Ca, our insurance business generated revenues of $1.4 million for the quarter and a total of $6.3 million in revenues for the year, CA had positive adjusted EBITDA of $0.2 million for the 2023 quarter and $1.6 million for the full 2023 year, compared to adjusted EBITDA loss of approximately $0.1 million for the 2022 fourth quarter and $0.5 million of adjusted EBITDA income. For the full year 22, his title had revenues of $0.7 million for the quarter and $3.1 million for the year fairs titles. Adjusted EBITDA for the 2020 third quarter was a negative $0.2 million and a negative $0.6 million for the full year. We anticipate that our new Texas joint venture scheduled to commence business in early Q2 2024 and similar joint ventures with our top-producing real estate agents will add meaningful revenues and adjusted EBITDA for our title business.
Moving to our technology segment, revenues increased 10% to approximately $0.8 million compared to $0.7 million for last year's fourth quarter. Adjusted EBITDA loss increased from a loss of $0.2 million in the fourth quarter of last year to a loss of $0.5 million in the current quarter, reflecting our increased investment in managing and enhancing our technology platform led by team has significantly increased its footprint across the country to reach over 245 MLSs and 420,000 agents at the end of the quarter, led by powers more than 4 million community pages with over 100, 25,000 neighborhood reports created. We continue to be keenly focused on our balance sheet given the dynamic real estate market conditions.
We ended the quarter with a cash position of $7.4 million, which includes the $4.2 million in net proceeds from the offering we completed in December. We did not purchase any shares in the fourth quarter under the stock repurchase plan, and approximately $4 million remains under that authorization.
With that, I will turn the call back over to Marco for closing remarks.

Marco Fregenal

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

Question and Answer Session

Operator

(Operator Instructions) John Campbell, Stephens.

John Campbell

Marco, I'm hoping you could provide a little bit of direction on gross margin for the year I mean, there's some moving pieces with the agencies. It does sound like you're going to be in for a better year on ancillary services revenues. So I know that's going to have some some degree of an impact, but maybe as a starting point, if you held revenue flat year over year, what would what kind of impact would you expect from gross margin just from the fee increases and then however, you want to frame it up from there, just assuming any kind of revenue growth scenarios.

Marco Fregenal

Sure. Yes, absolutely. So my question fee fees increase is going to give us about 1 to 1.5 points on gross margin, just that by itself over the year. Okay. And that's, of course, on the on the royalty side. Right.
And then as we one of the things we are really really excited about is the growth in file starts for mortgage and title, especially the JV so as I as we mentioned in the call, we think that mortgage and title is going to outpace the growth of brokerage and therefore drive significant margin increase in gross profit margin. So we could see gross profit margins when you look at the combined businesses, north of 11% and probably by the end of the year, could see as high as 12% to 13%, depending how well our mortgage business. And one of the things I want to make sure in our mortgage growth is not so much. We're not really counting on a decrease in interest rates. The reason why our mortgage businesses is, um, is doing so well. It's because we're growing any more loan officers. Our under the leadership of Sean Sean varying from our state, we've been able to almost double the number of LOIs into our business and therefore, really growing the business. So if then the rates come down, second half, we can really see a significant increase in our mortgage business. So we're very excited about that. But in terms of margins, certainly 10% to 11%. When you look at the combined businesses and then depending how the rates change later in the year, we could see as high as 12%, 13%.

John Campbell

Okay. That's helpful. And then on the agent additions, I mean from a sequential standpoint, that was the best net adds you guys have had since the second quarter of 2022. Obviously, that was a far better kind of macro backdrop. So I'm hoping you can maybe unpack the strength there. And just maybe starting off, just roughly how much of that was inorganic? And then if you could talk to the underlying attrition rate and how that's looked versus prior periods?

Marco Fregenal

Yes. Yes, absolutely. Great question. So yes, it is the best month on sequential basis for our 2023. There are several key factors there. So first of all, our onboarding starts have significantly increased the month about their onboard and stars in Q4 or basically 77% higher than Q3. And so we are definitely attracting more agents and we actually had the highest number of gross number in terms of adding to the Company. Right.
And then now having said that and turnover is higher than expected. We are losing money just like everyone else, especially now producing agents. And so that is part of the formula to work. But definitely, we had the highest number of gross adds. And part of that is part of our, you know, a variety of different marketing programs that we started very late, Q3 really in Q4 that will continue in Q1. So we feel good about our agent growth going forward. We are going to be more focused on producing agents to have a variety of programs focused on that the booty producer works and some of them have yield and very early, some some really good results. So yes, we feel good about our agent growth. And you know, a lot of it has to do with that significant increase in visitors come to Fathom careers. We significantly increased that traffic coming in. And so all of that's going to contribute to a to a higher agent growth. And that's why one of the goals for this year is to come back to our historical 25% to 30% agent growth.

John Campbell

Okay. Thank you.

Operator

Darren Aftahi, Roth MKM.

Hey, this is Dillon on for Darren. Thanks for taking your questions. I wanted to follow up. First on the commentary you made about I think it was Q1 year-to-date onboarding being up 26%. Could you just first clarify that? And then if that is the case will you have to do to execute on the bulk of that number, so they don't slip through the cracks that are actually that was the onboarding into Dallas.

Marco Fregenal

The onboarding growth in Q4, right was Q4 on morning. Growth over that on like execution is this is one of the key things why we push our recurring. We are early on realized that our fab, I'm curious, page has significantly increased the traffic from 2100 to 6600 visitors. So therefore, we hired more recruiters to be able to follow up on that, right? So the execution really comes from just having a bigger team and having the ability to go execute on that. And the recruiting team is under cemented usually she does a phenomenal job of making sure that that happens right. And so but to clarify that, that is the growth in Q4 now that has continued in Q1. So we are seeing a significant growth in onboarding starts and traffic. So I think that the pattern that we've seen in Q4 will continue through 2024. And this is why, again we want to go back to 25% to 30% agent growth as one of our key goals for 2024.

Got you. And on the cost side, I guess with the $1 million cost savings, like how much of that did you realize in 4Q, so we can sort of get a better idea as to what Q1 might look like?

Marco Fregenal

My question, almost very little in Q4. The formula will be we will see that in Q1. And so as you look from Q4 to Q1 and you know, I think 90% to 95% will be a 5% to 10% when in Q4 in Q1 you see 100% stock comp. When comparing quarters you can almost compare the entire million as cost reduction.

Okay, perfect. Thank you.

Operator

Tom White, D.A. Davidson.

Tom White

Great. Thanks for taking my questions. Maybe just a quick follow-up on the Asian growth commentary, Marco, I'm just curious, would you say that some most of the attraction is a result of kind of corporate lead sort of initiatives and or I'm curious whether some of the kind of the rank and file existing agents of years get them doing a bit more of a main driver. And then I've got a couple of follow-ups here?

Marco Fregenal

Yes, Tom, good to talk to you on it. So there are two key factors, right? One is in is our AGM referring other agents that continues to be roughly 40% of our agent growth. And so that we continue to do that is a combination of both, right? Because what happens is, you know, as we from a from sort of the home office as we drive visitors to come to Cobham careers. Those with those, you know, agents registering their distributor to our additional directors across the country and our recruiters across the country. So they go hand-in-hand right also organically across the country. Our directors and recruiters are talking to wages and day, Dr. Phil's agents to the Pakcom, Corey. So it's a fairly cohesive process and it's very collaborative between the field and sort of the home office continue to drive the traffic, right? So I would say nothing really has changed other than and I'll just spend a little bit more money in marketing and have them continue to be viewed as a good place to lend when you compare our commissions in a flat fee compared to other companies, right? And so it's really a collaborative effort between everybody working together to make sure that we can continue to grow and really get back to the 25%, 30% agent growth that we had historically.

Tom White

Okay. Great. Appreciate that color. And then I guess just on the kind of your liquidity position, it sounds like you guys still kind of comfortable after the offering in the fourth quarter, but the housing market still a little slower to recover. And I guess there's a looming question mark around like commission lawsuits and stuff like that, like I'm just curious, like are you guys feeling like you're in a position where you can kind of go on offense a bit around the agent growth and kind of leaning into that? Are you still kind of maybe a bit more of a defensive posture?

John Campbell

Yes. Great question. No, we're definitely have, and that's why we spent a lot of money marketing in Q4 and seeing a significant increase in traffic to fathom careers. Right. From a liquidity standpoint, when you look at the cash burn in Q4 and then you take into effect increasing fees for Q1, combined with the cost reduction from buying to add in the results that we described in terms of five stars for mortgage and title, which should have a positive effect on EBITDA and revenue for both of those businesses. So when you combine all of that, we feel that cash burn in Q1 is going to improve significantly. And our goal by for Q2 is to be operational cash flow positive. And so when you put those two things together, we feel very good about our position to continue to be aggressive and continue to invest more in marketing and recruiting agents. So we feel very good about our position.
One of the things that we really feel great about is really the mortgage and title business just in terms of the turnaround behind the significant increase because as you know, those business can be very profitable. And and so this is one of the sort of the highlights of Q4 and then some of the updates we've given you. One is the significant increase in those businesses. And so we feel very excited about the growth of those. And then combine that with our brokerage business and insurance and technology is beginning to put together the recipe for a very successful 2024.

Tom White

Okay, that's great. And then just one last one, if I could. Your kind of targets around operating cash flow positive and adjusted EBITDA positive for the year? I mean, are you assuming any significant improvement in kind of the broader broader housing market or just kind of status quo?

Marco Fregenal

Yes. No, great question. We are not into our equation. We do not and factor. Any significant improvement in the market really is a combination of we think that the real estate market this year may go up a few percentage points in terms of growth. But in our in our internal growth model, we are modeling the business to stay flat. And so the business improves fantastic. We'll pick up the upside from that, but we are looking at the improvement in EBITDA and cash flow from the combined efforts of cost reduction, increasing fees and a significant improvement in our mortgage and title businesses. When you put all that together, we feel very good about operational cash flow positive for 2024.

Tom White

Great. Thank you.

Operator

Raj Sharma, B. Riley.

Raj Sharma

Yes. Thank you for taking my questions. Are my questions are? So you know, one is there is an agent growth. Your acquisitions is going to come from acquisition of groups or individual. I'm just trying to reconcile the gap of the level of growth you're having right now year on year to 25 for the year. So how much of that will come from referrals? And then we have another follow on question.

Marco Fregenal

Yeah, absolutely. So it's a combination of very factor. So we certainly tried to illustrate in our call that in the last four or five months, we've been approached by a lot of companies, small brokerages, large 10s and people looking for opportunities to move, right? And so the number of engagements in terms of the conversation we had really has significantly increased, right. And so we want to be very opportunistic. We think that we'll get back to 25%, 30% growth by primarily two factors. One, continue to drive more people to buy them careers through a variety of marketing programs that produce approach as we introduce offering bigger incentives for agents to refer other agents. So basically what we've been doing it, but sort of take it to the next one. Second is to be opportunistic. In some of these, you know, walk over. We'd like to walk over our process because typically can happen in 30, 60 days. We've done several of those last year. We'll do several of these this year, some cases into 100 to 200 agents.
And so Rajat will be a combination of both. They will be basically taking what we did last year and take it to the next level. And then with a combination of being strategic, especially going into markets that we don't have a strong presence. That's one of the things we really enjoy about workovers is that while we can't do a workover, someone in a company that has 100, 200 agents in a market that we just don't have a strong presence. It's a great way to enter into the market. And so we have been on a variety of conversations going on, right now, but to answer your question is will be a combination of taking what we've done in increasing this level of activity I and being opportunistic in some of these workovers and acquisitions.

Raj Sharma

Got it. And then you are not I mean, I just heard you answering another call another question. So you're not assuming a pickup in the transactions per agent for the rest of the year (multiple speakers) it's the new agents are going to be more productive or you're going to have all the productivity.

Marco Fregenal

So so it's not so much. I'm picking up a special much that we're modeling that there will be more transactions in the market, right? So let's think of from a macro standpoint, from a macro standpoint, we're going to make the assumption that the market is not going to increase significantly as a macro, we will increase number of transactions because, again, if we're going to one of the things we're doing is we really are focusing on higher producing agents were also helping some of our agents increase the number of transactions. We will probably see. And I want to maybe I need to clarify, Mike, we'll probably see an increase in productivity from our agents.
But because of those two factors right in recruiting more high-producing agents as well as helping some of our ages. We have a variety of marketing programs coming on the next 60 to 120 days. That's going to help our agents. Some of our agents depending on the market they are and if they take advantage. And so there will be a it will be a combination of that. But from a macro standpoint, I don't think, you know, adequately politically, we are modeling not a lot, almost no growth in the market if interest rates come down the second half, and we can probably have a two hour conversation rather. We believe that's going to happen on that day and we'll probably see an upside from a budgeting standpoint and a modeling standpoint, we are looking at a flat macro market. And so that hopefully that clarifies the audience.

Raj Sharma

So I guess I understand that is going to come from a combination of fees, this improvement. And I'm talking about the cash flow positive and the EBITDA is going to come from improvement in fees and cost reductions in the mortgage and title business. Can you quantify these three areas in terms of for example, after the customer you are looking to do?

Marco Fregenal

Well, the cost reduction is $1 million per quarter across the board so that we already implemented that and that will continue to do that.
The mortgage business, the mortgage business continues. Like I said, if you just think about the numbers, we grew file starts January February by almost 100%, right and so you take a look at the mortgage, the revenue that we did last year in mortgage, right? And if we can continue to grow that business by roughly 100%, then it will have a significant effect, right. So mortgage last year I believe was about $8.4 million in total revenues. Are this year's last year, $7.2 million in total revenue. If we're able to increase that by 50%, 60%, 70% and a significant percentage that goes to the bottom line, right?
And so that's part of the same thing with title, we are really up for renewal carefully optimistic about the title in the joint venture. We don't if that goes well in the next few months, we certainly do other ones. So a significant percentage of this increase in EBITDA will come from mortgage and title because of the increase in business now and again will come from the reductions in cost and then the $3.1 million increase in fees, right? So if you look at the math, you had $3.1 million increasing fees, $4 million cost reduction and then, you know, several million dollars increase EBITDA from title and mortgage. When you put all that together, I think it will it'll show a very favorable year.

Raj Sharma

Got it. That's very helpful. And then just lastly, on the title mortgage gross margins, how are they tracking? And I'm assuming you're going to you expect the increase in margins on title and mortgage too. The growth?

Marco Fregenal

No question. I mean that those businesses are very profitable, right? Especially and again, time is a very complex business because every state is different as you and I talked before, every state is different, some state or currently say some Phase I pilot status. These are different all of that. Right. But the gross margin on title is the gross profit margin target could be 70% and the gross profit margin in mortgage could be 60%, 70% is about right.
And so on a very profitable business if they if they are up to operate effectively and efficiently and they can be very profitable business, right? And so we're being very opportunistic and we have a great team. You know, one of the things about Adam, as you know, 2023 was a painful year for us, especially in our mortgage business. Mortgage business was a significant percentage of our loss. I think our mortgage business and title business may be turned out to be incredibly positive for us going forward. Investor believe that Josh and I've always had, right. And so I think that this is going to begin to demonstrate itself in 2024 and beyond. You know how much those two businesses can work hand-in-hand with that, we'll take on Congress, and we look forward to to continue to show in that.

Raj Sharma

Perfect. Thank you so much for answering the questions. I'll take it offline. Thank you. Good luck.

Marco Fregenal

Thank you, Raj.

Operator

(Operator Instructions) This concludes our question and answer session. I would like to turn the conference back over to Marco Fregenal now for any closing remarks.

Marco Fregenal

Thank you, operator, and thank you all of you for joining our call and your interest in Batam. For those of you our shareholders. Thank you for your trust. We continue to work very hard and look forward to sharing future updates with you. And I want to thank the entire Fathom family for all their hard work and dedication. It really takes a great group of individuals to be really focused in executing, especially in difficult times. And I'm very grateful for all their hard work and passion and commitment in the Tesla makes them a great company.
And with that, I thank everyone and I hope everyone has a great rest of the week. Thank you.

Operator

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