FATHOM HOLDINGS INC. – 10-Q

The information in this Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") should be read in conjunction with
the Company's consolidated financial statements and the related notes set forth
in Item 1 of Part I of this Quarterly Report on Form 10-Q, our MD&A set forth in
the Form 10-K, and our audited consolidated financial statements and related
notes set forth in the Form 10-K. See Part II, Item 1A, "Risk Factors," below,
and "Special Note Regarding Forward-Looking Information," above, and the
information referenced therein, for a description of risks that we face and
important factors that we believe could cause actual results to differ
materially from those in our forward-looking statements. All statements herein
regarding the likely impact of COVID-19 and other potential risks constitute
forward-looking statements. When we cross-reference to a "Note," we are
referring to our "Notes to Unaudited Condensed Consolidated Financial
Statements," unless the context indicates otherwise. All amounts noted within
the tables are in thousands except per share amounts or where otherwise noted
and percentages are approximate due to rounding.

Given the volatility in the global environment due to the
COVID-19 pandemic, the effect of COVID-19 will not be fully reflected in our
results of operations and financial performance to future periods.

Insight

Fathom Realty LLC was originally founded in January of 2010 and later
incorporated as Fathom Holdings Inc. in the state of North Carolina on May 5,
2017. We are a national, technology-driven, real estate services platform
integrating residential brokerage, mortgage, title, insurance, and Software as a
Service ("SaaS") offerings to brokerages and agents by leveraging our
proprietary cloud-based software, intelliAgent. The Company's brands include
Fathom Realty, Dagley Insurance, Encompass Lending, intelliAgent, LiveBy, Real
Results, and Verus Title.

Fathom Realty Holdings, LLC, a Texas limited liability company ("Fathom
Realty"), is a wholly owned subsidiary of Fathom Holdings Inc. Fathom Realty
owns 100% of 35 subsidiaries, each an LLC representing the state in which the
entity operates (e.g., Fathom Realty NJ, LLC).

Company developments in 2022 and 2021

In January 2022the Company acquired Cornerstone, a real estate mortgage
an activity that should help expand the reach of the Company in the Washington
CC
and surrounding markets.

In February 2022the Company acquired iPro, a real estate brokerage firm
which is expected to help expand the Company’s reach in the Utah real estate
market.

In March 2021, the Company completed its acquisitions of Red Barn Real Estate,
LLC ("Red Barn") and Naberly Inc. ("Naberly"). The acquisition of Red Barn, a
real estate brokerage business, is expected to help us to expand our reach in
the Atlanta region real estate market. The acquisition of Naberly is
facilitating our further development of our proprietary intelliAgent platform to
enhance offerings and improve operational efficiency.

In April 2021, the Company completed its acquisition of E4:9 Holdings, Inc.
("E4:9"). The acquisition of E4:9 is part of our vision to build a vertically
integrated, end-to-end real estate operation by offering mortgage and insurance
services to our agents to further serve our customers.

Also in April 2021the Company finalized its acquisition of LiveBy, Inc.
(“Live”). We believe that the acquisition of LiveBy and its hyperlocal data and
technological platform reinforces the credibility of our real estate agents in their
respective geographic areas by showcasing their local expertise and helping
customers discover the best places to live.

In June 2021, the Company completed its acquisition of Epic Realty ("Epic"). The
acquisition of Epic, a real estate brokerage business, should help us to expand
our reach in the Idaho real estate market. We further augmented our realty
presence in Idaho with the addition of Woodhouse Group Realty ("Woodhouse")
in
November 2021.

                                                                              19

  Table of Contents
In November 2021, the Company completed an offering of common stock, which
resulted in the issuance and sale by the Company of 1,750,000 shares of common
stock, at a public offering price of $25.00 per share, generating gross proceeds
of approximately $35 million, of which the Company received approximately $32.5
million, after deducting underwriting discounts and other offering costs (the
"2021 Equity Offering").

COVID-19 and Other Risks
Our business is dependent on the economic conditions within the markets in which
we operate. Changes in these conditions can have a positive or negative impact
on our business. The economic conditions influencing the housing markets
primarily include economic growth, interest rates, unemployment, consumer
confidence, mortgage availability, and supply and demand.

In periods of economic growth, demand typically increases resulting in
increasing home sales transactions and home sales prices. Similarly, a decline
in economic growth, increasing interest rates and declining consumer confidence
generally decreases demand. Additionally, regulations imposed by local, state,
and federal government agencies can also negatively impact the housing markets
in which we operate.  Finally, national and global events, including
geopolitical instability, that impact economic conditions and financial markets,
including interest rates, can adversely impact the housing market.

In December 2019, a novel strain of coronavirus, COVID-19, was identified in
Wuhan, China. This new coronavirus has caused a global health emergency and was
declared a pandemic by the World Health Organization in March 2020 ("COVID-19''
or the "Pandemic"). In an effort to contain and slow the spread of COVID-19,
governments implemented various measures, such as, ordering non-essential
businesses to close, issuing travel advisories, cancelling large scale public
events, ordering residents to shelter in place, and requiring the public to
practice social distancing. In most states, real estate has been considered an
essential business. The spread of the Delta and Omicron variants of COVID-19 or
other more transmissible variants may extend the impact of COVID-19 on our
business.

We are continually monitoring the affects COVID-19 could have on our business.
We believe that in the states and regions in which we operate the social and
economic impacts, which include, but are not limited to, the following, could
have a significant bearing on our future financial condition, liquidity, and
results of operations: (i) restrictions on in-person activities associated with
residential real estate transactions arising from shelter-in-place, or similar
isolation orders; (ii) decline in consumer demand for in-person interactions and
physical home tours; and (iii) deteriorating economic conditions, such as
increased unemployment rates, recessionary conditions, lower yields on
individual investment portfolios, and more stringent mortgage financing
conditions. In response to COVID-19, the Company implemented cost-saving
measures early on to include the elimination of non-essential travel and
in-person training activities, and deferral of certain planned expenditures.

For the year ended December 31, 2021, and the quarter ended March 31, 2022, due
in part to the widespread availability of multiple COVID-19 vaccines, the
effects of the COVID-19 on business worldwide lessened. However, the continuing
impact from COVID-19, including inflationary pressure in the U.S. and world
economies due to supply chain and other issues, including recent increases in
interest rates, is not fully known and cannot be estimated as the U.S. and
global economies continue to react.

The impact of COVID-19 to the Company for the year ended December 31, 2021, and
for the three months ended March 31, 2022, has been minimal. Despite the ongoing
Pandemic, the Company's transactions and base of agents increased during 2021
and the first quarter of March 31, 2022. However, while the Company believes it
is well positioned in times of economic uncertainty, it is not able to estimate
the effects of COVID 19 on its results of operations, financial condition, or
liquidity for the year ending December 31, 2022 and beyond. If the Pandemic
continues, it might have a material adverse effect on the Company's financial
condition, liquidity, and future results of operations, as would the economic
policies enacted in the U.S. and other countries in response to the Pandemic,
world conditions resulting from the Pandemic.

Real estate agents

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

                                                                              20

  Table of Contents

We had the following number of agents as of:

            March 31,
          2022     2021     Change
Agents    9,006    6,045        49 %


Reportable Segments
Our reportable segments are Real Estate Brokerage, Mortgage and Technology. In
reporting periods prior to the Company's acquisitions of LiveBy and E:49, which
were competed in the second quarter of 2021, the Company aggregated its
identified operating segments into one reportable segment. Certain prior period
amounts for the three months ended March 31, 2021 have been revised to conform
to the current presentation. These changes have no impact on our previously
reported consolidated balance sheets or statements of operations

Components of our operating results

Revenue

Our income is mainly made up of commissions generated by real estate
brokerage services. We also have other service income including mortgages
loans, title insurance, home and other insurance, and SaaS revenue.

Gross commissions

We recognize commission-based revenue on the closing of a transaction, less the
amount of any closing-cost reductions. Revenue is affected by the number of real
estate transactions we close, the mix of transactions, home sale prices, and
commission rates.

Other Services Revenue

Mortgage Lending

We recognize revenue streams from our mortgage servicing operations that
consist primarily of loans sold, origination fees and other fees.

The gain on sale of mortgage loans represents the difference between the net
sales proceeds and the carrying value of the mortgage loans sold and includes
the servicing rights release premiums.

Management rights release premiums represent income earned when the risks and
the benefits of ownership of the management rights are transferred to third parties.

Retail origination fees are principally revenues earned from loan originations
and recorded in the statement of operations in other service revenue. Direct
loan origination costs and expenses associated with the loans are charged to
expenses when the loans are sold. Interest income is interest earned on
originated loans prior to the sale of the asset.

Revenue from insurance agency services

The revenue streams for the Company's home and other insurance agency services
business are primarily comprised of new and renewal commissions paid by
insurance carriers. The transaction price is set as the estimated commissions to
be received over the term of the policy based upon an estimate of premiums
placed, policy changes and cancellations, net of restraint. The commissions are
earned at the point in time upon effective date of the associated policies when
control of the policy transfers to the client.

The Company is also eligible for certain contingent commissions from insurers
based on the attainment of specific metrics (i.e., volume growth, loss ratios)
related to underlying polices placed. Revenue for contingent commissions is
estimated based on historical and current evidence of achievement towards each
insurer's annual respective metrics and is recorded as the underlying policies
that contribute to the achievement are placed. Due to the uncertainty of the
amount of contingent consideration that will be received, the estimated revenue
is constrained to an amount that is probable to not have a significant negative
adjustment. Contingent consideration is generally received in the first quarter
of the subsequent year.

                                                                              21

  Table of Contents

Title Service Revenues

Title services revenue includes fees charged for title search and examination,
property settlement and title insurance services provided in association with
property acquisitions and refinance transactions.

SaaS revenue

The Company generates revenue from subscriptions and services related to the use
of the LiveBy platform. The SaaS contracts are generally annual contracts paid
monthly in advance of service and cancellable upon 30 days' notice after the
first year. The Company's subscription arrangements do not provide customers
with the right to take possession of the software supporting the platform.
Subscription revenue, which includes support, is recognized on a straight-line
basis over the non-cancellable contractual term of the arrangement, generally
beginning on the date that the Company's service is made available to the
customer and is recorded as other service revenue in the statement of
operations.

Functionnary costs

Commission and other agent fees

Commission and other agent-related costs consists primarily of agent
commissions, less fees paid to us by our agents, order fulfillment, stock-based
compensation for agents, title searches, and direct cost to fulfill the services
provided. We expect commission and other agent-related costs to continue to rise
in proportion to the expected growth in our operations.

Operations and support

Operations and support consist primarily of direct cost to fulfill the services
from our mortgage lending, title services, insurance services and other services
provided. We expect operations and support to continue to rise in proportion to
the expected growth in our operations.

Technology and development

Technology and development expenses primarily include personnel costs, including
base pay, bonuses, benefits, and stock based compensation, related to ongoing
development and maintenance of our proprietary software for use by our agents,
customers, and support staff. Technology and development expenses also include
amortization of capitalized software and development costs, data licenses, other
software, and equipment costs, as well as infrastructure and operational
expenses, such as, for data centers, communication, and hosted services.

general and administrative

General and administrative expenses consist primarily of personnel costs,
including base pay, bonuses, benefits, and stock-based compensation, and fees
for professional services. Professional services principally consist of external
legal, audit, and tax services. In the short term, we expect general and
administrative expenses to increase in absolute dollars due to the anticipated
growth of our business and to meet the increased compliance requirements
associated with our operation as a public company. However, in the long term, we
anticipate general and administrative expenses as a percentage of revenue to
decrease over time, if and as we are able to increase revenue.

Marketing

Marketing expenses consist primarily of expenses for online and traditional
advertising, as well as costs for marketing and promotional materials.
Advertising costs are expensed as they are incurred. We expect marketing
expenses to increase in absolute dollars as we continue to expand our
advertising programs, including promotion of our newly acquired business lines
and we anticipate marketing expenses as a percentage of revenue to decrease over
time, if and as we are able to increase revenue.

                                                                              22

  Table of Contents

Depreciation and amortization

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

Income taxes

We have not recorded any U.S. federal or state tax benefits for the net losses
incurred during the period ended March 31, 2022 due to our uncertainty of
realizing a benefit from those items.  As of December 31, 2021, we had federal
net operating loss carryforwards of approximately $24.3 million and state net
operating loss carryforwards of approximately $12.8 million. Losses will begin
to expire, if not utilized, in 2032. Utilization of the net operating loss
carryforwards may be subject to an annual limitation according to Section 382 of
the Internal Revenue Code of 1986 as amended, and similar state law provisions.

Operating results

Comparison of the Three Months Ended March 31, 2022 and 2021 (dollar amounts in
thousands)

Revenue

                             Three Months Ended
                                  March 31,                   Change
                              2022          2021      Dollars     Percentage
Gross commission income    $    84,044    $ 49,156    $ 34,888            71 %
Other service revenue            6,038         490       5,548         1,132 %
Total revenue              $    90,082    $ 49,646    $ 40,436            81 %


For the three months ended March 31, 2022, gross commission income increased by
approximately $34.9 million or 71%, as compared with the three months ended
March 31, 2021. This increase was primarily attributable to an increase in
transaction volume and to an increase in average revenue per transaction due to
rising home prices. During the three months ended March 31, 2022, transaction
volume increased by 47%. During the three months ended March 31, 2022, there
were 10,087 real estate transactions compared to 6,874 transactions for the
three months ended March 31, 2021. Our transaction volume increased primarily
due to the organic growth in the number of agents contracted with us and agents
acquired through the acquisitions of Red Barn, Epic and iPro. During the three
months ended March 31, 2022, average revenue per transaction increased by 24% to
$8,931 from $6,874 during the three months ended March 31, 2021.

For the three months ended March 31, 2022, other service revenue was
approximately $6.0 million and was attributable to the Company's acquisitions of
Verus, E4:9 and LiveBy.

                                                                              23

  Table of Contents

Operating Expenses

                                                    Three Months Ended
                                                         March 31,                   Change
                                                     2022          2021      Dollars     Percentage
Commission and other agent-related costs          $    79,479    $ 46,400  
 $ 33,079            71 %
Operations and support                                  2,175          68       2,107         3,099 %
Technology and development                              1,474         385       1,089           283 %
General and administrative                             10,854       5,819       5,035            87 %
Marketing                                               1,163         402         761           189 %
Depreciation and amortization                             572          21         551         2,624 %
Total operating expenses                          $    95,717    $ 53,095    $ 42,622            80 %


For the three months ended March 31, 2022, commission and other agent-related
costs increased by approximately $33.1 million, or 71%, as compared with the
three months ended March 31, 2021. Commission and other agent-related costs
primarily includes costs related to agent commissions, net of fees paid to us by
our agents. These costs generally correlate with recognized revenues. As such,
the increase in commission and other agent-related costs compared to the same
period in 2021 was primarily attributable to an increase in agent commissions
paid due to higher transaction volume and rising home prices.

For the three months ended March 31, 2022, operations and support expenses were
approximately $2.2 million and were attributable to the Company's acquisitions
of Verus and E4:9.

For the three months ended March 31, 2022, technology and development expenses
increased by approximately $1.1 million, or 283%, as compared with the year
ended March 31, 2021. The increase was primarily attributable to our ongoing
investment in the intelliAgent platform and our newly acquired LiveBy business.

For three months ended March 31, 2022, general and administrative expenses
increased by approximately $5.0 million, or 87%, as compared with the three
months ended March 31, 2021. The increase in G&A was primarily attributable to
recently completed acquisitions and to increases in non-cash stock compensation
expense. It is anticipated that G&A expense will increase on an absolute dollar
basis going forward, driven by acquisitions and costs related to scaling and
integrating the Company's business lines. G&A as a percentage of revenue is
expected to decline over the long-term as revenue increases.

For the three months ended March 31, 2022, marketing expenses increased by
approximately $0.8 million, or 189%, as compared with the three months ended
March 31, 2021. The increase was attributable to an increase in direct
advertising costs primarily related to the Company's expansion in new regions
and markets and to promoting its newly acquired businesses.

For the three months ended March 31, 2022, depreciation and amortization
expenses increased by approximately $0.6 million, or 2,624%, as compared with
the three months ended March 31, 2021. The increase in depreciation and
amortization expense is due to the amortization of the intangible assets (other
than capitalized and purchased software for which amortization is included in
technology and development expense) acquired in connection with the acquisition
of Red Barn, E4:9, and Epic as well as an increase in depreciation expense due
to an increase in our depreciable asset base.

Income taxes

The Company recorded an income tax expense of $25,000 and of $5,000 for the three
months ended March 31, 2022 and 2021, respectively. The tax burden for the
three months completed March 31, 2022 is mainly the result of the current state
income tax liabilities.

                                                                              24

  Table of Contents

Liquidity and capital resources (amounts in thousands of dollars)

Capital Resources

                        March 31,      December 31,             Change
                          2022             2021          Dollars     Percentage
Current assets         $    46,216    $       54,450    $ (8,234)          (15) %
Current liabilities         20,188            21,072        (884)           (4) %
Net working capital    $    26,028    $       33,378    $ (7,350)          (22) %


To date, our principal sources of liquidity have been the net proceeds we
received through public offerings and private sales of our common stock, as well
as proceeds from loans. As of March 31, 2022, our cash totaled approximately
$30.5 million, which represented a decrease of $7.3 million compared to December
31, 2021. As of March 31, 2022, we had net working capital of approximately
$26.0 million, which represented a decrease of $7.4 million compared to December
31, 2021. 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 from
the date of the issuance of the unaudited interim consolidated financial
statements.

Our future capital requirements depend on many factors, including any future
acquisitions, our level of investment in technology, and our rate of growth into
new markets. Our capital requirements might also be affected by factors which we
cannot control such as the residential real estate market, interest rates, and
other monetary and fiscal policy changes, any of which could adversely affect
the manner in which we currently operate. Additionally, as the impact of
COVID-19 and other world events, such as the recent crisis in Ukraine, on the
economy and our operations evolves, we will continuously assess our liquidity
needs. In the event of a sustained market deterioration, we may need or seek
advantageously to obtain additional funding through equity or debt financing,
which might not be available on favorable terms or at all and could hinder our
business and dilute our existing shareholders.

Cash flow

Comparison of the Three Months Ended March 31, 2022 and 2021 (dollar amounts in
thousands)

                                                          Three Months Ended March 31,               Change
                                                            2022                2021          Dollars     Percentage
Net cash provided by (used in) operating activities    $        1,641      $        (981)    $   2,622         (267) %
Net cash used in investing activities                  $      (2,652)      $      (2,666)    $      14           (1) %
Net cash used in financing activities                  $      (6,308)      $          (4)    $ (6,304)            NM


Cash flow from operating activities

Net cash provided by operating activities for the three months ended March 31,
2022 consisted of a net loss of $6.0 million, non-cash charges of $2.3 million,
including $2.4 million of stock-based compensation expense and $1.1 million of
depreciation and amortization, offset by $1.2 million in gains on the sales of
mortgages. Changes in assets and liabilities were primarily driven by a $61.5
million change in mortgage loans held for sale; partially offset by a $67.7
million increase in proceeds from the sales and principal payments on mortgage
loans held for sale.

Net cash used in operating activities for the three months ended March 31, 2021
consisted of a net loss of $3.4 million, non-cash charges of $1.0 million,
including $0.9 million of stock-based compensation expense, $0.1 million of bad
debt, $0.1 million of gain on extinguishment of debt, and $0.1 million of
depreciation and amortization and lease expense. Changes in assets and
liabilities were primarily driven by a $0.6 million decrease in prepaid and
other current assets, a $0.6 million increase in accounts payable due primarily
to the increase in agent transaction volume, a $0.6 million increase in accrued
liabilities, partially offset by a $0.2 million increase in agent annual fees
receivable due primarily to an increase in the number of agents, and a $0.1
million decrease in escrow liabilities.

Cash flow from investing activities

Net cash used in investing activities for the three months ended March 31, 2022
consisted of $1.5 million for business acquisitions, net of cash acquired, $0.3
million for purchases of property and equipment and $0.8 million for purchases
of intangible assets.

                                                                              25

  Table of Contents
Net cash used in investing activities for the three months ended March 31, 2021
consisted of $2.1 million for the purchase of a business and assets, net of cash
acquired, $0.4 million for purchases of computers and equipment, and $0.1
million for the purchase of capitalized software.

Cash flow from financing activities

Net cash used in financing activities for the three months ended March 31, 2022
consists mainly of a change of $4.9 million on our warehouse lines from
credit, net of the impact of the Cornerstone acquisition, $1.0 million in
repurchase of common shares and $0.5 million in principal repayments on notes
payable.

Net cash used in financing activities for the year ended March 31, 2021
consisted of principal repayments on an outstanding loan.

NON-GAAP FINANCIAL MEASURE

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

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

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

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

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

Adjusted EBITDA excludes stock-based compensation expense related to

? stock awards and stock options, which have been and will continue to be for

the foreseeable future, significant recurring charges in our business and a

important part of our compensation strategy;

Adjusted EBITDA excludes transaction-related costs consisting primarily of

? professional fees and all other costs incurred directly related to the acquisition

activity, which is in line with our growth strategy and therefore likely

to reproduce; and

Adjusted EBITDA excludes certain non-cash recurring charges such as

? depreciation of property, plant and equipment and fixed assets

software costs, however, depreciated assets may have to

   be replaced in the future.


                                                                              26

  Table of Contents

The following tables present a reconciliation of Adjusted EBITDA to net loss,
the most comparable GAAP financial measure, for each of the periods presented
(amounts in thousands):

                                   Three months ended
                                       March 31,
                                   2022         2021
Net loss                         $ (5,997)    $ (3,400)
Other expense (income), net            337         (54)
Income tax expense                      25            5
Depreciation and amortization        1,061          102
Transaction-related cost                51          434
Stock- based compensation            2,407          870
Adjusted EBITDA                  $ (2,116)    $ (2,043)

Significant Accounting Policies and Estimates

Discussion and analysis of our financial condition and results of operations are
based on our financial statements, which have been prepared in accordance with
GAAP. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets and
liabilities and related disclosure of contingent assets and liabilities,
revenue, and expenses at the date of the financial statements. Generally, we
base our estimates on historical experience and on various other assumptions in
accordance with GAAP that we believe to be reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions or
conditions.

Critical accounting estimates are those that we consider the most important to
the portrayal of our financial condition and results of operations because they
require our most difficult, subjective, or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain.

Business Combinations
The Company accounts for its business combinations under the provisions of
Accounting Standards Codification ("ASC") Topic 805-10, Business Combinations
("ASC 805-10"), which requires that the purchase method of accounting be used
for all business combinations. Assets acquired and liabilities assumed are
recorded at the date of acquisition at their respective fair values. For
transactions that are business combinations, the Company evaluates the existence
of goodwill. Goodwill represents the excess purchase price over the fair value
of the tangible net assets and intangible assets acquired in a business
combination. ASC 805-10 also specifies criteria that intangible assets acquired
in a business combination must meet to be recognized and reported apart from
goodwill. Acquisition-related expenses are recognized separately from the
business combinations and are expensed as incurred.

The estimated fair value of net assets acquired, including the allocation of the
fair value to identifiable assets and liabilities, was determined using
established valuation techniques. A fair value measurement is determined as the
price we would receive to sell an asset or pay to transfer a liability in an
orderly transaction between market participants at the measurement date. In the
context of purchase accounting, the determination of fair value often involves
significant judgments and estimates by management, including the selection of
valuation methodologies, estimates of future revenues, costs and cash flows,
discount rates, and selection of comparable companies. The estimated fair values
reflected in the purchase accounting rely on management's judgment and the
expertise of a third-party valuation firm engaged to assist in concluding on the
fair value measurements. For each business combination completed during the
three months ended March 31, 2022, the estimated fair value of identifiable
intangible assets, primarily consisting of agent relationships and tradenames,
was determined using the relief-from-royalty and multi-period excess earnings
methods. The most significant assumptions under these methods include the
estimated remaining useful life, expected future revenue, annual agent revenue
attrition, costs to develop new agents, charges for contributory assets, tax
rate, discount rate and tax amortization benefit. Management has developed these
assumptions on the basis of historical knowledge of the business and projected
financial information of the Company. These assumptions may vary based on future
events, perceptions of different market participants and other factors outside
the control of management, and such variations may be significant to estimated
values.

                                                                              27

  Table of Contents
The determination and allocation of fair values to the identifiable assets
acquired and liabilities assumed are based on various assumptions and valuation
methodologies requiring considerable management judgment. The most significant
variables in these valuations are discount rates and the number of years on
which to base the cash flow projections, as well as other assumptions and
estimates used to determine the cash inflows and outflows. Management determines
discount rates based on the risk inherent in the acquired assets, specific
risks, industry beta and capital structure of guideline companies. The valuation
of an acquired business is based on available information at the acquisition
date and assumptions that are believed to be reasonable. However, a change in
facts and circumstances as of the acquisition date can result in subsequent
adjustments during the measurement period, but no later than one year from
the
acquisition date.

Recent Accounting Standards

For more information on recent accounting standards, see note 3 of our consolidated financial statements
financial statements included elsewhere in this report.

Transition period of the JOBS law

In April 2012, the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act")
was enacted. Section 107 of the JOBS Act provides that an "emerging growth
company" can take advantage of the extended transition period provided in
Section 7(a)(2)(B) of the Securities Act of 1933 (the "Securities Act") for
complying with new or revised accounting standards. Thus, an emerging growth
company can delay the adoption of certain accounting standards until those
standards would otherwise apply to private companies. We have irrevocably
elected not to avail ourselves of this extended transition period and, as a
result, we will adopt new or revised accounting standards on the relevant dates
on which adoption of such standards is required for other public companies.

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

Comments are closed.