FATHOM HOLDINGS INC.
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 of the global environment as a result of the ongoing COVID-19 pandemic, the effect of COVID-19 will not be fully reflected in our results of operations and financial performance until future periods.
Overview
Fathom Realty LLC was originally founded in January of 2010 and later incorporated asFathom Holdings Inc. in the state ofNorth Carolina onMay 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 includeFathom Realty ,Dagley Insurance , Encompass Lending, intelliAgent, LiveBy, Real Results, andVerus Title .Fathom Realty Holdings, LLC , aTexas limited liability company ("Fathom Realty "), is a wholly owned subsidiary ofFathom 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 ).
Corporate Developments During 2022 and 2021
In
In
InMarch 2021 , the Company completed its acquisitions ofRed Barn Real Estate, LLC ("Red Barn ") andNaberly Inc. ("Naberly"). The acquisition ofRed Barn , a real estate brokerage business, is expected to help us to expand our reach in theAtlanta 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. InApril 2021 , the Company completed its acquisition of E4:9Holdings, 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
InJune 2021 , the Company completed its acquisition ofEpic Realty ("Epic"). The acquisition of Epic, a real estate brokerage business, should help us to expand our reach in theIdaho real estate market. We further augmented our realty presence inIdaho with the addition ofWoodhouse Group Realty ("Woodhouse")
inNovember 2021 . 19 Table of Contents
InNovember 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. InDecember 2019 , a novel strain of coronavirus, COVID-19, was identified inWuhan, China . This new coronavirus has caused a global health emergency and was declared a pandemic by theWorld Health Organization inMarch 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 endedDecember 31, 2021 , and the quarter endedMarch 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 theU.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 theU.S. and global economies continue to react. The impact of COVID-19 to the Company for the year endedDecember 31, 2021 , and for the three months endedMarch 31, 2022 , has been minimal. Despite the ongoing Pandemic, the Company's transactions and base of agents increased during 2021 and the first quarter ofMarch 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 endingDecember 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 theU.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.
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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 endedMarch 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 Results of Operations
Revenue
Our revenue primarily consists of commissions generated from real estate brokerage services. We also have other service revenue, including mortgage lending, title insurance, home and other insurance, and SaaS revenues.
Gross commission income
We recognize commission-based revenue on the closing of a transaction, less the amount of any closing-cost reductions. Revenue is affected by the number of real estate transactions we close, the mix of transactions, home sale prices, and commission rates. Other Services Revenue Mortgage Lending
We recognize revenue streams for our mortgage lending services business which are primarily comprised of loans sold, origination and other fees.
The gain on sale of mortgage loans represents the difference between the net sales proceeds and the carrying value of the mortgage loans sold and includes the servicing rights release premiums.
Servicing rights release premiums represent revenues earned when the risks and rewards of ownership of servicing 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.
Insurance Agency Service Revenues
The revenue streams for the Company's home and other insurance agency services
business are primarily comprised of new and renewal commissions paid by
insurance carriers. The transaction price is set as the estimated commissions to
be received over the term of the policy based upon an estimate of premiums
placed, policy changes and cancellations, net of restraint. The commissions are
earned 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.
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Title Service Revenues
Title services revenue includes fees charged for title search and examination,
property settlement and title insurance services provided in association with
property acquisitions and refinance transactions.
SaaS Revenues
The Company generates revenue from 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.
Operating Expenses
Commission and other agent-related costs
Commission and other agent-related costs consists primarily of agent commissions, less fees paid to us by our agents, order fulfillment, 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.
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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 withU.S. GAAP, we do not amortize goodwill.
Income Taxes
We have not recorded anyU.S. federal or state tax benefits for the net losses incurred during the period endedMarch 31, 2022 due to our uncertainty of realizing a benefit from those items. As ofDecember 31, 2021 , we had federal net operating loss carryforwards of approximately$24.3 million and state net operating loss carryforwards of approximately$12.8 million . Losses will begin to expire, if not utilized, in 2032. Utilization of the net operating loss carryforwards may be subject to an annual limitation according to Section 382 of the Internal Revenue Code of 1986 as amended, and similar state law provisions.
Results of Operations
Comparison of the Three Months EndedMarch 31, 2022 and 2021 (dollar amounts in thousands) Revenue Three Months Ended March 31, Change 2022 2021 Dollars Percentage Gross commission income$ 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 endedMarch 31, 2022 , gross commission income increased by approximately$34.9 million or 71%, as compared with the three months endedMarch 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 endedMarch 31, 2022 , transaction volume increased by 47%. During the three months endedMarch 31, 2022 , there were 10,087 real estate transactions compared to 6,874 transactions for the three months endedMarch 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 ofRed Barn , Epic and iPro. During the three months endedMarch 31, 2022 , average revenue per transaction increased by 24% to$8,931 from$6,874 during the three months endedMarch 31, 2021 . For the three months endedMarch 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 endedMarch 31, 2022 , commission and other agent-related costs increased by approximately$33.1 million , or 71%, as compared with the three months endedMarch 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 endedMarch 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 endedMarch 31, 2022 , technology and development expenses increased by approximately$1.1 million , or 283%, as compared with the year endedMarch 31, 2021 . The increase was primarily attributable to our ongoing investment in the intelliAgent platform and our newly acquired LiveBy business. For three months endedMarch 31, 2022 , general and administrative expenses increased by approximately$5.0 million , or 87%, as compared with the three months endedMarch 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 endedMarch 31, 2022 , marketing expenses increased by approximately$0.8 million , or 189%, as compared with the three months endedMarch 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 endedMarch 31, 2022 , depreciation and amortization expenses increased by approximately$0.6 million , or 2,624%, as compared with the three months endedMarch 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 ofRed 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 income tax expense of
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Liquidity and Capital Resources (dollar amounts in thousands)
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 $7.4 million compared to December
31, 2021 . We anticipate that our existing balances of cash and cash equivalents
and future expected cash flows generated from our operations will be sufficient
to satisfy our operating requirements for at least the next twelve months from
the date of the issuance of the unaudited interim consolidated financial
statements.
Our future capital requirements depend on many factors, including any future
acquisitions, our level of investment in technology, and our rate of growth into
new markets. Our capital requirements might also be affected by factors which we
cannot control such as the residential real estate market, interest rates, and
other monetary and fiscal policy changes, any of which could adversely affect
the manner in which we currently operate. Additionally, as the impact of
COVID-19 and other world events, such as the recent crisis in Ukraine , on the
economy and our operations evolves, we will continuously assess our liquidity
needs. In the event of a sustained market deterioration, we may need or seek
advantageously to obtain additional funding through equity or debt financing,
which might not be available on favorable terms or at all and could hinder our
business and dilute our existing shareholders.
Cash Flows
Comparison of the Three Months EndedMarch 31, 2022 and 2021 (dollar amounts in thousands) Three Months Ended March 31, Change 2022 2021 Dollars Percentage
Net cash provided by (used in) operating activities$ 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 Flows from Operating Activities
Net cash provided by operating activities for the three months endedMarch 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 endedMarch 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 Flows from Investing Activities
Net cash used in investing activities for the three months endedMarch 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 endedMarch 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 Flows from Financing Activities
Net cash used in financing activities for the three months ended
Net cash used in financing activities for the year ended
NON-GAAP FINANCIAL MEASURE
To supplement our unaudited interim consolidated financial statements, which are prepared and presented in accordance withU.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 expense (benefit), depreciation and amortization, transaction costs and stock-based compensation expense.
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 restricted
? stock awards and stock options, which have been, and will continue to be for
the foreseeable future, significant recurring expenses in our business and an
important part of our compensation strategy;
Adjusted EBITDA excludes transaction-related costs primarily consisting of
? professional fees and any other costs incurred directly related to acquisition
activity, which is an ongoing part of our growth strategy and therefore likely
to be reoccurring; and
Adjusted EBITDA excludes certain recurring, non-cash charges such as
? depreciation and amortization of property and equipment and capitalized
software costs, however, the assets being depreciated and amortized may have to
be replaced in the future.
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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) Critical 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.
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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 information on recent accounting standards, see Note 3 to our consolidated financial statements included elsewhere in this report.
JOBS Act Transition Period
InApril 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 thePublic 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 theU.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 priorJune 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.
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