Rocket Companies Announces Second Quarter Results
DETROIT, Sept. 2, 2020 /PRNewswire/ -- Rocket Companies, Inc. (NYSE: RKT) ("Rocket Companies" or the "Company"), a Detroit-based holding company consisting of tech-driven real estate, mortgage and financial services businesses - including Rocket Mortgage, Rocket Homes and Rocket Auto - today announced results for the second quarter ended June 30, 2020.
Jay Farner, CEO of Rocket Companies, stated, "Rocket Companies had a very strong second quarter, thanks to our team members' hard work and dedication to our clients, as well as the incredibly scalable mortgage origination platform that allowed us to meet unprecedented demand. As a result, we were able to help more clients this quarter than any other in our 35-year history - all while more than 98% of our team members worked safely from their homes. Clearly, the strategy of investing in long-term growth paid off this quarter and, as we continue to strengthen and evolve the platform, will remain a significant advantage for our business well into the future.
"While I'm proud of our performance, I am even more encouraged by the significant opportunity that remains in front of us as we continue to execute on our plan of achieving 25 percent market share by 2030. It is clear that our simple, client-focused, digital approach is continuously and fundamentally disrupting the way our industries do business."
Second Quarter Financial Summary
ROCKET COMPANIES
($ amounts in millions)
Q2-20
Q1-20
Q2-19
Change
Change
Q2-20 vs Q2-20 vs
Q1-20 Q2-19
---
(Unaudited)
Closed loan origination volume $72,324 $51,704 $31,961 40% 126%
Gain on sale margin 5.19% 3.25% 3.23% 60% 61%
Net rate lock volume $91,978 $56,050 $34,109 64% 170%
Total revenue, net $5,037 $1,367 $938 268% 437%
Total expenses $1,576 $1,270 $992 24% 59%
Net income (loss) $3,461 $97 $(54) 3,458% N/A
Adjusted revenue $5,312 $2,110 $1,329 152% 300%
Adjusted net income $2,850 $655 $260 335% 995%
Adjusted EBITDA $3,837 $920 $396 317% 868%
Second Quarter Highlights
During the second quarter, Rocket Companies:
-- Generated record closed loan origination volume of $72.3 billion and net
rate lock volume $92.0 billion, which represented year-over-year
improvements of 126% and 170%, respectively.
-- Increased gain on sale margin compared to historical levels as favorable
market conditions boosted demand for mortgages and led to capacity
constraints in the industry.
-- Leveraged technology investments to manage surge in demand while
maintaining industry-leading turn times.
-- Grew total revenue, net, by 268% and adjusted revenue by 152% as
compared to the first quarter of 2020; during this time expenses
increased by 24%, primarily driven by higher variable compensation and
an increase in team members in production roles to support growth.
-- Increased other revenues as title insurance services, property valuation
and settlement services at Amrock grew as a result of the increase in
origination volume noted above.
-- In partnership with the Rocket Mortgage Classic PGA TOUR event,
announced the "Changing the Course" initiative, a multi-year campaign to
bring every Detroit resident access to the internet, technology and
digital literacy training they deserve within five years.
-- Earned 7th consecutive J.D. Power award for customer satisfaction in
mortgage servicing in July. We have achieved this milestone in each of
the 7 years since becoming eligible.
-- On August 10, 2020, Rocket Companies completed its initial public
offering ("IPO"). As such, it did not have any shares outstanding or
calculations of earnings per share for any periods prior to this date.
As of August 10, 2020, the Company had 100,372,565 of Class A shares
outstanding and 1,883,279,483 of Class D shares outstanding. An
additional 16,720,517 shares of Class A shares were reserved for
restricted stock units.
Current Environment
-- We continue to see strong consumer demand for home loans into the third
quarter of 2020.
-- As of August 31, 2020, approximately 96,000 clients, or 4.7% of our
total servicing portfolio, were on a forbearance plan related to
COVID-19.
Third Quarter Outlook
We expect the following ranges compared to the year-earlier period:
-- Net rate lock volume of between $93 billion and $98 billion, which would
represent an increase of 98% to 108% compared to $47.0 billion in the
third quarter of 2019.
-- Closed loan volume of between $82 billion and $85 billion, or an
increase of 105% to 112% compared to $40.3 billion in the third quarter
of 2019.
-- Gain on sale margins of 4.05% to 4.30%, which would be an improvement of
23% to 31% compared to 3.29% in the third quarter of 2019.
Balance Sheet Highlights
($ amounts in millions) June 30, December 31,
2020 2019
(Unaudited)
Cash and cash equivalents $1,724 $1,351
Mortgage servicing rights (MSRs),
at fair value $2,289 $2,875
Funding facilities $15,686 $12,042
Other financing facilities and debt $2,637 $2,595
Equity $5,536 $3,503
-- Subsequent to June 30, 2020 and prior to the IPO, we distributed $2.26
billion to our parent company, Rock Holdings Inc.
-- We remain in a strong liquidity position following the IPO, with total
liquidity of $3.7 billion including $1.0 billion of cash on-hand plus
$2.7 billion of undrawn lines of credit and corporate cash used to
self-fund loan originations which could be transferred to funding
facilities (warehouse lines) at our option.
Direct to Consumer
In the Direct-to-Consumer segment, clients have the ability to interact with our Rocket Mortgage app and/or with our mortgage bankers. We market to potential clients in this segment through various performance marketing channels. Servicing activities are fully allocated to the Direct to Consumer segment as they are viewed as an extension of the client experience, with the primary objective being to establish and maintain positive, regular touchpoints with our clients. These activities position us to be the natural choice for clients' next refinance or purchase mortgage transaction.
DIRECT TO CONSUMER
($ amounts in millions)
Q2-20
Q1-20
Q2-19 Change Change
Q2-20 vs Q2-20 vs
Q1-20 Q2-19
---
Direct to Consumer
(Unaudited)
Funded Loan Volume $46,777
$31, 691 $19,241 48% 143%
Funded Loan Gain on Sale Margin 5.09% 4.69% 4.25% 9% 20%
Revenue $3,939 $1,043 $757 278% 420%
Adj. Revenue $4,213 $1,786 $1,148 136% 267%
Contribution Margin (1) $3,264 $1,005 $542 225% 503%
(1) We measure the performance of the
segments primarily on a
contribution margin basis.
Contribution margin is intended to
measure the direct profitability
of each segment and is calculated
as Adjusted Revenue less directly
attributable expenses. Adjusted
Revenue is a non- GAAP financial
measure described below. Directly
attributable expenses include
salaries, commissions and team
member benefits, general and
administrative expenses, and other
expenses, such as direct servicing
costs and origination costs.
Partner Network
Our Rocket Pro platform supports our Partner Network segment and enables the ability to offer mortgage solutions with a superior client experience. Our two primary types of partnerships are marketing and influencer. Our marketing partnerships consist of well-known, consumer-focused companies that find value in our award-winning client experience and want to offer their clients mortgage solutions with our trusted, widely recognized brand. Our influencer partnerships are typically with companies that employ licensed mortgage professionals who find value in our client experience, technology and efficient mortgage process. In some cases, mortgages are not their primary offering.
PARTNER NETWORK
($ amounts in millions)
Q2-20
Q1-20
Q2-19
Change
Change
Q2-20 vs Q2-20 vs
Q1-20 Q2-19
---
Partner Network
(Unaudited)
Funded Loan Volume $19,732 $19,332 $11,233 2% 76%
Funded Loan Gain on Sale Margin 2.10% 0.79% 0.42% 166% 400%
Revenue $783 $235 $116 223% 575%
Adj. Revenue $783 $235 $116 223% 575%
Contribution Margin (1) $643 $143 $57 350% 1,028%
(1) We measure the performance of the
segments primarily on a
contribution margin basis.
Contribution margin is intended to
measure the direct profitability
of each segment and is calculated
as Adjusted Revenue less directly
attributable expenses. Adjusted
Revenue is a non- GAAP financial
measure described above. Directly
attributable expenses include
salaries, commissions and team
member benefits, general and
administrative expenses, and other
expenses, such as direct servicing
costs and origination costs.
Second Quarter Earnings Call
Rocket Companies will host a live conference call at 4:30 p.m. ET on September 2, 2020 to discuss the company's second quarter earnings results for the quarter ended June 30, 2020. The conference call can be accessed by registering online at www.directeventreg.com/registration/event/2496925. Upon registering, each participant will be provided with call details and a registrant ID. A live webcast of the event will be available online at ir.rocketcompanies.com.
Condensed Combined Statements of Income
(Dollars in Thousands)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Income:
Revenue
Gain on sale of loans:
Gain on sale of loans excluding fair value of MSRs, net $
4,083,661 $
666,796 $
5,370,351 $
1,097,370
Fair value of originated MSRs 669,923 445,663 1,205,342 742,335
Gain on sale of loans, net 4,753,584 1,112,459 6,575,693 1,839,705
Loan servicing loss:
Servicing fee income 249,842 240,255 506,935 464,861
Change in fair value of MSRs (552,843) (598,262) (1,544,095) (1,073,963)
Loan servicing loss, net (303,001) (358,007) (1,037,160) (609,102)
Interest income (expense):
Interest income 78,039 61,585 152,081 108,637
Interest expense on funding facilities (53,756) (32,430) (93,215) (56,043)
Interest income, net 24,283 29,155 58,866 52,594
Other income 562,265 153,938 806,567 286,120
Total revenue, net 5,037,131 937,545 6,403,966 1,569,317
Expenses
Salaries, commissions and team member benefits 853,750 486,768 1,537,200 944,546
General and administrative expenses 288,494 165,343 482,060 331,182
Marketing and advertising expenses 202,198 227,764 420,190 436,661
Depreciation and amortization 16,189 17,687 32,304 35,792
Interest and amortization expense on non-funding debt 33,168 33,086 66,275 66,168
Other expenses 161,452 61,156 286,041 109,576
Total expenses 1,555,251 991,804 2,824,070 1,923,925
Income (loss) before income taxes 3,481,880 (54,259) 3,579,896 (354,608)
(Provision for) benefit from income taxes (20,669) 283 (21,405) 1,287
Net income (loss) 3,461,211 (53,976) 3,558,491 (353,321)
Net loss attributable to noncontrolling interest 436 325 877 652
Net income (loss) attributable to Rocket Companies $
3,461,647 $
(53,651) $
3,559,368 $
(352,669)
===
Condensed Combined Balance Sheets
(Dollars in Thousands)
June 30, December 31,
2020 2019
(unaudited)
Assets
Cash and cash equivalents $
1,724,035 $
1,350,972
Restricted cash 78,367 61,154
Mortgage loans held for sale, at fair value 17,628,535 13,275,735
Interest rate lock commitments ("IRLCs"), at fair value 2,393,764 508,135
Mortgage servicing rights ("MSRs"), at fair value 2,289,209 2,874,972
MSRs collateral for financing liability, at fair value 59,926 205,108
Notes receivable and due from affiliates 17,028 89,946
Property and equipment, net of accumulated depreciation and amortization of 192,173 176,446
$459,474 and $428,540, respectively
Lease right of use assets 256,183 278,921
Forward commitments, at fair value 6,328 3,838
Loans subject to repurchase right from Ginnie Mae 3,496,120 752,442
Other assets 714,789 499,658
Total assets $
28,856,457 $
20,077,327
===
Liabilities and equity
Liabilities:
Funding facilities $
15,685,860 $
12,041,878
Other financing facilities and debt:
Lines of credit 160,000 165,000
Senior Notes, net 2,235,721 2,233,791
Early buy out facility 241,752 196,247
MSRs financing liability, at fair value 58,926 189,987
Accounts payable 219,650 157,295
Lease liabilities 288,866 314,353
Forward commitments, at fair value 351,261 43,794
Investor reserves 63,012 54,387
Notes payable and due to affiliates 61,192 35,082
Loans subject to repurchase right from Ginnie Mae 3,496,120 752,442
Other liabilities 457,920 390,149
Total liabilities 23,320,280 16,574,405
Equity:
Net parent investment 5,527,173 3,498,065
Accumulated other comprehensive loss 5,929 (151)
Noncontrolling interest 3,075 5,008
Total equity 5,536,177 3,502,922
Total liabilities and equity $
28,856,457 $
20,077,327
===
GAAP to non-GAAP Reconciliations
Note: Non-GAAP reconciliation tables below may not foot due to rounding.
Reconciliation of Adjusted Revenue to Total Revenue, net
($ amounts in millions)
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
---
(Unaudited)
(Unaudited)
Total revenue, net $5,037 $938 $6,404 $1,569
Change in fair value of MSRs due to valuation 274 391
1, 018 712
assumptions (a)
Adjusted Revenue $5,312 $1,329 $7,422 $2,282
(a) Reflects changes in assumptions including discount rates and prepayment speed assumptions, mostly due to changes in market interest rates.
Reconciliation of Adjusted Net Income to Net Income Attributable to Rocket Companies
($ amounts in millions)
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
---
(Unaudited)
(Unaudited)
Net income (loss) attributable to Rocket Companies $3,462 $(54) $3,559 $(353)
Adjustment to the provision for income tax (a) (842) 13 (866) 86
---
Tax effected net income (loss) (a) 2,620 (41) 2,694 (267)
Non-cash stock compensation expense 31 8 60 17
Change in fair value of MSRs due to valuation 274 391 1,018 712
assumptions (b)
Tax impact of adjustments (c) (76) (98) (267) (181)
---
Adjusted Net Income $2,850 $260 $3,505 $282
(a) Rocket Companies will be subject to U.S. Federal income taxes, in addition to state, local and Canadian taxes with respect to its allocable share of any net taxable income of RKT Holdings, LLC. The adjustment to the provision for income tax reflects the effective tax
rates below, assuming Rocket Companies owns 100% of the non-voting common interest units of RKT Holdings, LLC.
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
---
(Pro Forma)
(Pro Forma)
---
Statutory U.S. Federal Income Tax Rate 21.00% 21.00% 21.00% 21.00%
Canadian taxes 0.01% 0.01% 0.01% 0.01%
State and Local Income Taxes (net of federal 3.76% 3.76% 3.76% 3.76%
benefit)
---
Effective Income Tax Rate 24.77% 24.77% 24.77% 24.77%
---
(b) Reflects changes in assumptions including discount rates and prepayment speed assumptions, mostly due to changes in market interest rates.
(c) Tax impact of adjustments gives effect to the income tax related to non-cash stock compensation expense and change in fair value of MSRs due to valuation assumptions at the above described effective tax rates for each year.
Reconciliation of Adjusted EBITDA to Net Income
($ amounts in millions)
Three Months
Six Months
Ended June 30, Ended June 30,
2020 2019 2020 2019
---
(Unaudited)
(Unaudited)
Net income (loss) $3,461 $(54) $3,558 $(353)
Interest and amortization expense on non-funding 33 33 66 66
debt
Income tax (benefit) provision 21 21 (1)
Depreciation and amortization 16 18 32 36
Non-cash stock compensation expense 31 8 60 17
Change in fair value of MSRs due to valuation 274 391 1,018 712
assumptions (net of hedges) (a)
---
Adjusted EBITDA $3,837 $396 $4,756 $477
(a) Reflects changes in assumptions including discount rates and prepayment speed assumptions, mostly due to changes in market interest rates.
Non-GAAP Financial Measures
To provide investors with information in addition to our results as determined by GAAP, we disclose Adjusted Revenue, Adjusted Net Income, and Adjusted EBITDA as non-GAAP measures which management believes provide useful information to investors. These measures are not financial measures calculated in accordance with GAAP and should not be considered as a substitute for revenue, net income, or any other operating performance measure calculated in accordance with GAAP, and may not be comparable to a similarly titled measure reported by other companies.
We define "Adjusted Revenue" as total revenues net of the change in fair value of mortgage servicing rights ("MSRs") due to valuation assumptions. We define "Adjusted Net Income" as tax-effected earnings before stock-based compensation expense and the change in fair value of MSRs due to valuation assumptions, and the tax effects of those adjustments. We define "Adjusted EBITDA" as earnings before interest and amortization expense on non-funding debt, income tax, and depreciation and amortization, net of the change in fair value of MSRs due to valuation assumptions (net of hedges) and stock-based compensation expense. We exclude from each of these non-GAAP revenues the change in fair value of MSRs due to valuation assumptions (net of hedges) as this represents a non-cash non-realized adjustment to our total revenues, reflecting changes in assumptions including discount rates and prepayment speed assumptions, mostly due to changes in market interest rates, which is not indicative of our performance or results of operation. Adjusted EBITDA includes interest expense on funding facilities, which are recorded as a component of "interest income, net", as these expenses are a direct cost driven by loan origination volume. By contrast, interest and amortization expense on non-funding debt is a function of our capital structure and is therefore excluded from Adjusted EBITDA.
We believe that the presentation of Adjusted Revenue, Adjusted Net Income and Adjusted EBITDA provides useful information to investors regarding our results of operations because each measure assists both investors and management in analyzing and benchmarking the performance and value of our business. Adjusted Revenue, Adjusted Net Income and Adjusted EBITDA provide indicators of performance that are not affected by fluctuations in certain costs or other items. Accordingly, management believes that these measurements are useful for comparing general operating performance from period to period, and management relies on these measures for planning and forecasting of future periods. Additionally, these measures allow management to compare our results with those of other companies that have different financing and capital structures. However, other companies may define Adjusted Revenue, Adjusted Net Income and Adjusted EBITDA differently, and as a result, our measures of Adjusted Revenue, Adjusted Net Income and Adjusted EBITDA may not be directly comparable to those of other companies.
Although we use Adjusted Revenue, Adjusted Net Income and Adjusted EBITDA as financial measures to assess the performance of our business, such use is limited because they do not include certain material costs necessary to operate our business. Additionally, our definitions of each of Adjusted Revenue, Adjusted Net Income and Adjusted EBITDA allows us to add back certain non-cash charges and deduct certain gains that are included in calculating total revenues, net, net income attributable to Rocket Companies or net income (loss). However, these expenses and gains vary greatly, and are difficult to predict. They can represent the effect of long-term strategies as opposed to short-term results. Adjusted Revenue, Adjusted Net Income and Adjusted EBITDA should be considered in addition to, and not as a substitute for, total revenues, net income attributable to Rocket Companies and net income (loss) in accordance with U.S. GAAP as measures of performance. Our presentation of Adjusted Revenue, Adjusted Net Income and Adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or nonrecurring items.
Forward Looking Statements
Some of the statements contained in this press release are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are generally identified by the use of words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "target," "will," "would" and, in each case, their negative or other various or comparable terminology. These forward-looking statements reflect our views with respect to future events as of the date of this release and are based on our management's current expectations, estimates, forecasts, projections, assumptions, beliefs and information. Although management believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. All such forward-looking statements are subject to risks and uncertainties, many of which are outside of our control, and could cause future events or results to be materially different from those stated or implied in this document. It is not possible to predict or identify all such risks. These risks include, but are not limited to, the risk factors that are described under the section titled "Risk Factors" in our Quarterly Report on Form 10-Q, Current Reports on Form 8-K, and other filings with the Securities and Exchange Commission. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this press release and in other filings. We expressly disclaim any obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by applicable law.
About Rocket Companies
Rocket Companies is a Detroit-based holding company consisting of personal finance and consumer service brands including Rocket Mortgage, Rocket Homes, Rocket Loans, Rocket Auto, Rock Central, Amrock, Core Digital Media, Rock Connections, Lendesk and Edison Financial. Since 1985, Rocket Companies has been obsessed with helping its clients achieve the American dream of home ownership and financial freedom. Rocket Companies offers an industry-leading client experience powered by our simple, fast, and trusted digital solutions. Rocket Companies has 20,000 team members across the United States. Its flagship company, Rocket Mortgage, has been named to Fortune magazine's list of "100 Best Companies to Work For" for 17 consecutive years.
Investor Relations Contacts:
Jason McGruder or John Shallcross
ir@rocketcompanies.com
(313) 373-7990
Media Contact:
Aaron Emerson
aaronemerson@rockcentraldetroit.com
(313) 373-3035
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