Rocket Companies, Inc. (RKT) on Q4 2022 Results - Earnings Call Transcript
Operator: Good afternoon. My name is David and I will be your conference operator today. At this time, I would like to welcome everyone to the Rocket Companies Inc. Fourth Quarter and Full Year 2022 Earnings Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Sharon Ng, Head of Investor Relations, you may begin your conference. Sharon Ng: Good afternoon, everyone and thank you for joining us for Rocket Companies earnings call covering the fourth quarter and full year of 2022. With us this afternoon are Rocket Companies CEO, Jay Farner; our current Director and future Interim CEO, Bill Emerson; our President and COO, Bob Walters; and our Chief Financial Officer, Brian Brown. Earlier today we issued our fourth quarter and full year earnings release which is available on our website at rocketcompanies.com under Investor Info. Also available on our website is an investor presentation. Before I turn things over to Jay, let me quickly go over our disclaimers. On today's call, we provide you with the information regarding our fourth quarter and full year 2022 performance as well as our financial outlook. This conference call includes forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and the assumptions we mentioned today. We encourage you to consider the risk factors contained in our SEC filings for a detailed discussion of these risks and uncertainties. We undertake no obligation to update these statements as a result of new information or further events, except as required by law. This call is being broadcast online and is accessible on our IR website. A recording of the call will be posted later today. Our commentary today will also include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics for our reported results can also be found in our earnings release issued earlier today as well as in our filings with the SEC. And with that, I'll turn things over to Jay Farner to get us started. Jay? Jay Farner: Thanks Sharon. Good afternoon and welcome to the Rocket Companies earnings call for the fourth quarter in full year of 2022. Today we're going to recap last year's achievements and highlight how we continue to innovate to enhance the Rocket client experience. We'll also discuss how we've put key pieces of our client engagement program in place with the goal of lifting conversion and lowering our cost to acquire clients and ultimately expanding our purchase market share and extending client lifetime value. But first, I want to take a moment to talk about the leadership transition we announced a few weeks ago. As you know, on June 1st, I will be retiring from my role as CEO. The last 27 years of Rocket and in particular the last six as CEO, have been among the most rewarding experiences of my life. We've accomplished so much together as a team, and I've made many lifelong friends. With all the excellent work accomplished in 2022 and into 2023, I believe now is the right time to step aside, so I can spend more time with my family while the company continues on its journey executing on these transformational strategies. I have to thank Dan Gilbert specifically. His mentorship and friendship for nearly three decades is something I'll always appreciate. One thing is for certain I have tremendous confidence in this team's ability to continue to execute the company's strategy. We have the brightest minds in the business and the depth and breadth of our leadership team has set the bar for the industry. My confidence also stems from the fact that Bill Emerson is taking the reins as Interim CEO upon my departure. Many of you know Bill, as he served as a CEO of Rocket Mortgage for 15 years. We've remained close and he's continued to lend his advice and his counsel. He has a true passion for Rocket Companies and we will work closely together to ensure a seamless transition. Bill, would you like to share any thoughts? Bill Emerson: Thanks Jay. It's great to be here with everybody today. As Jay noted, I've been with Rocket for three decades, including as Chief Executive Officer of Rocket Mortgage from 2002 to 2017. I've remained engaged in the business since that time through my position as Vice Chairman of Rock Holdings, which is the majority shareholder of Rocket Companies. I'm excited to roll up my sleeves and dig in with Jay and the rest of the company's phenomenal leadership team to build on our strong foundation and continue executing at a high level while the Board conducts a search for a permanent successor. On a personal note, Jay has been a great colleague and friend, and I want to take a moment to thank him for his tremendous impact on this organization. His vision for Rocket future has created a pathway for success and positioned Rocket very well. With that, I'll hand it back to Jay. Jay Farner: Thanks Bill. Now turning to our results. 2022 was a challenging year for the housing and mortgage industry, and one defined by rapid change. Over the past 12 months, eight increases in the Fed funds rate intended to reign in high inflation led to a sharp rise in mortgage rates. The 30-year fixed rate mortgage spiked from roughly 3% in January to more than 7% by the end of October. This represents the largest and steepest rise in roughly four decades. With the volatility and increased cost of financing, demand for rate and term refinance transactions shrink significantly while housing affordability and consumer concerns about looming recession weighed heavily on the home purchase market. Despite this backdrop, we continue to invest in innovative technology and programs to serve our clients better and to capture the immense opportunity. The mortgage industry is fragmented. The direct to consumer channel, Rocket's bread and butter from the beginning, represents the vast majority of the mortgage market. Our company has a long track record of disrupting mortgage refinance in this space and growing market share, and we believe we are well-positioned to do the same in the home purchase market, with products and ecosystem and client engagement programs that we've put in place. We believe we can grow our purchase share by delivering an engaging and differentiated client experience with the additional programs we've launched over the last 12 months, particularly to the millennial and first time home buyers who drive the industry. In fact, we've launched several significant achievements in 2022. We successfully integrated Rocket Money into the Rocket family and launched Rocket Rewards our innovative loyalty program. We unified our business under one Rocket brand and delivered a seamless Rocket accounts single sign on experience to our clients. And we will soon be expanding our credit card program include our awards card tied to home ownership. We also brought to market a broad suite of purchase focused mortgage products designed to give our clients the confidence to transact in a tough environment. Inflation Buster, which reduces a home buyer's monthly mortgage payment by one percentage point in the first year of their loan and addresses today's home affordability challenges has resonated very strongly with our clients. We then paired Inflation Buster with our Rate Drop Advantage program, which covers many of the costs to refinance in the years ahead of rates fall. I'm also proud of our initiatives to expand access to home ownership to underserved communities. In November, we introduced a conventional loan option for Americans who are interested in purchasing or refinancing a manufactured home. We also unveiled a special purpose credit program that offers credits for first time home buyers to use toward their mortgage costs available in specific census tracks in Atlanta, Baltimore, Chicago, Detroit, Memphis, and Philadelphia. With home equity levels at record highs, we're helping existing homeowners achieve their financial goals with cash out refinance options, as well as our closed in second home equity loan product for those who are looking to tap the current equity available in their house without sacrificing the favorable interest rate on their first mortgage. Turning to the fourth quarter. We grew the number of Rocket accounts to 25.4 million as of December 31st. Rocket accounts, a key north star metric represents clients who have taken the action to create an account with us and with whom we may have the visibility on credit worthiness, spending behavior, finances, and home buying intent and more. We believe that these clients are more likely to engage and that we can craft bespoke experiences for them delivering the right offer to the right client at the right time. Rocket Money drove a significant amount of growth in Rocket accounts and had its biggest month of premium member growth in its eight year operating history in January. In addition, on January 2nd, Rocket Money took the top spot for daily downloads in the iOS app store finance category, and also reached top 10 in the overall iOS app store. In a few short months since our launch of Rocket Rewards in October, we are seeing strong client adoption and engagement. Rocket Rewards has enrolled more than 1 million clients and approximately $600,000 in point value have been redeemed, helping clients lower closing costs. This proprietary loyalty program gives our clients points for taking certain actions such as downloading a 1098 tax form, completing learning activities, and submitting mortgage applications, ultimately helping to drive engagement across the Rocket ecosystem. While it's early, we are particularly encouraged to see that the lead to close conversion rate for Rocket Rewards clients is more than double that of clients who did not use Rocket Rewards in our control population. We are expanding the rewards program based on this success, and we are excited to announce that just last month, we introduced Rocket Rewards to our 2.5 million servicing clients. Last quarter we also launched our Home Buying Plan to a select group of clients, and broader rollout is currently underway. Home Buying Plan is a guided digital experience that helps our clients prepare for home ownership and stay informed throughout their home buying journey. Clients can set home buying milestones, engage with personalized financial tools and credit building resources. They can search for their dream home and receive advice on how to stay on track to be more confident home buyers. Home Buying Plan enables us to engage with clients, providing them with help and guidance as they prepare for their next transaction. We will be launching even more Rocket exclusive initiatives to make the client purchase experience smoother and easier leading into the spring buying season. In aggregate, all of these client engagement programs help us elevate the Rocket client experience and keep our clients engaged until they're ready to purchase their dream home or refinance with Rocket. As I said before, we are uniquely positioned to help our clients through every step of the home ownership journey from the financial planning and education process well before they apply for a mortgage to searching for and the financing of their new home, as well as title and closing. It's all within the Rocket ecosystem. Let me take a moment to illustrate the Rocket client experience with this example. Our client might begin their relationship with Rocket by using Rocket Money's financial planning tools and creating a Rocket account. We identify their desire to become a homeowner and introduce the digital Rocket dashboard with Home Buying Plan. The client can bank loyalty points by joining the Rocket Rewards program, consuming content on the purchase process, as well as obtaining a verified approval letter. This is just the beginning. Rocket Homes tools put the Power of Homes search into our client's hands, making personalized recommendations on properties that meet their targeted neighborhoods, price range, and amenities. Additionally, local Rocket Homes real estate agents are available to provide personalized services when needed. Utilizing data we already have through the Rocket account, we can streamline the mortgage application process and help the client purchase and close on their first home. With our industry-leading servicing and 90%-plus retention rates, we can recapture the client through a refinance transaction when rates drop. With the full suite of Rocket products and our commitment to client service, we hope to nurture and retain the client over the course of their journey as homeowners and so they're ready for their next transaction. We believe we have an excellent opportunity to deliver a more personalized experience to each of our 25.4 million Rocket accounts. Through our client engagement programs, we believe we can lift conversion, lower our cost to acquire clients, and extend client lifetime value. Over time we believe this will translate into substantial and sustainable market share growth, particularly in purchase and growth in revenue and profitability. In 2020 and 2021 we demonstrated the ability to scale our business and deliver best-in-class client service during the refinance heavy market. As we entered 2023 with key pieces of our client engagement program now in place, we can tap our sizable and growing Rocket account space to succeed in a purchase heavy market. Our assets are unmatched in the industry, our robust capitalization, our fortress balance sheet, and our platform and ecosystem just to name a few. Most importantly, I'm grateful to our leadership team and our team member's dedication to always putting our clients first. We are executing on our strategy, and we remain focused on fulfilling our mission to be the best at creating certainty in life's most complex moments so that our clients can live their dreams. With that, I'll turn it over to Brian. Brian Brown: Thank you, Jay and good afternoon, everyone. On today's call, I'll cover our financial results for the fourth quarter and full year 2022. I'll talk about the actions we're taking to improve the cost structure and the investments we're making in our platform. I'll conclude by sharing our outlook for the first quarter of 2023 and discuss what we're seeing in the current environment. As you heard from Jay, the mortgage industry faced an extremely difficult environment in 2022. Rapidly rising interest rates, declining consumer confidence and challenging affordability, impacted demand for purchase in refinance mortgage products throughout the year. To put the demand headwinds in perspective, the MBA's mortgage application index drop nearly 70% in 2022, the largest inter-year drop in the history of the data set going back to 1990. At the same time demand was falling, the mortgage industry faced excess capacity. We've seen players across the industry struggle to adjust to the volatile environment facing liquidity issues, retrenching or exiting the industry altogether. Against this backdrop, Rocket Companies continued to invest and innovate. We also took significant action to adapt to the changing market. From Q4, 2021 to Q4, 2022, we reduced our expenses by $3 billion or 40% on an annualized basis, while protecting our platform investments in focusing on client lifetime value in a purchase heavy mortgage market. For the full year 2022, Rocket delivered positive GAAP net income and adjusted EBITDA. As always, we're focused on driving operational efficiency and financial profitability while investing to position the company for sustainable long-term growth. Diving a bit further into the full year results, we delivered $133 billion in closed loan volume and $4.6 billion in adjusted revenue in 2022. Our GAAP net income for the year was $700 million or $0.28 per share. We reported $59 million in adjusted EBITDA. On an adjusted net income basis, we reported a loss of $137 million or $0.07 per share. Our GAAP results include the $1.2 billion mark-to-market appreciation of our mortgage servicing right asset during 2022, which is countercyclical in a rising rate environment. Moving onto fourth quarter results. Despite challenging market conditions, Rocket's fourth quarter adjusted revenue came in at $683 million, which was above the midpoint of our guided range. As we shared last quarter, we believe the switch to revenue guidance provides the best representation of Rocket's businesses, and most closely aligns with how we manage the company. In the fourth quarter, we generated closed loan volume of $19 billion, net rate locks of $15 billion, and our gain on sale margin was 217 basis points. Inflation Buster, our promotional purchase product running through the fall and winter resonated strongly with our clients and demand for the product exceeded expectations. This higher than expected demand for Inflation Buster negatively impacted gain on sale margins in the fourth quarter. It's worth noting that since the start of the first quarter through today, we have seen gain on sale margins improve by more than 20 basis points compared to fourth quarter levels, primarily due to a shift in promotional products. As a reminder, these levels are what we have observed year-to-date and may not provide forward-looking indication into the quarter. On an adjusted net income basis, we reported a loss of $197 million or $0.10 per share. Turning to expenses. We continue to execute a discipline and prudent approach to cost management. On our last earnings call, we committed to a further reduction in total expenses from the third quarter to the fourth quarter of $50 million to $100 million, and we far exceeded that estimate, reducing expenses by $202 million during the quarter. As we shared with you on the previous call, we have taken significant action to reduce our overall cost structure, and the fourth quarter was no different. In fact, if we look at the fourth quarter of 2022 compared to the fourth quarter of 2021 on an annualized basis, we have reduced our expense base by almost $3 billion or more than 40% of total costs. While monitoring our expenses closely, we're also focused on making the right investments in our platform to grow purchase market share, and extend client lifetime value. As Jay mentioned, we had several significant accomplishments in 2022 as we put foundational pieces of our client engagement program in place. We believe we have an excellent opportunity to deliver more personalized experiences to the high value clients within our 25.4 million Rocket accounts. Rocket Money is a critical piece of our platform strategy. Growth has accelerated at Rocket Money since our initial acquisition of Truebill in December, 2021 in rebranding last year. In fact, January, 2023 was the best month ever for Rocket Money premium member growth. As I mentioned last quarter, Rocket Money provides us with a distinct competitive advantage by acquiring clients for less than a hundred dollars per client. In contrast, the mortgage industry acquires a closed client for thousands of dollars. We see tremendous opportunity to lower our client acquisition costs by acquiring clients through Rocket Money. Clients acquired through Rocket Money are focused on their finances, intend to be much earlier in their home ownership journey. We are also encouraged to see early signs of success from Rocket Rewards, which as Jay highlighted, includes enrollment that has surpassed 1 million clients in the first few months. Client point redemptions in excess of $600,000 in very promising early lead to close conversion improvements. Our goal is to engage with a large and growing basic clients, particularly potential home buyers at a lower cost of acquisition with better conversion levels, using our industry-leading net retention rates to drive higher client lifetime value, ultimately positioning us to succeed in a purchase driven mortgage market. Overall, we believe the ability to provide these clients with a fully integrated experience early in their homeownership journey and throughout their lifetime as homeowners will be a game changer in our industry. Turning to our balance sheet. Rocket's financial strength is a major strategic advantage for us. We ended the fourth quarter with $3.3 billion of available cash and $6.9 billion of mortgage servicing rights. Together these assets represent a total of $10.2 billion of value on our balance sheet. Our $3.3 billion of available cash consists of $722 million of cash on the balance sheet and an additional $2.6 billion of corporate cash used to self-fund loan originations. Total liquidity stood at approximately $8.1 billion as of December 31st, including available cash plus undrawn lines of credit and or undrawn MSR lines. As of December 31st, our mortgage servicing portfolio included 2.5 million clients with $535 billion in unpaid principle. We also drive considerable recurring revenue from mortgage servicing. During the fourth quarter, we generated $371 million of cash revenue from our servicing book, which represents approximately $1.5 billion on an annualized basis. Net client retention remained over 90% in the fourth quarter, well above the industry average. Looking at the trends we're seeing in the first quarter, consumers remain concerned about a potential recession and rates continue to be volatile and sensitive to economic indicators. Despite this, for the first quarter, we expect adjusted revenue to be in the range of $700 million to $850 million, driven by an increase in production and improved margins compared to the fourth quarter. Regarding operating expenses, we expect Q1 to be relatively consistent with Q4, with a slight increase on an absolute basis, primarily as a result of seasonal items such as payroll taxes, and 401(k) resetting and higher variable expenses associated with increased production in revenue. It is worth noting that the expense total for Q1, 2023 is expected to be roughly 30% less than the Q1, 2022 figure. Looking ahead, we will continue to be diligent in managing expenses as we continue to monitor the macro environment with an eye towards profitability. As always, our forward looking guidance is based on our current outlook invisibility. Despite a challenging environment in 2022, we are proud of what we achieved as an organization and advanced our ability to serve our clients better in 2023 with key pieces of our platform in place to gain share in the purchase market and extend client lifetime value. With that, we're ready to turn it back over to the operator for questions. Operator: Thank you. [Operator Instructions] We'll take our first question from Kevin Barker with Piper Sandler. Your line is open. Operator: Next we'll go to James Faucette with Morgan Stanley. Your line is open. Operator: Next, we'll go to Ryan Nash with Goldman Sachs. Your line is now open. Operator: We'll go to Mark DeVries with Barclays. Your line is open. Operator: Okay. We'll take our next question from Kyle Joseph with Jefferies. Your line is open. Operator: Next, we'll go to Doug Harter with Credit Suisse. Your line is open. Operator: Next, we'll go to Arren Cyganovich with Citi. Your line is open. Operator: And we'll take our final question from Kevin Kaczmarek with Zelman & Associates. Your line is open. Operator: And that concludes the question-and-answer, go ahead. Operator: I'll just turn it back over to you, Jay. Jay Farner: All right. Well, I just want to thank everybody for joining us. I appreciate Bill being here. Glad to see him getting engaged, like I mentioned before, very excited to watch him help us execute on all of these great things that the team members have been working on. I appreciate everybody's hard work to get us to this point, and we've got to keep going and growing in 2023. Talk to you soon. Operator: This concludes today's conference call. You may now disconnect.RKT Ratings Summary
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Rocket Companies Inc. (NYSE: RKT) Gains Bullish Outlook from BTIG
Rocket Companies Inc. is a leading entity in the mortgage and financial services sector, renowned for its digital-first approach through its flagship product, Rocket Mortgage. The company stands out in the competitive landscape, which includes traditional banks and fintech firms, by offering streamlined and user-friendly services.
On August 18, 2025, BTIG initiated coverage on Rocket Companies with a "Buy" rating, reflecting a bullish stance on the stock. This recommendation comes at a time when the stock price witnessed a breakout, trading at $17.83. BTIG's positive outlook is in line with the market's growing recognition of Rocket's growth potential.
Despite the stock trading near its highs, Rocket's price-to-earnings-growth (PEG) ratio suggests significant upside potential, indicating that the stock's price may not fully reflect its expected future earnings growth. The PEG ratio points to the possibility that the recent breakout could be the start of a more extensive upward trend. As of now, Rocket's stock price stands at $17.83, experiencing a decrease of 3.78% with a change of $0.70. The stock has shown volatility, with a yearly high of $21.38 and a low of $10.06, indicating a broad trading range. With a market capitalization of approximately $4.56 billion and a trading volume of 10.99 million shares, Rocket Companies demonstrates strong investor interest. This level of market activity, coupled with BTIG's bullish outlook, could further propel the stock's upward movement.
Rocket Companies Report Q1 EPS Miss While Revenues Better Than Expected
Rocket Companies (NYSE:RKT) reported its Q1 earnings results on Thursday, with EPS coming in at ($0.16), missing the Street estimate of ($0.09). Revenue was $882 million, beating the Street estimate of $775.14 million.
Q1 results and Q2 guidance continue to reflect the pressure higher interest rates are having in the housing and mortgage market, while management looks to balance expense control against investing in the platform so that the company can take share when the mortgage markets return.
For Q2/23, the company expects adjusted net revenue to be in the range of $850 million - $1 billion, compared to the Street estimate of $1.04 billion.
