Rocket Companies(RKT) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements of Rocket Companies, Inc. for the period ended June 30, 2022, including the balance sheets, statements of income and comprehensive income, statements of changes in equity, and statements of cash flows, along with detailed notes explaining the company's business, accounting policies, fair value measurements, mortgage servicing rights, borrowings, related party transactions, income taxes, derivative instruments, commitments, and earnings per share Condensed Consolidated Balance Sheets This section presents the company's financial position, including assets, liabilities, and equity, as of June 30, 2022, compared to December 31, 2021 Condensed Consolidated Balance Sheets (June 30, 2022 vs. December 31, 2021, in Millions) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :---------------- | | Assets | | | | Cash and cash equivalents | $915.4 | $2,131.2 | | Mortgage loans held for sale, at fair value | $12,402.9 | $19,323.6 | | Mortgage servicing rights ("MSRs"), at fair value | $6,657.8 | $5,385.6 | | Total assets | $25,076.9 | $32,774.9 | | Liabilities | | | | Funding facilities | $7,647.2 | $12,751.6 | | Senior Notes, net | $4,025.2 | $4,022.5 | | Total liabilities | $16,304.7 | $23,015.4 | | Equity | | | | Total equity | $8,772.2 | $9,759.5 | Condensed Consolidated Statements of Income and Comprehensive Income This section provides a comparative overview of the company's revenues, expenses, and net income for the three and six months ended June 30, 2022 and 2021 Condensed Consolidated Statements of Income (Three Months Ended June 30, 2022 vs. 2021, in Millions) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :-------------------- | :------------------------------- | :------------------------------- | | Total revenue, net | $1,392.4 | $2,668.1 | | Total expenses | $1,313.9 | $1,607.4 | | Income before income taxes | $78.5 | $1,060.7 | | Net income | $59.8 | $1,036.7 | | Net income attributable to Rocket Companies | $3.4 | $61.1 | | Basic EPS | $0.03 | $0.45 | | Diluted EPS | $0.02 | $0.40 | Condensed Consolidated Statements of Income (Six Months Ended June 30, 2022 vs. 2021, in Millions) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :----------------------------- | :----------------------------- | | Total revenue, net | $4,063.0 | $7,207.0 | | Total expenses | $2,922.0 | $3,303.1 | | Income before income taxes | $1,141.0 | $3,903.9 | | Net income | $1,096.4 | $3,814.0 | | Net income attributable to Rocket Companies | $57.1 | $184.8 | | Basic EPS | $0.47 | $1.47 | | Diluted EPS | $0.43 | $1.46 | Condensed Consolidated Statements of Changes in Equity This section details the changes in the company's total equity, reflecting the impact of net income, dividends, and other equity transactions for the period Total Equity (June 30, 2022 vs. December 31, 2021, in Millions) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :---------------- | | Total Equity | $8,772.2 | $9,759.5 | - The company's total equity decreased by approximately $987 million from December 31, 2021, to June 30, 2022, primarily due to special dividends and distributions to unit holders, partially offset by net income and share-based compensation[18] Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2022 and 2021 Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30, 2022 vs. 2021, in Millions) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $6,585.3 | $2,557.7 | | Net cash provided by (used in) investing activities | $408.5 | $(4.9) | | Net cash used in financing activities | $(8,221.3) | $(2,555.2) | | Net decrease in cash and cash equivalents and restricted cash | $(1,227.5) | $(1.7) | | Cash and cash equivalents and restricted cash, end of period | $984.1 | $2,052.5 | Notes to Condensed Consolidated Financial Statements 1. Business, Basis of Presentation and Accounting Policies This note describes Rocket Companies as a Detroit-based FinTech holding company with tech-driven real estate, mortgage, and financial services businesses, including Rocket Mortgage, Amrock, Rocket Homes, Rocket Auto, Rocket Loans, and Rocket Money (formerly Truebill). The company operates in two segments: Direct to Consumer and Partner Network. It also details the basis of presentation, consolidation of Holdings as a VIE, the Truebill acquisition, management estimates, subsequent events, and special dividends - Rocket Companies is a FinTech holding company with diverse businesses including Rocket Mortgage, Amrock, Rocket Homes, Rocket Auto, Rocket Loans, and Rocket Money (formerly Truebill)[24][25] - The company's operations are organized into two segments: Direct to Consumer and Partner Network[24] - On December 23, 2021, Rocket Companies completed the acquisition of Truebill, Inc. for approximately $1.2 billion in cash[33] Special Dividends Declared (in Billions) | Year | Dividend Per Share | Total Cash Distribution by Holdings | | :--- | :----------------- | :---------------------------------- | | 2022 | $1.01 | ~$2.0 | | 2021 | $1.11 | ~$2.2 | Revenue Recognition This section details the company's revenue recognition policies across its various income streams, including gain on sale of loans (net of MSRs, origination fees, and hedging), loan servicing income (servicing fees and MSR fair value changes), net interest income, and other income from lead generation, professional services, real estate referrals, contact centers, closing fees, appraisal revenue, and Rocket Money subscriptions - Gain on sale of loans, net, includes premiums, origination fees, investor reserves, fair value changes of IRLCs and loans held for sale, hedging gains/losses, and fair value of originated MSRs[39] - Loan servicing income includes servicing, sub-servicing, and ancillary fees, and adjustments for changes in the fair value of MSRs[40] - Other income sources include lead generation, professional service fees, real estate network referral fees, contact center revenue, personal loans, closing fees, appraisal revenue, and Rocket Money (Truebill) subscription revenue[42] Selected Other Income Streams (Three Months Ended June 30, 2022 vs. 2021, in Millions) | Revenue Stream | 2022 | 2021 | | :------------- | :---------- | :---------- | | Amrock closing fees | $37.9 | $118.0 | | Rocket Money subscription revenue | $26.2 | N/A | | Amrock appraisal revenue, net | $15.3 | $23.1 | | Rocket Homes real estate network referral fees | $14.9 | $14.1 | | Rock Connections and Rocket Auto contact center revenue | $3.8 | $12.3 | 2. Fair Value Measurements This note outlines the company's fair value measurement policies, classifying assets and liabilities into a three-level hierarchy based on the observability of inputs. It details the valuation techniques for mortgage loans held for sale, interest rate lock commitments (IRLCs), mortgage servicing rights (MSRs), and forward commitments, and provides a summary of these items measured at fair value - Fair value measurements are classified into Level 1 (quoted prices in active markets), Level 2 (observable prices for similar assets/liabilities or derived from market data), and Level 3 (internal models using unobservable assumptions)[60][61] - IRLCs and MSRs are classified as Level 3 due to the significant and unobservable nature of inputs like pull-through factors and prepayment speeds/discount rates[65][66] Assets Measured at Fair Value (June 30, 2022, in Millions) | Asset Type | Level 1 | Level 2 | Level 3 | Total | | :--------- | :------ | :----------- | :----------- | :----------- | | Mortgage loans held for sale | $— | $10,845.1 | $1,557.8 | $12,402.9 | | IRLCs | $— | $— | $309.5 | $309.5 | | MSRs | $— | $— | $6,657.8 | $6,657.8 | | Forward commitments | $— | $76.8 | $— | $76.8 | | Total assets | $— | $10,921.9 | $8,525.0 | $19,447.0 | Unobservable Inputs for Level 3 Fair Value Instruments (June 30, 2022) | Instrument | Unobservable Input | Range | Weighted Average | | :--------- | :----------------- | :---------- | :--------------- | | Mortgage loans held for sale | Dealer pricing | 76% - 98% | 94% | | IRLCs | Loan funding probability | 0% - 100% | 69% | | MSRs | Discount rate | 9.0% - 12.0% | 9.4% | | MSRs | Conditional prepayment rate | 6.5% - 9.6% | 6.9% | 3. Mortgage Servicing Rights This note details the accounting for Mortgage Servicing Rights (MSRs), which are recognized at fair value using an internal valuation model. It summarizes changes in MSR assets, the total unpaid principal balance (UPB) of serviced loans, and key assumptions like discount rates and prepayment speeds used in valuation, highlighting their sensitivity to market interest rate changes - MSRs are recognized as assets at fair value, determined by an internal valuation model that estimates future net servicing fee income, considering prepayment speeds, discount rates, and servicing costs[80] Changes in MSR Assets (Six Months Ended June 30, 2022 vs. 2021, in Millions) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----- | :----------------------------- | :----------------------------- | | Fair value, beginning of period | $5,385.6 | $2,862.7 | | MSRs originated | $1,256.1 | $2,030.3 | | MSRs sales | $(474.0) | $(99.1) | | Total changes in fair value | $490.1 | $(149.7) | | Fair value, end of period | $6,657.8 | $4,644.2 | MSR Valuation Assumptions (June 30, 2022 vs. December 31, 2021) | Assumption | June 30, 2022 | December 31, 2021 | | :--------- | :------------ | :---------------- | | Discount rate | 9.4% | 9.5% | | Prepayment speeds | 6.9% | 8.7% | | Life (in years) | 8.08 | 7.25 | - As of June 30, 2022, the total UPB of mortgage loans serviced was $485.4 billion, with delinquent loans (60+ days past-due) at 1.12% of the total portfolio (0.74% excluding COVID-19 forbearance plans)[82] 4. Mortgage Loans Held for Sale This note discusses mortgage loans held for sale, which the company primarily sells into the secondary market, often retaining servicing rights. It reconciles changes in these loans and addresses the associated credit risk, which is considered insignificant due to short holding periods and a liquid market - The company sells substantially all originated mortgage loans into the secondary market, often retaining servicing rights[87] Mortgage Loans Held for Sale Reconciliation (Six Months Ended June 30, 2022 vs. 2021, in Millions) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----- | :----------------------------- | :----------------------------- | | Balance at the beginning of period | $19,323.6 | $22,865.1 | | Disbursements of mortgage loans held for sale | $89,469.2 | $187,979.2 | | Proceeds from sales of mortgage loans held for sale | $(97,597.6) | $(192,043.8) | | Balance at the end of period | $12,402.9 | $23,194.8 | - Credit risk associated with mortgage loans held for sale is considered insignificant due to short holding periods (average 44 days) and a highly liquid market[88] 5. Borrowings This note details the company's various funding facilities and non-funding debt, including master repurchase agreements, early funding facilities, lines of credit, and unsecured Senior Notes. It outlines the collateral, maturities, interest rates, and compliance with financial covenants, noting the company's use of cash for self-funding loans - The company maintains various funding facilities (primarily master repurchase agreements) and other non-funding debt (Senior Notes, lines of credit) to support loan origination and operations[89][95][100][102] - As of June 30, 2022, the company was in compliance with all debt covenants, including minimum tangible net worth and liquidity requirements[89] Funding Facilities Outstanding Balance (in Millions) | Facility Type | June 30, 2022 | December 31, 2021 | | :------------ | :------------ | :---------------- | | MRA funding | $4,244.3 | $9,486.7 | | Early Funding Facility | $3,402.9 | $3,264.9 | | Total Funding Facilities | $7,647.2 | $12,751.6 | Unsecured Senior Notes Outstanding Principal (in Millions) | Facility Type | Maturity | Interest Rate | June 30, 2022 | December 31, 2021 | | :------------ | :--------- | :------------ | :------------ | :---------------- | | Unsecured Senior Notes | 10/15/2026 | 2.875% | $1,150.0 | $1,150.0 | | Unsecured Senior Notes | 1/15/2028 | 5.250% | $62.0 | $62.0 | | Unsecured Senior Notes | 3/1/2029 | 3.625% | $750.0 | $750.0 | | Unsecured Senior Notes | 3/1/2031 | 3.875% | $1,250.0 | $1,250.0 | | Unsecured Senior Notes | 10/15/2033 | 4.000% | $850.0 | $850.0 | | Total Senior Notes | | 3.59% | $4,062.0 | $4,062.0 | - As of June 30, 2022, $3.1 billion of corporate cash was used for discretionary self-funding of loans, reducing reliance on external funding facilities[91] 6. Transactions with Related Parties This note details various financial and service-related transactions between Rocket Companies and its related parties, including RHI and Bedrock Management Services LLC. It covers financing arrangements, services provided and purchased, promotional sponsorships, and lease agreements - Rocket Mortgage has an unsecured line of credit with RHI for $2.0 billion, maturing July 27, 2025, with no outstanding principal as of June 30, 2022[108] - The company recognized $3.2 million in revenue from services provided to related parties for the three months ended June 30, 2022, and incurred $27.9 million in expenses for services/products purchased from related parties[113] - Marketing and advertising costs related to promotional sponsorships with related parties, including the Rocket Mortgage Field House Naming Rights Contract, amounted to $2.1 million for the three months ended June 30, 2022[115] - Lease expenses for offices with Bedrock Management Services LLC and other related parties were $18.3 million for the three months ended June 30, 2022[116] 7. Income Taxes This note explains the company's income tax expense, which is influenced by its organizational structure as a holding company with various LLCs and C Corporations. It details the Tax Receivable Agreement (TRA) that obligates the company to pay LLC Members 90% of certain tax savings from basis increases, and discusses tax distributions to Holdings' unit holders Income Tax Expense (in Millions) | Period | Income before income taxes | Provision for income taxes | | :----- | :------------------------- | :------------------------- | | Three Months Ended June 30, 2022 | $78.5 | $18.8 | | Three Months Ended June 30, 2021 | $1,060.7 | $24.0 | | Six Months Ended June 30, 2022 | $1,141.0 | $44.6 | | Six Months Ended June 30, 2021 | $3,903.9 | $89.9 | - The company's income tax expense varies due to its organizational structure, with some subsidiaries passing taxable income/loss to Holdings and others filing as C Corporations[119][120] - Under the Tax Receivable Agreement, the company pays LLC Members 90% of realized tax savings from increases in tax basis, retaining the remaining 10%. A payment of $40.7 million was made under the TRA during the six months ended June 30, 2022[122][125] - Holdings paid tax distributions totaling $166.7 million to non-Rocket Companies unit holders for the six months ended June 30, 2022, significantly lower than $1.4 billion in the prior year[128] 8. Derivative Financial Instruments This note describes the company's use of derivative financial instruments, including interest rate lock commitments (IRLCs) and forward commitments, which are accounted for at fair value as economic hedges. It provides details on notional and fair values, offsetting arrangements, and counterparty credit risk management - The company uses IRLCs, forward commitments to sell mortgage loans, and forward commitments to purchase loans as derivative financial instruments, treated as economic hedges[129] Notional and Fair Value of Derivative Financial Instruments (June 30, 2022, in Millions) | Instrument | Notional Value | Derivative Asset | Derivative Liability | | :--------- | :------------- | :--------------- | :------------------- | | IRLCs, net of loan funding probability | $10,505.2 | $309.5 | $— | | Forward commitments | $19,469.1 | $76.8 | $23.9 | - The company manages counterparty credit risk by dealing with creditworthy counterparties, spreading risk, setting unsecured credit limits, and using netting agreements[140] 9. Commitments, Contingencies, and Guarantees This note outlines the company's various commitments, contingencies, and guarantees, including interest rate lock commitments (IRLCs), commitments to sell mortgage loans, and guarantees of related party debt. It also addresses property taxes, insurance, principal and interest payable held in escrow, and legal proceedings UPB of Interest Rate Lock Commitments (IRLCs) (in Millions) | Metric | June 30, 2022 | December 31, 2021 | | :----- | :------------ | :---------------- | | Fixed Rate IRLCs | $14,319.0 | $25,937.8 | | Variable Rate IRLCs | $904.4 | $1,239.8 | - Commitments to sell existing mortgage loans held for sale amounted to $1.55 billion at June 30, 2022, down from $2.24 billion at December 31, 2021[146] - The company guaranteed $4.3 million of related party debt as of June 30, 2022, but did not record a liability as payment was not probable[149] - Legal reserves for potential damages were $15.0 million as of June 30, 2022 and December 31, 2021, with management believing current matters will not have a material adverse effect[153] 10. Minimum Net Worth Requirements This note confirms that Rocket Companies and its subsidiary, Rocket Mortgage, are subject to minimum net worth and capital requirements imposed by secondary market investors and state regulators. The company was in compliance with the most restrictive requirement of $1.35 billion adjusted net worth as of June 30, 2022 - Rocket Companies and Rocket Mortgage must maintain minimum net worth and capital requirements set by secondary market investors and state regulators[154][155] Minimum Adjusted Net Worth Requirement (in Millions) | Date | Minimum Adjusted Net Worth | Company Compliance | | :--- | :------------------------- | :----------------- | | June 30, 2022 | $1,346.9 | In compliance | | December 31, 2021 | $1,794.8 | In compliance | 11. Segments This note details the company's two reportable segments: Direct to Consumer and Partner Network, along with an 'All Other' category. It describes how each segment generates revenue, primarily from gain on sale of loans and servicing activities, and how performance is measured based on contribution margin. The note also provides a reconciliation of segment contribution margin to consolidated U.S. GAAP income before taxes - The company has two reportable segments: Direct to Consumer and Partner Network, and an 'All Other' category for other operations[159][167] - Direct to Consumer revenue is primarily from originating, closing, selling, and servicing agency-conforming loans, including MSRs and hedging gains/losses[160][161] - Partner Network revenue is generated from marketing and influencer relationships, and mortgage broker partnerships through Rocket Pro TPO, primarily from gain on sale of loans[162][163] Contribution Margin by Segment (Three Months Ended June 30, 2022, in Millions) | Segment | Adjusted Revenue | Directly Attributable Expenses | Contribution Margin | | :------ | :--------------- | :----------------------------- | :------------------ | | Direct to Consumer | $838.9 | $609.4 | $229.5 | | Partner Network | $177.2 | $95.7 | $81.5 | | All Other | $109.4 | $104.4 | $5.0 | | Total | $1,125.5 | $809.5 | $316.0 | Contribution Margin by Segment (Six Months Ended June 30, 2022, in Millions) | Segment | Adjusted Revenue | Directly Attributable Expenses | Contribution Margin | | :------ | :--------------- | :----------------------------- | :------------------ | | Direct to Consumer | $2,334.6 | $1,478.6 | $855.9 | | Partner Network | $468.9 | $215.7 | $253.2 | | All Other | $253.3 | $223.2 | $30.1 | | Total | $3,056.8 | $1,917.6 | $1,139.2 | 12. Non-controlling Interests This note clarifies that non-controlling interest represents the economic interest in Holdings held by the Chairman and RHI. It details the ownership percentages of Holdings Units and the exchange rights of non-controlling interest holders for Class A or Class B common stock or cash - Non-controlling interest represents the economic interest in Holdings held by the Chairman and RHI[173] Ownership of Holdings Units (June 30, 2022 vs. December 31, 2021) | Holder | June 30, 2022 Ownership Percentage | December 31, 2021 Ownership Percentage | | :----- | :--------------------------------- | :------------------------------------- | | Rocket Companies, Inc. | 5.92% | 6.40% | | Holdings Units held by our Chairman | 0.06% | 0.06% | | Holdings Units held by RHI | 94.02% | 93.54% | - Non-controlling interest holders can exchange Holdings Units (Paired Interests) for Class A or Class B common stock or cash[173] 13. Share-based Compensation This note outlines the company's share-based compensation plans, including the 2020 Omnibus Incentive Plan for restricted stock units and stock options, and the Team Member Stock Purchase Plan (TMSPP). It details the estimated future expense for granted awards and the total share-based compensation expense - The company grants restricted stock units and stock options under the 2020 Omnibus Incentive Plan, with an estimated future expense of $286.6 million for awards granted in the six months ended June 30, 2022[177][178] - The Team Member Stock Purchase Plan (TMSPP) allows eligible team members to purchase common stock at 85% of the closing market price[179] Total Share-based Compensation Expense (in Millions) | Period | 2022 | 2021 | | :----- | :---------- | :---------- | | Three Months Ended June 30 | $56.4 | $41.0 | | Six Months Ended June 30 | $123.6 | $83.0 | 14. Earnings Per Share This note details the calculation of basic and diluted earnings per share (EPS) using the two-class method. It explains that Class A and Class B common stock participate equally in earnings, while Class C and Class D common stock do not. The calculation includes adjustments for potentially dilutive securities like Class D shares and share-based compensation awards - The company uses the two-class method for EPS calculation, with Class A and Class B common stock participating equally in earnings[181] Earnings Per Share of Class A Common Stock | Period | Basic EPS (2022) | Basic EPS (2021) | Diluted EPS (2022) | Diluted EPS (2021) | | :----- | :--------------- | :--------------- | :----------------- | :----------------- | | Three Months Ended June 30 | $0.03 | $0.45 | $0.02 | $0.40 | | Six Months Ended June 30 | $0.47 | $1.47 | $0.43 | $1.46 | - For the six months ended June 30, 2021, Holdings Units and corresponding Class D common stock were anti-dilutive and excluded from diluted EPS calculation[187] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Rocket Companies' financial condition, cash flows, and results of operations, including an executive summary, recent business trends, non-GAAP financial measures, key performance indicators, and a detailed analysis of revenue and expenses by segment for the three and six months ended June 30, 2022 and 2021. It also covers liquidity, capital resources, and contractual obligations Executive Summary This section provides an overview of Rocket Companies as a FinTech holding company, highlighting its tech-driven real estate, mortgage, and financial services businesses - Rocket Companies is a Detroit-based FinTech holding company focused on tech-driven real estate, mortgage, and financial services, including Rocket Mortgage, Rocket Home, Rocket Auto, and Rocket Money[193] - The company aims to deliver innovative client solutions leveraging its Rocket platform across complementary industries[193] Recent Developments This section discusses key recent events impacting the company, including market interest rate changes, share repurchases, and a career transition program - Rising Federal Funds rates are expected to significantly decline the mortgage origination market in 2022, leading to decreased mortgage origination volume for the company[194] - As of July 27, 2022, Rocket Companies repurchased 29.8 million shares for $393.7 million under its $1 billion Share Repurchase Program[195] - The company incurred $61.0 million in charges during Q2 2022 for a career transition program offered to eligible team members due to changing mortgage market conditions[196] Summary of Financial Performance (Three & Six Months Ended June 30, 2022) | Metric | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :----- | :------------------------------- | :----------------------------- | | Residential mortgage loans originated | $34.5 billion (58.8% decrease YoY) | $88.5 billion (52.7% decrease YoY) | | Net income | $59.8 million | $1.1 billion | | Adjusted EBITDA | $(27.5) million (102.1% decrease YoY) | $422.6 million (88.7% decrease YoY) | Non-GAAP Financial Measures This section defines and reconciles the company's non-GAAP financial measures: Adjusted Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share, and Adjusted EBITDA. These measures are used by management to assess performance by excluding non-cash, non-realized adjustments like changes in MSR fair value, share-based compensation, litigation accruals, and career transition program costs, providing a clearer view of core operating performance - Non-GAAP measures (Adjusted Revenue, Adjusted Net Income/Loss, Adjusted Diluted EPS, Adjusted EBITDA) are used to analyze and benchmark performance by excluding certain non-cash or non-recurring items[199][200] - Adjusted EBITDA excludes interest and amortization expense on non-funding debt, income tax, depreciation and amortization, changes in MSR fair value (net of hedges), share-based compensation, litigation accrual, career transition program, and changes in Tax receivable agreement liability[200] Reconciliation of Adjusted Revenue to Total Revenue, net (in Millions) | Metric | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :----- | :------------------------------- | :----------------------------- | | Total revenue, net | $1,392.4 | $4,063.0 | | Change in fair value of MSRs due to valuation assumptions (net of hedges) | $(267.0) | $(1,006.2) | | Adjusted Revenue | $1,125.5 | $3,056.8 | Reconciliation of Adjusted EBITDA to Net Income (in Millions) | Metric | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :----- | :------------------------------- | :----------------------------- | | Net income | $59.8 | $1,096.4 | | Adjusted EBITDA | $(27.5) | $422.6 | Key Performance Indicators This section presents key performance indicators (KPIs) used to evaluate business operations, including loan production data (origination volume, gain on sale margin), servicing portfolio data (UPB, MSR fair value multiple, delinquency rates, client retention), and metrics for other Rocket Companies (closings, transactions, unique visitors, sales, revenue) Loan Production Data (in Millions) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :----- | :------------------------------- | :------------------------------- | | Closed loan origination volume | $34,543.9 | $83,764.2 | | Direct to Consumer origination volume | $20,298.5 | $45,231.3 | | Partner Network origination volume | $14,245.4 | $38,533.0 | | Gain on sale margin | 2.92% | 2.78% | Servicing Portfolio Data (June 30, 2022 vs. 2021, in Millions) | Metric | June 30, 2022 | June 30, 2021 | | :----- | :------------ | :------------ | | Total serviced UPB (includes subserviced) | $537,854.2 | $507,167.6 | | MSRs UPB of loans serviced | $485,422.0 | $466,444.9 | | MSR fair value multiple | 4.83 | 3.46 | | Total serviced MSR delinquency rate (60+) | 1.12% | 2.60% | | Net client retention rate (trailing twelve months) | 93% | 90% | Other Rocket Companies Key Metrics (Three Months Ended June 30, 2022 vs. 2021) | Metric | 2022 | 2021 | | :----- | :------ | :------ | | Amrock closings (units in thousands) | 82.6 | 260.3 | | Rocket Homes real estate transactions (in thousands) | 10.4 | 8.3 | | Rockethomes.com average unique monthly visitors (in thousands) | 2,884.8 | 1,818.6 | | Rocket Loans closed (units in thousands) | 7.2 | 4.6 | | Rocket Auto car sales (units in thousands) | 4.8 | 15.6 | | Total Other Rocket Companies net revenue (in Millions) | $162.0 | $384.2 | Description of Certain Components of Financial Data This section provides detailed descriptions of the company's revenue components, including Gain on sale of loans, net, Loan servicing income (loss), Interest income, net, and Other income. It also outlines the operating expense categories: Salaries, commissions and team member benefits, General and administrative expenses, Marketing and advertising expenses, and Other expenses, along with explanations for income taxes, Tax Receivable Agreement, and non-controlling interest - Revenue sources include Gain on sale of loans, net (premiums, origination fees, MSRs, hedging), Loan servicing income (servicing fees, MSR fair value changes), Interest income, net (on loans held for sale less funding facility interest), and Other income (Amrock, Rocket Homes, Rocket Auto, Core Digital Media, Rock Connections, Rocket Money, professional service fees)[215][216][217][218][220] - Operating expenses comprise Salaries, commissions and team member benefits (payroll, benefits, share-based compensation), General and administrative expenses (occupancy, professional services, loan processing, commitment fees), Marketing and advertising expenses, and Other expenses (depreciation, amortization, mortgage servicing related expenses)[221][222][223][224][225] Results of Operations for the Three and Six Months Ended June 30, 2022 and 2021 This section provides a detailed comparative analysis of the company's financial performance for the three and six months ended June 30, 2022, versus 2021, breaking down changes in revenue components (gain on sale, loan servicing, interest income, other income) and expenses. It also includes a segment-level analysis for Direct to Consumer and Partner Network, highlighting volume, margins, and contribution Gain on sale of loans, net This section analyzes the changes in gain on sale of loans, net, driven by fluctuations in mortgage origination volume and market conditions Gain on Sale of Loans, Net (in Millions) | Period | 2022 | 2021 | Change (YoY) | | :----- | :---------- | :---------- | :----------- | | Three Months Ended June 30 | $806.8 | $2,341.5 | -65.5% | | Six Months Ended June 30 | $2,290.6 | $5,893.9 | -61.1% | - The decrease in gain on sale of loans, net, was primarily driven by a decline in net (loss) gain on sales of loans and a decrease in the fair value of originated MSRs, reflecting a significant reduction in mortgage loan origination volume[234][235][236][237][238][239] Mortgage Loan Origination Volume by Type (Six Months Ended June 30, in Millions) | Loan Type | 2022 | 2021 | Change (YoY) | | :-------- | :------------ | :------------ | :----------- | | Conventional Conforming | $68,747.3 | $144,960.6 | -52.57% | | FHA/VA | $15,696.8 | $31,392.9 | -50.02% | | Non-Agency | $4,076.6 | $10,935.8 | -62.73% | | Total mortgage loan origination volume | $88,520.7 | $187,289.4 | -52.72% | Loan servicing income (loss) This section details the significant increase in loan servicing income, primarily influenced by changes in MSR valuation assumptions and portfolio growth Loan Servicing Income (Loss) (in Millions) | Period | 2022 | 2021 | Change (YoY) | | :----- | :---------- | :---------- | :----------- | | Three Months Ended June 30 | $345.1 | $(72.0) | +579.0% | | Six Months Ended June 30 | $1,165.7 | $420.9 | +177.0% | - The significant increase in loan servicing income was primarily due to a $281.8 million increase in changes in valuation model inputs or assumptions (vs. a $141.7 million decrease in 2021) driven by lower prepayment speed assumptions due to rising mortgage interest rates[241] - Servicing fee income also increased due to growth in the servicing portfolio, reaching $357.6 million for the three months ended June 30, 2022, up from $343.3 million in 2021[241] Interest income, net This section examines the increase in net interest income, attributed to interest savings from self-funding and higher mortgage interest rates Interest Income, Net (in Millions) | Period | 2022 | 2021 | Change (YoY) | | :----- | :---------- | :---------- | :----------- | | Three Months Ended June 30 | $36.5 | $22.3 | +63.9% | | Six Months Ended June 30 | $85.3 | $49.7 | +71.8% | - The increase in net interest income was primarily due to interest savings on funding facilities from increased self-funding of loans and higher mortgage interest rates, partially offset by lower sold loan volume[245][246] Other income This section reviews the decrease in other income, mainly due to reduced title-related revenues at Amrock resulting from lower mortgage origination volume Other Income (in Millions) | Period | 2022 | 2021 | Change (YoY) | | :----- | :---------- | :---------- | :----------- | | Three Months Ended June 30 | $204.0 | $376.4 | -45.8% | | Six Months Ended June 30 | $521.4 | $842.5 | -38.1% | - The decrease in other income was primarily due to a reduction in title-related revenues at Amrock, driven by lower mortgage origination volume[247][248] Expenses This section analyzes the overall decrease in total expenses, driven by cost-saving measures across various operational categories Total Expenses (in Millions) | Period | 2022 | 2021 | Change (YoY) | | :----- | :---------- | :---------- | :----------- | | Three Months Ended June 30 | $1,313.9 | $1,607.4 | -18.3% | | Six Months Ended June 30 | $2,922.0 | $3,303.1 | -11.5% | - The decrease in total expenses was driven by cost-saving measures, including reductions in salaries, commissions, team member benefits, marketing and advertising, and other expenses[250][251] - Salaries, commissions, and team member benefits decreased by $86.3 million (10.3%) for the three months ended June 30, 2022, due to fewer team members in production roles and lower variable compensation[250] - Other expenses decreased by $102.1 million (62.9%) for the three months ended June 30, 2022, primarily due to reduced title-related expenses at Amrock[250] Summary Results by Segment Direct to Consumer Results This section details the performance of the Direct to Consumer segment, highlighting declines in loan volume, adjusted revenue, and contribution margin Direct to Consumer Segment Performance (Three Months Ended June 30, 2022 vs. 2021, in Millions) | Metric | 2022 | 2021 | Change (YoY) | | :----- | :---------- | :---------- | :----------- | | Sold Loan Volume | $19,538.1 | $48,902.1 | -60.0% | | Sold Loan Gain on Sale Margin | 4.17% | 4.66% | -0.49 pp | | Adjusted Revenue | $838.9 | $2,342.8 | -64.2% | | Directly Attributable Expenses | $609.4 | $907.3 | -32.8% | | Contribution Margin | $229.5 | $1,435.5 | -84.0% | - The decrease in Direct to Consumer Adjusted Revenue and Contribution Margin was primarily due to a decline in sold loan volume and compression in gain on sale margins, driven by increased price competition[254][256][257][259] Partner Network Results This section outlines the performance of the Partner Network segment, showing decreases in loan volume, adjusted revenue, and contribution margin Partner Network Segment Performance (Three Months Ended June 30, 2022 vs. 2021, in Millions) | Metric | 2022 | 2021 | Change (YoY) | | :----- | :---------- | :---------- | :----------- | | Sold Loan Volume | $13,579.6 | $30,120.0 | -54.9% | | Sold Loan Gain on Sale Margin | 1.29% | 1.16% | +0.13 pp | | Adjusted Revenue | $177.2 | $319.2 | -44.5% | | Directly Attributable Expenses | $95.7 | $176.1 | -45.6% | | Contribution Margin | $81.5 | $143.1 | -43.0% | - The decrease in Partner Network Adjusted Revenue and Contribution Margin was primarily due to lower sold loan volumes, despite a slight increase in sold loan gain on sale margin due to a favorable mix shift[261][263][264][266] Liquidity and Capital Resources This section describes the company's liquidity sources, capital position, and significant changes in cash and equity during the period - Primary sources of liquidity include borrowings (loan funding facilities, secured/unsecured financing), cash flow from operations (loan sales, MSR sales, origination fees, servicing income, interest income), and cash/marketable securities[267] - As of June 30, 2022, total liquidity was $7.3 billion, including $0.9 billion cash on hand, $3.1 billion corporate cash for self-funding, $3.1 billion undrawn non-funding lines, and $0.2 billion undrawn MSR lines[273] - The company's available cash position was $4.0 billion, combined with $6.7 billion in MSRs, totaling $10.7 billion in asset value[273] - Cash and cash equivalents and Restricted cash decreased by $1.1 billion (52.1%) to $1.0 billion at June 30, 2022, primarily due to distributions to shareholders and unit holders[275] - Equity increased by $0.6 billion (7.2%) to $8.8 billion at June 30, 2022, driven by net income and share-based compensation, offset by distributions[276] Total Distributions (Six Months Ended June 30, in Billions) | Year | Special Dividend | Tax Distributions | Total Distributions | | :--- | :--------------- | :---------------- | :------------------ | | 2022 | $2.0 | $0.17 | ~$2.2 | | 2021 | $2.2 | $1.4 | ~$3.6 | Contractual Obligations, Commercial Commitments, and Other Contingencies This section confirms no material changes to the company's outstanding contractual obligations or commercial commitments - There were no material changes to outstanding contractual obligations outside the ordinary course of business as of June 30, 2022, compared to December 31, 2021[280] New Accounting Pronouncements Not Yet Effective This section refers to details on recently issued accounting pronouncements and their expected impact on the company's financial statements - Refer to Note 1 for details on recently issued accounting pronouncements and their expected impact[281] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that there have been no material changes to the company's exposure to market risks since the disclosures in its December 31, 2021 Annual Report on Form 10-K - No material changes to the company's exposure to market risks since December 31, 2021[283] Item 4. Controls and Procedures This section confirms that management, with CEO and CFO participation, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2022, concluding they are effective at a reasonable assurance level. It also states there were no material changes in internal control over financial reporting during the period - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of June 30, 2022[284] - No material changes in internal control over financial reporting were identified during the period[285] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section states that while the company is routinely involved in various legal actions, management believes that currently pending or threatened matters are not expected to have a material adverse effect on its business, financial condition, and results of operations - Management believes current legal proceedings are not expected to have a material adverse effect on the company's financial condition or results of operations[288] Item 1A. Risk Factors This section refers to the detailed discussion of risk factors in the company's 2021 Form 10-K and Q1 2022 Form 10-Q, stating that these risks have not significantly changed and should be carefully reviewed - Risk factors have not significantly changed from those disclosed in the 2021 Form 10-K and Q1 2022 Form 10-Q[289] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's Share Repurchase Program, authorized in November 2020 for up to $1.0 billion of common stock. It provides activity for the three months ended June 30, 2022, and cumulative repurchases - A $1.0 billion Share Repurchase Program was authorized in November 2020 for Class A and Class D Common Stock[291] Share Repurchase Program Activity (Three Months Ended June 30, 2022, in Millions) | Period | Number of Shares Repurchased | Average Repurchase Price Per Share | Total Repurchase Amount | | :--------------------------- | :--------------------------- | :--------------------------------- | :---------------------- | | 4/1/2022 to 4/30/2022 | 2.5 | $9.44 | $23.2 | | 5/1/2022 to 5/31/2022 | 0.4 | $9.09 | $3.8 | | 6/1/2022 to 6/30/2022 | 2.6 | $7.05 | $18.3 | | Total for the three months ended June 30, 2022 | 5.5 | $8.28 | $45.3 | - As of July 27, 2022, Rocket Companies cumulatively repurchased 29.8 million shares at a weighted average price of $13.20, totaling $393.7 million[293] - Approximately $623.0 million remained available under the Share Repurchase Program as of June 30, 2022[292] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, amendments to repurchase agreements, a new MSR facility agreement, CEO/CFO certifications, and XBRL-related documents - Exhibits include corporate governance documents (Certificate of Incorporation, Bylaws), amendments to Master Repurchase Agreements, a new Loan and Security Agreement (MSR Facility), CEO/CFO certifications, and Inline XBRL documents[295] Signature This section contains the signature of the registrant, Rocket Companies, Inc., by its Chief Financial Officer and Treasurer, Julie Booth, dated August 9, 2022, certifying the filing of the report - The report was signed by Julie Booth, Chief Financial Officer and Treasurer of Rocket Companies, Inc., on August 9, 2022[299]