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Rocket Companies Announces Fourth Quarter and Full Year 2021 Results

02/24/2022
- Grew full year 2021 originations volume to $351 billion, up 10% from record 2020 levels
- Generated Q4 net revenue of $2.6 billion and Adjusted Revenue of $2.4 billion(1)
- Delivered Q4 net income of $865 million and Adjusted Net Income of $637 million(1)
- Special dividend of $1.01 per Class A common stock declared by Board of Directors

DETROIT, Feb. 24, 2022 /PRNewswire/ -- Rocket Companies, Inc. (NYSE: RKT) ("Rocket Companies" or the "Company"), a Detroit-based FinTech platform company consisting of tech-driven real estate, mortgage and financial services businesses – including Rocket Mortgage, Rocket Homes, Truebill and Rocket Auto – today announced results for the quarter and year ended December 31, 2021.

"Rocket made significant accomplishments in 2021 as we continued to execute on our mission to remove friction from life's complex moments. Rocket Mortgage had its best year ever in overall origination, with $351 billion in originations, while also setting a new record in home purchase volume. We expanded the Rocket platform with the strategic addition of Truebill, broadening the services we offer to help clients manage their entire financial lives." said Jay Farner, Vice Chairman and CEO of Rocket Companies.

"Rocket continues to leverage our platform to grow and scale across real estate, mortgage, and financial services. I am also pleased to announce that the Board of Directors has approved a special dividend of $1.01 per share. Since our IPO, Rocket has returned $4.5 billion to shareholders through dividends and share repurchases, while remaining well-capitalized and investing in a disciplined manner to generate long term shareholder value."

Fourth Quarter Financial Summary 1


ROCKET COMPANIES

(Units in '000s, $ amounts in millions, except per share)



Q4-21


Q4-20


Q4-19


FY 21


FY 20


FY 19


(Unaudited)


(Unaudited)

Total revenue, net

$       2,593


$       4,681


$       1,908


$       12,914


$       15,650


$       5,069

Total expenses

$       1,737


$       1,792


$       1,151


$         6,730


$         6,118


$       4,165

Net income

$          865


$       2,841


$          754


$         6,072


$         9,399


$          897













Adjusted Revenue

$       2,435


$       4,775


$       1,825


$       12,427


$       16,938


$       5,907

Adjusted Net Income

$          637


$       2,301


$          518


$         4,502


$         8,266


$       1,342

Adjusted EBITDA

$          883


$       3,135


$          744


$         6,182


$       11,217


$       1,994













GAAP Diluted EPS

$         0.32


$         1.09


N/A


$           2.32


$           1.76


N/A

Adjusted Diluted EPS

$         0.32


$         1.16


N/A


$           2.26


$           4.16


N/A


(Units in '000s, $ amounts in millions)



Q4-21


Q4-20


Q4-19


FY 21


FY 20


FY 19

Select Metrics

(Unaudited)


(Unaudited)

Closed loan origination volume

$    75,857


$    107,199


$    50,833


$    351,193


$    320,209


$    145,180

Gain on sale margin

2.80%


4.41%


3.41%


3.13%


4.46%


3.19%

Net rate lock volume

$    68,378


$      95,971


$    43,879


$    333,790


$    338,667


$    152,184

Amrock closings (units)

244.5


347.5


165.2


1,115.1


1,040.1


444.9

Rocket Auto car sales (units)

15.4


9.4


7.2


59.7


32.1


20.0


Fourth Quarter Financial Highlights
During the fourth quarter of 2021:

  • Generated total revenue, net of $2.6 billion and Adjusted Revenue of $2.4 billion in Q4 '21, which represents 36% and 33% growth as compared to Q4 '19, respectively. We compare certain revenue and profitability measures to 2019 as we experienced a historically low interest rate environment in combination with limited industry capacity during 2020.
  • Rocket Mortgage generated $75.9 billion in mortgage origination closed loan volume and gain on sale margin of 2.80%. Our closed loan volume was up 49% compared to Q4 '19 levels.
  • Generated net income of $865 million, which exceeded Q4 '19 net income by 15%, and Adjusted Net Income of $637 million during Q4 '21, which was 23% higher than Q4 '19 levels. Our net income margin was 33% for Q4 '21, which compares to 40% in Q4 '19. Our Adjusted Net Income margin was 26% in Q4 '21, which compares to 28% in Q4 '19.
  • Achieved Adjusted EBITDA of $883 million during Q4 '21, up 19% from Q4 '19 levels. Our Adjusted EBITDA margin was 36% for Q4 '21, which compares to 41% for Q4 '19.
  • In December 2021, we completed the acquisition of Truebill, a leading personal finance app that helps clients manage their entire financial lives, for $1.275 billion in consideration. Truebill has quickly become the choice for clients looking to live their best financial lives by managing subscriptions, improving credit scores, tracking spending and building budgets in a simple, easy-to-use app. This acquisition accelerates Rocket Companies' vision to help clients in complex moments. Truebill's annualized recurring revenue base exceeded $100 million as of December 2021, more than double the run rate on a year-over-year basis.
  • Grew servicing book unpaid principal balance to $552 billion at December 31, 2021, up 35% from December 31, 2020 and 63% from December 31, 2019. As of December 31, 2021, our servicing portfolio includes 2.6 million clients and generates $1.4 billion of recurring servicing fee income on an annualized basis.
  • In October, Rocket Mortgage issued $1,150 million of 2.875% senior notes due 2026 and $850 million of 4.000% senior notes due 2033. The proceeds were used to acquire $948 million in outstanding 5.250% senior notes due 2028 in a tender offer and for general corporate purposes. Through these transactions, we lowered the weighted average cost of our senior notes by 68 basis points, extended the weighted average maturity of our senior notes by more than five months, and transitioned to investment grade level covenants.

Subsequent to December 31, 2021:

  • Our Company's Board of Directors declared a special dividend of $1.01 per share payable on March 22, 2022 to holders of our Class A common stock of record at the close of business on March 8, 2022. We will fund the special dividend from cash distributions of approximately $2.0 billion.
  • As of February 18, 2022, Rocket Companies repurchased 20.7 million shares cumulatively at an average price of $15.08. Cumulatively, we have returned $312 million to Class A common stockholders under the $1 billion share repurchase program authorized in November 2020.

Full Year Financial Highlights
During the full year of 2021:

  • Generated total revenue, net of $12.9 billion and Adjusted Revenue of $12.4 billion in 2021, which represents 155% and 110% growth as compared to 2019, respectively.
  • Rocket Mortgage generated $351.2 billion in mortgage origination closed loan volume and gain on sale margin of 3.13%. Our closed loan volume in 2021 was a new company record, up 10% from 2020 levels and 142% compared to 2019 levels.
  • Generated net income of $6.1 billion, which exceeded 2019 net income by 577%, and Adjusted Net Income of $4.5 billion during 2021, which was 236% greater than 2019 levels. Our net income margin was 47% for 2021, which compares to 18% in 2019. Our Adjusted Net Income margin was 37% in 2021, which compares to 23% in 2019.
  • Achieved Adjusted EBITDA of $6.2 billion during 2021, up 210% from 2019 levels. Our Adjusted EBITDA margin was 50% for 2021, which compares to 34% for 2019, demonstrating the scalability of our platform.

Company Highlights
Rocket Platform

  • 2021 represented Rocket Mortgage's strongest purchase closed loan volume in company history. During the fourth quarter, our purchase volume grew 76% over Q4'20 levels, driven by our focus on a superior, technology-driven client experience, product innovation and our integrated, end-to-end home buying ecosystem.
  • In 2021, the Rocket Companies platform expanded its user base to 204 million unique visitors, representing an increase of 33% from 2020.
  • In 2021, Rocket Mortgage earned a net promoter score (NPS) of 73, which is a measure of client satisfaction and compares to the mortgage origination industry average NPS of 16, according to J.D. Power.
  • Rocket Mortgage net client retention rate was 91% over the 12 months ended December 31, 2021. There is a strong correlation between this metric and client lifetime value, and we believe our net client retention rate is unmatched among mortgage companies and on par with some of the best performing subscription business models in the world.
  • Rocket Homes drove a record 33,100 real estate transactions and $8 billion of real estate transaction value during 2021, representing the value of homes purchased and sold through our real estate agent network.
  • Rocket Auto, our automotive retail marketplace, generated $1.9 billion in gross merchandise value2 in 2021 more than doubling over the year prior.
  • Amrock reached a new milestone completing more than 1.1 million client closings during 2021. Amrock's digital experience enables an easier, faster and more accessible closing process, resulting in a superior client experience overall.
  • Our 2022 Super Bowl ad, starring Anna Kendrick and Barbie, was ranked #1 by USA Today's Ad Meter. This was the second year in a row that we have earned the #1 ranking. The ad features both Rocket Mortgage and Rocket Homes, highlighting our ability to help clients purchase a new home in today's hot housing market.

Technology and Product

  • We expanded the roll-out of Rocket Logic, our next generation loan origination system, which is now processing the majority of our origination volume. Our Rocket Logic system has continuously driven higher efficiency and improved the velocity of loans processed. During the fourth quarter, roughly a quarter of our refinance loans closed in 10 days or less, and overall turn times decreased by 8% quarter over quarter.
  • As of December 31, 2021, approximately 80,000 real estate agents have signed up for Rocket Pro Insight (RPI), up 5x from December 31, 2020. RPI is our digital platform for real estate agents to manage the entire mortgage process in real-time, from application submission to closing.
  • Pathfinder, our centralized digital database of mortgage products and policies, unveiled new search functionality powered by Google's new neural search model, the first of its kind outside of Google to use the new model in product form. This enhanced functionality delivers same page, immediate, accurate answers to full sentence, natural language queries, providing a faster, smoother experience to over 1.1 million searches per month. Pathfinder is considered an industry-leading resource by mortgage brokers, and is used by Rocket Pro TPO partners, Rocket Pro originators, and the Rocket Mortgage Cloud Force.

Supporting Our Communities

  • Rocket Mortgage sponsored Detroit's third-annual PGA Tour in 2021, the Rocket Mortgage Classic, raising more than $1.35 million to support local nonprofits. Over half of these funds supported the event's "Changing the Course" initiative, which aims to provide all Detroiters access to the internet and technology and digital literacy training within five years. In 2021, 68% of Detroit households were digitally connected, up from 40% in 2020, largely due to the "Changing the Course" initiative.
  • Rocket Community Fund, a partner company, recently announced a partnership with Human-I-T, a non-profit with the mission to shrink the digital divide one piece of technology at a time. In addition to shrinking the digital divide, this initiative also reduces e-waste. Through this partnership, we have refurbished and redistributed more than 57,500 devices back to our home communities.

First Quarter 2022 Outlook
We expect the following ranges in Q1 2022:

  • Closed loan volume of between $52 billion and $57 billion.
  • Net rate lock volume of between $50 billion and $57 billion.
  • Gain on sale margins of 2.80% to 3.10%.

Direct to Consumer

In the Direct to Consumer segment, clients have the ability to interact with Rocket Mortgage online and/or with the Company's mortgage bankers. The Company markets to potential clients in this segment through various brand campaigns and performance marketing channels. The Direct to Consumer segment derives revenue from originating, closing, selling and servicing predominantly agency-conforming loans, which are pooled and sold to the secondary market. The segment also includes title insurance, appraisals and settlement services complementing the Company's end-to-end mortgage origination experience. Servicing activities are fully allocated to the Direct to Consumer segment and are viewed as an extension of the client experience. Servicing enables Rocket Mortgage to establish and maintain long term relationships with our clients, through multiple touchpoints at regular engagement intervals.

DIRECT TO CONSUMER 3

($ amounts in millions)



Q4-21


Q4-20


FY 21


FY 20


(Unaudited)


(Unaudited)

Sold loan volume

$    50,392


$           67,825


$            213,889


$         199,842

Sold loan gain on sale margin

4.32%


5.89%


4.75%


5.48%

Revenue, net

$      2,181


$              3,538


$              10,581


$           11,722

Adjusted Revenue

$      2,023


$              3,632


$              10,094


$           13,010

Contribution margin

$      1,134


$              2,606


$                6,396


$              9,373

Partner Network

The Rocket Professional platform supports our Partner Network segment, where we leverage our superior client service and widely recognized brand to grow marketing and influencer relationships, and our mortgage broker partnerships through Rocket Pro TPO. 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. These organizations connect their clients directly to us through marketing channels and a referral process. Our influencer partnerships are typically with companies that employ licensed mortgage professionals that find value in our client experience, technology and efficient mortgage process, where mortgages may not be their primary offering. We also enable clients to start the mortgage process through the Rocket platform in the way that works best for them, including through a local mortgage broker.

PARTNER NETWORK

($ amounts in millions)



Q4-21


Q4-20


FY 21


FY 20


(Unaudited)


(Unaudited)

Sold loan volume

$      30,289


$           37,897


$            138,803


$         106,530

Sold loan gain on sale margin

0.79%


2.57%


1.20%


2.19%

Revenue, net

$            267


$                 961


$                1,766


$              3,180

Adjusted Revenue

$            267


$                 961


$                1,766


$              3,180

Contribution margin

$            113


$                 795


$                1,079


$              2,643

Balance Sheet and Liquidity

We remain in a strong liquidity position, with total liquidity of $9.1 billion, which includes $2.1 billion of cash on-hand, $3.5 billion of corporate cash used to self-fund loan originations, a portion of which could be transferred to funding facilities (warehouse lines) at our discretion, $3.1 billion of undrawn lines of credit from non-funding facilities, and $0.3 billion of undrawn MSR lines. Our available cash position was $5.6 billion, which includes cash on-hand and corporate cash used to self-fund loan originations, combined with the $5.4 billion of mortgage servicing rights, representing a total of $11.0 billion dollars of asset value on our balance sheet as of December 31, 2021.

BALANCE SHEET HIGHLIGHTS

($ amounts in millions)



December 31, 2021


December 31, 2020


(Unaudited)



Cash and cash equivalents

$                         2,131


$                            1,971

Mortgage servicing rights ("MSRs"), at fair value

$                         5,386


$                            2,863

Funding facilities

$                       12,752


$                          17,743

Other financing facilities and debt

$                         5,994


$                            3,678

Total equity

$                         9,760


$                            7,882

Fourth Quarter and Full Year Earnings Call
Rocket Companies will host a live conference call at 4:30 p.m. ET on February 24, 2022 to discuss its results for the quarter and year ended December 31, 2021. A live webcast of the event will be available online by clicking on the "Investor Info" section of our website. The webcast will also be available via rocketcompanies.com.

A replay of the webcast will be available on the Investor Relations site following the conclusion of the event. If you are having issues viewing the webcast, please see the event help guide at the link here.

 

Consolidated Statements of Income

($ In Thousands, Except Shares and Per Share Amounts)



Three Months Ended December 31,


Years Ended December 31,


2021


2020


2021


2020


(Unaudited)


(Unaudited)

Revenue








Gain on sale of loans








Gain on sale of loans excluding fair value of MSRs, net

$               993,588


$            3,131,808


$            6,604,215


$          11,946,044

Fair value of originated MSRs

926,842


1,082,760


3,864,359


3,124,659

Gain on sale of loans, net

1,920,430


4,214,568


10,468,574


15,070,703

Loan servicing income (loss)








Servicing fee income

355,880


295,163


1,325,938


1,074,255

Change in fair value of MSRs

(133,232)


(393,811)


(689,432)


(2,379,355)

Loan servicing income (loss), net

222,648


(98,648)


636,506


(1,305,100)

Interest income








Interest income

118,233


97,622


430,086


329,593

Interest expense on funding facilities

(56,146)


(82,942)


(261,146)


(245,523)

Interest income, net

62,087


14,680


168,940


84,070

Other income

387,601


549,912


1,640,446


1,800,394

Total revenue, net

2,592,766


4,680,512


12,914,466


15,650,067

Expenses








Salaries, commissions and team member benefits

804,136


884,279


3,356,815


3,238,301

General and administrative expenses

315,779


289,119


1,183,418


1,053,080

Marketing and advertising expenses

305,584


279,184


1,249,583


949,933

Depreciation and amortization

19,243


26,683


74,713


74,316

Interest and amortization expense on non-funding debt

125,968


82,010


230,740


186,301

Other expenses

166,711


230,455


634,296


616,479

Total expenses

1,737,421


1,791,730


6,729,565


6,118,410

Income before income taxes

855,345


2,888,782


6,184,901


9,531,657

Provision for income taxes

9,971


(48,018)


(112,738)


(132,381)

Net income

865,316


2,840,764


6,072,163


9,399,276

Net income attributable to non-controlling interest

(817,265)


(2,700,716)


(5,763,953)


(9,201,325)

Net income attributable to Rocket Companies

$                  48,051


$                140,048


$               308,210


$                197,951









Earnings per share of Class A common stock








Basic

$                      0.36


$                      1.21


$                      2.36


$                      1.77

Diluted

$                      0.32


$                      1.09


$                      2.32


$                      1.76









Weighted average shares outstanding








Basic

132,607,997


115,372,565


130,578,206


111,926,619

Diluted

1,985,285,921


1,988,435,424


1,989,433,567


116,238,493

 

Consolidated Balance Sheets

($ In Thousands, Except Shares and Per Share Amounts)



December 31,
2021


December 31,
2020


(Unaudited)



Assets




Cash and cash equivalents

$        2,131,174


$        1,971,085

Restricted cash

80,423


83,018

Mortgage loans held for sale, at fair value

19,323,568


22,865,106

Interest rate lock commitments ("IRLCs"), at fair value

538,861


1,897,194

Mortgage servicing rights ("MSRs"), at fair value

5,385,613


2,862,685

MSRs collateral for financing liability, at fair value


205,033

Notes receivable and due from affiliates

9,753


22,172

Property and equipment, net of accumulated depreciation and amortization

254,376


211,161

Deferred tax asset, net

572,049


519,933

Lease right of use assets

427,895


238,546

Forward commitments, at fair value

17,337


20,584

Loans subject to repurchase right from Ginnie Mae

1,918,032


5,696,608

Other assets

2,115,814


941,477

Total assets

$      32,774,895


$      37,534,602

Liabilities and equity




Liabilities




Funding facilities

$      12,751,592


$      17,742,573

Other financing facilities and debt




Lines of credit

75,000


375,000

Senior Notes, net

4,022,491


2,973,046

Early buy out facility

1,896,784


330,266

MSRs financing liability, at fair value


187,794

Accounts payable

271,544


251,960

Lease liabilities

482,184


272,274

Forward commitments, at fair value

19,911


506,071

Investor reserves

78,888


87,191

Notes payable and due to affiliates

33,650


73,896

Tax receivable agreement liability

688,573


550,282

Loans subject to repurchase right from Ginnie Mae

1,918,032


5,696,608

Other liabilities

776,714


605,485

Total liabilities

23,015,363


29,652,446

Equity




Class A common stock

1


1

Class B common stock


Class C common stock


Class D common stock

19


19

Additional paid-in capital

287,558


282,743

Retained earnings

378,005


207,422

Accumulated other comprehensive income

81


317

Non-controlling interest

9,093,868


7,391,654

Total equity

9,759,532


7,882,156

Total liabilities and equity

$      32,774,895


$      37,534,602

 

Summary Segment  Results for the Year Ended December 31, 2021 and 2020,

($ amounts in millions)

(Unaudited)


Three Months Ended December 31, 2021


Direct to

 Consumer


Partner

 Network


Segments

 Total


All Other


Total

Total U.S. GAAP Revenue, net


$             2,181


$                 267


$             2,449


$                 144


$             2,593

Plus: Decrease in MSRs due to valuation assumptions (net of hedges)


(158)



(158)



(158)

Adjusted Revenue


$             2,023


$                 267


$             2,291


$                 144


$             2,435

Directly attributable expenses


889


154


1,044


78


1,121

Contribution margin(1)


$             1,134


$                 113


$             1,247


$                   66


$             1,314


Three Months Ended December 31, 2020


Direct to
Consumer


Partner
Network


Segments
Total


All Other


Total

Total U.S. GAAP revenue, net


$             3,538


$                 961


$             4,498


$                 182


$             4,681

Plus: Decrease in MSRs due to valuation assumptions (net of hedges)


95



95



95

Adjusted Revenue


$             3,632


$                 961


$             4,593


$                 182


$             4,775

Directly attributable expenses


1,027


165


1,192


134


1,326

Contribution margin(1)


$             2,606


$                 795


$             3,401


$                   48


$             3,449


Years Ended December 31, 2021


Direct to
Consumer


Partner
Network


Segments
Total


All Other


Total

Total U.S. GAAP revenue, net


$           10,581


$             1,766


$           12,347


$                 567


$           12,914

Less: Increase in MSRs due to valuation assumptions (net of hedges)


(487)



(487)



(487)

Adjusted Revenue


$           10,094


$             1,766


$           11,860


$                 567


$           12,427

Directly attributable expenses


3,698


686


4,384


275


4,659

Contribution margin(1)


$             6,396


$             1,079


$             7,475


$                 293


$             7,768


Years Ended December 31, 2020


Direct to
Consumer


Partner
Network


Segments
Total


All Other


Total

Total U.S. GAAP revenue, net


$           11,722


$             3,180


$           14,902


$                 748


$           15,650

Plus: Decrease in MSRs due to valuation assumptions (net of hedges)


1,288



1,288



1,288

Adjusted Revenue


$           13,010


$             3,180


$           16,190


$                 748


$           16,938

Directly attributable expenses


3,638


538


4,175


412


4,587

Contribution margin(1)


$             9,373


$             2,643


$           12,015


$                 335


$           12,351


(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.

 

GAAP to non-GAAP Reconciliations

Adjusted Revenue Reconciliation ($ amounts in millions)



Three Months Ended December 31,


Years Ended December 31,


2021


2020


2019


2021


2020


2019


(Unaudited)


(Unaudited)

Total Revenue, net

$         2,593


$       4,681


$       1,908


$    12,914


$    15,650


$       5,069

Change in fair value of MSRs due to valuation assumptions (net of hedges) (1)

(158)


95


(83)


(487)


1,288


838

Adjusted Revenue

$         2,435


$       4,775


$       1,825


$    12,427


$    16,938


$       5,907


(1) Reflects changes in assumptions including discount rates and prepayment speed assumptions, mostly due to changes in market interest rates, and the effects of contractual prepayment protection associated with sales of MSR's.

 

Adjusted Net Income Reconciliation ($ amounts in millions)



Three Months Ended December 31,


Years Ended December 31,


2021


2020


2019


2021


2020


2019


(Unaudited)


(Unaudited)

Net income attributable to Rocket Companies

$         48


$       140


$          —


$       308


$       198


$          —

Net income impact from pro forma conversion of Class D common shares to Class A common shares(1)

818


2,701


755


5,766


9,203


898

Adjustment to the provision for income tax(2)

(226)


(671)


(185)


(1,429)


(2,235)


(217)

Tax-effected net income(2)

640


2,171


570


4,646


7,166


681

Non-cash share-based compensation expense

40


43


14


164


136


40

Change in fair value of MSRs due to valuation assumptions (net of hedges)(3)

(158)


95


(83)


(487)


1,288


838

Loss on extinguishment of Senior Notes

87


44



87


44


Litigation accrual(4)




15



Change in Tax receivable agreement liability(5)

19


(8)



19


(8)


Tax impact of adjustments(6)

8


(45)


17


55


(364)


(217)

Other tax adjustments(7)

1


2



4


5


Adjusted Net Income

$       637


$    2,301


$       518


$   4,502


$    8,266


$    1,342


(1) Reflects net income to Class A common stock from pro forma exchange and conversion of corresponding shares of our Class D common shares held by non-controlling interest holders as of December 31, 2021, 2020 and 2019.


(2) Rocket Companies, Inc. 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 assuming Rocket Companies, Inc. owns 100% of the non-voting common interest units of RKT Holdings, LLC. The effective income tax rate for Adjusted Net Income was 25.21% for the year ended December 31, 2021, 24.87% for the year ended December 31, 2020 and 24.77% for the year ended December 31, 2019.


(3) Reflects changes in assumptions including discount rates and prepayment speed assumptions, mostly due to changes in market interest rates, and the effects of contractual prepayment protection associated with sales of MSRs.


(4) Reflects legal accrual related to a specific legal matter.


(5) Reflects changes in estimates of tax rates and other variables of the Tax receivable agreement liability for which no income tax expense/benefit is recognized.


(6) Tax impact of adjustments gives effect to the income tax related to non-cash share-based compensation expense, change in fair value of MSRs due to valuation assumptions, loss on extinguishment of Senior Notes, and the litigation accrual at the above described effective tax rates for each period.


(7) Represents tax benefits due to the amortization of intangible assets and other tax attributes resulting from the purchase of RKT Holdings units, net of payment obligations under Tax Receivable Agreement.

 

Adjusted Diluted Weighted Average Shares Outstanding Reconciliation ($ in millions, except per share)



Three Months Ended December 31,


Years Ended December 31,


2021


2020


2019


2021


2020


2019


(Unaudited)


(Unaudited)

Diluted weighted average Class A Common shares outstanding

1,985,285,921


1,988,435,424


N/A


1,989,433,567


116,238,493


N/A

Assumed pro forma conversion of Class D shares (1)



N/A



1,872,476,780


N/A

Adjusted diluted weighted average shares outstanding

1,985,285,921


1,988,435,424


N/A


1,989,433,567


1,988,715,273


N/A













Adjusted Net Income (2)

$                            637


$                2,301


N/A(3)


$               4,502


$             8,266


N/A(3)

Adjusted Diluted EPS

$                           0.32


$                  1.16


N/A(3)


$                 2.26


$               4.16


N/A(3)


(1) Reflects the pro forma exchange and conversion of non-dilutive Class D common stock to Class A common stock.


(2) Represents Adjusted Net Income for 2020 for the full period as presented.


(3) This non-GAAP measure is not applicable for these periods, as the reorganization transactions had not yet occurred.

 

Adjusted EBITDA Reconciliation ($ amounts in millions)



Three Months Ended December 31,


Years Ended December 31,


2021


2020


2019


2021


2020


2019


(Unaudited)


(Unaudited)

Net income

$             865


$        2,841


$       754


$       6,072


$       9,399


$          897

Interest and amortization expense on non-funding debt

126


82


38


231


186


137

Income tax provision

(10)


48


3


113


132


7

Depreciation and amortization

19


27


18


75


74


75

Non-cash share-based compensation expense

40


43


14


164


136


40

Change in fair value of MSRs due to valuation assumptions (net of hedges) (1)

(158)


95


(83)


(487)


1,288


838

Litigation accrual (2)




15


$             —


Adjusted EBITDA

$             883


$        3,135


$       744


$       6,182


$    11,217


$      1,994


(1) Reflects changes in assumptions including discount rates and prepayment speed assumptions, mostly due to changes in market interest rates, and the effects of contractual prepayment protection associated with sales of MSR's.


(2) Reflects legal accrual related to a specific legal matter.

Non-GAAP Financial Measures

To provide investors with information in addition to our results as determined under Generally Accepted Accounting Principles ("GAAP"), we disclose Adjusted Revenue, Adjusted Net Income, Adjusted Diluted EPS, 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 (net of hedges). We define "Adjusted Net Income" as tax-effected earnings before non-cash share-based compensation expense, the change in fair value of MSRs due to valuation assumptions (net of hedges) loss on extinguishment of Senior Notes, a litigation accrual, Change in Tax receivable agreement liability, and the tax effects of those adjustments. We define "Adjusted Diluted EPS" as Adjusted Net Income divided by the diluted weighted average number of Class A common stock outstanding for the applicable period, which assumes the pro forma exchange and conversion of all outstanding Class D common stock for Class A common stock. We define "Adjusted EBITDA" as earnings before interest and amortization expense on non-funding debt, income tax, depreciation and amortization, net of the change in fair value of MSRs due to valuation assumptions (net of hedges), share-based compensation expense, and a litigation accrual. 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. We also exclude effects of contractual prepayment protection associated with sales of MSR's. 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. Any non-GAAP earnings margin is calculated by using the non-GAAP metric in question (such as Adjusted EBITDA) as the numerator and Adjusted Revenue as the denominator.

In first quarter of 2021, we revised our definition of Adjusted Net income and Adjusted EBITDA to exclude a litigation accrual that does not directly affect what we consider to be our core operating performance. Excluding this cost did not impact Adjusted Net income or Adjusted EBITDA for the comparative periods presented. In the third quarter of 2021, we revised our definition of Adjusted Revenue, Adjusted Net income and Adjusted EBITDA to exclude the effects of contractual prepayment protection associated with sales of MSRs as this does not directly affect what we consider to be our core operating performance. Excluding these costs impacted Adjusted Revenue, Adjusted Net income, Adjusted Diluted EPS and Adjusted EBITDA for the comparative periods presented. In the fourth quarter of 2021, we revised our definition of Adjusted Net income to exclude loss on extinguishment of Senior Notes and change in tax receivable agreement as these do not directly affect what we consider to be our core operating performance. Excluding these costs impacted Adjusted Net income for the comparative periods presented. From time to time in the future, we may exclude other items if we believe that doing so is consistent with the goal of providing useful information to investors.

We believe that the presentation of our non-GAAP financial measures provide 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. Our non-GAAP measures 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, Adjusted Diluted EPS, and Adjusted EBITDA differently, and as a result, our non-GAAP financial measures may not be directly comparable to those of other companies.

Although we use our non-GAAP 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 our non-GAAP financial measures allows us to add back certain non-cash charges and deduct certain gains that are included in calculating the most comparable figures calculated under GAAP. 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, Adjusted Earnings per Share, and Adjusted EBITDA should be considered in addition to, and not as a substitute for, total revenues, net income attributable to Rocket Companies, net income (loss), and Earnings per share in accordance with U.S. GAAP as measures of performance. Our presentation of non-GAAP financial measures should not be construed as an indication that our future results will be unaffected by unusual or nonrecurring items.

Adjusted Revenue, Adjusted Net Income, and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are: (a) they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments; (b) Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt; (c) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and Adjusted Revenue, Adjusted Net Income and Adjusted EBITDA do not reflect any cash requirement for such replacements or improvements; and (d) they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows.

Because of these limitations, Adjusted Revenue, Adjusted Net Income, and Adjusted EBITDA are not intended as alternatives to total revenue, net income attributable to Rocket Companies or net income (loss) as an indicator of our operating performance and should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. We compensate for these limitations by using Adjusted Revenue, Adjusted Net Income and Adjusted EBITDA along with other comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance.

Forward Looking Statements

Some of the statements contained in this document 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 document 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 Annual Report on Form 10-K, 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 document and in our SEC 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 FinTech platform company consisting of personal finance and consumer technology brands including Rocket Mortgage, Rocket Homes, Amrock, Rocket Auto, Rocket Loans, Truebill, Lendesk, Edison Financial, Core Digital Media, Rocket Central and Rock Connections.

Since 1985, Rocket Companies has been obsessed with helping its clients achieve the American dream of home ownership and financial freedom. The Company offers industry-leading client experiences powered by its simple, fast and trusted digital solutions. Rocket Companies has approximately 26,000 team members across the United States and Canada. Rocket Companies ranked #5 on Fortune's list of the "100 Best Companies to Work For" in 2021 and has placed in the top third of the list for 18 consecutive years. For more information, please visit our Corporate Website or Investor Relations Website.

1 "GAAP" stands for Generally Accepted Accounting Principles in the U.S. On August 6, 2020, Rocket Companies' stock began trading on the NYSE and it did not have any shares outstanding or calculations of earnings per share for any periods prior to this date. Under GAAP, the basic and diluted earnings per share calculations for the three and twelve months ended December 31, 2020, include only the period from August 6, 2020 to December 31, 2020. Please see the sections of this document titled "Non-GAAP Financial Measures" and "GAAP to non-GAAP Reconciliations" for more information on the Company's non-GAAP measures and its share count. Certain figures in the tables throughout this document may not foot due to rounding.

2 Gross merchandise value includes the sales price of vehicles sold plus vehicle-related product sales that were generated during the period.

3 We measure the performance of the Direct to Consumer and Partner Network 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. 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. A loan is considered "sold" when it is sold to investors on the secondary market. We previously referred to "sold" loans as "funded" loans. See "Summary Segment Results" section later in this document and the footnote on "Segments" in the "Notes to Consolidated Financial Statements" in the Company's forthcoming filing on Form 10-K for more information.

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