Rocket Companies Announces Second Quarter Results

August 4, 2022
  • Generated Q2 net revenue of $1.4 billion and net income of $60 million
  • Delivered strong gain on sale margin of 292 basis points
  • Over 2,000 Rocket team members deployed to accelerate build-out of Rocket platform 
  • Unified Rocket brand, rebranding Truebill to Rocket Money, and Edison Financial to Rocket Mortgage
  • Signed new agreements with Santander and Q2 digital banking platform

DETROIT, Aug. 4, 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, Rocket Money (formerly known as Truebill) and Rocket Auto – today announced results for the quarter ended June 30, 2022.

"As the mortgage market continues to transition, we are actively investing in our business and transforming the Rocket services and engagement platforms to better serve our clients," said Jay Farner, Vice Chairman and CEO of Rocket Companies. "In the second quarter alone, Rocket Companies introduced new lending programs, forged new mortgage partnerships, officially launched our solar business and expanded our brand deeper into Canada. These moves provide us immediate opportunities today, and a tremendous runway for growth and expansion well into the future."

"During this time of change in the industry, we are focused on operating our business with discipline. We reduced expenses by approximately $300 million during the second quarter and will continue to execute a prudent approach to cost management," said Julie Booth, CFO and Treasurer of Rocket Companies. "We are also investing our capital into the Rocket engagement and services platforms to expand our client base, drive higher conversion, and lower our client acquisition cost, setting the foundation for our next stage of growth. We will continue to deploy our capital in a strategic and disciplined manner to generate long term shareholder value."

Second Quarter Financial Summary1

ROCKET COMPANIES

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



Q2-22


Q2-21


YTD 22


YTD 21


(Unaudited)


(Unaudited)

Total revenue, net

$      1,392


$      2,668


$   4,063


$   7,207

Total expenses

$      1,314


$      1,607


$   2,922


$   3,303

Net income

$           60


$      1,037


$   1,096


$   3,814









Adjusted Revenue

$           1,125


$      2,790


$   3,057


$   6,830

Adjusted Net (Loss) Income

$          (67)


$         921


$     226


$   2,726

Adjusted EBITDA

$          (27)


$      1,279


$     423


$   3,731









GAAP Diluted Earnings Per Share

$        0.02


$       0.40


$    0.43


$    1.46

Adjusted Diluted (Loss) Earnings Per Share

$       (0.03)


$       0.46


$    0.11


$    1.37

 

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




Q2-22


Q2-21


YTD 22


YTD 21

Select Metrics


(Unaudited)


(Unaudited)

Closed loan origination volume


$ 34,544


$ 83,764


$ 88,521


$  187,289

Gain on sale margin


2.92 %


2.78 %


2.98 %


3.29 %

Net rate lock volume


$ 29,385


$ 83,586


$ 78,999


$  178,702

Amrock closings (units)


82.6


260.3


250.9


609.1

 

Second Quarter Financial Highlights
During the second quarter of 2022:

  • Generated total revenue, net of $1.4 billion and delivered net income of $60 million, or 2 cents per diluted share.
      
  • Rocket Mortgage generated $34.5 billion in mortgage origination closed loan volume. Gain on sale margin was 2.92%.
      
  • Exceeded target expense reduction by $100 million, reducing expenses $300 million quarter-over-quarter.
      
  • Grew servicing book unpaid principal balance to $538 billion at June 30, 2022, up 6% from June 30, 2021. As of June 30, 2022, our servicing portfolio includes 2.5 million clients and generates over $1.4 billion of recurring servicing fee income on an annualized basis.

Company Highlights
Rocket Platform

  • Rocket Companies has deployed over 2,000 team members - across technology, product strategy, data intelligence and marketing functions - to expand and accelerate the build-out of Rocket's engagement and services platforms.
      
  • Rocket Companies unified more of our businesses under the Rocket brand. In August, Truebill will rebrand to Rocket Money, and Edison Financial - our Canadian digital mortgage broker - will rebrand to Rocket Mortgage in Canada. These two rebranding initiatives leverage our investments in the trusted Rocket brand and draw our businesses closer together.
      
  • Rocket Money, formerly known as Truebill, a leading personal finance app that we acquired in December 2021, again showed impressive growth. Paying premium members surpassed 2 million users in July, more than doubling year-over-year. Rocket Money launched its first credit card in beta in Q2 and has seen a very positive early response.
      
  • In July, Rocket Mortgage signed a new agreement to originate mortgages for global financial leader Santander. Through this relationship, Santander will be offering Rocket Mortgage to their nearly 2 million U.S. clients.
      
  • In July, Rocket Mortgage signed a new partnership with Q2, a banking platform leader who provides digital banking applications to over 500 financial institutions. Through the Q2 banking platform partnership, Rocket Mortgage will enable regional banks and credit unions to offer mortgages - without the need to manage their own mortgage operations. Consumers will enjoy a comprehensive, seamless experience through one app to apply for mortgages and make mortgage payments, deposit checks, and build their savings.
      
  • Rocket Mortgage net client retention rate was 93% over the 12 months ended June 30, 2022. 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 grew overall real estate transactions by 25% from Q2 2021 to Q2 2022, notching two record months in the quarter for closed units. Rocket Homes' web traffic grew by nearly 60% in Q2 2022 from Q2 2021, reaching nearly 3 million unique visitors per month, driven by  the increased brand awareness from our award-winning Super Bowl ad and our targeted performance marketing efforts.
      
  • Rocket Solar continued its national expansion in June and is now available in 42 metropolitan areas, including Arizona, Florida and South Carolina. Starting in August, Rocket Solar will be working with Rocket Loans to provide solar financing options for our clients.
      
  • Rocket Companies ranked #6 on Fortune's '100 Best Large Workplaces for Millennials' list. This marks the first time the Company has ranked within the top 10.

Technology and Product

  • Rocket Mortgage Net Promoter Scores improved by over 10% from both purchase clients and real estate agents from Q4'21 to Q2'22, driven by our focus on delivering a superior client experience through our platform.
      
  • Rocket Mortgage introduced mortgage products to provide homebuyers with the confidence and certainty they need to transact during a time of challenging market conditions. We placed renewed emphasis on our RateShield program, which gives our clients confidence to purchase a new home in a rising rate environment by locking in rates for 90 days while they search for a new home. We also launched Rate Drop Advantage at the end of July, which provides homebuyers with a one-time credit on typical closing costs to refinance their mortgage if rates drop within 3 years.
      
  • Rocket Mortgage launched a new home equity loan product at the end of the July, providing additional options for clients to access the equity that they have in their homes. Recently, total U.S. home equity increased to $27.8 trillion, a record high, according to the Federal Reserve.
      
  • RocketLogic, our proprietary next generation loan origination system, drove significant efficiencies in the loan origination process by reducing the average number of underwriting tasks per loan by over 40% from December 2021 to June 2022. These improvements were made by leveraging loan data to automate certain aspects of the process, further streamlining the underwriting process, and resulting in a better client experience.
      
  • Approximately 90,000 real estate agents have signed up for Rocket Pro Insight (RPI), up from approximately 85,000 in Q1'22. RPI is our digital platform for real estate agents to manage the entire mortgage process in real-time, from application submission to closing.  RPI also added Pathfinder, our mortgage guideline search engine, as a new feature.

Supporting Our Communities

  • Rocket Companies released its inaugural ESG report, which documents the Company's commitment to being a "For More Than Profit" organization that invests in our team members and communities. The ESG report can be found on the Social Impact tab of our Investor Relations website.
      
  • In July, Rocket Mortgage sponsored the Rocket Mortgage Classic, our flagship PGA tournament held in Detroit. Through the collaborative partnership efforts of its "Changing the Course" campaign, alongside other digital inclusion efforts, the Rocket Mortgage Classic has helped drive significant progress to help bridge Detroit's digital divide - with nearly 70% of Detroit residents now considered digitally included compared to 40% in 2019.
      
  • The Rocket Community Fund, a partner company, launched the Detroit Eviction Defense Fund, a $13 million program led by the Gilbert Family Foundation, that will provide legal aid services to tenants at risk of eviction.

Subsequent to June 30, 2022:

  • As of July 27, 2022, Rocket Companies repurchased 29.8 million shares cumulatively at an average price of $13.20. In total, we have returned $393.7 million to Class A common stockholders under the $1 billion share repurchase program authorized in November 2020.

Third Quarter 2022 Outlook
We expect the following ranges in Q3 2022:

  • Closed loan volume of between $23 billion and $28 billion.
      
  • Net rate lock volume of between $23 billion and $30 billion.
      
  • Gain on sale margins of 2.50% to 2.80%.

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 CONSUMER2

($ amounts in millions)



Q2-22


Q2-21


YTD 22


YTD 21


(Unaudited)


(Unaudited)

Sold loan volume

$   19,538


$        48,902


$          55,703


$        113,931

Sold loan gain on sale margin

4.17 %


4.66 %


4.06 %


5.06 %

Revenue, net

$     1,106


$          2,221


$            3,341


$            5,898

Adjusted Revenue

$        839


$          2,343


$            2,335


$            5,521

Contribution margin

$        229


$          1,436


$               856


$            3,641

 

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)



Q2-22


Q2-21


YTD 22


YTD 21


(Unaudited)


(Unaudited)

Sold loan volume

$      13,580


$      30,120


$  39,613


$   70,849

Sold loan gain on sale margin

1.29 %


1.16 %


1.04 %


1.60 %

Revenue, net

$           177


$           319


$       469


$     1,042

Adjusted Revenue

$           177


$           319


$       469


$     1,042

Contribution margin

$             82


$           143


$       253


$        686

 

Balance Sheet and Liquidity

We remain in a strong liquidity position, with total liquidity of $7.3 billion, which includes $0.9 billion of cash on-hand, $3.1 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 $0.2 billion of undrawn MSR lines. As of June 30, 2022, our available cash position was $4.0 billion, which includes cash on-hand and corporate cash used to self-fund loan originations, combined with the $6.7 billion of mortgage servicing rights, representing a total of $10.7 billion dollars of asset value on our balance sheet. As of June 30, 2022, our total equity was $8.8 billion and reflects the impact of the special dividend of $1.01 per share that was paid during the quarter to Class A shareholders and funded through a $2.0 billion distribution.

Subsequent to June 30, 2022, our total liquidity has increased with the addition of our new $1 billion MSR facility. On a pro forma basis including this new MSR facility, total liquidity at June 30, 2022 would have been $8.3 billion, including cash on hand, corporate cash used to self-fund loan originations and undrawn lines of credit and undrawn MSR lines.

 

BALANCE SHEET HIGHLIGHTS

($ amounts in millions)



June 30, 2022


December 31, 2021


(Unaudited)



Cash and cash equivalents

$               915


$                  2,131

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

$            6,658


$                  5,386

Funding facilities

$            7,647


$                12,752

Other financing facilities and debt

$            5,179


$                  5,994

Total equity

$            8,772


$                  9,760

 

Second Quarter Earnings Call

Rocket Companies will host a live conference call at 4:30 p.m. ET on August 4, 2022 to discuss its results for the quarter ended June 30, 2022. 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.

 

Condensed Consolidated Statements of Income

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



Three Months Ended June 30,


Six Months Ended June 30,


2022


2021


2022


2021


(Unaudited)


(Unaudited)

Revenue








Gain on sale of loans








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

$      347,365


$    1,484,378


$    1,034,535


$    3,863,656

Fair value of originated MSRs

459,473


857,111


1,256,088


2,030,275

Gain on sale of loans, net

806,838


2,341,489


2,290,623


5,893,931

Loan servicing income (loss)








Servicing fee income

357,578


343,349


723,793


635,710

Change in fair value of MSRs

(12,522)


(415,394)


441,858


(214,839)

Loan servicing income (loss), net

345,056


(72,045)


1,165,651


420,871

Interest income








Interest income

79,196


86,645


169,737


181,890

Interest expense on funding facilities

(42,706)


(64,378)


(84,403)


(132,222)

Interest income, net

36,490


22,267


85,334


49,668

Other income

204,035


376,388


521,407


842,500

Total revenue, net

1,392,419


2,668,099


4,063,015


7,206,970

Expenses








Salaries, commissions and team member benefits

754,125


840,470


1,608,040


1,682,669

General and administrative expenses

229,706


262,815


505,563


554,234

Marketing and advertising expenses

231,522


306,685


559,580


627,528

Depreciation and amortization

24,780


20,589


45,822


35,893

Interest and amortization expense on non-funding debt

38,282


35,038


76,946


70,609

Other expenses

35,487


141,805


126,090


332,170

Total expenses

1,313,902


1,607,402


2,922,041


3,303,103

Income before income taxes

78,517


1,060,697


1,140,974


3,903,867

Provision for income taxes

(18,761)


(24,047)


(44,610)


(89,879)

Net income

59,756


1,036,650


1,096,364


3,813,988

Net income attributable to non-controlling interest

(56,341)


(975,530)


(1,039,237)


(3,629,166)

Net income attributable to Rocket Companies

$          3,415


$        61,120


$        57,127


$      184,822









Earnings per share of Class A common stock








Basic

$           0.03


$           0.45


$           0.47


$           1.47

Diluted

$           0.02


$           0.40


$           0.43


$           1.46









Weighted average shares outstanding








Basic

118,801,530


136,139,400


120,735,056


125,961,094

Diluted

1,971,741,764


1,991,267,972


1,973,624,016


132,100,103

 

Condensed Consolidated Balance Sheets

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



June 30,
2022


December 31,
2021


(Unaudited)



Assets




Cash and cash equivalents

$         915,363


$      2,131,174

Restricted cash

68,721


80,423

Mortgage loans held for sale, at fair value

12,402,869


19,323,568

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

309,497


538,861

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

6,657,758


5,385,613

Notes receivable and due from affiliates

9,799


9,753

Property and equipment, net

271,312


254,376

Deferred tax asset, net

520,553


572,049

Lease right of use assets

400,974


427,895

Forward commitments, at fair value

76,847


17,337

Loans subject to repurchase right from Ginnie Mae

1,376,747


1,918,032

Other assets

2,066,436


2,115,814

Total assets

$     25,076,876


$     32,774,895

Liabilities and equity




Liabilities:




Funding facilities

$      7,647,154


$     12,751,592

Other financing facilities and debt:




Lines of credit


75,000

Senior Notes, net

4,025,230


4,022,491

Early buy out facility

1,153,902


1,896,784

Accounts payable

233,720


271,544

Lease liabilities

458,064


482,184

Forward commitments, at fair value

23,935


19,911

Investor reserves

90,230


78,888

Notes payable and due to affiliates

37,970


33,650

Tax receivable agreement liability

623,498


688,573

Loans subject to repurchase right from Ginnie Mae

1,376,747


1,918,032

Other liabilities

634,223


776,714

Total liabilities

$     16,304,673


$     23,015,363

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

225,702


287,558

Retained earnings

308,904


378,005

Accumulated other comprehensive (loss) income

(26)


81

Non-controlling interest

8,237,603


9,093,868

Total equity

8,772,203


9,759,532

Total liabilities and equity

$     25,076,876


$     32,774,895

 

Summary Segment Results for the Three and Six Months Ended June 30, 2022 and 2021,

($ amounts in millions)

(Unaudited)


Three Months Ended June 30, 2022

Direct to

 Consumer


Partner

 Network


Segments Total


All Other


Total

Total U.S. GAAP Revenue, net

$             1,106


$               177


$             1,283


$               109


$             1,392

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

(267)



(267)



(267)

Adjusted Revenue

$               839


$               177


$             1,016


$               109


$             1,125

Directly attributable expenses

609


96


705


104


809

Contribution margin(1)

$               229


$                 82


$               311


$                  5


$               316

 

Three Months Ended June 30, 2021

Direct to
Consumer


Partner
Network


Segments Total


All Other


Total

Total U.S. GAAP revenue, net

$             2,221


$               319


$             2,540


$               128


$             2,668

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

122



122



122

Adjusted Revenue

$             2,343


$               319


$             2,662


$               128


$             2,790

Directly attributable expenses

907


176


1,083


58


1,142

Contribution margin(1)

$             1,436


$               143


$             1,579


$                 70


$             1,649

 

Six Months Ended June 30, 2022


Direct to
Consumer


Partner
Network


Segments Total


All Other


Total

Total U.S. GAAP revenue, net


$             3,341


$               469


$             3,810


$               253


$             4,063

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


(1,006)



(1,006)



(1,006)

Adjusted Revenue


$             2,335


$               469


$             2,804


$               253


$             3,057

Directly attributable expenses


1,479


216


1,694


223


1,918

Contribution margin(1)


$               856


$               253


$             1,109


$                 30


$             1,139












 

Six Months Ended June 30, 2021


Direct to
Consumer


Partner
Network


Segments Total


All Other


Total

Total U.S. GAAP revenue, net


$             5,898


$             1,042


$             6,940


$               267


$             7,207

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


(377)



(377)



(377)

Adjusted Revenue


$             5,521


$             1,042


$             6,563


$               267


$             6,830

Directly attributable expenses


1,880


356


2,236


129


2,365

Contribution margin(1)


$             3,641


$               686


$             4,326


$               138


$             4,465

 

(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 June 30,


Six Months Ended June 30,


2022


2021


2022


2021


(Unaudited)


(Unaudited)

Total revenue, net

$               1,392


$                2,668


$                  4,063


$    7,207

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

(267)


122


(1,006)


(377)

Adjusted Revenue

$               1,125


$                2,790


$                  3,057


$    6,830

 

(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 MSRs.

 

 

Adjusted Net Income (Loss) Reconciliation ($ amounts in millions)



Three Months Ended June 30,

Six Months Ended June 30,


2022


2021


2022


2021


(Unaudited)

(Unaudited)

Net income attributable to Rocket Companies

$           3


$                   61


$                   57


$                 185

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

57


976


1,040


3,630

Adjustment to the provision for income tax (2)

(1)


(240)


(243)


(881)

Tax-effected net income (2)

60


797


855


2,934

Share-based compensation expense (3)

61


41


128


83

Change in fair value of MSRs due to valuation assumptions (net
of hedges) (4)

(267)


122


(1,006)


(377)

Litigation accrual (5)




15

Career transition program (6)

61



61


Change in Tax receivable agreement liability(7)

(24)



(24)


Tax impact of adjustments (8)

41


(41)


211


69

Other tax adjustments (9)

1


1


2


2

Adjusted Net (Loss) Income

$        (67)


$                 921


$                 226


$               2,726

 

(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 June 30, 2022 and 2021.



(2)

Rocket Companies will be subject to U.S. Federal income taxes, in addition to state, local and Canadian taxes with respect to its allocable share of any net taxable
income of Holdings. The adjustment to the provision for income tax reflects the effective tax rates below, assuming the Issuer owns 100% of the non-voting common
interest units of Holdings. The effective income tax rate for Adjusted Net Income (Loss) was 24.51% for June 30, 2022 and 24.87% for June 30, 2021.



(3)

The three and six months ended June 30, 2022 amounts exclude the impact of the career transition program.



(4)

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.



(5)

Reflects legal accrual related to a specific legal matter.



(6)

Reflects net expenses associated with compensation package, healthcare coverage, career transition services, and accelerated vesting of certain equity awards.



(7)

Reflects changes in estimates of tax rates and other variables of the Tax receivable agreement liability.



(8)

Tax impact of adjustments gives effect to the income tax related to share-based compensation expense, change in fair value of MSRs due to valuation assumptions,
litigation accrual, career transition program and the change in Tax receivable agreement liability at the above described effective tax rates for each quarter.



(9)

Represents tax benefits due to the amortization of intangible assets and other tax attributes resulting from the purchase of 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 June 30,


Six Months Ended June 30,


2022


2021


2022


2021


(Unaudited)


(Unaudited)

Diluted weighted average Class A Common shares outstanding

1,971,741,764


1,991,267,972


1,973,624,016


132,100,103

Assumed pro forma conversion of Class D shares (1)




1,858,812,080

Adjusted diluted weighted average shares outstanding

1,971,741,764


1,991,267,972


1,973,624,016


1,990,912,183









Adjusted Net (Loss) Income

$                    (67)


$              921


$              226


$          2,726

Adjusted Diluted (Loss) Earnings Per Share

$                  (0.03)


$             0.46


$             0.11


$           1.37

 

(1)

Reflects the proforma exchange and conversion of non-dilutive Class D common stock to Class A common stock. For the six months ended June 30, 2021, Class D
common shares were anti-dilutive and therefore included in the proforma conversion of Class D shares in the table above. For the three and six months ended June
30, 2022 and the three months ended June 30, 2021, Class D common shares were dilutive and are included in the dilutive weighted average Class A common shares
outstanding in the table above.

 

 

Adjusted EBITDA Reconciliation ($ amounts in millions)



Three Months Ended June 30,


Six Months Ended June 30,


2022


2021


2022


2021


(Unaudited)


(Unaudited)

Net income

$                60


$            1,037


$       1,096


$        3,814

Interest and amortization expense on non-funding debt

38


35


77


71

Income tax provision

19


24


45


90

Depreciation and amortization

25


21


46


36

Share-based compensation expense (1)

61


41


128


83

Change in fair value of MSRs due to valuation assumptions (net of
hedges) (2)

(267)


122


(1,006)


(377)

Litigation accrual (3)




15

Career transition program (4)

61



61


$            —

Change in Tax receivable agreement liability (5)

(24)



(24)


Adjusted EBITDA

$              (27)


$            1,279


$          423


$        3,731

 

(1)

The three and six months ended June 30, 2022 amounts exclude the impact of the career transition program.



(2)

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.



(3)

Reflects legal accrual related to a specific legal matter.



(4)

Reflects net expenses associated with compensation package, healthcare coverage, career transition services, and accelerated vesting of certain equity awards.



(5)

Reflects changes in estimates of tax rates and other variables of the Tax receivable agreement liability.

 

Non-GAAP Financial Measures

To provide investors with information in addition to our results as determined by GAAP, we disclose Adjusted Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share and Adjusted EBITDA (collectively "our non-GAAP financial measures") as non-GAAP measures which management believes provide useful information to investors. We believe that the presentation of our non-GAAP financial measures provides useful information to investors regarding our results of operations because each measure assists both investors and management in analyzing and benchmarking the performance and value of our business. Our non-GAAP financial measures are not 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. Other companies may define our non-GAAP financial measures differently, and as a result, our measures of our non-GAAP financial measures may not be directly comparable to those of other companies. Our non-GAAP financial 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.

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 (Loss)" as tax-effected earnings before share-based compensation expense, the change in fair value of MSRs due to valuation assumptions (net of hedges), a litigation accrual, career transition program, change in Tax receivable agreement liability, and the tax effects of those adjustments as applicable. We define "Adjusted Diluted Earnings (Loss) Per Share" as Adjusted Net Income (Loss) 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, and depreciation and amortization, net of the change in fair value of MSRs due to valuation assumptions (net of hedges), share-based compensation expense, a litigation accrual, career transition program, and change in Tax receivable agreement liability. We exclude from each of our non-GAAP financial measures 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 MSRs. 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.

Our definitions of each of our non-GAAP financial measures allows us to add back certain cash and non-cash charges, and deduct certain gains that are included in calculating Total revenues, net, Net income attributable to Rocket Companies or Net income. However, these expenses and gains vary greatly, and are difficult to predict. From time to time in the future, we may include or exclude other items if we believe that doing so is consistent with the goal of providing useful information to investors. In the first and second quarter of 2022, we revised our definition of Adjusted Net Income (Loss) and Adjusted EBITDA to also exclude the cash portion of share-based compensation expenses and the career transition program, respectively, as these expenses do not directly affect what we consider to be our core operating performance. Comparative periods presented to the extent impacted were updated.

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. Our non-GAAP financial measures can represent the effect of long-term strategies as opposed to short-term results. Our presentation of our non-GAAP financial measures should not be construed as an indication that our future results will be unaffected by unusual or nonrecurring items. Our non-GAAP financial measures 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. Because of these limitations, our non-GAAP financial measures 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. 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 (Loss) 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 Condensed Consolidated Statements of Cash Flows. We compensate for these limitations by using our non-GAAP financial measures along with other comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance. See below for reconciliation of our non-GAAP financial measures to their most comparable U.S. GAAP measures.

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, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the Securities and Exchange Commission. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this 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

Founded in 1985, 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, Rocket Money (formerly known as Truebill), Rocket Solar, Rocket Mortgage Canada (formerly known as Edison Financial), Lendesk, Core Digital Media, Rocket Central and Rock Connections.

Rocket Companies' mission is to be the best at creating certainty in life's most complex moments so that its clients can live their dreams. The Company helps clients achieve the dream of home ownership and financial freedom through industry-leading client experiences powered by its simple, fast and trusted digital solutions. Rocket Companies ranked #7 on Fortune's list of the "100 Best Companies to Work For" in 2022 and has placed in the top third of the list for 19 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. 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 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-Q for more information.

 

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SOURCE Rocket Companies, Inc.