Q4 2020 Rocket Companies Inc Earnings Call
And.
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Ladies and gentlemen, thank you for standing by and welcome to the rocket companies, Inc. Fourth quarter 2000, and 'twenty earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the <unk>.
Session, you will need to press star one on your telephone if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today John Shallcross. Thank you. Please go ahead and after.
And everyone. Thank you for joining us for rocket companies earnings call covering the fourth quarter and full year of 2020.
We're excited to share these strong results with you, but before I turn things over to Jay for our read our disclaimers.
Today's call is to provide you with information regarding our fourth quarter and full year 2020 performance. In addition to our financial outlook.
This conference call includes forward looking statements for more information about factors that may cause actual results to differ materially from forward looking statements. Please refer to the earnings release that we issued today as well as risks described in our filings with the SEC, particularly and the section of these documents titled risk factors.
Our commentary today will also include non-GAAP financial measures reconciliations between GAAP and non-GAAP metrics for our reported results can also be found in our earnings release issued today as well as and our filings with the SEC.
And with that I'll turn things over to Jay Farner to get Us started Jay.
Good afternoon, and welcome to the fourth quarter earnings call for rocket companies.
Before we discuss another incredible quarter I'd like to thank our 24000 team members many of whom are listening now.
Excellent results that were about to discuss and the innovations that drove them are a testament to your focus and dedication and what was an incredibly difficult year for the world.
Your contributions to our clients and communities, where a shining example of how successful are for more than profit mindset can truly be.
On today's call I'll be speaking to a very important topic. Your rocket companies our platform. The platform continues to be the key to our long term success in the verticals, where we operate as well as the record results that we've achieved in 2020.
Over the next few minutes, you'll see how the technology that we've built and refined over decades will continue to drive success, not only and the products that you are familiar with today, but also in product extensions and entirely new verticals and the future.
If you were to ask us what our most important product is we'd say, it's the platform itself.
And walking through our results I'll provide updates on each of the key pillars of the rocket platform our technology the strength of our brand.
So rocket cloud force, which I'll discuss later and our data Science Foundation.
I'll finish today's remarks by talking about how our platform allows us to continue to grow and become more efficient and our existing lines of business, while also launching and rapidly scaling new businesses.
Our mission over the last several decades has been to take the most complicated and stressful transactions and life and simplify them with technology.
Whether those transactions are mortgage real estate auto sales or any number of new initiatives. We're currently incubated we provide a simple digital process exceptional client experience and certainty.
This mission began and 1998, when our founder and Chairman, Dan Gilbert wrote and E mail committing all of the companies resources to moving online.
His vision was simple.
Decades ahead of its time.
Most of the Internet companies of that era focused on problems like search advertising or basic ecommerce.
<unk> saw things differently.
He's spot has the potential to take the most complex transaction and a consumer's life, the buying and financing of a new home and leverage technology to make it accessible online to consumers across the country.
For more than two decades, we've been quietly building our technology platform right here in Detroit to transform the way our clients experienced life's most important events. We've continued to strengthen our digital products and infrastructure in 2020 deploying nearly 4500 product features throughout the year and delivering improvements to our platform and.
<unk> 28 minutes on average.
Supporting our platform is our strong national brands that consumers and partners know and trust as we grow we continue to invest and find new ways to extend our reach and expand our marketing channels, we leverage, allowing us to connect with more and more clients.
I'm pretty sure. The majority of you were among the nearly 100 million fans, who watched the Super Bowl a couple of weeks ago in that game, we ran $2 62nd advertisements highlighting that certain is better when it comes to buying a home. We earned one commercial highlighting rocket mortgage and our technology that helps bring certainty to the home buying process.
Something that is needed now more than ever and today's red Hot real estate market.
The second demonstrated the significant role mortgage brokers play in American home ownership as you know brokers are important partners as we continue to extend the reach of our platform. This massive exposure the first ever national advertisement showcasing brokers during the Super Bowl allows them to align with the power of the rocket.
Brand to create differentiation in their local markets.
Our ads were ranked number one and two on USA today's AD meter, which I am certain is the most prestigious consumer ranking of top Super Bowl ads. This means not only where our ads led by millions of consumers, but also received tremendous lift and visibility through social media news articles and television networks, playing our ads for free.
All told our Super Bowl activation and resulted in more than $3 3 billion consumer impressions.
When you look at the areas, where we continue to excel and set the standard you see both a company and a brand that some of the most well respected organizations in the world want to associate with.
And we've talked about our relationship with American Express with State Farm, Intuit, Charles Schwab and others in the past.
On our last call I also hinted that we would soon be announcing a new partnership.
I am happy to share that Morgan Stanley and E trade have entered into a new agreement with rocket mortgage where our company will originate close and service conforming mortgages for their clients.
This arrangement allows Morgan Stanley to continue focusing on its jumbo lending, while allowing rocket mortgage to provide conforming loan options to the firms millions of clients. We are very excited about this opportunity, which will kick off this year.
Another pillar of our business model is the incredible rocket cloud force now consisting of more than 6600 U S. Based professionals trained to advise our clients on complex transactions.
Covid pandemic truly proved that the power of our rocket cloud force can be harnessed anywhere as our team members working from home and locations across the country.
The versatility and skill of this team allows us to continue exploring new verticals and services our.
Our ability to build train and license large scale sales teams provides us a significant competitive moat.
Today's consumer expect simple powerful digital experiences backed by support and consultation from trusted advisors. The rocket cloud force's ability to seamlessly integrate into the online experience with timely accurate and actionable information is a game changer.
In markets, where the legacy experience can be confusing and discouraging like buying or selling a home searching for a car or considering a personal loan our digital solutions and trusted advisors provide confidence and certainty and.
Along with our powerful rocket Cloud force. Our company also continues to rapidly grow its use of ethical artificial intelligence and machine learning to streamline the business.
This acceleration is made possible thanks to our vast data Lake, which includes proprietary first party data on more than 58 million consumers and extends to 220 million consumers and total or 85% of the adults in the United States.
We have the benefit of millions of clients working with us each year to buy a car get a personal loan buy a home or refinance on mortgage and we've been able to leverage this information to build sophisticated models to ensure our brand is in front of our clients and top of mind when they are ready to transact in fact since the beginning of 2019.
And data science has driven more than $75 billion in application volume.
The importance of data cannot be overstated. It is this information that allows us to quickly innovate anticipate the market and in some cases develop new companies altogether.
These real time insights are a significant market advantage and consistently guide us to the right decisions with incredible efficiency.
Together these pillars of our business, our scalable platform, our national brand, our rocket cloud force and our strategic use of data combined to create a technology powerhouse that continues to accelerate at scale consider this it took our company 25 years to close our first 1 million loans.
In 2020 alone we have helped more than one 1 million clients with their mortgage automotive real estate or personal loan needs innovation and execution paired with a highly trained rocket cloud force creates a flywheel that continues to rapidly accelerate.
I'm, even more excited about where we're going in the future.
Just three years ago, we launched rocket auto with the belief that we can leverage our platform and rocket cloud force to help simplify the process of purchasing a car and.
Everyone knows buying a car is complicated and intimidating.
And experienced a few consumers look forward too, but we've been able to make it approachable and enjoyable.
Starting from zero in 2017, we've organically scaled rocket auto to more than $750 million of gross merchandise value and 2020.
And now that we validated the model, we will continue to invest and accelerating the growth in 2021 and beyond.
Our partner network is another increasingly important growth driver for rocket companies, we continue to evolve and diversify from our original direct to consumer business model.
Partner volume made up 38% of our closed loan volume and 2020 up from 23% just two years ago. We view this evolution similar to Amazon's past decision to open up its marketplace to third party sellers.
Like Amazon, we have built a proprietary platform and have the capacity to process millions of transactions a year the partner network brings growth and diversification to our business.
Supporting these efforts in late January we announced that we launched a directory of nearly every broker and the country on rocket mortgage Dot Com. We then promoted that directory with the Super Bowl AD that I mentioned earlier, the impact has been tremendous and less than a month since launching we've had tens of thousands of consumers visit the <unk>.
<unk> and click through to contact a broker.
All of these elements together have created and incredibly profitable company that has shown an ability to grow strengthen and scale in any market environment. The fourth quarter of 2020 was no exception on.
All of our businesses performed above expectations, leading to a full year adjusted revenue of $16 9 billion.
And adjusted EBITDA of $11 1 billion.
As a result of our exceptional financial performance rocket companies has generated substantial capital and today. We're excited to announce that we are sharing our success with our shareholders and.
As Julie will soon explain our board has authorized a special dividend of $1 11 per share for holders of our stock as of March nine to be paid on March 23.
We're also accelerating our long term approach of launching and scaling new businesses from the ground up I am pleased to announce the creation of a rocket labs rocket Lab's mission is to incubate new businesses within rocket companies that leverage our platform and provide our clients with services that complement our existing core products are.
<unk> to empower small independent teams to work on big ideas and concepts, which will form the core of our future products. We are excited about rocket labs and the possibilities that represents.
Before I turn things over to Julie to share our financial results I'm going to take a moment to give her a proper introduction.
Julian and I have worked together inside this company for 17 years during that time. She has led the finance and accounting teams and done a tremendous job managing all aspects of our liquidity is Julie's force site that has helped US continue to grow in all market cycles, not only that but there is nobody who knows the financial side of this industry better we're on.
All lucky to be working alongside her with that introduction Julie take it away.
Thanks, Jay and good afternoon, everyone. I am pleased to again reported strong financial results for rocket companies for the full year 2020 rocket companies generated $16 9 billion of adjusted revenue and $11 1 billion of adjusted EBITDA as we wrapped up a record setting year and discussing today's.
Results I'll walk through some of the key advantages of rocket companies business model in particular, I'll highlight the power of our platform to unlock scale drive efficiency and serve as a launch pad for new businesses focused on simplifying complicated transactions I will also provide some insights on our capital allocation priorities are.
2020 results demonstrate true growth at scale for the full year 2020, we generated 320 billion of closed loan volume, representing an increase of 121% year over year on.
Our success in 2020 was broad based with consistent increases across both our direct to consumer and partner network channels on growth was also balance between new and existing client relationships.
2020 was also a year of robust growth across rocket companies with particular strength at Amrok, our title company with revenues, increasing 124% to $1 3 billion during the year rocket auto our automotive retail marketplace also generated robust results orchestrating more than 700.
$50 million in gross merchandise value of automotive E. Commerce transactions. This equates to just over 32000 and auto units and 2020 up more than 60% as compared to 2019.
We finished 2020 on a particularly strong note with fourth quarter rate lock volume of $96 billion and closed loan volume of 107 billion, both significantly exceeding the high end of our expectations multiple drivers contributed to the outperformance in Q4 in particular, we are seeing and consume.
And that is increasingly comfortable completing large complex transactions online and continuing the trend we've seen throughout 2020, our automated self serve digital experience was our fastest growing channel in Q4. We also saw strength in Q4 from our branded partnerships and mortgage broker partners after launching the rock.
Pro <unk> brands to the broker community and releasing multiple enhancements to our TPS software portal during the fourth quarter.
Rocket homes also finished the year on a strong note as they assisted clients with nearly $1 $6 billion of real estate transactions during the fourth quarter alone.
While current industry estimates on market size very widely it is clear that rocket gained meaningful market share in 2020, our full year closed volume growth of 121% substantially exceeded any estimate of the overall industry's growth from third party sources, which estimate 67% growth on average.
Our platform business model is the key to enabling our growth at scale and is truly unmatched to put this in perspective rocket mortgage's incremental closed volume of $175 billion in 2020 with more than double the growth of any other market participants and.
In fact, our incremental gain in 2020 alone with nearly large enough to eclipse the entire all in closed loan volume of the nation's second largest originator of last year.
At this pace and a complex category like home loans requires a platform with broad reach scalable infrastructure and centralized software driven operations.
The rocket platform is built to perform and grow in the largest most complex markets.
Our infrastructure also leads to a highly efficient economic model with substantial operating leverage our 2020 results demonstrate rocket the ability to drive increased scale from a single platform with limited incremental cost for.
For the full year 2020 rocket adjusted revenue increased by $11 billion year over year.
We drove this revenue growth, while only adding $2 billion of expenses during the year or $3 million of annualized operating expenses based on our fourth quarter to demonstrate the efficiency of the business model rockets transactions per production team member in 2020, we're roughly triple the industry average.
While our low cost platform model is driving record profitability, we're continuing our long term strategy to reinvest and the business.
Key targets for investment include our brand product development and initiatives to drive growth and the purchase market.
We continue to invest and talent growth, particularly in technical roles. As an example, our data science team now includes over 300 professionals were.
And we're seeing high performers choose to join rocket across multiple teams, including the ongoing expansion of our technology and product strategy teams.
Our brand is another key investment priority, including our recent Super Bowl ads, which generated significant brand recognition and drove record traffic to our online and mobile properties.
Among our key product development priorities is rocket logic. The next generation of our core workflow management platform.
The new platform guides users through the next best action, resulting in faster more accurate workflows we.
We are very impressed with our initial pilot, where we are seeing 20% improvement in turn times within the pilot group, what's even more exciting is that rocket logic can be applied to enhance processes beyond mortgage origination, we expect rocket logic and our many automation initiatives to drive continued efficiency in the <unk>.
<unk> model.
Core of our economic flywheel is that we are constantly and leveraging our profitability advantages to reinvest and the business further strengthening our competitive position and.
Another key advantage of the rocket companies platform is our ability to test launch and rapidly scale new business models. This on.
Entrepreneurial approach can be seen in our scaled mortgage operations and.
And two years, our partner network has grown from less than $20 billion and closed loan volume to $120 billion on an annual basis, we see similar opportunity within our early stage rapidly expanding businesses, such as rocket auto rocket loans and rocket homes.
To that and and as Jay announced a few minutes ago. The launch of rocket labs will further accelerate our focus on expanding the business and ways that leverage our platform and serve our client base.
We believe our clients will be greatly served over time with these additional business lines turning to our first quarter outlook. We expect closed loan volume of 98 to 103 billion compared.
Compared to $51 7 billion in the first quarter of 2020.
Net rate lock volume of $88 billion to $95 billion up from $56 billion in the first quarter of 2020 and gain on sale margins of three six to three 9% compared to $3 two 5% in the first quarter of 2020, we're excited about the continued strength.
And momentum of the rocket platform.
We ended 2020 with an extremely strong balance sheet, including $2 billion of cash and $7 $7 billion of total liquidity.
Total liquidity includes cash on hand, Undrawn lines of credit Undrawn, MSR lines, and corporate cash used to self fund loan originations, which could be transferred to funding facilities at our option.
We communicated at the time of our IPO last summer our capital allocation priorities always start with properly capitalizing and reinvesting in the business.
And I discussed earlier, we are actively deploying capital with investments and our platform our brand and our talent.
We also want to deploy through add on acquisitions that would be additive to our economic flywheel and bring value to our client base.
Our next priority is to return capital to shareholders through dividends and opportunistic use of share buybacks or a combination of the two given our record level of profitability in 2020. The board approved a special dividend of $1 and <unk> 11 per class a common share funded by and equity.
<unk>, a $2 $2 billion, our substantial cash generation provides us significant optionality to drive long term value for our shareholders. Additionally, we remain authorized to repurchase up to $1 billion of rocket companies common stock.
With that we're ready to turn it back to the operator for questions.
Great. Thank you and to remind you to ask a question here and you can press star one on your telephone to make sure. Your question press the pound or hash King. Please standby, while we compile the Q&A roster.
And your first question here comes from the line of Timothy Chiang from Credit Suisse. Please go ahead. Your line is now open.
Okay.
Great. Thank you so much for the question for taking the question. So you touched on and I think very nicely during the prepared remarks around some of the other businesses and maybe sometimes get a little bit less attention given they are a smaller percentage of revenue today, but represent a bigger opportunity longer term I wanted to first touch on the auto business briefly.
And <unk>, both in terms of the direct and some of the indirect benefits to the overall platform and then if you don't mind a brief follow up on rocket homes.
Thanks, Tim and Jay Farner Youre absolutely.
When we think about Dan Gilbert your vision for the company.
20 years ago, I think I referenced the email that Dan has sent out about our ability to transform these major life events that people have leveraging the internet, but here. We are 20 years later and we're talking about mortgage we're talking about real estate, we're talking about auto sales as you know thats over a five five trillion dollar market that we're playing in.
And these investments that I discussed and the prepared remarks around.
Our technology platform the brand that we have built the rocket cloud force that allows us to step in and and take action at the right moment with consumers and and this massive data lake that allows us to market to consumers well now and we're leveraging that across multiple channels with platform that you're asking about.
So one thing I'll draw your attention to.
And we did $750 million and gross merchandise value of rocket auto in 2020, we're looking to see that double as we go into 2021. So that's really kind of our direct impact and you also asked about the indirect if you think about our the importance here with the retention rate.
I think nearly 90%.
Industry tops than these these points for us to help our clients with other transactions and have a car delivered directly to their doorstep that keeps our engagement is strong and so the next time and need to purchase or refinance or roll in debt or have a life event were right there and they think about us as more.
And then a mortgage lender on a real estate side, even with Covid and some of the delays that we saw.
And the springtime with home buying we did $6 billion and transaction value from rocket homes.
We've invested heavily and are MLS platforming and launched that new technology here in January we're rapidly, adding states I think will be up to 45 states by the end of March and so that gives us great reach into the client base out there that's thinking about buying a home and now we're interacting with them at the top.
The funnel and we can bring them through from mortgage title and if theyre not ready to buy a home right now and Thats. Okay. Maybe a tower is the right thing for them. So you are starting to see the power of this platform that we're building.
Yes.
Alright, Thats excellent. Thank you so much you sort of touched on it there with the follow up on homes, but maybe you can just dig into a little bit in terms of the listings the quality of the lift things what might be unique about them. The extent of your coverage in terms of the MLS listings and any data points around that that could give us a better sense of just how broad that platform has become.
And I think I think.
Not only how broad it can be but it moves us up to the top of the funnel as we see our clients starting to think about a purchase a home.
Other important component, though is.
Is that we've got more than just MLS for sale by owner Dot Com, which allows us to help clients, who arent ready to transact with our real estate agent. We've got a realtor network. So those who already we can refer off to the best agents and the country and of course, then we can supply with our full blown approvals to ensure that anybody that's interacting with our real estate agents is and active buyer and us.
You know and a real estate market, that's red hat with such low inventory the need for that client to walk through the door with a rocket mortgage a full approval is absolutely critical so it's really tying all of those threads together that gives our clients. The best shot at getting the house from start to finish and all along the way.
And we're able to collect data to determine someone's interest and then make sure that we're putting on a rocket cloud forest and the right point at the right time to help their clients through the process.
Excellent. Thank you so much for taking both of those.
Of course.
Your next question comes from the line of James Faucette from Morgan Stanley. Please go ahead. Your line is now open.
Thank you very much J Julie wondering if you can help shed some light on what we should expect in terms of.
And new applications and growing and.
Continuing to grow the business, particularly in a rising rate environment. You guys. Obviously have the benefit of a long history through lots of different interest rate cycles. So how are you anticipating the borrowers and homebuyers will react to kind of on the current moving and where should we be particularly sensitive to where rates could go is kind of my first.
Question.
Well as we've been on this journey for 35 years as a company 25 years from me here and Julie <unk>, Bob 24 rates will tick up and rates will tick down our real focus is making sure we're providing and experienced it draws clients and consumers into our funnel and allows us to grow mark.
Share in particular, when things get a bit more challenging and others tend to step away from investments and marketing and technology and and other things we're seeing.
Drawn and consumer demand.
Especially on the housing market and its a strongest debt it's been here and the last decade and current rates are still incredibly low so that means it's very affordable to buy a home and there are still millions of Americans out there that can save well over $100 a month on their monthly payment by refinancing their home. They're also many Americans out there that are looking to invest in their home.
Home improvement and those sorts of things so like I said were seeing strong consumer demand.
And I know julies, given the guidance for the next quarter.
Which is kind of where we're willing to go at this point and time I'll draw your attention to the fact that overall, we were able to grow volume twice as fast as the industry in 2020, and so when we think about our opportunity to invest and marketing invest in technology and continue to grow market share in 2021.
We feel we feel very strong about that and we think that debt investment.
And it will not only grow our market for.
And for mortgage and real estate and it will start feeding these other businesses like I talked about auto for example on our platform.
That's really useful and Julie you did give very specific guidance for first quarter. So I appreciate that.
How should we think about protiviti the evolution of gain on sale through the course of the year at least Directionally and any color. You can you can give us to help us think about like what the current environment is for selling of loans and how youre anticipating that roughly to evolve over over the year.
Yeah sure you first I'll say, we are still on and very strong demand environment with the fed buying 95% or so of all conforming mortgage production today the demand environment very strong one thing to remember about us as well as the market leader. We also benefit from the scale of our business when we execute into the secondary market.
And we have advantages because of that so we've seen gain on sale margins at 452% in Q3 and this year and then we saw continued strength as we came into Q4 coming in at 441% and then as we look ahead into Q1, our expectations as I said for gain on sale margins are between $3 <unk>.
Six and three 9% and this is up from $3 two 5% in Q1 of last year. So margins are still well ahead of where they were a year ago.
And then I'll also point out and the same time and we're still seeing strong closed loan volume are closed on time and Q4 of $107 billion and then looking ahead into Q1 between 98 and 103 billion.
And those numbers that would be the second biggest quarter and our company's history. So to put this in perspective, just a little bit more on the midpoint for our guidance is roughly 95% higher than our Q1 volume.
And the flexibility of our platform that we've talked about allows us to really run on our business for long term growth and for profitability and in any environment and we're really feeling good about the momentum and what we're saying.
That's great. Thank you.
Your next question here comes from the.
The line of Ryan Nash with Goldman Sachs. Please go ahead. Your line is now open.
Good evening everyone.
Yes.
Good evening.
Can you maybe just talk about the mechanics of the special dividend. How is the 2.2 billion split how is it funded across the different classes. I think you mentioned via an equity distributions and I just wanted to clarify.
And second last quarter.
With the large profitability did $1 billion buyback this quarter to $2 2 billion special and I appreciate Julia outlining the capital priorities, but maybe can you just help us understand.
And what Youre, how Youre framework came from the conclusion, one quarter buyback another quarter special dividend and how we should think about use of capital and a time, where youre experiencing really record profit.
Yeah sure Ken I'll start with the dividend and mechanics, and then maybe I'll, let Jay comment on your other question. So the way to think about the dividend is that the $2.2 billion is being distributed to all shareholders based on their economic interest.
Our public class a shareholders have roughly a 6% economic interest and then IHI has a 94% economic interest and so they are each receiving a dividend in proportion to that economic interest.
Alright, and then maybe going into the capital allocation just to be clear the board approved up to a $1 billion share repurchase we have not repurchase shares up to this point and time and looking at and Julie walks through the waterfall nicely I'll recap it again and we always first.
We are focused on maintaining a very strong balance sheet, which we have today.
Second is just investing and our business like we've been doing now for 35 years, whether it's the brand activity you saw the Super Bowl spot the technology platforms here.
We have been rolling out strengthening.
Adding features to <unk>.
<unk> labs, which I talked about which is an important investment for us to make sure. We're incubating and all of these ideas that we can grow and then add to the platform and we're very active and looking for acquisitions that would allow us to grow after going through that waterfall.
We determined at this moment in time, the best use of those funds was to issue.
Dividend and we will follow that process moving forward here as we've got a great track record and being profitable and throwing off a lot of cash what's the best juice and the long term for our shareholders.
And so that's the process, we use thats profitable continue to use and we'll be opportunistic if we feel like the share prices is at a place where the right thing to do is buy back those shares we will do that as well.
Got it.
Maybe I can ask a follow up to two and earlier question. Jay can you maybe just talk about some of the.
Competitive dynamics, you are seeing given the changing rate backdrop, and I was hoping you could maybe talk about it and the context of the <unk>.
Direct to consumer and partner segments.
And I think there was a competitor and the partner segment and talking about exiting parts of the market. So I was hoping you can maybe talk about how that's evolving and and if we do continue to see.
It's going up like where do you inevitably see margins getting to over time. Thanks.
Well I'll start with the partner segment I know, we made an announcement today that Morgan Stanley and E trade will be joining the platform will be joining Charles Schwab State farm into it and then turbotax realtor dot com so.
As the market becomes more challenging and others experienced headwinds and typically what we find is debt.
Large partners like this we'll look for the the steady driving force in the and the market and that's off and so that usually bodes well for our opportunity to grow market share and grow partnerships.
And when it comes to.
Our third party or what we call Tpa space same situation brokers out there who are in a more challenging market or to look for somebody who will deliver the technology a brand that they can lean into and Thats why we did the Super Bowl spot to give them that rocket brand that they can leverage to grow their business and so.
Usually as we see these these interest rates tick up a bit what we're going to see as an opportunity for us to lean and to spend more money and now to talk about the retail and direct to consumer space same situation here and there are so many marketing opportunities out there for us and as others tend to step away or back away from the space. This is where we can lean and.
And we can grab market share and not only we're thinking about the profitability that we achieved on the first transaction when we're thinking about the lifetime value of that client and we're now thinking about black and value not only over mortgage but real estate auto and these additional businesses that we'll be adding so I guess.
You can tell we're pretty excited about it and don't see interest rates going up or down and really having an impact on our business one way or the other.
Got it thanks for all the color.
Your next question here comes from the line of Jason Kupferberg from Bank of America. Please go ahead. Your line is now open.
Hi, there.
And on for Jason.
Just a little bit maybe just following up on over on that.
We think about grades increase and maybe.
What is the right level of profitability and long Brookdale fall.
Market.
And just about how you're thinking about you have pretty optimistic if you will.
Market share aspiration over the long term. So how are you thinking about taking advantage of that opportunity.
And just balancing debt market share.
Okay.
Okay.
Well, maybe I'll, let Bob speak a moment about the margin because we've got a pretty long track record and protecting that overtime and then I can add a little bit into and the things that we'll do to continue to grow market share.
Yes, David I think it's a good question and it's important one and a lot of ways.
Interest rates have risen in the past those then and we've made some law and most powerful share gains.
A lot of advantages that our competitors don't have and as Jay and Julie touched on because of the brand because of our brand and there is only one national mortgage brand. It really allows for the consistency of those margins. So not only are we able to protect those but also gain share and these sorts of environments and there's a lot of different areas.
We are gaining those shares we have we have multiple channels thought of our competitors don't have those multiple and we talked about the approach and we.
Certainly the direct to consumer channel and there is also a pretty persistent market of less interest rate sensitive products, whether it be whether it be mortgage insurance, whether it'd be equity extraction. So cash out we know that homes have risen and an incredible amount and the amount of equity and the market is really substantial debt.
That is something that really will drive the market in the years to come and then there is also a very very robust purchase market and that we're very active and so.
You asked for that ideal that ideal channel.
And the ideal is really it is these sorts of markets that we have grown in the past and taken advantage of a lot of the <unk>.
Attributes that we have that are competitive.
Yeah, and maybe I'll jump in here, if you think about our operational efficiencies and how much of every dollar we earn and revenue drops to the bottom line and the scale that we have.
And our platform.
And you can see the guidance that Julie provided in Q1, we've obviously seen market shifting and changing the last few months and our guidance is based on that.
We have this very unique advantage to make the investment and marketing and that can be marketing to drive more purchase leads to R. R 6600.
Cloud force individuals that can be marketing with our partners like realtor Dot com to drive purchase leads that can be marketing inside of E trade.
Clients are schwab clients and so as Bob touched on.
Those operational efficiencies give us the opportunity to.
<unk> increased our investment and grow that market share and we're fortunate to have so many different places to go spend those dollars.
And that's what you'll see us do and Thats. The plan that we will execute on to continue to grow through 2021.
Understood and then just real quickly you mentioned earlier as you're thinking about capital.
The priorities.
So flow trough, if you will.
On our waterfall of capital allocation, you mentioned acquisitions and I Love Your thinking is on August.
Organic non market growth.
And.
And it is.
And just what are you thinking in terms of opportunities right now and that.
Yes.
I'll give you said and maybe themes that we're looking at on it.
Cautious about going to doubt too far down the funnel there but.
And we're thinking about the tech stack that exists and auto.
One of the key Differentiators for us and the rocket auto piece is connecting the highly fragmented buyers across America with the highly fragmented.
Distributors across America, and so there is a unique tech stack opportunity there that could accelerate our growth.
Look at other add ons that could bring efficiency or accelerate growth in mortgage out of mortgage we look at other tech add ons that could allow our rocket Holmes platform to grow efficiently. So you'll find us exploring things that we can add onto our platform that will just accelerate the organic growth that we're already seeing.
Thank you.
Your next question here comes from the line of Dan Perlin from RBC. Please go ahead. Your line is now open.
Thanks, and good evening everyone.
It's really on a question about.
And the investments I might've missed it but is there a way you can kind of dimensionalize the size of the investments you're planning and maybe the cadence throughout the year that those were expected and then really the second part of the question as you outlined three areas and yes.
And you've talked about it as well and your prepared remarks I'm just wondering how do we think about.
And how those investments breakdown as it pertains to.
Really focused areas outside of a mortgage REIT in order to continue to diversify the business overtime.
I'll start and I guess, I'll say that and continuing to invest in is something that we will do as Jay mentioned in terms of looking at things from an ROI standpoint, and is that investment going to be one that is going to be.
And good use of our capital. So we will evaluate the opportunities based on that and and think about percentage of our capital and so that's one of the things that we certainly think about as we evaluate the amount of capital in the business yes.
Verifying question. When you mentioned investments are we talking capital allocation or are you speaking specifically to the non mortgage the rocket the loan and the homes investments debt.
Debt and platform added added.
Components to our platform today.
And more broadly when you said brand and growth on the purchase market and product. So it's more of a holistic question I am not trying to pick on one area in particular and.
Given the significant outperformance that you guys have had and the ZIP leveraging the platform that clearly shows through I'm, just trying to figure out what that number.
Is that number came into that number might look like throughout the year.
Yes.
I'd say that we feel very good about how we invested in 2020, and so I think youll see similar investments in 2021.
Behind the scenes a lot of the incredible work that was done to our tech platform supporting our brand and that occurred and very similar in 2020 to 2021, the one area, you'll probably see us lean into even more as our performance marketing and that's an area, where we can invest to grow our brand, but also grow revenue and lifetime value and it's very very much.
<unk> and so that will be.
Probably and air Youll see even increased investment in 2021.
Okay. Thank you so much.
Yes.
Your next question comes from the line of and from.
Kenny. Please go ahead. Your line is now open.
Thanks, I was wondering if you could touch about.
The purchase market you highlighted.
On a record level of purchase volume and some of the steps that youre taking to ensure that you.
On capture.
<unk> book piece of that is the refi eventually burns burns off.
One of the areas that I thought was interesting was the rocket pro insight.
<unk> highlighted 25 pounds and real estate agents already signed up on that.
How is that tracking versus your expectations and what's the level of engagement you're seeing there.
Yes.
Okay.
Quite a few.
I always stop Bob Walter was always reminds me that the guidance of interest rate market refinance it makes it a very large portion.
Of mortgages done in this country, each and every year. So as we touched on before there of course, our cash out people are investing in their home at record levels, we're seeing that in some of the non revolving debt that's increasing across the country.
And of course, there's always life events that cause people to move and we're also seeing second home investment and there'll be very strong. So we will keep seeing I think refinancing.
Regardless of interest rates, but to the to the purchase question that you're asking and we touched on our realtor dot com relationship and partnership.
So we're thinking about how we bring more clients directly to our 6600 rocket cloud force.
Team members.
And that's the investment and rocket homes, which will allow for the same and for sale by owner Dot com.
Large partnership like E trade gives us access to great clients, who are saving money and thinking about investing and homes.
And as does the Schwab network, which I think is.
Having had a record year in 2020, so all of these things give us reach into people at the very front and when Theyre thinking about purchasing but then there is another important component as well, which is our broker network and the thousands of brokers that we're working with that we're supporting and we continue to support more and more not only with great technology and a great and a great.
Sales force, but also.
Great marketing and Thats, why we mentioned the Super Bowl spot because we are now turning the millions of people that come to our rocket mortgage website on to the fact that they can work with a broker as well as our rocket cloud force and so that will help drive more purchase volume into our funnel and then let's go to insight because insight.
And the thousands of agents that are joining there they want certainty and they want visibility into what's happening with the real estate transaction and we believe we're uniquely positioned to provide this because we've also got thousands of agents and are already signed up on a rocket Holmes platform. So we're working with them each and every day, we're getting feedback from them, we're taking that we're sending it into <unk>.
<unk> strategy.
And we're adding features to that technology to give them that visibility and net certainty and I think that's why we're seeing such growth. So to answer your question about the pace. The pace is exactly where we thought it would be for insight and as we get into the purchase home buying market. We think that will continue to growth.
Thank you.
You bet.
Your next question here comes from the line of Brian Mccarren from Zelman and Associates. Please go ahead. Your line is now open.
Yes, Thank you and congratulations on the great results this year.
And so we're all obviously very focused on on the RASM and 10 year and the relationship there between.
Spreads gain on sale margins and apologize because I realize this is a bit repetitive with other other analyst questions, but around the concept of just protecting gain on sale I am hoping you can talk to you on how the competitive environment is historically influenced things.
I guess and environment of.
Higher rates capacity and the industry that has expanded its still probably not not scaled but.
I think there is a level of concern that we're approaching a period of just more competition amongst lenders and I understand what youre, saying on the on the market share side, the opportunity to take incremental share and tougher periods, but how does this competitive side of things.
Play into that gain on sale margin and I guess why or why not should we.
Trend back towards quote unquote normal levels of gain on sale or some day, obviously they have to go below average. So can you help me tease that out a little bit.
Sure and maybe I'll start and Bob can give you.
Thoughts as well as you've been watching that from the quarter century now so if you.
If you'll kind of maybe take a step back.
As the market as we see rates ticked down what you'll typically see is a lot of folks join the industry and you referenced increasing capacity, but when they joined the industry its not with hundreds of millions or billions of dollars and investment and technology, it's not worth billions of dollars of investment and brand and Thats why they don't see 85 or 80 or wherever.
We're Julie can clarify dropped to the bottom line the way that we do so and then as the market compressors and these things happen pretty quickly folks who.
Decided to get into the market by.
Hiring folks and adding bodies and spending money they find that it gets very hard to be and the mortgage business very quickly and so the same slack debt at the same capacity that went in and comes out and so sure there can be ups and downs and in margin and interest rate for a short period of time is that kind of works it through as we get.
The other side of that what you find is usually fewer competitors and.
So for those remaining not only does the margin stabilize in and.
And give you the opportunity to see that increase but it also gives you what you pointed out great opportunity to grow market share and then again I'll mentioned is because it's so critical to our business model for us as we think about the acquiring of clients onto our platform.
We're sitting in a situation where not only what we recognize the profitability of that first transaction with our operational efficiency.
But if people are coming in at a higher interest rate and we're servicing now nearly $2 2 million clients well then the minute rates ticked down while the opportunity to help them with a lower interest rate. Thus recognizing the profit again and a higher margin with no marketing costs and then of course helped them with the purchase of a new home to rocket homes, coupled with a purchase of a car through <unk>.
It auto so.
It really is a very exciting opportunity for us as we see rates tick up a bit because it creates this process I've just discussed which leads to two market share growth and leased line of site too.
Really strong future profitability as well for us Bob anything to add yes, I think just a couple of things to debt.
We have the luxury of being a 35 year old company. If you look back decades, Youll see and very consistent track record a gain on sale and it's really one of the I think one of the hallmarks of the company and there's a number of reasons for that and <unk> also talked a lot about lifetime value. We have you mentioned the service claims over 400.
<unk> billion dollars of service clients so.
And.
And the rising rate environment that becomes incredibly valuable and let alone all the other things that we've talked about the other businesses and markets that we are in and so so quarter to quarter. We don't spend a lot of time thinking about is just gaining share and gaining lifetime value.
That's very helpful. Thank you and second question so on the topic of.
And just the strength of the platform, obviously very robust dynamics and the mortgage space.
Strong traction with the with the ancillary channels auto homes I guess.
This concept of just launching into entirely new verticals I'm curious.
And what are the characteristics. There that you think are kind of most critical for us to think about and when we talk about new verticals are you still thinking within the realm of real estate lending auto or can there be.
Bigger opportunities above and beyond that.
Don't even necessarily relate to those those aspects of.
Of the business.
Yes.
And we'll have Dan joined the call next next time to discuss this I'll go back to the comments that he made.
And the letter our real mission is to take complicated transactions that humans tend to shy away from because of the complexity and the fact that theyre not that frequent and make them simple for people and so thats, where youre going to see us focus in on because thats the debt the power of our platform between the two.
Data that we have the incredible client experience, we can deliver with our rocket cloud force the marketing brand that brings confidence and the technology that streamlines. These complex things, that's where we can win and that's where we differentiate so so of course real estate is kind of a center to that we think auto is right there as well, but other things of that.
Net nature are of interest to us in addition.
We're always looking for the things that come natural with the purchase of a home or the ownership of a home or a car and so.
Think about when you buy a house now what are the other things that you have to invest and the other things that you have to keep track of as we've got a relationship with the clients as we have the data around that from the appraisal data too.
And to the credit data, how can we assist that client and streamlining all of these ginormous fragmented markets that surround the home or the auto and so those are the places when we talk about rocket labs, and investing and setting up. These these two pizza teams to quickly develop technology and put it into the <unk>.
While we can leverage our servicing book and other client basis to test it out that's where you're going to see that those groups focus.
Very helpful. Thanks, Jay.
Absolutely.
Your next question here comes from the line of Rick Shane from Jpmorgan. Please go ahead. Your line is now open.
Thanks, everybody and good afternoon and.
Appreciate you taking my question.
A couple of things can you talk a little bit about the dividend policy and how we should think about the special dividend should we think about that and the context of the fourth quarter earnings should we think about that and the context of earnings since going public or should we think about it in context of all of 2020.
Yeah, I would say that at any point in time, where more and looking at and the capital that we have in the business and certainly this year was that year. When we generated a lot of capital and it gave us the opportunity to not only continue to invest and the business, but also as you think about whether there is additional capital that it might be the right time to.
Return on some of that to our shareholders.
After evaluating that here just recently, we decided that the right thing to do with <unk> to do this dividend and we're really excited to be able to share and the successes that we have had here and 2020 and with our shareholders. The only thing that I'll add and you've probably heard that through the entire call.
Our focus is long term and our focus is the what.
But we believe this company will be overly over the coming years and satisfying these challenging problems for consumers across multiple.
Industries and so.
Growth is is our focus.
And because of the platform that we've got and Julia just touched on this the scale and the efficiency.
We can generate profit very quickly large profit very quickly and so we have to take into consideration all the opportunities that are in front of us to grow the business and the long run, but we've also got to think about.
Situations, where we're we made $11 billion last year, we're making a $1 billion a month, even with all of those opportunities out there. It's still maybe the best thing to do to issue a dividend to our shareholders. So we're fortunate to have these choices and we will but we're always taking the long term success and growth of this business first.
Look no question and you.
And you think about the investments you made in 2018 and 2019.
And you didn't necessarily expect that they would manifest in terms of the at the time the level of profitability you Joyce enjoyed in 2020 so.
Makes sense to continue to do that.
One other question.
When we think about your guidance historically its been conservative in terms of volume and gain on sale margin.
And when we look at the guidance on gain on sale for the first quarter. How should we think about that in context of primary secondary spreads have come in pretty significantly but also on the.
I think the more interesting nuance point, how are you thinking about your pipeline hedge and potentially in FERC true.
Decrease and fall out with the Spike in range.
Yeah, Great question I can tell you that those type of things are what our capital markets folks are looking at every day and the data that we have and I would go back to the importance of the data from the top of the funnel, even free application to understand pull through rates and so those type of data points on <unk>.
And to.
And the guidance that Julie has provided.
Got it so you're changing that debt pipeline hedge constantly based upon.
Dynamic and pull through rates or fallout range.
That's right.
Okay, great. Thank you guys.
Okay.
Oh go ahead.
Thank you that is all the time that you have a question and I will turn the call back over to Jamie for closing comments. Thank you. Thank you yeah I just wanted to thank everybody and particularly on our team members who are listening couldnt be more proud of the year that we had.
Of course, the record revenue and profitability, but I think even more importantly, all of the.
The impact that we were able to have on the communities that we live and work and play and supporting the city of Detroit.
The massive investments that we've made here and COVID-19 not only of our money, but at the time energy and effort that so many team members did to support the community just so proud and so thanks to all of you and thanks to our investors and we will keep plugging away here to do great things that rocket companies.
Thank you and ladies and gentlemen. This concludes today's conference call. Thank you for participating and you may now disconnect.
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