Q1 2021 Rocket Companies Inc Earnings Call
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Good day, and thank you for standing by and welcome to the rocket companies and corporations first quarter 2021 earnings call.
At this time all participants are in a listen only mode.
After the Speakers' remarks, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today Sheridan. Please go ahead.
Good afternoon, everyone and thank you for joining us for rocket companies earnings conference call covering the first quarter of 2021.
I'm sharing the new Vice President of Investor Relations here at rocket companies.
With us this afternoon are our CEO, Jay Farner, CFO, Julie Booth, and President and C O O.
True.
Before I turn things over to Jay Let me quickly go over our disclaimers.
On today's call. We will provide you with information regarding our first quarter 2021 performance as well as our financial outlook. This conference call includes forward looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions we mentioned today.
We encourage you to consider the risk factors contained in our SEC filings for a detailed discussion of these risks and uncertainties.
We undertake no obligation to update these statements as a result of new information or further events, except as required by law.
This call is being broadcast online and is accessible on our Investor Relations website.
A recording of the call will be available later today.
Our commentary today will also include non-GAAP financial measures.
Reconciliations between GAAP and non-GAAP metrics for our reported results can also be found in our earnings release issued earlier today as well as in our filings with the SEC.
And with that I'll turn things over to Jay Farner to get Us started Jay.
Good afternoon, and welcome to the rocket companies earnings call for the first quarter of 2021.
We had an excellent start to the year, but before we dive into the details I'd like to take a moment to recognize our team members for their efforts and results many of whom are listening right. Now last month rocket companies was named one of the five best companies to work Force in America by Fortune magazine, joining other tech companies are top of the list, including sales force.
Cisco. This is the 18th year. Our company has appeared in Fortune's Best Workplaces list.
We are also proud of another recognition we recently received.
Just a couple of weeks ago Forbes ranked rocket companies number three on its list of the 500 best employers for diversity in America <unk>.
As a company we are made better by having increased diversity and thoughts and experiences and have worked very hard to ensure that we're staying true to the day Eni promise, we made our team members and our communities.
Want to thank our team members again, not only for their support but also the absolutely vital role they play in making our company one of the best most diverse places to work in the nation happier.
Happy and engaged team members paired with World class technology and services leads to tremendous success.
That's why I'm pleased to share that in the first quarter of 2021 rocket companies generated more than $100 billion in closed loan volume, resulting in over $2 billion on EBITDA equally.
Equally impressive this represents the sixth consecutive quarter that we have at least doubled our closed loan volume year over year.
On today's call I'll provide an update on each of the pillars of the rocket platform technology data brand and the rocket Cloud force.
I'll finish my remarks by diving into one of the biggest opportunities for rocket companies today, transforming the home buying experience.
Rocket companies core mission is to create certainty and life's most complex moments as we all know getting a mortgage or buying a car or historically painful experiences at rocket. We have spent decades focused on developing a platform that removes the friction and pain points in these complex transactions, creating transparency.
Nancy certainty and confidence for our clients.
In the ever changing economic environment, our centralized platform has the flexibility to address diverse client needs across multiple products from accessing the equity in their home to purchasing their next car we.
We can also meet clients, where they are either on a direct to consumer basis or through our <unk> relationships with our professional partners all executed on a scalable tech driven platform.
Further differentiating our company is the ability to excel through any environment. Our platform provides us extreme flexibility to shift and meet the needs of our clients in any market.
When rates are low our platform scales to help a large number of refinance clients. When we see rates rise, we're able to flex and drive value for our clients, whose needs aren't rate sensitive like those looking to buy a home take cash out or who are managing a life situation.
In the current environment, you will see us continue to invest in marketing and our rocket cloud force.
While others in our space may pull away from the market, we remain focused on adding new clients to our platform with the knowledge that future transactions with the same client will drive incremental revenue with little to no marginal cost.
This is all made possible because on a rocket platform provides unmatched client retention rates at 90 plus percent.
As we continue to expand our platform, creating certainty for clients in categories that have historically been challenging the opportunity for rocket companies is gigantic.
Sidor this when combined real estate automotive sales and financial services, all markets, where we're helping to lead the way accounts for nearly one third of the U S. GDP.
They are all highly fragmented markets and digital transformation is still in the early innings, we continue to take market share in each one of these segments and believe we are well positioned to win in the long run.
To lead in the largest and most complex markets. It requires developing proprietary technology to deliver a seamless digital experience today's consumers demand speed and efficiency and the platform must be able to grow pivot and flex at scale. We are seeing that in our business today on our last call I mentioned rocket.
Logic, our next generation workflow engine, we created rocket logic with the belief that through rich data and machine learning, we could significantly reduce the amount of time it takes to originate and close on mortgage.
As we have continued to grow our pilot program in the first quarter on <unk>.
To say that rocket logic is performing at scale during the first quarter rocket logic process more than one third of our loan volume improvements in efficiency and speed are clear overall turn times declined by more than 30% quarter over quarter in Q1.
Rocket logic is already driving increased efficiency in our mortgage operations. Today, we are equally excited about the long term opportunity to extend the underlying automation to all the complex transactions across our platform.
As we develop industry, leading technologies that create better outcomes for our clients. We are also continuing to improve and evolve how we leverage the tremendous insights we can glean from our centralized integrated data Lake.
This data Lake and its 220 million consumer records is a strategic moat for the rocket platform.
Leveraging this resource in the first quarter, we significantly expanded our data marketplace and internal API platform that allows our teams to develop new applications run marketing campaigns, and even build new business lines, all using common trusted and secured data assets.
Machine learning and AI continue to play an increasingly important role in our organization as well.
Every single day, our systems make nearly $8 5 million automated decisions, helping to ensure we are running the business efficiently.
Our talented team of nearly 300 data engineers and data scientists is expanding in 2021, including the most recent hiring of a new senior data science leader, who will be heading up our rocket mortgage data intelligence team.
While we leverage data to drive client interaction our company continues to find new and unique ways to reach clients and increase engagement with our brand.
As we mentioned on our last call. We had the two top rated ads in this year's Super Bowl. Those ads were instrumental in driving consumer interest, which led more than 60 million unique visitors to our digital properties in the first quarter, representing a 72% increase year over year on.
Also to help drive the recognition of our brand. We recently announced two important sponsorships. The first is a very special one to us as we look to uplift traditionally underrepresented communities.
Rocket Pro Tipo, our brand serving mortgage brokers community banks and credit unions is proud to be sponsoring the number 16 car in this year's Indianapolis 500, what makes US unique is that the car is women owned women driven and the majority of the pit crew are also women.
We are passionate about this partnership and the extensions around it to raise awareness and excitement for how women are transforming industries. Both in racing and financial services. This is particularly true in the mortgage broker space, where we are seeing women enter and lead in what has traditionally been a very male dominated field the.
Other sponsorship is a PGA tour superstar and 2020 rocket mortgage classic champion Bryce and day shambo anyone familiar with them knows he's a long hitter and innovator and what are the best players on tour, our sports partnerships do a great job of showcasing our brands to audiences, who may not have seen us otherwise once those.
Consumers visit our sites to learn more on a rocket cloud force of more than 6600 highly trained U S. Based advisors step forward to ensure a seamless process.
On a rocket cloud force continues to be a key differentiator in our business our teams ability to build rapport with accurate and timely assistance complementing our unmatched online experience allows us to deliver the high touch expert experience our clients want paired with the efficiency of our digital first process.
The rocket cloud forces impact extends well beyond mortgage transactions for example, the team members who make up the rocket cloud force are proving instrumental in rocket autos growth.
Over the last year rocket autos cloud force has more than doubled.
The increase in trained and trusted advisers, who is valuable in the first quarter, enabling the company to exceed $1 billion in its annual <unk> run rate for the first time.
To aid in fueling rocket autos explosive growth I am proud to announce that the company has just formed a strategic partnership with <unk>, a leading software provider in the automotive retail industry.
This new relationship paired with rocket autos own proprietary platform will enable the company to facilitate a full automotive point of sales solution, including financing and insurance.
Today <unk> works with more than 2000 dealer partners. This relationship is another step in continuing to accelerate rocket autos growth by connecting with dealerships across the country to increase our access to inventory, which is critical in today's high demand auto market.
When all of the elements technology data brand and a rocket cloud force combined and worked together, it's a very powerful thing.
I want to close my remarks by spending a few minutes talking about our biggest opportunity in the market today.
Transforming the home buying experience.
It is clear that home purchase transactions represent the single largest growth opportunity for rocket companies today.
We are on the hottest real estate market in more than a decade and demand is accelerating March and April have been the strongest months of purchase application volume in our company's history. The simple fact is the home buying process is extremely complicated.
It involves multiple professionals, including real estate agents title companies and local mortgage brokers.
All of this complexity has led to home buying being one of the last transactions to make the move online.
It has also created an extremely fragmented market, where no company has been able to grab significant national market share. We were the second largest retail purchase lender in 2020, excluding the secondary market of correspondent lending and that was with only low single digit penetration in the purchase market.
Today I am proud to announce that rocket mortgage has set a goal to become the number one retail home purchase lender in America over the next 24 months.
Said differently, we are poised to transform the entire home buying experience only rocket companies can combine digital home search and our powerful rocket cloud force with tens of thousands of relationships with real estate agents and rocket pro Tpa brokers, while fully integrating mortgage appraisal title and digital clue.
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Core to this growth strategy is rocket homes or home search experience and a real estate agent referral network, while others in the market have figured out how to display MLS listings online we started with the most complicated and profitable steps on the home purchase process the financing and the title work.
From there we built a full featured industry, leading home search product at rocket homes as we built nationwide coverage over the last year traffic to rocket homes real estate listings platform has increased substantially growing over 300% year over year in the first quarter once consumers find their dream home.
They are staying within the rocket homes ecosystem and connecting with our rocket homes partner agent in fact connections to rocket homes agents were up 50% year over year in Q1.
Real estate agents play a critical role in the home buying process and we are providing powerful tools to help our agent partners in today's competitive market late last year, we launch rocket insight, which allows any real estate agent to gain unprecedented access to their clients mortgage with the client's permission of course.
This first of its kind solution provides visibility control and tools for real estate agents to present more competitive offers and closed deals faster.
The number of real estate agents, who have signed up for rocket pro insight has more than tripled in just three months with more than 45000 agents using rocket pro insight up from 14000 at the end of the year.
Another new program that is quickly becoming a favorite of real estate agents and their clients is our overnight underwrite.
This program guarantees that if a client submits their paperwork for our purchase application by seven PM. They will receive a fully verified approval by morning.
Local mortgage brokers are another extremely important component of our purchase strategy. We continued to invest in the broker channel and have earmarked tens of millions of dollars in technology investment in 2021, our continued innovation in the broker space is paying off in March alone rocket Pro Tpa signed up 100.
Words of new partners, marking one of the strongest months of partner growth in our company's history.
At rocket companies, we've built a flexible platform that can shift to the areas of greatest opportunity, including today's explosive real estate and automotive markets.
These markets present, an enormous opportunity for us to acquire clients to drive substantial lifetime value our ability to retain clients at a rate exceeding 90% is matched only by some of the best performing subscription business models in the World. We will continue to operate this business with a focus on the long term based on the life.
Time value of our clients with the knowledge that once added to our ecosystem. These clients will continue to add revenue in the months years and decades to come.
We are excited about the opportunities ahead of us in the second quarter and beyond as our team continues to deliver on technology and great service that helps us win today and long into the future with that I'll turn things over to Julie Julie Thank.
Thank you Jay and good afternoon, everyone.
I am pleased to report another quarter of strong financial results for rocket companies in the first quarter of 2021 rocket companies generated $4 billion of adjusted revenue and $2 4 billion of adjusted EBITDA.
In discussing our results I'll highlight some of our key priorities, including continuing to drive volume into day, strengthening economic environment, particularly from clients purchasing homes and cars as well as those accessing equity in their homes I will also share some detail on today's call around the investments, we're making to transform the home.
Buying experience, including continuing to grow our partner network.
Our first quarter results demonstrate continued growth and performance at scale, we generated $103 5 billion of closed loan volume in Q1 exceeding the high end of our guidance range and marking our sixth consecutive quarter with more than 100% year over year closed volume growth.
We experienced strong growth across the rocket companies platform in Q1 with record gross merchandise value at rocket auto record traffic to rocket homes and record title and settlement transactions at Amrok.
We continued to drive strong profitability in the quarter with first quarter adjusted EBITDA of $2 4 billion and adjusted net income of $1 8 billion.
These results reflect our ability to drive large scale volume on our platform very efficiently with limited incremental cost.
Over the last 12 months rocket companies generated $12 6 billion and adjusted EBITDA, demonstrating our ability to scale up and create truly substantial profitability in strong market environments.
As we enter the second quarter of 2021, we are seeing a strengthening economic environment. A key advantage of our platform business model is the ability to shift our resources to the area of greatest opportunity in any market environment and.
In our mortgage business continuing to drive strong volume in 2021 will require addressing client needs that are less sensitive to interest rates.
<unk> for these products is driven by factors, including clients wanting to purchase a home.
Take cash out of their homes reduce the terms on their mortgages.
<unk> and their life situations and the demand for investment properties.
Although rate and term refinancing activity was very high in 2000, Twenty's low interest rate environment rocket has historically had a balanced mix of originations for example over the last four years, including 2020 half of our cumulative volume was from these less rate sensitive products.
Strength of today's real estate environment provide multiple tailwind for our business with strong demand and limited inventory home values recently reached record levels and are growing at the strongest pace in 15 years.
Home values have increased nationwide at a double digit year over year pace in recent months. According to both the National Association of Realtors and the S&P Corelogic case Shiller index.
This trend translates directly into higher transaction values and revenue per unit for rocket mortgage and rocket homes.
With home values, increasing many homeowners are also taking advantage of the equity in their homes to consolidate debt or fund home improvements through cash out mortgage refinancings, Freddie Mac recently reported that last year American homeowners tapped into the most home equity in 14 years.
We are also seeing strong fundamental <unk> at rocket auto our automotive retail marketplace.
Rocket autos year over year growth accelerated meaningfully into Q1 to over 60%.
We achieved this growth despite inventory constraints from severe weather in the south among other factors.
Auto facilitated $360 million in gross merchandise value of automotive sales in Q1, passing the $1 billion annual <unk> run rate for the first time.
Leveraging our new relationship with auto Phi we expect to further accelerate growth throughout the year as we continued to expand our inventory and onboard additional automotive retail partners.
This sets rocket auto well on its way towards our stated goal of doubling automotive DMV in 2021.
Turning to the home buying opportunity specifically.
As you heard from Jay home purchase transactions represent the single largest growth opportunity for rocket companies today in.
In the first half of 2021, we are seeing strong acceleration in purchase activity at rocket mortgage.
Q1 represented our strongest first quarter purchase volume in company history.
On that and accelerated throughout the quarter with March setting a record for purchase application volume.
Strong performance carried into the second quarter with April exceeding March setting a new record as the single largest month for purchase application volume in company history.
We expect continued strength into the spring home buying season, and we are projecting record quarterly purchase volume in Q2.
Today, we shared our objective to become the number one retail purchase lender within the next two years.
I'll provide some detail on the strategic initiatives and investments that will drive us to that goal.
Investments, we're making are focused in two primary areas digital product development and our <unk> partner relationships on.
On the product development front, we are driving market, leading innovation to transform the digital home buying experience.
Heard from Jay we continue to build out the rocket homes digital home search experience.
We are seeing the benefits today with rocket homes traffic doubling over the last six months and increasing more than 300% year over year in Q1.
We see significant opportunity to further deepen the integration between rocket homes and rocket mortgage with rocket homes content now being embedded throughout the home buying process.
We're also delivering first to market solutions like rocket pro insight verified approval letters from rocket mortgage and overnight underwrite all of which help our clients and partners compete in today's highly competitive real estate market.
Our <unk> relationships with professional partners form another important driver of our home purchase strategy.
We've invested for several years to deepen our partnerships with real estate agents tax professionals mortgage brokers and insurance agents, who service trusted touch points working with our clients on a daily basis, especially during the home buying process.
Partners are an important driver of our overall growth.
Over the last 12 months, our partner network generated $142 billion of closed loan volume representing growth of seven five times since 2018.
Our partners drive incremental volume on the rocket platform.
It also help us capture more purchase transactions and contribute a higher purchase mix than overall company average.
Partner Network also drives incremental profit dollars for our business.
Gain on sale margins in this channel reflect the partial sharing of economics with our partners.
Because partner revenue is incremental to our platform and requires limited direct costs. We are comfortable investing in partner network margin when we see strategic opportunities in the marketplace, while still driving incremental profit dollars to rocket companies.
We've made these investments successfully in the past, including when we initially ramped our partner network volume and we see similar opportunities today.
As a reminder, we are in the early stages of ramping a new partnership with Morgan Stanley and E trade.
In addition, we are seeing a significant opportunity today within the independent mortgage broker community.
We are driving particularly strong growth among brokers as we extend rocket pro technology and the rocket Pro Tpa brand in this market.
We are investing in the mortgage broker channel and we are winning.
Hundreds of broker partners joined our network during the first quarter and our partner volume has continued to be strong into the second quarter.
As Jay outlined we plan to invest tens of millions of dollars. This year in technology to support our broker partners.
Our near term priority in this channel it should drive volume and incremental profits.
Turning to our guidance for the second quarter, we expect strong closed loan volume of between $82, five and 87 $5 billion and rate lock volume between 81, five and $88 5 billion.
Each of these metrics represents over 100% growth relative to the same period in 2019 were.
We are encouraged by our ability to continue driving strong volume and we expect non rate sensitive products to exceed 40% of our total volume in the second quarter approaching our longer term historical averages.
We expect second quarter gain on sale margin between 265 and 295% we.
We expect second quarter gain on sale margin in our direct to consumer channel to remain above 400 basis points consistent with our long term track record of superior margin in our direct to consumer channel.
We expect partner network margins to be around 100 basis points.
Margins in both channels are consistent with historical levels prior to 2020.
Our combined second quarter gain on sale margin guidance of between $2 65, and $2, 95% reflects changes in channel and product mix, including continued strong growth in our partner network, which drives attractive incremental profits.
I would like to make one note regarding comparisons to prior periods 2020 was a highly unusual year as a result of the COVID-19 pandemic and record low interest rates.
Rocket companies delivered remarkable performance through this unprecedented period with $12 $6 billion in adjusted EBITDA over the last 12 months.
As an organization, we remain extremely focused on long term growth.
As a result, you will hear us reference longer term comparisons, particularly comparing our performance in 2021 to 2019 levels, which we believe demonstrates our ability to grow through the economic cycle.
As Jay mentioned, increasing the lifetime value of our clients is a core component of our growth strategy. We will continue to increase the lifetime value of our clients as we expand our platform to address more and more of the important transactions in their lives.
We exited the first quarter with an extremely strong balance sheet I'd like to draw your attention to the substantial cash resources that we have in the business today, which totaled $5 $6 billion as of March 31.
When considering our current ownership structure. This means we had $2 79 available cash per share at the end of Q1.
Available cash includes $2 9 billion of cash on hand, and an additional $2 $7 billion of corporate cash used to self fund loan originations, which could be transferred the funding facilities at our option.
Our total liquidity, which includes available cash plus undrawn lines of credit and Undrawn MSR line stood at $8 $7 billion at quarter end.
As a reminder, our quarter end liquidity is after the special dividend we paid during the first quarter of $1 11 per class a common share funded by an equity distributions of $2 $2 billion, we remain authorized to repurchase up to $1 billion of our shares.
With that we're ready to turn it back to the operator for questions.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad again that is star then the number one on your telephone keypad.
Sales for just a moment to compile the Q&A roster.
We have our first question coming from the line of Erin <unk> with Citi. Your line is open.
Hello, the line of Aarons on again, which Youre line is open you may ask your question.
Sorry about that day.
Okay figure that out.
The gain on sale margin.
The guidance that you have coming down I was wondering if you could talk a little bit about the trends you're seeing both from the direct to consumer side and on the partner channel.
On the network as well.
Absolutely and thank you for the question on it's really talked about from the gain on sales in their remarks and in particular, how strong our debt consumer data on sale remains.
So as we think about Q1.
One of the great things that happened to our business as we saw the 10 year Treasury go from 90 basis points I think up to a high of 170 basis points. So what was expected to take over.
A year or two to occur kind of all happened at about a 90 day period of time.
Adjustments have to be made but that's where our platform really kicks in and then Julie touched on we're almost back to where we traditionally had been where 50% of our originations are not rate sensitive.
So the acceleration in those things so quickly was incredibly exciting.
And we're watching our retention client is well north of 90, 991%, so youre going to see us be strategic around gain on sale and we talked about this a lot but margins.
Moving back to more historical.
For the first transaction, what we are thinking about is the lifetime value of every client that we acquired an interest.
Let's talk about the massive growth in rocket homes rocket auto and as we continue to add additional fulfillment businesses to our platform.
Volume of that of that acquired client will continue to grow as well so.
Looks like the discussions I think we had erin that kind of during the IPO process, we were talking about setting a strategy over the course of two or three years really arriving at what the true lifetime value of the client is and then continuing to execute on those strategies to bring those clients into it.
Our servicing book, so we can monetize them for years to come so our big focus on I'm really proud of the growth we had.
In Q1, compared to Q1 of 'twenty and Q1 of 19 over $100 billion of closed loan volume, that's all coming into the top of the funnel will monetize debt over time I'll, let Julia net eagle.
Bit more specifics, but it's really important to us.
Understood a word thinking about debt, which is of course is profitable right now to bring those clients.
Our platform, but it's even more profitable than it looks on paper because of the lifetime value that we that we subscribed to each one of those slides Julie.
Yes, I think it's important to take just a minute to breakdown our gain on sale margin guidance a bit further so as I said, we are expecting overall gain on sale margins to be between $2 six 5% and $2 95 per cent of the second quarter, which breaks it down by channel, we expect to see our direct to consumer.
Above 400 basis points, which is consistent with our long term track record of consistent margin in this poor DTC channel and if you look back over time, Youll see that consistency and thus margin.
And then we're expecting partner network bargains around 100 basis points and these levels are also roughly consistent with historical levels. Prior to 2020, if we look at debt quarter over quarter change in net gain on sale margin guidance, it's really being driven kind of roughly by three equal factors first.
Of all is changes in loan pricing and particularly our investment to drive the growth in the partner network channel.
The second thing is that we did see the primary secondary spreads compressed at the end of Q1 and into Q2 and then the third factor that I'll mention is the channel and the product mix and were seeing an increase in the partner network and jumbo loans as a percentage of our total originations both of which drive attractive incrementals.
Total profit for us.
In looking at our second quarter guidance overall, we feel very good about our ability to drive volume, which is more than double 2019 levels. As we said at gain on sale margins roughly consistent with historical levels.
Sure.
Thank you that's very helpful. And then I guess, just secondly on the.
On the rocket homes in new initiatives to be nimble on purchase longer than two years.
Is this is this.
An investment that will drive.
Any additional revenue streams through rocket homes or is it really just a focus on.
Getting those customers right right in the process of.
Zero.
Well, so we've been investing in this ecosystem for quite a few years now and the reason we've set the goal here in the next 24 months because all of those important important components in the millions of dollars of tech spend are really starting to pay off I know I touched on the fact that on a rocket Holmes platform, which is an incredibly robust MLS listings plan.
Form we now are covering 49 to 50 states and I think we'll be into Hawaii in a matter of days or weeks that growth year over year is up 300%.
And that matters, because what do you do with that drives mortgage volume, but it's also driving real estate volume. So our agent connections taking those clients that are interested in finding homes and aligning them with an agent that was up 50% year over year, and we're making significant investments in that process.
In technology to keep accelerating net so what does that do well that allows us to capture revenue on the on the real estate side on the mortgage side on the title side and.
So not only are you getting those.
Additional revenue streams, you just touched on it but it's also driving up conversion, especially on a market like we're experiencing right now where inventory is so light we've gotta make those connection points, where a client comes in topical funnel finds a house get connected with an agent gets a verified approval.
Cases, now we're offering our overnight underwrite so the agent and right on offer.
Six pm on Tuesday.
Good morning, Theyre fully approved so our clients get cash buyers, who can drive up those conversion rates and so we can grab that that volume. So that additional volume will be added to the platform as we continue to invest in marketing all of the purchase services that we've got and I know on that you listed a 45000 agents, we now have on them.
Alright, alright.
Our platform that we built the rocket grow.
<unk>.
Insights platform that our agents use so.
All of those things kind of will bring additional revenue also increased conversion and then the last component I'll say to that she was talking about the <unk> partnership we've referenced before our realtor dot com partnership as that conversion rises our ability to lean in and participate in the purchase lead and <unk>.
Advertising markets growth, because we can spend more than others can spend because our conversion rates are far greater than the industry average. So that's a virtuous flywheel that building right now that will play a very important role here as we go through 'twenty, one and into 'twenty two.
Thank you.
We have our next question coming from the line of Ryan Nash with Goldman Sachs. Your line is open.
Hey, good afternoon guys.
Hey, Brian.
So I wanted to follow up on a question that Aaron asked on on gain on sale margins.
Do you foresee that we're at the bottom by channel I know others have talked about the industry under pricing alone. So can you maybe just talk about that combined with the competitive dynamics, what's going on in the wholesale channel that's causing these competitive pressures and Jay how do you think about long term.
Customer lifetime value versus trading off with some of the near term economics.
Yeah, Okay. So on a few questions there maybe I'll start with.
The margin piece on JD can jump in here too but.
We're kind of back to some of the historical longer term margins that we've experienced.
Which on our platform are still very profitable number one in the first transaction, but.
Again to some of the other comments that I made it is also the additional or the lifetime value.
There's been some changes in particular on the broke it broker market that I think are very interesting.
Our focus here is to solve the problems of our clients.
Client needs to buy a house, how can we develop technology and service to assistant if a broker wants to grow their business. How can we provide technology marketing et cetera to the system.
Others have kind of focused on on solving their own problems I think first the brokers problems.
It's interesting what's happened because through that our partnership with the brokers that we got in that part of our partnership channel is strengthened so the volumes that they are sitting this are increasing.
If you think about the lifetime value certainly in the direct to consumer channel, that's well understood, but in the broker channel you might say to yourself well each time, a loan terms in that brokers thinking hey, where should I send it.
<unk> choice gets eliminated.
And our partnership with debt broker gets stronger our ability to monetize and work with that broker partner in the years to come to drive more lifetime value from those relationships increases as well. So we're excited about what we're seeing in the broker channel. We're really excited about what we're seeing in the direct to consumer channel.
And so we spend we spend our time thinking about the lifetime value more than probably the day to day margin that you might experience on the on the first loan and I know I referenced this before but I'll say it again.
We saw growth in auto up 60% to 65% from Q1 of last year to Q1 of this year and that's with very tight inventory right. We're in a very unique spot on and there's an article every day written about how theres no auto inventory yet were growing we saw growth in the homes channel, we're seeing growth in our loans channel. So all of that has to be factored into it.
Our LTV decision.
And we're going to keep doing that because once we capture that base and.
And we continue to add these fulfillment engines to the bottom of our funnel.
We're fully building out the platform that we've been on a mission to build out for years here. So it doesn't mean investing with Juno will jump in it doesn't mean, we'll be thoughtful about the margin day to day, and I think thats evidenced by where we are right now or net of a 400 basis points on our on our DTC, but it's critical that we think about the future and where we're headed and the <unk>.
From clients, we're adding to our platform and how theyre going to stay with US I mean thats the long game that we're playing in.
Just to add to that when you look at our direct to consumer margins over time as I said, they do tend to really be more consistent than we've seen net quarter over quarter here as we look back there may be some times when it is.
The slightly lower net material fee it certainly hold around that and opportunities like we just saw in 2020 here presented great opportunity for us to take them into some margin and then on the partner network side of things are really going to be strategic here, we're going to be thoughtful about growing that business long term there may be some opportunities to take advantage of.
Potentially leading to net margin and we'll think about that from time to time, but we are going to be thoughtful about the near term like Jay said, absolutely focused on that long term value of this line for acquiring.
Got it.
As my follow ups together, so first Jay you referenced a couple of times debt.
50% of the originations are not rate sensitive can you maybe flush out for us how much of that is purchase versus cash out refi on what else.
May be included in that so we can understand some of those some of those pieces are and then second you talked a lot upfront about leveraging the ecosystem.
To drive growth in all of these new channels that you're developing.
Can you maybe just talk about your vision for how you see the scaling over the coming years, what it can mean for the growth of your company and just how the investments that youre, making in tech are better positioned versus other players on the industry. Thanks.
Yeah, absolutely so.
I don't think we break down the specifics here, but I'll give you. Some I'll give you some from the contact center, we talk about debt consolidation all the time that really falls into two buckets and we're watching this increased substantially as we get into 2021 spending as we all know is very strong and a variety of areas and that's that's causing that to be.
Accumulated.
Card debt second mortgage debt on home equity line debt all things that we can consolidate we were talking about the rise in home prices has created a scarcity in terms of <unk>.
Homes available, but it's also created with one of the greatest increases in home equity equity, we seem like 15 or 20 years. So it's a.
It's a really strong positive combination for us I think.
Very well positioned and this goes back to our data science team.
<unk>.
We have 220 million records, we talked to millions of people a month understanding their debt load. We can model out where they were a year ago and then and then also model out where they will be in the future, creating all kinds of opportunity to balance out the equity in their home with the debt that they are building and we can consolidate debt. So thats a huge piece of our business.
We've been executing on that for years and as Julie referenced we have seen that come back at.
At the levels that it had been in.
In years prior we called out purchased because we're the second largest retail purchase lender in the country. So you can kind of use those numbers to triangulate, where we're at and we're going to number one.
It plays an important role and I already touched on this how are we going to get to number one while we're combining all of these disparate.
Experiences from MLS to real tourists to mortgage brokers to title to appraisal all of this hard work we've been doing on the tech platform behind the scenes is really starting to come together. The other exciting part I know I touched on this is now taking all of that data emerging it together. So we can watch.
And learn every step of the process what is happening to that client, where the falloff points, where can we increase conversion how do we modify our process. So.
That's the tech platform and the Tech platform is in the early innings compared to where it will eventually be with that data sharing across all of these different these different.
Fulfillment businesses, we're building here's our mission at the end of the day, we should be able to look at it every American.
And target market or had a specific message and specific value to every single American about how we can help them either improve other home save money in some way shape or form biochar.
Or help them with a real estate transaction and when you put those things together, that's 30% of the U S. GDP that we're talking about here. So that's our vision thats. The platform. We're building to play a major role in almost a third of the GDP here in the United States of America and those are all the critical pieces that we've been building for years.
Under this under the Hood and I think it's auto side.
Partnership is really critical because it is an important component of that is to really grow that inventory and our reach into different dealerships does that auto business that we're building is far different than almost anybody else. So really just connecting and conducting the sale and now we have the option to connect the financing between dealer and consumer so we can really dig on.
Marketplace, So I am excited about debt as well.
So I don't not sure on the answer to all your question, but if that's the vision of where we're headed here.
Paul surrounded a ramped.
$1 billion in a multibillion dollar brand that has the highest client service ratings in the country. So we don't have to convince people. What rocket is all about day know that it's a high quality experience and so as we add these additional services. We believe that the conversion rates will be quite high because people already condition to jump in and take advantage of those services.
Thanks for all the color guys.
Net.
We have our next question coming from the line of Doug Harter with Credit Suisse. Your line is open.
Thanks, Julian you highlighted.
Our strong liquidity and cash position.
Currently have.
Can you just talk about.
How are you thinking.
What's the level that you need to come true.
Hum.
We'd be thinking about Q.
Q3 potential return on our capital and give them given future cash flow.
Yeah sure Ken Thanks for the question and we do have substantial liquidity as I mentioned in the business today and as we think about the level and the business really we're going to be looking at at first and foremost as I know as mentioned before the investing back in the business is going to be the first place that we're going to look to deploy that capital so whether that comes from.
The investments that we're making either in brand or whether we're making that in technology or potentially acquisitions that may be of interest to us as we continue to look for those things that are additive to our business either to our tech platform, our reach and that is something that we'll continue to look at.
And then if that is not something that we see in the near term as we look out here, we will potentially look to return some capital to shareholders either through doing a dividend like we had done here or potentially through a share buyback. So that's kind of the way we're going to keep looking at how we manage our cash as we go forward here.
And I guess, if you could just while volumes are remaining kind of elevated they are kind of down sequentially next quarter, just what does that do to kind of liquidity needs to kind of run from the business.
On the I'll jump in on the on the volume question I know when we are thinking about where we came out of Q1 over 100 billion.
Guidance, we provided for Q2, keeping in mind that we've got.
And thousands of approved homebuyers, and so hopefully as more inventory opens up that will accelerate some of the purchase transactions that are kind of currently in waiting mode.
We feel very good about where we are on Q2 and looking forward into the future and seeing volumes and in a very similar range. So.
And then we had a huge year last year.
I expect to have a very.
Very good year this year from a volume perspective.
And so you should keep that in mind as you think about our capital needs here as we get through the rest of the year as we continue to generate cash flow are going to be thinking about those same investments that we can make and it really doesn't change the decision here as we.
Go forward, we will continue to manage our capital in the same way we've been thinking about it in and expect continued strong cash flow here in the second quarter.
Great. Thank you.
We have our next question coming from the line of Dennis Mcgill with Zelman. Your line is open.
Alright, Thank you for taking my question.
Exciting to hear all the different opportunities you have ahead of you on the purchase side.
I'm just trying to tie back to maybe the data that we're looking at for 2020 would imply that there was a little bit of share loss and the purchase channel.
And I was wondering if that is a good example of last year being on a year, where the profitability was most attractive in the refi side and on a good example of where you can shift product mix and go after the more profitable part of the business and then.
Thinking about that moving forward a purchase of the more attractive area. That's where you can lean so is that the right way to think about the fluctuations that you might see year to year versus smoothing that out over a multiple year period.
I think there's probably two ways to do that I think youre right. The flexibility of our platform really allows us to move to the most profitable low net will bring in and again as we've touched on not only the first time around but thinking about the lifetime value of that client.
And so youll keep watching and seeing us do that.
Also considering the investments that we're making long term in purchased now as we've touched on rocket homes. We've touched on the listing side, we've touched on the realtor networks I know in calls past that I've talked about providing other opportunities for sellers and buyers through for sale by owner on other projects that we're working.
On the.
Sure.
Insights network that we're building now has 45000 plus real estate agents on that the technology that we're investing there to give them the visibility the communication of transparency into the loan all of those are significant investments into purchase and so although we will keep adjusting the levers to make sure we're <unk>.
<unk>, our opportunity I think you'll see us keep the accelerator pedal on purchased as well because we're making substantial investments now to continue to see that channel growth.
Okay that makes sense and then a separate question as it relates to some other changes by the agencies on second home and investment home limitation can you just maybe share any impact you're seeing on the market from that and if there is any non agency channels opening up for sales of them.
Yes so.
Great question Theres been a few adjustments here in the last month or so I think we're in a great position.
And Bob Walter can touch on this I think the first example of this was our smart jumbo debt, we rolled out about so about 30 to 45 days ago and the securitization there and so our capital markets group is incredibly sophisticated their ability to execute on those securitizations is also.
Given us this opportunity to move forward into other products, whether they be second home or vacation homes or other other things where the agencies, maybe putting limits, we can jump in and continue to grow those channels with high quality products and deliver them in the secondary market that I don't see on additional comments.
Seem to change the agencies made around investment property second homes disrupted a number of players in the markets. We got ahead of that and I think to Jay's point, our ability to securitize off our own shelf gives us a lot of latitude and flexibility in that area. So that's that's not disrupted us from a volume standpoint in fact, we've had some opportunities to take advantage of debt.
<unk>.
I appreciate it good to hear thanks, guys. Good luck.
Thank you.
We have our next question coming from the line of Mark Devries with Barclays. Your line is open.
Yes.
Toric Lee originators with with a more centralized model have struggled to have too deep of a penetration on purchase market.
You guys have created a pretty interesting ecosystem.
It may just correct.
The question I have is how are you managing kind of the the.
The gray area of rest of the risks that kind of sits between the different language linkages in that ecosystem you're creating.
Well, obviously these companies are separate companies.
And I can I can tell you there was debt a team of crack attorneys ensuring that everything that we do as a <unk>.
Or arm's length transaction.
As you can think about it.
I'm not going to go into a restaurant educational seminar here, but our clients have choice every step of day manner every step of the way now with all the services, we provide and the technology provides.
It's understandable that there are choices to work with a company that can bring all of these things together, but we feel very good about the floating net we're on in terms of understanding rest us and our ability to navigate that wall, while growing this channel and also.
To your other comment about centralized lenders in there.
Our ability to crack the nut you look if you really think about this real estate agents want certainty right they've worked hard they want a loan to get closed and so I don't believe that it's about the location on the lender I believe its about the certainty of the lender to provide with our thousands and thousands of third.
Brokers out there if the agent is best suited to have somebody who can walk right in their office, we've got that broker.
Partner for them, we publish that broker on our websites will provide great technology that broker and we're happy to have the agent work that way as Asia prefers to work with us and our centralized rocket mortgage platform, that's great too and Thats why were making such a large investment in the communications in the visibility and the transparency and the overnight underwrites on.
All of the things that bring certainty to those agents. So they can have confidence that we're closing those loans and that's probably the second largest purchase lender in the country enrolling.
I don't think its centralized or decentralized I think it's just are you and I will go back to that comment on maybe do you understand the problem and are you solving that problem for your clients, whether it's the broker or the or the agent or the end consumer and that's the mission that we're on that's why our product strategy team is now hundreds deep working these hard problems to each and every day to make sure.
We're delivering where others don't and the last thing I'll make a comment on that.
That's exactly why we take this long term view rates are going to go off rates are going to go down probably in December nobody had said to themselves, especially the 10 year treasuries go on from 90 to 100 per 170 basis points, but it did it.
You cannot get distracted on the day to day movements of the 10 year Treasury note you have to have your plan of how youre going to grow market share over the years by bringing real value to your consumer whether that be the broker the agent the clients and you got to execute on that plan and so that's exactly what we're doing that's what we'll continue to do.
And I think the truth is debt over the course of many decades, staying that course will be net.
But we can honor that commitment of being the largest purchase lender in the country here in the next 24 months.
Okay. That's helpful.
And do you ever see a roll on M&A in terms of adding.
Any kind of local retail presence or do you think.
Through the combination of your broker partners and your centralized model that you can serve the entire market.
We're very active in the M&A space, we're always looking for bolt on opportunities in those types of things that can help us grow our platform and I use the word platform in.
In an important manner I should probably.
From my previous comments the real mission is what's best for the consumer what does the consumer want what experienced will provide them that gives them. The most certainty in that transaction any transaction with friction hold volume is one that we're we're very deep into but now we're getting into auto personal loans, how do we remove that friction and so if there is.
If there is an acquisition that fits into our platform that solves a problem where the consumer debt currently in our current model. We can't solve then that would be on acquisition that we would be we would be looking at where we're almost and I've said this before almost kind of origination agnostic.
Whatever is best for the consumer that's what we will do to bring them into our platform get the lifetime value of that consumer and make sure. They have a great experience.
Okay, great. Thank you.
Debt.
We have time for one more question.
On last question coming from Mihir Bhatia with Bank of America. Your line is open.
Hi, Good afternoon. Thank you for taking my question Chuck I just wanted to.
In terms of your volume guidance on that.
Quarter.
Down.
On the quarter and I think I heard you say April.
Okay.
Application.
Volume quarter. So just trying to help square that do you expect to make a meaningful slowdown in may and June.
Maybe I misheard something index.
So I think what we're referencing is debt over the first quarter.
We've had substantial purchase.
Application volume and so we have thousands of clients today that are approved and they are out looking for homes our guidance reflects.
Our current application volume and some of the inventory constraints that exist in the market today.
What I also was referencing as debt if you look at Canada guidance that Julie provided and we feel great about where that's at not only from the second quarter, but as we think about the future.
Those are.
That guidance kind of Tees us up for what should be an outstanding year.
On the heels on what has been record purchase volume in the first quarter, we didn't talk about the second quarter, but in the first quarter. It was the most purchase application volume that we've ever had as a company.
Understood Okay.
And then one other question I wanted to ask.
You've got some interest.
Some stats on rocket auto.
Auto.
And what it was from a wanted to understand a little bit more about that business how much.
That is it is.
Related to existing mortgage customers is it all of it.
I guess, what I'm trying to understand a little bit more on.
Lifetime value metric that we've talked about a few times you're on it highlighted.
Where can we see that in terms of like the cross sales out there in particular anything you can share there. Thank you.
Yes.
Directionally talk about it because its very exciting so as we started this business we did not focus on on.
Our client base. Initially we can certainly did market research to determine our client basis propensity to purchase understand that what we believe the conversion rates will be with our client base that can vast majority of cars that we're selling now which we're setting records every month are not clients from the rocket mortgage platform there actually.
Lower converting leads and there's a reason that we've done that wanted to construct a business that had all of the appropriate profitability metrics before really leaning in to our client base. So we've tested that enough to understand the conversion rates and what it will mean for that business as we open.
Our client base, but we just started to scratch the scratching the surface in terms of really marketing to our client base. That's why we're adding additional inventory and we talked about the auto Fi. It's critical if we are going to open that up and generate more lead flow that we have a more robust inventory platform. So we can really provide the services that our clients deserve so.
We're kind of moving from phase one to phase, two which will increase.
Our positive things that will be adding here in phase two but excellent question.
Sure.
Thank you there are no further questions at this time, turning it over to the presenters for closing remarks.
Alright, well, we sure appreciate everyone joining us today and thank you to all of our team members out there listening today certainly appreciate everything that you are doing and I hope everyone has a great rest evening and take care.
Mike.
This.
On today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].