Q2 2021 Rocket Companies Inc Earnings Call
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Encourage you to consider the risk factors contained in our SEC filings for detailed discussion of these risks and uncertainties.
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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 it over to Jay Farner, two data startup chain.
Alright, well good afternoon, and welcome to the rocket companies earnings call for the second quarter of 2021, we have a strong second quarter as we continued to execute on our growth strategy and leverage our platform across real estate auto and financial services.
In real estate revenue was driven in part by record purchase volume.
<unk> is on track to reach our goal of becoming the largest retail home purchase lender in the nation by the end of 2023.
Many of the accomplishments that we've achieved a result of our technology and of course, our people who bring their best to work each and every day.
There's tremendous combination was recently rewarded with rocket mortgage again being named the number one company for client service and mortgage servicing by J D power.
The accolade marks the eighth consecutive time, our company has earned this honor and it is our 19th J D. Power Award overall when you include the 11th straight peak number one rankings we've received for mortgage origination.
Our servicing fee and put our clients first helping.
Helping them through the difficult and uncertain times during the pandemic.
While clients with other lenders experienced several of our wait times at the onset of the pandemic rocket mortgage clients were able to navigate a digital solution complete with educational resources and easily apply for forbearance plans online.
This approach resulted in rockets forbearance rates being 41% lower than the industry.
Innovative technology driven client for solutions such as these are a testament of our ability to scale and to quickly pivot to meet the demands.
Unpredictable markets without the need to add head count and ultimately deliver unmatched client experiences.
As we turn back to the second quarter results 2020 accelerated the shift to an all digital experience and opportunity that rocket was prime to capture.
The demand for digital experiences has only expanded providing true momentum for rocket companies across all our core markets real estate auto and financial services.
Consider this.
When we look back at 2019.
We have now more than doubled the size of our business from pre COVID-19 levels.
Rocket companies generated $84 billion in closed loan volume and $2.8 billion of revenue in the second quarter of 2021.
Both more than double the second quarter of 2019 and more volumes than we did the entire year of 2018 our.
Our Q2 EBITDA of $1.3 billion was more than tripled the same period two years ago Derma.
Demonstrating the sheer power and scalability of the rocket platform.
On today's call I'll highlight the flexibility of the rocket platform to capture the growth ahead, including our strategy to revolutionize the home buying experience.
So touch on are increasingly important relationship with VW partners across the rocket ecosystem.
As we've shared with you in past calls our rocket platform is built to win our mission is to provide certainty and life most complex moments.
We removed the friction and pain points for major events like buying a home getting a personal loan purchasing a car all from a scalable centralized platform. This.
This flexibility allows us to stay nimble and go after the areas of greatest opportunity.
Optimizing revenue for our companies and driving value for our investors.
In today's environment consumer demand is incredibly strong in each of our markets. In fact, the markets are so hot that there are significant inventory challenges in both real estate and automotive sectors.
Even under these conditions, we achieved records for home purchase volume as well as rocket auto gross merchandise value and unit sales.
Based on the strength of demand at the top of our funnel. We believe both record purchase volume and record auto results would have been even higher if not for inventory challenges.
As today's mortgage market shifts toward home purchase in 2021.
Rocket is geared to capture more purchase volume driven by our superior technology driven client experience.
Innovation.
And our integrated end to end home buying ecosystem.
We mentioned last quarter that our company has set a goal to become the largest retail home purchase lender in the country by 2023.
Continuing to transform the home buying experience is the single biggest opportunity for rocket companies today.
We've spent years, creating a complete end to end experience that puts the power of choice back into the hands of the consumer.
From credit monitoring to home search connections with debt as local agents centralized services a comprehensive for sale by owner process and our recently announced <unk> services to provide a backup offer to sellers.
Have the suite of services that allow consumers to create a bespoke process tailored to their individual needs, while driving extremely strong conversion rates.
When paired with the power of America's largest mortgage lender in rocket mortgage and one of the largest title providers and Amrok no. Other company can provide the same level of integrated one stop services at rocket delivers.
Our eye buying program facilitated through third party partner companies will be released over the next several quarters.
Just last month rocket homes announced an important milestone.
Hosting home listings in all 50 states.
The company is now the only residential real estate ecosystem that has mortgage licenses.
Real estate broker licenses.
Search listings.
Real estate agents and real estate agent partners spanning all 50 states.
With nationwide coverage rocket homes performing at scale with traffic growing six fold year over year to reach nearly 2 million unique monthly visitors in the second quarter.
In addition.
Rocket homes drove.
A record $2 billion in second quarter real estate transaction value, representing the value of homes purchased and sold.
Through our real estate agent network rocket homes is still in the early innings as a very long runway for growth.
Rocket homes also drives purchase volume for rocket mortgage.
And we expect our momentum in purchase to continue.
<unk> homes draws in process clients into the rocket ecosystem, even earlier in the funnel.
And are regularly engages with our pool of nearly $2.4 million servicing clients representing half a trillion dollars in servicing value.
This significantly increases our lifetime value and recurring revenue with potential and existing clients.
From the beginning of the year, roughly 70% of rocket homes.
Transactions involve both an agent in the Lockett homes real estate agent network and in rocket mortgage.
Representing new attach rate among the highest in the industry.
We also have a high attach rate between rocket mortgage and Amrok. In fact, Amrok serves as the appraisal management company for approximately 65% of appraisals order for our direct consumer mortgages.
Illustrating the power of our ecosystem.
We are also extending our value proposition.
Creating simple seamless experiences to now include residential solar.
Solar energy adoption is that a growth inflection point.
According to third party research.
Solar energy is expected to quadruple by 2030.
With roughly one in eight homes adopting solar power.
Our dedicated highly trained group of team members from the rocket Cloud force will serve as a rocket solar advisers to our clients.
The team will help class determinant solar panels are the best choice for their homes.
And connect homeowners to our simple digital financing application.
This financing is complete.
But rocket cloud force will facilitate the installation of a new solar solution.
We will also be well positioned to help consumers, who may not have started with brackets solar consolidate their solar loan and mortgage for significant cost savings.
We launched rocket solar with a rate and term refinance product in late July and expect to be operating at scale in 2022.
Our entry in solar is yet. Another example of rocket companies maximizing the lifetime value of our clients.
By adding complementary services.
That we are uniquely positioned to deliver thanks to the versatility and scalability of the rocket platform.
Looking at rocket auto the company drove our record performance in the second quarter with both auto unit sales growth of 140% in gross merchandise value more than tripling year over year.
When considering the auto inventory shortages facing the industry, we are particularly proud of these results.
Rocket auto continues to add new partners, who are interested in connecting their inventory with our new perspective buyers.
During the quarter one of the largest online sellers of used cars joined rocket orders partnership network.
<unk> rocket auto access to tens of thousands of additional used tires to sell through it.
Duly expanding platform and providing significant more fuel to rocket autos growth story.
Technology and data are the cornerstones of our platform from.
From the use of data science to optimize every aspect of our client marketing funnel.
The use of ethical AI to aid in client service.
To sophisticated pricing models just to name a few technology and data fundamentally drive our business by enhancing client experience through speed and personalization.
Increasing efficiency through streamlined workflows, and decisioning and improving our pull through and.
And lead conversion.
During 2021 intelligent client targeting models were deployed to more than 80% of our client contacts ensuring that our rocket cloud for us is reaching out to clients at the exact moment. They are most ready to engage with us.
By tailoring the experienced decline we have lifted conversion resulted in approximately $4 billion in incremental application volume so far this year.
The beauty of our platform. He is its flexibility to meet clients, where they are and scale across multiple products and verticals, regardless of the market environment.
While our company started as the direct consumer mortgage lender rocket companies is increasingly a multi product multi channel platform and.
In addition to consumers the rocket platform works closely with three important <unk> constituents real estate agents.
Mortgage brokers and Premier Enterprise partners.
Each of these audiences play a crucial role as trusted advisers, leveraging with tailored products and tools, but pockets developed helped deliver additional value to empower their clients and to reach their goals.
Real estate agents they play a critical role in the home buying process and we are empowering agents in our network with new leads.
Products and tools to win in today's competitive environment.
Through innovative tools like our verified approval process.
Which fully underwrites buyers and allows them to make offers that compete with cash buyers to our overnight underwrite, which insurance purchase loans are underwritten in near hours.
We are real estate professionals and their clients with the tools to ensure that they win.
Another rocket mortgage innovation that has proven popular with real tourists.
Is it rocket pro insight.
Which we unveiled last year to help real estate agents create preapproval letters for offers track the status of their clients mortgage and receive real time updates.
The number of real estate agents, leveraging rocket pro insight more than triple to 50000.
Up from just 42 quarters ago.
For the thousands of mortgage brokers and a rocket pro Tpa network, we arm them with the industry knowledge and tools to work smarter and grow their business.
In the second quarter, we began.
A revamp of our broker partner portal, starting with our newly enhanced pricing calculate providing greater ease of use for our partners to run different scenarios for their clients.
Over the past month more than 20000 unique mortgage professionals relied on our interactive broker tools to move mortgage applications to the finish line and their clients to the closing table.
Our Pathfinder tool that we created in partnership with Google provides simple answers to even the most complicated mortgage qualification and underwriting questions and has become one of the top resources for mortgage brokers.
We continue to add new Premier Enterprise partners to our network.
And we deepen our integration with our existing partners.
We've recently launched our new integration with credit Karma, allowing their 110 million users to apply for a rocket mortgage directly inside their app.
We also continued to grow and expand our relationship with partners, including Mint, Charles Schwab and railcar Dot com just to name a few.
We are excited to serve a broader range of clients through deep integrations with our partners and deliver the trusted high quality experiences their customers expect.
It's also my pleasure to announce a new relationship with mass mutual.
This new relationship will allow the company's 9000, plus agents to originate home loans through rocket mortgage.
Turning to our community from the beginning we have operated with a more than profit philosophy.
Along with rocket community fund, our philanthropic partner company, we have executed numerous data driven investments and initiatives to serve and support detroiters and revitalize Detroit, our hometown and where we are the largest employer.
At the end of June we sponsored our flagship event the rocket mortgage classic PGA tournament event held in Detroit.
Rocket mortgage classic showcases the best talent in Gulf, while raising funds to help bridge, the digital divide and bring broadband connectivity to all detroiters as.
As we continue to grow in Detroit, It's critical that Detroit is have an equitable opportunity to grow with us.
In closing we.
Entering the third quarter with tremendous momentum across our entire platform.
And we are poised to have a record year across our platform from rocket mortgage to AMRI lock at homes and rocket auto.
I'd like to think about this.
Over the past several years rocket mortgage has grown volume and taking market share.
Just simply in 2018, we originated $83 billion in mortgage volume in 2019 that grew to 145 billion.
And we ended 2020 with $320 billion in mortgage volume.
While industry forecasters expect a smaller market in 2021, we expect to grow volume from our 2020 record levels.
We're going to gain market share and achieve record origination volume this year in.
In addition, we expect our servicing book will grow more than 30% this year to over $600 billion.
Driving recurring cash revenue stream are more than $1 billion.
<unk> portfolio of companies reinforce our ecosystem and contribute to our best in business retention rate expanding client lifetime value.
This year, we are building on momentum from 2020 and beyond proud of what our team has accomplished and I'm even more excited about what's ahead.
With that I will turn things over to Julie to go deeper into the numbers Julien.
Thank you Jay and good afternoon, everyone.
Im pleased to report another quarter of strong financial results for rocket company fits.
This continued success demonstrates our ability to leverage our flexible platform.
We'll be sharing some detail around the investments, we're making to drive growth and provide insight into trends, we are seeing heading into the third quarter.
On today's call I will refrain from longer term comparisons, particularly comparing our 2021 performance on a two year basis relative to 2019 levels.
2020 was an unusual year for the economy, but the combination of historically low interest rates and constrained mortgage industry capacity.
Under these market conditions rocket exhibited the scalability of our platform with our loan origination volumes growing 121% in 2020 year over year, while our expenses were only 47%.
Given the unusual year 2020 represented it is important to look at our growth and profitability relative to pre COVID-19 results.
We were successful in gaining market share and last year's environment, and we continue to grow our business as we head into 2021.
During the second quarter of 2021 rocket companies generated $2.8 billion of adjusted revenue, which represents a 110% increase from Q2, 2019 and $1.3 billion.
Adjusted EBITDA up more than 220% compared to Q2.2019, representing a 46% adjusted EBITDA margin.
We generated net income of $1 billion, which exceeded full year 2019, net income and we generated adjusted net income of $920 million in Q2, 'twenty, one which was more than triple Q2 of 2019 levels, representing a 33% adjusted net income margin.
Our adjusted earnings per share was <unk> 46 for the quarter.
Profit mortgage generated 84 billion.
<unk> pharma origination volume during the quarter up more than 160% from $32 billion in Q2.2019 and in line with the midpoint of our Q2 guidance.
Less interest rate sensitive products, which include home purchases term reductions and cash out refinances represented more than half our closed loan volume in the second quarter.
Turning to home purchase in particular purchase volume nearly doubled year over year, and we set a new company record in the second quarter, we estimate that the largest retail purchase lender did $60 billion of purchase origination volume in 2020, excluding correspondent volume.
With the success, we have had during the first half of 2021 and the momentum we have going into the third quarter, we expect that our full year 2021 purchase volume will exceed $60 million.
This growth in combination with the recently announced rocket homes initiatives.
Bringing us closer to our goal of becoming the number one retail purchase lender by 2023.
For the quarter our rate loss gain on sale margin was 278 basis points, which is in line with our expectations at the midpoint of our guidance and substantially higher than most multichannel mortgage originators.
Our strong results extend across the rocket company platform.
Despite a relatively low level of auto inventory impacting the industry market auto continued to accelerate its growth generating $484 million of gross merchandise value during the second quarter up nearly 35% as compared to Q1.2021.
Through the first half of 2021, we have generated $844 million of DMV and are on track to more than double 2020 levels.
With Onboarding of new inventory partnerships, including just recently one of the largest online sellers of used cars, we expect to further accelerate growth in the second half of 2021.
Second homes, a similar inventory constraints. However was successful in generating record real estate transaction value of $2 billion, which represents the value of homes purchased and sold for a real estate agent network during the second quarter.
We also saw record traffic to rocket homes Dot com during the second quarter are nearly 2 million monthly unique visitors expanding an important top of the marketing funnel.
The rocket companies flywheel is based on leveraging our profitability advantages to constantly reinvest in our business further strengthen our competitive position expand into new areas of growth.
And client lifetime value with.
The opportunities, we see ahead and to fully realize the potential of our platform and unique real estate ecosystem.
We will continue to invest for the long term, particularly in technology marketing and our most valuable resource our team members.
We plan to grow our technology product strategy and data intelligence teams.
Within rocket we have more than 3000 team members dedicated to building proprietary technology.
Key priorities for investments are continuing to deliver great client experiences driving operational efficiency and extending our platform to partners.
Increasing the lifetime value of our clients is another core component of our growth strategy.
Our business is profitable on our first transaction with the client.
We then maintain ongoing loan servicing relationships with $2.4 million clients, representing over 500 billion and outstanding loan principal.
Mortgage servicing drives a recurring cash revenue stream for rocket companies that now exceeds $1 billion on an annual basis.
Mr. As the unpaid principal balance up 34% in the last 12 months and net retention north of 90%.
Based on our strong relationships with clients, we continue to expand our platform to address more of the important transactions in their lives.
Whether that's real estate auto personal loans or new products like residential solar incremental product on our platform position us to increase the lifetime value of our client relationships.
Looking ahead to Q3, we are seeing strong fundamental tailwind for our business.
The housing market remains asset homeowners are sitting on the highest levels of home equity and more than a decade and the investments we have been making are gaining traction across the platform our pipeline for both purchase and refinance remains robust.
As Jay mentioned, we expect to set a new company record with full year 2021 closed on origination volume on pace to exceed the previous record achieved in 2020.
While the mortgage bankers association and other public industry forecasts predict that overall mortgage volumes will decrease as compared to last year, we expect to drive growth and market share gains in 2021.
For the third quarter. We currently expect closed loan volume in the range of $82 billion to 87 billion.
And rate locked volume between 83 billion and $90 billion.
We expect third quarter, Dan sale margin to be in the range of 270 to 300 basis points.
Regarding our expenses at this time, we believe the run rate of operating expenses for the first and second quarters of 2021.
As a good reference for the third quarter with expenses roughly flat, even as we are growing mortgage origination.
We exited the second quarter with $2 billion of cash on the balance sheet and an additional $2.4 billion of corporate cash used to self fund loan originations, our total available cash of $4.4 billion.
Total liquidity stood at $7.8 billion as of June 30th including available cash plus undrawn lines of credit and Undrawn MSR lines.
Our business is capital light and our balance sheet is extremely strong. This year, we expect to generate more than $320 billion and closed loan volume exceeding last year's record keep in mind, even if these origination level, we need less than $1 billion of cash on hand to properly operate our business.
With $7.8 billion in available liquidity of $4.4 billion in total cash is largely held for investments dividends and share buybacks.
As we've said before our capital priorities always start with proper capitalization and reinvesting in the business.
We continue to look for acquisitions that would be additive to our platform by bringing new clients into our ecosystem enhancing operational efficiencies, while enhancing our product offerings.
On that we look to return capital to shareholders.
At current price levels, we believe our stock is undervalued over the past 24 months, we have generated $16.3 billion and adjusted EBITDA. Our MSR portfolio has a fair value of $4.6 billion and our balance sheet had total equity of $8.2 billion with our current levels of capital.
We have the opportunity to repurchase shares and return capital to shareholders via dividends as we've done in the past, while still being able to invest in the business and consider acquisition opportunities.
We will deploy our capital in a strategic and disciplined manner to generate long term shareholder value.
With that we're ready to turn it back to the operator for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
In the interest of time, please limit yourself to one question.
At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question comes from Ryan Nash from Goldman Sachs. Please go ahead.
Hey, good afternoon, everyone.
Hello.
So.
Julia you noted in the release that this was the strongest purchase quarter ever and you said you expect to exceed 60 billion. This year and we're on target to be the largest retail purchase lender in the nation by 'twenty. Three can you maybe just talk about what you're doing strategically to accelerate purchase originations.
Hey, you mentioned capturing them earlier in the funnel and maybe can you just help us understand how is capturing purchase.
<unk> by channel and how are you able to do this and still maintain margins that are decently in excess of the industry.
Yes, as we've talked about we think purchase represents probably the biggest opportunity here with rocket companies.
Although our purchase volume this year will exceed what was the record purchase volume I think last year in retail excluding of course correspondent.
Still a huge upside for us there.
We just recently issued a press release.
Scribing.
Rocket homes platform.
And all of that we're building there.
And really we are the.
Only organization that has put together.
Ari component required to streamline the purchase experience for anyone in America, starting with.
The credit reports and credit education, moving to a really robust home search website in all 50 states. Our traffic is primarily organic there so very high quality traffic, which of course helps with conversion.
Launched our centralized real estate services, which make a more cost effective transaction for before selling the property.
Our fusco for sale by owner website is growing rapidly to bring in folks and in this marketplace. There are many Americans, who can can sell their homes for sale by owner.
We've got a very robust.
Real estate network in all 50 states for clients, who require that level of support from real estate agents of course, tying that all into rocket mortgage.
With our verified approvals are overnight underwrite that empowers real estate agents to know that the client is ready to to buy the property.
And then our agent insight the portal that we now have I think north of 50000 agents using skip visibility.
To update offer.
Letters approval letters I should say.
But all of those components on the retail side.
It will allow us to.
To bring traffic in.
And convert traffic at levels that I think the industry has not seen we've talked about I talked about our attach rate.
With 70% of course, our title company Amrok.
<unk>.
Appraisal services company participate in that as well and then and then we've got our GPO.
Program, which is growing.
Our market share growth I think we've seen 18% growth in the <unk>.
Last 12 months in GPO are the highest in the industry of any GPO player.
As that shifts to purchase those brokers, who are aligned with US will also shift to purchase deleveraging. The portal that we're investing heavily in the new pricing calculators that we've built the pathfinder tool that we've built in partnership with Google to give them the answers that they need on the spot. So it's really all of these tech and marketing investments that we think.
Create a competitive advantage and really.
<unk> unique value proposition to the consumer that others are not able to provide it.
I will just have to keep in mind.
All of that's been really done internally, thus far as we've touched on in our press release as we get into the later part of 'twenty, one and into 'twenty. Two we will have many of those programs at scale with high by our program at scale.
And then you will be able to be more visible with those programs to grow them substantially. So that's why we're so excited about our opportunity to continue to grow purchase.
Got it thanks for all the color if I could squeeze in one follow up maybe for Julie Julie The <unk> guide closer a gain on sale in.
$2, 70% to 3% range, which at the midpoint implies a slight.
Tiny uptick from where we were this quarter can you maybe just talk about expectations by channel do you think we've seen the bottom in the partner channel and do you think you can maintain retail margins on a go forward basis. Thanks.
Yes.
On sale margin in Q2 came in at $2.78 kind of right in the middle of our guidance range, there and as you said our expectations for Q3 are between 270, and 300 basis points. So a consistent and slightly improved over the last quarter and we do expect both channels to be above.
Where they were in the second quarter from a gain on sale margin protected.
Mix that we expect to see in Q3 is similar to what we saw in Q2 as well so is in in both channels, we're seeing that.
On the retail side of things or direct to consumer. We also feel very good about our gain on sale margins in that channel and seeing those strong as I mentioned so.
Feeling really good about where we are in both channels.
Thanks for the color.
The next question comes from Doug Harter from Credit Suisse. Please go ahead.
Thank you actually Tim China from credit Suisse, but same team and I wanted to talk a little bit about rocket homes. So you did a great job of covering a lot of this during the prepared remarks, I don't mean to rehash any of it but I just wanted to see if we could elaborate a little bit more on not only how it drives top of funnel purchases.
But also helps them converting what I understand is that there is not a lack of purchase leads coming into the rocket ecosystem. It's just that sometimes they have longer lead time or there's other factors that could come into play maybe we could just elaborate on how rocket homes helps to bring all of that together.
Yes, that's a great question I think it's an important and a strategic shift in thinking about the purchased lead marketplace. As you mentioned, there's not a shortage at rocket or in the industry. When it comes to to purchase leads the real question is how do you incubate those leads over a longer time period and get the conversion levels that you can.
Need.
And to make them work, you've got a conversion level not just with mortgage but the combination of mortgage real estate title appraisal.
And of course think about the lifetime value. So our viewpoint is different than others, because as we think about a purchase transaction. We also know our 90% retention rate and think about the subsequent refinance transaction.
And so I think that's again one of those things.
We can't we don't think about it as a standalone business, we think about it as part of the ecosystem that we've built.
And that allows us to not only lean in where others cannot but also get higher conversion rates.
Others are receiving them.
Rocket pro insight.
Portal, having that information with our real estate partners. So they can see what's going on there more confident with us.
On the conversion rate goes up.
The rocket agents across the country.
Familiar with rocket mortgage know how to work with us and so that means information is flowing in the conversion rate goes up and so all of those things give us a unique advantage and maybe I'll turn it over to Julie because.
Maybe put a little bit more color around how we think about.
Our unit here and there.
Economics around that unit, when we're making decisions to invest in technology or invest in marketing to drive those purchase units Josef do you want to kind of go through that a bit unexampled, probably helpful here and thinking about the ecosystem and kind of how it all comes together.
Think about a client who is purchasing a new home safer $300000 within our ecosystem. If you look at gain on sale margin in our direct to consumer channel, let's say at the 450 basis point gain on sale margin, we will generate $13.500.
$13500 of revenue for this purchase and then at that client is using an agent and our rocket homes real estate network, we would generate an additional $3000 in revenue, assuming a 1% Commission fee.
And then in addition to that if you add amdocs appraisal closing entitled services and they provide us another opportunity community there to earn an additional $1500. So as you look at this in total we think about all of the opportunities we have that transaction would generate $18000.
And it really doesn't stop there too if you think about the other things in our business, we've got rocket auto.
<unk> is coming that personal loans, which are all really natural extensions of that home buying experience.
These businesses do have a high correlation to the real estate opportunity hitting that leads to the client the right time to serve their needs throughout their entire home ownership journey. So these newer business areas that were adding really helped us leverage our platform strength.
Especially from a marketing or technology and client servicing so it's putting all these things together not only does it increase the conversion, which makes our marketing dollars more valuable to us than I think others, but it's also the viewpoint of the lifetime value of that client and I know something we touched on that I think will be beneficial as we move into.
The 2022 and beyond as the <unk> program, reviewing and again, a little differently, we've got $2.4 million folks in our servicing book.
Looking to clients every day, who want to buy a property.
And our thinking about how can they sell theirs and so by having that backup offer through <unk>. We're empowering our client base to move forward with the purchase of a new property. So it's another exciting component of the.
System that we're adding that we will see I think add value and.
Help encourage transactions as we get into 2022.
The next question comes from Aaron <unk> from Citi. Please go ahead.
Thanks.
Just hoping you could tell us a little bit more about the solar financing opportunity just in terms of what your expectations are in terms of the total addressable market.
Economics and.
How quickly you will be rolling out with that product.
Yes, good question and there are quite a few different fab.
Facets to this program. So we're taking a step back I think there were more than 2 million solar installations in the U S.
In 2020, we're saying that that will quadruple.
By 2030, so that means one in eight Americans will be.
Adopting residential solar power.
So remember we're really in the savings.
Money, helping people save money business as much as we're in the helping people buy homes business and so we're talking to clients each and every day about how they can save money in many cases, that's refinancing the mortgage but there are other opportunities and we are already engaged in those discussions.
Of course, our discussion is about the bills people pay including their utility bills and so it's a really natural pivot to have the discussion around.
Solar might do and so we will be doing a few different things as we as we grow this out our rocket cloud for us will really serve as solar advisers to our clients so they'll be using technology to help determine.
If someone's eligible solar solar how it would work and roughly how much money. They can save then we'll partner with with folks who do the actual panel installation.
And then our rocket homes rocket lowest technology.
It will be used to to do the financing. So there's really two options for our clients.
One is doing the financing.
Using their their mortgage which we have programs for and the other is doing the financing that we will be providing through our rocket loans solution.
Sure.
And so that's kind of the second component in the third of course is that.
To really capture the full value.
Clients that have already done solar may need to consolidate their solar loan into their mortgage so we've already started that program.
And of course, we will make that program more robust as we continue to move forward. So clients will be refinancing the solar loan if its appropriate back into their mortgage as well. So we can help in all three of those areas and we're uniquely positioned because we're already talking to them about the bills were already talking to them about their property. We are already in many cases have an appraisal.
We understand the size of the property the roof in many cases, so a lot of the data that others.
In this industry require or need to really bring value to the clients we already possess.
So the market's going to grow rapidly and we will be taking our brand and our cloud for us and our technology to make sure that we can be a market leader.
Thank you.
The next question comes from James profit from Morgan Stanley. Please go ahead.
Yeah. Thanks, a lot I wanted to touch on.
Mint to comment a couple of minutes ago that you expect the gain on sale margin for both your channels will improve sequentially.
If you can talk a little bit about like what you think will be the drivers there and why that is and I guess I would imagine you are probably already seeing evidence of that but just want to confirm that and then I guess as a follow up what we've heard from others.
History is there it seems like Theres a lot of overcapacity at least of head count and Youre seeing some of your competitors are making moves to address that but wanted to get kind of what your senses and.
You think this plays out for the competitors and what rocket's response is going to be as we kind of go through this adjustment period right now.
I know Julie touched on where our expenses were in Q1, and Q2 and kind of using that as a.
The reference point for Q3 and beyond.
Because although we're growing market share and volume and do more purchase transactions or efficiencies in our on our platform continued to.
The evident and so we're able to see that growth without without having.
Increase in expenses, we also know that.
<unk> had.
Have a platform Thats scalable is very important to us as Julie has always touched on we're profitable in the first transaction.
So as we see competitors, maybe think about reducing.
The size of their operation.
Creates opportunity for us to grow market share, which is what we believe we will see and what we said here in 2021.
We think about.
This.
The.
The.
Play I'll guess I'll use that we've been running for 36 years and in particular last three or four years is that we set our strategy for growth over the course of many years of three year plan is what we really operate off of.
And we stick to that strategy and there'll be changes in interest rate of course throughout that period of time, but I think Q2 serves as a as a good solid proof point that we're able to achieve record.
We doubled our purchase volume in Q2 of 'twenty, one over where we've been in 2020, regardless of interest rates.
<unk> I think julie's guidance towards where will be from a midpoint in rate lock volume also demonstrates our ability to stick to our plan, regardless of whether markets are going up or going down.
And then the third that I'll say, we touched on this as well.
Our ability not only through our multiple channels that are multiple marketing.
Vehicles that we use really allows us to capture different types of mortgage volumes really touched on the fact that over 50% of the volume that we did here in Q2 was not rate sensitive so cash out.
Term adjustment purchase.
So we'll continue to lean into those things in Q3 and beyond to ensure that we stick to our three year plan of growth through I don't know if you want to touch on.
Any any other portions of that question.
You hit it really well Jay I think on gain on sale margin like I said, we are seeing.
The strengthen in both channels.
We're excited about where our Athens, and Jay I think you covered it all.
Okay great.
Thanks, Chris.
The next question comes from Mark Devries from Barclays. Please go ahead.
Yes.
Thanks, I had a follow up question about the purchase.
You mentioned can you give us a sense of.
Where that's coming from what percentage is coming through direct to consumer versus.
Versus your partner channel.
To reach that goal of becoming the top purchase originator.
Do you need to become the largest wholesale lender or do you think a meaningful percentage of that.
Comes from direct to consumer and then and then finally of.
The 70% kind of retention youre getting.
From from rocket homes.
The originations.
Is that coming to you through direct to consumer or is it coming through the partner channel.
And so I know, we don't break down the specifics between GPO and direct to consumer but remember the things that we can really control from a mix perspective are more on the direct to consumer side. The broker will originate the loan that the broker is able to originate and we're happy to assist in any way. We can so you can kind of look at I think probably industry.
The mix to get a feeling of what that looks like for us our ability to market directly to our real estate network. The 50000, plus that I referenced our ability to reference directly to the consumer about the value of the value that we can bring in purchased with rocket homes with the ecosystem, that's really our lever to pull to continue to.
To influence our growth there and so although I believe purchased the growth of purchase will see across all channels we have.
Larger opportunity when we think about our direct to consumer and partner networks.
To achieve the purchase growth that we're looking for and that's what we've seen before and as you asked the second question about the attach rate. Although we're just now starting to really leverage the ecosystem with our broker partners and particularly our clinical partners.
We started.
Or have been in the past more focused on how rocket homes ecosystem works with our direct to consumer channel.
Okay got it thank you.
The next question comes from here, but here from Bank of America. Please go ahead.
Hi, and thank you for taking my questions are actually debated chocolate capital allocation for a second.
Generating a fair amount of capital even in an environment, where some of your peers that may be a little challenged but at the same time your GAAP capital generating you seem to be making a fair amount of other bets.
In terms of non mortgage businesses, if you will and growing them.
Maybe talk about how you prioritize between goes versus returning capital and just.
Are there particular areas, where you should be maybe making larger bets on.
Are focusing on.
I guess the question is are you just spreading yourself too thin across all these various things with you.
Trying to invest and grow at the same time is prioritizing the terminals capital. Thank you.
I'll, let Julie kind of reiterate some of the things we said about our capital allocation strategy I'll tell you one of the benefits to.
The company 26 years.
We've been in business for 36 years $26.25.
And.
A significant portion of our time is spent on team member of leadership development.
And so as our organization continues to grow.
We have thousands of leaders in our organization and one of the questions. You have to ask yourself is how do you retain the top talent that you develop over time.
As they search for new opportunities to grow and so we're really fortunate to be able to leverage our brand our client base and provide other services tied directly into the mortgage that we started with I'll give you. An example of a specific percentage, but the vast.
A significant portion of auto buying occurs within the first six months of the purchase a refinance of our homes. So we have that data we're talking to that client we're servicing that client.
Our skilled a rocket cloud forces skilled at selling and now we've built the technology to tie those clients to inventory across the country. We just announced that we've aligned with one of the largest.
Used cars.
Operations in the country. So we're really able to develop a whole new business channel.
Leveraging all of the things we already possess so its not I don't view it as like an ancillary or side business because it's so tied into the core of what we do and it allows us to keep our talent solar the same exact thing, which we touched on this but.
It's about saving money with your home.
Exactly what we do for millions of <unk>.
People have done for millions of millions of people.
And we're doing that at no additional cost to acquire and unable to take a leader who's been with me for 25 years, who may without a new opportunity to say, Hey, Jay I'll now thinking about looking somewhere else for the second part of my career, but instead that rubicon stay here rollout that channels like all of the best practices that he or she has learned <unk>.
Over 25 years that I've been here and add an incredibly profitable.
Product to our.
Mitch same with homes, we've already spent half hour talking about homes in its natural synergies with mortgage so no I'm not concerned about being spread too thin because these things are value add to our consumer.
Highly profitable and leverage the talent that we've got inside the organization that Julie I'll, Let me talk a bit about the capital portion of that I think some of the question was there are you dedicating enough capital and all but do we have enough capital for all of these things.
<unk>.
I didn't hear about with lots of catheter <unk> may offer a little bit of context around that.
As you know we do operate in a capital light business and our business model is highly cash generative. So we have consistently demonstrated a strong track record of profitability that has allowed us to maintain a very strong balance sheet.
So this has given us great flexibility to actually continue to be very opportunistic.
So thats been a great outcome of our profitable business and just to kind of reiterate how we think about capital. Our framework is really very consistent with how we've been talking about it first and foremost we're going to look to reinvest in our business through brand technology and investing in our team members.
And then we're going to look at M&A opportunities and and if that is the.
Something that beyond that we still have additional capital, we'll look to return that capital to shareholders through either share repurchases or through dividend then.
Currently we believe as I mentioned in my prepared remarks that our stock is currently undervalued.
And given that when we look at our business and the capital it takes to operate our business the cash that it takes to operate our business less than $1 billion as needed operate our business. So 98 as of June 30, because I said, we have about $4.4 billion.
Available cash so all in was seven 8 billion in total liquidity as you said this puts us in a great position, where we could potentially change in default.
Capital to shareholders through repurchases or or through a dividend as we've done in the past.
Yes. This is Andrew.
Right.
We're working through a waterfall, but.
When your unique position to not have to choose.
She is one of the options that have the ability to do all of the things that we would like to do.
And then just on that capital.
Im a buyback in place already right. So have you executed anything against it and ill get back in line. Thank you.
Yes, we have executed against that that during the second quarter and you will see that in the 10-K is coming out tomorrow.
Thank you.
The next question comes from Ryan Mckenna from Zelman and Associates. Please go ahead.
Congrats on the performance and thanks for taking my question I will ask one more about rocket homes.
So just to dig in a little on the comments.
And in the press release about on staff agents.
In Detroit I guess, maybe if you could just share some thoughts around.
The idea of kind of centralizing agents in Detroit, obviously on the mortgage side of the business you've run that playbook very successfully so.
When I think about kind of the real estate agent industry, obviously, typically very distributed very face to face interactions. So maybe just talk us through how you envision that happening from Detroit, but kind of operating across the country.
Curious to hear how you kind of.
Through that in the context of how that how that industry has typically been an operator. Thank you very much.
Yes, I think the best word is bespoke and that's what we've been using.
As we've Washington, particularly the last two years and as you know with rocket mortgage in particular.
First time homebuyers are.
Pretty large portion of that purchase market for us.
That message has come through over and over again.
I want it to be a streamlined process I wanted to be a digital process and.
I want to be in control of the process and so as we think about that.
With rocket homes or a rocket homes experience that's exactly what we've built.
And that means you have to have.
Different ways for people to sell or buy homes.
And we don't think that that what I think that does it grow the pie because there are people today that are not selling their homes because.
They say I don't want to follow the traditional process in other cases, we've got people who started through the for sale by owner process and run into a roadblock and would stop but instead because of our ecosystem. We now refer them to an agent in their local network within our system. So all of these things work together.
To open up and what we're really trying to use open up inventory and you heard Julie talk about this we've got thousands and thousands of people who are verified approved ready to buy and the reason they are not buying.
Because we can't find a home so how do we open up inventory for those clients. So one way to do that as a centralized model some of our clients may not be ready for sale by owner, but they may not need the full.
Services that are local.
In their neighborhood agent can provide and so our centralized model allows for a licensed agent here in Michigan.
Or in one of our other web centers across the country to assist that client to help them determine.
How to get their home listed.
And get it on the MLS, but they don't necessarily need someone there to assist with all the other complexity oh by the way if they go down that path and a few weeks later they determined that they still need more health will simply refer them to an agent in their local network and so we've got all of these different opportunities to really ensure.
Or that any client that we talked to.
Can be serviced in a way that they want to be serviced and to your point about the way that we centralized with mortgage we see the same opportunity here, but you will notice as we've talked about before we've got our direct to consumer mortgage we've got our partners. We've got our our PPO broker partners. So what we've learned is as we grow.
No.
You understand the full market different people require different things and as opposed to being.
A portion of the market. Our goal is to have a solution for anyone in mortgage.
In real estate and beyond and so that's exactly what you'll see us do there as we keep building out the rocket homes ecosystem.
That's great. Thank you very much.
The next question comes from Kevin Barker from Piper Sandler. Please go ahead.
Thanks for taking my questions.
You mentioned, a new broker pricing platform that was introduced.
And it's been unveiled could you could talk about how that has impacted your volumes, particularly in the second quarter and as we flow into the third quarter and then how we think about.
Retail origination coming direct to consumer originations in the third quarter I.
I believe your previous comments indicated that it seems like you're definitely taking.
Significant market share just given me.
Most industry forecasts.
Have a.
Meaningful decline going into the third quarter. Thank you.
Well I think youre referencing the brand new pricing calculator that we built for our broker partners and it's one of quite a few things that we've been rolling out.
This year to ensure that our mortgage broker partners really have the best technology and the best experience.
We've got I think somewhere over 20.
Mortgage professionals, a month using those broker tools whether.
Whether it's the calculator that allows them to going to side by side comparisons to determine the best program for their clients.
Our our Pathfinder tool, which really gives them the answers to underwriting a product question. So they can take a very effective application upfront those things are drawing brokers in.
I think we've seen.
Somewhere.
Here recently over 100, new brokers that have joined our platform here in the last 90 days or so so so that demonstrates that we're drawing brokers to the rocket pro platform and I touched on this before but from April to June in the second quarter, our market share is a total of the.
Broker market.
We were just below 18%.
And now we got to the end of June at 21%. So we're seeing growth in that particular area I think faster than.
Anyone else and that's because of the technology the tools that we're providing the brand that we're providing to our to our broker partners.
I guess, the last thing I'll say, there and we the things for a while but you've heard me talk about our bespoke process for homes, giving our consumers choice. It's the same exact thing we've been giving our broker partners is choice right. We're not demanding that they use just us or one system, we're saying hey use the best.
<unk> out there and we believe we'll continue to invest in technology and other things to give them that choice and draw them in and so far the market share numbers are proving that to be the right decision.
So is that is that and then also are you is there something in particular, that's driving retail margins retail originations to be particularly strong going into the third quarter given the market is showing.
Some decline overall.
I would say that to us that's the history that we've demonstrated.
The marketing machine that we have the data science that we have the brand that we've invested in the ability to reach into non interest rate sensitive products.
As we've probably touched on before.
This is how we think about executing on our business.
As others, sometimes decide to pull away or reduce investment as we touched on our expenses.
We're giving guidance.
Similar to where they were in Q1 or Q2, because we're not pulling away and now youre seeing our marketing machine continued to do what it what it does and so that's I think that the.
As a result of that is.
<unk>.
Our guidance that we provided for Q3.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Jay Farner for any closing remarks.
Understood I appreciate everyone joining the call today.
As always we appreciate the support that we're receiving from the Investor the Investor community and we really look forward to.
So talking to all of you again, when we get to the end of Q3.
Have a great night.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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