Q4 2021 Rocket Companies Inc Earnings Call
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Good day and welcome to the rocket companies incorporated fourth quarter 2021 earnings call.
All participants will be in listen only mode.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero after.
After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Sharon Inc. Please go ahead.
Good afternoon, everyone and thank you for joining us for rocket company earnings call covering the fourth quarter and full year of 2021.
With us this afternoon, a rocket company CEO , Jay Farner, our CFO , Joe <unk>, President and COO Bob Walter.
Before I turn things over to Jay Let me quickly go over our disclaimer.
On today's call, we'll provide you with information regarding our fourth quarter and full year 2021 performance as well as our financial outlook.
This conference call includes forward looking statements.
Statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and the 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.
According 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. Our reported results can also be found on 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.
Thank you Sharon good afternoon, and welcome to the rocket companies earnings call for the fourth quarter and full year of 2021 on today's call I'll recap our achievements from the past year, including our success driving growth and purchase loans and cash out refinance.
Continuing to build on the strength of our rocket platform through the addition of <unk> and I'll cover the best in class capital returns, we have provided our shareholders since our IPO in August of 2020.
Last year was an incredibly successful year for rocket companies as we continue to break records in 2021 rocket mortgage reached a company best of $351 billion of originations.
Which represented nearly 10% increase from the previous record of $320 billion set in 2020.
On a full year basis rocket generated $12 4 billion of adjusted revenue $6 2 billion of adjusted EBITDA and $4 $5 billion of.
Adjusted net income.
It's worth taking a step back to look at what we've accomplished over the last two years.
<unk> closed loan volume is adjusted revenue in 2021.
It was more than double our 2019 levels are.
Our adjusted EBITDA and adjusted net income more than tripled in that same period.
Also we have organically grown our service client base by more than 40% since 2019.
Which today generates recurring cash revenue at an annual run rate exceeding $1 4 billion.
The company has grown and strengthened all while generating profitability at scale, returning substantial capital to our shareholders in.
In the last two years, we have earned a cumulative adjusted net income of more than $12 billion with.
With today's announcement of our second $2 billion special dividend and the more than $300 million of stock repurchases. We have now returned $4 $5 billion of capital to shareholders since our IPO in August of 2020.
That represents roughly 20% of our market value based on todays trading price, while also investing to grow our platform with strategic acquisitions like true Bill. This continued.
Investment in our platform strengthens our core offerings to our consumers, who know like and trust our brand driving increased lifetime value.
Looking at our guidance of $52 billion to $57 billion of closed loan volume in the first quarter of 2022.
You see we projected nearly triple our 2018 quarterly run rate of $20 billion.
Growing significantly faster than other market participants over the last three years.
Our first quarter guidance reflects the impact of the omicron outbreak, which disrupted our business and required us to again 10 team members home for their safety.
Our 36 year history has taught us that our centralized model is a significant advantage in rising rate environments.
The ability to train and coach in real time is critical to our success.
I am happy to report.
That as of February 14th we have returned to the office and we're already seeing the benefits in the last few weeks as.
As rates rapidly increase our strategy has always been to protect our margin and our profitability.
During time periods like this many lenders will significantly reduce their margin in an effort to sustain production.
We have found that this is not a sound strategy for profitability sustainability and maintaining a disciplined approach towards supporting our business long term.
I am certain that this question will come up again in the Q&A and I'm excited to talk about our strategy to address rising interest rates and continued to grow our business. In fact, we've grown our mortgage business substantially since the last market cycle by doing the right things delivering the best client experience in the market <unk>.
Investing in a flexible scalable multi channel platform, that's always ready to quickly capture opportunity.
And we've also driven significant mortgage volume growth from less rate sensitive products, including purchasing cash out refinances.
If we look at the last week since we brought our team members back to the office or non rate sensitive products make up nearly 90% of our mortgage production.
Last night, we announced our plans to become the number one retail purchase lender excluding corresponded in the nation by 2023.
I am happy to report that 2021 represented the largest purchase mortgage volume in our company's history and we are seeing continued momentum here in the early part of 2022, we are well on our way to reaching our stated goal Adil.
Additionally, the fourth quarter was our best ever for cash out refinance volume as we leverage our vast data lake our client insights and of course, our highly trained rocket cloud for us to help our clients take advantage of rising home values home equity continues to be at record levels with $25 trillion.
<unk> equity available to homeowners.
With the strong growth in the mortgage segment, we made significant strides last year growing our platform to help Americans with life's most complex moments, we've expanded beyond our core mortgage business to enable an end to end seamless home buying ecosystem with AMRI, our title and settlement services company, which at $1 1 million closings in 2021 and as the larger.
<unk> of its kind in the country.
Rocket homes, we saw strong growth with the company facilitating more than 30000 transactions reps.
Representing over $8 billion in transaction value and it rocket auto we more than doubled our <unk> in 2021.
The talented team at <unk> also joined our family in the fourth quarter true Bill is a strong addition to our platform as it brings a millions of existing clients who have affinity for the brand and are actively working to improve their finances in anticipation of future large purchases like home or auto.
Both offerings expand our relationship with our clients by managing subscriptions, improving credit scores and tracking spending.
All of which strengthened clients financial health and.
And enables rocket to nurture clients in between large less frequent purchases.
<unk> is one of the fastest growing fintech businesses in America and was recently named the number one consumer Tech company by the news publication the information.
<unk> growth has been impressive the company's premium membership base increased by more than 115% in 2021.
And has continued to outperform after our acquisition.
This is all before we've even begun introducing and incubating the millions of clients in the rocket ecosystem to true Bill.
Rocket <unk> are aligned and one mission.
To remove friction from life's complex moments.
And the relationship has come together quickly in fact, our combined teams are currently working together to create a single sign on solution that will bring the entire rocket ecosystem together through one unified logging. We expect this new experience to launch in the next 30 to 45 days.
Another strategic part of our platform that enables us to maintain ongoing relationships is mortgage servicing.
With our $2 6 million service clients, our servicing book has grown substantially providing a natural hedge to our origination business.
We are now the fifth largest servicer in the country with servicing rights, representing a five $4 billion asset as of year end, while maintaining an industry best retention rate of 91%.
Consider this our business is created recurring cash flows of more than one $4 billion annualized through servicing plus an additional $100 million.
The rapidly growing <unk> business, all supporting an incredibly capital light business.
Heading into 2022, we see tremendous opportunity with robust purchasing cash out refinance demand.
We view the challenging market conditions like a rising rate environment as an opportunity to shine.
This is the time when we see our investments in our platform truly pay off.
We don't believe any other company has invested in technology and brand and people and partnerships like we have the partnerships we have with.
With companies like Salesforce E trade, Charles Schwab State farm and many others are built on our proprietary platform that cannot be easily replicated by other lenders or other fintech companies.
To ensure consumers are aware of our unique position in the market. We recently aired a number one rated Super Bowl commercial our second straight year of achieving this honor.
The outside of the benefits of leveraging the combined experience of rocket homes and rocket mortgage to find and financial home.
This spot garnered billions of media impressions and is currently being reinforced through our brand and direct response advertising campaigns.
This marketing is essential and reminding consumers that in a housing market that has remained highly competitive and inventory constrained we provide the insight and the tools that help our clients due to the closing table faster. These.
These include our industry, leading home search platforms and programs like overnight underwrite and rocket insight and consumers are taking notice in January of 2022 verified approval letters were up 50% compared to 2021, representing the most pre approvals we've had to start a year in our company's history. Finally 2021 also marked our first full year as a pub.
Click company, we have shown a track record of generating profitability at scale and returning significant capital to our shareholders.
Relatively we have returned $4 5 billion to shareholders since our IPO, putting rocket in the top 10% of all S&P 500 companies and companies that have listed since 2020 ranked by capital return.
Our team members are excited to continue executing on our strategy and to capture the enormous opportunity in front of us.
We've already seen our industry begin to consolidate and we are well positioned to gain share and offer more value to our clients across the entire rocket ecosystem.
With that I'll turn things over to Julie to go deeper into the numbers Julie.
Thank you Jay and good afternoon, everyone.
Rocket and delivered outstanding results in 2021, as we continue to drive growth in our less rate sensitive products build out our platform through continued organic investment as well as through the recent acquisition of true Bill and return substantial levels of capital to our shareholders.
As Jay mentioned 2021 was a record year for us as we delivered $351 billion in closed loan volume, 10% above the prior record set in 2020.
This growth in volume was driven by our best year ever in purchase along with record levels of cash out refinance volume.
We've got purchase growth across both the direct to consumer and partner network channels, with particularly strong growth year over year from our partner network, which includes both GTO and Premier Enterprise partners.
While industry estimates of the total market size is still preliminary and it is clear that rocket mortgage gained meaningful market share in 2021, continuing our long term trend of share growth.
Based on the NDA. Most recent estimate rocket increase its place in the market by 100 basis points to now account for nearly 9% market share for the full year 2021.
Our gains in 2021 are particularly impressive considering the mix of refinance transactions declined as a percent on the total market during 2021, we.
We increased our share of both purchase and refi transactions demonstrating the flexibility of our centralized platform.
Turning to fourth quarter results rocket companies generated $2 4 billion of adjusted revenue in Q4 at 33% increase from Q4 2019.
We had $883 million of adjusted EBITDA in the quarter up 19% from Q4 2019, representing a 36% adjusted EBITDA margin.
We delivered adjusted net income of $637 million.
In Q4 2019 by 23%.
For the fourth quarter, we generated close loan volume of $75 9 billion.
Which was in line with our expectations and exceeded Q4 2019 levels by 49%.
Our all in gain on sale margin came in at 280 basis points in Q4 in line with expectations.
Our net rate lock volume for the fourth quarter was $68 4 billion.
Coming in slightly below our expectations.
The variance relative to our expectations was largely due to unforeseen disruption from the COVID-19 on our prime variance.
<unk> client engagement, our workforce and our broker partners.
Great lock volume was more impacted than closed volume at the timing of rate lock occurs prior to the closing of alone.
We continue to maintain a superior net client retention rate and as of December 31, 2021. This metric stood at 91%.
These high levels of retention in addition to the new clients, we continue to drive to our platform every quarter and substantially increase the size and value of our servicing portfolio over the past year.
As of December 31, 2021, we now have $2 6 million clients with $552 billion.
Unpaid principal balance increases of 25% and 35% respectively as compared to December 31 2020.
The servicing but provides a natural hedge to our origination as its value increases when interest rates rise.
As of December 31, 2021, our MSR portfolio represented a $5 $4 billion asset on our balance sheet up 88% from December 31 2020.
We worked to close the books today the value of our MSR asset would be in excess of $6 billion due to the increase in interest rates since year end.
Recurring cash revenues from our servicing but hit an annualized run rate of over $1 4 billion during the fourth quarter.
As a reminder, the balance sheet value of our MSR asset only includes the discounted cash flows associated with the servicing strip and the GAAP accounting rules do not allow us to include the retention value of future origination revenue.
When considering that we have consistently maintained a net client retention rate north of 90%. We believe the GAAP accounting rules understate, the true intrinsic value of our MSR asset.
Looking ahead to Q1, despite a rise in mortgage rates at the beginning of 2020, we continue to see a robust mortgage market by historical standards.
Median home value has increased 25% over the last two years equating directly to larger loan sizes.
In addition demand from homebuyers remains strong demonstrated by the record levels of verified approval letters, we are providing at rocket mortgage up 50% year over year in January .
And lastly, today American homeowners are sitting on record levels of home equity.
As gene mentioned third party sources estimate total American home equity at 25 trillion.
For the first quarter. We currently expect closed loan volume in the range of $52 billion to $57 billion.
And rate loss volumes between $50 billion and $57 billion.
We expect first quarter gain on sale margin to be in the range of $280 to 310 basis points.
Regarding operating expenses, we expect Q1 expenses in line with Q4 levels, excluding onetime items that occurred in Q4.
Our GAAP expenses in the fourth quarter included a one time extinguishment of debt expense of $87 million and a $19 million true up to the tax liability under our tax receivable agreement.
Excluding these items, our Q4 expenses were $1 $63 billion.
We expect this to be a good run rate for Q1 expenses.
This takes into account redemptions and production related expenses offset by seasonally higher expenses in Q1 on marketing and compensation related expenses.
Q1, 'twenty two will also reflect a full quarter consolidation of <unk> for the first time.
Excluding the addition of <unk>, we expect our Q1 expenses to be down over $100 million year over year compared to Q1 of 2021.
The acquisition of true will contribute incremental annualized recurring revenue of more than $100 million.
On top of the $1 4 billion of annualized cash revenue generated by our servicing portfolio.
<unk> growth has been impressive.
As we work together to unlock the synergies across our platform, we see even more opportunities to grow.
Now turning to our balance sheet and liquidity and capital allocation, we exited 2021 with $2 $1 billion of cash on the balance sheet and an additional $3 $5 billion of corporate cash used to self fund loan origination for total available cash and self funding of $5 6 billion.
Total liquidity stood at $9 $1 billion as of December 31, including available cash plus undrawn lines of credit and Undrawn MSR lines.
Our $5 6 billion of available cash and self funding combined with $5 4 billion of mortgage servicing rights represents a total of $11 billion of asset value on our balance sheet as of December 31.
This equates to $5 58 per share.
The earnings power of rocket companies over the last few years has been remarkable and strong markets. The scale of our profitability rivals the best Fintech companies in the world.
To put this in perspective, our adjusted net income of $12 $8 billion over the last two years combined with larger than Paypal and nearly as largest mastercard.
We have demonstrated disciplined allocating the capital generated by our business in.
Inclusive of last year's special dividend of $1 11 per share special dividend of $1, one per share announced today and the more than $300 million of share repurchases that we have made since our IPO. We have distributed a total of $4 5 billion.
To all classes of shareholders since we went public less than two years ago.
This ranks rocket among the best in class for capital return.
As Jay stated earlier relative to our current market capitalization rocket ranks in the top 10% of all S&P 500 companies and companies that have lifted since 2020.
We are also deploying capital to grow our platform with the acquisition of true Bill for $1 $3 billion in December .
We will continue to 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 and one follow up at this time, we will pause momentarily to assemble our roster.
Our first question comes from Doug Harter from Credit Suisse. Please go ahead.
Thanks, Jason we spoke class, but the markets have been quite volatile.
It's in mortgage spreads moving quite a bit can you just talk about how what your outlook is for the market.
For the overall market size in the coming year, and how Youre positioning rocket two.
We compete in that environment.
Yes, thanks for the question as I mentioned.
In my remarks.
This is an important topic to discuss it's hard to know market size of course any event on any given day can determine like we're noticing here is here today in Europe can determine.
What might happen so what we focus on our kind of our long term playbook to ensure that we can continue to grow like we have here for the last 36 years in particular and why I mentioned this.
In my remarks is that when you see a rapid increase in interest rates like we've experienced in the last 60 days or so.
There are a few different levers you can pull for us being a centralized business model.
The brand and technology are lever is is training our level lever is scale, our lever is investing in our team members.
A bit of a challenge because at the same time that this increase occurred.
The homerun outbreak.
Outbreak here in particular, Michigan and Ohio.
Ill send everyone home, making it a bit more challenging for training, but we've got people back in the office now and as I referenced before here in the last week, we've seen I think about roughly 90% of all of our loan volume.
Being kind of less interest rate sensitive products cash out refinance raising turns purchase so.
Bring all that up because the lever you noticed that we are.
Our polling is the margin lever and Julie can talk more about this this is important the way we've always thought about operating our business is that the units that we generate the mortgage for talking about the mortgage business needs to be a.
High revenue profitable unit and you structure your business in a way where youre driving that if you do a few things first of all you don't teach your organization that's a solution to growing market share is cutting margin.
Im seeing numbers here.
Our direct to consumer in Q4, I think was north of 400 basis points I'm seeing people come in at like 250 basis points.
You can run those numbers, but how can you invest in marketing at 250 basis points, how can we invest in technology and 250 basis points. How can you keep your best <unk> at 250 basis points, how can you keep your best underwriters.
All of.
The entire heartbeat of your organization needs to be supported through profitability and although you may not grab market share with 30 or 45 days you keep.
Keep your organization focused on the real things that matter with the client experience the brand marketing this fall and in the long run that's how you grow your company so you've noticed.
Go to margin.
We're going to focus on training and so whether the.
It's hard for me to project, what the market in 'twenty to 'twenty, two will be here's what I know.
During the course of time this is a huge market and if we keep investing in all of the things that we've just talked about we will win that market share and the last thing I'll say is that when you look at you can watch us.
If you cut margin and then you look at your profitability and you don't have any the Mexico in your comments you talked your marketing now you'll have lead flow and then you don't have lease up you cut your elos because I have nothing to give them and that is that's a death spiral and so youll notice that were going the opposite direction of that continuing to invest.
That's what we've done and that's why I brought up where we were a few years ago with a similar interest rate market to give a comparison.
And making the right investments then you take advantage of opportunities to grow substantially you reset your foundation, which is what we're doing now and you prepare yourself for continued growth.
I appreciate that.
To follow up when you were talking about.
Cash out refi purchase being less rate sensitive can you just talk about how higher rates impact is there kind of a breakpoint where.
The higher rates start to kind of slowdown overall volumes and people's appetite.
This is a important topic because rate is relative to the other ways that you borrow money and so we're fortunate that mortgage rates don't sit by themselves. They sit with other vehicles that someone might use a credit card or personal loan.
Our home equity line of credit those sorts of things and so with the benefit of mortgages and how they are built in this country with the benefit of tax deduction, even if we see a pickup in interest rates is still in most cases is the best way for our clients to achieve their goals and the other thing that I think is critically important here.
When youre buying a home or when you are noticing that you can't find a home in saying that we're going to invest in a new kitchen or putting out an addition, or whatever it might be.
And then the client becomes less rate sensitive whether they received four 5% of our 30 year of $4 $65 for the quarter, that's not really.
The driver the driver is achieving that new thing that they want that new home more kids.
Kid's College education, or with new kitchen, and Thats, where skill, that's where brands, that's where confidence in our company comes through and so that's why in a rising rate market. Like this we have an advantage because our conversation shifts from a rate until refinance where we're at.
Fixated on every agent right to Hey, I want to get this done so at a bedroom for the baby on the way in eight months and so that's how we think about it.
It's.
Yes.
The real conversation is about the opportunity you're creating for the client.
If we just take a step back four 5% or so on a 30 year fixed rate is still incredibly low interest rates and credit incredibly advantageous for clients to take advantage of it.
Thank you.
Yep.
The next question comes from James Faucette from Morgan Stanley . Please go ahead.
Thank you so much I was wondering.
And then it seems like it's always a topic on your calls so I apologize maybe in advance, but can you talk about a little bit how gain on sale margins are trending what you're seeing for your planning assumptions are for.
How those evolve over over coming quarters and periods, especially in and quite a volatile environment.
Yeah, I'll, let Julie Julie feel that obviously, you can see our guidance here and so we're feeling.
<unk>.
Confident about where where our margins have been here in Q4, and where we're headed in Q1, but Jason can give you more color. Yeah. Let me just give you a little bit more insight. So you gain on sale margins during the fourth quarter did come in within our expectations at the midpoint of our guided range of 280 basis points I'm, just kind of as a reference point.
Q2, 'twenty one gain on sale margin came in at 278 basis points.
Three excluding the impact of the removal of the adverse market fee in the third quarter was 295 basis points. So we've really seen margin stability since the second quarter of 2021, and we're seeing that stability continuing into Q1 is our expectations are for gain on sale margin to be increasing at the midpoint to between 200.
80, and 310 basis points. So we're continuing to think see strength as Jay mentioned, especially the direct to consumer channel, where we're seeing margins here I'm talking about historically kind of that 400 basis point range for those margins and we're still seeing very strong margins as Jay said better than a lot of others that you'll see out there as well so.
We're really pleased with where we're seeing them go into Q1 here.
Got it and maybe just to be clear so the improvement that you're expecting is that all <unk>.
Mix, driven and is there or is there something happening in the market thats, providing some additional support.
I guess as part of that particularly the direct to consumer.
Can you talk a little bit about like how that.
How youre doing in terms of hitting your objectives in growing share with consumers and especially as the market becomes more purchased based.
Yes.
Jump in and truly truly have some comments too.
Going back to the first question.
There is an initial kind of competitive situation as many lenders scramble many margin and so everyone is fighting for that business.
As tons moved.
If rates continue to kind of stay where they are out to continue to rise and we've talked about the people cutting margin then as I described before now they have to come out of the market now they reduced their marketing spend and actually what happens is we now have less competition that lead that maybe two or three other lenders were talking to about it is just us.
And only one other lender and so that actually creates an environment, where we can be even more confident in.
Standing behind our margins.
That's mix as much as its just kind of the cycle as you go through the initial kind of flailing that people do trends win through price will subside and then all of a sudden you're left with a new playing field with fewer competitors out there talking to the same clients that youre talking to.
Got it and sorry Julien.
Yes, sorry.
Yes, I guess I'll, just add to that too certainly mix is a piece of that but not a big piece of the different K. We're also seeing strength in the partner network camera relative to where we can see margins coming in so.
I think that that also is really contributing here to the strength we're seeing.
That's awesome. Thanks for all the color guys.
Yes.
The next question comes from Kevin Barker from Piper Sandler. Please go ahead.
Yes.
Yes.
Hi, Kevin is your line on mute.
Yes.
The next question comes from Brian make Kevin from Zelman and Associates. Please go ahead.
Hey, good afternoon. Thank you Jay as you said it gets more and more questions on the topic of volume and margin, but I think especially that first answer you gave hit on a lot of the aspects I was wondering so I will shift a little wanted to focus on the expense side, Julie correct me if I'm wrong I think the commentary you gave was that the.
The <unk> expense level was a good run rate per one Q. So correct me, if I'm wrong, there, but I'm thinking more as we move through the year.
Any commentary you can provide about what we should expect expect from the expense side of things.
Given obviously the revenue side is fairly uncertain.
And maybe just remind us in terms of the cost base how.
How much is fixed versus variable.
That can kind of help us.
Bridged the gap between an uncertain revenue environment.
Relative to your expense base and ultimately profitability. Thank you.
Yes, yes, thanks for the question and I'll kind of reiterate some of the things that I said in my prepared remarks, I know I spent a lot there so far.
First of all let me start by saying that we are very thoughtful about our cost and I don't want to be clear about that so I'll share a couple of things relative to the fourth quarter in Q1 and reiterate some of the things I said.
Earlier, so our total Q4 expenses were $1 $74 billion and this included two onetime items, one of which was $87 million associated with the early extinguishment of a portion of our outstanding bonds and the other one was $19 million of expense associated with the revaluation of our tax receivable agreement liability.
So if you exclude those two onetime items from Q4, our total expenses would have been 163 billion, so thats down $60 million from our Q3 levels.
And then as we look ahead into 2022, we do expect expenses in the first quarter to be relatively consistent with Q4 as I mentioned, excluding those one time items and there's a few moving parts impacting Q1.
Horton to understand we do expect production related expenses to continue to come down by more than $80 million in Q1 compared to Q4.
These costs are being partially offset in Q1 by some seasonal items, including payroll taxes in our 401, K mass cost, which both reset at the beginning of the year and also some additional marketing expense is going to be.
And then it was incurred with the Super Bowl and that region.
And then the other thing I'll mention relative to Q1 is that.
That quarter is going to now include a full quarter of <unk> expenses as we closed on that acquisition in late December so.
<unk> also typically see higher marketing spend in the first quarter as many consumers are looking to improve their financial health as part of their new year's resolutions and so this marketing spend.
We see a little bit higher and it does drive seasonal lift in the user base and revenue growth.
As we look a little bit farther out than that and as our current volume levels. We would expect expenses to decline modestly beyond Q1 and now.
That's a trend that we're seeing.
Okay. Thank you very helpful.
Yes.
Next question comes from Kevin Barker from Piper Sandler. Please go ahead.
Hi can you hear me now.
Yes.
Sorry about that earlier.
So.
Julia you mentioned earlier that.
Youre seeing a lot of more opportunities to grow.
Particularly with the Trudeau acquisition.
It seemed like it is exceeding your expectations.
Don't want to put words in your mouth, but it sounds that way.
Is there anything in particular that stands out to you.
Where youre seeing significant more opportunities to grow outside of your core mortgage business through the acquisition and various other.
Ancillary businesses.
Well, maybe I'll jump in there I think the true Bill business is exciting for us as Julie said.
Heather fifth quarter in January they consider it because there's so many people thinking about their finances, but.
We've got this question a lot about <unk> and the thought process behind tree Bill and so I think its important to walk through.
There are really kind of three elements.
We're heading forward on with true both first is having a single sign on solution and that may not sound like much but.
Without that our rocket clients millions of clients, we have in our servicing portfolio of $1 million of clients that will deal with all the way through 2022 would have to create yet another account to access through bill and so adding a single sign on solution, where they can use the same account or transfer or user rocket account is incredibly important especially.
Actually as we continue to market.
Talking to clients, who may be 789 months out from purchasing a home.
Today, we may have to buy that lead again.
As we watch single sign on those clients can now engage with <unk> to do their budgeting that can engage with <unk> and work on their credit score they can engage with triple to save some money and we keep getting signal as they engage.
<unk> has the ability for us to send push notifications to them that really we don't have today and so we keep those purchase clients engage same on the refinance side and probably equally if not more important as we turn on single sign on because.
We talked about it.
Talking to people today, who are reaching out to us looking to save but they may or may not may or may not make sense at this moment.
Again, we would probably spend marketing dollars later to bring them back into the funnel.
But with <unk>, we can offer additional ways for them to start their savings plan.
Engage and then bring that back so.
That's the important component of single sign on.
As we move past that as <unk> continues to see success. In addition to all the rocket marketing that we're doing.
True Bill gives us another avenue to bring in.
Plus additional premium users in not only does it generate I think Julie you mentioned $100 million here of revenue and growing but it's another funnel for US then to interact with folks and eventually find solutions as we're studying their credit report and studying there.
Bank statements to.
To offer up a refinance to offer a new car.
All sorts of things so, it's a new brand and lead Gen funnel for us.
And then the third will be our servicing book, So we've talked about.
We've talked about the <unk> that we can.
There is also this opportunity to engage our servicing platform. We have a 91% retention rate is still opportunity there to find additional ways to help our $1 6 billion and growing servicing clients and today, we have lots of tools in our rocket mortgage servicing platform, but as we continue forward and offer.
Bill negotiation subscription management better budgeting tools.
All of that will create a more robust engagement with our client base.
Should give us more confidence as we think about acquiring MSR is as we think about adding MSR and so.
All of those are significant growth opportunities powered by true Bill.
So.
The follow up on that is there any way to.
Quantify.
The decrease in lead generation cost associated with having true bill.
Within the rocket companies or is there a way to say.
A.
On a certain percentage of existing true bill customers for future travel customers are going to become.
Rocket mortgage customers that we can say theyre going to generate X amount of revenue and then suddenly they are in the ecosystem and they become 91% retention rate. So is there any way to quantify that for us yes.
We're thinking about CAC or cost to acquire and how that adjust that over time or LTV, which is probably important to us is given some slides in the past about examples of what LTV could look like those are all those are all things that we are.
Here's what I can tell you those are things that our data team is.
Every minute of every day, our finance teams just studying goals in <unk>.
Kpis are being set.
We are driving towards those.
But those aren't numbers that we're disclosing at this point in time, but just know that the operation of this business focuses on all of those critical things and Youre drilling down exactly why we did this acquisition because we have a strong.
The lease debt.
This has not been done in the mortgage space before and so this is something that can really continue to add to the reducing CAC and increasing the LTV of our client base.
Sure.
Thank you Jay.
Yes.
The next question comes from Aaron <unk> from Citi. Please go ahead.
Thanks.
Can you could.
The address.
Funding and capital usage that you have.
Recently issuing.
Decent amount of new unsecured debt, which is attractive pricing but.
Im just curious.
The thought process. There ahead of doing another relatively large special dividends and share repurchases and balancing those.
Those items.
Yes. So if you are asking about the issuance of the bond and that was something that was very strategic for us to be able to lower our cost of funding. So that was fairly significant in terms of the overall cost of funding over 60 basis points lower in cost there.
That was something that allowed us to issue some debt and as I mentioned, we can and payoff actually some of our debt.
That was an opportunistic time for us to be able to build capital at a time when we executed that.
That was really haven't seen before our company like us and we were very proud of that execution.
And then in terms of the.
The choice of special dividends.
I don't know it just seems like it.
You didn't really need the cash you raised cash doing special dividends, just I'm trying to understand the thought process there.
Yes.
Sign in the market when it really wasn't advantageous for us to go to market to raise additional capital and we are always looking at the capital the earnings that we had since that time coming into the business as well.
Gave us an opportunity.
And maybe reiterate how we think about capital are solid we think about capitalizing the business properly.
Investing in our platform with the acquisition of true Bell as well from $1 $3 billion selling another.
Seeing that we invested in we have been acquiring mortgage servicing rights as well.
During 2021, we acquired about $200 million worth of mortgage servicing rights. So all of that factored amendment and we look at returning capital to shareholders, we're thinking about.
All the time and we have now returned as I said $4 5 billion furnished our shareholders following public some but I think as you.
Look it was the right time to do it because it was very advantageous extinguished some existing debt at a higher interest rate.
But when we think about the dividend we're looking at the profitability of the company and funding.
<unk> net of cash is fungible, but funding that with the profitability of the company.
Okay. Thank you.
The next question comes from Richard Shane from J P. M. Please go ahead.
Hey, guys. Thanks for taking my questions. This afternoon.
In all of the chaos of getting ready for earnings and everything else that's happening.
In the world today.
S H F a announced.
That they are reconsidering.
Eligibility requirements for single family seller Servicers.
Curious how you look at this as a large player in that space.
Vantages and disadvantages for you and what you think it might how it might impact the competitive landscape.
Hey, guys.
Sure.
Can you guys hear me.
Yes, I can hear you.
Hold on.
Speakers are you is your line you did yes.
Sorry, guys, we were talking and we apparently do ignore.
Listening Bob So you can probably commented on but I think we just reviewed I think there are some capital requirements that they have increased.
Based on the last question of the dividend where it is.
Great shape in terms of having enough capital, but Bob if you've got additional comment I mean, nobody is in a stronger position financially from a liquidity standpoint, all the things from a capitalization standpoint, and we're so we're totally fine with that in fact, I think over time it becomes an advantage because.
You have some pretty thinly capitalized folks out there that it will become a considerable challenge for them. So.
We don't look to the regulator for competitive advantage in this case, we will get it yes. The only thing that I would say also that kind of typically goes with that is that as we think about the broader platform.
Such on this before and we've acquired MSR is we're always strategically looking to acquire Msr's.
So if there's fewer people out there thinking about making that acquisition probably in the long haul. It makes it makes it even.
Could be easier for us to make those acquisitions with our LTV, we probably in a better position to do that than others. So I think we've heard on recent earnings calls there were some folks that are selling servicing now to gain liquidity and so that creates a pretty significant opportunity for us as well.
Great. Thank you guys.
The next question comes from Brock Vandervliet from UBS. Please go ahead.
Good afternoon, and thanks for the question.
I appreciate your comments earlier about.
Marketing it's just.
If we could go maybe one layer deeper on that.
How do you think about there.
Our return on marketing spend as we transition from call. It a four trillion to $2 five trillion or so.
Market.
Your return on investment around those marketing dollars I would think would would decline simply because the markets.
That much smaller.
How should we how should we think about that.
Yes, it's probably three important components here and again, that's why it's important to let things play out over a few months.
Although initially you might see people scrambling to market performance marketing in particular over time as companies reduce their margins. They then typically reduce their marketing cost as well so.
It could be there could be an increased amount of competition.
For some period, but then actually.
Opportunity to go in and own spaces.
As people back away.
So what you have to do from a marketing budget perspective to get the shift more of your dollars. So as we were running performance marketing and what we consider kind of performance brand marketing, you'll see us shift increasing.
The performance side of the house right and so.
Youll notice there'll be more on digital will be more on Dr.
We'll get more robust and tracking those Dr responses, a little bit more surgical so watching it by.
State or county, or city or those types of things to understand how our dollar is working.
And then of course layering our attribution models on top two.
To make sure that that brand spend we are doing is also supporting that so.
There's not a big change to how we think about the return on the marketing dollar.
It's just this.
This is like a reset that gives you an opportunity to maybe find areas that six months ago a year ago.
We're being a lot of people were trying to make to buy in those areas now theyre backing away you can come in you can buy and then Thats. The last thing I'll say is that is why the true both conversation the value of the MSR going up all of that matters because youre rethinking your models based on the data coming in the lifetime value of the client the.
<unk>.
Value of the MSR that you're acquiring.
That matters. So we're always resetting the reports that we do to ensure that we're spending properly.
But that's it it's just a mathematical decisions behind the scenes and shifting more to performance.
Okay, and just just as a follow up I think this is julie's comment that expenses should decline modestly beyond.
The Q1, what's the what's the geography of that decline is that.
Where is that coming from basically.
Yes.
Hitting guidance really on Q1 at this point as we look ahead, we would expect that over time. If you think about our costs. There are some variable costs and adjust immediately with production amendment some to take a little bit more time to work into overtime side as we think about those declining that's why I say that because you can take a bit more time.
I'm going to jump in here, though too I think this is important.
<unk>.
So we can touch on this all the time, we have invested and will continue to invest in marketing and our brand.
We continue to invest in technology.
As a technologist here.
Writing software that make our systems better make our mortgages more efficient make our conversion rates better.
We've got the most skilled operations people here in the United States of America, and know how to work in process underwrite and close loans. We've got the best mortgage banking portion of this country nearly 6000 or so of those folks.
Thats the heartbeat of our organization right everything we have is due to the success of those individuals and so.
We're not going to have a conference call, where all of a sudden we led a group of them know, they're not going be working here any longer that's just not how we do this with this.
But that profitability is important but.
The investment in our team members is the most important thing that leads to the future growth of this organization.
We've seen this time and time again and go through the cycle. We have has been terminated and the opportunity that it creates holding a bit more of that excess capacity really known pay dividends and yet. So you may see us do that.
Got it understood. Thanks for the color guys.
Yes.
Our next question comes from Mark Devries from Barclays. Please go ahead.
Yes. Thank you sorry, if I missed this.
Could you just comment on how you are.
Our efforts to gain share in the purchase market had been trending. These last couple of months as refi it really starts to fade.
Yes, so again as we think about it we really think lesser noninterest rate sensitive products because there is two.
<unk> 25 trillion.
Home equity out there so whether somewhat.
Inventory levels are where they are at whether someone purchases a new home or invest in their existing homes. Both are huge opportunities for us now.
We're very pleased to exceed I think we've set a goal for purchase and talk about it exceed our 2021 purchase goal really proud of the team for achieving that.
And so as we've talked about in the.
Our prepared remarks.
Good momentum and continue to have good momentum in purchase those verified approval letters.
I think the pipeline is the biggest it's ever been.
As we walked into January of 2022.
And then the training around cash out trending around.
Term change that we implemented in the first quarter.
Of this year.
And I think I mentioned I think we're darn near 90% of our production today is falling into that less interest rate sensitive bucket. So.
All in all going very well and touching on another quest.
Question that we had.
And once you make that bet.
Switch.
Then your mortgage banking for us is talking to individuals where rate is not the most important thing achieving the goal is the most important thing and that allows for marketing growth, but also allows for conversion increase and I didn't even touch on again, the $2 five $2 6 million service clients that we've got is that value of the MSR.
Increases it doesn't mean that we won't see opportunity to assist those clients as well and the retention so.
All of the all of the levers that we like I said earlier different than others, but the levers that we choose to pull in a rising rate market are going very well.
Okay great.
And then just a follow up question on kind of the efforts to tap into our equity.
Equity.
Move in mortgage rates this meaningful kind of require you to switch a little bit more from trying to market a cash out refi to doing more of like a.
Home equity line of credit or just the second one.
And we haven't experienced that again as I said before it typically as rates rise always right.
It's just about the comparison of another way to achieve the goal versus versus a mortgage and so certainly your mortgage payments can be a bit higher if youre getting four five on a 30 year than three five but in the Grand scheme of life of most of our clients have seen this that's still an incredibly low interest rates a fixed interest rate that they can count on over.
Time.
And so we've not we've not.
In terms of objections that you might hear people, telling us that theres, a better source to achieve those goals have not been one that's been.
Been surfacing.
Okay. That's interesting alright, thank you.
The next question comes from Bose George from <unk>. Please go ahead.
Hey, everyone good afternoon actually.
I just wanted to follow up on the cash. So you guys noted 90% of the originations are not rate sensitive.
How do you treat refis when a borrower extracts equity, but also has the right incentive to refi so sort of an opportunistic cash out refi are there many borrowers kind of in that category.
I'm sure there are certain borrowers in that category, but again, when we think about the purpose and the borrower will usually to the client as we call them will usually tell us.
What it is.
That may be an ancillary benefit but the strong desire for the call are the lead or the outreach is because they are trying to achieve some sort of cash out.
We've got whether it's home improvements or covering a college education or unfortunately going through a divorce or whatever the case may be that's the driver behind it not not the.
Additional.
Possibility of a reduction in the rate in most cases.
Okay, great. Thanks, and then actually just going back to the gain on sale discussions you might have addressed this but the guidance the channel mix play a role in the guidance at all or is that assuming kind of a similar channel mix to what you had this quarter.
Gentlemen, minimal impact on that really what were seeing is.
Improvement in the partner network margins as well so while there is some impact to that.
Holding steady on that direct to consumer sale margin as I mentioned in.
In that 400 basis point range as I said, historically kind of where we're at and then that improvements in.
And partner network.
Okay, great. Thanks.
Thank you Mark.
This concludes our question and answer session I would like to turn the conference back over to Jay Farner for any closing remarks.
Yes, thanks, everybody for the questions today, we appreciate them and most importantly, thank you for our team members as they have done an amazing job here. The last few months of dealing with all of the kind of curve balls.
Of Covid and returning to the office and the shifting and changing in the market and the acquisition of true Bill.
We've got a lot of things going on and to see the entire team rally together has been.
Just incredible and the 26 years I've been here. So most importantly, thanks to all of you and we will see you soon.
Yeah.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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