Q1 2022 Rocket Companies Inc Earnings Call
It's the ability to successfully navigate this difficult market requires several key attributes.
A strong national brand broad and diverse channels to capture the top of the funnel.
Scalable technology platform with high operational efficiency.
An experienced leadership team with the willingness to roll up their sleeves and get into the business.
The best talent in the industry and a strong balance sheet, all areas where rocket itself.
Rocket has intentionally built our platform ecosystem and multichannel business model to navigate tough market conditions.
We've invested in the pillars of our platform for decades with more than $7 billion invested in our trusted brand.
Averaging important performance marketing insights strengthened by more than 200 million client records in our vast data Lake.
Investing heavily heavily in cutting edge technology, attracting the best talent in the industry and growing our premier enterprise partnerships.
Of significant importance is the fact that our servicing book has grown substantially and benefits from a rising rate environment.
Servicing rights represent a $6 $4 billion asset as of March 31, growing 19% quarter over quarter, while maintaining an industry best retention rate of 92%.
Our servicing portfolio alone generates $1 4 billion.
Of annualized recurring cash revenue.
Turning to our capital position.
The $4 4 billion of available cash and cash used for self funding along with our mortgage servicing rights.
Is that a total of $10 8 billion of asset value on our balance sheet as of March 31, or $5 49 per share.
Rocket has amassed the financial strength and scale to whether the ebbs and flows of the market. While also maintaining the flexibility to expand our platform through strategic acquisitions, if and when the right opportunity presents itself.
We will be disciplined with expenses during this changing market and in the second quarter. We've taken significant cost reduction measures that included implementing a voluntary career transition program to certain team members, reducing our production costs, including renegotiating large vendor contracts and shifting our marketing spend we can.
<unk> to review every aspect of our cost structure and are committed to running an efficient and effective business Julie will dive deeper into the specifics in a few minutes.
Our strong capital position and operating efficiencies allow us to be thoughtful about expenses, while maintaining flexibility to invest in key strategic areas that set us up well for the long term.
While we expect challenging times ahead, there are bright spots in the industry.
Values have risen to new highs, creating 26 trillion.
Of available equity.
Home buying demand remained strong, particularly from first time home buyers and millennials.
Currently the largest generation by population. This is perfect for us since 75% of the clients who apply using rockets online platform. Our app. Our first time homebuyers are millennials in fact recent securitization data shows that rocket was the nations largest lender to first time homebuyers in 2021.
Beyond purchase this client pool represents a tremendous future opportunity when the market is once again right for rate and term refinances.
As the market has shifted from rate and term refinance in 2020 in 2021, today's predominantly purchase in cash out refinance market.
Rockets ecosystem has shown its ability to provide a strategic advantage, we had our best first quarter ever for purchase mortgages and cash out refinances driving more than 80% of our overall mortgage origination volume.
Each and everyday our bankers are having nearly 35000 conversations helping Americans achieve their dreams.
Our technology platform helps deliver the speed and certainty that are critical in todays purchase heavy market that our clients as well as our real estate agents and broker partners need in.
In fact, we recently launched the fast 15 program for our mortgage broker partners.
Guaranteed.
Broker purchase loans will go from documents received to clear to close in 15 business days or less.
In addition for the first time rocket Pro Tpa has gained the title of number one most favored brand among mortgage brokers for its account executives and operation support. According to our brand Health study conducted by a third party firm.
This speaks to our commitment to helping our broker partners succeed and grow.
We look to further harvest our opportunity in cash out refinance leveraging exceptional marketing expertise our vast data lake client insights and highly trained rocket cloud force. Our bankers are educating clients about using record levels of home equity to consolidate high interest debt remodel their homes or help navigate lifes events like marriage or growing family.
As we move into Q2.
Which has been seen by many as the official start of home buying season.
Our purchase pipeline has been robust pre approvals hit a record level in March and our verified approval letters grew by more than 40% year over year.
We continue to invest and expand the rocket platform true Bill, which became part of our rocket ecosystem. In December has continued its impressive growth.
The company now has $3 4 million members up 142% from Q1 of 2021 included in that $3 4 million members or one 7 million paying premium members more than doubling from Q1 of 2021.
<unk> helps our clients manage their entire financial lives and keeps our clients engaged in our ecosystem genera.
Generation over $100 million in growing and annualized recurring revenue.
Rocket homes notched two best in March setting a record for the number of real estate transactions and reaching $2 8 million monthly active users both more than doubling year over year.
Our Canadian subsidiaries are growing rapidly Edison financial our digital mortgage brokerage surpassed $500 million in cumulative funded loan volume from its first month of production in March of 2020 through March of 2022.
Funded loan volume more than doubled and purchase volume more than tripled in Q1 compared to the same quarter last year.
And Len desk, our fintech provider servicing brokers successfully integrated the acquisition of FINMA and nearly tripled its mortgage submission volume from the first quarter of 2021 to the first quarter of 2022.
Rocket solar continues its expansion.
In fact, it currently operates in 27 major markets across nine states, including Arizona, Florida, and South Carolina, and a full public launches slated for early next month we.
We see exciting opportunity ahead to serve our clients better and in more ways further extending client lifetime value by leveraging our platform.
With this new phase of the mortgage cycle, we look forward to executing on our playbook to exhibit the true strength of our platform at the same time, we continue to move forward with fulfilling our mission to be the best at creating certainty in life's most complex moments so that our clients can live their dreams with that.
I'll turn it over to Julie to go deeper into the numbers Julien. Thanks.
Thank you Jay and good afternoon, everyone as we navigate through these rapidly changing market conditions. Bracken has continued to deliver profitable results. While also further building out our platform and investing in key areas of our business.
It's important to frame what we've experienced in the past few months.
At the beginning of the year market conditions have changed dramatically.
The rapid increase in interest rates. This year has been the largest in over 40 years, just last week, the fed raised rates by 50 basis points.
First time in 22 years that has raised rates by more than 25 basis points at any one time.
With this backdrop our company continues to perform and we are proud of our first quarter results.
So that the company has generated $1 9 billion of adjusted revenue in Q1 compared to $4 million in Q1 of 2021.
We had $450 million of adjusted EBITDA in the quarter, representing a 23% adjusted EBITDA margin.
We delivered GAAP net income of $1 billion or.
Or <unk> 40 per diluted share and adjusted net income of $293 million or <unk> 15 per adjusted diluted share.
We generated close loan volume of $54 million during the quarter and net rate locks of $49 6 billion.
At a gain on sale margin of 301 basis points.
As Jay mentioned demand for purchase and cash out refinance remains robust.
The rising home values has spurred demand for cash out refinance transaction.
As we are seeing in our own pipeline purchase demand remained strong with record levels of pre approvals in March.
Looking ahead to Q2, we expect our business to face headwinds due to the rapid increase in rates that has occurred year to date.
For the second quarter, we expect closed loan volume in the range of $35 billion to $40 billion.
And net rate lock volume between 31 and $38 billion.
We expect second quarter gain on sale margin to be in the range of 260 to 290 basis points.
Our gain on sale margin in the first quarter included a few onetime benefit due to the rapid move in bond market, which lift in Q1 gain on sale margins by 15 basis points.
Excluding the 15 basis point lift our first quarter gain on sale margin would have been 286 basis points.
Moving on to expenses as a result of the rapidly changing mortgage market. We are taking significant cost reduction measures throughout the remainder of the second quarter.
We expect to incur a onetime charge of approximately $50 million to $60 million related to the voluntary career transition program that we rolled out in the second quarter <unk>.
Excluding this one time charge, we expect Q2 expenses to be down approximately $200 million.
To roughly $1 4 billion as compared to first quarter total expenses of $1 6 billion.
Around $100 million of the decrease is related to lower production expenses.
Gaining decrease of approximately $100 million is expected to be driven by cost savings from a partial quarter of our voluntary career transition program and reductions in other non team member related costs.
On an annualized basis, the cost savings from our voluntary career transition program are expected to be around $180 million or roughly $45 million per quarter.
We are focused on serving our clients and taking care of our team members, we will be disciplined with expenses, while continuing to invest in key areas of our business to support the growth of our platform and ecosystem to position rocket well for long term growth.
As we've talked about on prior calls our servicing book is a strategic asset for rocket as of March 31, our servicing portfolio included $2 6 million clients with $546 billion in unpaid principal balance.
During the first three months of 2022, the value of our mortgage servicing rights increased by $1 billion.
Or 19% compared to Q4, including newly created MSR and the mark to market adjustment to $6 4 billion.
While the mark to market change in MSR portfolio value is excluded from our adjusted net income metrics, it's worth noting that the positive market adjustment on the portfolio with $739 million in the first quarter, which is counter cyclical in a rising rate environment.
As a reminder, the mark to market increase in the value of the servicing portfolio as a result of the assumption that with the higher interest rate servicing cash flows will extend and therefore, our recurring cash revenue will be greater.
Our net client retention rate was 92% as of the first quarter of 2022 and reflects our ability to drive substantial client lifetime value for clients coming into our mortgage servicing book and positions us well to serve our clients for their next mortgage and across products in the rocket ecosystem.
We also drive a considerable amount of annualized recurring revenue from servicing our clients mortgages.
During the first quarter annualized recurring revenues from our servicing book or over $1 4 billion.
As Jay mentioned when considering the cash flows from our servicing portfolio and through Bill we have more than $1 5 billion of annualized recurring revenue as of March 31.
From a capital allocation perspective, we have always prioritized, maintaining a well capitalized balance sheet with substantial liquidity capable of navigating different market conditions, while remaining opportunistic.
We exited the first quarter with $2 $3 billion of cash on the balance sheet and an additional $2 $1 billion of corporate cash used to self fund loan originations, our total available cash and self funding of $4 4 billion.
Total liquidity stood at $7 7 billion as of March 31, including available cash plus undrawn lines of credit and our Undrawn MSR line.
Our $4 4 billion of available cash and self funding combined with $6 1 billion of mortgage servicing rights represent a total of $10 $8 billion of asset value on our balance sheet as of March 31.
This equates to $5 49 per share.
We are well positioned in the current environment and will continue to deploy our capital in a strategic and disciplined manner to generate long term shareholder value with.
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 Ryan Nash from Goldman Sachs. Please go ahead.
Hey, good evening everyone.
Yes.
So.
Jay.
Julian maybe we could flush out the guidance a little bit more so you talked about voluntary separation and other non head count related cost reductions.
As an element of scaling back in marketing so.
And when you put all this together given the revenue backdrop.
Do you think you have enough leverage on the cost side to remain profitable in the near term and then <unk>.
Just stepping back how do you see the next few quarters of this cycle playing out and what is sort of the rocket playbook in terms of how you expect to navigate through the cycle from a profitability perspective, and I have a follow up.
Sure Doug has started and I think Julie can chime in but.
As I've been telling all of our team members.
In the third inning here of this process and one that we've lived through before certainly back in 2008 2009.
2010.
No.
Little glimpses of this.
Sure.
2014, and 19, but something that you've got to have a long term view, while you are taking.
Short term actions to ensure that the company is set up for success and that's exactly what we've been doing I think you can tell from my comments and from Julie's comments.
Very proud of the team and how quickly.
We've been making adjustments. So you asked a question I made a comment about marketing.
It's not as much a reduction in marketing is it a shift in marketing and so as you start thinking about performance marketing opportunities. What we're starting to see is filing now capacity beginning to come out of the industry and that's the first step in the processes that you have got to see that capacity that was built up.
The handling of $4 five trillion dollars.
Come out to.
More of a two trillion $1 $2 five trillion dollar market, which I think we're we think we're going to be at.
And as that happens then opportunity start presenting itself. So when we look at our marketing and our reach although the market's moving from $4 five trillion to two trillion dollars certainly our ability to reach clients who are interested.
Remains much stronger than that.
And so that sets us up for long term success. The next phase of that process is leading your team and this isn't something you're going to see on a spreadsheet or probably read about in the earnings release, but.
You've got all of your team members in particular your marketing team members. Your mortgage bankers your operations folks who are now moving into a brand new mortgage market.
So the amount of effort that our leaders are putting us day in and day out meeting coaching.
Adjusting mindset I mean this is the hard work that you don't necessarily read about and business books, but that you have to do that our leaders are doing day in and day out to position our banker for us to be successful and I'm watching it I'm on the floor and seeing it and I'm seeing that the shift in the change.
That gives me incredible confidence so on that offensive side shift the marketing leverage the data ensure reaching the right clients with the right offer get the operations marketing and team members adjusted to the new market and then go out there and hit the rock every single day and in the end.
And that's what we've demonstrated over over 36 now almost 37 years.
The more defensive side and Julian can speak to this get your expenses.
And ensure that <unk> got a tight grasp on everything youre spending and it's the right place to put your dollars that she can kind of talk about where we're at where we're headed.
And then of course leverage your balance sheet and so we're in a better position than we've ever been and we've talked about the asset value of our organization, but as we see people pull back as we see capacity get reduced as we see people struggle, though there'll be there'll be opportunities.
And if they're the right ones, we're positioned from an asset perspective to take advantage of those opportunities will position us to grow and then the last thing I'll say before I turn with Julian keep investing.
And so we talk about the rocket platform not just rocket mortgage and clearly our history has been originating mortgages, but if you look at the hundreds and hundreds of people we have today and our product strategy group and our marketing group and our platform Tech group. They are working on things that will grow.
Our technology platform to serve consumers far beyond mortgage.
And that you want to keep investing in that here is why the more clients that we engage with and bring into our ecosystem at higher interest rates.
More people, we will be able to help with interest rates fall.
I don't need to explain that to you. If you just go back and look at 2020 one to see what our company is capable of when we see a reduction in interest rates now magnify that by continuing to have other services true Bill.
Rocket homes rocket auto, where we're engaging with clients and we're setting ourselves up to have relationships with those clients and data about those clients. So we can assist them in the future we're setting ourselves up for the next opportunity to reap those benefits, but you got to do the hard work now you've got to manage the business now and we demonstrated our ability.
Management profitably for 36 plus years, so Julian maybe you want to comment on how we think about expenses and the process that we're working through there.
Yes, I sure can.
Said, many times before and just to reiterate what Jay says the decisions that we're making.
Intended to position the business for that long term growth. So we won't make short term decisions on expenses that are going to sacrifice long term profitability. We've seen time and time again, we've been through these cycles. The amount that we can say today is going to be dwarfed by what we can make in the future when the upside.
Opportunity comes to us by holding a little bit of extra expense, we've seen that time and time again so.
That being said, we're certainly very very diligent and responsible about how we're looking at our expenses.
This is why we are seeing our second quarter expenses coming down roughly $200 million from $1 6 billion in the first quarter to about $1 4 billion in the second quarter. Excluding the one time charges of $50 million to $60 million related to our voluntary career transition program.
So it is something that we are going to continue to be focused on throughout the year cost do take some time to come out we will have through natural attrition through looking at non team member and since there will be other opportunities to continue to impact our expenses.
And maybe just to put a little bit of a finer point on some of the savings the cost savings that we'll get from our voluntary career transition program are expected to be around $180 million on an annual run rate basis of $45 million a quarter.
About half of that.
$45 million a quarter with growing is going to be realized in the second quarter. So we'll see a full quarter of that in the third quarter as well. So there's a lot that we will continue to look at here as we go through the rest of the year, but that's how we're looking at our.
Q2 earnings if you annualize that run rate to think about $200 million coming out from Q1 to Q2, another $20 million coming out in the third quarter. When we fully implement all of the savings from the transition program about $880 million of annualized expenses that we're going to be taking out here.
And if.
If I could just ask a follow up question as it pertains to gain on sale. So the guidance for next quarter implies slight pressure in to Jay's comments, we're starting to hear capacity coming out which is a good sign however, just given how rapid the markets move from J from four and a half down to two to $2 five trillion.
I am curious how you think about what the environment can mean for margins just beyond the next quarter, particularly if we don't see capacity coming out at the pace commensurate with that.
The size in which the market is adjusting to.
Yes, I think capacity is coming out quite rapidly.
As I as I watch and talk to other leaders across the.
Mortgage space in particular, and as you listen to Julie's comments.
Excluding kind of the onetime effect of margin in Q1, I think she referenced.
$2 85 to.
So a six and then if you look at the guidance that you provided for Q2 I think it is kind of in the similar ballpark of $62 960 to 290, So I think youre seeing us kind of in.
A range that.
We've seen in the past as well, yes, I think thats right Jay as you look at margins through 2020 into 2021 by the second quarter of 2021, I think we were at $2 78 for gain on sale margin you've kind of see it holds steady Q3 305 to <unk> 82 in the fourth quarter 301, as I mentioned that would have been to any sector or as you look at.
Our guidance 360 to $2 90, it really is leveling out here over the past several quarters.
Our next question comes from Doug Harter from Credit Suisse. Please go ahead.
Just following up on a comment you made about wanting to kind of.
Invest and get as many higher coupon customers. How do you think about MSR purchases and using that liquidity that you have to possibly do invest in MSR.
Yes, very good question and certainly one of the ways that we can continue to add to the servicing book, especially in a rising rate market I would say there is some important.
Strategies that we are working on to inform that decision and I referenced our rocket Central T.
<unk>.
As we think about.
True Bill as we think about some other programs we're working on to launch this year. The engagement of that client is critical for us as the number one servicer ranked by J D power already.
Vantage, if we purchase msr's because people are going to have great experience from a cut.
Coming on our servicing platform, but it's also important to remember when we buy an MSR the client doesn't have the opportunity to originate through our system and so they don't have that experience to kind of rely on so.
In the developing and employing these other.
Engagement tools that we're working on so as we purchased MSR, we can extend the lifetime value of that client has been our mission and.
You'll see our 92% retention rate.
And we know that that works and that of course gives us great confidence that we want to continue to.
Bring clients onto our book because we know in the future, we'll reap the benefits, but the next strategic move is to build out or continue to build out. These additional components of our platform because they do exactly what you are asking they engage clients that we purchase.
If we purchases of MSR and kind of turn their conversion rates similar to ones that we would originate and thats a very strategic advantage to us. So I am sure as we continue forward. This year and subsequent calls we will talk more about the work that we're doing there. So so important strategy being really thoughtful about it but also wanted to make sure that we've got.
All of the components that we think are critical to maximizing the lifetime value of those MSR that we bring on the platform and maybe while we're on the topic of the MSR is just to put some numbers around that in 2021, we did spend about $200 million of capital acquiring MSR. So it is something that we are in the market looking at these potential opportunities.
There is one that makes sense for us for the reasons that Jay just mentioned, we're going to take that opportunity.
Ask that as a very strategic one for us for many reasons in terms of value.
Year to date in the first quarter, the asset increased by about $739 million.
As interest rates continue to rise that asset becomes more and more valuable as those cash flows continued to expand in fact through April it's up about another $250 million in value to so nearly a $1 billion now.
Interest rate at June 30th will ultimately depend determine where that total value is for the quarter, but it's very very valuable to us, yes, and the last thing ill.
<unk> mentioned that maybe people, who kind of catch people off guard, sometimes people will say well you want to buy MSR is at a lower weighted.
Average cost of interest rate because.
You want to refinance it.
I suppose in a falling rate market, it's always beneficial but actually now.
It benefits us to be buying MSR is at a higher weighted average coupon because.
We set ourselves up to take advantage of that opportunity with that client when it's appropriate in the future. So that's again back to the lifetime value and our retention rate and all the things that we're building give us a strategic advantage that you would be purchasing MSR is at.
At a higher <unk>.
Interest rate level, so youll see us continue to lean in as time goes on there.
Thank you.
The next question comes from Kevin Barker from Piper Sandler. Please go ahead good afternoon.
I just wanted to dig in a little bit further in regards to the volume that youre producing.
Obviously cash out refis or a large portion of the <unk>.
Starting to increase a significant amount of purchase volume.
But it's still not quite keeping pace or it appears is not quite keeping pace with the with the direction of purchase volume.
Relative to the market.
Meanwhile, you have an enormous amount of cash and your leverage is the lowest we've seen in a while you have tangible.
Tangible common equity ratio of 34%.
It would appear you have.
A significant amount of.
Cash that you could deploy wind.
Why not look too.
Maybe.
Some strategic acquisitions that.
Could be accretive to your equity and potentially increase.
Your capacity to garner more purchase originations and then at the same time.
You can apply some of the rocket technology to two.
To make that those operations more efficient on some of these acquisitions.
What are your thoughts on that yeah, well first I think when we look at the record level of pre approvals that we were able to originate in Q1.
When we looked at I think setting a record for the most purchase volume closed in Q1.
Compared to Q1 with pad.
We continue to see traction in purchase.
I think that will be amplified by the fact that the capacity is coming out quickly and in particular in areas where people don't have the strong resources continue to market.
So I feel very confident about our way to our.
Our ability to organically grow purchase that.
That said.
Your other comment about the availability of strategic opportunities that may allow us to lean into the purchase market.
There are a handful of those type of opportunities that exist and I think it's just a matter of staying close to them watching them and ensure that we are making the right. If we make the investment making the right investment at the right at the right time and like duo says we've got the capital to be strategic and that's what we'll do.
And do you also see it as an opportunity to potentially.
Increase your float just given the aluminum out further just with today.
I don't know.
Increasing the slow I think we see it as an opportunity.
Buying our shares back as I've been doing we've been doing at this point in time, So I got it okay. Thank you for taking my question.
The next question comes from James Faucette from Morgan Stanley . Please go ahead.
Hi, This is Blake matter on the line for James.
First question certain competitors are leaning in to hit you Ox. In addition, the cash out Refis and the information for the decline in refi volumes is that something you consider given that you currently aren't in the HELOC space as far as I'm aware and what are some of the puts and takes there.
Yes, our product strategy team and our team and capital markets is very actively looking at additional programs that we can offer I think they've rolled out a few different programs here recently in particular to our Tpa space I was reading something here, a week or two ago and so we're active there whether it's a HELOC.
For a second are those type of things.
I know they'll continue to to think about the right products that help our clients not only today, but then allow us to build a relationship to a system in the future one of the things that we've stood up a team up here recently on is the rolling in of <unk>.
<unk> and.
Solar and or <unk>.
Home improvement loans.
Because certainly it makes sense for those clients to do so even in a rising rate market and so.
We'll continue to think about those products and rolling them out and understand all of the revenue that it brings us today, but also the future revenue will gain when it's time for those clients to refinance again.
Got it Thats helpful.
And then moving on given the recent volatility in rates can you discuss any challenges you face in terms of hedging our pipeline.
How big of an uptick have you seen if any around hedging costs.
I would say that our capital markets team is doing an excellent job hedging the pipeline.
And think about where our pipeline was here a year or so ago from a size perspective.
Well well in hand.
And very pleased with the results that they've been delivering.
Yes.
The next question comes from Brock Vandervliet from UBS. Please go ahead.
Good afternoon, thanks for the question.
Just.
In terms of.
You kind of re jig here your marketing outlook.
The resource commitment.
How has that affected your orientation toward.
Direct to consumer versus partner.
Also in this rate backdrop, how is that.
Orientation changed.
How should we think about that.
Yes, very good question.
Look at all of our leading into all of our different channels. Some we have more direct control over than others.
And so from a direct to consumer perspective that gives us the ability to make adjustments.
Almost at an hourly basis in terms of how we market.
How we allocate leads all of those things so we're.
Most active there I was really pleased to see the third party survey that was given to US here just a week or two ago. We're now in the wholesale space, where the most favorite brand based on our account executives and operations group. We know we've been delivering excellent service in that space, but it's great for a third party to reiterate that fact.
And our broker partners have been asking for more assistance as they think about having to grow out their marketing platform in a more challenging market. So we're providing that assistance to those partners.
And some of our other relationships are more long term and strategic so as we as we leverage our salesforce partnership and start integrating with banking institutions. These are not these are not relationships that are going to we are focused on driving revenue in a month or two these are long.
Standing relationships, where the focus is in the next 234 years and the ability for us to be plugged in directly to these financial institutions will allow us to grow at scale down the road. So we're not taking a hey, how's the how's the originations today approach there, we're really being more thoughtful about what kind of originations can that drive it.
In the years to come especially.
In years, where we start seeing interest rates dropped back down again, whether that's 468, who no one can.
Exactly when that will happen, but when it happens with all of that tech work being done fully integrated it will just accelerate our ability to take advantage of a drop a lowered a lowering rate market in the future.
Okay.
As a follow up regarding gain on sale I heard the overall guidance, which is helpful is there any.
No particular contour as you would call out again in terms of.
Direct to consumer versus partner break.
On gain on sale.
No, it's really been fairly consistent quarter over quarter.
The next question comes from Ryan Mcevilly from Zelman and Associates. Please go ahead.
Hi, Thank you very much.
So looking around the Fintech space broadly Theres, obviously, a lot of turmoil as rates have moved higher and the necessity of profits and cash flow come into focus so in relation to your business. Obviously, the mortgage business has remained profitable and cash generative, but you've also continued expanding and the newer aspects of the platform whether it's.
Auto or rocket homes, or solar true Bill and I believe in the past you've referenced the profit first approach when expanding into new segments. So I guess, if you can comment.
How do you feel about your positioning today for continued investment and expansion in those non mortgage businesses.
Are you driving profits across those businesses today, and I guess, given what's going on from a macro or competitive dynamic.
Across the Fintech space any change in the outlook for just how you see those business.
<unk> is growing and penetrating the market moving forward.
Yes, so I think Julie can make a few comments here, but our philosophy has been certainly when you're standing up.
Young businesses.
The infrastructure.
Sure and the growth is the primary objective I talked a bit about the success, we're seeing in Canada today, both on the tech side with Venmo and Lynn desk.
Technology, and then the Edison side with the gross growth there in the brokerage.
So thats a few years of investment that we're now really starting to see the traction and it is.
A very interesting market for us because those are refinancing their mortgage there every three or four years, regardless of interest rates and so.
Now, we'll start thinking about those businesses as they get their feet underneath them.
On a profitability perspective on things like a rocket homes are a rocket solar.
Businesses offer some very good unit economics rocket homes in particular.
Allows not only for our clients to have a great experience, but as an impact across our platform.
And so when we think about that business and how it impacts both mortgage and title and.
Our real estate.
<unk>.
We think about that as being operated as a profitable business.
And solar although although early on in its growth announced the fact that here in a month or so we're going to have.
Our client facing website will be launched but the unit economics there are quite good.
And especially the interest that our current client base is showing in these states which of course gives us.
Virtually incredibly low CAC on that clients. So we think about that as a business that can grow but also can move to profitability fairly fairly quickly and that's really where Julia has been focuses across the board ensuring that we're being very thoughtful about how we manage these businesses to ensure that.
We're in a strong position today and in the future Thats right, Yes, and today. We are those businesses are in various maturity stages in their lifecycle and we're investing in some and others are profitable on their own some of them were going to.
Continue to invest for the next several quarters here as they continue to get their feet under them, but.
From an ecosystem perspective and theirs.
Lift that we get in other aspects of the business the mortgage business from those other new startup businesses and vice versa. So it's also about what we again as a company as a whole for in each of those segments is working together and the synergies that we get in addition to the individual profitability of those businesses, but we do have certainly a path to each one of those being profitable.
Beyond the investment phase.
That's great helpful. Thanks, Julie.
So one more question just back to capital allocation I know this has somewhat been asked but.
Obviously with the strong balance sheet, but an uncertain macro environment and I guess, just looking at what's been done thus far obviously pretty significant capital returns via special dividends and share repurchases. So I guess, how should we think about the capital allocation priorities and plans for shareholder returns into what is looking to be a more uncertain.
Backdrop going forward.
Yes, it's a good question and if you look at cumulatively now we have bought back $25 3 million shares.
We have executed $359 million of our $1 billion buyback program at this point. So we're continuing to look at the opportunity there to buy back shares as we said in the past <unk> talked about on this call. We're always going to look at investing in the business first.
I saw that purchased <unk> just here in the fourth quarter and continue to look for opportunities. There. We do think there is kind of early on in the cycle here to see additional opportunities come to market just yet.
And returning capital to shareholders through buybacks will be something that we continue to look at and nothing changed per se in the way, we look at our capital structure.
From what we said in the past.
Our last question comes from Richard Shane from Jpmorgan. Please go ahead.
Thanks, everybody for taking my question two questions first.
Conversation about MSR and the impact of higher rates, but ultimately MSR valuations are really a function of CPR.
And as we sort of approach what's likely to be a terminal CPR how much more room do you think there is poor appreciation of the servicing rights.
Yes, that's a great question as we do see ctr floors get kind of closer and closer the upside that we have is less significant now I just had $250 million is the year to date or sorry quarter to date in Q2 increase so theres still room for increased interest rates also drive that the earnings.
On float is very significant to the assumptions that drive the value as well and that is what is driving a lot of the increase in the second quarter. So you'll have both of those at play we still some upside room, but you are right.
Level of upside does start to diminish.
It actually is an interesting opportunity, perhaps because as we think about and Julie spent a lot of time thinking about or talking about the management of this business, which you referenced done an annualized rate of $800 million $880 million of cost savings that we've now taken action on and we talk about the margin and we talked about the direct to consumer and we talk about the profitability.
<unk>.
We're in a situation where.
Holding msr's.
Still benefits us as we discuss our platform of lifetime value.
I imagine that will see others have to sell msr's.
To raise capital to continue operations and that should present, an opportunity for us to strategically be purchasing those MSR is as there's more pressure in the market for those who need to sell.
No.
That along with <unk>.
Origination platforms tech platforms, all under pressure means that.
Thoughtfully exploring these opportunities bolt on or otherwise.
<unk> is an important place for us to focus our energies as we go through the year.
Got it that's helpful.
Second question and again I.
Want to be sensitive to the context of this which is that some of the new sort of alternative products in the mortgage business are very small in the context of your balance sheet and your overall business, but one of the hallmarks of rocket as a public company has been mitigating liquidity.
Risks relate.
Related to originations by focusing on the conforming markets and when we think about some of the other products that you're expanding into I suspect that there is greater liquidity risk or uncertainty.
In terms of execution can you just talk about that a little bit and how you manage that.
Well, if you look at what we're originating today from a mortgage perspective.
We've got great liquidity.
We'll always be thoughtful about.
Anything that we're doing and whether we do on a hold any of that because we think it's a good financial investment for us, but always also making sure that we've got other avenues.
For that for that product and if youre talking about products outside of mortgage.
<unk> situation everything that were.
We're working on today, it's really our option, whether we want to hold that or whether we want to sell it but there's multiple buyers in the marketplace for us.
I think thats, an important philosophy that we've had for many years and we will continue to have a grade will always be looking first at making sure. We have liquidity for those products that we originate whether it'd be immediate liquidity certainly to finance it to consider securitizing it down the road as the volume grows and Thats always first and foremost in our minds as we're setting.
And I think this is a great place to end because life is one of those situations, where you are living in the moment, sometimes it's very challenging to see past.
The month, you just lived through the month that you're in and it's critical that we keep a long term view like we have for many decades now of this business. So <unk>.
Originating a product that today might add a little bit of revenue to the top line of our business, but has a concern around liquidity would be something that we would not be interested in doing.
Our focus would be on.
Making sure our business is strong because it's not a matter of this but win.
Rates shift change and move and Theres opportunity. The key is that you are there that you can move quickly that you have capacity and you are a strong company.
And the way that we're setting up our platform and the way that we're continuing to grow our business as we bring on higher interest rate and the entire industry. It brings on higher interest rated clients.
Clients is that what we've done in the past, we will be able to do again, but at even greater scale and so.
We would never want to put any of that at risk over some sort of short term decision.
Around a product that's not not liquid our focus here is continuing to invest in all of the things that we know that we'll build out this platform for the long run to have.
Excess and take care of our clients and take care of our team members.
This concludes our question and answer session.
I'd like to turn the conference back over to Jay Farner for any closing remarks.
Well, thanks, everybody for joining us we appreciate all the thoughtful questions and we look forward to catching up with you again here at the next call.
Nate.
Sure.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Yes.
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