Q1 2025 Rocket Companies Inc Earnings Call

Good afternoon, everyone and thank you for joining us rocket companies earnings call covering the first quarter of 2025.

Speaker Change: With us this afternoon, a rocket companies CEO, Vern Krishna and our CFO, Brian Brown.

Speaker Change: Earlier today, we issued our first quarter earnings release, which is available on our website at rocket companies Dot com under Investor Info.

Speaker Change: Also available on our website is an investor presentation.

Veron: Before I turn things over to Veron, Let me quickly go over our disclaimer.

Speaker Change: This conference call includes forward looking statements about among other matters expected operating and financial results strategic initiatives and the anticipated up see collapse and acquisitions of Redfin and Mr. Cooper.

These statements are subject to risks and uncertainties, which could cause actual results to differ materially from the expectations and the assumptions we mentioned today.

Speaker Change: We encourage you to consider the risk factors contained in our SEC filings for a detailed discussion of these risks and uncertainties.

Speaker Change: We undertake no obligation to update these statements as a result of new information or further events, except as required by law.

Speaker Change: This call is being broadcast online and is accessible on our Investor Relations website.

Speaker Change: A recording of the call will be posted later today.

Speaker Change: Our commentary today will also include non-GAAP financial measures reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our earnings release issued earlier today as well as our filings with the SEC.

Speaker Change: And with that I'll turn things over to Vern Krishna to get Us started Bryan.

Vern Krishna: Good afternoon, everybody and thank you for joining us on rockets first quarter 2025 earnings calls.

Vern Krishna: In today's call I'm going to focus in on three areas first I'd like to talk about what we're seeing in the current market landscape with that backdrop I'm going to spend a few minutes recapping our strong Q1 performance and lastly share. Some examples of what we're delivering for team members broker partners and players, including our plans for the future with Red.

Mr Cooper: Mr Cooper.

Mr Cooper: Let's start with the housing market, which kicked off on a positive note to start the year.

Mr Cooper: Inventory was 25% moving from three two to just over four months of supply year over year.

Mr Cooper: Offering relief to buyers facing tight auction.

Mr Cooper: 30 year fixed mortgage rates also declined from 7% in January to around six 6% in March briefly improving affordability and sparking refinance activities.

Mr Cooper: Shifting into spring April was a little unusual it actually mark a sharp reversal in early year momentum and that's for a few reasons.

Mr Cooper: Growing global tariff announcements the stock and bond markets reacted with volatility in the 10 year treasury yield fluctuated sharply.

Mr Cooper: Mortgage rates climbed back to nearly 7% during the month and at the same time consumer sentiment, which was already softening continued to decline.

Speaker Change: According to redfin nearly one in four Americans are now delaying major purchases, including buying at all.

Speaker Change: Now spring typically brings increased activities when you usually see purchase applications in the industry rising between March and April.

Speaker Change: What's unusual is that the impact of all of these dynamics compounded we saw weekly purchase applications actually declined by double digits throughout April which the industry Hasnt experienced since 2009 during the great financial crisis.

Speaker Change: While these short term headwinds are shaping consumer behavior certainly it also reinforces our conviction for who we are and where we're going.

In this environment and integrated homeownership platform becomes an essential pursuit.

Speaker Change: Whether our clients are searching financing or servicing their home. We believe rocket must be built to meet them, where they are and take them, where they need to go and providing more value across the entire chain as the best way to both grow our share and enable a better experience.

Speaker Change: Now a strong platform can only reach its full potential with great teams behind it.

Speaker Change: Team that delivers in the short term, while staying focused on the long game the team that trust each other in the trenches that spikes to win every edge.

Speaker Change: It's how shorter term execution creates long term growth.

Speaker Change: Our execution is really the determining factor and that comes down to one thing the quality of your team.

Speaker Change: And in Q1 I am so proud of my rocket team because they demonstrated exactly is that.

Speaker Change: We reported $1 3 billion and adjusted revenue at the high end of our guidance.

Speaker Change: <unk> and adjusted diluted EPS. These results were fueled by the strength of our platform and the grit and determination of our team members.

Speaker Change: In March in particular was a clear high point it was our strongest margin in three years across multiple fronts. We saw 21% more origination clients than in March of 2023, and reduce turn times by 14%.

Speaker Change: Even more impressively on a per production team member basis, we serve nearly 50% more clients compared to March of 2023.

Speaker Change: <unk> also AI inaction plain and simple it is supercharging our team members. It is unlocking capacity and it is simply enabling us to serve more clients in better ways than ever before.

Speaker Change: Lastly, we announced two strategic acquisitions that will transform rockets next chapter and the future of homeownership.

Speaker Change: Of course, I will share more on that in just a minute.

Speaker Change: Let's unpack our execution, what's turned to the impact we delivered to team members mortgage broker partners and clients this quarter.

Speaker Change: Homeownership is fundamentally the human business built on trust connection and empathy, which are human qualities are.

Speaker Change: Our value proposition is to empower team members with the right tools support mortgage brokers real estate agents and enterprise partners and deliver exceptional emotional experiences to our clients.

Speaker Change: With that in a nutshell is the power of the rocket platform.

Speaker Change: There are many many examples this quarter on how we've been bringing this to life and I want to share a few of them with you I'll start with our team members.

Speaker Change: Productivity is one of the most powerful levers we have to grow capacity without increasing fixed costs highly manual specialized cost can be one of the biggest cost in bottlenecks for us to scale.

Speaker Change: Take one simple, but common example in housing.

Speaker Change: Identifying the responsible party for the transfer tax payments.

Speaker Change: When done manually at the time consuming error prone process that requires combing through 20 to 30 pages purchase agreements and counter offers.

Purchase transactions.

Speaker Change: In March we launched an agenda AI tools to fully automate. This task the impact was immediate and estimated 50% reduction in remediation costs and projected savings of over $1 million in 2025 alone.

Speaker Change: What's more we went from idea to deployment within weeks accelerating business value without meeting a heavy lift from engineering teams and dependencies.

Speaker Change: <unk> AI is the next evolution beyond rule based automation it allows us to breakdown complex workflows and the steps that AIA agents can execute from end to end using targeted prompts and leveraging tools automatically.

Speaker Change: We've already identified more than a dozen additional use cases across underwriting and vendor functions, including title ordering HOA reviews and that verification all aimed at unlocking capacity in accelerating cycle time.

Speaker Change: Let me share one more meaningful example of how innovation is directly emerging from our team members.

Speaker Change: Client calls remained one of the most critical touch points in our business.

Speaker Change: It's when our bankers connect with clients to help guide one of the most important financial decisions of their lives.

Speaker Change: Our retail bankers and banking leaders identified an opportunity to enhance call evaluation and coaching using our internal navigator AI platform and rocket logic synopsys or call analysis platform.

Speaker Change: Prototypes of tools annualized client calls without writing a single line of code within days, our engineers integrated the tool into rocket logic, bringing a frontline idea into production with speed.

Speaker Change: Previously banking leaders spent about 30 minutes manually reviewing each call to identify these coaching moments. This new tool automates that process analyzing every single spoken word categorizing caused by skill product and client behavior and servicing the most relevant coaching opportunities all in real time.

Speaker Change: This is game changing review time has been reduced by more than 80%, allowing leaders to scale from one to two reviews per banker per months that 10 times that volume does this efficiency frees up time for more complex client scenarios and more advanced coaching.

Speaker Change: Coaching and feedback now happen through a faster reinforcing feedback loop, which amplifies performance and productivity across the entire team.

Speaker Change: Bankers are also using the tool independently reviewing their own calls identifying their own improvement areas and making self driven real time adjustments.

With more than 100000 calls now handled each day the ability to improve even a single interaction at scale has transformational impact which is the key.

Speaker Change: Kind of leverage that turns every one of our 3000 bankers into a super banker.

Speaker Change: So these are just a few examples of how we are unlocking capacity in executing faster across the company AI is handling the time intensive work and accelerating our ability to learn adapt and deliver even faster for our clients.

Speaker Change: Let's shift gears and turn now to our mortgage broker partners.

Speaker Change: Our rocket pro channel stands for choice and flexibility over the last few months, we've delivered improvements that remove friction and make it easier than ever to partner with rocket.

Speaker Change: In March we rolled out a redesigned rocket pro dashboard, making it easier to navigate servicing more relevant insights and increasing transparency throughout the mortgage process.

Speaker Change: One standout feature with the native integration of Pathfinder are searchable broker knowledge base directly into this dashboard for brokers now have instant access to policies processes and product specific requirements right, where they work and usage has increased 30% since the dashboard launch.

Speaker Change: We also launched a new loan conditions summary view, showing what's outstanding what's ready for underwriting and providing direct links to take immediate action.

Speaker Change: At the end of April Rocket Pro also went live on the Orion platform, our loan origination and wholesale marketplace rockets pricing and products are now fully integrated into our platform that brokers used every single day.

Speaker Change: The response was immediate and enthusiastic within days more than 9000 pricing calls were initiated including activity from over 300 brokers engaging with rocket growth for the first time.

Speaker Change: So we're doubling down to help our mortgage broker partners succeed by making it easier than ever to work with rocket and thrive within our vibrant ecosystem.

Speaker Change: So, let's now move to how we are serving clients.

Speaker Change: Q1 was a quarter, where we helped more clients through innovative affordability programs in February we launched rent rewards are first to market program designed to support renters and their transition to owning a home.

Speaker Change: Eligible clients can receive a promotional credit of 10% of their annual rent up to $5000 directly addressing a key affordability barrier and making homeownership more accessible for first time buyers.

Speaker Change: In March we back rent rewards with a product marketing campaign, leveraging our own the dream for creative idea traffic to the rent rewards landing page surge with over 1 million consumers expressing interest in the program.

We also introduced one zero rate break.

Speaker Change: Programs that lowers the contract mortgage rates by 100 basis points in the first year, helping ease those upfront home buying costs. These programs are resonating with potential homebuyers driving a double digit increase in retail purchase clients with locked loans compared to the prior 90 day period before they watch.

Speaker Change: Let's take a step back and talk about the bigger picture.

Speaker Change: As we expand our reach and elevate the client experience. We're also making bigger moves to accelerate our vision of an integrated homeownership platform with the announced acquisitions of Redfin and Mr. Cooper.

Speaker Change: These acquisitions are fundamentally about three things strengthening our business model using our platform with data and ecosystem partners to power rockets, AI and building an elevated client experience.

Speaker Change: Rocket will have a balanced business model and a powerful springboard for growth servicing and origination will work in harmony across market cycles, and when rates rise servicing values increase and when rates fall strong recapture delivers a steady flow of new origination.

Speaker Change: Rocket has a track record of growing share in a range of market environments.

Speaker Change: So together this combination provides unmatched scale more than 30 petabytes of proprietary data thousands of real estate agents tens of thousands of brokers and loan officers nearly half a million origination clients with over 800 financial institutions. This is an ecosystem designed for client success.

Speaker Change: Sessional empowerment and partner growth.

Speaker Change: Best of all is that clients when instead of a fragmented and costly process there'll be able to search by finance and manage their home and one modern fully connected beautiful end to end.

Speaker Change: Period.

Speaker Change: Integration is a top priority for our leadership team right now over the past several weeks, we've been working closely with leaders at Redfin and Mr. Cooper, and we are more energized than ever.

Speaker Change: Integration is also a multifaceted process and it is our top priority across the entire company <unk>.

Speaker Change: We share a culture of innovation and driving change through technology, and a vision to build the future of homeownership.

Speaker Change: Our future team members at Redstone and Mr. Cooper I can't wait to welcome you to market. We're excited to joined forces and lead the future of homeownership together.

Speaker Change: We believe 2024 was foundational 2025 will be evolutionary on a path for 2026 to be revolutionary.

Speaker Change: We remain as ever relentlessly focused in the pursuit of our end goal to create an integrated homeownership platform.

Brian: Thank you and with that I'll turn it over to Brian.

Brian: Thank you Arun and good afternoon, everyone today I'll walk through our first quarter performance second quarter outlook and he'll provide an update on the integration planning for redfin and Mr. Cooper.

Brian: We delivered strong results in the first quarter and they are a direct testament to our team's continued focus and execution.

Brian: Adjusted revenue reached $1 3 billion near the high end of our guidance range, we generated $26 billion in net rate lock volume, a 17% increase year over year, and an 11% quarter over quarter increase driven by growth in refinance and continued momentum.

Brian: And our home equity loan offering which posted yet another record quarter.

Brian: On sale margin came in at 289 basis points in the first quarter compared to 311 basis points in the same period last year and 298 basis points in the prior quarter.

Brian: Our Q1 gain on sale margin was consistent with our weighted average gain on sale margin over the last 12 months.

Brian: On an adjusted EBITDA basis, we delivered $169 million or a 13% adjusted EBIT margin.

Brian: We also reported adjusted net income of $80 million and adjusted diluted EPS came in at four <unk>.

Brian: These results reflect our continued focus on driving growth and profitability, while balancing deliberate investments with disciplined expense management.

Brian: From January through March, which is typically a seasonally low quarter, we saw momentum build month over month.

Brian: The 30 year fixed mortgage rate declined from nearly 7% at the start of the year to around six 6% at the end of the quarter. Our team quickly capitalized on that opportunity through disciplined execution and the strength of our scalable technology platform and we help even more homebuyers and homeowners move forward.

Brian: With confidence.

Brian: March was highly productive and our second highest production month three years coming in just shy of last September when rates dipped below 6% at the time, we anticipated that momentum to carry into April with the start of the spring home buying season, consistent with trends we've seen in prior years looking back we now.

Brian: No that wasn't the case early April brought heightened equity and bond market volatility following the announcement of new tariffs. The S&P 500, initially dropped nearly 15% and the 10 year Treasury surged to four 6%.

Brian: While markets have since retraced much of that movement, the temporary spike in uncertainty caused many consumers to pause, resulting in a slower start to the home buying season.

Brian: And this time of market volatility concerns about job security retirement savings and overall affordability are weighing on consumers and meeting many to delay significant purchases, including buying a home.

Brian: Can see this behavior in the NBA purchase application data, which declined throughout April and ended the month at the lowest level since February.

Brian: Now we are seeing early signs of housing market is gradually shifting in favor of homebuyers on the supply side inventory is building active home listings reached 960000 in April marking a 31% increase year over year.

Brian: Homes are also staying on the market longer which is contributing to moderating home price growth.

Brian: Additionally, more sellers are offering concessions, helping to ease affordability pressures for buyers.

Brian: The American Dream of Homeownership is very much alive, so potentially delayed this home buying season.

Speaker Change: Tumors continue to aspire to own homes, making it more important than ever to identify serious high intent buyers and serve them through an integrated homeownership platform.

Speaker Change: While this spring home buying season has gotten off to a slow start we believe we will see an uptick, especially as markets are starting to stabilize.

Speaker Change: For the second quarter, we expect adjusted revenue to be in the range of one $1 75 billion to $1.3 million to $5 million with the midpoint of this range, representing a 2% year over year growth.

Speaker Change: This outlook reflects what was a challenging April from both a margin and volume perspective, and our expectation that may and June will perform sequentially better than April.

Speaker Change: We're already seeing this expected improvement in the week, leading up to this call.

Speaker Change: We view this guidance as strong yet achievable, despite an uncertain market backdrop.

Speaker Change: Moving on to the cost side, we anticipate total expenses in Q2 to remain consistent with Q1 as we continue to make investments in our brand restage and purchase product offerings.

Speaker Change: Key objective of this investment has been to evolve towards a fully integrated marketing strategy.

Speaker Change: <unk> brand product and performance marketing and we're starting to see early signs of this market.

Speaker Change: From mid February through April total leads increased by nearly 10% compared to the prior year more importantly, we saw a shift towards higher quality organic traffic to rocket owned properties, which is driving stronger conversion in Q1, the number of verified approval letters increased by <unk>.

Speaker Change: High single digits year over year.

Speaker Change: These verified approvals are a great way to identify high intent clients will convert at a rate two to three times higher than standard pre approvals.

Speaker Change: As we see the Halo effect of the brand restage take hold we expect its impact.

Speaker Change: Typically elevated brand awareness and consideration.

Speaker Change: Carry into the second half of the year and beyond.

Speaker Change: This will allow us to return to historical brand spend levels, which would be approximately $100 million lower than what we'll see in the first half of the year.

Speaker Change: In addition, our origination capacity gives us operating leverage and financial flexibility at.

Speaker Change: At our Investor day in September of last year, we announced that we could support $150 billion in annual originations without adding a dollar of fixed costs that capacity number continues to grow every day and is now well north of $150 billion.

Speaker Change: AI and automation continue to significantly enhanced productivity and provide levers to scale efficiently.

Speaker Change: If the housing market and rate environment doesn't cooperate we have the ability to turn that excess capacity into cost savings in the second half of this year.

Speaker Change: That option value associated with this excess capacity is a luxury that we believe only rocket has and is a direct result of the significant technology investments over the past decade.

Speaker Change: Now turning to the acquisitions.

Speaker Change: Our announced acquisitions of Redfin and Mr. Cooper bring together three iconic companies to build the most complete and connected platform in homeownership breads.

Speaker Change: <unk> brings real estate search and brokerage rocket delivers origination scale, Mr. Cooper contributes servicing strength.

Speaker Change: Together, they create an end to end platform built for efficiency reach and client value.

Speaker Change: These acquisitions give us a durable all weather business model with a diverse revenue base and a strong foundation for growth.

Speaker Change: Fuel our platform with data and AI expand our ecosystem through key partnerships and enable us to deliver an elevated client experience.

Mr Cooper: The combination of rocket Redfin and Mr. Cooper provides a true super funnel with low customer acquisition costs shared infrastructure and the end to end connectivity across the homeownership journey.

Our collective teams across all three companies are already working hard putting together detailed integration plans, including clear milestones we've identified more than 35 integration work streams on several steering committees and we're moving quickly and decisively to ensure we can start to realize synergy value at.

Mr Cooper: Closing.

Mr Cooper: In parallel we announced the collapse of our up sea structure to simplify our corporate structure and make our tax obligations and financial statement reporting easier to understand.

Mr Cooper: Following the completion of both all stock transactions Redfin and Mr. Cooper, We expect our class a public float to increase from approximately 7% today to around 35%.

Mr Cooper: Any of these moves would be meaningful on its own taken together they reflect our ambition our discipline and our readiness to lead the next chapter of homeownership.

Mr Cooper: Finally, I want to highlight the strength of our balance sheet, which is a clear competitive advantage actually in an uncertain market.

Mr Cooper: As of March 31, we held $2 $9 billion in available cash and seven $4 billion in mortgage servicing rights totaling $10 3 billion in balance sheet value.

Mr Cooper: Total liquidity stood at $8 1 million that includes $1 4 billion of cash on the balance sheet $1 $5 billion in corporate cash used to self fund originations $3 2 billion in Undrawn lines of credit and $2 billion of Undrawn MSR facilities.

Mr Cooper: In April we extended our existing 115 billion revolving credit facility driven by strong demand and a positive outlook on our pending acquisitions, we successfully upsized the facility to two and a quarter billion dollars contingent on the transactions close.

Mr Cooper: This enhanced capital and liquidity position supported by a diverse roster of strong financial institutions positions us to invest strategically stay agile and navigate market shifts with confidence.

Mr Cooper: In closing we are confident in the path ahead.

Speaker Change: <unk> is a moment that demands readiness and resilience and rocket scope for bolt, we're showing up every day with urgency clarity and discipline and with Brexit and Mr. Cooper, joining our platform will be taking another step forward in redefining how Americans experience homeownership.

Speaker Change: So our future team members at Redfin and Mr. Cooper, we look forward to welcoming you to rocket we're excited to build together.

Speaker Change: Operator, we're now ready to turn it over for questions.

Speaker Change: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad you raise your hand and joined the queue. If you would like to withdraw your question simply press Star one again.

Speaker Change: Your first question comes from the line of Ryan Nash from Goldman Sachs. Your line is open.

Ryan Nash: Hey, good evening.

Ryan Nash: Brian.

Ryan Nash: So maybe to kick it off I'll ask both my questions upfront.

Ryan Nash: First I wanted to dig in on your outlook for 2025, so <unk>.

Ryan Nash: <unk>, we saw solid topline growth and you talked about some of the softness that we saw in April expenses were a little bit higher but Brian you talked about.

Ryan Nash: Elevated brand divesting that'll come down so lots of moving pieces in here so.

Assuming results are going to be messy, given the potential of the closing of the transaction, but can you maybe just talk about how all of this factored into your 2025 outlook from both a revenue and an operating leverage perspective.

Ryan Nash: And then just my second question I'll throw it out there now it's easy to see the strategic benefits of these deals and when you think about the the.

Ryan Nash: Market share goals that you laid out do you think these recent acquisitions increase those goals for do they accelerate the progress towards thank you.

Mr Cooper: Yes. Thank you for the question Ryan why don't I start with just some comments on the outlook.

Ryan Nash: Branch and touch on our guide and maybe a little bit on expenses as well.

Mr Cooper: And then we'll talk about.

Ryan Nash: Goals and so.

Ryan Nash: I think the first thing I would just start with is that I think so.

Ryan Nash: A pretty big change that I would highlight is just the multi dynamics from Q1 to Q2 of this year in Q1, we started with some pretty core momentum inventory was up 25% and rates have dropped from 7% to $6 five.

Ryan Nash: Just kind of reactivation and refi interest.

Ryan Nash: More willing to transact and affordability and I think as we went into April just the start of Q2.

Speaker Change: Did you mentioned, the sharp and somewhat unusual reversal and I think it kind of started and liberation day with the announcement of the tariffs. There's a lot of volatility that followed that on April 2nd you had the NASDAQ S&P that fall almost 13% in the days that followed the rebounded 10% on the ninth and then.

Speaker Change: Obviously now there's more of that probably at the 10 year Treasury dropped from four two to $3 nine only to spike back up to 4.58 on a ship.

Speaker Change: So you just had this compounding.

Speaker Change: Effect of that just leads to consumer confidence dipping and Thats really the story of April and the net of that is that consumers are obviously going to think about putting all things that are big important long term decisions and so buying a home selling a home refinancing.

Speaker Change: The largest transaction of consumers ever going to do and so with that dynamic. What we saw is that it makes sense that consumers are going to wait on the sidelines a little bit more than usual and we do think it's a little more of a wait and see on Brian will talk about this but looking at May and June we've already started to see that coming back and that's why we feel Phil.

Speaker Change: It is also realistic.

Speaker Change: But also confident speaking of the guide, but maybe you can touch on the guide our expenses and then we can close on just the goals sure. Yes. Thanks, Ryan I mean, just real quick to double down on what Bruce said around Q1. It really was a strong quarter for us really proud of the team, we're up 11% and adjusted revenue on a year over year basis, 9% on a quarter over quarter.

Speaker Change: And then also just to reiterate but April was a tough months of rooms point and it was tough from both a margin and a volume perspective, and if you need evidence of that just look at the MBA application data, which week over week in April was trending in the wrong direction. So if I think about the guide we're sitting here early may and I'm looking at.

Speaker Change: Three months in the quarter April is baked into that but have Bruno point. The good news is as we sit here in the first week in May we've seen some rebound, particularly on the volume side margins have been a little bit slower. So in may and June I'm, assuming that those months gets sequentially better than April.

Speaker Change: And at this point in time, it's our view that the home buying season has been a little slow to form, but we still think there's potential to end is really strong but before I. Let you go on this one right now just on the margin piece I do expect Q2 margins to be lower than Q1 because of that April dip as I said, they started to perform a little bit.

Speaker Change: Better volumes come back nicely, but I do expect margins to be a little slower. So at the end of the day to Brian's point, we think it's a really strong guide as we think it is taking share into the second quarter and it's achievable.

Speaker Change: Let me touch a little bit on expenses on the second part of your question I mean first of all the operational excellence of this company and the discipline around this is front and center of course, it's a top priority for <unk>.

from trying to capture the purchase season.

Speaker Change: So, you'll still see that elevated in Q2, but maybe it makes sense for me to comment a little bit on the second half.

for the year.

Speaker Change: As we look past you two, I do expect the marking expense to come down quite substantially in the second half of the year. In fact, if I look at the second half of the year...

Speaker Change: of the first half of the year. I can see marketing expenses being down, you know, near $100 million. And that's because you're starting to leverage off that brand re-stage in the Halo. You've built up significant awareness and consideration and you're leveraging that.

Ryan Nash: And the only other thing I'll mention, Ryan, is you know, when we think about capacity [inaudible]

Ryan Nash: I think that's another important aspect to think about in the expense down below. We built up a lot of additional capacity, we commented on 150 billion.

during Investor Day and that's only been growing daily. [inaudible]

Ryan Nash: So we're going to watch the market closely, particularly over May and June , but we do have option value to take some of that capacity in the second half of the year and turn it into you know fixed cost savings in age two.

Ryan Nash: So we'll monitor the market closely as we always do as we said. We think the home buying season got delayed a bit with the volatility in April but has potential to finish strong. But we do have potential to take some of the excess capacity and turn it into cost savings in H2.

Speaker Change: Your next question comes from a line of Mark DeVries from Deutsche Bank. Your line is open.

Speaker Change: Yeah, thanks. You know, Brian asked my question on expenses, so I'd like to ask about just your

You know, post merger with Mr. Cooper Group here, your subservicing strategy going forward.

Speaker Change: Obviously it's kind of a big part of their business and we've seen at least one notable client defections since the deal was announced. Obviously having subservicing with a company like Rocket, it's much more effective at recapturing maybe a greater threat.

Speaker Change: How are you thinking about retention of subsurgency agreements going forward in the ability to kind of grow that?

Speaker Change: There's no question about that, what coups built and particularly being able to scale through subservicing is part of the...

Aspect that's been very impressive to us.

Speaker Change: and if you go back to Coops earnings call and look at some of the comments they make they talk a lot about the fact that they have actually been increasing the pipeline on the some subservicing business and haven't seen any material changes so if I leave my comments to just post closing we're very excited about that business we fully support it and you know we plan as we said publicly to completely you know honor the [inaudible]

Contractual Provisions with those sub-services.

OK, got it. Thank you.

Thank you.

Speaker Change: You are next question, comes from a line of Doug Harter from UBS. Your line is open.

Thank you.

Thanks, hoping you could talk about Rocket Pro.

Speaker Change: You know, it seems like you kind of made some investments into technology and stuff and that, you know, what you're thinking on kind of near-term outlook there and the ability to kind of narrow the gap in that channel.

Speaker Change: Thank you for the question, Doug. I'll start by just saying that we are extremely optimistic about our prospects in this space and I think we have a huge opportunity to grow.

Speaker Change: I think what you've seen from us over the past 18 to 20 months or so is just a strategy and execution that reflects that so we've been on a journey to

Speaker Change: kind of retool how we think about the broker landscape and then we obviously started.

Speaker Change: with Leadership Hiring. Those leaders have been in place now for a few months and are driving faster execution. They're focusing on technology, scale, more strategic relevance.

Speaker Change: and you know, our strategy is basically threefold. I think the first pillar is just the power of choice. You know, we know that brokers are essential to the mortgage ecosystem, but we need to make sure that they're empowered with choice, that they're able to shop the entire market. And so choice is kind of our first pillar.

Speaker Change: The second is that we just, we think today this is a space that is not super powered by technology and we think that there's a huge benefit that can be created there for the broker community and so the technology that we're building internally.

Speaker Change: We're building that as a platform and so we're extending that capability to our brokers.

That's why we provide things like best-in-class notifications.

best-in-class models, insights.

Speaker Change: and relevant offerings like rent rewards, which we just talked about, that's already exceeding expectations in early days.

Speaker Change: And that's why we're refreshing things like our broker, Dashboard, providing low and level editing just to give them more flexibility at their fingertips. And so a lot of the technology we built in-house, we think about our brokers as natural inheritance about capability.

Speaker Change: The last thing is we want to enable our brokers to just thrive for the long term.

Speaker Change: and that's not just with technology, but it's with like new innovative business models, like servicing for example.

Speaker Change: and so we want to basically create a world where broker can compete and have the same value chain that we have on the retail side and we just kind of continue that continuum and where they can service the loan, they can drive retention with the client.

Speaker Change: and so investments that we've made, including being on the arrived platform that we talked about earlier, are just all in service to that. So we want to empower brokers with choice, we want to create the best technology and capabilities, we want them to grow their business for life.

Speaker Change: We've made progress and we do expect our momentum to accelerate in the coming months.

Thank you.

Great. Thank you very much.

Speaker Change: Your next question comes from a line of Bo's George from KBW. Your line is open.

Bose George: Good afternoon. This is follow up on the earlier question on market share. Do you think you might explore other acquisitions, especially the growth purchase market share and is the acquisition of distributed retail capacity something that you could consider?

Thank you.

Bose George: Yeah, thank you both. I think, you know, what I would say right now is, you know, with the criticality of the integration that we have, we're absolutely focused on these two. I think we're super excited about these deals. They're directly in service for a long-term strategy.

Bose George: and we think that it's very relevant to our purchase strategy goals, you know, and just to kind of recap that, we want to establish a top of funnel, build relationships with clients that are searching for homes, as well as with real estate agents and experts.

Bose George: and this is directly in service to that with Red Finn. We want to build a broker strategy as I obviously just talked about with the earlier question.

Bose George: and then we want to drive the recapture flywheel, which is really powered by servicing and soap.

Bose George: We are knee-deep in integration preparation and we're really excited and happy with how it's going but this will be the primary focus for us just to make sure that we build these key colors of our integration platform.

Okay, great. Thank you.

Speaker Change: You are next question comes from a line of Jeff Adelson from Morgan Stanley . Your line is open.

Thank you.

Hey, good afternoon. Thanks for taking my questions.

Speaker Change: Billion now. Just wondering if you could provide a little bit more color on how you kind of continue to grow that and where you think that might go over time. Anything you can provide us on numbers in terms of, you know, back after the year on expense savings if, you know, mortgage volumes don't come through with that convention.

Speaker Change: Yeah, thanks for the question. Jeff, I think, you know, I'll start by just talking a little bit about the relevance of AI here and then maybe Brian , you can touch on capacity as it tends to expenses and cost.

Speaker Change: The reality is, I mean, AI is such a clear strategic bet for us, and essentially everything we're doing, including our recent two deal announcements in organic and our build strategy is all in service to that.

Brian: and the reason for that is because we feel that this is virtual to create infinite capacity.

Brian: and I use the term infinite capacity on purpose because we do think the capacity is limitless and it can be expanded with significant growth potential and so

Brian: We imagine a world where, you know, people are developing sort of superpowers in this space, especially in mortgage and home ownership and they can do the work of an order of magnitude larger.

It utilizes our Navigator AI, utilizes our Synopsis platform.

Brian: and it was something that our bankers built for themselves that analyzes calls, it flags conversion opportunities, it delivers course coaching and just makes them better.

Brian: and so what's beautiful about this example to me is that it's self-created and self-perpetuating, it's people using technology to make themselves better.

and that technology is becoming democratized. And so...

Brian: What excites me is that this is now happening without writing code and there's sort of this shift from what was a previous definition of AI of being sort of rule based automation to something that's more agentic. It's something that can reason, it can act, it can adapt.

Brian: and that just gives us a lot of optionality to be able to scale up without scaling costs.

Brian: or pulled back without compromising throughput and keep our fixed costs operationally efficient and avoid your effect that happens in the industry because it's a big market and we have significant aspirations for growth and we need our team.

Speaker Change: Yeah, that's right, Jordan. The only thing I'd add, Jeff, is you know two things. One is the

Speaker Change: To principle, the velocity of increasing capacity is only increasing as well. So, you know, that number that we announced at the September of last year has been growing.

Daily, frankly speaking because of some of the examples.

Speaker Change: that Varun gave, and you know, that just presents option value to us. Plan A is clearly to fill that with a little cooperation from the market and taking share.

Speaker Change: But that option value on Plan B does allow us to release some of that and take down the cost structure so

Speaker Change: You know, if I take you back to my prepared marks, what we were foreshadowing is that we're going to watch the market over this next couple of quarters. April was challenging. We've seen some green shoots in the first week of May. There's no doubt about that. We still are very bullish on the home buying season though it might be postponed or delayed off the off the gates and will continue to monitor it and will take action, you know, as needed, but being disciplined and being operationally effective is, you know, in our DNA. We'll see you next time.

Speaker Change: Okay, great, thanks. And just my follow-up on the home equity product, can you just maybe contextualize how quickly that's been growing through this past quarter and where that fits into your market share goals by 2027? Thanks.

Speaker Change: Yeah, I mean, I think you broke up a little bit there, Jeff, but I think if the question was how is the home equity loan product performing, you know, it was another record quarter for it, we consistently have

Speaker Change: Quarter over quarter growth. If you think about the market share opportunity there regardless, you know, if rates are at seven or if rates are at six, that product is still very attractive. So we think there's a really long runway there. [inaudible]

Speaker Change: Your next question comes from a line of me here, Batia, from Bank of America. Your line is open.

Thank you.

Mihir Bhatia: Good afternoon, and thank you for taking my question. I wanted to start by just talking a little bit about the channels and

Mihir Bhatia: I heard your comments about, you know, overall margins probably down a little bit in the second corner. I don't know if you want to give us commentary.

Mihir Bhatia: At the channel level on that, but maybe at least talk a little bit about the comparative intensity of seeing and certainly in one cute looks like fond of blown margins were lower in the partner channel anything specific to call out there.

Mihir Bhatia: Yeah, I'm here. I'll take a step at a thanks for the question. I mean, I think, you know, there's if let me start with a TPO space, you know, if they think about pricing in the broker space, there's really been two periods this year where we've seen a more competitive landscape and pricing pressure and I don't think either of them are surprising. One was just to start the year in January . We know that sometimes the whole field space gets off to a little slower start coming out of the holidays and there's still capacity built . . . . .

Mihir Bhatia: into the system and then you do see some price pressure and that was what we saw in January and then we saw that sort of come out of the system through February March.

Mihir Bhatia: and then the other period was what we've discussed, which was around April where the other place you see some of that price pressure come is when you see volatility in the market.

Mihir Bhatia: Consumers do take a step back, particularly in the home buying space, even when it comes to refinance and cash out if rates are bouncing around that does present some uncertainty. You still have capacity in the system, so you generally see price competitiveness increase.

Mihir Bhatia: So that's what we saw. And like I said, but as I get here into the first week of May, I've seen some of that come out of the system. On the retail side, on the direct to consumer things have sort of fouled that same trend but relatively holding strong with Q1.

Thank you.

Speaker Change: Douglas, and then maybe just switching back for a second to, you know, some so good thing and

Mihir Bhatia: Protection, and also maybe related to subcellicing, you know, just protection, the brokers, when you are also the same Lords of the Broadcast Channel, there's been a lot of talk.

Mihir Bhatia: Just about that and about potential for Rocket being a competitor but also going to be doing subservicing others may want to switch, etc. Let me just take a couple of minutes to just talk about that. What kind of protection do MSR owners have in these typical subservicing arrangements?

and similarly for the brokers that work with Rocket.

Thank you.

Speaker Change: Yeah, I mean, I think it's pretty simple. It's either you have a non-cellicit or I guess they put it in three buckets in here. If you're speaking about doing subservicing and we announced the Annoly deal earlier, there's a way that rocket.

Speaker Change: to help them actually do the recapture. If you're an asset manager and you come to Rocket to do subservicing, you own the MSR, we're going to do the subservicing. There's a really awesome opportunity because we can do the recapture which protects that asset, extends the cash flows and it's a win for the servicer and it's a win for the own servicer and it's a win for Rocket. And then when you take it one step further into subservicing, similarly you can you can either help the clienty recapture.

Speaker Change: or not? And we're open to both. But if you don't help the client recapture, then you're not going to solicit those clients, or you're not going to be a subservicer for long. And our comments are that we support all three of those models. Obviously Cooper does all three. Rocket does two of them today. We'll do three upon the close of the transaction, but we're very supportive of it, and that's one of the exciting things about this acquisition.

Thank you.

Varun Krishna: And that concludes our question and answer session. I will now turn the call back over to Varun Krishna for closing remarks.

Varun Krishna: All right. Well, thank you everyone on the Rocket team for an awesome quarter and thanks everyone for listening. We'll see you next quarter.

Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.