Rocket Companies Inc

Previous wording

During the first quarter of 2024, inflation remained above the Federal Reserve’s target rate of 2% and the Federal Reserve maintained the federal funds rate at 5.50%. Elevated interest rates, constrained housing inventory and economic uncertainty continue to challenge the mortgage environment and impact the overall demand for mortgage originations.

Current wording

During the first half of 2024, inflation remained above the Federal Reserve’s target rate of 2% and the Federal Reserve maintained the federal funds rate at 5.50%. Elevated interest rates, constrained housing inventory and economic uncertainty continue to challenge the mortgage environment and impact the overall demand for mortgage originations.

Previous wording

We originated $20.2 billion in residential mortgage loans, which was a $3.3 billion, or 19% increase compared to $16.9 billion for the same period in 2023. Our Net income for the period was $290.7 million, which was an increase of $702.2 million compared to a Net loss of $411.5 million for the same period in 2023. We generated Adjusted EBITDA of $174.3 million which was an increase of $253.2 million, or 321%, compared to Adjusted EBITDA loss of $79.0 million for the same period in 2023. For more information on Adjusted EBITDA, please see “Non-GAAP Financial Measures” below.

Current wording

We originated $44.9 billion in residential mortgage loans, which was a $5.6 billion, or 14% increase compared to $39.3 billion for the same period in 2023. Our Net income for the period was $468.6 million, which was an increase of $741.0 million, compared to a Net loss of $272.3 million for the same period in 2023. We generated $399.1 million of Adjusted EBITDA, which was an increase of $459.9 million, compared to an Adjusted EBITDA loss of $60.8 million for the same period in 2023. For more information on Adjusted EBITDA, please see “Non-GAAP Financial Measures” below.

Previous wording

We define “Adjusted revenue” as total revenues net of the change in fair value of mortgage servicing rights (“MSRs”) due to valuation assumptions, net of hedges. We define “Adjusted net income (loss)” as tax-effected net income (loss) before share-based compensation expense, the change in fair value of MSRs due to valuation assumptions, net of hedges, and the tax effects of those adjustments as applicable. We define “Adjusted diluted earnings (loss) per share” as Adjusted net income (loss) divided by the diluted weighted average number of Class A common stock outstanding for the applicable period, which assumes the pro forma exchange and conversion of all outstanding Class D common stock for Class A common stock. We define “Adjusted EBITDA” as net income (loss) before interest and amortization expense on non-funding debt, provision for (benefit from) income taxes, depreciation and amortization, share-based compensation expense, and the change in fair value of MSRs due to valuation assumptions, net of hedges.

Current wording

We define “Adjusted revenue” as total revenues net of the change in fair value of mortgage servicing rights (“MSRs”) due to valuation assumptions, net of hedges. We define “Adjusted net income (loss)” as tax-effected net income (loss) before share-based compensation expense, the change in fair value of MSRs due to valuation assumptions, net of hedges, and the tax effects of those adjustments as applicable. We define “Adjusted diluted earnings (loss) per share” as Adjusted net income (loss) divided by the adjusted diluted weighted average shares outstanding which includes diluted weighted average Class A common stock and the assumed pro forma exchange and conversion of Class D common stock outstanding for the applicable period presented. We define “Adjusted EBITDA” as net income (loss) before interest and amortization expense on non-funding debt, provision for (benefit from) income taxes, depreciation and amortization, share-based compensation expense, and change in fair value of MSRs due to valuation assumptions, net of hedges.

Previous wording

(1) Reflects the pro forma exchange and conversion of non-dilutive Class D common stock to Class A common stock. For the three months ended March 31, 2024 and 2023, Class D common shares were dilutive and are included in the diluted weighted average Class A common shares outstanding in the table above.

Current wording

(1) Reflects the pro forma exchange and conversion of anti-dilutive Class D common stock to Class A common stock for the three and six months ended June 30, 2024. For the three and six months ended June 30, 2023, Class D common shares were dilutive and are included in the Diluted weighted average Class A common shares outstanding in the table above.

Previous wording

(2)MSR fair market value multiple is a metric used to determine the relative value of the MSR asset in relation to the annualized retained servicing fee, which is the cash that the holder of the MSR asset would receive from the portfolio as of such date. It is calculated as the quotient of (a) the MSR fair market value as of a specified date divided by (b) the weighted average annualized retained servicing fee for our MSR portfolio as of such date. The weighted average annualized retained servicing fee for our MSR portfolio was 0.28% and 0.29% as of March 31, 2024 and 2023, respectively. The vast majority of our portfolio consists of originated MSRs and consequently, the impact of purchased MSRs does not have a material impact on our weighted average service fee.

Current wording

(2)MSR fair market value multiple is a metric used to determine the relative value of the MSR asset in relation to the annualized retained servicing fee, which is the cash that the holder of the MSR asset would receive from the portfolio as of such date. It is calculated as the quotient of (a) the MSR fair market value as of a specified date divided by (b) the weighted average annualized retained servicing fee for our MSR portfolio as of such date. The weighted average annualized retained servicing fee for our MSR portfolio was 0.28% as of June 30, 2024 and 2023. The vast majority of our portfolio consists of originated MSRs and consequently, the impact of purchased MSRs does not have a material impact on our weighted average service fee.

Previous wording

(5)Net revenue presented above is calculated as gross revenues less intercompany revenue eliminations, as a portion of the Select Other Rocket Companies revenues is generated through intercompany transactions. These intercompany transactions take place with entities that are part of our platform. Consequently, we view gross revenue of individual Select Other Rocket Companies as a key performance indicator, and we consider net revenue of Select Other Rocket Companies on a combined basis.

Current wording

(5)Net revenue presented above is calculated as gross revenues less intercompany revenue eliminations, as a portion of the Select Other Rocket Companies revenues is generated through intercompany transactions. Consequently, we view gross revenue of individual Select Other Rocket Companies as a key performance indicator, and we consider net revenue of Select Other Rocket Companies on a combined basis.

Previous wording

Our sources of revenue include Gain on sale of loans, net, Loan servicing income (loss), net, Interest income, net, and Other income.

Current wording

Our sources of revenue include Gain on sale of loans, net, Loan servicing income, net, Interest income, net, and Other income.

Previous wording

Other income includes revenues generated from Rocket Money (personal finance subscription revenue), Amrock (title insurance services, property valuation, and settlement services), Rocket Loans (personal loans), Rocket Homes (real estate network referral fees), deposit income related to revenue earned on deposits, including escrow deposits, and professional service fees. The professional service fees represent amounts received in exchange for professional services provided to affiliated companies. Services are provided primarily in connection with technology, facilities, human resources, accounting, training, and security functions. Other income also includes revenues from investment interest income and other miscellaneous income items.

Current wording

Other income includes revenues generated from Rocket Money (personal finance subscription revenue), Amrock (closing fees and appraisal fees), Rocket Loans (personal loans), Rocket Homes (real estate network referral fees), Deposit income related to revenue earned on deposits, including escrow deposits, and professional service fees. The professional service fees represent amounts received in exchange for professional services provided to affiliated companies. Services are provided primarily in connection with technology, facilities, human resources, accounting, training, and security functions. Other income also includes revenues from additional entities and other miscellaneous income.

Previous wording

Results of Operations for the Three Months Ended March 31, 2024 and 2023

Current wording

Results of Operations for the Three and Six Months Ended June 30, 2024 and 2023

Previous wording

Net gain on sale of loans, Fair value adjustment on loans held for sale and IRLCs and Revaluation from forward commitments economically hedging loans held for sale and IRLCs increased $175.8 million, or 56%, due to a 30% increase in gain on sale margin, primarily driven by contracting market capacity, and increased net rate lock volume of 14% during the period.

Current wording

Net gain on sale of loans, Fair value adjustment on loans held for sale and IRLCs and Revaluation from forward commitments economically hedging loans held for sale and IRLCs increased $94.9 million, or 29%, compared to the same period in 2023, primarily due to 12% higher gain on sale margin and a 13% increase in net rate lock volume.

Previous wording

The fair value of MSRs originated was $222.8 million, an increase of $18.2 million, or 9%, compared to $204.6 million for the same period in 2023. The increase was primarily due to an increase in sold loan volume of $1.4 billion, or 9%, from $15.4 billion in 2023 to $16.8 billion in 2024.

Current wording

The Fair value of originated MSRs was $345.5 million, an increase of $30.7 million, or 10%, compared to $314.8 million for the same period in 2023. The increase was primarily due to an increase in sold loan volume of $2.3 billion, or 10%, from $22.0 billion in 2023 to $24.3 billion in 2024.

Previous wording

The Provision for investor reserves is our estimate of losses on potential future repurchases of loans previously sold. The $35.7 million decrease in provision was primarily due to a decrease in realized losses on re-sold loans in the current period compared to the same period in 2023.

Current wording

Investor reserves represent our estimate of losses on potential future repurchases of loans previously sold. The change in the Investor reserves liability balance was relatively flat in the current and prior period. The $38.5 million reduction in provision expense was primarily due to a decrease in losses on repurchased loans in the current period, compared to the same period in 2023.

Previous wording

For the periods presented, Loan servicing income (loss), net consisted of the following:

Current wording

For the periods presented, Loan servicing income, net consisted of the following:

Previous wording

Loan servicing income (loss), net was $402.3 million, an increase of $434.1 million, which compares to a $31.9 million loss for the same period in 2023. The changes in valuation model inputs or assumptions resulted in a $226.8 million increase in 2024, compared to a $218.5 million decrease in 2023, driven by increasing interest rates in 2024 compared to decreasing interest rates in the same period in 2023. This was partially offset by a decrease of $20.6 million in servicing fee income in 2024, compared to $366.4 million in 2023, driven by a decrease in the average portfolio size during 2024, compared to the same period in 2023.

Current wording

Loan servicing income, net was $241.7 million, a decrease of $144.2 million, or 37%, compared to $386.0 million for the same period in 2023, primarily due to the $166.5 million decrease in Change in valuation model inputs or assumptions, partially offset by the $11.1 million increase in Servicing fee income. In 2024, the Change in valuation model inputs or assumptions was $74.2 million, down from $240.7 million in 2023. This change is attributable to a smaller increase in interest rates during the second quarter of 2024, compared to the same period in 2023. The Servicing fee income increase was driven by an increase in the average portfolio size during 2024.

Previous wording

Summary Results by Segment for the Three Months Ended March 31, 2024 and 2023

Current wording

Summary Results by Segment for the Three and Six Months Ended June 30, 2024 and 2023

Previous wording

We measure the performance of the segments primarily on a contribution margin basis. Contribution margin is intended to measure the direct profitability of each segment and is calculated as Adjusted Revenue less directly attributable expenses. Adjusted revenue is a non-GAAP financial measure described above. Directly attributable expenses include Salaries, commissions and team member benefits, General and administrative expenses, Marketing and advertising expenses and Other expenses, such as direct servicing costs and origination costs. For segments, we measure gain on sale margin of sold loans and refer to this metric as ‘sold loan gain on sale margin.’ A loan is considered sold when it is sold to investors on the secondary market. Sold loan gain on sale margin reflects the gain on sale revenue of loans sold into the secondary market divided by the sold loan volume for the period. By contrast, ‘gain on sale margin’, which we reference outside of the segment discussion, measures the gain on sale revenue, net divided by net rate lock volume for the period. See below for our overview and discussion of segment results for the three months ended March 31, 2024 and 2023. For additional discussion, see Note 11, Segments of the notes to the unaudited condensed consolidated financial statements of this Form 10-Q.

Current wording

We measure the performance of the segments primarily on a contribution margin basis. Contribution margin is intended to measure the direct profitability of each segment and is calculated as Adjusted revenue less directly attributable expenses. Adjusted revenue is a non-GAAP financial measure described above. Directly attributable expenses include Salaries, commissions and team member benefits, General and administrative expenses, Marketing and advertising expenses and Other expenses, such as direct servicing costs and origination costs. For segments, we measure gain on sale margin of sold loans and refer to this metric as ‘sold loan gain on sale margin.’ A loan is considered sold when it is sold to investors on the secondary market. Sold loan gain on sale margin reflects the gain on sale revenue of loans sold into the secondary market divided by the sold loan volume for the period. By contrast, ‘gain on sale margin’, which we reference outside of the segment discussion, measures the gain on sale revenue, net divided by net rate lock volume for the period. See below for our overview and discussion of segment results for the three and six months ended June 30, 2024 and 2023. For additional discussion, see Note 11, Segments of the notes to the unaudited condensed consolidated financial statements of this Form 10-Q.

Previous wording

Direct to Consumer contribution margin increased $135.5 million, or 65%, to $343.6 million, compared to $208.1 million for the same period in 2023. The increase in contribution margin was driven primarily by an increase in gain on sale revenue, as described above, partially offset by an increase in directly attributable expenses, as described above.

Current wording

Direct to Consumer Contribution margin was $374.7 million, an increase of $115.2 million, or 44%, compared to $259.5 million for the same period in 2023. The increase in Contribution margin was driven primarily by an increase in Gain on sale revenue, as described above.

Previous wording

Partner Network contribution margin increased $91.2 million, or 393%, to $114.3 million compared to $23.2 million for the same period in 2023. The increase in contribution margin was driven primarily by the increase in gain on sale margin noted above, coupled with an increase in interest income and decrease in directly attributable expenses.

Current wording

Partner Network Contribution margin was $126.3 million, an increase of $70.3 million, or 125%, compared to $56.1 million for the same period in 2023. The increase in Contribution margin was driven primarily by an increase in Gain on sale revenue, as described above.

Previous wording

• interest income on loans held for sale

Current wording

• interest income on loans held for sale; and

Previous wording

As discussed in Note 5, Borrowings, of the notes to the unaudited condensed consolidated financial statements, as of March 31, 2024, we had 15 different funding and financing facilities in different amounts and with various maturities together with the Senior Notes. At March 31, 2024, the aggregate available amount under our facilities was $21.3 billion, with combined outstanding balances of $6.3 billion and unutilized capacity of $15.0 billion. We continue to optimize our funding and financing facilities and early in the second quarter we entered into a new Master Repurchase Agreement (“MRA”), resulting in an increase in overall borrowing capacity of approximately $1.0 billion. See Item 5,“Other Information” in Part II of this report for additional information.

Current wording

As discussed in Note 5, Borrowings, of the notes to the unaudited condensed consolidated financial statements, as of June 30, 2024, we had 17 different funding and financing facilities in different amounts and with various maturities together with the Senior Notes. At June 30, 2024, the aggregate available amount under our facilities was $22.6 billion, with combined outstanding balances of $7.2 billion and unutilized capacity of $15.4 billion.

Previous wording

The amount owed and outstanding on our funding facilities fluctuates significantly based on our origination volume, the amount of time it takes us to sell the loans we originate, and the amount of loans being self-funded with cash. We may from time to time use surplus cash to “buy-down” the effective interest rate of certain funding facilities or to self-fund a portion of our loan originations. Buy-down funds are includedin Cash and cash equivalents on the Consolidated Balance Sheets. We have the ability to withdraw these funds at any time, unless a margin call has been made or a default has occurred under the relevant facilities. We will also deploy cash to self-fund loan originations, a portion of which can be transferred to a warehouse line or the early buy out line, provided that such loans meet the eligibility criteria to be placed on such lines. The remaining portion will be funded in normal course over a short period of time, generally less than 45 days.

Current wording

The amount owed and outstanding on our funding facilities fluctuates significantly based on our origination volume, the amount of time it takes us to sell the loans we originate, and the amount of loans being self-funded with cash. We may from time to time use surplus cash to “buy-down” the effective interest rate of certain funding facilities or to self-fund a portion of our loan originations. Buy-down funds are included in Cash and cash equivalents on the Consolidated Balance Sheets. We have the ability to withdraw these funds at any time, unless a margin call has been made or a default has occurred under the relevant facilities. We will also deploy cash to self-fund loan originations, a portion of which can be transferred to a warehouse line or the early buy out line, provided that such loans meet the eligibility criteria to be placed on such lines.

Previous wording

We remain in a strong liquidity position, with total liquidity of $8.9 billion as of March 31, 2024, which includes $0.9 billion of Cash and cash equivalents, $2.6 billion of corporate cash used to self-fund loan originations, a portion of which could be transferred to funding facilities (warehouse lines) at our discretion, $3.4 billion of undrawn lines of credit from financing facilities, and $2.0 billion of undrawn MSR lines. Margin cash held on behalf of counterparties is recorded in Cash and cash equivalents, and the related liability is classified in Other liabilities in the Condensed Consolidated Balance Sheets. Margin cash pledged to counterparties is excluded from Cash and cash equivalents and instead recorded in Other assets, as a receivable, in the Condensed Consolidated Balance Sheets.

Current wording

We remain in a strong liquidity position, with total liquidity of $8.6 billion as of June 30, 2024, which includes $1.3 billion of Cash and cash equivalents, $1.9 billion of corporate cash used to self-fund loan originations, a portion of which could be transferred to funding facilities (warehouse lines) at our discretion, $3.4 billion of undrawn lines of credit from financing facilities, and $2.0 billion of undrawn MSR lines. Margin cash held on behalf of counterparties is recorded in Cash and cash equivalents, and the related liability is classified in Other liabilities in the Condensed Consolidated Balance Sheets. Margin cash pledged to counterparties is excluded from Cash and cash equivalents and instead recorded in Other assets, as a receivable, in the Condensed Consolidated Balance Sheets.

Previous wording

Our Cash and cash equivalents and Restricted cash were $893.4 million at March 31, 2024, a decrease of $64.3 million, or 7%, compared to $957.7 million at March 31, 2023. The decrease was primarily driven by an increase in utilization of cash to self-fund loan originations, partially offset by an increase in MSR sales during the period.

Current wording

Our Cash and cash equivalents and Restricted cash were $1.3 billion at June 30, 2024, an increase of $419.5 million, or 46%, compared to $917.8 million at June 30, 2023. The increase was primarily driven by less corporate cash used to self-fund loan originations.

Previous wording

Equity was $8.6 billion as of March 31, 2024, an increase of $500.1 million, or 6%, compared to $8.1 billion as of March 31, 2023. The increase was primarily a result of net income of $312.1 million, as well as an increase in share-based compensation of $155.1 million.

Current wording

Equity was $8.8 billion as of June 30, 2024, an increase of $449.1 million, or 5%, compared to $8.4 billion as of June 30, 2023. The increase was primarily a result of net income of $350.9 million, as well as share-based compensation expense of $143.5 million.

Previous wording

During the three months ended March 31, 2024 and 2023, the Company had no material dividend or tax distributions. Except for tax distributions, these distributions are at the discretion of our board of directors.

Current wording

During the three and six months ended June 30, 2024 and 2023, the Company had no material dividend or tax distributions. Except for tax distributions, these distributions are at the discretion of our board of directors.