Good day, and thank you, for standing by. And welcome to the Rocket Companies Incorporation First Quarter 2021 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' remarks, there will be a question-and-answer session [Operator Instructions]. I would now like to hand the conference over to your speaker today, Sharon Ng. Please go ahead.

Good afternoon, everyone and thank you, for joining us for Rocket Companies earnings call covering the first quarter of 2021. I'm Sharon Ng, the new Vice President of Investor Relations here at Rocket Companies. With us this afternoon are our CEO, Jay Farner; CFO, Julie Booth; and President and COO, Bob Walters. Before I turn things over to Jay, let me quickly go over our disclaimers. On today's call, we will provide you with information regarding our first quarter 2021 performance as well as our financial outlook. This conference call includes forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions we mentioned today. We encourage you to consider the risk factors contained in our SEC filings for a detailed discussion of this risks and uncertainty. We undertake no obligation to update these statements as a result of new information or further events, except as required by law. This call is being broadcast online and is accessible on our Investor Relations Web site. The recording of the call will be available later today. Our commentary today will also include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics for uor reported results can also be found in our earnings release issued earlier today, as well as in our filings with the SEC. And with that, I'll turn things over to Jay Farner to get us started. Jay?

Good afternoon, and welcome to the Rocket Companies earnings call for the first quarter of 2021. We had an excellent start to the year. But before we dive into the details, I'd like to take a moment to recognize our team members for their efforts and results, many of whom are listening right now. Last month, Rocket Companies was named one of the five best companies to work for in America by Fortune Magazine, joining other tech companies that topped the list, including Salesforce and Cisco. This is the 18th year our company has appeared in Fortune's best workplaces list. We are also proud of another recognition we recently received. Just a couple weeks ago Forbes ranked Rocket Companies number three on its list of the 500 best employers for diversity in America. As a company, we are made better by having increased diversity in thought and experiences, and have worked very hard to ensure that we're staying true to the DE&I promise we made our team members and our communities. I want to thank our team members again, not only for their support, but also the absolutely vital role they play in making our company one of the best, most diverse places to work in the nation. Happy and engaged team members paired with world class technology and services leads to tremendous success. That's why I'm pleased to share that in the first quarter of 2021, Rocket Companies generate more than $100 billion in close loan volume, resulting in over $2 billion in EBITDA. Equally impressive this represents the sixth consecutive quarter that we have at least doubled our close loan volume. year-over-year. On today's call, I'll provide an update on each of the pillars of the Rocket platform; technology, data, brand and the Rocket Could Force. I'll finish…

Thank you, Jay, and good afternoon, everyone. I'm pleased to report another quarter of strong financial results for Rocket Companies. In the first quarter of 2021, Rocket Companies generated $4 billion of adjusted revenue and $2.4 billion of adjusted EBITDA. In discussing our results, I'll highlight some of our key priorities, including continuing to drive volume in today's strengthening economic environment, particularly from clients purchasing homes and cars, as well as those accessing the equity in their homes. I will also share some detail on today's call around the investments we're making to transform the home buying experience, including continuing to grow our partner network. Our first quarter results demonstrate continued growth and performance at scale. We generated $103.5 billion of closed loan volume in Q1, exceeding the high end of our guidance range and marking our sixth consecutive quarter with more than 100% year-over-year closed volume growth. We experienced strong growth across the Rocket Companies platform in Q1 with record gross merchandise value at Rocket Auto, record traffic to Rocket Homes and record title and settlement transactions at Amrock. We continued to drive strong profitability in the quarter with first quarter adjusted EBITDA of $2.4 billion and adjusted net income of $1.8 billion. These results reflect our ability to drive large scale volume on our platform very efficiently with limited incremental cost. Over the last 12 months, Rocket Companies generated $12.6 billion in adjusted EBITDA, demonstrating our ability to scale up and create truly substantial profitability in strong market environments. As we enter the second quarter of 2021, we are seeing a strengthening economic environment. A key advantage of our platform business model is the ability to shift our resources to the area of greatest opportunity in any market environment. In our mortgage business, continuing to drive strong volume…

[Operator Instructions] We have our first question coming from the line of Arren Cyganovich with Citi.

The gain on sale margin guidance that you have coming down, I was wondering if you could talk a little bit about the trends that you're seeing both from the direct to consumer side and on the partner network as well.

Julie talked about some of the gain on sale in her remarks, in particular, how strong our direct to consumer data on sale remains. As we think about Q1, one of the great things that happened for our business is we saw the 10 year treasury go from 90 basis points, I think, up to a high of 170 basis points. So what was expected to take over a year or two to occur kind of all happened in about a 90 day period of time. So adjustments have to be made, but that's where our platform really kicks in. And as Julie touched on, we're almost back to where we traditionally have been where 50% of our originations are not rate sensitive. And so the acceleration in those things so quickly was incredibly exciting. And we're watching our retention climb as well, north of 90%, now 91%. So you're going to see us be strategic around gain on sale. And we talk about this a lot, the margins, although moving back to more historical averages, are incredibly strong. But what we think about is not just that margin for the first transaction what we're thinking about is the lifetime value of every client that we acquire. And if you hear us talk about the massive growth in Rocket Homes, Rocket Auto and as we continue to add additional fulfillment businesses to our platform, the value of that acquired client will continue to grow as well. So it's much like the discussions, I think we had, Arren, back kind of during the IPO process when we were talking about setting a strategy over the course of two or three years, really arriving at what the true lifetime value of the client is and then continuing to execute on those strategies to bring those clients into our servicing book, so we can monetize them for years to come. So our big focus and I'm really proud of the growth we had in Q1 compared to Q1 of '20 and Q1 of '19, over $100 billion of closed loan volume, that's all coming into the top of the funnel, and we'll monetize that over time. I'll let Julie maybe go just a bit more specifics. But really important to at least understand how we're thinking about that, which is, of course, it's profitable right now to bring those clients into our platform. But it's even more profitable than it looks on paper because of the lifetime value that we subscribe to each one of those clients. Julie?

Yes, I think it's important to take just a minute to break down our gain on sale margin guidance a bit further. So as I have said, we are expecting overall gain on sale margins to be between 2.65% and 2.95% in the second quarter. But to break this down by channel, we expect to see our direct to consumer margins above 400 basis points, which is consistent with our long term track record of consistent margins in this core DTC channel. If you look back over time, you'll see that consistency in those margins. And then we're expecting partner network margins around 100 basis points. And these levels are also roughly consistent with historical levels prior to 2020. If we look at that quarter-over-quarter change in the gain on sale margin guidance, it's really being driven kind of roughly by three equal factors: first of all, is changes in loan pricing and particularly our investment to drive the growth in the partner network channel; the second thing is that we did see the primary secondary spread compress at the end of Q1 and into Q2; and then the third factor that I'll mention is the channel and the product mix. And we're seeing an increase in the partner network in jumbo loans as a percentage of our total originations, both of which drives attractive incremental profit for us. So in looking at our second quarter guidance overall, we feel very good about our ability to drive volume, which is more than double 2019 levels, as we've said, at gain on sale margins roughly consistent with historical levels.

And then I guess just secondly, on the Rocket Homes and the new initiative to be the number one purchase lender in two years. Is this an investment that will drive any additional revenue streams through Rocket Homes, or is it really just a focus on getting those customers right in the process of choosing their home?

So we've been investing in this ecosystem for quite a few years now. And the reason we've set the goal here in the next 24 months because all of those important components and the millions of dollars of tech spend are really starting to pay off. I know I touched on the fact that on our Rocket Homes platform, which is an incredibly robust MLS listings platform. We now are covering 49 to 50 states and I think we'll be into Hawaii in a matter of days or weeks. That growth year-over-year is up 300%, and that matters because what do you do with that. Well, it drives mortgage volume, but it's also driving real estate volume. So our agent connections, taking those clients that are interested in finding homes and aligning them with an agent, that was up 50% year-over-year, and we're making significant investments in that process and technology to keep accelerating that. So what does that do? Well, that allows us to capture revenue on the real estate side, on the mortgage side, on the title side. And so not only are you getting those additional revenue streams you just touched on but it's also driving up conversion. And especially in a market like we're experiencing right now where inventory is so light, we've got to make those connection points where our client comes in, top of the funnel, finds a house, gets connected with an agent, gets a verified approval, in our cases now we're offering our overnight underwrite, so the agent can write an offer, 6:00 p.m. on a Tuesday, they wake up Wednesday morning, they're fully approved. So our clients can get cash buyers. So we can drive up those conversion rates and so we can grab that volume. And so that's additional volume we'll be adding to the platform as we continue to invest now in marketing all the purchase services that we've got. And I know I mentioned this to the 45,000 agents we now have on the RHI platform that we built, the Rocket Pro Insights platform that our agents use. So all of those things kind of will bring additional revenue, but also increased conversion. And then the last component I'll say to that, and Julie is talking about the E-Trade partnership, we've referenced before our Realtor.com partnership. As that conversion rises, our ability to lean in and participate in the purchase, lead and advertising markets grows. Because we can spend more than others can spend because our conversion rates are far greater than the industry average. So that's a virtuous kind of flywheel that we are building right now that will play a very important role here as we go through '21 and into '22.

We have our next question coming from the line of Ryan Nash with Goldman Sachs.

So I wanted to follow-up on a question that Arren asked on gain on sale margins. Do you foresee that we're at the bottom by channel? I know others have talked about industry underpricing loans. So can you maybe just talk about that combined with the competitive dynamics what's going on in the wholesale channel that's causing these competitive pressures? And Jay, how do you think about long term customer lifetime value versus trading off with some of the near term economics?

Maybe I'll start with the margin piece, and Julie can jump in here, too. But we're kind of back to some of the historical longer term margins that we've experienced, which on our platform are still very profitable, number one, in the first transaction. But again, to some of the other comments that I made, it's also the additional or the lifetime value. Now there's been some changes in particular in the broker market that I think are very interesting. Our focus here is to solve the problem of our client. If a client needs to buy a house, how can we develop technology and service to assist them. If a broker wants to grow their business, how can we provide technology, marketing, et cetera, to assist them. Others have kind of focused on solving their own problems, I think, versus the brokers problems. It's interesting what's happened because through that our partnership with the brokers that we've got in that part of our partnership channel has strengthened. So the volumes that they're setting us are increasing. And so if you think about the lifetime value, certainly in the direct to consumer channel, that's well understood. But in the broker channel, you might say to yourself, well, each time a loan comes in that broker's thinking, hey, where should I send it? But as choice gets eliminated and our partnership with that broker gets stronger, our ability to monetize and work with that broker partner in the years to come to drive more lifetime value from those relationships, increases as well. So we're excited about what we're seeing in the broker channel. We're really excited about what we're seeing in the direct to consumer channel. And so we spend our time thinking about the lifetime value more than probably the…

And just to add to that, if we look at our direct to consumer margins over time, as I said, they do tend to really be more consistent. And we've seen that quarter-over-quarter here as we look back, there may be some times when it is just slightly lower than that. But you'll see it certainly hold around that and opportunities like we just saw there present a great opportunity for us to take some additional margin. And then on the partner network side of things, we're really going to be strategic there. We're going to be thoughtful about growing that business long term. There may be some opportunities to take advantage of potentially leading into that margin, and we'll think about that from time to time. But we are going to be thoughtful about the near term, that like Trey said, absolutely focused on that long term value of those clients that we're acquiring.

And then I'll ask my follow ups together. So first, Jay, you referenced a couple of times that 50% of the originations are not rate sensitive. Can you maybe flesh out for us how much of that is purchase versus cash out refi and what else may be included in that, so we can understand what some of those pieces are? And then second, you talked a lot upfront about leveraging the ecosystem to drive growth in all of these new channels that you're developing. Can you maybe just talk about your vision for how you see these scaling over the coming years? What it can mean for the growth of your company and just how the investments that you're making in tech have better positioned you versus other players in the industry?

So I don't think we break down the specifics here, but I'll give you some context. And then we talk about debt consolidation all the time, that really falls into two buckets, and we're watching this increase substantially as we get into 2021. I mean spending, as we all know, is very strong in a variety of areas and that's causing debt to be accumulated. Credit card debt, second mortgage debt, our home equity line debt, all things that we can consolidate, we were talking about the rise in home prices, it's created a scarcity in terms of homes available but it's also created one of the greatest increases in home equity we’ve seen like 15 or 20 years. So it's a it's a really strong positive combination for us. I think we're very well positioned, and this goes back to our data science team. We have 220 million records. We talk to millions of people a month, understanding their debt load. We can model out where they were a year ago and then also model out where they will be in the future, creating all kinds of opportunity to balance out the equity in their home, with the debt that they're building, and we can consolidate that. So that's a huge piece of our business. We've been executing on that for years. And as Julie referenced, well be seeing that come back to kind of levels that it had been at in years prior. We called out purchase, because we're the second largest retail purchase lender in the country. So you can kind of use those numbers to triangulate where we're at, and we're going to number one. So it plays an important role. And I already touched on this, how are we going to get to number one?…

We have our next question coming from the line of Doug Harter with Crédit Suisse.

Julie, you highlighted the strong liquidity cash position that you currently have. Can you just talk about, I guess, how you're thinking of what the level that you need to hold and how you would be thinking about future potential return of capital given future cash flow?

We do have substantial liquidity, as I mentioned in the business today. And as we think about the level in the business really we're going to be looking at first and foremost, as I know I've mentioned before, investing back in the business is going to be the first place that we're going to look to deploy that capital. So whether that comes from the investments that we're making, either in brand or whether we're making that in technology, or potentially acquisitions that maybe of interest to us as we continue to look for those things that are additive to our business, either to our tech platform, our reach, and that is something that we'll continue to look at. And then if that is not something that we see in the near term as we look out here, we will potentially look to return some capital to shareholders, either through doing a dividend like we had done here or potentially through a share buyback. So that's kind of the way we're going to keep looking at how we manage our cash as we go forward here.

And I guess if you could just -- while volumes are remaining kind of elevated, they are kind of down sequentially next quarter. Just what does that do to kind of liquidity needs to kind of run the business?

I'll jump in on the volume question. I know when we are thinking about where we came out of Q1, over $100 billion the guidance we provided for Q2. Keeping in mind that we've got thousands and thousands of approved homebuyers. And so hopefully, as more inventory opens up, that will accelerate some of the purchase transactions that are kind of currently in waiting mode. But we feel very good about where we are in Q2 and looking forward into the future and seeing volumes in a very similar range. And we had a huge year last year. I expect to have a very good year this year from a volume perspective. And so you can keep that in mind as you think about our capital needs here as we get through the rest of the year. Julie?

As we continue to generate cash flow, we're going to be thinking about those same investments that we can make, and it really doesn't change the decision here as we go forward. We'll continue to manage our capital in the same way we've been thinking about it and expect to continued strong cash flow here in the second quarter.

We have our next question coming from the line of Dennis McGill with Zelman.

Exciting to hear all the different opportunities you have ahead of you on the purchase side. I just wanted to tie back to maybe the data that we're looking at for 2020 would imply that there was a little bit of share loss in the purchase channel. And I was wondering if that is a good example of last year being a year where the profitability was most attractive in the refi side. And a good example of where you can shift product mix and go after the more profitable part of the business? And then thinking about that moving forward, if purchase is a more attractive area that's where you can lean. So is that the right way to think about the fluctuation that you might see year to year versus smoothing that out over a multiple year period?

I think there's probably two ways to view that. I think you're right. The flexibility of our platform really allows us to move to the most profitable loan that we'll bring in. And again, as we touched on, not only the first time around but thinking about the lifetime value of that client. And so you'll keep watching and seeing us do that. Also considering the investments that we are making long term in purchase now, as we've touched on Rocket Homes, we've touched on the listing site, we've touched on the reator network. I know in calls past, I've talked about providing other opportunities for sellers and buyers through for sale by owner and other projects that we're working on. The insights network that we're building that now has 45,000 plus real estate agents on that, the technology that we're investing there to give them the visibility, the communication, the transparency into the loan. All of those are significant investments into purchase. And so although we will keep adjusting the levers to make sure we're maximizing our opportunity, I think you'll see us keep the accelerator pedal on purchase as well, because we're making substantial investments now to continue to see that channel grow.

And then a separate question as it relates to some of the changes by the agencies on second home investment home limitation. Can you just maybe share any impact you're seeing in the market from that, and if there's any non agency channels opening up for sales of those loans?

There's been a few adjustments here in the last month or so. I think we're in a great position, and Bob Walters can touch on this. I think the first big example of this was our smart jumbo that we rolled out about 30 or 45 days ago and the securitization there. And so our capital markets group is incredibly sophisticated. Their ability to execute on those securitizations has also given us this opportunity to move forward into other products, whether they be second home or vacation homes or other things where the agencies may be putting limits, we can jump in and continue to grow those channels with high quality products and deliver them in the secondary market. Bob, I don't know if you have additional comments.

We've seen the changes the agency has made around investment property, second homes, disrupted a number of players in the markets, we got ahead of that. And I think to Jay's point, our ability to securitize off our own shelf gives us a lot of latitude and flexibility in that area. So that's not disrupted us from a volume standpoint. In fact, we've had some opportunities to take advantage of that.

We have our next question coming from the line of Mark DeVries with Barclays.

Historically, originators with a more centralized model have struggled to have too deep of a penetration in the purchase market. But you guys have created a pretty interesting ecosystem that may just crack the knot. The question I have is how are you managing kind of the gray area of respo risk that kind of sits between the different linkages in that ecosystem you're creating?

Well, obviously, these companies are separate companies. And I can tell you they've got a team of crack attorneys, ensuring that everything that we do is at a proper arms length transaction. As you can think about it, and I'm not going to go into a RESPA educational seminar here. But our clients have choice every step of the manner, or every step of the way. Now with all the services we provide and the technology we provide, it's understandable that their choice is to work with a company that can bring all of these things together. But we feel very good about the footing that we're on in terms of understanding Respa and our ability to navigate that while growing this channel. And also to your other comment about centralized lenders and their ability to crack the nut here. If you really think about this, real estate agents want certainty. They've worked hard, they want a loan to get closed. And so I don't believe that it's about the location of the lender. I believe it's about the certainty the lender can provide. With our thousands and thousands of third party brokers out there, if the agent is best suited to have somebody who can walk right in their office, we've got that broker partner for them, we publish that broker on our Web site, we provide great technology to that broker, and we're happy to have the agent work that way. If agent prefers to work with us in our centralized Rocket Mortgage platform, that's great, too. And that's why we're making such a large investment in the communication, in the visibility, in the transparency, in the overnight underwrite, all of the things that bring certainty to those agents, so they can have confidence that we're closing those…

And do you ever see a role in M&A in terms of adding any kind of local retail presence, or do you think that through the combination of your broker partners and your centralized model that you can serve the entire market?

Well, we're very active in the M&A space. We're always looking for bolt on opportunities and those types of things that can help us grow our platform. And I use the word platform in an important manner. As you probably sense from my previous comments, the real mission is what's best for the consumer, what does the consumer want, what experience can we provide them that gives them the most certainty in that transaction? Any transaction with friction, home buying is one that we're very deep into. But now we're getting into auto, personal loans, how do we remove that friction. And so if there's a if there's an acquisition that fits into our platform that solves a problem for the consumer that currently in our current model we can't solve then that would be an acquisition that we would be looking at. We're almost -- and I said this before, almost kind of origination agnostic. It's whatever is best for the consumer that's what we will do to bring them into our platform, get the lifetime value of that consumer and make sure they have a great experience.

We have time for one more question. Last question is coming from Mihir Bhatia with Bank of America.

First, I just wanted to check, in terms of the volume guidance for next quarter, it's down quarter-over-quarter. And I think I heard you say April was a record or application volume quarter. So I'm just trying to like help square that. Do you expect like a meaningful slowdown in May and June or maybe I misheard something in that.

I think what we were referencing is that over the first quarter, we've had substantial purchase application volume. And so we have thousands of clients today that are approved and they're out looking for homes. Our guidance reflects our current application volume and some of the inventory constraints that exist in the market today. And what I also was referencing is that if you look at kind of the guidance that Julie provided, and we feel great about where that's at, not only for the second quarter but as we think about the future, that guidance kind of tees us up for what should be an outstanding year on the heels of what has been record purchase volume in the first quarter. We didn't talk about the second quarter, but in the first quarter it was the most purchase application volume that we've ever had as a company.

And then one other question I wanted to ask, you talked about some interesting stats on Rocket Auto, and what I wanted to understand a little bit more about that business. How much of that is this related to existing mortgage customers, is it all of it? Because I guess what I'm trying to understand a little bit more of is, this lifetime value metric that we've talked about a few times, as you have highlighted. Where can we see that in terms of like the cross sell, [Multiple Speakers] any specifics or anything you can share there?

I'll directionally talk about it because it's very exciting. So as we started this business, we did not focus on our client base initially. We certainly did market research to determine our client base's propensity to purchase, understand that what we believe the conversion rates will be with our client base. But the vast majority of cars that we're selling now, which we're setting records each and every month, are not clients from the Rocket Mortgage platform. They're actually lower converting leads. And there's a reason that we've done that. We wanted to construct a business that had all of the appropriate profitability metrics before really leaning into our client base. So we've tested that enough to understand the conversion rates and what it will mean for that business as we open up our client base, but we've just started to scratch the scratch of the surface in terms of really marketing to our client base. That's why we're adding additional inventory. And we talked about the AutoFi, it's critical if we're going to open that up and generate more leads flow that we have a more robust inventory platform, so we can really provide the services that our clients deserve. So we're kind of moving from phase one to phase two, which will increase all positive things that we'll be adding here in phase two, but excellent question.

Thank you. There are no further questions at this time. Turning it over to the presenters for closing remarks.

All right. Well, we sure appreciate everyone joining us today, and thank you to all of our team members out there listening today. Certainly appreciate everything that you are doing. And I hope everyone has a great rest of the evening and take care.

Good bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.