Rocket Companies, Inc.

Good day, and welcome to the Rocket Companies Incorporated second quarter 2021 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I'd now like to turn the conference over to Sharon Ng, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us for Rocket Company's earnings conference call covering the second quarter of 2021. With us this afternoon are Rocket Company's CEO, Jay Farner, our CFO, Julie Booth, and our President and COO, Bob Walter. Before I turn things over to Jay, let me quickly go over our disclaimer. On today's call, we provide you with information regarding the second quarter 2021 performance, as well as our financial outlook. This conference call includes four 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 filing for detailed discussion of these risks and uncertainties. We undertake no obligation to update these statements as a result of new information or further events, except as required by law. This call is being broadcast online and is accessible on our IR website. 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 our reported results can also be found in our earnings release issued earlier today, as well as in our finals with the SEC. And with that, I'll turn it over to Jay Farner to get us started. Jay?

All right. Well, good afternoon and welcome to the Rocket Company's earnings call for the second quarter of 2021. We had a strong second quarter as we continue to execute on our growth strategy and leverage our platform across real estate, auto, and financial services. In real estate, revenue was driven in part by record purchase volume, putting us on track to reach our goal of becoming the largest retail home purchase lender in the nation by the end of 2023. Many of the accomplishments that we've achieved are a result of our technology and, of course, our people. who bring their best to work each and every day. This tremendous combination was recently rewarded with Rocket Mortgage again being named the number one company for client service in mortgage servicing by J.D. Power. The accolade marks the eighth consecutive time our company has earned this honor, and it's our 19th J.D. Power Award overall when you include the 11 straight number one rankings we've received for mortgage origination. Our servicing team put our clients first, helping them through the difficult and uncertain times during the pandemic. While clients and other lenders experienced several hour wait times at the onset of the pandemic, Rocket Mortgage clients were able to navigate a digital solution complete with educational resources and easily apply for a forbearance plan online. This approach resulted in Rocket's forbearance rate being 41% lower than the industry. Innovative technology-driven client-first solutions such as these are a testament of our ability to scale and to quickly pivot to meet the demands of unpredictable markets without the need to add headcount and ultimately deliver unmatched client experiences. As we turn back to the second quarter results, 2020 accelerated the shift to an all-digital experience, an opportunity that Rocket was primed to capture. The demand for digital experiences has only expanded, providing true momentum for Rocket companies across all our core markets, real estate, auto, and financial services. Consider this. When we look back at 2019, we have now more than doubled the size of our business from pre-COVID levels. Rocket companies generated $84 billion in closed loan volume and $2.8 billion of revenue in the second quarter of 2021. both more than double the second quarter of 2019 and more volume than we did the entire year of 2018. Our Q2 EBITDA of $1.3 billion was more than triple the same period two years ago, demonstrating the sheer power and scalability of the Rocket platform. On today's call, I'll highlight the flexibility of the Rocket platform to capture the growth ahead, including our strategy to revolutionize the home buying experience, also touch on our increasingly important relationship with B2B partners across the Rocket ecosystem. As we've shared with you in past calls, the Rocket platform is built to win. Our mission is to provide certainty in life's most complex moments. We remove the friction and pain points from major events like buying a home, getting a personal loan, or purchasing a car, all from a scalable, centralized platform. This flexibility allows us to stay nimble and go after the areas of greatest opportunity, optimizing revenue for our companies and driving value for our investors. In today's environment, consumer demand is incredibly strong in each of our markets. In fact, the markets are so hot that there are significant inventory challenges in both real estate and automotive sectors. Even under these conditions, we achieved records for home purchase volume as well as Rocket Auto gross merchandise value and unit sales. Based on the strength of demand at the top of our funnel, we believe both record purchase volume and record auto results would have been even higher if not for inventory challenges. As today's mortgage market shifts toward home purchase in 2021, Rocket is geared to capture more purchase volume driven by our superior technology-driven client experience, product innovation, and our integrated end-to-end home buying ecosystem. We mentioned last quarter that our company has set a goal to become the largest retail home purchase lender in the country by 2023. Continuing to transform the home buying experience is the single biggest opportunity for Rocket Companies today. We spent years creating a complete end-to-end experience that puts the power of choice back into the hands of the consumer. From credit monitoring to home search, connections with vetted local agents, centralized services, a comprehensive for sale by owner process, and our recently announced iBuying services to provide a backup offer to sellers, we have the suite of services that allow consumers to create a bespoke process tailored to their individual needs while driving extremely strong conversion rates. When paired with the power of America's largest mortgage lender in Rocket Mortgage and one of the largest title providers in Amrock, no other company can provide the same level of integrated, one-stop services that Rocket delivers. Our iBuying program facilitated through third-party partner companies will be released over the next several quarters. Just last month, Rocket Homes announced an important milestone. hosting home listings in all 50 states. Rocket Companies is now the only residential real estate ecosystem that has mortgage licenses, real estate broker licenses, home search listings, real estate agents, and real estate agent partners spanning all 50 states. With nationwide coverage, Rocket Homes is performing at scale with traffic growing six-fold year over year to reach nearly 2 million unique monthly visitors in the second quarter. In addition, Rocket Homes drove a record $2 billion in second quarter real estate transaction value, representing the value of homes purchased and sold through our real estate agent network. Rocket Homes is still in the early innings and is a very long runway for growth. Rocket Homes also drives purchase volume for Rocket Mortgage. and we expect our momentum in purchase to continue. Rocket Homes draws in-process clients into the Rocket ecosystem even earlier in the funnel and regularly engages with our pool of nearly 2.4 million servicing clients, representing half a trillion dollars in servicing value. This significantly increases our lifetime value and recurring revenue with potential and existing clients. From the beginning of the year, Roughly 70% of Rocket Homes transactions involve both an agent in the Rocket Homes real estate agent network and in Rocket Mortgage, representing an attach rate among the highest in the industry. We also have a high attach rate between Rocket Mortgage and Amrock. In fact, Amrock serves as the appraisal management company for approximately 65% of appraisals ordered for our direct consumer mortgages, illustrating the power of our ecosystem. We are also extending our value proposition of creating simple, seamless experiences to now include residential solar. Solar energy adoption is at a growth inflection point. According to third-party research, the current solar energy market is expected to quadruple by 2030, with roughly one in eight homes adopting solar power. Our dedicated, highly trained group of team members from the Rocket Cloud Force will serve as rocket solar advisors to our clients. The team will help clients determine if solar panels are the best choice for their home and connect homeowners to our simple digital financing application. Once financing is complete, the Rocket Cloud Force will facilitate the installation of a new solar solution. We will also be well positioned to help consumers who may not have started with Rocket Solar consolidate their solar loan and mortgage for significant cost savings. We launched Rocket Solar with a rate and term refinance product in late July and expect to be operating at scale in 2022. Our entry in solar is yet another example of Rocket companies maximizing the lifetime value of our clients by adding complimentary services that we are uniquely positioned to deliver thanks to the versatility and scalability of the Rocket platform. Looking at Rocket Auto, the company drove record performance in the second quarter with both auto unit sales growth of 140% and gross merchandise value more than tripling year over year. When considering the auto inventory shortages facing the industry, we are particularly proud of these results. Rocket Auto continues to add new partners who are interested in connecting their inventory with our new prospective buyers. During the quarter, one of the largest online sellers of used cars joined Rocket Auto's partnership network, giving Rocket Auto access to tens of thousands of additional used cars to sell through its constantly expanding platform and providing significant more fuel to Rocket Auto's growth story. Technology and data are the cornerstones of our platform. From the use of data science to optimize every aspect of our client marketing funnel, the use of ethical AI to aid in client service, to sophisticated pricing models, just to name a few. Technology and data fundamentally drive our business by enhancing client experience through speed and personalization, increasing efficiency through streamlined workflows and decisioning, and improving our pull-through and lead conversion. During 2021, intelligent client targeting models were deployed to more than 80% of our client contacts, ensuring that our rocket cloud force is reaching out to clients at the exact moment they're most ready to engage with us. By tailoring the experience to the client, we have lifted conversion, resulting in approximately $4 billion in incremental application volume so far this year. The beauty of our platform is its flexibility to meet clients where they are and scale across multiple products and verticals, regardless of the market environment. While our company started as the direct consumer mortgage lender, Rocket Companies is increasingly a multi-product, multi-channel platform. In addition to consumers, the Rocket platform works closely with three important B2B constituents, real estate agents, mortgage brokers, and premier enterprise partners. Each of these audiences play a crucial role as trusted advisors, leveraging the tailored products and tools that Rockets develop to help deliver additional value to empower their clients and to reach their goals. Real estate agents, they play a critical role in the home buying process. And we are empowering agents in our network with new leads, products, and tools to win in today's competitive environment. Through innovative tools like our verified approval process, which fully underwrites buyers and allows them to make offers that compete with cash buyers, to our overnight underwrite, which ensures purchase loans are underwritten in mere hours, we arm real estate professionals and their clients with the tools to ensure that they win. Another Rocket Mortgage innovation that's proven popular with realtors is Rocket Pro Insight. which we unveiled last year to help real estate agents create pre-approval letters for offers, track the status of their client's mortgage, and receive real-time updates. The number of real estate agents leveraging RocketPro Insights more than tripled to 50,000, up from just 14,000 two quarters ago. For the thousands of mortgage brokers in our RocketPro TPO network, We arm them with the industry knowledge and tools to work smarter and grow their business. In the second quarter, we begin our revamp of our broker partner portal, starting with our newly enhanced pricing calculator, providing greater ease of use for our partners to run different scenarios for their clients. Over the past month, more than 20,000 unique mortgage professionals relied on our interactive broker tools to move mortgage applications to the finish line. and their clients to the closing table. Our Pathfinder tool that we created in partnership with Google provides simple answers to even the most complicated mortgage qualification and underwriting questions, and has become one of the top resources for mortgage brokers. We continue to add new Premier Enterprise partners to our network. And we deepen our integration with our existing partners. We recently launched our new integration with Credit Karma, allowing their 110 million users to apply for a Rocket Mortgage directly inside their app. We also continue to grow and expand our relationship with partners, including Mint, Charles Schwab, and Realtor.com, just to name a few. We are excited to serve a broader range of clients through deep integrations with our partners and deliver the trusted, high-quality experiences their customers expect. It's also my pleasure to announce a new relationship with MassMutual. This new relationship will allow the company's 9,000 plus agents to originate home loans through Rocket Mortgage. Turning to our community. From the beginning, we have operated with a more than profit philosophy. Along with Rocket Community Fund, our philanthropic partner company, we have executed numerous data-driven investments and initiatives to serve and support Detroiters and revitalize Detroit, our hometown. and where we are the largest employer. At the end of June, we sponsored our flagship event, the Rocket Mortgage Classic PGA Tournament event held in Detroit. Rocket Mortgage Classic showcases the best talent in golf while raising funds to help bridge the digital divide and bring broadband connectivity to all Detroiters. As we continue to grow in Detroit, it's critical that Detroiters have an equitable opportunity to grow with us. In closing, we are entering the third quarter. with tremendous momentum across our entire platform. And we are poised to have a record year across our platform, from Rocket Mortgage to Amrock, Rocket Homes, and Rocket Auto. I'd like to think about this. Over the past several years, Rocket Mortgage has grown volume and taken market share consistently. In 2018, we originated $83 billion in mortgage volume. In 2019, that grew to 145 billion dollars and we ended 2020 with 320 billion dollars in mortgage value while industry forecasters expect a smaller market in 2021 we expect to grow volume from our 2020 record levels we're going to gain market share and achieve record origination volume this year in addition we expect our servicing book will grow more than 30 percent this year to over $600 billion, driving a recurring cash revenue stream of more than $1 billion. Rocket portfolio companies reinforce our ecosystem and contribute to our best in business retention rate, expanding client lifetime value. This year, we are building on momentum from 2020. I am beyond proud of what our team has accomplished, and I'm even more excited about what's ahead. With that, I will turn things over to Julie to go deeper into the numbers. Julie.