Rocket Companies, Inc.

Thank you for standing by. My name is Jael and I will be your conference operator today. At this time, I would like to welcome everyone to the Rocket Companies Inc. First Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Sharon Ng, Head of Investor Relations. You may begin.

Good afternoon, everyone, and thank you for joining us for Rocket Company's earnings conference call covering the first quarter of 2024. With us this afternoon are Rocket Company's CEO, Varun Krishna, and our CFO, Brian Brown. Earlier today, we issued our first quarter earnings release, which is available on our website at rocketcompanies.com under investor info. Also available on our website is an investor presentation. Before I turn things over to Varun, let me quickly go over our disclaimers. On today's call, we provide you with information regarding our first quarter 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 the assumptions we mentioned today. We encourage you to consider the risk factors contained in our SEC filings 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 investor relations website. The recording of the call will be posted later today. Our commentary today will also include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics for reported results can be found in our earnings release issued earlier today as well as in our filing for the SEC. And with that, I'll turn things over to Varun Krishna to get us started. Varun?

Thank you, Sharon. Good afternoon, everyone, and thank you for joining the Rocket Company's earnings call for the first quarter of 2024. This is my third earnings call since joining the company in September. As I reflect on the last eight months, I am filled with gratitude to be part of a company with the clear and noble mission of helping everyone home. Never has this mission been more important or relevant than it is right now. I am so proud of what our team has achieved together in this short time, and it's evident you're only at the beginning of our journey. As an organization, we are driven to execute and win, and our determination is absolute. We're playing both the short and the long game, gaining momentum and achieving success while strategically planning and executing for the long term. And this has already led to some impressive results for Rocket. Let's start with our Q1 business results, where our Rocket blasted off as we entered the new year. I'll start by sharing just a few of the highlights that I'm especially proud of from the first quarter. We reported $0.04 of adjusted diluted EPS and delivered adjusted revenue of $1,163,000,000 in the first quarter. Once again, far exceeding the high end of our guidance range. In addition, we returned to double-digit adjusted EBITDA margin. Alongside these solid results, we also continued to capture market share. In Q1, both purchase and refinance market share expanded, showing double-digit percentage growth on a year-over-year basis. Our analysis shows that we took that market share from large industry players and big banks in particular. Market share growth while maintaining healthy gain on sale margins is our North Star metric, and it's a yardstick that objectively measures our performance compared to the rest of the industry, independent of the inevitable ebbs and flows in the market. While we cannot control market movements, we can direct our efforts to delivering world-class service to our clients and focus on growing our share. We are currently the number two player in purchase, excluding correspondent lending. and we won't stop there as we continue our upward march. With our strategy and capabilities, we believe we can and will continue to grow market share in both purchase and refinance and drive consolidation in this fragmented winner-takes-all market. I'd like to drill deeper into a few areas of our business that outperformed in Q1. Our home equity loan product has continued to expand significantly, as we've seen volume grow more than three and a half times from Q1 of 2023 to Q1 this year. Since our launch just under two years ago, Rocket is now among the top players across the entire home equity loan market. This achievement underscores the strength of our capital markets infrastructure and our team's ability to introduce and quickly scale innovative products that resonate with our clients. Home equity loans are particularly relevant in today's market, is they present a great option for clients looking to tap into their home equity, whether to fund remodeling projects, consolidate debt, or pay for a life event without affecting a favorable rate on their primary mortgage. Home equity loans close seven days faster than our traditional refinance transactions. And importantly, they provide us with a springboard to consolidate a client's first and second lien mortgages when interest rates decline in the future. Servicing is a key part of our business that enables us to play offense and defense at the same time. We acquired four MSR portfolios in March and April at a weighted average coupon well above that of our existing book. Rocket's recapture rate of service loans is more than two times the industry average, which is why we see our servicing portfolio as such a strategic asset. It represents a future origination opportunity on nearly 2.5 million clients without additional marketing costs while paying a recurring cash flow until the next transaction. These are just a few examples of where strategic thinking and solid execution have driven tangible business results and outcomes. Now let's shift forward. I'd like to transition and talk about some of the trends and themes that we're seeing at the industry level. Despite recent market volatility, we are steadfast in our belief that there is tremendous opportunity ahead for Rocket. In fact, when we widen the aperture, we believe Rocket is well positioned to capitalize on the current trends shaping the industry over the long run. Let me take just a minute to unpack three market changing dynamics that create a perfect storm for Rocket to ride, execute, and win. First, let's dive into industry capacity. Undoubtedly, the most challenging market conditions in four decades have catalyzed industry consolidation and capacity rationalization over the past couple of years. Mortgage employment has declined by 36% from its peak in April 2021, resulting in nearly 150,000 loan officers and mortgage brokers exiting the industry. The months to come are expected to put further pressure on smaller players already struggling with capacity and liquidity. Secondly, if we look at banks, we can clearly see there has been a secular trend of banks feeding mortgage origination market share since the global financial crisis. In fact, their share has declined by nearly half from roughly 75% in 2008 to approximately 40%, according to the most recently available data. Even still, banks hold top positions and comprise six of the top 20 spots in the industry rankings. In recent years, banks have faced profitability challenges with their mortgage operations made more apparent against the backdrop of difficult market conditions. Looking ahead, Basel III capital requirements, which place a higher risk weighting on mortgage capital, are likely to further deter banks from expanding their home lending operations. In fact, we believe many banks are reevaluating their mortgage lending operations altogether. Lastly, the landmark National Association of Realtors settlement has the potential to upend the home buying and selling Realtor Commission model that has remained unchanged for nearly 100 years. The traditional home buying and selling experience is fragmented, inefficient, costly, and ripe for disruption. This settlement has the opportunity to change the home value equation and to pave the way for a better experience for both buyers and sellers of homes. Rocket Strategy capitalizes on these three seismic shifts. We have a fortress balance sheet that gives us the flexibility to not only survive, but to thrive through the inevitable ups and downs of the market. While others are vying for survival, we are strategically investing in top tier talent, cutting edge technology, and the enhancement of our brand to build a durable and growing business for the long term. Our comprehensive suite of integrated end-to-end services squarely addresses every aspect of the home buying opportunity from every side of the equation. We are poised to lead and revolutionize how homes are bought, sold and financed. As I shared earlier at Rocket, our mission is to help everyone home. This is our grand challenge. We stand for every aspect of the homeownership journey from buying, selling and listing homes to purchase, refinance and servicing. That is what Help Everyone Home means. We aim to transform the homeownership experience end to end, and our market opportunity is the entirety of the homeownership category. The foundation that underpins this mission is a strategy that we call AI-Fueled Homeownership. That means we are committed to delivering industry-leading experiences powered by AI, benefiting our clients, mortgage brokers, real estate agents, financial institution partners, and our team members alike. In a short amount of time, Rocket has already positioned itself as the industry leader in AI, continually pioneering client experiences that are unmatched by others. Let me just share a handful of recent examples of how our innovation is accelerating. Our Rocket Homes team recently launched Explore Spaces Visual Search, the first of its kind in the industry. This innovation enables users to discover their next dream home by displaying photos based on features that are important to them, such as kitchens with marble countertops or backyards with lush lawn. This is made possible by leveraging computer vision AI for image recognition and processing. This technology enables listing images to be quickly identified and text descriptions to be automatically generated, removing the need for manually tagging or writing content from scratch. And since launch, we've seen some very compelling early stats. Users who engage with the Explore Spaces experience spend almost twice as long on the site per visit, and they return six times more often. As part of the Explore Spaces experience, Rocket Homes also launched Auditory Search, which makes home search inclusive and accessible for the nearly 10 percent of the U.S. population that experiences visual impairment. AI automatically generates detailed captions for each photo that can actually be read aloud through AI-powered voice transcription. Continuing our incredible pace of innovation, just last week, we launched a new pilot that uses voice-based generative AI to allow clients to update their verified approval letter simply by using their voice. Typically, when a client needs to modify their approval letter to make an offer on a house, a need that has only increased in today's dynamic and competitive home buying environment, they have to call their mortgage banker, who then makes modifications. Our bankers and underwriters handle those adjustment requests nearly 300,000 times a year. This is an incredibly manual process, which can take hours or days, and not only takes our bankers away from prospecting for new business, but it is prone to errors and delays. In an industry first, Our clients can use natural language to easily make modifications over the phone in just minutes. And their realtors are kept up to date through automated notifications 24 hours a day, seven days a week. This new feature is great for clients because the speed gives them an extra edge to make winning offers in their dream home. Every second counts in a competitive market. It's great for realtors to be kept in the loop and great for our bankers who can use time previously spent on this administrative task to work with more clients. This is just one of many industry first client facing features in our pipeline that leverage AI to deliver great experiences, no matter the modality, whether through chat, phone, our website, or our mobile app. There are many use cases for AI, but the most significant and immediately impactful application at our company is supercharging our team members. AI eliminates the drudgery of burdensome, time-consuming manual tasks so that our team members can spend more time on making human connections and producing higher-value work. Ultimately, with AI, we are driving operational efficiency, speed, accuracy, and personalization at massive scale. RocketLogic, our proprietary patented AI technology platform and where the majority of our engineering resources are directed, powers both our client-facing interactions and backend processing. RocketLogic continues to add new capabilities and expand full automation of mundane tasks, bringing up team member capacity to serve many more clients and drive growth. RocketLogic utilizes collaborative intelligence to help our team members complete work more seamlessly. Here are just a few recent additions to our RocketLogic platform. RocketLogic Assistant, which seamlessly and accurately follows the conversation with a client in real time, populates hundreds of crucial application fields hands-free. We believe we have the best mortgage bankers in the business, and now we're providing them with the tools to be even more productive. As a result, they're able to devote their time and full attention to where it matters most, our clients. RocketLogic Docs. Our intelligent document processing platform automates document upload, classification, loan association, and field extraction, enabling fast and accurate processing at scale like never before. RocketLogic Docs automatically identifies nearly 70% of the more than 1.5 million documents we receive monthly, resulting in a savings of more than 5,000 hours of manual work for our underwriters in February 2024 alone. Of the 4.3 million data points extracted from documents, including W-2s and bank statements in February, nearly 90% were automatically processed, saving an additional 4,000 hours of manual work for our team members. And we're continuously building upon and adding new capabilities to RocketLogic. Just last month, we announced RocketLogic Synopsys. a new feature used by our client-facing team members across mortgage banking, EPO, mortgage operations, and servicing. Each year, our teams participate in 65 million calls with our clients, and Synopsys works behind the scenes, transcribing and tagging client interactions, logging client preferences for communication method, time to be contacted, all purpose, sentiments, and more. The key to AI is continuous training of models with recursive feedback loops and data. We are organizing this invaluable data to construct unified client profiles in a centralized repository. From this repository, we train models to gain deeper insights and analytics to personalize all future interactions with our clients. The ultimate objective is to deliver industry-best client experiences that translate into better conversion rates and higher client lifetime value and to just get continuously better and better at it. RocketLogic's automation has already reduced the number of times a team member interacts with a loan by nearly 25% year-over-year. This, in turn, has shaved several days off the time it takes Rocket's clients to close on a home purchase, reducing turn times by 25% from August 2022 to February 2024. These efficiencies are key in helping Rocket close loans nearly two and a half times faster than the industry average. Great companies succeed with exceptional execution. At Rocket, we are driving better and faster execution across the board, and it's only going to continue and get even better from here. We are excited to share more examples of how AI is being deployed and the value it brings to our core businesses. We've recently solidified our roadmap and established objectives and key results to support our AI-driven homeownership strategy and prioritize key strategic objectives. Consequently, we're operating with a heightened sense of focus and accountability. Through this process, we've also streamlined how we interact internally and significantly reduce the number of meetings we conduct while sharpening the focus of those that we do have. As a result, I'm excited that our engineers are spending less time in meetings, and roughly 30% more time coding and creating great experiences for our clients. In fact, just last month, I attended our Hack Week event and I was just blown away. It was an amazing experience that highlighted our incredibly talented technology team members working rapidly to build that next game-changing innovation. From this Hack Week, dozens of the best ideas have gone from ideation to production in a matter of weeks. In closing, We are laser focused on our mission to help everyone home, and we are executing with velocity. We believe we're in the perfect position to take advantage of the opportunities presented by multiple once-in-a-generation tailwinds, and we are poised to transform the home buying category, building upon our established refinance and servicing business, and also continuing to grow and take share in purchase. All of this is underpinned by AI, which enables us to accelerate our pace of execution and grow our market share, revenue, and profitability at scale. And with that, I will turn it over to Brian.