Rocket Companies, Inc.

the second quarter of 2024. With us this afternoon are Rocket Companies CEO Varun Krishna and our CFO Brian Brown. Earlier today, we issued our second 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 second 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 a 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. A 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 or reported results can 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 Varun Krishna to get us started.

Thanks, Sharon. Good afternoon, everyone, and welcome to the Rocket Company's Q2 2024 earnings call. As I reflect, it is hard to believe that it's been almost a year since I joined Rocket, and what an exhilarating journey it has been. This Rocket is fueled by the passion of our team members, who are the driving force behind everything that we do. They are led and inspired by an unrivaled leadership team. each bringing decades of experience and knowledge ranging from fintech and mortgage, capital markets and AI, to marketing, product, operations, sales, and so much more. Together, we're blazing new trails, pioneering experiences that will redefine how consumers experience the homeownership journey now and into the future. Our mission is to help everyone home. That means we're obsessed with making homeownership easier and more accessible for everyone. It's not just a business goal. It's our higher calling. We consider ourselves the most optimistic company in America because every day we make 30-year bets on people who make 30-year bets on themselves. The need for hope and optimism has never been greater in our country. We're navigating through challenging times and unpredictability is the new normal. Despite some signs of gradual recovery in home listings and sales, affordability remains at historic lows due to persistently high mortgage rates and rising home prices. This past spring, the industry experienced weak home buying activity, with purchase applications dropping to their lowest levels in over three decades. Macro uncertainty and affordability issues are keeping potential buyers on the sidelines while consolidation continues with smaller players being acquired or exiting the market. Mortgage employment has decreased by 36% from its peak. Yet, in the face of these challenges, optimism remains our mantra and higher calling. While others are faltering or retreating, we're mobilizing our immense resources, capabilities, and talent to innovate and serve our clients like never before. It is our moment to show our unshakable resilience, grow from strength, and redefine our leadership role in the homeownership category as the most optimistic company in America. On that backdrop, let's go a little deeper on the second quarter when we demonstrated growth despite industry challenges. Most importantly, we achieved profitable market share growth, our North Star metric, and expanded purchase share year-over-year through numerous optimizations in our processes, teams, marketing, and technology capabilities. This quarter, we delivered strong financial results, generating $1,228,000,000 in adjusted revenue above the high end of our guidance range and grew year-over-year for the fourth straight quarter. We expanded adjusted EBITDA margins quarter over quarter and year over year through both top line growth and our continued focus on operational efficiency. We reported $0.06 of adjusted earnings per diluted share for the quarter. Solid execution is the lifeblood of our business, and our AI-powered initiatives stand at the forefront. I'd like to spend just a few minutes highlighting four key achievements this quarter, our AI-powered live chat for clients, RocketLogic Assistant for Banking, Growth in Home Equity Loans, and Automation and Servicing. I'll start with our AI-powered live chat experience. We have expanded this interface throughout the client journey, from early inquiries using tools like the Mortgage Calculator to live help with applications and servicing questions on escrow and payments. Chat is an absolute game changer for us. Our live chat interface is so much more than just a communication tool. It's a strategic advantage that enhances engagement with deep personalization, drives efficiency, and ultimately improves outcomes for our clients and business at scale. Chat is the asynchronous communication mode of choice in today's fast-paced world. Favored by both older and newer generations, 80% of our clients prefer chat. They love the instant responses and 24-7 availability that allow them to manage their mortgage based on their individual preferences and needs. The beauty of chat lies in its scalability and versatility. It seamlessly complements our traditional phone interactions. We're not just responding faster with chat, we're providing an experience that is more personalized and tailored. We can quickly gauge client intent and direct them to the best solutions. whether they need immediate answers or deeper discussions with the right expert team member. And by leveraging generative AI, we can deliver great client experiences at scale by handling more interactions and keeping more clients engaged with better automation. The result of AI-powered chat is a resounding win-win-win. Happier clients, satisfied team members, and clear business values. Recent data shows that clients using chat have conversion rates three times higher compared to those who didn't leverage chat. Building on these successes, we are expanding chat across more client journey touchpoints, including Purchase, which we launched two weeks ago. The next example is the rollout of RocketLogic Assistant to our entire banking force, helping our clients navigate the home buying journey. This AI-powered personal assistant transcribes client calls and automatically completes mortgage applications in real time, supercharging our bankers' productivity. Gone are the days of manual note-taking with hands-on keyboard or pen and paper, which would fatigue our bankers and leave gaps in client conversations. Now the RocketLogic assistant seamlessly generates over 300,000 detailed transcripts every week from outbound calls. It supports over 100 data points on mortgage applications, saving our bankers from inputting tens of millions of data fields each week. This enhances efficiency, allows us to closely monitor calls, and extracts valuable client insights while also creating recursive models and feedback loops to continuously improve our bankers' performance and more effectively train each new generation of the best bankers in the country. Next, our home equity loan origination and volume reached an all-time high in Q2, more than doubling from a year ago. Home equity loans continue to resonate with our clients as we help them unlock record levels of home equity while still being able to keep their favorable rates on their first lien mortgages. Additionally, we enhance the speed and efficiency of our home equity loan process through the launch of an automated valuation model, or AVM. ABM represents a major upgrade, providing a cost-efficient digital alternative to traditional in-person appraisals. This innovation allows us to deliver cash from home equity loans in as little as seven days, meeting our clients' needs with unprecedented speed and accuracy. Finally, we've made significant strides in expanding our servicing portfolio, a strategic asset that complements our origination business. We're retaining clients for the next transaction at rates three times higher than the industry average, positioning ourselves as their lender for life, and generating recurring cash flow without additional acquisition costs. Our advantage lies in providing technology-powered, class-leading service to 2.6 million clients and leveraging rich data profiles to continuously understand their needs for life. In the second quarter, we acquired five MSR portfolios, adding 67,000 new clients and approximately $21 billion in unpaid principal balance. The loans in these acquired MSRs have a blended weighted average coupon higher than our current portfolio, opening up a range of products and services for these new clients. From refinance options that capitalize on declining rates to home equity loans for those looking to leverage their home equity and new purchase loans for clients ready for their next home, we offer a comprehensive suite of solutions to meet diverse client needs across the spectrum. We've also become more operationally efficient in this space. Traditionally, MSR trailing document audits required manually sifting through extensive documents to verify data for each loan. which could take months for a single portfolio. With our upgraded workflow automation, our capital markets team can now complete MSR audits in half the time. This enhancement allows us to onboard MSR portfolios more quickly, efficiently, and accurately, which is essential as we expand our portfolio. We've built a powerhouse technology suite for servicing that enables us to scale and deliver outstanding client service. The recent launch of MSR Audit Automation streamlines the first step of the loan onboarding process. Our AI-powered, self-serve phone and chat tools drive efficiency and provide exceptional service to millions of clients. Additionally, Rocket Synopsys, a tool leveraging generative AI, listens to, transcribes, and searches client calls, analyzing sentiment and recording client patterns and preferences. Furthermore, Features like live chat, real-time transcription, and tagging are enhancing the value of our data lake and AI-powered solutions. This infrastructure supports recursive feedback loops that continuously refine and train our models. Our structured data lake aggregates and organizes information, making it readily accessible to our data scientists and technology teams. And from this repository, our models extract deep insights and analytics enabling us to deliver exceptional client experiences and maximize team effectiveness. As we roll out new solutions and increase the usage of existing ones, we gather more data, creating an AI flywheel that accelerates velocity, enhances accuracy, personalizes interactions, and optimizes operational efficiency across our business. As a former software engineer, I'm going to keep geeking out for the next minute and talk about some of the deeper technology that powers our rocket ship. Leveraging our data and modeling tools like TensorFlow, Faster Region Convolutional Neural Network Models, and EfficientNet V2L Keras models, our technology fully automates high-volume tasks such as document processing, appraisal reviews, and income verification. With groundbreaking methods like this, we've already been able to bypass human intervention on nearly 10% of all appraisals in April 2024, saving 1,701 hours for collateral underwriting alone. Hopefully you're still with me. Let's talk about another AI concept called retrieval augmented generation, or RAG. RAG is a way to supercharge the utility of Gen AI by adding your own data into the conversations. We're using this technique in our RocketLogic platform, allowing team members to dive deep into all facets of a loan and provide in the moment insights and assistance. We're also able to leverage our own data and best practice documentation to assist our engineering teams and to provide an easily accessible natural language interface over our data analytics platform. This provides all of our teams with the context and data they need to make the best decisions for our clients where and when they need it. we work closely with amazing partners like aws anthropic open ai and others to stay on a cutting edge of research and techniques to make the most out of gen ai and this will only increase going into the future as i conclude i want to give a huge shout out to our amazing servicing team for winning our 10th jd power award for servicing just last week this achievement further cements Rocket Mortgage as the most awarded company for mortgage servicing and the most awarded mortgage company overall, something we will continue to work hard to earn day after day and year after year. In closing, I am so proud of our strong execution in the second quarter, but this is just the beginning. The four examples we've discussed all share a common theme. They illustrate how AI both enhances client experiences and boosts team productivity through improved velocity, accuracy, personalization, and operational efficiency. While many companies aspire to be AI-centric, few have the right blend of talent, assets, and mindset to succeed. I believe that Rocket is exceptionally well-positioned to execute on our AI-fueled home ownership strategy, and I look forward to sharing our continued progress with you each quarter. Lastly, We are thrilled to invite you to Detroit on September 10th for Rocket's first ever investor day. This is your opportunity to go behind the scenes, meet our leadership, experience our company culture and innovation firsthand and discover what makes Rocket rock. We're also excited to showcase our beautiful city of Detroit and I look forward to seeing all of you there. And with that, I will turn it over to Brian.

Thank you Varun and good afternoon everyone. Today, I'll cover our financial performance and provide an update on our investments and growth, particularly in technology and servicing. I'll close with our outlook and guidance for the third quarter. You heard Varun share the passion behind executing our AI-powered homeownership strategy, all in service of our mission to help everyone home. Our mission is so important because we bring people the pride and joy that only homeownership can offer. In pursuit of this mission, we're breaking new ground. We're transforming the homeownership experience from one traditionally filled with stress and complexity into a radically easier and simpler process for everyone. Rocket has a unique opportunity to transform the fragmented $5 trillion homeownership market. We have all the ingredients for success, an unrivaled combination of talent, assets, capabilities, and culture. We're just getting started, and I couldn't be more excited for the opportunity ahead of us. We are not just imagining the future of homeownership, we are building it. Now, on to the second quarter results. We delivered a strong second quarter, growing purchase market share, revenue, and profitability year over year. Our growth was particularly impressive against the backdrop of a contracting market, as industry purchase applications declined to their lowest second quarter in 30 years. Adjusted revenue came in at $1,228,000,000 above the high end of our guidance range. This represents a 23% increase from the second quarter of 2023 and our fourth consecutive quarter of year over year revenue growth. Reflecting on our performance this past quarter, several wins come to mind. A double digit lift in purchase conversions due to marketing optimization, record volume for our home equity product, and a 30% increase in our agent network attachment rates, driven by demand for buy plus. We generated $25.1 billion in net rate lock volume, a 13% increase year over year. Gain on sale margin was 299 basis points, or an increase of 32 basis points compared to the same period last year. Our continued focus on driving top line growth and improvements in operational efficiency combined to make the second quarter our most profitable quarter in two years. Adjusted EBITDA increased year over year for the fifth straight quarter to $225 million or a margin of 18%. We also reported adjusted net income of $121 million and adjusted diluted ETFs of 6 cents. In the first half of 2024, we generated nearly half a billion dollars more in adjusted EBITDA than the same period in 2023. While we are pleased with the progress we have made over the past year, we believe our true long-term earnings potential is much greater. We see significant room for more top-line growth and higher operating leverage as our AI investments gain even more traction. Broon took us through some examples of how AI drives velocity, accuracy, personalization, and operational efficiency for our business. One of the breakthroughs that I'm particularly excited about is our AI-powered live chat, which will pave the way for further scale and operational efficiency. AI-powered live chat is a prime example of delivering personalized and fast client experiences while supercharging our team members at scale. chat is the clear choice for our clients a quick way to get personalized answers chat empowers our team members to support multiple clients at the same time freeing up their capacity through chat we identify client intent up front and guide our clients to the right resource which can include connecting them with one of our expert mortgage bankers with client intent and call purpose matched to the right banker these live conversations are more personalized and engaging We're seeing these benefits pay off in our business. Chat helps us scale up to a better client experience, leading to higher conversion and operational efficiency. In fact, we're seeing clients who use chat convert three times better than those who don't. There is much more potential to unleash. AI enables us to do significantly more without adding more resources, which unlocks capacity. When the market inflects, we believe AI will help us drive growth at scale while keeping fixed costs flat. Now turning to our servicing portfolio, a strategic asset that's worth much more than the $7 billion on our balance sheet. Our servicing asset plays an important role in growing our mortgage origination business. Let me unpack this a little more. Clients choose Rocket for the convenience and J.D. Power award-winning service. experiencing how easy it is to get a mortgage with us once they get their mortgage they move to our servicing platform where they continue to enjoy jd power award-winning service so it's no surprise that when they're ready to buy their next home lower their mortgage rate or tap into their home's equity they come back to rocket at a rate three times higher than the industry average Our servicing and origination businesses work together, creating a powerful cycle of attracting new clients, organically creating new MSRs, and keeping them for their next mortgage. This cycle creates lifelong clients and multiplies future origination and profitability growth. As we've discussed before, we're actively investing to reinforce this growth cycle. In the second quarter, we acquired $21 billion of unpaid principal balance and 67,000 new service clients for $315 million. These clients are immediate candidates for a new purchase mortgage, a home equity loan, or even a rate and term refinance. Looking at the broader market, around 6 million purchase mortgages have been originated since 2022 at current rates or higher. We expect many of these buyers will be highly motivated to pursue a refinance, even with a small drop in rate. In the past, consumers may have looked for a 60 to 75 basis point rate reduction to make the benefit worthwhile. Traditionally, getting a mortgage was a painful process for clients that could take up to 90 days before they'd start to see monthly savings. Today, at Rocket Mortgage, we're seeing clients refinance for less than a 50 basis point rate benefit. thanks to our fast and easy process, with the majority of clients closing in two weeks or less. Consider a borrower with a $400,000 mortgage. A 40 basis point rate reduction translates to a monthly savings of nearly $150. This difference is significant, especially as households feel the pinch of inflation. That money is a week's worth of groceries for the average household. From a capital perspective, Rocket's strong balance sheet and substantial liquidity continue to serve as a major competitive advantage and provide us with tremendous flexibility to invest for growth. We ended the second quarter with $3.2 billion of available cash and $7.2 billion of mortgage servicing rights. Together, these assets represent a total of approximately $10.4 billion of value on our balance sheet. Our $3.2 billion of available cash consists of $1.3 billion of cash on the balance sheet and an additional $1.9 billion of corporate cash used to self-fund loan originations. As of June 30th, total liquidity stood at approximately $8.6 billion, including available cash plus undrawn lines of credit. Subsequent to June 30th, we renewed our three-year $1,150,000,000 revolving credit facility, with more than 10 major banking partners participating. This fully committed facility, which is typically reserved for investment-grade institutions and is unmatched by any of our peers, further underscores our creditworthiness in strong financial standing. Having access to a range of diverse funding sources offers us great optionality to allocate capital and be opportunistic about investing for growth, whether through the acquisition of MSRs or other strategic options. For the third quarter of 2024, our guidance reflects trends observed to date with one month of actual performance. Although housing inventory is gradually recovering, high home prices and challenging affordability persist. An uncertain macroeconomic environment and a subdued spring home buying season have kept potential buyers on the sidelines. We anticipate the mortgage market in Q3 will mirror the conditions of Q2. We expect adjusted revenue to be in the range of $1,150,000,000 to $1,300,000,000. Regarding operating expenses, we expect Q3 to be flat compared to Q2. As always, our forward-looking guidance is based on our current outlook and visibility. We are fired up in executing with momentum to achieve our mission to help everyone home. Our assets and financial strength provide us with a competitive advantage to transform the home ownership market. I'm so excited to host everyone at our first Investor Day in Detroit on September 10th. We have some fantastic immersive experiences in store. that will showcase what we've launched to make home ownership easier and simpler. With that, we're ready to turn it back over to the operator for questions.