Rocket Companies, Inc.

Just this afternoon, our Rocket Company 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. This conference call includes forward-looking statements about, among other matters, expected operating and financial results strategic initiatives, and the anticipated up-sea collapse and acquisitions of Redfin and Mr. Cooper. These statements are subject to risks and uncertainties, which 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 for reported results can be found in our earnings release issued earlier today, as well as our filings with the SEC. And with that, I'll turn things over to Varun Krishna to get us started. Varun?

Good afternoon, everybody, and thank you for joining us on Rocket's first quarter 2025 earnings call. In today's call, I'm going to focus in on three areas. First, I'd like to talk about what we're seeing in the current market landscape. With that backdrop, I'm going to spend a few minutes recapping our strong Q1 performance, and lastly share some examples of what we're delivering for team members, broker partners, and clients, including our plans for the future with redson and mr cooper let's start with the housing market which kicked off on a positive note to start the year housing inventory was 25 percent moving from 3.2 to just over four months of supply year over year offering relief to buyers facing tight options 30-year fixed mortgage rates also declined from seven percent in january to around 6.6 percent in march briefly improving affordability and sparking refinance activity. Now, shifting into spring, April was a little unusual. It actually marked a sharp reversal in early year momentum, and that's for a few reasons. Following global tariff announcements, the stock and bond markets reacted with volatility, and the 10-year treasury yield fluctuated sharply. David Wiltshire- mortgage rates climb back to nearly 7% during the month and, at the same time, consumer sentiment, which was already softening continue to decline. David Wiltshire- According to redfin nearly one in four Americans are now delaying major purchases, including buying a home now spring typically brings increased activity. David Wiltshire- You usually see purchase applications in the industry rising between March and April. What's unusual is that the impact of all of these dynamics compounded when we saw weekly purchase applications actually decline by double digits throughout April, which the industry hasn't experienced since 2009 during the great financial crisis. While these short-term headwinds are shaping consumer behavior, certainly, it also reinforces our conviction for who we are and where we're going. In this environment, an integrated homeownership platform becomes an essential pursuit. Whether clients are searching, financing, or servicing their home, we believe Rocket must be built to meet them where they are and take them where they need to go. And providing more value across the entire chain is the best way to both grow our share and enable a better experience. Now, a strong platform can only reach its full potential with great teams behind it. A team that delivers in the short term while staying focused on the long game. A team that trusts each other in the trenches fights to win every inch that's how shorter term execution creates long-term growth and so execution is really the determining factor and that comes down to one thing the quality of your team and in q1 i am so proud of my rocket team because they demonstrated exactly that we reported 1.3 billion dollars in adjusted revenue at the high end of our guidance and four cents in adjusted diluted eps These results were fueled by the strength of our platform and the grit and determination of our team members. March, in particular, was a clear high point. It was our strongest March in three years across multiple fronts. We served 21% more origination clients than in March of 2023 and reduced turn times by 14%. Even more impressively, on a per-production team member basis, we served nearly 50% more clients compared to March of 2023. That's also AI in action, plain and simple. It is supercharging our team members, it is unlocking capacity, and it is simply enabling us to serve more clients in better ways than ever before. Lastly, we announced two strategic acquisitions that will transform Rocket's next chapter and the future of home ownership. And of course, I'll share more on that in just a minute. So let's unpack our execution and let's turn to the impact we delivered to team members, mortgage broker partners, and clients this quarter. Homeownership is fundamentally a human business. It's built on trust, connection, and empathy, which are human qualities. Our value proposition is to empower team members with the right tools, support mortgage brokers, real estate agents, and enterprise partners, and deliver exceptional emotional experiences to our clients. That, in a nutshell, is the power of the Rocket platform. There are many, many examples this quarter on how we've been bringing this to life, and I want to share a few of them with you. I'll start with our team members. Productivity is one of the most powerful levers we have to grow capacity without increasing fixed costs. Highly manual, specialized tasks can be one of the biggest costs in bottlenecks for us to scale. Take one simple but common example in housing. identifying the responsible party for the transfer tax payment when done manually it's a time-consuming error-prone process that requires combing through 20 to 30 pages for purchase agreements and counter offers per purchase transaction so in march we launched an agentic ai tool to fully automate this task the impact was immediate an estimated 50 reduction in remediation costs and projected savings of over one million dollars in 2025 alone. What's more, we went from idea to deployment within weeks, accelerating business value without needing a heavy lift from engineering teams' independencies. Agentsic AI is the next evolution beyond rule-based automation. It allows us to break down complex workflows into steps that AI agents can execute from end to end using targeted prompts and leveraging tools automatically. We've already identified more than a dozen additional use cases across underwriting and vendor functions, including title ordering, HOA reviews, and debt verifications, all aimed at unlocking capacity and accelerating cycle time. Let me share one more meaningful example of how innovation is directly emerging from our team members. Client calls remain one of the most critical touch points in our business. It's when our bankers connect with clients to help guide one of the most important financial decisions of their lives. Our retail bankers and banking leaders identified an opportunity to enhance call evaluation and coaching. Using our internal Navigator AI platform and Rocket Logic Synopsys, our call analysis platform, they prototyped a tool to analyze client calls without writing a single line of code. Within days, our engineers integrated the tool into RocketLogic, bringing a frontline idea into production with speed. Previously, banking leaders spent about 30 minutes manually reviewing each call to identify these coaching moments. This new tool automates that process, analyzing every single spoken word, categorizing calls by skill, product, and client behavior, and servicing the most relevant coaching opportunities all in real time. This is game changing. Review time has been reduced by more than 80%, allowing leaders to scale from just one to two reviews per banker per month at 10 times that volume. This efficiency frees up time for more complex client scenarios and more advanced coaching. Coaching and feedback now happen through a faster reinforcing feedback loop, which amplifies performance and productivity across the entire team. Bankers are also using the tool independently, reviewing their own calls, identifying their own improvement areas, and making self-driven real-time adjustments. With more than 100,000 calls now handled each day, the ability to improve even a single interaction at scale has transformational impact. It's the kind of leverage that turns every one of our 3,000 bankers into a super banker. So these are just a few examples of how we're unlocking capacity and executing faster across the company AI is handling the time intensive work and accelerating our ability to learn adapt and deliver even faster for our clients. let's shift gears and turn now to our mortgage broker partners a rocket pro channel stands for choice and flexibility. Over the last few months, we've delivered improvements that remove friction and make it easier than ever to partner with Rocket. In March, we rolled out a redesigned Rocket Pro dashboard, making it easier to navigate, servicing more relevant insights, and increasing transparency throughout the mortgage process. One standout feature was the native integration of Pathfinder, our searchable broker knowledge base, directly into this dashboard. The brokers now have instant access to policies, processes, and product-specific requirements right where they work, and usage has increased 30% since the dashboard launch. We also launched a new loan condition summary view showing what's outstanding, what's ready for underwriting, and providing direct links to take immediate action. At the end of April, RocketPro also went live on the Arrive platform, a loan origination and wholesale marketplace Rockets pricing and products are now fully integrated into a platform that brokers use every single day. The response was immediate and enthusiastic. Within days, more than 9,000 pricing calls were initiated, including activity from over 300 brokers engaging with Rocket Pro for the first time. We're doubling down to help our mortgage broker partners succeed by making it easier than ever to work with Rocket and thrive within our vibrant ecosystem. So let's now move to how we're serving clients. Q1 was a quarter where we helped more clients through innovative affordability programs. In February, we launched Rent Rewards, our first-to-market program designed to support renters in their transition to owning a home. Eligible clients can receive a promotional credit of 10% of their annual rent, up to $5,000, directly addressing a key affordability barrier and making homeownership more accessible for first-time buyers. In March, we backed rent rewards with a product marketing campaign leveraging our own the dream for creative idea. Traffic to the rent rewards landing page surge with over 1 million consumers expressing interest in the program. We also introduced one zero rate break a program that lowers the contract mortgage rates by 100 basis points in the first year, helping ease those upfront combine costs. These programs are resonating with potential homebuyers, driving a double digit increase in retail purchase clients with locked loans compared to the prior 90 day period before they launched. Let's take a step back and talk about the bigger picture. As we expand our reach and elevate the client experience, we're also making bigger moves to accelerate our vision of an integrated home ownership platform with the announced acquisitions of Redfin and Mr. Cooper. These acquisitions are fundamentally about three things, strengthening our business model, fueling our platform with data and ecosystem partners to power Rocket's AI, and building an elevated client experience. Rocket will have a balanced business model and a powerful springboard for growth. Servicing and origination will work in harmony across market cycles, and when rates rise, servicing values increase, and when rates fall, strong recapture delivers a steady flow of new originations. Rocket has a track record of growing share in a range of market environments. So together, this combination provides unmapped scale, more than 30 petabytes of proprietary data, thousands of real estate agents, tens of thousands of brokers and loan officers, nearly half a million origination clients with over 800 financial institutions. This is an ecosystem designed for client success, professional empowerment, and partner growth. Best of all is that clients win. Instead of a fragmented and costly process, they'll be able to search, buy, finance, and manage their home in one modern, fully connected, beautiful end-to-end experience. Integration is a top priority for our leadership team right now. Over the past several weeks, we've been working closely with leaders at Redfin and Mr. Cooper, and we're more energized than ever. Integration is also a multifaceted process and it is our top priority across the entire company. We share a culture of innovation and driving change through technology and a vision to build the future of homeownership. To our future team members at Redson and Mr. Cooper, I can't wait to welcome you to Rocket. We're excited to join forces and lead the future of homeownership together. We believe if 2024 was foundational 2025 will be evolutionary on a path for 2026 to be revolutionary. We remain, as ever, relentlessly focused in the pursuit of our end goal to create an integrated home ownership platform. Thank you. And with that, I'll turn it over to Brian.

Thank you, Varun, and good afternoon, everyone. Today, I'll walk through our first quarter performance, second quarter outlook, and I'll provide an update on the integration planning for Redfin and Mr. Cooper. We delivered strong results in the first quarter, and they are a direct testament to our team's continued focus and execution. Adjusted revenue reached $1.3 billion near the high end of our guidance range. We generated $26 billion in net rate lock volume, a 17% increase year over year, and an 11% quarter over quarter increase, driven by growth and refinance and continued momentum in our home equity loan offering. which posted yet another record quarter. Gain on sale margin came in at 289 basis points in the first quarter compared to 311 basis points in the same period last year and 298 basis points in the prior quarter. Our Q1 gain on sale margin was consistent with our weighted average gain on sale margin over the last 12 months. On an adjusted EBITDA basis, we delivered $169 million for a 13% adjusted EBITDA margin. We also reported adjusted net income of $80 million and adjusted diluted EPS came in at 4 cents. These results reflect our continued focus on driving growth and profitability while balancing deliberate investments with disciplined expense management. From January through March, which is typically a seasonally low quarter, we saw momentum build month over month. The 30-year fixed mortgage rate declined from nearly 7% at the start of the year to around 6.6% at the end of the quarter. Our team quickly capitalized on that opportunity through disciplined execution and the strength of our scalable technology platform. And we helped even more homebuyers and homeowners move forward with confidence. Mark was highly productive in our second highest production month in three years, coming in just shy of last September when rates dipped below 6%. At the time, we anticipated that momentum to carry into April with the start of the spring home buying season, consistent with trends we've seen in prior years. Looking back, we now know that wasn't the case. Early April brought heightened equity in bond market volatility following the announcement of new tariffs. The S&P 500 initially dropped nearly 15% and the 10-year treasury surged to 4.6%. While markets have since retraced much of that movement, the temporary spike in uncertainty caused many consumers to pause, resulting in a slower start to the home buying season. In this time of market volatility, concerns about job security, retirement savings, and overall affordability are weighing on consumers and leading many to delay significant purchases including buying a home. You can see this behavior in the MBA purchase application data, which declined throughout April and ended the month at the lowest level since February. Now, we are seeing early signs the housing market is gradually shifting in favor of homebuyers. On the supply side, inventory is building. Active home listings reached 960,000 in April, marking a 31% increase year over year. Homes are also staying on the market longer, which is contributing to moderating home price growth. Additionally, more sellers are offering concessions, helping to ease affordability pressures for buyers. The American dream of homeownership is very much alive, though potentially delayed this home buying season. Consumers continue to aspire to own homes, making it more important than ever to identify serious high intent buyers and serve them through an integrated homeownership platform. While this spring home buying season has gotten off to a slow start, we believe we'll see an uptick, especially as markets are starting to stabilize. For the second quarter, we expect adjusted revenue to be in the range of $1.175 billion to $1.325 billion, with the midpoint of this range representing a 2% year-over-year growth. This outlook reflects what was a challenging April from both the margin and volume perspective and our expectation that May and June will perform sequentially better than April. We're already seeing this expected improvement in the week leading up to this call. We view this guidance as strong, yet achievable, despite an uncertain market backdrop. Moving on to the cost side, we anticipate total expenses in Q2 to remain consistent with Q1. As we continue to make investments in our brand restage and purchase product offerings, the key objective of this investment has been to evolve towards a fully integrated marketing strategy, aligning brand, product, and performance marketing. And we're starting to see early signs of this working. From mid-February through April, total leads increased by nearly 10% compared to the prior year. More importantly, we saw a shift towards higher quality organic traffic to Rocket-owned properties, which is driving stronger conversion. In Q1, the number of verified approval letters increased by high single digits year over year. These verified approvals are a great way to identify high intent clients who convert at a rate two to three times higher than standard pre-approvals. As we see the halo effect of the brand restage take hold, We expect its impact, specifically elevated brand awareness and consideration, to carry into the second half of the year and beyond. This will allow us to return to historical brand spend levels, which would be approximately $100 million lower than what we'll see in the first half of the year. In addition, our origination capacity gives us operating leverage and financial flexibility. At our investor day in September of last year, We announced that we could support $150 billion in annual originations without adding a dollar of fixed costs. That capacity number continues to grow every day and is now well north of $150 billion. AI and automation continue to significantly enhance productivity and provide levers to scale efficiently. If the housing market and rate environment doesn't cooperate, We have the ability to turn that excess capacity into cost savings in the second half of this year. That option value associated with this excess capacity is a luxury that we believe only Rocket has and is a direct result of the significant technology investments over the past decade. Now, turning to the acquisitions. Our announced acquisitions of Redfin and Mr. Cooper bring together three iconic companies to build the most complete and connected platform in home ownership. Redfin brings real estate search and brokerage. Rocket delivers origination scale. Mr. Cooper contributes servicing strength. Together, they create an end-to-end platform built for efficiency, reach, and client value. These acquisitions give us a durable all-weather business model with a diverse revenue base and a strong foundation for growth. They fuel our platform with data and AI, expand our ecosystem through key partnerships, and enable us to deliver an elevated client experience. The combination of Rocket, Redfin, and Mr. Cooper provides a true super funnel with low customer acquisition costs, shared infrastructure, in an end-to-end connectivity across the homeownership journey. Our collective teams across all three companies are already working hard, putting together detailed integration plans, including clear milestones. We've identified more than 35 integration workstreams, formed several steering committees, and we're moving quickly and decisively to ensure we can start to realize synergy value after closing. In parallel, we announced the collapse of our up-sea structure to simplify our corporate structure and make our tax obligations and financial statement reporting easier to understand. Following the completion of both all stock transactions, Redfin and Mr. Cooper, we expect our Class A public float to increase from approximately 7% today to around 35%. Any of these moves would be meaningful on its own. Taken together, they reflect our ambition our discipline, and our readiness to lead the next chapter of homeownership. Finally, I want to highlight the strength of our balance sheet, which is a clear competitive advantage, especially in an uncertain market. As of March 31st, we held $2.9 billion in available cash and $7.4 billion in mortgage servicing rights, totaling $10.3 billion in balance sheet value. Total liquidity stood at $8.1 billion. That includes $1.4 billion of cash on the balance sheet, $1.5 billion in corporate cash used to self-fund originations, $3.2 billion in undrawn lines of credit, and $2 billion of undrawn MSR facilities. In April, we extended our existing $1.15 billion revolving credit facility. Given by strong demand and a positive outlook on our pending acquisitions, we successfully upsize the facility to $2.25 billion, contingent on the transactions closed. This enhanced capital and liquidity position, supported by a diverse roster of strong financial institutions, positions us to invest strategically, stay agile, and navigate market shifts with confidence. In closing, we are confident in the path ahead. This is a moment that demands readiness and resilience, and Rocket is built for both. We're showing up every day with urgency, clarity, and discipline. And with Redfin and Mr. Cooper joining our platform, we'll be taking another step forward in redefining how Americans experience home ownership. To our future team members at Redfin and Mr. Cooper, we look forward to welcoming you to Rocket. We're excited to build together. Operator, we're now ready to turn it over