Rocket Companies Announces Fourth Quarter and Full Year 2023 Results
- Rocket Companies (RKT) achieved impressive Q4'23 results with net revenue of $694 million and adjusted revenue of $885 million.
- Year-over-year growth accelerated for the second consecutive quarter, reflecting strong performance.
- Full-year 2023 net revenue reached $3.8 billion, showcasing consistent growth.
- Cost structure was significantly reduced by almost 20% in 2023, following a 25% reduction in 2022.
- Q4'23 saw a GAAP net loss of $233 million, while adjusted EBITDA profitability was maintained for the third consecutive quarter.
- Rocket Mortgage's closed loan origination volume was $17 billion in Q4'23, demonstrating robust activity.
- Rocket Companies reported a gain on sale margin of 2.68% in Q4'23, marking a substantial increase over the previous year.
- The company's total liquidity stood at approximately $9.0 billion as of December 31, 2023, showcasing strong financial stability.
- Rocket Mortgage generated $78.7 billion in mortgage origination closed loan volume for the full year 2023, with a gain on sale margin of 2.63%.
- Rocket Companies executed a disciplined cost management strategy, reducing expenses by nearly 20% in 2023 through technology-led productivity gains.
- Rocket Mortgage's net client retention rate was an impressive 97% for the 12 months ended December 31, 2023, indicating strong customer loyalty.
- Rocket Companies introduced innovative products in 2023 like home equity loans, ONE+, and BUY+, attracting new clients and expanding its offerings.
- The company received numerous accolades in January and February, underscoring its industry recognition and consumer trust.
- Rocket Companies demonstrated its commitment to corporate responsibility through initiatives like the Rocket Mortgage Classic, supporting local communities.
- Rocket Companies appointed Jonathan Mildenhall as its Chief Marketing Officer and expanded its Board of Directors to enhance leadership and strategic direction.
- None.
Insights
An examination of Rocket Companies, Inc.'s Q4 and full-year 2023 financial results reveals several key points that are significant to stakeholders and the broader market. Firstly, the company's adjusted revenue outperformance in Q4, surpassing guidance, indicates a robust revenue management strategy despite a challenging mortgage origination environment. This is underscored by the acceleration of year-over-year growth for two consecutive quarters, which could signal improving operational efficiency or market conditions.
Another critical aspect is the substantial cost reduction efforts, with nearly 20% slashed in 2023 after a 25% reduction in 2022. This aggressive cost management could improve the company's profitability outlook and is typically well-received by investors as it suggests a focus on sustainable growth. However, it's important to consider the potential long-term impacts on the company's operations and whether these cuts could affect service quality or innovation capacity.
Despite posting a GAAP net loss, the company delivered positive adjusted EBITDA for the third consecutive quarter. This profitability metric is often a focus for investors as it excludes non-cash expenses and provides a clearer view of operating performance. The emphasis on AI and automation for operational efficiency and client experience is notable, as it likely contributes to the improved gain on sale margin and could be a differentiator in the competitive mortgage industry.
The reported increase in purchase and refinance market share by double digits is indicative of Rocket Companies' growing influence in the mortgage sector. Market share gains are a strong indicator of competitive positioning and customer acquisition effectiveness, which are critical in the cyclical and competitive mortgage industry. The introduction of innovative products such as home equity loans, ONE+ and BUY+ and their appeal to new clients, further suggest that the company's product diversification strategy is resonating with consumers.
It is also worth noting that the net client retention rate of 97% is exceptionally high, comparable to leading subscription business models. Such retention rates can significantly enhance client lifetime value, contributing to a more predictable and stable revenue stream. This metric is particularly relevant for investors as it implies customer satisfaction and loyalty, which are vital for long-term business success.
The company's liquidity position, with total liquidity of approximately $9.0 billion, provides it with a strong buffer to navigate market volatility and invest in growth opportunities. The balance sheet strength is a key consideration for investors, especially in a rising interest rate environment where access to capital can become constrained.
Rocket Companies' report mentions several non-financial corporate activities that, while secondary to the core financial analysis, can impact the company's brand reputation and regulatory compliance. The appointment of a new Chief Marketing Officer and the expansion of the Board of Directors with industry veterans are strategic moves that could influence the company's marketing effectiveness and governance practices. Such changes are generally seen as positive unless they lead to disruptions in the company's strategic direction.
Moreover, the company's corporate responsibility initiatives, such as the Rocket Mortgage Classic's charitable contributions and the Make It Home program, contribute to its corporate social responsibility profile. While these do not directly impact financial performance, they can enhance the company's public image and potentially its customer base, which may indirectly influence long-term financial health.
It is also important to be aware of the company's legal and regulatory environment, especially given the significant role of AI and automation in their operations. Ensuring compliance with evolving data privacy and AI regulations is critical to mitigate legal risks and maintain consumer trust.
- Generated Q4'23 net revenue of
$694 million $885 million - Reported full year 2023 net revenue and adjusted revenue of
$3.8 billion - Reduced cost structure by nearly
20% in 2023, following a nearly25% cost reduction in 2022 - Reported Q4'23 GAAP net loss of
$233 million $(0.09) $6 million $0.00 - Delivered adjusted EBITDA profitability for the full year and in Q4'23, for the third quarter in a row
"I'm proud of our team members for consistent execution amid one of the most challenging years for mortgage originations in three decades. We demonstrated accelerating year-over-year revenue growth in the quarter, and positive adjusted EBITDA for the third quarter in a row. We once again made strides in market share, as our purchase and refinance share grew by double-digits in 2023," said Varun Krishna, CEO and director of Rocket Companies. "We enter 2024 with momentum and Rocket is well-positioned to fulfill its strategy of AI-fueled home ownership. AI is being deployed across the organization to deliver industry-best client experiences, with the aim to achieve scaled growth in market share, revenue, and profitability."
Fourth Quarter 2023 Financial Summary1 | |||||||
ROCKET COMPANIES ($ in millions, except per share amounts) | |||||||
Q4-23 | Q4-22 | FY 23 | FY 22 | ||||
(Unaudited) | (Unaudited) | ||||||
Total Revenue, net | $ 694 | $ 481 | $ 3,799 | $ 5,838 | |||
Total Expenses | $ 937 | $ 986 | $ 4,202 | $ 5,097 | |||
GAAP Net (Loss) Income | $ (233) | $ (493) | $ (390) | $ 700 | |||
Adjusted Revenue | $ 885 | $ 683 | $ 3,770 | $ 4,628 | |||
Adjusted Net Loss | $ (6) | $ (197) | $ (143) | $ (137) | |||
Adjusted EBITDA | $ 55 | $ (204) | $ 67 | $ 59 | |||
GAAP Diluted (Loss) Earnings Per Share | $ (0.09) | $ (0.14) | $ (0.15) | $ 0.28 | |||
Adjusted Diluted Loss Per Share | $ 0.00 | $ (0.10) | $ (0.07) | $ (0.07) | |||
($ in millions) | ||||||||
Q4-23 | Q4-22 | FY 23 | FY 22 | |||||
Select Metrics | (Unaudited) | (Unaudited) | ||||||
Closed loan origination volume | $ 17,261 | $ 19,030 | $ 78,712 | $ 133,129 | ||||
Gain on sale margin | 2.68 % | 2.17 % | 2.63 % | 2.82 % | ||||
Net rate lock volume | $ 16,055 | $ 15,012 | $ 78,649 | $ 117,757 | ||||
1 "GAAP" stands for Generally Accepted Accounting Principles in the | |||||||||||||||||||
Fourth Quarter and Full Year 2023 Financial Highlights
During the fourth quarter of 2023:
- Generated total revenue, net of
$694 million $233 million 9 cents per diluted share. Generated total adjusted revenue of$885 million $6 million 0 cents per diluted share.
- Rocket Mortgage generated
$17 billion
- Gain on sale margin was
2.68% , a 51 bps increase over the same period the prior year.
- Total liquidity was approximately
$9.0 billion $1.1 billion $2.5 billion $3.4 billion $2.0 billion
- Servicing portfolio unpaid principal balance, which includes subserviced loans, was
$509 billion $1.4 billion
During the full year of 2023:
- Generated total revenue, net of
$3.8 billion $390 million 15 cents per diluted share. Generated total adjusted revenue of$3.8 billion $143 million 7 cents per diluted share.
- Rocket Mortgage generated
$78.7 billion 2.63% .
- Purchase market share grew by
14% , and refinance market share grew by10% from 2022 to 2023.
- We executed a disciplined and prudent approach to cost management. After cutting nearly
25% of our cost base in 2022, we further reduced expenses in 2023 by nearly20% , through technology-led productivity gains, prioritization efforts and organizational right-sizing.
- Rocket Mortgage net client retention rate was
97% for the 12 months ended December 31, 2023. There is a strong correlation between this metric and client lifetime value. We believe our net client retention rate is unmatched among mortgage companies and on par with some of the best performing subscription business models in the world.
Company Highlights
- Automation and AI are helping to deliver higher accuracy and operational efficiency at scale in mortgage underwriting. In December, nearly two-thirds of income verifications were automated without an underwriter needing to intervene, a 5-fold improvement compared to 15 months prior. This technology has been extended to our broker partners, to further complement the offerings we provide to help them grow their business with Rocket.
- In 2023, we facilitated 3.1 million servicing client interactions. Our servicing calls and chats are increasingly powered by AI, providing clients with smart, conversational, self-service experiences 24/7. Approximately
70% of our servicing calls and chats are self-serve without the need of team member assistance, with escalation to team members reserved for instances requiring the human touch. We have seen a continuing trend of lower call volume in servicing, as our AI-powered digital experiences become the preferred choice for our clients.
- Home equity loans, ONE+ and BUY+ were innovative products that we introduced in 2023 which have resonated strongly with new and existing clients. Notably, the vast majority of clients who came to us through home equity loans, ONE+ or BUY+ were new clients who did not already have a loan with us. These innovative solutions, along with our purchase and refinance products, attract new clients to the Rocket ecosystem, allowing us to deliver great client service not only for the first time, but for their entire lives as homeowners.
- In January and February, Rocket received numerous accolades across multiple industry outlets. Rocket Mortgage and Rocket Homes were honored on the HousingWire Tech 100 list in the Mortgage and Real Estate categories. Rocket Mortgage also received recognition from
USA Today, Motley Fool and Nerdwallet.
- In December, Rocket Money was the #1 app for daily downloads in the Apple App Store Finance category and reached #6 in the top iOS charts. Rocket Money also received recognition across numerous media outlets, including Business Insider, Bankrate and ZDNet. Rocket Money empowers consumers to take control of their financial future, amassing more than 5 million members and saving consumers
$1 billion
- Rocket Homes launched its iOS app in Apple CarPlay and Apple Vision Pro, enabling consumers to use new modalities such as voice and virtual reality to search and discover their next dream home. In December, Rocket Homes launched an iOS app for Apple CarPlay, bringing the home search and discovery experience to the infotainment screens of cars, trucks and SUVs. In February, Rocket Homes launched the first home search app available for Apple Vision Pro, delivering an immersive experience that blends physical and virtual worlds to view and tour homes.
- On January 4, 2024, the Company announced that Jonathan Mildenhall was named the first Chief Marketing Officer (CMO) of Rocket Companies. Mildenhall, previously CMO at Airbnb, and prior to that spent eight years at The Coca-Cola Company, brings 35 years of experience building best-in-class, iconic consumer brands. In this new role, Mildenhall will be responsible for reimagining the Rocket brand and creating a unified voice for businesses under the Rocket Companies umbrella.
- The Board of Directors of Rocket Companies, upon the recommendation of the Nominating and Governance Committee of the Board, voted to expand the Board to nine directors and fill the newly created vacancies by appointing Varun Krishna, the Company's Chief Executive Officer, and Alex Rampell, on December 21, 2023 and February 1, 2024, respectively. Rampell currently serves as General Partner at Andreessen Horowitz and serves on the boards of several Andreessen Horowitz portfolio companies.
Rocket Corporate Responsibility: For-More-Than-Profit
- The Rocket Mortgage Classic recently announced that it raised
$1.6 million Detroit nonprofit organizations through the 2023 tournament. Since 2019, the Rocket Mortgage Classic has invested more than$8.4 million $4.3 million Detroit residents to high-speed internet, digital devices and digital training. The Rocket Mortgage Classic was also named the recipient of the PGA TOUR's "Fair Way Award" for the second time. The award recognizes tournaments that excel at diversity, inclusion and social responsibility programs promoting equity, fairness, respect and openness in the local community.
- In October, the Rocket Community Fund, a partner company, along with
Detroit Mayor Mike Duggan and the United Community Housing Coalition announced that 104 Detroit families were able to become homeowners through the Make It Home program in 2023, bringing the program's total to 1,500 families that have avoided tax foreclosure-related displacement since the program's launch in 2017. Make It Home enables eligible Detroiters occupying tax-foreclosed houses to become homeowners, rather than face eviction.
- In December, the Rocket Community Fund and the Legal Aid Society of
Cleveland announced a$1.3 million Cleveland residents. The Rocket Community Fund's commitment to rental assistance is based, in part, on findings from Neighbor to Neighbor, the organization's flagship community outreach and engagement program.
First Quarter 2024 Outlook2
In Q1 2024, we expect adjusted revenue of between
2 Please see the section of this document titled "Non-GAAP Financial Measures" for more information. |
Direct to Consumer
In the Direct to Consumer segment, clients have the ability to interact with the Rocket Mortgage app and/or with the Company's mortgage bankers. The Company markets to potential clients in this segment through various brand campaigns and performance marketing channels. The Direct to Consumer segment derives revenue from originating, closing, selling and servicing predominantly agency-conforming loans, which are pooled and sold to the secondary market. The segment also includes title insurance, appraisals and settlement services complementing the Company's end-to-end mortgage origination experience. Servicing activities are fully allocated to the Direct to Consumer segment and are viewed as an extension of the client experience. Servicing enables Rocket Mortgage to establish and maintain long term relationships with our clients, through multiple touchpoints at regular engagement intervals.
DIRECT TO CONSUMER3 ($ in millions) | |||||||
Q4-23 | Q4-22 | FY 23 | FY 22 | ||||
(Unaudited) | (Unaudited) | ||||||
Sold loan volume | $ 10,360 | $ 11,919 | $ 43,598 | $ 84,142 | |||
Sold loan gain on sale margin | 4.04 % | 4.03 % | 3.86 % | 4.14 % | |||
Revenue, net | $ 484 | $ 325 | $ 2,989 | $ 4,780 | |||
Adjusted Revenue | $ 675 | $ 527 | $ 2,960 | $ 3,569 | |||
Contribution margin | $ 264 | $ 46 | $ 1,036 | $ 1,051 | |||
Partner Network
The Rocket Professional platform supports our Partner Network segment, where we leverage our superior client service and widely recognized brand to grow marketing and influencer relationships, and our mortgage broker partnerships through Rocket Pro TPO ("third party origination"). Our marketing partnerships consist of well-known consumer-focused companies that find value in our award-winning client experience and want to offer their clients mortgage solutions with our trusted, widely recognized brand. These organizations connect their clients directly to us through marketing channels and a referral process. Our influencer partnerships are typically with companies that employ licensed mortgage professionals that find value in our client experience, technology and efficient mortgage process, where mortgages may not be their primary offering. We also enable clients to start the mortgage process through the Rocket platform in the way that works best for them, including through a local mortgage broker.
PARTNER NETWORK3 ($ in millions) | |||||||
Q4-23 | Q4-22 | FY 23 | FY 22 | ||||
(Unaudited) | (Unaudited) | ||||||
Sold loan volume | $ 8,460 | $ 9,132 | $ 34,893 | $ 60,499 | |||
Sold loan gain on sale margin | 1.16 % | 0.95 % | 1.05 % | 1.05 % | |||
Revenue, net | $ 110 | $ 71 | $ 439 | $ 639 | |||
Adjusted Revenue | $ 110 | $ 71 | $ 439 | $ 639 | |||
Contribution margin | $ 61 | $ 12 | $ 198 | $ 276 | |||
3 We measure the performance of the Direct to Consumer and Partner Network segments primarily on a contribution margin basis. Contribution margin is intended to measure the direct profitability of each segment and is calculated as Adjusted Revenue less directly attributable expenses. Directly attributable expenses include salaries, commissions and team member benefits, general and administrative expenses, and other expenses, such as direct servicing costs and origination costs. A loan is considered "sold" when it is sold to investors on the secondary market. See "Summary Segment Results" section later in this document and the footnote on "Segments" in the "Notes to Consolidated Financial Statements" in the Company's forthcoming filing on Form 10-K for more information. |
Balance Sheet and Liquidity
Total available cash was
BALANCE SHEET HIGHLIGHTS ($ in millions) | |||
December 31, 2023 | December 31, 2022 | ||
(Unaudited) | |||
Cash and cash equivalents | $ 1,108 | $ 722 | |
Mortgage servicing rights ("MSRs"), at fair value | $ 6,440 | $ 6,947 | |
Funding facilities | $ 3,367 | $ 3,549 | |
Other financing facilities and debt | $ 4,237 | $ 4,701 | |
Total equity | $ 8,302 | $ 8,476 | |
Fourth Quarter and Full Year Earnings Call
Rocket Companies will host a live conference call at 4:30 p.m. ET on February 22, 2024 to discuss its results for the quarter ended December 31, 2023. A live webcast of the event will be available online by clicking on the "Investor Info" section of our website. The webcast will also be available via rocketcompanies.com.
A replay of the webcast will be available on the Investor Relations site following the conclusion of the event.
Consolidated Statements of Income (Loss) ($ In Thousands, Except Per Share Amounts) | |||||||
Three Months Ended December 31, | Years Ended December 31, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
(Unaudited) | (Unaudited) | ||||||
Revenue | |||||||
Gain on sale of loans | |||||||
Gain (loss) on sale of loans excluding fair value of | $ 187,832 | $ (7,498) | $ 973,960 | $ 1,166,770 | |||
Fair value of originated MSRs | 242,305 | 288,281 | 1,092,332 | 1,970,647 | |||
Gain on sale of loans, net | 430,137 | 280,783 | 2,066,292 | 3,137,417 | |||
Loan servicing (loss) income | |||||||
Servicing fee income | 347,743 | 370,633 | 1,401,780 | 1,458,637 | |||
Change in fair value of MSRs | (357,845) | (407,126) | (700,982) | 185,036 | |||
Loan servicing (loss) income, net | (10,102) | (36,493) | 700,798 | 1,643,673 | |||
Interest income | |||||||
Interest income | 86,079 | 85,101 | 327,448 | 350,591 | |||
Interest expense on funding facilities | (44,905) | (35,812) | (206,588) | (166,388) | |||
Interest income, net | 41,174 | 49,289 | 120,860 | 184,203 | |||
Other income | 232,597 | 187,213 | 911,319 | 873,200 | |||
Total revenue, net | 693,806 | 480,792 | 3,799,269 | 5,838,493 | |||
Expenses | |||||||
Salaries, commissions and team member benefits | 484,793 | 519,024 | 2,257,291 | 2,797,868 | |||
General and administrative expenses | 207,651 | 196,342 | 802,865 | 906,195 | |||
Marketing and advertising expenses | 142,823 | 175,413 | 736,676 | 945,694 | |||
Depreciation and amortization | 26,593 | 23,987 | 110,271 | 94,020 | |||
Interest and amortization expense on non-funding | 38,365 | 38,333 | 153,386 | 153,596 | |||
Other expenses | 36,486 | 33,111 | 141,677 | 199,209 | |||
Total expenses | 936,711 | 986,210 | 4,202,166 | 5,096,582 | |||
(Loss) income before income taxes | (242,905) | (505,418) | (402,897) | 741,911 | |||
Benefit from (provision for) income taxes | 10,211 | 12,763 | 12,817 | (41,978) | |||
Net (loss) income | (232,694) | (492,655) | (390,080) | 699,933 | |||
Net loss (income) attributable to non-controlling | 222,059 | 475,039 | 374,566 | (653,512) | |||
Net (loss) income attributable to Rocket Companies | $ (10,635) | $ (17,616) | $ (15,514) | $ 46,421 | |||
(Loss) earnings per share of Class A common stock: | |||||||
Basic | $ (0.08) | $ (0.14) | $ (0.12) | $ 0.39 | |||
Diluted | $ (0.09) | $ (0.14) | $ (0.15) | $ 0.28 | |||
Weighted average shares outstanding | |||||||
Basic | 133,597,434 | 121,751,798 | 128,641,762 | 120,577,548 | |||
Diluted | 1,987,457,044 | 121,751,798 | 1,980,523,690 | 1,971,620,573 | |||
Consolidated Balance Sheets ($ In Thousands) | |||
December 31, | December 31, | ||
Assets | (Unaudited) | ||
Cash and cash equivalents | $ 1,108,466 | $ 722,293 | |
Restricted cash | 28,366 | 66,806 | |
Mortgage loans held for sale, at fair value | 6,542,232 | 7,343,475 | |
Interest rate lock commitments ("IRLCs"), at fair value | 132,870 | 90,635 | |
Mortgage servicing rights ("MSRs"), at fair value | 6,439,787 | 6,946,940 | |
Notes receivable and due from affiliates | 19,530 | 10,796 | |
Property and equipment, net | 250,856 | 274,192 | |
Deferred tax asset, net | 550,149 | 537,963 | |
Lease right of use assets | 347,696 | 366,189 | |
Forward commitments, at fair value | 26,614 | 22,444 | |
Loans subject to repurchase right from Ginnie Mae | 1,533,387 | 1,642,392 | |
Goodwill and intangible assets, net | 1,236,765 | 1,258,928 | |
Other assets | 1,015,022 | 799,159 | |
Total assets | $ 19,231,740 | $ 20,082,212 | |
Liabilities and equity | |||
Liabilities: | |||
Funding facilities | $ 3,367,383 | $ 3,548,699 | |
Other financing facilities and debt: | |||
Senior Notes, net | 4,033,448 | 4,027,970 | |
Early buy out facility | 203,208 | 672,882 | |
Accounts payable | 171,350 | 116,331 | |
Lease liabilities | 393,882 | 422,769 | |
Forward commitments, at fair value | 142,988 | 25,117 | |
Investor reserves | 92,389 | 110,147 | |
Notes payable and due to affiliates | 31,006 | 33,463 | |
Tax receivable agreement liability | 584,695 | 613,693 | |
Loans subject to repurchase right from Ginnie Mae | 1,533,387 | 1,642,392 | |
Other liabilities | 376,294 | 393,200 | |
Total liabilities | $ 10,930,030 | $ 11,606,663 | |
Equity | |||
Class A common stock | $ 1 | $ 1 | |
Class B common stock | — | — | |
Class C common stock | — | — | |
Class D common stock | 19 | 19 | |
Additional paid-in capital | 340,532 | 276,221 | |
Retained earnings | 284,296 | 300,394 | |
Accumulated other comprehensive income | 52 | 69 | |
Non-controlling interest | 7,676,810 | 7,898,845 | |
Total equity | 8,301,710 | 8,475,549 | |
Total liabilities and equity | $ 19,231,740 | $ 20,082,212 | |
Summary Segment Results for the Years Ended December 31, 2023 and 2022, ($ in millions) (Unaudited) | |||||||||
Three Months Ended December 31, 2023 | Direct to Consumer | Partner Network | Segments Total | All Other | Total | ||||
Total U.S. GAAP Revenue, net | $ 484 | $ 110 | $ 594 | $ 100 | $ 694 | ||||
Change in fair value of MSRs due to valuation | 191 | — | 191 | — | 191 | ||||
Adjusted Revenue | $ 675 | $ 110 | $ 784 | $ 100 | $ 885 | ||||
Less: Directly attributable expenses | 410 | 49 | 459 | 85 | 544 | ||||
Contribution margin (1) | $ 264 | $ 61 | $ 325 | $ 15 | $ 340 | ||||
Three Months Ended December 31, 2022 | Direct to | Partner Network | Segments Total | All Other | Total | ||||
Total U.S. GAAP Revenue, net | $ 325 | $ 71 | $ 396 | $ 84 | $ 481 | ||||
Change in fair value of MSRs due to valuation | 202 | — | 202 | — | 202 | ||||
Adjusted Revenue | $ 527 | $ 71 | $ 598 | $ 84 | $ 683 | ||||
Less: Directly attributable expenses | 480 | 60 | 540 | 54 | 594 | ||||
Contribution margin (1) | $ 46 | $ 12 | $ 58 | $ 31 | $ 89 | ||||
Years Ended December 31, 2023 | Direct to | Partner Network | Segments Total | All Other | Total | ||||
Total | $ 2,989 | $ 439 | $ 3,428 | $ 371 | $ 3,799 | ||||
Change in fair value of MSRs due to valuation | (29) | — | (29) | — | (29) | ||||
Adjusted Revenue | $ 2,960 | $ 439 | $ 3,399 | $ 371 | $ 3,770 | ||||
Less: Directly attributable expenses | 1,924 | 240 | 2,165 | 328 | 2,492 | ||||
Contribution margin (1) | $ 1,036 | $ 198 | $ 1,234 | $ 44 | $ 1,278 | ||||
Years Ended December 31, 2022 | Direct to | Partner Network | Segments Total | All Other | Total | ||||
Total | $ 4,780 | $ 639 | $ 5,419 | $ 420 | $ 5,838 | ||||
Change in fair value of MSRs due to valuation | (1,211) | — | (1,211) | — | (1,211) | ||||
Adjusted Revenue | $ 3,569 | $ 639 | $ 4,208 | $ 420 | $ 4,628 | ||||
Less: Directly attributable expenses | 2,518 | 362 | 2,880 | 359 | 3,239 | ||||
Contribution margin (1) | $ 1,051 | $ 276 | $ 1,327 | $ 61 | $ 1,388 | ||||
(1) | We measure the performance of the segments primarily on a contribution margin basis. Contribution margin is intended to measure the direct profitability of each segment and is calculated as Adjusted Revenue less directly attributable expenses. Adjusted Revenue is a non-GAAP financial measure described below. Directly attributable expenses include salaries, commissions and team member benefits, general and administrative expenses, marketing and advertising expenses and other expenses, such as direct servicing costs and origination costs. |
GAAP to non-GAAP Reconciliations | |||||||
Adjusted Revenue Reconciliation ($ in millions) | |||||||
Three Months Ended December 31, | Years Ended December 31, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
(Unaudited) | (Unaudited) | ||||||
Total revenue, net | $ 694 | $ 481 | $ 3,799 | $ 5,838 | |||
Change in fair value of MSRs due to | 191 | 202 | (29) | (1,211) | |||
Adjusted Revenue | $ 885 | $ 683 | $ 3,770 | $ 4,628 | |||
(1) | Reflects changes in assumptions including discount rates and prepayment speed assumptions, mostly due to changes in market interest rates, and the effects of contractual prepayment protection associated with sales or purchases of MSRs. |
Adjusted Net Loss Reconciliation ($ in millions) | |||||||
Three Months Ended | Years Ended December 31, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
(Unaudited) | (Unaudited) | ||||||
Net (loss) income attributable to Rocket Companies | $ (11) | $ (18) | $ (16) | $ 46 | |||
Net (loss) income impact from pro forma conversion of Class D | (222) | (474) | (373) | 656 | |||
Adjustment to the benefit from (provision for) income tax (2) | 49 | 120 | 85 | (139) | |||
Tax-effected net (loss) income (2) | (183) | (372) | (303) | 563 | |||
Share-based compensation expense (3) | 35 | 48 | 177 | 234 | |||
Change in fair value of MSRs due to valuation assumptions (net of | 191 | 202 | (29) | (1,211) | |||
Career transition program (5) | — | — | 51 | 81 | |||
Change in Tax receivable agreement liability (6) | 7 | (10) | 7 | (34) | |||
Tax impact of adjustments (7) | (57) | (65) | (50) | 226 | |||
Other tax adjustments (8) | 1 | 1 | 4 | 4 | |||
Adjusted Net Loss | $ (6) | $ (197) | $ (143) | $ (137) | |||
(1) | Reflects net (loss) income to Class A common stock from pro forma exchange and conversion of corresponding shares of our Class D common shares held by non-controlling interest holders as of December 31, 2023 and 2022. |
(2) | Rocket Companies is subject to |
(3) | The years ended December 31, 2023 and 2022 amounts exclude the impact of the career transition program. |
(4) | Reflects changes in assumptions including discount rates and prepayment speed assumptions, mostly due to changes in market interest rates, and the effects of contractual prepayment protection associated with sales or purchases of MSRs. |
(5) | Reflects net expenses associated with compensation packages, healthcare coverage, career transition services, and accelerated vesting of certain equity awards. |
(6) | Reflects changes in estimates of tax rates and other variables of the Tax receivable agreement liability. |
(7) | Tax impact of adjustments gives effect to the income tax related to share-based compensation expense, the change in fair value of MSRs due to valuation assumptions, career transition program, and the change in Tax receivable agreement liability, at the effective tax rates for each period. |
(8) | Represents tax benefits due to the amortization of intangible assets and other tax attributes resulting from the purchase of Holdings units, net of payment obligations under Tax Receivable Agreement. |
Adjusted Diluted Weighted Average Shares Outstanding Reconciliation ($ in millions, except per share amounts) | |||||||
Three Months Ended | Years Ended December 31, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
(Unaudited) | (Unaudited) | ||||||
Diluted weighted average Class A Common shares outstanding | 1,987,457,044 | 121,751,798 | 1,980,523,690 | 1,971,620,573 | |||
Assumed pro forma conversion of Class D shares (1) | — | 1,848,879,483 | — | — | |||
Adjusted diluted weighted average shares outstanding | 1,987,457,044 | 1,970,631,281 | 1,980,523,690 | 1,971,620,573 | |||
Adjusted Net Loss | $ (6) | $ (197) | $ (143) | $ (137) | |||
Adjusted Diluted Loss Per Share | $ 0.00 | $ (0.10) | $ (0.07) | $ (0.07) | |||
(1) | Reflects the pro forma exchange and conversion of non-dilutive Class D common stock to Class A common stock. For the years ended December 31, 2023 and 2022 and the three months ended December 31, 2023, Class D common shares were dilutive and are included in the diluted weighted average Class A common shares outstanding in the table above. For the three months ended December, 31, 2022, Class D common shares were anti-dilutive and therefore included in the pro forma conversion of Class D shares in the table above. |
Adjusted EBITDA Reconciliation ($ in millions) | |||||||
Three Months Ended | Years Ended December 31, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
(Unaudited) | (Unaudited) | ||||||
Net (loss) income | $ (233) | $ (493) | $ (390) | $ 700 | |||
Interest and amortization expense on non-funding debt | 38 | 38 | 153 | 154 | |||
(Benefit from) provision for income taxes | (10) | (13) | (13) | 42 | |||
Depreciation and amortization | 27 | 24 | 110 | 94 | |||
Share-based compensation expense (1) | 35 | 48 | 177 | 234 | |||
Change in fair value of MSRs due to valuation assumptions (net of | 191 | 202 | (29) | (1,211) | |||
Career transition program (3) | — | — | 51 | 81 | |||
Change in Tax receivable agreement liability (4) | 7 | (10) | 7 | (34) | |||
Adjusted EBITDA | $ 55 | $ (204) | $ 67 | $ 59 | |||
(1) | The years ended December 31, 2023 and 2022 amounts exclude the impact of the career transition program. |
(2) | Reflects changes in assumptions including discount rates and prepayment speed assumptions, mostly due to changes in market interest rates, and the effects of contractual prepayment protection associated with sales or purchases of MSRs. |
(3) | Reflects net expenses associated with compensation packages, healthcare coverage, career transition services, and accelerated vesting of certain equity awards. |
(4) | Reflects changes in estimates of tax rates and other variables of the Tax receivable agreement liability. |
Non-GAAP Financial Measures
To provide investors with information in addition to our results as determined by GAAP, we disclose Adjusted Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share and Adjusted EBITDA (collectively "our non-GAAP financial measures") as non-GAAP measures. We believe that the presentation of our non-GAAP financial measures provides useful information to investors regarding our results of operations because each measure assists both investors and management in analyzing and benchmarking the performance and value of our business. Our non-GAAP financial measures are not calculated in accordance with GAAP and should not be considered as a substitute for Total revenue, net, Net income (loss), or any other operating performance measure calculated in accordance with GAAP. Other companies may define non-GAAP financial measures differently, and as a result, our measures of our non-GAAP financial measures may not be directly comparable to those of other companies. Our non-GAAP financial measures provide indicators of performance that are not affected by fluctuations in certain costs or other items. Accordingly, management believes that these measurements are useful for comparing general operating performance from period to period, and management relies on these measures for planning and forecasting of future periods. Additionally, these measures allow management to compare our results with those of other companies that have different financing and capital structures.
We define "Adjusted Revenue" as total revenues net of the change in fair value of mortgage servicing rights ("MSRs") due to valuation assumptions (net of hedges). We define "Adjusted Net Income (Loss)" as tax-effected earnings (losses) before share-based compensation expense, the change in fair value of MSRs due to valuation assumptions (net of hedges), career transition program, change in Tax receivable agreement liability, and the tax effects of those adjustments as applicable. We define "Adjusted Diluted Earnings (Loss) Per Share" as Adjusted Net Income (Loss) divided by the diluted weighted average number of Class A common stock outstanding for the applicable period, which assumes the pro forma exchange and conversion of all outstanding Class D common stock for Class A common stock. We define "Adjusted EBITDA" as earnings (losses) before interest and amortization expense on non-funding debt, income tax, depreciation and amortization, share-based compensation expense, change in fair value of MSRs due to valuation assumptions (net of hedges), career transition program, and change in Tax receivable agreement liability.
We exclude from each of our non-GAAP financial measures the change in fair value of MSRs due to valuation assumptions (net of hedges) as this represents a non-cash non-realized adjustment to our total revenues, reflecting changes in assumptions including discount rates and prepayment speed assumptions, mostly due to changes in market interest rates, which is not indicative of our performance or results of operation. We also exclude effects of contractual prepayment protection associated with sales of MSRs. Adjusted EBITDA includes Interest expense on funding facilities, which are recorded as a component of Interest income, net, as these expenses are a direct cost driven by loan origination volume. By contrast, interest and amortization expense on non-funding debt is a function of our capital structure and is therefore excluded from Adjusted EBITDA.
Our definitions of each of our non-GAAP financial measures allow us to add back certain cash and non-cash charges, and deduct certain gains that are included in calculating Total revenue, net, Net income (loss) attributable to Rocket Companies or Net income (loss). However, these expenses and gains vary greatly, and are difficult to predict. From time to time in the future, we may include or exclude other items if we believe that doing so is consistent with the goal of providing useful information to investors.
Although we use our non-GAAP financial measures to assess the performance of our business, such use is limited because they do not include certain material costs necessary to operate our business. Our non-GAAP financial measures can represent the effect of long-term strategies as opposed to short-term results. Our presentation of our non-GAAP financial measures should not be construed as an indication that our future results will be unaffected by unusual or nonrecurring items. Our non-GAAP financial measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under
For financial outlook information, the Company is not providing a quantitative reconciliation of Adjusted Revenue to the most directly comparable GAAP measure because the GAAP measure cannot be reliably estimated and the reconciliation cannot be performed without unreasonable effort due to their dependence on future uncertainties and adjusting items that the Company cannot reasonably predict at this time but which may be material.
Forward Looking Statements
Some of the statements contained in this document are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are generally identified by the use of words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "target," "will," "would" and, in each case, their negative or other various or comparable terminology. These forward-looking statements reflect our views with respect to future events as of the date of this document and are based on our management's current expectations, estimates, forecasts, projections, assumptions, beliefs and information. Although management believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. All such forward-looking statements are subject to risks and uncertainties, many of which are outside of our control, and could cause future events or results to be materially different from those stated or implied in this document. It is not possible to predict or identify all such risks. These risks include, but are not limited to, the risk factors that are described under the section titled "Risk Factors" in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the Securities and Exchange Commission ("SEC"). These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this document and in our SEC filings. We expressly disclaim any obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by applicable law.
About Rocket Companies
Founded in 1985, Rocket Companies (NYSE: RKT) is a
The Company helps clients achieve the goal of home ownership and financial freedom through industry-leading client experiences powered by its simple, fast and trusted digital solutions. J.D. Power has ranked Rocket Mortgage #1 in client satisfaction for both primary mortgage origination and servicing a total of 21 times.
For more information, please visit our Corporate Website or Investor Relations Website.
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SOURCE Rocket Companies, Inc.
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