Rocket Companies Announces Third Quarter Results
Rocket Companies reported Q3 2022 net revenue of $1.3 billion and a net income of $96 million, marking a significant decline from the previous year. Closed loan origination volume was $25.6 billion, with a gain on sale margin of 2.69%. The company achieved 24 million Rocket Accounts and launched Rocket Rewards, a new loyalty program aiming to enhance customer engagement. Additionally, Rocket approved a $1 billion share repurchase program, reinforcing confidence in its operational strength amidst changing market conditions.
- Generated $1.3 billion in net revenue for Q3 2022.
- Achieved a net income of $96 million despite challenging conditions.
- Closed loan origination volume of $25.6 billion.
- Launched Rocket Rewards, enhancing customer loyalty.
- Total liquidity increased to $8.8 billion.
- Total revenue decreased from $3.1 billion in Q3 2021 to $1.3 billion in Q3 2022.
- Adjusted net loss of $166 million compared to a profit of $1.1 billion in Q3 2021.
- Closed loan origination volume decreased significantly from $88 billion in Q3 2021.
- Generated Q3'22 net revenue of
$1.3 billion and net income of$96 million - Delivered closed loan volume, net rate lock volume and gain on sale margin within our guided range
- Rocket reached 24 million Rocket Accounts1 across our ecosystem, as of September 30, 2022
- Launched Rocket Rewards, our new loyalty program
- Approved renewal and extension of the
$1 billion share repurchase program
DETROIT, Nov. 3, 2022 /PRNewswire/ -- Rocket Companies, Inc. (NYSE: RKT) ("Rocket Companies" or the "Company"), a Detroit-based FinTech platform company consisting of tech-driven real estate, mortgage and financial services businesses – including Rocket Mortgage, Rocket Homes, Rocket Money (formerly known as Truebill) and Rocket Loans – today announced results for the quarter ended September 30, 2022.
"This period of change and reset in the mortgage industry creates significant opportunity for Rocket. The company operates from a position of strength, which is clear from our
Third Quarter Financial Summary2 ROCKET COMPANIES ($ amounts in millions, except per share) | |||||||
Q3-22 | Q3-21 | YTD 22 | YTD 21 | ||||
(Unaudited) | (Unaudited) | ||||||
Total Revenue, net | $ 1,295 | $ 3,115 | $ 5,358 | ||||
Total Expenses | $ 1,188 | $ 1,689 | $ 4,110 | $ 4,992 | |||
GAAP Net Income | $ 96 | $ 1,393 | $ 1,193 | $ 5,207 | |||
Adjusted Revenue | $ 888 | $ 3,162 | $ 3,945 | $ 9,992 | |||
Adjusted Net (Loss) Income | $ (166) | $ 1,139 | $ 60 | $ 3,865 | |||
Adjusted EBITDA | $ (160) | $ 1,568 | $ 263 | $ 5,299 | |||
GAAP Diluted Earnings Per Share | $ 0.04 | $ 0.54 | $ 0.47 | $ 2.00 | |||
Adjusted Diluted (Loss) Earnings Per Share | $ (0.08) | $ 0.57 | $ 0.03 | $ 1.94 | |||
(Units in '000s, $ amounts in millions) | ||||||||
Q3-22 | Q3-21 | YTD 22 | YTD 21 | |||||
Select Metrics | (Unaudited) | (Unaudited) | ||||||
Closed loan origination volume | $ 114,099 | $ 275,336 | ||||||
Gain on sale margin | 2.69 % | 3.05 % | 2.91 % | 3.21 % | ||||
Net rate lock volume | $ 102,745 | $ 265,412 | ||||||
Amrock closings (units) | 54.4 | 261.5 | 305.3 | 870.6 | ||||
Third Quarter Financial Highlights
During the third quarter of 2022:
- Generated total revenue, net of
$1.3 billion and delivered net income of$96 million , or 4 cents per diluted share. - Rocket Mortgage generated
$25.6 billion in mortgage origination closed loan volume. Gain on sale margin was2.69% . - Total liquidity increased by
$1.5 billion in the quarter to$8.8 billion , as of September 30, 2022, which includes$4 billion of available cash,$3.1 billion of undrawn lines of credit, and$1.7 billion of undrawn MSR lines. - Grew servicing book unpaid principal balance to
$531 billion at September 30, 2022, up2% from September 30, 2021. As of September 30, 2022, our servicing portfolio includes 2.5 million clients and generates over$1.4 billion of recurring servicing fee income on an annualized basis.
Company Highlights
Rocket Platform
- As of September 30, 2022, we reached more than 24 million Rocket Accounts, the single sign-on solution for the services in the Rocket ecosystem. With these accounts, we have deeper insights into our clients, allowing us to provide a much richer experience through our platform.
- At the end of October, we launched Rocket Rewards (www.myrocket.com/rewards), our new loyalty program. Our clients can bank points for taking certain actions, such as applying for a prequalified approval letter, utilizing mortgage affordability calculators or reading informational articles about the home purchase process. Rewards points can be redeemed on financial transactions with Rocket, including closing costs for home purchase transactions.
- Rocket Money, formerly known as Truebill, a leading personal finance company that was acquired in December 2021, again showed impressive growth this quarter. Paying premium members nearly doubled year-over-year.
- Rocket Mortgage net client retention rate was
93% over the 12 months ended September 30, 2022. There is a strong correlation between this metric and client lifetime value, and 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.
Technology and Product
- In September, Rocket Mortgage launched 'Inflation Buster', a new program designed to combat high inflation and make home purchases more affordable for clients. The innovative product gives homebuyers a reprieve by reducing their monthly mortgage payment one percentage point in the first year of their loan. Inflation Buster pairs well with Rate Drop Advantage, which provides homebuyers with a one-time credit on typical closing costs to refinance their mortgage if rates drop within three years.
- In October, Rocket Pro TPO launched Correspondent Assist, a streamlined, turnkey solution for non-delegated correspondent lenders. Correspondent Assist leverages Rocket's industry-leading technology, processes and training, giving wholesale partners the choice and flexibility of being a correspondent lender, but with lower risk and reduced up-front investment.
- In September, Amrock, the nation's largest title insurance, property valuations and settlement services provider, announced mobile eClosings. Amrock is currently responsible for the majority of eClosings in the country, based on an analysis of registered notes on the Mortgage Electronic Registration System (MERS). Amrock clients can complete a mobile Remote Online Notarization for mortgage refinancing in every state where they are allowed by law, or nearly
60% of the U.S. - In response to Hurricane Ian, Rocket supported over 100,000 clients impacted by the natural disaster with extended hours, useful client messaging and 24/7 online self-serve resources. These efforts enabled
59% of our Federal Emergency Management Agency (FEMA)-declared clients with a forbearance to use the digital solutions on our platform, without needing to speak with a team member. - Forsalebyowner.com ranked #1 for customer service in the 'Real Estate and Banking – Real Estate Database' category on Newsweek's 'America's Best Customer Service 2023' list.
Rocket ESG: For-More-Than-Profit
- Rocket Companies ranked #1 on Fortune and Great Place to Work's '50 Best Large Workplaces in Financial Services and Insurance' list. This marks the second year in a row the Company has garnered the top spot.
- Rocket Companies ranked #5 on People Magazine's 'Companies That Care' list, highlighting the Company's inclusive, impact-driven culture, and 'For-More-Than-Profit' mindset.
- The 2022 Rocket Companies Community Challenge raised more than
$1.3 million through generous contributions from team members and a leadership fund matching program. The Community Challenge raised funds for 180 nonprofit organizations across Detroit, Cleveland, Phoenix, Charlotte and other markets nationwide.
Subsequent to September 30, 2022:
As of November 2, 2022, Rocket Companies repurchased 32.1 million shares cumulatively at an average price of
Share Repurchase Program
On November 1, 2022, the Company's Board of Directors approved a share repurchase program effective November 11, 2022. The share repurchase program is a renewal and extension of the Company's previous share repurchase program and authorizes the Company to repurchase shares of the Company's common stock in an aggregate value, not to exceed
Fourth Quarter 2022 Outlook
We expect the following ranges in Q4 2022:
- Adjusted revenue of between
$600 million to$750 million . - Closed loan volume of between
$17 billion and$22 billion . - Net rate lock volume of between
$15 billion and$21 billion . - Gain on sale margins of
2.30% to2.60% .
Direct to Consumer
In the Direct to Consumer segment, clients have the ability to interact with Rocket Mortgage online and/or with the Company's mortgage bankers. The Company markets to potential clients in this segment through various brand campaigns and performance marketing channels. The Direct to Consumer segment derives revenue from originating, closing, selling and servicing predominantly agency-conforming loans, which are pooled and sold to the secondary market. The segment also includes title insurance, appraisals and settlement services complementing the Company's end-to-end mortgage origination experience. Servicing activities are fully allocated to the Direct to Consumer segment and are viewed as an extension of the client experience. Servicing enables Rocket Mortgage to establish and maintain long term relationships with our clients, through multiple touchpoints at regular engagement intervals.
DIRECT TO CONSUMER3 ($ amounts in millions) | |||||||
Q3-22 | Q3-21 | YTD 22 | YTD 21 | ||||
(Unaudited) | (Unaudited) | ||||||
Sold loan volume | $ 16,520 | $ 49,556 | $ 72,223 | $ 163,497 | |||
Sold loan gain on sale margin | 4.47 % | 4.47 % | 4.15 % | 4.88 % | |||
Revenue, net | $ 1,114 | $ 2,502 | $ 4,455 | $ 8,400 | |||
Adjusted Revenue | $ 708 | $ 2,549 | $ 3,042 | $ 8,071 | |||
Contribution margin | $ 149 | $ 1,622 | $ 1,005 | $ 5,262 | |||
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. 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 NETWORK | |||||||
Q3-22 | Q3-21 | YTD 22 | YTD 21 | ||||
(Unaudited) | (Unaudited) | ||||||
Sold loan volume | $ 11,754 | $ 37,666 | $ 51,367 | $ 108,514 | |||
Sold loan gain on sale margin | 1.17 % | 0.78 % | 1.07 % | 1.32 % | |||
Revenue, net | $ 98 | $ 457 | $ 567 | $ 1,498 | |||
Adjusted Revenue | $ 98 | $ 457 | $ 567 | $ 1,498 | |||
Contribution margin | $ 11 | $ 280 | $ 265 | $ 966 | |||
Balance Sheet and Liquidity
We remain in a strong liquidity position, with total liquidity of
BALANCE SHEET HIGHLIGHTS ($ amounts in millions) | |||
September 30, 2022 | December 31, 2021 | ||
(Unaudited) | |||
Cash and cash equivalents | $ 826 | $ 2,131 | |
Mortgage servicing rights ("MSRs"), at fair value | $ 7,260 | $ 5,386 | |
Funding facilities | $ 4,909 | $ 12,752 | |
Other financing facilities and debt | $ 4,841 | $ 5,994 | |
Total equity | $ 8,911 | $ 9,760 | |
Third Quarter Earnings Call
Rocket Companies will host a live conference call at 4:30 p.m. ET on November 3, 2022 to discuss its results for the quarter ended September 30, 2022. 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. If you are having issues viewing the webcast, please see the event help guide at the link here.
Condensed Consolidated Statements of Income ($ In Thousands, Except Shares and Per Share Amounts) | |||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2022 | 2021 | 2022 | 2021 | ||||
(Unaudited) | (Unaudited) | ||||||
Revenue | |||||||
Gain on sale of loans | |||||||
Gain on sale of loans excluding fair value of MSRs, net | $ 139,733 | $ 1,746,971 | $ 1,174,268 | $ 5,610,627 | |||
Fair value of originated MSRs | 426,278 | 907,242 | 1,682,366 | 2,937,517 | |||
Gain on sale of loans, net | 566,011 | 2,654,213 | 2,856,634 | 8,548,144 | |||
Loan servicing income (loss) | |||||||
Servicing fee income | 364,211 | 334,348 | 1,088,004 | 970,058 | |||
Change in fair value of MSRs | 150,304 | (341,361) | 592,162 | (556,201) | |||
Loan servicing income (loss), net | 514,515 | (7,013) | 1,680,166 | 413,857 | |||
Interest income | |||||||
Interest income | 95,753 | 129,963 | 265,490 | 311,853 | |||
Interest expense on funding facilities | (46,173) | (72,778) | (130,576) | (205,000) | |||
Interest income, net | 49,580 | 57,185 | 134,914 | 106,853 | |||
Other income | 164,580 | 410,345 | 685,987 | 1,252,845 | |||
Total revenue, net | 1,294,686 | 3,114,730 | 5,357,701 | 10,321,699 | |||
Expenses | |||||||
Salaries, commissions and team member benefits | 670,804 | 870,010 | 2,278,844 | 2,552,679 | |||
General and administrative expenses | 204,290 | 313,405 | 709,853 | 867,639 | |||
Marketing and advertising expenses | 210,701 | 316,471 | 770,281 | 943,999 | |||
Depreciation and amortization | 24,211 | 19,577 | 70,033 | 55,470 | |||
Interest and amortization expense on non-funding debt | 38,317 | 34,163 | 115,263 | 104,772 | |||
Other expenses | 40,008 | 135,415 | 166,098 | 467,584 | |||
Total expenses | 1,188,331 | 1,689,041 | 4,110,372 | 4,992,143 | |||
Income before income taxes | 106,355 | 1,425,689 | 1,247,329 | 5,329,556 | |||
Provision for income taxes | (10,131) | (32,830) | (54,741) | (122,709) | |||
Net income | 96,224 | 1,392,859 | 1,192,588 | 5,206,847 | |||
Net income attributable to non-controlling interest | (89,314) | (1,317,522) | (1,128,551) | (4,946,688) | |||
Net income attributable to Rocket Companies | $ 6,910 | $ 75,337 | $ 64,037 | $ 260,159 | |||
Earnings per share of Class A common stock | |||||||
Basic | $ 0.06 | $ 0.55 | $ 0.53 | $ 2.00 | |||
Diluted | $ 0.04 | $ 0.54 | $ 0.47 | $ 2.00 | |||
Weighted average shares outstanding | |||||||
Basic | 119,020,520 | 137,664,471 | 120,156,494 | 129,902,253 | |||
Diluted | 1,970,665,767 | 1,990,828,351 | 1,972,263,268 | 135,392,670 | |||
Condensed Consolidated Balance Sheets ($ In Thousands, Except Shares and Per Share Amounts) | |||
September 30, | December 31, | ||
(Unaudited) | |||
Assets | |||
Cash and cash equivalents | $ 825,926 | $ 2,131,174 | |
Restricted cash | 65,718 | 80,423 | |
Mortgage loans held for sale, at fair value | 9,123,110 | 19,323,568 | |
Interest rate lock commitments ("IRLCs"), at fair value | 7,743 | 538,861 | |
Mortgage servicing rights ("MSRs"), at fair value | 7,260,066 | 5,385,613 | |
Notes receivable and due from affiliates | 11,179 | 9,753 | |
Property and equipment, net | 274,480 | 254,376 | |
Deferred tax asset, net | 513,515 | 572,049 | |
Lease right of use assets | 381,232 | 427,895 | |
Forward commitments, at fair value | 690,396 | 17,337 | |
Loans subject to repurchase right from Ginnie Mae | 1,471,823 | 1,918,032 | |
Other assets | 1,975,414 | 2,115,814 | |
Total assets | $ 22,600,602 | $ 32,774,895 | |
Liabilities and equity | |||
Liabilities: | |||
Funding facilities | $ 4,909,369 | $ 12,751,592 | |
Other financing facilities and debt: | |||
Lines of credit | — | 75,000 | |
Senior Notes, net | 4,026,600 | 4,022,491 | |
Early buy out facility | 814,458 | 1,896,784 | |
Accounts payable | 203,832 | 271,544 | |
Lease liabilities | 439,171 | 482,184 | |
Forward commitments, at fair value | 84,699 | 19,911 | |
Investor reserves | 106,217 | 78,888 | |
Notes payable and due to affiliates | 30,465 | 33,650 | |
Tax receivable agreement liability | 623,498 | 688,573 | |
Loans subject to repurchase right from Ginnie Mae | 1,471,823 | 1,918,032 | |
Other liabilities | 979,210 | 776,714 | |
Total liabilities | $ 13,689,342 | $ 23,015,363 | |
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 | 242,074 | 287,558 | |
Retained earnings | 316,381 | 378,005 | |
Accumulated other comprehensive income | 58 | 81 | |
Non-controlling interest | 8,352,727 | 9,093,868 | |
Total equity | 8,911,260 | 9,759,532 | |
Total liabilities and equity | $ 22,600,602 | $ 32,774,895 | |
Summary Segment Results for the Three and Nine Months Ended September 30, 2022 and 2021, ($ amounts in millions) (Unaudited) | |||||||||
Three Months Ended September 30, 2022 | Direct to Consumer | Partner Network | Segments Total | All Other | Total | ||||
Total U.S. GAAP Revenue, net | $ 1,114 | $ 98 | $ 1,213 | $ 82 | $ 1,295 | ||||
Less: Increase in MSRs due to valuation | (406) | — | (406) | — | (406) | ||||
Adjusted Revenue | $ 708 | $ 98 | $ 806 | $ 82 | $ 888 | ||||
Directly attributable expenses | 559 | 87 | 646 | 82 | 728 | ||||
Contribution margin(1) | $ 149 | $ 11 | $ 161 | $ — | $ 160 | ||||
Three Months Ended September 30, 2021 | Direct to | Partner Network | Segments Total | All Other | Total | ||||
Total U.S. GAAP revenue, net | $ 2,502 | $ 457 | $ 2,958 | $ 156 | $ 3,115 | ||||
Plus: Decrease in MSRs due to valuation | 48 | — | 48 | — | 48 | ||||
Adjusted Revenue | $ 2,549 | $ 457 | $ 3,006 | $ 156 | $ 3,162 | ||||
Directly attributable expenses | 928 | 176 | 1,104 | 68 | 1,172 | ||||
Contribution margin(1) | $ 1,622 | $ 280 | $ 1,902 | $ 88 | $ 1,990 | ||||
Nine Months Ended September 30, 2022 | Direct to | Partner Network | Segments Total | All Other | Total | ||||
Total U.S. GAAP revenue, net | $ 4,455 | $ 567 | $ 5,022 | $ 335 | $ 5,358 | ||||
Less: Increase in MSRs due to valuation | (1,413) | — | (1,413) | — | (1,413) | ||||
Adjusted Revenue | $ 3,042 | $ 567 | $ 3,610 | $ 335 | $ 3,945 | ||||
Directly attributable expenses | 2,037 | 302 | 2,340 | 305 | 2,645 | ||||
Contribution margin(1) | $ 1,005 | $ 265 | $ 1,270 | $ 30 | $ 1,300 | ||||
Nine Months Ended September 30, 2021 | Direct to | Partner Network | Segments Total | All Other | Total | ||||
Total U.S. GAAP revenue, net | $ 8,400 | $ 1,498 | $ 9,898 | $ 423 | $ 10,322 | ||||
Less: Increase in MSRs due to valuation | (330) | — | (330) | — | (330) | ||||
Adjusted Revenue | $ 8,071 | $ 1,498 | $ 9,569 | $ 423 | $ 9,992 | ||||
Directly attributable expenses | 2,808 | 532 | 3,340 | 197 | 3,537 | ||||
Contribution margin(1) | $ 5,262 | $ 966 | $ 6,228 | $ 227 | $ 6,455 | ||||
(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 above. 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. |
GAAP to non-GAAP Reconciliations Adjusted Revenue Reconciliation ($ amounts in millions) | |||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2022 | 2021 | 2022 | 2021 | ||||
(Unaudited) | (Unaudited) | ||||||
Total revenue, net | $ 1,295 | $ 3,115 | $ 5,358 | $ 10,322 | |||
Change in fair value of MSRs due to valuation | (406) | 48 | (1,413) | (330) | |||
Adjusted Revenue | $ 888 | $ 3,162 | $ 3,945 | $ 9,992 | |||
(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 of MSRs. |
Adjusted Net Income (Loss) Reconciliation ($ amounts in millions) | |||||||
Three Months Ended | Nine Months Ended | ||||||
2022 | 2021 | 2022 | 2021 | ||||
(Unaudited) | (Unaudited) | ||||||
Net income attributable to Rocket Companies | $ 7 | $ 75 | $ 64 | $ 260 | |||
Net income impact from pro forma conversion of Class D common shares to Class A | 90 | 1,318 | 1,130 | 4,948 | |||
Adjustment to the provision for income tax (2) | (16) | (322) | (259) | (1,203) | |||
Tax-effected net income (2) | 81 | 1,072 | 936 | 4,005 | |||
Share-based compensation expense (3) | 58 | 41 | 186 | 124 | |||
Change in fair value of MSRs due to valuation assumptions (net of hedges) (4) | (406) | 48 | (1,413) | (330) | |||
Litigation accrual (5) | — | — | — | 15 | |||
Career transition program (6) | 20 | — | 81 | — | |||
Change in Tax receivable agreement liability(7) | — | — | (24) | — | |||
Tax impact of adjustments (8) | 81 | (22) | 291 | 47 | |||
Other tax adjustments (9) | 1 | 1 | 3 | 3 | |||
Adjusted Net (Loss) Income | $ (166) | $ 1,139 | $ 60 | $ 3,865 | |||
(1) Reflects net 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 September 30, 2022 and 2021. |
(2) Rocket Companies is subject to U.S. Federal income taxes, in addition to state, local and Canadian taxes with respect to its allocable share of any net taxable income of Holdings. The Adjustment to the provision for income tax reflects between (a) the income tax computed using the effective tax rates below applied to the Income before income taxes assuming Rocket Companies, Inc. owns |
(3) The nine months ended September 30, 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 of MSRs. |
(5) Reflects legal accrual related to a specific legal matter. |
(6) Reflects net expenses associated with compensation package, healthcare coverage, career transition services, and accelerated vesting of certain equity awards. |
(7) Reflects changes in estimates of tax rates and other variables of the Tax receivable agreement liability. |
(8) Tax impact of adjustments gives effect to the income tax related to share-based compensation expense, change in fair value of MSRs due to valuation assumptions, litigation accrual, career transition program and the change in Tax receivable agreement liability at the effective tax rates for each quarter. |
(9) 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 shares and per share) | |||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2022 | 2021 | 2022 | 2021 | ||||
(Unaudited) | (Unaudited) | ||||||
Diluted weighted average Class A Common shares outstanding | 1,970,665,767 | 1,990,828,351 | 1,972,263,268 | 135,392,670 | |||
Assumed pro forma conversion of Class D shares (1) | — | — | — | 1,855,464,831 | |||
Adjusted diluted weighted average shares outstanding | 1,970,665,767 | 1,990,828,351 | 1,972,263,268 | 1,990,857,501 | |||
Adjusted Net (Loss) Income | $ (166) | $ 1,139 | $ 60 | $ 3,865 | |||
Adjusted Diluted (Loss) Earnings Per Share | $ (0.08) | $ 0.57 | $ 0.03 | $ 1.94 | |||
(1) Reflects the proforma exchange and conversion of non-dilutive Class D common stock to Class A common stock. For the nine months ended September 30, 2021, Class D common shares were anti-dilutive and therefore included in the proforma conversion of Class D shares in the table above. For the three and nine months ended September 30, 2022 and the three months ended September 30, 2021, Class D common shares were dilutive and are included in the dilutive weighted average Class A common shares outstanding in the table above. |
Adjusted EBITDA Reconciliation ($ amounts in millions) | |||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2022 | 2021 | 2022 | 2021 | ||||
(Unaudited) | (Unaudited) | ||||||
Net income | $ 96 | $ 1,393 | $ 1,193 | $ 5,207 | |||
Interest and amortization expense on non-funding debt | 38 | 34 | 115 | 105 | |||
Income tax provision | 10 | 33 | 55 | 123 | |||
Depreciation and amortization | 24 | 20 | 70 | 55 | |||
Share-based compensation expense (1) | 58 | 41 | 186 | 124 | |||
Change in fair value of MSRs due to valuation assumptions (net of hedges) | (406) | 48 | (1,413) | (330) | |||
Litigation accrual (3) | — | — | — | 15 | |||
Career transition program (4) | 20 | — | 81 | $ — | |||
Change in Tax receivable agreement liability (5) | — | — | (24) | — | |||
Adjusted EBITDA | $ (160) | $ 1,568 | $ 263 | $ 5,299 | |||
(1) The nine months ended September 30, 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 of MSRs. |
(3) Reflects legal accrual related to a specific legal matter. |
(4) Reflects net expenses associated with compensation packages, healthcare coverage, career transition services, and accelerated vesting of certain equity awards. |
(5) 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 which management believes provide useful information to investors. 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 revenue, net income, or any other operating performance measure calculated in accordance with GAAP. Other companies may define our 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 before share-based compensation expense, the change in fair value of MSRs due to valuation assumptions (net of hedges), a litigation accrual, 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 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), a litigation accrual, 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 allows us to add back certain cash and non-cash charges, and deduct certain gains that are included in calculating Total revenues, net, Net income attributable to Rocket Companies or Net income. 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. In the first and second quarter of 2022, we revised our definition of Adjusted Net Income (Loss) and Adjusted EBITDA to also exclude the cash portion of share-based compensation expenses and the career transition program, respectively, as these expenses do not directly affect what we consider to be our core operating performance. Comparative periods presented to the extent impacted were updated.
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 U.S. GAAP. Because of these limitations, our non-GAAP financial measures should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. Some of these limitations are: (a) they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments; (b) Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt; (c) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and Adjusted Revenue, Adjusted Net (Loss) Income and Adjusted EBITDA do not reflect any cash requirement for such replacements or improvements; and (d) they are not adjusted for all non-cash income or expense items that are reflected in our Condensed Consolidated Statements of Cash Flows. We compensate for these limitations by using our non-GAAP financial measures along with other comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance.
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. 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 is a Detroit-based FinTech platform company consisting of personal finance and consumer technology brands including Rocket Mortgage, Rocket Homes, Amrock, Rocket Auto, Rocket Loans, Rocket Money (formerly known as Truebill), Rocket Solar, Rocket Mortgage Canada (formerly known as Edison Financial), Lendesk, Core Digital Media, Rocket Central and Rock Connections.
Rocket Companies' mission is to be the best at creating certainty in life's most complex moments so that its clients can live their dreams. The Company helps clients achieve the dream of home ownership and financial freedom through industry-leading client experiences powered by its simple, fast and trusted digital solutions. Rocket Companies ranked #7 on Fortune's list of the "100 Best Companies to Work For" in 2022 and has placed in the top third of the list for 19 consecutive years. For more information, please visit our Corporate Website or Investor Relations Website.
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1 A Rocket Account holder is defined as a consumer who opens an account with any of our Rocket services, including Rocket Money. Each Rocket Account holder has unique account credentials across collective Rocket services through our single sign-on solution. A Rocket Account holder continues to be counted as one unless they delete or request that we remove their account information.
2 "GAAP" stands for Generally Accepted Accounting Principles in the U.S. Please see the sections of this document titled "Non-GAAP Financial Measures" and "GAAP to non-GAAP Reconciliations" for more information on the Company's non-GAAP measures and its share count. Certain figures in the tables throughout this document may not foot due to rounding.
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. We previously referred to "sold" loans as "funded" loans. 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-Q for more information.
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SOURCE Rocket Companies, Inc.
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