Rocket Companies, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Rocket is a fintech company spanning mortgage, real estate and personal finance, with Direct to Consumer and Partner Network reportable segments. Financial statements are unaudited.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue, net | $1.384 billion | $666.1 million | Up 108% |
| Net income (loss), consolidated | $290.7 million | ($411.5 million) | Improved $702.2 million |
| Net income (loss) attributable to Rocket Companies | $16.2 million | ($18.5 million) | Returned to profit |
| Class A diluted EPS | $0.11 | ($0.16) | Improved |
| Adjusted revenue (non-GAAP) | $1.163 billion | $882.1 million | Up 32% |
| Adjusted EBITDA (non-GAAP) | $174.3 million | ($79.0 million) | Improved $253.2 million |
| Operating cash flow | ($3.013 billion) | ($1.331 billion) | Greater cash use |
Mortgage originations were $20.2 billion, up 19%. Gain-on-sale margin increased to 3.11% from 2.39%. Total expenses were essentially flat at $1.085 billion: lower salaries and benefits were offset by higher general and administrative and marketing costs. Rocket’s attributable profit is much smaller than consolidated net income because most Holdings earnings are allocated to non-controlling interests; Rocket owned 6.98% of Holdings at quarter-end.
Reported revenue benefited from the year-over-year swing in MSR valuation: loan servicing income was $402.3 million versus a $31.9 million loss, including a $56.5 million reported increase in MSR fair value versus a $398.3 million decrease in Q1 2023. Management’s adjusted revenue excludes changes in MSR value from valuation assumptions, net of hedges; it is a non-GAAP measure and not a substitute for GAAP results or cash flow.
Financial position, debt and liquidity
- At March 31, cash and cash equivalents were $861.4 million; cash plus restricted cash was $893.4 million. Cash and cash equivalents were $1.108 billion at December 31, 2023.
- Total assets were $22.22 billion and total equity was $8.61 billion. MSRs were carried at fair value of $6.69 billion; mortgage loans held for sale were $9.42 billion.
- Funding facilities outstanding were $6.15 billion, up from $3.37 billion at year-end, reflecting higher loan funding needs. Senior Notes, net, were $4.03 billion; the early buyout facility balance was $171.7 million. The notes’ weighted-average interest rate was 3.59%.
- Management reported $8.9 billion of total liquidity, including cash, cash used to self-fund originations and undrawn credit facilities. It also reported $21.3 billion of aggregate facility availability, with $15.0 billion unused. These measures include facility capacity and should not be read as cash on hand.
- Operating cash use primarily reflects mortgage production and working-capital flows; financing activities provided $2.734 billion, largely through net funding-facility borrowings. Cash and restricted cash decreased $243.4 million during the quarter.
- The company and Rocket Mortgage were in compliance with debt covenants and applicable seller/servicer financial requirements at quarter-end.
Material changes and management commentary
- Management cited persistent inflation, a 5.50% federal funds rate, constrained housing inventory and economic uncertainty as pressures on mortgage demand.
- Gain on sale of loans rose 49%, with management citing higher gain-on-sale margins, increased rate-lock volume and contracting market capacity. Direct to Consumer and Partner Network contribution margins increased to $343.6 million and $114.3 million, respectively; contribution margin is a company-defined measure.
- Other income rose 24% to $244.7 million, including increased Rocket Money subscription revenue. Paid Rocket Money subscriptions reached 3.47 million, up from 2.53 million.
- Serviced loan UPB, including subserviced loans, was $510.7 billion, down from $524.8 billion a year earlier. MSR-serviced loan delinquency of 60 days or more was 1.17%, versus 1.10% a year earlier.
- After quarter-end, Rocket Mortgage entered a $1.0 billion Morgan Stanley master repurchase facility on May 7, 2024. The filing also reports extensions to certain existing facilities after quarter-end.
Outlook, risks and contingencies
The filing provides no specific quarterly or full-year financial guidance. Management’s outlook is subject to forward-looking risks; actual results may differ materially. Key exposures include mortgage interest rates and origination demand, the ability to sell loans promptly, funding access and cost, collateral valuations and potential margin calls, and compliance with lender and regulatory requirements.
MSRs are Level 3 fair-value assets dependent on assumptions such as discount rates and prepayment speeds. The filing’s sensitivity analysis estimates that an adverse 100-basis-point discount-rate change could reduce MSR fair value by $292.6 million; a 200-basis-point change could reduce it by $561.5 million. Legal and regulatory matters arise in the ordinary course. Recorded legal reserves were $19.5 million; management did not expect pending matters to have a material adverse effect, but disclosed that an unfavorable outcome could materially affect liquidity or results. The company also disclosed representation-and-warranty exposure on loans sold and contingent escrow administration obligations.
Important facts for investors to verify
- How much of the GAAP revenue and earnings rebound reflects mortgage production and recurring servicing economics versus MSR fair-value changes, hedging and other valuation effects.
- Whether higher origination volume and gain-on-sale margins can be sustained amid interest-rate, housing-inventory and demand uncertainty.
- How much reported liquidity is readily deployable cash versus self-funding balances or undrawn, conditional facility capacity, and how funding-facility usage evolves.
- Whether MSR valuation assumptions, prepayments and delinquencies change materially, given the sensitivity of the $6.69 billion MSR asset to model inputs.
- The potential effect and resolution of legal, investor repurchase and representation-and-warranty matters, as well as the terms and availability of post-quarter facility changes.