10-QPeriod: Q3 FY2020

Rocket Companies, Inc. Quarterly Report for Q3 Ended Sep 30, 2020

Filed November 12, 2020For Securities:RKT

Summary

Rocket Companies, Inc. (RKT) demonstrated exceptional financial performance in the third quarter of 2020, driven by a surge in mortgage origination volume. Total revenue increased significantly year-over-year, with gain on sale of loans, net, as the primary driver. The company reported substantial net income, a significant improvement from the prior year's quarter, reflecting strong operational execution and favorable market conditions in the housing sector. Key balance sheet items show a robust increase in cash and cash equivalents, alongside significant growth in mortgage loans held for sale and interest rate lock commitments, indicating strong business activity. The company's equity also saw a considerable increase. While expenses rose in line with increased production, the company's profitability metrics remained strong. Rocket Companies also provided an update on its COVID-19 forbearance plans, noting a slight decrease in clients in forbearance by the end of October, suggesting a stabilizing trend.

Financial Highlights

34 data points
Beta

Net Income

$57.90M

EPS (Diluted)

$0.54

Total Assets

$37.75B

Cash & Equivalents

$3.49B

Free Cash Flow

-$1.78B

Financial Statements
Beta
Gross Profit$3.43B
Operating Expenses$1.56B
Net Income$57.90M
EPS (Basic)$0.54
EPS (Diluted)$0.54
Shares Outstanding (Basic)106.27M
Shares Outstanding (Diluted)106.27M

Key Highlights

  • 1Net income for the three months ended September 30, 2020, was $2,995.4 million, a substantial increase from $494.6 million in the same period of 2019.
  • 2Total revenue increased to $4,634.1 million for the three months ended September 30, 2020, up from $1,620.4 million in the prior year's quarter.
  • 3Gain on sale of loans, net, rose by 174.3% to $4,280.4 million, largely driven by a 121.9% increase in mortgage loan origination volume.
  • 4Cash and cash equivalents significantly increased to $3,485.1 million as of September 30, 2020, compared to $1,394.6 million as of December 31, 2019.
  • 5Shareholder's equity grew to $6,360.7 million as of September 30, 2020, up from $3,515.6 million as of December 31, 2019.
  • 6The company's funded loan gain on sale margin improved across both Direct to Consumer (5.78% vs. 4.59%) and Partner Network (2.70% vs. 0.99%) segments.
  • 7The total serviced UPB (including subserviced) reached $400.3 billion as of September 30, 2020, an increase from $326.0 billion as of September 30, 2019.

Frequently Asked Questions

The primary driver of Rocket Companies' strong financial performance was a significant increase in mortgage loan origination volume, up 121.9% year-over-year. This surge in volume directly translated to a 174.3% increase in gain on sale of loans, net, which is the company's main revenue stream.

The company's balance sheet showed substantial growth. Cash and cash equivalents nearly tripled from $1.4 billion at the end of 2019 to $3.5 billion at the end of Q3 2020. Mortgage loans held for sale also increased significantly, reflecting the higher origination activity. Shareholder's equity also saw robust growth.

Rocket Companies retains a majority of its servicing rights. While MSRs contribute to servicing fee income, the 'Change in fair value of MSRs' line item often reflects a loss due to changes in valuation assumptions like prepayment speeds and discount rates. For the quarter, this change resulted in a $374.8 million loss, which is a non-cash item and is adjusted for in certain non-GAAP measures. The company monitors its MSR portfolio to optimize its value and strategically sells certain MSRs when they do not align with its strategy.

Rocket Companies is exposed to interest rate risk, which can affect loan origination volume, MSR valuations, and pipeline values. The company uses forward commitments (derivatives) to hedge against these risks, aiming to minimize the impact of interest rate fluctuations on its loan sales and MSR portfolio. They note that servicing income can naturally hedge mortgage origination cycles due to their counter-cyclical nature.