01—Abstract
Summary
Summary of the 8-K filed August 1, 2024. Cited figures are marked; the original filing is the authoritative source.
Rocket Companies (NYSE: RKT) reported second quarter 2024 results on August 1, 2024, with total revenue, net of $1.301 billiona, up about 5% from $1.236 billion a year earlier.
Adjusted revenue rose 22.6% year-over-year to $1.228 billionb, and management says adjusted revenue exceeded the high end of its guidance range and has grown year-over-year for four consecutive quarters. GAAP net income was $178 million, or $0.01 per diluted share, versus $139 million a year ago. Adjusted net income was $121 million, or $0.06 per adjusted diluted share, compared with a loss of $33 million in Q2 2023.
Adjusted EBITDA reached $225 millionc, up from $18 million, marking five consecutive quarters of year-over-year improvement. Operating drivers were broadly positive. Closed loan origination volume rose 10.4% to $24.7 billion, and gain on sale margin widened 32 basis points to 2.99%.
The Direct to Consumer segment's contribution margin rose to $375 milliond from $259 million, and the Partner Network segment's contribution margin more than doubled to $126 million. Home equity loan volume more than doubled year-over-year to a record. The company acquired MSR portfolios for $315 million, adding $20.8 billion of unpaid principal balance with higher coupons than its existing book, which management frames as a refinance opportunity if rates fall.
Total liquidity was $8.6 billion, and total equity rose to $8.8 billion. The outlook calls for Q3 2024 adjusted revenue between $1.15 billion and $1.30 billion, a range that implies a possible sequential decline at the midpoint.
Investors should also note that GAAP diluted EPS is heavily affected by the non-controlling interest structure, since most net income is allocated to Class D holders, and that the company relies on non-GAAP measures that exclude MSR valuation changes. The company also announced its first Investor Day for September 10, 2024, in Detroit.
02—Key points
Key Highlights
- Q2 2024 total revenue, net was $1.301 billion, up about 5% year-over-year from $1.236 billion; YTD revenue of $2.684 billion compared with $1.902 billion in the prior year period.
- Adjusted revenue grew 22.6% year-over-year to $1.228 billion, exceeding the high end of guidance and marking the fourth straight quarter of year-over-year growth.
- GAAP net income of $178 million ($0.01 per diluted share) versus $139 million in Q2 2023; adjusted net income of $121 million ($0.06 per adjusted diluted share) versus a $33 million loss a year ago.
- Adjusted EBITDA of $225 million, up from $18 million, the fifth consecutive quarter of year-over-year improvement.
- Closed loan origination volume rose 10.4% to $24.7 billion, and gain on sale margin expanded 32 bps to 2.99%, driven by stronger Direct to Consumer and Partner Network margins.
- Acquired MSR portfolios for $315 million, adding $20.8 billion in UPB with a higher blended coupon, positioning the servicing book for refinancing if rates decline.
- Q3 2024 adjusted revenue guidance of $1.15 billion to $1.30 billion; first Investor Day scheduled for September 10, 2024, in Detroit.
03—Questions
Frequently Asked Questions
Why do GAAP and adjusted EPS differ so much, and which should investors focus on?
GAAP diluted EPS of $0.01 reflects the current share structure, in which most economic interest sits with Class D non-controlling holders, and the Class D shares are anti-dilutive in the GAAP calculation. Adjusted diluted EPS of $0.06 assumes pro forma conversion of about 1.85 billion Class D shares into Class A, and it also excludes non-cash MSR valuation changes and share-based compensation. Investors should review both measures, and the reconciliations in the release, because the adjusted figure is more reflective of total economic earnings but depends on management's definitions.
What drove the year-over-year improvement in profitability?
The improvement came mainly from higher gain on sale margins and stronger segment contribution. Direct to Consumer contribution margin rose to $375 million from $259 million, and Partner Network contribution margin rose to $126 million from $56 million. Salaries and commissions declined to $553 million from $579 million, while the change in fair value of MSRs turned from a $42 million gain to a $113 million loss on a GAAP basis.
What does the Q3 2024 guidance imply?
Guidance for adjusted revenue of $1.15 billion to $1.30 billion has a midpoint of $1.225 billion, which is roughly flat with Q2's $1.228 billion. The range is wide and the midpoint implies little sequential growth, so the outlook suggests management expects stable rather than accelerating revenue, which may reflect interest rate and origination seasonality.
How is the company positioned for lower interest rates?
The company acquired $20.8 billion of MSR UPB in Q2 2024 for $315 million, and these loans carry higher coupons than the existing servicing portfolio. Management views this as a refinance opportunity if rates decline, which could increase origination volume and generate recapture revenue. The servicing portfolio totals $534.6 billion UPB across 2.6 million loans, generating about $1.4 billion in annualized servicing fees, while MSR fair value rose to $7.2 billion.
What is the company's liquidity and balance sheet position?
Total liquidity was $8.6 billion as of June 30, 2024, consisting of $1.3 billion in cash, $1.9 billion in corporate cash used to self-fund originations, $3.4 billion in undrawn lines of credit, and $2.0 billion in undrawn MSR lines. Total equity rose to $8.8 billion from $8.3 billion, and funding facilities increased to $7.0 billion from $3.4 billion, reflecting higher loans held for sale of $9.5 billion.
04—Continue