Thank you for standing by. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rocket Companies, Inc. First Quarter 2024 Earnings Call. [Operator Instructions]. I would now like to turn the conference over to Sharon Ng, Head of Investor Relations. You may begin.

Good afternoon, everyone, and thank you for joining us for Rocket Companies Earnings Conference Call covering the first quarter of 2024. With us this afternoon are Rocket Companies CEO, Varun Krishna; and our CFO, Brian Brown. Earlier today, we issued our first quarter earnings release, which is available on our website at rocketcompanies.com under Investor Info. Also available on our website is an investor presentation. Before I turn things over to Varun, let me quickly go over our disclaimers. On today's call, we provide you with information regarding our first quarter performance as well as our financial outlook. This conference call includes forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and the assumptions we mentioned today. We encourage you to consider the risk factors contained in our SEC filings for a detailed discussion of these risks and uncertainties. We undertake no obligation to update these statements as a result of new information or further events, except as required by law. This call is being broadcast online and is accessible on our Investor Relations website. A recording of the call will be posted later today. Our commentary today will also include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our earnings release issued earlier today as well as in our filings with the SEC. And with that, I'll turn things over to Varun Krishna to get us started. Varun?

Thank you, Sharon. Good afternoon, everyone, and thank you for joining the Rocket Companies Earnings Call for the First Quarter of 2024. This is my third earnings call since joining the company in September. As I reflect on the last 8 months, I am filled with gratitude to be part of a company with a clear and noble mission of helping everyone home. Never has this mission been more important, more relevant than it is right now. I am so proud of what our team has achieved together in this short time, and it's evident you're only at the beginning of our journey. As an organization, we are driven to execute and win and our determination is absolute. We're playing both the short and the long game, gaining momentum and achieving success, while strategically planning and executing for the long term, and this has already led to some impressive results for Rocket. Let's start with our Q1 business results where our Rocket blasted off as we entered the new year. I'll start by sharing just a few of the highlights that I'm especially proud of from the first quarter. We reported $0.04 of adjusted diluted EPS and delivered adjusted revenue of $1.163 billion in the first quarter, once again, far exceeding the high end of our guidance range. In addition, we returned to double-digit adjusted EBITDA margin. Alongside these solid results, we also continued to capture market share. In Q1, both purchase and refinance market share expanded showing double-digit percentage growth on a year-over-year basis. Our analysis shows that we took that market share from large industry players and big banks in particular. Market share growth while maintaining healthy gain on sale margins is our North Star metric, and it's a yardstick that objectively measures our performance compared to the…

Thank you, Varun, and good afternoon, everyone. On today's call, I'll cover our strong financial results for the first quarter of 2024, including achieving another quarter of profitable market share growth. I'll share some insights on the tangible value we are seeing from leveraging AI to drive efficiency, velocity and accuracy across our business, and I'll close with our perspectives on the current market environment and outlook for the second quarter. But before I get started, on a personal note, I'm approaching my 10-year anniversary with Rocket, and I have never been more excited about the course we are charting ahead. As Varun mentioned, we have the strategy and resources necessary to capitalize on a once-in-a-generation tailwind in this huge fragmented home-buying space. We are executing with speed, and we are incredibly well-positioned to be the leader in home ownership. Over the past few months, we have realigned the entire company around our strategy of AI-fueled home ownership. The energy and engagement from our team members have been electric. And I'm confident we are going to accomplish great things together as we execute on our mission to help everyone home. Turning to the first quarter. We once again achieved strong results. We gained market share, accelerated revenue growth and achieved our highest profitability in 2 years. We delivered these results against a backdrop of higher for longer interest rates in a mortgage market that remains well below historical levels. Our exceptional performance is a testament to the hard work and focused execution of our team members. Diving further into Q1 results, we generated $22.4 billion in net rate lock volume and $20.2 billion in closed loan volume. Once again, we have made significant strides in both refinance and purchase market share, delivering meaningful growth on both fronts during the period.…

[Operator Instructions] Your first question comes from the line of Ryan Nash of Goldman Sachs.

So I wanted to dig a little bit further into the outlook across a handful of areas, the originations, revenues and profitability. Maybe to just sort of dig into each of them, Brian, you give a little bit of color on 2Q saying continued market share gains, revenues. Obviously, we had the guide, and this is the first quarter I think we had net income profitability. So can you maybe just talk about how you think all of these things together will evolve into the outlook for '24, given you guys are obviously talking about growing originations, the industry might end up being relatively steady. How do you see all these things working together and now we're back to a sustained level of profitability?

Yes. Ryan, thank you for the question. I'll start, and then I'll ask Brian to jump in if there's anything that he would add. And I think the first thing I would just say is it's a tough market out there. You've got rates that are kind of moving a little bit in the wrong direction. You've got MBA data that's showing that mortgage applications are lower than expected. But when you step back from that, we firmly believe that the dynamics of the market are going to be favorable to Rocket. And that's regardless of the size of the market, whether it's a $1.5 trillion TAM or a $2 trillion TAM. And I want to just highlight a few indicators that reinforce my confidence in this. I think the first one is just our focus and track record. When you look at the TAM, regardless of what it is, and you sort of throw in real estate and financial services, that's a $5 trillion TAM. And we have proven that we have the ability to take share in any market purely as a function of our execution and persistence. The second thing I'd highlight is just you've got so many tailwinds that are going to be benefiting Rocket that may be headwinds for industry, whether that's the rate environment that's putting pressure on smaller players, whether it's the capacity that's coming out of the industry, whether it's things like Basel III, disruptive dynamics like the recent NAR ruling that are going to create new opportunities to redefine the experience. These are all things that are tailwinds for Rocket that may be headwinds for the broader industry. And then the third thing I'd highlight is just again, strategy and execution. We have assets that uniquely span the entirety of the homeownership journey. Purchase, refinance, servicing, personal finance, we're making significant investments in technology and talent. We've narrowed our focus. And so the bottom line is fortune really favors those who are built for storms, and there's tremendous share that's up for grabs, and that reflects our sort of tenacity in going after the market and playing to win and grow our share. Brian, is there anything you would add?

Yes. The only thing just to build on that, Ryan, when we look -- sit here today and we look at some of the industry forecasts, a few of them are triangulating around about $1.8 trillion, that feels high from what we've seen to Varun's point in terms of the rate moves. But regardless of that, we've shown, because the first quarter was also a challenged market, that we can drive significant profitability through our system and take share. So to Varun's point, it's a really good case study into us doing -- executing on our strategies. And it's worth noting, too, that if rates are to stay higher for longer, and let's say it's not a $1.8 trillion market, it's something less than that, there's a view you can get to pretty easily that, that actually benefits us even more given our capitalization levels, given our liquidity and some of the investments we've made over the past few years in terms of technology to increase capacity. We think that actually bodes really well for us.

Got it. If I can ask a follow-up sort of 2-part question on margins and market share? So first, maybe just thinking about market share, Varun, you outlined capacity rationalization, banks being secular share shutters. And then you talked about the national retailer settlement. Do you think these things in and of itself are enough to drive accelerating share growth for Rocket and how do you think about it over an intermediate time frame? And I guess related to that, Brian, you talked about a couple of idiosyncratic factors that elevated the margin in the near term. But if I look today, margins are still below 2018, 2019 levels. And given these favorable dynamics, do you still see the opportunity for margins over an intermediate time frame to expand back to historical levels?

Yes. I mean I'll just cover a little bit on share and the NAR settlement. I think the first thing I would just say is there are 3 strategic levers that really come together in a durable way to enable our growth and share now and in the future. The first one is just innovation. We're betting big on AI experiences. We've simplified our funnel. We've got better personalization, more automation. The second thing is just our internal focus. We've streamlined our execution. We've got more dedicated autonomous teams with clear goals. So we've just improved our process. The third thing is just our top of funnel. We're meeting clients where they are. We've improved performance marketing. We've got better optimizations to improve our creative, our lead flow. We've got better engagement with our servicing portfolio. We've got better search and engagement experiences to nurture relationships with Rocket Homes and Rocket Money. So the bottom line is, I mean, what you see is in our results, and you see it in the market dynamics. So we definitely see that as an accelerator. So to your question, my answer is yes. And I think for the NAR settlement, the only thing I would just say is just -- it's been too long that the cost of buying and selling a home is too high and it's been too long that the transparency of the process has been opaque. And transparency in value is just what we believe, and it's what we've always believed in. And there are some folks in the industry that are going to fight this tooth and nail. There's others that are going to look past it and seize the opportunity. And we definitely choose to be the latter to the bigger picture, be on the consumer side and just leverage this to take cost and efficiency out of the -- take cost out of the equation, introduce efficiency into the equation and just create more value. So we've been experimenting this space already with things like Buy Plus and we're really going to continue to do so.

Ryan, I can double-click on the -- your guide question, but we've shared this before. But of course, we take into account all the information we have really leading up to the call right here. It's worth pointing out that it's a 15% year-over-year improvement on adjusted revenue, if you take the midpoint of the range. I won't belabor the rate comments. But clearly, April has seen a different rate environment than what we saw in the first quarter. As it relates to inventory, we are seeing modest improvement. We are seeing a little bit of an uptick in listings, but in our view, that's largely offset by some of these affordability challenges. But we want to be clear that the guide does assume volume is up in the second quarter from the first quarter, and we believe that, that's really from us continuing to take share. Our purchase pipeline remains very strong. Consumer demand for home buying is also very high. It's just the affordability aspect that we have to get over. And then to your point on gain on sale margins, we've said before that we generally expect gain on sale margins to continue to expand from last year's levels. And that is definitely proving out. There's no question about it. The 311 basis point print in Q1 is obviously extremely healthy. But that did exceed even our expectations. And that was really for 2 reasons, both which are positive. But the first is the closed and second product. The consumer demand for those closed and second is very high. But what we also found in the first quarter is the investment, the private space demand to buy the product given people that are chasing yields right now is also extremely high. So we just had better-than-expected secondary execution. All the secondary execution has been good, but this was especially rich. So to your point, that's just something I wouldn't -- I can't count on for future quarters, though I do expect the demand for the product to be rich. And then the first quarter just had a -- even though rates were rising, the rate of change was a little bit less so what we saw in April. So the first quarter had a little bit better interest rate environment. So -- but nothing has changed in our view on gain on sale margins. We still -- we do believe there's expansion that's happening, and that's largely because of capacity coming out.

Your next question comes from the line of Jeff Adelson of Morgan Stanley.

So just to maybe dig into the outlook a little bit for the second quarter. Is there any chance to the degree of conservatism built into the number? I mean this quarter, you'd beat a little bit on the outlook here. And Fannie still out there with the 40% sequential increase. I know you're kind of commenting that you think the $1.8 trillion is a little bit unrealistic at this point. I guess I'm just wondering is there some opportunity for upside to that number. And then just in terms of the share gain, last year, you commented on, I think, the 14% and 10% increase in the gain, double-digit this quarter. Are you seeing a share gain accelerate as you kind of go into this quarter and the rest of the year? Or just how do you see that evolving?

Yes. Let me start with the outlook and just to touch on the market view again. We're not trying to pin down a number, but the problem with those $1.8 trillion numbers is they're outdated, right? Even the published dates if you look at where rates were when they published and you look at the forward curve, we were just in a different spot. So the other interesting thing about the $1.8 trillion is you kind of 3 or 4 of them get there, but they all get there in different ways. To your point, Fannie has a big step-up, but MBA step-up is actually much less. So, I think, only like 16%. But the things that we're seeing in terms of real-time data, both macro and micro would tell us that, that's probably not as likely, though we do still think it will be a healthy market. So the only way I could answer your question is we take all that into account. This quarter is always the quarter that will tell the story of home buying as we enter this home-buying season. But the data that Varun highlighted that we saw in April does give us a bit of pause, but we're still very bullish on being able to grow our volume in the second quarter, largely through taking share, which leads me to your next point. Yes, we are seeing an acceleration of share gains. Varun mentioned this in his prepared remarks, but the banks continue to see share for all practical purposes, most retail or other type of online lenders are really not doing anything in the client acquisition space. If clients are inbounding to them, they'll do loans, but they're not out there marketing or spending marketing dollars. And so that bodes really well for our ability to accelerate share gains.

And you guys have done a pretty good job with the home equity loan offering it sounds like. Just wondering if you had any early thoughts on Freddie's proposed program out there in the agency side for the second lien. Do you guys view this as a growth opportunity now that you could maybe do a little bit more of that business? Do you have any view of maybe how their program price is. ?How should we maybe be thinking of the trade-off of maybe less cash out refi, now the averages are really high right now, so maybe there's not as much of that, but how do we think of the trade-off of that versus moving some volume to doing more of this agency second lien program?

Yes. Let me start, and I'm sure Varun will add, too. But I think on the proposal side, we'll see where that ends up. Generally, more liquidity is better in the mortgage space. So -- of course, we do support more liquidity. But I would say sort of different than others in the space. We kind of created this market. If you look at securitization data and you look at what we've done, we sort of made the closed and second market, at least for this go through. So finding the liquidity already. As I mentioned, that was a big component of the gain on sale margins over performance, I guess, you could say, in the first quarter. So for us, we don't need to count or rely on a proposal like that. I'm not sure where that will end up. But generally, the more liquidity is better. What I'll say though is we've already developed a really nice program. We have a bunch of capital. We have underwriting standards that people are buying into. I'm not sure where Freddie will end up on that spectrum. But like all GSE products, they'll have pretty tight rules. I think private capital will still be important in closed and seconds.

The only thing I would just add is this is just a great example of how we're building products that are relevant for the current market, which is evidenced also just, by the way, with our history, I mean, whether it's Buy Plus, One Plus or Inflation Buster, anticipating our client's needs and meeting them where they are and solving a meaningful problem. I'm just very proud of our team for continuing to set the standard of being ahead of the curve.

Your next question comes from the line of Mark DeVries of Deutsche Bank.

Notwithstanding the efforts you've already made to rightsize your expense base, I was hoping to hear your updated thoughts on expense management, just given the latest backup in rates as well as any thoughts on product focus to help generate more revenue in an environment where rates remain higher for longer.

Yes. Thank you for the question, Mark. I'll just start by saying that profitability and efficiency are 2 sides of the same coin, right? And they both matter significantly. Our main focus is market share and top line growth. And the way you do that smartly is you leverage your savings to invest in growth. That's going to happen through accelerated execution. That's going to happen through big swings on innovation. It's also going to happen through focus on efficiency, which is a constant strategic imperative. The thing I'm excited about is our AI strategy is specifically designed to create and unlock operating leverage. So it will allow us to grow our capacity without increasing head count. And it will allow us to actually build our company and grow durably. So we don't look at this AI investment as a head count reducer. I mean that's not how you build a growth company durably. But the combination of being able to invest in technology and have an ongoing principle around efficiency is how we think we're going to create a durable flywheel. And of course, continuous investment in product innovation and create new-to-the-world offerings that will be able to create value for clients is something that represents our brand, who we are, who we've always been and who we will be. Anything, Brian, you would add?

The only thing I would say, which is just piggybacking on what Varun said is it's -- at this point, it's a capacity gain, right? We've talked a lot about we did $79 billion in originations last year, and we believe we can put a significant more amount of capacity through the system. We're really starting to see these benefits come to fruition. So that's our focus right now. That capacity will be used either when rates go down and the TAM increases and/or if rates stay higher and it's more difficult and it accelerates our share gains, we think keeping that capacity, removing friction and serving more clients is, first and foremost, our focus right now. .

Okay. Great. Just one more for me. There's been a lot of talk about banks share in this environment. Just wondering if there's anything you could discuss with us about ongoing conversations you may be having with banks to either white label an origination offering or even a branded offering to help either take their share or help access their customer base.

Yes. We can't comment on the specific conversations that we're having, but I would just say that, I mean, I think we see there's an opportunity to create value. And so those conversations are ongoing, and we'll share more as we make progress.

Yes. Mark, the thing we know is the banks were trying to really hard not to mortgages, and that was even before the Basel III standard. We don't know where it will end up. But we do, to Varun's point, can't comment specifically, but we think there's some interesting plays there.

Your next question comes from the line of Derek Sommers of Jefferies.

On Rocket Logic, how should we think about the improvement to the origination side of the business there? I'm imagining it would marginally widen the top of the funnel through processing client leads faster and then drive some more meaningful improvement on funnel pull-through. Feel free to correct me if I'm thinking about that the wrong way.

Yes. No, thank you for the question, Derek. I'll just start by saying the reason that we're obsessed with AI is because it brings a number of transformative benefits to our business. And that's really grounded in the Rocket Logic platform and what it represents for the next chapter in the company. The first one is just efficiency. It allows us to serve more clients by simply just automating the mundane. And the second one is speed and velocity, just because our clients value speed and certainty, they have to be competitive. They have to be able to operate and execute offers and things like that at speed. And then the third one is experience, just creating more personalization, more delight on what is a very emotional journey that millions of people go through when it comes to homeownership on every side of the equation. And with Rocket Logic, we're in the earliest days of this revolution, and I firmly believe the best is yet to come. And this is our AI platform. It is our most strategic imperative and we've dramatically increased our investment as well as the velocity with which we're launching futures every week. The platform is now extended to every part of the journey from the digital experience that clients interact with to how we interact on the phone with mortgage banking or client services to the way we manage documents and extraction to income verification to underwriting to servicing. And we've started to see some pretty awesome benefits. We've seen hours saved. That's a metric that we track. We were up to 170,000 hours per year. We've seen improvements in resolution times. Our first call resolution has improved by 10% with the Synopsis experience that we just announced a few days ago. And then ultimately, just turn times, right, 2.5x faster than industry. And then last, but not least, accuracy, we've seen zero audit findings with our income verification experience. And so across the board, this platform is delivering a benefit to us, both in terms of the client experience that our end clients face, but also just supercharging our team members to be able to do more with less. And so we're very excited about this platform. We think it has tremendous benefits across the board, and we're just getting started.

Great. And then just to pivot to the servicing portfolio acquisitions. Can you guys share -- shed any more light on those transactions? Were they coming from banks or nonbanks? And is there more supply this higher coupon product coming across your desk?

Yes. I think -- let me just -- that's a fair question. Thank you. Let me take one step back just to talk about how we think about the servicing asset. It's clearly a strategic asset. We really like the returns. Even if you just look at the cash flows right now, you're generally looking at double-digit returns. And then, of course, for us, where you add in our industry-leading recapture, and that's what really starts getting exciting in the return game. And we've always known that if a client goes through our J.D. Power winning origination experience and then we service them that we will recapture very well. But what is awesome to see is we're starting to prove to ourselves that we can also recapture well when we acquire a portfolio of servicing. Over the past couple of years, we've been doing that. It takes some time to prove out that hypothesis because you need data and information. And obviously, since the -- where rates have been, just the number of transactions might naturally be lower. But we're starting to have more and more confidence that on the acquired portfolios, our recapture rate will be very healthy as well. So to answer your question, what that means is that gives us even more confidence to be actively bidding in the market. To your point, we still are seeing supply a bit challenged. There is a lot of demand and a little bit of supply out there. So there are competitive bids. But here's the thing, and you kind of mentioned this in your question that is exciting for us, the asset that we're very interested in and bidding on is a different asset than some of the others in the space are. Some of the servicers that have come out with some pretty robust goals around growing their servicing portfolio are actually interested in the very low [ WACC ] stuff. For us, to your point, the higher [ WACC ] stuff is actually a bit more interesting to us if you think about the closed and second opportunity there, if you think about a potential cash-out opportunity there. So in the proof point being these 4 pools that we just bought, that strategy is really being deployed. So they're higher [ WACC ] than the current portfolio, and we really like our chances in terms of recapture. So it will be something we -- I think you can expect us to continue to focus on and be active in the space.

Your next question comes from the line of Brad Capuzzi of Piper Sandler.

So you highlighted in your investor presentation, obviously, demonstrated in your results today, rocket's track record of continuing to grow market share. Kind of wanted to just hone in on your ability to grow purchase market share over the long term. I know there's been a lot of investment in tech and AI, along with the addition of other products. But with the mortgage market being inherently localized specifically for the purchase market, what are the steps you guys are taking to address this issue?

Yes, I think -- thank you for the question, Brad. I think the first thing I would just say is purchase is a strategic focus area for the company more than it's ever been in the past. And that comes down to how we've organized, how we've structured our teams, how we've dedicated resources and how we've just invested the time to really understand the nature of what it takes to win. That includes dedicated teams. It includes understanding the funnel. It includes also understanding the nature of just how you help clients with every aspect of the journey from searching from a home to building relationships with the realtor and broker to going through the process of making an offer. We have just dedicated significantly more focused toward than ever before. That's kind of the first thing. I think the other thing I would just say is we've integrated our ecosystem assets like never before. The role of Rocket Money has never been more important. The role of our Home Search experience has never been more important. The role of our Servicing Portfolio and building engagement with our clients where we can collect data and we can help them with their next transaction has never been important. So this is -- it's a game of interest, but the interests are everywhere when you kind of think about all of them put together and they add up. And so when you put those interest together, you start to see that execution happen. And so there are bigger swings that we're thinking about when you think about the opportunity that AI actually affords us to take a giant leap forward. We're also obviously looking at both organic and inorganic opportunities. But we're serious about purchase, and you can expect to see us continue to invest and dedicate our focus on it and so we win.

And then just the last question for me. I mean, obviously, Rocket is one of the leaders in technology across the mortgage market. And with your continued adoption of AI, can you just discuss how your investments and capabilities differ from industry competitors? Is AI been a hot topic issue on recent calls from peers thus far?

Yes. I mean I think the thing I would just say is there's a certain activation energy that's required to be successful in AI. You have to have a large number of clients that you can engage with. You have to have a lot of data that you can build models around. And then you have to have resources that you can invest to kind of train, build and sort of continue to sort of improve these experiences that they're better. So this is one of those where it's difficult to be successful in AI if you don't have data at scale, if you don't have large engineering resources, if you don't invest in data science, algorithmic intelligence, talent. And so I think for us, it is a strategic imperative at every layer of the company. It's where we've dedicated the vast number of our resources, and we're continuing to grow our investment both with internal and external talent. And so for us, I mean, a good example I would give is just adding Alex Rampell to our Board, who is the industry leader in both fintech and AI, that's an example of just where the level of investment that we're making, the thought leadership and just the focus is only going to be increasing. I'd also just share that we're hiring a new Chief Technology Officer that will be joining the company in days to come. And so we're serious about this. We're investing, and we're playing to win.

Thank you. That concludes the Q&A session. I will now turn the conference back over to Varun Krishna for closing remarks.

Well, thank you, everyone, for our great conversation today. We look forward to the next earnings call. We also invite you to our Investor Day later in the fall. We appreciate it.

This concludes today's conference call. You may now disconnect.