Rocket Reports 2nd Straight Quarterly Loss

While stating that the company “delivered solid results” in the first quarter of 2023, Rocket Companies on Thursday reported a net loss of $411 million, or 16 cents per diluted share, its second straight quarterly loss.

The results were an improvement over the fourth quarter of last year, when the parent of Rocket Mortgage reported a net loss of $493 million, or 14 cents per diluted share. The loss, however, was a significant drop from a year earlier, when the fintech reported net income of $1.04 billion, or 40 cents per diluted share, in the first quarter of 2022.

The loss came on net revenue of $666 million, a 75% drop from $2.7 billion during the first quarter of last year but a 38% increase over the $481 million in the fourth quarter.

Rocket’s closed loan origination volume fell 11% in the quarter to $16.93 billion from $19.03 billion in the previous quarter. The total was also down 68.6% from a year earlier. It’s gain on sale margin was 2.39%, up from 2.17% in the previous quarter.

Rocket’s total liquidity was approximately $8.1 billion as of March 31, which it said includes $900 million of cash on-hand, $2.4 billion of corporate cash used to self-fund loan originations, $3.1 billion of undrawn lines of credit, and $1.7 billion of undrawn MSR lines.

"Rocket delivered solid results in the first quarter in the backdrop of an uncertain macro environment,” said CEO Jay Farner, who will retire June 1. “Adjusted revenue exceeded the top end of our guidance, driven by healthy client demand and strong execution. Our purchase pipeline has been growing in the second quarter, but constrained housing inventory and affordability still present challenges.”

He noted that the company launched its BUY+ and SELL+ programs during the quarter, a collaboration between Rocket Homes and Rocket Mortgage, and unveiled its Rocket Visa Signature Credit Card, a loyalty program card, “to provide our clients with tangible value and an experience that can only be realized through Rocket.”

“We believe our ability to provide a superior, differentiated client value proposition will drive growth in our purchase market share, revenue, and profitability," Farner said.

Rocket Accounts Grow

During a webcast with analysts after the market closed Thursday, Farner also noted that the number of Rocket accounts totaled 27.6 million, up 2 million from the previous quarter, which he attributed to the company’s Rocket Money app. 

“Rocket accounts is an important metric, as it represents clients who have taken the action to create an account with us and with whom we may have visibility on creditworthiness, spending behavior, finances, home-buying intent, and more,” he said. “We believe that these clients are more open to transacting with Rocket.”

Still, both Farner and Chief Financial Officer Brian Brown cited the difficult housing market as a challenge. 

Farner said Rocket is encouraged “by the fact that consumer demand for homes is robust, and we're seeing a healthy purchase pipeline as we enter the spring homebuying season.”

He said that, from March to April of this year, purchase approval letters rose 11% and were trending much higher from March to April this year compared to the same time frame last year.

“That said,” he continued, “we're still seeing challenges in home inventory levels, and existing home sales have declined to levels not seen since 2008. We'll need home inventory levels to cooperate in order to have a successful homebuying season.”

Brown put the inventory levels into perspective, noting that March existing home sales came in at a seasonally adjusted annual rate of 4.4 million homes, “well below the 20-year average of over 5.3 million existing home sales per year. Looking at it differently, there was 2.6 months of housing inventory available in March, which is less than half of what we would expect based on the 20-year average.”

He also noted that Rocket receives “considerable recurring revenue” from mortgage servicing. The company’s mortgage servicing portfolio had more than 2.5 million clients with approximately $525 billion in UPB as of March 31, he said. 

“During the first quarter, we generated $366 million of cash revenue from our servicing book, which represents approximately $1.5 billion on an annualized basis,” Brown said. “Net client retention remained over 90% in the first quarter, well above the industry average.”

'Within Striking Distance'

Asked during the webcast when Rocket expects to return to profitability, Brown was optimistic.

“Looking at Q4 to Q1, we cut the operating loss in half,” he said. “I think we’re headed in exactly the right direction. We need a little cooperation from the housing inventory in the backdrop of the market, but I think we’re doing everything right, and we’re absolutely within striking distance.”

The webcast with analysts was Farner’s last as CEO, and at its conclusion he thanked Rocket co-founder Dan Gilbert and the rest of the staff, as well as clients and shareholders.

“This has been an amazing experience for me the last 27 years, and it’s because of everybody’s passion, support, excitement for what we’re doing here at the company, in the city of Detroit, and other places across the country,” Farner said. “And as Dan always says, I firmly believe the best here at Rocket is yet to come.”

Farner will be succeeded by veteran Rocket executive and vice chairman of Rock Holdings Bill Emerson, who will step in as interim CEO while Rocket’s board of directors searches for a permanent replacement.