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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number: 001-39432
Rocket Companies, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | | 84-4946470 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
1050 Woodward Avenue, Detroit, MI | | 48226 |
(Address of principal executive offices) | | (Zip Code) |
(313) 373-7990
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Class A common stock, par value $0.00001 per share | | RKT | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | ☒ | | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | | Smaller reporting company | ☐ | |
| | | | Emerging growth company | ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of August 2, 2022, 115,477,269 shares of the registrant's Class A common stock, $0.00001 par value, and 1,848,879,483 shares of the registrant's Class D common stock, $0.00001 par value, were outstanding.
Rocket Companies, Inc.
Form 10-Q
For the period ended June 30, 2022
| | | | | | | | |
| Table of Contents | |
| | |
| PART I. FINANCIAL INFORMATION | |
Item 1. | | |
| | |
| | |
| | |
| | |
| | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
| | |
| PART II. OTHER INFORMATION | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
| | |
Item 6. | | |
| |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Rocket Companies, Inc.
Condensed Consolidated Balance Sheets
(In Thousands, Except Shares and Per Share Amounts)
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
Assets | (Unaudited) | | |
Cash and cash equivalents | $ | 915,363 | | | $ | 2,131,174 | |
Restricted cash | 68,721 | | | 80,423 | |
Mortgage loans held for sale, at fair value | 12,402,869 | | | 19,323,568 | |
Interest rate lock commitments (“IRLCs”), at fair value | 309,497 | | | 538,861 | |
Mortgage servicing rights (“MSRs”), at fair value | 6,657,758 | | | 5,385,613 | |
| | | |
Notes receivable and due from affiliates | 9,799 | | | 9,753 | |
Property and equipment, net of accumulated depreciation and amortization of $600,168 and $567,406, respectively | 271,312 | | | 254,376 | |
Deferred tax asset, net | 520,553 | | | 572,049 | |
Lease right of use assets | 400,974 | | | 427,895 | |
Forward commitments, at fair value | 76,847 | | | 17,337 | |
Loans subject to repurchase right from Ginnie Mae | 1,376,747 | | | 1,918,032 | |
Other assets | 2,066,436 | | | 2,115,814 | |
Total assets | $ | 25,076,876 | | | $ | 32,774,895 | |
Liabilities and equity | | | |
Liabilities | | | |
Funding facilities | $ | 7,647,154 | | | $ | 12,751,592 | |
Other financing facilities and debt | | | |
Lines of credit | — | | | 75,000 | |
Senior Notes, net | 4,025,230 | | | 4,022,491 | |
Early buy out facility | 1,153,902 | | | 1,896,784 | |
| | | |
Accounts payable | 233,720 | | | 271,544 | |
Lease liabilities | 458,064 | | | 482,184 | |
Forward commitments, at fair value | 23,935 | | | 19,911 | |
Investor reserves | 90,230 | | | 78,888 | |
Notes payable and due to affiliates | 37,970 | | | 33,650 | |
Tax receivable agreement liability | 623,498 | | | 688,573 | |
Loans subject to repurchase right from Ginnie Mae | 1,376,747 | | | 1,918,032 | |
Other liabilities | 634,223 | | | 776,714 | |
Total liabilities | $ | 16,304,673 | | | $ | 23,015,363 | |
Equity | | | |
Class A common stock, $0.00001 par value - 10,000,000,000 shares authorized, 116,333,426 and 126,437,703 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively. | $ | 1 | | | $ | 1 | |
Class B common stock, $0.00001 par value - 6,000,000,000 shares authorized, none issued and outstanding as of June 30, 2022 and December 31, 2021. | — | | | — | |
Class C common stock, $0.00001 par value - 6,000,000,000 shares authorized, none issued and outstanding as of June 30, 2022 and December 31, 2021. | — | | | — | |
Class D common stock, $0.00001 par value - 6,000,000,000 shares authorized, 1,848,879,483 shares issued and outstanding as of June 30, 2022 and December 31, 2021. | 19 | | | 19 | |
Additional paid-in capital | 225,702 | | | 287,558 | |
Retained earnings | 308,904 | | | 378,005 | |
Accumulated other comprehensive (loss) income | (26) | | | 81 | |
Non-controlling interest | 8,237,603 | | | 9,093,868 | |
Total equity | 8,772,203 | | | 9,759,532 | |
Total liabilities and equity | $ | 25,076,876 | | | $ | 32,774,895 | |
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
Rocket Companies, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(In Thousands, Except Shares and Per Share Amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenue | | | | | | | |
Gain on sale of loans | | | | | | | |
Gain on sale of loans excluding fair value of MSRs, net | $ | 347,365 | | | $ | 1,484,378 | | | $ | 1,034,535 | | | $ | 3,863,656 | |
Fair value of originated MSRs | 459,473 | | | 857,111 | | | 1,256,088 | | | 2,030,275 | |
Gain on sale of loans, net | 806,838 | | | 2,341,489 | | | 2,290,623 | | | 5,893,931 | |
Loan servicing income (loss) | | | | | | | |
Servicing fee income | 357,578 | | | 343,349 | | | 723,793 | | | 635,710 | |
Change in fair value of MSRs | (12,522) | | | (415,394) | | | 441,858 | | | (214,839) | |
Loan servicing income (loss) | 345,056 | | | (72,045) | | | 1,165,651 | | | 420,871 | |
Interest income | | | | | | | |
Interest income | 79,196 | | | 86,645 | | | 169,737 | | | 181,890 | |
Interest expense on funding facilities | (42,706) | | | (64,378) | | | (84,403) | | | (132,222) | |
Interest income, net | 36,490 | | | 22,267 | | | 85,334 | | | 49,668 | |
Other income | 204,035 | | | 376,388 | | | 521,407 | | | 842,500 | |
Total revenue, net | 1,392,419 | | | 2,668,099 | | | 4,063,015 | | | 7,206,970 | |
Expenses | | | | | | | |
Salaries, commissions and team member benefits | 754,125 | | | 840,470 | | | 1,608,040 | | | 1,682,669 | |
General and administrative expenses | 229,706 | | | 262,815 | | | 505,563 | | | 554,234 | |
Marketing and advertising expenses | 231,522 | | | 306,685 | | | 559,580 | | | 627,528 | |
Depreciation and amortization | 24,780 | | | 20,589 | | | 45,822 | | | 35,893 | |
Interest and amortization expense on non-funding debt | 38,282 | | | 35,038 | | | 76,946 | | | 70,609 | |
Other expenses | 35,487 | | | 141,805 | | | 126,090 | | | 332,170 | |
Total expenses | 1,313,902 | | | 1,607,402 | | | 2,922,041 | | | 3,303,103 | |
Income before income taxes | 78,517 | | | 1,060,697 | | | 1,140,974 | | | 3,903,867 | |
Provision for income taxes | (18,761) | | | (24,047) | | | (44,610) | | | (89,879) | |
Net income | 59,756 | | | 1,036,650 | | | 1,096,364 | | | 3,813,988 | |
Net income attributable to non-controlling interest | (56,341) | | | (975,530) | | | (1,039,237) | | | (3,629,166) | |
Net income attributable to Rocket Companies | $ | 3,415 | | | $ | 61,120 | | | $ | 57,127 | | | $ | 184,822 | |
| | | | | | | |
Earnings per share of Class A common stock | | | | | | | |
Basic | $ | 0.03 | | | $ | 0.45 | | | $ | 0.47 | | | 1.47 | |
Diluted | $ | 0.02 | | | $ | 0.40 | | | $ | 0.43 | | | 1.46 | |
| | | | | | | |
Weighted average shares outstanding | | | | | | | |
Basic | 118,801,530 | | | 136,139,400 | | | 120,735,056 | | | 125,961,094 | |
Diluted | 1,971,741,764 | | | 1,991,267,972 | | | 1,973,624,016 | | | 132,100,103 | |
| | | | | | | |
Comprehensive income | | | | | | | |
Net income | $ | 59,756 | | | $ | 1,036,650 | | | $ | 1,096,364 | | | $ | 3,813,988 | |
Cumulative translation adjustment | (679) | | | 494 | | | (91) | | | 801 | |
Unrealized (loss) gain on investment securities | (259) | | | 527 | | | (1,754) | | | 163 | |
Comprehensive income | 58,818 | | | 1,037,671 | | | 1,094,519 | | | 3,814,952 | |
Comprehensive income attributable to non-controlling interest | (55,453) | | | (976,486) | | | (1,037,503) | | | (3,630,072) | |
Comprehensive income attributable to Rocket Companies | $ | 3,365 | | | $ | 61,185 | | | $ | 57,016 | | | $ | 184,880 | |
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
Rocket Companies, Inc.
Condensed Consolidated Statements of Changes in Equity
(In Thousands, Except Shares and Per Share Amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock Shares | Class A Common Stock Amount | | Class D Common Stock Shares | Class D Common Stock Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Non-controlling Interest | | Total Equity |
Balance, December 31, 2020 | 115,372,565 | | $ | 1 | | | 1,869,079,483 | | $ | 19 | | | $ | 282,743 | | | $ | 207,422 | | | $ | 317 | | | $ | 7,391,654 | | | $ | 7,882,156 | |
Net income | — | | — | | | — | | — | | | — | | | 123,702 | | | — | | | 2,653,636 | | | 2,777,338 | |
Cumulative translation adjustment | — | | — | | | — | | — | | | — | | | — | | | 14 | | | 293 | | | 307 | |
Unrealized loss on investment securities | — | | — | | | — | | — | | | — | | | — | | | (21) | | | (343) | | | (364) | |
Share-based compensation, net | 2,300 | | — | | | — | | — | | | 2,116 | | | — | | | — | | | 37,033 | | | 39,149 | |
Distributions for state taxes on behalf of unit holders (members), net | — | | — | | | — | | — | | | — | | | (281) | | | — | | | (4,559) | | | (4,840) | |
Distributions to unit holders (members) from subsidiary investment | — | | — | | | — | | — | | | — | | | — | | | — | | | (2,242,999) | | | (2,242,999) | |
Special Dividend to Class A Shareholders | — | | — | | | — | | — | | | — | | | (145,903) | | | — | | | — | | | (145,903) | |
Change in controlling interest of investment, net | 20,200,000 | | — | | | (20,200,000) | | — | | | 85,351 | | | (1) | | | 55 | | | (84,420) | | | 985 | |
Balance, March 31, 2021 | 135,574,865 | | $ | 1 | | | 1,848,879,483 | | $ | 19 | | | $ | 370,210 | | | $ | 184,939 | | | $ | 365 | | | $ | 7,750,295 | | | $ | 8,305,829 | |
Net income | — | | — | | | — | | — | | | — | | | 61,120 | | | — | | | 975,530 | | | 1,036,650 | |
Cumulative translation adjustment | — | | — | | | — | | — | | | — | | | — | | | 29 | | | 465 | | | 494 | |
Unrealized gain on investment securities | — | | — | | | — | | — | | | — | | | — | | | 36 | | | 491 | | | 527 | |
Share-based compensation, net | 4,177 | | — | | | — | | — | | | 2,621 | | | — | | | — | | | 35,622 | | | 38,243 | |
Distributions for state taxes on behalf of unit holders (members), net | — | | — | | | — | | — | | | — | | | (1,346) | | | — | | | (18,255) | | | (19,601) | |
Distributions to unit holders (members) from subsidiary investment | — | | — | | | — | | — | | | — | | | — | | | — | | | (1,188,294) | | | (1,188,294) | |
Special Dividend to Class A Shareholders | — | | — | | | — | | — | | | — | | | 211 | | | — | | | 111 | | | 322 | |
Pushdown of dividend equivalent | — | | — | | | — | | — | | | — | | | 16,427 | | | — | | | (16,427) | | | — | |
Issuance of Class A Common Shares under stock compensation and benefit plans | 896,701 | | — | | | — | | — | | | 1,369 | | | — | | | — | | | 18,582 | | | 19,951 | |
Repurchase of Class A Common Shares | (496,829) | | — | | | — | | — | | | (8,313) | | | — | | | — | | | — | | | (8,313) | |
Increase in controlling interest of investment, net of income taxes and Tax receivable agreement liability | — | | — | | | — | | — | | | (1,971) | | | — | | | 1 | | | 1,970 | | | — | |
Balance, June 30, 2021 | 135,978,914 | | $ | 1 | | | 1,848,879,483 | | $ | 19 | | | $ | 363,916 | | | $ | 261,351 | | | $ | 431 | | | $ | 7,560,090 | | | $ | 8,185,808 | |
| | | | | | | | | | | | | | | |
Rocket Companies, Inc.
Condensed Consolidated Statements of Changes in Equity
(In Thousands, Except Shares and Per Share Amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock Shares | Class A Common Stock Amount | | Class D Common Stock Shares | Class D Common Stock Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Non-controlling Interest | | Total Equity |
Balance, December 31, 2021 | 126,437,703 | | $ | 1 | | | 1,848,879,483 | | $ | 19 | | | $ | 287,558 | | | $ | 378,005 | | | $ | 81 | | | $ | 9,093,868 | | | $ | 9,759,532 | |
Net income | — | | — | | | — | | — | | | — | | | 53,712 | | | — | | | 982,896 | | | 1,036,608 | |
Cumulative translation adjustment | — | | — | | | — | | — | | | — | | | — | | | 31 | | | 557 | | | 588 | |
Unrealized loss on investment securities | — | | — | | | — | | — | | | — | | | — | | | (92) | | | (1,403) | | | (1,495) | |
Share-based compensation, net | 186,891 | | — | | | — | | — | | | 3,288 | | | — | | | — | | | 50,093 | | | 53,381 | |
Distributions for state taxes on behalf of unit holders (members), net | — | | — | | | — | | — | | | — | | | (2,171) | | | — | | | (33,536) | | | (35,707) | |
Distributions to unit holders (members) from subsidiary investment, net | — | | — | | | — | | — | | | 725 | | | — | | | — | | | (1,856,575) | | | (1,855,850) | |
Special Dividend to Class A Shareholders | — | | — | | | — | | — | | | — | | | (123,752) | | | — | | | (31,830) | | | (155,582) | |
Taxes withheld on employees' restricted share award vesting | — | | — | | | — | | — | | | (77) | | | — | | | — | | | (1,220) | | | (1,297) | |
Issuance of Class A common Shares under stock compensation and benefit plans | 1,018,875 | | — | | | — | | — | | | 930 | | | — | | | — | | | 12,743 | | | 13,673 | |
Repurchase of Class A common Shares | (8,016,465) | | — | | | — | | — | | | (100,162) | | | — | | | — | | | — | | | (100,162) | |
Change in controlling interest of investment, net | — | | — | | | — | | — | | | 49,196 | | | — | | | 2 | | | (61,591) | | | (12,393) | |
Balance, March 31, 2022 | 119,627,004 | | $ | 1 | | | 1,848,879,483 | | $ | 19 | | | $ | 241,458 | | | $ | 305,794 | | | $ | 22 | | | $ | 8,154,002 | | | $ | 8,701,296 | |
Net income | — | | — | | | — | | — | | | — | | | 3,415 | | | — | | | 56,341 | | | 59,756 | |
Cumulative translation adjustment | — | | — | | | — | | — | | | — | | | — | | | (34) | | | (645) | | | (679) | |
Unrealized loss on investment securities | — | | — | | | — | | — | | | — | | | — | | | (16) | | | (243) | | | (259) | |
Share-based compensation, net | 721,224 | | — | | | — | | — | | | 4,089 | | | — | | | — | | | 50,596 | | | 54,685 | |
Distributions for state taxes on behalf of unit holders (members), net | — | | — | | | — | | — | | | — | | | (385) | | | — | | | (6,069) | | | (6,454) | |
| | | | | | | | | | | | | | | |
Special Dividend to Class A Shareholders | — | | — | | | — | | — | | | — | | | 80 | | | — | | | 1,249 | | | 1,329 | |
Taxes withheld on employees' restricted share award vesting | — | | — | | | — | | — | | | (9) | | | — | | | — | | | (2,833) | | | (2,842) | |
Issuance of Class A common Shares under stock compensation and benefit plans | 1,456,798 | | — | | | — | | — | | | 824 | | | — | | | — | | | 12,855 | | | 13,679 | |
Repurchase of Class A common Shares | (5,471,600) | | — | | | — | | — | | | (45,280) | | | — | | | — | | | — | | | (45,280) | |
Change in controlling interest of investment, net | — | | — | | | — | | — | | | 24,620 | | | — | | | 2 | | | (27,650) | | | (3,028) | |
Balance, June 30, 2022 | 116,333,426 | | $ | 1 | | | 1,848,879,483 | | $ | 19 | | | $ | 225,702 | | | $ | 308,904 | | | $ | (26) | | | $ | 8,237,603 | | | $ | 8,772,203 | |
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
Rocket Companies, Inc.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited) | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
Operating activities | | | |
Net income | $ | 1,096,364 | | | $ | 3,813,988 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 45,822 | | | 35,893 | |
Provision for deferred income taxes | 34,458 | | | 52,321 | |
| | | |
Origination of mortgage servicing rights | (1,256,088) | | | (2,030,275) | |
Change in fair value of MSRs, net | (489,170) | | | 168,824 | |
Gain on sale of loans excluding fair value of MSRs, net | (1,034,535) | | | (3,863,656) | |
Disbursements of mortgage loans held for sale | (89,469,172) | | | (187,979,171) | |
Proceeds from sale of loans held for sale | 97,614,379 | | | 192,053,145 | |
Share-based compensation expense | 112,034 | | | 83,002 | |
Change in assets and liabilities | | | |
Due from affiliates | (46) | | | 11,195 | |
| | | |
Other assets | 37,061 | | | (15,486) | |
Accounts payable | (37,824) | | | 35,574 | |
Due to affiliates | 3,246 | | | 2,619 | |
Premium recapture and indemnification losses paid | (891) | | | 980 | |
Other liabilities | (70,304) | | | 188,738 | |
Total adjustments | $ | 5,488,970 | | | $ | (1,256,297) | |
Net cash provided by operating activities | $ | 6,585,334 | | | $ | 2,557,691 | |
Investing activities | | | |
Proceeds from sale of MSRs | $ | 473,971 | | | $ | 93,398 | |
Net purchase of MSRs | (16,447) | | | — | |
| | | |
Decrease (increase) in mortgage loans held for investment | 13,936 | | | (30,687) | |
| | | |
| | | |
Purchase and other additions of property and equipment, net of disposals | (62,938) | | | (67,665) | |
Net cash provided by (used in) investing activities | $ | 408,522 | | | $ | (4,954) | |
Financing activities | | | |
Net payments on funding facilities | $ | (5,104,438) | | | $ | (521,343) | |
Net payments on lines of credit | (75,000) | | | (300,000) | |
| | | |
| | | |
Net (payments) borrowings on early buy out facility | (742,882) | | | 1,818,693 | |
Net borrowings on notes payable from unconsolidated affiliates | 1,073 | | | 353 | |
Proceeds from MSRs financing liability | — | | | 21,635 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Stock issuance | 24,890 | | | 17,591 | |
Share repurchase | (145,442) | | | (8,313) | |
Taxes withheld on employees' restricted share award vesting | (4,139) | | | — | |
Distributions to other unit holders (members) of Holdings, net | (2,175,340) | | | (3,583,806) | |
| | | |
Net cash used in financing activities | $ | (8,221,278) | | | $ | (2,555,190) | |
Effects of exchange rate changes on cash and cash equivalents | (91) | | | 801 | |
Net decrease in cash and cash equivalents and restricted cash | (1,227,513) | | | (1,652) | |
Cash and cash equivalents and restricted cash, beginning of period | 2,211,597 | | | 2,054,103 | |
Cash and cash equivalents and restricted cash, end of period | $ | 984,084 | | | $ | 2,052,451 | |
Non-cash activities | | | |
Loans transferred to other real estate owned | $ | 644 | | | $ | 877 | |
Supplemental disclosures | | | |
Cash paid for interest on related party borrowings | $ | 2,423 | | | $ | 2,127 | |
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
Rocket Companies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in Thousands, Except Shares and Per Share)
1. Business, Basis of Presentation and Accounting Policies
Rocket Companies, Inc. (the "Company", and together with its consolidated subsidiaries, "Rocket Companies", "we", "us", "our") was incorporated in Delaware on February 26, 2020 as a wholly owned subsidiary of Rock Holdings Inc. ("RHI") for the purpose of facilitating an initial public offering ("IPO") of its Class A common stock, $0.00001 par value (the “Class A common stock”) and other related transactions in order to carry on the business of RKT Holdings, LLC ("Holdings") and its wholly owned subsidiaries.
We are a Detroit-based FinTech holding company consisting of tech-driven real estate, mortgage and financial services businesses. We are committed to providing an industry-leading client experience powered by our simple, fast and trusted digital solutions. In addition to Rocket Mortgage, the nation’s largest mortgage lender, we have expanded into complementary industries, such as real estate services, personal lending, auto sales, solar, and personal finance. Through these industries, we seek to deliver innovative client solutions leveraging our Rocket platform. Our business operations are organized into the following two segments: (1) Direct to Consumer and (2) Partner Network, refer to Note 11, Segments.
Rocket Companies, Inc. is a holding company. Its primary material asset is the equity interest in Holdings which, through its direct and indirect subsidiaries, conducts all of the Company's operations. Holdings is a Michigan limited liability company and wholly owns the following entities, with each entity's subsidiaries identified in parentheses: Rocket Mortgage, LLC, Amrock Holdings, LLC (“Amrock”, "Amrock Title Insurance Company" ("ATI") and "Nexsys Technologies LLC"), LMB HoldCo LLC (“Core Digital Media”), RCRA Holdings LLC (“Rock Connections” and “Rocket Auto”), Rocket Homes Real Estate LLC (“Rocket Homes”), RockLoans Holdings LLC (“Rocket Loans” and "Rocket Solar"), Rock Central LLC dba Rocket Central ("Rocket Money, Inc. dba Truebill"), EFB Holdings Inc. (“Edison Financial”), Lendesk Canada Holdings Inc. ("Lendesk Technologies"), RockTech Canada Inc., and Woodward Capital Management LLC. As used herein, “Rocket Mortgage” refers to either the Rocket Mortgage brand or platform, or the Rocket Mortgage business, as the context allows.
Edison Financial ULC, changed its name to "Rocket Mortgage Canada ULC", effective as of July 12, 2022.
Basis of Presentation and Consolidation
As the sole managing member of Holdings, the Company operates and controls all of the business affairs of Holdings, and through Holdings and its subsidiaries, conducts its business. Holdings is considered a variable interest entity (“VIE”) and we consolidate the financial results of Holdings under the guidance of ASC 810, Consolidation. A portion of our Net income is allocated to Net income attributable to non-controlling interest. For further details, refer below to Variable Interest Entities and Note 12, Non-controlling Interests.
All significant intercompany transactions and accounts between the businesses comprising the Company have been eliminated in the accompanying condensed consolidated financial statements.
The Company's derivatives, IRLCs, mortgage loans held for sale, MSRs, and investments are measured at fair value on a recurring basis. Additionally, other assets may be required to be measured at fair value in the consolidated financial statements on a nonrecurring basis. Examples of such measurements are mortgage loans transferred between held for investment and held for sale, certain impaired loans, and other real estate owned. For further details of the Company's transactions refer to Note 2, Fair Value Measurements.
All transactions and accounts between RHI and other related parties with the Company have a history of settlement or will be settled for cash and are reflected as related party transactions. For further details of the Company’s related party transactions refer to Note 6, Transactions with Related Parties.
Rocket Companies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(In Thousands, Except Shares and Per Share Amounts)
Our condensed consolidated financial statements are unaudited and presented in U.S. dollars. They have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The interim financial information should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC. In our opinion, these condensed consolidated financial statements include all normal and recurring adjustments considered necessary for a fair statement of our results of operations, financial position and cash flows for the periods presented. Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. However, our results of operations for any interim period are not necessarily indicative of the results that may be expected for a full fiscal year or for any other future period.
Truebill Acquisition
On December 23, 2021, we completed the acquisition of Truebill, Inc. (“Truebill Acquisition”) for total cash consideration of approximately $1.2 billion. The Truebill Acquisition was accounted for as a business combination under ASC 805, Business Combinations. The purchase price allocation is preliminary in nature and subject to change during the respective measurement period as we finalize tax accounting matters and the assignment of goodwill to reporting units. Any adjustments to the preliminary purchase price allocation are not expected to be significant.
Management Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Although management is not currently aware of any factors that would significantly change its estimates and assumptions, actual results may differ from these estimates.
Subsequent Events
In preparing these condensed consolidated financial statements, the Company evaluated events and transactions for potential recognition or disclosure through the date these condensed consolidated financial statements were issued. Refer to Note 5, Borrowings for disclosures on changes to the Company’s debt agreements that occurred subsequent to June 30, 2022.
Special Dividends
On February 24, 2022, our board of directors authorized and declared a cash dividend (the "2022 Special Dividend") of $1.01 per share to the holders of our Class A common stock. The 2022 Special Dividend was paid on March 22, 2022 to holders of the Class A common stock of record as of the close of business on March 8, 2022. The Company funded the 2022 Special Dividend from cash distributions of approximately $2.0 billion by Holdings to all of its members, including the Company.
On February 25, 2021, our board of directors authorized and declared a cash dividend (the "2021 Special Dividend") of $1.11 per share to the holders of our Class A common stock. The 2021 Special Dividend was paid on March 23, 2021 to holders of the Class A common stock of record as of the close of business on March 9, 2021. The Company funded the 2021 Special Dividend from cash distributions of approximately $2.2 billion by Holdings to all of its members, including the Company.
Rocket Companies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(In Thousands, Except Shares and Per Share Amounts)
Revenue Recognition
Gain on sale of loans, net — includes all components related to the origination and sale of mortgage loans, including (1) net gain on sale of loans, which represents the premium we receive in excess of the loan principal amount and certain fees charged by investors upon sale of loans into the secondary market, (2) loan origination fees (credits), points and certain costs, (3) provision for or benefit from investor reserves, (4) the change in fair value of interest rate locks and loans held for sale, (5) the gain or loss on forward commitments hedging loans held for sale and interest rate lock commitments (IRLCs), and (6) the fair value of originated MSRs. An estimate of the Gain on sale of loans, net is recognized at the time an IRLC is issued, net of a pull-through factor. Subsequent changes in the fair value of IRLCs and mortgage loans held for sale are recognized in current period earnings. When the mortgage loan is sold into the secondary market, any difference between the proceeds received and the current fair value of the loan is recognized in current period earnings in Gain on sale of loans, net. Included in Gain on sale of loans, net is the Fair value of originated MSRs, which represents the estimated fair value of MSRs related to loans which we have sold and retained the right to service. Refer to Note 3, Mortgage Servicing Rights for information related to the Total changes in fair value of MSRs.
Loan servicing income (loss) — includes income from servicing, sub-servicing and ancillary fees, and is recorded to income as earned, which is upon collection of payments from borrowers. This amount also includes the Change in fair value of MSRs, which is the adjustment for the fair value measurement of the MSR asset as of the respective balance sheet date.
Interest income, net — includes interest earned on mortgage loans held for sale and mortgage loans held for investment net of the interest expense paid on our loan funding facilities. Interest income is recorded as earned and interest expense is recorded as incurred.
Other income — is derived primarily from lead generation revenue, professional service fees, real estate network referral fees, contact center revenue, personal loans business, closing fees, net appraisal revenue, net title insurance fees and personal finance.
The following revenue streams fall within the scope of ASC Topic 606—Revenue from Contracts with Customers and are disaggregated hereunder:
Core Digital Media lead generation revenue — The Company recognizes online consumer acquisition revenue based on successful delivery of marketing leads to a client at a fixed fee per lead. This service is satisfied at the time the lead is delivered, at which time revenue for the service is recognized. Online consumer acquisition revenue, net of intercompany eliminations, were $2,450 and $8,084 for the three months ended June 30, 2022 and 2021, respectively and $6,914 and $14,764 for the six months ended June 30, 2022 and 2021, respectively.
Professional service fees — The Company recognizes professional service fee revenue based on the delivery of services (e.g., human resources, technology, training) over the term of a contract. Consideration for the promised services is received through a combination of a fixed fee for the period and incremental fees paid for optional services that are available at an incremental rate determined at the time such services are requested. The Company recognizes the annual fee ratably over the life of the contract, as the performance obligation is satisfied equally over the term of the contract. For the optional services, revenue is only recognized at the time the services are requested and delivered and pricing is agreed upon. Professional service fee revenues were $3,106 and $3,198 for the three months ended June 30, 2022 and 2021, respectively and $6,110 and $6,747 for the six months ended June 30, 2022 and 2021, respectively. All professional service fee revenues were rendered entirely to related parties.
Rocket Homes real estate network referral fees — The Company recognizes real estate network referral fee revenue based on arrangements with partner agencies contingent on the closing of a transaction. As this revenue stream is variable, and is contingent on the successful transaction close, the revenue is constrained until the occurrence of the transaction. At this point, the constraint on recognizing revenue is deemed to have been lifted and revenue is recognized for the consideration expected to be received. Real estate network referral fees, net of intercompany eliminations, were $14,871 and $14,132 for the three months ended June 30, 2022 and 2021, respectively and $26,269 and $23,709 for the six months ended June 30, 2022 and 2021, respectively.
Rocket Companies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(In Thousands, Except Shares and Per Share Amounts)
Rock Connections and Rocket Auto contact center revenue — The Company recognizes contact center revenue for communication services including client support and sales. Consideration received mainly includes a fixed base fee and/or a variable contingent fee. The fixed base fee is recognized ratably over the period of performance, as the performance obligation is considered to be satisfied equally throughout the service period. The variable contingent fee related to car sales is constrained until the sale of the car is completed. Contact center revenues, net of intercompany eliminations, were $3,842 and $12,291 for the three months ended June 30, 2022 and 2021, respectively and $13,157 and $23,922 for the six months ended June 30, 2022 and 2021, respectively.
Amrock closing fees — The Company recognizes closing fees for non-recurring services provided in connection with the origination of the loan. These fees are recognized at the time of loan closing for purchase transactions or at the end of a client's three-day rescission period for refinance transactions, which represents the point in time the loan closing services performance obligation is satisfied. The consideration received for closing services is a fixed fee per loan that varies by state and loan type. Closing fees were $37,929 and $117,962 for the three months ended June 30, 2022 and 2021, respectively and $114,907 and $275,128 for the six months ended June 30, 2022 and 2021, respectively.
Amrock appraisal revenue, net — The Company recognizes appraisal revenue when the appraisal service is completed. The Company may choose to deliver appraisal services directly to its client or subcontract such services to a third-party licensed and/or certified appraiser. In instances where the Company performs the appraisal, revenue is recognized as the gross amount of consideration received at a fixed price per appraisal. The Company is an agent in instances where a third-party appraiser is involved in the delivery of appraisal services and revenue is recognized net of third-party appraisal expenses. Appraisal revenue, net was $15,295 and $23,079 for the three months ended June 30, 2022 and 2021, respectively and $37,317 and $45,570 for the six months ended June 30, 2022 and 2021, respectively.
Rocket Money (formerly known as Truebill) subscription revenue — The Company recognizes subscription revenue ratably over the contract term beginning on the commencement date of each contract. We have determined that subscriptions represent a stand-ready obligation to perform over the subscription term. These performance obligations are satisfied over time as the customer simultaneously receives and consumes the benefits. Contracts are one month to one year in length. Subscription revenues were $26,175 for the three months ended June 30, 2022 and $51,929 for the six months ended June 30, 2022.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. We maintain our bank accounts with a relatively small number of high-quality financial institutions.
Restricted cash as of June 30, 2022 and 2021 consisted of cash on deposit for a repurchase facility and client application deposits, title premiums collected from the insured that are due to the underwritten, principal and interest received in collection accounts for purchased assets, and a $25,000 bond.
| | | | | | | | | | | |
| June 30, |
| 2022 | | 2021 |
Cash and cash equivalents | $ | 915,363 | | | $ | 1,974,997 | |
Restricted cash | 68,721 | | | 77,454 | |
Total cash, cash equivalents, and restricted cash in the statement of cash flows | $ | 984,084 | | | $ | 2,052,451 | |
Loans subject to repurchase right from Ginnie Mae
As the servicer for loans sold to Ginnie Mae, the Company has the unilateral right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets defined criteria, including being delinquent more than 90 days. Once the Company has the unilateral right to repurchase the delinquent loan, the Company has effectively regained control over the loan and must re-recognize the loan on the Condensed Consolidated Balance Sheets and establish a corresponding finance liability regardless of the Company's intention to repurchase the loan. The asset and corresponding liability are recorded at the unpaid principal balance of the loan, which approximates its fair value.
Rocket Companies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(In Thousands, Except Shares and Per Share Amounts)
Variable Interest Entities
Upon completion of the reorganization and IPO, Rocket Companies, Inc. became the managing member of Holdings with 100% of the management and voting power in Holdings. In its capacity as managing member, Rocket Companies, Inc. has the sole authority to make decisions on behalf of Holdings and bind Holdings to signed agreements. Further, Holdings maintains separate capital accounts for its investors as a mechanism for tracking earnings and subsequent distribution rights. Accordingly, management concluded that Holdings is a limited partnership or similar legal entity as contemplated in ASC 810, Consolidation.
Furthermore, management concluded that Rocket Companies, Inc. is Holdings’ primary beneficiary. As the primary beneficiary, Rocket Companies, Inc. consolidates the results and operations of Holdings for financial reporting purposes under the variable interest consolidation model guidance in ASC 810.
Rocket Companies, Inc.'s relationship with Holdings results in no recourse to the general credit of Rocket Companies, Inc. Holdings and its consolidated subsidiaries represents Rocket Companies, Inc.'s sole investment. Rocket Companies, Inc. shares in the income and losses of Holdings in direct proportion to Rocket Companies, Inc.'s ownership percentage. Further, Rocket Companies, Inc. has no contractual requirement to provide financial support to Holdings.
Rocket Companies, Inc.’s financial position, performance and cash flows effectively represent those of Holdings and its subsidiaries as of and for the period ended June 30, 2022.
Recently Adopted Accounting Standards
There are no recently issued accounting pronouncements adopted for the period.
2. Fair Value Measurements
Fair value is the price that would be received if an asset were sold or the price that would be paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. Required disclosures include classification of fair value measurements within a three-level hierarchy (Level 1, Level 2, and Level 3). Classification of a fair value measurement within the hierarchy is dependent on the classification and significance of the inputs used to determine the fair value measurement. Observable inputs are those that are observed, implied from, or corroborated with externally available market information. Unobservable inputs represent the Company’s estimates of market participants’ assumptions.
Fair value measurements are classified in the following manner:
Level 1—Valuation is based on quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2—Valuation is based on either observable prices for identical assets or liabilities in inactive markets, observable prices for similar assets or liabilities, or other inputs that are derived directly from, or through correlation to, observable market data at the measurement date.
Level 3—Valuation