Rocket Companies Q1 2025 Earnings Report

Rocket Companies EPS Results

• Actual EPS: $0.04
• Consensus EPS: $0.04
• Beat/Miss: Met Expectations
• One Year Ago EPS: $0.04

Rocket Companies Revenue Results

• Actual Revenue: $1.04 billion
• Expected Revenue: $1.26 billion
• Beat/Miss: Missed by -$224.07 million
• YoY Revenue Growth: -10.80%

Rocket Companies Announcement Details

• Quarter: Q1 2025
• Date: 5/8/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 4:30PM ET

Rocket Companies (NYSE:RKT) is a Detroit-based fintech platform that provides digital financial and real estate services primarily to consumers in the United States. Its operations are centered on helping customers obtain, manage and refinance home loans, while also offering related services across the homeownership and personal finance lifecycle.

The company’s principal businesses include Rocket Mortgage, a digital mortgage lender and originator; Rocket Homes, a real estate marketplace and agent-referral platform; Rocket Money, a personal finance application that helps users manage subscriptions, budgets and bills; and Rocket Loans, which provides personal loans. Rocket also offers title, closing and other services intended to support residential real estate transactions.

Rocket traces its roots to Rock Financial, founded in 1985, and later became associated with the Quicken Loans brand before adopting the Rocket name across its businesses. Rocket Companies became a publicly traded company in 2020. Varun Krishna serves as the company’s chief executive officer. Through its digital platforms and nationwide operations, Rocket serves homebuyers, homeowners and consumers across the United States.

Rocket Companies Q1 2025 Earnings Call Transcript

Key Takeaways

• Sharp reversal in April market momentum led purchase applications to decline double digits and mortgage rates spiked near 7%, creating short-term headwinds.
• Rocket reported Q1 adjusted revenue of $1.3 billion at the high end of guidance and $0.04 adjusted EPS, serving 21% more origination clients and reducing turn times by 14% year-over-year.
• The company deployed AI tools like AgenTik to automate complex tasks with 50% cost reduction and a call-analysis tool that cut evaluation time by over 80%, unlocking capacity without raising fixed costs.
• Strategic all-stock acquisitions of Redfin and Mr. Cooper will build an integrated end-to-end homeownership platform, adding 30 PB of data and balanced origination and servicing revenue streams.
• For Q2, Rocket expects adjusted revenue of $1.175–$1.325 billion (2% growth at midpoint) and plans to reduce second-half marketing spend by ~$100 million due to the 2024 brand restage halo effect.

Presentation

[Operator]

Thank you for standing by and welcome to the Rocket Companies' First Quarter 2025 Earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. I'd now like to turn the call over to Sharon Ng, Head of Investor Relations. You may begin.

[Sharon Ng, Head of Investor Relations at Rocket Companies]

Good afternoon, everyone, and thank you for joining us for Rocket Companies' Earnings Call covering the first quarter of 2025. 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. This conference call includes forward-looking statements about, among other matters, expected operating and financial results, strategic initiatives, and the anticipated Up-C collapse and acquisitions of Redfin and Mr. Cooper. These statements are subject to risks and uncertainties, which could cause actual results to differ materially from the expectations and the assumptions we mentioned today.

[Sharon Ng, Head of Investor Relations at Rocket Companies]

We encourage you to consider the risk factors contained in our SEC filing 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 reported results can be found in our earnings release issued earlier today, as well as our filings with the SEC. And with that, I'll turn things over to Varun Krishna to get us started. Varun?

[Varun Krishna, CEO at Rocket Companies]

Good afternoon, everybody, and thank you for joining us on Rocket's First Quarter 2025 Earnings Call. In today's call, I'm going to focus in on three areas. First, I'd like to talk about what we're seeing in the current market landscape. With that backdrop, I'm going to spend a few minutes recapping our strong Q1 performance and lastly share some examples of what we're delivering for team members, broker partners, and clients, including our plans for the future with Redfin and Mr. Cooper. Let's start with the housing market, which kicked off on a positive note to start the year. Housing inventory rose 25%, moving from 3.2 to just over four months of supply year over year, offering relief to buyers facing tight options. 30-year fixed mortgage rates also declined from 7% in January to around 6.6% in March, briefly improving affordability and sparking refinance activity.

[Varun Krishna, CEO at Rocket Companies]

Now, shifting into spring, April was a little unusual. It actually marked a sharp reversal in early-year momentum, and that's for a few reasons. Following global tariff announcements, the stock and bond markets reacted with volatility, and the 10-year Treasury yield fluctuated sharply. Mortgage rates climbed back to nearly 7% during the month, and at the same time, consumer sentiment, which was already softening, continued to decline. According to Redfin, nearly one in four Americans are now delaying major purchases, including buying a home. Now, spring typically brings increased activity, and you usually see purchase applications in the industry rising between March and April. What's unusual is that the impact of all of these dynamics compounded, and we saw weekly purchase applications actually decline by double digits throughout April, which the industry hasn't experienced since 2009 during the Great Financial Crisis.

[Varun Krishna, CEO at Rocket Companies]

While these short-term headwinds are shaping consumer behavior, certainly, it also reinforces our conviction for who we are and where we're going. In this environment, an integrated homeownership platform becomes an essential pursuit. Whether clients are searching, financing, or servicing their home, we believe Rocket must be built to meet them where they are and take them where they need to go, and providing more value across the entire chain is the best way to both grow our share and enable a better experience. Now, a strong platform can only reach its full potential with great teams behind it. A team that delivers in the short term while staying focused on the long game. A team that trusts each other in the trenches that fights to win every inch. That's how shorter-term execution creates long-term growth.

[Varun Krishna, CEO at Rocket Companies]

And so execution is really the determining factor, and that comes down to one thing: the quality of your team. And in Q1, I am so proud of my Rocket team because they demonstrated exactly that. We reported $1.3 billion in adjusted revenue at the high end of our guidance and $0.04 in adjusted diluted EPS. These results were fueled by the strength of our platform and the grit and determination of our team members. March, in particular, was a clear high point. It was our strongest March in three years across multiple fronts. We served 21% more origination clients than in March of 2023 and reduced turn times by 14%. Even more impressively, on a per-production team member basis, we served nearly 50% more clients compared to March of 2023. That's also AI in action, plain and simple. It is supercharging our team members.

[Varun Krishna, CEO at Rocket Companies]

It is unlocking capacity, and it is simply enabling us to serve more clients in better ways than ever before. Lastly, we announced two strategic acquisitions that will transform Rocket's next chapter and the future of homeownership, and of course, I'll share more on that in just a minute, so let's unpack our execution, and let's turn to the impact we delivered to team members, mortgage broker partners, and clients this quarter. Homeownership is fundamentally a human business. It's built on trust, connection, and empathy, which are human qualities. Our value proposition is to empower team members with the right tools, support mortgage brokers, real estate agents, and enterprise partners, and deliver exceptional emotional experiences to our clients. That, in a nutshell, is the power of the Rocket platform.

[Varun Krishna, CEO at Rocket Companies]

There are many, many examples this quarter on how we've been bringing this to life, and I want to share a few of them with you. I'll start with our team members. Productivity is one of the most powerful levers we have to grow capacity without increasing fixed costs. Highly manual, specialized tasks can be one of the biggest costs and bottlenecks for us to scale. Take one simple but common example in housing: identifying the responsible party for the transfer tax payment. When done manually, it's a time-consuming, error-prone process that requires combing through 20 to 30 pages of purchase agreements and counteroffers per purchase transaction. So in March, we launched an agentic AI tool to fully automate this task. The impact was immediate: an estimated 50% reduction in remediation costs and projected savings of over $1 million in 2025 alone. What's more?

[Varun Krishna, CEO at Rocket Companies]

We went from idea to deployment within weeks, accelerating business value without needing a heavy lift from engineering teams' independence. Agentic AI is the next evolution beyond rule-based automation. It allows us to break down complex workflows into steps that AI agents can execute from end to end using targeted prompts and leveraging tools automatically. We've already identified more than a dozen additional use cases across underwriting and vendor functions, including title ordering, HOA reviews, and debt verifications, all aimed at unlocking capacity and accelerating cycle time. Let me share one more meaningful example of how innovation is directly emerging from our team members. Client calls remain one of the most critical touchpoints in our business. It's when our bankers connect with clients to help guide one of the most important financial decisions of their lives.

[Varun Krishna, CEO at Rocket Companies]

Our retail bankers and banking leaders identified an opportunity to enhance call evaluation and coaching. Using our internal Navigator AI platform and Rocket Logic Synopsis, our call analysis platform, they prototyped a tool to analyze client calls without writing a single line of code. Within days, our engineers integrated the tool into Rocket Logic, bringing a frontline idea into production with speed. Previously, banking leaders spent about 30 minutes manually reviewing each call to identify these coaching moments. This new tool automates that process, analyzing every single spoken word, categorizing calls by skill, product, and client behavior, and servicing the most relevant coaching opportunities, all in real time. This is game-changing. Review time has been reduced by more than 80%, allowing leaders to scale from just one to two reviews per banker per month to 10 times that volume.

[Varun Krishna, CEO at Rocket Companies]

This efficiency frees up time for more complex client scenarios and more advanced coaching. Coaching and feedback now happen through a faster reinforcing feedback loop, which amplifies performance and productivity across the entire team. Bankers are also using the tool independently, reviewing their own calls, identifying their own improvement areas, and making self-driven, real-time adjustments. With more than 100,000 calls now handled each day, the ability to improve even a single interaction at scale has transformational impact. It's the kind of leverage that turns every one of our 3,000 bankers into a super banker. So these are just a few examples of how we're unlocking capacity and executing faster across the company. AI is handling the time-intensive work and accelerating our ability to learn, adapt, and deliver even faster for our clients. Let's shift gears and turn now to our mortgage broker partners.

[Varun Krishna, CEO at Rocket Companies]

A Rocket Pro channel stands for choice and flexibility. Over the last few months, we've delivered improvements that remove friction and make it easier than ever to partner with Rocket. In March, we rolled out a redesigned Rocket Pro dashboard, making it easier to navigate, surfacing more relevant insights and increasing transparency throughout the mortgage process. One standout feature was the native integration of Pathfinder, our searchable broker knowledge base, directly into this dashboard. The brokers now have instant access to policies, processes, and product-specific requirements right where they work, and usage has increased 30% since the dashboard launched. We also launched a new loan condition summary view, showing what's outstanding, what's ready for underwriting, and providing direct links to take immediate action. At the end of April, Rocket Pro also went live on the ARIVE platform, a loan origination and wholesale marketplace.

[Varun Krishna, CEO at Rocket Companies]

Rocket's pricing and products are now fully integrated into a platform that brokers use every single day. The response was immediate and enthusiastic. Within days, more than 9,000 pricing calls were initiated, including activity from over 300 brokers engaging with Rocket Pro for the first time. We're doubling down to help our mortgage broker partners succeed by making it easier than ever to work with Rocket and thrive within our vibrant ecosystem. So let's now move to how we're serving clients. Q1 was a quarter where we helped more clients through innovative affordability programs. In February, we launched Rent Rewards, our first-to-market program designed to support renters in their transition to owning a home. Eligible clients can receive a promotional credit of 10% of their annual rent, up to $5,000, directly addressing a key affordability barrier and making homeownership more accessible for first-time buyers.

[Varun Krishna, CEO at Rocket Companies]

In March, we backed Rent Rewards with a product marketing campaign leveraging our Own the Dream, our creative idea. Traffic to the Rent Rewards landing page surged, with over 1 million consumers expressing interest in the program. We also introduced 1-0 Rate Break, a program that lowers the contract mortgage rates by 100 basis points in the first year, helping ease those upfront home buying costs. These programs are resonating with potential home buyers, driving a double-digit increase in retail purchase clients with locked loans compared to the prior 90-day period before they launched. Let's take a step back and talk about the bigger picture. As we expand our reach and elevate the client experience, we're also making bigger moves to accelerate our vision of an integrated homeownership platform with the announced acquisitions of Redfin and Mr. Cooper.

[Varun Krishna, CEO at Rocket Companies]

These acquisitions are fundamentally about three things: strengthening our business model, fueling our platform with data and ecosystem partners to power Rocket's AI, and building an elevated client experience. Rocket will have a balanced business model and a powerful springboard for growth. Servicing and origination will work in harmony across market cycles, and when rates rise, servicing values increase, and when rates fall, strong recapture delivers a steady flow of new origination. Rocket has a track record of growing share in a range of market environments. So together, this combination provides unmatched scale: more than 30 petabytes of proprietary data, thousands of real estate agents, tens of thousands of brokers and loan officers, nearly 500,000 origination clients, with over 800 financial institutions. This is an ecosystem designed for client success, professional empowerment, and partner growth. Best of all is that clients win.

[Varun Krishna, CEO at Rocket Companies]

Instead of a fragmented and costly process, they'll be able to search, buy, finance, and manage their home in one modern, fully connected, beautiful end-to-end experience. Integration is a top priority for our leadership team right now. Over the past several weeks, we've been working closely with leaders at Redfin and Mr. Cooper, and we're more energized than ever. Integration is also a multifaceted process, and it is our top priority across the entire company. We share a culture of innovation and driving change through technology and a vision to build the future of homeownership. To our future team members at Redfin and Mr. Cooper, I can't wait to welcome you to Rocket. We're excited to join forces and lead the future of homeownership together. We believe if 2024 was foundational, 2025 will be evolutionary on a path for 2026 to be revolutionary.

[Varun Krishna, CEO at Rocket Companies]

We remain, as ever, relentlessly focused in the pursuit of our end goal to create an integrated homeownership platform. Thank you, and with that, I'll turn it over to Brian.

[Brian Brown, CFO at Rocket Companies]

Thank you, Varun, and good afternoon, everyone. Today, I'll walk through our first quarter performance, second quarter outlook, and I'll provide an update on the integration planning for Redfin and Mr. Cooper. We delivered strong results in the first quarter, and they are a direct testament to our team's continued focus and execution. Adjusted revenue reached $1.3 billion, near the high end of our guidance range. We generated $26 billion in net rate lock volume, a 17% increase year over year, and an 11% quarter-over-quarter increase, driven by growth in refinance and continued momentum in our home equity loan offering, which posted yet another record quarter.

[Brian Brown, CFO at Rocket Companies]

Gain on sale margin came in at 289 basis points in the first quarter, compared to 311 basis points in the same period last year and 298 basis points in the prior quarter. Our Q1 gain on sale margin was consistent with our weighted average gain on sale margin over the last 12 months. On an adjusted EBITDA basis, we delivered $169 million for a 13% adjusted EBITDA margin. We also reported adjusted net income of $80 million, and adjusted diluted EPS came in at $0.04. These results reflect our continued focus on driving growth and profitability while balancing deliberate investments with disciplined expense management. From January through March, which is typically a seasonally low quarter, we saw momentum build month over month. The 30-year fixed mortgage rate declined from nearly 7% at the start of the year to around 6.6% at the end of the quarter.

[Brian Brown, CFO at Rocket Companies]

Our team quickly capitalized on that opportunity through disciplined execution and the strength of our scalable technology platform, and we helped even more home buyers and homeowners move forward with confidence. March was highly productive in our second highest production month in three years, coming in just shy of last September when rates dipped below 6%. At the time, we anticipated that momentum to carry into April with the start of the spring home buying season, consistent with trends we've seen in prior years. Looking back, we now know that wasn't the case. Early April brought heightened equity and bond market volatility following the announcement of new tariffs. The S&P 500 initially dropped nearly 15%, and the 10-Year Treasury surged to 4.6%.

[Brian Brown, CFO at Rocket Companies]

While markets have since retraced much of that movement, the temporary spike in uncertainty caused many consumers to pause, resulting in a slower start to the home buying season. In this time of market volatility, concerns about job security, retirement savings, and overall affordability are weighing on consumers and leading many to delay significant purchases, including buying a home. You can see this behavior in the MBA purchase application data, which declined throughout April and ended the month at the lowest level since February. Now, we are seeing early signs the housing market is gradually shifting in favor of home buyers. On the supply side, inventory is building. Active home listings reached 960,000 in April, marking a 31% increase year over year. Homes are also staying on the market longer, which is contributing to moderating home price growth.

[Brian Brown, CFO at Rocket Companies]

Additionally, more sellers are offering concessions, helping to ease affordability pressures for buyers. The American dream of homeownership is very much alive, though potentially delayed this home buying season. Consumers continue to aspire to own homes, making it more important than ever to identify serious, high-intent buyers and serve them through an integrated homeownership platform. While this spring home buying season has gotten off to a slow start, we believe we'll see an uptick, especially as markets are starting to stabilize. For the second quarter, we expect adjusted revenue to be in the range of $1.175 billion-$1.325 billion, with the midpoint of this range representing a 2% year-over-year growth. This outlook reflects what was a challenging April from both a margin and volume perspective and our expectation that May and June will perform sequentially better than April.

[Brian Brown, CFO at Rocket Companies]

We're already seeing this expected improvement in the week leading up to this call. We view this guidance as strong, yet achievable, despite an uncertain market backdrop. Moving on to the cost side, we anticipate total expenses in Q2 to remain consistent with Q1 as we continue to make investments in our brand restage and purchase product offerings. The key objective of this investment has been to evolve towards a fully integrated marketing strategy, aligning brand, product, and performance marketing, and we're starting to see early signs of this working. From mid-February through April, total leads increased by nearly 10% compared to the prior year. More importantly, we saw a shift towards higher quality organic traffic to Rocket-owned properties, which is driving stronger conversion. In Q1, the number of verified approval letters increased by high single digits year over year.

[Brian Brown, CFO at Rocket Companies]

These Verified Approvals are a great way to identify high-intent clients who convert at a rate two to three times higher than standard pre-approvals. As we see the halo effect of the brand restage take hold, we expect its impact, specifically elevated brand awareness and consideration, to carry into the second half of the year and beyond. This will allow us to return to historical brand spend levels, which would be approximately $100 million lower than what we'll see in the first half of the year. In addition, our origination capacity gives us operating leverage and financial flexibility. At our investor day in September of last year, we announced that we could support $150 billion in annual originations without adding a dollar of fixed cost. That capacity number continues to grow every day and is now well north of $150 billion.

[Brian Brown, CFO at Rocket Companies]

AI and automation continue to significantly enhance productivity and provide levers to scale efficiently. If the housing market and rate environment doesn't cooperate, we have the ability to turn that excess capacity into cost savings in the second half of this year. That option value associated with this excess capacity is a luxury that we believe only Rocket has and is a direct result of the significant technology investments over the past decade. Now, turning to the acquisitions. Our announced acquisitions of Redfin and Mr. Cooper bring together three iconic companies to build the most complete and connected platform in homeownership. Redfin brings real estate search and brokerage. Rocket delivers origination scale. Mr. Cooper contributes servicing strength. Together, they create an end-to-end platform built for efficiency, reach, and client value. These acquisitions give us a durable, all-weather business model with a diverse revenue base and a strong foundation for growth.

[Brian Brown, CFO at Rocket Companies]

They fuel our platform with data and AI, expand our ecosystem through key partnerships, and enable us to deliver an elevated client experience. The combination of Rocket, Redfin, and Mr. Cooper provides a true super funnel with low customer acquisition costs, shared infrastructure, and end-to-end connectivity across the homeownership journey. Our collective teams across all three companies are already working hard, putting together detailed integration plans, including clear milestones. We've identified more than 35 integration work streams, formed several steering committees, and we're moving quickly and decisively to ensure we can start to realize synergy value after closing. In parallel, we announced the collapse of our Up-C structure to simplify our corporate structure and make our tax obligations and financial statement reporting easier to understand. Following the completion of both all-stock transactions, Redfin and Mr. Cooper.

[Brian Brown, CFO at Rocket Companies]

We expect our Class A public float to increase from approximately 7% today to around 35%. Any of these moves would be meaningful on its own. Taken together, they reflect our ambition, our discipline, and our readiness to lead the next chapter of homeownership. Finally, I want to highlight the strength of our balance sheet, which is a clear competitive advantage, especially in an uncertain market. As of March 31st, we held $2.9 billion in available cash and $7.4 billion in mortgage servicing rights, totaling $10.3 billion in balance sheet value. Total liquidity stood at $8.1 billion. That includes $1.4 billion of cash on the balance sheet, $1.5 billion in corporate cash used to self-fund originations, $3.2 billion in undrawn lines of credit, and $2 billion of undrawn MSR facilities. In April, we extended our existing $1.15 billion revolving credit facility.

[Brian Brown, CFO at Rocket Companies]

Driven by strong demand and a positive outlook on our pending acquisitions, we successfully upsized the facility to $2.25 billion, contingent on the transaction's close. This enhanced capital and liquidity position, supported by a diverse roster of strong financial institutions, positions us to invest strategically, stay agile, and navigate market shifts with confidence. In closing, we are confident in the path ahead. This is a moment that demands readiness and resilience, and Rocket is built for both. We're showing up every day with urgency, clarity, and discipline. And with Redfin and Mr. Cooper joining our platform, we'll be taking another step forward in redefining how Americans experience homeownership. To our future team members at Redfin and Mr. Cooper, we look forward to welcoming you to Rocket. We're excited to build together. Operator, we're now ready to turn it over for questions.

[Operator]

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press Star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press Star 1 again. Your first question comes from the line of Ryan Nash from Goldman Sachs. Your line is open.

[Ryan Nash, Analyst at Goldman Sachs]

Hey, good evening, Varun. Good evening, Brian, so maybe kick it off by asking both of my questions up front. First, I wanted to dig in on your outlook for 2025, so one key, we saw solid top-line growth. Varun, you talked about some of the softness that we saw in April. Expenses were a little bit higher, but Brian, you talked about elevated brand investment that'll come down, so lots of moving pieces in here.

[Ryan Nash, Analyst at Goldman Sachs]

While I assume results are going to be messy given the potential of the closing of the transactions, but can you maybe just talk about how all of this factors into your 2025 outlook from both a revenue and an operating leverage perspective? Then just my second question, I'll throw it out there now. It's easy to see the strategic benefits of these deals. When you think about the market share goals that you laid out, do you think these recent acquisitions increase those goals, or do they accelerate the progress towards them? Thank you.

[Varun Krishna, CEO at Rocket Companies]

Yeah, thank you for the question, Ryan. Why don't I start with just some comments on the outlook? Brian can touch on our guide and maybe a little bit on expenses as well. Then we'll talk about goals.

[Varun Krishna, CEO at Rocket Companies]

And so I think the first thing I would just start with is that I think the pretty big change that I would highlight is just the market dynamics from Q1 to Q2 of this year. In Q1, we started with some pretty clear momentum. Inventory was up 25%. Rates had dropped from 7% to 6.5%. So you had this kind of reactivation of refi interest, and you had more room to transact and affordability. And I think as we went into April, just the start of Q2, there was just pretty much a sharp and somewhat unusual reversal. And I think it kind of started on Liberation Day with the announcement of the tariffs. There was a lot of volatility that followed that on April 2nd. You had the NASDAQ, the S&P that fell almost 13% in the days that followed. They rebounded 10% on the 9th.

[Varun Krishna, CEO at Rocket Companies]

And then obviously now there's more recovery. But the 10-year Treasury dropped from 4.2% to 3.9%, only to spike back up to 4.58% on the 5th. And so you just have this compounding effect that just leads to consumer confidence dipping. And that's really the story of April. And the net of that is that consumers are obviously going to think about putting off things that are big, important, long-term decisions. And so buying a home, selling a home, refinancing is the largest transaction a consumer is ever going to do. And so with that dynamic, what we saw is that it makes sense that consumers are going to wait on the sidelines a little bit more than usual. And we do think it's a little more of a wait and see.

[Varun Krishna, CEO at Rocket Companies]

Brian will talk about this, but looking at May and June, we've already started to see that coming back, and that's why we feel that our guide is also realistic, but also confident, and so speaking of the guide, Brian, maybe you can touch on the guide, our expenses, and then we can close on just the goals.

[Brian Brown, CFO at Rocket Companies]

Sure. Yeah. Thanks, Ryan. I mean, just real quick to double down on what Varun said around Q1, it really was a strong quarter for us. Really proud of the team. We were up 11% on Adjusted Revenue on a year-over-year basis, 9% on a quarter-over-quarter basis, and then also just to reiterate, but April was a tough month, to Varun's point, and it was tough from both a margin and a volume perspective.

[Brian Brown, CFO at Rocket Companies]

And if you need evidence of that, just look at the MBA application data, which week over week in April was trending in the wrong direction. So if I think about the guide, we're sitting here early May, and I'm looking at three months in the quarter. April's baked into that. But to Varun's point, the good news is as we sit here in the first week in May, we've seen some rebounds, particularly on the volume side. Margins have been a little bit slower. So in May and June, I'm assuming that those months get sequentially better than April. And at this point in time, it's our view that the home buying season has been a little slow to form, but we still think there's potential to end it really strong.

[Brian Brown, CFO at Rocket Companies]

But before I let you go on this one, Ryan, just on the margin piece, I do expect Q2 margins to be lower than Q1 because of that April dip. As I said, they started to perform a little bit better. Volumes come back nicely, but I do expect margins to be a little slower. So at the end of the day, to Varun's point, we think it's a really strong guide. We think it's taking share into the second quarter, and it's achievable. Let me touch a little bit on expenses on the second part of your question. I mean, first of all, the operational excellence of this company and the discipline around this is front and center. Of course, it's a top priority for Varun and I.

[Brian Brown, CFO at Rocket Companies]

The expenses in Q2, I do expect them to be flat with Q1, and that's largely because you're still seeing the elevated marketing investment. The thing about the marketing investments, we had the brand restage in Q1, but as you enter Q2, you're really getting into the product marketing and trying to capture the purchase season, so you'll still see that elevated in Q2, but maybe it makes sense for me to comment a little bit on the second half of the year. As we look past Q2, I do expect the marketing expense to come down quite substantially in the second half of the year. In fact, if I look at the second half of the year compared to the first half of the year, I can see marketing expenses being down near $100 million, and that's because you're starting to leverage off that brand restage and the halo.

[Brian Brown, CFO at Rocket Companies]

You've built up significant awareness and consideration, and you're leveraging that. And then the only other thing I'll mention, Ryan, is when we think about capacity. I think that's another important aspect to think about in the expense envelope. We built up a lot of additional capacity. We commented on $150 billion during Investor Day, and that's only been growing daily. So we're going to watch the market closely, particularly over May and June, but we do have option value to take some of that capacity in the second half of the year and turn it into fixed cost savings in H2. So we'll monitor the market closely as we always do. As we said, we think the home buying season got delayed a bit with the volatility in April, but has potential to finish strong.

[Brian Brown, CFO at Rocket Companies]

But we do have potential to take some of the excess capacity and turn it into cost savings in H2.

[Operator]

Your next question comes from a line of Mark DeVries from Deutsche Bank. Your line is open.

[Mark DeVries, Analyst at Deutsche Bank]

Yeah, thanks. Ryan asked my question on expenses. So I'd like to ask about just your post-merger with Mr. Cooper Group, your subservicing strategy going forward. Obviously, it's kind of a big part of their business. And we've seen at least one notable client defection since the deal was announced. Obviously, having subservicing with a company like Rocket, it's much more effective at recapturing maybe a greater threat. So I'm just, how are you thinking about retention of subservicing agreements going forward and the ability to kind of grow that?

[Brian Brown, CFO at Rocket Companies]

Yeah, Mark, let me touch on the first part of your question, and then Varun may have a comment or two.

[Brian Brown, CFO at Rocket Companies]

I can't comment on the Cooper business. We do need to run as two independent companies right now. But I think there's two things I'd point you to. One is, from the Rocket perspective, we fully support the subservicing business. There's no question about that. What Cooper's built, and particularly being able to scale through subservicing, is part of the aspect that's been very impressive to us. And if you go back to Cooper's earnings call and look at some of the comments they made, they talked a lot about the fact that they have actually been increasing the pipeline on the subservicing business and haven't seen any material changes. So if I leave my comments to just post-closing, we're very excited about that business. We fully support it. And we plan, as we said publicly, to completely honor the contractual provisions with those sub-servicers.

[Mark DeVries, Analyst at Deutsche Bank]

Okay. Got it. Thank you.

[Operator]

Your next question comes from the line of Doug Harter from UBS. Your line is open.

[Doug Harter, Analyst at UBS]

Thanks. Hoping you could talk about Rocket Pro. It seems like you kind of made some investments into technology and staff in that. Just what you're thinking on kind of near-term outlook there and ability to kind of narrow the gap in that channel?

[Varun Krishna, CEO at Rocket Companies]

Thank you for the question, Doug. I'll start by just saying that we are extremely optimistic about our prospects in the space, and I think we have a huge opportunity to grow. And I think what you've seen from us over the past 18-20 months or so is just a strategy and execution that reflects that. So we've been on a journey to kind of retool how we think about the broker landscape. I think we obviously started with leadership hiring.

[Varun Krishna, CEO at Rocket Companies]

Those leaders have been in place now for a few months and are driving faster execution. They're focusing on technology, scale, more strategic relevance, and our strategy is basically threefold. I think the first pillar is just the power of choice. We know that brokers are essential to the mortgage ecosystem, but we need to make sure that they're empowered with choice, that they're able to shop the entire market, and so choice is kind of our first pillar. The second is that we think today this is a space that is not super powered by technology, and we think that there's a huge benefit that can be created there for the broker community. And so the technology that we're building internally, we're building that as a platform, and so we're extending that capability to our brokers.

[Varun Krishna, CEO at Rocket Companies]

That's why we provide things like best-in-class notifications, best-in-class models, insights, relevant offerings like Rent Rewards, which we just talked about. That's already exceeding expectations in early days. And that's why we're refreshing things like our broker dashboard. We're providing loan-level editing just to give them more flexibility at their fingertips. And so a lot of the technology we built in-house, we think about our brokers as natural inheritance of that capability. And then the last thing is we want to enable our brokers to just thrive for the long term. And that's not just with technology, but it's with new innovative business models like servicing, for example.

[Varun Krishna, CEO at Rocket Companies]

And so we want to basically create a world where a broker can compete and have the same value chain that we have on the retail side, and we just kind of continue that continuum and where they can service the loan, they can drive retention with the client. And so investments that we've made, including being on the ARIVE platform that we talked about earlier, are just all in service to that. And so we want to empower brokers with choice. We want to create the best technology and capabilities, and we want to help them grow their business for life. We've made progress, and we do expect our momentum to accelerate in the coming months.

[Doug Harter, Analyst at UBS]

Great. Thank you, Varun.

[Operator]

Your next question comes from a line of Bose George from KBW. Your line is open.

[Bose George, Analyst at KBW]

Hey, good afternoon. Just to follow up on the earlier question on market share, do you think you might explore other acquisitions, especially to grow purchase market share? And is the acquisition of distributed retail capacity something you could consider?

[Varun Krishna, CEO at Rocket Companies]

Yeah. Thank you, both. I think what I would say right now is, with the criticality of the integration that we have, we're absolutely focused on these two. I think we're super excited about these deals. They're directly in service to our long-term strategy, and we think that it's very relevant to our purchase strategy goals, and just to kind of recap that, we want to establish a top-of-funnel, build relationships with clients that are searching for homes, as well as with real estate agents and experts, and this is directly in service to that with Redfin.

[Varun Krishna, CEO at Rocket Companies]

We want to build a broker strategy, as I obviously just talked about with the earlier question. And then we want to drive the recapture flywheel, which is really powered by servicing. And so we are knee-deep in integration preparation, and we're really excited and happy with how it's going. But this will be the primary focus for us just to make sure that we build these key pillars of our integration platform.

[Bose George, Analyst at KBW]

Okay. Great. Thank you.

[Operator]

Your next question comes from a line of Jeff Adelson from Morgan Stanley. Your line is open.

[Jeff Adelson, Analyst at Morgan Stanley]

Hey, good afternoon. Thanks for taking my questions. Brian, you mentioned that your capacity is well north of $150 billion now. Just wondering if you could provide a little bit more color on how you kind of continue to grow that and where you think that might go over time.

[Jeff Adelson, Analyst at Morgan Stanley]

And anything you can provide us on numbers in terms of back half of the year on expense savings if mortgage volumes don't come through, like you mentioned?

[Varun Krishna, CEO at Rocket Companies]

Yeah. Thanks for the question, Jeff. I think I'll start by just talking a little bit about the relevance of AI here, and then maybe Brian, you can touch on capacity as it pertains to expenses and cost. The reality is, I mean, AI is such a clear strategic bet for us. Essentially everything we're doing, including our recent two deal announcements in inorganic and our build strategy, is all in service to that. The reason for that is because we feel that this is the tool to create infinite capacity. I use the term infinite capacity on purpose because we do think the capacity is limitless, and it can be expanded with significant growth potential.

[Varun Krishna, CEO at Rocket Companies]

And so we imagine a world where people are developing sort of superpowers in this space, especially in mortgage and home ownership, and they can do the work of an order of magnitude larger. And the examples of that just keep piling up. And I saw an example the other day that we called a banker report card. It utilizes our Navigator AI, it utilizes our Synopsis platform, and it was something that our bankers built for themselves that analyzes calls, it flags conversion opportunities, it delivers coaching, and just makes them better. And so what's beautiful about this example to me is that it's self-created and self-perpetuating. It's people using technology to make themselves better, and that technology is becoming democratized. And so what excites me is that this is now happening without writing code.

[Varun Krishna, CEO at Rocket Companies]

And there's sort of this shift from what was a previous definition of AI of being sort of rule-based automation to something that's more agentic. It's something that can reason, it can act, it can adapt. And that just gives us a lot of optionality to be able to scale up without scaling costs or pull back without compromising throughput and keep our fixed costs operationally efficient and sort of avoid that yo-yo effect that happens in the industry because it's a big market and we have significant aspirations for growth and we need our team.

[Brian Brown, CFO at Rocket Companies]

Yeah, that's right, Varun. And the only thing I'd add, Jeff, is two things. One is, to Varun's point, the velocity of increasing capacity is only increasing as well.

[Brian Brown, CFO at Rocket Companies]

So that number that we announced at the September of last year has been growing daily, frankly speaking, because of some of the examples that Varun gave. And that just presents option value to us. Plan A is clearly to fill that with a little cooperation from the market and taking share. But that option value on Plan B does allow us to release some of that and take down the cost structure. So if I take you back to my prepared remarks, what we were foreshadowing is that we're going to watch the market over this next couple of quarters. April was challenging. We've seen some green shoots in the first week of May. There's no doubt about that. We still are very bullish on the home buying season, though it might be postponed or delayed out of the gate.

[Brian Brown, CFO at Rocket Companies]

We'll continue to monitor it and we'll take action as needed. But being disciplined and being operationally effective is in our DNA.

[Jeff Adelson, Analyst at Morgan Stanley]

Okay. Great. Thanks. And just my follow-up on home equity product. Can you just maybe contextualize how quickly that's been growing for you this past quarter and where that fits into your market share goals by 2027? Thanks.

[Brian Brown, CFO at Rocket Companies]

Yeah. I mean, I think you broke up a little bit there, Jeff, but I think if the question was, how is the home equity loan product performing, it was another record quarter for it. We consistently have quarter-over-quarter growth. If you think about the market share opportunity there, regardless if rates are at seven or if rates are at six, that product is still very attractive. So we think there's a really long runway there.

[Operator]

Your next question comes from a line of Mihir Bhatia from Bank of America. Your line is open.

[Mihir Bhatia, Analyst at Bank of America]

Good afternoon, and thank you for taking my question. I wanted to start by just talking a little bit about the channels. I heard your comments about overall margins probably down a little bit in the second quarter. I don't know if you want to give us commentary at the channel level on that, but maybe at least talk a little bit about the competitive intensity you're seeing. Certainly in Q1, it looks like funded loan margins were lower in the partner channel. Anything specific to call out there?

[Brian Brown, CFO at Rocket Companies]

Yeah. Mihir, I'll take a stab at it. Thanks for the question. I mean, I think let me start with the TPO space.

[Brian Brown, CFO at Rocket Companies]

If you think about pricing in the broker space, there's really been two periods this year where we've seen a more competitive landscape in pricing pressure. And I don't think either of them are surprising. One was just to start the year in January. We know that sometimes the wholesale space gets off to a little slower start coming out of the holidays, and there's still capacity built into the system. And then you do see some price pressure. And that was what we saw in January. And then we saw that sort of come out of the system through February and March. And then the other period was what we've discussed, which was around April, where the other place you see some of that price pressure come is when you see volatility in the market. Consumers do take a step back, particularly in the home buying space.

[Brian Brown, CFO at Rocket Companies]

Even when it comes to refinance and cash out, if rates are bouncing around, that does present some uncertainty. You still have capacity of the system, so you generally see price competitiveness increase. So that's what we saw, and like I said, but as I get here into the first week of May, I've seen some of that come out of the system. On the retail side, on the direct-to-consumer, things have sort of followed that same trend, but relatively holding strong with Q1.

[Mihir Bhatia, Analyst at Bank of America]

Got it, and then maybe just switching back for a second to subservicing and protection. And also maybe related to subservicing, just protections. The brokers when you are servicing loans in the broker channel. There's been a lot of talk just about that and about the potential for Rocket being a competitor, but also going to be doing subservicing. Others may want to switch, etc.

[Mihir Bhatia, Analyst at Bank of America]

Maybe just take a couple of minutes to just talk about that. What kind of protections do MSR owners have in these typical subservicing arrangements? And similarly for the brokers that work with Rocket. Thank you.

[Brian Brown, CFO at Rocket Companies]

Yeah. I mean, I think it's pretty simple. It's either you have a non-solicit or I guess they put it in three buckets, Mihir. If you're speaking about doing subservicing and we announced the annual deal earlier, there's a way that Rocket can help them actually do the recapture. If you're an asset manager and you come to Rocket to do subservicing, you own the MSR, we're going to do the subservicing, there's a really awesome opportunity because we can do the recapture, which protects that asset, extends the cash flows, and it's a win for the servicer, and it's a win for the owner servicer, and it's a win for Rocket.

[Varun Krishna, CEO at Rocket Companies]

And then when you take it one step further into subservicing, similarly, you can either help the client do recapture or not. And we're open to both. But if you don't help the client recapture, then you're not going to solicit those clients or you're not going to be a subservicer for long. And our comments are that we support all three of those models. Obviously, Cooper does all three. Rocket does two of them today. We'll do three upon the close of the transaction. But we're very supportive of it, and that's one of the exciting things about this acquisition.

[Mihir Bhatia, Analyst at Bank of America]

Thank you.

[Operator]

And that concludes our question and answer session. I will now turn the call back over to Varun Krishna for closing remarks.

[Varun Krishna, CEO at Rocket Companies]

All right. Well, thank you, everyone on the Rocket team, for an awesome quarter. And thanks, everyone, for listening. We'll see you next quarter.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Varun Krishna, CEO
• Sharon Ng, Head of Investor Relations
• Brian Brown, CFO

Analysts

• Bose George, Analyst at KBW
• Mark DeVries, Analyst at Deutsche Bank
• Mihir Bhatia, Analyst at Bank of America
• Jeff Adelson, Analyst at Morgan Stanley
• Ryan Nash, Analyst at Goldman Sachs
• Doug Harter, Analyst at UBS