Rocket Companies (RKT) Q2 2026 Earnings Call Transcript

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DATE

Thursday, Aug. 6, 2026, at 4:30 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer-Varun Krishna
• President and Chief Financial Officer-Brian Nicholas Brown
• Investor Relations-Sharon Ng

TAKEAWAYS

• Adjusted Revenue -- $2.76 billion, driven by balanced performance across recurring and less rate-sensitive business lines.
• Adjusted EBITDA -- $766 million, representing a 28% adjusted EBITDA margin compared to 26% in the first quarter.
• Adjusted Diluted EPS -- $0.16, increasing from $0.15 in the prior quarter.
• Purchase Market Share -- 6.2%, rising from 5.5% in the fourth quarter of 2025.
• Refinance Market Share -- 14.3%, increasing from 12.2% in the fourth quarter of 2025.
• Total Net Rate Lock Volume -- $47 billion, contributing to the most profitable quarter in four years.
• Total Closed Loan Volume -- $49.1 billion, reflecting record market share gains during a challenging spring housing season.
• Gain on Sale Margin -- 3.11% excluding correspondent lending, compared to 3.22% in the first quarter.
• Direct to Consumer Net Rate Lock Volume -- $26 billion, while closed mortgage loan origination volume reached $28.1 billion with a 4.13% gain on sale margin.
• Rocket Pro Volume -- $10.9 billion in net rate lock volume, with gain on sale margin at 0.69% due to investments in the Compass partnership.
• Correspondent Volume -- $10.2 billion in net rate lock volume, generating a gain on sale margin of 0.19%.
• Total Liquidity -- $11.2 billion as of June 30, 2026, including $3.1 billion of cash and cash equivalents.
• Servicing Portfolio -- $2 trillion in unpaid principal balance (UPB) across 9.1 million loans, providing a recurring revenue foundation.
• MSR Sales -- $53 billion of UPB sold for $795 million in cash proceeds, while the company retained subservicing and recapture rights on 80% of these assets.
• AI Productivity Gains -- 40% increase in the number of clients served per loan officer compared to one year ago.
• Redfin Mortgage Leads -- Doubled year over year in June, with a mortgage attach rate of 47%, nearing the 50% synergy target.
• AI Voice Platform -- 1 million inbound servicing calls handled within three months of launch, with 50% resolved without human assistance.
• Home Equity Lending -- $24 billion in equity accessed by 250,000 homeowners since mid-2022, making the company the largest home equity lender in the country.
• Rocket Loans Volume -- Nearly doubled year over year in the first half of 2026, with over 50% of loans originating from existing servicing clients.
• Net Corporate Leverage -- 0.9x, representing a 20% reduction since the end of 2025.
• Third Quarter Revenue Guidance -- $2.5 billion to $2.7 billion, reflecting expectations of a smaller total mortgage market.
• Expense Guidance -- $2.35 billion for the third quarter, including $110 million for intangible amortization and $90 million for stock-based compensation.
• Integration Synergies -- $400 million target for year-end 2026, with an additional $100 million in annualized savings identified for the first half of 2027.

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RISKS

• Brown stated, "The expected housing recovery in 2026 has not materialized," noting that high mortgage rates continue to pressure affordability and reduce purchase and refinance demand.
• Brown warned that the company expects the third quarter mortgage market to be smaller than the second, a trend not seen since 2022, as the 30-year fixed rate reached 6.8% in recent weeks.
• Krishna stated that "higher rates reduced affordability" and "demand softened" during what is typically the strongest quarter of the year, causing the spring market to fall short of industry expectations.

SUMMARY

Rocket Companies (NYSE:RKT) management reported that the company achieved its highest-ever quarterly market share in both purchase and refinance categories despite a volatile interest rate environment that suppressed broader industry demand. The company stated that its business model has evolved to derive over 70% of revenue from recurring or less rate-sensitive sources, including servicing fees and home equity products. Management emphasized that investments in artificial intelligence have increased operating leverage by allowing loan officers to handle significantly higher client volumes without a corresponding increase in fixed costs. Furthermore, the integration of Redfin and Mr. Cooper assets is progressing ahead of schedule, with expanded synergy targets and increased mortgage lead conversion across the combined platforms.

• CEO Krishna attributed the market share gains to a "business model that has fundamentally evolved," noting that the company now enters client relationships months earlier through the Redfin home search ecosystem.
• The company completed one of the largest servicing migrations in industry history, consolidating all servicing clients onto a single technology platform to improve recapture efficiency.
• CFO Brown noted that the company maintains a significant capital advantage, stating, "We are the only mortgage company with an investment grade rating" and less than 1.0x net corporate leverage.
• Management identified a specific pool of $320 billion in owned mortgage servicing rights with note rates above 6%, which Brown described as "clients who are first in line to refinance when rates fall."
• CEO Krishna stated that AI tools are "improving productivity, personalization, and conversion across the entire platform" by removing administrative tasks from human specialists.
• The partnership with Compass has generated over $2 billion in net rate lock volume since inception, driven by unique inventory and preferred pricing incentives for Redfin agents.
• Management increased its annualized expense saving target by $100 million for the first half of 2027, following the successful execution of Mr. Cooper integration milestones.

INDUSTRY GLOSSARY

• Adjusted EBITDA: A non-GAAP financial measure that represents net income before interest on senior notes, taxes, depreciation, and amortization, often used to assess core operating performance.
• Correspondent Lending: A channel where a lender purchases closed and funded mortgages from other smaller lenders or banks to either hold or sell.
• Gain on Sale Margin: The profit a mortgage company makes when selling a loan into the secondary market, expressed as a percentage of the loan amount.
• Mortgage Servicing Rights (MSR): The contractual right to service a mortgage loan, including collecting payments and managing escrow accounts, for a fee.
• Net Rate Lock Volume: The total dollar amount of mortgage loans for which a lender and a borrower have agreed upon an interest rate, adjusted for expected fallout.
• Recapture Rate: The percentage of existing customers who choose the same lender for their next mortgage transaction, such as a refinance or a new home purchase.
• Unpaid Principal Balance (UPB): The remaining amount of a loan that has not yet been paid back to the lender, excluding interest and other charges.

Full Conference Call Transcript

Operator: Good day, everyone, and welcome to The Rocket Company Second Quarter 2026 Earnings Conference Call. Just a reminder that today's conference is being recorded. At this time, I would like to hand the call over to Ms. Sharon Ng. Please go ahead, ma'am.

Sharon Ng: Good afternoon, everyone, and thank you for joining us for Rocket Company's earnings call covering the second quarter 2020. With us this afternoon are Rocket Company's CEO, Varun Krishna and our President and CFO, Brian Nicholas Brown. Earlier today, we issued our second quarter earnings release. Which is available on our website at rocketcompanies.com under Investor Info. Also available on our website is an investor presentation. Before I turn things over to Varun, let me quickly go over our disclaimers. On today's call, we provide you with information regarding our second quarter performance as well as our financial outlook. This conference call includes forward looking statements.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and the assumptions we mentioned today. We encourage you to consider the risk factors contained in our SEC filings for a detailed discussion of these risks and uncertainties. We undertake no obligation to update these statements as a result of new information or further events. Except as required by law. This call is being broadcast online and is accessible on our investor relations website. 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 in our filings with the SEC. And with that, I will turn things over to Varun Krishna to get us started. Varun?

Varun Krishna: Good afternoon, everyone, and thank you for joining our second quarter 2020 earnings call. Today, I will cover the market, our second quarter results, and Rocket's performance. Let's go ahead and start with the market. The industry expected a normal spring home buying season. Instead, affordability deteriorated as mortgage rates moved higher through May and June. Purchase and refinance demand as a result weakened during what is typically the strongest quarter of the year and industry forecast moved lower as the quarter progressed. Simply said, it was 1 of the toughest spring housing markets in years. Now against that backdrop, Rocket delivered 1 of its strongest quarters in recent memory. We gained market share in both purchase and refinance.

We delivered our most profitable quarter in 4 years. We expanded adjusted EBITDA margins and integration of Redfin and Mr. Cooper are well ahead of plan. Adjusted revenue was $2.8 billion, near the midpoint of our guidance. Adjusted EBITDA margin expanded to 28% up from 26% in the first quarter. Adjusted diluted EPS increased to $0.16. Now our North Star is profitable market share growth. And we reached a new record this quarter. Purchase share increased to 6.2%, up from 5.5% in Q4 of last year. Refinance share increased to 14.3%, up from 12.2%. This performance was not a coincidence. It was the result of years of deliberate investment, focused execution, a business model that has fundamentally evolved.

Today, more than 70% of our revenue comes from recurring or less rate sensitive businesses. Servicing provides a durable recurring revenue foundation. Purchase mortgages, home equity, personal loans, and Redfin diversify us across broader parts of the housing market. Today, Rocket is the largest in both servicing and origination. And our recapture engine connects to these 2 things. Just as importantly, all of our businesses reinforce 1 another. Redfin brings clients into the Rocket ecosystem earlier. Mortgage helps them finance 1 of life's biggest decisions. Servicing keeps that relationship alive for years. Additional products allow us to continue serving these same clients as their needs evolve. Artificial intelligence strengthens every step of that journey.

It improves productivity, personalization, and conversion across the entire platform. So the important point is not that we have added new businesses. it is that we have changed the economics of the business fundamentally. Our recurring revenue base is larger. Our client relationships last longer. Our acquisition costs improve as these businesses reinforce 1 another. And our operating leverage expands as AI increases productivity across this platform. This is the business we have been building. 1 with a stronger floor in difficult markets, and significantly more upside when housing activity returns. that is what gives us confidence that Rocket's long term earnings power is fundamentally stronger than it was just a few years ago.

Now let me take a second and show you how that came to life during the second quarter. Home ownership begins long before a mortgage application. It begins with home search. that is what makes Redfin such an important part of Rocket's strategy. Historically, Rocket entered the relationship when a client decided to finance a home. Today, we are increasingly entering months earlier while they are still searching. That completely changes the economics of client acquisition. Redfin reaches roughly 50 million monthly active users, with some of the highest engagement and retention in online real estate. Those users are not casually browsing. They are actively preparing to buy or sell a home. We are turning that intent into action.

Product improvements and proprietary AI models have increased lead conversion by roughly 30% over the past year. Helping more clients move from searching to touring, financing, and closing. And when buyers are ready to finance, Rocket is already part of the experience. Eligible servicing clients who buy and sell through Redfin and finance with Rocket Mortgage can save up to $20 thousand. that is a meaningful affordability advantage in today's market. We are seeing it translate into results. In June, mortgage leads from Redfin more than doubled year over year. The mortgage attach rate with Redfin agents reached 47%, approaching our synergy target of 50%. Inventory is yet another differentiator.

Through our Compass partnership, Redfin continues expanding unique inventory that is not available on other major home search portals. In markets like Chicago, that advantage is already driving meaningful increases in both homebuyer and mortgage leads. Nationally, Redfin now offers 25 thousand exclusive listings. More inventory attracts more serious buyers. More serious buyers create more financing opportunities. that is why Redfin matters. It allows us to build relationships earlier convert them more effectively, and increase the lifetime value of every client who enters the Rocket ecosystem. The advantages we are creating upstream continue through mortgage origination. Sales is still very much a human craft. It takes judgment, empathy, and timing. Technology does not replace that.

It just makes our people better at it. Our loan officers provide judgment, advice, and trust, and they are the best in the business. Artificial intelligence only makes them better. By removing administrative work and helping our teams focus on the right opportunities at the right time AI allows our loan officers to spend more time helping clients and less time managing processes. We are already seeing significant impact. Compared with just 1 year ago, our loan officers are serving nearly 40% more clients, while delivering double digit improvements in conversion at the same time. Those gains really matter today, and they matter even more as the market recovers.

As mortgage volumes increase, we believe we can expand profitability faster without growing our cost structure at the same pace. This is 1 of the biggest structural changes happening inside Rocket. AI is not simply making people more productive. it is actually increasing the earnings power of the business through operating leverage. We are applying that same approach across the entire company. Servicing remains 1 of Rocket's greatest competitive advantages. It generates durable recurring revenue while creating long term relationships with millions of clients. Those relationships become more valuable every year they remain inside the Rocket ecosystem. During the second quarter of this year, we completed 1 of the largest servicing migrations in our industry's history.

Bringing our servicing clients onto a single platform. That milestone is about so much more than technology. It creates 1 foundation for how we serve clients deploy AI, and identify opportunities across the business. Earlier this year, we launched Voice AI for inbound servicing calls. It has now handled more than 1 million calls with more than half resolved without requiring a servicing specialist. Clients receive faster service, and our servicing experts spend more time solving the complex situations where human judgment matters most. Every interaction improves our understanding of the client and helps us identify opportunities to refinance, access home equity, purchase another home, or use another Rocket product. that is what makes our servicing different.

It is not just a recurring revenue business. it is the engine that continuously creates future origination opportunities. Today, Rocket is both the nation's largest mortgage servicer and the nation's largest mortgage lender. Very few companies have both. That combination allows us to deepen client relationships over time instead of rebuilding them with every new transaction. So the economics are fundamentally different. Every year, we keep a client. We improve the probability of serving them again while reducing the cost of doing so. Artificial intelligence simply accelerates that advantage by improving client experiences strengthening recapture, and increasing productivity across the entire platform.

The result is a business with a stronger recurring earnings based today and even greater operating leverage when housing activity recovers. The power of this business model is what it allows us to build on top of this platform. Because we already have trusted client relationships, servicing scale, AI capabilities, and distribution, we can expand into adjacent businesses faster and more efficiently than any company starting from scratch. Home equity is 1 great example. We entered the category just 4 years ago. Today, Rocket is the nation's largest home equity lender. Since launch, we have helped 250 thousand homeowners access over $24 billion of their home equity. Rocket is the first independent mortgage company to lead the category.

That milestone demonstrates something far larger than just success in a single product. It shows the advantage of building new businesses on top of an existing client base rather than acquiring every new customer from the beginning. Rocket Loans tells a very similar story. Loan volume nearly doubled year over year during the first 6 months of 2026, culminating in a record month in June. More than half of those loans come from existing Rocket servicing clients. That simply reinforces the strategy we have been executing for years. Each additional product strengthens the client relationship. Each stronger relationship creates another opportunity to serve that client over time.

Lifetime value increases while future acquisition costs decline. that is the economic engine we are building. We are not assembling a collection of products. We are building a business where every product makes every other product more valuable. The same dynamic extends to our partner ecosystem. Through our Compass partnership, RocketPro brokers have originated more than $2 billion of net rate lock volume. Consumers agents, and brokers all benefit from a more connected experience and every additional participant strengthens that network. Those advantages compound over time. I will close with this. The second quarter tested the housing industry. Higher rates reduced affordability. Demand softened. The spring market fell well short of expectations.

But against that backdrop, Rocket reached record market share in both purchase and refinance, delivered its most profitable quarter in 4 years, and continued executing ahead of plan. Those results reinforce what we have been building for years. Rocket today is fundamentally different from the company we were just a few years ago. We have a larger recurring revenue base. Longer client relationships, higher operating leverage, and more opportunities to serve clients throughout the homeownership journey. We cannot control where mortgage rates go next quarter, We can control the business we build. Quarter after quarter, we are building 1 with a stronger floor in difficult markets and significantly more upside when housing activity returns.

Competitors may have pieces of this model. No 1 has integrated it the way that Rock has. that is why we believe Rocket's long term earnings power is stronger than at any point in our history. And with that, Brian, over to you.

Brian Nicholas Brown: Thank you, Varun, and good afternoon, everyone. Today, I will discuss our second quarter results and the record market share gains we delivered in a challenging market. I will also cover capital position and integration progress.

Varun Krishna: I will close with our outlook for the third quarter.

Brian Nicholas Brown: Let's start with the second quarter's results. Adjusted revenue was $2.8 billion near the midpoint of our guidance range. We generated $47 billion in total net rate lock volume, and $49 billion in total closed loan volume. Gain on sale margin, excluding correspondent, was 311 basis points. that is compared to 22 basis points in the first quarter. Adjusted EBITDA was $766 million representing an adjusted EBITDA margin of 28%, up from 26% in the first quarter. Adjusted diluted EPS was $0.16, up from $0.15 in the first quarter making this our most profitable quarter in 4 years. Our market share gains in the second quarter were impressive.

In fact, we achieved our highest ever quarterly market share in both purchase and refinance. Based on industry estimates, purchase market share came in at 6.2% and refinance market share was 14.3% in the second quarter. This represents a 13% increase in purchase market share from fourth quarter and a 17% increase in refinance market share. These results reflect the structural advantages of our business model. First, a diversified revenue base that provides stability with built in upside. Second, unique assets, including the industry's largest servicing portfolio, and Redfin's purchase funnel that drives share gains at a very low cost of acquisition.

Third, a cost advantage across origination and servicing where scalable capacity and expense synergies keep fixed costs flat while volume grows. Let me unpack each of these a little more. Starting with our balanced revenue model. Sensitive. More than 70% of our revenue is recurring or less rate sensitive. Servicing fee income and Rocket Money subscription revenue are recurring. The purchase business, cash out refinance, home equity loans, as well as the red business, operate in a large and less rate sensitive category. The remaining 30% includes rate and term refinance, which carries the most rate exposure, but it is also our greatest source of upside when rates fall.

And the good news is we have over $300 billion of origination capacity that is primed to capture this upside. In Q2, this balanced business model drove our operating results. Servicing generated $1 billion of steady cash flow while less rate sensitive products, including purchase, cash out refinance, and home equity loans contributed to the majority of gain on sale revenue. Let's turn to our unique assets. The industry's largest service portfolio connected to a powerful recapture engine and Redfin's purchase top of funnel. These assets are hard to replicate. And they allow us to acquire clients at a fraction of the industry's average cost. Because these clients are already in our ecosystem. Those assets delivered in the second quarter.

On the purchase side, the Redfin integration is paying dividends. Mortgage leads from Redfin in June doubled year over year. Mortgage attachment, the percentage of Redfin buy side clients who finance with Rocket Mortgage, has reached 47%. Approaching our 50% target. That momentum helped drive the direct to consumer purchase volume up 45% year-over-year. And on the refinance side, our servicing portfolio drove share gains across rate and term, cash out, and home equity loans. Existing service clients accounted for 57% of refinance closed volume, up from 54% in Q1. And those closings come with near zero client acquisition costs. Recapture rates on the Mr. Cooper portfolio reached another record. And we are more than halfway to realizing our Mr.

Cooper revenue synergy target on an annualized run rate basis. The clearest example of these assets working together is preferred pricing. Service clients who buy and sell with Redfin and finance with Rocket Mortgage can receive up to $20 thousand in combined savings. We can offer an incentive of this size for 1 simple reason. We own the search portal, the real estate brokerage, the mortgage financing, the title and closing, and the servicing. Historically, these are 4 or 5 separate companies all with different experiences and different client acquisition models. As I mentioned, our cost to acquire these clients is nearly zero. We pass these structural advantages right back to the client.

Directly addressing affordability, which is the biggest barrier in today's housing market, while deepening relationships across the ecosystem. This brings me to the third advantage. We operate origination and servicing at a significant cost advantage when compared to industry averages. And that gap is widening. Technology advancements are expanding the capacity every production team member. Our tools help loan officers drive double digit conversion improvement while working with nearly 40% more clients than just 1 year ago. This allows us to keep fixed costs flat. While volume grows. And once fixed costs are covered, incremental revenue drops to the bottom line in a very high rate. Expense synergies are amplifying this advantage. quarter, we realized $100 million of annualized Mr.

Cooper expense synergies in the In line with our expectations. We remain on track to achieve the full $400 million target by year end. This is how our business model delivers in tough markets. And in more favorable ones. Since completing the Redfin and Mr. Cooper transactions in the back half of last year, we have grown share and expanded profitability for 3 straight quarters. Across both rising and falling rate environments. Everything I just described runs on a foundation of balance sheet strength. In a market like this 1, capital is not just defense. it is offense. It is what allows us to invest through the cycle and move quickly when opportunities arise.

While others are forced to pull back. We ended the quarter with $11.2 billion of liquidity, up $1.8 billion from the first quarter. In June, we refinanced existing debt through a successful senior note offering. That execution was supported by our investment grade rating and credit profile that keeps getting stronger. Net corporate leverage ended the quarter at 0.9x. 20% lower since year end. Part of maintaining that balance sheet strength is treating our MSR portfolio as the strategic asset it is actively managed not passively held. During the quarter, we sold a portion of our low coupon MSRs at a attractive market prices. But we did not sell off the client relationship.

We retain the subservicing on those MSRs, And even more importantly, we retain the ability to do recapture and the related economics. Even after these sales, our servicing portfolio ended the second quarter at $2 trillion of unpaid principal balance. These sales also rebalance the composition of our portfolio. Toward higher average note rates. Today, 26% of our owned MSR portfolio, or $320 billion of unpaid principal balance carries a note rate above 6%. This is a large pool of clients who are first in line to refinance when rates fall. And hours to recapture. Looking ahead, we expect the housing market to remain challenging in the near term.

In recent weeks, expectations of higher future inflation pushed the 30 year fixed rate to 6.8%. 50 basis points higher than the average rate during the first half of the year, and the highest level in more than a year. These pressures are weighing on both purchase and refinance activity. Existing home sales remain near 4 million on an annualized basis, while pending sales and purchase applications continue to decline. The expected housing recovery in 2026 has not materialized. As increasing rates continue to pressure affordability. Last quarter, we told you our real time data indicated a tougher market than industry forecast suggested. And that is exactly how the second quarter played out.

Today, the same data leads us to expect the third quarter mortgage market to be smaller than the second. Something the industry has not seen since 2022. With that context in mind, we expect adjusted revenue to be between $2.5 billion and $2.7 billion in the third quarter. This guidance implies continued market share gains in both purchase and refinance. At the midpoint of the guidance, we expect expenses to be approximately $2.35 billion. That includes approximately $110 million of intangible amortization, $90 million of stock based compensation, and $100 million of onetime acquisition related costs. Excluding those items, expenses are expected to decrease approximately $100 million quarter over quarter.

I am also happy to report that our progress on integration synergies will continue beyond the third quarter. With the major Mr. Cooper integration milestones complete, we now have line of sight into approximately $100 million of annualized expense savings above our original goal of $400 million. We expect to realize these in the first half of 2020. Let me close with this. Rocket's platform is performing as designed. We expanded profitability in a volatile market. We gained share. We realized synergies and increased our goal. We strengthened the balance sheet. And we continue to invest through the cycle.

Rocket is built to perform today and accelerate when the market recovers with growth converting into operating leverage, margin expansion, and stronger earnings power. With that, I will turn it back to the operator.

Operator: Thank you, sir. At this time, we will take your questions. If you have a question today, press 1 on your telephone keypad. We do ask that you limit your questions to 1. Once again, that is 1 if you have a question. And your first question will come from Ryan McKeveny, Zelman.

Ryan McKeveny: Hey, thank you for all the details and taking the questions. Maybe just a high level 1. You called out the tough industry conditions in the second quarter that have continued into the third quarter. Rates, as I think Brian just mentioned, are now up year over year. So can you talk a bit more about just the macro backdrop that you see playing out right now, the macro backdrop that is embedded you know, within the within the guidance.

And you know, lastly, maybe just on the on the expense side, probably also for Brian, I think what I just heard you say is that the expectation for 3Q is for expenses to be down $100 million sequentially from 2Q. Obviously, the revenue guide is down sequentially as well. So should we think about that step down in expenses as just a function of the revenue side? Or should we think of that 3 q as a decent run rate going forward? Thank you guys so much.

Varun Krishna: Ryan, thanks for the question. it is great to hear from you. Let me let me start with the market and kind of macro backdrop. Then I am going to ask Brian to talk us through the quarter and our guide as well as your question around expense. I will start by saying, look, there is no question that Q2 was tougher than the industry expected. You had rates rising 26 basis points from their April lows. You had rate and term refinance under more pressure. And we all saw that this normal spring and summer purchase season was just weaker than in prior years.

But I think what I would emphasize is the bottom line is that this was not a huge surprise to us. And on our last call, we shared with all of you the this market was shaping up to be smaller than the forecast. And that is pretty much exactly what happened. I think the good news that I would share is that we saw this coming. We were ready. And I would argue that our results show it unequivocally. We gained share in purchase and refi. We expanded profitability for the third quarter in a row.

I think what you are starting to see is what is unique about Rocket is really separating it from the rest of the industry. More than 70% of our revenue is now less rate sensitive. That allows us to keep investing while others are actually forced to react. And so we expect that to become a structural advantage That will continue to be a strength for us in Q3. And that is why we feel pretty good about our guide that we put out for Q3. And so with that, sort of market backdrop, Brian, maybe you can unpack the Q2 performance and guide and expenses.

Brian Nicholas Brown: Yeah. Thanks, Varun. Ryan, good to hear from you. Let me let me double click on Q2 real quick because I do think it was impressive for many reasons, but particularly as Varun mentioned, the increase in market share coupled with the increase in profitability. So it is probably just worth spending a bit on those market share gains. If you look at on the refinance side, which had significant increases, it was largely attributable to the recapture increases and being ahead of goal on that synergy value. So, of course, that is great to see. And then the purchase side, it is really twofold. 1 is the additional lead flow coming from the Redfin site Rocket Mortgage.

We talked about that being up double year over year, which continues to fuel those share gains. And then finally, the Compass partnership. We have talked to you guys about that before, but particularly in the pro space, is has really gained some traction. So that is also contributing to some of those purchase share gains. But let me let me transition over to Q3 in the guidance to answer the second part of your question, Ryan. You know, we always include what we are seeing in real time. We told you last quarter that we thought Q3 or excuse me, Q2 was gonna be down. Look, it is it is a challenging market.

Most of the industry forecasters have a the second half being smaller, and that feels right based on what we are seeing. But the guide of $2.5 to $2.7 billion, we still feel is a very strong guide. And all else being equal, that will that will be another quarter of significant share gains. On the gain on sale margin perspective, it is probably worth noting we are seeing margins hold steady, and even some improvements at the channel level. So all in all, we expect Q3 to be another strong share gain quarter for Rocket. You mentioned on the expenses, yeah, I think expenses will be down the second half of the year as I as I said.

The $100 million from Q2 to Q3 is really a primarily a result of that synergy value coming through the p and l. There is a little volume, you know, the variable expenses associated with volume in there. So to answer your question on the baseline perspective, remember, we said we are about halfway through the realization of the $400 million goal as of the end of Q2. And the other $200 million we expect to be realized in the second half of this year. So that hopefully gives you a little more color on the expense side.

Ryan McKeveny: Perfect. Thank you so much.

Operator: The next question will come from Jeffrey Adelson, Morgan Stanley.

Jeffrey Adelson: I was hoping you could maybe talk about the competitive state of the market today. Are you seeing any market share come your way perhaps given a bit of a tougher backdrop out there and some pressures on your larger peers? Or do you think more of that is a result of, you know, the execution Brian, you just talked about Redfin as well as the recapture from the Cooper deal? And it just maybe related to that, you know, it looks like you have been pretty active in the rocket pro channel year to date. You had the power play initiative, the 12-business-day guarantee. Closing.

Can you talk about how that is also maybe driving your market share as well?

Varun Krishna: Jeff, it is great to hear from you. Look, I think I would start by saying that we believe that competition and really in any market is healthy. Right? It pushes companies do their best It creates better outcomes for clients We respect our competitors, but, honestly, we do not spend a lot of time really thinking about them. We focus on building the company we believe should exist. But with that said, think it is important to also highlight that this particular market and the tough market that we are in what it does expose is where a competitor's business model is narrow.

And to give you, like, a couple of examples, you know, if you only originate then you have an Achilles' heel, which is that you get exposed when rates rise. And when volume falls. If you only service, but you do not have recapture, then you do not get to participate fully in that next transaction, and you have likely a retention problem. If you only have traffic and you cannot convert it into a mortgage, then you will only own a small fraction of the economics. And I could keep going. Right? If you do not bet big on technology as we have, you will be commoditized. If you do not manage your capital well, you will become distressed.

And so what you are starting to see is that separation. You are starting to see this happen across the landscape. that is really why Rocket is built very differently. Right? We originate. We service. We recapture. Our technology makes the entire platform work as 1. Our capital structure is extremely robust. So what you are starting to see is that separation, and we actually think that separation will accelerate as the market improves. And so the you know, that is kind of the core answer. I think in terms of the pro business, Brian, maybe you wanna add some more commentary.

Brian Nicholas Brown: Yeah of course. I do just wanna touch on your capital point because I think that is a important point, particularly this quarter. You know, just as a reminder for the group, we are the only mortgage company with an investment grade rating. When I look across the publicly traded mortgage companies, we are the only publicly traded mortgage company with less than 1x leverage. We have over $11 billion of liquidity, and we just strengthen that liquidity position through a successful $1.5 billion senior note offering. So, you know, the capital differentiation keeps widening in our space, and I think that is important for both defense and offense.

But Jeff, to answer your question on the pro side, yeah, look. It The pro business is a very important part of our ecosystem. As Varun mentioned in his prepared remarks that we have done over $2 billion in locks related to that Compass partnership. that is great to see. We are offering a pricing incentive. Which is the right thing to do when you enter a big partnership, and we need to you know, get these Compass agents excited about the partnership. But the momentum we are seeing in terms of signing up new brokers to Rocket has never been greater than what we are seeing right now.

And the beautiful part about this is the brokers we are signing up are brokers that are coming to us from in a lot of cases that have relationships with Compass agents. So the more Compass agents we work with, the more brokers we have, and the more brokers we have, the more Compass agents we have, a true demonstration of a network.

Jeffrey Adelson: Great. Thanks for taking my question.

Operator: Up next, we will hear from Ryan Nash, Goldman Sachs.

Ryan Nash: Hey. Good afternoon, guys. So you know, obviously, there is a lot of moving pieces on the 3Q guide. Costs are coming down with revenues, and maybe there is some cost saves. And I know the company was very aggressive in managing costs during the 2022 to 2020 time frame when the market was pretty challenging. So as we enter this next phase of higher rates, maybe just talk about what left to do on the cost side and given all the AI investments. How meaningful can you bring down costs from here if revenues prove to be more challenging than expected? Thank you.

Brian Nicholas Brown: Yeah. Thanks, Ryan. I will jump in on that 1. I mean, I think look, the biggest takeaway from this call is the additional $100 million of synergy value that we talked about at the end of the prepared remarks, that is above and beyond the $400 million in our previously stated goal. And, obviously, a pretty significant increase. The question may be, you know, where is that coming from?

Well, as Varun mentioned, we just completed the biggest servicing loan integration in recorded history And now that we are beyond a lot of those big milestones, we have a line of sight to some more synergy value. that is that is first and foremost what is on our mind in achieving that in the first half. of 2027. But as you know and you mentioned, we have always taken a very disciplined approach to the cost side of the house, the our technology advancements and AI advancements are only increasing that.

1 thing I do wanna leave you with, because I think it is important, you know, we have seen others sort of react to the market sizing and their cost base. And, of course, there is nothing wrong with that, but this is true synergy value from the 3 companies coming together, and it is not impacting our capacity. So we still have over $300 billion of capacity to take advantage of upside if and when rates move. Got it.

Ryan Nash: And maybe as a if I could squeeze in a follow-up, you know, it is good to see the market share increases that you have had with over 6 in purchase and over 14 in refinance. And I know you mentioned further gains here. But can you maybe just talk about, you know, the drivers of reaching the 8% and 20% you had laid out several years back? Maybe how does the new rate environment impact your ability to achieve this? Thank you.

Varun Krishna: Yeah. Absolutely. You know, I would start by just saying we feel very good about the progress toward our market share goals, and I am going to try to break down some of the key building blocks and levers. But first off, obviously, purchase shares up into the right. reaching 6.2% from 5.5% in Q4. Refi share has increased to 14.3%, that is up from 12.2%. So we are making progress, but thing I would share is, you know, this share number in its absolute sense is the outcome. it is how we keep score. I think the bigger question behind the question is, like, what building blocks are actually producing that growth? And I would highlight a couple.

The first 1 is what we call recapture. And connecting servicing and origination is obviously a very core very differentiated part of our strategy. The reason for that is simple. We know the client. We have already serviced the loan. And that creates a meaningful advantage when that client is specifically ready for their next transaction. And as we shared, mister Cooper, refinance recapture reached another record. And, obviously, as Brian shared earlier, you know, we remain very well on track against our revenue synergy target But the second building block for market share is Redfin. And we think of Redfin as the doorway to all of Rocket, and the evidence is there. Right?

Mortgage leads have doubled year over year. The attachment rate for mortgage is approaching nearly 50%. Redfin is a high quality serious homeowner app, and it is bringing more high intent purchase clients into the Rocket ecosystem. And that is where our Rocket Mortgage engine achieves lift off. The third thing I would also just highlight very quickly is home equity. You know, we are the largest home equity lender in the country. So you look at these building blocks, recapture, Redfin, home equity, these are 3 major drivers of our progress. And we are still early in the journey. Right? This is not a market where you have saturation dynamics among different players.

So what I would pay close attention to is we gain share in purchase and refi. We expand we expanded profitability for the third quarter in a row. We are also not sacrificing profitability to chase share. Like, potentially many others are doing. So we are building the business the right way for the long term. We feel great about our progress. Other thing I would also say is, you know, we are not relying on the market to grow our share. We are taking share in a difficult environment, and historically, when rates do cooperate, we tend to take even more share.

So if rates stay elevate elevated, we think the industry will cons continue to consolidate we expect to be a beneficiary of that But our North Star goal of profitable market share goal it growth, it does not change based on the market. So we feel very good about the progress. We think we are building the business the right way. that is independent of the market dynamics.

Ryan Nash: Thanks, Brent.

Operator: Your next question is from Bose George, KBW.

Bose George: Hey, good afternoon. As you noted just that there is on the refinance recapture loans, there is no consumer no customer acquisition cost. Just wanted to ask how do you guys think about the CAC on purchase loans that you acquire, you know, through Redfin or Compass? And when you offer the incentive, like, how is that reflected in your p and l?

Brian Nicholas Brown: Yeah. Thanks for the question. Bose. Yeah. On the let me start on the recapture side. We say near zero. Acquisition cost. there is a little bit that comes into that, but, of course, it is much lower than the new client acquisition cost. On purchase, you know, regardless of the channel, frankly speaking, we think about it all the same way in terms of the return. there is different ways to acquire the client. In some cases, a performance marketing cost. And then the pricing incentive, to answer your question directly, really just comes out of the gain on sale margin.

But you are thinking about it the right way in terms of, you know, it is sort of the cost of acquiring that client. So it does not change how we think about it. There could be a little bit different p and l logistics in terms of marketing versus gain on sale margin, but to be clear, at the end of the day, we have a desired return on a unit basis, and we are striving to achieve that we will flex across the different channels. And a lot of it also is meeting the consumer where they are.

For example, some of our businesses we talked about right now is coming from referrals from Compass agents. that is a great way to acquire clients and put them in our ecosystem. Some of it is from people coming directly to Rocket Mortgage through the direct to consumer channel. that is another great way, and we can flex that up and down.

Bose George: And then you know, more and more so, the servicing business is starting to contribute to purchase growth as well. Okay. Great. that is helpful. Actually, just a quick follow-up on the earlier market share discussion. When you guys had solid growth in correspondent as well, I mean, could we see that continue and also support sort of market share growth?

Brian Nicholas Brown: Yeah. Absolutely. Thanks for the question. Yeah. It was a good quarter for Correspondent. And, you know, as we have talked about on this call before, is really a way to grow the MSR portfolio. Portfolio. there is certain levers, like bulk acquisitions, correspondent, or, of course, just our organic driven business. And we did see a lot of opportunity this quarter in the correspondent space. I mean, the 1 thing I think is worth just restating is it comes back to those recapture rates. And we have the best recapture rates in the business on loans that we have originated, but we also have the best recapture rates in the business on correspondent or bulk acquisition loans.

So that best recapture rate turns into best returns, which allows us to be more aggressive in the correspondent and other channels in terms of acquiring those clients because we see the best returns through recapture.

Bose George: Okay. Great. Thanks.

Operator: Mark DeVries, Deutsche Bank has the next question.

Mark DeVries: Yeah. Thanks. This past quarter was a particularly challenging environment for hedging MSR, yet you guys seem to kind of emerge unscathed. Could you discuss your latest thoughts on how to hedge the MSR? I mean, challenges of peers incline you to want to rely primarily on recapture. Do you see a place for derivatives? Yeah.

Brian Nicholas Brown: Thanks, Mark. I am glad you asked that question. I was hoping to talk about this. Our head strategy is simple, and it is consistent. I want to be very clear on that. Our goal is to hedge the interest rate volatility in the asset, and you can see particularly when you look at both Rocket and Mr. Cooper over time, that the head strategy has performed well in both environments. High rates and low rates. We only use low cost instruments like mortgage t p a TBAs and treasury futures.

And, you know, the thing that is probably different when you look at Rocket compared to others is what you were alluding to that our coverage ratio, the recapture business provides a really nice natural hedge. So we do not target the same, you know, 80 to a 100% coverage because that would actually make the hedge ineffective when you include the recapture rate. So that helps us lower you know, the cost of hedging, I guess, you could say. But the point I would just leave you with is that we are not placing any bets on rates going up or down. We are not placing any market bets, to be clear.

We are simply hedging the interest rate volatility in the asset itself.

Mark DeVries: Got it. Thank you.

Operator: The next question is from Mihir Bhatia, Bank of America.

Mihir Bhatia: Hi. Good afternoon. Thank you for taking my question. I wanted to ask about 2 regulatory changes that seem to favor rocket maybe a little bit. Namely the VantageScore and the trigger lead band. Like, if I could ask specifically, like, on VantageScore, you are among the first to put it into production. What have you seen with it? What share maybe of your volume is coming through it? Is the payoff more approvals? Lower credit cost? cost on that 1? Trying to understand, like, how that is benefiting you. And then similarly on the trigger lead ban, given your servicing work, Redfin funnel, is that now put you in a more advantageous position?

Are you seeing it show up yet in lower lead cost or better recapture as competitors acquisition cost get higher? Thank you.

Brian Nicholas Brown: Yeah. Thanks, Mihir. I will start on the VantageScore side, and I will start by saying, look. It is early. We are all early. To your point, we were able to participate in the pilot, so we are farther along than other folks. there is there is 2, I would say, positive things about Vantage. 1 is just we welcome competition in the credit scoring models themselves. Themselves largely because we have all seen the cost increases that have come from FICO over the years. So having a competitive score is a good thing from a, you know, driving down costs and welcoming competition. But the second piece of it is, I think, where you were alluding to.

There is a benefit even aside from cost advantage, and that benefit is that we do have thousands of clients that come through the system that do not have a FICO profile, or so differently. They do not have a FICO score. That actually indexes or over indexes to first time homebuyers who maybe have not built up their credit in the traditional way, that is where Vantage can really help. And I do believe there is an outsized benefit to Rocket because we help more first time homebuyers than anyone else. We are starting to see that in the results, but I will just also be balanced in saying it is early days.

Your second question was on the credit triggers. Yes. The credit the benefit we are seeing in credit triggers is really not so much as the acquisition cost because as you guys know, we were not a big user, I guess you could say, of credit triggers. But you know, like other lenders, we were our clients were getting calls from other people. And so when you kinda look at the mid section of the funnel as you are getting people down the funnel in process, we are seeing better conversion rates just because those clients are not getting those calls and, you know, getting harassed by other lenders at the time we pull credit.

So both of them I agree with you, are positive, a little bit early days on the advantage score, but the credit triggers are they are good for the consumers, and they are good for businesses that wanna take care of their consumer.

Mihir Bhatia: You.

Operator: Your next question comes from Kyle Joseph from Stephens.

Analyst: Hey, good afternoon. Thanks for taking my questions. I just wanted to dig in on the MSR sales. Was that just kind of opportunistic? It sounds like it was a little bit of portfolio rotation and is kind of what your appetite is for that going forward, recognizing that it is kind of pending market conditions?

Brian Nicholas Brown: Yeah. Thanks for the question, Kyle. Yeah. You know, for those of you that have followed Rocket for a long time, this is not a new thing. We have done some rebalancing. We have done some best backs, and it is, to your point, it is all about just optimizing the portfolio. You will see those prices come through in the queue, but it was a really good it was a really good trade for Rocket. We focused on the low WAC MSRs, and the good news is something to the tune of 80% of those sales went to our partners. And when I say partners, I mean folks that we already do the sub servicing and recapture abilities for.

So it is sort of a win-win We took advantage of the, opportunity to sell and collect those proceeds. But most importantly, we will still be the subservicer of those loans, and we will still collect the recapture economic on those loans too, which is a win for us and a win for our partners. I think now if you look at there is $320 billion of unpaid principal in our book that has a note rate north of 6. So that look. that is a great opportunity. that is your rebalance point. If and when rates move, that will provide a great rate and term first recapture opportunity.

Analyst: Great. that is it for me. Thank you.

Operator: And, everyone, that is all the time we have for questions today. I would like to hand the conference back to Varun Krishna for any additional or closing remarks.

Varun Krishna: Well, thank you, everybody, for listening, and we look forward to seeing you next quarter.

Operator: And once again, ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.

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