Shares of Rocket Companies, the parent of Quicken Loans and Rocket Mortgage, are falling in after-hours trading Wednesday after the company reported second-quarter earnings and offered third-quarter guidance.
The company reported net revenue of $5 billion, net income of $3.5 billion, and adjusted Ebitda, or earnings before interest, taxes, depreciation and amortization, of $3.8 billion in its first earnings report as a public company after the bell Wednesday.
“While I’m proud of our performance, I am even more encouraged by the significant opportunity that remains in front of us as we continue to execute on our plan of achieving 25 percent market share by 2030,” Rocket CEO Jay Farner said in a press release. “It is clear that our simple, client-focused, digital approach is continuously and fundamentally disrupting the way our industries do business.”
The top-level figures reported today shouldn’t surprise investors. Rocket reported identical numbers in its preliminary results in mid-August as part of a disclosure to bondholders. The second-quarter earnings report issued today, however, is more detailed and sets guidance for the third quarter.
For the second quarter of 2020, the company said it generated closed loan origination volume of $72.3 billion, a record for the company, and net rate lock volume of $92 billion, figures that are respectively 126% and 170% higher than they were in the same quarter last year.
It also reported a gain-on-sale margin of 5.19%, spurred by industry-wide capacity constraints amid a high level of demand, Farner said on a conference call with investors. “Second quarter gain on sale margins were certainly elevated by historical standards,” he said. “This is exactly the kind of market environment we built our platform to perform in.”
The company said it expects some those figures to grow even further quarter over quarter. Rocket expects net rate lock volume between $93 billion and $98 billion and closed loan volume between $82 billion and $85 billion in the third quarter of 2020. The company expects gain-on-sale margins between 4.05% and 4.30%, lower than this quarter, but 23% to 31% higher than the same quarter in 2019, the company said in its earnings release.
“As we look to the second half of the year, we continue to see strength and durability in consumer sentiment, record low interest rates, and an improving U.S. real estate market continue to drive demand for home loans,” Farner said on the call.
While Rocket expects volume to increase in the third quarter, the company’s executives reminded investors that the business typically follows the seasonal patterns of the U.S. real estate market. “While we’re happy to provide some guidance for Q3, really we typically do see that decrease in the fourth quarter,” said Rocket CFO Julie Booth. “I don’t think we’re expecting necessarily anything unusual this year, other than what we typically see, but of course that could always change.”
The company also discussed potential uses for excess capital, indicating that dividends, buybacks and acquisitions could be in the future. “As a private company, we’ve historically done special dividends over the course of time,” Farner said on the call. “An acquisition is something that we think about as a use for the currency as well, and of course repurchase, if we think that that makes sense.”
Rocket shares were trading down about 7.1% to $29.06 in after-hours trading Wednesday.
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