Good day, and welcome to the Rocket Companies Incorporated Fourth Quarter 2021 Earnings Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Sharon Ng. Please go ahead.

Good afternoon, everyone, and thank you for joining us for Rocket Companies' earnings call covering the fourth quarter and full year of 2021. With us this afternoon are Rocket Companies' CEO, Jay Farner; our CFO, Julie Booth; and our President and COO, Bob Walters. Before I turn things over to Jay, let me quickly go over our disclaimers. On today's call, we provide you with information regarding our fourth quarter and full year 2021 performance as well as our financial outlook. This conference call includes forward-looking statements. These statements are subject to risks and uncertainties that 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. A recording of the call will be available later today. Our commentary today will also include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics for our reported results can also be found on our earnings release issued earlier today as well as in our filings with the SEC. And with that, I'll turn things over to Jay Farner to get us started. Jay?

Thank you, Sharon. Good afternoon, and welcome to the Rocket Companies' earnings call for the fourth quarter and full year of 2021. On today's call, I'll recap our achievements from the past year, including our success driving growth in purchased loans and cash out refinance, continuing to build on the strength of the Rocket Platform through the addition of Truebill, and I'll cover the best-in-class capital returns we have provided to our shareholders since our IPO in August of 2020. Last year was an incredibly successful year for Rocket Companies as we continue to break records. In 2021, Rocket Mortgage reached a company best of $351 billion of originations, which represented a nearly 10% increase from the previous record of $320 billion set in 2020. On a full year basis, Rocket generated $12.4 billion of adjusted revenue, $6.2 billion of adjusted EBITDA and $4.5 billion of adjusted net income. It's worth taking a step back to look at what we've accomplished over the last two years. Comparing closed loan volume and adjusted revenue in 2021, it was more than double our 2019 levels. Our adjusted EBITDA and adjusted net income more than tripled in that same period. Also, we have organically grown our service client base by more than 40% since 2019, which today generates recurring cash revenue at an annual run rate exceeding $1.4 billion. The company has grown and strengthened all while generating profitability at scale, returning substantial capital to our shareholders. In the last two years, we have earned a cumulative adjusted net income of more than $12 billion. With today's announcement of our second $2 billion special dividend and the more than $300 million of stock repurchases, we've now returned $4.5 billion of capital to shareholders since our IPO in August of 2020. That represents roughly 20% of our market value based on today's trading price. We're also investing to grow our platform with strategic acquisitions like Truebill. This continued investment in our platform strengthens our core offerings to our consumers who know, like and trust our brand, driving increased lifetime value. Looking at our guidance of $52 billion to $57 billion of closed loan volume in the first quarter of 2022, you see, we project to nearly triple our 2018 quarterly run rate of $20 billion, growing significantly faster than other market participants over the last three years. Our first quarter guidance reflects the impact of the Omicron outbreak, which disrupted our business and required us to again send team members home for their safety. Our 36-year history has taught us that our centralized model is a significant advantage in rising rate environments. The ability to train and coach in real time is critical to our success. I'm happy to report that as of February 14, we have returned to the office, and we're already seeing the benefits in the last few weeks. As rates rapidly increase, our strategy has always been to protect our margin and our profitability. During time periods like this, many lenders will significantly reduce their margin in an effort to sustain production. We have found that this is not a sound strategy for profitability, sustainability and maintaining a disciplined approach towards supporting our business long term. I'm certain that this question will come up again in the Q&A, and I'm excited to talk about our strategy to address rising interest rates and continue to grow our business. In fact, we have grown our Mortgage business substantially since the last market cycle by doing the right things, delivering the best client experience in the market, investing in a flexible, scalable multichannel platform that's always ready to quickly capture opportunity, and we've also driven significant mortgage volume growth from less rate-sensitive products, including purchase and cash out refinance. If we look at the last week, since we brought our team members back to the office, our non-rate sensitive products make up nearly 90% of our mortgage production. Last May, we announced our plans to become the number one retail purchase lender, excluding correspondent, in the nation by 2023. I'm happy to report that 2021 represented the largest purchase mortgage volume in our company's history, and we are seeing continued momentum here in the early part of 2022. We are well on our way to reaching our stated goal. Additionally, the fourth quarter was our best ever for cash out refinance volume as we leverage our vast data lake, our client insights and, of course, our highly trained Rocket Cloud Force to help our clients take advantage of rising home values. Home equity continues to be at record levels with $25 trillion of equity available to homeowners. Along with the strong growth in the Mortgage segment, we made significant strides last year growing our platform to help Americans with life's most complex moments. We've expanded beyond our core Mortgage business to enable an end-to-end seamless home-buying ecosystem with Amrock, our title and settlement services company, which hit 1.1 million closings in 2021 and is the largest of its kind in the country. At Rocket Homes, we saw strong growth with the company facilitating more than 30,000 transactions, representing over $8 billion in transaction value. And at Rocket Auto, we more than doubled our GMV in 2021. The talented team at Truebill also joined our family in the fourth quarter. Truebill is a strong addition to our platform as it brings millions of existing clients who have affinity for the brand and are actively working to improve their finances in anticipation of future large purchases like home or auto. Truebill's offerings expand our relationship with our clients by managing subscriptions, improving credit scores and tracking spending, all of which strengthens clients' financial health and enables Rocket to nurture clients in between large, less frequent purchases. Truebill is one of the fastest-growing FinTech businesses in America and was recently named the number one consumer tech company by the news publication The Information. Truebill's growth has been impressive. The company's premium membership base increased by more than 115% in 2021 and has continued to outperform after our acquisition. This is all before we've even begun introducing and incubating the millions of clients in the Rocket ecosystem to Truebill. Rocket and Truebill are aligned in one mission to remove friction from life's complex moments. And the relationship has come together quickly. In fact, our combined teams are currently working together to create a single sign-on solution that will bring the entire Rocket ecosystem together through one unified login. We expect this new experience to launch in the next 30 to 45 days. Another strategic part of our platform that enables us to maintain ongoing relationships is mortgage servicing. With our 2.6 million service clients, our servicing book has grown substantially, providing a natural hedge to our origination business. We are now the fifth largest servicer in the country, with servicing rights representing a $5.4 billion asset as of year-end, while maintaining an industry-best retention rate of 91%. Consider this, our business has created recurring cash flows of more than $1.4 billion annualized through servicing, plus an additional $100 million to the rapidly growing Truebill business, all supporting an incredibly capital-light business. Heading into 2022, we see tremendous opportunity with robust purchase and cash out refinance demand. We view the challenging market conditions like a rising rate environment as an opportunity to shine. This is the time when we see our investments in our platform truly pay off. We don't believe any other company has invested in technology, in brand, and people and partnerships like we have. The partnerships we have with companies like Salesforce, E*TRADE, Charles Schwab, State Farm and many others are built on a proprietary platform that cannot be easily replicated by other lenders or other fintech companies. To ensure consumers are aware of our unique position in the market, we recently aired a number one rated Super Bowl commercial, our second straight year of achieving this honor. The ad highlighted the benefits of leveraging the combined experience of Rocket Homes and Rocket Mortgage to find and finance a home. This spot garnered billions of media impressions and is currently being reinforced through our brand and direct response advertising campaigns. This marketing is essential in reminding consumers that in a housing market that has remained highly competitive and inventory constrained, we provide the insight and the tools that help our clients into the closing table faster. These include our industry-leading home search platforms and programs like Overnight Underwrite and Rocket Pro Insight, and consumers are taking notice. In January of 2022, verified approval letters were up 50% compared to 2021, representing the most reapprovals we've had to start a year in our company's history. Finally, 2021 also marked our first full year as a public company. We have shown a track record of generating profitability and scale and returning significant capital to our shareholders. Cumulatively, we have returned $4.5 billion to shareholders since our IPO, putting Rocket in the top 10% of all S&P 500 companies and companies that have listed since 2020, ranked by capital return. Our team members are excited to continue executing on our strategy and to capture the enormous opportunity in front of us. We've already seen our industry begin to consolidate and we are well positioned to gain share and offer more value to our clients across the entire Rocket ecosystem. With that, I'll turn things over to Julie to go deeper into the numbers. Julie?

Thank you, Jay, and good afternoon everyone. Rocket delivered outstanding results in 2021 as we continue to drive growth in our less rate-sensitive products, build out our platform through continued organic investment as well as through the recent acquisition of Truebill and return substantial levels of capital to our shareholders. As Jay mentioned, 2021 was a record year for us as we delivered $351 billion in closed loan volume, 10% above the prior record set in 2020. This growth in volume was driven by our best year ever in purchase, along with record levels of cash out refinance volume. We saw purchase growth across both the direct-to-consumer and partner network channels with particularly strong growth year-over-year from our partner network, which includes both TPO and premier enterprise partners. While industry estimates of the total market size are still preliminary, it is clear that Rocket Mortgage gained meaningful market share in 2021, continuing our long-term trend of share growth. Based on the MBA's most recent estimate, Rocket increased its place in the market by 100 basis points to now account for nearly 9% market share for the full year 2021. Our gains in 2021 are particularly impressive considering the mix of refinance transactions declined as a percent of the total market during 2021. We increased our share of both purchase and refi transactions, demonstrating the flexibility of our centralized platform. Turning to fourth quarter results. Rocket Companies generated $2.4 billion of adjusted revenue in Q4, a 33% increase from Q4 2019. We had $883 million of adjusted EBITDA in the quarter, up 19% from Q4 2019, representing a 36% adjusted EBITDA margin. We delivered adjusted net income of $637 million, exceeding Q4 of 2019 by 23%. For the fourth quarter, we generated closed loan volume of $75.9 billion, which was in line with our expectations and exceeded Q4 2019 levels by 49%. Our all-in gain on sale margins came in at 280 basis points in Q4, in line with expectations. Our net rate lock volume for the fourth quarter was $68.4 billion, coming in slightly below our expectations. The variance relative to our expectations was largely due to unforeseen disruptions from the COVID-19 Omicron variant, which impacted client engagement, our workforce and our broker partners. Rate lock volume was more impacted than closed volume as the timing of rate lock occurs prior to the closing of a loan. We continue to maintain a superior net client retention rate and as of December 31, 2021 this metric stood at 91%. These high levels of retention, in addition to the new clients we continue to drive to our platform every quarter, has substantially increased the size and value of our servicing portfolio over the past year. As of December 31, 2021, we now have 2.6 million clients with $552 billion in unpaid principal balance, increases of 25% and 35%, respectively, as compared to December 31, 2020. The servicing book provides a natural hedge to our originations as its value increases when interest rates rise. As of December 31, 2021, our MSR portfolio represented a $5.4 billion asset on our balance sheet, up 88% from December 31, 2020. If we were to close the books today, the value of our MSR asset would be in excess of $6 billion due to the increase in interest rates since year-end. Recurring cash revenues from our servicing book hit an annualized run rate of over $1.4 billion during the fourth quarter. As a reminder, the balance sheet value of our MSR asset only includes the discounted cash flows associated to servicing strip as the GAAP accounting rules do not allow us to include the retention value of future origination revenue. When considering that we have consistently maintained a net client retention rate north of 90%, we believe the GAAP accounting rules understate the true intrinsic value of our MSR assets. Looking ahead to Q1, despite a rise in mortgage rates at the beginning of 2022, we continue to see a robust mortgage market by historical standards. The median U.S. home value has increased 25% over the last two years, equating directly to larger loan sizes. In addition, demand from homebuyers remains strong, demonstrated by the record levels of verified approval letters we are providing at Rocket Mortgage, up 50% year-over-year in January. And lastly, today, American homeowners are sitting on record levels of home equity. As Jay mentioned, third-party sources estimate total American home equity at $25 trillion. For the first quarter, we currently expect to closed loan volume in the range of $52 billion to $57 billion and rate lock volume between $50 billion and $57 billion. We expect first quarter gain on sale margin to be in the range of 280 to 310 basis points. Regarding operating expenses, we expect Q1 expenses to be in line with Q4 levels excluding one-time items that occurred in Q4. Our GAAP expenses in the fourth quarter included a one-time extinguishment of debt expense of $87 million and a $19 million true-up to the tax liability under our tax receivable agreement. Excluding these items, our Q4 expenses were $1.63 billion. We expect this to be a good run rate for Q1 expenses. This takes into account reductions in production-related expenses, offset by seasonally higher expenses in Q1 for marketing and compensation related expenses. Q1 2022 will also reflect full quarter consolidation of Truebill for the first time. Excluding the addition of Truebill, we expect our Q1 expenses to be down over $100 million year-over-year compared to Q1 of 2021. The acquisition of Truebill contributes incremental annualized recurring revenue of more than $100 million on top of the $1.4 billion of annualized cash revenue generated by our servicing portfolio. Truebill's growth has been impressive. And as we work together to unlock the synergies across our platform, we see even more opportunities to grow. Turning to our balance sheet, liquidity and capital allocation, we exited 2021 with $2.1 billion of cash on the balance sheet and additional $3.5 billion of corporate cash used to self-fund loan originations for total available cash and self-funding of $5.6 billion. Total liquidity stood at $9.1 billion as of December 31, including available cash plus undrawn lines of credit and undrawn MSR lines. Our $5.6 billion of available cash and self-funding, combined with $5.4 billion of mortgage servicing rights, represents a total of $11 billion of asset value on our balance sheet as of December 31. This equates to $5.58 per share. The earnings power of Rocket Companies over the last two years has been remarkable. In strong markets, the scale of our profitability rivals the best fintech companies in the world. To put this in perspective, our adjusted net income of $12.8 billion over the last two years combined, was larger than PayPal and nearly as large as MasterCard. We have demonstrated discipline allocating the capital generated by our business. Inclusive of last year's special dividend of $1.11 per share, the special dividend of $1.01 per share announced today and the more than $300 million of share repurchases that we have made since our IPO, we have distributed a total of $4.5 billion to all classes of shareholders since we went public less than two years ago. This ranks Rocket among the best-in-class for capital return. As Jay stated earlier, relative to our current market capitalization, Rocket ranks in the top 10% of all S&P 500 companies and companies that have listed since 2020. We have also deployed capital to grow our platform with the acquisition of Truebill for $1.3 billion in December. We will continue to deploy our capital in a strategic and disciplined manner to generate long-term shareholder value. With that, we're ready to turn it back to the operator for questions.

Thank you. (Operator Instructions) Our first question comes from Doug Harter from Credit Suisse. Please go ahead.

Thanks. Jay, since we spoke last, the markets have been quite volatile with rates and mortgage spreads moving quite a bit. Can you just talk about what your outlook is for the market size in the coming year? And how you're positioning Rocket to compete in that environment?

Yes. Thanks for the question. As I mentioned in my remarks, I think this is an important topic to discuss. It's hard to know market size. Of course, any event on any given day, as we're noticing in Europe, can determine what might happen. So what we focus on is our long-term playbook to ensure that we can continue to grow like we have here for the last 36 years. In particular, and why I mentioned this in my remarks, is that when you see a rapid increase in interest rates, like we've experienced in the last 60 days or so, there are a few levers you can pull. For us being a centralized business model, with the brand and technology, our lever is training. Our lever is skill. Our lever is investing in our team members. We had a bit of a challenge because at the same time that this increase occurred, the Omicron outbreak here, in particular in Michigan and Ohio, caused us to send everyone home, making it a bit more challenging for training. But we've got people back in the office now. And as I referenced before, here in the last week, we've seen roughly 90% of all of our loan volume in the less interest rate-sensitive products: cash out refinance, rate and terms, purchase. So I bring all that up because the lever you notice that we aren't pulling is the margin lever, and Julie can talk more about this. This is important. The way that we have always thought about operating our business is that the mortgage unit needs to be a high revenue, profitable unit. As you structure your business in a way where you're driving that, you do a few things. First of all, you don't teach your organization that a solution to growing market share is cutting margin. I'm seeing numbers here where our direct-to-consumer gains in Q4, I think, were north of 400 basis points, and seeing other entrants come in at like 250 basis points. You can run those numbers, but how can you invest in marketing at 250 basis points? How can you invest in technology at 250 basis points? How can you keep your best loan officers at 250 basis points? How can you keep your best underwriters? The entire heartbeat of your organization needs to be supported through profitability. And although you may not grab market share over 30 or 45 days, you keep your organization focused on the real things that matter: the client experience, the brand, the marketing, the tech, and in the long run, that's how you grow your company. So you've noticed, we didn't go cut margin. We're going to focus on the training. Whether the market moves up or down, it's hard for me to project exactly what the market in 2022 will be. Here's what I know: over time, this is a huge market. And if we keep investing in all of the things that we've just talked about, we will win market share. And the last thing I'll say is that when you cut margin and then you look at your profitability and you don't have any, the next thing you do is cut your marketing. And now you don't have the lead flow. And then you don't have lead flow, you cut your loan officers because you have nothing to give them. That is a death spiral. You'll notice we're going in the opposite direction: we continue to invest. That's what we've done. That's why I brought up where we were a few years ago in a similar interest rate market to give a comparison: make the right investments, then you take advantage of opportunity, you grow substantially, you reset your foundation, which is what we're doing now, and you prepare yourself for continued growth.

I appreciate that. And just to follow up, when you're talking about cash out, refi and purchase being less rate sensitive, can you just talk about how higher rates impact that? And is there kind of a breakpoint where the higher rates start to slow down overall volumes and people's appetites?

This is an important topic because rate is relative to the other ways that you borrow money. And so we're fortunate that mortgage rates don't sit by themselves. They sit alongside other vehicles that someone might use: credit cards, personal loans, a home equity line of credit. With the benefits of mortgages in this country, and with the benefit of tax treatment, even if we see a pickup in interest rates, in most cases it remains the best way for our clients to achieve their goals. And the other thing critically important here: when you're buying a home or when you can't find a home and decide to invest in a new kitchen or put on an addition, the client becomes less rate sensitive. Whether they receive 4.5% on their 30-year or 4.625% to 4.25%, that's often not the driver. The driver is achieving the outcome they want: a new home, a better kitchen, paying for education. That's where scale, brand, and confidence in our company comes through. So in a rising rate market like this, we have an advantage because our conversation shifts from a fixation on rate to focusing on getting the client's goal achieved. If we take a step back, 4.5% on a 30-year fixed rate is still an incredibly low interest rate and advantageous for clients to take advantage of.

Thank you.

The next question comes from James Faucette from Morgan Stanley. Please go ahead.

Thank you so much. I'm wondering, and it seems it's always a topic on your calls. So I apologize in advance. But can you talk a little bit about how gain on sale margins are trending? What you're seeing? What your planning assumptions are for how those evolve over coming quarters and periods, especially in quite a volatile environment?

Yes. I'll let Julie feel that. Obviously, you can see our guidance. We're feeling confident about where our margins were in Q4 and where we head in Q1, but Julie can give you more color.

Let me give you a little more insight. Gain on sale margins during the fourth quarter did come in within our expectations at the midpoint of our guided range at 280 basis points. As a reference point, our Q2 2021 gain on sale margin came in at 278 basis points. Q3, excluding the impact of the removal of the adverse market fee, in the third quarter was 295 basis points. So we're really seeing margin stability since the second quarter of 2021, and we're seeing that stability continue into Q1 as our expectations are that gain on sale margin will be in the range between 280 and 310 basis points at the midpoint. We're continuing to see strength, especially in the direct-to-consumer channel where we're seeing strong margins. Historically we have seen that channel in the 400 basis point range, and we're still seeing very strong margins there. That has been a lot of what others are reporting as well. So we're really pleased with where we're seeing margins go into Q1 here.

Got it. And Julie, maybe just to be clear, so the improvement that you're expecting, is that all mix-driven? Or is there something happening in the market that's providing some additional support? And I guess as part of that, particularly the direct-to-consumer, can you talk a little bit about how that is doing in terms of hitting your objectives and growing share with consumers and especially as the market becomes more purchase-based?

Yes. I'll jump in and Julie has some comments, too. There's an initial competitive situation as many lenders scramble and cut margin. Over time, if rates continue to stay where they are or rise, and as people cut margin, they'll often reduce marketing spend and potentially exit parts of the market. That can result in fewer competitors talking to the same clients, and that creates an environment where we can be more confident standing behind our margins. So it's less about mix and more about the cycle: initial pricing plays subside and you have a new playing field with fewer competitors. Julie, any other comments?

I'll just add that mix is not a big driver here. We're also seeing strength in the partner network channel relative to where we had seen margins coming in, which is also contributing to the strength we're seeing.

That's awesome. Thanks for all the color, guys.

The next question comes from Kevin Barker from Piper Sandler. Please go ahead. Hi Kevin, is your line on mute? The next question comes from Ryan McKeveny from Zelman and Associates. Please go ahead.

Hey, good afternoon. Thank you. Jay, as you said, you'd get more questions on the topic of volume and margin. I think especially that first answer you gave hit on a lot of the points I was wondering about. So I will shift a little. I wanted to focus on the expense side. Julie, correct me if I'm wrong, I think the commentary you gave was that Q4 expense level was a good run rate for Q1. So correct me if I'm wrong there, but I'm thinking more as we move through the year, any commentary you can provide about what we should expect from the expense side of things, given obviously the revenue side is fairly uncertain. And maybe just remind us in terms of the cost base, how much is fixed versus variable? Anything that can help us bridge the gap between an uncertain revenue environment relative to your expense base and ultimately profitability. Thank you.

Thanks for the question. I'll reiterate some of the things I said in my prepared remarks. First, we are very thoughtful about our costs. Our total Q4 expenses were $1.74 billion, and this included two one-time items: $87 million associated with the early extinguishment of a portion of our outstanding bonds, and $19 million associated with the revaluation of our tax receivable agreement liability. Excluding those two one-time items from Q4, our total expenses would have been $1.63 billion, which is down $60 million from our Q3 levels. Looking ahead into 2022, we do expect expenses in the first quarter to be relatively consistent with Q4, excluding those one-time items. There are a few moving parts impacting Q1 that are important to understand. We expect production-related expenses to continue to come down by more than $80 million in Q1 compared to Q4. However, these cost reductions are partially offset in Q1 by seasonal items, including payroll taxes and our 401(k) match cost, which both reset at the beginning of the year, and also some additional marketing expense associated with the Super Bowl ad. Q1 will also include a full quarter of Truebill expenses as we closed on that acquisition in late December. Truebill typically sees higher marketing spend in the first quarter as many consumers look to improve their financial health as part of New Year's resolutions; this marketing spend tends to drive seasonal lift in user base and revenue growth. As we look further out, at our current volume levels, we would expect expenses to decline modestly beyond Q1 as production-related costs continue to adjust.

Okay. Thank you, very helpful.

The next question comes from Kevin Barker from Piper Sandler. Please go ahead.

Hi, can you hear me now? Sorry about that earlier. So Julie, you mentioned earlier that you're seeing a lot more opportunities to grow, particularly with the Truebill acquisition, and it seemed like it was exceeding your expectations. Is there anything in particular that stands out to you where you're seeing significantly more opportunities to grow outside of your core mortgage business through the acquisition and various other ancillary businesses?

Maybe I'll jump in. Truebill is exciting for us. There are really three elements we're focused on with Truebill. First is creating a single sign-on solution. Without that, Rocket clients would have to create another account to access Truebill; having a single sign-on where they can use their Rocket account is incredibly important. Especially as we continue to market, we're talking to clients who may be seven, eight or nine months out from purchasing a home. Today we might have to buy that lead again later, but with single sign-on those clients can engage with Truebill to do budgeting, improve their credit score, and save money. We can continue to receive signals as they engage, and that creates the ability for us to send meaningful push notifications that we don't have today. That keeps purchase clients engaged. Second, Truebill gives us another avenue to bring millions of additional premium users into our ecosystem — it's a new lead-generation funnel. Truebill is generating incremental revenue (Julie mentioned more than $100 million in annualized recurring revenue) and growing. It provides another channel to acquire customers at potentially lower CAC and higher LTV over time as we test and optimize. Third, our servicing book presents opportunity. We have a 91% retention rate; there is opportunity to engage our servicing clients with bill negotiation, subscription management and better budgeting tools which will create more robust engagement and increase our confidence in acquiring MSRs. So single sign-on, new lead gen funnel, and stronger servicing engagement are the three major opportunities we see.

So to follow up on that, is there any way to quantify the decrease in lead generation costs associated with having Truebill within Rocket Companies? Or is there a way to say that a certain percentage of existing or future Truebill customers will become Rocket Mortgage customers such that we could quantify revenue impact as they enter the ecosystem and then fall into that 91% retention rate? Is there any way to quantify that for us?

Those are the kinds of metrics — CAC, LTV and related KPIs — that our data and finance teams are studying every day. We are setting goals and building models around those metrics, but those are not numbers we are disclosing at this point in time. Know that the operation of this business is focused on those critical metrics and that is precisely why we made the acquisition. We believe this has not been done in the mortgage space before and it can continue to reduce CAC and increase LTV of our client base over time.

Thank you, Jay.

The next question comes from Arren Cyganovich from Citi. Please go ahead.

I was hoping you could address the funding and capital usage. You recently issued a decent amount of new unsecured debt with attractive pricing. I'm curious about the thought process there ahead of doing another relatively large special dividend and share repurchases and how you balance those items.

If you're asking about the bond issuance, that was a strategic move to lower our cost of funding. We achieved roughly 60 basis points of lower cost there, which allowed us to issue debt and, as I mentioned earlier, pay off some higher-cost debt. It was opportunistic execution at attractive pricing for a company like ours, and we were pleased with that execution.

And then just in terms of the choice of special dividends — it seems like you didn't really need the cash, you raised cash and then you're doing special dividends — just trying to understand the thought process there.

We raised capital at an advantageous time in the market, and we're always thinking about capital deployment. We invested in Truebill for $1.3 billion, and we have been acquiring mortgage servicing rights as well — in 2021 we acquired about $200 million worth of MSRs. We consider capital needs for operations, investments, acquisitions and capital return holistically. Returning capital to shareholders has been a priority as shown by the $4.5 billion returned since going public, but we also continue to invest in the platform and buy MSRs where appropriate.

It was the right time to raise capital given the attractive execution. We also used some of the proceeds to extinguish higher-cost debt, and when we think about the dividend, we're looking at the profitability of the company and funding that with the company's earnings.

Okay. Thank you.

The next question comes from Richard Shane from JPM. Please go ahead.

Hey guys. Thanks for taking my question this afternoon. FHFA announced that they are reconsidering eligibility requirements for single-family seller/servicers. I'm curious how you look at this as a large player in that space, the advantages and disadvantages for you? And how it might impact the competitive landscape?

You there? I think there are some capital requirements the FHFA has increased. Based on the last question on the dividend, we are in great shape in terms of having enough capital. Bob, do you have additional comments?

No, I mean there is nobody in a stronger position financially from a liquidity standpoint, from a capitalization standpoint than we are. So we're totally fine with that. In fact, I think over time it becomes an advantage because there are some thinly capitalized folks out there for whom it will become a considerable challenge. We don't look to regulators for competitive advantage, but in this case, we will get it.

The only thing I'll add is that, as we think about the broader platform and our strategic MSR acquisitions, if there are fewer players able or willing to hold MSRs because of increased capital requirements, it could make it easier for us to make those acquisitions. We're probably in a stronger position than many others to do that.

Great. Thank you, guys.

The next question comes from Brock Vandervliet from UBS. Please go ahead.

Good afternoon. Jay, I appreciated your comments earlier about marketing. Just if we could go maybe one layer deeper on that. How do you think about the return on marketing spend as we transition from, call it, a $4 trillion to $2.5 trillion or so market — your return on investment around those marketing dollars, I would think, would decline simply because the market is much smaller? How should we think about that?

There are a few important components. Initially you might see a scramble and increased competition for performance marketing, but over time as some players reduce margin and back away, it creates opportunity to own spaces. From a marketing budget perspective, you shift more toward performance-oriented spending: digital, direct response, more surgical targeting by state, county or city, and tighter attribution models so brand spend is tied to conversion. It's essentially a rebalancing and re-optimization of channels. The Truebill acquisition and the rising value of MSRs matter here because they change lifetime value math and CAC assumptions; we continually reset attribution and ROI models to ensure we spend efficiently.

Okay. And just as a follow-up, Julie mentioned that expenses should decline modestly beyond Q1. What's the geography of that decline? Where is that coming from basically?

We're giving guidance on Q1 at this point. If you think about our costs, some are variable and adjust immediately with production, and some take more time to change. As production-related costs decrease, some of those expense reductions will take a bit more time to work into the run rate, which is why we say expenses should decline modestly beyond Q1.

I want to be clear: we will continue to invest in marketing, technology, and our people. We have thousands of technologists working to make our systems better and more efficient. We have highly skilled operations people and the best mortgage banking force in the country. We're not going to run a strategy where we under-invest in the team and expect to win. Holding some excess capacity through cycles often pays dividends in the end; you may see us do that.

Got it. Understood. Thanks for the color, guys.

Our next question comes from Mark DeVries from Barclays. Please go ahead.

Yes, thank you. Sorry if I missed this, but could you just comment on how your efforts to gain share in the purchase market have been trending these last couple of months as refi really starts to fade?

We really focus on less rate-sensitive products because there's $25 trillion of home equity out there. Whether someone purchases a new home or invests in their existing home, both are huge opportunities for us. We're pleased with our purchase momentum: 2021 was the largest purchase year in our history, and the verified approval letters and pipeline at the start of January were the biggest we've seen. Training around cash out and rate-and-term changes implemented this quarter are delivering results; I mentioned that about 90% of our production recently has been in the less interest rate-sensitive bucket. Overall, things are going very well.

Okay. Great. And then just a follow-up question on the efforts to tap into borrower equity: does a move in mortgage rates this meaningful require you to switch more from marketing a cash-out refi to doing more of a home equity line of credit or second lien? Are borrowers shifting to other products?

We haven't experienced that shift. As rates rise, all rates generally rise, so it's about the comparison between mortgage rates and other borrowing vehicles. In most cases, refinancing into a mortgage remains the best solution for clients. Objections that a HELOC or personal loan is clearly better have not been a prominent theme for our clients. The mortgage's attributes — fixed rate, tax treatment and larger loan sizes — remain compelling.

The next question comes from Bose George from KBW. Please go ahead.

Hey everyone. Good afternoon. I just wanted to follow up on the cash out. You noted that 90% of the originations are not rate sensitive. How do you treat refis where a borrower extracts equity but also has a rate incentive to refi — sort of an opportunistic cash out refi? Are many borrowers in that category?

There are certainly borrowers who have both drivers, but typically when a client reaches out for cash-out, the primary driver is the purpose — home improvement, education, debt consolidation, divorce, etc. The potential rate benefit is often ancillary. For many of these clients, achieving the cash objective is the priority rather than a purely rate-driven refinance.

Okay. Great. Thanks. And then, going back to the gain on sale discussion, you might have addressed this, but the guidance — does channel mix play a role in that? Or is that assuming a similar channel mix to this quarter?

Channel mix has minimal impact. We're holding steady on the direct-to-consumer gain on sale margin, historically around the 400 basis point range, and we're also seeing improvement in partner network margins, which contributes to the guidance.

Okay. Great. Thanks.

This concludes our question-and-answer session. I’d like to turn the conference back over to Jay Farner for any closing remarks.

Yes. Thanks everybody for the questions today. Most importantly, thank you to our team members — they have done an amazing job over the last few months dealing with the curve balls of COVID, returning to the office, the shifting market and the acquisition of Truebill. We have a lot of things going on, and to see the entire team rally together has been incredible in the 26 years I've been here. Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.