Rocket Companies, Inc. (RKT) Q4 2021 Earnings Call Transcript

Rocket Companies, Inc. (RKT 1.23%)
Q4 2021 Earnings Call
Feb 24, 2022, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Rocket Companies, Inc. fourth quarter 2021 earnings call. [Operator instructions] After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded.

I'd now like to turn the conference over to Sharon Ng. Please go ahead.

Sharon Ng -- Vice President of Investor Relations

Good afternoon, everyone, and thank you for joining us to 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 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. 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.

Jay Farner -- Chief Executive Officer

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 in the past year, including our success driving growth in purchase 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 our shareholders since our IPO in August of 2020. Last year was an incredibly successful year for Rocket Companies as we continued 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'll see, we're projecting 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 toward 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 No.

1 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 homebuying ecosystem with Amrock, our title and settlement services company, which had 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 in 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 strengthen clients' financial health and enable 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 No. 1 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 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 is -- 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 the 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, in people, in 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 the No.

1 rated Super Bowl commercial. Our second straight year of achieving this honor. The ad touted the benefits of leveraging the combined experience of Rocket Homes and Rocket Mortgage to find and finance a home. Despite garnering billions of media impressions, it 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 pre-approvals 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 at 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.

Julie Booth -- Chief Financial Officer

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 returned 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 on 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 has 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 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, have 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 represents 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 through 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 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 basis points 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 on marketing and compensation-related expenses.

Q1 '22 will also reflect a 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 and 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 an 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 line. 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 in 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 ranked 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've 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.

Questions & Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator instructions] Our first question comes from Doug Harter from Credit Suisse. Please go ahead. 

Doug Harter -- Credit Suisse -- Analyst

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 how -- what your outlook is for the market -- you know, for the overall market size in the coming year and how you're positioning Rocket to compete in that environment?

Jay Farner -- Chief Executive Officer

Yeah, 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 can determine -- like we're noticing here today in Europe can determine what might happen.

So, what we focus on are kind of our long-term playbook to ensure that we can continue to grow like we have here for the last 36 years. In particular, 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, you know, there are a few different 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 calls 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, I think, about roughly 90% of all of our loan volume being kind of less interest rate-sensitive products, cash-out refinance, our rate and terms, purchase.

So -- but I bring all that up because the leverage 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 unit that we generate, the mortgage, if we're talking about the mortgage business, needs to be a high revenue, profitable unit.

And 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 the solution to growing market share is cutting margin. I'm seeing numbers here.

You know, our direct-to-consumer in Q4, it was north of 400 basis points. I've seen people 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 LOs at 250 basis points? How long you keep your best underwriters? Like all of -- the entire heartbeat of your organization needs to be supported through profitability. And although you may not go grab market share of a 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'll notice, we didn't go to cut margin. We're going to focus on the training. So, whether that -- you know, it's hard for me to project what's the market in '22 -- in 2022 will be.

Here's what I know. Over the course of 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 that market share. And as the last thing I'll say is that when you look at -- and you can watch us, but then if you cut margin and then you look at your profitability and you don't have any, you know, the next thing you cut is you cut your marketing.

And now, you don't have a [Inaudible]. And if you don't have the [Inaudible] you cut your LOs because, now, you have nothing to give them. And that is -- that's a death spiral. And so, you'll notice, you know, that's -- we're going the opposite direction of that, continue to invest.

That's what we've done. And that's why I brought up where we were a few years ago in a similar interest rate market to give a comparison of you're making the right investments, then you take advantage of opportunity, you grow substantially, you reset your foundation, which is what we're doing now, and just prepare yourself for continued growth.

Doug Harter -- Credit Suisse -- Analyst

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

Jay Farner -- Chief Executive Officer

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 with other vehicles that someone might use: a credit card, a personal loan, a home equity line of credit, those sorts of things. And so, with the benefit of mortgages and how they're done in this country, with the benefit in tax deduction, even if we see a tick up in interest rates, it's still, in most cases, is the best way for our clients to achieve their goals.

And the other thing that I think is critically important here. When you're buying a home or when you're noticing that you can't find a home and say now you're going to invest in a new kitchen or putting on an addition or whatever it might be, then the client becomes less rate-sensitive, whether they receive 4.5% on their 30-year or 4.625% or 4.25%, that's not really the driver. The driver is achieving that new thing that they want, that new home or their kids' college education or the new kitchen. And that's where skill, that's where brand, that's where confidence in our company comes through.

And so, that's why in a rising rate market like this, we have an advantage because our conversation shifts from a rate utility demands where, you know, the way I'm really fixated on every [Inaudible] and array to, hey, I want to get this done so I have a bedroom for the baby that's on the way in eight months. And so, that's how we think about it. It's -- you know, the real conversation is about the opportunity you're creating for the client. If we just take a step back, 4.5% or so on a 30-year fixed rate is still incredibly low-interest rates, incredibly advantageous for clients to take advantage of it.

Doug Harter -- Credit Suisse -- Analyst

Thank you.

Jay Farner -- Chief Executive Officer

Yeah.

Operator

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

James Faucette -- Morgan Stanley -- Analyst

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

Jay Farner -- Chief Executive Officer

Yeah, I'll let Julie fill that. Obviously, you can see our guidance here, and so we're feeling, you know, confident about where our margins have been here in Q4 and where we head in Q1, but Julie can give you more color.

Julie Booth -- Chief Financial Officer

Yeah, let me just give you a little bit more insight. So, gain on sale margins during the fourth quarter did come in within our expectations at the midpoint of our guidance range at 280 basis points. And just kind of as a reference point, our Q2 '21 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 for gain on sale margins to be increasing at the midpoint to between 280 basis points and 310 basis points. So, we're continuing to see strength, as Jay mentioned, especially the direct-to-consumer channel where we're seeing margins there. I've talked about historically kind of that 400-basis-point range for those margins, and we're still seeing very strong margins, as Jay said, better than a lot of others that you'll see out there as well. So, you know, we're really pleased with where we're seeing them go into Q1 here.

James Faucette -- Morgan Stanley -- Analyst

Got it. And, Julie, maybe just to be clear, so the improvement that you're expecting, is that all mix-driven and is that -- 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 like how that -- how you're doing in terms of hitting your objectives in growing share with consumers and especially as the market becomes more purchase-based?

Jay Farner -- Chief Executive Officer

Yeah, I'll jump in, and Julie has some comments, too. But going back to the first question, and there's an initial kind of competitive situation as many lenders scramble many margin, and so everyone is fighting for that business. As times move on and if rates continue to kind of stay where they're at or continue to rise, and we've talked about other people cutting margin, then as I described before, now they have to come out of the market. Now, they reduce their marketing spend.

And actually, what happens is we now have less competition. That lead that -- maybe two or three other people -- lenders we're talking to. Now, it's just us or it's us and only one of the lender. And so, that actually creates an environment where we can be even more confident in, you know, standing behind our margins.

So, it's, you know, not a miss as much as it's just kind of a cycle that you go through, the initial kind of flailing that people do trying to win through price will subside. And then, all of a sudden, you're left with a new playing field with fewer competitors out there talking to the same clients that you're talking to.

James Faucette -- Morgan Stanley -- Analyst

Got it. And for Julie -- yeah, sorry, Julie.

Julie Booth -- Chief Financial Officer

Yeah, I guess I'll just add to that, too. Certainly, mix is a piece of it, but not a big piece of the difference here. We're also seeing strength in the partner network channel relative to where we had seen margins coming in. So, I think that that also is really contributing here to the strength we're seeing.

James Faucette -- Morgan Stanley -- Analyst

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

Julie Booth -- Chief Financial Officer

Yup.

Operator

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.

Ryan McKeveny -- Zelman and Associates -- Analyst

Hey, good afternoon, thank you. Jay, as you said, you get more questions on the topic of volume and margin, but I think especially that first answer you gave hit on a lot of the aspects I was wondering. So, I will shift a little, wanted to focus on the expense side. Julie, correct me if I'm wrong, I think the commentary you gave was that the 4Q expense level was a good run rate for 1Q.

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. You know, how much is fixed versus variable? Anything that can kind of help us bridge the gap between an uncertain revenue environment, you know, relative to your expense base and, ultimately, profitability? Thank you.

Julie Booth -- Chief Financial Officer

Yup. Yes. Thanks for the question. And I'll kind of reiterate some of the things that I said in my prepared remarks.

I know I said a lot there. So, first of all, let me just start by saying that we are very thoughtful about our cost, and I do want to be clear about that. So, I'll share a couple of things relative to the fourth quarter to Q1 and reiterate some of the things I said earlier. So, our total Q4 expenses were $1.74 billion, and this included two one-time items, one of which was $87 million associated with the early extinguishment of a portion of our outstanding bond, and the other one was $19 million of expense associated with the reevaluation of our tax receivable agreement liabilities.

So, if you exclude those two one-time items from Q4, our total expenses would have been $1.63 billion. So, that's down $60 million from our Q3 levels. Then as we look ahead into 2022, we do expect expenses in the first quarter to be relatively consistent with Q4, as I mentioned, excluding those one-time items. And there's a few moving parts impacting Q1 that are important to understand.

We do expect production-related expenses to continue to come down by more than $80 million in Q1 compared to Q4. However, these costs are being partially offset in Q1 by some seasonal items, including payroll taxes, and our 401(k) came out costs, which both reset at the beginning of the year, and also some additional marketing expense that's going to be -- that was incurred with the Super Bowl ad that we did. And then the other thing I'll mention relative to Q1 is that that quarter is going to now include a full quarter of Truebill expenses as we closed on that acquisition in late December. So, Truebill also typically sees higher marketing spend in the first quarter, as many consumers are looking to improve their financial health as part of their New Year's resolutions.

And so, this marketing spend, we see a little bit higher, and it does drive seasonal lift in the user base and revenue growth. As we look a little bit farther out than that, at our current volume levels, we really expect expenses to decline modestly beyond Q1 as well. So, that's the trend that we're seeing.

Ryan McKeveny -- Zelman and Associates -- Analyst

OK, thank you. Very helpful.

Julie Booth -- Chief Financial Officer

Yes.

Operator

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

Kevin Barker -- Piper Sandler -- Analyst

Hi, can you hear me now?

Jay Farner -- Chief Executive Officer

Yeah.

Kevin Barker -- Piper Sandler -- Analyst

Yeah, sorry about that earlier. So, you know, Julie, you mentioned earlier that, you know, you're seeing a lot of more opportunities to grow, you know, particularly with the Truebill acquisition. And seemed like it is exceeding your expectations or if -- I don't want to put words in your mouth, but it sounded that way. Is there anything in particular that stands out to you where you're seeing significant more opportunities to grow outside of your core mortgage business through the acquisition and various other, you know, ancillary businesses?

Jay Farner -- Chief Executive Officer

Well, maybe I'll jump in there. I think the Truebill business is exciting for us. As Julie said, they kind have their fifth quarter in January. They consider it because there are so many people thinking about their finances.

But we've got this question a lot about Truebill and the thought process behind Truebill. And so, I think it's important to walk through. There are really kind of three elements that we're heading forward on with Truebill. The first is having that single sign-on solution.

And that may not sound like much. But without that, our Rocket clients, the millions of clients we have in our servicing portfolio, the millions of clients that we'll deal with all the way through 2022 would have to create yet another account to access Truebill. And so, having a single sign-on solution where they can use the same account or transfer or use their Rocket account is incredibly important, especially as we continue to market. We're talking to clients who may be seven, eight, nine months out from purchasing a home.

Today, we may have to buy that lead again. As we launch a single sign-on, those clients can now engage with Truebill to do their budgeting. They can engage with Truebill to work on their credit score. They can engage with Truebill to save some money.

And we keep getting signal as they engage. The app has the ability for us to send push notifications to them that, really, we don't have today. And so, we keep those purchase clients engaged. Same on the refinance side, and probably equally, if not more important as we turn on single sign-on because we've talked about it.

We're talking to people today who are reaching out to us looking to save, but they may or may not -- it may or may not make sense at this moment. Again, we would probably spend marketing dollar later to bring them back into the funnel. But with Truebill, we can offer additional ways for them to start their savings plan, engage, and then bring that lead back. So, that's the important component of a single sign-on.

As we move past that, as Truebill continues to see success, in addition to all the Rockets marketing that we're doing, Truebill gives us another avenue to bring, you know, million-plus additional premium users in. Not only does it generate, and Julie mentioned, $100 million a year of revenue and growing, but it's another funnel for us then to interact with folks and eventually find solutions as we're studying their credit reports and studying their bank statements to offer a refinance, to offer a new car, and those sorts of things. So, it's a new -- brand new lead gen funnel for us. And then the third will be our servicing book.

So, we've talked about the leads that we get. We've talked about the Truebill leads that we get. But there's also this opportunity to engage our servicing platform. We have a 91% retention rate.

There's still opportunity there to find additional ways to help our 1.6 billion and growing servicing clients. And today, we have lots of tools in our Rocket Mortgage servicing platform. But as we continue forward and offer bill negotiation, subscription management, better budgeting tools, all of that will create a more robust engagement with our client base, and it should give us more confidence as we think about acquiring MSRs, as we think about adding MSRs. And so, all of those are significant growth opportunities powered by Truebill.

Kevin Barker -- Piper Sandler -- Analyst

So, you know, to follow up on that, is there any way to, you know, quantify the decrease in lead generation cost associated with having Truebill within the Rocket Companies? Or is there a way to say that a certain percentage of existing Truebill customers or future Truebill customers are going to become Rocket Mortgage customers that we can say they're going to generate X amount of revenue, and then suddenly, they're in the ecosystem and they become 91% attrition --

Jay Farner -- Chief Executive Officer

Yes.

Kevin Barker -- Piper Sandler -- Analyst

Retention rate. And so, is there any way to quantify that for us?

Jay Farner -- Chief Executive Officer

Yes, those are -- we're thinking about CAC or cost to acquire and how that adjusts that over time, or LTV, which is probably important to us. We have given some slides in the past about examples of what LTV could look like. Those are all things that we are -- here's what I can tell you. Those are things that our data team is on every minute of every day.

Our finance team is studying goals and KPRs -- type of KPIs are being set. And, you know, we are driving toward those. But those aren't numbers that we are disclosing at this point in time. But just know that the operation of this business focuses on all of those critical things.

And you're drilling down exactly why we did this acquisition because we have a strong belief that this has not been done in the mortgage space before. And so, this is something that can really continue to add to the -- reducing CAC and increasing the LTV of our client base.

Kevin Barker -- Piper Sandler -- Analyst

OK. Thank you, Jay.

Jay Farner -- Chief Executive Officer

OK.

Operator

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

Arren Cyganovich -- Citi -- Analyst

Thanks. I was hoping you could address the funding in capital usage that you have recently, you know, issuing a decent amount of new unsecured debt, which, you know, is attractive pricing. But, you know, just curious, you know, the thought process there ahead of doing another, you know, relatively large special dividend and share repurchases and balancing those items?

Julie Booth -- Chief Financial Officer

Yes. So, if you're asking about the issuance of the bond and that was something that was really strategic for us to be able to lower our cost of funding. So, that was fairly significant for us in terms of the overall cost funding, over 60 basis points of lowering cost there. So, that was something that allowed us to issue some debt, and as I mentioned, refinance and pay off actually some of our debt.

So, you know, that was an opportunistic time for us to be able to build capital at a time when we executed that pricing that was really unseen before for a company like us. So, we were very proud of that execution.

Arren Cyganovich -- Citi -- Analyst

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

Julie Booth -- Chief Financial Officer

Yeah, it was at a time in the market when it really was advantageous for us to go to market to raise that additional capital, and we are always looking at the capital. The earnings that we've had since that time coming into the business as well gave us an opportunity. You know, I'll just kind of maybe reiterate how we think about capital. You know, first of all, we think about capitalizing the business properly, investing in our platform, and the acquisition Truebill as well for $1.3 billion.

So, another thing that we invested in. We have been acquiring mortgage servicing rights as well. During 2021, we acquired about $200 million worth of mortgage servicing rights. So, all of that factored in, then -- and as we look at returning capital to shareholders, you know, we're thinking about this all the time, and we've now returned, as I said, $4.5 billion to our shareholders since going public.

So --

Jay Farner -- Chief Executive Officer

And I think -- look, it was the right time to do it because it was very advantageous to extinguish some existing debt at a higher interest rate. But when we think about the dividend, we're looking at the profitability of the company and funding -- at least funding that in cash as fundable, but funding that with the profitability of the company.

Arren Cyganovich -- Citi -- Analyst

OK, thank you.

Operator

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

Richard Shane -- J.P. Morgan -- Analyst

Hey, guys, thanks for taking my question this afternoon. In all of the chaos of getting ready for earnings and everything else happening in the world today, FHFA announced that they are reconsidering eligibility requirements for single-family sellers or servicers. I'm kind of curious how you look at this as a large player in that space, the advantages and disadvantages for you, and what you think it might -- how it might impact the competitive landscape?

Jay Farner -- Chief Executive Officer

You, guys, are there?

Richard Shane -- J.P. Morgan -- Analyst

Can you guys hear me?

Operator

I can hear you. Hold on. Well, speakers, are your -- is your line muted?

Jay Farner -- Chief Executive Officer

Yeah, sorry, guys, we were talking, and we apparently weren't listening. Bob, so you can probably comment on, but I think we just reviewed those. And I think there are some capital requirements that they have increased. And based on the last question on the dividend, we're in great shape in terms of having enough capital.

But, Bob, I don't know if you got an additional comment?

Bob Walters -- President and Chief Operating Officer

Well, I mean, there's nobody that's in a stronger position financially from a liquidity standpoint, all the things from the capitalization standpoint than we are. So, we're totally fine with that. In fact, I think, over time, it becomes an advantage because, you know, the U.S. and pretty thinly capitalized folks out there that it'll become a considerable challenge for them.

So, you know, we don't look to the regulator for competitive advantage, but in this case, we will get it.

Jay Farner -- Chief Executive Officer

Yeah, the only thing that I would say also that kind of typically goes with that is that as we think about the broader platform, we touched on this before, and we've acquired MSRs. We're always strategically looking to acquire MSRs. And so, there's fewer people out there thinking about making that acquisition. Probably in the long haul, it makes it even -- it could be easier for us to make those acquisitions.

With our LTV, we're probably in a better position to do that than others. 

Bob Walters -- President and Chief Operating Officer

Again, I think, you know, we heard it on -- from recent earnings calls, there's some folks that are selling servicing now to gain liquidity. And so, that creates a pretty significant opportunity for us as well.

Richard Shane -- J.P. Morgan -- Analyst

Great. Thank you, guys.

Operator

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

Brock Vandervliet -- UBS -- Analyst

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

How should we think about that?

Jay Farner -- Chief Executive Officer

Yeah, there's probably three important components here. And again, that's why it's important to let things play out over a few months. Although, initially, you might see people scrambling to market, performance marketing, in particular. Over time, as companies reduce their margin, they then typically reduce their marketing costs as well.

So, it could be an increased amount of competition for some periods, but then, actually, an opportunity to go in and own spaces as people back away. So, what you have to do from a marketing budget perspective is just to shift more of your dollars. So, as we were running performance marketing and what we consider kind of performance brand marketing, you'll see a shift increasing the performance side of the house, right? And so, you'll notice there'll be more on visual. There'll be more on DR.

We'll get more robust in tracking those DR responses, a little bit more surgical. So, watching it by, you know, state or county or city or those type of things to understand how our dollar is working. And then, of course, layering our attribution models on top to make sure that that brand spend we're doing is also supporting that. So, there's not a big change to how we think about the return on the marketing dollar.

It's just -- you've -- this is like a reset that gives you an opportunity to maybe find areas that, you know, six months ago, a year ago, you know, where being -- a lot of people we're trying to buy in those areas. Now, they're backing away. You can come in, you can buy. And then that's -- the last thing I'll say is that is why the Truebill conversation, the value of the MSR going up, all of that matters because you're rethinking your models based on the data coming in, the lifetime value of the client, the increased in the value of the MSR that you're acquiring.

That matters. So, we're always resetting the reports that we do to ensure that we're spending properly. But that's it. It's just the mathematical decisions behind the scenes and shifting more to performance.

Brock Vandervliet -- UBS -- Analyst

OK. And just as a follow-up, I think this is Julie's comment that expenses should decline modestly beyond your Q1. What's the geography of that decline? Is that -- you know, where's that coming from, basically?

Julie Booth -- Chief Financial Officer

Yeah, we're just giving guidance really on Q1 at this point. So, as we look ahead, we would expect that, over time, if you think about our costs, there's some variable costs that adjust immediately with production, and then there's some if you take a little bit more time to work into over time. So, as we think about those declining costs, that's why I say that because some of them are going to take a bit more time.

Jay Farner -- Chief Executive Officer

Yeah, I'm going to I'm going to jump in here, though, too. I think this is important. So, we -- and we touch on this all the time. We've invested and we'll continue to invest in marketing and our brand.

We continue to invest in technology. We've got thousands of technologists here, writing software that make our systems better, make our mortgages more efficient, make our conversion rates better. We've got the most skilled operations people here in the United States of America who know how to work and process underwriting closed loans. We've got the best mortgage banking force in this country, nearly 6,000 or so of those folks.

That's the heartbeat of our organization, right? Everything we have is due to the success of those individuals. And so, we're not going to have a conference call where all of a sudden we let a group of them know they're not going to be working here any longer. That's just not how we do this. These -- that profitability is important.

But the investment in our team members is the most important thing that leads to the future growth of this organization. 

Julie Booth -- Chief Financial Officer

Yeah. We've seen this time and time again as we go through these cycles. We have been through this, the opportunity that it creates, holding a bit more of that excess capacity, and really does pay dividends in the end. So, you may see us do that.

Brock Vandervliet -- UBS -- Analyst

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

Jay Farner -- Chief Executive Officer

Yeah.

Operator

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

Mark DeVries -- Barclays -- Analyst

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

Jay Farner -- Chief Executive Officer

Yeah, so, again, as we think about it, we really think, you know, less or noninterest rate-sensitive products because there's 20 -- $25 trillion of home equity out there. So, whether someone -- and with inventory levels the way they're at, whether someone purchases a new home or invest in their existing home, both are huge opportunities for us. Now, we're very pleased to exceed -- I think we've set a goal for purchase and talk about it exceed our 2021 purchase goal. Really proud of the team for achieving that.

And so, we're -- as we talked about in the prepared remarks, we had good momentum. We continue to have good momentum in purchase, those verified approval letters. I think the pipeline is the biggest it's ever been as we walked into January of 2022. And then the training around cash out, the training around term change that we've implemented in the first quarter of this year, as I think I mentioned, I think we're garnering 90% of our production today is falling into that less interest rate-sensitive bucket.

So, all in all, going very well. And touching on another question that we had. Once you make that switch, then your mortgage banking force is talking to individuals where rate is not the most important thing. Achieving the goal is the most important thing.

And that allows for marketing growth, but also allows for conversion increase. And I didn't even touch on, again, the 2.5 million -- 2.6 million service clients that we've got. As that value of MSRs increases, it doesn't mean that we won't see opportunities to assist those clients as well in the retention. So, you know, all of the levers that we -- like I said earlier, are different than others.

But the levers that we choose to pull in a rising rate market are going very well.

Mark DeVries -- Barclays -- Analyst

OK, great. And then just a follow-up question on kind of the efforts to tap into the borrower equity. Does a move in mortgage rates this meaningful kind of require you to switch a little bit more from trying to market a cash-out refi to doing more of like a home equity line of credit or just a second lien?

Jay Farner -- Chief Executive Officer

And so, we haven't experienced that. I guess as I said before, typically, as rates rise, all rates rise. So, it's just about the comparison of another way to achieve the goal versus the mortgage. And so, certainly, your mortgage payment is going to be a bit higher if you're getting 4.5 on a 30-year than 3.5.

But in the grand scheme of life and most of our clients have seen this, that's still an incredibly low-interest rate, a fixed interest rate that they can count on over time. And so, we've not -- in terms of objections that you might hear, people telling us that there's a better source to achieve those goals has not been one that's been surfacing.

Mark DeVries -- Barclays -- Analyst

OK, that's interesting. All right. Thank you.

Operator

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

Bose George -- KBW -- Analyst

Hey, everyone, good afternoon. If you just wanted to follow up on the cash-out. So, you guys noted, 90% of the originations are not rate-sensitive. I was curious, how do you treat refis where a borrower extracts equity but also has a great incentive to refi? So, sort of an opportunistic cash-out refi there.

You know, many borrowers kind of in that category?

Jay Farner -- Chief Executive Officer

Well, I'm sure there are certain borrowers in that category, but again, when we think about the purpose, and the borrower usually or the client, as we call them, will usually tell us what it is. That may be an ancillary benefit, but the strong desire for the call or the lead or the outreach is because they're trying to achieve some sort of cash out. We get whether it's home improvement or covering a college education or unfortunately going through a divorce or whatever the case may be, that's the driver behind it, not the additional possibility of a reduction in the rate in most cases.

Bose George -- KBW -- Analyst

OK, 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 the guidance at all, or is that assuming kind of a similar channel mix to which you had this quarter?

Julie Booth -- Chief Financial Officer

Channel mix has a minimal impact on that. Really, what we're seeing is improvement in the partner network margins as well. So, while there is some impact to that, holding steady on the direct-to-consumer gain on sale margin, as I mentioned in that 400-basis-point range I said historically kind of where we're at, and then that improvements in partner network.

Bose George -- KBW -- Analyst

OK, great. Thanks.

Operator

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

Jay Farner -- Chief Executive Officer

Yes, thanks, everybody, for the questions today. We appreciate them. And most importantly, thank you for our team members as they have done an amazing job here the last few months of dealing with all of the kind of curveballs of COVID and returning to the office and the shifting and changing in the market and the acquisition of Truebill. I mean, we just -- we've got a lot of things going on, and to see the entire team rally together has been, you know, is just incredible in the 26 years I've been here.

So, most importantly, thanks to all of you. And we will see you soon.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Sharon Ng -- Vice President of Investor Relations

Jay Farner -- Chief Executive Officer

Julie Booth -- Chief Financial Officer

Doug Harter -- Credit Suisse -- Analyst

James Faucette -- Morgan Stanley -- Analyst

Ryan McKeveny -- Zelman and Associates -- Analyst

Kevin Barker -- Piper Sandler -- Analyst

Arren Cyganovich -- Citi -- Analyst

Richard Shane -- J.P. Morgan -- Analyst

Bob Walters -- President and Chief Operating Officer

Brock Vandervliet -- UBS -- Analyst

Mark DeVries -- Barclays -- Analyst

Bose George -- KBW -- Analyst

More RKT analysis

All earnings call transcripts