| Business, Basis of Presentation, and Accounting Policies | Business, Basis of Presentation, and Accounting Policies The accompanying condensed combined financial statements include all of the assets, liabilities and results of operations of twelve subsidiaries of Rock Holdings Inc. (“Rock Holdings”, or “RHI”), which are Quicken Loans, LLC, EFB Holdings Inc. (“Edison Financial”), Lendesk Canada Holdings Inc., LMB HoldCo LLC (“Core Digital Media”), RCRA Holdings LLC (“Rock Connections” and “Rocket Auto”), RockTech Canada Inc., Rock Central LLC, Rocket Homes Real Estate LLC (“Rocket Homes”), RockLoans Holdings LLC (“Rocket Loans”), Amrock Inc. (“Amrock”), Nexsys Technologies LLC (“Nexsys”), and Woodward Capital Management LLC, (collectively, the “Combined Businesses”, “Rocket Companies”, “we”, “us”, “our”, or the “Company”). As used herein, “Rocket Mortgage” refers to either the Rocket Mortgage brand or platform, or the Quicken Loans business, as the context allows In April 2020 Quicken Loans Inc. converted its corporate structure to an LLC and changed its name from Quicken Loans Inc. to Quicken Loans, LLC. In July 2020 Amrock Inc. converted its corporate structure to an LLC and changed its name from Amrock Inc. to Amrock, LLC. Basis of Presentation The Combined Businesses have historically operated as part of RHI and not as a stand alone entity. The condensed combined financial statements represent the results of operations, financial position, cash flows and changes in equity of the subsidiaries of RHI mentioned above, prepared on a stand-alone basis and have been derived from the consolidated financial statements and accounting records of RHI. All revenues and expenses as well as assets and liabilities that are either legally attributable to us or directly associated with our business activities are included in the condensed combined financial statements. Net parent investment represents RHI’s interest in the recorded net assets of the Company. All significant transactions between the Company and RHI have been included in the accompanying condensed combined financial statements and are reflected in the accompanying Condensed Combined Statements of Changes in Equity as “Net transfers to/from parent” and in the accompanying Condensed Combined Balance Sheets within “Net parent investment.” All significant intercompany transactions and accounts between the businesses comprising the Company have been eliminated in the accompanying condensed combined financial statements. Our condensed combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All transactions and accounts between RHI and the Company have a history of settlement or are expected to be settled for cash, and are reflected as related party transactions. For further details of the Company’s related party transactions refer to Note 6, Transactions with Related Parties . The condensed combined financial statements may not include all of the expenses that would have been incurred had we been a stand-alone company during the periods presented and may not reflect our condensed combined results of operations, financial position and cash flows had we been a stand-alone company during the periods presented. The amount of actual expenses that would have been incurred if we had operated as a stand alone company would depend on a number of factors, including our chosen organizational structure. We also may incur additional costs associated with being a stand-alone, publicly listed company that were not included in the expense allocations and, therefore, would result in additional costs that are not reflected in our historical statements of income and comprehensive income, balance sheets and cash flows. Our condensed combined financial statements are unaudited and presented in U.S. dollars. They have been prepared in accordance with U.S. GAAP pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Our Condensed Combined Balance Sheet as of December 31, 2019 has been derived from our audited combined financial statements at that date. Our condensed combined financial statements should be read in conjunction with our combined financial statements and notes thereto for the year ended December 31, 2019, which include a complete set of footnote disclosures, including our significant accounting policies. We believe the assumptions underlying the condensed combined financial statements, including the assumptions regarding allocation of expenses from RHI are reasonable. The executive management compensation expense has been allocated based on time incurred for services provided to the Combined Businesses. Total costs allocated to us for these services were $44,997 and $11,231 for the three months ended June 30, 2020 and 2019, and $86,734 and $21,930 for the six months ended June 30, 2020 and 2019, respectively, and were included in salaries, commissions and team member benefits in our Condensed Combined Statements of Income and Comprehensive Income. In our opinion, these condensed combined financial statements include all normal and recurring adjustments considered necessary for a fair statement of our results of operations, financial position and cash flows for the periods presented. However, our results of operations for any interim period are not necessarily indicative of the results that may be expected for a full fiscal year or for any other future period. Management Estimates The preparation of condensed combined financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the condensed combined financial statements and the reported amounts of revenues and expenses during the reporting period. Although management is not currently aware of any factors that would significantly change its estimates and assumptions, actual results may differ from these estimates. Subsequent Events In preparing these condensed combined financial statements, the Company evaluated events and transactions for potential recognition or disclosure through the date these condensed combined financial statements were issued. Refer to Note 5, Borrowings for disclosures on changes to the Company’s debt agreements that occurred subsequent to June 30, 2020, which includes additional details on the newly executed $950,000 syndicate revolving credit agreement. In July 2020, the Company sold MSRs relating to certain single-family mortgage loans with an aggregate unpaid principal balance of approximately $20,000,000 as of June 30, 2020. The sale represented approximately 5.3% of the Company’s total single-family mortgage servicing portfolio as of June 30, 2020. At the time of issuance of this report, the direct and indirect impacts that the COVID-19 pandemic and recent market volatility may have on the Company’s financial statements are uncertain. The Company cannot reasonably estimate the magnitude of the impact these events may ultimately have on its results of operations, liquidity or financial position. However, management of the Company is unaware of any known adverse material risk or event that should be recognized in the financial statements at this time. IPO and Reorganization On August 10, 2020, Rocket Companies, Inc. completed the initial public offering of 100,000,000 shares of its Class A common stock, $0.00001 par value per share, at an offering price of $18.00 per share. Rocket Companies, Inc. received net proceeds from the IPO of approximately $1,760,000 after deducting underwriting discounts and commissions, all of which was used to purchase 100,000,000 non-voting membership units of RKT Holdings, LLC (the “Holdings units”) and shares of Class D common stock from RHI. Rocket Companies, Inc. is a publicly traded company whose Class A common stock is traded on the New York Stock Exchange under the ticker symbol “RKT”. Prior to the completion of the offering, RHI and certain RHI subsidiaries consummated an internal reorganization. As a result of the IPO and the reorganization: • Rocket Companies, Inc. is the sole managing member of RKT Holdings, LLC (“Holdings”), which owns direct interests in (a) Rocket Mortgage and (b) various other former direct subsidiaries of RHI. • Rocket Companies, Inc. is a holding company which has no material assets other than its ownership of Holdings and its indirect interests in the subsidiaries of Holdings and has no independent means of generating revenue or cash flow. • Dan Gilbert, RHI, and Rocket Companies, Inc. are members of Holdings. • No shares of Class B common stock and no shares of Class C common stock were outstanding at the completion of the offering. • Holdings is treated as a partnership for U.S. federal income tax purposes and, as such, is itself generally not subject to U.S. federal income tax under current U.S. tax laws. Each member of Holdings will be required to take into account for U.S. federal income tax purposes its distributive share of the items of income, gain, loss and deduction of Holdings. • 1,883,279,483 shares of Rocket Companies, Inc. Class D common stock, 100,372,565 shares of Rocket Companies, Inc. Class A common stock, and 1,983,652,048 Holdings Units were outstanding. An additional 16,729,253 shares of Rocket Companies, Inc. Class A common stock were reserved for equity-based awards. • RHI owns (i) 1,882,177,661 Holdings Units, collectively representing approximately 95% of the economic interest in Holdings and (ii) 1,882,177,661 shares of Rocket Companies, Inc. Class D common stock, collectively representing 79% of the combined voting power of Rocket Companies, Inc. common stock. • Dan Gilbert owns (i) 1,101,822 Holdings Units, collectively representing 0.06% of the economic interest in Holdings and (ii) 28,334 shares of Rocket Companies, Inc Class A common stock and 1,101,822 shares of Rocket Companies, Inc. Class D common stock, collectively representing approximately 2% of the combined voting power of Rocket Companies, Inc. common stock. • Gilbert Affiliates own 344,231 shares of Rocket Companies, Inc. Class A common stock, collectively representing approximately 0.06% of the combined voting power of Rocket Companies, Inc. common stock. • The public stockholders (i) own 100,000,000 shares of Class A common stock, which represent approximately 19% of the combined voting power of Rocket Companies, Inc. common stock, and (ii) through Rocket Companies, Inc.’s ownership of Holdings units, indirectly hold approximately 5% of the economic interest in Holdings and its subsidiaries. • The financial results of Holdings and its subsidiaries will be consolidated with Rocket Companies, Inc., and approximately 95% of the consolidated net earnings (loss) and net assets will be allocated to the non-controlling interest to reflect the entitlement of RHI and Dan Gilbert to a portion of the consolidated net earnings (loss). Stock-Based Compensation In connection with this offering, equity-based awards were issued under the Rocket Companies, Inc. 2020 Omnibus Incentive Plan including 16,729,253 restricted stock units and stock options to purchase 26,373,361 shares of our Class A common stock at an exercise price equal to the price to the public in the initial public offering. RSUs vest over one one Distributions Subsequent to June 30, 2020, cash distributions were made to RHI in the total amount of $2,260,000. The following unaudited pro forma balance sheet line items as of June 30, 2020 reflect these distributions as if such distributions were declared and paid on June 30, 2020. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET LINE ITEMS AS OF JUNE 30, 2020 Rocket Companies As Reported Distribution Adjustments Rocket Companies Pro Forma Cash and cash equivalents $ 1,724,035 $ (749,549) (1) $ 974,486 Total assets $ 28,856,457 $ (749,549) $ 28,106,908 Other liabilities $ 457,920 $ 1,510,451 (1) $ 1,968,371 Total liabilities $ 23,320,280 $ 1,510,451 $ 24,830,731 Net parent investment $ 5,527,173 $ (2,260,000) (1) $ 3,267,173 Total equity $ 5,536,177 $ (2,260,000) $ 3,276,177 (1) The Company paid capital distributions to RHI subsequent to June 30, 2020. The $2,260,000 distribution was fully funded through the use of cash on hand as of June 30, 2020 and cash flows generated from operations between July 1, 2020 and the initial public offering. For purposes of the unaudited pro forma condensed combined balance sheet, the payment of the distributions is reflected as a reduction to net parent investment of $2,260,000, a reduction to cash and cash equivalents of $749,549, and the recognition of a non-interest bearing payable of $1,510,451. The pro forma cash and cash equivalents balance after giving effect to this adjustment represents the Company's estimated ending cash and cash equivalents balance immediately prior to the reorganization transactions and initial public offering. Tax Receivable Agreement The purchase of Holdings Units (along with corresponding shares of our Class D common stock) from RHI using the net proceeds from the offering, future exchanges by RHI or Dan Gilbert (or its transferees or other assignees) of Holdings Units and corresponding shares of Class D common stock or Class C common stock for shares of our Class B common stock or Class A common stock, and future purchases of Holdings Units (along with the corresponding shares of our Class D common stock or Class C common stock) from RHI or Dan Gilbert (or its transferees or other assignees) are expected to produce favorable tax attributes for us. These tax attributes would not be available to us in the absence of those transactions. In connection with the reorganization transactions, Rocket Companies, Inc. entered into a tax receivable agreement with RHI and Dan Gilbert that will obligate us to make payments to RHI and Dan Gilbert generally equal to 90% of the applicable cash savings that we actually realize as a result of these tax attributes and tax attributes resulting from payments made under the tax receivable agreement. We will retain the benefit of the remaining 10% of these tax savings. There is a possibility that under certain circumstances not all of the 90% of the applicable cash savings will be paid to the selling or exchanging holder of Holdings Units at the time described above. If we determine that such circumstances apply and all or a portion of such applicable tax savings is in doubt, we will pay to the holders of such Holdings Units the amount attributable to the portion of the applicable tax savings that we determine is not in doubt and pay the remainder at such time as we reasonably determine the actual tax savings or that the amount is no longer in doubt. Rocket Companies, Inc. recorded amounts payable pursuant to the Tax Receivable Agreement to RHI of approximately $512,000 at August 10, 2020. Acquisition Agreement On August 5, 2020, Rocket Companies, Inc. entered into an acquisition agreement with RHI and its direct subsidiary Amrock Holdings Inc. pursuant to which we acquired Amrock Title Insurance Company ("ATI"), a title insurance underwriting business, for total aggregate consideration of $14,400 that consisted of 800,000 Holdings Units and shares of Rocket Companies, Inc. Class D common stock valued at the price to the public in this offering of $18.00 per share (the number of shares issued equals the purchase price divided by the price to public in our initial public offering). ATI's net income for the year ended December 31, 2019 was $4,700. The ATI acquisition closed on August 14, 2020, and the Company issued the 800,000 Class D and Holding Units to RHI. The acquisition will be accounted for as a common control transaction. Revenue Recognition The following revenue streams fall within the scope of ASC Topic 606—Revenue from Contracts with Customers and are disaggregated hereunder: Core Digital Media lead generation revenue —Online consumer acquisition revenue, net of intercompany eliminations, were $5,504 and $11,794, for the three months ended June 30, 2020 and 2019, respectively, and $13,064 and $21,291, for the six months ended June 30, 2020 and 2019, respectively. Professional service fees —Professional service fee revenues were $1,920 and $2,283, for the three months ended June 30, 2020 and 2019, and $3,755 and $3,887, for the six months ended June 30, 2020 and 2019, respectively, and were rendered entirely to related parties. Rocket Homes real estate network referral fees —Real estate network referral fees were $11,837 and $11,400, for the three months ended June 30, 2020 and 2019, and $19,825 and $18,183, for the six months ended June 30, 2020 and 2019, respectively. Rock Connections contact center revenue —The Company recognizes contact center revenue for communication services including client support and sales. Consideration received includes a fixed base fee and/or a variable contingent fee. The fixed base fee is recognized ratably over the period of performance, as the performance obligation is considered to be satisfied equally throughout the service period. The variable contingent fee related to car sales is constrained until the sale of the car is completed. Contact center revenue were $5,816 and $8,756, for the three months ended June 30, 2020 and 2019, and $13,157 and $13,245, for the six months ended June 30, 2020 and 2019, respectively. Amrock closing fees —Closing fees were $106,038 and $40,060, for the three months ended June 30, 2020 and 2019, and $179,525 and $73,323, for the six months ended June 30, 2020 and 2019, respectively. Amrock appraisal revenue, net —Appraisal revenue, net were $20,781 and $18,131, for the three months ended June 30, 2020 and 2019, and $38,399 and $36,183, for the six months ended June 30, 2020 and 2019, respectively. Cash, Cash Equivalents and Restricted Cash Restricted cash as of June 30, 2020 and 2019 consisted of cash on deposit for a repurchase facility and client application deposits, title premiums collected from insureds that are due to the underwritten insurance company and a $25,000 bond. June 30, 2020 2020 2019 Cash and cash equivalents $ 1,724,035 $ 608,622 Restricted cash 78,367 51,832 Total cash, cash equivalents, and restricted cash in the statement of cash flows $ 1,802,402 $ 660,454 Loans subject to repurchase right from Ginnie Mae For certain loans sold to Ginnie Mae, the Company as the servicer has the unilateral right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets defined criteria, including being delinquent more than 90 days. Once the Company has the unilateral right to repurchase the delinquent loan, the Company has effectively regained control over the loan and must re-recognize the loan on the Condensed Combined Balance Sheet and establish a corresponding finance liability regardless of the Company's intention to repurchase the loan. Recently Adopted Accounting Pronouncements In June 2016, the FASB issued Accounting Standard Update (“ASU”) No. 2016-13, “ Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ,” which introduced an expected credit loss model for the impairment of financial assets, measured at amortized cost. The model replaces the probable, incurred loss model for those assets and broadens the information an entity must consider in developing its expected credit loss estimate for assets measures at amortized cost. On January 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments— Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively, “Topic 326”) with no material impact to our combined financial position, results of operations or cash flows. Based upon management’s scoping analysis, the Company determined that money market funds, notes, other receivables, and Ginnie Mae early buyout loans are within the scope of ASU 2016-13. For the Ginnie Mae early buyout loans, the Company determined that the guarantee from the Federal Housing Administration (“FHA”) or Veterans Affairs (“VA”) limits the Company’s exposure to potential credit-related losses to an immaterial amount. For other assets, primarily money market funds, the Company determined that these are short-term in nature (less than one year) and of high credit quality, and the estimated credit-related losses over the life of these receivables are also immaterial. For each of the aforementioned financial instruments carried at amortized cost, the Company enhanced its processes to consider and include the requirements of ASU 2016-13, as applicable, into the determination of credit-related losses. In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments (“ASU 2020-03”). ASU 2020-03 improves and clarifies various financial instruments topics to increase shareholder awareness and make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The Company adopted ASU 2020-03 upon issuance, with no material effect on our combined financial position, results of operations or cash flows. Accounting Standards Issued but Not Yet Adopted In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments to Topic 740 include the removal of certain exceptions to the general principles of ASC 740 in such areas as intraperiod tax allocation, year to date losses in interim periods and deferred tax liabilities related to outside basis differences. Amendments also include simplification in other areas such as interim recognition of enactment of tax laws or rate changes and accounting for a franchise tax (or similar tax) that is partially based on income. This standard will be effective for the Company on January 1, 2021. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. If an entity chooses to early adopt, it must adopt all changes as a result of the ASU. The Company is currently evaluating the potential impact that the adoption of this ASU will have on the combined financial statements and related disclosures. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . Subject to meeting certain criteria, the new guidance provides optional expedients and exceptions to applying contract modification accounting under existing U.S. GAAP, to address the expected phase out of the London Inter-bank Offered Rate (“LIBOR”) by the end of 2021. This guidance is effective upon issuance and allows application to contract changes as early as January 1, 2020. The Company is in the process of reviewing its funding facilities and financing facilities that utilize LIBOR as the reference rate and is currently evaluating the potential impact that the adoption of this ASU will have on the combined financial statements and related disclosures. |
