Eagle Point Income Company Inc. (EIC) Earnings Call Transcript

Thanks, operator, and good morning to everyone. It's a pleasure to welcome you to the earnings conference call for Eagle Point Income Company covering the second quarter of 2026. Joining us on today's call are Thomas Majewski, who serves as Chairman and Chief Executive Officer of the company; Dan Ko, Senior Principal and Portfolio Manager for the company's Adviser; and Lena Umnova, Chief Accounting Officer for the Adviser. Before we get started, I want to remind all of you that the topics we discuss today contain forward-looking statements or projected financial information, and those involve risks and uncertainties that could lead the company's actual results to differ materially from those projections. For more details about factors that might affect the company as well as the statements and projections included here, please see the company's filings with the Securities and Exchange Commission. Any forward-looking statement or projection of financial information we make on this call rests on information available to us as of today's date. We disclaim any obligation to update our forward-looking statements unless the law requires it. Earlier today, we filed our second quarter 2026 financial statements and investor presentation with the Securities and Exchange Commission. You can also find these in the Investor Relations section of the company's website, eaglepointincome.com. A replay of this call will be available later today as well. At this point I'll hand the call over to Thomas Majewski, Chairman and Chief Executive Officer of Eagle Point Income Company. Tom?

Thanks, Darren, and good morning to all of you. We're glad you could be with us on today's Eagle Point Income Company earnings call. EIC put up a solid second quarter. At June 30, our net asset value came in at $12.52 per share, up 4% compared with $11.99 per share at March 31. Over the quarter, the company delivered a GAAP return on common equity of 7.1%. In that period, we distributed an aggregate of $0.33 per share in cash to holders of our common stock. The gain in NAV stemmed from a significant rebound in loan prices and CLO valuations after the turbulence seen in the first quarter. Worries about how artificial intelligence might affect software borrowers, along with geopolitical events, put pressure on leveraged loan prices and CLO valuations during the quarter. As mood brightened in the second quarter, loan prices and CLO valuations bounced back substantially, while credit fundamentals underneath stayed resilient. In our view, the first quarter's drop was a matter of market-driven pricing pressure, not a broad worsening of credit. Heavy refinancing, reset, and call activity in the second quarter led to early repayment of some of our CLO debt investments. Since a large number of those investments had been bought at discounts to par, repayment at par let us capture the convexity built into them sooner than we had initially expected. Over the quarter, we put $39 million to work in new investments at a weighted average effective yield of 17.9%, spreading capital across CLO debt, CLO equity and complementary credit investments where we saw what we consider to be highly attractive risk-adjusted returns. We further repositioned the portfolio, rotating capital out of a certain set of underperforming CLO collateral managers and into higher conviction opportunities across CLOs and other private credit investments. Although that led to some realized losses, those losses had for the most part already shown up as unrealized losses in earlier periods, so the incremental effect on our NAV for the quarter was minimal. Importantly, we believe the steps we took bolster the portfolio's potential for risk-adjusted returns and strengthen its long-term earnings power. All through the quarter, we kept actively managing our CLO portfolio, completing 1 reset and 2 refinancings of CLO equity positions. Those actions produced a weighted average cost savings of 33 basis points for those CLOs; beyond reducing debt costs, the reset position also pushed its reinvestment period out to 5 years. Although CLO junior debt stays central to EIC's strategy, we keep selectively raising our exposure to infrastructure credit, portfolio debt securities, asset-backed securities and other strategic credit investments. Dedicated teams with specialized expertise across the broader Eagle Point platform source these opportunities. At June 30, CLO debt made up roughly 59% of our portfolio and CLO equity accounted for about 19% of our portfolio. Non-CLO investments came to approximately 22% of our portfolio. We think having a wider set of possibilities like this makes the portfolio more diversified and lets us put money behind the credit market opportunities offering the best return for the risk involved. A recent illustration worth mentioning is the investment we made with Sports Illustrated Tickets — a specialty finance deal we originated, backed by World Cup tickets, put together by the Eagle Point team. After holding it for 7 months, that investment delivered a 1.2x multiple on invested capital once it was completely realized in June; in our view, Eagle Point's capacity to find distinctive investment opportunities pairs well with EIC's core approach of junior debt in CLOs and boosts long-term value for shareholders. Now on to our capital structure. In Q2, we brought to market $1 million of our 6% Series AA convertible perpetual preferred stock. This perpetual, fixed-rate financing gives us an appealing long-term capital source and more flexibility to put money to work when appealing opportunities come along. You view this financing as a major competitive edge, and we don't know of another publicly traded fund focused on CLO debt that has a comparable perpetual convertible preferred program. At this point I'll hand the call to Senior Principal and Portfolio Manager, Dan Ko, who will give an update on the market.

Appreciate that, Tom. Let me give you a quick rundown on what's happening in the loan and CLO markets. During the second quarter, the S&P UBS leveraged loan index gained 1.9%, and in July it delivered a return of 0.8%. On the corporate side, average revenue and EBITDA growth stayed in positive territory, which underpins credit fundamentals overall throughout the broadly syndicated loan market, even as dispersion persists among sectors and issuers. When the quarter closed, the trailing 12-month loan default rate stood at 1.0%, down from 1.4% as of March 31st, and it stayed under the 2.5% long-term average. EIC's look-through exposure to defaulted loans stayed low at 36 basis points, well beneath the broader market average; in our view, that speaks to the quality of the loans we hold, our hands-on portfolio management and a disciplined approach to investing. Software was a key area of attention during the quarter, since investors keep evaluating what AI will mean over the long term across various sectors. There will probably be both winners and losers from AI, but plenty of software businesses keep benefiting from contracted recurring revenue, sticky customer relationships and products that are mission-critical. In our view, the market's reaction earlier this year exaggerated the probable effect on the wider software sector. When it comes to EIC, the diversification and structural protection built into our CLO debt investments further helped cushion the impact of weakness in any single borrower or sector. Loan prices bounced back over the second quarter, though the recovery stayed uneven from one credit to another. As the quarter ended, the look-through underlying loan portfolio carried a weighted average market price of $95.30, which creates chances to build par through buying loans at a discount. Turning to CLO market activity, new issuance came to $33 billion in the second quarter, versus $47 billion in the first quarter. Reset activity reached $55 billion, compared with $32 billion in the first quarter, and refinancing activity came to $39 billion, compared with $24 billion in the first quarter; we anticipate that refinancing and reset activity will stay robust. When it comes to our CLO equity investments, this kind of activity can bring down liability costs and stretch out reinvestment periods. For CLO debt investments bought at a discount, resets, refinancings and calls may open up further chances to capture embedded gains by way of early repayments at par. Our view remains that CLO junior debt provides an appealing mix of floating rate income, structural protection and low historical credit expense when measured against comparably rated corporate securities. Should interest rates stay elevated or climb over the near to intermediate term, our CLO debt portfolio is positioned to gain from higher income. Changes in benchmark rates matter less to our CLO equity investments, since returns are driven mainly by the underlying loan asset spreads minus the CLO's financing costs. At the company level, pairing predominantly floating rate investments with fixed rate preferred financing generates an attractive earnings profile in the current environment. With that, I'll pass things to our Adviser's Chief Accounting Officer, Lena Umnova, who will take you through our financial results.

Thanks, Dan. For Q2, our net investment income—NII—came in at $0.37 per share. Once you subtract realized losses on investments, NII was negative $0.29 per share. Set that against Q1 of 2026, when NII minus realized investment losses was $0.34 per share, and against Q2 of 2025, when NII plus realized gains reached $0.39 per share. When unrealized portfolio gains are factored in, GAAP net income for Q2 of 2026 was $20 million, which works out to $0.84 per share. Compare that with a GAAP net loss of $0.95 per share in Q1 of 2026 and GAAP net income of $0.49 per share in Q2 of 2025. Recurring cash flows generated by our investment portfolio reached $12 million for the quarter, equal to $0.52 per share, and came in above both our common stock distributions and our expenses. Three monthly common stock distributions of $0.11 per share were paid out during the quarter, and for the rest of 2026 we have declared monthly common stock distributions of $0.11 per share. In our view, the present distribution level is a fair reflection of what the company can earn near term given where interest rates stand today. Now to our capital structure. At June month end, preferred equity securities we had outstanding amounted to 12% of total assets less current liabilities—under our 25% to 35% target range, which is where we anticipate running the company when market conditions are normal. We expect leverage to build over time as we bring in more capital via our ongoing offering of the Series AA and AB convertible perpetual preferred stock, a program we kicked off early in 2026. Turning to portfolio activity for the month of July, recurring cash flows received from our investments came to $8 million. Keep in mind that certain investments in our portfolio are still slated to make payments later in the quarter. At July month-end, after accounting for pending investment transactions and settlement, cash and revolver capacity available for investment and other purposes stood at more than $53 million. Management's unaudited estimate of NAV at July month-end fell between $12.30 and $12.40 per share. At the midpoint, that was a 1% decline from June month end. I'll hand the call back to Tom now for closing remarks, and then we'll take your questions.

Appreciate that, Lena. During Q2, we saw the advantages that come from managing a portfolio actively and from having the whole Eagle Point platform at our disposal. Our approach remains one of rotating capital on a selective basis into opportunities where we have greater conviction, spanning CLO debt, CLO equity, and differentiated private credit investments, all while making our capital structure stronger. Given solid CLO fundamentals, an investment portfolio that is mostly floating rate, and preferred financing at a fixed rate, our view is that EIC sits in a strong position to produce appealing income as well as long-term value for the shareholders who stand alongside us. We're grateful for the support you keep giving, and we thank you for the time and interest you've shown in Eagle Point Income Company. Lena, Dan and I will now take your questions. Operator?

Perhaps I'll begin with something about those recurring cash distributions. You mentioned $8.3 million to kick off the third quarter, a bit above what had been expected across the quarter; that pace appears lower than what we saw during the prior couple of quarters, and it's sort of continuing to trend downward; so if you could sort of put it in context regarding how much of that stems from market forces as opposed to portfolio results, and then sort of what would be needed to sort of reach an inflection point and see it begin expanding once more. Sort of interested in your perspective on that.

Yeah; Dan Ko speaking. Several points; on the CLO debt side, I mean, since we are observing — or we anticipate, sort of, rates rising in the near to, sort of, intermediate horizon. What we expect is that the cash — at minimum the income generated by the CLO debt portion of the portfolio will probably grow during the coming months as, sort of, base rates climb. The decline in cash flows was likely mostly caused by the CLO equity portion of the portfolio, which has, sort of, encountered spread compression over the last, sort of — at minimum throughout 2025 and the impact of that is genuinely being experienced more at present as all those, sort of, loan, sort of, coupons got reset. A portion of it also stems from the reality that the underlying in certain CLOs do include semiannual paying bonds, and so there's a bit of, sort of, a saw too, sort of, pattern of payments for CLO equity and that it will decline one quarter and then rise the next quarter, sort of, based on how large the bond bucket is. So this quarter, sort of, being lower, I anticipate this quarter meaning Q2 or Q3, then the subsequent quarter would be greater. So what we expect is that we anticipate it to, sort of, bounce back eventually.

Thank you, Dan. And Tom, regarding what you said during the prior quarter's call about the chance to repurchase shares — I believe you mentioned that you hadn't been as aggressive as in earlier quarters. Over the last quarter, the fund's NAV has bounced back strongly. The share price hasn't. So with that discounted valuation showing up once more, I'm wondering whether you could share your latest thinking about directing capital toward buybacks over the coming one or two quarters?

Sure. What we wrestle with is this — we certainly anticipated NAV would rise; we sensed it occurring in real time, though I suppose you can never claim with certainty that you predicted it. We keep in mind the share price discount, weighed against how liquid the stock is and its daily trading volume. One point I believe I made during the previous call: we pulled back a bit purely because of the effect on the stock's volume while we were repurchasing; so we're essentially trying to balance those two considerations. At the same time, I'd also note that our leverage sits well under the target ratio at present. So in fact repurchasing equity could help move us back somewhat toward alignment within our leverage bucket, even though we do have — I believe the revolver at quarter end was, without question, fully undrawn, right, Lena?

Yes.