Eagle Point Income Company Inc. Q1 FY2026 earnings call

Overall Portfolio & Market Performance

• Despite broader market challenges, EIC delivered a strong Q1 2026, with quarter-over-quarter growth in net investment income and recurring cash flows sufficient to cover all distributions and expenses.
• CLO market conditions were challenging in Q1, driven by falling loan prices (particularly in the software sector) and credit market caution from the ongoing Iran war, which weighed on quarterly NAV. Software sector uncertainty stems from investor assessment of AI disruption potential for business models.
• Broadly syndicated loan market underlying fundamentals remained stable, with positive corporate revenue and EBITDA growth. The trailing 12-month leveraged loan default rate was 1.4%, modestly above year-end but well below the 2.5% long-term average. The S&P UBS Leverage Loan Index fell 0.5% in Q1, then rebounded 1.2% in April.

Investment Activity & Portfolio Management

• Deployed $56 million into new investments across multiple credit classes in Q1, with a weighted average effective yield of 16%, capitalizing on relative value opportunities from macro uncertainty.
• Completed 4 CLO equity resets and 2 CLO equity refinancings, delivering a 48 basis point reduction in weighted average CLO debt cost and extending reinvestment periods for the affected CLOs to 5 years. Market volatility created opportunities for CLO collateral managers to reinvest proceeds into discounted loans with attractive long-term return potential, which the market often undervalues during stressed periods.
• While CLO junior debt remains the core of EIC's strategy, the firm opportunistically increased exposure to other credit classes including infrastructure credit, regulatory capital relief transactions, portfolio debt securities, and other structured and private credit investments. EIC's dedicated, specialized platform for these assets provides competitive access to originated opportunities, improves portfolio diversification, and supports excess returns.

Capital Structure & Capital Allocation

• Launched a 6% Series AA and Series AB convertible perpetual preferred stock offering in Q1, securing low-cost, long-duration capital that improves financial flexibility. EIC notes it is the only public firm focused primarily on CLO debt with perpetual financing, which it views as a material competitive advantage.
• Completed full redemption of the highest-cost 8% Series C term preferred stock subsequent to quarter-end, continuing the firm's strategy to lower cost of capital and extend maturity profiles to enhance long-term earning power.
• Repurchased almost 390,000 common shares in Q1 at an average 19.3% discount to NAV, generating $0.04 per share NAV accretion. Since the June 2025 authorization through March 31 2026, the firm has repurchased $50 million of common stock at an average 13% discount to NAV, generating $0.26 per share total NAV accretion. The firm plans to continue selective buybacks as market opportunities arise.

Eagle Point Income Company operates as a single diversified investment portfolio focused primarily on CLO junior debt, with additional opportunistic exposure to other credit classes. For Q1 2026: net investment income (NII) was $0.36 per share, up from $0.35 per share in Q4 2025; NII less realized losses was $0.34 per share, compared to $0.03 per share in Q4 2025 and $0.44 per share (unrealized gains) in Q1 2025. Including unrealized portfolio losses, GAAP net loss was $22 million ($0.95 per share), compared to a GAAP net loss of $0.60 per share in Q4 2025 and $0.46 per share in Q1 2025. Recurring portfolio cash flows totaled $40 million ($0.62 per share), which covered all common share distributions and total company expenses. As of March 31, 2026, net asset value (NAV) per share was $11.99, down from $13.31 at the end of 2025; as of April 30, 2026, unaudited estimated NAV was $12.48-$12.58 per share, a 4.5% increase at the midpoint from March 31. Outstanding preferred equity represented 34% of total assets less current liabilities, which falls within the firm's 25%-35% target range. As of April month-end, the firm held $15 million in available cash and revolver capacity.

• Management expects CLO issuance volumes to remain robust as broader markets normalize into Q2 2026. • The floating rate structure of EIC's CLO junior debt portfolio is positioned to benefit from any future increases in short-term rates, which market participants now see as more likely than three months prior due to rising inflation expectations; higher short-term rates are expected to support higher portfolio income going forward. • Lower current loan prices and slower repricing activity are expected to improve CLO reinvestment environments, increasing par build potential, widening spreads on new investments, and boosting long-term forward returns. • Discounted pricing of CLO debt during market volatility creates potential for pull-to-par returns as markets normalize, adding to the attractiveness of current portfolio positioning.

• Broader market volatility and the ongoing war in Iran have weakened risk appetite for CLO junior debt, widened spreads, and driven negative mark-to-market adjustments that reduced Q1 NAV. • AI disruption creates uneven credit risk across the software sector, with some loans trading at steep discounts and a small number of names on watch for potential default; the pace of transition is faster than past technological shifts, though near-term systemic risk is limited. • Observable mark-to-market pricing for broadly syndicated loans (the core of EIC's CLO exposure) creates immediate valuation volatility during periods of market stress. • Forward-looking statements and projections are inherently uncertain, and actual results may differ materially from guidance due to unforeseen market and macroeconomic risks.

Q: With 12.5% portfolio exposure to software (the largest sector allocation, double the next largest), how does management assess AI disruption risk, potential credit impacts like increased defaults, and what is the target software exposure going forward?

A: Not all software companies face equal AI disruption risk; risk is lower for critical, legacy software (e.g., airline reservation systems) than for non-essential tools. Like past technological shifts (e.g., e-commerce disruption of retail), predictions of broad sector doom are overstated. While a small number of software loans are trading at very steep discounts, this is the exception not the norm. The firm is actively monitoring software exposure, conducting ongoing diligence, and adjusting investment decisions (buy/sell/hold) accordingly. While the firm would prefer to lower exposure over time, there is no fixed target, and the pace of change is gradual, with most affected companies having significant runway to adapt.

Q: With the stock still trading at a discount to April's rebounded NAV, will the share repurchase program continue near-term?

A: The repurchase program remains open and active with available capacity. The firm balances NAV accretion from discounted buybacks against preserving stock liquidity and retaining dry powder for when purchases can meaningfully move the stock price. The firm is no longer aggressively buying back stock at this time, but will continue to selectively use the program as opportunities arise.

Q: Was software the driver of the modest increase in the 12-month leveraged loan default rate from 1.2% last quarter to 1.4% this quarter?

A: Most of the default increase is not tied to significant software defaults yet; most software loans (around 75%) still trade above 90, and many CLO collateral managers already reduced software exposure in 2025 to pre-empt AI disruption risk. The broadly syndicated loan market's lower concentration and ability to trade loans allows collateral managers to make relative value adjustments that keep overall default rates low, though some isolated software defaults are possible in the future.

Q: Have you seen rising credit stress in healthcare leveraged loans, similar to what some BDCs are reporting?

A: No significant credit stress has been seen in healthcare, outside of the AI disruption risk for software companies categorized within the healthcare sector.