Fourth Quarter 2024 Earnings Call Invesco Mortgage Capital Inc. February 21, 2025 John Anzalone Kevin Collins Mark Gregson David Lyle Brian Norris Chief Executive Officer President Chief Financial Officer Q4 2024 Results | Financial Results | | | Investment Allocation3 | | | | --- | --- | --- | --- | --- | --- | | | Q4 24 | Q3 24 | | | | | Net income (loss) per common share | $(0.09) | $0.63 | | | | | Earnings available for distribution per | $0.53 | $0.68 | Credit Portfolio | | Agency RMBS 83.4% | | common ...

Group 1: Earnings Performance - Invesco Mortgage Capital reported quarterly earnings of $0.53 per share, missing the Zacks Consensus Estimate of $0.66 per share, and down from $0.95 per share a year ago, representing an earnings surprise of -19.70% [1] - The company posted revenues of $13.68 million for the quarter ended December 2024, missing the Zacks Consensus Estimate by 7.64%, compared to year-ago revenues of $8.3 million [2] - Over the last four quarters, the company has surpassed consensus EPS estimates just once and has not been able to beat consensus revenue estimates [2] Group 2: Stock Performance and Outlook - Invesco Mortgage Capital shares have increased by approximately 10.6% since the beginning of the year, outperforming the S&P 500's gain of 4.5% [3] - The current consensus EPS estimate for the coming quarter is $0.57 on $14.79 million in revenues, and for the current fiscal year, it is $2.49 on $92.8 million in revenues [7] - The estimate revisions trend for Invesco Mortgage Capital is mixed, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market in the near future [6] Group 3: Industry Context - The REIT and Equity Trust industry, to which Invesco Mortgage Capital belongs, is currently in the bottom 45% of the Zacks industries, suggesting potential challenges ahead [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which could impact investor sentiment [5]

Investment Strategy and Portfolio Management - As of December 31, 2024, the company was primarily invested in Agency MBS, with a focus on providing attractive risk-adjusted returns to stockholders through dividends and capital appreciation[13]. - The company has a diversified investment portfolio that includes Agency RMBS, Agency CMBS, non-Agency CMBS, and non-Agency RMBS, with a strategy to manage interest rate risk through a hedge portfolio[27]. - The company emphasizes a disciplined investment approach, focusing on rigorous quantitative and qualitative analysis to maximize risk-adjusted returns[21]. - The company evaluates investment opportunities based on expected risk-adjusted returns relative to comparable investments and macroeconomic factors[26]. - The company has a strong focus on asset selection and relative value within the mortgage market, aiming to build a diversified portfolio[24]. - The investment committee periodically reviews the portfolio for risk characteristics, investment performance, and compliance with investment policies[23]. - The company employs an active portfolio management strategy, which may expose it to greater losses and lower returns compared to passive strategies[74]. Risk Management - Risk management strategies include monitoring interest rate risk and employing various hedging techniques to mitigate potential mismatches[48]. - The company regularly evaluates credit risk based on economic indicators such as GDP, unemployment, and housing trends[50]. - The company faces competition from various entities, including REITs and financial institutions, which may limit its ability to acquire desirable investments[55]. - The company may face adverse impacts from fluctuations in interest rates and competition for financing sources[61]. - Hedging strategies are employed to mitigate risks from interest rate changes, but they may not fully protect against adverse market conditions[118]. - The company may face margin calls or increased collateral requirements from lenders if the value of secured assets decreases, which could adversely affect its financial condition and liquidity[111]. Financial Performance and Leverage - The company employs leverage to achieve return objectives, adjusting leverage based on asset price volatility and liquidity[45]. - The use of significant leverage increases the risk of substantial losses, particularly in volatile market conditions[61]. - The company may incur losses due to defaults on mortgage loans underlying its investments, which could adversely impact its financial condition[96]. - The fair value of the company's mortgage-backed securities may fluctuate due to market conditions, impacting stockholders' equity[103]. - Changes in the fair value of derivatives may lead to volatility in U.S. GAAP earnings, potentially exceeding consolidated net income in any period[150]. Regulatory Compliance and REIT Status - The company has adopted investment guidelines to ensure compliance with REIT qualifications and to avoid regulation as an investment company under the 1940 Act[15][22]. - To maintain REIT status, the company must distribute at least 90% of its net taxable income to stockholders, which could necessitate borrowing during unfavorable market conditions[180]. - The company must ensure that at least 75% of its assets consist of qualified real estate assets to maintain REIT status, which may require asset liquidation[182]. - The company is subject to a 4% nondeductible excise tax on any amount by which dividends paid are less than specified thresholds[180]. - Compliance with REIT requirements may limit the company's ability to pursue attractive investment opportunities, potentially reducing overall returns[181]. Management and Operational Risks - The company is externally managed by Invesco Advisers, Inc., which provides management expertise and analytical tools to enhance investment performance[14][19]. - The company is entirely reliant on its Manager and key personnel for success, with no separate facilities or employees[152]. - Conflicts of interest exist between the company and its Manager, potentially affecting investment decisions[153]. - The management agreement was not negotiated on an arm's-length basis, potentially resulting in less favorable terms for the company[157]. - Termination of the management agreement without cause is costly and difficult, which may hinder management changes[158]. Market Conditions and Economic Factors - Fluctuations in interest rates could adversely affect the value of investments and increase interest expenses, potentially reducing earnings and cash available for distribution to stockholders[66]. - Elevated interest rates may reduce the availability of target assets, adversely affecting the company's ability to acquire assets that meet investment objectives and generate income[71]. - The U.S. Federal Reserve's actions in the Agency RMBS market could materially impact the supply, price, and returns on Agency RMBS investments[75]. - Economic conditions such as inflation and interest rate volatility could negatively impact the value of investments and collateral, affecting liquidity[131]. Taxation and Dividend Policies - The company has not established a minimum dividend payment level, which may affect future dividend payments[161]. - The company’s ability to pay dividends is subject to various factors, including earnings and financial condition[161]. - Future tax law changes could adversely affect the company's business and financial performance, including potential increases in income tax rates[178]. - Non-U.S. stockholders may be subject to U.S. federal income tax on certain distributions, particularly those related to gains from U.S. real property interests[186]. - The company may incur U.S. federal income taxes on net income from the sale of properties classified as "dealer" properties, which would be subject to a 100% tax[189].

Financial Performance - Net loss per common share was $0.09 compared to net income of $0.63 in Q3 2024, while earnings available for distribution per common share declined to $0.53 from $0.68[7][9] - Economic return for Q4 2024 was (0.5)%, a significant drop from 5.4% in Q3 2024[6][7] - The company reported a net loss attributable to common stockholders of $5,472,000 for the three months ended December 31, 2024, compared to a net income of $22,280,000 in the same period of 2023[28] - The company reported a comprehensive income of $3,318,000 for the three months ended December 31, 2024, compared to $27,014,000 in the same period of 2023[31] - Earnings available for distribution for the three months ended December 31, 2024, was $32,253,000, a decrease from $45,841,000 in the same period of 2023, representing a decline of approximately 29.7%[42] - The basic income (loss) per common share for the three months ended December 31, 2024, was $(0.09), compared to $0.46 for the same period in 2023[42] Interest Income and Expenses - Total interest income rose to $76.1 million, while total interest expense decreased to $62.4 million, resulting in net interest income of $13.7 million[9] - Interest income for the three months ended December 31, 2024, was $76,110,000, an increase from $62,082,000 in the same period of 2023[28] - Net interest income for the year ended December 31, 2024, was $36,827,000, down from $49,700,000 in 2023[28] - Total interest expense for the three months ended December 31, 2024, was $62,431,000, compared to $54,680,000 for the same period in 2023, reflecting an increase of approximately 14.5%[46] - The effective net interest income for the three months ended December 31, 2024, was $46,000,000, down from $56,383,000 in the same period of 2023, indicating a decrease of about 18.4%[48] - The average cost of funds decreased to 5.13% from 5.30% in Q3 2024, while the average net interest rate margin improved to 0.47%[9] Asset and Equity Management - The total assets as of December 31, 2024, were $5,688,034,000, an increase from $5,284,209,000 as of December 31, 2023[33] - The company reported a decrease in total stockholders' equity from $857,003 thousand as of September 30, 2024, to $730,729 thousand as of December 31, 2024[57] - Book value per common share decreased by 4.8% to $8.92, with an estimated range of $8.90 to $9.26 as of February 14, 2025[3][7] Debt Management - The debt-to-equity ratio increased to 6.7x at the end of Q4 2024, up from 6.1x at the end of Q3 2024[3][9] - The company's debt-to-equity ratio as of December 31, 2024, was 6.7, compared to 6.1 as of September 30, 2024[57] - The economic debt-to-equity ratio as of December 31, 2024, was also 6.7, reflecting the inclusion of TBAs at implied cost basis of $606,000 thousand[58] Investment Portfolio - Approximately 85% of the $5.4 billion investment portfolio was allocated to Agency RMBS, with 15% in Agency CMBS[3] - The portfolio composition as of December 31, 2024, included 83.4% in Agency RMBS with an average yield of 5.50%[12] - The company expects a gradual increase in Agency CMBS new issuance to meet robust investor demand due to attractive risk-adjusted return profiles[4] Stockholder Actions - The company declared a common stock dividend of $0.40 per share, payable on January 24, 2025[18] - During the fourth quarter, the company sold 993,837 shares of common stock for net proceeds of $8.3 million[19] - The company redeemed all outstanding shares of Series B Preferred Stock for a cash redemption price of $25.00 per share on December 27, 2024[20] - The company repurchased and retired 70,864 shares of Series C Preferred Stock for a total cost of $1.7 million during the three months ended December 31, 2024[21] Derivative Instruments - The Company reported a realized loss on derivative instruments of $157,864,000 for the three months ended December 31, 2024, compared to a realized loss of $199,137,000 for the same period in 2023[43]

Group 1 - Invesco Mortgage Capital (IVR) closed at $8.09, with no change from the previous day, underperforming compared to the S&P 500's gain of 0.53% [1] - The stock has decreased by 2.76% over the past month, while the Finance sector gained 3.86% and the S&P 500 increased by 2.69% [1] Group 2 - Invesco Mortgage Capital is expected to report earnings of $0.66 per share, reflecting a year-over-year decline of 30.53%, with projected net sales of $14.81 million, an increase of 78.43% from the previous year [2] - Recent changes to analyst estimates for Invesco Mortgage Capital are important as they indicate short-term business trends and analyst sentiment [3] Group 3 - The Zacks Rank system, which ranges from 1 (Strong Buy) to 5 (Strong Sell), has shown that 1 stocks have returned an average annual gain of +25% since 1988, with Invesco Mortgage Capital currently holding a Zacks Rank of 3 (Hold) [5] - There has been no change in the Zacks Consensus EPS estimate for Invesco Mortgage Capital over the past month [5] Group 4 - Invesco Mortgage Capital is trading at a Forward P/E ratio of 3.25, significantly lower than the industry average of 7.87, indicating a discount compared to its peers [6] - The REIT and Equity Trust industry, part of the Finance sector, has a Zacks Industry Rank of 89, placing it in the top 36% of over 250 industries [6] Group 5 - The Zacks Industry Rank is based on the average Zacks Rank of individual stocks within the industry, with top-rated industries outperforming the bottom half by a factor of 2 to 1 [7]

Company Performance - Invesco Mortgage Capital (IVR) closed at $8.06, down 0.37% from the previous trading session, underperforming the S&P 500 which gained 0.16% [1] - The company's shares have decreased by 5.73% over the last month, compared to a 4.27% loss in the Finance sector and a 2.7% loss in the S&P 500 [1] Upcoming Earnings - The upcoming earnings disclosure is anticipated, with projected earnings per share (EPS) of $0.66, indicating a 30.53% decrease from the same quarter last year [2] - Quarterly revenue is estimated at $14.81 million, reflecting a significant increase of 78.43% from the year-ago period [2] Analyst Estimates - Recent modifications to analyst estimates for Invesco Mortgage Capital are crucial as they indicate changing near-term business trends, with positive revisions suggesting analyst optimism about the company's profitability [3] - The Zacks Rank system, which incorporates these estimate changes, is utilized to assess stock performance [4] Zacks Rank and Valuation - Invesco Mortgage Capital currently holds a Zacks Rank of 3 (Hold), with no changes in the consensus EPS estimate over the past month [5] - The company is trading at a Forward P/E ratio of 3.24, which is a discount compared to the industry average Forward P/E of 7.8 [6] Industry Context - The REIT and Equity Trust industry, part of the Finance sector, has a Zacks Industry Rank of 78, placing it in the top 32% of over 250 industries [6] - Strong individual industry groups, as measured by the Zacks Industry Rank, tend to outperform weaker groups by a factor of 2 to 1 [7]

Core Viewpoint - Invesco Mortgage Capital is experiencing a mixed performance in the market, with a notable decline in its stock price over the past month, while upcoming earnings are anticipated to show a significant revenue increase despite a decrease in EPS compared to the previous year [1][2]. Group 1: Stock Performance - Invesco Mortgage Capital's stock closed at $8.26, reflecting a +1.23% change from the previous day, underperforming the S&P 500's gain of 1.26% [1]. - Over the past month, shares of Invesco Mortgage Capital have decreased by 2.51%, which is better than the Finance sector's decline of 5.29% and the S&P 500's drop of 2.82% [1]. Group 2: Earnings Forecast - The company is expected to report an EPS of $0.66, indicating a 30.53% decrease from the same quarter last year [2]. - Revenue is forecasted to reach $14.81 million, representing a significant increase of 78.43% compared to the year-ago quarter [2]. Group 3: Analyst Estimates - Recent changes in analyst estimates for Invesco Mortgage Capital are crucial for investors, as positive revisions can signal a favorable business outlook [3]. - The Zacks Rank system, which incorporates these estimate changes, provides actionable insights for investors [4]. Group 4: Zacks Rank and Valuation - Invesco Mortgage Capital currently holds a Zacks Rank of 3 (Hold), with no changes in the consensus EPS estimate over the past month [5]. - The company has a Forward P/E ratio of 3.28, which is significantly lower than the industry average of 7.93, indicating a valuation discount [6]. Group 5: Industry Context - The REIT and Equity Trust industry, part of the Finance sector, has a Zacks Industry Rank of 87, placing it in the top 35% of over 250 industries [6]. - The Zacks Industry Rank suggests that higher-rated industries tend to outperform lower-rated ones by a factor of 2 to 1 [7].

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A downtrend has been apparent in Invesco Mortgage Capital (IVR) lately with too much selling pressure. The stock has declined 5.6% over the past four weeks. However, given the fact that it is now in oversold territory and Wall Street analysts are majorly in agreement about the company's ability to report better earnings than they predicted earlier, the stock could be due for a turnaround.Here is How to Spot Oversold StocksWe use Relative Strength Index (RSI), one of the most commonly used technical indicato ...

Invesco Mortgage Capital (IVR) came out with quarterly earnings of $0.68 per share, missing the Zacks Consensus Estimate of $0.79 per share. This compares to earnings of $1.51 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of -13.92%. A quarter ago, it was expected that this real estate investment trust would post earnings of $0.75 per share when it actually produced earnings of $0.86, delivering a surprise of 14.67%.Over the la ...