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IM

IMPAC MORTGAGE HOLDINGS INC (IMPM)·Q4 2022 Earnings Summary

Executive Summary

  • Q4 2022 was deeply loss-making: net loss $(11.8)M, diluted EPS $(0.38), adjusted loss $(11.0)M and adjusted diluted loss per share $(0.35), with “total revenues (expenses), net” of $1.07M .
  • Origination volumes collapsed to $21.5M (Retail $7.0M, Wholesale $14.5M), down 65% QoQ and 97% YoY; NonQM quarterly originations fell to $18.4M vs $382.1M in Q4 2021 .
  • Strategic pivot underway: retail channel shifted to a broker model, wholesale operations wound down, MSRs sold, GSE Seller/Servicer status to be relinquished, and warehouse capacity reduced to $16M with one counterparty .
  • No quantitative guidance; management emphasized “no visibility” to normalization of volumes/margins amid rate and credit spread dislocation; catalysts include capital stack alignment via preferred exchanges/redemption and aggressive expense actions .

What Went Well and What Went Wrong

What Went Well

  • Expense discipline: operating expenses fell $25.1M YoY (2022 vs 2021) on reduced headcount and variable comp; personnel expense decreased $22.1M and average headcount dropped 37% (335 → 210) .
  • Liquidity and de-risking: unrestricted cash was $25.9M and unencumbered loans $9.4M at 12/31/22; the company also expects $7.3M of employee retention credits in 2023 .
  • Strategic simplification/capital stack alignment: completed exchange/redemption of Series B/C preferreds, issued Series D preferred and warrants, reducing legacy complexity and enabling future financing optionality. CEO: “eliminating complexity and reducing costs… permitting the Company to focus on complimentary strategic ventures” .

What Went Wrong

  • Mortgage market shock: “dramatic collapse” in refinance and weakening purchase market led to a $59.0M YoY drop in gain on sale of loans and severe margin compression; NonQM volumes deteriorated sharply .
  • Sequential profitability remained poor despite revenue improvement: Q4 operating loss $(9.956)M and net loss $(11.768)M; Q3 origination margins were negative (−110 bps) before partial stabilization actions .
  • Occupancy hit from lease termination: $3.0M termination consideration paid in Dec-22, with $970K additional occupancy expense recognized in Dec-22 (and $1.2M in Jan-23) .

Financial Results

Year-over-Year (Q4 2021 vs Q4 2022)

MetricQ4 2021Q4 2022
Total revenues (expenses), net ($USD Millions)$14.937 $1.070
Operating (loss) earnings ($USD Millions)$(5.556) $(9.956)
Net (loss) earnings ($USD Millions)$3.582 $(11.768)
Diluted EPS ($USD)$0.15 $(0.38)
Adjusted diluted loss per common share (non-GAAP, pre-tax) ($USD)$(0.23) $(0.35)

Sequential (Q2 2022 → Q3 2022 → Q4 2022)

MetricQ2 2022Q3 2022Q4 2022
Total (expense) revenues, net ($USD Millions)$0.495 $(0.161) $1.070
Operating (loss) earnings ($USD Millions)$(14.171) $(11.237) $(9.956)
Net (loss) earnings ($USD Millions)$(13.467) $(13.013) $(11.768)
Diluted EPS ($USD)$(0.64) $(0.62) $(0.38)
Adjusted diluted loss per common share (non-GAAP, pre-tax) ($USD)$(0.71) $(0.59) $(0.35)
Origination margin (bps)14 −110 —

Segment/Channel Originations (Quarterly)

Originations ($USD Millions)Q4 2021Q3 2022Q4 2022
Retail$497.3 $33.1 $7.0
Wholesale$262.1 $28.9 $14.5
Total$759.4 $62.0 $21.5
Reported QoQ change (Total)——−65%
Reported YoY change (Total)——−97%

NonQM Originations (Quarterly)

MetricQ4 2021Q3 2022Q4 2022
NonQM originations ($USD Millions)$382.1 $49.6 $18.4

Liquidity and Balance Sheet KPIs

Metric12/31/20219/30/202212/31/2022
Unrestricted cash & cash equivalents ($USD Millions)$29.6 $44.0 $25.9
Mortgage loans held-for-sale ($USD Millions)$308.5 $18.4 $13.1
Mortgage servicing rights ($USD Millions)$0.749 $0.865 $0.000 (sold $68.0M UPB)
Warehouse borrowings ($USD Millions)$285.5 $13.3 $3.6
Total debt ($USD Millions)$66.5 $48.3 $42.8
Total assets ($USD Millions)$2,022.8 $93.6 $60.3
Total equity ($USD Millions)$9.9 $(6.1) $(11.6)
Book value per share ($USD)$0.47 $(0.28) $(0.32)

Non-GAAP Notes

Adjusted loss excludes fair value changes (long-term debt, MSRs, net trust assets) and legacy items; see reconciliation in the press releases .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ1–Q2 2023Not providedNot provided; management stated “no visibility” to normalization of volumes/margins amid dislocation Maintained: none
MarginsQ1–Q2 2023Not providedNot provided; NonQM market volatility/liquidity issues persist Maintained: none
OpEx2023Ongoing reductionsAggressive expense reduction and office lease termination; retail pivot to broker (lower expense load) Lowered expense trajectory
Warehouse capacityEarly 2023<$50M planned (Q3 call) $25M facility not renewed; capacity reduced to $16M with one counterparty Lowered
Channel strategy2023Risk-off postureRetail broker model; wholesale operations wound down until conditions improve Strategic pivot
Capital stack4Q22–1Q23Exchange offers in processCompleted exchanges/redemptions; issued Series D preferred and warrants Resolved legacy overhang

Earnings Call Themes & Trends

TopicQ2 2022 (Prior-2)Q3 2022 (Prior-1)Q4 2022 (Current)Trend
Rates/credit spreadsHistoric dislocation; climb in note rates; shift to best-efforts “Unrelenting” pressures, negative margins; continued defensive stance “Accelerating deterioration”; no visibility to normalized volumes/margins Worsened
Origination strategyRisk-off; discourage low-coupon NonQM; pricing up Pullback in volume; negative margins; reduced marketing Retail broker pivot; reduced product complexity; organic leads Pivot/de-risk
Warehouse capacity$400M → $350M target $325M with plan to <$50M $25M facility not renewed; $16M remaining Shrinking
NonQM volumes$314.3M Q1; $80.2M Q2 $49.6M Q3 $18.4M Q4; 67% of 2022 originations as conventional collapsed Declining
Servicing/MSRsRetain small GNMA servicing UPB ~$69.6M Sold ~$68.0M MSRs; no servicing at 12/31/22 Exited
Legal/capital structurePreferred exchange process Exchange offers completed; redemption planned Completed exchanges/redemptions; Series D created; warrants issued Resolved

Management Commentary

  • “We believe events of the recent week evidence an accelerating deterioration of market conditions and operating environment… The Company has no visibility as to when these dislocations will abate and return the industry to normalized volumes and margins” — George A. Mangiaracina, Chairman & CEO .
  • “Layered risks cannot be effectively hedged in times of acute market dislocation” (Q3 press) .
  • “We believe adopting a more cost-effective origination strategy [broker model] is essential to managing the overall monthly expense load… while also driving revenue across a broad spectrum of product offerings” .
  • On capital structure: completion of exchange/redemption “aligns our equity stakeholder interests” and “brings closure to costly legal proceedings” .

Q&A Highlights

  • Q3 call incorporated shareholder questions into prepared remarks; no live Q&A segment .
  • Q4 call was scheduled for March 16, 2023, but a full transcript is not available in our document set; no additional guidance clarifications are accessible beyond the press release .

Estimates Context

  • Wall Street consensus estimates (S&P Global) for Q4 2022 EPS and revenue were unavailable for comparison at the time of this analysis. As a result, we cannot characterize beats/misses versus consensus for IMPM’s Q4 2022.

Key Takeaways for Investors

  • The mortgage origination business remains under severe macro pressure; the company’s defensive risk posture, pivot to retail broker, and wholesale wind-down should curtail losses but also limit near-term revenue capacity .
  • Liquidity exists but shrank QoQ as assets and warehouse usage contracted; further expense reduction (lease termination, headcount) supports cash preservation into 2023 .
  • Capital stack clean-up is positive for optionality; Series B/C issues addressed, Series D preferred established, warrants issued—removing legacy overhang that impeded corporate finance activity .
  • Origination volumes and NonQM activity continue to fall sharply; absent normalization of spreads and rates, expect muted growth and persistent margin compression near term .
  • MSR exit and relinquishment of GSE Seller/Servicer status indicate a narrower operating scope focused on cost-efficient broker distribution, reducing complexity and fixed costs .
  • With no quantitative guidance and management’s stated lack of visibility, estimates and positioning should reflect ongoing downside risk to volumes/margins until macro stabilizes .
  • Trading implications: near-term moves likely hinge on confirmation of expense progress and liquidity runway versus origination trough; medium-term thesis depends on market normalization and execution under the broker-led model .