Burford Capital Limited (BUR) Earnings Call Transcript & Summary

Hello. This is Rob Bailhache, and I run Burford's Investor Relations outside the Americas. I and the whole team of Burford, welcome you to today's 2026 retail shareholder audio webcast with Chris Bogart, Burford's Chief Executive Officer; and Jordan Licht, Burford's Chief Financial Officer. Thank you for your interest and in many instances, long-standing investments alongside Burford's employee shareholders who own today around 10% of the company. We hope you find this forum useful. Before I hand over to Chris Bogart, some housekeeping, after some brief opening remarks from Chris, we'll move to Q&A. You can ask a question at any time by submitting it in the Q&A box that you see on the webcast dashboard on your screen, this is discreet to you and us. If you have any technical questions for the production team in our virtual green room, you can use the same private Q&A box for that purpose. We'll try to get through as many questions as possible, but due to the fixed time available, we likely won't be able to respond to each of them. The selection of the questions we've already received are grouped by topic, we plan on getting to each topic that's being raised. If there are any new subjects from live Q&A feed, we will certainly try to get to those as well. Finally, a replay will be available to registrants a short while after today's event using the webcast registration link you've been provided with. And with that, I'd like to turn the call over to Chris Bogart, Burford's Chief Executive Officer.

Thanks very much, Rob, and thank you all for joining us today. I really enjoy doing these and interacting with individual investors. We get some of our best questions, and we get some of our most sustained and long-term engagement, as Rob said. A number of you have been on this journey with us for quite some time. It's been 17 years now since we started Burford. And so we're very grateful for your support and for your interest and for your enthusiasm about the company. As Rob said, we've had a number of excellent questions. And so I'm not going to go on at any great length in advance. You all had access to the earnings call that we did recently. And so that's when I gave quite a long presentation about the company, what we were thinking about our market and liquidity position following the YPF decision. And so to the extent that you haven't listened to that, I would encourage you to do so and to look at the slides that accompanied it because there was really quite a lot of information there about where we are heading and how we're navigating the dynamics that exist. I would just sound the note, though, that we remain very enthusiastic about the state of the business and the market. This is a growing business and a growing market, and we'll talk with some of the questions about just why that is. And we believe, notwithstanding the disappointment that happened in the second circuit with YPF and the consequent negative impact on the share price, we believe that there's a lot of future runway here, and we're excited about being able to capitalize on it. And so with that, Rob, maybe we should just go to the questions because you've told me that the many questions you've already received will really cover the waterfront for the kinds of things that I would otherwise take people through.

Absolutely, Chris. So let's move straight away to our first area of inquiry, which is around growth. And we've obviously had several questions about this topic. Specifically, the outlook for continued strength in new business, the funding of that growth and Burford's 2030 growth target. To bring the crux of these together because we really have had many and with specific thanks to shareholders, Denny Jasper and Namen, there are 3 questions: First, what are Burford's growth prospects as we stand today? Second, will organic cash generation be sufficient to meet the funding requirements of this growth? And third, do you still view the doubling of the portfolio base between 2024 and 2030 as achievable?

Great. Thank you very much for those questions. So what are our growth prospects? Our growth prospects are strong. The business has been growing steadily over time. And really, the catalyst for that growth comes from 2 places. The first place is that law firms just cannot help themselves from significantly increasing their fees every year. If you look at the large U.S. law firms, what are sometimes called the AmLaw 25, which refers to the 25 largest law firms by revenue in the United States or the AmLaw 10. You see them both here on the chart that Rob has just put up. You'll see that they have been increasing both their revenue and their profits by double-digit numbers year over year over year. And the way they're doing that, of course, it's not as though these firms are becoming more efficient. They're doing that by raising their prices to their customers. And so if you are a business and you are needing to avail yourself of legal services as basically every business in the world does, you're paying more and more and more every year for what is something that is really collateral to your operating business. And that is the fundamental reason that there is a strong market demand for Burford services. Because if you're running a business and you're now confronted with the idea that it's going to cost $10 million or $20 million or even more to go and pursue a single claim. We're now seeing claim costs going up to even as much as $50 million. Those kinds of numbers even for large, well-capitalized businesses are very distracting from their core business. They would rather take those pretty substantial sums and invest in growth or frankly, these days, invest in AI as opposed to investing in litigation. And so the opportunity to offload those costs onto a specialist balance sheet like the one we have is attractive to companies, and we've seen no pause in the growth of demand for our services globally. So I think there are strong growth prospects. That's reason number one. And I said there were 2 reasons. Reason number two is it just makes good sense from a public company -- especially for public companies, from a public company P&L perspective. Getting legal costs off the P&L is a shareholder value-enhancing choice. Paying for legal costs on your P&L is a shareholder value destroying choice. And so an increasing number of companies are recognizing that dynamic. Now the second part of the question, if I remember correctly, was what is that -- what is the consequence of being able to fund all of that growth from organic cash generation? And the answer to that is, of course, to some extent, a will see answer. We -- months before we had an outcome in the YPF case, and we've said this publicly before, we had moved the business onto a footing that we were no longer going to solve gaps between the resolution of cases and the generation of cash proceeds from them on the one hand and the financing of brand-new matters on the other with debt. So for several years, what we were doing is we were basically saying, gee, we've got a lot of growth coming along. And we really want to do all of that growth. And because of -- mostly because of the pandemic, realizations have been slower, and so we'll close the gap with some debt. And we had alerted the team that we had reached the end of our tolerance for doing that with the most recent debt issuance that we did in January. And so we have been, for a while, moving in the direction of wanting to be self-financing. The question of how that's going to go is really a question of a pretty obvious one. It's a question of what's going to happen in terms of cash inflows in any particular period and what's going to happen in terms of cash outflows. The good news is that we are completely in control of that dynamic. Just like any other investment vehicle, we can simply not do the next new opportunity that comes to us if we don't think that we have the available cash to finance it. Obviously, we would like to do every desirable opportunity that comes to us. But there's no adverse consequence on the business other than foregoing the opportunity if we feel as though realizations have not kept pace with growth. And we're hopeful that, that we won't find ourselves in that position. And as a result, we haven't seen any suggestion at present that we can't continue to fulfill this target that we laid out at Investor Day.

Thank you, Chris. Our next question is on the subject of growth and leverage, and it comes from Ilia [indiscernible]. Following the YPF write-down, leverage metrics increased materially despite substantial liquidity and having no significant debt maturities until 2028. What are your capital allocation priorities over the coming period, including target leverage and what milestones would indicate leverage has returned to a level where you can focus aggressively on value creation rather than balance sheet management.

Well, I suppose I don't entirely accept the premise of the question because I don't think that we have pivoted away from value creation and towards balance sheet management. I think that there needs to be a balance between those things. We would like over time to delever the business, and we would like to continue to grow the business. And our hope, and we've laid out previously in the Q1 call, our hope is that we will be able to do both of those things. And as I just said a moment ago, we have the levers available to us to manage the possibility that there will be mismatches -- timing mismatches along the way. But the reality is we've got an enormous portfolio of existing litigation matters. Billions of dollars worth, hundreds and hundreds of cases. And the simple fact of the matter is those cases are going through the process. We're not seeing degradation in our loss rate. And so that implies that those cases will turn into cash. The question simply has been in the business, when is that cash realization going to occur? And as we all know, that's been happening somewhat more slowly in the last few years as we've come out of the pandemic with significant backlogs compared to the pace of the system before the pandemic. And I think over time, that has to repair itself because the simple reality is that our business and civil society, frankly, rely on having a viable court system. And if it takes simply way too long to get cases through the court system, that starts to call into question the viability of those dispute mechanisms that are really essential to the functioning of business and civil society. So I don't think this is a sustained long-term issue, but I do think it's an issue in the current year, and I think it's an issue in the immediate future. And so we'll just have to manage through that by being prudent on both sides. Jordan, do you have anything you'd like to add there?

Sorry, Chris. No, I think the simple answer with respect to -- this is, as you mentioned before, in the answer to the first question, which is we never operated the business with a day in which YPF was going to resolve or with respect to using the cash flows to address the capital structure in the immediate term. And so when you think about how we operate going forward, there isn't -- obviously, there's a constraint on the incremental leverage, but that wasn't something we were planning to do to begin with. And so as the business continues to perform, the generation of cash flows as well as the building of the book and retained earnings will bring the actual GAAP leverage number back into normalization?

Thanks, Jordan. So the next question is actually related to realizations and also comes from [indiscernible]. Many investors understand Burford's value depends on the conversion of portfolio assets into cash rather than on any large single matter. Can you help us understand how you view the pace of realizations and cash generation over the next 12 to 24 months? And specifically, what key indicators should shareholders monitor to determine whether the portfolio is performing as expected?

Thanks. I think that there are a few things that I look at, which is -- which include, obviously, the pure actual amount of cash that we're generating from divestments. I look at the weighted average life of matters, both the concluded weighted average life and also the weighted average life of active deployed capital. And you'll see that those numbers have moved up slightly. And that's because it takes -- because the portfolio is so large that you need even slight movements require a fair bit of underlying activity. The fact that you've seen those numbers move up is certainly suggestive that there is delay going on in the system. And so what we do is we don't look at this on an aggregate basis when we operate the business internally. We get to an aggregate number by literally going case by case and assessing in each particular case, what the prospects are of that case moving towards an ultimate realization during the period that we're analyzing. Now the problem with that, and I call it a problem, but bear in mind that the reason a number of people are invested in Burford is because our cash flows are uncorrelated to markets. And not only are our cash flows on markets, stress in markets is usually good for us on a long-term basis. So the price of that lack of correlation is a lack of predictability about cash flows because we are effectively takers of timing. We are -- we cannot control timing. And often, our clients can't control the timing either. As a general truism, plaintiffs are eager to get to a result in their cases and defendants are eager not to have that happen because getting to a result usually means a defendant is paying money. Bear in mind the defendant pays money in around 90% of the cases that we do. So it's not surprising that you have that tension. And then on top of that, you've got the operation of the court system. So when you have a case that is running through the court system, the question is: a, is the defendant at some point going to decide that it's in its interest to settle that case instead of continuing to litigate. And you can see from the chart on the screen that our settlement rate is floating in the high 70s. So what that says to you is that most of the time defendants are going to settle these cases, but the timing of when they do that is in their hands, not in ours. And if they don't settle the cases and the 20% of the time that they don't or so, 22% of the time they don't, those cases are going to be subject to whatever is going on in the court's calendar. When can a judge have -- find time on the docket to have enough time for trial? When can the judge find time in their busy lives to go and write the opinions that are necessary. And it's not like -- I sometimes use the analogy of -- to try to express delay about 4 lanes of traffic merging into 2. But it's actually a little bit more complicated than that because our cases tend to be larger and more complicated than the average piece of litigation. And so if you're a U.S. federal judge today, your docket is full of immigration appeals because of the political dynamic in the United States. They're full of criminal matters and so on. All of those matters are much easier and faster to resolve than ours are. And so an immigration case comes along and says, okay, we need a 3-hour trial. That's pretty easy to fit into the docket. We come along and we say, we need a 3-week trial or we need a 3-month trial. And that's much harder to fit into a congested docket. And that explains some of the reason that you see this unpredictability. So -- but the simple answer is that this stuff will ultimately resolve. And as it resolves, it should produce cash because we've got, as you can see here, pretty consistent outcomes.

We have a question from Mark on portfolio returns. Is it fair to expect that the trend of the last 4 to 5 years being a small proportion of adjudications relative to settlements, combined with lower ROI on adjudications will continue. Alternatively, do you see reasons why adjudication ROICs should trend back towards the higher levels of the past? What actions is Burford taking or can take to reverse the recent settlement adjudication trend?

Well, I don't think there's anything that we can do. Again, we are takers, not creators of the litigation dynamics. The question that we've raised publicly a number of times, though, when you look at the chart on the screen and you look at the increase in settlement rate, the question is whether that -- is that a permanent change in our portfolio? Or is that a temporary change affected by backlog? And there's obviously a correlation between settlement and return. If I have a claim for $100 million against the company, that company -- I could go to trial. And if I'm successful, I could win $100 million. If I settle the case, there is no way that the defendant company is going to pay me $100 million in the settlement. They're going to apply a meaningful litigation risk discount. And so the settlement value of that case will be materially less than $100 million. So the more cases that settle, the -- on the one hand, the lower the returns are compared to going to trial. On the other hand, settlements tend to be faster and they completely derisk the case. And so there are pros and cons to both. But candidly, it doesn't really matter where we sit on the pro and cons dynamic because we're not the decision-makers there. Ultimately, the decision of whether to settle or not is a decision that's being made by the defendant more than anything else, although our clients certainly has something to say about that. And we'll see where that all ends up. But I don't know the answer today. But I would not -- I would encourage you not to be focused the way the question was on the headline number. The reality is I'm happy with either outcome. I'm happy with a higher settlement rate and lower returns because I also am taking less risk, less duration and I'm turning my capital faster. And I'm happy with cases going to trial because we like the quality of the portfolio. So I'm happy with cases going to trial and generating higher returns. And historically, we've had a mixture of both.

Thanks. Next question is on duration. Weighted average life of active capital has increased from around 2.3 years historically to 3.4 years today. To what extent is this driven by temporary factors such as core backlogs and slower litigation compared with a deliberate shift toward larger and more complex cases. More importantly, should investors expect capital duration to trend back to historical levels or is 3.4 years thereabouts balance the new norm?

Well, as I was saying earlier, I think the delay that has crept into the system is unacceptable systemically. It will drive people out of litigating disputes, which is not where we want them to be as a society. You need an effective dispute resolution mechanism. So I don't think that it can be a long-term trend. I think courts and governments are going to need if they can't bring that under control fairly soon, are going to need to take alternative steps. And those are fairly easy steps to take. They involve just hiring some more judges and so on. And you've seen that happen in other areas of the litigation system that we don't touch. So I referred to U.S. immigration a moment ago. You've seen the government hire a whole batch of new immigration judges. And so it's certainly the case that if we are seeing systemically unacceptably long durations in litigation that there are ways to address that structurally. So I don't believe this should be a new normal. I also don't think that it's necessarily the case that just because the case is larger and more complex, it necessarily takes longer. I think it's a question, again, as I said earlier, of docket management and availability of resources. So -- and there is also not necessarily a correlation between complexity and size on the one hand and court time on the other. And the poster child example of that is YPF. YPF only ever occupied 3 trial days of court time. because the underlying merits of the case were very straightforward. There were legal issues that needed to be briefed. But in terms of what needed to be resolved in a trial, which is what really takes that court time, that was quite a straightforward case. Whereas we've seen cases where tiny fractions of the amount at stake compared to IPF would take many multiples of the number of court days because there were complex contested factual issues. So there's not the kind of direct correlation that the question might suggest.

Thanks, Chris. We've got a related question, which you've answered in part, Chris, but I think it's an interesting one. And so I'll persevere with it, and you can see whether you think you have answered it to the extent you'd like. And it relates to effectively risk asset -- risk asset selection and duration. And it comes from [indiscernible]. Since the reference to trying a few more Petersens in Burford's 2023 shareholder letter, would we -- sorry, we would expect the share of definitive commitments to higher-risk assets, particularly those in the 25% plus risk of -- model risk of loss band to have increased. As the weight of these assets grow, our riskier assets -- is there a material possibility that the overall portfolio weighted average life will rise meaningfully above current levels.

No. Again, I don't think that you can point to that kind of correlation. And I don't -- that's not how I think about the dynamic. There is -- certainly, we look at those issues when we take on cases. So if a client shows up with a case that is very complicated and is going to require very significant effort to take it to trial and it also isn't worth very much money. That's a case that we're less likely to be inclined to do even if we think the case might be quite strong. So -- but on the other hand, you don't often see cases like YBF where the claim was very straightforward and the damages calculation was very straightforward. So I think I've sort of largely addressed the point before.

Thanks, Chris. Okay. Let's take a drill down to the next layer. And we've got a question on the protein claims family. It comes from Ben Jasper. Can management provide a definitive update on the trial time lines for the Sysco antitrust protein cases. If an outsized settlement or travel damages award occurs in late 2026 or 2027, is that single realization large enough to unilaterally cure the current book equity deficit?

Well, the short answer to the first part of the question is no. When you talk about the Sysco cases, you're really talking about a series of different proteins. There's chicken, beef, turkey and pork. And each of those proteins has been assigned by the multi-district litigation panel to a different court. And so each of those cases is being supervised by a different federal judge and each of them is moving at its own schedule. And the other thing that makes these kinds of cases, these kinds of U.S. antitrust cases a little bit more complicated is that the way these cases tend to start is with a class action. And so -- and the way class actions work in the United States and increasingly in the United Kingdom with the Competition Appeals Tribunal is they happen on what's called an opt-out basis. And so you start off and one representative plaintiff will get together with one set of lawyers, and they will file a case on behalf of every similarly situated plaintiff. So every person who bought bananas in the year 2026, that's going to be a class of people for whatever reason. I'm making this up, obviously. And so that case will go along. And ultimately, that class case will proceed to adjudication or settlement and the members of the class will share in the damages that are awarded. However, there is the prospect for individual claimants to opt out of being part of the class and to bring their own parallel proceeding. And it's quite common in large U.S. antitrust cases for corporate plaintiffs to exercise that opt-out right. And the reason that they do that is that if they have significant damages, they are more likely to be able to achieve a higher settlement level, a higher recovery percentage of those damages than the class will just because of the vagaries of the way these things are litigated. And so it's not only that we have 4 proteins proceeding in different courts on different schedules, it's also that we have the class cases sometimes proceeding separately from the [ opt-out ] cases. So for example, in Turkey, there's going to be a trial this fall in the class case, but that there's not going to be a trial at the same time in the opt-out cases. And in some instances, the opt-out cases actually go back to their home courts to be tried. So the whole thing is a reasonably complicated matrix of what's going on. And the question really in those cases is, is there a catalyst that will bring the plaintiffs and the defendants together in some kind of settlement negotiation? Or will you need to go through some sort of bellwether style trials where you're trying 1 or 2 of these claims to see what juries think of them to be able to ground a settlement dynamic more reasonably. So I think the -- no pun intended, I think the jury is still out. about how and when these cases resolve.

A couple of questions on YPF, the first from Bruce Anderson. How can the second circuit decide the YPF case should not be heard in the United States course and ignore the fact that in 2018, the Supreme Court refused to interfere with the second circuit's prior decision to allow the case to proceed in the Southern District of New York.

Well, if you didn't -- if I didn't know otherwise, I would have thought that, that was a planted question from somebody because it completely expresses my view. I think that the decision was outrageous. I think it was unjustified. Unfortunately, we caught the very low odds but very high-impact idiosyncratic outcome that sometimes occurs in litigation. It seems pretty clear from the face of the judgment that the panel of the second circuit was affected by the size of the judgment and its impact on the Argentine economy. And that, in my view, colored their legal analysis. So I don't think that there's a good way of rationalizing the strands that Bruce just brought together. I think that was quite a poor decision, and it's been the subject of some public criticism.

The second YPF question, Chris, is as follows: Following the Second Circuit decision, the firm has signaled the pivot to international treaty arbitration given that [indiscernible] proceedings against sovereign nations routinely take upwards of a decade and carry substantial legal fees, what is the specific forward-looking budget allocated to this arbitration and what is the expected drag on operating margins.