Burford Capital Limited 2026 Q2 Earnings Call

You may begin. Thank you, Sarah.

Good morning, everyone. We hope you're all enjoying a nice summer, thank you for taking time to join us today to discuss Burford's second quarter results. On the call, we have our Chief Executive Officer, Chris Bogart, our Chief Investment Officer, Jonathan Molot, and our Chief Financial Officer, Jordan Licht. Earlier this morning, we posted a detailed earnings presentation, which we'll refer to during the call, we also filed our Form 10-Q. If you've not already, you can find those materials on our investor relations website at investors.burfordcapital.com. Before we get started, just a reminder that today's call may contain forward-looking statements that involve certain risks, uncertainties, and other factors that could cause actual results to differ materially from those discussed during the call.

For information regarding these risk factors, please refer to our earnings materials relating to this call posted on our website, our filings with the SEC. We'll also be referring to certain non-GAAP financial measures during the call. Please refer to today's earnings materials and our filings with the SEC for additional information, including reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures. Without further delay, I'll turn the call over to Chris.

Thanks very much, Josh, welcome, everybody. Just before we started, I was reflecting with John that we've been doing earnings calls now for 17 years together at Burford. I think on probably almost every single one of those calls, we have said that we run this business on a cash basis, that cash is what's important to us, litigation at the end of the day meanders through its process until it ultimately gets to cash. On that basis, we had a really good quarter. We brought in a good amount of cash, significantly more than we've done in the recent past. We have lots of liquidity, that translates into real flexibility for us on the balance sheet with more than $700 million in the bank.

I'll talk a little bit more, and Jordan will as well, about the balance sheet later in our presentation. What that does, the combination of cash on hand and cash generation gives us real optionality for this business. What you'll see on this slide, and I'm on slide eight, what you'll see on this slide are our priorities. Cash generation from the portfolio. We're excited that the portfolio seems to have some momentum, and after various periods in the doldrums, still recovering from the pandemic, unbelievably, we see some real progress. Strong liquidity and balance sheet management and continued growth of the business. We're excited about where we are and about what the months ahead portend for the business. On slide nine, we've given you a few developments that have happened since the official close of the quarter.

We've done this from time to time, a snapshot of developments when there have been some significant levels of activity after the formal close of a period. What you see here is what I was talking about in terms of us having some excitement around momentum in the quarter. We had a strong arbitration result in a mining case that has been public and that people have been following for a while. This is a couple of African arbitration matters. The arbitral tribunal gave us an award, gave our client an award of more than $600 million. If that award were paid in full by Cameroon, we'd be entitled to $200 million or so of it. What that also does is effectively rightsize that entire portfolio. That was a two-case portfolio of cases against Cameroon and Congo.

The Congo case, somewhat bizarrely from our perspective, didn't succeed in arbitration, although there's a pending appeal for that case. That's a cross-collateralized portfolio, where the win will, if paid, make a huge difference to Burford. We also, and the rest of this hasn't been publicly announced, we have a sizable U.S. jury verdict during the month that again, if paid in full, would come close to $100 million for Burford. In Germany, we are a significant player in the German legal finance space, as many of you know, and we've been operating in Germany for quite some time. It's our largest market in continental Europe. There has been a fair bit of litigation in Germany, litigation and consideration in the civil courts of just exactly how litigation finance and group claims are going to work.

Germany is not the fastest place in the world in terms of making things through the court process and getting to decisions. We're delighted that after some years of litigation, the German Supreme Court, which is the highest court in Germany, released a decision resolving in our favor the ability to bring a series of cases using what is called there the assignment model, which opens the door to cases that are already on file and already have been percolated there with damages claims of more than half a billion dollars and giving us a really valuable future precedent. Back in the U.S., as many of you know, we have a number of portfolios with large law firms.

We've had one that has had quite a bit of activity this year, not only has it had cash activity, but we've had better than expected outcomes as we've been going through that portfolio. This didn't even make the slide, but just yesterday, and this has been covered in the press today, you'll see it on Bloomberg and on Reuters. The English CAT, the Competition Appeal Tribunal, certified a GBP 5 billion claim, a GBP 5 billion claim, I should say, against Google on behalf of U.K. businesses that were overcharged for their search advertising. It's been publicly disclosed that we're funding that claim on a multiple basis, that will take some time now to go through the rest of the process, but that's a major step forward in that case, and you'll see news about it in the press.

I'm not highlighting these to say that these are the only things that have happened in the portfolio. They're not. The portfolio remains active, and active in both directions. As ever, we have successes and we have disappointments. Happily, the successes continue to outnumber the disappointments considerably. The core point from all of this is to show that we have a big, diversified portfolio of litigation that is in active operation in court systems all over the world. That portfolio is diversified. It's hundreds of cases, not just a few large cases. If you turn to slide 10, you'll see an example, you'll see some data about that diversification.

What we've done here, and I don't think that we've done this before, but if you look at the graphic on the right, we have taken our modeled realization numbers that you've seen in the past and we've segmented them effectively by size. What you can see there is that we're not dependent on any one big asset. That instead, we've built this rather remarkable global portfolio that has many different things moving through the process, and many of those can be significant contributors to cash and liquidity here. It's just somewhat vexing that in addition to the usual unpredictability of litigation timing, that we have had a somewhat slower than average approach to this. That level of diversification that you can see in the graphic, I think, is really very compelling.

When people see that modeled number there in the middle of that circle, the 110% ROIC, and then they see the actual 82% performance that we've generated historically, they reasonably ask about that disconnect. If you turn to slide 11, we've done a little snippet of analysis that goes beyond the basic historical data that we have historically shown you. The reality is one number does not tell the story in this business. We thought we would dive a little bit deeper to show you why we remain optimistic about this portfolio and its future performance. This is just one component of what's in there. What you can see there, if you look at the chart on the left and the graphic on the right, is that very large deals tend to produce lower returns on invested capital, lower ROICs.

That's not surprising because we price to risk, and we're generally unwilling to put massive amounts of capital to work in very high-risk cases. We're just not enthusiastic, quite obviously, about putting $200 million out the door and losing it in a binary risk case. When we do big cases like that, while they may well produce nice nominal cash profits and strong IRRs, they do have a tendency to bring down our aggregate ROICs because their ROICs are a little bit lower than our sort of historical averages, and they're quite large in the computation. If you just take these six assets alone out of the historical ROIC computation, it goes from 82%-99%.