Burford Capital Ltd. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Portfolio Performance: 2024 was a strong year with high realizations and net realized gains. Realizations were $641 million, net realized gains $327 million, with three cases exceeding $50 million and four over $20 million. The portfolio grew at 15% CAGR over 5 years, topping $5 billion (Burford-only).
• Disclosure Changes: Transitioned to U.S. domestic filer, with enhanced Burford-only disclosure. Discontinued certain labels but maintained performance measures like ROIC and IRR. Highlighted difference between Burford-only and consolidated financials, including third-party interests like YPF and BOF-C.
• Targeted Realizations: Focus on money generated from new business, with 2024 new business targeted to have higher realizations than prior years. Balancing lower risk, shorter duration deals with higher potential return cases, while considering duration and risk profiles.
• Cash and Liquidity: Ended 2024 with over $500 million in cash and securities, $184 million in receivables. Leverage level at 0.8x, well below covenants of 1.25x.

Segment Performance

• Principal Finance: The portfolio has grown at a 15% CAGR over the last five years and topped $5 billion (Burford-only). Fair value of the portfolio excluding YPF is 31% of deployed cost. Realizations in 2024 were $641 million, with net realized gains of $327 million, a significant increase from prior years. The portfolio is diversified globally and across asset classes. Deployed cost has been growing at mid-teens rate.
• Asset Management: 2024 revenue was slightly lower than 2023, with $26 million in cash receipts compared to $32 million in 2023. Expenses were 43% lower than 2023, driven by reduced long-term incentive compensation. Cash receipts in 2024 were $26 million vs $32 million in 2023, and receivables were $184 million.

Guidance

• Portfolio Growth: Expected to continue growing at mid-teens rate, with deployed cost growing at similar rate. Targeted realizations for 2024 new business were a new record. Plan to provide more detail on targeted realizations at Investor Day in April.
• Investor Day: Will provide in-depth discussion on portfolio strategy, including balancing lower risk/higher return deals and duration considerations.

Risks

• Discount Rate Volatility: Unrealized losses in the quarter were driven by discount rate changes and movement from unrealized to realized gains. Rate-driven movements are non-cash and don't affect terminal value.
• YPF Appeal: Argentina appealed its liability in the YPF case, with ongoing enforcement processes in U.S. and international jurisdictions. Argentina has cross-appealed on the YPF corporate defendant.
• Regulatory Uncertainty: Potential regulatory changes, though management doesn't see significant impact on the business, with litigation finance seen as here to stay.

Question and Answer

• Q: Clarification on unrealized losses in the quarter A: Jordan Licht stated unrealized losses were driven by two items: discount rate changes and movement from unrealized to realized gains.
• Q: Nature of commitments and risk-adjusted returns of new commitments A: Jon Molot said there's diversity in opportunities, including U.S. commercial, patent, international arbitration, and European litigation. Monetizations and lower risk, shorter duration deals coexist with higher potential return cases.
• Q: Implications of new U.S. administration and YPF intervention A: Chris Bogart said no significant regulatory impact expected from the new U.S. administration. YPF appeal filing was deemed spurious by public response.
• Q: Target realizations and staff performance A: Jon Molot explained targeted realizations focus on money to be generated, incentivizing risk-adjusted returns. It's not reducing incentive for jumbo wins; nuanced measurement considers risk and duration.
• Q: LexisNexis data, business expansion, headcount, YPF oral argument A: Chris Bogart said Lexis data not directly applicable to portfolio. Business expansion detailed at Investor Day. Headcount roughly flat with moderate growth. YPF oral argument date expected soon as briefing concluded.