Burford Capital Limited

Hello and thank you for standing by. My name is Bella and I will be a conference operator today. At this time, I would like to welcome everyone to Burford Capital Third Quarter 2025 Financial Results Conference Call. All lights have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Josh Wood, Head of Investor Relations. You may begin.

Thank you, Bella, and good morning, everyone. We appreciate you taking time to join us to discuss Burford's third quarter results. On the call, we have our Chief Executive Officer, Chris Bogart, our Chief Investment Officer, John Malo, and our Chief Financial Officer, Jordan Leach. Earlier this morning, we posted a detailed earnings presentation, which we'll refer to during the call, and also filed our Form 10-Q, both of which you can find on our investor relations website. 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 more information regarding these risk factors, please refer to our earnings materials relating to this call posted on our website, and 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 in our filings with the SEC for additional information, including reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures. With that, I will turn the call over to Chris.

Thanks very much, Josh, and hello, everybody. Thank you again for joining us today. We're going to do this call today a little differently than usual. Before we turn to Jordan and the usual financial review, I would like to cover a few different topics with you. Let's start with YPF, given the market reaction to last week's oral argument. The YPF case was adjudicated in the Southern District of New York. That's the federal trial court in Manhattan. It is one of the highest quality courts in the United States. Court-wide, its reversal rate on appeal is 6.28% over the last 10 years. The YPF case was decided by Judge Preska, the former chief judge of the Southern District. Her individual reversal rate is 4.63% over the same period. So the statistical reality is that a judgment from this court, and especially from Judge Preska, is likely to be affirmed on appeal. Because of some of the questions and comments from the panel at Oral Argument, the market seems to have freaked out a little bit about the risk of the case being dismissed on the legal doctrine known as forum non-convenience, literally an inconvenient forum. Forum non, as it's called, is a discretionary doctrine It allows the court only once it has determined that it has jurisdiction, which is settled law already here. It allows the court to send the case to another more convenient court for trial. This occurs most often when there is some logistical issue going on. For example, the witnesses can't travel to the U.S. courts for trial. You know, a sort of folky example of form non is for Jordan and me to go to a conference in Arizona and get into a fight. and for Jordan to punch me in the nose and for me to sue him for damages. That case could be brought in Arizona because that's where the punch happened. But given that Jordan and I both live in New York and never otherwise go to Arizona, Jordan could try to argue that it would be more convenient for the case to be heard in New York and not in Arizona. That's really the essence of what Forum None is all about. And although anything can happen in litigation, it would be extraordinary for the appellate court to dismiss the YPF case on this ground, on forum non-grounds now, for several reasons. First of all, the trial judge has discretion to decide forum non-motions. And Judge Preska twice exercised her discretion to deny two separate forum non-motions over time. To reverse her decision, The appellate court would not only have to disagree with her rulings, but also conclude that she abused her discretion in deciding the matter. That is a very high standard and it is very hard to satisfy. Second, there is a substantial body of law out there that says the further along a case goes, the less viable a forum non dismissal is. It's one thing to send the Jordan Chris case to New York as soon as it's filed. It is quite another to do so after 10 years of litigation, a trial, and a judgment. Indeed, it would be extraordinary to dismiss a case after trial and judgment. As the plaintiff's lawyer, Paul Clement, who is the former Solicitor General of the United States, said during the oral argument, the only case example Argentina could find was 38 years old and from another circuit. Its facts are nothing like the facts here. with a New York Stock Exchange issuer being sued in New York by U.S. shareholders. In fact, the old case was about a Peruvian sailor who died on a Peruvian ship that just happened to have been docked in Texas at the time. Every single other element of the case was Peruvian, and that's the best case Argentina could find 38 years old. Third, Argentina would also have to show substantial prejudice from having to litigate in New York. For example, by not being able to have witnesses show up to testify, which was a problem in the Ruby in case that is simply not an issue here. Every witness showed up for trial and Argentina suffered no prejudice at all from litigating in New York, which it has been doing for decades in numerous litigation matters. You know, in short, although we don't litigate cases in the press and while there is always litigation risk informed on was not the only issue on appeal. It would be exceptional for this case to be dismissed out of the U.S. courts at this juncture and sent to Argentina on farm non-grounds. And even then, by the way, wouldn't be the end of this case. The market seems to us to have completely overreacted to the appellate argument. As we said in our release before the argument, trying to read the tea leaves in an oral argument is a perilous course. Of course, it would be lovely if all the judges came in and said loudly and in unison, of course you win. But that is just not how the process works. Judges ask probing questions of both sides as part of the Socratic process. So now we wait for the court's decision. That will take months. But we remain bullish on this case. The YPF case is only part of our business, and it's not the largest part. And we are excited about the broader business and its growth and performance potential. We're continuing to grow organically and inorganically. And we're confident in our 2030 plans as laid out in our April investor day. Looking at slide nine, we are having a great year for the business. Definitive commitments up more than 50%. The overall portfolio is up 15% already year to date. That's 20% annualized. That is well above the level to achieve our goal of doubling the business by 2030. I don't care much for quarterly results, but looking just at the third quarter, deployments were up 61%. And this slide that we're looking at just underlines the new business point. We have done a lot more business this year in dollars and in number of cases than last year. And as we've discussed before, the thing that makes the difference quarter by quarter is the presence of big cases. And we've already had more than our fair share of those this year. As Jordan will show you later, a lot of that new business is also in the nicely high returning zone on a modeled basis. In other words, we have ceded the ground for substantial realizations in the years to come. And don't forget the overall potential of the portfolio. We showed you modeling at Investor Day, estimating $4.5 billion of potential realizations from the portfolio as it was then, and we keep on growing it. let's shift from new business to actual realizations and move to slide 10. we are running ahead of last year in the volume of realizations and we're making new realization records on a rolling average basis that's consistent with how we are feeling about the portfolio that things are moving they never move as fast as we would like and john is going to address this a little bit more in a few minutes but they are moving And you can't look at this on a short-term basis. This is always a long game. Get results. In fact, the way the average life of both the concluded book and the ongoing portfolio are pretty stable. Around two and a half years for the former and a bit over three years for the latter. Does every litigation drive us nuts? Sure. And especially because delays can cause accounting noise. as occurred this period when some duration extensions negatively affected the unrealized line. No court ever calls and says, hey, good news, we've moved your trial date up by six months. So while delay and a lack of predictability is something that is a constant frustration to anyone involved in litigation, it is simply how the system operates. And frankly, we are good at managing through that process and structuring deals around the inevitability of delay. Our focus really has to be in running this business on whether bad things are happening, like a spike in losses, which simply isn't happening, and not whether the system is working as it has for the entire 35 years I've been involved in what are always delayed litigation matters where, frankly, no deadline ever actually holds. And, you know, notwithstanding delays, notwithstanding uncertainty, our IRRs are also remaining steady at 26%. and that's now on $3.6 billion of realization. So with that and loss rate steady, we're feeling very good about the portfolio. Let me add just a bit of color to those bare numbers as a cross-check. As we showed you at our investor day, the business relies on big cases for a material portion of its growth and performance. Whether we do a new big deal in any period will affect our new business numbers, And whether a big case concludes or has forward progress will affect our realized and unrealized gains. As we have said since the beginning of time, this doesn't happen smoothly. And as you can see, our realized gain numbers are down, suggesting that we haven't had a big case realization yet this year, although we have actually had more case realizations in total this year than last year, just not as big, just not as many big chunky ones. However, we have lots of good forward progress. As just one example, we've had four large case wins so far this year, each of which, if upheld at their current levels, would generate more than $100 million in proceeds for us. Those cases aren't over, and as a result, their value is nowhere close to being reflected in our accounting numbers, but they offer a window into the potential performance power of the portfolio. And at the same time, we have not had any case losses of anything approaching that size, because of the continuing positive asymmetry in the business. Another important point about the business reflected in slide 11 is the very significant spread between our book value and our expected value. That disconnect exists because of the nature of our asset class. Value occurs at the end of the case because that is when the binary nature of litigation has ended in either a trial conclusion or settlement. Our history demonstrates that we know how to identify that value and to do so much earlier in the process than the accounting will actually drive. That being said, we can't just create income or gap value in a case by merely investing. We need the case to run its course. And what that leaves is a disconnect between the likely ultimate value of our assets versus the accounting value, as you can see with this graphical illustration of the point. If our track record holds true, there is a significant amount of embedded value in our assets yet to come. So in short, John and I are passionate about business and the portfolio. Investors can take confidence in our strong alignment of interests as large shareholders and committed executives. Our personal financial performance is directly tied to the success of the portfolio and to the performance of the stock. We recognize the needing to take the long view and put up with volatility, like the volatility you've seen in these quarterly numbers, isn't the perfect fit for quarterly earnings-obsessed public markets. But that is just the way this business works, and that is the price of high uncorrelated returns. Turning more directly to the market, shareholders have, I think, every right to be unhappy with our share price performance, just as we are. As we all know, markets can become obsessed with elements of a company, and they can attract an undue level of attention, often masking more fundamental valuation presets. That seems to be what has happened with respect to the YPF case. When a company's share price goes down, especially when it declines in what seems to be a fashion unrelated to its fundamental value, shareholders tend to respond by wanting management to buy stock or for the company to do a share buyback. Here, management has indeed been buying the stock because we think it's a good value. In fact, John and I bought more than 1.3 million shares of Burford stock in just the last year. But we don't think it's prudent at this moment, much as we think Burford shares are cheap, to use corporate funds to buy back stock. This is something we've talked a lot about with the board, with shareholders, and with our advisors. And here's our reasoning, and slide 12 tries to help make this point. We are continuing to grow this business. In fact, we are sticking to our prediction of being able to double it by the end of 2030, as we laid out yesterday. And given that we don't reliably have incoming cash flow from realizations at any particular point in time to meet our growth capital needs, we fund the gap with debt. Because the asset cash flow isn't predictable, we don't want to take too much leverage. But we think the current level of long-dated maturities is fine, and we have confidence in the portfolio performing over time to meet our debt service needs. However, diverting cash to a buyback changes that equation because we're now essentially funding the buyback with debt, but we're removing the cash and its earning power permanently from the business. This isn't just about accretion. So, for example, given our returns and the average life of our assets, we would expect $200 million today, as this slide shows you, to generate about $800 million of cash by the time we need to repay the underlying 33 debt. That's a comfortable position. But if we divert the $200 million to a buyback, we will have to find all that repayment capacity elsewhere. And at some point, that becomes less comfortable. I'm not saying that we couldn't do that. Our leverage is low enough that we probably could. But it doesn't seem very prudent, and it would certainly add risk to the business. And when investors sit back and think about that dynamic, they tend to agree in our conversations with them. To be clear, we're not a closed book on this point, coming back to our shared frustration with the stock price. And we will keep on discussing it ourselves and continue to welcome shareholder feedback. I think it's clear to the market what we believe about the business and the share price. And so I don't think a signaling release where we do a little buyback does a whole lot for us. And a big buyback just seems imprudent when we talk through the issues. But as I said, it's something that we will continue to talk to people about and continue to listen to shareholder feedback on. And then just before I turn you over to Jordan, I just highlight slide 13. First of all, to highlight the appointment today of Bank of America, as a corporate broker for us, representing yet another step forward in both the US and the UK markets, and just more evidence of our maturity and market leadership. I'm not going to spend time on the rest of this slide orally, but it's worth a look for those of you based in London, where the LSE, frankly, never ceases to lose its capacity to amaze me. And with that, I'll turn you over to Jordan and John and look forward to taking your questions later on.