Burford Capital Limited

Hello and welcome to the Burford Capital second quarter 2026 financial results conference call and webcast. All lines 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, please press star one on your telephone keypad. I would now like to turn the conference over to Josh Wood, head of investor relations. You may begin.

Thank you, Sarah. Good morning, everyone. We hope you're all enjoying a nice summer, and 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, John Molot, 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 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 and our filings with the SEC. will also be referring to certain non-GAAP financial measures during the call. Please refer to today's earnings materials in our filings with the FCC for additional information, including reconciliations of these non-GAAP financial measures for the most directly comparable GAAP measures. And without further delay, I'll turn the call over to Chris.

Thanks very much, Josh, and 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. And 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. And 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, and 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 in Jordanville as well about the balance sheet later in our presentation. But what that does, the combination of cash on hand and cash generation gives us real optionality for this business. And 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 pretend 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. And so 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 the 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. And what that also does is effectively right-size 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. So that's a cross-borderized 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. And there has been a fair bit of sort of litigation in Germany, litigation and consideration in the civil courts of just exactly how litigation finance and group claims are going to work. And Germany is not the fastest place in the world in terms of making things through the court process and getting to decisions. And so 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 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. And then, you know, back in the U.S., we have, you know, 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 and not only has it had cash activity but We've had better than expected outcomes as we've been going through that portfolio. And then, 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 at the Competition Appeals Tribunal certified a $5 billion claim, a $5 billion talent claim, I should say, against Google on behalf of UK businesses that were overcharged for their search advertising. It's been publicly disclosed that we're funding that claim on a multiple basis, and so 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. But 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 an active operation in court systems all over the world. And that portfolio is diversified. It's hundreds of cases, not just a few large cases. And if you turn to slide 10, you'll see an example, you'll see some data about that diversification. So 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. And 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, you know, a somewhat slower than average approach to this. But that level of diversification that you can see in the graphic I think is really very compelling. Now, when people see that modeled number there in the middle of that circle, 110% ROIC, and then they see the actual 82% performance that we've generated historically, you know, they reasonably ask about that disconnect. And if you turn to slide 11, we've done a little, you know, snippet of analysis that goes beyond the basic historical data that we have historically shown you. because the reality is one number does not tell the story in this business. And so we thought we would dive a little bit deeper to show you why we remain optimistic about this portfolio and its future performance. So this is just one component of what's in there. But 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 ROA. and 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 a couple hundred million dollars out the door and losing it in a binary risk case. And so 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 the ROICs are a little bit lower than our sort of historical averages and they're quite large in the computation. So if you just take these six assets alone out of the historical ROIC computation, it goes from 82% to 99%. So you can't just, I think, look at the one historical number representing 17 years of history. And you do have to look at, you know, the size of the case is a whole bunch of dynamics. As many of you know, we provide extraordinarily detailed data about the portfolio in our website table. And that's where we get these kinds of insights. Now, when we're talking about these large and somewhat lower returning deals, while we remain very committed to growth in this business, I will say that one thing that we have done in response to the YPF events earlier this year and the market feedback around liquidity is we have somewhat reduced our willingness to do some of these very large but only moderately profitable deals just with an eye to balancing growth on the one hand and liquidity and deleveraging on the other. Turning to slide 12, This is our usual slide about new business. And you can see some of the impact of what I've just described on the mix of new business. So if you just look at the headline commitment number, which, as I've said before, is not the number that we look at internally, but that number is below the 2025 run rate. But you have to look at the mix here. and if you look at the red bar, which is presumably the most profitable thing that we do, the red bar there has well more than doubled, while the blue bar went down very significantly. So if you were to look at our internal metrics, you would not see a decline of the visual kind that you see on the right-hand top side of this graphic. because the relative profitability of those bars is significantly different. And so as you can see there, we've well more than doubled the size of the red bar while significantly reducing the size of the blue bar. So that's consistent with what I was just describing before. And also probably, I would say, a little bit of firm, you know, firm stasis for a little while after the YTS decision. and John is going to chime in now and have a little bit more commentary about the portfolio.