Burford Capital Q3 Earnings Call Highlights

Key Points

• Year-to-date revenue more than doubled versus the same period last year, with $116 million in capital provision income and a 13.4% annualized return on equity. Management said rising interest rates hurt non-cash valuations; without that impact, revenue and capital provision income would each have exceeded $200 million.
• A post-quarter settlement generated about $64 million in cash and returned more than 11 times Burford’s investment. Other major matters include a $600 million-plus arbitration award against Cameroon, a large Apple patent verdict, and ongoing proceedings in the YPF case; executives emphasized that outcomes and timing remain uncertain.
• Burford reduced total debt by $100 million, while quarter-end liquidity stood at $514 million. Management is weighing further deleveraging against new investments and has prioritized liquidity over some lower-return opportunities.

Burford Capital NYSE: BUR reported higher year-to-date revenue in its third-quarter earnings call, while executives said interest rate movements weighed on non-cash valuations and the company reduced debt by $100 million.

CEO Chris Bogart said revenue for the year to date was more than double the comparable period last year. The company reported capital provision income of $116 million and annualized return on equity of 13.4%, despite what Bogart described as the largest negative interest-rate impact Burford has experienced.

The company earned $0.10 per share, bringing book value to just under $4 per share, Chief Financial Officer Jordan Licht said. Year-to-date net realized gains were $82 million, compared with $93 million a year earlier, while asset management income rose to $29 million from $21 million.

Bogart said changes in discount rates affect interim fair value accounting rather than the cash ultimately generated by a case. Without the interest-rate headwinds, he said, capital provision income and revenue would each have exceeded $200 million, and annualized return on equity would have been well into the 40% range.

Fourth-quarter settlement and case developments

After the third quarter ended, Burford completed a settlement that generated approximately $64 million in cash and returned more than 11 times its investment, according to executives. The asset had been recorded at just under $31 million in capital provision assets at the end of the third quarter, Licht said.

Bogart said the case illustrated why an older litigation investment is not necessarily a poor one. An important appellate ruling in 2020 set the case up for trial, he said, but the process took another six years amid pandemic-related court delays.

Chief Investment Officer Jon Molot said Burford has now generated more than $4 billion in cumulative cash realizations since the business began 17 years ago. He cautioned that the timing of case outcomes remains unpredictable from quarter to quarter.

Bogart also discussed two other litigation developments. An arbitration tribunal awarded more than $600 million in an African mining matter against Cameroon, with Burford entitled to approximately one-third, he said. The matter still faces further proceedings and enforcement.

A patent case involving Apple produced what Bogart described as the largest U.S. patent verdict in history. He cautioned that a contested verdict can be followed by post-trial proceedings and an appeal. Licht said milestones are generally accounted for in the quarter in which they occur, but did not specify the valuation impact of that verdict.

On the YPF case, Bogart said nine third-party amicus briefs had been filed with the U.S. Supreme Court. He said the matter was likely to go through arbitration, although proceedings in U.S. courts had not fully concluded.

Debt reduction competes with new investments

Burford retired its entire 2028 debt maturity and issued new 2029 debt during the quarter. The transactions reduced total debt outstanding by $100 million and lowered the debt-to-tangible-book-value ratio by roughly one-third of a turn, executives said.

Liquidity was $514 million at quarter-end, down from $621 million at the start of the year, Licht said. The company also had $120 million due from settlements, excluding the fourth-quarter settlement.

Management said it is balancing further debt reduction against opportunities to invest in new cases. Licht said year-to-date definitive commitments declined from a year earlier, partly reflecting a recent decision to prioritize liquidity and deleveraging over opportunities offering more moderate expected returns.

Bogart said the company has been less inclined this year to pursue some larger, lower-risk transactions with comparatively lower returns. He declined to provide a target for quarterly new commitments. Licht said Burford does not have a fixed minimum liquidity figure or an exact debt-to-equity target.

The fair value of assets in the principal finance portfolio rose from $2.3 billion to just under $2.5 billion during the quarter, Licht said. He added that the company typically deploys roughly $100 million per quarter, though the amount varies.

Expenses and outlook

Licht said $28 million of the company’s $31 million in year-to-date case-related expenditures represented investment costs that could not be capitalized under accounting rules. Approximately $17 million to $18 million of that amount related to costs deployed in a previous year that were unwound and expensed this year.

Asked about $10 million in annual compensation savings, Licht said the reductions were predominantly in middle management and that Burford did not expect them to impair its ability to manage the portfolio or pursue growth.

Management did not provide an updated figure for modeled realizations. Licht said Burford updates that estimate annually and plans to provide the next update with its year-end reporting.

About Burford Capital (NYSE:BUR)

Burford Capital Limited NYSE: BUR is a global legal finance and asset management firm. The company provides capital to businesses and law firms involved in commercial litigation and arbitration, allowing clients to finance legal expenses, manage risk, or access the potential value of legal claims and judgments without relying solely on their balance sheets.

Its services include single-case and portfolio litigation finance, post-settlement and judgment monetization, legal asset management, and corporate legal finance.

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