Hello, and welcome to the Burford Capital's First Quarter 2023 Results Conference Call. My name is Alex, and I will be coordinating the call today. [Operator Instructions]. I'll now hand it over to your host, Chris Bogart, CEO, to begin. Please go ahead.

Thanks very much, and hello, everybody. Thank you again for joining us. It feels like we've been talking to you a lot lately. I think this is our third call in three months. And welcome to our very first ever set of quarterly results, all part of the journey towards a full U.S. listing with the Stock Exchange. I'm joined as usual by Jon Molot, the Chief Investment Officer; and Jordan Licht, the Chief Financial Officer. We are going to adopt the process of having these calls be when we just do the quarterly numbers having these given our propensity to talk, we'll try to be brisker for these quarterly calls than we have been for annual calls. And then happy to take whatever questions you all have. So, I'm going to start on Slide 3. And I have to say the -- this slide and our numbers in general really do speak for themselves. It was an extraordinary quarter, and it reflected the -- exactly what we have been saying about what we're seeing out there in the court system and in the market in which we operate. We have seen a return to normalcy in the court system. We've seen our backlog of cases moving through the courts, and that's generating an increase in velocity, and that's translating into revenue. We've got numbers on the slide here that are consolidated numbers. As you know, those numbers get a little bit diluted by the fact that they include some consolidated funds. So, let me just for the sake of simplicity, frame Burford-only numbers for you. In other words, the portion of these numbers that accrues to Burford's equity shareholders like you and like me. And on a Burford-only basis, our revenue went up 214% to $315 million or so.…

Thank you, Chris. Good morning, good afternoon to everyone on the call. A little bit of housekeeping since this is our first time sharing quarterly results. So, I want to make sure everyone understands the comparative periods. So, on the income statement side, we're going to be comparing first quarter of 2023 to the first quarter of 2022. However, with respect to the balance sheet information, we are comparing the closing balance sheet at March 31, 2023 to the year-end balance sheet of 2022. This page highlights -- I'm on Slide 4. This page highlights results for Burford-only, and consolidated information can be found in the reconciliations in the appendix of the deck. And also note that all of the information for each quarter is presented under the revised fair value approach, which we've previously discussed. As Chris mentioned, this was a good first quarter, driven by significant progress across the portfolio and further bolstered by the YPF case and the related assets. Our business is episodic, but we hope to impress upon you today the momentum we're seeing in addition to the progress from YPF. From a top-line perspective, total revenues were up more than 200% driven by higher capital provision income as well as improved asset management income. Realized gains were up more than 250%. But when you exclude YPF, unrealized gains were up 55%. Burford-only net income was nearly $260 million, $1.17 per share. That's up more than $200 million or $0.92 per share compared to the first quarter of last year. And right now, we sit at total equity just shy of $2 billion and a book value of $9.10. That's a quick review of the numbers. We'll go deeper on some other pages, and I'll flip it back to Chris for Slide 5.

Thanks, Jordan. So, Slide 5 talks about new business. And again, just to emphasize, the first quarter for us is often very, very sleepy in terms of new business. There is no good reason, frankly, for this business to be seasonal. But sometimes, I joke in the fourth quarter, it feels sometimes like I'm running a retailer. The simple fact of the matter is that lawyers are driven by deadlines. Many, many, many law firms have their fiscal year ending at the end of December. And so, since we've been in this business, December has historically been remarkably busy for us. And then having done that, which often includes closing a number of deals on the 31st of December itself, lawyers then tend to sort of go to sleep for a while. So, I'm quite pleased with these trajectories that we see here. So, in terms of new commitments, overall, on a group-wide basis, we almost doubled new commitments first quarter over first quarter, even more significantly, Burford-only new commitments went up significantly more than that by about 130%. And that's a function of the fact that the balance sheet is now taking 75% of the high octane deals and BOF-C is taking -- the BOF-C and sovereign wealth fund is taking 25% and whereas previously, the balance sheet was at lower numbers, sometimes 42%, sometimes 50%. So, we're pleased both with the overall trajectory and also with the relative share of that new business that the balance sheet was taking, which ultimately accrues to equity shareholders. I think the fundamental factor that we're seeing in play here is some economic stress and anxiety in the market. We've talked about this before, but just to recap, businesses tend to engage in difficult conduct when they are under economic stress. That economic stress is obviously caused by things like high-interest rates and uncertain economic environments. And that questionable conduct turns into both litigation and insolvency, both of which we benefit from. So not that we sit here wishing for a recession or a great economic downturn for all sorts of other obvious reasons, but there's certainly no question that our business certainly does well in these kinds of times. So that's where we are on the new business front. And Jon is going to talk a little bit more moving to Slide 6 about the portfolio activity itself.

Sure. Thanks, Chris, and thanks to you all for joining. So, on Slide 6, you see sort of bearing out what I've been saying on the last few calls we've had, which is that the portfolio is quite active that we had a sleepy period during COVID after having grown the book significantly. And we were seeing tinges move through and with these numbers bear that out. So, you're seeing growth on -- in all metrics. So, in addition to, as Chris mentioned, the YPF success at the end of the first quarter, just putting that aside for a moment, there's a growth in unrealized gains in the rest of the portfolio as well, and in realized gains. So unrealized gains were up significantly. Realized gains were triple what they were in the first quarter of '22. There is an impact. You'll recall from how we walked you through the approach under the SEC's valuation of litigation assets where interest rates, discount rates do factor in. And so, there was a decline in interest rates or in the discount rate by 52 basis points in the first quarter of '22, a more modest decline of 28 basis points in the first quarter of '23, those would have had an upward effect on fair value, though it would have been a more muted effect in the first quarter of this year because the move in interest rates was less. The other thing I wanted to mention is on the asset management income side, you really start to see the benefits of the relationship. Management fees and performance fees from other funds haven't really moved much in part due to the European waterfall structure, which postpones the earnings performance fees. But with BOF-C, as the portfolio performs and BOF-C makes money, so just the balance sheet, and you see that bear out with a significant increase inter asset management income from the BOF-C relationship. And with that, I will turn it back over to Jordan Licht on Slide 7.

Thanks, Jon. So, on Slide 7, I'm going to walk through our operating expenses for the year. An important point that we've talked about before but I want to reemphasize is that we pay people on cash profits. However, we do take accounting charges when capital provision asset values increase as they did this period. But none of those charges are paid in cash until we have the cash profit in hand. So, you're seeing some -- a lot of movement in the operating expense that is just an accrual and doesn't necessarily reflect an outlay. As a result, looking at the income statement, then we thought it would be helpful to put some of the line items in context and discuss the reasons for differences quarter versus quarter. So, looking at the slide, first, our deferred compensation plan expense, which is compensation that employees had previously elected to defer and invest in Burford's stock. We routinely buy shares in the market to offset employee dilution, although it has varying degrees of P&L impact on the underlying programs. Second is the asset recovery business, which includes two remaining assets in which the original owners had a contingent interest tied to our purchase of the business. If you recall, back in 2021, we had an outsized expense on this line item related to the conclusion of the Acquinoff [ph] case and only two assets still remain in that deal. But again, this line only goes up when something positive has happened in the underlying asset that we own, and we only pay the cash when we receive the proceeds. The third is our carry expense, which shows up in the long-term incentive compensation line. This is driven by fair value movements in our assets. But again, it's not paid to employees…

Thanks. And this is a slide that you've seen before, and I'm not going to go through it again since I did that just a few weeks ago. But it's a nice way to close out the presentation. And just to sort of remind people that the business, from our perspective, is really firing on all cylinders. The core portfolio now over $6.5 billion is continuing to increase in velocity and throw off cash at desirable returns. The origination platform is doing its job. The asset management business, as we've discussed, is growing in terms of its fee load, and we've obviously had a successful period with YPF. So, with that, we are delighted to take your questions. And operator, we're ready for you.

[Operator Instructions]. Our first question for today comes from James Hamilton of Numis. James your line is now open, please go ahead.

Thank you for the presentation. You mentioned sort of portfolio activity, and obviously, Q1 was very busy. On Slide 3, you sort of talked about milestone events that occurred up to the 9th of June. I was just wondering if you could split that out, how many of those were actually in Q1, and how many dropped into Q2 sort of following on from that, in the sort of pipeline and milestone events, how many more do you have lined up for 2023? And finally, on this topic, could you tell us how much deployed capital has been allocated to cases that have milestone events this year to give us some sort of ability to scale what may or may not flow through the P&L? And I've got a fourth of apologies, I've got a fourth. Just curious if you use the -- your previous valuation methodology, what would the adjustment in the carrying value of the YPF case have been?

A number of questions there. I'll try and take some of them. And thank you. So first, we're not going to -- we're not going to comment on the previous methodology. We've adopted the new approach, and I think it would be inappropriate for us to continue to kind of use numbers from the old methodology. So, I'll leave that at that. With respect to the milestone question, in Q1, we had approximately 25 milestone factors that occurred. And then I think you also asked about what is our deployed cost relative to projected milestone factors. I can see why that information would be nice to have. But I don't think we're going to start tying specific milestone and giving out expectations of milestone events on a vintage basis. We do give out vintage information. We have the large vintage table that we outlined in the annual. And for the quarterly, we do outline the incremental deployed costs and realizations by vintage. But I don't think we're going to start tracking or projecting out future milestone of them to a vintage level.

I do think it's worth pointing to that table because I think that table is new, if I'm not mistaken. So, on Page 48 of the 6-K, there is a table that shows vintage by vintage, what the deployed costs and the realized proceeds were with respect to our realized gains. And so, James, you may find that to be of some interest.

Thank you. And the pipeline of milestone events for the rest of '23, how many do you have in coming up?

So, without wanting to be held to this number, since we haven't -- I don't think that we've included it in the disclosures, I think we think the number is north of 50 possibly even larger than that. I should say something though about the concept of milestones. So, we provided this data to try -- when we were trying to sit back and think about how to convey to people, the short-term information about what we saw happening in the courts and the return of velocity. We hit upon this idea of using milestone factors just to show people the sheer level of difference that we were feeling in the '23 year as opposed to the '21 and '22 years. Jordan has only been here since the beginning of September last year. And he said -- I've heard him say to people sometimes when he first got here, there was sort of one e-mail every once in a while, about something happening in a case. And now there's like e-mails all the time. Like it was -- so it's that sort of feeling in the business that we were trying to convey in some sort of numerical way. And so, we came upon the -- because before I've been using just the aggregate court statistics, backlog, statistics, and so on. The problem with those is that they don't really capture accurately necessarily what's going on with complex cases. So, we came up with this concept of milestone factors just to try to convey to you the velocity, but I want to be clear that I don't think it's a financial metric. So, I don't think that people should be all of a sudden trying to tie these milestone factors to other numbers in the business, and I don't intend to continue to provide them. We just did them as a way and the reason that we didn't disclose this 50 or 60 or whatever the number is for the rest of the year, is it's not something that we track. It's not a KPI that I look at on a weekly basis. We just used it as a proxy because I think it was difficult for us to get all of you as investors to understand the dynamics of what was going on in the card system without having you actually be sitting inside the business. So that's where these came from, but don't think of them as something that you take to the analytical grail now.

[Operator Instructions]. Our next question comes from Julian Roberts of Jefferies. Your line is now open. Please go ahead.

Thanks, very much. And James asked a few of mine. And I might just be putting one of his another way, so apologies if the as this is just now. But can you split the gain on the YPF assets between the time value of money effect and litigation risk reduction? And then I've got another couple which are presumably what's left in the due from settlement line is very largely what was there at the start of the year? And do we still expect quite a lot of that to be collected in the balance of 2023? And is it, can you give us, maybe it's in the -- in what you've released already. Can you tell us or give us an idea of how much of what has been realized so far this year has been a settlement versus results of adjudication? And that's all I had. Thanks.

Sure. Let me take a whack at them and then Jon and Jordan can fill in if I go astray. So first of all, the -- do from settlement question. Let me comment on this for just a second because it's slightly unusual for us. So historically, the way this business has worked is that you get to the end of a case. And in most cases, you immediately get paid. Settlements almost always pay right at the time you conclude the settlement. And if you have won a case against a -- and the appeals are over against the creditworthy dependent, they're going to pay the judgment because otherwise, you can go and start pretty easily taking their assets. So that represents the considerable majority of our business. There are obviously exceptions to that, as you've seen in the past. Sometimes those exceptions are when our client has agreed to a structured settlement with payments being made over time. And we've had those occur from time to time, but those have always been successful for us because the reality is your leverage is greatest when you're entering into the settlement. And so, you're not going to take the structured settlements unless you're confident in that is going to be paid. And then we've had the occasional settlement where noncash assets have come into the mix, and we've had to turn them into cash as was the case in, for example, some years ago, a big case that we won in Arizona over some real estate. So, what you generally see when there's a receivable is those receivables turn over pretty quickly because they're usually just timing based. Something settles towards the end of a period, and it doesn't get paid until into the next period. And we've got a…

And then, Chris, just a clarification. The $37 million was actually group-wide Burford only on the -- do from settlement was $23 million with respect to the example that you described. And yes, we feel good about collecting the rest.

We feel good about collecting that, too. We're just not in control of the timing of it.

Yes. Understood. Understood. And just one minor follow-on. So, the one where you said that it's partly sort of a hybrid of settlements in adjudication. Could it possibly be that maybe there's a family of cases and there's been a bit of price discovery because one of them has been adjudicated and other things are kind of following sees that the kind of thing that might have happened or...

No. It's more the -- Jon, did you want to chime in there?

Yes. I was just going to say the line between settlement and adjudication can be a scenario where as Chris said, settlements in the most conventional U.S. commercial litigation sets are what precedes the trial in order to avoid the trial, the party strike a settlement for an amount that eliminates the risk. But there could be pieces of litigation and you might win some. The defendant can read the writing on the wall and know it's going to have to pay up. It still has a chance for some sort of appeal or collateral attack, and you could, therefore, have a resolution through what's called the settlement, but there's already a judgment potentially saying you owe that amount. And so that's why it's hard to draw the distinction between what ends if you win a trial, and there's an appeal pending and there's a settlement at a very slight discount based on how at risk and timing. Do you call that a settlement, I guess, technically, you do, but there has been an adjudication as well?

Understood, thank you, very much.

So, a webcast question, and then we'll go to the next question on the phone. The webcast question is when do we anticipate a full New York Stock Exchange listing? So, we have today were what's called a form private issuer because more than 50% of our shares are held by non-U.S. investors. We test that 50% number every June 30. So, we'll test it for the next time in 17 days. If the number of U.S. shareholders has increased to above 50%, that will represent the final leg of the process to become a sort of a full U.S. 10-K filer. Although nothing will actually change on New York Stock Exchange. This is an SEC dynamic, not a New York Stock Exchange dynamic. So, nothing would change on the New York Stock Exchange, but it would cause us to begin to file 10-Ks instead of these 20-Fs. Frankly, you won't notice very much difference when that happens, especially now that we have gone voluntarily to quarterly reporting because the -- previously, the principal difference between those two regimes would have been that foreign private issuers are not required to do quarterly reporting. But because we've now opted in the quarterly reporting anyway, you're not going to notice a big difference when that happens. We don't know if it will happen this year or not. We won't know until we do the testing for it. I think we're in the 40s in terms of U.S. holders the last time we looked. So, we're certainly getting close if we don't cross the line today. And then I think we have something more on the phone operator.

Our next question comes from Matthew Howlett of B. Riley Securities. Matthew your line is now open. Please go ahead.

Can you hear me now?

Yes.

Yes. Apologies. The question is regarding return on equity. And your return on equity, tangible equity, I look at somewhere in the high teens normalizing for YPF and some expenses. When you look at that, I mean, historically, pre-COVID, you've been in that range, how do you look at the return profile, the return on tangible book value this quarter versus what you think is normalized? What do you think is fully deployed? Just in that context, you talked a lot about IRRs and things of that I want to kind of move it towards return on equity.

So, look, I think it is difficult to look quarter-by-quarter at ROTCE. But we definitely -- we had stated, I think, in the Investor Day that we target a 20-plus return on equity. I think we continue to see that. It will be episodic or a little bit bumpy, but I think you need to look at that on an annualized -- kind of a rolling average basis as opposed to just one spot in time. I think we said that back then, we still believe it.

Yes, exactly. We believe that, that's the earnings power of the business judged on a multiyear rolling basis.

Go ahead.

And I will say the underwriters have internalized that. When we are looking at deals and thinking about whether to do them, we're not just looking at the gross IRR, we think about expense load and the team is very mindful of that.

Got you. Well, got you. Thanks for...

Go ahead, Matt. Go ahead.

The other question was just on what you're writing in terms of new business today as it relates to by case type and by industry? Has there been any sort of shift that you've seen in either of those categories?

Okay. Go ahead, Jon.

What I was mostly going to say is, we've said from the beginning that we are opportunistic. And we basically -- because we have patent experts, international arbitration experts, commercial litigation experts, we can look at all these, we can look at it like, you name it. we can look at it. That means particularly because the large law firms that bring us business have practice groups in many of those areas, and we've developed relationships with pockets and with entire firms, they bring us that. So, that creates diversification regardless -- as we've also said, though, when we see an opportunity, we like where we've done one investment, another investment, and we begin to see an industry where a number of companies have been suffered the same legal doing and have claims, and they would be in need of capital. We will expand in that area. So, I wouldn't say it necessarily happens to coincide with a particular economic moment or seen in the economy, it can be a theme because there could be in one industry, a particular set of wrongdoing that results in claims. So, I don't know that I would consider it a trend. That being said, we clearly have enjoyed geographic expansion, right? We've done much more in other jurisdictions when you think back on us having been just North American U.S. litigation and U.K. litigation and some arbitration. We've gone way beyond that. Chris, you had something to say as well that.

No, I think that really did capture it. Obviously, there's -- litigation trends are also affected by exogenous events. So, we're looking at some COVID business now. We didn't do any COVID business obviously before COVID. Bankruptcies are returning in a way that they haven't for the last half dozen years. So that will tend to skew some more bankruptcy activity. Antitrust enforcement or competition enforcement tends to be driven to some extent by political wins. So, when you've got Democrats in the White House and aggressive antitrust enforcement in Europe, you tend to see more competition in antitrust cases than you might with a Republican administration. So those kinds of dynamics are in the mix as well. And as we -- as I said earlier, as we head into a period of economic stress, we're likely to see some more insolvency-related activity, too. But those are sort of broad trends.

Right. Exactly. Default are picks up. You expect to see more delegation. And then on that on just the geography question, I mean, are you saying you're seeing more growth outside growth in the non-North America or non-European regions that you do businesses?

Well, we're seeing more -- so we're seeing more activity because we're starting from a smaller base. So, it's not -- I'm not trying to suggest, Jon and I are not trying to suggest that there's some falloff in the U.S. that is being compensated for by some increase in Europe. We're seeing somewhat more activity in Europe and the Middle East because we devoted some more resources to those, but that also is a -- as you all know, it's a multiyear process. It's not -- you don't -- we opened an office in Dubai, not very long ago. I'm pleased with the volume of business that we have seen that we're starting to look at out of the Middle East, but that doesn't turn into cash for some years.

Got it. Thanks, for taking my question.

And we've got a couple of questions on the webcast. To begin with, from Alistair Lindsay, you reported continued strong flow of milestone events through nine June or any of the milestone events so far in Q2 noteworthy in terms of significant wins or unexpected losses. Nothing comes to mind, I would call it business as usual. At the same time, though, back to my sort of long-ish if about milestones, we -- especially now that we're doing quarterly reporting, we're not proposing effectively to pre-report on the current quarter when we report on the prior quarter. And so, I think we're going to have to wait until our soon to be forthcoming second quarter quarterly report since this one was obviously somewhat delayed by the delay in our full-year results to talk about Q2.

And then another question from Miguel Gonzalo. Are you involved in the litigation claims relating to the Credit Suisse subordinated debt write-off? And do you have any legal view about that? So, I don't know if Jon has a general comment that he'd like to make. We, of course, don't comment on specific cases whether we're involved in them or not, unless they have become public through some other course.

Yes. I don't think -- I don't think it's something that we should comment on. We prefer not to comment on specific litigation.

It's obviously a tangled situation. Yes. It's obviously a tangled situation and shows as well the benefit of a close and careful reading of the documents. And another question, at what point would your stock be considered for index inclusion? So, we are already included in the relevant U.K. indices. And in terms of the U.S. indices, the criteria are basically a combination of where your shares are trading and what index you'd fall in. So, we would hope as we continue to build our U.S. liquidity and U.S. trading volume that along with that would come U.S. index inclusion, but it's a process. It's not something that happens overnight. So, the first -- the next step along the way is really that test that I mentioned before at June 30. And so, with that, I think that we are going to keep to our plan of this not taking too much of your time every quarter. We hope that you found getting quarterly data from us useful and helpful. And as I said, we'll be back in the not-too-distant future to share Q2 with you. So, thank you again, everyone, for your support. We're thrilled with how Q1 went and the ability to print these truly extraordinary numbers. And we'll talk to you soon.

Thank you.