Q2 2024 Earnings Summary
- Burford achieved impressive IRRs of 179% on realizations this quarter, driven by multiple successful case resolutions, demonstrating the strength of their underwriting and case management team.
- The company continues to secure large deals with corporate clients, including a $100 million monetization for a corporate client in the second quarter, indicating sustained demand for their services in larger, more sophisticated deals.
- Market dynamics are favorable for Burford, with smaller competitors becoming less significant and larger multi-strategy players increasing market awareness, which benefits Burford due to their market leadership and central presence in litigation finance.
- Uncertainty in securing large deals with Fortune 50 clients: The company's ability to consistently land large deals with Fortune 50 companies is episodic and lacks a quarter-by-quarter consistency. While they did a $100 million monetization deal in the second quarter, it was not as large as the $325 million deal from the same period last year. This inconsistency could impact future growth.
- Increasing competition from larger multi-strategy firms: The market has seen a shift where smaller pure-play litigation finance firms are becoming less of a factor, and larger multi-strategy players are entering the space. These multi-strategy firms have significant capital available and are becoming more influential, which could potentially erode Burford's market share or compress margins.
- Regulatory and legislative risks impacting operations: There is ongoing lobbying and opposition to litigation finance from corporate defendants and the insurance industry. While the company does not anticipate a material impact, future regulatory or legislative changes, such as those highlighted by the PACCAR case in the UK, could negatively affect the business.
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Impressive IRRs
Q: What drove the 179% IRRs this quarter?
A: The impressive 179% IRRs this quarter were a result of numerous cases in our portfolio reaching positive milestones, such as winning trials, successful appeals, and favorable settlements. This outcome reflects our disciplined underwriting and case management approach, rather than any single outlier case.
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Market Developments
Q: How is the litigation funding market changing?
A: The market has seen a shift where smaller pure-play litigation finance firms have become less influential, while larger multi-strategy players have gained prominence. This is positive for us, as these firms raise awareness among corporate clients, leading to increased capital use and benefiting our business. Additionally, there is a trend toward larger, more sophisticated deals, including corporate monetizations.
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Regulatory Concerns
Q: Any regulatory issues we should be aware of?
A: The PACCAR case is a unique U.K. situation that both past and current governments are prepared to address. Beyond that, while corporate defendants and insurers continue to oppose litigation finance, this opposition hasn't been successful historically and isn't expected to materially impact our business.
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Large Client Engagements
Q: Progress with Fortune 50 or large clients?
A: Engaging large clients is a long process, but we continue to broaden our reach. In the second quarter, we completed a $100 million monetization deal with a corporate client, which, while not as large as last year's $325 million deal, demonstrates our ongoing efforts in this area.
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Cost Expectations
Q: How should we think about future costs?
A: Our cash costs have historically risen alongside business growth, and we expect moderate cost progression to continue. While we have some operating leverage, we can't double our portfolio size without adding staff to manage the work.
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Sundance Resources Case
Q: When will the Sundance settlement impact P&L?
A: We respect our client's confidentiality and cannot comment on the timing or magnitude of the Sundance Resources settlement. Any public disclosures are driven by the client, and we're not in a position to provide further details.
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Headcount Growth
Q: What's the current headcount and future growth?
A: Our headcount has remained roughly the same this year. We are measured in our growth and constantly look to add talent globally to support our origination efforts, but we don't anticipate massive expansion in any specific area.