Burford Capital(BUR) - 2023 Q3 - Quarterly Report

Financial Restatements and Accounting Adjustments - Revised fair value accounting approach for capital provision assets using a discounted cash flow model incorporating interest rates, litigation duration, and other valuation factors[2] - Restatement of consolidated financial statements for 2021, 2020, and 2019, and condensed consolidated financial statements for the six months ended June 30, 2022, due to material understatement of capital provision assets and income[2] - The company restated its financial statements for the six months ended June 30, 2022 due to a revised fair value accounting approach for capital provision assets[42] - The restatement corrected a material understatement of capital provision assets and income[42] - The revised valuation approach incorporates discounted cash flow models using interest rates and litigation duration[42] - The company revised its fair value accounting approach for capital provision assets in accordance with ASC 820, retroactively applying it to the prior three years of financial statements[133] Capital Provision Assets and Income - Capital provision assets are categorized into "Direct" and "Indirect," with direct assets originating from the company's balance sheet and indirect assets including participations in private funds[15] - Realized gain or loss reflects the total amount generated by a legal finance asset when concluded, calculated as realized proceeds less deployed cost[19] - Capital provision income for the six months ended June 30, 2023, was $511.6 million, compared to $175.745 million in the same period in 2022[30] - Capital provision income for the six months ended June 30, 2023, was $110.3 million, compared to $175.7 million in the same period in 2022[44] - Capital provision income for the three months ended June 30, 2023 was $35,392 thousand, with an additional $4,813 thousand from third-party interests, totaling $35,667 thousand[72] - Capital provision income for the six months ended June 30, 2023, was $351.4 million, with third-party interests reducing this by $95.5 million, resulting in a total consolidated capital provision income of $511.6 million[73] - Capital provision income surged 191% to $511.6 million for the first half of 2023, compared to $175.7 million in the same period of 2022, driven by case resolutions and portfolio growth[170] - Capital provision income increased to $35.7 million for the three months ended June 30, 2023, compared to $35.0 million in the same period in 2022, driven by a 196% increase in realized gains[153] - Capital provision income surged by 191% to $511.6 million, driven by realized gains and fair value adjustments, particularly from the YPF-related assets[171][173] - Capital provision-direct assets generated proceeds of $268,363 thousand for the six months ended June 30, 2023, while capital provision-indirect assets generated $39,644 thousand, totaling $308,007 thousand[67] - Funding for capital provision-direct assets was $331,525 thousand, and for capital provision-indirect assets, it was $112,794 thousand, totaling $444,319 thousand for the six months ended June 30, 2023[67] - Capital provision-direct assets at June 30, 2023, were $4.21 billion, while capital provision-indirect assets were $200.4 million, primarily through the Advantage Fund[76] - Deployments in capital provision assets for the six months ended June 30, 2023, were $444.3 million, with realizations of $285.9 million and income for the period of $507.8 million[78] - Unrealized fair value of capital provision assets at June 30, 2023, was $2.06 billion, compared to $1.67 billion at June 30, 2022[78] - Total capital provision assets reached $4,386,762 thousand, up from $4,182,258 thousand at the beginning of the period[98] - Total capital provision assets increased from $3,117,263 thousand to $3,373,706 thousand, reflecting a growth of $256,443 thousand[100] - Core legal finance (BOF-C) assets grew from $329,360 thousand to $449,195 thousand, an increase of $119,835 thousand[100] - Portfolio with equity risk assets rose from $200,484 thousand to $208,715 thousand, a growth of $8,231 thousand[100] - Capital provision assets increased 18% to $4.4 billion at June 30, 2023, compared to $3.7 billion at December 31, 2022[193] Financial Performance and Results - Total revenues for the six months ended June 30, 2023, were $425.456 million, compared to $170.592 million in the same period in 2022[30] - Net income attributable to Burford Capital Limited shareholders for the six months ended June 30, 2023, was $237.885 million, compared to $6.928 million in the same period in 2022[30] - Total assets as of June 30, 2023, were $5.177 billion, compared to $4.288 billion as of December 31, 2022[32] - Total liabilities as of June 30, 2023, were $2.441 billion, compared to $1.901 billion as of December 31, 2022[33] - Cash and cash equivalents as of June 30, 2023, were $365.336 million, compared to $107.658 million as of December 31, 2022[32] - Net cash provided by financing activities for the six months ended June 30, 2023, was $478.642 million, compared to $318.173 million in the same period in 2022[36] - Debt payable as of June 30, 2023, was $1.658 billion, compared to $1.252 billion as of December 31, 2022[33] - Total shareholders' equity as of June 30, 2023, was $2.736 billion, compared to $2.387 billion as of December 31, 2022[34] - Net cash used in operating activities for the six months ended June 30, 2023, was $219.863 million, compared to $140.777 million in the same period in 2022[36] - Net loss for the three months ended June 30, 2023 was $21.5 million[38] - Total shareholders' equity at the end of the period was $2.74 billion[38] - Net income for the six months ended June 30, 2023 was $237.9 million[39] - Dividends paid during the six months ended June 30, 2023 totaled $13.7 million[39] - Share-based compensation for the six months ended June 30, 2023 was $6.7 million[39] - Net contributions for the six months ended June 30, 2023 were $106.3 million[39] - Total revenues for the six months ended June 30, 2023, were $105.9 million, compared to $170.6 million in the same period in 2022[44] - Net income attributable to Burford Capital Limited shareholders was a loss of $21.5 million, compared to a profit of $6.9 million in the same period in 2022[44] - Total assets as of June 30, 2023, were $3.85 billion, compared to $4.13 billion as of June 30, 2022[44] - Net cash used in operating activities for the six months ended June 30, 2023, was $140.8 million, unchanged from the same period in 2022[45] - Total operating expenses for the six months ended June 30, 2023, were $54.2 million, compared to $56.8 million in the same period in 2022[44] - Comprehensive income for the six months ended June 30, 2023, was $38.8 million, compared to $90.5 million in the same period in 2022[44] - Total liabilities as of June 30, 2023, were $1.81 billion, compared to $1.88 billion as of June 30, 2022[44] - Total shareholders' equity as of June 30, 2023, was $2.03 billion, compared to $2.25 billion as of June 30, 2022[44] - Third-party interests in capital provision assets increased to $1.0 million in the six months ended June 30, 2023, from $218,000 in the same period in 2022[44] - Total revenues for the six months ended June 30, 2023, were $425.5 million, with asset management and other services contributing $25.9 million and marketable securities and bank interest adding $4.6 million[73] - Operating expenses for the six months ended June 30, 2023, were $97.9 million, with finance costs accounting for $41.7 million and foreign currency transaction losses of $11.3 million[73] - Income before income taxes for the six months ended June 30, 2023, was $297.2 million, with a significant contribution from capital provision income and adjustments for third-party interests[73] - Total assets at June 30, 2023, were $5.18 billion, an increase from $4.29 billion at December 31, 2022, driven by growth in capital provision assets[75] - Total revenues for the six months ended June 30, 2023, were $1,903,000[110] - Net loss attributable to Burford Capital Limited shareholders for the three months ended June 30, 2023 was $21.54 million, compared to a net income of $237.89 million for the same period in 2022[112] - Basic and diluted net loss per ordinary share for the three months ended June 30, 2023 was $0.10, compared to a net income per share of $1.09 for the same period in 2022[112] - Total revenues increased by 149% to $425.5 million for the six months ended June 30, 2023, compared to $170.6 million in the same period in 2022[171] - Operating expenses rose by 72% to $97.9 million, largely due to increased compensation expenses tied to the fair value increase of YPF-related assets and higher realized gains[180] - Compensation and benefits increased by 79% to $68.6 million, driven by higher salaries, annual incentive compensation, and share-based compensation[181] - Legacy asset recovery incentive compensation surged by 439% to $12.1 million, reflecting gains from case resolutions and fair value increases in legacy assets[181] - Marketable securities income turned positive at $4.6 million, compared to a loss of $9.0 million in the prior year, due to the reversal of unrealized losses[179] - Insurance income improved to $0.9 million from a loss of $2.3 million, as adverse cost policy payments did not recur in 2023[177] - Case-related expenditures ineligible for inclusion in asset cost increased by 187% to $10.5 million, reflecting higher legal and related expenses tied to capital provision assets[182] - Long-term incentive compensation increased 130% to $15.5 million for the six months ended June 30, 2023, compared to $6.8 million in the same period in 2022[186] - Finance costs increased 14% to $41.7 million for the six months ended June 30, 2023, compared to $36.6 million in the same period in 2022[188] - Foreign currency transactions resulted in a gain of $11.3 million for the six months ended June 30, 2023, compared to a loss of $3.1 million in the same period in 2022[188] - Provision for income taxes decreased 12% to $16.1 million for the six months ended June 30, 2023, compared to $18.4 million in the same period in 2022[189] - Net income attributable to non-controlling interests decreased 10% to $43.2 million for the six months ended June 30, 2023, compared to $47.9 million in the same period in 2022[191] - Cash and cash equivalents increased 239% to $365.3 million at June 30, 2023, compared to $107.7 million at December 31, 2022[191] - Due from settlement of capital provision assets decreased 19% to $94.4 million at June 30, 2023, compared to $116.6 million at December 31, 2022[192] - In the capital provision segment, the company incurred a loss before income taxes of $15.0 million for the three months ended June 30, 2023, compared to a loss of $33.1 million in the same period in 2022[196] - Total revenues for the three months ended June 30, 2023, were $44.6 million, compared to $47.5 million in the same period in 2022[197] - Total revenues for the six months ended June 30, 2023, increased to $425.456 million, up from $170.592 million in the same period in 2022, representing a significant growth of $254.864 million[199] - Income before income taxes in the capital provision segment surged to $239.4 million in H1 2023, compared to $32.4 million in H1 2022, driven by fair value increases in YPF-related assets and higher realized gains[199] - Income before income taxes in the asset management and other services segment decreased to $11.5 million in H1 2023 from $23.5 million in H1 2022, primarily due to lower income from BOF-C and higher segment expenses[199] - The other corporate segment reported income before income taxes of $3.1 million in H1 2023, a significant improvement from a loss of $30.6 million in H1 2022, attributed to higher income from marketable securities and reduced expenses[199] - Total operating expenses for the six months ended June 30, 2023, were $97.931 million, up from $56.827 million in the same period in 2022, reflecting an increase of $41.104 million[199] - Total other expenses decreased to $30.339 million in H1 2023 from $40.535 million in H1 2022, a reduction of $10.196 million, primarily due to lower expenses in the other corporate segment[199] - The reconciliation adjustment for third-party interests in total revenues was $43.542 million in H1 2023, down from $48.937 million in H1 2022, reflecting a decrease of $5.395 million[199] - The asset management and other services segment generated $25.923 million in revenues in H1 2023, a decrease of $8.932 million compared to $34.855 million in H1 2022[199] - The capital provision segment's total revenues increased to $351.407 million in H1 2023, up from $95.777 million in H1 2022, marking a substantial growth of $255.630 million[199] Legal Finance Products and Services - Legal finance products and services comprise core legal finance and alternative strategies, with lower risk legal finance primarily occurring in the Advantage Fund[16] - Post-settlement activity primarily occurs in COLP, BAIF, and BAIF II, focusing on financing legal-related assets after litigation resolution[17] - Strategic Value Fund deploys capital in complex strategies assets, with investors including third-party limited partners and the company's balance sheet[19] - The Burford-only portfolio consisted of 215 assets held directly and 10 additional assets held indirectly as of June 30, 2023, compared to 211 direct and 9 indirect assets as of December 31, 2022[200] - Total undrawn commitments for legal finance and capital provision were $1.98 billion as of June 30, 2023, an increase from $1.72 billion as of December 31, 2022[118] - The Group's maximum exposure to loss from unconsolidated VIEs was $23.63 million as of June 30, 2023, up from $20.52 million as of December 31, 2022[114] - Fundings on investments in joint ventures and associates were $2.6 million and $4.3 million for the three and six months ended June 30, 2023, respectively, compared to $1.1 million and $2.6 million for the same periods in 2022[120] - The Group's maximum credit exposure for financial assets and receivables in other assets was $18.7 million as of June 30, 2023, up from $17.7 million as of December 31, 2022[121] - Court activity has returned to functionality post-Covid-19, with a high level of portfolio activity observed in 2023, though some jurisdictions still face backlogs delaying adjudication[128] - Inflation's impact on revenues is mitigated by high returns from capital provision-direct assets and short weighted average lives, with potential increases in legal case fees and expenses driving higher returns[129] - A realized loss of $11.3 million was recorded due to a corporate restructuring via Chapter 11 of the US Bankruptcy Code, though $57.0 million was successfully retained prior to bankruptcy[132] - Legal finance assets involving claims against entities with Russian parentage decreased to $99.4 million (2% of total fair value) at June 30, 2023, from $127.2 million (3%) at December 31, 2022[133] - The company uses non-GAAP financial measures (Burford-only and Group-wide) to provide a clearer view of its stand-alone business and the totality of its legal finance activities[135] - Assets under management (AUM) include the fair value of capital invested in private funds and individual capital vehicles, plus capital entitled to be called from investors[137] - Concluded and partially concluded legal finance assets are those where litigation risk is no longer present, including assets with resolved litigation and future payment promises[137] - Deployed cost refers to the amount of funding provided for an asset at a given time, with cost allocation methods varying based on asset type[137] - Internal rate of return (IRR) is calculated on concluded legal finance assets, treating the portfolio as a single entity to determine the discount rate that zeroes the net present value of cash flows[137] Valuation and Risk Factors - The weighted average discount rate for capital provision assets is 7.8%, with a range between 6.1%