Burford Capital Limited (BUR) Q4 2024 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome to today's Burford Capital's Fiscal Year 2024 and Fourth Quarter 2024 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I would now like to turn the call over to Josh Wood, Head of Investor Relations. Josh?

Good morning, everyone. Thanks for joining us today to discuss our fourth quarter and full year results. On the call as usual, we have our Chief Executive Officer, Chris Bogart; our Chief Investment Officer, Jon Molot; and our Chief Financial Officer, Jordan Licht. 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. We will also be referring to certain non-GAAP financial measures during the call. Please refer to today's earnings materials and our filings with the SEC for additional information, including reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures. Also, I would just highlight, as we did in our press release last week that we've refreshed the structure of our earnings presentation and of course, we'll guide you through some of that here on the call. If you missed the preview in the press release, there's a quick primer on Page 5 of the presentation that I would encourage you to read in more context. And with that, I will turn the call over to Chris.

Thanks very much, Josh, and hello everybody. Apologies in advance like it feels to me like half the people in New York and London, I've come down with the February, March bug, so apologies if my voice is a little crackly or I am coughing during this. As Josh said and we're going to start with Slide 6, as Josh said, this is a new format and it's something that you can anticipate seeing going forward. You're of course, also seeing for the first time a full U.S. Form 10-K. We expect to file that later today. And these slides now take the form of our full earnings presentation, earnings release combined into one document as opposed to having two separate documents with we had in the past. We hope you'll find this, excuse me, useful and helpful. And it matches the way that of course, you see all of the classic U.S. Public, office managers and others providing their information to people. So this first Slide 6, will always lead with these are our GAAP numbers and they're important to lead up front for GAAP prominence. But at the same time, these are not the things that management is terribly focused on. We're focused on cash more than accounting numbers. But before I take you to the cash where there's some pretty exciting news, I will just say a word or two about accounting because I think there may have been a little bit of confusion after we put these release -- after we put these results out, which caused from my perspective, a reasonably adverse market reaction. Most significantly, when we show unrealized gains or losses separately in these accounting matters that does not any longer necessarily mean that something has happened with respect to the substance of the cases. So, for example, in the fourth quarter of 2024, you see a negative number for unrealized losses that does not correlate to the portfolio performing poorly. In fact, the portfolio performed very well in the fourth quarter. We had dramatically more multiples, more of positive case milestones than we had negative case milestones. We only had a few negative case milestones amounting to a very small amount of money, small, single-digit millions. So that Jordan is going to walk you through one of the later slides in a bridge to show you all of the different components that you now see in those kinds of numbers. But it's important not to look at them and say, oh my goodness, a number in trends means that something bad might have happened in the portfolio that isn't the case at all. So let's turn to Slide 7, which is really the focus of my message to you today. Because as I said just a minute ago, when Jon and Jordan and I and everybody else who runs this business looks at the business and how we think it's doing, we focus on cash, we focus on how the portfolio is performing and what is going on with respect to concluded cases and bringing in cash for the business. And on that metric, we have an amazing year. These are blowout results for us. We had -- we set a number of new records this year. Our realizations were very high. In other words, realizations meaning cases that have actually concluded and they came from lots of different things. So this wasn't a period where we had just one big winner. We had lots of things go well. We brought in a very significant amount of cash, more than we ever had in our history. And beyond just bringing in cash and realizations, we had very strong levels of net realized gains, in other words, the profits that we make on our investments. So those were an annual record by a very wide margin and much higher than they had been in prior years. So this is all consistent with the theme that we've been sounding to you for a little while, which is that after a couple of years of very slow movement in the court system because of the pandemic, gosh, it has taken a long time for that motor to get back to running smoothly. But that's where it is now. And we're seeing the benefits of it come through in the kind of portfolio activity that we're demonstrating. And it's not only that the portfolio is performing strongly and concluding and giving us concluded cases that are generating strong cash realizations for us, it's also that our returns have recovered to very high levels. In fact, our 2024 net realized gains were about double the level of realized gains in the prior year and above our historical track record overall. So that was at a more than 100%, 108% ROIC, or for those who prefer MOICs, more than a double, more than a 2.1x MOIC. And at the same time, that all of the data that I've just given you has focused on cases that have been in the portfolio and have made their way to the end and concluded. At the same time, we're continuing to grow the portfolio to set ourselves up for future performance. And you can see with the chart on the right, the portfolio has been growing by about a 15% CAGR over the last four or five years. We continue to see growth during 2024 growth -- portfolio growth of about 8%. And that's, of course, measured the way we talk about portfolio here is deployments at the door and milestones. But the other thing you're going to hear us talk about more and more, and Jon's going to go into this a little bit, and we're going to go into it even more at Investor Day in a month or so is we're going to begin now sharing more about the way that we look at these things inside the business. And that's what we call target realizations. And so when we write new business, we're trying to determine what we think that business is going to produce over the life of that litigation matter. And our target realizations for our 2024 new business were up significantly year-over-year and again, I believe, set a new record. Turning to Slide 8, just briefly before I turn you over to Jordan. This is just a snapshot of some financial metrics and I'm not going to go through each one of these, but I would just sort of highlight for you again that net realized gain number, the second line in the left hand table. Not quite, but pretty close to being a double year-over-year and return on equity, while we have not yet made it to that aspirational 20% that we have talked about the business being able to produce on a sustained basis. We're pleased with the progress that we're making towards that goal with a 14% rolling average for the moment. And with that, we'll be happy to take your questions at the end. I'd like to turn you over to Jordan and Jon.

Thank you, Chris, and hello everybody. As we've discussed previously, this year we flipped over from foreign private issuer to a U.S. domestic filer. And with that transition, you will start to see 10-Ks and 10-Qs rather than a 20-F. In addition, this spring you'll see us file our first proxy statement. Let's start off first that none of these changes have an impact on the historical financials. But there are, as Josh mentioned earlier, a number of important changes in the presentation, which I'll outline. So for those investors who've been following our numbers for years, you'll know that Burford has always been focused on providing disclosure that represents what shareholders actually own. That's why we've always outlined the difference between Burford-only and our consolidated financials. Our consolidated financials include the private fund entities and other third-party interests. Let me give you two examples of those. One are the Colorado units that represent YPF entitlement that was sold previously to third-parties. And two, the BOF-C the sovereign wealth fund that partners with the balance sheet on investments. While these entities are consolidated under accounting standards, the economic ownership of these resides with third-parties. Beginning this reporting period, the Burford-only disclosure will be enhanced. We're going to use more prominently the use of segment reporting. We have two reportable segments, Principal Finance and Asset Management. Principal Finance captures the financial impact of the legal finance portfolio that's funded by the Burford balance sheet. And Asset Management, as you can well imagine captures fee income from Burford's private funds funded by third-party capital as well as some income from other service-related operations. The sum of these is -- are two segments and referred to as total segments. And that disclosure is consistent with and identical to reporting on an aggregate Burford-only basis. There are a couple of other items that changed and I'll make sure to highlight those when we get to other sections of the presentation. But what are the takeaways that you should have from these changes? There are two. First, historical numbers have stayed the same and we're committed to the same level of transparency that we provided to shareholders over the years. And second, the disclosure will be easier to digest for everyone, most importantly investors that are new to the Burford story. Moving to Page 11, this is the first example where I'm going to start using some of the new nomenclature total segments. This is the same as what we would have called Burford-only, and we will at times use them both interchangeably. Overall, a strong year for 2024, particularly from a cash perspective. It's difficult to stack it up to the prior year on revenue recognition, which includes the significant revenue from the YPF government judgment. But realized gains were up 75% for the year to a new record and that's the driver of the $460 million in revenue in 2024. We obviously didn't have another YPF size win and thus unrealized gains are lower and will move around period to period. I'll go into that in greater detail as we continue to discuss. Operating expenses were down significantly in 2024 from 2023 by approximately 43% and that was driven by the lower long-term incentive compensation that corresponded with the unrealized gains in 2023, again associated predominantly with YPF. Let's go to the Principal Finance segment. So this section outlines, as I mentioned, the portfolio that directly owns it's our balance sheet investments. Here's what's changed with the migration to the 10-K and how it impacts this segment in particular. First off, we're going to be discontinuing the use of the labels capital provision direct core portfolio, capital provision indirect. That being said, our performance and track record measures such as return on invested capital and IRR will be consistent with prior reporting. Those figures have always and will reflect direct funding by the balance sheet and exclude the impact of any balance sheet commitments to private funds. On Page 14, let's start with a snapshot of the portfolio. I'll mention some of the key highlights. The portfolio has grown at a 15% CAGR over the last five years and has now topped $5 billion. And this is a Burford-only number group wide we're around $7.5 billion. Our fair value on the bottom of the page is broken into its various components. YPF represents less than half of the portfolio at approximately 40% of the assets. Fair value marks on our current portfolio excluding YPF are slightly less than one-third or 31% of deployed cost. So if we repeat our historical performance, there's a lot of incremental revenue to come from the portfolio. And note that our deployed cost has been growing at about the same mid-teens rate, meaning that our growth is fundamental and not driven just by fair value. On the right hand side, we highlight the diversity of our portfolio, which is both global in nature as you see on the top right, as well as made up of very -- many different asset classes. Moving to Page 15, so here you'll see the breakdown of our capital provision income with $327 million of net realized gains. Again, that's close to a 75% increase when compared to last year. Those gains were driven by three realizations that individually exceeded $50 million and four more case resolutions of over $20 million. Unrealized gains are negative per year. The portfolio had positive momentum. However, that number is net of the transfer of previously recognized unrealized gains into realized gains, which occurs when an asset resolves. Discount rates were certainly volatile through 2024. Through the first half of the year, we saw rates rising and creating a significant headwind to our unrealized fair value gains. Then in the third quarter, we saw our valuation discount rate drop approximately 90 basis points. This reversed course in the first quarter as rates increased significantly. So let's sum it up and there were volatility in the quarters and that certainly created considerable negative movement in the fourth quarter, rates backed up by about 52 basis points, which is why a strong quarter on fundamental perspective can be masked by these movements. A reminder, rate-driven movements are non-cash and have no bearing on the terminal value of our capital provision assets. But overall, the discount rate on the portfolio basically remains flat over the course of the year, finishing at 6.9% compared to 7% at the end of 2023. And the bottom of this page outlines the impact of these rates and other discrete factors on the ending balance of our capital provision assets. So this is new disclosure. Let me walk through it in a little detail. So let's focus on the left hand side of the page first that outlines the movements throughout the year, right hand side is the quarter. First, let's start with the cash and cash movements of deployments and then realizations. Deployments can be either drift over time as our clients incur expenses or monetizations in which we provide our clients significant working capital up front in the beginning of a case. The cash going out the door, which is capitalized in our asset balance, is offset by the realizations on the portfolio. You see those realizations in the red shading, which is the conclusion of our assets turning into a receivable. We then have the impact of duration or the passage of time. This is the increase in value of our assets as they get closer to the ultimate resolution. Next is the discount rates, which we discussed a lot already, with minimal movement in the year, there's limited impact in 2024 from discount rate changes. And then finally, we have the $166 million associated with the fair value impact of milestone changes and other model impacts. As a reminder, milestones are objective occurrences in a legal case that can be either positive or negative as the case progresses forward to conclusion. Before turning the page, the right hand side again illustrates the same content demonstrating both the significant headwind of the change in interest rates, but then also the positive impact of milestones and of course, the high number of realizations in the fourth quarter. Moving to Page 16. Our portfolio continues to build. As Chris mentioned, we're not just focused on commitments employments. Our business has actually shifted considerably over the years. Look at the diversification in the portfolio, which I highlighted earlier in terms of geography and asset type. And it's also important to recognize that the return profile of our asset is not homogeneous. Different assets have different durations, implied IRRs, different risk profiles and other financial characteristics. Thus, as we think about new business, we are originating each year, we focused on the target realizations that the new business will produce. We plan on providing a lot more detail on this topic in April. I hope you all can join us at our Investor Day. But overall, we are excited about the business that we wrote in 2024 and it's targeted to have higher realizations than the business we had written in previous years. Switching back to some of the other metrics, though, on the page, we've been consistently deploying around $400 million per annum for the balance sheet. And our outstanding commitments to counterparties on a definitive basis has grown significantly and is at $774 million as of year-end. Of course, it's important to note this will not happen all at once, but rather over time. And with that, I will hand it over to Jon to discuss the portfolio performance over the last year.

Thanks, Jordan, and thanks to you all for joining. I'm very excited to be talking about these results today. And if we turn to Slide 17, I'm going to do three things with this slide. One is just to go over the highlights, which are pretty significant and I'm very proud of. The second is to flesh out what Jordan and Chris actually earlier mentioned about this focus on targeted realizations. And I think these numbers will help explain that. And then, third, to provide a little further nuance, really a preview of what we're going to discuss on Investor Day. So first, just the highlights on this slide. Realizations of $641 million in 2024, which is a significant increase from 2023. This is not one case that happened to hit, right. There are seven assets each generated more than $20 million. Three of those generated more than $50 million. It was spread in terms of vintages such that four of the matters were pre-COVID $187 million generated by those. The ROICs were very strong. You see the 108% number for the year that was that ticked up. It's an increase from last year and it's a -- it's above our historical average because of some good resolutions in the second and fourth quarters, which had high ROIC, which brought up the overall average and the net realized gains, which is really what investors care about at $327 million, that's not just larger, but it's more than double the average annual net realized gains over the prior four years like that's really, really impressive. I've been saying for some time that the portfolio is moving. I'm really excited about it. But to see it translate into cash realizations and to see those realizations with an upward trend in ROICs is really, really exciting. Now, the second thing I want to point out is Jordan talked about targeted realizations. Why do we care about that? What does it mean? Just look at the last two columns on the right, the last two bars and just look at the balance sheet only numbers. So in 2024, and we're going to compare 2024 to 2023, in 2024, you've got $625 million of realizations, which results in, if you look at the excluding private fund interest, $325 million of realized gains. Well, what does that mean? It means basically for those deals that concluded in 2024, we had put out $300 million; we got back $625 million, so $325 million was gain. Let's look back at 2023 how we did. We had $496 million in realizations, the red bar balance sheet only and $186 million of that was gained. Well, that means that the deals that generated those realizations in 2023, accounted for $310 million of deployed capital. So one who's just looking at deployments and commitments would say, well, wait a second, the deals you put out that generated the realizations in 2023, that was $310 million worth of investment versus $300 million worth of investment that concluded in 2024. Well, that doesn't show growth. But look, you'd much rather put out $300 million to generate $625 million than $310 million to generate $496 million. I'm not saying 2023 was a bad year, it was a great year. But 2024 was even better on that metric. And that's why you can understand when we're looking at new deals, having looked at this experience, we care not just about how much money you're putting out, what we care about, which is what shareholders care about. And we, the management team, our shareholders and our interests are aligned. We care about the money that's going to come back in. How much money are we going to make on these investments? That's what we care about. Now the third thing I want to mention is I don't want us to think you to think, we are slavishly adhering to some really high minimum ROIC number and then rejecting opportunities that don't meet that threshold because we want our numbers to go up. We like the 108% this year versus earlier so we're not going to do a deal below. That's not the case. We have lots of opportunities that particularly large corporate monetizations that are lower risk and typically lower shorter duration that will not generate that kind of ROIC but will generate really attractive IRRs and we will be able to churn the capital and reinvest it in profitable future opportunities. So we'll talk on Investor Day about how we balance those things, how we are looking at targeted realizations, but we are taking into account duration and risk as well, because that's what makes a really attractive portfolio. And the difference between, say, a large commercial monetization where it might be turning faster versus, say, a single patent case where you're putting out money that may take longer, but you have the potential to ring the bell. If we turn to Slide 18, this is a slide you've seen before, but updated with new numbers. You see how we are able to generate that spread of potential returns that, that our bread and butter, the bulk of things that that we invest in do resolve through settlement. These are cases where there are strong commercial cases and ultimately both sides understand they have merit, both sides understand that there's going to be a business resolution here and they're going to settle. But the claimant needs our cash as a corporate finance mechanism in order to use it for other purposes or to finance the litigation, so they don't bear the expense while it's running. And those are quite attractive opportunities. But there are occasions where it doesn't resolve through settlement. The parties can't agree. They go to adjudication. You see, our wins far outstrip our losses and generate really high and attractive returns. And our loss rate is quite attractive when you look at the full balance of the portfolio. One thing about these numbers compared to past numbers is you see our ROIC since inception has ticked up from 82% last year to 87% now this year. That stands to reason. We have a year where 108% with the blended ROIC and all the resolutions, it's going to bring up the averages. So to those who say, oh, can you maintain this over time, as you grow, are you going to maintain the returns? I think these numbers speak for themselves and I'm very, very happy about that. If we turn to Slide 19, I love this slide. You've seen it before, but it's great to see the spread of potential matters where it has the venture capital type feel of those red bars to the far right with truly outsized returns. But it doesn't have the same kind of risk because when you look at the black bars to the left, they are smaller and the losses are much more contained, right? The third bullet on the left talks about 14% of our deployments experience losses, but we got back 32% of deployed costs, so we have less than a 10% lifetime loss rate. And 14% that are the red bars that from the second bullet that are more than a 2x generate really outsized returns. The asymmetry is really attractive. And actually this chart also can provide a little more color on when Jordan and Chris talked about targeted realizations, because you could imagine we will have deals that we look at that we think this could be this spread of all of our investments could represent the modeled spread of outcomes for a single investment as well. But there's no doubt that when we look at things at the beginning, some of them have characteristics that make them more capable of generating the red, truly outsized returns with the risk of the black. But we've seen that our track record is pretty good there. Some of them we can see are more likely to be in the green. And we can tell that at the beginning there's always going to be a range. We're going to model the range of outcomes. But we know there's a different risk profile and duration profile, which this slide doesn't capture. And we'll say some more about that on Investor Day next month. If you turn to Slide 20, this breaks it out, as we've done in the past, by vintage of investment, rather than the years that the money's coming in or the realizations are occurring. And what's really nice about this is when you compare the black vertical bars to the red ones, you see how well the portfolio has returned in the past. The red bars are much taller than the black. But you also see those gray bars, which is those are the deals we have done. The money we've put out that still is out there and we hope will make those red bars even higher when we reproduce this slide in future periods. You can see the IRRs by vintage, which bounce around, which stands to reason that there's some things that are going to go longer. They might have attractive ROICs but lower IRRs. Others will come in faster with higher IRRs. It makes sense that like the last year, you've got a very high IRR because those things that resolved didn't have as much time out. And finally, if we turn to Slide 21, the status of the YPF related assets; we don't really have much to say here. As we said, it's not in investors' interest for us to give you the blow by blow. The basics that we've talked about in the past remain true. We have a judgment. Argentina has appealed to the Second Circuit its liability. We have cross appealed on the YPF, the corporate defendant. There is an enforcement process that is ongoing both in the United States and in various jurisdictions around the world and we're very much on top of all of it. And I think there's probably not much more I can or should say than that. And with that, I'll turn it back over. Thanks very much.

Thank you, Jon. And that's a natural transition from talking about our portfolio to the portfolios that we manage for third-parties. The second segment, Asset Management, that's the second of our two segments. And this section here outlines some of the key metrics. 2024 was a slightly lower year with respect to revenue recognized given that our income is predominantly tied to the fair value movement of our assets. On a cash basis, we had $26 million of receipts in 2024 versus $32 million in 2023. I'm going to jump ahead to Page 27. As we've mentioned throughout the presentation, 2024 was a great year with respect to cash generated on the assets and the portfolio as they concluded. Here's our cash bridge. We started the year at $300 million of cash and securities and ended the year at over $500 million. That's highlighted by almost $700 million of cash receipts. And while it's exciting to see the annual numbers, it's just as satisfying to continue to see the productive quarters strung together quarter-after-quarter in a row on the bottom of the page. In addition to the cash we have on hand, we currently have $184 million of receivables, and that's almost identical to the receivables we had on hand at the end of last year. However, they're not the same receivables. We collected approximately 97% of the receivables that were in place as of last year, and we maintain a history of very high rates of receivable collections after the litigation concludes. On Page 28, an overview of our expenses. They're approximately 43% lower than last year. That reduction is driven primarily by the decrease in long-term incentive compensation attributable to the fair value movement in YPF. While this page illustrates the GAAP expenses on a cash basis, operating expenses, net of our change in working capital were $123 million, which was highlighted on the previous page in the cash bridge. Two items that want further explanation are share-based comp as well as the case-related expenditures. First, on the share-based compensation line, that includes movement in our stock price of the deferred compensation for employees. And I know we've talked about that on previous calls. But as a reminder, when employees elect to defer their compensation into receiving Burford stock, that creates a liability for us. That changes with the stock price. If our share price rises, we see an expense, and if it falls, we see a benefit. The decline in our share price this year resulted in a positive impact of $4 million and a negative impact of $7 million in 2023. But these are accounting movements as we purchased the stock to hedge the economic impact. The other line item is the relatively low expense in case related expenditures not included in our asset cost. While that figure certainly has decreased since 2023, it also benefits from almost $4 million in an insurance settlement, showing that we're not only good at financing other people's litigation, but managing our own affairs. On Page 29, a quick review of our capital structure. We have close to $1.8 billion of debt outstanding with approximately $350 million of debt coming due in the next 20 months. We've been slowly chipping away at that outstanding balance coming due this summer, having purchased about $50 million of that issuance below face value. At 0.8x, our leverage level is well below covenant levels as well as our stated maximum of 1.25x. And with that, I will hand it over to Chris to wrap up.

Thanks, Jordan. And that takes us to Slide 30. You've seen this slide before. And let me just return to where we started, which is the portfolio. We've told you for a long time that we really like our portfolio. We're really happy with the quality that we perceive in it. And the recent past, including 2024, has certainly borne that out in terms of how the portfolio has actually performed. The big question, and Jon and I have talked about this before, the big question that we had was when we went through a period of very significant growth in the business a few years ago, the question was, could we maintain the investment quality and could we maintain the returns? And I think a number of you were wondering that as time passed. And I think what we've done now as those investments have made their way through the process to the end is show that we have been able to do that. And so now we're sitting on a very substantial portfolio that has years of runway ahead of it, producing high levels of cash and desirable returns. So we couldn't be happier with the portfolio and the way that it's performing. And that will be the source of many years of future cash flow generation. At the same time, we are generating a significant amount of new business every year. And while we would always like to be generating more new business, the reality is, as we've expressed before, that it's challenging for us to do both at the same time, to have high levels of portfolio activity and also high levels of new business. But a 15% CAGR growth rate in the portfolio overall over the last four or five years certainly seems a desirable level of growth from our perspective. And as Jon said, we have this very large and very interesting YPF asset sitting out there, and we will wait and see what comes of that in the year or two to come. So with that, I think we're delighted to take your questions.

Great. Thanks, Chris. [Operator Instructions]. Okay. It looks like our first question today comes from the line of Mark DeVries with Deutsche Bank. Mark, please go ahead.

Yes. Thanks. First, just wanted to clarify, Jordan, on the unrealized losses in the quarter, is that just that's primarily discount rate driven, is that correct?

Yes, it's driven by two items. It's not just the -- if you're looking at the fair value change, that can be driven obviously by the discount rate, but also the movement from unrealized into realized. And so in a quarter in which you're going to have a lot of realized gains, then you'll see a reduction in fair value.

Understood. Thank you. And then just turning to commitments in the quarter is there any color you can kind of provide on just the nature of some of the commitments you entered into and also kind of how you're feeling about the risk adjusted returns of new commitments that you've entered into recently compared to the past?

Jon, do you want to take that?

Yes, sure, sure. This is Jon, I'm happy to take that. I can't give you color on individual investments. It would be against our policy. But I can tell you that we continue to see the same diversity of opportunities that are really quite attractive. I'd say over time, probably there's been even more diversity of opportunity with respect to geography and with respect to subject matter than there was even historically. But -- and as I said before, there's a really good blend of what we find is in the U.S. commercial space as we move from just generating opportunities through law firms to generating opportunities with corporates, sometimes that are introduced by law firms, but sometimes directly. They're often looking for larger amounts of money. And as I said, they could be portfolios with lower risk and low shorter duration, meaning we'll get paid first dollar out of a number of things that come in, could be an example. Whereas there are some assets, an individual international arbitration or an intellectual property case, where the typical investment size is going to be the cost of the litigation rather than a monetization, the duration is going to be longer, but the potential multiples are much, much higher. And we're seeing all of the above. So that basically you could say the U.S. commercial portfolio is churning. So money's going out, coming back in at very attractive IRRs being recycled into new deals. And we're picking up along the way new patent or international arbitration matters. There's a fair bit of European litigation too, like we're seeing in lots of different jurisdictions that could be longer running in higher octane. And it's kind of nice because the money that's recycled from U.S. commercial at attractive IRRs can be put to use both in new U.S. commercial deals and in those other cadence -- those other higher octane matters, which stands to reason, like when you're earning these kinds of ROICs, you're not only getting back your original capital to reinvest, you're also getting the profit. So that's what enables you to grow the portfolio without taking on too much debt. I don't know if that provides the kind of color you were looking for.

Yes. That's very helpful. Thank you.

All right. Thank you, Mark. And our next question comes from the line of Julian Roberts from Jefferies. Julian, please go ahead.

Thanks very much. Yes, I've got three or four actually, if I may. I think they're all pretty quick for one. The longer one is looking at the 2024 part of the portfolio spreadsheet. Just a glance at the second column from the left shows that there's a lot more single case action going on here. And actually of the biggest commitments, the top two and probably three or four of the top five are single cases. Is that just happen -- is that just by chance or is that a deliberate? I know that some of this probably touches on what Jonathan just said -- Jon's just said. Is that deliberate? Is it just happenstance? Also, is there anything to read into the difference between the $100 million commitment, of which 99.9% has already been deployed, into a single pharmaceutical, biotech and life sciences IP case that's global, and $63.5 million, all balance sheet, in this instance, commitment to a single defense securities case, which is also funded, as I say, from your balance sheet, but hasn't seen any deployments yet? Is that because the former is maybe a monetization, the second one is not? What might one, if it weren't even those two specific cases, what might one reason to that? And then much quicker questions, one of which I've asked before, are there any implications or is there anything that we should think about because of the new U.S. administration? Are there any noises we should think of from a regulatory point of view? And then this might not be possible to comment on, but the RA-4 Arg, these people who are trying to intervene in some way in the YPF case. Is there any comment you can make on that? Is it perhaps kind of slightly spurious or is there something that we should actually think about that front? Thanks very much.

Thanks, Julian. Maybe we'll take them in reverse order. On the -- whatever the thing is called, the RA-4 thing, I think we probably don't have anything more to say than the public filing in response to it, which I think made clear that we thought the court can and should simply disregard the filing. On the U.S. administration front, no, I think the answer is the same answer that we've given before. No, the -- there are many, many things on the plate of the administration, obviously, and we don't think that, that our business is anywhere close to the top of that list. And even if it were, the U.S. market feedback is all about accepting the reality that, that litigation finance is here and here to stay. And the question goes to much smaller issues like the level of disclosure and so on. So I don't see that as being a significant issue at all. On the more seismic question that you raised, the -- and Jon can certainly chime in here as well. The fundamental answer, though, is that we do in any period have a fairly wide mix of things, and that mix can change depending on the flow of business in the market. So we are -- we aren't sitting there saying, well, every quarter we are only going to do three monetizations and are only going to do three future commitment portfolios, right? We're dependent on what clients are out there in the market with and what they're trying to get done. And so you see a much wider range over time of things that we do. You're right to assume that the $100 million deal is a monetization. Whenever you see that pattern of a large commitment with full deployment at closing, that, that translates into a monetization. But the security side, things that sets us up for future activity with either a corporate client or a law firm there. And we like -- we obviously like having both of those things. Jon, do you want to add any color there?

Sure. Yes. I would say, as Chris said, your perceptions having looked at the investment table are accurate as to how those work. And you might say that the corporate monetization is of the ilk of what I've described. If I putting out more money on something that's lower risk and likely shorter duration, it can be a very attractive opportunity. And I think -- and as Chris said, I think it's not just that we're limited by what comes in the door. I think it is a virtue that we have been available to everyone in the legal services market both the corporate clients and the law firms as being able to help them manage risk and expense and obtain corporate finance when it makes sense for them. And that in the long run has led to our stature in the market, like, I can't tell you the number of deals that have come to us of late where they sort of started out with somebody a few years ago that either isn't around or isn't capable of fulfilling their needs anymore. And whereas the people that we've worked with, they come back to us because we have been able to fulfill their needs. And it could be that it's the same counterparty either a corporate or a law firm that has come to us for a funding of the fees and expenses that are going to be drip fed over time that later comes back for monetization. We see that all the time. And so the fortunate thing as we talked about our track record is that we can be takers as long as we maintain rigorous underwriting, which we do. And we're investing in cases with attractive IRR and ROIC potential of what the market brings us and that leads to diversity. We don't have to say no, we're closed to patent or we're closed to R, but we want more U.S. commercial. We can say we're looking at all of it and we have teams that are able to underwrite and help the clients with all of it.

Yes. And as you can see, we -- when you look at the portfolio diversification statistics, that approach that Jon just outlined has nevertheless led to us maintaining a strong mix, a strongly diversified portfolio overall, even if on a quarter by quarter basis, you see concentrations and shifts. Julian, did that tick off all of your questions?

Yes, it does. Very clear. Thanks very much. And for what it's worth, I think the new disclosure, it seems also very clear. So thanks for that.

Great. Thank you, Julian. And before we go to the next phone question, we'll mix it up with questions from the webcast. So here's one from Trevor Griffiths. Does the move to using target realizations to measure staff performance mean that there will be a reduced incentive to go for the jumbo wins? And I think the answer to that is no, not at all. The -- all that we're doing is, as Jon said earlier, we're applying more nuance to how we measure things because it doesn't really work for us just to say, okay, you're committing $100, you're deploying $85 of them on average, and you're making X return on the $85. That is too blunt an instrument for the way the business now works. But the team is absolutely incentivized to look for the very most desirable risk-adjusted returns that, that we can generate.

And if I could add something to that, Chris, I just want to make sure it is possible I was not sufficiently clear when I spoke to that. Based on Trevor's question, I just want to clarify something. The targeted realization number will actually be higher if the case has the ability to generate truly outsized returns. So in fact, if you're looking at that focus, it would potentially be the opposite of what the question suggests because an underwriter looking at is going to say, how much money can we really take -- bring back on this. That being said, it's all going to be risk adjusted. So if there's only a small chance of a very large outcome. It won't move the needle as much as if there's a large chance. The third thing I said on that slide was a sort of counter to that, pointing out that not all deals have to be able to produce a 3x or 4x ROIC in order for us to do them, they can be shorter duration, lower risk and produce lower ROICs, but nonetheless attractive IRRs, and we'll bring that in as well. But I want to make sure that, that, that third part was not being conflated with the second. The target realizations is actually looking at how much money we're going to bring back in. And the more money we can bring back in, the better.

Great. Thanks, Jon. And let's go to another question on the phone.

Okay. Our next question comes from the line of Alex Bowers with Berenberg. Alex, please go ahead.

Afternoon. I've got four questions, two longer ones and two hopefully, quite quick ones. Just want to first…

You did not want to be -- you want to be -- do you want them to outdo both, Julian and, okay, just go for it.

The last two are very quick, I promise. So firstly, there's been some data out, I believe, by LexisNexis reporting that the average legal award per corporate defendant has increased in the U.S. year-on-year. Just wondering if this trend is being reflected in your portfolio given the higher ROIC figure this year? Or is your figure this year more just a consequence of the variability in outcomes of individual cases? Second question, just in your shareholder letter, you talked about expanding the business in other parts of the legal ecosystem such as low from equity. Can you just talk a bit more about what you've done in the space so far and what you're focused on? Third question on headcount. Headcount was broadly flat year-on-year, I think, around 160 FE. Are you looking to increase head count going forward? And in what parts of the business are you looking to do this? And just lastly, on YPF. I believe we're still waiting for a date for the oral arguments. Is this taking longer than you had expected it to take to be arranged? And what is your indicative time line in terms of when we should expect a decision on the appeal? Thank you.

Sure. So let's tick through them. The -- I'll just do this very quickly and Jon can chime in afterwards if he wants to embellish on anything. On the Lexis data, what you're really talking about is what insurance companies call social inflation, which is the question of whether in the U.S. tort system; juries are awarding damages at an increased rate above the rate of basically economic inflation. And there is some mild evidence that, that's happening, although it's counteracted by some other data points that suggest claims are actually falling. So it's a little bit difficult to figure out what's going on in the tort market. But all of that being said, that's not really our market. And what that data is more about is the sort of the masses of U.S. litigation that deal with personal injury claims, auto, car crashes and so on. So I don't think that there's a read over to our portfolio. That being said, our portfolio has, as reflected over time, increased growth in the size of matters that we do. And so on a -- if you were to compare that the average size of outcome in our cases today as opposed to some years ago, you would expect them to be higher. But that's not because of the sort of the prevailing underlying trend. Our corporate cases deal with real damages as opposed to perceived damages for the most part. In terms of expanding the -- what we do into the legal ecosystem, I think I'm going to defer on that until Investor Day, because I can't really do it in 30 seconds, and we're going to spend some not inconsiderable time on it then, if you don't mind. Headcount, yes, roughly flat and that reflects traditional moving around in the business. We don't -- we continue to grow the business. We continue to hire new people every year. But bear in mind that when we do that, we're talking sort of a person here, a person there. We don't expand by going and plopping 20 people down in a new geography, we expand by plopping one person down in a new geography. So I would expect to see over time an ongoing moderate increase in headcount, but I'm not looking for anything dramatic there. And on YPF, as you say, we're waiting for an oral argument date. We're actually not very far away from the court to average in setting such dates. The reason this feels, I think to people like this is taking a long time is because the briefing took a long time. It took a year or so for the appeal to be fully briefed. And that was in part because, as Jon noted earlier, there's a cross appeal, which adds to the time and because Argentina took advantage of the ability to delay its briefing from time to time. But hopefully, we'll have an argument date soon. Jon, anything to add to those?

I mean the only thing I'd add on the first question about data versus our cases. The national data versus our particular data, we've always said that our business, unlike insurance, which is probably what measures the tort and judgments, it's not actuarial analysis where we're looking at lots of similar things in trying to -- through massive data decide on what the aggregate is going to be. Certainly, we use a lot of data and Chris has spoken about it. It's very helpful for us in underwriting. But we use it in order to underwrite individual risks with respect to individual cases. And the damage is that a corporate is going to be awarded by a judge or jury or is going to receive in settlement in anticipation of that, those damages are going to be based on the particular business of that corporate plaintiff, not a broader social dynamic. And so I don't think that is a huge effect on us. But as Chris says, we've grown, which means we're putting out more money for bigger cases brought by larger, more credible players in the business in the industry. So you've got big corporates with strong law firms who are taking our funding.

Great. Thanks, Jon.

We've got -- thanks, Alex. We've got time for one last question from the webcast. Jordan, why don't you take this one?

Sure. And this question was with respect to the bonds maturing in 2025 and our cash balances, and I'll address that real quickly. While we appreciate the ability to access capital in the UK market, it does have different structural features. For instance, the deal that comes due this summer is not callable. We are likely to continue to use, and it's been advantageous for us, the 144A market in the U.S. So one shouldn't overly read into the cash balances or lack of calling those UK issuances into the aspect of are we thinking of deleveraging. The aspect is that we're continuing to manage an appropriate cash and liquidity basis, and we look forward to continuing to use the 144A market to grow the portfolio.

Great. Thanks. And that brings us to the hour, and so we'll leave it there. But we really do hope that we see all of you either in person or virtually on April 3 for our Investor Day. We haven't done one for three years. We're excited to be able to share a bunch of information about the business with you in greater depth than we can in these earnings calls. And we're hard at work on making that a useful and informative presentation for you, including talking to Alex's point about our future plans. So with that, we couldn't be happier with the way 2024 went in terms of our cash performance and the way the portfolio delivered. We thank you all for your support, and we look forward to talking to you again in a month.