BORR

Business Context and Reporting Period

Company: Borr Drilling Ltd (NYSE: BORR)
Filing Type: Form 6-K (Unaudited Interim Financial Report)
Reporting Period: Three months ended March 31, 2025
Business Overview: Borr Drilling is an offshore shallow-water drilling contractor operating a fleet of 24 premium jack-up rigs. The company provides drilling and workover services to the oil and gas industry globally. As of March 31, 2025, the company had delisted from the Oslo Stock Exchange and trades solely on the NYSE.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total operating revenues decreased by $17.4 million (7%) to $216.6 million. This was driven by a $24.4 million drop in related party revenue (due to the restructuring of Mexico operations from related party to bareboat charters) and a $3.7 million decrease in bareboat charter revenue. These were partially offset by a $6.8 million increase in management contract revenue and a $3.9 million increase in dayrate revenue.
• Profitability Shift: The company reported a net loss of $16.9 million compared to net income of $14.4 million in Q1 2024. This swing was caused by lower revenues, higher rig operating expenses ($5.8 million increase), increased depreciation ($4.1 million increase), and a $7.2 million swing in equity method investment results (from income to loss).
• Operating Cash Flow Surge: Net cash provided by operating activities increased significantly by $114.8 million to $138.7 million. This was primarily due to working capital movements, including approximately $117 million in cash settlements from Mexico operations.
• Equity Method Investments: Results from equity method investments (Perfomex) turned from a $5.4 million income in Q1 2024 to a $1.8 million loss in Q1 2025, largely due to a $6.4 million increase in income tax expense following the unwinding of a deferred tax credit recognized in the prior year.

Outlook, Risks, and Management Commentary

• Operational Updates: In March 2025, the company commenced its first contract for the rig "Vali." In April 2025, the company received a notice to re-mobilize three rigs ("Galar," "Grid," and "Gersemi") that were previously on temporary suspension in Mexico.
• Liquidity and Debt: As of March 31, 2025, total principal debt outstanding was $2,179.6 million. The weighted average nominal interest rate was 9.9%. The company remains in compliance with all debt covenants.
• Share Capital: The company cancelled 19,680,391 issued shares held in treasury related to its Share Lending Agreement following the delisting from the Oslo Stock Exchange.
• Dividends: The company declared and paid a cash distribution of $0.02 per share in March 2025.
• Risks: Key risks include industry conditions, tendering activity, customer demand, suspension of operations, liquidity requirements, and compliance with debt covenants. Specific risks noted include the impact of military actions in Ukraine and the Middle East, and potential changes in climate change regulations.

Investor Verification Checklist

• Mexico Operations: Verify the status of the re-mobilization notice for the three suspended rigs in Mexico and the impact on future revenue recognition.
• Debt Service: Confirm the company's ability to service $134.7 million in debt maturing within the next 12 months given the current net loss position.
• Related Party Restructuring: Assess the long-term revenue stability of the new bareboat charter structure in Mexico compared to the previous related party model.
• Equity Method Volatility: Monitor the tax implications and profitability of the Perfomex joint ventures, which significantly impacted Q1 2025 results.
• Share Count: Note the reduction in outstanding shares due to the cancellation of treasury shares and its potential impact on future earnings per share (EPS) calculations.