Borr Drilling(BORR) - 2024 Q2 - Quarterly Report

FORM 6-K Filing Information This section outlines the Form 6-K filing details, including general information and required exhibits and signatures General Information This Form 6-K report, filed August 15, 2024, includes Borr Drilling Limited's Unaudited Interim Financial Report for H1 2024, incorporated by reference into its Form F-3 registration statement - The report is a Form 6-K, filed on August 15, 2024, containing the Unaudited Interim Financial Report for the six months ended June 30, 2024[1] - The information is incorporated by reference into the Company's registration statement on Form F-3 (Registration Number 333-266328)[2] Exhibits and Signatures This section confirms Exhibit 99.1 as the Unaudited Interim Financial Report, signed by Magnus Vaaler, Principal Financial Officer, on August 15, 2024 - Exhibit 99.1 is the Unaudited Interim Financial Report for the six months ended June 30, 2024[3] - The report was signed by Magnus Vaaler, Principal Financial Officer, on August 15, 2024[4] UNAUDITED INTERIM FINANCIAL REPORT This section introduces the unaudited interim financial report, focusing on forward-looking statements and associated risks Forward-Looking Statements This section outlines forward-looking statements, emphasizing inherent risks and uncertainties that could cause actual results to differ materially from projections - All statements other than historical facts are forward-looking, made under the 'safe harbor' provisions of the U.S. Private Securities Litigation Reform Act of 1995[5] - Forward-looking statements are based on current estimates and expectations, involving significant known and unknown risks, uncertainties, and factors beyond the company's control[7] - Numerous factors could cause actual results to differ materially, including risks related to industry conditions, customer demand, liquidity, debt, newbuilds, climate change, and military actions[7] Management Discussion and Analysis of Financial Condition and Results of Operation This section provides management's discussion and analysis of the company's financial condition and operational results, including recent developments and liquidity Overview Borr Drilling Limited is an offshore shallow-water drilling contractor, owning and operating 22 premium jack-up rigs as of June 30, 2024, with two more under construction - Borr Drilling Limited is an offshore shallow-water drilling contractor serving the oil and gas industry[10] - As of June 30, 2024, the company owned 22 premium jack-up rigs and agreed to purchase two additional rigs under construction[10] Recent Developments Recent developments include additional Senior Secured Notes issuance, CEO share unit grants, an increased Super Senior Credit Facility, and a rig contract termination with a new contract secured - Issued an additional $200.0 million (March 2024) and $150.0 million (August 2024) of 10% Senior Secured Notes due 2028[11] - Granted CEO 750,000 RSUs and 250,000 PSUs in May 2024, vesting in 2025 and 2026, with PSUs subject to performance criteria[11] - Amended the Super Senior Credit Facility in August 2024, increasing the Guarantee Facility to $45.0 million and total facility to $195.0 million[12] - Terminated the contract for the 'Arabia I' rig in June 2024, securing a new contract for the rig in Brazil[13] Operating and Financial Review For H1 2024, the company reported significantly increased net income and operating revenues, driven by more rigs and higher dayrates, partially offset by rising expenses Selected Financial Information (Six months ended June 30) | In $ millions | 2024 | 2023 | Change | % Change | |:---------------------------------------|:--------|:--------|:-------|:---------| | Total operating revenues | 505.9 | 359.5 | 146.4 | 41 % | | Gain on disposal | 0.4 | 0.3 | 0.1 | 33 % | | Rig operating and maintenance expenses | (228.1) | (175.0) | (53.1) | 30 % | | Depreciation of non-current assets | (63.7) | (56.2) | (7.5) | 13 % | | General and administrative expenses | (25.0) | (22.7) | (2.3) | 10 % | | Total operating expenses | (316.8) | (253.9) | (62.9) | 25 % | | Operating income | 189.5 | 105.9 | 83.6 | 79 % | | Income from equity method investments | 2.9 | 6.3 | (3.4) | (54) % | | Total financial expenses, net | (113.2) | (90.1) | (23.1) | 26 % | | Income before income taxes | 79.2 | 22.1 | 57.1 | 258 % | | Income tax expense | (33.1) | (28.7) | (4.4) | 15 % | | Net income / (loss) | 46.1 | (6.6) | 52.7 | 798 % | Net income / (loss) Net income significantly increased by $52.7 million to $46.1 million in H1 2024, primarily driven by higher operating revenue - Net income increased by $52.7 million to $46.1 million for H1 2024, compared to a net loss of $6.6 million in H1 2023, representing a 798% increase[14][15] - The increase is primarily due to higher total operating revenue, partially offset by increased rig operating and maintenance expenses, depreciation, financial expenses, and income tax[15] Total operating revenues Total operating revenues increased by $146.4 million to $505.9 million in H1 2024, driven by higher dayrate, bareboat charter, and management contract revenues - Total operating revenues increased by $146.4 million (41%) to $505.9 million for H1 2024[14][16] - Dayrate revenue increased by $124.5 million, with $59.6 million from more rigs in operation and $52.3 million from higher average dayrates[16] - Bareboat charter revenue increased by $37.9 million due to new agreements for five rigs, and management contract revenue increased by $11.7 million[17] - Related party revenue decreased by $27.7 million as five rigs transitioned from related party to bareboat charter revenue[17] Gain on disposal Gain on disposal remained minimal, increasing slightly from $0.3 million in H1 2023 to $0.4 million in H1 2024, both from scrap asset sales - Gain on disposal increased slightly from $0.3 million in H1 2023 to $0.4 million in H1 2024, both from scrap asset sales[14][18] Rig operating and maintenance expenses Rig operating and maintenance expenses increased by $53.1 million to $228.1 million in H1 2024, driven by more rigs in operation and new management contracts - Rig operating and maintenance expenses increased by $53.1 million (30%) to $228.1 million for H1 2024[14][18] - The increase is mainly due to more rigs in operation and new rig management contracts, shifting expenses for three rigs from equity method investment to direct recognition[18] Depreciation of non-current assets Depreciation of non-current assets increased by $7.5 million to $63.7 million in H1 2024, driven by new jack-up rigs and long-term maintenance projects - Depreciation of non-current assets increased by $7.5 million (13%) to $63.7 million for H1 2024[14][19] - The increase is due to a $4.3 million rise from new rigs ('Arabia III', 'Hild') and a $3.2 million rise from long-term maintenance projects on other rigs[19] General and administrative expenses General and administrative expenses increased by $2.3 million to $25.0 million in H1 2024, mainly due to higher personnel costs, partially offset by lower stock-based compensation - General and administrative expenses increased by $2.3 million (10%) to $25.0 million for H1 2024[14][20] - This was mainly due to a $2.2 million increase in personnel costs, offset by a $1.5 million decrease in stock-based compensation[20] Income from equity method investments Income from equity method investments decreased by $3.4 million to $2.9 million in H1 2024, primarily due to increased foreign exchange losses - Income from equity method investments decreased by $3.4 million (54%) to $2.9 million for H1 2024[14][20] - The decrease was mainly due to an $8.7 million increase in net foreign exchange losses, partially offset by a $6.7 million decrease in income tax expense[20] Total financial expenses, net Total financial expenses, net, increased by $23.1 million to $113.2 million in H1 2024, driven by higher interest expense and a premium on repurchased Convertible Bonds - Total financial expenses, net, increased by $23.1 million (26%) to $113.2 million for H1 2024[14][21] - This was mainly due to a $20.8 million increase in interest expense from higher debt principal and a $2.3 million premium on repurchased Convertible Bonds[21] Income tax expense Income tax expense increased by $4.4 million to $33.1 million in H1 2024, primarily due to deferred tax asset utilization and higher corporate income tax - Income tax expense increased by $4.4 million (15%) to $33.1 million for H1 2024[14][22] - The increase was principally due to a $4.2 million utilization of deferred tax assets and a $0.2 million increase in corporate income tax expense[22] Adjusted EBITDA Adjusted EBITDA increased by $91.1 million to $253.2 million in H1 2024, reflecting 56% growth and enhancing business performance comparability - Adjusted EBITDA increased by $91.1 million (56%) to $253.2 million for H1 2024[23][24] Adjusted EBITDA Reconciliation (Six months ended June 30) | In $ millions | Six months ended June 30,
2024 | 2023 | Change | % Change | |:--------------------------------------|:---------------------------------|:------|:-------|:----------| | Net income / (loss) | 46.1 | (6.6) | 52.7 | (798) % | | Depreciation of non-current assets | 63.7 | 56.2 | 7.5 | 13 % | | Income from equity method investments | (2.9) | (6.3) | 3.4 | (54) % | | Total financial expenses, net | 113.2 | 90.1 | 23.1 | 26 % | | Income tax | 33.1 | 28.7 | 4.4 | 15 % | | Adjusted EBITDA | 253.2 | 162.1 | 91.1 | 56 % | Liquidity and Capital Resources The company's liquidity is met through operations, equity/debt offerings, and financing, with $193.5 million in cash as of June 30, 2024, alongside continued distributions and borrowing activities - Liquidity needs are met from cash from operations, equity/debt offerings, and financing arrangements[25] Cash and Debt Overview | Metric | June 30, 2024 (in $ millions) | |:-------------------------------------|:------------------------------| | Cash and cash equivalents | 193.5 | | Restricted cash | 1.0 | | Total principal amount of debt | 1,922.0 | | Debt maturing within next 12 months | 114.6 | Cash Distributions Borr Drilling continued its cash distribution policy, paying $0.05 per share for Q3 and Q4 2023, and $0.10 per share for Q1 2024 - Paid cash distributions of $0.05 per share for Q3 2023 (Jan 2024) and Q4 2023 (March 2024)[27] - Paid a cash distribution of $0.10 per share for Q1 2024 (June 2024)[27] Borrowing Activities As of June 30, 2024, total principal debt was $1,922.0 million, with the company repurchasing Convertible Bonds and issuing additional Senior Secured Notes - Total principal amount of debt outstanding was $1,922.0 million as of June 30, 2024[28] - Repurchased $10.6 million principal amount of Convertible Bonds in March 2024[28] - Issued an additional $200.0 million (March 2024) and $150.0 million (August 2024) of 10% Senior Secured Notes due 2028[29] Cash Flows Net cash provided by operating activities significantly improved to $33.0 million in H1 2024, while financing activities saw a substantial increase due to debt proceeds Cash Flow Information (Six months ended June 30) | In $ millions | Six months ended June 30,
2024 | 2023 | Change | % Change | |:-----------------------------------------------------------|:---------------------------------|:-------|:-------|:---------| | Net cash provided by / (used in) operating activities | 33.0 | (5.8) | 38.8 | (669)% | | Net cash used in investing activities | (32.1) | (44.9) | 12.8 | (29)% | | Net cash provided by financing activities | 91.0 | 16.0 | 75.0 | 469 % | | Net increase / (decrease) in cash and cash equivalents and restricted cash | 91.9 | (34.7) | 126.6 | (365)% | | Cash and cash equivalents and restricted cash at beginning of period | 102.6 | 118.5 | (15.9) | (13)% | | Cash and cash equivalents and restricted cash at end of period | 194.5 | 83.8 | 110.7 | 132 % | - Net cash provided by operating activities increased by $38.8 million to $33.0 million in H1 2024, primarily due to increased operating rigs and average dayrates[31] - Net cash provided by financing activities increased by $75.0 million to $91.0 million in H1 2024, driven by $208.3 million net proceeds from additional senior secured notes, offset by debt repayments and cash distributions[31][33] Non-GAAP Financial Measures This section presents Adjusted EBITDA as a non-GAAP measure for business performance comparability, with its definition updated in H1 2024 to align with industry peers - Adjusted EBITDA is a non-GAAP measure used to increase comparability of underlying business performance and is reconciled to net income/(loss)[23][35] - The definition of Adjusted EBITDA was changed in H1 2024 to exclude amortization of deferred mobilization and contract preparation costs/revenue, to align with industry peers[36] Adjusted EBITDA Definition and Rationale | Non-GAAP Measure | Closest Equivalent to GAAP Measure | Definition | Rationale for Presentation of this non-GAAP Measure | |:-----------------|:----------------------------------------------------------|:--------------------------------------------------------------------------------------------------------------------------------------|:----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | Adjusted EBITDA | Net income / (loss) attributable to shareholders of Borr Drilling Limited | Net income / (loss) adjusted for: depreciation of noncurrent assets; (loss) / income from equity method investments; total financial expenses, net; and income tax. | Increases the comparability of total business performance from period to period and against the performance of other companies by excluding the results of our equity investments and removing the impact of depreciation, financing and tax items. | Index to the Unaudited Condensed Consolidated Financial Statements This section provides an index to the unaudited condensed consolidated financial statements, including Statements of Operations, Balance Sheets, Cash Flows, and Shareholders' Equity - The index lists the Unaudited Condensed Consolidated Statements of Operations, Balance Sheets, Cash Flows, and Statements of Changes in Shareholders' Equity, along with the Notes to the Unaudited Condensed Consolidated Financial Statements[39] Unaudited Condensed Consolidated Statements of Operations For H1 2024, the company reported a net income of $46.1 million, a significant improvement from a prior-year net loss, with total operating revenues increasing 41% to $505.9 million Unaudited Condensed Consolidated Statements of Operations (Six months ended June 30) | | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:------------------------------------------------------------------------------------------|:-------------------------------|:-------------------------------| | Total operating revenues | 505.9 | 359.5 | | Operating income | 189.5 | 105.9 | | (Loss) / income from equity method investments | 2.9 | 6.3 | | Total financial expenses, net | (113.2) | (90.1) | | Income before income taxes | 79.2 | 22.1 | | Income tax expense | (33.1) | (28.7) | | Net income / (loss) attributable to shareholders of Borr Drilling Limited | 46.1 | (6.6) | | Basic income / (loss) per share | 0.18 | (0.03) | | Diluted income / (loss) per share | 0.18 | (0.03) | Unaudited Condensed Consolidated Balance Sheets As of June 30, 2024, total assets increased to $3,181.6 million, driven by current assets, while total liabilities rose to $2,182.4 million due to higher long-term debt Unaudited Condensed Consolidated Balance Sheets (In $ millions) | | June 30, 2024 | December 31, 2023 | |:---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|:--------------|:------------------| | ASSETS | | | | Total current assets | 546.2 | 409.9 | | Total non-current assets | 2,635.4 | 2,670.2 | | Total assets | 3,181.6 | 3,080.1 | | LIABILITIES AND EQUITY | | | | Total current liabilities | 349.0 | 360.4 | | Total non-current liabilities | 1,833.4 | 1,735.7 | | Total liabilities | 2,182.4 | 2,096.1 | | Total equity | 999.2 | 984.0 | | Total liabilities and equity | 3,181.6 | 3,080.1 | - Cash and cash equivalents increased from $102.5 million (Dec 31, 2023) to $193.5 million (June 30, 2024)[41] - Long-term debt increased from $1,618.8 million (Dec 31, 2023) to $1,745.8 million (June 30, 2024)[41] Unaudited Condensed Consolidated Statements of Cash Flows For H1 2024, net cash provided by operating activities significantly improved to $33.0 million, and net cash from financing activities substantially increased to $91.0 million due to debt proceeds Unaudited Condensed Consolidated Statements of Cash Flows (Six months ended June 30) | | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:---------------------------------------------------------------------------------------------------|:-------------------------------|:-------------------------------| | Net cash provided by / (used in) operating activities | 33.0 | (5.8) | | Net cash used in investing activities | (32.1) | (44.9) | | Net cash provided by financing activities | 91.0 | 16.0 | | Net increase / (decrease) in cash and cash equivalents and restricted cash | 91.9 | (34.7) | | Cash and cash equivalents and restricted cash at beginning of period | 102.6 | 118.5 | | Cash and cash equivalents and restricted cash at end of period | 194.5 | 83.8 | | Interest paid | (98.2) | (96.6) | | Income taxes paid | (30.0) | (17.9) | - Net cash provided by operating activities increased by $38.8 million to $33.0 million, driven by increased operating rigs and dayrates[31] - Net cash provided by financing activities increased by $75.0 million to $91.0 million, primarily from $208.3 million in debt proceeds, offset by debt repayments and cash distributions[33] Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity For H1 2024, total equity increased to $999.2 million, influenced by $46.1 million in comprehensive income and share-based compensation, partially offset by cash distributions Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity (Selected Data) | | December 31, 2023 | June 30, 2024 | |:--------------------------------|:------------------|:--------------| | Total equity (beginning of period) | 984.0 | 984.0 | | Share based compensation | — | 4.9 | | Distribution to shareholders | — | (35.8) | | Total comprehensive income | — | 46.1 | | Total equity (end of period) | 984.0 | 999.2 | - Total equity increased by $15.2 million from $984.0 million at December 31, 2023, to $999.2 million at June 30, 2024[46] - Key movements include $46.1 million in total comprehensive income and $4.9 million in share-based compensation, offset by $35.8 million in cash distributions to shareholders[46] Notes to the Unaudited Condensed Consolidated Financial Statements This section provides detailed notes accompanying the unaudited condensed consolidated financial statements, covering accounting policies, segment information, and debt Note 1 - General Information Borr Drilling Limited is an international offshore drilling contractor, owning and operating 22 premium jack-up rigs as of June 30, 2024, with two more under construction - Borr Drilling Limited is an international offshore drilling contractor, operating modern jack-up drilling rigs in shallow-water areas[48] - As of June 30, 2024, the company had 22 premium jack-up rigs and two additional rigs under construction, scheduled for delivery in H2 2024[48] Note 2 - Basis of Preparation and Accounting Policies The unaudited consolidated financial statements are prepared under U.S. GAAP, with key accounting policies for revenue and marketable equity securities updated in H1 2024 - Financial statements are prepared in accordance with U.S. GAAP and presented on a going concern basis[50] - Revenue accounting policy was updated due to new bareboat charter and operating/maintenance agreements with third parties[50] - A new accounting policy for marketable equity securities was included due to the Company's investment in equity securities[50] Revenue Revenue is primarily earned from drilling contracts, recognized over time based on variable dayrates, and includes bareboat charter and management contract revenues - Revenue is earned from drilling contracts, representing a single performance obligation satisfied over time, based on variable dayrates[51][52] - New bareboat charter agreements and contract management agreements contribute to revenue, recognized based on fixed daily rates or cost-plus/dayrate basis[53][54] - Pre-operating revenues (mobilization, contract preparation) and demobilization revenues are recognized ratably over the expected term of the related drilling contract[55][56][57] Investment in marketable equity securities Marketable equity securities are measured at fair value, with gains/losses recognized in 'Other financial expenses, net', and classified as current assets for liquidity - Marketable equity securities are measured at fair value, with gains/losses recognized in 'Other financial expenses, net'[58] - These investments are classified as current assets due to their availability to meet liquidity needs[58] Note 3 - Recently Issued Accounting Standards The company adopted several new accounting standards effective January 1, 2024, with no material impact on H1 2024 financial statements, while future standards are under evaluation - Adopted ASU 2022-03 (Fair Value Measurement), ASU 2023-01 (Leases), ASU 2023-02 (Equity Method Investments), and ASU 2023-07 (Segment Reporting) effective January 1, 2024[60][61][62][63] - No material impact resulted from the adoption of these new accounting standards on the unaudited consolidated financial statements for H1 2024[60][61][62][63] - ASU 2023-05 (Business Combinations), ASU 2023-09 (Income Taxes), and ASU 2024-01 (Stock Compensation) are issued but not yet adopted, with their impact currently under evaluation[64] Note 4 - Segment Information Borr Drilling operates as a single dayrate model segment, with revenues geographically attributed to Mexico, Southeast Asia, and the Middle East, and key customers including Saudi Arabian Oil Company - The company has a single reportable segment: operations performed under its dayrate model, including rig charters and ancillary services[65] - The Board of Directors acts as the Chief Operating Decision Maker (CODM) and reviews financial information in aggregate[65] Geographic data Revenues are attributed to the country of operations, with Mexico, South East Asia, and the Middle East being the top revenue-generating regions in H1 2024 - Revenues are attributed to geographical location based on the country of operations for drilling activities[70] Revenues by Geographic Area (Six months ended June 30) | | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:----------------|:-------------------------------|:-------------------------------| | Mexico | 146.5 | 82.5 | | South East Asia | 138.5 | 110.4 | | Middle East | 129.3 | 62.2 | | West Africa | 76.7 | 89.3 | | Europe | 14.9 | 15.1 | | Total | 505.9 | 359.5 | Major customers In H1 2024, Saudi Arabian Oil Company (16%), PTT Exploration and Production (10%), and ENI Congo S.A. (11%) were major customers, with Perfomex's contribution decreasing Major Customers (% of operating revenues, Six months ended June 30) | | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:------------------------------------------------------|:-------------------------------|:-------------------------------| | Saudi Arabian Oil Company | 16 % | 13 % | | PTT Exploration and Production Public Company Limited | 10 % | 9 % | | ENI Congo S.A. | 11 % | 14 % | | Perfomex | 7 % | 18 % | | Total | 44 % | 54 % | - Perfomex's share of operating revenues decreased from 18% in H1 2023 to 7% in H1 2024[71] Fixed Assets — Jack-up rigs As of June 30, 2024, the net book value of jack-up rigs decreased slightly to $2,538.5 million, with Mexico, Southeast Asia, and the Middle East holding the highest asset values Net Book Value of Jack-up Rigs by Geographic Area (In $ millions) | | June 30, 2024 | December 31, 2023 | |:----------------|:--------------|:------------------| | Mexico | 803.7 | 815.4 | | South East Asia | 664.7 | 673.4 | | Middle East | 542.5 | 553.0 | | West Africa | 437.8 | 444.8 | | Europe | 89.8 | 91.7 | | Total | 2,538.5 | 2,578.3 | - Asset locations at period-end are not necessarily indicative of the geographical distribution of revenues or operating profits generated by such assets during the associated periods[72] Note 5 - Contracts with Customers This note details contract assets and liabilities, with total contract assets increasing to $106.4 million and liabilities decreasing to $61.3 million as of June 30, 2024 Contract Assets and Liabilities (In $ millions) | | June 30, 2024 | December 31, 2023 | |:--------------------------------------------------------------------|:--------------|:------------------| | Total contract asset | 106.4 | 76.0 | | Total contract liability | (61.3) | (116.1) | - Accrued revenue includes deferred variable rate revenue, deferred demobilization revenue, and liquidated damages[73] - Deferred mobilization, demobilization, and contract preparation revenue are recognized on a straight-line basis over the initial firm term of contracts[73] Timing of Revenue The majority of revenue is recognized over time, with $492.7 million recognized in H1 2024, and $986.6 million projected for 2025 from existing contracts Timing of Revenue Recognition (Six months ended June 30) | | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:----------------|:-------------------------------|:-------------------------------| | Over time | 492.7 | 347.1 | | Point in time | 13.2 | 12.4 | | Total | 505.9 | 359.5 | Expected Revenue on Existing Contracts (as of June 30, 2024) | (In $ millions) | 2025 | For the periods ending June 30,
2026 | 2027 | 2028 onwards | |:----------------|:------|:-------------------------------------|:-----|:-------------| | Dayrate revenue | 913.9 | 411.4 | 65.2 | 58.5 | | Other revenue | 72.7 | 36.1 | 6.7 | 7.0 | | Total | 986.6 | 447.5 | 71.9 | 65.5 | Contract Costs Deferred mobilization and contract preparation costs, recognized straight-line over the contract period, decreased by $18.6 million to $63.4 million as of June 30, 2024 - Deferred mobilization and contract preparation costs are recognized on a straight-line basis over the estimated firm period of the drilling contract[77] Deferred Mobilization and Contract Preparation Costs (In $ millions) | | June 30, 2024 | December 31, 2023 | |:----------------------------------------------------------------------|:--------------|:------------------| | Current deferred mobilization and contract preparation costs | 31.8 | 39.4 | | Non-current deferred mobilization and contract preparation costs | 31.6 | 42.6 | | Total deferred mobilization and contract preparation asset | 63.4 | 82.0 | - Total deferred mobilization and contract preparation costs decreased by $18.6 million to $63.4 million in H1 2024, due to $31.8 million in amortization offsetting $13.2 million in new deferred costs[79] Note 6 - Equity Method Investments Borr Drilling holds a 51% interest in Mexico-based joint ventures Perfomex and Perfomex II, with recent restructuring of bareboat charter agreements impacting H1 2024 revenue and net income - Borr Drilling owns a 51% interest in Mexico-based joint ventures, Perfomex and Perfomex II[80] - Effective January 1 and April 1, 2024, bareboat charter agreements with Perfomex for five jack-up rigs were terminated[81] - New fixed-rate bareboat charter agreements were entered into with Irish Energy Drilling Assets, DAC (Irco) for these rigs, and new DO&M Agreements with Perforadora Ircomex, S.A. DE C.V. (Ircomex) for drilling, operations, and management services[81][82] Results from Equity Method Investments (Six months) For H1 2024, Perfomex reported $77.6 million in revenue and $7.4 million in net income, while Perfomex II reported $4.8 million in revenue and a $1.7 million net loss Results from Equity Method Investments (Six months ended June 30, In $ millions) | In $ millions | Perfomex | Six months ended June 30, 2024
Perfomex II | Perfomex | Six months ended June 30, 2023
Perfomex II | |:--------------------|:---------|:---------------------------------------------|:---------|:---------------------------------------------| | Revenue | 77.6 | 4.8 | 142.9 | 15.0 | | Operating expenses | (76.4) | (4.8) | (140.0) | (14.7) | | Net income / (loss) | 7.4 | (1.7) | 10.1 | 2.2 | Investments in Equity Method Investments Borr Drilling's total investment in equity method investments increased from $15.7 million at December 31, 2023, to $18.6 million at June 30, 2024 Investments in Equity Method Investments (In $ millions) | In $ millions | Perfomex | Perfomex II | Borr Total | |:--------------------------------|:---------|:------------|:-----------| | Balance as of December 31, 2023 | 9.1 | 6.6 | 15.7 | | Income on a percentage basis | 3.8 | (0.9) | 2.9 | | Balance as of June 30, 2024 | 12.9 | 5.7 | 18.6 | Note 7 - Interest Expense Total interest expense increased by $20.8 million to $101.0 million in H1 2024, primarily due to higher debt interest expense and amortization of debt discount Interest Expense (Six months ended June 30, In $ millions) | | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:-----------------------------------------|:-------------------------------|:-------------------------------| | Debt interest expense | (92.4) | (75.2) | | Amortization of deferred finance charges | (5.5) | (5.0) | | Amortization of debt discount | (3.4) | — | | Amortization of debt premium | 0.3 | — | | Total | (101.0) | (80.2) | - Debt interest expense increased by $17.2 million, and amortization of debt discount was $3.4 million in H1 2024[88] Note 8 - Other Financial Expenses, net Other financial expenses, net, increased to $16.0 million in H1 2024, mainly due to yard cost cover, bank fees, foreign exchange losses, and a premium on repurchased Convertible Bonds Other Financial Expenses, net (Six months ended June 30, In $ millions) | | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:-----------------------------------------------------|:-------------------------------|:-------------------------------| | Yard cost cover expense | (11.2) | (10.9) | | Bank commitment, guarantee and other fees | (1.9) | (1.2) | | Foreign exchange loss | (2.3) | (1.6) | | Other financial income / (expenses) | (0.9) | (0.3) | | Unrealized changes in value of financial instruments | 0.3 | — | | Total | (16.0) | (14.0) | - Other financial expenses for H1 2024 include a $2.3 million premium paid on Convertible Bonds repurchased in March 2024[89] Note 9 - Taxation Borr Drilling, a Bermuda-based company, faces a new 15% corporate income tax from January 1, 2025, with H1 2024 income tax expense increasing to $33.1 million due to deferred tax asset utilization - Borr Drilling Limited is tax-exempt in Bermuda until March 31, 2035, but operates globally through subsidiaries[91] - The Bermuda Corporate Income Tax Act, enacted in December 2023, will impose a 15% tax from January 1, 2025[91][94] Income Tax Expense (Six months ended June 30, In $ millions) | | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:-----------------------|:-------------------------------|:-------------------------------| | Current tax | (28.7) | (27.9) | | Change in deferred tax | (4.4) | (0.8) | | Total | (33.1) | (28.7) | - The company is monitoring developments regarding the OECD Base Erosion and Profit Shifting (Pillar 2) initiative and the new Bermuda Corporate Income Tax Act[94] Note 10 - Income/(loss) Per Share For H1 2024, basic and diluted income per share were $0.18, a significant improvement from a prior-year loss, with diluted EPS including 37,395,409 dilutive effects Income/(loss) Per Share (Six months ended June 30) | | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:-----------------------------------------------------------------------|:-------------------------------|:-------------------------------| | Basic income (loss) per share | 0.18 | (0.03) | | Diluted income (loss) per share | 0.18 | (0.03) | | Net income / (loss) - basic | 46.1 | (6.6) | | Weighted average numbers of shares outstanding for the period, basic | 251,953,928 | 239,806,937 | | Dilutive effect of share options, RSU and Convertible Bond | 37,395,409 | — | | Weighted average numbers of shares outstanding for the period, diluted | 289,349,337 | 239,806,937 | - Dilutive effects for H1 2024 included 8,118,362 share options, 862,780 restricted stock units, and 33,554,319 shares from convertible bonds[97] - Certain potential share issuances were excluded from diluted EPS calculation for being anti-dilutive, especially during the loss period in H1 2023[98][100] Note 11 - Other Current Assets Other current assets decreased to $24.8 million at June 30, 2024, primarily due to a decrease in VAT receivable, partially offset by a new $1.8 million investment in marketable securities Other Current Assets (In $ millions) | | June 30, 2024 | December 31, 2023 | |:------------------------------------|:--------------|:------------------| | VAT receivable | 8.0 | 16.5 | | Client rechargeables | 5.2 | 5.3 | | Other tax receivables | 5.6 | 4.7 | | Investment in marketable securities | 1.8 | — | | Right-of-use lease asset | 0.5 | 0.5 | | Deferred financing fee | 0.5 | 0.5 | | Other receivables | 3.2 | 4.5 | | Total | 24.8 | 32.0 | - Investment in marketable equity securities of $1.8 million was recorded in H1 2024, with unrealized gains of $0.3 million, and these shares were sold in July 2024[102] Note 12 - Newbuildings The carrying value of newbuildings increased to $23.4 million at June 30, 2024, with $18.0 million in additions, and $319.8 million in remaining installments for two Keppel newbuilds Carrying Value of Newbuildings (In $ millions) | | June 30, 2024 | December 31, 2023 | |:----------------|:--------------|:------------------| | Opening balance | 5.4 | 3.5 | | Additions | 18.0 | 1.9 | | Total | 23.4 | 5.4 | - No new rigs were delivered in the six months ended June 30, 2024[103] - Remaining contracted installments for two Keppel newbuilds total $319.8 million, with expedited delivery dates of August 2024 and November 2024[105][123] Note 13 - Jack-Up Rigs The carrying value of jack-up rigs decreased slightly to $2,538.5 million at June 30, 2024, due to $63.1 million in depreciation, with no impairment indicators identified Carrying Value of Jack-Up Rigs (In $ millions) | | June 30, 2024 | December 31, 2023 | |:------------------------------|:--------------|:------------------| | Opening balance | 2,578.3 | 2,589.1 | | Additions | 23.3 | 104.7 | | Depreciation and amortization | (63.1) | (115.5) | | Total | 2,538.5 | 2,578.3 | - Accumulated depreciation related to jack-up rigs was $661.2 million as of June 30, 2024[106] - No impairment indicators were identified for jack-up rigs during the six months ended June 30, 2024[107] Note 14 - Leases Operating lease expenses for H1 2024 totaled $7.3 million, with new bareboat charter agreements for five jack-up rigs generating $37.9 million in revenue and $160.8 million in minimum future revenues Supplemental Balance Sheet Information Related to Leases (In $ millions) | | June 30, 2024 | December 31, 2023 | |:------------------------------------|:--------------|:------------------| | Operating leases right-of-use assets | 1.4 | 1.6 | | Current operating lease liabilities | 0.5 | 0.5 | | Non-current operating lease liabilities | 0.9 | 1.1 | - Operating lease expense for the six months ended June 30, 2024, was $7.3 million[109] - New fixed external bareboat charter agreements for five jack-up rigs generated $37.9 million in 'Bareboat charter revenue' for H1 2024, with total minimum future revenues of $160.8 million[110][111] Note 15 - Other Non-Current Assets Other non-current assets decreased to $51.6 million at June 30, 2024, primarily due to a reduction in deferred mobilization and contract preparation costs and deferred tax assets Other Non-Current Assets (In $ millions) | | June 30, 2024 | December 31, 2023 | |:----------------------------------------------------------|:--------------|:------------------| | Deferred mobilization and contract preparation costs | 31.6 | 42.6 | | Deferred tax asset | 14.9 | 19.3 | | Deferred demobilization revenue | 2.5 | 1.5 | | Deferred financing fee | 1.5 | 1.7 | | Right-of-use lease asset, non-current | 0.9 | 1.1 | | Liquidated damages | 0.1 | 0.8 | | Prepayments | 0.1 | 0.3 | | Total | 51.6 | 67.3 | - Non-current deferred mobilization and contract preparation costs decreased from $42.6 million to $31.6 million[112] - Deferred tax asset decreased from $19.3 million to $14.9 million[112] Note 16 - Accrued Expenses Accrued expenses decreased to $69.7 million at June 30, 2024, primarily due to a reduction in 'Other accrued expenses' and accrued payroll and bonus Accrued Expenses (In $ millions) | | June 30, 2024 | December 31, 2023 | |:--------------------------------------------------|:--------------|:------------------| | Accrued goods and services received, not invoiced | 18.2 | 19.7 | | Accrued payroll and bonus | 10.6 | 12.3 | | Other accrued expenses | 40.9 | 45.0 | | Total | 69.7 | 77.0 | - Other accrued expenses include holding costs, professional fees, and management fees related to rig operations[114] Note 17 - Other Current Liabilities Other current liabilities decreased to $52.6 million at June 30, 2024, mainly due to lower dividends payable and other current liabilities, partially offset by increased VAT payable Other Current Liabilities (In $ millions) | | June 30, 2024 | December 31, 2023 | |:-----------------------------------|:--------------|:------------------| | VAT payable | 21.0 | 17.5 | | Other current taxes payable | 20.0 | 19.7 | | Corporate income taxes payable | 6.6 | 6.7 | | Accrued payroll and severance | 1.2 | 0.8 | | Operating lease liability, current | 0.5 | 0.5 | | Dividends payable | — | 11.9 | | Other current liabilities | 3.3 | 6.1 | | Total | 52.6 | 63.2 | - Dividends payable decreased from $11.9 million to zero, as the Q3 2023 cash distribution was paid in January 2024[115][116] Note 18 - Debt Total principal debt outstanding was $1,922.0 million at June 30, 2024, with $114.6 million maturing within twelve months, and the company remained in compliance with debt covenants - Total principal amount of debt outstanding was $1,922.0 million as of June 30, 2024[118] - The weighted average nominal interest rate for all interest-bearing debt was 9.7% for H1 2024[122] - The company was in compliance with all covenants and obligations under its debt agreements as of June 30, 2024[122] Short-term debt Short-term debt (carrying value) increased to $97.8 million at June 30, 2024, with $114.6 million in principal outstanding, primarily from 2028 and 2030 Notes Short-term Debt (In $ millions) | (In $ millions) | Principal Amount
June 30, 2024 | December 31, 2023 | |:-----------------------------------|:-------------------------------|:------------------| | 2028 Notes | 75.0 | 75.0 | | 2030 Notes | 25.0 | 25.0 | | Additional 2028 Notes | 14.6 | — | | Principal Outstanding | 114.6 | 100.0 | | Deferred Finance Charges | (11.1) | (10.3) | | Debt discount | (6.8) | (6.8) | | Debt premium | 1.1 | — | | Carrying Value Short-Term Debt | 97.8 | 82.9 | Long-term debt Long-term debt (carrying value) increased to $1,745.8 million at June 30, 2024, with $1,807.4 million in principal outstanding, primarily from 2028 Notes, 2030 Notes, and Convertible Bonds Long-term Debt (In $ millions) | (In $ millions) | Principal Amount
June 30, 2024 | December 31, 2023 | |:-----------------------------------|:-------------------------------|:------------------| | 2028 Notes | 912.5 | 950.0 | | 2030 Notes | 477.5 | 490.0 | | Convertible Bonds | 239.4 | 250.0 | | Additional 2028 Notes | 178.0 | — | | Principal Outstanding | 1,807.4 | 1,690.0 | | Deferred Finance Charges | (37.9) | (40.5) | | Debt discount | (27.3) | (30.7) | | Debt premium | 3.6 | — | | Carrying Value Long-Term Debt | 1,745.8 | 1,618.8 | Scheduled Maturities Scheduled maturities for the company's total principal debt of $1,922.0 million show $57.2 million due in 2024 and $114.6 million in 2025 Scheduled Debt Maturities (In $ millions) | | Maturities | |:---------------------|:-----------| | 2024 | 57.2 | | 2025 | 114.6 | | 2026 | 114.6 | | 2027 | 114.6 | | Thereafter | 1,521.0 | | Total principal debt | 1,922.0 | Issuance of Additional Senior Secured Notes Due 2028 In March 2024, the company issued an additional $200.0 million of 10% Senior Secured Notes due 2028, generating $211.9 million in gross proceeds under existing terms - Issued $200.0 million of additional 10% Senior Secured Notes due 2028 in March 2024[119] - The notes were issued at 102.5% plus accrued interest, raising gross proceeds of $211.9 million[120] Repurchase of Unsecured Convertible Bonds due 2028 In March 2024, the company repurchased $10.6 million of Convertible Bonds at 120.88% of par, resulting in a $2.3 million loss and an adjusted conversion price of $7.13147 per share - Repurchased $10.6 million of Convertible Bonds in March 2024 at an average price of 120.88% of par, for a total consideration of $12.9 million[121] - A loss of $2.3 million was recognized in 'Other financial expenses, net' due to the repurchase[121] - The adjusted conversion price for the convertible bonds is $7.13147 per share, convertible into 33,554,319 shares[121] Note 19 - Commitments and Contingencies The company has $319.8 million in delivery commitments for two newbuild jack-up rigs and $27.6 million in guarantee commitments, including bank guarantees and performance bonds Delivery Installment Commitments (In $ millions) | | June 30, 2024 | December 31, 2023 | |:--------------------------------------------|:--------------|:------------------| | Delivery installments for jack-up drilling rigs | 319.8 | 319.8 | | Total | 319.8 | 319.8 | - Delivery installments for two Keppel newbuilds are $319.8 million, with expedited delivery dates in August 2024 and November 2024[123][124] Guarantee Commitments (In $ millions) | | June 30, 2024 | December 31, 2023 | |:---------------------------------------------------------|:--------------|:------------------| | Bank guarantees, letters of credit and performance bonds | 27.6 | 29.0 | | Total | 27.6 | 29.0 | - Book value of jack-up rigs pledged as collateral for debt facilities was $2,538.5 million as of June 30, 2024[125] Note 20 - Related Party Transactions Related party transactions primarily involved joint ventures Perfomex and Perfomex II, with bareboat charter agreements terminated in H1 2024, decreasing related party bareboat revenue to $35.0 million - Bareboat charter agreements with Perfomex for five rigs were terminated effective January 1 and April 1, 2024[127] - New fixed rate bareboat charter agreements were entered into with an unrelated party for these rigs[127] Bareboat Revenue from Related Parties (Six months ended June 30, In $ millions) | | Six months ended June 30, 2024 | Six months ended June 30, 2023 | |:----------------------------|:-------------------------------|:-------------------------------| | Bareboat Revenue - Perfomex | 35.0 | 62.7 | | Total | 35.0 | 62.7 | Note 21 - Fair Value of Financial Instruments The company categorizes fair value estimates using a three-level hierarchy, with most current assets and liabilities approximating fair value, and debt fair valued using observable