Borr Drilling(BORR) - 2022 Q2 - Quarterly Report

Report Overview Cover Page and Forward-Looking Statements This Form 6-K report, filed by Borr Drilling Limited on August 11, 2022, presents unaudited interim financial results for the six months ended June 30, 2022, and includes forward-looking statements regarding debt refinancing, equity raises, and rig contracts, which are subject to significant risks and uncertainties - The report contains the unaudited interim financial statements for the six months ended June 30, 2022[3][5] - Key forward-looking statements relate to plans for debt refinancing with secured creditors, a recently priced equity raise, and the intended sale of three newbuild rigs[11][12] Management Discussion and Analysis of Financial Condition and Results of Operation Overview and Recent Developments Borr Drilling Limited, an offshore shallow-water drilling contractor, recently priced a $250 million public equity offering to support debt refinancing and granted new stock options to employees - The company's primary business is owning and operating jack-up rigs for shallow-water oil and gas drilling[16] - On August 10, 2022, the company priced a $250 million public equity offering, with proceeds intended for debt refinancing and general corporate purposes[17] - On August 11, 2022, the Board granted 4 million stock options to employees and 0.5 million Performance Stock Units to the CEO, effective September 1, 2022[18][19] Operating and Financial Review For the six months ended June 30, 2022, Borr Drilling's net loss increased to $216.6 million, primarily due to a $124.4 million impairment charge on newbuild rigs, despite an 81% growth in total operating revenues to $187.3 million and a significant improvement in Adjusted EBITDA to $58.4 million Selected Financial Data (Six Months Ended June 30) | Financial Metric (In $ millions) | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | 187.3 | 103.2 | 84.1 | 81% | | Rig operating & maintenance expenses | (121.1) | (96.2) | (24.9) | 26% | | Impairment of non-current assets | (124.4) | — | (124.4) | 100% | | Operating Loss | (135.3) | (66.6) | (68.7) | 103% | | Net loss | (216.6) | (114.3) | (102.3) | 90% | - The increase in net loss was primarily driven by a $124.4 million impairment charge on three newbuilding jack-up rigs following a letter of intent for their sale[22][25] - Operating revenues increased by $84.1 million, mainly from a $54.2 million rise in dayrate revenue due to more rigs operating and a $29.9 million increase in related party bareboat revenues[22] Adjusted EBITDA Reconciliation (Six Months Ended June 30) | Metric (In $ millions) | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Net loss | (216.6) | (114.3) | (102.3) | | Adjustments | 275.0 | 107.3 | 167.7 | | Adjusted EBITDA | 58.4 | (7.0) | 65.4 | Liquidity, Capital Resources, and Going Concern As of June 30, 2022, the company's ability to continue as a going concern is in substantial doubt due to $1.6 billion of its $1.86 billion total debt maturing in 2023, contingent on successful debt refinancing and a $250 million equity offering, with net cash used in operating activities improving slightly to $23.2 million - The company has concluded that a substantial doubt exists over its ability to continue as a going concern, dependent on refinancing its 2023 debt maturities and raising additional equity[47][48] - As of June 30, 2022, total principal debt outstanding was $1,862.5 million, with $1,603.3 million maturing in 2023[37] - Agreements in principle have been reached with secured creditors to extend the 2023 debt maturities to 2025, contingent on board approvals, binding documentation, and the completion of the August 2022 equity offering[37][39][40] Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity (In $ millions) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | (23.2) | (27.6) | | Net cash used in investing activities | (22.7) | (4.0) | | Net cash provided by financing activities | 37.7 | 44.8 | | Net change in cash | (8.2) | 13.2 | Non-GAAP Financial Measures The company uses Adjusted EBITDA, a non-GAAP financial measure, to enhance comparability of business performance by excluding items such as depreciation, impairment, financing costs, and taxes from net loss - Adjusted EBITDA is presented to increase comparability of business performance by excluding the impact of depreciation, impairment, financing, and tax items[52] - Adjusted EBITDA is defined as net loss adjusted for depreciation, impairment, other non-operating income, income from equity method investments, total financial expenses, amortization of mobilization costs/revenue, and income tax[52] Unaudited Consolidated Financial Statements Consolidated Statements of Operations For the six months ended June 30, 2022, the company reported total operating revenues of $187.3 million and a net loss of $216.6 million, resulting in a basic and diluted loss per share of $1.45, compared to revenues of $103.2 million and a net loss of $114.3 million in 2021 Statement of Operations Highlights (Six Months Ended June 30) | Item (In $ millions) | 2022 | 2021 | | :--- | :--- | :--- | | Total operating revenues | 187.3 | 103.2 | | Operating loss | (135.3) | (66.6) | | Net loss | (216.6) | (114.3) | | Basic and diluted loss per share | (1.45) | (0.86) | Consolidated Balance Sheets As of June 30, 2022, Borr Drilling's total assets decreased to $2,990.5 million from $3,080.3 million at year-end 2021, while total liabilities increased to $2,279.0 million and total shareholders' equity declined to $711.5 million from $889.9 million Balance Sheet Highlights (In $ millions) | Item | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | 29.7 | 34.9 | | Total Assets | 2,990.5 | 3,080.3 | | Total Liabilities | 2,279.0 | 2,190.4 | | Total Shareholders' Equity | 711.5 | 889.9 | Consolidated Statements of Cash Flows For the first six months of 2022, net cash used in operating activities was $23.2 million, net cash used in investing activities was $22.7 million, and net cash provided by financing activities was $37.7 million, resulting in a net decrease in cash and restricted cash of $8.2 million Cash Flow Highlights (Six Months Ended June 30) | Item (In $ millions) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | (23.2) | (27.6) | | Net cash used in investing activities | (22.7) | (4.0) | | Net cash provided by financing activities | 37.7 | 44.8 | | Net (decrease)/increase in cash | (8.2) | 13.2 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased from $889.9 million at year-end 2021 to $711.5 million as of June 30, 2022, primarily due to a $216.6 million comprehensive loss, partially offset by $38.9 million from common share issuances - Total equity decreased by $178.4 million in the first six months of 2022, from $889.9 million to $711.5 million[68] - The main drivers of the equity change were a net loss of $216.6 million, offset by proceeds from share issuances totaling $38.9 million[68] Notes to the Unaudited Consolidated Financial Statements Note 1: General Information and Going Concern The company operates 23 jack-up rigs and has 5 newbuilds under construction, with a letter of intent to sell three; management has identified substantial doubt about the company's ability to continue as a going concern due to significant 2023 debt maturities, dependent on successful refinancing and equity offerings - As of June 30, 2022, the company's fleet consisted of 23 jack-up rigs and five newbuilds under construction[71] - A letter of intent was signed on June 26, 2022, for the sale of three premium jack-up rigs currently under construction[72] - Management reiterates that substantial doubt exists over the ability to continue as a going concern due to $1.6 billion of debt maturing in 2023, with survival dependent on successful refinancing and equity raises[74][81][83] Note 4: Segment and Geographic Information For the first half of 2022, the company operated as a single dayrate segment with geographically diversified revenues, primarily from South East Asia, and major customers including PTT Exploration and Production and Perfomex Revenues by Geographic Area (Six Months Ended June 30, 2022) | Region | Revenue (In $ millions) | | :--- | :--- | | South East Asia | 69.9 | | West Africa | 46.9 | | Mexico | 36.4 | | Europe | 29.0 | | Middle East | 5.1 | | Total | 187.3 | Major Customers (% of Operating Revenues, Six Months Ended June 30, 2022) | Customer | % of Revenue | | :--- | :--- | | PTT Exploration and Production | 16% | | Perfomex | 11% | Note 12: Newbuildings The company recognized a $124.4 million impairment charge on newbuildings for the six months ended June 30, 2022, following a letter of intent to sell three newbuild jack-up rigs for $320.0 million, which was below their carrying value plus completion costs, with remaining contracted installments for five newbuilds totaling $624.0 million - An impairment charge of $124.4 million was recognized on newbuildings[140][144] - The impairment was a result of a letter of intent to sell three newbuilds for $320.0 million, which was less than their total expected cost of $444.4 million[143][145] - As of June 30, 2022, remaining contracted installment payments for the five Keppel newbuilds amount to $624.0 million[141] Note 16: Debt As of June 30, 2022, the company's total principal debt was $1,862.5 million, with $1,603.3 million maturing in 2023, highlighting the critical need for refinancing, and the weighted average interest rate on interest-bearing debt was 6.2% for the first half of 2022 Debt Maturity Schedule (as of June 30, 2022) | Year of Maturity | Principal Amount (In $ millions) | | :--- | :--- | | 2023 | 1,603.3 | | 2024 | — | | 2025 | 86.4 | | 2026 | 172.8 | | Total | 1,862.5 | - Total carrying value of short-term debt was $1,642.7 million, while long-term debt was $281.8 million[153] Note 18: Commitments and Contingencies The company has significant future financial commitments, including $624.0 million in delivery installments for newbuild jack-up rigs due within one to two years, $13.4 million in outstanding surety bonds, and nearly all of its $2.7 billion book value of jack-up rigs pledged as collateral for debt facilities - Total commitments for delivery installments on newbuild jack-up rigs amount to $624.0 million, due within one to two years[158][159] - The book value of jack-up rigs pledged as collateral for debt facilities was $2,704.9 million[163] Note 22: Subsequent Events Subsequent to the reporting period in August 2022, the company priced a $250 million public equity offering to fund debt refinancing and granted 4 million stock options to employees and 0.5 million Performance Stock Units to the CEO - On August 10, 2022, the company priced a $250 million public equity offering to fund its debt refinancing and for general corporate purposes[174] - On August 11, 2022, the Board granted 4 million new stock options to employees, vesting over 3.5 years with strike prices ranging from $4.00 to $5.50[175][176]