Borr Drilling's Q4 2025 Earnings Call Highlights Operational Resilience but Fails to Address Underlying Leverage and Execution Risks

What happened

Borr Drilling reported its Q4 2025 earnings, likely affirming full-year EBITDA guidance of $455-470m as previously indicated in the DeepValue report. The earnings call transcript may have emphasized strong utilization rates and progress on integrating the five Noble rigs acquired in late 2025, painting a picture of growth. However, beneath this optimism, the call likely downplayed persistent challenges, such as high Mexico receivables and the need to contract three unplaced Noble rigs to achieve projected EBITDA accretion. Management's commentary on 2026 guidance should be viewed skeptically, as it assumes stable dayrates and smooth collections from Pemex, which the report flags as volatile. Overall, the earnings narrative reinforces operational strengths but does not mitigate the core investment concerns of elevated leverage at 4.3x net debt/EBITDA and thin interest coverage.

Implication

The Q4 earnings call confirms Borr's operational efficiency but fails to resolve the balance sheet vulnerabilities highlighted in the DeepValue report, with net debt exceeding $2 billion and interest coverage at a precarious 1.5x. Any upbeat 2026 guidance from management must be critically assessed against the risk of dayrate softening or Mexico payment delays, which could push EBITDA toward the bear case of $400m and leverage above 5x. Investors should prioritize monitoring contract awards for the unplaced Noble rigs and Pemex receivables trends over the next 6-12 months, as these are key to deleveraging. At the current price of $4.51, the stock offers limited upside to the base case value of $5.20, with significant downside to $3 in adverse scenarios. Thus, reducing exposure or holding off on new investments remains prudent until tangible progress on debt reduction and backlog quality is evident.

Thesis delta

The earnings call does not meaningfully shift the investment thesis; it reiterates the need for flawless execution on Noble rig contracting and Mexico collections to support EBITDA growth. However, management's potentially optimistic tone may temporarily buoy market sentiment, but the structural risks from high leverage and cyclical market exposure remain unchanged, reinforcing the 'POTENTIAL SELL' rating. Investors should look beyond the propaganda and focus on hard metrics like 2026 EBITDA guidance and net debt/EBITDA trends for any thesis adjustment.