UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): May 1, 2007
THE GEO GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Florida
(State or Other Jurisdiction of Incorporation)
| 1-14260 | 65-0043078 | |
| (Commission File Number) | (IRS Employer Identification No.) |
| 621 NW 53rd Street, Suite 700, Boca Raton, Florida | 33487 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(561) 893-0101
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following provisions (see General
Instruction A.2. below):
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Section 2 — Financial Information
Item 2.02 Results of Operations and Financial Condition.
On May 1, 2007, The GEO Group, Inc. (“GEO”) issued a press release (the “Press Release”) announcing
its financial results for the quarter ended April 1, 2007, a copy of which is incorporated herein
by reference and attached hereto as Exhibit 99.1. GEO also held a conference call on May 1, 2007 to
discuss its financial results for the quarter, a transcript of which is incorporated herein by
reference and attached hereto as Exhibit 99.2.
In the Press Release, GEO provided certain pro forma financial information for the quarter
ended April 1, 2007 that was not calculated in accordance with Generally Accepted Accounting
Principles (the “Non-GAAP Information”). Generally, for purposes of Regulation G under the
Securities Exchange Act of 1934, Non-GAAP Information is any numerical measure of a company’s
performance, financial position, or cash flows that either excludes or includes amounts that are
not normally excluded or included in the most directly comparable measure calculated and presented
in accordance with GAAP. The Press Release presents the financial measure calculated and presented
in accordance with GAAP which is most directly comparable to the Non-GAAP Information with a
prominence equal to or greater than its presentation of the Non-GAAP Information. The Press Release
also contains a reconciliation of the Non-GAAP Information to the financial measure calculated and
presented in accordance with GAAP which is most directly comparable to the Non-GAAP Information.
The Press Release includes three non-GAAP measures, Pro Forma Income from Continuing Operations,
Adjusted EBITDA and Adjusted Free Cash Flow, that are presented as supplemental disclosures. Pro
Forma Income from Continuing Operations is defined as income from continuing operations excluding
start-up expenses and deferred financing fees. Adjusted EBITDA is defined as earnings before
interest, taxes, depreciation and amortization, excluding start-up expenses and deferred financing
fees. In calculating these adjusted financial measures, GEO excludes certain expenses which it
believes are unusual or non-recurring in nature, in order to facilitate an understanding of GEO’s
operating performance. GEO’s management uses these adjusted financial measures in conjunction with
GAAP financial measures to monitor and evaluate its operating performance and to facilitate
internal and external comparisons of the historical operating performance of GEO and its business
units. Adjusted Free Cash Flow is defined as income from continuing operations excluding start-up
expenses, deferred financing fees and the other items referenced in the Press Release. GEO’s
management believes that the Adjusted Free Cash Flow measure provides useful information to GEO’s
management and investors regarding cash that GEO’s operating business generates before taking into
account certain cash and non-cash items that are non-operational or infrequent in nature.
GEO’s management believes that these adjusted financial measures are useful to investors to provide
them with disclosures of GEO’s operating results on the same basis as that used by GEO’s
management. Additionally, GEO’s management believes that these adjusted financial measures provide
useful information to investors about the performance of GEO’s overall business because such
financial measures eliminate the effects of unusual or non-recurring charges that are not directly
attributable to GEO’s underlying operating performance. GEO’s management believes that because it
has historically
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provided similar non-GAAP Financial Information in its earnings releases, continuing to do so
provides consistency in its financial reporting and continuity to investors for comparability
purposes.
The Non-GAAP Financial Information should be considered in addition to results that are prepared
under current accounting standards but should not be considered a substitute for, or superior to,
financial information prepared in accordance with GAAP. The Non-GAAP Financial Information may
differ from similarly titled measures presented by other companies. The Non-GAAP Financial
Information, as well as other information in the Press Release, should be read in conjunction with
GEO’s financial statements filed with the Securities and Exchange Commission.
The information in this Form 8-K is being furnished and shall not be deemed “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the
liabilities of that Section. The information in this Form 8-K shall not be incorporated by
reference into any registration statement or other document pursuant to the Securities Act of 1933,
as amended.
Section 8 — Other Events
Item 8.01. Other Events.
On May 1, 2007, GEO announced that its Board of Directors has declared a 2-for-1 stock split of
GEO’s common stock. The stock split will take effect on June 1, 2007, with respect to shareholders
of record on May 15, 2007. Following the stock split, GEO’s diluted shares outstanding will
increase from approximately 25.7 million to approximately 51.4 million.
A copy of GEO’s press release, dated May 1, 2007, announcing the stock split is attached hereto as
Exhibit 99.3 and incorporated herein by reference.
Section 9 — Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
| c) | Exhibits |
| 99.1 | Press Release, dated May 1, 2007, announcing GEO’s financial results for the quarter ended April 1, 2007 | |
| 99.2 | Transcript of Conference Call discussing GEO’s financial results for the quarter ended April 1, 2007 | |
| 99.3 | Press Release, dated May 1, 2007, announcing GEO’s 2-for-1 stock split |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto duly
authorized.
| THE GEO GROUP, INC. |
||||
| May 7, 2007 | By: | /s/ John G. O’Rourke | ||
| Date | John G. O’Rourke | |||
| Senior Vice President – Finance and Chief
Financial Officer (Principal Financial Officer and duly authorized signatory) |
||||
4
EXHIBIT 99.1
CR-07-19
THE GEO GROUP REPORTS FIRST QUARTER 2007 RESULTS
| • | 1Q Income from Continuing Operations Increased to $5.1 Million — $0.25 EPS | |
| • | 1Q Pro-Forma Income from Continuing Operations Increased to $9.0 Million — $0.43 EPS | |
| • | 1Q Revenue Increased to $237.0 Million from $185.9 Million | |
| • | Increases Pro Forma 2007 Guidance by $0.04 EPS As a Result of 1Q Earnings Results |
Boca Raton, Fla. — May 1, 2007 — The GEO Group (NYSE: GEO) (“GEO”) today reported first
quarter 2007 financial results, including income from continuing operations of $5.1 million, or
$0.25 per share, based on 20.8 million diluted weighted average shares outstanding, compared with
$4.7 million, or $0.31 per share, based on 15.1 million diluted weighted average shares outstanding
in the first quarter of 2006.
First quarter 2007 pro forma income from continuing operations increased 84% to $9.0 million, or
$0.43 per share, based on 20.8 million diluted weighted average shares outstanding, from $4.9
million, or $0.32 per share, based on 15.1 million diluted weighted average shares outstanding, in
the first quarter of 2006.
George C. Zoley, Chairman and Chief Executive Officer of GEO, said: “We are very pleased with our
strong operational and financial performance in the first quarter of 2007. The primary factors
driving our financial results were better-than-expected performance at a number of state and
federal facilities as well as new contract wins by our three business units of U.S. Corrections,
International Services, and GEO Care. Our organic growth pipeline remains strong with projects
totaling more than 8,700 beds under development representing more than $148 million in projected
annual operating revenues. These projects are expected to start between the first quarter of 2007
and the second half of 2008.”
Pro Forma Income from Continuing Operations excludes the items set forth in the table below, which
presents a reconciliation of pro forma income from continuing operations to GAAP Income from
Continuing Operations for the first quarter of 2007. Please see the section of this press release
below entitled “Important Information on GEO’s Non-GAAP Financial Measures” for information on how
GEO defines Pro Forma Income from Continuing Operations.
— More —
NEWS RELEASE
Table 1. Reconciliation of Pro Forma Income from Continuing Operations to GAAP Income from Continuing Operations
| (In thousands except per share data) | 13 Weeks Ended | 13 Weeks Ended | ||||||
| 1-Apr-07 | 2-Apr-06 | |||||||
Income from continuing operations |
$ | 5,097 | $ | 4,674 | ||||
Start-up expenses, net of tax |
922 | 211 | ||||||
Write-off of deferred financing
fees from extinguishment of
debt, net of tax |
2,972 | — | ||||||
Pro forma income from continuing operations |
$ | 8,991 | $ | 4,885 | ||||
Diluted earnings per share |
||||||||
Income from Continuing Operations |
$ | 0.25 | $ | 0.31 | ||||
Start-up expenses, net of tax |
0.04 | $ | 0.01 | |||||
Write-off of deferred financing
fees from extinguishment of
debt, net of tax |
0.14 | $ | — | |||||
Diluted pro forma earnings per share |
$ | 0.43 | $ | 0.32 | ||||
Weighted average shares outstanding |
20,781 | 15,051 | ||||||
Revenue
GEO reported a 28% increase in first quarter 2007 revenue to $237.0 million from $185.9 million in the first quarter of 2006. First quarter 2007 revenue includes $21.7 million in pass-through construction revenues. Exclusive of pass-through construction revenues, GEO reported first quarter 2007 operating revenues of $215.3 million. U.S. Corrections revenue for the first quarter of 2007 increased to $164.3 million from $146.8 million for the first quarter of 2006. International Services revenue for the first quarter of 2007 increased to $28.8 million from $23.1 million for the first quarter of 2006. GEO Care revenue for the first quarter of 2007 increased to $22.1 million from $14.9 million for the first quarter of 2006.
GEO reported a 28% increase in first quarter 2007 revenue to $237.0 million from $185.9 million in the first quarter of 2006. First quarter 2007 revenue includes $21.7 million in pass-through construction revenues. Exclusive of pass-through construction revenues, GEO reported first quarter 2007 operating revenues of $215.3 million. U.S. Corrections revenue for the first quarter of 2007 increased to $164.3 million from $146.8 million for the first quarter of 2006. International Services revenue for the first quarter of 2007 increased to $28.8 million from $23.1 million for the first quarter of 2006. GEO Care revenue for the first quarter of 2007 increased to $22.1 million from $14.9 million for the first quarter of 2006.
Adjusted EBITDA
First quarter 2007 Adjusted EBITDA increased 58% to $29.6 million from $18.7 million in the first quarter of 2006. Please see the section of this press release below entitled “Important Information on GEO’s Non-GAAP Financial Measures” for information on how GEO defines Adjusted EBITDA. The following table presents a reconciliation from Adjusted EBITDA to GAAP Net Income for the first quarter of 2007.
First quarter 2007 Adjusted EBITDA increased 58% to $29.6 million from $18.7 million in the first quarter of 2006. Please see the section of this press release below entitled “Important Information on GEO’s Non-GAAP Financial Measures” for information on how GEO defines Adjusted EBITDA. The following table presents a reconciliation from Adjusted EBITDA to GAAP Net Income for the first quarter of 2007.
Table 2. Reconciliation from Adjusted EBITDA to GAAP Net Income
| (In thousands) | 13 Weeks Ended | 13 Weeks Ended | ||||||
| 1-Apr-07 | 2-Apr-06 | |||||||
Net income |
$ | 5,264 | $ | 4,556 | ||||
Discontinued operations |
(167 | ) | 118 | |||||
Interest expense, net |
7,824 | 5,363 | ||||||
Income tax provision |
3,141 | 2,693 | ||||||
Depreciation and amortization |
7,281 | 5,664 | ||||||
EBITDA |
$ | 23,343 | $ | 18,394 | ||||
Adjustments, pre-tax |
||||||||
Start-up expenses |
1,488 | 340 | ||||||
Write-off of deferred
financing fees from
extinguishment of debt |
4,794 | — | ||||||
Adjusted EBITDA |
$ | 29,625 | $ | 18,734 | ||||
— More —
NEWS RELEASE
Adjusted Free Cash Flow
Adjusted Free Cash Flow for the first quarter of 2007 increased 15% to $14.9 million from $13.0 million for the first quarter of 2006. Please see the section of this press release below entitled “Important Information on GEO’s Non-GAAP Financial Measures” for information on how GEO defines Adjusted Free Cash Flow.
Adjusted Free Cash Flow for the first quarter of 2007 increased 15% to $14.9 million from $13.0 million for the first quarter of 2006. Please see the section of this press release below entitled “Important Information on GEO’s Non-GAAP Financial Measures” for information on how GEO defines Adjusted Free Cash Flow.
The following table presents a reconciliation from Adjusted Free Cash Flow to GAAP Income from
Continuing Operations for the first quarter of 2007.
Table 3. Reconciliation of Adjusted Free Cash Flow to GAAP Income from Continuing Operations
| (In thousands) | 13 Weeks Ended | 13 Weeks Ended | ||||||
| 1-Apr-07 | 2-Apr-06 | |||||||
Income from Continuing Operations |
$ | 5,097 | $ | 4,674 | ||||
Depreciation and Amortization |
7,281 | 5,664 | ||||||
Income Tax Provision |
3,141 | 2,693 | ||||||
Income Taxes Paid |
(5,617 | ) | (272 | ) | ||||
Stock Based Compensation Included in G&A |
573 | 177 | ||||||
Maintenance Capital Expenditures |
(2,396 | ) | (1,723 | ) | ||||
Equity in Earnings of Affiliates, Net of Income Tax |
(383 | ) | (277 | ) | ||||
Dividends from Equity Affiliates |
— | 1,812 | ||||||
Minority Interest |
92 | 9 | ||||||
Amortization of Debt Costs and Other Non-Cash
Interest |
494 | 281 | ||||||
Write-off of Deferred Financing Fees |
4,794 | — | ||||||
Start-Up Expenses |
1,488 | — | ||||||
Board of Directors Deferred Compensation |
365 | — | ||||||
Adjusted Free Cash Flow |
$ | 14,929 | $ | 13,038 | ||||
Important Information on GEO’s Non-GAAP Financial Measures
Pro Forma Income from Continuing Operations, Adjusted EBITDA, and Adjusted Free Cash Flow are non-GAAP financial measures. Pro Forma Income from Continuing Operations is defined as Income from Continuing Operations excluding Start-Up Expenses and Deferred Financing Fees as set forth in Table 1 above. Adjusted EBITDA is defined as EBITDA excluding Start-Up Expenses and Deferred Financing Fees as set forth in Table 2 above. Adjusted Free Cash Flow is defined as Income from Continuing Operations after giving effect to the items set forth in Table 3 above. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measurements of these items is included in Tables 1, 2, and 3 respectively set forth above in this press release. GEO believes that these financial measures are important operating measures that supplement discussion and analysis of GEO’s financial results derived in accordance with GAAP. These non-GAAP financial measures should be read in conjunction with GEO’s consolidated financial statements and related notes included in GEO’s filings with the Securities and Exchange Commission.
Pro Forma Income from Continuing Operations, Adjusted EBITDA, and Adjusted Free Cash Flow are non-GAAP financial measures. Pro Forma Income from Continuing Operations is defined as Income from Continuing Operations excluding Start-Up Expenses and Deferred Financing Fees as set forth in Table 1 above. Adjusted EBITDA is defined as EBITDA excluding Start-Up Expenses and Deferred Financing Fees as set forth in Table 2 above. Adjusted Free Cash Flow is defined as Income from Continuing Operations after giving effect to the items set forth in Table 3 above. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measurements of these items is included in Tables 1, 2, and 3 respectively set forth above in this press release. GEO believes that these financial measures are important operating measures that supplement discussion and analysis of GEO’s financial results derived in accordance with GAAP. These non-GAAP financial measures should be read in conjunction with GEO’s consolidated financial statements and related notes included in GEO’s filings with the Securities and Exchange Commission.
— More —
NEWS RELEASE
2007 Financial Guidance
GEO is increasing its 2007 earnings guidance to a pro forma range of $2.02 to $2.15 per share, exclusive of $0.14 per share associated with the write-off of deferred financing fees during the first quarter of 2007 and $0.11 per share in after-tax start-up expenses associated with facility openings. GEO is adjusting its 2007 operating revenue guidance as a result of the loss of the contract to manage the 2,048-bed Taft Correctional Institution, which will reduce GEO’s operating revenue guidance for the third and fourth quarter of 2007 by $5.0 million and $9.0 million respectively. GEO expects its 2007 operating revenues to be in the range of $886 million to $901 million exclusive of pass-through construction revenues.
GEO is increasing its 2007 earnings guidance to a pro forma range of $2.02 to $2.15 per share, exclusive of $0.14 per share associated with the write-off of deferred financing fees during the first quarter of 2007 and $0.11 per share in after-tax start-up expenses associated with facility openings. GEO is adjusting its 2007 operating revenue guidance as a result of the loss of the contract to manage the 2,048-bed Taft Correctional Institution, which will reduce GEO’s operating revenue guidance for the third and fourth quarter of 2007 by $5.0 million and $9.0 million respectively. GEO expects its 2007 operating revenues to be in the range of $886 million to $901 million exclusive of pass-through construction revenues.
GEO expects second quarter 2007 earnings to be in a pro forma range of $0.47 to $0.51 per share,
exclusive of $0.02 per share in after-tax start-up expenses. GEO expects second quarter 2007
operating revenues to be in the range of $223 million to $228 million exclusive of pass-through
construction revenues. GEO expects third quarter 2007 earnings to be in a pro forma range of $0.53
to $0.57 per share, exclusive of $0.05 per share in after-tax start-up expenses. GEO expects third
quarter 2007 operating revenues to be in the range of $223 million to $228 million exclusive of
pass-through construction revenues. GEO expects fourth quarter 2007 earnings to be in a pro forma
range of $0.59 to $0.64 per share. GEO expects fourth quarter 2007 operating revenues to be in the
range of $225 million to $230 million exclusive of pass-through construction revenues.
GEO’s 2007 financial guidance does not include any potential contracts for the utilization of GEO’s
available bed capacity at the North Lake Correctional Facility in Baldwin, Michigan or the LaSalle
Detention Facility in Jena, Louisiana. The following table provides GEO’s quarterly and year-end
2007 operating revenue and earnings per share guidance. GEO’s 2007 guidance does not reflect the
effect of GEO’s announced 2-for-1 stock split which will become effective on June 1, 2007.
2007 Operating Revenue Guidance
(In Millions)
(Exclusive of Pass-Through Construction Revenue)
(Exclusive of Pass-Through Construction Revenue)
| 1Q 2007 | 2Q 2007 | 3Q 2007 | 4Q 2007 | FY 2007 | |||||||||||||||||
Previously Issued Guidance |
$ | 215 - $220 | $ | 223 - $228 | $ | 228 - $233 | $ | 234 - $239 | $ | 900 - $920 | |||||||||||
Revised Guidance (May 1, 2007) |
$ | 215.3A | $ | 223 - $228 | $ | 223 - $228 | $ | 225 - $230 | $ | 886 - $901 | |||||||||||
2007 Earnings Per Share
| 1Q 2007 | 2Q 2007 | 3Q 2007 | 4Q 2007 | FY 2007 | |||||||||||||||||
Previously Issued GAAP Guidance |
$ | 0.16 - $0.18 | $ | 0.45 - $0.49 | $ | 0.48 - $0.52 | $ | 0.59 - $0.64 | $ | 1.68 - $1.83 | |||||||||||
After-Tax Start-Up Expenses |
$ | 0.07 | $ | 0.02 | $ | 0.05 | — | $ | 0.14 | ||||||||||||
Deferred Financing Fees |
$ | 0.14 | $ | 0.14 | |||||||||||||||||
Previously Issued Pro Forma Guidance |
$ | 0.37- $0.39 | $ | 0.47 - $0.51 | $ | 0.53 - $0.57 | $ | 0.59 - $0.64 | $ | 1.96 - $2.11 | |||||||||||
Revised GAAP Guidance (May 1, 2007) |
$ | 0.25A | $ | 0.45 - $0.49 | $ | 0.48 - $0.52 | $ | 0.59 - $0.64 | $ | 1.77 - $1.90 | |||||||||||
After-Tax Start-Up Expenses |
$ | 0.04A | $ | 0.02 | $ | 0.05 | — | $ | 0.11 | ||||||||||||
Deferred Financing Fees |
$ | 0.14A | $ | 0.14 | |||||||||||||||||
Revised Pro Forma Guidance (May 1, 2007) |
$ | 0.43A | $ | 0.47 - $0.51 | $ | 0.53 - $0.57 | $ | 0.59 - $0.64 | $ | 2.02 - $2.15 | |||||||||||
Diluted Weighted Average Shares Outstanding (In Millions) |
20.8 | 25.7 | 25.7 | 25.7 | 24.5 | ||||||||||||||||
— More —
NEWS RELEASE
Conference Call Information
GEO has scheduled a conference call and simultaneous webcast at 4:00 PM (Eastern Time) today to discuss GEO’s first quarter 2007 financial results as well as GEO’s progress and outlook. The call-in number for the U.S. is 1-866-383-7998 and the international call-in number is 1-617-597-5329. The participant pass-code for the conference call is 71013298. In addition, a live audio webcast of the conference call may be accessed on the Conference Calls/Webcasts section of GEO’s investor relations home page at www.thegeogroupinc.com. A replay of the audio webcast will be available on the website for one year. A telephonic replay of the conference call will be available until June 1, 2007 at 1-888-286-8010 (U.S.) and 1-617-801-6888 (International). The pass-code for the telephonic replay is 98022197. GEO will discuss Non-GAAP (“Pro Forma”) basis information on the conference call. A reconciliation from Non-GAAP (“Pro Forma”) basis information to GAAP basis results may be found on the Conference Calls/Webcasts section of GEO’s investor relations home page at www.thegeogroupinc.com.
GEO has scheduled a conference call and simultaneous webcast at 4:00 PM (Eastern Time) today to discuss GEO’s first quarter 2007 financial results as well as GEO’s progress and outlook. The call-in number for the U.S. is 1-866-383-7998 and the international call-in number is 1-617-597-5329. The participant pass-code for the conference call is 71013298. In addition, a live audio webcast of the conference call may be accessed on the Conference Calls/Webcasts section of GEO’s investor relations home page at www.thegeogroupinc.com. A replay of the audio webcast will be available on the website for one year. A telephonic replay of the conference call will be available until June 1, 2007 at 1-888-286-8010 (U.S.) and 1-617-801-6888 (International). The pass-code for the telephonic replay is 98022197. GEO will discuss Non-GAAP (“Pro Forma”) basis information on the conference call. A reconciliation from Non-GAAP (“Pro Forma”) basis information to GAAP basis results may be found on the Conference Calls/Webcasts section of GEO’s investor relations home page at www.thegeogroupinc.com.
About The GEO Group, Inc.
The GEO Group, Inc. (“GEO”) is a world leader in the delivery of correctional, detention, and residential treatment services to federal, state, and local government agencies around the globe. GEO offers a turnkey approach that includes design, construction, financing, and operations. GEO represents government clients in the United States, Australia, South Africa, Canada, and the United Kingdom. GEO’s worldwide operations include 66 correctional and residential treatment facilities with a total design capacity of approximately 58,000 beds.
The GEO Group, Inc. (“GEO”) is a world leader in the delivery of correctional, detention, and residential treatment services to federal, state, and local government agencies around the globe. GEO offers a turnkey approach that includes design, construction, financing, and operations. GEO represents government clients in the United States, Australia, South Africa, Canada, and the United Kingdom. GEO’s worldwide operations include 66 correctional and residential treatment facilities with a total design capacity of approximately 58,000 beds.
Safe-Harbor Statement
This press release contains forward-looking statements regarding future events and future performance of GEO that involve risks and uncertainties that could materially affect actual results, including statements regarding estimated earnings, revenues and costs and our ability to maintain growth and strengthen contract relationships. Factors that could cause actual results to vary from current expectations and forward-looking statements contained in this press release include, but are not limited to: (1) GEO’s ability to meet its financial guidance for 2007 given the various risks to which its business is exposed; (2) GEO’s ability to successfully pursue further growth and continue to enhance shareholder value; (3) GEO’s ability to access the capital markets in the future on satisfactory terms or at all; (4) risks associated with GEO’s ability to control operating costs associated with contract start-ups; (5) GEO’s ability to timely open facilities as planned, profitably manage such facilities and successfully integrate such facilities into GEO’s operations without substantial costs; (6) GEO’s ability to win management contracts for which it has submitted proposals and to retain existing management contracts; (7) GEO’s ability to obtain future financing on acceptable terms; (8) GEO’s ability to sustain company-wide occupancy rates at its facilities; and (9) other factors contained in GEO’s Securities and Exchange Commission filings, including the forms 10-K, 10-Q and 8-K reports.
This press release contains forward-looking statements regarding future events and future performance of GEO that involve risks and uncertainties that could materially affect actual results, including statements regarding estimated earnings, revenues and costs and our ability to maintain growth and strengthen contract relationships. Factors that could cause actual results to vary from current expectations and forward-looking statements contained in this press release include, but are not limited to: (1) GEO’s ability to meet its financial guidance for 2007 given the various risks to which its business is exposed; (2) GEO’s ability to successfully pursue further growth and continue to enhance shareholder value; (3) GEO’s ability to access the capital markets in the future on satisfactory terms or at all; (4) risks associated with GEO’s ability to control operating costs associated with contract start-ups; (5) GEO’s ability to timely open facilities as planned, profitably manage such facilities and successfully integrate such facilities into GEO’s operations without substantial costs; (6) GEO’s ability to win management contracts for which it has submitted proposals and to retain existing management contracts; (7) GEO’s ability to obtain future financing on acceptable terms; (8) GEO’s ability to sustain company-wide occupancy rates at its facilities; and (9) other factors contained in GEO’s Securities and Exchange Commission filings, including the forms 10-K, 10-Q and 8-K reports.
First quarter financial tables to follow:
NEWS RELEASE
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED
APRIL 1, 2007 AND APRIL 2, 2006
(In thousands, except per share data)
(UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED
APRIL 1, 2007 AND APRIL 2, 2006
(In thousands, except per share data)
(UNAUDITED)
| Thirteen Weeks Ended | ||||||||
| April 1, 2007 | April 2, 2006 | |||||||
Revenues |
$ | 237,004 | $ | 185,881 | ||||
Operating expenses |
194,105 | 153,746 | ||||||
Depreciation and amortization |
7,281 | 5,664 | ||||||
General and administrative expenses |
15,053 | 14,009 | ||||||
Operating income |
20,565 | 12,462 | ||||||
Interest income |
3,240 | 2,216 | ||||||
Interest expense |
11,064 | 7,579 | ||||||
Write off of deferred financing fees from
extinguishment of debt |
4,794 | — | ||||||
Income before income taxes, minority interest,
equity in earnings of affiliate and discontinued
operations |
7,947 | 7,099 | ||||||
Provision for income taxes |
3,141 | 2,693 | ||||||
Minority interest |
(92 | ) | (9 | ) | ||||
Equity in earnings (loss) of affiliate |
383 | 277 | ||||||
Income from continuing operations |
5,097 | 4,674 | ||||||
Income (loss) from discontinued operations |
167 | (118 | ) | |||||
Net income |
$ | 5,264 | $ | 4,556 | ||||
Weighted-average common shares outstanding: |
||||||||
Basic |
20,069 | 14,550 | ||||||
Diluted |
20,781 | 15,051 | ||||||
Income per common share: |
||||||||
Basic: |
||||||||
Income from continuing operations |
$ | 0.25 | $ | 0.32 | ||||
Income (loss) from discontinued operations |
0.01 | (0.01 | ) | |||||
Net income per share-basic |
$ | 0.26 | $ | 0.31 | ||||
Diluted: |
||||||||
Income from continuing operations |
$ | 0.25 | $ | 0.31 | ||||
Income (loss) from discontinued operations |
0.00 | (0.01 | ) | |||||
Net income per share-diluted |
$ | 0.25 | $ | 0.30 | ||||
The GEO Group, Inc. — Operating Data
| 13 Weeks | 13 Weeks | |||||||
| Ended | Ended | |||||||
| April 1, 2007 | April 2, 2006 | |||||||
*Revenue-producing beds |
49,075 | 47,873 | ||||||
*Compensated man-days |
4,229,935 | 3,771,750 | ||||||
*Average occupancy1 |
97.2 | % | 95.9 | % | ||||
| * | Includes South Africa | |
| 1 | Does not include GEO’s idle facilities. |
— More —
NEWS RELEASE
THE GEO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2006 and April 1, 2007
(In thousands, except per share data)
(UNAUDITED)
CONSOLIDATED BALANCE SHEETS
December 31, 2006 and April 1, 2007
(In thousands, except per share data)
(UNAUDITED)
| April 1, 2007 | December 31, 2006 | |||||||
ASSETS |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 83,875 | $ | 111,520 | ||||
Restricted cash |
13,168 | 13,953 | ||||||
Accounts receivable, less allowance for doubtful accounts of $810 and $926 |
154,625 | 162,867 | ||||||
Deferred income tax asset |
19,383 | 19,492 | ||||||
Other current assets |
16,676 | 14,922 | ||||||
Total current assets |
287,727 | 322,754 | ||||||
Restricted Cash |
15,422 | 19,698 | ||||||
Property and Equipment, Net |
696,210 | 287,374 | ||||||
Assets Held for Sale |
2,597 | 1,610 | ||||||
Direct Finance Lease Receivable |
41,592 | 39,271 | ||||||
Deferred Income Tax Assets |
3,719 | 4,941 | ||||||
Goodwill and Other Intangible Assets, Net |
41,147 | 41,554 | ||||||
Other Non Current Assets |
29,503 | 26,251 | ||||||
| $ | 1,117,917 | $ | 743,453 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
Current Liabilities |
||||||||
Accounts payable |
$ | 53,958 | $ | 48,890 | ||||
Accrued payroll and related taxes |
28,068 | 31,320 | ||||||
Accrued expenses |
63,113 | 77,675 | ||||||
Current portion of deferred revenue |
— | 1,830 | ||||||
Current portion of capital lease obligations, long-term debt and non-recourse debt |
16,644 | 12,685 | ||||||
Current liabilities of discontinued operations |
— | 1,303 | ||||||
Total current liabilities |
161,783 | 173,703 | ||||||
Deferred Revenue |
— | 1,755 | ||||||
Minority Interest |
1,663 | 1,297 | ||||||
Other Non Current Liabilities |
24,303 | 24,816 | ||||||
Capital Lease Obligations |
16,415 | 16,621 | ||||||
Long-Term Debt |
306,853 | 144,971 | ||||||
Non-Recourse Debt |
128,573 | 131,680 | ||||||
Total shareholders’ equity |
478,327 | 248,610 | ||||||
| $ | 1,117,917 | $ | 743,453 | |||||
- End -
EXHIBIT 99.2
CORPORATE PARTICIPANTS
Pablo Paez
The GEO Group — Corporate Communications Director
The GEO Group — Corporate Communications Director
George Zoley
The GEO Group — Chairman, CEO
The GEO Group — Chairman, CEO
Jerry O’Rourke
The GEO Group — CFO
The GEO Group — CFO
Brian Evans
The GEO Group
The GEO Group
CONFERENCE CALL PARTICIPANTS
Todd Van Fleet
First Analysis Securities — Analyst
First Analysis Securities — Analyst
Kevin Campbell
Avondale Partners — Analyst
Avondale Partners — Analyst
Jeffrey Kessler
Lehman Brothers — Analyst
Lehman Brothers — Analyst
Emily Shanks
Lehman Brothers — Analyst
Lehman Brothers — Analyst
Ben Joseph
Rice, Volker — Analyst
Rice, Volker — Analyst
Dan Mazur
JMP Asset Management — Analyst
JMP Asset Management — Analyst
PRESENTATION
Good day, ladies and gentlemen, and welcome to the first quarter 2007 The GEO Group’s earnings
conference call. My name is LaTasha, and I will be your coordinator for today. At this time, all
participants are in a listen-only mode. We will be facilitating a Q&A session towards the end of
this conference. [Operator instructions] I would now like to turn the presentation over to Mr.
Pablo Paez, Corporation Communications Director. Please proceed, sir.
Pablo Paez - The GEO Group — Corporate Communications Director
Thank you, operator. Good afternoon, everyone, and thank you for joining us today for our
discussion of The GEO Group’s first quarter 2007 earnings results. With us today is George Zoley,
Chairman and CEO, Wayne Calabrese, Vice Chairman, President and COO, Jerry O’Rourke, CFO and Brian
Evans, VP of Finance, Treasurer and CAO. This afternoon, we will discuss our first quarter
performance, current business development activities and conclude the call with a Q&A session.
This conference is also being webcast live on our website, at www.thegeogroupinc.com. A replay of
the audio webcast will be available on the website for one year. A telephone replay will be
available through June 1st at 1-888-286-8010. The passcode for the telephone replay is 98022197.
During the call, we will discuss non-GAAP basis information. The reconciliation from non-GAAP basis
information to GAAP basis results may be found on the conference call section of our Investor
Relations webpage.
Before I turn the call over to George, please let me remind you that much of the information we
will discuss today, including the answers given in response to your questions, may include
forward-looking statements regarding our beliefs and our current expectations with respect to
various matters. These forward-looking statements are intended to fall within the Safe Harbor
provisions of the Securities laws. Our actual results may
differ materially from those in the forward-looking statements as a result of various factors
contained in our Securities and Exchange Commission filings, including the forms 10-K, 10-Q and 8-K
reports.
With that, please allow me to turn this call over to George Zoley. George?
George
Zoley - The GEO Group - Chairman, CEO
Thank you, Pablo, and good afternoon, everyone. Thank you for joining us today as I provide an
overview of our financial results for the first quarter of 2007. When I conclude my prepared
remarks, I’ll open up the call to a Q&A session. We are very pleased with our first quarter
performance, which continues to validate the success of our company’s diversified growth platform.
Our exceptional financial results were driven primarily by better than expected performance at a
number of our correctional and residential treatment facilities, both at the state and federal
levels, and several new contract wins by our three business units: U.S. Corrections, GEO Care and
International Services.
Our first quarter pro forma earnings increased 84% to $9 million, or $0.43 per share, based on 20.8
million shares, from $4.9 million, or $0.32 per share, based on 15.1 million shares for the same
period in 2006. Our pro forma earnings exclude start-up expenses and deferred financing fees
associated with the pay down of $200 million in term loan borrowings during the first quarter, as
set forth in the reconciliation tables in our press release.
On a GAAP basis, our first quarter 2007 income from continuing operations was $5.1 million, or
$0.25 per share, based on 20.8 million shares, as compared to $4.7 million, or $0.31 per share,
based on 15.1 million shares for the same period in 2006.
Our revenue during the first quarter increased 28% to $237 million, from $185.9 million for the
same period in 2006. Quarterly revenues reflect approximately $21.7 million in pass-through
construction revenues. Our top line growth in the first quarter of 2007 has been driven by the
factors I mentioned at the beginning of the call: strong performance from a number of our state and
federal facilities and new contract wins by our three business units.
Our average correctional per diem rate for the first quarter was $52.50, compared to $47.81 for the
same period in 2006. Our company-wide paid level of occupancy was approximately 97%, excluding our
idle facilities in Jena, Louisiana and Baldwin, Michigan.
Our adjusted EBITDA increased 58% to $29.6 million for the first quarter of 2007, from $18.7
million for the same period in 2006. We expect our adjusted EBITDA to be approximately $127 to $137
million in 2007. Our adjusted free cash flow for the first quarter of 2007 increased 15% to $14.9
million, from approximately $13 million for the same period a year ago. We expect to generate
between $55 and $60 million of adjusted free cash flow in 2007.
Our cash at hand at the end of the first quarter was approximately $84 million, excluding
approximately $29 million of restricted cash, and our balance sheet reflects approximately $315
million in senior debt and approximately $149 of non-recourse debt.
This concludes my overview of our financial performance during the first quarter. I would now like
to discuss our recent equity offering and debt pay down, as well as our announced stock split. On
March 23rd, we completed the sale of approximately 5.5 million shares of our company’s common stock
in a follow-on offering, at a stock price of $43.99. We were very pleased with the execution of our
equity offering, which was two times oversubscribed, signaling the increased visibility of our
stock in the marketplace.
We used the net proceeds of approximately $226 million from the offering to pay down $200 million
of our term loan borrowings, bearing interest at LIBOR plus 1.5%. As a result of the debt pay down,
our total recourse debt has decreased from approximately $515 million to $315 million, comprised of
$150 million in senior unsecured notes and $165 million in term loan borrowings, exclusive of
capital lease liability balances.
Our total net recourse-debt-to-adjusted-EBITDA ratio has decreased, from approximately 5.1 times to
approximately 1.9 times of projected 2007 adjusted EBITDA. We are thus substantially deleveraged
and well positioned to provide financial support for the further growth of our company.
Now, I would like to address our stock split. As announced this morning, our board of directors has
declared a two-for-one split of our common stock. This split will occur on June 1 to shareholders
of record on May 15th. Shareholders will receive two shares of common stock for every
share held on that date.
Our diluted shares outstanding will increase from approximately 25.7
million to 51.4 million after the stock split. We feel the stock split will have an overall
positive impact for our shareholders by increasing the liquidity of our stock.
Now, turning to our financial guidance for 2007. Due to our strong first quarter results, we have
increased our 2007 earnings guidance to a pro forma range of $2.02 to $2.15 per share, exclusive of
$0.11 per share in start-up expenses as well as $0.14 per share as a result of the write-off of
deferred financing fees during the first quarter of the year.
Due to the loss of our cash management contract, we are adjusting our 2007 operating revenue
guidance to a range of $886 million to $901 million, exclusive of pass-through construction
revenues, which reflect a reduction of $5 million and $9 million during the third and fourth
quarters, respectively.
We expect second quarter earnings to be in the pro forma range of $0.47 to $0.51 per share,
exclusive of $0.02 per share in start-up expenses, and second quarter revenues to be in the range
of $223 to $228 million, exclusive of construction revenues. We expect third quarter earnings to be
in a pro forma range of $0.53 to $0.57 per share, exclusive of $0.05 per share in start-up
expenses, and third quarter revenues to be in the range of $223 to $228 million, exclusive of
construction revenues. Finally, for the fourth quarter we expect earnings to be in the pro forma
range of $0.59 to $0.64 per share and revenues to be in the range of $225 to $230 million,
exclusive of construction revenues.
Our guidance does not include any potential contracts for the utilization of our available capacity
at our Baldwin, Michigan facility or our Jena, Louisiana facility, as well as no potential new
contract wins by GEO Care, all of which would be accretive to our earnings.
We remain very optimistic about the current trends in our industry and believe that our available
beds, which we are marketing to a number of customers, and the strong business development pipeline
for each of our three business units represent additional potential opportunities to bolster our
financial performance even further.
Now, I would like to give you an update on our projects currently under development. We currently
have 14 projects with over 8,700 beds under development. These projects include a 1,100 project in
Montgomery, Texas, which is presently under re-bid. These projects are expected to generate $148
million in combined annual operating revenues when opened between the first quarter of 2007 and the
second half of 2008. We believe that this is the largest and most diversified organic growth
pipeline in our industry.
These projects include the Reeves County Detention Complex, where Reeves County and GEO have
activated two contracts. Under the BOP’s CAR 5 contract, we’ve added 483 beds at Reeves three unit,
and under the BOP’s CAR 6 contract, we are expanding Reeves units one and two by 320 beds, with an
expected completion date in the fourth quarter of this year.
With these two expansions, the Reeves County Detention Complex will have a new contract capacity of
3,763 beds. We will only report our management contract fee and reimbursement payments for the
management staff in miscellaneous expenses, as contract revenues — since these two BOP contracts
are directly with Reeves County and are operating with staff who remain on the county’s payroll.
Our Northwest Detention Center expanded by 200 beds in the first quarter. Without any new
construction, it will generate $2 million in additional annual operated revenues. Our Broward
Transition Center in Florida expanded by 150 beds, also in the first quarter. Without any new
construction, it will generate $2 million in additional annual operating revenues.
Our new contract with New Castle Indiana Correctional Facility to house 1,260 Arizona inmates will
generate approximately $16 million in normalized annual revenues. Also, our Moore Haven facility in
Florida is being expanded by 235 beds, using state-sponsored bond financing, which is expected to
generate $3 million in additional annualized operating revenues when it opens in the third quarter
of the year.
Our new 1,500-bed bond financed prison is Graceville, Florida will generate $21 million in annual
operating revenues, exclusive of debt service, when completed in the fourth quarter of the year.
The 576-bed expansion of our company-owned Val Verde facility using free cash flow is expected to
generate $11 million in additional annual operating revenues when completed in the first quarter of
2008.
The 625-bed bond financed Northeast New Mexico facility will house New Mexico prisoners under an
IGA between the state and town of Clayton, New Mexico, who in turns contracts will GEO, will
generate $11 million in annual operating revenues, exclusive of debt service, when completed in the
third quarter of 2008.
The 1,100-bed bond financed facility in Montgomery, Texas is expected to be used by state or
federal agencies, and when completed in the third quarter of 2008, this facility is expected to
generate approximately $14 million in annual operating revenues.
Our recently announced contract in Laredo, Texas for the construction and management of a 1,500-bed
facility will be financed primarily using free cash flow, and will generate approximately $36
million in annual revenues when it opens in the fourth quarter of 2008. The bond financed 500-bed
expansion of our East Mississippi correctional facility will generate between $5 and $7 million in
annual revenues when completed year-end 2008.
The 100-bed South Florida Evaluation and Treatment Annex, which opened March 1st, is expected to
generate $10 million in additive GEO Care operating revenues in 2007. And the 175-bed Treasure
Coast Forensic Treatment Center, which opened on April 1, will generate approximately $20 million
in annualized GEO Care operating revenues.
With these two new contracts, GEO Care now has over $100 million in contract revenues in the state
of Florida alone, and its revenue run rate is expected to be approximately $130 million in 2008
just based on existing contracts. GEO Care now represents more than 10% of our revenue base, and it
is expecting its revenue share to continue to increase as they continue to grow their business.
Regarding our available capacity, we currently have approximately 900 empty beds available at two
facilities, and Jena, Louisiana, our LaSalle detention facility, can house 400 inmates and has
sufficient land to expand this facility by several hundred additional beds. In Baldwin, Michigan,
our North Lake Correctional Facility can house 500 inmates, and also has substantial acreage to
expand by several hundred beds. We have been in discussions with state and federal agencies
regarding the potential use of these two facilities, and are particularly hopeful in contracting
the Jena facility during this quarter.
Moving to our pending proposals and new business development opportunities. Last week, the
California legislature approved a prison expansion bill, which was signed by the governor this past
Friday. The plan calls for the construction of 53,000 new prison and jail beds at an approximate
cost of $7.3 billion. The construction plan will be carried out in two phases, involving the
expansion of existing facilities as well as new construction of as many as 16,000 new beds designed
for community corrections or re-entry programs of up to 500 beds per facility in state.
In addition, the bill authorizes the state of California to involuntary transfer inmates out of
state. We are busy reading the language of this new law and trying to understand how it may be
implemented. Further, we’ve contacted the Department of Corrections, indicating our interest to
provide them with additional capacity.
We believe we are well positioned to help the state with its immediate-term and long-term needs. As
I mentioned earlier, we have two facilities with 900 immediately available beds in Michigan and
Louisiana. Each of these two facilities can be expanded by several hundred beds. Furthermore, we
currently own and manage four facilities totaling over 2,000 beds in the state of California. We
stand ready to help the state to address its long-term in-state bed needs through the expansion of
these four facilities and the development of new facilities within the state.
In Arizona, the state has issued two RFPs: one for the provision of up to 5,700 provisional beds
anywhere, and another for 3,000 in-state beds. We’ve submitted proposals in response to both RFPs.
The state has since canceled the in-state RFP for 3,000 beds. We believe this RFP may be reissued
later on this year. With regards to the provisional beds, we expect that award may be made in the
near term.
Additionally, we have two pending re-bids, which include first the 120-bed Bronx community re-entry
center being re-bid by the BOP, with a contract award expected in the second quarter of this year,
and the 985-bed Moore Haven facility in Florida, with a contract award expected also in the second
quarter of this year. As I mentioned earlier, we have recently expanded this facility by 235 beds.
In addition to these proposals, we expect to compete for a number of additional projects, both
domestically and internationally, over the remainder of this year. In the U.S., we expect to
compete for a new 1,000-bed detention facility located in Las Vegas, Nevada for the joint use by
the U.S. Marshall Service and ICE. We expect a solicitation to be issued within the next two
months, with an expected award in the second or third quarter of 2008.
Internationally, GEO UK has submitted a pre-qualification to compete for a new design construction
financed managed contract for a 700-bed prison in Lowmoss, Scotland. The contract is expected to
have a 25-year term. In England, plans have been announced to increase capacity by over 10,000 new
beds. Planning permission has already been granted for a new prison in [Inaudible] for 600 new beds
to be designed, constructed, financed and managed by the private sector, in addition to planning an
application that’s made for a new 600-bed designed, constructed, financed and managed prison to be
located on the site currently adjacent to an existing prison in Bell Marsh near London.
On the Immigration front, a bidders conference for the 460-bed Gatwick two has been scheduled for
May 9th, in 2007, also in the UK. We continue to monitor the UK market and believe that we are well
positioned with our GEO UK subsidiary to take advantage of future opportunities.
In South Africa, the government has received a draft report on the development of five new
3,000-bed prisons, at a budgeted construction of $100 million per prison. The report recommends the
design, development and financing management of these new prisons through public/private
partnership initiatives, similar to the two existing facilities that are privately managed in South
Africa. Based on the successful development and operation of our South Africa 3,000-bed prison, we
believe that we are well positioned to capitalize on new growth opportunities in South Africa.
With regard to Mental Health and Residential Treatment opportunities, we remain very excited about
GEO Care’s prospects. GEO Care is off to a great start this year with two new contracts activated
in Florida totaling more than $30 million in annual revenues. We expect GEO Care to compete for
several new projects in a number of states around the country during 2007.
In closing, I would like to make a few remarks regarding our outlook for 2007. We are extremely
pleased with the strong performance of all three business units during the first quarter of the
year, and we remain optimistic about our business development efforts. Our successful acquisition
of CentraCore Properties Trust and subsequent equity offering and debt pay down now gives us
greater flexibility to expand our existing facilities and pursue future growth opportunities.
We have what we believe is the largest organic pipeline in our industry, with 14 projects under
development, totaling over 8,700 beds and $148 million in annual revenues. In addition, we have
approximately 900 beds available at two facilities in Michigan and Louisiana, with expansion
potential at both sites.
This concludes my presentation. I would now like to open the call to any questions.
QUESTION AND ANSWER
Operator
Thank you. [Operator instructions] And your first question comes from the line of Todd Van
Fleet with First Analysis. Please proceed.
Todd
Van Fleet - First Analysis Securities - Analyst
Good afternoon, guys. George, I wanted to talk a little bit first about New Castle, and it
sounds as though in your remarks that you really don’t expect any kinds of blips on the radar, as
it were, pertaining to the population there, so I just want to confirm that that is the case. So
relative, if you go back three weeks ago or even a week and a half ago, your expectations now in
terms of the population ramping up in that facility — has it changed, like I said, over the past
week, week and a half?
George
Zoley - The GEO Group - Chairman, CEO
Well, any further shipments have stopped at this time, and we are in a series of cooperating
on the investigations on what led to the incident. We’re doing some repairs to the damage. There
isn’t anything that we’re aware of at this time that would cause us to revise our financial
guidance.
Todd
Van Fleet - First Analysis Securities - Analyst
Okay. Let me move on to California, then. I think you have, what, the four facilities out
there and they come up for re-bid in the middle of this year? Is that right?
George
Zoley - The GEO Group - Chairman, CEO
They’re coming up for renegotiation or re-bid, yes.
Todd
Van Fleet - First Analysis Securities - Analyst
Okay.
George
Zoley - The GEO Group - Chairman, CEO
Three of the four are.
Todd
Van Fleet - First Analysis Securities - Analyst
Okay. Would you expect that your discussions with the state on those four facilities — will
it be wrapped up in some broader discussion of the bill that was recently signed by the governor,
or are you at GEO thinking of these events or opportunities as two distinctly separate things?
George
Zoley - The GEO Group - Chairman, CEO
I think contractually they’ll have to be the same, not separate.
Todd
Van Fleet - First Analysis Securities - Analyst
Okay, thanks. I’ll circle back.
George
Zoley - The GEO Group - Chairman, CEO
Okay.
Operator
And your next question comes from the line of Kevin Campbell with Avondale Partners. Please
proceed.
Kevin
Campbell - Avondale Partners - Analyst
Good afternoon. Thanks for taking my question. I just wanted to ask you quickly about some of
the improvements you expect to see in margins, I think, in the third and fourth quarter, and what
are going to be the main drivers for that? If you could touch on that, that’d be great.
George
Zoley - The GEO Group - Chairman, CEO
Well, we have a number of facilities that will be opening by that time, which includes, I
believe, the Graceville facility, GEO Care —
George
Zoley - The GEO Group - Chairman, CEO
Two facilities.
George
Zoley - The GEO Group - Chairman, CEO
Two facilities. I don’t have that schedule in front of me right now, I’m sorry to say.
Kevin
Campbell - Avondale Partners - Analyst
Maybe I’m not making myself clear in terms of the question. It just seems like revenue is
expected, I guess, to remain the same in your guidance from the second quarter to the third
quarter, yet you have EPS going up $0.06 on a pro forma basis, or the range is. Is it additional
increases to pricing that’s going to cause that jump up there? Similarly, in the fourth quarter,
your range goes up only by about $2 million, but you’ve got a $0.06 increase to earnings, and so
I’m just trying to get a better sense of what’s driving that, whether it would be decreases to your
G&A or things of that nature.
George
Zoley - The GEO Group - Chairman, CEO
We’ve had a couple of start-ups, two in GEO Care, and [inaudible] we’ve had the Indiana
start-up in the first quarter, first half of this year, so those would be normalized in the second
half of the year, and they will obviously be not including the start-up costs, and it will be
generating profits.
Kevin
Campbell - Avondale Partners - Analyst
Okay.
Jerry
O’Rourke - The GEO Group - CFO
Kevin,
this is Jerry O’Rourke. Obviously, you’re right, the revenue is going to remain rather
stable in that 228 range for the second and third quarter, and it’s stepping up modestly in the
fourth, and the efficiency that we’re going to receive is going to drive the contribution margin
north. We believe that that is very predictable at this time.
Kevin
Campbell - Avondale Partners - Analyst
Okay. And could you comment for me — and maybe we could follow up online — on some of the
repricing opportunities and sort of the timing of when those are going to occur? I know you
mentioned the ones in California. I didn’t know if there was anything additional. And if it’s too
lengthy, we can just follow up offline.
George
Zoley - The GEO Group - Chairman, CEO
The three in California are applicable to really 2008, because the current contracts run to
the end of 2007. There is nothing else particularly like that during this year, which [inaudible]
start-up expenses in a number of cases and the opening of new facilities in other cases.
Kevin
Campbell - Avondale Partners - Analyst
Okay, great. Thank you.
Operator
And your next question comes from the line of Jeffrey Kessler with Lehman Brothers. Please
proceed.
Jeffrey
Kessler - Lehman Brothers - Analyst
All right, Mr. Kessler here. Hi, guys. How are you doing?
George
Zoley - The GEO Group - Chairman, CEO
Great.
Jeffrey
Kessler - Lehman Brothers - Analyst
A couple of questions. A number of my questions have been answered already. The per diem jump
that you saw obviously was affected to some extent by CentraCore. Can you give some idea of not
only how it affected the numbers for the quarter on a top-down basis, but also how it’s affecting
the numbers on a per diem basis?
George
Zoley - The GEO Group - Chairman, CEO
The benefit of the CentraCore acquisition is just starting to emerge. We’ve been fortunate to
have an expansion at the Broward facility, which was a CentraCore property, but the other
opportunities are still in the pipeline, three of which are the contracts in California to be
renegotiated. So to restate again, it’s the CentraCore acquisition and opportunities for margin
enhancement that is still in the pipeline and developing.
Jeffrey
Kessler - Lehman Brothers - Analyst
Okay. There’s a lot of interest around GEO Care. Obviously, margins at the beginning of GEO
Care are lower, although the per diems are higher. The margins are lower, but it seems to me that
if you can get revenue — if you can ramp up revenues, your margin opportunities are substantial
there. You mentioned in a very general way new projects or new bidding in several other states. Can
you give us some more meat on this bone here about what you’re talking about in terms of GEO Care
expanding beyond Florida?
George
Zoley - The GEO Group - Chairman, CEO
We prefer to not to until there’s a publicly known RFP, and it takes a long time for us to
market and move the ball to that point. We consider this proprietary information, initiatives that
are undertaken by the company exclusive, so I really can’t give you any more color as to where
we’re marketing, except to say that it is in several states. And just like in the corrections
business, it takes a long time for these RFPs to finally come to fruition and develop, but we feel
confident by virtue of what’s been accomplished in Florida, whereas GEO Care is now, I think, a
national leader in civil psychiatric hospitals, and more recently has become a national leader in
forensic state psychiatric hospitals, that these services are needed around the country. Now, the
forensic area in particular, that has developed so quickly in Florida because of litigation, is one
in my mind that is applicable to many, if not most, urban centers in this country, where people are
stuck in jails that are mentally disadvantaged. The sheriffs don’t want them there. They want them
outside the facility and somebody else treating them, and we’re the only ones that we’re aware of
that provide standalone treatment facilities like this, so we think it’s a great business model
whose time has come for both the civil psychiatric hospitals and the forensic psychiatric
hospitals.
Jeffrey
Kessler - Lehman Brothers - Analyst
Right. One final just clean-up question. The interest income run rate that we had went — in
Q1, it went higher than Q4, despite you guys taking on debt. Obviously, you did the stock
transaction, but I’m just wondering, is there some way that you could guide us on the interest
income line, since it was, again, higher than what we had been modeling?
Brian Evans - The GEO Group
Well, I think it’s just reflecting the higher cash balances during the quarter. Those will
come down some, obviously, with the pay down in debt and we use that cash for some of the capital
needs and the expansion projects that George talked about earlier.
Jeffrey
Kessler - Lehman Brothers - Analyst
Right. Very good, and good quarter, guys.
George
Zoley - The GEO Group - Chairman, CEO
Thank you very much.
Operator
Your next question comes from the line of Emily Shanks with Lehman Brothers. Please proceed.
Emily
Shanks - Lehman Brothers - Analyst
Hi. Thank you for taking the question. Just a quick one on the heels of a lot of questions.
Could you just refresh for us what your full year ‘07 CapEx guidance is, your expectations?
Jerry
O’Rourke - The GEO Group - CFO
I don’t think we publicly announce what our total CapEx is, but we have previously announced
that we have the Val Verde project, which is about halfway through its build cycle. That was a $30
million investment, and we have about $18 million left as we currently speak. We have not yet
publicly announced any additional investments other than that.
Emily
Shanks - Lehman Brothers - Analyst
Okay. And is it fair —? I think at one point, back in November, you had said your ‘07
maintenance CapEx was going to be around $6 million-ish. Is that fair?
Jerry
O’Rourke - The GEO Group - CFO
We said $6 to $10 million is the range of maintenance CapEx, correct.
Emily
Shanks - Lehman Brothers - Analyst
Great. Thank you.
Operator
Your next question comes from the line of [Ben Josef] with [Inaudible]. Please proceed.
Ben Joseph
Good afternoon. Not to beat up this California contract renegotiation, but can you talk a
little bit about the historical per diems in California versus current per diems?
George
Zoley - The GEO Group - Chairman, CEO
The historical per diems have been under $40.
Ben Joseph
Under $40?
George
Zoley - The GEO Group - Chairman, CEO
Yes.
Ben Joseph
Okay. And so, given the out-of-state inmates that we’re seeing that are coming out of there,
those per diems are somewhere around $60.
George
Zoley - The GEO Group - Chairman, CEO
The current out-of-state per diem rates, to my knowledge, are between $63 and $64.
Ben Joseph
Okay. And would you expect that to be the same type rate that you would get for the in state?
George
Zoley - The GEO Group - Chairman, CEO
Well, it’s certainly a benchmark in the marketplace.
Ben Joseph
Right.
George
Zoley - The GEO Group - Chairman, CEO
I can’t say more than that because we’re in the middle of negotiations.
Ben Joseph
I understand. And can you talk a little bit more about some of the facilities that you’re
looking to expand now that you’ve got the CPT transaction completed? You had three months or so
looking at those facilities. Which ones would be good to expand?
George
Zoley - The GEO Group - Chairman, CEO
Well, we’ve identified a number that have expansion capabilities, but they need to be properly
sequenced. A major new benchmark for us now is our announcement of the financing for the Laredo
facility. We’ve announced that we will finance that primarily through free cash flow, and that will
be undertaken very shortly. That will be part of our CapEx for this year. We obviously have a
couple of other idle facilities that we think are well positioned. [Inaudible] and one in Michigan
that are capable of expansion as well, and we’re looking at those facilities to hopefully activate
them this year and, ideally, expand them as well.
Ben Joseph
Okay. And then lastly, one of the facilities that you acquired was the Delaney Hall facility.
Is that a facility that you plan to keep? And if so, when is the expansion for that facility
expected to be completed?
George
Zoley - The GEO Group - Chairman, CEO
The expansion is underway now, and may be complete — I don’t know if at the end of the year
or the beginning, first quarter of next year. Do we expect to continue to own it? We’re really kind
of uncertain at this time.
Ben Joseph
Okay. Thank you very much.
Operator
Your next question is a follow up from Todd Van Fleet with First Analysis. Please proceed.
Todd
Van Fleet - First Analysis Securities - Analyst
Gerry or George, what’s the rental revenue you have assumed in your guidance for this year?
Can you tell us?
George
Zoley - The GEO Group - Chairman, CEO
From the two facilities?
Todd
Van Fleet - First Analysis Securities - Analyst
Yes.
George
Zoley - The GEO Group - Chairman, CEO
Oh.
Jerry
O’Rourke - The GEO Group - CFO
We’ll have to look that one up for you, Todd.
Brian Evans - The GEO Group
$3.5 to $5 million.
Todd
Van Fleet - First Analysis Securities - Analyst
$3.5 to $5 million. Okay, great. I guess — well, let me ask one more on the P&L first. G&A
expense, $15 million. I mean, you guys are tracking pretty steadily at around the $14 million mark,
quarter in and quarter out last year, and so the $15 million is kind of the high watermark.
Year-end, the March quarter a step up not only over the prior year quarter, but sequentially.
Anything in particular feeding that? Is it anomalous?
Jerry
O’Rourke - The GEO Group - CFO
Yes. It’s really about $800,000, a little bit of one-time events associated with some
employment terminations and some stock plan buybacks, so I think that’s just a one-time anomaly
there. I think the — we’ve said in the past that we’re driving towards that $14 million to $14.5
million as a steady state.
Todd
Van Fleet - First Analysis Securities - Analyst
Right, right. Okay, and so any expenses that would be incurred perhaps in Q2 related to the
incident last week, would that show up more or less on the operating line or the G&A line?
Jerry
O’Rourke - The GEO Group - CFO
Operating line.
Todd
Van Fleet - First Analysis Securities - Analyst
Okay. Let me move on to California, then. As you guys think about what the opportunity there
and the bill that was produced last week, the short-term opportunity is obviously the out-of-state
transfers, but can you help us understand how you guys are thinking about the longer term
opportunity and where really GEO’s kind of sweet spot, if you will, is as you see it in kind of
helping the state eliminate or at least substantially reduce the problem that they had? Do you see
it more being kind of in the phase one, or is it more in the phase two as you see it at this stage?
George
Zoley - The GEO Group - Chairman, CEO
Well, you’ve been a careful reader of the bill, apparently. I’m not sure if it’s phase one or
phase two, but in-state beds — I think they’re in phase one. Yes, they’re right here — 6,000
re-entry facility beds. We hope that we are allowed to participate in providing those so-called
500-bed facilities. We have ample land in California abutting our existing facilities in which we
could provide several facilities of that nature, and I think that’s part of the state’s long-term
solution. We also have an interest in providing out-of-state bed space, and we have a few existing
facilities — two idle ones in particular — that are capable of that, and we may have some other
facilities in other states that lend themselves to that purpose.
Todd
Van Fleet - First Analysis Securities - Analyst
Okay, so it’s really — the facilities, or at least your participation in either constructing
or managing new facilities — it would still be kind of for those types of facilities that are
housing more kind of the minimum/medium security type inmates who, I guess, are kind of lower grade
in terms of their incarceration level, I guess, so maybe close to release, that sort of thing?
George
Zoley - The GEO Group - Chairman, CEO
Yes. I think that’s the only thing that’s permitted as far as in-state beds. As far as
out-of-state transfers, I think the state is capable of sending higher security inmates.
Todd
Van Fleet - First Analysis Securities - Analyst
Okay. Thanks very much.
Operator
Your next question comes from the line of Dan Mazur with JMP Asset Management. Please proceed.
Dan
Mazur - JMP Asset Management - Analyst
Good afternoon, guys. Congrats on a good quarter.
George
Zoley - The GEO Group - Chairman, CEO
Thank you very much.
Dan
Mazur - JMP Asset Management - Analyst
George, I’m sorry, I might have missed this earlier, but on the past — were there offsets to
just earnings in the second half, mitigating factors on profitability, or was that just a bad
contract?
George
Zoley - The GEO Group - Chairman, CEO
Bad contract?
Dan
Mazur - JMP Asset Management - Analyst
Or just an unprofitable or break-even contract.
George
Zoley - The GEO Group - Chairman, CEO
It wasn’t a bad contract, per se, but we believe we were significantly underbid, and we’ve
taken that into account in our revised financial guidance.
Dan
Mazur - JMP Asset Management - Analyst
So there were some offsets in the second half that allowed you to keep your earnings guidance?
George
Zoley - The GEO Group - Chairman, CEO
Yes. Well, we did have a very strong first quarter, as we’ve announced, and that strength
continues to be reflected at the state and federal facilities that are driving that performance.
That’ll drive into the subsequent quarters of the year.
Dan
Mazur - JMP Asset Management - Analyst
Okay. And then just as it relates to the three California contracts, can you just talk a
little bit on the competition for the manage-only contracts? Like I said, it was just a surprise to
see you lose the BOP, but I guess if there are people being aggressive out there — I mean, do you
expect these to be very competitive situations?
George
Zoley - The GEO Group - Chairman, CEO
Well, it may never get to a formal RFP. It’s contractually possible just to extend the
contracts through negotiation.
Dan
Mazur - JMP Asset Management - Analyst
Okay. And then would these be more profitable contracts than in the past?
George
Zoley - The GEO Group - Chairman, CEO
The California contracts?
Dan
Mazur - JMP Asset Management - Analyst
Yes.
George
Zoley - The GEO Group - Chairman, CEO
They are presently priced at approximately $40 per person, per day, which is a rate that goes
back almost 10 years, so we do believe that they are below market as far as their current pricing.
Dan
Mazur - JMP Asset Management - Analyst
Great. Well, thank you.
George
Zoley - The GEO Group - Chairman, CEO
Thank you.
Operator
[Operator instructions] Please stand by for your next question. And your next question is a
follow up with Todd Van Fleet with First Analysis. Please proceed.
Todd
Van Fleet - First Analysis Securities - Analyst
George, I’m wondering if you or Wayne can kind of comment on the labor environment that you
see out there. As you think about all the different projects that you guys need to execute on over
the course of the next year, year and a half in various geographies, I guess, not just nationally,
but internationally, how do you see the wage and the kind of general labor environment impacting
your kind of recruitment abilities, your staffing capabilities, that sort of thing? Is it a tighter
environment now than perhaps you’ve seen over the course of the past 12 to 24 months? Any kind of
thoughts along those lines would be helpful. Thanks.
George
Zoley - The GEO Group - Chairman, CEO
A number of the new opportunities are federal facilities, and as I’ve said in the past, we are
very fortunate in that these federal projects carry with them a wage determination, which usually
results in the employees being paid among the highest of anybody of that classification in the
surrounding areas. And then periodically, the Department of Labor, which establishes these wage
determinations, will conduct another survey and make an adjustment, generally upwards, and then
that permits us, as a subcontractor, to ask for an equitable adjustment to get increased
compensation to pay for those wage increases. So because of the preponderance of new opportunities
which are federal, we’ve had a lot of insulation in the federal sector on wage inflation. In the
state sectors, we have had some wage inflation in different pockets around the country. We’ve been
able to absorb it within our earnings performance because of just very strong performance and high
occupancy. So here and there, there has been some sporadic need to adjust wages, but the federal
contracts, which are primarily driving our financial performance, carry this wage determination,
which effectively insulates us from wage inflation.
Todd
Van Fleet - First Analysis Securities - Analyst
Okay. I was just thinking about the state level as well, that a fair amount of the business
being brought is kind of with state governments and so forth, and potentially with state
governments. So you would see those types of opportunities as being perhaps a little bit more risky
from kind of a wage inflation point of view versus the federal, but nothing that you’re losing
sleep over?
George
Zoley - The GEO Group - Chairman, CEO
No. We have a lot of experience on operating in the states in which we operate, and we have
quite a lot to draw upon.
Todd
Van Fleet - First Analysis Securities - Analyst
Okay. And then circling back, I guess, on the prior question that Dan posed regarding the
pricing environment just in general. Would you say it’s fair — is it fair to say that pricing risk
in the industry is highest, not only historically, but moving ahead, for those contracts for which
you are the manager only as opposed to those contracts for which you are bidding your beds and you
own and manage the facility?
George
Zoley - The GEO Group - Chairman, CEO
Yes, on a relative basis. There hasn’t been that much turnover in our industry, as you know,
by any company, but it happens periodically, and then if it happens, it’s most likely going to
happen in a managed-only governmentally owned facility.
Todd
Van Fleet - First Analysis Securities - Analyst
Great. Thank you.
Operator
I show no further questions in the queue. I would now like to turn the call over to George
Zoley for closing remarks.
George
Zoley - The GEO Group - Chairman, CEO
We thank everyone for their participation in this call, and we look forward to addressing you
at the next one. Thank you very much.
Operator
This concludes the presentation. You may all now disconnect. Good day.
EXHIBIT 99.3
CR-07-20
THE GEO GROUP ANNOUNCES 2-FOR-1 STOCK SPLIT
Boca Raton, Fla. — May 1, 2007 — The GEO Group (NYSE: GEO) (“GEO”) announced today that on May 1,
2007, GEO’s Board of Directors declared a 2-for-1 stock split of GEO’s common stock. The stock
split will take effect on June 1, 2007 with respect to stockholders of record on May 15, 2007.
Following the stock split, GEO’s diluted shares outstanding will increase from approximately 25.7
million to approximately 51.4 million.
About The GEO Group, Inc.
The GEO Group, Inc. (“GEO”) is a world leader in the delivery of correctional, detention, and residential treatment services to federal, state, and local government agencies around the globe. GEO offers a turnkey approach that includes design, construction, financing, and operations. GEO represents government clients in the United States, Australia, South Africa, Canada, and the United Kingdom. GEO’s worldwide operations include 66 correctional and residential treatment facilities with a total design capacity of approximately 58,000 beds.
The GEO Group, Inc. (“GEO”) is a world leader in the delivery of correctional, detention, and residential treatment services to federal, state, and local government agencies around the globe. GEO offers a turnkey approach that includes design, construction, financing, and operations. GEO represents government clients in the United States, Australia, South Africa, Canada, and the United Kingdom. GEO’s worldwide operations include 66 correctional and residential treatment facilities with a total design capacity of approximately 58,000 beds.
Forward-Looking Statements
This press release contains forward-looking statements regarding future events and future performance of GEO that involve risks and uncertainties that could materially affect actual results, including statements regarding estimated earnings, revenues and costs and our ability to maintain growth and strengthen contract relationships. Factors that could cause actual results to vary from current expectations and forward-looking statements contained in this press release include, but are not limited to: (1) GEO’s ability to successfully pursue further growth and continue to enhance shareholder value; (2) GEO’s ability to access the capital markets in the future on satisfactory terms or at all; (3) risks associated with GEO’s ability to control operating costs associated with contract start-ups; (4) GEO’s ability to timely open facilities as planned, profitably manage such facilities and successfully integrate such facilities into GEO’s operations without substantial costs; (5) GEO’s ability to win management contracts for which it has submitted proposals and to retain existing management contracts; (6) GEO’s ability to obtain future financing on acceptable terms; (7) GEO’s ability to sustain company-wide occupancy rates at its facilities; and (8) other factors contained in GEO’s Securities and Exchange Commission filings, including the forms 10-K, 10-Q and 8-K reports.
This press release contains forward-looking statements regarding future events and future performance of GEO that involve risks and uncertainties that could materially affect actual results, including statements regarding estimated earnings, revenues and costs and our ability to maintain growth and strengthen contract relationships. Factors that could cause actual results to vary from current expectations and forward-looking statements contained in this press release include, but are not limited to: (1) GEO’s ability to successfully pursue further growth and continue to enhance shareholder value; (2) GEO’s ability to access the capital markets in the future on satisfactory terms or at all; (3) risks associated with GEO’s ability to control operating costs associated with contract start-ups; (4) GEO’s ability to timely open facilities as planned, profitably manage such facilities and successfully integrate such facilities into GEO’s operations without substantial costs; (5) GEO’s ability to win management contracts for which it has submitted proposals and to retain existing management contracts; (6) GEO’s ability to obtain future financing on acceptable terms; (7) GEO’s ability to sustain company-wide occupancy rates at its facilities; and (8) other factors contained in GEO’s Securities and Exchange Commission filings, including the forms 10-K, 10-Q and 8-K reports.
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