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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to_______

Commission file number: 1-14260

 

The GEO Group, Inc.

(Exact name of registrant as specified in its charter)

 

 

Florida

65-0043078

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

 

 

 

4955 Technology Way

Boca Raton, Florida

33431

(Address of principal executive offices)

(Zip Code)

 

(561) 893-0101

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

GEO

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of April 28, 2023, the registrant had 126,023,978 shares of common stock outstanding.

 

 


 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

3

ITEM 1. FINANCIAL STATEMENTS

3

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

3

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

4

CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2023 (UNAUDITED) AND DECEMBER 31, 2022

5

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

6

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

7

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

30

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

46

ITEM 4. CONTROLS AND PROCEDURES

46

PART II - OTHER INFORMATION

47

ITEM 1. LEGAL PROCEEDINGS

47

ITEM 1A. RISK FACTORS

49

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

49

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

50

ITEM 4. MINE SAFETY DISCLOSURES

50

ITEM 5. OTHER INFORMATION

50

ITEM 6. EXHIBITS

51

SIGNATURES

52

 

2


 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

FOR THE THREE MONTHS ENDED

MARCH 31, 2023 AND 2022

(In thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

 

March 31, 2023

 

 

March 31, 2022

 

 

Revenues

 

$

608,209

 

 

$

551,185

 

 

Operating expenses

 

 

433,492

 

 

 

385,161

 

 

Depreciation and amortization

 

 

31,923

 

 

 

35,938

 

 

General and administrative expenses

 

 

50,134

 

 

 

48,560

 

 

Operating income

 

 

92,660

 

 

 

81,526

 

 

Interest income

 

 

1,168

 

 

 

5,628

 

 

Interest expense

 

 

(54,258

)

 

 

(31,621

)

 

Loss on extinguishment of debt

 

 

(136

)

 

 

 

 

Loss on asset divestitures

 

 

 

 

 

(627

)

 

Income before income taxes and equity in earnings of affiliates

 

 

39,434

 

 

 

54,906

 

 

Provision for income taxes

 

 

12,362

 

 

 

17,962

 

 

Equity in earnings of affiliates, net of income tax provision of
   $
179 and $112, respectively

 

 

922

 

 

 

1,235

 

 

Net income

 

 

27,994

 

 

 

38,179

 

 

Net loss attributable to noncontrolling interests

 

 

9

 

 

 

40

 

 

Net income attributable to The GEO Group, Inc.

 

$

28,003

 

 

$

38,219

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

121,432

 

 

 

120,714

 

 

Diluted

 

 

125,139

 

 

 

121,394

 

 

Net income per common share attributable to The GEO Group,
   Inc.:

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

Net income per common share attributable to The GEO Group,
   Inc. - basic

 

$

0.19

 

 

$

0.26

 

 

Diluted:

 

 

 

 

 

 

 

Net income per common share attributable to The GEO Group,
   Inc. - diluted

 

$

0.19

 

 

$

0.26

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3


 

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

FOR THE THREE MONTHS ENDED

MARCH 31, 2023 AND 2022

(In thousands)

 

 

 

Three Months Ended

 

 

 

 

March 31, 2023

 

 

March 31, 2022

 

 

Net income

 

$

27,994

 

 

$

38,179

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(1,379

)

 

 

425

 

 

Change in marketable securities, net of tax provision (benefit) of $106 and ($107), respectively

 

 

400

 

 

 

(405

)

 

Pension liability adjustment, net of tax provision
   of $
0 and $23, respectively

 

 

 

 

 

85

 

 

Change in fair value of derivative instrument
   classified as cash flow hedge, net of tax provision (benefit) of
   $(
273) and $655, respectively

 

 

(1,027

)

 

 

2,464

 

 

Total other comprehensive income (loss), net of tax

 

 

(2,006

)

 

 

2,569

 

 

Total comprehensive income

 

 

25,988

 

 

 

40,748

 

 

Comprehensive (income) loss attributable to noncontrolling interests

 

 

(1

)

 

 

55

 

 

Comprehensive income attributable to The GEO Group, Inc.

 

$

25,987

 

 

$

40,803

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4


 

THE GEO GROUP, INC.

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2023 AND DECEMBER 31, 2022

(In thousands, except share data)

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

110,916

 

 

$

95,073

 

Accounts receivable, less allowance for doubtful accounts of $764 and $809,
   respectively

 

 

349,337

 

 

 

416,399

 

Prepaid expenses and other current assets

 

 

40,995

 

 

 

43,536

 

Total current assets

 

 

501,248

 

 

 

555,008

 

Restricted Cash and Investments

 

 

129,832

 

 

 

111,691

 

Property and Equipment, Net

 

 

1,972,859

 

 

 

2,002,021

 

Assets Held for Sale

 

 

14,594

 

 

 

480

 

Operating Lease Right-of-Use Assets, Net

 

 

85,294

 

 

 

90,950

 

Deferred Income Tax Assets

 

 

8,005

 

 

 

8,005

 

Goodwill

 

 

755,192

 

 

 

755,199

 

Intangible Assets, Net

 

 

144,243

 

 

 

147,688

 

Other Non-Current Assets

 

 

90,717

 

 

 

89,341

 

Total Assets

 

$

3,701,984

 

 

$

3,760,383

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable

 

$

78,851

 

 

$

79,312

 

Accrued payroll and related taxes

 

 

69,020

 

 

 

53,225

 

Accrued expenses and other current liabilities

 

 

182,768

 

 

 

237,369

 

Operating lease liabilities, current portion

 

 

20,723

 

 

 

22,584

 

Current portion of finance lease liabilities, long-term debt and non-recourse debt

 

 

44,736

 

 

 

44,722

 

Total current liabilities

 

 

396,098

 

 

 

437,212

 

Deferred Income Tax Liabilities

 

 

75,849

 

 

 

75,849

 

Other Non-Current Liabilities

 

 

76,232

 

 

 

74,008

 

Operating Lease Liabilities

 

 

69,698

 

 

 

73,801

 

Finance Lease Liabilities

 

 

1,102

 

 

 

1,280

 

Long-Term Debt

 

 

1,883,956

 

 

 

1,933,145

 

Commitments, Contingencies and Other Matters (Note 11)

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

Preferred stock, $0.01 par value, 30,000,000 shares authorized,
   
none issued or outstanding

 

 

 

 

 

 

Common stock, $0.01 par value, 187,500,000 shares authorized,
   
130,164,966 and 128,912,410 issued and 125,955,119
and
124,060,038 outstanding, respectively

 

 

1,302

 

 

 

1,289

 

Additional paid-in capital

 

 

1,289,399

 

 

 

1,291,363

 

Retained earnings (accumulated deficit)

 

 

23,767

 

 

 

(4,236

)

Accumulated other comprehensive loss

 

 

(18,935

)

 

 

(16,919

)

Treasury stock, 4,209,847 and 4,852,372 shares, at cost, respectively

 

 

(95,175

)

 

 

(105,099

)

Total shareholders’ equity attributable to The GEO Group, Inc.

 

 

1,200,358

 

 

 

1,166,398

 

Noncontrolling interests

 

 

(1,309

)

 

 

(1,310

)

Total shareholders’ equity

 

 

1,199,049

 

 

 

1,165,088

 

Total Liabilities and Shareholders’ Equity

 

$

3,701,984

 

 

$

3,760,383

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5


 

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

FOR THE THREE MONTHS ENDED

MARCH 31, 2023 AND 2022

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31, 2023

 

 

March 31, 2022

 

Cash Flow from Operating Activities:

 

 

 

 

 

 

Net income

 

$

27,994

 

 

$

38,179

 

Net loss attributable to noncontrolling interests

 

 

9

 

 

 

40

 

Net income attributable to The GEO Group, Inc.

 

 

28,003

 

 

 

38,219

 

Adjustments to reconcile net income attributable to The GEO Group, Inc. to net cash
   provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization expense

 

 

31,923

 

 

 

35,938

 

Stock-based compensation

 

 

5,578

 

 

 

6,313

 

Loss on extinguishment of debt

 

 

136

 

 

 

 

Amortization of debt issuance costs, discount and/or premium and other non-cash
   interest

 

 

2,824

 

 

 

1,848

 

Equity in earnings of affiliates, net of tax

 

 

(922

)

 

 

(1,235

)

Dividends received from unconsolidated joint ventures

 

 

1,011

 

 

 

1,781

 

Loss on sale/disposal of property and equipment, net

 

 

606

 

 

 

38

 

Loss on asset divestitures, net

 

 

 

 

 

627

 

Changes in assets and liabilities, net of effects of acquisitions:

 

 

 

 

 

 

Changes in accounts receivable, prepaid expenses and other assets

 

 

70,962

 

 

 

22,448

 

Changes in contract receivable

 

 

 

 

 

1,644

 

Changes in accounts payable, accrued expenses and other liabilities

 

 

(45,381

)

 

 

14,335

 

Net cash provided by operating activities

 

 

94,740

 

 

 

121,956

 

Cash Flow from Investing Activities:

 

 

 

 

 

 

Proceeds from sale of property and equipment

 

 

175

 

 

 

41

 

Change in restricted investments

 

 

(1,570

)

 

 

(4,109

)

Capital expenditures

 

 

(13,767

)

 

 

(13,773

)

Net cash used in investing activities

 

 

(15,162

)

 

 

(17,841

)

Cash Flow from Financing Activities:

 

 

 

 

 

 

Payments on long-term debt

 

 

(48,273

)

 

 

(2,881

)

Payments on non-recourse debt

 

 

 

 

 

(2,328

)

Proceeds from sale of treasury shares

 

 

5,750

 

 

 

 

Taxes paid related to net share settlements of equity awards

 

 

(3,445

)

 

 

(1,285

)

Proceeds from issuance of common stock in connection with ESPP

 

 

41

 

 

 

43

 

Proceeds from the exercise of stock options

 

 

49

 

 

 

 

Net cash used in financing activities

 

 

(45,878

)

 

 

(6,451

)

Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
   and Cash Equivalents

 

 

(1,286

)

 

 

2,606

 

Net Increase in Cash, Cash Equivalents and Restricted Cash
   and Cash Equivalents

 

 

32,414

 

 

 

100,270

 

Cash, Cash Equivalents and Restricted Cash and Cash Equivalents, beginning of period

 

 

143,843

 

 

 

548,322

 

Cash, Cash Equivalents and Restricted Cash and Cash Equivalents, end of period

 

$

176,257

 

 

$

648,592

 

Supplemental Disclosures:

 

 

 

 

 

 

Non-cash Investing and Financing activities:

 

 

 

 

 

 

Right-of-use assets obtained from operating lease liabilities

 

$

1,583

 

 

$

200

 

Debt issuance costs in accrued expenses

 

$

3,850

 

 

$

 

Capital expenditures in accounts payable and accrued expenses

 

$

640

 

 

$

1,260

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

6


 

THE GEO GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The GEO Group, Inc., a Florida corporation, and subsidiaries (the “Company” or “GEO”) specialize in the ownership, leasing and management of secure facilities, processing centers and community reentry centers in the United States, Australia and South Africa. The Company owns, leases and operates a broad range of facilities including maximum, medium and minimum security facilities, processing centers, as well as community-based reentry facilities and offers an expanded delivery of rehabilitation services under its 'GEO Continuum of Care' platform. The 'GEO Continuum of Care' program integrates enhanced rehabilitative programs, which are evidence-based and include cognitive behavioral treatment and post-release services, and provides academic and vocational classes in life skills and treatment programs while helping individuals reintegrate into their communities. The Company develops new facilities based on contract awards, using its project development expertise and experience to design, construct and finance what it believes are state-of-the-art facilities that maximize security and efficiency. The Company provides innovative compliance technologies, industry-leading monitoring services, and evidence-based supervision and treatment programs for community-based parolees, probationers and pretrial defendants. The Company also provides secure transportation services for individuals as contracted domestically and in the United Kingdom through its joint venture GEOAmey PECS Ltd. (“GEOAmey”). At March 31, 2023, the Company’s worldwide operations include the management and/or ownership of approximately 82,000 beds at 102 facilities, including idle facilities, and also include the provision of community supervision services for more than 500,000 individuals on average, including nearly 200,000 through an array of technology products including radio frequency, GPS, and alcohol monitoring devices.

 

GEO operated as a real estate investment trust ("REIT") from January 1, 2013 through December 31, 2020. As a REIT, the Company provided services and conducted other business activities through taxable REIT subsidiaries ("TRSs"). A TRS is a subsidiary of a REIT that is subject to applicable corporate income tax rates and certain qualification requirements. The Company's use of TRSs permitted GEO to engage in certain business activities in which the REIT could not engage directly, so long as those activities were conducted in entities that elected to be treated as TRSs under the Internal Revenue Code of 1986, as amended (the “Code”), and enabled GEO to, among other things, provide correctional services at facilities it owns and at facilities owned by its government partners. A TRS is not subject to the distribution requirements applicable to REITs so it may retain income generated by its operations for reinvestment.

 

On December 2, 2021, the Company announced that its board of directors (“Board”) unanimously approved a plan to terminate the Company's REIT status and become a taxable C Corporation, effective for the year ended December 31, 2021. As a result, the Company is no longer required to operate under REIT rules, including the requirement to distribute at least 90% of REIT taxable income to its shareholders, which provides the Company with greater flexibility to use its free cash flow. Effective January 1, 2021, the Company was subject to federal and state income taxes on its taxable income at applicable tax rates and was no longer entitled to a tax deduction for dividends paid. The Company operated as a REIT for the 2020 tax year, and existing REIT requirements and limitations remained in place until December 31, 2020. In connection with terminating the Company’s REIT status, the Board also voted unanimously to discontinue the Company's quarterly dividend in late 2021.

 

 

The Company's unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and the instructions to Form 10-Q and consequently do not include all disclosures required by Form 10-K. The accounting policies followed for quarterly financial reporting are the same as those disclosed in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2023 for the year ended December 31, 2022. The accompanying December 31, 2022 consolidated balance sheet has been derived from those audited financial statements. Additional information may be obtained by referring to the Company’s Form 10-K for the year ended December 31, 2022. In the opinion of management, all adjustments (consisting only of normal recurring items) necessary for a fair presentation of the financial information for the interim periods reported in this Quarterly Report on Form 10-Q have been made. Results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results for the entire year ending December 31, 2023, or for any other future interim or annual periods.

 

Risks and uncertainties

 

Executive Order

On January 26, 2021, President Biden signed an executive order directing the United States Attorney General not to renew Department of Justice (“DOJ”) contracts with privately operated criminal detention facilities, as consistent with applicable law. Two agencies of the DOJ, the Federal Bureau of Prisons (“BOP”) and the U.S. Marshals Service (“USMS”), utilize GEO’s support services. The BOP houses inmates who have been convicted of federal crimes, and the USMS is generally responsible for detainees who are awaiting trial or sentencing in U.S. federal courts. As of March 31, 2023, GEO has three company-owned/company-leased

7


 

facilities under direct contracts with USMS, which have current contract option periods that expire between September 30, 2023 and February 28, 2028. The Company no longer has any contracts with the BOP for secure correctional facilities.

 

 

2. GOODWILL AND OTHER INTANGIBLE ASSETS

The Company has recorded goodwill as a result of its various business combinations. Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the tangible assets and intangible assets acquired net of liabilities assumed, including noncontrolling interests. Changes in the Company's goodwill balances from January 1, 2023 to March 31, 2023 are as follows (in thousands):

 

 

 

January 1,
2023

 

 

Foreign Currency
Translation

 

 

March 31, 2023

 

U.S. Secure Services

 

$

316,366

 

 

$

 

 

$

316,366

 

Electronic Monitoring and Supervision Services

 

 

289,570

 

 

 

 

 

 

289,570

 

Reentry Services

 

 

148,873

 

 

 

 

 

 

148,873

 

International Services

 

 

390

 

 

 

(7

)

 

 

383

 

Total Goodwill

 

$

755,199

 

 

$

(7

)

 

$

755,192

 

 

 

The Company has also recorded other finite and indefinite-lived intangible assets as a result of its various business combinations. The Company's intangible assets include facility management contracts, covenants not to compete, trade names and technology, as follows (in thousands):

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Weighted
Average
Useful Life
(years)

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Carrying
Amount

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Carrying
Amount

 

Facility management contracts

 

 

16.3

 

 

$

308,338

 

 

$

(209,497

)

 

$

98,841

 

 

$

308,350

 

 

$

(206,367

)

 

$

101,983

 

Technology

 

 

7.3

 

 

 

33,700

 

 

 

(33,498

)

 

 

202

 

 

 

33,700

 

 

 

(33,195

)

 

 

505

 

Trade names

 

Indefinite

 

 

 

45,200

 

 

 

 

 

 

45,200

 

 

 

45,200

 

 

 

 

 

 

45,200

 

Total acquired intangible assets

 

 

 

 

$

387,238

 

 

$

(242,995

)

 

$

144,243

 

 

$

387,250

 

 

$

(239,562

)

 

$

147,688

 

 

Amortization expense was $3.4 million and $7.5 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, the weighted average period before the next contract renewal or extension for the acquired facility management contracts was approximately 3.0 years.

Estimated amortization expense related to the Company's finite-lived intangible assets for the remainder of 2023 through 2027 and thereafter is as follows (in thousands):

 

Fiscal Year

 

Total
Amortization
Expense

 

Remainder of 2023

 

$

8,776

 

2024

 

 

9,314

 

2025

 

 

9,263

 

2026

 

 

7,170

 

2027

 

 

6,878

 

Thereafter

 

 

57,642

 

 

$

99,043

 

 

8


 

3. FINANCIAL INSTRUMENTS

The following tables provide a summary of the Company’s significant financial assets and liabilities carried at fair value and measured on a recurring basis as of March 31, 2023 and December 31, 2022 (in thousands):

 

 

 

 

 

 

Fair Value Measurements at March 31, 2023

 

 

 

Carrying Value at
March 31,
2023

 

 

Quoted Prices in
Active Markets
(Level 1)

 

 

Significant Other
Observable Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs (Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Restricted investment:

 

 

 

 

 

 

 

 

 

 

 

 

Rabbi Trusts

 

$

44,712

 

 

$

7,014