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10-Q

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 June 30, 2023

☐ 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 August 7, 2023, the registrant had 126,102,801 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 AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022	3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022	4
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2023 (UNAUDITED) AND DECEMBER 31, 2022	5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 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	31
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	50
ITEM 4. CONTROLS AND PROCEDURES	50
PART II - OTHER INFORMATION	51
ITEM 1. LEGAL PROCEEDINGS	51
ITEM 1A. RISK FACTORS	53
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	53
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	53
ITEM 4. MINE SAFETY DISCLOSURES	53
ITEM 5. OTHER INFORMATION	53
ITEM 6. EXHIBITS	55
SIGNATURES	56

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

FOR THE THREE AND SIX MONTHS ENDED

JUNE 30, 2023 AND 2022

(In thousands, except per share data)


	Three Months Ended						Six Months Ended
	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Revenues	$	593,891		$	588,177		$	1,202,100		$	1,139,362
Operating expenses		428,128			411,791			861,620			796,952
Depreciation and amortization		31,691			32,016			63,614			67,954
General and administrative expenses		41,692			49,296			91,826			97,856
Operating income		92,380			95,074			185,040			176,600
Interest income		1,297			5,562			2,465			11,190
Interest expense		(55,046	)		(33,225	)		(109,304	)		(64,846	)
Loss on extinguishment of debt		(1,618	)		—			(1,754	)		—
Gain on asset divestitures		2,175			3,680			2,175			3,053
Income before income taxes and equity in earnings of affiliates		39,188			71,091			78,622			125,997
Provision for income taxes		11,153			18,898			23,515			36,860
Equity in earnings of affiliates, net of income tax provision of $334, $163, $514 and $275, respectively		1,490			1,480			2,412			2,715
Net income		29,525			53,673			57,519			91,852
Net loss attributable to noncontrolling interests		46			54			55			94
Net income attributable to The GEO Group, Inc.	$	29,571		$	53,727		$	57,574		$	91,946

Weighted-average common shares outstanding:
Basic		122,045			121,119			121,740			120,918
Diluted		123,278			121,881			123,496			121,650
Net income per common share attributable to The GEO Group, Inc.:
Basic:
Net income per common share attributable to The GEO Group, Inc. - basic	$	0.20		$	0.37		$	0.39		$	0.63
Diluted:
Net income per common share attributable to The GEO Group, Inc. - diluted	$	0.20		$	0.37		$	0.39		$	0.63

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

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

FOR THE THREE AND SIX MONTHS ENDED

JUNE 30, 2023 AND 2022

(In thousands)


	Three Months Ended						Six Months Ended
	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Net income	$	29,525		$	53,673		$	57,519		$	91,852
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(1,011	)		(9,826	)		(2,390	)		(9,401	)
Change in marketable securities, net of tax provision (benefit) of $147, $(94), $253 and $(202), respectively		553			(353	)		953			(758	)
Pension liability adjustment, net of tax provision of $0, $23, $0 and $45, respectively		—			85			—			170
Change in fair value of derivative instrument classified as cash flow hedge, net of tax provision (benefit) of $220, $508, $(53) and $1,163, respectively		827			1,910			(200	)		4,374
Total other comprehensive income (loss), net of tax		369			(8,184	)		(1,637	)		(5,615	)
Total comprehensive income		29,894			45,489			55,882			86,237
Comprehensive loss attributable to noncontrolling interests		30			31			29			86
Comprehensive income attributable to The GEO Group, Inc.	$	29,924		$	45,520		$	55,911		$	86,323

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

THE GEO GROUP, INC.

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2023 AND DECEMBER 31, 2022

(In thousands, except share data)


	June 30, 2023			December 31, 2022
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	48,716		$	95,073
Accounts receivable, less allowance for doubtful accounts of $741 and $809, respectively		350,961			416,399
Prepaid expenses and other current assets		52,299			43,536
Total current assets		451,976			555,008
Restricted Cash and Investments		136,497			111,691
Property and Equipment, Net		1,963,880			2,002,021
Assets Held for Sale		14,113			480
Operating Lease Right-of-Use Assets, Net		108,975			90,950
Deferred Income Tax Assets		8,005			8,005
Goodwill		755,189			755,199
Intangible Assets, Net		140,971			147,688
Other Non-Current Assets		92,283			89,341
Total Assets	$	3,671,889		$	3,760,383
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	73,076		$	79,312
Accrued payroll and related taxes		46,136			53,225
Accrued expenses and other current liabilities		174,835			237,369
Operating lease liabilities, current portion		23,784			22,584
Current portion of finance lease liabilities and long-term debt		29,377			44,722
Total current liabilities		347,208			437,212
Deferred Income Tax Liabilities		75,849			75,849
Other Non-Current Liabilities		79,763			74,008
Operating Lease Liabilities		90,127			73,801
Finance Lease Liabilities		922			1,280
Long-Term Debt, Net		1,845,649			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, 130,284,977 and 128,912,410 issued and 126,075,130 and 124,060,038 outstanding, respectively		1,303			1,289
Additional paid-in capital		1,292,826			1,291,363
Retained earnings (accumulated deficit)		53,338			(4,236	)
Accumulated other comprehensive loss		(18,582	)		(16,919	)
Treasury stock, 4,209,847 shares, at cost, respectively		(95,175	)		(105,099	)
Total shareholders’ equity attributable to The GEO Group, Inc.		1,233,710			1,166,398
Noncontrolling interests		(1,339	)		(1,310	)
Total shareholders’ equity		1,232,371			1,165,088
Total Liabilities and Shareholders’ Equity	$	3,671,889		$	3,760,383

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

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

FOR THE SIX MONTHS ENDED

JUNE 30, 2023 AND 2022

(In thousands)


	Six Months Ended
	June 30, 2023			June 30, 2022
Cash Flow from Operating Activities:
Net income	$	57,519		$	91,852
Net loss attributable to noncontrolling interests		55			94
Net income attributable to The GEO Group, Inc.		57,574			91,946
Adjustments to reconcile net income attributable to The GEO Group, Inc. to net cash provided by operating activities:
Depreciation and amortization expense		63,614			67,954
Stock-based compensation		8,935			9,869
Loss on extinguishment of debt		1,754			—
Amortization of debt issuance costs, discount and/or premium and other non-cash interest		5,805			3,755
Provision for doubtful accounts		—			76
Equity in earnings of affiliates, net of tax		(2,412	)		(2,715	)
Dividends received from unconsolidated joint ventures		1,807			2,441
Loss on sale/disposal of property and equipment, net		1,701			1,847
Gain on asset divestitures		(2,175	)		(3,053	)
Changes in assets and liabilities, net of effects of acquisitions:
Changes in accounts receivable, prepaid expenses and other assets		32,365			2,690
Changes in contract receivable		—			3,288
Changes in accounts payable, accrued expenses and other liabilities		(56,018	)		(6,119	)
Net cash provided by operating activities		112,950			171,979
Cash Flow from Investing Activities:
Proceeds from sale of property and equipment		—			37
Proceeds from sale of assets held for sale		2,791			15,812
Change in restricted investments		(3,503	)		895
Capital expenditures		(31,614	)		(36,060	)
Net cash used in investing activities		(32,326	)		(19,316	)
Cash Flow from Financing Activities:
Payments on long-term debt		(106,094	)		(54,318	)
Payments on non-recourse debt		—			(4,343	)
Proceeds from sale of treasury shares		5,750			—
Taxes paid related to net share settlements of equity awards		(3,445	)		(1,302	)
Proceeds from issuance of common stock in connection with ESPP		80			103
Proceeds from the exercise of stock options		81			—
Net cash used in financing activities		(103,628	)		(59,860	)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash and Cash Equivalents		(2,050	)		(4,331	)
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash and Cash Equivalents		(25,054	)		88,472
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	$	118,789		$	636,794
Supplemental Disclosures:
Non-cash Investing and Financing activities:
Right-of-use assets obtained from operating lease liabilities	$	31,289		$	4,284
Debt issuance costs in accrued expenses	$	3,850		$	—
Capital expenditures in accounts payable and accrued expenses	$	2,552		$	6,429

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

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' platform 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 June 30, 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 400,000 individuals on average, including nearly 180,000 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 (the “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 six months ended June 30, 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.

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 June 30, 2023 are as follows (in thousands):


	January 1, 2023		Foreign Currency Translation		June 30, 2023
U.S. Secure Services	$	316,366	$	—	$	316,366