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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 September 30, 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)
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Florida |
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65-0043078 |
(State or other jurisdiction of incorporation or organization) |
|
(IRS Employer Identification No.) |
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4955 Technology Way Boca Raton, Florida |
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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:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Common Stock, $0.01 par value per share |
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GEO |
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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.
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Large accelerated filer |
☑ |
Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
Smaller reporting company |
☐ |
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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 November 6, 2023, the registrant had 126,104,359 shares of common stock outstanding.
TABLE OF CONTENTS
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2023 AND 2022
(In thousands, except per share data)
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Three Months |
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Nine Months |
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September 30, 2023 |
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September 30, 2022 |
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September 30, 2023 |
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September 30, 2022 |
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Revenues |
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$ |
602,785 |
|
|
$ |
616,683 |
|
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$ |
1,804,885 |
|
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$ |
1,756,045 |
|
Operating expenses |
|
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440,667 |
|
|
|
436,210 |
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|
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1,302,287 |
|
|
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1,233,162 |
|
Depreciation and amortization |
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31,173 |
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32,330 |
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|
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94,787 |
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|
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100,284 |
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General and administrative expenses |
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47,356 |
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50,022 |
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139,182 |
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|
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147,878 |
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Operating income |
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83,589 |
|
|
|
98,121 |
|
|
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268,629 |
|
|
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274,721 |
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Interest income |
|
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1,320 |
|
|
|
5,111 |
|
|
|
3,785 |
|
|
|
16,301 |
|
Interest expense |
|
|
(55,777 |
) |
|
|
(46,537 |
) |
|
|
(165,081 |
) |
|
|
(111,383 |
) |
Loss on extinguishment of debt |
|
|
(91 |
) |
|
|
(37,487 |
) |
|
|
(1,845 |
) |
|
|
(37,487 |
) |
Gain on asset divestitures |
|
|
1,274 |
|
|
|
29,279 |
|
|
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3,449 |
|
|
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32,332 |
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Income before income taxes and equity in earnings of affiliates |
|
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30,315 |
|
|
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48,487 |
|
|
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108,937 |
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|
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174,484 |
|
Provision for income taxes |
|
|
6,521 |
|
|
|
11,246 |
|
|
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30,036 |
|
|
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48,106 |
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Equity in earnings of affiliates, net of income tax provision of
$67, $189, $581 and $464, respectively |
|
|
709 |
|
|
|
1,071 |
|
|
|
3,121 |
|
|
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3,786 |
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Net income |
|
|
24,503 |
|
|
|
38,312 |
|
|
|
82,022 |
|
|
|
130,164 |
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Net loss attributable to noncontrolling interests |
|
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16 |
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|
|
25 |
|
|
|
71 |
|
|
|
119 |
|
Net income attributable to The GEO Group, Inc. |
|
$ |
24,519 |
|
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$ |
38,337 |
|
|
$ |
82,093 |
|
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$ |
130,283 |
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|
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Weighted-average common shares outstanding: |
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Basic |
|
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122,066 |
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|
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121,154 |
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|
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121,850 |
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|
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120,998 |
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Diluted |
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123,433 |
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|
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122,426 |
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|
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123,479 |
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|
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121,907 |
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Net income per common share attributable to The GEO Group,
Inc.: |
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Basic: |
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Net income per common share attributable to The GEO Group,
Inc.-basic |
|
$ |
0.17 |
|
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$ |
0.26 |
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$ |
0.56 |
|
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$ |
0.89 |
|
Diluted: |
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|
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|
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Net income per common share attributable to The GEO Group,
Inc.-diluted |
|
$ |
0.16 |
|
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$ |
0.26 |
|
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$ |
0.55 |
|
|
$ |
0.89 |
|
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 AND NINE MONTHS ENDED
SEPTEMBER 30, 2023 AND 2022
(In thousands)
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Three Months |
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Nine Months |
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September 30, 2023 |
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September 30, 2022 |
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September 30, 2023 |
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|
September 30, 2022 |
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Net income |
|
$ |
24,503 |
|
|
$ |
38,312 |
|
|
$ |
82,022 |
|
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$ |
130,164 |
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Other comprehensive income (loss), net of tax: |
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|
|
|
|
|
|
|
|
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Foreign currency translation adjustments |
|
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(2,852 |
) |
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|
(2,247 |
) |
|
|
(5,242 |
) |
|
|
(11,648 |
) |
Change in marketable securities, net of tax provision (benefit) of $0, $(129), $253 and $(331), respectively |
|
|
— |
|
|
|
(487 |
) |
|
|
953 |
|
|
|
(1,245 |
) |
Pension liability adjustment, net of tax provision
of $0, $23, $0 and $68, respectively |
|
|
— |
|
|
|
86 |
|
|
|
— |
|
|
|
256 |
|
Change in fair value of derivative instrument
classified as cash flow hedge, net of tax provision of
$364, $498, $311 and $1,660, respectively |
|
|
1,370 |
|
|
|
1,873 |
|
|
|
1,170 |
|
|
|
6,247 |
|
Total other comprehensive loss, net of tax |
|
|
(1,482 |
) |
|
|
(775 |
) |
|
|
(3,119 |
) |
|
|
(6,390 |
) |
Total comprehensive income |
|
|
23,021 |
|
|
|
37,537 |
|
|
|
78,903 |
|
|
|
123,774 |
|
Comprehensive loss attributable to noncontrolling interests |
|
|
15 |
|
|
|
2 |
|
|
|
44 |
|
|
|
88 |
|
Comprehensive income attributable to The GEO Group, Inc. |
|
$ |
23,036 |
|
|
$ |
37,539 |
|
|
$ |
78,947 |
|
|
$ |
123,862 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
THE GEO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2023 AND DECEMBER 31, 2022
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
141,020 |
|
|
$ |
95,073 |
|
Accounts receivable, less allowance for doubtful accounts of $1,066 and $809,
respectively |
|
|
356,501 |
|
|
|
416,399 |
|
Prepaid expenses and other current assets |
|
|
41,138 |
|
|
|
43,536 |
|
Total current assets |
|
|
538,659 |
|
|
|
555,008 |
|
Restricted Cash and Investments |
|
|
130,729 |
|
|
|
111,691 |
|
Property and Equipment, Net |
|
|
1,951,524 |
|
|
|
2,002,021 |
|
Assets Held for Sale |
|
|
5,130 |
|
|
|
480 |
|
Operating Lease Right-of-Use Assets, Net |
|
|
106,552 |
|
|
|
90,950 |
|
Deferred Income Tax Assets |
|
|
8,005 |
|
|
|
8,005 |
|
Goodwill |
|
|
755,178 |
|
|
|
755,199 |
|
Intangible Assets, Net |
|
|
138,271 |
|
|
|
147,688 |
|
Other Non-Current Assets |
|
|
90,335 |
|
|
|
89,341 |
|
Total Assets |
|
$ |
3,724,383 |
|
|
$ |
3,760,383 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
Accounts payable |
|
$ |
66,758 |
|
|
$ |
79,312 |
|
Accrued payroll and related taxes |
|
|
78,568 |
|
|
|
53,225 |
|
Accrued expenses and other current liabilities |
|
|
200,187 |
|
|
|
237,369 |
|
Operating lease liabilities, current portion |
|
|
24,506 |
|
|
|
22,584 |
|
Current portion of finance lease liabilities and long-term debt |
|
|
63,307 |
|
|
|
44,722 |
|
Total current liabilities |
|
|
433,326 |
|
|
|
437,212 |
|
Deferred Income Tax Liabilities |
|
|
75,849 |
|
|
|
75,849 |
|
Other Non-Current Liabilities |
|
|
79,797 |
|
|
|
74,008 |
|
Operating Lease Liabilities |
|
|
86,849 |
|
|
|
73,801 |
|
Finance Lease Liabilities |
|
|
740 |
|
|
|
1,280 |
|
Long-Term Debt, Net |
|
|
1,789,273 |
|
|
|
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,
130,281,035 and 128,912,410 issued and 126,071,188
and 124,060,038 outstanding, respectively |
|
|
1,303 |
|
|
|
1,289 |
|
Additional paid-in capital |
|
|
1,295,983 |
|
|
|
1,291,363 |
|
Retained earnings (accumulated deficit) |
|
|
77,857 |
|
|
|
(4,236 |
) |
Accumulated other comprehensive loss |
|
|
(20,065 |
) |
|
|
(16,919 |
) |
Treasury stock, 4,209,847 shares, at cost, respectively |
|
|
(95,175 |
) |
|
|
(105,099 |
) |
Total shareholders’ equity attributable to The GEO Group, Inc. |
|
|
1,259,903 |
|
|
|
1,166,398 |
|
Noncontrolling interests |
|
|
(1,354 |
) |
|
|
(1,310 |
) |
Total shareholders’ equity |
|
|
1,258,549 |
|
|
|
1,165,088 |
|
Total Liabilities and Shareholders’ Equity |
|
$ |
3,724,383 |
|
|
$ |
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 NINE MONTHS ENDED
SEPTEMBER 30, 2023 AND 2022
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
Cash Flow from Operating Activities: |
|
|
|
|
|
|
Net income |
|
$ |
82,022 |
|
|
$ |
130,164 |
|
Net loss attributable to noncontrolling interests |
|
|
71 |
|
|
|
119 |
|
Net income attributable to The GEO Group, Inc. |
|
|
82,093 |
|
|
|
130,283 |
|
Adjustments to reconcile net income attributable to The GEO Group, Inc. to net cash
provided by operating activities: |
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
94,787 |
|
|
|
100,284 |
|
Stock-based compensation |
|
|
12,052 |
|
|
|
13,010 |
|
Loss on extinguishment of debt |
|
|
1,845 |
|
|
|
37,487 |
|
Amortization of debt issuance costs, discount and/or premium and other non-cash
interest |
|
|
8,963 |
|
|
|
6,211 |
|
Provision for doubtful accounts |
|
|
412 |
|
|
|
133 |
|
Equity in earnings of affiliates, net of tax |
|
|
(3,121 |
) |
|
|
(3,786 |
) |
Dividends received from unconsolidated joint ventures |
|
|
2,283 |
|
|
|
2,706 |
|
Gain on sale/disposal of property and equipment, net |
|
|
(724 |
) |
|
|
(1,101 |
) |
Gain on assets held for sale |
|
|
(1,274 |
) |
|
|
— |
|
Gain on asset divestitures, net |
|
|
— |
|
|
|
(32,332 |
) |
Changes in assets and liabilities, net of effects of acquisitions: |
|
|
|
|
|
|
Changes in accounts receivable, prepaid expenses and other assets |
|
|
45,059 |
|
|
|
(34,407 |
) |
Changes in accounts payable, accrued expenses and other liabilities |
|
|
(9,655 |
) |
|
|
9,064 |
|
Net cash provided by operating activities |
|
|
232,720 |
|
|
|
227,552 |
|
Cash Flow from Investing Activities: |
|
|
|
|
|
|
Proceeds from sale of property and equipment |
|
|
2,690 |
|
|
|
1,647 |
|
Proceeds from sale of real estate and other assets |
|
|
15,109 |
|
|
|
99,812 |
|
Change in restricted investments |
|
|
(2,644 |
) |
|
|
(5,544 |
) |
Capital expenditures |
|
|
(53,569 |
) |
|
|
(72,233 |
) |
Net cash (used in) provided by investing activities |
|
|
(38,414 |
) |
|
|
23,682 |
|
Cash Flow from Financing Activities: |
|
|
|
|
|
|
Proceeds from long-term debt |
|
|
— |
|
|
|
50,000 |
|
Payments on long-term debt |
|
|
(131,359 |
) |
|
|
(676,114 |
) |
Payments on non-recourse debt |
|
|
— |
|
|
|
(1,302 |
) |
Proceeds from sale of treasury shares |
|
|
5,750 |
|
|
|
— |
|
Taxes paid related to net share settlements of equity awards |
|
|
(3,442 |
) |
|
|
(1,301 |
) |
Proceeds from issuance of common stock in connection with ESPP |
|
|
117 |
|
|
|
150 |
|
Debt issuance costs |
|
|
— |
|
|
|
(41,536 |
) |
Proceeds from the exercise of stock options |
|
|
85 |
|
|
|
— |
|
Net cash used in financing activities |
|
|
(128,849 |
) |
|
|
(670,103 |
) |
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
and Cash Equivalents |
|
|
(3,116 |
) |
|
|
(8,080 |
) |
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash
and Cash Equivalents |
|
|
62,341 |
|
|
|
(426,949 |
) |
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 |
|
$ |
206,184 |
|
|
$ |
121,373 |
|
Supplemental Disclosures: |
|
|
|
|
|
|
Non-cash Investing and Financing activities: |
|
|
|
|
|
|
Right-of-use assets obtained from operating lease liabilities |
|
$ |
32,768 |
|
|
$ |
8,924 |
|
Principal Exchanges of Debt |
|
$ |
— |
|
|
$ |
1,620,318 |
|
Debt issuance costs in accrued expenses |
|
$ |
3,850 |
|
|
$ |
11,245 |
|
Capital expenditures in accounts payable and accrued expenses |
|
$ |
2,409 |
|
|
$ |
4,842 |
|
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' 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 Ltd. (“GEOAmey”). At September 30, 2023, the Company’s worldwide operations include the management and/or ownership of approximately 81,000 beds at 100 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 individuals 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 nine months ended September 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.
7
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 September 30, 2023 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2023 |
|
|
Foreign Currency
Translation |
|
|
September 30, 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 |
|
|
|
(21 |
) |
|
|
369 |
|
Total Goodwill |
|
$ |
755,199 |
|
|
$ |
(21 |
) |
|
$ |
755,178 |
|
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 and trade names and technology, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 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 |
|
|
$ |
308,326 |
|
|
$ |
(215,255 |
) |
|
$ |
93,071 |
|
|
$ |
308,350 |
|
|
$ |
(206,367 |
) |
|
$ |
101,983 |
|
Technology |
|
|
7.3 |
|
|
|
33,700 |
|
|
|
(33,700 |
) |
|
|
— |
|
|
|
33,700 |
|
|
|
(33,195 |
) |
|
|
505 |
|
Trade names |
|
Indefinite |
|
|
|
45,200 |
|
|
|
— |
|
|
|
45,200 |
|
|
|
45,200 |
|
|
|
— |
|
|
|
45,200 |
|
Total acquired intangible assets |
|
|
|
|
$ |
387,226 |
|
|
$ |
(248,955 |
) |
|
$ |
138,271 |
|
|
$ |
387,250 |
|
|
$ |
(239,562 |
) |
|
$ |
147,688 |
|
Amortization expense was $9.4 million and $14.8 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, the weighted average period before the next contract renewal or extension for the acquired facility management contracts was approximately 3.1 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 |
|
$ |
2,383 |
|
2024 |
|
|
9,305 |
|
2025 |
|
|
9,263 |
|
2026 |
|
|
7,170 |
|
2027 |
|
|
|
