GEO GROUP INC [GEO] Filings

10-Q 1 geo-10q_20220331.htm 10-Q geo-10q_20220331.htm

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, 2022

☐	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 May 3, 2022, the registrant had 124,096,099 shares of common stock outstanding.

Table of Contents

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, 2022 AND 2021	3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021	4
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2022 (UNAUDITED) AND DECEMBER 31, 2021	5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021	6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	48
ITEM 4. CONTROLS AND PROCEDURES	48
PART II - OTHER INFORMATION	49
ITEM 1. LEGAL PROCEEDINGS	49
ITEM 1A. RISK FACTORS	51
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	51
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	52
ITEM 4. MINE SAFETY DISCLOSURES	52
ITEM 5. OTHER INFORMATION	52
ITEM 6. EXHIBITS	53
SIGNATURES	54

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

FOR THE THREE MONTHS ENDED

MARCH 31, 2022 AND 2021

(In thousands, except per share data)

	Three Months Ended
	March 31, 2022			March 31, 2021
Revenues	$	551,185		$	576,377
Operating expenses		385,161			428,151
Depreciation and amortization		35,938			34,117
General and administrative expenses		48,560			48,479
Operating income		81,526			65,630
Interest income		5,628			6,202
Interest expense		(31,621	)		(31,844	)
Gain on extinguishment of debt		—			3,038
Gain (loss) on dispositions of real estate		(627	)		13,329
Income before income taxes and equity in earnings of affiliates		54,906			56,355
Provision for income taxes		17,962			7,936
Equity in earnings of affiliates, net of income tax provision of $112 and $340 respectively		1,235			2,064
Net income		38,179			50,483
Net loss attributable to noncontrolling interests		40			61
Net income attributable to The GEO Group, Inc.	$	38,219		$	50,544

Weighted-average common shares outstanding:
Basic		120,714			120,022
Diluted		121,394			120,417
Net income per common share attributable to The GEO Group, Inc.:
Basic:
Net income per common share attributable to The GEO Group, Inc. - basic	$	0.26		$	0.41
Diluted:
Net income per common share attributable to The GEO Group, Inc. - diluted	$	0.26		$	0.41
Dividends declared per share	$	—		$	0.25

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

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THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

FOR THE THREE MONTHS ENDED

MARCH 31, 2022 AND 2021

(In thousands)

	Three Months Ended
	March 31, 2022			March 31, 2021
Net income	$	38,179		$	50,483
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		425			(627	)
Change in marketable securities, net of tax benefit of $107 and $0		(405	)		—
Pension liability adjustment, net of tax provision of $23 and $41, respectively		85			156
Change in fair value of derivative instrument classified as cash flow hedge, net of tax provision of $655 and $784, respectively		2,464			2,948
Total other comprehensive income, net of tax		2,569			2,477
Total comprehensive income		40,748			52,960
Comprehensive loss attributable to noncontrolling interests		55			63
Comprehensive income attributable to The GEO Group, Inc.	$	40,803		$	53,023

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

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THE GEO GROUP, INC.

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2022 AND DECEMBER 31, 2021

(In thousands, except share data)

	March 31, 2022			December 31, 2021
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	598,508		$	506,491
Restricted cash and cash equivalents		23,795			20,161
Accounts receivable, less allowance for doubtful accounts of $1,216 and $1,155, respectively		358,648			365,573
Contract receivable, current portion		6,866			6,507
Prepaid expenses and other current assets		34,998			45,176
Total current assets		1,022,815			943,908
Restricted Cash and Investments		84,886			76,158
Property and Equipment, Net		2,017,322			2,037,845
Assets Held for Sale		14,488			7,877
Contract Receivable		376,775			367,071
Operating Lease Right-of-Use Assets, Net		105,617			112,187
Goodwill		755,238			755,225
Intangible Assets, Net		158,695			166,124
Other Non-Current Assets		73,048			71,013
Total Assets	$	4,608,884		$	4,537,408
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	80,313		$	64,073
Accrued payroll and related taxes		87,699			67,210
Accrued expenses and other current liabilities		193,704			200,712
Operating lease liabilities, current portion		28,038			28,279
Current portion of finance lease liabilities, long-term debt and non-recourse debt		18,617			18,568
Total current liabilities		408,371			378,842
Deferred Income Tax Liabilities		80,768			80,768
Other Non-Current Liabilities		82,500			87,073
Operating Lease Liabilities		83,408			89,917
Finance Lease Liabilities		1,805			1,977
Long-Term Debt		2,626,473			2,625,959
Non-Recourse Debt		304,724			297,856
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, 128,863,377 and 127,323,762 issued and 124,011,005 and 122,471,390 outstanding, respectively		1,289			1,273
Additional paid-in capital		1,281,268			1,276,213
Distributions in excess of earnings		(137,741	)		(175,960	)
Accumulated other comprehensive loss		(17,632	)		(20,216	)
Treasury stock, 4,852,372 shares, at cost		(105,099	)		(105,099	)
Total shareholders’ equity attributable to The GEO Group, Inc.		1,022,085			976,211
Noncontrolling interests		(1,250	)		(1,195	)
Total shareholders’ equity		1,020,835			975,016
Total Liabilities and Shareholders’ Equity	$	4,608,884		$	4,537,408

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

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THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

FOR THE THREE MONTHS ENDED

MARCH 31, 2022 AND 2021

(In thousands)

	Three Months Ended
	March 31, 2022			March 31, 2021
Cash Flow from Operating Activities:
Net income	$	38,179		$	50,483
Net loss attributable to noncontrolling interests		40			61
Net income attributable to The GEO Group, Inc.		38,219			50,544
Adjustments to reconcile net income attributable to The GEO Group, Inc. to net cash provided by operating activities:
Depreciation and amortization expense		35,938			34,117
Stock-based compensation		6,313			7,402
Gain on extinguishment of debt		—			(3,038	)
Amortization of debt issuance costs, discount and/or premium and other non-cash interest		1,848			1,683
Provision for doubtful accounts		—			614
Equity in earnings of affiliates, net of tax		(1,235	)		(2,064	)
Dividends received from unconsolidated joint ventures		1,781			1,399
Loss on sale/disposal of property and equipment, net		38			1,664
(Gain) loss on disposition of real estate		627			(13,329	)
Changes in assets and liabilities, net of effects of acquisitions:
Changes in accounts receivable, prepaid expenses and other assets		22,448			26,846
Changes in contract receivable		1,644			1,611
Changes in accounts payable, accrued expenses and other liabilities		14,335			17,468
Net cash provided by operating activities		121,956			124,917
Cash Flow from Investing Activities:
Insurance proceeds - damaged property		—			469
Proceeds from sale of property and equipment		41			39
Proceeds from sales of real estate		—			15,673
Change in restricted investments		(4,109	)		(2,191	)
Capital expenditures		(13,773	)		(27,276	)
Net cash used in investing activities		(17,841	)		(13,286	)
Cash Flow from Financing Activities:
Proceeds from long-term debt		—			240,000
Payments on long-term debt		(2,881	)		(298,522	)
Payments on non-recourse debt		(2,328	)		(1,755	)
Taxes paid related to net share settlements of equity awards		(1,285	)		(1,901	)
Proceeds from issuance of common stock in connection with ESPP		43			116
Debt issuance costs		—			(9,587	)
Cash dividends paid		—			(30,486	)
Net cash used in financing activities		(6,451	)		(102,135	)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash and Cash Equivalents		2,606			(657	)
Net Increase in Cash, Cash Equivalents and Restricted Cash and Cash Equivalents		100,270			8,839
Cash, Cash Equivalents and Restricted Cash and Cash Equivalents, beginning of period		548,322			311,853
Cash, Cash Equivalents and Restricted Cash and Cash Equivalents, end of period	$	648,592		$	320,692
Supplemental Disclosures:
Non-cash Investing and Financing activities:
Right-of-use assets obtained from operating lease liabilities	$	200		$	3,764
Equipment obtained from finance lease liabilities	$	—		$	794
Dividends paid in treasury shares	$	—		$	153
Capital expenditures in accounts payable and accrued expenses	$	1,260		$	4,408

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

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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”) specializes in the ownership, leasing and management of secure facilities, processing centers and 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 GEO Amey PECS Ltd. (“GEOAmey”). At March 31, 2022, the Company’s worldwide operations include the management and/or ownership of approximately 83,000 beds at 103 facilities, including idle facilities, projects under development and recently awarded contracts, and also include the provision of community supervision services for more than 300,000 individuals on average, including over 100,000 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 stockholders, 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, including those established by the Company’s organizational documents, 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 28, 2022 for the year ended December 31, 2021. The accompanying December 31, 2021 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, 2021. 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, 2022 are not necessarily indicative of the results for the entire year ending December 31, 2022, or for any other future interim or annual periods.

Risks and uncertainties

Executive Order

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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, 2022, GEO has one company-owned facility under direct contract with the BOP, which has a current contract option period that expires on September 30, 2022, and three company-owned/company-leased facilities under direct contracts with USMS, which have current contract option periods that expire between June 30, 2022 and September 30, 2023.

COVID-19

In December 2019, a novel strain of coronavirus, now known as COVID-19 (“COVID-19”), was reported in Wuhan, China and has since extensively impacted the global health and economic environment. In January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic.

The Company has been closely monitoring the impact of the COVID-19 pandemic on all aspects of its business and geographies, including how it will impact those entrusted to its care and governmental partners. The Company has incurred disruptions from the COVID-19 pandemic but, it is unable to predict the overall future impact that the COVID-19 pandemic will have on its financial condition, results of operations and cash flows due to numerous uncertainties related to the pandemic. The COVID-19 pandemic and related government-imposed mandatory closures, the efficacy and distribution of COVID-19 vaccines and boosters, the evolution of COVID-19 variants, shelter in-place restrictions, labor shortages and social distancing protocols and increased expenditures on engineering controls, personal protective equipment, diagnostic testing, medical expenses, temperature scanners, protective plexiglass barriers and increased sanitation have had, and will continue to have, a severe impact on global economic conditions and the environment in which the Company operates. Additionally, the Company has experienced the transmission of COVID-19 among detainees and staff at most of its facilities. If the Company is unable to mitigate the transmission of COVID-19 at its facilities it could experience a material adverse effect on its financial position, results of operations and cash flows. Although the Company is unable to predict the duration or scope of the COVID-19 pandemic or estimate the extent of the negative financial impact to its operating results, an extended period of depressed economic activity necessitated to combating the disease, and the severity and duration of the related global economic crisis may adversely impact its future financial performance.

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, 2022 to March 31, 2022 are as follows (in thousands):

	January 1, 2022		Foreign Currency Translation		March 31, 2022
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		416		13		429
Total Goodwill	$	755,225	$	13	$	755,238

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, 2022									December 31, 2021
	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	$	308,397	$	(196,317	)	$	112,080	$	308,369	$	(189,163	)	$	119,206
Technology		7.3		33,700		(32,285	)		1,415		33,700		(31,982	)		1,718
Trade names	Indefinite			45,200		—			45,200		45,200		—			45,200
Total acquired intangible assets			$	387,297	$	(228,602	)	$	158,695	$	387,269	$	(221,145	)	$	166,124

Amortization expense was $7.5 million and $5.3 million for the three months ended March 31, 2022 and 2021, respectively. Amortization expense was primarily related to the U.S. Secure Services, Electronic Monitoring and Supervision Services and Reentry Services segments' amortization of acquired facility management contracts. As of March 31, 2022, the weighted average period before the next contract renewal or extension for the acquired facility management contracts was approximately 2.8 years.

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Estimated amortization expense related to the Company's finite-lived intangible assets for the remainder of 2022 through 2026 and thereafter is as follows (in thousands):

Fiscal Year	Total Amortization Expense
Remainder of 2022	$	10,977
2023		11,813
2024		9,314
2025		9,263
2026		7,170
Thereafter		64,958
	$	113,495

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, 2022 and December 31, 2021 (in thousands):

			Fair Value Measurements at March 31, 2022
	Carrying Value at March 31, 2022		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Restricted investments:
Rabbi Trust	$	40,752	$	—	$	40,752	$	—
Marketable equity and fixed income securities		17,845		—		17,845		—
Liabilities:
Interest rate swap derivatives	$	76	$	—	$	76	$	—

			Fair Value Measurements at December 31, 2021
	Carrying Value at December 31, 2021		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Restricted investments:
Rabbi Trust	$	42,937	$	—	$	42,937	$	—
Marketable equity and fixed income securities		11,551	$	—		11,551		—
Fixed income securities		1,927		—