GEO GROUP INC [GEO] Filings

10-Q 1 geo-20230930.htm 10-Q 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 September 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 November 6, 2023, the registrant had 126,104,359 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 NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022	3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022	4
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2023 (UNAUDITED) AND DECEMBER 31, 2022	5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 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	52
ITEM 4. CONTROLS AND PROCEDURES	52
PART II - OTHER INFORMATION	53
ITEM 1. LEGAL PROCEEDINGS	53
ITEM 1A. RISK FACTORS	55
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	55
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	55
ITEM 4. MINE SAFETY DISCLOSURES	56
ITEM 5. OTHER INFORMATION	56
ITEM 6. EXHIBITS	57
SIGNATURES	58

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)


	Three Months						Nine Months
	September 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022
Revenues	$	602,785		$	616,683		$	1,804,885		$	1,756,045
Operating expenses		440,667			436,210			1,302,287			1,233,162
Depreciation and amortization		31,173			32,330			94,787			100,284
General and administrative expenses		47,356			50,022			139,182			147,878
Operating income		83,589			98,121			268,629			274,721
Interest income		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			3,449			32,332
Income before income taxes and equity in earnings of affiliates		30,315			48,487			108,937			174,484
Provision for income taxes		6,521			11,246			30,036			48,106
Equity in earnings of affiliates, net of income tax provision of $67, $189, $581 and $464, respectively		709			1,071			3,121			3,786
Net income		24,503			38,312			82,022			130,164
Net loss attributable to noncontrolling interests		16			25			71			119
Net income attributable to The GEO Group, Inc.	$	24,519		$	38,337		$	82,093		$	130,283

Weighted-average common shares outstanding:
Basic		122,066			121,154			121,850			120,998
Diluted		123,433			122,426			123,479			121,907
Net income per common share attributable to The GEO Group, Inc.:
Basic:
Net income per common share attributable to The GEO Group, Inc.-basic	$	0.17		$	0.26		$	0.56		$	0.89
Diluted:
Net income per common share attributable to The GEO Group, Inc.-diluted	$	0.16		$	0.26		$	0.55		$	0.89

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 NINE MONTHS ENDED

SEPTEMBER 30, 2023 AND 2022

(In thousands)


	Three Months						Nine Months
	September 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022
Net income	$	24,503		$	38,312		$	82,022		$	130,164
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(2,852	)		(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.

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.

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.

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.

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		6,860
Thereafter		58,090
	$	93,071

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 September 30, 2023 and December 31, 2022 (in thousands):

Fair Value Measurements at September 30, 2023

Carrying Value at
September 30,
2023