PART I - FINANCIAL INFORMATION [ITEM 1. Financial Statements](index=3&type=section&id=ITEM%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements, including statements of operations, comprehensive income, balance sheets, and cash flows, along with detailed notes explaining accounting policies, asset and liability breakdowns, equity changes, debt structure, and various commitments and contingencies [Consolidated Statements of Operations (Unaudited)](index=3&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS%20(UNAUDITED)) Consolidated Statements of Operations (Unaudited) - Key Metrics | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Revenues | $602,785 | $616,683 | $1,804,885 | $1,756,045 | | Operating income | $83,589 | $98,121 | $268,629 | $274,721 | | Net income | $24,503 | $38,312 | $82,022 | $130,164 | | Net income attributable to The GEO Group, Inc. | $24,519 | $38,337 | $82,093 | $130,283 | | Basic EPS | $0.17 | $0.26 | $0.56 | $0.89 | | Diluted EPS | $0.16 | $0.26 | $0.55 | $0.89 | [Consolidated Statements of Comprehensive Income (Unaudited)](index=4&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20(UNAUDITED)) Consolidated Statements of Comprehensive Income (Unaudited) - Key Metrics | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net income | $24,503 | $38,312 | $82,022 | $130,164 | | Foreign currency translation adjustments | $(2,852) | $(2,247) | $(5,242) | $(11,648) | | Change in marketable securities, net of tax | — | $(487) | $953 | $(1,245) | | Change in fair value of derivative instrument | $1,370 | $1,873 | $1,170 | $6,247 | | Total comprehensive income | $23,021 | $37,537 | $78,903 | $123,774 | | Comprehensive income attributable to The GEO Group, Inc. | $23,036 | $37,539 | $78,947 | $123,862 | [Consolidated Balance Sheets](index=5&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) Consolidated Balance Sheets - Key Metrics | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Total Assets | $3,724,383 | $3,760,383 | | Total Current Assets | $538,659 | $555,008 | | Property and Equipment, Net | $1,951,524 | $2,002,021 | | Goodwill | $755,178 | $755,199 | | Total Liabilities | $2,465,834 | $2,595,295 | | Total Current Liabilities | $433,326 | $437,212 | | Long-Term Debt, Net | $1,789,273 | $1,933,145 | | Total Shareholders' Equity | $1,258,549 | $1,165,088 | [Consolidated Statements of Cash Flows (Unaudited)](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS%20(UNAUDITED)) Consolidated Statements of Cash Flows (Unaudited) - Key Metrics | Metric | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $232,720 | $227,552 | | Net cash (used in) provided by investing activities | $(38,414) | $23,682 | | Net cash used in financing activities | $(128,849) | $(670,103) | | 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, end of period | $206,184 | $121,373 | [Notes to Unaudited Consolidated Financial Statements](index=7&type=section&id=NOTES%20TO%20UNAUDITED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) These notes provide detailed explanations and disclosures for the financial statements, covering the company's business, accounting policies, specific asset and liability breakdowns, equity changes, debt structure, and various commitments and contingencies, including significant legal proceedings and segment information [1. Basis of Presentation](index=7&type=section&id=1.%20Basis%20of%20Presentation) - The GEO Group, Inc. specializes in the ownership, leasing, and management of secure facilities, processing centers, and community reentry centers in the United States, Australia, and South Africa[21](index=21&type=chunk) - The company's 'GEO Continuum of Care' platform integrates enhanced rehabilitative programs, including cognitive behavioral treatment, post-release services, and academic/vocational classes[21](index=21&type=chunk) - Effective January 1, 2021, the company terminated its REIT status and became a taxable C Corporation, providing greater flexibility to use free cash flow and discontinuing quarterly dividends[23](index=23&type=chunk) - As of September 30, 2023, worldwide operations include managing/owning approximately **81,000 beds** at **100 facilities** and providing community supervision services for over **400,000 individuals**, with nearly **180,000 monitored** via technology[21](index=21&type=chunk) [2. Goodwill and Other Intangible Assets](index=8&type=section&id=2.%20Goodwill%20and%20Other%20Intangible%20Assets) Goodwill Balances (in thousands) | Segment | 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** | Intangible Assets, Net (in thousands) | Asset Type | September 30, 2023 (Net Carrying Amount) | December 31, 2022 (Net Carrying Amount) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | | Facility management contracts | $93,071 | $101,983 | | Technology | — | $505 | | Trade names | $45,200 | $45,200 | | **Total acquired intangible assets** | **$138,271** | **$147,688** | - Amortization expense for finite-lived intangible assets was **$9.4 million** for the nine months ended September 30, 2023, a decrease from **$14.8 million** in the prior year period[25](index=25&type=chunk) [3. Financial Instruments](index=8&type=section&id=3.%20Financial%20Instruments) Fair Value Measurements at September 30, 2023 (in thousands) | Asset | Carrying Value | Level 1 (Quoted Prices in Active Markets) | Level 2 (Significant Other Observable Inputs) | | :---------------------------------- | :------------- | :---------------------------------------- | :------------------------------------------ | | Restricted investment: Rabbi Trusts | $45,910 | $7,014 | $38,896 | | Marketable equity and fixed income securities | $49,360 | $22,691 | $26,669 | | Interest rate swap derivatives | $6,094 | — | $6,094 | - Level 2 financial instruments include interest rate swap derivative assets/liabilities, investments in equity and fixed income mutual funds held in the captive insurance subsidiary, and the rabbi trust for the Non-qualified Deferred Compensation Plan[29](index=29&type=chunk) - Level 1 financial instruments consist of money market funds held in the captive insurance subsidiary and the Executive Chairman's retirement account rabbi trust[29](index=29&type=chunk) [4. Fair Value of Assets and Liabilities](index=11&type=section&id=4.%20Fair%20Value%20of%20Assets%20and%20Liabilities) Estimated Fair Value Measurements at September 30, 2023 (in thousands) | Instrument | Carrying Value | Total Fair Value | Level 1 | Level 2 | | :----------------------------------- | :------------- | :--------------- | :------ | :------ | | Cash and cash equivalents | $141,020 | $141,020 | $141,020 | — | | Restricted cash and investments | $35,459 | $35,459 | — | $35,459 | | Borrowings under exchange credit facility | $982,749 | $999,504 | — | $999,504 | | 10.500% Public Second Lien Notes due 2028 | $286,521 | $288,011 | — | $288,011 | | 9.500% Private Second Lien Notes due 2028 | $239,142 | $233,972 | — | $233,972 | | 5.875% Senior Notes due 2024 | $23,253 | $22,591 | — | $22,591 | | 6.00% Senior Notes due 2026 | $110,858 | $131,943 | — | $131,943 | | 6.50% Exchangeable Senior Notes due 2026 | $230,000 | $209,662 | — | $209,662 | - The fair values of cash and cash equivalents, and restricted cash and investments approximate their carrying values[32](index=32&type=chunk) - Fair values for the 10.500% Public Second Lien Notes, 9.500% Private Second Lien Notes, Exchange Credit Facility, 5.875% Senior Notes, 6.00% Senior Notes, and 6.50% Exchangeable Senior Notes are based on Level 2 inputs, primarily quotations from major market news services[33](index=33&type=chunk)[34](index=34&type=chunk) [5. Restricted Cash and Cash Equivalents](index=12&type=section&id=5.%20Restricted%20Cash%20and%20Cash%20Equivalents) Cash, Cash Equivalents and Restricted Cash and Cash Equivalents (in thousands) | Metric | September 30, 2023 | September 30, 2022 | | :---------------------------------------------------------------- | :----------------- | :----------------- | | Cash and cash equivalents | $141,020 | $91,645 | | Restricted cash and investments - non-current | $130,729 | $89,760 | | Less Restricted investments - non-current | $(65,565) | $(60,032) | | **Total cash, cash equivalents and restricted cash and cash equivalents** | **$206,184** | **$121,373** | - Restricted cash and cash equivalents include contractual cash restriction requirements at the Australian subsidiary and asset replacement funds[35](index=35&type=chunk) - The company had no current restricted cash and cash equivalents at September 30, 2023, following the sale of shares in certain Australian subsidiaries related to the Ravenhall facility in September 2022[35](index=35&type=chunk) [6. Shareholders' Equity](index=12&type=section&id=6.%20Shareholders'%20Equity) Changes in Shareholders' Equity Attributable to The GEO Group, Inc. (in thousands) | Metric | Balance, January 1, 2023 | Net Income (Loss) | Other Comprehensive Income (Loss) | Balance, September 30, 2023 | | :----------------------------------- | :----------------------- | :---------------- | :-------------------------------- | :-------------------------- | | Common shares (Amount) | $1,289 | — | — | $1,303 | | Additional Paid-In Capital | $1,291,363 | — | — | $1,295,983 | | Retained earnings (accumulated deficit) | $(4,236) | $82,093 | — | $77,857 | | Accumulated Other Comprehensive Loss | $(16,919) | — | $(3,146) | $(20,065) | | Treasury shares (Amount) | $(105,099) | — | — | $(95,175) | | Noncontrolling interests | $(1,310) | $(71) | $27 | $(1,354) | | **Total Shareholders' Equity** | **$1,165,088** | **$82,022** | **$(3,119)** | **$1,258,549** | - Total shareholders' equity attributable to The GEO Group, Inc. increased from **$1.166 billion** at December 31, 2022, to **$1.260 billion** at September 30, 2023[15](index=15&type=chunk) - The company filed an automatic shelf registration statement on Form S-3 on October 30, 2023, to offer an unspecified amount of common stock, preferred stock, debt securities, and other securities[39](index=39&type=chunk) [7. Equity Incentive Plans](index=15&type=section&id=7.%20Equity%20Incentive%20Plans) Stock Option Activity (in thousands, except per share data) | Metric | Shares | Wtd. Avg. Exercise Price | | :---------------------------------- | :----- | :----------------------- | | Options outstanding at January 1, 2023 | 1,885 | $18.03 | | Options granted | 362 | $9.07 | | Options exercised | (13) | $6.59 | | Options forfeited/canceled/expired | (130) | $13.47 | | **Options outstanding at September 30, 2023** | **2,104** | **$16.85** | - Stock-based compensation expense related to stock options was **$0.5 million** for the nine months ended September 30, 2023, compared to **$0.4 million** for the same period in 2022[45](index=45&type=chunk) Restricted Stock Activity (in thousands, except per share data) | Metric | Shares | Wtd. Avg. Grant Date Fair Value | | :---------------------------------- | :----- | :------------------------------ | | Restricted stock outstanding at January 1, 2023 | 3,595 | $8.29 | | Granted | 1,758 | $9.16 | | Vested | (1,252) | $11.57 | | Forfeited/canceled | (35) | $8.68 | | **Restricted stock outstanding at September 30, 2023** | **4,066** | **$7.78** | - Compensation expense for restricted stock awards was **$11.6 million** for the nine months ended September 30, 2023, down from **$12.6 million** in the prior year period[51](index=51&type=chunk) - The Employee Stock Purchase Plan (ESPP) is non-compensatory; **16,208 shares** were issued in 9M 2023, compared to **20,769 shares** in 9M 2022[53](index=53&type=chunk) [8. Earnings Per Share](index=17&type=section&id=8.%20Earnings%20Per%20Share) Earnings Per Share (EPS) Attributable to The GEO Group, Inc. | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic EPS | $0.17 | $0.26 | $0.56 | $0.89 | | Diluted EPS | $0.16 | $0.26 | $0.55 | $0.89 | - Approximately **24.9 million** potential common shares associated with the 6.50% Exchangeable Notes due 2026 were excluded from diluted EPS computation for both periods as they were anti-dilutive[58](index=58&type=chunk) [9. Derivative Financial Instruments](index=18&type=section&id=9.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) - The company uses interest rate swap agreements (aggregate notional amount of **$44.3 million**) to fix the interest rate on certain variable rate debt to **4.22%**, designated as effective cash flow hedges[60](index=60&type=chunk) - Total unrealized losses recorded in other comprehensive income, net of tax, related to these cash flow hedges was **$1.2 million** during the nine months ended September 30, 2023[60](index=60&type=chunk) - The total fair value of the swap assets as of September 30, 2023, was **$6.1 million**[60](index=60&type=chunk) [10. Debt](index=19&type=section&id=10.%20DEBT) Debt Outstanding (in thousands) | Debt Instrument | September 30, 2023 | December 31, 2022 | | :----------------------------------- | :----------------- | :----------------- | | Total Exchange Credit Agreement | $976,828 | $1,106,777 | | Total 10.500% Public Second Lien Notes due 2028 | $265,056 | $263,253 | | Total 9.500% Private Second Lien Notes due 2028 | $212,133 | $210,067 | | Total 6.50% Exchangeable Senior Notes Due in 2026 | $224,914 | $223,511 | | Total 6.00% Senior Notes Due in 2026 | $110,244 | $110,082 | | Total 5.875% Senior Notes Due in 2024 | $23,196 | $23,157 | | Other debt, net | $39,492 | $40,323 | | **Total debt** | **$1,853,320** | **$1,979,147** | | Current portion of finance lease liabilities and long-term debt | $(63,307) | $(44,722) | | **Long-Term Debt** | **$1,789,273** | **$1,933,145** | - The company completed an exchange offer on August 19, 2022, exchanging existing senior notes and credit facility loans into newly issued senior second lien secured notes and a new Exchange Credit Agreement[63](index=63&type=chunk) - The weighted average interest rate on outstanding borrowings under the Credit Agreement as of September 30, 2023, was **12.27%**[75](index=75&type=chunk) - The company was in compliance with its debt covenants at September 30, 2023[100](index=100&type=chunk) [11. Commitments, Contingencies and Other Matters](index=26&type=section&id=11.%20Commitments,%20Contingencies%20and%20Other%20Matters) - A putative shareholder class action lawsuit was resolved following mediation, with a final approval hearing set for November 14, 2023; related derivative actions are stayed[104](index=104&type=chunk)[106](index=106&type=chunk) - Multiple class action lawsuits by immigration detainees in Colorado, Washington, and California allege violations of minimum wage laws and the Federal Trafficking Victims Protection Act (TVPA); GEO disputes these claims and has not recorded accruals as losses are not considered probable[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk) - Challenges to state legislation (California's AB-32 and Washington's HB 1090) that conflict with federal contracts have seen favorable rulings for GEO; AB-32 was ruled unconstitutional, and Washington stipulated it will not enforce HB 1090 against GEO's Northwest ICE Processing Center[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk) - The company estimates remaining capital requirements of **$14.8 million** for active capital projects to be spent through the remainder of 2023[121](index=121&type=chunk) - As of September 30, 2023, the company had two properties classified as held for sale (Hector Garza Center and vacant land in Colorado) with an aggregate carrying value of approximately **$5.1 million**[122](index=122&type=chunk) - Seven idle facilities with **9,332 vacant beds** are being marketed to potential customers, with a combined net book value of **$235.7 million** as of September 30, 2023[124](index=124&type=chunk)[125](index=125&type=chunk) - President Biden's executive order directs the Attorney General not to renew DOJ contracts with privately operated criminal detention facilities; GEO has three USMS contracts expiring between September 2025 and September 2028, and no longer has contracts with the BOP[126](index=126&type=chunk) [12. Business Segments and Geographic Information](index=30&type=section&id=12.%20Business%20Segments%20and%20Geographic%20Information) - The company operates through four reportable business segments: U.S. Secure Services, Electronic Monitoring and Supervision Services, Reentry Services, and International Services[127](index=127&type=chunk)[128](index=128&type=chunk) Segment Revenues (in thousands) | Segment | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | U.S. Secure Services | $385,007 | $368,493 | $1,123,507 | $1,073,140 | | Electronic Monitoring and Supervision Services | $94,489 | $137,039 | $335,158 | $346,444 | | Reentry Services | $71,375 | $65,406 | $203,192 | $192,557 | | International Services | $51,914 | $45,745 | $143,028 | $143,904 | | **Total revenues** | **$602,785** | **$616,683** | **$1,804,885** | **$1,756,045** | Segment Operating Income (in thousands) | Segment | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | U.S. Secure Services | $64,187 | $67,462 | $195,589 | $214,994 | | Electronic Monitoring and Supervision Services | $46,651 | $67,673 | $166,460 | $160,838 | | Reentry Services | $16,826 | $9,816 | $37,198 | $34,027 | | International Services | $3,281 | $3,192 | $8,564 | $12,740 | | **Operating income from segments** | **$130,945** | **$148,143** | **$407,811** | **$422,599** | - Equity in earnings of affiliates, net of tax, includes earnings from 50% owned joint ventures: South African Custodial Services Pty. Limited (SACS) and GEOAmey PECS Limited (GEOAmey)[132](index=132&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk) [13. Benefit Plans](index=32&type=section&id=13.%20Benefit%20Plans) - The unfunded status of the company's pension plan was **$27.18 million** as of September 30, 2023, an increase from **$26.21 million** at December 31, 2022[135](index=135&type=chunk) - The balance of the Amended and Restated Executive Retirement Agreement for the former CEO was approximately **$8.1 million** at September 30, 2023, included in Other Non-Current Liabilities[138](index=138&type=chunk) [14. Recent Accounting Pronouncements](index=32&type=section&id=14.%20Recent%20Accounting%20Pronouncements) - Recent accounting pronouncements are not expected to have a material effect on the company's results of operations or financial position[140](index=140&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and future outlook, including a detailed comparison of results for the third quarter and nine months ended September 30, 2023, against the prior year, analysis of business segments, capital requirements, liquidity, and non-GAAP measures [Forward-Looking Information](index=34&type=section&id=Forward-Looking%20Information) - The report contains forward-looking statements subject to risks, uncertainties, and assumptions, and actual results may differ materially from forecasts[142](index=142&type=chunk) - Key cautionary statements include risks related to facility management, government utilization of public-private partnerships, impact of executive actions/legislation, debt management, litigation, and market conditions[143](index=143&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk) [Introduction](index=38&type=section&id=Introduction) - The company specializes in secure facilities, processing centers, and reentry facilities in the U.S., Australia, and South Africa, managing/owning approximately **81,000 beds** at **100 facilities** and providing community supervision for over **400,000 individuals**[148](index=148&type=chunk)[149](index=149&type=chunk) Consolidated Revenues and Occupancy Rates | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Consolidated Revenues | $1,804.9 million | $1,756.0 million | | Average company-wide facility occupancy rate (excluding idle beds) | 86% (71,034 active beds) | 85% (68,920 active beds) | [Business Segments](index=38&type=section&id=Business%20Segments) - The company operates through four reportable business segments: U.S. Secure Services, Electronic Monitoring and Supervision Services, Reentry Services, and International Services[152](index=152&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) [Recent Developments](index=39&type=section&id=Recent%20Developments) - The company renewed two direct contracts with the U.S. Marshals Service for the Rio Grande Processing Center (five-year term) and the Western Region Detention Facility (two-year term)[155](index=155&type=chunk) - Three contracts with ICE were renewed for one-year terms, covering the Broward Transitional Center, South Texas ICE Processing Center, and Montgomery Processing Center, along with a new emergency nine-month contract for air operations support[156](index=156&type=chunk) - The company is marketing **9,332 vacant beds** at seven idle facilities, with a total carrying value of **$235.7 million** as of September 30, 2023[157](index=157&type=chunk) [Critical Accounting Policies](index=39&type=section&id=Critical%20Accounting%20Policies) - No significant changes in estimates or judgments were experienced during the nine months ended September 30, 2023, in the preparation of consolidated financial statements[158](index=158&type=chunk) [Results of Operations](index=39&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed comparison of the company's financial performance for the three and nine months ended September 30, 2023, against the corresponding periods in 2022, analyzing revenues, operating expenses, depreciation and amortization, general and administrative expenses, and non-operating items across its business segments [Comparison of Third Quarter 2023 and Third Quarter 2022](index=39&type=section&id=Comparison%20of%20Third%20Quarter%202023%20and%20Third%20Quarter%202022) Third Quarter Revenue Comparison (in thousands) | Segment | Q3 2023 Revenue | Q3 2022 Revenue | $ Change | % Change | | :----------------------------------- | :-------------- | :-------------- | :------- | :------- | | U.S. Secure Services | $385,007 | $368,493 | $16,514 | 4.5% | | Electronic Monitoring and Supervision Services | $94,489 | $137,039 | $(42,550) | (31.0)% | | Reentry Services | $71,375 | $65,406 | $5,969 | 9.1% | | International Services | $51,914 | $45,745 | $6,169 | 13.5% | | **Total** | **$602,785** | **$616,683** | **$(13,898)** | **(2.3)%** | - U.S. Secure Services revenue increased primarily due to new transportation contracts and higher rates/occupancies, partially offset by the ramp-down of North Lake Correctional Facility[161](index=161&type=chunk) - Electronic Monitoring and Supervision Services revenue decreased due to lower average participant counts under the Intensive Supervision and Appearance Program (ISAP)[163](index=163&type=chunk) - Interest income decreased by **74.2%** to **$1.3 million**, mainly due to the sale of the Ravenhall project equity interest and foreign exchange rate fluctuations[178](index=178&type=chunk) - Interest expense increased by **19.9%** to **$55.8 million**, driven by higher interest rates on new debt instruments and increased SOFR/LIBOR rates[179](index=179&type=chunk) - Loss on extinguishment of debt significantly decreased to **$0.1 million** in Q3 2023 from **$37.5 million** in Q3 2022, as the prior year included a large loss from the debt exchange offer[180](index=180&type=chunk)[181](index=181&type=chunk) - Gain on asset divestitures decreased to **$1.3 million** in Q3 2023 from **$29.3 million** in Q3 2022, primarily due to the prior year's sale of the Ravenhall Correctional Centre project[182](index=182&type=chunk)[183](index=183&type=chunk) [Comparison of Nine Months 2023 and Nine Months 2022](index=43&type=section&id=Comparison%20of%20Nine%20Months%202023%20and%20Nine%20Months%202022) Nine Months Revenue Comparison (in thousands) | Segment | 9M 2023 Revenue | 9M 2022 Revenue | $ Change | % Change | | :----------------------------------- | :-------------- | :-------------- | :------- | :------- | | U.S. Secure Services | $1,123,507 | $1,073,140 | $50,367 | 4.7% | | Electronic Monitoring and Supervision Services | $335,158 | $346,444 | $(11,286) | (3.3)% | | Reentry Services | $203,192 | $192,557 | $10,635 | 5.5% | | International Services | $143,028 | $143,904 | $(876) | (0.6)% | | **Total** | **$1,804,885** | **$1,756,045** | **$48,840** | **2.8%** | - U.S. Secure Services revenue increased due to new transportation contracts and higher rates/occupancies, partially offset by deactivations of North Lake Correctional Facility and George W. Hill Correctional Facility[187](index=187&type=chunk) - Electronic Monitoring and Supervision Services revenue decreased due to lower average participant counts under ISAP[189](index=189&type=chunk) - Interest income decreased by **76.8%** to **$3.8 million**, primarily due to the sale of the Ravenhall project equity interest and foreign exchange rate fluctuations[205](index=205&type=chunk) - Interest expense increased by **48.2%** to **$165.1 million**, driven by higher interest rates on new debt instruments and increased SOFR/LIBOR rates[206](index=206&type=chunk) - Loss on extinguishment of debt significantly decreased to **$1.8 million** in 9M 2023 from **$37.5 million** in 9M 2022, as the prior year included a large loss from the debt exchange offer[207](index=207&type=chunk)[208](index=208&type=chunk) - Gain on asset divestitures decreased to **$3.4 million** in 9M 2023 from **$32.3 million** in 9M 2022, primarily due to the prior year's sale of the Ravenhall Correctional Centre project[209](index=209&type=chunk)[210](index=210&type=chunk) [Financial Condition](index=48&type=section&id=Financial%20Condition) This section details the company's capital requirements, liquidity, and capital resources, including its indebtedness, credit ratings, compliance with debt covenants, and cash flow activities from operations, investing, and financing [Capital Requirements](index=48&type=section&id=Capital%20Requirements) - Current cash requirements include working capital, debt service, supply purchases, R&D for electronic monitoring products, joint venture investments, and capital expenditures for new or existing facilities[215](index=215&type=chunk) - Estimated remaining capital requirements for existing active capital projects are **$14.8 million** for the remainder of 2023[216](index=216&type=chunk) - Capital needs are planned to be funded from cash on hand, cash from operations, borrowings under the Exchange Credit Agreement, and other financings[217](index=217&type=chunk) [Liquidity and Capital Resources](index=48&type=section&id=Liquidity%20and%20Capital%20Resources) - Following the August 2022 exchange offer, S&P Global Ratings upgraded the issuer rating to **B with a stable outlook**, and Moody's Investors Service upgraded the corporate family rating to **B3 with a stable outlook**[219](index=219&type=chunk) - The company was in compliance with its debt covenants as of September 30, 2023[224](index=224&type=chunk) - Access to capital and ability to compete for future capital-intensive projects depend on meeting financial covenants in various debt indentures and the Exchange Credit Agreement[224](index=224&type=chunk) [Guarantor Financial Information](index=49&type=section&id=Guarantor%20Financial%20Information) - The New Registered Notes, New Private Notes, Convertible Notes, 6.00% Senior Notes due 2026, and 5.875% Senior Notes due 2024 are fully and unconditionally guaranteed by certain wholly-owned domestic subsidiaries[225](index=225&type=chunk) Summarized Statement of Operations (Parent and Subsidiary Guarantors, in thousands) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net operating revenues | $1,652,780 | $1,602,182 | | Income from operations | $254,779 | $280,776 | | Net income | $65,343 | $105,331 | | Net income attributable to The GEO Group, Inc. | $65,343 | $105,331 | Summarized Balance Sheets (Parent and Subsidiary Guarantors, in thousands) | Metric | September 30, 2023 | December 31, 2022 | | :----------------------------------- | :----------------- | :----------------- | | Current assets | $462,402 | $492,080 | | Noncurrent assets | $3,031,037 | $3,059,195 | | Current liabilities | $329,064 | $370,177 | | Noncurrent liabilities | $2,059,542 | $2,163,004 | [Off-Balance Sheet Arrangements](index=50&type=section&id=Off-Balance%20Sheet%20Arrangements) - The company does not have any off-balance sheet arrangements, except as discussed in the notes to its Unaudited Consolidated Financial Statements[229](index=229&type=chunk) [Cash Flow](index=50&type=section&id=Cash%20Flow) - Cash, cash equivalents, and restricted cash and cash equivalents increased to **$206.2 million** as of September 30, 2023, from **$121.4 million** as of September 30, 2022[230](index=230&type=chunk) - Net cash provided by operating activities was **$232.7 million** for the nine months ended September 30, 2023, compared to **$227.6 million** for the prior year period[232](index=232&type=chunk) - Net cash used in investing activities was **$38.4 million** for the nine months ended September 30, 2023, a shift from net cash provided of **$23.7 million** in the prior year period[234](index=234&type=chunk) - Net cash used in financing activities decreased significantly to **$128.8 million** for the nine months ended September 30, 2023, from **$670.1 million** in the prior year period[235](index=235&type=chunk) [Non-GAAP Measures](index=51&type=section&id=Non-GAAP%20Measures) - EBITDA is defined as net income adjusted for income tax, net interest expense, loss on extinguishment of debt, and depreciation and amortization[236](index=236&type=chunk) - Adjusted EBITDA further adjusts EBITDA for gain on asset divestitures, net loss attributable to non-controlling interests, stock-based compensation, transaction-related expenses, and other non-cash items[236](index=236&type=chunk) EBITDA and Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | EBITDA | $116,812 | $160,990 | $370,567 | $411,587 | | Adjusted EBITDA | $118,670 | $136,199 | $378,554 | $393,706 | [Outlook](index=53&type=section&id=Outlook) - The company is encouraged by growth opportunities but acknowledges potential adverse impacts from government budgetary constraints or changes in willingness to maintain/grow public-private partnerships[243](index=243&type=chunk) - President Biden's executive order impacts DOJ contracts; GEO has three USMS contracts expiring between 2025 and 2028 (representing **~6% of 9M 2023 revenues**) and no longer has BOP contracts[244](index=244&type=chunk) - California's AB-32, which aimed to phase out private detention facilities, was ruled unconstitutional by the Ninth Circuit; Washington's HB 1090 enforcement was stipulated against GEO[247](index=247&type=chunk)[248](index=248&type=chunk)[249](index=249&type=chunk) - International developments include a ten-year contract renewal for secure transportation in the UK (GEOAmey) and a new primary health services contract in Australia expected to generate approximately **AUD47.5 million** in incremental annualized revenue[250](index=250&type=chunk) - In reentry and electronic monitoring services, the company is pursuing new opportunities, but has seen a decline in ISAP participants since early 2023 due to immigration changes and budgetary pressures; a new wrist-worn GPS tracking device, VeriWatch, was recently launched[251](index=251&type=chunk) - Operating expenses are expected to be impacted by new/idle facility openings and inflation on costs like personnel, utilities, insurance, medical, and food[252](index=252&type=chunk) - Seven idle facilities with **9,332 vacant beds** are being marketed, with an estimated annual net carrying cost of **$25.6 million**; activation could generate approximately **$290 million** in incremental annualized revenue and **$0.28-$0.33** increase in EPS[254](index=254&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=56&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the company's exposure to market risks, specifically interest rate risk on its variable-rate debt and foreign currency exchange rate risk from its international operations - The company is exposed to interest rate risk on its Exchange Credit Agreement, with approximately **$982.7 million** in variable-rate borrowings; a **1% increase** in the average interest rate would increase annual interest expense by approximately **$10 million**[256](index=256&type=chunk) - Foreign currency exchange rate risk exists due to fluctuations between the U.S. dollar and the Australian dollar, South African Rand, and British Pound; a **10% change** in historical currency rates would impact financial position by approximately **$7.6 million** and results of operations by approximately **$0.9 million** for the nine months ended September 30, 2023[258](index=258&type=chunk) [ITEM 4. Controls and Procedures](index=56&type=section&id=ITEM%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the period - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2023, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[260](index=260&type=chunk) - There were no significant changes in internal control over financial reporting during the quarter ended September 30, 2023[263](index=263&type=chunk) PART II - OTHER INFORMATION [ITEM 1. Legal Proceedings](index=57&type=section&id=ITEM%201.%20Legal%20Proceedings) This section details ongoing legal matters, including shareholder and derivative litigation, immigration detainee lawsuits, and challenges to state legislation, outlining the company's position and potential impacts - A putative shareholder class action lawsuit was resolved following mediation, with a final approval hearing set for November 14, 2023; related derivative actions are stayed pending its resolution[265](index=265&type=chunk)[266](index=266&type=chunk) - Multiple class action lawsuits by immigration detainees in Colorado, Washington, and California allege violations of minimum wage laws and the Federal Trafficking Victims Protection Act (TVPA); GEO disputes these claims and has not recorded accruals as losses are not considered probable[268](index=268&type=chunk)[270](index=270&type=chunk)[271](index=271&type=chunk)[272](index=272&type=chunk)[273](index=273&type=chunk)[274](index=274&type=chunk) - Challenges to state legislation (California's AB-32 and Washington's HB 1090) that conflict with federal contracts have seen favorable rulings for GEO; AB-32 was ruled unconstitutional, and Washington stipulated it will not enforce HB 1090 against GEO's Northwest ICE Processing Center. A lawsuit challenging Washington's HB 1470 is pending[275](index=275&type=chunk)[276](index=276&type=chunk)[277](index=277&type=chunk)[278](index=278&type=chunk) - The company is exposed to various other legal claims, including civil rights, medical malpractice, employment matters, and contractual claims, with accruals established when a loss is probable and estimable[279](index=279&type=chunk)[280](index=280&type=chunk) [ITEM 1A. Risk Factors](index=59&type=section&id=ITEM%201A.%20Risk%20Factors) This section refers readers to the comprehensive discussion of risk factors detailed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - The company encourages readers to review the detailed discussion of risk factors in Item 1A of Part I of its Annual Report on Form 10-K for the year ended December 31, 2022, which could materially affect its business, financial condition, or future prospects[281](index=281&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=59&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is marked as not applicable for the reporting period - This item is not applicable[282](index=282&type=chunk) [ITEM 3. Defaults Upon Senior Securities](index=59&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) This item is marked as not applicable for the reporting period - This item is not applicable[283](index=283&type=chunk)[284](index=284&type=chunk) [ITEM 4. Mine Safety Disclosures](index=60&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This item is marked as not applicable for the reporting period - This item is not applicable[285](index=285&type=chunk) [ITEM 5. Other Information](index=60&type=section&id=ITEM%205.%20Other%20Information) This section discloses a 10b5-1 trading plan entered into by an executive officer - Shayn P. March, Executive Vice President, Finance and Treasurer, entered into a 10b5-1 trading plan on September 14, 2023, for the potential sale of up to **64,000 shares** of GEO common stock[286](index=286&type=chunk) [ITEM 6. Exhibits](index=61&type=section&id=ITEM%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including various certifications and XBRL documents - Exhibits include SECTION 302 CEO and CFO Certifications, SECTION 906 CEO and CFO Certifications, and various Inline XBRL documents (Instance, Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, Presentation Linkbase)[288](index=288&type=chunk) [SIGNATURES](index=62&type=section&id=SIGNATURES) - The report was signed on November 8, 2023, by Brian R. Evans, Senior Vice President & Chief Financial Officer[292](index=292&type=chunk)

Electronic Monitoring and Supervision Services 108,029 121,484 240,669 209,405 Financial Summary The GEO Group, Inc.'s ("GEO") Unaudited Reconciliation Tables and Supplemental Disclosure presented herein speaks only as of the date or period indicated, and GEO does not undertake any obligation, and disclaims any duty, to update any of this information, except as required by law. GEO's future financial performance is subject to various risks and uncertainties that could cause actual results to differ material ...

Financial Data and Key Metrics Changes - The company reported quarterly revenues of approximately $594 million, GAAP net income of approximately $30 million, and adjusted EBITDA of approximately $129 million, all exceeding the midpoint of previously issued guidance for the second quarter [70][75] - Total debt was approximately $1.94 billion, with net debt remaining stable at approximately $1.91 billion due to cash flow timing [1] - The company expects full year GAAP net income to be in the range of $95 million to $110 million on annual revenues of approximately $2.4 billion, with adjusted EBITDA expected between $490 million and $520 million [56] Business Line Data and Key Metrics Changes - The Secure Services business unit and GEO Reentry Services segment showed stable performance, with recent contract renewals for facilities in Florida and Oklahoma [48] - The GTI Transportation division entered an emergency contract to provide air operation support for ICE, expected to generate approximately $16 million in revenues over nine months [5] - The number of ISAP participants continued to decline but is expected to stabilize and increase moderately, with a 20% increase in population at ICE processing centers since early May [50][55] Market Data and Key Metrics Changes - The company has approximately 9,000 idle owned beds in its Secure Services segment, primarily from five former Federal Bureau of Prisons facilities [52][84] - The Senate approved a Homeland Security Appropriations bill maintaining funding for ISAP at 34,000 beds, while the House version proposed increasing it to 41,000 beds [51][72] - The company holds over one-third of the market share for individuals detained in facilities, with almost 11,000 individuals in GEO facilities [102] Company Strategy and Development Direction - The company aims to reduce net debt by approximately $175 million per year on average over the next two years and is hopeful to refinance portions of its debt in the next 12 to 18 months [53][80] - The management is focused on leveraging idle facilities for potential reactivation under GEO management or lease agreements [90][118] - The company is actively marketing its idle secure facilities to federal and state government agencies [84] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence that recent policy changes could lead to an increase in ISAP participants and overall population at ICE facilities [55][90] - The company remains focused on providing high-quality services and is prepared to support any additional services needed by government agencies [109] - The management believes the current stock price is significantly undervalued, presenting a compelling case for equity investors [13] Other Important Information - The company completed approximately 670,000 hours of in-custody rehabilitation programs during the second quarter, with significant investments in educational and vocational training [87][115] - The company has begun delivering primary health services across 13 public prisons in Australia, expected to generate approximately $33 million in annualized revenues [112] Q&A Session Summary Question: What are the current occupancy levels at ICE facilities? - Some facilities, particularly along the southern border, are full, while others are not as full, indicating plenty of capacity for potential increases in population [95] Question: What drove the increase in operating expenses? - Operating expenses were about 72% of revenue, up from a little over 71% in the first quarter, attributed to significant interest and principal payments [97][98] Question: Is there a minimum participant count for the ISAP program based on current funding? - The company periodically renegotiates with federal partners regarding increased wages and may request additional funding from states based on budget proposals [99][100] Question: What is the potential for additional ISAP funding? - There is potential for increased participation in the ISAP program, which may require additional funding, but specifics on funding reallocation were not disclosed [106][139] Question: When can the company start buying back debt? - The company needs to renegotiate some terms in credit agreements before any meaningful equity buyback can occur [157]

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the unaudited consolidated financial statements and management's discussion for The GEO Group, Inc. [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements for The GEO Group, Inc. for Q2 and H1 2023 and 2022, including statements of operations, comprehensive income, balance sheets, and cash flows, with detailed notes. [Consolidated Statements of Operations (Unaudited)](index=3&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS%20(UNAUDITED)) This section provides the unaudited consolidated statements of operations, detailing revenues, operating income, and net income for Q2 and H1 2023 and 2022. | Metric (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $593,891 | $588,177 | $1,202,100 | $1,139,362 | | Operating income | $92,380 | $95,074 | $185,040 | $176,600 | | Net income | $29,525 | $53,673 | $57,519 | $91,852 | | Net income attributable to The GEO Group, Inc. | $29,571 | $53,727 | $57,574 | $91,946 | | Basic EPS | $0.20 | $0.37 | $0.39 | $0.63 | | Diluted EPS | $0.20 | $0.37 | $0.39 | $0.63 | - Revenues increased by **1.0% to $593.9 million** for the three months ended June 30, 2023, and by **5.5% to $1.202 billion** for the six months ended June 30, 2023, compared to the respective prior-year periods[9](index=9&type=chunk) - Net income attributable to The GEO Group, Inc. decreased by **45.0% to $29.6 million** for the three months ended June 30, 2023, and by **37.4% to $57.6 million** for the six months ended June 30, 2023, compared to the respective prior-year periods[9](index=9&type=chunk) [Consolidated Statements of Comprehensive Income (Unaudited)](index=4&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20(UNAUDITED)) This section presents the unaudited consolidated statements of comprehensive income, including net income and other comprehensive income components. | Metric (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $29,525 | $53,673 | $57,519 | $91,852 | | Foreign currency translation adjustments | $(1,011) | $(9,826) | $(2,390) | $(9,401) | | Change in marketable securities, net of tax | $553 | $(353) | $953 | $(758) | | Change in fair value of derivative instrument, net of tax | $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 | - Total comprehensive income decreased by **34.3% to $29.9 million** for the three months ended June 30, 2023, and by **35.2% to $55.9 million** for the six months ended June 30, 2023, compared to the respective prior-year periods[12](index=12&type=chunk) - Foreign currency translation adjustments significantly impacted other comprehensive income, showing a loss of **$(1.0 million)** for Q2 2023 and **$(2.4 million)** for H1 2023[12](index=12&type=chunk) [Consolidated Balance Sheets](index=5&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) This section provides the unaudited consolidated balance sheets, detailing assets, liabilities, and shareholders' equity as of June 30, 2023, and December 31, 2022. | Metric (in thousands) | June 30, 2023 (Unaudited) | December 31, 2022 | | :-------------------- | :------------------------ | :---------------- | | Total Assets | $3,671,889 | $3,760,383 | | Total Liabilities | $2,439,518 | $2,593,905 | | Total Shareholders' Equity | $1,232,371 | $1,165,088 | | Cash and cash equivalents | $48,716 | $95,073 | | Total current assets | $451,976 | $555,008 | | Total current liabilities | $347,208 | $437,212 | | Long-Term Debt, Net | $1,845,649 | $1,933,145 | - Total assets decreased by **2.4% to $3.672 billion** from December 31, 2022, to June 30, 2023, primarily due to a decrease in cash and cash equivalents and accounts receivable[15](index=15&type=chunk) - Total liabilities decreased by **5.9% to $2.440 billion** from December 31, 2022, to June 30, 2023, driven by reductions in current liabilities and long-term debt[15](index=15&type=chunk) - Shareholders' equity increased by **5.8% to $1.232 billion** from December 31, 2022, to June 30, 2023, primarily due to retained earnings[15](index=15&type=chunk) [Consolidated Statements of Cash Flows (Unaudited)](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS%20(UNAUDITED)) This section presents the unaudited consolidated statements of cash flows, outlining operating, investing, and financing activities for H1 2023 and 2022. | Metric (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $112,950 | $171,979 | | Net cash used in investing activities | $(32,326) | $(19,316) | | Net cash used in financing activities | $(103,628) | $(59,860) | | 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, end of period | $118,789 | $636,794 | - Net cash provided by operating activities decreased by **34.3% to $113.0 million** in the first six months of 2023 compared to the same period in 2022[17](index=17&type=chunk) - Net cash used in investing activities increased by **67.4% to $32.3 million** in the first six months of 2023, primarily due to capital expenditures and changes in restricted investments[17](index=17&type=chunk) - Net cash used in financing activities increased by **73.1% to $103.6 million** in the first six months of 2023, mainly due to higher payments on long-term debt[17](index=17&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=7&type=section&id=NOTES%20TO%20UNAUDITED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides detailed notes explaining the basis of presentation, significant accounting policies, and specific financial instrument details. [1. Basis of Presentation](index=7&type=section&id=1.%20Basis%20of%20Presentation) This note describes the company's business, its termination of REIT status, and the scope of its worldwide operations. - The GEO Group, Inc. specializes in the ownership, leasing, and management of secure facilities, processing centers, and community reentry centers in the United States, Australia, and South Africa[21](index=21&type=chunk) - The company terminated its REIT status effective December 31, 2021, becoming a taxable C Corporation, which provides greater flexibility for cash flow utilization and debt repayment[23](index=23&type=chunk) - As of June 30, 2023, GEO's worldwide operations include approximately **82,000 beds at 102 facilities** and community supervision services for over **400,000 individuals**, including **180,000 through technology products**[21](index=21&type=chunk) [2. Goodwill and Other Intangible Assets](index=8&type=section&id=2.%20Goodwill%20and%20Other%20Intangible%20Assets) This note details the company's goodwill balances by segment and acquired intangible assets, including their carrying amounts and amortization. Goodwill Balances (in thousands) | Segment | January 1, 2023 | Foreign Currency Translation | June 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 | $(10) | $380 | | **Total Goodwill** | **$755,199** | **$(10)** | **$755,189** | Acquired Intangible Assets (in thousands) | Asset Type | Weighted Average Useful Life (years) | Gross Carrying Amount (June 30, 2023) | Net Carrying Amount (June 30, 2023) | Net Carrying Amount (December 31, 2022) | | :-------------------------- | :----------------------------------- | :------------------------------------ | :---------------------------------- | :-------------------------------------- | | Facility management contracts | 16.3 | $308,326 | $95,771 | $101,983 | | Technology | 7.3 | $33,700 | $— | $505 | | Trade names | Indefinite | $45,200 | $45,200 | $45,200 | | **Total acquired intangible assets** | | **$387,226** | **$140,971** | **$147,688** | - Amortization expense for finite-lived intangible assets was **$6.7 million** for the six months ended June 30, 2023, a decrease from $11.1 million in the prior year[25](index=25&type=chunk) [3. Financial Instruments](index=9&type=section&id=3.%20Financial%20Instruments) This note provides fair value measurements for various financial instruments, categorized by Level 1, Level 2, and Level 3 inputs. Fair Value Measurements at June 30, 2023 (in thousands) | Asset Type | Carrying Value | Level 1 (Quoted Prices) | Level 2 (Observable Inputs) | Level 3 (Unobservable Inputs) | | :-------------------------------- | :------------- | :---------------------- | :-------------------------- | :---------------------------- | | Restricted investment: Rabbi Trusts | $46,372 | $7,014 | $39,358 | $— | | Marketable equity and fixed income securities | $44,297 | $17,231 | $27,066 | $— | | Interest rate swap derivatives | $4,360 | $— | $4,360 | $— | - Level 2 financial instruments include interest rate swap derivatives, investments in equity and fixed income mutual funds in the captive insurance subsidiary, and the rabbi trust for the Non-qualified Deferred Compensation Plan[27](index=27&type=chunk) - Level 1 financial instruments primarily consist of money market funds held in the captive insurance subsidiary and the Executive Chairman's retirement account[27](index=27&type=chunk) [4. Fair Value of Assets and Liabilities](index=10&type=section&id=4.%20Fair%20Value%20of%20Assets%20and%20Liabilities) This note presents the estimated fair values of assets and liabilities, including cash, restricted investments, and debt instruments, categorized by fair value hierarchy. Estimated Fair Value Measurements at June 30, 2023 (in thousands) | Instrument | Carrying Value | Total Fair Value | Level 1 | Level 2 | Level 3 | | :---------------------------------------- | :------------- | :--------------- | :------ | :------------ | :------ | | **Assets:** | | | | | | | Cash and cash equivalents | $48,716 | $48,716 | $48,716 | $— | $— | | Restricted cash and investments | $45,828 | $45,828 | $45,828 | $— | $— | | **Liabilities:** | | | | | | | Borrowings under exchange credit facility | $1,007,724 | $1,021,141 | $— | $1,021,141 | $— | | 10.500% Public Second Lien Notes due 2028 | $286,521 | $288,679 | $— | $288,679 | $— | | 9.500% Private Second Lien Notes due 2028 | $239,142 | $235,555 | $— | $235,555 | $— | | 5.875% Senior Notes due 2024 | $23,253 | $22,712 | $— | $22,712 | $— | | 6.00% Senior Notes due 2026 | $110,858 | $102,197 | $— | $102,197 | $— | | 6.50% Exchangeable Senior Notes due 2026 | $230,000 | $258,622 | $— | $258,622 | $— | - The fair values of cash and cash equivalents, and restricted cash and investments approximate their carrying values, primarily classified as **Level 1**[30](index=30&type=chunk) - The fair values of the Company's debt instruments, including the exchange credit facility and various senior notes, are based on **Level 2 inputs** using market quotations and estimates of trading value[31](index=31&type=chunk)[32](index=32&type=chunk) [5. Restricted Cash and Cash Equivalents](index=11&type=section&id=5.%20Restricted%20Cash%20and%20Cash%20Equivalents) This note reconciles cash, cash equivalents, and restricted cash, highlighting significant changes and underlying reasons. Reconciliation of Cash, Cash Equivalents and Restricted Cash (in thousands) | Item | June 30, 2023 | June 30, 2022 | | :---------------------------------------------------------------- | :------------ | :------------ | | Cash and cash equivalents | $48,716 | $587,861 | | Restricted cash and cash equivalents - current | $— | $21,134 | | Restricted cash and investments - non-current | $136,497 | $81,392 | | Less Restricted investments - non-current | $(66,424) | $(53,593) | | **Total cash, cash equivalents and restricted cash and cash equivalents** | **$118,789** | **$636,794** | - Total cash, cash equivalents, and restricted cash decreased significantly from **$636.8 million** at June 30, 2022, to **$118.8 million** at June 30, 2023[33](index=33&type=chunk) - The decrease in restricted cash and cash equivalents is partly due to the sale of shares/units in Australian subsidiaries in August 2022, which transferred related restricted cash to the buyer[33](index=33&type=chunk) [6. Shareholders' Equity](index=11&type=section&id=6.%20Shareholders'%20Equity) This note details changes in shareholders' equity, including common shares, retained earnings, and other comprehensive loss components. Changes in Shareholders' Equity (Six Months Ended June 30, 2023, in thousands) | Item | Common Shares (Shares) | Common Shares (Amount) | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Shares (Shares) | Treasury Shares (Amount) | Noncontrolling Interests | Total Shareholders' Equity | | :------------------------------------ | :--------------------- | :--------------------- | :------------------------- | :---------------- | :----------------------------------- | :----------------------- | :----------------------- | :----------------------- | :------------------------- | | Balance January 1, 2023 | 124,061 | $1,289 | $1,291,363 | $(4,236) | $(16,919) | 4,852 | $(105,099) | $(1,310) | $1,165,088 | | Net income (loss) | — | — | — | $57,574 | — | — | — | $(55) | $57,519 | | Other comprehensive income (loss) | — | — | — | — | $(1,663) | — | — | $26 | $(1,637) | | Balance, June 30, 2023 | 126,075 | $1,303 | $1,292,826 | $53,338 | $(18,582) | 4,210 | $(95,175) | $(1,339) | $1,232,371 | - Total shareholders' equity increased from **$1.165 billion** at January 1, 2023, to **$1.232 billion** at June 30, 2023, primarily driven by net income and proceeds from treasury share sales[35](index=35&type=chunk) - The Company sold **642 thousand treasury shares** for **$5.75 million** to partially fund an executive retirement agreement[35](index=35&type=chunk)[36](index=36&type=chunk) [7. Equity Incentive Plans](index=14&type=section&id=7.%20Equity%20Incentive%20Plans) This note outlines the company's equity incentive plans, including stock option activity and compensation expense for restricted stock awards. - The GEO Group, Inc. Amended and Restated 2018 Stock Incentive Plan, approved in April 2021, reserved an additional **16.8 million shares** of common stock for awards[42](index=42&type=chunk) Stock Option Activity (Six Months Ended June 30, 2023, in thousands) | Item | Shares | Wtd. Avg. Exercise Price | | :---------------------------------- | :----- | :----------------------- | | Options outstanding at January 1, 2023 | 1,885 | $18.03 | | Options granted | 362 | $9.07 | | Options exercised | (13) | $6.63 | | Options forfeited/canceled/expired | (106) | $14.06 | | Options outstanding at June 30, 2023 | 2,128 | $16.78 | - The Company recognized **$8.9 million** in compensation expense for restricted stock awards and **$0.3 million** for stock options during the six months ended June 30, 2023[46](index=46&type=chunk)[52](index=52&type=chunk) - Unrecognized compensation costs for non-vested restricted stock awards totaled **$22.5 million** as of June 30, 2023, expected to be recognized over 2.6 years[52](index=52&type=chunk) [8. Earnings Per Share](index=17&type=section&id=8.%20Earnings%20Per%20Share) This note details the calculation of basic and diluted earnings per share, including weighted average shares outstanding. Earnings Per Share Calculation (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income attributable to The GEO Group, Inc. available to common stockholders | $24,555 | $44,556 | $47,787 | $76,229 | | Basic EPS | $0.20 | $0.37 | $0.39 | $0.63 | | Diluted EPS | $0.20 | $0.37 | $0.39 | $0.63 | | Weighted average shares outstanding (basic) | 122,045 | 121,119 | 121,740 | 120,918 | | Weighted average shares assuming dilution | 123,278 | 121,881 | 123,496 | 121,650 | - Basic and diluted EPS decreased significantly year-over-year for both the three and six-month periods, reflecting lower net income[55](index=55&type=chunk) - Approximately **24.9 million potential common shares** from the 6.50% Exchangeable Notes due 2026 were excluded from diluted EPS calculation as the average stock price was below the exchange price[59](index=59&type=chunk) [9. Derivative Financial Instruments](index=18&type=section&id=9.%20Derivative%20Financial%20Instruments) This note describes the company's use of interest rate swap agreements to hedge variable interest rate debt and their accounting treatment. - The Company uses interest rate swap agreements to hedge against variable interest rate debt, fixing the rate at **4.22%** on a notional amount of **$44.3 million**[61](index=61&type=chunk) - These swaps are designated as effective cash flow hedges, with changes in fair value recorded in accumulated other comprehensive income[61](index=61&type=chunk) - Total unrealized losses related to cash flow hedges recorded in other comprehensive income were **$0.2 million** for the six months ended June 30, 2023[61](index=61&type=chunk) [10. Debt](index=19&type=section&id=10.%20Debt) This note provides a detailed breakdown of the company's debt outstanding, including credit agreements, senior notes, and finance lease liabilities. Debt Outstanding (in thousands) | Debt Instrument | June 30, 2023 | December 31, 2022 | | :------------------------------------------------ | :------------ | :---------------- | | Exchange Credit Agreement | $1,001,356 | $1,106,777 | | 10.500% Public Second Lien Notes due 2028 | $264,154 | $263,253 | | 9.500% Private Second Lien Notes due 2028 | $211,232 | $210,067 | | 6.50% Exchangeable Senior Notes Due in 2026 | $224,432 | $223,511 | | 6.00% Senior Notes Due in 2026 | $110,189 | $110,082 | | 5.875% Senior Notes Due in 2024 | $23,182 | $23,157 | | Finance Lease Liabilities | $1,632 | $1,977 | | Other debt, net of unamortized debt issuance costs | $39,771 | $40,323 | | **Total debt** | **$1,875,948**| **$1,979,147** | | Current portion of finance lease liabilities and long-term debt | $(29,377) | $(44,722) | | Finance Lease Liabilities, long-term portion | $(922) | $(1,280) | | **Long-Term Debt** | **$1,845,649**| **$1,933,145** | - Total debt decreased from **$1.979 billion** at December 31, 2022, to **$1.876 billion** at June 30, 2023[63](index=63&type=chunk) - The Company completed an exchange offer in August 2022, converting existing debt into new senior second lien secured notes and an Exchange Credit Agreement, resulting in **$52.8 million** in debt issuance fees[64](index=64&type=chunk)[69](index=69&type=chunk)[92](index=92&type=chunk) - The weighted average interest rate on outstanding borrowings under the Credit Agreement was **12.01%** as of June 30, 2023[76](index=76&type=chunk) [11. Commitments, Contingencies and Other Matters](index=26&type=section&id=11.%20Commitments%2C%20Contingencies%20and%20Other%20Matters) This note discusses various legal proceedings, tax assessments, asset sales, capital commitments, and idle facility marketing efforts. - The Company is involved in several lawsuits, including shareholder class actions, derivative actions, and immigration detainee litigation, which it intends to vigorously defend[104](index=104&type=chunk)[105](index=105&type=chunk)[107](index=107&type=chunk)[112](index=112&type=chunk) - A state non-income tax assessment of approximately **$20.5 million** (tax, penalty, interest) is being appealed, with a reserve established based on the probable loss[118](index=118&type=chunk) - The Company sold its equity investment in the Ravenhall Correctional Centre project in Australia for approximately **$84 million** in gross proceeds in September 2022, recording a **$29.3 million** pre-tax gain[119](index=119&type=chunk) - As of June 30, 2023, the Company had contractual commitments for capital projects totaling **$53.3 million**, with **$20.4 million** remaining to be spent in 2023[120](index=120&type=chunk) - Nine idle facilities, with a combined net book value of **$261.1 million**, are being marketed to potential customers, including the Albert Bo Robinson Assessment and Treatment Center which is under a purchase and sale agreement for **$15 million**[122](index=122&type=chunk)[123](index=123&type=chunk) [12. Business Segments and Geographic Information](index=30&type=section&id=12.%20Business%20Segments%20and%20Geographic%20Information) This note provides financial information by reportable segment and geographic area, including revenues and operating income. - The Company operates through four reportable segments: U.S. Secure Services, Electronic Monitoring and Supervision Services, Reentry Services, and International Services[125](index=125&type=chunk) Segment Revenues (in thousands) | Segment | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | U.S. Secure Services | $372,543 | $353,402 | $738,500 | $704,647 | | Electronic Monitoring and Supervision Services | $108,029 | $121,484 | $240,669 | $209,405 | | Reentry Services | $67,594 | $65,720 | $131,817 | $127,151 | | International Services | $45,725 | $47,571 | $91,114 | $98,159 | | **Total revenues** | **$593,891** | **$588,177** | **$1,202,100** | **$1,139,362** | Operating Income from Segments (in thousands) | Segment | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | U.S. Secure Services | $67,058 | $72,824 | $131,402 | $147,532 | | Electronic Monitoring and Supervision Services | $55,121 | $54,245 | $119,809 | $93,165 | | Reentry Services | $10,186 | $14,207 | $20,372 | $24,211 | | International Services | $1,707 | $3,094 | $5,283 | $9,548 | | **Operating income from segments** | **$134,072** | **$144,370** | **$276,866** | **$274,456** | - Equity in earnings of affiliates, net of tax, for the six months ended June 30, 2023, was **$2.4 million**, a decrease from $2.7 million in the prior year, primarily due to less favorable performance by GEOAmey[130](index=130&type=chunk)[204](index=204&type=chunk) [13. Benefit Plans](index=32&type=section&id=13.%20Benefit%20Plans) This note details the company's pension plan obligations and the balance of its executive retirement agreement. Pension Plan Projected Benefit Obligation (in thousands) | Metric | Six Months Ended June 30, 2023 | | :-------------------------------------- | :----------------------------- | | Projected benefit obligation, beginning of period | $26,207 | | Service cost | $373 | | Interest cost | $673 | | Benefits paid | $(425) | | Projected benefit obligation, end of period | $26,828 | | Unfunded Status of the Plan | $26,828 | - The long-term portion of the pension liability was **$26.0 million** as of June 30, 2023[133](index=133&type=chunk) - The balance of the Amended and Restated Executive Retirement Agreement was approximately **$7.8 million** at June 30, 2023, and is included in Other Non-Current Liabilities[135](index=135&type=chunk) [14. Recent Accounting Pronouncements](index=32&type=section&id=14.%20Recent%20Accounting%20Pronouncements) This note states that no recent accounting pronouncements are expected to materially affect the company's financial results. - No recent accounting pronouncements are expected to have a material effect on the Company's results of operations or financial position[137](index=137&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=31&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the Company's financial performance and condition, covering results, outlook, capital, and liquidity. [Forward-Looking Information](index=33&type=section&id=Forward-Looking%20Information) This section highlights forward-looking statements and key risks, including operational challenges, legislative impacts, and financial obligations. - The report contains forward-looking statements regarding future financial position, business strategy, projected costs, and plans, which are subject to various risks and uncertainties[138](index=138&type=chunk) - Key risk factors include the ability to manage facilities, estimate government utilization of public-private partnerships, respond to challenges, and the impact of executive actions or legislation limiting such partnerships[139](index=139&type=chunk) - Other risks involve maintaining occupancy rates, realizing benefits from REIT termination, managing debt obligations, and exposure to litigation, foreign exchange rates, and rising costs[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk) [Introduction](index=37&type=section&id=Introduction) This section introduces The GEO Group's core business, global operations, facility capacity, and occupancy rates. - The GEO Group specializes in the ownership, leasing, and management of secure facilities, processing centers, and reentry facilities, along with community-based services in the U.S., Australia, and South Africa[144](index=144&type=chunk) - As of June 30, 2023, worldwide operations include approximately **82,000 beds at 102 facilities** and community supervision services for over **400,000 individuals**, with an average company-wide facility occupancy rate of **85%**[145](index=145&type=chunk)[146](index=146&type=chunk) Consolidated Revenues (in millions) | Period | 2023 | 2022 | | :-------------------- | :---------- | :---------- | | Six months ended June 30 | $1,202.1 | $1,139.4 | [Business Segments](index=37&type=section&id=Business%20Segments) This section outlines the company's four reportable business segments: U.S. Secure Services, Electronic Monitoring, Reentry Services, and International Services. - The Company operates through four distinct reportable business segments: U.S. Secure Services, Electronic Monitoring and Supervision Services, Reentry Services, and International Services[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - U.S. Secure Services focuses on public-private partnership secure services, while Electronic Monitoring and Supervision Services provides technology and monitoring for community-based parolees, probationers, and pretrial defendants[149](index=149&type=chunk) - Reentry Services offers evidence-based supervision and treatment programs, and International Services primarily covers secure services in Australia and South Africa[149](index=149&type=chunk)[150](index=150&type=chunk) [Recent Developments](index=38&type=section&id=Recent%20Developments) This section details recent operational developments, including a new facility lease and efforts to market vacant beds. - The Company signed a **66-month lease** with the Oklahoma Department of Corrections for its previously idled Great Plains Correctional Facility, expected to generate approximately **$8.4 million** in annualized revenue[151](index=151&type=chunk) - The Company is marketing **10,221 vacant beds** at nine idle facilities, with a combined carrying value of **$261.1 million** as of June 30, 2023[152](index=152&type=chunk) [Critical Accounting Policies](index=38&type=section&id=Critical%20Accounting%20Policies) This section confirms the use of GAAP for financial statements and notes no significant changes in accounting estimates. - The unaudited consolidated financial statements are prepared in conformity with GAAP, requiring estimates, judgments, and assumptions[153](index=153&type=chunk) - No significant changes in estimates or judgments were experienced during the six months ended June 30, 2023[153](index=153&type=chunk) [Results of Operations](index=38&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed comparison of the company's financial results for the second quarter and six months ended June 30, 2023, versus 2022. [Comparison of Second Quarter 2023 and Second Quarter 2022](index=38&type=section&id=Comparison%20of%20Second%20Quarter%202023%20and%20Second%20Quarter%202022) This section compares the company's financial performance for the second quarter of 2023 against the same period in 2022, focusing on revenues and expenses. Revenues by Segment (Q2 2023 vs. Q2 2022, in thousands) | Segment | Q2 2023 | Q2 2022 | $ Change | % Change | | :---------------------------------------- | :----------- | :----------- | :--------- | :------- | | U.S. Secure Services | $372,543 | $353,402 | $19,141 | 5.4% | | Electronic Monitoring and Supervision Services | $108,029 | $121,484 | $(13,455) | (11.1)% | | Reentry Services | $67,594 | $65,720 | $1,874 | 2.9% | | International Services | $45,725 | $47,571 | $(1,846) | (3.9)% | | **Total** | **$593,891** | **$588,177** | **$5,714** | **1.0%** | - U.S. Secure Services revenue increased by **$19.1 million** due to new transportation contracts and net increases in rates/occupancies, partially offset by facility ramp-downs[156](index=156&type=chunk) - Electronic Monitoring and Supervision Services revenue decreased by **$13.5 million** due to lower average participant counts under the Intensive Supervision and Appearance Program (ISAP)[158](index=158&type=chunk) - Operating expenses increased by **$16.3 million (4.0%)** in Q2 2023, primarily due to higher labor and medical costs in U.S. Secure Services, but decreased in Electronic Monitoring due to lower participant counts[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) - Interest expense increased by **$21.8 million (65.7%)** in Q2 2023 due to higher interest rates on new debt instruments and amortization of deferred issuance costs[173](index=173&type=chunk)[174](index=174&type=chunk) - Net income decreased by **45.0%** in Q2 2023, largely due to increased interest expense and a loss on extinguishment of debt, despite a decrease in general and administrative expenses[9](index=9&type=chunk)[171](index=171&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk) [Comparison of Six Months 2023 and Six Months 2022](index=42&type=section&id=Comparison%20of%20Six%20Months%202023%20and%20Six%20Months%202022) This section compares the company's financial performance for the first six months of 2023 against the same period in 2022, analyzing key financial metrics. Revenues by Segment (H1 2023 vs. H1 2022, in thousands) | Segment | H1 2023 | H1 2022 | $ Change | % Change | | :---------------------------------------- | :------------- | :------------- | :--------- | :------- | | U.S. Secure Services | $738,500 | $704,647 | $33,853 | 4.8% | | Electronic Monitoring and Supervision Services | $240,669 | $209,405 | $31,264 | 14.9% | | Reentry Services | $131,817 | $127,151 | $4,666 | 3.7% | | International Services | $91,114 | $98,159 | $(7,045) | (7.2)% | | **Total** | **$1,202,100** | **$1,139,362** | **$62,738**| **5.5%** | - Electronic Monitoring and Supervision Services revenue increased by **$31.3 million** due to increases in average participant counts under ISAP[182](index=182&type=chunk) - Operating expenses increased by **$64.7 million (8.1%)** in H1 2023, primarily driven by higher labor and medical costs in U.S. Secure Services and increased census levels in Reentry Services[185](index=185&type=chunk)[186](index=186&type=chunk)[190](index=190&type=chunk) - Interest expense increased by **$44.5 million (68.6%)** in H1 2023, primarily due to higher interest rates on new debt instruments and amortization of deferred issuance costs[200](index=200&type=chunk) - Net income attributable to The GEO Group, Inc. decreased by **37.4%** in H1 2023, mainly due to increased interest expense and a loss on extinguishment of debt[9](index=9&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) [Financial Condition](index=46&type=section&id=Financial%20Condition) This section discusses the company's current cash requirements, capital needs, funding sources, and compliance with debt covenants. - Current cash requirements include working capital, debt service, supply purchases, R&D for electronic monitoring products, joint venture investments, and capital expenditures for new or existing facilities[205](index=205&type=chunk) - Estimated remaining capital requirements for active projects are **$20.4 million** for the remainder of 2023[206](index=206&type=chunk) - The Company plans to fund capital needs from cash on hand, cash from operations, and borrowings under its Exchange Credit Agreement, believing these sources are adequate for 2023[207](index=207&type=chunk) - Following the August 2022 exchange offer, S&P Global Ratings upgraded the issuer rating to **B with a stable outlook**, and Moody's Investors Service upgraded the corporate family rating to **B3 with a stable outlook**[209](index=209&type=chunk) - The Company was in compliance with its debt covenants as of June 30, 2023[215](index=215&type=chunk) [Off-Balance Sheet Arrangements](index=48&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of significant off-balance sheet arrangements beyond those disclosed in the financial statement notes. - The Company does not have any off-balance sheet arrangements except as discussed in the notes to its Unaudited Consolidated Financial Statements[219](index=219&type=chunk) [Cash Flow](index=48&type=section&id=Cash%20Flow) This section analyzes changes in net cash provided by operating, investing, and financing activities for the first six months of 2023 compared to 2022. - Net cash provided by operating activities decreased to **$113.0 million** for the six months ended June 30, 2023, from $172.0 million in the prior year, primarily due to changes in accounts payable and accrued expenses[221](index=221&type=chunk)[222](index=222&type=chunk) - Net cash used in investing activities increased to **$32.3 million** for the six months ended June 30, 2023, from $19.3 million in the prior year, mainly due to capital expenditures[223](index=223&type=chunk) - Net cash used in financing activities increased to **$103.6 million** for the six months ended June 30, 2023, from $59.9 million in the prior year, primarily due to higher payments on long-term debt[224](index=224&type=chunk) [Outlook](index=50&type=section&id=Outlook) This section discusses future growth opportunities, potential challenges from government policies, and expected impacts on operating expenses and EPS. - The Company is encouraged by growth opportunities but acknowledges potential adverse impacts from government budgetary constraints or changes in willingness to maintain public-private partnerships[228](index=228&type=chunk) - As of June 30, 2023, three facilities under direct contracts with USMS represented approximately **6% of revenues** for the six months ended June 30, 2023, with no remaining contracts with the BOP[229](index=229&type=chunk) - The State of Washington has stipulated it will not enforce House Bill 1090 against GEO's Northwest ICE Processing Center, which generated approximately **$66 million** in annualized revenues in 2022[234](index=234&type=chunk) - The Company launched VeriWatch, a new wrist-worn GPS tracking device, and continues to inform governments about the benefits of public-private partnerships[237](index=237&type=chunk) - Operating expenses as a percentage of revenues are expected to be impacted by new facility openings, inflation on costs (personnel, utilities, insurance, medical, food), and carrying costs for vacant facilities[238](index=238&type=chunk) - Activation of the nine remaining idle facilities could generate approximately **$300 million** in incremental annualized revenue and an annualized increase in EPS of **$0.30 to $0.35 per share**[241](index=241&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=53&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section details the Company's exposure to market risks, specifically interest rate risk and foreign currency exchange rate risk, and quantifies their potential impact. [Interest Rate Risk](index=53&type=section&id=Interest%20Rate%20Risk) This section discusses the company's exposure to variable interest rates on its Exchange Credit Agreement and quantifies the potential impact of rate changes. - The Company is exposed to interest rate risk on its Exchange Credit Agreement, which has variable interest rates[243](index=243&type=chunk) - A **one percent increase** in the average interest rate on the Exchange Credit Facility would increase annual interest expense by approximately **$10 million**, based on **$1.008 billion** outstanding borrowings and **$76 million** in letters of credit as of June 30, 2023[243](index=243&type=chunk) [Foreign Currency Exchange Rate Risk](index=53&type=section&id=Foreign%20Currency%20Exchange%20Rate%20Risk) This section outlines the company's exposure to foreign currency fluctuations, primarily involving the U.S. dollar, Australian dollar, South African Rand, and British Pound. - The Company is exposed to foreign currency exchange rate fluctuations, primarily involving the U.S. dollar, Australian dollar, South African Rand, and British Pound[245](index=245&type=chunk) - A **10 percent change** in historical currency rates would have an approximate **$7.4 million effect** on financial position and a **$0.6 million impact** on results of operations for the six months ended June 30, 2023[245](index=245&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=50&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section addresses the effectiveness of the Company's disclosure controls and procedures and any changes in internal control over financial reporting. [Evaluation of Disclosure Controls and Procedures](index=53&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms management's conclusion that disclosure controls and procedures were effective as of June 30, 2023. - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2023, providing reasonable assurance for timely and accurate reporting[246](index=246&type=chunk) - The effectiveness of disclosure controls is subject to inherent limitations, including judgment and the inability to eliminate misconduct completely[247](index=247&type=chunk) [Changes in Internal Control Over Financial Reporting](index=53&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section states that no significant changes in internal control over financial reporting occurred during the quarter ended June 30, 2023. - Management believes there have been no significant changes in internal control over financial reporting during the quarter ended June 30, 2023[249](index=249&type=chunk) [PART II - OTHER INFORMATION](index=54&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, sales of equity securities, defaults, mine safety, and other relevant information. [ITEM 1. LEGAL PROCEEDINGS](index=54&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section provides an update on various legal proceedings, including shareholder litigation, immigration detainee lawsuits, and challenges to state legislation. [Litigation, Claims and Assessments](index=54&type=section&id=Litigation%2C%20Claims%20and%20Assessments) This section details ongoing lawsuits, including class actions, derivative actions, and immigration detainee litigation, and the company's defense strategy. - A shareholder class action lawsuit filed in July 2020 has been resolved following mediation, with a final approval hearing set for November 14, 2023[251](index=251&type=chunk) - Three related shareholder derivative actions are stayed pending the resolution of the federal putative shareholder class action lawsuit[252](index=252&type=chunk) - Immigration detainee class action lawsuits in Colorado, Washington, and California allege violations of minimum wage laws and the Federal Trafficking Victims Protection Act (TVPA)[254](index=254&type=chunk)[257](index=257&type=chunk)[258](index=258&type=chunk)[259](index=259&type=chunk) - In Washington, an unfavorable jury verdict and judgment of **$23.2 million**, plus **$12.7 million** in attorney's fees and interest, is pending appeal to the U.S. Court of Appeals for the Ninth Circuit[257](index=257&type=chunk) - The Ninth Circuit Court of Appeals ruled that California's AB-32, which prohibits private detention facilities, violates the Supremacy Clause, and a permanent injunction was entered in favor of GEO and the United States on May 23, 2023[262](index=262&type=chunk) - The State of Washington stipulated on June 22, 2023, that it will not enforce House Bill 1090 against GEO's operation of the Northwest ICE Processing Center[263](index=263&type=chunk) - The Company establishes accruals for legal proceedings when a loss is probable and estimable, but has not recorded accruals for the immigration detainee lawsuits as losses are not considered probable[260](index=260&type=chunk)[265](index=265&type=chunk) [ITEM 1A. RISK FACTORS](index=56&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section refers to the detailed discussion of risk factors in the Company's Annual Report on Form 10-K for 2022. - Readers are encouraged to review the comprehensive risk factors detailed in the 2022 Form 10-K for a full understanding of potential material impacts on the business[266](index=266&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=56&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This item is marked as 'Not applicable,' indicating no unregistered sales of equity securities or use of proceeds to report. - This item is not applicable for the reporting period[267](index=267&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=56&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) This item is marked as 'Not applicable,' indicating no defaults upon senior securities to report for the period. - This item is not applicable for the reporting period[268](index=268&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=56&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is marked as 'Not applicable,' indicating no mine safety disclosures to report for the period. - This item is not applicable for the reporting period[269](index=269&type=chunk) [ITEM 5. OTHER INFORMATION](index=56&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section provides other relevant information, including details on securities trading plans of directors and executive officers and changes to the Performance Plan. [Securities Trading Plans of Directors and Executive Officers](index=56&type=section&id=Securities%20Trading%20Plans%20of%20Directors%20and%20Executive%20Officers) This section confirms that no directors or executive officers adopted or terminated Rule 10b5-1 trading plans during the quarter. - None of the Company's directors or executive officers adopted or terminated a Rule 10b5-1 trading plan or a non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2023[271](index=271&type=chunk) [Senior Management Performance Award Plan (the "Performance Plan")](index=57&type=section&id=Senior%20Management%20Performance%20Award%20Plan%20(the%20%22Performance%20Plan%22)) This section details the Compensation Committee's approval to replace the net income metric with Adjusted EBITDA for annual cash incentive compensation. - Effective for the 2023 fiscal year, the Compensation Committee approved replacing the net income metric with the **Adjusted EBITDA metric** under the Performance Plan for annual cash incentive compensation for named executive officers[272](index=272&type=chunk) - Adjusted EBITDA is weighted **65%** and revenue is weighted **35%** for determining annual incentive cash compensation, aligning with peer compensation practices[272](index=272&type=chunk) [ITEM 6. EXHIBITS](index=58&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed as part of the Form 10-Q, including certifications, XBRL documents, and the cover page formatting. - The exhibits include SECTION 302 and 906 CEO/CFO Certifications, Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbases), and the formatted cover page[275](index=275&type=chunk) [SIGNATURES](index=59&type=section&id=SIGNATURES) This section contains the official signatures for the report, confirming its authorization and submission. - The report was signed on August 9, 2023, by Brian R. Evans, Senior Vice President & Chief Financial Officer, as a duly authorized officer and principal financial officer[279](index=279&type=chunk)

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 jurisdicti ...

Supplemental Information First Quarter 2023 The GEO Group, Inc.'s ("GEO") Unaudited Reconciliation Tables and Supplemental Disclosure presented herein speaks only as of the date or period indicated, and GEO does not undertake any obligation, and disclaims any duty, to update any of this information, except as required by law. GEO's future financial performance is subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect G ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 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 jurisdic ...

The GEO Group, Inc. (NYSE:GEO) Q4 2022 Earnings Conference Call February 14, 2023 11:00 AM ET Company Participants Pablo Paez - Executive Vice President of Corporate Relations George Zoley - Executive Chairman of the Board Brian Evans - Chief Financial Officer James Black - President of GEO Secure Services Wayne Calabrese - Chief Operating Officer Jose Gordo - Chief Executive Officer Conference Call Participants Joe Gomez - Noble Capital Jay McCanless - Wedbush Securities Mitra Ramgopal - Sidoti Kirk Ludtke ...

PART I - FINANCIAL INFORMATION This section provides a comprehensive overview of the company's financial information [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements, including statements of operations, comprehensive income, balance sheets, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items [CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)](index=3&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS%20(UNAUDITED)) This section presents the company's unaudited consolidated statements of operations, detailing revenues, operating income, and net income Consolidated Statements of Operations | Metric | Three Months Ended Sep 30, 2022 (in thousands) | Three Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Revenues | $616,683 | $557,277 | $1,756,045 | $1,699,073 | | Operating income | $98,121 | $74,019 | $274,721 | $212,065 | | Net income | $38,312 | $34,641 | $130,164 | $127,057 | | Net income attributable to The GEO Group, Inc. | $38,337 | $34,710 | $130,283 | $127,214 | | Basic EPS | $0.26 | $0.24 | $0.89 | $0.94 | | Diluted EPS | $0.26 | $0.24 | $0.89 | $0.94 | [CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)](index=4&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20(UNAUDITED)) This section outlines the company's unaudited consolidated statements of comprehensive income, including net income and other comprehensive income components Consolidated Statements of Comprehensive Income | Metric | Three Months Ended Sep 30, 2022 (in thousands) | Three Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net income | $38,312 | $34,641 | $130,164 | $127,057 | | Total other comprehensive income (loss), net of tax | $(775) | $(2,714) | $(6,390) | $(1,262) | | Total comprehensive income | $37,537 | $31,927 | $123,774 | $125,795 | | Comprehensive income attributable to The GEO Group, Inc. | $37,539 | $31,988 | $123,862 | $125,949 | [CONSOLIDATED BALANCE SHEETS](index=5&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) This section provides the company's consolidated balance sheets, detailing assets, liabilities, and shareholders' equity at specific dates Consolidated Balance Sheets | Metric | September 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------- | :-------------------------------- | :------------------------------- | | Total Assets | $3,704,508 | $4,537,408 | | Total Liabilities | $2,562,258 | $3,504,595 | | Total Shareholders' Equity | $1,110,580 | $975,016 | [CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS%20(UNAUDITED)) This section presents the company's unaudited consolidated statements of cash flows, categorizing cash activities into operating, investing, and financing Consolidated Statements of Cash Flows | Cash Flow Activity | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $311,552 | $289,477 | | Net cash used in investing activities | $(60,318) | $(40,463) | | Net cash (used in) provided by financing activities | $(670,103) | $28,368 | | Cash, Cash Equivalents and Restricted Cash and Cash Equivalents, end of period | $121,373 | $585,447 | [NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS](index=7&type=section&id=NOTES%20TO%20UNAUDITED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items [1. BASIS OF PRESENTATION](index=7&type=section&id=1.%20BASIS%20OF%20PRESENTATION) This note describes the company's business, its termination of REIT status, the impact of an Executive Order, and COVID-19 uncertainties - The GEO Group, Inc. specializes in the ownership, leasing, and management of secure facilities, processing centers, and community reentry centers in the United States, Australia, and South Africa. It also provides community supervision services for over **500,000 individuals**, including nearly **200,000** through technology products[19](index=19&type=chunk) - The Company terminated its REIT status and became a taxable C Corporation effective January 1, 2021, providing greater flexibility to use free cash flow and discontinuing quarterly dividends[21](index=21&type=chunk) - An Executive Order signed on January 26, 2021, directs the Attorney General not to renew Department of Justice contracts with privately operated criminal detention facilities. As of September 30, 2022, three company-owned/leased facilities under direct contracts with USMS have option periods expiring between February 28, 2023, and September 30, 2023[23](index=23&type=chunk)[24](index=24&type=chunk) - The COVID-19 pandemic has caused disruptions, and the Company is unable to predict its overall future impact on financial condition, results of operations, and cash flows due to numerous uncertainties[25](index=25&type=chunk) [2. GOODWILL AND OTHER INTANGIBLE ASSETS](index=8&type=section&id=2.%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS) This note details the company's goodwill and other intangible assets, including their carrying values, amortization schedules, and segment allocation Goodwill by Segment | Segment | January 1, 2022 (in thousands) | Foreign Currency Translation (in thousands) | September 30, 2022 (in thousands) | | :----------------------------------- | :----------------------------------- | :------------------------------------------ | :---------------------------------- | | U.S. Secure Services | $316,366 | $0 | $316,366 | | Electronic Monitoring and Supervision Services | $289,570 | $0 | $289,570 | | Reentry Services | $148,873 | $0 | $148,873 | | International Services | $416 | $(46) | $370 | | **Total Goodwill** | **$755,225** | **$(46)** | **$755,179** | Intangible Assets | Intangible Asset | Weighted Average Useful Life (years) | Gross Carrying Amount Sep 30, 2022 (in thousands) | Accumulated Amortization Sep 30, 2022 (in thousands) | Net Carrying Amount Sep 30, 2022 (in thousands) | | :----------------------------------- | :----------------------------------- | :------------------------------------------------ | :--------------------------------------------------- | :---------------------------------------------- | | Facility management contracts | 16.3 | $308,335 | $(203,071) | $105,264 | | Technology | 7.3 | $33,700 | $(32,892) | $808 | | Trade names | Indefinite | $45,200 | $0 | $45,200 | | **Total acquired intangible assets** | | **$387,235** | **$(235,963)** | **$151,272** | Amortization Expense Schedule | Fiscal Year | Total Amortization Expense (in thousands) | | :----------------------------------- | :---------------------------------------- | | Remainder of 2022 | $3,601 | | 2023 | $11,813 | | 2024 | $9,314 | | 2025 | $9,263 | | 2026 | $7,157 | | Thereafter | $64,924 | | **Total** | **$106,072** | [3. FINANCIAL INSTRUMENTS](index=9&type=section&id=3.%20FINANCIAL%20INSTRUMENTS) This note provides information on the company's financial instruments, including their carrying and fair values, focusing on restricted investments and derivatives Financial Instruments Fair Value (Sep 30, 2022) | Financial Instrument | Carrying Value at Sep 30, 2022 (in thousands) | Fair Value (Level 2) at Sep 30, 2022 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Restricted investment: Rabbi Trust | $34,934 | $34,934 | | Marketable equity and fixed income securities | $25,098 | $25,098 | | Interest rate swap derivatives | $4,712 | $4,712 | Financial Instruments Fair Value (Dec 31, 2021) | Financial Instrument | Carrying Value at Dec 31, 2021 (in thousands) | Fair Value (Level 2) at Dec 31, 2021 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Restricted investments: Rabbi Trust | $42,937 | $42,937 | | Marketable equity and fixed income securities | $11,551 | $11,551 | | Fixed income securities | $1,927 | $1,927 | | Interest rate swap derivatives (liability) | $3,195 | $3,195 | [4. FAIR VALUE OF ASSETS AND LIABILITIES](index=10&type=section&id=4.%20FAIR%20VALUE%20OF%20ASSETS%20AND%20LIABILITIES) This note discloses the fair values of various financial assets and liabilities, and the methodologies used for their estimation Fair Value of Financial Instruments | Financial Instrument | Carrying Value at Sep 30, 2022 (in thousands) | Total Fair Value at Sep 30, 2022 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Cash and cash equivalents | $91,645 | $91,645 | | Restricted cash and investments | $29,728 | $29,728 | | Borrowings under exchange credit facility | $1,143,977 | $1,161,385 | | 10.500% Public Second Lien Notes due 2028 | $286,521 | $283,882 | | 9.500% Private Second Lien Notes due 2028 | $239,142 | $222,856 | | 5.875% Senior Notes due 2024 | $23,253 | $22,197 | | 6.00% Senior Notes due 2026 | $110,858 | $90,945 | | 6.50% Exchangeable Senior Notes due 2026 | $230,000 | $246,392 | - The fair value of new debt instruments issued in August 2022 (Exchange Credit Facility, **10.500% Public Second Lien Notes**, **9.500% Private Second Lien Notes**) was estimated using a Black-Derman-Toy (BDT) lattice model, incorporating SOFR forward rates, risk-free rates, yield volatility, and credit spreads[32](index=32&type=chunk) [5. RESTRICTED CASH AND CASH EQUIVALENTS](index=12&type=section&id=5.%20RESTRICTED%20CASH%20AND%20CASH%20EQUIVALENTS) This note details the components of restricted cash and cash equivalents, explaining changes due to asset sales and their impact on liquidity Restricted Cash and Equivalents | Metric | September 30, 2022 (in thousands) | September 30, 2021 (in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Cash and cash equivalents | $91,645 | $537,070 | | Restricted cash and cash equivalents - current | $0 | $30,201 | | Restricted cash and investments - non-current | $89,760 | $60,732 | | Less Restricted investments - non-current | $(60,032) | $(42,556) | | **Total cash, cash equivalents and restricted cash and cash equivalents** | **$121,373** | **$585,447** | - The Company had no current restricted cash and cash equivalents as of September 30, 2022, due to the sale of shares/units in certain Australian subsidiaries related to its Ravenhall facility, transferring associated restricted cash to the buyer[36](index=36&type=chunk) [6. SHAREHOLDERS' EQUITY](index=12&type=section&id=6.SHAREHOLDERS'%20EQUITY) This note presents the components of shareholders' equity, including common stock, additional paid-in capital, accumulated deficit, and accumulated other comprehensive loss Shareholders' Equity Details | Metric | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :----------------------------------- | :-------------------------- | :-------------------------- | | Common stock | $1,290 | $1,273 | | Additional paid-in capital | $1,288,075 | $1,276,213 | | Accumulated deficit | $(45,766) | $(175,960) | | Accumulated other comprehensive loss | $(26,637) | $(20,216) | | Treasury stock | $(105,099) | $(105,099) | | Total shareholders' equity attributable to The GEO Group, Inc. | $1,111,863 | $976,211 | | Noncontrolling interests | $(1,283) | $(1,195) | | **Total shareholders' equity** | **$1,110,580** | **$975,016** | Accumulated Other Comprehensive Income (Loss) | Component of AOCI | Balance, Jan 1, 2022 (in thousands) | Current-period other comprehensive income (loss) (in thousands) | Balance, Sep 30, 2022 (in thousands) | | :----------------------------------- | :---------------------------------- | :-------------------------------------------------------------- | :----------------------------------- | | Foreign currency translation adjustments, net of tax | $(12,461) | $(11,679) | $(24,140) | | Change in fair value of derivatives, net of tax | $(2,524) | $6,247 | $3,723 | | Change in marketable securities, net of tax | $7 | $(1,245) | $(1,238) | | Pension adjustments, net of tax | $(5,238) | $256 | $(4,982) | | **Total** | **$(20,216)** | **$(6,421)** | **$(26,637)** | [7. EQUITY INCENTIVE PLANS](index=14&type=section&id=7.%20EQUITY%20INCENTIVE%20PLANS) This note describes the company's equity incentive plans, including stock option and restricted stock activity, compensation expenses, and unrecognized costs Stock Option Activity | Stock Option Activity | Shares (in thousands) | Wtd. Avg. Exercise Price | | :----------------------------------- | :-------------------- | :----------------------- | | Options outstanding at January 1, 2022 | 1,847 | $19.92 | | Options granted | 342 | $5.76 | | Options exercised | (3) | $7.52 | | Options forfeited/canceled/expired | (260) | $15.94 | | **Options outstanding at September 30, 2022** | **1,926** | **$17.98** | - For the nine months ended September 30, 2022, stock-based compensation expense related to stock options was **$0.4 million**, with **$1.0 million** of unrecognized compensation costs remaining[48](index=48&type=chunk) Restricted Stock Activity | Restricted Stock Activity | Shares (in thousands) | Wtd. Avg. Grant Date Fair Value | | :----------------------------------- | :-------------------- | :------------------------------ | | Restricted stock outstanding at January 1, 2022 | 2,619 | $12.56 | | Granted | 1,836 | $6.09 | | Vested | (807) | $16.27 | | Forfeited/canceled | (46) | $9.49 | | **Restricted stock outstanding at September 30, 2022** | **3,602** | **$8.25** | - During the nine months ended September 30, 2022, the Company granted **1,835,592 shares** of restricted stock, including **1,025,000 market** and performance-based awards subject to TSR and ROCE targets[50](index=50&type=chunk)[51](index=51&type=chunk) - For the nine months ended September 30, 2022, compensation expense for restricted stock awards was **$12.6 million**, with **$17.0 million** of unrecognized compensation costs remaining[54](index=54&type=chunk) - The Employee Stock Purchase Plan (ESPP) is non-compensatory; **20,769 shares** were issued during the nine months ended September 30, 2022[56](index=56&type=chunk) [8. EARNINGS PER SHARE](index=17&type=section&id=8.%20EARNINGS%20PER%20SHARE) This note details the calculation of basic and diluted earnings per share, including the treatment of anti-dilutive securities and potential common shares Earnings Per Share Calculation | Metric | Three Months Ended Sep 30, 2022 (in thousands, except per share) | Three Months Ended Sep 30, 2021 (in thousands, except per share) | Nine Months Ended Sep 30, 2022 (in thousands, except per share) | Nine Months Ended Sep 30, 2021 (in thousands, except per share) | | :----------------------------------- | :------------------------------------------------------------- | :------------------------------------------------------------- | :------------------------------------------------------------ | :------------------------------------------------------------ | | Net income attributable to The GEO Group, Inc. available to common stockholders | $31,794 | $28,761 | $108,024 | $113,590 | | Basic weighted average shares outstanding | 121,154 | 120,525 | 120,998 | 120,326 | | Basic EPS | $0.26 | $0.24 | $0.89 | $0.94 | | Diluted weighted average shares outstanding | 122,426 | 120,872 | 121,907 | 120,583 | | Diluted EPS | $0.26 | $0.24 | $0.89 | $0.94 | - For the three months ended September 30, 2022, **1,961,377 weighted average shares** underlying options and **305,897 common stock equivalents** from restricted shares were anti-dilutive and excluded from diluted EPS[57](index=57&type=chunk) - Approximately **24.9 million shares** of potential common shares associated with the conversion option of the **6.50% Exchangeable Notes** due 2026 were excluded from diluted EPS for both periods as the average stock price was lower than the exchange price[61](index=61&type=chunk) [9. DERIVATIVE FINANCIAL INSTRUMENTS](index=18&type=section&id=9.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) This note explains the company's use of interest rate swap agreements as cash flow hedges, detailing their notional amounts, fair values, and impact on comprehensive income - The Company uses interest rate swap agreements with an aggregate notional amount of **$44.3 million** to fix the interest rate on certain variable rate debt to **4.22%**, designated as effective cash flow hedges[63](index=63&type=chunk) - Total unrealized gains recorded in other comprehensive income, net of tax, related to these cash flow hedges was **$6.2 million** during the nine months ended September 30, 2022[63](index=63&type=chunk) - The total fair value of the swap assets as of September 30, 2022, was **$4.7 million**, recorded as a component of Other Non-Current assets[63](index=63&type=chunk) [10. DEBT](index=19&type=section&id=10.%20DEBT) This note provides a comprehensive overview of the company's debt structure, including various credit facilities, senior notes, and recent debt restructuring activities Debt Summary | Debt Type | September 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------- | :-------------------------------- | :------------------------------- | | Senior Credit Facility | $0 | $1,543,010 | | Exchange Credit Agreement | $1,137,231 | $0 | | 10.500% Public Second Lien Notes due 2028 | $262,104 | $0 | | 9.500% Private Second Lien Notes due 2028 | $209,255 | $0 | | 6.50% Exchangeable Senior Notes | $223,055 | $221,754 | | 6.00% Senior Notes | $110,029 | $346,901 | | 5.875% Senior Notes | $23,144 | $223,883 | | 5.125% Senior Notes | $0 | $258,054 | | Non-Recourse Debt | $0 | $305,552 | | Finance Lease Liabilities | $2,147 | $3,843 | | Other debt, net | $40,596 | $41,363 | | **Total debt** | **$2,007,561** | **$2,944,360** | | Current portion of debt | $(44,702) | $(18,568) | | Long-Term Debt | $1,961,402 | $2,625,959 | - On August 19, 2022, the Company completed an exchange offer, converting existing senior notes and credit facility loans into newly issued Senior Second Lien Secured Notes and a new Exchange Credit Agreement. This resulted in a net loss on extinguishment of debt of approximately **$37.5 million** and incurred **$52.8 million** in debt issuance fees[67](index=67&type=chunk)[71](index=71&type=chunk)[95](index=95&type=chunk) - The new Exchange Credit Agreement includes Tranche 1 Loans (**$857 million**), Tranche 2 Loans (**$237 million**), and an Exchange Revolving Credit Facility (**$187 million**). Tranche 3 Loans (**$45 million**) were redeemed in full prior to September 30, 2022[72](index=72&type=chunk)[76](index=76&type=chunk) - The Company issued **$286.5 million** of **10.500% Public Second Lien Secured Notes** due 2028 and **$239.1 million** of **9.500% Private Second Lien Secured Notes** due 2028 as part of the exchange offer[83](index=83&type=chunk)[90](index=90&type=chunk) - The **5.125% Senior Notes** due 2023 were redeemed in full on October 6, 2022, after the remaining balance was deposited with the Trustee prior to September 30, 2022[80](index=80&type=chunk) - The non-recourse debt related to the Ravenhall project in Australia was transferred to the buyer and is no longer an outstanding obligation of the Company as of September 20, 2022[108](index=108&type=chunk) [11. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS](index=26&type=section&id=11.%20COMMITMENTS,%20CONTINGENCIES%20AND%20OTHER%20MATTERS) This note outlines the company's legal proceedings, contractual commitments, and significant asset divestitures, including the sale of its Ravenhall project - The Company is involved in shareholder class action and derivative lawsuits alleging violations of securities laws and breaches of fiduciary duties, which it strongly disputes and intends to vigorously defend[112](index=112&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk) - Multiple class action lawsuits have been filed by immigration detainees in Colorado, Washington, and California, alleging violations of minimum wage laws, human trafficking, and unjust enrichment related to voluntary work programs. The Company denies these claims and is appealing an unfavorable **$23.2 million judgment** in Washington[116](index=116&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk) - The Ninth Circuit Court of Appeals, in an en banc decision on September 26, 2022, ruled that California's AB-32, which prohibits private detention facilities, violates the U.S. Constitution's Supremacy Clause and is preempted by federal law. A similar challenge to Washington's EHB 1090 is stayed pending the AB-32 appeal[122](index=122&type=chunk)[123](index=123&type=chunk) - Effective September 20, 2022, the Company sold its equity investment interest in the Ravenhall Correctional Centre project in Australia for approximately **$84 million gross proceeds**, resulting in a pre-tax gain of **$29.3 million**. Proceeds were used to repay outstanding debt[128](index=128&type=chunk) - The Company has contractual commitments for active capital projects totaling **$32.4 million**, with **$13.2 million** spent through Q3 2022 and **$19.2 million** remaining for the rest of 2022[129](index=129&type=chunk) Idle Facilities Summary | Facility | Year Idled | Secure Services Design Capacity | Reentry Services Design Capacity | Total Net Carrying Value Sep 30, 2022 (in thousands) | | :----------------------------------- | :-------------------- | :------------------------------------ | :----------------------------------- | :------------------------------------------------ | | Great Plains Correctional Facility | 2021 | 1,940 | — | $70,016 | | D. Ray James Correctional Facility | 2021 | 1,900 | — | $51,285 | | Northlake Correctional Facility | 2022 | 1,800 | — | $69,113 | | Rivers Correctional Facility | 2021 | 1,450 | — | $38,348 | | Big Spring Correctional Facility | 2021 | 1,732 | — | $33,678 | | Flightline Correctional Facility | 2021 | 1,800 | — | $35,586 | | McFarland Female Community Reentry Facility | 2020 | 300 | — | $11,038 | | Cheyenne Mountain Recovery Center | 2020 | — | 750 | $16,806 | | Albert Bo Robinson Assessment & Treatment Center | 2022 | — | 900 | $14,198 | | Coleman Hall | 2017 | — | 350 | $7,844 | | Hector Garza Center | 2020 | — | 139 | $4,882 | | **Total** | | **10,922** | **2,139** | **$352,794** | [12. BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION](index=30&type=section&id=12.%20BUSINESS%20SEGMENTS%20AND%20GEOGRAPHIC%20INFORMATION) This note details the company's reportable business segments, their revenues, operating income, and geographic information, reflecting recent segment changes - The Company operates through four reportable business segments: U.S. Secure Services, Electronic Monitoring and Supervision Services, Reentry Services, and International Services. The Facility Construction and Design segment was aggregated into International Services, and Electronic Monitoring and Supervision Services became a separate segment due to growth and changes in management's view[133](index=133&type=chunk)[134](index=134&type=chunk) Segment Revenues and Operating Income (Q3) | Segment | Q3 2022 Revenues (in thousands) | Q3 2021 Revenues (in thousands) | Q3 2022 Operating Income (in thousands) | Q3 2021 Operating Income (in thousands) | | :----------------------------------- | :------------------------------ | :------------------------------ | :-------------------------------------- | :-------------------------------------- | | U.S. Secure Services | $368,493 | $369,609 | $67,462 | $72,054 | | Electronic Monitoring and Supervision Services | $137,039 | $74,575 | $67,673 | $35,052 | | Reentry Services | $65,406 | $60,740 | $9,816 | $13,265 | | International Services | $45,745 | $52,353 | $3,192 | $4,123 | | **Total Operating Income** | | | **$148,143** | **$124,494** | Segment Revenues and Operating Income (YTD) | Segment | YTD 2022 Revenues (in thousands) | YTD 2021 Revenues (in thousands) | YTD 2022 Operating Income (in thousands) | YTD 2021 Operating Income (in thousands) | | :----------------------------------- | :----------------------------- | :----------------------------- | :------------------------------------- | :------------------------------------- | | U.S. Secure Services | $1,073,140 | $1,125,014 | $214,994 | $219,471 | | Electronic Monitoring and Supervision Services | $346,444 | $199,788 | $160,838 | $89,520 | | Reentry Services | $192,557 | $212,914 | $34,027 | $39,604 | | International Services | $143,904 | $161,357 | $12,740 | $17,112 | | **Total Operating Income** | | | **$422,599** | **$365,707** | - Equity in earnings of affiliates, net of tax, for SACS (South Africa) was **$2.1 million** (YTD 2022) and **$2.7 million** (YTD 2021). For GEOAmey (United Kingdom), it was **$1.7 million** (YTD 2022) and **$2.9 million** (YTD 2021)[138](index=138&type=chunk)[139](index=139&type=chunk) [13. BENEFIT PLANS](index=32&type=section&id=13.%20BENEFIT%20PLANS) This note provides information on the company's pension plans, including projected benefit obligations and net periodic pension costs, as well as deferred compensation agreements Pension Plan Obligations and Costs | Metric | Nine Months Ended Sep 30, 2022 (in thousands) | Year Ended Dec 31, 2021 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :------------------------------------- | | Projected benefit obligation, beginning of period | $31,830 | $33,530 | | Projected benefit obligation, end of period | $32,657 | $31,830 | | Unfunded Status of the Plan | $32,657 | $31,830 | Net Periodic Pension Cost | Metric | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net periodic pension cost | $1,884 | $2,600 | - The Company has a non-qualified deferred compensation agreement with its former CEO, with a balance of approximately **$5.8 million** at September 30, 2022, to be paid in cash upon retirement[141](index=141&type=chunk)[142](index=142&type=chunk) [14. RECENT ACCOUNTING PRONOUNCEMENTS](index=32&type=section&id=14.%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) This note discusses recent accounting pronouncements and their expected impact on the company's financial reporting, specifically ASU 2020-04 - ASU 2020-04, 'Reference Reform Rate (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,' provides temporary optional expedients for contracts and hedge relationships affected by reference rate reform. The Company does not expect significant impacts from its application[144](index=144&type=chunk)[145](index=145&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=34&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the company's financial condition and results of operations, including an overview of business segments, recent developments, critical accounting policies, and a detailed comparison of financial performance for the three and nine months ended September 30, 2022 and 2021. It also discusses liquidity, capital resources, non-GAAP measures, and the company's outlook, highlighting the impacts of the COVID-19 pandemic, government policies, and debt restructuring [Forward-Looking Information](index=34&type=section&id=Forward-Looking%20Information) This section highlights the inherent risks and uncertainties associated with forward-looking statements, including operational, regulatory, and financial factors - The report contains forward-looking statements subject to risks and uncertainties, including the impact of COVID-19, government utilization of public-private partnerships, executive orders, and the ability to manage debt and litigation[147](index=147&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) [Introduction](index=37&type=section&id=Introduction) This section provides an overview of the company's business, its operational scope, and key financial metrics for the reporting period - The GEO Group specializes in secure facilities, processing centers, reentry facilities, and community-based services in the US, Australia, and South Africa, managing/owning approximately **82,000 beds** at **102 facilities** and providing supervision services for over **500,000 individuals**[154](index=154&type=chunk)[157](index=157&type=chunk) - The Company terminated its REIT status and became a taxable C Corporation effective January 1, 2021, discontinuing quarterly dividends to gain greater flexibility in using free cash flow[156](index=156&type=chunk) Consolidated Revenues and Occupancy Rates | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Consolidated revenues | $1,756.0 million | $1,699.1 million | | Average company-wide facility occupancy rate (excluding idle beds) | 86.0% (68,920 active beds) | 86.5% (78,366 active beds) | [Business Segments](index=39&type=section&id=Business%20Segments) This section describes the company's four reportable business segments and recent changes in their classification - The Company's four reportable business segments are U.S. Secure Services, Electronic Monitoring and Supervision Services, Reentry Services, and International Services. Electronic Monitoring and Supervision Services is now a separate segment due to growth, and Facility Construction and Design was aggregated into International Services[161](index=161&type=chunk)[162](index=162&type=chunk) [Recent Developments](index=39&type=section&id=Recent%20Developments) This section outlines significant recent events impacting the company, including debt restructuring, asset sales, and government policy changes - On August 19, 2022, the Company completed an exchange offer for certain outstanding senior notes and credit facility loans into newly issued Senior Second Lien Secured Notes and a new Exchange Credit Agreement[163](index=163&type=chunk) - Effective September 20, 2022, the Company sold its equity investment interest in the Ravenhall Correctional Centre in Australia for approximately **$84 million gross proceeds**, resulting in a **$29.3 million net gain**, with proceeds used to repay debt[164](index=164&type=chunk) - President Biden's Executive Order (January 26, 2021) directs the DOJ not to renew contracts with privately operated criminal detention facilities. As of September 30, 2022, three USMS contracts (**6% of 2021 revenues**) expire between February and September 2023[165](index=165&type=chunk) - The Company's contract with the BOP for the North Lake Correctional Facility expired at the end of September 2022, meaning no more BOP contracts for secure correctional facilities[168](index=168&type=chunk) - The Company is marketing **13,061 vacant beds** at eleven idle facilities, with a combined carrying value of **$352.8 million** as of September 30, 2022[169](index=169&type=chunk) [Critical Accounting Policies](index=40&type=section&id=Critical%20Accounting%20Policies) This section discusses the critical accounting policies and estimates used in preparing the consolidated financial statements - The unaudited consolidated financial statements are prepared in conformity with GAAP, requiring estimates and assumptions. No significant changes in estimates or judgments occurred during the nine months ended September 30, 2022[170](index=170&type=chunk) [RESULTS OF OPERATIONS](index=40&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the company's financial performance, comparing results for the current and prior periods [Comparison of Third Quarter 2022 and Third Quarter 2021](index=40&type=section&id=Comparison%20of%20Third%20Quarter%202022%20and%20Third%20Quarter%202021) This section compares the company's financial results for the third quarter of 2022 against the same period in 2021, analyzing revenue and expense changes Revenue by Segment (Q3) | Segment | Q3 2022 Revenues (in thousands) | Q3 2021 Revenues (in thousands) | $ Change (in thousands) | % Change | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------- | :------- | | U.S. Secure Services | $368,493 | $369,609 | $(1,116) | (0.3)% | | Electronic Monitoring and Supervision Services | $137,039 | $74,575 | $62,464 | 83.8% | | Reentry Services | $65,406 | $60,740 | $4,666 | 7.7% | | International Services | $45,745 | $52,353 | $(6,608) | (12.6)% | | **Total** | **$616,683** | **$557,277** | **$59,406** | **10.7%** | - U.S. Secure Services revenues decreased slightly due to facility deactivations, partially offset by new contract activations and increased rates/occupancies. Electronic Monitoring and Supervision Services revenues increased significantly due to higher participant counts under ISAP. International Services revenues decreased due to foreign exchange rate fluctuations and contract transitions[173](index=173&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk) Expense Analysis (Q3) | Expense Category | Q3 2022 (in thousands) | Q3 2021 (in thousands) | $ Change (in thousands) | % Change | | :----------------------------------- | :--------------------- | :--------------------- | :---------------------- | :------- | | Operating expenses | $436,210 | $399,900 | $36,310 | 9.1% | | Depreciation and amortization | $32,330 | $32,883 | $(553) | (1.7)% | | General and administrative expenses | $50,022 | $50,475 | $(453) | (0.9)% | | Interest income | $5,111 | $5,990 | $(879) | (14.7)% | | Interest expense | $46,537 | $32,525 | $14,012 | 43.1% | | Loss on extinguishment of debt | $37,487 | $0 | $37,487 | 100.0% | | Gain (loss) on asset divestitures | $29,279 | $(6,088) | $35,367 | (580.9)% | | Provision for income taxes | $11,246 | $8,395 | $2,851 | 34.0% | | Equity in earnings of affiliates | $1,071 | $1,640 | $(569) | (34.7)% | - Interest expense increased significantly due to higher interest rates on new debt instruments from the exchange offer and rising SOFR/LIBOR rates. A **$37.5 million net loss** on extinguishment of debt was recorded from the exchange offer. A **$29.3 million gain** on asset divestitures resulted from the Ravenhall sale[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk) [Comparison of Nine Months 2022 and Nine Months 2021](index=44&type=section&id=Comparison%20of%20Nine%20Months%202022%20and%20Nine%20Months%202021) This section compares the company's financial results for the nine months ended September 30, 2022, against the same period in 2021, detailing revenue and expense trends Revenue by Segment (YTD) | Segment | YTD 2022 Revenues (in thousands) | YTD 2021 Revenues (in thousands) | $ Change (in thousands) | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :---------------------- | :------- | | U.S. Secure Services | $1,073,140 | $1,125,014 | $(51,874) | (4.6)% | | Electronic Monitoring and Supervision Services | $346,444 | $199,788 | $146,656 | 73.4% | | Reentry Services | $192,557 | $212,914 | $(20,357) | (9.6)% | | International Services | $143,904 | $161,357 | $(17,453) | (10.8)% | | **Total** | **$1,756,045** | **$1,699,073** | **$56,972** | **3.4%** | - U.S. Secure Services revenues decreased due to facility deactivations, partially offset by new contract activations and increased rates/occupancies. Electronic Monitoring and Supervision Services revenues increased significantly due to higher ISAP participant counts. Reentry Services revenues decreased due to the sale of the youth business, partially offset by new/reactivated contracts. International Services revenues decreased due to foreign exchange and contract transitions[200](index=200&type=chunk)[202](index=202&type=chunk)[204](index=204&type=chunk)[205](index=205&type=chunk) Expense Analysis (YTD) | Expense Category | YTD 2022 (in thousands) | YTD 2021 (in thousands) | $ Change (in thousands) | % Change | | :----------------------------------- | :-------------------- | :-------------------- | :---------------------- | :------- | | Operating expenses | $1,233,162 | $1,233,060 | $102 | 0.0% | | Depreciation and amortization | $100,284 | $100,306 | $(22) | (0.0)% | | General and administrative expenses | $147,878 | $153,642 | $(5,764) | (3.8)% | | Interest income | $16,301 | $18,177 | $(1,876) | (10.3)% | | Interest expense | $111,383 | $96,422 | $14,961 | 15.5% | | (Loss) Gain on extinguishment of debt | $(37,487) | $4,693 | $(42,180) | (898.8)% | | Gain on Asset Divestitures | $32,332 | $4,291 | $28,041 | 653.5% | | Provision for Income Taxes | $48,106 | $21,394 | $26,712 | 124.9% | | Equity in Earnings of Affiliates | $3,786 | $5,647 | $(1,861) | (33.0)% | - General and administrative expenses decreased due to one-time employee restructuring expenses in 2021, partially offset by increased professional fees. Interest expense increased due to higher rates on new debt and amortization of issuance costs/discounts. A **$37.5 million net loss** on extinguishment of debt was recorded in 2022, compared to a **$4.7 million gain** in 2021. Income tax provision increased significantly due to the Company's transition to a taxable C corporation[216](index=216&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk)[225](index=225&type=chunk) [Financial Condition](index=48&type=section&id=Financial%20Condition) This section discusses the company's current financial position, including cash requirements, capital expenditures, and funding strategies - Current cash requirements include working capital, debt service, supply purchases, joint venture investments, and capital expenditures for new or existing facilities. The Company plans to fund these needs from cash on hand, operations, borrowings under the Exchange Credit Agreement, and other financings[228](index=228&type=chunk)[230](index=230&type=chunk) - Estimated remaining capital requirements for active projects are **$19.2 million** for the remainder of 2022[229](index=229&type=chunk) [Liquidity and Capital Resources](index=48&type=section&id=Liquidity%20and%20Capital%20Resources) This section analyzes the company's liquidity and capital resources, including credit ratings, cash flow activities, and debt management strategies - Following the August 2022 exchange offer, S&P Global Ratings upgraded the Company's issuer rating to B with a stable outlook, and Moody's Investors Service upgraded its corporate family rating to B3 with a stable outlook[232](index=232&type=chunk) Cash Flow Summary | Cash Flow Activity | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $311,552 | $289,477 | | Net cash used in investing activities | $(60,318) | $(40,463) | | Net cash used in financing activities | $(670,103) | $28,368 | | Cash, cash equivalents and restricted cash and cash equivalents, end of period | $121,373 | $585,447 | - Net cash used in financing activities significantly increased in 2022 due to **$676.1 million** in payments on long-term debt and **$41.5 million** in debt issuance costs, partially offset by **$50 million** in proceeds from long-term debt[254](index=254&type=chunk) [Non-GAAP Measures](index=51&type=section&id=Non-GAAP%20Measures) This section defines and reconciles non-GAAP financial measures, such as Adjusted Funds from Operations (AFFO), to provide additional insights into performance - Adjusted Funds from Operations (AFFO) is a non-GAAP measure defined as net income attributable to GEO adjusted for depreciation, amortization, stock-based compensation, non-cash interest, asset divestitures, facility maintenance capital expenditures, and other non-cash items, providing insight into the ability to fund capital expenditures and expand the business[255](index=255&type=chunk)[256](index=256&type=chunk)[257](index=257&type=chunk)[258](index=258&type=chunk) Adjusted Funds from Operations (AFFO) Reconciliation | Metric | Q3 2022 (in thousands) | Q3 2021 (in thousands) | YTD 2022 (in thousands) | YTD 2021 (in thousands) | | :----------------------------------- | :--------------------- | :--------------------- | :-------------------- | :-------------------- | | Net income attributable to GEO | $38,337 | $34,710 | $130,283 | $127,214 | | Depreciation and amortization | $32,330 | $32,883 | $100,284 | $100,306 | | Facility maintenance capital expenditures | $(4,211) | $(2,229) | $(13,217) | $(7,795) | | Stock-based compensation expense | $3,141 | $4,329 | $13,010 | $15,755 | | Amortization of debt issuance costs, discount and/or premium and other non-cash interest | $2,456 | $1,974 | $6,211 | $5,559 | | (Gain) loss on asset divestitures, net | $(29,279) | $6,088 | $(32,332) | $(4,291) | | Loss (gain) on extinguishment of debt, pre-tax | $37,487 | $0 | $37,487 | $(4,693) | | Transaction related expenses, pre-tax | $1,322 | $3,977 | $1,322 | $3,977 | | One-time employee restructuring expenses, pre-tax | $0 | $0 | $0 | $7,459 | | Tax effect of adjustments to net income attributable to GEO | $(7,697) | $(2,254) | $(6,930) | $1,685 | | **Adjusted Funds from Operations** | **$73,886** | **$78,376** | **$236,118** | **$241,870** | [Outlook](index=53&type=section&id=Outlook) This section provides the company's forward-looking perspective on business trends, potential impacts of external factors, and strategic initiatives - The COVID-19 pandemic continues to impact populations and referrals, particularly in reentry services, with new intake at residential reentry centers significantly slowed. The Company expects continued impact on populations for the remainder of 2022[263](index=263&type=chunk) - The Executive Order directing the DOJ not to renew contracts with privately operated criminal detention facilities continues to pose uncertainty, with three USMS contracts (**6% of 2021 revenues**) expiring between February and September 2023[265](index=265&type=chunk)[266](index=266&type=chunk) - The Ninth Circuit Court of Appeals ruled that California's AB-32, banning private detention facilities, violates the Supremacy Clause, remanding the case for further proceedings. A similar challenge to Washington's EHB 1090 is stayed[269](index=269&type=chunk)[270](index=270&type=chunk) - Operating expenses are expected to be impacted by inflation on costs (personnel, utilities, insurance, medical, food) and carrying costs for vacant facilities. General and administrative expenses are expected to remain consistent or decrease due to cost savings initiatives[275](index=275&type=chunk)[276](index=276&type=chunk) - The **11 idle facilities** (**13,061 vacant beds**) have an annual net carrying cost of **$20.3 million** (including **$15.7 million depreciation**). If activated at average 2022 per diem rates and occupancy, they could generate approximately **$350 million** in incremental annualized revenue and **$0.35-$0.40 increase** in EPS[277](index=277&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=56&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section outlines the company's exposure to market risks, specifically interest rate risk on its variable-rate debt and foreign currency exchange rate risk from its international operations in Australia, South Africa, and the United Kingdom - For every **one percent increase** in the average interest rate applicable to the Exchange Credit Agreement, the total annual interest expense would increase by approximately **$12 million**, based on **$1,144 million** outstanding borrowings and **$99.0 million** in outstanding letters of credit as of September 30, 2022[278](index=278&type=chunk) - A hypothetical **10% change** in historical foreign currency exchange rates (USD vs. AUD, ZAR, GBP) would have approximately a **$6.4 million effect** on financial position and a **$1.9 million impact** on results of operations during the nine months ended September 30, 2022[280](index=280&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=56&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, with the participation of the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2022, providing reasonable assurance for timely and accurate financial reporting. No material changes in internal control over financial reporting were identified during the quarter - The Company's disclosure controls and procedures were effective as of September 30, 2022, ensuring timely and accurate reporting of information required by the SEC[282](index=282&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2022[285](index=285&type=chunk) PART II - OTHER INFORMATION This section details other relevant information and disclosures [ITEM 1. LEGAL PROCEEDINGS](index=57&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section provides updates on various legal proceedings, including shareholder and derivative lawsuits, immigration detainee litigation across multiple states, and challenges to state legislation that conflict with federal contracts. The company maintains its strong defense against all claims and outlines its policy for accruing legal losses - The Company is actively defending against shareholder class action and three derivative lawsuits alleging securities law violations and breaches of fiduciary duties, with some claims dismissed and others stayed pending resolution of the class action[288](index=288&type=chunk)[289](index=289&type=chunk)[290](index=290&type=chunk) - Multiple class action lawsuits by immigration detainees in Colorado, Washington, and California allege minimum wage violations, human trafficking, and unjust enrichment related to voluntary work programs. The Company disputes these claims and is appealing an unfavorable **$23.2 million judgment** in Washington[291](index=291&type=chunk)[293](index=293&type=chunk)[294](index=294&type=chunk)[295](index=295&type=chunk)[296](index=296&type=chunk) - The Ninth Circuit Court of Appeals, in an en banc decision, ruled that California's AB-32, prohibiting private detention facilities, violates the U.S. Constitution's Supremacy Clause. A similar lawsuit challenging Washington's EHB 1090 is stayed pending the AB-32 appeal[297](index=297&type=chunk)[298](index=298&type=chunk) - Accruals for legal proceedings are established when a loss is probable and estimable, with quarterly reviews. The Company does not accrue for anticipated legal fees[300](index=300&type=chunk) [ITEM 1A. RISK FACTORS](index=59&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section refers readers to the comprehensive discussion of risk factors detailed in the company's Annual Report on Form 10-K for the year ended December 31, 2021, which could materially affect its business, financial condition, or future prospects - For a detailed discussion of risk factors, refer to Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2021[301](index=301&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=59&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This item is not applicable for the reporting period - Not applicable[302](index=302&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=59&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) This item is not applicable for the reporting period - Not applicable[302](index=302&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=59&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable for the reporting period - Not applicable[303](index=303&type=chunk) [ITEM 5. OTHER INFORMATION](index=59&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This item is not applicable for the reporting period - Not applicable[304](index=304&type=chunk) [ITEM 6. EXHIBITS](index=60&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with the Form 10-Q, including various indentures, credit agreements, intercreditor agreements, and certifications, which provide supporting documentation for the financial and operational disclosures - Key exhibits include Indentures for **10.500%** and **9.500% Senior Second Lien Secured Notes** due 2028, Supplemental Indentures for various Senior Notes, Amendment No. 4 and 5 to the Third Amended and Restated Credit Agreement, the new Credit Agreement, and various Intercreditor Agreements[306](index=306&type=chunk)[308](index=308&type=chunk) - Certifications under Sections 302 and 906 of the Sarbanes-Oxley Act by the CEO and CFO are also included[308](index=308&type=chunk) [SIGNATURES](index=62&type=section&id=SIGNATURES) This section contains the official signatures required for the submission of the Quarterly Report on Form 10-Q, confirming its authorization and accuracy - The report is signed by Brian R. Evans, Senior Vice President & Chief Financial Officer, on November 8, 2022[312](index=312&type=chunk)

The GEO Group, Inc. (NYSE:GEO) Q3 2022 Results Conference Call October 27, 2022 11:00 AM ET Company Participants Pablo Paez - Executive Vice President, Corporate Relations George Zoley - Executive Chairman of the Board Jose Gordo - Chief Executive Officer Brian Evans - Chief Financial Officer James Black - President, GEO Secure Services Ann Schlarb - President, GEO Care Conference Call Participants Joe Gomes - Noble Capital Mitra Ramgopal - Sidoti Jay McCanless - Wedbush Kirk Ludtke - Imperial Capital Opera ...