PART I - FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements for the three months ended March 31, 2019, and 2018, along with management's discussion and analysis, market risk disclosures, and controls and procedures Financial Statements This section presents the unaudited consolidated financial statements for the three months ended March 31, 2019, and 2018, including statements of operations, comprehensive income, balance sheets, and cash flows, with detailed notes Consolidated Statements of Operations The company reported an 8.1% increase in revenues to $610.7 million for Q1 2019, with net income attributable to The GEO Group, Inc. growing to $40.7 million, or $0.34 per diluted share Consolidated Statements of Operations (Q1 2019 vs Q1 2018) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Revenues | $610,667,000 | $564,917,000 | | Operating Income | $74,777,000 | $64,450,000 | | Net Income Attributable to The GEO Group, Inc. | $40,705,000 | $34,987,000 | | Diluted EPS | $0.34 | $0.29 | | Dividends Declared Per Share | $0.48 | $0.47 | Consolidated Statements of Comprehensive Income Total comprehensive income attributable to The GEO Group, Inc. was $43.0 million for Q1 2019, an increase from $36.3 million in the prior year, driven by higher net income and favorable foreign currency translation adjustments Consolidated Comprehensive Income (Q1 2019 vs Q1 2018) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Income | $40,649,000 | $34,920,000 | | Other Comprehensive Income, net of tax | $2,252,000 | $1,362,000 | | Comprehensive Income Attributable to The GEO Group, Inc. | $42,957,000 | $36,341,000 | Consolidated Balance Sheets As of March 31, 2019, total assets increased to $4.38 billion from $4.26 billion at year-end 2018, primarily due to the adoption of the new lease accounting standard, with total debt at approximately $2.79 billion Key Balance Sheet Items (As of March 31, 2019) | Metric | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $604,613,000 | $601,762,000 | | Total Assets | $4,384,066,000 | $4,258,118,000 | | Total Current Liabilities | $708,785,000 | $705,238,000 | | Long-Term Debt | $2,433,433,000 | $2,397,227,000 | | Total Liabilities | $3,357,162,000 | $3,218,214,000 | | Total Shareholders' Equity | $1,026,904,000 | $1,039,904,000 | Consolidated Statements of Cash Flows For Q1 2019, net cash provided by operating activities was $99.0 million, a significant increase from $69.7 million in the prior-year period, while investing and financing activities used $29.4 million and $30.7 million, respectively Cash Flow Summary (Q1 2019 vs Q1 2018) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $99,011,000 | $69,686,000 | | Net Cash Used in Investing Activities | ($29,369,000) | ($44,351,000) | | Net Cash Used in Financing Activities | ($30,675,000) | ($48,976,000) | | Net Increase (Decrease) in Cash | $39,333,000 | ($24,296,000) | Notes to Unaudited Consolidated Financial Statements The notes provide detailed information supporting the financial statements, covering the company's REIT operations, the adoption of the new lease accounting standard, debt instruments, segment performance, legal contingencies, and subsequent events - The company is a REIT specializing in the ownership, leasing, and management of correctional, detention, and reentry facilities, managing approximately 95,000 beds at 134 facilities worldwide as of March 31, 201922 - On January 1, 2019, the company adopted the new lease standard (ASU 2016-02), resulting in the recognition of operating right-of-use lease assets of approximately $140 million and lease liabilities of $147 million24114 - The company is defending itself against several class-action lawsuits filed by immigration detainees alleging violations of state minimum wage laws and the federal Trafficking Victims Protection Act, with a loss not considered probable or reasonably estimable at this stage9897 - Subsequent to the quarter end, GEO announced new contracts with the Federal Bureau of Prisons (BOP) to reactivate its 1,800-bed North Lake facility and a contract modification with ICE to reactivate its 1,000-bed South Louisiana facility134135 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2019 financial results, attributing revenue growth to increased federal client populations and new facility activations, analyzing segment performance, operating expenses, liquidity, capital resources, and debt structure, while noting growth opportunities tempered by potential budgetary constraints and public resistance Results of Operations Total revenue increased by 8.1% to $610.7 million in Q1 2019, driven by growth in U.S. Corrections & Detention and GEO Care segments, while International Services revenue decreased due to foreign exchange rates and a contract transition Revenue by Segment (Q1 2019 vs Q1 2018) | Segment | 2019 Revenue | 2018 Revenue | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | U.S. Corrections & Detention | $390,510,000 | $358,681,000 | $31,829,000 | 8.9% | | GEO Care | $153,843,000 | $140,078,000 | $13,765,000 | 9.8% | | International Services | $64,224,000 | $66,158,000 | ($1,934,000) | (2.9)% | | Facility Construction & Design | $2,090,000 | $0 | $2,090,000 | — % | | Total | $610,667,000 | $564,917,000 | $45,750,000 | 8.1% | - U.S. Corrections & Detention revenue growth was driven by a $20.5 million increase from higher federal client populations and rates, and $14.7 million from the activation of the Eagle Pass and Montgomery Processing Center facilities158 - GEO Care revenue growth was primarily due to a $15.8 million increase from higher client counts in ISAP and electronic monitoring services160 Financial Condition, Liquidity and Capital Resources The company's primary liquidity sources are cash from operations and its $900 million revolving credit facility, which had $308 million of additional borrowing capacity as of March 31, 2019, with total debt outstanding under the Senior Credit Facility at approximately $1.31 billion - As of March 31, 2019, the company had approximately $784 million outstanding under its Term Loan and $530 million under its Revolver, with an additional $308 million in borrowing capacity available on the Revolver181 - The company intends to refinance its Australian non-recourse Construction Facility, which had approximately $318 million outstanding, prior to its maturity in September 201918390 - Cash flow from operations increased to $99.0 million in Q1 2019 from $69.7 million in Q1 2018, driven by higher net income and favorable changes in working capital195 Non-GAAP Financial Measures This section provides definitions and reconciliations for non-GAAP financial measures, including Funds from Operations (FFO), Normalized FFO, and Adjusted Funds from Operations (AFFO), with AFFO at $80.3 million for Q1 2019, up from $69.8 million in Q1 2018 Reconciliation to Adjusted Funds from Operations (AFFO) | Metric (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net income attributable to The GEO Group, Inc. | $40,705 | $34,987 | | NAREIT Defined FFO | $60,305 | $52,277 | | Normalized Funds from Operations | $60,260 | $52,581 | | Adjusted Funds from Operations (AFFO) | $80,282 | $69,761 | Outlook Management is encouraged by growth opportunities but notes risks from government budget constraints and potential changes in public-private partnership policies, with plans to actively bid on new projects and an estimated $55 million in incremental annualized revenue from reactivating idle U.S. facilities - The company is marketing approximately 2,300 vacant beds at three idle facilities, which, if activated, could generate an estimated $55 million in incremental annualized revenue and $0.05 to $0.10 in EPS218 - International operations face mixed results: a new contract for the GEO Amey JV in Scotland is expected to generate ~$39 million in average annual revenue, but the company lost the Parklea contract and will transition the Arthur Gorrie facility to government operation in Australia213 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk on its variable-rate Credit Facility, where a 1% increase would raise annual interest expense by approximately $13 million, and to foreign currency exchange rate risk, where a 10% change would affect its financial position by approximately $5.3 million - The company is exposed to interest rate risk on its Credit Facility, where a 1% increase in the average interest rate would increase annual interest expense by approximately $13 million220 - The company is exposed to foreign currency risk in Australia, South Africa, and the UK, where a 10% change in historical currency rates would impact the financial position by approximately $5.3 million223 Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting during the quarter, other than those implemented for the new lease accounting standard (ASC 842) - Management concluded that as of the end of the period, the company's disclosure controls and procedures were effective224 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls, apart from those related to the adoption of the new lease standard226 PART II - OTHER INFORMATION This section covers legal proceedings, updated risk factors, unregistered sales of equity securities, and other required disclosures Legal Proceedings This section incorporates by reference information from Note 12 of the financial statements, detailing several class-action lawsuits filed by former immigration detainees concerning wage laws and the Trafficking Victims Protection Act, which the company intends to vigorously defend - The company is defending against class action lawsuits in Colorado, Washington, and California filed by immigration detainees alleging violations of state minimum wage laws and, in some cases, the federal Trafficking Victims Protection Act (TVPA)98229 Risk Factors This section updates the risk factors from the 2018 Form 10-K, identifying a material new risk: increasing public and financial institution resistance to public-private partnerships for correctional facilities, which could adversely affect future access to capital - A new risk factor highlights that public resistance and decisions by financial institutions (e.g., JP Morgan Chase, Wells Fargo) to stop financing the private corrections industry could materially and adversely affect the company's business, financial condition, and ability to obtain or refinance debt231 Unregistered Sales of Equity Securities and Use of Proceeds During the quarter, the company withheld 197,591 shares to satisfy tax withholding requirements for employees upon the vesting of restricted stock, with no shares repurchased under the $200 million stock buyback program, which has approximately $104.8 million remaining - The company withheld 197,591 shares at an average price of $23.60 per share to satisfy employee tax obligations on vested restricted stock233 - No shares of common stock were repurchased under the $200 million stock buyback program during the three months ended March 31, 2019, with approximately $104.8 million remaining available under the program234233 Defaults Upon Senior Securities Not applicable - Not applicable235 Mine Safety Disclosures Not applicable - Not applicable236 Other Information Not applicable - Not applicable237 Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, and XBRL data files - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL interactive data files238
The GEO (GEO) - 2019 Q1 - Quarterly Report