The GEO (US:GEO)2024-11-12 21:54PART I - FINANCIAL INFORMATION Financial Statements The unaudited consolidated financial statements for Q3 and the first nine months of 2024 are presented Consolidated Statements of Operations Q3 2024 revenues were flat while nine-month net income fell sharply due to a significant loss on debt extinguishment Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $603,125 | $602,785 | $1,815,982 | $1,804,885 | | Operating Income | $82,371 | $83,589 | $242,078 | $268,629 | | Net Income Attributable to GEO | $26,320 | $24,519 | $16,475 | $82,093 | | Diluted EPS | $0.19 | $0.16 | $0.11 | $0.55 | - A significant loss on extinguishment of debt of $85.3 million was recorded in the first nine months of 2024, heavily impacting year-to-date net income6 Consolidated Balance Sheets Total assets slightly decreased while the debt structure changed significantly due to major refinancing activities Balance Sheet Summary (in thousands) | Metric | September 30, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $484,498 | $528,505 | | Total Assets | $3,633,292 | $3,696,406 | | Total Current Liabilities | $441,638 | $437,464 | | Long-Term Debt, Net | $1,638,686 | $1,725,502 | | Total Liabilities | $2,318,754 | $2,406,092 | | Total Shareholders' Equity | $1,314,538 | $1,290,314 | Consolidated Statements of Cash Flows Operating cash flow slightly decreased, while investing and financing activities saw significant changes due to debt refinancing Cash Flow Summary for the Nine Months Ended September 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $223,772 | $230,076 | | Net cash used in investing activities | ($80,257) | ($35,770) | | Net cash used in financing activities | ($186,117) | ($128,849) | | Net (Decrease) Increase in Cash | ($41,464) | $62,341 | - Financing activities in 2024 were dominated by a major debt restructuring, including $1.72 billion in proceeds from new long-term debt and $1.87 billion in payments on existing long-term debt13 Notes to Unaudited Consolidated Financial Statements Notes detail a major debt refinancing, resolution of litigation, and the retirement of senior exchangeable notes - In April 2024, the company completed a major refinancing, issuing $1.275 billion in new senior notes and entering a new credit agreement to refinance approximately $1.5 billion of existing debt272857 - During Q2 and Q3 2024, the company retired $229.7 million of its 6.50% Exchangeable Senior Notes through private exchange transactions, using cash and issuing 12.43 million shares of common stock3687 - Shareholder derivative lawsuits were resolved and dismissed in September 2024; however, the company continues to face class-action lawsuits from immigration detainees regarding its Voluntary Work Program939497 - The company recorded a favorable adjustment of approximately $6.3 million in Q3 2024 after being accepted into New Mexico's managed audit program107 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial performance, revenue shifts, debt refinancing impacts, and the company's operational outlook Results of Operations Revenue grew slightly to $1.82 billion, driven by U.S. Secure Services but offset by a decline in Electronic Monitoring Revenue by Segment - Nine Months Ended September 30 (in thousands) | Segment | 2024 | 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | U.S. Secure Services | $1,203,945 | $1,123,507 | $80,438 | 7.2% | | Electronic Monitoring & Supervision | $251,596 | $335,158 | ($83,562) | (24.9)% | | Reentry Services | $206,902 | $203,192 | $3,710 | 1.8% | | International Services | $153,539 | $143,028 | $10,511 | 7.3% | | Total | $1,815,982 | $1,804,885 | $11,097 | 0.6% | - The decrease in Electronic Monitoring revenue was primarily due to lower average participant counts under the Intensive Supervision and Appearance Program (ISAP)174 - General and administrative expenses increased by $13.2 million (9.5%) in the first nine months of 2024, driven by transaction fees related to convertible note exchanges186 - A loss on extinguishment of debt of $85.3 million was recognized in the first nine months of 2024 due to the major debt refinancing188 Liquidity and Capital Resources Liquidity is supported by a new credit agreement from a major refinancing that extended debt maturities to 2029 and 2031 - The company successfully refinanced approximately $1.5 billion of existing debt in April 2024, extending its debt maturity profile significantly197198 - As of September 30, 2024, the company had $40.0 million in borrowings under its revolver and approximately $207.1 million in additional borrowing capacity84 Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | | Net income | $16,385 | $82,022 | | EBITDA | $335,788 | $370,567 | | Adjusted EBITDA | $355,530 | $378,554 | Outlook The company sees growth opportunities by leveraging available bed capacity and expanding technology-based services - The company is focused on developing new technology solutions for electronic monitoring, such as the recently launched VeriWatch, a wrist-worn GPS tracking device223 - The company has over 18,000 available beds in contracted and idle facilities to support future government capacity needs221 - If the company's 11,275 idle beds were activated, it could generate an estimated incremental annualized revenue of approximately $357 million226 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rate changes on variable-rate debt and foreign currency fluctuations - The company is exposed to interest rate risk on its Credit Agreement; a 1% increase in the average interest rate would increase annual interest expense by approximately $4 million228 - The company is exposed to foreign currency risk; a 10% change in currency rates would affect its financial position by approximately $8.2 million229 Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - Management concluded that as of September 30, 2024, the company's disclosure controls and procedures were effective230 - No significant changes were made to the company's internal control over financial reporting during the third quarter of 2024231 PART II - OTHER INFORMATION Legal Proceedings The company resolved shareholder litigation but continues to face lawsuits regarding its Voluntary Work Program and state laws - Shareholder derivative lawsuits were fully resolved and dismissed with prejudice following a court-approved settlement on September 6, 2024235 - The company is actively defending multiple lawsuits in Colorado, Washington, and California related to the Voluntary Work Program (VWP)236237 - GEO has initiated legal challenges against state laws in Washington, New Jersey, and California, arguing they improperly interfere with federal immigration detention operations239241242 Risk Factors No material changes to risk factors were reported, with reference made to the 2023 Annual Report on Form 10-K - The report directs readers to the detailed risk factors section in the 2023 Form 10-K, indicating no material updates during the quarter246 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred in Q3 2024, aside from minor tax-related share withholdings - In July 2024, 89 shares were withheld via net settlement to cover statutory tax requirements for employees on vested restricted stock247248 Other Information No directors or officers adopted or terminated Rule 10b5-1 trading plans during the third quarter of 2024 - There were no adoptions or terminations of Rule 10b5-1 trading plans by directors or officers during the quarter ended September 30, 2024250 Exhibits This section lists all exhibits filed with the Form 10-Q, including required CEO and CFO certifications - Filed exhibits include the Form of Exchange Agreement and required CEO/CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act252