The GEO (GEO) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements 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) 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) 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 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) 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 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 - 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] - The company's 'GEO Continuum of Care' platform integrates enhanced rehabilitative programs, including cognitive behavioral treatment, post-release services, and academic/vocational classes[21] - 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] - 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] 2. Goodwill and Other Intangible Assets 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] 3. Financial Instruments 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] - 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] 4. Fair Value of Assets and Liabilities 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] - 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][34] 5. Restricted Cash and Cash Equivalents 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] - 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] 6. Shareholders' Equity 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] - 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] 7. Equity Incentive Plans 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] 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] - 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] 8. Earnings Per Share 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] 9. Derivative Financial Instruments - 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] - 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] - The total fair value of the swap assets as of September 30, 2023, was $6.1 million[60] 10. Debt 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] - The weighted average interest rate on outstanding borrowings under the Credit Agreement as of September 30, 2023, was 12.27%[75] - The company was in compliance with its debt covenants at September 30, 2023[100] 11. Commitments, Contingencies and Other Matters - 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][106] - 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][108][109][110][111][112] - 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][114][115] - The company estimates remaining capital requirements of $14.8 million for active capital projects to be spent through the remainder of 2023[121] - 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] - 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][125] - 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] 12. Business Segments and Geographic Information - The company operates through four reportable business segments: U.S. Secure Services, Electronic Monitoring and Supervision Services, Reentry Services, and International Services[127][128] 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][133][134] 13. Benefit Plans - 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] - 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] 14. Recent Accounting Pronouncements - Recent accounting pronouncements are not expected to have a material effect on the company's results of operations or financial position[140] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 - The report contains forward-looking statements subject to risks, uncertainties, and assumptions, and actual results may differ materially from forecasts[142] - 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][144][145] 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][149] 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 - The company operates through four reportable business segments: U.S. Secure Services, Electronic Monitoring and Supervision Services, Reentry Services, and International Services[152][153][154] Recent Developments - 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] - 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] - 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] Critical Accounting Policies - 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] Results of Operations 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 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] - Electronic Monitoring and Supervision Services revenue decreased due to lower average participant counts under the Intensive Supervision and Appearance Program (ISAP)[163] - 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] - 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] - 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][181] - 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][183] Comparison of Nine Months 2023 and Nine Months 2022 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] - Electronic Monitoring and Supervision Services revenue decreased due to lower average participant counts under ISAP[189] - 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] - 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] - 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][208] - 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][210] Financial Condition 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 - 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] - Estimated remaining capital requirements for existing active capital projects are $14.8 million for the remainder of 2023[216] - Capital needs are planned to be funded from cash on hand, cash from operations, borrowings under the Exchange Credit Agreement, and other financings[217] Liquidity and Capital Resources - 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] - The company was in compliance with its debt covenants as of September 30, 2023[224] - 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] Guarantor Financial Information - 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] 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 - The company does not have any off-balance sheet arrangements, except as discussed in the notes to its Unaudited Consolidated Financial Statements[229] Cash Flow - 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] - 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] - 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] - 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] Non-GAAP Measures - EBITDA is defined as net income adjusted for income tax, net interest expense, loss on extinguishment of debt, and depreciation and amortization[236] - 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] 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 - 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] - 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] - 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][248][249] - 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] - 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] - Operating expenses are expected to be impacted by new/idle facility openings and inflation on costs like personnel, utilities, insurance, medical, and food[252] - 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] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 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] - 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] ITEM 4. Controls and Procedures 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] - There were no significant changes in internal control over financial reporting during the quarter ended September 30, 2023[263] PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 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][266] - 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][270][271][272][273][274] - 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][276][277][278] - 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][280] ITEM 1A. Risk Factors 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] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is marked as not applicable for the reporting period - This item is not applicable[282] ITEM 3. Defaults Upon Senior Securities This item is marked as not applicable for the reporting period - This item is not applicable[283][284] ITEM 4. Mine Safety Disclosures This item is marked as not applicable for the reporting period - This item is not applicable[285] ITEM 5. Other Information 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] ITEM 6. Exhibits 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] SIGNATURES - The report was signed on November 8, 2023, by Brian R. Evans, Senior Vice President & Chief Financial Officer[292]