The GEO Group Reports Third Quarter 2019 Results

  • 3Q19 Net Income Attributable to GEO of $0.39 per diluted share
  • 3Q19 Adjusted Net Income of $0.44 per diluted share
  • 3Q19 AFFO of $0.72 per diluted share
  • Updated FY19 guidance for Net Income Attributable to GEO of $1.45-$1.47 per diluted share and Adjusted Net Income of $1.60 to $1.62 per diluted share
  • Updated FY19 AFFO guidance of $2.75-$2.77 per diluted share
  • Repurchased $34 million of senior unsecured notes due 2022 and closed on $44 million, 15-year real estate loan bearing interest at 4.22% annually

BOCA RATON, Fla.–(BUSINESS WIRE)–The GEO Group, Inc. (NYSE: GEO) (“GEO”), a fully integrated equity real estate investment trust (“REIT”) and a leading provider of evidence-based offender rehabilitation and community reentry services around the globe, reported today its financial results for the third quarter of 2019.

Third Quarter 2019 Highlights

  • Net Income Attributable to GEO of $45.9 million or $0.39 per diluted share
  • Adjusted Net Income of $0.44 per diluted share
  • Net Operating Income of $172.2 million
  • Normalized FFO of $0.59 per diluted share
  • AFFO of $0.72 per diluted share

GEO reported third quarter 2019 net income attributable to GEO of $45.9 million, or $0.39 per diluted share, compared to $39.3 million, or $0.33 per diluted share, for the third quarter 2018. GEO reported total revenues for the third quarter 2019 of $631.6 million up from $583.5 million for the third quarter 2018. Third quarter 2019 results reflect a $1.2 million loss on real estate assets, pre-tax, $6.1 million in start-up expenses, pre-tax, and a $0.6 million gain on the extinguishment of debt, pre-tax, related to the repurchase of $34 million of senior unsecured notes due 2022. Excluding these items, GEO reported third quarter 2019 Adjusted Net Income of $52.9 million, or $0.44 per diluted share.

GEO reported third quarter 2019 Normalized Funds From Operations (“Normalized FFO”) of $70.3 million, or $0.59 per diluted share, compared to $62.9 million, or $0.52 per diluted share, for the third quarter 2018. GEO reported third quarter 2019 Adjusted Funds From Operations (“AFFO”) of $85.6 million, or $0.72 per diluted share, compared to $77.9 million, or $0.65 per diluted share, for the third quarter 2018.

George C. Zoley, Chairman and Chief Executive Officer of GEO, said, “We are pleased with our strong quarterly financial performance, which reflect strong fundamentals and growing earnings. During the quarter, we reactivated 4,600 previously idle beds, which are expected to drive future cash flow growth. We are proud to have published our first-ever Human Rights and ESG report in September, highlighting our long-standing commitment to respecting the human rights of all those in our care, as well as, the continued success of our GEO Continuum of Care enhanced rehabilitation and post-release programs. We believe that our current dividend payment is supported by stable and predictable cash flows, and we expect to continue to apply our growing excess cash flow towards paying down debt.”

First Nine Months 2019 Highlights

  • Net Income Attributable to GEO of $128.6 million or $1.08 per diluted share
  • Adjusted Net Income of $1.21 per diluted share
  • Net Operating Income of $503.2 million
  • Normalized FFO of $1.65 per diluted share
  • AFFO of $2.09 per diluted share

For the first nine months of 2019, GEO reported net income attributable to GEO of $128.6 million, or $1.08 per diluted share, compared to $111.7 million, or $0.92 per diluted share, for the first nine months of 2018. GEO reported total revenues for the first nine months of 2019 of $1.86 billion up from $1.73 billion for the first nine months of 2018. Results for the first nine months of 2019 reflect a $2.7 million loss on real estate assets, pre-tax, $8.7 million in start-up expenses, pre-tax, and a $5.1 million loss on the extinguishment of debt, pre-tax. Excluding these items, GEO reported Adjusted Net Income of $144.5 million, or $1.21 per diluted share, for the first nine months of 2019.

GEO reported Normalized Funds From Operations (“Normalized FFO”) for the first nine months of 2019 of $197.2 million, or $1.65 per diluted share, compared to $173.2 million, or $1.43 per diluted share, for the first nine months of 2018. GEO reported Adjusted Funds From Operations (“AFFO”) for the first nine months of 2019 of $249.3 million, or $2.09 per diluted share, compared to $219.9 million, or $1.82 per diluted share, for the first nine months of 2018.

2019 Financial Guidance

GEO updated its initial financial guidance for the full-year and its revenue guidance for the fourth quarter of 2019. GEO expects full-year 2019 total revenue to be approximately $2.49 billion. GEO expects full-year 2019 Net Income Attributable to GEO to be in a range of $1.45-$1.47 per diluted share and Adjusted Net Income to be in a range of $1.60-$1.62 per diluted share. GEO expects full-year 2019 AFFO to be in a range of $2.75-$2.77 per diluted share.

GEO expects fourth quarter 2019 revenues to be in a range of $629 million to $634 million. GEO expects fourth quarter 2019 Net Income Attributable to GEO to be in a range of $0.37 to $0.39 per diluted share and Adjusted Net Income to be in a range of $0.39 to $0.41 per diluted share. GEO expects fourth quarter 2019 AFFO to be in a range of $0.66 to $0.68 per diluted share.

Debt Repurchases and Financing Update

During the third quarter 2019, GEO repurchased approximately $34 million of senior unsecured notes due 2022. GEO also closed on a $44 million, 15-year real estate loan bearing interest at 4.22 percent annually. At the end of the third quarter, GEO had approximately $395 million in available borrowing capacity under its $900 million revolving credit facility, which matures in May 2024.

Quarterly Dividend

On October 14, 2019, GEO’s Board of Directors declared a quarterly cash dividend of $0.48 per share. The quarterly cash dividend was paid on November 1, 2019 to shareholders of record as of the close of business on October 25, 2019. The declaration of future quarterly cash dividends is subject to approval by GEO’s Board of Directors and to meeting the requirements of all applicable laws and regulations. GEO’s Board of Directors retains the power to modify its dividend policy as it may deem necessary or appropriate in the future.

Reconciliation Tables and Supplemental Information

GEO has made available Supplemental Information which contains reconciliation tables of Net Income Attributable to GEO to Net Operating Income, Net Income to EBITDAre (EBITDA for real estate) and Adjusted EBITDAre (Adjusted EBITDA for real estate), and Net Income Attributable to GEO to FFO, Normalized FFO and AFFO, along with supplemental financial and operational information on GEO’s business and other important operating metrics, and in this press release, Net Income Attributable to GEO to Adjusted Net Income. The reconciliation tables are also presented herein. Please see the section below titled “Note to Reconciliation Tables and Supplemental Disclosure – Important Information on GEO’s Non-GAAP Financial Measures” for information on how GEO defines these supplemental Non-GAAP financial measures and reconciles them to the most directly comparable GAAP measures. GEO’s Reconciliation Tables can be found herein and in GEO’s Supplemental Information available on GEO’s investor webpage at investors.geogroup.com.

Conference Call Information

GEO has scheduled a conference call and simultaneous webcast for today at 11:00 AM (Eastern Time) to discuss GEO’s third quarter 2019 financial results as well as its outlook. The call-in number for the U.S. is 1-877-250-1553 and the international call-in number is 1-412-542-4145. In addition, a live audio webcast of the conference call may be accessed on the Events and Webcasts section under the News, Events and Reports tab of GEO’s investor relations webpage at investors.geogroup.com. A replay of the webcast will be available on the website for one year. A telephonic replay of the conference call will be available until November 19, 2019 at 1-877-344-7529 (U.S.) and 1-412-317-0088 (International). The participant passcode for the telephonic replay is 10136408.

About The GEO Group

The GEO Group (NYSE: GEO) is the first fully integrated equity real estate investment trust specializing in the design, financing, development, and operation of secure facilities, processing centers, and community reentry centers in the United States, Australia, South Africa, and the United Kingdom. GEO is a leading provider of enhanced offender rehabilitation, post-release support, electronic monitoring, and community-based programs. GEO’s worldwide operations include the ownership and/or management of 130 facilities totaling approximately 96,000 beds, including projects under development, with a growing workforce of approximately 23,000 professionals.

Note to Reconciliation Tables and Supplemental Disclosure –

Important Information on GEO’s Non-GAAP Financial Measures

Net Operating Income, EBITDAre, Adjusted EBITDAre, Funds from Operations, Normalized Funds from Operations, Adjusted Funds from Operations, and Adjusted Net Income are non-GAAP financial measures that are presented as supplemental disclosures. GEO has presented herein certain forward-looking statements about GEO’s future financial performance that include non-GAAP financial measures, including Adjusted Net Income, Adjusted EBITDAre, Net Operating Income, FFO, Normalized FFO, and AFFO. The determination of the amounts that are included or excluded from these non-GAAP financial measures is a matter of management judgment and depends upon, among other factors, the nature of the underlying expense or income amounts recognized in a given period. While we have provided a high level reconciliation for the guidance ranges for full year 2019, we are unable to present a more detailed quantitative reconciliation of the forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures because management cannot reliably predict all of the necessary components of such GAAP measures. The quantitative reconciliation of the forward-looking non-GAAP financial measures will be provided for completed annual and quarterly periods, as applicable, calculated in a consistent manner with the quantitative reconciliation of non-GAAP financial measures previously reported for completed annual and quarterly periods.

Net Operating Income is defined as revenues less operating expenses, excluding depreciation and amortization expense, general and administrative expenses, real estate related operating lease expense, and start-up expenses, pre-tax. Net Operating Income is calculated as net income adjusted by subtracting equity in earnings of affiliates, net of income tax provision, and by adding income tax (benefit) provision, interest expense, net of interest income, gain/loss on extinguishment of debt, depreciation and amortization expense, general and administrative expenses, real estate related operating lease expense, gain/loss on real estate assets, pre-tax, and start-up expenses, pre-tax.

EBITDAre (EBITDA for real estate) is defined as net income adjusted by adding provisions for income tax, interest expense, net of interest income, depreciation and amortization, and gain/loss on real estate assets, pre-tax. Adjusted EBITDAre (Adjusted EBITDA for real estate) is defined as EBITDAre adjusted for net loss attributable to non-controlling interests, stock-based compensation expenses, pre-tax, and certain other adjustments as defined from time to time, including for the periods presented start-up expenses, pre-tax, legal related expenses, pre-tax, and escrow releases, pre-tax. Given the nature of our business as a real estate owner and operator, we believe that EBITDAre and Adjusted EBITDAre are helpful to investors as measures of our operational performance because they provide an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business. We believe that by removing the impact of our asset base (primarily depreciation and amortization) and excluding certain non-cash charges, amounts spent on interest and taxes, and certain other charges that are highly variable from year to year, EBITDAre and Adjusted EBITDAre provide our investors with performance measures that reflect the impact to operations from trends in occupancy rates, per diem rates and operating costs, providing a perspective not immediately apparent from net income attributable to GEO.

The adjustments we make to derive the non-GAAP measures of EBITDAre and Adjusted EBITDAre exclude items which may cause short-term fluctuations in income from continuing operations and which we do not consider to be the fundamental attributes or primary drivers of our business plan and they do not affect our overall long-term operating performance. EBITDAre and Adjusted EBITDAre provide disclosure on the same basis as that used by our management and provide consistency in our financial reporting, facilitate internal and external comparisons of our historical operating performance and our business units and provide continuity to investors for comparability purposes.

Funds From Operations, or FFO, is defined in accordance with standards established by the National Association of Real Estate Investment Trusts, or NAREIT, which defines FFO as net income/loss attributable to common shareholders (computed in accordance with United States Generally Accepted Accounting Principles), excluding real estate related depreciation and amortization, excluding gains and losses from the cumulative effects of accounting changes, extraordinary items and sales of properties, and including adjustments for unconsolidated partnerships and joint ventures. Normalized Funds from Operations, or Normalized FFO, is defined as FFO adjusted for certain items which by their nature are not comparable from period to period or that tend to obscure GEO’s actual operating performance, including for the periods presented net Tax Cuts and Jobs Act (“TCJA”) impact, gain/loss on the extinguishment of debt, start-up expenses, legal related expenses, escrow releases, and tax effect of adjustments to FFO.

Adjusted Funds From Operations, or AFFO, is defined as Normalized FFO adjusted by adding non-cash expenses such as non-real estate related depreciation and amortization, stock based compensation expense, the amortization of debt issuance costs, discount and/or premium and other non-cash interest, and by subtracting recurring consolidated maintenance capital expenditures.

Adjusted Net Income is defined as Net Income Attributable to GEO adjusted for certain items which by their nature are not comparable from period to period or that tend to obscure GEO’s actual operating performance, including for the periods presented net TCJA impact, gain/loss on real estate assets, gain/loss on the extinguishment of debt, start-up expenses, legal related expenses, escrow releases, and tax effect of adjustments to Net Income Attributable to GEO.

Because of the unique design, structure and use of our correctional facilities, processing centers, and reentry centers, we believe that assessing the performance of our correctional facilities, processing centers, and reentry centers without the impact of depreciation or amortization is useful and meaningful to investors. Although NAREIT has published its definition of FFO, companies often modify this definition as they seek to provide financial measures that meaningfully reflect their distinctive operations. We have modified FFO to derive Normalized FFO and AFFO that meaningfully reflect our operations.

Our assessment of our operations is focused on long-term sustainability. The adjustments we make to derive the non-GAAP measures of Normalized FFO and AFFO exclude items which may cause short-term fluctuations in net income attributable to GEO but have no impact on our cash flows, or we do not consider them to be fundamental attributes or the primary drivers of our business plan and they do not affect our overall long-term operating performance. We may make adjustments to FFO from time to time for certain other income and expenses that do not reflect a necessary component of our operational performance on the basis discussed above, even though such items may require cash settlement. Because FFO, Normalized FFO and AFFO exclude depreciation and amortization unique to real estate as well as non-operational items and certain other charges that are highly variable from year to year, they provide our investors with performance measures that reflect the impact to operations from trends in occupancy rates, per diem rates, operating costs and interest costs, providing a perspective not immediately apparent from Net Income Attributable to GEO.

We believe the presentation of FFO, Normalized FFO and AFFO provide useful information to investors as they provide an indication of our ability to fund capital expenditures and expand our business. FFO, Normalized FFO and AFFO provide disclosure on the same basis as that used by our management and provide consistency in our financial reporting, facilitate internal and external comparisons of our historical operating performance and our business units and provide continuity to investors for comparability purposes. Additionally, FFO, Normalized FFO and AFFO are widely recognized measures in our industry as a real estate investment trust.

Safe-Harbor Statement

This press release contains forward-looking statements regarding future events and future performance of GEO that involve risks and uncertainties that could materially affect actual results, including statements regarding financial guidance for the full year and fourth quarter of 2019, the assumptions underlying such guidance, the continued expansion and success of our GEO Continuum of Care, and statements regarding growth opportunities and allocation of capital to enhance long-term value for our shareholders and applying excess cash towards paying down debt. Factors that could cause actual results to vary from current expectations and forward-looking statements contained in this press release include, but are not limited to: (1) GEO’s ability to meet its financial guidance for 2019 given the various risks to which its business is exposed; (2) GEO’s ability to declare future quarterly cash dividends and the timing and amount of such future cash dividends; (3) GEO’s ability to successfully pursue further growth and continue to create shareholder value; (4) GEO’s ability to obtain future financing on acceptable terms; (5) GEO’s ability to access the capital markets in the future on satisfactory terms or at all; (6) risks associated with GEO’s ability to control operating costs associated with contract start-ups; (7) GEO’s ability to timely open facilities as planned, profitably manage such facilities and successfully integrate such facilities into GEO’s operations without substantial costs; (8) GEO’s ability to win management contracts for which it has submitted proposals and to retain existing management contracts; (9) GEO’s ability to sustain company-wide occupancy rates at its facilities; (10) the impact of any future regulations or guidance on the Tax Cuts and Jobs Act; (11) GEO’s ability to remain qualified as a REIT; (12) the incurrence of REIT related expenses; and (13) other factors contained in GEO’s Securities and Exchange Commission periodic filings, including its Form 10-K, 10-Q and 8-K reports.

Third quarter and first nine months of 2019 financial tables to follow:

   

Condensed Consolidated Balance Sheets*

(Unaudited)

   
As of   As of
September 30, 2019   December 31, 2018
(unaudited)   (unaudited)
ASSETS  
   
Cash and cash equivalents

$

54,030

 

$

31,255

Restricted cash and cash equivalents

33,536

 

51,678

Accounts receivable, less allowance for doubtful accounts

377,984

 

445,526

Contract receivable, current portion

8,193

 

15,535

Prepaid expenses and other current assets

43,856

 

57,768

Total current assets

$

517,599

 

$

601,762

   
Restricted Cash and Investments

33,728

 

22,431

Property and Equipment, Net

2,155,498

 

2,158,610

Contract Receivable

353,010

 

368,178

Operating Lease Right-of-Use Assets, Net

125,718

 

Assets Held for Sale

3,761

 

2,634

Deferred Income Tax Assets

29,924

 

29,924

Intangible Assets, Net (including goodwill)

991,948

 

1,008,719

Other Non-Current Assets

71,693

 

65,860

   
Total Assets

$

4,282,879

 

$

4,258,118

   
LIABILITIES AND SHAREHOLDERS’ EQUITY  
   
Accounts payable

$

96,263

 

$

93,032

Accrued payroll and related taxes

57,774

 

76,009

Accrued expenses and other current liabilities

202,356

 

204,170

Operating lease liabilities, current portion

28,795

 

Current portion of finance lease obligations, long-term debt, and non-recourse debt

23,417

 

332,027

Total current liabilities

$

408,605

 

$

705,238

   
Deferred Income Tax Liabilities

13,681

 

13,681

Other Non-Current Liabilities

88,159

 

82,481

Operating Lease Liabilities

99,271

 

Finance Lease Liabilities

3,403

 

4,570

Long-Term Debt

2,355,724

 

2,397,227

Non-Recourse Debt

307,032

 

15,017

Total Shareholders’ Equity

1,007,004

 

1,039,904

   
Total Liabilities and Shareholders’ Equity

$

4,282,879

 

$

4,258,118

   
* all figures in ‘000s
   
       

Condensed Consolidated Statements of Operations*

(Unaudited)

       
Q3 2019   Q3 2018   YTD 2019   YTD 2018
(unaudited)   (unaudited)   (unaudited)   (unaudited)
       
Revenues

$

631,579

 

$

583,530

 

$

1,856,212

 

$

1,731,956

Operating expenses

472,513

 

434,806

 

1,382,678

 

1,299,312

Depreciation and amortization

32,419

 

31,297

 

97,240

 

94,536

General and administrative expenses

48,488

 

47,647

 

142,183

 

136,927

       
Operating income

78,159

 

69,780

 

234,111

 

201,181

       
Interest income

6,686

 

8,428

 

23,127

 

26,194

Interest expense

(36,645)

 

(37,991)

 

(115,857)

 

(110,205)

Gain/(Loss) on extinguishment of debt

594

 

 

(5,147)

 

(574)

       
Income before income taxes and equity in earnings of affiliates

48,794

 

40,217

 

136,234

 

116,596

       
Provision for income taxes

5,137

 

3,723

 

14,509

 

12,193

Equity in earnings of affiliates, net of income tax provision

2,228

 

2,735

 

6,645

 

7,071

       
Net income

45,885

 

39,229

 

128,370

 

111,474

       
Less: Net loss attributable to noncontrolling interests

47

 

60

 

181

 

223

       
Net income attributable to The GEO Group, Inc.

$

45,932

 

$

39,289

 

$

128,551

 

$

111,697

       
       
Weighted Average Common Shares Outstanding:      
Basic

119,209

 

119,681

 

119,052

 

120,567

Diluted

119,282

 

120,302

 

119,314

 

121,055

       
Net income per Common Share Attributable to The GEO Group, Inc. :      
       
Basic:      
Net income per share — basic

$

0.39

 

$

0.33

 

$

1.08

 

$

0.93

       
Diluted:      
Net income per share — diluted

$

0.39

 

$

0.33

 

$

1.08

 

$

0.92

       
Regular Dividends Declared per Common Share

$

0.48

 

$

0.47

 

$

1.44

 

$

1.41

       
* all figures in ‘000s, except per share data
       
 

Reconciliation of Net Income Attributable to GEO to Adjusted Net Income

(In thousands, except per share data)(Unaudited)

                   
      Q3 2019   Q3 2018   YTD 2019   YTD 2018
                   
Net Income attributable to GEO    

 $     45,932

 

 $     39,289

 

 $   128,551

 

 $   111,697

                   
Add (Subtract):                   
        Net Tax Cuts and Jobs Act Impact    

 – 

 

 – 

 

 – 

 

             304

        (Gain)/Loss on extinguishment of debt    

           (594)

 

 – 

 

          5,147

 

             574

        Start-up expenses, pre-tax    

          6,077

 

          3,728

 

          8,718

 

          3,826

        Legal related expenses, pre-tax    

 – 

 

 – 

 

 – 

 

          4,500

        Escrow releases, pre-tax    

 – 

 

 – 

 

 – 

 

        (2,273)

        (Gain)/Loss on real estate assets, pre-tax    

          1,196

 

          2,209

 

          2,693

 

          2,701

        Tax effect of adjustments to Net Income attributable to GEO    

             248

 

               74

 

           (650)

 

           (639)

                   
Adjusted Net Income    

 $     52,859

 

 $     45,300

 

 $   144,459

 

 $   120,690

                   
Weighted average common shares outstanding – Diluted     

      119,282

 

      120,302

 

      119,314

 

      121,055

                   
Adjusted Net Income Per Diluted Share    

 $         0.44

 

 $         0.38

 

 $         1.21

 

 $         1.00

Contacts

Pablo E. Paez

Executive Vice President, Corporate Relations

(866) 301 4436

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