The GEO Group Reports Second Quarter 2014 Results

  • 2Q14 Net Income per Diluted Share of $0.54
  • 2Q14 Normalized FFO of $0.72 per Diluted Share; 2Q14 AFFO of $0.85 per Diluted Share
  • Increased 2014 AFFO Guidance to $229-$234 million or $3.18 to $3.24 per Diluted Share
  • Quarterly Dividend of $0.57 per Share

BOCA RATON, Fla.--()--The GEO Group, Inc. (NYSE:GEO) (“GEO”), the first fully integrated equity real estate investment trust specializing in the design, financing, development, and operation of correctional, detention, and community reentry facilities around the globe, reported today its financial results for the second quarter 2014.

Second Quarter 2014 Highlights

  • Net Income per Diluted Share of $0.54
  • Net Operating Income of $119.2 million
  • Normalized FFO of $0.72 per Diluted Share
  • AFFO of $0.85 per Diluted Share

For the second quarter 2014, Normalized Funds From Operations (“Normalized FFO”) increased to $51.9 million, or $0.72 per diluted share, from $43.9 million, or $0.61 per diluted share, for the second quarter 2013. Second quarter 2014 Adjusted Funds From Operations (“AFFO”) increased to $60.9 million, or $0.85 per diluted share, from $52.3 million, or $0.73 per diluted share, for the second quarter 2013. For the second quarter 2014, Net Operating Income increased to $119.2 million from $108.5 million for the second quarter 2013.

George C. Zoley, Chairman and Chief Executive Officer of GEO, said: “We are very pleased with our second quarter results and improved outlook for 2014, which continue to reflect robust operational and financial performance from our diversified business units. Our strong quarterly results have been driven by improved occupancy across our diversified real estate assets. Since the beginning of the year, our GEO Corrections & Detention division has activated new contracts or has announced contract awards totaling more than 6,000 correctional and detention beds in the U.S. and internationally. Additionally, our GEO Community Services division has continued to expand with the opening of approximately a dozen new day reporting centers and the provision of electronic monitoring services in several new markets. We continue to be optimistic regarding the growth opportunities in our industry which we expect will continue to create value for our shareholders.”

GEO reported total revenues for the second quarter 2014 of $412.8 million up from total revenues of $381.7 million for the second quarter 2013. GEO reported second quarter 2014 net income of $38.9 million, or $0.54 per diluted share, up from $34.2 million, or $0.48 per diluted share for the second quarter 2013.

Compared to second quarter 2013, GEO’s second quarter 2014 results reflect the activation of 1,500 company-owned beds at three facilities in California in November 2013; the assumption of management at three managed-only facilities totaling 3,854 beds in the State of Florida in February 2014; a 400-bed contract capacity expansion at the company-owned Rio Grande Detention Center in Texas during the first quarter 2014; the opening of new day reporting centers in Pennsylvania and California during the fourth quarter 2013 and first quarter 2014; and improved occupancy rates across GEO’s diversified real estate portfolio.

First Six Months 2014 Highlights

  • Net Income per Diluted Share of $0.93
  • Net Operating Income of $226.7 million
  • Normalized FFO of $1.30 per Diluted Share
  • AFFO of $1.56 per Diluted Share

For the first six months of 2014, Normalized FFO increased to $93.3 million, or $1.30 per diluted share, from $83.6 million, or $1.17 per diluted share, for the first six months of 2013. AFFO for the first six months of 2014 increased to $112.3 million, or $1.56 per diluted share, from $102.0 million, or $1.43 per diluted share, for the first six months of 2013. For the first six months of 2014, Net Operating Income increased to $226.7 million from $210.8 million for the first six months of 2013.

GEO reported total revenues for the first six months of 2014 of $806.0 million up from total revenues of $758.7 million for the first six months of 2013. GEO reported net income of $66.9 million, or $0.93 per diluted share, for the first six months of 2014, up from $57.6 million, or $0.81 per diluted share for the first six months of 2013.

Compared to the first six months of 2013, GEO’s results for the first six months of 2014 reflect the activation of 1,500 company-owned beds at three facilities in California in November 2013; the assumption of management at three managed-only facilities totaling 3,854 beds in the State of Florida in February 2014; a 400-bed contract capacity expansion at the company-owned Rio Grande Detention Center in Texas during the first quarter 2014; the opening of new day reporting centers in Pennsylvania and California during the fourth quarter 2013 and first quarter 2014; and improved occupancy rates across GEO’s diversified real estate portfolio.

Net Operating Income, Funds From Operations (“FFO”), Normalized FFO, and AFFO are widely used non-GAAP supplemental financial measures of REIT performance. Please see the section of this press release below entitled “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.

2014 Financial Guidance

GEO increased its financial guidance for the full-year 2014 and issued guidance for the third and fourth quarters 2014. GEO increased its full-year 2014 AFFO guidance to a range of $3.18 to $3.24 per diluted share, or $229 million to $234 million. On a GAAP basis, GEO increased its net income guidance for the full year 2014 to a range of $1.93 to $1.99 per diluted share.

GEO increased full-year 2014 revenue guidance to a range of $1.626 billion to $1.636 billion. GEO increased its full-year 2014 Net Operating Income guidance to a range of $465 million to $470 million. GEO increased its full-year 2014 Adjusted EBITDA guidance to a range of $338 million to $343 million.

For the third quarter 2014, GEO expects AFFO to be in a range of $0.81 to $0.84 per diluted share. On a GAAP basis, GEO expects third quarter 2014 net income per diluted share to be in a range of $0.50 to $0.53 and third quarter 2014 revenues to be in a range of $410 million to $415 million.

For the fourth quarter 2014, GEO expects AFFO to be in a range of $0.81 to $0.84 per diluted share. On a GAAP basis, GEO expects fourth quarter 2014 net income per diluted share to be in a range of $0.50 to $0.53 and fourth quarter 2014 revenues to be in a range of $410 million to $415 million.

GEO’s guidance reflects the expected activation and related start-up expenses of the company-owned, 300-bed McFarland Female Community Reentry Facility in California during the third quarter 2014 and the company-owned, 400-bed Alexandria Transfer Center in Louisiana during the fourth quarter 2014.

Quarterly Dividend

On August 5, 2014, GEO’s Board of Directors declared a quarterly cash dividend of $0.57 per share. The quarterly cash dividend will be paid on August 29, 2014 to shareholders of record as of the close of business on August 18, 2014. 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 Disclosure

GEO has made available a Supplemental Disclosure which contains reconciliation tables of Net Income to Net Operating Income, EBITDA, and Adjusted EBITDA, and Net Income to FFO, Normalized FFO and AFFO along with supplemental financial and operational information on GEO’s business segments and other important operating metrics. Please see the section of this press release 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 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 Disclosure which is available on GEO’s Investor Relations webpage at www.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 second quarter 2014 financial results as well as its progress and outlook. The call-in number for the U.S. is 1-888-679-8033 and the international call-in number is 1-617-213-4846. The conference call participant passcode is 86120917. In addition, a live audio webcast of the conference call may be accessed on the Conference Calls/Webcasts section of GEO’s investor relations webpage at www.geogroup.com. A replay of the audio webcast will be available on the website for one year. A telephonic replay of the conference call will be available until August 13, 2014 at 1-888-286-8010 (U.S.) and 1-617-801-6888 (International). The conference call participant passcode for the telephonic replay is 98910003.

About The GEO Group

The GEO Group, Inc. (NYSE: GEO) is the first fully integrated equity real estate investment trust specializing in the design, financing, development, and operation of correctional, detention, and community reentry facilities around the globe. GEO is the world's leading provider of diversified correctional, detention, community reentry, and electronic monitoring services to government agencies worldwide with operations in the United States, Australia, South Africa, and the United Kingdom. GEO's worldwide operations include the ownership and/or management of 98 facilities totaling approximately 78,500 beds, including projects under development, with a growing workforce of approximately 18,000 professionals.

Note to Reconciliation Tables and Supplemental Disclosure –

Important Information on GEO’s Non-GAAP Financial Measures

Net Operating Income, EBITDA, Adjusted EBITDA, Funds from Operations, Normalized Funds from Operations and Adjusted Funds from Operations 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, Net Operating Income, EBITDA, Adjusted EBITDA, FFO, Normalized FFO, and AFFO. The determination of the amounts that are 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 2014, 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 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, and real estate related operating lease expense. Net Operating Income is calculated as net income adjusted by subtracting equity in earnings of affiliates, net of tax, and by adding income tax provision, interest expense, net of interest income, depreciation and amortization expense, general and administrative expenses, and real estate related operating lease expense.

EBITDA is defined as Net Operating Income adjusted by subtracting general and administrative expenses, real estate related operating lease expense, and loss on extinguishment of debt, pre-tax, and by adding equity in earnings of affiliates, pre-tax. Adjusted EBITDA is defined as EBITDA adjusted for net income/loss attributable to non-controlling interests, non-cash stock-based compensation expenses, pre-tax, and certain other adjustments as defined from time to time, including for the periods presented REIT conversion related expenses, pre-tax, and loss on extinguishment of debt, pre-tax. Given the nature of our business as a real estate owner and operator, we believe that EBITDA and Adjusted EBITDA 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, EBITDA and Adjusted EBITDA 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 income from continuing operations. The adjustments we make to derive the non-GAAP measures of EBITDA and Adjusted EBITDA 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. EBITDA and Adjusted EBITDA 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 REIT conversion related expenses, net of tax, tax benefit related to IRS settlement and REIT conversion, and loss on extinguishment of debt, net of tax.

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 and the amortization of debt costs and other non-cash interest and by subtracting recurring consolidated maintenance capital expenditures.

Because of the unique design, structure and use of our correctional facilities, we believe that assessing the performance of our correctional facilities 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 income from continuing operations 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 income from continuing operations. 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 third quarter and fourth quarter 2014 and full year 2014, growth opportunities, and the expected activation of certain facilities in the second half of 2014. 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 2014 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) risks associated with GEO’s ability to control operating costs associated with contract start-ups; (5) 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; (6) GEO’s ability to win management contracts for which it has submitted proposals and to retain existing management contracts; (7) GEO’s ability to obtain future financing on acceptable terms; (8) GEO’s ability to sustain company-wide occupancy rates at its facilities; (9) GEO’s ability to access the capital markets in the future on satisfactory terms or at all; (10) GEO’s ability to remain qualified as a REIT; (11) the incurrence of REIT related expenses; and (12) other factors contained in GEO’s Securities and Exchange Commission periodic filings, including its Form 10-K, 10-Q and 8-K reports.

Second quarter and first six months 2014 financial tables to follow:

Condensed Consolidated Statements of Operations

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

 

 
              Q2 2014   Q2 2013     YTD 2014   YTD 2013
 
Revenues $ 412,843 $ 381,653 $ 805,980 $ 758,684
Operating expenses 300,058 279,246 591,981 560,043
Depreciation and amortization 23,748 23,657 47,890 46,592
General and administrative expenses 28,148 27,363 56,650 59,403
Operating income 60,889 51,387 109,459 92,646
Interest income and other 824 1,165 1,556 2,349
Interest expense (20,602) (21,103) (41,254) (40,444)
Loss on extinguishment of debt - (5,527) - (5,527)
Income before income taxes and equity in earnings of affiliates 41,111 25,922 69,761 49,024
Provision for (benefit from) income taxes 3,387 (7,268) 5,525 (6,387)
Equity in earnings of affiliates, net of income tax provision 1,174 1,029 2,658 2,246
Net income 38,898 34,219 66,894 57,657
Less: Net income attributable to noncontrolling interests - (12) (6) (30)
Net income attributable to The GEO Group, Inc. $ 38,898 $ 34,207 $ 66,888 $ 57,627
 
 
Weighted Average Common Shares Outstanding:
Basic 71,749 71,083 71,599 70,967
Diluted 71,994 71,607 71,875 71,510
 
Income per Common Share Attributable to The GEO Group, Inc. :
 
Net income per share — basic $ 0.54 $ 0.48 $ 0.93 $ 0.81
 
Net income per share — diluted $ 0.54 $ 0.48 $ 0.93 $ 0.81
 

Condensed Consolidated Balance Sheets

(In thousands)
(Unaudited)

 

 
                  As of

June 30, 2014

    December 31, 2013
ASSETS (Unaudited)
 
Current Assets
 
Cash and cash equivalents $ 37,360 $ 52,125
Restricted cash and investments 14,448 11,518
Accounts receivable, less allowance for doubtful accounts 270,965 250,530
Current deferred income tax assets 20,936 20,936
Prepaid expenses and other current assets 39,998 49,236
Total current assets 383,707 384,345
Restricted Cash and Investments 24,780 18,349
Property and Equipment, Net 1,737,357 1,727,798
Direct Finance Lease Receivable 14,361 16,944
Non-Current Deferred Income Tax Assets 4,821 4,821
Intangible Assets, Net (including goodwill) 657,086 653,596
Other Non-Current Assets 83,271 83,511
Total Assets $ 2,905,383 $ 2,889,364
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current Liabilities
 
Accounts payable $ 56,467 $ 47,286
Accrued payroll and related taxes 39,807 38,726
Accrued expenses 127,839 114,950
Current portion of capital lease obligations, long-term debt, and non-recourse debt 22,837 22,163
Total current liabilities 246,950 223,125
 
Non-Current Deferred Income Tax Liabilities 14,689 14,689
Other Non-Current Liabilities 70,342 64,961
Capital Lease Obligations 10,401 10,924
Long-Term Debt 1,479,027 1,485,536
Non-Recourse Debt 63,894 66,153
Shareholders' Equity 1,020,080 1,023,976
Total Liabilities and Shareholders' Equity $ 2,905,383 $ 2,889,364
 

Reconciliation of Net Income to FFO, Normalized FFO, and AFFO

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

 

     
Q2 2014 Q2 2013 YTD 2014 YTD 2013
 
Net Income attributable to GEO $ 38,898 $ 34,207 $ 66,888 $ 57,627
Add:
Real Estate Related Depreciation and Amortization 12,985 12,727 26,366 25,251
       
Equals: NAREIT defined FFO $ 51,883 $ 46,934 $ 93,254 $ 82,878
 
Add:
REIT conversion related expenses, net of tax - 1,030 - 4,697
Tax benefit related to IRS settlement & REIT conversion - (8,416) - (8,416)
Loss on extinguishment of debt, net of tax - 4,396 - 4,396
 
       
Equals: FFO, normalized $ 51,883 $ 43,944 $ 93,254 $ 83,555
 
Add:
Non-Real Estate Related Depreciation & Amortization 10,763 10,930 21,524 21,341
Consolidated Maintenance Capital Expenditures (4,961) (5,679) (9,381) (9,296)
Stock Based Compensation Expenses 2,067 1,660 4,533 3,345
Amortization of Debt Costs and Other Non-Cash Interest 1,175 1,478 2,399 3,015
 
       
Equals: AFFO $ 60,927 $ 52,333 $ 112,329 $ 101,960
 
Weighted average common shares outstanding - Diluted 71,994 71,607 71,875 71,510
 
 
FFO/AFFO per Share - Diluted
 
Normalized FFO Per Diluted Share $ 0.72 $ 0.61 $ 1.30 $ 1.17
 
AFFO Per Diluted Share $ 0.85 $ 0.73 $ 1.56 $ 1.43
 

Reconciliation of Net Income to Net Operating Income and Adjusted EBITDA

(In thousands)
(Unaudited)
 

 

        Q2 2014 Q2 2013   YTD 2014   YTD 2013
 
Net income attributable to GEO $ 38,898 $ 34,207 $ 66,888 $ 57,627
Less
Net (income)/loss attributable to noncontrolling interests - (12) (6) (30)
Net Income $ 38,898 $ 34,219 $ 66,894 $ 57,657
 
 
Add
Equity in earnings of affiliates, net of income tax provision (1,174) (1,029) (2,658) (2,246)
Income tax (benefit)/provision 3,387 (7,268) 5,525 (6,387)
Interest expense, net of interest income 19,778 19,938 39,698 38,095
Loss on extinguishment of debt - 5,527 - 5,527
Depreciation and amortization 23,748 23,657 47,890 46,592
General and administrative expenses 28,148 27,363 56,650 59,403
Net Operating Income, net of operating lease obligations $ 112,785 $ 102,407 $ 213,999 $ 198,641
 
 
Add: Operating lease expense, real estate 6,406 6,124 12,701 12,197
Net Operating Income (NOI) $ 119,191 $ 108,531 $ 226,700 $ 210,838
 
 
Less:
General and administrative expenses 28,148 27,363 56,650 59,403
Operating lease expense, real estate 6,406 6,124 12,701 12,197
Loss on extinguishment of debt, pre-tax - 5,527 - 5,527
Equity in earnings of affiliates, pre-tax (1,828) (1,446) (3,861) (3,140)
EBITDA $ 86,466 $ 70,963 $ 161,210 $ 136,851
 
Adjustments
Net income attributable to non-controlling interests - (12) (6) (30)
Stock based compensation expenses, pre-tax 2,067 1,660 4,533 3,345
REIT conversion related expenses, pre-tax - 1,466 - 7,438
Loss on extinguishment of debt, pre-tax - 5,527 - 5,527
Adjusted EBITDA $ 88,533 $ 79,604 $ 165,737 $ 153,131
 

2014 Outlook/Reconciliation

(In thousands, except per share data)
(Unaudited)
 
  Full Year 2014 Guidance
   
Net Income $ 139,000 to $ 144,000
Real Estate Related Depreciation and Amortization 53,000 53,000
Funds from Operations (FFO) $ 192,000 to $ 197,000
 
Adjustments - -
Normalized Funds from Operations $ 192,000 to $ 197,000
 
Non-Real Estate Related Depreciation and Amortization 44,000 44,000
Consolidated Maintenance Capex (21,000) (21,000)
Non-Cash Stock Based Compensation and Non-Cash Interest Expense 14,000 14,000
Adjusted Funds From Operations (AFFO) $ 229,000 to $ 234,000
 
Net Cash Interest Expense 74,000 74,000
Consolidated Maintenance Capex 21,000 21,000
Income Taxes 14,000 14,000
Adjusted EBITDA $ 338,000 to $ 343,000
 
G&A Expenses 111,000 111,000
Non-Cash Stock Based Compensation (9,000) (9,000)
Real Estate Related Operating Lease Expense 25,000 25,000
Net Operating Income $ 465,000 to $ 470,000
 
FFO Per Share (Normalized) $ 2.67 to $ 2.73
AFFO Per Share $ 3.18 to $ 3.24
Weighted Average Common Shares Outstanding-Diluted 72,000 to 72,250

Contacts

The GEO Group, Inc.
Pablo E. Paez, 866-301-4436
Vice President, Corporate Relations

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Contacts

The GEO Group, Inc.
Pablo E. Paez, 866-301-4436
Vice President, Corporate Relations