BOCA RATON, Fla.--(BUSINESS WIRE)--The GEO Group (NYSE: GEO) (“GEO”) today reported first quarter 2011 financial results. GEO reported net income for the first quarter 2011 of $16.4 million, or $0.25 per diluted share, compared to net income of $17.7 million, or $0.34 per diluted share for the first quarter of 2010. GEO’s first quarter 2011 net income includes $3.7 million, after-tax, in one-time M&A transaction related expenses, which are reported in GEO’s general and administrative expenses; a $0.4 million after-tax income effect related to the loss attributable to non-controlling interests; and $2.2 million, after-tax, in start-up/transition expenses.
Excluding these items, GEO reported Pro Forma net income of $22.7 million, or $0.35 per diluted share, for the first quarter of 2011 compared to Pro Forma net income of $17.7 million, or $0.34 per diluted share for the first quarter of 2010.
George C. Zoley, Chairman and Chief Executive Officer of GEO, said: “We are pleased with our strong first quarter earnings results and our confirmed outlook for the remainder of the year. Our strong financial performance continues to be driven by sound operational results from our diversified business units of U.S. Detention & Corrections, GEO Care, and International Services. We continue to be optimistic about the demand for our diversified services, and we believe that GEO is uniquely positioned to provide comprehensive, turnkey solutions across a continuum of care for correctional, detention, and treatment services worldwide.”
Pro forma net income excludes start-up/transition expenses, and other items as set forth in the table below, which presents a reconciliation of pro forma net income to net income for the first quarter 2011 and 2010. Please see the section of this press release below entitled “Important Information on GEO’s Non-GAAP Financial Measures” for information on how GEO defines pro forma net income.
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Table 1. Reconciliation of Pro Forma Net Income to Net Income |
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| (In thousands except per share data) | 13 Weeks Ended | 13 Weeks Ended | ||||||
| 3-Apr-11 | 4-Apr-10 | |||||||
| Net income | $ | 16,380 | $ | 17,708 | ||||
| M&A-related Expenses, net of tax | 3,735 | - | ||||||
| Start-up/transition expenses, net of tax | 2,189 | - | ||||||
| Net (income) loss attributable to non-controlling interests | 410 | (36 | ) | |||||
| Pro forma net income | $ | 22,714 | $ | 17,672 | ||||
| Diluted earnings per share | $ | 0.25 | $ | 0.34 | ||||
| M&A-related Expenses, net of tax | 0.06 | - | ||||||
| Start-up/transition expenses, net of tax | 0.03 | - | ||||||
| Net (income) loss attributable to non-controlling interests | 0.01 | - | ||||||
| Diluted pro forma earnings per share | $ | 0.35 | $ | 0.34 | ||||
| Weighted average common shares outstanding-diluted | 64,731 | 51,640 | ||||||
Business Segment Results
The following table presents a summary of GEO’s segment results for the first quarter 2011 and 2010.
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Table 2. Business Segment Results |
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| 13 Weeks Ended | 13 Weeks Ended | ||||||
| 3-Apr-11 | 4-Apr-10 | ||||||
| Revenues | |||||||
| U.S. Detention & Corrections | $ | 240,504 | $ | 189,709 | |||
| GEO Care | 98,015 | 37,502 | |||||
| International Services | 53,128 | 45,880 | |||||
| Facility Construction & Design | 119 | 14,451 | |||||
| $ | 391,766 | $ | 287,542 | ||||
| Operating Expenses | |||||||
| U.S. Detention & Corrections | $ | 171,801 | $ | 136,860 | |||
| GEO Care | 78,820 | 32,365 | |||||
| International Services | 48,649 | 43,604 | |||||
| Facility Construction & Design | 16 | 13,503 | |||||
| $ | 299,286 | $ | 226,332 | ||||
| Depreciation & Amortization Expense | |||||||
| U.S. Detention & Corrections | $ | 12,930 | $ | 7,905 | |||
| GEO Care | 5,345 | 898 | |||||
| International Services | 527 | 435 | |||||
| Facility Construction & Design | - | - | |||||
| $ | 18,802 | $ | 9,238 | ||||
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Table 2. Business Segment Results (Continued) |
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| 13 Weeks Ended | 13 Weeks Ended | ||||
| 3-Apr-11 | 4-Apr-10 | ||||
| Compensated Mandays | |||||
| U.S. Detention & Corrections | 4,307,644 | 3,456,399 | |||
| GEO Care | 482,773 | 189,407 | |||
| International Services | 650,377 | 623,178 | |||
| 5,440,794 | 4,268,984 | ||||
| Revenue Producing Beds | |||||
| U.S. Detention & Corrections | 51,187 | 40,685 | |||
| GEO Care | 6,219 | 2,157 | |||
| International Services | 7,147 | 6,854 | |||
| 64,553 | 49,696 | ||||
| Average Occupancy | |||||
| U.S. Detention & Corrections | 93.3% | 93.4% | |||
| GEO Care | 86.6% | 96.5% | |||
| International Services | 100.0% | 100.0% | |||
| 93.4% | 94.4% | ||||
U.S. Detention & Corrections
For the first quarter of 2011, U.S. Detention & Corrections revenue increased by approximately $50.8 million year-over-year. This revenue increase was driven primarily by GEO’s acquisition of Cornell Companies (“Cornell”) in August 2010; the fourth quarter 2010 opening of the Blackwater Correctional Facility in Florida; and the activation of a new contract with the Federal Bureau of Prisons at the D. Ray James Correctional Facility in Georgia. These factors were offset by the transition of managed-only contracts for the Graceville Correctional Facility and the Moore Haven Correctional Facility in Florida and the Bridgeport Correctional Center, North Texas Intermediate Sanction Facility, and South Texas Intermediate Sanction Facility in Texas.
GEO Care
For the first quarter of 2011, GEO Care revenue increased by approximately $60.5 million year-over-year. This revenue increase was driven primarily by GEO’s acquisitions of Cornell in August 2010 and BI Incorporated (“BI”) in February 2011.
International Services
For the first quarter of 2011, International Services revenue increased by approximately $7.2 million year-over-year driven primarily by the activation of the Parklea Correctional Centre in Australia; the opening of a 360-bed expansion at the Harmondsworth Immigration Removal Centre in the United Kingdom; and positive foreign exchange rate fluctuations.
Adjusted EBITDA
First quarter 2011 Adjusted EBITDA increased to $73.1 million from $46.3 million in the first quarter of 2010.
Please see the section of this press release below entitled “Important Information on GEO’s Non-GAAP Financial Measures” for information on how GEO defines Adjusted EBITDA. The following table presents a reconciliation from Adjusted EBITDA to net income for the first quarter 2011 and 2010.
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Table 3. Reconciliation from Adjusted EBITDA to Net Income |
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| (In thousands) | 13 Weeks Ended | 13 Weeks Ended | ||||||
| 3-Apr-11 | 4-Apr-10 | |||||||
| Net income | $ | 16,380 | $ | 17,708 | ||||
| Interest expense, net | 15,392 | 6,585 | ||||||
| Income tax provision | 9,780 | 10,821 | ||||||
| Depreciation and amortization | 18,802 | 9,238 | ||||||
| Tax provision on equity in earnings of affiliate | 1,024 | 786 | ||||||
| EBITDA | $ | 61,378 | $ | 45,138 | ||||
| Adjustments, pre-tax | ||||||||
| M&A-related Expenses | 5,657 | - | ||||||
| Stock Based Compensation | 2,061 | 1,192 | ||||||
| Start-up/transition expenses | 3,567 | - | ||||||
| (Income) loss attributable to non-controlling interests | 410 | (36 | ) | |||||
| Adjusted EBITDA | $ | 73,073 | $ | 46,294 | ||||
Adjusted Funds from Operations
Adjusted Funds from Operations for the first quarter of 2011 increased to $43.4 million compared to $35.7 million for the first quarter of 2010.
Please see the section of this press release below entitled “Important Information on GEO’s Non-GAAP Financial Measures” for information on how GEO defines Adjusted Funds from Operations. The following table presents a reconciliation from Adjusted Funds from Operations to net income for the first quarter 2011 and 2010.
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Table 4. Reconciliation of Adjusted Funds from Operations to Net Income |
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| (In thousands) | 13 Weeks Ended | 13 Weeks Ended | |||||||
| 3-Apr-11 | 4-Apr-10 | ||||||||
| Net income | $ | 16,380 | $ | 17,708 | |||||
| (Income) loss attributable to non-controlling interests | 410 | (36 | ) | ||||||
| Depreciation and Amortization | 18,802 | 9,238 | |||||||
| Income Tax Provision | 9,780 | 10,821 | |||||||
| Income Taxes Paid | (940 | ) | (993 | ) | |||||
| Stock Based Compensation | 2,061 | 1,192 | |||||||
| Maintenance Capital Expenditures | (8,319 | ) | (2,959 | ) | |||||
| Equity in Earnings of Affiliates, Net of Income Tax | (662 | ) | (590 | ) | |||||
| Amortization of Debt Costs and Other Non-Cash Interest | 226 | 1,272 | |||||||
| M&A-related Expenses | 5,657 | - | |||||||
| Adjusted Funds from Operations | $ | 43,395 | $ | 35,653 | |||||
2011 Financial Guidance
GEO confirmed its financial guidance for 2011. GEO expects 2011 total revenues to be in the range of $1.62 billion to $1.64 billion, including approximately $115 million in revenues from BI. GEO expects 2011 pro forma earnings to be in a range of $1.55 to $1.65 per share, excluding $0.06 in after-tax acquisition-related expenses and $0.16 in after-tax start-up/transition expenses and international bid and proposal costs.
GEO confirmed its 2011 guidance for Adjusted EBITDA in a range of $320 million to $330 million and Adjusted Funds from Operations in a range of $175 million to $185 million, or $2.70 to $2.85 per share. As previously disclosed by GEO, the acquisition of BI is expected to have a neutral impact on GEO’s pro forma 2011 earnings per share and to become accretive to pro forma earnings starting in 2012.
GEO also issued second quarter 2011 financial guidance. GEO expects second quarter 2011 total revenues to be in the range of $405 million to $410 million. GEO expects second quarter 2011 pro forma earnings to be in a range of $0.38 to $0.40 per share, excluding $0.06 in after-tax start-up/transition expenses and international bid and proposal costs.
Conference Call Information
GEO has scheduled a conference call and simultaneous webcast at 2:00 PM (Eastern Time) today to discuss GEO’s first quarter 2011 financial results as well as its progress and outlook. The call-in number for the U.S. is 1-800-659-2056 and the international call-in number is 1-617-614-2714. The participant pass-code for the conference call is 65944659. In addition, a live audio webcast of the conference call may be accessed on the Conference Calls/Webcasts section of GEO’s investor relations home page 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 June 4, 2011 at 1-888-286-8010 (U.S.) and 1-617-801-6888 (International). The pass-code for the telephonic replay is 96578849.
About The GEO Group, Inc.
The GEO Group is a world leader in the delivery of correctional, detention, and residential treatment services to federal, state, and local government agencies around the globe. GEO offers a turnkey approach that includes design, construction, financing, and operations. GEO represents government clients in the United States, Australia, South Africa, and the United Kingdom. GEO’s worldwide operations include the management and/or ownership of approximately 80,000 beds at 116 correctional, detention and residential treatment facilities, including projects under development.
Important Information on GEO’s Non-GAAP Financial Measures
Pro Forma Net Income, Adjusted EBITDA and Adjusted Funds From Operations are non-GAAP financial measures that are presented as supplemental disclosures.
Pro Forma Net Income is defined as net income adjusted for net (income) loss attributable to non-controlling interests, start-up/transition expenses, international bid and proposal expenses, and M&A-related expenses, net of tax. GEO believes that Pro Forma Net Income is useful to investors as it provides information about the performance of GEO’s overall business because such measure eliminates the effects of certain unusual or non-recurring charges that are not directly attributable to GEO’s underlying operating performance, it provides disclosure on the same basis as that used by GEO’s management and it provides consistency in GEO’s financial reporting and therefore continuity to investors for comparability purposes. GEO’s management uses Pro Forma Net Income to monitor and evaluate its operating performance and to facilitate internal and external comparisons of the historical operating performance of GEO and its business units.
Adjusted EBITDA is defined as net income before net interest expense, income tax, depreciation and amortization, and tax provision on equity in earnings of affiliate, adjusted for net (income) loss attributable to non-controlling interests, stock-based compensation, start-up/transition expenses, international bid and proposal expenses, and M&A-related expenses, net of tax. GEO believes that Adjusted EBITDA is useful to investors as it provides information about the performance of GEO’s overall business because such measure eliminates the effects of certain unusual or non-recurring charges that are not directly attributable to GEO’s underlying operating performance, it provides disclosure on the same basis as that used by GEO’s management and it provides consistency in GEO’s financial reporting and therefore continuity to investors for comparability purposes. GEO’s management uses Adjusted EBITDA to monitor and evaluate its operating performance and to facilitate internal and external comparisons of the historical operating performance of GEO and its business units.
Adjusted Funds From Operations is defined as net income excluding depreciation and amortization, income taxes, stock-based compensation, maintenance capital expenditures, equity in earnings of affiliates and amortization of debt costs and other non-cash interest, net (income) loss attributable to non-controlling interests, and M&A-related expenses, net of tax. GEO believes that Adjusted Funds From Operations is useful to investors as it provides information regarding cash that GEO’s operating business generates before taking into account certain cash and non-cash items that are non-operational or infrequent in nature, it provides disclosure on the same basis as that used by GEO’s management and it provides consistency in GEO’s financial reporting and therefore continuity to investors for comparability purposes. GEO’s management uses Adjusted Funds From Operations to monitor and evaluate its operating performance and to facilitate internal and external comparisons of the historical operating performance of GEO and its business units.
A reconciliation of these non-GAAP measures to the most directly comparable GAAP measurements of these items is included in Tables 1, 3 and 4, respectively.
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 estimated earnings, revenues, costs, and cost synergies, our ability to maintain growth and strengthen contract relationships, and our ability to meet the increasing demand for correctional, detention, and residential treatment services, and long-term growth prospects in our industry. 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 2011 given the various risks to which its business is exposed; (2) GEO’s ability to successfully pursue further growth and continue to enhance shareholder value; (3) the risk that the BI business will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected; (4) the risk that the expected increased revenues resulting from the acquisition of Cornell may not be fully realized or may take longer to realize than expected; (5) the risk that the cost synergies from the transaction may not be fully realized or may take longer to realize than expected; (6) any difficulties encountered in maintaining relationships with customers, employees or suppliers as a result of the transaction with Cornell; (7) GEO’s ability to access the capital markets in the future on satisfactory terms or at all; (8) risks associated with GEO’s ability to control operating costs associated with contract start-ups; (9) 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; (10) GEO’s ability to win management contracts for which it has submitted proposals and to retain existing management contracts; (11) GEO’s ability to obtain future financing on acceptable terms; (12) GEO’s ability to sustain company-wide occupancy rates at its facilities; and (13) other factors contained in GEO’s Securities and Exchange Commission filings, including the forms 10-K, 10-Q and 8-K reports.
First quarter 2011 financial tables to follow:
| THE GEO GROUP, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF INCOME | ||||||||
| FOR THE THIRTEEN WEEKS ENDED | ||||||||
| APRIL 3, 2011 AND APRIL 4, 2010 | ||||||||
| (In thousands, except per share data) | ||||||||
| (UNAUDITED) | ||||||||
| Thirteen Weeks Ended | ||||||||
| April 3, 2011 | April 4, 2010 | |||||||
| Revenues | $ | 391,766 | $ | 287,542 | ||||
| Operating expenses | 299,286 | 226,332 | ||||||
| Depreciation and amortization | 18,802 | 9,238 | ||||||
| General and administrative expenses | 32,788 | 17,448 | ||||||
| Operating income | 40,890 | 34,524 | ||||||
| Interest income | 1,569 | 1,229 | ||||||
| Interest expense | (16,961 | ) | (7,814 | ) | ||||
| Income before income taxes and equity in earnings of affiliate | 25,498 | 27,939 | ||||||
| Provision for income taxes | 9,780 | 10,821 | ||||||
| Equity in earnings of affiliate, net of income tax provision of $1,024 and $786 | 662 | 590 | ||||||
| Net income | 16,380 | 17,708 | ||||||
| Net (income) loss attributable to noncontrolling interests | 410 | (36 | ) | |||||
| Net income attributable to The GEO Group, Inc. | $ | 16,790 | $ | 17,672 | ||||
| Weighted-average common shares outstanding: | ||||||||
| Basic | 64,291 | 50,711 | ||||||
| Diluted | 64,731 | 51,640 | ||||||
| Income per Common Share Attributable to The GEO Group, Inc. – Basic | $ | 0.26 | $ | 0.35 | ||||
| Income per Common Share Attributable to The GEO Group, Inc. – Diluted | $ | 0.26 | $ | 0.34 | ||||
| Comprehensive income: | ||||||||
| Net income | $ | 16,380 | $ | 17,708 | ||||
| Total other comprehensive income, net of tax | 305 | 184 | ||||||
| Total comprehensive income | 16,685 | 17,892 | ||||||
| Comprehensive income (loss) attributable to noncontrolling interests | 417 | (55 | ) | |||||
| Comprehensive income attributable to The GEO Group Inc. | $ | 17,102 | $ | 17,837 | ||||
| THE GEO GROUP, INC. | ||||||
| CONSOLIDATED BALANCE SHEETS | ||||||
| APRIL 3, 2011 AND JANUARY 2, 2011 | ||||||
| (In thousands, except share data) | ||||||
| April 3, 2011 | January 2, 2011 | |||||
| (Unaudited) | ||||||
| ASSETS | ||||||
| Current Assets | ||||||
| Cash and cash equivalents | $ | 85,894 | $ | 39,664 | ||
| Restricted cash and investments (including VIEs1 of $30,608 and $34,049, respectively) | 37,593 | 41,150 | ||||
| Accounts receivable, less allowance for doubtful accounts of $1,605 and $1,308 | 278,654 | 275,778 | ||||
| Deferred income tax assets, net | 47,983 | 32,126 | ||||
| Prepaid expenses and other current assets | 31,897 | 36,377 | ||||
| Total current assets | 482,021 | 425,095 | ||||
| Restricted Cash and Investments (including VIEs of $30,540 and $33,266, respectively) | 49,974 | 49,492 | ||||
| Property and Equipment, Net (including VIEs of $166,073 and $167,209, respectively) | 1,568,517 | 1,511,292 | ||||
| Assets Held for Sale | 10,269 | 9,970 | ||||
| Direct Finance Lease Receivable | 36,758 | 37,544 | ||||
| Deferred Income Tax Assets, Net | 936 | 936 | ||||
| Goodwill | 527,118 | 244,009 | ||||
| Intangible Assets, Net | 210,598 | 87,813 | ||||
| Other Non-Current Assets | 69,944 | 56,648 | ||||
| Total Assets | $ | 2,956,135 | $ | 2,422,799 | ||
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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| Current Liabilities | ||||||
| Accounts payable | $ | 80,158 | $ | 73,880 | ||
| Accrued payroll and related taxes | 48,834 | 33,361 | ||||
| Accrued expenses | 117,446 | 120,670 | ||||
| Current portion of capital lease obligations, long-term debt and non-recourse debt (including VIEs of $19,570 and $19,365, respectively) | 50,047 | 41,574 | ||||
| Total current liabilities | 296,485 | 269,485 | ||||
| Deferred Income Tax Liabilities | 107,370 | 63,546 | ||||
| Other Non-Current Liabilities | 61,905 | 46,862 | ||||
| Capital Lease Obligations | 13,888 | 13,686 | ||||
| Long-Term Debt | 1,236,241 | 798,336 | ||||
| Non-Recourse Debt (including VIEs of $126,320 and $132,078, respectively) | 184,867 | 191,394 | ||||
| Total Shareholders’ Equity | 1,055,379 | 1,039,490 | ||||
| Total Liabilities and Shareholders’ Equity | $ | 2,956,135 | $ | 2,422,799 | ||
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1 Variable interest entities or “VIEs”