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Section 1: 8-K (8-K)

8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 14, 2018

 

 

THE GEO GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Florida   1-14260   65-0043078
(State or Other Jurisdiction
of Incorporation)
  (Commission
File Number)
  (IRS Employer
Identification No.)
621 NW 53rd Street, Suite 700, Boca Raton, Florida   33487
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code (561) 893-0101

N/A

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

 

  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933

(17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Section 2 Financial Information

 

Item 2.02. Results of Operations and Financial Condition.

On February 14, 2018, The GEO Group, Inc. (“GEO” or the “Company”) issued a press release (the “Earnings Press Release”) announcing its financial results for the fourth quarter and year ended December 31, 2017, and issuing financial guidance for the full year and first quarter 2018. A copy of the Earnings Press Release is furnished hereto as Exhibit 99.1. GEO also held a conference call on February 14, 2018 to discuss these matters, a transcript of which is furnished hereto as Exhibit 99.2.

In the Earnings Press Release, GEO provided Net Operating Income, EBITDAre, Adjusted EBITDAre, Funds From Operations, Normalized Funds From Operations, Adjusted Funds From Operations and Adjusted Net Income for the fourth quarter and year ended December 31, 2017 and the comparable prior-year periods that were not calculated in accordance with Generally Accepted Accounting Principles (the “Non-GAAP Information”) and are presented as supplemental disclosures. Generally, for purposes of Regulation G under the Securities Exchange Act of 1934, Non-GAAP Information is any numerical measure of a company’s performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The Earnings Press Release presents the financial measure calculated and presented in accordance with GAAP, which is the most directly comparable to the Non-GAAP Information, with a prominence equal to or greater than its presentation of the Non-GAAP Information. The Earnings Press Release also contains a reconciliation of the Non-GAAP Information to the financial measure calculated and presented in accordance with GAAP which is the most directly comparable to the Non-GAAP Information.

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, loss on extinguishment of debt, depreciation and amortization expense, general and administrative expenses, real estate related operating lease expense, 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 on sale of real estate assets, pre-tax. Adjusted EBITDAre (Adjusted EBITDA for real estate) is defined as EBITDAre adjusted for net income/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 merger and acquisition (“M&A”) related expenses (including transition related expenses), pre-tax and start-up expenses, pre-tax. Given the nature of GEO’s business as a real estate owner and operator, GEO believes that EBITDAre and Adjusted EBITDAre are helpful to investors as measures of its operational performance because they provide an indication of its 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 its business.

GEO believes that by removing the impact of its 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 its 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 GEO makes 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 GEO does not consider to be the fundamental attributes or primary drivers of its business plan

 

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and they do not affect GEO’s overall long-term operating performance. EBITDAre and Adjusted EBITDAre provide disclosure on the same basis as that used by GEO’s management and provide consistency in its financial reporting, facilitate internal and external comparisons of its historical operating performance and its 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 non-recurring tax benefits, net Tax Cuts and Jobs Act (“TCJA”) impact, loss on extinguishment of debt, M&A related expenses (including transition related expenses), start-up expenses, and tax adjustments related to M&A expenses.

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 non-recurring tax benefits, net TCJA impact, loss on extinguishment of debt, M&A related expenses (including transition related expenses), net of tax, start-up expenses, net of tax, and gain on sale of real estate assets, net of tax.

Because of the unique design, structure and use of GEO’s correctional facilities, the Company believes that assessing the performance of its 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. GEO has modified FFO to derive Normalized FFO and AFFO that meaningfully reflect its operations.

GEO’s assessment of its operations is focused on long-term sustainability. The adjustments GEO makes 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 GEO’s cash flows, or the Company does not consider them to be fundamental attributes or the primary drivers of GEO’s business plan and they do not affect GEO’s overall long-term operating performance. GEO may make adjustments to FFO from time to time for certain other income and expenses that do not reflect a necessary component of GEO’s 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 GEO’s 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.

GEO believes the presentation of FFO, Normalized FFO and AFFO provide useful information to investors as they provide an indication of GEO’s ability to fund capital expenditures and expand its business. FFO, Normalized FFO and AFFO provide disclosure on the same basis as that used by GEO’s management and provide consistency in its financial reporting, facilitate internal and external comparisons of its historical operating performance and its business units and provide continuity to

 

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investors for comparability purposes. Additionally, FFO, Normalized FFO and AFFO are widely recognized measures in GEO’s industry as a real estate investment trust.

The Earnings Press Release contains reconciliation tables for Net Operating Income, EBITDAre, Adjusted EBITDAre, Funds from Operations, Normalized Funds from Operations, Adjusted Funds from Operations and Adjusted Net Income.

GEO has presented in the Earnings Press Release certain forward-looking statements about GEO’s future financial performance that include non-GAAP financial measures, including, Net Operating Income, Adjusted EBITDAre, Funds from Operations, Normalized Funds from Operations, and Adjusted Funds from Operations. 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 GEO has provided a high level reconciliation for the guidance ranges for full year 2018, it is 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.

The Non-GAAP Information should be considered in addition to results that are prepared under current accounting standards but should not be considered a consolidated substitute for, or superior to, financial information prepared in accordance with GAAP. The Non-GAAP Information may differ from similarly titled measures presented by other companies. The Non-GAAP Information, as well as other information in the Earnings Press Release, should be read in conjunction with GEO’s financial statements filed with the Securities and Exchange Commission. The information set forth in Item 2.02 in this Form 8-K is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information set forth in Item 2.02 in this Form 8-K shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.

 

Section 8 Other Events

 

Item 8.01. Other Events.

On February 14, 2018, GEO announced that its Board of Directors had approved a stock repurchase program (the “Stock Repurchase Program”), pursuant to which GEO may, from time to time, purchase shares of its common stock, par value $0.01 per share (“Common Stock”), for an aggregate repurchase price of up to $200.0 million. The Stock Repurchase Program expires on October 20, 2020. The stock repurchase program will be funded primarily with cash on hand, free cash flow, and borrowings under GEO’s revolving credit facility. Under the terms of GEO’s revolving credit facility, GEO currently has approximately $120.0 million of immediate, available capacity for repurchases under the stock repurchase program. Based on internal forecasts, GEO believes it will have adequate availability to complete the $200.0 million stock repurchase program well in advance of the program’s expiration. Stock repurchases may be executed through various means, including, without limitation, open market transactions or in privately negotiated transactions, in accordance with applicable Securities and Exchange Commission requirements. The Stock Repurchase Program does not obligate the Company to acquire any particular amount of shares of Common Stock and the program may be suspended or extended at any time at the discretion of GEO’s Board of Directors.

 

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Section 9 Financial Statements and Exhibits

 

Item 9.01. Financial Statements and Exhibits.

(d)     Exhibits

 

Exhibit No.

  

Description

99.1    Press Release, dated February 14, 2018, announcing GEO’s financial results for the fourth quarter and year ended December 31, 2017.
99.2    Transcript of Conference Call discussing GEO’s financial results for the fourth quarter and year ended December 31, 2017.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    THE GEO GROUP, INC.
February 21, 2018     By:  

/s/ Brian R. Evans

Date       Brian R. Evans
      Senior Vice President and Chief Financial Officer
      (Principal Financial Officer)

 

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Section 2: EX-99.1 (EX-99.1)

EX-99.1

Exhibit 99.1

 

LOGO    NEWS RELEASE

One Park Place, Suite 700 ∎ 621 Northwest 53rd Street ∎ Boca Raton, Florida 33487 ∎ www.geogroup.com

THE GEO GROUP REPORTS FOURTH QUARTER AND FULL-YEAR 2017 RESULTS

AND ANNOUNCES $200 MILLION STOCK REPURCHASE PROGRAM

 

    4Q17 Net Income Attributable to GEO of $0.30 per diluted share

 

    4Q17 Adjusted Net Income of $0.38 per diluted share

 

    4Q17 AFFO of $0.67 per diluted share

 

    FY2018 guidance for Net Income Attributable to GEO of $1.27-$1.37 per diluted share & AFFO of $2.40-$2.50 per diluted share; Reflects $10 million in incremental Net Interest Expense

Boca Raton, Fla. – February 14, 2018 — 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 fourth quarter and full-year 2017.

Fourth Quarter 2017 Highlights

 

    Net Income Attributable to GEO of $36.4 million, or $0.30 per diluted share

 

    GAAP results include a $9.6 million net charge related to the re-measurement of net deferred tax assets as a result of the Tax Cuts and Jobs Act (“TCJA”)

 

    Adjusted Net Income of $0.38 per diluted share

 

    Net Operating Income of $152.7 million

 

    Normalized FFO of $0.52 per diluted share

 

    AFFO of $0.67 per diluted share

GEO reported fourth quarter 2017 net income attributable to GEO of $36.4 million, or $0.30 per diluted share, compared to $49.4 million, or $0.44 per diluted share, for the fourth quarter 2016. GEO’s results for the fourth quarter 2017 include approximately $0.8 million, net of tax, in mergers and acquisitions related expenses and a $9.6 million net charge related to the re-measurement of GEO’s net deferred tax assets as a result of the Tax Cuts and Jobs Act (“TCJA”) which was signed into law at the end of 2017. Adjusting for these expenses, GEO reported adjusted net income for the fourth quarter 2017 of $46.7 million, or $0.38 per diluted share.

GEO reported fourth quarter 2017 Normalized Funds From Operations (“Normalized FFO”) of $63.8 million, or $0.52 per diluted share, compared to $61.9 million, or $0.55 per diluted share, in the fourth quarter 2016. GEO reported fourth quarter 2017 Adjusted Funds From Operations (“AFFO”) of $82.0 million, or $0.67 per diluted share, compared to $77.7 million, or $0.70 per diluted share, in the fourth quarter 2016.

 

— More —

 

Contact:    Pablo E. Paez    (866) 301 4436
   Vice President, Corporate Relations   


NEWS RELEASE

 

George C. Zoley, Chairman and Chief Executive Officer of GEO, said, “We are pleased with our fourth quarter and year-end results and the operational milestones achieved by our diversified business units during the year. We continue to be optimistic about the demand for our services and the opportunities to reactivate our approximately 7,000 existing available beds. Our management team remains focused on effectively allocating capital to drive long-term value for our shareholders. We also recognize that we can enhance our shareholders’ value by repurchasing our common shares at times when we believe our stock is undervalued. To that end, our Board has authorized a $200 million stock repurchase program, which we expect to implement with an opportunistic strategy that maximizes returns for our shareholders.”

GEO reported total revenues for the fourth quarter 2017 of $569.0 million up from $566.6 million for the fourth quarter 2016. Fourth quarter 2017 revenues include $2.8 million in construction revenues associated with the development of the 1,300-bed Ravenhall Correctional Centre (the “Ravenhall Centre”) in Australia compared to $70.1 million in construction revenues for the fourth quarter 2016.

Compared to fourth quarter 2016, fourth quarter 2017 results reflect several developments:

 

    the activation of a new contract with U.S. Immigration and Customs Enforcement (“ICE”) at GEO’s 780-bed Folkston ICE Processing Center in Georgia in January 2017;

 

    the issuance of 10.4 million shares of common stock on a post-split basis in March 2017;

 

    the refinancing of the term loan under GEO’s senior credit facility in March 2017;

 

    the closing of the Community Education Centers (“CEC”) acquisition in April 2017; and

 

    a $9.6 million net charge related to the re-measurement of GEO’s net deferred tax assets as a result of the TCJA.

Full-Year 2017 Highlights

 

    Net Income Attributable to GEO of $146.2 million, or $1.21 per diluted share

 

    Adjusted Net Income of $1.41 per diluted share

 

    Net Operating Income of $592.9 million

 

    Normalized FFO of $1.95 per diluted share

 

    AFFO of $2.55 per diluted share

GEO reported net income attributable to GEO of $146.2 million, or $1.21 per diluted share, for the full-year 2017, compared to $148.7 million, or $1.33 per diluted share, for the full-year 2016. GEO’s results for the full-year 2017 include approximately $14.8 million, net of tax, in mergers and acquisitions related expenses, a $0.3 million gain on sale of real estate assets, net of tax, and a $9.6 million net charge related to the re-measurement of GEO’s net deferred tax assets as a result of the TCJA. Adjusting for these items, GEO reported adjusted net income for the full-year 2017 of $170.3 million, or $1.41 per diluted share.

 

— More —

 

Contact:    Pablo E. Paez    (866) 301 4436
   Vice President, Corporate Relations   


NEWS RELEASE

 

For the full-year 2017, GEO reported Normalized FFO of $236.1 million, or $1.95 per diluted share, compared to $224.0 million, or $2.01 per diluted share, for the full-year 2016. GEO reported AFFO for the full-year 2017 of $307.7 million, or $2.55 per diluted share, compared to $279.2 million, or $2.50 per diluted share, for the full-year 2016.

GEO reported total revenues for the full-year 2017 of $2.26 billion up from total revenues of $2.18 billion for the full-year 2016. Revenues for the full-year 2017 include $115.4 million in construction revenues associated with the development of the Ravenhall Centre in Australia compared to $252.4 million in construction revenues for the full-year 2016.

‘GEO Continuum of Care’ Receives National Recognition

In January 2018, the ‘GEO Continuum of Care’ received the prestigious “Innovation in Corrections” Award for 2018 at the American Correctional Association (“ACA”) Winter Conference in Orlando, Florida. This important recognition was based on the implementation of the ‘GEO Continuum of Care’ at the Graceville Correctional Facility in Florida (the “Graceville Facility”), which started as a pilot program in late 2015.

Since that time, the Graceville Facility has completed approximately 900,000 hours of rehabilitation programing; awarded more than 2,900 program completions; and conducted approximately 8,400 individual cognitive behavioral treatment sessions. The Graceville Facility has also provided assistance to 617 post-release program participants with more than $400,000 in company funding being allocated for crucial community needs including housing, employment, and transportation assistance. The Graceville Facility has also experienced improved safety and security outcomes with a 42 percent reduction in grievances filed and a 45 percent reduction in major disciplinary reports.

The ‘GEO Continuum of Care’ has since been expanded to 14 state correctional facilities and one federal correctional institution, which are operated by GEO. More recently in November 2017, GEO completed the development and activation of the Ravenhall Centre in Australia, which is expected to provide an unprecedented level of rehabilitation and reentry services through the ‘GEO Continuum of Care.’

To strengthen its commitment to being the world’s leading provider of evidence-based rehabilitation and post-release services, GEO doubled its annual expenditure commitment to expand the delivery of its ‘GEO Continuum of Care’ programs from $5 million in 2016 to $10 million in 2017. During 2016 and 2017, the ‘GEO Continuum of Care’ programs achieved several important milestones:

 

    Completed more than 11.7 million hours of rehabilitation programming through a diverse number of programs

 

    Averaged approximately 12,000 daily participants in academic programs

 

    Awarded 4,464 GEDs and high school equivalency degrees

 

    Averaged more than 24,000 daily participants in vocational training programs

 

    Awarded 15,488 vocational training certifications

 

    Averaged approximately 4,000 daily participants in substance abuse treatment programs

 

    Awarded 16,632 substance abuse treatment program completions

 

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Contact:    Pablo E. Paez    (866) 301 4436
   Vice President, Corporate Relations   


NEWS RELEASE

 

2018 Financial Guidance

GEO issued its initial financial guidance for the full-year and first quarter 2018. GEO expects full-year 2018 total revenue to be approximately $2.3 billion. GEO expects full-year 2018 Net Income Attributable to GEO to be in a range of $1.27 to $1.37 per diluted share. GEO expects full-year 2018 AFFO to be in a range of $2.40 to $2.50 per diluted share.

GEO’s full-year 2018 guidance reflects a year-over-year increase of approximately $10 million in net interest expense domestically. Full-year 2018 guidance also reflects the revised pricing terms under the new ten-year contracts with the Federal Bureau of Prisons for the Big Spring Correctional Center and Flight Line Correctional Center in Texas, which as GEO had previously disclosed began on December 1, 2017.

Full-year 2018 guidance does not assume the reactivation of GEO’s approximately 7,000 idle and underutilized beds or any share repurchases under GEO’s $200 million share repurchase program.

For the first quarter 2018, GEO expects total revenues to be in a range of $556 million to $561 million. GEO expects first quarter 2018 Net Income Attributable to GEO to be in a range of $0.26 to $0.28 per diluted share and AFFO to be in a range of $0.55 to $0.57 per diluted share.

In addition to the items impacting full-year 2018 guidance, compared to fourth quarter 2017 results, first quarter 2018 guidance reflects approximately $0.03 to $0.04 per diluted share in additional employment tax expense as a result of the seasonality in unemployment taxes, which are front-loaded in the first quarter of the year.

Stock Repurchase Program

GEO announced today that its Board of Directors has approved a stock repurchase program of up to $200.0 million of GEO’s common stock through October 20, 2020. The stock repurchase program will be funded primarily with cash on hand, free cash flow, and borrowings under GEO’s revolving credit facility. Under the terms of GEO’s revolving credit facility, GEO currently has approximately $120.0 million of immediate, available capacity for repurchases under the stock repurchase program. Based on internal forecasts, GEO believes it will have adequate availability to complete the $200.0 million stock repurchase program well in advance of the program’s expiration. GEO believes it has the ability to fund the stock repurchase program, its working capital, its debt service requirements, and its maintenance and growth capital expenditure requirements, while maintaining sufficient liquidity for other corporate purposes.

The stock repurchase program is intended to be implemented through purchases made from time to time in the open market or in privately negotiated transactions, in accordance with applicable Securities and Exchange Commission requirements. The stock repurchase program does not obligate GEO to purchase any specific amount of its common stock and may be suspended or extended at any time at the discretion of GEO’s Board of Directors.

 

— More —

 

Contact:    Pablo E. Paez    (866) 301 4436
   Vice President, Corporate Relations   


NEWS RELEASE

 

Quarterly Dividend

On February 5, 2018, GEO’s Board of Directors declared a quarterly cash dividend of $0.47 per share. The quarterly cash dividend will be paid on February 27, 2018 to shareholders of record as of the close of business on February 16, 2018. 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, 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. The reconciliation tables are also presented herein. 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 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 which is available on GEO’s Investor Relations 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 fourth quarter and full-year 2017 financial results as well as its progress and 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 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 February 28, 2018 at 1-877-344-7529 (U.S.) and 1-412-317-0088 (International). The participant passcode for the telephonic replay is 10116718.

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 141 facilities totaling approximately 96,000 beds, including projects under development, with a growing workforce of approximately 23,000 professionals.

 

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Contact:    Pablo E. Paez    (866) 301 4436
   Vice President, Corporate Relations   


NEWS RELEASE

 

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, Net Operating Income, Adjusted EBITDAre, 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 2018, 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.

TCJA Impact. We recorded a net charge of $9.6 million related to the TCJA during the three months ended December 31, 2017. As of December 31, 2017, we have not completed our accounting for the tax effects of the TCJA. Our net charge is provisional based on reasonable estimates for those tax effects. Changes to these estimates or new guidance issued by regulators may materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made. Our accounting for the tax effects of the TCJA will be completed during the measurement period, which should not extend beyond the fourth quarter of 2018. We have provided non-GAAP financial measures related to the TCJA to aid investors in better understanding our performance. We believe these non-GAAP measures aid investors by providing additional insight into our operational performance and help clarify trends affecting our business. For comparability of reporting, management considers non-GAAP measures in conjunction with GAAP financial results in evaluating business performance. The non-GAAP financial measures presented in this release should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

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, loss on extinguishment of debt, depreciation and amortization expense, general and administrative expenses, real estate related operating lease expense, 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 on sale of real estate assets, pre-tax. Adjusted EBITDAre (Adjusted EBITDA for real estate) is defined as EBITDAre adjusted for net income/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 merger and acquisition (“M&A”) related expenses (including transition related expenses), pre-tax and start-up expenses, 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.

 

— More —

 

Contact:    Pablo E. Paez    (866) 301 4436
   Vice President, Corporate Relations   


NEWS RELEASE

 

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 non-recurring tax benefits, net TCJA impact, loss on extinguishment of debt, M&A related expenses (including transition related expenses), start-up expenses, and tax adjustments related to M&A expenses.

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 non-recurring tax benefits, net TCJA impact, loss on extinguishment of debt, M&A related expenses (including transition related expenses), net of tax, start-up expenses, net of tax, and gain on sale of real estate assets, net of tax.

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.

 

 

— More —

 

Contact:    Pablo E. Paez    (866) 301 4436
   Vice President, Corporate Relations   


NEWS RELEASE

 

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 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 first quarter of 2018 and full year 2018, the assumptions underlying such guidance, and statements regarding future project activations and growth opportunities. 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 2018 given the various risks to which its business is exposed; (2) GEO’s ability to fully implement its announced stock repurchase program and the timing and amounts of any future stock repurchases; (3) GEO’s ability to declare future quarterly cash dividends and the timing and amount of such future cash dividends; (5) GEO’s ability to successfully pursue further growth and continue to create shareholder value; (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 obtain future financing on acceptable terms; (10) GEO’s ability to sustain company-wide occupancy rates at its facilities; (11) GEO’s ability to access the capital markets in the future on satisfactory terms or at all; (12) the impact of any future regulations or guidance on the Tax Cuts and Jobs Act; (13) GEO’s ability to remain qualified as a REIT; (14) the incurrence of REIT related expenses; and (15) other factors contained in GEO’s Securities and Exchange Commission periodic filings, including its Form 10-K, 10-Q and 8-K reports.

 

— More —

 

Contact:    Pablo E. Paez    (866) 301 4436
   Vice President, Corporate Relations   


NEWS RELEASE

 

Fourth quarter and full-year financial tables to follow:

Condensed Consolidated Statements of Operations*

(Unaudited)

 

     Q4 2017     Q4 2016     FY 2017     FY 2016  
     (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Revenues

   $ 568,977     $ 566,579     $ 2,263,420     $ 2,179,490  

Operating expenses

     424,209       429,279       1,700,495       1,650,281  

Depreciation and amortization

     31,833       29,030       124,297       114,916  

General and administrative expenses

     46,477       40,262       190,343       148,709  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     66,458       68,008       248,285       265,584  

Interest income

     12,705       10,109       51,676       28,496  

Interest expense

     (38,322     (34,854     (148,024     (128,718

Loss on extinguishment of debt

     —         —         —         (15,885
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes and equity in earnings of affiliates

     40,841       43,263       151,937       149,477  

Provision(benefit) for income taxes

     12,368       (4,096     17,958       7,904  

Equity in earnings of affiliates, net of income tax provision

     7,790       1,983       12,045       6,925  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     36,263       49,342       146,024       148,498  

Less: Net loss attributable to noncontrolling interests

     94       94       217       217  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to The GEO Group, Inc.

   $ 36,357     $ 49,436     $ 146,241     $ 148,715  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted Average Common Shares Outstanding:

        

Basic

     122,286       111,212       120,095       111,065  

Diluted

     122,919       111,690       120,814       111,485  

Income per Common Share Attributable to The GEO Group, Inc. :

 

     

Basic:

        

Net income per share — basic

   $ 0.30     $ 0.44     $ 1.22     $ 1.34  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted:

        

Net income per share — diluted

   $ 0.30     $ 0.44     $ 1.21     $ 1.33  
  

 

 

   

 

 

   

 

 

   

 

 

 

Regular Dividends Declared per Common Share

   $ 0.47     $ 0.43     $ 1.88     $ 1.73  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

* 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)

 

     Q4 2017      Q4 2016     FY 2017     FY 2016  

Net Income attributable to GEO

   $ 36,357      $ 49,436     $ 146,241     $ 148,715  

Add:

         

Non-recurring tax benefits

     —          (2,031     —         (2,031

Net Tax Cuts and Jobs Act Impact

     9,584        —         9,584       —    

Loss on extinguishment of debt

     —          —         —         15,885  

Start-up expenses, net of tax

     —          —         —         1,190  

M&A related expenses, net of tax

     808        —         14,785       —    

Gain on sale of real estate assets, net of tax

     —          (952     (261     (952
  

 

 

    

 

 

   

 

 

   

 

 

 

Adjusted Net Income

   $ 46,749      $ 46,453     $ 170,349     $ 162,807  
  

 

 

    

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding - Diluted

     122,919        111,690       120,814       111,485  

Adjusted Net Income Per Diluted Share

   $ 0.38      $ 0.42     $ 1.41     $ 1.46  

 

 

— More —

 

Contact:    Pablo E. Paez    (866) 301 4436
   Vice President, Corporate Relations   


NEWS RELEASE

 

Condensed Consolidated Balance Sheets*

(Unaudited)

 

     As of
December 31, 2017
     As of
December 31, 2016
 
     (unaudited)      (unaudited)  
ASSETS      

Cash and cash equivalents

   $ 81,377      $ 68,038  

Restricted cash and investments

     44,932        17,133  

Accounts receivable, less allowance for doubtful accounts

     389,916        356,255  

Contract receivable, current portion

     18,142        224,033  

Prepaid expenses and other current assets

     45,342        32,210  
  

 

 

    

 

 

 

Total current assets

   $ 579,709      $ 697,669  

Restricted Cash and Investments

     27,999        20,848  

Property and Equipment, Net

     2,078,123        1,897,241  

Non-Current Contract Receivable

     404,309        219,783  

Assets Held for Sale

     3,915        —    

Deferred Income Tax Assets

     26,277        30,039  

Intangible Assets, Net (including goodwill)

     1,034,290        819,317  

Other Non-Current Assets

     72,286        64,512  
  

 

 

    

 

 

 

Total Assets

   $ 4,226,908      $ 3,749,409  
  

 

 

    

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

     

Accounts payable

   $ 92,587      $ 79,637  

Accrued payroll and related taxes

     71,732        55,260  

Accrued expenses and other current liabilities

     176,324        131,096  

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

     28,920        238,065  
  

 

 

    

 

 

 

Total current liabilities

   $ 369,563      $ 504,058  

Non-Current Deferred Income Tax Liabilities

     8,757        —    

Other Non-Current Liabilities

     96,702        88,656  

Capital Lease Obligations

     6,059        7,431  

Long-Term Debt

     2,181,544        1,935,465  

Non-Recourse Debt

     365,364        238,842  

Shareholders’ Equity

     1,198,919        974,957  
  

 

 

    

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 4,226,908      $ 3,749,409  
  

 

 

    

 

 

 

 

* all figures in ‘000s    

 

— More —

 

Contact:    Pablo E. Paez    (866) 301 4436
   Vice President, Corporate Relations   


NEWS RELEASE

 

Reconciliation of Net Income Attributable to GEO to FFO, Normalized FFO, and AFFO*

(Unaudited)

 

     Q4 2017     Q4 2016     FY 2017     FY 2016  
     (unaudited)
    (unaudited)
    (unaudited)
    (unaudited)
 

Net Income attributable to GEO

   $ 36,357     $ 49,436     $ 146,241     $ 148,715  

Add:

        

Real Estate Related Depreciation and Amortization

     17,005     $ 15,482     $ 65,723     $ 61,179  

Gain on sale of real estate assets **

     —       $ (952   $ (261   $ (952
  

 

 

   

 

 

   

 

 

   

 

 

 

Equals: NAREIT defined FFO

   $ 53,362     $ 63,966     $ 211,703     $ 208,942  
  

 

 

   

 

 

   

 

 

   

 

 

 

Add:

        

Non-recurring tax benefits**

     —         (2,031     —         (2,031

Net Tax Cuts and Jobs Act Impact

     9,584       —         9,584       —    

Loss on extinguishment of debt

     —         —         —         15,885  

Start-up expenses

     —         —         —         1,190  

M&A related expenses

     1,129       —         19,059       —    

Tax Effect of adjustments to Funds From Operations ***

     (321     —         (4,274     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Equals: FFO, normalized

   $ 63,754     $ 61,935     $ 236,072     $ 223,986  
  

 

 

   

 

 

   

 

 

   

 

 

 

Add:

        

Non-Real Estate Related Depreciation & Amortization

     14,828       13,548       58,574       53,737  

Consolidated Maintenance Capital Expenditures

     (6,192     (4,699     (23,371     (23,419

Stock Based Compensation Expenses

     4,992       3,098       19,844       12,773  

Amortization of debt issuance costs, discount and/or premium and other non-cash interest

     4,618       3,791       16,540       12,121  
  

 

 

   

 

 

   

 

 

   

 

 

 

Equals: AFFO

   $ 82,000     $ 77,673     $ 307,659     $ 279,198  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding - Diluted

     122,919       111,690       120,814       111,485  

FFO/AFFO per Share - Diluted

        

Normalized FFO Per Diluted Share

   $ 0.52     $ 0.55     $ 1.95     $ 2.01  

AFFO Per Diluted Share

   $ 0.67     $ 0.70     $ 2.55     $ 2.50  

Regular Common Stock Dividends per common share

   $ 0.47     $ 0.43     $ 1.88     $ 1.73  

 

* all figures in ‘000s, except per share data    
** no tax impact    
*** tax adjustments relate to M&A expenses    

 

— More —

 

Contact:    Pablo E. Paez    (866) 301 4436
   Vice President, Corporate Relations   


NEWS RELEASE

 

Reconciliation of Net Income Attributable to GEO to

Net Operating Income, EBITDAre and Adjusted EBITDAre*

(Unaudited)

 

     Q4 2017     Q4 2016     FY 2017     FY 2016  
     (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Net Income attributable to GEO

   $ 36,357     $ 49,436     $ 146,241     $ 148,715  

Less

        

Net loss attributable to noncontrolling interests

     94       94       217       217  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

   $ 36,263     $ 49,342     $ 146,024     $ 148,498  

Add (Subtract):

        

Equity in earnings of affiliates, net of income tax provision

     (7,790     (1,983     (12,045     (6,925

Income tax provision(benefit)

     12,368       (4,096     17,958       7,904  

Interest expense, net of interest income

     25,617       24,745       96,348       100,222  

Loss on extinguishment of debt

     —         —         —         15,885  

Depreciation and amortization

     31,833       29,030       124,297       114,916  

General and administrative expenses

     46,477       40,262       190,343       148,709  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Operating Income, net of operating lease obligations

   $ 144,768     $ 137,300     $ 562,925     $ 529,209  
  

 

 

   

 

 

   

 

 

   

 

 

 

Add:

        

Operating lease expense, real estate

     7,884       6,505       29,996       32,231  

Start-up expenses, pre-tax

     —         —         —         1,939  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Operating Income (NOI)

   $ 152,652     $ 143,805     $ 592,921     $ 563,379  
  

 

 

   

 

 

   

 

 

   

 

 

 
     Q4 2017     Q4 2016     FY 2017     FY 2016  
     (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Net Income

   $ 36,263     $ 49,342     $ 146,024     $ 148,498  

Income tax provision (benefit) **

     6,884       (3,606     14,259       10,245  

Interest expense, net of interest income***

     25,617       24,745       96,348       116,107  

Depreciation and amortization

     31,833       29,030       124,297       114,916  

Gain on sale of real estate assets, pre-tax

     —         (952     (261     (952
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDAre

   $ 100,597     $ 98,559     $ 380,667     $ 388,814  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to noncontrolling interests

     94       94       217       217  

Stock based compensation expenses, pre-tax

     4,992       3,098       19,844       12,773  

M&A related expenses, pre-tax

     1,129       —         19,059       —    

Start-up expenses, pre-tax

     —         —         —         1,939  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDAre

   $ 106,812     $ 101,751     $ 419,787     $ 403,743  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

* all figures in ‘000s    
** including income tax provision on equity in earnings of affiliates    
*** includes loss on extinguishment of debt    

 

— More —

 

Contact:    Pablo E. Paez    (866) 301 4436
   Vice President, Corporate Relations   


NEWS RELEASE

 

2018 Outlook/Reconciliation

(In thousands, except per share data)

(Unaudited)

 

     FY 2018  

Net Income Attributable to GEO

   $ 155,000       to      $ 167,000  

Real Estate Related Depreciation and Amortization

     77,000          77,000  

Loss on Sale of Real Estate Assets

     500          500  
  

 

 

      

 

 

 

Funds from Operations (FFO)

   $ 232,500       to      $ 244,500  
  

 

 

      

 

 

 

Adjustments

       

Start-Up Expenses, net of tax

     2,000          2,000  
  

 

 

      

 

 

 

Normalized Funds from Operations

   $ 234,500       to      $ 246,500  
  

 

 

      

 

 

 

Non-Real Estate Related Depreciation and Amortization

     54,500          54,500  

Consolidated Maintenance Capex

     (23,000        (23,000

Non-Cash Stock Based Compensation

     20,500          20,500  

Non-Cash Interest Expense

     10,000          10,000  
  

 

 

      

 

 

 

Adjusted Funds From Operations (AFFO)

   $ 296,500       to      $ 308,500  
  

 

 

      

 

 

 

Net Cash Interest Expense

     101,500          101,500  

Consolidated Maintenance Capex

     23,000          23,000  

Income Taxes

     10,000          10,000  
  

 

 

      

 

 

 

Adjusted EBITDAre

   $ 431,000       to      $ 443,000  
  

 

 

      

 

 

 

G&A Expenses

     172,000          172,000  

Non-Cash Stock Based Compensation

     (20,500        (20,500

Equity in Earnings of Affiliates

     (6,000        (6,000

Loss on Sale of Real Estate Assets

     (500        (500

Real Estate Related Operating Lease Expense

     31,000          31,000  
  

 

 

      

 

 

 

Net Operating Income

   $ 607,000       to      $ 619,000  
  

 

 

      

 

 

 

Adjusted Net Income Per Diluted Share

   $ 1.27       to      $ 1.37  

AFFO Per Diluted Share

   $ 2.40       to      $ 2.50  

Weighted Average Common Shares Outstanding-Diluted

     123,500       to        123,500  

 

- End -

 

Contact:    Pablo E. Paez    (866) 301 4436
   Vice President, Corporate Relations   
(Back To Top)

Section 3: EX-99.2 (EX-99.2)

EX-99.2

Exhibit 99.2

Participants

CORPORATE PARTICIPANTS

Pablo E. Paez    J. David Donahue
Executive Vice President-Corporate Relations,    Senior Vice President and President-U.S. Corrections and
The GEO Group, Inc.    Detention, & International Operations, The GEO Group, Inc.
George C. Zoley    Ann M. Schlarb, Ph.D.
Chairman of the Board, Chief Executive Officer & Founder, The GEO Group, Inc.    Senior Vice President and President-GEO Care, The GEO Group, Inc.
Brian R. Evans   
Chief Financial Officer & Senior Vice President,   
The GEO Group, Inc.   
OTHER PARTICIPANTS   
Kevin McVeigh    Kevin A. McClure
Analyst, Deutsche Bank Securities, Inc.    Analyst, Wells Fargo Securities LLC
Tobey Sommer    Andrew Berg
Analyst, SunTrust Robinson Humphrey, Inc.    Analyst, Post Advisory Group LLC
Mark W. Strouse   
Analyst, JPMorgan Securities LLC   

Management Discussion Section

Operator

Good day, and welcome to The GEO Group Fourth Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Pablo Paez, Executive Vice President of Corporate Relations. Please go ahead, sir.

Pablo E. Paez

Executive Vice President-Corporate Relations, The GEO Group, Inc.

Thank you, operator. Good morning, everyone, and thank you for joining us for today’s discussion of the GEO Group’s fourth quarter and full year 2017 earnings results. With us today are George Zoley, Chairman and Chief Executive Officer; Brian Evans, Chief Financial Officer; Ann Schlarb, President of GEO Care; and David Donahue, President of GEO Corrections & Detention.

This morning, we will discuss our fourth quarter results and current business development activities. We will conclude the call with a question-and-answer session. This conference call is also being webcast live on our investor website at investors.geogroup.com. Today, we will discuss non-GAAP basis information. A reconciliation from non-GAAP basis information to GAAP basis results is included in the press release and supplemental disclosure we issued this morning. Additionally, much of the information we will discuss today, including the answers we give in response to your questions, may include forward-looking statements regarding our beliefs and current expectations with respect to various matters.

These forward-looking statements are intended to fall within the safe harbor provisions of the securities laws. Our actual results may differ materially from those in the forward-looking statements as a result of various factors contained in our Securities and Exchange Commission filings, including the Form 10-K, 10-Q, and 8-K reports.

With that, please allow me to turn this call over to our Chairman and CEO, George Zoley. George?


George C. Zoley

Chairman of the Board, Chief Executive Officer & Founder, The GEO Group, Inc.    

Thank you, Pablo, and good morning to everyone. We are pleased with our fourth quarter results by our diversified business units which achieved several important operational milestones during the past year. Our GEO Transport division transported more than 747,000 passengers while driving 19 million miles without any significant accidents or incidents.

GEO Corrections & Detention processed over 500,000 combined admissions and releases while managing an average daily population of more than 60,000 individuals in the U.S. And GEO Care served approximately 620,000 individuals while managing an average daily census of 193,000 program participants. So, on a daily basis, GEO serves more than 250,000 individuals through our diversified programs and facilities.

This past year, we doubled our annual expenditure from $5 million to $10 million to expand our GEO Continuum of Care department. It is headed by an Executive Vice President overseeing more than a dozen subject matter experts in offender rehabilitation as well as an entire division with dedicated case managers who provide post-release support services. We are pleased that our efforts in this important area of criminal justice reform have begun to attract national attention.

This past month, I was honored to represent GEO at the American Correctional Association Winter Conference where our GEO Continuum of Care received the Innovation in Corrections Awards. We’re extremely proud of this important recognition which was based on the implementation of our GEO Continuum of Care at the Graceville Correctional facility in Florida.

Since 2015, the facility has completed 900,000 hours of programming, awarded more than 2,900 program completions, and conducted approximately 8,400 individual cognitive behavioral sessions. The facility has also provided assistance to 617 post-release program participants with more than $400,000 in company funding being allocated for crucial community needs by those participants. These programs have also resulted in improved safety and security outcomes at the facility with a 42% reduction in grievances filed and a 45% reduction in major disciplinary reports.

Since the launching of this pilot program in 2015, we have now rolled out our Continuum of Care programs at 14 state correctional facilities and one federal correctional institution in the U.S. This past quarter, we also completed the development of the 1,300-bed Ravenhall Correctional Center in Australia, which we believe will have the most comprehensive rehabilitation program in the world. We believe our GEO Continuum of Care programs are having a positive impact in the lives of more than17,000 individuals in our care every day.

In line with these efforts, this past year we’ve also completed the acquisition of Community Educational Centers, considered a leading provider of re-entry and treatment services for $360 million. This important transaction further diversified our real estate portfolio in earnings and positioned us to expand our delivery of tailored real estate management and programmatic solutions. Today, we own or manage over 96,000 beds worldwide, making GEO the fifth largest unified correctional organization in the world.

Looking forward to 2018, even though we expect some headwinds related to rising interest rates, we remain optimistic about our future and growth prospects. Our core business remains stable and we believe our dividend is supported by a predictable operational cash flows and remains well within our guided payout ratio of 75% to 80% of AFFO. We have issued our initial financial guidance for the year which should provide assurance for the sustainability of our current dividend payout despite the expected interest rate headwind.

We are also currently pursuing several organic growth opportunities which could represent upside to our initial guidance. While several of these potential growth catalysts have experienced some delays partly due to the uncertainty surrounding the federal budget process, we remain optimistic about future prospects and are hopeful that these opportunities will materialize during 2018.


We also recognize that we can enhance our shareholders value with the repurchase of our common shares at times when we believe our stock is undervalued. For this reason, our board has authorized a stock buyback program of up to $200 million. We expect to implement this program with an opportunistic strategy that maximizes the expected returns for our shareholders and balances our capital needs. We believe the share repurchase program could be as much as $0.16 per share accretive to the bottom line if fully implemented at approximately our current share price.

Finally, I’d like to say a word about our work force. Every single day, more than 23,000 GEO employees make a difference in the lives of men and women entrusted in our care. Their dedication underscores our continued belief that as a company, we are at our best when we’re helping those in our care re-enter society as productive and employable citizens.

Now, I will ask CFO, Brian Evans, to review our results and guidance.

Brian R. Evans

Chief Financial Officer & Senior Vice President, The GEO Group, Inc.

Thank you, George. Good morning, everyone. Today, we reported our fourth quarter GAAP earnings per share of $0.30 and AFFO per share of $0.67 on quarterly revenues of $569 million. Our fourth quarter reflects better-than-expected results from our equity in earnings of affiliates, largely driven by a favorable tax settlement for our South African joint venture. While we had anticipated this benefit in our previously issued guidance, the effect of this item was $2 million to $3 million more than we had anticipated during the quarter.

Our fourth quarter results also reflect approximately $1 million in M&A-related expenses and $9.6 million net charge related to the re-measurement of our net deferred tax assets as a result of the recently enacted Tax Cuts and Jobs Act, which lowered the corporate tax rate from 35% to 21% at the federal level.

Excluding these items, we have reported adjusted earnings per share of $0.38. Compared to fourth quarter 2016, our fourth quarter 2017 results reflect several items including: the activation of the new ICE contract at our company-owned 780-bed Folkston, Georgia facility in January 2017; the issuance of 10.4 million shares of common stock on a post-split basis in March 2017; the refinancing of the term loan under our credit facility also in March 2017; and the acquisition of CEC which closed in April 2017.

Moving to our outlook for 2018, we have issued our initial guidance for the full year and the first quarter of 2018. We expect our full year net income attributable to GEO to be in a range of $1.27 to $1.37 on a full year revenue of approximately $2.3 billion. We expect our full year AFFO to be in a range of $2.40 to $2.50 per diluted share.

Our full year guidance for 2018 reflects several factors. First, our guidance reflects a year-over-year increase of approximately $10 million in higher net interest expense domestically. More than two-thirds of this increase is directly related to the expected rise in interest rates with the rest being attributable to higher overall average outstanding debt balances compared to 2017.

Our guidance also reflects revised pricing terms under the new 10-year contracts for our Big Spring, Texas facilities, which as we previously disclosed, began on December 1 of last year. As you may recall, those contracts were awarded under the Bureau of Prisons CAR 16 procurement, which was very competitive in nature since it restricted the award to no more than 3,600 beds. Our outlook does not presently assume the reactivation of our approximately 7,000 idle and underutilized beds which could represent upside to our initial guidance.

Finally, our guidance does not reflect any share buybacks under the share repurchase program we announced this morning. For the first quarter 2018, we expect total revenues to be in a range of $556 million to $561 million. Our first quarter 2018 net income attributable to GEO is expected to be in a range of $0.26 to $0.28 per diluted share. We expect AFFO for the first quarter 2018 to be between $0.55 and $0.57 per diluted share. In addition to the items impacting our full year guidance, compared to our fourth quarter 2017 results, our first quarter 2018 guidance reflects $0.03 to $0.04 in additional employment tax expense as a result of normal seasonality in unemployment taxes which are front-loaded in the first quarter of the year.


Looking at our liquidity position, we have approximately $560 million in available capacity under our revolving credit facility in addition to an accordion feature of $450 million under the credit facility. In terms of our uses of cash, our growth CapEx is expected to be approximately $103 million in 2018. We also have approximately $10 million in scheduled annual principal payments of debt.

Earlier this month, our board declared a quarterly cash dividend of $0.47 per share or $1.88 per share annualized. Our dividend payment is well within our guided payout range of 75% to 80% of AFFO and we believe it is supported by predictable operational cash flows.

As we disclosed earlier this year, our dividend payments for 2017 received more favorable tax treatment for our shareholders than in prior years and we expect the more favorable treatment for our dividend payments to continue in 2018 and future years.

Finally as George mentioned, we recognize that we can enhance value for our shareholders by buying back our stock at times when we believe our share price is undervalued. This morning, we announced that our board has authorized a stock buyback program of up to $200 million. We expect to implement this program opportunistically to maximize the returns for our shareholders and to balance our need for capital to pursue growth opportunities.

At this time, I’ll turn the call to Dave Donahue for a review of our GEO Corrections & Detention segment.

J. David Donahue

Senior Vice President and President-U.S. Corrections and Detention, & International Operations, The GEO Group, Inc.    

Thanks, Brian, and good morning everyone. Our GEO Corrections & Detention business unit achieved several important operational milestones during 2017. Our combined GEO facilities achieved operational excellence with the successful completion of more than 50 audits by entities such as the American Correctional Association or ACA, the National Commission on Correctional Healthcare, and several other entities.

During the year, 25 of our facilities company-wide received accreditation from ACA with an average accreditation score in excess of 99.8% and 18 of these facilities received a perfect accreditation score of 100%. Looking at our state segment, our eight state correctional customers have stable budgets and our facilities have been able to provide high quality services without being impacted by budgetary constraints.

Across these eight state customers, we have been expanding the delivery of our GEO Continuum of Care programs which have now been launched at 14 GEO state correctional facilities. We are excited about the opportunity to expand our relationships within those states and we also remain optimistic about the opportunity to partner with new states across the country.

Several states continue to face capacity constraints and many of our state customers are facing challenges related to older prisons, which need to be replaced with new and more cost-efficient facilities. In the states where we operate, the average age of state prisons range from approximately 30 years to 60 years. The State of Kansas recently awarded a contract for the development of a new 2,400- bed facility to replace the State’s oldest prison facility.

Similarly, the State of Wisconsin has discussed the potential development of a new facility to replace one of the State’s oldest prison facilities located in the Green Bay area, as well as other potential replacement facilities for some of the state’s oldest prisons. And the State of Vermont is also exploring a privately developed and financed option for a new correctional facility with up to 1,000 beds.

In Idaho, the Department of Corrections has issued a solicitation for up to 1,000 out-of-state beds. Proposals were submitted earlier this month and we expect an award decision during the second quarter. The State of Idaho has also recently entered into an emergency contract with GEO for the ability to house up to 250 inmates at our company-owned Karnes Correctional Center in Texas in the immediate term.


Moving to our federal segment, we have enjoyed a three decade long partnership with the federal government and we currently provide services for the BOP, ICE and U.S. Marshals Service. In Texas, we are developing a new 1,000-bed ICE processing center in the Houston area under a new 10-year contract we were awarded by ICE last year. The new center is expected to cost approximately $120 million and will be completed in the fourth quarter of this year with expected annualized revenues of $44 million.

As it relates to new opportunities, the BOP has two pending procurements for the housing of criminal alien populations. Under the CAR 19 procurement, the BOP expects to award up to 9,500 beds at existing facilities. The proposals were submitted last July with an award decision expected in late 2018. Under the CAR 18 solicitation, the BOP is rebidding the management contract for the government-owned 2,355-bed Taft, California facility. We previously operated the facility for 10 years until 2007 and submitted our proposal last June to manage the facility under a new 10-year contract.

An award decision is expected from the BOP by the middle of this year. We are encouraged by recent DOJ directive regarding increasing population levels in private correctional facilities in order to relieve overcrowding in BOP-operated facilities. GEO has 7,000 idle or underutilized beds and is well-positioned to compete for future BOP opportunities.

Turning to ICE, 2017 was a transition year for the agency with a number of enforcement policy changes and a decline in border apprehensions during the first half of the year compared to 2016. During the second half of the year, crossings and apprehensions along the southwest border steadily increased and have currently normalized consistent with historical levels. ICE has a pending procurement for the management of their government-owned 700-bed Florence, Arizona processing center.Proposals were submitted last year and we are currently awaiting an award decision. ICE also has a solicitation for secure transportation services in the San Antonio, Texas area. Proposals were submitted last year with an expected award decision in the near future.

Last year, ICE also issued a request for information for facilities which could be existing or new sites to be located in the Detroit, Chicago, St. Paul, and Salt Lake City areas. On a combined basis, these facilities are expected to have up to 3,000 beds. We have submitted our proposed solutions and are awaiting additional guidance from ICE at this time. We believe that the timing of these ICE opportunities have been delayed in part due to the uncertainties surrounding the federal budget and appropriations process.

As you may be aware, the U.S. Congress has passed several short-term continuing resolutions this fiscal year starting last September. Last week, the Congress approved the two-year budget plan which increases the overall spending caps for non-defense discretionary funding by $131 billion over fiscal years 2018 and 2019. While there is a positive step towards bringing budget certainty for all federal agencies, the U.S. Congress has not yet approved the individual department and agency appropriations bills required to fund the government through the balance of the fiscal year.

Last week in tandem with the two-year budget agreement, the Congress also approved an additional short-term continuing resolution which funds the federal government through March 23. As with prior versions, the continuing resolution provides funds consistent with the prior fiscal year spending levels for ICE, but does not yet provide any additional new funding for the agency. As we’ve reported in the past, the House of Representatives had previously approved an appropriations mark-up for the Department of Homeland Security which included funding for 44,000 detention beds and 1,600 additional ICE officers, agents, and support staff. The previous House Appropriations mark-up for the Department of Justice included an increase of approximately $82 million for the U.S. Marshals and an increase of $61 million for the BOP.

As Congress works toward approval of the appropriation bills that will fund the government for the balance of fiscal year 2018 which ends on September 30, earlier this week the President released his budget request for the fiscal year 2019 which begins on October 1. The President’s proposed budget for fiscal year 2019 includes a funding request for ICE to support the hiring of 2,000 additional ICE law enforcement officers and 750 border patrol agents as well as a total of 52,000 detention beds, an increase of almost 13,000 beds over the funding levels under the current continuing resolution.


Moving to our international markets, we’re pleased to have completed the development and activation of the 1,300-bed Ravenhall Correctional Center in Australia on November 1 of last year. The $700 million project inclusive of a $90 million investment by GEO is expected to generate approximately $75 million in annual revenues based on the 1,000-bed occupancy level under a 25-year contract with Corrections Victoria. This important contract will provide for quarterly fixed payments for the operation of the facility plus a service-linked payment tied to the delivery of rehabilitation re-entry and recidivism reduction outcomes.

Growing inmate populations have created the need for additional capacity and other state jurisdictions in Australia. Two of our facilities in New South Wales, the Junee and Parklea Centers, are undertaking expansion projects totaling 680 and 650 beds, respectively, which are expected to be completed later this year. Finally, our joint UK venture submitted a proposal to the Scottish Government for the provision of court custody and prisoner escort services and we are awaiting the contract decision.

At this time, I’ll turn the call over to Ann for a review of our GEO Care segment. Ann?

Ann M. Schlarb, Ph.D.

Senior Vice President and President-GEO Care, The GEO Group, Inc.    

Thank you Dave, and good morning, everyone. GEO Care had a very active year and we are pleased with the operational milestones achieved by our four divisions. Our GEO Reentry division completed the integration of the facilities and programs acquired from Community Education Centers, CEC, and we have overall been pleased with the integration of our new CEC facilities. We remain optimistic about our expanded reentry and treatment services platform following the acquisition of CEC. With this new expanded platform, we’ve already identified a number of new business opportunities and have submitted several proposals for residential and non-residential programs. These new potential projects represent more than $50 million in incremental annual revenue opportunity.

In terms of our Youth Services business, we continue to experience stable utilization rates across our facilities. Our Youth segment has been stable for the past couple of years after our team undertook a number of consolidation and marketing initiatives.

Moving to our BI electronic monitoring division, the utilization of our ISAP contract with ICE remain stable throughout 2017 after increasing rapidly in the preceding year. We expect the utilization of the program to remain stable in 2018. At the state and local level, BI continues to pursue a number of new business opportunities.

Finally, we remain very excited about our GEO Continuum of Care programs. Our GEO Continuum of Care division oversees the integration of our industry-leading evidence-based rehabilitation programs with post-release support services. We have now implemented these enhanced programs in 14 state correctional facilities operated by GEO and also in our Rivers Correctional Institution which houses Washington, D.C. individuals on behalf of the Federal Bureau of Prisons.

On a combined basis, these facilities have completed over 11.7 million hours of Continuum of Care programming over the last two years. Our academic programs have averaged close to 12,000 daily participants and have awarded close to 4,500 high school equivalency degrees in that time period. The average daily attendance for our vocational courses totaled more than 24,000 participants leading to more than 15,000 vocational training completion and almost 4,000 individuals attended substance abuse treatment on a daily basis with more than 16,000 participants completing their substance abuse programs during that time span. We have also provided post-release support services to more than 1,200 individuals returning to their communities in the last few years and we believe we are already starting to see meaningful results and improved outcomes and reduced recidivism.

We believe these remarkable achievements are making a difference in the lives of the men and women who have been entrusted to our care. As George mentioned, we are incredibly proud to have recently received the Innovation in Corrections Awards from the American Correctional Association for the implementation of our GEO Continuum of Care at the Graceville Correctional Facility in Florida which was our pilot program. This prestigious award underscores our industry-leading position in the development and implementation of evidence-based rehabilitation practices and recidivism reduction programs.


We believe that our focus on improved rehabilitation and community reentry programs is in line with criminal justice and prison reform efforts being undertaken by government agencies to invest in meaningful rehabilitation and recidivism reduction. We expect our efforts to drive future growth opportunities across our diversified services.

At this time, I’ll turn the call back to George for his closing remarks.

George C. Zoley

Chairman of the Board, Chief Executive Officer & Founder, The GEO Group, Inc.    

Thank you, Ann. We are pleased with our financial performance during the year and the important operational milestones achieved across our diversified business units. Despite some headwinds associated with a rising interest rate environment, we believe our core operational cash flows remain stable and predictable.

Our management team is focused on capturing new growth and we remain optimistic about the demand for our services. We continue to carefully evaluate our capital allocation to create sustainable long-term value for our shareholders. We recognize that we can enhance shareholder value by opportunistically repurchasing our shares and, to that end, our board has authorized a $200 million stock buy back program.

We are proud of the continued success of our company. I’d like to thank all of our employees worldwide, their dedication and professionalism are unmatched and have allowed GEO to become the fifth largest corrections organization in the world and to be recognized by our customers as best-in-class.

We look forward to furthering our commitment to better the lives of those entrusted to us through our GEO Continuum of Care. We believe strongly that we are at our best when helping those in our care return into society as productive and employable citizens. So, we’re now happy to open the call to your questions.

Question And Answer Section

Operator

Thank you [Operator Instructions] And our first question will come from Kevin McVeigh of Deutsche.

Kevin McVeigh

Analyst, Deutsche Bank Securities, Inc.    

Great. Thanks. Hey. Helpful as always. George or Brian, obviously, it seems like there’s a lot of optimism at the federal level that’s still kind of getting caught up in the budget process. Is there any way to think about those 7,000 beds what the probability would be when some of those start to come online? Or George, just any way – as you think about kind of 2018. I know we don’t have any of that in the guidance but is there any way to probability weigh what some of those beds coming online would look like as we think about the year?

George C. Zoley

Chairman of the Board, Chief Executive Officer & Founder, The GEO Group, Inc.    

A good portion of them could come online, I believe, in the second quarter. Given that two of the facilities, one BOP and one ICE, are presently operational facilities and would merely involve the transition to new management and all of that could take place in the second quarter. And I think the comment on our ICE facility that could be completed and opened I think in our third quarter, not the fourth quarter.

Kevin McVeigh

Analyst, Deutsche Bank Securities, Inc.    


Got it. And then just in terms of the buy back, obviously the stock is under valued. Any thoughts on – is there a certain – I mean the stock, even at current levels, looks pretty compelling. Any thoughts on – I know we don’t have any of that in our guidance, but just how we should think about that over the course of the year?

Brian R. Evans

Chief Financial Officer & Senior Vice President, The GEO Group, Inc.    

Well, I think other than what we’ve said, we’ll look at the share price. And where we think it’s undervalued, we’re going to make some opportunistic repurchases. So, there’s reasonable chance that that may occur in the near- to mid-term.

Kevin McVeigh

Analyst, Deutsche Bank Securities, Inc.    

That’s helpful, Brian. And then just real quick, the interest expense on the – it sounds like two-thirds was rates, one-third higher average balance. What are the higher kind of average balances coming on?

Brian R. Evans

Chief Financial Officer & Senior Vice President, The GEO Group, Inc.    

Well, I didn’t think during 2018 compared to 2017 you have obviously debt related to the CEC acquisition that’s now going to be out as for the full year. We’ve got borrowing to fund the growth of – or the completion of the Ravenhall – or not the Ravenhall, but the ICE facility in Texas and some other miscellaneous smaller projects, but that’s the bulk of it. So, I think it’s just an extra quarter of having the CEC-related acquisition debt outstanding and then the construction primarily related to that facility in Texas.

Kevin McVeigh

Analyst, Deutsche Bank Securities, Inc.

Awesome. Thank you, all.

Operator

The next question comes from Tobey Sommer of SunTrust.

Tobey Sommer

Analyst, SunTrust Robinson Humphrey, Inc.    

Thank you. Can you comment on what you’re seeing in terms of ICE detainee populations and then what your assumption is for the balance of the year in your guidance?

George C. Zoley

Chairman of the Board, Chief Executive Officer & Founder, The GEO Group, Inc.    

Well, I think we said that last year was a transitional year where there was actually a decline in the census population because of the reduction in border crossings but in the first half of the year, that steadily increased in the second half and today we’re, I believe, higher than we normally are at this time of the year and we expect that to continue if not increase for the balance of the year.

Tobey Sommer

Analyst, SunTrust Robinson Humphrey, Inc.    

Okay. You mentioned that as early as 2Q perhaps some of your idle and under utilized beds could become more productive.


George C. Zoley

Chairman of the Board, Chief Executive Officer & Founder, The GEO Group, Inc.    

Well, I meant to – I think I said that some of the contracts we were referencing could be awarded in the second quarter and some of them are active operations presently and nearly require the assumption of new management which could take place in the second quarter. As far as CAR 19, for example, that wouldn’t be awarded till later on 2018.

Tobey Sommer

Analyst, SunTrust Robinson Humphrey, Inc.    

With the ICE RFI that’s out there in the funding request for increased beds and border patrol agents, et cetera, do you think that this RFI can bring to a formal RFP in that lengthy process is likely or inter governmental service agreement is probably a more likely mechanism for that to proceed forward?

George C. Zoley

Chairman of the Board, Chief Executive Officer & Founder, The GEO Group, Inc.    

I think on those, it would be an RFP process – on those particular locations. But additionally, ICE is still interested in building up its capacity and could enter into such agreement on an inter governmental basis.

Tobey Sommer

Analyst, SunTrust Robinson Humphrey, Inc.    

For locations apart from those...

George C. Zoley

Chairman of the Board, Chief Executive Officer & Founder, The GEO Group, Inc.    

Aside from those three.

Tobey Sommer

Analyst, SunTrust Robinson Humphrey, Inc.    

Okay. With respect to what you mentioned about Idaho and kind of emergency contract in the Karnes facility, when would the intake of inmates begin? And what’s the bottom line impact in 2018 of that?

J. David Donahue

Senior Vice President and President-U.S. Corrections and Detention, & International Operations, The GEO Group, Inc.    

Tobey, this is Dave. We’ve already begun the receipt of additional Idaho residents, if you will, at our Karnes facility, so that intake process is underway.

George C. Zoley

Chairman of the Board, Chief Executive Officer & Founder, The GEO Group, Inc.    

This week.

J. David Donahue

Senior Vice President and President-U.S. Corrections and Detention, & International Operations, The GEO Group, Inc.    

Yes.


Tobey Sommer

Analyst, SunTrust Robinson Humphrey, Inc.    

Okay. And what is the financial impact of that?

Brian R. Evans

Chief Financial Officer & Senior Vice President, The GEO Group, Inc.    

It’s 250 beds, so that’s probably an average per diem rate. I don’t know if we disclose the amount of revenue associated with that. And it’s only a four-month contract, but it has the ability to be extended month-to-month and that essentially gave them sometime as they roll through this RFP process on the 1,000-bed procurement.

Tobey Sommer

Analyst, SunTrust Robinson Humphrey, Inc.    

Can the facility be profitable at that level or is that a drag at least initially at the 250-bed level?

Brian R. Evans

Chief Financial Officer & Senior Vice President, The GEO Group, Inc.    

Well, this is a facility that the Karnes Correctional Center already has some U.S. marshals in there, so it’s a little bit underutilized so we’re making use of incremental capacity at that facility.

Tobey Sommer

Analyst, SunTrust Robinson Humphrey, Inc.    

Understood. And let me see, do you have any plans to adjust the floating versus fixed proportion of your debt? How do you think about that at this point? Thanks.

Brian R. Evans

Chief Financial Officer & Senior Vice President, The GEO Group, Inc.    

We will continue to monitor the interest rate environment and the forward curve and look at the swap rates. But at this time, we’re not looking to make any changes.

Tobey Sommer

Analyst, SunTrust Robinson Humphrey, Inc.    

Last question from me and I’ll get back in the queue, what does the M&A pipeline look like? The company was able to consummate something in the early part of last year and just curious if there’s ongoing opportunity?

George C. Zoley

Chairman of the Board, Chief Executive Officer & Founder, The GEO Group, Inc.    

We’re always looking at things but, see – we acquired CEC last year and that was a fairly significant acquisition. I don’t think we’re looking at anything of that magnitude at this time. But certainly, some smaller ones.

Tobey Sommer

Analyst, SunTrust Robinson Humphrey, Inc.    

Thank you very much.


Operator

And next, we have a question from Mark Strouse of JPMorgan.

Mark W. Strouse

Analyst, JPMorgan Securities LLC    

Yes. Hi. Good morning. Thanks for taking our questions. Most of our questions have been asked but just one that’s ISAP contract. So, I think you mentioned that you expect that to be stable during 2018. But can you share what you know about the ISAP 4 contract, when that could potentially be awarded, and is that an opportunity for potentially expanding the program?

Ann M. Schlarb, Ph.D.

Senior Vice President and President-GEO Care, The GEO Group, Inc.    

The ISAP4 contract will be rebid late 2018, early 2019. And we have not yet heard from the government what that might look like and so we’ll be watching that closely.

Mark W. Strouse

Analyst, JPMorgan Securities LLC    

Okay. Thanks. And then how should we think about just kind of at a high level the decision to announce this buyback versus potentially paying down some of the floating rate debt?

Brian R. Evans

Chief Financial Officer & Senior Vice President, The GEO Group, Inc.    

Well, on a cash flow basis, it actually improves the cash flows given that the dividend is approximately 9% to 10% and our floating rate debt is at about 3.5% to 4% right now. So, even with the projected increases in interest rates, I think it’s still cash flow beneficial to the company at the current prices and that’s obviously something that we’ll take into consideration as we look at when to opportunistically make repurchases.

Mark W. Strouse

Analyst, JPMorgan Securities LLC    

Right. Okay. And then just lastly, are there any limitations on the buyback? Is there a window period that you have to get through here? Should investors maybe assume that this can begin immediately?

Brian R. Evans

Chief Financial Officer & Senior Vice President, The GEO Group, Inc.    

Just our normal corporate windows. Unless there’s a plan put in place which we haven’t done and we don’t currently plan to do, it will be one of our windows open which our window reopens 48 hours or two days after our press release.

Mark W. Strouse

Analyst, JPMorgan Securities LLC    

Got it. Okay. Thank you very much. [Operator Instructions]

Operator

[Operator instructions] And our next question will come from Kevin McClure of Wells Fargo.


Kevin A. McClure

Analyst, Wells Fargo Securities LLC    

Good morning. Thanks for taking my question. This is for Brian. You guys have the buyback program now. You’re optimistic about some of the opportunities with the federal government. So, I’m curious what’s your appetite for additional greenfield development and how high would you be willing to take leverage in order to fund those projects?

Brian R. Evans

Chief Financial Officer & Senior Vice President, The GEO Group, Inc.    

Well, we still have the ATM if we need to fund projects with that. We have plenty of capacity on the revolver. So, we can easily handle another greenfield site of $100 million I think. And as we said, we’ll balance the stock repurchases with our other capital needs and capital outlays. Obviously, growth I think is the best use of that capital so that’s going to be the first choice.

Kevin A. McClure

Analyst, Wells Fargo Securities LLC    

Got it. Okay. And then following up on that, what would cause you to tap the accordion on your loan versus issuing bonds or putting the excess cash or the cash needs on your line? That’s it for me. Thanks.

Brian R. Evans

Chief Financial Officer & Senior Vice President, The GEO Group, Inc.    

I don’t know that we have any plans to tap the accordion. I think it’s just a feature that’s there that’s maybe a little bit easier to access than bonds or redoing the credit facility. So, no specific intent to use it right now.

Kevin A. McClure

Analyst, Wells Fargo Securities LLC    

Got it. Thanks for the time.

Operator

And the next question comes from Andrew Berg of Post Advisory Group.

Andrew Berg

Analyst, Post Advisory Group LLC    

Yes. Just going back on the stock repurchase, you note in the press release you got $120 million of availability under the revolver to make repurchases. I believe the bonds don’t have any significant restricted payments issues. Is there anything under the term loan that would further restrict your ability to repurchase stock or what is the amount you’re allowed to do under that term-loan agreement? I just don’t recall.

Brian R. Evans

Chief Financial Officer & Senior Vice President, The GEO Group, Inc.    

Well, the term loan is a part of the credit facility so the debt covenants are the same, so there is no differences.

Andrew Berg

Analyst, Post Advisory Group LLC    


All right. So, the term loan and revolver cap you at the $120 million currently?

Brian R. Evans

Chief Financial Officer & Senior Vice President, The GEO Group, Inc.    

Those are consistent.

Andrew Berg

Analyst, Post Advisory Group LLC    

Great. Thank you.

Operator

And this concludes our question and answer session. I would like to turn the conference back over to George Zoley for any closing remarks.

George C. Zoley

Chairman of the Board, Chief Executive Officer & Founder, The GEO Group, Inc.    

Thanks to everyone for joining us today. We look forward to addressing you in the next quarterly conference call.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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