GEO Group (GEO) Reports Q1 EPS of $0.24, Revenues Miss; Updates 2Q & FY20 EPS Guidance

GEO Group (NYSE: GEO) reported Q1 EPS of $0.24. Revenue for the quarter came in at $605 million versus the consensus estimate of $613.97 million.

First Quarter 2020 Highlights

• Total revenues of $605.0 million
• Net Income Attributable to GEO of $25.2 million or $0.21 per diluted share
• Adjusted Net Income of $0.24 per diluted share
• Net Operating Income of $150.2 million
• Normalized FFO of $0.39 per diluted share
• AFFO of $0.55 per diluted share

FY20 Guidance Updated; 2Q20 Guidance Provided

• Updated financial guidance reflects the impact of COVID-19 pandemic on GEO
• FY20 Net Income Attributable to GEO expected to be $0.92-$1.04 per diluted share
• FY20 Adjusted Net Income expected to be $1.00-$1.12 per diluted share
• FY20 AFFO expected to be $2.25-$2.35 per diluted share
• 2Q20 Net Income Attributable to GEO expected to be $0.20-$0.24 per diluted share
• 2Q20 Adjusted Net Income expected to be $0.23-$0.27 per diluted share
• 2Q20 AFFO expected to be $0.54-$0.58 per diluted share

George C. Zoley, Chairman and Chief Executive Officer of GEO, said, “As our country and the world face an unprecedented health and economic crisis, our employees and facilities have also been impacted by the spread of COVID-19. Ensuring the health and safety of all those entrusted to our care and our employees has always been our number one priority, and we have implemented comprehensive steps to address and mitigate the risks of COVID-19 across our company. We are incredibly proud of our frontline employees who make daily sacrifices to care for all those in our facilities and programs.

“While we have continued our operations as an essential government services provider, the spread of COVID-19 has also negatively impacted our projected revenues and cash flows. Despite the significant challenges associated with this global pandemic, our business, earnings and cash flows remain resilient, and we believe we have adequate liquidity and access to capital. We have taken what we believe is a prudent approach to our guidance for 2020, and we remain focused on the effective allocation of capital and on the enhancement of long-term value for our shareholders.”

GUIDANCE:

GEO Group sees Q2 2020 EPS of $0.23-$0.27.

GEO Group sees FY2020 EPS of $1.00-$1.12.

2020 Financial Guidance

We updated our financial guidance for the full-year of 2020 and issued guidance for the second quarter of 2020. Even though we have continued our operations as an essential government services provider, the spread of COVID-19 has negatively impacted a number of our facilities and programs and is expected to result in lower full-year 2020 revenues, primarily for our ICE Processing Centers and U.S. Marshals Service facilities and our GEO Reentry Services business.

Our ICE Processing Centers and U.S. Marshals Service facilities began experiencing lower overall occupancy in late March 2020 as a result of declines in crossings and apprehensions along the U.S. Southwest border, as well as, a decrease in court and sentencing activity at the federal level in the United States due to the COVID-19 pandemic. Additionally, the U.S. federal government recently issued COVID-19 operational guidance recommending a reduction to 75 percent of capacity at ICE Processing Centers where possible to promote social distancing practices.

Our GEO Secure Services contracts typically contain fixed-price or minimum guarantee payment provisions intended to ensure adequate staffing levels and consistent service delivery. Our ICE Processing Centers and U.S. Marshals Service facilities are currently operating at or around the capacity level tied to the fixed-price or minimum guarantee payment provisions. While it is possible that we may experience an improvement at these facilities later this year, our updated full-year 2020 guidance assumes a continuation of lower occupancy levels through the end of the year, resulting in an estimated revenue decline of approximately 8% for the full-year 2020.

Our GEO Reentry Services business also began experiencing a decline in occupancy in late March 2020 at our residential reentry centers and non-residential day reporting programs due to lower levels of referrals by federal, state and local government agencies because of the COVID-19 pandemic. While it is possible that referral levels for our GEO Reentry Services business may increase later this year, our updated full-year 2020 guidance assumes lower occupancy levels for our residential reentry centers and day reporting programs through the end of the year, resulting in an estimated revenue decline of approximately 4% for the full-year 2020.

We have also increased our spending on personal protective equipment, diagnostic testing, and medical expenses as a result of the COVID-19 pandemic and expect to incur several million dollars in non-recurring costs during 2020. Additionally, our updated guidance continues to assume no contribution from our 700-bed Central Valley, 750-bed Desert View, and 700-bed Golden State facilities in California, even though we are hopeful these facilities will be activated as ICE Processing Center annexes during the second half of 2020.

As a result of these factors, we have updated our full-year 2020 guidance for Net Income Attributable to GEO to a range of $0.92 to $1.04 per diluted share; Adjusted Net Income to a range of $1.00 to $1.12 per diluted share; and AFFO to a range of $2.25 to $2.35 per diluted share. We expect full-year 2020 revenues to be approximately $2.38 billion.

For the second quarter of 2020, we expect Net Income Attributable to GEO to be in a range of $0.20 to $0.24 per diluted share; Adjusted Net Income to be in a range of $0.23 to $0.27 per diluted share; and AFFO to be in a range of $0.54 to $0.58 per diluted share. Compared to our first quarter 2020 results, second quarter 2020 guidance reflects lower employment tax expenses, which are front-loaded in the first quarter of each year.

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