The GEO Group Reports First Quarter 2010 Results

The GEO Group (NYSE: GEO) (“GEO”) today reported first quarter 2010 financial results. GEO reported GAAP and Pro Forma income from continuing operations for the first quarter 2010 of $17.7 million, or $0.34 per diluted share, compared to GAAP income from continuing operations of $15.1 million, or $0.29 per diluted share, and Pro Forma income from continuing operations of $15.9 million, or $0.31 per share, for the first quarter of 2009.

George C. Zoley, Chairman and Chief Executive Officer of GEO, said: “We are pleased with our strong first quarter earnings results and our improved outlook for 2010. Our financial performance continues to be driven by sound operational results from our diversified business units. We continue to be optimistic about the long term trends and growth prospects in our industry, which we feel our company is well positioned to pursue.”

Pro forma income from continuing operations excludes start-up/transition expenses, and other items as set forth in the table below, which presents a reconciliation of pro forma income from continuing operations to GAAP income from continuing operations for the first quarter 2010. Please see the section of this press release below entitled “Important Information on GEO’s Non-GAAP Financial Measures” for information on how GEO defines pro forma income from continuing operations.

Business Segment Results

The following table presents a summary of GEO’s segment results for the first quarter 2010.

U.S. Corrections

For the first quarter 2010, U.S. Corrections revenue increased by approximately $0.7 million year-over-year, while compensated mandays declined by approximately 76,000 year-over-year. This revenue increase was primarily driven by the activation of 645 expansion beds with higher revenue per compensated manday at two GEO-owned facilities, the Northwest Detention Center in Tacoma, Washington and the Broward Transition Center in Deerfield Beach, Florida, which offset the discontinuation of three managed-only facilities in Texas totaling 1,597 beds with lower revenue per compensated manday: the Fort Worth Community Correctional Facility, the Jefferson County Downtown Jail, and the Newton County Correctional Center.

International Services

For the first quarter of 2010, International Services revenue increased by approximately $20.2 million year-over-year driven by the activation of the Parklea Correctional Centre in Australia; the opening of the Harmondsworth Immigration Removal Centre in the United Kingdom; and positive foreign exchange rate fluctuations. International Services operating expenses for the first quarter of 2010 were negatively impacted by additional staffing expenses of approximately $1.5 million related to the transition of management of the Parklea Correctional Centre in Australia. These staffing expenses are not expected to recur in the second quarter of 2010.

GEO Care

For the first quarter of 2010, GEO Care revenues increased by approximately $6.1 million year-over-year driven by the activation of the Columbia Regional Care Center in South Carolina. The Columbia Regional Care Center experienced a slightly lower census in the first quarter of 2010 compared to the fourth quarter of 2009. GEO Care is actively marketing the currently unutilized beds at the Columbia Regional Care Center.

Adjusted EBITDA

First quarter 2010 Adjusted EBITDA increased to $44.3 million from $41.4 million in the first quarter of 2009. Please see the section of this press release below entitled “Important Information on GEO’s Non-GAAP Financial Measures” for information on how GEO defines Adjusted EBITDA. The following table presents a reconciliation from Adjusted EBITDA to GAAP Net income for the first quarter 2010.

Adjusted Free Cash Flow

Adjusted Free Cash Flow for the first quarter 2010 increased to $35.6 million, or $0.69 per diluted share, compared to $31.3 million, or $0.60 per diluted share, for the first quarter of 2009. Please see the section of this press release below entitled “Important Information on GEO’s Non-GAAP Financial Measures” for information on how GEO defines Adjusted Free Cash Flow. The following table presents a reconciliation from Adjusted Free Cash Flow to GAAP income from continuing operations for the first quarter 2010.

Stock Repurchase Program

On February 22, 2010, GEO’s Board of Directors approved a stock repurchase program of up to $80.0 million of GEO’s common stock effective through March 31, 2011. Through the end of the first quarter 2010, GEO had repurchased approximately 2.77 million shares of its common stock through open-market transactions for approximately $53.9 million. As of April 29, 2010, GEO had approximately 49.2 million shares outstanding.

Merger with Cornell Companies, Inc.

On April 19, 2010, GEO and Cornell Companies, Inc. (NYSE:CRN) announced a merger that is expected to close in the third quarter of 2010, subject to the approval of the issuance of GEO common stock by GEO’s shareholders, approval of the transaction by Cornell’s stockholders and federal regulatory agencies, as well as the fulfillment of other customary conditions. GEO and Cornell have completed their filing with federal regulatory agencies and expect the process to be completed in 30 to 60 days.

Following closing of the merger, the combined company will manage and/or own 97 correctional and detention facilities with a total design capacity of approximately 76,000 beds and 32 behavioral health facilities with a total design capacity of approximately 5,000 beds. The merger is expected to increase GEO’s total annual revenues by approximately $400 million to more than $1.5 billion. The merger is also expected to substantially increase GEO’s EBITDA, net income, and free cash flow on a fully annualized basis. In addition, GEO anticipates annual synergies of $12-15 million. Excluding one-time transaction-related expenses and transitional costs, GEO expects the merger to have a neutral impact on its pro forma 2010 earnings per share and be accretive to pro forma 2011 earnings per share.

2010 Financial Guidance

GEO has increased its earnings guidance for 2010. GEO expects 2010 earnings to be in the pro forma range of $1.40 to $1.48 per share, exclusive of $0.01 per share in after-tax start-up/transition expenses. GEO expects 2010 total revenues to be in the range of $1.10 billion to $1.12 billion, including $23.0 million in construction revenues.

This revised guidance does not include any revenues or one-time transaction expenses and transitional costs related to the previously announced merger with Cornell Companies, Inc.

For the second quarter 2010, GEO expects total revenues to be in the range of $280.0 million to $285.0 million, including $7.0 million in construction revenues. GEO expects second quarter earnings to be in a pro forma range of $0.34 to $0.36 per share, excluding $0.01 per share in after-tax start-up/transition expenses.

GEO’s increased guidance for 2010 reflects GEO’s first quarter 2010 results and the repurchase of 2.77 million shares through the end of the first quarter 2010 under GEO’s share repurchase program. GEO’s guidance for 2010 also reflects the discontinuation of GEO’s managed-only contracts in Florida for the 985-bed Moore Haven Correctional Facility and 1,884-bed Graceville Correctional Facility effective August 1, 2010 and September 25, 2010 respectively, as previously disclosed by GEO.

GEO’s guidance for 2010 does not include any revenue contribution from the potential activation of GEO’s expanded, 1,755-bed North Lake Correctional Facility in Michigan or the company-owned 1,100-bed expansion of the 432-bed Aurora Processing Center in Colorado. GEO’s guidance does include the carrying costs related to the completion of these two company-owned expansion projects. Additionally, GEO’s guidance for 2010 does not include any revenue contribution for the managed-only 2,000-bed Blackwater River Correctional Facility in Florida.

GEO’s guidance is based on a number of assumptions related to GEO’s business including the continued operation of GEO’s current contracts at projected occupancy levels.

Conference Call Information

GEO has scheduled a conference call and simultaneous webcast at 2:00 PM (Eastern Time) today to discuss GEO’s first quarter 2010 financial results as well as its progress and outlook. The call-in number for the U.S. is 1-866-730-5770 and the international call-in number is 1-857-350-1594. The participant pass-code for the conference call is 25125761. In addition, a live audio webcast of the conference call may be accessed on the Conference Calls/Webcasts section of GEO’s investor relations home page at www.geogroup.com. A replay of the audio webcast will be available on the website for one year. A telephonic replay of the conference call will be available until June 5, 2010 at 1-888-286-8010 (U.S.) and 1-617-801-6888 (International). The pass-code for the telephonic replay is 36383277.

About The GEO Group, Inc.

The GEO Group, Inc. ("GEO") is a world leader in the delivery of correctional, detention, and residential treatment services to federal, state, and local government agencies around the globe. GEO offers a turnkey approach that includes design, construction, financing, and operations. GEO represents government clients in the United States, Australia, South Africa, and the United Kingdom. GEO’s worldwide operations include the management and/or ownership of 62 correctional and residential treatment facilities with a total design capacity of approximately 60,000 beds, including projects under development.

Important Information on GEO’s Non-GAAP Financial Measures

Pro forma income from continuing operations, Adjusted EBITDA, and Adjusted Free Cash Flow are non-GAAP financial measures. Pro forma income from continuing operations is defined as income from continuing operations excluding start-up/transition expenses and other items as set forth in Table 1 above. Adjusted EBITDA is defined as EBITDA excluding start-up/transition expenses and other items as set forth in Table 3 above. Adjusted Free Cash Flow is defined as income from continuing operations after giving effect to the items set forth in Table 4 above. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measurements of these items is included above in Tables 1, 3, and 4, respectively. GEO believes that these financial measures are important operating measures that supplement discussion and analysis of GEO’s financial results derived in accordance with GAAP. These non-GAAP financial measures should be read in conjunction with GEO’s consolidated financial statements and related notes included in GEO’s filings with the Securities and Exchange Commission.

Safe-Harbor Statement

This press release contains forward-looking statements regarding future events and future performance of GEO that involve risks and uncertainties that could materially affect actual results, including statements regarding estimated earnings, revenues and costs and our ability to maintain growth and strengthen contract relationships. 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 2010 given the various risks to which its business is exposed; (2) GEO’s ability to successfully pursue further growth and continue to enhance shareholder value; (3) GEO’s ability to access the capital markets in the future on satisfactory terms or at all;(4) risks associated with GEO’s ability to control operating costs associated with contract start-ups; (5) GEO’s ability to timely open facilities as planned, profitably manage such facilities and successfully integrate such facilities into GEO’s operations without substantial costs; (6) GEO’s ability to win management contracts for which it has submitted proposals and to retain existing management contracts; (7) GEO’s ability to obtain future financing on acceptable terms; (8) GEO’s ability to sustain company-wide occupancy rates at its facilities; and (9) other factors contained in GEO’s Securities and Exchange Commission filings, including the forms 10-K, 10-Q and 8-K reports.

First quarter 2010 financial tables to follow: