Q4 2019 Earnings Call

I'm good morning, and welcome to the Geo Group fourth quarter 2019 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press start then one on your telephone keypad to withdraw your question, please press * then two, please note this event is being recorded. I would now like to turn the conference over to Pablo. Executive Vice President of corporate relations, please go ahead. Thank you operator. Good morning everyone and thank you for joining us for today's discussion of the Geo group's fourth quarter dead.

and for year 2000.

18 earnings results

widows today or George zoley chairman and chief executive officer Brian Evans Chief Financial Officer and president of giocare and David Donahue president of Geo secure services off this morning, we will discuss our fourth-quarter and full-year results and outlook for the upcoming year. 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.

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 that issue this morning additionally much of the information. We will discuss today including the answers we gave and response to your questions may include forward-looking statements regarding our beliefs our current expectations with respect to various matters. These forward-looking statements are intended to forward into Safe Harbor provisions of the Securities laws are 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 ten q and Ativ book reports with that. Please allow me to turn this call over to our chairman and CEO George George. Thank you and good morning to everyone.

We are pleased with.

The quarterly operational and financial performance of our Diversified business units and I would like to address a few of the highlights of the quarter.

We completed the ramp-up of our company-owned 1800 North Lake Michigan facility and the county-owned 1800 bed Reeves County Texas facility under new ten-year contracts with the Federal Bureau of Prisons during the quarter. We also entered into several important contracts at the federal level 1st on December 20th. We signed to 15 year contracts with the US Immigration and Customs Enforcement for five company-owned facilities in California, totally 4490 beds these contracts provide for the continuation of our 1940 bed add along to ice processing center and the 400-bed Mesa Verde ice processing center in California.

but they

Also incorporate three other company on the facilities the 700 bed Central Valley facility the 750 bed desertview facility and the 500-bed Golden State Facility in California as an access to the two ice processing centers.

Just the Adelanto and Mesa Verde facilities without the nx's are expected to generate over $100 in annualized revenues. It will support approximately seven hundred full-time jobs.

As has been widely reported the state of California recently enacted a new state law ab32 aimed at phasing out and off limiting private sector contracts for State Correctional facilities and federal facilities.

The new law took effect on January one 2020 subsequent to the start date for our new 15 year contracts with ice.

Jio, as well as the Department of Justice has have filed separate legal actions challenging the constitutionality of a p 32.

As we have previously disclosed our contract for our Central Valley facility was discontinued by the state of California at the end of September last year in and not expect our two other California Correctional contracts to expire on March 1st for the desert V facility and May 1st for the Golden State Facility.

Our president expectation is that the three ice facility an taxes at Central Valley Desert View and Golden State will transition underneath the new ice contracts during the second half of 2020. It will generate approximately an additional 100 million dollars in revenues on an annual basis.

However, our initial guidance for 2020 has not assumed any contribution from these facilities.

Note that the president's proposed budget for Immigration and Customs Enforcement included a 23% increase in funding.

On December 23rd. We also signed a new managed only contract with the US Marshals service for the government-owned 512 bed. El Centro Detention Facility in California.

We expect to begin between the intake next month during March. This contract will have a term of approximately 9 years and is expected to generate approximately $29 in annualized revenues creating more than 240 new full-time jobs.

In Colorado, we made the final lease payment on the 1200 Hudson facility, which will eliminate approximately ten million dollars annual wage in lease costs for the idle facility. We're very pleased about that development in Australia. We are complete negotiations and construction respectively onto expansion projects, which will add 800 combined bets at our ravenhall and Ginny correctional centers.

Throughout 2019. We also continued our efforts to expand the Continuum of Care or COC program, which was first piloted piloted in June 2015 r c o c program integrates offender Rehabilitation including cognitive behavioral treatment with post-release Support Services to address month basic Community needs of released individuals.

In 2019 rcoc sites delivered approx 6.8 million hours of programming in reached new highs by awarding approximately 2,900 high school equivalency degrees more than 9,400 vocational training and certifications approximately 8,800 substance abuse treatment completions and approximately 44700 behavioral treatment completions.

The Geo Continuum of Care is our company's contribution to Criminal Justice Reform by providing improved Rehabilitation programs to to some of them two point two million people still incarcerated in 2020. We are increasing our company's annual funding commitment to the program from 10 million to fourteen million dollars, which now represents approximately 9% of our annual net income.

This increase in funding will allow us to expand the program to All State Correctional Facilities managed by jio by setting the example. We hope to expand our role as a vocal advocate for increasing funding for rehabilitation programs that help individuals re-enter society as productive citizens. Now, I will ask Brian Evans to review our results Outlook and liquidity position, right? Thank you George. Good morning, everyone.

today

We reported fourth-quarter revenues of approximately 622 million dollars in net income attributable to Gio of thirty-two cents per diluted share. Our fourth-quarter results reflect a $350,000 gain on the extinguishment of debt 2.2 million dollars in start-up expenses.

Before tax two million dollars in legal related expenses before tax and four point six million dollars in pre-tax close out expenses excluding these items. We reported fourth-quarter adjusted gross income of thirty eight cents per diluted share. We also reported fourth-quarter 2019 Apple of 66 cents per diluted share compared to our third quarter 2019 results are fourth quarter 2019 also reflects the following factors start-up activity for our company on North Lake Michigan facility and the county-owned Reeves County Texas. And the discontinuation of our company-owned Central Valley facility contract with the state of California at the end of September turning to our outlook for 2020. We have an issue issued our initial guidance for the full year. And the first quarter as George mentioned are Central Valley desert for you and Golden State facilities in California have either depopulated or are in the process.

of ramping down for

Used by the state of California the discontinuation of the California Corrections contracts for these three company owns facilities represents an annualized Revenue decline of approximately $47,000 while we expect that these three facilities will transition as facility and taxes under our new ice contracts during the second half of 2020. We have not assumed any contribution a facilities in our initial guidance. Additionally. We are increasing our annual funding commitment for our Continuum of Care Program from ten million dollars to approximately fourteen million dollars off of contractual obligations in 2020.

This 4 million dollar increase will allow us to expand the Continuum of Care Program to All State Correctional Facilities managed by jio and this added expense is reflected in our Guidance with no offsetting revenues based on these assumptions. We expect full-year net income attributable to go to be in a range of

$2.57 and $2.37 per share or I'm sorry in a range of a dollar twenty seven to a dollar thirty seven cents per diluted share. We expect full-year adjusted. Net income to be in a range of $8.37 to a dollar forty cents per diluted share on annual revenues of approximately $2 2.48 billion dollars a month. We expect full-year Apple to be in a range of $2 and 57 to $2.67 per diluted share for the first quarter of 2020. We expect net income attributable to Gio to be in a range of Sixteen to eighteen cents per diluted share and adjusted. Net income to be in a range of 21 to $0.23 per diluted share on quarterly revenues 610 to 615 million dollars.

We expect first quarter 20 20 to be between 52 and 54 cents per diluted share in addition to the reduced revenue and earnings from our California facilities in the added expense for our Continuum of Care Program compared to fourth quarter 2019 results our first quarter 2020 guidance reflects, approximately 3 cents per diluted share in additional tax expenses, which are front-loaded in the first quarter of each year as well as normal seasonal fluctuations in federal populations.

moving to

Our capital structure during the fourth quarter of 2019. We repurchased approximately 22 million dollars of our senior notes due 2022 bringing the total repurchase in 2019 to approximately fifty six million dollars. We currently have approximately three hundred and forty million dollars in available capacity under our revolving credit facility off addition to an accordion feature a 450 million dollars under our credit facility. We have ample capacity under our revolver to take out the remaining amount outstanding 2022 seen your notes which is our debt obligations with the nearest maturity and we continue to enjoy access to Capital with several dozens of lenders and financial institutions currently committed under our credit facility with respect to use of cash. We expect total capex in 2020 to be approximately one hundred million dollars, including 24 million dollars for Thursday.

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Also made the final lease payment on the 1200 bed Hudson facility reducing our annual operating lease expense by approximately ten million dollars. Finally. We believe our quarterly dividend payments need to be supported by our cash flows and earnings and remain below are historical guided payout ratio of 75% of a f o a f f o at this time. I turn the call over to Jeff Donahue for review of our secure Services segment. Thanks Brian. Good morning everyone. I'd like to provide you with an update on our secure Services business unit number with our federal segment as has been noted today. We completed the ramp-up of to Federal facilities during the fourth quarter of 2019 in Michigan. We completed the ramp-up of our company on 1800 North Lake Correctional Facility under a ten year contract with the Federal Bureau of Prisons. This ten year contract is expected to generate approximately $37 in annual wage.

Revenues and in Texas also under a ten year contract with the b o p we work with Reeves County to complete the ramp-up of the county-owned 1800 bed Reeves County Detention a star one and two as a reminder go provides management consulting and support services to reach County in relation to this facility while the county holds the contract with the b o p for the operation of the facility turning to recent contract Awards on December 20th. We entered into agreements with ice involving five company-owned facilities in the state of California totally in 4490 beds. The two new contracts will have a term of fifteen years inclusive inclusive of option periods.

the contract

Our company-owned 1940 bad Adelanto is processing center and the 400-bed Mesa Verde is processing center, which were previously under short-term contracts with the new contracts. Also incorporate three other company own facilities in California. The seven hundred beds Central Valley the 750 bed, Desert View and the 700 bed Golden State facilities, which are incorporated as facility and taxes under the new ice contracts on a combined basis. These contracts are expected to generate over two hundred million dollars in annualized revenues support more than 1,200 full-time jobs in the communities of Adelanto and McFarland in California.

As George noted earlier today the state of California recently enacted a new law aimed at phasing out and eliminating private sector contracts for both State Correctional facilities and federal facilities this new law known as ab32 became effective on January 1st, 2020 subsequent to the signing of our new contracts with ice as we disclosed last quarter are contract for the seven hundred beds Central Valley facility was discontinued by the California Department of Corrections and Rehabilitation at the end of September 2019. And as George mentioned earlier took down of California populations that are Desert View and Golden State facilities is now expected to be completed by March 1st and May 1st, respectively.

we expect all three I

Facility and Central Valley Desert View and Golden State to transition under the new ice contracts during the second half of 2020. However, we have not assumed any contribution from these facilities wage 2020 guidance.

Also during the fourth quarter of 2019. We signed the new managed only contract with the United States Marshals service for the operation of the 512 bed. El Centro Detention Facility in California, which is owned by the federal government. We expect to begin detainee intake next month in March. This new contract will have a term of approximately 9 years and is expected to generate approximately $29 in annualized revenues while creating more than 240 new full-time jobs.

Moving to our state segment. We believe our remaining State Correctional customers have stable budgets and we've been able to continue to provide high-quality services in those States several States continue to Faith pacity constraints and many of our customers are facing challenges related to older prisons in the states where we operate the average age of state prisons range from approximately 30 to 60 years.

now moving to our

International markets we are currently undertaking a number of expansions in Australia in the state of Victoria. We are continuing negotiations for a 300 bad expansion at our one thousand three thousand ravenhall Correctional Center, which is expected to add $19 in annualized revenues.

Also in Victoria we are developing a hundred and thirty-seven bed expansion to the Fulham Correctional Center, which will bring the total capacity at that Center to 955 beds during twenty twenty-five in New South Wales. We have substantially completed a 489 bad expansion at the Junie Correctional Center bring in that Center of total capacity to 1279 bits. This suspension is expected to generate annual revenues of approximately twelve million dollars at this time. I'll turn the call over to an for the review of our geopier segment and thank you Dave and good morning everyone. I'd like to provide you an update on our giocare business unit starting with our Geo reentry services division during the fourth quarter. We began operating a new 60 bid contract expansion at Home Alabama therapeutic education facility additionally during the quarter. We opened a new non-residential day reporting Center in the state of Louisiana bringing our total day reporting Center count to Thursday.

the Louisiana and 67 Nationwide we continue to pursue opportunities to expand our existing Partnerships and partner with new government agencies to assist individuals with

Successfully re-entering the community the residential non-residential and in custody treatment programs.

Movie to our youth services division our programs continue to provide important Rehabilitation and treatment alternatives for youth across several state and local jurisdictions. Are you sir? This division maintain stable utilization rates across our residential facilities throughout 2019.

Turning two RBI electronic monitoring division. We are awaiting a contract award decision by the end of this month for the rebid of the alternatives to detention contract with ice which bi has happened since it was first piloted in two thousand and four. This program has allowed the federal government to effectively use, Community alternatives for several tens of thousands of individuals were going through the immigration review process.

Finally, we remain excited about the successful growth of our Geo Continuum of Care Program, which we are expanding to All State Correctional Facilities managed by Gia our Continuum of Care Program integrates enhanced in custody Rehabilitation programs, including cognitive behavioral treatment with post-release support services such as transitional housing Transportation clothes food and job placement assistance. The Continuum of Care Program is overseen and assisted by a corporate division with over 50 staff with subject matter experts and education cognitive behavioral and substance abuse Treatment post-release Services Continuum of Care training and quality assurance during our two thousand during 2019 are continuing care sites completed over 6.8 million hours of Rehabilitation programming our academic programs averaged over 13,000 daily participants and awarded close to 2000. Yep.

High school equivalency degree the average daily attendance for our vocational courses totaled more than 33,000 participants. We need to more than 9,400 vocational training certifications and more than eighteen thousand individuals attended substance abuse treatment on a daily basis with approximately 8,800 participants completing their substance abuse treatment program. We also provide a post-release support services to more than $3,800 individuals returning to their communities. We believe that the scope of our Continuum of Care Program unparalleled and represents a significant contribution to Criminal Justice Reform at this time. I'll turn the call back to George for his closing remarks.

Thank you, ma'am. We continue to be pleased with our operational and financial performance while our initial guidance for 2020 is impacted by the transmission of our three California facilities in our additional four million dollar investment in the Geo Continuum of Care are cash flows continue to be stable home substantial upside potential. We are particularly proud of our the expansion of our Continuum of Care Program are increased annual funding commitment of $14 for the COC program represents, approximately 9% of our companies and net income to our knowledge. This is the most significant monetary commitment to a fender rehabilitation in and Criminal Justice Reform of any company in the United States. We've always been committed to treating everyone in our catalog.

with respect and dignity

And we are hopeful that others will join us in advocating for more funding and enhance Rehabilitation for the men and women in our nation's Correctional systems. We are proud of the dedication and professionalism of our diverse Workforce who have established you as a leading professional service provider to government agencies. We remain focused on the effective application of capital and creating long-term value for our shareholders that completes our presentation. We would be glad to address any questions.

We will now begin the question-and-answer session to ask a question. You may press the star then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

And so, you know questions at this time. I'll turn it back to George Lee for any closing remarks. Okay. Well, thank you all for participating today's call. We look forward to you joining us at the next call. Thank you conference is now concluded. Thank you all for attending today's presentation. You may now disconnect your lines. Have a great day.