Q2 2020 Geo Group Inc Earnings Call
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Good day, everyone and welcome to the Geo Group second quarter 2020 earnings Conference call.
All participants will be.
Sure do you need assistance, placing all conference specialist pressing the star Keith followed by zero.
After today's presentation, there will be an opportunity to ask questions.
Good question You Me Press Star then one.
So with all your questions you May press star in Chile.
We also need to that is being recorded.
At this time I'd like to turn the conference call leverage you Pablo Paez Executive Vice President Corporate Relations. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining us for today's discussion of the Geo groups second quarter 2020 earnings result.
With us today, or George Zoley, Chairman, Chief Executive Officer, and founder, Brian Evans, Chief Financial Officer.
<unk> President of Geo care as Blake Davis, President of Geo secure services.
This afternoon, we will discuss our second quarter results and outlook.
We will conclude the call into question and answer session.
This conference call is also being webcast live on our Investor website at investors Geo group Dot com.
Today, we will discuss non-GAAP basic 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 answer is we do have in response to your questions May include forward looking statements regarding our belief in current expectations with respect to berries matters.
These forward looking statements are intended to fall within the Safe Harbor provisions Oh, the Securities law.
Actual results may differ materially from those in the forward looking statements as a result at various factors, which are contained in our securities and exchange Commission filings, including the form 10, Okay. Thank you an 8-K reports.
With that please allow me to turn this call over to our chairman and CEO George always George Thank you Pablo and good afternoon, everyone.
This morning, we reported our second quarter results.
They did our guidance for the full year and issued guidance for the third and fourth quarters.
We've also provided updated guidance regarding our dividend policy in our efforts to pay down debt and de lever.
During the second quarter, we experienced some favorable cost trends that resulted in better than expected financial performance.
While we are encouraged by these favorable trends during the second quarter. Our company continues to face challenges associated with the unprecedented cobot 19 pandemic.
Our employees the lives in communities that have been impacted by the pandemic and most of our facilities have experienced some cases of cobot 19 in both our staff and individuals entrusted to our care.
Despite these ongoing challenges our frontline employees have shown incredible commitment and resilience that have helped our company managed through these difficult times.
From the outset of this global pandemic, our staff has implemented steps to mitigate the risks of cobot 19 to all those in our care in our employees and our staff continues to evaluate and refine these steps as appropriate and Netscouts Terry.
Working with our government partners, we have implemented.
The guidance issued by the C.D.C. out to all of our facilities.
And early on in the pandemic, we deployed face masks for all employees inmates in detainees at our residential facilities.
Procured additional personal protective equipment and suspended non essential visitation.
We've also been focused on wrapping up testing and the today, we have conducted Weiss widespread saturation coated 19 testing at an increasing number of our secure.
Surface just facilities.
And securing the health and safety of all of those in our facilities and our employees has always been it remains our number one priority.
We believe that the steps we have taken across Europe is phillies in our focus on personal protective equipment and testing have allowed you to mitigate the risk associated with cobot 19.
While our operations as an essential government service provider have continued on it or interrupted the spread of cobot 19 has had a negative impact across several segments of our company.
We have experienced a decline in overall occupancy levels at our federal facilities for ice U.S. Marshals service and the Bureau of prisons.
Lower occupancy has been driven by a decline in crossing 10 apprehensions belong to the southwest border as well as an overall decrease in court.
Since seen activity at the federal level.
I just has also reduced operational capacity to less than 75% at all ice processing centers to promote social discrepancy practices.
As we noted last quarter most of our Geo secure services contracts contains fixed price for a minimum guaranteed payment provisions intended to ensure adequate staffing levels and consistent service delivery.
Our current expectation is that our ice in U.S. Smartcycle Cisco's will continue to operate at lower occupancy levels for the balance of the year.
The Federal Bureau of prisons has also experienced a decline in overall population in part as a result to cope with 19 pandemic.
[noise] due to this decline in populations. The Bureau has decided to not rebid the contract for our de regimes facility in Georgia, which is set to expire at the end of September Thirtyth.
Our updated guidance for the year now reflects the expiration of this contract on September Thirtyth.
We expect to market the D. Ray James facility to the other governmental agencies and believe it offers an attractive cost effective solution for government agencies to deal with the continued.
Challenges of managing prison populations.
Our Geo care segment has also experienced lower occupancy levels as a result of cope at night and our reentry centers day reporting programs you service facilities, which we expect to continue for the remainder of the or.
Despite the significant challenges associated with this global pandemic, we believed that our business earnings and cash flows remained strong.
We believed that our business is underpinned by long term real estate assets that are supported by a high quality contracts for the provision of the central government services.
We do recognize however that the current political rhetoric and mischaracterization of our role as the government services providers had a negative impact on our valuation that has created concern regarding our future access to capital.
Well, we don't have any okay upcoming debt maturities until 2022, we recognize the importance of capital preservation and debt repayment given the current environment.
To this end to our board of directors at our management team have determined that it would be the best interest of our company and shareholders to reduce our quarterly dividend payments in apply our excess cash flows to pay down debt.
Beginning with our anticipated October dividend payment, we expect to pay a quarterly dividend of 34 cents per share or a dollar and 33.6 cents per share annualized solely within the discretion of our board and based on various.
Factors.
With this new dividend target, we anticipate being able to apply $100 million. This year and thereafter at an average of $50 million to $100 million in excess cash flow annually towards debt repayment.
Our new dividend payment level will also allow geos to remain structured as a read and will give us sufficient flexibility to sustain our dividend should our cost of debt increased in the future.
We believe that remaining a publicly traded rate will allow us to balance providing value to our shareholders. While also focusing on repaying our debt.
During the third and fourth quarter, we will undertake our annual budgeting process and expect to identify cost savings opportunities at the corporate and facility levels. Additionally, we expect to identify company owned facilities that can be sold to government agencies or third party individuals.
At this time ill turn the call over to Brian evidence to review our results outlook and liquidity position Brian.
Thank you George good afternoon, everyone.
Today, we reported second quarter revenues of approximately $588 million and net income attributable to Geo of 31 cents per diluted share.
Our second quarter results reflect a 1.3 million dollar loss on real estate assets pretax $600000 in startup expenses before tax $2.3 million and close out expense pretax $3.9 million encoded 19 related expenses before tax associated with personal.
Protective equipment diagnostic test and medical expenses and $1.6 million an attack the effect of these adjustments.
Excluding these items, we reported second quarter adjusted net income of 36 cents per diluted share.
Capital of 66 cents per diluted share.
Moving to our outlook. The covert 19 pandemic continues to have a negative impact on several segments of our company.
The pandemic has resulted in lower occupancy levels at several of our facilities and programs beginning in late March and continuing through the second quarter.
We expect lower occupancy levels at our ice and U.S. marshals facilities to continue through the ended the year, resulting in an estimated revenue decline of approximately 9% for the full year.
Additionally, the Federal Bureau of prisons has decided to not rebid the contract for our company owned 1900 bed D. Ray James facility in Georgia due to the decline in federal prison populations, which has been driven impart by the cobot 19 pandemic.
Our up guide our updated guidance now reflect the expiration of the D. Ray James contract on September Thirtyth, which generated annualized revenues of approximately $60 million at the state level. Several of our government partners are expecting budget shortfalls resent, resulting from an economic slowdown due to the pandemic.
We have successfully engage with several of our state government partners to find ways to achieve cost savings within our contracts by adjusting our scope of services.
At this time, we don't expect any additional impact to our guidance from these efforts.
Our Geo re entry segment also continues to experience lower occupancy levels, which began in March of this year in our residential centers and day reporting programs.
Our guidance continues to assume lower occupancy levels for our geo reentry facilities and programs through the end of the year, resulting in an estimated revenue decline of approximately 10% for the full year.
Are you services segment has also been impacted by declining occupancy levels and the expected closure of the Hector Garza facility in Texas at the end of September as a result of the covert 19 pandemic.
We have also increased our spending on personal protective equipment diagnostic testing medical expenses Noncontract, Noncontact infrared thermometers and increased annotation as a result of covert 19 and expect to incur several million dollars nonrecurring costs during the second half of 2020.
Our updated guidance continues to assume no contribution from our Central Valley Desert view and Golden State facilities in California.
Even though we remain hopeful to be able to activate these facilities as ice processing center annexes, beginning as early as late third quarter or early fourth quarter of this year.
Despite these challenges we believe that our revenues and cash flows remained strong we expect full year net income attributable to GE to be in a range of 95 cents to 99 cents per diluted share.
We expect full year adjusted net income to be in a range of a dollar and seven cents to $1.11 cents per diluted share. We expect full year apo to be in a range of $2.29 to $2.33 per diluted share.
For the third quarter, we expect net income attributable to geo to be in a range of 25 27 cents per diluted share and adjusted net income could be in a range of 20 to 30 30 cents per diluted share.
We expect third quarter after it could be between 58 and 60 cents per diluted share.
For the fourth quarter, we expect net income attributable to geo to be in a range of 18 to 20 cents per diluted share and adjusted net income to be in a range of 19 to 21 cents per diluted share.
We expect fourth quarter Apple it to be between 50, and 52 cents per diluted share.
Moving to our capital structure at the end of the second quarter, we had approximately $76 million in cash on hand in part due to deferring approximately $45 million in payroll taxes that will be paid during 2021 and 2022.
Approximately $350 million in borrowing capacity is available under our revolving credit facility. In addition to an accordion feature a $450 million under our credit facility.
With respect to our capital expenditures, we expect total capex in 2020 to be approximately $93 million, including $20.5 million for maintenance Capex.
We recognize it even before the cobot 19 pandemic heightened political rhetoric based on a miss characterization of our role as a government services provider had created significant volatility in our debt and equity markets and created concerns regarding our future access to capital.
Given this environment, we announced this morning steps to adjust our dividend policy beginning with our next anticipated dividend payment in October we expect to declare quarterly dividends of 34 cents per share or dollar and 36 cents per share annualized solely within the discretion of our board and based on various factors.
This new dividend policy will allow us to remain a publicly traded riet balancing providing value to our shareholders. While also preserving capital TB applied towards the repayment of debt.
During this year, we expect to repay approximately $100 million in debt and starting in 2021, our goal would be to average between 50 and 100 million in annual debt repayment, depending on how quickly our cash flows recover post pandemic.
During the third and fourth quarter, we will undertake our annual budgeting process and expect identify cost savings opportunities at the corporate and facility level. Additionally, we expect to identify company owned facilities that can be sold the government agencies for third party individual.
At this time I'll turn the call over to Blake David for a review of our Geo care services segment.
Thank you, Brian and good afternoon, everyone I'd like to provide you with an update on our Geo secure services business unit and specifically on the steps we have taken at our secure services facilities to mitigate the risks associated with cobot 19 from the start of the pandemic, we issued guidance to all of our facilities consistent with the guidance issued.
Correctional and detention facilities by the CDC.
Guidance covered best practices, including the implementation of corn Dean cohort in medical isolation procedures are confirmed in presumptive cases of cobot 19, including the use of airborne infection isolation room.
We have provided educational guidance to our employees and individuals in our care on the best preventative measures to avoid the spread of cobot 19.
We have increased and the distribution of personal hygiene products and cleaning supplies and we have deployed sanitation teams. The sterilized hi contact areas of our facilities with cleaning equipment and sanitation products that are proven healthcare grade disinfectants.
We continue to exercise paid leave and paid time off policies to allow our employees to remain home if they exhibit flu like symptoms or to care for a family member.
Early on in the pandemic, we coordinated with our government partners to distribute personal protective equipment, including face masks. The all of our staff inmates and detainees as or precautionary measure at our Geo secure services facilities.
In addition to the Cold 19 protocols, we have implemented at our facilities. We have worked with our government partners to increase testing for new intakes and widespread Saturn saturation testing for facilities that have been more heavily impacted.
We have significantly increased testing at all of our facilities that have conducted widespread saturation testing out at an increasing number of our secure services sites.
Presently we are testing a large percentage of inmates and detainees during the intake process at our facilities.
We evaluate the steps we've taken and we make adjustments to these steps as appropriate unnecessary based on updated guidance by the CDC and best practices, while most of our facilities have experienced some cases of cobot 19, we believe the steps we have taken and our focus on personal protective equipment in testing.
Has allowed us to mitigate the risk of cobot 19.
Only a small percentage of the cases at our facilities have required hospitalization and a very small number tragically resulted in fatalities, which has left us all with very heavy hearts.
We remain incredibly grateful for our frontline employees, who make daily sacrifices to report to work and provide high quality and compassionate care to all of those in our facilities.
Before I turn the call the and I would like to briefly discuss a few other operational highlights.
During the second quarter, we achieved normal operations at the government owned 512 bed El Centro does tension facility in California under our new managed only contracts with the United States Marshals service.
This new contract has a term of approximately nine years and as expected generate approximately $29 million an annualized revenues.
Additionally, we were recently awarded a new 10 year contract by ice inclusive of renewal option periods for the continued operation of our company own 1800, 40 bed, South, Texas Ice processing Center.
In Australia, we completed the previously announced transition of management of the 890 bed Arthur Gory Correctional Center to the Queensland Corrective Services Agency effective June Thirtyth.
Also in Australia, we continue to work on three expansion projects during the second quarter.
In the state of Victoria, we are close to completing a 137 bed expansion of the full and Correctional Center, bringing total capacity to 1045 bed.
Also we are awaiting final approval for a 300 bed contract capacity expansion at the Ravenhall Correctional Center, increasing total capacity to 1600 beds.
And new South Wales, we have now completed a 480 bed expansion at the unique Correctional Center, increasing total capacity to 12 80.
Thankfully, our Australian facilities have not been impacted by the Cobot 19 pandemic. In addition to these expansion projects. We believe there are opportunities for us to increase our market share in Australia.
At this time I will turn the call over to and for a review of Geo care. Thank you Blake and good afternoon, everyone I'd like to provide you with an update on the steps we've taken to mitigate the spread of cobot 19 across our Geo care business unit.
System with the efforts undertaken by our Geo secure services facilities, all of our residential facilities and Geo re entry and Geo youth services have issued coded 19 guidance consistent with the guidance issued by the CDC.
We have implemented quarantine encoding policies to isolate confirmed and presumptive cases of co midnight team and we have provided educational guidance to our employees and all individuals in our care on the best preventative measures to avoid the spread of code that.
We have utilized sanitation teams to sterilize high contact areas of our facilities using sanitation products that are proven health care grade disinfectant.
And we have rapid response teams ready to deploy to assist facilities that had been more significantly impacted by cobot 19.
We have exercise paid leave and paid time off policy to allow our employees to remain home as needed we.
We have implemented additional screening measures for entry into our facility and we have provided face masks to all staff and residents.
We evaluate the steps, we've taken and make adjustments to these steps as appropriate and necessary based on updated guidance by the CDC and best practices.
The co bid 19 pandemic has had a negative impact on several of our residential reentry centers and nonresidential day reporting programs, which have experienced lower occupancy and referral levels.
The pandemic has also impacted occupancy levels in our youth services segment and unfortunately, the challenges associated with Cobot 19 resulted in the decision to close the Hector Garza facility in Texas during the third quarter.
Notwithstanding these challenges our Geo care division have remained focused on delivering high quality services to the participants in our care on behalf of our government partners.
We're very proud of our frontline employees, who have continue to report to work everyday and have delivered rehabilitation programming to those in our care in innovative ways, including through virtual technologies.
Additionally, during the second quarter, we had a number of positive highlights and Alaska, we entered into a 112 bed contract to reactivate our parent Herc These center.
Intend to see we were awarded a new state wide contract to establish 19 day reporting programs sites with a capacity to serve more than 2800 participants.
Finally, we're excited to have begun service delivery under a new five year contract between our B. I subsidiary and ice per case management and supervision services under the federal governments alternative to detention program at this time I'll turn the call back to George for his closing remarks. Thank you and we are.
Incredibly proud of all of our employees, whose daily commitment and dedication. We believe has allowed our company to mitigate the risks of this unprecedented global pandemic.
While our operations as an essential government service providers have continued on an on interrupted the spread of Cobot 19 has had a negative impact across several segments of our company.
Despite the significant challenges associated with the pandemic. We believe that are earning its in cash flows remained strong in our business is supported by long term real estate assets in the high quality contracts in tailing essential government services.
We recognize that the current political rhetoric in the midst characterization of our role as the government services provider is created concerns regarding our future access to capital.
While we don't have any upcoming debt maturities until 2022, we anticipate reducing our quarterly dividend payment in order to preserve capital and focused on paying down debt.
Our new dividend payment level will allow geo to remain structured as a result will give us sufficient flexibility to sustain our dividend should our cost of debt increased in the future.
We believe that remaining a publicly traded riet will allow us to balance providing value to our shareholders. While also focusing on repaying our debt.
We believe the steps we've announced today are consistent with our commitment to enhance long term value for our shareholders that completes our presentation, we would now be glad to addressing questions.
[laughter], ladies and gentlemen will begin the question answer session. If you would like to ask a question. Please press star in one if you are using a speaker phone. We do ask you. Please pick up the handset before pressing the keys to ensure the best sound quality.
So what you all your questions you May press Star ensue.
Again that is star then one to ask a question.
Well pause momentarily to assemble the roster.
And our first question today comes from Joe goes from Noble capital. Please go ahead with your question.
Good afternoon, and thanks for taking my questions.
Just wanted to kind of focus a little bit here on the guidance for the full year you.
Tightened up the range and little bit from your previous guidance with the lower end actually now higher than was previously just kind of wanted to get your thought process behind that given some of the additional costs some of the uncertainty surrounding the declining populations.
And the loss of a couple of contracts there.
So just kind of wanted to get them more detail on your guys thought process there.
Sure Joe This is Brian.
For third quarter I would say.
We expect.
Relatively consistent with performance in the second quarter, what we haven't assumed in the third quarter is as George and I think I. Both mentioned that there have been some better than expected cost performance in the second quarter. So we havent assumed that that will necessarily continue in the third quarter. It may but we have.
When taken that into account so thats I think the reason you see some of the step down from second to third quarter, and then from third to fourth quarter. The the main.
Impact there is again, assuming that the populations continue at their current levels.
So that Theres no no necessarily a return to normalcy or more normalized.
Occupancy levels. This year and then the other piece is the D. Ray James contract expiring at the end of September and again as we stated in the in the conference call. We have not assumed any positive impact from the three California ice facility Nx.
Is that what we're still hopeful that some or all of those may come online this year, but it would be later in the year before that would occur.
Okay. Thanks.
The follow up on the ice facilities, I mean, given where ice populations are today and.
I'm seeing where we're going here into the fall with the election, everything I mean, I guess I'm, a little kinda confuses why you guys would be hopeful that.
No there would be any additions in those facilities this year.
I mean, I know theres nothing factored into your forecast I, just I guess more confused as to why you're hopeful that there might be some activations on those facilities. This year.
Well I think the answer is that ice needs that's in the state of California and.
The procurement for these beds was done last year.
We executed in December for opening.
In the latter part of this year and we're hopeful that that will take place.
Okay. Thank you for that on the dividend.
As it did you guys reduce that the basically the lowest level that you can and still.
Qualify that under the read or is there still additional room Matt.
You could have.
Lowered it even further.
No. There is still additional room I think we looked at it from the perspective of we wanted to as George mentioned maintain the read status.
And continue to return a valuable amount to the shareholders, but also focusing on.
Paying down a meaningful amount of debt and I think that the the sort of balance or the point, where we found that proper balance for.
Okay.
Yes.
[laughter] pardon me and you talked a little bit about you're going to be looking for some additional cost saving opportunities.
Potentially some older facilities that that could be sold and I was wondering might be able to provide a little more color there.
Where are you thinking might be we'll find some of these cost savings and what facilities.
Are we talking about that you're you're thinking that could possibly be sold.
Well, we have a number of idle assets that were working with.
Brokers to market or sell many of them are smaller, but theres. A few that are decent size. So we're working on that and there may be other assets that are in the portfolio that are active that we may look to see if theres more value.
Transitioning those the other ownership away from us and the new owner can do what they what they like what the facility and then the cost reductions were just as we go through our budgeting process here in the third and fourth quarter, we'll evaluate both our facility in our corporate structure and determine what types of savings week.
Yes, but we do expect to find some savings there.
Okay, and then one last one for me.
You didn't know what a couple of nice contract extensions or wins here.
Well, so that will walk the bid.
Like wind out there the new business pipeline.
Out there for you guys right now.
Well I think our most active area is it in the international sector.
Australia, and the UK right now.
I think we're waiting for state budgets to.
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Better solidify as states come to terms with what their revenues will be for the upcoming year and we think that process will begin towards the latter part of the year. So we've really won't know anything about new upcoming procurements until early next year in the.
Uh huh.
Okay.
Thank you for that.
Our next question comes from Mitra Ramgopal from Sidoti. Please go ahead with your question.
Yes, hi, good morning, Thanks for taking the questions first I just wanted to come back to the guidance.
I sense that most of it does really.
Tweaking was due today.
Nonrenewal of the DLP contract, but just trying to get a sense also how much did the surge that we're seeing in a number of states up late into that.
We see the surge we didn't really have a surgery in in occupancy.
Right. Okay in terms of discharge in states like Florida, Texas et cetera, how is that impacting the occupancy.
So the surge of steadily increasing the number of Toby cases.
Yes.
So.
Yes, we've we've seen a with when we have a.
Community or states that have spiked we've seen an increase in our facility somewhat.
But but our measures that we have in place at our facilities are tight and were able to control is in a in a in a very sound manner, but we havent seen tremendous impact because we had those measures in place even before those spikes occurred in those respective state.
I think as we mentioned in the fall and I'll, just remind you that that place where we've seen the impact.
Our occupancy levels has been in our ice in U.S marshals facilities for the reasons that we already stayed in the federal silicon is rather than the state facilities that we operate.
Okay, no thanks for clearing that up.
And.
And I know Youd mentioned, we talked about it cost savings that you look to identify but I think.
You also talked already about the favorable cost trends, you're seeing I was just wondering if you can give a little more color on on what that entails.
So some of the areas that we saw cost savings were some in labor as well as.
You know some some lower medical costs as you're aware during the.
Pandemic, there was at least a period where.
Most hospitals shut down their elective procedures and they were taking those types of appointments and so forth so that had some.
Nick short term beneficial impact on our facilities because our residents need those types of services as well and those have been delayed or deferred so that's where we saw some of those savings and that's why said we had havent necessarily carry those savings forward into third and fourth quarter. They some of that may materialize.
Continue, but we havent assume necessarily that that will be the K.
Okay and note that this is fair and I'm just wondering.
I thought about seeing something about the department of Homeland security or again ISO warning you.
A contract.
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Based I think was a 10 year contract effective August 2020 is that correct.
That was a rebid, if our south Texas detention Center, which is then.
It is in Texas outside San Antonio and that was a rebate and we just are renewed that contract for 10 year period.
Okay, Okay perfect.
And again as it relates to the.
Capital allocation strategy, clearly debt reduction as a priority right now while still.
Sustaining the dividend I don't know if you have any thoughts so im sure Youre we area.
That is our leading competitors, taking a very different approach in terms of.
I want to navigate this environment does this really is to access the capital et cetera.
And just any thoughts you have us in terms of the decision to continue as a read as opposed to maybe.
Doing something a little different.
Well I think we had a fairly lengthy discussion at our recent board meeting with the board of directors Amicus team man.
It was concluded that we are comfortable.
Being a read and.
We just need to make an adjustment in our dividend payment.
Two.
More emphasis on debt repayment of we are comfortable.
Right and we have no plans and following.
Or something.
Strategy whatever.
Yes.
Oh and gave may be.
Okay. Thanks, again for taking the questions.
Our next question comes from Nick.
Dharmesh from Stifel. Please go ahead with your question.
Nick Jarmoszuk.
I was hoping you could give a little color on the company facilities that are contemplated to be sold.
Can you give us a sense or what the gross proceeds could be and then where or how those proceeds are going to be applied.
So it depends on which facilities. So we're looking at some facilities. It may be underutilized. It we can activator used with the another client that would have.
Produced better cash flows but in the event that were not able to do that I think we're targeting a range of $30 million to $50 million and ER and mostly to used to repay debt.
There's a $30 million to $50 million gross for everything.
Uh huh.
Huh.
Well you know I think we would consider underperforming facilities as well as idle facilities. So I would put the number in excess of 100.
Okay.
And then how can we think about the valuation received versus the book value.
Are there going to be impairments are you going to see access.
Evaluation in excess of book you know I think the the facilities fallen two buckets won it one bucket would be for prospective governmental purchasers, who could use of facilities for their intended design and.
Value on such facilities would be based on replacement value of a comparable facility.
The second bucket would be for a third party.
Retail investors that may just be interested in the land in redevelopment of the land parcel.
And now with the based on land value.
Yeah.
And then in terms of the dividends if I'm doing the math it looks like a 160 million hundred 63 going out as we dividends.
And then the enough to go back to the prior question, but.
The.
That's still a substantial amount of cash flow given the gross debt.
Geo has relative to your publicly traded tier.
They've got a.
Significantly lower leverage targets.
Geo.
You talk about the frequency at which the lead status can be we addressed by by the board and how we can think about just any changes to the dividend policy and or the strategic.
Corporate allocation here.
Re question I think technically can be addressed I'm told that anytime.
We as I said, we had a pretty thorough discussion about this.
Subject and our strategy and I don't anticipate in this year or in the near future that we will revisit it I think we're committed at this time two remaining to read and continue our debt repayment strategy.
Okay.
So in terms of the conclusion for came out with through made a rate.
[music].
The paying down to 50 to 190 in the debt annually on a gross.
Figure of 2.4 is not particularly substance of number to actually be lubber relative to the 160. This being paid out so how does the how does the board come at the conclusion that the reaches a better option as opposed to a C Corp.
Well I don't know if I could condensed all the discussions regarding that but I.
I think our our stock today is undervalued and following.
The results of the election November I think there will be a rebound in our stock price that will further.
Straight the value of staying a rate.
And our so yes, so the public marketplace.
No.
Selling stock there as a REIT.
I think in investors.
Would prefer to invest in a company that paying a substantial dividend rather than a company that's not paying any dividend at all.
Yes, I understand the argument so in the event that the election goes.
The other way.
And the share price does not rebound.
Is the weak election upper debate again.
I don't think so.
Because of what I've, just said that.
I'm trying to put myself in the shoes of another investor and I am an investor in this company. So I am in those shoes I'd, rather invest in a company that's paying a significant dividend.
Then a company that's not paying any deferred.
[noise] wouldn't you.
Pretty lengthy discussion for.
That we can follow that we can have offline [laughter] I I appreciate your thoughts on us.
Uh huh.
Looking forward to say additional results. Thank you okay. Thank you.
And our next question comes from Jordan Sherman from Ranger Global. Please go ahead with your question.
Yes, I apologize if I missed this did you said, a oh a leverage target as part of your debt reduction strategy.
No, but our leverage target as we have historically said is I think four to four and a half time.
So I think that over time with this strategy that we can get to that to that level and.
I think we were.
Reasonably conservative in our assumptions on.
Occupancy in population levels and so far so there's.
There's room for to be a little better than what we said, but.
We think this is a sustainable level and will allow for some meaningful reduction in debt.
Understood.
And the level of dividend chose then how we specifically did you arrive at that number.
Again, it was just is as Georgia articulated looking at our our capital needs from a growth capex.
Maintenance Capex perspective and.
Targeted amount of debt reduction of $50 million to $100 million a year. This was a level that was supported supported that level of debt reduction.
I appreciate maybe I should have asked a different way how is it delayed how does it.
Relative to your taxable income where does it now come would have come out.
I mean, how close is this relative Oh, no. We're still yet we're still above that that number I don't know exactly how much but we're still above the taxable income because I'm, assuming you were going to be now you're talking about the minimum amount that we would have right right I'm, just I'm wondering where your relative to the minimal.
Yeah, Yeah, we're still because I mean still 11 point so as of yesterday I know, it's a little lower today, we'll hire that it was 11 nine whenever you guys have yesterday's close so still very high dividend yield I'm. Just wondering if you had more room.
Okay. That's all.
Got it.
Oh, I mean, the two facilities being close I guess the bigger.
The bigger.
Facility the right James facility any possible alternative uses that you see on the horizon.
Yes.
We will be marketing that facility to federal clients as well as state clients and out of state clients.
No. It's an excellent facility in some very good geographic areas. So we're hopeful of.
Re purpose facility for another client.
Okay, but nothing but nothing sort of.
Identifiable at the moment specifically identifiable.
Not today.
Okay Yeah.
Sure.
The.
There was a number of things in the works.
Just wondering what the status of that is like the Alabama RFP.
Theres two of those types the RFP, there's one in Alabama.
And as one in Nebraska, and I think there's only two participants in the Alabama.
Our fits and we're not one of those we withdrew from that as we discussed previously for various reasons relative to the some of the requirements in the RFP that we felt were not.
Reasonable in the Mark understood. Okay, and then the Nebraska RFP is really not it's very early stages I don't think even bids have been submitted its mostly been qualifications that have been submitted.
Well I'm just wondering.
I see your comments about the states in the state budgets would those issues.
Accelerate the need for these types of facilities and consolidations slash potential cost savings or would it everything just slow down because they are.
No so trying to sort out what the world looks like.
I think they would slow things down because I think most states are still operating under their previous.
Previously approved budget.
And have not made structural financial changes.
Yeah.
Sure.
And your operations or the cost of their operations.
Right.
Pending you know the outcome of whether there is going to be government financial support to them.
Right understood.
And then just last on the Hector Garden Center pretty small facility. Overall, so you know mazuz relatively small impact but.
The other potential use for that.
When looking at it looks pretty marketable it's in San Antonio, Texas, It's in a good area and we're just getting it on the market, but we have we think we'll have a good chance of upselling that.
Certainly.
Selling the facility or we re using it for something else I'm sorry.
At this part it's on the market to be sold.
Understood Okay, great. Thank you yes.
Our next question comes from Harvey Poppel from Poptech LP. Please go ahead with your question.
Okay. Thank you very much.
If any other questions I ask a you've answered earlier I apologize because I had to get on the call that late but.
Looking at the situation.
That you've presented.
Certainly a lot of downside, which the company.
Had really no way of anticipating started the year. The question is what else could go wrong at this point.
Is there.
Potential for further downside in the business.
[laughter].
I think there's far more potential for upside.
As we.
As we would see the.
Economy recover.
The pandemic decline the opening of the southern border and.
Getting back to normal, particularly with our federal clients.
Well so are you.
Saying that <unk> for example, you have this minimum occupancy payment.
Schedule are all the facilities, where you have minimum occupancy payments are you at those minimums or are there some where you haven't gotten down there.
It's somewhere below them minimums.
Well, but you're getting paid for them, but we're getting paid at the mill, yeah, but I, but are there some where you haven't yet with the occupancy levels have shrunk to where you you are protected on them.
Oh, no the the facilities, where we have the occupancy levels, where that's been an issue as we mentioned earlier has had been ice in.
Marshals facilities and most of those facilities are at or below.
Those occupancy levels. There are few marshals facilities that do not have a minimum occupancy levels, but I think that population levels that those facilities are at or probably where we would expect them to continue to run they store to.
During the early stages the of the pandemic those populations came down and I think for the most part they've stabilized at that sort of level and as George mentioned earlier.
We think the more likely scenario, which we havent accounted for in our guidance is that maybe those populations improved before the end of the year, but we havent assume that.
Right and what percent of of the facilities have.
<unk> percent looking at it from a revenue point of view roughly what percent are on minimum avoid your facilities or beds I guess.
Our on that basis.
Uh huh.
Two thirds from from a U.S. corrections are our secure services business, which has the biggest pieces of business, probably about 70%, 70% okay. Good.
Now when you talk about the election.
Or the potential rebound or.
From the election.
You're referring to a potential loosening of immigration policies or what is it that that a if we're worried democratic sweep for example, what is it that you see happening in the political scenario that would work in your favor.
Well I [laughter].
I guess, it's the word uncertainty, which markets and politicians hey.
Once they are certainty as to you know.
Who is present them what the administration will be like then.
There will be more clarity as to what the federal agencies policies will be particularly regarding immigration.
And.
In immigration enforcement, particularly along the southern border, which.
Impacts the.
The.
The services of ice and the marshals in particular and eventually affects the B O P. Because the marshals service is a feeder agency to the B U P.
So it's it's a it's a question of clarity as to immigration policy in weather.
Previous policies.
A continued such as the Obama administration or the policies continue such as under the Trump administration.
Okay.
And finally and again if you've answered this question before I apologize there's been of course this rash of litigation almost every day.
Sure.
Ambulance chasing from announce or something.
What's the company's view on litigation.
Well, there's lots of litigation and it's.
It's becoming.
Novel Litigation I, just read the news article today, where the state of Colorado's being sued.
For not pay minimum wage health and vacation benefits to its inmates.
So that's the kind of time, we're living through I consider nuisance cases that will eventually be resolved and in favor of governments and private entities that like ourselves that operate in this space, but you know there their time consuming and they.
Have a cost to them.
Do you ever.
Again, I apologize if the answers have you set up a reserve for this.
Well, we set reserves on individual cases based on.
So the merits of the case and what we.
Believed to be is the likely outcome on a case by case basis.
Okay. Thank you very much appreciate it.
Thank you.
Once again, if you like to ask a question. Please press Star then one so it's all your questions you May press Star ensue.
Our next question comes from Michael Levitz in from mid Ocean Credit Partners. Please go ahead with your question.
Hi, Thanks, Thanks for taking the question.
You guys talked a little bit about.
Some of the concerns regarding future access to capital.
Could you just talk a little bit about how you're thinking about your next maturity, which is in January 2020 to realize it's a year and a half the white, but just just how you're thinking about.
The path from from here to their and addressing that maturity.
Well as we talked about I think.
Early in the call the talked quite a bit about the debt reduction.
Strategy.
And we had a significant liquidity under the revolver, so I think between.
The.
Excess cash flows that we intend to apply towards debt reduction in the liquidity under the revolver, we can easily steer through that first maturity and.
Probably still even have some room to deal with the 23 maturity. So if the market improves or some other.
Source of capital opens up that seems reasonably priced and we can act that that otherwise I think we you know can deal with that on our own without going into the capital markets. If we don't need.
Okay, great. Thanks very much.
And ladies and gentlemen, without will end today's question and answer session.
I'll turn the conference call back over to George Zoley for closing remarks, Okay. Thank you everyone for participating on this call. We look forward to address new on the next call.
Ladies and gentlemen that does conclude today's conference call. We do thank you for joining you may now disconnect your lines.