Q3 2020 Geo Group Inc Earnings Call
[music].
Please note this event is being recorded.
I'd now like to turn the conference over to Pablo Paez 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 third quarter 2020 earnings results.
With us today are George Zoley, Chairman, Chief Executive Officer and founder.
<unk> Chief Financial Officer.
Lord President of Geo care, Blaine Davis, President of Geo secure services.
This morning, we will discuss our third quarter results and outlook, we will conclude the call with a question and answer session.
This conference call is also being webcast live on our Investor website at <unk>.
Investors Dark Geo group dotcom.
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 law.
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, an 8-K reports.
With that please allow me to turn this call over to our chairman and CEO George Zoley George Thank.
Thank you Pablo and good morning to everyone.
This morning, we reported our third quarter results and increased our financial guidance for the fourth quarter and the full year.
During the third quarter, we experienced a continuation of the favorable cost trends, we had experienced in the second quarter, which resulted in better than expected financial performance.
While we are encouraged by these favorable cost trends over the last two quarters, we continue to face operational and financial challenges associated with the ongoing COVID-19 pandemic.
Our frontline employees have continued to show incredible commitment and resilience as our company matches through these unprecedented times.
From the outset of the pandemic our facilities have implemented steps to mitigate the risks of COVID-19, So all those in our care and our employees and we are continuously evaluating these steps.
We remain focused on procuring personal protective equipment, including face masks for all employees inmates and detainees at our residential facilities.
And we've been steadily ramping up our diagnostic testing capabilities. Most recently with the acquisition of 45 to Abbott rapid test.
I see is that we expect to have deployed to our geo secures surfaces facilities by the end of November.
Ensuring the health and safety of all of those in our facilities and our employees has always been our number one priority.
And we believe the steps, we have taken across our facilities and our and.
And our focus on personal protective equipment and testing have allowed you to mitigate the risks associated with the pandemic.
Well, we've continued our operations as an essential government services provider. The cobot pandemic has had a negative financial impact across several segments of our company.
Over the last two quarters, we have experienced a decline in overall occupancy levels at our federal facilities for ice you.
US Marshals service and the Bureau of prisons.
Our Geo care segment has also been impacted by lower occupancy levels across our reentry centers day reporting programs and youth services facilities due to COVID-19.
While occupancy levels have begun to stabilize our expectation is that our ice and U.S. marsalis facilities as well as our Geo care segment will continue to operate at lower occupancy levels through the end of the year.
With respect to the Federal Bureau of prisons, we had previously announced.
The agency has decided not to rebid the contract for our D. Ray James Georgia facility.
As a result, the decline in federal populations in part due to cope with 19.
During the third quarter, we entered into a four month extension of this contract which was previously set to expire September Thirtyth does the bureau evaluates its future capacity needs.
Our updated financial guidance in the fourth quarter and full year now reflects the extension of this contract through the end of January 2021.
During the third quarter. We also began the activation of the Golden State Ice and Nixon Mcfarland, California, which we expect to achieve normalized operations by the end of the year.
In a recent ruling this week the U.S. nine.
Circuit Court of Appeals ruled unanimously that the conditional use permit is issued by the city Macfarlane for our Golden State and Central Valley Annexes comply fully with all state legal requirements.
Additionally on October 26, we entered into an operational contract modification to continue the process.
Activating the desert view annex in California.
And we remain hopeful to be able to activate the central Valley Annex also in California in the near future.
We believe these positive milestones are representative of the stability and strength of our earnings and cash flows. Despite the challenges associated with COVID-19 pandemic.
We believe that our business is underpinned by long term real assets.
Real.
And that they are the real estate assets are supported by high quality contracts for the provision of essential government services.
We've provided these essential services to government agencies at the federal and state levels under both Democratic and Republican administrations and during times when either party has been in control the legislative branch of government.
We expect that our company will be able to continue to provide valuable diversified services to the federal government under either political party following the upcoming election.
As we have discussed last quarter. We also recognize that the current political rhetoric and missed characterization of our role as a government service provider has created concerns regarding our future access to capital.
We recognize the importance of capital preservation and debt repayment given Victor current environment to this end our board of directors has reduced our quarterly dividend payments to 34 cents per share in order to apply our excess cash flows to paying down debt.
Through the end of the third quarter, we have paid down approximately $80 million in debt net debt during 2020 and as we have previously stated we expect to pay down approximately $100 million in net debt this year and hope to be able to allocate a minimum of 50 million.
Dollars in excess cash flow annually thereafter.
Towards net debt repayment. Additionally, we're currently undergoing our annual budgeting process and expect to identify cost savings opportunities in the corporate into the severity levels.
We've also identified a number of company owned assets and are exploring the potential sale of these assets to government agencies or the third party individuals.
At this time I'll turn over the call to Brian Evans to review, our results outlook and liquidity position.
Thank you George Good morning, everyone. Today, we reported third quarter revenues of approximately $579 million and net income attributable to Geo of 33 cents per diluted share.
Our third quarter results reflect a $300000 pre tax loss on real estate assets well.
Well, one and a half million dollars pre tax gain on extinguishment of debt.
$1.9 million in pre tax startup expenses $1.7 million in pre tax close out expenses and $2.6 million of pre tax code and related expenses.
Excluding these items, we reported third quarter adjusted net income of 37 cents per diluted share. We also reported third quarter AFFO of 67 cents per diluted share.
Moving to our outlook. The COVID-19 pandemic continues to have a negative impact on several segments of our company the.
The pet pandemic has resulted in lower occupancy levels at several of our facilities and programs beginning in late March and continuing through the second and third quarters.
Well occupancy levels have begun to stabilize we expect lower occupancy levels at our ice and U.S. marshals facilities to continue through the end of the year.
Our Geo care segment also continues to experience lower occupancy levels.
In our residential reentry centers day reporting programs, our youth services facilities, which we expect to continue through the end of the year.
As George mentioned, the Federal Bureau of prisons has extended our contract for our company on 1900 bed D. Ray James facility in Georgia through the end of January 2021.
As we had previously announced the Bureau had decided to not renew it to not rebid. This contract due to the decline in federal prison populations driven in part by the COVID-19 pandemic.
Our revised guidance for the fourth quarter and the full year now reflects the four month extension of the D. Ray James contract, which we had previously expected to expire on September Thirtyth.
Our guidance also reflects the third quarter activation of our Golden State ice annex in California, which we expect to achieve normalized operations during the fourth quarter of this year for the fourth quarter. We expect net income attributable to geo to be in a range of 23 to 25 cents and adjusted net income to be in a range.
24 to 26 cents per diluted share.
We expect fourth quarter after FFO to be between 55, and 57 cents per diluted share for the.
The full year, we expect net income attributable to geo to be in a range of a dollar and seven cents to one dollar a nine cents and adjusted net income to be in a range of a dollar and 21 cents to a dollar and 23 cents per diluted share.
We expect full year Apple to be in a range of $2.43 to $2.45 per diluted share.
Moving to our capital structure at the end of the third quarter, we had approximately $54 million in cash on hand, approximately $370 million and borrowing capacity available under our revolving credit facility. In addition to an accordion feature of $450 million under our credit facility.
With respect to our capital expenditures, we expect total capex in 2020 to be approximately $109 million, including $20 million for maintenance Capex.
The increase in our projected capex for the year is related to the anticipated activation process for our ice annexes in California. This month, our board declared a quarterly dividend of 34 cents per share or one dollar and 36 cents per share annualized.
This reduced dividend payment will allow us to balance providing value to our shareholders. While also preserving capital <unk> to be applied towards the repayment of debt.
During this year, we expect to repay approximately $100 million in net debt and starting in 2021, our goal would be to average at least $50 million in annual net debt repayments, depending on how quickly our cash flows recover post pandemic.
We are currently undertaking our annual budgeting process and expect to identify cost savings opportunities at the corporate and facility levels.
Additionally, we have identified several company owned assets and are exploring the potential sale of these assets the government agencies or to third party individuals.
At this time I'll turn the call over to Blake Davis for a review of our Geo secure services segment.
Thanks, Brian and good morning to everyone I'd like to provide you with an update on our Geo secure services business unit and our continued efforts to mitigate the risk associated with COVID-19 from.
From the start of the pandemic, we've taken steps that all of our facilities, which are consistent with the COVID-19 guidance issued for correctional and detention facilities by the CDC.
This guidance covers best practices, including the implementation of corn team cohort in and medical isolation procedures and educational guidance of up to our employees and individuals in our care on the best preventative measures.
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.
We have continued to focus our efforts on increased sanitation measures and the deployment of personal protective equipment, including face masks for all of our employees and all those in our care.
We have also increased testing at all of our facilities and have recently begun deploying Abbott rapid test devices to our secure services facilities. We are testing a larger percentage of inmates detainees during the intake process and through the month of October we have conducted more than 41000 test at our.
Facilities.
We are continuously evaluating the steps we have taken and we'll make adjustments to these steps as appropriate and necessary based on updated guidance by the CDC and other best practices.
We remain incredibly grateful for our frontline employees, who continue making daily sacrifices to report to work and provide high quality and compassionate care for all of those in our facilities.
Before I turn the call to action I would like to briefly discuss a few operational highlights.
In the third quarter, we began the activation of our company own Golden State Isotonics in California, which we expect to achieve normalized operations. During the fourth quarter of 2020 effective. This week. We also entered into an operational contract modification to continue the process of activating the desert view ice.
Annex in California.
And we remain hopeful to be able to activate our company owned Central Valley, California annex in the near future.
During the third quarter. We also entered into a four month extension through the end of January 2021, with the Federal Bureau of prisons for our D. Ray James Georgia facility. This contract was previously set to expire on September Thirtyth.
Additionally, we recently completed the activation of our out of state contract with the state of Idaho at the Eagle Pass, Texas facility, we have entered into an agreement with the United States Marshals service for the use of Eagle pass during 2021.
Finally in Australia, we have now completed a 480 bed expansion at the journey Correctional Center, increasing total capacity to 1200, 80 beds and 137 bed expansion at the Forum Correctional Center, bringing total capacity to 1045 beds at this time.
I will turn the call over to and for a review of Geo care. Thank you Blake and good morning, everyone I'd like to provide you with an update on the continued steps we are taking to mitigate the risk of COVID-19 across our Geo care business unit consistent with the efforts undertaken by our Geo secure services facilities, we have issued COVID-19.
Guidance for all of our residential facilities in Geo reentry and Geo you services consistent with the guidance issued by the CDC. This guidance includes quarantine and coal burning policies and procedures as well as educational guidance to our employees and all individuals in our care on the best preventative measures to mitigate.
Spread of COVID-19, we have focused our efforts on increased sanitation measures deployment, a personal protective equipment, including face masks and testing.
We continue to exercise paid leave and paid time off policy to allow our employees to remain homeless needed and we have implemented additional screening measures for entry into our facilities.
We continuously evaluate these steps and we'll make adjustments as appropriate and necessary based on updated guidance by the CDC and other best practices.
The COVID-19 pandemic has had a negative impact on several of our residential reentry centers and nonresidential day reporting programs, which continue to experience lower occupancy and referral level.
The pandemic has also impacted occupancy levels in our youth services segment and as we previously disclosed COVID-19 related challenges led to the closure of our Hector Garcia facility in Texas during the third quarter.
Notwithstanding these unprecedented challenges we have had several recent positive highlights during the third quarter. We completed the reactivation of our company owned Herpes Center in Alaska under a new 112 bed contract with the Alaska Department of corrections.
We also recently activated the 11, New day reporting program sites in Tennessee with a capacity to serve approximately 2900 participants under a new contract with the Tennessee Department of corrections.
These recent milestones are indicative of the resilience of our Geo care Division, which have remained focused on delivering high quality services to the participants in our care on behalf of our government Agency partners.
We remain very proud of our frontline employees, who continue to report to work every day to deliver rehabilitation and reentry programming to those in our care, often a new and innovative ways, including through virtual technologies. At this time I'll turn the call back to George for his closing remarks. Thank you again.
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 the unprecedented global COVID-19 pandemic.
Despite the significant challenges associated with curve at 19, we believe that our earnings and cash flows remain strong and our business is supported by long term real estate assets and high quality contracts entailing essential government services.
We've provided a high quality essential services for more than 30 years under both Democratic and Republican administrations and under.
Chambers of Congress controlled by both parties, we believe that our company will continue to be able to provide innovative and diversified services to the federal government under either party following the upcoming election.
We recognize that the current political rhetoric admits characterization of our role as the government services provider has created concerns regarding our future access to capital, but our board has taken steps to reduce our quarterly dividend payments in order to preserve capital and allocate our excess cash flows toward debt repayment.
Our management team remains focused on effectively allocating capital. We believe that these steps will allow us to balance providing value to our shareholders, while focusing on paying down debt and de leveraging that completes our presentation, we will be glad to address any questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
The first question comes from Joe Gone gone as of now we'll capital. Please go ahead.
Good morning, and thanks for taking my questions.
Good morning.
Just wanted to kind of start out of the big patron you've talked a little bit about about it you know I don't know if you give a little more color or detail on this election.
And what your guys thoughts are what your.
You're preparing for yes.
Biden wins versus Trump wins.
Right and as I made some comments about.
You know eliminating the use of private companies I'm, just trying to get a little more color detail on on what your thoughts are and what you guys are looking at going forward after the election.
[noise] well it wouldn't be appropriate for us to speculate on the potential outcome of the presidential election, but as we've mentioned earlier, we've provided a high quality essential services to the federal government for more than 30 years under both Democratic and Republican administrations.
And under different controls of Congress by both parties. So we grew a fairly steadily under the Obama Biden administration previously and unless there's a major change.
Change in.
Border security I don't know that there will be much changes. So we will look at.
Whether there's actual pollo.
Policy differences that apply to our business as if there is a change of lot of parties, but otherwise you know, we're just continue to do our job and not.
Try to do our best to mitigate the Ur COVID-19 pandemic, but.
As weve.
Stress, we have three and a half decades of high quality service under both parties.
Okay. Thank you for that.
And on the D. Ray James obviously, congrats on getting the the extension there.
Right.
What what changed at least in your guys opinion from the B O P, saying that in the second quarter basically, saying, we don't need the facility anymore to all of a sudden say oh wait a minute what ill give you at least four more months on the facility that you know that we need it I mean.
What what happened or what turned around there.
The BLP side.
Yes, we obviously can't speak for the VLP, but we would hazard to guess that being in the middle of a co bid 19 pandemic may have something to do about shutting down a facility to having to transfer a lot of people to other facilities, which would be very problematic.
Okay.
And you mentioned again congrats on some of the the.
The recent Activations here, a golden State and Desert view. This week, you mentioned that and desert view it was a contract modification what what modifications.
More made for that.
Oh that will involve the use of the facility in part by the U.S. Marshal service.
Okay.
Okay.
And on the Eagle pass you talked about the U.S marshals service will be using that in 2021.
Is there any major differences and that contract.
Versus you know the the other contracts maybe that were signed six 912 months ago.
And just reflecting you know of.
ER visits the covance situation and declining.
Populations that have occurred.
Ours. They contract you know pretty much similar to the previous contracts that you have side with the U.S Marshals service.
Well there.
Very different clients one is the steak line with Oh.
Fairly stable population and the other one is a federal agency that is holding presents criminals and with where there's a lot of turnover of those individuals inside the facility. So.
Operationally its a very different kind of situation, but financially they are very similar.
Okay and I know.
In many industries.
Given the what's going on here with the pandemic.
Has stressed.
State budgets significantly.
And as you guys have contract renewals coming up.
Has there been pushed back from the states in terms of pricing or is that they're taking more of a wait and see approach given that the pandemic.
Just any color or detail there would be appreciated.
Yeah, I think the states are taking a wait and see approach.
Typically with regard whether there will be a second stimulus bill passed and yeah.
Huh.
Many if not most of the states are not currently in session they'll be reviewing their budgets early next year.
Okay and have you made any progress and any of the property sales that you've talked about you know last quarter and again you know it.
Today.
Well, we've progressed and identifying facilities than trying to group them between parts.
Potential sales to governmental agencies versus a third.
Third parties.
You know do.
Due to their real estate value.
Yeah.
And in their particular locations. So we don't have a sale as yet, but we are position and progressing in our execution of that strategy.
Okay, and one last one for me and I'll get back in queue. Thank you for all the answers.
[noise] to my question, just I know last quarter, you guys had talked about you know that some of the other opportunities out there one was Nebraska, just trying to get a little update there and is there anything else that has popped up since the second quarter. That's.
That's in the pipeline that that could be.
You know potential new opportunities for you guys.
I think the Nebraska this the Nebraska RFP in the ice or is moving forward, but it's it's kinda flow at this point ice has issued a request for information for location of capacity.
In the northeast and we are prepared to respond to that.
Okay, great. Thank you very much appreciate it.
Thank you.
The next question is from Mitra Ramgopal of Sidoti. Please go ahead.
Yes, hi, good morning, Thanks for taking the questions first I just wanted to get a sense on the op cost trends, you're seeing and obviously in one side yes.
Regarding increased spending related to cope with but I think.
Youre benefiting recently from lower medical cost et cetera, and I was just wondering how it at a fair and three Q.
Given that we are hearing that like the procedures are starting to pick up et cetera, if that's becoming less of a tailwind for you.
Well, we still have experienced a fair amount of that in third quarter. The main savings areas have been labor just due to lower occupancy levels and the facility. So we've been able to manage staff differently and reduce overtime and then secondarily has been the medical.
Off sites as we've discussed before we are starting to see I think some return to normalcy, but I don't think its moved all the way back to where it was pre cove. It but we are seeing some of that and we've been for the balance of this year I think we've been cautious in how much additional credit weve taken for that in the fourth quarter.
Okay, Thanks, and as it relates to the incremental expenses.
Related to cope with are you able to pass that on.
Any level in terms of what's in your contract negotiations or pricing.
Oh, a little bit of it it depends we haven't Ics the pro forma adjustments don't include anything that we can pass on to the customer I'd say, that's our net cost. So we're working on that side of it but.
It's limited.
What we'll be able to pass on that which we can we're working to do that.
Okay.
And then just coming back to the <unk> contract retention, obviously this year, it's going to be down versus what we've seen historically just wanted to get a sense in terms of obviously with co op. Ed. It seems you know it's still it's going to be disruptive at least the next few quarters.
The recent surge is.
A sense as to how you you've you can track with retention in terms of maybe not ticking back up.
Potentially in 2021 and beyond.
Well as you know the the contract retention rate in the industry is very high we had.
The one contract that wasn't renewed as George discussed earlier, the D. Ray James facility. The other one that I think of that.
Material was the Eagle.
Eagle pass facility, but those were out of state inmates in its pretty typical within the industry for those beds to go back to the you know their state of origin or whatever.
Are they needed more capacity and we just couldn't provide that so that that's why they moved away, but we've already as George discussed and Blake discussed.
Our expecting to be able to activate that facility with.
The U.S. Marshal service.
Okay, that's great and as it relates to capital allocation I know a debt reduction it remains the.
The priority right now but.
Given where the stocks that I was wondering if maybe share repurchases as something that might also be on the table.
In terms of use of capital at this point.
I think you know its always that potential but our main focus is as George indicated maintaining the dividend, which is returning something to shareholders.
Focusing on debt repayment and then we do still see that we'll have.
Need for some growth investments so as we mentioned during the call we increased our expected capital outlay for this year related to the activation of the facilities in California for ice so.
It's possible, but I'd say, it's farther down the wrong right now of where we're going to allocate capital towards.
Okay, No that's fair and then on the Capex allocation, obviously, it's higher this year and and you are still going through the budget process for next year, but is it fair to assume we probably see it returning to more normal levels.
Well I think we'll see it step down some next year, there's still maybe some of this capital related to the ice projects in California, and then as we've previously discussed we also have some repo.
Replacement of equipment in the electronic monitoring business as a result of a changing.
Changing technology there. So it wasn't we'll still have some a you know a reasonable amount of Capex next year, but it will be less than this year at for how much I can't say exactly probably at least 20 million.
Okay.
Thanks, and then finally, just a big picture.
Result of co op, Ed I was just wondering if just show a competitive environment as it relates to being able to bring on new business et cetera, how would you characterize it.
Well, we are developing new business as our new.
Announcements regarding the ice annexes.
Has taken place one is fully activated.
Another one is expected to be activated this year and third will be activated we believe shortly at the beginning of next year and then already.
Sorry go past facility is.
Expect the marshals service to activate that facility beginning of next year as well. So we have a lot of.
Continued growth issues that you know.
I have just said we have to spend some money to.
Re purpose these facilities for the particular client and we're we're glad to do so.
We're glad we have these growth efforts.
Okay. Thanks, again for taking the questions.
The next question is from Nick Jarmoszuk of Stifel. Please go ahead, hi, good morning.
Oh I see we get an update on the asset sales figure proceeds I believe last quarter as mentioned it could be up to $100 million is that still the right ballpark to think about.
Yeah, I think that's the number we're targeting that wouldn't necessarily I'll be in one year, but over a several year period. We think we can maybe achieve that.
Yes.
And then how should we think about proceeds were where would they be applied to.
Well, we'll apply those to our reducing debt as we talked about before you know typically.
Just from a flexibility perspective will reduce the revolver.
And then you know over the longer term, we may be able to reduce.
Some of the bond outstanding.
A question on the D. Ray James facility.
What's your estimate for how long it takes to.
Relocate the entire population.
What I'm getting at is could there be another extension.
That's a that's a call by the Bureau of prisons, but right now we were looking probably at about a three month demobilization plan and that can always be extended by the bureau of prisons. It's a lot of it depends on the cobot environment and if it improves on the federal side and ER and how things progressed.
With the vaccine or just general medical care.
Within the facility have you seen any actions that they are winding down the operations there or is it does it is it more business as usual.
We have we have reduced the number over the last few months and then it stalled for about 30 days, while we reassessed and the Bureau does have plans to demobilize at a very gradual plays a pace as I as I stated that pace will be dictated by.
Hi, there need and and discovered environment.
And then with the other facilities could you provide an estimate for how many of them are generating the contracted minimums.
When you say generating a contracted minimum the facilities that are at or below their contract minimums yeah.
So all of our B O P facilities for a minute.
Except maybe want our full fixed price contracts.
So they're always that you know 100% of their of the revenue I think there's one that's still an older version of the contract is 95% guarantee or all all of our ice contracts, except one I believe have a minimum fixed payments per month and given.
In ice is operating tempo right now all of those facilities are at or below their minimum occupancy and that's what we've assumed for our forecast for the year, starting we did that back in the second quarter. When we revised our forecast and then our marshals contract it's a mix.
Some of them have the fixed payments some of them don't the marshals populations are down some but not as much as as ice.
And then lastly, most of our state contracts.
I have some sort of fixed component as well and to say populations has stayed have come down a little bit but are still quite a bit.
Higher than the federal populations outside the BNP and they're more in line with our traditional averages.
So with the 21 outlook and the buzz you're putting together.
How can we think about upside downside between.
There being no.
Hey, Cobot resolution and effective.
Vaccine and stabilization of the overall infection rate versus.
A pandemic that extends for still enough that's still a number of quarters.
What's the how should we think about the upside downside scenario there.
Well, obviously, we're still in the middle of the were still building our budget, we're going to be flexible around.
Covidien you know what's going on in the market, but I.
I think it from a from a planning perspective that we're going to go based on what we know today you know there is talk about vaccines and that but nothing in the market. So we'll continue to sort of a I think apply the more the the current status quo, maybe we'll see some improvement.
Late next year, but you know there's no.
Public information that would say otherwise currently so you know we think that's the most prudent and cautious way to do our planning for next year.
And then last question just on the 22 notes.
Can you talk about how you think about the refinancing options there.
Well as we said before we have a we have liquidity under the revolver will continue to monitor the market and if there seems to be an opportunistic time to go either do a refinancing from a you know using or another bond or we may look at alternative structures like a convert.
I will note or something like that but we think that there's.
There's definitely accessing capacity to to be able to replace those notes or take them out.
Yes.
The next question is from Matthew Larson of National Securities. Please go ahead.
Thanks, guys for taking my call.
Uh huh.
Got a question is more on the Big picture all right you guys are essentially a landlord or and do you have a tenant which fortunately pays all their bills.
I live in New York City, and there's long term landlords wrong, you know skyscrapers and what have you and nobody is showing up in the office and Oh, no one's paying around my saying no one I don't mean literally but so.
Based on whatever cap rate that these buildings were worth.
Certainly not less and the future.
Yeah, let's go with the little different we don't know how many how much space is going to be required and how many.
Inmates aren't coming back to the prison, Okay. If I can make the analogy with you all.
There's some inmates have been let out because of coated pipe.
Prison reform.
Or liberal I'll say, whatever more progressive sorts of notions about just letting people out early so but at least your your tenants have been paying and.
I assume we'll get through this and I.
I assume it will be a need for prisons.
And it might be reduced but the rhetoric. We've seen has been on the federal level you know.
And if I'm not mistaken you know 80% plus of your.
Contracts are with states and if state budgets.
Our stretched or you know it seems to me that would be more interested in spending whatever money. They have on education infrastructure things like that.
And outsourcing.
Prison or detention centers would be you know preferable versus taking it on themselves or building a new facility. I mean is that an accurate yes statement about the state of affairs of.
If your business it stays depressed because every.
Real estate oriented business depressing yours seems.
The prices of the of your stock and then your main competitor that your main public competitor.
Certainly down dramatically and.
If they are going out of business.
Actually I shouldn't say things like that but you know as if their.
Malls or something like that which people may not ever go back to.
With that in mind or is there a sense that states will continue to keep.
Keep you as clients, regardless of what a one administration might feel about.
For for profit prisons, and therefore, it doesn't affect to the bulk of your business.
Well in our 35 year track record, we have a retention.
Track record of over 90%.
Because we are in the central government services provider.
Federal and state levels.
And you know that.
At the state levels or in many cases.
Oh states have proved preferred allowing the private sector to come in and use private sector financing to build these new facilities.
That were needed because of overcrowding situations in their own prison.
And that benefited them by allowing them to use their scarce financial resources to apply to other areas like building schools. So we're glad to have done that in it over the last three decades.
Expect that we will continue to be favored to do that at the federal level. There's.
You know we operate on behalf of three federal agencies, the B O P. The marshals service and ice.
Yeah. He is an opera here they have their own facilities and our facilities have been supplement to there's a holding primarily criminal aliens.
Oh for the marshals service and ice they are not operators they depend on either the private sector or in combination with the public sector to provide the capacity for their their needs and we we've been doing that for 35 years.
And we expect to continue to do that because they don't have their own facilities. They are not operators.
Unlike the VLP, which has its own facilities, you is marshals service and ice.
We have used primarily the private sector and the public sector to provide them with facilities and capacity to carry out their responsibilities and we've been a major player in that scenario.
Scenario.
All right. So then I could draw from that.
Right now the board is shut down more than it would normally be because of cove. It up in the same way I can't fly to Paris.
Because they're not going to let me lay out or not infrequently myself.
There, there's there's greater restriction of people coming over the border you don't seem to hear about a border crisis anymore from either side of the aisle, but.
But if one administration got in Oh, Oh, Laminates <unk> Democratic administration came in and they have been the ones who have been more likely you are talking about doing away with it for profit prisons.
One can generalize that maybe.
Border openings would be you know more porous and there would be a need to house. These folks in detention centres until their individual situations are.
Our adjudicated all right so.
It seems to me that.
That could actually since you said ice doesn't have any fun.
So these are there are they would need people like yourself. So I'll just make a comment and unless it's you feel that that's completely way off then.
A lot of the concern about a lot some portion of that concern of shutting down or not doing business private prisons.
Yes, maybe over blown because if I just doesn't have the wrong, they're going to need somebody and you've been there for decades and as long as you're supplying a fair and competitive product then presumably you'll still get some business from ice regardless of who's in the white, who's who wouldn't administrations and the white house.
As a.
Reasonably accurate thing to say.
I think it is as long as there's a policy of border enforcement. We will play continue to play a role in supporting that policy.
Okay, and then another thing that.
You know it's been an issue is that a you have essentially been red lines by all the major banks.
Where they just don't want to let alone to presumably for politically correct reasons or they just don't need the bad press, which to me is it's just.
Kind of a libertarian I think that's discriminatory in it and essentially its red line.
Is there any sort of legal recourse you might have about having that some of the.
Finance financing markets close down to you, but just simply because you're in a business that you know JP Morgan.
Doesn't feel they need the bad press.
Oh yeah.
A is that something that could be brought up since you are supplying a needed services you know for most people I think would believe that some people feel that.
Yeah.
Alright.
Some people that feel that any sort of.
I don't I I really don't know understand the point of the folks that feel that a for profit prison is a some sort of a bad thing and unless you're supplying us substandard service, but.
I guess im just talking about the financing thing I mean is that something that seems discriminatory to you and maybe there's some recourse, but secondarily is there plenty of money out there all of them, albeit maybe at a higher cost from private equity or or or private sources, who really don't care about.
You know.
Politicians.
Spitting something in some way so that.
Regardless of the political wins going forward, you will always have access to some capital just be more expensive which might cut into your.
You know your bottom line is that also an accurate thing to say.
So this is Brian I'm first on the question discriminatory lending and whatnot you know there's been some discussion at the federal level I think from the office of the currency the Comptroller and some of the U.S. members of the.
Senate finance committees et cetera.
Pressing that issue and I think we'll just have to see how it works out you know our industry isn't the only one who has been facing that issue you know, we're a small our industry, but the oil and gas industry has been facing that sort of pressure as well the gun industry and ammunition industry is facing that so they.
There's a number of different industries that have that as you point out are all legal industries, providing a lawful services et cetera and.
And we'll just have to see how that works out, but we're obviously monitoring that situation and then as far as the capital markets. We do continue to believe that we will have access as you said the prices.
May be higher but that's part of the reason why we're focusing on making some modest debt reduction also to offset those potential.
Higher prices and I think is a pulse.
Political rhetoric and situation stabilizes that will also help with the the prices in the market over time.
All right I, just want one or two other things I'm trying to look at the whole a big picture here, particularly because of the level of your of your company stock price I know, that's probably looked at pretty closely by you all I know that a George has made some very large so.
Stock purchases this year nobody knows the business better than than him. This is George I'm speaking with I'm not sure, but I'm guessing it's okay I'm sorry.
So.
You know you certainly know that business better than anybody and.
And.
I guess, what I'm, saying is that if it's a it's a public markets. Currently are not rewarding you. All for you know for your your earnings power. The fact that you have a AAA or tenants paying you rent, even though they might need a little less space.
Going forward because of coated or prison reform or.
Who knows what Ah or you know what a.
Closing of a border at some point that will stabilize ER and I would assume you would.
You would rationalize your capacity, but one way to do that would be to sell some of your facilities to the stage of the federal government, if they want to manage them themselves.
You know I I guess, they I've read up or I've, I've got and I've been on the impression that your facilities are perhaps.
Perhaps superior to some of the ones at this stage zone.
Or the feds might own that are decades old and you know if it's anything like public schools versus profit schools here in New York, There's a significant difference in quality. So if if if necessary are these facilities you could sell so that one could put kind of a floor under what the value of your company is regardless.
Whether they should you were shut down due to a greater degree because.
We live in a very unusual times and you know you you have no one has no idea what.
No some administration might do just to score some points or if they just completely open up to the jail doors to.
The name of prison reform.
Yeah. So a is that a adoption and b.
If your stock prices don't if your stock price doesn't recover or I.
I mean could you just go private I mean, a private equity firm or we may not carry white.
Multibillion dollar.
A private equity firm may not care about public opinion, they realize it's a long game 10, or 15 years administrations come and go I also can say this.
Obama taught his is talking point when he was.
Trying to get a lot to come out in a way. It was it was going to close going tomorrow in eight years. He never did so that these things really never come off and with all the problems facing any numerous administration a it seems to me you know.
Closing price.
For private prisons has got a rank pretty far down there I mean, we have bigger things facing our country than that.
So it is a.
Is it do you feel like there's private equity money out there that would pay a premium for you all if if or the public markets aren't rewarding you for your your your earnings capability.
You know.
A lot of good questions, but we're not going to make any dramatic situations.
In a transitional period that I think the country soon.
The economy is in a transitional period because of this pandemic and you know people have to see beyond where we are now to normalization too you know.
Set a path forward.
And not to overreact to temporary circumstances.
We've been around for 35 years on a.
Hope we're around another 35 years and.
Well just work our way through this and the way we do it has been through what we believe is our track record for operational excellence. Yeah. We do have the best facilities of our of the kind we operate in the world whether they're state facilities our federal.
Facilities. So we're proud of the facilities, we operate yes, they're better than our.
Our counterpart governmental facilities and the asset value of those facilities is probably four or $5 billion.
But you know, we're not going to be reckless in cashing them in in a time isn't a stressful time, that's just rent transit transitional Tori.
It's it's it's it's not appropriate there's no need to make these drew.
Dramatic decisions, when you're you're going through a period that stressful to the economy and to.
The political situation at the federal and state levels.
But we have a lot of options. We are aware of what those options are and we will monitor the situation and take.
Take action as necessary. Okay. I mean, that's just kind of what I want it wanted to hear because when when stocks get into the single digits and they're heading south.
You know a lot of it is just.
Probably.
It just selling by endowments are foundations or who knows.
<unk> public pension plans are.
Or just just just.
Momentum selling or that could be putting in a climactic low and so what I wanted to hear is what you told me is that.
Yeah facilities that have significant value, it's not as if you're not suggesting one sell them or anything like that I'm, what I'm, saying is that in a worst case scenario you have assets that someone's going to a value at some point and even if you lease them out to a state or federal people, let them run them.
They represent an asset that has a long life ahead of them.
And.
So that investing at a.
Socs could.
Trading the single digits that have never really been there in years, one asked another downside and you know it's my sense that if one can have a five your viewpoint or 10 year. Then that's the time to consider them strongly and so I'm just trying to figure out what the data says it sounds like.
You do have access to some for this financing.
Necessary, even if it costs you a little more whether it's convertible or through other sources you have assets that have value on their own and you know going forward and society will be as it is there'll be a need for housing prisoners or people coming over the border or who knows what and you all have been some.
Applying that service for 35 years, there's no reason to think that you won't be for the next 35 years. So alright. Thanks, so much for answering my questions and I guess letting me to I guess express a little bit of my you know.
My.
Just.
Pinion, if nothing else so I'll move on and let somebody else ask your question.
Thank you for those questions.
The next question is from Bill sang of New York Life. Please go ahead.
Yes, hi, Thanks, Jeremy Thank you Hello, yes.
Yes, we can hear it great.
Great. Yes. Thank you for taking my question.
I.
Apparently a lot of questions have concern about politically I thought that I just want to ask assuming no big political idle beds to us.
Or just consider about the cold winter.
Uh huh.
I think in the short term, it's going to be competing or have some pressure but.
There should be no problem about US alive, you know I like those airline I like those so how old war or anything on that but there we'll see.
I mean like a turning point, what's the oxide girls in the longer view two years later off the vaccine.
The upside.
Yeah once the vaccine.
Is made available nationally we we think there will be a restoration of normal.
Enforcement policies, and we would have higher occupancy is at our facilities and restore.
Revenues that we.
Weve seen decrease during this pandemic so yeah.
By many estimates are that will occur sometime next year.
That concludes our question and answer session I would like to turn the conference back over to George Zoley for closing remarks.
Well. Thank you for those exciting questions and we'll look forward to addressing you at the next quarterly conference call. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.