Q2 2021 Geo Group Inc Earnings Call
This conference call is also being webcast live on our Investor website at investors Dot Geo group Dot com.
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 given 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 laws.
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 and 8-K reports.
With that please allow me to turn this call over to our executive Chairman George slowly George.
Thank you Pablo and good morning to everyone.
It is my pleasure to welcome our new CEO Jose Gordo, and our new President of Geo secure services, James Black who are joining Brian.
And myself on today's call.
We are pleased with our strong second quarter results and our increased financial guidance for the full year.
We believe our financial performance during the second quarter is representative of the resiliency and strength of our diversified business segments.
Our better than expected performance was driven by continued favorable cost trends as.
As well as higher Occupancies at our U S marshals and ice facilities and increased revenue and earnings from our electronic monitoring segment.
Since the end of the first quarter the census at our U S. Marshals facilities has increased by approximately 10%.
And the overall census at our ice facilities has increased by approximately 100% during the same period.
With respect to the Bureau of prisons, we completed the previously announced transition of our Great Plains Correctional facility to an idle status in may of 2021.
We are actively marketing our great plains facility in our other idled facilities for used by other state and federal agencies.
As we highlighted previously the president issued an executive order in January of this year directing the U S Attorney general not to renew department of Justice contracts with privately operated criminal detention facilities.
Our base case assumption continues to be that are remaining <unk> per.
<unk> contracts will not be renewed resulting in 2 additional DLP cracks from facilities closing in November 2021.
It is important to note that during the second quarter of 2021, we successfully renewed 5 <unk> reentry contracts, which are not expected to be impacted by the executive order.
In fact, we are pleased to have been recently awarded a new.
Contract for our reentry center in the Tampa area, which is the first new residential reentry contract awarded to Geo in several years.
With respect.
Back to the U S. Marshals service, we are continuing to cooperate with the agency and assessing various alternatives on how to comply with the executive order, which appears to be focused on direct contracts with private sector surface providers.
The U S marshals do not own or operate facilities and instead contract for capacity, primarily through intergovernmental agreements and to a lesser extent direct contracts.
We operate 3 facilities that are under direct contracts and 9 facilities that are under intergovernmental agreements with the U S marshals.
Despite the challenges of the Covid.
Pandemic and the impact of the executive order on our <unk> prison contracts. We are pleased with the strong performance of our diversified business segments. We are proud of our frontline employees, who have demonstrated significant strength and dedication over the past year and a half.
They have continued to provide humane and compassionate care to all of those entrusted to our facilities and programs.
Understanding the challenges our government agency partners face in carrying out their missions during a pandemic, we invested significant resources to mitigate the impact of COVID-19, including $2 million.
45 Abbott.
Rapid testing devices and $3.7 million in bipolar ionization air purification systems.
We recognized that in addition to the challenges that I just discussed there have been.
Certain concerns regarding our future access to financing.
We have adopted a proactive and multifaceted approach to address these challenges. We believe these initiatives are in the best interest for our shareholders.
Other stakeholders as we work to address our debt maturities and enhance long term shareholder value at this time I'll turn the call over to Brian Evans to address these initiatives in more detail and review our results and guidance.
Thank you George Good morning, everyone. Today, we reported second quarter revenues of approximately $565 million and net income attributable to geo of $42 million.
Our second quarter results include $7.5 million pre tax and onetime employee restructuring expenses of $3 million pre tax loss on real estate assets and a $1.7 million pre tax gain on the extinguishment of debt.
$100000 and the tax effect of adjustments to net income attributable to Geo.
Excluding these items, we reported second quarter adjusted net income of 42 per diluted share and <unk> of 71 per diluted share.
Our better than expected performance during the second quarter was driven by continued favorable cost trends higher occupancies at our U S marshals and ice facilities and increased revenue and earnings from our electronic monitoring segment.
Moving to our outlook, we have increased our full year 2021 and financial guidance to reflect these better than expected results. We expect full year net 2021 net income attributable to geo to be in a range of $167.5 million to $174.5 million on a full year 2020.
<unk> revenues of approximately $2 billion to $3 billion.
We expect full year 2021, adjusted net income to be in a range of $1.34.
To $1.40 per diluted share.
We expect full year 2021, app, though to be in a range of $2.51 to $2.57 per diluted share.
We expect full year 2021, adjusted EBITDA to be in a range of $441.5 million to 448 net $5 million.
As we had previously guided our 2021 projections account for the expected non renewal of 2 additional <unk> prison contract for Big Spring and flight line facilities in Texas, which have options periods expiring at the end of November for.
For the third quarter of 2021, we expect net income attributable to geo to be in a range of $39 million to $42 million on quarterly revenues of $548 million to $553 million, we expect third quarter.
2021, <unk> to be between 62, and <unk> 64 per diluted share.
For the fourth quarter of 2021, we expect net income attributable to geo to be in a range of 36 million to $40 million on quarterly revenues of 538 million to $543 million.
We also expect fourth quarter 2021, app out to be between 59 and 63 per diluted share.
Moving to our capital structure at the end of the second quarter, we had approximately $483 million in cash on hand, resulting from the previously announced drawdown of our revolving credit facility.
Our decision to draw on our revolver was a conservative precautionary steps to preserve liquidity maintain financial flexibility.
And obtain additional funds for general corporate purposes.
We will revisit the revolver draw down at the end of the next quarter.
Counting for a $483 million of cash on hand, our net recourse debt currently stands at $2.1 billion.
Not including non recourse debt finance lease obligations or the mortgage.
On our corporate headquarters.
With our current cash on hand, and improving financial outlook, we expect to continue to proactively examine our options to address our funded recourse debt in due course, including our near term maturities, which encompass our 2023 and 2020 for senior unsecured notes and our senior secured credit facility.
Our earnings and cash flows have continued to exceed our prior expectations and we believe we will be able to address our debt maturities in due course on reasonable terms.
We recognize there have been concerns.
Regarding our future access to financing we have adopted a proactive approach to address this concern as we continue to focus on debt reduction and deleveraging from.
From 2020, we reduced our net recourse debt by approximately $100 million.
During the first half of 2021, we've further reduced net recourse debt by approximately $105 million rep.
Representing significant progress toward our previously articulated goal of reducing net recourse debt by between 125 and $150 million in 2021, we.
We intend to remain focused on debt reduction and deleveraging during the second half of the year.
Given our improved financial performance, we are increasing our target range for net recourse debt reduction to at least $150 million to $175 million in 2021.
Our multifaceted strategy also includes various initiatives, we have previously announced including our exploration of potential asset sale opportunities and our engagement of financial and legal advisors to assist us in reviewing capital structure alternatives.
As mentioned on prior earnings call, we suspended our quarterly dividend as our board continues to study our corporate tax structure.
We expect to conclude our evaluation in the fourth quarter of 2021, and if we decide to maintain our REIT status and additional dividend payment may be required before year end in order to meet the minimum REIT distribution requirements under the tax code for.
A substantial majority of such dividend will be paid in stock and the remainder would be paid in cash.
With respect to asset sales during the first half of the year, we completed the sale of 3 real estate assets and our reentry segment totaling approximately 700 beds on.
On July 1 we also completed the sale of certain non real estate assets in our youth services segment.
On a combined basis day sales generated net proceeds of approximately $27 million.
At this time I will turn the call over to James Black for a review of our Geo secure services segment.
Thank you Brian.
And everyone.
It is my pleasure to join you today to provide an update on our Geo secure services business unit.
During the first half of 2021, our frontline employees have continued to address the ongoing challenges associated with the COVID-19 pandemic.
Throughout the global pandemic, we have implemented several mitigation initiatives are.
Our secure services facilities put in place policies and controls consistent with guidance issued by the centers for disease control and prevention.
Including practices and procedures related to quarantine cohort ing and medical isolation.
We continue to exercise paid leave and paid time off policies to allow our employees to remain home as needed.
We have made face masks and cleaning supplies available to all of our facilities.
We made a significant investment of $2 million to deploy Abbott rapid testing devices across our facilities.
Which has allowed us to screen new arrivals at intake so that positive COVID-19 cases can be properly quarantined and isolated.
Through the end of the second quarter when administered over 137000 Covid tests that are secure services facility.
We also invested $3.7 million to install bipolar ionization systems at select secure service facilities to reduce the spread of airborne bacteria and viruses.
Over the course of this year, we have been working closely with our government agency partners and local health departments to make vaccinations available at all of our facilities.
At the end of the second quarter over 26000, Covid vaccinations had been administer at our secure service facilities.
We are continuously evaluating our mitigation steps and we will make adjustments based on updated guidance by the CDC and other best practices.
With respect to our recent operational activity in May we completed the previously announced ramped down in the activation of our great Plains.
<unk> facility in Oklahoma.
As we have discussed in January of this year, the president issued an executive order directly from the U S Attorney General to not renew department of Justice contracts with privately operated criminal detention facilities.
As a result, we continue to prepare operationally with the expectation that our remaining prison contracts with the BOP will not be renewed when the current option periods expire income.
Including our big Spring and flight line facilities in Texas, which expire at the end of November 2021.
During the second quarter, we experienced an increase in census levels across our U S marshals and ice facilities.
As we have noted previously unlike the DLP the U S marshals do not own and operate their facilities.
For the U S marshals contract for bed capacity, which is generally located in areas near federal courthouses to house pre trial offenders, who have been charged with federal crimes.
The U S Marshal contract for facilities, primarily through intergovernmental agreements and to a lesser extent direct contracts.
We currently operate 3 detention facilities that are under direct contracts and 9 detention facilities that are under intergovernmental agreements with the U S margins.
The 3 direct contracts are up for renewal at various times over the next few years, including 1 in late 2021.
We are cooperating with the U S marshals to assess various alternatives on how to comply with the executive order, which appears to be focused on direct contracts.
With respect to our ice processing centers, the executive order did not cover agencies outside of the department of Justice.
Our ice processing centers are highly rated by national accreditation organizations and provide high quality services in a safe and humane environment.
All of those entrusted to our care or provided culturally sensitive meals approved by a registered dietitian closing $24.7 access to health care services and full access to telephones and legal services.
Recreational amenities at our ice processing centers include flat screen Tvs in the housing areas multipurpose rooms, outdoor covered pavilions and artificial turf soccer fields.
Healthcare staffing at our highest processing centers is approximately more than double that of our state correctional facilities.
This higher level of healthcare staffing is needed to provide appropriate treatment for individuals who have numerous and diverse health and mental health needs.
We have provided these high quality professional services for over 30 years under Democratic and Republican administrations.
Moving to our state segment, the census level at our state Correctional facilities have remained stable and during the most recent state Legislative sessions. We were pleased to have received approval for additional funding to support per diem increases in wage increases or bonuses at some of our facilities.
In Florida, our managed only contracts for the Bay Moore Haven, and Grace fill facilities were part of a recent rebid procurement, which initially resulted in an award to a different service provider.
Following our protest of the procurement, we were able to retain the management contract for the Moore Haven facility, and we will transition the Grace Seville and bay contracts during the third quarter.
Finally, with respect to new procurements, we will be responding to the state of Arizona, which has issued a request for proposal for up to 2700 beds, which can be located either in state or out of state.
At this time I would like to turn the call over to Ed who will review of Geo care.
James and good morning, everyone I'd like to update you on our Geo care business unit.
During the first half of the year, our facilities and our employees have remained focused on our COVID-19 mitigation strategy all of our residential facilities.
And place quarantine in cohort <unk> policies and additional entry screening measures.
We have focused our efforts on increased sanitation testing and deploying face mask.
And our employees continue to have access to paid leave and paid time off to remain home as needed.
We continue to evaluate our mitigation steps and we'll make adjustments as appropriate and necessary based on updated guidance by the CDC and other best practices.
Despite the challenging operational environment, our employees have continued to strive to deliver high quality rehabilitation and reentry programming to those in our care often in innovative ways, including through virtual technology.
During the second quarter, our Geo reentry services Division successfully renewed 14 residential re entry contracts totaling more than 2300 beds, including 5 reentry contract with the Federal Bureau of prisons.
We were also recently awarded a new contract with the PLP for a 118 bed residential reentry center in the Tampa, Florida area, which we expect to activate in the second half of 2021.
This represents the first new VIP residential reentry contract awarded to Geo care in several years.
With respect to our youth services Division on July 1 we completed a divestiture of the division, which has been reorganized as a separate independent not for profit 501 phase III. The divestiture included the sale of certain non real estate assets for total consideration of approximately <unk> <unk>.
$10 million.
<unk> sales resulted in the assignment of our youth services management contracts to the independent not for profit entity.
Geo care retained the ownership of our youth services real estate asset and has entered into lease agreements for the 6 company owned facilities.
Moving to our bi electronic monitoring division, we are pleased with our strong performance during the second quarter with revenues growing by more than 7% sequentially from the first quarter of 2021.
We remain optimistic regarding future growth opportunities for VII, which provides a full suite of electronic monitoring and supervision solutions with leading market shares across different electronic monitoring products and technologies.
Finally, we remain committed to expanding the delivery of our Geo continuum of care program, which integrates enhanced in custody rehabilitation, including cognitive behavioral treatment with post release support services, such as transitional housing transportation clothing, food and job placement.
<unk>.
Our Geo continuum of care program is part of GFS contribution to criminal Justice reform, we believe that it provides a proven successful model and how the $2.2 million people in the criminal Justice system can be better served in changing how they live their lives.
Our award winning program is not in competition for in conflict with other national initiatives regarding offender sentencing reform in fact, we applaud. These efforts our efforts seek to draw national attention to the many selling car serrated in need of a more structure and comprehensive approach to rehabilitation.
We also believe that the success of our continuum of care positioned geo to pursue additional quality growth opportunities at this time I will turn the call to our new CEO of bank <unk> for closing remarks. Thank you and it's my pleasure to join George and the rest of our talented management team as we worked through together to execute on.
The future strategic direction of our company as you have heard today, our company's operational and financial performance remained strong despite the challenges associated with the COVID-19 pandemic and the recent federal policy actions, leading to the non renewal of some of our contracts.
We recognize that there had been concerns regarding our future access to financing and we have taken proactive steps to address these concerns.
We believe that our focus on debt reduction the review of potential asset sales the evaluation of our corporate tax structure and the hiring of financial and legal advisors are all prudent steps as we work towards addressing our future debt maturities.
We are pleased with the improving financial trends across our diversified business units and we remain focused on enhancing the long term value of our shareholders.
We have provided high quality professional services for over 30 years at the state and federal level under both Democratic and Republican administrations and under legislative branches controlled by both parties.
And we believe that our company remains resilient with strong earnings and cash flows that are supported by valuable real estate assets and diversify contracts and tailing essential government services.
That completes our remarks, and we will be glad to take questions.
Thank you we will now begin the question and answer session.
To ask a question you May press Star then 1 on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press star. Thank you.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Genco announcements.
Noble capital. Please go ahead.
Thank you and nice quarter guys. Thanks for taking my questions.
Thank you Scott.
First question I had.
Looks like operating expenses as a percentage of revenues declined pretty dramatically.
Both sequentially and year over year.
Was wondering if you could give us a little insight as to what is going on there to cause that and does that.
A trend you would expect going forward are you thinking debt percentage goes back up for a more normal level.
Well I think our projections for the second half of the year that reflect debt, we expect our operating expenses to increase some as populations at the facilities continue to increase.
Some of that increase in expense will obviously be offset by <unk>.
Increasing revenues as the populations excretion increase but as we mentioned in the call Thats 1 of the significant reasons really this quarter last quarter and even last year that we've.
Performed better than expected I think that debt cost controls have been very effective at the operational level, especially as we've seen some of these lower occupancy levels and also I think we've seen a decline.
And the level of expense associated with some of the.
Interventions or measures that we had to take to mitigate COVID-19.
We're still experiencing those costs, but they're not as significant maybe as they were historically.
Right right okay. Thanks.
Thanks on that 1.
And you mentioned there.
Net ice populations of increase I think you said, 100%.
How close are we or have we broken through.
The contracts the minimum.
Level guarantee payment levels and what are your guys thoughts on book.
For the potential removal of title 42 for single adults common across the border.
Yes.
Sure.
With respect to the ice census were still significantly below.
Some of the minimum guarantees provided in the contract.
With regard to titled 42.
As revealed that most recently in the media I think theres been a delay in.
Reversing that policy.
We are really unclear as to when if and when that policy will be reversed.
But if it is reverse we would expect debt it would increase.
The population levels at our ice facilities.
Okay.
1 of the Bill pay.
Yes.
Looking at the <unk> website. It says they have at the end of July roughly 130.
500 inmates.
Capacity is roughly 135000.
But there are still saying that there is 9500.
Inmates in private facilities.
So.
Simple math would say per day capacity is 135, and youre, adding roughly 10000 to 130 that they would be overcapacity once again.
To your knowledge are they out there expanding capacity any or is there the potential going forward that if they reached their capacity that they would maybe put call a halt some of this policy that is calling for non renewals.
We don't really have Inc.
Our unique insight into their capacity levels other than what you just mentioned.
And.
With respect to any.
Organizations.
Facility's capacity levels I think COVID-19 plays an important factor as to what the true capacity is.
Any particular facility because of the need for separation of individuals who may be affected with COVID-19.
But we have noticed a slight uptick in our own facilities.
And.
And.
We're watching that.
We are.
Right.
We are responsive partner to the BOP.
As to their needs whether they want to continue these facilities or discontinue them. It's it's up to them and I'm sure. The Covid situation has has something to do with their planning.
Okay, Great and 1 last 1 for me and I'll get back in queue.
You mentioned.
The Arizona opportunity.
Are there any is there anything else out there on the federal or state level in the near to medium term that you guys would be looking to to bid on.
There is nothing that we can publicly discuss at this time.
Okay. Thank you very much.
Thank you.
Our next question comes from Micha Ram Gopal, Inc.
Sidoti. Please go ahead.
Yes, hi, good morning, and thanks for taking the questions.
So for us to get a sense of it.
For the second half of the other guidance with the surge we're seeing in the Delta the Orient.
What are you.
It's having a material effect on populations that may be.
Ratcheting it up ratcheting up back with all the expenses you might have been able to eliminate this last quarter.
Well like I said earlier, we have.
We've assumed some of the benefit from the cost savings that we've seen but we continue not to take to take all of that into account.
Because we do think that those expenses will go up some as revenue goes up so.
The runway run rate for the margin and the performance is a little bit lower in the second half of the year in Q3, and Q4 relative to our performance in Q2.
Okay. Thanks, and could you remind us where you are roughly as it relates to vaccination demo the population and also may be employees.
Through the end of the second quarter, we had administered over a 137000 COVID-19 test at our secure service facilities.
Okay, No that's great. Thanks.
And just wanted to touch on electronic monitoring.
Net.
Clearly that was nice.
Growth Youre seeing there and I was just curious in terms of again revenue for the second half or even longer term, how you see that business may be ramping.
So again, we don't get into specific.
Contractor clients exactly what we're assuming on our population targets, but yes.
The numbers and in the end market have improved and we've taken that into account and there is some continued expected.
Improvement in net during the second half of the year.
Okay. Thanks.
Thank you.
Just provide a little color on the restructuring expenses.
In the quarter.
The onetime employee reception.
Well I think we've.
Okay.
Come up with a plan a general plan in coordination with our legal and financial advisers and we have certain milestones.
That are embedded in that plan.
And.
2.
Achieved those milestones.
Within a period of I would estimate 9 to 12 months.
So we have a plan with milestones.
And we are proceeding on that plan and we hope to complete the plan objectives within 9 to 12 months.
Okay.
Thanks.
And as it relates to maybe.
Right.
The plan is still is to conserve cash.
Give us debt as opposed to maybe focusing a little more of an expansion, but I was just curious maybe on the international front this year any opportunities there for you.
Okay.
Okay.
They are.
Appears to be some opportunities in Australia that.
Can't get too specific about book that we are focusing on Australia at this time.
Okay. Thanks for your thoughtful questions.
Our next question comes from Henry Coffey with Wedbush. Please go ahead.
Good morning, and thank you for taking my question.
Really 2 different topics that have come up multiple times, but I'll ask them in my own way. So can you give us an overview of your quote Covid statistics.
How how how is the disease progressing relative to the overall general population given your control of that population group, where you are having trouble getting people vaccinated.
Just if you gave us a full profile of the prison population as it applies to COVID-19 that would be the insightful and then give us some sense of how it compares to the overall population.
The specific numbers.
I don't have in front of me, but I can tell you that the numbers are back down to where they were in March of 'twenty.
So we are managing this pandemic the best we possibly can.
At the end of the second quarter, we had provided over 26000 Covid vaccinations.
And we believe the vaccinations are working we believe we have a hold of it.
For the notwithstanding but we believe we have managed it effectively and that we have it under control.
We have 26000 debt.
Go ahead sorry.
26000, vaccinations as what percentage of the overall population and is that 26 divided by 2 or 'twenty 6.
Double shot so whatever is required.
Total vaccinations 26000 total vaccination total vaccination.
So thats 13000 inmates.
Okay.
Correct.
And Thats what percentage of the overall prison part of your overall population.
33%.
So about a third of your population is vaccinated.
Is there a reason why that's not higher or debt.
That's kind of like.
Tennessee, or Missouri, which is a very low vaccination rates.
Well, we can't force individuals to become vaccinated and some specifically refused to do so.
We make it available to but we can't force right.
So you are right you are running into the same reserve.
The resistance that were seeing in the general population, yes, yes.
Okay.
James said.
Previously in our ice facilities in particular, we have double the number of <unk>.
Health care staff that you would find in a correctional facility. So we have plenty of health care resources on site for anybody who become sick, we can treat them we can separate them.
If they become.
Adversely symptomatic, we can take them to the hospital. So we have all of the resources we believe the.
That almost better than the general population and when you think about it right people can walk down the hallway and get immediately treated.
But we can't sell.
To be vaccinated.
You're up against the same problems that every healthcare.
Professional is up against you.
You could take a whole for Stillwater, but you can't make them drink.
Well.
<unk> just been alerted that the 26000 fully vaccinated is 60% of our population.
Oh, that's excellent.
So that's how.
Now we go from C -2 youre doing a better job.
Particularly relative to your geographies.
Yes, we had a day.
Text message from our healthcare services division to help refresh our memories.
I will tell them congratulations.
And second question is.
As you go through your capital planning.
<unk>.
I have my own prejudice is on this subject but.
What is the thought about preferred and common equity.
Fattening up the balance sheet led to play another day preserved the franchise and then find avenues for growth, but with a more conservative capital structure.
Well I think as George said, we are continuing and we're working through evaluating.
What makes the most sense and will progress debt.
Over the next 6 to 12 months from certain.
Nothing's off the table book.
We're outsiders looking in with our own opinions.
Can you lay out more of the plan for us. So we can know obviously our opinions are just that.
But if we knew more about the.
For the criteria that you were thinking through that would be constructive as well.
Well I think.
High level, our focus is to.
<unk> the debt the credit debt bond the senior credit facility on reasonable terms.
We are focused on repaying the debt.
We're not looking to take a discount we're not.
We'll certainly look at equity, but we're not going to issue equity at these prices, we don't think it's necessary.
The company continues to perform well our cash flows are are very solid we're continuing to delever.
We are in an excellent position to.
Delever the company just through operational cash flows and some modest asset sales and we're going to continue down that path and as George said I think in the next 6 to 12 months, we will reset the cap structure.
That's what I was sort of asking something along those lines based on your current guidance index and cash flow expectations.
How much of that would you dedicate towards paying down debt and how fast do you think you could start paying down the senior notes.
Well as we said we're this year, we're we're pretty comfortable with the range that we've put out about $150 million to $175 million and I think that's not an unreasonable target going forward, depending on what we ultimately decide to do with our.
Status as a REIT and Thats part of what were evaluating through the balance of this year.
We'll determine what we what we expect our.
Leverage to look like over a 3 to 5 year period.
Great well, thank you for answering my questions and.
Failure healthcare people congratulations on a job well done.
Thank you.
Our next question comes from Kirk Ludtke with Imperial capital. Please go ahead.
Hello, everyone can you can you hear me yes.
Yes, yes, yes, we can rate thanks for.
Thanks for taking the question.
If I'm reading page 11, other supplement correctly.
The occupancy rates were down sequentially and I'm, just curious and it looks like at both the state and the federal level. So.
At the federal level.
Is the decline because the bureau of prison population is.
More than offsetting the.
The increase it.
Ice and the U S marshals.
I just wanted to.
Confirm that and then and then at the state level I'm not I'm not quite sure can you give us some color as to what might be happening at the state level.
I think the state Occupancies are pretty stable and probably increasing slightly as George mentioned that DLP populations were down maybe earlier in the quarter, but those have started to trend up.
The U S. Marshals Similarly have improved I think some of it is just the mix of and the impact in the quarter are facilities going away and being idle. So.
Once the facility is.
Out of the calculation for the full quarter day.
And you don't have the impact of the idle beds, but for facilities that were in place for part of the quarter you have the facilities.
They have revenue producing beds for 1 third or 2 thirds of the quarter and then the rest of the period, they're empty so because of some of the transition that's going on at some of these facilities during the quarter with facilities, becoming idle I think thats skewing the numbers.
Okay. Thank you I appreciate that.
Okay.
Question on monitoring.
Is the growth Capex that you spend there is is that required under the contract or is that Capex you can do.
You can cut off if the growth rates don't materialize.
So some of the Capex near the growth Capex as you would expect as developmental to continue to improve the services and the products that we have some of it is related to changes in technology. The.
Cellular platform that the model that GPS units currently operate on is changing in a couple of years and so we're transitioning to that.
And then some of it yes is just driven by.
Increased number of units that need to be in the system and if that were to change then obviously we.
We reduced the capex associated with that.
And have a mix of operator.
Yes, hi.
That makes sense.
Well, maybe asked a little bit differently, if the growth doesn't materialize.
What would the cap what would you expect.
Can you give us a range as to what Capex would be for monitoring.
On on an ongoing basis I think.
Including the transition to the new.
Cellular technology over the next couple of years, you're probably looking at $25 million or so a year.
Okay.
That's helpful. Thank you.
Ah.
The asset sales for the facilities you sold during the quarter did those were those sold with the contract.
Yes, so as we articulated in the past the asset sales are primarily related to facilities that are currently inactive.
There may be a few that we're looking at that are underutilized, but none of the facilities that have been sold.
Thus far our.
Active facilities.
Great. Thank you and so is that is that.
Divestiture price per bed.
That something I know these were reentry facilities.
But is that a is that a way to value the substantiate the value of the.
The other idled facilities is there any reason why that would not be a good methodology to use.
It's really and again.
I don't think Theres enough.
There to be able to do it that way because these facilities are located in.
A lot of times in urban settings, and there is different.
Economic factors going on in some of those urban areas. Some of them that there is more development in positive growth. So the assets may have greater value and in some for some locations there not as much sales. So you can't really do it on a.
Take all of that and measured across the whole portfolio theyre very small scale facilities.
Sometimes located in residential areas. So.
They really don't compare well with the large scale.
Hi security facilities debt that.
We operate in the secure services division.
I appreciate it. Thank you and then 1 last question if I may I forgot something.
With respect to monitoring.
You've probably answered this before but I'm just.
I was hoping to revisit what are the what are the synergies between monitoring in your core business.
And does the outlook for monitoring change.
If it's if it's not affiliated with with Geo.
Good or bad.
Well I think as we said we had we provide a sort of a spectrum of services.
Electronic monitoring is in the <unk>.
Non secure setting there is some overlap between our reentry residential contracts.
That use some of the electronic monitoring services that we provide but generally.
The other independent bid.
<unk> lines are secure services businesses.
Separate contracts RFP processes, our reentry facilities separate contracts and separate RFP processes and all of the.
Our electronic monitoring business is separate contract RFP processes, and really has the most the EAM business has the most broader diversified.
Clientele with over I think over 1000 contracts in operations in all 50 states across federal state and local services, but they are not they're not integrated contracts between corrections reentry and.
Electronic monitoring, they're all separately bid program and its a separate organization with corporate offices in Colorado with I think approximately 300 people.
Interesting.
Do you disclose the split mandates by.
Customer.
Anywhere.
Or would you know our mandates are provided I think between our types of.
Facilities like secure non secure.
Along those lines, but not specifically by customer.
Okay. Thank you that's all I have.
Thank you.
Our next question comes from Joseph <unk> with Cantor Fitzgerald. Please go ahead.
Good morning, Thanks for the call, giving you have.
2 locations that came offline.
5 of the reentry coming back online and some asset sitting idle could you.
Give us a little more color on what the cost is to have an idled facility.
What it entails to I guess, maybe.
EBIT warm and ready to go and then some of the costs too.
Launch our restart a facility.
And the costs that entails.
You have the depreciation cost of the facility and that could be.
On our large scale facilities, a $1 million for more slightly more than probably half the cost of approximately 2 to 3 on site.
Individuals that would be looking after the facilities somebody for HV HCA somebody for.
Plumbing and somebody for electrical and security devices.
The cost of the utilities debt.
For the toilets has to be flush the light test to be turned on that kind of thing. So it could be a couple million dollars per year.
And then the primary startup costs are for people.
It's hiring the people and getting them trained.
To take on their jobs and Thats that usually takes 30%.
60 days.
Just to show you don't.
You don't keep a.
Skeleton security staff.
Yes.
Ready to go you you would.
Lay off the staff.
Other than the maintenance crew that you discussed.
Yes.
Okay.
And then just.
Switching gears on the dividend.
What percentage would need to be in cash to maintain the REIT status and how much could be inclined.
For the current rules right now I think are at the minimum.
Split is 80.20. So you can go above that but you can't go less than that so 20% at least has to be in cash to qualify.
And how much of your revenues are attributed.
Attributed to wreak revenue because not all of your revenue its REIT related.
Real estate related revenue.
Yes, I don't have that exact split I mean, we're well within the compliance rules within the REIT Inc.
90, 98% or so of our revenue so.
But the non real estate related revenue is going to be the <unk> business for the electronic monitoring business are international.
Facilities are non or non owned facilities in the U S.
Probably 40%, maybe a little north of that of our revenue is not tied to a real estate.
Okay very good.
Thank you.
Your next question comes from Jordan Sherman with range Eric level. Please go ahead.
Wondering if you could.
Discuss what's true.
What's driving the increase in census for both U S marshals and ice.
<unk> hundred 40, <unk> still in place and it's going to remain in place.
Im wondering whats been driving that and then if you can talk about what do you think the outlook for those censuses are.
Okay.
Driving.
Crossing the border.
Yeah, we don't know exactly we would assume that the border crossings have a lot to do with it.
Yes, there are I mean, obviously there are a lot of people.
Encounters are.
Up significantly, but I guess I was under the impression with title for who they were turning back everyone.
But now that I mean, that's not accurate so.
There isn't like last month I think in July there was over 200000.
Apprehensions are encounters if you want to call them that about 80% of those were returned to under title 42 by 50% or thereabouts, where still allowed to enter the country. Some of those are unaccompanied minors. Some of them are family units, but some of them for various reasons may also be adults debt for security reasons or law.
Of course net reasons those people end up in detention.
So thats why were seeing the ice.
Retention numbers start to increase we're also seeing increased participation in the <unk> program and there is a spillover effect in the U S. Marshals as a result of some of that activity.
So youre right.
Lot of people are being returned and when as George said earlier when title 42 is lifted there will be a spillover effect it.
In various areas across the board and nobody knows exactly what that will look like yet.
Right, so, but even barring a removal of type of 42.
I know there is efforts to the ACL to use <unk>.
Moving to get that removed.
But recently renewed even barring that as long as the border numbers and counters go up.
Should seek continued.
<unk> incentives.
Yes.
I think so because of that.
There are some congressional laws that they determine.
Our class of people that have to be detained if they find somebody.
Who has a criminal background.
Net is is wanted for crimes in the U S. For instance, any across the border. They are required by law to detain them. They can't just send it back to Mexico.
So there is a certain class of individuals' debt.
We are required to be detained and.
We are apparently just seeing more of them come across the border in the hopes of trying to.
Escaped the border patrol, but some of them are getting caught and those people are being placed into marshals and ice facilities.
Okay great.
And then is it the western regional detention facility is that the next marshals contract that is up for renewal.
The discussion.
Yes.
Most of their term.
And in.
And then Youre discussing I'm sorry, yes, we're continuing our discussions with the Marshal service as to how to.
Realign that contracting in compliance with the president.
The executive order.
Has there been any along those lines is there been any pushback on the.
I guess it was.
Civic facility that went from a direct.
2 I guess.
We've got some more indirect.
Contract route.
Hey, guys good morning.
Northeast, Ohio facility that went to and was a direct contract and became an <unk> as has been previously right.
Think theres been any pushback on the idea now to our knowledge.
So I guess.
Does that do you think in many ways that sets the.
<unk>.
Template for perhaps what will happen with direct contracts.
Or is it too early to say if that's a template it's too early to say.
Okay.
And then you mentioned isn't there you mentioned, Arizona.
We are there.
So I'm trying to remember the name Hawaii, Idaho, Alaska other Vermont, maybe some of them have come and gone already but werent there other.
It's looking for additional capacity.
Okay.
Yes, the state of Hawaii has issued.
Notice of interest index.
Indicating they want to.
Build a new facility in Hawaii, but that procurement will take place until I believe sometime next year.
Arizona is.
<unk>.
Planning stages of shutting down 1 of its major institutions sometime next year. So it's in the beginning stages of an RFP process asking for bidders to identify.
Central facilities to hold a population of up to 2700 high security prisoners.
<unk>.
We think that will likely result in.
At least 2 separate locations to hold that many high security prisoners.
We are responding to that.
Procurement.
We're whereas the facility you will offer up for our facilities.
We're not sales.
Yes.
But you have some in.
Surrounding areas.
Would anything in California would be eligible for that.
I don't think so.
Hey.
And then Idaho.
We don't have any empty facilities in California.
Okay. Thanks, Scott.
I meant more conceptually would something in California.
Possible.
Considering the state of malware from now I think there is a state law restriction about.
Taking in out of state prisoners in the state and I am not aware of any empty available facilities in the statements.
Yes.
Dominion over federal potential federal contracts would be different in their dominion over.
Competing state contracts, I guess, yes, but there arent any.
So sales like this.
Either in cash no I appreciate that I appreciate that point.
And nothing in Idaho isn't there something in Idaho.
For my mistaken.
Idaho I think is looking for beds.
Good day ratio.
To move from some interim Alabama.
Alabama, Idaho, the mess in Alabama.
Alabama has been trying to develop 3 large scale facilities for.
Approximately 3000 beds, but.
There was a fund each financing with that in there.
Trying to.
Come up with a different strategy on how to do it.
But no updates on that either at the moment.
Yeah, because they've got a little federal oversight problem at the moment.
Hum.
From there.
Businesses are we are exploring the possibility of sales of any other potential business or assets or other things.
I'm not asking you to identify items, specifically, what I'm, saying is that is that still on the table and things like that.
Well, what we said publicly is we're looking at asset sales probably in the day to $100 million range, mostly related to.
Idle facilities are underutilized assets.
Yeah.
Okay.
Perfect Alright, thank you very much.
Our next question comes from Oren <unk> with <unk>. Please go ahead.
Yes, hi, good morning, you referenced this earlier I just wanted to confirm is it fair to say that you have not used and don't have any near term plans to use for $300 million ATM that you announced on June 28.
We have not used it when we have we have it available to us.
Management fees, there seems appropriate.
I think what we said earlier is not that we wouldnt use it just debt.
We would prefer not to issue equity at these prices. We believe the equity is undervalued and we're not intending to issue just a re authorization, we reauthorize it to $300 million.
Got it okay. Thank you and also you mentioned that you expect to be able to address the debt maturities in due course on reasonable terms.
Does that suggest that you would expect to refinance the 2023 and 2020 for bonds or are you looking also at other options.
Such as a debt exchange or kind of give us maybe a little bit more clarity if you wouldn't mind on how exactly youre thinking about those bonds.
So we haven't engaged with any of the lender groups yet as we said we brought on financial advisers, we're looking at our options I think.
Some of the some of what we're looking at as we said is to reduce our total debt outstanding. So some of that May result in 2023 is being reduced there may be less unsecured debt. There may be less secured debt. We're working through the mix of how that is going to look.
The advisors and when we engage with the with the groups.
Very much.
This concludes our question and answer session I would like to turn the conference back over to George <unk> for any closing remarks. Okay. Thank you for your participation in this call and look forward to addressing you on the next.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.