Q3 2021 Geo Group Inc Earnings Call
Good morning, and welcome to the Geo Group third quarter 2021 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would 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 2021 earnings results.
With us today are George O'leary Executive Chairman of the board.
Hey, Gordo, Chief Executive Officer, Brian Evans, Chief Financial Officer, and James Black President of Geo secure services.
This morning, we will discuss our third quarter results and our 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 investors Diageo 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 gave 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 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 George Thank you Pablo and good morning to everyone.
We are pleased with our strong third quarter results and the significant progress we've made year to date towards reducing our net debt leverage.
We believe our financial performance is representative of the resiliency and strength of our diversified business segments.
For over 30 years, we've been a trusted government services provider. We currently provide support services for immigration processing centers on behalf of the U S Department of Homeland Security.
And for secured facilities and residential reentry centers on behalf of federal and state agencies.
During the third quarter, we renewed eight of our facility contracts, including for immigration processing centers and for residential reentry centers under contract with the Federal Bureau of prisons or state Correctional agencies.
Additionally, we received a six month extension for our U S marshals contract at the Western region.
Detention facility in San Diego, California.
We also entered into a new five year contract for our most Shannon Valley facility with Clearfield County, Pennsylvania to provide support services under a five year Intergovernmental agreement between the county.
Parkman of Homeland security.
In early September our Geo care business unit began providing services at our new residential reentry center in Tampa, Florida under contract.
Federal Bureau of prisons.
On November one we transitioned the operations of our Gladden Guadalupe County facility to the New Mexico Corrections Department and began a new lease agreement with the state of New Mexico with the two year base period and success of two year renewal.
The opportunities through October 2041.
In the third quarter. We also completed the previously announced transition of two managed only contracts in Florida to another operator.
And the discontinuation of our managed only contract for the done Gamble facility in the United Kingdom.
Further we were notified by the <unk> of the non renewal of our contracts for the Big Spring and flight line facilities in Texas at the end of November 2021, consistent with our previous expectations.
Our operational focus remains on addressing the challenges of the ongoing COVID-19 pandemic, while delivering high quality support services on behalf of our government Agency partners.
Understanding the challenges created by the pandemic, we invested significant resources to mitigate the impact of Covid.
<unk> $2 million.
445 rapid.
Rapid testing.
Devices, and $3 $7 million in bipolar ionization air purification systems.
We are proud of our frontline employees, who have continued to provide a humane and compassionate care to all of those entrusted to our facilities and programs.
At the management and board level, we remain focused on reducing our debt and deleveraging our balance sheet.
We are pleased to have reduced our net recourse debt by approximately $175 million through the end of the third quarter.
Thus already meeting our previous net recourse debt reduction goal of $150 million to $175 million for the full year 2021.
We recognize there have been several concerns regarding our future access to financing.
Accordingly, we have adopted a multifaceted approach to address these concerns including our focus on debt reduction.
Our review of potential sales of company owned assets and businesses and the ongoing evaluation of our by our board of our corporate tax structure as a real estate investment trusts.
We believe these initiatives and considerations are in the best interest of our shareholders and our other stakeholders as we work proactively to address our debt maturities and enhance long term shareholder value at.
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.
Brian. Thank you George Good morning, everyone. Today, we reported third quarter revenues of approximately $557 million and net income attributable to Geo of <unk> $34 7 million.
Our third quarter results include a $1 1 million pre tax loss on real estate assets.
$4 million in M&A related expenses pre tax a one time $5 million pre tax loss on the previously announced divestiture of our youth services contracts.
And an $800000 benefit and the tax effect of adjustments.
Net income attributable to <unk>. Excluding these items, we reported third quarter adjusted net income of 36 cents per diluted share and <unk> 65 per diluted share.
Moving to our guidance, we expect fourth quarter 2021, net income attributable to geo to be between 40 million and $42 million on quarterly revenues of 554 million to $559 million.
We expect fourth quarter 2021, adjusted net income to be between 37% to <unk> 39 per diluted share and fourth quarter 2021 App.
To be between 65, and <unk> 67 per diluted share.
For the full year 2021, we expect net income attributable to geo to be in a range of $165 5 million to $168 million and full year 2021 revenues of approximately $2 6 billion.
We expect full year 2021, adjusted net income to be in a range of $1 41.
To $1 43 per diluted share.
We expect full year 2021 half of it to be in a range of $2 57 to $2 59 per diluted share. We expect full year 2021, adjusted EBITDA to be in a range of 451 $5 million to $455 million.
Moving to our capital structure at the end of the third quarter, we had approximately $537 million.
Cash on hand, primarily resulting from the previously announced drawdown of our revolving credit facility.
Artist needing to draw on our revolver was a conservative precautionary step to preserve liquidity maintain financial flexibility and obtain additional funds for general corporate purposes.
Accounting for our $537 million of cash on hand, our net recourse debt currently stands at approximately $2 1 billion.
Not including non recourse debt finance lease obligations or the mortgage loan on our corporate headquarters.
We believe we will be able to address our debt maturities in due course on reasonable terms.
With our current cash on hand, and our steady financial performance.
We are proactively examining our options to address our funded recourse debt, including our near term maturities, which encompass our 2023 and 2020 for unsecured notes and our senior secured credit facility.
We have continued to execute our multifaceted approach.
Focusing on debt reduction and deleveraging our balance sheet in 2020, we reduced our net recourse debt by approximately $100 million.
During the first nine months of 2021, we have further reduced net recourse debt by approximately $175 million.
Already meeting our previously articulated goal of reducing net recourse debt by $150 million to $175 million for the full year 2021.
We intend to remain focused on debt reduction and deleveraging our balance sheet.
During the fourth quarter of 2021, we expect to reduce our net recourse debt by an additional $10 million to $20 million.
Our strategy also includes various initiatives, we've announced previously including.
Our exploration of potential opportunities to sell company owned assets and businesses are.
<unk> financial and legal advisors to assist us in reviewing capital structure alternatives and the ongoing evaluation by our board of our corporate tax structure.
With respect to asset sales during the third quarter, we completed the sale of our 222 bed.
Queens detention facility in New York for $18 million.
Year to date, we have completed the sale of five real estate assets totaling approximately 1000 beds.
During the third quarter. We also completed the divestiture of our youth services contracts on a combined basis. These sales generated net proceeds of approximately $46 million.
At this time I will turn the call over to gain flat for a review of our Geo secure services.
Thank you Brian good morning, everyone.
Our operational focus during the third quarter is remains on addressing the ongoing challenges of the Covid pandemic as our frontline employees continue to provide quality services and compassionate care to those entrusted to our facilities.
We continue to focus on implementing mitigation initiatives and practices that are consistent with the guidance issued by the centers for disease control and prevention.
Our employees have continued to have access to paid leave and paid time off to be able to remain home as needed.
Face masks and cleaning supplies continue to be made available across our facilities.
And as noted by executive Chairman, we have made a significant investment of $2 million to deploy added rapid test devices across our facilities.
Has allowed us to screen, new arrivals at intake and isolate and quarantine positive cases.
Through the end of October 2021, we had administered approximately 184000 <unk> tests and our secure services facilities since the start of the pandemic.
We also invested $3 $7 million to install bipolar ionization systems at select services facilities to reduce the spread of airborne bacteria and viruses.
We have been working closely with our government agency partners and local health departments to increase the vaccination rates in our facility.
At the end of October 2021.
<unk> 39000 individuals in our secure service facilities had been fully vaccinated.
Representing approximately 65% of the population in our facilities.
We will evaluate our mitigation efforts and we will make adjustments based on updated guidance by the CDC and other best practices.
With respect to recent contract activity during the third quarter, we renewed four contracts with immigration processing centers, where we provide support services on behalf of the U S Department of Homeland Security.
We also entered into a five year contract five year contract with Clearfield County, Pennsylvania to provide support services at motion and valley facility in connection with a five year Intergovernmental agreement between the county, and the department of Homeland Security.
The support services, we provide and immigration processing centers are highly rated by national accreditation organizations and are delivered in a safe and humane environment.
All of those entrusted to our care and immigration processing centers are provided culturally sensitive meals approved by a registered dietitian clothing $24 seven access to healthcare services and full access to telephones and legal services and faith based opportunities.
Recommendation on a minute.
These at our immigration processing centers include flat screen Tvs in the housing areas multipurpose rooms, outdoor covered pavilions artificial turf soccer fields and exercise equipment.
The healthcare staffing at these centers is approximately more than double that of our state correctional facilities, which is needed to provide appropriate treatment for individuals who have numerous and diverse health and mental health needs.
During this third quarter. We also received a six month extension for our U S marshals contract at the Western region detention facility in San Diego.
At the state level on November one we transitioned to the operation of our Guadalupe counting facility to the new Mexico Corrections Department.
Effective that same date, we begin a new lease agreement with the state of New Mexico for the use of the Guadalupe County facility.
The lease has a two year base period and successive two year renewals through October 32041.
In the third quarter. We also completed three facility the activations, including the previously announced transition of the managed only contracts for the Grace Seville and bank facilities in Florida to another operator.
And the discontinuation of our managed only contract for the Dungavel facility in Scotland.
We were also notified by the Bureau of prisons, and the non renewal of our contracts, where the big spring and flight line facilities in Texas at the end of November 2021.
These renewals are consistent with our prior expectations and we have been preparing operationally to complete the ramp down of these two facilities.
In Delaware County, Pennsylvania, We received notice that the county intends to take over management of the managed only George W. Hill facility effective April 2022.
Our team will be working with county officials to ensure a smooth transition.
Finally, with respect to procurement activity, we are preparing a response to a recent request for proposals in Arizona for up to 2700 beds, which can be located either in state or out of state.
At this time I will turn the call over to our Chief Executive Officer Jose Gordo for a review of Geo care and closing remarks.
Thank you James Good morning, everyone. Unfortunately, the president of our Geo care business unit Ann Schlarb is unable to join US today. However, I am pleased to provide you with an update during.
During the third quarter, our Geo reentry facilities and programs have remained focused on the implementation of our COVID-19 mitigation strategies and practices consistent with the guidance issued by the CDC.
We continue to focus our efforts on increased sanitation testing and deploying face masks and we have ensured that our employees continue to have access to paid leave and paid time off to remain home as needed.
Our mitigation efforts on an ongoing basis, and we'll make adjustments as appropriate and necessary based on updated guidance by the CDC and other best practices.
Operationally, our Geo reentry services Division had an active third quarter with the opening in early September of our new 118 bed residential reentry center in Tampa under contract with the Federal Bureau of prisons.
We also opened four new day reporting centers in Tennessee, and two new day reporting centers in Louisiana with capacity to provide services for up to 540 individuals.
And we successfully renewed for residential reentry contract during the third quarter two with the Federal Bureau of prisons, and two with state Correctional agencies.
As we disclosed last quarter on July one we completed the divestiture of our youth services contracts, which resulted in the assignment of the contracts to an independent nonprofit entity.
We retained the real estate ownership of our six company owned youth services facilities and entered into a lease agreement with a new operating entity.
Moving to our electronic monitoring division, we are very pleased with the continued sequential growth in quarterly revenues for BR, which provides a full suite of electronic monitoring and supervision solutions products and technologies.
Finally, we continue to be optimistic about the future of our Geo continuum of care program, which integrates enhanced in custody rehabilitation, including cognitive behavioral treatment with post release support services.
Our award winning Geo continuum of care program as part of <unk> contribution to criminal Justice reform and the primary objective of our program is to reduce recidivism.
We believe that the program provides a proven successful model on how the $2 2 million people in the U S. Criminal Justice system can be better served and changing their lives.
Our efforts are not in competition are in conflict with other national initiatives regarding offender sentencing reform in fact, we applaud these efforts with our Geo continuum of care, we seek to draw national attention to the many still incarcerated in need of a more structured and comprehensive approach to rehabilitation.
We also believe that the success of this initiative can positioned geo to pursue additional quality growth opportunities.
In closing we are pleased with the financial results and the significant progress we have made towards reducing debt and deleveraging our balance sheet.
We believe that our company remains resilient with strong earnings and cash flows that are supported by valuable real estate assets and diversified contracts and tailing essential government services.
We recognize that despite our steady financial performance there continues to be concerns regarding our future access to financing and we are taking proactive steps to address these concerns.
We believe that our focus on debt reduction and deleveraging our balance sheet.
Our review of potential sales of company owned assets and businesses are ongoing evaluation of potential capital structure alternatives with the assistance of our financial and legal advisors.
And our boards ongoing evaluation of our corporate tax structure are all prudent steps as we work towards addressing our future debt maturities.
We believe that these efforts are in the best interest of our shareholders and other stakeholders.
Over the last four months I have had an opportunity to work closely with members of our team across our diversified business divisions.
And I have been impressed with the talent professionalism and dedication of our employees.
Im looking forward to continuing to work together with our management management team and our board as we execute on the future strategic direction of the company that completes our remarks and we'd be glad to take any questions.
We will now begin the question and answer session to ask a question you May Press Star then one 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 then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Joe Gomes with Noble capital markets. You May go ahead.
Good morning, and thanks for taking my questions.
Okay.
So first of all I wanted to.
To ask a little bit on ice.
Looking at some of the information that comes out from ice there.
<unk> been falling here the past month or two there's the whole issue on title 42.
I'm just trying to get a idea.
How you see your ice populations.
Thoughts on title 42, and also has a nice deal to see Mcadam Valley are there any of the other new or recently closed facilities that that might be looking at.
In order to enter into new contracts.
While we continue to market, our all of our idle facilities to.
Federal and state agencies.
Exemplified by.
The recent <unk>.
Our lease with.
The state of New Mexico, the opening of the most Shannon facility.
Under contract with the county for ice purposes.
I think that facility was.
More directed to a consolidation of ice.
Services and the surrounding states.
<unk>.
We've made our facilities.
<unk>.
None to the ice officials as far as where they are located geographically their capacities and so forth and there they are evaluating those facilities.
And in terms of your ice populations here quarter over quarter.
I think it went up during the quarter and down at towards the end of the quarter.
So.
The reason for that we really don't know.
Because.
There is approximately 200000.
People coming across the border.
Monthly so.
All detention as we've said many times is selective detention.
And.
We are we are not involved in those decisions, we merely provide the secure housing.
To support those decisions.
Right right. Okay. Thank you on that.
You mentioned it.
Okay, a couple of times in the call here.
Potential sale of that company assets, and obviously theres been some press about the potential sale of your <unk> business I was wondering could you comment a little bit more on that.
Yes for example.
It was to be solved did you lose any type of synergies with the rest of the remaining businesses.
And then.
Ken you mentioned that it did very well in the quarter.
The electronic monitoring business, just wondering what is driving the.
Positive momentum in that business.
With regard to your first question were prohibited by FCC rules on commenting on any potential asset sales. So we can't really comment on rumors.
But the <unk> program has.
In itself increase substantially.
At the beginning of the year, but it it increased over the quarter and then decreased a little bit towards the end of the quarter.
Somewhat similar to our.
Ice detention.
Okay.
Thank you for that.
I noticed.
You guys.
Increased.
Our fourth quarter guidance from where it was.
In the third quarter.
I was just wondering again what is what is behind that when you when you listen to your call and you've lost some contracts here.
What is driving the increase in estimated revenues and.
Pardon me.
Net income attributable to Geo for the fourth quarter.
Well I think in some of our facilities, we have seen some improvement in.
Populations, our Occupancies and we're also continuing to experience.
Good cost control I think in other facilities.
And so the net.
Of those two we've taken into account in the fourth quarter, it's been pretty consistent through the first nine months of the year. So we've assumed some of that going forward as well.
Okay.
And you mentioned, the new opportunity that you're working on in Arizona any other new state opportunities that you can tell us about.
No thats the only public procurement.
We can acknowledge at this time.
Okay, great. Thanks for taking our questions I'll get back in queue, let someone else ask some questions. Thank you.
Our next question comes from Kirk Ludtke with Imperial capital.
Go ahead.
Good morning, everyone.
Good morning.
I have just a couple topics I'd like to follow up on.
A couple of new ones.
One is the minimum wage litigation.
I'd like to revisit new Mexico for a second.
And as well as by.
With respect to the minimum wage litigation.
I'd like to understand the contracts, a little bit better and more specifically who is responsible.
This goes against you and you're forced to pay.
Back wages is that is that a cost that is assumes under the contract or is that something that you would have to pay for.
Well, yes.
In the highly improbable scenario, you've just described I imagine we would have to.
Initially pay for the wages, but we would.
Probably have a legal basis for our claim.
Again size, but.
I emphasize.
Wiley and probable because there is.
There's been a.
A recent court ruling out of the fourth.
Circuit Court of Appeals.
Thats squarely on this point.
The basis of the ruling was puts.
Put simply that people in the confinement facility.
By definition not in the workforce and cannot be employees.
Because they are being confined.
Cannot and they are not subject to minimum wage payment and it is.
Okay.
Also further against federal law to employ.
Illegal.
Aliens for migrants who come into our country.
Okay. Thank you that's helpful.
And our contract art, let me add a couple of things our contracts, specifically says that detainees in our custody cannot be employees.
We cannot use them as employees.
Okay.
That's helpful. Thank you.
R R.
I suspect that this could be an issue with respect to other customers as they are the contracts the same.
In terms of of how.
Detainees are prisoners are compensated.
The ice contracts have very standardized terms and this is one of them that there is a requirement in each.
Ice contract and ISP partners.
Within the department of Homeland Security.
A portion of the contract.
It requires that.
A voluntary work program be established predominantly.
Predominantly to reduce idleness.
In the facility for the detainees and for them to have an opportunity to contribute to the well running of the facility and the and the services they themselves receive.
We administer that program as required in the contract.
But the.
The compensation for that program as stipulated in the contract and by Congress and.
The contract to come up for 15 years has said that the amount shall be one dollar or no less than one dollar and that's that's the payment thats been made and Thats the typical.
<unk>.
Tax in all of our ice contracts.
Okay. Thank you that's helpful.
Or are the contract provisions with respect to this issue the same with the states.
Your state customers.
No.
It really varies from state to state.
And.
Any payments that we would make would be pursuant to.
Similar payments that the state makes in their own facilities.
So it's probably a few more dollars more but it's it's not more than that in no state.
The facility that we operate in no state law that we come under requires the payment of minimum wage to two inmates who are confined incarcerated in the facility.
Okay. Thank you.
With respect to new Mexico.
Yes.
Are there other states that is this.
Curious if that you think this might be the beginning of a trend where states assume operation the operations of facilities.
And so I'm curious if other states are.
Interested in something similar.
What the profitability, how the profitability of the facility changes before and after the transition.
And what do you think about the leasing model in general I mean do you think.
You'd like to do more.
We are marketing, our Idaho facilities to other governmental organizations and <unk>.
One of the possibilities is obviously the leasing model and we're very open to it.
<unk>.
Currently as a REIT.
It's.
Part of our.
Our business model.
So we're very comfortable with that concept.
So and comfortable with.
Us being either the operator or not be in the operator.
And the profitability I know you don't want to say.
Specifically, what what you make there but.
Directionally is it more or less profitable.
After the transition.
It all depends on who what had occurred before the transition.
Weather.
Depends on the prior occupancy.
The levels of the facility. So there's a lot of factors that go into it so I really can't.
Generalized.
<unk>.
The experience of one situation.
Got it okay. Thank you and moving to <unk> for a second is this.
A good capex run rate.
It was a.
Revenue picked up sequentially quite a bit in the quarter, which was good to say, yes, but is this the is this a capex run rate, we should be thinking about for <unk>.
Well there are some.
And then as we've said before there is some.
Transition of technology, so the capex rates, a little bit high right, now I'd say $5 million to $10 million, but.
That should complete.
Next year. So this rate that we're experiencing this year should be consistent next year and then after that I think it would take for some depending on how much they are growing.
Okay. Thank you that's helpful and then lastly.
I saw some press reports about our facility in Alabama did you mentioned this and I missed it or is there something some opportunity there.
We've been in discussions with Alabama for several years now.
And their interest is.
<unk>.
The potential purchase of the facility.
But nothing nothing.
Concrete yet.
Well I believe they need legislative authorization to move ahead with that.
Okay, great. Thank you.
Helpful.
I'll get back in queue.
Thank you.
Our next question comes from Mitra <unk> with Sidoti You May go ahead.
Yes, hi, good morning, Thanks for taking the questions.
First just a couple on occupancy levels.
I was curious if youre seeing any easing of COVID-19 restrictions.
Resulting in some of the.
Improved occupancy itself the facilities you mentioned.
I don't know if its the easing of restrictions are.
Rather the the inverse that the we are stepping up our backs.
<unk> Nation program.
Of staff and.
Individuals in.
Inside the facility.
Better treatment protocols.
Yes.
Yes.
Appears to be a virus that we're going to have to deal with for some time.
Or I guess second year of this virus and.
We're getting.
We're getting accustomed to.
The required protocols for dealing with this virus and social distancing within the facilities.
Testing people when they come in as they go out and so forth.
So better procedures through.
Longer experience.
Okay.
If I remember I think it was a restriction of maybe 75% in terms of capacity I was wondering if maybe that for example might have changed.
Yes.
No.
Friction.
The ice facilities there was.
Sometime I don't know, if thats been lifted or not yet.
Okay. Okay.
And we see a wide difference in Occupancies and I don't know if its driven by.
The prior statement.
I think that statement is still generally in force you can't go above the 75, but.
Yes.
Where you are with below 75 depends on a number of factors right.
Okay, no thanks for clearing that up.
And just curious Andy yes.
U S. Marshal facilities. If you also may be benefiting from increased activity until just CT and sentencing et cetera, the federal level.
Well I think there has been a general increase in our U U S marshals count in our.
Several facilities, we have for the Marshal service around the country.
Okay.
On the <unk> business I know you don't comment specifically.
But I was just wondering if there's anything.
Youre doing so.
To drive the increases we're seeing there.
The increase in participant count has been driven by the <unk>.
Administration I think really.
Policy decisions.
Okay. So that's something you can necessarily focused on.
Sure.
Yeah, it's the it's the activity at the border that George mentioned earlier, another several hundred thousand people per month.
Coming across the southern border and some of those individuals are being put into the.
That program, certainly not all of them, but some of them are.
Okay. Thanks, and I was just wondering if you had any comment on the favorable ruling you got in terms of the.
California Bill.
Bill so that they are trying to.
And how that might affect you going forward.
Well, we think it was a historic ruling in the sense that it a firm that.
States cannot discriminate against the federal government.
Guarding the.
Implementation of integration policy and in that particular case.
The state had provisions, allowing themselves to use private sector facilities for a period of time.
<unk>.
It did not provide the same benefits to the federal government.
In fact, it required the closure of federal facilities. So that was part of the ruling.
Got that.
The state law <unk> 32 was inherently discriminatory against the federal government.
Okay.
And I was just I think you mentioned youre still evaluating the corporate tax structure.
Should we expect.
<unk> spent on that front.
In conjunction with the.
Year end earnings release.
I would say by by year end or at that time for sure.
Okay.
Okay. Thanks, again for taking the questions.
Thank you.
Our next question comes from Henry Coffey with Wedbush.
Go ahead.
Good morning, and thank you for taking my questions.
Electronic monitoring.
Monitoring and location monitors train.
Obviously that is benefiting from from ice counts, but are there any policy initiatives that could really alter the equation there mainly.
Mainly to the positive if you have a whole new quote a possible rethink on how to manage.
Immigration populations.
Et cetera, something that would really I mean, we see where the growth is coming from but but an initiative that would really change the equation or.
I don't think its.
Necessary for a new initiative above the contract itself allows for a significant increase in the number of people.
Who participate in the program.
So it's it continues to be used as.
Think the idea of alternatives to detention.
As being more popularized.
And receiving support.
On a bipartisan basis.
It's it's cheaper and it's it's effective.
The technology is being continuously improved and therefore, it's gaining popularity is its usage.
Yes.
And then on this minimum wage situation is.
Is this something that has caused you to pause and then.
Putting it in an amendment to all your existing contracts to clarify.
Who is at risk if there is a change.
No.
No. We don't we believe the law is clear there has been 100 court cases.
This subject regarding confined detainees are inmates.
As to whether they are entitled to minimum wage law.
And all of those courts have ruled.
And the negative they're not and most recently I think it was in March.
Fourth District Court of Appeals ruled.
On a core civic law suit.
That involved a facility in new Mexico, and it was a unanimous decision and I think.
One or two of the the judges.
We're.
Democrats sickly.
Recommended judges.
From prior Democratic administrations, and it was unanimous ruling that people who are under confinement.
Are not in the work force and by definition cannot become employees.
It's so the current cases more of an anomaly in your view then then of some substance.
In this particular court hearing.
The fourth.
Circuit Court of Appeals decision was not.
Accepted are allowed to be argued and.
Yes.
Washington is in a different circuit there under the ninth circuit.
It was the first time that circuit had undertaken this issue and.
We are disappointed obviously in the outcome, but we are very optimistic about the ultimate end result that.
It's it's.
Fairly well.
Established case law, and just general understanding that people, who are being confined as such as in meets our detainees are not in the workforce and do not have the ability to.
Be treated as are compensated.
As employees.
There are 24 hours a day there under confinement, they don't get to bargain for their wages.
They are not part of the workforce.
And then and then finally on the REIT issue.
Even.
The minimal cash drain from sort of a combination of stock and cash dividend.
But what what are the open issues that have.
That are preventing you from kind of coming to a quick and final resolution.
Are you balancing one against the other and what's what's what.
What's at risk here and.
What's what's driving the decision process.
About whether you'll hold or drop REIT status.
Well I think as we've said and we said.
During the year, we are working with our financial and legal advisors.
Look at the best.
Structure for the company going forward so.
It's not just the REIT status we have.
The debt issues that we need to deal with it.
At the total comprehensive review and.
When that processes.
Far enough along.
We will make a decision and we're making an announcement with regards to or can you give us any insight into what the issues at hand are around this.
Yeah.
As far as I am not sure what you mean by issues at hand.
What are the issues you are looking at.
When trying to write a decision consideration we're looking at what's the best use of the Companys cash flows going forward, where are we going to get the most value for the cash flow that we generate.
Is it dividend is it paying down debt as it reinvesting in the business and how much liquidity do we want to have as a company as we move forward. How is the market how is the market alright tax rates and how is the market.
Acknowledging the dividend that we were substantial pain that was fairly substantial previously.
I would argue that it wasn't necessarily reflected in the equity value. So we're looking at all of those things were reviewing them as a management team and working with our board and the financial advisors.
As George said earlier, we expect to come to some conclusion with that.
By year end.
Would you consider a potentially dilutive preferred or equity offering as a way to reduce the.
The capital that stress on the companys balance sheet or.
Is that being mindful of all strategies and all the stakeholders, we're trying to do in the eights.
Yes, we have engaged lazard to help us through that process.
We're being mindful of the equity holders and the debtholders.
Alright, Thank you very much.
Our next question comes from Jordan Sherman with a range of global you May go ahead.
Forgive me, it's orange shaped with BT AIG you May go ahead.
Hi, good morning, going back to the potential re contracting of idled facilities, George how would you characterize some of the conversations happening on that could you speak up a little bit louder.
We can hardly hear you sorry.
Sorry going back to can you hear me now.
Yes go ahead, okay, very good going back to the potential re contracting of idled facilities. How would you guys. Some of the conversations that you're having on that front can you just give us some some color around the reception that you're getting from.
Different parties that you're speaking with.
I can only say we are.
We're relatively optimistic.
With both federal agencies and state agencies.
Okay.
I appreciate that and then.
Going back to <unk>.
You talked about ice app and how they are.
An increase in <unk> during the quarter and then it tapered off a bit towards maybe.
Give us a little bit of a flavor for the variability.
Of the revenue associated with SAP, and how much it might swing, both intra quarter and intra quarter.
Well, it's a per diem basis.
Service there is no minimum guarantees if you will but I think if you look at the trend of the.
And the contract for the ISF contract and then in general for the rest of the <unk> business.
Then steady growth over the period of our ownership and even prior to our ownership so.
Sure.
It's probably averaged between 5% to 10% closer to 10% growth over the contract period, sometimes it goes in spurts, but it seems to move steadily upwards.
Very much.
Our next question comes from Jordan Sherman with Ranger Global you May go ahead.
Yeah. Thanks can you guys hear me now.
Yes, okay. Good.
I wanted to ask about the.
The court case in Washington, just the timeline of what happens from here you are going to appeal. When do you have to file that appeal.
And then just the timeline of how that.
We will progress or at least do you expect it to progress.
Okay.
No.
I think the timeline.
But among pharma.
For the appeal and then it could take several months.
For the case to be heard and several months thereafter for a ruling to be established right. So the only the only clear timeline is that you have about a month to make to make the file the appeal and then it's up to the it'll grind its way through the courts as it winds its way through the courts, yes, yes.
Okay perfect.
And separately.
The other ice contracts.
That expired this year.
There I'm sure having other conversations what's the.
Is there any update on the status of those.
I apologize if I missed that as you mentioned <unk> made comments about those.
ICA contracts.
Sure.
Contract well I know that <unk> got notice on Big Springs and.
Flight line right.
What are your contracts.
Are they better.
Just your rationale.
Yes, we've renewed the Aurora contract and the contract, yes, Theres ice contracts that expired. This year. Okay. So that's the end of it for this year or next year, we have a couple.
Well, we always have a couple.
Come up to there.
Renewal date.
We have any expirations per se well renewable dates.
Joseph.
There could be couple of renewal dates next year.
Are those in discussion already any thoughts about how those will no not really not at this time.
It's still too early.
Yes, too early okay.
You mentioned.
I wanted to clarify I really just wanted to confirm I heard this correctly you said the only our active RFP at the moment is the one in Arizona.
Okay.
I mean, the only public art well, yes, yes.
Why hasnt done an RFP yet.
We're talking about doing one next year, but the only public RFP.
Thanks, Dave.
As the Arizona.
Arizona State RFP.
I was under the understanding that that was suppose that they wanted to two <unk>.
Complete that this year.
No I think it's good at that.
A decision for early next year.
And the award could be two awards.
Because that number of beds I don't know 2700 beds I don't believe is available at any single facility.
Understood. Okay. So it could be multiple contracts.
They are discussion the notes I'm, sorry, because they're a high security prisoners and they require cell type housing.
Got it.
Yes.
Yeah.
Okay.
Yes.
Okay. So in terms so in terms of public rfps as only one discussions with other states about possible needs for there or is there anything.
So that you can comment about any conversations going on.
No I can't comment, but there are conversations.
And those kind of transactions that do not require rfps.
Okay, Let me ask that differently as any as any other state announced that they have a need for beds and might go.
Looking for them.
That way.
I can't comment.
Okay.
So no one has said publicly.
They are out looking for beds type of thing I'm not asking you to say something if we can't say I'm just saying.
There are states that have said that they are out looking for beds and.
And they've made those comments publicly then you should be able to.
I really can't say.
Affirmatively, one way or the other because there is bunch of news articles all the time about people same thing.
Yes, it doesn't necessarily lead to an RFP or something I mean, Idaho set up in the past even in the state of Florida wanted to speak the Senate President I think said something about consolidating and building new larger facility in Salesforce.
There is always discussion like that but I don't know that theres anything definitive as it relates to our just got it in.
Got it.
Is your expectation that we will get some rfps.
So that or the other way around that there is enough activity that you'll be able to it will find some contracts for.
At least youll have a shot at getting a contract for some of the additional uncertainties.
Yeah.
Our inclination at this time.
And our aspirations are.
Do not include Rfps.
Got it got it okay. So there are there are discussions that you think are advanced enough that.
Okay.
Move on to that I apologize, Texas. The two the two Texas facilities or is your plan at the moment to wind them down.
To the idled facilities or.
Well they are being wound down by the <unk>.
Removing prisoners and relocating them, but we are actively marketing those two locations.
And in the <unk>.
It will be when will I guess level has.
Have fully wound those down.
But by the end of this month.
At the end of this target as far as the inmates in the facility.
And then.
What type of.
Visibility would you need.
Those potential contracts like how long would you keep those facilities or people in place.
In hopes of getting a car.
Contract being.
I mean will you.
Does that makes sense.
Well.
But my answer is it's under review at this time pending a review of what our potential opportunities.
Opportunities are.
I guess when they ask that we have.
Weighted decision yet.
No I appreciate that I was just more generically if that facility winds down.
How long will you.
I guess, it's going to matter how close you think you are in a separate cost yes, it's situational, yes, yes, I got it got it.
Hey, Mike.
First of all thank you for the thank you.
This concludes our question and answer session I would like to turn the conference back over to George <unk> for any closing remarks.
Well. Thank you very much for participating in today's call. We look forward to addressing you on the next one.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.