Q4 2021 Geo Group Inc Earnings Call
Good morning, and welcome to the Geo Group fourth quarter 2021 earnings Conference call. All participants will be in listen only mode. So do you need assistance. Please signal a conference specialist by pressing the star key followed by zero or pass code has been can after today. These wastewater you weren't there will be an opportunity to ask.
Two questions to ask a question you May Press Star then one on your telephone 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 Corporate Relations. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining us for today's discussion of the Geo group's fourth quarter 2021 earnings results.
With us today are George the only executive Chairman of the Board Jose Gordo, Chief Executive Officer, Brian Evans, Chief Financial Officer, James Black President of Geo secure services and Ann Schlarb President of Geo care.
This morning, we will discuss our fourth 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 <unk> Geo group Dotcom.
Today, we will discuss non-GAAP basis information a reconciliation from non-GAAP basis information to GAAP basis results is included in the press release and the 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 and thank you for joining us on our fourth quarter 2021 earnings call.
I'm pleased to be joined today by our senior management to review our financial results for the fourth quarter and the full year the trends for each of our business segments, our financial guidance for 2022, and the recent developments impacting our government agency partners.
With respect to our quarterly performance, we continue to be pleased with the strength of our operating and financial results.
In the fourth quarter of.
2021, we reported revenues of 557 $5 million, which is only approximately 3.5% lower than our quarterly revenues for the fourth quarter of 2020.
Despite the non renewal of certain Embar Federal Department of Justice contracts in 2021.
During the fourth quarter, we incurred a onetime noncash deferred tax charge and additional tax expenses related to our transition to a taxable C Corporation.
Which resulted in a net loss attributable to Gilles of 41 cents per diluted share.
Excluding the deferred tax charge and other extraordinary items from net loss attributable to Gilles.
Our fourth quarter 2021, adjusted net income increased by 15% to 38 cents per diluted share.
Our Apple for the fourth quarter of 2021 increased by 5% to 65 cents per diluted share.
And our adjusted EBITDA increased 15% year over year to $124 million in the fourth quarter of 2021.
Despite the ongoing challenges associated with the COVID-19, pandemic and the non renewal of certain of our federal Department of Justice contracts in 2021, our diversified business units delivered consistently better than expected performance throughout the year.
For the full year, we reported revenues of approximately 2.2 dollars $6 billion, which.
Was less than 5% declined from 2020, despite all the challenges we faced during the year.
Our full year adjusted net income of $159 million exceeded our full year 2020 results.
Our full year <unk> of $299 million was largely consistent with year over year.
And our adjusted EBITDA for the year increased by 6% to $467 million.
Looking at each of our segments in more detail our Geo secure services.
And lease facilities experienced a year over year decline in compensated <unk>.
<unk> rates of 200 basis points, ending the year at 85% of capacity for our active facilities.
Our secure services owned and leased segment is comprised primarily of facilities under contract with our three federal Government Agency partners.
The Federal Bureau of prisons.
The U S marshals service and the U S immigration customs enforcement.
The BNP.
Marshals service or part of the U S Department of Justice and ice is part the U S Department of Homeland Security.
In addition.
<unk> to the impact of COVID-19, pandemic, the <unk> and.
Marshal service are subject to the President's January 'twenty, one executive order, which directed the U S Attorney general to not renew the department of Justice contracts with privately operated.
Criminals detention facilities.
As a result of the executive orders six of our company owned facilities under direct contracts with the BOP were not renewed at different times during the year, resulting in the phase out of approximately $240 million in annualized revenues.
As of the end of the year, we only had one company owned facility under direct contract with the <unk>, which generates approximately $38 million in annualized revenues.
Which we expect will not be renewed when the current contract option expires at the end of September 2022.
In addition, one of our company owned facilities under direct contract with the U S. Marshals service with annualized revenues of approximately $19 million was not renewed in March of 'twenty, one and we successfully sold the facility in August of 'twenty one.
At the end of 'twenty, one we had three company owned or company leased facilities under direct contracts with the U S. Marshals service with annualized revenues of approximately $135 million.
One of these facilities has a contract option period that was extended for a six month periods and expires at the end of March.
This year, while the other two expire in 2023.
At this time are.
2022 guidance does not include that facility, although we continue to work on options for keeping that facility in operation.
Okay.
With respect to ice detainee populations have remained significantly below historical levels in part we believe due to the impact of COVID-19 related restrictions.
At the end of this year or last year ice facilities housed approximately 21000 individuals nationwide while Ics currently funded for 34000 beds.
In addition to court mandates related to COVID-19 that limit.
Capacity utilization in certain facilities.
Okay.
A driver of low utilization across ice facilities has been the title 42 COVID-19 related restrictions in place at the southwest border since March 2020.
While these restrictions have been eased or lifted for family units.
Accompanied minors they remain largely in place for single adults, which is the population that our ice facilities have historically housed.
We have however seen an increase in the utilization.
Alternatives to detention programs, the intensive supervision and appearance program or ice tap is a key component of the federal government's alternatives to detention.
Our <unk> subsidiary provides a full suite of monitoring and technology services under the ICF contract to ensure compliance for individuals undergoing the immigration review process.
During 2021, <unk> almost doubled the number of participants under the program.
Moving to our managed only business our facilities have continued to experience stable occupancy rates ending the year at 97% capacity.
During the fourth quarter, we renewed two managed only contracts in our secure services segment.
In Florida, our contract for the Blackwater refer Correctional and rehabilitation facility was renewed for a two year term.
In Arizona, we renewed our contract for this central Arizona Correctional facility for a five year term.
Our owned and lease reentry services facilities experienced a year over year increase in occupancy rates of 100 basis points, but remain at below 50% capacity at year end as COVID-19 related challenges continued to impact this segment.
Throughout the pandemic new intake at residential reentry centers have significantly slowed down as government agencies across the country have opted for nonresidential alternatives, including furloughs home confinement day reporting et cetera.
Our nonresidential business experienced an increase consistent with these trends with compensated mandates for our day reporting programs and locations.
And electronic monitoring services growing by approximately 25% in 2021.
Our electric monitoring and supervision segment has continued to enjoy strong growth increasing annual revenues by 15% in 2021.
Despite the ongoing going COVID-19 challenges in our residential reentry services business, we successfully renewed five residential reentry contracts during the fourth quarter, including four contracts with the Federal Bureau of prisons.
As we look forward to 2022, our operational focus remains on mitigating the challenges of COVID-19, pandemic, while delivering high quality support services on behalf of our government Agency partners.
While we experienced a significant increase in Covid cases in the early part of 2022 consistent with the spread of the omicron variant across the country.
We are currently seeing a significant decline in cases, among our staff and the individuals in our care.
Our commitment to operational excellence is unwavering and our continued success is underpinned by the dedication of our frontline employees, who provide humane and compassionate care to all of those entrusted to our facilities and programs.
One of the significant challenges we face is the ability to recruit and retain staff in what has become a very difficult labor market, we've been working collaboratively.
Collaboratively with our government agency partners, who themselves are facing the same challenges over the past year, we have increased wages in a number of state and are evaluating an additional initiatives, including bonuses change in benefits and policies and alternatives to address the challenges of finding out.
Quit and affordable housing.
At the management and board level, we remain focused on reducing our debt and delevering our balance sheet.
During the fourth quarter, our board unanimously approved a plan to terminate our REIT election, and become a taxable C Corporation effective for the 2021 fiscal year <unk>.
<unk> also voted unanimously to discontinue our quarterly dividend.
We expect the change in our corporate tax structure will give us additional flexibility to allocate free cash flow towards reducing net recourse debt.
Over the last two years, we have reduced our net recourse debt by approximately $250 million and we expect to focus all of our excess cash flow over the next several quarters to further reducing our net recourse debt.
The decisions made by our board are consistent with the proactive them multifaceted approach.
Implemented to address our future debt maturities, which include our continued focus on net recourse debt reduction and Delevering.
Our review of potential sales of company owned assets and businesses.
In our ongoing discussions with our banks and the advisors for our lender and bondholder groups concerning a potential transaction to further reduce our funded recourse debt and extend our debt maturities.
We believe that these are prudent steps, which are in the best interest of our shareholders and other stakeholders.
After obtaining our objective of net recourse debt reduction and Delevering, we plan to evaluate the outlook coast allocation of a portion of free cash flow to fund quality growth opportunities and potentially return capital to shareholders in the future.
Before I turn the call over to Brian I'd like to highlight another important milestone we achieved in the fourth quarter 2021, with the publication of our third annual human rights environmental social and governance report.
This.
Report includes new disclosures related to our board oversight of human rights and ESG matters employee diversity and training programs corporate governance and environmental sustainability.
Our ESG report also highlights our continued commitment to respecting the human rights and improving the lives of those entrusted to our care.
Our ESG report reinforces our commitment to providing enhanced rehabilitation and post release support services through our award winning Geo continuum of care program.
During 2021, our continuum of care facilities delivered approximately two 8 million hours of enhanced rehabilitation program.
We also awarded approximately 2100, Geds and high school equivalency degrees.
6800, vocational certifications 5500 substance abuse treatment completions.
And 38600 behavioral program completions.
We continue to be committed to advancing our es G goals throughout our organization and to that objective. Our board Committee structure has been expanded to include a committee on criminal Justice rehabilitation and human rights and we look forward to continued engagement with our shareholders.
<unk> and other stakeholders as we evaluate additional human rights and ESG initiatives at this time I will turn the call over to Brian Evans to address our debt reduction initiatives in more detail and review our financial results and guidance. Thank.
Thank you George Good morning, everyone. As a result of our transition to a taxable C Corporation and fiscal year 2021 during the fourth quarter, we incurred a onetime noncash deferred tax charge of approximately $71 million.
We also incurred approximately $21 million in incremental income tax in the fourth quarter due to our new higher effective tax rate, including a catch up tax expense of approximately $17 million in connection with the first three quarters of 2021.
Due to these tax items, we reported a GAAP net loss attributable to <unk> of 41.
Per diluted share during the fourth quarter on quarterly revenues of approximately $557 5 million.
Our fourth quarter results also include a $700000 pre tax gain on real estate assets $2 $2 million in startup expenses.
$4 $1 million in M&A related expenses pre tax $1 $3 million pre tax loss and settlement.
On asset divestiture for the previously announced divestiture of our youth services business.
$3 $3 million in closeout expenses pre tax and $2 $6 million benefit and the tax effect of the adjustments to net income attributable to Geo.
Excluding these items the onetime noncash deferred tax charge and a portion of additional income tax expense associated with the first three quarters of 2021, we reported fourth quarter. Adjusted net income of 38 per diluted share in Apple <unk> 65 per diluted share.
Our fourth quarter 2021, adjusted EBITDA increased by 15% to $124 million.
Our performance for the entire year exceeded our prior expectations, which we believe is a testament to the stability and strength of the business. Despite the non renewal of seven of our federal facility contracts in 2021, representing annualized revenues of approximately $259 million or.
Our company delivered strong financial results, our full year 2021 revenues declined less than 5% to $2. Two 6 billion, our full year 2021 normalized <unk>.
Of $234 million and <unk> of $299 million were largely consistent year over year and our full year 2021, adjusted EBITDA increased by 6% to $467 million.
Moving to our financial guidance for 2022, we expect full year net income attributable to Geo and adjusted net income both to be in a range of <unk> 99.
To $1 <unk> per diluted share on an annual basis on annual revenues of approximately $2 $1 7 billion.
We expect full year 2022 ammo to be in a range of $2 five.
The $2 13 per diluted share.
And adjusted EBITDA to be in a range of 422 million to $438 million.
We expect to continue to focus on net recourse debt reduction in 2022, consistent with our efforts over the last two years during which period, we reduced net recourse debt by approximately $250 million for.
For the first quarter 2022, we expect net income attributable to Geo and adjusted net income both to be between $21 23 per diluted share and apple to be between 48% and 50.
<unk> per diluted share on quarterly revenues of 550 million to $555 million.
Our 2022 guidance reflects the normalization of the non renewal of our seven department of Justice contracts during 2021 with combined annualized revenues of approximately $259 million.
Our guidance also does not include the two additional department of Justice direct contracts that have contract option periods scheduled to expire during 2022 with combined annualized revenues of approximately $90 million.
Our guidance also reflects higher operating expenses, primarily related to wage increases in bonuses for our facility staff, which we have implemented working collaboratively with our government agency partners and have been largely supported by increases in our per diem rates with respect to other inflationary pressures at this.
Time, the primary impact on our facilities from inflation is related to higher overall labor costs while.
While we have also experienced inflationary increases in other areas labor costs have always been our largest operating expense.
With respect to occupancy rates, we have not assumed a significant improvement in utilization in our guidance for our reentry centers and ice facilities, which currently remains significantly below historical levels in part we believe due to the impact of COVID-19 related restrictions.
Despite all of these factors we are pleased that our guidance reflects a decline of less than 10% and our projected adjusted EBITDA for 2022 our.
Our guidance also reflects a higher effective tax rate, which we expect to be approximately 29% as a result of our transition to a taxable C Corporation.
Finally, working with our financial and legal advisers, we remain engaged in discussions with our banks and with the advisers to AD hoc groups, representing our term loan lenders and our bondholders.
The goal of this process is to reach agreement on and execute a transaction or series of transactions to reduce our net recourse debt and extend the maturities of our outstanding senior unsecured notes revolving credit facility and term loan on reasonable terms.
We believe that our company and our lenders and bondholders share an interest in accomplishing this goal and we are encouraged by our ongoing and productive discussions with these constituencies and their advisors.
We will update our financial guidance. Accordingly, if we are able to complete a transaction to reflect the expected increase in interest expense.
For each 1% increase in our weighted average cost of debt our annualized interest expense would increase by approximately $18 million to $20 million based on our current net recourse debt.
Moving to our capital structure at the end of 2021, we had approximately $506 million in cash on hand, primarily resulting from the previously announced drawdown of our revolving credit facility.
Taking into account our $506 million of cash on hand, our net recourse debt currently stands at approximately $2 1 billion, not including nonrecourse debt finance lease obligations or the mortgage on our corporate headquarters.
We have continued to execute our multifaceted approach focusing on deleveraging our balance sheet.
Between 2021, and 'twenty between 2020, and 2021, we reduced net recourse debt by approximately $250 million.
Going forward, we plan to continue to focus on net recourse debt reduction and deleveraging with the objective of reducing net recourse debt by at least 150 million to $200 million annually.
And we continue to believe we will be able to address our debt maturities in due course on reasonable terms.
Our strategy also includes the exploration of potential opportunities to sell company owned assets and businesses between January 2021, and February 2022, we have completed or have entered into contracts for eight sales transaction with proceeds of approximately $64 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 good morning, everyone.
I'd like to begin by providing you an update on the 2021 operational highlights for Geo secure services.
Throughout the year, our operational efforts have been focused on the continued implementation of mitigation strategies to address the risks associated with the COVID-19 pandemic.
These mitigation initiatives and practices 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 and.
And we have made face masks and cleaning supplies continuously available across our facilities.
We made a significant investment of $2 million to deploy Abbott rapid test devices across our facilities, allowing us to screen, new arrivals at intake and isolate and quarantine positive case.
Through the end of 2021, we had administered approximately 206000 COVID-19 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 secure services facilities to reduce the spread of airborne bacteria and viruses.
We continue to work closely with our government agency partners and health departments to make vaccinations available at our facilities.
At the end of 2021, approximately 48000 individuals at our secure services facilities had been vaccinated.
At this time, 72% of our staff close to half of our detainees and 80% of state inmates are vaccinated across our secure services facilities.
We continue to evaluate these depths and we'll make adjustments based on updated guidance by the CDC and other best practices.
Despite the unprecedented challenges associated with the pandemic, our employees and facilities achieved several important milestones in 2021.
Our facility successfully underwent over 150 audits, including internal audits government reviews third party accreditations and certifications on the prison rape elimination Act.
Our medical service staff undertook more than 400000 quality health care related encounters including intake health screenings medical and dental visits sick calls and off site appointments.
In 2021, we also completed more than one 9 million employee training hours and over 42500 training sessions.
Our GTI transportation Division safely completed approximately $13 5 million miles driven in the United States and overseas.
We are proud of our frontline employees for their commitment to the operational excellence and dedication to delivering humane and compassionate care to all of those in our facilities.
Moving to a review of trends impacting our government agency partners starting at the federal level.
The Bureau of prisons has experienced a decline in federal prison populations over the last decade.
This decline has accelerated in the last two years as a result of the COVID-19, pandemic, which slowed the adjudication of criminal cases in the federal courts.
Further slowing the rate of new intakes into the federal prison system.
After the signing of the President's Executive order in January of 2021.
<unk> did not renew the direct contracts of our six company owned facilities totaling more than 10000 beds that had contract option periods expiring in 2021.
Throughout 2021, we work closely with the Bureau of prisons to transition those populations at these facilities.
We have enjoyed decades long partnerships with the bureau of prisons, and our facilities provide high quality support services during times when the federal prison system was facing overcrowding challenges.
At the end of 2021, we now have only one remaining company owned facility with 1800 beds under direct contract with the Bureau of prison and we expect this contract to not be renewed at the end of September 2022.
Unlike the.
The U S. Marshal service has had stable population levels over the last several years.
The U S. M. S houses pre trial detainees, who are facing criminal charges or awaiting sentencing in the federal courts.
The U S MFS does not own and operate detention facilities.
This agency contracts for detention capacity, primarily through intergovernmental agreements and to a lesser extent direct contract contracts with private sector service providers.
In 2021, one of our company owned facilities under direct contract with the U S. MFS was not renewed when its option period expired at the end of the month we.
We have since sold that facility.
Additionally, one other facility, which we leased from a third party as a direct contract with an option period that we that was set to expire at the end of September 21.
This contract was extended by the U S. Marshal service through the end of March of 2022, and our current guidance does not include that contract.
Although we continue to work on options for keeping the facility in operation.
We also have one other company owned facility in one company lease facility that have direct contracts with the U S Marshal service and in those cases, the contract option period expires in 'twenty two 'twenty three.
With respect to ice processing centers the agency relies on to continue.
Continue to face COVID-19 related restrictions and their utilization remains significantly below historical levels.
Court mandated guidelines related to social distancing and the title 42 public health restrictions at the southwest border have been the primary drivers of this low lower utilization.
At the end of 2021 ice processing centers nationwide housed approximately 21000 individuals.
Ice is currently funded for 34000 beds and the agency is currently under a continuing resolution.
Appropriations bills for the current fiscal year, which ends on September 30, and for the next fiscal year, which begins on October one are currently being considered by Congress.
Our focus continues to be on providing high quality support to ice and the department of Homeland security.
The ice processing centers, where Geo provides support services offers $24 seven access to quality healthcare access to legal counsel.
Ultimately sensitive mills approved by registered dietitians access to faith, based and religious opportunities and enhanced recreational amenities, including artificial turf soccer fields covered pavilions and exercise equipment et cetera.
Moving to a discussion of our state government Agency partners.
<unk> Correctional agencies are facing significant staffing challenges as a result of a rapidly changing labor market.
Over the last year, we have increased wages at a number of our facilities and we are exploring additional initiatives to improve the recruitment and retention of staff and the communities where our facilities are located.
These initiatives include paying bonuses enhancing paid time off policies and considering alternatives to address the challenges our staff often face in finding adequate and affordable housing.
We are undertaking these efforts in a collaborative way with our government agency partners.
Over the last couple of years, we have been able to secure additional funding in Arizona, Georgia, Florida, Oklahoma and other states either through the legislative appropriations process or working directly with our customers to support wage increases and other recruitment and retention efforts.
With respect to contracting activity during the fourth quarter, we really moved to state Correctional facility contracts.
In Florida, we renewed our contract for the Blackwater River Correctional and rehabilitation facility for a two year period.
In Arizona, our contracts, where the central Arizona Correctional facility was renewed for a five year term.
The significant challenges of the COVID-19 pandemic have also highlighted the need for modern facilities to replace older inefficient prisons that are more costly to operate.
Several of our state government partners have in recent years pursued initiatives to replace older infrastructure with more modern facilities under public private partnerships.
In Arizona, the state recently announced the closure of several older prisons to be replaced with the increased use of public private partnership facilities.
In Alabama, we recently entered into a purchase agreement for the state to buy our Idaho Perry County Correctional facility.
In new Mexico, the state transitioned our Guadalupe County Correctional facility to a least only agreement with the department of corrections, taking over the management functions.
And Georgia, the current budget under consideration by the state legislature includes funding for the state to purchase or lease a public private partnership facility and separately build a new person.
In Florida. The state legislature is considering the construction of two new 4500 bed correctional facilities as part of its Correctional modernization program.
Similarly, the other states, including Hawaii are considering building replacement facilities to replace older prisons.
At this time I will turn the call over to Dr. Ann Schlarb for a review of Geo tier. Thank you Jane and good morning, everyone.
I'd like to review the 2021 operational highlights for our Geo care business unit, which includes our reentry services and electronic monitoring and supervision segments as well as our Geo continuum of care programs.
Consistent with the efforts that are secure services facilities Geo care facilities and programs focused on implementing COVID-19 mitigation strategies throughout the year.
These strategies and practices are consistent with the guidance issued by the CDC.
Our efforts continue to be focused on increased sanitation testing deploying face map additional screening measures for entry into our facilities as well as ensuring that our employees have access to paid leave and paid time off to remain home as needed.
We evaluate these steps on an ongoing basis, and we will make adjustments based on updated guidance by the CDC and other best practices.
Looking at each of our segments, our Geo reentry services facilities continue to operate significantly below historical occupancy level throughout 2021 or.
Our residential reentry centers have been impacted by the spread of COVID-19, and the imperative of providing for safe environment that includes social distancing measures and other practices.
As a result government agencies across the country had prioritized placement of justice involved individuals into nonresidential alternative bands like Furloughs home confinement date reporting and electronic monitoring programs.
Notwithstanding these challenges during 2021 Geo reentry services renewed 31 residential reentry contract, including 15 contracts with the Federal Bureau of prisons.
Additionally, our nonresidential business experienced strong growth in 2021 as a result of these trends.
We opened 12, new day reporting centers in Idaho, Tennessee, Louisiana, and California with capacity to provide services for up to approximately 1000 individuals.
Our electronic monitoring and supervision segment also continued to grow during 2021 with annual revenues increasing by 15%.
<unk> provides a full suite of electronic monitoring and supervision solution products and technologies on behalf of federal state and local agencies across the country.
At the federal level by supports the U S Department of Homeland Security, providing technology solutions holistic case management supervision and monitoring under the intensive supervision and appearance program also called <unk>.
ICF is a key component of the federal government's alternatives to detention program our ACD.
<unk> provided services under the <unk> program since 2004 and was awarded a five year contract for ICF in 2020 through a competitive rebid that is effective through July of 2025.
Over this long tenure has established itself as the premier provider of comprehensive community based case management supervision and monitoring services with an unparalleled footprint up offices technologies and partnerships with community based and non governmental organizations.
During 2021, the number of non citizens under the <unk> program almost double.
Recently issued a competitive procurement for our new ATB program, which is incremental to ICF.
This new program involves young adults and is expected to have approximately 16000 participants.
This program is expected to closely resemble the family case management program that <unk> implemented seven years ago, which Geo care bid on one and implemented back then.
We expect to bid on this new ATB program for young adults and we believe that we are well positioned for this procurement given <unk> unparalleled expertise and scope.
Finally, despite the significant challenges associated with the COVID-19 pandemic, we are proud that our geo continuum of care programs achieved several important milestones throughout the year.
In 2021, we completed approximately $2 8 million hours of enhanced rehabilitation programming.
Our academic programs awarded approximately 2100, Geds and high school equivalency degrees and our vocational courses awarded approximately 6800 vocational training certification.
Our substance abuse treatment programs awarded approximately 5500 program completion.
And we achieved over 38000 behavioral program completions.
We also provided post release support services to more than 4500 individuals returning to their respective communities.
Our geo continuum of care integrates enhanced in custody rehabilitation, including cognitive behavioral treatment with post release support services that address the community needs of released individuals, including housing food clothing transportation and employment assistance.
We believe that the scope of our award winning program is unparalleled and 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.
Very proud of our frontline employees, who have continued to deliver rehabilitation and reentry programming to those in our care throughout these difficult times.
At this time I'll turn the call to Jose for closing remarks.
Thank you Dan we are very proud of all of our employees, who have demonstrated incredible commitment and dedication. During this unprecedented global pandemic. We are pleased with our operational achievements and financial performance throughout 2021.
We recognize the challenges that our facilities continue to face we are very focused on efforts to enhance the recruitment and retention of staff across the country.
This is one of the most significant challenges facing both public and private organizations today.
And our management team fully recognize its importance. We're also working diligently to address our debt maturities, we recognize the concerns related to our ability to access financing in the future.
We have made significant progress towards reducing our net recourse debt over the last two years and that will continue to be a key focus going forward.
We have laid out a multifaceted approach to address our future debt maturities.
Including a continued focus on debt reduction and deleveraging.
The change in our corporate tax structure from a REIT taxable C Corporation.
An ongoing review of potential sales of company owned assets and businesses.
And more recently, our ongoing engagement with our banks and with the advisors of our lender and bondholder groups.
Our goal with this process is to be able to reach agreement on and execute a transaction or series of transactions to reduce our net recourse debt and extend the maturities of our outstanding senior unsecured notes, our revolving credit facility and our term loan all on reasonable terms.
We are engaged in these discussions in good faith and belief that we share a common interest with our lenders and bondholders to successfully complete this process.
But we also plan to evaluate other capital structure alternatives with the assistance of our financial and legal advisors.
After obtaining our objective of net recourse debt reduction we plan to evaluate the allocation of a portion of free cash flow to fund quality growth opportunities and potentially return capital to shareholders in the future.
We believe that our company remains resilient with strong cash flows that are supported by valuable real estate assets and diversified contracts and tailing essential government services.
That completes our remarks, we would be glad to take questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
We are 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 will come from Joe Gomes of Noble capital. Please go ahead.
Good morning, and thanks for taking my questions.
Good morning, Jeff.
I wanted to start out.
There is.
Report out I think it was yesterday.
A potential pilot are.
Our U S pilot program that could be.
Doing.
Under four immigrants under house arrest is wondering.
How does that is that the same ones you were talking about for the 16000 potential are those two different.
Pro potential programs.
And on the pilot program. If it is a different program, maybe you can give us some type of color as to timing.
So the pilot and what that could potentially.
Essentially mean for <unk>.
Good morning, Joe This is Ann Schlarb and thank you for your questions. These are two different programs that youre reading about in the media. The one that is publicly announced is the RFP for a young adult case management program and Thats up for six.
Approximately 16000 participants in about 16 different locations across the company. The second that is in the media is the home confinement pilot that's been discussed in the media and we're not at Liberty to speak further about that at this point.
Okay.
Obviously there is.
Lots of stuff going on that potentially.
Could be a positive incremental positive for buy there.
As we discussed our population has grown significantly and alternatives are being used extensively. So I believe that is correct.
Okay. Thank you for that.
The debt reduction you mentioned a couple of times your objective for net recourse debt reduction.
I was wondering can you kind of quantify that youre looking for a specific number or not.
Leverage ratio.
Also kind of hand in hand with that with your discussions with the various groups on the debt holders and they've been going on for a while reportedly.
What what.
You have come to agreement with or close to agreement with and what still seems to be something that you need to to narrow the gap in.
Well, let me address the first I think what we've said is on an annual basis. We believe we will generate approximately $152 million in.
Net free cash flow that we can use to reduce debt and we speak about net recourse debt reduction right now because currently we're sitting with a lot of cash on the balance sheet, we have and actually.
Pay down any debt this year, we paid down some debt, but mostly we're sitting on cash and part of that has to be used in connection with these negotiations with the various creditor groups and it'll be.
Part of the negotiation is the allocation of that.
Cash to the different tranches of debt that we've discussed.
I think theres a number of different items that we're discussing I don't really want to prejudice. The discussion by talking about those publicly we did release some information that there's issues around covenants and structure and.
Mandatory payments excess cash flow sweep interest rates, so there's a lot of different.
Items that are being discussed and we're I think we're making good ground on most of those areas.
Any feel for how much longer and this will take or is it just still.
The discussion process and they could just drag on for a while here.
Well as we said I think.
All of the parties or their advisers are involved and engaged and so we hope that it will move it at a reasonable pace, but it is a complicated process. There is obviously different.
There is the banks there is a term loan lenders theres the noteholders theres different constituencies within those groups. So it's a complicated process to work through resolving that but we're hopeful that we will make meaningful progress on the <unk>.
First half of this year hopefully.
Okay, and then kind of similarly.
You've talked about potential are reviewing potential.
Asset sales our business sales.
Can you give us any kind of color or update on the progress there and what kind of timing you might be looking at for completion of that review.
Well I would say, it's an ongoing review as I think I mentioned and maybe George mentioned as well that we sold over the last year or so about $65 million worth of net proceeds.
<unk> of asset sales and mostly we're looking at.
Idled facilities as they become available that we believe makes more sense to sell rather than try to redeploy.
Most of those have been smaller facilities and most recent one was our Perry facility in Alabama that was about $15 million.
And there are some other.
Land that we own other idle assets smaller assets that we continue.
Two market in.
Try to sell.
Okay. Thanks on that.
You mentioned.
As we all know the government operating under a continuing resolution.
You talk about some of the bills that are for the rest of this fiscal government fiscal year and going into 'twenty three government fiscal year that are currently being reviewed in Congress.
Could you give us maybe.
Some color as to where the current negotiations are.
And funding compared to where they've been historical.
Mentioned.
Couple of times that there is.
Today, roughly around 19000 ice detainees.
And they have funding for 34000.
We still think they're going to stay here that 34000 level for funding or do you think that's.
We're going to come down from there.
Well, we really don't know.
The current discussions are about another continued short term continuing resolution of just.
Four to six weeks I believe.
So.
Following that there will be an attempt to do a full budget for the balance of the fiscal year, but it could be another continuing resolution I think somebody said, it's been maybe 20 years. Since there has been a actual budget that has been approved.
Since then we've been working on continued resolution of some sort or another.
Okay. Okay. Thanks for that and I guess, one more if I may.
Any any.
Kind of new news that you guys might be seeing on when titled 42.
Might be lifted.
No, we really don't have any insight into that.
Been hearing that it's imminent, but.
It's been imminent a long time.
Yes that is true.
Thanks for taking the questions really appreciate it.
Thank you. Thank you.
The next question comes from Mitra <unk> of Sidoti. Please go ahead.
Yes, hi, good morning, Thanks for taking the questions first a couple on as it relates to the labor environment.
Okay.
Most likely you should be seeing a pickup in occupancy rates with it.
<unk> make receding in mandates being noisy lifted et cetera.
Curious in terms of.
Our ability to handle.
Occupancy given the tight labor market.
We are.
Okay.
Vacancy levels are our most depressed in state facilities.
As compared to our federal facilities were.
The the wages are significantly higher and there is often a contractual requirement to provide.
Essentially full staffing so the area of concern is primarily in the adult.
In the area of state institutions, and we've been working with our governmental partners to increase those.
Wages and I think we've been fairly successful on a client by client basis and doing so and we're hoping.
Yes.
By the mid point of the year or maybe a little bit later that the labor market normalizes and we get back to where we were in pre pandemic days.
Okay. So you do have the ability to go back to the clients fairly quickly to sort of mitigate.
Yes, we do it cost increases youre seeing right now okay. Okay.
Okay.
As it relates to the debt refinancing just one clarification here and I know, it's very complicated and still early in the process but.
Should we be looking for maybe.
Three separate announcements as it relates to 2023 2426 or could it potentially be all taken care of but in terms of.
One big announcement.
I would.
I don't want to say anything is possible I mean the preference.
<unk> objective is to.
Deal with it the bulk of the capital structure at one time, it's sort of a.
Global type process or settlement so.
What we're working towards and there is obviously no guarantee of that it could be something piecemeal, but the idea is to have an announcement that relates to the.
<unk>.
Clearly the maturities of $23 24 across all of the capital stack or the debt stack and then even some of the 26 maturities might be affected as well.
Okay. Thanks.
And Brian as it relates to the fourth quarter, we saw a lot of onetime items.
And they are just curious as we look into the first quarter here.
2022.
Most of that will be pretty much gone.
Yes, I think I think that's the case, we had a number of.
I'd call it maybe transitional items in 2021, we had some at the asset divestitures I think we'll continue to maybe see some.
Gain or loss on disposal of assets and as we're working through this.
Financial restructuring will continue to have some cost associated with that.
But I would think that would be the big areas.
Potential sort of one off type issues or cost.
Okay. Thanks, and then just.
On the revenue guidance, just curious in terms of maybe your assumptions or expectations as it relates to.
Occupancy rates.
Moving up what is from.
Cross border.
Prehensile et cetera, or increase in court sentencing activity just some more color on.
Your thought process, there and I know you've talked about the <unk>.
Growing really strongly in 2021 and maybe.
Your expectations in terms of that run rate continuing in 'twenty, two and maybe beyond.
So I would say on I think James went through in pretty good detail each of our different customer segments. If you will and as George mentioned, our state customers are for the most part it.
Pretty high occupancy levels.
Marshals contracts are a little more volatile but are in pretty good shape as well, we continue to see lower occupancy levels and our ice facilities and.
I think in 2021, and we were pretty.
Transparent that we did not forecast occupancy levels above the minimum occupancy guarantees and for the most part in 2022, we've been consistent with that although we do expect.
Those numbers to improve maybe later in the year, but we haven't.
Really forecasted anything above that.
As you as you indicated there was significant.
Growth in the ICF contract during 2021.
<unk>.
Got continued growth, but not at that kind of rate, we're not going to be that aggressive with what may occur.
Policies around that can be volatile. So we've tried to take a prudent approach with that there is some growth, but it's not as significant as what we saw in 2021.
Okay. Thanks, and then.
On the idled facilities.
Filming youre not counting on any new business.
In terms of where things stand on that front right now.
And yes in our guidance, we usually don't include any.
Speculative new business, we're certainly working aggressively to reactivate some of those facilities.
But we haven't included any new business related to those facilities and the and the forecast.
Okay.
Taking the questions.
The next question will come from Kirk Ludtke of Imperial capital. Please go ahead.
Hello, everyone.
Can you hear me yes.
Yes, we can.
Wonderful I just have a very helpful call. Thank you.
I just have a couple follow ups with respect to the guidance and then maybe some of these new business opportunities.
The revenue guidance for 'twenty, two it looks like it's down about $100 million year over year at the midpoint.
I suspect that.
Some of that is the loss of these.
Nine contracts that you've assumed to go away.
What are the I mean, most of that is most of that is going to be driven by the.
The <unk> facility and the one.
Marshalls facility that went away in 2021, the normalization of those explorations and then as we indicated there are a few contracts in 2022 that we also expect to transition away and then that's offset by various <unk> adjustments that George alluded to.
Related to some of our state contracts.
Four to deal with some of the mostly wage pressure that we've had at those facilities and then as well as whatever assumptions, we have made on our nonresidential electronic monitoring business.
Interesting. Thank you. That's that's helpful. I know you might have mentioned this but what have you assumed with respect to the ice contracts.
That are expiring in fiscal 'twenty two.
So we've assumed the contracts renew.
As they come up.
We don't have any of those.
Going away.
Okay fantastic. Thank.
Thank you and the margins look.
Pretty consistent with.
Fiscal 'twenty one.
Despite the.
The higher labor costs.
It's really.
Really remarkable with respect to the new business.
You mentioned, Georgia and Florida.
Do you know how many how many people reside in those facilities in Georgia that Theyre scheduled to close.
On Georgia.
<unk>.
I don't know that there'll be a closure of facilities payments data I don't know, if they've announced closure and they certainly haven't.
Outstanding closures in Florida.
That's yet to be determined.
Robley over a period of time.
Oh, Okay, I thought, Georgia had I guess, they just announced that they're going to build new facilities, yes.
I guess I assume that they were closing.
Some old ones, but maybe not.
In any event does that is that.
Does that situation in Georgia, an opportunity for you I mean, I know you've got DRA Bacon.
Hakan.
Yes, we believe there is an opportunity in Georgia for us.
Great.
What theyre thinking in terms of timing.
No I mean, there is still an legislative session then.
They have to get through that.
Assuming that.
It's favorably reviewed and approved by the governor that.
Probably be in the second half of the year.
Same with Florida.
Do you have.
I mean, you might have mentioned this but how big the opportunity in Florida.
Well the discussions presently is 424 4500 bed facilities.
Wow, Okay sizable.
Thank you and then lastly on voluntary work programs I noticed that you.
<unk>.
Ice agreed to let your closure shut down the program in Washington State and I'm just curious.
If you have plans to do something similar.
Swear and other ice facilities and.
And if.
If there is any update you can provide on that.
That front with respect to maybe ice and.
Indemnifying yu for any losses, you incur that type of thing.
Okay.
Well the the program that was shutdown in Tacoma.
Okay.
Resulted in.
Fairly modest increase in contracted services to replace the program.
So we have.
Essentially full staffing at that facility and.
Sure.
A modest detainee population level approximately 500.
So there's.
There is probably 300 staff three or 400 staff to look after 500 detainees.
Because of the pandemic and COVID-19.
The detainee levels in the <unk>.
Employee levels are kind of out of whack in the sense that there's a lot more employees to look after a lot less detainees.
Thank you I was wondering if.
If you were if you were terminating the voluntary work programs throughout all of your ice facilities no no we're not.
It's not our decision, it's an ice decision as to where.
Discontinuation of this program to take place because otherwise it's the contractual requirement for any operator of an ice facility.
Two.
Administer the volunteer work program.
Got it. Thank you is there.
Be too early for this but.
Have.
Have they expressed any willingness to two.
Sure any costs you may be incurring.
Offering that program to detainees.
Well, we're in discussions on that issue.
Yeah.
Great. Thank you very much great call.
Thank you.
The next question will be from Jordan Sherman with Ranger Global. Please go ahead.
Hey, thanks, Thanks for hanging in there.
I just wanted to clarify something on the guidance I apologize if I missed it specifically.
You said.
Embedded in the guidance is a current interest rate on the facilities or unexpected change in the interest rate on the facilities on the on the <unk>.
On your facilities that are in discussions.
The guidance is based on our status quo that.
<unk> capital structure.
Got it okay.
Then I.
Wanted to ask you about in terms of assets for sales.
As an individual assets or business lines is there anything off the table for sale.
Well.
Well I think I described what is for sale I don't I don't know that I would say what's off the table, but we describe what is for sale generally.
Idle facilities smaller assets that we feel makes more sense economically to dispose of than it does to try to redeploy those assets got it okay. I apologize I missed that comment and then just lastly.
Yes.
The electronic monitoring business.
I'm wondering.
There was that comment about the potential.
Pilot program.
With.
With ice I'm, just wondering from a from a government standpoint that doesn't seem like a particularly difficult business to why I shouldnt say that way, but it doesn't require.
New facility to be built it just requires staffing.
Essentially.
Plus some equipment, but why is that a business, that's not being done and run by the government.
All things considered what's going on with you know.
Politically why is that something that they are considering doing with you rather than doing themselves.
I think most.
Yes.
Hey, Jordan this is Ann Schlarb, and I would say the government would have to respond to specifically why they were procuring rather than doing it themselves, but Isis fundamentally a law enforcement agency and these services that are provided are very much on the case management side. So.
Essentially becomes a valuable tool to augment it for ice when theyre carrying out their responsibilities of note on this particular RFP. It is it is not a technology based RFP. So it does not include electronic monitoring, it's very case management intensive type of program and it works.
Very closely with community based and nongovernmental organizations and those are the types of services that we've been providing for the agency for 17 18 years now and so I think theres, a proven track record and working closely with <unk>.
The private sector and providing these and generating good outcomes and successes in the programs.
But I guess, let me, let me ask it a little differently I appreciate that point is that I wasn't asking you why they why are they not deciding.
You answered the question I asked not the way I was trying to ask.
I guess my question is.
In general.
There are there are.
State and local.
Agencies that do do this type of monitoring is that correct.
Monitoring and case management.
Probably there are but.
I think Ann said.
Ice is not an op.
They are not operators there are more of a law enforcement agency.
Don't operate any ice facilities.
Any detail on operated call Center, no Mark I will share with us or not an operating entity. So it's not unusual.
We will.
Right.
Our amended most of the most to Georges point most of the at the state federal or local level. These are services that are provided by <unk>.
Companies like <unk> and other private sector company.
Yes.
I guess I appreciate the point about ice and marshals I get it.
Even at the local level Youre, saying that generally speaking these are not services provided by governmental agencies.
Yes.
Yes.
This is more social service type.
Services that they're looking at in this RFP again.
Look it makes the decision to refer them, but then Theres assessment, that's done it's identifying needs looking at how to successfully move them through the immigration process connecting them with.
With local government nongovernmental organizations, making sure they get to court on time, really helping and assisting them through the process, which is a level of detail and in.
And work that isn't just normally part of the law enforcement day to day routine, yes, no I apologize I. Appreciate I appreciate that point I wish I was moving on from that ice thing too just asking about the electronic monitoring and services business in general.
Alright.
So in general not specifically related to the ice this new pilot program, our electronic monitoring services in these other social services also provided by governmental agencies.
The outsourced in some cases, it's just not a business.
Apologize because this is a business I haven't focused on that as much.
In some cases like county Sheriff departments have electronic monitoring program.
In other cases in local government they contract out those services.
There's thousands and thousands of local governments around the country I think it's 3000. So we don't we don't have.
An explanation of what all of them do we know that we have.
Several of those customers I think.
In <unk>, they have 1000 customers.
<unk> counties and local governments, that's correct, George and Theres, a variety of models out there they're pretty numerous ware.
They normally lease the equipment and then the <unk>.
Intensity of how the provider gets involved in assisting the government is up to how they put their scope of work out what theyre looking for and that is very across the thousands of contracts that we have across the country.
Perfect. That's what I was aiming at thank you.
Youre welcome sorry, I can be a little literal and my response no no no no you asked right.
Yes.
We eventually got to my right question that wasn't you Im sorry.
Thank you.
Youre welcome.
The next question is from Oren <unk> of <unk>. Please go ahead.
Hi, Good morning, most of my questions have been answered, but I just had two quick ones the cost performance in 2021.
Obviously excellent.
In light of some of the comments that you've made is it fair to assume that you don't see the same opportunity to potentially outperform again this year.
This is Brian so we've taken.
A tempered view on as we said some of those cost benefits were the result of lower occupancy levels at our facilities as a result of the Covid pandemic there could be some benefit that continues in 2022, but we've tried to take a.
Reasoned and moderate approach to that.
Understood and Brian the cash.
It did come in a little lighter than what you were forecasting in the cleansing docs can you just help us out with why that is.
So we had one customer.
A fairly substantial customer that.
It was delayed and payments nothing to do with us or any invoicing. They actually put in place a new system of payment processing system, and they're probably about four months behind on pain.
Payments, which is worth about probably $30 million to $40 million. So we expect them to catch up in the first quarter at the latest early second quarter.
Understood. That's it for me thank you.
And this concludes our question and answer session I would now like to turn the conference back over to George solely for any closing remarks.
Well. Thank you for joining us on this conference call and we look forward to our next one thank you.
The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines have a great day.
Okay.
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