The GEO Group, Inc. (GEO) on Q1 2021 Results - Earnings Call Transcript

Operator: Good day, and welcome to The GEO Group First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. 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. Pablo Paez: Thank you, operator. Good morning everyone, and thank you for joining us for today's discussion of The GEO Group's first quarter of 2021 earnings results. With us today are George Zoley, Chairman, Chief Executive Officer and Founder; Brian Evans, Chief Financial Officer; Ann Schlarb, President of GEO Care; and Blake Davis, President of GEO Secure Services. George Zoley: Thank you Pablo, and good morning to everyone. This morning, we reported our first quarter 2021 results and updated our financial guidance for the year. While we continue to face operational and financial challenges associated with COVID-19, we remain pleased with the performance of our diversified business units. During the first quarter, we experienced favorable cost trends, which resulted in better than expected financial performance. We also completed the transition of our D. Ray James, Moshannon Valley and Rivers Correctional facilities to an idle status. As we had previously disclosed, these three facilities had contracts that were not renewed by the Federal Bureau of Prisons and thus closed at the end of January and March respectively. As we highlighted last quarter, the President issued an executive order in January of this year directing the U.S. Attorney General to not renew Department of Justice contracts with privately operated criminal detention facilities. Our financial guidance assumes that our remaining BOP contracts will also not be renewed resulting in three additional BOP facilities closing during 2021. With respect to the U.S. Marshals Service unlike the Bureau of Prisons, the agency does not own and operated facilities. The U.S. Marshals contract contractor facilities, which are generally located near federal courthouses primarily through intergovernmental service agreements and to a lesser extent direct contract. Brian Evans: Thank you, George. Good morning, everyone. Today, we reported first quarter revenues approximately $576 million and net income attributable to GEO of $50.5 million. Our first quarter results, include a $13 million pre-tax gain on real estate assets and a $3 million pre-tax gain on the extinguishment of debt. Excluding these gains, we reported first quarter adjusted net income of $0.28 per diluted share. We also reported first quarter AFFO of $0.60 per diluted share. Our first quarter results reflect better than expected operating cost trends across our business units, which resulted in better than expected performance. Moving to our outlook, we have updated our full year 2021 financial guidance to reflect the better than expected cost trends in the first quarter of the year and lower expected maintenance CapEx for the year. Blake Davis: Thanks, Brian and good morning, everyone. I'd like to provide you a brief update on our GEO Secure Services business unit. During the first quarter of 2021, our staff continued to address the challenges associated with the COVID-19 pandemic. From the start of the pandemic, we have implemented several mitigation initiatives. We put in place policy and controls consistent with guidance issued by the Centers for Disease Control and Prevention, including practices and procedures related to quarantine, cohorting and medical isolation. Ann Schlarb: Thank you, Blake and good morning, everyone. I'd like to briefly update you on our GEO Care business unit. Consistent with the efforts undertaken by our GEO Secure Services facilities, our company and our employees have remained focused on implementing COVID-19 mitigation strategies. All of our residential facilities in GEO Reentry and GEO Youth Services have put in place quarantine and cohorting policies and additional entry screening measures. We have also focused our efforts on increased sanitation, testing and deploying face masks. We have allowed our employees to exercise paid leave and paid time off to remain home as needed. We will continue to evaluate our mitigation steps and we'll make adjustments as appropriate and necessary based on updated guidance by the CDC and other best practices. Despite the challenging operational environment, our employees have continued to deliver high-quality rehabilitation and reentry programming to those in our care, often in innovative ways including through virtual technologies. We recently published our 2020 GEO Continuum of Care annual report, which highlights the accomplishments of our employees and our programs. Among the innovative initiatives implemented by our Continuum of Care team during the pandemic was the creation of the GEO Academy, which allowed us to transition our academic programs to technology-based programming. We also launched GEO Academy Career Services in an effort to partner with community employers, under our vocational programs to increase employment opportunities for our post-release participants. Our recently released Continuum of Care annual report also highlights the accreditation that our Florida facilities received in 2020 from the Commission on Accreditation of Rehabilitation Facilities based on the quality and strength of our substance abuse treatment programs. The Continuum of Care annual report also emphasizes the importance of our post-release support services. During 2020, GEO allocated $1.7 million to address basic community needs of post-release participants, such as transitional housing, treatment, transportation, clothing, food, education and job placement assistance. Throughout the year, our post-release support team helped more than 3,600 individuals returning to their communities. Furthermore, the statistics disclosed in our Continuum of Care annual report show that released individuals who received our post-release support services, experienced significantly lower recidivism rates over one and two year periods, than those who did not participate in our post-release support program. Our GEO Continuum of Care program is part of GEO's contribution to criminal justice reform. We believe that it provides a proven successful model, on how the 2.2 million people in the criminal justice system, can be better served and changing how they live their lives. Our award-winning program is not in competition, or in conflict with other national initiatives regarding offender sentence reforms. In fact, we applaud these efforts. Our efforts seek to draw national attention to the many still incarcerated, in need of a more structured and comprehensive approach to rehabilitation. We believe that the success of our Continuum of Care, also positions GEO to pursue quality growth opportunities. During the first quarter of 2021, we were awarded a new contract with the Federal Bureau of Prisons, for a 118-bed residential reentry center, in the Tampa Florida area, which we expect to activate in the second half of 2021. Additionally, during the first quarter, we activated two new day reporting center sites and were awarded a contract for a third additional day reporting center in California, bringing our nationwide total to 80-day reporting centers. We believe that these important contract wins are representative of the quality of our rehabilitation and reentry services. At this time, I'll turn the call back to George, for his closing remarks. George Zoley: Thank you, Ann. While we continue to face operational and financial challenges associated with COVID-19, we remain pleased with the performance of our diversified business units. We believe our company remains resilient and is supported by real-estate assets and contracts, entailing essential government services. We've provided high-quality professional services for over 30 years under both, Democratic and Republican administrations and under legislative branches controlled by both parties. We recognize that there have been concerns regarding our future access to financing and the recent federal policy actions have resulted in the non-renewal of some of our contracts. To address these challenges, we've established a focus on debt reduction and our Board has suspended our quarterly dividend. Our Board has also begun a review of our current corporate tax structure, as a REIT to be completed by the fourth quarter. We recently completed the refinancing of our senior note due 2022. And we are evaluating the potential sale of company-owned assets. We believe these initiatives are in the best interest of our shareholders, as we work to address our debt maturities and enhance long-term shareholder value. Finally, I want to thank Blake Davis, for his eight years with GEO, and congratulate him on his retirement. On May 15th, Blake will be succeeded by James Black, who has 23 years of service with GEO. That completes our remarks. And we'd be glad to take questions. Question-and: Operator: Thank you. We will now begin the question-and-answer session. The first question today will come from Joe Gomes of Noble Capital. Please go ahead. Joe Gomes: Good morning. Thanks for taking the call and questions and nice quarter. George Zoley: Thank you. Joe Gomes: So I wanted George to start off with some of your thoughts commentary possibly here in the U.S. Marshals Service. You mentioned that, they don't own any of their beds. So where are they putting people? I mean, how far away from the court houses are they? How are they transporting these people? It just seems to me to kind of be a policy that, from the top they think this sounds good but it seems to have some difficulty being implemented, reasonably and rationally on the ground. I kind of wanted to get your thoughts on that. And also, on the facilities not just the U.S. Marshal, but the -- also the BOP facilities, I mean, I understand that, you will look to go to other -- repurpose those facilities for other government agency use. But if we weren't successful on that, I mean what other uses could there be for your facilities if they were not being used as a secure facility or detention center? Thank you. George Zoley: Well, on the first question I think it is a complex challenge for the U.S. Marshals Service to identify alternative locations for their prisoners that are being held predominantly in urban areas near federal court houses. We don't have access to the details of what they're doing or how they're doing it, but we surmised it it's quite a challenge for them. As to alternative uses of our facilities other -- we are hopeful of repurposing them with other governmental agencies as time moves on. But some of our smaller facilities have apparently lent themselves interest by developers for alternative purposes other than secure facilities. So we expect several sales of that nature as non-secured facilities for non-secured purposes. Joe Gomes: Okay. And just a follow-up on that on the U.S. Marshals, I understand you don't have access to their detailed plans. But as being someone that's been in the industry for such a long time, I mean, are you aware of thousands of beds that in secure facilities are just being -- going unused. Setting aside yours and your competitor facilities for a second here that would make it easy for the U.S. Marshals to just transfer people? George Zoley: Yeah. There may be some extra empty beds this year because of COVID, but because the court systems have closed for all intents and purposes. But as the COVID, the pandemic is ended, we would think the court system will reactivate in due course and there will be a greater flow of people going into jails and prisons. Joe Gomes: Okay. And on ICE, if I can switch gears for a moment here. Your competitor was mentioning how their ICE populations had increased significantly since the beginning of this year. I was wondering if you guys are seeing the same trends there. Then also a little bit on the Title 42. I understand it's being used to -- against single people to put them back across the border. But as my understanding and correct me if I'm wrong please that's -- it's a health emergency. So -- and I quite understand what is the difference between someone that is single and someone that's part of a family. Wouldn't the health be the same? George Zoley: Well, with regard to the first question, we have seen an uptick in our ICE populations particularly on the southern border. Title 42 to my understanding is a temporary situation because of COVID pandemic. And once that's resolved I would think Title 42 will be amended to allow the detention of individuals inside the U.S. rather than immediately deporting them to their country of origin. Joe Gomes: Okay. Thank you for that. One final one for me and I'll get back in queue. So you talked a lot about, obviously, the difficulties here due to the President's Executive Order and renewing contracts. Can you speak to efforts on potential new business out there and where you might be looking for some new business maybe in some of the -- with the state -- your state partners? George Zoley: Well I think we've seen growth in our reentry business and our day reporting business in particular as described by Ann Schlarb. There's been more of a focus and interest in the rehabilitation programs post release of the nature required reentering facilities. Ann, could you comment on that? Ann Schlarb: Yeah. We've seen as I discussed the residential reentry center with the Bureau of Prisons that we were awarded earlier this year that will be activated in September. The state of Tennessee, the state of Idaho in the past year have started new day reporting centers that we've implemented and are looking at potential expansions in and we're continuing to look at other opportunities across all of our reentry services areas. Joe Gomes: Okay. Thank you for that. I'll get back in queue. Operator: The next question will come from Mitra Ramgopal from Sidoti. Please go ahead. Mitra Ramgopal: Yes. Good morning. Thanks for taking the questions. First, I just wanted to maybe get a little more color on the favorable cost trends that you saw in the first quarter and how sustainable, how comfortable you feel that you'll be able to carry that forward? Brian Evans: This is Brian. So the cost trends really are driven by I think some of the lower occupancy levels in the facilities you're seeing less resident related costs as a result of that. And then also I think due to lower occupancy levels, there's less off-site medical, there's less hospital runs. So there's better overtime or better labor management going on as well. So I think as long as these trends continue with the occupancies being lower, we'll continue to manage the cost that way. And then obviously as occupancies pick up, we'll see some of those cost increase, but we'll also see revenues start to increase to offset that. So I think even when the occupancy start to improve, we should be on equal footing or even better. Mitra Ramgopal: Okay. No. That's great. And speaking of occupancy any sense -- I mean we see a lot of states are increasingly lifting COVID-related restrictions and with the vaccine rollout well underway, curious if you're -- anything in terms of when you might be able to get back to more or increase capacity from the 75% maybe at ICE center et cetera? George Zoley: We only have a guess and that guess would be towards the fall, we would think that things could get back to a more normalized state. That's just our guess. Mitra Ramgopal: Okay. Thanks. And then, recently you were seeing some states indicating that again sort of following the federal policies, as it relates to maybe not engaging in private prison contracts when those expire et cetera. I'm just curious if there's anything you can do in terms of whether from a lobbying perspective et cetera given the political climate there to maybe stem some of the activity coming out of the space right now? George Zoley: Well we are essentially a service provider and we stand ready to provide services when our clients need them. And those needs can fluctuate seasonally and periodically due to administrations and implementing new policies. And I think we said in the first quarter, we expect this year to be a transition period in which different policies will be brought forth and tested and implemented and revised, as the situations on the fields require. And we stand ready to work with all the agencies to make those accommodations as time goes on. Mitra Ramgopal: Okay. Thanks. And then finally, again on the investments you're making on for example on the growth CapEx, is there -- given the political climate here in the US, is it more likely that you might be looking to explore more international opportunities, or again the focus is still pretty much going to be here? Brian Evans: Well, the CapEx, I mean, we reduced some of the CapEx that was related to improvements in existing facilities. And I think -- so what we had forecasted for the balance of this year and next year is pretty minimal for the most part in our correctional facilities and our reentry facilities. And then, the bulk of the CapEx is in the BI business where we're seeing growth and we also have to transition technology to a newer generation cellular technology. Mitra Ramgopal: Okay. Thanks again for taking the questions. Operator: And the next question will come from Fred Taylor with MJX Asset Management. Please go ahead. Fred Taylor: Yes. Thanks for the call. Reading a press release from February 19 on the new bond issue, congratulations. But I noticed it was issued at a subsidiary. Is that where the other two bond issues are issued from? Brian Evans: I'd have to look at that. I'm not sure exactly which ones they're all issued from. Fred Taylor: Okay. And it would be great if -- I don't know if there's an offering memorandum or if you 8-K-ed it, it'd be nice to see the full prospectus. The other question I had was -- Brian Evans: It was a private placement. So I don't think there's a public offering perspective now. Fred Taylor: But as a public company, wouldn't you look to -- you put that in 8-K? Brian Evans: Some of it is. Fred Taylor: Okay. The other question was, you mentioned the goal was to pay down $150 million in debt. How would you think of allocating that between the revolving credit, the term loan and bonds, or I think you actually said reduced net debt, would you just allow cash to accumulate? Brian Evans: Well, as I said during the call, we're working with some financial advisers. So I think that that will all be part of that process, evaluating how to apply the cash flows of the business and the timing of when we do that. Fred Taylor: Okay. Thank you. Operator: The next question will come from Jack Barnes from Samlyn Capital. Please go ahead. Jack Barnes: Hey. Good morning, guys. Thanks for the time. Just a quick follow-up on the Marshals Service relationship. Could you just clarify how you're thinking about the difference, if there is any, between the direct contracts and the ISGAs and whether you think it's possible but the ISGA contracts will remain even if the direct contracts are canceled? George Zoley: Well, currently our discussions with the Marshals Services have only been on the direct contract. Jack Barnes: Do you expect the Executive Order to apply to all contracts, or is there a reason to think that the way that it was worded would allow them only to apply it to the direct contracts? George Zoley: Well, we're responding to the discussions and concerns of the Marshals service as they identify them. And right now those discussions are exclusively on the direct contracts. Yes. Jack Barnes: Okay. Great. Thank you. George Zoley: We don't have the ability to speculate as to the entirety of their concerns. But as they've expressed them thus far, the discussions have been just on direct contracts. Jack Barnes: Okay, great. And then one other one, if I may. On the ICE relationship, how are you thinking about -- I understand that the executive order didn't apply to the ICE in the Homeland Security. But as you just think about the populations in your facilities and the occupancy levels, how do you expect ICE to address, I guess, what is currently excess capacity in the system, might be made from the White House? Is there a -- will there be a rationalization expecting to keep the footprint intact until there's more visibility on the population longer term? George Zoley: Well, again, we don't have in-depth knowledge of what the White House planning is, but we are aware that there is excess capacity and that's in part due to the large number of locations that ICE has. I think it may be a couple of hundred locations. And many of those are small jails around the country that don't actually meet the latest ICE standards that were promulgated by the Obama administration. So that may be one of the issues that they confront when deciding which facilities to retain and which to close, whether facilities meet the standards that were developed by the Obama administration. Operator: This will conclude today's question-and-answer session. I would now like to turn the conference back over to George Zoley for any closing remarks. George Zoley: Yes. Thank you all for your questions and we look forward to addressing you in the next quarterly call. Operator: The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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GEO Group, Inc. (NYSE:GEO): A Promising Investment in the Private Corrections Industry

  • GEO Group, Inc. (NYSE:GEO) has seen a gain of approximately 5.80% over the past month, despite a recent dip of 7.25% in the last 10 days, indicating a potential entry point for investors.
  • The stock's estimated upside of 29.58% suggests it is currently undervalued and has significant room for appreciation.
  • A Piotroski Score of 8 indicates GEO's strong financial health and positions it well for future growth.

GEO Group, Inc. (NYSE:GEO) is a real estate investment trust (REIT) specializing in the ownership, leasing, and management of correctional, detention, and reentry facilities. The company operates in the United States, Australia, South Africa, and the United Kingdom, competing with other private prison operators like CoreCivic, Inc. and Management & Training Corporation, making it a key player in the private corrections industry.

Over the past month, GEO has seen a gain of approximately 5.80%, despite a recent dip of 7.25% in the last 10 days. This fluctuation presents a potential entry point for investors looking to capitalize on its growth trajectory. The stock's recent performance indicates that it may be undervalued, offering a chance for investors to buy in at a lower price before it potentially rebounds.

GEO's stock price growth potential is impressive, with an estimated upside of 29.58%. This suggests that the stock is currently undervalued and has significant room for appreciation, making it an attractive option for growth-oriented investors. The company's strong financial health, as indicated by its Piotroski Score of 8, further supports this growth potential. A Piotroski Score of 8 out of 9 suggests that GEO is fundamentally sound and well-positioned for future growth.

With a target price set at $35, GEO offers a promising opportunity for investors seeking both short-term gains and long-term value. The current market conditions, combined with GEO's financial metrics, suggest that the stock is poised for a rebound. Investors looking to enhance their portfolios may find GEO's recent price dip an attractive buying opportunity.

GEO Group, Inc. (NYSE:GEO): A Promising Investment in the Private Corrections Industry

  • GEO Group, Inc. (NYSE:GEO) has seen a gain of approximately 5.80% over the past month, despite a recent dip of 7.25% in the last 10 days, indicating a potential entry point for investors.
  • The stock's estimated upside of 29.58% suggests it is currently undervalued and has significant room for appreciation.
  • A Piotroski Score of 8 indicates GEO's strong financial health and positions it well for future growth.

GEO Group, Inc. (NYSE:GEO) is a real estate investment trust (REIT) specializing in the ownership, leasing, and management of correctional, detention, and reentry facilities. The company operates in the United States, Australia, South Africa, and the United Kingdom, competing with other private prison operators like CoreCivic, Inc. and Management & Training Corporation, making it a key player in the private corrections industry.

Over the past month, GEO has seen a gain of approximately 5.80%, despite a recent dip of 7.25% in the last 10 days. This fluctuation presents a potential entry point for investors looking to capitalize on its growth trajectory. The stock's recent performance indicates that it may be undervalued, offering a chance for investors to buy in at a lower price before it potentially rebounds.

GEO's stock price growth potential is impressive, with an estimated upside of 29.58%. This suggests that the stock is currently undervalued and has significant room for appreciation, making it an attractive option for growth-oriented investors. The company's strong financial health, as indicated by its Piotroski Score of 8, further supports this growth potential. A Piotroski Score of 8 out of 9 suggests that GEO is fundamentally sound and well-positioned for future growth.

With a target price set at $35, GEO offers a promising opportunity for investors seeking both short-term gains and long-term value. The current market conditions, combined with GEO's financial metrics, suggest that the stock is poised for a rebound. Investors looking to enhance their portfolios may find GEO's recent price dip an attractive buying opportunity.