GEO - Earnings call transcript Q2 2019

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Operator

Good morning, and welcome to the GEO Group Second Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note today’s 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. thank GEO joining earnings Group’s and discussion for results. everyone, the of second morning, you us for today’s Good quarter XXXX Officer; Care; and With and Donahue, President Officer; George are Secure David Schlarb, Brian Services. GEO Executive Ann GEO us Financial Evans, of Zoley, President of Chief today Chief Chairman

discuss quarter the we results This year. for outlook will morning, and our second of the balance

at call call on basis conclude results the reconciliation with Today, website is our disclosure press the being will session. A conference included and a is discuss We This information will the we live also webcast investor information. basis non-GAAP supplemental investors.geogroup.com. we this question-and-answer issued in release to basis GAAP non-GAAP from morning.

will give safe within answers we These may various laws. including Additionally, forward-looking and your our questions, to are the discuss in fall of forward-looking to expectations intended much we the statements regarding the current matters. securities harbor statements include provisions beliefs information the response respect today, with of to

and results materially filings, a in reports. from as the statements factors forward-looking various XX-K, of result Securities differ actual Form XX-Q the and Exchange our may including those Commission in Our X-K contained

this turn and over With allow me Zoley. George? that, please to to Chairman George our call CEO,

George Zoley

to Thank you, morning Pablo, and everyone. good

across our diversified business quarter We are by trends results, and pleased very our positive strong second segments. with which are fundamentals driven

keeping unchanged for our While we at guidance expect the to these time. financial trends are second we this half forward, the continue of year

margins this well basis, X,XXX higher average projects In and combined fourth more to quarters earnings and which contract and dividend significant total, of are and flows more year. as capacity is the to that growth. idle activity, of future than of expected were our beds We and will this million reactivation sustainability with CapEx annual is our totaling to a reflect second add expected as third our flow believe activations scheduled of the expansion a drive activate during we project X,XXX the than are results cash $XXX level in beds X,XXX These quarterly half more Our expansions new with beds. cash previously involve stability start-up projects results minimal than of On and within indicative Australia revenues, payments. requirements. than start-up and only the strong the U.S. activity annualized in new of

recent centers operators financial equity deliberate to future long-standing media Border However, quality by have narrative the have stories been processing role in driven markets. mischaracterization of provider discontinuing facilities we These ICE. Patrol volatility of institutions, ICE in created the service unfortunately private headlines and a as a for false support recognize that debt our overcrowded regarding our financial and

facilities that managed never We unaccompanied any have minors. house

holding Border We have facilities. never any managed Patrol

rated manage services The culturally by the Friday, the and safe modern behalf News Center ran ICE quality, in a residential and Last ICE are They facility environment. accreditation processing highly segment in are among organizations centers Processing facilities. responsive Fox are GEO’s This national other of on many in lengthy California. of we a the GEO typical U.S. most ICE X,XXX-bed humane that features Adelanto high provide centers has on in

cases. with for services. include GEO’s multipurpose either length are housing of to comprised two the center a outdoor residential and the and facilities and is features residents cellular artificial plant are clean, while immigration units, amenities covered GEO’s physical air-conditioned, health Administration. processing were telephones months, or pavilions flat-screen a residents The modern, turf typical of legal to average The The care the fields. combination approximately their in ICE and rooms, XX/X services full TVs under are provided refined with hot waiting safe. soccer requirements access Obama clothing, of contractually dormitory meals, access and decision care areas on stay

two mental their countries health from noticed general care issues residents we’ve increased last with care due three us and During American the originating that or years, limited Central the have to care to health services. health come with

Our day take for professional Democratic with respect employees successfully care residents us. they dignity for and do years the their and providing every best under administrations. these while been with Republican are services to We’ve XX

under at in to President with our the emphasize same debate. across our we We laws, it role We understand is plays eight for our company immigration the facilities important that exact today country’s that no frustration services party Obama’s provide that lines provided administration. years but

and is role passed the exclusive out bipartisan by Our Congress under ICE. provider carried responsible to and policies professional care be by secure a immigration

are and daily of the commitment XX,XXX employees of the We world. professionalism our around proud

are end along the We to report with to We’ve ESG media. committed more and an rights for to story our report tell state by steps of our of on Congress, taking respect company’s aggressively general the human members legislators September. annual publishing

work proud are the throughout government We the we on behalf do of world. agencies of

state We reenter enhanced recidivism our communities. order services program the clients services post-release to rehabilitation, including as offender are cognitive well their U.S. very through Care. proud our provides more reduce also This GEO as with in to for them behavioral of assisting successfully therapy Continuum of

of expected States, commitment program we the these expanding correctional spending programs state fully aggressive year. United to to XX the end have Continuum our increase and manage across GEO publicly of Continuum GEO expansion our country of committed annual Care Care of all at facilities we’re facilities to to This XX% by the implemented the in We the GEO million. is on next by $XX

world to our We a in taken offender leader place have as rehabilitation. proud are

revolving terms, were in have our facility maturity any years. due successful extending the approximately of three debt change Turning to credit facility. May any our without senior and to not XXXX do credit We we for maturities in

remain will for unchanged. to to payments, us expect Our dividend allow earnings providing we deleverage support naturally annual growing while our which

– we to Evans. We paying further Brian flow CFO, apply will cash our on explained by excess growing expect debt our be down will as

Now I’ll and outlook. Brian review our Evans ask to results

Brian Evans

million Thank diluted you, second GEO George. net morning, approximately share. attributable we of per and $XXX income revenues Today $X.XX to Good everyone. reported of quarter

million of related and second Our to debt results nonrecourse for reflect Australia start-up project our of extension million debt expenses the a $X.X revolving credit the refinancing the as loss on Ravenhall as in pretax. extinguishment quarter the $X.X of facility well

$X.XX our of quarter of $X.XX reported share. share Excluding $X.XX these $X.XX adjusted income second diluted to range second We of share share. diluted quarter per $X.XX per of per AFFO our reported range items, we $X.XX of per ahead to ahead net of guidance diluted diluted

across expected favorable by business trends driven segments. performance and our than diversified were results quarterly strong Our better

account and of for adjusted net the to the of outlook unchanged. while the this we our better business guidance our for performance full to for half income year AFFO quarter. guidance we than the At continue, year Turning kept our across income AFFO favorable our second we trends during the expected increased for have and net our time, to adjusted only balance second have year, expect the segments the

revenues range to We expect and a of income net net in per diluted on billion. income annual per in $X.XX attributable share be $X.XX to to adjusted GEO $X.XX approximately $X.XX $X.XX to of a to range share diluted be of

per guidance range to our $X.XX We to have of year AFFO $X.XX full a share. diluted increased

mentioned, the more of during with XXXX significant second the than half George activation beds. of As are we activity scheduled X,XXX to start-up have

during transition and which incur next drive start-up and connection We and expect growth cash year. into fourth to these with third expenses will project in earnings the quarters flow activations,

to a million. be we in For share diluted $X.XX income attributable range $XXX to in of be GEO of XXXX, the per third net to million range quarterly net revenues $XXX $X.XX income $X.XX diluted share per adjusted on a expect quarter of $X.XX to of to to and

to diluted of share. AFFO expect and XXXX be quarter per $X.XX third between We $X.XX

to in $XXX For attributable GEO of expect revenues net quarter per $X.XX on share fourth range to of of diluted a of adjusted to and the million net we income $XXX range XXXX, to per in quarterly diluted be to share $X.XX a to be $X.XX million. $X.XX income

share. be fourth expect XXXX to We $X.XX of per AFFO between and diluted $X.XX quarter

revolver early we to years. an able in contractually addition this all complete our extended maturity credit structure. extension to $XXX XXXX, size the were grid. facility to In extended of or obligates The for in to million with pricing feature five our revolver liquidity ample capital Moving which the approximately capacity, million without revolving provides the June, the credit facility any accordion May under changes facility. available in senior We $XXX million $XXX to the approximately of banks

have million senior in With notes any when years we mature XXXX. for not $XXX in do this three upcoming approximately maturities extension, unsecured debt

revolvers This the that extension, high George our revolver. equity. to to partners volatility our provider is significant if will take political out have and since in based the execution role of headlines the the company the liquidity opportunity We mischaracterization our a XXXX mentioned, available from is choose recognize volatility record. overall created We under of on in banking directly debt service have recent tied notes as rhetoric a our with as we our that, a

record, disappointing While growth. reflective political our attacks cash will volatility believe and strong and to banking decade-long it is impact recent well-established relationships, don’t misleading is extremely of the flow that allow we fundamentals accelerating

minimal better revenues CapEx mentioned, scheduled expected we over are with representing than previously X,XXX XXXX, annual $XXX than the million incremental more requirements. of margins, than As and half in average beds activate – only second to in better

to Additionally, The expected at savings providing growth have facility our to the conclude obligation in flow will beginning lease this cash while cash noted, agreement X,XXX annual in for our support the expect is will for end of which we flows naturally bed $XX of as payments, the sustainable. expiration million expected annual of allow operating our Hudson, we under XXXX. lease dividend operating payments – result Colorado savings cash us to The in be deleverage idle XXXX.

requirements forward. to expect going decrease significantly CapEx also We our

mostly Aside needs, we $XX dividend into at to annually, to maintaining we paying monitoring apply in from these have growth expect current in approximately factors Taking currently and our million maintenance towards flow minimal only cash requirements, between estimate with $XX segments. all which annually excess electronic our CapEx debt, account, down our while $XX expect million we connection CapEx million payments.

this to X.X by times of the we strategy, approximately expect decrease leverage our net leverage end to XXXX. As – execute we total

our GEO a of Services to At this call Secure segment. Donahue I time, turn for will over the review Dave

David Donahue

company an I our several and In activations. good our GEO have would Federal intergovernmental update business XXXX. of quarter South the have upcoming ICE agreement center, Secure was Louisiana we existing to with intake Center to unit. Starting Processing reactivated on segment, expected you provide the previously Services idle, like Louisiana, in Louisiana everyone. ICE. third which complete X,XXX-bed is Brian, morning, an Thanks, The during under we facility Basile, with owned process our

Louisiana revenues capacity Montgomery expected by annualized South modification XXX million. recently entered to Texas, year. September This beds. center the comes contract increase $XX In when is online annualized in processing center of expansion million in to a approximately The at we ICE generate into expected contract $XX generate revenues is to approximately it contract of the this with capacity

had in Bureau XX-year XXXX. direct existing Federal intergovernmental was services Prisons, Adelanto by contracts procurement, Bureau We entered the recently which into CAR in new company-owned California. Prisons place. also Bernardino Processing San of under in to contract recently been County, new agreement respect contract that With ICE X,XXX-bed for the awarded were the the we This new of previously Center XX our three a replaces issued

County, of XX-year a contract is North intake Prisons X,XXX-bed company-owned Prisons, to also County quarter. The into new contract generate Center approximately X. facility. with is X and fourth $XX entered million new the we for Bureau county projected XX-year the Reeves The of X,XXX-bed Reeves County expected Center Bureau two facility the the Correctional X Reeves contracts our to into the revenues. X,XXX-bed owned process reactivation Texas the Detention the entered complete with during in Michigan, Lake annualized and of Detention In for

BOP management also GEO procurement. in CAR to contract is two X,XXX-bed remaining BOP the rebidding to XX government-owned provides the these Reeves active facility management, consulting and Taft has services County the the contracts. relation one The Under in California. support for solicitation,

the announced by expect on to of We the this this year. end decision solicitation be

issued several information Finally, in both ICE encompassing country. have for and several thousand locations the Marshals the Service different requests around beds U.S.

on California, able our have budgetary correctional services segment, we without state have believe stable In being our for Department state Corrections the by to been facility California budgets, high-quality impacted regrettably X lapse notified XX. of we Moving customers the and to our will provide by September and that XXX-bed Rehabilitation Valley were Central constraints. contract we

projections our in accounted are for We this for have facility. uses and the currently transition exploring alternative

regarding Several we state a currently prisons. challenges states and current states of also continue constraints age the years. In are with and of customers many operate, face We in state the approximately needs capacity older related XX from are of our facing to states challenges. prisons their XX ranges to discussions average number to where

international a our is annual Australia. we our of Ravenhall Correctional XXX-bed number expansion markets, come of to for are undertaking to expected Moving we X,XXX-bed currently $XX Centre, State of million. projected In projects fourth the during a negotiations the announced with at which recently Victoria, expansion additional online of quarter revenues in

revenues $XX In capacity be a the to expansion to of during beds. the fourth X,XXX Junee developing annual XXX-bed Correctional also completed are New bringing with total Wales, South expected at million. we the expansion projected This quarter is Centre,

expansion will the center XXX Correctional a the beds XXXX. during Fulham completion capacity expected total to in XXX-bed the bring at we Finally, the are which with Victoria, Centre, constructing to

At Ann call this the Ann? over a review GEO turn for I time, will Care. to of

Ann Schlarb

Thank I’d like unit, on morning, you, our good starting business update Dave, to with Services and our you Reentry division. Care GEO everyone. provide GEO an

Federal factors, our X a income the reentry reporting leased reentry quarter, the of operating operations our approximately contract Prisons our several of projected of a million, of overall reentry new with and of the Federal assets increase Sacramento, five-year reorganization Bureau day from with second new and of of under including revenues opening with experienced During in XX-bed NOI from XX%. This with GEO Bureau of better increase Philadelphia reactivation April centers California year-over-year consolidation Pennsylvania, in net the Bureau our center center on in and $X Prisons a the annual contract under performance the Prisons. reentry-owned reflects the Federal

across continue states treatment to to local and Services and alternatives division, several important rehabilitation and our youth facilities programs jurisdictions. Youth Moving our provide for

by BI under Our NOI alternatives through federal and individuals driven continued process. division the utilization part government review allowed electronic in contract effectively revenues experience detention program This to in alternative community for ICE. immigration our to to the monitoring year-over-year with use growth increased going the has

continued to implemented GEO program, including the of which States, across Care been in has XX correctional our Finally, United expand XX Continuum we facilities. facilities state GEO

with transitional post-release enhanced placement transportation, clothing, assistance. behavioral Our support Continuum rehabilitation integrates Care food GEO of services in-custody such as programs, job cognitive including housing, treatment and

and The continuum the treatment, in programs that assisted substance continuum the level industry. has We with substance abuse the of that are corporate division care care assurance. expanded program office is services, post-release of in staff supervised our matter and XX at to training and with subject scope experts quality of behavioral education, unparalleled these treatment, believe cognitive

school X,XXX X.X enrolled day, and participants which typical any approximately XXXX. hours, rehabilitation X,XXX On in GEO’s XX,XXX in resulted there offender programs, million program vocational are certificates diplomas high in nearly equivalency

GEO year, annual by which is commitment public by spending of operated million. to state all our made facilities to to continuum Care of corporate further the end increase on a $XX care have expected GEO our We to Continuum correctional of expand next

this At for call back to turn George the his time, closing I’ll remarks.

George Zoley

Thank you, Ann.

begin their federal, strong and heard, XX-year and our created the operational dignity, a an report. acknowledge state human now have annual provider a are by and this been responsibility as of report on with We’ve results capital false in made company about care you over our respect committed quality along human rights September to and driven We’ve to protect we regrettable growth. our publishing our we commitment and year, service treating to rhetoric markets, proud respect record company’s services of our political local unique professional everyone volatility a As to comprehensive and always continued financial that agencies. have in It’s in are and but narratives with ESG rights.

focused Our management capital. on team remained Board of effective the allocation and

to growing to remain while Our expect support deleverage allow will unchanged. which dividend cash annual naturally we us payments, flows our providing for

flow cash excess increasing our paying apply debt. down to expect We on

completes any we to now address glad our questions. That Operator? be and presentation, would

Operator

question-and-answer first go from Sherman now Ranger And will Jordan the question Please ahead. sessions. [Operator We begin today’s of Global. Instructions] comes

Jordan Sherman

questions. of Couple you. Thank Yes.

impact second activating First the of you you’d half. beds that – on earnings be the in X,XXX mentioned earnings

running described sounded be you wondering, up like, Just them, fully it as by would you year-end. that

I the But run at by end. So be would net what to start-up you your full impact the of rate embedded wanted for just was guidance I’m wondering that year confirm also in results net the costs?

Brian Evans

first that the the quarter There the of BOP results This is not other we’ll period, fourth we’ll in so the is – first the in quarter XXXX In facilities Brian. cost. start-up Texas. much the the the see see but still start-up would really quarter, had impact I quarter and of North normalization favorable say cost we fourth is quarter, not that of the it’s facility of significant till activation facilities, a Reeves the that as the Lake third

and We have then ICE in Hudson, are immediately, will XXXX. the impact the South until is will begin lease facility. start annualized from of which discontinuation seeing of activation facility, XXXX. won’t the some any of Louisiana Colorado of the impact it’s It that we but positive And the million $XX in QX QX

Jordan Sherman

Perfect.

in ahead a Okay. then obviously, just further very politicized the, And on operating environment.

Committee Warren. requests gotten from information Elizabeth House and You’ve for Oversight

it the on the of their of context, Can if of you pursued interest BOP capacity none what ICE are Marshals. at have terms especially her Warren’s types I it own getting at talk the little discuss that focused U.S. that if you of but personally alternatives just considering of wanted possible – in fact and about be on came that ICE a and bit. Marshals out, reminiscent U.S. the Yates least in memo Elizabeth no could seemed, know and stands, the least comes were seems But XXXX that little focused, was which we prisons comments when that maybe fore, wondered if also would don’t Just And to around talk where and of there, for helpful. Sally the that a where you could course. the differences bit, private

George Zoley

member or Well, committee any respect they own Congress information. of agency, Marshals we’re with of don’t operate U.S. cooperating any that’s facilities. their requesting the With to

better either border. There southern capacity and their like because an or been contracted emphasis ICE on has secure been is developed maybe that’s that’s companies with private growing of ourselves. the to capacity the of All governments local

We are provided average locations to agency, facilities of to populations we are the and as part being the questions of the are ICE that posed growth cooperating. nature. fully and of things capacity And and daily and that

Jordan Sherman

I that? what’s what on alternatives case point. presence, be people don’t get guess of seem pricing of possible, Understood. just I that’s like to to scenario are was would if And to – I the focused the the that a seem Because – was – worst stocks, there it the my doesn’t what private situation eliminate clearly. sort drive so that’s the think that it’s reality and to into guess,

George Zoley

beds. And of by capacity. to that by that private BOP recollection, ICE, beds. time within to ICE. one facilities there we directive sector Marshal Yates was XX and BOP, one for Sally capacity. It renewal impacted up my to never the facility reduced then the was XXX recontracted memo. of the The I memo never actually, any XXX lost and day period, to those to reduced our of any under about was my approximately same recollection, we beds only a very was The that believe our time capacity Even XX reduced facility, Service was And

Jordan Sherman

in the stand just I those – state anything just you’ve about percolating – on opportunities. state incremental where Okay. front. – there talked state And then wondering is if still of any was

George Zoley

we beginning take we’ve to in the an probably are company other the of that’s this experienced scheduled I will second aware for and growth is projects we largest large-scale the facilities. place they are scale non-public the ever on half There three this process as Alabama, RFP that time. think meaningful place a year. most take that already that at comment financially growth over of But that we’re In of can’t the have of

Jordan Sherman

Perfect. Thank you.

Operator

comes of Instructions] David next Stuehr [Operator Please ahead. from go Today’s question Longfellow.

David Stuehr

follow-up a environment. just political question that Yes, regarding on the

up can the gotten that the the going pall of the the overall the hostility negative to you, soon, I context also, faces. not One reality think what the all environment, election And headlines thing hostile, has is away things, dialogue, more XXXX. that’s in restrictive and political anytime that we company I your One certainly all lending of That’s the that. leading agree is the agree on with industry faces.

an harder a needed it more true not, just seems operating there’s the So with to be money. few risk it regards lending environment. – get maybe elevated environment or would because particularly whether whether the really It it’s political comes and like of restricted to

times question the is, I’m REIT the by so reduce sense. my about much curious you still though because say XXXX, end company under real at your can kind even that you only structure of leverage So debt the does make REIT context. X.X of of

– facing every I a just thoughts perspective talked debt what down to when operating just you’re a sense on in operating status from your use from as ever survivalability worst-case possible an scenario as pay curious administrative a to perspective, I’m and forward, if that’s the you’ve on to quite yourself position, make just give changeover cash about eliminate more mean flow going flexibility under that. REIT much years knowing four more rapidly you that, flexibility

are trading, market? have you in, the ever the And of then buying open potentially where my price question bonds your discussed second those given is, in

George Zoley

we snapshot first believe REIT reconsideration would XX of view likely On months. events that are a recent the question, serious have given I to status of last our don’t

to the go under security Democratic think this because providing don’t sector that country. Republican sector continued is was and going the plays of successful both. grow I under administration. administrations, reduce private to attempt And one with you not in in private major to growth of If XX-year away particularly role Democratic that a at need, for our history look dealing we’ve the requirement that

of many whom border, is billion South that needs do a X orderly to to I want Southern for process there it this – in them be long that and think borders And to live people, who live the porus a so. an to and failed Our country of states to it border come of no it. need ones our their company parties but cases. our facilities We in taking plays are – provide immigration policies those that these role reach fewer just facilities to to held processing both – happen, pending these outcome of that the centers better permit refinement care of few selected to in for

As artificial flat-screen I they’re they need XX the service is for There that’s years. been go away. said, those amenities have air-conditioned, for facilities soccer fields. going turf are very clean, them, don’t have providing I are think ICE TVs, that to comfortable they we’ve for and

not to temporary, that will our of revise rhetoric who structure down we heated wins. after that the hope We’re next the a because election is regardless going die situation

Brian, you can say something about that.

Brian Evans

considered help of and market, will capital consideration advantage or make our that stabilize mean, in of is we I that on and time. the dislocation the the continue needs to and is to pricing repurchasing at appropriate at around take the availability something bonds, we had and decision that On what based some the think of that look

David Stuehr

very Okay. you much. Thank

Operator

comes Andrew Berg Advisory. our of from next ahead. And Post Please today question go

Andrew Berg

Thank Has you. been answered.

Operator

from go next question of Capital. our And ahead. Please SRC Walt today comes Sosnowski

Walt Sosnowski

On are call. my Thanks to coverage, what sell-side on coverage? trying get your for new thoughts future taking sell-side potential

Brian Evans

shops. analyst with smaller working equity We’re number of a

those call. of the on are folks listening actually some think I

those quarterly not predict we’re some but by we’re we’ll So or I stages call, of whether process of developing have of can’t the developing those relationships. the in the relationships. of some early next in any

Walt Sosnowski

Okay, great. Thanks.

Operator

the remarks. to management And would gentlemen, ladies I this like and for turn over any team final back question-and-answer concludes the to the conference session.

George Zoley

this look forward three We Thank Okay. addressing in months. you to in Thank you again for call. once participating you.

Operator

Thank you you, we now for attending conference presentation. thank today’s sir. all has Today’s and concluded,

have disconnect day. wonderful your now lines, may You and a

The GEO Group, Inc. (GEO) 30 Jul 192019 Q2 Earnings call transcript