GEO - Earnings call transcript Q3 2019

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Operator

Good day, and welcome to The GEO Group Third Quarter 2019 Earnings Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Mr. President-Corporate Vice Executive Paez, Relations. Pablo Please go ahead.

Pablo Paez

Services. are operator. joining David President us you, third Brian XXXX us Evans, Secure Good Executive Officer; of and The of morning, for you quarter GEO today With results. Schlarb, thank Chief and earnings Zoley, for Officer; Donahue, Group's Chairman Chief everyone Geo Thank George Ann today's President Financial of discussion and Care; GEO

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

We our conclude a session. at will call the question-and-answer being This with also is webcast conference investors.geogroup.com. investor call live on website

issued we information morning. basis to Today in information. basis results basis from we is included non-GAAP and non-GAAP this discuss GAAP release the A will press reconciliation disclosure supplemental

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

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

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

George Zoley

Pablo you, and Thank good morning to everyone.

units. which We our business third by driven were results, positive are continued with across financial pleased diversified very quarter trends our strong

we are at continued our While unchanged this the growth, we quarter guidance expect keeping financial for time. fourth

cash flow which significant of activity, future expect we we will a had During drive quarter, level the third growth. startup

beds. reactivation of projects involved facilities previously-idle Importantly, the totaling these X,XXX startup

Bureau Reeves company-owned facilities of the ICE October Federal activated South our with X, and these company-owned contract we X,XXX-bed Michigan full and County, September, reactivation our the completed are Lake center. Texas detention And fixed-price X In X. of XX-year North facility complex term county-owned Louisiana Both correctional processing Prisons. the we X,XXX-bed the X,XXX-bed of for

Internationally, at expansion construction process completing and secure services the been combined joint centers venture of for are as have and we the under Ravenhall In delivery to pleased negotiations on Junee our XXX respectively correctional of a continued contract are the the Australia transportation XX-year beds. approximately we known UK, two in our and contract. in GEOAmey projects PECS awarded totaling

GeoAmey We have since our XXXX. provided secure PECS through joint services the contract transportation under venture

We XX vehicles X,XXX to involving proud specialist new contract been XXX professional deliver are have transportation this high-quality and awarded XX-year staff, hubs. to services

respect U.S. year. Service ICE With in the XXX-bed have to the Marshals California California. the end government-owned Centro, activity management of award contract the solicitations to and both recent procurement for the U.S. El issued before U.S. The in Marshals facility expects a

the San under X,XXX of in at and a procurement month areas ICE a minimum beds And Angeles, expects Diego facilities. approximately existing Francisco San award issued to last Los

as This Adelanto procurement California. re-bid of in processing mid-December contractor-operated Verde/ICE this contracts centers year. Mesa our is at and other a expected to result involves existing starting contracts in of well in new facilities It as long-term

in those proposed areas for It three be also the existing other allows of to facilities state.

of state of media, the for facilities. correctional been facilities has partnership federal public-private, California the widely-reported in out, legislation contracts state the phasing at operation enacted As and aimed recently

the contract Department of our have we was and of California As already Corrections facility announced, Central end discontinued the previously at by for our September. Valley Rehabilitation

July being discontinued View California X, the by, contract corrections to expect April Desert the Golden discontinued State XXXX. facility facility for we that by contract followed our X by And XXXX, be

and patrol caused recognize of facilities. of our handful proposals debt award by All has of our future financial submitted. overcrowded we announcement and And been ICE's the We discontinuing coverage institutions equity that border financing ICE are And have a our awaiting, markets. review now media volatility decisions. in

has volatility a ICE. driven quality and by been provider service role, long-standing of to false as a this mischaracterization Unfortunately, deliberate our narrative

we manage said that As do unaccompanied, house not facilities. repeatedly, any we Border minors facilities have Patrol nor holding any

ICE behalf safe a and and services provide national organizations highly-rated centers by are residential high-quality, culturally-responsive of manage accreditation The humane we on in environment.

ICE processing a fields. housing GEO's of outdoor and turf center include flat with typical units in cellular amenities either of TVs, covered dormitory pavilions, screen artificial comprised areas rooms or the combination soccer multipurpose

provided at full hot services and access healthcare our The XX/X clothing, residents of with staffing processing and legal is than services. that approximately centers state to facilities. XXX%, our access to telephones are ICE meals more Healthcare correctional

have with to limited who numerous provide for health healthcare access appropriate The to treatment health needed arriving additional mental due services. to staffing and individuals needs, healthcare is countries from

We have Obama's administration. the Democratic professional provide and years under our same services, these facilities been that provided under years we successful exact We administrations. services for have President for XX today, Republican at eight in the providing

report to on builds our proud by Rights adopted policy human published of are in end have the XXXX. ESG our global We our first-ever report, Human and board The rights September. at

provides to rights third-party we commitment program, human It The remedies verification our of performance. on performance. inform our use assess human criteria how our employees, And disclosures longstanding rights. and respecting our we compliance to contract

diverse governance The our advance reporting facilities environmental our XX-page practices. in based report ethical ESG on and also of criteria standards efforts related addresses the our sustainability to workforce, development recognized to

our continued ESG was highlights, which or GEO Our expansion of program, report Care of CoC in Continuum the piloted first further XXXX.

by offender services of has facilities integrates been basic including facilities released behavioral support year with program at CoC program to implemented the rehabilitation, community two XX correctional post-release CoC Our federal needs address managed cognitive GEO. This state individuals. and treatment

in to funding leader representing company's income. million the to proud X% of our rehabilitation $XX have net commitment company's as our CoC world and place of program, are offender taken We our

assisting of continuum people justice of GEO criminal The to contribution is our still care X.X the incarcerated. million company's reform some in

in by X,XXX Step people the sentencing resulting vocal expanding are increased will First We advocates prison efforts in society as made citizens. improved and programs approximately new that re-enter possible released. We help funding for Act productive rehabilitation role our reform individuals as applaud the

are rehabilitation people's as to want We programs. significant we been X.X have remain to has million banking But a to capital. partners regarding access misinformation and how access amount of and or individuals to hope still There the who can should more an draw example setting to our done. no be incarcerated we and little attention

We in revolving are pleased without to to have change the successfully extended facility on May, any credit our maturity senior XXXX terms.

banking have and facility. shareholders Our continue institutions lenders that comfort strong in of credit should with dozens take several we our knowing in senior financial to relationships

until new we last discussed flow lending do maturities our we cash we excess earnings continue to expect And during we a lenders Additionally, to who with to not XXXX. us. call, as expressed paying our down relationship debt. And any in debt due establishing talk interest to have apply have

repurchased million open notes of we quarter market. During $XX our senior the in XXXX approximately the

payments cash of We We which X.X% and rate several us new believe also on will annually. our annual financial and to our earnings expect XX-year estate of the that our are stability and results support quarterly closed $XX strong to believe while allow new a our of of that procurement growing our cash bearing dividend sustainability indicative an the deleverage, flows unchanged. million, payments. remain we activity project openings dividend real We interest loan flows for providing

outlook to review Brian I position. will liquidity results our ask financial now Evans and

Brian Evans

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

notes. in reflect quarter senior of and $X.X of startup the loss XXXX third a debt million our of results a pre-tax, real $XXX,XXX repurchase related on on Our expenses to estate $XX million million $X.X gain assets extinguishment the

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

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

trends favorable to income adjusted while quarter. our maintained for AFFO we have our outlook and net Turning fourth to continue, we the guidance expect

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

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

year, a diluted share per per diluted range in and attributable income $X.XX $X.XX revenues adjusted to full to net income annual expect the to net share be $X.XX be approximately $X.XX of For $X.XX in on to to GEO a of of we range billion.

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

$X.XX Moving quarter, tranche repurchased of our during the we of representing senior due approximately senior the for that nearest the outstanding maturity. notes approximately capital have notes which amount of XX% XXXX, to our our structure, third

quarter under of the million loan our estate a X.XX% credit addition facility. Additionally, end capacity revolving in facility million at during of quarter, the an closed million $XXX had real the on credit annually. available $XX third feature accordion senior bearing interest to approximately $XXX At we XX-year under in our we

As facility the or extension to early the able facility our for five we George complete revolving without which of in May changes any maturity mentioned credit approximately extended size We $XXX banks to in million obligates years. the contractually were revolver pricing. all June, to XXXX this

ample directly since out notes stories the senior to extension, volatility have mentioned tied do our new significant we the capacity to provider amount We our George created of heightened banking if recognize the outstanding as our execution and revolver record. equity in take debt to service a that based is to in our have role political XXXX of continue so. our We rhetoric a want revolver's This overall remaining regarding company is as volatility markets. on partners mischaracterization of that our and

information. misleading amount recent which editorial and There banking regarding to our a online has false provided significant capital our also Forbes, access and on been opinion a misinformation partners of including

to several we lenders dozens in capital of to Contrary credit with financial to claims, our continue currently institutions these enjoy and senior misleading facility. access

credit XX% represent borrowing have extend announced handful and not industry, to obligated under plans financing facility banks of contractually total a those are banks GEO's our all only capacity. senior of XXXX May While to those our of approximately arrangements banks through future

flexibility for operations have credit of XX over agencies Further, months. our bank the and have handful announcements or impacted the ratings not changed not our financial

Our cash third we the during flows startup quarter. completed financial X,XXX three quarterly facilities reflect the results and growing for beds across phase

of operating had XXXX. our savings end facility Additionally result January to agreement under at the cash expected payment the in the conclude previously is disclosed of lease million idle annual $XX Hudson X,XXX-bed lease The of as in Colorado this beginning for obligation expiration will XXXX. operating flow we

cash deleverage support payment. our dividend to in growth Continued annual will naturally for allow our flows us while providing

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

CapEx growth mostly requirements CapEx to monitoring in at annually, connection only we from of Aside our currently estimate minimal segment. we approximately million needs, our with $XX $XX electronic million maintenance which expect

million the $XX to while and noted have annually X.X current excess net leverage between paying in expect we our As previously, million dividend down to would we expect end approximately maintaining towards times we decrease And by to debt apply XXXX. cash have of our flow $XX total to payments.

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

David Donahue

our with under you ICE previously-idle agreement facilities quarter. during we in Thanks, an provide to morning as Services everyone. X,XXX-bed our an noted south activated segment, processing Louisiana, with been like completed update the unit. the our Brian. reactivation third intergovernmental Louisiana company-owned federal Good In today, Starting we existing I'd on Louisiana Secure several Basile, business center ICE. has GEO of

the under Louisiana a generate in of North contract Lake Xst facility. company-owned million. $XX on approximately In of annualized X,XXX-bed generate XX-year we revenues. is commenced operations center to million annualized approximately the with Michigan, south $XX expected is revenues to projected Prisons correctional for new contract The reactivation our October of Bureau The

contract X to County relation the operations XX-year the Reeves and support holds with we the worked this the contract of while detention for And BOP in a the and to X,XXX-bed X. provides Texas, with County management Reeves county-owned reactivate the facility, county services center under GEO BOP, with County to also consulting the Reeves facility. in

This California. procurement as solicitation facility has management government-owned the this seismic X,XXX-bed sustained for was of facility a the activity CAR year. activity BOP canceled XX the the at contract earlier by to level, the decision Taft federal damage made result in of California during Turning in the

may While it remain a facility remains possible the the in canceled. solicitation has that been portion operation, Taft of

which for bed procurements is Also and U.S. in XXX-bed government. space. El issued ICE the have facility, and California the Marshals U.S. solicitation The Service a operation issued has for both recent management of by Marshals the the owned Centro

We procurement with before on to made effective be expect of this the January the end a the decision year X, contract XXXX. date of

at solicitation existing Adelanto approximately facilities Verde Angeles, for existing including facilities X,XXX has to issued San Francisco contractor-operated a of Mesa areas. respect procurement our beds and a a the The rebid With centers. contracts ICE for minimum ICE, encompasses Diego of in four XXX-bed and agency the processing Los San X,XXX-bed

also solicitation other allows to facilities existing for The be proposed.

quarter, last corrections California respectively. our discussed Valley the discontinued of end contracts our Department earlier, April XXX-bed noted and And Corrections we facility of XXX-bed Golden for Central September. and will was discontinued and our by by As California Desert at View July George be State XXXX as contract Rehabilitation also XXX-bed the

Moving to services our our correctional able stable without by state budgetary budgets quality have segment, we have impacted to remaining customers being we and believe constraints. state provide been high

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

state several Alabama, to replace which existing beds move with to the are costly. to process forward facilities, and their In expected solicitation is a currently thousand overcrowded build

We are result contract in which in the awards may of the monitoring half first XXXX. opportunity,

announced, previously had which New managed-only discontinued the financially been underperforming detention have contract we for several XXX-bed the we facility, as Northeast at years. Mexico Finally,

are our markets, international to of a a Moving Australia. X,XXX-bed annual In Victoria, the to which is Centre, million. of in number our expansion engaged Ravenhall of in XXX-bed currently revenues expected we result we are at state $XX expansion for negotiations additional Correctional in undertaking projects

of XXX This of at Junee expansion the a Wales, completed South be beds. is capacity the bringing between of are the XXX-bed development year this we total Correctional beginning X,XXX Centre, completing expected the end expansion New the to to In bring of and the in next the expansion revenues expected million. Victoria, will projected $XX at capacity to XXXX. center the Centre, completion are Also which Correctional XXX-bed with total year beds, Fulham to with the constructing we during annual a

GEOAmey XX-year the week for PECS under our Kingdom Office United joint venture U.K. a by the was secure of awarded Home delivery services continued in Finally, the contract program. last the transportation

have been joint home XXXX award testament We this of with high-quality providing U.K. to and office. services the venture our is contract the partnership these since GEOAmey a

criminal transportation depots. for justice England secure in special XXX,XXX X,XXX with encompass will secure XX contract vehicle The staff the system and transportation and approximately XXX individuals across purchase Wales vehicles

our Ann? to segment. At a I'll review the Ann turn over time, this for Care call of GEO

Ann Schlarb

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

quarter, education During contract therapeutic the in third we XX-bed Alabama were expansion our Alabama awarded a facility. new for

Additionally, in were a contract new day awarded for a non-residential Louisiana, center. we reporting

We including services. non-residential continue successfully with in-custody can assist treatment rehabilitation the and areas where reentering individuals residential, pursue to and community, we

our local across programs Moving stable provide alternatives to to our and and rates youth continue important services use for our rehabilitation treatment several states jurisdictions, division, with facilities. across utilization residential

office of contract during administrative the monitoring awarded electronic Our to BI delivery U.S. third electronic the division for a was the of quarter continued solutions the monitoring Courts.

contract rebid decision to the of contract the with of by the a awaiting are ICE. alternatives the year we end for Additionally, detention award

government community immigration alternatives This program individuals allowed use going since first review important held the the this BI to tens through in for has federal of several thousands has contract process. effectively ICE the piloted program XXXX. of

country. we our expand of continue Care to GEO programs the across Finally, Continuum

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

education, and division services, supervised experts treatment, The substance quality to of Care cognitive the Continuum abuse assurance. has matter at of and treatment, Care with with post-release program subject XX Continuum training level over staff behavioral corporate is assisted that expanded a in

approximately day programs. there GEO's are rehabilitation ESG was recently-published highlighted in report, in participants enrolled offender on any As XX,XXX typical our

and million diplomas surpass in Continuum programs equivalency Our to program and X.X in hours, high X,XXX we XXXX vocational Care of delivered certificates X,XXX these on-pace XXXX. nearly school metrics are

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

George Zoley

are our Thank The strong financial and growth. operational driven Ann. company's results remain our you, continuing quality by services of business our and fundamentals

and human committed their in protect treating We been our have respect responsibility respect care and rights. with unique everyone to always we and our to acknowledge dignity

have as and the year. to dispel September going first-ever and are to narratives We to report hope engage forward We our and proud diverse we and our capital refine work have continue human ESG false in this stakeholders, reporting that political ESG of volatility rights published with company the in our created to markets. our regrettably rhetoric in

workforce, effective capital proud to establish annual agencies. We as professionalism dividend years are growing last and XX who of We over helped remain allocation and local have of the the our of while allow will our deleverage federal, our diverse and us providing cash flows provider to leading a professional payments. focused GEO government on dedication to service state believe the support

increasing As the we flow to quarter, down in did on debt expect paying apply our we continue to this quarters. cash coming

and presentation we any address to questions. our completes That would glad be

Operator

Thank you.

will question ahead. Capital. session. Bowler We the comes answer [Operator Xnd now Instructions] of The first go today Dane from Please begin Market question and

Dane Bowler

Hey little you took bit million is securing loan? guys. hoping you the counterparty on more Who loan quarter. out. provide the $XX what and Good properties I'm can a the color are

Brian Evans

banks. Several

few facility. -- on banks who senior our collateral on haven't have publicly that in assets disclosed a it and not We credit are a pool the were included the was we

So, able where do to that's were we it.

Dane Bowler

to capacity you Do properties? that have on do additional any other

Brian Evans

at assets, other know two some one You alternative continuing vehicles. or to so maybe financing look or we're other that smaller-sized

So we'll that. look at

Dane Bowler

you. Thank All right.

Operator

Capital David Management question [ph]. Please next of Ardea comes go The ahead. Napsker from [ph]

Unidentified Analyst

on run there is and contracts the The -- to the way. could answer you I state. property risk Thank in specific a or answer? difficult management in XX some general where how you. it facilities specifically you property? out most Nevada year. April moved question much are your another obviously be years do but two the you just expand have of problem. seems general big And contracts? California, risk have do very if Or May you have that, to you I in Hi. a a specific next just like and I'd California you'd is from they question, it after have just of answer if in have Do from

George Zoley

proposals but contracts facilities. both for are facilities, for submitted they have those owned Well, new

Brian Evans

For Mesa Verde. Desert and View

Unidentified Analyst

Okay.

take So state over to the the property for or…

George Zoley

No. No.

Angeles procurement Diego, indicated I and area. Francisco ICE basic locations, San an earlier, in there's for contracts Los the As new three asking San

We have Mesa submitted They serve and new Verde Adelanto the definitely -- long-term Los Francisco San for respectively we two And existing have facility facilities the that and are area. Angeles the facility. those they contracts. facilities

Unidentified Analyst

Okay. Thank you.

Operator

Instructions] next The [Operator Larson question from Securities. of comes Matthew National

Matthew Larson

for prisons prisons. taking the passed trying Back But with assess or thanks private they to you the you and know wouldn't some perhaps diminish know out internment who of value call. they to if downside that centers be political tried resolution working California, some for Hi, any the in reason one these of put data. private misleading of rhetoric to candidates has the

facility would these thing. which that different you write lose whether there's aging kind it's states of if your other One folks that facilities couldn't sense even like whole the overcrowding. there other facilities would it that own that value, municipalities work yourself have cash-strapped that off they you facility? the of the a for Texas of at plenty some for-profit states. the things and you Because mean But in possibility outlined a a difficult to To with facilities bent some I it's is is the places contract, some reasonable Alabama, draconian most reason as on for if new buy be and just not of they have if is build -- and you though have so

it and Plan work Would elected. the -- So just wrong a B, your of the to to be the the option might sell is season investment? you, won't that your customers political the bulk kind the comes got but and with still it's worse if let recover state because an people you've of them it just manage to facility get

George Zoley

think at of at not Well, a you contemplating are time there the have property this that considerable But particular the sale a of time. we're we those are property. -- clearly flexibility alternatives leasing alternatives this I know, but

Matthew Larson

show I to I on the in Okay. you mean I reality. tend mean what stuff often have agree. said trail campaign up doesn't or

upside is All gauge personally I open And still is -- just Guantanamo evident. think know a as pretty to right. Trying that's an you the comment. trying investor but downside. the

for thanks answer. So that

George Zoley

is referenced contemplated submitted. month. we as been solicitation in proposals mid-December according speak. the ICE progress next are review of They're and All solicitation the have undergoing to contracts I a new in

Matthew Larson

on I touch to I've down what in passed just on admit totally because was I haven't Can that California. got drilled

a group, renew detention beginning passed they in Newsom's Gavin basically private initiative or contracts just for of -- not think next prisons some I state beginning year as would sort that centers.

now California are work and for know you're lot out and bids yet a state domiciled maybe in saying of whatever it's memo? what-have-you. so might ICE by that request be there apart contract ICE they And do? the Because Do and California have outside it's issue you from federal of they wants you they but to federal since it's bid, a

George Zoley

there. made statements lot complicated of You a

Let me see can I them. untangle if

the their XX this it facilities all, does year. year. it go of does until X of any But and next terms AB into of contract January January restrict federal First state effective X to or not it's statute effect

its term. that's before So in it can place end the full if length contract go a the of you this have of year, contract

Matthew Larson

it. Got

that’s I Appreciate good Okay, mean, piece information. Thank you. it. of a

Operator

Management. question today next comes Fargo Maya Sarda from The go of Please ahead. Asset Wells

Maya Sarda

already answered. actually My was question

George Zoley

you. Thank Okay.

Operator

our session. to closing remarks. conference for This like question-and-answer back would George to turn Zoley Mr. the concludes I over any

George Zoley

for next you you to conference quarterly on Thank look today. listening forward all call. the We addressing

Operator

now is conference for today's concluded. Thank presentation. attending The you

You may now disconnect.

The GEO Group, Inc. (GEO) 5 Nov 192019 Q3 Earnings call transcript