Good day, and welcome to the GEO Group Second Quarter 2021 Earnings Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask Please note this event is being recorded. I would now like to turn the conference over to Pablo Pajos, Executive Vice President of Corporate Relations. Please go ahead.
Thank you, operator. Good morning, everyone, and thank you for joining us for today's discussion of The GEO Group's 2nd Quarter 2021 Earnings Results. With us today are George Zoley, Executive Chairman of the Board Jose Gordo, Chief Executive Officer Brian Evans, Chief Financial Officer Ann Schlarb, President of GEO Care and James Black, President of GEO Secure Services. This morning, we will discuss our 2nd quarter results In 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.
Geogroup.com. Today, we will discuss non GAAP basis information. A reconciliation from non GAAP basis information to GAAP basis results is included in the press release and supplemental disclosure we issued this morning. Additionally, much of the information we will discuss today, including the answers we give 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 ks, 10 Q and 8 ks reports. With that, please allow me to turn this call over to our Executive Chairman, George Zoley. George?
Thank you, Pablo, and good morning to everyone. It is my pleasure to welcome our new CEO, Jose Gordo and our new President of Jio Secure Services, James Black, We believe our financial performance during the Q2 is representative of the resiliency and strength of our diversified business segments. Our better than expected performance was driven by continued favorable cost trends as well as higher occupancies at our U. S. Marshals and ICE facilities and increased revenue and earnings from our Electronic Monitoring Segment.
Since the end of the Q1, the census at our U. S. Marshals facilities has increased by approximately 10%. And the overall census at our ICE facilities has increased by approximately 100% during the same period. With respect to the Bureau of Prisons, we completed the previously announced transition of our Great Plains Correctional facility to an idle status in May of 2021.
We are actively marketing our Great Plains Facility and our other idle facilities for use by other state and federal agencies. As we highlighted previously, the President issued An executive order in January of this year directing the U. S. Attorney General not to renew Department of Justice contracts with privately operated Our base case assumption continues to be that our remaining BOP prison contracts will not be renewed, resulting in 2 additional BOP Correctional Facilities closing in November 2021. It is important to note that during the Q2 of 2021, we successfully renewed 5 BOP reentry contracts, which are not expected to be impacted by the executive order.
In fact, we are pleased to have been recently awarded a new BOP contract for a reentry In the Tampa area, which is the first new BOP residential reentry contract awarded to GEO in several years. With respect to the U. S. Marshals Service, we are continuing to cooperate with the agency in assessing various alternatives on how to comply with the executive order, which appears to be focused on direct contracts with private sector service providers. The U.
S. Marshals do not own or operate facilities and instead contract for capacity We operate 3 facilities that are Under direct contracts and nine facilities that are under intergovernmental agreements with the U. S. Marshals. Despite the challenges of the COVID pandemic and the impact of the executive order on our BOP prison contracts, we are pleased with the strong performance of our diversified business segments.
We are proud of our frontline employees who have demonstrated Significant strength and dedication over the past year and a half. They have continued to provide humane and compassionate care to all those entrusted to our Understanding the challenges our government agency partners space and carrying out their missions during a pandemic, we invested significant resources to mitigate the impact of COVID-nineteen, including $2,000,000 in 45 Abbott Rapid Testing Devices and $3,700,000 Just discussed, there have been certain concerns regarding our future access to financing. We have adopted a proactive and multifaceted approach to address these challenges. We believe these initiatives are in the best interest Our shareholders and other stakeholders as we work to address our debt maturities and enhance long term shareholder value. At this time, I'll turn the call over to Brian Evans to address these initiatives in more detail and review our results and guidance.
Thank you, George. Good morning, everyone. Today, we reported 2nd quarter revenues of approximately $565,000,000 Net income attributable to GEO of $42,000,000 Our second quarter results include $7,500,000 pretax and one time employee restructuring expenses, a $3,000,000 pretax loss on real estate assets And a $1,700,000 pre tax gain on the extinguishment of debt and $100,000 in the tax effective adjustments to net income attributable to GEO. Excluding these items, we reported 2nd quarter adjusted net income of $0.42 per diluted share and AFFO of at our U. S.
Marshals and ICE facilities and increased revenue and earnings from our Electronic Monitoring segment. Moving to our outlook. We have increased our full year 2021 financial guidance to reflect these better than expected results. We expect full year net 2021 net income attributable to GEO to be in a range of $167,500,000 to 174 point $1,000,000 on a full year 2021 revenues of approximately $2,230,000,000 We expect full year 2021 adjusted net income to be in a range of $1.34 to $1.40 per diluted share. We expect full year 2021 AFFO to be in a range of $2.51 to $2.57 per diluted share.
We expect full year 2021 adjusted EBITDA to be in a range of $441,500,000 to $448,500,000 As we had previously guided, our 2021 projections account for the expected non renewal of 2 additional BOP prison contracts, The Big Spring and Flightline facilities in Texas, which have options periods expiring at the end of November. For the Q3 of 2021, we expect net income attributable to GEO to be in a range of $39,000,000 to $42,000,000 On quarterly revenues of $548,000,000 to $553,000,000 We expect 3rd quarter 2021 AFFO to be between $0.62 $0.64 per diluted share. For the Q4 of 2021, we expect net income Attributable to GEO to be in a range of $36,000,000 to $40,000,000 on quarterly revenues of $538,000,000 to $543,000,000 We also expect Q4 2021 AFFO to be between $0.59 $0.63 per diluted share. Moving to our capital structure at the end of the second quarter, we had approximately $483,000,000 in cash on hand, resulting from the previously announced drawdown Our decision to draw on our revolver was a conservative precautionary step to preserve liquidity, maintain financial flexibility and obtain additional funds for general corporate purposes. We will revisit the revolver drawdown at the end of the next quarter.
Accounting for our $483,000,000 of cash on hand, our net recourse debt currently stands at $2,100,000,000 not including non recourse debt, finance lease obligations or the mortgage on our corporate headquarters. With our current cash on hand and improving financial outlook, we expect to continue to proactively examine our options to address our funded recourse debt in due course, including our near term maturities, which encompass our 2023 2024 senior unsecured notes in our senior secured credit facility. Our earnings and cash flows have continued to exceed our prior expectations, and we believe we will be able to address our debt maturities in due course on reasonable terms. We recognize there have been concerns Regarding our future access to financing, we have adopted a proactive approach to address this concern as we continue to focus on debt reduction and deleveraging. In 2020, we reduced our net recourse debt by approximately $100,000,000 During the first half of twenty twenty one, we further reduced net recourse debt by approximately $105,000,000 representing significant progress toward our previously articulated goal of reducing net recourse debt by between 125 and $150,000,000 in 2021.
We intend to remain focused on debt reduction and deleveraging during the second half of the year. Given our improved financial performance, we are increasing our target range for net recourse debt reduction to at least $150,000,000 to 100 and $5,000,000 in 2021. Our multifaceted strategy also includes various initiatives we have previously announced, including our exploration of potential asset sale opportunities and our engagement of financial and legal advisors to assist us in reviewing capital structure alternatives. As mentioned on prior earnings call, we suspended our quarterly dividend as our Board continues to study our corporate tax structure. We expect to conclude our evaluation in the Q4 of 2021.
And if we decide to maintain our REIT status, An additional dividend payment may be required before year end in order to meet the minimum REIT distribution requirements under the tax code. The substantial majority of such dividend would be paid in stock and the remainder would be paid in cash. With respect to asset During the first half of the year, we completed the sale of 3 real estate assets in our reentry segment, totaling approximately 700 beds. On July 1, we also completed the sale of certain non real estate assets in our youth services segment. On a combined basis, these sales generated net proceeds of approximately $27,000,000 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. It is my pleasure to join you today to provide an update on our GEO Secure Services business unit. During the first half of twenty twenty one, Our frontline employees have continued to address the ongoing challenges associated with the COVID-nineteen pandemic. Throughout the global pandemic, we have implemented several mitigation initiatives.
Our secured services facilities put in place policies 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. We continue to exercise paid leave and paid time off policies to allow our employees to remain home as needed. We have made face mask and cleaning supplies available to all of our facilities. We made a significant Screen new arrivals and intake so that positive COVID-nineteen cases can be properly quarantined and isolated. Through the end of the Q2, we administered over 137,000 COVID tests at our secure services facility.
We also invested $3,700,000 to install bipolar ionization systems at select secure service facilities to reduce the spread of airborne bacteria and viruses. Over the course of this year, We have been working closely with our government agency partners and local health departments to make vaccinations available at all of our facilities. At the end of the Q2, over 26,000 COVID vaccinations had been administered at our secure service facilities. We are continuously evaluating our mitigation steps and will make adjustments based on updated guidance by the CDC and other best practices. With respect to our recent operational activity, in May, we completed the previously announced Ramp down and deactivation of our Great Plains BOP facility in Oklahoma.
As we have discussed, In January of this year, the President issued an executive order directing the U. S. Attorney General to not renew Department of Justice contracts with privately operated criminal detention facilities. As a result, we continue to prepare operationally with the that our remaining Prism contracts with the BOP will not be renewed when the current auction periods expire, including our Big Spring and Flight Line facilities in Texas, which expire at the end of November 2021. During the Q2, we experienced an increase in census levels across our U.
S. Marshals and ICE facilities. As we have noted previously, unlike the BOP, the U. S. Marshals do not own and operate their facilities.
The U. S. Marshals contract for bed capacity, which is generally located in areas near federal courthouses to house pretrial offenders who have been charged with federal crimes. The U. S.
Marshals contract for That are under direct contracts and 9 detention facilities that are under intergovernmental agreements with the U. S. Marshals. The 3 direct contracts are up for renewal at various times over the next few years, including one in late 2021. We are cooperating with the U.
S. Marshals to assess various alternatives on how to comply with the executive order, which appears to be focused on direct contracts. With respect to our ICE processing centers, The executive order did not cover agencies outside of the Department of Justice. Our ICE processing centers are highly rated by national organizations and provide high quality services in a safe and humane environment. All those entrusted to our Care provided culturally sensitive meals approved by a registered dietitian, clothing, 20 fourseven access to healthcare services and full access to telephones and legal services.
Recreational amenities at our ICE Processing Centers Following a protest of procurement, we were able to retain the management contract for the Moorhaven facility and will transition the Graceville and Bay contracts during the Q3. Finally, with respect to new procurements, we will be responding to the State of Arizona, which has issued a request for proposal
During the first half of the year, our facilities and our employees have remained focused on our COVID-nineteen mitigation strategy. All of our residential facilities have put in place quarantine and cohorting policies and additional entry screening measures. We have focused our efforts on increased sanitation, testing and deploying face mask. And our employees Our employees have continued to strive to deliver high quality rehabilitation We Renewed 14 residential reentry contracts, totaling more than 2,300 beds, including 5 reentry contracts with the Federal Bureau of Prisons. Included the sale of certain non real estate assets Total consideration of approximately $10,000,000 This sale resulted in the assignment of our youth services management contracts to be independent not for profit entity.
GEO Care retained the ownership of our youth services real estate assets And have entered into lease agreements for the 6 company owned We remain optimistic regarding future growth opportunities for BI, which provides a full suite of electronic monitoring Continuum of Care program, which integrates enhanced in custody rehabilitation, including cognitive behavioral treatment with post release support services such as transitional housing, transportation, Clothing, food and job placement assistance. Our GEO Continuum of Care program is part of GEO's contribution to criminal justice reform. Program is not in competition or in conflict with other national initiatives regarding offender sentencing reforms. In fact, we applaud these efforts. Our efforts seek to draw
We're also going to have further investment in our Ford Plus plan as we launch our new products and we continue to focus on our customers through connectivity and digital services
to pursue additional quality growth opportunities. At this time, I'll turn the call to our new CEO, Jose Gordo
Thanks, Ann. It's my pleasure to join George with
those foundational strengths with the disruptive technologies
Despite the challenges associated with the COVID-nineteen pandemic and the recent federal policy actions leading to the non renewal of some of our contracts. We recognize that there have been concerns regarding our future access to the Look at administrations and under legislative branches controlled by both parties. And we believe that our company remains resilient with strong earnings and cash flows that are supported by valuable real estate assets
Maybe just Mildly extending the maturities a bit just in case rates do go the other way in the midst of impending inflationary fears. So we've tried to hedge that a bit. But clearly on the asset side, we remain Asset sensitive, but that world might be changing just a little bit as we change the mix in our balance sheet.
Yes, I think we saw a $30,000,000 decline in total deposits this quarter, Really the first decline we've had in, gosh, 5, 6 quarters. I would suspect we'll probably see a similar decline here in Q3, And then it will start to stabilize a bit. I just think the consumer is going to spend a little bit of the money that they have in their DDA accounts and we've seen some of our business
We've seen some of these lower occupancy levels. And also I think we've seen a decline in the level of expense associated with some of the Interventions or measures that we had to take to mitigate COVID. We're still experiencing those costs, but they're not as significant maybe as they were historically.
Are we or have we broken Drew, the contracts, the minimum level, guarantee payment levels. And what are your guys' thoughts on the potential removal of Title 42 for Single adults coming across the border.
With regard to Title 42, As revealed most recently in the media, I think there's been a But if it is reversed, we would expect that it would increase the population levels at our ICE facilities. Need For separation of individuals who may be affected with COVID. But we've noticed a slight uptick In our own BOP facilities and We're watching that and we are It's up to them and I'm sure the COVID situation has something to do with their planning.
Okay, great. And one last State level In the near to medium term that you guys would be looking to bid on?
Our next question comes from Mitra Ramgopal with Sidoti, please go ahead.
Yes. Hi, good morning and thanks for taking the questions. A material effect on populations and maybe
ratcheting it up Ratchet, is up back of some
of the expenses you might have been able to eliminate this last quarter?
Well, like I said earlier, we have we've assumed some of the benefit from the cost savings that we've seen, but we continue not To take all of that into account,
Could you maybe just provide a little color on the restructuring expense you saw in the quarter?
That are embedded in that plan and hope to achieve those milestones Objectives within 9 to 12 months.
Okay. Thanks. And as it relates to maybe right now
you dedicate towards paying down debt and how fast do you think you could start paying down the senior notes?
Well, as we said, this year, we're Status is a REIT and that's Part of what we're evaluating through the balance of this year and we'll determine what we expect our
Our next question comes from Kirk Lutke with Imperial Capital. Please go ahead.
Hello, everyone. Can you hear me?
Out of the calculation for the full quarter, then you don't have the impact of the idle beds. But for facilities that were in place for part of the quarter, you have I think that's skewing the number some.
Okay. Thank you. I appreciate that. A quick question on monitoring. Is the growth CapEx That you spend there, is that required under the contract or is that CapEx you can cut off if the growth rates don't materialize?
So some of the CapEx there, the growth CapEx as you would expect is
Yes, it makes sense. Well, maybe they asked a little bit differently. If the growth doesn't materialize, what would the cap what would you expect? Can you give us a range as to what CapEx would be for monitoring?
On an ongoing basis, I think Including the transition to the new cellular technology over the next couple of years.
That is is that something I know these were reentry facilities, but is that a way To value or substantiate the value of the other idle facilities, is there any reason why that would not be a good methodology to use?
It's really I don't think there's enough there to be able to Spectrum of services in the Electronic monitoring is in the non secure setting. There is some overlap between separate contracts and separate RFP processes and all of the electronic monitoring business is Separate contracts, RFP processes and really has the most the EM business has the most broader diversified
In Colorado, I think approximately 300
people. Interesting. Do you disclose the split Mandays by customer anywhere or would you?
No, our mandates are provided, I think, between our
After the facilities, somebody for HVAC, somebody for Plumbing, somebody for electrical and security devices, And then the primary start up costs Are for people. It's hiring the people and getting them trained to take on their jobs and That usually takes 30 to 60 days.
So you don't staff other than the maintenance crew that you discussed?
Yes.
Okay. And then just switching gears, on a dividend, What percentage would need to be in cash to maintain the REIT status and how much could be in kind?
Well, the current rules right now, I think, are the minimum split is eightytwenty. So you can go Above that, but you can't go less than that. So 20% at least has to be in cash to Maybe a little north of that of our revenue is not tied to our real estate.
So I'm wondering what's been driving that and then if you can talk about what do you think the outlook for those censuses are? That's right. I mean, I don't know what's driving it. It's people crossing the border.
Yeah. We don't know exactly. We would assume that the border crossings have a lot
go up, We should seek continued rise in census?
I think so because That is wanted for crimes in the U. S. For instance And he crossed the border. They are required by law to detain them. They can't just send them back to Mexico.
So there is a certain class of individuals that are required to de deetain, and we're apparently just seeing more of them
And is it the Western Regional Detention Facility, is that the next Marshalls contract that is up for renewal Discussion? Is that the one where Yes, 20% year over year.
Realign that contract in compliance with the President's executive order.
Has there been any along those lines, has there been any Back on the I guess it was the CoreCivic facility that went from a direct
Yes. So the state of Hawaii has issued a notice of interest Security prisoners And we think that will likely result in at least 2 separate locations to hold that many high security prisoners.
Because looking for beds forgave, they recently removed some in the Alabama.
Alabama. I know, the mess in Alabama?
Alabama has been trying to develop 3 large field Facilities for I think approximately 3,000 nets, but there was a funding financing with that and
Because they've got a little federal oversight problem at the moment. What else is there? Oh, businesses. Are we exploring the possibility of
What we said publicly is we're looking at asset sales probably in the $300,000,000 range mostly related to idle Facilities are underutilized assets.
Okay, perfect. All right. Thank you very much.
Our next question comes from Oren
Your ATM that you announced on June 28?
We have not used it and we have it available to use if management sees fit or sees appropriate. I said I think what we said earlier is not that we wouldn't use it, just that we would prefer not to issue equity at these prices. We believe that equity is undervalued and we're
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.