CNB Financial Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

There are 12 speakers on the call.

Operator

Day, and welcome to the GEO Group Second Quarter 2023 Earnings Conference Call. All participants will 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 Paez, Executive Vice President of Corporate Relations. Please go ahead.

Speaker 1

Thank you, operator. Good morning, everyone, and thank you for joining us speak for today's discussion of the GEO Group's 2nd quarter 2023 earnings results. With us today are George Zoley, Executive Chairman of the Board go: Jose Gordo, Chief Executive Officer Brian Evans, Chief Financial Officer Wayne Calabrese, Chief Operating Officer And James Black, President of GeoSecure Services. This morning, we will discuss our Q2 results as well as our outlook, And we will conclude the call with a question and answer session. This conference call is also being webcast live on our investor website be at investors.

Speaker 1

Geogroup.com. Today, we will discuss non GAAP basis information. A reconciliation from non GAAP basis Additionally, much of the information we will discuss today, including the answers we give in response to your questions, may include forward looking statements discuss our financial results 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 be conducting a review of the financial results of various factors contained in our Securities and Exchange Commission filings, including the Form 10 ks, 10 Q and 8 ks reports.

Speaker 1

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

Speaker 2

Thank you, Pablo. Good morning to everyone and thank you for joining us on our second will call the quarter 2023 earnings call. I'm joined today by our senior management team to review our Q2 financial results, discuss our financial provide an update on the trends for each of our business segments. This morning, we reported quarterly revenues of approximately $594,000,000 GAAP net income of approximately $30,000,000 And adjusted EBITDA of approximately $129,000,000 all of which were ahead of the midpoint of our previously issued guidance for the 2nd Secure Services Business Unit and our GEO Reentry Services segment. GEO Secure Services recently renewed contracts for the 2,000 Bed Blackwater River Correctional Facility in Florida in the 2,682 Bed Lawton Correctional and rehabilitation facility in Oklahoma and GEO Reentry Services recently renewed 15 existing contracts for our Residential reentry centers and 12 existing contracts for our non residential day reporting centers.

Speaker 2

During the Q2, we reactivated our 1900 Bed Great Plains Correctional Facility under a new lease agreement with the State of Oklahoma. The new lease has initial term of 5.5 years with subsequent unlimited 1 year options And is expected to generate annual straight line lease revenue of approximately $8,500,000 Our GTI Transportation division also recently entered into an emergency contract to provide air operations support over a 9 month period assuming the contract runs through its full term. We hope to continue to be a strong contender Our diversified business units delivered overall strong operational and financial performance during the first half of 2020 3 despite some headwinds in our Electronic Monitoring and Supervision Services segment. As we have previously discussed, the number of participants in the federal government's Intensive Supervision and Appearance Program, for ISAT has declined since the beginning of this year. However, we have recently seen a slower rate of decline in ISAT participants.

Speaker 2

Additionally, we believe that recent policy decisions could result in an increase in the number of participants being enrolled in ISAT. While the decline in ISAT participants continued throughout July early August, Which was longer than we previously estimated, we continue to believe that the ICEAT participant count is likely to stabilize and then to begin to increase moderately. As it relates to the federal budget for fiscal year 2024, which begins in October 1, The House of Representatives approved their version of the Homeland Security Appropriations Bill in June. The House Bill would increase beds to 41,000 and includes a provision that would require the use of In July, the Senate approved its version of the Homeland Security Appropriations Bill, keeping funding for ICE Alternatives to detention programs. Congress adjourned for their August recess without an appropriations deal in place.

Speaker 2

If a new budget is not approved when Congress reconvenes, Congress could, as we've seen in prior years, approve funding for the federal government in federal will follow the call to discuss our financial results. We believe that under a continued resolution, ICE is most likely to be provided appropriations consistent with the agency's will We are also continuing our efforts to market our current idle facilities to federal and state government agencies. With the recent activation of our Great Plains facility, we now have approximately 9,000 idle owned beds be in our Secure Services segment, primarily comprised of 5 former Federal Bureau of Prisons facilities. We believe that these modern and well located facilities could generate significant incremental annualized Adjusted EBITDA if they were to be reactivated either under GEO Management or leased to state or federal agencies. Our management team also remains focused on reducing our net debt, which is a key strategic priority for our company.

Speaker 2

As we have previously discussed, our objective is to reduce net debt by approximately $175,000,000 per year be on average over the next 2 years, and we remain hopeful to be able to refinance portions of our debt potentially in the next 12 conduct 18 months. I will now turn the call over to Brian Evans to address our financial results and guidance in more detail.

Speaker 3

Thank you, George. Good morning, everyone. As we reported this morning, our Q2 2023 results exceeded our previously issued guidance. We reported GAAP net income of approximately $30,000,000 and quarterly revenues of approximately $594,000,000 We reported quarterly adjusted EBITDA of $129,000,000 and net operating income will see the facility in Oklahoma under a new lease agreement, which is expected to generate approximately $8,500,000 will be $26,000,000 in net interest expense compared to the Q2 of 2022 Moving to our guidance for 2023. This morning, we provided updated guidance for the full year 2023 Our previously issued guidance for 2023 assumed that the number of ISAF participants would stabilize at the midpoint of the year And then moderately increase during the 3rd and 4th quarters.

Speaker 3

Although the number of ISAT participants continued to decline throughout the month of July And in early August, which was longer than we previously estimated, we continue to believe that the ISAT participant count Is likely to stabilize and then begin to increase moderately. We are aware of various recent policy changes It is difficult at this time for us to calibrate the net financial result of the new policies. Consequently, we are taking Perhaps a likely conservative approach in forecasting year end ISAAP participation and financial results. This assumption is the major basis for our updated financial forecast for the balance of the year. We expect Full year GAAP net income to be in a range of $95,000,000 to $110,000,000 on annual revenues of approximately $2,400,000,000 We expect our full year 2023 adjusted EBITDA to be between $490,000,000 $520,000,000 We expect our effective tax rate for the full year 2023 to be approximately 29%, be excluded of any discrete items.

Speaker 3

For the Q3 of 2023, we expect GAAP net income to be between $19,000,000 $26,000,000 on quarterly revenues of $588,000,000 to $603,000,000 We expect our Q3 2023 adjusted EBITDA to be in a range of $115,000,000 to $130,000,000 For the Q4 of 2023, we expect GAAP net income to be between $19,000,000 $27,000,000 on quarterly revenues of $595,000,000 to $610,000,000 We expect our Q4 2023 adjusted EBITDA to be in a range of $115,000,000 to $130,000,000 Our guidance assumes steady performance from our other segments without any meaningful change in occupancy rates at our ICE processing centers, which currently remain below historical levels. Our guidance also does not include the potential reactivation of any of our remaining idle secure services facilities, which total approximately 9,000 beds. Moving to our capital structure, we continue to focus on reducing our overall net debt. Our objective is to reduce net debt by approximately $175,000,000 per year on average over the next 2 years. During the Q2 of 2023, our total debt was approximately $1,940,000,000 and our net debt remain stable at approximately $1,910,000,000 due to the timing of our cash flows throughout the year.

Speaker 3

During the Q3 of 2023, we expect to reduce net debt by approximately $75,000,000 end this year with approximately $1,800,000,000 in net debt and further reduce net debt to approximately $1,620,000,000 by the end of 2024. Our debt reduction estimates for 2023 assume the closing of a sale of a reentry facility for approximately $15,000,000 in the 3rd quarter. We expect to explore additional asset sales We may also consider the sale of some larger secure services facilities if the price adequately reflects their value. However, at this time, our focus remains on marketing our idle secured facilities for reactivation be conducting a new management contract or a lease agreement similar to that of our Great Plains facility in Oklahoma. Our goal continues to be to reduce our overall quantum of debt, decrease our net leverage as quickly as possible will gain more flexibility under our credit agreements to explore options to return capital to our shareholders in the future.

Speaker 3

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

Speaker 4

Thank you, Brian. Good morning, everyone. It is my pleasure to provide an update on GEO Secure Services. During the Q2 of 2023, our Secure Services facilities successfully underwent 51 audits, including internal audits, government reviews, 3rd party accreditations and Prison Rape Elimination Act certifications. 4 of our secure services facilities received accreditation from the American Correctional Association With an average score of 99.4 percent and another 5 of our facilities received Prius certification.

Speaker 4

Our GTI Transportation division and our GEO AAMI UK joint venture completed approximately 4,200,000 miles driven be conducting a call for questions in the United

Speaker 5

States and overseas during the Q2.

Speaker 4

Moving to the current trends from our government agency partners. At the federal level, Populations at our contract U. S. Marshals Detention Facilities continue to be stable. Our U.

Speaker 4

S. Marshals Facilities around the country support the agency as it carries out its mission of providing custodial services for pretrial detainees facing federal criminal proceedings. We believe that all these important facilities provide needed bed space and services near federal courthouses where there is generally a lack of suitable alternative detention capacity for the U. S. Marshals Service.

Speaker 4

Moving to our ICE processing centers. We recently experienced a 20% increase in populations across our facilities since early May. However, Occupancy rates at our ICE processing centers remain below historical levels. As George noted, Congress has left for August recess without reaching a compromise on the fiscal year 2024 Homeland Security Appropriations Bill. Currently, the House version of the bill would fund ICE for 41,000 beds, while the Senate version would maintain funding at 34,000 beds.

Speaker 4

If a compromise between the House and the Senate is not reached, a potential outcome could be the passage of a short term or long term continuing As a long standing service provider to the federal government, we play no role in and have no control over congressional appropriations have a long standing track record delivering professional support services on behalf of ICE and providing secure residential care be consistent with our commitment to respecting the human rights of all of those entrusted to our care. Our ICE processing centers offer around the clock access to quality health care services. Health care staffing at our ICE processing centers is generally more than double the number of health care staff in a typical state correctional facility. Our ICE processing will also offer access to legal counsel and legal libraries and resources, and we have dedicated space be at our centers to accommodate meetings with legal counsel. Our ICE Processing Centers also provide daily meals that are culturally sensitive be approved by a registered dietitian.

Speaker 4

We also provide access to faith based and religious opportunities, And we partner with community volunteers as needed to ensure fair representation of various faiths and denominations. Our ICE Processing Centers also offer access to quality recreational activities. We have made significant investments provide enhanced amenities at our centers, including artificial turf soccer fields, covered pavilions, exercise equipment and multipurpose rooms. We have also historically provided secure transportation services and logistical support for ICE, primarily at 12 of our ICE processing centers. Our GTI Transportation division also recently entered into an emergency contract to provide air operation support for ICE, Assuming the contract runs through its full term.

Speaker 4

We hope to continue to be a strong contender for the currently active procurement conduct a multiyear contract for these services, which presently remains under bid protests. Moving to our state government agency partners. During the Q2 of 2023, we reactivated the 1900 Bed Great Plains Correctional Facility be under a new lease agreement with the State of Oklahoma. The new lease has an initial term of 5.5 years effective May 1, 2023, will discuss with subsequent unlimited 1 year renewal options. Over the term of the lease, we expect to generate Straight line lease revenue of approximately $8,500,000 annually, and we will be responsible for maintenance capital expenditures, 9,000 idle beds in our Secure Services segment, comprised primarily of 5 former Bureau Prison facilities.

Speaker 4

We believe these are very valuable, modern and well located assets, which we are continuing to actively market speak to government agencies at the state and federal level. Also in the state of Oklahoma, we recently renewed our contract for the 2,680 2 Bed Lawton Correctional Facility for a 1 year term effective through June of 2024. And in Florida, We renewed our contract for the 2000 Bed Blackwater River Correctional Facility for a 2 year term effective through October of 2025. Our state correctional facilities deliver high quality support services across 7 states, including enhanced rehabilitation programs on behalf of correctional departments in Florida, Georgia, Indiana, Oklahoma, Arizona, New Mexico and Virginia. Finally, with respect to our international markets, we have begun delivering primary health services across 13 public prisons in Australia under our new healthcare contract with the state of Victoria.

Speaker 4

This new contract commenced on July 1 And is expected to generate approximately $33,000,000 in annualized revenues. At this time, I will turn the call over to Wayne Calabrese for a review of GEO Care.

Speaker 6

Thank you, James. I'm pleased to provide an operational will update on our GEO Care business units starting with our reentry services division. During the Q2, our reentry services facilities successfully underwent 33 separate audits, including internal audits, government reviews, 3rd party accreditations And PREA certifications. 5 of our residential reentry centers received accreditation from the American Correctional Association, With 4 of those centers receiving perfect scores of 100%. We also renewed 15 residential reentry conduct, including 5 with the Federal Bureau of Prisons as well as 12 non residential day reporting center contracts, will be available for the full year 2020.

Speaker 7

The reentry centers provide transitional housing

Speaker 6

and rehabilitation programs for individuals reentering their communities across 14 states. Be conducting a presentation. Our non residential and day reporting centers provide high quality community based services, including cognitive behavioral treatment Outcome reports generated for several clients continue to demonstrate the positive impact of these centers in terms of risk reduction, employment gains and sobriety gains for participants with program completions increasing during the Q2 of the year. Moving to our GEO Continuum of Care and In Prison Programs division. During the Q2, we delivered enhanced be in custody rehab and post release support to an average daily population of approximately 2,600 Individuals at 31 in prison programs and approximately 20,400 individuals at 13 Continuum of Care sites.

Speaker 6

Our in custody rehabilitation services include academic programs focused on helping those in our care attain high school equivalency diplomas. We've made a significant investment to equip all of our classrooms with smart boards be conducting vocational programs that not only lead to certification when completed, but are also based on market job placement needs. Our substance abuse treatment programs are an important piece of our rehabilitation services because many of the individuals in our care suffer from addiction. Our facilities provide extensive faith based and character based programs as well. And we have designated faith based and character based housing units or dorms across our facilities to enhance the delivery of these programs.

Speaker 6

Overall, we completed more than 670,000 hours of in custody rehabilitation programs During the Q2 of 2023, our academic programs awarded approximately 830 high school equivalency Diplomas and our vocational courses awarded approximately 9 30 vocational training certifications. Our substance abuse treatment programs awarded approximately 2,000 program completions and we achieved approximately 5,000 behavioral program completions and more than 3,300 individual cognitive behavioral treatment sessions. During the Q2, we also allocated over $350,000 to post release services to support approximately 500 individuals released from GEO facilities as they return to their communities. Our GEO Continuum of Care integrates enhanced in custody rehabilitation, including cognitive behavioral treatment We believe our award winning program provides a proven model on how the 2,000,000 plus people in the United States Criminal Justice System can be better served in changing their lives. Finally, turning to our Electronic Monitoring and Supervision Services segment.

Speaker 6

Our BI subsidiary provides a full suite of monitoring and supervision solutions, products and technologies on behalf of federal, state and local agencies across the country. At the federal level, since the beginning of this year, We've experienced a decline in the number of participants required to be monitored under our ISAP contract with the Department of Homeland Security. However, we've recently seen a slower rate of decline in ISAP participant numbers and we believe that recent policy decisions Could result in an increase in the number of participants being enrolled in ISAT. BI has provided technology solutions, Holistic case management, supervision, monitoring and compliance services under ISAP for almost 20 years. Under BI's tenure, the federal government's supervision and appearance program has achieved high levels of compliance be using a variety of new technologies and case management services over that period of time.

Speaker 6

As we continue to promote innovative Solutions under this important program, we are working with ICE to conduct 2 pilot programs for BI's VeroWatch. ViroWatch is our new wrist worn GPS tracking device, which provides government agencies with additional means of achieving compliance With their established policies and objectives, we are actively marketing this innovative new product to government agencies across the country. And at this time, I'll turn the call over to Jose Gordo for closing remarks. Thanks, Wayne. In closing, our diversified business units delivered strong financial and operational

Speaker 8

And I'm positioning our company to refinance portions of our debt in order to reduce our interest costs and gain the flexibility to potentially return capital to shareholders in the future. We believe we have several potential upside opportunities, including increased populations at our ICE processing centers and or increased number of participants enrolled in ISAP, The activation of additional idle secure facilities where we have a total of approximately 9,000 available beds either under geo management or under lease to state or Federal agencies, new managed only contract wins by our reentry, electronic monitoring, secure transportation or international divisions and The opportunistic sale of non core assets. We also expect to continue to selectively pursue new areas of growth, both with our current government agency clients as well as with new clients and or in service lines that are adjacent to or complementary with our existing business. Will In seeking these future growth opportunities, we plan to leverage our successful track record and the talent of our employees, who we believe are the best in our industry. We believe our valuable assets underpin a compelling valuation case for our company.

Speaker 8

We own approximately 45,000 beds at secure facilities that we believe are generally more modern and better located than many of the existing public facilities in those geographic markets. We believe that the aggregate replacement value of these beds alone based on estimated current construction costs and sales of comparable facilities is at least equal to or in excess of our current enterprise value. And this valuation is before taking into account the significant operating cash flows and real estate values of our other diversified segments, where we have significant assets and substantial market presence. Based on a conservative valuation of these various components, we believe that our current stock price is significantly undervalued, The federal and state levels through both Republican and Democratic presidential administrations for almost 40 years. We do not set political priorities or agendas and we play no role in policy decisions related to our industry.

Speaker 8

Instead, we remain steadfast in our commitment to being a consummately professional organization that our clients can trust with complex, be resource intensive and critical projects and that prioritizes the well-being of those entrusted to our care. We are proud of our over 18,000 employees worldwide who carry out our mission on a daily basis with great purpose and professionalism. And we stand ready to continue to meet the future demands of our clients as they may continue to evolve. That completes our remarks and we would be glad to take questions.

Operator

Begin the question and answer session. The first question today comes from Joe Gomes with NOBLE Capital. Please go ahead.

Speaker 7

Good morning and thanks for taking my questions.

Speaker 3

Good morning, Joe.

Speaker 7

So wanted to start out, I said you see a 20%, I believe, increase in population since the ending of Title 42. I know that most of your guys' ICE facilities will operate under minimums. So what is the occupancy levels at those facilities now? Are you past the minimum level so that if you were to receive additional populations, we'd start seeing More of a contribution to the top and bottom lines.

Speaker 2

Many of our facilities do have a minimum guarantee and But there's a few select ones that we are below that minimum guarantee and the Continued increase in occupants will materially will enhance our financial results. But some let me put it more simplistically. Some facilities, Particularly along the southern border are full. Other facilities located in the coastal or northern states are not hold. And as we see the changes in border policies become implemented and the very possibility of more people coming across the border as temperatures cool in particular, We think the populations may continue to increase.

Speaker 2

So put a short answer. Some are already full, but others are not and we have plenty of capacity.

Speaker 7

Okay. Thank you for that. And on ISAP, I understand what you said today in terms of the numbers have Declined for a longer period of time than I think than you were originally anticipating. But what gives you confidence That participant level will either stabilize or hopefully go back up in the second half of this year.

Speaker 2

Because of a combination of different policies that I really don't want to go into detail in because we're really not authorized to discuss DHS policies. But we are aware of these policies and will be in effect provide for a wider use of the alternatives to Detention programs as well as a shifting of where participants are in that Program and what monitoring devices they may be using.

Speaker 7

Okay. Thank you for that. And then If I read my numbers correctly here quickly, looks like operating expenses were about 72% of revenue, which is up from A little over 71% in the Q1. And again, if my numbers are correct, would be about the highest level since Q1 of 2021. I was just wondering what if there's anything particular that you could point out That drove that operating expense level higher in the Q2.

Speaker 3

No, I don't think so. I do think that you have Some normalization of higher wages and more staff being brought on board. So you're going to see some of that. And then The decline in the accounts in the ISAT program, that's a higher margin Segment, so that's affecting that as well.

Speaker 7

Okay. And then one last one for me and if I get back in queue. Not quite sure if I heard you mention will The net debt level this quarter, it looks like, again, if I'm running my numbers correctly here quickly, It went up sequentially, the net debt level. Is that accurate? And if so, what was driving that?

Speaker 3

So I think as I discussed and maybe George mentioned, quarter over quarter the net debt is about the same. It was up like 5,000,000 That's mainly just timing of working capital issues. In this quarter, we had a significant amount of interest and principal payment. So we used a lot of cash for that. We accrued it ratably towards this quarter, but we had to lay it out all out this quarter.

Speaker 3

So next quarter, as I mentioned in my remarks, we expect a significant reduction in net debt, about $75,000,000 or so.

Speaker 7

Right, right. Okay. Thanks for that, Brian. Appreciate you guys taking the time to take my call. Thank you.

Operator

The next question comes from Brian Violino with Wedbush Securities. Please go ahead.

Speaker 9

Hi, good morning. Thanks for taking my questions. Just on the ISAT program, based on the current funding level, and assuming that, That continues over time, I guess. Is there any sort of minimum participant count that you're able to disclose based on the current funding level?

Speaker 2

No, I don't think there is. I don't think that's ever been discussed will

Speaker 9

Okay. Yes. And then on State partners, I guess, is there anything notable to report on any per diem increases with state partners or any potential newer State County partners in the pipeline.

Speaker 2

Periodically, we have renegotiations, particularly with our federal partners regarding increased Department of Labor wages that have to be applied to our facilities and there's contract modifications that implement those increases at the state level. Most of the states have a July 1 fiscal year starting point. So they'll be beginning the process of Establishing their proposed budgets for the following year and we will in select cases be making requests for Additional funding for our facilities that typically relate to increased wages Due to market conditions or increased medical service costs, again related to either The pandemic or market conditions for wages on healthcare staff.

Speaker 9

Understood. Thanks. And just one more, if I could. On the, there was a comment about providing air operation support I just made earlier in the call and I believe it was $16,000,000 of revenue. I was just curious, is that something that's going to start immediately in the Q3?

Speaker 9

Is there any Incremental investments needed and then, I think there's a larger contract that's out for bid.

Speaker 2

I was just curious

Speaker 9

what kind of opportunity that could be?

Speaker 2

Yes. The contract that we referenced today was an emergency contract, in which we were a subcontractor to a prime, our role was to provide the security staffing on the airplane that travel either domestically or internationally. So we are a subcontractor to a prime That was awarded an emergency contract. That contract can run, I think, 8 or 9 months, until a decision is made Regarding the procurement that is a long term contract, That procurement has been protested by several of the competitors or proposers be submitted to the procurement, including our team, it's comprised of the prime that we are involved with As a subcontractor. So we are one of the protesters in that procurement, We are presently involved with our prime partner providing the services over the course of the next up to 8 or 9 months.

Speaker 3

Thank you. Appreciate it.

Operator

The next question comes from Brendon McCarthy with Sidoti. Please go ahead.

Speaker 10

Hi, yes. Good morning and thank you for taking my questions. First one here, I'm just looking at ICE populations. I think you mentioned they were up roughly 20% in your facilities. I was wondering, I'm curious is that in line with overall Population increases at total ICE facilities?

Speaker 2

No, I think I said earlier that some facilities along the southern border are full, others away from the border are will still have vacant beds. We have plenty of capacity. Of the 31,000 people that are reportedly be detained in facilities at this time. We have almost 11,000 of those individuals In GEO Facilities. So we have over 1 third of the individuals that are presently being detained are housed in GEO facilities.

Speaker 2

We have 1 third of the market share. And presently, the private sector provide approximately 90% of the detention capacity in the country, with only approximately 10% share going to cities or counties that have contracts with DHS for the housing of detained individuals.

Speaker 10

Got it. That's helpful. And then just regarding some of the idle facilities, I believe According to my notes, some are located in Texas. I'm just curious if you're having any conversations with ICE, just about opening some of those Facilities for the anticipated and increase in ICE populations that we've seen.

Speaker 2

Yes. I think it's fair to say we have several conversations going on regarding different facilities And it usually comes down to a matter of funding and their budgets. So they have to await At the federal level, the new federal budget, which starts October 1 at the state level, it's

Speaker 10

Okay. Okay. And then one more if I may, just on some expense line items. I know will Yes, we talked about operating expenses driven by higher wages, but it looks like there was a large decline in general and administrative expenses. I was just wondering if you could comment on that

Speaker 3

decline. Nothing significant. I think just some maybe lower labor costs Compared to year over year professional fees, especially in the legal department, legal fees. In prior quarters, we've had some higher activity on some of the cases the company has undertaken to defend. So Nothing specific beyond that stuff though.

Speaker 10

Great. Thank you. That's all for me.

Operator

The next question comes from Kirk Lutke with Imperial Capital. Please go ahead.

Speaker 11

Just a couple of follow ups. With respect to the ICE population, you mentioned you have 11,000 people in your ICE facilities. Where did that peak

Speaker 2

Where can it peak?

Speaker 3

Well, what was our peak?

Speaker 6

Our peak population before the pandemic.

Speaker 2

I would say $14,000,000 $15,000 something like that.

Speaker 4

Okay. Thank you. That's helpful.

Speaker 11

What you said, and I was just curious if you could maybe elaborate on that and maybe quantify it.

Speaker 2

Well, no, I didn't say there was a potential for additional ISAP funding. Although that may be the case, there is a potential for increased participation in the ISAT program, which may require additional funding, which would have necessitate ICE having to find that additional funding within DHS or go Congress for that additional funding. But there's different policies on extending participation in the ISAP program and moving people around in the program for Really cost efficiencies because of budget limitations. But those two things in concert would provide for better use of the program, more people on the program and on a more cost efficient basis.

Speaker 11

Got it. I appreciate. Thank you for the clarification. At the state level, there's been some Legislation in some states that would require some more stringent sentencing. What's the outlook for the population in the states where you have a presence?

Speaker 2

Could you repeat that question, please?

Speaker 11

Like, my understanding is There have been some state there's been some state legislation that's basically made increased the minimum sentencing requirements. I'm just curious if you have a what you can say about the trends in state population

Speaker 2

will Where you do business? The trend that we are responding to is one where Different states that have either a growing population or even a stable population are facing physical plant problems with their aging facilities and they're faced with Either having to close a facility and they really prefer not to have to build a facility. So they have an interest in one of our idle facilities because it's a much more cost effective solution for them. So our facilities are by comparison significantly newer and be more modern. They're all air conditioned.

Speaker 2

They have artificial soccer turf fields and the Different amenities that we've discussed, libraries, continuum of care educational programs. So By comparison, our facilities are attractive in the Correctional physical plant marketplace and will be now and continue into the future Because the Sunbelt states in particular have been adding population. They have the older facilities And there are several states that are looking to for additional correctional space that they don't have internally within their own state because of the aging facilities that are going to be very expensive to fix if they can be fixed at all.

Speaker 11

That's interesting. Very helpful. I appreciate it. Thank you.

Operator

The next question comes from Jordan Hi, Louitz with Philadelphia Financial. Please go ahead.

Speaker 5

Hey, guys. Thanks for taking my questions. Couple of things. 1st on the ISAP program. My understanding is there's a substantial amount of money that could be reallocated within ICE and DHS Towards this that the current administration has been hesitant to do.

Speaker 5

So it's not necessarily more funding, but it's a reallocation of that funding that may become available. Is that the way you understand it?

Speaker 2

Well, I'm aware of that. Every department like DHS has the ability to ship funds around within the department to different agencies of that department. And I think I'm aware through public Publications of these stories That ICE has asked for more funding for various reasons, including the Alternatives to detention programs, which includes primarily the ICE program.

Speaker 5

Okay. And on to the several case several segment topic, there's several cases in Florida before the appellate judge That would indicate that if it would be if the judge would rule in line with the preliminary circle rule, There would be more people being monitored and processed. Do you know what the timing of any of those cases are?

Speaker 2

No, I really don't because I presume all of them are subject to appeal and That can be a very lengthy process.

Speaker 5

Okay. And final question is whether we go from 34 to 40 or somewhere between at one point that number was 50. And as we head towards the presidential election, The Republicans are going to obviously start talking about numbers like 50 again, which they were before. And I guess My question is twofold. One is once you hit those minimums anything above 32, 33, The incremental profit has to be doubled because it's not substitute to minimum.

Speaker 5

Is that true? And B, If we would go from a number like 30 to 50, would there be like a profitability that would be more than double On the Prism side of the business because the incremental margins are that much more profitable.

Speaker 2

Well, it certainly will be more profitable. It's difficult to calculate because it differs from facility to We haven't done a cumulative aggregate calculation of that number, but it's Significant, because we have thousands of additional available beds and each of those beds is worth Between it's a double digit number.

Speaker 5

So the peer number B Has said the incremental profitability could be close to double. Would yours be anything different from that once you get above the minimums?

Speaker 3

Will No, I don't think our if I'm understanding your question correctly, you're saying that As the occupancy increases to something above our minimum guarantees that The profitability of the company in the ice business would double and that's not accurate. That's our contract price with those Guarantees to absorb a significant amount of the cost as well as the return. And there is, as George mentioned, Incremental revenue, it is material, and it would benefit the bottom line, but it's not going to double our profitability.

Speaker 5

No, no, no, no, no. The incremental 1,000 people above the minimum, in other words, if you go from $9,000 to $10,000 versus say $13,000 to $14,000 Once you get above those minimums, the incremental profit Is dramatically greater.

Speaker 3

Yes. And like George said, not necessarily, it depends on how the contract is priced What those incremental per DMs are, but it is meaningful.

Speaker 5

Okay. Thank you. And when can you stop buying back the debt, would you say?

Speaker 3

Well, we're going to make additional pay downs on debt in the Q3.

Speaker 5

And when would the earliest the equity could be started?

Speaker 3

We have to renegotiate some of the terms and some of the credit agreements before we can do any meaningful equity buyback.

Speaker 5

So it's a 2024 number at earliest.

Speaker 3

Probably 2024 is the soonest.

Speaker 5

Okay. Thank you, guys.

Speaker 4

Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to George be the lead Executive Chairman for The GEO Group for closing remarks.

Speaker 2

Thank you for joining us today and look forward to the next investor conference call. Be

Operator

open. The conference has now concluded. Thank you for attending today's presentation. You may now

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Earnings Conference Call
CNB Financial Q2 2023
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