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spk06: Good day, and welcome to the GEO Group second quarter 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. 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.
spk09: Thank you, operator. Good morning, everyone, and thank you for joining us for today's discussion of the GEO Group's second quarter 2023 earnings results. With us today are George Zoli, Executive Chairman of the Board, 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 second quarter 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 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-K, 10-Q, and 8-K reports. With that, please allow me to turn this call over to our Executive Chairman, George Zoli. George?
spk02: Thank you, Pablo. Good morning to everyone, and thank you for joining us on our second quarter 2023 earnings call. I'm joined today by our senior management team to review our second quarter financial results, discuss our financial guidance and debt reduction objectives, and provide an update on the trends for each of our business segments. This morning, we reported quarterly revenues of approximately $594 million, gap net income of approximately $30 million, and adjusted EBITDA of approximately $129 million. all of which were ahead of the midpoint of our previously issued guidance for the second quarter of this year. Our second quarter results reflect stable performance from our 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 and 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. During the second quarter, we reactivated our 1900-bit Great Plains Correctional Facility under a new lease agreement with the state of Oklahoma. The new lease has initial term of five and a half years with subsequent unlimited one-year options, and is expected to generate annual straight-line lease revenue of approximately $8.5 million. Our GTI Transportation Division also recently entered into an emergency contract to provide air operations support for ICE, which is expected to generate up to approximately $16 million in revenues over a nine-month period, assuming the contract runs through its full term. We hope to continue to be a strong contender for the currently active procurement of the multi-year contract for these services, which presently remains under bid protest. Our diversified business units delivered overall strong operational and financial performance during the first half of 2023, 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, or ISAF, has declined since the beginning of this year. However, we have recently seen a slower rate of decline in ISAF participants. 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 and early August, which was longer than we previously estimated, we continued to believe that the ISAT participant count is likely to stabilize and then to begin to increase moderately. With respect to our ICE processing centers, have experienced a 20% increase in population since early May. Our occupancy rates remain below historical levels. As it relates to the federal budget for fiscal year 2024, which begins in October 1st, 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 ISAP monitoring capabilities for all individuals in the non-detained docket for the entire duration of their immigration proceedings. In July, the Senate approved its version of the Homeland Security Appropriations Bill, keeping funding for ICE beds at the current level of 34,000 beds, and slightly increasing the overall funding available for alternatives to detention programs. Congress adjourned for their August recess without an appropriations deal in place. 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 fiscal year 24 under a short-term or long-term continuing resolution. We believe that under a continued resolution, ICE is most likely to be provided appropriations consistent with the agency's current funding levels for 23. We are continuing to monitor the congressional appropriations process and remain focused on providing high-quality services on behalf of DHS and ICE. We are also continuing our efforts to market our current EIDL facilities to federal and state government agencies. With the recent activation of our Great Plains facility, we now have approximately 9,000 EIDL-owned beds in our secure services segment, primarily comprised of five 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. As we have previously discussed, our objective is to reduce net debt by approximately $175 million per year on average over the next two years. And we remain hopeful to be able to refinance portions of our debt potentially in the next 12 to 18 months. I will now turn the call over to Brian Evans to address our financial results and guidance in more detail.
spk08: Thank you, George. Good morning, everyone. As we reported this morning, our second quarter 2023 results exceeded our previously issued guidance. We reported GAAP net income of approximately $30 million on quarterly revenues of approximately $594 million. We reported quarterly adjusted EBITDA of $129 million and net operating income of $170 million. Second quarter 2023 results reflect the reactivation of our Great Plains Correctional Facility in Oklahoma under a new lease agreement, which is expected to generate approximately $8.5 million in annualized straight-line lease revenue. Our second quarter 2023 results also reflect an increase of approximately $26 million in net interest expense compared to the second quarter of 2022. due to higher interest rates and the debt restructuring transactions we completed in August of 2022. Moving to our guidance for 2023. This morning, we provided updated guidance for the full year 2023 to reflect our updated expectations regarding the timing of participant levels under our ISAP contract. Our previously issued guidance for 2023 assumed that the number of ISAT participants would stabilize at the midpoint of the year and then moderately increase during the third and fourth quarters. 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 that may add participants to the ISAF program, as well as move participants to different monitoring alternatives. 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 ISAF 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 million to $110 million on annual revenues of approximately $2.4 billion. We expect our full year 2023 adjusted EBITDA to be between $490 million and $520 million. We expect our effective tax rate for the full year 2023 to be approximately 29% exclusive of any discrete items. For the third quarter of 2023, we expect gap net income to be between $19 million and $26 million on quarterly revenues of $588 million to $603 million. We expect our third quarter 2023 adjusted EBITDA to be in a range of $115 million to $130 million. For the fourth quarter of 2023, we expect GAAP net income to be between $19 million and $27 million on quarterly revenues of $595 million to $610 million. We expect our fourth quarter 2023 adjusted EBITDA to be in a range of $115 million to $130 million. 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 million per year on average over the next two years. During the second quarter of 2023, our total debt was approximately $1.94 billion, and our net debt remained stable at approximately $1.91 billion due to the timing of our cash flows throughout the year. During the third quarter of 2023, we expect to reduce net debt by approximately $75 million, resulting in net debt of $1.84 billion. Based on this pace of debt reduction, we would expect to end this year with approximately $1.8 billion in net debt and further reduce net debt to approximately $1.62 billion by the end of 2024. Our debt reduction estimates for 2023 assume the closing of a sale of a reentry facility for approximately $15 million in the third quarter. We expect to explore additional asset sales to complement our debt reduction efforts. We have a number of residential reentry assets that we are actively marketing for sale. 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 EIDL secure facilities for reactivation, either under a traditional management contract or a lease agreement similar to that of our Great Plains facility in Oklahoma. Our goal continues to reduce our overall quantum of debt, decrease our net leverage as quickly as possible, and refinance portions of our debt, potentially in the next 12 to 18 months. As we execute this strategy, we hope to reduce our interest expense and gain more flexibility under our credit agreements to explore options to return capital to our shareholders in the future. At this time, I will turn the call over to James Black for a review of our GeoSecure Services segment.
spk07: Thank you, Brian. Good morning, everyone. It is my pleasure to provide an update on GeoSecure Services. During the second quarter of 2023, our Secure Services facilities successfully underwent 51 audits, including internal audits, government reviews, third-party accreditations, and Prison Rape Elimination Act certifications. Four of our Secure Services facilities received accreditation from the American Correctional Association with an average score of 99.4%, and another five of our facilities received PREA certification. Our GTI Transportation Division and our GEO-AME-UK joint venture completed approximately 4.2 million miles driven in the United States and overseas during the second quarter. 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.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. Moving through our ICE processing centers, we recently experienced a 20% increase in populations across our facilities since early May. 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. 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 resolution that would likely fund the federal government at the current funding levels when the new fiscal year begins on October 1. As a long-standing service provider to the federal government, we play no role in and have no control over congressional appropriations decisions or the implementation of immigration Our focus remains on providing the highest quality services to ICE, and we stand ready to support the agency with any additional services as needed. Our ICE processing centers have a longstanding track record delivering professional support services on behalf of ICE and providing secure residential care 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 centers also offer access to legal counsel and legal libraries and resources, and we have dedicated space at our centers to accommodate meetings with legal counsel. Our ice processing centers also provide daily meals that are culturally sensitive and approved by a registered dietitian. 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 to 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, which is expected to generate up to approximately $16 million in revenues over a nine-month period, assuming the contract runs through its full term. We hope to continue to be a strong contender for the currently active procurement of a multi-year contract for these services, which presently remains under bid protest. Moving to our state government agency partners, during the second quarter of 2023, we reactivated the 1900-bed Great Plains Correctional Facility under a new lease agreement with the state of Oklahoma. The new lease has an initial term of five and a half years, effective May 1, 2023, with subsequent unlimited one-year renewal options. Over the term of the lease, we expect to generate straight-line lease revenue of approximately $8.5 million annually, and we will be responsible for maintenance capital expenditures, property insurance, and property tax payments. With the reactivation of our Great Plains facility, we now have approximately 9,000 idle beds in our Secure Services segment, comprised primarily of five former Bureau of Prison facilities. We believe these are very valuable, modern, and well-located assets, which we are continuing to actively market to government agencies at the state and federal level. Also in the state of Oklahoma, we recently renewed our contract for the 2,682-bed Lawton Correctional Facility for a one-year term effective through June of 2024. And in Florida, We renewed our contract for the 2,000-bed Blackwater River Correctional Facility for a two-year term effective through October of 2025. Our state correctional facilities deliver high-quality support services across seven 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. This new contract commenced on July 1st and is expected to generate approximately $33 million in annualized revenues. At this time, I will turn the call over to Wayne Calabrese for a review of GeoCare.
spk04: Thank you, James. I'm pleased to provide an operational update on our GeoCare business unit, starting with our reentry services division. During the second quarter, our reentry services facilities successfully underwent 33 separate audits, including internal audits, government reviews, third-party accreditations, and PREA certifications. Five of our residential reentry centers received accreditation from the American Correctional Association with four of those centers receiving perfect scores of 100%. We also renewed 15 residential reentry contracts, including five with the Federal Bureau of Prisons, as well as 12 non-residential day reporting center contracts, including seven with the California Department of Corrections and Rehabilitation. Our 35 residential reentry centers provide transitional housing and rehabilitation programs for individuals reentering their communities across 14 states. Our non-residential and day reporting centers provide high-quality community-based services, including cognitive behavioral treatment for up to 8,500 parolees and probationers at 90 locations across 10 different states. 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 second quarter of the year. Moving to our Geo Continuum of Care and In-Prison Programs Division, during the second quarter, we delivered enhanced 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. 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, to aid in the delivery of academic instruction at these facilities. We've also focused on developing 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. Overall, we completed more than 670,000 hours of in-custody rehabilitation programs during the second quarter of 2023. Our academic programs awarded approximately 830 high school equivalency diplomas and our vocational courses awarded approximately 930 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 second quarter, we also allocated over $350,000 to post-release services to support approximately 500 individuals released from GO facilities as they return to their communities. Our GO Continuum of Care integrates enhanced in-custody rehabilitation, including cognitive behavioral treatment with post-release support services that address critical community needs of released individuals. We believe our award-winning program provides a proven model on how the two million 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, 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 ISAP. 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 using a variety of new technologies and case management services over that period of time. As we continue to promote innovative solutions under this important program, we are working with ICE to conduct two pilot programs for BI's VeroWatch. VeroWatch 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.
spk05: Thanks, Wayne. In closing, our diversified business units delivered strong financial and operational performance during the second quarter and the first half of 2023. We remain focused on reducing our overall net debt and on 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 EIDL 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 businesses. 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. 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. which we believe represents a compelling case for equity investors. We have consistently delivered as an essential government services provider at 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. Instead, we remain steadfast in our commitment to being a consummately professional organization that our clients can trust with complex, 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.
spk06: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Joe Gomes with Noble Capital. Please go ahead.
spk11: Good morning, and thanks for taking my questions.
spk08: Good morning, Joe.
spk11: So I wanted to start out on ICE. You 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 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?
spk02: Many of our... facilities do have a minimum guarantee, but there's a few select ones that we are below that minimum guarantee, and the continued increase in occupants will materially enhance our financial results. put it more simplistically. Some facilities, particularly along the southern border, are full. Other facilities located in the coastal or northern states are not as full. 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. To put a short answer, some are already full, but others are not, and we have plenty of capacity.
spk11: 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 you were originally anticipating. But what gives you confidence that the participant level will either stabilize or hopefully go back up in the second half of this year?
spk02: Because of 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 they 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.
spk11: Okay. Thank you for that. And then, if I ran my numbers correctly here quickly, it looks like operating expenses are about 72% of revenue, which is up from a little over 71% in the first quarter. Again, if my numbers are correct, it would be about the highest level since the first quarter of 21. I was just wondering if there's anything particular that you could point out that drove that operating expense level higher in the second quarter.
spk08: 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 counts in the ISAP program, that's a higher margin segment. So that's affecting that as well.
spk11: Okay. And then one last one for me, and we'll get back in queue. Not quite sure if I heard you mention 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?
spk08: So I think as I discussed and maybe George mentioned earlier, Quarter over quarter, the net debt's about the same. It was up like $5 million. That's mainly just timing of working capital issues. In this quarter, we had a significant amount of interest in principal payments, so we used a lot of cash for that. We accrued it ratably towards this quarter, but we had to lay it all out this quarter. So next quarter, as I mentioned in my remarks, we expect significant reduction in that debt, about $75 million or so.
spk11: Right, right. Okay. Thanks for that, Brian. Appreciate you guys taking the time to take my call. Thank you.
spk06: The next question comes from Brian Violino with Wedbush Securities. Please go ahead.
spk03: Hi, good morning. Thanks for taking my questions. Just on the ISAP program, based on the current funding level, you know, 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?
spk02: No, I don't think there is. I don't think that's ever been discussed. Okay. As to a minimum participant count.
spk03: Yep. 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 or state county partners in the pipeline?
spk02: 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 implementing 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 on health care staff.
spk03: Understood. Thanks. And just one more, if I could. There was a comment about providing air operations support to ICE made earlier in the call, and I believe it was $16 million of revenue. I was just curious, you know, is that something that's going to start immediately in the third quarter? Is there any sort of incremental investments needed? And then I think there's a larger contract that's out for bid. I was just curious, you know, what kind of opportunity that could be.
spk02: 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 traveled either domestically or internationally. So we are a subcontractor to a prime that was awarded an emergency contract that contract can run, I think, eight or nine 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 that 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, but we are presently involved with our prime partner providing the services over the course of the next up to eight or nine months.
spk04: Thank you, appreciate it.
spk06: The next question comes from Brendan McCarty with Sedoti. Please go ahead.
spk01: Hi, yes. Good morning, and thank you for taking my questions. The 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?
spk02: I think I said earlier that some facilities along the southern border are full. Others away from the border still have vacant beds. We have plenty of capacity. Of the 31,000 people that are reportedly detained in facilities at this time, we have almost 11,000 of those individuals in geo-facilities. So we have over one-third of the individuals that are presently being detained are housed in geo-facilities. We have one-third of the market share. And presently, the private sector provides 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.
spk01: Got it. That's helpful. And then just regarding some of the EIDL 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 increase in ice populations that we've seen.
spk02: 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. They have to await At the federal level, the new federal budget, which starts October 1, at the state level, it's funding that will probably be approved sometime in spring of next year.
spk01: Okay, okay. And then one more, if I may, just on some expense line items. I know we talked about operating expenses driven by higher wages, but it looked like there was a large decline in general and administrative expenses. I was just wondering if you could comment on that, Declan.
spk08: 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. Nothing specific beyond that stuff, though.
spk01: Great. Thank you. That's all from me.
spk06: The next question comes from Kirk Ludke with Imperial Capital. Please go ahead.
spk10: Hello, everyone. Thank you. Thank you for the call. Hey, Kirk. Just a couple follow-ups. With respect to the ice population, you mentioned you have 11,000 people in your ICE facilities, where did that peak pre-COVID?
spk02: Where does it what? Where can it peak? Well, what was our peak?
spk04: Our peak population before the pandemic.
spk02: I would say 14,000, 15,000, something like that.
spk10: Okay. Thank you. That's helpful. You mentioned that there's potential for some incremental ISAP funding, and I missed what you said, and I was just curious if you could maybe elaborate on that and maybe quantify it.
spk02: Well, no, I didn't say there was a potential for additional ISAP funding, although that may be the case. There's a potential for increased participation in the ISAP program, which may require additional funding, which would necessitate, you know, ICE having to find that additional funding within DHS or go to Congress for that additional funding. But, you know, there's different policies on extending participation in the ISAP program and moving people around in the program for, really cost efficiency is 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.
spk10: Got it. I appreciate it. 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?
spk02: Could you repeat that question, please?
spk10: My understanding is there have been some state legislation that's basically made, you know, increased the minimum sentencing requirements. I'm just curious if you have a, you know, what you can say about the, you know, the trends in state population where you do business.
spk02: You know, 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 more modern they're all air-conditioned they have artificial soccer turf fields and you know the different amenities that we've discussed you know libraries continuum of care educational programs so by comparison our facilities you know 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's several states that are looking 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.
spk10: That's interesting. Very helpful. I appreciate it. Thank you.
spk06: The next question comes from Jordan Heimowitz with Philadelphia Financial. Please go ahead.
spk12: Hey, guys. Thanks for taking my questions. A couple things. First, 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. 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?
spk02: Well, I'm aware that every department like DHS has the ability to shift 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.
spk12: Okay, and on to the 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, that would be more people being monitored and processed. Do you know what the timing of any of those cases are?
spk02: No, I really don't because I presume all of them are subject to appeal and that can be a very lengthy process.
spk12: 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 a 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, you know, 32%, 33%, the incremental profit has to be double because it's not substitute to minimum. Is that true? And B, if we would go from, you know, a number like 30 to 50, would there be like a profitability that would be more than double on the prison side of the business because the incremental margins are that much more profitable?
spk02: Well, it certainly will be more profitable. It's difficult to calculate, uh, because it differs from facility to facility. 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.
spk12: 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?
spk08: 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 and the ice business would double, and that's not accurate. Our contract is priced 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.
spk12: No, no, no, no, no, no. The incremental 1,000 people above the minimum, in other words, if you go from you know, 9,000 to 10,000 versus say 13,000 to 14,000. Once you get above those minimums, the incremental profit is dramatically greater.
spk08: Yeah. And like George said, not necessarily depends on how the contract is priced and what those incremental per diems are, but it is meaningful.
spk12: Okay. Thank you. And when can you start buying back the debt? Would you say?
spk08: Well, we're going to make additional paydowns on debt in the third quarter. And when would the earliest the equity could be started? We have to renegotiate some of the terms and some of the credit agreements before we can do any meaningful equity buyback. So it's a 2024 number at earliest? Probably 2024 is the soonest.
spk12: Okay. Thank you, guys. Thank you.
spk06: This concludes our question and answer session. I would like to turn the conference back over to George Loli, Executive Chairman for the GEO Group, for closing remarks.
spk02: Thank you for joining us today. Look forward to the next investor conference call.
spk06: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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