The Geo Group (NYSE:GEO)
Q1 2021 Earnings Call
May 10, 2021, 11:00 a.m. ET
- Prepared Remarks
- Questions and Answers
- Call Participants
Good day, and welcome to The GEO Group first-quarter 2021 earnings conference call. [Operator instructions] 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.
Pablo Paez — Executive Vice President of Corporate Relations
Thank you, operator. Good morning, everyone, and thank you for joining us for today’s discussion of The GEO Group’s first quarter of 2021 earnings results. With us today are George Zoley, chairman, chief executive officer, and founder; Brian Evans, chief financial officer; Ann Schlarb, president of GEO care; and Blake Davis, president of GEO secure services. This morning, we will discuss our first-quarter results and 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 chairman and CEO, George Zoley. George?
George Zoley — Chairman, Chief Executive Officer, and Founder
Thank you, Pablo, and good morning to everyone. This morning, we reported our first-quarter 2021 results and updated our financial guidance for the year. While we continue to face operational and financial challenges associated with COVID-19, we remain pleased with the performance of our diversified business units. During the first quarter, we experienced favorable cost trends, which resulted in better-than-expected financial performance.
We also completed the transition of our D. Ray James, Moshannon Valley and Rivers Correctional facilities to an idle status. As we had previously disclosed, these three facilities had contracts that were not renewed by the Federal Bureau of Prisons and thus closed at the end of January and March, respectively. As we highlighted last quarter, the president issued an executive order in January of this year directing the U.S.
Attorney General to not renew Department of Justice contracts with privately operated criminal detention facilities. Our financial guidance assumes that our remaining BOP contracts will also not be renewed, resulting in three additional BOP facilities closing during 2021. With respect to the U.S. Marshals Service, unlike the Bureau of Prisons, the agency does not own and operated facilities.
The U.S. Marshals contract contractor facilities, which are generally located near federal courthouses, primarily through intergovernmental service agreements and, to a lesser extent, direct contract. We are cooperating with the U.S. Marshals Service in assessing various alternatives as to how to comply with the executive order.
During the first quarter, we were notified by the U.S. Marshals that it would not renew the contract for the Queens Detention Facility in New York, which expired on March 31. We currently operate four additional detention facilities that are under direct contracts and eight detention facilities that are under intergovernmental agreements with U.S. Marshals.
The four direct contracts are up for renewal at various times over the next few years, including two in late ’21. Presently, our 2021 guidance reflects only the nonrenewal of our Queens contract, and we will continue to monitor the scope and implementation time line of the president’s executive order. As noted earlier, the executive order applies only to the Department of Justice. The processing centers that we manage on behalf of U.S.
Immigration and Customs Enforcement are not covered by the executive order since ICE is an agency of the Department of Homeland Security. Our ICE processing centers are highly rated by national accreditation organizations and have provided high-quality and culturally responsive services for over 30 years under both Democratic and Republican administrations. Our ICE processing centers have been operating at reduced capacity throughout the pandemic as ICE has reduced operational capacity across all facilities to promote social distancing practices. The federal government has also put in place Title 42 public health restrictions at the Southwest border which result in the immediate removal of single adults apprehended by border patrol.
Notwithstanding these challenges associated with COVID-19, our employees have demonstrated significant strength and dedication. We have continued to provide humane and compassionate care to all those entrusted to our facilities and programs. From the beginning of the public health crisis, our company and our staff took steps to mitigate the risks of the novel coronavirus. These mitigation initiatives have included a focus on increasing testing capabilities, including investing approximately $2 million to acquire 45 Abbott Rapid COVID-19 devices and testing kits.
We also installed bi-polar ionization air purification system at select secure service facilities, representing a company investment of approximately $3.7 million. We have provided continued access to face masks and personal hygiene products. We have implemented social distancing pursuant to directives from our government agency partners. We have been working closely with our government agency partners and local health departments to make COVID-19 vaccinations available at all of our facilities.
We recognize that in addition to the challenges that I’ve just discussed, there have been concerns regarding our future access to financing. We have adopted a proactive and multifaceted approach to address these challenges. We are focused on debt reduction and deleveraging. In 2020, we reduced our net debt by approximately $100 million.
During the first quarter, we reduced net debt by approximately $57 million and we’ve set a goal of paying down between $125 million and $150 million in net debt in 2021. This past month, our board suspended our quarterly dividend with the goal of maximizing our debt reduction, deleveraging and internally funding growth. While GEO currently intends to maintain our corporate tax structure as a REIT, our board has determined to undertake a review of our current corporate tax structure, which is expected to be completed by the fourth quarter of this year. We’ve also implemented ongoing review of assets for potential sale.
In the first quarter, we sold our interest in Talbot Hall, New Jersey reentry center with net proceeds of over $13 million. In February of 2021, we issued $230 million and 6.5% exchangeable senior notes due 2026 in a private offering. We used a portion of the net proceeds to redeem the outstanding amount of $194 million of senior notes due 2022 and use the remaining net proceeds to pay related transaction fees and expenses for general corporate purposes. With the 2022 maturity having been successfully addressed, we also intend to consider alternatives in due course to address our subsequent maturities.
We believe these initiatives are in the best interest of our shareholders and other…