Geo Group Inc (GEO) 2002 Q1 法說會逐字稿

Welcome to Wackenhut Corrections Corporation 2002 first quarter earnings result conference call. Today's call is being recorded for opening remarks and introductions we'd like to turn the conference over to Mrs. Pearson.

Thank you. Good afternoon everyone. Thank you for joining us today to discuss Wackenhut Corrections Corporation first quarter 2002 earning results. With us today is George Zoley, vice chairman and chief operating officer and Jerry O'Rourke, our chief financial officer, along with David Watson our vice president of finance.

We'll discuss our quarterly performance and conclude the call with a question and answer session. This conference call is being web cast on the company's web site at WWW.WCC-corrections.com. A telephone replay will be available until May 10th. The replay dial in number is 1-800-839-6806. Before I turn the call over to George, please let me remind you that much of the information we'll 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 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 other factors contained in the company's securities and exchange commission filing.

Including the Form 10-K 10-Q and 8-K reports. With that, please allow me to turn the call over to George.

Thank you and I'm pleased to provide you with an overview of WCC's earnings results for 2002. First I'll review our financial results for the quarter then I'll discuss our business development opportunities and opportunities. When I conclude my remarks I'll open the call up to question and answer session. As announced in the press release we issued this morning, Wackenhut Corrections Corporation first quarter earnings were 20 cents per share or 5.2 million dollars which is in line with the prior guidance we have given. Our net income for the quarter increased to 5.2 million dollars. Up from 2.6 million dollars for the comparable period 2001. This represents an increase of 97 percent increase. Our first quarter revenue increased four percent to 140 million dollars, primarily as a result of the full activation of our Vinton, North Carolina and Texas facility. This compares with 135 million dollars in revenue for the first quarter of 2001. There was no construction revenue in the first quarter of 2002. Our first quarter 2002 operating expenses remained at approximately 124 million dollars, compared with the first quarter of 2001. Our contribution from operations increased 66 percent to 14 million dollars during the quarter, up from 8.5 million dollars in the first quarter of 2001. This increase reflects several factors, including the activation of the new facilities I've mentioned, significantly improved financial performance at a number of our existing facilities. A discontinuation and unprofitable contract in Arkansas and a decrease in expenses related to the company's operating of these facilities. Our first quarter 2002 general and administrative expenses increased to 8.1 million dollars, up from 5.9 million dollars for the same period a year ago.

This increase relates to increased deferred compensation employees for executive retirement commitment. Our equity income from affiliates increased to 1.6 million dollars for the first quarter 2002. Up from 942,000 for the first quarter 2001. This increase includes a start-up cost of one million dollars related to our South African facility, which (inaudible) from the recently gate (inaudible) in the UK. Compensated mandates were approximately 2.7 million for both the first quarter 2002 and the first quarter of 2001.

These figures exclude our UK joint venture. Our occupancy rate for the first quarter 2002 remains at approximately 97 percent. Our average prison debt per diem rate for the first quarter of 2002, exclusive of construction and hospital revenue, is $48.62, compared with $44.74 in the first quarter of 2001. This increase is due to higher per diem rates generated at our new facilities along with the judgments we made related to (inaudible) contract. Turning to our balance sheet cash after the first quarter was approximately 44 million dollars compared with 46 million dollars at year-end 2001. With regard to financing capability, as of the end of the first quarter 2002 we have access 154.3 million dollars of our operating lease facility.

In the month of April we reduced the amount available under our operating facility from 220 million dollars to 154.3 million dollars, pending the refinancing of the facility later in the year. The revolver of 30 million dollars remains unchanged. Currently the revolving and operating lease facility bear interest at Lybor plus 150 percent bases points. That wraps up the overview of the first quarter of 2002. We're very pleased with our results and we are have enthusiastic about the business and feel activities will continue to drive future growth. However, before moving on to the discussion of those activities. I'd like to update you on a number of significant events. First I would like to state that we're continuing our efforts to market the Ginna, Louisiana facility to the federal and state agencies for their use or acquisition.

Management is currently hopeful that the deactivated Ginna facility will be sold by the end of the year 2002. The second issue involves the 224-bed McFarland community corrections facility in California, which is one of five community correction facility contracts that the state may not renew when the contract expires June 30th of this year. We're continuing our efforts to extend the current contract by pursuing discussions with the Legislature and department officials, as well as offering the facility to other interested governmental agencies. The McFarland facility is currently in the fourth year of a 10 year noncancellable operating lease between WCC and its owner Correctional property's trust.

The third issue involves our contract for the management (inaudible) facility in Puerto Rico. As we reported in our fourth quarter year-end conference call WCC was issued a contract of renewal by this facility by the Department of Corrections due to budgetary constraints. Current five-year management contract was due to expire on March 23rd. But now it has been extended to June 23rd at the client's request.

Since the common wealth of Puerto Rico owns the 500 bed adult facility WCC has no lease obligation related to it. Therefore we expect it to discontinue operations in Puerto Rico with no unusual or unanticipated costs since the discontinuation of the Puerto Rican operation is already factored into our prior earnings guidance. The final issue is the pending merger between Wackenhut Corporation, our parent company and [inaudible] Multi-national security [inaudible] Services company. As we disclosed in our press release on March 8th, the Wackenhut Corporation agreed to be acquired by Group Four Fall [phonetic] Pending required regulatory approvals, the approval of the Wackenhut corporation shareholders and the satisfaction of other closing conditions.

The transaction is currently expected to be completed in the near future. Upon the closing of the transaction, group four fallwill become the indirect beneficial owner of the 57 percent majority interest in WCC currently held by the Wackenhut Corporation. As we previously disclosed in our FCC filings, WCC has entered into an agreement with the Wackenhut Corporation and Group Four Fall geared to ensure that the majority of the WCC board members will consist of independent directors, neither the Wackenhut Corporation or group four Fall will compete with us in the US by engaging in the business and managing and operation of prison, detention facilities or mental health facilities. And representatives of the Wackenhut Corporation Group Four Fall will not have access to certain confidential propriety information belonging to WCC and its subsidiaries or affiliates. We believe that the very safeguards included in this agreement will help to ensure the independence of WCC board of directors, reserve WCC's continued ability to compete fairly and fairly with the Wackenhut Corporation and Group Four Falls and protect certain key confidential information from being disclosed to the Wackenhut Corporation and Group Four Falls. We also believe that these safeguards will provide our current and future customers with adequate assurance that our company's operations will be maintained independent from those of Global Solutions Limited Group Four Falls Correctional Services Operating (inaudible). Before turning to the topic of new business involvement opportunities, I'd like to give you a quick snapshot of progress in the area of start-up activities. At the top of the list is the successful start-up of our 3,000 bed Mexican security prison in Louicrete [phonetic] South Africa, one of the world's largest privatized correctional facilities.

We received our first offenders in February 19th and we are on track to achieve full occupancy by the end of this year. In Australia we're working with the department of Immigration to establish emergency centers that have the capacity for an additional 3,000 unauthorized arrivals. The Australian government has completed the facility renovations for approximately one thousand beds if and is on scheduled to complete the balance by June of 2002. When finalized, these renovations will increase the capacity of the detention centers in Australia to more than 7,000 Immigration detention beds.

In addition to these emergency detention facilities, we currently manage a 300 bed temporary center on Chrismos Island [phonetic]Another 100 bed facility on corpus island [phonetic]Which are available as needed. Now for an update on our business development activities. We continue to remain focused on three areas. U.S. corrections, international correction and mental health and health care services. With respect to U.S. corrections, the company continues to pursue new opportunities for the contracted correctional services with current and expected project opportunities both approximately 13,000 new beds over the next 12 to 18 months. We continue to believe there will be significant future federal opportunities for the company as the government completes its strategic plans to reorganize the INS, unveils its national strategy for homeland security in June and completes the organization of the newly established office of trustee. Clearly the government's 2003 fiscal budget outline significant potential opportunities for our industry. Regrettably, the federal bureau of prisons earlier this year cancelled the RFPs for three 1500 bed alien criminal detention facilities to be located in California or Arizona. We remain hopeful that the new federal facility projects will closely follow the government's reorganization of the INS and the implementation of the strategic planning for the office of home land security and the office of detention trustee. We anticipate on bidding on solicitations for the design, construction and management of several thousand beds for both the United States, marshal service Immigration Naturalization Service we're currently in the site review process for these anticipated procure many times in several locations in the northeastern, southwestern and southern regions of the U.S..

On the state level, we are prepared to respond to several RFPs or negotiated for new or existing private contracting for states with approximately 4,000 beds. At the local level we're in discussions with several existing and potentially new clients for the provisions of facilities and services totalling approximately 1900 beds. Turning to the international arena, the privatized correction market is showing tremendous opportunities for [inaudible] For government agencies to deliver our world class correction and detention services with current and expected project opportunities for approximately 13,000 beds. Each of the four international markets in which we currently operate are experiencing unprecedented growth in the population. Our UK joint venture is expecting RFPs to be issued for design and construction and management of five prisons for the latter half of the year, more specifically two prisons in England totalling 1400 beds and three prisons in Scotland, totalling 2200 beds. We anticipate that over the next 12 to 18 months the UK government will issue RFPs for an additional 3000 new immigration and detention beds. We expect an RFP to be issued to the UK government for the privatization of two existing public prisons totalling 960 beds. Scotland it will be anticipate bidding for the privatization for prisoner transportation between police custody, courts and prisons. At present there are approximately 150,000 prisoner movements each year in Scotland involving 200 prison officers and 500 police officers. In Australia, we expect to aggressively pursue new opportunities for three management contracts for detention facilities totalling 1900 beds. Also in Australia we're bidding on the provision of health care services at seven military bases in Victoria and nine installations across the Australian capital territory in New South Wales. Prospective contracts have been estimated annual value of 16 million U.S. dollars and 13 million U.S. dollars respectively. Contract terms for both contracts will be for five years with two two-year option periods.

We predict that the offender population in all of the markets we serve will continue to escalate in the foreseeable future. We're constantly considering and researching the potential for us to enter new markets in several countries outside our current international network. We are also continuing our aggressive marketing of our diversified services offerings which are include providing health care and mental health services, special needs management services, home detention electronic monitoring services and prisoner transport. In particular, we are continuing our efforts to market our highly successful mental health management services to other states in part by using our flagship facility in the south quarter psychiatric hospital as an example of how successful our company has been in providing quality cost-effective mental health services. As a result of our efforts, we're currently in discussion with eight states for the privatization of mental health services for approximately 2500 beds.

This concludes my review of WCC's financial and operational performance during the first quarter of 2001. In summary, we're very pleased with our results. We've delivered significantly improved financial performance, maintained a solid balance sheet and made marked progress regarding several pending issues related to our operations, opened ground breaking new facility in south Africa and continue inroads in develop our three business areas. As we enter the second quarter of 2002, we remain committed to our business plan and our confidence of our outlook. I'd be happy to answer any questions that any of you may have.

Thank you. Our question and answer session will be conducted electronically. If you'd like to ask a question, please press the star key followed by the digit one on your touch tone telephone. We'll take your questions as you have signaled us and take as many questions as time permits. Once again, that is star one to ask a question. We'll pause for just a moment to assemble our roster. Once again, if you'd like to ask a question, please press star one and we will pause for just a moment to assemble our roster. Our first question comes from Jim McDonald with First Analysis.

Good quarter, guys. Starting with new development. Could you talk a little bit more about what your current thoughts are on why car three was cancelled and when we might see specific procurements to kind of replace that procurement.

Jim with respect to car three we can only show you what we've been told and that is that some of the bureau of prisons projections for population were suggesting to them they needed to reconsider those facilities at this time. We also think that based on what George just said as well, consistent with what George just said that the office of the trustee that's been created in Washington and is undergoing its implementation is going to oversee beds for the INS and the U.S. marshals and we believe there will be opportunities shortly for both of them to expand their base. So we think it's also the home land security, we think it's a time of some changeover for the marshal service and the INS with the trustee and we also, -- it's the detention trustee. We also think some of the home land security emphasis is going to pick up as well. But BOP, we think those numbers are going to come back and we think that we may well see them come back with a procurement yet in the future.

And you don't have any firm procure many times yet. How many of the 13,000 beds you mentioned are actually kind of firm procurements.

I don't have the numbers in front of me that went into the 13,000. As I recall, we had, let's see, I think it was about 4,000 of them were in the state and about 7500 were at the federal level and the rest were probably sprinkled either to local and I may be for getting something.

And I guess if you had to make a guess, when just on a general basis, are there any procure many times that are getting to a head where we can expect some results.

I don't think I would venture a guess. It would be presumption to do so. I've spoken with the trustee I've spoken to people on his staff. I believe there in fact will be new procure many times at the federal level as soon as they get themselves all settled in, get their feet under their respective desks. I think we're going to see something in the next 12 to 24 months, certainly for those two agencies. Speaking domestically.

Outside of that given any of the possible awards, when do you think out of the time frame of the next significant decision point.

We do have a major procurement pending in Australia, Jim. And that's related to providing health services at a number of federal installations and we think that will occur in this second quarter.

Okay. Let me just ask a couple technical questions and I'll let someone else ask and maybe come back. The G and A seemed particularly high this quarter and I wanted to know if that was going to continue at that level or is that a one-time bump.

Well, it had an additional impact of approximately $2 million for deferred compensation commitment regarding executive agreements. And assuming the sale of the Wackenhut corrections you could see a similar number for the next -- sales of the Wackenhut corporation you could see a similar number over the next three-quarters of the year.

Would it be spread out over the year.

Yes. And at this time we are sticking by our earlier sky [inaudible].

Equity income seemed particularly strong given the million dollars worth of start-up costs from south Africa. How much more net start-up costs do we have and what are your thoughts there.

We have no more start-up costs in south Africa.

Does that mean we can expect that to be at first quarter levels or above going forward.

Yes.

Do you have any specific guidance for Q-2.

I think we've given that previously. I have to confirm it here.

The guidance we gave before was 26 cents [inaudible].

What was the range? On our last call? That was the range. Our guidance call earlier in the Jim. This is Margaret.

Okay. So you're confirming that guidance. I'll pass and I'll come back.

As a reminder, press star one for questions. Monica Elling [phonetic] Intel Securities.

Monica [inaudible] From Stockholm. I want to continue on this guidance and maybe I should say I'm sorry I haven't followed what the last correction [inaudible] before. Could you please just summarize what kind of guidance you've given earlier. I recognize the guide is for the second quarter, but have you also given guidance for the full year, please.

Yes, we have. Let me just double-check on that. We previously indicated a guidance of 98 cents to 102 E PS for the year. Quarterly ranges between 24 and 26 cents.

Okay. Could you say what that corresponds to in revenue? Inaudible] You're operating now in the first quarter 4.36 compared with 4.4 for a full year last year. Should you have [inaudible] If we should expect like four percent revenue growth for the [inaudible] Of the year margin around the same level as you've been in the first quarter.

The revenue guidance I believe is slightly down because we've eliminated construction revenue this year compared to last year. Does that answer your question?

Maybe. Because the full quarter you're having is very similar. You're guiding for the same [inaudible]. Is that correct?

That's correct.

Thank you very much.

We will now have a follow-up question from Jim McDonald.

A couple other little things. You mentioned on 97 percent occupancy and I think on the sheet it says 96. Is it 96? And are there any occupancy issues?

Our occupancy has been really steady between the last several years between 96 and 97 percent. And so there's really no occupancy issue there on a company-wide basis.

And tax rate looks like it was up a little bit in the quarter. Is that going to continue?

I don't know that there's been any material change in that area. We've been maxed out at just under, between 39 and 40 percent for several years.

Maybe I did the math wrong, but I have '40.7. Did I do the math right?

Is that a combination of the state rate blended in there?

That's right.

is '40.7 a good number for the year to use.

Yes.

Can you talk about your current view on refinancing the synthetic lease. I noticed you said you dropped the commitment which presumably reduces your fees since you probably weren't going to use it for the rest of the year anyway, the rest of it. Could you talk about whether it's likely you'll maintain that synthetic lease line or move to a bank line or what your thoughts are there.

Well, there are several opportunities or alternatives we're exploring, Jim. That's one of them. And there are others as well. But we do expect to be successful in the refinancing of our credit facility by the end of the year. It's really all I can say. But there are several alternatives within the range of possibilities.

What is the outlook on the effective rates for that.

Expected increase.

Probably. Most likely.

Thank you very much.

Once again, if you'd like to ask a question press star one. We will now hear a question from Lars Larson from [inaudible] Securities [phonetic].

I'm calling from [inaudible] Securities in Denmark. Please bear with me if my question is not directly spun out, because this is the first conference call I'm participating in in Wackenhut corrections. What I'd like to know is if there are any kind of see nona letter effects or [inaudible] In your first quarter earnings numbers.

Not on a company wide basis. There may be on individual facilities but I don't know that they're all that material. And as I indicated previously with regard to our earnings guidance for the year, it's between 98 and 1.02. Midpoint is a dollar. And we indicated in our guidance the range of the individual quarters ranges from 24 to 26 cents. That's a mid point of 25. So there doesn't on a company wide basis seems to be much material seasonality.

Would that be the normal pattern that your business stream doesn't include seasonality effects going through the year.

Correct on a wide basis.

Thank you very much.

There's no further questions. At this time I'll turn the conference back over to you for final and closing remarks.

We want to thank everyone for having joined us on this call and look forward to addressing you on the next one. Thank you.

That conclude's today's conference. Thank you for your participation.