Geo Group Inc Q3 FY2021 Earnings Call

Good morning, and welcome to The GEO Group Third Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. Please note, this event is being recorded. I'd now like to turn the conference over to Pablo Paez, Executive Vice President of Corporate Relations. Please go ahead.

Thank you, Operator. Good morning everyone, and thank you for joining us for today's discussion of The GEO Group's third quarter 2021 earnings results. With us today are George Zoley, Executive Chairman of the Board; Jose Gordo, Chief Executive Officer; Brian Evans, Chief Financial Officer; and James Black, President of GEO Secure Services. This morning, we will discuss our third quarter results and our outlook. We will conclude the call with a question-and-answer session. This conference call is also being webcast live on our investor website at investors.geogroup.com. Today, we will discuss non-GAAP basis information. A reconciliation from non-GAAP basis information to GAAP basis results is included in the press release and supplemental disclosure we issued this morning. Additionally, much of the information we will discuss today, including the answers we give in response to your questions, may include forward-looking statements regarding our beliefs and current expectations with respect to various matters. These forward-looking statements are intended to fall within the Safe Harbor provisions of the securities laws. Our actual results may differ materially from those in the forward-looking statements as a result of various factors contained in our Securities and Exchange Commission filings, including the Form 10-K, 10-Q and 8-K reports. With that, please allow me to turn this call over to our Executive Chairman, George Zoley. George?

Thank you, Pablo, and good morning to everyone. We are pleased with our strong third quarter results and the significant progress we've made year-to-date towards reducing our net debt leverage. We believe our financial performance is representative of the resiliency and strength of our diversified business segments. For over 30 years, we've been a trusted government services provider. We currently provide support services for immigration processing centers on behalf of the U.S. Department of Homeland Security, and for secure facilities and residential reentry centers on behalf of federal and state agencies. During the third quarter, we renewed eight of our facility contracts including four immigration processing centers and four residential reentry centers, under contract with the Federal Bureau of Prisons, or state correctional agencies. Additionally, we have received a six-month extension for our U.S. Marshals contract at the Western Regional Detention Facility in San Diego, California. We also entered into a new five-year contract for our Moshannon Valley Facility with Clearfield County, Pennsylvania to provide support services under a five-year intergovernmental agreement between the county and the Department of Homeland Security. In early September, our GEO care business unit began providing services at our new Residential Reentry Center in Tampa, Florida under contract with the Federal Bureau of Prisons. On November 1, we transitioned the operations of our Guadalupe County Facility to the New Mexico Corrections Department and began a new lease agreement with the state of New Mexico with a two-year base period and successive two-year renewal opportunities through October 2041. In the third quarter, we also completed the previously announced transition of two managed only contracts in Florida to another operator and the discontinuation of our managed only contract for the Dungavel Facility in the United Kingdom. Further, we were notified by the Bureau of Prisons of the non-renewal of our contracts for the Big Spring and Flightline Facilities in Texas at the end of November 2021, consistent with our previous expectations. Our operational focus remains on addressing the challenges of the ongoing COVID pandemic while delivering high-quality support services on behalf of our government agency partners. Understanding the challenges created by the pandemic, we invested significant resources to mitigate the impact of COVID including $2 million in for 45 Abbott Rapid testing devices and $3.7 million in bipolar ionization air purification systems. We are proud of our frontline employees who've continued to provide humane and compassionate care to all those entrusted to our facilities and programs. At the management and board level, we remain focused on reducing our debt and de-leveraging our balance sheet. We're pleased to have reduced our net recourse debt by approximately $175 million through the end of the third quarter, already meeting our previous net recourse debt reduction goal of $150 million to $275 million for the full-year 2021. We recognize there have been several concerns regarding our future access to financing. Accordingly, we have adopted a multi-faceted approach to address these concerns, including our focus on debt reduction, a review of potential sales of company-owned assets and businesses, and the ongoing evaluation by our board of our corporate tax structure as a real estate investment trust. We believe these initiatives and considerations are in the best interest of our shareholders and other stakeholders as we work proactively to address our debt maturities and enhance long-term shareholder value. At this time, I'll turn the call over to Brian Evans to address these initiatives in more detail and review our results and guidance. Brian?

Thank you, George. Good morning, everyone. Today we reported third quarter revenues of approximately $557 million and net income attributable to GEO of $34.7 million. Our third quarter results included a $1.1 million pre-tax loss on real estate assets, $4 million in M&A related expenses pre-tax, a one-time $5 million pre-tax loss on the previously announced divestiture of our youth services contracts, and an $800,000 benefit in the tax effective adjustments to net income attributable to GEO. Excluding these items, we reported third quarter adjusted net income of $0.36 per diluted share and AFFO of $0.65 per diluted share. Moving to our guidance we expect fourth quarter 2021 net income attributable to GEO to be between $40 million and $42 million on quarterly revenues of $554 million to $559 million. We expect fourth quarter 2021 adjusted net income to be between $0.37 and $0.39 per diluted share and fourth quarter 2021 AFFO to be between $0.65 and $0.67 per diluted share. For the full-year 2021, we expect net income attributable to GEO to be in a range of $165.5 million to $168 million and full-year 2021 revenues of approximately $2.26 billion. We expect full-year 2021 adjusted net income to be in a range of $1.41 to $1.43 per diluted share. We expect full-year 2021 AFFO to be in a range of $2.57 to $2.59 per diluted share. We expect full-year 2021 adjusted EBITDA to be in a range of $451.5 million to $455 million. Moving to our capital structure at the end of the third quarter, we had approximately $537 million in cash on hand, primarily resulting from the previously announced drawdown of our revolving credit facility. Our decision to draw on our revolver was a conservative precautionary step to preserve liquidity, maintain financial flexibility, and obtain additional funds for general corporate purposes. Accounting for our $537 million of cash on hand, our net recourse debt currently stands at approximately $2.1 billion, not including non-recourse debt financed lease obligations for the mortgage loan on our corporate headquarters. We believe we will be able to address our debt maturities in due course on reasonable return. With our current cash on hand and our steady financial performance, we're proactively examining our options to address our funded recourse debt, including our near-term maturities that encompass our 2023 and 2024 unsecured notes and our senior secured credit facility. We have continued to execute our multifaceted approach, focusing on debt reduction and de-leveraging our balance sheet. In 2020, we reduced our net recourse debt by approximately $100 million. During the first nine months of 2021, we further reduced net recourse debt by approximately $175 million, already meeting our previously articulated goal of reducing that recourse debt by $150 million to $175 million for the full-year 2021. We intend to remain focused on debt reduction and de-leveraging our balance sheet. During the fourth quarter of 2021, we expect to reduce our net recourse debt by an additional $10 to $20 million. Our strategy also includes various initiatives we've announced previously including our exploration of potential opportunities to sell company-owned assets and businesses, our engagement of financial and legal advisors to assist us in reviewing capital structure alternatives, and the ongoing evaluation by our board of our corporate tax structure. With respect to asset sales during the third quarter, we completed the sale of our 222 bed Queens Detention Facility in New York for $18 million. Year-to-date, we have completed the sale of five real estate assets, totaling approximately 1,000 beds. During the third quarter, we also completed the divestiture of our Youth Services contracts. On a combined basis, these sales generated net proceeds of approximately $46 million.

Thank you, Brian. Good morning, everyone. Our operational focus during the third quarter has remained on addressing the ongoing challenges of the COVID pandemic, as our frontline employees continue to provide quality services and compassionate care to those entrusted to our facilities. We continue to focus on implementing mitigation initiatives and practices that are consistent with the guidance issued by the Centers for Disease Control and Prevention. Our employees have continued to have access to paid leave and paid time off to be able to remain home as needed. Face masks and cleaning supplies continue to be made available across our facilities. And as noted by Executive Chairman, we have made a significant investment of $2 million to deploy Abbott Rapid Test Devices across our facilities, which has allowed us to screen new arrivals at intake and isolate and quarantine positive cases. Through the end of October 2021, we had administered approximately 184,000 COVID tests at our Secure Services facilities since the start of the pandemic. We also invested $3.7 million to install bipolar ionization systems at Select Services facilities to reduce the spread of airborne bacteria and viruses. We have been working closely with our government agency partners and local health departments to increase vaccination rates at our facility. At the end of October 2021, approximately 39,000 individuals in our Secure Services facilities have been fully vaccinated, representing approximately 65% of the population in our facilities. We will evaluate our mitigation efforts and we'll make adjustments based on updated guidance by the CDC and other best practices. With respect to recent contract activity, during the third quarter, we renewed four contracts with immigration processing centers, where we provide support services on behalf of the U.S. Department of Homeland Security. We also entered into a five-year contract with Clearfield County, Pennsylvania, to provide support services at Moshannon Valley facility in connection with a five-year intergovernmental agreement between the County and the Department of Homeland Security. Support services we provide at immigration processing centers are highly rated by national accreditation organizations and are delivered in a safe and humane environment. All those entrusted to our care at immigration processing centers are provided culturally sensitive meals approved by registered dieticians, clothing, 24/7 access to healthcare services and full access to telephones, legal services, and faith-based opportunities. Recreation amenities at our immigration processing centers include flat-screen TVs in the housing areas, multipurpose rooms, outdoor covered pavilions, artificial turf soccer fields, and exercise equipment. The healthcare staffing at these centers is approximately more than double that of our state correctional facilities, which is needed to provide appropriate treatment for individuals who have numerous and diverse health and mental health needs. During this third quarter, we also received a six-month extension for our U.S. Marshals contract at the Western Region Detention facility in San Diego. At the state level, on November 1, we transitioned the operation of our Guadalupe County facility to the New Mexico Corrections Department. Effective that same date, we began a new lease agreement with the State of New Mexico for use of the Guadalupe County facility. The lease has a two-year base period and successive two-year renewals through October 30, 2041. In the third quarter, we also completed three facility deactivations including the previously announced transition of the managed-only contracts for the Graceville and Haven facilities in Florida to another operator and the discontinuation of our managed-only contract for the Dungavel Facility in Scotland. We were notified by the Bureau of Prisons of the non-renewal of our contracts for the Big Spring and Flightline Facilities in Texas at the end of November 2021. These renewals are consistent with our prior expectations, and we have been preparing operationally to complete the rent-out of these two facilities. In Delaware County in Pennsylvania, we received notice that the county intends to take over the management of the managed-only George W. Hill facility effective April 2022. Our team will be working with county officials to ensure a smooth transition. Finally, with respect to the procurement activity, we are preparing our response to a recent request for proposals in Arizona for up to 2,700 beds, which can be located either in-state or out of state.

Thank you, James. Good morning, everyone. Unfortunately, the President of our GEO Care business unit, Ann Schlarb, is unable to join us today. However, I'm pleased to provide you with an update. During the third quarter, our GEO reentry facilities and programs have remained focused on the implementation of our COVID mitigation strategies and practices consistent with the guidance issued by the CDC. We continue to focus our efforts on increased sanitation, testing and deploying face masks, and we have ensured that our employees continue to have access to paid leave and paid time off to remain home as needed. We evaluate our mitigation efforts on an ongoing basis, and we'll make adjustments as appropriate and necessary based on updated guidance by the CDC and other best practices. Operationally, our GEO Reentry services division had an active third quarter with the opening in early September of our new 118-bed residential reentry center in Tampa, under contract with the Federal Bureau of Prisons. We also opened four new day reporting centers in Tennessee and two new day reporting centers in Louisiana with capacity to provide services for up to 540 individuals. We successfully renewed four residential re-entry contracts during the third quarter, two with the Federal Bureau of Prisons and two with state correctional agencies. As we disclosed last quarter, on July 1, we completed the divestiture of our youth services contracts, which resulted in the assignment of the contracts to an independent nonprofit entity. We retained the real estate ownership of our six company-owned youth services facilities and entered into a lease agreement with the new operating entity. Moving to our electronic monitoring division, we are very pleased with the continued sequential growth in quarterly revenues for BI, which provides a full suite of electronic monitoring and supervision solutions, products and technologies. Finally, we continue to be optimistic about the future of our GEO Continuum of Care Program, which integrates enhanced in-custody rehabilitation, including cognitive behavioral treatment, with post-release support services. Our award-winning GEO Continuum of Care program is part of GEOs contribution to criminal justice reform, and the primary objective of our program is to reduce recidivism. We believe that the program provides a proven successful model on how the 2.2 million people in the U.S. criminal justice system can be better served in changing their lives. Our efforts are not in competition or in conflict with other national initiatives regarding offender sentencing reforms. In fact, we applaud these efforts. With our GEO Continuum of Care, we seek to draw national attention to the many still incarcerated in need of a more structured and comprehensive approach to rehabilitation. We also believe that the success of this initiative can position GEO to pursue additional quality growth opportunities. In closing, we are pleased with the financial results and the significant progress we have made towards reducing debt and de-leveraging our balance sheet. We believe that our company remains resilient with strong earnings and cash flows that are supported by valuable real estate assets and diversified contracts entailing essential government services. We recognize that despite our steady financial performance, there continue to be concerns regarding our future access to financing, and we are taking proactive steps to address these concerns. We believe that our focus on debt reduction and de-leveraging our balance sheet, our review of potential sales of company-owned assets and businesses, our ongoing evaluation of potential capital structure alternatives with the assistance of our financial and legal advisors, and our board's ongoing evaluation of our corporate tax structure are all prudent steps as we work towards addressing our future debt maturities. We believe that these efforts are in the best interest of our shareholders and other stakeholders. Over the last four months, I have had an opportunity to work closely with members of our team across our diversified business divisions. And I've been impressed with the talent, professionalism and dedication of our employees. I'm looking forward to continue working together with our management team and our board as we execute on the future strategic direction of the company. That completes our remarks. We'd be glad to take any questions.

We will now start the question-and-answer session. The first question comes from Joe Gomes with NOBLE Capital Markets. You may proceed.

Good morning, and thanks for taking my questions. So first I wanted to ask a little bit on ICE, looking at some of the information that comes out from ICE there. ADP has been falling here the past month or two. There is the whole issue on title 42. Just trying to get an idea on how you've been seeing your ICE populations. Your thoughts on title 42. And also nice deal to see Moshannon Valley. Are there any of the other your recently closed facilities that ICE might be looking at in order to enter into new contracts?

Well, we continue to market all of our idle facilities to federal and state agencies, as exemplified by the recent lease with the State of New Mexico, the opening of the Moshannon facility under contract with the county for ICE purposes, and I think that facility was more directed to a consolidation of ICE services in the surrounding states. So we've made our facilities known to the ICE officials, as far as where they're located geographically, their capacities and so forth, and they are evaluating those facilities.

And in terms of your ICE population, quarter-over-quarter?

I think it went up during the quarter, and it went down towards the end of the quarter. So the reason for that, we really don't know, because there's approximately 200,000 people coming across the border monthly. So all detention, as we've said many times, is selective detention, and we're not involved in those decisions. We merely provide the secure housing to support those decisions.

Right. Okay. Thank you on that. And you mentioned a couple of times in the call here, the potential sale of company assets. And obviously, there's been some press about the potential sale of your BI business. I was wondering, could you comment a little bit more on that if, for example, it was to be sold. Do you lose any type of synergies with the rest of the remaining businesses? And then, again, you mentioned that it did very well in the quarter, the electronic monitoring business. And just wondering what is driving the positive momentum in that business?

Regarding your first question, we are not allowed to comment on any potential asset sales due to SEC regulations, so we cannot address rumors. However, the ISEP program has seen significant growth since the start of the year, with an increase during the quarter followed by a slight decrease towards the end of the quarter, which is somewhat comparable to our ICE detention.

Okay. Thank you for that. And I noticed you guys increased the fourth quarter guidance from where it was in the third quarter. I was just wondering, again, what is behind that when you listen to your call? And if you've lost some contracts here, what is driving the increase in estimated revenues? And pardon me net income attributable to GEO for the fourth quarter?

I think in some of our facilities, we have seen some improvements in populations or occupancies. And we're also continuing to experience good cost control, I think, in other facilities. And so the net of those two, we've taken into account in the fourth quarter. It's been pretty consistent through the first nine months of the year. So we've assumed some of that going forward as well.

Okay. And you mentioned new opportunity that you're working on in Arizona. Any other new state opportunities that you can tell us about?

No, that's the only public procurement that we can acknowledge at this time.

Okay, great. Thanks for taking the questions. I'll get back in queue and let someone else ask questions.

Thank you.

Our next question comes from Kirk Ludtke with Imperial Capital. You may go ahead.

I have just a couple topics I'd like to follow up on and a couple of new ones. One is the minimum wage litigation. I'd like to revisit New Mexico for a second. And as well as BI. With respect to the minimum wage litigation, I'd like to understand the contracts a little bit better. And more specifically, who's responsible, if this goes against you and you're forced to pay back wages? Is that a cost that ICE assumes under the contract, or is that something that you would have to pay for?

In the unlikely scenario you've described, we would likely need to cover the wages initially, but we may have a legal foundation for a claim against ICE. I want to stress how unlikely this is, as there has been a recent court ruling from the Fourth Circuit Court of Appeals that directly addresses this issue. The ruling essentially states that individuals in a confinement facility are not part of the workforce and cannot be considered employees. Due to their confinement, they are not entitled to minimum wage payments. Additionally, it is against federal law to employ illegal aliens or migrants who enter our country.

Okay, thank you. That's helpful.

In our contracts, let me add a couple of things. Our contracts specifically say that the detainees in our custody cannot be employees. We cannot use them as employees.

Okay, that's helpful. Thank you. I suspect that this could be an issue with respect to other customers. Are the contracts the same in terms of how detainees or prisoners are compensated?

The ICE contracts have very standardized terms. And this is one of them, that there is a requirement in each ICE contract and ICE being partnered with the Department of Homeland Security. A portion of the contract requires that a voluntary work program be established predominantly to reduce idleness in the facility for the detainees, and for them to have an opportunity to contribute to the well-running of the facility and the services they themselves receive. We administer that program as required in the contract. But the compensation for that program is stipulated in the contract and by Congress. And the contract is to come up for 15 years and said that the amount shall be $1 or no less than $1. And that's the payment that's been made. And that's the typical tax in all of our ICE contracts.

Okay, thank you. That's helpful. Are the contract provisions with respect to this issue the same with the states, your state customers?

No, it probably varies from state to state. And any payment that we would make would be pursuant to similar payments that the state makes in their own facilities. Though, it's probably a few more dollars more. But it's not more than that. In no state facility that we operate, in no state law that we come under requires the payment of minimum wage to inmates who are confined in incarcerated in the facility.

Okay, thank you. With respect to New Mexico?

Yes.

Are there other states that you think might start assuming the operations of facilities? I'm curious if other states are interested in something similar. How does the profitability of the facility change before and after the transition? What are your thoughts on the leasing model in general? Do you think it's something you'd like to pursue more?

We are marketing our idle facilities to other governmental organizations. And one of the possibilities is obviously the leasing model and we're very open to it. We, as currently as a REIT, it's part of our business model. So we're very comfortable with that concept. And we're comfortable with us being either the operator or not being the operator.

And the profitability. I know you don't want to say specifically what you make there, but directionally is it more or less profitable after the transition?

It all depends on what occurred before the transition, whether it depends on the prior occupancy levels of the facility. So there's a lot of factors that go into it. So I really can't generalize on the experience of one situation.

Got it. Okay, thank you. And moving to BI for a second. Is this a good CapEx run rate? I mean, it was a revenue picked up sequentially, quite a bit in the quarter, which was good to say is, but is this a CapEx run rate we should be thinking about for BI?

Well, there's some, I think as we've said before, there's some transition of technology. So the CapEx rates are a little bit higher right now. I'd say $5 million to $10 million, but that should complete next year. So this rate that we're experiencing this year should be consistent next year, and then after that, I think it would take for some depending on how much they're growing.

Okay, thank you. That's helpful. And then lastly, I saw some press reports about a facility in Alabama. Did you mention this? And I missed it, or is there something, some opportunity there?

We've been in discussions with Alabama for several years now and their interest is presently of the potential purchase of the facility.

But nothing concrete yet?

But I believe they need legislative authorization to move ahead with that.

Our next question comes from Mitra Ramgopal with Sidoti. You may go ahead.

Yes, hi, good morning. Thanks for taking the questions. First, just a couple on occupancy levels. I was curious if you're seeing any easing of COVID restrictions that's resulting in some of the improved occupancy at some of the facilities you mentioned?

I don't know if it's the easing of restrictions, or rather the inverse that we are stepping up our vaccination program of staff and individuals inside the facility and better treatment protocols. And it appears to be a virus that we're going to have to deal with for some time. So we're in our, I guess, second year of this virus, and we're getting accustomed to the required protocols for dealing with this virus and social distancing within the facilities with testing people when they come in as they go out and so forth, so better procedures through longer experience.

Okay. If I remember, I think it was a restriction of maybe 75% in terms of capacity. I was wondering if maybe that for example, might have changed?

No, I don't know any restrictions.

The facilities, there was some time. I don't know if that's been lifted or not yet.

Okay, okay.

And we see a wide difference in occupancies. And I don't know if it's driven by the prior statement of you can't. I think that that statement is still generally enforced, you can't go above the 75. But where you are below 75 depends on a number of factors.

Okay, thanks for clearing that up. And just curious on the U.S. Marshal facilities if you're also maybe benefiting from increased activity in terms of court and sentencing, et cetera at the Federal level?

Well, I think there has been a general increase in our U.S. Marshals count in the several facilities we have for the Marshals Service around the country.

Okay. On the BI business, I know you don't comment specifically on it, but I was just wondering if there's anything you're doing to drive the increases we're seeing there?

The increase in participant counts has been driven by the administration really policy decisions.

Okay, so that's something you currently focus on.

Yes, the activity at the border that George mentioned earlier, with several hundred thousand people per month crossing the Southern border, includes some individuals being placed into the program. Certainly, not all of them, but some are.

Okay, thanks. And I'm just wondering if you had any comment on the favorable ruling you got in terms of the California Bill that they were trying to pass and how that might affect you going forward?

Well, we think it was a historic ruling in the sense that it affirms that states cannot discriminate against the federal government regarding the implementation of immigration policy. In that particular case, the state had provisions allowing themselves to use private sector facilities for a period of time. And it did not provide the same benefits to the federal government. In fact, it required the closure of federal facilities. So that was part of the ruling, that the State law 32, was inherently discriminatory against the federal government.

Okay. And as I think you mentioned, you're still evaluating the corporate tax structure. Should we expect an announcement on that front in conjunction with the year-end earnings release?

I would say by year-end or that time for sure.

Our next question comes from Henry Coffey with Wedbush. You may go ahead.

Yes, good morning. And thank you for taking my questions. No, with the BI Electronic Monitoring and location monitoring, obviously, that is benefiting from ICE counts. But are there any policy initiatives that could really alter the equation there, mainly to the positive you have a whole new possible rethink on how to manage immigration populations, et cetera, something I would really I mean, we see where the growth is coming from, but an initiative that would really change the equation or?

I don't think it's necessary for a new initiative. The contract itself allows for a significant increase in the numbers of people who participate in the program. So it continues to be used, as you know, I think the idea of alternatives to detention is being more popularized and receiving support on a bipartisan basis. It's cheaper, and it's effective and the technology is being continuously improved. And therefore, it's gaining popularity in its usage.

And then, on this minimum wage situation, is this something that has caused you to pause and then put in an amendment to all your existing contracts to clarify who's at risk if there is a change?

No, no, we believe the law is clear. There's been 100 court cases on this subject regarding confined detainees or inmates as to whether they're entitled to minimum wage law in all of those courts have ruled in the negative, they're not. And most recently, I think it was in March, the Fourth District Court of Appeals ruled on a core civic lawsuit that involved a facility in New Mexico. And it was a unanimous decision. And I think one or two of the judges were democratically recommended judges from prior Democratic administrations. And it was a unanimous ruling that people who are under confinement are not in the workforce and by definition cannot become employees.

So the current case is more of an anomaly in your view than of some substance?

Yes, in this particular court hearing, the Fourth Circuit Court of Appeals decision was not accepted or allowed to be argued. And Washington is in a different circuit, they're under the Ninth Circuit. And it was the first time that circuit has undertaken this issue. And we're disappointed obviously in the outcome. But we are very optimistic about the ultimate end result that it's fairly well-established case law in just general understanding that people who are being confined, such as inmates or detainees, are not in the workforce and do not have the ability to be treated as or compensated as employees, they're there 24 hours a day, they're under confinement, they don't get to bargain for their wages. They're not part of the workforce.

And then finally on the REIT issue, given the minimal cash strain from sort of a combination stock and cash dividend, what are the open issues that are preventing you from kind of coming to a quick and final resolution? How are you balancing one against the other and what's at risk here and what's driving the decision process about whether you'll hold or drop REIT status?

We are currently collaborating with our financial and legal advisors to determine the best structure for the company in the future. This goes beyond just the REIT status; we also have debt issues to address. It is a thorough review process, and once we progress further, we will come to a decision and make an announcement regarding it.

Can you give us any insight into what the issues at hand are around this?

Consideration we're looking at, what's the best use of the company's cash flows going forward? Where are we going to get the most value for the cash flow that we generate? Is it dividend? Is it paying down debt? Is it reinvesting in the business? And how much liquidity do we want to have as a company as we move forward? How is the market? Right tax rates? And how is the market acknowledging the dividend that we were substantial paying that was fairly substantial previously, and I would argue that it wasn't necessarily reflected in the equity value. So we're looking at all of those things. We're reviewing them as a management team and working with our board and the financial advisors. As George said earlier, we expect to come to some conclusion with that by year-end.

Our next question comes from Jordan Sherman with Ranger Global. You may go ahead.

Yes, thanks. Can you guys hear me now?

Yes.

I wanted to inquire about the court case in Washington. Can you provide a timeline of the next steps? Will you be filing an appeal, and when is that due? Additionally, what do you anticipate the progression of this matter will look like?

I think the timeline is month-by-month for the appeal and then it could take several months for the case to be heard and several months thereafter for a ruling to be established.

Right. The only clear timeline is that you have about a month to file the appeal, and after that, it will take time as it moves through the courts.

Yes, yes.

Okay, perfect. Then separately, regarding the other ICE contracts that are set to expire this year, do you have any updates on their status? I apologize if I missed any comments you made about them.

Contracts or BOP contract?

Well, I know the BOPs, the BOP you've got notice on Big Springs and Flightline, right?

Yes, we renew the overall contract. Yes, there is ICE contracts that are expired this year.

That's the end of it. So this year, next year, we have a couple?

Well, we always have a couple. I mean, even they come up to their renewal date. I don't think we have any expirations, per se.

Well, renewal dates. I apologize, I've missed both.

There could be a couple of renewal dates next year.

Are those in discussion already? Any thoughts about how those will?

Now, not really, not at this time.

Good. Still too early. Okay. I want to clarify and confirm that I've heard correctly. You mentioned that the only active RFP at the moment is the one in Arizona?

That comes to my mind the only public RFP statement is the Arizona State RFP.

And I was under the understanding that they wanted to complete that this year?

No. I think it's going to be a decision for early next year. And the award could be two awards. Because that number of beds, I don't believe is available at any single facility.

Okay, it could involve multiple contracts. I apologize for that.

Because they're high security prisoners, and they require cell type housing.

Got it. Okay. So in terms of public RFPs, there is only one. Are there any updates on discussions with other states regarding their possible needs?

No, I can't comment. But there are conversations and those kinds of transactions that do not require RFPs.

Given me a set differently. Is any other state announced that they have a need for beds and might go be looking for them? Let me say it that way?

I can't comment.

Okay, so no one has said publicly that they are out looking for beds type of thing. I'm not asking you to say something quick and say I'm just saying, if there are states that have said that they're out looking for beds, and they've made those comments publicly, then you should be able to…

I can't confirm anything definitively because there are always news articles with various statements that don’t necessarily result in a request for proposal or anything similar. For example, Idaho has made comments in the past, and even in Florida, someone spoke about consolidating and constructing larger facilities. There’s always these kinds of discussions, but I’m not sure there’s anything concrete pertaining to our industry.

Do you expect that we will receive some RFPs for additional facilities, indicating enough activity for us to have a chance at securing contracts?

Our inclination is to time it in our aspirations, our do not include RFPs.

So there are discussions that you believe are advanced enough to move on to that topic. The two Texas facilities are currently part of your plans to either shut down or close them?

Well, they're being wound down by the BOP that's removing prisoners and relocating them, but we are actively marketing those two locations.

I guess when will BOP have fully wound those down?

By the end of this month.

By the end of this market? Okay.

As far as the inmates in the facility.

What type of visibility would you need on those potential contracts? Like how long could you keep those facilities or people in place in hopes of getting a contract? Does that make sense?

Yes.

My answer is it's under review at this time, pending our review of what our potential opportunities are.

And I guess I've been asked that…

We have made a decision. Yes.

Yes. I appreciate that. I guess more generically, if this facility winds down. How long we're? I guess it’s going to matter how close you think you are to a separate contract?

Yes, situational.

This concludes our question-and-answer session. I'd like to turn the conference back over to George Zoley for any closing remarks.

Well, thank you very much for participating in today's call. We look forward to addressing you on the next one.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.