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The GEO Group's 2009 Q2 Conference Call Outlines Plans for Profit

On August 3rd, The GEO Group held their second quarter conference call for investors. In this meeting, the company outlined the deals that have been enacted so far this year as well as plans for future profit. Their total Q2 revenue came to $276 million, which they stated would rise to $300 million by the end of next quarter. The company CEO, George Zoley, attributed this expected rise in revenue to the 5,900 additional beds created in 2008 which have been filling up. He additionally noted the significance of the 100 bed addition to the Florida's Broward Transition Center contracted with ICE, as well as the 192 bed expansion to Georgia's Robert Deyton Detention Facility which is contracted with the U.S. Marshals.

The most discussed change within the investors (if the question and answer portion of the call is any indication) was the U.S. average per diem cost increase for holding detainees, up to $53.97 from $53 during this time last year. The per diem rate is what a private prison company charges its clients per day for each detainee in their facilities. This rate is a key component of how a company accrues its income, and is different for each contract, as each state has their own rules, regulations, and costs of living (but the per diem rates are also largely negotiable and dependent on the hardball negotiations of those doing the "dealings"). The per diem rate is a lump sum includes services for inmates such as food, healthcare, utilities, etc. as well the costs of staff salaries and facility maintenance. If a per diem is too low and expenses too high, the company will begin to lose money. Additionally, if a per diem is too high, the company's services will seem less appealing to their clients who think they could do the same job for cheaper--the key is to find the lowest per diem rate that will both cover the necessary expenses for running a prison while giving a desirable profit for the company without gouging their clients. One reason that GEO board members attributed this rise in per diem rates to was the increase in the Department of Labor's mandated salary requirements. Because their prison employees are required to have higher wages, prison companies are asking for more money to cover the pay difference. The GEO representatives stated that staff turnovers in their facilties are low (meaning that there are less new guards who need training--an expense) except for in two unnamed Texas facilities where employment is low. Having low staff turnovers means they have less required expenses for training, and more room for profit. However, a critical investor was worried that the cost of living in a recessing economy might surpass the per diem rates (if not now, maybe in the future), but GEO's representatives skirted the comment without declaring their average per diem or total expenditures and simply reassured the caller that their low staff turnover and refined staff vacation policies are sufficient enough to keep their expenses below their per diem rates.

Zoley also went over their newest additions for the year as well as outlined upcoming projects that are scheduled for completion in the near future. In January, the company completed a 192 bed expansion at the Robert Deyton Detention Facility in Georgia, as mentioned before, and stated that it will add $4 million to their operating revenues. This year, the company has also assumed management of the 256 bed Harmondsworth Immigration Removal Centre in the United Kingdom, and stated that they plan to expand it by another 364 beds by the end of June 2010. Other noted important expansions are with Florida's Graceville Correctional Facility where another 384 beds will be added to the already existing 1,500 by the end of the year. Also, The Geo Group's 1030 bed immigrant detention facility, the Northwest Detention Center in Tacoma, WA is planned to see an additional 545 beds by the end of the year. Lastly, in Aurora, CO, the company plans to expand its 400 bed facility almost 200% by adding 1,100 beds to their Aurora ICE Processing Center by the year's end. Zoley cited that the Tacoma and Aurora facilities are expected to have "a material impact" on the company, and The GEO Group plans to put the majority of their remaining fiscal yearly budget of $84 million into these facilties over the next two quarters, as they are planned to be the largest money-makers for the company.

George Zoley discussed why these expansions were necessary and had the following to say:

"The main driver for the growth of new beds at the federal level continues to be the detention and incarceration of criminal aliens. The U.S. Marshals service and the [Bureau of Prisons] both house criminal aliens facing criminal charges or are serving time as a result of a conviction. The ICE population includes approximately an equal number of undocumented aliens and criminal aliens who have completed their Federal or state sentences and are awaiting deportation. More than 2/3rds of the 10,000 aliens housed at our federal facilites are criminal aliens with less than 1/3rd being non-criminal aliens."

With the $1.4 billion in federal funding for ICE's Secure Communities Initiative, The GEO Group is wasting no time to get their piece of the proverbial pie.

Since the conference call and the end of the company's second quarter, GEO's subsidiary company GEO Care has bought out Just Care, Inc. for $40 million. GEO Care is The GEO Group's project to house mentally-ill inmates as well as sex offenders in separate housing facilities to try and rehabilitate them in a more conducive atmosphere for their illnesses. The acquisition is expected to increase the yearly revenues by $30 million, meaning the company's projected 2009 total yearly revenue is expected to exceed $1.1 billion. With the Federal prisons operating at 137% total capacity, some serious legislative work for crime control and alternative sentencing is needed to decrease the prison population or else we can expect to see these staggering numbers rise in the near future.

See the latest economic developments for GEO Group's largest competitor, Corrections Corporation of America here.

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