The GEO Group, Inc. (GEO) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q4 2013 GEO Group, Inc. Earnings Conference Call. My name is Sue, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Pablo Paez, Vice President, Corporate Relations. Please proceed, sir.

Thank you, operator. Good morning, everyone, and thank you for joining us for today's discussion of The GEO Group's fourth quarter and full year 2013 earnings results. With us today is George Zoley, Chairman and Chief Executive Officer; Brian Evans, Chief Financial Officer; John Hurley, President of GEO Corrections and Detention; and Jorge Dominicis, Senior Vice President of GEO Community Services. This morning, we will discuss our fourth quarter performance and current business development activities. We will conclude the call with a question-and-answer session. This conference call is also being webcast live on our website at www.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 Forms 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?

Thank you, Pablo, and good morning to everyone. Thanks for joining us as we review our fourth quarter and year-end results, provide an update of our efforts to pursue quality growth opportunities and return value to our shareholders. We believe our strong quarterly and annual earning results, as well as our outlook for 2014, are representative of the continued growth in our earnings and cash flows. Our strong financial performance continues to be driven by sound operational financial performance from our diversified business units in the U.S. and internationally. During the fourth quarter of last year and the first quarter of this year, we achieved a number of important milestones with the activation of approximately 5,700 beds, which are expected to generate close to $100 million in annual revenues. In October of last year, we began the intake of inmates at our Central Valley and Desert View facilities in California under 5-year contracts with the California Department of Corrections. The reactivation of these facilities, which are owned and total 1,400 beds, is expected to generate approximately $31 million in annualized revenues. We also signed a new long-term agreement for our Golden State facility in California, which expanded the facility's contract capacity by 100 beds to 700, effective November of last year. This contract capacity expansion is expected to generate more than $2 million in additional annual revenues. In Florida, we assumed management of the Graceville, Moore Haven and Bay Correctional facilities totaling 3,854 beds effective the 1st of this month. These managed-only agreements are expected to generate more than $56 million in annualized revenues. We also recently announced a contract capacity expansion at our company-owned Rio Grande Detention Center in Texas from 1,500 to 1,900 beds. The center will house detainees for both the U.S. Marshals service and ICE and is expected to generate combined annual revenues of $38 million. Additionally, we are developing a new 400-bed transfer center at the England Airpark in Alexandria, Louisiana, as an annex to our LaSalle Detention Facility in Jena, Louisiana under our existing contract with ICE. The development of the new center is expected to be completed during the fourth quarter of 2014 and is expected to generate an additional approximately $8.5 million in additional annual revenues. In addition to these important projects, we took several importance steps to strengthen our balance sheet during 2013. First, in April of last year, we refinanced our senior credit facility and attained a more flexible debt structure with the issuance of $300 million in senior notes in March, a historically low rate for our company of 5 1/8%. Then last October, we completed a $250 million offering of senior notes at a rate of 5 7/8% along with a tender offer and redemption of our existing notes due 2017, which had a coupon rate of 7 3/4%. Additionally, we completed the defeasance of non-recourse bonds associated with our company-owned South Texas Detention Complex, which allowed us to save $5.5 million in annual principal debt payments. All of these important steps have given us more flexibility as we continue to pursue accretive growth opportunities and look to return increasingly more value to our shareholders. As we announced this morning, we have increased our quarterly dividend to $0.57 per share, which reflects the growth in our AFFO and is consistent with our stated guidance to pay at least 75% of our AFFO in dividends, with a goal to increase our dividend payout ratio over time. As we have expressed to you in the past, our board and our management team remain focused on the careful evaluation of our allocation of capital to enhance shareholder value. With respect to our outlook, we continue to be optimistic regarding several new opportunities we are currently pursuing. We continue to actively market our current inventory of idle facilities with approximately 6,000 beds. As we have previously discussed, we estimate that the reactivation of our 6,000 idle beds would add approximately $0.65 to $0.70 in annualized AFFO. There are several publicly known opportunities at the federal and state level, which we are currently pursuing, which total more than 10,000 beds including the recent procurement issued by the state of Oklahoma for up to 2,000 existing beds in state. Further, we are exploring a number of non-public opportunities that relate to both new project development, as well as potential asset purchases. We believe that our company is well positioned to benefit from these important opportunities. We believe that our company has attractive investment characteristics, which are underpinned by our robust real estate portfolio of company-owned and leased facilities. Our total real estate portfolio encompasses more than 15 million square feet in owned, leased and managed facilities and we own more than 4,000 acres of land across the United States. We currently own or lease approximately 70% of our facilities and 60% of our beds worldwide. And more than 70% of our net income is generated by our company-owned and company-leased facilities. We have stable and sustainable income through increasingly longer-term contract arrangements. We have a diversified base of investment-grade government customers with multiple individual contract arrangements with no single customer contract representing more than 5% of our revenues. We have historically enjoyed solid occupancy rates in the mid to high 90s and strong customer retention rates in excess of 90%. Our long-term assets have a physical useful life of 75 years plus and require relatively low levels of maintenance CapEx estimated at approximately 5% of our net operating income. Now I would like to turn the call over to Brian Evans to review our financial performance and outlook.

Thank you, George. Good morning, everyone. We are pleased with our fourth quarter and year-end results, as well as our outlook for 2014. As disclosed in our press release today, our adjusted funds from operations for the fourth quarter 2013 increased to $0.72 per share from $0.67 per share last year. On a GAAP basis, we reported fourth quarter 2013 earnings of $0.38 per share compared to $1.32 per share a year ago. Our fourth quarter 2013 GAAP results reflect a non-recurring tax benefit of $8.1 million. This benefit was offset by $1.2 million in after tax startup expenses associated with the activation of our Central Valley and Desert View facilities in California; $700,000 in REIT conversion-related expenses; and $8.4 million after tax related to the write-off of deferred financing fees associated with the tender offer and redemption of $250 million bonds of our 7 3/4% senior notes due 2017. Total revenues for the fourth quarter 2013 increased to approximately $384 million from $379 million a year ago. Approximately, 60% of our revenues are generated by company-owned and company-leased facilities. For the fourth quarter 2013, we reported net operating income of approximately $109 million before real estate-related operating lease expense of approximately $6 million, up from NOI of $104 million before real estate-related operating lease expense of $6 million in the fourth quarter 2012, more than 70% of our annualized generated by our company-owned and company-leased properties. Our fourth quarter 2013 results reflect the activation of Central Valley and Desert View facilities in California and the contract expansion at our Golden State facility, also in California, as well as the normalization of new contract wins by our community reentry and electronic monitoring services divisions during 2012. Our reconciliation for net operating income has been adjusted to present NOI both before and after the effect of real property operating lease expense, consistent with common REIT disclosures. Moving to our outlook for 2014. As George mentioned, our initial guidance for this year is reflective of the continued growth in our earnings and cash flows. We expect 2014 revenue to be in a range of $1.6 billion to $1.62 billion and our 2014 AFFO per share to be in a range of $2.96 to $3.04 per share or $213 million to $219 million. On a GAAP basis, we expect our 2014 earnings to be in the range of $1.78 to $1.86 per share. Our 2014 net operating income is expected to be in the range of $448 million to $454 million before real estate-related operating lease expense of approximately $25 million. And our 2014 adjusted EBITDA is expected to be in the range of $320 million to $326 million. We expect first quarter revenues to be in the range of $387 million to $392 million and our AFFO per share is expected to be in the range of $0.63 to $0.65 per share or $45 million to $47 million. On a GAAP basis, we expect our earnings for the first quarter 2014 to be between $0.32 and $0.34 per share. Compared to our fourth quarter 2013 results, [Audio Gap]

We have lost the speaker for your call today, so we will just wait for him to rejoin. Thank you. [Technical Difficulty]

Thank you, everyone. Sorry for that technical difficulty. So we'd resume now. We expect our first quarter revenues to be in a range of $387 million to $392 million and our AFFO per share is expected to be in a range of $0.63 to $0.65 per share or $45 million to $47 million. On a GAAP basis, we expect our earnings for the first quarter 2014 to be between a $0.32 and $0.34 per share. Compared to our fourth quarter 2013 results, our first quarter 2014 AFFO guidance reflects $0.05 to $0.06 per share in additional employment tax expense as a result of the seasonality in unemployment taxes, which are front-loaded in the first quarter of the year. Additionally, first quarter 2014 AFFO guidance reflects approximately $0.02 per share in start-up expenses related to the activation of our recent correctional contracts in Florida, as well as new day reporting centers in Pennsylvania. And the first quarter is normally impacted by seasonal fluctuations in our federal populations, representing approximately $0.02 to $0.03 per share. From first quarter to second quarter 2014 AFFO, we would expect lower unemployment tax expense of $0.04 to $0.05 per share. Additionally, our second quarter 2014 AFFO guidance reflects normalized contribution from our recently activated beds in California and Florida, the expanded capacity in our Rio Grande Detention Center in Texas and new business from our reentry in electronic monitoring divisions, along with the normalization of the seasonal fluctuations in federal populations, all of which represent approximately $0.08 to $0.10 per share in positive AFFO contributions. For the third and fourth quarters of 2014, we expect a similar quarterly run rate in AFFO as in the second quarter, resulting in our AFFO guidance range of $2.96 to $3.04 per share for the full year 2014. Our guidance does not assume the potential reactivation of our idle facilities totaling approximately 6,000 beds or any new projects, both of which would represent significant upside to our financial performance. As George mentioned, we took several important steps in 2013 to strengthen our balance sheet, which resulted in a more flexible debt structure and allowed us to eliminate approximately $30 million to $35 million in mandatory annual principal payments. With respect to our liquidity position, as of the end of the year, we had $52 million in cash on hand approximately $300 million in available capacity under our revolving credit facility, exclusive of $340 million in outstanding borrowings and approximately $60 million set aside for letters of credit. With respect to our uses of cash, we expect our project and growth CapEx to be approximately $15 million in 2014 and we have approximately $20 million in scheduled annual principal payments of debt. With that, I will turn the call to John Hurley for a review of our corrections and detention market.

Thank you, Brian, and good morning, everyone. I'd like to address select publicly known business development opportunities in our key segments, starting with the federal market and the 3 federal government agencies we serve. Again, we have long-standing partnerships with the Federal Bureau of Prisons, the United States Marshals Service and U.S. Immigration and Customs Enforcement, or ICE. And we provide cost-effective solutions for them at numerous facilities across the country. We continue to see meaningful opportunities for us to partner with all 3 of these federal agencies. The Federal Bureau of Prisons continues to face capacity constraints, coupled with a growing offender population and ICE and the U.S. Marshals continue to consolidate existing populations into larger, more modern facilities, which has driven the need for additional private beds. With respect to recent contract awards, we recently announced a 400-bed contract capacity expansion at our company-owned Rio Grande Detention Center in Laredo, Texas to 1,900 beds under our existing contract with the U.S. Marshals Service. Under the expanded contract, the U.S. Marshals Service will house up to 1,228 offenders at the center with 672 beds reserved for use by ICE. The 1,900-bed center is expected to generate approximately $38 million in annual revenues. Additionally, late last year, we signed a contract with ICE for the development and operation of a new $20 million, 400-bed transfer center in Alexandria, Louisiana as an annex to our LaSalle Detention Facility. The new company-owned center will be completed in the fourth quarter of 2014 and will generate an additional $8.5 million in annual revenues. With regard to pending procurements, the Bureau of Prisons has issued a solicitation with 2 requirements. Each requirement is to house approximately 1,565 to 2,000 low-security adult males. One facility must be located in one of the following states: Ohio, Michigan, Pennsylvania, New Jersey or New York. The other proposed facility may be located anywhere in the Continental United States. This procurement will include the rebid of our company-owned facility in Pennsylvania, which contract expires in April 2016, and the rebid of another BOP privately operated facility in Ohio, which contract expires in May 2015. Proposals for this procurement were submitted in August of last year, with awards expected mid-2014. Additionally, ICE has issued request for information for 3 company-owned and operated detention facilities ranging from 800 to 2,000 beds in Chicago, Atlanta and Houston. Turning to our state market segment. As states across the country continue to face budgetary pressures, their ability to achieve cost savings becomes even more important priority, which leads to increased interest in privatization projects. Several states across the country continue to face capacity constraints and inmate population growth. Many of our state clients require additional beds as inmate populations continue to increase and aging inefficient prisons need to be replaced with new, more cost-efficient facilities. For instance, in the states where we currently operate, the average age of state prisons ranges from approximately 30 to 60 years. With respect to recent contract activations, we've began the intake of California inmates at our company-owned Central Valley and Desert View facilities in October of last year. The 2 facilities, which total 1,400 beds, are expected to generate approximately $31 million in annualized revenues. Additionally, this past November, we expanded the contract capacity at our Golden State facility by 100 beds under our new long-term agreement with the state of California. This contract capacity expansion is expected to generate an additional $2.2 million in annual revenues. As you may be aware, the 3 federal judge panel in California has granted a 2-year extension to the state to meet the court mandated inmate population cap through the implementation of rehabilitation and reentry programs, as well as additional in-state capacity. CDCR must also meet some interim milestones. Specifically, they have to reach 143% of capacity by June of this year, 141.5% of capacity by February of 2015 and then to the final benchmark of 137% of capacity by February of 2016. We continue to have approximately 1,000 beds available at 3 facilities in state of California and our reentry services division has a well-established network of community reentry facilities and day reporting centers throughout the state of California. In Florida, we've seen management of 3,854 beds at the Graceville, Moore Haven and Bay Correctional facilities effective February 1 of this year. These managed-only agreements are expected to generate approximately $56 million in annualized revenues. These important awards strengthen our long-standing partnership with the state of Florida, which has generated significant savings for Florida's tax payers and has provided significant inmate rehabilitation and treatment programs since the 1990s. With respect to new inmate procurements, the state of Oklahoma has issued a request of proposal for up to 2,000 beds at existing in-state facilities. Proposals under this procurement were submitted this past week and an award is expected before the middle of the year. We believe our 2,000-bed Great Plains Facility in Hinton, Oklahoma is an excellent fit for this important opportunity. Additionally, we believe there are several states considering public-private partnership for the development and operation of new and replacement correctional facilities, including the state of Utah which is currently evaluating options for the private development ownership and potential operation of new replacement facilities totaling approximately 5,000 beds. Finally, in our international markets, we have been shortlisted by the state of Victoria in Australia for the development and management of a new 1,300-bed prison. An award under this procurement is expected to be made in the second half of 2014. At this time, I'll turn the call over to Jorge Dominicis for a review of our GEO community services. Jorge?

Thank you, John. Good morning, everyone. Turning to our GEO community services segment. Each of our committee services divisions continues to pursue several new growth opportunities. Our reentry services division is competing for a number of formal solicitations for residential community-based reentry centers across the country. Additionally, we're working with our existing local and state correctional clients to leverage new opportunities and the provision of community-based reentry services in non-residential day reporting centers. During 2013, our reentry services division added more than $13 million in annual revenues through the expanded use of one of our Alaska facilities and with the activation of several new day reporting centers in California, North Carolina and Pennsylvania. Specifically at California Department of Corrections and rehabilitation procurement, day reporting centers resulted in contract awards for our reentry services division for 4 of 9 available sites. In Pennsylvania, we were awarded a contract late last year for 6 new day reporting centers, which are expected to generate more than $5 million in annualized revenues. We expect to compete for several other opportunities during 2014 to activate residential and nonresidential community reentry facilities around the country. Our youth services division continues to work towards maximizing the utilization of our existing asset base. Last year, we successfully undertook a number of marketing and consolidation initiatives to increase the overall utilization of our existing youth services facilities in states like Pennsylvania, Ohio, Illinois, Texas and Colorado. And we expect to continue to pursue similar initiatives. Our BI subsidiary continues to market its supervision and electronic monitoring services to local, state and federal correctional agencies nationwide. In 2013, BI added more than $5 million in annual revenues and we expect to compete on additional opportunities as correctional agencies across the U.S. increase their use of electronic monitoring technologies to track offenders who have been placed under community supervision. At this time, I'd like to turn the call back over to George for his closing comments.

Thank you, Jorge. In closing, we are very pleased with our fourth quarter and year-end results and our 2014 outlook, which continued to be driven by solid operational financial performance from our core operations in the U.S. and internationally. Our company remains focused on effectively allocating capital to enhance value for our shareholders. During the fourth quarter of last year and the first quarter of this year, we achieved a number of important milestones with the activation of approximately 5,700 beds that are expected to generate close to $100 million in annual revenues. We also took several important steps this past year to strengthen our balance sheet and attain the flexibility to return a higher portion of our funds available for distribution to our shareholders over time. As a result of these important steps and our outlook for 2014, we have increased our quarterly dividend to $0.57 per share, in line with our guided payout of AFFO of approximately 75%. We remain focused on marketing our 6,000 idled beds in inventory, which we estimate would add $0.65 to $0.70 per share to our AFFO. We are actively pursuing several publicly known opportunities totaling 10,000 beds approximately and are exploring a number of other growth opportunities for the development of new projects and the potential purchase of assets. We expect that all of these efforts will continue to drive growth for our company and create value for our shareholders. We also believe that our diversified growth investment strategies have positioned GEO as the leading provider of corrections, detention and community reentry services through a GEO continuum of care that can deliver performance-based outcomes and significant cost savings for our clients worldwide. As I have expressed during the past, we view all of these different initiatives to enhance shareholder value as complementary and none are pursuant to the detriment of the others. This concludes our presentation. We would now like to open the call to your questions.

. [Operator Instructions] First question comes from Kevin Campbell, Avondale Partners.

Bryan, I was hoping maybe you can start with some modeling questions. Can you help us with what the DNA and interest expense might look like for the full year? And then also, how should we think about the tax rate for modeling?

Yes, sure. The depreciation, I think, including intangible amortization would be approximately $24 million a quarter. Over-hedged G&A should average $27.5 million to $28 million a quarter. And going into next year, I think most of the REIT activities and the conversion activities and the impact on our tax has cleared through this year, and I think next year, we'll see that rate that we've talked about before in the 7% to 10% on a consolidated basis.

Okay. And the interest expense per quarter?

In the $20 million to $21 million range, on a gross basis, net, probably $19.5 million to $20 million.

Okay. Great. And then just to sort of digging a little bit deeper into the opportunity in the other states, can you maybe give us some color on what's happening in California and any conversations you've had as it relates to your existing CCF now that the state has gotten the flexibility in the 2-year delay? Do you think that makes your CCFs more attractive than they would have been otherwise? And any thoughts on potential timing of utilization, if at all?

We recognize that the state has an ongoing need for instant bed capacity and we've continued to be involved with the state in promoting our capacity opportunities for them throughout the state with regard to capacity, as well as enhanced program rehabilitation, which I believe is also one of their primary objectives.

Have the discussions sort of increased since the ruling? I know it's only been 1 week or 2, have they changed at all or not really?

No, not really. I mentioned that we see the number of proposals from a number of different entities. So I would think that they're assessing those proposals on which ones they will pursue. But I think they're on a fairly short timeline and those decisions will presumably be made relatively shortly.

Yes. And the BOP had an RFP for, I think, maybe it was 1,000 to 1,600 beds that was canceled third or fourth quarter last year, and it was sort of around all the issues with the budget. Has there been any discussion with the BOP about reissuing that or do you have any expectations on when they might issue RFPs for new beds rather than just rebid those existing ones?

No concrete information on that. Again, we continue to monitor the BOP's capacity needs and have frequent discussions with their leadership and await any further activity. Obviously, with the development of the budget and things around that, surrounding that, we'll have to wait until they are certain of what their situation is financially and what they're going to pursue.

Yes. Okay, and a similar question to Michigan. Obviously, that RFP that they had last year, they didn't make any awards and there were some discussion that there was flaws in the state's methodology for comparing the proposals versus the state costs. Has there been any movement there to change the state methodology?

Not that we're aware of.

And your next question comes from Brian Ruttenbur, CRT Capital.

A couple of questions. Plans that you have if you don't win Oklahoma, is that to re-idle the facility or is it to go after a federal business and put prisoners there? Now that's making the big assumption that you don't win.

Well, we would continue to market those beds for federal and state and possible local use.

Okay. So you would keep the facility active?

They're idle right now.

I thought you were reactivating it?

It's idle. There's a skeletal staff of a small complement of people, so it can be reactivated in full very quickly.

Okay. Very good. Shares outstanding, what's your guidance? What was the number? I didn't catch that.

I'm sorry, say that last question.

The number of shares outstanding that you assume with your AFFO per share and your GAAP guidance on the year?

About 72 million for the year on average.

Okay. The next question is the number of awards this year that you anticipate coming out, new awards, not rebids, that you expect coming out in the U.S. Is it going to be -- do you have a list of that, that you could run down through? For example, Chicago, Atlanta, Houston, the federal stuff, is that all going to be awarded this year? How many thousands of those are coming out? And I was just trying to figure out timing?

We've struggled with it all our entire careers. The federal procurement particularly because those procurements can stand [ph] fiscal years. We hope most of the beds would be awarded this year. As far as the state awards, the state legislatures have probably, in general, yet to go into session, so we won't know the outcome of the new opportunities until several months. Actually, normally, for us, it would be by June 30. Most of the legislatures would have decided what their objectives are and adjourned by that time and then be awaiting for final signature by the governor. So you really don't know until [indiscernible] state opportunities are.

Okay. And then on the international front, we know that you've been brought down the final 2 in Australia, would that be a calendar 2014 event award?

I believe their schedule does have that as an objective.

Okay. And then final question is on the dividend going forward, is the plan, as you continue to grow AFFO, to continue to increase your dividend and pay out a larger percent, or keeping the percentage right around here and using the extra cash flow for other purposes?

Well, we've articulated that we will maintain at least the 75% payout ratio. And over time, we'll look to step that up to 80% or more and I think that will just be a decision that's made at the board level and senior management level as we look at our capital acquirements and look to adjust that over time.

Okay. And then I have one more for George. I'm sorry, I said that was the last one. But the percentage of your wins that are not public, most of the ones we're talking about -- you talked about were all the public ones, but there's several thousand that get awarded that are negotiated. What -- is that 10%, 20% of your wins over time have been negotiated only? What do you think?

I've never done the math, but it is a growing number and I would just guess, as you have. It's between 10% and 20%.

Your next question comes from Manav Patnaik, Barclays.

This is actually Greg, calling on for Manav. Just given the attention paid to the recent California City contract with California, I was wondering if we could get your views on offering alternative structures such as owned and leased contracts?

Well, we are favorably inclined to consider a similar opportunity ourselves. And I think there were some special circumstances in the California city situation that drove those final decisions. But on a generic basis, would we be open to the opportunity of building the facility and leasing it to a government own client, absolutely.

Okay. And do you think that expands the opportunities set with some states that may have been less inclined to use private prisons in the past?

Yes, I think it does. Each new contract, I think, is -- reverberates in the marketplace as to what can be done and under reasonable terms that benefit both parties. So each successful project will probably lead to more successful projects.

Okay. That makes sense. And then, I guess, on facility acquisitions, I know a lot of it is in private conversations. But I was wondering if I could get a little bit of commentary on the progress you're seeing in the conversations with state and local governments on potential facility acquisitions?

Yes. I can only say that we're aware of a number of them. We've been contacted ourselves by individuals interested in selling facilities. But we're relatively careful as to what we invest our money in. And most of the time, they don't meet our requirements. But we're open to such acquisitions as we did with Montgomery County, Texas, which is a successful transaction for both parties.

Okay. And last from me, maybe just a little commentary on pricing, what you're seeing there. And as state budgets firm up, are you seeing any of the improved pricing?

State budgets are much improved over prior years, and that's giving them now the flexibility of doing things they couldn't do to expand capacity rehabilitation programs and obviously, puts less pressure on the current pricing and even permits adjustments to the pricing to take into account the inflation that's occurred over the years.

Your next question comes from Kevin McVeigh, Macquarie.

George, along those lines, are you starting to see an increase in existing populations with your real estate state partners as a result of kind of the economy picking up and do you see more law enforcement on the street? And if that is the case, how has that been relative to past cycles?

Sorry for the disturbance into your call, your speaker has disconnected from the line. We will play the music until we reconnect. Thank you. [Technical Difficulty]

Kevin, go ahead with your question.

Sorry about that. So George just wondering, if you've seen kind of an uptick in existing populations just based on -- the economy improving at all as you see kind of budgets start to firm. And if that is, in fact, the case, how has that been relative to prior recoveries?

I don't know what period do you want me to reflect on, Kevin?

Whatever one you think's most relevant.

I don't know how to answer the question.

In the last couple of years...

Yes, but I guess, within the last 12 months, have you seen your kind of current base states, the population increases as the economy has gotten better?

Yes. But we also go through some seasonal fluctuations in our federal business, you know that. Right now, as I looked at the census report today, it looks like there's been a pickup in the federal population, indeed.

Got it. And then just along the lines, any other asset purchases, particularly given what's happened in California, does that change the capital allocation strategy? Would you gear it more towards M&A? Or given what's happening in California, does that give you an opportunity maybe to take the dividend up at a faster rate than what you would have expected, or just kind of the way California settled, really no impact at all whatsoever on kind of capital allocation?

Well, California is one good story, but there are other good stories of opportunities elsewhere as well. And that's why we feel we're in a very good situation of having multiple opportunities and that will impact our capital planning and it will have some impact on our dividend.

Got it. And then has there been any kind of effect of the rate, any impact in terms of the sales process from the states, or has it just kind of been more of a non-event from a state perspective in terms of changing capital structure around the dividend -- tax and dividend?

Operationally, it's been a non-event for our clients. They receive the same services now that they received previously. I think the difference is for the shareholders, they are now receiving a very nice dividend. And I think there's also a difference in our marketing and marketing opportunities. We are now open to a number of different opportunities of becoming now, in some cases, landlords and building facilities and owning them or behalf of third parties. So that's a significant development. Any further questions? Operator?

Your next question comes from Tobey Sommer, SunTrust.

This is Frank for Tobey. Most of my questions have been answered, but I just want to ask, given the California decision and the progress that's happened there, do you think that presents opportunities for the community services and the community portion of the business? And can you remind us of your current exposure in California there?

Yes, I think it does present opportunities there as well. And we recently won a contract to do day reporting in several locations throughout California. We have probably the -- I'm sure we have the largest network of day reporting centers throughout the state right now and we're working on some ideas that we think will really introduce, in a more full way, the GEO continuum of care and bring those to the department in a way that will help them improve their rehabilitative efforts.

Okay, Great. And then you addressed the seasonality in 1Q at a pretty detailed level, breaking out the start-up and the federal populations and the employment taxes. But I just wanted to ask, has there been any structural change in terms of the seasonality? Do you -- is there a reason to believe this will persist going forward, or is it just going to have similar factors as we've seen in prior years?

It's similar factors we've seen in prior years. I think it's across multiple business lines, as you know, in our federal contracts and our BI and reentry facilities and it's also in the corrections and detention facilities, and those are all normalizing out as you go in the second quarter.

And your next question is from Kevin Campbell, Avondale Partners.

Just 2 more questions. I wondered if you can give us some more color on any -- besides Moshannon Valley, any meaningful rebids you have of owned facilities in 2014, that is?

Other than Moshannon Valley, no. Rebids -- we have some rebids, I guess, there are Broward,Florida...

Tacoma.

Tacoma...

And Moshannon.

And Moshannon.

Those are from '14 events.

Broward, Tacoma and Moshannon. Are Broward and Tacoma, are those sort of rebids, oftentimes I've seen with the fed, they have very specific geographic natures to the bids and clearly, it's designed for the existing facilities. So they're set up that way as well for Broward and Tacoma?

Yes. That's why I don't know how many bidders there'll be on, something like that.

Okay. And then lastly, just sort of a bigger picture question. Now that you guys, obviously, have been a REIT for a year plus, is there any thought about potentially expanding into areas outside of corrections, health care REITs, so on and so forth, things like that. Is that anything you've given consideration to any real degree at this point?

Possibly to expand into criminal justice projects, which are anchored by corrections services and facilities but may entail other type of physical structures and services.

Like building a courthouse or something like that for the feds or...

As part of the corrections complex, yes.

Okay. But nothing really outside of corrections. It would all have that as sort of an anchor piece up to it.

We're not going into condominiums.

And I'd now like to turn the call over to Dr. George Zoley for closing remarks.

Thank you very much, everyone, and we look forward to addressing you on our next conference call.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.