How Cashing in on COVID-19 May Have Saved Securus, Owners of JPay

The arrival of the COVID-19 pandemic had a dramatic effect on businesses around the U.S. One estimate suggests that nearly one-third of all small businesses in the country have closed due to the pandemic. But conditions it brought with it also had the opposite effect on some businesses. One of those businesses was prison communications contractor Securus Technologies Inc., makers of JPay. While COVID-19 ended hundreds of thousands of businesses around the world, according to a new report, it may have saved Securus.

Securus Technologies was struggling on the eve of the pandemic.

Securus was going through an extended rough patch leading up to the COVID-19 pandemic.

In 2018, The New York Times published an article that pointed out security flaws in Securus Technologies systems. One of these flaws could have allowed a user to spy on almost any phone in the U.S. The article prompted Sen. Ron Wyden (D-Oregon) to pressure the FCC to investigate the company.

Then, in 2019 the FCC and DOJ blocked Securus’ attempt to acquire one of its competitors, Inmate Calling Solutions LLC (ICS). In a press release, Assistant Attorney General of the Department of Justice’s Antitrust Division Makan Delrahim said in a press release that the move would have violated antitrust principles.

“Securus and ICS have a history of competing aggressively to win state and local contracts by offering better financial terms, lower calling rates, and more innovative technology and services. This merger would have eliminated that competition, plain and simple,” he said.

Heightened awareness of the company and its business model also brought the company into the spotlight. Activist and civil rights groups railed against the high costs to families and, in general, prison profiteering.

The combination of all of this negative attention put the company in serious financial jeopardy. The trade value of company debt plummeted in October of 2019, reaching as low as 47 cents to the dollar. At those rates, the company’s value would have been as little as $693 million. That is significantly less than the $1.6 billion that Platinum Equity bought the company for in Nov. 2017.

By early 2020, the company attempted to rebrand as Aventiv. Nonetheless, the outlook was grim for the private prison contractor heading into Feb. 2020.

The arrival of COVID-19 brought a boom in business for Securus.

Once COVID-19 arrived in the U.S., it ripped through the prison system almost immediately. As a result, the DOJ and many state systems enacted a number of different emergency measures to try to slow the spread. One that was nearly universal, however, was the suspension of in-person visitation. For incarcerated people and their loved ones, this meant being even more disconnected. But for Securus, who provided one of the only available ways to communicate under these conditions, it meant a windfall.

Without the ability to see people in person and mail often cut off, incarcerated people were left with video visitation, phone calls and email—all services Securus provides. The result was an immediate uptick and calls, according to a study by Prison Policy Initiative. It found that despite the jail population falling by around 15%, people across the country used 8% more phone minutes during the pandemic.

As a result, the company’s fortunes changed dramatically.

The massive growth in digital and phone communications meant big business for the company. But it wasn’t just communications, either. Securus also produces hardware and software for electronic monitoring used to track people on parole and probation. As a result, the company experienced a massive spike in revenues.

In 2019, Securus’ revenues grew by just two percent. But in 2020, they grew by 10%, totaling $767.5 million

That success translated to positive shifts in other financial metrics. Earnings before interest, taxes, depreciation and amortization (EBIITA) is a metric investors use to measure the financial health of a company. Between 2019 and 2020, Securus’ EBITDA grew 41%, up to $209.2 million. During that same period, the company’s operating income more than doubled. In addition, the company’s cash flow from operating activities grew to $133.5 million during that same period, representing a nearly 400% increase.

And while Platinum Equity and Detroit Pistons owner Tom Gores pledged to reinvest the company’s profits in new infrastructure and operations, that hasn’t been the case. As revenues rose, investments fell sharply. During that same 2019 to 2020 period, infrastructure investments dropped by 46%.

New laws could work to protect Securus’ profits.

By all measures, Securus has rebounded from its pre-COVID-19 troubles. The company is now valued at as much as $1.5 billion—just short of what Gores and Platinum Equity paid for it. And if current trends new laws around prison communications are any indication, that growth could continue into the future.

Incarcerated people and their families received much-needed relief in Connecticut when the state passed a law that will make phone calls from the state’s prisons free to individuals. Connecticut had previously been one of the most expensive states for incarcerated people to stay in touch. The news is surely welcome to people who spend significant portions of their budgets on communications. However, it may also be welcome to executives at Securus. A statement from the company praising the decision seems to indicate that they will still provide their services. That means the company can still rake in profits from phone calls, but now at the expense of the taxpayers rather than individuals.

In Florida, lawmakers are debating a law whose passage would also stand to benefit Securus. The state is considering phasing out its physical mail and replacing it with digital scans of that mail. Under the new system, Securus’ company JPay would scan physical mail and upload it to cloud storage. Then, incarcerated people would have to pay 25 cents per page for black-and-white paper copies of those scans. The fee would be $1 per page for color printouts,

Securus spent years pressuring the departments that contract it to limit or stop in-person visitation. Even after it said it would stop, one report found that 74% of the facilities that contracted the company reduced or eliminated in-person visits. With the arrival of COVID-19 and lockdown conditions, Securus finally got what it wanted.