Geo Group Inc (The) REIT

ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Pablo Paez, Executive Vice President, Corporate Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us for today's discussion of the GeoGroup's fourth quarter 2021 earnings results. With us today are George Zoli, Executive Chairman of the Board, Jose Gordo, Chief Executive Officer, Brian Evans, Chief Financial Officer, James Black, President of GeoSecure Services, and Ann Schlarb, President of GeoCare. This morning we will discuss our fourth 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 the 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 Zolle. George?

Thank you, Pablo, and good morning to everyone, and thank you for joining us on our fourth quarter 2021 earnings call. I'm pleased to be joined today by our senior management to review our financial results for the fourth quarter in the full year, the trends for each of our business segments, our financial guidance for 2022, and the recent developments impacting our government agency partners. With respect to our quarterly performance, we continue to be pleased with the strength of our operating and financial results. In the fourth quarter of 2021, we reported revenues of $557.5 million, which is only approximately 3.5% lower than our quarterly revenues for the fourth quarter of 2020, despite the non-renewal of seven of our federal Department of Justice contracts in 2021. During the fourth quarter, we incurred a one-time non-cash deferred tax charge and additional tax expenses related to our transition to a taxable C corporation. which resulted in a net loss attributable to GEO of $0.41 per diluted share. Excluding the deferred tax charge and other extraordinary items from net loss attributable to GEO, our fourth quarter 2021 adjusted net income increased by 15% to $0.38 per diluted share. Our AFL for the fourth quarter of 2021 increased by 5% to $0.65 per deluge year. And our adjusted EBITDA increased 15% year-over-year to $124 million in the fourth quarter of 2021. Despite the ongoing challenges associated with the COVID-19 pandemic and the non-renewal of seven of our federal Department of Justice contracts in 2021, our diversified business units delivered consistently better than expected performance throughout the year. For the full year, we reported revenues of approximately $2.26 billion, which was less than 5% decline from 2020, despite all the challenges we faced during the year. Our full year adjusted net income of $159 million exceeded our full year 2020 results. And our full year AFLO of $299 million was largely consistent with year over year. And our adjusted EBITDA for the year increased by 6% to $467 million. Looking at each of our segments in more detail, our GeoSecure Services owned and leased facilities experience a year-over-year decline in compensated occupancy rates of 200 basis points, ending the year at 85% of capacity for our active facilities. Our Secure Services owned and leased segment is comprised primarily of facilities under contract with our three federal government agency partners, the Federal Bureau of Prisons, the U.S. Marshals Service, and the U.S. Immigration Customs Enforcement. The BOP Marshals Service are part of the U.S. Department of Justice, and ICE is part of the U.S. Department of Homeland Security. In addition to the impact of COVID-19 pandemic, the BOP and Marshals Service are subject to the President's January 21 executive order which directed the U.S. Attorney General to not renew the Department of Justice contracts with privately operated criminal detention facilities. As a result of the executive order, six of our company-owned facilities under direct contracts with the BOP were not renewed at different times during the year, resulting in the phase-out of approximately 240 million in annualized revenues. As of the end of the year, we only had one company-owned facility under direct contract with the BOP, which generates approximately $38 million in annualized revenues, which we expect will not be renewed when the current contract option expires at the end of September 2022. In addition, One of our company-owned facilities under direct contract with the U.S. Marshals Service with annualized revenues approximately $19 million was not renewed in March of 21, and we successfully sold the facility in August of 21. At the end of 21, we had three company-owned or company-leased facilities under direct contracts with the U.S. Marshals Service with annualized revenues of approximately One of these facilities has a contract option period that was extended for a six-month period and expires at the end of March this year, while the other two expire in 2023. At this time, our 2022 guidance does not include that facility, although we continue to work on options for keeping, the facility in operation. With respect to ICE, detainee populations have remained significantly below historical levels, in part, we believe, due to the impact of COVID-19 related restrictions. At the end of this year, or last year, ICE facilities housed approximately 21,000 individuals nationwide, while ICE is currently funded for 34,000 beds. In addition to court mandates related to COVID-19 that limit capacity utilization at certain facilities, a driver of low utilization across ICE facilities has been the Title 42 COVID-related restrictions in place at the southwest border since March 2020. While these restrictions have been eased or lifted for family units, and unaccompanied minors, they remain largely in place for single adults, which is the population that our ICE facilities have historically housed. We have, however, seen an increase in the utilization of alternatives to detention programs. The Intensive Supervision and Appearance Program, or ISAP, is a key component of the federal government's alternatives to detention. Our BI subsidiary provides a full suite of monitoring and technology services under the ISAP contract to ensure compliance for individuals undergoing the immigration review process. During 2021, ISAP almost doubled the number of participants under the program. Moving to our managed-only business, our facilities have continued to experience stable occupancy rates, ending the year at 7% capacity. During the fourth quarter, we renewed two managed-only contracts in our secure services segment. In Florida, our contract for the Blackwater River Correctional and Rehabilitation Facility was renewed for a two-year term. In Arizona, we renewed our contract for the Central Arizona Correctional Facility for a five-year term. Our own and lease reentry services facilities experience a year-over-year increase in occupancy rates of 100 basis points, but remain at below 50% capacity at year-end as COVID-19 related challenges continue to impact this segment. Throughout the pandemic, new intake at residential reentry centers have significantly slowed down as government agencies across the country have opted for non-residential alternatives including furloughs, home confinement, day reporting, etc. Our non-residential business experienced an increase consistent with these trends with compensated mandates for our day reporting programs and location and electronic monitoring services growing by approximately 25% in 2021. Our electric monitoring and supervision segment has continued to enjoy strong growth, increasing annual revenues by 15% in 2021. Despite the ongoing COVID-19 challenges in our residential reentry services business, we successfully renewed five residential reentry contracts during the fourth quarter, including four contracts with the Federal Bureau of Prisons. As we look forward to 2022, our operational focus remains on mitigating the challenges of COVID-19 pandemic while delivering high-quality support services on behalf of our government agency partners. While we experienced a significant increase in COVID cases in the early part of 2022, consistent with the spread of the Omicron variant across the country, We are currently seeing a significant decline in cases among our staff and the individuals in our care. Our commitment to operational excellence is unwavering and our continued success is underpinned by the dedication of our frontline employees who provide humane and compassionate care to all those entrusted to our facilities and programs. One of the significant challenges we face is the ability to recruit and retain staff in what has become a very difficult labor market. We've been working collaboratively with our government agency partners who themselves are facing the same challenges. Over the past year, we have increased wages in a number of states and are evaluating additional initiatives, including bonuses, change in benefits, and policies and alternatives to address the challenges of finding adequate and affordable housing. At the management and board level, we remain focused on reducing our debt and de-levering our balance sheet. During the fourth quarter, our board unanimously approved a plan to terminate our re-election and become a taxable C corporation effective for the 2021 fiscal year. The Board also voted unanimously to discontinue our quarterly dividend. We expect the change in our corporate tax structure will give us additional flexibility to allocate free cash flow towards reducing net recourse debt. Over the last two years, we have reduced our net recourse debt by approximately $250 million, and we expect to focus all of our excess cash flow over the next several years. quarters to further reducing our net recourse debt. The decisions made by our Board are consistent with the proactive and multifaceted approach we have implemented to address our future debt maturities, which include our continuing focus on net recourse debt reduction and delivering, our review of potential sales of company-owned assets and businesses, and our ongoing discussions with our banks and the advisors for our lender and bondholder groups concerning a potential transaction to further reduce our funded recourse debt and extend our debt maturities. We believe that these are prudent steps which are in the best interest of our shareholders and other stakeholders. After attaining our objective of net recourse debt reduction and delevering, we plan to evaluate the allocation of a portion of free cash flow to fund quality growth opportunities and potentially return capital to shareholders in the future. Before I turn the call over to Brian, I'd like to highlight another important milestone we achieved in the fourth quarter of 2021 with the publication of our third annual Human Rights Environmental, Social, and Governance Report. This report includes new disclosures related to our board oversight of human rights and ESG matters, employee diversity and training programs, corporate governance, and environmental sustainability. Our ESG report also highlights our continued commitment to respecting the human rights and improving the lives of those entrusted to our care. Our ESG report reinforces our commitment to providing enhanced rehabilitation and post-release support services through our award-winning GEO Continuum of Care program. During 2021, our Continuum of Care facilities delivered approximately 2.8 million hours of enhanced rehabilitation program. We also awarded approximately 2,100 GEDs and high school equivalent degrees 6,800 vocational certifications, 5,500 substance abuse treatment completions, and 38,600 behavioral program completions. We continue to be committed to advancing our ESG goals throughout our organization. And to that objective, our board committee structure has been expanded to include a committee on criminal justice, rehabilitation, and human rights. and we look forward to continued engagement with our shareholders and other stakeholders as we evaluate additional human rights and ESG initiatives. At this time, I'll turn the call over to Brian Evans to address our debt reduction initiatives in more detail and review our financial results and guidance.