Geo Group Inc (The) REIT

Good morning and welcome to the GEO Group first quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, 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 of 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 first quarter 2022 earnings results. With us today are George Zoli, Executive Chairman of the Board, Jose Gordo, Chief Executive Officer, Brian Evans, Chief Financial Officer, James Flack, President of GeoSecure Services, and Ann Schlard, President of GeoCare. This morning, we will discuss our first 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 Thank you, and 8K reports. With that, please allow me to turn this call over to our Executive Chairman, George Zoli. George?

Thank you, Pablo, and good morning to everyone. Thank you for joining us on our first quarter 2022 earnings call. I'm pleased to be joined today by our senior management to review our financial results for the first quarter, the trends for our business segments, our updated guidance for 2022 and our ongoing efforts to deleverage and address our upcoming debt maturities. We continue to be pleased with the strength of our operating and financial results. In the first quarter of 2022, we reported revenues of $551 million, which is down less than 5% from a year ago, despite the non-renewal of several of our federal department of justice contracts in 2021 and the ongoing challenges of the COVID-19 pandemic. Our first quarter 2022 net income attributable to GEO was approximately $38 million. Adjusting for certain non-cash items in the first quarter a year ago, our adjusted net income per diluted share this year increased by more than 10% to $0.31 for the first quarter of 2022. Our AFO for the first quarter increased by 5% year-over-year to $0.64 per diluted share. And our adjusted EBITDA increased 15% year-over-year to over $125 million in the first quarter. Our diversified business units have continued to deliver better than expected performance over the last several quarters, which we believe is representative of the strength of our business. For the trailing 12 months ending on March 31st, our adjusted EBITDA totaled approximately $484 million, which is the highest for any 12-month period in our company's history. Looking at each of our segments in more detail, our Secure Services owned and leased active facilities experienced a sequential increase in compensated occupancy rates of 1%, ending the first quarter of this year at 86% of capacity. Our Secure Services owned and leased segment is comprised primarily of facilities under the contract with our three federal government agency partners, the Federal Bureau of Prisons, or the BOP, the U.S. Marshals Service, and the U.S. Immigration and Customs Enforcement, or ICE. As we have previously disclosed, the BOP and U.S. Marshals are part of the U.S. Department of Justice and are subject to the President's January 2021 executive order, which directed the U.S. Attorney General not to renew Department of Justice contracts with privately operated criminal detention facilities. As of the first quarter of 2022, we have one company-owned facility under direct contract with the BOP, which generates approximately $38 million in annualized revenues and which we expect will not be renewed when the current contract option period expires at the end of September of 2022. We also currently have three company-owned or company-leased facilities under direct contracts with the U.S. Marshals, annual revenues of approximately $135 million. One of these facilities has a contract option period that was extended for 90 days at the end of March and is now set to expire June 30, 2022, while the other two facilities have contract option periods which expire in 2023. At this time, our updated guidance does not include the further renewal or extension of the facility contract set to expire on June 30, although we continue to work on options for keeping the facility in operation. With respect to ICE, detainee populations remain below historic levels for the first quarter, in part due to a number of outstanding court orders restricting the population at ICE facilities, which address the impact of COVID-19. In addition, population levels at ICE facilities have been impacted by Title 42 public health restrictions that were enacted in March of 2020. In recent weeks, we have seen a progressive increase in detainee populations at ICE facilities. Additionally, the administration recently announced that the Title 42 restrictions were scheduled to be lifted in late May. However, that decision is currently undergoing a legal challenge in the federal courts. In anticipation of the lifting of Title 42 restrictions, the U.S. Department of Homeland Security issued a memorandum on April 26 outlining the Administration's plan for Southwest Border Security preparedness. Among several pillars within this plan, DHS will surge additional resources including personnel, medical support, and facilities to support border operations, increased processing efficiency at border patrol stations, and focusing on administering consequences for unlawful entry, including removal, detention, and prosecution where appropriate. While the exact timing and impact of lifting Title 42 restrictions are difficult to predict, a long-standing service provider to ICE and with the U.S. Department of Homeland Security, we believe GEO is well-positioned to help deliver diversified services and solutions to assist the federal government. At this time, our updated guidance for this year continues to assume only gradual, modest improvements in utilization rates across ICE facilities. In a recent development in the U.S. Court of Appeals for the Ninth Circuit relating to our California ice facilities, the appellate court has granted the request by the State of California for what is known as an en banc hearing. This decision is in relation to lawsuits challenging a California law called AB 32, which would eventually phase out federal ice processing centers in the State of California. GEO and the United States federal government filed lawsuits in federal court against the state of California based on our shared view that the law is an unconstitutional attempt to limit the authority Congress gave to the Secretary of DHS to implement this country's immigration laws and policies. While the district court ruled against GEO and the United States with respect to our claims related to our California ICE processing centers, a three-judge panel of the Ninth Circuit reversed the district court's decision in a two-to-one ruling. In October of 21, the three-judge panel ruled that AB 32 conflicts with the federal law in violation of the supremacy clause in the U.S. Constitution and discriminates against the federal government in violation of the Intergovernmental Immunity Doctrine. The State of California asked the Ninth Circuit Court of Appeals for an en banc hearing, which has now been granted, resulting in the prior decision being vacated and the case being reheard in late June of 2022, this time by a panel of 11 appellate judges. We plan to continue to vigorously assert our position in this case, which we believe is based on well-established constitutional legal precedents regarding the federal government's ability to implement and enforce our nation's immigration laws and policies. Moving to a discussion of the Department of Homeland Security's alternatives to detention programs, we've continued to see increased utilization of the Intensive Supervision and Appearance Program, which we call ISAP. 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. As has been publicly reported, the number of individuals enrolled in the ISAF program has continued to increase and currently exceeds 200,000 participants. In our managed-only business, our occupancy rates remain stable at 97% of capacity during the first quarter. With respect to our owned and leased reentry service facilities, occupancy rates have continued to be challenged by the impact of COVID-19. and ended the first quarter at approximately 44% of capacity. As a reminder, this segment has been one of the most impacted by the pandemic. New intakes at residential reentry centers have significantly slowed down, and governmental agencies have opted for non-residential alternatives, including furloughs, home confinement, and day reporting programs. Consistent with these trends, we continue to experience growth in our non-residential reentry business with compensated mandates increasing by 15% year over year in the first quarter of 2022. And our electronic monitoring supervision segments revenues grew by more than 45% year over year in this first quarter. Despite the pandemic-related challenges in our reentry services segment, we successfully renewed seven residential reentry contracts during the first quarter of 2022 with four contracts with the Federal Bureau of Prisons. As we look forward to the remainder of this year, our operational focus remains on mitigating the challenges of COVID-19 and achieving operational excellence in all of our service lines. Recruitment and retention of our staff continues to be a top priority for our company as the labor market remains very challenging, particularly at the state level. Our regional offices and our management team continue to work closely with our government agency partners and state legislative bodies to address staffing and wage challenges which are affecting correctional facilities across the country. As a result of these efforts, we've been able to increase wages in a number of states and we're continually evaluating additional alternatives to improve our recruitment and retention efforts. At the management and board level, we continue to focus on reducing our net recourse debt. We recognize the importance of allocating capital towards delevering and have taken several important actions over the last two years to accomplish this objective. Since the beginning of the year, we have reduced our net, since the beginning of 2020, we have reduced our net recourse debt by approximately $330 million, including approximately $80 million during the first quarter of 2022. Moving forward, we expect to continue to allocate our excess cash flow towards further reduction of our net recourse debt. As we have expressed to you in the past, we believe we have a proactive and multifaceted approach to address our future debt maturities, which includes the continued focus on net recourse debt reduction and de-levering, a comprehensive review of potential sales of company-owned assets and businesses, and the ongoing discussions we're having with our banks and our term loan lender and bondholder groups with the goal of executing a transaction or series of transactions to further reduce our funded recourse debt and extend our debt maturities. After attaining our objective of net recourse debt reduction and deleveraging, 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. Finally, before turning the call over to Brian Evans, I'd like to provide you an update on our environmental, social, and governance efforts. Over the last three years, we've published comprehensive human rights and ESG reports, which have included enhanced disclosures each year. We have made an organizational commitment to advancing our ES goals and aspirations. To that objective, Last year, we expanded our board committee structure to include a committee on criminal justice and rehabilitation and human rights. More recently, during the first quarter of 2022, we've created a board committee to focus on cybersecurity and environmental sustainability. We will also undertake a human rights risk assessment and due diligence process in 2022 as discussed in our proxy statement and during our annual shareholders meeting. We expect this process to include engagement with internal and external stakeholders and a review of our global rights policy and the refinement of its implementation and the corresponding human rights training for our employees. 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 updated guidance.