Geo Group Inc (The) REIT

Good morning and welcome to the GEO Group second quarter 2022 earnings call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be opportunity to ask questions. Please note that this event is being recorded. I now would like to turn the call over to Mr. Pablo Baez, 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 second quarter 2022 earnings results. With us today are George Oli, Executive Chairman of the Board, Jose Gordo, Chief Executive Officer, Brian Evans, Chief Financial Officer, James Black, President of GeoSecure Services, and Ange Lard, President of GeoCare. This morning, we will discuss our second 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 supplemental disclosure we issued this morning. Thank you. 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 Zoli.

George? Thanks, Pablo, and good morning to everyone. Thank you for joining us on our second quarter 2022 earnings call. I'm pleased to be joined today by our senior management to review our financial results for the second quarter, the trends for our business segments, our increased guidance for 2022 and our recent announcement of proposed transactions to address our debt maturities and strengthen our capital structure. Our quarterly operating financial results continue to deliver better than expected performance, which we believe is underpinned by the strength of our diversified business units. As a result of our investment in business strategy over several years, we have been able to develop interest industry-leading solutions and programs across a diversified spectrum of government services. And we believe the unparalleled diversification and scope of our services have set GEO apart in our industry and has allowed us to achieve quality growth. This continued growth led us to achieve some of the best quarterly financial results in our company's history during the second quarter of 2022. Our quarterly revenues increased by 4 percent year-over-year to $588 million, which follows revenue declines over the last two years due to the COVID pandemic and policy changes that impacted several of our federal contracts. Our quarterly net income attributable to GEO increased by 28 percent year-over-year to approximately $54 million. For the trailing 12 months ending on June 30th, our net income attributable to GEO was $77 million. Our adjusted EBITDA increased 12% year-over-year to more than $132 million in the second quarter of this year. This quarterly run rate of adjusted EBITDA is the highest in our company's history and for the trailing 12 months ending in June 30th, our adjusted EBITDA totaled almost $500 million for the first time ever. We expect our diversified business units to continue to deliver strong financial performance for the balance of the year, and we have increased our financial guidance for the year. We expect our full year 2022 net income attributable to GEO to be in a range of $158 million to $166 million, and our full-year 2022 adjusted EBITDA to be in the range of approximately $515 million to $530 million. Looking at our current trends for each of our segments, our secure services owned and leased active facilities experience a year-over-year increase in compensated occupancy rates of three percentage points, ending the second quarter of this year at 87 percent of capacity. 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 and Customs Enforcement. As of the second quarter this year, we only have one company-owned correctional facility under direct contract with the Federal Bureau of Prisons located in Michigan. Our North Lake Correctional Facility in Michigan generates approximately $38 million in annualized revenues, and as we have previously disclosed, this contract is scheduled to expire at the end of September of this year. Our U.S. Marshals Service facilities are generally located near federal courthouses and provide needed detention bed space and services for pretrial federal defendants. Occupancy rates across our U.S. Marshal Service facilities have continued to be stable. Turning to our ICE facilities, while we saw a year-over-year increase in occupancy rates during the second quarter of 2022, detaining populations continue to remain below historic levels. Population levels at certain ICE facilities have been impacted by outstanding federal court orders related to COVID-19. pandemic, which continued to restrict ICE's ability to utilize full operational capacity of these facilities. In addition, COVID-related restrictions under Title 42, which were first enacted in March of 2020, continue to be in place today at the southwest border. The administration had announced that these Title 42 restrictions would be lifted in May of this year, but that That decision was stopped by the federal court and remains in litigation. While the timing and impact of lifting Title 42 restrictions remain difficult to predict, we believe GEO continues to be well positioned to help deliver diversified services and solutions to assist the U.S. Department of Homeland Security in the future. Our updated guidance for 2022 continues to assume only gradual improvements in utilization rates across our ICE facilities. While ICE detaining populations remain below historical levels, we have conversely seen continued increases in the Department of Homeland Security's Alternatives to Detention program called the Intensive Supervision and Appearance Program, or ISAP. Our BI subsidiary provides a full suite of monitoring and technology services under the ISAF contract to ensure compliance for individuals undergoing the immigration review process. As the publicly available data shows, the number of individuals enrolled in ISAF continues to increase, and the program currently has approximately 300,000 participants. Moving to our managed-only business, our occupancy rates remain stable at 97% of capacity during the second quarter of 2022. Our managed-only business is primarily comprised of state-level correctional facilities, and our focus in this segment has been on mitigating the challenges of COVID pandemic, which among other factors has contributed to a difficult labor market. We are pleased to have worked closely with our government agency partners to address the staffing and wage challenges facing state correctional facilities across the country. As a result of these efforts, we've been able to provide wage increases for our employees across several states. With respect to our reentry services facilities, while occupancy rates remain below historic levels, we did experience a sequential increase of four percentage points in occupancy rates and ended the second quarter at 49% of capacity. As a reminder, new intakes at residential reentry centers slowed down during the COVID pandemic as governmental agencies opted for non-residential alternatives, including furloughs home confinement, and day reporting programs. Despite these challenges, we successfully renewed 16 residential entry contracts during the second quarter of 2022. Additionally, our non-residential reentry business continued to grow in the second quarter of this year with compensated mandates increasing by approximately 26% year over year. And our electronic monitoring and supervision segment continued to deliver strong growth in the second quarter of this year as well. Our continued strong performance has allowed us to significantly reduce our net recourse debt and deleverage our balance sheet. Since the beginning of 2020, we have reduced our net recourse debt by approximately $375 million. including approximately $130 million during the first half of this year. As we continue to focus on reducing our net recourse debt, we are pleased to have recently announced several proposed transactions to comprehensively address the substantial majority of our outstanding debt maturities. The proposed transactions will stagger our debt maturities between 2023 and 2028, therefore significantly reducing the total recourse debt that is due between 2023 and 2024 from approximately $2 billion to approximately $600 million. The staggering of our debt maturities over a longer period of time will allow us to continue to allocate a significant amount of excess cash flows toward further reducing our net recourse debt. Based on our current projections, we expect to reduce our net recourse debt by approximately $200 million in 2022, ending the year at just under $2 billion in net recourse debt and total net leverage of approximately 3.8 times EBITDA. Assuming consistent performance across our business over the next two years, we would expect to be able to reduce net recourse debt by at least $200 to $250 million annually. Based on this level of debt reduction, our goal would be to decrease net leverage to below 3.5 times by the end of 2023 and to below three times by the end of 2024. The proposed transactions to address our debt maturities are expected to close in the next 30 to 90 days and require approval from 70 percent of our term loan lenders and a majority of the holders of our 23, 24, and 26 senior notes. Brian will discuss the current levels of participation and consent in more detail in his presentation. We believe these proposed transactions will place GEO in a materially stronger financial position. We look forward to using the substantial majority of our free cash flows to significantly deleverage our balance sheet for the foreseeable future. We also plan to continue to undertake comprehensive review of potential sales of company-owned assets and businesses, which we expect to enhance our debt reduction efforts. We are optimistic that the successful completion of these comprehensive proposed transactions in our continued focus on reducing net recourse debt will have the potential to unlock additional equity value for our shareholders. After obtaining our objective of net recourse debt reduction and deleveraging, we plan to evaluate the allocation portion of free cash flow to fund quality growth opportunities and potentially return capital to our shareholders in the future. At this time, I'll turn the call over to Brian Evans to address our proposed transactions in more detail and review our financial results and updated guidance.