Geo Group Inc (The) REIT

Good day and welcome to the GEO Group third quarter 2022 earnings conference call. All participants will be in a 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 a touch tone 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 for Corporate Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us for today's discussion of the GEO Group's third 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 Black, President of GeoSecure Services, and Ange Larb, President of GeoCare. This morning we will discuss our third 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. Thank you for joining us on our third quarter earnings call. I'm pleased to be joined today by the senior management to review our financial results for the third quarter, including the trends for our business segments, our guidance for the balance of the year, the successful completion of our comprehensive transaction to stagger our debt maturities, and our recent repayment of almost all of the remaining debt previously due in 2023 and 2024. Our diversified business units continue to deliver strong operating and financial performance during the third quarter. We are pleased to have achieved one of the highest quarterly revenues in our company's history, which grew 11% from one year ago to approximately $617 million, along with quarterly GAAP net income of approximately $38 million. Excluding one-time gains and losses during the quarter, we reported adjusted net income of more than $40 million. And our quarterly adjusted EBITDA reached a new all-time high of $136 million, growing 17% year over year. We believe our strong performance is underpinned by the diversified nature of our business units and services, which is The result of thoughtful investment and business strategy executed over multiple years with support from our board. Looking at the balance of the year, we expect full year net income attributable to GEO to be in a range of $160 million and $162 million. And we expect full year 2022 adjusted EBITDA to be in the range of $527 million. to approximately $534 million, which would mark the first time of our full fiscal year adjusted EBITDA has exceeded $500 million. We've been able to achieve strong growth through this entire year despite continued challenges associated with the COVID pandemic, which have impacted some of our business segments. and the federal policy changes that primarily impacted our Federal Bureau of Prisons contracts. Looking at current trends for each of our segments, our Secure Services Owned and Leased segment has historically been comprised primarily of facilities under contract with three federal agencies, the Federal Bureau of Prisons, the U.S. Marshals Service, and the U.S. Immigration and Customs Enforcement. During the third quarter, our active facilities in this segment experienced a year-over-year increase in compensated occupancy rates of four percentage points to 88% of capacity. As we have previously disclosed, our contract with the Bureau of Prisons for the 1,800-bed North Lake Correctional Facility in Michigan expired at the end of September 2022. the end of the third quarter, we no longer have any contracts with the Federal Bureau of Prisons for secure correctional facilities. Turning to the U.S. Marshals Service, occupancy rates across our U.S. Marshals detention facilities have continued to be stable. We believe our U.S. Marshals facilities provide needed detention, bed space, and services for pretrial federal defendants and are generally located near federal courthouses in areas where suitable alternatives are typically not available. Turning to our ICE facilities, occupancy rates increased modestly during the third quarter. However, detaining populations nationwide continue to remain below historical levels. Population levels at certain ice facilities remain impacted by outstanding federal court orders related to the COVID pandemic, which restrict the 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. Our guidance for 2022 continues to assume only modest improvements in utilization rates across our ICE facilities. While ICE detainee populations remain below historical levels, the Department of Homeland Security's Intensive Supervision and Appearance Program, or as it is otherwise called, ISAP, has continued to enroll new participants. latest publicly available data, the number of individuals enrolled in ISAP has grown to more than 300,000. 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. With respect to funding levels, in late September, the U.S. Congress passed a continuing resolution funding the federal government through the middle of December of this year. Under the continuing resolution, ICE is funded at levels consistent with the previous fiscal year's budget, which included funding for 34,000 detention beds. Moving to our managed-only business, which is primarily comprised of state-level correctional Occupancy rates in our managed-only facilities remain relatively unchanged at 96% of capacity during the third quarter of 2022. During the quarter, we successfully renewed two managed-only contracts in our Secure Services segment. In Florida, our contract for the 1,948-bed South Bay Correctional and Rehabilitation Facility was renewed for a two-year term. In Arizona, we renewed our contract for the 500-bed Phoenix West Correctional and Rehabilitation Facility for a five-year term. We remain focused on mitigating the challenges of the COVID pandemic, which among other factors has contributed to a difficult labor market across our state correctional facilities. But we are pleased that we've been able to work with our government agency partners and state legislative leaders to address staffing and wage inflation challenges. As a result of these efforts, we've obtained additional funding to provide wage increases for our frontline employees across several states. Turning to our reentry services business, our residential centers were impacted during the COVID pandemic as governmental agencies opted for non-residential alternatives, including furloughs home confinement, and day reporting programs. While our occupancy rates remain below historical levels, we are encouraged by the recent trends. During the third quarter, we experienced a sequential increase of five percentage points in occupancy rates across our residential reentry centers and ended the quarter at 54% of capacity. We are also successfully renewed five residential reentry contracts, including three contracts with the Federal Bureau of Prisons. Additionally, our non-residential day reporting programs continue to grow during the third quarter, with compensated man days increasing by approximately 27% year over year. And consistent with our performance throughout the year, our electronic monitoring and supervision segment delivered strong revenue growth in the third quarter. The robust performance throughout the year by our diversified business units strengthened our ability to successfully address our debt maturities through a series of comprehensive transactions which we completed during the third quarter. The transactions staggered the substantial majority of our debt maturities over a longer period of time, which will allow us to continue to allocate excess cash flow towards debt reduction. After closing on the transactions, we also completed the sale of our equity investment interest in the government-owned Ravenhall Correctional Center in Australia for approximately $84 million in pre-tax proceeds. and we repaid the remaining $147 million of our 2024 term loans and redeemed the remaining $126 million of our 2023 senior notes. As a result of these important steps, we have now been able to reduce our outstanding debt maturities prior to 2026 from $2 billion to just under $23 million. We believe that GEO is in a materially stronger financial position as a result of all these efforts. We've reduced our total net recourse debt to approximately $2 billion, down from approximately $2.4 billion less than three years ago. We believe that we have made substantial progress toward our goal of reducing our net leverage to below 3.5 times adjusted EBITDA by the end of 2023, and to below three times adjusted EBITDA by the end of 2024. Going forward, we remain focused on allocating most of our free cash flow towards meeting our goal of further reducing net recourse debt by at least $200 million annually. Once we achieve our stated debt and leverage reduction goals, we expect to explore options to return capital to our shareholders. We remain optimistic that all of these efforts have the potential to unlock additional equity value. Before I turn the call over to Brian, I'd like to highlight another important milestone we achieved this month with the publication of our fourth annual Human Rights Environmental and Social Governments Report. This important milestone highlights our continued commitment to respecting the human rights and improving the lives of those entrusted to our care. The report includes enhanced disclosures related to our board oversight of human rights and ESG matters, employee diversity and training programs, corporate governance, and environmental sustainability. Our fourth quarter annual ESG report also reinforces our commitment to providing enhanced rehabilitation and post-release support through our award-winning GeoContinue of Care programs. In an effort to continue to advance our ESG objectives, our board committee structure was recently enhanced by adding two new committees. One dedicated committee to oversee criminal justice rehabilitation and human rights, and another dedicated committee to oversee cybersecurity and environmental sustainability matters. We also undertook a human rights risk assessment and due diligence process which included interviews and feedback from a diverse group of internal and external stakeholders. The results of this due diligence process has been incorporated in our ESG report. We remain committed to advancing our ESG goals throughout our organization, and we look forward to continued engagement with our shareholders and other stakeholders as we pursue additional initiatives in the future. At this time, I will turn the call over to Brian Evans to address our financial results and guidance in more detail.