Geo Group Inc (The) REIT

Good morning and welcome to the GEO Group fourth quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal 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 on your touch-tone 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 GEO Group's fourth quarter and full year 2022 earnings results. With us today are George Zoli, Executive Chairman of the Board, Cosa Gordo, Chief Executive Officer, Brian Evans, Chief Financial Officer, Wayne Calabrese, Chief Operating Officer, and James Black, President of GeoSecure Services. This morning, we will discuss our fourth quarter and full year results, as well as 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 a 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. 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 Executive Chairman George Zolle.

George? Thank you, Pablo, and good morning to everyone. Thank you for joining us on our fourth quarter 2022 earnings call. I would like to begin by welcoming me back, Wayne Calabrese, who began serving as Chief Operating Officer in December, a position which he previously held at GEO for over a decade until his retirement in 2010. I would also like to congratulate Ann Schlarp and David Venturella on their recent retirements. We are grateful for their many years of service to GEO and look forward to their new roles as GEO consultants. I'm pleased to be joined today by our senior management to review our fourth quarter and year-end financial results. Our initial guidance for 2023 and our continued efforts to reduce our overall debt and reduce our net leverage. Our diversified business units delivered strong operating and financial performance throughout the entire year. 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 $621 million, along with quarterly gap net income of approximately $42 million. And our quarterly adjusted EBITDA reached a new all-time high of $145 million, growing 17% year over year. We believe the adjusted EBITDA is the most important non-GAAP metric of profitability for our company since it provides the best measure of the fundamentals driving our operating performance before the impact of non-cash expenses related to our significant asset base and fluctuations in interest rates. We were able to achieve strong adjusted EBITDA growth throughout the entire year despite continuing challenges associated with the COVID pandemic and federal policy changes that primarily impacted our Federal Bureau of Prisons contracts. We believe that our strong performance has been the result of our multi-year diversification strategy, which has allowed us to establish industry-leading positions across the whole spectrum of correctional, detention, and community-based services. Looking at current trends for each of our segments, our Secure Services Owned and Leased segment is currently comprised primarily of facilities under contract with the U.S. Marshals Service and the U.S. Immigration and Customs Enforcement. During the fourth quarter, our active facilities in this segment experience a year-over-year increase in compensated occupancy levels of three percentage points to 88% of capacity. With respect to our U.S. Marshals detention contracts, Occupancy rates across these facilities have continued to be stable. We believe that 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. During the fourth quarter of 2022, we were notified by the U.S. Marshals Service of the agency's intent to exercise the five-year contract option period for our 768-bed Robert Dayton facility in Georgia, which would be effective later this month. Turning to our ICE facilities, as been publicly reported, occupancy rates across all ICE facilities nationwide declined during the month of December. Occupancy rates at our ICE facilities remained at these lower levels during the month of January. However, we recently experienced a 10% increase in occupancy rates in recent weeks. Also has been widely reported in the media, the future application of Title 42 at the Southwest border, which was first enacted in March of 2020, remains uncertain and subject to several pending legal challenges. But according to some news, reports, it may expire on May 11. Our outlook for 2023 assumes utilization rates across our ice facilities that are generally consistent with what we experienced in 2022. We have otherwise not included any assumptions regarding the lifting of Title 42 in our guidance. With respect to the Department of Home Land Securities Intentions Supervision Appearance Program, or ISAF, the number of participants steadily increased throughout 2022, peaking at more than 300,000. Since the beginning of 2023, we've experienced a decline in ISAF participants as a result of recent changes in immigration policies and budgetary pressures. Presently, the number of participants in the program is below At this time, our outlook for 2023 provides a range of assumptions with the low end of our guidance reflecting a continued reduction in the number of participants in the ISAT program and the high end of our guidance reflecting a steady rate based on the current level, participant level of approximately 290,000. We expect to be able to tighten our guidance range as the year progresses. With respect to the federal budget, in late December, the US Congress passed the Omnibus Appropriations Bill funding federal government through September 30th, 2023. Under the Omnibus Bill approved by Congress, ICE is funded for 34,000 detention beds, same as the previous year. Moving to our managed-only business, which is primarily comprised of state-level correctional facilities, occupancy rates in our managed-only facilities remain relatively unchanged at 96% of capacity in the fourth quarter of 2022. Turning to our residential reentry centers, which were significantly impacted by the COVID pandemic as governmental agencies opted for non-residential alternatives, including furloughs, home confinement, and day reporting programs. As a result of these actions, occupancy rates in our residential reentry segment remains well below historic levels. On the other hand, our non-residential day reporting programs continue to grow during this quarter, with compensated participant days increasing by approximately 26% year over year. The strong performance throughout the year by our diversified business units allowed us to make substantial progress towards our goal of reducing overall debt and net leverage. We closed 2022 with net debt of approximately $1.975 billion and net leverage of approximately 3.7 times adjusted EBITDA. We have previously noted our goal is to continue to focus on reducing our debt each year by approximately 175 to $200 million. Doing so would allow us to achieve net leverage below 3.5 times adjusted EBITDA by the end of 2023, despite our net interest expense peaking at over $200 million for this year. Achieving that, we hope to reduce debt by another $175 million to $200 million and reach net leverage below three times adjusted EBITDA by the end of 2024, assuming annual net interest expense of approximately $175 million. We are hopeful that net interest expense is reduced by $25 million in 2024 and each successive year due to the reduction in debt. By 2024, we are also hopeful that interest rates will have declined to an environment that will allow for the refinancing of portions of our debt, further reducing our net interest expense. 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 these efforts have the potential to unlock additional equity value for our shareholders. Given our strong adjusted EBITDA and the substantial reduction in our net leverage, we believe that our current stock price represents an attractive valuation with our enterprise value EBITDA multiple currently below our peer group and other comparable diversified services companies. At this time, I'll turn the call over to Brian Evans to address our financial results and guidance in more detail.