Geo Group Inc (The) REIT

Good day, everyone, and welcome to the GEO Group first quarter 2023 earnings 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 and then one. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor 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 first quarter 2023 earnings results. With us today are George Zoli, Executive Chairman of the Board, Jose 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 first quarter results as well as our outlook, and 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. 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 Soley. George?

Thank you, Pablo, and good morning to everyone. Thank you for joining us on our first quarter 23 earnings call. I'm joined today by our senior management to review our first quarter's financial results, discuss our financial guidance and the progress we've made towards reducing our debt, and provide an update on the trends for each of our business segments. This morning we reported first quarter 2023 revenues of approximately $608 million, an increase of approximately 10% from the first quarter 2022. Our strong revenue growth compared to last year was driven primarily by growth in our electronics monitoring and supervision services segment. But we also experienced revenue growth in our secure services segment and our non-residential services. Our first quarter 2023 gap net income decreased to approximately $28 million from approximately $38 million as a result of higher interest expense from a year ago. Compared to the first quarter of 2022, interest expense increased by approximately $23 million due to higher interest rates and the debt restructuring transactions we completed in August of 2022. Without the impact of higher interest expense, our operating results delivered growth during the first quarter of 2023 with the net operating income increasing by 5% to $179 million. And our adjusted EBITDA for the first quarter of 2023 also increased by 5% to approximately $131 million from a year ago. Our strong financial performance has allowed us to continue to make substantial progress towards reducing our debt and net leverage. During the first quarter of 2023, we reduced our net debt by approximately $70 million, closing the quarter with net debt of approximately $1.9 billion and net leverage of approximately 3.5 times adjusted EBITDA. Our goal remains to reduce our net debt 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. Our debt reduction is expected to naturally reduce our interest expense by approximately $25 million every year and by 2024. And we are hopeful to be able to refinance portions of our debt, further reducing our interest expense. After achieving our debt and leverage reduction objectives, we hope to explore options to return capital to our shareholders. We believe that our current enterprise value to EBITDA multiple represents an attractive valuation for equity investors when compared to similar diversified services companies. We've also made important progress recently towards our objective of reactivating our currently idle facility. We have recently announced entering into a new lease agreement with the state of Oklahoma for the use of our 1,900-bed Great Plains facility. The new lease will have an initial term of five and a half years, effective May 1, 2023, with subsequent unlimited one-year options and is expected to generate approximately $8.5 million in annualized straight-line lease revenue for GEO. With the reactivation of our Great Plains facility, we now have approximately 9,000 EIDL-owned beds in our secure services segment, primarily comprised of five former Bureau of Prisons facilities. We continue to actively market these modern and well-located facilities to government agencies at the state and federal level. And the reactivation of any of these five EIDL facilities could represent significant upside to our current forecast. In addition, the scheduled expiration of Title 42 restrictions at the southwest border could provide upside to our current forecast. Since March of 2020, Title 42 has allowed the federal government to immediately remove a significant portion of individuals encountered by Border Patrol illegally entering into the United States. Because these restrictions at the southwest border were implemented under the COVID public health emergency declaration, Title 42 is scheduled to end on May 11th, 2023 to coincide with the expiration of the public health emergency declaration. When Title 42 expires on May 11th, it is expected that the federal government will likely have to process a significantly larger proportion of individuals encountered by Border Patrol. It is also widely expected that the expiration of Title 42 may result in an increase in Border Patrol encounters at the southwest border at a time when there is already an unusual seasonal increase in border activity due to the warmer weather in the summer.