Good day, ladies and gentlemen, and welcome to the GEO Group, Inc. First Quarter 2013 Earnings Conference Call. My name is Ayisha, and I will be your coordinator for today's call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Pablo Paez, Vice President of Corporate Relations. You may proceed, sir.

Thank you, operator. Good morning, everyone, and thank you for joining us for today's discussion of the GEO Group's first quarter 2013 earnings results. With us today is George Zoley, Chairman and Chief Executive Officer; Brian Evans, Chief Financial Officer; and John Hurley, President of GEO Corrections & Detention. This morning, we will discuss our first quarter performance and current business development activities. We will conclude the call with a question-and-answer session. This conference call is also being webcast live on our website at www.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 Forms 10-K, 10-Q and 8-K reports. With that, please allow me to turn this call over to our Chairman and CEO, George Zoley. George?

Thanks, Pablo, and good morning to everyone. Thanks for joining us as we review our first quarter results and provide an update on our efforts to pursue quality growth opportunities and return value to our shareholders. Our strong earnings results continue to be driven by sound operational and financial performance from our diversified business units in the U.S. and internationally. During the first quarter, we achieved a number of important milestones. Following our conversion to a real estate investment trust at the beginning of the year, we officially joined the National Association of REITs, or NAREIT, which is the worldwide representative of REITs and publicly traded real estate companies. We are very pleased to have been added to the MSCI U.S. REIT Index and the FTSE NAREIT Equity Index at the earliest possible dates in early in mid-March, respectively. On March 1, we paid our first quarterly REIT dividend of $0.50 per share. And today, we announced the declaration of our second quarter dividend of $0.50 per share, confirming our annual dividend currently set at $2 per share. We also took important steps during the quarter to restructure our balance sheet. First, in late March, we completed the offering of $300 million in senior unsecured notes at a yield of 5 1/8%, a historically low rate for our company. And in early April, we amended our $1 billion senior credit facility at favorable rates and more flexible terms. These important steps will give us more flexibility as we continue to look for ways to maximize shareholder value and return a higher portion of our funds available for distribution to our shareholders. Today, we also announced a new at-the-market equity offering program, through which we may sell from time-to-time up to an aggregate of $100 million of our common stock. This…

Thank you, George. Good morning, everyone. We are very pleased with our first quarter results, as well as our confirmed outlook for 2013. As disclosed in our press release today, our adjusted funds from operations for the first quarter 2013 increased to $0.69 per share from $0.54 per share last year. On a GAAP basis, we reported first quarter 2013 income from continuing operations of $0.33 compared to $0.23 per share a year ago. Our quarterly results include $3.7 million, after tax, in one-time REIT-related conversion expenses. Our total revenues for the first quarter 2013 increased to approximately $377 million from $360 million a year ago. Approximately 64% of our quarterly revenues were generated by our company-owned and company-leased properties. Our net operating income or gross profit for the first quarter 2013 increased to $96 million from $89 million a year ago. Approximately 70% of our quarterly net operating income was generated by our company-owned and company-leased properties. Our company-wide adjusted EBITDA for the first quarter 2013 grew to $74 million from $71 million a year ago. These first quarter results reflect a normalization of approximately 4,000 new beds activated by our U.S. Corrections division during 2012. These beds added approximately $80 million in fully annualized revenues. Additionally, our GEO community services business unit added normalized revenues during the first quarter as a result of the activation of new day reporting centers, the expansion of one of our residential reentry facilities in Alaska and the addition of new electronic monitoring contracts during 2012. Moving to our outlook for 2013. We expect our full year AFFO per share to be in a range of $2.78 to $2.92, or $200 million to $210 million, in line with our previously issued guidance. On a GAAP basis, we expect our income from continuing operations…

Thank you, Brian, and good morning, everyone. I'd like to address select publicly known business development opportunities in our key segments, starting with the federal market and the 3 federal government agencies that we serve. We have a long-standing partnership with the Federal Bureau of Prisons, United States Marshals Service and the U.S. Immigration and Customs Enforcement, or ICE. And we provide cost-effective solutions for them at a number of facilities across the country. We continue to see meaningful opportunities for us to partner with all 3 of these federal agencies, notwithstanding the various issues with the federal budget, which we believe will have no material negative impact on our business. The Federal Bureau of Prisons continues to face capacity constraints, coupled with the growing offender population. ICE and the U.S. Marshals continue to consolidate existing populations into larger, more modern facilities, which has driven the need for additional private beds as evidenced by the activation late last year of our ICE contract in Adelanto, California and our new contract with the U.S. Marshals Service in Aurora, Colorado. With regard to new business opportunities, the Bureau of Prisons has issued a solicitation for up to 1,600 beds at existing facilities, which can be located anywhere in the country. Proposals under this procurement were submitted last September, with a contract commencement date projected for later this year. Additionally, the Customs and Board of Protection Agency issued a request for proposal for the provision of secure transportation services for the southwest border of the United States. We expect the contract award to be announced this year. Turning to our State Market segment. As states across the country continue to face budgetary pressures, their ability to achieve cost savings becomes an even more important priority, which leads to increased interest in privatization projects.…

Thanks, John. In closing, we are very pleased with our first quarter results and positive outlook driven by our core operations in the U.S. and internationally, which continue to deliver solid operational and financial performance. Our company remains focused on effectively allocating capital to enhance value for our shareholders, and we have taken several important steps to restructure our balance sheet and attain flexibility and return higher portion of our funds available for distribution to our shareholders over time. We are actively participating in a number of procurements that are expected to have contract awards later this year, and could result in the reactivation of several of our idle facilities in inventory. Further, we are exploring a number of other growth opportunities for the development of new projects and the potential purchase of assets in our core market segments, similar to the acquisition of the Joe Corley Detention Center we announced today. We believe that this important transaction is indicative of other potential opportunities we may pursue for the purchase of existing assets or the development of new assets, and our restructured credit facility and new ATM will give us the flexibility to pursue those opportunities. We believe that these efforts will continue to drive growth in our AFFO and dividend payout and create value for our shareholders. We also believe that our diversified growth and investment strategies have positioned GEO as the leading provider of corrections, detention and community reentry services through a GEO continuum of care that can deliver performance-based outcomes and significant cost savings for our clients worldwide. As I have expressed to you in the past, we view all of these different initiatives to enhance shareholder value as complementary and non-pursuit [ph] to the detriment of the others. This concludes our presentation. We would now like to open the call to your questions.

[Operator Instructions] Your first question comes from the line of Kevin Campbell with Avondale Partners.

I wanted to start with margins on both GEO Care and U.S. Corrections. So GEO Care, the margins did improve, and I'm just curious, is that a function of the divestiture from prior periods? And should we expect margins to remain at the current level? Or should they improve sequentially from Q1 to Q2 as you deal with sort of the payroll tax issue?

Kevin, this is Brian. Well, firstly, it's -- we refer to it now as the community services division. And yes, GEO Care, the residential treatment facilities were probably the lower-margin piece of the former GEO Care business that's now the community services business. So that's a significant factor. And then as we step into the second quarter, the payroll tax issue will normalize, so there will be some step-up a little bit in margins from that. There has been some growth in that area from the electronic monitoring businesses, as John mentioned. And we continue to see opportunities there. So all of those factors will contribute to, I think, slightly improved margins going into the second quarter.

Okay. And can you -- historically, you've kind of given us an EPS number for what that improvement is for payroll taxes, just sort of across the firm. Can you give us a sense of what that impact is, either AFFO per share or EPS or, however you want to present it?

I I mean, consolidated company-wide, it's about $0.03 to $0.04.

Okay, that's helpful. And I wanted to talk a little bit more about the Joe Corley purchase and not that detail specific about that. But maybe just any other information you can give us about the opportunity there for similar types of deals? Obviously, you can't give specific details, but any idea in terms of the number of people you're having conversations with currently, the tone of those conversations, acceptance, what are the roadblocks you're facing, numbers of beds or dollars you might spend, et cetera? Any other color you can give on those opportunities?

We can only say that there are multiple opportunities, where in the past, we may have not indicated an interest in such opportunities. So whereas now, having become a REIT, we are very much interested in them. And having restructured our financing capability, we are very well positioned to pursue them. So there are multiple opportunities we're looking at, and we're well positioned.

And so were these opportunities available before but you weren't interested because of the structure of the company? Or is there something that's changed with the conversion where customers are now coming to you saying, "Hey, will you consider this?"

I think it's a fairly recent new development of customers, of individuals being interested in monetizing their assets.

And is there anything that's sort of driving that interest?

I think it's publicly expressed in the Joe Corley situation that, that particular facility was bond financed an obligation of the county. And the county wants to get out from underneath that debt and, therefore, pursue the sale of the facility.

Okay, great. And the BOP opportunity, is there -- have there been any delays in that RFP because of sequestration or the budget issue? Or is that still the timing's right now consistent with your prior expectations? Has there been any real change there?

Well, are you talking about CAR '14?

Yes, the 1,500 beds, yes.

To our knowledge, there's been no delay on that.

Your next question comes from the line of Manav Patnaik with Barclays.

So I think your, I guess, general comments on a lot more of the monetizing opportunities out there, could you help us understand how you guys are looking at that and compared to sort of your current payout ratio? I know you obviously freed up some with your recent refinancing, you freed up some annual payment share to do on your debt. So if you could just help us understand maybe timeline or how you guys are thinking to balance the number of opportunities you see today versus increasing that payout ratio?

Well, these opportunities would obviously be accretive. So I think just organic growth is going to increase the dividend even just to maintain that consistent payout ratio that we're at right now. And then as we add new projects and reactivate some of our idle facilities, we'll look towards stepping up the actual payout ratio over time. So I think both things contribute to a higher dividend in the future.

Okay. So -- but I guess, so is it fair to assume then if there are more of these monetizing opportunities, we should see the dividend sort of just increase on the accretion versus any change in the payout ratio?

At least you would expect to see something along those lines that -- to maintain the consistent payout ratio.

Okay. And then could you just help us understand, I guess, somewhat this ATM contract or facility that you've put in place. In the current guidance, is the assumption -- like I'm just trying to understand how much of that $100 million have you assumed in the current guidance that you're going to use in order to pay for the Joe Corley or for other reasons?

Well, I think we'll use the ATM on an opportunistic basis. It's just another tool to help with liquidity for the company and maintain a consistent leverage level in the 4 to 4.5x. As far as the impact from a dilution perspective, that's why we said it in the low amount, it's very manageable, and it won't have an impact on our dividend payout in the future.

Okay. I guess another way, just to clarify that, is the 72 million share count that you assumed in the guidance, does that change if you use up -- I mean, I guess I'm just trying to assume, does that include using some part of that $100 million?

No.

Okay. All right. And I guess if you could just give the quick -- what your read on what's happening in Michigan? I mean, it seems like you guys have the empty facility and they need the space. So what's the next steps before things happen there?

Well, there's a procurement in place and RFP process, and we're waiting for the next stages of the procurement. These procurements in general take a long time.

[Operator Instructions] Your next question comes from the line of Tobey Sommer with SunTrust.

George, I wanted to get your perspective on planned procurements and whether you're more optimistic about them actually being consummated than you were a few months ago because it does seem that you're more optimistic on the ability to outright kind of purchase assets, given the REIT structure. I was just curious about the planned procurements, how you feel about those versus a couple of quarters ago.

I guess I'm unclear as to what you mean by planned procurements.

Public procurements, whether it's RFPs, et cetera, that are out in the marketplace and have been. Sometimes those get pushed out or simply canceled as opposed to being consummated as originally planned. And I was wondering about your confidence level whether the ones that were just discussed in the prepared remarks are actually going to go through to fruition.

Well, I think I am optimistic about the planned procurements or public procurements as well as the nonpublic opportunities as well. I think we, in general, we are experiencing a very busy year, with a lot of market opportunities at the federal and state levels.

So given that the list of public procurements has not increased a whole lot, is it fair to assume that the private or direct kind of conversations is where you've seen most of the improvement?

There are a number of opportunities that are nonpublic, but I think you may detect that we're not really commenting to any significant extent, even on the public procurements. There's other public procurements that we really haven't touched upon because we've, I think, taken the position that discussing our approach and strategies about any particular procurement is really not in the best interest of our company or our shareholders. So we are only discussing those procurements we're, in effect, forced us to discuss because they are so widely publicized.

Perfect. That's helpful. What do -- what are the next couple of contract renewals that we should look for in 2013, just kind of the significant ones and the timeline on those?

There's no significant renewals this year, Tobey, that are up for rebid this year and that will be renewed this year. There's a few next year, but the activity for those would happen later in this year.

Okay. My last question has to do with the managed-only opportunities in Florida. Some of those have kind of gone back and forth between different companies over the years. What advantages or competitive tools do you have other than price to unseat an incumbent in that kind of situation?

Well, to speak generically, in many, if not, most RFP competitions, cost is one component of the overall scoring process that leads to the identification of the winner. The RFP process, being a request for proposal, and that's different from an information for bid process, where usually the low price wins essentially or absolutely. The RFP process combines the scoring of price in tandem with the scoring for the quality of the proposal, past experience, references, et cetera. So a host of factors go into the tabulation of the winning score in an RFP process.

And do you have any particular competitive strengths you feel on the upcoming bids in Florida that you highlighted in your prepared remarks?

Well, that would be getting into strategy again, which I just said we're not going to discuss anymore. Because I don't think any other companies discuss their business strategy in public.

There are no further questions in the queue at this time. I would now like to turn the call over to George Zoley for closing remarks. Please proceed.

Well, very good. Thank you once again for joining us, and we hope you will again in our next conference call. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.