Welcome to the GEO Group 1Q '17 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I now would like to turn the conference over to Pablo Paez, 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 2017 earnings results. With us today is George Zoley, Chairman and Chief Executive Officer; Brian Evans, Chief Financial Officer; Ann Schlarb, President of GEO Care; David Donohue, President of GEO Corrections & Detention; and David Venturella, Senior Vice President of Business Development. This morning, we will discuss our first quarter results 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 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 that were 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?

Good morning to everyone and thank you for joining us on this call. We are very pleased with our strong first quarter results, which reflect the continued growth of our diversified business units of GEO Corrections & Detention as well as GEO Care. Our first quarter performance was driven by higher occupancy rates across our diversified real estate portfolio, particularly throughout a number of our federal facilities. In addition, our GEO Care division continued to experience year-over-year revenue and earnings growth, driven primarily by the continued utilization of its ISAP program with ICE. Our first quarter results reflect the activation of our company-owned 780-bed Folkston Processing Center under a fixed price intergovernmental agreement between ICE and Charlton County, Georgia, which began ramping up in January of this year. The Folkston Center is expected to generate approximately $21 million in annualized revenues. In addition to this project activation, we are very pleased to have been awarded a new contract by ICE in April of this year for the development and operation of a new company-owned 1,000-bed detention facility in Conroe, Texas. The new $117 million detention facility is expected to generate approximately $44 million in annualized revenues on its expected completion in the fourth quarter of 2018. We are pleased to have been able to build on our partnership with ICE which dates back 3 decades to 1986 and has helped the agency provide high-quality services in safe, humane and culturally responsive environments pursuant to the federal government's performance-based national detention standards. In order to continue to be in a position to meet what is expected to be increased demand for detention capacity at the federal level, we also recently acquired the 688-bed Maverick County Detention Center in Texas for approximately $15 million. The center, which is currently idled, was originally…

Thank you, George, and good morning, everyone. As disclosed in our press release today, for accounting purposes, our results for both periods presented first quarter 2017 and first quarter 2016 are adjusted retroactively to reflect the effect of our recent 3-for-2 stock split. This morning, we reported net income attributable to GEO per share or GAAP earnings per share for the first quarter of 2017 of $0.35 per share, which reflects approximately $2.6 million net of cash and M&A-related expenses which are included in our G&A expense for the quarter, and a gain on sale of real estate assets of approximately $300,000 net of tax. Excluding these items, we reported adjusted EPS of $0.37 per diluted share and adjusted funds from operations of $0.65 per diluted share. Our revenues for the first quarter 2017 increased to approximately $551 million from $510 million a year ago. Construction revenue for the first quarter was $57 million compared to $41 million in the first quarter of '16. As a reminder, our construction revenue is related to our Ravenhall Project in Australia and has little or no margin. For the first quarter '17, we reported NOI of approximately $142 million. Compared to first quarter '16, our first quarter '17 results reflect the activation of our company-owned 780-bed Folkston ICE Processing Center in January of this year. Overall, higher utilization rates for our federal facilities under contract with ICE as well as the ICE ISAP program and, as George mentioned, the issuance of 10.4 million shares of our common stock on a split-adjusted basis in March of this year. Moving to our outlook for the balance of 2017. We've updated our guidance for the full year on a split-adjusted basis to reflect the recent 3-for-2 stock split. We expect our stock split-adjusted full year adjusted…

Thanks, Brian, and good morning to everyone. I'd like to give you an update on our GEO Corrections & Detention segment. As you may be aware, GEO has enjoyed a 3-decade-long partnership with the federal government and we currently provide services for the Federal Bureau of Prisons; U.S. Immigration and Customs Enforcement, more commonly referred to as ICE; and the U.S. Marshals Service. Additionally, we own and/or manage correctional facilities for 10 states, including Florida, Georgia, Louisiana, Oklahoma, Arizona, New Mexico, California, Vermont, Virginia and Indiana. Our business relationships with our state customers began in the mid-1980s and now involve more than 20 facilities that are almost all medium security or higher. With respect to the international markets, GEO is the only U.S. publicly traded company providing corrections and detention services overseas. We operate in the U.K., Australia and South Africa. We're extremely proud of our long-standing partnerships with our government customers in the U.S. and internationally. With respect to recent facility activations during the first quarter, we completed the intake process at our company-owned 780-bed Folkston ICE Processing Center under a 5-year intergovernmental agreement between Charlton County, Georgia and ICE. This new contract is expected to generate approximately $21 million of annualized revenues for GEO. We're also pleased to have been recently awarded a new 10-year contract for the development and operation of a company-owned 1,000-bed detention facility in the Houston area, specifically Conroe, Texas. This important contract was awarded under solicitation issued by ICE in 2015 and which was a rebid of the ICE Houston contract detention facility. Our new $117 million facility will comply with the most recent ICE detention standards and provide extensive ICE offices and support areas. The project will create more than 330 full-time jobs in Montgomery County, Texas where our company has had…

Thank you, Dave, and good morning, everyone. As you may remember, our GEO Care segment is composed of 4 divisions. Following the acquisition of CEC, our GEO Reentry division now oversees 51 halfway houses totaling over 10,000 beds. Additionally, our GEO Reentry division manages more than 90 nonresidential programs, including day reporting centers and in-prison treatment programs, with the ability to serve approximately 10,000 participants. Our Youth Services division oversees 12 residential facilities with approximately 1,300 beds and 7 nonresidential programs with approximately 1,200 participants. Our BI division provides services for approximately 171,000 individuals under community supervision, including more than 124,000 individuals through an array of technology products, including radio frequency, GPS and alcohol monitoring devices. Finally, our GEO Continuum of Care division oversees the integration of our industry-leading evidence-based rehabilitation programs, both in-prison and through our community-based and post-release services. We believe that our focus on improved rehabilitation and community reentry programs is in line with efforts being undertaken by government agencies not only in the U.S., but also internationally to invest in meaningful rehabilitation and recidivism reduction programs. We believe these efforts will continue to create opportunities for our company to partner with governments around the world. Each of our divisions continues to pursue several new growth opportunities. Following the acquisition of CEC, our expanded GEO Reentry platform is well-positioned to work with existing and prospective local and state correctional customers to leverage new opportunities in the provision of community reentry services. Those services are provided through real estate and programmatic solutions in residential settings as well as case management and support services in nonresidential day reporting centers and in-prison treatment programs. We are pursuing a number of new opportunities for residential reentry centers at the state and federal level and for new day reporting centers primarily at…

Thank you, Ann. We are very pleased with our strong first quarter results and our outlook for the balance of the year which reflect the continued growth of our diversified real estate and services platform. We have an extensive track record of capturing new organic growth projects and successfully integrating company and asset acquisitions which have created long-term value for our shareholders. And we believe that in each of the - our service lines, we've become a world leader and are recognized by our customers as best-in-class. We are excited to have closed on our previously announced acquisition of CEC, which we believe has further solidified our position as the leading provider of evidence-based rehabilitation and community reentry services in the world. Following the acquisition of CEC, GEO now has 100,000 beds, making it the fifth largest corrections organization in the world. We are philosophically and financially committed to maintaining what we believe is our position as the leading provider of evidence-based rehabilitation and community reentry services in the world. To this end, we have doubled our annual company commitment from $5 million to $10 million to continue to expand the delivery of our GEO Continuum of Care, providing enhanced offender rehabilitation integrated with post-release services. We also continue to be optimistic about the demand for our diversified services and growth potential. With the acquisitions of CEC and Maverick County Detention Center, we now have approximately 7,000 available beds, which we believe could generate more than $60 million in annualized adjusted EBITDA. As I have expressed to you in the past, it is gratifying to see GEO's continued financial success based on its successful diversification and commitment to operational excellence. The success continues to be underpinned by our belief that, as a company, we are at our best when helping those in our care reenter society as productive and employable citizens. This concludes our presentation. And we would now like to open the call to your questions.

[Operator Instructions]. And the first question comes from Kevin McVeigh with Deutsche Bank.

Brian, I just wanted to kind of dive into the guidance a little bit more. It looks like you took the revenue up $180 million. Can you just help us understand how much of that was CEC versus the core business and kind of maybe layer that down into the EBITDA as well?

Well, I think that the CEC is annualized about $250 million a year in revenue. So on a - for the 2017, it's probably about $180 million of additional revenue. So the guidance that we have provided reflects the update for CEC. I don't think we had any material change to our standalone 2017 guidance from what we already provided. So the increase really reflects the CEC transaction, which you nailed $180 million on the head. And then, I think we've said from an annualized basis the CEC is worth about 9% to 11% on an EBITDA basis. Pre-acquisition, GEO eats standalone EBITDA. So again, I think proportionately it's going to be somewhat less in 2017 because we're working through the synergies. And I don't - in the second quarter, there's no material synergies from the transaction. We'll have some transition expenses that we'll disclose when we provide our second quarter earnings results, but it's really going to take until the fourth quarter before we start to materially realize those synergies, transition their corporate office staff to our corporate office, complete the integration around systems, field personnel, et cetera. So we don't really expect to realize any meaningful synergies until 2018.

Got it. So the EBITDA take-up is all around CEC as well. Is that right? Is that the best way to think about it?

Yes. I mean, compared to what our guidance was for '17 standalone, that's correct. So the way - I think the way to look at it is we - during the quarter, we acquired CEC. We issued a significant amount of equity. We delevered the balance sheet. We positioned the company for future growth. We increased our liquidity by over $400 million to about $650 million. So that's all of what's transpired during the quarter and you could argue that CEC helped position the company for all that and absorbed some of that equity offering. So we've maintained our guidance despite issuing 10 million additional shares. And then, next year, we would expect accretion from CEC above that. And again, as George mentioned and I think Dave mentioned, we have not included in any of our guidance any additional contracts or prospective contracts related to ICE and the BOP procurement related to CAR 19. And we think we've been - we've captured reasonably what we expect the outcome to be from CAR 16.

Got it. That's helpful. And then, one other one. The Maverick County - if you said this, I missed it. But was that an acquisition in the quarter? And what did you pay for that? And then, is that included in the 7,000 underutilized? And if it is, how much is that Maverick County Facility-acquired? How much came in from kind of CEC and then, ultimately, what was the existing business?

So CEC - so Maverick County is an idle facility currently. We've previously operated it. It's been some years since we operated it as a managed-only facility. It's about 700 beds and we acquired it for $15 million in revenue - or $15 million. We haven't included in any idle beds, the 7,000 beds that George mentioned, but we haven't included any upside. So we've absorbed the carrying costs, the addition, the financing costs, et cetera related to it, but we haven't included any upside. And we would expect to target that to a federal client.

Got it. But that's in that 7,000 underutilized beds?

Yes.

Okay. But another point to kind of make on the guidance is the guidance was that much better because you've got this incremental cost now from the operations and financing that you're not getting credit for that you didn't anticipate. Is that a fair way to think about it?

Yes. I think that's a good synopsis.

And the next question comes from Michael Kodesch with Canaccord Genuity.

I guess, maybe just first off on the Grafton facility. I guess, kind of establishing yourself there with Ravenhall and that's seemingly going pretty well. Just any comments on why you think Grafton didn't - you weren't included in the bid for Grafton?

Well, their - the contract has not been signed yet. And so, therefore, there hasn't been a debriefing for us to take advantage of. So we don't know why.

Okay. And then, I guess, looking at the BOP. Any idea why they would extend those contracts for maybe 6 months, but then not really have an answer, I guess, on the procurement itself? I mean, is there a reason for the delay?

You talking about CAR 16?

Correct.

Is there a reason for the delay? Now, we really don't have an insight to that. The procurement has been going on almost 2 years. So we continue to wait the outcome, but I would think we're at the very end of it and it's a very possible that awards will be made on CAR 16 by the end of this month, which begins at the beginning of CAR 19.

Okay. That's helpful. All right. I guess, moving maybe just to ICE then. Can you help maybe frame, I guess, in your mind what the ICE opportunity looks like with the latest budget being passed for a little over 39,000 beds being fully funded? What are you guys kind of see is now the new opportunity set?

Well, this is Dave Venturella. So what we see is ICE beginning to implement their interior enforcement strategy. For the past 8 to 10 years, the focus has been on the border. I think everybody has seen the number of apprehensions and crossings going down. So Phase 2 of that strategy is to focus in the interior. Currently, ICE manages about 2.5 - 2 million to 3 million people who are going through immigration removal proceedings. About half of those people, about 1 million or so, have final orders of removal. And so ICE will focus its resources based on the additional step they will get from beyond the bus on those types of cases as well as criminal aliens that they are tracking through state county and local criminal justice. So we'll start to see the benefits of that through increased apprehensions and increase the tension in the interior part of the United States, not necessarily along the southern border.

All right. Yes. That's helpful. How about on the ISAP side? Can you help us kind of frame the opportunity set with that? I mean, is it meaningfully above kind of the ramp that we've been seeing? Or would you expect, I guess, electronically monitoring to continue progressing as we've seen over the past few quarters?

I think, consistent with what Dave said, you'd see the same type of impact on ISAP as interior enforcement picks up and they begin using the contract the way they had historically. In addition, it will continue to be used as folks are coming over the border. We're still seeing some there. So it's averaging out at about a little over 70,000 right now and we anticipate to see it continuing at about that unless anything changes with the dynamics going on with ICE.

And the next question comes from Tobey Sommer with SunTrust.

A follow-up on your ICE commentary. Does a change or, I guess, an introduction of more answers on interior enforcement - does that change the agency's geographic preference as far as incremental bed demand? In other words, does maybe - does incremental beds not need to be or are they not desired to be located near the border?

I think as ICE deploys more resources to the larger metropolitan areas within the United States, I think the bed needs will be closer to those sources. So yes, it will be less needs along the border. If the rate of border crossings and apprehensions remain low, then the need will shift to the interior part of the United States.

And I would - as an additional question on ICE, could you refresh us about how increased either border or interior enforcement by ICE could impact activity levels at the other two federal agencies, U.S. Marshals and the Bureau of Prisons?

Well, I think any enforcement by federal law enforcement agencies could generate more prosecutions, convictions and then eventual detention in the federal system. I think that the Attorney General's recent announcement regarding the prosecution of criminal aliens would apply to all of the federal agencies and so we will monitor the impact of that new policy directive. But certainly, any increase in law enforcement activity could generate additional apprehensions and then eventually detention.

And George, I'm kind of interested on your perspective relative to real estate solutions where customers - you talked about replacement of facilities as part of the prepared remarks. What do you think the prospects are now to - for the company to be able to kind of push something past the finish line this year? And how do you feel about those kind of opportunities now versus a year ago, for example?

Well, are you speaking at the federal level or at the state level?

Both, frankly. Just for the entire market, not one specific customer.

Well, at the federal level, I think the agencies, ICE in particular, are looking for modern facilities that meet their latest detention standards. Our Houston award recently is an indication of that objective where our new facility will replace an existing and much older facility that's, I think, 3 decades old. Our new facility is a 2-storey building that cost $117 million and will probably be the state-of-the-art ICE processing center for the country. At the state level, we're seeing more state procurements that involve replacement-type facilities. David, I would defer to you on that.

Yes. Just to expand on that, we are seeing these opportunities increase and in this year in particular, and just looking at the age of the facilities throughout the country and the challenges, the fiscal challenges, the state budgets, we were hopeful that additional opportunities will come out over the next couple of years.

Regarding interior enforcement, I think that's going to mean often a consolidation play on the part of the federal agencies where they will desire to have newly constructed facilities in northern and eastern portions of the country where they've been previously been serviced by local county jails. As their detention population increases in those geographical areas, they're going to want larger more comprehensive facilities with judge's chambers, office space for the ICE employees. So we still see more consolidation opportunities that lead to more new facilities at the federal level in particular.

Last question for me. If this continues to play out, which seems like higher demand at the federal as well as state level and some of your available and idle capacity gets soaked up along with industry idle and available capacity, do you think that pricing in per diems could start to grow a little bit more quickly as there is kind of less available space for customers to look at? I'm curious about your perspective on the pricing over the next 2, 3 years.

Well, anything built in the north and the east is going to cost more than it has been costing in the south from a construction standpoint, from a wage standpoint. Remember, the federal contracts in particular carry with them a federal wage determination that's issued by the Department of Labor and we are required to pay those wage rates and the wage rates in the north and east are much higher than the wage rates in south as well as construction costs. So yes, we expect the per diem rates to be triple-digit for the north and the east.

And do you think underlying pricing with kind of annual price changes may be more rapid rather than just commenting on sort of the revenue mix shift based on new demand in more expensive geographies?

Well, the pricing feature I'm most pleased with is a growing number of fixed price contracts by ICE, by the BOP, by the Marshals Service. That doesn't leave us exposed to census fluctuations. They are guaranteed on a monthly basis regardless of size.

[Operator Instructions]. And the next question comes from Yinyan Ibanez from Philadelphia Financial.

I have a follow-up question on ICE. With the incremental budget just recently passed, how should we think about that could translate into incremental bed counts from ICE and the timing of contract awards from ICE and as well as how much monthly share you think GEO can enjoy from these incremental contract awards?

Well, we discussed previously that the budget provides for an additional 5,000 beds. Presently, GEO is the largest provider to ICE. We have, I would say, approximately 25% of all of the detention bed capacity around the country on behalf of ICE. And we expect to achieve at least that percentage of future opportunities.

Do we have any ideas of timing of the contract awards?

I would think it would begin within the next quarter.

And the next question comes from Kevin McClure with Wells Fargo Securities.

Can you remind us what percentage of detainees at your facilities would be considered new arrivals or people who are recently picked up at the border? The border patrol statistics suggest that the new administration's immigration policies may be deterring some attempted crossings. So I'm wondering to what extent that's being reflected in the occupancy stats in Q1 or the sequential decline in occupancy over Q4 in some regions?

We don't have that kind of information available to us unfortunately. I can't answer that question.

Got it. Okay. And then, one follow-up on the ISAP program. How long is the average participant in that program monitored? Is it indefinite as long as they're in the states? Or is there like a defined sunset period?

That's totally up to the ICE officer to make that decision about supervision. There are different levels of supervision. They can escalate and deescalate from case management to technology. And it's all on the agent to make that decision and determine somewhat by going through that immigration court process and following the immigration court order. So the customer makes that decision.

And there are no more questions at the present time. So at this time, I would like to turn the call to management for any closing comments.

Okay. Well, thank you, everyone for joining us on this call and we look forward to addressing you in our next quarterly conference call. Thank you.

The conference has concluded. Thank you for attending today's presentation. You may now disconnect.