Good morning, and welcome to The GEO Group Fourth Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] 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, sir.

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 2018 earnings results. With us today are George Zoley, Chairman and Chief Executive Officer; Brian Evans, Chief Financial Officer; Ann Schlarb, President of GEO Care; and David Donahue, President of GEO Corrections & Detention. This morning, we will discuss our fourth quarter and full year 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 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 that was issued this morning. Additionally, much of the information we will discuss today, including the answers we may 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 Chairman and CEO, George Zoley. George?

Thank you, Pablo, and good morning to everyone. We are pleased with our overall operational and financial results during the very active fourth quarter of 2018. We completed the start-up and activation of two important projects in Texas. First, our company-owned and newly renovated 661-bed Eagle Pass facility, completed the intake of out-of-state inmates under a two-year contract with the State of Idaho. And second, our new $120 million company-owned 1,000-bed Montgomery Processing Center completed the intake process under a 10-year contract with ICE. Throughout the entire year, our diversified business units focused on delivery high quality services for our customers and achieved several important operational milestones. The GEO Corrections and Detention business units served over 300,000 individuals throughout 2018 while managing an average daily population of more than 60,000 in the United States. The GEO Care business unit served approximately 700,000 individuals during the year while managing an average daily census of more 200,000 program participants. On a combined basis, our employees, facilities and programs served approximately 1 million individuals during 2018. This past year was also the most active with respect to contract renewals and extensions in our company’s history. During 2018, we successfully executed contract renewals or extensions for approximately 22,000 beds in the U.S. and overseas. Additionally, we were awarded expansions at five facilities involving approximately 1,800 beds in the U.S. and Australia. We also continue to be pleased with the implementation and expansion of our GEO Continuum of Care programs. We have now rolled out our Continuum of Care program to 18 facilities in the U.S. and internationally. GEO presently provides an annual funding commitment of $10 million for the Continuum of Care program. During 2018, our Continuum of Care sites delivered approximately 6.7 million hours of programming while awarding close to 2,800 high school…

Thank you, George. Good morning everyone. Today, we have reported fourth quarter net income attributable to GEO of $0.28 per diluted share on quarterly revenues of approximately $599 million. Our fourth quarter results reflect the following pre-tax items. A $1.6 million loss on real estate assets, approximately half of which relates to the close out of smaller GEO Care facilities primarily in Pennsylvania and the balance to losses caused by Hurricane Michael in Florida. $4.2 million in non-recurring close out expenses primarily related to the previously disclosed reorganization of our reentry operations in Pennsylvania and the previously announced transition of the Parklea Correctional Centre in Australia to a new operator. $2.5 million in startup expenses associated with the activation of the new 1,000-bed Montgomery ICE Processing Center and the previously idle 661-bed Eagle Pass Correctional Facility in Texas; and $2.6 million in legal expenses related to some of our federal contracts, which have been ongoing for some time across several states. During the fourth quarter, we recognized our legal – reorganized our legal representation and strategy with respect to certain legal cases and incurred one-time legal transition expenses. We believe we have adequately accounted for known legal cases in our guidance for 2019. Excluding these items, we reported adjusted net income of $0.36 and AFFO of $0.65 per diluted share. Compared to the same period of last year, our fourth quarter 2018 results reflect the following items. The startup cost for the activation of the Ravenhall, Australia correctional centre in November 2017; the startup cost for the activation of a previously idle 338-bed annex at our Folkston ICE Processing Center in Georgia in July 2018; the startup cost for the activation of the previously idle 661-bed Eagle Pass, Texas facility with the State of Idaho in August, 2018; startup cost…

Thanks, Brian. Good morning everyone. During the fourth quarter, our GEO Corrections & Detention business units completed the ramp up and activation of two important projects in Texas. First at the state level, we completed the intake of out-of-state inmates from the state of Idaho at our company-owned 661-bid Eagle Pass Correctional Facility. We have a two year contract with the Idaho Department of Correction for the housing of approximately 700 medium-security inmates at the Eagle Pass Facility and our company owned Karnes correctional center also in Texas. This contract is expected to generate approximately $17 million in annualized revenue. At the federal level, we completed the activation of our new company-owned 1000-bed Montgomery ICE Processing Center. The Montgomery facility is approximately 400,000 square feet, designed to withstand a Category 5 hurricane, provides office space for 170 ICE staff and can serve as an emergency command center. At a capital cost of approximately $120 million, The Montgomery ICE Processing Center is GEOs most expensive facility investment and is expected to generate approximately $44 million in annualized revenues under a 10 year contract with ICE. Also during the fourth quarter, we undertook a significant effort to repair the GEO managed 985-bed Bay Correctional and Rehabilitation Facility in Florida. As we had updated you last quarter, the bay facility sustained significant damage from Hurricane Michael and as a result had to be depopulated in October of 2018. We're extremely pleased to report that GEO successfully completed all the necessary repair work to bring the bay facility back online and began repopulating the facility in early January 2019. This significant effort was completed in record time in less than 90 days and included reroofing the entire facility installing all new HVAC systems and completing all emergency repairs and improvements. During this time period,…

Thank you, Dave, and good morning everyone. For the entire year of 2018, GEO Care served approximately 700,000 individuals. During the fourth quarter, our GEO Reentry division completed the consolidation and reorganization of our reentry operations in Pennsylvania. As we updated you last quarter, this was part of the thoughtful strategy and operational review alongside our government customer. Our aim has always been to improve the delivery of high quality services for our clients and to achieve better overall economies of scale across our entire reentry division. This has allowed us to focus resources on our larger better performing assets while idling smaller underperforming lease sites that were part of the acquisition of Community Education Centers. We continue to be optimistic about the potential for revenue synergies and new growth opportunities under our expanded reentry programs and in-custody treatment services platform. We are encouraged that during the fourth quarter, our GEO Reentry division activated three new day reporting centers. Two of these new non-residential centers were activated in partnership with the State of Louisiana, while the third involves a pilot program with the Federal Bureau of Prisons in California. We are particularly excited about the potential opportunity to expand our day reporting services at the federal level. In terms of our Youth Services division, we continue to experience stable utilization rates and steady operational performance across our facilities consistent with the last couple of years. Our B.I. electronic monitoring division has continued to experience increased utilization under our Intensive Supervision and Appearance program, ISAP, contract with ICE and we would expect these trends to continue during 2019. Finally, we remain excited about the successful expansion of our GEO Continuum of Care programs, which have now been implemented across 18 GEO facilities in the U.S. and internationally. Our Geo Continuum of Care integrates enhanced in-custody rehabilitation programs including cognitive behavioral treatment with post-release support services such as transitional housing, transportation, clothing, food and job placement assistance. During 2018, our GEO Continuum of Care programs completed over 6.7 million hours of rehabilitation programming. Our academic programs averaged more than 13,000 daily participants and awarded close to 2,800 high school equivalency degrees. The average daily attendance for our vocational courses totaled more than 32,000 participants, leading to more than 9,100 vocational training certifications. Almost 18,000 individuals attended substance abuse treatment on a daily basis with more than 8,800 participants completing their substance abuse treatment programs. We also provided post-release support services to more than 1,800 individuals returning to their communities. We believe that the scope and substance of our GEO Continuum of Care programs are unparalleled in our industry and we expect that these efforts will allow us to pursue new quality growth opportunities. At this time, I'll turn the call back to George for his closing remarks.

Thank you, Ann. We are pleased with the financial and operational milestones achieved by our diversified business units. During the fourth quarter, we completed the ramp up and activation of our new $120 million 1,000 bed Montgomery ICE Processing Center and the 661-bed Eagle Pass, Texas facility for Idaho inmates. In the international sector, we began ramping up 300 additional beds at our Ravenhall facility and we are developing expansions at the Junee and Fulham facilities totaling approximately 600-beds. Despite the headwinds associated with higher interest rate environment, we believe our core operational cash flows remained stable and predictable. We've been fortunate to once again increase our cash dividend to $1.92 per share annually. We remain optimistic regarding the outlook for new contract awards with two large federal BOP procurements totaling 12,000 beds expected to be decided this year. We continue to carefully evaluate our capital allocation to create sustainable long-term value for our shareholders. We were very pleased with the continued success of our GEO Continuum of Care enhanced rehabilitation program and its expansion to 18 GEO facilities. We believe strongly that we are at our best when helping offenders in our care reenter society as productive and employable citizens. Finally, I would like to thank all of our employees worldwide whose dedication and professionalism has made all the achievements we've discussed today possible. We are now happy to open the call to your questions.

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Tobey Sommer of SunTrust.

Thank you. I was wondering if you could comment on what you're hearing from the Bureau of Prisons on their expectations for inmate population trends out in the future. Now that I guess they have had nearly a couple of months to digest the prospective impact of the prison reform bill that passed around the holidays? Thank you.

Tobey, this is Dave. Our Bureau of Prisons contracts we serve criminal alien populations at the large degree and the first chance acts really doesn't have direct implications to those criminal aliens. So, we don't see a significant impact in our lane. And in the course of the Bureau of Prisons, they are under the review process to determine exactly how it's going to apply to their populations. But presently, we don't see any adverse impact to our populations.

Do you – have you with respect to sort of CAR 19 has the agency kind of been active in all the behind the scenes activities that are required to move that procurement forward?

Yes, they have been with respect, particularly, to the environmental analysis that has to be done on every proposed site. So, I think they're at the last stages of completing that analysis and that will lead to a best and final stage and proposals with final awards we expect in the second quarter.

Okay. Kind of shifting gears, does the – there are lots of numbers being vented about in the – associated with the expected budget deal this week with the caps versus how many beds ICE kind of is actually utilizing today being substantially above the cap and perhaps some flexibility to shuffle monies going forward to occupy more beds. Do you expect this to translate into business opportunities for the Company?

We are hopeful and it's likely given that the authorized level that has now increased by 5,000 beds and historically, I think it's been correct that the actual population has always been significantly higher than that level. So with the new level being approximately 45,000 beds and the actual being about 48,000, I would expect that the 48,000 could increase through reprogrammed funding has been – which has been reported in the media.

How would we think about it – for example, the ICE needs to contract for some more beds, so how do we think about the kind of relative opportunity for large established players with owned and idle facilities such as yourselves or ICE's capability to meet their needs through smaller jail in County Sheriffs and so forth?

Yes, I think the larger players have existing capacity that meets the new standards that were developed under the Obama administration. Most county jails, I don't believe meet those standards.

Okay. And then I'll ask one more question and I'll get back in the queue. Could you talk about it in broad terms, what your contract renewals look like in 2019? And then, if you could as part of that broad answer, please also touch on the Florida managed-only business? Thanks.

I haven't done a bed count, but our rebids renewals for 2019 are far less than they were last year. Last year was a dramatic year with the most rebids and renewals of any year in our history, with respect to the Florida contracts those have been extended in general by – for a two-year period.

So they're not coming up for rebid this year? They've already been extended?

They have already been extended for two years.

Terrific, thank you very much. I'll get back in the queue.

[Operator Instructions] And our next question comes from Kevin McClure of Wells Fargo Securities.

Good morning. Thank you for taking my question. I understand that potential populations are kind of in an all-time high. So I'm looking at the federal occupancy statistics in your sup. And I was curious as to why occupancy would be down in the Central and Western regions over Q3? Is there anything going on in that – those two regions in particular?

Kevin, this is Dave. No, it's again relative to the Bureau of Prison's ability to designate and with the government shutdown that occurred, the operational rhythm was sustained during that shutdown. So – but there is no issues in the Central or Western regions.

Okay. And any shutdown related disruption you could see a rebound in occupancy in Q1?

Well, the Bay Florida Facility was out of commission because of the hurricane damage…

That was eastern…

That was the eastern bed…

That was the eastern bed…

But I'm sorry, Kevin would you repeat your question?

Yeah. So just trying to understand now there is BOP and there is ICE embedded in that population, and I'm just trying to read between the lines as to what would cost…

Well, Kevin, this is Brian. I think it's less impactful than it’s been historically, but there's always a little bit of a cyclical nature to the federal populations in the fourth and the first quarter. There is some around the holidays and whatnot. We see a little bit of a decline. Now the populations overall are still I think better than they've historically been in our facilities for the federal populations. But compared to third quarter there would be some of that type of activity I think going on. So that's probably really all you're seeing at some of the federal facilities, especially Marshals and ICE where there's definitely some volatility in those populations.

Got it, okay. And then your AR balances obviously increased in Q4, and I'm wondering how much of that increase would you attribute to just kind of accruing a receivable for the federal non-payment?

Probably most of it, I think we did – the numbers are the burn rate on our federal business about $100 million a month between all of our different business units. So it's going to step up some when they're not paying the bills.

Okay. And then Brian in your script you said growth CapEx for 2019, was that 15 or 50?

About 50.

50? Okay. And then maintenance, kind of, what $20 million or $30 million?

Yeah, $28 million to $30 million.

Okay, got it.

In the supplemental it says $28 million.

Understood. And then you mentioned your guidance includes kind of a step-up in interest expense for 2019 higher rates, higher average borrowings. What are your thoughts around terming out some of that variable rate debt in the bond market this year?

We're watching obviously the bond market and the bank market and we'll take a look at things if they opportunistically make sense. So, I can't commit one way or the other, but I think that's something we're obviously monitoring.

Got it, that's all from me. I appreciate the time. Thank you.

The next question will come from Mark Strouse of J.P. Morgan.

Yeah, good morning. Thanks for taking our questions. I just had a follow-up to Tobey's earlier question around the Prison Reform Act. So I understand that there is no impact to the detention business, but just curious if the reform is driving any conversations or any real business yet for your halfway houses or your monitoring? Or is it just too early for that stuff?

I think it's too early to tell, at this point, certainly the recidivism reduction programming discussed in the act is the type of programs we provide in those centers, but too early to know where that will take us.

Okay, very helpful. Thank you.

[Operator Instructions] And we now have a follow-up question from Tobey Sommer of SunTrust.

Thank you. Now honing in on the criminal alien populations that you do focus on in terms of your BOP business, what did the leading indicators for those populations looked like from your perspective? And I'm kind of referring to increased enforcement activity whether at the border or in the interior of the country and U.S. Marshal, detainee populations is being sort of a leading indicator for what eventually may flow into that that BOP inmate population subset.

I think it's fair to say that the Marshals population has been increasing and they are the funnel to the BOP where the convicted detainees are eventually incarcerated. So where the prior year, the Marshals' population was declining over this past year, most recent several months it's been significantly increasing. And I imagine that's because of the step-up of interior enforcement by ICE.

So I guess if historical conviction rates and sentencing terms maintain themselves relatively stable, then that eventually implies growth in the criminal alien populations housed at the BOP?

Yes. And the first step back is to my recollection of the impact is I think people have estimated could impact by 3,000 or 4,000 individuals out of the total individuals incarcerated by the BOP. But the criminal alien population could be increasing because of the step up of the interior enforcement by ICE.

To the best of your knowledge, does the agency still intend on trying when possible to segregate those populations and therefore kind of housing them separately in facilities largely operated by the private sector?

The BOP is – are you speaking of the BOP or ICE?

BOP.

BOP? You know, I think that they have current legislative direction that they're supposed to be reviewing their criminal alien populations to see if they can move higher custody levels into more private facilities. There hasn't been an actual step in that direction that we're aware of, but they – I think they are reviewing that issue.

Thank you very much.

And this concludes our question-and-answer session. I would like to turn the conference back over to George Zoley for any closing remarks.

Well, we thank everyone for joining us on this call and look forward to talking to you again. Thank you.

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