Good morning, and welcome to the GEO Group First Quarter 2022 Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions 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 first quarter 2022 earnings results. With us today are George Zoley, Executive Chairman of the Board; Jose Gordo, Chief Executive Officer; Brian Evans, Chief Financial Officer; James Black, President of GEO Secure Services; and Ann Schlarb, President of GEO Care. This morning, we will discuss our first quarter results and 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 non-GAAP basis information. A reconciliation from non-GAAP basis information to GAAP basis results is included in the press release and the 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 Zoley. George?

Thank you, Pablo, and good morning to everyone. Thank you for joining us on our first quarter 2022 earnings call. I'm pleased to be joined today by our senior management to review our financial results for the first quarter, the trends for our business segments our updated guidance for 2022 and our ongoing efforts to deleverage and address our upcoming debt maturities. We continue to be pleased with the strength of our operating and financial results. In the first quarter of 2022, we reported revenues of $551 million, which is down less than 5% from a year ago despite the nonrenewal of several of our Federal Department of Justice contracts in 2021 and the ongoing challenges of the COVID-19 pandemic. Our first quarter 2022 net income attributable to GEO was approximately $38 million. Adjusting for certain noncash items in the first quarter a year ago, our adjusted net income per diluted share this year increased by more than 10% to $0.31 for the first quarter of 2022. Our AFFO for the first quarter increased by 5% year-over-year to $0.64 per diluted share, and our adjusted EBITDA increased $0.15, 15% year-over-year to over $125 million in the first quarter. Our diversified business units have continued to deliver better-than-expected performance over the last several quarters, which we believe is representative of the strength of our business. For the trailing 12 months ending on March 31, our adjusted EBITDA totaled approximately $484 million, which is the highest for any 12-month period in our company's history. Looking at each of our segments in more detail, our Secure Services owned and leased active facilities experienced a sequential increase in compensated occupancy rates of 1%, ending the first quarter of this year at 86% of capacity. Our Secure Services owned and leased segment is comprised primarily…

Thank you, George. Good morning, everyone. For the first quarter of 2022, we reported GAAP net income attributable to GEO of approximately $38 million. Adjusting for onetime gains in the first quarter a year ago, our adjusted net income per diluted share increased by approximately 10% to $0.31 on revenues of approximately $551 million for the first quarter of 2022. Our AFFO and adjusted EBITDA for the first quarter of 2022 increased by 5% to $0.64 per diluted share and by 15% to $125 million, respectively. Our quarterly financial performance continues to consistently exceed our expectations. And for the trailing 12 months ended on March 31, 2022, our adjusted EBITDA has now surpassed any other 12-month period in our company's history. This remarkable performance is a testament to the strength of our diversified business segments, especially when considering the impact of the COVID-19 pandemic and the nonrenewal of several of our federal facility contracts during 2021. Moving to our updated financial guidance for 2022. We expect full year net income attributable to GEO to be between $145 million and $157 million on annual revenues of approximately $2.2 billion. Adjusting for extraordinary items, we expect adjusted net income to be in the range of $1.17 to $1.27 per diluted share. We expect full year 2022 AFFO to be in a range of $2.30 to $2.40 per diluted share. And we expect adjusted EBITDA to be in a range of $453 million to $471 million. For the second quarter of 2022, we expect net income attributable to GEO to be between $36 million and $39 million on quarterly revenues of $560 million to $565 million. We expect second quarter 2022 adjusted net income to be between $0.30 and $0.32 per diluted share and AFFO to be between $0.56 and $0.58 per diluted…

Thank you, Brian. Good morning, everyone. It is my pleasure to provide an update on GEO Secure Services. During the first quarter of 2022, our operational efforts have remained focused on the continued mitigation of COVID-19. While we are currently experiencing the lowest level of COVID cases in our Secure Services facilities since the beginning of the pandemic, our staff and management teams remain vigilant in the implementation of our mitigation strategies. The steps we have taken from the start of the pandemic have been consistent with the guidance issued by the Centers for Disease Control and Prevention. We continue to provide access to pay time off for our employees and paid leaves so that they are able to remain home as needed. And we continue to make face masks and cleaning supplies available across our facilities. We made a significant investment of $2 million to deploy Abbott rapid test devices across our facilities, and we continue to focus on testing as a key mitigation tool. We also invested $3.7 million to install bipolar ionization systems at select Secure Services facilities to reduce the spread of airborne bacteria and viruses. And we are working closely with our government agency partners and local health departments to continue to make vaccines available to those entrusted to our facilities. We will continue to evaluate our mitigation steps and make adjustments based on updated guidance by the CDC and other best practices. During the first quarter of 2022, our employees and facilities also achieved several important milestones. Our facility successfully underwent 30 audits, including internal laws, government reviews, third-party accreditations and certifications under the Prison Rape Elimination Act. 6 of our Secure Services facilities received accreditation from the American Correctional Association with an average score of 99.7%, with 2 of those facilities achieving a…

Thank you, James, and good morning, everyone. I'm pleased to provide an update on our GEO Care business unit, which includes our reentry services and electronic monitoring and supervision segments as well as our GEO Continuum of Care programs. Consistent with the efforts that our Secure Services facilities, our GEO Care facilities and programs have remained focused on mitigating the impact of the COVID-19 pandemic. Implementing strategies and practices that are consistent with the guidance issued by the CDC, our efforts continue to be focused on increased sanitation, testing, deploying face math and additional screening measures for entry into our facilities, ensuring that our employees have access to pay believe and pay time off to remain home as needed, also remains a top priority. We will continue to evaluate these steps and make adjustments based on updated guidance by the CDC and other best practices. Moving to a review of our business segments. Our residential reentry services facilities continue to operate significantly below historical occupancy levels. The COVID-19 pandemic has had a significant impact on the utilization rates at our residential reentry centers. Government agencies throughout the country have prioritized placement of individuals into nonresidential alternatives, including furloughs, home confinement, day reporting and electronic monitoring programs. Despite a challenging operating environment, we have continued a successful streak of contract renewals with 7 GEO reentry services contracts renewed during the first quarter of 2022. Additionally, 2 of our residential reentry centers received accreditation from the American Correctional Association in the first quarter of 2022, with an average score of 99.8%, including 1 perfect accreditation score of 100%. And 2 other residential reentry centers received the U.S. Department of Justice certification under the Prison Rape Elimination Act, both exceeding standards in several areas. While residential reentry centers have been negatively impacted by…

Thank you, Ann. We continue to be pleased with our strong operational and financial performance. Our robust results have allowed us to make substantial progress towards our objective of reducing net recourse debt. Since the beginning of 2020, we have been able to reduce net recourse debt by approximately $330 million. Our management team acknowledges the concerns related to our ability to access financing in the future. Therefore, we recognize the importance of allocating capital towards debt reduction, and we are working diligently to address our debt maturities. We are continuing to work on our multifaceted approach, which includes a continued focus on net recourse debt reduction, a comprehensive review of potential sales of company-owned assets and businesses and the ongoing engagement with our banks and with our lender and bondholder groups. Our goal with this process remains to be able to reach agreement on and execute a transaction or a series of transactions to reduce our recourse debt and extend the maturities of our outstanding senior unsecured notes, our revolving credit facility and our term loan, all on reasonable terms. We are encouraged by the progress we have made since we began these discussions. And while market and credit conditions can change at any time and there can be no assurances, we believe that a potential transaction or transactions can be completed on satisfactory terms. As we continue these productive discussions, we also plan to continue to evaluate other capital structure alternatives with the assistance of our financial and legal advisers. As we have expressed in the past, after attaining our objective of net recourse debt reduction, we plan to evaluate the allocation of a portion of free cash flow to fund quality growth opportunities and potentially return capital to our shareholders in the future. We believe that our continued financial performance is representative of the strength of our business and investment strategy. Our strong cash flows are supported by valuable company-owned real estate assets and diversified contracts entailing essential government services ranging from secure residential care to community-based and technology solutions. That completes our remarks, and we would be glad to take questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question is from Joe Gomes of Noble Capital. Please go ahead.

Good morning. Nice quarterly results. Thanks for the in-depth presentation.

You're welcome.

So you mentioned a couple of times about the COVID restrictions still on the ICE facilities. I was wondering if you could kind of give us a little more in-depth detail there. Is there a certain occupancy level that the facilities are restricted at? And if so, what is that level for the facilities under these COVID restrictions? And what else is there under those that may be preventing you from increasing occupancy at those ICE facilities.

Right now, those restrictions are at 75% capacity for the ICE facilities.

Okay. And with the hopeful the end of Title 42 and reading the same reports, I'm sure that you guys are reading although you've got more feet on the ground than myself. The expectation is there's going to be a surge coming across the border given that there's already a capacity restriction on the ICE facilities, is ICE in talking with you guys about additional potentially opening up some additional facilities to handle some of this potential surge.

ICE is aware of our capacity is at all of our vacant facilities, and we've had frequent discussions with them for utilization of the beds that we have available.

Okay. And also kind of switching gears here for a second. And you guys -- you talked about the alternatives to the retention program and in that memorandum that DHS put out, they discussed, I believe, expectations that, that program could hit 600,000 participants by year-end. What could this potentially mean for GEO if such a number were to hit? And do you have the capacity to handle if the program increased from the 200,000 people today up to 600,000.

This is Ann. Thank you for your question. I think the scalability we've shown and growing to over 200,000 indicates our capabilities. And we are -- fortunately, it's a program that is quite scalable with individuals, our employees, locations and technology. So we do have the ability to expand to the capacities that ICE might request.

Would you have to make any significant capital expenditures to do that?

Say again?

Capital expenditures to impact growth.

Well, there's...

Equipment...

Yes, there is equipment, but right, Joe. So there is -- obviously, there is equipment. So as more participants are brought online, there is an increasing level of capital. But the way to look at it is it's, I would say, self-funding or for the most part, that equipment is used within a year or less and it pays for itself. Also, some of the technology that is used is application-based or it's leased. And so the model, that's just part of the cost of using that piece of technology. So there's really no CapEx related to that. So you can't just linearly think that if it grows to whatever number that there's going to be a necessarily equivalent amount of increasing capital. It's really going to depend on what the government does and how they choose what different products that we make available to them. Some of those require capital, some of them don't.

Okay. Thanks for the color there. And I know during the high of call.

Jon, if I can just add one just if I can...

Can you hear me.

…if I can just clarify. But either way, under any circumstance where the program grows, the net cash flow that comes from the program will grow. It will use capital in some way, shape or form to support that growth. But on a net basis, it's going to generate more cash flow within the year. Does that make sense?

Yes.

It's not like the correctional facility where it's not like a correctional facility where you spend $100 million, and we expect an ROI of 13% to 15%, which implies a 6- or 7-year payback, it's much more rapid than that.

Okay. Thanks for the clarification. And so during the hike of COVID, the U.S. court system was pretty much shut down. And I know it has been slowly reopening here. Any feel for your guys' point part on how open is the U.S. court system. Is it back to kind of full capacity? Because usually, that means the potential for additional participants at the RDs at the U.S. Marshals level.

I don't think there's been much change to what we've done. But we're not aware of much change in the court system. But in ICE facilities, I think we've been asked to expand our capabilities regarding virtual visitation with attorneys and with ICE staff that would be located in other remote areas.

Nothing went wrong. Please try to get...

Operator? No, that's fine. Okay. phone...

I'm still here. Can you guys still hear me?

Go ahead, Joe. Yes. that...

One last one for me. Yes, about the ICE staff and the attorneys and yes. So obviously, you did a really nice job here in the quarter. You raised guidance over where you were in the fourth quarter. And you mentioned on the adjusted EBITDA that even in these challenging times, it's the highest level it's ever been on a trailing 12-month basis. But just kind of looking at it and saying, where are you finding the leverage here even though revenues are, let's call it, flattish in the guidance, the adjusted net income per share range has gone up. AFFO’s gone up. adjusted EBITDA has gone up. So just trying to get a better idea of what's going on behind the scenes that allows you guys to continue to post or forecast better numbers even though kind of on a flat revenue basis. Thank you.

Sure. So I think some of the flat revenue is just the transition between the facilities that are inactive and will be the annualized impact of that inactive -- those inactive facilities that mostly occurred last year, but as George mentioned, and I think I mentioned 2 additional facilities that may go in active this year, offset to some degree by better cost within our operations, particularly in facilities as we've mentioned, where occupancy levels are low and where there may be fixed payments that are tied to higher expected occupancy levels. So our costs are below normal, and we're operating those facilities very efficiently right now. And then the other piece, as Ann mentioned, is the growth in BI overall, but in particular, the ISAP contract, which is -- it's a technology-based service, so it has decent margins. So that is also offsetting some of that revenue reduction that is coming from the secure services side.

Thanks for the color. You have the good work, guys.

Next question is from Mitra Ramgopal at Sidoti. Please go ahead.

Yes, hi, good morning. Thanks for taking the questions. First, just, Brian, I wanted to get a little more color in terms of the operating expenses in the first quarter. I believe you mentioned there were some favorable items that would not be reoccurring. Just wanted to get a sense of how much that helped you in the quarter.

I think there was probably about $4 million to $5 million we had an insurance recovery from one of our insurance programs that was about $2 million or so. And then we had a couple of million in net favorable adjustments to some reserves. So that's primarily what drove those onetime sort of adjustments that we wouldn't necessarily expect going forward.

Okay. That's great. And then I know quickly on the tax rate. I think for the year, you're expecting the effective rate to be around 29%. I know 1Q was a little higher. So we should expect that maybe to come in a little over the remaining quarters to get to that 29%. Is that the way to look at it?

Yes. The first quarter was a little bit higher due to some timing differences around some of the equity compensation programs, and it just hit in the first quarter, but I think the rest of the year will average out to that 29%.

Okay. Great. And then how should we think of your ability to maybe how much leverage you have on the G&A side as the business sort of -- for environment normalizes a little post COVID?

I think we believe the G&A is the overhead structure is properly set for the size of the company, and we can leverage off that for additional growth as appropriate.

Okay. That's great. And then curious on the labor market, I believe, on the federal side, it's less of an issue. But on the state level, just wondering how things are going in terms of your ability to attract employees to meet capacity.

In cooperation with our state partners, additional funding has been made available through the legislature for increased wages in a number of the states in which we operate from Florida, Arizona and...

In Oklahoma...

And Oklahoma.

Okay. Thanks. And just curious, I see, for example, states like New York, becoming less aggressive in terms of prosecuting maybe some crimes that they might have done in the past. Curious if you're seeing any impact on that on your business or still too early?

No, I'm not aware of any significant impact in our state business as a result of any reform legislation on criminal justice.

Okay. And then on the BI side, it's obviously growing really nicely and you're investing in CapEx to scale that business. Just curious in terms of maybe the run rates you were looking at this year or if we should expect that to continue over the next few as this business really continues to grow above average.

So we have assumed some continued growth. And obviously, we expect it to continue to grow over the years. But we are at a rapid or accelerated rate of growth over the last 1.5 years. As you know, we've said, I think, about 1.5 years ago, the participant level was around $80,000 to $90,000. And today, it's over 200,000 in the ISAP program alone and then obviously, some of the other programs are expanding as well. But we don't -- we hope that it continues to grow at that level, but we don't -- we're not projecting that into our estimates for this year or next year. I think our estimates are more modest. So to the degree that this level of growth continues or continues for an extended period of time, then we'll have an opportunity for some better performance as a result of that.

Okay. Thanks for taking the questions.

[Operator Instructions] The next question is from Kevin O'Brien of Imperial Capital. Please go ahead.

This is Kirk Ludtke from Imperial. Can everyone hear me?

Yes.

Good morning, everyone. Thank you taking the questions. A couple of follow-ups. One on monitoring -- what percentage of the people being monitored under ICAP would have been detained otherwise?

We don't know the answer to that. ICE makes all the referrals and make the decisions about retention or alternatives to detention.

Okay. What's -- I mean my impression has been historically that it's relatively low. Is that safe to say?

I really would be uncomfortable giving an answer one way or another because it's really ICE making the referrals. I think you can look at the tension beds, you can look at the number of participants on ISAP and draw some conclusions.

Okay. With respect to the success of monitoring, can you maybe talk a little bit about compliance. And is the program having the desired impact on compliance.

So we're -- are you talking specifically about the ISAP program.

Correct.

Okay. Our contract with DHS. I would refer you to the Secretary Mayora had a hearing on April 27 for the House appropriators. And he basically stated that we're seeing a responsiveness rate that is very high as we exercise our alternatives to detention and our supervisory capability. So in the department words, yes. And as we look back, we've operated this program for about 18 years now. And each year, we provide a report and outcomes to ICE and have each year, been able to show high compliance rates with both court hearing attendance and compliance with the programs overall.

Great. I'll look into that. Changing topics. You mentioned AB 32 a couple of times. ICE is the primary contractor it looks like 5 of the 7 facilities you own in California? That's...

Correct...

Does California assume border enforcement if the state prevails on title -- excuse me, on AB 32?

No, it would not. It doesn't have that legal authority. So our understanding...

So who would enforce the border in California, the state prevails?

I believe the Department of Homeland Security is authorized by Congress to enforce immigration laws. And just going back to your previous question, yes, I think all detention and all participation in the ISAP program is done on a selective basis. You're aware of the large numbers of people coming across the border. There aren't enough detention beds that are contracted or capacity within our company under the ISAP program to take everyone who comes across the border. So ICE makes those decisions as to using, I guess, congressional guidance as to who they think requires detention and who is an appropriate participant in the ISAP program. They do that. We don't. And the resources to detain or put everybody under ICAP are limited.

Got it. That's helpful. Yes. I've been under the impression that the ICAP revenue was incremental to your other businesses.

It is incremental and its growth is historically unprecedented, but we are keeping up with that growth. We work with our service providers and contractors, vendors to forecast future growth and make sure we have all of the equipment and supplies necessary for that growth.

Got it. And then one last, if I may. With respect to labor, it -- can you talk a little bit about the change in staffing year-over-year? And I know that there's some turnover also. So I'm just curious, how many people you actually have to hire in 2022 to meet your staffing goals?

Yes. In the federal facilities, I think there was not much of a problem because those facilities have the highest levels of compensation. It's in the state facilities, there was a turnover. And fortunately, most of our state clients have authorized additional funding to increase not only their wages for correctional officers but ours as well.

Right. I'm just curious if there's a -- because I suspect when you have to hire someone new, it's at a higher wage rate. And I'm just trying to quantify the impact of the -- where we are in terms of the labor.

Well, the wage rates that George is speaking to, the -- we've given those pay increases to all of our existing staff already and the new staff will start at those higher wages. And we've also factored those wage increases plus where appropriate revenue offsets into our forecast for the balance of the year.

Got it. I appreciate it. Thank you.

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

Okay. Thank you for your participation in this call, and we look forward to directing you 3 months from now. Thanks.

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