Good morning. My name is Simon, and I will be your conference operator today. At this time, I would like to welcome everyone to the GEO Group Third Quarter 2014 Earnings Conference Call. [Operator Instructions] Mr. Pablo Paez, Vice President of Corporate Relations, you may begin your conference.

Thank you, operator. Good morning, everyone, and thank you for joining us for today's discussion of the GEO Group's Third Quarter 2014 Earnings Results. With us today is George Zoley, Chairman and Chief Executive Officer; Brian Evans, Chief Financial Officer; John Hurley, President of GEO Corrections & Detention; and Ann Schlarb, President of GEO Community Services. This morning we will discuss our third quarter performance and current business development activities. We will conclude the call with the 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 security 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?

Thanks, Pablo, and good morning, everyone. Thanks for joining us, as we review our third quarter results and provide an update of our efforts to pursue quality growth opportunities and create value for our shareholders. We are very pleased with our third quarter results as well as our outlook for the balance of the year, which are representative of continued growth in our earnings and cash flows. Our financial performance continues to be driven by sound operational and financial performance from our diversified business units in the U.S. and internationally. Our strong quarterly results reflect improved occupancy at a number of facilities across our real estate portfolio. Our quarterly results reflect the activation of several important projects by our GEO Corrections & Detention division in California, Florida and Texas, as well as the opening of approximately a dozen day reporting centers in Pennsylvania and California by our GEO Community Services division. Since the beginning of the year, we have activated new contracts or have announced new contract awards, totaling more than 6,000 beds in the U.S. and internationally, which are expected to generate more than $200 million in additional annualized revenues. In September, we announced that our wholly-owned subsidiary, GEO Australia, had signed a contract with the State of Victoria for the financing development and operation of a new 1,300-bed prison in Ravenhall near Melbourne. This large-scale project involves an unprecedented level of in-prison rehabilitation and community reentry services aimed at reducing reoffending rates and helping offenders reintegrate into society under the GEO Continuum of Care. The Ravenhall prison will be financed and development under a public private partnership structure with an equity investment from GEO of approximately AUD 115 million, and returns consistent with our company-owned facilities. GEO's management contract for the Ravenhall prison has a term of 25…

Thank you, George. Good morning, everyone. We are pleased with our third quarter results and outlook for the balance of the year. As disclosed in our press release today, our adjusted funds from operations for the third quarter 2014 increased to $0.84 per share from $0.72 per share for the third quarter of 2013. On a GAAP basis, we reported third quarter 2014 income from continuing operations of $0.54 per share compared to $0.45 per share for the same period 1 year ago. Our revenues for the third quarter of 2014 increased to approximately $458 million and $380 million 1 year ago. Our quarterly revenues include approximately $39 million in construction revenue and approximately $0.5 million in construction NOI associated with our new contracts for the development and operation of the 1,300-bed Ravenhall prison in Australia. For the third quarter 2014, we reported NOI of approximately $122 million, up from $102 million in the third quarter of 2013. Compared to 2013, our third quarter '14 results reflect activation of 1,500 company-owned beds at 3 facilities in California in November, 2013 for the California Department of Corrections & Rehabilitation; the activation of 3 managed-only facilities totaling 3,854 beds in the State of Florida in February of this year; a 400-bed expansion of GEO's U.S. Marshals contract at the company-owned Rio Grande Detention Center in Texas during the first quarter; the reactivation of the 300-bed company-owned McFarland Community reentry facility in California during August of this year; approximately $39 million in construction revenue related to our new contract for the development of the Ravenhall Australia prison; reopening of a dozen new day reporting centers in Pennsylvania and California during the fourth quarter of last year and the first quarter of this year; and improved occupancy rates across our diversified real estate portfolio.…

Thanks, 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. As we've previously reported, GEO has long-standing partnerships with the Federal Bureau of Prisons, the 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. The Federal Bureau of Prisons continues to face capacity constraints, and 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. With respect to recent project activations and contract awards, we recently completed the development and activation of a new $20 million, 400-bed transfer center in Alexandria, Louisiana, as an annex to our LaSalle Detention Facility under our existing contract with ICE. We expect that the new company-owned center will generate an additional $8.5 million in annualized revenues. In California, we are developing a $45 million expansion of our company-owned Adelanto ICE detention facility, which is expected to be completed in July 2015. This important expansion will increase the ICE facility's capacity from 1,300 to 1,940 beds, and is expected to generate approximately $21 million in additional annual revenues. Finally, as George mentioned, in his opening remarks, we have repurposed our 600-bed company-owned Karnes, Texas ICE Residential Center for the housing of family units as a result of the humanitarian crisis along the southern border. Our Karnes Residential Center was designed as the first ICE Residential Civil Center under new enhanced federal detention standards, which were issued by ICE in 2009. The…

Thank you, John, and good morning, everyone. Turning to our GEO Community Services segment, each of our Community Services divisions continues to pursue several new growth opportunities. Our Reentry Services division is competing for a number of formal solicitations for residential community-based reentry centers across the United States. Additionally, we are working with our existing local and state correctional customers to leverage new opportunities in the provision of our community-based Reentry Services in both residential facilities, as well as nonresidential day reporting centers. During the first quarter of this year, we activated 6 new day reporting centers in Pennsylvania, which are expected to generate more than $5 million in annualized revenues. In California, we recently activated 7 new day reporting centers in counties across the State, bringing our total number of day reporting centers to 22. In order to support state and county initiatives aimed at reducing recidivism and helping offenders reintegrate into the community. Additionally, during the first quarter of this year, we activated a new day reporting center in Richmond, Virginia, which marks our entry into this important state market. With respect to our residential reentry centers, we've signed a contract with the State of New Jersey for the operation of a new company-leased 240-bed residential reentry center in Newark, which was activated this past month, and is expected to generate approximately $5.5 million in annualized revenues. Our youth services division continues to work towards maximizing the utilization of our existing asset base. We have continued to undertake a number of marketing and consolidation initiatives to increase the overall utilization of our existing youth services facilities. During the second quarter of this year, we received new out-of-state placements at our existing facility in Colorado, as well as a new customer for detention services in Pennsylvania. Our Ohio facility…

Thank you, Ann. In closing, we are very pleased with our third quarter results and the outlook for the balance of the year, which continues to be driven by solid operational and financial performance from our core operations in the U.S. and internationally. Since the beginning of the year, we have activated new contracts and have announced contract awards for more than 6,000 beds in our GEO Corrections & Detention segment. Our community corrections services has opened more than a dozen day reporting centers and gained market share in its market segments. We are actively marketing our 5,800 idle beds in Victoria, which we estimate would add approximately $0.65 per share to our AFFO. We are also pursuing several publicly known opportunities and are exploring a number of other growth opportunities for the development of new projects for the potential purchase of assets. We expect that all of these efforts will continue to drive growth for our company, and we remain focused on effectively allocating capital to enhance 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 offender rehabilitation services through the GEO Continuum of Care that can deliver performance-based rehabilitation programs and significant cost savings for our customers worldwide. As I've expressed to you in the past, we view all these different initiatives to enhance shareholder value as complementary, and none are pursued 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 a Brian Ruttenbur with CRT Capital.

Let's start off with a housekeeping issue. Interest expense in 2015. Can we just take fourth quarter and take that as a run rate?

Yes. That's right. I think it's probably about $22.5 million or so for the fourth quarter.

Okay. And so there's no extra fees in there, so $22.5 million, taken it throughout all next year and there's no other surprises in there?

No. $22.5 million to $23 million. I think, one of the things that will affect interest expense, some on and off, but it's a noncash item will be part of the Ravenhall project has an interest rate cap associated with that and that has to be mark-to-market on a quarterly basis. But again, it's noncash. So we'll make sure that we disclose that amount in our supplemental.

Okay, very good. That's helpful. The next question I have is about the Corrections Corp reported. And, I guess, this is for George. And they are looking to sell a couple of their idle facilities and that was pretty interesting, one's an old warehouse. And I think, it was in Cincinnati or one of those locations. And the one was -- they're selling a facility to a charter school. There's a variety of things that they were talking about. Have you considered doing any of that with your facilities and are they even able to be sold to -- for other functions?

Well, I think we've disposed of a few small facilities. But we -- there are no large facilities that we are in on disposing of at this time.

Okay. And then another question for you, George. The Republican sweep, a couple nights ago, how does that impact anything with the federal prisons? Maybe ICE, the potential crackdown or not crackdown on immigration? What do you see happening there? Can you give us a macro view?

From what I've heard is, I think there'll be a renewed interest by Congress to discuss additional measures to better secure the border. And I think with that comes the need for more detention bed space along the southern border in addition to many other things, obviously. But our focus would be on providing any additional detention bed space that would be required by ICE.

Okay. The last question, the U.K. It was a bit disappointing that you only got 1 small contract there. Can you talk about who was the big victor there? Was it somebody local? And what your opinion is of why that -- you didn't sweep more?

They were different international companies like Sodexo that come to mind that did win. Several lots. We won only won 1 small one, where we bid on 5 and as we notified the Ministry of Justice, winning just the 1 small lot would not justify the substantial organizational resources and financial resources that would be necessary to undertake that 1 lot. And the margins on that kind of business were like managed-only margins, single-digit margins that [indiscernible] our price was much higher than the other competitors, that's what we were told. So we were a bit disappointed, but it allows us now to refocus our efforts on the GEO Continuum of Care application in the U.S. and other owned opportunities for our clients.

Your next question comes from the line of Tobey Sommer with SunTrust.

A couple of my questions have been answered. But I did want to get your perspective on this week's elections and what you see. And I know that just occurred, but any potential opportunities or impacts that you can see as a result of those, across the nation? And specifically, I would like you to include a comment and a perspective on Prop 47 in California, and what, if anything, that could mean?

Well, with regard to Prop 47, as we understand, the implications of that proposition, it could have an impact at the state level of between 3,000 and 4,000 beds, we are told. Eventually, as individual prisoners have to petition the court to reclassify their offenses, and which will take many months, if not years, and we don't know how that will shake out. But it doesn't seem to be a material significance to their population levels when placed against their internal growth rate, just from the demographics of the growth of their population as the state. And the -- a lot of the people that may be affected are in the county jails that we're not involved in. We're only involved in the state facilities and again, at that level, it's only -- we believe, estimated at 3,000 to 4,000 people over a very long period of time. So it doesn't have any material impact to our occupancy census as to our 4 facilities. We have, presently, approximately 2,400 beds in-state for the California Department of Corrections & Rehabilitation. And we hold a higher level of security in those facilities. They're normally levels 2s and 3s out of the 1, 2, 3, 4 grading system for security levels. The Prop 14 -- Prop 47 is really dealing with people who eventually become level 1s, and we don't hold those type of prisoners. And just turning to the national scene. I think the biggest potential impact could again be in the area of immigration reform and the discussion, which will include an analysis of what it will take to better secure the border as we've all recently seen, that there's still the ability for numerous people to be able to cross the border illegally and enter the United States. And part of the populations that came across are, obviously, these families and we've now established 1 facility for that purpose. There may be a need for several more, as a specialty kind of housing facility. And then there's, of course, the criminal alien population and that will still need to be housed in these [ph] facilities and maybe an expansion of that capacity as we move forward.

George, just one follow-up. There -- one of the themes of the election this week was governorships moving, and I think maybe it was surprised to the degree to which Republicans won various states. Historically, when you look back at GEO's developing relationships with state customers, has -- have initial relationships been more likely to be developed under the auspices of a Republican Governor? Or has it been, has there not been a pattern that's kind of particularly discernible?

It's actually been both. When we look at it on a factual basis, we've done as well under Democratic administrations as Republican administrations.

Okay. And then my last question is just a follow-up on the U.K. So -- does the development of the contract in your reaction to the outcome, does that mean that you may withdraw operations from the U.K., or is it definitive? Or is this just kind of your current thought, so there's more business opportunity here in the U.S. for owned [ph] facilities?

At this time, it's the latter. Just -- we were involved in a particular procurement. We only won 1 of the 5 opportunities we were pursuing, so we've decided not to move forward on that 1 opportunity. But we still have a very large presence in the U.K. with regard to prisoner transport that involves most of the country. So we're still there for that purpose and we won detention facility. So...

[Operator Instructions] Your next question comes from the line of Jordan Maka with Macquarie.

This is actually Kevin. Nice job on the dividend boost. Any sense, just going forward, how much of that, and I know it's probably year-to-year, but how much of that should be just purely EBITDA growth as a result of the stop in the payout ratio? And then ultimately, any sense of where that payout ratio should peak, if you would? And I know it's not close to that, but just any thoughts on that would be helpful.

I think that the step up that we've gone to about were 78% on Q3 AFFO. And we've said that over time that we expect to maybe move closer to 80%, so this is a step in that direction. And I think that will continue to hold within that range, that 75% to 80% payout ratio.

Got it. And then just in terms of, George, a little more specific. In the Florida governor's race, do you think that that state in particular with the Republicans holding it sets up any type of prospects to revisit the outsourcing?

I'm hopeful of that. I believe, Governor Scott is very receptive to privatized corrections and maybe even more particularly so, the expansion of corrections into more rehabilitation and evidence-based programming in-prison and post-release. So, yes, I am.

Got it. And just with the restructure in place now, has that changed the strategy at all? Is there another way, was it a little -- more scrutineer around the U.K., just maybe you don't have the same tax advantages that you would had in the U.S. or just -- does that changed your go-to-market strategy at all in terms of areas you're focusing on to drive incremental growth in the business going forward?

Well, as I've said earlier, the competition in U.K. was for a kind of a managed-only business. There was no ownership opportunities and it was highly competitive. And driving down the margins in order to be successful and we didn't want to go as far as others did. And we see our opportunities more so along the ownership model of facilities that are owned by the company as partially exemplified by the Ravenhall Australia project, where we're investing $115 [ph] million. And in Adelanto, where we're expanding that facility at a cost of $45 million in reactivating Mesa Verde at additional costs. I mean, there's so many examples and opportunities for us in the U.S. that even though we're disappointed of not being successful on the U.K. project, we -- by diverting our attention back to the U.S, I think there's plenty of opportunities to keep us occupied in creating more success for the company and value for the shareholders.

Understood. And then my final question, just on those beds here, its kind of vacant beds, any sense of how they set up from an occupancy perspective? And I don't know, if you could just comment directionally, how much of that would you expect to be kind of state versus federal? Or just any thoughts around those beds would be helpful too.

You're saying, Kevin, you're asking like what is our -- what are our thoughts on the remaining idle capacity we have and is it more likely to be a federal or state opportunity and timing?

Yes, that's right, Brian.

Well, I think on the idle beds, they're likely, off the top of my head, I think they're going to be state opportunities. Because the federal beds, particularly by ICE, are kind of build to suit projects in particular locations.

Your next question comes from the line of Brian Hoffman with Avondale Partners.

Your next question comes from the line of Tobey Sommer with SunTrust.

I'm curious what the trends you're seeing in federal populations as we head into the end of the year, whether there is much variation, either positive or negative? And if so, what may explain that?

I think we've discussed in the past, there is some seasonality in our federal populations. And the fourth quarter reflects that seasonality in some decline in the census, but that's included in our guidance.

Did it -- you describe it as kind of a just typical seasonality at this point?

Yes. It picks up as -- in the first quarter, I think, in the second half of January, actually.

Okay. That's helpful. And George, I wanted to ask you kind of a broad question on what do you think the financial implications of customers embracing the Continuum of Care in thinking about corrections with higher levels of service? What do you think the financial implications are over time? And specifically, do you think that there's likely to be an upward bias to per diem's as a result of this service orientation and higher level of service?

Well, there will obviously be an additional cost but that cost, I think, is fairly modest. I think you're looking at the 10%, 15%, 20% range of additive cost depending on the amount of services being provided to enhance in-prison and post-release services. So I think that additive cost is easily explainable and defensible and will be, I think, particularly attractive to both political parties who have an interest in better rehabilitation and preventing people from reoffending and going back to prison. So we think the timing is right for this concept to take hold better than it has in the past, as people become frustrated with just an ever-growing offender population level at the federal state and local levels and take a renewed and maybe a fresh look at how rehabilitation is done and how it can be better done through an integrated approach in integrating what's done in the prison, as well as what happens after release and in the communities as you try to work towards successful reintegration of the offenders in their communities, reestablishing themselves with their families, getting jobs and becoming productive members of society.

Is this something that is part of your discussions now, perhaps private discussions for opportunities? Or is this sort of something that maybe is more out on the horizon in the long-term?

No. This is something we're moving forward on, now.

There are no further questions at this time. I turn the call back over to our presenters.

Well, thanks, everyone, for joining us on this call. We look forward to addressing you on our next call. Thank you.