Good morning, and welcome to the GEO Group Second Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note today’s 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 second quarter 2019 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 Secure Services. This morning, we will discuss our second quarter results and outlook for the balance of the year. 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 Chairman and CEO, George Zoley. George?

Thank you, Pablo, and good morning to everyone. We are very pleased with our second quarter results, which are driven by strong fundamentals and positive trends across our diversified business segments. While we expect these trends to continue forward, we are keeping our financial guidance for the second half of the year unchanged at this time. Our second half results will reflect a significant level of start-up activity, which is expected to drive future earnings and cash flow growth. In total, we are scheduled to activate new and expansion projects with more than 5,700 beds during the third and fourth quarters of this year. These projects involve the reactivation of 4,600 beds that were previously idle as well as contract capacity expansions in the U.S. and Australia totaling within more than 1,000 beds. On a combined basis, this start-up activity is expected to add more than $100 million in annualized revenues, with higher than average margins and only minimal CapEx requirements. We believe our strong quarterly results and new project activations are indicative of the stability of our cash flows and the sustainability of our annual dividend payments. However, we recognize that the recent media stories regarding the overcrowded Border Patrol facilities in financial institutions, discontinuing future financial support for private operators of ICE processing centers have created volatility in our equity and debt markets. These headlines have unfortunately been driven by a false narrative and deliberate mischaracterization of our long-standing role as a quality service provider to ICE. We have never managed any facilities that house unaccompanied minors. We have never managed any Border Patrol holding facilities. Last Friday, Fox News ran a lengthy segment on GEO’s 1,940-bed Adelanto ICE Processing Center in California. This facility has many of the features that are typical in other GEO facilities. They…

Thank you, George. Good morning, everyone. Today we reported second quarter revenues of approximately $614 million and net income attributable to GEO of $0.35 per diluted share. Our second quarter results reflect a $5.7 million loss on the extinguishment of debt related to the refinancing of nonrecourse debt for the Ravenhall Australia project and the extension of our revolving credit facility as well as $2.6 million in start-up expenses pretax. Excluding these items, we reported second quarter adjusted net income of $0.41 per diluted share ahead of our guidance range of $0.36 to $0.38 per diluted share. We reported second quarter AFFO of $0.70 per diluted share ahead of our range of $0.65 to $0.67 per diluted share. Our strong quarterly results were driven by better than expected performance and favorable trends across our diversified business segments. Turning to our outlook for the balance of the year, while we expect the favorable trends across our business segments to continue, we have kept our adjusted net income and AFFO guidance for the second half of the year unchanged. At this time, we have increased our adjusted net income and AFFO guidance for the full year to account only for our better than expected performance during the second quarter. We expect net income attributable to GEO to be in a range of $1.40 to $1.44 per diluted share and adjusted net income to be in a range of $1.53 to $1.57 per diluted share on annual revenues of approximately $2.47 billion. We have increased our full year AFFO guidance to a range of $2.69 to $2.73 per diluted share. As George mentioned, we are scheduled to have significant start-up activity during the second half of 2019 with the activation of more than 5,700 beds. We expect to incur start-up and transition expenses…

Thanks, Brian, and good morning, everyone. I would like to provide you an update on our GEO Secure Services business unit. Starting with our Federal segment, we have several upcoming facility activations. In Louisiana, we have reactivated our company owned 1,000-bed South Louisiana ICE Processing Center in Basile, Louisiana under an existing intergovernmental agreement with ICE. The center, which was previously idle, is expected to complete the intake process during the third quarter of 2019. The South Louisiana center is expected to generate annualized revenues of approximately $25 million. In Texas, we recently entered into a contract modification with ICE to increase the contract capacity at the Montgomery processing center by 314 beds. This contract capacity expansion is expected to generate approximately $10 million in annualized revenues when it comes online in September of this year. We also recently entered into a new direct contract for our company-owned 1,940-bed Adelanto ICE Processing Center in San Bernardino County, California. This new contract replaces the existing intergovernmental services agreement that was previously in place. With respect to the Federal Bureau of Prisons, we were recently awarded three new 10-year contracts under the CAR 19 procurement, which had been issued by the Bureau of Prisons in 2017. In Michigan, we entered into a 10-year contract with the Bureau of Prisons for the reactivation of our company-owned 1,800-bed North Lake Correctional facility. The facility is expected to complete the intake process during the fourth quarter. The new contract is projected to generate approximately $37 million in annualized revenues. Reeves County, Texas also entered into two new 10-year contracts with the Bureau of Prisons, for the county owned 1,800-bed Reeves County Detention Center 1 and 2 and the 1,376-bed Reeves County Detention Center 3. GEO provides management, consulting and support services to Reeves County in…

Thank you, Dave, and good morning, everyone. I’d like to provide you an update on our GEO Care business unit, starting with our GEO Reentry Services division. During the second quarter, net operating income from our GEO reentry-owned and leased assets experienced a year-over-year increase of approximately 13%. This increase in NOI reflects several factors, including the consolidation and reorganization of our reentry operations in Pennsylvania, the reactivation of our Philadelphia reentry center on April 1 under a new five-year 70-bed contract with the Federal Bureau of Prisons with projected annual revenues of $3 million, the opening of a new day reporting center with the Federal Bureau of Prisons in Sacramento, California and better overall performance from our reentry centers under contract with the Federal Bureau of Prisons. Moving to our Youth Services division, our facilities and programs continue to provide important rehabilitation and treatment alternatives for youth across several states and local jurisdictions. Our BI electronic monitoring division continued to experience year-over-year growth in revenues and NOI driven in part by the increased utilization under our alternative to detention contract with ICE. This program has allowed the federal government to effectively use community alternatives for individuals going through the immigration review process. Finally, we continued to expand our GEO Continuum of Care program, which has been implemented across 17 GEO facilities in the United States, including 15 state correctional facilities. 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. The continuum of care program is supervised and assisted at the corporate office level with the division that has expanded to 50 staff with subject matter experts in education, cognitive behavioral treatment, substance abuse treatment, post-release services, continuum of care training and quality assurance. We believe that the scope and substance of these programs are unparalleled in our industry. On any typical day, there are approximately 30,000 participants enrolled in GEO’s offender rehabilitation programs, which resulted in 6.7 million program hours, 9,000 vocational certificates and nearly 3,000 high school equivalency diplomas in 2018. We have made a public commitment to further expand our GEO Continuum of Care to all state correctional facilities operated by GEO by end of next year, which is expected to increase our annual corporate spending on the continuum of care to $15 million. At this time, I’ll turn the call back to George for his closing remarks.

Thank you, Ann. As you have now heard, our strong financial and operational results are driven by our company’s quality services and continued growth. We’ve always been committed to treating everyone in our care with respect and dignity, and we acknowledge our unique responsibility to respect and protect their human rights. We’ve made a commitment to begin publishing an annual report on human rights in September of this year, along with a comprehensive ESG report. It’s regrettable that political rhetoric and false narratives about our company have created volatility in the capital markets, but we are proud of over 30-year record as a professional service provider to federal, state and local agencies. Our management team and Board remained focused on the effective allocation of capital. Our growing cash flows will allow us to naturally deleverage while providing support for our annual dividend payments, which we expect to remain unchanged. We expect to apply our increasing excess cash flow on paying down debt. That completes our presentation, and we would now be glad to address any questions. Operator?

We will now begin the question-and-answer sessions. [Operator Instructions] And today’s first question comes from Jordan Sherman of Ranger Global. Please go ahead.

Yes. Thank you. Couple of questions. First on earnings – the earnings impact of 5,700 beds that you mentioned you’d be activating in the second half. Just wondering, it sounded like, as you described them, that you would be up fully running by year-end. So I just wanted to confirm that you would be at full run rate by year end. But I’m also wondering what was the impact embedded in your guidance for the net results net of the start-up costs?

This is Brian. In the third quarter, we had significant start-up cost. There is not as much start-up cost in the fourth quarter, but I would say that the fourth quarter is still a normalization period, so it’s really not till the first quarter that we’ll see – the first quarter of 2020 that we’ll see the favorable results of the impact of the activation of the North Lake facility and the other BOP facilities, the Reeves facilities in Texas. We are seeing some positive impact in Q3 and Q4 from the activation of the South Louisiana facility, which is ICE facility. And then we won’t have any of the impact of the discontinuation of the Hudson, Colorado lease until 2020. It will begin immediately, but it’s $10 million annualized that will start in 2020.

Perfect. Okay. And then just further ahead on the, obviously, operating in a very politicized environment. You’ve gotten requests for information from House Oversight Committee and Elizabeth Warren. Just wondered if you could talk about that a little bit. And I just wanted also for context, it seems reminiscent of 2016 when the Sally Yates memo came out, but that was focused on the BOP and at least Elizabeth Warren’s comments were focused, it seemed, on ICE and the U.S. Marshals. Can you discuss the differences there, especially considering the fact that ICE and U.S. Marshals have personally no – none of their own capacity and in terms of what types of alternatives are at least possible if pursued of her interest in getting where the private prisons comes to the fore, which we don’t know where that stands, of course. But maybe if you could talk around that a little bit, that would be helpful.

Well, we’re cooperating with any member of Congress or committee that’s requesting information. With respect to the U.S. Marshals agency, they don’t operate any of their own facilities. All of their capacity is contracted with either local governments or private companies like ourselves. There has been an emphasis on ICE and maybe that’s because of the growing capacity that’s been developed to better secure the southern border. We are part of that growth and provided capacity to the ICE agency, and questions are being posed as to the locations of the facilities and average daily populations and things of that nature. And we are fully cooperating.

Understood. I guess what would – if there was a drive to get – to eliminate private presence, what’s – it doesn’t seem like that’s possible, I guess, was my sort of point. And what are the alternatives to that? Because that’s the worst case scenario that people seem to be pricing into the stocks, and I just don’t think that it’s focused on the reality of the situation so clearly.

Even under the time of the Sally Yates memo and directive to the BOP, to my recollection, there was only one facility that was impacted by that memo. It was our facility, actually, and we lost about 600 beds. The capacity of one of our BOP facilities that was up for renewal was reduced by approximately 600 beds. And then I believe within a 30 to 60 day time period, we recontracted those very same beds to ICE. And ICE, to my recollection, never reduced any capacity. The Marshal Service never reduced any private sector capacity.

Okay. And then just – you’ve talked about state – incremental state opportunities. I was just wondering where any of those stand if there is anything still in – percolating on the state front.

In Alabama, they are in the beginning of an RFP process for three large-scale facilities. There are other non-public projects that we’re aware of that we can’t comment on at this time. But the growth that we have that’s already scheduled to take place I think is the largest scale of growth we’ve ever experienced as a company and probably the most financially meaningful that will take place over the second half of this year.

Perfect. Thank you.

[Operator Instructions] Today’s next question comes from David Stuehr of Longfellow. Please go ahead.

Yes, just a follow-up on that question regarding the political environment. One of the things, and I agree with you, that the overall political context has gotten more hostile, the dialogue, the headlines all that. One thing I think we can all agree on is that hostility is not going away anytime soon, certainly leading up to the election in 2020. And also, the negative pall of the restrictive lending environment, that’s the reality the industry faces. That’s what your company faces. So whether it’s – whether it comes true or not, it seems like there’s just an elevated operating risk with regards more particularly to the political environment and maybe a few really needed money. It would be harder to get because of the restricted lending environment. So my real question is, does the REIT structure of your company still make sense. I’m kind of curious about that because even though you say 4.5 times leverage at the end of 2020, you can only reduce debt by so much under the REIT context. I mean from a operating flexibility perspective, just knowing what you’re facing every four years from an administrative changeover position, when you make more sense to eliminate the REIT status and use as much cash flow as possible to rapidly pay down debt just to give yourself more operating flexibility in a survivalability under a worst-case scenario perspective going forward, that’s quite – I’m just curious on your thoughts on that, if you’ve ever talked about that. And then my second question is, given the price of where your bonds are trading, have you ever discussed potentially buying those in, in the open market?

On the first question, I don’t believe we would have serious reconsideration of our REIT status given a snapshot view of recent events that are likely to last 15 months. If you look at our 30-year history of dealing with Republican and Democratic administrations, we’ve continued to grow under both. And the one attempt to reduce growth in the private sector was not particularly successful because of the major role that private sector plays in providing security for this country. I don’t think that need, that requirement is going to go away under a Democratic administration. Our Southern border is a long porus border, and it borders a 1 billion people, who live to the South of it that live in failed states that – many of whom want to come to this country and there needs to be an orderly process for them to do so. And I think both parties need to reach better refinement of our immigration policies to permit that to happen, but our company plays no role in it. We just provide facilities for taking care of those few – fewer selected ones that are held in these facilities – these processing centers pending the outcome of their cases. As I said, those facilities are air-conditioned, they’re clean, they have flat-screen TVs, they have artificial turf soccer fields. There are very comfortable amenities for them, and that’s the service we’ve been providing for ICE for 30 years. I don’t think that need is going to go away. We’re not going to revise our structure because a situation that we hope is temporary, that the heated rhetoric will die down after the next election regardless of who wins. Brian, you can say something about that.

On the consideration of repurchasing some of the bonds, to take advantage of the dislocation in the pricing or help stabilize that market, I mean, that is something that we had considered and will continue to look at and make decision around that based on our capital needs and availability and what we think is appropriate at the time.

Okay. Thank you very much.

And our next question today comes from Andrew Berg of Post Advisory. Please go ahead.

Has been answered. Thank you.

And our next question today comes from Walt Sosnowski of SRC Capital. Please go ahead.

Thanks for taking my call. On potential future sell-side coverage, what are your thoughts on trying to get new sell-side coverage?

We’re working with a number of smaller equity analyst shops. I think some of those folks are actually listening on the call. So we’re in the early stages of developing some of those relationships. I can’t predict whether or not we’ll have any by the next quarterly call, but we’re in the process of developing some of those relationships.

Okay, great. Thanks.

And ladies and gentlemen, this concludes the question-and-answer session. I would like to turn the conference back over to the management team for any final remarks.

Okay. Thank you for participating in this call. We look forward to addressing you once again in three months. Thank you.

Thank you, sir. Today’s conference has now concluded, and we thank you all for attending today’s presentation. You may now disconnect your lines, and have a wonderful day.