Good day and welcome to the GEO Group Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note that 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 third 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 third 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 third quarter earnings call. I am pleased to be joined today by our senior management to review our financial results for the third quarter, including the trends for our business segments, our guidance for the balance of the year, the successful completion of our comprehensive transaction to stagger our debt maturities and our recent repayment of almost all of the remaining debt previously due in 2023 and 2024. Our diversified business units continued to deliver strong operating and financial performance during the third quarter. We are pleased to have achieved one of the highest quarterly revenues in our company's history, which grew 11% from one year ago to approximately $617 million, along with quarterly GAAP net income of approximately $38 million. Excluding one-time gains and losses during the quarter, we reported adjusted net income of more than $40 million, and our quarterly adjusted EBITDA reached a new all time high of $136 million, growing 17% year-over-year. We believe our strong performance is underpinned by the diversified nature of our business unit and services, which is the result of thoughtful investment and business strategy executed over multiple years with support from our Board. Looking at the balance of the year, we expect full year net income attributable to GEO to be in a range of $160 million and $162 million. And we expect full year 2022 adjusted EBITDA to be in a range of $527 million to approximately $534 million, which would mark the first time of our full fiscal year adjusted EBITDA has exceeded $500 million. We have been able to achieve strong growth through this entire year despite continued challenges associated with the COVID pandemic, which have impacted some of our business segments and…

Thank you, George, and good morning, everyone. For the third quarter of 2022, we reported GAAP net income attributable to GEO of approximately $38 million. During the third quarter, we had a onetime loss on the extinguishment of debt, as well as non-recurring expenses related to our recently completed debt transactions. And we also had a onetime gain on the sale of our equity investment interest in the Ravenhall Center in Australia. Adjusting for these offsetting items we reported adjusted net income of $0.33 per diluted share on revenues of approximately $617 million for the third quarter of 2022, which represents one of the highest quarterly revenues in our company's history. And our adjusted EBITDA for the third quarter 2022 increased by 17% to approximately $136 million, which is an all time high and quarterly adjusted EBITDA for our company. As a reminder, our third quarter 2022 results also reflect one and a half months of higher interest expense as a result of our completed debt restructuring. Our overall strong financial performance continues to be driven by growth in our Electronic Monitoring and Supervision segment increases in compensated mandates in our non-residential reentry business, and improvements in occupancy rates in our active owned and leased secure facility. Our consistent growth throughout the year strengthened our ability to comprehensively address the substantial majority of our debt maturities through a series of transactions, which we successfully closed in August. The completed transactions staggered our debt maturities over a longer period of time, significantly reducing our near-term debt maturities to less than $300 million at closing. Following the closing of the transactions, we redeemed the remaining $126 million of our outstanding 2023 senior notes using available cash on hand. Subsequent to that, we completed the sale of our equity investment interest in the…

Thank you, Brian. Good morning, everyone. It is my pleasure to provide an update on GEO Secure Services. During the third quarter of 2022, our employees and facilities achieved several important milestones. Our facilities successfully underwent 54 audits including internal audits, government reviewed, third-party accreditations and certifications under the Prison Rape Elimination Act. Eight of our Secure Services facilities received accreditation from the American Correctional Association during the third quarter with an average score of 99.4% and two of those facilities achieved a perfect accreditation score of 100%. Additionally, four of our Secure Services facilities received U.S. Department of Justice certification under the Prison Rape Elimination Act, with all of these facilities exceeding standards in several areas. Our GTI transportation division safely completed approximately 5.6 million miles driven in the United States and overseas during the third quarter of 2020. Every quarter our Secure Services facilities and divisions achieved several important milestones, which are underpinned by the dedication and professionalism of our employees and their commitment to achieving operational excellence. With respect to the trends impacting our government agency partners, at the federal level, our BOP contract for the 1,800 bed North Lake Correctional Facility in Michigan was not renewed at the end of September 2022 consistent with our prior expectations. We have enjoyed a decade long partnership with the BOP and our facilities have provided high quality support services at times when the agency needed capacity to address overcrowding across the federal prison system. However, over the last 10 years, BOP populations have declined, and this trend was accelerated during the COVID pandemic. With the activation of our North Lake Correctional Facility, we now have six idle Secure Services facilities, totaling approximately 10,000 beds that were previously under contract with the BOP. We are focused on marketing these facilities…

Thank you, James, and good morning, everyone. I'm pleased to provide an update on our GEO Care business unit. Starting with our reentry services segment, our residential centers experienced a meaningful sequential increase in occupancy rates of five percentage points. However, residential reentry population continued to be well below historical levels and across our active facilities, our occupancy stands at 54%. Our residential reentry centers have been impacted throughout the COVID pandemic, as government agencies have prioritized non-residential alternatives including furloughs, home confinement, day reporting and electronic monitoring programs. Despite these challenges, we have continued to successfully renew our existing contracts and we are encouraged by the recent trends in occupancy rates. During the third quarter, we renewed five residential reentry contracts, including three contracts with the Federal Bureau of Prisons. During the quarter, we also made the decision to consolidate some of our residential reentry populations in New Jersey, which resulted in a discontinuation of our Bo Robinson facility, but increased our occupancy rates at our Harbor facility. We are continually evaluating occupancy trends in order to optimize the utilization of our residential reentry assets. Additionally, nine of our residential reentry centers, recently received accreditation from the American Correctional Association with an average score of 99.9% and we are very proud that eight of the nine centers received perfect accreditation scores of 100%. Seven of our residential reentry centers received U.S. Department of Justice Certification under the Prison Rape Elimination Act with all these facilities exceeding standards in several areas. These important milestones are the results of the daily commitment and dedication of our frontline employees for whom we are very grateful. Looking at our non-residential programs and services, we continue to experience strong growth during the third quarter. Compensated mandates for our non-residential reentry business increased by 27%…

Our diversified business units have continued to deliver strong financial results and achieve important operational milestones during the third quarter. This robust performance allowed us to achieve one of our highest quarterly top-line revenues and a new top and a new all time high in quarterly adjusted EBITDA. Our consistently strong performance throughout this entire year, position our management team to be able to successfully complete a series of comprehensive transactions to address the substantial majority of our debt maturities. These transactions coupled with our efforts to sell non-core assets have allowed us to reduce our overall net recourse debt to approximately $2 billion and have staggered our remaining debt maturities further out into the future. Importantly, we have significantly reduced our near-term maturities from approximately $2 billion to just $23 million in remaining outstanding debt do between now and 2026. As a result of these efforts, we believe GEO is now in a materially stronger financial position. While we continue to focus on reducing our net recourse debt and our net leverage over the next two years, our hope is to be able to explore options to return capital to shareholders at the earliest possible time. We hope that all these efforts will unlock additional equity value for our shareholders. We are pleased with the continued growth across our business segments. However, we also recognize the staffing shortages and wage inflation are posing a difficult challenge for companies across diverse industries. And we have proactively address these challenges working closely with our government agency partners to secure additional funding to support wage increases for our employees across several states. We are grateful for the continued dedication and commitment of our frontline employees who make daily sacrifices to deliver high quality services on behalf of our government agency partners, and provide safe and compassionate care to all those entrusted to our facilities and programs. Our cash flows are supported by valuable company-owned real estate assets and diversified business units entailing essential government services, ranging from secure residential care to community based and technology solutions. We believe that our continued strong financial and operational performance, which is underpinned by these diversified business units, sets GEO apart in our industry. That completes our remarks and we will be glad to take questions.

[Operator Instructions] The first question today comes from Joe Gomes with Noble Capital. Please go ahead.

Just wanted to start off with BI today. Again really strong numbers really positive growth. Also saw that they recently renewed an agreement with OMNIA Partners. And they're just trying to get a little more color detail as to what that could possibly mean for maybe even an additional growth at the BI business?

Thank you for your question. This is Ann and we've had our contract with OMNIA Partners for several years now. So as you stated, this was a renewal. And that allows individuals in the criminal justice market our customers to use that contracting platform to provide services as BI technology services through that platform. So, we can continue to grow through that platform with the pricing that set through the contract that we negotiated.

Switching gears to ICE. You talked a little bit about it. Now if I look at the ICE daily populations, they've grown to about 26,000 by the end of September from roughly 20,000 earlier in the year. Just wondering, how much of that increase are you guys seeing? Where do we stand on reaching or exceeding hopefully some of the contract minimums? Any thoughts you may have on Title 42 and when we think that might finally be rescinded?

We don't have any unique insight as to when Title 42 may be rescinded, but we have seen fairly steady growth in our ICE occupancy during the fourth quarter so far. It was more modest in the third quarter. But during the fourth quarter, we have seen a more significant increase in occupancies, particularly in those facilities in the southern border space.

Any comment on when you might be exceeding some of your contract minimums?

Not at this time. No.

Okay. Okay. Is there any impact on the financial statement here from the sale of the Ravenhall equity interest that we need to be aware of?

Well, I think in the earnings release, it's in the gain-on-sale that's reported in the income statement. And then going forward, there is an impact to the -- I think it's the net income and the revenue line a modest amount. The annual impact is probably between $7 million and $8 million a year in pretax earnings.

Okay. Thank you for that color. On the idle beds -- idle facilities, we have talked a lot here, partly because we've had some of the non-renewals on the BOP side. Your idle beds are now exceeding 13,000. Just trying to get a little more color as to in the marketing those, when we might be able to see some of those facilities, back online and contributing again in terms of the top-line. I know it's difficult to project. But just trying to get a little better feel for how negotiations are going or how other parties, how interested in other parties are actually in some of these facilities?

Well, given we are less than two weeks from election, the fourth quarter of an election year usually results in federal and state organizations deferring any new contract projects. So, I would expect any new decisions until early next year possibly the first quarter.

Okay. And one more if I may and then I'll pass it on. Obviously, a big win in the legal -- on the legal side in California, just wondering, are there anything -- is there anything else out there in the legal front that is significant that you're dealing with today?

Well, I think it's publicly known that we're in litigation regarding the volunteer work program in ICE facilities in several states. And there's a challenge to the compensation, which is established by Congress in the contract, which is establishes as $1 per day. And some states are challenging that some plaintiffs are challenging that and asking for the state minimum wage. So we're in litigation on that matter.

Again, congrats on the quarter, you guys continue to knock the cover off the ball here operationally, very impressive. And I'll get back in queue. Thank you.

The next question comes from Mitra Ramgopal with Sidoti. Please go ahead.

First, I just want to touch on the margins really nice margin improvement this quarter, and obviously help it improve top line. But I was just wondering more on the cost side, especially given the tight labor market environment that a lot of companies have having difficulty with. A specific thing is you're able to do on the operating side to also help in terms of the margin improvement?

Well, dividing our business between federal and state. At the federal level, we really haven't -- had problems with recruitment, because the compensation in federal facilities is usually at a higher level, and we don't. And it's adjusted periodically by the Department of Labor. So, we're almost, you know, the pretty insulated from recessions, or problems with labor compensation. But at the state level, because our state clients are in the same situation as we are regarding the historically high vacancy rates. They have gone to the legislatures to ask for additional funding, and along with their requests. So, we've made similar requests, and they've been approved. So, we've both been able to simultaneously on a staggered step by step faces, increase the compensation at our state facilities progressively; and we, although, it may be a continuous process, because the labor market is still fairly tight, but we've been very much encouraged and because of this success that's occurred by our state clients on their behalf as well as ours, to increase the wages at state correctional facilities.

And I think the ability to be able to increase the wages, you're not seeing any noticeable change in turnover?

Well, the turnover reduces as you increase the wages, there's greater stability in the labor force.

Regarding the ICE facilities, you mentioned the COVID restrictions still having an impact in terms of occupancy there. Just curious, if you're hearing anything on that front as to when these restrictions might ultimately get lifted?

There hasn't been any change in the COVID restrictions for several months now and we don't expect there to be a change for the balance of the year. So we'll see what happens next year.

And then just coming back on the BI business and the omni renewal, just curious, if I believe it given the increased the technology capabilities you have as related things like GPS tracking smartphone applications, etc. Do you think that has a chance of maybe even accelerating the growth you're seeing now in terms of more parties willing to come on board and adopt this technology?

I think it allows another vehicle for them to use the technology. The agencies can put things out to bid, or they could go straight to using this procurement vehicle. So it gives them another avenue to access the technology that they're looking for. But I do think that as we expand our suite of products and services to the customer, it allows them to have more diversity, and how they're looking at managing their population.

And as we look out to 2023, clearly, this has really been nice, a very strong year and some of the metrics you've highlighted in terms of the adjusted EBITDA even the revenue run rate, etc., we're seeing themes like level, but then on top of the significant progress you made restructuring the debt, extending the maturity, etc. As you look out to 2023, what do you see as sort of like, maybe the biggest headwind for you, because it just seems like everything is starting to come together here? Obviously, the political environment is still very much an unknown, but in terms of what you can control?

I really don't see any big headwinds. I see big opportunities for next year, actually. I see continued improvement in our state wages. I see continued improvement in our occupancy levels and our federal facilities. And I see opportunities for reengagement of our idle facilities by either state or federal organizations.

The next question comes from Jay McCanless with Wedbush. Please go ahead.

Just a couple of questions around electronic monitoring and the growth you've seen there. Is that mostly driven by the federal level or as a collection of states any kind of insight into that rapid growth would be appreciated?

Most of it is attributed to the federal level.

And do you expect going forward we'll see the same kind of increase or is it going to you're going to have to sign another set of contracts to see this kind of step function higher in the revenues?

Yes, so the contract it has had the recent accelerated growth, I mean, there's no caps on those contracts and really, any of the contracts there's no guaranteed minimums or maximums. So the contracts can expand or go down as the customer sees fit. Fortunately, and historically, most of these contracts have been utilized at a high level and the customers have continued to expand them and most recently, the federal customer has expanded it significantly. I think as Ann said also in her comments, there is some new technology that we are developing and rolling out, they introduced the risk borne device at their technology forum and we believe that will create additional opportunities for the Company going forward.

But our forecast assumes steady level.

Current run rate right now, any -- significant increase would be additive to our forecast.

Yes. And we'll update for that in our next conference call for the 2023.

The next question comes from Kirk Ludtke with Imperial Capital. Please go ahead.

Hello, everyone. Congratulations on the exchange in the quarter. Just a couple of follow ups. With respect to the federal budget, you mentioned that ICE is funded at 34,000 beds through mid-December. I'm trying to get a better sense for the risks surrounding this funding. And I'm just curious, has funding ever been a constraint for ICE occupancy?

In the past, they have often exceeded their authorized funding for that line item and had to borrow funds from other line items within the Department of Homeland Security, I believe. But their present funding through December, which is the same as the funding for the prior year which is at 34,000 beds, and I believe the occupancy levels that are available publicly reveal that the current level of ICE detention is approximately 30,000.

Got it. Thank you. That's helpful.

So, even when they have exceeded their occupancy levels for funding, they have been able to obtain additional funding to carry those -- to carry them through the year.

Got it. That makes sense. And with respect to the ICE population versus the ISAP population, do you think there is -- is there any reason to think that these are inversely correlated?

No. I think they are totally separate, totally separate. The ISAP program is a program in lieu of detention, obviously. That's the nature of the program, but we have seen growth in this fourth quarter, this partial fourth quarter of steady growth in both areas actually.

Got it. This is maybe the first time where we have seen both.

For this year, yes.

Got it. Thank you. And with respect to staffing, is there anything you can say about how staffing would change, if the ICE population went back to pre COVID levels?

It would not change much, because we have these minimum guarantees that essentially require the majority, if not the entire staffing for the facility.

And then just a couple minor ones, the availability that you show him on the two revolving credits on the supplement. That reflects the maintenance of financial covenants and those agreements, right?

Yes, that's fully available.

And then lastly, thinking out to the 2023, a bit. Can you help us think through a government shutdown and what that means, the debt feeling is not raised in time?

Well, we've had government shutdowns in the past, and it has not affected us because we are considered an essential government service. So our facilities remain open. Our services remain ongoing and we eventually receive payment when the government is reestablished from a budget standpoint.

Right. So, it's the last part that I'm focused on. Your payments are delayed -- your payments from the federal government would be delayed?

They can be. That's the main issue that we've experienced in the past. There'll be some delay depends on how long the government shuts down. I mean, if it's relatively short, it's really has no impact. If it's a longer then you're going to have some delays in payments, but they usually catch back up pretty quick to as George said, once day.

Because our payments are usually one month in arrears, so the shutdown would have to be more than a month, which has never occurred.

That’s never happened. Okay, that's all I need.

This concludes our question answer session. I would like to turn the conference back over to George Zoley, Executive Chairman for GEO for any closing remarks.

Okay. Thank you very much for joining us on this conference call. We look to addressing you in our next call. Thank you.

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