Good day, everyone. And welcome to The GEO Group First Quarter 2023 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note, today’s event is being recorded. At this time, I’d like to turn the floor 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 2023 earnings results. With us today are George Zoley, Executive Chairman of the Board; Jose Gordo, Chief Executive Officer; Brian Evans, Chief Financial Officer; Wayne Calabrese, Chief Operating Officer; and James Black, President of GEO Secure Services. This morning we will discuss our first quarter results as well as our outlook and we will conclude the call with a question-and-answer session. This conference call is also being webcast live on our investor website at investors.geogroup.com. Today we will discuss non-GAAP basis information. A reconciliation from non-GAAP basis information to GAAP basis results is included in the press release and supplemental disclosure 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 2023 earnings call. I am joined today by our senior management to review our first quarter’s financial results, discuss our financial guidance and the progress we have made towards reducing our debt and provide an update on the trends for each of our business segments. This morning we reported first quarter 2023 revenues of approximately $608 million, an increase of approximately 10% from the first quarter 2022. Our strong revenue growth compared to last year was driven primarily by growth in our Electronic Monitoring and Supervision Services segment, but we also experienced revenue growth in our Secure Services segment and our Non-Residential Services. Our first quarter 2023 GAAP net income decreased to approximately $28 million from approximately $38 million as a result of higher interest expense from a year ago. Compared to the first quarter of 2022 interest expense increased by approximately $23 million due to higher interest rates and the debt restructuring transactions we completed in August of 2022. Without the impact of higher interest expense, our operating results delivered growth during the first quarter of 2023, with the net operating income increasing by 5% to $179 million and our adjusted EBITDA for the first quarter of 2023 also increased by 5% to approximately $131 million from a year ago. Our strong financial performance has allowed us to continue to make substantial progress towards reducing our debt and net leverage. During the first quarter of 2023, we reduced our net debt by approximately $70 million, closing the quarter with a net debt of approximately $1.9 billion and net leverage of approximately 3.5 times adjusted EBITDA. Our goal remains to reduce our net debt leverage to below 3.5 times adjusted EBITDA by the…

Thank you, George. Good morning, everyone. For the first quarter of 2023, we reported GAAP net income of approximately $28 million on quarterly revenues of approximately $608 million, representing 10% growth in quarterly revenues from a year ago. First quarter 2023 results reflect an increase of approximately $23 million in interest expense compared to the first quarter of 2022 due to higher interest rates and the debt restructuring transactions we completed in August of last year. Without the impact of higher interest expense, we reported growth in our operating results for the first quarter of 2023. Compare to a year ago, our net operating income and our adjusted EBITDA increased by 5% in the first quarter of 2023 to approximately $179 million and $131 million, respectively. Moving to our capital structure. We reduced our overall net debt by approximately $70 million during the first quarter of 2023, making substantial progress towards our debt and net leverage reduction objectives. As of the end of the first quarter, we had approximately $1.9 billion in net debt and our net leverage declined to approximately 3.5 times adjusted EBITDA. Our goal over the next two years is to continue to reduce our net debt and net leverage. Assuming consistent financial performance during that time period, our objective would be to decrease our net leverage to below 3.5 times adjusted EBITDA by the end of this year and to below 3 times adjusted EBITDA by the end of next year. As we execute on this strategy and achieve these debt and leverage reduction objectives, we hope to be able to refinance portions of our debt at the earliest possible time in order to achieve lower interest costs and gain more flexibility to explore options to return capital to our shareholders. Moving to our guidance for…

Thank you, Brian. Good morning, everyone. It is my pleasure to provide an update on GEO Secure Services. During the first quarter of 2023, our Secure Services facility successfully underwent 42 audits, including internal audits, government reviews, third-party accreditations and Prison Rape Elimination Act or PREA certification. Two of our Secure Services facilities received accreditation from the American Correctional Association, both with a perfect score of 100% while 4 of our facilities received PREA certification. Our GTI Transportation division completed approximately 4.6 million miles driven in the United States and overseas during the first quarter. Moving to our current trends for our government agency partners. At the federal level, populations at U.S. Marshals detention facilities continue to be stable. Our U.S. Marshals facilities around the country support the agency as it carries out its mission of providing custodial services for pretrial detainees facing federal criminal proceedings. During the first quarter, the U.S. Marshals exercised the five-year option period under our direct contract for the 768-bed Robert Dayton facility in Georgia, which is now effective through February of 2028. This is the second of our three direct contracts to have its option periods exercise. Last year, our 770-bed San Diego facility had an option period exercise through September of 2023 and our contract has additional option periods through September of 2027. Our third direct contract with the U.S. Marshals at our 1,900-bed Rio Grande facility in Texas is operating under a current option period that runs through September of 2023 and has an additional five-year option period through September of 2028. We remain optimistic regarding the continued utilization of all of these important facilities, which we believe provide needed bed space and services near federal courthouses, where there is generally a lack of suitable alternative detention capacity. Moving to our ICE…

Thank you, James. Good morning, everyone. I am pleased to provide an operational update on our GEO Care business unit starting with our reentry services division. During the first quarter, our reentry services facilities successfully underwent 58 audits, including internal audits, government reviews, third-party accreditations and PREA certifications. One of our residential reentry centers received accreditation from the American Correctional Association with a perfect score of 100%, while two of our residential reentry centers received PREA certifications. We also renewed seven residential reentry contracts including four contracts with the Federal Bureau of Prisons. While the residual impact of the pandemic continues to affect occupancy at our residential reentry centers, we remain hopeful the trends in occupancy rates will continue to improve and eventually rebound to pre-pandemic levels. On the other hand, our non-residential reentry programs experienced strong growth during the pandemic and continued to deliver revenue growth in the first quarter of 2023 compared to one year ago. Our non-residential and day reporting centers provide high quality community based services including cognitive behavioral treatment for up to 8,500 parolees and probationers at 90 locations across 10 different states. Outcome reports generated for several clients continue to demonstrate the positive impact of these centers in terms of risk reduction, employment gains and sobriety gains for program participants. Moving to our GEO Continuum of Care and In-Prison Programs division. In the first quarter, we delivered enhanced in-custody rehabilitation reentry programs and post-release support to an average daily population of approximately 31,500 participants. We completed approximately 600,000 hours of in-custody rehabilitation programs. Our academic programs awarded approximately 750 high school equivalency diplomas and our vocational courses awarded approximately 1,300 vocational training certifications. Our substance abuse treatment programs awarded close to 1,000 program completions and we achieved over 10,000 behavioral program completions and 10,000…

Thanks, Wayne. In closing, we are very pleased with our results for the first quarter. As we have said, we believe we are well positioned to deliver on our key objectives for the year, namely achieving our 2023 financial guidance for revenues and adjusted EBITDA and our full year leverage reduction target while at all times maintaining our commitment to operational excellence. Although challenges remain in our key business units, some of which are largely out of our control, such as the budgetary constraints and policy decisions of our federal and state clients, we believe that we also have some potential opportunities for upside, including increases in populations at our ICE facilities and our ISAP participant counts, the activation of additional idle beds, new managed only contract wins by our reentry electronic monitoring or secure transportation divisions and the selective sale of non-core assets. We stand fully committed to continuing to provide high quality services across all of our business lines to our long time agency clients including DHS and ICE, U.S. Marshals and our various state clients. Going forward, we will continue to seek new areas of growth, both with these agencies and in service lines where we have historically operated, as well as with new clients and our service lines that are adjacent to or complementary with our existing business. We have core competencies in multiple diverse difficult to operate areas that are hard to find under the same corporate umbrella, including managing large operationally complex facilities, housing populations with unique needs in a safe and humane manner, providing world-class rehabilitative care to individuals looking to successfully transition from the criminal justice system to becoming positive contributors to society, offering comprehensive case management services to underserved individuals including psychological counseling, substance abuse treatment, vocational training, job placement and housing relocation services, securely electronically monitoring individuals going through various stages of the immigration processing system or the pretrial and post-release criminal justice system, delivering high quality 24x7 healthcare services to patients with a variety of medical needs ranging from routine day-to-day examinations to chronic illnesses and serious acute conditions requiring lifesaving treatment, and professionally, safely and securely transporting individuals in the custody of our government clients. We plan to leverage our successful track record for executing in these wide ranging areas to pursue new opportunities for growth in the future, both within our existing business lines, as well as in new business lines where our competencies can compete and excel. We have successfully diversified ourselves several times throughout the company’s history and we believe we have never had better core skill sets and resources to continue to do so. We also believe we have the best employees in our industry who are always eager to continue pushing the envelope to keep GEO as the premier service provider of its kind in the world. That completes our remarks and we will be glad to take questions.

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

Good morning.

Good morning.

So under the ISAF program, if I am looking at some of the figures that are released by ICE, it appears that the programming seems to have stabilized over the past call it four weeks to six weeks of about 250,000 under SmartLink and about 280,000 total count under the program. Just trying to get a better feel as to you are saying here you think that program will continue to decline through the first half of this year. What your government partners are saying that gives you that view that it will continue to decline?

I think we have heard remarks to the fact that there is a concern about them exceeding their budget and wanting to cut costs. But that’s aside from having to face what they will have to face next month with Title 42 going away. So it’s an unpredictable situation, I think, for all of us and I think we have taken the correct position of being conservative in assuming that there could be a continued decline in the ICE participant count, but it’s obviously possible that it could be stabilized, as well as could significantly increase.

Fair enough. Thank you for that. And switching to the ICE detention facilities, processing facilities, a lot of your contracts are guaranteed minimum contracts, how much more does the population there need to increase for you guys to get above the guaranteed minimums?

Some of our facilities are actually quite full or almost full, particularly those along the Southern Texas border. Other facilities are less than half full. So it’s determined by geographic location and what happens on a national basis with the Title 42 going away, but we think there could be an increase, although we have not budgeted for it.

Okay. And then if you are kind of looking at your second quarter projections, they are below consensus estimates down from the first quarter. I am just trying to get a better handle as to what is driving the lower then at least consensus expectations for the second quarter?

Hey, Joe. It’s Brian. So I think as George mentioned, through the first part of the year, we are -- as you mentioned and noted, during the earlier part of the year, there was a more significant decline in the ISAP participant counts. That seems to have slowed to a different rate. And then we assume in the second half of the year that, that rate of decline changes to modest improvement or stable type numbers. And so the second quarter, we are still seeing some of that decline and then transition. So that’s what’s going on there. And then in the third quarter, that’s when we see that turn some, as well as the activation of the hinting contract on a normalized basis or a normalized quarterly basis and the activation of the health care contract in Australia.

Okay. Thanks for that. I don’t know if you guys can answer this one or not, but I will throw it out there. Reading article about California and some of the flooding and potentially impacting their largest, the State of California’s largest facility in corporate, 8,000 type of inmates there that if worst case scenario happens, they might have to move those inmates. Would you guys be have the ability to assist the state if that happened to occur?

I am not aware of that particular story. But we will always work to cooperate with our government…

Okay.

… clients whether we are actively engaged with them or not if we are able to.

And we have had a contractual relationship with California previously on for out-of-state beds.

Yeah.

Yeah. We don’t really have any of -- we have what 300 beds at McFarland that are available that used to be a…

Yeah.

State of California female facility, but we don’t have any available capacity in the state other than that.

Okay. Okay. And then one more for me and I will pass it on. Again, it’s kind of a difficult question to answer. But once again, GEO’s one of the most shorted stocks out there despite you guys having the record performance last year, still thinking you are going to have a strong, although somewhat less in 2023 versus 2022. And just trying to get maybe your kind of opinion over what are -- what part of The GEO story are the shorts missing that would lend them to, again, have GEO as one of the most shorted stocks in the New York Stock Exchange?

I don’t think they are fully appreciating that we are a well-diversified company and we have critical mass that allows us to kind of wait through difficult times and wait for the opportunities to occur as they recently occurred for us in Oklahoma. So we have got a very large footprint domestically, as well as internationally and we have been in this business for almost four decades. We are an essential government services provider and we have done well under Republican and Democratic administrations, because there is a need for these services, whether they are in high security facilities or halfway houses, everything in between, as well as Electronic Monitoring and different types of monitoring devices. So we are very diversified. We do our own healthcare, our own foodservices. We take care of large populations of people. We do everything you can do to take care of people.

Okay. Great. Thanks. I will get back in queue. Thank you.

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

Yes. Good morning and thanks for taking the questions. Just first on the quarter, the increase you saw year-over-year in terms of operating expense as a percentage of revenue. Is that pretty much all related to the payroll tax or was there something else?

From year-over-year last year?

Yes.

Payroll taxes and just overall the growth in the participant counts in ISAP drives up additional labor costs. We have to hire staff as we add more participants.

Okay. Thanks. And then just a follow-up on the labor cost and the labor market. How comfortable are you in terms of being able to hold on costs going forward?

So I can touch on that and then if one of the ops folks wants to respond as well. But during the last year to 18 months we have given significant adjustments to staff at a number of our state correctional facilities, but we were able to work with our state partners to receive adjustments to our contracts to offset those costs. So I would say that we were able to improve significantly our rates of pay, which has improved our retention, as well as our recruiting efforts and no impact to margin and maybe even some benefit. And then just as a reminder, without getting into too much detail on our federal contracts because of the structure of those contracts and the law -- the rules around Service Contract Act and Fair Labor Standards Act, we are mostly protected from wage inflation on those contracts. So the only area where we are, I would say, more exposed is on our state contracts and we managed through that last year as I described and we think we are on the right side of that right now and we will continue to monitor that going forward.

Yeah. Thanks. And then just switching to the Electronic Monitoring business clearly growing nicely. I think it’s about 20% of your revenue in 2022. How big a piece of the pie of your revenue pie you think this can be especially now as you introduce or VeriWatch gains increasing traction just continue to build out this business?

I don’t think we have forecasted like how big it can be. I think the important thing is that we continue to develop and innovate there as Wayne said with of VeriWatch product. We think that may open up some new markets or increased opportunities with existing customers and I think Jose talked about some of our diversification strategies. This may give us some opportunities in that area as well.

Okay. Thanks. And then on the guidance, I know you mentioned is certainly potential upside as it relates to Title 42, reactivation of our idle facilities, et cetera. How about on the flip side, any -- how conservative is the guidance and really trying to get a sense if there’s any real downside risk there that you have out there?

Well, I think, we have narrowed the range some from the beginning of the year, but we continue to have a little bit wider range than normal and we think that the lower end of the range captures our downside risk if the expectations don’t hold to what we are expecting at a reasonable level.

Okay. Thanks. And I know it’s early, but I was just curious in terms of your initial thoughts around the proposed rule relating to third country asylum if you see that, how would you see that potentially impacting you if it was to be enacted?

Well, I think, that would mean that more people will be placed into detention, while their cases are being processed for removal, but we don’t know if that rule is going to be upheld. We are mindful that there has been reports by various news organizations including the Washington Post where there’s several hundreds of thousands of immigrants masking in the Mexican area awaiting for the end of Title 42. And Troy Miller, the Acting Commissioner of U.S. Customs and Border Protection is expecting the illegal crossings to double to more than 10,000 per day after May 11th. So we don’t know exactly what planning is taking place in preparation for that, but we have facilities and bed capacity that’s available to ICE to deal with the situation as they see fit.

No. That’s great. And then, finally, on the international, obviously, nice addition especially our growth in Australia. Just curious I know you have a lot on your plate on the domestic front, but again just not the international aside if you are seeing some additional opportunities there?

Well, we do and very possibly in the area of health services where we have been previously restricted under the rules of being organized as a REIT. We were no longer a REIT. We can now pursue other health services as we previously did prior to becoming a REIT. We were providing general health services under separate contracts for third parties. We were providing mental health facilities, psychiatric hospitals, all those things are now available to us.

Okay. Thanks again for taking the questions.

Our next question comes from Brian Violino from Wedbush. Please go ahead with your question.

Yeah. Thanks for taking my question. Appreciate it. On the last call, you had mentioned that there was an intentional decline in ICE occupancy in November in anticipation of a surge in December when Title 42 was originally expected to roll off. Are we seeing a similar trend today given the May 11th date seems pretty firm at this point? And then also, can you just speak to how occupancy trended within the quarter itself and if you can or willing to provide any sort of ICE occupancy update so far in April?

We have seen a similar situation where capacity in the ICE Processing Centers was reduced in front of the anticipated end of Title 42, which was anticipated in December did not occur. Then we had a normalization of occupancy that went up. Now recently it went down and now it’s starting to go back up again and we don’t know exactly what’s going to happen because this kind of event is historically unprecedented. There’s never been a massing of these number of individuals on our Southern border in our life time. So what plans are being made? We don’t know. But we are professional service providers that have been doing this for decades and we are -- we stand ready to assist the federal government, as well as the state governments as they see fit.

Great. Thanks. And just one more from me, on the VeriWatch program, I guess, I just wanted to confirm, I know it’s still early days and you may not be able to comment too much. But specifically, as it relates to working with ISAP, is this something that you could see growing the overall ETD program with ISAP or is it something that’s going to be replacing some of your existing technology that you work with them?

The watch is an innovation that we think will be favorably received, but it remains to be seen as to -- for which participants it’s inappropriate. It’s a good looking watch and look very similar to new modern watches and we think it’s less restrictive than ankle monitors and provides significantly more operational functions than the phones that have been used. It provides more information that’s desired by ICE. We are not participants in the sharing of that information. It doesn’t go to us. It goes to ICE and so we are just following and pursuing the needs of ICE and trying to make a less constructive, less obtrusive monitoring device that meets the needs of ICE for those who are on the non-detained docket and for people who qualify as low security individuals who are waiting the pending of the administrative closing of their cases.

Great. Thank you.

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

Hello, everyone. Thank you for the call. Just a couple of follow-ups on the monitoring program. It looks like revenue per man day is down sequentially, so down from the December quarter. I am just curious can you comment a little bit about -- I suspect that’s mix, but could you comment a little bit about pricing versus mix there?

It’s exactly that, it’s just mix as the people who have been distant role from the program, it changed the mix of the remaining participants and has adjusted the average price, but none of our pricing has actually changed, it’s just mix driven.

Got it. I appreciate it. Thank you. And then can you talk a little bit about the economics of the VeriWatch in terms of revenue per day, CapEx per day versus -- or CapEx per device versus the average that’s similar?

Not trying to be difficult, but obviously it’s the new product. It’s innovative, but we really haven’t released that kind of information and I don’t even think there has been any kind of competitive bids out there yet that would provide sort of market data around that. So we are hesitant to provide that type of information right now.

Got it. Understood. I appreciate. Thank you. And then on Great Plains, congratulations on the new business. That facility has been idled for a while. What’s changed, did the population increase or did Oklahoma close facility or what prompted the move there? And then, secondly, what does that mean for the Lawden [ph] contract which I think expires later this year?

Oklahoma also announced, as well as CoreCivic that they had a lease contract facility with the State of Oklahoma and that will be discontinued I think over the course of the next six months. And the state operation at that facility will be transferred to our Hinton, Oklahoma facility, which is considered a better -- I think a better area for general recruitment of staffing. I think that was the driving issue. There is some cost savings to the state, but I think that’s in large part related to, the CoreCivic facility was a much larger 2,400 bed facility, our facility is a 1,900 bed facility. As far as the Lawden contract that’s due for renegotiation over the course of the next two months and we expect to begin that negotiation.

Okay. Does this -- I mean I notice that’s a lease. Does that imply that Oklahoma is moving to more of a lease model?

Well, they have used a lease model in previously -- previous years with CoreCivic. So they are actually just continuing the lease model, but in a different location.

Got it. Okay. So it doesn’t imply that Lawden will become a lease?

No. No.

Got it. Okay. Well, I appreciate. Thank you very much.

And ladies and gentlemen, at this point, I am showing no additional questions. I’d like to conclude the question-and-answer session and turn the conference call back over to George Zoley, Executive Chairman of The GEO Group for any closing remarks.

Well, thank you for joining us on today’s call and look forward to addressing you on the next one.

And ladies and gentlemen, with that, we will conclude today’s conference call. We do thank you for attending today’s presentation. You may now disconnect your lines.