The GEO Group, Inc. (GEO) Earnings Call Transcript & Summary

Good morning, and I'm George Zoley, the Chairman of the Board of the GEO Group. It is now 10:00 a.m., and I am pleased to call this annual meeting officially to order. With me today is Joe Negron, Secretary and General Counsel of the corporation. Also joining us in this morning via conference call is Jonathan Thompson, Audit Partner for Grant Thornton. Mr. Thompson will be available to answer any shareholder questions directed to our auditors or make a statement, if so desired. I'd also like to thank the members of our Board of Directors: Richard Glanton, Anne Foreman, Chris Wheeler, Scott Kernan, Julie Myers Wood, Jose Gordo and Guido Van Hauwermeiren. Our Board members are attending today via conference call as well. I'd also like to thank the members of our senior management team who are in attendance today. In accordance with the provisions of our bylaws, I will act as the Chairman of the Annual Shareholders Meeting and Joe Negron will act as Secretary. At this time, I will turn the meeting over to Joe -- Mr. Negron.

Thank you, Mr. Chairman. Good morning, everyone. Before proceeding with the business portion of the meeting, we'd like to remind all shareholders in attendance today that you can cast your votes as well as submit questions online. We will make every effort to address questions that are germane to the meeting and maintain a proper level of decorum. [Operator Instructions] Now proceeding with the meeting. I have received proof by affidavit from Broadridge Financial Solutions that the notice of annual meeting was mailed and the proxy statement was made available beginning April 9, 2020, to every holder of common stock of record as of the close of business on March 11, 2020. As of March 11, 2020, the record date for this annual meeting, there were 122,375,277 shares of common stock outstanding. There are present online or represented by proxy, the holders of 107,819,110 shares of common stock of the corporation which constitutes a majority of the outstanding shares and a quorum for the meeting. Michael Barbera has been appointed inspector of elections for the annual meeting and is attending online. We may now, therefore, proceed with the business of the meeting.

The agenda for the annual meeting has been prepared, and I will ask Mr. Negron to read it at this time.

Agenda for the Annual Meeting of Shareholders, May 19, 2020: number one, presentation of proposals set forth in the proxy statement, election of 8 directors, each for a term expiring at the next annual meeting or until their successors are duly elected and qualified, ratification of the appointment of Grant Thornton LLP as our independent registered public accountants for the fiscal year 2020; advisory approval of the compensation of the company's named executive officers; and vote on the shareholder proposal set forth in the proxy statement regarding an annual lobbying report. Two, voting; three, announcement of voting results; four, question-and-answer period; five, adjournment of the annual meeting.

Without objection, the agenda is adopted. The first order of business is the election of directors. The Board of Directors upon the recommendation of the Nominating and Governance Committee of the Board has nominated for election to the Board of Directors the following nominees for a term until the next Annual Meeting of Shareholders or until their successors are duly elected and qualified, all of whom are listed in the proxy statement: Anne Foreman, Richard Glanton, Jose Gordo, Scott Kernan, Guido Van Hauwermeiren, Christopher Wheeler, Julie Myers Wood, George Zoley. Under the bylaws, no other nominations have been received, and therefore, I declare the nominations closed. The next order of business is to ratify the appointment of Grant Thornton LLP as our independent registered public accountants for the fiscal year 2020. The next order of business is to hold an advisory vote to approve named executive officer compensation. The next order of business is to vote on the shareholder proposal set forth in the proxy if properly presented before the meeting.

Thank you, Mr. Chairman. At this time, Andrew Potter, representing the shareholders who submitted the proposal set forth in the proxy, will have an opportunity to make a statement in support of the proposal. Operator, would you please open the line for Andrew Potter? Mr. Potter, you are recognized and the floor is yours.

Good morning, everyone. My name is Andy Potter. I'm the Executive Director of Michigan Corrections Organization, Service Employee International Union Local 526M and an SEIU International Vice President. Now we probably represent 6,500 state corrections officers and forensic security assistance throughout the state of Michigan. I'm here representing the SEIU Pensions Plans Master Trust, and I move item #4, the shareholders proposal regarding an annual lobbying report. The proposal asks GEO to disclose policies and procedures governing lobbying, payments by GEO used for direct or indirect lobbying as well as grassroots lobbying communications, membership in payments to tax-exempt organizations that write and endorse model legislation and the Board and management's decision-making process for making those payments. In our view, full disclosure would help to safeguard GEO's reputation, which has been damaged by controversies over their conditions in immigrant detention facilities, promote greater alignment of lobbying activities with GEO's values and long-term value creations and would not impose an undue administrative burden on GEO. As shareholders, we encourage transparency and accountability in our company's use of corporate funds to influence legislation and regulations. GEO has spent $7.13 million from 2010 to 2018 on federal lobbying, including $1.7 million in 2017, which reportedly was the highest amount in a year for a private prison. And GEO's lobbying over how long immigrant children in Texas can be detained has attracted some negative scrutiny. We are concerned that GEO's lack of lobbying disclosure presents reputational risk, and thus, we urge the Board to institute comprehensive lobbying disclosures. Thank you.

Thank you. Voting for the directors and other matters will now take place. If there are shareholders in attendance who have not yet voted, you can do so online now. We will pause momentarily for voting to occur. [Voting]

The balloting is now closed. I declare the polls closed at 10:10 a.m. No further voting shall be permitted. A preliminary voting tally indicates the following voting results. We will provide the final voting results in a Form 8-K to be filed within 4 business days of today. The directors nominated by the Board of Directors have received a majority of the votes cast and are therefore elected to hold office until the next annual meeting or until their successors are elected and qualified. The number of votes cast in favor of the proposal to ratify the appointment of Grant Thornton LLP as the independent registered public accountants of GEO for the fiscal year 2020 exceeds the number of votes cast against the proposal. The number of votes cast in favor of advisory approval of the resolution to approved named executive officer compensation exceeds the number of votes cast against. Finally, the number of votes cast against the shareholder proposal set forth in the proxy statement exceed the votes cast in favor, and therefore, the shareholder proposal has failed to gain shareholder approval. This concludes the business portion of the annual meeting. Mr. Zoley, Chairman, Chief Executive Officer and Founder of the Corporation, will now give his report.

Thank you, Joe. It is my pleasure to provide an update on the GEO Group's 2019 accomplishments. But first, I would like to address the current COVID-19 global pandemic. As our country and the world face an unprecedented health and economic crisis, GEO employees and facilities throughout the United States and internationally have also been impacted by the spread of COVID-19 virus. Some of our employees live in communities that have endured significant hardship, and few of our facilities have experienced cases of COVID-19 in both our staff and individuals entrusted to our care. As a provider of essential government services, we have experience with the implementation of best practices for the prevention, assessment and management of infectious diseases. All of our facilities operate safely and without overcrowded conditions. All of our facilities have access to regular hand washing with clean water and soap as well as ample hygiene and sanitation products. All of our GEO Secure Services facilities provide 24/7 access to health care. In the case of our ICE Processing Centers, the number of health care staff is typically double the number of health care staff at state correctional facilities. Most of our facilities are equipped with airborne infection isolation rooms specifically designed to manage infectious diseases. From the outset of this global pandemic, our corporate, regional and field staff have implemented comprehensive steps to address and mitigate the risks of COVID-19 to all those in our care and our employees. We immediately updated our policies and procedures to include best practices for the prevention, assessment and management of COVID-19, relying on the guidance issued by the Centers for Disease Control and Prevention. We also provided educational guidance to our employees and individuals in our care on the best preventative measures to avoid the spread of COVID-19. We have increased the distribution of personal hygiene products, including soap, shampoo, body wash and tissue paper. We deployed specialized sanitation teams to sterilize high contact areas and develop intensive schedules and procedures for the cleaning and disinfecting of facility spaces. We engaged with our government partners to promptly suspend nonessential visitation at all of our facilities. And we have employed additional screening during entry at our facilities, including temperature checks for all staff. We ordered and received swab kits for COVID-19 from a national supplier. And we coordinated with our government partners to distribute personal protective equipment, including face masks, to all staff and individuals in our care across all of our facilities. Ensuring the health and safety of all of those in our care and our employees has always been our #1 priority. We are incredibly proud of all of our employees whose daily commitment and dedication has allowed our company to meet this crisis head on. Every day, more than 20,000 GEO employees report to work at over 200 GEO facilities and program locations. These frontline employees make daily sacrifices to care for all of those in our facilities and programs. They are security officers, social workers, case managers, teachers, maintenance staff, doctors and nurses, but more importantly, they are members of diverse communities whose families have been impacted like everyone else. I'd like to express our deepest gratitude and appreciation to all of our frontline GEO employees for their daily dedication and sacrifice, which is truly an inspiration for all of us. Even though we've continued our operation as an essential government services provider, the spread of COVID-19 has negatively impacted our projected revenues, and we have made appropriate adjustments to our financial guidance for 2020. Despite the significant challenges associated with this global pandemic, we believe our business earnings and cash flows remain resilient and continue to support our dividend payments. We have taken what we believe is a prudent approach to our guidance for the full year, and we believe we have adequate liquidity and access to capital. Moving to operational and financial highlights for 2019. During the year, our company achieved continued financial growth with revenues of approximately $2.5 billion and our EBITDA and AFFO growing by approximately 10%. Our diversified business units focused on delivering high quality services for our government agency partners. Our GEO Secure Services business unit served over 300,000 individuals throughout 2019, while managing an average daily population of more than 60,000 in the United States. And our GEO Care business unit served approximately 700,000 individuals during the year, while managing an average daily census of more than 200,000 program participants. On a combined basis, our employees, facilities and programs served approximately 1 million individuals in 2019. This is a unique responsibility which our company takes very seriously and which carries enormous inherent challenges. We feel that we have achieved our objectives while also demonstrating a faithful commitment to environmental, social and governance criteria. In September 2019, we achieved an important milestone with the publication of our first ever human rights and ESG report. This comprehensive report built on the global human rights policy adopted by our Board of Directors in 2013. The report provides disclosures related to our commitment to respecting human rights and also addresses ESG criteria related to the development of our employees, our efforts to advance environmental sustainability in our facilities and our adherence to ethical governance practices. For more than 30 years, we've been a trusted service provider to federal, state and local government agencies in the United States and internationally. Over the years, our company has evolved to become a leading provider of offender rehabilitation, post release services and community-based programs. Our 3-decade-long journey has been driven by a daily pursuit of operational excellence across all of our service lines. We recognize that sustaining operational excellence requires frequent introspection and a commitment to improving on what we do every day. Throughout 2019, we continued our efforts to expand the GEO Continuum of Care, or COC program, which was first piloted in 2015. Our COC program integrates offender rehabilitation, including cognitive behavioral treatment with post release support services to address basic community needs of released individuals. In 2019, our COC sites delivered approximately 6.8 million hours of programming and reached new highs by awarding approximately 2,900 high school equivalency degrees, more than 9,400 vocational training certifications, approximately 8,800 substance abuse treatment completions and approximately 44,700 behavioral treatment completions. The GEO Continuum of Care is our company's contribution to the criminal justice reform by providing improved rehabilitation programs to some of the 2.2 million people still incarcerated. In 2020, we are increasing our company's annual funding commitment to the COC program from $10 million to approximately $14 million, which represents more than 10% of our projected annual net income. This increase in funding will allow us to expand the COC program to all state correctional facilities managed by GEO. By setting this example, we hope to expand our role as vocal advocates for increased funding for rehabilitation programs that help individuals reenter society as productive citizens. Before I turn the meeting back to Mr. Negron, I would like to once again thank our 23,000 employees for their dedication and daily sacrifices as well as our Board of Directors for their continued guidance and all of our shareholders for your investment and support, and thank you to the Senior Vice President management team. I will now turn the meeting over to Mr. Negron.

Thank you, Mr. Chairman. We will now pause for a few moments to compile the questions submitted by shareholders and will do our best to respond to them.

We have received 4 questions, which we will address. The first question is, have we reviewed the financial status of GEO to operate with success during the rest of 2020 and 2021? And how has GEO been able to operate successfully with the requirements put forth for protection of employees and residents, et cetera? What is the financial impact? Well, we thank you for that question. And as we highlighted during our most recent earnings call and again today, we have taken comprehensive steps at all of our facilities to address and mitigate the risks of COVID-19 to all of those in our care and our employees. We have taken a prudent approach with respect to our full year guidance. And despite the challenges associated with the global COVID-19 pandemic, we believe we continue to have adequate liquidity and access to capital. While the spread of COVID-19 has impacted our revenue projections for 2020, we believe that our business and cash flows remain resilient and continue to support our dividend payments. The second question is, what protocols are in place to protect detainees and staff at GEO-owned operated facilities to protect in response to the COVID-19 pandemic? Our answer is, as we've outlined today, from the outset of the pandemic, we have taken comprehensive steps to address and mitigate the risks of COVID-19 to all of those in our care and our employees. The steps we discussed during today's meeting are also outlined in the home page of our website. Ensuring that -- health and safety of all those in our care and our employees have always been our utmost top priority. We will also continue to work with each of our government agency partners to implement best practices for the prevention, assessment and management of COVID-19, consistent with the latest guidance issued by the Centers for Disease Control and Prevention. We are incredibly proud of our frontline employees who make daily sacrifices to care for all of those in our facilities and programs. The third question is: our shareholder group has a -- has had a long and -- discussions concerning the human rights training at GEO facilities. We appreciate seeing your training on the website. Could you help us understand how many of your employees -- your contract employees have received this training? And if you will be doing annual updates on your training? Our answer is, as outlined in our first ever human rights and ESG report that was issued last year, our employees undertake extensive training, which includes refresher training on an annual basis. We are constantly evaluating ways in which we can continue to improve our company-wide training. And we will also review additional metrics, which we may be able to disclose in our future human rights and ESG reports to better inform our shareholders and other stakeholder groups. The fourth question is, we have seen your web page concerning GEO and COVID. We would like to understand how prevalent the virus is in your facilities. Could you tell us how many detainees have tested positive and how many staff have tested positive? Will you be posting such information on your website? Our answer is as follows, as a service provider to government agencies in the United States and around the world, we report all details related to COVID-19 cases to our government agency partners and those agencies disclose information on COVID-19 cases for all individuals in our custody and care. We have also worked closely with local health officials to implement best practices to report cases of COVID-19 at our facilities to local health departments. Our government agency partners have dedicated sections of their websites with the latest agency guidance on COVID-19 and information on COVID-19 cases. And that concludes the questions. As there are no other items of business to come before this annual meeting, we will now adjourn the meeting. Ladies and gentlemen, we thank you for participating in today's meeting, which is now adjourned.