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

Good morning, everyone. I am George Zoley, Chairman of the Board of the GEO Group. It is now 10 a.m., and I'm 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 this morning is Jonathan Thompson, Audit Partner for Grant Thornton. Mr. Thompson will be available to answer any shareholder questions directed to our auditors or to make a statement, if so desired. I'd also like to thank the members of our Board of Directors who are joining today's virtual meeting: Anne Foreman, Richard Glanton, Jose Gordo, Duane Helkowski, Scott Kernan, Julie Myers Wood, and Guido Van Hauwermeiren and Chris Wheeler. And I'd 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 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. We will be observing a 2-question limit per shareholder, and we may combine questions by topic if multiple questions on the same topic are submitted. In order to ensure questions are compiled in a timely manner, we would ask that questions be submitted as soon as possible. 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 March 19, 2021, to every holder of common stock of record as of the close of business on February 22, 2021. As of February 22, 2021, the record date for this Annual Meeting, there were 121,307,472 shares of common stock outstanding. There are present online or represented by proxy the holders of 85,652,985 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 he 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 now to read it at this time.

Thank you, Mr. Chairman. Annual Meeting of Shareholders, April 28, 2021, Agenda. Number 1. Presentation of proposals set forth in the proxy statement. Election of 9 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 2021; advisory approval of the compensation of the company's named executive officers; approval of the amended and restated 2018 Stock Incentive Plan; approval of the amended and restated Employee Stock Purchase Plan; and vote on the shareholder proposal set forth in the proxy statement regarding an annual lobbying report. Number 2. Voting. Number 3. Announcement of voting results. Number 4. Question-and-answer period. Number 5. Adjournment of the annual meeting. Mr. Chairman, I move for adoption of the agenda.

Without objection, the agenda is adopted. The first order of business is the election of the 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, Duane Helkowski, Scott Kernan, Julie Myers Wood, Guido Van Hauwermeiren, Christopher Wheeler and 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 2021. The next order of business is to hold an advisory vote to approve named executive officer compensation. The next order of business is to approve the adoption of the GEO Group's amended and restated 2018 stock incentive plan. The next order of business is to approve the adoption of the GEO Group's amended and restated employee stock purchase plan. The last order of business is to vote on the shareholder proposal as set forth in the proxy if properly presented before this [indiscernible].

Thank you, Mr. Chairman. At this time, Tobias Read, Oregon State Treasurer, representing the shareholders who submitted the proposal set forth in the proxy, will have an opportunity to make a statement for up to 3 minutes in support of the proposal. Operator, would you please open the line for Tobias Read? Mr. Read, you are recognized.

Thank you. Good morning, all. My name is Tobias Read. I'm Oregon State Treasurer. On behalf of the Oregon State Treasurer's Office and the Service Employees International Union pension plan, as Master Trust, we are the co-filers of Proposal #6. I'm here to present the proposal at this year's annual meeting of GEO Group shareholders. The proposal calls for GEO Group's full disclosure of direct and indirect lobbying activities and expenditures to assess whether GEO's lobbying is consistent with GEO's expressed goals and in the best interest of shareholders. The report will be conducted at reasonable cost, omitting confidential and proprietary information, to be disclosed publicly on the GEO Group's website. Specifically, we are calling for the GEO Group to prepare a report to be updated annually disclosing: one, the company's policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications; two, payments by GEO Group they're used for, (a), direct or indirect lobbying, or (b), grassroots lobbying communications, in each case, including the amount of the payment and the recipient; three, GEO Group's membership in and payments to any tax-exempt organization that writes and/or endorses model legislation; four, description of management's and the board's decision-making process and oversight for making payments described in Sections 2 and 3 above. Much of the GEO Group's statement in opposition is irrelevant to the proposal. Information on political contributions by GEO or GEO's political action committee to candidates, parties and committees as well as on board oversight of activity is unresponsive to the proposal. GEO Group also touts its political and lobbying activity report, the report, which falls short of the proposal's request in several key respects. While the proposal seeks reporting of recipients of payments used for lobbying, the report discloses only a single aggregate amount paid for direct lobbying, with no indication of the recipients. The report only discloses trade associations to which GEO paid more than $25,000 in the previous year and does not appear to disclose the portion of dues or other payments that was used for lobbying. We believe increased transparency regarding GEO Group's direct and indirect lobbying efforts will protect against damage to both the company's reputation and its ability to achieve long-term value creation. And thus, we urge the board to institute comprehensive lobbying disclosure. Once again, we ask shareholders of the GEO Group to support Proposal #6. 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 for a moment to conclude the voting.

The balloting is now closed. I declare the polls closed at 10:12 a.m. No further voting shall be permitted. The preliminary voting tally indicates the following voting results. The directors nominated by the Board of Directors have received a majority of 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 as the independent registered public accountants of GEO for the Fiscal Year 2021 exceeds the number of votes cast against the proposal. The number of votes cast in favor of the advisory approval of the resolution to approve named executive officer compensation exceeds the number of votes cast against. The number of votes cast in favor of the adoption of the GEO Group's amended and restated 2018 Stock Incentive Plan exceeds the number of votes cast against. The number of votes cast in favor of the adoption of the GEO Group's amended and restated Employee Stock Purchase Plan exceeds the number of votes cast against. Finally, the number of votes cast in favor of the shareholder proposal set forth in the proxy statement exceeds the votes cast against, and therefore, the shareholder proposal has gained shareholder approval. We will provide the final voting results in a Form 8-K to be filed within 4 business days. 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, Mr. Negron. It's my pleasure to provide an update of the GEO Group's 2020 operational and financial results. Throughout the year, our operating division faced unprecedented challenges associated with the global COVID-19 pandemic. Amidst this very challenging environment, our employees around the globe demonstrated significant strength and perseverance as they made daily sacrifices to continuously provide high-quality services and humane and compassionate care to all those entrusted to our facilities and programs. From the beginning of the public health care crisis, our corporate, regional and field staff took steps to mitigate the risks of the novel coronavirus. We worked closely with our government agency partners to implement best practices consistent with the guidance issued by the Centers for Disease Control and Prevention. Our COVID-19 mitigation initiatives have included a focus on increasing testing capabilities at our secure services facilities, including investing approximately $2 million to acquire 45 Abbott rapid COVID-19 ID NOW testing devices and testing kits. To date, we have administered more than 100,000 COVID-19 tests to those in our care. We also installed the bipolar ionization air purification systems at select secure services facilities to reduce the spread of airborne bacteria and viruses, representing a company investment of approximately $3.7 million. We've provided continued access to face masks and personal hygiene products. And we have implemented social distancing pursuant to directives from our government agency partners. More recently, we have been working closely with our government agency partners and local health departments to make COVID-19 vaccinations available to those in our care and to our employees. For the last 3 decades, the GEO Group has partnered with government agencies throughout the United States and around the world to deliver private sector solutions to meet public sector challenges. Our high-quality services have been underpinned by the unmatched dedication of our employees and unwavering organizational commitment to operational excellence across all of our service lines. And ensuring the health and safety of all those entrusted to our care and our employees have always been our #1 priority. Every day, more than 20,000 GEO employees report to work at over 200 GEO facilities and program locations. These front-line employees are security officers, social workers, case managers, teachers, maintenance staff, doctors, nurses. But more importantly, they are members of the diverse communities who have been impacted by this pandemic like everyone else. I'd like to express our deepest gratitude and appreciation to all of our front-line GEO employees for their continued strength and dedication. Although we faced a challenging operational environment during 2020, our employees, facilities and programs achieved several important milestones. Our GEO Secure Services business unit served over 250,000 individuals, while managing an average daily population of approximately 47,000 in our facilities in the United States. Our GEO Transport division safely transported more than 0.5 million passengers while driving more than 14 million miles in the U.S. and internationally. And our GEO Care business unit served more than 700,000 individuals during the year, while managing an average daily census of over 200,000 participants. These important milestones are representative of our longstanding private sector/public relationship with government agencies in the United States and around the world. We take pride in our facilities and programs, which are highly rated and provide innovative private sector solutions that help our government agency partners meet a diverse set of public policy priorities. We are also proud of our commitment to environmental, social and governance, or ESG. In 2020, we published our second annual Human Rights and ESG Report. This report includes updated disclosures and metrics related to the development of our employees, our adherence to ethical governance practices and our efforts to advance environmental sustainability in the construction and operation of our facilities. Our ESG report also highlights our commitment to improving the lives of those entrusted in our care by providing enhanced rehabilitation and postrelease support services through our award-winning GEO Continuum of Care, or COC. Our COC program of improved offender rehabilitation is our contribution to criminal justice reform. It provides a proven, successful model on how the 2.2 million people in the criminal justice system can be better served in changing how they live their lives. The COC program is not in competition or in conflict with other national initiatives regarding offender sentencing reforms. And in fact, we applaud those efforts. Our efforts seek to draw national attention to the many still incarcerated and in need of more structured and comprehensive approach to rehabilitation. Our COC program integrates offender rehabilitation, including cognitive behavioral treatment, with postrelease support to address basic community needs of released individuals. Despite these challenges associated with the COVID-19, our COC sites completed approximately 2.6 million programmatic hours last year. Additionally, our Florida COC facilities were accredited by Care International in 2020 based on the quality of our substance abuse treatment programs. During 2020, our COC programs awarded over 1,200 high school equivalency degrees, completed 4,000 vocational training certifications, achieved 7,600 substance abuse treatment completions and surpassed 34,000 behavioral program completions and 31,000 individual cognitive behavioral sessions. We also provided postrelease support services to more than 3,600 individuals returning to their communities, with over 1,300 postrelease participants attaining employment. The many success stories of our COC participants inspire all of us and validate our belief that we are at our best when we care for those who reenter society as productive and employable citizens. While we have faced a challenging environment in 2020, the dedication of our employees and our operational milestones continues to support our financial performance. For the full year 2020, we reported total revenues of $2.35 billion; net income attributable to GEO of $113 million, or $0.94 per diluted share; adjusted EBITDA of $440 million; and adjusted FFO of $2.51 per diluted share. For a reconciliation of GAAP measures to the non-GAAP measures of adjusted EBITDA and adjusted FFO, please see our current report on Form 8-K, filed on February 22, 2021. Our board and our management team remain focused on enhancing long-term value for shareholders. We recognize that in recent years heightened political rhetoric has led to the mischaracterization of our longstanding role as a government services provider and has created concerns regarding our future access to financing. Additionally, recent policy actions by the federal government have resulted in the nonrenewal of some of our contracts with agencies under the Department of Justice. In recognition of these new challenges, we have implemented several initiatives. We have established a focus on debt reduction. In 2020, we reduced total net debt by approximately $100 million. We have suspended our dividend, with the goal of maximizing debt repayment and deleveraging. Our board has begun a review of our current corporate tax structure as a REIT. We have set a goal of repaying between $125 million and $150 million in net debt in 2021. We have implemented ongoing review of assets for potential sale. In the first quarter of 2021, we completed the sale of our interest in the Talbot Hall reentry center in New Jersey, resulting in the net proceeds of over $13 million. In February 2021, we successfully completed a private offering of $230 million in 6.5% exchangeable senior unsecured notes, due 2026. And we used the net proceeds from this offering to redeem the outstanding amount of $194 million of our senior unsecured notes due in 2022. We believe these initiatives are in the best interest of our shareholders as we work to address our upcoming debt maturities and enhance long-term shareholder value. 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 we'll do our best to respond to them.

We have received several shareholders' questions about GEO's dividend payments, and some shareholders have expressed concern about the dividend being suspended and about executive compensation not being tied to dividend payments and other related metrics. As we highlighted today, as a result of the current environment, our board has decided to suspend our quarterly dividend to maximize the use of our cash flows for debt repayment. Our board has also undertaken a review of our current corporate tax structure as a REIT and expects to complete this review by the fourth quarter of this year. In 2020, we paid down approximately $100 million in net debt, and we have set a goal of paying down approximately $125 million to $150 million in net debt during 2021. We believe that these initiatives are in the best interest of our shareholders, and we will remain focused on enhancing long-term shareholder value. Our board continuously reviews executive compensation to ensure that the interests of the senior management are aligned with the interests of our shareholders, and our management team and board are committed to enhancing long-term value for shareholders. The next question. We have received several questions regarding the recent actions by the administration and, specifically, the president's executive order. Several shareholders have asked what the company's position is on these actions and what the company is doing to address them. Our answer. While we continue to monitor the implementation of the executive order, our focus remains on providing high-quality services to our federal agency partners. For over 30 years, we have been a trusted service provider to the federal government under the Democratic and Republic administrations. We are focused on informing lawmakers and policymakers regarding the services we provide and how our facilities and services have helped our federal agencies partner and fulfill their public mission. We believe that our facilities and services continue to play an important role in helping the federal agencies and partners carry out their mission. With regard to facilities that may go into an idle status, we will be marketing those facilities to other governmental agencies on a lease or purchase basis. The next question. We have received regarding COVID-19. And specifically, one shareholder asked about COVID-19 vaccinations. Our answer is as follows. As highlighted today, we've implemented several mitigation initiatives to address the risks of COVID-19. Those initiatives include significant investments in testing, in bipolar ionization systems as well as new policies and controls related to social distancing and personal protective equipment, including face masks. More recently, we've been working closely with our governmental agency partners and local health departments to make vaccinations available to those in our care and our employees. Information on vaccination rates and other metrics can be obtained from our governmental agency partners and local health departments. The health and safety of all those in our care and our employees has always been our #1 priority. We are proud of our front-line employees who have shown incredible strength and dedication in the face of very challenging circumstances during the global pandemic. Next question. "It was recently disclosed that EPA Administrator, Michael Regan, July 2020 Inspection Report, suspected that the GEO Group was applying HDQ Neutral for a cleaning product that may pose an environmental risk to the Adelanto Detention Center. How will you cooperate with EPA and its inspection report?" Our answer is as follows. This particular disinfectant had been in use for several years without any documented adverse medical cases and was always applied consistent with the manufacturer's guidelines. At this time, this disinfectant is no longer being used by GEO and has been replaced by another product. Next question. We've also received some questions regarding the quality of our operations and concerns about our operational record. For over 30 years, the GEO Group has partnered with governmental agencies in the United States and around the world to deliver high-quality services. We are proud of our facilities and programs, which are highly rated and provide innovative private sector solutions to meet diverse public sector challenges and needs. Our success over the years has been the result of our hard-working workforce and in our organizational commitment to operational excellence across all of our service lines. Next question. "Does CoreCivic do anything better than GEO? If so, will you be adopting those practices?" Our answer. We are always looking for ways to improve our practices and programs, and we believe we have demonstrated a willingness to continually enhance and improve our policies, practices and standards. That completes the questions. As there are no other items of business to come before the Annual Meeting, we will now adjourn this meeting. Ladies and gentlemen, we thank you for participating in today's meeting, which is now adjourned.