Q3 2024 The GEO Group Inc Earnings Call
Is it this one I need?
It's out. It's out.
Speaker Change: Good day and welcome to the GEO Group 3rd Quarter 2024 Earnings Conference Call.
Speaker Change: All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone.
To withdraw your question, please press star then 2.
Please note this event is being recorded.
Speaker Change: I would now like to turn the conference over to Pablo Paez, Executive Vice President of Corporate Relations. Please go ahead.
Pablo Paez: Thank you, operator. Good morning, everyone, and thank you for joining us for today's discussion of the GeoGroup's third quarter 2024 earnings results.
Pablo Paez: With us today are George Zoley, Executive Chairman of the Board, Brian Evans, Chief Executive Officer, Wayne Calabrese, President and Chief Operating Officer, Mark Suchinski, Chief Financial Officer, and James Black, President of GeoSecure Services.
Pablo Paez: This morning we will discuss our third quarter results as well as their outlook. We will conclude the call with a question and answer session.
Today, we will discuss non-GAAP-based information. A reconciliation from non-GAAP-based information to GAAP-based results is included in the press release and the supplemental disclosure that we issued this morning.
Pablo Paez: Additionally, much of the information we will discuss today, including the answers we may give in response to your questions, may include forward-looking statements regarding our beliefs and current expectations with respect to various matters.
Pablo Paez: These forward-looking statements are intended to fall within the safe harbor provisions of the security 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 2004 earnings call.
George Zoley: I'm pleased to be joined today by our senior management team.
During today's call we will review our third quarter 2024 financial results and operational highlights for our business segments.
George Zoley: We'll provide an update on our efforts to pay down debt, reduce leverage, and enhance long-term value for shareholders.
George Zoley: and discuss our updated financial guidance for the fourth quarter and full year.
for 2024 and our potential future growth opportunities.
Pablo Paez: Our financial performance during the third quarter was largely consistent with our results for the second quarter.
Pablo Paez: This performance was below our third quarter expectations, largely driven by the lower than expected revenues in our electronic monitoring and supervision services segment.
Pablo Paez: Participant counts under the federal government's Intensive Supervision Appearance Program or ISAP
Pablo Paez: have averaged approximately 177,000 during the third quarter compared to an average ISAP participant count of approximately 184,000 during the second quarter 2024.
Pablo Paez: After reaching a low participant count of approximately 174,000 in the third quarter, the daily ISAP participant count now has been steadily increasing and currently stands at approximately 182,500.
Pablo Paez: With respect to our ice processing centers, utilization across our facilities remained largely consistent during the third quarter at approximately 13,000 beds and is currently at 13,500 beds.
Pablo Paez: This utilization level during the third quarter represents an increase of approximately 11% from the end of the third quarter one year ago. However, it has remained relatively flat over the last three quarters.
Pablo Paez: Based on the most recently available public data, in September of this year the utilization across all ICE facilities nationwide was approximately 37,000 beds.
Pablo Paez: This level of utilization is below the 41,500 beds that are funded under the short-term continuing resolution that is due to expire on December 20th.
Pablo Paez: Similarly, we believe the ISTAP contract utilization is likely below the level that could have been supported under the continuing resolution funding approximately four hundred seventy million dollars for the agency's alternatives to detention programs.
Pablo Paez: While it is possible for ICE detention and ISAP utilization rates to further increase this year, we've decided to update our fourth quarter guidance to be largely consistent with our third quarter results.
Pablo Paez: With respect to federal funding after the expiration of the continuing resolution on December 20th, we believe it is likely that Congress will extend the continuing resolution till sometime after the new presidential administration takes office.
Pablo Paez: At that point, we would expect the new Congress to consider appropriation bills to fund the federal government for the balance of the fiscal year.
Pablo Paez: As a reminder, while the U.S. Senate has not previously introduced appropriation bills for the current fiscal year, the previous version of the House Homeland Security Appropriations Bill would have increased ICE detention funding to support the utilization of 50,000 beds.
Pablo Paez: This would have represented an increase of 8,500 beds from the currently funded level of 41,500 beds.
Pablo Paez: The bill would have also required the use of an electronic GPS monitoring for all individuals in the non-detained docket, which is currently estimated to be more than 7 million people.
Pablo Paez: We expect the incoming Trump administration to take a much more aggressive approach regarding border security as well as interior enforcement and to request additional funding from Congress to achieve these goals.
Pablo Paez: We stand ready to provide additional services and resources to help ICE meet its future needs.
Pablo Paez: In our Secure Services segment, we have approximately 10,000 beds at six company-owned, currently idle facilities that we believe could be well-suited to support future federal government bed space needs.
Pablo Paez: We also have approximately 8,000 empty beds already under contract that could be utilized, which would bring our total existing capacity to over 31,000 beds.
Pablo Paez: We believe we have the necessary technology and staffing resources to scale up the current utilization of the ISAB contract by several hundreds of thousands and upward to several millions of participants.
Pablo Paez: Additionally, we are a leading provider of secure ground and air transportation services to the federal government and we believe we have the capabilities to scale up these services as needed.
Pablo Paez: We are currently responding to a procurement that was issued by ICE for a federal immigration processing center with a minimum of 600 beds in the Newark, New Jersey area, which is expected to result in a 15-year contract to be awarded by the end of December.
Pablo Paez: We believe we are well positioned to respond to additional procurements in the future across the spectrum of diversified support services that we currently provide on behalf of ICE.
Pablo Paez: Finally, we remain focused on reducing our debt, deleveraging our balance sheet, and gaining the flexibility of potential capital returns to our shareholders in the future.
Pablo Paez: Year-to-date, we have reduced net debt by approximately $92 million, bringing our total net debt below $1.7 billion, and our net leverage to approximately 3.0 times adjusted EBITDA.
Pablo Paez: We are on track to reduce net debt by an additional $20 million in the fourth quarter of this year, which would bring our total net debt to approximately $1.67 billion by year end.
Speaker Change: I will now turn the call over to our CEO Brian Evans.
Thank you, George. Good morning, everyone.
Brian Evans: While we have adjusted our guidance for the fourth quarter of 2024 to be largely consistent with our performance during the second and third quarters of 2024.
Pablo Paez: and as a result have also adjusted our full year 2024 guidance we continue to believe that we have several sources of potential growth that could provide meaningful upside to our current quarterly earnings run rate.
Pablo Paez: In our secure services segment, as George noted, we have approximately 10,000 available beds at six company-owned, currently idle facilities.
Pablo Paez: These six facilities range from 1,000 to 2,000 beds each and are located in Texas, Georgia, Michigan, North Carolina, and New Jersey.
Pablo Paez: We believe that these facilities, which currently have negative annual carrying costs of approximately $13 million, are well suited to support future needs for ICE and the federal government.
Pablo Paez: Five of the six facilities were previously used by the Federal Bureau of Prisons and the remaining facility was previously used by ICE.
Pablo Paez: based on average per diem rates for our owned and leased facilities.
Pablo Paez: If fully reactivated, these facilities could generate approximately $300 million in incremental annualized revenues with margins consistent with our owned and leased secure services segment, which averaged between 25 and 30 percent.
Pablo Paez: Additionally, we currently have approximately 8,000 underutilized beds at existing ICE and US Marshals facilities already under contract, which could generate approximately $100 million in incremental annualized revenues if fully utilized.
Pablo Paez: In our electronic monitoring and supervision services segment, we believe we have the necessary technology and staffing resources.
Pablo Paez: to significantly scale up the delivery of our supervision, compliance, and case management services under our ISAP contract with ICE if needed.
Pablo Paez: These services entail diversified electronic monitoring technologies as well as case management services which are delivered through a network of approximately 100 offices and close to 1,000 employees.
Pablo Paez: We have a long track record of delivering quality services under ISAP with bipartisan support for approximately 20 years, achieving high compliance rates for a relatively small portion of individuals who are in the non-detained docket.
Pablo Paez: which is currently estimated to be comprised of more than 7 million people.
Pablo Paez: While the current participant count under ISAP is approximately 182,500, we believe we are capable of scaling up our monitoring under the contract by several hundreds of thousands of participants and up to several millions if necessary.
Pablo Paez: In addition to the core support services we have historically provided on behalf of ICE,
Pablo Paez: We are also increasingly providing other ancillary services like secure ground transportation at our ice processing centers and secure air operations support as a subcontractor under a long-term prime contract.
Pablo Paez: This Secure Air Services subcontract alone is expected to generate approximately $25 million.
and Annualized Revenues.
Pablo Paez: And we believe we have the capabilities to expand the provision of these services to assist ICE in moving several hundreds of thousands of additional individuals if needed.
Pablo Paez: We have a long-standing record of providing high-quality diversified support services on behalf of ICE.
Pablo Paez: This public-private partnership with the federal government dates back to the mid-1980s.
Pablo Paez: We believe that this partnership is underpinned by long-term real estate assets that are supported by high-quality contracts for the provision of essential government services.
Pablo Paez: We have provided these essential services under both Democratic and Republican administrations and during times when either party has been in control of the U.S. Congress.
Pablo Paez: We expect that our company will continue to provide valuable diversified services to ICE and the federal government going forward.
Pablo Paez: As we evaluate and pursue future potential opportunities, we will continue to focus on the disciplined allocation of capital to drive long-term value for shareholders.
Pablo Paez: As we have for the last three years, we will continue to focus on further reducing our overall quantum of debt.
Pablo Paez: Our recent refinancing transactions have staggered our debt maturities between 2029 and 2031, which has given us a significantly longer runway to reduce our net debt.
Thank you. Thank you.
Pablo Paez: As we make progress toward further reducing our net debt and net leverage, we plan to evaluate options to return capital to our shareholders in the future.
Pablo Paez: We expect to balance this capital allocation strategy against our overall capital needs as well as potential opportunities to make investments that drive earnings and cash flow growth for our company and enhance long-term value for shareholders.
Pablo Paez: We have a 20-year record of carefully allocating capital, investing in company-owned facilities, and pursuing strategic acquisitions of businesses and assets, which we believe has enabled us to develop leading market positions across our diversified services platform.
Pablo Paez: We believe we have built an unmatched network of company-owned brick-and-mortar assets with a combined total of approximately 54,000 beds and an estimated replacement value in excess of $6 billion.
Pablo Paez: We also believe we have developed an unrivaled platform of support services, including in-custody rehabilitation, community reentry, post-release assistance, electronic monitoring, case management, and secure transportation.
Pablo Paez: We believe that our investment strategy has maximized our ability to capture diversified growth. We believe our company continues to present an attractive value proposition for investors given the predictable nature of our cash flows and our potential growth opportunities going forward.
Speaker Change: At this time, I'll turn the call over to CFO Mark Suchinski.
Mark Suchinski: Thank you, Brian, and good morning, everyone. For the third quarter of 2024, we reported net income attributable to GEO of approximately $26 million, or $0.19 per diluted share, on quarterly revenues of approximately $603 million.
Mark Suchinski: This compares the net income attributable to GEO of approximately $25 million, or $0.16 per diluted share, in the third quarter of 2023 on revenues of approximately $603 million.
Mark Suchinski: approximately 1 million dollars in pre-tax transaction fees and closeout expenses.
Thank you.
Mark Suchinski: Excluding these non-recurring items, we reported third quarter 2024 adjusted net income of approximately $29 million.
Mark Suchinski: or $0.21 per diluted share, while the prior year quarter we reported adjusted net income of roughly $24 million or $0.19 per diluted share.
Mark Suchinski: Third quarter 2024 adjusted EBITDA was approximately $119 million, which is essentially unchanged as compared to the prior year, third quarter.
beginning with revenues.
Mark Suchinski: Quarterly revenues in our owned and leased secure services facilities increased by approximately 6% year-over-year, primarily driven by higher occupancy levels at our ICE facilities compared to the prior year third quarter.
Mark Suchinski: This revenue increase was offset by lower quarterly revenue from our electronic monitoring and supervision services segment due to lower participant counts under the ISAP contract compared to the prior year third quarter.
Mark Suchinski: Quarterly revenues for our managed only and non-residential service contracts were largely unchanged compared to the prior year third quarter.
Mark Suchinski: Turning to our expenses during the third quarter of 2024, both our operating expenses and general and administrative expenses remained largely consistent with the prior year quarter.
Mark Suchinski: Our third quarter 2024 results reflect a year-over-year decrease in net interest expense of approximately $12 million.
Mark Suchinski: As a result of our debt reduction and refinancing efforts over the past 12 months, our effective tax rate for the third quarter of 2024 was approximately 31 percent.
Now if we move to our updated financial guidance.
Mark Suchinski: For the fourth quarter of 2024, we expect net income attributable to GEO to be in the range of $0.19 to $0.22 per diluted share on quarterly revenues of approximately $600 to $610 million.
Mark Suchinski: We expect fourth quarter 2024 adjusted EBITDA to be in the range of $114 million to $124 million.
Mark Suchinski: As George previously mentioned, we have decided to update our fourth quarter 2024 guidance to be largely consistent with our third quarter 2024 results.
Mark Suchinski: And as a result, we have adjusted our full year 2024 guidance.
Mark Suchinski: For the full year 2024, we expect net income attributable to GEO to be in a range of $0.30 to $0.34 per diluted share.
Mark Suchinski: Excluding non-recurring items, we expect full year 2024 adjusted net income to be in the range of 80 cents to 84 cents per diluted share on revenues of approximately 2.42 billion dollars.
Mark Suchinski: We expect our effective tax rate for the full year 2024 to be approximately 23% inclusive of known discrete items.
Mark Suchinski: We expect our full year 2024 adjusted EBITDA to be between $470 million and $480 million.
Mark Suchinski: Moving to our capital structure, we ended the third quarter of 2024 with total net debt below 1.7 billion dollars and net leverage of approximately 3.5 times adjusted EBITDA.
Mark Suchinski: We closed the quarter with approximately $71 million in cash on hand and approximately $280 million in total available liquidity.
Mark Suchinski: As of the third quarter, fixed rate debt represents approximately 76% of our total indebtedness, which meaningfully insulates GEO from potential interest rate volatility.
Mark Suchinski: Additionally, we have no substantial debt maturities due before April of 2029.
Mark Suchinski: This improved maturity schedule gives a significant runway to continue to grow our business and focus on reducing our debt.
Thank you. Thank you. Thank you.
Speaker Change: Year-to-date, we've reduced our net debt by approximately $92 million. We expect to further reduce our net debt by approximately $20 million in the fourth quarter of 2024, bringing our total net debt to approximately $1.67 billion by year-end.
Speaker Change: In addition to allocating capital towards debt reduction and to support our growth capital needs, our goal remains to explore options for returning capital to shareholders in the future.
Speaker Change: Now, at this time, I'd like to turn the call over to James Black for a review of our GeoSecure Services Business Unit.
James Black: During the third quarter of 2024, our secure services facilities successfully underwent a total of 61 audits, including internal audits, government reviews, third-party accreditations, and Prison Rape Elimination Act, or PREA, certifications.
Mark Suchinski: Six of our Secure Services facilities received accreditation from the American Correctional Association with an average score of approximately 99%, and one facility received PREA certification in the third quarter.
Mark Suchinski: Our GTI Transportation Division and our GeoAMI UK joint venture completed approximately 4 million miles driven in the United States and the UK during the third quarter.
Mark Suchinski: Moving to the current trends for our government agency partners. During the third quarter of 2024, utilization at our U.S. Marshals Detention Facilities was largely consistent with utilization during the third quarter one year ago.
Mark Suchinski: Our U.S. Marshals facilities around the country support the agency as it carries out its mission of providing secure custodial services for pre-trial detainees facing federal criminal proceedings.
Mark Suchinski: Moving to our contracted ice processing units, utilization across our facilities has largely remained at approximately 13,000 beds over the last three quarters, which represents an increase of approximately 11% from the end of the third quarter one year ago.
and is currently at approximately 13,500 beds.
Mark Suchinski: GEO has a long-standing track record of delivering professional support services on behalf of ICE at GEO-contracted federal immigration processing centers.
Mark Suchinski: And we stand ready to support ICE with any additional needs.
Mark Suchinski: Geocontracted ice processing centers offer around-the-clock access to quality health care services.
Mark Suchinski: Our health care staffing at the ice processing centers where we provide resident health care is generally more than double the number of health care staff in a typical state correctional facility.
Mark Suchinski: Geocontracted Ice Processing Centers offers full access to legal counsel and legal libraries and resources and we have dedicated space at each ice center to provide residents with confidential meetings with their legal counsel.
Mark Suchinski: Geocontracted ice processing centers provide residents with three daily meals that are culturally sensitive, special diet appropriate, and approved by registered dieticians.
Mark Suchinski: We also provide access to faith-based and religious opportunities at each geocontracted ice processing center.
Mark Suchinski: And we partner with community volunteers as needed to ensure fair representation of various faiths and denominations.
Mark Suchinski: Geocontracted ice processing centers also offers access to enhanced amenities including artificial turf soccer fields, covered pavilions, exercise equipment, and multi-purpose rooms.
Mark Suchinski: During the third quarter of 2024, we renewed several important contracts for our company-owned and contracted ice processing centers.
Contracts for our 700-bed Broward Transitional Center.
1,314 bed Montgomery Processing Center
Mark Suchinski: and 1,904-bed South Texas Ice Processing Center were renewed for one-year terms through August of 2025, and our Carnes County Ice Processing Center contract was renewed for a five-year term through August of 2029.
Mark Suchinski: Most recently, our 1,532-bed Aurora Ice Processing Center contract was also renewed for a one-year term through October of 2025.
Mark Suchinski: Finally, as we announced last month, ICE exercised the five-year option period extending the contract for our 1,940-bed Atalanto ICE Processing Center through December 19, 2029.
Mark Suchinski: ICE and GEO entered into a 15-year contract on December 19, 2019.
Mark Suchinski: for the provision of secure residential housing and support care services at the Adelanto ICE Processing Center, consisting of a five-year base period followed by two five-year option periods.
Mark Suchinski: We believe the Adelanto Center represents an important asset in helping ICE and the federal government fulfill their mission and operational priorities.
Mark Suchinski: We are proud of our approximately 350 employees at the Adelanto Center who have helped us establish a long-standing record of providing high quality contracted support services on behalf of ICE in the state of California.
Mark Suchinski: We are also currently responding to a procurement that was issued by ICE for a processing center with a minimum of 600 beds in Newark, New Jersey.
Mark Suchinski: This procurement is expected to result in a 15-year contract with an award expected to be announced by the end of December.
Mark Suchinski: With respect to the ancillary support services, we provide secure ground transportation for ICE primarily at 12 of the geo-contracted ICE processing centers.
Mark Suchinski: As mentioned, our GTI Transportation Division also provides secure air operation support for ICE as a subcontractor under a five-year prime contract held by CSI Aviation.
Mark Suchinski: We have a longstanding record of providing safe and secure transportation services on behalf of ICE, which we expect will continue to play an important role in helping the agency carry out its mission.
Speaker Change: At this time, I will turn the call over to Wayne Calabrese for a review of our GeoCare business unit.
Wayne Calabrese: Thank you, James. I'm pleased to provide an overview of the quarterly operational milestones for GeoCare.
Mark Suchinski: During the third quarter of 2024, we successfully renewed five residential reentry center contracts, including three contracts with the Federal Bureau of Prisons.
Our Residential Reentry Centers
non-residential day reporting centers
Mark Suchinski: And our ISAP field offices successfully underwent a combined total of 84 audits, including internal audits, government reviews, third-party accreditations, and Prison Rape Elimination Act or PREA certifications.
Mark Suchinski: Five of our residential reentry centers received accreditation from the American Correctional Association.
Mark Suchinski: with an average accreditation score of 100%, and eight of our residential reentry centers received PREA certifications in the third quarter.
Mark Suchinski: Our 34 residential re-entry centers provide transitional housing and rehabilitation programs for individuals re-entering their communities across 14 states.
Mark Suchinski: Average daily census levels at these centers remain stable at approximately 5,000 individuals during the third quarter of 2024.
Mark Suchinski: Our non-residential and day reporting centers provide high-quality, community-based services including cognitive behavioral treatment for up to approximately 9,000 parolees and probationers.
at 98 locations across 10 different states.
Mark Suchinski: Moving to our enhanced rehabilitation programs, during the third quarter of 2024, we delivered in-custody rehabilitation programs to approximately 2,500 individuals at 38 in-prison treatment sites in eight states.
Mark Suchinski: and to approximately 19,000 individuals enrolled in 12 geo-continuum of care programs in six states.
Mark Suchinski: Our in-custody rehabilitation services include academic programs focused on the attainment of high school equivalency diplomas.
Mark Suchinski: We've made a significant investment to equip all of our classrooms with smart boards to aid in the delivery of academic instruction.
Mark Suchinski: We've also focused on developing vocational programs that lead to certification for good jobs in the markets where our graduates will live upon their release.
Mark Suchinski: Our substance abuse treatment programs are an important part of our rehabilitation services because many of the individuals in our care suffer from addiction and substance use disorder.
Mark Suchinski: Our facilities also provide extensive faith-based and character-based programs with designated housing units across our facilities dedicated to enhancing the delivery of these critical programs.
Mark Suchinski: During the third quarter of 2024, we completed approximately 700,000 hours of enhanced rehabilitation programming.
Mark Suchinski: Our academic programs awarded more than 800 high school equivalency diplomas.
Mark Suchinski: Our vocational courses awarded more than 700 career and technical certificates.
Our substance abuse treatment programs awarded approximately 1,000 program completions.
Mark Suchinski: Those in our care completed approximately 500 behavioral treatment programs and more than 4,400 individual cognitive behavioral treatment sessions in the third quarter of 2024.
Mark Suchinski: During that same quarter, we also allocated approximately $340,000 for post-release services to support approximately 700 individuals released from GEO facilities as they return to their communities.
Mark Suchinski: Our GEO Continuum of Care program integrates enhanced in-custody rehabilitation, including cognitive behavioral treatment with post-release support services that address critical community needs of released individuals.
Mark Suchinski: We believe our award-winning continuum of care program provides a proven model for how the two plus million people in the United States criminal justice system can be better served in changing their lives.
Mark Suchinski: Our GEO Continuum of Care program has had a positive impact in the reduction of criminal recidivism rates, achieving a reduction of between 32 and 55 percent in the rate of recidivism over the last three years when compared to the national average.
Finally, turning to our electronic monitoring and supervision services segment.
Mark Suchinski: Our BI subsidiary provides a full suite of monitoring and supervision solutions, products, and technologies.
Mark Suchinski: In the third quarter of 2024, participant counts under the ISAF contract averaged approximately 177,000. As earlier noted, the current ISAF participant count is approximately 182,500.
Mark Suchinski: BI has provided technology solutions, holistic case management, supervision, monitoring, and compliance services under the ISAP contract for almost 20 years, winning every competitive rebid of the contract since ISAP was first established.
Mark Suchinski: Under BI's tenure, ISAP has received bipartisan support and has achieved high levels of compliance using a variety of new technologies and case management services over that time.
Speaker Change: ICE has indicated that the rebid procurement for the ISAP contract is presently estimated to be issued in May of 2025.
Speaker Change: The federal government can extend existing contracts for six months or longer to accommodate rebid procurements that can often take between 12 and 18 months to complete.
Speaker Change: We expect the incoming Trump administration to take a much more expansive approach to monitoring the several millions of individuals who are currently on the non-detained immigrant docket.
Speaker Change: We have assured ICE of our capability to rapidly scale up our capabilities to monitor and oversee several hundreds of thousands or even several millions of individuals in order to achieve the federal government's immigration law compliance objectives.
Speaker Change: At this time, I'd like to turn the call back to George for closing remarks.
George Zoley: Thank you, Wayne. As you've heard us say today, the third and fourth quarters are expected to be much the same under the Biden administration.
George Zoley: What is new is a potential speed change by the incoming Trump administration that is expected to implement a much more aggressive policy towards interior and border immigration enforcement.
George Zoley: We believe that the private sector will play a critical role in assisting the government in carrying out its objectives.
George Zoley: GEO is the single largest contractor to ICE with almost four decades of partnership and provides approximately 40% of the secure beds for ICE.
to over 31,000 beds.
George Zoley: In GEO's ISTAP program, we can scale up from the present 182,500 participants
to several hundreds of thousands or even millions of participants.
George Zoley: In GEO's Nationwide Ground and Air Transportation Services, we can scale up materially for domestic as well as international travel.
George Zoley: The GEO Group was built for this unique moment in our company's country's history.
Speaker Change: and the opportunities that it will bring. We are thankful for our long-standing shareholders and welcome the new ones on this journey. That completes our remarks and we would be glad to take the questions.
and many more. Thank you.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. The first question comes from Brian Violino from Wedbush. Please go ahead.
Brian Violino: Great, thanks for taking my questions. You know, I heard the commentary about ISAP potentially being able to scale up into the millions, but just kind of curious about how you expect NOI margins in that segment to trend. I think they've been trending down a little bit, you know, over the past few quarters, but is there some degree of operating leverage in that business if, you know, we were to get to that sort of level of participants?
Thank you very much.
Thank you.
Brian Evans: Hey, this is Brian. So the margins move around as we've talked about before depending on the mix of the services that that ICE is using at the time, the amount of technology, as well as the case management services. So
Brian Evans: I think given the, you know, the guidance that George has provided, we would expect the margins to be at least consistent with where they are today and potentially improve.
Speaker Change: Great. And then, you know, there was some additional talk about the air services contract. I think that's $25 million in annualized revenue.
Brian Evans: You know, I think we have a pretty good idea of the potential size of...
Speaker Change: and the NDI program in a new administration, but could you help us try to size this air services opportunity and then what kind of margins do you generate in that business?
You know, I think to speak in generalities,
We're looking at a theoretical...
potential doubling of all of our services whether it's
in the detention segment.
in the transportation segment.
as well as the ISEP program.
Brian Evans: Of course, this will depend on Congress providing the required funding.
Speaker Change: and we we think that may not occur until after the new administration comes in and passes a final bill for the balance of the fiscal year so we're we're looking at maybe March as the
The additive funding for this fiscal year.
Speaker Change: But as I said in my final closing remarks, this is to us an unprecedented opportunity to assist the federal government and that the incoming Trump administration.
Speaker Change: towards achieving a much more aggressive immigration policy with regard to interior enforcement and border enforcement and the removal of
of criminal aliens predominantly from this country as has been.
Speaker Change: characterized by incoming President Trump as the focal point for the initial deportation activities.
Thanks for taking the time.
Speaker Change: The next question comes from Joe Gomes from Noble Capital. Please go ahead.
Good morning.
Good morning. Good morning, again.
Speaker Change: I wanted to start out on looking through this supplement and maybe you just walk walk me through this. So obviously year over year as you mentioned you know revenues in electronic monitoring and services supervision services declined by about 14 million bucks.
Speaker Change: But net operating income also declined by $14 million, which I thought was somewhat odd that was really almost dollar for dollar decline in net operating income with the decline in revenue. I was just wondering if you could go through that.
Brian Evans: It just depends, as I said before, this is Brian, it depends on which...
Speaker Change: devices or services that they pulled out of the program and there's different margin levels associated with that, there's different costs.
At some point, there's also.
Speaker Change: can be an increase in staffing requirements, even though the total number of participants in the program.
Speaker Change: declined, there's more participants in the case management, labor-intensive services. So that's, I think, part of what you see going on there is that mixed changes in the program.
Speaker Change: Yeah, Joe, I agree with Brian. I mean, I think it's just a coincidence.
Speaker Change: that both of those decreased by approximately $14 million. As Brian indicated, it's all about the mix of products.
in case management that we provide.
and those will fluctuate quarter to quarter.
based on the needs of ICE.
Okay, fair enough. Thank you for that.
Speaker Change: And on a debt reduction, Brian, you can correct me if I'm wrong, I seem to recall, you know, the goal was a minimum of $150 million a year.
Speaker Change: and ending 24 to 3 times net leverage ratio. Now, you know, maybe the thought process changed a little bit, you know, with all of the terming out of the debt, but, you know, I just note, you note this today that you're probably on target to.
Speaker Change: do net debt reduction of about 112 million for 2024. So just wanted to get an update on those types of goals and numbers.
Speaker Change: Sure, so I think going forward that continues to be our goal, 150 to 175, maybe a little bit higher. This year that was our goal and we were on track for that, but there is the one time
fees that we took to restructure all of the debt.
Mark Suchinski: to pay for the new debt, and I think those were, Mark, what, $40 million to $50 million or so? That's right. So if you adjust for that, those fees, we're right on track with what our goals were, but our net debt increased because of that refinancing transaction.
Speaker Change: Okay, that makes sense. Thank you for that. And with, you know, with Trump and the election of Trump, we talked a lot about ICE.
Thank you.
coming new due to the Trump being re-elected.
Speaker Change: I think in the short term, all available secure capacity will go to ICE, even though there's interest by the Marshals Service, and maybe some will have to go because there's an interplay between ICE and the Marshals Service.
in the immigration.
Speaker Change: A long-term basis, I think, both the Marshals Service and we think the BOP will want their own additional capacity.
Speaker Change: The use of prior facilities in prior years, those facilities, they know well and they're strategically located so we could see a general expansion of our system as well as other contractors in this space.
Speaker Change: Some of our Marshalls facilities could have improved utilization even going into next year. We could see some incremental impact to our revenues just from those existing facilities.
Speaker Change: And then there may be some opportunities down the road as the BOP looks at greater use of re-entry and re-entry type programs. Most of our facilities are located on large parcels of land, and it may...
Speaker Change: require at some point expanding these existing facilities because it's in general very difficult to locate such facilities once you've located one and operated successfully over a period of time. It's much easier just to
add in addition to those facilities.
Okay, amen.
One more for me
Speaker Change: We talked briefly on this, the new RFI that's on the ISAC.
program that came out yesterday.
Speaker Change: And you guys mentioned you have the capacity to increase either the current or even up into the millions of people. I was wondering, you know, one, you know, I know it's tough to quantify, but I'm going to throw it out there anyway. What type of CapEx would be necessary to go up into the...
Speaker Change: into the millions of people and outside of yourself, is there anybody else that you see out there that could perform these services capably like you have done for so many decades?
Speaker Change: Well, there's a couple of questions in there. Let me start with the CapEx issue You know, we provide a variety of monitoring devices some are more CapEx intensive than others so it will depend on you know, which devices are used for which people the
made readily available quickly at a
Speaker Change: We currently have the exclusive contract to provide all services under the ISAP contract. You know, there may be other companies that are theoretically interested in providing some of those services, but
Speaker Change: We are in a unique position where, you know, we have a 20-year history and our footprint is coast-to-coast. We have a thousand individuals at over a hundred offices or locations around the country providing these services.
Speaker Change: Great. Thanks for that insight, George. Appreciate it. I'll get back in queue.
Speaker Change: The next question comes from Brendan McCarthy from Sidoti. Please go ahead.
Speaker Change: Hey everybody, thanks for taking my questions. I just wanted to start off with the ISAP contract. I know you mentioned you have the capacity to monitor several million participants.
Speaker Change: But if ICE were to receive a substantial increase in funding, what do you estimate the ISAP monthly or quarterly increase might look like? Or just in other words, what would that cadence kind of look like as it ramps up?
Speaker Change: Well at one point we were at 340,000 participants I believe so we're kind of just a little more than half of that.
Speaker Change: So, I would expect that any aggressive approach to the ISAF program would result in a higher level than 340,000 and by several hundreds of thousands. So, we're looking at it.
Speaker Change: potentially a doubling or tripling of the ISAP program subject to the availability of funding to be approved by Congress.
Got it.
Speaker Change: But the prior House Appropriations Bill required that everybody on the non-detained docket be under some form of electronic monitoring. And that involves
7 million people approximately.
Speaker Change: But we don't know how much funding will be made available towards reaching that goal.
Speaker Change: Based on the high likelihood of a Republican-controlled House and Senate, do you expect the Senate version of the Homeland Security bill to be materially different from the House version that was rolled out recently?
Yes, I do.
Speaker Change: If you're referring to the house version being about 50,000 beds, I think the new version of bills in the House and the Senate will be
Got it. Thank you. That's all four.
Speaker Change: And then one more question just on the ATD program as a whole.
Speaker Change: I think in the past you mentioned that the ISAP contract holds about a 90% market share of the ATD programs, but if there were to be a material ramp up, you know, to say millions of participants, how do you expect that or, you know, GEO's market share to ultimately trend if that were to happen?
Speaker Change: I think we would retain our market share. I don't think there would be any difference.
Speaker Change: exclusive provider under the ISAP program and as I said we have a broad footprint throughout the country, coast to coast. We have
Speaker Change: We have two monitoring centers, we have a manufacturing facility in Colorado, so we are a fully integrated company in being able to not only manufacture the devices, but also
Speaker Change: provide them and and oversee them through the back office services at a hundred different locations.
Speaker Change: It's unclear to us how the new administration might use those programs that were put in place or brought in place during the current administration.
Speaker Change: So those are relatively new programs and they had some different objectives and it's unclear to us how those might be used going forward. But as George said, we're the exclusive provider on the secure monitoring of individuals across the country.
Thank you.
Understood. Thanks, George. Thanks, Brian. That's all from me.
Speaker Change: Hi, thanks for taking my question. Just one for me. Between ICE, the Marshals, and some of the states, like with Prop 36 in California, you know, in light of the sort of the scale opportunity that might be ahead,
Speaker Change: It seems it might require you to grow some of your footprint capacity, so I'm just curious if that might shift your posture towards reducing leverage and capital return in light of what's out there.
Thank you.
Speaker Change: Well, I think we would be very careful and thoughtful as to, you know, what the long-term needs are before we expand our facilities. But we, you know, we would take another look at
Speaker Change: other facilities that we have for other clients. You know, we have...
Speaker Change: Approximately 85,000 beds across the country that are being used for different clients, federal, state, and local clients.
Speaker Change: So, we may have to take another look at, you know, who our clients are, whether we need to redirect those contracts towards these federal purposes.
Understood. Well, thank you.
Speaker Change: The next question comes from Greg Gibbous from Northland Securities. Please go ahead.
Greg Gibbous: Hey, good morning. Thanks for taking the questions. Um, you know, I wanted to ask if ice populations were to ramp meaningfully, you know, requiring additional facilities?
Greg Gibbous: that were idle to be turned on. You know, do you foresee any kind of challenges with staffing or any other challenges with kind of, you know, meeting that needed capacity or I guess costs associated? Just wondering if you could maybe speak to, you know, CapEx or one-time costs related to getting those facilities turned on again.
You know, there will be...
Speaker Change: start-up costs in two categories, one of probably some physical plant renovations that need to take place, and we've already done analysis on that, and then the other cost category would be on labor costs and recruitment of personnel, but these federal contracts generally require compliance with the Department of Labor regulations.
Speaker Change: calculation of what the market rates are for the areas. They're usually very attractive and we have really no difficulty in hiring for these federal facilities.
So are these.
The delay sometimes comes in the clearance process.
Speaker Change: That's required for participation in an ICE contract or a marshal's contract.
Speaker Change: Okay, sure. And, you know, wondering if you could speak to the potential opportunity with the Bureau of Prisons and, you know, I guess under the new administration and what, I guess, does it look like under Trump's first term?
Speaker Change: Well, you know, I think the prior Biden policy of prohibiting private sector providers to assist the Bureau of Prisons will be ended, as it was under the prior Trump administration.
and the rest of us. Bye. Bye. Bye. Bye. Bye.
Speaker Change: In the short term, I think all available bed space will be prioritized for ICE on a secondary basis with the U.S. Marshals Service.
And I'll stop there. Thank you.
Speaker Change: We are very familiar with the BOP and having been a provider for them for several decades You know on a longer-term basis, you know We we understand their needs in different geographic locations and we fully anticipate You know assisting them in in those long-term needs
Speaker Change: CAPEX requirements for operational operations and we foresee a consolidation opportunity for the BOP to consolidate into newer larger private sector facilities in the future.
Speaker Change: I see and I guess one follow-up there it does the priority for ice kind of just relate to you know in I guess more favorable contract terms
Can you repeat that question?
Speaker Change: You know, you say, you know, priority in terms of capacity will go to ICE over to BOP, you know, and the US Marshals. Does that just relate to, you know, more favorable contract terms with ICE?
Speaker Change: No, I think that's just following what the priorities of the Trump administration will be. They'll determine.
who gets the beds through the contracting process.
Speaker Change: Sure, sure. Got it. Just assuming that you kind of, you know, get to that 18,000 in available capacity, but okay. Thank you.
Speaker Change: The next question comes from Kirk Luedtke from Imperial Capital. Please go ahead.
Hello, everyone. Thank you for the call.
Speaker Change: Just a follow-up on this ICE question. You mentioned that the Trump administration may focus on deporting...
Speaker Change: criminal aliens. Do you have a guess as to how many criminal aliens are in the U.S.?
Well I read one article this morning and I thought...
Thank you.
Speaker Change: 20,000 approximately that are known murderers. You know, it really depends on how you define criminal alien. But I'm sure there's...
Speaker Change: different levels of criminality that you know that they'll focus on the more the most severe and highest level of
Speaker Change: security threat as they review you know the locations of these individuals and you know what threat level they represent.
And then I just
Speaker Change: Similar articles that George mentioned, and there was a disclosure from ICE itself.
Speaker Change: I think a month or so ago, where they mentioned that there were over 600,000...
Speaker Change: criminal aliens that would be subject to removal. And then also just as a reminder there's well over a million folks that are on the non-detained docket have who have already been adjudicated to be removed through the legal process or the court system.
Got it. Over a million people have...
skipped their last hearing and stayed.
along those lines, exactly.
Speaker Change: a lot of, you know, some dangerous people, uh, does that change the, the, the, the type
Do you need more secure beds, for instance, to accommodate?
Speaker Change: Well, I think it will require a kind of a triage of where you put these individuals. I think the higher security people will be an existing...
Speaker Change: secure facilities as you descend down into the lower levels, it could result in the need for some soft-sided facilities around the country.
Speaker Change: Okay, thank you. And I would guess the length of stay increases.
Speaker Change: Like you might, you know, someone who crosses the border, you might process them in a couple days as opposed to somebody who's being deported.
Speaker Change: I mean, you have to find a place to send them, right? Don't you need to negotiate a...
some country to take them.
Yes, it will take, as I've...
Speaker Change: been told recently, you know, several weeks if not a few months, you know, to detain these people and make final arrangements for their removal.
Speaker Change: Makes sense. Got it. Thank you. Um, so it sounds like Biden's executive order.
will likely be reversed, maybe day one.
Is that a mini-pool?
Speaker Change: He had a number of executive orders that overturned Trump's executive orders.
Speaker Change: We kind of get the sense of President-Elect Trump's remarks that he will reverse all of the Biden administration.
executive orders on day one.
Quite a while for those contracts
Speaker Change: Those direct contracts to come due and and so would it be just that in reverse it would take
It would take a while for...
Speaker Change: The reversal to take effect, or do you think there's immediate opportunities?
Speaker Change: It's immediate, but there will be a scramble for the available beds, but I think the administration will decide who gets the beds, and we believe ICE will have top priority on all available beds around the country.
Speaker Change: Got it. OK, thank you. And then you mentioned this, and I'm sorry if I missed it, but did you say how long you expect the existing ISEP contract to remain in place? I know it expires maybe in May, but.
Speaker Change: It can't possibly, I mean it would seem like that will be extended and I'm curious how long you think.
Speaker Change: Well, it shows through the end of July of next year.
Speaker Change: But it can be extended for a minimum of six months and possibly up to 18 months and even longer if it's determined that there's an emergency situation requiring that the continued extension of the contract.
Got it. Maybe, maybe asked differently.
Is it still realistic to think that there'll be something...
Speaker Change: to replace it when it expires in July, or is it likely to be extended?
Well, yeah.
take some time for them to
Think it through and articulate it and
and the governmental staff put it into an RFP.
We're thinking that the May...
RFP
They may be overly ambitious.
Speaker Change: and is certainly subject to different ideas by the new incoming Trump administration.
Speaker Change: as they further define how that program should work and who should be monitored under that program using the variety of electronic monitoring devices that are available to them.
Got it. That's very helpful. I appreciate it. Thank you.
Speaker Change: This concludes our question and answer session. I would like to turn the conference over to George Zoley from
George Zoley: Well, thank you very much for joining us today and we look forward to addressing you at our next meeting.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.