The GEO Group Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 27, 2025

There are 12 speakers on the call.

Operator

Good day, and welcome to the GEO Group Fourth Quarter twenty twenty four Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions.

Operator

Please note this event is being recorded. I would now like to turn the conference over to Pablo Paez, Executive Vice President of Corporate Relations. Please go ahead.

Speaker 1

Thank you, operator. Good morning, everyone, and thank you for joining us for today's discussion of the GEO Group's fourth quarter and full year twenty twenty four earnings results. With us today are George Zoley, Executive Chairman of the Board David Donahue, Chief Executive Officer Wayne Calabrese, President and Chief Operating Officer and Mark Cichinski, Chief Financial Officer. This morning, we will discuss our fourth quarter and full year results as well as our outlook. We will conclude the call with a question and answer session.

Speaker 1

This conference call is also being webcast live or on investor website at investors.geogroup.com. Today, we will discuss non GAAP basis information. A reconciliation from non GAAP basis information to GAAP basis results is included in the press release and the supplemental disclosure we issued this morning. Additionally, much of the information we will discuss today, including the answers we give in response to your questions, may include forward looking statements regarding our beliefs and current expectations with respect to various matters. These forward looking statements are intended to fall within the safe harbor provisions of the securities laws.

Speaker 1

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 eight K reports. With that, please allow me to turn this call over to our Executive Chairman, George Ollie. George?

Speaker 2

Thank you, Pablo, and good morning to everyone. Thank you for joining us on our fourth quarter twenty twenty four earnings call, and I apologize for my hoarse voice this morning. I would like to welcome our new CEO, Dave Donahue, who is joining our call today along with our President and COO, Wayne Calvarys and our CFO, Mark Zuginski. Dave has forty two years of operational experience in our industry, having previously served for ten years as DEO's Senior Vice President for Secure Services after a distinguished career with the Federal Bureau of Prisons and the Department of Corrections in the states of Kentucky and Indiana. We are pleased to have Dave join our senior management team as we embark on what we expect to be an unprecedented level of operational activity.

Speaker 2

During today's call, we will review our fourth quarter and full year '20 '20 '4 financial results and operational highlights for our business segments. We will also discuss our initial financial guidance for '25, which is consistent with our long standing practice and does not include any new contract awards that have not been previously announced. And we will provide an update on the latest developments across our diversified business segments, including the opportunities to expand our services for ICE and the federal government. Our financial performance during the fourth quarter of twenty twenty four reflects higher overhead expenses and which were partially the result of previously announced reorganization of our management team and additional professional fees we incurred in anticipation of what we expect to be an unprecedented future growth projects and related operational activity during 'twenty five. Our top line revenue for the fourth quarter of 'twenty four increased from our 'twenty four third quarter results in line with our guidance.

Speaker 2

However, our earnings and adjusted EBITDA were below our previous expectations due to higher overhead expenses. In 2024, we already incurred approximately $9,000,000 of the $70,000,000 investment we announced in December to strengthen our capabilities to deliver expanded detention capacity, secured transportation and electronic monitoring services to ICE. In 2025, we expect to invest an incremental $38,000,000 to renovate existing facilities, dollars 16,000,000 to ramp up production of additional GPS tracking devices during in the ISAAP program and $7,000,000 to expand our secure transportation fleet. We believe these investments will prepare us to be able to provide approximately 17,000 incremental detention beds to ICE and the federal government and greatly increased our capacity to monitor undocumented aliens who are currently on the so called non detained docket and increased our secured transportation capabilities. The additional 17,000 beds would increase the total available capacity for ice detention requirements at Geo related services from approximately 15,000 beds today to 32,000.

Speaker 2

The current population is approximately 15,000, which represents an increase of 1,000 beds utilized by ICE ISAT Geo service facilities since our last earnings call. The incremental 17,000 beds includes approximately 9,400 beds in our current idle facilities that will be reconfigured for detention use and approximately 7,700 incremental beds available at existing GEO serviced ICE and Marshalls facilities under contract. We expect the utilization of these additional 17,000 beds could generate between $500,000,000 and $600,000,000 in incremental annualized revenues with margins consistent with our Secure Services owned facilities, which average 25% to 30%. These additional 17,000 beds include our company owned 1,000 bed Delaney Hall facility in Newark, New Jersey. We announced this morning we have been awarded a fifteen year fixed price contract by ICE to provide support services for the establishment of a federal immigration processing center at Delaney Hall.

Speaker 2

GEO support services include the exclusive use of the facility by ICE along with security maintenance, food services, access to recreational amenities, medical care and legal counsel. These new support services contract is expected to generate in excess of $60,000,000 in annualized revenues in the first full year of operations, With margins consistent with our company owned secured services facilities, we estimate the fifteen year value of the contract with normal cost of living adjustments to be approximately $1,000,000,000 We expect to reactivate the facility in the second quarter of twenty twenty five with revenues and earnings from the new contract normalizing during the second half of twenty twenty five. We are in active discussions with ICE and the Marshals Service regarding their interest in GEO's remaining six idle facilities. Additionally, we have two state correctional facilities totaling more than 3,000 combined debts, which could be repurposed for the use by the federal government. However, we are currently pursuing the potential sale of one or both of these facilities with the objective of generating up to $550,000,000 in proceeds that could be used to reduce debt and or otherwise enhance shareholder value.

Speaker 2

Based on the latest public data, ICE is currently utilizing over 41,000 detention beds nationwide, which is largely consistent with the current level of funding of 41,500 detention beds under the continued resolution, which is set to expire March 14. Before the recent passage of the Lake and Riley Act, the Trump administration had indicated a need to ramp up to 100,000 total ISV detention beds for increased interior enforcement operations. Based on public statements from ISB, implementation of the Lincoln Riley Act could require an additional 60,000 detention beds or more. We believe that an increase of between 260,000 beds will require a large range of solutions. The administration has taken steps to house some migrants with serious criminal backgrounds in Guantanamo Bay, and there's been some discussions about utilizing facilities in foreign countries for similar purposes.

Speaker 2

However, we believe that the detention and processing of migrants as a result of increased interior enforcement will require additional facilities to be activated in The United States. We have a forty year record of providing special purpose facilities that meet the unique operational needs and requirements set by ICE at cost savings to taxpayers when compared to publicly operated facilities and to alternative solutions like soft sided facilities and we are preparing to extend and build upon that strong and successful record of public private partnership. We are also making significant investment in our electronic monitoring and supervision services segment to ramp up the production of GPS tracking devices for use under the federal government's Intensive Supervision Appearance Program or ISAAP. ISAAP participant counts averaged between 130,000 to 183,000 during the fourth quarter of twenty twenty four and are currently standing approximately 186,000. A little over two years ago, the ISAAP contract utilization peaked at approximately 370,000, almost twice the number of the participants currently in the program.

Speaker 2

Returning to that utilization level would generate an incremental income of revenues of $250,000,000 and even more if the contract exceeds the prior peak of utilization. We have a long track record of delivering quality services under ISAP with bipartisan support for approximately twenty years. These services entail diversified electronic monitoring technologies as well as compliance management services, which are delivered through a nationwide network of approximately 100 offices and close to 1,000 employees. Over our twenty year tenure, ISAP has achieved high compliance rates with our immigration court requirements while monitoring what amounts to a relatively small portion of the undocumented aliens who are on the non detained docket. The non detained docket is made up of persons who have entered the country without proper authorization, who have been processed by federal immigration officers and who have been released into the interior of the company pending their appearance before an immigration court.

Speaker 2

There are currently an estimated 7,000,000 to 8,000,000 undocumented aliens on the non detained docket in addition to another 9,500,000 to 10,000,000 people who are estimated to be in The United States without legal status. Given the size of this population, our view is that in addition to increased detention capacity, the requirements of the federal immigration law in the Lake and Riley Act will require significant ramp up in the electronic monitoring to ensure proper trafficking of persons on the non detained docket and their compliance with the requirements of their immigration core proceedings. At this time, we have not received any update from ICE regarding the timing of a procurement or a rebid of the ICEP contract, and we believe the agency's focus has shifted to increasing the size of the population that is currently monitored under ICEP. With the investment commitment we have made and the technical and personnel enhancements we have already completed, we believe we have the necessary resources to scale up the current utilization of the upward to several millions of participants as required. We are investing in the expansion of our secure services transportation fleet as well.

Speaker 2

We expect an increase in the number of removal flights, which could generate an increase incremental of 40,000,000 to $50,000,000 in annualized revenues under our existing ICE Air Sports Services subcontract. While our initial guidance for 2025 is based on our current business baseline and does not reflect the impact of any new contract awards that have not been previously announced, we expect the upside potential from all these opportunities could represent as much as $800,000,000 to $1,000,000,000 in incremental annualized revenues. Based on the average margins for our respective segments, we expect that the opportunities could add as much as $250,000,000 to 300,000,000 in incremental annualized adjusted EBITDA. We expect interior enforcement by ICE to continue to ramp up throughout the year contingent upon funding availability. We believe under the Trump administration, ICE began with a significant funding deficit.

Speaker 2

While we understand that DHS has recently reprogrammed approximately four eighty five million dollars in funding to shore up this deficit, the continued ramp up in enforcement and detention activities is likely contingent on additional funding being appropriated by Congress or reprogrammed by DHS. Currently, the U. S. Senate and the U. S.

Speaker 2

House of Representatives are moving forward on two separate tracks under the budget reconciliation process, either of which could provide additional funding for border security of between $175,000,000,000 and $200,000,000,000 over several years. Depending on which track the Senate and the House agree on, it may take several months for the budget reconciliation process to be completed. Based on our understanding of the current status of the budget discussions, we expect additional new contract awards to continue to be announced in the near term and into the second quarter twenty twenty five with likely activation of additional new facilities in the second half of twenty twenty five. Once the contract has been awarded, our typical facility activation period is sixty to ninety days to hire, train and clear staff and get the facility ready for occupancy followed by a gradual ramp up in utilization. Finally, despite the increase in our capital requirements, we have continued to make significant progress in our efforts to reduce debt, deleverage our balance sheet and evaluate potential capital returns in the future.

Speaker 2

We ended 2024 with approximately $1,700,000,000 in total net debt. Based on our initial guidance for 2025, we would expect to reduce net debt by an additional $150,000,000 to $175,000,000 this year before any asset sales or further upside to our guidance, bringing the total net debt to approximately $1,500,000,000 and a total net leverage of approximately 3.2 times adjusted EBITDA. I will now turn the call over to our CFO, Mark Suchinski.

Speaker 3

Thank you, George, and good morning, everyone. For the fourth quarter of twenty twenty four, we reported net income attributable to GEO of approximately $15,500,000 or $0.11 per diluted share on quarterly revenues of approximately $6.00 $8,000,000 This compares to net income attributable to GEO of approximately $25,000,000 or $0.17 per diluted share in the fourth quarter of twenty twenty three on revenues of approximately $6.00 $8,000,000 Fourth quarter 20 20 4 results reflect higher G and A overhead expenses in part due to the recent reorganization of our senior management team and additional associated professional fees incurred during the quarter. Fourth quarter twenty twenty four results also reflect pre tax costs associated with the extinguishment of debt of approximately $1,300,000 and approximately $2,100,000 in pre tax employee restructuring expenses. Excluding these unusual items, we reported fourth quarter twenty twenty four adjusted net income of approximately $18,000,000 or $0.13 per diluted share compared to the results of the fourth quarter of twenty twenty three when we reported adjusted net income of roughly $37,000,000 or $0.29 per diluted share. We also reported fourth quarter twenty twenty four adjusted EBITDA of approximately $108,000,000 compared to approximately $129,000,000 for the prior year's fourth quarter.

Speaker 3

Beginning with revenues, quarterly revenues in our owned and leased secure service facilities increased by approximately 3% year over year. This revenue increase was offset by lower quarterly revenue from our Electronic Monitoring and Supervision Services segment, which declined by approximately 10% compared to the prior year's fourth quarter. Quarterly revenue for our reentry centers, managed only and non residential service contracts were largely unchanged compared to the prior year fourth quarter. Turning to expenses. During the fourth quarter of twenty twenty four, our operating expenses increased by approximately 1% compared to the prior year's fourth quarter.

Speaker 3

Our operating expenses for the fourth quarter of twenty twenty four reflect higher labor costs in our Secure Services segment of approximately $10,000,000 in part due to revenue increases tied to contractual cost of living adjustments and in part due to additional staffing and training costs we incurred during the fourth quarter of twenty twenty four in preparation for expected future growth. And our general and administrative expenses for the fourth quarter of twenty twenty four increased by approximately 18% from the prior year's fourth quarter in part due to recent reorganization of our senior management team and additional associated professional fees, which we incurred during the fourth quarter of twenty twenty four in preparation for expected future growth. While our fourth quarter twenty twenty four revenues were in line with our guidance, our quarterly earnings and adjusted EBITDA were below our previous expectations as a result of the higher G and A expenses I just explained. Our fourth quarter twenty twenty four results reflect a year over year decrease in net interest expense of approximately $7,000,000 as a result of our debt reduction and refinancing efforts over the past twelve months. Our effective tax rate for the fourth quarter of twenty twenty four was approximately 40%.

Speaker 3

For the full year 2024, we reported net income attributable to GEO of approximately $32,000,000 on annual revenues of approximately $2,420,000,000 Our full year 2024 results reflect approximately $86,600,000 in pre tax costs associated with the extinguishment of debt in relation to our refinancing transactions. Excluding the debt extinguishment costs and other unusual items, we reported full year 2024 adjusted net income of approximately $101,000,000 or $0.75 per diluted share. We reported full year 2024 adjusted EBITDA of approximately $463,500,000 Now let's move to our initial financial guidance for 2025. Consistent with our long standing practice, our initial guidance does not include the impact of any new contract awards that have not been previously announced. Therefore, our initial guidance for 2025 reflects only the baseline of our current business.

Speaker 3

For the full year 2025, we expect net income attributable to GEO to be in a range of $0.74 to $0.88 per diluted share on revenues of approximately $2,500,000,000 and based on an effective tax rate of approximately 28% inclusive of known discrete items. We expect our full year 2025 adjusted EBITDA to be between $460,000,000 and $485,000,000 While our guidance does not include any assumption for new contract awards that have not been previously announced, as Jared mentioned, we anticipate several opportunities could materialize during the year, which we believe would provide significant upside to our current forecast. On a combined basis, we believe that these opportunities could generate as much as $800,000,000 to $1,000,000,000 in incremental annualized revenues and as much as $250,000,000 to $300,000,000 in incremental annualized adjusted EBITDA. As we progress throughout the year and the likelihood and timing of these opportunities become clearer, we will adjust our 2025 guidance accordingly. As contract awards are announced and we begin to reactivate idle facilities, we would expect to incur startup expenses during the initial sixty to ninety day activation period.

Speaker 3

Startup expenses for any facility activations not previously announced are also not currently included in our guidance. We expect total capital expenditures for full year 2025 to be between $125,000,000 and $145,000,000 including the impact of the $70,000,000 investment we announced in December to expand our ICE services capability. This incremental $70,000,000 investment is comprised of the following: $47,000,000 to renovate existing secured service facilities, dollars 9,000,000 of which was spent in 2024 with the remaining $38,000,000 expected to be spent over the first three quarters of twenty twenty five, '16 million dollars to be spent evenly throughout 2025 to ramp up production of additional GPS tracking devices and $7,000,000 to be spent primarily in the first half of twenty twenty five to expand our secured transportation fleet. Now let's move to our capital structure. We ended the fourth quarter of twenty twenty four with total net debt of approximately $1,700,000,000 We closed the year with approximately $77,000,000 in cash on hand and approximately $214,000,000 in total available liquidity.

Speaker 3

As of the end of the fourth quarter of twenty twenty four, fixed rate debt represents approximately 75% of our total indebtedness, which meaningfully insulates GEO for potential interest rate volatility. As we have previously noted, we have no substantial debt maturities due before April of twenty twenty nine. We continue to give our company a significant runway to grow our business and focus on reducing our debt. Based on the initial guidance for 2025, we expect to reduce our net debt by between $150,000,000 and $175,000,000 this year, bringing our total net debt to approximately $1,550,000,000 by the end of the year. Our debt reduction could also be augmented with proceeds from the potential sale of some of our state correctional facility assets and or from the potential upside to our guidance.

Speaker 3

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. At this time, I will turn the call over to our CEO, Dave Donahue, for a review of our GeoSecure Services business unit. Dave?

Speaker 4

Thanks, Mark, and good morning, everybody. It's my pleasure to have returned to the GEO Group to join George and the rest of our management team at an unprecedented time in our company's history. We believe the scale of the opportunity before our company is unlike any we've previously experienced and will therefore require a significant operational undertaking. My focus as the new CEO of the GEO Group will be to work with our management team and our board to ensure that we have the

Speaker 5

necessary resources to operationalize the growth opportunities we

Speaker 4

are resources to operationalize the growth opportunities we are pursuing and to support our employees as they help us achieve operational excellence across all of our service lines. Moving to our annual milestones for GeoSecure Services. During 2024, we renewed 13 secondure During 2024, we renewed 13 secondure service contracts, including nine contracts at the federal level with Immigration Customs Enforcement and the U. S. Marshals Service.

Speaker 4

During the year, our Secure Services facilities successfully underwent a total of 197 audits, including internal audits, government reviews, third party accreditations and Prison Rape Elimination Act or PREA certifications. 11 of our Secure Services facilities received accreditation from the American Correctional Association with an average score of 99.1% and another four facilities received PREA certifications. Our GTI Transportation division and our GeoAAMI UK joint venture completed approximately 18,500,000 miles driven in The United States and The UK during the year. Moving to the current trends for our government agency partners. During the fourth quarter of twenty twenty four, utilization at our U.

Speaker 4

S. Marshals Detention Facilities was largely consistent with utilization during the fourth quarter '1 year ago. Our U. S. Marshals Facilities support the agency as it carries out its mission of providing secure custodial services for pretrial detainees facing federal criminal proceedings.

Speaker 4

Our U. S. Marshals facilities provide needed bed space near federal courthouses where there is generally a lack of suitable alternative detention capacity. In the first weeks of the administration, President Trump issued an executive order reversing the prior administration's executive order that had directed the U. S.

Speaker 4

Attorney General to not renew U. S. Department of Justice contracts with privately contracted criminal detention facilities. We've enjoyed a long standing public private partnership with the U. S.

Speaker 4

Marshals Service and the Federal Bureau of Prisons, which are both agencies under the U. S. Department of Justice, and we stand ready to continue to support their capacity and secure residential care services needs going into the future. Moving to our contracted ICE processing centers, utilization across our facilities is currently at approximately 15,000 beds. This census level represents an increase of 1,000 beds in the last three months and marks the highest utilization rate for our contracted ICE facilities in approximately five years.

Speaker 4

GEO has a long standing track record of delivering professional support services on behalf of ICE at GEO contracted federal immigration processing centers, and we stand ready to support ICE with any additional needs. GEO contracted ICE processing centers offer around the clock access to quality healthcare services. Our healthcare staffing at the ICE processing centers where we provide resident healthcare is generally more than double the number of healthcare staff in a typical state correctional facility. GEO contracted ICE processing centers offer full access to legal counsel, legal libraries and resources, and we have dedicated space at each ICE center to provide residents with confidential meeting rooms with their legal counsel. GEO contracted ice processing centers provide residents with three daily meals that are culturally sensitive, special diet appropriate and approved by registered dietitians.

Speaker 4

We also provide access to faith based and religious opportunities at each GEO contracted ice processing center. And we partner with community volunteers as needed to ensure fair representation of various faiths and denominations. GEO contracted ice processing centers also offer access to enhanced amenities, including artificial turf soccer fields, covered pavilions, exercise equipment and multipurpose rooms. During the fourth quarter of twenty twenty four, we renewed several important contracts for our company owned and contracted ice processing centers. Contracts for our nineteen forty bed Adelanto ice processing center, the 400 bed Mesa Verde ice processing center, the seven fifty bed Desert View Annex and the 700 bed Golden State Annex were renewed for five year terms through December of twenty twenty nine.

Speaker 4

Additionally, in January of twenty twenty five, the United States District Court for the Central District of California lifted the long standing intake restrictions at the Adelanto ICE Processing Center, which dated back to the early days of the COVID pandemic. We are proud of our approximately three fifty 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. As we announced this morning, we've been awarded a fifteen year fixed price contract by ICE for our company owned 1,000 bed Delaney Hall facility in Newark, New Jersey with a total value of approximately $1,000,000,000 over the fifteen year contract period. Moving to our ancillary support services, we currently provide secure ground transportation for ICE, primarily at 12 of the GEO contracted ICE processing centers. Our GTI Transport division also provides secure air operations support for ICE as a subcontractor under a five year prime contract held by CSI Aviation.

Speaker 4

We have a long standing 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. I could not be more excited to rejoin the GEO Group as its new CEO and to assist George and the entire GEO team as we prepare to fully meet the challenges of the unprecedented opportunities that lie ahead. At this time, I'll turn the call over to Wayne Calabrese for a review of our Geocare business unit. Wayne?

Speaker 6

Thank you, Dave. I'm pleased to provide an overview of the key operational milestones for this past year for Geocare division. In 2024, we renewed 31 residential reentry center contracts, including 15 contracts with the Federal Bureau of Prisons. Additionally, we renewed 44 non residential day reporting center contracts. During the year, our residential reentry centers, non residential day reporting centers and ISAP offices successfully underwent a combined total of three eleven audits, including internal audits, government reviews, third party accreditations and Prison Rape Elimination Act or PREA certifications.

Speaker 6

Eight of our residential reentry centers received accreditation in the last year from the American Association with an average accreditation score of one hundred percent and thirteen of our residential reentry centers received Prius certifications. Our 35 residential reentry centers, including 14 centers under contract with the Federal Bureau of Prisons, provide transitional housing and rehabilitation programs for individuals reentering their communities across 14 states. Average daily census levels at these centers remain stable at approximately 5,000 individuals during the fourth quarter of twenty twenty four. Our non residential and day reporting centers provide high quality community based services, including cognitive behavioral treatment for up to 9,200 parolees and probationers at approximately 98 locations across 10 different states. We expect that the implementation of the First Step Act, which was enacted under President Trump's first term, will be an area of focus for the Federal Bureau of Prisons under his second term, and we stand ready to help the agency expand the delivery of residential and non residential reentry programs that have been proven to reduce recidivism and to improve the lives of those who have taken that first step back into our nation's communities.

Speaker 6

Moving to our enhanced rehabilitation programs, we currently deliver in custody rehabilitation to an average daily population of approximately 2,700 individuals at 38 in prison program sites located in seven different states and engage over 36,000 program participants at 11 GEO Continuum of Care sites in seven states. Our in custody rehabilitation services include academic programs focused on the attainment of high school equivalency diplomas. We've made a significant investment to equip all of our classrooms with smart boards to aid in the delivery of academic instruction. We've also focused on developing vocational programs that lead to certification for good jobs in the markets where our graduates will live upon release. 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.

Speaker 6

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 important programs. During 2024, we completed approximately six point eight million hours of enhanced in custody rehabilitation programming. Our academic programs awarded more than 3,000 high school equivalency diplomas. Our vocational courses awarded close to 9,700 vocational training certifications. And our substance abuse treatment programs awarded approximately 9,300 program completions.

Speaker 6

Those in our care achieved approximately 60,000 behavioral treatment program completions and more than 43,000 individual cognitive behavioral treatment sessions during the past year. We also allocated approximately $1,500,000 toward post release services last year. This funding supported more than 3,300 individuals released from GEO service facilities as they return to their communities. Our GEO Continuum of Care program integrates enhanced in custody rehabilitation, including cognitive behavioral treatment with post release support services that address the critical community needs of released individuals. We believe our award winning 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.

Speaker 6

Our GEO Continuum of Care has had a positive impact in the reduction of criminal recidivism rates with our programs achieving a reduction of between forty two percent and forty seven percent in recidivism over three and five year periods when compared to the national average. Finally, turning to our Electronic Monitoring and Supervision Services segment, our BI subsidiary provides a full suite of monitoring and supervision solutions, products and technologies. In the fourth quarter of twenty twenty four, participant counts under the ICE Intensive Supervision Appearance Program or ISAP averaged approximately 183,000 and the current ISAP participant count is approximately 186,000. BI has provided technology solutions, holistic case management, supervision, monitoring and compliance services under the ISAAP contract for nearly twenty years, winning every competitive rebid of the contract since ISAP was first established. 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 6

As previously noted, we believe that in addition to increased detention capacity, a ramp up in electronic detained docket or who are otherwise in The United States without legal status. At this time, we've not received any update from ICE regarding the timing of a procurement for the rebid of the ISAAP contract. We believe the agency focus has shifted to increasing the size of the population that is currently being monitored under ISAT. We are making a significant investment toward the increased production of GPS tracking devices to be in a position to scale up the federal government's current utilization of the ISAT program by several hundreds of thousands and upward to several millions of participants if necessary. At this time, I'd like to turn the call back to George for closing remarks.

Speaker 2

Thank you, Wayne, and we wish you the best as you transition from a full time employee to consultant effective April 1. Your unique talents will be missed by all, but we look forward to your continued involvement on a consulting basis. We believe our company faces an unprecedented opportunity at this time to play a role in supporting President Trump's new administration policies. We've taken several important steps to be prepared to meet that opportunity. We've made significant investments commitments of $70,000,000 and possibly more to strengthen our capabilities to deliver expanded detention capacity, secure transportation and electronic monitoring services to ICE and the federal government.

Speaker 2

We have also completed a reorganization of our senior management team to oversee the operation execution of this expected future growth. GEO is the largest single contractor to ICE with four decades of partnership and currently provides for approximately 40% of the detention beds for ICE. We believe we are well positioned to scale up our secure residential care housing from the 15,000 beds to over 32,000. In NGO's 100 management of the ISAP program, we believe we can scale up from the present 186,000 participants to several hundreds of thousands or millions of participants if called upon. GEO's contractual relationship with CSI Aviation has allowed us to become the largest provider of secure transportation services for ICE.

Speaker 2

During 2024, we assisted in the transport and relocation travel of 160,000 persons. We believe we can scale up materially for domestic and international travel for up to 500,000 individuals or more if called upon. This is a unique moment in our company's history and we believe we are well positioned to scale up our diversified segments in secure housing, transportation, electronic monitoring to meet the changing needs of this new administration and to unprecedented volume of new business opportunities confronting GEO, I am inclined to stay beyond the end of my present employment agreement that expires 07/01/2026 and have so notified the Board. I will offer the continuation of my services to the Board under a new mutually agreeable employment agreement. That completes our remarks and we would be glad to take any questions.

Speaker 2

Thank you.

Operator

We will now begin the question and answer session. The first question today comes from Jason Weaver with Jones Trading. Please go ahead.

Speaker 7

Hey, good morning guys. This is Matthew Ordner on for Jason today. Thanks for taking the question. I kind of want to touch on the monitoring and the impact of the Lake and Riley Act. What all does that include in terms of monitoring there, the role it's going to take?

Speaker 7

And then kind of looking forward to the new contract, are you guys assuming any changes in the economics there?

Speaker 2

I think our reading of the act is that those individuals need to be placed in detention and if there isn't capacity for that, they need to be continued in the iSTAP monitoring program indefinitely.

Speaker 7

That's helpful there. And then turning to the subsidiary BI Inc, are you guys prioritizing ankle or wrist monitors over the SmartLink app? And have you guys experienced any supply chain issues there as you guys have been expanding the footprint?

Speaker 2

I think there's going to be a preference in the beginning for the ankle monitors, and which represents the high security level of monitoring, which people can progress or degrad into medium level security and low level security depending with different devices contributing to the monitoring.

Speaker 7

Got it. And then the recent report that sorry about that,

Speaker 2

go ahead. Second part, no, we haven't really identified any supply chain difficulties. We are ramping up our inventory of ankle monitors at our Boulder, Colorado facility.

Speaker 7

Okay. That's helpful there. And then the recent report that came out of the current administration about migrants being forced to register, do you think that that has an outsized demand on a potential increase for monitoring? And then as a follow-up to that kind of the guidance for $800,000,000 to an incremental $1,000,000,000 in revenue there, what percentage of that is the monitoring segment?

Speaker 3

Yes. So let me jump in on the $850,000,000 to $1,000,000,000

Speaker 2

above $250,000,000 That's correct. About $250,000,000 But that's based on a participant count of approximately 450,000. So if it goes beyond that, which we think it will sometime next year, it will be more.

Speaker 7

Got it. That's helpful. Thank you guys.

Operator

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

Speaker 8

Hey, good morning. Thanks for taking my questions. So just wanted to clarify that. So you're saying of the $800,000,000

Speaker 3

to $850,000,000

Speaker 8

to $1,000,000,000 in incremental revenue, roughly $250,000,000 of that is going to come from ATD with a participant count of $450,000 Did I get all that correctly?

Speaker 2

Yes. So just a point

Speaker 3

of clarification, what we've said is, if we look back to two years ago, we had participant counts of approximately 370,000 If we would grow our current participant counts to $370,000 that would generate an incremental $250,000,000 of incremental revenue. And as George just described, if the counts go higher than our previous highs, then we're looking at opportunities for that to surpass $250,000,000

Speaker 8

Okay, great. Thank you for clarifying that. And then the if I think about the $16,000,000 that you're spending, I guess $450,000 I guess is what you think you could monitor with the current that you have. I guess how much more does that $16,000,000 take you to $550,000,000 6 50 million dollars What should we think about the outcome of that spend is going to be?

Speaker 3

Well, the $16,000,000 that we're investing as George described, what we're doing is we're investing in building additional inventory of GPS devices to monitor in preparation of monitoring higher counts. And a lot of that has to do with ankle monitoring. We're vertically integrated there. We've designed the ankle monitor. We purchase it and we manufacture in our facility.

Speaker 3

So what we've done and that started in the fourth quarter, we've started to build the inventory and procure additional materials in anticipation of that. And that $16,000,000 that we mentioned as part of our $70,000,000 investment plan is to get ahead and start building larger quantities of inventory in support of expected higher GPS monitoring that will be required under the ISAF contract.

Speaker 2

And there are three security levels in that we propose now in this program. The highest is high security, followed by medium security and then low security. We don't know exactly how those three buckets will be filled by the new administration as they review their congressional directives and responsibilities balanced by the funding to achieve those contractual responsibilities. So, we haven't done an inventory for all $450,000 not yet. We're building a big initial inventory because heist is kind of it's a big organization and it's trying to realign itself to these huge new law enforcement responsibilities that it hasn't had for four years under the previous administration.

Speaker 2

So people are just coming back to the office, they're starting to regroup, thinking through how are they going to achieve these new objectives, these new congressional directives and responsibilities. As we talked earlier, the Senate version of the budget is providing $170,000,000,000 quite a bit of money. And the House version, I think, is approximately $100,000,000,000 So as those two bills that are competing between the House and the Senate merge, it could be a number somewhere in between those two. But it's a big leap and it can't happen overnight. People have to be assigned within the ICE organization to identify the possible participants in the ISAT program.

Speaker 2

We would need contract adjustments to to pay for the additional costs, which we will be reimbursed. But all of that is in kind of a fluid situation, which is picking up pace, if I may say. We've gone from conceptual proposals by major service providers like ourselves and CoreCivic to now substantive pricing and operational discussions as to who's going to go into this particular facility, how much is it going to cost. But there is interest in every one of our idle facilities by either ICE or the Marshals Service. And I would think that CoreCivic's idle facilities would get the same level of attention.

Speaker 2

But the procurement process is moving at a speed that's unprecedented. We've never seen anything like this before.

Speaker 8

That's good to hear. I mean, I guess to follow on that point, have you all been surprised at how slowly the ISAT numbers have moved up since the administration new administration took over?

Speaker 2

Well, I think there's probably a couple of answers to that, one of which is the focus on detention and the identification of alternative detention venues like Guantanamo, which seems to have some difficulties. But the focus, I think, will return back to the historical service providers like ourselves, like CoreCivic, utilizing their idle bed capacity that can be stood up within sixty or ninety days. That's the fastest approach to increasing detention capacity. I don't think anything else comes close to that. It's probably double the time.

Speaker 2

And I think we're very cost competitive with any kind of alternative service.

Speaker 8

And I guess if you think about the different opportunities you have for revenue growth, you called out a little bit on the halfway homes with the first step program. Are you thinking that you're going to get growth faster through some of those or is it mostly going to be focused on increasing bed count and increasing monitoring this year? Is that where you feel like most of the upside is going to come?

Speaker 2

As we know it and see it today, but we believe that the Department of Justice under the administration of Pam Bondi is very much interested in increasing the number of reentry bed capacity around the country and is interested in improving the rehabilitation programming at those facilities. So, we think there will be a lot of activity in the reentry program. We are the largest provider in that space. But a final candidate has not been proposed for the Bureau of Prisons as yet. So they're still reviewing potential candidates.

Speaker 8

Understood. And then just one more question back to monitoring for a sec. If you did start to see a rapid increase in people going through monitoring, what do you think the upside cases in terms of how many people you could monitor with your current infrastructure? Have you tried to stress that what the upper bound looks like?

Speaker 2

Well, we know we can do several hundreds of thousands and we are trying to position ourselves for millions and that will be permitted by contracting with other technical service providers that can help us reach those goals.

Speaker 8

Okay, great. Thank you for taking my questions.

Speaker 6

Thank you.

Operator

The next question comes from Greg Givis with Northland Security. Please go ahead.

Speaker 5

Hey, thanks for taking the questions. Wanted to ask what your expectations are for ICE's use of the Adelanto facility now that that court order limiting utilization before was lifted?

Speaker 2

Well, the court order is in two parts. I think under the first ruling, we have the authorization to utilize, I think, four sixty or 70 beds, something like that. And there's a hearing next month, the middle of next month that will presumably authorize the complete utilization of the facility under the new COVID standards. So that's almost a 2,000 bed facility. It's the largest facility on the West Coast.

Speaker 2

Our Delaney Hall facility will be the largest facility on the East Coast for

Speaker 5

ICE. Got it. That's helpful. And I guess as it relates to Delaney Hall, what level of startup costs will be associated with it? And how should we maybe think about the OpEx versus CapEx split?

Speaker 5

And maybe regarding just future facility ramp up costs, like is there a rough per bed expense we can expect to maybe estimate for future facilities that you reactivate?

Speaker 2

Well, the Delaney Hall, it may be an exception because we will receive partial payment during our sixty day startup process. But the other facilities will require the employment, including Delaney, of about 3,000 people. So, you got to pay for at least their training time, which is about four weeks. So, that's going to be several millions of dollars. We haven't put that in our budget yet because we really don't know the timing of it.

Speaker 2

We haven't put the revenue in the budget because the contracts are not signed yet. We haven't put the startup costs because we don't know the timing of those startup costs. But I think here we are at the end of the first quarter. I think we're anticipating a very fast ramp up for procurement activity where I think there'll be several contract awards very possibly next month by the end of the first quarter. But if that slips a little bit because of the funding competition between the Senate and the House, which may take until May for the money to come, the realistic activation of these facilities, ours and CoreCivic's will probably be the second half of the year.

Speaker 2

And it will be on a ramp up basis and there will be significant costs for our 3,000 employees and CoreCivic's approximate 3,000. So that's 6,000 employees that have to be recruited, screened for criminal history, job history and then put into a four week training program.

Speaker 3

And I would just add, we haven't been specific around what's the cost per bed of reactivating a facility. But what I can tell you is, when we activate those facilities in the back half of the year and we start to generate revenue and fill the populations there, there's no doubt it will be significantly accretive from a profitability standpoint. So, as George said, thirty to sixty, ninety days, we got to hire people, we got to train people. It's a cost, but the benefit from the reactivation well exceeds any of those reactivation costs. Delaney Hall is

Speaker 2

a bit unusual because it's done. It's complete. And everything is brand new inside the facility and it's ready to go. All we need to do is the recruitment, the hiring, the background screening and the training.

Speaker 5

Great.

Speaker 2

That's very helpful. Facilities may have be in different they are in different conditions. Some have been idle longer than others. Adelanto has no capital requirements. It's in perfect shape and so we can open up the rest of the facility up to, I think, approximately 1,900 beds without any capital investment there.

Speaker 2

But we have other facilities like North Lake in Michigan, we have Big Springs in Texas, we have Dealer James in Georgia, Rivers in North Carolina. Those it's interesting that all of those facilities are former BOP facilities that were that became idle because of Biden's restriction on the BOP contracting with us. But they're all high security facilities, which is very much of an interest to ICE and both Marshalls because they're primarily cell facilities and they're I think they're in high demand at this time.

Speaker 5

Right. That makes sense and very helpful. I guess lastly as it relates to your commentary on the $250,000,000 to $300,000,000 incremental EBITDA off of the $800,000,000 to $1,000,000,000 in revenue, kind of over what period would we expect to see this is, when we see these rolling in post funding like 2025 or more 2026?

Speaker 3

Let me just jump in here and George can provide some commentary. I think we've been pretty consistent in stating that we expect the first half of twenty twenty five to be relatively consistent with 2024 and start to see the benefits of this contract awards taking into effect in the back half of twenty twenty five. And as we stated before, the full benefits of reaching the full potential, we expect to see in 2026. And so, the benefits will start to bear fruit in the back half of twenty twenty five and then we should be with the timelines of activating facilities within ninety days and the contracting that we talked about, we think the full operational benefits from a financial standpoint will take place in 2026.

Speaker 5

Got it. Very helpful. Thanks.

Speaker 3

Thanks.

Operator

The next question comes from Brennan McCarthy with Sidoti. Please go ahead.

Speaker 9

Great. Good morning, everyone. Thanks for taking my questions. Just wanted to start off on the detention side. I know last earnings call, there was a discussion around, I think it was $400,000,000 in incremental annualized revenue opportunity from the reactivation of 18,000 beds.

Speaker 9

But now this quarter, it sounds like that shifted up to the $500,000,000 to $600,000,000 revenue opportunity from roughly 17,000 incremental beds. Just curious as to what will kind of change that expectation and could we maybe see that range move higher?

Speaker 3

I would say that we continue to look at our facilities and the capacity of those facilities in our conversations with our clients and it's just a revision of our previous statements. I would say I wouldn't expect there to be significant upside from what we've just laid out as it relates specifically to the IO facilities that we have here. So I just think it's more clarity as we've spent more time modeling

Speaker 6

the business case opportunities. I would

Speaker 2

just add that the numbers we're talking about are numbers related to our own facilities. We are looking at other facilities that are owned by third party individuals and there's a few of them. So none of our present numbers include those potential additional facilities.

Speaker 9

Got it. Okay. That's helpful. And then more of a broad question here, but on detention versus alternatives to detention, do you kind of see the administration maxing out detention utilization and population levels ATD population levels or do you think that process will be more, I guess, simultaneous?

Speaker 2

As far as brick and mortar facilities in The U. S, that can be usable. I think it's presently about 75,000 to 80,000 beds before you possibly consider repurposing some of the idle Bureau of Prisons facilities. So if you're trying to get to 100,000, just the organic marketplace is only capable of 75,000 or 80,000 beds, I think, at this time before you consider soft sided facilities as well as possibly repurposing and managing presently idle BOP facilities, which can get you to the 100,000.

Speaker 9

Great. Thanks. I guess just to clarify, I guess with the alternative to detention program, the ISAAP contract, I guess do you ultimately see maybe a lag there with population increases while detention ultimately takes the priority?

Speaker 2

No, we think the ISAT program has a separate team of individuals. They're not part of the detention team. But I think they've heard the message and they're ready to respond appropriately in a fairly significant ramp up individuals on ISAT. And I think the initial preference will be on ankle monitors for high security and allowing them to step down to lower security levels in the future, but remain on ISAAP as long as it takes for them to have their hearing and be cleared or allowed to stay in The U. S.

Speaker 2

If they're not approved to stay in The U. S, they would be scheduled for deportation. So, one of the criticisms of the ISAAP program is that people have stayed on in a few months and then they don't show up for their hearings. Well, the solution to that is continue their participation and monitoring under the ICF program until they do go to their hearing and there is a decision on their case, one way or the other, either they get to stay or they have to go. That's the solution.

Speaker 2

Continue the individual's participation in the ISAF program until their deportation decision is made in the positive or in the negative.

Speaker 9

Got it. That's helpful. That's all for me. Thanks.

Speaker 2

Thank you.

Operator

The next question comes from Joshua Zofel with Noble Capital Markets. Please go ahead.

Speaker 10

Hey, good morning. I'm filling in for Joe.

Speaker 2

Good morning. Hey, so obviously in your prepared remarks, you had

Speaker 10

just kind of touched on the idle facilities having some interest. Are those kind of discussions really gaining any traction? Maybe could we see idle facilities being activated in 2025, maybe just early twenty twenty six?

Speaker 3

Can you repeat that again? You broke in and out.

Speaker 10

Sure. Yes. No, you guys touched kind of on the prepared remarks, you guys were having some conversations with ICE and the Marshalls. And are those kind of discussions really gaining any traction? Could we kind of see those idle facilities being reactivated in maybe 2025, early '20 '20 '6?

Speaker 2

I think the likelihood is that all of our idle facilities will be activated in 2025.

Speaker 3

Yes. To be a little bit more specific, we think that the contracting of the additional detention bins will all take place in 2025. It doesn't mean that they'll be all fully populated by the end of twenty twenty five, but we'll be all of that contracting should be done And as we said before, so that we reap the full benefits in 2026 and get some of the benefits in the back half of this year.

Speaker 2

Even a longer view of the funding battles would allow, I think, the department to issue contracts by the end of the second quarter. Now, if it takes that long to the end of the second quarter, then you need the third quarter for activating the facilities. But I think we're hopeful, I think the administration is hopeful that the sense of awareness of how much money is available will occur early in the second quarter and to allow actual contracting to take place early or mid second quarter.

Speaker 10

Okay. That's helpful. And obviously, with the ICE investment, you guys kind of broke out the capital expenditures over 2025 and everything else like that. Just in terms of like the sale of the facilities, first off, how close are you on any of those sales? And furthermore, looking at that investment, when it's broken out, it kind of seems like it's about roughly around $21,000,000 in the first three quarters of twenty twenty five.

Speaker 10

Is that kind of a fair assessment?

Speaker 3

Well, his first question is, can we provide more detailed update on the sale process? Well, one

Speaker 2

of the facilities, which is in the public domain is the our Lawton, Oklahoma facility. It's a very large facility. Our facilities are generally the largest facilities in any state we operate in, as is the case with the Lawton facility in the state of Oklahoma. So it's a very high security facility. We've made a public request as to the purchase of the facility.

Speaker 2

An appraiser has been assigned and they're in I think they've made a lot of progress in their appraisal work and we expect their assessment by next month.

Speaker 10

Okay. That's helpful. And, yes, obviously, that investment over $2,025,000,000 dollars Yes, it seems like I calculated about $21,000,000 over the first two quarters. I know that sounds about right to you guys.

Speaker 2

That does.

Speaker 10

Yes. Okay. Perfect. And then lastly, you guys might have gone over this in the prepared remarks and I apologize if I missed it, but it seems like you had a pretty substantial NOI increase really for the manage only segment while you guys had pretty kind of steady revenue. Can I get a bit more color just kind of on the large jump?

Speaker 10

Is it

Speaker 2

On the managed only, I think we've had to make some wage increases out of our own concern for staffing levels and security of the facility in advance of actual reimbursement and additional funding from our state clients. Most of the state clients are in the middle of their legislative sessions right now. We've made a request to them for additional funding, but we haven't waited for that. We've done what we think is the right operational thing to do and increase wages to higher levels to handle what is increasingly a higher security level of people in state facilities. I think to the extent they could, they've released minimum security prisoners as much as they could.

Speaker 2

That really left medium and high security individuals that we're dealing with now. And you have to be very careful that you have enough staffing to take care of that kind of situation. So, we've moved forward in increasing staff wages given the operational challenges, but we are asking for reimbursements for additional funding from our state clients in several states.

Speaker 5

Okay, that's helpful. Yes, thank

Speaker 10

you guys for taking my questions.

Speaker 2

Thank you.

Operator

The next question comes from Jordan Himelwitz with Philadelphia Financial. Please go ahead.

Speaker 11

Hey guys, thanks for your questions. First of all, has there been any bureau prison population shifted over and or do your numbers include any shift? And if I remember correctly, the peak was like 7% to 10% of the population with bureau of prisons in like 1914, '19 '15?

Speaker 2

Well, we are not in communications with the Bureau of Prisons because a new director has not been appointed. We are awaiting that final decision and then we would be approaching them on what opportunities exist within the BOP given the probability that most of our most, if not all of our idle facilities will have been contracted to other agencies. Where we think we can be helpful is if they do a consolidation play in some of their facilities, we could take over one of their facilities that they decide to empty, as well as looking at their idle facilities to see if we can make a financially viable offer to rehabilitate the facility and take over the management. So there are some opportunities that we're looking at, but the timing on that is a little bit further out pending the appointment of a new BNP director.

Speaker 11

But what you're saying is if for some reason there's a delay in ICE or Marshall's BOP is another option that we have it factored into the equation at this point?

Speaker 2

Yes, but I think all of our remaining six idle facilities will be contracted as I'm hopeful by the end of the second quarter.

Speaker 11

And my second question is, I mean, everybody I mean, no one wants to be in jail anywhere, but at least if you're in jail in The U. S, you have three meals a day, you have access to legal representation. As you mentioned, you have some amenities. I mean, if God forbid, you're thrown to El Salvador or some other Fakaka place, I mean, you have no representation or rights or anything. And I can't believe it's cheap to get legal representation to those places.

Speaker 11

Have you pointed that out when you think about the actual total cost per bed? It may not just be the amount charged per bed, but all the other services that are included in that package, so to speak, and it may make the cost effectiveness of your facilities much better than an international option?

Speaker 2

We have four decades of experience with ICE and Marshall. So they know our capabilities, they know the quality of our services. And when I think about international sites, I think maybe they will be purpose for the ultimate detention of people in those or deportation venue for those people that are deported rather than where they're going to be processed. I think logically speaking that most, if not all of the individuals will be processed within The U. S, but they may be deported to some other cooperative foreign country that may want to detain them rather than just releasing them within their own country.

Speaker 2

It depends on the security level of the individuals that are deported to these cooperating countries.

Speaker 11

And I'm sure there's got to be fair amount of lawsuits springing up to prevent that option from even occurring because if you're the poor, you don't have that legal representation or rights to repeal that or it becomes much tougher. So I mean that may not even become an option, so to speak.

Speaker 2

We don't know if that's a policy decision, either the White House as well as DHS and ICE.

Speaker 11

Okay. Thank you.

Speaker 3

Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to George Dooley for any closing remarks.

Speaker 2

Well, thank you all for joining us on this call. As you can tell by the length of the call, we've had a lot of questions because there's quite a bit going on in our company and the opportunities that we're looking at, which are completely unprecedented. And we're proud to be in partnership with ICE and the Marshals Services and hopefully with the BOP as well and play a significant role in the new immigration policies under this new administration. Thank you.

Operator

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

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The GEO Group Q4 2024
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