Geo Group Inc (The) REIT

Good day and welcome to the GEO Group first quarter 2024 earnings conference call. 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 a touch tone phone. To withdraw your question, please press star, then two. 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.

Thank you, operator. Good morning, everyone, and thank you for joining us for today's discussion of the GEO Group's first quarter 2024 earnings results. With us today are George Zoli, Executive Chairman of the Board, Brian Evans, Chief Executive Officer, Wayne Calabrese, President and Chief Operating Officer, Shane March, Acting Chief Financial Officer, and James Black, President of GeoSecure Services. This morning we will discuss our first quarter results as well as our outlook. We will conclude the call with a question and answer session. This conference call is also being webcast live on our investor website at investors.geogroup.com. Today, we will discuss non-GAAP basis information. A reconciliation from non-GAAP basis information to GAAP basis results is included in the press release and supplemental disclosure we issued this morning. Additionally, much of the information we will discuss today, including the answers we give in response to your questions, may include forward-looking statements. regarding our beliefs and current expectations with respect to various matters. These forward-looking statements are intended to fall within the safe harbor provisions of the securities laws. Our actual results may differ materially from those in the forward-looking statements as a result of various factors contained in our Securities and Exchange Commission filings, including the Form 10-K, 10-Q, and 8-K reports. With that, please allow me to turn this call over to our Executive Chairman, George Olie. George?

Thank you, Pablo, and good morning to everyone. Thank you for joining us on our first quarter 2024 earnings call. I'm pleased to be joined today by our senior management team. During today's call, we will review the first quarter financial results and the operational milestones for each of our business segments. provide an update on our recent refinancing transactions and our continued efforts to enhance long-term value for our shareholders, and discuss our financial guidance and outlook for the balance of the year. During the first quarter, our diversified business units continued to deliver strong operational and financial performance. This morning, we reported first quarter revenues of approximately $606 million and a gap net income of approximately $23 million. We also reported first quarter adjusted EBITDA of approximately $118 million. Looking at our key quarterly trends, revenues for our owned and leased secure facilities increased by approximately 7% from a year ago. This increase was driven primarily by year-over-year population increases across our ice facilities. Utilization in our ice facilities averaged approximately 13,000 beds during the first quarter of 2024. We estimate that during the same time frame, the utilization across all ice facilities nationwide averaged approximately 38,500 beds. We estimate that the utilization across ICE facilities nationwide is currently at approximately 37,000 beds, and that the current utilization at GEO's ICE facilities remains at approximately 13,000 beds. With respect to federal funding, the Appropriations Bill for Fiscal Year 24, which recently was enacted by Congress, increased funding for ICE detention 41,500 beds from the previously funded level of 34,000 beds. Moving to our managed-only segment compared to one year ago, our quarterly revenues increased by approximately 14%. The year-over-year increase in managed-only revenues was driven by new contract activations in our secure transportation and international business. In the third quarter of 2023, our GTI Transportation Division activated a new contract to provide air operation support for ICE. This contract was first activated on an emergency basis, and more recently, we announced a new long-term five-year contract for GTI to continue to deliver these services as a subcontractor to CSI Aviation, which holds the prime contract with ICE. Internationally, our GEO Australia subsidiary activated a new contract in July of 23 to deliver primary health care services across 13 public prisons in the state of Victoria. Moving to our GEO Reentry Services Division, we renewed three residential reentry center contracts with the Federal Bureau of Prisons during the first quarter of 2024. And the quarterly revenues for our non-residential reentry services segment increased by approximately 19 percent from a year ago. With respect to the Federal Government's Intensive Supervision Appearance Program, or ISAP, participant counts averaged approximately 188,000 individuals during the first quarter of 2024. compared to an average ISAT participant count of approximately 192,000 during the fourth quarter of 2023. Since the end of the first quarter, the ISAT participant count has fluctuated between approximately 184,000 and 185,000 individuals. With respect to federal funding, Appropriation bills for fiscal year 24, which was recently enacted by Congress, increased funding for alternatives to detention programs to approximately $470 million, an increase of approximately 7% over the previously funded level of approximately $440 million. While we would expect utilization rates for detention beds and the alternative detention programs to potentially increase in the second half of the year, consistent with seasonal increases in border crossing activity, the timing and impact of such increases are difficult to estimate. Additionally, policy and budgetary decisions that can often impact the utilization of ICE detention beds and the alternatives to detention programs like ISAF are outside of GEO's control as a service provider to the federal government. For these reasons, we have decided to maintain our full year 2024 adjusted EBIDA guidance. We remain focused on providing high-quality services on behalf of DHS and ICE, and we stand ready to provide any needed services and resources to help the federal government and all of our government agency partners meet their needs. Finally, we are pleased to have recently completed the refinancing of substantially all of our debt. These important refinancing transactions have pushed our debt maturities, reduced our overall cost of debt, and have given us greater flexibility for potential capital returns under our debt covenant. I will now turn the call over to our CEO, Brian Evans.

Thank you, George. Good morning, everyone. Our continued and steady financial performance continues to be underpinned by the strength of our diversified services platform. As we have demonstrated over the last several years, the diversification of our company has allowed us to deliver steady operational and financial results. As we have expressed to you in the past, the government policy and budgetary decisions that can impact the utilization of our diversified services are outside of our company's control as a service provider to agencies at all levels of government. Therefore, our focus has always been on delivering high-quality services and innovative solutions to meet the needs of our government agency partners with an unwavering commitment to operational excellence across all our service lines. At the board and management level, we have focused our growth and investment strategy on developing a service platform that we believe is unmatched in terms of diversification and scope in our industry. We have done so by carefully allocating capital for more than 20 years, investing in company-owned facilities, and pursuing strategic acquisitions of businesses and assets. We believe this strategy has allowed us to develop leading market positions across the spectrum of services in our industry. giving us the ability to effectively respond to the needs of our government agency partners as policy priorities evolve over time. Specifically, as it relates to U.S. immigration and customs enforcement, we have a longstanding public-private partnership with the federal government dating back to the mid-1980s. We currently have 17 company-owned facilities under contract with ICE, providing needed bed space and support services across the United States. Our BI subsidiary has provided electronic monitoring and case management services on behalf of ICE under the ISAP contract for over 20 years. Over this timeframe, BI has built what we believe is an unparalleled platform of technology solutions and case management services, successfully achieving high levels of compliance under the program with bipartisan support. Given our unparalleled diversified services platform, and our long-standing public-private partnership with ICE, we believe GEO is uniquely positioned to continue to support the agency with a spectrum of support services and solutions, including additional bed capacity, secure transportation, electronic monitoring technologies, and case management services. While we expect the utilization of ICE detention beds and alternatives to detention programs to potentially increase in the second half of this year, consistent with seasonal increases in border crossing activity, it remains difficult to estimate the exact time and impact of these potential trends. We remain focused on the daily delivery of high-quality services on behalf of ICE and all our government agency partners, and we stand ready to support their potential future needs. We are focused on marketing our currently idle secure services facilities, which total approximately 10,000 beds, to local state, and federal agencies for reactivation, either under a traditional secure services contract or a lease arrangement. These important assets could provide meaningful upside to our annualized revenues and cash flows if fully reactivated. Another strategic priority for our management team is to continue our disciplined allocation of capital to enhance long-term value for our shareholders. For the past three years, we have prioritized deleveraging our balance sheet and reducing our debt, and we have made significant progress towards this objective. We are pleased that the successful execution of this strategic priority enabled our company to refinance substantially all our debt this previous month. In addition to pushing out our maturities and lowering our average cost of debt, the recent refinancing transactions have given us greater flexibility to explore options to return capital to shareholders. Under our new credit facility covenants, we will be able to retain 25% of excess cash flow until September 2025 and 50% of excess cash flow after that date, as long as our leverage remains between 2.5 and less than 3.5 times adjusted EBITDA. This will give us the ability to use our cumulative retained excess cash flow for restricted payments such as dividends or share repurchases, as long as our total leverage remains below three and a half times adjusted EBITDA. Under our new senior notes indenture, we will have an initial restricted payments basket of $125 million, which will increase over time by 50% of net income. We believe that these new covenants will provide our board greater flexibility to evaluate options to return capital to shareholders in conjunction with our company's overall capital needs. We will also continue to evaluate future potential asset sales to complement our capital needs, primarily focusing on our idle or underutilized residential re-entry centers, since these assets are typically located in urban areas, can usually be repurposed for alternative uses, and generally attract a larger pool of potential interested buyers. As we continue to execute our strategic priorities and allocate capital towards enhancing long-term value for shareholders, we believe our company will continue to be an attractive value proposition for investors given the strong and predictable nature of our cash flows. At this time, I'll turn the call over to Acting CFO Shane Marks.

Thank you, Brian. Good morning, everyone. Today, we reported first quarter 2024 GAAP net income of approximately $23 million, on quarterly revenues of approximately $606 million. We also reported first quarter of 2024 adjusted EBITDA of approximately $118 million. Quarterly revenues in our owned and leased secure services segment increased by approximately 7% year-over-year, primarily driven by higher occupancy rate levels at our U.S. Marshall services and ICE facilities. Revenues in our managed-only segment increased by approximately 14% during the first quarter of 2024 compared to one year ago. This year-over-year increase in our managed-only segment was driven by higher revenues in our secure transportation and international segments. Finally, quarterly revenues in our non-residential services segment increased by approximately 19% year-over-year. These revenue increases were offset by lower quarterly revenues. from our electronic monitoring and supervision services segment, which is the result of lower participant counts under the ISOP contract compared to one year ago. During the first quarter of 2024, operating expenses increased by approximately 2% as a result of inflationary cost increases, higher occupancy levels, and the shift in quarterly revenue mix compared to the first quarter of 2023. Our first quarter of 2024 results also reflect a year-over-year decrease in net interest expense due to the repayment of debt over the past 12 months, as well as due to higher interest income compared to the first quarter of 2023. Our effective tax rate for the first quarter of 2024 was approximately 26%. Moving to our guidance for the full year and the second quarter of 2024. For the full year of 2024, we expect GAAP net income to be in a range of $55 million to $75 million on annual revenues of approximately $2.4 billion and an effective tax rate of approximately 20%, inclusive of known discrete items. Our full year 2024 guidance reflects a $86 million pre-tax loss on the distinguishing of GAAP as a result of our recent refinancing transactions. We expect our full year 2024 adjusted EBITDA to be in the range of $485,515,000,000. The low end of our adjusted EBITDA guidance range assumes a continuation of the current utilization rate for our ICE detention beds and the current ISAP participant count which is presently below the average participant count we experienced during the first quarter. The high end of our adjusted EBITDA guidance range assumes that utilization rates for ICE detention beds in the ISOP contract increased during the second half of the year, consistent with seasonal increases in border crossing activity. For the second quarter of 2024, we expect a gap net loss in a range of $27 million to $30 million as a result of the $86 million pre-tax loss on the extinguishing of debt during the second quarter. And we expect second quarter 2024 revenues to be in the range of $600 million to $610 million. We expect second quarter 2024 adjusted EBITDA to be in a range of $119 to $125 million. Moving to our capital structure, as previously noted, we recently completed the refinancing of substantially all of our debt. On April 18th, we closed on a new $760 million senior credit facility comprised of a $450 million term loan, bearing interest at SOFR plus 5.25%, and a $310 million revolving line of credit, which had no borrowings outstanding at closing. In a simultaneous transaction, we also closed our two senior note offerings, a $650 million senior secured note at 8.58%, and a $625 million senior unsecured note at 10.25%. The offering of these two notes and the term loan resulted in net proceeds of approximately $1.67 billion. We used the net proceeds to refinance approximately $1.5 billion of existing debt, including our previous two term loans, the 9 1⁄2 and 10 1⁄2% senior second-mean secured notes and the 6% senior unsecured notes. Subsequently, on May 6, we also retired approximately $177 billion in principal amount of our 6.5% convertible notes in exchange for approximately $177 million in cash and approximately 9.8 million shares of GeoCommon stock. There are now approximately 136 million shares outstanding of GeoCommon stock. We now have approximately $53 million in outstanding principal amount of our convertible notes due 2026. and we are considering all of our options for addressing these stubbed notes. As a result of these transactions, we have reduced our average cost of debt by approximately 1% on the portions of our debt that were restructured in 2022. This meaningfully improved debt structure, our fixed rate, I'm sorry, under this meaningfully improved debt structure, our fixed rate debt represents approximately 75% of our total indebtedness and we pushed out substantially all of our debt maturities to 2029 and 2031. Going forward, we expect to continue to focus on further reducing our net debt, and as Brian discussed, we also have greater flexibility to evaluate options to return capital to shareholders under our new debt restrictions. At this time, I will turn the call over to James Black for a review of our Geo Secured Services segment.

Thank you, Shane. Good morning, everyone. It is my pleasure to review the quarterly milestones for GEO Secure Services. During the first quarter of 2024, our Secure Services facilities successfully underwent a total of 60 audits, including internal audits, government reviews, third-party accreditations, and the Prison Rape Elimination Act, or PREA certifications. Five of our Secure Services facilities received accreditation from the American Correctional Association with an average score of 99.8 percent, and one facility received PREA certification. Our GTI Transportation Division and our GO-AME-UK joint venture completed approximately 5 million miles driven in the United States and the UK during the first quarter. Moving to current trends for our government agency partners, at the federal level, populations at our U.S. Marshals detention facilities increased by approximately 5% since the beginning of the year. Our U.S. Marshals facility around the country supports the agency as it carries out its mission of providing custodial services for pretrial detainees facing federal criminal proceedings. We believe that our U.S. Marshals facilities provide needed bed space near federal courthouses where there is generally a lack of suitable alternative detention capacity. Moving to our ice processing centers, we experienced stable utilization of approximately 13,000 beds throughout the first quarter of 2024. During the first quarter, we estimate that the utilization across all ice facilities nationwide averaged approximately 38,500 beds. We estimate that the utilization across ice facilities nationwide is currently at approximately 37,000 beds. The current utilization at our ICE facilities remains at approximately 13,000 beds. With respect to federal funding, Congress recently enacted an appropriations bill for fiscal year 2024, which provides funding for 41,500 ICE detention beds, an increase of 7,500 beds from the previously funded level of 34,000 beds. GEO has a long-standing track record of delivering professional support services on behalf of ICE at GEO-contracted ICE processing centers, and we stand ready to support ICE with any additional needs. We have a total of 10,000 beds at several idle facilities that we believe are well-suited to support ICE's mission, and we have the expertise and resources to provide the needed ancillary services to meet the agency's needs. Geo-contracted ice processing centers offer around-the-clock access to quality healthcare services. Our healthcare staff at 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 and legal libraries and resources, and we have dedicated space at each ICE center to accommodate meetings with 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. We also provide access to faith-based and religious opportunities at each geocontracted ice processing center. And we partner with community volunteers as needed to ensure a fair representation of various faiths and denominations. Geocontracted ice processing centers also offer access to quality recreational activities. We have made significant investments in enhanced amenities at these centers, including artificial turf soccer fields, covered pavilions, exercise equipment, and multipurpose rooms. We provide secure transportation services for ICE, primarily at 12 of the geocontracted ICE processing centers. Starting in the second half of 2023, our GTI Transportation Division also began providing secure air operation support for ICE initially under emergency contract. During the first quarter of 2024, we announced that GTI had been awarded a long-term five-year contract to continue to provide air operations support services on behalf of ICE as a subcontractor to CSI Aviation, which holds the prime contract. This important contract is expected to generate approximately $25 million in annualized revenue. At this time, I will turn the call over to Wayne Calabrese for a review of our GeoCare division.

Thank you, James. I'm pleased to provide an overview of the quarterly operational milestones for our GeoCare division. During the first quarter of 2024, we renewed three residential reentry center contracts with the Federal Bureau of Prisons. Additionally, we retained three contracts for our non-residential day reporting centers and we were awarded one new day reporting center contract. Our residential reentry centers, non-residential day reporting centers, and our ISAP offices successfully underwent a combined total of 77 audits, including internal audits, government reviews, third-party accreditations, and Prison Rape Elimination Act, or PREA, certifications. Three of our residential reentry centers received accreditation from the American Correctional Association with an average accreditation score of 100%, and one of our residential reentry centers received PREA certification. Our 34 residential reentry centers provide transitional housing and rehabilitation programs for individuals reentering their communities across 14 states and census levels at these centers remain stable at approximately 5,000 individuals during the first quarter of the year. Our non-residential and day reporting centers provide high-quality community-based services, including cognitive behavioral treatment for up to approximately 8,500 parolees and probationers at approximately 90 locations across 10 different states. Moving to our GEO in-prison programs and our continuum of care division, during the first quarter of 2024, we delivered enhanced in-custody rehabilitation to an average daily population of approximately 2,600 individuals at 31 in-prison program sites in seven states, and to approximately 21,000 individuals at 13 continuum of care sites in eight states. Our in-custody rehabilitation services include academic programs focused on helping those in our care attain high school equivalency diplomas. We have made a significant investment to equip all of our classrooms with smart boards to aid in the delivery of academic instruction at all our facilities. We have also focused on developing vocational programs that not only lead to certification when completed, but are also based on market job placement needs. Our substance abuse treatment programs are an important piece of our rehabilitation services because many of the individuals in our care suffer from addiction and substance use disorder. Our facilities also provide extensive faith-based and character-based programs. We've designated faith-based and character-based housing units or dorms across our facilities to enhance the delivery of these programs. During the first quarter of the year, we completed approximately 700,000 hours of enhanced in-custody rehabilitation programming. Our academic programs awarded more than 600 high school equivalency diplomas and our vocational courses awarded close to 850 vocational training certifications. Our substance abuse treatment programs awarded more than 1,200 program completions. We achieved over 700 behavioral treatment program completions and more than 4,000 individual cognitive behavioral treatment sessions. During the first quarter, we also allocated approximately $400,000 toward post-release services. This funding supported more than 600 individuals released from GEO facilities as they made their way back to their communities. Our GEO Continuum of Care integrates enhanced in-custody rehabilitation, including cognitive behavioral treatment, with post-release support services that address critical community needs of released individuals. We believe our award-winning program provides a proven model on how the two-plus million people in the United States criminal justice system can be better served in changing their lives. 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 on behalf of federal, state, and local agencies across the country. During the first quarter, participant counts under the ISAP contract averaged approximately 188,000 individuals. Since the end of the first quarter, the ISAP participant count has fluctuated between approximately 184,000 and 185,000 individuals. With respect to federal funding, Congress recently approved an appropriations bill for the current fiscal year which funds the federal government through September 30, 2024. That appropriations bill enacted by Congress increased funding for alternatives to detention programs, which includes the ISAP contract, to approximately $470 million, representing an approximate 7% increase over the previously funded level of approximately $440 million. BI has provided technology solutions, holistic case management, supervision, monitoring, and compliance services under the ISAP contract for almost 20 years. 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. The current ISAP contract has a term of five years terminating on July 31, 2025. BI will continue to explore new and innovative technology solutions to support the needs of ICE as we prepare to compete for this important contract. At this time, I will turn the call back to George for closing remarks.

Thank you, Wayne. And in closing, our diversified business units have continued to deliver strong financial and operational performance. We are pleased that our steady results in our multi-year strategy to deliver our balance sheet successfully positioned GEO to refinance substantially all of our debt, which is presently approximately $1.8 billion and is expected to decrease to $1.6 billion by the end of the year. Our recent successful refinancing has lowered our average cost of debt and has given us greater flexibility to evaluate options to potentially return capital to shareholders. We believe we have several opportunities for potential upside in our financial performance. We are focused on marketing our current idle facilities and our diversified services to government agencies around the country. Operationally, we remain committed to achieving operational excellence in the delivery of our services on behalf of our government agency partners. We believe that our company's strong and predictable cash flows and our improved debt structure continue to present an attractive opportunity for investors. That completes our remarks, and we would be glad to take questions. Operator?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Joe Gomes with Noble Capital. Please go ahead.

Good morning. Congrats on the quarter. Thank you. I just want to get a little clarification here maybe. You guys are saying that you're thinking that ICE currently is about 37,000. Just looking at some of the numbers that ICE puts out, it looks like the beds are more than 1,000. they're saying are 34.5, and I was just wondering, am I missing something, or do you guys have some information that gives a more recent update versus some of the dated ICE data?

To our understanding, there's been a significant ramp-up in the census of those in detention facilities. I think the first half of the fiscal year which just ended last month. There was an intent for budgetary reasons to keep the bed count at a lower level in line with the original budget. And now that the recent refunding of the agency at a higher level of 41,500 beds is allowing them to now step up their count in their ice facilities around the country.

Okay, thanks for that. And then on the marshals, you got a nice increase in the number of people in marshals. I was wondering, you know, what is driving that? Is that a reflection of the courts getting back to a more normal operating environment or, you know, some of these we've seen in the past locals localities are refusing to hold on to some of the detainees these days. Just trying to figure out what's driving the increase in the marshals' populations.

It's probably a combination of both of those things. The reluctance of local governments to be dealing with providing extra beds to federal agencies versus having a need for those beds themselves or for political purposes of not wanting to participate in such a federal program, but also the need to expand the number of beds as they did have a decrease in bed capacity under this administration at the outset of the administration year.

Okay. Pardon me. And you guys kind of mentioned it from the bigger, you know, the 10,000-foot level, but I don't know if there was any more detail you could provide about kind of some of the new business opportunities, especially on the state and local level that you're kind of pursuing at this point.

We really don't discuss... any marketing opportunities unless there are public procurements that we obviously would have a responsibility to react to. But at this time, there are no public procurements that we can comment on.

Okay. Just generally, I guess, Are you seeing more opportunities on a state and local level than you had historically, or is that more flat there, or maybe you could just characterize it that way?

It's somewhat flat with some of our clients, but we're seeing other clients asking for beds. at a smaller scale than we would prefer and we haven't jumped at those opportunities because our facilities are generally large. I would say a thousand beds and above and we're keeping those facilities in reserve for larger governmental users.

Okay. And it won't morph from it. I'll jump back in line. This is kind of more hypothetical, George. But as we all know, when the current administration came in and they ended basically the contracts with the BOP, if there was a change in administration and they were more favorable to contracts with the BOP, You know, looking at the BOP populations, they've risen by about 10,000 people since three years ago. Do you think, you know, again, this is hypothetical, you know, that the BOP would still look upon favorably if they needed space of coming to you, or given what's happened in the past couple of years, do you think they would be more reluctant to reestablish contracts with firms like the private spending sector?

Well, using past experience as a guide under the previous administration, there was a reversal of the prohibition in using the private sectors for BOP contracting. So we would think that's a distinct possibility that the BOP facilities would once again be contracted to private sector entities like ourselves. And there was a similar impact under this administration regarding some marshals facilities that were direct contracts that were discontinued. I would think there would be a similar attitude if there's a new administration that would very possibly have a desire to reestablish those contracts with the marshals services as well as the BOP.

Thanks, Thad. I appreciate the answers to my questions. I'll get back in queue. Thank you.

The next question comes from Brian Violino with Wedbush Securities. Please go ahead.

Great. Good morning. Thanks for taking my questions. Just to start on the guide, it sounds like the high end is assuming we'll see some uptick in second half occupancy levels. in the detention segment. I guess, could you clarify if that assumes that we're going to be going up to the 41.5 bed count that was approved in the budget, or just sort of a general increase from here?

As we said, it's hard to predict exactly where they're going. The budget allocation projects the ability to go to 41,000, but I would think that would that would occur on a progressive, incremental basis, on a step-by-step basis. We've seen a change in the last few weeks going from 34,000 to approximately 37,000. So we expect a continuation, but where it ends, we don't know.

Okay, thanks. And then appreciate all the details on the indentures and the credit agreements for the bonds. Just curious if you could give us a bit more thoughts in terms of timing as it relates to capital returns. Would you potentially want to wait until the cash flow sweep steps down later next year? Or if your leverage gets lower into your target range, could you think about repurchases earlier than that?

I think... At a minimum, we have to wait until the leverage steps down towards the middle of next year. So we're locked in on the 75% ECF through that point, and then it could step down based on leverage, and we can access those covenants at that point in time.

Okay, thanks. And then just one more from me. It looked like the NOI margins in the monitoring segment were a bit lower sequentially in year-over-year. Anything to note there, you know, one time we're seasonal and, you know, if not, should we expect those margins to improve over the course of the year otherwise?

The margins in that segment are obviously being impacted, as we've discussed on the call, by the change in the utilization of the ISAP contract predominantly. So if as George discussed earlier, if the guidance, if the numbers move up later in the year in ISAP, similar to may occur with the ICE detention beds, then we should see some, you know, nominal improvement in those margins.

Got it. Thanks for answering my questions.

The next question comes from Brendan McCarthy with Sedoti. Please go ahead.

Hey, good morning. Thanks for taking my questions. I just want to start off looking at the EIDL facilities. It looks like there was an increase in the secure EIDL facility bed count by roughly 900 beds. I think it was driven by reclassification of the or related to the Delaney Hall asset. Can you just discuss what drove that increase?

It was a thousand bed facility that was previously a re-entry facility. And we are looking at that facility for marketing in the near future.

Got it, okay. And then I just kind of wanted to touch on the guidance. It looked like the assumption for shares outstanding increased, I think it was like 137,000 from about $126,000 from the initial guidance. Obviously, that assumes... Sorry, go ahead.

Millions, millions, yeah. $126 million to $137 million, approximately.

Right, yeah, sorry about that. Obviously, I assume that does not include any share repurchase activity, But driving that increase is likely related to the exchangeable notes. Is that correct?

Yes.

Got it. OK. One last question for me. Do you have any comment on potential executive action from the Biden administration that's just been making headlines in recent days as it relates to the border?

I'm unclear as to what your question is.

Executive action policy about changing the border.

You know, I've heard that he's thinking about changing some policy, but I'm unclear as to what policy they're talking about.

Got it. Understood. That's all from me. Thanks.

The next question comes from Greg Gibbous with Northland Securities. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions. With respect to Q2 guidance, what do you expect that uplift to be driven by, given the expectation for roughly flat revenue?

Yeah, that's going to be primarily caused by the cost of payroll tax that we have in the first quarter, which is typical for our business, and then in the second quarter, you don't necessarily see a repeat of that expense. That's roughly $5, $6 million of added payroll expense in the first quarter relative to the second.

Okay, makes sense. And as it relates to maybe just more general cost structure dynamics, could you address just any favorable or unfavorable trends that you're seeing on any, whether it relates to payroll, obviously there's some seasonality like you just said, but any trends you're seeing on those line items

No, I don't think so. You know, over the last several years, we had to give some fairly significant adjustments at certain contracts, which we were able to negotiate with our clients. Revenue increases to offset that, so I think that's slowed down. You know, there's still pressure in the labor markets, but it's more steady than it was. We did see previously also impacts to food and utilities, but I think those have also stabilized some more recently, so not seeing any real significant pressures in those major cost categories other than, you know, what's normal in the market.

Sure, okay.

And, you know, more high level, you know, why do you, I know it's been just kind of slight declines here, but why is the ISAT populations, you know, what do you attribute that to in terms of why they've kind of continued to decline sequentially?

Well, part of it was certainly the budget deficits that were being experienced within ICE. It's my understanding that they had an overall budget deficit of approximately $700 million. So they had to cut back in certain areas, which included detention capacity as well as ISAP.

Okay, got it. And I guess last one for me just as it relates to full-year guidance. Are there any contract renewals this year or other factors that could kind of swing it one way or another, or is it mostly just kind of fluctuations in those ice populations?

With regard to our Adelanto facility in California, I believe that the current performance period is now extended to June 19. And we've been in discussions and have made a request to extend that period for the balance of year, if possible. If not, through at least September 30th. And we're awaiting a response to that.

And we would expect for the balance of the year that it will continue. So if for some reason it didn't, then that could have a downward impact.

Okay. And we would expect maybe more of an update closer to that June timeframe on that?

If something changes, otherwise we'll update on the next earnings call.

Well, we would expect an answer within the next few weeks, actually. Okay.

Okay, got it. Thanks guys.

The next question comes from Kirk Ludkey with Imperial Capital. Please go ahead.

Hello everyone. Thank you for the call. Congratulations on the refi. You mentioned the ISAP contract expires in May of next year. What is, what's the typical process for renewing that and then also Have there been any developments with respect to that request for information that implied a pretty significant increase in alternatives to detention?

A procurement process has not been yet announced for the rebid of that contract. In the lead time for a procurement process, in that kind of contract, which is large scale, large volume, is several months. Probably six, nine, 12 months lead time is necessary to re-procure such a contract. So we're not aware that any announcement to that effect has yet occurred leading to the possibility that the current term could be extended for some period of time.

And, Kirk, just to correct you there, the expiration date on the existing contract without any renewals, as George was talking about, or short-term extensions would be July 31st of next year, not May 31st.

July 31st. Okay, thank you. So the lead time is a... So we're not quite to that 12-month... kind of lead time, but you might start seeing something, seeing some developments there July of this year.

Possibly.

Yeah. Okay. And the request for information from a while ago that was kind of implied as a pretty significant increase in alternatives to detention more broadly, has there been any developments on that front?

Well, there was additional funding, but part of that funding was used to offset the deficit that was in that program as well as other programs. You may recall I said moments ago that the agency as a whole had apparently a deficit of approximately $700 million. So, you know, the... the different programs from detention facilities to ISAP programs to other programs were running hotter at the beginning of the fiscal year, and that had to be made up with this new funding that was made available just to offset the deficits before they could achieve higher levels. And I think in both areas of detention and ISAP, will very possibly see higher levels, but it's only been recently that they reduced the lower levels to offset the deficits.

This is Wayne. As far as that alternate RFI approach, it seems to have gone fairly dormant. We really haven't heard much more about that.

Okay, great. Thank you. You mentioned that you've got the 10,000 idle beds. Would those all be appropriate for ICE detainees?

Yes. With some revisions to provide office space for ICE staff, which is not normally a requirement to any great extent for BOP, contracts or Marshall's contracts. The difference in the ICE facilities is you have more on-site ICE personnel and you also probably need some courtrooms and other ancillary things.

Got it. I appreciate it. Thank you very much.

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

Thank you very much. We look forward to addressing you at the next conference call.

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

Thank you. you you

Good day and welcome to the GEO Group first quarter 2024 earnings conference call. 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 a touch tone phone. To withdraw your question, please press star, then two. 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.

Thank you, operator. Good morning, everyone, and thank you for joining us for today's discussion of the GEO Group's first quarter 2024 earnings results. With us today are George Zoli, Executive Chairman of the Board, Brian Evans, Chief Executive Officer, Wayne Calabrese, President and Chief Operating Officer, Shane March, Acting Chief Financial Officer, and James Black, President of GeoSecure Services. This morning we will discuss our first quarter results as well as our outlook. We will conclude the call with a question and answer session. This conference call is also being webcast live on our investor website at investors.geogroup.com. Today, we will discuss non-GAAP basis information. A reconciliation from non-GAAP basis information to GAAP basis results is included in the press release and supplemental disclosure we issued this morning. Additionally, much of the information we will discuss today, including the answers we give in response to your questions, may include forward-looking statements. regarding our beliefs and current expectations with respect to various matters. These forward-looking statements are intended to fall within the safe harbor provisions of the securities laws. Our actual results may differ materially from those in the forward-looking statements as a result of various factors contained in our Securities and Exchange Commission filings, including the Form 10-K, 10-Q, and 8-K reports. With that, please allow me to turn this call over to our Executive Chairman, George Ohli.

George? Thank you, Pablo, and good morning to everyone. Thank you for joining us on our first quarter 2024 earnings call. I'm pleased to be joined today by our senior management team. During today's call, we will review the first quarter financial results and the operational milestones for each of our business segments. provide an update on our recent refinancing transactions, and our continued efforts to enhance long-term value for our shareholders, and discuss our financial guidance and outlook for the balance of the year. During the first quarter, our diversified business units continued to deliver strong operational and financial performance. This morning, we reported first quarter revenues of approximately $606 million and a gap net income of approximately $23 million. We also reported first quarter adjusted EBITDA of approximately $118 million. Looking at our key quarterly trends, revenues for our owned and leased secure facilities increased by approximately 7% from a year ago. This increase was driven primarily by year-over-year population increases across our ice facilities. Utilization in our ice facilities averaged approximately 13,000 beds during the first quarter of 2024. We estimate that during the same timeframe, the utilization across all ice facilities nationwide averaged approximately 38,500 beds. We estimate that the utilization across ICE facilities nationwide is currently at approximately 37,000 beds, and that the current utilization at GEO's ICE facilities remains at approximately 13,000 beds. With respect to federal funding, the Appropriations Bill for Fiscal Year 24, which recently was enacted by Congress, increased funding for ICE detention 41,500 beds from the previously funded level of 34,000 beds. Moving to our managed-only segment compared to one year ago, our quarterly revenues increased by approximately 14%. The year-over-year increase in managed-only revenues was driven by new contract activations in our secure transportation and international business. In the third quarter of 2023, our GTI Transportation Division activated a new contract to provide air operation support for ICE. This contract was first activated on an emergency basis, and more recently, we announced a new long-term five-year contract for GTI to continue to deliver these services as a subcontractor to CSI Aviation, which holds the prime contract with ICE. Internationally, our GEO Australia subsidiary activated a new contract in July of 23 to deliver primary health care services across 13 public prisons in the state of Victoria. Moving to our GEO Reentry Services Division, we renewed three residential reentry center contracts with the Federal Bureau of Prisons during the first quarter of 2024. And the quarterly revenues for our non-residential reentry services segment increased by approximately 19 percent from a year ago. With respect to the Federal Government's Intensive Supervision Appearance Program, or ISAP, participant counts averaged approximately 188,000 individuals during the first quarter of 2024. compared to an average ISAT participant count of approximately 192,000 during the fourth quarter of 2023. Since the end of the first quarter, the ISAT participant count has fluctuated between approximately 184,000 and 185,000 individuals. With respect to federal funding, Appropriation bills for fiscal year 24, which was recently enacted by Congress, increased funding for alternatives to detention programs to approximately $470 million, an increase of approximately 7% over the previously funded level of approximately $440 million. While we would expect utilization rates for detention beds and the alternative detention programs to potentially increase in the second half of the year, consistent with seasonal increases in border crossing activity, the timing and impact of such increases are difficult to estimate. Additionally, policy and budgetary decisions that can often impact the utilization of ICE detention beds and the alternatives to detention programs like ISF are outside of GEO's control as a service provider to the federal government. For these reasons, we have decided to maintain our full year 2024 adjusted EBIDA guidance. We remain focused on providing high-quality services on behalf of DHS and ICE, and we stand ready to provide any needed services and resources to help the federal government and all of our government agency partners meet their needs. Finally, we are pleased to have recently completed the refinancing of substantially all of our debt. These important refinancing transactions have pushed our debt maturities, reduced our overall cost of debt, and have given us greater flexibility for potential capital returns under our debt covenant. I will now turn the call over to our CEO, Brian Evans.

Thank you, George. Good morning, everyone. Our continued and steady financial performance continues to be underpinned by the strength of our diversified services platform. As we have demonstrated over the last several years, the diversification of our company has allowed us to deliver steady operational and financial results. As we have expressed to you in the past, the government policy and budgetary decisions that can impact the utilization of our diversified services are outside of our company's control as a service provider to agencies at all levels of government. Therefore, our focus has always been on delivering high-quality services and innovative solutions to meet the needs of our government agency partners with an unwavering commitment to operational excellence across all our service lines. At the board and management level, we have focused our growth and investment strategy on developing a service platform that we believe is unmatched in terms of diversification and scope in our industry. We have done so by carefully allocating capital for more than 20 years, investing in company-owned facilities, and pursuing strategic acquisitions of businesses and assets. We believe this strategy has allowed us to develop leading market positions across the spectrum of services in our industry. giving us the ability to effectively respond to the needs of our government agency partners as policy priorities evolve over time. Specifically, as it relates to U.S. immigration and customs enforcement, we have a longstanding public-private partnership with the federal government dating back to the mid-1980s. We currently have 17 company-owned facilities under contract with ICE, providing needed bed space and support services across the United States. Our BI subsidiary has provided electronic monitoring and case management services on behalf of ICE under the ISAF contract for over 20 years. Over this timeframe, BI has built what we believe is an unparalleled platform of technology solutions and case management services, successfully achieving high levels of compliance under the program with bipartisan support. Given our unparalleled diversified services platform, and our long-standing public-private partnership with ICE, we believe GEO is uniquely positioned to continue to support the agency with a spectrum of support services and solutions, including additional bed capacity, secure transportation, electronic monitoring technologies, and case management services. While we expect the utilization of ICE detention beds and alternatives to detention programs to potentially increase in the second half of this year, consistent with seasonal increases in border crossing activity, it remains difficult to estimate the exact time and impact of these potential trends. We remain focused on the daily delivery of high-quality services on behalf of ICE and all our government agency partners, and we stand ready to support their potential future needs. We are focused on marketing our currently idle secure services facilities, which total approximately 10,000 beds, to local, state, and federal agencies for reactivation, either under a traditional secure services contract or a lease arrangement. These important assets could provide meaningful upside to our annualized revenues and cash flows if fully reactivated. Another strategic priority for our management team is to continue our disciplined allocation of capital to enhance long-term value for our shareholders. For the past three years, we have prioritized deleveraging our balance sheet and reducing our debt, and we have made significant progress towards this objective. We are pleased that the successful execution of this strategic priority enabled our company to refinance substantially all our debt this previous month. In addition to pushing out our maturities and lowering our average cost of debt, the recent refinancing transactions have given us greater flexibility to explore options to return capital to shareholders. Under our new credit facility covenants, we will be able to retain 25% of excess cash flow until September 2025 and 50% of excess cash flow after that date, as long as our leverage remains between 2.5 and less than 3.5 times adjusted EBITDA. This will give us the ability to use our cumulative retained excess cash flow for restricted payments such as dividends or share repurchases, as long as our total leverage remains below three and a half times adjusted EBITDA. Under our new senior notes indenture, we will have an initial restricted payments basket of $125 million, which will increase over time by 50% of net income. We believe that these new covenants will provide our board greater flexibility to evaluate options to return capital to shareholders in conjunction with our company's overall capital needs. We will also continue to evaluate future potential asset sales to complement our capital needs, primarily focusing on our idle or underutilized residential re-entry centers, since these assets are typically located in urban areas, can usually be repurposed for alternative uses, and generally attract a larger pool of potential interested buyers. As we continue to execute our strategic priorities and allocate capital towards enhancing long-term value for shareholders, we believe our company will continue to be an attractive value proposition for investors given the strong and predictable nature of our cash flows. At this time, I'll turn the call over to Acting CFO Shane Marks.

Thank you, Brian. Good morning, everyone. Today, we reported first quarter 2024 GAAP net income of approximately $23 million, on quarterly revenues of approximately $606 million. We also reported first quarter of 2024 adjusted EBITDA of approximately $118 million. Quarterly revenues in our owned and leased secure services segment increased by approximately 7% year-over-year, primarily driven by higher occupancy rate levels at our U.S. Marshall Services and ICE facilities. Revenues in our managed-only segment increased by approximately 14% during the first quarter of 2024 compared to one year ago. This year-over-year increase in our managed-only segment was driven by higher revenues in our secure transportation and international segments. Finally, quarterly revenues in our non-residential services segment increased by approximately 19% year-over-year. These revenue increases were offset by lower quarterly revenues. from our electronic monitoring and supervision services segment, which is the result of lower participant counts under the ISOP contract compared to one year ago. During the first quarter of 2024, operating expenses increased by approximately 2% as a result of inflationary cost increases, higher occupancy levels, and the shift in quarterly revenue mix compared to the first quarter of 2023. Our first quarter of 2024 results also reflect a year-over-year decrease in net interest expense due to the repayment of debt over the past 12 months, as well as due to higher interest income compared to the first quarter of 2023. Our effective tax rate for the first quarter of 2024 was approximately 26 percent. Moving to our guidance for the full year and the second quarter of 2024. For the full year of 2024, we expect GAAP net income to be in a range of $55 million to $75 million on annual revenues of approximately $2.4 billion and an effective tax rate of approximately 20%, inclusive of known discrete items. Our full year 2024 guidance reflects a $86 million pre-tax loss on the distinguishing of GAAP as a result of our recent refinancing transactions. We expect our full year 2024 adjusted EBITDA to be in the range of $485 million and $515 million. The low end of our adjusted EBITDA guidance range assumes a continuation of the current utilization rate for our ICE detention beds and the current ISAP participant count which is presently below the average participant count we experienced during the first quarter. The high end of our adjusted EBITDA guidance range assumes that utilization rates for ICE detention beds in the ISOP contract increased during the second half of the year, consistent with seasonal increases in border crossing activity. For the second quarter of 2024, we expect a gap net loss in a range of $27 million the $30 million as a result of the $86 million pre-tax loss on the extinguishing of debt during the second quarter. And we expect second quarter 2024 revenues to be in the range of $600 million to $610 million. We expect second quarter 2024 adjusted EBITDA to be in a range of $119 to $125 million. Moving to our capital structure, as previously noted, we recently completed the refinancing of substantially all of our debt. On April 18th, we closed on a new $760 million senior credit facility comprised of a $450 million term loan, bearing interest at SOFR plus 5.25%, and a $310 million revolving line of credit, which had no borrowings outstanding at closing. In a simultaneous transaction, we also closed our two senior note offerings, a $650 million senior secured note at 8.58%, and a $625 million senior unsecured note at 10.25%. The offering of these two notes and the term loan resulted in net proceeds of approximately $1.67 billion. We used the net proceeds to refinance approximately $1.5 billion of existing debt, including our previous two term loans, the 9 1⁄2 and 10 1⁄2% senior second-mean secured notes and the 6% senior unsecured notes. Subsequently, on May 6th, we also retired approximately $177 billion in principal amount of our 6.5% convertible notes in exchange for approximately $177 million in cash and approximately 9.8 million shares of GeoCommon stock. There are now approximately 136 million shares outstanding of GeoCommon stock. We now have approximately $53 million in outstanding principal amount of our convertible notes due 2026. and we are considering all of our options for addressing these stubbed notes. As a result of these transactions, we have reduced our average cost of debt by approximately 1% on the portions of our debt that were restructured in 2022. This meaningfully improved debt structure, our fixed rate, I'm sorry, under this meaningfully improved debt structure, our fixed rate debt represents approximately 75% of our total indebtedness and we pushed out substantially all of our debt maturities to 2029 and 2031. Going forward, we expect to continue to focus on further reducing our net debt, and as Brian discussed, we also have greater flexibility to evaluate options to return capital to shareholders under our new debt restrictions. At this time, I will turn the call over to James Black for a review of our Geo Secured Services segment.

Thank you, Shane. Good morning, everyone. It is my pleasure to review the quarterly milestones for GEO Secure Services. During the first quarter of 2024, our Secure Services facilities successfully underwent a total of 60 audits, including internal audits, government reviews, third-party accreditations, and the Prison Rape Elimination Act, or PREA certifications. Five of our Secure Services facilities received accreditation from the American Correctional Association with an average score of 99.8%, and one facility received PREA certification. Our GTI Transportation Division and our GO-AME-UK joint venture completed approximately 5 million miles driven in the United States and the UK during the first quarter. Moving to current trends for our government agency partners, at the federal level, populations at our U.S. Marshals detention facilities increased by approximately 5% since the beginning of the year. Our U.S. Marshals facility around the country supports the agency as it carries out its mission of providing custodial services for pretrial detainees facing federal criminal proceedings. We believe that our U.S. Marshals facilities provide needed bed space near federal courthouses where there is generally a lack of suitable alternative detention capacity. Moving to our ice processing centers, we experienced stable utilization of approximately 13,000 beds throughout the first quarter of 2024. During the first quarter, we estimate that the utilization across all ice facilities nationwide averaged approximately 38,500 beds. We estimate that the utilization across ice facilities nationwide is currently at approximately 37,000 beds. The current utilization at our ICE facilities remains at approximately 13,000 beds. With respect to federal funding, Congress recently enacted an appropriations bill for fiscal year 2024, which provides funding for 41,500 ICE detention beds, an increase of 7,500 beds from the previously funded level of 34,000 beds. GEO has a long-standing track record of delivering professional support services on behalf of ICE at GEO-contracted ICE processing centers, and we stand ready to support ICE with any additional needs. We have a total of 10,000 beds at several idle facilities that we believe are well-suited to support ICE's mission, and we have the expertise and resources to provide the needed ancillary services to meet the agency's needs. Geo-contracted ice processing centers offer around-the-clock access to quality healthcare services. Our healthcare staff at 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 and legal libraries and resources, and we have dedicated space at each ICE center to accommodate meetings with 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. We also provide access to faith-based and religious opportunities at each geocontracted ice processing center. And we partner with community volunteers as needed to ensure a fair representation of various faiths and denominations. Geocontracted ice processing centers also offer access to quality recreational activities. We have made significant investments in enhanced amenities at these centers, including artificial turf soccer fields, covered pavilions, exercise equipment, and multi-purpose rooms. We provide secure transportation services for ICE, primarily at 12 of the GEO-contracted ICE processing centers. Starting in the second half of 2023, our GTI Transportation Division also began providing secure air operation support for ICE initially under emergency contract. During the first quarter of 2024, we announced that GTI had been awarded a long-term five-year contract to continue to provide air operations support services on behalf of ICE as a subcontract to the CSI Aviation, which holds the prime contract. This important contract is expected to generate approximately $25 million in annualized revenue. At this time, I will turn the call over to Wayne Calabrese for a review of our GeoCare division.

Thank you, James. I'm pleased to provide an overview of the quarterly operational milestones for our GeoCare division. During the first quarter of 2024, we renewed three residential reentry center contracts with the Federal Bureau of Prisons. Additionally, we retained three contracts for our non-residential day reporting centers and we were awarded one new day reporting center contract. Our residential reentry centers, non-residential day reporting centers, and our ISAP offices successfully underwent a combined total of 77 audits, including internal audits, government reviews, third-party accreditations, and Prison Rape Elimination Act, or PREA, certifications. Three of our residential reentry centers received accreditation from the American Correctional Association with an average accreditation score of 100%, and one of our residential reentry centers received PREA certification. Our 34 residential reentry centers provide transitional housing and rehabilitation programs for individuals reentering their communities across 14 states and census levels at these centers remain stable at approximately 5,000 individuals during the first quarter of the year. Our non-residential and day reporting centers provide high-quality community-based services, including cognitive behavioral treatment for up to approximately 8,500 parolees and probationers at approximately 90 locations across 10 different states. Moving to our GEO in-prison programs and our continuum of care division, during the first quarter of 2024, we delivered enhanced in-custody rehabilitation to an average daily population of approximately 2,600 individuals at 31 in-prison program sites in seven states, and to approximately 21,000 individuals at 13 continuum of care sites in eight states. Our in-custody rehabilitation services include academic programs focused on helping those in our care attain high school equivalency diplomas. We have made a significant investment to equip all of our classrooms with smart boards to aid in the delivery of academic instruction at all our facilities. We have also focused on developing vocational programs that not only lead to certification when completed, but are also based on market job placement needs. Our substance abuse treatment programs are an important piece of our rehabilitation services because many of the individuals in our care suffer from addiction and substance use disorder. Our facilities also provide extensive faith-based and character-based programs. We've designated faith-based and character-based housing units for dorms across our facilities to enhance the delivery of these programs. During the first quarter of the year, we completed approximately 700,000 hours of enhanced in-custody rehabilitation programming. Our academic programs awarded more than 600 high school equivalency diplomas and our vocational courses awarded close to 850 vocational training certifications. Our substance abuse treatment programs awarded more than 1,200 program completions. We achieved over 700 behavioral treatment program completions and more than 4,000 individual cognitive behavioral treatment sessions. During the first quarter, we also allocated approximately $400,000 toward post-release services. This funding supported more than 600 individuals released from GEO facilities as they made their way back to their communities. Our GEO Continuum of Care integrates enhanced in-custody rehabilitation, including cognitive behavioral treatment with post-release support services that address critical community needs of released individuals. We believe our award-winning program provides a proven model on how the two-plus million people in the United States criminal justice system can be better served in changing their lives. 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 on behalf of federal, state, and local agencies across the country. During the first quarter, participant counts under the ISAP contract averaged approximately 188,000 individuals. Since the end of the first quarter, the ISAP participant count has fluctuated between approximately 184,000 and 185,000 individuals. With respect to federal funding, Congress recently approved an appropriations bill for the current fiscal year which funds the federal government through September 30, 2024. That appropriations bill enacted by Congress increased funding for alternatives to detention programs, which includes the ISAP contract, to approximately $470 million, representing an approximate 7% increase over the previously funded level of approximately $440 million. BI has provided technology solutions, holistic case management, supervision, monitoring, and compliance services under the ISAP contract for almost 20 years. 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. The current ISAP contract has a term of five years terminating on July 31, 2025. BI will continue to explore new and innovative technology solutions to support the needs of ICE as we prepare to compete for this important contract. At this time, I will turn the call back to George for closing remarks.

Thank you, Wayne. And in closing, our diversified business units have continued to deliver strong financial and operational performance. We are pleased that our steady results in our multi-year strategy to deliver our balance sheet successfully positioned GEO to refinance substantially all of our debt, which is presently approximately $1.8 billion and is expected to decrease to $1.6 billion by the end of the year. Our recent successful refinancing has lowered our average cost of debt and has given us greater flexibility to evaluate options to potentially return capital to shareholders. We believe we have several opportunities for potential upside in our financial performance. We are focused on marketing our current idle facilities and our diversified services to government agencies around the country. Operationally, we remain committed to achieving operational excellence in the delivery of our services on behalf of our government agency partners. We believe that our company's strong and predictable cash flows and our improved debt structure continue to present an attractive opportunity for investors. That completes our remarks, and we would be glad to take questions. Operator?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Joe Gomes with Noble Capital. Please go ahead.

Good morning. Congrats on the quarter. Thank you. I just want to get a little clarification here maybe. You guys are saying that you're thinking that ICE currently is about 37,000. Just looking at some of the numbers that ICE puts out, it looks like the beds are more than 1,000. they're saying are 34.5, and I was just wondering, am I missing something, or do you guys have some information that gives a more recent update versus some of the dated ICE data?

To our understanding, there's been a significant ramp-up in the census of those in detention facilities. I think the first half of the fiscal year which just ended last month. There was an intent for budgetary reasons to keep the bed count at a lower level in line with the original budget. And now that the recent refunding of the agency at a higher level of 41,500 beds is allowing them to now step up their count in their ice facilities around the country.

Okay, thanks for that. And then on the marshals, you got a nice increase in the number of people in marshals. I was wondering, you know, what is driving that? Is that a reflection of the courts getting back to a more normal operating environment or, you know, some of these we've seen in the past locals Localities are refusing to hold on to some of the detainees these days. Just trying to figure out what's driving the increase in the marshals' populations.

It's probably a combination of both of those things. The reluctance of local governments to be dealing with providing extra beds to federal agencies versus having a need for those beds themselves or for political purposes of not wanting to participate in such a federal program, but also the need to expand the number of beds as they did have a decrease in bed capacity under this administration at the outset of the administration year.

Okay. Pardon me. And you guys kind of mentioned it from the bigger, you know, the 10,000-foot level, but I don't know if there was any more detail you could provide about kind of some of the new business opportunities, especially on the state and local level that you're kind of pursuing at this point.

We really don't discuss... any marketing opportunities unless there are public procurements that we obviously would have a responsibility to react to. But at this time, there are no public procurements that we can comment on.

Okay. Just generally, I guess, Are you seeing more opportunities on the state and local level than you had historically, or is that more flat there, or maybe you could just characterize it that way?

It's somewhat flat with some of our clients, but we're seeing other clients asking for beds. at a smaller scale than we would prefer and we haven't jumped at those opportunities because our facilities are generally large. I would say a thousand beds and above and we're keeping those facilities in reserve for larger governmental users.

Okay. and it won't morph from it, I'll jump back in line, this is kind of more hypothetical, George, but as we all know, when the current administration came in and they ended basically the contracts with the BOP, if there was a change in administration and they were more favorable to contracts with the BOP, You know, looking at the BOP populations, they've risen by about 10,000 people since three years ago. Do you think, you know, again, this is hypothetical, you know, that the BOP would still look upon favorably if they needed space of coming to you? Or given what's happened in the past couple of years, do you think they would be more reluctant to reestablish contracts with firms like the private spending sector?

Well, using past experience as a guide under the previous administration, there was a reversal of the prohibition in using the private sectors for BOP contracting. So we would think that's a distinct possibility that the BOP facilities would once again be contracted to private sector entities like ourselves. And there was a similar impact under this administration regarding some marshals facilities that were direct contracts that were discontinued. I would think there would be a similar attitude if there's a new administration that would very possibly have a desire to reestablish those contracts with the marshals services as well as the BOP.

Thanks, Thad. I appreciate the answers to my questions. I'll get back in queue. Thank you.

The next question comes from Brian Violino with Wedbush Securities. Please go ahead.

Great. Good morning. Thanks for taking my questions. Just to start on the guide, it sounds like the high end is assuming we'll see some uptick in second half occupancy levels. in the detention segment. I guess, could you clarify if that assumes that we're going to be going up to the 41.5 bed count that was approved in the budget, or just sort of a general increase from here?

As we said, it's hard to predict exactly where they're going. The budget allocation projects the ability to go to 41,000, but I would think that would that would occur on a progressive, incremental basis, on a step-by-step basis. We've seen a change in the last few weeks going from 34,000 to approximately 37,000. So we expect a continuation, but where it ends, we don't know.

OK, thanks. And then appreciate all the details on the indentures and the credit agreements for the bonds. Just curious if you could give us a bit more thought in terms of timing as it relates to capital returns. Would you potentially want to wait until the cash flow sweep steps down later next year? Or if your leverage gets lower into your target range, could you think about repurchases earlier than that?

I think... At a minimum, we have to wait until the leverage steps down towards the middle of next year. So we're locked in on the 75% ECF through that point, and then it could step down based on leverage, and we can access those covenants at that point in time.

Okay, thanks. And then just one more from me. It looked like the NOI margins in the monitoring segment were a bit lower sequentially in year-over-year. Anything to note there, you know, one-time or seasonal, and, you know, if not, should we expect those margins to improve over the course of the year otherwise?

The margins in that segment are obviously being impacted, as we've discussed on the call, by the change in the utilization of the ISAF contract predominantly. So if as George discussed earlier, if the guidance, if the numbers move up, later in the year in ISAP, similar to may occur with the ICE detention beds, then we should see some, you know, nominal improvement in those margins.

Got it. Thanks for answering my questions.

The next question comes from Brendan McCarthy with Sedoti. Please go ahead.

Hey, good morning. Thanks for taking my questions. I just want to start off looking at the idle facilities. It looks like there was an increase in the secure idle facility bed count by roughly 900 beds. I think it was driven by reclassification related to the Delaney Hall asset. Can you just discuss what drove that increase?

It was a 1,000-bed increase. facility that was previously a re-entry facility. And we are looking at that facility for marketing in the near future.

Got it. Okay. And then I just kind of wanted to touch on the guidance. It looked like the assumption for shares outstanding increased, I think it was like 137,000 from about $126,000 from the initial guidance. Obviously, that assumes... Sorry, go ahead.

Millions, millions, yeah.

Oh, right, right, yep. $126 million to $137 million, approximately.

Right, yep, sorry about that. Obviously, I assume that does not include any share repurchase activity, but... But driving that increases is likely related to the exchangeable notes. Is that correct?

Yes.

Got it. OK. One last question for me. Do you have any comment on potential executive action from the Biden administration that's just been making headlines in recent days as it relates to the border?

I'm unclear as to what your question is.

Executive action policy about changing the border.

You know, I've heard that he's thinking about changing some policy, but I'm unclear as to what policy they're talking about.

Got it. Understood. That's all from me. Thanks.

The next question comes from Greg Gibbous with Northland Securities. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions. With respect to Q2 guidance, what do you expect that uplift to be driven by, given the expectation for roughly flat revenue?

Yeah, that's going to be primarily caused by the cost of payroll tax that we have in the first quarter, which is typical for our business, and then in the second quarter, you don't necessarily see a repeat of that expense. That's roughly five, six million dollars of added payroll expense in the first quarter relative to the second.

Okay, makes sense. And as it relates to maybe just more general cost structure dynamics, could you address just any favorable or unfavorable trends that you're seeing on any, whether it relates to payroll, obviously there's some seasonality like you just said, but any trends you're seeing on those line items

No, I don't think so. You know, over the last several years we had to give some fairly significant adjustments at certain contracts which we were able to negotiate with our clients. Revenue increases to offset that, so I think that's slowed down. You know, there's still pressure in the labor market, but it's more steady than it was. We did see previously also impacts to food and utilities, but I think those have also stabilized some more recently, so not seeing any real significant pressures in those major cost categories other than, you know, what's normal in the market.

Sure, okay.

And, you know, more high level, you know, why do you, I know it's been just kind of slight declines here, but why is the ISAT populations, you know, what do you attribute that to in terms of why they've kind of continued to decline sequentially?

Well, part of it was certainly the budget deficits that were being experienced within ICE. It's my understanding that they had an overall budget deficit of approximately $700 million. So they had to cut back in certain areas, which included detention capacity as well as ISAP.

Okay, got it. And I guess last one for me just as it relates to full-year guidance. Are there any contract renewals this year or other factors that could kind of swing it one way or another, or is it mostly just kind of fluctuations in those ice populations?

With regard to our Adelanto facility in California, I believe that the current performance period is now extended to June 19. And we've been in discussions and have made a request to extend that period for the balance of the year, if possible. If not, through at least September 30th. And we're awaiting a response to that.

And we would just wait for the balance of the year that will continue. So if for some reason it didn't, then that could have a downward impact.

Okay. And we would expect maybe more of an update closer to that June timeframe on that?

If something changes, otherwise we'll update on the next earnings call.

Well, we would expect an answer within the next few weeks, actually. Okay.

Okay, got it. Thanks, guys.

The next question comes from Kirk Ludkey with Imperial Capital. Please go ahead.

Hello, everyone. Thank you for the call. Congratulations on the refi. You mentioned the ISAP contract expires in May of next year. What's the typical process for renewing that and then also Have there been any developments with respect to that request for information that implied a pretty significant increase in alternatives to detention?

A procurement process has not been yet announced for the rebid of that contract. In the lead time for a procurement process, in that kind of contract, which is large scale, large volume, is several months. Probably six, nine, 12 months lead time is necessary to re-procure such a contract. So we're not aware that any announcement to that effect has yet occurred leading to the possibility that the current term could be extended for some period of time.

And, Kirk, just to correct you there, the expiration date on the existing contract without any renewals, as George was talking about, or short-term extensions, would be July 31st of next year, not May 31st.

July 31st. Okay, thank you. So the lead time is a... So we're not quite to that 12-month... kind of lead time, but you might start, you know, seeing something, seeing some developments there July of this year.

Possibly.

Yeah. Okay. And the request for information from a while ago that was, you know, kind of implied a pretty significant increase in alternatives to detention more broadly. Has there been any developments on that front?

Well, there was additional funding, but part of that funding was used to offset the deficit that was in that program as well as other programs. You may recall I said moments ago that the agency as a whole had apparently a deficit of approximately $700 million. So, you know, the... the different programs from detention facilities to ISAP programs to other programs were running hotter at the beginning of the fiscal year and that had to be made up with this new funding that was made available just to offset the deficits before they could achieve higher levels. And I think in both areas of detention and ISAP, will very possibly see higher levels, but it's only been recently that they reduced the lower levels to offset the deficits.

This is Wayne. As far as that alternate RFI approach, it seems to have gone fairly dormant. We really haven't heard much more about that.

Okay, great. Thank you. You mentioned that you've got the 10,000 idle beds. Would those all be appropriate for ICE detainees?

Yes. With some revisions to provide office space for ICE staff, which is not normally a requirement to any great extent for BOP, contracts or Marshall's contracts. The difference in the ICE facilities is you have more on-site ICE personnel and you also probably need some courtrooms and other ancillary things.

Got it. I appreciate it. Thank you very much.

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

Thank you very much. We look forward to addressing you at the next conference call.

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