Geo Group Inc (The) REIT

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 fourth quarter and full year 2024 earnings results. With us today are George Zoli, Executive Chairman of the Board, David Donahue, Chief Executive Officer, Wayne Calabrese, President and Chief Operating Officer, and Mark Suchinsky, 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. 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. 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 fourth quarter 2024 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 Calabrese, and our CFO, Mark Szuczynski. Dave has 42 years of operational experience in our industry, having previously served for 10 years as DO 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. During today's call, we will review our fourth quarter and full year 2024 financial results and operational highlights for our business segments. We will also discuss our initial financial guidance for 25, which is consistent with our longstanding 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 24 reflects higher overhead expenses, 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 25. Our top line revenue for the fourth quarter of 24 increased from our 24th third quarter results in line with our guidance. However, our earnings and adjusted EBITDA were below our previous expectations due to higher overhead expenses. In 24, we already incurred approximately $9 million of the $70 million investment we announced in December to strengthen our capabilities to deliver expanded detention capacity, secure transportation, and electronic monitoring services to ICE. In 2025, we expect to invest an incremental $38 million to renovate existing facilities, $16 million to ramp up production of additional GPS tracking devices in the ISAP program, and $7 million 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 secure 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. The current population is approximately 15,000. It represents an increase of 1,000 beds utilized by ISAT geoservice 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 million and $600 million 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 15-year fixed-price contract by ICE to provide support services for the establishment of a federal immigration processing center at Delaney Hall. GEO's support 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 million in annualized revenues in the first full year of operations. with margins consistent with our company-owned secure services facilities. We estimate the 15-year value of the contract with normal cost of living adjustments to be approximately $1 billion. We expect to reactivate the facility in the second quarter of 2025 with revenues and earnings from the new contract normalizing during the second half of 2025. We are in active discussions with ICE and the Marshall Service regarding their interest in GEO's remaining six idle facilities. Additionally, we have two state correctional facilities totaling more than 3,000 combined beds, 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 million in proceeds that could be used to reduce debt and or otherwise enhance shareholder value. 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 14th. Before the recent passage of the Lake and Riley Act, the Trump administration had indicated a need to ramp up to 100,000 total ICE detention beds for increased interior enforcement operations. Based on public statements from ICE, the implementation of the Lake and Riley Act could require an additional 60,000 detention beds or more. We believe that an increase of between 100,000 and 160,000 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. 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 40-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 partnerships. We are also making a 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 ISAP. ISAP participant counts averaged between 183,000 during the fourth quarter of 2024 and are currently standing at approximately 186,000. A little over two years ago, the ISAB contract utilization peaked at approximately 370,000, almost twice the number of the participants currently in the program. Returning to that utilization level would generate an incremental income of revenues of $250 million, 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 20 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 20-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. There are currently an estimated 7 to 8 million undocumented aliens on the non-detained docket, in addition to another 9.5 to 10 million 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 court proceedings. At this time, we have not received any update from ICE regarding the timing of a procurement or a rebid of the ISEP contract. and we believe the agency's focus has shifted to increasing the size of the population that is currently monitored under ISAF. 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 ISAF contract by several hundreds of thousands and upward to several millions of participants as required. We are investing in the expansion of our secure services transportation fleet as well. We expect an increase in the number of removal flights which could generate an increase incremental of $40 million to $50 million in annualized revenues under our existing ICE air support 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 million to $1 billion in incremental annualized revenues. Based on the average margins for our respective segments, we expect that the opportunities could add as much as $250 million to $300 million 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. While we understand that DHS has recently reprogrammed approximately $485 million 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. 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 and $200 billion 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 2025 with likely activation of additional new facilities in the second half of 2025. Once a contract has been awarded, our typical facility activation period is 60 to 90 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. We ended 2024 with approximately $1.7 billion in total net debt. Based on our initial guidance for 2025, we would expect to reduce net debt by an additional $150 to $175 million this year. before any asset sales or further upside to our guidance, bringing the total net debt to approximately $1.5 billion and a total net leverage approximately 3.2 times adjusted EBITDA. I will now turn the call over to our CFO, Mark Suchins.