Geo Group Inc (The) REIT

Good day and welcome to the GEO Group first quarter 2025 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 2025 earnings results. With us today are Dave Donahue, Chief Executive Officer, and Marge Suchinsky, Chief Financial Officer. 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. The 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 CEO, Dave Donahue. Dave?

Thank you, Pablo, and good morning, everybody, and thank you for joining us on our first quarter 2025 earnings call. Our Executive Chairman, George Zoli, he's on personal leave today and will not be joining the call, but I am pleased to be joined by our CFO, Mark Jasinski, to review our first quarter financial results and operational highlights. We've had a very active first half of 2025, and we continue to make significant progress towards meeting our growth and capital allocation objectives. As we have expressed to you previously, we believe we have an unprecedented opportunity to assist the federal government in meeting its expanded immigration enforcement priorities. And we've taken several important steps in anticipation of what we expect to be significant future growth opportunities and related operational activity during 2025. In December of 2024, we announced a $70 million investment to strengthen our capabilities to deliver expanded detention capacity, secure transportation, and electronic monitoring services to ICE and the federal government. Late last year, we also announced the reorganization of our corporate management structure to strengthen our operational oversight and execution in preparation for the expected growth. This reorganization along with additional professional fees has resulted in higher quarterly overhead expenses incurred in anticipation of what we expect to be unprecedented future growth projects and operational activity. This morning, we updated our financial guidance for 2025, which reflects a tale of two halves of the year. The first half of 2025 reflects higher overhead and operating expenses, as well as higher capital expenditures without corresponding revenues. This is to position our company for anticipated future revenue growth, which we expect to begin to layer in during the second half of 2025. Additionally, consistent with our longstanding practice, our guidance does not include any new contract awards that have not been previously announced. During the first quarter of 2025, we announced several new contract awards with U.S. Immigration and Customs Enforcement. In New Jersey, we entered into a 15-year contract to provide support services for the establishment of a federal immigration processing center at our company-owned 1,000-bed Delaney Hall facility. This new contract is expected to generate in excess of $60 million of annualized revenues, with margins consistent with our company-owned secure services facilities. The Delaney Hall facility began the intake process on May 1st, and we expect revenues and earnings from the new contract to normalize during the second half of 2025. In Michigan, we entered into a letter contract with ICE for the phased activation of a federal immigration processing center at our company-owned 1,800-bed Northlake facility. We're in the process of negotiating a multi-year contract with ICE, which we expect to be finalized in the next several weeks, with facility activation expected during the third quarter of 2025. We expect this new contract to generate in excess of $70 million in annualized revenues, with margins consistent with our company-owned secure services facilities. In Texas, we had announced a contract modification for our company-owned 1,328-bed Carnes Ice Center to transition the facility from housing single adults to housing mixed populations. Subsequently, ICE decided to continue to house single adults in the Carnes Ice Center based on the assessment of the agency's current needs. The activation of the Delaney Hall and Northlake facilities will increase our total capacity under contract with ICE from approximately 20,000 beds to approximately 23,000 beds. Utilization at our facilities under contract with ICE is currently at approximately 16,000 beds, which is the highest level of utilization in over five years, while we estimate the ICE detention levels are currently at about 48,000 beds nationwide. In addition, we have around 3,000 beds available to facilities currently under contract with the U.S. Marshal Service. We also have roughly 6,500 beds at idle facilities, which have not received a contract award yet, and for which we are currently in active discussions with both ICE and the Marshal Service regarding their interest in these facilities. We continue to be very encouraged by the pace of these discussions and anticipate additional contract awards to be announced during the second quarter of 2025 for likely activation in the second half of the year. ICE recently issued a $45 billion procurement for detention beds and related services as a strategic sourcing vehicle to contract for additional detention bed space nationwide. And the Marshal Service has issued sources sought notices to contract for additional bed space in Texas and North Carolina, where we currently have available idle facilities. As we have previously articulated, we estimate that the utilization of our available idle and underutilized beds could generate between $500 million and $600 million in annualized revenues, with margins consistent with our Secure Services-owned facilities, which average 25% to 30%. To date, the Delaney Hall and Northlake contract announcements represent an excess of $130 million of this annualized revenue potential. However, These facilities are expected to generate only partial revenue and earnings contribution in 2025 due to the timing of these facility activations. As a reminder, once a contract has been awarded, our typical facility activation period is 60 to 90 days to hire, train, and clear staff and to get the facility ready for occupancy, followed by a gradual ramp-up in utilization. As we have previously discussed, before the 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 incremental 60,000 ICE detention beds or more. We continue to believe that an increase to between 100,000 and 160,000 total detention beds will require a range of solutions for the detention and processing of migrants 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 a cost savings to taxpayers when compared to publicly operated facilities and to alternative solutions like soft-sided facilities. In addition to our current inventory of idle facilities, we are exploring additional options. including the potential purchase, leasing, or operation of third-party-owned facilities and the potential repurposing of some of our current state facilities. With respect to the latter option, we have two state correctional facilities totaling approximately 3,600 combined beds, which could be repurposed for use by the federal government. We were initially pursuing the potential sale of both of these facilities. However, after discussions with the leadership of these two states, we are currently moving forward with the potential sale of one of these facilities while repurposing the other facility. In New Mexico, we are working with the New Mexico Corrections Department to depopulate our company-owned 1,200-bed Lee County facility by the end of the year. We've already begun marketing this facility to both ICE and the U.S. Marshals Service. As has been publicly disclosed in the media, In Oklahoma, we are in advanced discussions with the Oklahoma Department of Corrections for the potential sale of our company-owned 2,400-bed Lawton Correctional Facility for $312 million, with financial closing targeted for this July subject to legislative and executive approval. We've also made a significant investment commitment in our electronic monitoring and supervision services segment to ramp up for the production of GPS tracking devices for use under the Intensive Supervision Appearance Program, or ISAP. ISAP participant counts averaged approximately 186,000 during the first quarter of 2025. While ISAP counts declined below 184,000 in April, they have recently begun to increase and are currently above the 185,000 participants. As we have previously noted in late 2022, the ISAP contract utilization peaked at approximately 370,000, or twice the number of participants currently in the program. We estimate that returning to that utilization level could generate an incremental $250 million in annualized revenues based on the current mix of the program. 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, ISAF has achieved high compliance rates with immigration court requirements while monitoring a relatively small portion of the estimated 7 to 8 million undocumented aliens who are on the non-detained docket. in addition to another 9.5 to 10 million people who are also 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 and the Lake and Riley Act will require an increase in GPS tracking for individuals on the non-detained docket. With the investment commitment we have made, we believe we have the necessary resources to significantly and quickly scale up the current utilization of the ISAT contract. And we believe that the agency's focus remains on increasing the size of the population that is currently monitored under ISAT. The existing ISAT contract is scheduled to expire July 31, 2025, which we do not believe provides adequate time for competitive rebid of the contract, and thus we are expecting a one- or two-year extension allowing for an orderly transition to a larger and more focused program. We are also investing in the expansion of our secure services transportation fleet. As we have previously discussed, we expect an increase in the number of removal flights to generate an incremental $40 million to $50 million in annualized revenues under our existing ICE air support services subcontract. On a combined basis, We estimate that the upside potential from all of these opportunities could represent as much as $800 million to $1 billion in annualized revenues, which could add as much as $250 million to $300 million in annualized adjusted EBITDA. To date, we have announced new contracts totaling in excess of $130 million of this potential growth. We expect these opportunities to be supported by the expected continued ramp-up in interior enforcement by ICE. contingent on future funding availability, either through additional appropriated or reprogrammed funds. The budget reconciliation process in Congress remains a key element for the future funding availability for ICE. The U.S. Senate and the U.S. House of Representatives have agreed on a budget framework and are currently considering a budget reconciliation bill that is expected to provide a significant funding increase for border security and immigration enforcement. The U.S. House of Representatives is aiming to complete the budget reconciliation process by Memorial Day, while the U.S. Senate is aiming to complete it by the 4th of July. Regarding our capital structure, we continue to make significant progress in our efforts to reduce debt, deleverage our balance sheet, and evaluate potential capital returns in the future. We ended the first quarter of 2025 with approximately $1.68 billion in total net debt. For the full year 2025, we expect to reduce net debt by approximately $150 million to $175 million, bringing total net debt to approximately $1.54 billion and total net leverage to approximately 3.3 times adjusted EBITDA. Finally, before I turn the call over to Mark, I would like to briefly review the quarterly operational highlights for our GeoSecure services and GeoCare business units. During the first quarter of 2025, our Secure Services facilities successfully underwent a total of 57 audits, including internal audits, government reviews, third-party accreditations, and Prison Rape Elimination Act, or PREA, certifications. Six of our Secure Services facilities received accreditation from the American Correctional Association with an average score of 99.6%, and another three facilities received PREA certifications. Our GTI Transportation Division and our GeoAIME UK joint venture completed approximately 2.3 million miles driven in the United States and the UK during the first quarter. Moving to the quarterly operational milestones for GeoCare. During the first quarter of 2025, we renewed five residential reentry center contracts, including three contracts with the Federal Bureau of Prisons. Additionally, we renewed 10 non-residential day reporting center contracts. Our residential reentry centers, non-residential day reporting centers, and ISAF offices successfully underwent a combined total of 81 audits, including internal audits, government reviews, third-party accreditations and Prison Rape Elimination Act, or PREA certifications during the first quarter. Two of our residential reentry centers received accreditation from the American Correctional Association with an average accreditation score of 99.8%, and two residential reentry centers received PREA recertifications. Moving to our enhanced rehabilitation programs, during the first quarter of 2025, we completed approximately 700,000 hours of enhanced in-custody rehabilitation programming. Our academic programs awarded 575 high school equivalency diplomas, and our vocational courses awarded more than 1,600 vocational training certifications. Our substance abuse treatment programs awarded over 900 program completions, And those in our care achieved close to 2,600 behavioral treatment program completions and close to 4,800 individual cognitive behavioral treatment sessions. During the first quarter of 2025, we also allocated more than $300,000 towards post-release services. This funding supported approximately 1,900 individuals released from GO service facilities as they returned to their communities. We believe that our award-winning Continuum of Care program provides a proven model for how the two-plus million people in the United States criminal justice system can be better served in changing their lives. I'll now turn the call over to our CFO, Mark Stachinski.

Mark? Thank you, Dave, and good morning, everyone. For the first quarter of 2025, we reported net income attributable to GEO of approximately $19.6 million, or 14 cents per diluted share on quarterly revenues of approximately $605 million. This compares the net income attributable to GEO of approximately $22.7 million or 14 cents per diluted share in the first quarter of 2024 on revenues of approximately $606 million. Adjusted EBITDA for the first quarter of 2025 was approximately $100 million. compared to approximately $118 million for the prior year's first quarter. Our first quarter revenue and adjusted EBITDA were in line with our internal expectations. Beginning with revenues, quarterly revenues in our owned and leased secure service facilities increased by approximately 3% year over year. This revenue increase was offset by lower quarterly revenue from our electronic monitoring and supervision services segment, which declined by approximately 10% compared to the prior year's first quarter. Combined quarterly revenues from our owned and leased reentry centers, managed-only facilities, and non-residential service contracts were largely unchanged compared to the prior year's first quarter. Now let's turn to our operating expenses. During the first quarter of 2025, our operating expenses increased by approximately 3% compared to the prior year's first quarter. The increase in our operating expenses reflect higher labor costs in our secure services segment, in part due to additional staffing and training costs, as we continue to incur these in preparation for expected future growth. Our general and administrative expenses for the first quarter of 2025 increased by approximately 9% from the prior year's first quarter, in part due to recent reorganization of our senior management team and additional associated professional fees, which we incurred during the first quarter of 2025 in preparation for expected future growth, as well as higher employee-related benefit costs. Compared to the fourth quarter of 2024, our first quarter 2025 results also reflect approximately $6 million in higher payroll-related taxes, which are front-loaded in the first quarter of each year. Our first quarter 2025 results reflect a year-over-year increase or year-over-year decrease in net interest expense of approximately $8 million as a result of our debt reduction and refinancing efforts taken over the last year. Our effective tax rate for the first quarter of 2025 was approximately 9 percent. Income taxes for the first quarter of 2025 were lower than expected as a result of the increased value of equity awards which vested during the quarter.

Now let's move to our updated financial guidance for 2025.

As previously noted, our financial guidance for 2025 reflects a tale of two halves of the year. The first half of 2025 reflects higher overhead and operating expenses, as well as higher capital expenditures to position our company for anticipated future revenue growth without the corresponding revenues, with growth beginning to layer in during the second half of 2025. Also importantly, Consistent with our long-standing practice, our guidance does not include any new contract awards that have not been previously announced. For the full year 2025, we expect net income attributable to GEO to be in the range of $0.77 to $0.89 per diluted share on revenues of approximately $2.53 billion and based on an effective tax rate of approximately 27% inclusive of known discrete tax items. We expect our full year 2025 adjusted EBITDA to be between $465 million and $490 million. For the second quarter of 2025, we expect net income attributable to GEO to be in the range of 15 cents to 17 cents per diluted share on quarterly revenues of $615 million to $625 million. We expect the second quarter of 2025 adjusted EBITDA to be between $110 million and $114 million. Our guidance does not include any assumption for new contract awards that have not been previously announced, nor any material census growth at either existing facilities or the ISAP contract. However, we anticipate that several upside opportunities could materialize during the year, including additional contract awards, which we expect to be announced in the second quarter of 2025. As we progress through the year and these growth opportunities materialize, we will continue to adjust our financial guidance accordingly. As a reminder, as contract awards are announced and we begin to reactivate idle facilities, we would expect to incur startup expenses during the initial 60 to 90-day activation period. Startup expenses for any facility activations not previously announced are not included currently in our guidance. We expect total capital expenditures for the full year of 2025 to be between $120 million and $135 million, including the impact of the $70 million investment we announced in December to expand our ICE service capabilities. Moving to our capital structure, we ended the first quarter of 2025 with total net debt of approximately $1.68 billion, $65 million in cash on hand, and approximately $235 million in total available liquidity. As of the first quarter of 2025, fixed rate debt represents approximately 77% of our total indebtedness, which meaningfully insulates GEO from potential interest rate volatility. In April of 2025, we were pleased to have Fitch initiate ratings on GEO with a B plus issuer rating a double B plus rating on our secured debt, a double B minus rating on our unsecured debt, and a stable outlook. We have no substantial debt maturities due before April of 2029, which continues to give our company significant runway to grow our business and focus on reducing our debt and eventually be able to return capital to shareholders. Based on our current 2025 guidance, We expect to reduce our net debt by between $150 million and $175 million this year, bringing our total net debt to approximately $1.54 billion by the end of the year. Our debt reduction could be augmented by the sale of one of our state correctional facilities in Oklahoma, which we estimate could generate gross proceeds of approximately $312 million. In addition to allocating capital towards debt reduction to support our capital growth needs, our goal remains to explore options for returning capital to our shareholders in the future. At this time, I'd like to turn the call back to Dave for closing remarks. Dave?

Thank you, Mark. We are pleased with the progress we've made towards meeting our growth and capital allocation objectives. The additional time we've spent with our federal partners have positioned us very well for the remainder of 2025. During the first quarter of 2025, we announced two important contract awards for the reactivation of two company-owned facilities, totaling 2,800 beds and representing in excess of $130 million in annualized revenues. We believe we have an unprecedented opportunity to assist the federal government in meeting its expanded immigration enforcement priorities. We have taken several important steps to be prepared to meet that opportunity, and we are very well positioned. We have made a significant investment commitment of $70 million to strengthen our capabilities to deliver expanded detention capacity, secure transportation, and electronic monitoring services to ICE and the federal government. We've also completed a reorganization of our senior management team to oversee the operational execution of this expected future growth. As a result of these steps, our guidance for 2025 reflects a tale of two halves of the year. The first half of the year is expected to be impacted by higher overhead and operating expenses, as well as increased capital expenditures to position our company for future growth, which is expected to begin to layer in during the second half of 2025 and normalize in 2026. GEO is the single largest contractor at ICE with four decades of partnership and are currently we provide approximately 40% of the detention beds to ICE. We believe we are well positioned to significantly scale up our secure residential care housing for ICE from the current 16,000 utilized beds. In GO's 100% management of the ISAP program, we believe we can quickly scale up from the present 185,000 participants to several hundreds of thousands or even millions of participants if called upon. GEO's contractual partnership with CSI Aviation has allowed us to become the largest provider of secure transportation services for ICE. We believe we can scale up materially for domestic and international travel for 500,000 individuals or more if called upon. This is a unique moment in our company's history, and we believe we are well positioned to meet this unprecedented opportunity and to continue to enhance value for our shareholders. With that, this completes our remarks. and we will be glad to handle any questions. Thank you.

We will now begin the question and answer session. To ask a question, you may press star then one 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 two. 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. Thanks for taking my questions. Good morning.

Good morning, Joe.

So one of the, to start off, I'm looking in the supplement presentation, and you noted that during the quarter, or the electronic monitoring segment during the quarter revenues were down 10.5% year over year, but then operating income fell almost 20%. And I'm just wondering what was behind that bigger than fall than the revenues were.

Yeah, Joe, I can address that. When we compare electronic monitoring revenues and profitability first quarter of this year compared to last year, It's a bit of, as you just indicated, the ISAP counts were down, but the bigger impact on the profitability was a mixed shift. When we think about the products that we offer, we saw a larger reduction in the phones as part of the program the first quarter of this year compared to last year. So it's really, it's a mixed shift. away from phones and more to GPS monitoring devices, which puts a little bit of pressure on the margins.

Okay. Thanks for that. And then you guys mentioned the house funding bill are in the reconciliation talking about, you know, adding 45 billion for ICE detention. They talk about adding a significant amount of money also for transportation. But one of the things, at least in the articles that I have read, is nothing really mentioned on ATD. Now, was that included in that $45 billion, or is there something else going on there with the funding bills, potential funding bills?

Well, Joe, this is Dave. Let me speak to that. The funding activity right now, as you identified, I think Homeland Security and Immigration Customs Enforcement are obviously focusing on interior enforcement, and detention is a priority. So we've seen, as a result of the agency's efforts to secure the border at the southern side of our country, that detention-focused has become the reality. And so we've spent additional time with our clients working through our facilities so they have a better understanding to maximize the available detention space in the country. As the interior enforcement matures and the detention space is utilized, the non-detained docket is very robust, as you know, and the alternative to detention, and specifically ISAP, is the valuable solution that provides accountability for for the immigration population as they're moving through their judicial reviews. So again, we have a high degree of confidence that as the budget process unfolds, as that becomes clear, you'll see greater utilization on the electronic monitoring side to enhance the detention availability.

And Joe, I would just add, I think that as the funding bill matures, I think more specifics and details will merge around the ICE needs and where those funds will be allocated. So I think we just need to wait and let the process in Congress work out. And I think all of that will become more clear to all of us.

Okay. And then you guys mentioned, you know, I see pennies and obviously working with the ICE numbers, which are, I think the most recent one I saw was from early April. You know, the number of detainees, you know, has significantly increased from the beginning of the government fiscal year from, you know, call it, you know, 38,000-ish to, you know, 48,000-ish. But it's been relatively flat the last couple of months. And I don't know if that's, you know, your guys' thoughts. Is that just due to funding issues? And there are other things going on there. And how does that kind of play into your expectations at the likelihood that all of your idle facilities would be reactivated this year?

So, you know, relative to the budget conversation, as Mark said, Joe, I think that what you're seeing right now is the agency being supported by by the congressional initiatives to really meet their mission. And the transition from 2024 to 2025, the agency's objectives have significantly changed. And the executive office obviously has provided greater clarity on the expectations for interior enforcement. So we're very impressed with ICE's focus, with their due diligence associated with how they're going to handle this mission. And we do believe that as the funding streams become defined, we are very well positioned to help them meet their mission. And we're excited about the second half of the year because of that.

And I think, you know, I would add that they rapidly increased the number of people detained. And so, you know, they're using up very quickly the amount of space that they have. And so when you think about the back half of the year, our Delaney contract and the Northlake contract, that will help them increase the number of detainees. So it's a budget, but I also think, you know, as they're letting these contracts and increasing the capacity, you'll start to see those go up. It just very quickly, they used the capacity that they had on contract, and now they're going to have to open up new contracts to expand that capacity.

Okay. Thanks for that. One last one for me. You know, pardon me, given what we discussed today about, you know, the, you know, selling the one, potentially selling the one state facility and repurposing another state facility for ice uses, you know, recently, I think in the last week or so, Alabama put out RFI, I think, about interest for people building a new facility in for them. Given where you guys are today and the expected growth from ICE, would Alabama make sense for you guys to look at, or is that something that would be on a back burner, so to speak, given the expected demand coming from the federal government?

Well, Joe, as you use the phrase back burner, you know, we obviously want to be in a position to support any governmental client that potentially has a need. And, you know, we would look at those opportunities. But our primary focus today is supporting our federal partners and the mission at hand. So we don't have, you know, adverse opinion about the Alabama opportunity. But to your point, it's definitely a back burner issue.

Great. I'll get back in queue. Thank you very much. Thank you.

The next question comes from Jason Weaver with Jones Trading.

Please go ahead.

Hey, guys. Good morning. Thanks for taking my question. First, we've heard about some requisitions for semi-permanent detainment facilities on military properties around the country. Do you have any context on that and whether GEO might be retained or approached as an operating partner for anything like that?

Sure, Jason. Good question. This is Fort Bliss, for one, we've heard of. Right. As you may know, the government has retracted the Fort Bliss objective, and that's no longer a competitive procurement. So that's been pulled off the table by the government, and I'm sure they're evaluating other opportunities. We are very well positioned to provide additional capacity to and operating support on an as-needed basis. We are focusing presently on our idle facilities, and several of our current facilities have opportunity for expansion by way of soft-sided capacity, if in fact the government wants to pursue that. So, we're working directly with our clients to understand what their needs are, and as those needs become identifiable, then we're going to stand in the corner with them to create the solution. So, We're not opposed to operating any environment that ICE feels is necessary for them to meet their mission.

All right. Thank you for that. And also on the same topic, I believe in your prepared remarks, you mentioned U.S. Marshals' interest in one of your Texas facilities, which is Flightline, I believe. Have you engaged in any discussions around reopening the Georgia Ray James facility with any federal partners?

Again, Jason, all of our current EIDL inventory is under review and in discussions with our federal partners.

All right. Thanks. And just one more.

Got it. And finally, when do you think you would be the earliest you'd be in a position to engage in share repurchase?

Good question, Jason. I think, you know, first things first, when we've At our investor day, we talked about the priorities of capital allocation. Right now, the big focus is on supporting our clients and the reactivation and expanding of the services that we have in place here, which we believe will lead to substantial increase in revenues and profitability. And that's both from an expansion and a capital standpoint. And what I would tell you is as we move into the back half of this year, we have this potential opportunity in Oklahoma, which could help accelerate debt pay down. I think that becomes returning capital back to shareholders becomes a closer priority as that happens. And so I think it's something that we'll look at. The first priority is execution and supporting our clients. Back half of the year, we expect the financials to reflect those opportunities. And so I think we'll start to look at it more meaningfully in the back half of 2025. And then I think it becomes a very serious conversation in 26.

All right, thank you for taking my time.

The next question comes from Greg Gibbets with Northland Security.

Please go ahead.

Hey, good morning, guys. Thanks for taking the questions. As it relates to the Carnes facility and that decision or the reversal back to single adults, what spurred that change?

You know, Greg, I think it's a reflection of our partnership with Immigration Customs Enforcement and our flexibility and ability to respond to their needs. As they evaluate their objectives, they're looking, obviously, for mission-specific solutions. And when they completed that assessment, after that announcement was made, a reevaluation was completed, and we worked directly with ICE to meet that objective. So, It's really about making sure that we are nimble and flexible enough to meet the agency's objectives and help them meet their mission. Got it. That's fair.

And, you know, I believe kind of last quarter and at the investor day, the expectation was, you know, all these facilities ramping by the end of the year as it relates to your idle facilities, that is. but primarily be contracted by the end of Q2. Is there an updated timeframe you estimate from a contracting timing perspective with the EIDL facilities?

I think we're still on plan, Greg. We envision this quarter to be very active for contract awards and engagements with our federal partners. So again, consistent with where we were at the beginning of the year, we're optimistic that the second half of the year is really the layover period for those additional projects being brought online.

Got it.

And then lastly, to follow up on kind of the U.S. Marshal Service, you know, saw a couple RFPs out there for facilities and, you know, pretty closely aligned with a couple of yours, a couple of your EIDL facilities, that is. You know, how are you kind of – I know you can't provide specifics, but just kind of weighing – You know, do you expect maybe those RFPs to, you know, I guess, are you expecting timing with the Marshall service maybe to come through sooner than anything with ICE and kind of how you're aware, like weighing which facilities for either kind of service, right? Like I think pricing is pretty similar. So, you know, any color you can share on developments with the Marshall service.

Yeah, Greg, the Marshal Service, obviously a very important client of ours, no different than Immigration Customs Enforcement. Both agencies are governed by the congressional efforts to create the budget. And so as we watch Congress manage the funding necessary for the law enforcement initiatives, the U.S. Marshal Service will, I think, be very well positioned commensurate with that funding authority to execute their needs, and we are working very closely with them. The facilities that you referenced, you know, we have frequent communication with our clients, and we're having good-paced discussions right now in anticipation of future use.

Okay, thanks very much.

The next question comes from Jay McKenna with Wedbush.

Please go ahead.

Hey, good morning, guys. So the first question I had, if you do sell Oklahoma and, you know, say $150 million of what you talked about for additional debt pay down, at that point your debt to equity is going to be sitting at about a one-to-one ratio. How low would you want that to go? And, you know, again, I guess how much lower would it need to go for you guys to start buying back stock?

Well, We get to that point, as you said, one-to-one. We've significantly reduced our overall leverage. And as we talked at our investor day, we're very comfortable with debt levels being two to two-and-a-half times. So that all comes to fruition. I think then we have the opportunity to... focus on returning capital maybe faster than the timeline that I had previously discussed. But, you know, that would be a good place for us to be, and I think it'd be a real good opportunity for us to start to reward our shareholders.

Great. And then the second question I had How should we think about the North Lake contract? Is the government covering the OPEX and CAPEX related to starting up that facility so that it's basically budget neutral for you guys? Or how should we think about the progression on that?

Yeah, so when you think about when we get a contract like that, our contracts typically don't have the government funding the capital up front. And so the capital investment that we make is recovered over the course of our contract timeline, whether it's a two-year contract or a five-year contract, and that's built into the pricing. And Northlake, when we talked about the $70 million investment that was included in our overall guidance for the year, we We focus on making those investments ahead of these contract awards and getting them prepared so that we could react very quickly for our clients' needs. What I would say is that that investment on that facility from a CapEx standpoint is included in our overall guidance as well as the revenues that will start to take hold in the back half of the year. That investment that we made is covered in the guidance and will be a creative over the course of that contract award.

Okay, great. That's all I have. Thank you. Thank you.

The next question comes from Brendan McCarthy with Sidoti & Co. Please go ahead.

Great. Good morning. I just wanted to start off on the Q2 guidance. the top line revenue of $620 million at the midpoint. Does that include any contribution from, I guess, any of the three vital facility contract awards that were previously announced? And also, what does that assume as it relates to ISAT participant count?

So, thanks, Brendan.

The revenue guidance for the second quarter will factor in the benefits of the Delaney contract that activated and started on May 1. So we'll have a couple of months worth of revenue related to that new contract award. We talked about the North Lake facility. Really, the revenue contribution on that will more so start in the third quarter from a from an ISAP count standpoint, we're monitoring that very closely, at least from a second quarter standpoint. We don't expect a significant increase in the second quarter, but as Dave had mentioned earlier, we're starting to slowly increase the ISAP counts that will help from a revenue standpoint. And I would also say this, when you think about our existing contracts and the beds, and we talked about the 48,000 we're seeing nice upticks in our existing contracts and the utilization of those facilities. And so all of those items will help contribute to the revenue growth over the first quarter.

Great. That's helpful. I appreciate the detail.

And then as it relates to the budget reconciliation process, I think you mentioned in your prepared remarks the House is aiming to complete their work by Memorial Day, the Senate is aiming posted to July. Just curious as to what do you think is the most likely outcome here regarding the timing of funding ultimately being appropriated?

Well, you know, Brendan, I submit to you that once the chambers complete their work, obviously the budget gets reconciled and the agency has a clear runway to to focus on the mission, and I submit to you that's going to be the second half of the year when you see what I call the momentum associated with interior enforcement and the work that Immigration Customs Enforcement has laid upon them to really become meaningful. So it is a matter of concert with the budget approvals before I think the agency really commits to extending themselves into the interior.

Understood and one more question for me just on the Lee County facility in New Mexico I think you had mentioned that that is being depopulated at the moment and maybe repurposed or sold Can you just comment on that scenario and how that developed?

So as as we had previously communicated those facilities were being evaluated for either an asset sale or repurposing after discussions with the New Mexico leadership. We've reached the decision to pursue demobbing or depopulating that project, and that'll be done by the end of June. And then we began, commensurate with that decision, we began providing the information to our federal partners on the potential availability of that project, obviously the second half of the year. So that's where it's being staged today, and we're optimistic that we'll see that project become fruitful once again.

Brennan, I would only add that, you know, that Lee County facility for us from a return on investment was a challenge contract. And so we tried to work with the state, with the county there to, you know, support our client there, but also get an appropriate return. And so I think... We'll move forward here, and the depopulation and the impact on revenue and profitability has been factored into the guidance that I provided, but I think it'll give us an opportunity here to pivot to a new client and provide those needs to the different agencies around the country that need the beds.

Understood. And as a follow-up, do you see further opportunity for similar state facilities that may be lower margin?

Well, I think, you know, really the two facilities that we have shared with you previously, which is the Lawton facility in Oklahoma and Lee County, were the two that were really challenged for us. You know, the other contracts that we have, We feel like we're in a good place, both from a client relationship standpoint and from a profitability standpoint. So I think, you know, we're focused on meeting our client's objectives. I think, you know, the two that we needed to focus on are the ones that we're working on right now, and I'd leave it at that.

Great. Thank you. I appreciate the insight. That's all from me. Thank you.

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

Hello, Dave. Mark, Pablo, appreciate the call. Just a couple follow-ups. With respect to demand, you know, I'm sure you have a much better perspective on how interior enforcement is ramping. And I'm just curious, how would you describe you know, how it's going. Uh, and, and, uh, are there any events on the horizon that we should, we should have on our calendars that might, might be inflection points?

Uh, well, Kurt, I guess from my perspective, how things are going on interior enforcement, I'm extremely impressed with Homeland Security and Immigration Customs Enforcement leadership and commitment, uh, to the mission. Um, They are very focused, very engaging, and the pace by which they're working is remarkable. So from my perspective, I couldn't be more impressed than watching the agency shift, if you will, or pivot into this new mission because, as you know, for a number of years, their objectives were either not sufficiently clear or had been diluted in such a way that the agency wasn't able to to really even meet the needs of Homeland Security from an immigration perspective. So it has become laser-focused, and we are obviously very excited to support the mission that's at hand. I'm not recognizing any trigger dates, for lack of better terms. I think the objective that's the short order is the congressional work that's being done to properly fund the law enforcement community at the federal level so that they can actually do the job. And, of course, we're positioning ourselves to support those agencies to meet their mission. So we're excited about the task at hand and very optimistic with the leadership and the focus that's provided currently out of Homeland Security and Immigration Customs Enforcement.

That's helpful. Thank you. I appreciate it. On the share issue, potential for share buybacks. Do you need resolution of the ATD contract before you move forward with that?

Well, I think it would be important for us to have a line of sight to that before we would launch that share buyback. And as I had indicated earlier, we've got some constraints currently. There are certain leverage levels that we need to get to before we can even consider the share buybacks. But for us, it's executing, it's meeting the commitments that we have out there and meeting the guidance that we've put forth. We talked about the Oklahoma opportunity to accelerate the debt pay down. We get those things in place. I think, as I said earlier, I think we can have a much more robust conversation around returning capital to shareholders.

And, Kurt, to that end, we do anticipate, obviously, a contract extension for the ISAP service level, so that should be resolved in short order.

Got it. Thank you. Helpful. There's quite a disparity in your unsecured ratings, and congratulations on the Fitch, double B minus. Do you have target ratings for Fitch? that you want to get to before you launch something? Do you need to be double B at all three agencies?

You know, I wouldn't necessarily say we have to be. I would just say that I think that Fitch's ratings on us is appropriate when you think about our balance sheet, our leverage, and the amount of cash that we generate. And I also think that we spend an enormous amount of time with Fitch explaining um, to them, our business and the opportunities. Uh, and, and so we, we try to do the same with both S&P and Moody's as well. Uh, and, you know, as we execute and we pay down the debt, I think, um, you know, S&P is, is close behind, uh, Fitch from a rating standpoint. I think we got a little bit more work to go do on the Moody side of things, but, uh, As you said, I think we're very pleased, and we think that the ratings that Fitch has come out with are very fair based on our actual business model today.

Yes, agreed. And then lastly, on the monitoring, you mentioned the shift from phones to GPS. How should we think about that? Is that going to be something we should expect going forward, and or do you see it as stabilizing?

I think stabilizing, right? I think our client is going to utilize all the technology that we have, and they do use it today. And so we've got a variety of technology that's being deployed out there, and I think that, you know, right now with the stability and the counts that we have, I think that the mix of products are have been fairly consistent probably over the last month or so, and so I think we're in a good place, and I think that the mix of our product should hold and continue as we move forward here.

Got it. Thank you. And then lastly, on Oklahoma, what has to happen for that to move forward? Does the state legislature need to approve something, or is there something on the horizon there?

Yeah, there is, Kurt, there is a processing of an asset purchased by the jurisdiction. And to your point, the legislature would need to support that in the funding stream. And we've had robust and deliberate conversations with leadership. Everything is tracking forward with that expectation understood. And we are looking for, as we indicated in our remarks, a potential July closing commensurate with the legislative authority.

Fantastic. That's a big number, $312 million. Did I hear that correctly?

That's correct.

Is there something about that facility that makes it particularly valuable? And that's it for me.

It is the largest, most secure facility in the state and provides the greatest security level of flexibility based on the design and the capacity considerations for enhancing public safety. So it's a very well-designed and well-maintained project. And obviously, as a result of that, Oklahoma has significant interest in it.

Fantastic. I appreciate it. Thank you.

The next question comes from Raj Sharma with TX Capital Bank.

Please go ahead.

Hi. Thank you for taking my questions. I wanted to ask, when do you think you would reasonably get to the 370,000 monitoring number that you were doing just a year and a half ago? That was about 3,500 to 4,000 a week. Is there a timeline you get to that? And just sort of in addition to that, the congressional funding approval expected by second half, is that you're expecting that to help with the number to go up?

Raj, yeah, good question. And obviously the direct correlation is the congressional budget to support the agency's objective on how they want to manage interior enforcement. As Mark alluded to earlier, right now what we see is a high reliance on the need for detention space that's being managed appropriately and assertively by the federal government, and obviously we're partnering with them on that. And then we would anticipate as that detention capacity is either utilized to its fullest extent or potentially even exceeded, then ICE would have the value statement to bring about the alternatives to detention as intended and historically been used. So we see that congressional funding is essential to the agency's mission. And once that occurs, then we anticipate the second half of the year for the layover of additional support in all of our business lines.

Got it. That's very helpful. Thank you. And then just if I'm understanding this correctly, there were higher expenses in Q1, higher G&A expenses. I know that you had higher payroll. Payroll was front-loaded. So are they expected to still stay at those levels for the second half? And are the second half results higher largely from you know, the increase in revenues?

Yeah, when we think about our guidance, you know, with the activation of several idle facilities, you know, the back half of the year profitability is that the main driver is going to be the revenue growth. We will see the expenses come down, you know, in As a percent of our revenue, as we talked before, we've hired up ahead of time. We're training. We're making that investment right now. The G&A cost should tick down in the quarters to come here, but profitability will largely be driven by the revenue growth in the back half of the year.

Got it. That's very helpful. And then just lastly for me, on the secured services side, What is the assumption on the number of net beds you're adding this year underlying the guidance for the year?

Well, what we've stated is the guidance reflects beds under current contract as well as the wins of Delaney Hall and Northlake. And, you know, Those two contracts are going to add roughly 2,800 additional beds to our portfolio. And then we continue to look at other opportunities with our clients to reactivate other facilities that we have. And I think we've mentioned in our remarks, we've got another 6,000 to 7,000 beds available with our existing idle facilities. that's what we have in play and that's what's included in our guidance.

Got it. Thank you. That's very clear. Thank you. I'll take my questions offline. Thank you again. Thank you.

This concludes our question and answer session.

I would like to turn the conference back over to Dave Donahue, Chief Executive Officer of the GEO Group, for any closing remarks.

Thank you very much, operator, and thank all of you for being on the call today. We look forward to talking to you at the end of the next quarter.

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