Geo Group Inc (The) REIT

Good day and welcome to the GEO Group Second Quarter 2026 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 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Pablo Pais, Executive Vice President of Corporate Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for today's discussion of the GEO Group's second quarter 2026 earnings results. With us today are George Zoley, Chairman, Chief Executive Officer and Founder, and Shayn March, Senior Vice President and Chief Financial Officer. This afternoon we will discuss our second quarter results as well as our outlook. And 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 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 security laws. Our actual results may differ materially from those in the forward-looking statements as a result of various factors contained in our Securities and Exchange Commission filings, including the Form 10-K, 10-Q, and 8-K reports. With that, please allow me to turn this call over to our Chairman, CEO, and Founder, George Zoley. George?

Thank you, Pablo, and good afternoon, everyone, and thank you for joining us. Our diversified business units continue to deliver strong financial and operational performance during the second quarter of 2026. Revenues increased 15% from the second quarter of 2025, while net income increased 63% from the same period. Our better-than-expected performance reflects significant revenue growth from the contracts that we entered into throughout 2025. As we have previously discussed in 2025, we were awarded several new or expanded contracts that represent up to approximately $520 million in annual revenues. which represent the largest amount of new business we've won in a single year in our company's history. In our Secure Services segment, we entered into new contracts to house ICE detainees at four facilities valued at approximately $280 million in annual revenues and totaling approximately 6,000 beds. Increasing our total active ice beds to approximately 27,000. Our current census across our active ice facilities is approximately 24,000, representing more than one-third of the current national ice population of approximately 68,000, which is distributed over 225 separate locations that are primarily short-term jail facilities. Over the last six weeks, we have experienced a 20% increase in ICE populations following the passage of the Secure America Act, which restored baseline appropriations funding for ICE and Customs and Border Protection after the longest partial government shutdown in U.S. history. Under the Secure American Act, ICE received $38.5 billion in funding available through September 30, 2029. This amount is in addition to the $75 billion in funding previously allocated to ICE under the one big beautiful bill, including $45 billion for detention, which is available through September 30th, 2029. We believe the federal government is continuing to pursue the priority of increasing immigration detention capacity to 100,000 beds or more and consolidating to fewer, larger facilities. As a 40-year partner to ICE, we expect to be part of that solution. In the past few weeks, we've announced two new contracts with ICE for the activation of ICE processing centers at two previously idle facilities. We have entered into a five-year support services contract with ICE for the activation of a federal immigration processing center at the 1188-bed Bighorn facility in Hudson, Colorado, while also entering into a lease agreement with the facility owner. The Bighorn Support Services Contract is expected to generate approximately $85 million in the annual revenues in the first full year of operations. We have also entered into a five-year support services contract with ICE for the activation of a federal immigration processing center at the GEO-owned 1,320-bed Rivers facility in Winton, North Carolina. The RIVERS Support Services Contract is expected to generate approximately $80 million in annual revenues in the first full year of operations. Under both contracts, ICE will reimburse GEO for the capital expenditures needed to reactivate these two facilities, as well as providing funding for startup expenses during the activation period. We expect the activation of the Big Horn and Rivers facilities to be completed by the end of 2026, with both facilities achieving normalized operations and earnings contribution in early 2027. Following the activation of these two facilities, our total ice beds under contract will increase to approximately 29,500 beds. We have also approximately 4,500 idle beds that remain available at five company owned facilities, which are designed for high security and therefore well suited for the current needs of the federal government. We continue to have active discussions with the federal government regarding potential reactivation of additional idle facilities. At full capacity, These 4,500 idle beds could generate approximately $250 million in combined incremental annual revenues. Our second quarter 2026 results reflect a significant expansion in our secure transportation services on behalf of both ICE and the U.S. Marshals Service. In 2025, we signed a new five-year contract with the U.S. Marshals covering 26 federal judicial districts in spanning 14 states. We have entered into new or amended contracts to expand secure ground transportation services at seven ICE facilities. The support services that we provide under our ICE air transportation subcontract have also continued to steadily increase. Additionally, in our new Bighorn and Rivers contracts with ICE, we are expected to generate approximately $20 million combined in additional annual transportation services revenues once normalized in early 2027. Importantly, during the second quarter of 2026, our ISAP 5 contract continued to experience a steady technology shift to more intensive and higher-priced monitoring devices such as ankle monitors. ISAP is the only ICE program currently in place to provide electronic monitoring and case management services for individuals on the non-detained docket. The program relies on several forms of monitoring including GPS, ankle bracelets, or wrist-worn devices that provide real-time tracking as well as the SmartLink phone app which relies on facial recognition, voice ID, and GPS to confirm a person's location during predetermined check-ins. The current overall ISAP count is approximately 184,000 participants. The number of ISAP participants on GPS ankle monitors has increased to approximately 54,000 currently from 17,000 early 2025. We also continue to experience a steady increase in the number of ISAP participants assigned to case management services which involves staff interaction and monitoring for approximately 116,000 individuals currently. If this trend continues, the technology and case management mix shift would continue to increase the revenues and earnings generated under the ISAF contract even if overall participation counts remain relatively stable. Thus, we continue to be optimistic about the importance and growth potential of the ISAP contract, and we believe it is also well-positioned to scale up to higher overall counts. Finally, during the second quarter of 2026, we did not receive any revenues from our new skip tracing contract, which we believe was due to the lapse in ICE appropriations funding during the government shutdown. With the restoration of ICE funding, we are optimistic that the contract will begin to ramp up during the second half of 2026. Moving to our outlook, we have increased our net income and adjusted EBITDA guidance for 2026 to reflect the strength of our results in the first half of the year. Our updated guidance does not include any earnings contribution from our new Bighorn and Rivers contract since we expect the activation period for these facilities to be completed by the end of 2026, achieving normalized earnings contributions in early 2027. Our updated guidance also does not include any earnings contributions from our previously announced managed-only contracts for our 1,884-bed Graceville facility and our 985-bed Bay facility in the state of Florida, which have been rescheduled for implementation. These two contracts, which are valued at approximately $100 million in combined annual revenues, are now expected to transition to GEO on July 1, 2027. Looking at our improved outlook, we believe there are still several sources of potential for their upside. On the revenue side, sources of potential upside include additional growth in our secure services segment from the reactivation of additional idle facilities and or higher overall population across our active facilities. Additional volume increases and our accelerated technology services mix in a shift in our ISAP contract. Additional growth in our secure transportation services business. Additional revenue from higher utilization of our skip tracing contract. On the expense side, our guidance assumes more moderate contributions from labor cost savings in the second half of the year. Before I turn the call over to our CFO Shayn March for a more detailed review of our second quarter results, I'd like to highlight our continued commitment towards strengthening our capital structure, enhancing shareholder value. During the second quarter of 2026, we repurchased approximately 1.6 million shares for approximately $37 million, bringing the total shares repurchased to 10.1 million for approximately $177 million since the current share repurchase program was authorized in August of 2025. Our current total outstanding share count is approximately $132 million, and we have approximately $323 million still available under our $500 million share repurchase authorization. We believe our stock continues to trade at a relatively low multiple despite the intrinsic value of our assets and our significant growth opportunities. We believe this imbalance creates a unique opportunity to enhance value for our shareholders through share repurchases. At this time, I will turn the call over to Shayn to review our quarterly results and increase guidance.

Thank you, George. Good afternoon, everyone. Revenues for the second quarter of 2026 increased by approximately $732.1 million, up from approximately $636.2 million and the prior year's second quarter, reflecting a 15% increase. For the second quarter of 2026, we reported net income attributable to geo operations of approximately $47.5 million or $0.36 per diluted share. This compares to net income attributable to geo operations of approximately $29.1 million or $0.21 per diluted share in the second quarter of 2025. reflecting a 63% increase for net income and a 71% increase for earnings per share. Our adjusted EBITDA for the second quarter of 2026 increased to approximately $142 million up from approximately $118.6 million in the prior year's second quarter, reflecting a 20% increase. Looking at revenue trends, are owned and leased secured services revenues increased by approximately $55 million, or 16%, compared to prior year's second quarter. This increase was driven by the activation of three company-owned facilities under new contracts with ICE, which was partly offset by revenue loss from the sale of the Lawton, Oklahoma facility and the depopulation of the Lee County, New Mexico facility. Quarterly revenues for our manage-only contracts increased by approximately $44 million, or 30% from prior year's second quarter. This increase was primarily driven by the joint venture agreement for the management of the North Florida ICE detention facility, as well as certain transportation revenue increases that are reported in this segment. Quarterly revenues for our reentry services increased by approximately $3 million, offset by a $3 million decline in non-residential services revenues compared to the prior year's second quarter. Finally, second quarter 2026 revenues for our electronic monitoring and supervision services decreased by less than $3 million, or approximately 3.5%, from the prior year's second quarter, despite the reduced pricing on our ISOP 5 contract. which demonstrates the strength of the continued favorable technology and case management mix shift in the program. Turning to expenses, during the second quarter of 2026, our operating expenses increased by approximately 12% as a result of the activation of our ICE facility contracts and increased occupancy compared to prior year's second quarter. Operating expenses continue to be favorably impacted by lower labor costs Our general and administrative expenses for the second quarter of 2026 remain steady at approximately 9% of revenue compared to prior year's second quarter. Our second quarter 2026 results reflect a year-over-year decrease in net interest expense of approximately $4 million as a result of the reduction in our total net debt. Our effective tax rate for the second quarter of 2026 was approximately 28.7%. Moving to our outlook, we have updated our guidance for the full year 2026 and issued guidance for the third and fourth quarters of 2026. We have increased our full year 2026 GAAP net income guidance to a range of $168 million to $175 million were a range of $1.27 to $1.32 per diluted share on annual revenues of $2.95 billion to $3.05 billion and based on an effective tax rate of approximately 30% inclusive of known discrete items. We have increased our full year 2026 adjusted EBITDA guidance to a range of $550 million to $560 million. We expect total unreimbursed capital expenditures for the full year 2026 to be between $135 million and $145 million and expect CapEx to decline below $100 million in 2027. For the third quarter of 2026, we expect GAAP net income to be $45 million to $48 million for a range of $0.35 to $0.37 per diluted share on quarterly revenues of $755 to $805 million. We expect third quarter 2026 adjusted EBITDA to be between $140 million and $145 million. For the fourth quarter of 2026, we expect GAAP net income to be $37 million to $41 million for a range of $0.28 Thank you for joining us today. Billion dollars of total debt. At the end of the second quarter of 2026, our total net debt was approximately $1.5 billion and our total net leverage was below three times adjusted EBITDA. At the end of the second quarter, we had total available liquidity of approximately $300 million, including cash on hand and revolver availability to support our capital needs. At this time, I will turn the call back to George.

Thank you, Shayn. To recap, we are very pleased with our strong second quarter results and the improved full year outlook. Our financial performance in the first half of 26 has been driven by the new growth opportunities which we captured in 2025 and are normalizing this year. Last year was the most successful period for new business wins in our company's history, and we expect 2026 to continue to be very active as well. We therefore believe that we have upside potential across our diversified business segments. We recently announced new contracts with ICE to reactivate two previously idle facilities totaling approximately 2,500 beds with annual revenue value of approximately $165 million once operations normalized in early 2027. With these two facility activations, we now have approximately 4,500 idle high-security beds that remain available, which could generate in excess of $250 million in annual revenues at full occupancy. We are pleased with the continued shift in technology and case management mix under our ISTEP5 contract, which could also provide additional upside throughout 26. We also remain well positioned to expand our delivery of secure ground and air transportation services for ICE and the U.S. Marshal Service beyond the significant growth we've already experienced. Finally, I'd like to provide you with an update regarding the plan by ICE and DHS to purchase existing privately owned turnkey ICE processing centers. On our earnings call last quarter, we discussed that ICE was considering the purchase of approximately 10 privately-owned key processing centers. As was disclosed recently by CoreCivic, four facilities, totaling 7,187 beds, already have been acquired by ICE for more than $2.2 billion and an average purchase price of more than $300,000 per bed. Based on our current discussions, we believe that the total number of facilities that are being considered for acquisition by ICE is likely larger than the 10 that were originally contemplated. And it is possible that the number of facilities targeted for acquisition by ICE could continue to grow in the future. Following the recently completed sales, ICE now uses approximately 36 existing detention sites nationwide that are owned and operated by private contractors. CoreCivic now owns and operates approximately 11 ICE detention facilities, while GEO owns and operates 23 ICE detention facilities. We believe that future sales are likely to have similar valuations We believe we have two types of assets. The buildings and the businesses of providing support services. We are pursuing a potential sale of the buildings, but we want to retain the business. We consider ourselves primarily a support services operator and will place particular importance on our ability to continue our support services at any facility sold to us. Several of our facilities already have long-term support services contracts in place and would likely only need to be modified so as to eliminate the ownership costs such as depreciation and property taxes embedded in our present contracts in the event of ICE ownership. One of these facilities has some unique and valuable assets. that we believe require separate appraisal, which has likely resulted in somewhat longer process of evaluation. Several other GEO facilities have support services contracts that expire later this year. ICE has initiated a procurement process involving four facilities that we hope will result in new long-term support services contracts being awarded. At this time, there is no definitive agreement in place with ICE and no precise timeline for the closing of any transactions. And of course, we can give no assurance that any of these transactions will take place at all. But if any of the geo-facilities are sold to ICE, we intend to use the proceeds to reduce debt, continue stock, repurchases, and for other general corporate purposes. The potential sale of multiple facilities to ICE could represent a significant liquidity and shareholder value enhancing event for our company. While the exact timing of government actions is always difficult to estimate, we remain focused on pursuing new growth opportunities and allocating capital to enhance long-term value for our shareholders. Given the intrinsic value of our assets, including 50,000 owned beds, our strong financial performance in providing diversified secure support services, and our expected future growth, we believe our stock continues to be significantly undervalued and offers a very attractive investment opportunity. That completes our remarks, and we would be glad to take questions.

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 afternoon, George and Shawn. Thanks for taking my questions.

Good afternoon.

I want to start out with the Florida facilities. It's a year push out here to the right. I was wondering if you could give us a little more color as to why the push out there. And then secondarily on that, I'm assuming since they were supposed to start in early July this year that there was some of those revenues that were expected in your prior guidance and you put out in the first quarter is that accurate and so that would indicate that you know even with You know, this push out to the right for these particular facilities, the guide still being raised would have been raised even higher if these hadn't been pushed out?

That is correct. There were some budgetary issues that remain unresolved that required the extension to July 1 of next year.

Okay, thank you for that. And then on the CapEx, you mentioned, George, that getting reimbursed for CapEx and some of the new contracts. If you could remind us if that is normal, if that's something new from ICE, and does that also play into the reduction in CapEx guidance on the growth side, especially for you guys for this year?

It is relatively new, but the answer to the second question may be twofold. We've spent a lot of CapEx gearing up ready for this expansion for the reactivation of ice facilities, and I think we'll be pretty much complete by the end of this year or early next year. ongoing maintenance CapEx will come into play on a normal basis, but we won't have any unusual startup CapEx as we've had over the last year and a half.

Okay, great. And then one more for me, if I may. I know you talked about the ISAT program, you got the two-year contract and even though there's been some mixed shift which is helping maintain revenue under that contract. But we go back a year and a half or so ago and I think there was some thought out there that the numbers under the ISAT program could hit well in excess of where we are today. I mean, it's been pretty flat here now for probably what, two years. and just trying to get your feel for is this just not a focus of ICE at this point in time, it's more on the detention side or is there something else going on in the ICE contract where it just maybe in the near future we'll start to see maybe numbers go up to where they were a couple of years ago for you guys up to that almost 400,000 level.

You know, I think in general, the focus of ICE has been on increasing detention capacity. But there's a lot of policy shifts as to, you know, who will be subject to immigration enforcement. So at a later point, maybe next year, we could see ISAP increase dramatically. But right now, the focus is on increasing detention capacity.

Okay, great. Thanks for that. I'll get back in queue. Thank you.

Thank you.

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

Great. Good afternoon. Appreciate you taking my questions. Just to follow up on the electronic monitoring side, is it still the expectation that ICE is going to reach 100,000 operational beds before turning to ISAP? Is that still a reasonable expectation?

I think so, for the most part. The focus within the agency and throughout the agency is to try to stand up approximately 100,000 beds. They're at a census presently of about 68,000 and we have of that 24,000 in our facilities. So they have another 30,000 or so more beds to go. But within that process, I think there's an objective of consolidation into fewer, larger facilities down from their present 225 facilities that they use nationwide. So they want to be in fewer, larger facilities with a normal and a lot of these little jails which are just feeder locations to the main facilities that they want to have.

Understood. That makes sense. And on the skip tracing contract, I know you mentioned there was not much of an impact in Q2 from the lapse in ICE funding. Is $60 million still a reasonable Thank you for joining us. And last question for me, just on the potential facility sales. I know you mentioned ICE has initiated the procurement process involving four facilities. I guess, do you anticipate a potential sale lining up with the timing of a renewal, which it looks like a few of those facilities are up for a renewal this fall? Just curious if you think the timing might line up there.

Well, they're not being renewed. They're being re-competed. This is a new procurement to establish a new contract term for those facilities. And we're hoping the contract term is a long contract term. And I think there's a mutual interest to complete this process by the end of this quarter, hopefully, although it may spill into the next quarter. So that means As we understand it, it's a two-step process. There was originally an RFI, a request for information, in which potential interested parties could submit their proposal to indicate that they had such a facility in that particular location. There's four different locations. The next step of the process And that first step has been completed. The next step is to validate where the facility is and the ability to activate it within 30 days. We think that process can take place fairly quickly. And the last step of the process is And as I said earlier, I think there's a mutual interest by us and ICE that this process hopefully be completed by the end of this quarter, but it could spill into the fourth quarter.

Got it. Thanks for that clarification, George. That's all for me.

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

Great. Hi, George, Shayn. Thanks for taking the questions. You know, recognize that there are no assurances of asset sales, but, you know, post-asset sales, could you maybe discuss how you're thinking about capital allocation and what your target net leverage would be and perhaps just thoughts on buybacks versus any potential considerations for a 1031 exchange following any sale?

Hey, Greg, this is Shayn, and thanks for the question. So, public any asset sales, we do have certain restrictions in our current debt agreements, how those proceeds have to be applied. But once we were able to satisfy those restrictions in the venture and in the credit agreement, we would absolutely look to deploy as much capital as you can to returning it back to shareholders. So I think it's a combination of both debt repayment and ultimately using that money to get either active with charity purchases or other forms of remuneration back to our shareholder investors.

Got it. That's helpful. And secondly, as it relates to ICE's recent push to utilize monitoring services for Haitian immigrants, would you expect that initiative to notably change the populations under the ISAT program? And similarly, I was just We've seen that continued technology mix shift. Wondering if you could maybe quantify it in a way, like what would be the impact of moving one individual from SmartLink to ankle monitoring?

Well, there's a corresponding decline in the SmartLink app to individuals on the ankle monitors. And the app is far less expensive. and the anchor monitors. And because of new policy shifts as to, you know, who will be subject to this immigration enforcement, like, as you mentioned, the Haitians, you know, we could see a significant increase in the number of people in the ISAF program. And most of them, we believe, would be placed under the anchor monitoring supervision technique.

Okay, thank you. I'll pass it on.

The next question comes from Kirk Lutke with Raymond James. Please go ahead.

Hello, George, Shayn. Thank you for the call. Thank you. Maybe a follow up on the 100,000 bed target. I know, you know, we've talked on past calls about ICE's efforts to build their own facilities. How many beds do you think might come from that effort?

I don't think they're building their own facilities per se. They may be, of the warehouse program, I think of the 11 that they purchased, they may be trying to activate maybe two or three. That would be maybe 5,000 beds.

So the vast majority is going to have to come from other places, I guess.

It's really a reactivation of what were formerly BOP facilities that were discontinued under the Obama administration. And these are generally high security facilities, single cell facilities that are very desirable by ICE in expanding their detention capacity.

Got it. That's helpful. Thank you. And is there any time limits on the funding? Could this effort, does this effort have to happen before the end of this administration?

No, I believe ICE has maybe approximately $36 billion left for the build-up of new facilities. And I believe that that money is allocated through the president's current term.

So they've got some time for this to come to pass?

About three years. Three years.

Yeah, got it. And then You mentioned geographic considerations. Can you elaborate on what they might be looking for?

What that means? Well, it's the difference between a cost of a facility in Oklahoma versus a cost of a facility in Colorado or Washington or different states. Just like a house in Florida is a different cost than one in Mississippi. And the appraisal technique that's being used is the replacement cost of that facility in that location.

Got it. That's helpful. I appreciate it. Thank you.

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

Thank you for joining us today. We look forward to addressing you in the next quarter. Thank you.

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