Good day, and welcome to The GEO Group Second Quarter 2024 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Pablo Paez, Executive Vice President of Corporate Relations. Please go ahead sir.

Thank you, operator. Good morning, everyone and thank you for joining us for today's discussion of The GEO Group's second quarter 2024 earnings results. With us today are George Zoley, Executive Chairman of the Board; Brian Evans, Chief Executive Officer; Wayne Calabrese, President and Chief Operating Officer; Mark Suchinski, Chief Financial Officer; and James Black, President of GEO Secure Services. This morning, we will discuss our second quarter results as well as our outlook. We will conclude the call with a question-and-answer session. This conference call is also being webcast live on our investor website at investors.geogroup.com. Today, we will discuss non-GAAP basis information. A reconciliation from non-GAAP basis information to GAAP basis results is included in the press release and 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 Zoley. George?

Thank you, Pablo, and good morning to everyone. Thank you for joining us on our second quarter earnings call. I'm pleased to be joined today by our Senior Management team, and I’d like to welcome our new CFO Mark Suchinski, who joined GEO early in July with more than 20 years of Senior level executive experience in business management, corporate finance, capital markets, manufacturing and supply chain management. During today’s call we will review our second quarter 2024 financial results and the operational milestones for each of our business segments. To provide an update on our continued efforts to pay down debt, reduce our leverage, enhance long-term value for our shareholders, and discuss our financial guidance and outlook for the second half of 2024 and the full year. During the second quarter, our diversified business units continued to deliver steady, operational and financial performance. Looking at our key quarterly trends, revenues in our managed-only segment increased by approximately 11% compared to one year ago. The year-over-year increase in managed-only revenues was driven by the activation of our new transportation contract to provide air support services for ICE, as well as our new contract in Australia to deliver primary health care services at 13 prisons across the state of Victoria. Revenues for our GEO Entry Services Division also increased from a year ago, driven by a 5% increase in compensated mandates for our non-residential reentry services segment. Revenues for our owned and leased secure services facilities increased by approximately 7% from a year ago. This increase was driven primarily by year-over-year population increases across our ICE and Marshall’s facilities. Utilization of our ICE facilities remained consistent during the second quarter of 2024 at approximately 13,000 beds, which represents more than a 30% increase from a year ago, when the utilization of…

Thank you, George. Good morning, everyone. Our steady financial performance and strong cash flows have allowed us to significantly reduce our debt and deleverage our balance sheet over the last two to three years. Our disciplined allocation of capital over this time frame positioned us to comprehensively refinance our entire debt structure during the second quarter of 2024. This important transaction has staggered our maturities between 2029 and 2031, giving our company a significantly longer debt repayment runway. The refinancing also resulted in an overall lower cost of debt and a higher proportion of fixed rate debt, which is now approximately 73% of our total debt, further insulating our company from potential interest rate increases in the future. Importantly, we were able to exchange and retire substantially all of the $230 million of our convertible notes, which we believe had created an overhang on our equity valuation. The disciplined allocation of capital to drive long-term value for shareholders remains one of our top managerial priorities. In the immediate term, we will continue to focus on paying down debt and reducing our leverage. Over the next 12 months, we hope to reduce our total net debt to less than $1.65 billion and our net leverage to comfortably below 3.5 times adjusted EBITDA. As we make progress towards these goals, we expect to evaluate options to return capital to shareholders in conjunction with our company's capital needs and strategic and growth objectives. The careful evaluation of quality growth opportunities is another important managerial priority for our company. Over the last 20 years, we have focused our investment strategy on developing a service platform that we believe is unmatched in terms of diversification and scope in our industry. We have done so by carefully allocating capital, investing in company-owned facilities, and pursuing strategic…

Thank you, Brian. Good morning, everyone. I'm pleased to have joined a world-class organization, and I look forward to working with George, Brian, and the rest of the management team as we continue to execute the strategic priorities of the GEO Group. For the second quarter of 2024, we reported a GAAP net loss attributable to the GEO of approximately $32.5 million, or $0.25 per diluted share, on quarterly revenues of approximately $607 million. Our second quarter 2024 results reflect pre-tax costs associated with the extinguishment of debt of approximately $82 million in connection with our debt refinancing transactions. Excluding the costs associated with the extinguishment of debt and other non-recurring items, we reported second quarter 2024 adjusted net income of approximately $30 million or $0.23 per diluted share. We also reported second quarter 2024 adjusted EBITDA of approximately $119 million. Beginning with revenues, quarterly revenues in our owned and leased secure services segment increased by approximately 7% year-over-year, primarily driven by higher occupancy levels at our U.S. Marshal’s Service and ICE facilities. Revenues in our managed-only segment increased by approximately 11% during the second quarter of 2024, compared to a year ago. This year-over-year increase in our managed-only segment was driven by higher revenues in our secure transportation and international segments. Finally, quarterly revenues in our non-residential service segment increased by approximately 6% year-over-year. These revenue increases were offset by lower quarterly revenue from our electronic monitoring and supervision services segment due to lower participant counts under the ISEP contract compared to the prior year's second quarter. Turning to our expenses, during the second quarter of 2024, operating expenses increased by approximately 4% as a result of inflationary cost increases, higher occupancy levels, and a shift in quarterly revenue mix compared to the second quarter of 2023. General and…

Thank you, Mark. Good morning, everyone. It is my pleasure to review the quarterly milestones for GEO Secure Services. During the second quarter of 2024, our Secure Services facility successfully underwent a total of 62 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% and one facility received PREA certification in the second quarter. Our GTI Transportation Division and our GEOAmey U.K. joint venture completed approximately 4 million miles driven in the United States and the U.K. during the second quarter. Moving to current trends for our government agency partners. At the end of the second quarter, utilization of our U.S. Marshals Detention Facilities remained stable at over 9,000 beds, which represents an increase of approximately 8% from one year ago. Our U.S. Marshals facilities around the country support the agency as it carries out its mission of providing secure custodial services for pretrial detainees facing federal criminal proceedings. We believe that our U.S. Marshals facilities provide needed bed space near federal courthouses where there is generally a lack of suitable alternative detention capacity. Notably, none of our direct contracts with the U.S. Marshals services are up for renewal over the next 12 months. Moving to our ICE processing centers, we experienced stable utilization of approximately 13,000 beds in the second quarter of 2024. We estimate that the utilization across all ICE facilities nationwide is currently at approximately 37,000 beds, which is 4,500 beds below the 41,500 bed level that is funded under the current fiscal year's congressional appropriation. GEO has a longstanding track record of delivering professional support services on behalf of ICE at GEO-contracted ICE processing centers, and we stand ready to…

Thank you, James. I'm pleased to provide an overview of the quarterly operational milestones for GEO Care. During the second quarter of 2024, we successfully renewed 15 residential reentry center contracts, including five contracts with the Federal Bureau of Prisons. Additionally, we retained two contracts covering eight non-residential day reporting centers in Illinois and California, and we were awarded one new contract for an additional day reporting center in California. Our residential reentry centers, non-residential day reporting centers, and our ISAP field offices successfully underwent a combined total of 79 audits, including internal audits, government reviews, third-party accreditations, and Prison Rape Elimination Act, or PREA, certifications during the quarter. Five of our residential reentry centers received accreditation from the American Correctional Association, each with an accreditation score of 100%, and three of our residential reentry centers received PREA certifications in the second quarter. Our 34 residential reentry centers provide transitional housing and rehabilitation programs for individuals reentering their communities across 14 states. Census levels at these centers remain stable, with an average daily population of approximately 5,000 individuals during the second quarter of the year. Our non-residential and day reporting centers provide high-quality community-based services, including cognitive behavioral treatment for up to approximately 8,500 parolees and probationers at 97 locations across 10 different states. Moving to our GEO in-prison programs and Continuum of Care division, during the second quarter of 2024, we delivered enhanced in-custody rehabilitation services to an average daily population of approximately 2,600 individuals at 31 in-prison program sites in seven states, and to approximately 21,000 individuals at 13 Continuum of Care facilities in eight states. During the second quarter, we successfully retained two contracts for in-prison program sites in Florida and North Carolina, and we were awarded a new contract for in-prison programs in the state of…

Thank you, Wayne. In closing, our diversified business units have continued to deliver steady financial and operational performance. We are pleased to have completed the comprehensive refinancing of our debt, significantly enhancing our balance sheet, lowering our average cost of debt, and giving us greater flexibility to evaluate options to return capital to shareholders in the future. Importantly, we are able to exchange and retire substantially all of our convertible notes, which we believe had created an overhang on our equity valuation. We believe that our company's real estate assets, which we estimate to have a replacement value in excess of $6 billion, along with our strong and predictable cash flows, represent an attractive valuation opportunity for investors. We also believe we have several opportunities to enhance our financial performance, and we have no competitive rebids of our existing contracts for the balance of the year. We are focused on marketing our 10,000 beds in idle facilities, which will provide significant upside if fully reactivated. And we believe the strength of our diversified services platform positions GEO to pursue quality growth opportunities with new and existing government agency partners. That completes our remarks, and we'd be glad to take questions.

[Operator Instructions] And at this time, we'll take our first question from Joe Gomes with NOBLE Capital Markets. Please go ahead, sir.

Good morning. This is Josh Billinen [ph] for Joe. My first question is, you guys kind of touched on that a little bit earlier, but this is regarding the ISEP program. You guys talked about wanting to rebid for that, but you guys, have you seen any developments toward the renewal of the contract? I know it's kind of 12 months out, but just a little more color on that?

I think we're aware that there's been some discussions on crafting the new RFP, but I'm sure it's a point of concern that there is likely to be a new administration in place, and that administration may have its own viewpoints as to the nature and methodology they want in place in the ISEP contract. So, I think they may await to see what administration is in place at that time.

Okay. Yes, that's helpful. And yes, you guys kind of touched on it again in the call already, but can you provide a little bit more color on the air operations? I know ICE was expected to kind of have additional flights added in June, they announced. Is there any chance to maybe expand on the current contract with that?

We don't know. We haven't heard anything from CSI.

No, we don't have any further information, but our capabilities are there for us to scale up the operations if a new administration comes in place and wants more activity using air support in which we provide security for those air operations. We are certainly capable of doing that.

Okay, that's helpful. And then, lastly, in the last quarter you guys talked about seeing kind of smaller scale opportunities within the state and local level. Has this kind of changed in the second quarter or has it kind of remained the same?

I think we've seen interest among our state partners that have growth in their correctional systems as to the need for additional capacity and we've been contacted regarding some of our idle facilities that are of interest to them on possibly on a lease or purchase basis.

Okay, that's helpful. That's all I have. Thank you, guys.

Thank you.

The next question will come from Brian Violino with Wedbush. Please go ahead.

Thanks. Good morning. Just wanted to ask a couple of clarifying questions on the new guide. Sounds like you're assuming a modest uptick in both monitoring and ICE detention in the fourth quarter. Is it fair to say that that's purely being driven by the budget sort of rolling over versus any assumed increase in actual border activity?

Well, as I think I commented in my presentation, during the second quarter and probably continuing in the third quarter, there have been financial constraints by virtue of some additional spending and use of beds and ICE participation earlier in the federal fiscal year, which begins October 1 and began October 1 of last year. And what we've seen in this administration is not to use additional budgetary authority to replenish funds for ICE in particular, but to stay within their budget, so to speak. And that's what I think they've been doing. And that's been reflected in the number of beds they use and the number of ICE staff participants. But from October 1 of this fall, they will replenish, so to speak, their budgets and be capable of achieving higher levels of use of detention beds as well as ICE participation.

Got it. And just to clarify, say there was some reason, if that didn't come to fruition, that uptick, would that move us towards the lower end of the full year guidance? Or is there a potential that, if that doesn't happen, we could go potentially below the low end of the current guide?

Brian, it's Brian Evans. We think that if the numbers hold where they are, trend down a little bit, that we'll be closer to the lower end of the range, as we've said before. And that's why we moved the range a little bit and tightened it up.

Got it. And last one for me, I just want to touch on CapEx. Notice that the CapEx outlook has been moving higher over the past couple quarters. Just wondering if you could provide some commentary on what's happening.

Well, we have done some significant improvements, I think, in two particular facilities, one in Oklahoma and one in New Jersey.

The next question will come from Brendan McCarthy with Sidoti. Please go ahead.

Hey, good morning, everybody. Thanks for taking my questions. I just wanted to ask a follow-up on the past question. With the expectation for the replenishment of funds come October 1, is that assumed, or are you assuming that that's through another continuing resolution or a CR to start fiscal 2025?

Yes, that assumes a CR, which pegs at the $41,500 level for detention beds and $470 million for ISAP. It's not the enhanced level of funding as proposed in the House bill, which would take the bed count to $50,000.

Okay. And then just looking at through the rest of this federal fiscal year, it sounds like there's a pretty low chance that DHS may reprogram funds towards ICE. Is that fair to say?

I think it is. I think they've evidently avoided doing that for, I think, at least the last year.

Okay. That makes sense. And then I wanted to look at the Coleman Hall purchase and sale agreement. I'm wondering if you can provide color on how that transaction developed and maybe potential use of proceeds there.

So you're talking about Coleman Hall. As I said, I think Mark mentioned, we have reentry facilities that some of those are idle and they're well-placed for sale. And we entered into a purchase and sale agreement with that. It was slightly below our book values, and we recognize that difference in the quarter. We would expect the transaction, if it closes, there are obviously some outs in there, for it to close by the end of the year or very early next year.

Got it. Okay. Thanks, Brian. And one more for me. Looking at BI's suite of products, I think I noticed there's been a little bit more traction with the VeriWatch product. Can you just talk about what you're seeing there and how that product is resonating among customers?

This is Wayne Calabrese, Brendan. The primary interest for the VeriWatch has been with the ISAP participants, the ISAP contract. There's been a little bit of trials in the criminal justice, particularly at some of the local levels. And it is functioning well and being well-received. It is lighter and perhaps a little less cumbersome. But it's still early days for the product, and we have good expectations for it at this time. We'll see how the market adapts.

I think there was always an interest with ICE in particular for a wrist-worn device, monitoring device that's less obtrusive to individuals as compared to the ankle monitor. And this VeriWatch device that we have has the look of a contemporary watch. You wouldn't know that a person is wearing a monitoring device by looking at this watch. And that's one of the main attributes of it.

Got it. And just out of curiosity, how long do those trials typically last, and what's the success rate, I guess, with transitioning those trials into a contract?

No, we're not in trial mode at this time. Only in a couple of local government criminal justice contracts. And they're very small. They might be 10, 15 units being trialed by, say, a sheriff's office or a parole probation kind of an office. They can continue for a couple of months. They're just trying to get a sense of how this works out for them. Most of the law enforcement agencies around the country still prefer the ankle monitor GPS-type appliances. But we've seen steady growth in the ISTAP participation market with numbers in excess of 5,000 at this point using the GEO VeriWatch.

And I think just to add to what Wayne said, when he said piloting or testing, the device is fully functioning and operationally in use. It's more just putting it out there for certain clients to see how they like it and what they might use it for.

Got it. Thanks for the insight, everybody. That's all from me.

The next question will come from Greg Gibas with Northland Securities. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions. If I could follow up just on kind of guidance assumptions and your commentary there. Would we expect Q3 then to be relatively flat in terms of kind of where things are currently trending from an ISAP perspective and then detentions too? And then once those replenishment of funds hit Q4, kind of seeing a nice step up?

Yes, I think Q3 is a continuation of Q2 with the exception of the expenses that occurred during the refinancing.

Okay. Fair enough. And what do you kind of believe will be the likely outcome at the Atlanta facility?

Well, we're hopeful there's a legal settlement because the original prohibition for continued intake was based on the concerns about COVID, which has gone away a couple of years ago. And there's no medical reason, no healthcare reasons for this facility to have an intake restriction. And it's the only such facility that has an intake restriction in the entire country. So we're hoping that DOJ will be successful in their discussions with the Plaintiffs to reach an amicable resolution to resume intake at that facility.

Okay. Makes sense. And I guess lastly, just considering the refinancing of debts kind of behind you, you talked about evaluating returning capital to shareholders. I wanted to get a better sense of the likelihood of that. And should we think about 2025 being more likely? Just curious how you're thinking about that.

I think that would be the case when we would have greater visibility as to the new administration and their objectives and how we fit in to those objectives. Yes, I think that's a good target date.

Got it. Thanks, guys.

The next question will come from Jason Weaver with Jones Trading. Please go ahead.

Hey, good morning. Thanks for taking my question. Now, I may be misconstruing this, but in your prepared remarks, you mentioned the possible expansion of the ISAP program under the current house appropriations bill. It seems to me that growing from $175,000 to the total number of the non-detained docket, it's kind of a high bar, even if most of that's just within an app. Can you give any sense to how that might be rolled out and your capacity to service it?

The rollout of up to, let's just pick a number, 6 million participants would obviously be a very complicated and resource-intensive operation. But having said that, we have field offices throughout the United States that are ready to go, ready to expand. We have the technology, everything from GPS technology to apps on a phone, all of which can be used, as well as the person-centric services such as case management. So we would be able to accommodate whatever growth ICE and a new administration might want to put us to service. We can do it if requested and we'll be prepared to be a good partner to government once they establish their policy.

Got it. Thank you. And then along the lines of the same question that was asked just a moment ago, post the debt restructuring, any sort of change in the tradeoff between returning capital shareholders versus further debt reduction? How do you think about that today?

Well, again, it's a timing issue and it needs to be based on knowledge of the objectives of the new administration and how we fit into those objectives. And we'll have to balance our own decisions on that information as it comes forward.

Yes, Jason, it's Mark. I just add, again, the first focus is de-levering. So we've got some internal targets we want to get to from a debt standpoint. And once we get close to that, then we're going to have this opportunity to explore what George just talked about in conjunction with the business opportunities as we roll into 2025.

And I think also, as we've said before, we will continue once we get to that point where we can allocate capital to shareholders, we're going to continue to focus on debt reduction, but we'll find the proper balance between those two based on, as George discussed, the different opportunities that arise at that time and what the cash flows look like.

All right. Very helpful. Thank you for that.

That is a good timing for middle to late next year.

Got it. All right. Very helpful. Thank you for the color.

The next question will come from Jordan Hymowitz with Philadelphia Financial. Please go ahead.

Thanks, guys. Most of my questions have been answered. Two things. The smart watches, I mean, there's opposition from some democratic or progressive circles for the ankle monitoring business. Is the smart watches have less of a political opposition because they're less invasive? They seem more exclusionary or whatever the word you want to use is?

I suppose that I can't speak for those who are in opposition or might be progressive politically, but I suppose that the watch is attractive in the sense that it is less cumbersome. It is less weight. It is certainly less of an obstacle to moving around than, say, an ankle monitor. It achieves most of the, if not all of the requirements that the government has for monitoring and, most importantly, ensuring compliance for folks who have hearings to attend. But all of that is supplemented by the people who do the work in our field offices and who work throughout the day to make sure that people who are on monitoring, whatever kind it may be, have the opportunity to connect with program resources in their communities and to understand the requirements of appearing for the required hearings they have.

Let me push that a little different way. Have you gotten any interest from any municipalities or districts or regions for the smart watch that you have not gotten from the ankle monitoring that may be a little more progressive in some ways?

Again, it's still early days for the agencies outside of ISAP contracts. Some of them have expressed real interest. Recently, one of the agencies that was visited in one of the southeastern states, I believe, said they would like to entertain the use of the VeriWatch. They were very interested in seeing it in action and to see how it fit with their policy goals.

I think also we've seen, as Wayne just mentioned, that's a prospective bid. But we also have some current contracts that just rebid, and it was included within those bids as a technology offer that they wanted to make sure was available. Now, how much they'll use it remains to be seen, as we said earlier. But we're starting to see some of that develop in the contract, as Wayne said. And we've seen it in some existing contracts that were just renewed recently.

Got it. Separate question. As you mentioned that most of the CR resolutions are done at the existing level of the 41,000. Do you have any quantitative data that something like 90% of CRs are done at the level where it's before as opposed to an increase or a decrease? In other words, is there any data behind it, if not, for this necessary product, but what the history has been on CRs changing the ratio of what was done before? Or is that by the definition of a CR that it keeps the existing level?

A CR, by definition, is a continuing resolution of existing funding levels every time. Not higher, not lower. It stays the same. Right.

Got it. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. George Zoley, Executive Chairman of the GEO Group, for any closing remarks. Please go ahead, sir.

Thank you for joining us this quarter, and we look forward to addressing you in the next quarter.

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