Good day, and welcome to The GEO Group Third Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] 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 third 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 third 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 that we issued this morning. Additionally, much of the information we will discuss today, including the answers we may 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 third quarter 2024 earnings call. I'm pleased to be joined today by our senior management team. During today's call, we will review our third quarter 2024 financial results and operational highlights for our business segments. We'll provide an update on our efforts to pay down debt, reduce leverage and enhance long-term value for shareholders and discuss our updated financial guidance for the fourth quarter and full year for 2024 and our potential future growth opportunities. Our financial performance during the third quarter was largely consistent with our results for the second quarter. This performance was below our third quarter expectations, largely driven by the lower-than-expected revenues in our Electronic Monitoring and Supervision Services segment. Participant counts under the federal government's Intensive Supervision Appearance Program, or ISAP, have averaged approximately 177,000 during the third quarter compared to an average ISAP participant count of approximately 184,000 during the second quarter 2024. After reaching a low participant count of approximately 174,000 in the third quarter, the daily ISAP participant count now has been steadily increasing and currently stands at approximately 182,500. With respect to our ICE processing centers, utilization across our facilities remained largely consistent during the third quarter at approximately 13,000 beds and is currently at 13,500 beds. This utilization level during the third quarter represents an increase of approximately 11% from the end of the third quarter one year ago. However, it has remained relatively flat over the last three quarters. Based on the most recently available public data, in September of this year, the utilization across all ICE facilities nationwide was approximately 37,000 beds. This level of utilization is below the 41,500 beds that are funded under the short-term continuing resolution that is due to…

Thank you, George. Good morning, everyone. While we have adjusted our guidance for the fourth quarter of 2024 to be largely consistent with our performance during the second and third quarters of 2024 and as a result have also adjusted our full year 2024 guidance. We continue to believe that we have several sources of potential growth that could provide meaningful upside to our current quarterly earnings run rate. In our Secure Services segment, as George noted, we have approximately 10,000 available beds at six company-owned currently idle facilities. These six facilities range from 1,000 to 2,000 beds each and are located in Texas, Georgia, Michigan, North Carolina and New Jersey. We believe that these facilities, which currently have negative annual carrying costs of approximately $13 million, are well suited to support future needs for ICE and the federal government. Five of the six facilities were previously used by the Federal Bureau of Prisons and the remaining facility was previously used by ICE. Based on average per diem rates for our owned and leased facilities, if fully reactivated, these facilities could generate approximately $300 million in incremental annualized revenues with margins consistent with our owned and leased Secure Services segment, which averaged between 25% and 30%. Additionally, we currently have approximately 8,000 underutilized beds at existing ICE and U.S. Marshals facilities already under contract which could generate approximately $100 million in incremental annualized revenues if fully utilized. In our Electronic Monitoring and Supervision Services segment, we believe we have the necessary technology and staffing resources to significantly scale up the delivery of our supervision, compliance and case management services under our ISAP contract with ICE if needed. These services entail diversified electronic monitoring technologies as well as case management services which are delivered through a network of approximately 100 offices…

Thank you, Brian and good morning everyone. For the third quarter of 2024 we reported net income attributable to GEO of approximately $26 million or $0.19 per diluted share on quarterly revenues of approximately $603 million. This compares to net income attributable to GEO of approximately $25 million or $0.16 per diluted share in the third quarter of 2023 on revenues of approximately $603 million. Our third quarter 2024 results reflect pre-tax costs associated with the extinguishment of debt of approximately $3 million, along with approximately $1 million in pre-tax transaction fees and closeout expenses. Excluding these non-recurring items, we reported third quarter 2024 adjusted net income of approximately $29 million or $0.21 per diluted share, while the prior year quarter we reported adjusted net income of roughly $24 million or $0.19 per diluted share. Third quarter 2024 adjusted EBITDA was approximately $119 million, which is essentially unchanged as compared to the prior year third quarter. Beginning with revenues. Quarterly revenues in our owned and leased secure services facilities increased by approximately 6% year-over-year, primarily driven by higher occupancy levels at our ICE facilities compared to the prior year third quarter. This revenue increase was offset by lower quarterly revenue from our Electronic Monitoring and Supervision Services segment due to lower participant counts under the ISAP contract compared to the prior year third quarter. Quarterly revenues for our managed-only and non-residential service contracts were largely unchanged compared to the prior year third quarter. Turning to our expenses. During the third quarter of 2024, both our operating expenses and general and administrative expenses remained largely consistent with the prior year quarter. Our third quarter 2024 results reflect a year-over-year decrease in net interest expense of approximately $12 million as a result of our debt reduction and refinancing efforts over the past…

Thank you, Mark. Good morning, everyone. It is my pleasure to review the quarterly milestones for GEO Secure Services. During the third quarter of 2024, our Secure Services facilities successfully underwent a total of 61 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 approximately 99%, and one facility received PREA certification in the third quarter. Our GTI Transportation division and our GEOAmey UK joint venture completed approximately 4 million miles driven in the United States and the UK during the third quarter. Moving to the current trends for our government agency partners. During the third quarter of 2024, utilization at our U.S. Marshals detention facilities was largely consistent with utilization during the third quarter 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 pre-trial detainees facing federal criminal proceedings. We believe that our U.S. Marshals facilities provide needed bed space near federal courthouses where there is generally a lack of suitable alternative detention capacity. Moving to our contracted ICE processing centers. Utilization across our facilities has largely remained at approximately 13,000 beds over the last three quarters, which represents an increase of approximately 11% from the end of the third quarter one year ago and is currently at approximately 13,500 beds. GEO has a longstanding track record of delivering professional support services on behalf of ICE at GEO contracted federal immigration processing centers and we stand ready to support ICE with any additional needs. GEO contracted ICE processing centers offer around the clock access to quality healthcare services. Our healthcare staffing at the ICE processing centers where we…

Thank you, James. I'm pleased to provide an overview of the quarterly operational milestones for GEO Care. During the third quarter of 2024, we successfully renewed five residential reentry center contracts, including three contracts with the Federal Bureau of Prisons. Our residential reentry centers, non-residential day reporting centers and our ISAP field offices successfully underwent a combined total of 84 audits including internal audits, government reviews, third-party accreditations, and Prison Rape Elimination Act or PREA certifications. Five of our residential reentry centers received accreditation from the American Correctional Association with an average accreditation score of 100%, and eight of our residential reentry centers received PREA certifications in the third quarter. Our 34 residential reentry centers provide transitional housing and rehabilitation programs for individuals reentering their communities across 14 states. Average daily census levels at these centers remain stable at approximately 5,000 individuals during the third quarter of 2024. Our non-residential and day reporting centers provide high quality community based services including cognitive behavioral treatment for up to approximately 9,000 parolees and probationers at 98 locations across 10 different states. Moving to our enhanced rehabilitation programs, during the third quarter of 2024, we delivered in custody rehabilitation programs to approximately 2,500 individuals at 38 in-prison treatment sites in eight states and to approximately 19,000 individuals enrolled in 12 GEO Continuum of Care programs in six states. Our in-custody rehabilitation services include academic programs focused on the attainment of high school equivalency diplomas. We've made a significant investment to equip all of our classrooms with smart boards to aid in the delivery of academic instruction. We've also focused on developing vocational programs that lead to certification for good jobs in the markets where our graduates will live upon their release. Our substance abuse treatment programs are an important part of our rehabilitation…

Thank you, Wayne. As you've heard us say today, the third and fourth quarters are expected to be much the same under the Biden administration. What is new is a potential C [ph] change by the incoming Trump administration that is expected to implement a much more aggressive policy towards interior and border immigration enforcement. We believe that the private sector will play a critical role in assisting the government in carrying out its objectives. GEO is the single largest contractor to ICE with almost four decades of partnership and provides approximately 40% of the secure beds for ICE. We are well positioned to scale up our secure residential care housing from current 13,500 beds to over 31,000 beds. In GEO's ISAP program, we can scale up from the present 182,500 participants to several hundreds of thousands or even millions of participants. In GEO's nationwide ground and air transportation services, we can scale up materially for domestic as well as international travel. The GEO Group was built for this unique moment in our company's – country's history and the opportunities that it will bring. We are thankful for our long standing shareholders and welcome the new ones on this journey. That completes our remarks and we would be glad to take the questions.

[Operator Instructions] The first question comes from Brian Violino with Wedbush. Please go ahead.

Great. Thanks for taking my questions. Heard the commentary about ISAP potentially being able to scale up into the millions, but just kind of curious about how you expect NOI margins in that segment to trend. I think they've been trending down a little bit over the past few quarters, but is there some degree of operating leverage in that business if we were to get to that sort of level of participants?

Hey, this is Brian. So the margins move around as we've talked about before, depending on the mix of the services that ICE is using at the time, the amount of technology, as well as the case management services. So, I think given the guidance that George has provided, we would expect the margins to be at least consistent with where they are today and potentially improve.

Great. And then there was some additional talk about the air services contract. I think that's $25 million in annualized revenue. I think we have a pretty good idea of the potential size of the [indiscernible] program in a new administration. But could you help us try to size this air services opportunity? And then what kind of margins do you generate in that business?

I think to speak in generalities; we're looking at a theoretical potential doubling of all of our services, whether it's in the detention segment, in the transportation segment, as well as the ISAP program. Of course, this will depend on Congress providing the required funding. And we think that may not occur until after the new administration comes in and passes a final bill for the balance of the fiscal year. So we're looking at maybe March as the additive funding for this fiscal year. But as I said in my final closing remarks, this is to us an unprecedented opportunity to assist the federal government and the incoming Trump administration towards achieving a much more aggressive immigration policy with regard to interior enforcement and border enforcement and the removal of criminal aliens predominantly from this country, as has been characterized by incoming President Trump as the focal point for the initial deportation activities.

Understood. Thanks for taking the time.

The next question comes from Joe Gomes from Noble Capital. Please go ahead.

Good morning.

Good morning.

Good morning, Joe.

I wanted to start out on looking through this supplement and maybe you just walk me through this. So obviously, year-over-year, as you mentioned, revenues in electronic monitoring and supervision services declined by about $14 million. But net operating income also declined by $14 million, which I thought was somewhat odd. That was really almost dollar for dollar decline in net operating income with a decline in revenue. I was just wondering if you could go through that?

It just depends, as I said before, this is Brian, it depends on which devices or services that they pulled out of the program. And there's different margin levels associated with that. There's different costs. At some point there is also can be an increase in staffing requirements. Even though the total number of participants in the program declined, there's more participants in the case management, labor intensive services. So that's I think part of what you see going on there is those that mix changes in the program.

Yes, Joe, I agree with Brian. I mean, I think it's just a coincidence that both of those decreased by approximately $14 million. As Brian indicated, it's all about the mix of products and case management that we provide. And those will fluctuate quarter-to-quarter based on the needs of ICE.

Okay. Fair enough. Thank you for that. And on the debt reduction, Brian, you can correct me if I'm wrong. I seem to recall the goal was a minimum of $150 million a year and ending 2024 to 3x net leverage ratio. Now, maybe the thought process changed a little bit with all of the terming out of the debt, but just note – you note this today that you're probably on target to do net debt reduction of about $112 million for 2024. So I just wanted to get an update on those types of goals and numbers.

Sure. So I think going forward, that continues to be our goal. The $150 million to $175 million, maybe a little bit higher. This year that was our goal and we were on track for that. But there is the one time fees that we took to restructure all of the debt. And I think we have a much better capital structure in place. But we had to pay those upfront fees to call some of the existing debt as well as the fees to pay for the new debt. And I think those were marked what $40 million to $50 million or so.

That’s right.

So if you adjust for that, those fees were right on track with what our goals were. But our net debt increased because of that refinancing transaction.

Okay. That makes sense. Thank you for that. And with Trump and the election of Trump, we talked a lot about ICE. Do you see anything that could possibly increase the U.S. Marshals and or at this point in time, is there anything new, at least on the secure services with the BOP that might be coming new due to the Trump being re-elected?

I think in the short term, all available secure capacity will go to ICE, even though there's interest by the Marshals service. And maybe some will have to go because there's an interplay between ICE and the Marshals service in the Immigration Detention Program. A long term basis, I think both the Marshals service and we think the BOP will want their own additional capacity from the use of prior facilities in prior years, those facilities they know well and they're strategically located. So we could see a general expansion of our system as well as other contractors in this space.

And then I would just add to what George said that similar to our ICE facilities, it's a more significant number, as I mentioned at the ICE facilities that there's a number of unused beds at currently active contracted for facilities. Some of our Marshals facilities could have improved utilization even going into next year and we could see some incremental impact to our revenues just from those existing facilities. And then there may be some opportunities down the road as the BOP looks at greater use of reentry and reentry type programs. Most of our facilities are located on large parcels of land and it may require at some point expanding these existing facilities because it's in general very difficult to locate such facilities. Once you've located one and operated successfully over a period of time, it's much easier just to add an addition to those facilities.

Okay. And then one more for me. We talked briefly on this, the new RFI that's on the ISAP program that came out yesterday. And you guys mentioned you have the capacity to increase either the current or even up into the millions of people. I was wondering one, I know it's tough to quantify, but I'm going to throw it out there, what type of CapEx would be necessary to go up into the millions of people? And outside of yourself, is there anybody else that you see out there that could perform these services capably like you have done for so many decades?

Well, there's a couple of questions in there. Let me start with the CapEx issue. We provide a variety of monitoring devices. Some are more CapEx intensive than others. So it will depend on which devices are used for which people. The higher security individuals will probably go on ankle monitors. But there's the other end of that continuum is electronic devices which are not capital intensive and can be made readily available quickly at a very low cost. We are – we currently have the exclusive contract to provide all services under the ISAP contract. There may be other companies that are theoretically interested in providing some of those services. But we are in a unique position where we have a 20-year history and our footprint is coast to coast. We have 1,000 individuals at over 100 offices or locations around the country providing these services.

Great. Thanks for that insight, George. Appreciate it. I will get back in queue.

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

Hey everybody. Thanks for taking my questions. I just wanted to start off with the ISAP contract. I know you mentioned you have the capacity to monitor several million participants, but if ICE were to receive a substantial increase in funding, what do you estimate the ISAP monthly or quarterly increase might look like? Or just in other words, what would that cadence kind of look like as it ramps up?

Well, at one point we were at 340,000 participants, I believe. So we're kind of just a little more than half of that. So I would expect that any aggressive approach to the ISAP program would result in a higher level than 340,000 and by several hundreds of thousands. So we're looking at it potentially a doubling or a tripling of the ISAP program subject to the availability of funding to be approved by Congress. But the prior House appropriations bill required that everybody on the non-detained docket be under some form of electronic monitoring and that involves 7 million people approximately. But we don't know how much funding will be made available towards reaching that goal.

Understood. Thanks, George. And on the appropriations bills, the 2025 appropriations bills, just kind of based on the high likelihood of a Republican controlled House and Senate. Do you expect the Senate version of the Homeland Security Bill to be materially different from the House version that was rolled out recently?

Yes, I do. If you're referring to the House version being about 50,000 beds, I think the new version of bills in the House and the Senate will be in the range of 70,000 to 100,000 beds.

Got it. Thank you. That's helpful. And then one more question just on the ATD program as a whole. I think in the past you mentioned that the ISAP contract holds about a 90% market share of the ATD programs. But if there were to be a material ramp up to say millions of participants, how do you expect that GEO’s market share to ultimately trend if that were to happen?

I think we would retain our market share. I don't think there would be any difference. We're the exclusive provider under the ISAP program. And as I said, we have a broad footprint throughout the country, coast to coast. We have two monitoring centers. We have a manufacturing facility in Colorado. So we are a fully integrated company in being able to not only manufacture the devices, but also provide them and oversee them through the back office services at 100 different locations.

And I would just add to what George said. I think if you're looking at the budget, there are some other service providers in the ATD line item. It's unclear to us how the government, the new administration might use those programs that were put in place or brought in place during the current administration. So those are relatively new programs and they were – they had some different objectives and it's unclear to us how those might be used going forward. But as George said, or the exclusive provider on the secure monitoring of individuals across the country.

Understood. Thanks, George. Thanks, Brian. That's all for me.

The next question comes from Jason Weaver from JonesTrading. Please go ahead.

Hi. Thanks for taking my question. Just one for me. Between ICE, the Marshals and some of the states like with Prop 36 in California, in light of the sort of the scale opportunity that might be ahead, it seems it might require you to grow some of your footprint capacity. So I'm just curious if that might shift your posture towards reducing leverage and capital return in light of what's out there.

Well, I think we would be very careful and thoughtful as to what the long term needs are before we expand our facilities. But we would take another look at other facilities that we have for other clients. We have approximately 85,000 beds across the country that are being used for different clients, federal, state and local clients. So we may have to take another look at who our clients are, whether we need to redirect those contracts towards these federal purposes.

Understood. Well, thank you.

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

Hey, good morning. Thanks for taking the questions, wanted to ask if ICE populations were to rent meaningfully, requiring additional facilities that were idle to be turned on. Do you foresee any kind of challenges with staffing or any other challenges with kind of, meeting that needed capacity or I guess, costs associated? Just wondering if you could maybe speak to, CapEx or onetime costs related to getting those facilities turned on again?

There will be startup costs in two categories. One of probably some physical plant renovations that need to take place, and we've already done analysis on that. And then the other cost category would be on labor costs and recruitment of personnel. But these federal contracts generally require compliance with the Department of Labor calculation of what the market rates are for the areas. They're usually very attractive. And we have really no difficulty in hiring for these federal facilities. The delay sometimes comes in the clearance process that's required for participation in an ICE contract or a Marshals contract.

Okay, sure. And wondering if you could speak to the potential opportunity with the Bureau of Prisons, and I guess, under the new administration. And what, I guess, did it look like under Trump's first term?

Well, I think the prior Biden policy of prohibiting private sector providers to assist the Bureau of Prisons will be ended as it was under the prior Trump administration. But in the short term, I think all available bed space will be prioritized for ICE and on a secondary basis with the U.S. Marshals Service. But we are very familiar with the BOP and having been a provider for them for several decades, on a longer term basis, we understand their needs in different geographic locations and we fully anticipate assisting them in those long term needs, because we're aware that many of the BOP facilities are very old and require substantial CapEx requirements for operational operations. And we foresee a consolidation opportunity for the BOP to consolidate into newer, larger private sector facilities in the future.

I see. And I guess one follow up there. Does the priority for ICE kind of just relate to, I guess, more favorable contract terms?

Can you repeat that question?

You say priority in terms of capacity will go to ICE over BOP, the U.S. Marshals. Does that just relate to more favorable contract terms with ICE?

I think that just following what the priorities of the Trump administration will be, they'll determine who gets the beds through the contracting process.

Sure, got it. Just assuming that you kind of get to that 18,000 in available capacity. But okay, thank you.

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

Hello, everyone. Thank you for the call. Just to follow up on this, the ICE question, you mentioned that the Trump administration may focus on deporting criminal aliens. Do you have a guess as to how many criminal aliens are in the U.S.?

Well, I read one article this morning and I thought there was 20,000 approximately that are former are known murderers. You know, it really depends on how you define criminal alien. But I'm sure there's different levels of criminality that they'll focus on the most severe and highest level of security threat as they review the locations of these individuals and what threat level they represent.

And then just similar articles that George mentioned. And there was a disclosure from ICE itself, I think a month or so ago where they mentioned that there were over 600,000 criminal aliens that would be subject to removal. And then also just as a reminder, there's well over a million folks that are on the non-detained docket who have already been adjudicated to be removed through the legal process or the court systems.

Got it. Over a million people have skipped their last hearing in state.

Along those lines if that…

Yes, got it. Okay, that's helpful, thank you. And does that change? I mean, I know there's, you know, there's a lot of, some dangerous people. Does that change the type of population you're housing and do you need more secure beds for instance to accommodate?

Well, I think it will require kind of a triage of where you put these individuals. I think the higher security people will be in existing, secure facilities. As you descend down into the lower levels, it could result in the need for some soft sided facilities around the country.

Okay, thank you. And I would guess the length of stay increases. Like you might be someone who crosses the border, you might process them in a couple days as opposed to somebody who's being deported. I mean, you have to find a place to send them, right? Don't you need to negotiate some country to take them?

Yes, it will take, as I've been told recently, several weeks, if not a few months, to detain these people and make final arrangements for their removal.

Makes sense. Got it, thank you. So it sounds like Biden's executive order will likely be reversed, maybe day one. Is that a meaningful?

He had a number of executive orders that overturn Trump's executive orders. We kind of get the sense of President Elect Trump's remarks that he will reverse all of the Biden executive orders on day one.

Got it, thank you. And I remember when Biden's executive order that prevented you from contracting directly with U.S. Marshal facilities was enacted, it took quite a while for those contracts, those direct contracts to come due. And so would it be just that in reverse, it would take a while for the reversal to take effect or do you think there's immediate opportunities?

It's immediate, but there will be a scramble for it, the available beds. But I think the administration will decide who gets the beds, and we believe ICE will have top priority on all available beds around the country.

Got it. Okay. Thank you. And then you mentioned this, and I'm sorry if I missed it, but did you say how long you expect the existing ISEP contract to remain in place? I know it expires maybe in May, but it can't possibly. I mean, it would seem like you would. That will be extended. And I'm curious how long you think.

Well, it goes through the end of July of next year. But it can be extended for a minimum of six months and possibly up to 18 months and even longer if it's determined that there's an emergency situation requiring that the continued extension of the contract.

Got it. Maybe asked differently. Is it still realistic to think that there'll be something to replace it when it expires in July, or is it likely to be extended?

Well, the complication will come as the new administration comes in and finally decides the framework for the new program, and it may take some time for them to think it through and articulate it and the governmental staff put it into an RFP. So we're thinking that the May RFP date may be overly ambitious and is certainly subject to different ideas by the new incoming Trump administration. So there could be a delay of that May date later on in 2025 and even further as they further define what that program should, how it should work, and who should be monitored under that program using the variety of electronic monitoring devices that are available to them.

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

This concludes our question-and-answer session. I would like to turn the conference over to George Zoley from the Executive Chairman of The GEO Group for closing remarks.

Well, thank you very much for joining us today, and we look forward to addressing you at our next meeting.

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