The GEO Group Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 7, 2025
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Operator

Good day, and welcome to the GEO Group First Quarter twenty twenty five Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press then 1 on a touch tone phone. To withdraw your question, please press then 2.

Operator

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.

Pablo Paez
Pablo Paez
Executive Vice President of Corporate Relations at The GEO Group

Thank you, operator. Good morning, everyone, and thank you for joining us for today's discussion of The GEO Group's first quarter twenty twenty five earnings results. With us today are Dave Donahue, Chief Executive Officer and Mark Cieczynski, Chief Financial Officer. This morning, we will discuss our first quarter results as well as our outlook. We will conclude the call with a question and answer session.

Pablo Paez
Pablo Paez
Executive Vice President of Corporate Relations at The GEO Group

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.

Pablo Paez
Pablo Paez
Executive Vice President of Corporate Relations at The GEO Group

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 ks, 10 Q and eight ks reports. With that, please allow me to turn this call over to our CEO, Dave Donahue. Dave?

David Donahue
David Donahue
CEO at The GEO Group

Thank you, Pablo, and good morning, everybody, and thank you for joining us on our first quarter twenty twenty five earnings call. Our Executive Chairman, George Zoli, he's on personal leave today and will not be joining the call, but I am pleased to be joined by our CFO, Mark Jasinski, to review our first quarter financial results and operational highlights.

David Donahue
David Donahue
CEO at The GEO Group

We've had a very active first half of twenty twenty five and we continue to make significant progress towards meeting our growth and capital allocation objectives. As we have expressed to you previously, we believe we have an unprecedented opportunity to assist the federal government in meeting its expanded immigration enforcement priorities. And we've taken several important steps in anticipation of what we expect to be significant future growth opportunities and related operational activity during 2025. In December of twenty twenty four, we announced the $70,000,000 investment to strengthen our capabilities to deliver expanded detention capacity, secure transportation, and electronic monitoring services to ICE and the federal government. Late last year, we also announced the reorganization of our corporate management structure to strengthen our operational oversight and execution in preparation for the expected growth.

David Donahue
David Donahue
CEO at The GEO Group

This reorganization along with additional professional fees has resulted in higher quarterly overhead expenses incurred in anticipation of what we expect to be unprecedented future growth projects and operational activity. This morning, we updated our financial guidance for 2025, which reflects a tale of two halves of the year. The first half of twenty twenty five reflects higher overhead and operating expenses, as well as higher capital expenditures without corresponding revenues. This is to position our company for anticipated future revenue growth, which we expect to begin to layer in during the second half of twenty twenty five. Additionally, consistent with our long standing practice, our guidance does not include any new contract awards that have not been previously announced.

David Donahue
David Donahue
CEO at The GEO Group

During the first quarter of twenty twenty five, we announced several new contract awards with US Immigration and Customs Enforcement. In New Jersey, we entered into a fifteen year contract to provide support services for the establishment of a federal immigration processing center at our company owned 1,000 bed Delaney Hall facility. This new contract is expected to generate in excess of $60,000,000 of annualized revenues with margins consistent with our company owned secure services facilities. The Delaney Hall facility began the intake process on May 1 and we expect revenues and earnings from the new contract to normalize during the second half of twenty twenty five. In Michigan, we entered into a letter contract with ICE for the phased activation of a federal immigration processing center at our company owned 1,800 bed Northlake facility.

David Donahue
David Donahue
CEO at The GEO Group

We're in the process of negotiating a multi year contract with ICE, which we expect to be finalized in the next several weeks, with facility activation expected during the third quarter of twenty twenty five. We expect this new contract to generate in excess of $70,000,000 in annualized revenues with margins consistent with our company owned secure services facilities. In Texas, we had announced a contract modification for our company owned thirteen twenty eight bed Karnes ICE Center to transition the facility from housing single adults to housing mixed populations. Subsequently, ICE decided to continue to house single adults in the Karnes Ice Center based on the assessment of the agency's current needs. The activation of the Delaney Hall and Northlake facilities will increase our total capacity under contract with ICE from approximately 20,000 beds to approximately 23,000 beds.

David Donahue
David Donahue
CEO at The GEO Group

Utilization at our facilities under contract with ICE is currently at approximately 16,000 beds, which is the highest level of utilization in over five years. While we estimate the ICE detention levels are currently at about 48,000 beds nationwide. In addition, we have around 3,000 beds available to facilities currently under contract with the US Marshals Service. We also have roughly 6,500 beds at idle facilities, which have not received the contract award yet and for which we are currently in active discussions with both ICE and the Marshals Service regarding their interest in these facilities. We continue to be very encouraged by the pace of these discussions and anticipate additional contract awards to be announced during the second quarter of twenty twenty five for likely activation in the second half of the year.

David Donahue
David Donahue
CEO at The GEO Group

ICE recently issued a $45,000,000,000 procurement for detention beds and related services as a strategic sourcing vehicle to contract for additional detention bed space nationwide. And the Marshall Services issued sources sought notices to contract for additional bed space in Texas and North Carolina, where we currently have available idle facilities. As we have previously articulated, we estimate that the utilization of our available idle and underutilized beds could generate between $500,000,000 and $600,000,000 in annualized revenues with margins consistent with our secure services owned facilities, which averaged 25% to 30%. Today, the Delaney Hall and Northlake contract announcements represent in excess of $130,000,000 of this annualized revenue potential. However, these facilities are expected to generate only partial revenue and earnings contribution in 2025 due to the timing of these facility activations.

David Donahue
David Donahue
CEO at The GEO Group

As a reminder, once a contract has been awarded, our typical facility activation period is sixty to ninety days to hire, train and clear staff and to get the facility ready for occupancy, followed by a gradual ramp up and utilization. As we have previously discussed, before the passage of the Lake and Riley Act, the Trump administration had indicated a need to ramp up to a 100,000 total ICE detention beds for increased interior enforcement operations. Based on public statements from ICE, the implementation of the Lake and Riley Act could require an incremental 60,000 ICE detention beds or more. We continue to believe that an increase to between 260,000 total detention beds will require a range of solutions for the detention and processing of migrants in The United States. We have a forty year record of providing special purpose facilities that meet the unique operational needs and requirements set by ICE at a cost savings to taxpayers when compared to publicly operated facilities and to alternative solutions like soft sided facilities.

David Donahue
David Donahue
CEO at The GEO Group

In addition to our current inventory of idle facilities, we are exploring additional options, including the potential purchase, leasing or operation of third party owned facilities and the potential repurposing of some of our current state facilities. With respect to the latter option, we have two state correctional facilities totaling approximately 3,600 combined beds, which could be repurposed for use by the federal government. We were initially pursuing the potential sale of both of these facilities. However, after discussions with the leadership of these two states, we are currently moving forward with the potential sale of one of these facilities while repurposing the other facility. In New Mexico, we are working with the New Mexico Corrections Department to depopulate our company owned 1,200 bed Lee County facility by the end of the year.

David Donahue
David Donahue
CEO at The GEO Group

We've already begun marketing this facility to both ICE and the US Marshals Service. As has been publicly disclosed in the media, in Oklahoma, we are in advanced discussions with the Oklahoma Department of Corrections for the potential sale of our company owned 2,400 bed Lawton Correctional Facility for $312,000,000 with financial closing targeted for this July, subject to legislative and executive approval. We've also made a significant investment commitment in our electronic monitoring and supervision services segment to ramp up for the production of GPS tracking devices for use under the intensive supervision appearance program or ISAP. ISAP participant counts averaged approximately 186,000 during the first quarter of twenty twenty five. While ISAP counts declined below 184,000 in April, they have recently begun to increase and are currently above the 185,000 participants.

David Donahue
David Donahue
CEO at The GEO Group

As we have previously noted in late twenty twenty two, the ISAP contract utilization peaked at approximately 370,000 or twice the number of participants currently in the program. We estimate that returning to that utilization level could generate an incremental $250,000,000 in annualized revenues based on the current mix of the program. We have a long track record of delivering quality services under iSite with bipartisan support for approximately twenty years. These services entail diversified electronic monitoring technologies, as well as compliance management services, which are delivered through a nationwide network of approximately 100 offices and close to 1,000 employees. Over our twenty year tenure, ISAP has achieved high compliance rates with immigration court requirements while monitoring a relatively small portion of the estimated seven to 8,000,000 undocumented aliens who are on the non detained docket.

David Donahue
David Donahue
CEO at The GEO Group

In addition to another nine and a half to 10,000,000 people who are also estimated to be in The United States without legal status. Given the size of this population, our view is that in addition to increased detention capacity, the requirements of the federal immigration law and the Lake and Riley Act will require an increase in GPS tracking for individuals on the non detained docket. With the investment commitment we have made, we believe we have the necessary resources to significantly and quickly scale up the current utilization of the ISAP contract. And we believe that the agency's focus remains on increasing the size of the population that is currently monitored under ISAP. The existing ISAT contract is scheduled to expire 07/31/2025, which we do not believe provides adequate time for competitive rebid of the contract, and thus we are expecting a one or two year extension allowing for an orderly transition to a larger and more focused program.

David Donahue
David Donahue
CEO at The GEO Group

We are also investing in the expansion of our secure services transportation fleet. As we have previously discussed, we expect an increase in the number of removal flights could generate an incremental $40,000,000 to $50,000,000 in annualized revenues under our existing ICE Air Support Services subcontract. On a combined basis, we estimate that the upside potential from all of these opportunities could represent as much as $800,000,000 to $1,000,000,000 in annualized revenues, which could add as much as $250,000,000 to $300,000,000 in annualized adjusted EBITDA. Today, we have announced new contracts totaling in excess of $130,000,000 of this potential growth. We expect these opportunities to be supported by the expected continued ramp up in interior enforcement by ICE, contingent on future funding availability, either through additional appropriated or reprogrammed funds.

David Donahue
David Donahue
CEO at The GEO Group

The budget reconciliation process in Congress remains a key element for the future funding availability for ICE. The US Senate and the US House of Representatives have agreed on a budget framework and are currently considering a budget reconciliation bill that is expected to provide a significant funding increase for border security and immigration enforcement. The US House of Representatives is aiming to complete the budget reconciliation process by Memorial Day, while the US Senate is aiming to complete it by the July 4. Regarding our capital structure, we continue to make significant progress in our efforts to reduce debt, deleverage our balance sheet and evaluate potential capital returns in the future. We ended the first quarter of twenty twenty five with approximately $1,680,000,000 in total net debt.

David Donahue
David Donahue
CEO at The GEO Group

For the full year 2025, we expect to reduce net debt by approximately $150,000,000 to $175,000,000 bringing total net debt to approximately $1,540,000,000 and total net leverage to approximately 3.3 times adjusted EBITDA. Finally, before I turn the call over to Mark, I would like to briefly review the quarterly operational highlights for our GEO Secure Services and GEO Care business units. During the first quarter of twenty twenty five, our Secure Services facilities successfully underwent a total of 57 audits, including internal audits, government reviews, third party accreditations, and Prison Rape Elimination Act or PREA certifications. Six of our secure services facilities received accreditation from the American Correctional Association with an average score of 99.6%, and another three facilities received PREA certifications. Our GTI Transportation Division and our GEO AME UK joint venture completed approximately 2,300,000 miles driven in The United States and The UK during the first quarter.

David Donahue
David Donahue
CEO at The GEO Group

Moving to the quarterly operational milestones for GEO Care. During the first quarter of twenty twenty five, we renewed five residential reentry center contracts, including three contracts with the Federal Bureau of Prisons. Additionally, we renewed 10 non residential day reporting center contracts. Our residential reentry centers, non residential day reporting centers, and ISAF offices successfully underwent a combined total of 81 audits, including internal audits, government reviews, third party accreditations and Prison Rape Elimination Act or PREA certifications during the first quarter. '2 of our residential reentry centers received accreditation from the American Correctional Association with an average accreditation score of 99.8%, and two residential reentry centers received pre re certifications.

David Donahue
David Donahue
CEO at The GEO Group

Moving to our enhanced rehabilitation programs, during the first quarter of twenty twenty five, we completed approximately seven hundred thousand hours of enhanced in custody rehabilitation programming. Our academic programs awarded five seventy five high school equivalency diplomas, and our vocational courses awarded more than 1,600 vocational training certifications. Our substance abuse treatment programs awarded over 900 program completions, and those in our care achieved close to 2,600 behavioral treatment program completions and close to 4,800 individual cognitive behavioral treatment sessions. During the first quarter of twenty twenty five, we also allocated more than $300,000 towards post release services. This funding supported approximately 1,900 individuals released from geo service facilities as they returned to their communities.

David Donahue
David Donahue
CEO at The GEO Group

We believe that our award winning continuum of care program provides a proven model for how the two plus million people in The United States criminal justice system can be better served in changing their lives. I'll now turn the call over to our CFO, Mark Stashinski. Mark?

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

Thank you, Dave, and good morning, everyone. For the first quarter of twenty twenty five, we reported net income attributable to GEO of approximately $19,600,000 or $0.14 per diluted share on quarterly revenues of approximately $6.00 $5,000,000 This compares to net income attributable to GEO of approximately $22,700,000 or $0.14 per diluted share in the first quarter of twenty twenty four on revenues of approximately $6.00 $6,000,000 Adjusted EBITDA for the first quarter of twenty twenty five was approximately 100,000,000 compared to approximately $118,000,000 for the prior year's first quarter. Our first quarter revenue and adjusted EBITDA were in line with our internal expectations. Beginning with revenues, quarterly revenues in our owned and leased secure service facilities increased by approximately 3% year over year. This revenue increase was offset by lower quarterly revenue from our electronic monitoring and supervision services segment, which declined by approximately 10% compared to the prior year's first quarter.

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

Combined quarterly revenues from our owned and leased reentry centers, managed only facilities and non residential service contracts were largely unchanged compared to the prior year's first quarter. Now let's turn to our operating expenses. During the first quarter of twenty twenty five, our operating expenses increased by approximately 3% compared to the prior year's first quarter. The increase in our operating expenses reflect higher labor costs in our Secure Services segment, in part due to additional staffing and training costs as we continue to incur these in preparation for expected future growth. Our general and administrative expenses for the first quarter of twenty twenty five increased by approximately 9% from the prior year's first quarter, in part due to recent reorganization of our senior management team and additional associated professional fees, which we incurred during the first quarter of twenty twenty five in preparation for expected future growth, as well as higher employee related benefit costs.

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

Compared to the fourth quarter of twenty twenty four, our first quarter twenty twenty five results also reflect approximately $6,000,000 in higher payroll related taxes, which are front loaded in the first quarter of each year. Our first quarter twenty twenty five results reflect a year over year decrease in net interest expense of approximately $8,000,000 as a result of our debt reduction and refinancing efforts taken over the last year. Our effective tax rate for the first quarter of twenty twenty five was approximately 9%. Income taxes for the first quarter of twenty twenty five were lower than expected as a result of the increased value of equity awards, which vested during the quarter. Now let's move to our updated financial guidance for 2025.

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

As previously noted, our financial guidance for 2025 reflects a tale of two halves of the year. The first half of twenty twenty five reflects higher overhead and operating expenses, as well as higher capital expenditures to position our company for anticipated future revenue growth without the corresponding revenues, with growth beginning to layer in during the second half of twenty twenty five. Also importantly, consistent with our long standing practice, our guidance does not include any new contract awards that have not been previously announced. For the full year 2025, we expect net income attributable to GEO to be in the range of $0.77 to $0.89 per diluted share on revenues of approximately 2,530,000,000 and based on an effective tax rate of an approximately 27% inclusive of known discrete tax items. We expect our full year 2025 adjusted EBITDA to be between $465,000,000 and $490,000,000 For the second quarter of twenty twenty five, we expect net income attributable to GEO to be in the range of $0.15 to $0.17 per diluted share on quarterly revenues of $615,000,000 to $625,000,000 We expect the second quarter of twenty twenty five adjusted EBITDA to be between $110,000,000 and $114,000,000 Our guidance does not include any assumption for new contract awards that have not been previously announced, nor any material census growth at either existing facilities or the ISEP contract.

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

However, we anticipate that several upside opportunities could materialize during the year, including additional contract awards, which we expect to be announced in the second quarter of twenty twenty five. As we progress through the year and these growth opportunities materialize, we will continue to adjust our financial guidance accordingly. As a reminder, as contract awards are announced and we begin to reactivate idle facilities, we would expect to incur startup expenses during the initial sixty to ninety day activation period. Startup expenses for any facility activations not previously announced are not included currently in our guidance. We expect total capital expenditures for the full year of 2025 to be between $120,000,000 and $135,000,000 including the impact of the $70,000,000 investment we announced in December to expand our ICE service capabilities.

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

Moving to our capital structure, we ended the first quarter of twenty twenty five with total net debt of approximately $1,680,000,000 60 5 million dollars in cash on hand and approximately $235,000,000 in total available liquidity. As of the first quarter of twenty twenty five, fixed rate debt represents approximately 77% of our total indebtedness, which meaningfully insulates GEO from potential interest rate volatility. In April of twenty twenty five, we were pleased to have Fitch initiate ratings on GEO with a B plus issuer rating, a BB plus rating on our secured debt, a BB- rating on our unsecured debt and a stable outlook. We have no substantial debt maturities due before April of twenty twenty nine, which continues to give our company significant runway to grow our business and focus on reducing our debt and eventually be able to return capital to shareholders. Based on our current 2025 guidance, we expect to reduce our net debt by between $150,000,000 and $175,000,000 this year, bringing our total net debt to approximately $1,540,000,000 by the end of the year.

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

Our debt reduction could be augmented by the sale of one of our state correctional facilities in Oklahoma, which we estimate could generate gross proceeds of approximately $312,000,000 In addition to allocating capital towards debt reduction to support our capital growth needs, Our goal remains to explore options for returning capital to our shareholders in the future. At this time, I'd like to turn the call back to Dave for closing remarks. Dave?

David Donahue
David Donahue
CEO at The GEO Group

Thank you, Mark. We are pleased with the progress we've made towards meeting our growth and capital allocation objectives. The additional time we've spent with our federal partners have positioned us very well for the remainder of 2025.

David Donahue
David Donahue
CEO at The GEO Group

During the first quarter of twenty twenty five, we announced two important contract awards for the reactivation of two company owned facilities totaling 2,800 beds and representing in excess of $130,000,000 in annualized revenues. We believe we have an unprecedented opportunity to assist the federal government in meeting its expanded immigration enforcement priorities. We have taken several important steps to be prepared to meet that opportunity and we are very well positioned. We have made a significant investment commitment of $70,000,000 to strengthen our capabilities to deliver expanded detention capacity, secure transportation and electronic monitoring services to ICE and the federal government. We've also completed a reorganization of our senior management team to oversee the operational execution of this expected future growth.

David Donahue
David Donahue
CEO at The GEO Group

As a result of these steps, our guidance for 2025 reflects a tale of two halves of the year. The first half of the year is expected to be impacted by higher overhead and operating expenses, as well as increased capital expenditures to position our company for future growth, which is expected to begin to layer in during the second half of twenty twenty five and normalize in 2026. GEO is the single largest contractor to ICE with four decades of partnership and are currently we provide approximately 40% of the detention beds to ICE. We believe we are well positioned to significantly scale up our secure residential care housing price from the current 16,000 utilized beds. In GEO's one hundred percent management of the ISAT program, we believe we can quickly scale up from the present 185,000 participants to several hundreds of thousands or even millions of participants have called upon.

David Donahue
David Donahue
CEO at The GEO Group

GEO's contractual partnership with CSI Aviation has allowed us to become the largest provider of secure transportation services for ICE. We believe we can scale up materially for domestic and international travel for five hundred thousand individuals or more if called upon. This is a unique moment in our company's history and we believe we are well positioned to meet this unprecedented opportunity and to continue to enhance value for our shareholders. With that, this completes our remarks. We will be glad to handle any questions. Thank you.

Operator

We will now begin the question and answer session. 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 then 2. At this time, we will pause momentarily to assemble our roster. First question today comes from Joe Gomes with NOBLE Capital. Please go ahead.

Joe Gomes
Senior Research Analyst at Noble Capital Markets

Good morning. Thanks for taking my questions.

David Donahue
David Donahue
CEO at The GEO Group

Good morning. Good morning, Joe.

Joe Gomes
Senior Research Analyst at Noble Capital Markets

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

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

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

Joe Gomes
Senior Research Analyst at Noble Capital Markets

Thanks for that. And then you guys mentioned the house funding bill in reconciliation talking about adding 45,000,000,000 for ICE detention. They talk about adding a significant amount of money also for transportation. But one of the things, at least in the articles that I have read, nothing really mentioned on ATD. Now, who was that included in that 45,000,000,000 or is there something else going on there with the funding bills, potential funding bills?

David Donahue
David Donahue
CEO at The GEO Group

Well, Joe, this is Dave. Let speak to that. The The funding activity right now, you identified, I think Homeland Security and Immigration Customs Enforcement are obviously focusing on interior enforcement and detention is a priority. So we've seen as a result of the agency's efforts to secure the border at the southern side of our country, that detention focus has become the reality. And so we've spent additional time with our clients working through our facilities so they have a better understanding to maximize the available detention space in the country.

David Donahue
David Donahue
CEO at The GEO Group

As the interior enforcement matures and the detention space is utilized, the non detained docket is very robust, as you know, and the alternative to detention and specifically ISAP is the valuable solution that provides accountability for the immigration population as they're moving through their judicial review. So again, we have a high degree of confidence that as the budget process unfolds, as that becomes clear, you'll see greater utilization on the electronic monitoring side to enhance the detention availability.

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

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

Joe Gomes
Senior Research Analyst at Noble Capital Markets

Okay, and then you guys mentioned, IC tennies and obviously working with the ICE numbers, which are delayed. I think the most recent one I saw was from early April. The number of detainees has significantly increased from the beginning of the government fiscal year from, call it 38,000 ish to 48,000 ish. But it's been relatively flat the last couple of months. And I don't know if that's your guys' thoughts.

Joe Gomes
Senior Research Analyst at Noble Capital Markets

Is that just due to funding? Is there other things going on there? And how does that kind of play into your expectations that there's likelihood that all of your idle facilities would be reactivated this year?

David Donahue
David Donahue
CEO at The GEO Group

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

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

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

Joe Gomes
Senior Research Analyst at Noble Capital Markets

Okay, thanks for that. And one last one for me. Pardon me, given what we discussed today about the selling the one potentially selling the one state facility and repurposing another state facility for ice uses. And you think in the last week or so Alabama put out RFI, I think about interest for people building a new facility for them. Given where you guys are today in the expected growth from ICE, would Alabama make sense for you guys to look at?

Joe Gomes
Senior Research Analyst at Noble Capital Markets

Or is that something that would be on a back burner, so to speak, given the expected demand coming from the federal government?

David Donahue
David Donahue
CEO at The GEO Group

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

Joe Gomes
Senior Research Analyst at Noble Capital Markets

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

David Donahue
David Donahue
CEO at The GEO Group

Thank you.

Operator

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

Jason Weaver
Managing Director - Equity Research at Jones Trading

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

David Donahue
David Donahue
CEO at The GEO Group

Sure, Jason. Good question.

Jason Weaver
Managing Director - Equity Research at Jones Trading

Is Fort Bliss for one we've heard of.

David Donahue
David Donahue
CEO at The GEO Group

Right. As you may know, the government has retracted the Fort Bliss objective and that's no longer a competitive procurement. So that's been pulled off the table by government and I'm sure they're evaluating other opportunities. We are very well positioned to provide additional capacity and operating support on an as needed basis. We are focusing presently on our idle facilities and several of our current facilities have opportunity for expansion by way of soft sided capacity, if in fact the government wants to pursue that.

David Donahue
David Donahue
CEO at The GEO Group

So we're working directly with our clients to understand what their needs are and as those needs become identifiable, we're going to stand in the corner with them to create the solution. So we're not opposed to operating any environment that ICE feels is necessary for them to meet their mission.

Jason Weaver
Managing Director - Equity Research at Jones Trading

All right. Thank you for that. Also on the same topic, I believe in your prepared remarks, you mentioned U. S. Marshals interest in one of your Texas facilities, which is Flight Line, I believe.

Jason Weaver
Managing Director - Equity Research at Jones Trading

Have you engaged in any discussions around reopening the Georgia Ray James facility with any federal partners?

David Donahue
David Donahue
CEO at The GEO Group

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

Jason Weaver
Managing Director - Equity Research at Jones Trading

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

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

Good question, Jason. I think first things first, when we at our Investor Day, we talked about the priorities of capital allocation. Right now, the big focus is on supporting our clients and the reactivation and expanding of the services that we have in place here, which we believe will lead to substantial increase in revenues and profitability. And that's both from an expansion and a capital standpoint, And what I would tell you is as we move into the back half of this year, we have this potential opportunity in Oklahoma, which could help accelerate debt pay down. I think that becomes returning capital back to shareholders becomes a closer priority as that happens.

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

And so I think it's something that we'll look at. The first priority is execution and supporting our clients. Back half of the year, we expect the financials to reflect those opportunities. And so I think we'll start to look at it more meaningfully in the back half of 2025, and then I think it becomes a very serious conversation in 'twenty six.

Jason Weaver
Managing Director - Equity Research at Jones Trading

All right, thank you for taking my time.

Operator

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

Greg Gibas
Vice President & Senior Research Analyst at Northland Securities, Inc

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

David Donahue
David Donahue
CEO at The GEO Group

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

Greg Gibas
Vice President & Senior Research Analyst at Northland Securities, Inc

Got it. That's fair. And I believe kind of last quarter Investor Day, expectation was all these facilities ramping by the end of the year as it relates to your idle facilities that is, but primarily be contracted by the end of Q2. Is there an updated timeframe you estimate from a contracting timing perspective the idle facilities?

David Donahue
David Donahue
CEO at The GEO Group

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

Greg Gibas
Vice President & Senior Research Analyst at Northland Securities, Inc

Got it. And then lastly, to follow-up on kind of the US Marshals Service, saw a couple RFPs out there for facilities and pretty closely aligned with a couple of years, a couple of your idle facilities that is. How are you kind of I know you can't provide specifics, but just kind of weighing, do you expect maybe those RFPs to I guess, are you expecting timing with the Marshals Service maybe to come through sooner than anything with ICE? And kind of how you're aware of like weighing which facilities for either kind of service, right? Like I think pricing is pretty similar, so any color you can share on developments with the Marshals Service?

David Donahue
David Donahue
CEO at The GEO Group

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

Greg Gibas
Vice President & Senior Research Analyst at Northland Securities, Inc

Okay. Thanks very much.

Operator

The next question comes from Jay McCanless with Wedbush. Please go ahead.

Jay McCanless
SVP - Equity Research at Wedbush Securities

Hey. Good morning, guys. So the first question I had, if you do sell Oklahoma and the, say, 150,000,000 of what you talked about for additional debt pay down, at that point, your debt to equity is going to be sitting at about a one to one ratio. How low would you want that to go? And again, I guess how much lower would it need to go for you guys to start buying back stock?

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

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

Jay McCanless
SVP - Equity Research at Wedbush Securities

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

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

Yeah, so when you think about when we get a contract like that, our contracts typically don't have the government funding the capital upfront. And so capital investment that we make is recovered over the course of our contract timeline, whether it's a two year contract or a five year contract and that's built into the pricing. And Northlake, when we talked about the $70,000,000 investment that was included in our overall guidance for the year, we focused on making those investments ahead of these contract awards and getting them prepared so that we could react very quickly for our clients' needs. So what I would say is that that investment on that facility from a CapEx standpoint is included in our overall guidance, as well as the revenues that will start to take home hold in the back half of the year. So that investment that we made is covered in the guidance and will be accretive over the course of that contract award.

Jay McCanless
SVP - Equity Research at Wedbush Securities

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

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

Thank you.

Operator

The next question comes from Brennan McCarthy with Sidoti and Co. Please go ahead.

Brendan McCarthy
Equity Research Analyst at Sidoti & Company

Great. Good morning. I just wanted to start off on the Q2 guidance, the top line revenue of $620,000,000 at the midpoint. Does that include any contribution from, I guess, any of the three idle facility contract awards that were previously announced? And also, what does that assume as it relates to ISAT participant count?

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

So thanks, Brendan. The revenue guidance for the second quarter will factor in the benefits of the Delaney contract that activated and started on May 1. So we'll have a couple of months worth of revenue related to that new contract award. We talked about the Northlake facility, really the revenue contribution on that is more so start in the third quarter. From an ISAP count standpoint, we're monitoring that very closely, at least from a second quarter standpoint.

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

We don't expect a significant increase in second quarter, but as Dave had mentioned earlier, we're starting to slowly increase the ISAP counts that will help from a revenue standpoint. And I would also say this, when you think about our existing contracts and the beds, and we talked about the 48,000, we're seeing nice upticks in our existing contracts and the utilization of those facilities. And so all of those items will help contribute to the revenue growth over the first quarter.

Brendan McCarthy
Equity Research Analyst at Sidoti & Company

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

David Donahue
David Donahue
CEO at The GEO Group

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

Brendan McCarthy
Equity Research Analyst at Sidoti & Company

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

David Donahue
David Donahue
CEO at The GEO Group

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

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

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

Brendan McCarthy
Equity Research Analyst at Sidoti & Company

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

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

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

Brendan McCarthy
Equity Research Analyst at Sidoti & Company

Great. Thank you. Appreciate the insight. That's all for me.

David Donahue
David Donahue
CEO at The GEO Group

Thank you.

Operator

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

Kirk Ludtke
Managing Director at Imperial Capital LLC

Hello, Dave, Mark, Pablo, appreciate the Just a couple of follow ups. With respect to demand, I'm sure you have a much better perspective on how interior enforcement is ramping. Curious, how would you describe how it's going? Are there any events on the horizon that we should have on our calendars that might be inflection points?

David Donahue
David Donahue
CEO at The GEO Group

Well, Kurt, I guess from my perspective, how things are going on in Interior Enforcement, I'm extremely impressed with Homeland Security and Immigration Customs Enforcement leadership and commitment to the mission. They are very focused, very engaging, and the pace by which they're working is remarkable. So from from my perspective, I I couldn't be more impressed than watching the agency shift, if you will, or pivot into this new mission because, as you know, for a number of years, their objectives were either not sufficiently clear or had been diluted in such a way that the agency wasn't able to really even meet the needs of Homeland Security from an immigration perspective. So it has become laser focused and we are obviously very excited to support the mission that's at hand. I'm not recognizing any trigger dates for lack of better terms.

David Donahue
David Donahue
CEO at The GEO Group

I think the objective that's the short order is the congressional work that's being done to properly fund the law enforcement community at the federal level so that they can actually do the job, and of course, we're positioning ourselves to support those agencies to meet their mission. So we're excited about the task at hand and very optimistic with the leadership and the focus that's provided currently out of Homeland Security and Immigration Customs Enforcement.

Kirk Ludtke
Managing Director at Imperial Capital LLC

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

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

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

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

Think, as I said earlier, I think we can have a

David Donahue
David Donahue
CEO at The GEO Group

much more robust conversation around returning capital to shareholders. And Kurt to that end, we do anticipate obviously a contract extension for the ISAP service level. That should be resolved in short order.

Kirk Ludtke
Managing Director at Imperial Capital LLC

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

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

I wouldn't necessarily say we have to be. I would just say that I think that Fitch's ratings on us is appropriate when you think about our balance sheet, our leverage, and the amount of cash that we generate. And I also think we spend an enormous amount of time with Fetch explaining to them our business and the opportunities. And so we try to do the same with both S and P and Moody's as well. And as we execute and we pay down the debt, I think S and P is close behind Fitch from a rating standpoint.

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

I think we got a little bit more work to go do on the Moody side of things. But as you said, I think we're very pleased and we think that the ratings that Fitch has come out with are very fair based on our actual business model today.

Kirk Ludtke
Managing Director at Imperial Capital LLC

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

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

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

Kirk Ludtke
Managing Director at Imperial Capital LLC

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

David Donahue
David Donahue
CEO at The GEO Group

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

Kirk Ludtke
Managing Director at Imperial Capital LLC

Fantastic. That's a big number. 312,000,000. Is that what did I hear that correctly?

David Donahue
David Donahue
CEO at The GEO Group

That's correct.

Kirk Ludtke
Managing Director at Imperial Capital LLC

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

David Donahue
David Donahue
CEO at The GEO Group

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

Kirk Ludtke
Managing Director at Imperial Capital LLC

Fantastic. I appreciate it. Thank you.

Operator

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

Raj Sharma
Raj Sharma
Managing Director at Texas Capital

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

David Donahue
David Donahue
CEO at The GEO Group

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

Raj Sharma
Raj Sharma
Managing Director at Texas Capital

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

Raj Sharma
Raj Sharma
Managing Director at Texas Capital

And are the second half results higher largely from the increase in revenues?

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

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

Raj Sharma
Raj Sharma
Managing Director at Texas Capital

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

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

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

Raj Sharma
Raj Sharma
Managing Director at Texas Capital

Got it, got it, thank you. That's very clear. Thank you all for taking my questions offline. Thank you again.

Mark Suchinski
Mark Suchinski
CFO & Senior VP at The GEO Group

Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Dave Donahue, Chief Executive Officer of The GEO Group, for any closing remarks.

David Donahue
David Donahue
CEO at The GEO Group

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

Operator

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

Executives
    • Pablo Paez
      Pablo Paez
      Executive Vice President of Corporate Relations
    • David Donahue
      David Donahue
      CEO
    • Mark Suchinski
      Mark Suchinski
      CFO & Senior VP
Analysts
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Key Takeaways

  • Updated full-year 2025 guidance reflects a “tale of two halves,” with higher overhead and CapEx in H1 to prepare for growth and revenues of ~$2.53 billion with adjusted EBITDA of $465–490 million as H2 projects ramp up.
  • Signed two new ICE contracts—15-year Delaney Hall (1,000 beds, >$60 million annualized revenue) and Northlake (1,800 beds, >$70 million)—adding 2,800 beds that will normalize revenue and earnings in H2 2025.
  • Idle and underutilized portfolio of ~9,500 beds (6,500 idle, 3,000 Marshals) plus a $45 billion ICE strategic sourcing vehicle could generate $500–600 million in annualized revenue; total pipeline upside across detention, transport and monitoring is $800 million–$1 billion.
  • Invested $70 million late 2024 to expand ICE service capabilities—detention capacity, secure transport and electronic monitoring—and reorganized senior management to execute anticipated growth.
  • Capital allocation plan targets net debt reduction of $150–175 million to ~$1.54 billion (3.3× leverage) in 2025, supported by refinancing efforts and potential $312 million sale of the Lawton facility, positioning the company to consider future shareholder returns.
AI Generated. May Contain Errors.
Earnings Conference Call
The GEO Group Q1 2025
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