Geo Group Inc

NYSE:GEO

Earnings Call Analysis

Q2 2024 Financial Highlights and Outlook

In the second quarter of 2024, the company reported revenues of approximately $607 million and a net loss of $32.5 million due to $82 million in pre-tax debt refinancing costs. Adjusted net income stood at $30 million with EBITDA at $119 million. Revenue growth was seen in the Secure Services and Managed-Only segments, increasing by 7% and 11%, respectively, though electronic monitoring services saw a decline. Operating expenses rose by 4% from inflation and higher occupancy. Full-year 2024 guidance expects net income to be between $0.40 to $0.51 per share on $2.44 billion in revenue, with adjusted EBITDA between $485 million to $505 million.

Navigating Through Financial Waters

In the second quarter of 2024, GEO Group faced a significant challenge as it recorded a GAAP net loss of $32.5 million, equating to $0.25 per diluted share. This stark figure, however, is largely influenced by one-time pre-tax costs of $82 million due to debt extinguishment as part of their refinancing strategy. Despite this, GEO’s adjusted net income was more favorable at approximately $30 million or $0.23 per diluted share, showcasing the undercurrents of positive operational performance amidst larger financial headwinds.

Revenue Growth: A Mixed Bag

Revenue figures highlighted a dichotomy in performance across various segments. Owned and leased secure service revenues rose by 7% year-over-year thanks to increased occupancy levels at U.S. Marshals and ICE facilities. Moreover, the managed-only segment enjoyed an impressive 11% rise, bolstered by new contracts in transportation and healthcare services across several facilities. However, this growth was tempered by a decline in revenues from electronic monitoring services, attributed to a reduction in participants in the Intensive Supervision Appearance Program (ISAP). Overall, quarterly revenues reached nearly $607 million.

Cost Management Amidst Inflationary Pressures

The company's operating expenses saw a 4% increase, in part due to inflation and a changing revenue mix. A rise in general and administrative expenses also contributed, largely influenced by $3 million in fees related to the refinancing. However, a noteworthy positive development was a $5 million reduction in net interest expenses year-over-year, thanks to their debt restructuring efforts which have shifted to a more stable mortgage structure poised to mitigate future interest rate risks.

Looking Ahead: Positive Guidance

GEO provided an optimistic guidance for the full year of 2024, predicting net income attributable to the company could range between $0.40 to $0.51 per diluted share on an anticipated revenue of $2.44 billion. After adjusting for the aforementioned one-time costs, the adjusted net income is expected to range from $0.82 to $0.93 per diluted share, with adjusted EBITDA projected between $485 million and $505 million. For the third quarter, guidance estimates net income between $0.21 to $0.25 per diluted share based on revenues expected in the range of $606 million to $616 million.

Strategic Moves in Debt Management

A key highlight of the quarter was GEO's comprehensive debt refinancing, which involved a significant exchange and retirement of convertible notes amounting to $229.4 million, completed with cash and shares. This strategic move pushed the company's debt maturities to 2029 and beyond, lowering the average cost of debt while increasing the fixed-rate component of its borrowing to approximately 73%. As a result, the total net debt at the end of Q2 stood just below $1.76 billion, with expectations for reduction to approximately $1.65 billion by year-end.

Operational Highlights and Future Opportunities

Operationally, GEO reported stable utilization rates across its detention facilities, with approximately 13,000 beds utilized in ICE facilities and 9,000 beds for U.S. Marshals, reflecting an 8% increase year-over-year. Importantly, there are plans to tap into the potential of 10,000 idle secure service beds, which could substantially boost revenue once reactivated. Notably, pending legislation could increase funding for ICE detention from 41,500 to 50,000 beds, further solidifying potential growth.

Innovations and Competitive Edge

In terms of services, GEO continues to enhance its electronic monitoring capabilities, introducing the Vera watch as a less invasive monitoring option, garnering interest from law enforcement. The company has reported stable engagement in the ISAP program, with an average participation of approximately 184,000 individuals, although recent counts dipped slightly to 175,000 due to budgetary constraints impacting ICE operations.

Conclusion: A Balancing Act

GEO Group's management is focused on both de-leveraging and exploring options to return capital to shareholders, reflecting a nuanced strategy that balances financial prudence with growth aspirations. As the company heads toward the latter half of 2024, maintaining operational stability while seizing growth opportunities within an evolving regulatory framework will be pivotal to enhancing shareholder value.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and welcome to the GEO Group Second Quarter 2024 Earnings Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Mr. Pablo Paez, Executive Vice President of Corporate Relations.

[Pablo Paez, executive]

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



Today, we will discuss non-GAAP basis information. A reconciliation from non-GAAP basis information to GAAP basis results is included in the press release and the supplemental disclosure we issued this morning. Additionally, much of the information we will discuss today, including the answers we give in response to your questions, may include forward-looking statements regarding our beliefs and current expectations with respect to various matters. These forward-looking statements are intended to fall within the Safe Harbor provisions of the securities laws. Our actual results may differ materially from those in the forward-looking statements as a result of various factors contained in our Securities and Exchange Commission filings, including the Form 10-K, 10-Q and 8-K reports. With that, please allow me to turn this call over to our Executive Chairman, George Zoley. George?

[George Zoley, executive]

Thank you, Pablo, and good morning to everyone. Thank you for joining us on our second quarter earnings call. I'm pleased to be joined today by our senior management team, and I'd like to welcome our new CFO, Mark Suchinski, who joined GEO early in July with more than 20 years of senior level executive experience in business management, corporate finance, capital markets, manufacturing and supply chain management. During today's call, we will review our second quarter 2024 financial results and the operational milestones for each of our business segments. To provide an update on our continued efforts to pay down debt, reduce our leverage and enhance long-term value for our shareholders and discuss our financial guidance and outlook for the second half of 2024 and the full year.



During the second quarter, our diversified business units continued to deliver steady operational and financial performance. Looking at our key quarterly trends. Revenues in our managed-only segment increased by approximately 11% compared to 1 year ago. The year-over-year increase in managed only revenues was driven by the activation of our new transportation contract to provide air support services for ICE as well as our new contract in Australia to deliver primary health care services at 13 prisons across the state of Victoria. Revenues for our GEO entry Services division also increased from a year ago, driven by a 5% increase in compensated man-days for our nonresidential reentry services segment. Revenues for our owned and leased secured services facilities increased by approximately 7% from a year ago.



This increase was driven primarily by year-over-year population increases across our ICE and Marshalls facilities. Utilization of our ICE facilities remain consistent during the second quarter of 2024 at approximately 13,000 beds, which represents more than a 30% increase from a year ago when utilization of our ICE facilities was below 10,000 beds. We estimate that utilization across all ICE facilities nationwide is currently at approximately 37,000 beds, which is below the 41,500 beds that are funded in the current fiscal year appropriations approved by the U.S. Congress. We believe that the current detention census of 37,000 and ICE participation levels are constrained due to financial reasons related to ICE having over spent its budget earlier in the fiscal year, which will now end on September 30.



Revenues for our electronic monitoring and supervision Services segment decreased from 1 year ago due to a decline in number of individuals who are monitored under the federal government's Intensive Supervision Appearance Program or ISAP. Participant counts under ISAP averaged approximately 184,000 individuals during the second quarter of 2024 compared to average ISAP participation counts of approximately 188,000 during the first quarter of 2024. Currently, the daily ISAP participation count is approximately 175,000. With respect to federal funding for fiscal year 2025, which begins on October 1st, the U.S. House of Representatives has approved its version of the Homeland Security appropriations bill. The House bill would increase funding for ICE detention to 50,000 beds, an increase of 8,500 beds from the currently funded level of 41,500 beds and increase of approximately 13,000 beds from the current utilization level of 37,000 beds.



The House bill would also require the use of electronic GPS monitoring for all individuals in the 9 detain docket, which is currently estimated at a total of more than 7 million people. At this time, the U.S. Senate has not introduced its version of the Homeland Security Appropriations bill, and the U.S. Congress has adjourned for the August recess. If a Homeland Security Appropriation bill is not approved when Congress reconvenes in September, Congress could pass a short-term or long-term continuing resolution for fiscal year 2025. We believe that under a continuing resolution beginning on October 1st, ICE would likely start with a full year of funding consistent with the current funding levels for 41,500 detention beds and approximately $470 million for the agency's alternative-to-detention programs.



We expect utilization rates for ice detention beds and the alternatives to detention programs to increase in the fourth quarter of the year with detention beds increasing up to 41,500 beds and ISAP participation up to 195,000 participants. We remain focused on providing high-quality services on behalf of ICE, and we stand ready to provide any needed services and resources to help the agency meet its needs. In early June, ICE announced a decision to discontinue a non-GEO facility contract in Texas, which was considered a cost outlier and will allow ice-free approximately $157 million in funding to support the agency bed needs across the country. Subsequently, in late June, ICE issued a procurement for a contractor operated processing center with a minimum of 600 beds in Newark, New Jersey area of responsibility. GEO has responded to this ICE procurement by submitting Phase I portion of the proposal. Under this procurement, ICE is expected toward a 15-year contract, inclusive of all option periods.



ICE also previously issued a request for information for contractor service federal processing centers in the Midwest, Texas and Utah. Finally, during the second quarter, we completed the comprehensive refinancing of our debt, including the exchange and retirement of substantially all of our convertible notes. These important transactions have pushed out our debt maturities, reduced our overall cost of debt and giving us greater flexibility for potential capital returns in the future as we continue to focus on reducing our debt and de-leveraging our balance sheet. We expect to reduce our debt by between $100 million and $125 million this year, bringing our total net debt to approximately $1.65 billion and our net leverage below 3.5x adjusted EBITDA by year-end. I will now turn the call over to our CEO, Brian Evans.

[Brian Evans, executive]

Thank you, George. Good morning, everyone. Our steady financial performance and strong cash flows have allowed us to significantly reduce our debt and de-leverage our balance sheet over the last 2 to 3 years. Our disciplined allocation of capital over this time frame positioned us to comprehensively refinance our entire debt structure during the second quarter of 2024. This important transaction has staggered our maturities between 2029 and 2031 giving our company a significantly longer debt repayment runway. The refinancing also resulted in an overall lower cost of debt and a higher proportion of fixed rate debt, which is now approximately 73% of our total debt, further insulating our company from potential interest rate increases in the future.



Importantly, we were able to exchange and retire substantially all of the $230 million of our convertible notes, which we believe had created an overhang on our equity valuation. The disciplined allocation of capital to drive long-term value for shareholders remains one of our top managerial priorities. In the immediate term, we will continue to focus on paying down debt and reducing our leverage. Over the next 12 months, we hope to reduce our total debt, net debt to less than $1.65 billion and our net leverage to comfortably below 3.5x adjusted EBITDA. As we make progress towards these goals, we expect to evaluate options to return capital to shareholders in conjunction with our company's capital needs and strategic and growth objectives. The careful evaluation of quality growth opportunities is another important managerial priority for our company.



Over the last 20 years, we have focused our investment strategy on developing a service platform that we believe is unmatched in terms of diversification and scope in our industry. We have done so by carefully allocating capital, investing in company-owned facilities and pursuing strategic acquisitions of businesses and assets. We believe that this strategy has allowed us to develop leading market positions across the entire spectrum of our services in our industry, enabling us to respond to the needs of our government agency partners as policy priorities evolve over time. Our diversified services and solutions include residential care in various security settings, enhancing custody rehabilitation programs through our award-winning GEO Continuum of Care, community reentry post-release and case management services, medical and mental health services and congregate care settings, secure ground and air transportation and cutting-edge electronic monitoring technologies.



We have also developed an unmatched network of company-owned brick-and-mortar assets comprised of secure correctional facilities, federal detention facilities, immigration processing centers and community re-entry centers with a combined total of approximately 54,000 company-owned beds. Our company-owned facilities are relatively new with an average age of 20 years, and we believe that these facilities are well suited to help meet the diverse policy priorities and growing needs of our government agency partners. Based on increased construction and development costs, we believe that our company-owned facilities have a combined replacement value in excess of $6 billion. Approximately 10,000 of our company-owned beds are currently idle, and our management team remains focused on marketing these important assets to local state and federal agencies for reactivation, either under a traditional secure services contract or a lease arrangement. If fully reactivated our 10,000 idle beds would provide meaningful upside to our annualized revenues and cash flows.



We will also continue to evaluate potential future asset sales to complement our capital needs, primarily focusing on our idle or underutilized residential re-entry centers. Since these assets are typically located in urban areas, can usually be readily repurposed for alternative uses and generally attract a larger pool of potential interested buyers. With respect to publicly known opportunities, as George mentioned, ICE has issued a procurement for a minimum of 600 beds in the Newark, New Jersey area and a separate request for information for facilities in the Midwest, Texas and Utah. We believe that some of our currently available facilities are well suited to help the agency meet its need for additional bed space in several of those areas of the country. We have a long-standing public-private partnership with ICE and the federal government dating back to the mid-1980s.



We currently have 17 company-owned facilities under contract with ICE providing needed bed space and support services across the United States. We have also provided electronic monitoring and case management services on behalf of ICE under the ISAP contract for more than 20 years. Over this time frame, our electronic monitoring subsidiary, BI has built what we believe is an unparalleled platform of integrated technology solutions and case management services, successfully achieving high levels of compliance under the program with bipartisan support. We believe our company continues to be attractive value proposition for investors, given the strong and predictable nature of our cash flows, and we are focused on executing our strategic priorities and allocating capital to enhance long-term value for shareholders. At this time, I'll turn the call over to our CFO, Mark Suchinski.

[Mark Suchinski, executive]

Thank you, Brian, and good morning, everyone. I'm pleased to have joined a world-class organization, and I look forward to working with George, Brian and the rest of the management team as we continue to execute the strategic priorities of the GEO Group. For the second quarter of 2024, we reported a GAAP net loss attributable to the GEO of approximately $32.5 million or $0.25 per diluted share on quarterly revenues of approximately $607 million. Our second quarter 2024 results reflect pre-tax costs associated with the extinguishment of debt of approximately $82 million in connection with our debt refinancing transactions. Excluding the costs associated with the extinguishment of debt and other non-recurring items, we reported second quarter 2024 adjusted net income of approximately $30 million or $0.23 per diluted share. We also reported second quarter 2024 adjusted EBITDA of approximately $119 million.



Beginning with revenues. Quarterly revenues in our owned and leased Secure Services segment increased by approximately 7% year-over-year, primarily driven by higher occupancy levels at our U.S. Marshalls Service and ICE facilities. Revenues in our managed-only segment increased by approximately 11% during the second quarter of 2024 compared to a year ago. This year-over-year increase in our managed-only segment was driven by higher revenues in our secured Transportation and International segments. Finally, quarterly revenues in our non-residential service segment increased by approximately 6% year-over-year. These revenue increases were offset by lower quarterly revenue from our electronic monitoring and supervision services segment due to lower participant counts under the ISAP contract compared to the prior year second quarter.



Turning to our expenses. During the second quarter of 2024, operating expenses increased by approximately 4% as a result of inflationary cost increases, higher occupancy levels and a shift in quarterly revenue mix compared to the second quarter of 2023. General and administrative expenses for the second quarter of 2024 reflect approximately $3 million in fees associated with the exchange and retirement of our convertible notes. Our second quarter 2024 results also reflect a year-over-year decrease in net interest expense of approximately $5 million.



Now moving to our guidance for the full year and the third and fourth quarters of 2024. Taking into account our results for the first 6 months of '24, which include $82 million in pretax costs associated with the extinguishment of debt, we expect net income attributable to GEO for the full year 2024 to be in a range of $0.40 to $0.51 per diluted share on annual revenues of approximately $2.44 billion and effective tax rate of approximately 24%, inclusive of the known discrete items. Excluding the costs associated with the extinguishment of debt and other unusual and non-recurring items, we expect full year 2024 adjusted net income to be in the range of $0.82 to $0.93 per diluted share. We expect our full year 2024 adjusted EBITDA to be between $485 million and $505 million. For the third quarter of 2024, we expect net income attributable to GEO to be in the range of $0.21 to $0.25 per diluted share on quarterly revenues of $66 million to $616 million. We expect third quarter 2024 adjusted EBITDA to be in the range of $123 million to $130 million. For the fourth quarter of 2024, we expect net income attributable to GEO to be in the range of $0.22 to $0.29 per diluted share on quarterly revenues of $611 million to $621 million.



We also expect fourth quarter 2024 adjusted EBITDA to be in the range of $125 million to $138 million. Our guidance for the fourth quarter of 2024 assumes a gradual moderate increases in the utilization of ICE detention beds and the number of participants monitored under the ISAP contract.



Moving to our capital structure. During the second quarter of 2024, we completed a comprehensive refinancing of our debt. These transactions included the exchange and retirement of $229.4 million of the $230 million of our senior unsecured exchangeable notes using a combination of $229.4 million in cash and approximately 12.4 million shares of GEO common stock. As of June 30, 2024, our senior debt was comprised of $650 million in 8 and 5 8% senior secured notes due in 2029. And million in 10.25% senior unsecured notes due in 2031. Approximately $444 million in borrowings under our Term Loan B due in 2029, bearing interest at SOFR plus 5.25%, $40 million in borrowings under a $310 million revolving credit facility bearing interest of SOFR plus 3% and approximately $41 million in other secured and unsecured debt. Net of cash on hand of approximately $46 million. Our total net debt was just below $1.76 billion at the end of the second quarter 2024. Under this meaningfully improved debt structure, our fixed rate debt represents approximately 73% of our total debt [indiscernible], and we have pushed out substantially all of our debt maturities to 2029 and 2031.



Going forward, we expect to continue to focus on further reducing our net debt, and we expect to end 2024 with approximately $1.65 billion in total net debt. Our goal remains to explore options for returning capital to shareholders in the future. At this time, I will turn the call over to James Black for a review of our GEO Secure Service business unit.

[James Black, executive]

Thank you, Mark. Good morning, everyone. It is my pleasure to review the quarterly milestones for GEO Secure Services. During the second quarter of 2024, our secure services facility successfully underwent a total of 62 audits, including internal audits, government reviews, third-party accreditations and Prison Rape Elimination Act or PREA certifications. 6 of our secure services facilities received accreditation from the American Correctional Association with an average score of 99% and 1 facility received pre-certification in the second quarter. Our GTI Transportation division and our GEO Amey U.K. joint venture completed approximately 4 million miles driven in the United States and the U.K. during the second quarter. Moving to current trends for our government agency partners. At the end of the second quarter, utilization of our U.S. Marshalls detention facilities remained stable at over 9,000 beds, which represents an increase of approximately 8% from 1 year ago.



Our U.S. Marshalls 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. Marshalls facilities provide needed bed space near federal courthouses, where there is generally a lack of suitable alternative detention capacity. Notably, none of our direct contracts with the U.S. Marshalls Services are up for renewal over the next 12 months. Moving to our ICE processing centers. We experienced stable utilization of approximately 13,000 beds in the second quarter of 2024. We estimate that the utilization across all ICE facilities nationwide is currently at approximately 37,000 beds, which is 4,500 beds below the 41,500 bed level that is funded under the current fiscal year's congressional appropriation.



GEO has a long-standing track record of delivering professional support services on behalf of ICE and GEO contracted ICE processing centers and we stand ready to support ICE with any additional needs. We have a total of 10,000 beds at several idle secure services facilities that we believe are well suited to support ICE's mission, and we have the expertise and resources to provide the needed ancillary services to meet the agency's needs. GEO contracted ICE processing centers offer around-the-clock access to quality health care services. Our health care staffing and ICE processing centers where we provide resident health care is generally more than double the number of health care staff in a typical state correctional facility. GEO-contracted ICE processing centers offer full access to legal counsel and legal library and resources, and we have dedicated space at each ICE center to accommodate meetings with legal counsel.



Geo-contracted ice processing centers provide residents with 3 daily meals that are culturally sensitive, special diet approved and approved by registered dietitians. We also provide access to faith-based and religious opportunities at each GEO-contracted ICE processing center. And we partner with community volunteers as needed to ensure a fair representation of various states and denominations. GEO contracted ICE processing centers also offer access to quality recreational activities. We have made significant investments in our enhanced amenities at centers, including artificial turf soccer fields, covered provisions, exercise equipment and multi-purpose rooms. ICE and GEO entered into a 15-year contract on December 19, 2019 for the provision of secure residential housing and care at our company-owned 1,940-bed Adelanto ICE processing center in California, consisting of a 5-year base period ending on December 19, 2024, followed by 2, 5-year option periods.



During the second quarter of 2024, ICE issued a task order for the Adelanto center, providing for continued funding through October 19, 2024, allowing additional time for ICE to obtain relief from the previously disclosed outdated COVID-related litigation that currently prevents full use of the center. We hope for a positive outcome from the ongoing legal proceedings that will include the resumption of intake at the Adelanto center. With respect to ancillary support services, we provide secure ground transportation for ICE primarily at 12 of the GEO contracted ICE processing centers. And as we noted, our GTI Transportation division also provides secure air operation support for ICE as a sub-contractor under a 5-year prime contract held by CSI Aviation. With respect to our state segment, on June 20th, we announced that GEO has been given the Oklahoma -- had given the Oklahoma Department of Corrections notice of our intent to discontinue our management contract for the company-owned 2,388 bed Lawton correctional facility and which was set to expire on June 30, 2024, unless new contract terms could be mutually agreed upon.



Subsequently, on June 26, we announced that GEO and the Oklahoma Department of Corrections had agreed to enter into a new 1-year contract continuing GEO's operation of the Lawton facility through June 30th, 2025, under revised terms. Finally, on July 31st, we successfully completed the previously disclosed transition of operations at the state-owned 1,536 bed Lawrenceville Correctional Center in Virginia, which is now managed by the Virginia Department of Corrections. We had a long-standing partnership with the Virginia Department of Corrections and we are proud of our decades-long record of providing high-quality services to the commonwealth. At this time, I will turn the call over to Wayne Calabrese for a review of our GEO Care business unit.

[Wayne Calabrese, executive]

Thank you, James. I'm pleased to provide an overview of the quarterly operational milestones for GEO Care. During the second quarter of 2024, we successfully renewed 15 residential re-entry center contracts, including 5 contracts with the Federal Bureau of Prisons. Additionally, we retained 2 contracts covering 8 non-residential day reporting centers, in Illinois and California, and we were awarded one new contract for an additional day reporting center in California. Our residential re-entry centers, non-residential day reporting centers and our ISAP field offices successfully underwent a combined total of 79 audits, including internal audits, government reviews, third-party accreditations and Prison Rape Elimination Act or PREA certifications during the quarter. Five of our residential reentry centers received accreditation from the American Correctional Association each with an accreditation score of 100%. And 3 of our residential reentry centers received pre-certifications in the second quarter. Our 34 residential re-entry centers provide transitional housing and rehabilitation programs for individuals re-entering their communities across 14 states. Census levels at these centers remain stable with an average daily population of approximately 5,000 individuals during the second quarter of the year.



Our non-residential and day reporting centers provide high-quality community-based services, including cognitive behavioral treatment for upto approximately 8,500 Parolees and probationers at 97 locations across 10 different states. Moving to our GEO in-prison programs and Continuum of Care division. During the second quarter of 2024, we delivered enhanced in-custody rehabilitation services to an average daily population of approximately 2,600 individuals at 34 in-prison program sites in 7 states and to approximately 21,000 individuals at 13 GEO Continuum of Care facilities in 8 states. During the second quarter, we successfully retained 2 contracts for in-prison program sites in Florida and North Carolina, and we were awarded a new contract for in-prison programs in the state of Tennessee.



Our in-custody rehabilitation services include academic programs focused on helping those in our care attain high school equivalency diplomas. We've made a significant investment to equip all classrooms with smart boards to aid in the delivery of academic instructions at all of our facilities. We've also focused on developing vocational programs that not only lead to certification when completed, but are also based on market area job placement needs. Our substance abuse treatment programs are an important part of our rehabilitation services because many of the individuals in our care suffer from addiction and substance use disorder. Our facilities also provide extensive faith-based and character-based programs. We have designated faith-based and character-based housing units or dorms across our facilities to enhance the delivery of these important programs.



During the second quarter of 2024, we completed approximately 700,000 hours of enhanced in-custody rehabilitation programming. Our academic programs awarded more than 900 high school equivalency diplomas during the quarter. Our vocational course is awarded close to 950 career and technical certificates in that same time. And our substance abuse treatment programs awarded approximately 900 program completions. Individuals in our care completed approximately 600 behavioral treatment programs and participated in more than 4,500 individual cognitive behavioral treatment sessions. During the second quarter of the year, we also allocated approximately $350,000 toward post-release services. This funding supported approximately 700 individuals released from GEO facilities as they return to their communities.



Our GEO Continuum of Care integrates enhanced in-custody rehabilitation services, including cognitive behavioral treatment with post-release support services that address critical community needs of released individuals. We believe our award-winning program provides a proven model for how the 2-plus million people in the U.S. criminal justice system can be better served in changing their lives following release. Our GEO Continuum of Care has had a positive impact in the reduction of criminal recidivism rates with our programs achieving a reduction between 32% and 55% in recidivism rates across several states over the last 3 years. Finally, turning to our electronic monitoring and supervision services segment, our BI subsidiary provides a full suite of monitoring and supervision solutions, products and technologies.



During the second quarter of 2024, participant counts under the ISAP contract averaged approximately 184,000 individuals with the current ISAP participant count at approximately 175,000 individuals. BI has provided technology solutions, holistic case management, supervision, monitoring and compliance services under the ISAP contract for almost 20 years, winning every competitive re-bid of the contract since ISAP was first established. Under BI's tenure, ISAP has received bi-partisan support and has achieved high level of participant compliance with attendance of scheduled hearings using a variety of new technologies and case management services over that time. The current ISAP contract has a term of 5 years that is due to expire on July 31, 2025. The federal government has the ability to extend existing contracts for 6 months or longer to accommodate re-bid procurements that can often take between 12 and 18 months to complete. BI will continue to explore new and innovative technology solutions to support the needs of ICE as we prepare to compete for the re-bid of this important contract.



In addition to the monitoring technologies and supervision services provided to ICE under the ISAP contract, BI provides electronic monitoring services to criminal justice agencies at the federal, state and local levels across the country. During the second quarter of 2024, BI successfully retained 3 important existing criminal justice contracts with the administrative office of the United States courts, the state of South Carolina and Sonoma County, California. Additionally, BI expects to continue competing for several state and local contracts involving several thousand electronic monitoring devices and related services, which are currently provided by other service providers. At this time, I'll turn the call back to George for closing remarks.

[George Zoley, executive]

Thank you, Wayne. In closing, our diversified business units have continued to deliver steady financial and operational performance. We are pleased to have completed the comprehensive re-financing of our debt, significantly enhancing our balance sheet, lowering our average cost of debt and giving us greater flexibility to evaluate options to return capital to shareholders in the future. Importantly, we are able to exchange and retire substantially all of our convertible notes, which we believe had created an overhang on our equity valuation. We believe that our company's real estate assets, which we estimate to have a replacement value in excess of $6 billion along with our strong and predictable cash flows, represents an attractive valuation opportunity for investors. We also believe we have several opportunities to enhance our financial performance, and we have no competitive re-bids of our existing contracts for the balance of the year.



We are focused on marketing our 10,000 beds in idle facilities, which will provide significant upside if fully reactivated. And we believe the strength of our diversified services platform positions GEO to pursue quality growth opportunities with new and existing government agency partners. That completes our remarks, and we'd be glad to take questions.

[Operator]

We will now begin the question will now begin the question-and-answer session. [Operator Instructions] At this time, we'll take our first question from Joe Gomes with Noble Capital Markets.

[Joshua Joseph, analyst]

This is Josh filling in for Joe. My first question is you guys kind of touched on it a little bit earlier, but just regarding the ISAP program. You guys talked about wanting to re-bid for that. But you guys have you seen any developments for the renewal of the contract. I know it's kind of 12 months out, but just a little more color on that.

[Pablo Paez, executive]

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

[Joshua Joseph, analyst]

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

[George Zoley, executive]

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

[Pablo Paez, executive]

We don't have any further information. But our capabilities are there for us to scale up the operations if a new administration comes in place and wants more activity using air support in which we provide security for those air operations, we are certainly capable of doing that.

[Joshua Joseph, analyst]

Lastly, and last quarter, you guys talked about seeing kind of smaller scale opportunities within the state and local level. Has this kind of changed in the second quarter? Or has it kind of remained the same...

[Pablo Paez, executive]

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

[Operator]

Your next question will come from Brian Violino with Wedbush.

[Brian Violino, analyst]

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

[Mark Suchinski, executive]

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

[Brian Violino, analyst]

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

[Brian Evans, executive]

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

[Brian Violino, analyst]

Last one for me. I just want to touch on CapEx. I noticed that the CapEx outlook has been moving higher over the past couple of quarters. Just wondering if you could provide some commentary on what...

[Brian Evans, executive]

Well, we have done some significant improvements in, I think, in 2 particular facilities, one in Oklahoma and one in New Jersey.

[Operator]

The next question will come from Brendan McCarthy with Sidoti.

[Brendan Michael McCarthy, analyst]

I just wanted to ask a follow-up on the past question. With the expectation for the replenishment of funds come October 1st, is that assumed or are you assuming that that's a another continuing resolution or a CR to start fiscal '25?

[Brian Evans, executive]

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

[Brendan Michael McCarthy, analyst]

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

[Brian Evans, executive]

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

[Brendan Michael McCarthy, analyst]

Then I want to look at the Coleman Hall purchase and sale agreement. Wondering if you can provide color on how that transaction develops and maybe potential use of proceeds there?

[Brian Evans, executive]

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

[Brendan Michael McCarthy, analyst]

Looking at BI's suite of products. I think I noticed there's been a little bit more traction with the [ Vera watch ] product. Can you just talk about what you're seeing there and how that product is resonating among customers?

[Wayne Calabrese, executive]

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

[Brian Evans, executive]

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

[Brendan Michael McCarthy, analyst]

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

[Brian Evans, executive]

We're not in trial mode at this time. Only a couple of local government criminal justice contracts, and they're very small. There might be 10, 15 units being trialed by, say, a shares office or for roll probation kind of an office they can continue for a couple of months. They're just trying to get a sense of how this works out for them. Most of the law enforcement agencies around the country still prefer the ankle monitor GPS type appliances. But we've seen steady growth in the ISAP participation market with numbers in excess of 5,000 at this point using the GEO Vera watch.

[Pablo Paez, executive]

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

[Operator]

Next question will come from Greg Gibas with Northland Securities.

[Gregory Gibas, analyst]

If I could follow up just on kind of guidance assumptions and your commentary there. Would we expect Q3 then to be relatively flat in terms of kind of where things are currently trending from an ISAP perspective and then detentions too. Then once those replenishment of funds hit Q4 kind of seeing a nice step up.

[Brian Evans, executive]

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

[Gregory Gibas, analyst]

What do you kind of believe will be the likely outcome at the Adelanto facility?

[Brian Evans, executive]

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

[Gregory Gibas, analyst]

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

[Mark Suchinski, executive]

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

[Operator]

Next question will come from Jason Weaver with Jones Trading.

[Jason Weaver, analyst]

I may be misconstruing this, but in your prepared remarks, you mentioned the possible expansion of the ISAP program under the current House Appropriations bill. It seems to me that growing from 175,000 to the total number of the non-detained dockets kind of a high bar even if most of that is just within an app. Can you give any sense to how that might be rolled out and your capacity to service it.

[Brian Evans, executive]

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

[Jason Weaver, analyst]

Then along the lines of the same question that was asked just a moment ago, post the debt restructuring, any sort of change in the trade-off between returning capital to shareholders versus further debt reduction? How do you think about that today?

[Brian Evans, executive]

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

[Mark Suchinski, executive]

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

[Brian Evans, executive]

I think also, as we've said before, we will continue once we get to that point where we can allocate capital to shareholders, we're going to continue to focus on debt reduction, but we'll find the proper balance between those 2 based on, as George discussed, the different opportunities that arise at that time and what the cash flows look like. That is a good timing for middle to late next year.

[Operator]

Next question will come from Jordan Hymowitz with Philadelphia Financial.

[Jordon Hymowitz, analyst]

Most of my questions were answered, 2 things. The smart watches, I mean, there's opposition from some democratic or progressive circles for the tanker monitoring business. Is the smart watches have less of a political opposition because they're less invasive. They see more exclusionary or whatever the word you want to use is.

[Brian Evans, executive]

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

[Jordon Hymowitz, analyst]

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

[Wayne Calabrese, executive]

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

[Mark Suchinski, executive]

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

[Jordon Hymowitz, analyst]

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

[Mark Suchinski, executive]

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

[Operator]

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

[George Zoley, executive]

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

[Operator]

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