Geo Group's Q3 2025: Contradictions Emerge on ICE App Contract Revenue, Staffing Costs, and Lake & Riley Act Impact

Date of Call: None provided

Financials Results

• Revenue: $682M (Q3 2025), compared to $603M in Q3 2024
• EPS: $1.24 per diluted share (Q3 2025), compared to $0.19 in Q3 2024

Guidance:

• Q4 2025: GAAP net income $0.23–0.27 per diluted share; revenues $651–676M; adjusted EBITDA $117–127M.
• Full-year 2025: GAAP net income $1.81–1.85 per diluted share (includes $232M asset sale gains); adjusted net income $0.84–0.87; revenues ~ $2.6B; adjusted EBITDA $455–465M.
• 2025 CapEx expected $200–205M (includes $100M ICE enhancements and ~ $60M facility purchase).
• 2025 guidance excludes any favorable ISAP mix/census shift; ISAP pricing reduced and ramp timing is uncertain.
• Expect ICEP cost savings of ~$2–3M per quarter beginning in 2026.
• Company sees a path to ~ $3B revenue in 2026 as contracts normalize.

Business Commentary:

* Revenue and New Contracts: - The GEO Group announced new or expanded contracts that represent over $460 million in new incremental annualized revenues, which is the largest amount in the company's history. - This growth is attributed to new ICE detainee contracts and an expansion in secure transportation services.

• ICE Detention Capacity Expansion:
• GEO Group's total ICE capacity has increased to over 26,000 beds, with a current census of over 22,000.

• The expansion is part of a longstanding partnership with ICE and adjustments to address the ever-changing needs of ICE.

• ICE App Contract Win and Revenue Potential:

• The company secured a new two-year contract for the ICE ISAP 5 program, with an estimated value of over $1 billion over its term.

• This contract is expected to significantly ramp up in participant numbers, potentially exceeding previous levels due to efficiencies and new technology.

• Financial Health and Shareholder Returns:

• GEO Group reduced its total net debt by approximately $275 million, closing the third quarter with $1.4 billion in total net debt.
• The company increased its stock buyback program authorization by $200 million, reflecting confidence in shareholder returns amidst strong cash flows.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted record contract wins (> $460M incremental annualized revenue), Q3 net income of ~$174M vs ~$26M prior year, reduction in net debt of ~$275M to ~$1.4B (3.2x leverage), and an expanded $500M buyback authorization — all signaling constructive operational and capital progress.

Q&A:

• Question from Joe Gomez (Noble Capital Markets): With the government shutdown and ICE hiring efforts, is the rate of ICE population detentions slower than previously expected, and how is that affecting your expectations and utilization of idle facilities? Also, historically ISAP ran at roughly a 50% NOI margin—do you expect margins to hold after pricing changes? Finally, how are you addressing staffing challenges when opening many idle facilities at once?
  Response: Growth has been slower than expected primarily due to the government shutdown and ICE staffing constraints; existing facilities are near capacity but GEO has ~6,000 idle high‑security beds available to activate as ICE staffing and approvals progress.

• Question from Matthew Erdner on for Jason Weaver (JonesTrading): Confirm the ISAP contract economics (the >$1B estimated value over two years and participant counts of ~361k year one and ~465k year two). How should we model revenue ramp into 2026/2027? Also, how large is the state partnership opportunity (e.g., Florida) and how do margins compare to historical managed services?
  Response: ISAP is priced for ~361k participants in year one and ~465k in year two (aggregate >$1B), but timing of ramp is uncertain and depends on ICE staffing/policy; state partnership opportunities exist (hundreds to ~1,000 beds per site) and can deliver margins at or above historical managed‑only levels.

• Question from Greg Gibbis (Northland Securities): You noted a mix shift within ISAP toward more intensive monitoring (ankle bracelets) — is that shift currently happening and is it included in Q4 guidance; what mix assumptions are implied in your guidance?
  Response: The shift toward higher‑intensity devices is occurring and is only partially reflected in assumptions; material benefits from cost actions and mix are not fully included in 2025 guidance and are expected to more meaningfully impact results in 2026.

• Question from Raj Sharma (Texas Capital): Could ISAP margins match or exceed historical levels at scale, and should Q3 be treated as the new baseline for EBITDA margins given recent results and startup costs? Also, when will activated facilities normalize in 2026?
  Response: Margins could improve over time as staffing and device cost efficiencies are implemented, but Q3 was impacted by startup and hiring costs and is not considered the new baseline; most 2025 activations are expected to normalize by Q1–Q2 2026 (with two later activations mid‑2026).

• Question from Brendan McCarthy (Sidoti): What is GEO's monitoring capacity for higher‑intensity wearables (how many participants can you support), and amid the government shutdown are negotiations for reactivating idle beds still active?
  Response: GEO can monitor several hundred thousand participants and scale well beyond that; the company has been stocking devices to enable rapid rollout, and discussions with ICE continue though formal negotiations are not currently advanced during the shutdown.

• Question from Kurt Ludke (Imperial Capital): ISAP 5 appears to be a two‑year arrangement — is that one year plus one option; why the shorter term; have you committed to supporting 361k participants next year and will that require significant CapEx; and how much can you buy back under current covenants?
  Response: ISAP 5 is a one‑year contract with a one‑year option (two years total), likely driven by rapid technology changes; GEO can support the 361k year‑one capacity and has been stocking devices (some CapEx required), and share repurchases are being targeted at roughly $100M per year ( ~$42M repurchased YTD).

Contradiction Point 1

ICE App Contract Revenue Potential

It involves differing expectations regarding the revenue potential and participant count in the ICE app contract, which directly impacts financial forecasts and investor expectations.

Can you clarify the $1 billion over two years for the ICE app contract and the expected revenue growth? - Jason Weaver(JonesTrading)

2025Q3: We have two years to achieve the higher participant count specified in the pricing. The exact timing is up to ICE, but the contract will go into 2027. - George Zoley(CEO)

Can you quantify your capacity for high-intensity wearables in electronic monitoring? - Joseph Anthony Gomes(Noble Capital Markets)

2025Q2: We increased our guidance for the full year to $1 billion from $900 million, given the higher than expected participation in our Value Enforcement services. - Mark Szczecinski(CFO)

Contradiction Point 2

Staffing Challenges and Costs

It highlights discrepancies in the company's approach to staffing challenges and the associated costs, which directly impact operational efficiency and financial performance.

How large is the opportunity for alternative solutions and state partnerships like in Florida? How does it affect margins? - Jason Weaver(JonesTrading)

2025Q3: Hiring is costly as we have to recruit, do background checks, and put staff through training before they can work. - Mark Szczecinski(CFO)

How will GEO manage government facilities with increased private bed capacity? - Matthew Erdner(Unidentified Company)

2025Q2: We will continue to manage staffing levels in our facilities to offset the costs associated with higher staffing levels. - George C. Zoley(CEO)

Contradiction Point 3

Impact of Lake & Riley Act on Detention and Monitoring

It involves differing interpretations of the Lake & Riley Act's impact on detention and monitoring, which could influence expectations regarding the company's business model and regulatory environment.

Has the ICE detention rate met expectations given the government shutdown and increased hiring? Are ICE facilities at capacity? - Joe Gomez(Noble Capital Markets)

2025Q3: The existing facilities are almost full and churning out deportations at capacity. - George Zoley(CEO)

What does the monitoring under the Lake & Riley Act entail and what role will it play? Are you assuming any economic changes with the new contract? - Matthew Erdner(Jones Trading)

2024Q4: I think our reading of the act is that those individuals need to be placed in detention. And if there isn't capacity for that, they need to be continued in the ISAP monitoring program indefinitely. - George Zoley(CEO)

Contradiction Point 4

Detention Capacity and Staffing Challenges

It highlights conflicting statements about detention capacity and staffing challenges, which are crucial for understanding the company's operational capabilities and financial outlook.

Have ICE detention rates met expectations amid government shutdown and increased hiring? Are ICE facilities operating at capacity? - Joe Gomez(Noble Capital Markets)

2025Q3: The existing facilities are almost full and churning out deportations at capacity. ICE is trying to recruit 10,000 staff due to the need for additional facilities. - George Zoley(CEO)

Will the administration max out detention capacity first and then increase ATD populations, or will these processes occur simultaneously? - Brendan Michael McCarthy(Sidoti)

2024Q4: As far as brick-and-mortar facilities in the U.S., that can be usable, I think it's presently about 75,000 to 80,000 beds before you possibly consider repurposing some of the idle Bureau of Prisons facilities. - George Zoley(CEO)

Contradiction Point 5

ICE App Contract and Revenue Expectations

It involves the company's outlook on the ICE app contract and revenues, which are crucial for financial forecasting and investor confidence.

Has ICE's detention rate met expectations given increased staffing during the government shutdown? Are ICE facilities operating at full capacity? - Joe Gomez (Noble Capital Markets)

2025Q3: The current focus is on detention capacity, and ICE Staff growth is expected early next year. We expect the electronic monitoring business to remain our highest margin business. - George Zoley(CEO), Mark Szczecinski(CFO)

Why did the electronic monitoring segment’s operating income drop nearly 20% YoY, while revenues fell only 10.5%? - Joe Gomes (NOBLE Capital)

2025Q1: We have an existing contract that expires on December 31, under which it is 100% of the ISAP for ICE. We feel that we have a very strong position in that market and we expect to retain that contract. - Mark Suchinski(CFO)