Brendan Michael McCarthy

Brendan McCarthy of Sidoti asked about Oportun Financial's net charge-off rate, seeking clarification on the data points supporting the expected step-down in Q2 and beyond, particularly regarding first payment defaults and new origination vintages. He also inquired about the drivers behind the flat operating expense guidance for 2024 compared to the Q4 2023 run rate, and how the reintroduction of risk-based pricing above 36% APRs might impact the addressable market and 2024 originations growth.

Answer

Raul Vazquez, Chief Executive Officer of Oportun Financial, explained that confidence in declining charge-offs stems from current delinquency trends, with Q1 2024 delinquencies expected to decrease significantly year-over-year and sequentially. He attributed the Q1 elevated loss rate to a higher mix of new customers from early 2023 originations. Regarding operating expenses, Vazquez noted continued discipline and cost reduction efforts, offset by strategic investments in risk-based pricing (above 36% APRs), secured personal lending growth, and marketing. He clarified that the risk-based pricing initiative is not included in the mid-single-digit originations growth expectation for 2024, but is anticipated to expand the addressable market and enhance unit economics and profitability in 2025 and beyond, also improving applicant quality by allowing for lower APRs for high-quality returning members.

Brendan McCarthy asked about the expected temporary increase in the net charge-off rate for Q1 2026 and the underlying data points, such as early payment defaults or new origination vintages, that support the anticipated subsequent decline.

Answer

Raul Vazquez, Chief Executive Officer, expressed confidence in the declining charge-off trajectory, citing strong delinquency performance, with Q1 30+ delinquencies projected at 4.4%-4.5%, a decrease both year-over-year and sequentially. He attributed the Q1 elevated loss rate to a higher mix of new customers from early 2025 originations.

Brendan McCarthy of Sidoti & Company asked about the reason for the sharp decline in the net charge-off (NCO) rate on the legacy 'back book' of loans. He also inquired about macro risks that could push the full-year NCO rate above 12% and the long-term OpEx outlook for 2026.

Answer

CEO Raul Vazquez attributed the back book's improved NCO rate to the portfolio nearing its end-of-life and strong recovery efforts. He cited a significant economic slowdown or rising inflation from tariffs as potential macro risks. For 2026, he noted it was too early for guidance but reiterated the long-term goal of achieving a 12.5% OpEx ratio through continued efficiencies and portfolio growth.

Brendan McCarthy from Sidoti questioned the decision to taper the originations outlook, the factors that could influence operating expenses for the rest of the year, and the reasoning behind the recent decision to reduce the size of the Board of Directors.

Answer

CEO Raul Vazquez clarified that tapering the originations growth outlook to approximately 10% is a prudent measure due to macroeconomic uncertainty, not a reaction to current performance. He mentioned that Q1 operating expenses were below the quarterly average because some marketing spend was deferred to the second half of the year, creating 'dry powder' if the macro environment improves. Regarding the board, Vazquez stated the reduction aims to create a more efficient and conventional size, reflecting shareholder feedback and a commitment to thoughtful board evolution.

Brendan McCarthy from Sidoti & Company asked about the long-term target for the adjusted OpEx ratio, the factors behind the increase in portfolio yield, and the expected charge-off rate for the legacy 'back book' of loans.

Answer

CFO Jonathan Coblentz confirmed the long-term OpEx ratio target is 12.5%, with CEO Raul Vazquez adding that progress will come from cost discipline and growing the principal balance. Coblentz attributed the higher yield to price adjustments and origination growth. He declined to give specific guidance on the back book's rate but noted its overall impact on losses will diminish as it shrinks to a projected 1% of the portfolio by year-end.

Brendan McCarthy inquired about Farmer Mac's volume mix outlook for 2026, seeking specific insights into which segments or lines of business are expected to show stronger growth.

Answer

President & COO Zach Carpenter indicated strong and elevated pipelines across the infrastructure finance line of business, driven by energy demand and data center growth. He also noted continued strong performance in farm and ranch, with record loan submissions and approvals in January. A key exception from 2025 is the anticipated strong growth in farm and ranch AgVantage due to new and modified counterparty facilities.

Brendan McCarthy asked for a detailed outlook on the 2026 volume mix, specifically which segments Farmer Mac is most bullish on. He also inquired about the drivers behind the increasing relative value of the AgVantage business and sought clarification on a potential credit recovery.

Answer

President and COO Zach Carpenter highlighted strong pipelines in Infrastructure Finance (Power Utilities, Renewable Energy, Broadband Infrastructure) and continued strong performance in Farm and Ranch, with anticipated increased growth in Farm and Ranch AgVantage. He attributed AgVantage momentum to new counterparty facilities closing and modified existing facilities. Zach confirmed a positive resolution with a stressed borrower, expected to reduce 90+ day delinquencies and recoup fees/interest in H1 2026. CFO Matt Pullins clarified this would impact Net Effective Spread, not credit costs, as no charge-offs occurred.

Brendan McCarthy from Sidoti asked about farm and ranch prepayment trends and future expectations, the drivers behind the net effective spread reaching 1.2% (higher than previous expectations), and sought clarification on the breakdown of the $7.4 million credit provision and the $4.4 million charge-off.

Answer

Zach Carpenter, President and COO of Farmer Mac, stated that farm and ranch prepayments are significantly lower than in 2021 and are not expected to increase substantially, as most long-term fixed-rate refinancings occurred then, and current rates are unlikely to drop enough to entice new widespread refinancing. Bradford T. Nordholm, CEO, acknowledged the net effective spread (NES) of 1.2% was higher than previously commented, primarily due to the accelerated growth in the highly accretive rural infrastructure segment. Mr. Carpenter added that the business mix, with less volume in tight-margin AgVantage securities and significant growth in higher-spread segments, rebalanced the NES upwards. Regarding credit, Mr. Nordholm clarified that the $7.4 million provision was a mix of volume growth, groundwater regulations in California, and three specific credits, characterizing it as episodic, and confirmed the $4.4 million charge-off related to three small loans.

Brendan McCarthy from Sidoti inquired about Farmer Mac's farm and ranch prepayment speeds and future expectations. He also sought clarification on the higher-than-expected net effective spread (NES) of 1.2% and the specific drivers behind the $7.4 million credit provision, particularly the $6.8 million in ag finance. Finally, he asked about the $4.4 million charge-off and Farmer Mac's activity in its share repurchasing program.

Answer

Zach Carpenter, President and COO, stated that farm and ranch prepayments are significantly lower than in 2021 and are not expected to increase substantially, as most refinancings at historically low rates have already occurred. Bradford T. Nordholm, CEO, attributed the higher NES primarily to the accelerated growth in the highly accretive rural infrastructure segment. Mr. Carpenter added that the mix shift, with headwinds in tight-margin AgVantage and strong growth elsewhere, rebalanced NES upwards. Regarding the credit provision, Mr. Nordholm explained it was a mix of volume growth, California groundwater regulations, and three specific episodic credits. He clarified that the $4.4 million charge-off related to three small loans not previously disclosed in a provision. Mr. Nordholm confirmed Farmer Mac repurchased approximately 30,000 shares for about $5 million in the fourth quarter.

Brendan McCarthy of Sidoti & Company followed up on the renewable energy tax credits, asking about the phase-out timing and the potential for a project ramp-up. He also requested specific details on the two loans that resulted in a charge-off and the two downgraded loans in the infrastructure finance segment. Finally, he inquired about the new share repurchase authorization and its role within the company's capital allocation priorities.

Answer

President & CEO, Bradford Nordholm, explained that tax credit purchases are opportunistic and that project finance will continue due to strong demand and complex 'commencement of construction' rules that extend eligibility. Senior VP & Chief Credit Officer, Marc Crady, provided details on the charge-offs (a permanent crop loan and a crop loan, both in the Southwest) and the downgrades (a solar project and a broadband provider, both in the Southeast). Mr. Nordholm described the share repurchase as one of several capital tools, to be used opportunistically when the stock is attractively priced, distinct from the consistent dividend policy.

Brendan McCarthy of Sidoti & Company followed up on renewable energy tax credits, asking about the phase-out timing and future purchase run-rate. He also requested details on the two loans causing a $2.8 million charge-off, the two downgraded loans in the infrastructure finance segment, and how the increased share repurchase authorization fits into capital allocation priorities.

Answer

President & CEO, Bradford Nordholm, clarified that tax credit purchases are opportunistic, not a core strategy, and positioned the share repurchase as one of several capital tools to be used when the stock is attractively priced. Senior VP & Chief Credit Officer, Marc Crady, detailed the charge-offs: a $1.7 million charge on a permanent crop loan that was subsequently recovered post-quarter, and a $1.2 million charge on another crop loan. He also described the two downgraded infrastructure loans as a solar project with weak performance and an overlevered broadband provider.

Brendan McCarthy from Sidoti & Company followed up on the renewable energy tax credits, asking about the phase-out timing and future purchase run rate. He also requested details on the two loans causing a $2.8 million charge-off and the two downgraded loans in the infrastructure finance segment. Finally, he asked about the new share repurchase authorization's role in capital allocation.

Answer

President & CEO Bradford Nordholm stated that tax credit purchases are opportunistic, not a core strategy, and that project finance will continue due to a large addressable market. Senior VP & Chief Credit Officer Marc Crady detailed the charge-offs on two Southwest loans (one permanent crop, one crop loan) and the downgrades of a Southeast solar project and a Southeast rural communications provider. Regarding the buyback, Nordholm explained it is one of several capital tools, to be used opportunistically when the stock price is attractive, while the dividend policy will remain consistent and disciplined.

Brendan McCarthy from Sidoti & Company sought details on the renewable energy tax credit phase-out and its potential impact on future credit purchases. He requested specifics on the loans contributing to the quarterly credit provision, including the charge-offs and downgrades. He also asked about the strategic priority of the newly expanded share repurchase program.

Answer

President & CEO Bradford Nordholm explained that tax credit purchases are opportunistic and not a core part of their P&L strategy, while project finance will continue due to a large addressable market. Senior VP & Chief Credit Officer Marc Crady provided details on the charge-offs, identifying them as a permanent crop loan and a crop loan in the Southwest, noting a significant recovery on one loan post-quarter. He also described the two downgraded infrastructure loans as a solar project and a broadband provider in the Southeast facing operational and liquidity challenges. Bradford Nordholm positioned the share repurchase as one of several capital management tools, to be used opportunistically when the stock price is attractive.

Brendan McCarthy of Sidoti & Company sought details on the timing of the renewable energy tax credit phase-out, the specifics of the quarter's credit provisions and charge-offs, and the strategic rationale for the increased share repurchase authorization.

Answer

President & CEO Bradford Nordholm described the tax credit purchases as opportunistic and noted project finance will continue due to strong market fundamentals. Senior VP & Chief Credit Officer Marc Crady detailed the specific loans behind the quarter's charge-offs and downgrades. Mr. Nordholm explained the share repurchase is one of several capital management tools, to be used opportunistically when the stock is attractively priced.

Brendan McCarthy asked about renewable energy tax credit activity in Q1, the drivers behind the net effective spread revenue increase in the Farm & Ranch segment, and the dynamics causing momentum in the Treasury segment's net effective spread.

Answer

President and CEO Bradford Nordholm stated there was no tax credit activity in Q1 but it remains an opportunity. CFO Aparna Ramesh added that OpEx benefited from lower legal fees related to Q4's tax credit activity. Regarding Farm & Ranch, Bradford Nordholm and Executive Zachary Carpenter attributed the NES strength to nonaccrual loan resolutions and strong new loan purchase volume driven by a tightening ag economy. For the Treasury segment, Aparna Ramesh explained the momentum came from opportunistically issuing debt at narrower SOFR spreads and calling some issuances as the yield curve steepened.

Brendan McCarthy of Sidoti & Company inquired about the future growth pace for the Renewable Energy portfolio, the prudence of the 30% operating efficiency target post-major tech investments, and the potential impact of lower interest rates on Farm & Ranch loan volume.

Answer

Executive Zachary Carpenter stated that the company sees no slowdown in Renewable Energy and will invest to meet demand. President and CEO Bradford Nordholm affirmed the 30% efficiency target remains prudent to support growth and ensure safety. Zachary Carpenter also confirmed that a combination of factors, including lower rates and lender liquidity needs, is expected to boost Farm & Ranch volume.

Brendan McCarthy from Sidoti asked how the Wells Fargo fleet will contribute to the $200 million railcar remarketing income for 2026, including its average age, any oversupplied car types, and the expected quarterly cadence.

Answer

Bob Lyons, President and CEO, estimated $130 million from legacy GATX and $70 million incremental from Wells Fargo. Paul Titterton, EVP and President of Rail North America, noted the Wells Fargo portfolio contains quality, saleable deals, allowing for strategic portfolio balancing. Bob added that the Wells Fargo fleet is 95% freight cars, which are highly liquid in the secondary market, with a target of 3,000-4,000 car sales from the Wells Fargo side.

Brendan McCarthy questioned why the remarketing income breakdown for 2026 would be $130 million from the legacy GATX fleet and $70 million from the Wells Fargo fleet, given the Wells fleet's higher proportion of freight cars.

Answer

Bob Lyons, President and Chief Executive Officer, and Tom Ellman, Executive Vice President and Chief Financial Officer, clarified that strong demand continues for the legacy fleet's freight cars (over 50,000 cars). The allocation is based on portfolio balancing decisions, considering credit, commodity, and car type, and is a reasonable mix that could shift as the year progresses.

Brendan McCarthy of Susquehanna asked about the potential for increased new railcar builds given economic shifts, the sustainability of lease rates above the 20% threshold, customer hesitancy in engine leasing due to tariffs, and the significance of the recent direct engine purchases.

Answer

EVP and Chief Commercial Officer Paul Titterton stated that a significant uptick in new builds is unlikely without a demand spike, as manufacturing capacity is rationalized. He also noted that while lease rates will eventually normalize as lower-priced cars roll off, GATX is still some way from that point, with President and CEO Bob Lyons estimating about halfway through. Bob Lyons confirmed no customer hesitancy in engine leasing, citing strong post-COVID aviation recovery and robust demand. He explained that recent direct engine purchases were opportunistic, leveraging a unique market situation during the COVID downturn, and future direct investments will be less programmatic.

Brendan McCarthy from Sidoti & Company focused on the engine leasing segment, asking for a breakdown of the profit mix between operating income and remarketing gains. He also inquired about performance expectations for the rest of the year and the outlook for investment volume in the GATX Engine Leasing (GEL) portfolio.

Answer

EVP & CFO Thomas Ellman detailed that for Q2, operating income was 85% of the engine leasing total, with remarketing at 15%. He noted that the strong performance of this segment was the primary driver for the increased full-year guidance. President & CEO Robert Lyons added that while investment is lumpy, he expects healthy activity in the second half, with the RRPF joint venture's investment volume likely to exceed the initial $800 million forecast for the year.

Brendan McCarthy from Sidoti & Company asked for details on the engine leasing business, including the profit mix at the Rolls-Royce joint venture (RRPF), expectations for remarketing income, and the outlook for investment volume in the wholly-owned portfolio for the rest of the year.

Answer

EVP & CFO Thomas Ellman detailed that year-to-date, the engine leasing profit mix is approximately 70% operating income and 30% remarketing, with strong performance expected to continue. He noted remarketing activity is lumpy but demand remains high. President & CEO Robert Lyons added that while wholly-owned investment might be slightly below the $200 million target, investment at the RRPF JV is expected to exceed its initial $800 million forecast for the year.

Brendan McCarthy asked for a breakdown of the engine leasing business, inquiring about the profit mix between operating income and remarketing gains at the Rolls-Royce joint venture (RRPF), expectations for the rest of the year, and the outlook for investment volume in the wholly-owned engine portfolio.

Answer

EVP & CFO Tom Ellman detailed that for Q2, operating income was 85% of the engine leasing JV's profit, and strong performance in this segment drove the company's guidance increase. He noted remarketing activity is lumpy but demand is high. President & CEO Bob Lyons added that while investment in the wholly-owned portfolio may be slightly below the $200 million target, investment at the RRPF JV is expected to exceed its initial $800 million forecast for the year.

Brendan McCarthy asked for details on the engine leasing business, including the profit mix between operating income and remarketing gains, expectations for the rest of the year, and the outlook for investment volume in the wholly-owned portfolio.

Answer

EVP & CFO Tom Ellman detailed that for Q2, operating income was 85% of the engine leasing profit mix, with remarketing at 15%. He noted strong performance in this segment is the key driver for the increased full-year guidance. President & CEO Bob Lyons added that while remarketing gains are lumpy due to high asset values, overall investment activity remains strong, with the RRPF joint venture's investment volume expected to be north of the initially forecasted $800 million for the year.

Brendan McCarthy from Sidoti & Company inquired about the engine leasing business, asking for the profit mix between operating income and remarketing gains, expectations for the rest of the year, and the outlook for investment volume in the wholly-owned portfolio.

Answer

EVP & CFO Thomas Ellman detailed that year-to-date, the engine leasing profit mix is approximately 70% operating income and 30% remarketing, with strong performance expected to continue. President & CEO Robert Lyons added that while investment timing is lumpy, he expects healthy activity in the second half, with total investment at the RRPF joint venture likely to exceed the initial $800 million forecast for the year.

Brendan McCarthy of Sidoti & Company asked if macro uncertainty might cause GATX to reconsider its $1.4 billion investment guidance for 2025, particularly for the engine leasing business. He also inquired about the balance sheet, interest rate assumptions in the guidance, and the renewal outlook for the Rail Europe segment.

Answer

President and CEO Robert Lyons confirmed that the full-year investment target of $1.4 billion remains on track, supported by a strong pipeline in the RRPF engine leasing joint venture. He stated the company's interest expense forecast for 2025 is unchanged and that the balance sheet remains very strong. Regarding Europe, Lyons noted that while the intermodal market faces challenges, the overall renewal success rate is high, consistent with the market's typical shorter lease terms.

Brendan McCarthy asked for insights on the favorable remarketing income outlook for 2025, particularly how the interest rate environment might affect secondary market demand. He also inquired about the sources for additions to the Rail North American fleet.

Answer

President and CEO Robert Lyons noted that despite higher interest rates, demand for railcar assets has remained robust, supporting the strong 2025 outlook. Paul Titterton, EVP and President of Rail North America, added that disciplined new car production funnels investors to the secondary market. Lyons confirmed 2025 fleet additions will come from their existing supply agreement and continued, though less robust, secondary market purchases. CFO Thomas Ellman highlighted that lease repricing is the key driver of financial performance.

Brendan Michael McCarthy of Sidoti & Company followed up on remarketing income, asking about the rationale for expecting a modest Q4. He also inquired about the drivers of strong RRPF earnings, the income mix for that segment, and the extent of the North American fleet's repricing.

Answer

President and CEO Bob Lyons explained that the forecast for modest Q4 remarketing income is due to already achieving the full-year target and a typical seasonal slowdown as buyers' capital programs wind down. EVP and CFO Tom Ellman stated that the strong RRPF results were driven by a larger engine portfolio and higher lease rates, consistent with expectations. Ellman provided the RRPF income mix as roughly 50/50 operating vs. remarketing for the quarter. Lyons confirmed that about half of the North American fleet has been repriced at current higher rates.

Brendan McCarthy asked about the drivers behind the operating loss in Beneficient's Ben Liquidity segment, specifically whether it was due to asset sales or updated Net Asset Values (NAV). He also questioned if the $13 million quarterly operating expense run rate for Ben Liquidity was sustainable or if further reductions were expected. Additionally, he inquired about the pipeline for liquidity transactions, particularly in the primary capital space with General Partners (GPs), the composition of the $100 million total debt, and the company's near-term priorities following recent operational improvements.

Answer

Greg Ezell, CFO of Beneficient, attributed the operating loss in Ben Liquidity primarily to asset sales activity and some larger negative NAV updates from GP reports, confirming these were likely one-off instances. He indicated that while the $13 million quarterly OpEx run rate for Ben Liquidity was close to fair, there was still some room for further reductions. James Silk, Interim CEO, discussed the pipeline, noting continued discussions and inquiries, with a focus on acting on existing opportunities and potentially larger transactions, especially after the April period for clarity on obligations. Mr. Silk clarified that almost all of the $100.3 million total debt, except for $3.7 million, relates to an entity associated with the former CEO. For near-term priorities, Mr. Silk emphasized demonstrating the business model's validity by executing a handful of transactions in a more efficient and simplified way, aiming for clearer market descriptions and improved bottom-line attachment, particularly after the spring period.

Brendan McCarthy asked about the drivers behind the operating loss in Ben Liquidity, specifically whether it was due to asset sales or updated NAV values. He also inquired about the sustainability of the current operating expense run rate for Ben Liquidity and the potential for further reductions. Additionally, he sought an update on the pipeline for liquidity transactions, particularly in the primary capital space with GPs. Finally, he clarified the composition of the $100 million total debt and asked about the company's near-term priorities following recent operational improvements.

Answer

CFO Greg Ezell attributed the Ben Liquidity operating loss primarily to asset sales activity during the quarter, with some contribution from updated financial information marks. Interim CEO James Silk indicated that while Ben Liquidity's operating expenses are nearing a fair run rate, there is still some room for further reductions across the board. He reported continued discussions and inquiries for liquidity transactions, with solid momentum expected to build, especially after the April period. James Silk confirmed that almost all of the $100.3 million debt, except $3.7 million, relates to an entity associated with the former CEO. He stated that near-term priorities include demonstrating the business model's validity by executing transactions more efficiently and providing clearer descriptions to the market, particularly after the spring period.

Brendan McCarthy from Sidoti & Company asked for a breakdown of Beneficient's $104 million debt, its components, and future debt management. He also sought clarification on the company's plans to explore adjacent markets and simplify its operating model, including potential externalization of internal technology, and the current focus of the core liquidity business pipeline.

Answer

CFO Greg Ezell clarified that approximately $8 million of the debt is related to the Hicks credit facility, with the remainder primarily from HCLP loans tied to Brad Heppner-related entities, whose validity is under investigation. Interim CEO James Silk added that the Hicks credit facility balance is now below $4 million and the company intends to challenge the HCLP debt. Mr. Silk explained that simplifying the operating model aims for cost reduction and increased transparency, with cleaner revenue flow to the public company. He also detailed plans to externalize internal AI-generated tools for portfolio management and data extraction, confirming ongoing discussions with potential customers. Regarding the core liquidity business, Mr. Silk noted the pipeline currently leans towards the PCP channel due to recent stabilization efforts but expects it to evolve as the company reopens its processes.

Brendan Michael McCarthy from Sidoti & Company, LLC asked for color on the performance of the underlying alternative asset collateral portfolio, trends in monetization and distributions, and details on the recent reclassification of temporary equity to permanent equity.

Answer

CFO Greg Ezell noted that underlying collateral performance is positive, with unrealized NAV increasing, though distributions have declined year-over-year. CEO Brad Heppner added that industry-wide distributions have fallen to half their historical norms but expects this to change. Ezell then explained the equity reclassification was achieved by creating a new preferred security without a cash redemption feature, which is a key step toward meeting Nasdaq's permanent equity listing requirement.

Asked about the performance and monetization trends of the underlying asset collateral portfolio, both for Beneficient and the broader industry. He also requested details on the recent equity reclassification transaction and its benefits.

Answer

Greg Ezell stated the collateral portfolio is performing well with rising unrealized NAV, though cash distributions have slowed but show early signs of picking up. Brad Heppner added that the entire industry has seen a historic slowdown in distributions but expects a recovery. Greg Ezell explained the equity reclassification was a technical change to a preferred security to remove a cash redemption feature, allowing it to count as permanent equity to help meet Nasdaq listing requirements.

Brendan McCarthy of Sidoti & Co. asked if previous headwinds, such as government shutdowns, ICE staffing challenges, and DHS policy on contract approvals, are still impacting facility reactivations. He also requested details on case volume assumptions and margin profiles for the Skip Tracing contract, and inquired about GEO's debt paydown targets for 2026 given the recent reduction in net debt.

Answer

Executive Chairman George Zoley confirmed that slowdowns due to government shutdowns and the warehouse program conceptualization have impacted reactivations, but active discussions continue for GEO's high-security, high-quality facilities, with complex physical plant changes requiring time. CEO Mark Suchinski declined to provide specific margin details for the Skip Tracing contract but noted it's a new program with modest assumptions factored into guidance, expecting ramp-up in Q2 and primarily in H2. He stated that GEO's goal for 2026 is to reduce net debt below three times leverage.

Brendan McCarthy of Sidoti & Co. asked about the persistence of headwinds, such as government shutdowns, ICE staffing challenges, and DHS policy, on GEO Group's facility reactivations. He also requested details on the case volume assumptions and margin profile for the newly awarded skip tracing contract, and inquired about GEO Group's specific debt paydown targets for 2026.

Answer

Executive Chairman George Zoley confirmed that slowdowns due to government shutdowns and the warehouse program conceptualization had impacted activity, but active discussions continue for GEO Group's high-security facilities, including complex physical plant changes. CFO Mark Suchinski declined to provide specific margin details for the skip tracing contract but outlined its expected ramp-up from Q2 2026, primarily in the back half of the year. He stated that GEO Group's goal for 2026 is to reduce net debt below three times leverage.

Brendan McCarthy of Sidoti & Company asked if the 100,000-bed detention target includes the impact of the Lake and Riley Act and requested an update on the verbiage in the fiscal year 2026 Homeland Security Appropriations bill regarding detention and its alternatives.

Answer

Executive Chairman George Zoley clarified that the 100,000-bed objective existed prior to the act and reaching it involves patching together capacity from private and state partners. He explained that the appropriations bill provided a large, bundled sum of money for broad service categories like detention, giving the agency flexibility to reprogram funds as needed, rather than including specific text about programs like ISAP. He also highlighted ICE's priority of hiring 10,000 new officers.

Brendan McCarthy of Sidoti & Co. asked for details on the Q2 revenue guidance, including contributions from new contracts and ISAP assumptions. He also inquired about the likely timing of the budget reconciliation process and the rationale for depopulating the Lea County facility.

Answer

CFO Mark Suchinski confirmed Q2 guidance includes revenue from the Delaney Hall contract, which activated May 1, but a more meaningful contribution from Northlake will begin in Q3. He noted ISAP counts are not expected to increase significantly in Q2. CEO Dave Donahue stated the budget process will likely give ICE a 'clear runway' in the second half of the year. Regarding Lea County, Donahue explained the decision was made to depopulate the facility to market it to federal partners, with Suchinski adding it was a 'challenged contract' from a return perspective.

Brendan Michael McCarthy asked about the reason for the increased incremental revenue forecast for detention bed reactivation (from $400M to $500-600M) and whether the administration would prioritize maximizing detention capacity before ramping up alternatives to detention (ATD).

Answer

Executive Chairman George Zoley explained the revised revenue forecast resulted from more detailed modeling and greater clarity on facility capacities. Regarding prioritization, Zoley stated that while the existing U.S. facility market is limited, the ISAP program operates with a separate team and is expected to ramp up significantly and simultaneously with detention. He stressed that the solution to program compliance is continuous monitoring until an individual's immigration case is resolved.

Brendan McCarthy of Sidoti & Company inquired about the potential ramp-up cadence for the ISAP contract under increased funding. He also asked about expected differences in the 2025 Homeland Security appropriations bills between the House and Senate and how GEO's market share in the Alternatives to Detention (ATD) program might trend with a material expansion.

Answer

Executive Chairman George Zoley projected a potential doubling or tripling of the ISAP program, noting a prior House bill required monitoring for all 7 million individuals on the non-detained docket, subject to funding. He anticipates new appropriations bills could fund 70,000 to 100,000 detention beds. Zoley and CEO Brian Evans affirmed they expect to retain their market share as the exclusive provider under the ISAP program, highlighting their extensive, fully integrated national infrastructure.

Brendan McCarthy, an Equity Research Analyst at Sidoti & Company, inquired about Scholastic's capital allocation strategy, specifically the increased share repurchase authorization and plans for credit facility repayment. He also sought clarification on the updated FY26 revenue guidance, the outlook for trade channel sales, and the sustainability of strong book fair performance amidst consumer spending trends. Additionally, McCarthy questioned the cost reduction potential and spring season outlook for the Education Solutions segment.

Answer

Peter Warwick, President and CEO, and Haji Glover, CFO and Executive Vice President, detailed the initial $150 million share repurchase as a first step, emphasizing the undervaluation of shares and ongoing board discussions for further shareholder returns. Glover confirmed plans to pay down the credit facility to achieve historical moderate leverage levels around 1.75x. Regarding revenue guidance, Glover attributed adjustments to softness in the education business, partially offset by strong book fair growth (92,000 projected fairs). He affirmed trade channel sales are expected to align with the prior year despite publishing schedule shifts. Warwick noted consistent book fair trends with higher revenue per fair driven by increased spending per buyer, and discussed the right-sizing of the Education Solutions segment, anticipating stabilization and growth in the spring season with improved margins.

Brendan McCarthy with Sidoti & Company inquired about the deployment of the $400 million sale-leaseback proceeds, specifically the timing and scale of the $150 million share repurchase authorization, and the target leverage levels after credit facility paydown. He also sought clarification on the revised fiscal 2026 revenue guidance, particularly regarding the impact of education business softness and trade channel sales outlook. Additionally, McCarthy asked about the sustainability of strong book fair performance amidst consumer spending trends and the future cost reduction potential and spring season outlook for the education solutions segment.

Answer

President and CEO Peter Warwick and CFO and EVP Haji Glover confirmed the $150 million share repurchase is a first step, emphasizing the undervaluation of shares and a commitment to returning capital, having returned over $500 million in the last four years. Glover stated they would likely pay down the credit facility to return to historical moderate leverage levels of around 1.75x. Regarding revenue guidance, Glover attributed adjustments to continued softness in the education business, partially offset by strong book fair growth (projecting 92,000 fairs and increased revenue per fair). Trade channel sales are expected to be in line with the prior year despite tough comparisons. Warwick noted that strong book fair trends (good bookings, lower cancellations, higher revenue per fair) are continuing, driven by fewer but higher-spending customers, and they are managing well despite economic reflections. For education solutions, Warwick indicated significant costs have already been removed, right-sizing the business for the current market, with future focus on regrowth and benefiting from improved margins as the market recovers, especially with anticipated second-half loaded sales and federal funding in the spring.

Brendan McCarthy inquired about early feedback on new products in the Education Solutions business and how they are resonating with schools and students.

Answer

Jeffrey Mathews, EVP and Chief Growth Officer, noted positive feedback for new products like Knowledge Library, classroom libraries, and magazines, despite a challenging funding environment. He also explained that greater funding certainty is crucial for increased school spending, as schools currently hold back on non-essential purchases due to volatility in federal grants.

Brendan McCarthy questioned the variables that could lead to a material underperformance or outperformance of the full-year fiscal guidance.

Answer

Haji Glover, Chief Financial Officer and Executive Vice President, cited retail market conditions, consumer and school spending uncertainty, and the anticipated $10 million in tariff expenses as key factors. Peter Warwick, President and Chief Executive Officer, added that while Book Fair bookings are up, the average revenues per fair are still an unknown variable.

Brendan McCarthy asked about early feedback on new products in the Education Solutions business, key variables to reverse spending trends, the timeline for YouTube ad revenue flow-through in the Entertainment Segment, the long-term vision for 9 Story Media Group, current cost reduction areas in SG&A, and potential factors for underperformance or outperformance against the full-year fiscal guidance.

Answer

Jeffrey Mathews, EVP, Chief Growth Officer & Interim President - Scholastic Education, reported positive feedback on new products like Knowledge Library and core offerings, attributing spending delays to federal funding uncertainty and expecting improvement with greater clarity. Peter Warwick, President, CEO & Member of Board of Directors, Scholastic, noted that high-margin digital income from YouTube would grow progressively, enhancing brand exposure and book sales, with Haji Glover, EVP & CFO, Scholastic, adding that significant upside from 9 Story Media Group's digital monetization is anticipated in fiscal 2027. Mr. Glover also detailed ongoing cost reduction initiatives, including $15M-$20M already reflected in guidance, and identified retail market conditions, consumer/school spending, and tariffs as key variables for guidance, while Mr. Warwick highlighted Book Fair count and average revenues per fair as important indicators.

Brendan McCarthy of Sidoti & Company inquired about the sources of fiscal 2026 cost savings, the revenue outlook for the Education Solutions segment, the impact of the 'science of reading' trend, the pipeline for state-sponsored programs, feedback on the integration of trade and school channels, the profitability outlook for the Entertainment business, and the timing and use of proceeds from potential real estate monetization.

Answer

EVP & CFO Haji Glover explained that cost savings are focused on non-revenue generating, discretionary functions and that the company is exploring real estate monetization with a potential update in 90-120 days. He projected flat profitability for the Entertainment segment in fiscal 2026. President & CEO Peter Warwick noted that while the district school market remains cyclically challenged, growth in state-sponsored programs and operational efficiencies support a flat revenue outlook for the Education segment. Warwick also described the internal integration of publishing and distribution channels as having a 'tremendous' positive impact, with benefits expected in fiscal 2026 and beyond.

Brendan Michael McCarthy of Sidoti & Company inquired about the outlook for backlist sales in the Trade channel, the drivers behind the slowdown in the Education Solutions segment, the nature of its strategic review, and the potential fair value of the company's real estate assets.

Answer

President and CEO Peter Warwick explained that strong frontlist performance from key authors is expected to drive backlist sales. He attributed the Education Solutions slowdown to cautious school spending and a cyclical focus on core curriculum, clarifying the strategic review is an internal optimization effort, not a sale. CFO and EVP Haji Glover declined to provide a fair value for real estate but noted the company has disclosed sufficient details for investors to make their own assessments.

Brendan Michael McCarthy of Sidoti & Company, LLC inquired about the drivers of the Entertainment segment's operating loss, the financial impact of the upcoming 'Dog Man' movie, the potential effects of U.S. policy changes on Education Solutions funding, the outlook for state literacy partnerships, and the company's long-term leverage targets.

Answer

CFO Haji Glover explained the Entertainment segment's loss was due to non-cash intangible amortization from the 9 Story acquisition and production expenses, which are excluded from adjusted EBITDA. He clarified that Scholastic benefits from the 'Dog Man' movie via book sales, not production fees. CEO Peter Warwick added that federal policy changes are not expected to have a material near-term impact, as most education funding is state and local. He cited the growing Florida literacy initiative as a key driver of optimism. Finally, Mr. Glover stated the company is comfortable with its current leverage but may increase it for growth initiatives while continuing to return cash to shareholders.

Brendan Michael McCarthy of Sidoti & Company, LLC inquired about several key areas, including the drivers behind gross margin improvement, the persistence of consumer spending pressure on the Book Fairs business, and the early performance of School Reading Events. He also sought details on new go-to-market strategies for the Book Clubs channel, the outlook for the state-sponsored business within Education Solutions, and the company's comfort with its new net debt position following the 9 Story acquisition.

Answer

CFO Haji Glover attributed gross margin gains to a favorable business mix and noted this was factored into the full-year outlook. He also expressed confidence in the current leverage, stating the company is exploring balance sheet opportunities but has no immediate plans to aggressively pay down debt. President and CEO Peter Warwick reported that Book Fairs are performing as expected, with strategic adjustments and a higher fair count mitigating consumer pressures. He highlighted positive early signs in the Book Clubs business, where redesigned, teacher-centric flyers are boosting sponsor engagement. For Education Solutions, Warwick noted a growing trend of state and partner programs focused on getting books into homes, which Scholastic is leveraging to rebalance the segment amid near-term headwinds in direct-to-school sales.

Brendan McCarthy asked about the ultimate volume opportunity for Better Home & Finance's partnership with a top five U.S. personal financial services platform and the underlying assumptions for the projected increase in monthly loan volume to $1 billion.

Answer

Vishal Garg, Founder and CEO, estimated a potential annual volume of $24 billion from the financial services platform, with algorithmic mining potentially yielding multiples of that. He clarified that the $1 billion monthly loan volume outlook assumes stable interest rates, with growth primarily driven by partnerships and D2C's focus on per-loan profitability, noting D2C's organic growth exceeded 50% year-on-year excluding Ally volume.

Brendan McCarthy asked for details on the ultimate volume opportunity from the partnership with the top five U.S. personal financial services platform, which serves 50 million customers, and the factors underpinning the guidance for $1 billion in monthly loan volume.

Answer

Vishal Garg, Founder and CEO of Better Home & Finance Holding Company, estimated the potential volume for the financial services platform could be around $24 billion annually based on average mortgage penetration rates, with potential for multiples of that through algorithmic mining. He clarified that the $1 billion monthly loan volume guidance assumes stable interest rates, with growth primarily driven by partnerships, while D2C focuses on improving per-loan profitability, showing over 50% organic growth year-on-year excluding Ally volume.

Brendan McCarthy of Sidoti & Company questioned the key drivers behind the meaningful increase in the lead-to-lock conversion rate with Betsy AI and requested an update on the Tinman AI software pipeline, particularly a previously mentioned bank partner.

Answer

Founder & CEO Vishal Garg attributed the conversion rate improvement to Betsy AI's expanded functionality, which now handles the process through lock, re-underwrites loans, and finds intelligent solutions for customers, such as complex DTI calculations. He confirmed the previously mentioned bank partner is now live and funding loans on the platform, highlighting an implementation time of less than 90 days.

Inquired about the year-over-year trend in unit economics, quantification of AI's impact on operating leverage, long-term balance sheet leverage targets, and the pipeline for B2B partnerships.

Answer

Kevin Ryan and Vishal Garg responded that unit economics improved sequentially in Q1, with the mortgage company breaking even in March. AI-driven savings are primarily in compensation and loan origination expenses, with a goal of reducing total production cost to $1,500 per loan. The company runs a capital-light model and is comfortable with its current debt level. B2B opportunities are split between software-only deals for banks leaving legacy systems and platform partnerships with fintechs entering the mortgage space.

Brendan Michael McCarthy of Sidoti & Company, LLC asked about the biggest opportunities for corporate cost reductions, the potential for new B2B partnerships, and the expected impact of losing the Ally Financial partnership.

Answer

CEO Vishal Garg identified further reductions in compensation, renegotiating vendor contracts, and professional fees as key areas for cost savings. He also revealed active discussions with a top-5 servicer, a lead-gen company, and a community bank for new B2B partnerships. CFO Kevin Ryan stated that losing the Ally business is an EBITDA-neutral event and that the nearly $1 billion in lost volume will be more than replaced by growth from NEO and other initiatives.

Brendan McCarthy of Sidoti & Company questioned the long-term sustainability of the 15% gross margin level, the attribution of recent margin gains between efficiency and product mix, and the customer pipeline for tank car conversions.

Answer

CEO Nicholas Randall explained that long-term margins are difficult to predict due to product mix fluctuations, but the current 15% is at the high end. He attributed margin gains to a combination of consistent, incremental operational productivity improvements and the peaks of product margin. Regarding the tank car pipeline, Randall mentioned the federally mandated conversion deadline of 2029 is creating significant customer appetite, and the company is in constant conversation with customers to provide either conversions or new builds.

Brendan McCarthy of Sidoti & Company asked about the long-term sustainability of the 15% gross margin level, the attribution of recent margin gains between manufacturing efficiency and product mix, and the status of the tank car conversion pipeline, including customer conversations.

Answer

CEO Nicholas Randall explained that while the 15% margin is at the high end, long-term levels are subject to product mix fluctuations. He attributed current gains to a combination of steady, incremental operational productivity improvements and favorable product mix. Regarding the tank car pipeline, Randall highlighted the significant market opportunity driven by a 2029 federal conversion mandate for 10,000-17,000 units. He confirmed ongoing conversations with customers about providing solutions, whether through conversions or new car builds.

Brendan McCarthy of Sidoti & Company questioned the long-term sustainability of the 15% gross margin level, asking for a breakdown of how much recent gains were from manufacturing efficiency versus product mix. He also inquired about the customer pipeline for the tank car conversion program.

Answer

President, CEO & Director Nicholas Randall explained that long-term margins are highly dependent on product mix, making them difficult to predict, though underlying productivity improvements are ongoing. He noted it's hard to separate the two drivers as they are intertwined. Regarding the tank car pipeline, Randall highlighted a federally mandated conversion deadline by 2029 for a significant number of industry cars, and confirmed FreightCar America is in continuous conversations with customers to provide either conversion or new car solutions.

Brendan Michael McCarthy of Sidoti & Company, LLC inquired about what differentiates FreightCar America's strong order flow from the broader industry's hesitancy. He also asked for the 2025 industry delivery forecast, the expected quarterly delivery cadence for the year, the drivers of the strong gross margin, and the reason for the increase in SG&A.

Answer

CEO Nicholas Randall attributed their success to a strong value proposition and a healthy pipeline, noting Q1 had their highest order intake proportion in 15 years. He affirmed an industry delivery forecast of 34,000-40,000 units. CFO Michael Riordan outlined a delivery cadence with a modest Q2 step-up followed by a significant ramp in the second half. He explained that improved gross margins were driven by the absence of low-margin box cars from the mix and that the Q1 SG&A increase was due to timing, not a structural change.

Brendan Michael McCarthy of Sidoti & Company asked for quantification of a delivery timing shift from Q4, the reason for the variance between 2025 delivery and revenue growth guidance, the tariff assumptions in the guidance, and the addressable market for tank car retrofits.

Answer

Executive Michael Riordan clarified the Q4 delivery timing was normal transit and not a material issue. Riordan and Executive Matthew Tonn explained the guidance variance (8% delivery growth vs. 1% revenue growth) is due to a planned shift in product mix to cars with a lower average selling price (ASP), while still driving strong EBITDA growth. They confirmed the guidance accounts for tariff uncertainty, citing robust inquiry levels. Executive Nicholas Randall declined to quantify the tank car retrofit market but confirmed they are accelerating CapEx to be ready for this work by mid-2025 and are fielding more inquiries.

Brendan Michael McCarthy from Sidoti & Company asked about the rationale behind the raised adjusted EBITDA guidance, the cause of delivery variability between Q2 and Q3, the full-year gross margin outlook compared to the prior year, and the level of customer activity in the tank car conversion market.

Answer

Executive Michael Riordan explained the adjusted EBITDA guidance increase was due to strong year-to-date performance, plant optimization, and better end-of-year visibility. Executive Nicholas Randall attributed the Q3 delivery variance to the timing of product line changeovers, noting Q3 had more than Q2, but affirmed they are on track to meet annual guidance. Riordan projected that full-year 2024 gross margins would be 'materially in line' with 2023, impacted by a weaker Q1. Executive Matthew Tonn confirmed that the pipeline for tank car conversions remains strong with significant customer interest.

Brendan McCarthy asked about the drivers behind the strong 14% Q4 rent spread, the outlook for 2025 spreads, the long-term strategy for the non-core office portfolio, and requested more detail on the $0.01 FFO from acquisitions included in guidance.

Answer

CEO Lance Parker explained the strong Q4 spread was driven by solid baseline activity plus a significant lift from a CVS/Longs anchor renewal. While not providing specific guidance, he expressed confidence in continued strong leasing interest for 2025. He characterized the small office portfolio as non-strategic and a candidate for capital recycling. Both Lance Parker and CFO Clayton Chun clarified the $0.01 FFO in guidance is for unspecified growth, reflecting confidence in their ability to deploy capital rather than a specific, pending transaction.

Brendan Michael McCarthy requested details on a legacy joint venture, the drivers of G&A savings, and the rationale for using the revolver to pay off the Pearl Highlands mortgage.

Answer

CFO Clayton Chun explained the joint venture is a passive, pre-REIT investment that is not a major cash flow contributor and that Q4 guidance assumes a breakeven contribution from Land Operations. He attributed G&A reductions to process improvements and overall company simplification. Chun stated the decision to use the revolver for the Pearl Highlands mortgage was a strategic move to pair it with an existing forward-starting interest rate swap, locking in a fixed rate of 4.73%.