Q1 2021 Corecivic Inc Earnings Call
Good morning My.
My name is Travis and I will be your conference operator, as a reminder of this call is being recorded at this time I'd like to welcome you to the core Civic first quarter 2021 earnings conference call. All lines have been placed on mute to avoid any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask of you.
Question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question Press Star two.
Thank you I would now like to turn the call over to Cameron Hopewell of course, civics managing director of Investor Relations. Mr. Hopewell, you may begin your conference.
Thank you Travis good morning, ladies and gentlemen, and thank you for joining us participating on today's call are Damon <unk>, President and Chief Executive Officer, and David Garfinkle, Chief Financial Officer. We're also joined here in the room by our Vice President of Finance, Brian Hammonds.
The call today will focus on our financial results for the first quarter and provide us with some general business updates during today's call our remarks, including our answers to your questions will include forward looking statements pursuant to the safe Harbor provisions of the private Securities and Litigation Reform Act, our actual results or trends may differ materially.
As a result of a variety of factors, including those identified in our first quarter 2021 earnings release issued after market yesterday and in our SEC filings, including forms 10-K, 10-Q, and 8-K reports you are also cautioned that any forward looking statements reflect management's current views only and that the.
Undertakes no obligation to revise or update such statements in the future.
On this call. We will also discuss certain non-GAAP measures a reconciliation of the most comparable GAAP measurement is provided in our corresponding earnings release and included in the supplemental financial data that we provide on our investors page of core civic Dot com.
With that it's my pleasure to turn the call over to our president and CEO Damon hinder Damon.
Thank you Cameron good morning, everyone and thank you for joining us today for our first corner of 2021 conference call.
Before I start my usual remarks, I would like to note that this week is national Correctional officers and employees week.
On the first Saturday in May of 19, Eighty-four, then president Ronald Reagan issued a proclamation, claiming calling I shouldn't say upon the country the pay tribute to Correctional professionals.
This proclamation created a week of recognition of the work done by Correctional officers.
Later in 1996 Congress changed the name of natural <unk> offers a week to national Correctional officers and employees week to rightfully credit all of the women and men who served by working in corrections.
With the year that has just passed it is especially important to recognize the men and women, who work day in and day out and facilities across the country.
I would like to express my deep and sincere, thanks, and gratitude not only to the core civic team of professionals, but to all who work in our profession.
Going now to our agenda for the call. We will provide you with an overview of our first quarter financial performance update you on continued response to the COVID-19 pandemic.
Discuss business development opportunities.
Discuss the latest developments with our government partners.
Are you on the potential sale of certain die Correctional real estate assets in our property segment and provide you with an update of strategic outlook.
Following my remarks, I will turn the call over to our CFO, Dave Garfinkle, who will review our financial results in greater detail.
Our first quarter revenue of $454 $7 million represented a 7% decline all of the prior year quarter due to continued impact of the COVID-19 pandemic on occupancy within our safety and community segments.
And the sale of 42 GSA leased assets within our property segment in December of 2020.
As mentioned late last year, we saw criminal justice relate the populations declined mostly due to a reduction of new intakes, rather than early releases with a disproportionate of impact on our community segment, which is considered a lower risk population.
Governments have acted fast or to transfer of certain residents assigned to our reentry facilities to nonresidential statuses, such as furloughs home confinement or early releases to create additional space for enhanced social distancing distancing within our reentry facilities.
Although only be an approximately five percentage of our revenues are community segments Oxy registered 51, 6% in the quarter versus 73, 5% in Q1 of 2020.
However, both safety and community occupancy rates in the first quarter remained relatively stable with those experienced in the third and fourth quarters of 2020.
Normalized funds from operations or <unk> for the quarter was <unk> 44 per share a decline of 19% compared with the first quarter of 2020.
However, this decline was primarily driven by our decision to convert to a taxable C Corporation effective January 1st of this year.
We have added a new disclosure in our first quarter supplemental financial information document available on our website, which provides a pro forma results for 2020, reflecting income tax expense by applying our estimated tax rate of pretax income in the prior year.
Comparing our first quarter 2021 normalized <unk> of 44 cents per share to our pro forma first quarter 2020 normalized <unk> of 46 cents per share. It shows the decline of just 4%.
Our adjusted EBITDA of $96 3 million was also resilient declining only approximately four 4% also compared to the first quarter of 2020, a corner of that was not materially impacted by COVID-19.
Our GAAP results included some larger than average special items, including a one time non cash $114 million in income tax expense, resulting from the reevaluation of the company's net deferred tax liabilities.
Due to the completion of all necessary actions taken to revoke our REIT election, and approximately $52 million from our recently announced litigation settlement.
Dave will provide greater details about our first quarter financial results, including of reconciling between our GAAP and normalized results. Following the remainder of my comments.
As I have for the last year I will kick off our operational and business development discussion with an update on our ongoing response to the COVID-19 pandemic and its continuing impact on our day to day operations.
We have worked diligently throughout the pandemic to collaborate with our Gulf of partners be responsive to evolving guidance from leading health experts secure our supply chain with clinically effective personal protective equipment for residents and facility staff.
And provide proper training and advice to help mitigate the risk of contracting and spreading the virus.
Since the approval of the COVID-19 vaccines, we have made every effort to coordinate with our partners as well as state and local health departments.
As I described on our last conference call in February how to allocate the vaccines are they receive is at the discretion of the state and local health authorities in each and each community, where we operate has a unique differences in the process of developing their vaccine rollout plans.
The great news is that vaccine supplies continue to grow which has accelerated our ability to administer doses to residents and our employees.
We have been disclosing weekly updates on the number of vaccine doses, we have been able to administer on our website.
Our latest state of shows we have of mid <unk> of approximately 19000 doses.
We are committed to working closely with our government partners and local health officials to assure everyone of our facilities have access to the vaccine as it becomes available and so far I believe we have made great progress.
During the first quarter, we continuously of decline in positive cases within our facilities.
This trend has been consistent across all of our facilities.
And we are optimistic that additional vaccination availability will continue this trend.
We expect that new challenges of mitigating the risk of virus transmission of war rise as facility operations begin to normalize.
We have already seen some partners reinstate in person visitation and many are looking to restart classroom based programming.
We continue to work closely with our government partners to thoughtfully enact these changes over time in order to make the best possible measures of prevention.
We are continuing to evaluate the impact of the executive order signed by President Biden issued in January that direct of the attorney General to not renew department of Justice contracts with privately operated criminal detention facilities.
Two agencies of the department of Justice utilize our services the Federal Bureau of prisons, or B O P and the United States Marshal service or U S. M S.
As a reminder, the <unk> houses inmates who have been convicted for federal crimes and the United States Marshal service is responsible for prisoners, who are awaiting trial in federal court.
The <unk> has experienced a significant decline in inmate populations since 2013, and simply does not have as much of the need of for prison capacity for of the private sector.
We currently have one for the contract with the B O P accounting for approximately two percentage of our total revenue.
Marshals service populations have remained relatively consistent in recent years, so their capacity needs remain unchanged.
We continue to believe that the marshals do not have sufficient of tissue capacity that satisfies its current needs without much of the capacity we provide.
We currently have for contracts with the marshals that expire in 2021.
The first is that our northeast, Ohio Correctional Center, which is set to expire may 30 <unk> of 2021.
We are exploring opportunities with various government agencies, including the state of Ohio. The primary user of the northeast, Ohio facility on a coordinated approach that meets the needs of all agencies.
Our contracts at the 600 beds West, Tennessee detention facility.
And the <unk> thousand 33 bed love more for attention facility are set to expire in September and December respectively.
The Marshalls also utilized less than 100 of the 660 for beds at our Crossroads Correctional Center under a contract that was scheduled to expire in April of 2021 but was extended through June and is not expected to be renewed thereafter.
We currently expect the marshals to relocate detainees presently held at the Crossroads Correctional Center.
The state of Montana, which utilizes the remaining capacity at the Crossroads facility has expressed interest in utilizing the soon to be vacated capacity at the facility beginning in July.
We do not yet know if the Marshalls will relocate the detainees at our west, Tennessee and lot more facilities.
We continue to work with the Marshalls to find solutions that will allow the agency to continue to fill feel its mission.
Our third federal partner is immigration customs enforcement or ice.
They continue to be the government partner with the most significant impact from COVID-19 of their capacity utilization.
The largest driver of their low lower utilization levels has been the enactment of title of 42 since March of last year, which was put in place to prevent essentially all of asylum claims at the country's borders and ports of entry in order to prevent the spread of COVID-19.
In the simplest of terms title of 42 allows the government to remove all individuals' illegally crossing the southwest border back to Mexico, regardless of their country of origin portfolio entity of their asylum claim.
In recent months the administration has discontinued apply entitled of 42 to unaccompanied minors, which is why there has been a sharp increase in the number of children in custody of the U S government.
This is not the population we serve so we have not been impacted.
We primarily provide ice which detention capacity for adult populations.
We have one facility in Dilley, Texas that has a family mission.
The purpose built facility was opened in 2014, when the Obama by the administration was dealing with a humanitarian crisis on the southwest border.
The crisis was due to a significant increase in the number of families of illegally crossing into the country. A trend that has continued since that time.
In recent weeks the administration has announced his intent to shift the mission of our family facility to a family staging center with the goal of processing families into the country within 72 hours.
We are working with ice to implement the operational changes that this facility at the HD prepares for titles of 42 to not be applied to families at the border.
It is unclear when title of 42 will no longer be apply to adults who represent a significant majority of the people being apprehended and for having entered the country of illegally.
However, we believe that increasing vaccination rates and availability will of visual and remove the need to keep our borders and ports of entry closed.
We provide critical capacity of the EIS that assists them in processing. These individuals'. So we would expect to see demand for our capacity to increase meaningfully once this occurs.
Looking now at state level opportunities I will begin with an update on our efforts to complete the financing of two new facilities that we would construct and lease to the state of Alabama.
There has been a great deal of headlines in recent weeks, but we are continued to move forward.
It is unfortunate that reckless and irresponsible actavis, who claimed to represent the interest of the incarcerated individuals of Alabama are in in fact advocating for outdated facilities less rehabilitation space and potentially dangerous and less humane conditions for Correctional staff and inmates.
Opposition to the governor solution of representing and extremism that puts political agenda is over people.
I encourage those opposed to this project to learn what conditions are current it like for inmates in Alabama.
The solution by the state that we are providing also does nothing to inhibit or prevent the state for pursuing additional criminal Justice reform initiatives.
For making additional investments to improve reentry opportunity for formerly incarcerated individuals.
If socially conscious investors are truly focus on tangible societal benefits and not politically motivated activism. There are a few important points I'd like to clarify.
This project for workplace Correctional beds that have far outlived their useful life facilities at the state's Governor has described as dilapidated and structurally failing.
It will not increase available space to incarcerate.
The facilities will be managed and operated by the state of Alabama, not core civic the east are not privately run prisons.
These new facilities will greatly improve the quality of life for both inmates and dedicated state employees, who will be operated them, making it easier to recruit and retain correctional staff.
Yeah.
Modernizing antiquated correctional infrastructure, providing space for more reentry programming and improving the lives of incarcerated individuals provides a direct benefit to society of that everyone should be proud to help deliver.
Shortly after the close of the first quarter, we completed the offering of $450 million of senior unsecured notes.
For the last few years, we have received inquiry into our ability of the company's access of the debt capital markets and we were pleased that our response is an emphatic yes.
There was strong investor interest in the bond offering which is why we ultimately increase the size of the issuance.
We view this offering is an opportunity to push out our debt maturity schedule and enhancing our ability to continue to use our cash flows to repay debt and minimize future refinancing risk.
We continue to have for remaining non core real estate assets held for sale, which we anticipate will generate net proceeds of up to $120 million.
We are hopeful to consummate the sale of these assets during the second quarter of 2021.
Accelerating the pace of our debt reduction strategy to lower leverage between two and a quarter and two of three quarter times debt to EBITDA.
I would like to briefly discuss a couple of additional topics before turning the call over to Dave.
First we are excited to announce that in the next few weeks, we will be issuing our third annual ESG report.
The report will provide interested parties with a fresh look at how we uphold our commitment to value of human dignity within our facilities and provide quality services.
Our process for reporting as robust transparent and always seeking improvement.
The report contains extensive formation on how we operate our cheapest in developing and implementing robust educational and reentry programming and the tangible progress that we have made an advocacy to remove barriers to success for reentry amongst many others.
We are proud of our progress in transparency in the area of ESG reporting and our doors remain open to engagement and opportunities to make additional progress.
Lastly, I wanted to highlight that in recent years. The federal government has officially designated the month of April of second chance month.
Is it the time to raise public awareness about the need to give those who have been convicted of crimes a complete and complete their sentence is a real opportunity for a second chance at successfully reentering our communities.
At core civic this focus our reentry in reducing recidivism has been and continues to be a major part of what we do year round.
We believe we have a moral social and economic obligation to provide those who have been entrusted into our care with the tools they need to successfully reentry reenter their communities upon release and to stay out of prison.
We launched an unprecedented effort many years ago to advocate for state and federal legislation aimed at reducing the rate at which form of incarcerated individuals returned of prison.
Our advocacy has to include the provided protections for employees, who hire incarcerated individuals Inc.
Increasing funding for reentry programs restoration of Pell grants for education and training of Wild prison and.
And restoration of voting rights after incarceration among others.
We have achieved meaningful progress in those areas, but there is much more work to be done.
We know America's recidivism crisis will not be solved overnight, but if the public private and non profit communities. All work together, we can continue to improve the opportunities for the affordable incarcerated individuals to rebuild their lives after prison.
And for other justice involved in individuals to avoid incarceration altogether.
I'll now turn the call over to Dave to provide a more detailed look at our financial results in the first quarter of 2021 as well as factors that could affect our business for the remainder of the year.
Dave.
Thank you Damon and good morning, everyone in the first quarter of 2021, we reported a net loss of $1 five per share or 24 of adjusted earnings per share. Excluding special items, we generated 44 cents of normalized <unk> per share and <unk> per share of <unk> 47.
Adjusted EBITDA was $96 3 million in the first quarter of 2021, compared with $100 4 million in the prior year quarter.
Recall that the first quarter of 2020 did not include any impact from COVID-19, which was declared a pandemic at the very end of the prior year quarter.
During the first quarter of 2021, we.
We completed all steps to revoke a REIT election.
As a result, the effective January one 2021.
We became subject to federal and state income taxes.
On our taxable income at applicable tax rates.
The benefit of a tax deduction for dividends paid.
For illustration purposes in our supplemental disclosure report posted on our website, we presented a calculation of adjusted net income.
Normalized funds from operations and <unk> for each quarter and full year of 2020 out of pro forma basis.
<unk> such metrics applying an estimated effective tax rate of 27, 5%.
Adjusted net income per share in the first quarter of 2021 of 24.
Compares to 23 on a pro forma basis applying this estimate an effective tax rate for the first quarter of 2020, while normalized <unk> per share in the first quarter of 2021 of <unk> 40 for <unk>.
Compares to <unk> 46.
On a pro forma basis for the first quarter of 2020 and <unk> per share for the first quarter of 2021 of 47.
Compares to <unk> 50 on a pro forma basis for the first quarter of 2020.
Adjusted amounts during the first quarter of 2021 include a onetime income tax charge of $114 $2 million, primarily associated with our change in corporate tax structure.
This charge is not a cash payment, but represents an accounting adjustment three value of our deferred tax liabilities in connection with the replication of our REIT election, similar to the one time tax benefit of $138 million, we recognized when we converted two of REIT in 2013.
There is no transitional tax or any other payment associated with the ratification of our REIT election adjusted.
The adjusted amounts during the first quarter of 2021 also include a pre tax charge of $51 $7 million for the previously disclosed settlement of shareholder litigation originating in 2016, and asset impairment of $1 $3 million and $1 $6 million of expenses associated with COVID-19.
So while there was a lot of noise in the quarter core operating results compared with the prior year quarter can be summarized by a reduction in facility EBITDA of $5 $5 million and lower G&A expenses of $1 4 million, which resulted in a reduction in adjusted EBITDA of $4 $1 million.
Of the $5 $5 million reduction in facility EBITDA of $2 3 million was generated in the prior year quarter from 42, GSA leased properties that we sold in the fourth quarter of 2020 with the remainder of due to reduction in occupancy primarily resulting from COVID-19.
We also incurred lower interest expense from lower debt levels and reported higher income taxes under our new corporate tax structure.
Compared with the fourth quarter of 2020, adjusted net income per share decreased to 24.
From 30 on a pro forma basis and normalized <unk> per share decreased from 44.
From <unk> 53 per share on a pro forma basis.
As a reminder of the first quarter is always seasonally lower due to fewer days in the first quarter and because we incur about 75% of our annual unemployment taxes in the first quarter when base wages reset.
You will also recall last quarter, we mentioned that our G&A expenses were unusually low due to lower incentive compensation in the fourth quarter and we incurred a more normal level of G&A expenses in Q1, although still reflecting lower travel because of COVID-19 restrictions.
Last quarter. We also mentioned that we experienced lower employee benefits expenses due to more favorable claims in our self funded employee medical plans and lower property taxes.
We incurred more normal levels of these expenses in the first quarter.
Again compared to the sequential fourth quarter <unk> per share decreased on the a penny to <unk> 47.
From 48 on a pro forma basis, while <unk> was impacted by the same factors affecting adjusted net income and <unk> <unk> reflects significantly lower maintenance capital expenditures on real estate in the first quarter compared with the fourth quarter.
Our maintenance capital expenditures can fluctuate from quarter to quarter, but are typically seasonally lower in the first quarter.
As of March 31, we had $168 million of cash on hand, and $587 million of availability on our revolving credit facility, which matures in 2023.
During the first quarter of 2021, we continued our de levering strategy, reducing our debt level by $84 $9 million net of the change in cash.
Our leverage measured by net debt to EBITDA was three five times using the trailing 12 months down from three nine times using the trailing 12 months at the end of the third quarter of 2020, when we announced our revised capital allocation strategy and further down from three seven times using the trailing 12 months at the end of the fourth quarter of 2020.
Following quarter end, we accessed the debt capital markets raising $450 million of unsecured senior notes maturing in 2026.
We used the net proceeds of approximately $435 $1 million after the original issuance and underwriting discounts and transaction costs to redeem all of the outstanding $250 million of unsecured notes that were scheduled to mature in 2022, including the make whole amount.
In addition, we repaid $149 million of the $350 million unsecured notes scheduled to mature in 2023 at an aggregate purchase price of $151 $2 million in privately negotiated transactions, reducing the outstanding balance of the 2023 notes the $201 million.
The remaining net proceeds from the offering were used to pay down our revolving credit facility and for general corporate purposes.
Since quarter end, we have paid down our revolving credit facility by $80 million using net proceeds from the issuance of the notes and cash on hand.
As a result of these refinancing transactions, we extended our weighted average debt maturity from five three years to six years.
As mentioned last quarter on February one we were awarded two new 30 year lease agreements with the Alabama Department of corrections for the development of two correctional facilities with a total project cost of over $900 million subs.
Subject to the completion of project specific financing, which we will pursue and multiple capital markets. We currently expect to fund approximately 10% for the project cost with existing resources, which we expect to provide upon completion of the project specific financing.
The Alabama Department of Corrections will lease and operate both facilities, we will be responsible for facility maintenance and will retain ownership of the facilities.
Despite the well publicized the opposition by some to this project, Alabama has reiterated the critical need for the new facilities and we expect to continue assisting the state and the.
<unk> their objectives.
Nonetheless, the challenges encountered in constructing desperately needed criminal justice infrastructure in the United States further demonstrates the importance of the very valuable real estate assets, we own across the country.
With respect to future commitments. In addition to our investment in the Alabama project. We also expect to pay the shareholder litigation settlement. During the second quarter of 2021, we incurred $12 $2 million of maintenance capital expenditures in the first quarter, leaving $53 million to $57 million for the remainder of the year, which is consistent with.
The guidance, we provided last quarter.
We have no other substantial capital commitments and expect to continue using all remaining cash flow, we generate to repay debt.
As of March 31, we had for non core real estate assets held for sale with the net book value of $281 million.
Based on interest expressed to date, we currently expect to consummate the sale of all of these assets in multiple transactions during the second quarter of 2021, we.
We expect to generate aggregate net proceeds from the sale of these assets of approximately $120 million. After the repayment of non recourse mortgage notes associated with two of the properties and after defeasance and transaction costs.
We expect to use the net proceeds toward our investment in the Alabama project in order to repay debt.
Although of more difficult decision this quarter at this time, we are not yet reinstating financial guidance because of uncertainties associated with COVID-19, as well as uncertainties associated with the application of the administration's various executive actions and policies for limited related to immigration and criminal Justice.
While we remain focused on the long term success of the business and on executing our Delevering strategy. We can provide some high level observations for.
First with respect the facility operations because of the pandemic operations in the criminal Justice system have not yet normalized in the southern border remains effectively closed to undocumented adults under title of 42 implemented during the last presidential administration to prevent the spread of COVID-19 the.
For the duration of these disruptions in the response to the various executive orders are difficult to predict.
As a reminder, about two thirds of the federal contracts and our safety segment have fixed monthly based payments that help ensure our partners have access to the capacity they need if and when populations increase minimizing the impact of any further occupancy reductions at such facilities.
Conversely increases from current population levels would not result in incremental revenue under these contracts until populations exceed the first tier fixed payments.
Although staffing levels have been reduced to reflect lower offender populations and many of our safety and community facilities recruiting staff remains a challenge and we have made and expect to continue to make wage adjustments to help ensure appropriate staffing levels.
Further most of our facilities and our safety segment are still under restricted movement because of COVID-19.
We intend to work with our government partners and follow National Health standards, and reinstating normal movement and staffing within our facilities. Both of these factors would result in lower operating margin percentages in the second half of the year absent increases and resident populations.
The properties, we sold in the fourth quarter of 2020 generated $9 $3 million of EBITDA in 2020.
The properties, we are holding for sale generated $20 million of of EBITDA in 2020, which combined with the sales completed in the fourth quarter of 2020 would translate into a reduction of approximately $19 million of EBITDA compared with 2020. If we are successful in selling these assets near the end of the second quarter as I mentioned earlier.
Third while we are very pleased with extending maturities through the debt capital markets transaction consummated last month repayment of the 250 million, 5% unsecured notes and $149 million of 465% unsecured notes with proceeds from the new eight 5% senior notes will result in an.
The increase in interest expense in future quarters, because of an increase from the average coupon rate of applicable to our outstanding debt.
Further we will continue to accrue interest on the 5% senior notes until the redemption date on May 14th 2021, thereby incurring interest expense on both the eight in the quarter percent senior notes and the 5% senior notes for the 30 day notice period for redemption the.
The increase in interest expense associated with the transaction is approximately $15 million in 2021.
We currently estimate our normalized effective tax rate to be 27, 5% each quarter, although we estimate our cash taxes to be approximately 20% for the year because of deductions for special items, which also contemplates the taxable gain on the assets we are holding for sale.
And finally wrapping up my comments with additional detail with respect to the U S. Marshals service as Damon mentioned, we continue to work with the U S. Marshal service on solutions that will enable them to continue to fulfill their mission.
We have for direct contracts with the U S. Marshals expiring this year two contracts are at facilities.
Shared with the respective state customer, where the state customer as the primary user of each facility.
Both states have expressed the desire to utilize the space occupied by the U S. Marshal service and we are working through the coordinated transition of capacity that could potentially benefit all government agencies.
The other two contracts with the U S marshals expire in September and December 2021.
We do not yet know if the U S. Marshals will vacate these two facilities, we continue to work with various government agencies to meet the needs of the U S. Marshals. However at this stage of the discussions it is too early to predict the ultimate outcome for the financial impact to us if any.
While we have some work to do to consummate the financing for the two new correctional facilities in Alabama, and will pursue similar opportunities in Hawaii and potentially other states for our properties segment those opportunities are longer term and would have no impact on our earnings for our financial position in 2021 and our <unk>.
Safety segment, we are pursuing a number of nonpublic opportunities, including a new state contract to utilize available capacity in our system and the transition of an existing state contract to our property segment, resulting in stable consistent cash flows.
Of these opportunities could be consummated in the second half of this year, but would be more impactful in 2022.
I will now turn the call back to the operator Travis to open up the lines for questions.
Thank you just a reminder, if you would like to ask the question. Please press star one.
The first question comes from Joe <unk>.
Noble capital.
Good morning, and thanks for taking my questions.
Good morning, Joe Good morning, Joe.
Wanted to start with the the U S Marshals service.
We see the.
In the press we've seen reports.
About.
The proposal you've made the 11 worth county.
Okay.
So putting aside whether.
It actually.
Go through.
The <unk> one the U S marshals service would they be onboard with this type of arrangement.
And two what do you guys see as the biggest obstacles.
For counties of Cds.
They need to consider.
Order to kind of do what you guys are talking about there and having the county take over the the.
The actual contract with the U S marshals and you guys just become the lessor of the building.
Yes.
Joe Thanks, again for calling in and thank you for your question. This is Damon.
So a couple of good questions. There, let me do the first part and just say I can't speak for the Marshal service, what we're trying to do is you.
You give them various options and alternatives that they can consider.
So they've got to evaluate those accordingly.
Inside of that with the <unk>.
Direction with the the executive order, but.
As we've tried to allude.
Two in the last couple of months with the investment community.
Being part of being the private sector, we've got a responsibility to be flexible of the innovative and provide different alternatives to our government partners, depending on either direction of policy that they are.
Governed by or maybe emerging kind of issues or challenges they've got with the respective system and so that's exactly what we're doing right now and looking at those various options.
To your to your second question.
As you May know the Marshal service out of about 65000 federal prisoners and custody on any given day.
Just over half of that population are in city or county facilities of our city or county operations, sometimes it may be the governor on operate our real estate I should say are they potentially could use another another facility depending on the circumstance. So I think the Marshal service have you, obviously that that awareness and understanding that the comfort on.
Working with cities and counties and its my understanding of <unk> been working with those jurisdictions for decades.
I think talking to of Kennedy of our city about potentially that type of service.
To the federal government.
They can just look across the country and see that would be done probably in neighboring communities in some of these jurisdictions, where we operate it's more of is probably very likely just down the street at the county jail. They actually held for the federal prisoners. So it's maybe a relationship they already have and aware and understand kind of the unique requirements and needs for that population, but not really anything you would add to that Dave.
Then.
The solutions are going to be unique for each location for each facility that we have particularly if we have a shared facility. So the U S marshals use of the facility Thats.
It has another customer in that facility the solutions could be different so we're looking at different options for our northeast, Ohio facility and our Crossroads facility. Then we are of West, Tennessee, and 11 worth facilities, but it's a little early to two.
Having it we don't have any announcements to make at this point on.
Any of those beyond what we reported in the press release.
Okay, Thanks for that and switching gears to ice.
It's the <unk>.
Numbers coming out of ice is that we've seen a little bit.
The modest increase in the number of the key needs there.
In April over March you went from about 14100 to about 15300 are you seeing some improvement in numbers.
On your ice facilities.
And have you seen any core.
<unk> back from ice.
To try and get <unk>.
Lower rates on their contracts due to decreased occupancy we've seen over the past year.
Yes, a couple of good questions. So youre exactly right on kind of your global numbers are we're kind of seeing and hearing the same thing.
And our day to day accurate interactions with the customer.
Specific to core civic, Yes, I think we were just a hair under 3000.
At the beginning of February.
'twenty it looks like 29 to 24 and then as of May 4th we were at about 5600. So we have seen increased utilization by highest within our ice facilities that we've got under contract with them.
To your second question, I think probably going to be some discussion of potentially down the road on kind of as they see kind of emerging trends on the south of border, especially as mentioned earlier they rolled back type of title of 42.
They may be look at okay. We've got capacity in this location versus location do we want reallocate kind of where that capacity is but to be honest with you. That's a pretty common practice regardless of.
The administration, we've seen over the last probably 10 15 years of things change in priorities change and needs change I should say, especially on the southwest border. They may ask us to help them adjust maybe capacity a little bit within our system in certain sort of facility. So thats, a pretty common practice and I wouldn't be surprised we have some of that coming coming this year going into next year, but.
Anything you'd add to that Dave and the messaging.
Thanks for that and just.
Yes, I noticed.
You called out the line negotiating with.
Montana, and Ohio for taking on some of the excess capacity you may have if the U S. Marshals service does leave certain facility can.
Can you remind us I know one of the federal side. The contracts are our I believe mostly at will so to speak where they can cancel them pretty much anytime is that also true under state contracts that the state can cancel them.
Whenever they desire or is there is a difference between the two.
Yes. It is very consistent good question, but yes. They are very consistent those provisions of those kind of terms between the federal contracts the contracts yet of the key differences really between the two is typically the term, but a lot of the provisions in rights enjoyed by either of the government or us are pretty pretty similar.
Okay, and then one last one for me and I'll get back in line so on the the.
The litigation expense.
You said roughly $52 million do you have any.
The insurance coverage for any of that.
Yes, Joe in that number that we reported in the financials is net of the remaining share of insurance that was would be applicable for that case.
Okay. Thank you I'll get back in queue.
Thanks, Joe Thanks, Joe.
Our next.
<unk> comes from Ben Briggs Stone exponential.
Hey, guys. Thank you for taking the questions. So kind of circling back to the U S Marshals service and the contract day.
They have stated that they will not be renewing and just use an example.
Strange Correctional Center Contra.
Contract that expires at the end of June the you expect the state of Montana and takeover can you just talk about.
What this transition exactly as you kind of look like and what if any material costs will be associated with it when it does happen.
Yes. Good question. This is Damon and thank you for that.
So.
Basically what would happen.
And that situation would be the more service you can have for less than 100 beds at our processing of the the vast majority is hold but our house of housing Montana Department of correction inmates and so the the thought would be is that.
The Marshalls with transition of population out actually to a local facility or two.
And then that population that's at the low facility of two that's held by the <unk> actually would go to crossroads. So almost say almost of swap it won't be exactly that way, but it's probably the best way of describing it as kind of a swap of populations from accounting facility to our facility with the federal population of DSC population.
The incremental cost will be a little bit of cost I'm sure with transportation and probably some.
The transitions that will help with the Marshal service and the department of corrections, but capex wise or San from wise, probably nothing nothing material, but anything you'd add to the day I think in the case of Montana, the contracts aligned pretty closely with the exploration now that it's been the marshals contracts for an extended I think it's through June.
Our new contract year begins for Montana July one so.
We're able to transition smoothly there'll be minimal disruption at that facility again, it's less than 100 detainees for the U S. Marshals at that facility, so not that big of an exercise to move the detainees out in new new Montana inmates in if that's the direction. We go northeast, Ohio is a little bit larger so we.
Had a lot of over 850 say, Ohio inmates there in.
At one point, we were less than 800.
Marshals detainees, so that's the bigger exercise and a longer transition period.
So I would expect a little bit of disruption there towards the middle of the year as the transition the use.
Marshals out and and hopefully, Ohio backfill in that space, but again, no don't think no we would not have any capex or any other.
Capital costs associated with either of those two transitions.
Alright, great. Thanks very much.
It's going to be only one for me I appreciate the time guys.
Thank you Sir.
Our next question comes from Kurt Ludtke Imperial capital.
Yeah.
Hello, everyone can you hear me.
Yes, good morning, Kurt.
Good morning.
Thank you mentioned that there may be some changes in the way the family Center will be used going forward can you.
The elaborate on that and what what the financial impact maybe.
Yes, good question.
So the the administration you may have seen kind of the more globally of reported they really are trying to expedite the the time in custody or at the time of detention for populations you're hearing this value for the kind of unaccompanied minors, but I think they were talking about generally true about families in adult males and females and.
So what we're doing at South, Texas, which historically.
Had pretty short time.
In custody anyway, usually two or three weeks.
Looking to try to shorten it to about two or three day. So it's up about 72 hours and so.
End of <unk>.
Perspective from an operational perspective, I should say what that means is obviously a lot more folks coming in and out the facility.
Most of our faster so it's probably going to we are.
Reconfigured or I should say in the space around.
Intake.
Helping support.
The medical provider, there, which is actually the government because the.
Obviously theyre going to have to do a lot more screening much more quickly populations going into the facility, especially with the with COVID-19 and so little bit of the capex around those type of adjustments within the physical plant and then we are tweaking staff appropriately to just because again, we just need to be able to scale up.
And help with turnarounds of the Isa families, but I don't know if anything you would add to that Dave on the revenue side of the fixed monthly payments of there'll be no impact on topline there.
Oh, Okay great.
On Alabama.
Mentioned.
That.
The number of beds won't increase.
And I think I read somewhere.
11 of the older.
Facility that will close when the new the three new facilities are opened.
Do you know.
How many of the 11 will close when.
The two facilities Youre building are open.
Yeah. Good question I think Alabama has given themselves a little flexibility on that that that question specifically.
They've they've indicated that just over half of their currently operating facilities would be closed with the with the new facilities, but the timing and the order probably still to be determined. So that's probably a decision that doesn't have to be made now and it's probably a year or two out but I don't have anything you would add to the GAAP Brian.
Exactly right the two three year construction time line.
They've got plenty of time to make those decisions and I don't know that they've actually definitively made them yet. So we don't know, but youre right. There will be no incremental bed capacity in the state by constructing the two that we're going to construct and then the third that they have on the docket as well so.
It would just be replacement capacity, maybe shuttering some of the older outdated facilities.
Okay, and then presumably the the people that work at those facilities that are closing.
Now of an opportunity to work at the new facilities.
Yes, I think that for the most part that was a very conscious thought and where the new facilities are going to be located on proximity so that the.
They could transfer to the new facilities from the old ones. Okay. Do you know how much of the state's saves by closing those old facility.
Yeah.
I've heard numbers in the.
Upper $70 million on an annual basis in total expense savings by eliminating the repairs.
The inefficiency from having disparate or facility spread out you've got 11 or more of it could be more than 11 that you are consolidating into three facility. So you gain a lot of efficiencies.
From a staffing because you don't you've got everything concentrated in one place so.
The staffing the the maintenance and on all of the.
For the operational.
Spence savings I believe it's in the upper $70 million range.
Okay.
Kent can you elaborate on on how.
The new facilities would improve quality of life for inmates.
Oh gosh.
Dramatically.
Give you I guess of couple of visuals.
Mine visuals I mean, you think about.
Some old facility they have got there.
Some of them are up to a 100 years old and so if you've ever.
<unk> done a tour of an old facility like Alpha trials of about that I mean, it's just the the design and the quality of that construction in the late 18 hundreds early 19, hundreds I mean just very.
Core line of sight.
Lot of the facility build out time, not capable of having air conditioning or.
Modern HVAC systems, even if you try to retrofit.
Smaller sales.
The smaller program space I mean program.
Sorry to say programming was not a big priority when facilities were built during that period of time in the country's history. So.
These new facility, it's going to be big Theyre going to have.
Sales and day rooms and <unk>.
Hallways and service areas that are a lot bigger obviously going to have air conditioning and going to have your modern HVAC systems, which is.
From a comfort perspective, thats extremely important but even more so now in this environment, where <unk> had this pandemic I mean, just imagine the hunter your old prison with the pandemic, it's very hard to segregate in quarantine and deal with with the virus like we've had with COVID-19, this path past year.
Additionally, the.
Concerted effort on more program space more medical space all of the key kind of knowledge of service, but programs that help expand academic and vocational offerings on the I can keep going on and on but it'll be especially for.
The inmates, but also the staff I mean, it just won't be a dramatic improvement in the quality of life for inmates, but also the kind of safe and.
Secure kind of feel I think the staff will fill the will be dramatic, but you add to that day I think you.
Hit most of them.
Of the mental health. So there is the first facility that we're constructing we'll have a mental health unit day.
Indicated for mental health needs of that will that will be able to help some of the inventory in the system as well so.
Non natural lighting I think is the other one that you Didnt mentioned, Damon, but everything else, yes, the <unk>.
Work program of space more space in general.
And that does.
Thats focused in on the inmates, but the staff with the air conditioning is a big deal in Alabama.
I think that would make it easier for them to recruit and retain Correctional staff.
Kudos the I'll, just say listen to your question, but I'll, just say kudos to Alabama, the governor of the department of Corrections I mean, they have.
Really felt strongly and as you know they've taken a lot of hits unfairly and inappropriate late here in the last year or two but to be kind of strong advocate to say hey, we're going to do better in the state we're going to improve the conditions for the people that are entrusted in our care help them have a setting that has no of safe and secure but again.
All of them to the appropriate access medical mental health the programs, but also for the people that put the uniforms every day and go through those front gates. That's the place that they feel proud to work at that they feel safe.
Sure.
And it can be very effective in their mission and not have to worry about some of the challenges of physical plant. That's been 100 years old creates.
Got it well I appreciate it thank you.
Thank you.
Our next question comes from Kenneth Williamson J P. Morgan.
Yes.
Hey, guys. Thanks for taking my call.
I don't know if I missed this earlier, but when you were talking about the refinancings during the quarter, but has there been any progress made in discussions to extend the revolver.
That would be next on the list. So we took care of the 2022 maturities. So we had enough cash on hand and resources through the revolver to repay the 'twenty 'twenty two notes when they were scheduled to mature so.
The raising $450 million in redeeming all of those and in fact redeeming $149 million of the 2023 notes really puts us in a much better position to refinance the of our.
Extend the maturity on the revolving credit facility, we have less need for it certainly because we pushed out maturities.
Are in really good position to meet the the next maturity on the non non bank credit facility maturity would be the $200 million of.
Senior notes in 2023 so.
That is next on the list we'll evaluate later this year certainly no late of the next year.
What the appetite is for the banks with the terms look like so we've already begun those conversations with banks, we've mentioned before we've had conversation with banks not in the credit facility.
Try to garner some interest and gauge their interest in coming into the facility.
And I think we've got some some of I think we're optimistic on on what we can do there we've mentioned before the $1 billion credit facility, we do not need of $1 billion credit facility, we don't need half of that size.
Well.
We'll pay a certain amount for the additional liquidity, but theres the size that we can operate that's very small and then there's.
Kind of kind of want to have or there is a difference we want to have a need to have so that is next on the the financing agenda.
Okay Fair enough and then for the Alabama facility.
Do you have a sense for when you might be able to.
Complete the financing aspect of that transaction.
The conversations advanced any since the since last quarter.
Yes, so we were getting ready to price.
A few weeks ago.
And so we're kind of taking a reset kind of upped.
The legal documents.
Change as I can.
Conduit issuer.
Yeah.
There is a lawsuit right now in the state we will see what impact that has if any on the timing.
But I would expect.
Later this quarter, we'll be able to take it back out to market, but that's not yet been definitively determined.
Okay. The.
<unk> does that.
Of course, they think are subject to that lawsuit or or is that between the state and.
It's probably both.
Similarly for the state I think the argument was that the transaction of the leases werent structured in accordance with Alabama law the.
Two entities that are the lessors have been named in those lawsuits.
So, yes, I guess for the short answer to your question.
Got it okay alright.
Alright, thank you.
Thank you. Thank you.
I would now like to turn the call back over to management for closing remarks.
Thank you Travis and thank you everyone for your interest in core civic and joining our call today as a reminder to our shareholders next week as our annual shareholder meeting once again. This year, we are hosting the meeting virtually the virtual format was successful last year and we have made enhancements to <unk>.
Prove the experience for all participants and for interested parties, who cannot participate in the live event.
Once again shareholders will have an opportunity to ask questions about the company. So we encourage your participation.
You again for joining us today.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.