Q4 2021 CoreCivic Inc Earnings Call
Good morning, My name is Anita and I will be your conference operator.
A reminder, this call is being recorded.
At this time I'd like to welcome you to of course, the VIX fourth quarter 2021 earnings Conference call.
All lines have been placed on mute to avoid any background noise.
The speaker's remarks, there will be a question and answer session.
If he would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If you would like to withdraw your question just to start and then the two thank you.
I would now like to turn the call over to Kemet on wholesale of course, the VIX managing director of Investor Relations. Mr. Hopewell, you may begin your conference.
Thanks, Anita 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, we will focus on our financial results for the fourth quarter, our 2022 full year financial guidance and provide you with other 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 Litigation Reform Act, our actual results or trends may differ materially as a result of a variety of factors, including those identified in our fourth quarter 2021 earnings.
The release issued after market yesterday and in our Securities and Exchange Commission 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 company undertakes no obligation to revise or update such statements in the future.
On this call we will also discuss certain non-GAAP measures.
Reconciliation of the most comparable GAAP measurements is provided in our corresponding earnings release and included in the supplemental financial data on the investors page of our website core civic Dot com.
With that it's my pleasure to turn the call over to our President and CEO Damon <unk>.
Thank you Cameron good morning, everyone and thank you for joining us today for our fourth quarter 2021 earnings Conference call.
Going to our agenda for the call. We will provide you with a breakdown of our fourth quarter financial performance recent developments in our ongoing response to COVID-19 disc.
Discuss business development opportunities and the latest developments with our government partners.
We will also provide you with an update on our capital allocation strategy and I will discuss our full year 2022 financial guidance issued in our press release yesterday.
I will then turn the call over to our CFO , Dave Garfinkle, who will review our financial results and our 2022 guidance in greater detail.
And we will update you on our ongoing efforts to enhance our capital structure.
In the fourth quarter of 2021, we generated revenue of $472 1 million, which was consistent with the prior year quarter. Despite the sale of 47 non core real estate assets within our property segment and multiple transactions between December of 2020 and <unk>.
<unk> of 2021, and our decision to exit two managed only contracts with local governments and the state of Tennessee during the fourth quarter of 2020.
Collectively the assets, we sold and managed only contracts, we exited accounted for revenue of more than $15 million in the prior year quarter.
For the full year of 2021, we generated normalized funds from operations or <unk> of $225 5 million or $1 85 per share, which was a decline from the $2 25 per share we generated in 2020.
Now the year over year decline was driven by our election to become a taxable C Corp effective January one 2021.
For illustrative purposes, we have presented the calculation of normalized <unk> for the each quarter of 2020 pro forma to reflect the estimated taxes had we been a C Corp. In 2020, and our quarterly supplemental financial information package on our website.
2020 pro forma normalized <unk> was $228 8 million or $1 89 per share. So our financial performance in 2021 was very consistent with the prior year. Despite executing several transactions that strengthened our balance sheet, but negatively impacted <unk>.
As Dave will review in further detail.
Yeah.
In early January of this year, we were awarded a new contract with the state of Arizona to care for up to 2706 adult male residents at our La Palma Correctional Center for the Arizona Department of Corrections rehabilitation and reentry.
We were deeply honored to be selected by the state following a public competitive procurement process.
The new contract is the initial term of five years and includes an option to extend the term for an additional five years.
This new contract represents the largest contract awarded to the private sector by any state Corrections agency in over a decade, which is expected to generate approximately $75 million to $85 million in annualized revenue upon reaching full utilization.
Well the Paloma facility currently supports the mission of immigration and customs enforcement or ice our largest federal customer by carrying for approximate 800 detainees.
As a result, we are currently working with both the Arizona Department of corrections rehabilitation and reentry and ice on a plan for transitioning resident populations from ice detainees to residents from the state of Arizona.
While the plans are not yet finalized we currently expect the transition to begin late in the first quarter or early in the second quarter of 2022.
And completion of the transition taking place in the fourth quarter of 2022.
We are working closely with ice to facilitate a smooth transition of their detainee populations to other facilities, including facilities, where we have available capacity within the region.
We are pleased to be in a position to once again provide you with forward looking financial guidance for 2022.
Our full year 2022 financial guidance forecast normalized <unk> per share in the range of $1 55 to $1 70, and adjusted funds from operations or <unk> per share in the range of $1 48 to $1 63.
Our guidance reflects a continuation of utilization restrictions placed on our facilities by many of our government partners because of the ongoing COVID-19 pandemic.
We would expect to generate positive earnings growth. When COVID-19 restrictions are relieved and capacity utilization is allowed to return to pre pandemic levels, but we currently cannot forecast the timing of these changes.
We are also forecasting higher operating expenses due to above average wage inflation, we are experiencing across the country.
In 2021, we invest as the largest wage increases the company has given US a course of a team in over a decade and we are forecasting additional meaningful investments in 2022.
Our guidance also reflects the transition of resident populations at our 3060 bed La Palma Correctional Center as a result of the new contract with the state of Arizona, which I discussed earlier.
The transition is expected to take place over the majority of 2022, beginning late in the first quarter or early in the second quarter. So.
So for much of the year, we will have disruptions of earnings and cash flows until utilization of the facility by the state of Arizona reach stabilization.
The La Palma facility is the second largest property in our portfolio.
These transaction related expenses in 2022 are a meaningful headwind compared to 2021.
Dave will provide greater details about our fourth quarter financial results as well as some of the more significant assumptions included in our full year 2022 financial guidance.
Following the remainder of my comments.
We will start our operational and business development discussion with a brief update on the impact of COVID-19, pandemic and our ongoing response.
We continue to see criminal justice related populations meaningfully below their pre pandemic levels.
The declines have been mostly been due to a reduction in new intakes rather than early releases.
Governments have acted faster to transfer certain residents assigned to reentry facilities to nonresidential statuses, such as furloughs home confinement or early releases to create additional space for enhanced social distancing within facilities.
The trends have not yet begun to meaningfully reverse.
However, during the fourth quarter, we did see the continuation of recent trends of many of our state customers increasing their utilization of our safety facilities, which contributed to a modest increase in utilization compared to the prior year quarter.
Our safety segment facility utilization was 73, 8% in the quarter, an increase of 110 basis points compared with the prior year quarter.
Our community segment was relatively consistent with the prior year period.
As Cort room operations gradually reopen and operations normalize we anticipate increased need and utilization to continue in both segments.
This trend is also motivated us to raise staffing levels in anticipation of possible higher capacity utilization requirements needed by our partners later this year going into 2023.
Pertaining directly to COVID-19, the rate of positive cases around the nation rose dramatically during the fourth quarter due to their merchant emergence of the more transmissible omicron variance.
We.
<unk> an increase in the number of positive cases amongst staff and residents across many of our facilities during the fourth quarter, but the impact has been less significant to our operations than in the first year of the pandemic.
We believe the rate of vaccinations of our facilities staff and resident populations and a well established safety protocols. We put in place has certainly helped mitigate the impact of the omicron variance.
However, positive cases around the country remain high and therefore, the timeline for normalization of facility operations to remove various protocols that were enacted in response to the pandemic continued to be extended.
Leading health experts have indicated the widespread rapid transmission of the omicron variant could lead to the end of the pandemic, but until that occurs we remain vigilant in our efforts to mitigate the transmission of COVID-19 across our facility operations.
I should say, though the significant decline in new cases nationally over the past few weeks is so very encouraging to us.
Finally, the most substantial challenge in todays environment continues to be attracting and retaining qualified employees.
The nation has experienced a meaningful reduction in workforce over the last two years and it remains unclear how quickly workforce participation will improve once the pandemic reaches its in.
However, we have been nimble in our response to the staffing challenges.
We have responded to the challenge by aggressively developing new and creative hiring and retention strategies.
And as a natural employer in the private sector. We have a lot of tools, we are deploying in this environment.
These include increasing wages, providing housing solutions signed auto retention bonuses and multiple other incentives and programs that we can increase engagement a sense of shared mission and overall job satisfaction.
We have worked with many states to increase starting wages for our correctional officers by well over double digit percentages.
It is important to note that our government partners have been very collaborative in this effort by supporting our request for pretty increases that reflect above average wage inflation in the current market.
In 2021, our average per diem increased by approximately six 1% more than double our historical averages as a direct response to the wage inflation we are experiencing.
The support of our government partners allowed us as a company provides the largest wage increases in over a decade.
And we are committed to utilizing all necessary resources to address this challenge.
We expect wage inflation to remain elevated in 2022, and we are working closely with our government partners to be able to continue to invest in our employees and facility operations at high inflation persists.
I'll move next to discuss some recent federal and state level business development updates.
Beginning first with our federal customers within Department of Justice, The Federal Bureau of prisons, or PLP, and United States Marshal service or U S. MFS.
<unk> experienced significant declines in their inmate populations in the last decade, and we have significantly diversified our business to other government partners.
Our last remaining prison contract with <unk> as our Mcrae facility in Georgia, which expires in November of 2022, representing less than 2% of our total revenue.
We anticipate that contract will not be renewed and have already begun marketing the facility as a potential solution to other government partners.
Following the anticipated non renewal revenue from the <unk> will come exclusively from multiple smaller residential reentry facilities, providing services through our community segment.
As for the U S. M S. Their overall prisoner populations have remained relatively consistent in recent years, so their need for capacity around the country remains unchanged.
The U S. MFS continues to navigate the impact of the executive order signed by President Biden and issued in January of 2021 that directly to the attorney general to not renew department of Justice contracts directly with privately operated criminal detention facilities.
Last year, we had four direct contracts with the U S. MFS that were set to expire.
In the first half of 2021, we were able to enter into new contractual arrangements for our northeast, Ohio Correctional Center, and Crossroads Correctional Centre in Montana to remain operational and serve various government partners, where both facilities previously had direct contracts with the Marshalls.
In the second half of 2021, our contracts with U S. MFS at our 600 bed West, Tennessee detention facility and at <unk> 33 bed level of detention center expired in federal detainee populations were transferred to alternative locations.
Much of the staff from both West, Tennessee detention facility and lab work detention center have been redeployed to other facilities we operate.
And could return should we be successful in securing opportunities at these facilities with other government partners.
The impact of these contract renewals are fully reflected in our full year 2022 financial guidance.
In 2020, excuse me 2022, we have no direct contracts with U M. U S. MFS that are set for exploration and now have only two total remaining direct contracts with the U S. MFS that are set to expire in later years.
We continue to work closely with the U S. MFS to ensure their capacity needs are being met in order to support their critical public safety mission.
Yeah.
Immigration and customs enforcement or ice is our third federal partner and is within the department of Homeland Security.
They continued to be the governor partner with the most significant impact from COVID-19 on their capacity utilization.
Nationwide ice detainee populations remain well below the historical levels throughout 2021.
During the fourth quarter of 2021 ice detainee populations remained relatively flat quarter over quarter.
As a result, our facility utilization levels continue to remain materially below historical averages.
Current utilization levels are also well below the number of beds funded through the annual budget appropriation process.
At the end of 2021 ice detained approximately 21000 individuals nationwide while they are funded for approximately 34000 detainees.
The largest driver of their lower utilization levels has been the enactment of title 42 since March of 2020, which prevents nearly all asylum claims at the country's borders and ports of entry in order to prevent the spread of COVID-19.
Instead title 42 allows for individuals apprehended southwest border to immediately be expelled to Mexico or the individuals' country of origin.
Administrative changes in core decisions have occurred since the original enactment of title 42, which have enabled unaccompanied minors, many family Union units and some individual adults to remain to enter and remain in the United States. While the immigration cases are adjudicated.
As I discussed last quarter. These changes have essentially no impact on the demand for traditional detention services by ice because we do not housing unaccompanied minors in any of our facilities and our one facility that had a family mission the South Texas family residential center transition to an adult fee.
Male mission in the fourth quarter of 2021.
We have historically provided ice detention capacity for adult populations and it is unclear when title 42 will no longer be applied to all adults.
Certain factors such as criminal histories, our previous deportations may compel the government to keep individuals' in custody instead of applying title 42.
These situations appear to be the primary driver of the increase in utilization we have experienced in 2021.
However, the elevated rate of apprehensions, along the southwest border that have persisted for the last year have created an increased demand for nonresidential alternatives to detention or atvs.
In fact legacy Ated's program for ice, which is called the intensive supervision appearance program, commonly referred to as ice App has doubled the number of active participants in the last year.
This is quite significant because at the beginning of 2021 <unk> was already the largest nonresidential electronic monitoring contract in the world.
The rapid increase in utilization of <unk> has a potential to create new market opportunities in areas, where we have the core competency to compete and win new business.
In fact, just this last month.
<unk> issued a formal procurement for a new case management Ated program, specifically for young adults.
The program is intended to provide monitoring services for participating non dangerous low flight risks young adults ages 18 to 19 within a framework that promotes compliance with immigration obligations until removal or other resolution of their immigration cases.
This program is designed to assist young adults, who age out of the custody of the office of refugee resettlement or or are the agency that is responsible for carrying for unaccompanied minors apprehended along our southwest border until they reach eight page 18.
We are actively evaluating this procurement details and we know that these case management services are consistent with the type of case management services, we can provide in our community segment.
Additionally, whenever title 42 is rescinded we believe there will be a significant surge in the need for detention capacity.
Our facilities support is by providing safe appropriate housing and care for individuals as the agency works through the various processes associated with the individuals' immigration case deportation order or initial processing.
While we have no involvement or influence on anyone's immigration related case. We know these matters are often quite complex and typically they take days or weeks to be adjudicated.
This results in a need for various solutions and a diverse portfolio of real estate across the country to provide housing and care for individuals while they are ice custody.
Our facility serve as a critical component of the real estate infrastructure needed by ice to help them carry out their mission.
Moving now to state level developments and opportunities as I mentioned earlier, we are deeply honored to have been selected as part of the competitive procurement process for our new 2006 bed contract with the state of Arizona.
I mentioned this contract once again in order to highlight that the opportunity was not a result of population growth.
But instead was a result of outdated and inefficient government owned and correctional assets that have far exceeded their useful lives.
Arizona will be closing the facility originally constructed in the early 19, hundreds and moving into our La Palma facility, which is only 14 years old.
We see the same situation across the country and we expect more and more correctional systems to begin seeing the wisdom of updating their correctional infrastructure to improve safety for staff and residents increased access to life changing rehabilitative programming and improve health outcomes with modern.
<unk>.
Recently, the governor of Georgia release his budget proposal for the next fiscal year, which includes a plan for closing multiple outdated state owned facilities.
State budgets across the country are strong with many states forecasting significant budget surpluses.
These robust market conditions could push dates to make the bold choices necessary to address long standing issues within their corrections infrastructure and we believe we can help deliver many of those solutions.
These opportunities come could come to market through a formal procurement process such as the potential opportunity in Hawaii to replace the state's largest jail facility.
In prior quarters I have highlighted that we anticipate a formal procurement for this project to be issued this year.
Other opportunities could come through sole source negotiations.
We remain actively engaged with states across the country to ensure that they are educated on the solutions we can provide.
I'll close out my comments by briefly provide an update on our capital allocation strategy.
We remain committed to reaching and maintaining a total leverage ratio or net net debt to adjusted EBITDA of two in Q.
225 times to 275 times.
Using a trailing 12 months ended December 31, 2021, our total leverage ratio was two nine times.
As we detailed last quarter, we expect the leverage to slightly increase during the fourth quarter due primarily to the timing of semi annual interest payment on our debt.
However, we continue to generate positive cash flows and expect leverage to continue to decline throughout 2022.
Our credit facility is scheduled to expire in April of 2023. So we will soon be looking to extend its maturity.
We currently have no drawn balance on our revolving credit facility and only $170 million outstanding on our term loan a so we will significantly reduce the current $1 billion size of the existing credit facility.
As a C corp, we no longer need a credibility of the current size and we believe our net our debt reduction strategy over the last 18 months has positioned the company well to enter into a new credit facility cost effectively.
We continue to believe our capital allocation strategy is the most prudent approach for positioning the company to generate long term value through a stable capital structure and continue to cost effectively meet the needs of our government customers with less reliance on outside sources of capital.
However, within the next quarter or two we expect to be in a position to shift our capital allocation strategy to one that once again to return a portion of our cash flows to our shareholders, while continuing to reduce leverage.
The valuation of our equity remains well below its fair value and we feel strongly that once we achieve our debt reduction goals, we could create substantial value for our shareholders by repurchasing shares.
One final comment.
I would like to express my deep appreciation and grateful for our core civic team.
Their passion and heroic efforts supporting the individuals in our care. During this pandemic has been inspiring to see and for that I'll.
Remain thankful and honored to work alongside them.
I, especially want to thank our board of directors and government partners for their support and allowing us to make historic compensation investments that we have made in our team. These past few years.
I'll now turn the call over to Dave to provide a more detailed look at our financial results in the fourth quarter of 2021 discuss in detail our newly released full year 2022 financial guidance and provide additional financial updates Dave.
Thank you Damon and good morning, everyone in the fourth quarter of 2021, we reported net income of 23 per share for 2007 of adjusted earnings per share 48 of normalized <unk> per share and <unk> per share of <unk> 41.
Adjusted or normalized per share amounts exclude $4 1 million of noncash expenses for the write off of costs associated with the Paydown of our term loan b and an impairment charge of $2 million to write down an asset held for sale to its fair value less cost to sell.
Financial results in 2021 reflect a higher income tax provision under our new corporate tax structure compared with 2020, when we operated as a REIT.
For illustration purposes in the supplemental disclosure report posted on our website. We present the calculations of adjusted net income normalized funds from operations and <unk> for each quarter.
Full year of 2020 on a pro forma basis to reflect such metrics applying an estimated effective tax rate of 27, 5%.
Adjusted net income per share in the fourth quarter of 2021 of 27.
<unk> to 30, <unk> on a pro forma basis applying this estimated effect effective tax rate for the fourth quarter of 2020.
While normalized <unk> per share 48 compares to <unk> 53.
On a pro forma basis for the prior year quarter, and <unk> <unk> per share of <unk> 41.
<unk> 48 on a pro forma basis for the prior year quarter.
The decline in adjusted per share amounts was primarily the result of property sales and refinancing transactions, both of which strengthened our balance sheet and an increase in G&A expenses.
Facility level, EBITDA increased $6 1 million to $139 2 million in the fourth quarter of 2021 from $133 1 million in the fourth quarter of 2020, excluding $2 $8 million of COVID-19 expenses the.
The growth in facility EBITDA was achieved despite the sale of 47 non core assets since the end of the third quarter of 2020.
Of the 47 properties that we sold accounted for $7 4 million of facility EBITDA in the prior year quarter.
Therefore, excluding these sales facility EBITDA increased $13 5 million or 11% from the prior year quarter, demonstrating strong core operating results.
The decrease in consolidated adjusted EBITDA to $103 2 million in the fourth quarter of 2021 from $108 7 million in the prior quarter was impacted by an increase in G&A expenses the.
The increase in G&A expenses was mostly attributable to lower incentive compensation in 2020 due to the onset of COVID-19. After metrics had been established under our incentive compensation plan, while financial performance in 2021 exceeded targets.
And as mentioned our per share results in the fourth quarter of 2021 were also negatively affected by the property sales and numerous refinancing transactions that were dilutive for the quarter as we paid down low cost short term variable rate bank debt with the proceeds from the property sales and issued new unsecured senior notes that have inter.
Rates higher than the debt we repaid.
The property sales and refinancing transactions to strengthen the balance sheet by lowering our overall debt levels and extending our weighted average debt maturities, but resulted in a reduction in per share results by approximately <unk>.
From the prior year quarter.
Occupancy in our safety and community facilities continues to reflect the impact of COVID-19, but increased to 72, 5% in the fourth quarter of 2021 from 71, 6% in the prior year quarter and increased from 72, 1% in the third quarter of 2021.
The impact of COVID-19 began in the second quarter of 2020 as populations, primarily ice declined sequentially. Throughout 2020 is the southwest border was effectively closed to asylum seekers and adults attempting to cross the southern border without proper documentation or authority in an effort to prevent the spread of COVID-19.
This policy known as title 42 has continued through today and ice detainee populations, therefore remained well below historical levels.
Pre pandemic, our occupancy was 81, 9% translating into a decrease in our average daily population by about 7000 residents.
COVID-19 has placed restrictions on our bed utilization that is expected to result in enhanced earnings power when relieved.
Operating margins were 28, 4% in the fourth quarter of 2021, compared with 25, 7% in the prior year quarter and 27, 2% in the third quarter of 2021.
The increase in our operating margin percentages, primarily reflects the continuation of lower cost trends impacted by the pandemic related capacity and operating restrictions further staffing in this challenging labor market has been increasingly difficult and we have provided annual as well as additional off cycle wage increases and special incentives to help address dipped.
Staffing levels.
Our government partners are experiencing the same staffing challenges, which has contributed to some of the per diem increases we have been able to achieve.
Turning to the balance sheet as of December 31, we had $300 million of cash on hand, which was after the repayment during the fourth quarter of 2021 of $90 million of the outstanding balance on our term loan B, which matures in 2020 for reducing its outstanding balance to $128 8 million as of December 31.
Yes.
Including the repayments of the mortgage notes associated with the aforementioned sale of non core assets. During 2021, we reduced our total net debt balance by $444 million and our net recourse debt balance by $276 million.
The leverage was up slightly from the third quarter of 2021 as expected for changes in working capital that we discussed on our previous earnings call as of December 31 leverage measured by net debt to EBITDA was two nine times down from three seven times at the end of last year.
During 2022, we expect to be sustainably within our targeted leverage range of two in a quarter to two and three quarters times positioning us to return capital to shareholders returning capital to shareholders has been in our capital allocation plan following our priority of reducing debt since we made our announcement in August 2020.
To revoke our REIT election in fact, it was part of the rationale for revoking our REIT election.
Since that announcement, we have made great strides in enhancing our capital structure by revoking, a REIT election, selling non core assets, thereby accelerating our debt reduction accessing the debt capital markets extending debt maturities and positioning the balance sheet to enable us to take advantage of growth opportunities and return capital to shareholders.
These steps have also enabled us to reduce our reliance on our revolving credit facility, which has a borrowing capacity of $800 million, we fully repaid the $112 million outstanding balance on our revolving credit facility during the third quarter, which has remained undrawn.
Yes.
Steven the credit facility.
<unk> matures in April 2023, and we currently expect to obtain a new facility in the near term, reducing the capacity and extending the maturity, enabling us to continue operating with flexibility and cost efficiency.
Moving lastly to a discussion of our 2022 financial guidance for the full year 2022, we expect to generate EPS of <unk> 72 to <unk> 86 per share <unk>.
<unk> per share of $1 55 to $1 70, and <unk> per share of $1 48 to $1 63.
These ranges are a bit wider than we have historically provided because of the uncertain environment in which all businesses continue to operate such as the tight labor market and higher inflation as well as uncertainties that are unique to core civic such as the transition of populations at our second largest facility immigration policies and government funding priorities.
And as mentioned, we continue to operate under Covid related restrictions on bed utilization implemented by many of our government partners, which will eventually be relieved however, the timing of when these restrictions are lifted is uncertain and we are not only retaining staff levels at certain facilities in anticipation of these restrictions being lifted but.
Spec to increase staffing levels at other facilities in order to prepare for an increase in demand for our bed capacity.
Likewise, it is also difficult to predict when titled 42 will be lifted.
The button administration, just extended titled 42, and it continues to be evaluated every 60 days.
We expect the demand for detention housing to increase whenever titled 42 is lifted.
Our guidance contemplates a persistent challenging labor market, where we expect to continue to provide wage increases in various types of incentives to attract and retain staffing levels, which were depressed during 2021 because of the occupancy restrictions and labor shortages in many of our markets.
Our government partners have been supportive of per diem increases above historic averages in response to the wage inflation, we are experiencing and we will continue to work closely with our government partners to provide ongoing support to our employees and facility operations in this inflationary environment.
But when combined with the aforementioned higher staffing levels, we expect operating margin percentages to trend toward those we experienced pre pandemic.
As Damon mentioned, we were extremely pleased to have been awarded a new contract from the state of Arizona to care for up to 2706 inmates at our 3060 bed La Palma Correctional Center in Eloy, Arizona, the second largest facility in our portfolio.
We are currently working with Arizona on a ramp plan that is expected to begin late in the first quarter or early in the second quarter of 2022.
We currently care for 1800 ice detainees at this facility and are simultaneously working with ice to coordinate the transition of their populations to other facilities, including episodes, where we have available capacity within the region.
This transition is a significant undertaking and is expected to result in the disruption of earnings and cash flows for most of the year until the occupancy of inmates from the state of Arizona reaches stabilization not currently expected to occur until the end of the year.
The range of our financial guidance reflects a number of assumptions with respect to this transition.
Our guidance does not contemplate any new management contracts other than the New Arizona Award from Arizona or significant changes in occupancy, which could provide some upside to our guidance. If we are awarded any other new contracts such as those Damon described or if an increase in demand occur sooner than we are forecasting.
Any new federal contracts would likely require longer term funding levels for the federal government approved by Congress, which is difficult to predict if and when that might happen.
Our guidance also reflects the termination of contracts at 11 worth and West, Tennessee facilities as well as at the managed only Marion County jail.
For modeling our quarterly results as a reminder, compared to the fourth quarter Q1 is seasonally weaker because of one fewer day in the quarter and because we incur approximately 75% of our unemployment taxes during the first quarter, resulting in a collective <unk> <unk> per share decline from Q4 to Q1.
The EBITDA guidance in our press release enables you to calculate our estimated annual effective income tax rate of 26% to 30% and provides you with our estimate of total depreciation and interest expense.
We expect 2022 G&A expenses to be comparable to 2021.
During 2022, we expect to incur $63 8 million to $66 3 million of maintenance capital expenditures in line with 2021.
We also expect to incur $12 million to $13 million for facility renovations, including $3 $1 million at La Palma for the new Arizona contract down from $19 $1 million in 2021.
With depressed occupancy levels, we are in a position to significantly grow earnings whenever the impact of COVID-19, subsides without the need to construct new capacity.
I will now turn the call back to the operator Anita to open up the lines for questions.
Anita.
Thank you as a reminder, please press <unk>.
Todd one to ask a question.
We'll take our first question from Joe <unk> with notebook.
Okay.
Thank you good morning, David and David.
Good morning, Jeff Marc Joe.
So I wanted to start maybe here.
With Arizona and trying to get into a little more color here.
First on the ice populations that you're moving your key.
Moving to other facilities, including one where you have.
Excess space right now.
We anticipate all of the.
Population to move into your facilities or is there an option for ice to move some of those in Q.
Other non core civic facility.
In Q and you talked about the disruption of earnings and cash flow.
<unk> four transfer the ice out in Arizona.
And I know it's in your guidance can you get any type of quantity quantity quantification to what that disruption of earnings and cash flow is going to be.
Joe Thank you for that I'll tackle the first part of your question and I'll, let Dave tackle the second part of your question.
So for the first part we started conversations with ice well in advance of the due date is the proposal to the Arizona. So we.
As you know we've got a 40 year relationship with eyes, we're always talking to them about kind of their emerging or growing needs in certain parts of the country. So we well in advance before we put pen to paper on our proposal, we had a conversation with ice in with that.
To say, if we did submit a proposal and we were successful on la Palma being the place performances new contract.
Youll give them ideas on.
Alternate capacity that we would have available within our system, notably within the state of the state of Arizona. So we can't say definitively right now because as we said earlier, it's still a work in progress on kind of the ramp.
But clearly we've got capacity in Illinois as you know we've got the Eloy to tip Center, just drowned down the street from our polymer and then we've also got capacity nor in Florence, Arizona, but I think also.
Thank you well aware ice has got.
One facility.
<unk> centre influence too and I'm sure that will be part of the equation as I think about once we finalize the ramp down of population La Palma think about where we've got capacity available, but also maybe some capacity it's got within their with their own facilities.
More of kind of stay tuned we're still in kind of active discussions with with ice on that but as always we've been very transparent very collaborative and obviously want to make sure that they can fulfill their mission on the southwest border is primarily worth their needs within the state of Arizona, but Dave I'll, let you tackle the second part there really.
Really difficult Joe to give you an amount because that's one of the probably two to three main reasons. Our guidance range is so wide as you know it's wider than when we previously provided guidance.
The range is thinner and the two main reasons are really la Palma and more will probably have a larger impact would be.
Wage increases and our ability to get per diem adjustments that mitigate those wage increases so I'd hate to provide you with a number just because it is so fluid, particularly because we don't have a ramp plan but.
One additional thing I would say in addition to damon's comments is.
At the La Palma facility. These are very short term transitory detainees. So it's not so much trans transferring the populations from one facility to another it's really changing the flow of intakes in the leases and the whole immigration process from one facility to.
To multiple other facilities and as Damon mentioned, we have capacity in our Eloy facility, which is right down the road. So we'd expect that facility to start increasing the number of intakes that they receive does not require a contract modification that could really just change the processing of the detainees currently at la Palma over to Eloy as well as.
At Central Arizona, where we also have capacity so it's very difficult to estimate the amount because we don't know how many people will ultimately be processed eloy central Arizona and other of our facilities because while it's convenient to have facilities on the southwest border and Thats, where they would be logically process. It's not the ice has the ability.
To transport them fly them to other facilities and we do see intakes at other facilities, even outside of Arizona for people, who are apprehended along the Arizona border. So for all those reasons, it's just too difficult to give you a range for what the impact would be of the whole of Palma, Arizona ice transition.
Okay. Thanks for that.
A little follow up on the higher wages and you've talked I think you mentioned.
Your government partners you saw like a 6%.
Increase.
And the per diem for for covering some of the higher wages.
You guys are experiencing.
How much of the overall.
Wage increase would build type.
Cover is it covering everything.
50%, 75%.
How delayed is that is it more.
We know we're going to get the higher wages covered it's just on a delayed basis. So maybe you can just kind of walk us through how that whole process work.
Absolutely so.
Let me, let me just back up a tad and just a reminder.
The audience.
We've got obviously got just over half of our business with the federal partners another half with our state partners.
As a reminder, on federal partners.
We have we are required by contract to pay wage determinations and those wage generations are set by data from the Bureau of Labor statistics, and so with wage inflation happening and likely will happen during the course of the foreseeable future. If those wages go up we have to buy contract adjust our salaries accordingly.
And with that have a <unk> adjustment feature within our contracts get reimbursed so that so that in that case, it's dollar for dollar.
On the on the state side.
<unk> had really good success and this is probably an obvious point, but the reason I think we've had good success is not only just great relationships. We've got our various state partners around that around the country, but also our state partners owned facilities, where they own and operate their own facilities or dealing with the same challenges from a labor perspective like we are so we're really hand in hand with.
The leadership within the department of corrections in these different jurisdictions around the country and asking for additional funding to raise salaries and so.
Pretty darn good I mean, we've had good success on not only making the case of where we think salaries need to be and again, we're doing that in collaboration with our partner corrections, but also doing it that quickly and then with that get reimbursed fairly quickly, it's not perfect, but but the overlap is.
It's been pretty pretty tight I should say relative to what we wanted to do something versus when we get clarity on the reimbursement so.
And I'll just tell you Joe being with this company 30 years in working with lost eight partners last 20 years that were poor in the relationship and the partnership we've got with our state partners has never been better, especially in this environment. There is great great appreciation and sensitivity to the labor market and understand that we just need to invest more in our employees with a very.
You mentioned they have.
Period, but even more so here in the last 24 months with the pandemic, but anything you would add to that Dave none of that had been more frequent communications. Obviously in some states have even provided temporary stipends that we get reimbursed to provide to our correctional officers as well it's been a few states not across the portfolio but.
The number of unusual adjustments, we're making.
To salaries and a corresponding per diem adjustments.
Some of the temporary till get to get through the fiscal year ended June 30, and then you would expect to incorporate some of those into both the long term wages and a long term per diem adjustment, but it's just been extraordinary.
Adjustments that we've been making and the extraordinary adjustments our partners are providing as well to help us support the staff in our operations.
Okay. Thanks.
Hi.
If you look at you guys kind of touched on a little bit if you look at their monthly ADP.
Are they kind of went up from the pandemic lows.
Low teens.
<unk>.
Kind of backs off here lately as a low 20.
How are you guys.
Ice population has been holding up.
Across your system.
Yes, I think relatively stable, yes, they were very stable, especially if you are comparing Q4 to Q3, they were about flat almost to the to the detainee.
I think that was somewhat impacted bank at the Amazon variant because we started to see an increase in detainee populations earlier in the year and then continuing to Q3, but they kind of leveled off and remained flat in Q4. So.
With data getting better on the number of people infected by the Omicron Werner Covid.
Hopefully that.
Those populations would trend similarly.
Okay.
If I could just switch gears here for a minute if I could get one more question in here.
On the capital allocation I think you mentioned youre trying to get the credit line facility.
Done here shortly and maybe you can give us some kind of.
Timing and maybe just the idea of what kind of size, you're looking at now versus where it was then.
You mentioned share repurchases. When do you think you would go to the board looking for authorization.
For share repurchase.
Probably too early but I'm going to ask you anyway, what kind of size.
Talking about here on the share repurchase authorization that you would see.
Yes.
Let me I'll, let Dave do the first part second I'll do the last part first and that is the buyback. So we've got a board meeting actually come up next week, we've had really good positive conversations with the board.
Really over the last $24 36 months on all of these really important decisions and things that we've executed on from the converted to a C corp to the selling of assets that were noncore to some of the refinancing transactions. We have done this past year. The board has been extremely supportive and along the way off so we've been talking to our major investors to get.
Got to get their feedback and really appreciate their not only their feedback, but really endorsement of the step that we've been taking so.
So we as we said in the prior couple of quarters really the next kind of key to do on the list is the credit facility and and so I'll, let David talk about that in a minute, but I would say once we get passed that milestone again, we've been have active conversations the board who will talk about this again next week, but they agree and again.
Good feedback from investors that let's get the credit facility kind of done get it and get it get it finalized so we've got certainty both on the extension and the and the size and then we can go to the next item on the to do list, which is returning capital shareholders.
Through our share buyback program that Dave I'll, let you tackle the first part yes. Thanks Damian.
Yes, so as we mentioned the total facility size today that $1 billion, we don't need anywhere near that probably a quarter to a third of that size, but I would estimate and I think we'll have that buttoned up within the next few months.
With a maturity in April 'twenty three it becomes current in April 22.
There is zero balance on the revolver today as I mentioned, we paid that off in the third quarter and have not used the revolver have not drawn on it. Since then through today, we have $170 million on the term loan a and we've got $300 million of cash on the balance sheet. So I think we're in really really good position from a debt maturity being able to address.
The maturities and still return capital to shareholders without without needing to draw on our credit facility to any great extent nice to have one just for working capital purposes, and things like that so I would estimate like I said a quarter to a third of its size.
What we should have that buttoned up over the next few months.
Great. Thanks, I'll get back in queue.
Good question.
Thank you Jeff Thank you Joe.
Thank you we'll take our next question from Kirk <unk> with Imperial capital.
Okay.
Good morning, guys.
Good morning, good morning Kirk.
Thank you for the call.
Always very very helpful.
Couple of topics.
A follow up on the guidance and then maybe I'd like to touch on this monitoring.
Opportunity and the Georgia opportunity if I have time.
With respect to the guidance.
You mentioned.
That it does not reflect any new contracts.
Including contracts at West, Tennessee, or 11 worth about hopefully I heard that correctly.
Yes, that's correct yep.
Could you give us I remember it seemed like there was an RFP out for at least one of those facilities and I was just curious if maybe you could.
Give us a little more color as to.
Where those discussion stand.
And.
And then I've got a couple of follow ups on other topics.
Yes, Sir this is Damon so I think youre, referring to west, Tennessee, We did have very productive conversations with a couple of different government partners on that on that facility.
Our sense is and we've had interest from from is probably most notably in our facility.
Our understanding is that they are trying to get some clarity on the rest of the funding for this fiscal year. So as you may know the current federal government funded through February 18th there has been some news reports here in the past week that they are potentially going to do a very short term extension.
Or maybe into early into March and then do a full year funding. So our understanding that its going to be kind of the milestone there'll be looking at not only what their potential needs are going to be based on the funding they get from the budget, but also again as I said earlier title 42 on some of the other kind of policy things that they've put in put in place how that reconciles with.
Kind of their needs this fiscal year going into next fiscal year. So those are the things we're looking at looking at closely.
Kirk you are correct our guidance is conservative with respect to both west, Tennessee and level worth and does not include any new contracts in 2022.
Got it thank you and.
On that topic.
Did the Marshalls.
Enter into contracts to replace.
The capacity that they had at west, Tennessee in Leavenworth or are they still in place.
They are.
They've replaced so as our understanding they looked at either other government entities either at the local level or the Federal Bureau of prisons and Thats been actually been.
What are the things they've put on the table with the enactment of the executive order, even go back to Ohio, and Montana that they were looking at all alternatives and then based on all of the alternatives kind of record.
Prioritize.
What is the most advantageous for their for their needs kind of go forward within those respective district. So it's our understanding that they looked at looked at and utilize local capacity and also capacity within the Federal Bureau of prisons.
Okay got it. Thank you and then you mentioned this new monitoring.
Program.
Does it does is it incremental to I know there are ice already has some monitoring contracts out there is it incremental to those.
Contract or does it cannibalize those contracts.
No. Good question, it's incremental so it's our understanding here with kind of this uniqueness of.
Potentially individuals that were initially unaccompanied minors that were under the authority of another jurisdiction as they reach age 18 or above Theyre looking for a solution for that population. So basically 18 to 19 year old males and.
In different parts of the country. So it would be in addition to not in place of.
Okay excellent and is it too early to tell.
To estimate how big it might be and what what.
If you win it what the capital requirements might be.
It would be so the first part yes. It is too early to say it just came out here with and I think the last 14 days. So we're still kind of assessing both the need and the opportunity and the size.
But the second part at the moment, we don't think theres going to be a big capital requirement still assessing that but that is our kind of read at the moment.
Okay, Great and then lastly, if I can on the on Georgia you mentioned.
The Governor's budget includes some facility closures.
I know the lead time on these these types of things.
Can be can be long, but.
Do you have a sense for timing and how many how many.
Individuals are are detained at those facilities that are potentially closing.
Yes, the first part is probably the easiest part.
So the Governor released a bunch I think governor Kemp release, it within the last two weeks.
And don't hold me to this but I want to say history has indicated that.
They usually enact their budget usually late April or early May I think I've got that right in Georgia every state is a little different.
So that that often it will work its way through the legislature are pure legislature will have pretty strong feelings on this notably if there is going to be more facilities closed in various districts around the state that potentially.
Are sensitive to these members of both the legislature and the Senate, but that I think that's when we'll get clarity ultimately what is enacted when that budget gets finalized again, probably late April early.
Early may I think keep me honest, Dave I think we have heard.
It's probably a couple of thousand beds maybe.
Maybe up to 3000 beds petitions are looking at for.
Potentially population that would be displaced with multiple facility closures that are individually, yes, I think it was 3% to five facilities I think they named a couple of them.
But it's interesting that it sounds an awful lot like the same situation in Arizona was in where they had an outdated correctional facility was obsolete.
It needs to be shut down so transferring the populations to the private sector. So we've talked about in the past that opportunity either through the development opportunity and where we would just be the landlord and managing the real estate or an opportunity like Arizona, where we also manage the population. So we continue to believe that.
That's an opportunity going forward with a lot of states throughout the country without dated criminal justice infrastructure that could result in a growth in our business without an increase in overall inmate populations. There just transferring from older outdated facilities to newer facilities.
Interesting do you have capacity in Georgia.
For that.
Sure.
Yes.
We mentioned the.
<unk> facility currently has.
Contract expires in November .
So that one is not renewed that would certainly become available.
Got it fantastic I appreciate thank you.
Yes, Sir.
We'll take our next question from Ben break.
The financial.
Hi, guys. Thanks for taking the time to take the questions. So thank.
Thank you to address.
I think you addressed most of my questions on the higher dollar.
General and administrative costs.
This quarter.
If I heard you correctly those were due entirely to increased incentive comp correct.
Yes.
Yes, if you're comparing Q4 to Q4, 21% Q4, 'twenty, yes almost.
Stan So a portion of it was due to higher incentive compensation because as I mentioned, we had the compensation committee had not set compensation.
Level targets.
They had already been set I should say before the onset of COVID-19 in 2020 and this year there were a couple of unusual.
Even categorize them.
Non recurring expenses in Q4, if you're comparing it to Q3.
As I indicated in my comments.
Our 2022 guidance reflects a G&A level, that's very comparable to the total G&A expense in 2021.
Yes.
Right, Okay, so that increased G&A expense.
To be honest lower G&A expense later in the year is kind of what it sounds like you are alluding to.
Yes, correct, because yes, thats fair Thats, a fair statement, yes.
Got it got it that's very helpful. Thank you and then next thing from me. So obviously kind of inflation on the top of everybody's mind.
And you guys addressed inflation, specifically wage inflation.
Are you seeing any.
Impacting any purchased goods.
Either opex or Capex.
I know obviously you got it.
Perfect.
Yes.
Food and then obviously the.
Capex.
It could impact.
I'm curious to hear about what impact you're seeing from inflation.
Yeah, I mean for the most part.
Salaries and wages Thats, two thirds of our cost structure.
So I mean, we are seeing inflation in other expense areas, but those are not needle moving for us as much as the salaries and wages are we don't have I mean construction costs are certainly going up but we don't have construction going on.
At our facilities as I mentioned, our maintenance Capex in 'twenty twos comparable to 'twenty one.
Some of the costs in the construction area are higher but that's factored into our guidance. So so for us. Unlike many other companies throughout the country inflation is not as impactful.
Okay, Alright, that's very helpful. I appreciate it.
Thank you guys.
Thank you.
I will take the next question from anybody.
Hello.
I'm just wondering it sounds like we're sort of in a situation now where you could see some really nice opportunities emerge.
Given the state of infrastructure.
Some of these.
Federally or state owned.
<unk>.
Given the challenges with hiring at all.
What are you thinking in terms of are you hearing of anything is there are there certain geographic areas, where you think you're more likely to be presented with an opportunity.
Given what we're seeing with wage.
Shannon difficulties.
And people.
What would be the timing.
We were presented with a new opportunity.
Yes, great Great question.
This is David I would say to the first part pretty much pretty much nationwide I mean, we've seen here in the last couple of years, especially with the property solutions in places like Kansas in New Mexico materialize again, we've talked about Arizona, where again, we're replacing a 110 to 120 year old prison with our La Palma facility, we've talked about.
Georgia in Hawaii earlier, so, it's really kind of nationwide, where you've got a lot of jurisdictions and I think.
Honestly I think it's manifest itself even more so here in the last 24 months just because everybody is appreciated this old antiquated infrastructure is very difficult. When you are living through a pandemic like we have.
With Covid and COVID-19, very hard to quarantine very hard to make sure that transmission is limited. If you don't have new modern HVA Hvac's systems and whatnot. So I think a lot of these systems knew they needed it.
Peru, but even more so here in the last 24 months, just because they've had kind of a tragic consequences with their facilities because of COVID-19 on the staffing front again, we've got.
Increases that we've put in place and we're seeing great response, where we've done these increases around the around the country.
I am encouraged labor.
Labor.
Labour workforce precipitation participations excuse me.
Heart and improve a little bit in certain parts of the country. So I think along with that and these wage increases and again I'll just reinforce our partners have been extremely supportive of the need for these increased investments and in turn reimbursement is through our per diem adjustments. So so part of the lean forward. This year is not just.
Obviously to keep up on the labor market needs around the around the country, but also part of it is I think as we all continue to feel pretty darn. Good. Obviously, we were not sure. If we're there yet but continue to feel pretty good that we're getting out of this pandemic, we're starting to lean forward a little bit on increasing our staff in anticipation that some of these restrictions will be eased and we will see some of the capacity.
That we were utilizing kind of pre pandemic come back back online so getting ourselves prepared from a staffing perspective, but anything you would add to that Dave and that directly to your question, but I put registry nursing in the same category as staffing.
National shortage of nursing, our health services Department has done a fantastic job in identifying and coming up with the resources.
The shortage of nursing that that we see across the country, but nothing else to add to the rest of your answers there Damon. Thank you.
Okay. Thanks, so much.
Thanks, Linda. Thank you, we'll now take our next question from Jordan Sherman Ranger, Google Glass.
Yes.
Yes.
Couple of quick ones.
Did you quantify the amount.
Incremental.
Labor expense, you think youll have in 'twenty two versus 'twenty, one and then how much of that do you think you will be able to offset directly offset with increased pretty.
Yes, no that's.
The real tough question to answer I think last year on a curve.
Me, if I'm wrong, but I think it was around $30 million number that we provided a total aggregate wage increases and I would say we have at least that in the 2022 guidance number but it is a moving target because its a very dynamic environment and the labor market.
And the other offsetting question is per diem adjustments, which our government partners. As we've mentioned had been very supportive of per diem adjustments because quite frankly, we're part of their system. So they don't want us stealing their staff, we don't want to steal their staff in.
Markets market so.
It's been there.
Our understanding of the of the challenges that we have because they do what we do.
So.
That's just a very difficult question to answer to say what is the bottom line impact in our in our 2022 guidance of both wage increases and offsetting per diem adjustments. They are both in there, but thats. The reason we have a wide range.
Yeah understood that makes sense.
And the.
Disruption in.
What's the what would be the approximate disruption of revenue.
The result of lower Palmer.
Transition.
And is there any incremental cost associated with that as well.
Well Theres, we have about $3 million of capital expenditures that will be spending on renovations at the la Palma facility.
There.
What we've said is the annual revenue amount for Arizona is $75 to $85 million once they reach stabilization, which again, we don't expect them to reach full stabilization until the end of the year. So again difficult to say what the reduction in revenue with ICD, especially if you are.
Taking into consideration potentially just transferring that revenue from la Paloma two other facilities in the region. So again tough tough question to answer there, but 25% to 85 million is the annual revenue for Arizona. So that'd be that 2023 number for example.
Okay and I guess the question what was the government run rate in 'twenty, one for that facility.
We don't we don't disclose that level of detail on revenue for individual facilities.
Okay. So so.
Yes.
The per diem going upward.
I guess two questions.
Change in per Diem and change is expected utilization full utilization with all said and done.
I would I would say the economics are very similar between the two contracts.
<unk>.
Depending on how much we're able to transfer to other facilities.
It's certainly if you look at 'twenty, three and assume that all of the ice detainees were to go away again.
Lead you to believe that that's going to happen because we do have capacity in the region.
The economics would be similar in 2003 as they were in 'twenty one with the.
Arizona contract.
So part of the part of the gap.
And your guidance is you don't know exactly how this transition is going to work.
With me is people are leaving the facility.
No you don't.
Exactly how quickly Arizona will ramp up.
And so yes.
You got it.
We also we are going to.
2700, Arizona inmates compared to 800 today in that population fluctuates with ice.
And it's a longer term sentenced population with Arizona. So we have programs. We have services that we have to offer that population that is not needed for an ice populations. So ramping up that staffing in anticipation of receiving the additional Arizona inmates is also part of that disruption.
And just to reinforce I mean, it's our second largest facilities. So it's 3000 beds at a very large facility probably one of the largest in the country. So.
<unk>.
Imagine that.
The ramp down of the population from <unk> the ramp up of Arizona population, those we're going to overlap and then obviously along the way you've got to.
Do all of the appropriate training to make sure our employees meet all that all the training requirements. So a lot of moving parts that also again be very disruptive to earnings. This year. The other thing I would just say is that Dave indicated that the earnings performance of 23 will be similar to the earnings performance of ice in 'twenty one.
But one thing I would just say, it's probably the earnings.
Kind of ups and downs, a little bit of probably a tad more stable with Arizona, just because thats going to that is going to be a longer term population, which you indicated that will be therefore your programs at other services. So we may not see as much volatility in the earnings from us a year over year or quarter over quarter versus contract.
Once.
Government contract rate from the Steakhouse I've got it.
Just ask I know people have asked a couple of different questions about the potential alternative.
New ATB.
The ATB alternative.
Detention contract can you just talk.
In round terms about the economics of that how that actually works.
I can't speak to the economics, yes, just because again, it's only been a been out for a couple of weeks, but keep me honest here, Dave I know the advertised indicated probably about 16000 participants.
So to give you a sense of the lease or quantity of people that would be in the program.
And then it's our sense again, we're just now getting through the process.
Hoelzel, but it would be by says that they probably would pay.
On a per individual basis. So the actual participants in the program would be reimbursable.
From from ice, but again, obviously more of that more to learn but at least the amount which is 60000 give you a sense of the quantity.
I apologize you answered the question I asked.
The question I was hoping you could answer.
Good morning, gentlemen.
Not specifically to this contract but in general how do those contracts like what are the economics of those contracts for you.
You have some in place now like how does that look on a per day basis on a revenue on a margin basis, I guess thats, what I was sort of maybe and again it can be round numbers that you don't have to disclose anything you don't want to disclose.
Yes.
So to be clear, we don't have a an agreement in place.
Like this with ice.
We provide these type of services with other jurisdictions and even on our community and safety segment, but to be clear, we don't have any existing contracted day, where I could point to.
Relative to kind of revenues and margin.
I would say, though generally obviously, we look at this throughout the entire.
Professional market.
I would say generally the margins are actually pretty consistent with what you see in our own and safety or <unk>.
Owned and managed segment, so kind of 20% to 30% margins is typically what we have in that segment and I would say generally that's what we observed with other providers provide these solutions for the government.
And per Dms in what kind of ranges.
Our existing not not four.
Any other.
Some idea of per diem.
Yes.
<unk> through <unk>.
<unk> competitive procurement, probably would be appropriate for me to.
Given a detailed point.
Okay I'll follow up on that thank you.
Okay.
Thank you, we'll now take our last question from Michael Christodoulou.
<unk> capital management.
Good morning, gentlemen, good discussion and thanks for all the time on the call.
Got a few questions about occupancy and.
And operating leverage so first.
Puma Damon you mentioned that your second largest facility as I look at the I think the second lowest occupancy right now at 60% so.
Looking through all the noise of 2022.
It looks like that somebody might jump to 88%.
Occupancy.
When things stabilize in 2023.
What kind of operating margin lift should that facility.
Again under a normalized cost structure and then I guess the same question would apply to the whole system.
75000 beds, 73% occupancy Lapoma would add three six points gets you towards 77, you might lose a little bit as you say if I take some prisoners back to Florida to Florence, but.
It looks like it could be high Seventy's operating margin hurt utilization and then if you had titled 42, where Covid relief.
Relax.
Could we see north of 80% occupancy and talk through maybe what the operating leverage would be at that point.
Yes ill, let great question I'll have Dave talk a little bit of La Palma, specifically, but let me tackle the last part of your question.
We're I think keep me honest here, Dave I think pre Covid, we were on a system wide in the low eighties.
Yep.
Was it 80 $181 nine so so I think and we were getting great momentum. There you may remember I mean with a lot of new contracts, especially on the state side. So yeah again being about 7000 beds away from that Mark.
Potentially you could have keep me honest here, Dave probably $40 million to $50 million in EBITDA growth without a single dollar deployed for capital.
So we think thats very very possible and again, that's why we're leaning forward.
This year, a little bit to get staffing levels back to a level, where we could get to that oxy potentially.
Early in the next say 24 to 36 months, but I'll, let you tackle that.
First part of that question data pharma.
Yes, so the.
Palma in 2021 has been subject to the occupancy restrictions for ice to prevent the spread of COVID-19.
Across the ice portfolio I think <unk> tried to keep occupancies below 75%.
Youre right I would say generally speaking across the portfolio. It has a leveraged model you get mostly fixed cost youre staffing doesn't fluctuate that much unless you're opening up a new housing unit or closing housing unit.
So obviously.
The higher the occupancy the more leverage the model becomes and and the higher your margins are.
To go back on Damons point, yes at 81, 9% that was actually the number I was using in my script I think we're down 7000 residents from 2019 occupancy levels. If you're just to Q4 it was 79, 4%.
It'd be about 5200 residents that translates into about $45 million of incremental EBITDA. If you were to get those residents.
Residents back.
Okay, and then David just one last question you talked through the debt and the cash balance on the revolver, where does the term loan b fit.
Fit into the picture on that Youre, most onerous on the covenants and the second highest coupons.
Yes, we paid down by $90 million in the fourth quarter. It has a balance of about $130 million $129 million outstanding as of the end of the year and matures in 2024.
Thank you.
Youre welcome.
Thank you there are no further questions at this time.
This concludes today's call. Thank you for your participation you may now disconnect.
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