CoreCivic Inc. Q1 2023 Earnings Call
Good day, and thank you for standing by.
Welcome to the quarter, one 2023 course Vivek earnings conference call.
At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question Press Star one one again.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to our speaker today Cameron Hopewell managing director of Investor Relations. Please go ahead.
Thanks, operator, 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.
On today's call, we will discuss our financial results for the first quarter of 2023 developments with our government partners 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 first quarter 2023 earnings release issued after market yesterday and in our Securities and Exchange Commission filings, including the forms 10-K, 10-Q and 8-K reports.
We're 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 a reconciliation of the most comparable GAAP measurement is provided in our corresponding earnings release and included in the supplemental financial data on the investors page of our website <unk> 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, and thank you for joining us today for our first quarter 2023 earnings call.
On today's call I will provide you with details of our first quarter financial performance and our updated 2023 full year financial guidance.
I will also discuss with you our latest operational developments.
Date, you on our capital allocation strategy.
And discuss the latest developments with our government partners.
Following my remarks, I will turn the call over to our CFO , Dave Garfinkle, who will review our first quarter 2023 financial results.
Our updated full year 2023 financial guidance in greater detail.
He will also provide a more detailed update on our ongoing capital structure initiatives.
I will now provide a brief overview of our first quarter financial results and our updated 2023 financial guidance.
In the first quarter, we generated revenue of $458 million, which was a 1% increase compared with our prior year quarter.
This is inspite of the exploration of our contract with the Federal Bureau of prisons or.
At our previously owned Mcrae Correctional facility in November of 2022, and that facility that we sold late last year.
We generated normalized funds from operations or <unk> of $38 9 million or <unk> 34 per share compared with $41 5 million or 34% per share in the first quarter of 2022.
Now the decline was driven by the sale of our great facility that I mentioned the transition of populations at our La Palma Correctional Center pursuant to a new contract with the state of Arizona that began in April 2022, and a challenging labor market.
Dave will provide more detail regarding the financial impact of these items along with other factors that impacted our first quarter results.
While our operating costs remained elevated compared with pre pandemic levels during the quarter, we experienced a continuation of modest improvements in the employment market.
A trend that began to develop in the second half of 2022.
Now to our updated 2023 financial guidance, we are forecasting full year <unk> per share in the range of $1 31 to $1 42, and adjusted funds from operation or <unk> per share in a range of $1 25 to $1 37.
These represent declines of <unk> at the midpoint of our previously issued guidance.
Dave will provide greater details about our first quarter financial results as well as the financial impact of the more significant assumptions included in our full year 2023 financial guidance.
Following the remainder of my comments.
Moving now to one of our federal customers immigration customs enforcement or ice.
The most current expectation is that titled <unk> 42, a temporary public health order issued by the CDC that has essentially closed our nations borders to asylum seeking individuals.
Since the onset of the COVID-19 pandemic is scheduled to come to us and on mail.
<unk>.
In all likelihood the lithium titled 42. It will result in a significant increase in the number of individuals illegally entering the country between ports of entry.
Without the ability to quickly remove individuals' using the authority granted by total 42 is as expected the government will experience a significant increase in a number of people in the custody of the department of Homeland security or DHS.
Ice is one of the agencies within the DHS that is responsible for enforcing immigration laws.
<unk> and attaining individuals', who have entered the country illegally.
As our largest customer it is anticipated that ice will experience a significant increase in demand for detention capacity when titled 42 is lifted.
Ice has been the government partner most impacted by COVID-19 era public health measures.
Notably ice implemented occupancy restriction that is facilities nationwide to improve the ability for resident populations to social distance.
These occupancy restrictions have remained in place for more than three years. So the removal of these restrictions could result in a significant increase in utilization of our facilities under contract with ice.
There is a possibility that legal challenges or some other unexpected development could change the date that title 42 is lifted.
In fact this has happened on multiple occasions in the last few years.
But it is important to note and what is different this time is that the secretary of the state and the victory of Homeland Security have made some definitive statement. This past week that the title 42 public health order will expire as required by court order on May 11.
Our updated full year financial guidance does not contemplate an increase in utilization for ice.
However, as mentioned last quarter, we have elevated our staffing levels in anticipation of higher occupancy levels.
Utilization by ice is also impacted by their annual funding levels.
For the current fiscal year that will end September 32023.
Is this five years were 34000 tension beds.
Based on the latest available data either utilizing approximately 25000 beds. So they have the ability to increase utilization.
However, as noted in a DHS factsheet that was published last week their current funding levels represent only a fraction of what DHS will open need in a post title 42 environment.
Finally, the DHS Secretary indicated in recent public remarks that DHS has informed Congress. This past week their intent to reprogram funds and their budget to support emerging requirements within DHS.
Now for an update on our other federal partner, which is within the department of Justice, The United States Marshal service.
The us marshals prisoner populations have remained consistent in recent years, so their need for our capacity around the country remains unchanged and significant due to their reliance on contracted detention capacity.
Our marshals were impacted by the executive order signed by President Biden and issued in January 2021 that directors Attorney General to not renew department of Justice contracts directly with privately operated criminal detention facilities.
We have only two remaining direct contract with the marshals.
One of those contracts is with our 4148 beds Central Arizona, Florence Correctional complex in Arizona and has a contract expiration in September of 2023.
Both facilities provides significant capacity to the marshals that we believe would be very challenging to replace.
But as we've previously stated we likely will not have a resolution of our potential contract extensions until we are closer to the existing contract exploration date.
We continue to work closely with the marshals to ensure their capacity needs are being met in order to support their critical public safety mission.
At the state level, we continue to hear that state Correctional systems largest challenge remains the tight labor market.
We have had conversations with a handful of states to help address their challenges in the near to long term.
We have discussed available capacity, we have within our system that could assist those states in dealing with their operational challenges and we are currently in discussions with several government agencies to help assist them with their need for bed capacity.
Now it wouldn't be appropriate to disclose all of the states. We are currently talking to.
But I will highlight one that recently have been reported on a perfectly.
The state of Montana has taken steps during their recent legislative session to possibly place a 120 individuals out of state.
We have been actively talking to the state for quite some time about their needs and they recently toured the facility of ours that we think would be a good fit for them.
We will report more on this opportunity and others later this year.
I will close out my comments by discussing our continued progress with reducing our overall debt and returning capital to our shareholders.
In February we repaid the remaining $153 8 million on our four and five 8% senior unsecured notes that were originally scheduled to mature in may of this year.
At the time, we used a combination of cash on hand, and a $35 million draw under our revolving credit facility to repay these notes.
By the end of the first quarter, we had repaid all but $10 million of the draw on the revolver through free cash flow generated during the quarter.
We now have no debt maturities until April of 2026, which provides us with flexibility in how we deploy our free cash flow for the next three years.
To that point, we also repurchased an additional two 5 million shares of our common stock during the first quarter at an aggregate purchase price of $24 9 million.
Our total share repurchase authorization is up to $225 million of which we have approximately $125 million of the authorization remaining.
We believe taking a balanced approach of both reducing debt and repurchasing shares will unlock substantial value over time, while also reducing our future debt refinancing risk.
We remain committed to our targeted leverage ratio or net debt to adjusted EBITDA range of two to quarter, two two and three quarters time.
We have made meaningful progress in reducing our overall leverage due to the strong cash flows the company generates.
Dusing, our overall debt balance by $1 $2 billion since announcing our updated capital allocation strategy in December of 2020.
We expect our leverage to continue to decline as we prioritize our cash flows on reducing debt.
Understanding that in recent quarters, our EBITDA has been negatively impacted by the short term transition of contracts at our La Palma facility in Arizona.
And ongoing pandemic related oxy restrictions with our federal partners mathematically slowing the rate of leverage decline.
So we have continued to reduce our debt levels, while repurchasing our shares of common stock.
I'll now turn the call over to Dave who will provide a more detailed look at our financial results in the first quarter. He will also discuss in detail our updated full year 2020 financial guidance, including the most significant factors behind the change in that guidance.
Yes.
Thank you Damon and good morning, everyone in the first quarter of 2023, we reported GAAP net income of <unk> 11 per share compared with <unk> 16 per share in the prior year quarter and adjusted EPS of <unk> 13.
Paired with <unk> 14 per share in the prior year quarter.
Normalized <unk> per share was <unk> 34 during the first quarter of 2023 and <unk> per share was <unk> 37.
Both unchanged from the prior year quarter.
Adjusted EPS and normalized <unk> per share where each in line with average analyst estimates and <unk> <unk> higher than our internal forecast.
Adjusted or normalized per share amounts in 2023 exclude a noncash income tax expense of $2 3 million for the revaluation of net deferred tax liabilities associated with the change in our corporate tax structure as we completed a reorganization of our tax structure to simplify and more closely align operations and assets of certain.
Of our subsidiaries and to reduce administrative efforts following our conversion from a week to a taxable C Corporation.
Adjusted or normalized per share amounts in the prior year quarter exclude a gain on sale of real estate assets.
Compared with the prior year quarter operating expense improvements in the portfolio combined with a reduction in interest expense and the impact of our share repurchase program were offset by a reduction in EBITDA of seven $4 million or <unk> <unk> per share at the La Palma Correctional Center.
And the exploration of our final prison contract with the Federal Bureau of prisons in November 2022 at the Mcrae Correctional facility, which resulted in a reduction of EBITDA of $2 $3 million or a penny per share.
We began transitioning our contract with ice at the 3060 bed La Palma facility to a new contract with Arizona during the second quarter of 2022.
The transition is complete and therefore, the second third and fourth quarters of 2023 will reflect favorable comparisons to the prior year quarters at this facility, particularly as we expect operating expenses to continue to normalize throughout 2023.
Margins at our safety and community facilities decreased from 22, 5% in the first quarter of 2022 to 21, 2% during the first quarter of 2023, however, excluding the impact of ongoing transitional expenses at our La Palma facility, which as I mentioned, we're still operating under a contract with ice in the prior quarter.
Operating margins increased by 3%.
Compared with the fourth quarter of 2022 operating margins declined as a result of our Q4 benefit from employee retention credits, we mentioned last quarter and higher staffing levels and unemployment taxes in the first quarter of 2023.
We incur approximately 75% of our unemployment taxes during the first quarter when base wages reset for unemployment tax purposes.
Our financial results continued to be impacted by occupancy restrictions implemented during the COVID-19 pandemic that largely remained in place during the first quarter, most notably for title 40 to a policy that denies entry at the U S border to asylum seekers and anyone crossing the border without proper documentation or authority in an effort to contain the spread.
COVID-19.
Occupancy in our safety and community facilities was stable at 71% in the first quarter of 2023, compared with 76% in the prior year quarter.
As Damon mentioned titled <unk>, 42, which has been in effect since the beginning of the pandemic is currently scheduled to end next week, which is expected to result in an increase in the number of undocumented people permitted to enter the United States planning asylum and could result in an increase in the number of people apprehended and detained by ice.
Longer term, we expect operating margin percentages to trend towards those we experienced pre pandemic of approximately 25% as higher per diem rates. We have been successful in obtaining for many of our government partners are expected to translate into increasing margins as they are applied to increasing occupancy levels and is labor related expenses.
To normalize.
Turning next to the balance sheet as of March 31, we had $51 million of cash on hand, and an additional $223 million of borrowing capacity on our revolving credit facility, providing us with total liquidity of $274 million.
During the first quarter of 2023, we repaid in full the outstanding principal balance of our four and five 8% senior unsecured notes amounting to $153 $8 million using a combination of cash on hand and available capacity under our revolving credit facility.
We reduced our total debt balance by $146 $2 million during the quarter or by $48 $2 million net of the change in cash.
Now have no debt maturities until 2026.
During the first quarter of 2023, we also repurchased two 5 million shares of our common stock at an aggregate purchase price of $24 $9 million.
In less than a year since our board authorized the repurchase program in May 2022, we have repurchased over 7% of our outstanding shares for a total of $9 1 million shares at a total purchase price of $99 $4 million and have remaining authorization for over $125 million more of our shares.
Leverage measured by net debt to EBITDA was three one times using the trailing 12 months ended March 31, 2023 of course after the share repurchases down slightly from three two times at the end of 2022.
In order to progress toward our leverage target.
Two and a quarter times, two and three quarters time, we do not expect the same level of share repurchases in future quarters as we completed during the first quarter as our cash flow will be prioritized on debt reduction however.
However, we will remain opportunistic in repurchasing additional shares.
Moving lastly to a discussion of our 2023 financial guidance for the full year 2023, we expect to generate adjusted EPS of <unk> 46 to 57 and.
Normalized <unk> per share of $1 31 to $1 42.
Our guidance has been updated to reflect the penny during the first quarter of our internal forecast offset by <unk> <unk> to reflect the non renewal of our lease with the state of Oklahoma at our North Fork Correctional facility, which expires June 32023.
In addition, we continue to negotiate in good faith with the state of Oklahoma for the renewal of our contract to manage our Davis Correctional facility, which also expires June 32023 and operated at a loss during 2022 and the first quarter of 2023.
However, we have not yet been able to reach acceptable terms.
Our updated guidance was further reduced by <unk> <unk> per share to reflect the potential ramp down of populations of the Davis facility during the second quarter and idle operations during the second half of the year, which we did not contemplate in our previous forecast.
If we are able to reach acceptable terms on a new agreement to <unk> reduction will be avoided as we would exceed our forecast by approximately <unk> <unk> per share during the second quarter by avoiding the ramped out of populations and we would further exceed our guidance during the second half of 2023, the magnitude of which would depend on the terms of a new agreement.
Our guidance contemplates the continuation of a tight, albeit improving labor market with a continuation of favorable operating expense trends, but offset by higher staffing levels to accommodate an expected increase in federal and state residential population.
Although we expect to be prepared for an increase in occupancy that could occur once titled 42 comes to an end our guidance does not contemplate a surge and ice detainees in the second half of the year, but a more measured increase consistent with our previous guidance.
Although we are in discussions with a number of government agencies for new opportunities. Our guidance does not include any new contract awards because of the timing of government actions on new contracts is always difficult to predict which would be upside to our guidance. If we are successful.
We expect <unk>, which we consider a proxy for free cash flow after interest expense income taxes, and maintenance capital expenditures to range from $144 million to $157 5 million or $1 25 to $1 37 per share.
This quarter, we have inserted a reconciliation of EBITDA to <unk> in our supplemental disclosure report posted on our website.
We expect leverage to temporarily tick up a 10th of a turn to three two times in the second quarter. When we have several large working capital payments, including the semiannual interest payments on all of our outstanding unsecured notes, but we expect to continue reducing debt throughout the year with our free cash flow and expect our only <unk> and.
And expect our only variable rate debt outstanding to be the term loan a with the revolving credit facility undrawn during the second half of 2023.
We expect our normalized effective tax rate to be 25% to 28% and the 2023 full year EBITDA guidance in our press release provides you with our estimate of total depreciation and interest expense.
We expect G&A expenses in 2023 to be comparable to 2022.
Our 2023 capital expenditure forecast remains consistent with the guidance, we provided last quarter, consisting of 61 million to $63 million of maintenance capital expenditures and 3 million to $4 million for other capital investments.
We have no need to access the capital markets in the near term.
We remain focused on managing to our leverage target and have not included any additional share repurchases in our forecast.
However, we will remain flexible and we will continue to be opportunistic in repurchasing shares prioritizing our cash flows on debt reduction and sculpting stock repurchase levels to EBITDA performance.
I will now turn the call back to the operator to open up the lines for questions.
Thank you at this time, we will conduct a question and answer session.
As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
Your question. Please star one again, please standby, while we compile the Q&A rosner.
Our first question comes from Joe <unk>.
At Noble capital your line is open.
Good morning, Thanks for taking my questions.
Absolutely good morning, John Good morning, Jeff.
So kind of wanted to start out.
You've.
Got the employee base that you've built in anticipation of higher population.
Negatively impacted results given the.
Difficult employment type employment market out there so kind of wanted to look kind of multipart here what gives you confidence.
The ending of title 42, all result in additional flow into your facilities I think we all expect to see people coming across the border.
But I guess kind of how do you believe or what do you believe the administration plans are.
For adding people too.
The populations in the facilities.
Do you think you could go for Europe , <unk> and <unk>.
If your assumptions.
Don't prove to turn out correctly.
And what Youre thinking now at what point do you start to reduce the employee base.
Yes, great questions. This is Damon and so let me tag team a day, but let me.
Those kind of two parts here about the population and then the staffing question.
Let me just first say we're in unprecedented times so no one.
I think can definitively say what the world is going to look like after after May 11, Theres a lot of smart people out there that followed.
Kind of immigration law, and how it impacts certain populations for <unk>.
Engine capacity.
X population from our servers from people they get referred over framework for education. So.
The reason, we didn't assume any adjustment or increased population for the rest of the year. So I just think it's impossible to say what that number is because again I think a lot of smart people are struggling with the same question but.
But I guess I'll point to a couple of things.
That.
Give us lease.
Indications that ice and DHS or thinking about increased demand for the rest of the year first of which is.
Last week I noted it a little bit in my script that last week, the department of Homeland Security Secretary and also department.
The Secretary of state came out in a joint statement. This is titled our day to day from 27.
Talking about their plan kind of posed may 11th on what Theyre going to do on the southwest border of noted net comment.
Bateman and they actually did a press release and eight.
Media.
Press release, they talk about after May 11, titled <unk> gone away, but also.
Title H immigration authorities comes back and so that's been well reported but what they've also noted that.
<unk> here from the statement it says the decades old authorities carrier deep consequences for our in La for entry this is titled aid.
Including at Liza five year ban on reentry and potential criminal prosecution for repeated attempts to enter on while fully return to processing under title eight is expected to reduce the number of repeat border crossings over time, which has increased significantly under title 42. So again at sport for her and from their statement and Thats in the first paragraph.
So if you take that statement and then you look at a couple of numbers one of which is.
During COVID-19 the majority.
Encounters that were on the southwest border those individuals' works filled our title 42. So the majority of people sit back across the border authority of title 42, So again thats going away on May 11th Whats also notable is that.
Before COVID-19 the recidivism rate people on the southwest border. So these are people that have crossed at least twice in the last 12 months on the southwest border that recidivism rate has been as high as 40% during COVID-19.
Is your perspective pre COVID-19 the five years before Covid. It was somewhere in the range of 12 to 12, 15%. So the receipt of it and the rates have been very high and these are just people that are process. There's a fair amount of folks that were not processed under title 42 set number actually could be higher. So we're looking at that data point, along with the final data point.
Hey.
Immigration cases that were referred form border patrol or ice over chip Marshal service.
Look at the year before Covid. So 2019 that number was 118000 and referred cases.
Passenger was 20000, so you take all those numbers together, you've got people coming across the border pushback quickly under title 42, recidivism rates being higher and then the cases referred over to U S attorneys and marshals service capacity or a lot lower than they were pre pre COVID-19. So.
Indications would say that with these numbers that theres going to be increased need after may 11th.
Can we go back to what I said earlier. This is unprecedented no one that I've seen.
Here recently has been able to accurately predict what the numbers are going to look like after after may 11, so with those numbers, but also of course, we are talking to ice on a regular basis. They know our capabilities I've talked about our capacity.
A great detail in last couple of weeks on what we've got available on that could have available.
So we feel like based on all the data, but also kind of real time interaction with our ice partners, having staffing in places.
Especially on the ice contracts at an elevated level corporate.
Demand is.
Good investment, but to your point after may 11th and if we get.
Days and weeks after may 11th.
Materialize and then we also you can recalibrate, our staff and as appropriate based on actual population levels. Lastly, I'll, just say before I tag team with Dave is that.
And we said this also back in February .
If you look at our staffing levels today, and again, they're elevated within our ice facilities for this potential demand.
If you look at our midpoint as we just announced here in the last 24 hours so our guidance.
I think you could add probably another 10% on top of that if we were able to recalibrate our staffing based on actual population levels. So it's a different way.
Probably about 12 14, probably keep me honest here, Dave is what you could add back to our mid point, if we brought staffing levels back down to what populations are today. So that gives you a sense of if we do need to do that and potentially what the magnitude could be now again that won't be perfect outfit in the P&L on again, what the needs are for Mike, but also our other partners, but maybe add.
And amplify to that Dave.
You've covered everything I was going to Simon I'll amplify mark in unprecedented times haven't been through a pandemic before like us having that.
<unk>.
Titled 42 in place I would say the closest we have looked at the end of 2022 in December when is starting to bring populations down.
Anticipating a title 42 coming to an end then in December .
And then we saw some lower populations in January and it ultimately recovered I would say this populations are going down.
If not as much as it came down at the end of the year, that's probably coming out more than what we saw at the end of the year.
And then just kind of feels like we're leading up to and end of title 42.
So the only thing I would add.
Our approach to guidance was guarded conservative we don't know if there could be a surge of ice detainees, we have seen that in previous years.
We don't know if it could be more measured over time.
Bob.
And our guidance really is just taking a wait and see approach to that so.
Monitor closely we should know.
Something you would expect probably within a month after may 11th it might be the time, when we start looking internally to see what's going on and whether we need to accelerate preparations for additional populations or scale back the staff because they are not occurring.
That's where we are.
Okay. Thanks, Thank you for that very detailed update in gist.
Good.
A final point on that so you mentioned <unk>.
Populations increase in the fall almost up to 30000 dropdown to the beginning of the year than like 20 <unk>.
Increased again to mid March to about 28.
<unk> said they are back down to 25 do you think that the.
The most recent decline is just again ice.
Clear out space for an anticipated.
People coming across the border in May.
Yes, yes, yes.
How old is that exactly.
Okay.
Moving on to the.
Your state business.
You don't want to talk too much about details.
But maybe you could give us a little time.
Timing on some of these discussions I mean, we're talking a quarter.
Six months next year.
For some of these discussions that you are currently having with the states.
Yes, great Great question I would say, let me just make a just a general comment and then answer your question.
The engagement from our state partners I'd tell you, it's accelerated a little bit here in the last 12 months I mean, we had a lot of engagement with new partners pre Covid as you know Joe.
After that all slowed down.
The pandemic, but I'd say here in the last six to 12 months, we have seen some pretty good engagement with existing partners as I mentioned like Montana, but also potentially some new partners.
Sitting here today.
Knowing the discussion that we've got going I think we could get one maybe a couple before the end of the year.
Under new contracts.
Or I'd say, even expanded contracts, maybe someone that we've already got and they just want to expand.
And what's also interesting to have this in my script, but we do have some interesting conversations going on also at the county level.
So maybe maybe one of those get across finish line before the end of year, but I don't know if indeed.
Now is when the legislatures are in session. So they're going through preparing their budgets for the fiscal year that begins July one that can often be a catalyst for decisions once they get funding if they get funding for new beds, whether it's in state or out of state. So we'd hope to get something across the finish line in Q3.
Actually begin ramping.
Budgets are appropriated for additional populations.
Again, none of that is in our guidance.
Always difficult to predict but as I mentioned in my script when the upside of our guidance. If we if we get something yes. One other thing I would just say <unk> already Joe, but maybe for the benefit of others.
A lot of these new contracts, especially for the new partners.
So theyre not benefit it starts very small it might be for 100 beds or a couple of hundred beds, but overtime that could grow to 500 to 1000. So we're going to work really hard just to get that initial relationship going and start with a population that they feel comfortable with to get the ratio going and also improve our capabilities.
<unk> and show some what we think will be really good outcomes and then hopefully.
Grows into a larger solution that we can do for them over time.
Okay and kind of following on the states.
There's been some news out here recently in California.
Potential flooding.
At quarter end.
Facility there that they have I think maybe six or 8000.
People that are in that facility.
And the line of potential flooding would you guys have.
Capacity in the state of California.
Worst scenario came in California had to move.
People out of that facility.
The other facilities in California, or California.
California have enough capacity on its own that it wouldnt they wouldn't need that.
<unk> operators.
Yeah. Good question I am aware of the flooding.
Packaging a couple of public facilities, I think the secretary or soon to be sector, I think he's actually going through the confirmation process right now indicated in a recent testimony within the legislature that.
<unk>.
They are monitoring that closely but I don't think you see that as a huge risk here near term.
But I guess to your to your first part of your question.
So we've got the Cal City facility.
Through March of 'twenty for that lease.
If for some reason they need that capacity longer term because of that.
Digital threat of flooding into those state facilities out there that would make that would make that available.
And to the last part of your question I'm not aware of other facilities that have capacity, but.
As you know they were severely overcrowded once upon a time so I think.
If that was a risk and they wanted to use capacity maybe.
Pull back on our closed during the last five years that maybe thats available, but anything you'd add to.
Of course, we've had out of state populations.
Our relationship with the state of California, if they wanted to.
Pursuing that option again, we do have capacity both accounts any facility and state as well as apps out of state, but right now we don't think Thats an opportunity, but we'll obviously continue to monitor.
Okay, great and one more if I may on the buyback congrats on doing some more here.
You've kind of de.
Dave talked about.
In the past.
You really didn't want to be buying back stock if unless you are within that $2 two 5% to <unk> 75 leverage ratio you were above that at year end.
Ended the quarter above that number but you still win in the market and bought some more.
And again today, you mentioned that you didn't think you'd see the same level, although you'd be opportunistic.
With the stock at 20% below where you were buying in the first quarter today.
Would it still be something where that would be an opportunity opportunity opportunistic.
Purchases here, even though you remain above the your goal for that.
Rich.
Yes, it would definitely be opportunistic we bought back more probably than we originally expected when we set our budget for the year.
Sure.
The first corner our balance sheet is in great shape, we don't have any maturities until 2026. So I think we thought if we're going to buy shares why not buy sooner given the reduction in stock price, we thought and still think.
An attractive purchase price at today's price.
We were despite the roughly $30 million in repurchases during the quarter able to reduce our leverage was slightly down from three two times to three one times.
We're serious about the leverage.
At quarter, two and three corners, so we really want to see clarity on our ability to backfill the leases at both Cal City in North Fork before we execute.
Further on the share repurchase program at least meaningfully.
We won't buy any shares but certainly our cash flow now is going to be prioritizing paying down debt accumulating cash.
Preparing ourselves for.
Sure.
Refinancing of those 'twenty six notes they've got a may call until April 24, So we expect to do anything at least until then and then maybe even not that.
Get away.
It still is.
Decent sized $615 million. So we don't want to find ourselves in a position where we're a taker of whatever terms. When you have to take when we want to refinance so we will be keeping that dry powder again, focusing in on the back selling of the EBITDA.
It is currently.
Scheduled to be loss for our North Fork Cal city, performing execute anything meaningful on the share repurchase program.
Okay.
Great. Thanks for thanks for answering my questions and I'll pass it along.
Yes, Sir Thank you Jeff.
Please standby for our next question.
Our next question comes from Jay Mccanless.
From Wedbush.
Hey, good morning.
First question I had maybe an update on the idled facilities, and where you stand with either.
Selling or leasing some of those and part of that could you talk about which of the idled facilities.
Might be available and useful to ice if they need to.
Increased some of the populations that they are holding.
Absolutely and I will tag team again, Dave on this one this is Damon.
I guess to answer your last part of the question first.
We have had multiple conversations here from in the last two weeks.
With ice leadership again kind of how they are seeing the world. After may 11th and so they are clearly doing a lot of scenario planning not just for capacity, but for monitoring for transportation for case management and so they.
Have a good understanding of our capabilities, but also what we've got available capacity wise, So we've gone through with them.
Our capacity in a couple of buckets. One is capacity, we've got within dedicated ice facilities, where they are they exclusive user of that facility. We've also given them update on capacity, we've got where we've got shared facilities, where we've got maybe multiple state <unk>.
<unk> sitting there and then also facilities that we've got baked in but we could activate share fairly fairly quickly. So.
We've given them a couple of updates on that front and probably the last two weeks.
Real time numbers, so they know our capabilities and again no kind of have an action plan, if we need to activate.
Some capacity so those conversations are ongoing.
I think my guess is as we go into next week and even the weeks after that that will continue to be discussed on what their needs are what they are seeing on the south of border and then again what.
Capacity that available real time today, but also what we could make available to say the next 60 days, but anything you'd add to that Dave, yes, as far as selling in existing facilities.
Probably not.
Despite our successful transaction of the sale of <unk> last year, not a lot of prison facilities trade trade hands and theres not a lot of buyers and sellers of correctional facilities.
Would be open to selling.
One or more of our idle facilities.
Most logical buyer would be.
State in which to us on the idled facilities located.
When you think of our California City facility, we will obviously have conversations about their desire to.
On that facility.
I wouldn't put it on a high probability less but certainly.
They evaluate their needs and structure and design of what Theyre looking for.
Really good facility.
One day.
There are some smaller residential reentry facilities that we are considering for sale. We closed on one just earlier this week.
Theyre not large dollar amounts I would say probably in that $10 million range.
When complete in this year, but.
Not really.
And in a position to report anything on any pending prism solar sales.
Got it and then you answered my question around the stock repurchase I guess the other question that we've had is.
Generally, especially in the areas, where you might need to flex up for ice how is labor availability.
And in terms of.
Yeah.
Payroll or hourly pay versus where your normal averaged is now.
Do you feel like you would have to be more in order to get those facilities ramped up pretty quickly.
Yes, great Great question.
We've had pretty good success, even gone through COVID-19 to have pretty strong.
Applications and low vacancy rates in our ice facilities most of them are in areas where.
Since its under a federal contract.
Wages, there well above market and so we've had great success and this is not just here recently, but historically.
Very low rate vacancy rates within those facilities. So one one kind of play the playbook is too.
Take our existing facilities to staff up.
Two two.
To a level to make sure. We can go to 100% oxy if ice needs of all of that capacity available, but theres also a couple of locations, where we've even gone above that where we've had really really really favorable.
Tailwind from a labor perspective, and so having employees under a nice contract that have the background clearance that can be deployed other parts of the enterprise, if we do need to flex up staffing somewhere else, especially for activating facility.
We think is a good investment for that for the near term so not perfect, but I'd say generally we have been.
Been pretty blessed on the labor front under our ice facilities or anything you'd add to that Dave no doubt there are certainly signs that the labor market is improving.
Youre seeing that nationwide.
Seeing it at that.
Correctional staff level as well.
We're also finding there's a constituent group of a mobile workforce. If you will that really enjoy going from fulfilling your location to location.
That's proven to be an asset for us it's a benefit to the private sector can provide that is more difficult and the public sector, where you can deploy.
Staff.
Facilities that we have throughout the country. So as David mentioned, where we're able to over hire in areas, where there is an abundant labor pool. There may be a group of those people who are willing to transfer to another facility on a temporary basis, we've been doing that at our La Palma facility obviously.
<unk>.
Have more permanent perhaps altamira facility at the moment, but.
We're able to backfill.
Separately basis, where are we.
Have those needs and we may have to do that depending on how much space needs post, California too.
At least temporarily bringing in staff until you get a full workforce things do seem to be improving and as David mentioned, the wage rates at ice facilities, because theyre federal facilities tend to be above market. So those would be attractive attractive employment locations.
Got it okay, great. Thanks for taking my questions.
Okay.
Thank you.
The next question.
Our next question comes from Kurt <unk>.
At Imperial capital.
Hello, David David Cameron, Thanks for the call. Good morning, Good morning, Good morning, Kurt.
Just a couple of follow ups.
David you were talking about.
The likelihood of the <unk>.
Population increase.
Ice detention facilities that was.
I just wanted to clarify one point.
By the administration is going to start holding repeat offenders criminally liable.
In hopes of reducing the number of border crossings.
I think I heard that right and then.
You mentioned, Andy or people to the U S marshals that would that would offset.
The lower number of border crossing somehow.
Yes.
The first part of your question, absolutely and actually what I was reading was.
Youre reading from I should say the press statement from the Secretary of state in DHS Secretary.
They joined person conference last week. So they made public remarks. In addition to our press release and so on.
What you heard earlier is actually their words from that press release.
<unk>.
Second part of your question relative to again title eight coming back into kind of full authority after may 11th.
That.
They potentially could prosecute individuals that have been come repeat.
<unk>.
And that has not had been.
Not as much under title 42, because as you know is titled 42, some across they might at EBIT process that first initial go ahead automatically send them back because they don't want to put them in a facility because of the pandemic.
So take that as.
Again, it kind of increase authority back after May 11, so that'll be obviously, one dynamic the other again I just want to say again. This is unprecedented so I'm greedy numbers here, but we don't know for sure until after may 11th.
If you have someone that has cross the border multiple times there is going to be authority under title eight which has been there.
This years.
Sure.
<unk>.
Pre pandemic, where someone can get referred preferred over to the U S attorney.
And the charge under federal offenses, because of repeat offenders under immigration laws and again, if you look at that number. So if you look at the people that referred over from ice to the Marshal service pre pandemic and I'm looking at the number going back to 2019 at the full year, obviously before the pandemic. There was a 100 about 118000 individuals.
Referred over to Marshal service and U S attorneys immigration.
Immigration cases.
You look at the last year of 2022 that was 20000. So again a lot of people were not referred over just because of title 42 there.
<unk> fell back to Mexico, or the country of origin. So again that shows that those are numbers again I want to reinforce this is unprecedented. So obviously, we'll have to see how all of this.
It works out after after may 11th, but again, what I would say too.
On the phone if you're interested on April 27, there is a factory that was distributed by DHS and again it was.
In joint consultation with the Secretary of state. It gives a pretty good overview of kind of how they are seeing.
What are the needs are going to be after after may 11th.
We're going to take to prepare for the challenges almost that was for granting you'd add to that Dave Scott Kirk I think it is an important distinction between what was going on during titled 42, and what historically have been pre pandemic and what is now going to happen.
<unk> 42 as that.
Consequences for multiple border crossings. The administration has been very clear that the border is not open and then if people arent going through the appropriate channels there will be consequences.
What payment just described are those consequences for it makes it a criminal offense too.
Across the board multiple times.
With.
<unk> served.
Four.
Repeat border Crossers.
Is really the main distinction between.
Policy during California two in.
Post titled 42, and in addition, obviously to the number of people.
I think the country expects will approach the border on a post title 42 environment.
Interesting. Thank you.
Would it would it mean that more people would be because then in the past prior to <unk>.
Title 42 people were being processed right there they were.
Being processed.
This island here.
Do you think that the.
And then I guess revert to.
So the way it was pre pri.
<unk> title 42 people would be process or do you think fewer people will be processed for.
To seek asylum, but more people will be criminally charged.
So, yes that is neutral or.
No I think yes.
I think going.
Going back to my earlier number so what they call the recidivism rate people that have come across the border at least twice in the last 12 months.
That has been as high as 40%.
During the pandemic and again before the pandemic it kind of ranged anywhere from about 12% to 15%. So the number of people come across the border has increased multiple times I should say have increase in the last couple of years I would say that number probably is even conservative because again under title 42, there was a fair amount of individuals that were not even <unk>.
<unk>. They are just immediately turned back to Mexico or their country of origin.
The question no one can answer to say okay. Now after after May 11, now that the <unk>.
DHS won't have that authority under title 42, how do they how do they triage people, especially people that are coming across border multiple times do they process.
On Ices own authority ultimately go through the immigration process in house by potential leases deportation.
Or again is there a higher threshold, where you have someone that's done five times or 10 times tried to cross it may refer that over the U S attorney and they may go through federal charges because of.
Repetition on their part of trying to cross the border no one knows for sure exactly how that's going to play out. The other thing I would just say that's I'll say it important that takes us into consideration is funding.
So we know that ice has said that they are running at a deficit this year.
The thing that we've heard just publicly stated and this is again was the press release and the <unk>.
<unk> conference that the secretary of state of DHS Secretary had last week.
Secretary did say that they have notified Congress of the past week F. Reprogramming funds within DHS that help support or border patrol and ice we havent heard amount.
But it is clear that are trying to corral resources from a dollar perspective help support their needs, but anything you'd add to that.
If you didn't say it.
You're not going through the appropriate channels to claim asylum theres, a five year ban.
For being caught so.
So presumably result in retention time.
If someone is trying to cross the border multiple times and Thats, where the increase in retention rates comes from.
Okay got it yes, there are so many moving pieces here.
Yes, I can understand why it's difficult to forecast.
Just shifting gears I appreciate that thank you just shifting gears for a second.
Are the state population stable in your key states, So, Tennessee, Georgia, Arizona.
They are yes. Good question, we've been watching it closely and I'd say stable and then we are now starting to see.
Some say starting to forecast an increase.
So I wouldn't say, it's all of our states, but it's a fair amount of our states that are forecasted to increase over the next five years.
I would say that's probably for a couple of reasons, one of which is no surprise under the pandemic.
People that are arrested.
Crime.
Courts are shut down their cases, maybe werent hurt in a timely fashion. So there's a lot of people that have been.
Awaiting the outcome of their individual case that had been residing in that local jail.
In fact, I don't think I mentioned, it last quarter, maybe two quarters ago, but the GL population nationwide.
Year over year with significantly increase I think it was almost 15% to 20%. So there is a large population of the country right now better reside in our local facilities that are waiting for the outcome of their case, ultimately if they're convicted and incentive.
Make your way to the department of corrections within that respective jurisdiction and then we have also seen some changes and reforms also going all in state legislatures around the country. So I'd say kind of those two things probably lead to several jurisdiction to see increase over the next five years, but anything you'd add to that Dave.
Thanks.
Got it. Thank you and then just leads into the next next topic, which is.
North.
And Davis and I apologize.
On the call a couple of minutes late so if you've already covered this but.
Yes.
Uh huh.
It's.
What do you think.
Might be thinking that because there's just too many inmates in those two facilities to all fit into.
Rate plans, so I'm just curious what.
Mike.
Are you thinking.
Yes, Unfortunately, I'm not able to give a lot of color on that right now we're right in the second discussions with Oklahoma, So it wouldn't be appropriate.
I can answer your question, but it wouldn't be appropriate because again, we've got.
A lot of discussions going on with state of Oklahoma. So Unfortunately, I will just have to say stay tuned.
Okay got it and then lastly, the.
How many inmates in Montana.
120 is what's been reported publicly.
Okay. Okay I appreciate it. Thank you. Thank you very much.
Yes, Sir.
Ladies and gentlemen, our next question.
Okay.
Sure.
Our next question comes from an R. Marin.
Zach.
Thank you.
A couple of follow up questions.
<unk>.
To some of the conversations we've been having.
In terms of the recidivism rates with the ice detainees.
Presume.
I'm sorry.
Uhm.
Marshall.
Given your strong relationship with the U S marshals would that.
Uhm largely today with any of our facilities.
Let me answer the last part first.
That has to be seen just depends obviously where that population manifest so I'll.
You will see in a jurisdiction, where we've got capacity and thats possible, but obviously there is.
I think nationwide there was about 55% to 60000 federal prisoners on any given day under Mark serves custody, we're only about 8% to 10000 of that total. So if there is an increase it could be a case, where we've got capacity we could be helpful on that front.
But again, we only got a percentage or a certain percentage of the.
Total.
Okay. Thank you and then.
In terms of.
Post.
Post idle.
42 termination.
Graham.
<unk> is faster.
When youre currently guiding toward expecting.
In terms of your capacity I, just want to make sure that I understand in addition to having.
The available Bob you also required by regulation per Robertson.
Staffing level.
Thanks, Jeff.
In place.
How are you.
On that metric.
Yes, good question virtually all of our contracts.
Embedded as an attachment.
Staffing requirement and so thats all negotiated as part of the overall contract with the staffing level is and.
There's regular monitoring and reporting on our part on those staffing levels. So we do that regardless that's audited.
On any given day, we have done that historically.
What I would say, what's a little different now is that our staffing levels.
That we think could.
We'll be appropriately embrace to at certain facilities, where we think there is available capacity.
And we've got indication that partners may increase their population to take advantage of that capacity, we've increased staffing levels as appropriate to meet that.
Future demand so hopefully I answer your question, yes, we do have required staffing levels within our contracts, but there are certain locations that we've mentioned here last couple of quarters. We've got we've gone above that level in certain locations in anticipation of increased demand, but anything you'd add to that.
You have literally thousands of beds available to accommodate.
Additional populations under existing contracts and then of course, we have some of the facilities we've discussed on the call.
That would be capable for reactivation.
So those would take probably.
Six months three to six months of ramp time to hire and staff train the staff.
And then going through the background screens that ice would require to activate them. So obviously focusing on the areas and locations, where we can immediately take them.
Okay. Thank you.
Thank you.
Please standby for our next question.
Okay.
Our next question comes from Jordan Sherman at Ranger Global Real estate advisors.
Thank you. Thank you just getting in under the wire here.
Just a couple of quick ones I Wonder if I'll make sure I understood the comment about.
DHS is request to Congress two week program funds.
That's a request they've already put in to ask to provide more resources to ice.
Yeah, and let me draw a distinction here. So there is there was a couple of different things that historically agencies can do in departments can do they can ask for a supplemental to that requires I'll say an act by Congress.
Appropriate more dollars to an agency during the middle of their fiscal year.
That is not what's going on here at least that's our understanding it's more of a re programming, which is more of a notification from DHS to Congress that they're going to do this so EHS as you know many different agencies within that.
That department so it could be the case, where theyre taking dollars that were appropriated for the coast Guard, which is under DHS and say, we're going to take some of those dollars over to ice that's what we understand it's Ben.
Notified to Congress VHS sector, I said that last week.
Got it got it so there's just some extra money in the budget that they.
Put it in case, they need it and they can just they have the ability to reprogram as long as they let Congress now.
Well I don't know if they would say that they put in extra money in there I think I would just say that they are pulling from other agencies and reprogram those dollars over to ice okay.
I will say they have extra money, but I got it.
Yeah.
Just I know I know you want to say much about it but what are the options for Oklahoma.
They decide because both you and Keith.
It's Ed.
Those are the cost we need a higher per diem.
Here and because it doesn't work for us.
Are there options should they not using one of your two facilities it doesn't seem like they have.
Any options, except maybe buying your facility.
Or leasing it.
And then running it themselves.
Good good try I wish I could give you more color.
Brian .
First of all right to think of the conversation.
Okay.
We'll move on for Ken.
Thank you Sir.
And then just.
So how does the.
Restrictions on the facilities work currently.
How does that change once you lifted the COVID-19 restrictions.
Yes, great question.
It kind of simply what ice did.
Again this is in consultation with CDC, so no surprise there.
They put caps on occupancy, which generally it wasn't I think universal, but generally was set around 75% of our rate of capacity of our facility.
And.
And there was a couple of facilities. We don't have any bidders also capabilities that maybe had specific court litigation actions that caps too. So it's our understanding again. This has not been definitively stated, but it's been kind of reported publicly.
With the <unk> going away on May 11th one of the things that would be going away or as these caps on occupancy and so that would be healthy be notable because as you know we've been under these caps I guess almost almost three years going back to 2020, but all of these independent.
The pandemic that would they would set the caps.
Individual facilities based on.
Rate of Covid cases in the vicinity.
Our facility those have.
Got better obviously overtime is.
Gone down but.
As Damon said once COVID-19.
Come may 11th public health emergency is declared over.
Don't expect to have any occupancy restrictions.
Right I mean, ultimately there is no basis on which to have them anymore.
It goes away.
And I guess Thats exactly.
And Thats certainly the quickest and easiest because there is theres still facilities, which you guys have that are still under the guaranteed minimum.
Yes, we've got we've got a couple.
So I mean, so that's the easiest.
Ramping up people in those facilities.
Mhm aside.
As their easiest options for incremental capacity right.
Yes, I think Thats right I think thats exactly right.
Do you have a guarantee or not where they have an existing contract. That's the easiest place to increase utilization yes.
Yes, yes, I meant I meant that more broadly thank you okay.
Thank you.
Thank you Sir.
Please standby our next smartphone.
Yes.
Yes.
Our next question comes from Ben Brink.
<unk> financial.
Hey, guys. Thank you for taking the time to answer all the questions.
So I know you've got.
I know you've gotten a ton here on title 42.
Forgive me, if I, if I'm being repetitive here.
But so the first one I have here is how long does it take to get a facility online once Ics.
Sums up.
They're going to need it so let's say on.
For illustrative purposes on May 11th they say, okay, we need X.
Number of bed.
<unk>.
And that facility is not currently using those beds.
Soon could you be staffed up and have the facility prepared to.
Starting to individuals.
Individuals.
Absolutely so.
Again facilities that have.
Basically.
As the exclusive user.
We've got capacity I mean that could be immediate because again, we've been staffing knowledge of that minimum standard on the contracts, but above that level. So.
So I'd say those facilities can take population immediately facility.
<unk> facilities, where we've got maybe share population stay with a another state jurisdiction or the Marshal service, we've given indications to ICU or in the last couple of weeks on that capacity how quickly we can ramp up and I would say almost immediate.
A case or two where it may take a week or two but we can go pretty quickly on those.
All of these where we don't have any operations today.
It's varied certain locations.
We've kind of went through location by location with ICU recently, but.
But I would say generally it can be anywhere from say 60 days to six months, depending again on the location.
Our resources, we can deploy pretty quickly to activate our anything to add to that Dave.
Hi, Greg.
Okay, Great that's very helpful.
And then the next question I've got is when you guys are thinking about this obviously.
Know that.
I know that title 42 in any upside from that is not baked into the guidance that you've given out right now, but obviously in kind of in the very near term idled 42 is lifted it a week from today youre going to have a little bit more clarity.
What kind of demand thats actually going to drive when do you anticipate.
Updated guidance.
For for that use.
But youre going to have to do you think it's going to be in the second quarter or do you think you guys are going to wait until third quarter, possibly next year in order to have better clarity.
So that you kind of take guidance.
Well.
Good try there is no really no answer there.
Our intention would be I think our attention to the second quarter.
Okay.
Yes.
Obviously consolidate as appropriate internally and.
With legal counsel, but.
And here today, I'd say second counts of our second quarter.
Quarter earnings in the third quarter.
Wouldn't put out anything unless Oklahoma changes the situation, we may or may not update guidance for that but as far as California goes yes.
I probably wouldn't occur until.
Dr.
August early August is when we typically report our second quarter financial results.
Okay.
Detention beds.
Syed.
It won't be a secret for.
Many beds will be detained nationwide, we typically follow the prominent enough correlation with overall detention beds so well.
Consider that as well and you should consider that as well.
Yes.
Yes, that's a good point.
Public reporting on ice data had gotten better and better and I'm also more frequent I think it was used to be correlated now than monthly announced almost every two weeks.
That'll be a good data point here in the summer to look at.
Okay.
Okay great.
That's all for me thanks, very much guys.
Thank you.
Thank you for your questions and your participation in today's conference. This does conclude the program you may now disconnect.
[music].
Sure.
[music].
Okay.
Yes.
Yes.
[music].
Yes.
[music].
Okay.
[music].
<unk>.
[music].
Yeah.
[music].
[music].
[music].
[music].