Q3 2023 CoreCivic Inc Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the Q3 2023 course Civic Inc. Earnings Conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation there'll be a Q&A session.
To 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 that your hand is right to withdraw your question. Please press star one one again please.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today, David Gutierrez of Dresner Corporate services. Please go ahead.
Thanks, operator, good morning, ladies and gentlemen, and thank you for joining us participating on today's call are David Harney, President and Chief Executive Officer.
David Garfinkle, Chief Financial Officer.
We are also joined here in the room by our Vice President of Finance, Brian candidates.
On today's call, we will discuss our financial results for the third 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 product.
Securities Litigation Reform Act.
Our actual results or.
Or trends may differ materially as a result of a variety of factors, including those identified in our third quarter 2023 earnings 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 management will also discuss certain non-GAAP measures.
Conciliation of the most comparable GAAP measurement is provided in our corresponding earnings release and included in the company's quarterly supplemental financial data report posted on the investors page of the company's website at Corp, Civic Dot com.
With that it is my pleasure to turn the call over to our President and CEO David <unk>.
Thank you David Good morning, and thank you for joining us today for our third quarter 2023 earnings call.
On today's call I will provide you with details of our third quarter financial performance and our updated 2023 full year financial guidance, which reflects another increase in our core earnings metrics from last year's quarters guidance.
I'll also discuss with you our latest operational developments.
That 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 financial results and our updated financial guidance in greater detail.
He will also provide a more detailed update on our ongoing capital structure initiatives, including details of our new bank credit facility obtained just after quarter end.
I'll now provide a brief overview of our third quarter financial results and our updated 2023 financial guidance.
In the third quarter, we generated revenue of $483 7 million, which was a 4% increase compared with the prior year quarter.
This increase is in spite of the exploration of our final prison contract with the Federal Bureau of prisons at our previously owned Mcrae Correctional facility in November of 2022, and the expiration of our lease agreement with the Oklahoma Department of Corrections at our North Fork Correctional facility on June 32012.
Three.
Excluding these two explorations our total revenue increased 7% demonstrating strong occupancy and revenue growth from our core safety and community portfolios.
We generated normalized funds from operations or <unk> of 40.
$5 million or <unk> 35 per share compared with $33 9 million or 29 cents per share in the third quarter of 2022, representing a per share increase of 21%.
The increase in <unk> was driven by the higher federal and state populations.
Bind with lower interest expense, resulting from our debt reduction strategy.
The increase in epithelial occurred despite the sale of our <unk> facility and the expiration of the lease with Oklahoma, which resulted in combined reductions to EBITDA $4 8 million from the prior year quarter.
While we continue to experience ongoing labor market pressures and continue to incur temporary incentives and related incremental operating expenses in many markets. We have achieved notable improvements in our attraction and retention rate as a result of our staffing strategies and due to an overall improvement in the hiring environment.
We believe the favorable operating expense trends will continue as the tight labor market continues to loosen.
As we have mentioned on past several conference calls we have made significant investments in our existing staff.
We have successfully increased our staffing levels through improved recruiting and retention.
These investments have enabled us to reduce the amount of temporary incentives from the prior year quarter and have positioned us to position us to accept the additional populations we have begun to experience.
From the third quarter of 2022 to the third quarter of this year occupancy in our safety segment increased from 70% to 72, 6% and occupancy in our community segment increased from 57, 5% to 62, 8%.
The increase in occupancy in our safety segment, primarily resulted from higher detention populations from our largest government partner immigration and customs enforcement or ice.
EMEA 11, titled <unk>, 42, a temporary pickup order issued by the CDC that had officially closed our nation's border to asylum seeking individuals since the onset of the COVID-19 pandemic came to an end.
At the same time oxy restrictions implemented during the pandemic at our ice facilities also came to an end.
Without the ability to deny entry to the United States and quickly remove individuals using the authority granted under title 42, there has been an increase in the number of people in the country as the department of Homeland Security.
Yes.
<unk> is one of the agencies within the DHS that is responsible for enforcing immigration laws.
<unk> Entertainment individuals who have entered the country illegally.
These activities have increased since the end of <unk> 42 in the country continues to report record numbers of people encounter at the southern border.
Last quarter, we reported an increase in demand for detention capacity since tie to 42 was lifted.
That trend has continued as the number of people in ice detention increased 18% nationwide during the third quarter alone resulted in a cumulative increase of approximately 66% nationwide.
And a title 42.
Since may 11 through September 30.
<unk> populations within our facilities have increased 4729, or 84%, which we believe was possible at least in part because the investments in staffing I previously mentioned.
Due to fixed payments under many of our federal contracts. The increase in residential population did not result in a proportionate increase in our financial results as such facilities until populations cleared the minimum compensated bad total associated with fixed payment levels.
With largely occurred during the third quarter.
The increase in occupancy in our safety segment also resulted from higher oxy levels from several state government partners, including most significantly the state of Arizona at our La Palma Correctional Center in Eloy, Arizona.
La Palma is the second largest facility in our portfolio.
Recall that we were awarded a new management contract from the state of Arizona and began receiving populations from the state in April of last year.
The ramp of this facility was substantially complete by the end of 2022.
We continue to incur elevated operating expenses that is still the associated with temporary staffing and believe expenses will continue to normalize as we continue to hire and train permanent staff.
During the third quarter of 2023, we also experienced increases in populations from the states of Oklahoma, Colorado, and Idaho and more recently in the fourth quarter from Georgia.
Further we remain in discussions with several additional states to help address their challenges in the near to long term.
As an example last quarter, we mentioned that the state of Montana, a current government partner of ours.
As expected to issue a request for proposal for the placement for up to 120 out of state inmates.
The RFP was issued and we were recently notified by the state of their intent to award the contract to core civic.
As a reminder, this would be utilizing existing capacity or some more correction facility in Arizona.
Although not typically an avenue of growth in the past we have had an increase in the number of discussions with county governments for bed capacity needs in our safety segment as well.
At the end of September we announced that we had signed a new management contract with Hinds County, Mississippi for up to 250 adult male pretrial detainees at our Tallahatchie County Correctional facility in Mississippi.
In October we completed the intake process for approximately 200 residents from Hinds County at the Tallahatchie facility.
The Tallahatchie facility is a good example of the flexible capacity, we can provide to our government customers. As we also care for over 400 residents drove the United States Marshal service.
Vermont.
Carolina, The U S Virgin Islands, and the local county in Tallahatchie County.
I couldnt be more proud of the leadership and staff at our Tallahatchie County facility.
As mentioned Oxy in our community segment, which comprises of 23 residential reentry facilities increased from 57, 5% to 62, 8% in the third quarter of 2023 over the prior year period.
We also provide electronic monitoring and case management services in our community segment.
Our community segment represents a vital part of our mission and it's often critical to the successful reentry of residents in our care.
Net operating income in this segment increased 50% in the third quarter of 2023 from the prior year quarter due to the increase in accuracy as well as pretty increases we have been able to obtain.
We were also able to reduce temporary staffing incentives like we did in our community segment.
We expect the oxy trend to continue in the community segment now that all pandemic related public health policies have come Julien as more of our government partners are returning to residential reentry programs to help individuals be better prepared for successfully transitioning into our communities.
Finally, we never take for granted renewals of existing management contracts and continue to enjoy a contract retention rate of 95% over the previous five years.
During the third quarter, we executed a five year extension of the contract with United States Marshals service at our 4128 beds Central Arizona, Florence Correctional complex, the largest facilities in our portfolio, where we provide significant capacity to this government agency as well as ice.
We also executed notable contract extensions with Vermont at our Tallahatchie study Mississippi.
Ice at our Elisa detention center in New Jersey.
Tanner at our Crossroads Correctional Centre in Montana.
Fee at our managed only south Central Correctional Center, and the Texas Department of privileged Justice for five residential reentry centers, we owned in Texas.
As mentioned last quarter, we entered into an agreement with the state of Oklahoma to lease our 1670 <unk> Davis Correctional facility effective October one 2023.
We successfully transitioned operations to the state, which is now operating facility with government employees effectively converting the facility from one in which we own and operated in our safety segment to one that we simply lease to the state and we will now report in our property segment.
We were pleased to reach a positive conclusion to this facility's contract renegotiation and we believe that a lease agreement is best for the long term outlook for the facility that also meet the long term needs of the state.
As we look forward, we remain optimistic in the macro environment for our federal state and local business.
Our governments are facing complex challenges and we see increased opportunities to serve their growing needs.
At the federal level, although we continue to see a steady increase in detention bed utilization for <unk>.
Long term impact of begin a total of 42 is still unclear as there are other factors that impact detention utilization levels by ice.
The most significant factor historically has been funding levels approved by Congress.
However, the country is still faces significant challenges at the southern border and geopolitical events only enhanced the need for border security.
Although the appropriations process for funding in the near term as well as the remainder of the fiscal year ended September 32024, it's still in flux. There appears to be bipartisan support for additional border funding for the department of Homeland Security and ice to help address the challenges at our southern border.
The outcome of the appropriations process is expected to have significant impact on the overall populations levels in our ice facilities moving forward.
And even though detention funding and related services are just part of the overall solution, we are positioned well to serve their needs.
Another part of the overall management of the border that could potentially expand the scope of services includes alternatives to detention.
Earlier this year <unk> issued a request for information or RFID for relief and reporting management services.
This RFP is seeking information about monitoring technology participate coordination services, including physical space participant engagement and interactions and program management.
And community services to help people comply with their immigration obligations.
Though not yet funded by Congress and only in the early stages. The RFID is intended to apply to non citizens released from DHS custody.
And according to the RFA involves engaging with a large portion of that $5 7 million individuals on the current non entertain docket.
At the state level overall state budgets are in very good shape.
Most states are reporting decreases in their prison population and many states are also projected further increases in their prison populations.
Joe backlogs, which are a leading indicator for state prison populations remains significant.
Additionally, courts continue to normalize operations and cases are adjudicated so state correctional agencies will clearly be impacted.
So to summarize the macro environment is improving and is beginning to manifest in our financial results at some of the headwinds we faced during the pandemic are turning into a tailwind.
Based on our updated outlook, we are updating our full year normalized <unk> per share forecast to a range of $1 40 to $1 46, and adjusted funds from operations or <unk> per share to a range of $1 34 to $1 40.
These represent increases of two cents at the midpoint of our previously issued guidance.
We're currently preparing our 2020 for budget and expect to issue financial guidance for the full year 2024 in February when we announce our fourth quarter 2023 results.
We are obviously focused on a solution to the pending lease expiration with the state of California at our California City Correctional Center.
This facility, which generates approximately $25 million in annual EBITDA is in a great location, but the lease is currently scheduled to expire on March 31 2024.
We are experiencing growth in many parts of our business, which will mitigate the financial impact of lease expiration. If we are unable to identify an alternative solution in the short term.
I will close out my comments by discussing our continued progress on our capital allocation strategy and further strengthening our balance sheet.
We continue to make progress on our debt reduction strategy. Our debt reduction has contributed to meaningful decreases in our interest expense, particularly noteworthy considering the significant rise in interest rates.
Leverage measured by net debt to EBITDA using the trailing 12 months ended September 32023 was at two eight times, just marginally higher than our long term targeted range of two in a quarter to 2% and three quarter times.
We did not repurchase any shares of our common stock under our share repurchase program during the third quarter prioritizing our cash flows are repaying debt.
But with the progress we have made are reducing our leverage we will be opportunistic in repurchasing shares in future quarters, while being mindful of reaching our targeted leverage range.
We have approximately $125 million remaining of our share repurchase program after having repurchased nine 2 million shares of our common stock for approximately $100 million.
Since the board authorized our share repurchase program in May of last year.
Subsequent to quarter end, we entered into a new bank credit facility, increasing the size from $350 million to $400 million and extending the maturity to October of 2028.
Dave will provide further details of the new facility.
We are very grateful for the support of our new and existing bank partners, enabling us to extend our overall debt maturities are providing us with greater financial flexibility in managing the business and how we balance our capital allocation strategy.
Following the extension of our bank credit facility, we have no debt maturities until April 2026, when approximately $600 million of our senior notes scheduled to mature.
With the strength of our cash flows we have extensive flexibility in how we deploy our free cash flow in the future and flexibility about opportunistically accessing the capital markets.
I'll now turn the call over to Dave who will provide a more detailed look at our financial results in the third quarter.
We'll also discuss in detail the increase in our full year 2020 financial guidance and further details about our new bank credit facility and capital allocation strategy.
Dave.
Thank you Damon and good morning, everyone in the third quarter of 2023, we reported GAAP net income of <unk> 12 per share compared with 58 per share in the prior year quarter.
Among other special items net income in the prior year quarter included gains on sales of real estate assets of $83 8 million or <unk> 53 per share, including a $77 $5 million gain on the sale of our Mcrae Correctional facility.
Adjusting for special items adjusted EPS during the third quarter of 2023 was 14.
Compared with $8 <unk> per share in the prior year quarter, an increase of <unk> <unk> per share or 75%.
Normalized <unk> per share was <unk> 35 during the third quarter of 2023, compared with 29 in the prior year quarter, an increase of <unk> <unk> per share or 21%.
The increase in adjusted EPS and normalized <unk> per share primarily resulted from higher federal and state populations combined with a reduction in interest expense.
These increases were partially offset by the exploration of our final prison contract with the Federal Bureau of prisons in November 2022, and our previously owned and operated Mcrae Correctional facility and the expiration of our lease with the Oklahoma Department of Corrections June 32023, and our North Fork Correctional facility.
These two explorations accounted for a reduction of <unk> <unk> per share from the prior year quarter.
During the second quarter, we began to experience an increase in the number of residents attained by ice as a result of the exploration of titled <unk> 42 on May 11, 2023, a policy that denied entry at the U S border to asylum seekers and anyone crossing the border without proper documentation or authority an effort to contain the spread of COVID-19.
This trend continued during the third quarter as ice detention populations increased nationwide by 18%.
From June 30 to September 30, ice detention populations within our facilities increased by 1972 residents or 23%.
Note that due to fixed payment that certain of our facilities increases in populations do not always result in incremental revenue and compensated occupancy because increases can occur at facilities, where population levels were already included in our compensated populations.
Compensated occupancy in our safety and community facilities was 72% in the third quarter of 2023, compared with 71% in the prior year quarter.
<unk>, which we consider a proxy for our cash available for capital allocation decisions increased to $42 3 million or <unk> 37 per share in the third quarter of 2023 from $29 9 million or 25 per share in the prior year quarter, an increase of <unk> 12 per share or <unk> 48.
Percent.
The larger per share increase in <unk> compared with adjusted EPS and normalized <unk> was attributable to higher stock based compensation and lower maintenance capital expenditures during the current year quarter.
Maintenance capital expenditures can fluctuate from quarter to quarter, depending on the nature of the expenditures required seasonal factors, such as weather and budgetary conditions, but tend to level out over annual periods.
Facility net operating income in our safety segment increased $11 4 million or 14% from the prior year quarter net of a reduction of $1 6 million for the contract expiration with the boat at the <unk> facility.
<unk> net operating income in our community segment increased $2 2 million or 50% from the prior year quarter.
Facility net operating income in our property segment declined $3 $3 million from the prior year quarter, primarily due to the lease expiration at our North Fork facility amounting to $3 1 million.
The increases in occupancy contributed to an increase in margins in our safety and community facilities, which increased from 19, 2% in the third quarter of 2022 to 21, 3% during the third quarter of 2023.
Further during the third quarter, we were able to reduce certain labor related expenses, such as registry nursing temporary wage incentives and travel despite inflation and ongoing labor labor market pressures that have been steadily easing over the past several quarters.
Longer term, we continue to believe operating margins will trend toward 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.
<unk> continued to normalize.
Turning next to the balance sheet.
We continue to make progress on our debt reduction strategy, increasing our total debt repaid year to date through September 30 to 137 $7 million net of the change in cash including $65 million during the third quarter of 2023.
Our leverage measured by net debt to EBITDA was two eight times using the trailing 12 months ended September 32023.
As of September 30, we had $103 $7 million of cash on hand, and an additional $232 $6 million of borrowing capacity on our revolving credit facility, providing us with total liquidity of $336 3 million.
Subsequent to quarter end, we completed an amendment and extension of our bank credit facility effectively replacing our previous bank credit facility, increasing the total size from $350 million to $400 million.
The new bank credit facility increases available borrowings under the revolving credit facility, which remains undrawn from $250 million to $275 million and increases the size of the term loan from an initial balance under the previous facility of $100 million.
To $125 million extended the maturity to October 2028 from May 2026, and relaxes certain covenants, while maintaining a similar pricing structure.
The larger size provides us with additional flexibility and paying down our unsecured debt, while increasing liquidity.
Moving next to a discussion of our capital allocation strategy. Our capital strategy has resulted in a reduction to interest expense of $10 $1 million. During the nine months ended September 32023, compared with the same period in the prior year, while we have repurchased nine 2 million shares of stock for a total purchase price of one.
Hundred million.
At an average price of $10 86 per share since our board authorized the repurchase program in May 2022.
These repurchases include $2 6 million shares repurchased during 2023 for a total purchase price of $25 6 million at an average price of $9 84 per share.
We did not repurchase any shares in the third quarter, but considering the progress we have made on debt reduction we expect to be opportunistic in repurchasing additional shares in future quarters, while further progressing toward our targeted leverage of two and a quarter times, two and three quarters time.
We have approximately $125 million of share repurchases remaining under the board authorization.
We have no debt maturities until April 2026, when $593 $1 million of our eight a quarter percent senior notes mature following the open market purchase of $21 million of these notes in the second quarter.
In the future, we could elect to use our free cash flow to purchase additional senior notes in open market transactions privately negotiated transactions or otherwise.
We could also use our effective shelf registration statement to issue additional debt securities when we determined that market conditions and the opportunity to refinance a portion of our debt our favorable though current market market conditions are not sufficiently attractive for such an opportunistic transaction.
Given the strength of both our balance sheet and cash flows we have tremendous flexibility in how we deploy our free cash flow and balance our capital allocation strategy between debt repayments and share repurchases.
Moving lastly to a discussion of our 2023 financial guidance, we expect to generate adjusted EPS of <unk> 54 to <unk> 60.
Up from our previous guidance of 52 to 59 and.
And normalized <unk> per share of $1 40 to $1 46 up from our previous guidance of $1 37 to $1 45.
We have updated our guidance to reflect the penny beat in Q3 through to the full year higher federal and state populations expect it to be sustained throughout the fourth quarter, partially offset by higher interest expense for new borrowings on the term loan a.
Our guidance also contemplates a continued moderation of our operating expense structure.
Our guidance does not include any new contract awards, because the timing of government actions on new contracts is always difficult to predict.
While we could execute on one or more of these opportunities this year, which would be upside to our guidance that would be more impactful in 2024.
We expect <unk> to range from $153 million to $168 million or $1 34 to $1 40 per share up from $149 8 million to $159 3 million or $1 31 to $1 39 per share and our previous guidance.
We expect our normalized effective tax rate to be 28% to 29% and the 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 about 3% to 4% higher than 2022.
We expect to incur $66 million to $69 million in capital expenditures during 2023, including $61 million to $63 million of maintenance capital expenditures unchanged from our prior guidance.
And $5 million to $6 million for other capital investments down slightly from our prior guidance.
We remain focused on managing to our leverage target of two of the quarter to two and three quarters times and have not included any additional share repurchases in our forecast.
However, as previously mentioned, we will remain flexible and we will continue to be opportunistic in repurchasing shares.
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 one.
On your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Our first question comes from Joe Gomes with Noble capital. Your line is now open.
Good afternoon, and thanks for taking my questions.
Hey, Joe Hey, Joe.
So really nice solid sequential growth in secure services revenues.
Some of Thats from population increases I think some of that for some increases in per diem.
You kind of parse out relative contribution for that revenue increase between the population increases in per diem increases.
I don't have that information at my Fingertips Joe.
But certainly populations, particularly on the federal side.
We're driving the increases if you're comparing to the prior year quarter.
But certainly we did see per diem increases some pretty healthy.
Per diem increases from state government partners that became effective July one.
As our state government fiscal years begin July one and that's typically when we do receive per diem increases. So it was a good year, we reported on that last quarter when.
We had mentioned a lot of our state partners recognizing the need to.
Help fund wage increases for our for our staff so.
Yes, most of the increases I would say.
Really attributable to population increases though.
Okay.
And then kind of following along with that.
<unk>.
Since the end of September it's been reported that.
Populations have increased another almost 15%.
Seeing a similar increase since the end of the third quarter and year populations and given I think in your commentary you said that.
Fair number the facilities are now above their minimum.
Guarantees.
Is it reasonable to assume that we'll start to see maybe a little.
Faster increase in revenue.
As these populations if it sustained these populations have increased.
Yes, Joe. Thank you so much I'm going to tag team a little bit with this question with Dave primarily and the last piece, but on the first piece.
Ill, just give you a little bit of.
Trajectory of our numbers so at the end of.
July our total system ice population was about 8200 that went to about 8900 at the end of August.
End of September it got to 10300 <unk> then as of yesterday, we were 11800. So it just gives you a sense of kind of the trend in the populations with ice within our system.
I think part of your question was kind of under the National number so I.
I think you and the other analysts reported that there really hasnt been a recent report on ice populations nationwide till I think since late September early October, but I have seen and I think you saw this too I have seen that reported in a depressed here last week that.
39000 was the number nationally for ice detention population I can't confirm that that was again that was reported in depressed, but I wouldn't be I wouldn't be surprised that thats the number but on the last piece relative to guarantee at all that you touched on that Dave Yes. During the third quarter there were.
For facilities, where we were below the guarantees is about 600 residents below the guarantee so most of our facilities surpass the guaranteed levels. During Q3, if you go back to pre pandemic. They were almost always above the guarantee so thats not surprising that theyre getting back to those levels.
So.
We reported in the second quarter, that's really what we started to see increased.
Creases in detention populations because of the termination of mail.
May 11th but still during the second quarter.
More of our facilities had not reached those guaranteed level so as of.
At the end of the third quarter most of them have we still have a few that have not but they do bounce around and some could go above and back below but I'd say for the most part going forward most of our facilities will be recognizing incremental revenue to the <unk>.
We see increases in populations.
Okay.
Pardon.
Pardon me. Thank you thank you for that.
<unk>.
And also this has been reported and just kind of get your guys' commentary or thoughts on it.
On the alternatives to detention one of the proposals from the house that Jim mentioned.
Could be monitoring in some shape or form of everybody. That's here that's not a citizen some five to 6 million people.
As we all know your competitor has the ice SaaS contract today.
At that level is nowhere near that.
Yes, the house proposal were to come to fruition.
Is this something that you guys can handle a significant portion of that or is it something that you would have to really ramp up hard on in order to start to help support that type of proposal.
Yes, Joe. Thank you for that question and short answer is yes, we have been.
Working in preparation for potential needs with this type of solution.
And it's bottom line, it's been pretty fluid to be honest with you. So we've obviously seen what the house proposed we're obviously talking to ice on a regular basis I talked about the RFID a little bit.
Our script, and it's pretty clear to us that ice and leadership with an authorization and also with the DHS are looking at creative solutions kind of above and beyond what they do today with the iPad program.
In its current form that's currently performed by so we're absolutely very capable we've got a lot of expertise in our community vision.
Recovery monitoring solutions.
That are out of Dallas that we've had for multiple years and we've been doing a lot of research a lot of our Fannie four again, what potentially that would be needed from ice to serve this population that are currently not entertained but anything I guess you'd want to add to that Dave.
I think youre, referring to the release and reporting management RF high that was issued earlier. This year. We did respond to that is actually has three different parts of monitoring technology participation coordinate coordination services and community services and I think Dave had mentioned.
In his prepared remarks, and the participant coordination services, where they mentioned $5 7 million people on the non detained docket. So.
It's really early in the process I think they are gathering information from the marketplace.
And I am sure based on the feedback that they get from all RFID.
It could move forward with an RFP as you mentioned, Joe It still does require funding.
So a lot of moving parts still at this point.
What the final outcome looks like but yeah.
Yes, we've been gearing up for several years now to prepare to handle.
And RFP like but they issued in the RFID absolutely, yes, that's the bottom line, we're getting ourselves prepared and definitely got the capabilities.
Okay. Thank you for that and then one last one for me and I'll get back in queue.
Yes.
With the Hines County contract.
More to come on that in the more opportunities in the pipeline.
Yes. Thank you for that question Joe.
I would tell you probably in the last 90 120 days we have been.
<unk> seen a lot of interest.
Noted in my script, not just with counties, but also with our states. So we've got a lot of.
Kind of lines in the water talking to different partners, both existing and potentially new partners. So.
So kind of stay tuned on that front.
And again I go back to <unk> County, that's a new partner for us.
Looking forward to working with them and I guess I'll, just remind to all of our investor, especially some of our new investors I mean, many of our agreements over the last 40 years start with a pretty small contract, where we show our capabilities, we develop a solution for them.
Kind of how the program goes we want to obviously be able to demonstrate very positive outcomes and then as an opportunity where we could potentially grow the partnership based on that performance. So we are excited about starting this with Hines County, and other counties that are looking for certain solutions and again on the state side seeing a lot of a lot of activity we talked.
Idaho at last quarter I said in my script, we have been.
Given the intent to award with Montana capacity at our <unk> facility out in Arizona, and we've got active discussions with a couple of other states. So yes days stay tuned we've seen a lot of.
A lot of interest in activity, both with federal state and local partners.
Great. Thanks for that nice quarter I'll get back in queue. Thank you.
Yes, Sir Thank you one moment our next question.
Our next question comes from Kirk Ludtke with Imperial capital. Your line is now open.
Hi, everyone. Thank you for the call.
Yes, Sir.
The RFP that you mentioned.
I guess could be an RFP at some point.
That would would that be in parallel with ICF or would that somehow.
Replace Isa.
It's hard to say at the moment.
Again, I think ice as Dave alluded to with this RFID I think theyre trying to figure out when to what the mission would be what.
Okay.
Outcomes, we're looking for a program like this and so when they put this out to market, they're looking from us and others to see what the capabilities are and not only just our technical expertise and staffing and our leadership in <unk>.
Locations, where we can perform but also maybe anything innovative that we can bring that helps them, mostly with submission of that program. So short answer is it's I think it's too early to tell but it's clearly there they're doing a lot of homework on their side are getting a lot of feedback and information from the market our capabilities in innovative solutions and again.
We think we brought a lot to the table that.
Give them some things to kind of consider and ponder as you think about what the program looks like going forward I guess anything you want to add to the base not really I mean timing is not definitive either I think they'll take the RFID information back if it turns into an RFP is probably middle part of next year until till late 2024. So.
Moreover, 25 opportunity I guess I will also say add to the sales per day, but I guess I'll also say I mean, the size that they are lucky potentially for this program I think gives us the feeling that they are probably looking at multiple.
Contractors provide that I think.
The need and ability to scale my guess would be as I, probably look at that okay. We would probably need to look at multiple participants in this program to help support the overall need of that.
Program itself.
Got it Thats interesting, yes, there is more than.
Then I guess monitoring could be.
To find a lot of different ways, but it requires quite a bit of infrastructure I would think to do this.
Like who other than you and your primary competitor who would be qualified to do this.
Well, we're not Privy to who what submitted who submitted on the RFID. So.
So I don't know if I can give you a very good answer on that front, but I would say is probably kind of the range of.
Not only organizations like this publicly traded companies there might be maybe some out there that are maybe in the defense industry world that maybe have some technology or capabilities that are similar.
This required or are these requirements I should say and I'm sure. There's probably there is a privately held or nonprofit also that are participating so.
Probably all of those probably should show some interest there is a lot of different services to there could be included so.
Certainly makes sense that it could be multiple vendors providing the.
Ultimate services.
Got it thank you.
Then one other topic.
You mentioned that you're in discussions with a number of states.
Can you.
Sure how many beds are in play.
Probably be hard to give a definitive number but it's.
It's meaningful I mean, we've got again, we've talked about.
Montana, we talked about Idaho, those were a couple of hundred beds, each time to kind of a couple of hundred busy. So I'd say, that's probably a good estimate probably when we start a conversation a bit with the new partner, it's usually in the range of two to 400 beds again, we feel like that's a good way to kind of get the relationship started.
Get some time together shows positive outcomes.
Based on kind of their long term goal, we'll see if we can grow the partnership.
Alright, Thank you very much.
One moment our next question.
Our next question comes from Anne Marin with Sachs. Your line is now open.
Thank you.
So you.
We have really moved along in this.
Debt reduction strategy capital allocation policy.
Generally strengthening the balance sheet when you first announced.
The strategy I think one component was to include asset sales in order to increase the cash you have to repay debt.
You were able to so.
A good number of assets from that when you look through your real estate portfolio and you see some of the perhaps older facilities or those that are under utilized are there any specific assets that you look at now that you think might be right.
For divestiture at this point.
Yes, great Great question and the short answer is that.
Maybe 510 years ago that wasn't necessarily a thought.
For each individual asset, especially ones that are underutilized, but we really think about that for every asset that we've got the portfolio that are partially or underutilized. Currently currently vacant so and then what that would do a market assessment on potentially.
The market bear relative to transaction. So so nothing near term to really kind of point to or indicate that we're close on a transaction, but I guess the short answer is any facilities that we've got kind of under utilized especially if it's been long long term were considered considering that but I guess anything you'd add to that Dave yes.
Short term I guess.
There are some residential reentry centers, both in our property segment as well as in our community segment, they're not large assets there are several million dollars.
Per asset.
The larger prison facilities those are longer conversations obviously more complex with larger dollars associated with the government coming up with $1 to purchase those facilities. So those are much longer conversation I wouldn't say I would never say never but those are lower likelihood, but I'd say certainly in the community and.
Property portfolio, we've got residential reentry centers.
We could sell one or more of those assets, but again those would not be significant proceeds.
Okay. Thank you.
Thank you. Thank you one moment our next question.
Our next question comes from the line of Brian <unk> with Wedbush Securities. Your line is now open.
Hey, Thanks for taking my questions guys.
Just wanted to clarify in the guidance you mentioned sustained higher federal populations.
Underlying assumption does that.
I guess, specifically does that assume that theyre sustained at the higher levels like the average level seen in <unk>.
Or are you assuming an incremental increase in the average ice occupancy in the fourth quarter.
I would say modest I mean, the average population during Q3.
We would say.
The <unk>.
Guidance would be slightly higher than the average in Q3 so.
Higher towards the end of the Q3 was sequentially as you looked at sequential months throughout Q3.
They continued to increase and as Damon mentioned they continue to increase.
Post September 30th as well into the fourth quarter. So our guidance reflects the range, but it does reflect an increase in the average daily population from Q3.
Got it thanks, and then in the past you've talked about NOI margin and safety community segment, turning back towards pre pandemic levels of around 25% over time.
Around 21% this quarter I guess can you just walk through sort of the timeline.
Trending back towards that level, what kind of occupancy and expense trends would need to happen to get there.
Yeah, I'd say pre pandemic occupancy was around 80% so to get back to 25% pre pandemic margins, we'd have to get towards that occupancy level, we're not projecting that I mean, we haven't obviously you don't have 2024 guidance out yet we will issue that February when we release.
Our fourth quarter results, but I wouldn't expect us to be getting to 80% occupancy throughout 2020 for either but certainly incremental steps.
As sequential if we see sequential growth.
We could see an increase in that margin percentage, perhaps not as high as the 25% by the end of.
24, I wouldn't rule it out, but probably not likely we will get to 25% margins by the end of 'twenty four but again well we can speak more to that when we release, our 2024 guidance in February so in the short term I'd say modest increases, perhaps a net and net margins assuming we continue to see increases in occupancy.
As mentioned and.
And we do continue to see again sequential quarters, beginning probably with the second quarter of 2022 and.
An improvement in the hiring.
Improvement in the hiring market and then a last point I'd, probably say is our la Palma facility. We continue to have a lot of temporary staff there everyday that goes by we're hiring more and more permanent staff, but we are experiencing elevated operating expense levels at the la Palma facility, while we have the temporary staff there.
That will continue to normalize over time and also contribute to an increase in our margins.
Great. Thanks, and one more quick one if I could.
When titled 42 was first.
<unk> talked about going away back in May.
Talk about tightly coming back into play and that repeat offenders to be referred to the Doj detained under the U S marshals.
It sounds like marshals populations have been pretty stable, but have you seen any sort of uptick in these cases by the title 42 has been gone for a few months.
We have not we have not yet and I know that was discussed and reported.
Quite a bit during the summer, but at the moment to your point, yes Marshal populations, both in our system and kind of the national number has been pretty stable.
Got it okay. Thanks very much.
Yes, Sir Thank you Brian.
One moment for our next question.
Our next question.
From Jordan Hymowitz with Sidoti.
Philadelphia financial management of San Francisco and.
Thanks, guys.
Our first question is what was your what was your occupancy in the month of October.
I don't have that at my fingertips, I would guess it was slightly higher than the 72% we reported for the.
The third quarter.
Okay.
Second question is is it fair to assume that since there has been no proposal yet theres nothing in your numbers or in any way going forward.
Projecting for the potential expansion of the electronic monitoring business materially not in now.
Yes.
Yes, exactly right so it hasnt.
Been finalized from a funding perspective, and obviously I think that will be tied into potentially the supplemental ore.
The larger funding bill for the rest of the fiscal year.
My guess is that probably ice has do with two things one again theyre probably survey in the market capabilities based on what their needs were would be with emission, but second what kind of direction they get from our funding.
From from Cobre, So I think at the moment is probably a little bit CNR side, while they get again their plan together and also see what funding to get.
Support wise from Congress.
Okay.
And my last question is you've expanded your debt facility is quite a bit.
And if you don't want to give names in spine, but not that many years ago like you couldn't find anybody at any rate to lend you money can you talk about the number of banks or facilities without mentioning that are now interested in your debt facility were interested in doing business with you.
Yes, great questions, Dave I'll take that one yes that was one of the reasons, we actually expanded the size of the credit facility, which we just obtained last year before.
Expanding it in October.
We have 11 banks in our bank credit facility and we did have some additional banks come to us between the last time, we did the solar which was April or may of last year through now that wanted to get into our facility again theyre not the big Bulge bracket banks.
But more regional regional banks.
And so it's nice to see banks actually approaching us interested in getting into the.
Into our bank syndicate, they look at the credit the credits rock solid.
We can provide certain element of businesses and deposits for them. So it's good business for them as well. So we just felt like it was.
Reach out to the banks asked them, if they'd be interested in amending and extending the facility. So getting a five year deal was longer than the four year deal. We got last year and they were very receptive. They are very very good banking partners I speak with them pretty regularly and so when they said, yes. They will be supportive of an extension, we just opened it up and expanded it by.
$50 million in and pushed out push the maturity out five years, so yeah different environment I would say today than it was several years ago.
You guys are adding clearly flexibility does that is there any covenants in that that should you. One gives you more flexibility on buybacks than before as well.
There are no restrictions under the credit facility other than our obviously covenants way inside of our total leverage covenants on how much stock we could buy back the only restrictions we have on buying back shares is under our 8.25% unsecured notes there is a restricted payment basket, but it is plenty and it would not be a restriction on the amount we could buyback.
Our internal leverage profile of two in a quarter or two and three quarters will be the governor on on share buybacks.
Okay. Thank you.
Thank you and the third.
One moment for our last question.
Our final question comes from Gregg Gilbert with Northland Securities. Your line is open.
Great Hey, guys. Thanks for taking the questions.
Hey, Greg.
On the assumptions related to the ice population in guidance I know you said definitely higher than where we were at the end of Q3, but.
I believe it was like 11800, a nice population as of yesterday that you had is that kind of the assumption that hold through year end or would we expect increases just curious what you've kind of implied in guidance there.
Well, if youre getting to the level of precision that is probably not.
Our guidance is a range. So I would say, it's approximately that level, but if they are up slightly there'll be toward the high end of that range and if they're down slightly there'll be towards the low end of that range, but I think given the range that we have out there we're pretty comfortable here we are beginning of November.
Have somewhat decent visibility on the rest of November and December and certainly know what October was so feel feel that it's approximately equal to I would say that number that you just mentioned.
Okay fair enough.
And then regarding the California facility I think of as of March 31, 2024 about $25 million of the contributor any.
Any visibility on what will happen with that contract or that facility and when we might get a better picture.
Yes, it's great question, Damon again, and our team is actively working on it and have nothing to announce.
Announced today, but I will tell you that we've had good discussions.
With multiple jurisdictions on the path going forward. So so hopefully as we get to it.
February and give you another update on that front, but there definitely is of interest by a couple of different jurisdictions.
Okay great.
And I guess just last one for me more of a broad kind of question but.
Really great to see that leverage reduction continue into the quarter and as we get close to that targeted range. How are you thinking about maybe capital allocation. Once you hit that range once you're at like two five or something like that and how it changed.
Yes. Good question, Dave So we expect to continue to both buyback stock and pay down debt at the same time, we're not applying a formula to that allocation, we'll obviously react to prospects and the business share price things like that as.
As we just mentioned there is really no limitations under our under our debt agreements.
We're obviously, a conservative management team and prudent with our leverage ratio and it is a target two in a quarter or two or three quarters. We're not there yet now we've made significant progress and are just a hair above it so we'd expect to get there in the short term, but we will allocate our free cash flow both toward.
Debt reduction and stock buybacks.
Okay. Thanks I appreciate it.
Again, thank you.
This concludes the question and answer session I would now like to turn it back to Damon <unk> for closing remarks.
Alright. Thank you so very much and thank you all for joining our call today.
Appreciate it gives you an opportunity to ask questions and give you all an update and look forward to our call coming up in February of next year have a good day.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Okay.
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