Q2 2024 CoreCivic Inc Earnings Call

Good day, and thank you for standing by. Welcome to the 2024 Second Quarter CoreCivic Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode.

Operator: 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. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mike Grant, Managing Director of Investor Relations. Please go ahead.

After the speaker's presentation, there will be a question-and-answer 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 your hand is raised. To withdraw your question, please 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 your first speaker today, Mike Grant, Managing Director of Investor Relations. Please go ahead.

Michael Grant: Thank you, Operator. Good morning, ladies and gentlemen, and thank you for joining us today.

Mike Grant: Thank you, Operator. Good morning, ladies and gentlemen, and thank you for joining us today.

Michael Grant: Participating on today's call are Damon Hininger, CoreCivic's President and Chief Executive Officer, and David Garfinkle, our Chief Financial Officer. We're also joined here in the room by our Vice President of Finance, Brian Hammons. On this call, we will discuss financial results for the second quarter of 2024, as well as financial guidance for the 2024 year. We will also discuss developments with our government partners and provide you with other general business updates.

Speaker Change: Participating on today's call are Damon Hininger, CoreCivic's President and Chief Executive Officer, and David Garfinkle, our Chief Financial Officer. We are also joined here in the room by our Vice President of Finance, Brian Hammonds.

Speaker Change: On this call, we will discuss financial results for the second quarter of 2024, as well as financial guidance for the 2024 year.

We will also discuss developments with our government partners and provide you with other general business updates.

Michael Grant: During today's call, our remarks, including our answers to your questions, will include forward-looking statements pursuant to the safe harbor provisions of the Private Securities and Litigation Reform Act. Our actual results or trends may differ materially as a result of a variety of factors, including those identified in our second quarter 2024 earnings release issued after the market closed yesterday, as well as 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.

During today's call, our remarks, including our answers to your questions, will include forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities and Litigation Reform Act.

Speaker Change: Our actual results or trends may differ materially as a result of a variety of factors, including those identified in our second quarter 2024 earnings release issued after market yesterday.

as well as 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.

Management will also discuss certain non-GAP metrics.

A reconciliation of the most comparable gap measurements is provided in the corresponding earnings release and included in the company's quarterly supplemental financial data report posted on the investor's page of the company's website at CoreCivic.com.

Michael Grant: Management will also discuss certain non-GAP metrics. A reconciliation of the most comparable gap measurements is provided in the corresponding earnings release and included in the company's quarterly supplemental financial data report posted on the investor's page of the company's website at CoreCivic.com. With that, it is my pleasure to turn the call over to our President and CEO, Damon Hininger. Thanks, Mike.

Speaker Change: With that, it is my pleasure to turn the call over to our President and CEO , Damon Hininger.

Damon Hininger: Good morning, and thank you everyone for joining us for CoreCivic's second quarter 2024 earnings call. On today's call, we'll provide details of our second quarter financial performance. I will also discuss our latest operational results and update you on the latest developments with our government partners and our capital allocation strategy. Following my remarks, I will turn the call over to our CFO, Dave Garfinkel, who will provide greater detail on our financial results and on our 2024 financial guidance.

Damon Hininger: thanks mike good morning and thanks everyone for joining us for course of a second quarter two thousand and twenty-four earnings call

Speaker Change: On today's call, we'll provide details of our second quarter financial performance.

Damon Hininger: I will also discuss our latest operational results and update you on the latest developments with our government partners and our capital allocation strategy.

Dave Garfinkle: Following my remarks, I will turn the call over to our CFO , Dave Garfinkle, who will provide greater detail on our financial results and on our 2024 financial guidance.

Damon Hininger: Dave will also provide an update on our ongoing capital structure initiatives, including details on our stock repurchase plan, debt repayments, and progress on our leverage target. I'll start with a high-level overview of our second quarter financial results. In the second quarter, we generated revenue of $490.1 million, a 6% increase compared with the prior year quarter. During this quarter, we experienced revenue growth from all three of our partner groups, federal, state, and local government. I will provide more color on each later in this call.

Dave Garfinkle: David will also provide an update on our ongoing capital structure initiatives, including details on our stock repurchase plan, debt repayments, and progress on our leverage target.

Dave Garfinkle: I'll start with a high-level overview of our second quarter financial results.

Dave Garfinkle: in the second quarter weregenerated revenue of four hundred and ninety point one million a six percent increase compared with the prior year quarter

During this quarter, we experienced revenue growth from all three of our partner groups, federal, state, and local governments.

Damon Hininger: For the second quarter of 2024, we generated normalized funds from operations, or FFO, of $46.6 million, or $0.42 per share, compared with $37.8 million, or $0.33 per share, in the second quarter of 2023, representing a 27% per share increase. The increase in FFO was driven by higher federal, state, and local populations in our safety and community segments, combined with expense normalization and lower interest expense resulting from our debt These increases were partially offset by slightly higher G&A expenses and decreased lease revenue in our property segment resulting from the previously disclosed expiration of a lease with the state of California at our California City Correctional Center effective March 31, 2024. Federal partners, primarily Immigration and Customs Enforcement, or ICE, and the United States Marshal Service, comprise slightly over half of CoreCivic's total revenue.

Dave Garfinkle: I will provide more color on each later in this call.

Dave Garfinkle: For the second quarter of 2024, we generated normalized funds from operations.

or FFO of $46.6 million or $0.42 per share compared with $37.8 million or $0.33 per share in the second quarter of 2023, representing a 27% per share increase.

Dave Garfinkle: The increase in FFL was driven by higher federal, state, and local populations in our safety and community segments, combined with expense normalization and lower interest expense resulting from our debt reduction strategy.

Dave Garfinkle: These increases were partially offset by slightly higher G&A expenses and decreased lease revenue in our property segment resulting from the previously disclosed expiration of a lease with the State of California at our California City Correctional Center effective March 31st, 2024.

Dave Garfinkle: Federal partners, primarily Immigration and Customs Enforcement, or ICE, and the United States Marshals Service, comprise slightly over half of CoreCivic's total revenue.

Damon Hininger: During the second quarter of 2024, revenue from our federal partners increased 7% versus the second quarter of last year. Revenue from ICE, our largest partner, was up significantly as Title 42 was still in place for approximately half of the comparable quarter of last year. As a reminder, Title 42, which was invoked in March of 2020 at the start of COVID-19, empowers federal health authorities to deny migrants entry into the United States in order to prevent the spread of contagious diseases.

Dave Garfinkle: During the second quarter of 2024, revenue from our federal partners increased 7% versus the second quarter of last year.

Dave Garfinkle: Revenue from ICE, our largest partner, was up significantly as Title 42 was still in place for approximately half of the comparable quarter of last year.

Dave Garfinkle: As a reminder, Title 42, which was invoked in March of 2020 at the start of COVID-19 response, empowers federal health authorities to deny migrants entry to the United States in order to prevent the spread of contagious diseases.

Damon Hininger: Title 42 officially ended on May 11th, 2023, and our populations with ICE have been consistently higher since then. During the second quarter of 2024, revenue from ICE was $151 million compared to $136.7 million during the comparable quarter of 2023. Now I'd like to review ICE's usage of detention capacity broadly. Following passage of the Bipartisan Funding Bill in March of this year, which provided funding for 41,500 detention beds, ICE's actual usage of detention beds dipped from 39,000 at the start of March to roughly 34,000 to 35,000 in April before increasing to roughly 37,000 to 38,000 at the end of the quarter.

Dave Garfinkle: Title 42 officially ended May 11th of 2023, and our populations with ICE have been consistently higher since then.

Speaker Change: During the second quarter of 2024, revenue from ICE was $151 million compared to $136.7 million during the comparable quarter of 2023.

Damon Hininger: The most recent ICE detention count was just over 37,000 on July 13, 2024. Note that funded beds also include payment for a number of beds reserved under fixed payment contracts but not fully used at certain facilities. So beds paid for do not equal beds used, and therefore the actual number in detention won't necessarily reach that full 41,500 funded level. ICE reserves these beds under fixed payment contracts to ensure that they have capacity when needed. Seasonality, economics, and geopolitical dynamics both abroad and here in the United States all influence immigration, and as such, ICE detention populations can fluctuate considerably.

Dave Garfinkle: Now, I'd like to review ICE's usage of detention capacity broadly.

Dave Garfinkle: following passage of the bipartres and funding bill in march of this year which provided funding for forty-one thousand five hundredghter detention beds

Dave Garfinkle: ISE's actual usage of detention beds dipped from 39,000 at the start of March to roughly 34,000 to 35,000 in April before increasing to roughly 37,000 to 38,000 to the end of the quarter.

Speaker Change: the most recent is detention count was just over thirty- seven thousand onjuly thirteenth two thousand and twenty-four

Dave Garfinkle: Note that funded beds also include payment for a number of beds reserved under fixed payment contracts, but not fully used at certain facilities.

Speaker Change: So beds paid for do not equal beds used, and therefore, the actual number in detention won't necessarily reach that full $41,500 funded level.

Dave Garfinkle: ICE reserves these beds under fixed payment contracts to ensure that they have capacity when needed.

Dave Garfinkle: Seasonality, economics, and geopolitical dynamics both abroad and here in the United States all influence immigration, and as such, ICE detention populations can fluctuate considerably.

Damon Hininger: CoreCivic's role is to work closely and responsibly with ICE to assist them in their important mission of providing them with bed capacity in locations where needed in a safe, secure, and humane environment. CoreCivic's revenue from state partners in our safety and community segments in the second quarter grew 5% versus the prior year. This increase is a result of higher per diem rates and steady occupancy from our state government partners, as well as contributions from new state contracts with Montana and Wyoming signed in the fourth quarter of 2023, which contributed a bit over 1% of that growth. Additionally, as you may recall, Allen Gamble Correctional Center in Holdenville, Oklahoma, transitioned from a management contract with the state of Oklahoma to a lease in October of 2023.

CoreCivic: CoreCivic's role is to work closely and responsibly with ICE to assist them in their important mission of providing them with bed capacity in locations where needed in a safe, secure, and humane environment.

Speaker Change: CoreCivic's revenue from state partners in our safety and community segments in the second quarter grew 5% versus the prior year.

Dave Garfinkle: This increase is a result of higher per diem rates and steady occupancy from our state government partners, as well as contributions from new state contracts with Montana and Wyoming signed in the fourth quarter of 2023, which contributed a bit over 1% of that growth.

Dave Garfinkle: Additionally, as you may recall, the Allen Gamble Correctional Center in Holdenville, Oklahoma transitioned from a management contract with the state of Oklahoma to a lease in October of 2023.

Damon Hininger: Excluding state revenue from the Allen Gamble facility in our second quarter of 2023, which shifted to our property segment, state revenue in our safety and community segments increased nearly 10% year over year. The largest facility occupied by a state government partner in our safety segment is the La Palma Correctional Center in Eloy, Arizona, where we pivoted from a federal contract to a contract with the state of Arizona roughly two years ago.

Dave Garfinkle: Excluding state revenue from the Allen Gamble facility from our second quarter of 2023, which shifted to our property segment, state revenue in our safety and community segments increased nearly 10% year over year.

Dave Garfinkle: The largest facility occupied by a state government partner in our safety segment is the La Palma Correctional Center in Eloy, Arizona, where we pivoted from a federal contract to a contract with the state of Arizona roughly two years ago.

Damon Hininger: I am pleased to report that financial performance at our La Palma facility continues to progress with stable occupancy and improving operating and financial metrics. La Palma's year-over-year EBITDA improvement in the second quarter was nearly $3 million as we begin to realize the returns on our investments and hard work directed at local hiring made there to end the facility's reliance on temporary labor resources and incentives. There is still room for improvement, but it is heartening to see the progress there.

Dave Garfinkle: I am pleased to report that financial performance at our La Palma facility continues to progress with stable occupancy and improving operating and financial metrics.

Speaker Change: Well, Palma's year-over-year EBITDA improvement in the second quarter was nearly $3 million, as we began to realize the returns on our investments and hard work directed at local hiring made there to end the facility's reliance on temporary labor resources and incentives.

Speaker Change: There is still room for improvement, but it is heartening to see the progress there.

Damon Hininger: To round out our discussion of second quarter 2024 revenue, local revenue in our safety and community segments, which is revenue generated from contracts with county governments, increased 49%, albeit off a smaller base. This growth reflects new major contracts signed in the second half of 2023 with Hines County, Mississippi, and Harris County, Texas. Both populations are housed at our Tallahatchie County Correctional Facility located in Tutwiler, Mississippi, and the populations have adapted well.

Speaker Change: To round out our discussion of second quarter 2024 revenue, local revenue in our safety and community segments, which is revenue generated from contracts with county governments, increased 49 percent, albeit off a smaller base.

Speaker Change: This growth reflects new major contracts signed in the second half of 2023 with Hines County, Mississippi and Harris County, Texas.

Speaker Change: Both populations are housed at our Tallahatchie County Correctional Facility located in Tutwiler, Mississippi, and the populations have adapted well.

Damon Hininger: CoreCivic's overall oxy in our safety and community segments for the second quarter of 2024 increased to 74.3% from 70.3% in the prior year period. This growth in oxy stems from both higher use of existing contracts, particularly with ICE, and also from the four new contracts signed in the second half of 2024 that I have mentioned. From the second quarter of 2023 to the second quarter of this year, Oxy in our safety segment increased from 70.8% to 75.1%, while Oxy in our community segment declined very slightly from 62.8% to 62.3%.

Dave Garfinkle: CoreCivic's overall Oxy in our safety and community segments for the second quarter of 2024 increased to 74.3% from 70.3% in the prior year period.

Dave Garfinkle: This growth in Oxy stems from both higher use of existing contracts, particularly with ICE, and also from the four new contracts signed in the second half of 2024 that I have mentioned.

Dave Garfinkle: From the second quarter of 2023 to the second quarter of this year,

Dave Garfinkle: I see in our safety statement increase from 70.8%

Dave Garfinkle: to 75.1%, where our oxy and our community segment declined very slightly from 62.8% to 62.3%.

Damon Hininger: As we have mentioned in the past, our operating model has significant embedded operating leverage from changes in Oxy, and this was a factor in our emerging improvement during the second quarter. In recent calls, we have discussed labor attraction and retention, important components of our business that have become particularly challenging starting with the onset of the COVID-19 pandemic. Labor market pressures during 2022 and 2023 necessitated temporary incentives and related incremental operating expenses, including travel and expense outlays.

Dave Garfinkle: As we have mentioned in the past, our operating model has significant embedded operating leverage from changes in Oxy, and this was a factor in our margin improvement during the second quarter.

Speaker Change: in rea calls we have discussed labor attraction and retention important components of our business ashas become particularly challenging starting with the onset of the covid nineteen pandemic

Dave Garfinkle: Labor market pressures during 2022 and 2023 necessitated temporary incentives and related incremental operating expenses, including travel and expense outlays.

Damon Hininger: Using the flexibility that is an integral part of the private market solution set, the CoreCivic team responded by designing and implementing differentiated human capital strategies and investing in our frontline employee competition. As a result of these initiatives, we have increased our staffing levels through improved recruiting and labor retention. The labor markets we see today in most of our geographies are displaying significant normalization and greater workforce stability. The labor cost increases we see now have returned to relatively normal levels, both on a year-over-year basis and in relation to the per diem rate.

Speaker Change: Using the flexibility that is an integral part of the private market solution set, the CoreCivic team responded by designing and implementing differentiated human capital strategies and investing in our frontline employee competition.

Dave Garfinkle: As a result of these initiatives, we have increased our staffing levels through improved recruiting and labor retention.

Dave Garfinkle: The labor markets we see today in most of our geographies are displaying significant normalization and greater workforce stability.

Dave Garfinkle: The labor cost increases we see now have returned to relatively normal levels, both on a year-over-year basis and in relation to per diem rates.

Damon Hininger: Our improved staffing has allowed us to dial back elevated spending on temporary incentives and associated travel expenses and has positioned us well operationally to manage our customers' higher population needs. Our safety segment has provided 92% of total revenue year to date, and the net operating income for our safety segment increased 25% during the second quarter of 2024 over the second quarter of 2023, reflecting the strong occupancy trends and cost management efforts I just detailed.

Dave Garfinkle: Our improved staffing has allowed us to dial back elevated spending on temporary incentives and associated travel expenses, and has positioned us well operationally to manage our customers' higher population needs.

Dave Garfinkle: Our safety segment has provided 92% of total revenue year-to-date.

Dave Garfinkle: And the net operating income for our safety segment increased 25% during the second quarter of 2024 over the second quarter of 2023, reflecting the strong occupancy trends and cost management efforts I just detailed.

Damon Hininger: Turning to our community segment, which is currently comprised of 21 residential REACH facilities serving the Bureau of Prisons, as well as state and county government, the community segment is engaged primarily in important activities that prepare individuals for successful reentry into their communities after a period of incarceration or as an alternative to incarceration.

Dave Garfinkle: Turning to our community segment, which is currently comprised of 21 residential REACH facilities serving the Bureau of Prisons, as well as state and county governments.

Dave Garfinkle: The community segment is engaged primarily in the important activities that prepare individuals for successful reentry to their communities after a period of incarceration or as an alternative to incarceration.

Damon Hininger: In addition to our 21 residential REES facilities, our non-residential services, electronic monitoring, and case management services are also included in our community segment. As mentioned, Oxy in our community segment was essentially flat in the second quarter of 2024 compared with the second quarter of 2023. However, net operating income in this segment increased 13% due to per diem increases attained in connection with contract renewals in addition to cost discipline. Similar to our safety segment, our community segment facilities have been able to reduce temporary staffing incentives.

Dave Garfinkle: In addition to our 21 residential REES facilities, our non-residential services, electronic monitoring, and case management services are also included in our community segment.

Speaker Change: As mentioned, Oxy in our community segment was essentially flat in the second quarter of 2024 compared with the second quarter of 2023.

Speaker Change: However, net operating income in this segment increased 13% due to per diem increases attained in connection with contract renewals in addition to cost discipline.

Dave Garfinkle: Similar to our safety segment, our community segment facilities have been able to reduce temporary staffing incentives.

Damon Hininger: We remain positive about the Oxy Outlook for the community segment now that the pandemic-related public health policies have ended and as more of our government partners return their focus to the importance of reentry to curb the recidivism challenge. Our strong financial performance has underwritten our ability to execute on our long-term capital allocation strategy. During the second quarter of 2024, we repurchased 1.3 million shares of our common stock at a cost of $20 million.

Dave Garfinkle: We remain positive about the Oxy Outlook for the community segment now that the pandemic-related public health policies have ended, and as more of our government partners return their focus to the importance of reentry to curb the recidivism challenge.

Dave Garfinkle: Our strong financial performance has underwritten our ability to execute on our long-term capital allocation strategy.

Dave Garfinkle: During the second quarter of 2024, we repurchased 1.3 million shares of our common stock at a cost of $20 million.

Damon Hininger: We ended the quarter of leverage measured as net debt to adjusted EBITDA at 2.5 times for the trailing 12 months, placing us at the midpoint of our two and a quarter times to two and three and a half times times leverage target range that we established in August of 2020. We have accomplished what we set out to achieve, and we are proud of the strategy, focus, and diligence that contributed to our success.

Dave Garfinkle: We ended the quarter of leverage measured as net debt to adjusted EBITDA at 2.5 times for the trailing sales months.

Dave Garfinkle: Placing us at the midpoint of our two and a quarter times to two and three quarters time leverage target range that we established in August of 2020.

Dave Garfinkle: We have accomplished what we set out to achieve, and we are proud of the strategy, focus, and diligence that contributed to our success.

Dave Garfinkle: In his comments, Dave will provide you with further detail regarding our capital markets activities.

Damon Hininger: Dave will provide you with further detail regarding our capital markets activity. Before discussing growth opportunities and concluding my remarks, I want to discuss our South Texas Family Residential Center in Dilley, Texas, where operations will officially cease tomorrow. And I would like to start with a bit of history.

Speaker Change: before discussing growth opportunities and concluding our remarks i want to discuss our south texas family residential center in dilly texas where operations will officially seize tomorrow and i would like to start with a did of history

Damon Hininger: In 2014, during the Obama-Biden administration, ICE came to CoreCivic as a trusted partner to help them solve an emergent and high-profile challenge of providing temporary residential space and screening for family groups crossing the southern border. Prior solutions attempted by the government had proven inadequate, and ICE recognized CoreCivic for its ability to respond to challenges nimbly and swiftly, both inherent advantages of the private sector. We ultimately agreed to a contract for a unique facility, a facility that would be operated under family residential standards.

Speaker Change: In 2014, during the Obama-Biden administration, ICE came to CoreCivic as a trusted partner to help them solve an emergent and high-profile challenge of providing temporary residential space and screening for family groups crossing the southern border.

Speaker Change: prior solutions attempted by the government have proud have proven in adequate and ice recognizede course civic for its ability to respond to challenges nimbly and swiftly both inherent advantages of the private sector

Speaker Change: We ultimately agreed to a contract for a unique facility, a facility that would be operated under family residential standards.

Damon Hininger: In 2021, at the request of ICE, the facility shifted its mission to the detention of single adults, initially females, and then later to males. However, I chose to retain operations under the family residential standards, which embedded higher costs presumably because it preserved flexibility around future use of the facility. As we disclosed on June 10th, ICE communicated to us that based on the cost of the facility, their budgetary pressures, and desire for additional, more secure detention capacity, which provides them flexibility, they intended to terminate the contract for services at the South Texas facility on August 9th and reprogram the savings into new capacity in existing and new contracts in key strategic locations across the United States.

Dave Garfinkle: In 2021, at the request of ICE, the facility shifted its mission to the detention of single adults, initially females, and then later to males.

Dave Garfinkle: I chose to retain operations under the family residential standards, which embedded higher costs, presumably because it preserved flexibility around future use of the facility.

Dave Garfinkle: then

Dave Garfinkle: As we disclose on June 10th,

Dave Garfinkle: ICE communicated to us that based on the cost of the facility, their budgetary pressures

Dave Garfinkle: and Desire for additional, more secure detention capacity, which provides them flexibility,

Speaker Change: They intended to terminate the contract for services at the South Texas facility on August 9th and reprogram the savings into new capacity and existing and new contracts in key strategic locations in the United States.

Damon Hininger: We're extremely proud of the South Texas Family Residential Center and thankful for the nearly 10 years it has been able to serve the evolving needs of ICE. Our team at South Texas is excellent, bringing compassion and a wealth of skills and disciplines, and many of them have accepted employment opportunities we have offered them at other CoreCivic facilities.

Speaker Change: We're extremely proud of the South Texas Family Residential Center and thankful for the nearly 10 years it was able to serve the evolving needs of ICE.

Dave Garfinkle: Our team at South Texas is excellent, bringing compassion and a wealth of skills and disciplines, and many of them have accepted employment opportunities we have offered them at other Core Civic facilities.

Damon Hininger: While we are winding down this contract, the longer-term macro environment for our federal, state, and local business remains extremely strong. The complex challenges our government partners face include existing capacity limitations, aging infrastructure, staffing challenges, and populations that are increasing in numbers and involving in their needs. In particular, we remain in discussions with federal, state, and local government agencies, including several agencies we do not currently serve, to help address their various challenges in the near to long term.

Speaker Change: while we are winding down this contract the longer-term macro environment for our federal state and local business remains extremely strong

Speaker Change: the complex challenges our government partners fac include existing capacity limitations aging infrastructure staffing challenges and populations that are increased in in numbers and involving in their kneedess

Speaker Change: In particular, we remain in discussions with federal, state, and local government agencies, including several agencies we do not currently serve, to help address their various challenges in the near to long term.

Damon Hininger: Some of these opportunities may require activation of several of our idle facilities. Demonstrating this need at the federal level, on May 30th, ICE issued an RFI seeking information on facilities within three areas of responsibility, Chicago, Harlingen, and Salt Lake City. Generally, facilities should be within a two-hour commute from the listed ICE field or subfield office, comply with ICE performance-based national detention standards, have approximately 850 to 950 detention beds, and an infirmary.

Speaker Change: Some of these opportunities may require activations of several of our idle facilities.

Speaker Change: Demonstrating this need at the federal level, on May 30th, ICE issued an RFI seeking information on facilities within three areas of responsibility, Chicago, Harlingen, and Salt Lake City.

Speaker Change: generally facities should be within a two hour commmove from the listicit ice field or sofilled office comply with ice performance space nationalal detention standarders have approximately eight hundred and fifty to nine hundred and fifty attention bed and an affirmy

Damon Hininger: They prefer a dedicated facility but will consider a shared facility. Interested parties may propose one or more facilities in each area of responsibility, or AOR, and may also support multiple AORs. The RFI is for informational purposes only and does not constitute an RFP or an obligation to issue an RFP.

Speaker Change: They prefer a dedicated facility but will consider a shared facility.

Speaker Change: Interested parties may propose one or more facilities in each area of responsibility, or AOR, and may also support multiple AORs.

Speaker Change: the rfi is for informational purposes only and does not constitute an rfp or commitment to issue rfp

Damon Hininger: Responses to the RFI were due June 23, 2024. We have responded with multiple facility options, including our idled 1,033-bed Midwest Regional Reception Center in Kansas. This is the largest advertisement for potential new detention capacity by ICE in over 10 years, and we believe we're the only provider with available capacity in all three locations. Further demonstrating growing needs at the federal level, on June 26, I issued an RFP for up to 600 detention beds in the state of New Jersey, which would expand ICE's capacity in that state. Initial responses were due on July 17.

Speaker Change: Responses to the RFI were due June 23, 2024.

Speaker Change: we have responded with multiple facility options including our idled one thousand and thirty-three bed midwest regional reception center in kansas

Speaker Change: This is the largest advertisement for potential new detention capacity by ICE in over 10 years, and we believe we're the only provider with available capacity in all three locations.

Speaker Change: Further demonstrating growing needs at the federal level, on June 26 I issued an RFP for up to 600 detention beds in the state of New Jersey which would expand their capacity in that state.

Damon Hininger: Demonstrating the growing need at the state level, as mentioned in our earnings press release yesterday, on July 25, 2024, we received a notice of intent to award a new management contract from the state of Montana. We are pleased to extend our relationship with the state of Montana. During the current quarter, we anticipate receiving 120 residents at our 1,896-bed Swarovski Correctional Facility in Eloy, Arizona, where we already manage 120 residents for the state of Montana.

Speaker Change: Initial responses were due on July 17th.

Speaker Change: Demonstrating the growing need at the state level, as mentioned in our earnings press release yesterday, on July 25, 2024, we received a notice of intent to award a new management contract from the state of Montana.

Damon Hininger: Upon receiving these additional residents, the Saguaro facility will be near full capacity. Under the new contract, Montana may also utilize additional facilities we operate subject to availability should they have the need. We also manage the company-owned and fully-occupied Crossroads Correctional Center in Shelby, Montana, pursuant to a separate management contract with the state of Montana. In addition to Montana, as I previously mentioned, we are in discussions with several other existing state partners, as well as new state partners, that could result in the activation of one or more EIDL facilities. We believe these opportunities could manifest in both the short-term as well as in the long-term.

Speaker Change: We are pleased to extend our relationship with the State of Montana. During the current quarter, we anticipate receiving 120 residents at our 1,896-bed Saguaro Correctional Facility in Eloy, Arizona, where we already manage 120 residents for the State of Montana.

Speaker Change: Upon receiving these additional residents, the Saguaro facility will be near full capacity.

Speaker Change: Under the new contract, Montana may also utilize additional facilities we operate subject to availability should they have the need.

Speaker Change: we also managed the company owned and fully occupied crossroads correctional center and shelby montana pursuant to a separate management contract with the state of montana

Speaker Change: In addition to Montana, as I previously mentioned, we are in discussions with several other existing state partners as well as new state partners that could result in the activation of one or more EIDL facilities.

Operator: Earnings conference call. At this time, all participants are in a listen only mode. After the speakers presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 11 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

Speaker Change: we believe opportunities could manifest in both the short term as well as in the long term

Damon Hininger: So, in conclusion, our operating costs continue to improve, and the agencies we serve continue to demonstrate a growing need for our solutions. Our financial results for the second quarter and first half of 2024 reflect the value of our solutions and also the ongoing hard work and prudent decisions made by our focus team here at CoreCivic. Our readily available bed capacity and key locations position us well to serve the growing needs of our government partners.

Speaker Change: so in conclusion our operating costs continue toapprove and the agencies we serve continue to demonstrate growing need for our solutions

Speaker Change: Our financial results for the second quarter and first half of 2024 reflect the value of our solutions and also the ongoing hard work and improved decisions made by our focused team here at CoreCivic.

Mike Grant: I would now like to hand the conference over to your first speaker today, Mike Grant, managing director of investor relations. Please go ahead. Thank you, operator. Good morning, ladies and gentlemen. And thank you for joining us today. Participating on today's call are Damon Hininger, CoreCivic's president and chief executive officer, and David Garfinkle, our chief financial officer. We're also joined here in the room by our vice president of finance, Brian Hammons. On this call, we will discuss financial results for the second quarter of 2024, as well as financial guidance for the 2024 year.

Speaker Change: Our readily available bed capacity and key locations position us well to serve the growing needs of our government partners.

Damon Hininger: As Dave will explain in further detail, we are updating our financial guidance for 2024 based on our strong financial performance in the second quarter but also reflecting the termination of the South Texas Family Residential Facility Management Contract, effective on August 9th. Now we'll turn the call over to Dave, who will provide a detailed look at our second quarter financial results, our capital market activities, and assumptions included in our newly updated financial guide. It's over to you, Dave.

Speaker Change: As Dave will explain in further detail, we are updating our financial guidance for 2024 based on our strong financial performance in the second quarter, but also reflecting the termination of the South Texas Family Residential Facility Management Contract, effective on August 9th.

Speaker Change: Now we'll turn the call over to Dave, who will provide a detailed look at our second quarter financial results, our capital market activities, and assumptions included in our newly updated financial guides.

Mike Grant: We will also discuss 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 and litigation reform act. Our actual results or trends may differ materially as a result of a variety of factors, including those identified in our second quarter 2024 earnings release issued after market yesterday, as well as in our securities and exchange commission filings, including forms 10K, 10Q, and 8K reports.

David Garfinkle: Thank you, Damon. And good morning, everyone. In the second quarter of 2024, we reported a gap net income of 17 cents per share, compared with 13 cents per share in the prior year quarter. Excluding special items, adjusted EPS during the second quarter was $0.20 compared with $0.12 per share in the prior quarter, exceeding average analyst estimates as well as our internal forecast by $0.05 per share. Special items in the current year quarter include $4.1 million of expenses associated with debt repayment and refinancing transactions.

Mike Grant: You'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. Management will also discuss certain non-gap metrics. A reconciliation of the most comparable gap measurements is provided in the corresponding earnings release and included in the company's quarterly supplemental financial data report, posted on the investor's page of the company's website at corcivic.com.

Dave Garfinkle: Thank you, Damon, and good morning everyone. In the second quarter of 2024, we reported gap net income of $0.17 per share compared with $0.13 per share in the prior year quarter.

Dave Garfinkle: Excluding special items, adjusted EPS during the second quarter was $.20 compared with $.12 per share in the prior quarter, exceeding average analyst estimates as well as our internal forecast by $.05 per share.

Dave Garfinkle: Special items in the current year quarter include $4.1 million of expenses associated with debt repayments and refinancing transactions.

David Garfinkle: Normalized FFO per share was 42 cents during the second quarter of 2024, compared with 33 cents in the prior quarter, an increase of 27%. Adjusted EBITDA was $83.9 million, compared with $72.1 million in the prior quarter, an increase of $11.8 million, or 16%. The increase in adjusted EBITDA resulted from higher occupancy from federal, state, and local populations and the continued normalization of our operating expense structure. These factors also contributed to the increase in adjusted EPS and normalized FFO per share.

Speaker Change: Normalized FFO per share was $0.42 during the second quarter of 2024, compared with $0.33 in the prior year quarter, an increase of 27%.

Speaker Change: Adjusted EBITDA was $83.9 million, compared with $72.1 million in the prior quarter, an increase of $11.8 million, or 16%.

Speaker Change: The increase in adjusted EBITDA resulted from higher occupancy from federal, state, and local populations and the continued normalization of our operating expense structure.

Damon Hininger: With that, it is my pleasure to turn the call over to our president and CEO Damon Heininger. Thanks, Mike. Good morning and thanks, everyone, for joining us for corcivic's second quarter 2024 earnings call. On today's call, we provide details of our second quarter financial performance. I will also discuss our later operation results and update you on the latest developments with our government partners and our capital allocation strategy.

Speaker Change: these factors also contributed to the increase in adjusted eps and normalizede ffo per share

David Garfinkle: These increases were net of a reduction in facility net operating income of $7.3 million, or $0.05 per share, resulting from the previously disclosed lease termination with the state of California, effective March 31, 2024, at our California City Correctional Center, reported in our property segment. Federal revenue in our safety and community segments increased $16.1 million, or 6.6%, from the second quarter of 2023 to the second quarter of 2024. State revenue in these segments increased $9.5 million, or 5.3%, from the second quarter of 2023 to the second quarter of 2024, which included revenue from two new contracts with the states of Montana and Wyoming awarded in the fourth quarter of 2023.

Speaker Change: These increases were net of a reduction in facility net operating income of $7.3 million, or $0.05 per share, resulting from the previously disclosed lease termination with the State of California, effective March 31, 2024, at our California City Correctional Center, reported in our property segment.

Damon Hininger: Following my remarks, I will turn the call over to our CFO, Dave Garfinkle, who will provide greater detail on our financial results and on our 2024 financial guidance. Dave will also provide an update on ongoing capital structure initiatives, including details on our stock repurchase plan, debt repayments, and progress on our leverage target.

Speaker Change: Federal revenue in our safety and community segments increased $16.1 million, or 6.6%, from the second quarter of 2023 to the second quarter of 2024.

Speaker Change: State revenue in these segments increased $9.5 million or 5.3% from the second quarter of 2023 to the second quarter of 2024.

Speaker Change: which included revenue from two new contracts with the states of Montana and Wyoming awarded in the fourth quarter of 2023.

Damon Hininger: I'll start with a high level overview of our second quarter financial results. In the second quarter, we generated revenue of 490.1 million, a 6% increase compared with the prior year quarter. During this quarter, we experienced revenue growth from all three of our partner groups, federal, state, and local governments. I will provide more color on each later in this call. For the second quarter of 2024, we generated normalized funds from operations or FFO of 46.6% or 42 cents per share, compared with 37.8 million or 33 cents per share in the second quarter of 2023, representing a 27% per share increase.

David Garfinkle: The increase in state revenue is net of a reduction of $7.5 million resulting from the transition of our Allen Gamble Correctional Center in Oklahoma, from a facility we previously operated in our safety segment to a facility we now lease to the state of Oklahoma in our property segment, effective October 1, 2023. This facility generated $1.9 million of revenue in our property segment during the second quarter of 2024, but it was nonetheless more profitable in our property segment than it was in our safety segment.

Speaker Change: The increase in state revenue is net of a reduction of $7.5 million resulting from the transition of our Allen Gamble Correctional Center in Oklahoma

Speaker Change: from a facility we previously operated in our safety segment to a facility we now lease to the state of Oklahoma in our property segment, effective October 1, 2023.

Speaker Change: This facility generated $1.9 million of revenue in our property segment during the second quarter of 2024, but was nonetheless more profitable in our property segment than it was in our safety segment.

David Garfinkle: Local revenue in our safety and community segments increased $4.1 million, or 49%, from the second quarter of 2023 to the second quarter of 2024, primarily resulting from new contracts with Hines County, Mississippi, awarded in the third quarter of 2023, and Harris County, Texas, awarded in the fourth quarter of 2023.

Speaker Change: Local revenue in our safety and community segments increased $4.1 million, or 49%, from the second quarter of 2023 to the second quarter of 2024, primarily resulting from new contracts with Hines County, Mississippi, awarded in the third quarter of 2023, and Harris County, Texas, awarded in the fourth quarter of 2023.

Damon Hininger: The increase in FFO was driven by higher federal, state, and local populations in our safety and community segments combined with expense normalization and lower interest expense resulted from our debt reduction strategy. These increases were partially offset by slightly higher DNA expenses and decreased lease revenue in our property segment, resulting from the previously disclosed expiration of a lease with a state of California at our California City Correctional Center effective March 31, 2024.

David Garfinkle: Finally, revenue in our property segment declined primarily due to the aforementioned expiration of the lease at our California City facility, which resulted in a reduction of $7.8 million from the second quarter of 2023 to the second quarter of 2024. Operating margin and our safety and community facilities combined improved to 23.7% in the second quarter of 2024 compared to 20.6% in the prior year quarter. The increase in our operating margin was due to an increase in occupancy from 70.3% to 74.3% for our safety and community segments combined, an increase in our average per diem rate by 4.8% over the prior quarter, and the normalization of operating expense trends we have experienced over the past several quarters, continuing into the second quarter of 2024.

Speaker Change: Finally, revenue in our property segment declined primarily due to the aforementioned expiration of the lease at our California City facility, which resulted in a reduction of $7.8 million from the second quarter of 2023 to the second quarter of 2024.

Speaker Change: Operating margin on our safety and community facilities combined improved to 23.7% in the second quarter of 2024, compared to 20.6% in the prior year quarter.

Damon Hininger: Federal partners, primarily immigrations and customs enforcement or ICE and the United States Marshall Service can prize slightly over half of CoreCivics total revenue. During the second quarter of 2024, revenue from our federal partners increased 7% versus the second quarter of last year. Revenue from ICE, our largest partner, was up significantly as Title 42 was still in place for approximately half of the comparable quarter of last year. As a reminder, Title 42, which was invoked in March of 2020 at the start of COVID-19 response, empowers federal health authorities to deny migrants entry into the United States in order to prevent the spread of contagious diseases.

Speaker Change: The increase in our operating margin was due to the increase in occupancy from 70.3% to 74.3% for our safety and community segments combined.

Speaker Change: an increase in our average per diem rate by 4.8% over the prior quarter, and the normalization of operating expense trends we have experienced over the past several quarters, continuing into the second quarter of 2024.

David Garfinkle: During the second quarter, we were able to continue reducing certain operating expenses, such as registry nursing, temporary wage incentives, and travel, all related to labor market pressures that have been steadily easing over the past several quarters. These three expense categories declined by $7.4 million from the second quarter of 2023.

Speaker Change: During the second quarter, we were able to continue reducing certain operating expenses such as registry nursing, temporary wage incentives, and travel, all related to labor market pressures that have been steadily easing over the past several quarters.

Speaker Change: These three expense categories declined by $7.4 million from the second quarter of 2023.

Damon Hininger: Title 42 officially ended May 11 of 2023 and our populations with ICE have been consistently higher since then. During the second quarter of 2024, revenue from ICE was 151 million compared to 136.7 million during the comparable quarter of 2023. Now I'd like to review ICE's usage of detention capacity broadly. Following passage of the bipartisan funding bill in March of this year, which provided funding for 41,500 detention beds, ICE's actual usage of detention beds dipped from 39,000 at the start of March to roughly 34 to 35,000 in April before increasing to roughly 37 to 38,000 to the end of the quarter.

David Garfinkle: Turning next to the balance sheet, during the second quarter, we redeemed the remaining $98.8 million outstanding balance on our old 8.25% senior unsecured notes that were scheduled to mature April 15, 2026 at a redemption price of 104.125% of the principal amount, resulting in the aforementioned $4.1 million charge. This redemption completed the refinancing transactions begun during the first quarter with the issuance of $500 million of new senior unsecured notes at an interest rate of 8.25%.

Speaker Change: Turning next to the balance sheet, during the second quarter, we redeemed the remaining $98.8 million outstanding balance on our old 8.25% senior unsecured notes that were scheduled to mature April 15, 2026.

Speaker Change: at a redemption price of $104.125% of the principal amount, resulting in the aforementioned $4.1 million dollar charge.

Speaker Change: This redemption completed the refinancing transactions begun during the first quarter with the issuance of $500 million of new senior unsecured notes at an interest rate of 8.25%.

David Garfinkle: The proceeds of these notes, which have a maturity date of April 15, 2029, were used to tender for the then-outstanding $593.1 million principal balance of our old 8.25% note. In addition to the net proceeds received from the issuance of the new 8.25% notes, we used borrowings under our revolving credit facility and cash on hand to fund the tender and redemption of the old 8.25% notes. Following the completion of the tender offer of $494.3 million of the old 8.25% notes during the first quarter and the redemption of the remaining $98.8 million principal balance in the second quarter, we have no debt maturities until 2027 on $243.1 million of senior unsecured notes at a rate of 4.75%.

Speaker Change: the proceeds of these notes which have a maturity date of april fifteen two thousand and twenty nine were used to tender for the then outstanding five hundred ninety-three point one million dollar principal balance of our old eight a quarter percent notes

Damon Hininger: The most recent ICE detention count was just over 37,000 on July 13, 2024. Note that funding beds also include payment for a number of beds reserved under fixed payment contracts but not fully used at certain facilities. So beds paid for do not equal beds used and therefore the actual number of detention won't necessarily reach that full 41,500 funded level. Ise reserves these beds under fixed payment contracts to ensure that they have capacity when needed.

Speaker Change: In addition to the net proceeds received from the issuance of the new 8.25% notes, we use borrowings under our revolving credit facility and cash on hand to fund the tender and redemption of the old 8.25% notes.

Speaker Change: Following the completion of the tender offer of $494.3 million of the old 8.25% notes during the first quarter and the redemption of the remaining $98.8 million principal balance in the second quarter, we have no debt maturities until 2027 when $243.1 million of senior unsecured notes

Damon Hininger: These inality, economics and geopolitical dynamics both abroad and here in the United States all influence immigration and as such Ise detention populations can fluctuate considerably. CoreCivic's role is to work closely and responsibly with Ise to assist them in their important mission, providing them with bed capacity and locations where needed in a safe, secure and humane environment. CoreCivic's revenue from state partners in our safety and community segments in the second quarter grew 5% versus the prior year.

David Garfinkle: During the second quarter, we also repurchased 1.3 million shares of our common stock at an aggregate purchase price of $20.1 million, increasing the total share repurchases for 2024 to 4 million shares at an aggregate purchase price of $59.5 million. On May 16, 2024, our Board of Directors authorized an increase to the Share Repurchase Program by up to an additional $125 million, increasing the total authorization to $350 million. Since our share repurchase program was announced in May 2022 through June 30th, we have repurchased 14.1 million shares of our stock at a total cost of $172.1 million, or an average price of $12.20 per share, leaving $177.9 million available under the board authorization. As of June 30th, we had $60 million of cash on hand, and an additional $232 million of borrowing capacity on a revolving credit facility, providing us with total liquidity of $292 million.

Speaker Change: at a rate of 4.75% mature.

Speaker Change: During the second quarter, we also repurchased 1.3 million shares of our common stock at an aggregate purchase price of $20.1 million, increasing the total share repurchases during 2024 to 4 million shares at an aggregate purchase price of $59.5 million.

Speaker Change: On May 16, 2024, our Board of Directors authorized an increase to the Share Repurchase Program up to an additional $125 million, increasing the total authorization to $350 million.

Damon Hininger: This increases the result of higher per-dem rates and steady occupancy from our state government partners as well as contributions from new state contracts with Montana and Wyoming signed in the fourth quarter of 2023, which contributed a bit over 1% of that growth. Additionally, as you may recall, the Allen Gamble Correctional Center in Holded to Oklahoma transitioned from a management contract with the state of Oklahoma to at least in October of 2023.

Speaker Change: Since our share repurchase program was announced in May 2022 through June 30th, we have repurchased 14.1 million shares of our stock.

Speaker Change: at a total cost of one hundred and seventy two point one million dollars or an average price of twelve doll in twenty cents per re leaving one hundred and seventy seven point nine million dollars available under the board authorization

Speaker Change: As of June 30th, we had $60 million of cash on hand and an additional $232 million of borrowing capacity on our revolving credit facility, providing us with total liquidity of $292 million.

Damon Hininger: Excluding state revenue from the Allen Gamble facility from our second quarter 2023, which shifted to our property segment, state revenue in our safety and community segments increased nearly 10% year over year. The largest facility occupied by a state government partner in our safety segment is the La Palma Correctional Center in Illinois, Arizona, where we pivoted from a federal contract to a contract with the state of Arizona roughly two years ago. I am pleased to report that financial performance at our La Palma facility continues to progress, with stable occupancy and improving operating and financial metrics.

David Garfinkle: Our leverage, measured by net debt to adjusted EBITDA, was 2.5 times using the trailing 12-month end of June 30, 2024, down from 3.1 times at June 30, 2023, and within our targeted leverage of between 2.25 times and 2.75 times. Moving lastly, to a discussion of our 2024 financial guidance, we expect to generate adjusted EPS of 58 to 66 cents and normalized FFO per share of $1.48 to $1.56 We expect federal populations to remain within a stable range for the remainder of 2024.

Speaker Change: our leverage measured by a net debt to adjust an ebitda with two point five times using the tril twelve months end june thirtieth two thousand and twenty four down from three point one times at june thirtieth two thousand and twenty three and within our targeted leverage of between two and to quarter times and two and three quarters times

Speaker Change: moving last ly to a discussion of our two thousand and twenty-four financial guidance we expect to generate adjusted eps of fifty-eight to sixty- six cents and normalized ffo per sha of a dollar forty eight to a dollar fifty six

Speaker Change: We expect federal populations to remain within a stable range for the remainder of 2024. If national detention populations increase and are sustained at higher levels, there could be upside to our guidance.

David Garfinkle: If national detention populations increase and are sustained at higher levels, there could be upside to our guidance. Our guidance also includes the impact from the previously disclosed termination of the contract at the South Texas Family Residential Center, effective August 9, 2024. This facility is expected to contribute $0.08 of normalized earnings per share in the third quarter, its final quarter of operations, compared with $0.11 in the second quarter. However, these normalized amounts do not include an impairment charge of approximately two cents per share anticipated in the third quarter for the write-off of certain remaining assets at the facility.

Damon Hininger: La Palma's year over year EBITDA improvement in the second quarter was nearly $3 million. As we begin to realize returns on our investments and hard work directed at local hiring made there to end the facility's reliance on temporary labor resources and incentives. There is still room for improvement, but it is hardening to see the progress there. To round out our discussion of the second quarter of 2024 revenue, local revenue and our safety and community segments, which is revenue generated from contracts with county governments, increased 49% albeit off a smaller base.

Speaker Change: Our guidance includes the impact from the previously disclosed termination of the contract at the South Texas Family Residential Center, effective August 9, 2024.

Speaker Change: This facility is expected to contribute $0.08 of normalized earnings per share in the third quarter, its final quarter of operations, compared with $0.11 in the second quarter.

Speaker Change: These normalized amounts do not include an impairment charge of approximately two cents per share anticipated in the third quarter for the write-off of certain remaining assets at the facility.

David Garfinkle: Because the operating margin at this facility exceeded the average operating margin of our safety and community segments due to its size and scalability of expenses, and due to the unique design and specialized services provided at the facility, all else equal, we expect our operating margin to decline by approximately 150 to 200 basis points for a full quarter. Our forecast does not include an increase in populations that could result from the reallocation of federal budget dollars from our South Texas contract to other detention beds, which could provide upside to our guidance.

Damon Hininger: This growth reflects new major contract side in the second half of 2023 with Hines County, Mississippi and Harris County, Texas. Both populations are housed at our Tallahatchee County Correctional Facility, located in Tuttweiler, Mississippi, and the populations have adapted well. Core civics overall oxy in our safety and community segments for the second quarter of 2024 increased to 74.3% from 70.3% in the prior year period. This growth in oxy stems from both higher use of existing contracts, particularly with ICE, and also from the four new contract side in the second half of 2024 that I have mentioned.

Speaker Change: Because the operating margin at this facility exceeded the average operating margin of our safety and community segments,

Speaker Change: Due to its size and scalability of expenses, and due to the unique design and specialized services provided at the facility, all else equal, we expect our operating margin to decline by approximately 150 to 200 basis points for a full quarter.

Speaker Change: Our forecast does not include an increase in populations that could result from the reallocation of federal budget dollars from our South Texas contract to other detention beds, which could provide upside to our guidance.

David Garfinkle: Our guidance also includes additional residents from the state of Montana, based on the Notice of Intent to Award a New Management Contract we just received July 25. We currently expect to receive approximately 120 residents during the current quarter at our 1,896-bed Saguaro Correctional Facility in Arizona, doubling the current population of Montanans at this facility, which was 91% occupied during the second quarter. We also care for approximately 1,000 residents from Hawaii and 600 residents from the state of Idaho at this facility.

Speaker Change: Our guidance also includes additional residents from the state of Montana based on the Notice of Intent to Award a New Management Contract we just received July 25th.

Damon Hininger: From the second quarter of 2023 to the second quarter of this year, Oxy and our safety statement increased from 70.8% to 75.1% where Oxy and our community statement declined very slightly from 62.8% to 62.62.3%. In recent calls, we have discussed labor attraction and retention, important components of our business that has become particularly challenging, starting with the onset of the COVID-19 pandemic. Labor market pressures during 2022 and 2023 necessitated temporary incentives and related incremental operating expenses, including travel and expense outlays.

Speaker Change: We currently expect to receive approximately 120 residents during the current quarter at our 1,896-bed Saguaro Correctional Facility in Arizona, doubling the current population from the state of Montana at this facility, which was 91% occupied during the second quarter.

Speaker Change: We also care for approximately 1,000 residents from Hawaii and 600 residents from the state of Idaho at this facility.

David Garfinkle: Under the new award, Montana may also approve the utilization of any other facility we own or operate should the state need additional capacity. However, our guidance does not include any additional share repurchase. Although our leverage at June 30th is squarely within our targeted range, leverage, which is calculated using EBITDA for the trailing 12 months, will mathematically increase as a result of the termination of the contract at the South Texas facility beginning August 10.

Speaker Change: Under the new award, Montana may also approve the utilization of any other facility we own or operate, should the state need additional capacity.

Damon Hininger: Using the flexibility as the integral part of the private market solution set, the CoreCivic team responded by designing and implementing differentiated human capital strategies and investing in our frontline employee competition. As a result of these initiatives, we have increased our staffing levels through improved recruiting and labor retention. The labor markets we see today in most of our geographies are displaying significant normalization and greater workforce stability. The labor costs increases we see now have returned to relatively normal levels, both on a year-over-year basis and a relation to per dream rates.

Speaker Change: Our guidance does not include any additional share repurchases.

Speaker Change: Although our leverage at June 30th is squarely within our targeted range, leverage, which is calculated using EBITDA for the trailing 12 months, will mathematically increase as a result of the termination of the contract at the South Texas facility beginning August 10th.

David Garfinkle: Accordingly, in order to minimize the impact on leverage, we intend to prioritize the use of our free cash flow to further reduce our debt ahead of stock repurchases, although we may exercise discretion in repurchasing additional shares of our common stock, taking into consideration our leverage, earnings trajectory, stock price, liquidity, and alternative opportunities to deploy capital. Our balance sheet and cash flows remain strong, with no near-term debt maturities and readily available bed capacity, positioning us well to take advantage of opportunities in the market.

Speaker Change: accordingly in order to minimize the impact on leverage we intend to prioritize the use of our free cash flow to further reduce our debt ahead of stock repurchases although we may exercise discretion in repurchasing additional shares of our common stock

Speaker Change: taking into consideration our leverage, earnings trajectory, stock price, liquidity, and alternative opportunities to deploy capital.

Speaker Change: Our balance sheet and cash flows remain strong, with no near-term debt maturities and readily available bed capacity, positioning us well to take advantage of opportunities in the marketplace.

David Garfinkle: We expect Adjusted Funds from Operations, or AFFO, which we consider a proxy for our cash flow available for capital allocation decisions, to range from $162.4 million to $172.4 million, or $1.45 to $1.54 per share, for 2024. We expect our normalized effective tax rate to be approximately 30% for the remainder of the year, which, after considering the lower effective tax rate for the first quarter, equates to an annual effective tax rate of approximately 27.5%.

Speaker Change: We expect Adjusted Funds from Operations, or AFFO, which we consider a proxy for our cash flow available for capital allocation decisions, to range from $162.4 million to $172.4 million, or $1.45 to $1.54 per share for 2024.

Damon Hininger: Our improved staffing has allowed us to dial back elevated spending on temporary incentives and associated travel expenses and has positioned us well operationally to manage our customer's higher population needs. Our safety statement has provided 92% of total revenue year-to-date and the net operating income for our safety statement increased 25% during the second quarter of 2024. Over the second quarter of 2023, reflecting the strong oxy trends and cost management efforts I just detailed.

Speaker Change: We expect our normalized effective tax rate to be approximately 30% for the remainder of the year, which, after considering the lower effective tax rate for the first quarter, equates to an annual effective tax rate of approximately 27.5%.

David Garfinkle: The full-year EBITDA guidance in our press release provides you with our estimate of total depreciation and interest expense. We are forecasting G&A expenses in 2024 to be slightly higher than 2023. We plan to spend $62 to $66 million on maintenance capital expenditures during 2024, unchanged from our previous guidance, and $8 to $10 million for other capital investments, also unchanged from our previous guidance. I will now turn the call back to the operator to open up the lines for questions.

Speaker Change: The full-year EBITDA guidance in our cross-release provides you with our estimate of total depreciation and interest expense. We are forecasting G&A expenses in 2024 to be slightly higher than 2023.

Damon Hininger: Turning to our community statement, which is currently comprised of 21 residential reach facilities serving the bureau prisons, as well as state and county governments. The community statement is engaged primarily in the important activities that prepare individuals for successful re-entry to their communities after a period of incarceration or as an alternative to our incarceration. In addition to our 21 residential reach facilities, our non-residential services, electronic monitoring and case management services are also included in our community statement.

Speaker Change: we plan to spend sixty-two to sixty-six million dollars on maintenance capital expenditures during two thousand and twenty-four unchanged from our previous guidance and eight to ten million dollars for other capital investments also unchanged from our previous guidance

Speaker Change: I will now turn the call back to the operator to open up the lines for questions.

Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by. Our first question comes from Joe Gomez from Noble Capital. Your line is now open.

Speaker Change: Thank you. At this time we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.

Damon Hininger: As mentioned, oxy and our community statement was essentially flat in the second quarter of 2024 compared with the second quarter of 2023. However, net operating income and the statement increased 13% due to per dream increases attained in connection with contract renewals in addition to cost discipline. Similar to our safety statement, our community segment facilities have been able to reduce temporary staffing incentives. We remain positive about the OXC Outlook for the community segment now that the pandemic related public health policies have ended, and as more of our government partners return their focus to the importance of reentry to curb the recidivism challenge.

Speaker Change: To withdraw your question, please press star 11 again. Please stand by.

Speaker Change: Our first question comes from Joe Gomez from Noble Capital. Your line is now open.

Joseph Gomes: Good morning. Thanks for taking the questions.

Damon Hininger: Hey, good morning, Joe.

Speaker Change: Good morning. Thanks for taking the questions. Hey, good morning, Joe.

Joseph Gomes: So I wanted to start on South Texas. Obviously, it ends; my contract ends tomorrow. You've provided the owner and the facility with your lease termination notice. But given the environment and where we are so close to, you know, a new election here, the potential for, you know, a change in administration. Is there a way that you guys can kind of keep that facility, your options for that facility open, at least through the election?

Speaker Change: So I wanted to start on the South Texas. Obviously, you're...

Speaker Change: It ends, the contract ends tomorrow, you've provided the owner of the facility with your lease termination notice.

Speaker Change: Given the environment of where we are so close to, you know, a new election here, the potential for, you know, a change in administration,

Damon Hininger: Our strong financial performance has underwritten our ability to execute on our long-term capital allocation strategy. During the second quarter of 2024, we repurchase 1.3 million shares of our common stock at a cost of $20 million. We ended the quarter of leverage, measured as net debt to adjusted EBITDA at 2.5 times for the trailing sales months, placing us at the midpoint of our two and a quarter times to two and three quarters time leverage target range that we established in August of 2020. We have accomplished what we set out to achieve, and we are proud of the strategy, focus, and diligence that contributed to our success.

Speaker Change: Is there a way that you guys can kind of keep that facility, your options for that facility open at least, you know, through the, to see what happens here at the, in the election?

Damon Hininger: Yes, sir. This is Damon.

Speaker Change: Yes, sir. This is Damon. Short answer is yes. We've got a great relationship with the owner of the assets down there, Target, who has been, again, a great partner here in the last 10 years.

Damon Hininger: And the short answer is yes. So we've got a great relationship with the owner of the assets down there, Target, who has been, again, a great partner here in the last 10 years. And I think just generally, I think you know this history a little bit, Joe, but we got our first family detention contract with ICE back in 2006. They wound down that contract in 2009. That was at another property, but it was actually at our Taylor, Texas facility.

Damon Hininger: And then they came back to us in 2014. So history indicates that there is a chance, maybe a good chance, that depending on the needs on the southwest border, they will come back to us for a solution. So that's a long way of saying absolutely that we're keeping all our options open for sure. I don't know anything you'd add to that, Dave. We do have a 90-day marketing period with them that begins on Friday where we work together to try to come up with a replacement customer.

Joe Gomez: And I think just generally, I think you know this history a little bit, Joe, but we got our first family detention contract with ICE back in 2006. They wound down that contract in 2009. That was at another property. It was actually at our Taylor, Texas facility.

Dave Garfinkle: In his comments, Dave will provide you with further detail regarding our capital market's activities.

Speaker Change: And then they came back to us in 2014. So history indicates that there is a chance, maybe a good chance, that

Damon Hininger: Before discussing growth opportunities and concluding my remarks, I want to discuss our South Texas Family Residential Center in Dilly, Texas, where operations will officially cease tomorrow, and I would like to start with a bit of history. In 2014, during the Obama Biden administration, ICE came to Core Civic as a trusted partner to help them solve an emergent and high-profile challenge of providing temporary residential space and screening for family groups crossing the southern border.

Dave Garfinkle: depending on the needs on the Southwest border, they come back to us for a solution. So that's a long way of saying, absolutely, we're keeping all our options open, for sure. I don't know if anything you'd add to that, Dave. We do have a 90-day marketing period with them that begins on Friday.

Dave Garfinkle: where we work together to try to come up with a replacement customer. So, that would take us through the middle of November . So, I'm sure they'll be looking for other customers as well, but as Damon mentioned, they're a really good partner and we continue to have dialogue about exactly what you just described.

Damon Hininger: So that would take us through the middle of November. So I'm sure they'll be looking for other customers as well. But as Damon mentioned, they're a really good partner, and we continue to have discussions about exactly what you just described.

Joseph Gomes: Okay, thanks for that. Typically, July is when the state budgets all come in, and you start to see some per diem, potential per diem increases for the year forward. I'm just trying to get an idea how that kind of played out this year for some of your state contracts.

Damon Hininger: Prior solutions to attempted by the government have proven inadequate, and ICE recognized Core Civic for its ability to respond to challenges nimbly and swiftly, both inherent advantages of the private sector. We always be agreed to a contract for a unique facility, a facility that would be offered under family residential standards. In 2021, at the request of ICE, the facility shifted its mission to the detention of single adults, initially females, and then later to males.

Speaker Change: Okay, thanks for that. And then I know, typically...

Speaker Change: You know in July is when the state budgets all come in and you start to see some per diem Potential per diem increases for the year forward. I'm just trying to get a idea how that kind of played out this year for for some of the your your state contracts

Damon Hininger: Yeah, Dave, maybe I can give you a number or two, but overall, we had a good spring. So again, we worked closely with our partners and, in turn, with their engagement with legislators around the country and the dozen or so states that we have direct contracts with.

Speaker Change: Yeah, Dave, maybe I can give you a number or two, but overall we had a good spring. So again, we worked closely with our partners and in turn with their engagement with legislators around the country.

Damon Hininger: ICE chose to retain operations under the family residential standards, which embedded higher cost, presumably because it preserved flexibility around future use of the facility. As we disclose on June 10th, ICE communicated to us that based on the cost of the facility, their budgetary pressures, and desire for additional more secured detention capacity, which provides them flexibility, they intended to terminate the contract for services at the South Texas facility on August 9th, and reprogram the savings its a new capacity in existing and new contracts in key strategic locations in the United States.

Damon Hininger: So I'd say generally, we had an overall good year. As you know, in the last couple of years, we got some pretty outsized per diem increases where a big chunk of that would go to salary increases to deal with all the challenges in the labor market because of the pandemic. So I'd say this spring felt a little more like a normal spring, kind of pre-COVID, where you'd see increases in the range of 2% to 4%, depending on the jurisdiction.

Speaker Change: that we have direct contracts with, so, I'd say generally we had an overall good year…

Speaker Change: As you know, the last couple of years, we've got some pretty outsized per diem increases where a big chunk of that would go to salary increases to deal with all the challenges in the labor market because of the pandemic.

Speaker Change: So I'd say this spring felt a little more kind of a normal spring, kind of pre-COVID, where you'd see increases in kind of the range of two to four percent depending on the jurisdiction, but I think you'd add to that. Yeah, I was looking at the number. That's exactly right. It's low, low single digits, a little bit higher than CPI.

Damon Hininger: But I think you'd add to that. Yeah, I was looking at the number. It's exactly right. It was low, single digits, a little bit higher than CPI. So it was a pretty normal year, as it was with our wage increases this year as well.

Speaker Change: So a pretty normal year as it was with our wage increases this year as well.

Joseph Gomes: Thanks for that. And one more, if I may.

Damon Hininger: We're extremely proud of the South Texas Family Residential Center, and thankful for the nearly 10 years, it was able to serve the evolving needs of ICE. Our team at South Texas is excellent, bringing compassion and a wealth of skills and disciplines, and many of them have accepted employment opportunities we have offered them at other Core Civic facilities. While we are winding down this contract, the longer-term macro environment for our federal, state, and local business remains extremely strong.

Speaker Change: Thanks for that, and one more if I may.

Speaker Change: Unknown Speaker So, you know, obviously, listen to the the geo call yesterday. You know, and if you're looking at the ice numbers, or David, you did talk about them, you know, that mid

David Garfinkle: June they hit about $38,500 to come back down as you said to $37,000 level authorizations for $41,500.

Joseph Gomes: So, you know, obviously, listen to the GEO call yesterday. You know, and if you're looking at the ICE numbers, or David, you talked about them, that in mid-June, they hit about $38,500 to come back down, as you said, to $37,000 level authorizations for $41,500. One of the things that GEO mentions is that, you know, ICE's budget constraints it from moving much past that $37,000 number. I want to try to get, you know, your guys' thoughts on that topic.

David Garfinkle: One of the things that Gio mentioned is they felt that ICE's budget constraint for moving much past that $37,000 number.

Damon Hininger: The complex challenges our government partners facing include existing capacity limitations, aging infrastructure, staffing challenges, and populations that are increasing in numbers and involving in their needs. In particular, we remain in discussions with federal, state, and local government agencies, including several agencies we do not currently serve to help address their various challenges in the near to long term. Some of these opportunities may require activation to several of our idle facilities. Demonstrating this need at the federal level, on May 30th, Iced issued an RFI seeking information on facilities within three areas of responsibility, Chicago, Parleyton, and Salt Lake City.

Joseph Gomes: You know, do you think they are constrained in the fact that, you know, South Texas is now gone, that that does give them the flexibility to, you know, in other areas, other facilities to increase populations there? Yeah, I think so.

Speaker Change: We want to try to get, you know, your guys' thoughts on that topic.

Speaker Change: Do you think they are constrained in the fact that, you know, South Texas is now gone, that does give them the flexibility to, you know, in other areas, other facilities to increase populations there?

Damon Hininger: You know, again, they said when they took the action in South Texas, it was budget related, but they also wanted to get capacity in some other locations around the country, especially capacity that maybe was able to take higher custody detainees. And so we've seen a little bit higher utilization already in our system. Again, the budget won't be impacted until after tomorrow because, obviously, that's when the contract expires. So from kind of now until the end of September, I think there is a chance we'll see a little higher utilization.

Damon Hininger: Yeah, I think that's a good question, and I think that's right.

Speaker Change: Yeah, I think that's a good question and I think I think that's right. You know, again, they said when they took the action on South Texas, it was

Speaker Change: budget related, but also they want to get capacity in some other locations around the country, especially capacity that maybe was able to take higher custody.

Speaker Change: We've seen a little bit higher utilization already in our system. Again, the budget won't be impacted until after tomorrow, because obviously that's when the contract expires. So from now until the end of September , I think there is a chance we'll see a little higher utilization.

Damon Hininger: Generally, facilities should be within a two-hour commute from the listed Iced Field or subfield office, comply with Iced Performance-based and National Detention Standards, have approximately 850 to 950 detention beds and an infirmary. They prefer a dedicated facility but will consider a shared facility. Interested parties may propose one or more facility in each area of responsibility or AOR and may also support multiple AORs. The RFI is for informational purposes only and does not constitute an RFP or a commitment to issue an RFP.

Damon Hininger: Not necessarily brand new contracts, but I think it's just probably existing contracts with a increased utilization a little bit. You know, as I said in my script too, you know, they do try to keep some beds kind of on reserve throughout the system. So I don't know if they get to exactly that 41,500 number before the end of the fiscal year, but I don't think you'd add to that, Dave. I think you covered everything I was going to say. Great.

Dave Garfinkle: Not necessarily brand new contracts, but I think it's just probably existing contracts with an increased utilization a little bit. You know, as I said in my script too, you know, they do try to keep some beds kind of on reserve throughout the system, so I don't know if they get to exactly that 41,500 number before the end of the fiscal year, but I don't think you'd add to that, Dave. I think you covered everything I was going to say.

Joseph Gomes: Great. Nice quarter. Thanks for taking my questions.

Speaker Change: Great. Nice quarter. Thanks for taking my questions. Thank you, Jeff.

Jason Weaver: Our next question comes from Jason Weaver from Jones Trading. Your line is open.

Speaker Change: Thank y'all.

Damon Hininger: Responses to the RFI were due June 23, 2024. We have responded with multiple facility options, including our idled 1,033-bed Midwest Regional Reception Center in Kansas. This is the largest advertisement for potential new detention capacity by Iced in over 10 years and we believe we are the only provider with available capacity in all three locations. Further demonstrating growing needs at the federal level, on June 26th, Iced issued an RFP for up to 600 detention beds in the state of New Jersey, which would expand their capacity in that state. Initial responses were due on July 17th.

Jason Weaver: Hey, good morning. Thanks for taking my question. Along those same lines, just quickly on the guidance for the second half, is any amount of that variation due to the uncertainty around the ICE appropriations process, where the budget will start on October 1st?

Speaker Change: Our next question comes from Jason Weaver from Jones Trading. Your line is open.

Jason Weaver: Hey, good morning. Thanks for taking my question. Along the same lines, just quickly on the guidance for the second half, is any amount of that variation due to the uncertainty around the ICE appropriations process where the budget will start on October 1st?

Damon Hininger: Yeah, let me maybe tag team with Dave on this. Give you a little idea of what we're thinking about next year for the fiscal year starting October 1st. And so we think there's probably a pretty good chance that the federal government will be funded through a continued resolution. You know, again, kind of have to look at a crystal ball on timing on how long that goes.

Speaker Change: Yeah, let me maybe tag team with Dave on this, give you a little just, you know, how we're thinking about next year for the fiscal year starting October 1st. And so, we think there's probably a pretty good chance that the federal government will be funded through a continued resolution, you know, again.

Damon Hininger: But I think it's probably a pretty good guess that it goes past the election and probably even past the beginning of the first year. And so basically, that resets the budget amount, you know, specifically for ICE at that $41,500 number. But I guess the other thing I'd point to is that we do know that the House has released their funding proposal for ICE, which would take it up to $50,000. I don't believe, as of today, the Senate has released their funding number, but just a reminder, they did include a funding number in that bipartisan immigration bill back in, I think, February or March of this year.

Speaker Change: And I have to look in a crystal ball on timing on how long that goes, but I think it's probably a pretty good guess. It goes past the election and probably even past the beginning of the first of the year. And so basically that resets the...

Damon Hininger: Demonstrating the growing need at the state level, as mentioned in our earnings press release yesterday on July 25, 2024, we received a notice of intent to award a new major contract from the state of Montana. We are pleased to extend our relationship with the state of Montana. During the current quarter, we anticipate receiving a 120 residents at our 1896 beds' World Correctional Facility in Illinois, Arizona, where we already managed 120 residents for the state of Montana.

Dave Garfinkle: the budget amount of civ for ice at deb forty one thousand five hundred number but i guess the other thingi'd point two is that we do know that the house is released their funding proposal for ice which youwouldtake it up to fifty thousand

Damon Hininger: Upon receiving these additional residents, this world facility will be near full capacity. Under the new contract, Montana may also utilize additional facilities we operate subject to availability should they have the need. We also manage the company owned and fully occupied Crossroads Correctional Center in Shelby, Montana, pursuant to a separate manager contract with the state of Montana. In addition to Montana, as I briefly mentioned, we are in discussions with several other existing state partners as well as new state partners that could result in the activation of one or more idle facility.

Speaker Change: I don't believe as of today Senate has released their funding number, but just a reminder they did do

Damon Hininger: Ultimately, that didn't get passed, but of note, that was also at $50,000, so we don't think that's a coincidence that they're thinking kind of that number for next year. And again, that bill on the Senate side was bipartisan.

Speaker Change: a funding member in that bipartisan immigration bill back in I think February or March of this year.

Speaker Change: Ultimately that didn't get passed, but of note, that was also at $50,000, so we don't think that's a coincidence.

Damon Hininger: So we'll have to wait and see. Again, we got to get through the election and get through the end of the year. And as it relates to total funding levels, that will get enacted, we think, probably first of next year. So going back to your question around guidance, I mean, we're seeing kind of rest of the year kind of stable populations within our system. So even though there could be a pretty significant increase next fiscal year, at the moment, we're not making that into guidance. But anything to add to that, Dave? Yeah,

Speaker Change: That they're thinking of kind of that number for next year. And again that bill, on the Senate side, was bipartisan. So we'll have to wait and see, again, gotta get through the election, get through the end of the year.

Speaker Change: And as it relates to total funding levels, that will get enacted, we think, probably first of next year.

Speaker Change: So, going back to your question around guidance, I mean, we're seeing...

Speaker Change: kind of rest of the year kind of stable populations within our system. So even though there could be a pretty significant increase next fiscal year, at the moment, we're not making that in the guidance, but you get into that, Dave . Yeah.

David Garfinkle: As Damon said, our forecast contemplates pretty stable federal populations for the rest of the year, and populations can fluctuate. I mean, here we are in the peak summer months, which is typically the time when you see lower migration to the U.S. because of the heat. And then there are other factors that Damon mentioned in his prepared remarks that can influence populations.

Dave Garfinkle: Our forecast contemplates pretty stable federal populations for the rest of the year, and populations can fluctuate.

Damon Hininger: We believe that opportunities could manifest in both the short-term as well as in the long-term. So in conclusion, our operating costs continue to improve and the agencies we serve continue to demonstrate a growing need for our solutions. Our financial results for the second quarter and first half of 2024 reflect the value of our solutions and also the ongoing hard work and fruit decisions made by our focus team here at CoreCivic. Our readily available bed capacity and key locations position us well to serve the growing needs of our government partners.

Dave Garfinkle: David Garfinkle, Damon Hininger, David Garfinkle, Damon Hininger,

Speaker Change: And then there's other factors that Damon mentioned in his prepared remarks that can influence.

David Garfinkle: I think when October 1 hits, the federal budget will refresh, so there's always a chance that they will feel more comfortable spending more dollars earlier in the year. And then finally, my last point would be that ICE did indicate that they have the flexibility to reallocate the South Texas contract dollars to 1,600 additional detention beds. So, in theory, I think that would increase the funded level from $41,500. But again, not in our forecast. We're contemplating remaining stable throughout the rest of the year, but we'll just have to wait and see.

Speaker Change: populations. I think when October 1 hits, the federal budget will refresh. So there's always a chance that they feel more comfortable spending more dollars.

Speaker Change: earlier in the year. And then finally, my last point would be they did indicate, ICE did indicate that they had the flexibility to reallocate the South Texas contract dollars to 1600 additional detention beds. So in theory, I think that would increase the

Damon Hininger: As they will explain in further detail, we are updating our financial guidance for 2024 based on our strong financial performance in the second quarter but also reflecting the determination of the South Texas Family Residential Facility Measure Contract effective on August 9th.

Speaker Change: The funded level from $41,500. But again, not in our forecast, we're contemplating stable throughout the rest of the year, but we'll just have to wait and see.

Jason Weaver: Got it. That's helpful. Thank you.

Jason Weaver: And then dovetailing into that, I believe the House Appropriations Bill also seemingly expands the ISAP program to cover the entire non-detained docket. Whether that gets done, you know, is anybody's guess. But if it becomes significantly larger, can you see that contract being opened up to more than just a single vendor? And how would your offering fit into that program?

Speaker Change: Got it. That's helpful. Thank you. And then dovetailing into that, I believe the House Appropriations Bill also seemingly expands the ISAP program to cover the entire non-detained docket, whether that gets done, you know, is anybody's guess.

Dave Garfinkle: Now, we'll turn the call over to Dave who will provide a detailed look at our second quarter financial results, our capital market activities, and assumptions included in our newly updated financial guides over to you, Dave. Thank you, Damon, and good morning, everyone. In the second quarter of 2024, we reported gap net income of $0.17 per share compared to $0.13 per share in the prior year quarter, excluding special items adjusted EPS during the second quarter was $0.20 compared to $0.12 per share in the prior year quarter exceeding average analyst estimates as well as our internal forecast by $0.05 per share.

Speaker Change: But if it becomes significantly larger, can you see that contract being opened up to more than just a single vendor? And how would your offering fit into that program?

Damon Hininger: Yeah, so you're exactly right on the funding level, so we've been watching that closely, and I think it's absolutely the case. I think if they have to go up to several million participants in that program, then I think they'll have to open it up for multiple vendors to provide that type of scale and flexibility for that size of program. So we've been doing a lot of work. Obviously, we've got, within our community segment, a lot of expertise on monitoring and what the right devices are, if it's an ankle bracelet or if it's a wrist-worn device or whatnot.

Speaker Change: Yeah, so you're exactly right on the funding level, so we've been watching that closely, and I think it's absolutely the case. I think if they have to go up to several million,

Speaker Change: Participants in that program, and I think they'll have to open it up for multiple vendors to provide that type of scale and flexibility for that size of program. So, we've been doing a lot of work. Obviously, we've got...

Dave Garfinkle: Special items in the current year quarter include $4.1 million of expenses associated with debt repayment and refinancing transactions. Normalized FFO per share was $0.42 during the second quarter of 2024 compared to $0.33 in the prior year quarter an increase of 27%. Adjusted EBITDA was $83.9 million compared with $72.1 million in the prior year quarter an increase of $11.8 million or 16%. The increase in adjusted EBITDA resulted from higher occupancy from federal, state, and local populations and the continued normalization of our operating expense structure.

Damon Hininger: So we've been doing a lot of work and testing and getting ourselves prepared. But yeah, I think if there's a significant increase in that program, they'll have to look at multiple providers to provide solutions, not just on the technology side, but I think also on the counseling and case management. Anything to add to that, David?

Speaker Change: Within our community segment, a lot of expertise on monitoring and what the right devices are, if it's ankle bracelet or if it's a wrist-worn device or whatnot. So we've been doing a lot of work.

Speaker Change: and testing and getting ourselves prepared. But yeah, I think if there's a significant increase in that program, they'll have to look at multiple providers to provide solutions.

David Garfinkle: Yeah, our approach is a little different when it comes to that contract with respect to the technology. We're kind of technology agnostic and would look to other technology providers to team with us so that that obviously avoids the capital expenditures that are necessary to constantly invest in the technology, different solutions that ICE may request. Obviously, that comes at the downside of a little bit of margin that goes to those providers, but it relieves us of that capital obligation.

Speaker Change: Not just on the technology side, but I think also on the counseling and case management. Anything you had to add to that, David? Yeah, just our approach is a little different when it comes to that contract with respect to the technology. We're kind of technology agnostic.

David Garfinkle: and, you know, would look to other technology providers to team with us.

Speaker Change: David Garfinkle, Damon Hininger, David Garfinkle, Damon Hininger, David Garfinkle, Damon Hinginger,

Dave Garfinkle: These factors also contributed to the increase in adjusted EPS and normalized FFO per share. These increases were net of our reduction in facility net operating income of $0.7.3 million or $0.5 per share resulting from the previously disclosed lease termination with the state of California effective March 31, 2024 at our California City Correctional Center reported in our property segment. Federal revenue in our safety and community segments increased $16.1 million or 6.6 per cent from the second quarter of 2023 to the second quarter of 2024.

Speaker Change: but it relieves us of that.

David Garfinkle: That's probably the main difference. But again, when it comes to case management services, we provide a lot of those services, particularly in our residential reentry centers today. But if they are going to expand it to the 7 million non-detained docket that they've discussed, I think you're going to see multiple providers involved in that type of a solution. Got it. Thank you for that color and congrats on the quarter.

Speaker Change: David Garfinkel, Cameron Hopewell, David Garfinkel, Damon Hininger, Cameron Hopewell, David Garfinkel,

Speaker Change: When it comes to the case management services, we provide a lot of those services, particularly in our residential reentry centers.

Speaker Change: today, but if they are going to expand it to the 7 million non-detained docket that they've discussed, I think you're going to see multiple providers involved in that type of a solution.

Jason Weaver: Got it. Thank you for that color and congrats on the quarter. Thank you.

Speaker Change: Got it. Thank you for that, Culler, and congrats on the quarter. Thank you. Thank you, sir.

Dave Garfinkle: State revenue in these segments increased $9.5 million or 5.3 per cent from the second quarter of 2023 to the second quarter of 2024 which included revenue from two new contracts with the state of Montana and Wyoming awarded in the fourth quarter of 2023. The increase in state revenue is net of our reduction of $7.5 million resulting from the transition of our Allen Gamble Correctional Center in Oklahoma from a facility we previously operated in our safety segment to a facility we now lease to the state of Oklahoma in our property segment effective October 1, 2023.

Brian Violino: Our next question comes from Brian Violino from Wedbush. Your line is open.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Brian Violino from Wedbush. Your line is open.

Brian Violino: Great, thanks for taking my question. I just wanted to touch on the NOI margins. I heard in the comments that the Stock Tax is probably going to have a 150 to 200 basis point negative impact, which would put the safety segment margin just under 22% pro forma. But it sounds like the expense environment is improving. I guess, can you talk about the potential for margin expansion above that pro forma level looking out into the back half of the year? Yeah, I'll take that.

Brian Violino: Great, thanks for taking my questions.

Brian Violino: I just wanted to touch on the NOI margins that

Speaker Change: heard in the comments that Scott Texas is probably going to have a 150 to 200 basis point negative impact.

Speaker Change: which we put the safety segment margin just under 22% pro forma. But it sounds like the expense environment is improving. I guess, can you talk about the potential for margin expansion above that pro forma level, looking out into the back half of the year?

Brian Violino: Yes, and similar to what we have seen in increases in occupancy from, say, the second quarter of last year to the second quarter of this year, it's a very leveraged model such that if those margins do increase, the higher occupancy goes. So we're still, you know, six, seven percentage points away from pre-pandemic occupancy. So if occupancy continues to increase, we would expect those margins to offset, at least partially offset, that reduction that we will see from the South Texas contract.

David Garfinkle: Yeah, I'll take that one. Thanks, Brian.

Dave Garfinkle: This facility generated $1.9 million of revenue in our property segment during the second quarter of 2024 but was nonetheless more profitable in our property segment than it was in our safety segment. Local revenue in our safety and community segments increased $4.1 million or $49% from the second quarter of 2023 to the second quarter of 2024. The second quarter of 2023 and Harris County, Texas awarded in the fourth quarter of 2023. Finally, revenue in our property segment declined primarily due to the aforementioned expiration of the lease at our California city facility which resulted in a reduction of $7.8 million from the second quarter of 2023 to the second quarter of 2024.

Speaker Change: Yeah, I'll take that one. Thanks, Brian . Yes, and

Speaker Change: Similar to what we have seen in increases in occupancy from, say, the second quarter of last year to the second quarter of this year, it's a very leveraged model, such that if those margins do increase, the higher occupancy goes.

Speaker Change: So, we're still, you know,

Unknown Attendee: Unknown Attendee 6-7 percentage points away from pre-pandemic occupancy.

Brian Violino: If occupancy continues to increase, we would expect...

Speaker Change: those margins to offset at least partially offset that that

Brian Violino: Per diem increases, as we mentioned, we got a little bit better than CPI, I think, during the July 1 timeframe, which is when state government budgets reset, so that will help margin improvement as well. That would, again, be offset a little bit by the wage increases that we also provide at our state facilities effective July 1. So certainly, increased opportunities with occupancy, that's going to be the biggest driver.

Brian Violino: that reduction that we will see from the South Texas contract.

Brian Violino: Per diem increases, as we mentioned, we got a little bit better than CPI, I think, during the July 1 timeframe, which is when

Speaker Change: State Government Budgets Reset, so that will help.

Speaker Change: Margin improvement as well, that would again be, ah, offset a little bit by the, ah, wage increases that we also provide at our state facilities effective July 1. So, certainly, um, increased opportunity with occupancy, that's gonna be the biggest driver.

Dave Garfinkle: Operating margin on our safety and community facilities combined improved to 23.7% in the second quarter of 2024 compared to 20.6% in the prior year quarter. The increase in our operating margin was due to the increase in occupancy from 70.3% to 74.3% for our safety and community segments combined. An increase in our average per DM rate by 4.8% over the prior year quarter and the normalization of operating expense trends we have experienced over the past several quarters continuing into the second quarter of 2024.

Brian Violino: Got it, makes sense. And just one more on the reallocation of funds from South Texas. I guess, you know, could you talk about, if you think, and it sounds like the answer may be yes, but if you think that this really increases the likelihood of, you know, new facilities opening, you know, just with all the RFIs and RFPs coming out, and then just your thoughts on the timeline of when we could start to hear awards being given out related to those RFPs and, you know, later on RFIs. Yeah And I think, I think you're.

Speaker Change: Got it. Makes sense.

Speaker Change: Just one more, on the reallocation of funds from South Texas.

Speaker Change: I guess, you know, could you talk about if you think, and it sounds like the answer may be yes, but if you think that

Speaker Change: This really increases the likelihood of, you know, new facilities opening, you know, just with all the RFIs and RFPs coming out. And then just your thoughts on the timeline of when we could start to hear.

Dave Garfinkle: During the second quarter we were able to continue reducing certain operating expenses such as registry nursing, temporary wage incentives and travel all related to labor market pressures that have been steadily easing over the past several quarters. These three expense categories declined by $7.4 million from the second quarter of 2023. Turning next to the balance sheet during the second quarter we were deemed the remaining $98.8 million outstanding balance on our old 8.25% senior unsecured notes that were scheduled to mature April 15th, 2026.

Speaker Change: David Garfinkle, Damon Hininger, Cameron Hopewell, David Garfinkle, Damon Hininger,

Damon Hininger: Yeah, great, great question. And I think I think you're spot on with kind of your comment there. I think it's no coincidence the timing of that contract and the action they took on terminating it with the RFIs they released. So again, you know, looking for three different locations in different parts of the country for, you know, up to 1,000 beds, again, that kind of advertising that came out right around the time we got the notice from South Texas.

Brian Violino: Yeah, great, great question and I think

Brian Violino: I think you're spot on with kind of your comment there. I think it's no coincidence on the timing of that contract and the action they took on terminating it with the RFIs they released. So, again,

Brian Violino: You know, looking for three different locations in different parts of the country for, you know, up to a thousand beds.

Damon Hininger: So I think they're thinking about that way of, again, not only increased utilization of existing contracts, but this gives them the comfort to go ahead and at least move forward on RFI. Obviously, they haven't done RP yet, so obviously they've got to see that next. But I think it's a good indication by them taking that initial step with the advertisements for these three facilities that now, with these budget savings, they can kind of redeploy that in new capacity around the country. Anything you can add to that, David?

Brian Violino: Again, that kind of advertising came out right around the time we got the notice from South Texas. So I think they're thinking about that way of, again, not only increased utilization of existing contracts, but also this gives them the comfort to go ahead and at least move forward on RFI. Obviously, they haven't done RFP yet, so obviously got to see that next.

Dave Garfinkle: At a redemption price of 104.125% of the principal amount resulting in the aforementioned $4.1 million charge. This redemption completed the refinancing transactions begun during the first quarter with the issuance of $500 million of new senior unsecured notes at an interest rate of 8.25%. The proceeds of these notes, which have a maturity date of April 15th, 2029, were used to tender for the then outstanding $593.1 million principal balance of our old 8.25% notes.

Brian Violino: But I think it's a good indication by them taking that initial step with the advertisements for these three three facilities that now with these budget savings they can kind of redeploy that in new capacity around the country, but Yeah, I think it's in the short term it it would be allocated more toward existing facilities with existing contracts

David Garfinkle: I think in the short term it would be allocated more toward existing facilities with existing contracts. I mean, here we are on August 8th. I guess it is. It would be tough to get them done before the end of the fiscal year given the state that they're only in an RFI stage, as Damon mentioned, but the South Texas contract does free up permanent dollars even beyond the end of this fiscal year. So I still think that they'll act on that RFI.

Brian Violino: I mean, here we are, August 8th, I guess it is.

Dave Garfinkle: In addition to the net proceeds received from the issuance of the new 8.25% notes we use borrowings under our revolving credit facility and cash on hand to fund the tender and redemption of the old 8.25% notes. Following the completion of the tender offer of $494.3 million of the old 8.25% notes during the first quarter and the redemption of the remaining $98.8 million principal balance on the second quarter we have no debt maturities until 2027 on $243.1 million of senior unsecured notes at a rate of 4.75% mature.

Speaker Change: It'd be tough to get them done before the end of the fiscal year, given the state that they're only in an RFI stage, as Damon mentioned. But the South Texas contract does free up permanent dollars.

David Garfinkle: Timing is always difficult to predict with any government agency, but the average time frame from beginning RFI to award is six months-ish, so that could give you some idea. Now it's an election year, so I don't know if that's going to factor into the timing of an award or not, but we do know that they have historically said that they have a need, and as we've proposed, you know, our facility in Kansas, we've had a lot of conversations with ICE about that facility's path, so I still think they could act on that one.

Speaker Change: Even beyond the end of this fiscal year. So I still think that they'll act on that RFI The timing is always difficult to predict with any government agency but the average, you know

Speaker Change: Time frame from beginning RFI to award is six months-ish, so that could give you some idea. Now, it's an election year, so don't know if that's...

Brian Violino: We don't know whether they will factor into the timing of an award or not, but we do know that they have historically said that they have a need, and as we proposed our facility in Kansas, we've had a lot of conversations with ICE about that facility pass, so we still think they can act on that one.

Dave Garfinkle: During the second quarter, we also repurchased 1.3 million shares of our common stock at an aggregate purchase price of $20.1 million, increasing the total share repurchases during 2024 to 4 million shares at an aggregate purchase price of $59.5 million. On May 16, 2024, our Board of Directors authorized an increase to the share repurchase program up to an additional $125 million, increasing the total authorization to $350 million. Since our share repurchase program was announced in May 2022 through June 30, we have repurchased 14.1 million shares of our stock at a total cost of $172.1 million, or an average price of $12.20 per share, leaving $177.9 million available under the Board of Authorization.

Brian Violino: Great, thank you very much.

Brian Violino: Thank you.

Speaker Change: Thank you.

Benjamin Briggs: Our next question comes from Ben Briggs from StoneX Financial. Your line is open.

Brian Violino: Our next question comes from Ben Briggs from StoneX Financial. Your line is open.

Benjamin Briggs: Hey guys, good morning. And thank you for taking the questions. And also, congratulations on the quarter. So the vast majority of mine got asked. So, thank you. But the last one I had was, I believe the answer is no, but can you just clarify for me, does this shared buyback authorization expire, or would it have to be basically terminated for it to expire? Correct.

Ben Briggs: Hey guys, good morning, and thank you for taking the questions, and also congratulations on the quarter. So, the vast majority of mine got asked and answered here.

Speaker Change: Unknown Speaker So thank you. Last one I had was, I believe the answer is no. But can you just clarify for me, does this shared buyback authorization expire? Or would it have to be basically terminated for it to expire?

David Garfinkle: Correct. No, it does not expire.

David Garfinkle: It's open-ended. I think we gave the $177 million remaining under that authorization. And we have not suspended it. What I said in my prepared remarks is we'll kind of slow down the share repurchase until we get better visibility because of the increase in leverage that will come from South Texas. But it is certainly open. We have no restrictions on our ability to buy back stock. Our covenants are well within the cushion on our covenants. So if there are opportunities, we could act on those opportunities. But the short answer to your question is that there is no expiration on that authorization.

Dave Garfinkle: As of June 30, we had $60 million of cash on hand and additional $232 million of borrowing capacity on a revolving credit facility providing us with total liquidity of $292 million. Our leverage measured by a net debt to adjust an EBITDA was 2.5 times using the trailing 12 months ended June 30, 2024, down from 3.1 times at June 30, 2023. And within our targeted leverage of between two and a quarter times and two and three-quarters times.

Speaker Change: Unknown AttendeeCorrect. No, it does not expire. It's open-ended.

Speaker Change: I think we gave the $177 million remaining under that authorization. And we have not suspended it. You know, what I said in my prepared remarks is we'll kind of slow down the share repurchase until we get better visibility because of the increase in leverage that will come from South Texas. But it is certainly open. We have no restrictions on our ability to buy back stock. Our covenants are well within cushion on our covenants.

Brian Violino: So, if there's opportunities, we could act on those opportunities, but short answer to your question, there's no expiration on that authorization.

Dave Garfinkle: Moving lastly to a discussion of our 2024 financial guidance, we expect to generate adjusted EPS of 58 to 66 cents and normalize FFO per share of $1.48 to $1.56. We expect federal populations to remain within a stable range for the remainder of 2024. If national detention populations increase and are sustained at higher levels, there could be upside to our guidance. Our guidance includes the impact from the previously disclosed termination of the contract at the South Texas Family Residential Center effective August 9, 2024.

Benjamin Briggs: Okay, got it. And I do see in your release here that you state, and I think you said during the scripted portion, that you intend to prioritize the use of free cash flow to reduce debt. Is there any authorization that's necessary for you guys to buy back debt, or is that you can kind of do that at your option?

Speaker Change: Okay, I got it. And I do see in your release here that you state you, and I think you stated during the scripted portion.

Speaker Change: that you intend to prioritize the use of free cash flow to reduce debt. Is there any authorization that's necessary for you guys to buy back debt? Or is that you can kind of do that at your option?

David Garfinkle: Yeah, we've had that conversation with our board previously, so we have that option. We speak to them about capital allocation strategies at every quarterly board meeting, and we'll be having that discussion in the coming weeks with them again, but I wouldn't expect any restrictions there.

Speaker Change: Yeah, we've had that conversation with our board previously. So we have that option. We speak to them about capital allocation strategies every quarterly board meeting, and we'll be having that discussion in the coming weeks with them again, but I wouldn't expect any restrictions there.

Dave Garfinkle: This facility is expected to contribute 8 cents of normalized earnings per share in the third quarter, its final quarter of operations, compared with 11 cents in the second quarter. These normalized amounts do not include an impairment charge of approximately two cents per share anticipated in the third quarter for the right off of certain remaining assets at the facility. Because the operating margin at this facility exceeded the average operating margin of our safety and community segments due to its size and scalability of expenses and due to the unique design and specialized services provided at the facility.

Benjamin Briggs: Great, that's very helpful. Thank you. Thank you.

Speaker Change: Great, that's very helpful. Thank you. Thank you.

Brian Violino: Thank you.

Edwin Groshans: Our next question comes from Edwin Groshans at Compass Point. Your line is open.

Speaker Change: Our next question comes from Edwin Groshans at Compass Point. Your line is open.

Edwin Groshans: Good morning and thank you for taking my questions. You mentioned, I think you said RFI with New Jersey, and I guess there are some state laws there about not having or sponsoring private prisons, so can you just talk about that a little bit? It seems unusual that ICE, knowing this, would go out and put out a request for that state.

Edwin Groshans: Good morning and thank you for taking my questions. You mentioned, I think you said RFI with New Jersey and I guess there is some state laws there about not having or sponsoring private prisons.

Dave Garfinkle: All else equal, we expect our operating margin to decline by approximately 150 to 200 basis points for a full quarter. Our forecast does not include an increase in populations that could result from the reallocation of federal budget dollars from our South Texas contract to other detention beds, which could provide upside to our guidance. Our guidance also includes additional residents from the state of Montana based on the notice of intent to award a new management contract we just received July 25th.

Speaker Change: Can you just talk about that a little bit? It seems unusual that ICE, knowing this, would go out and put out a request for that state.

Damon Hininger: Yeah, good question. So yeah, let me differentiate here a little bit.

Speaker Change: Yeah, good question. So yeah, let me distinguish here a little bit. So they did, ICE did an RFI earlier this spring.

Speaker Change: for three locations in kind of the mid to middle part of the country and the western part of the country, Salt Lake.

Brian Violino: Chicago, and then South Texas.

Brian Violino: And so we've participated in an RFI and submitted proposals under that RFI. On a parallel path, ICE is also taking steps to basically do the recompete of a contract that we already actually have in place with ICE in Elizabeth, New Jersey.

Dave Garfinkle: We currently expect to receive approximately 120 residents during the current quarter at a 1,896 beds for our correctional facility in Arizona, doubling the current population from the state of Montana at this facility, which was 91% occupied during the second quarter. We also care for approximately 1,000 residents from Hawaii and 600 residents from the state of Idaho at this facility. Under the new award, Montana may also approve the utilization of any other facility we own or operate, should the state need additional capacity.

Damon Hininger: So they did, ICE did an RFI earlier this spring for three locations in kind of the mid to middle part of the country and the western part of the country, Salt Lake City, Chicago, and then South Texas. And so we participated in that RFI and submitted proposals under that RFI. On a parallel path, ICE is also taking steps to basically do the recompete of a contract that we already have in place with ICE in Elizabeth, New Jersey.

Brian Violino: This is an operation that we've had for almost 30 years, so we've gone through a couple cycles on the recompute of this contract, and I have to say we're really, really proud of this operation. We've got great...

Brian Violino: Performance record there and great working relationship with the local folks there in the ICE office.

Brian Violino: And so this re-recompeted that contract. There has been obviously some legal action by the state of New Jersey here in the last couple of years.

Dave Garfinkle: Our guidance does not include any additional sherry purchases, although our leverage at June 30th is squarely within our targeted range, leverage which is calculated using EBITDA for the trailing 12 months, will mathematically increase as a result of the termination of the contract of the South Texas facility beginning August 10th. Accordingly, in order to minimize the impact on leverage, we intend to prioritize the use of our free cash flow to further reduce our debt ahead of stock repurchases, although we may exercise discretion in repurchasing additional shares of our common stock, taking into consideration our leverage, earnings trajectory, stock price, liquidity, and alternative opportunities to deploy capital.

Damon Hininger: This is an operation that we've had for almost 30 years, so we've gone through a couple cycles on the recompete of this contract. And I have to say, we're really, really proud of this operation. We've got, you know, a great performance record there and a great working relationship with the local folks there in the ICE office. And so this is a recompete of that contract. There has obviously been some legal action by the state of New Jersey here in the last couple of years.

Brian Violino: challenging the authority of ICE doing direct contracts with private providers like us. We have prevailed in those cases most recently. It is still pending litigation, but we do feel like you know with other legal challenges we've seen

Speaker Change: during the history of our company around the country that we'll prevail ultimately. So, I, Snow and all that in the background, they still felt comfortable to go ahead and do the RFP. And again, we'll compete in it. And again, we feel really good with our chance of being a 30-year operator there. But I don't think you'd add that, Dave. Nope. I think you covered it there too, Damon.

Damon Hininger: Challenging the authority of ICE to do direct contracts with private providers like us, we have prevailed in those cases most recently. It is still pending litigation, but we do feel like, you know, with other legal challenges we've seen during the history of our company around the country, that will prevail ultimately. So ICE, knowing all that in the background, still felt comfortable to go ahead and do the RFP. And again, we'll compete in it. And again, we feel really good about our chance of being a 30-year operator there.

Speaker Change: All right, thank you, Damon, and thank you for the clarification on that.

Dave Garfinkle: Our balance sheet and cash flows remain strong with no near-term debt materities and readily available bed capacity, positioning us well to take advantage of opportunities in the marketplace. We expect adjusted funds from operations or AFFO, which we consider approximately for our cash flow available for capital allocation decisions, to range from 162.4 million to 172.4 million, or $1.44 million. We expect our normalized effective tax rate to be approximately 30% for the remainder of the year, which after considering the lower effective tax rate for the first quarter, equates to an annual effective tax rate of approximately 27.5%.

Speaker Change: I did have a question on the RFI. I think you answered part of it, you know, saying that they put out the RFA right after the...

Speaker Change: the announcement they told you that you were closing the South Texas facility but it also seemed a little bit unusual you know I was wondering is there anything to read in relative to the increase in beds to 4-1-5?

Speaker Change: thousand or you know

Speaker Change: Do you anticipate or hear that ICE may be?

Speaker Change: looking to alter some of its detention policies.

Brian Violino: may be a response to Biden's June 4th.

Brian Violino: Proclamation or anything along those lines.

Speaker Change: Yeah, good question. Yeah, I wouldn't say, generally, we're not hearing anything kind of relative to change in policy on detention capacity and kind of what the requirements should be or standards. Those have been pretty consistent here last couple of years. So we're, we're not hearing or seeing anything relative to kind of change in view or policy. And again,

Dave Garfinkle: The full-year EBITDA guidance in our press release provides you with our estimate of total depreciation and interest expense. We are forecasting DNA expenses in 2024 to be slightly higher than 2023. We plan to spend $62 to $66 million on maintenance capital expenditures during 2024 unchanged from our previous guidance, and $8 to $10 million for other capital investments also unchanged from our previous guidance.

Brian Violino: Not necessarily to your question, but relative to the size.

Edwin Groshans: But I don't have anything you'd add to that, Dave. Nope. I think you covered it there, too, Damon.

Brian Violino: Again, they'll be able to increase.

Brian Violino: David Garfinkle, Damon Hininger, David Garfinkle, Damon Hininger, David Garfinkle, David Garfinkle,

Operator: 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 the question-and-answer session. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by.

Brian Violino: That includes some funding under fixed-price contracts, so the actual people detained will be lower than the 41,500 if they're going to be spending at 41,500 and again the South Texas should create more capacity to fund additional detention.

Damon Hininger: All right, thank you, Damon. And thank you for the clarification on that. I did have a question on the RFI, and I think you answered part of it, you know, saying that they put out the RFA right after the announcement. They told you that you were closing the South Texas facility. But it also seems a little bit unusual. You know, I was wondering if there is anything to read relative to the increase in beds to 41,500? Or, you know, do you anticipate or hear that ICE may be looking to alter some of its detention policies, maybe in response to Biden's June 4th proclamation or anything along those lines?

Speaker Change: That's all the questions I have. I appreciate your time. Thank you. Thank you, sir. Thank you.

Joe Gomez: Our first question comes from Joe Gomez from Noble Capital. Your line is now open. Good morning. Thanks for taking the questions. Hey, good morning, Joe. I wanted to start on the South Texas. Obviously, it ends contract ends tomorrow. You've provided the owner of the facility with your lease termination notice. I am currently given the environment where we are so close to a new election here, the potential for a change in administration.

Edwin Groshans: Yeah, good question. Yeah, I wouldn't say, generally, we're not hearing anything kind of related to a change in policy on detention capacity and kind of what the requirements should be or standards. Those have been pretty consistent here over the last couple of years.

Speaker Change: Thank y'all.

Damon Hininger: So we're not hearing or seeing anything relative to any kind of change of view or policy. And again, not necessarily to your question, but relative to the size, again, they will be able to increase somewhat incrementally, again, with the savings from South Texas, but if they go much bigger or larger than that, they'll have to wait until the next fiscal year and what is ultimately appropriated from Congress and signed by the President.

Speaker Change: Our next question comes from Court Mangum. Your line is now open.

Court Mangum: Hey, guys. Thanks for taking my question. Really, most of my questions have been answered, but I just wanted to dig a bit more into just sort of what happened with –

Speaker Change: South Texas. You guys have always, you know, had a really good grasp on the way that the winds are blowing regarding potential changes to facility renewals and non-renewals.

Speaker Change: and keeping us pretty well prepared for those changes. I get, obviously, what happened with South Texas, but just sort of...

Joe Gomez: Is there a way that you guys can kind of keep that facility, your options for that facility open at least, you know, to see what happens here at the in the election? Yes sir, this is Damon and short answers yes. So we've got a great relationship with the owner of the assets down their target who has been a great partner here in the last last 10 years. And I think, you know, just generally I think you know this history a little bit Joe, but you know, we got our first family detention contract with ice back in 2006.

Speaker Change: What happened there to sort of catch us all off guard so much, and do you think, is there really anything else out there that might be like this in the future that could potentially catch us off guard?

Damon Hininger: But I don't know anything else to add to that, Dave. No, unless you're asking about the $41,500. As we've mentioned, that includes some funding under fixed price contracts, so the actual number of people detained will be lower than the $41,500 if they're going to be spending at $41,500. And again, South Texas should create more capacity to fund additional detention.

Edwin Groshans: All right. That's all the questions I have.

Speaker Change: Yeah, I appreciate that question. You know, the South Texas facility, again, going back to kind of history,

Edwin Groshans: I appreciate your time. Thank you. Thank you. Yes, sir. Thank you.

Speaker Change: You know, as I understand it, up until 2006, they had never done family detention, and we were, again, the first company they called when they thought about it for the first time, and we did a solution in Taylor, Texas, and we did it for about three years.

Joe Gomez: They wound down that contract in 2009. That was at another property, it was actually in our Taylor Texas facility. And then they came back to us in 2014. So history indicates that there is a chance maybe a good chance that depending on the needs on the Southwest border, they come back to us for a solution.

Speaker Change: And then, again, it was, I guess, five years later, then we got a call from the Obama-Biden administration about some of the channels of the southwest border, and they wanted to revisit that policy on family detention. So I think it's been well known.

Speaker Change: That, you know, the policy, obviously, for that type of solution is going to be driven by the administration and whoever is in the White House.

Damon Hininger: So that's a long way saying, absolutely, we're keeping all our options open for sure. I don't think you'd add to that days. We do have a 90 day marketing period with them that begins on Friday, where, you know, we worked together to try to come up with a replacement customer. So that would take us through the middle of November. So I'm sure they'll be looking for other other customers as well. But as Damon mentioned, they're a really good partner and we continued to have dialogue about exactly what you just described. Okay, thanks for that.

Speaker Change: And that policy may change depending on not only the needs or desires of the administration, but also what the challenges are with on the southwest border. And that could be not only just family units, but also potentially on...

Speaker Change: migration patterns, nationalities, you know, gender and whatnot. And with that, ICE has got to be very flexible based on the needs on the southwest border at that moment. So.

Speaker Change: So, a long way of saying that that's been the case, you know, working with ICE for almost 40 years. They have to be pretty nimble and flexible based on the needs on the southwest border but also the...

Damon Hininger: And then I know typically, you know, in July is when the state budgets all come in and you start to see some per-dem, potential per-dem increases for the year for to just trying to get a idea how that kind of played out this year for some of your your state contracts. Yeah, Dave, maybe you can give you a number or two, but overall we had a good spring. So again, we're closer with our partners and in turn with their engagement with legislators around the country and the dozen or so states that we have direct contracts with.

Speaker Change: The desires and the priorities of the administration and with that, we've got to be there kind of locked step with them to meet those needs based on changing conditions but anything to add to that. the facility was highly utilized right up until the date where we received that notification. So

Speaker Change: We did not see that coming, and furthermore, it is very unusual for ice...

Speaker Change: to exit contracts in the middle of their term. They always have that right, all of our government partners.

Damon Hininger: So I'd say generally we had an overall good year. You know, as you know, last couple of years, we got some pretty outsized, pretty even creases where a big chunk of that would go to sour increases to deal with all the challenges in the labor market because of the pandemic. So I'd say this spring felt a little more kind of a normal spring kind of pre-COVID where you'd see increases in kind of the range of two to four percent depending on the jurisdiction, but I think you'd add to that.

Speaker Change: have cancellation for non-appropriation of funds, in most cases for convenience.

Speaker Change: as well, but with a 95% plus renewal rate.

Speaker Change: It doesn't happen that often, let alone in the middle of a contract, since this contract even had some term left on it. So it was very surprising. We understand the reasons, the budget-driven and trying to reallocate those dollars, which we've always known it's a very expensive contract because of the unique

Damon Hininger: Yeah, I was looking at the number. It's exactly right. It's low single digits a little bit higher than CPI. So a pretty normal year as it was with our wage increases this year as well. And thanks for that.

Speaker Change: and the unique set of services that we provide at that facility. So it drove the cost up.

Damon Hininger: And one more if I may. So, you know, obviously, listen to the geo call yesterday. You know, and if you're looking at the ice numbers, you did talk about them, you know, mid June, they hit about 38,500 to come back down as you said to 37,000 level authorizations for 41,500. You know, one of the things that geo mentions, they felt that, you know, ice is budget constrained for moving much past that 37,000 number.

Speaker Change: So I understand the reasons, but it was unusual. And don't expect any others. Like I said, they have the right to, but it's such an unusual facility that we wouldn't expect any other actions similar to this one.

Operator: Thank you. Yes, sir. Thank you.

Speaker Change: Okay, perfect. Yeah, thanks so much for taking my question. You're welcome. Thank you.

Court Mangum: Our next question comes from Court Mangum. Your line is now open.

Speaker Change: Thank y'all.

Speaker Change: Our next question comes from M. Marin from Zach. Your line is open.

Speaker Change: Thank you. I'll be brief because we've spent a lot of time obviously talking about several topics, specifically ICE contracts. I'm wondering if

Damon Hininger: Want to try to get, you know, your guys thoughts on that topic, you know, do you think they are constrained in the fact that, you know, South Texas is now gone that that does give them the flexibility to, you know, in other area, other facilities to increase populations there. Yeah, I think that's a good question. And I think I think that's right. You know, again, they said when they took the action on South Texas, it was budget related, but also they wanted to get capacity and some other locations around the country, especially capacity that maybe was able to take higher custody at the TANEs.

Speaker Change: In the past, in prior calls, you've talked about how, you know, you've had increased conversations with a number of different perspectives on existing customers across the board, including states.

Speaker Change: and counties, and obviously we just saw you sign a new state contract with the state of Montana. Are you still seeing interest at the same level from those more regional customers or prospective customers?

Speaker Change: Yeah, great question and the short answer is absolutely. So, this last year, I mean, we've seen a lot of activity.

Damon Hininger: And so we've seen a little bit higher utilization already in our system. Again, the budget will be impacted until after tomorrow, because obviously that's when the contract expires. So from kind of now until end of September, I think there is a chance we'll see a little higher utilization. Not necessarily brand new contracts, but I think it's just probably existing contracts with a increased utilization a little bit, you know, as I said in my script too, you know, they do try to keep some beds kind of on reserve throughout the system. So I don't know if they get exactly that 41,500 number before the fiscal year, but I think you've added that day. I think you covered everything I was going to say.

Speaker Change: at the state and local level. So Montana, we've talked about on this call.

Speaker Change: We've seen increased utilization from Idaho. We've seen increased utilization in Georgia. We've seen increased utilization in Colorado.

Speaker Change: New contract here recently with Wyoming, and then at the local level, Hines County in Mississippi and Harris County in Texas. So a lot of activity in the last, you know, 6, 8, 10 months.

Speaker Change: And that activity has continued to be very brisk. We've got a lot of conversations going on, again, with existing partners, but also a few new ones.

Speaker Change: And a couple of the conversations are actually around activating idle capacity or vacant facilities. And so we continue to seek really strong interest from both existing and new partners. But I don't know if there's anything you'd add to that, Dave. Nothing, Damon. Yep.

Unknown Attendee: Great. Nice quarter. Thanks for taking my questions. Thank you.

Jason Weaver: Our next question comes from Jason Weaver from Jones Trading. Your line is open. Hey, good morning. Thanks for taking my question. Along the same lines, just quickly on the guidance for the second half, is any amount of that variation due to the uncertainty around the ICE appropriations process, where the budget will start on October 1st? Yeah, let me maybe tag team with David on this. Give you a little just how we're thinking about next year for the fiscal year started October 1st.

Dave Garfinkle: Well, that's always an important thing for you to consider, is absorbing idle capacity. So those are good conversations, I'm thinking.

Speaker Change: Yes, ma'am. Yeah, well, I guess I have to ask, you know, the capital expenditure forecast that we...

Speaker Change: YiXi.tv have does include some capital expenditures for YiXi.tv a facility, because we're running out of YiXi.tv big blocks of space, we still have some YiXi.tv at a facility in Mississippi that YiXi.tv we've been using for our most recent wins, but YiXi.tv

Jason Weaver: We think there's probably a pretty good chance that the federal government will be funded through a continued resolution. Again, I have to look at a crystal ball timing on how long that goes, but I think it's probably a pretty good guess. It goes past the election and probably even past the beginning of the first of the year. And so basically that resets the budget amount, you know, specific for ICE at that 41,500 number.

Speaker Change: I have to start thinking about which would be our next facility that we activate. So we've allocated some dollars there to make sure we're ready in the event the opportunity presents itself.

Speaker Change: Okay, thank you. And then last question, which is in terms of being ready for if and when the opportunity presents itself.

Jason Weaver: But I guess the other thing I'd point to is that we do know that the House has released their funding proposal for ICE, which would take it up to 50,000. I don't believe as of today, Senate has released their funding number, but just a reminder, they did do a funding number in that bipartisan immigration bill back. And I think February, March of this year, ultimately that didn't get passed. But of note, that was also at 50,000.

Speaker Change: You talked earlier in the, I believe, in your prepared remarks about staffing levels and, you know,

Jason Weaver: So we don't think that's a coincidence that they're thinking kind of that number for next year. And again, that bill on the Senate that was bipartisan. So we'll have to wait and see. Again, gotta get through the election, get through the end of the year. And as it relates to, you know, total funding levels that'll get enacted. We think probably first of next year. So going back to your question around guidance, I mean, we're seeing kind of rest of the year kind of stable populations within our system.

Speaker Change: I think what you said was you're not quite at the same level as pre-COVID.

Speaker Change: Calls for some increased staffing, I believe you said, but

Speaker Change: We did see during, you know, certain parts of COVID and then even after COVID that you were

Unknown Attendee: Unknown AttendeeYou were, you know, seeing that you had to pay some incentive, sign on bonuses. We're past that at this point, aren't we?

Speaker Change: We're past that. We're past that. I'm sorry. Yeah, I didn't hear that last part, but yeah, we are past that. We're doing a lot better. I mean...

Speaker Change: Again, I'd say generally the challenges we had staffing, as I talk to my peers and other companies here in the Nashville business community, I think we were pretty close.

Jason Weaver: So even though there could be a pretty significant increase next fiscal year at the moment, we're not making that into guidance. But you think you'd add to that, Dave? Yeah. As Damon said, our forecast contemplates pretty stable federal populations for the rest of the year. And populations can fluctuate. I mean, here we are in the peak summer months, which is typically the time when you see lower migration to the US because of the heat.

Speaker Change: on having similar challenges. But you know, sitting here today, we still got some work to do, but overall were in a great spot. Our labor markets and almost everywhere we operate has improved pretty dramatically. So as we said, in our prepared remarks

Speaker Change: A lot of the special and unique incentives and programs we had to put in place with you know Especially like temporary staff we've been able to wind down that almost virtually down to zero So we've had a lot of good success on that point and again the market's

Jason Weaver: And then there's other factors that Damon mentioned in his prepared remarks that can influence populations. I think when October 1 hits the federal budget, we'll refresh. So there's always a chance that they feel more comfortable spending more dollars earlier in the year. And then finally, my last point would be they did indicate, I did indicate that they have the flexibility to reallocate the South Texas contract dollars to 1,600 additional detention beds.

Speaker Change: Generally, where we operate, the labor markets, I should say, have improved dramatically. Just a final point, our guidance does include some increases in staffing at some facilities.

Speaker Change: to make sure we're prepared for any increases in occupancy that come. But certainly the market has kind of normalized on the labor front. But guidance does contemplate some increases in staff from here.

Jason Weaver: So in theory, I think that would increase the funded level from 41,500. But again, not in our forecast, we're contemplating stable throughout the rest of the year, but we'll just have to wait and see. Got it. That's helpful. Thank you. And then, then, then, depending into that, I believe the House appropriations still also seemingly expands the ISAP program to cover the entire non-detained docket, whether that gets done, you know, is anybody's guess.

EM: Okay, thank you very much. Thank you, Em.

EM: Thank you.

Speaker Change: Our next question comes from Greg from Northland Security. Your line is open.

Court Mangum: Hey guys, thanks for taking my question. Really, most of my questions have been answered, but I just wanted to dig a bit more into just sort of what happened in South Texas. You guys have always, you know, had a really good grasp on the way that the winds are blowing regarding potential changes to facility renewals and non-renewals and kept us pretty well prepared for those changes. I understand obviously what happened with South Texas, but just sort of what happened there to sort of catch us all off guard so much, and do you think is there really anything else out there that might be like this in the future that could potentially catch us off guard?

Damon Hininger: Yeah, I appreciate that question. You know, the South Texas facility, again, going back to kind of history, you know, as I understand it, up until 2006, they had never done family detention. And we were, again, the first company they called when they thought about it for the first time. And we developed a solution in Taylor, Texas, and we did it for about three years. And then again, it was, I guess, five years later, then we got a call from the Obama-Biden administration about the challenge of the southwest border, and they wanted to revisit that policy on family detention.

Damon Hininger: So I think it's been well, well known that the policy I'll see for that type of solution is going to be driven by the administration and whoever's in the White House. And that policy may change depending on not only the needs or desires of the administration but also what the challenges are on the southwest border. And that could be not only just family units but also potentially on migration patterns, nationalities, you know, gender, and whatnot.

Damon Hininger: And with that, ICE has got to be very flexible based on the needs of the southwest border at that moment. So, so a long way of saying that that's been the case, you know, working with ICE for almost 40 years; they have to be pretty nimble and flexible based on the needs of the southwest border but also the desires and the priorities of the administration. And with that, we've got to be in kind of lockstep with them to meet those needs based on changing conditions. But anything you'd add to that, Dave?

Greg: Hey, Damon and Dave, thanks for taking the questions. Congrats on the results.

Greg: You know, obviously, much has been answered already, but one of the...

David Garfinkle: Yeah. And as far as I'm kind of taken by surprise, the facility was highly utilized right up until the date where we received that notification. So we did not see that coming. And, furthermore, it is very unusual for ICE to exit contracts in the middle of their terms. They always have that right. All of our government partners have cancellation for non-appropriation of funds and, in most, most cases, for convenience as well.

Jason Weaver: But it becomes significantly larger. Can you see that contract being opened up to more than just a single vendor? And how would your offering fit into that program? Yeah, so you're exactly right on the funding levels, but we've been watching that closely, and I think it's absolutely the case. I think if they have to go up to several million participants in that program, then I think they'll have to open it up for multiple vendors to provide that type of scale and flexibility for that size of program.

Speaker Change: I guess ask, you know, how much do you take out of guidance for the South Texas Family Residential Center this year, and just to get a sense of maybe how the outlook changed, X that impact, and to get, you know, maybe a sense of kind of cadence in the back half.

David Garfinkle: But with a 95% plus renewal rate, you know, it doesn't happen that often, let alone in the middle of a contract since this, this contract even had some term left on it. So it was very surprising. We understand the reasons, the budget constraints and trying to reallocate those dollars, which we've always known it's a very expensive contract because of the unique design and the unique set of services that we provide at that facility.

Jason Weaver: So we've been doing a lot of workouts that we've got within our community segment, a lot of expertise on monitoring and what the right devices are if it's equal bracelet or for the risk-worn device or whatnot. So we've been doing a lot of work and testing and getting ourselves prepared. But yeah, I think if there's a significant increase in that program, they'll have to look at multiple providers to provide solutions, not just on the technology side, but I think also on the on the counseling and case management to get into that.

David Garfinkle: So it drove the cost up, but I understand the reasons, but it was unusual. And don't expect any, any others. I mean, like I said, they have the right to, but it's such an unusual facility that we wouldn't expect any other, any other actions similar to this one.

Speaker Change: Yeah, I'll say we issued the press release giving the notice, we said I think it was 38 to 41 cents on an annual basis.

Speaker Change: And so I think I quantified in my prepared remarks how much we had in Q2 and in Q3. So that'll be rolling off a sequential decline from Q2 to Q3 and then no earnings per share out of that contract in Q4.

Speaker Change: but about half of it for the third quarter.

Speaker Change: Yep, got it, got it. Great, and just to clarify a previous question, you know, as it relates to the expense structure improvements, you know, did it sound like you kind of characterized expense levels as no longer elevated and pretty much fully normalized at this point?

Jason Weaver: Yeah, I just, you know, our approach is a little different when it comes to that contract with respect to the technology. We're kind of technology agnostics, agnostics. And, you know, would look to other technology providers to team with us so that, you know, that obviously avoids the capital expenditures that are necessary to constantly, you know, invest into the technology, different solutions that ICE may request. Obviously, that comes at the downside of, you know, a little bit of margin that goes to those providers, but it relieves us of that capital obligation, probably the main difference.

Speaker Change: Yeah, pretty darn close. I mean, like I said, we've got a few, a few facilities in a couple markets where, you know, still a little bit challenged from a labor perspective, but overall.

Speaker Change: I mean, much lower cost, again, with incentives and temporary staff and some other things. Registry, nursing was another thing that we had to use.

Speaker Change: during the pandemic and all those have come down pretty dramatically here in the last 12-18 months.

Jason Weaver: But again, we do have, when it comes to the case management services, we provide a lot of those services, particularly in our residential reentry centers today. But if they are going to expand it to the, you know, seven million non-detained docket that is they've discussed, I think you're going to see multiple providers involved in that type of a solution. Got it. Thank you for that color and congrats on the quarter. Thank you. Thank you, sir.

Speaker Change: Unknown Attendee Yeah, I mean, I agree with that. I don't know that we're all the way down yet, but it is pretty much. And the good news is a lot of the

Speaker Change: The incentives that we provided to get us through were temporary. You know, there were shift premiums or, like Damon said, registry nursing that can go away. So there weren't permanent adds to the cost structure.

Court Mangum: Okay, perfect. Yeah, thanks so much for taking my question. You're welcome. Thank you.

Speaker Change: Got it. Thanks, guys.

Brian Villano: Thank you. Our next question comes from Brian Villano from Wedbush. Your line is open. Great. Thanks for taking my question. Just wanted to touch on the NOI margins, I heard in the comments that that's actually probably going to have a 150 to 200 basis for a negative impact, which you put the safety segment margin just under 22% pro forma. But it sounds like the expense environment is improving.

Court Mangum: You're welcome. Thank you. Yes, sir.

Speaker Change: Thank you. Thank you so much.

Marla Marin: Our next question comes from M. Marin from DACS. Your line is open.

Speaker Change: Thank you. This concludes our question and answer session. I would now like to turn it back to Damon for closing remarks.

Marla Marin: Thank you. I'll be brief because we've obviously spent a lot of time talking about several topics, specifically ICE contracts. I'm wondering if, in the past, on prior calls, you talked about how, you know, you've had increased conversations with a number of different perspectives and existing customers across the board, including states and counties. And obviously, we just saw you sign a new state contract with the state of Montana. Are you still seeing interest at the same level from those more regional customers or prospective customers? Yeah.

Damon Hininger: Yeah, great question, and the short answer is absolutely. So, this last year, I mean, we've seen a lot of activity at the state and local level. So, Montana, as we talked about on this call, we've seen increased utilization from Idaho. We've seen increased utilization in Georgia. We've seen increased utilization in Colorado. New contract here recently with Wyoming. And then at the local level, Hines County in Mississippi and Harris County in Texas

David Garfinkle: Okay, thank you very much.

Damon Hininger: So, a lot of activity in the last, you know, six, eight, ten months. And that activity has continued to be very brisk. We've got a lot of conversations going on again with existing partners, but also with a few new ones. And a couple of the conversations are actually around activating idle capacity or vacant facilities. And so, we continue to see really strong interest from, you know, both existing and new partners. But I don't know if there's anything you'd add to that, Dave. Nothing yet, Damon.

Greg from Northland Securities: Our next question comes from Greg from Northland Securities. Your line is open.

Marla Marin: Well, that's always an important thing for you to consider is absorbing idle capacity. So those are good conversations, I think.

Greg from Northland Securities: Hey, Damon and Dave, thanks for taking the questions. Congratulations on the results. You know, much has been answered already, but I wanted to, I guess, ask, you know, how much do you take out of guidance for the South Texas Family Residential Center this year? And just to get a sense of maybe how the outlook has changed, X that impact, and to get, you know, maybe a sense of kind of cadence in the back half.

David Garfinkle: Unknown Speaker Yeah, I guess I have to add that the capital expenditure forecast that we have does include some capital expenditures for a facility because we're running out of big blocks of space. We still have some at a facility in Mississippi that, you know, we've been using for our most recent wins, but we have to start thinking about which would be our next facility that we activate. So, we've allocated some funds there to make sure we're ready in the event the opportunity presents itself.

David Garfinkle: Yeah, I'll say we issued the press release giving the notice, and we said I think it was 38 to 41 cents on an annual basis. And so I think I quantified in my prepared remarks how much we had in Q2 and in Q3. So that'll be rolling off a sequential decline from Q2 to Q3 and then no earnings per share out of that contract in Q4, but about half of it for the third quarter.

Marla Marin: Okay, thank you. And then the last question, which is in terms of being ready for if and when the opportunity presents itself. You talked earlier in the I believe in your prepared remarks about staffing levels. And, you know, I'm not sure I think what you said was that you're not quite at the same level as before COVID. The guidance calls for some increased staffing, I believe you said, but Unknown Speaker We did see during, you know, certain parts of COVID and then even at

Greg from Northland Securities: Yep, got it. Got it. Great. And just to clarify a previous question, you know, as it relates to the expense structure improvements, it didn't sound like you kind of characterize expense levels as no longer elevated and pretty much fully normalized at this point. Yeah, pretty.

Damon Hininger: Well, thank you very much, and thank you all for participating in our call today. And let me just say a special thank you to our investors. We're really grateful for all your support. So we'll go ahead and conclude our call. Enjoy the rest of your day. Thank you.

Marla Marin: You were past that. I'm sorry.

Damon Hininger: Yeah, pretty darn close. I mean, like I said, we've got a few facilities in a couple markets where, you know, still a little bit challenged from a labor perspective, but overall, I mean, much lower cost, again, with incentives and temporary staff and some other things, you know, registry, and nursing was another thing that we had to use during the kind of high during the pandemic. And all those have come down pretty dramatically here in the last, you know, 12, 18 months.

Marla Marin: Yeah, I didn't hear that last part. But yeah, we are past that. We're doing a lot better. I mean, again, I'd say generally, the challenges we had with staffing. I talked to my peers and other companies here in the national business community. I think we were pretty close to having similar challenges.

Damon Hininger: Yeah, I mean, I agree with that. I don't know that we're all the way down yet, but it is pretty much there. And the good news is that a lot of the incentives that we provided to get us through were temporary, you know, they were shift premiums, or like Damon said, registry, nursing, that can go away. So they weren't permanent add-ons to the cost structure.

Damon Hininger: Well, thank you very much, and thank you all for participating in our call today. And let me just say a special thank you to our ambassadors. We're really grateful for all your support. So we'll go ahead and conclude our call. Enjoy the rest of your day. Thank you.

Damon Hininger: But sitting here today, we still have some work to do. But overall, we're in a great spot. Our labor markets and almost everywhere we operate have improved pretty dramatically. And so, as we said in our prepared remarks, you know, a lot of the special and unique incentives and programs we had to put in place with, you know, especially temporary staff, we've been able to wind those almost virtually down to zero.

Greg from Northland Securities: Thank you. Thank you so much.

Damon Hininger: So we've had, you know, a lot of good success on that point. And again, the markets, generally, where we operate, the labor markets, I should say, have improved dramatically. But I don't know if you want to add to that, David. Just a final point: Yeah, our guidance does include some increases in staffing.

Damon Hininger: Thank you. This concludes our question and answer session. I would now like to turn it back to Damon for closing remarks. Well, thank you.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Brian Villano: I guess can you talk about the potential for margin extension above that pro forma level, looking out into the back half of the year. Yeah, I'll take that one. Thanks, Brian. Yes. And similar to what we have seen in increases in occupancy from, say, the second quarter of last year to the second quarter of this year, it's a very leveraged model such that those margins do increase the higher occupancy goes. So we're still, you know, six, seven percentage points away from pre pandemic occupancy.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Brian Villano: So if occupancy continues to increase, we would expect those margins to offset at least partially offset that reduction that we will see from the South Texas contract. You know, per per DM increases, as as we mentioned, we got a little bit better than CPI, I think during the July one timeframe, which is when state government budgets reset. So that will help margin improvement as well. That would again be offset a little bit by the wage increases that we also provide at our state facilities effective July one. So certainly increase opportunity with occupancy.

Damon Hininger: That's going to be the biggest driver, that it makes sense and just one more on the re-outputation of funds from South Texas. I guess, you know, could you talk about, if you think, and it sounds like the answer maybe that's what, if you think that this really increases the likelihood of, you know, new facilities opening, you know, just with all the RFIs and RFIs coming out. And then just your thoughts on the timeline of when we could start to hear reports being, you know, given out related to those RFIs and, you know, later on RFIs.

Damon Hininger: Yeah, great, great question. And I think you're, it's bottom with kind of your comment there. I think it's no coincidence on the timing of that contract and the action they took on terminating it with the RFIs they released. So again, you know, looking for three different locations and different parts of the country for, you know, up to a thousand beds. You get in that kind of advertising that came out right around the time we got the notes from South Texas.

Damon Hininger: So I think they're thinking about that way. Again, now I increase utilization of existing contracts, but also this gives them the comfort to go ahead and move forward on RFI. Yeah, obviously they haven't done our PES. So obviously got to see that next, but I think it's a good indication by them taking the initial step with the advertisements for these three, three facilities that now with these budget savings, they can kind of redeploy that new capacity around the country.

Damon Hininger: But I think in the short term, it would be allocated more toward existing facilities with existing contracts. I mean, here we are August 8, I guess it is. It'd be tough to get them done before the end of the fiscal year, given the state that they're only in an RFI stage as Damon mentioned, but the South Texas contract does free up permanent dollars, even beyond the end of the fiscal year. So I still think that they'll act on that RFI timing is always difficult to predict with any government agency.

Damon Hininger: But the average timeframe from beginning RFI to award is six months-ish, so that could give some idea, no, it's an election year. So don't know if that's going to factor into the timing of an award or not, but we do know that they have historically said that they have a need. And as we've proposed, our facility in Kansas, we've had a lot of conversations with ICE about that facility past, so still think they could act on that one. Thank you very much. Thank you.

Ben Briggs: Our next question comes from Ben Briggs from Stone Ex Financial. Your line is open.

Ben Briggs: All right, guys, good morning, and thank you for taking the questions and also, congratulations on the corner. So the vast majority of mine got asked an answer here, so thank you. But last one I had was I believe the answer is no, but can you just clarify for me, does this shed buyback authorization expire, or would it have to be basically terminated for it to expire? Correct. No, it does not expire.

Ben Briggs: It's open ended. I think we gave the 177 million remaining under that authorization. And we have not suspended it, you know, what I said in my prepared remarks is we'll kind of slow down the sharey purchases, and so we get better visibility because of the increase in leverage that will come from South Texas. But it is certainly open. We have no restrictions on our ability to buyback stock or covenants are well within cushion on our covenants.

Ben Briggs: So if there's opportunities, we could act on those opportunities. But short answer your question is no expiration on that authorization. Okay, I got it. And I do see in your release here that you state you, and I think you stated during the scripted portion that you intend to prioritize the use of free cash flow to reduce debt. Is there any authorization that's necessary for you guys to buy back debt? Or is that you can kind of do that at your option?

Ben Briggs: Yeah, we've had that conversation with our board previously. So we had that option. We speak to them about capital allocation strategy. Every, every quarterly board meeting. And we'll be having that discussion in the coming weeks with them again, but I wouldn't expect any restrictions there.

Unknown Attendee: Great. That's very helpful.

Unknown Attendee: Thank you.

Edwin Groshans: Our next question comes from Edwin Groshans that come to point your lines open.

Damon Hininger: Good morning, and thank you for taking my questions. You mentioned, I think you said RFI with New Jersey. And I guess there is some state laws there about not having or sponsoring private prisons. So can you just talk about that a little bit? It seems unusual that ice knowing this would go out and put out a request for that state. Yeah, good, good question. So yeah, let me distinguish here a little bit.

Damon Hininger: So they did. I stood in RFI earlier this spring for three locations in kind of the mid to, middle part of the country in the western part of the country. Salt Lake, Chicago, and then South Texas. And so we participated in an RFI and submitted submitted proposals under that RFI on a parallel path. Ice is also taking steps to basically, do the recompete of a contract that we've already actually have in place with ice in Elizabeth, New Jersey.

Damon Hininger: This is a operation that we've had for almost 30 years. So we've gone through a couple cycles on the recompete of this contract. And I have to say we're really, really proud of this operation. We've got great performance record there and great working relationship with the local folks there in the ice office. And so this recompete of that contract, there has been obviously some legal action by the state of New Jersey here in the last couple of years.

Damon Hininger: Challenging the authority of ice to direct contract with private providers like us. We have prevailed in those cases most recently. It is still pending litigation, but we do feel like, you know, with other legal challenges we've seen during the history of our company around the country that will be there ultimately. So ice knowing all of that in the background, they still felt comfortable to go ahead and do the RFP. And again, we'll compete in it.

Damon Hininger: And again, we feel really good with our chance to be in the 30-year operator there, but you'd add to that day. Thank you, covered it there, too, Damon. All right. Thank you, Damon. And thank you for the clarification on that.

Damon Hininger: I did have a question on the RFI. I think you answered part of it, you know, saying that they put out the RFA right after the announcement. They told you that you were closing the South Texas facility, but it's also seems a little bit unusual. You know, I was wondering, is there anything to read in relative to the increase in beds to 41, 5,000 or, you know, do you anticipate or hear that ice may be looking to alter some of its detention policies, maybe in response to Biden's June 4th proclamation or anything along those lines?

Damon Hininger: Yeah, good question. Yeah, I wouldn't say generally we're not hearing anything kind of relative to change in policy on detention capacity and kind of what the requirements should be or standards. Those have been pretty consistent here last couple of years. So we're not hearing or seeing anything relative to kind of change in view or policy. And again, not necessarily to your question, but relative to the size again, they'll be able to increase someone incrementally again with the savings with South Texas.

Damon Hininger: But if they go much bigger or larger than that, they'll have to wait until the next fiscal year and what ultimately is appropriate from Congress and signed by the president. I don't know if anything else I did that Dave. No, unless you were asking about the 41,500, you know, as we mentioned, that includes some funding under fixed price contract. So the actual people detained will be lower than the 41,500 if they're going to be spending at 41,500. And again, the South Texas should create more capacity to fund additional detention.

Unknown Attendee: Thank you. That's all the questions I have. I appreciate your time. Thank you.

Court Mangum: Our next question comes from Court Mangum. Your line is not open. Hey guys, thanks for taking my question. Really, most of my questions have been answered, but I just wanted to dig a bit more into just sort of what happened with South Texas. You guys have always had a really good grasp on the way that the winds are blowing regarding potential changes to facility rules and non-moles and keeping us pretty well prepared for those changes.

Court Mangum: I get obviously what happened with South Texas, but just sort of what happened there to sort of catch us all off guard so much. And do you think is there really anything else out there that might be like this in the future that could potentially catch us guard? Yeah, I appreciate that question. You know, the South Texas facility, again, going back to kind of history, you know, I, since I understand it up until 2006, they had never done family detention.

Court Mangum: And we were, again, the first company they called when they thought about it for the first time. And we did a solution in Taylor, Texas. And we did it for about three years. And then again, it was a guess five years later, then we've got a call from the Obama Biden administration about some of the channels of South Texas border. And they want to revisit that policy on family detention. So I think it's been well well known that you know, the policy I'll see for that type of solution is going to be driven by the administration and whoever's in the White House.

Court Mangum: And that policy may change depending on not only the the needs or desires of the administration, but also what the challenges are with on the Southwest border. And I could be not just family units, but also potentially on migration patterns, nationalities, you know, gender and whatnot. And with that, ICE has got to be very flexible based on the needs on the Southwest border at that moment. So so a long way of saying that that's been the case, you know, working with ICE for almost 40 years, they have to be pretty nimble flexible based on the needs on the Southwest border, but also the the desires and the priorities of administration.

Court Mangum: And with that, we've got to be there kind of locked up with them to meet those needs based on changing conditions. But anything you'd add to that day. Yeah. And as far as, you know, kind of taken by surprise, the facility was highly utilized, right up until the date where we received that notification. So we did not see that coming. And and furthermore, it is very unusual for ICE to exit contracts in the middle of their term.

Court Mangum: They always have that right. All of our government partners have cancellation for not appropriation of funds and most most cases for convenience as well, but with a 95% plus renewal rate. You know, it doesn't happen that often let alone in the middle of a contract. This contract even had some term left on it. So it was very surprising. We understand the reasons the budget driven and trying to reallocate those dollars, which we've always known.

Court Mangum: It's a very expensive contract because of the unique design and the unique set of services that we provide at that facility. So it drove the cost up. But so understand the reasons, but it was unusual and don't expect any any others.

Damon Hininger: I mean, like I said, they have the right to, but it's such an unusual facility that we wouldn't expect any other, any other actions similar to this. Okay, perfect. Thanks so much for taking my question. Welcome. Thank you. Our next question comes from M. Marin from Zach. Your line is open. Thank you. I'll be brief because we spent a lot of time obviously talking about telephopics specifically ice contracts. I'm wondering if in the past in prior calls you've talked about how you've had increased conversations with a number of different perspectives that exist in customers across the board including states and counties and obviously you just thought you saw in the state contract with the state of Montana.

Damon Hininger: Are you still seeing interest at the same level from those more regional customers or prospective customers? Yeah great great question and the short answer is absolutely so this last year I mean we've seen a lot of activity at the state and local level so Montana we've talked about on this call we've seen increased utilization from Idaho. We've seen increased utilization in Georgia. We've seen increased utilization from Colorado. New contract here recently with Wyoming and then at the local level Hines County and Mississippi and Harris County in Texas so a lot of activity in the last you know six eight ten months and that activity is continued to be very brisk.

Damon Hininger: We've got a lot of conversations going on again with existing partners but also a few new ones and a couple of conversations are actually around activating idle capacity or vacant facilities and so so we continue to see really strong interest from you know both existing and new partners but I don't know anything you'd add to that Dave. Nothing to him and yep. Well that's always an important thing for you to to consider is absorbing idle capacity so there's good conversations I'm thinking.

Damon Hininger: Yes ma'am yeah well I can tell you know the capital expenditure forecast that we have does include some capital expenditures for a facility because we're running out of big blocks of space we still have some of the facility in Mississippi that you know we've been using for our most recent wins but I have to start thinking about which which would be our next facility that we activate so we've allocated some dollars there to make sure we're ready in the event the opportunity presents itself. Okay thank you and the last question which is in terms of being ready for if and when the opportunity presents itself you talked earlier in the I believe you know prepared remarks about staffing levels and you know I'm not sure I think what you said which are not quite at the same level as pre-COVID.

Damon Hininger: The guidance called for some increased staffing as we said but we did see during you know certain parts of COVID in the event after COVID that you were you were you know seeing the hatch pace or an incentive to find on bonuses with half that at this point aren't we? Okay yes yes if we're past that you were past that I'm sorry yeah I didn't hear that last part but yeah we are past that we're we're doing a lot better I mean again I'd say generally the challenges we had staffing as I you know talked to my my peers and other companies here in a national business community I think we were pretty close on having similar challenges but you said here today I mean still got some work to do but overall we're in a great spot our labor markets and almost everywhere we operate has improved pretty pretty dramatically and so as we said in our prepared remarks you know a lot of the you know special and unique incentives and programs we had to put in place with you know special like temporary staff we've been able to wind down that almost virtually down to zero so we felt you know a lot of good success on that point again the markets generally what we operate the labor market I should say I've improved dramatically but I don't know anything yet that's just final point yeah guidance does include some increases in staffing at some facilities to make sure we're prepared for any increases and occupancies that come but certainly the market has kind of normalized on the labor front but yeah guidance does contemplate some increases in staffing here. Okay, thank you very much. Thank you, Ed. Thank you.

M. Marin: Our next question comes from Greg from Northland Securities. Your line is open. Damon and David, thanks for thinking of the questions, congrats on the results.

Greg: Thank you. You know, obviously much has been answered already, but one of the, I guess ask, you know, how much you take out of guidance for the South Texas Family Residential Center this year and just to get a sense of maybe how the outlook changed, ex-set impact and to get, you know, maybe a sense of kind of cadence in the back half. Yeah, I'll say, you know, we issued the press release giving the notice.

Greg: We said, I think it was 38 to 41 since on an annual basis. And so, you know, I think I quantified in my prepare remarks how much we had in Q2 and in Q3. So that'll be rolling off sequential decline from from Q2 to Q3 and then no earnings per share out of that contract in Q4. But about half of it or the third quarter. Yep, got it, got it. Great. And just to clarify a previous question, you know, as it relates to the expense structure improvements, you know, it, it's not like you, you kind of characterize expense levels as no longer elevated and pretty much fully normalized at this point.

Greg: Yeah, pretty darn close. I mean, like, so we've got a few, a few facilities in a couple markets where, you know, still a little bit challenged from a labor perspective, but overall, I mean, much lower costs, again, was incentives and temporary staff and some other things, you know, registry nursing was another thing that we had to use during the kind of high during the pandemic and all those have come down pretty dramatically here in the last, you know, 12, 18 months.

Greg: Yeah, I mean, I agree with that. I don't know that we're all the way down yet, but it is pretty much and the good news is a lot of the incentives that we provided to get us through were temporary. You know, and there were shift premiums or, like Damon said, registry nursing that can go away, so they weren't permanent ads to the cost structure. Got it. Thanks, guys. Thank you. Thank you so much. Thank you.

Operator: This concludes our question and answer session.

Damon Hininger: I would now like to turn it back to Damon for closing remarks. Well, thank you very much and thank you all for participating in our call today. And let me just say a special thank you to our investors. Really grateful for all your support. So we'll go ahead and include our call and enjoy the rest of your day. Thank you.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may