Q4 2024 CoreCivic Inc Earnings Call
Thank you for standing by and welcome to the core Civic fourth quarter 2024 earnings Conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.
Your question has been answered and like to remove yourself from the queue simply press star one again.
Today's program is being recorded.
Speaker Change: Now I'd like to introduce your host for today's program, Michael Grant managing director of Investor Relations. Thank.
Damon Heininger: Thank you operator, good morning, everyone and welcome to <unk> fourth quarter and full year 2024 earnings call participating on today's call are Damon Heininger course, if ex Chief Executive Officer, Patrick Swindle, <unk>, President and Chief operating Officer, and David Garfinkle Chief.
Speaker Change: And actual officer we're.
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 fourth quarter of 2024, as well as financial guidance for the 2025 year.
Speaker Change: We will also discuss developments with our government partners and provide you with other general business updates.
Speaker Change: During today's call our remarks, including our answers to your questions.
Speaker Change: Forward looking statements pursuant to the Safe Harbor provisions of the private Securities Litigation Reform Act, our actual results or trends may differ materially as a result of a variety of factors, including those identified in our fourth quarter 2024 earnings release issued after market.
Speaker Change: Yesterday as well as in our Securities and Exchange Commission filings.
Speaker Change: Including forms 10-K, 10-Q, and 8-K reports.
Speaker Change: 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.
Speaker Change: Management will also discuss certain non-GAAP metrics.
Speaker Change: A reconciliation of the most comparable GAAP measurement is provided in the corresponding earnings release and included in the company's quarterly supplemental financial data report posted on the investors page of the company's website at <unk> Dot com.
With that it is my pleasure to turn the call over to our CEO David <unk>.
Speaker Change: Thanks, Mike Good morning, and thanks, everyone for joining us for <unk> fourth quarter 2024 earnings call.
On this mornings call, we will discuss our latest operational results and update you on the latest developments and opportunities with our government partners.
Speaker Change: Following our opening remarks, we will turn the call over to our CFO, Dave Garfinkle, who will provide greater detail on our fourth quarter and full year 2024 financial results as well as introduced our 2025 financial guidance.
Speaker Change: Dave will also provide an update on our capital structure initiatives, including progress on our leverage target and share repurchase program.
Speaker Change: I'm going to tag team the opening remarks today with our Chief operating Officer, Patrick Swindle, who was also named <unk> President in December 2024.
Speaker Change: Patrick has been with core civic for 17 years in positions of increasing responsibility within finance and operations.
Speaker Change: He has excelled as our chief operating officer, and Chief Corrections officer for the past seven years.
Patrick is an excellent problem solver and brings experience and a great strategic and financial mindset to the president position.
Speaker Change: We truly look forward to his leadership during what we anticipate to be a period of rapid growth and opportunity.
Speaker Change: So let me start with this.
Speaker Change: I've worked at core civic for 32 years and this is truly one of the most exciting periods in my career with the company.
Speaker Change: Having just wrapped up a strong 2024, we are anticipating significant growth opportunities, perhaps the most significant growth in our company's history over the next several years.
Speaker Change: We believe course, they think is exceptionally well positioned operationally and financially to meet what we expect to be a sharp acceleration in demand from our partners, particularly our key federal partners immigration and customs enforcement or ice and the United States Marshal service.
Speaker Change: The change in presidential administration on January 20th has ushered in significant policy and legislative changes that directly impact our business and I would like to run through a few of those that are the most significant.
Speaker Change: Upon inauguration President Donald Trump issued nine executive actions intended to secure the borders that the United States and remove illegal immigrants.
Speaker Change: These initial orders included the declaration of a national merge they on the southern border Amy to effectively shut down the border to illegal immigration.
Speaker Change: One notable executive order issued on January 20th was titled protecting the American people against in Beijing.
Speaker Change: And as CEO, the president calls for the federal government to faithfully execute the immigration laws of the United States, including the removal of aliens, particularly those who threaten the safety of American people.
Speaker Change: Included in the CEO is language, calling on the secretary of Homeland security to take all appropriate action and allocate all legally available resources or established contracts to construct operate control are used facilities to detain removal aliens.
Speaker Change: The secretary of Homeland Security further shall take all appropriate actions to assure the detention of aliens apprehended for violations of immigration law pending the outcome of their removal proceedings or their removal from the country to the extent permitted by law.
Effectively this increases interior enforcement by ice and directs the department of Homeland security to attain those arrested by ice.
Speaker Change: The removal.
Speaker Change: The Lincoln Riley Act was passed by the Senate with a bipartisan support on January 20th and signed into law by President Trump on January 29, making it the first of all of the current Congress.
Speaker Change: The act was named for Lincoln Rally, the nursing student, who with Merck on the University of Georgia campus by undocumented immigrants with a history of arrest and releases.
Speaker Change: The Lake and Riley Act requires to attain certain non U S nationals, who have been charged arrested or convicted of crimes, including burglary theft or thought of law enforcement after as well as killing our injury and another person.
Speaker Change: <unk> estimated that this act could require 60000 to 110000 additional detention beds.
Speaker Change: This obligation is not specifically funded however, since this requires mandatory detention funding will have to be secured shortly.
Speaker Change: Also on January 20th President Trump reversed a January 26, 2021 by an executive order that had directors adjusted Department, which includes the Federal Bureau of prisons, and the United States Marshal service to not renew direct contracts with privately or.
Speaker Change: Operator criminal detention facilities.
The administration has the authority to waive its own executive order, we're no alternative capacity was available and it off it did over the past four years renewing a number of significant marshalls contracted facilities.
Speaker Change: Still the by an executive order did result in a closure of two core civic facilities that were previously contracted to the marshals.
Speaker Change: Our west, Tennessee detention, starting base incentive fee and our facility in <unk>, Kansas now named a Midwest Regional reception Center.
Speaker Change: We enjoy a strong relationship with United States Marshal service, our second largest customer and it is very helpful to both parties to have the tool or direct contracting available again.
The Marshal service, we believe prefers the level of service the private sector can provide in relation to what they receive from local county jails, and we look forward to renew discussions about those and other locations with them.
Speaker Change: We expect increased demand to come from the United States Marshal service, which could require an additional 10000 or more beds over the next several years based on past usage.
Speaker Change: Finally, as for the Bureau of prisons, one item of note.
Speaker Change: During her Senate confirmation hearing attorney General Pam bonding emphasized the importance of fully implementing the first step to act a law that was passed with strong bipartisan support in 2018.
Speaker Change: Specifically she referenced the need to increase capacity above their 12000 current community placements.
Speaker Change: The first step to act allowed federal adult and custody, our AIC, especially a minimum and low security facilities to earn time credits through meaningful programs, reducing their sentences and expanding prerelease custody options like halfway houses or home confinement.
Speaker Change: The law is intended to significantly increase the population in community based custody, but the bureau of prisons has faced criticism and lawsuits for delays in the implementation.
Speaker Change: Because of this we think that <unk> will lean on the private sector to fill this gap in implementation.
Speaker Change: For over 20 years, we have been a trusted partner to the BMP for residential and home confinement community services.
Speaker Change: We believe we are well positioned to help accelerate the first step act implementation with our cost effective available bed capacity and industry, leading reentry technology and services.
Speaker Change: Regarding new contracts, we are engaged in active conversations with ice and the United States Marshal service in preparation for the increased secure bed needs.
Speaker Change: This has included the submission of multiple proposals of our capabilities.
Speaker Change: <unk> of existing facilities and anticipated cost estimates.
Speaker Change: Additionally, as noted in our press release, we are leaning forward on expenditures for facility Capex and transportation assets with a current estimated range of expenditures between $40 million to $45 million.
Speaker Change: For ice most new contracts may come after finding the established VA congressional budget agreement and the timing and structure of those contracts are still to be determined.
Speaker Change: That said it is possible that contracts could precede a congressional budget agreement.
Speaker Change: We're still just a few weeks into the new administration, so stay tuned for more on contracting.
One final comment on ice if I may.
Speaker Change: The detention beds supplied by the private sector are the least expensive most humane most efficient logistically have that highest audit compliance scores in the system and are readily available.
Speaker Change: Additionally, with 42 years of operating experience with ice.
Speaker Change: Private sector beds are the least likely to be literally challenge.
Speaker Change: Looking at specifically previously public identified opportunities little has changed since our discussion last quarter as contracting activity typically is interrupted around the handoff from one administration to the next in order to incorporate the guidance of the New administration.
Speaker Change: We only have one minor update that we mentioned last quarter to an RFP issued in June of 2024 for up to 600 detention beds in the state of New Jersey, which would expand your capacity in the state.
Speaker Change: As a reminder, we have responded with our list with detention facility in Elizabeth New Jersey.
Speaker Change: <unk> extended our existing contract there several times now through the end of February as it continues to evaluate proposals.
Speaker Change: We continue to believe that the Elizabeth detention facility responds well to either the needs in that market, where best basis scares.
Speaker Change: With respect to state opportunities during January we announced that we have been awarded a new management contract with the state of Montana to expand the geographical range of course 70 facilities that can serve the state of Montana to the east of the Mississippi.
Speaker Change: We expect to care for 240 inmates at our 2672 bed Tallahatchie County Correctional facility in Mississippi under this contract commencing during the first quarter of 2025.
Speaker Change: The base term of the new management contract with the state of Montana, which is for an unspecified number of inmates and therefore could grow beyond 240 runs through December of 2026 and.
Speaker Change: Contract extensions could run as long as seven years.
During January of 2025, we also received an additional 120 Martin inmates at our <unk> thousand 896 beds. The world Correctional facility in Arizona under existing contract with the state of Montana, and those beds, bringing us close to that facility has capacity.
Speaker Change: We enjoy a strong partnership with Montana and we appreciate the trust they put in our company and our facility teams.
Speaker Change: Core civic remains an active dialogue with several other existing state partners as well as new state partners that could result in additional populations, including the possible use of one or more idle facilities.
Speaker Change: These opportunities could manifest as early as 2025.
Speaker Change: Now I'll pass it over to Patrick Swindle for an overview of our fourth quarter operations.
Speaker Change: Rick.
Rick: Thanks, David.
David: Start with a high level overview of our fourth quarter and full year financial results overall.
David: Overall of course of X financial results exceeded our internal forecast.
David: Estimates helped by tight cost discipline and higher occupancy.
Occupancy for the quarter was 75, 5%, marking our highest occupancy levels with the first quarter of 2020 right at the start of the COVID-19 pandemic.
David: In the fourth quarter, we generated revenue of $479 3, million% to 2%.
David: Reduction compared with the prior year quarter <unk>.
David: Excluding the South Texas family residential center, which closed during the third quarter and the California City Correctional Center, where the lease ended in March underlying revenue growth increased 8% against the prior year quarter.
David: For the full year core civic generated $2 billion in revenue.
David: During the fourth quarter of 2020 for adjusted EBITDA, which excludes expenses associated with debt refinancing gain on the sale of real estate and asset impairments was $74 2 million down from $90 million in the fourth quarter of 2023 for.
David: For the full year, adjusted EBITDA increased to $330 8 million from $311 million.
David: The decrease in adjusted EBITDA in the fourth quarter was primarily attributable to the contract termination at the South Texas family residential center and the expiration of the lease with the state of California at our California City facility, partially offset by an increase in occupancy throughout the remainder of our portfolio combined with a general reduction in temporary labor incentives and related.
Costs.
David: Federal partners, primarily immigration and customs enforcement and the U S. Marshal service comprised almost exactly half of <unk> total revenue in 2024.
David: During the fourth quarter of 2020 for revenue from our federal partners declined 12% compared with the fourth quarter of last year.
David: Revenue from our largest partner declined 22% when comparing the fourth quarter of 2024 versus the prior year quarter.
David: However, excluding the South Texas family residential center, our revenue with ice increased 5% versus the fourth quarter of 2020 for a rate indicative ice continued detention capacity needs even during a political transition period.
David: Our fourth quarter revenue with U S Marshal service grew by 1%.
David: Excluding south Texas overall federal revenue for <unk> in the fourth quarter of 2024 increased 3% year over year.
David: Now I'd like to discuss Ice's usage of the tissue capacity nationally across all facilities as.
As you will recall in a bipartisan funding Bill passed in March 2020 for Congress provided funding for 41500 detention beds.
David: During the fourth quarter Ics actually uses a detention beds was within a range of 38 to 40000 of slightly from 36 to 38000 in the third quarter.
David: The most recently published ice detention total was 39263 on January 25, 2025, which is just after president Trump's inauguration.
David: From what we're seeing so far we believe that the total ice detention population is holding about steady with more restaurant ices interior enforcement operations offsetting declining immigration arrest from customs and border patrol at the border.
David: Over the next month or two we would expect to see the accelerated rate of interior enforcement of rest of the resulting capacity limitations at the 41500 funded beds level.
David: <unk> fourth quarter revenue from state partners, and our safety and community segments grew six 4% versus the prior year quarter.
David: This increase is a result of higher premium rates at higher occupancy from our state government partners.
David: As well as contributions from new state contracts with Wyoming, and Montana signed in the fourth quarter of 2023 in the third quarter of 2024.
David: These new contracts contributed one 3% of that growth.
David: As David mentioned in his remarks, we've added another contract with Montana. During January 2025, we have already received 120 inmates at our tallahatchie facility in Mississippi and anticipate receiving additional inmates in the near future.
David: The transfer and intake processes have gone smoothly and we are pleased to expand our relationship with Montana and to boost our tallahatchie facility to a higher level of occupancy.
David: Within our safety portfolio some of the greatest operational improvements have come in facility serving state partners.
David: Much of this operational improvement as it related to improved staffing levels, which have allowed us to reduce or eliminate expensive short term labor measures that were necessary during as we emerge from the COVID-19 pandemic.
David: Staffing that is permanent and locally hired at Bruce facility performance in such areas of safety program outcomes and audit performance.
David: It is also the most cost effective and stable approach to staffing our facilities.
David: For example, our La Palma Correctional Center in Arizona experienced meaningful improvements in performance as our investments and hard work directly to local hiring helped eliminate the facility's reliance on temporary labor resources.
Speaker Change: I'm also excited to share that Rusty wash for the award that La Palma was recently recognized as one of the year by the North American Association of wardens, and superintendents or noise.
Speaker Change: To round out our discussion of fourth quarter 2024 revenue local revenue and our safety and community segments, which is revenue generated from contracts with the county governments increased 26%.
Speaker Change: This growth reflects new management contract signed in the second half of 2023 with Hinds County, Mississippi.
Speaker Change: Orange County, Texas.
Speaker Change: Those populations are housed at our Tallahatchie County Correctional facility located in Tutwiler, Mississippi.
Speaker Change: I'd like to thank Gordon Luis Rosa and the whole team at the Tallahatchie facility for all their efforts and satisfying the needs of seven different government partners, including four new partners at this facility over the past two years.
Speaker Change: <unk> overall occupancy in our safety and community segments for the fourth quarter of 2024 increased to 75, 5% from 74% in the prior year period.
Speaker Change: This growth in occupancy stems from both higher use of existing contracts, particularly with ice and also from greater utilization of the four new contracts signed in the second half of 2023 as well as the new contract with Montana. It Tomorrow signed in the third quarter of 2024 that we've previously mentioned.
Speaker Change: For the fourth quarter of 2023 to the fourth quarter of this year occupancy in our safety segment increase of 74, 7% to 76% while occupancy in our community segment improved from 63, 7% to 68, 8%.
Speaker Change: As we've mentioned in the past our operating model is significantly embedded operating leverage to changes in occupancy and this was a factor in our margin performance during the fourth quarter.
Speaker Change: Throughout 2024, our ongoing labor attraction and retention efforts generated operational and financial improvement following the very challenging labor market experience as a result of the COVID-19 pandemic and its immediate aftermath.
Broadly labor inflation has now returned to relatively normal levels and labor markets in most of our geographies are displaying stability.
Speaker Change: We've invested significantly in our frontline employees and implemented human capital attraction and retention strategies I'm excited to report that our staffing is approved in nearly prepaid demick levels and that has allowed us to reduce elevated spending on temporary staffing expenses.
Speaker Change: Maintaining strong staffing levels in our current base facilities is a particularly important as we now look forward to higher demand under existing contracts and the possibility of future activations and shore or improve staffing positions us well operationally to maintain the trust of our partners to manage their higher population needs and respond swiftly to new opportunities.
Speaker Change: Our safety segment, which includes our large higher security level prison and detention facilities as core civics largest segment, having provided 93% of 2020 for total revenue.
Speaker Change: Net operating income for our safety segment fell 3% during the fourth quarter of 2024, reflecting the termination of the South Texas facility that we mentioned earlier offset by cost management efforts and occupancy gains elsewhere.
Speaker Change: For the full year safety facility net operating income increased 16% to $434 million.
Speaker Change: Of course <unk> community segment comprises 21 residential reentry facilities, serving the federal Bureau of prisons, as well as various state and county governments the.
The community segment facilities are typically smaller than our safety facilities at our engaged primarily in the vital work of preparing individuals for successful reentry to their communities after a period of incarceration or as an alternative to incarceration.
Speaker Change: Of course, it makes electronic monitoring and case management services are also included in our community segment.
Speaker Change: As mentioned occupancy in the community segment increased in the fourth quarter of 2024 compared with the fourth quarter of 2023 due to the sale in the third quarter of 2024 are in Idaho residential reentry facility.
Speaker Change: Net operating income of $6 $3 million in this segment declined $1 million versus the fourth quarter of last year for.
Speaker Change: For the full year community facility net operating income increased slightly to $21 7 million.
Speaker Change: Similar to our safety segment, our community segment facilities have been able to normalize their staffing levels and reduce dependence on temporary solutions.
Speaker Change: We remain positive about the occupancy outlook for the community segment as more of our government partners, including the.
Speaker Change: Return their focus to successful reentry in order to curb the recidivism challenge.
Speaker Change: To conclude this business update we believe the longer term macro environment for our federal state and local businesses remains positive, particularly as we enter a new presidential administration that is emphasizing public safety and immigration priorities.
Speaker Change: Our government partners face complex challenges, including capacity limitations aging expensive to maintain and expensive to build facilities persistent staffing challenges in populations that are increasing in numbers and evolving in their complexity.
Speaker Change: Conversations with our partners highlight the growing needs as do other metrics, including jail backlogs in prison population forecast.
Speaker Change: 2025 is likely to bring significant opportunities, particularly on the federal side and these opportunities may require activations of several of our idle facilities.
Speaker Change: Of course civic has already taken proactive steps, including capital improvements preparatory maintenance and labor force readiness to prepare facilities for activation.
Speaker Change: From an operations perspective core civics activation team is already exceptionally busy at a number of our facilities in anticipation of potential new contracts with ice or other partners.
Speaker Change: Of course, if X team stands prepared to start hiring and training as soon as our government partners are ready when we believe the need is clear we did not wait for a contract award to begin preparations.
Speaker Change: Just as important this facility activations are likely to be in the next several years, we recognize that growth only works if a foundation of existing facilities remained strong with that we're continuing to commit the necessary resources to fortify operations at our current facilities and build on the operational progress we achieved in 2024 and such areas of staffing and <unk>.
Speaker Change: Your band intervention and programs outcomes.
Speaker Change: Now I will turn the call over to David Garfinkel, who will provide a detailed look at our fourth quarter financial results, our capital market activities and assumptions included in our 2025 financial guidance Dave.
Dave.
David Garfinkel: Thank you Patrick and good morning, everyone in the fourth quarter of 2024, we generated GAAP net income of <unk> 17 per share, including a penny per share for a gain on sale of real estate assets. Excluding this special item adjusted EPS during the fourth quarter was 16.
Speaker Change: Exceeding average analyst estimates by <unk> <unk> per share.
Speaker Change: Normalized <unk> per share was 39 during the fourth quarter of 2024 exceeding average analyst estimates by <unk> <unk> per share and adjusted EBITDA was $74 2 million exceeding average analyst estimates by $7 $9 million.
Speaker Change: A decrease in adjusted EBITDA from the prior year quarter, a $15 $8 million and decreases in adjusted EPS of <unk>, <unk> and normalized <unk> per share of <unk> <unk> resulted from the termination of our contract with ice at our South Texas family Residential Center effective August nine 2024 and at lease expiration with us.
Speaker Change: Eight of California effective March 31, 2024 at our California City Correctional Center.
Speaker Change: These terminations accounted for a decrease in facility net operating income of $22 8 million or <unk> 15 per share from the prior year quarter.
Speaker Change: These reductions were partially offset by higher occupancy from state and local partners as well as from ice across the remainder of the portfolio.
Speaker Change: Decreases in interest expense, a lower effective tax rate and fewer shares outstanding also contributed to increases in per share earnings aggregating approximately <unk> <unk> per share.
Speaker Change: Federal revenue in our safety and community segments decreased $32 $8 million from the fourth quarter of 2023 to the fourth quarter of 2024, including a reduction in management revenue at the South Texas facility of $39 1 million. So excluding this facility federal revenue in our safety and community segments increased $6.
Speaker Change: $3 million or two 8%.
Speaker Change: State revenue in the safety and community segments increased $12 million or six 4% from the fourth quarter of 2023 for the fourth quarter of 2024, which included revenue from new contracts with the state of Wyoming, and Montana awarded in the fourth quarter of 2023 in the third quarter of 2024.
Speaker Change: We expect our state revenue to further increase from another new contract award from the state of Montana, We announced last month with 120 inmates having already arrived at our Tallahatchie County Correctional facility in Mississippi.
Speaker Change: Local revenue and our safety and community segments increased $2 7 million or 26% from the fourth quarter of 2023 to the fourth quarter of 2024, primarily resulting from new contracts with Hinds County, Mississippi, and Harris County, Texas, both awarded in the second half of 2023.
Speaker Change: Revenue in our property segment declined $7 $4 million, primarily due to the aforementioned exploration of the lease at our California City facility.
Speaker Change: Operating margin in our safety and community facilities combined was 23, 6% in the fourth quarter of 2024 compared to 24, 4% in the prior year quarter.
Speaker Change: The decrease in our operating margin was due to the termination of the ice contract at the South Texas facility.
Speaker Change: As mentioned last quarter the margin at the South Texas family residential center was higher than the portfolio average due to the size and scalability of expenses and due to the unique design and specialized services, we provided at the facility.
Speaker Change: Excluding the South Texas facility operating margin was 22, 8% in the prior year quarter.
Speaker Change: The increase in our operating margin, excluding the South Texas facility was due to an increase in occupancy from 73% to 75, 5% for our safety and community segments combined and a reduction in certain operating expenses.
Speaker Change: In the fourth quarter, we were able to further reduce registry nursing temporary wage incentives and travel all related to labor market pressures that have normalized over the past several quarters.
Speaker Change: These three expense categories declined by $8 $3 million from the fourth quarter of 2023 and during the fourth quarter of 2024, we're at levels comparable to pre pandemic levels.
Speaker Change: Turning next to the balance sheet. During 2024, we repaid $95 million of debt net of the change in cash, including $7 2 million repaid in the fourth quarter.
Speaker Change: In recognition of our earnings outlook and based on our confidence in the business during the fourth quarter, we resumed share repurchases under our $350 million share repurchase program, which we had de prioritized in June upon receipt of the contract termination at the South Texas family residential Center.
Speaker Change: During 2024, we repurchased $68 $5 million of our common stock, including $9 million in December.
Speaker Change: Our share repurchase program was announced in May 2022 through December 31, we have repurchased $14 5 million shares of our stock at a total cost of $181 $1 million or an average price of $12 47 per share.
Speaker Change: As of December 31, 2024, we had $168 $9 million available under the board authorization.
Speaker Change: Our leverage measured by net debt to adjusted EBITDA was two three times using the trailing 12 months ended December 31 2024.
Speaker Change: As of December 31, we had $107 million of cash on hand, and an additional $257 million of borrowing capacity on our revolving credit facility, providing us with total liquidity of $364 million.
We have no debt maturities until 2027, when $238 $5 million of senior unsecured notes mature.
Speaker Change: Moving lastly to a discussion of our 2025 financial guidance, we expect to generate diluted EPS of <unk> 48 to 61.
Speaker Change: <unk> <unk> per share of $1 37 to $1 50 or.
Speaker Change: Our guidance assumes steady increases in federal populations throughout 2025, assuming higher utilization of existing contracts.
Speaker Change: As a reminder, compared with 2024 or 2025 guidance includes a collective per share reduction of 40.
Speaker Change: From 2024, resulting from the termination of the contract at the South Texas family Residential Center effective August nine 2024, and the lease termination at the California City Correctional Center effective March 31 2024.
Speaker Change: Our guidance includes some expenses in anticipation of higher populations, although consistent with past practice. Our guidance does not include the impact of new contract awards, because the timing of government actions on new contracts is always difficult to predict.
Speaker Change: Based on immigration policies of the new administration as well as newly enacted legislation requiring the utilization of more attention for certain criminal violations, we expect new contracts to acquire the activation of one or more of our Idaho facilities.
Speaker Change: We currently own nine idle correctional and detention facilities that have over 13000 available beds.
Speaker Change: Although we can provide no assurance activations could also include the South Texas family residential center, which is owned by a third party.
Speaker Change: We will revise our financial guidance throughout the year as new contracts are signed.
Speaker Change: The activation of an idle facility generally requires four to six months to hire train and prepare the facility to accept residential populations, which results in substantial startup expenses before we realize additional revenue.
Speaker Change: To the extent any new contract requires the activation of an idle facility our guidance will likely be negatively impacted by the startup expenses unless awarded in the very short term with ample time to generate sufficient EBITDA to offset our startup expenses in the calendar year.
Speaker Change: Therefore, any Idaho facility Activations this year, we'd likely more favorably be impactful in 2026, while activating an idled facility is a complex and fluid process. We generally estimate startup expenses to be 4000 to 6000 per bed for the startup period before we are able to accept residential populations.
Speaker Change: With positive EBITDA and cash flows occurring at approximately 50% to 65% occupancy depending on the contract structure.
Speaker Change: We plan to spend 60% to $65 million on maintenance capital expenditures during 2025, compared with $63 $5 million in 2024, and $6 million to $7 million for other capital expenditures compared with $7 million in 2024.
Speaker Change: Even though our guidance does not include any new contract awards are 2020 forecast also includes $40 to $45 million of capital expenditures associated with potential idle facility Activations in order to prepare these facilities so quickly except residential populations if opportunities arise as well as to provide transportation.
Speaker Change: <unk>.
Speaker Change: We review our activation plans frequently it could decided to incur additional capital expenditures in anticipation of additional activations. If we have better visibility on specific needs and if the lead time to complete the capital expenditures exceeded period needed to hire train and prepare a facility to accept residential populations.
Speaker Change: We estimate capital expenditures to reactivate an idle facility of $2500 to $5000 per bed, depending how long a facility has been idle.
Speaker Change: Although we have seen an increase in M&A opportunities in our core business. Our guidance does not include any M&A activity.
Speaker Change: However, we could deploy additional capital for our tuck in acquisition, where we believe cash flows are sustainable over the long term and where returns justify the capital deployed.
Our 2025 guidance contemplates staying within our targeted leverage of two of the quarters times to two and three quarters times. However, as mentioned our guidance does not include the reactivation of any idle facilities, which could result in an increase in our leverage during the startup period.
Speaker Change: Our guidance also does not contemplate any share repurchases beyond those completed to date or M&A activity.
Speaker Change: Accordingly, we could temporarily exceed our leverage target in the short term maintaining focus on our leverage ratios balancing the use of our free cash flow between reducing our debt and modifying the pace of our share repurchases taking into consideration our earnings trajectory stock price liquidity and alternative opportunities to deploy capital and would expect.
Speaker Change: And naturally achieve and sustain our targeted leverage over the medium and long term.
Speaker Change: We are entering a unique period that could result in significant growth in earnings and cash flows our balance sheet and cash flows remained strong with low leverage and no near term debt maturities and readily available bed capacity positioning us well to take advantage of opportunities in the marketplace.
Speaker Change: We expect adjusted funds from operations or <unk>, which we consider a proxy for our cash flow available for capital allocation decisions to range from $148 5 million to $165 5 million for 2025.
Speaker Change: For modeling our quarterly results as a reminder, compared to the fourth quarter Q1 is seasonally weaker because of two fewer days in the quarter higher utilities, and because we incur approximately 75% of our unemployment taxes during the first quarter, resulting in a collective <unk> <unk> per share decline from Q4 to Q1.
Speaker Change: And negatively impacting our operating margins.
Speaker Change: We expect our normalized annual effective tax rate to be 25% to 30% with a lower rate in Q1 compared with the other quarters. The full year EBITDA guidance in our press release provides you with our estimate of total depreciation and interest expense.
Speaker Change: We are forecasting G&A expenses in 2025 to be between $145 and $150 million.
Speaker Change: I will now turn the call back to the operator to open up the lines for questions.
Speaker Change: Certainly and our first question for today comes from the line of.
Speaker Change: Joe.
Speaker Change: From noble capital your question please.
Good morning.
Speaker Change: Thanks for taking my questions nice end to the year.
Speaker Change: Can you guys hear me.
Speaker Change: Yes.
Speaker Change: So David.
Speaker Change: First question I kind of wanted to look at Big picture.
Speaker Change: What total capacity do you think might need with all the actions that are going on and what impact if any do you see for some of the other alternatives that have been put out in the press Guantanamo El Salvador idled government.
Speaker Change: Prisons and.
Speaker Change: In terms of.
Speaker Change: What demand might be for the private sector.
Speaker Change: Hello.
Speaker Change: And I believe our speaker line is currently muted.
Speaker Change: Okay.
Speaker Change: Suddenly to on mute at this time.
Speaker Change: Okay.
Speaker Change: Yes.
Great. We can hear you now.
Speaker Change: Thank you for that Joe can you hear me okay.
Speaker Change: I can hear you very good well good morning, again, my friend and I heard your question completely so let me give you the answer so.
Speaker Change: Big Picture first let me say that we've been talking to members of the transition team now obviously part of the administration really on a daily basis since the election in November.
Speaker Change: One thing that's very clear to US is that there is a very strong focus on detention and obviously youre seeing that play out in the press and <unk> got many spokespersons for the administration. They are talking about that the need for additional capacity in the detention as a key focus for the administration. So I start with that is number one number two to your bed number question.
Speaker Change: This has been a little fluid, but it feels like and I'll ask probably two or three weeks is kind of circling in into a pretty.
Speaker Change: At close range on needed capacity. So let me give you kind of two numbers here. One is that you are hearing in the press and again. We're hearing. This also privately that there is a need for about 100000 beds for enforcement operations. Both on the southwest border, but also for interior enforcement. So that's been pretty consistent here in the last 30 days.
The other which is more recent is that you've heard.
Speaker Change: Obviously, you have the passage of Lincoln Riley Bill I mentioned that in my script.
Speaker Change: And again this has been reported in the press too, but we've heard a range of numbers of about 60000 beds to 110000 beds needed for that requirement, which is going to require mandatory detention for certain individuals arrested for certain crimes.
Speaker Change: So it feels like you've kind of put those two numbers together, they're going into a range of 100000 to 200000. If you wanted to be a little more I think precise it feels like 150 to 200000 is where they're going to end up now.
Speaker Change: Now obviously.
Speaker Change: That is going to be driven by the budget and you are seeing is also daily being played out in the press, where there is potentially an effort by the house, but also potentially an effort by the Senate to do a funding bill and there has been discussion if its one bill our two bills and so I won't get into details on Alex that there is a lot of press and media reports.
Speaker Change: So on that on a daily basis, but I will say that.
Speaker Change: <unk> released some detail on what a reconciliation will look like.
Speaker Change: With a two bill approach and the <unk> approach would have won that would focus on border security defense and energy and if you look into detail Thats been released here in the last few days for border Security again. This is a reconciliation the two bill approach. If you see the dollars that are proposing for that piece for.
Speaker Change: <unk> and border security has a $175 billion.
Speaker Change: And just to put that perspective, I know you know this already Joe but for the benefit of the rest of the callers ice current funding budget for the current fiscal year is $9 6 billion and Thats were 41000 beds.
Speaker Change: So nine 6 billion is the current run rate for ice or 41000 beds reconciliation proposed by the Senate version to 175 billion. So go back to the numbers if the numbers for 150 to 200000 beds. If that's ultimately the funding that feels pretty realistic.
Speaker Change: The second part of your question is about the value proposition. So let me touch on that a little bit so to your point.
Speaker Change: There's been some reports about Guantanamo bay, potentially utilizing capacity or new capacity there El Salvador and then there is also some reports about us.
Speaker Change: State and local governments, providing land and doing some soft sided structures.
Speaker Change: As I mentioned in my script.
Speaker Change: If you look at kind of five to six what I call factors showing our value proposition. We think were superior on all six of these versus these alternatives versus of which is cost and so it's been well documented on the cost to operate getting over the last 10 20 years.
Speaker Change: Obviously with a smaller number versus what theyre talking about which is 30000 beds, but we estimate that were five to 10 times less than what it would cost to operate the facility down and get them out.
Speaker Change: Also if you look at the soft side of structures were estimating that were probably two.
Speaker Change: Two to three times less than those structures too so that would be number one we think we've got a real advantage on the cost side, especially in this environment. We've got <unk> out there looking at the best value for government.
Speaker Change: Part of our value proposition is the.
Speaker Change: Having the most humane facilities and Thats, because we meet all of the national.
Speaker Change: Key requirements around this.
Speaker Change: We have always incorporated that into our training into our facilities relative to how we operate.
Speaker Change: And now the requirements. So that would be number two is more humane than other alternatives third and it's kind of captain obvious this worry logistically more efficient so our facilities here in the U S. <unk> close to key ports of entry. They are close to airports versus obviously the populations out of the country that make us a little more challenging logistically.
Speaker Change: Fourth is that we have and we're very proud of is we were it was a badge of honor, but were the most audited and inspect the facilities in the country and with that have the highest score relative to audits on a consistent basis and so our team worked really hard we don't take that for granted and we work hard everyday to make sure thats versus all other alternatives, we have the highest review.
Speaker Change: <unk> rates and also to Hyatt audit scores versus other alternatives.
Speaker Change: Good thing is that were available today, so we've got capacity available today, where they could utilize it.
Speaker Change: Within our system very very quickly and then finally, we've been doing this for 42 years. So we know really really well they know us obviously very well and so with that we're the we think of all of the alternatives the least likely to get litigation risk versus other alternatives because again, we've got a 42 year history of showing.
Speaker Change: We've been able to perform at a very high level.
Speaker Change: So thats put the bow on the value proposition.
Speaker Change: Lastly, I will just say, Joe a little bit more tier.
Speaker Change: Discussion, we've had with you and others in the last few days about what our capabilities are so we have got obviously vacant capacity today, we've actually given ice a proposal to do 28000 beds.
Speaker Change: And that's capacity we've got in existing facilities that are partially operated maybe existing contracts with ice. That's also baked in facilities that are currently not activate it that could be activated very quickly and then third part of that total comes from facilities that we could lease E target, where we've got South, Texas and daily and then even beyond <unk>.
David Garfinkel: And that 28000 beds that we proposed to is we're also looking at our expansion capabilities within our system and then also vacant facilities that are currently potentially on the market for either purchase or four for lease so dave's going to touch a little bit on I think potentially the margin opportunity.
Speaker Change: With this but I'll just say.
Speaker Change: With 28000 beds that we've put in front of ice I mean, if you just put a number to a relative to revenues that could be a $1 billion in half relative to potential revenues for the for the company and again I think a little later, Dave will talk about.
Speaker Change: Tension that margin opportunity, but the final thing I would just say Joe.
Speaker Change: As I said in our script and obviously again the press release, we're spending $40 million to $45 million in Capex. So we're feeling very encouraged by the conversations with ice to date, they've given its good sense of kind of the first five or six facilities that would be the highest priority for them to utilize within our system. So no surprise there we think.
Speaker Change: About that 40% to $45 million.
Speaker Change: Obviously spending to that towards the first five or six that we think are going to be the highest priority initially for ice for capacity utilization and again, we've been spending that money in the last probably afford us four to six weeks getting ourselves prepared along with what Patrick talked about getting ourselves ready for.
Speaker Change: Staffing and other kind of logistical.
David Garfinkel: Steps, we need to take to get ourselves prepared but Dave maybe just touch on a minute. If you wouldn't mind, a little bit about kind of the realm of the possible relative to the margin profile in this capacity being utilized sure. Thanks Damian.
Speaker Change: Joe for your question, Yes, we were estimating if we activated all of our idle capacity so thats the nine facilities.
Speaker Change: We have over 13000 beds, plus the South Texas family residential center, which you know, we don't own but still in close contact with both target logistics and target hospitality and ice on that facility.
We estimate we could generate incremental EBITDA of $200 million to $275 million roughly of EBITDA at margins consistent with where we've historically generated margins from our federal government partners. So Joe that was a long answer but the punch line is is that we've gotten proposal in front of ice for 'twenty.
Speaker Change: 8000 beds I'll tell you, Dave just went through the numbers relative to capacity, we've got available to day, but we've got an opportunity to really double the amount of EBITDA of this company.
Speaker Change: This company produces on an annual basis. So that's what we're focused in on and looking at as an opportunity.
Speaker Change: Great. Thanks for that very detailed just on south.
Speaker Change: South Texas for a second.
Speaker Change: Indications out there from buying some trump that they want to reopen families center facility.
Speaker Change: Obviously as you see us mentioned.
Speaker Change: In discussions with target on that.
Speaker Change: But are there any other alternatives out there to south taxes that could be.
Family standard.
Speaker Change: Is that something that would have to go through.
Speaker Change: RFP or do you think you'd get something and I'm using air quotes here something like an emergency.
Speaker Change: Dispensation to open that facility without going through an RFP and how quickly could that facility.
Since it wasn't close that long ago.
Speaker Change: Yes, great Great question and short answer is yes, we think there is considering a couple alternatives, notably I think the current facility.
Speaker Change: Under <unk> control as potentially an opportunity therefore families but to your question, yes, we're talking to target daily maybe maybe even hourly and let me just say there are great great partner of ours, and we're looking at not just delay, but if the need is greater than the size of daily Joe we're talking to target on expansion.
Speaker Change: Either they're locally or maybe other parts of the southwest. So we think we've got expansion capability with them above and beyond the 2400 beds that daily if I sustain they needed a bigger they have a bigger requirement, but yes, we're leaning forward on staffing and making sure that we can activate very quickly we've had additional conversations on this very topic.
Speaker Change: With ice here in the last seven days. So we're leaning again forward on getting ourselves a self.
Speaker Change: Prepared as it relates to the.
Speaker Change: Why they would contracted I think they are evaluating that obviously, we've given them a couple of different ideas to your point. This just be activated here in the last six seven months. So I think some of the things that they would.
Speaker Change: Normally have to do for a new contract.
Speaker Change: We don't have too since again just was recently the activated so and that also gives us an advantage because it was recently reactivated that gives us a much quicker way to activate the facility versus if we're starting with a blank.
Speaker Change: Sheet of paper, but maybe Patrick I'll look do you see anything you would add to that.
Speaker Change: Only thing I would add.
Speaker Change: To your point, we've taken a number of steps to prepare for activation that might typically occur later in an activation cycles. So we're doing our best to minimize the cycle time.
Speaker Change: Would require the time that we would need to accept our first group of detainees at the facility and so we're doing everything within our power to shorten that time horizon to give ice the support they need as quickly as possible to be able to support the mission and feel like we're in a great place to the extent that we get that phone call to be able to deliver for them very very quickly.
Speaker Change: Okay.
Speaker Change: Hi.
Speaker Change: Question so.
Speaker Change: Looking at your supplemental and looking at occupancy pardon me.
Speaker Change: Laredo facility has been above 100% occupancy or capacity all year.
Speaker Change: Is that something you can do at some of your other ice facilities.
Speaker Change: I guess.
Speaker Change: What percent of capacity that has it become.
Speaker Change: This is the Max that we can operate app.
Speaker Change: And kind of how long could you do something like that for.
Speaker Change: Joe This is Patrick so the way I would answer that is that each facility is uniquely designed and so the answer to that would be different at each facility that we operate we're obviously very focused on the standards that we must meet to ensure that we have safe humane environments for the detainees, but we do have an opportunity to repurpose space in <unk>.
Any of our facilities it will help us increase capacity beyond what might be a rated capacity at least as we describe it in our supplemental so it's going to vary from facility to facility, but all of our facilities, where we currently maintain ice contracts would give us an ability to flex our capacity up a bit certainly on a short term basis, and then to the extent that we were.
Speaker Change: Think about.
Speaker Change: Long term, we've also looked at potential more permanent capacity additions were conversions of space that would make that flexing up more permanent and.
Speaker Change: And one thing I would add to that Joe is that the number I shared earlier again that 28000 bed proposal that we've given to ice we have incorporated as part of the total that very that very number so they've got some thoughts already in front of them on where we can.
Speaker Change: Have capability by location.
Speaker Change: Okay, and then one more for me and I'll get back in queue.
Speaker Change: You've talked about the <unk>.
Speaker Change: $40 million to $45 million of addition on Capex too.
Speaker Change: We opened facility idled facilities and I know, there's some transportation not dollars in there.
Speaker Change: Does that have.
Speaker Change: What impact if any would that additional capex have on.
Speaker Change: Yes.
Speaker Change: Amount of share repurchases that you would do.
Speaker Change: Sure.
Speaker Change: Hey, Joe I'll take that one.
Speaker Change: I mean that won't impact that I mean, it's been factored into our thinking.
Speaker Change: As I mentioned in my prepared remarks, our leverage is projected to be within the within the target of two in a quarter or two and three quarters time as that incorporates that $40 to $45 million.
Speaker Change: It really won't impact it.
Speaker Change: Impact our thinking going forward, the only thing that I would consider that would affect the pace at which we repurchase shares or the pace of our reactivation is how much startup costs. So we're going to have to reactivate facilities.
Speaker Change: Are there M&A tuck in acquisitions are available on other capital deployment opportunities. So we could as I as I mentioned exceed our target leverage in the short term, that's if kind of all the stars align and we're deploying capital for all of those things.
Speaker Change: To think there'll be kind of more moderate moderately paced, but no doubt once a reactivation starts generating cash flow.
We'll be back within the targeted leverage on a sustainable basis over the medium and long term.
Speaker Change: Great. Thanks for taking my questions I'm sure other people want to ask them. So I'll step aside thanks again, alright, thanks, Jeff. Thank you Joe.
Speaker Change: Thank you and our next question comes from the line.
Speaker Change: Greg give us from Northland Securities. Your question. Please.
Speaker Change: Hey, good morning, David Dave Thanks for taking the questions good.
Speaker Change: Good morning.
Speaker Change: I appreciate all the color that you provided earlier in terms of your proposal to ice and I guess just to clarify or put more of a fine point on it.
Speaker Change: I think it was like 18000 or so available beds that you had.
Speaker Change: Last time, we kind of got an update in Q3.
Speaker Change: One of the kind of get a better sense of maybe where those additional 10000.
Speaker Change: Where you acquired those and as it relates to that $250 $75 million.
Speaker Change: EBITDA uplift number.
Speaker Change: So does that reflect like the 18000 or how should we think about that maybe total 28000 opportunity in terms of EBITDA uplift, yes. So let me tag team with Dave on this a little bit but the 28000. It made from a couple of buckets of beds. So the first one is facilities that are currently operating today, but are at lower.
Speaker Change: C and some of those are.
Speaker Change: Don't have a contract with ice and Marshal service some of them do but that's the first one is there's always operating today with lower occupancy where we've got available capacity the second.
Speaker Change: <unk> bucket is facilities that are currently vacant two day. So there's no. One there is no contracted facilities are completely mothballed and it can be activated in short order.
Speaker Change: The third one is the question that Joe just asked Eric in and Thats capacity that where we could go in a safe and secure way above and beyond the rate of capacity. So that's the third part of the total is what we call surge capacity in certain locations and then the final piece of that total 28000 is third.
Speaker Change: Party capacity and the obvious one on that.
Speaker Change: And this is just one piece of that total, but obviously one is like south, Texas, So thats a facility that we lease.
Speaker Change: Half leased in the past with target in addition to daily in South Texas at 2400 beds. They also have given us line of sight of additional capacity they can make available within the within our system. So those are the building blocks that make up the total 28000, but Dave I'll, let Jim and thanks, Gregg on the 18th.
Speaker Change: And then with respect to the $200 million to $275 million of incremental EBITDA I was counting it's about 15000 beds. The other 3000 beds in that 15000 is roughly all of our idle capacity plus the south Texas facility, which we don't own the other several thousand beds.
Speaker Change: You are quoting the 18000 is already embedded in our guidance that would be a couple of thousand beds that are already under contract with ice.
Speaker Change: Great. It makes complete sense and nice to hear that.
Speaker Change: Seemingly a lot of opportunity above that 15000 ourselves, let you speak to that opportunity. So very helpful. There.
Speaker Change: I guess as it relates to more near term guidance account for any strength that youre seeing in Q1, so far wanted to get a sense of maybe how Q1 has trended relative to Q4 I know you provided some.
Speaker Change: High level ice numbers, but if you could maybe speak to how it's trended relative to last quarter and maybe relative to your guidance.
Yes.
Speaker Change: Populations are they're up slightly if you go back to say inauguration date. They are up a few hundred that's not a significant increase and so our guidance for Q1 does not include a big increase in populations. Our guidance I would say includes kind of a steady increase throughout the year.
Speaker Change: From Q1 to Q4.
Speaker Change: Fair enough.
Speaker Change: And as it relates to some of your guidance commentary you mentioned the activating them.
Speaker Change: The idle facility negatively impacting guidance is due to those startup expenses until the revenue catches up.
Speaker Change: I wanted to see if you could get I guess provide a little bit more color on what degree you can impact financials or maybe the better question would be kind of how long on average or as an example would it take to maybe cover those costs.
Speaker Change: Yes.
Speaker Change: It takes about four to six months to activate the facility depending on the facility I think we talk about South, Texas, and we already mentioned that one could probably go a little faster given that it was the contract just ended in August. So we've got a good number of those employees.
Speaker Change: Still within the company and then I am sure Theres still some in the area that we could re hire but.
Speaker Change: The startup costs that I was kind of quoting in in my script covers that four to six month period. Then you probably got another six to 12 months, where you are fully activating a facility because you can only take so many intakes per week.
Speaker Change: And let me add a little bit to your earlier question and to say that.
Speaker Change: Budget is going to obviously drive higher utilization, so thats being captain obvious but.
Speaker Change: As I mentioned earlier, we're actually watching closely on kind of actions both on the house and the Senate and talk through the kind of the numbers there and I think the timetable on that is kind of March maybe early April.
Speaker Change: But you're looking at those numbers, obviously that could significantly increase utilization very very quickly depending on where they go first we've got available capacity at <unk>.
Speaker Change: Thing as I mentioned in my script, we do think there is some effort underway to get maybe some funding.
Speaker Change: Over to ice increased utilization in advance of anything done by the Congress and so.
Speaker Change: So again being captain obvious funding is going to be key here in the coming days and weeks to drive higher utilization pretty quickly anything you would add to that I think that covers it.
Speaker Change: <unk>.
Speaker Change: Great very helpful guys I appreciate the color and congrats on the quarter.
Speaker Change: Thank you.
Thank you.
Speaker Change: Our next question.
Speaker Change: Comes from the line and then from Zacks Your question. Please.
Speaker Change: So good morning.
Speaker Change: Frank in your prepared remarks, you indicated that.
Speaker Change: You might ask in advance of actually securing a contract. If you believe the need is clear, which I'm sure is based on having consistent and extensive conversations with.
Speaker Change: With potential customers. So can you walk us through what if any are potential low cost.
Speaker Change: But you might be able to do to shorten the startup time.
Speaker Change: Activating our currently idled facility.
Speaker Change: Yeah.
Patrik: Sure. This is this is patrik so to give some background we have been taking steps since the late third quarter of last year to make sure that we were prepared to meet the governor governments demand need as quickly as possible and so we put together an internal activation team.
Patrik: Built an internal project management plan for each of our facilities, we've gone and done a significant amount of the pre activation work in those facilities to make them ready for receipt of populations.
Patrik: In the past that might have been something we would have done on a pre award basis and so we're acting in advance of an award to make sure. The facilities are prepared with each location. We are trying to evaluate relative priority for activation timing and so we're having conversations with our customer.
Patrik: On a consistent basis trying to identify those facilities that might be highest priority. We can take steps forward and putting our facility leadership teams in place. We can have our advertising marketing plan ready our training teams ready to go and so the ability to hit the go button on those activities very rapidly positions us well.
Patrik: Shorten the timeline at which it would take to receive the first detainee. So we're trying to remove any barriers that we can remove.
Patrik: To allow us to accelerate the activation timing.
Patrik: And we're trying to react in a prudent way, but also in an aggressive way in those locations, where we believe we have the greatest opportunity to act quickly to make sure that we can shorten that time horizon and so as Dave talked about if we look at traditionally a four to six month time horizon.
Patrik: We have high levels of certainty that we may be moving forward.
Patrik: May be able to take two or three months out of that timeline prior to the receipt of the first detainee, but again, that's going to be situational and there are so many locations.
Patrik: We don't think it prudently net for forward in every location, but we are going to do that where that makes sense and where we believe the priority is highest.
Speaker Change: Okay got it so.
Speaker Change: Six months could be just you are.
Speaker Change: You are being very conservative.
Speaker Change: Could be shorter than that depending upon what.
Speaker Change: Hardware below closer in.
Speaker Change: So would it be for Q.
Speaker Change: That's.
Speaker Change: The earlier.
Speaker Change: <unk> would be at locations, where you are already doing some prep work and so that's four to six months is probably a little too long for the first maybe second location.
Speaker Change: That's going to go the way.
Speaker Change: No.
Speaker Change: Excellent.
Speaker Change: I think Thats a fair assessment.
Speaker Change: We're going we're prioritizing those facilities that we think would be a priority for our customer we're leaning forward and those locations pretty aggressively in some cases and so we want to shorten the timeline as much as possible. The counterbalance to that is we want to make sure. When we activate we activate well and we're able to deliver high quality service.
Speaker Change: <unk> and a safe secure and EMEA environment, and so to do that.
Speaker Change: Traditionally have said four to six months is optimal.
Speaker Change: But again, we've shorten that time horizon and so I can argue that were 30 days or 60 days into Activations already at a couple of locations based on the steps that we've already taken if we were to compare that to history. So I think short answer would be yes.
Speaker Change: We're working to activate more quickly if we get to a place in the activation, where we are ready for the receipt of the first group of detainees. Then we certainly would provide that opportunity for ice that we would not.
Speaker Change: Not constrain their ability to use that capacity, if we were ready sooner and we're going to strive to do that.
Speaker Change: Okay, Great last question from me.
Speaker Change: Specifically on the South Texas facility that were too.
Speaker Change: <unk> renewed is awesome.
Speaker Change: An ice contract.
Speaker Change: I think the last contract was from David because it was operating under a model that was significantly higher cost model than the standard one.
Speaker Change: And most of your facilities.
Speaker Change: This facility require any retrofitting or significant.
Speaker Change: Claims.
Speaker Change: Changes in order to go forward.
Speaker Change: Operating under more standardized contract.
Damon Heininger: This is Damon and thank you again for that question I would say at very modest I mean again, we've only had a deactivated about six seven months and so there is some stuff that we're working on with target, but pretty modest to your point because I said it was just recently the activated.
Speaker Change: Okay. Thank you.
Speaker Change: Yes ma'am.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: From the line.
Speaker Change: That's correct.
Speaker Change: From Imperial capital your question please.
Speaker Change: Hello, everyone. Thank you for the call.
Speaker Change: Yes.
Can you talk a little bit about.
Speaker Change: <unk>.
Speaker Change: How ice deportations might ramp in and how you are.
Speaker Change: Protecting.
Speaker Change: Yourself with contracts that have maybe minimum beds.
Speaker Change: Contract length, and how all of that.
Speaker Change: How that might.
Speaker Change: Work and how you protect yourself.
Damon Heininger: Thank you so much our question. This is Damon and short answer is is that we expect that the structure of our ice agreements or new agreements that we have with ice would be very similar to what we've done historically so to your point.
Speaker Change: It's very very clear.
Speaker Change: Having some type of fixed payment to cover the fixed cost within the facility of ice has been very agreeable and understand the reason behind that so we think those type of features that are in our contracts previously it would be in the contracts that would be going forward, either new contracts or modifications to existing contracts, where <unk> would be a user or a rider.
Speaker Change: The thing I will say as I mentioned earlier the value proposition us versus.
Speaker Change: Other alternatives I kind of went through the fixed factors that gives us we think a superior edge on his other alternatives I wanted to be very clear on this we don't see that as an either or we actually see it as a both of them being utilized I think it is important to reinforce that because again if theyre looking at numbers that are 150000 to 200000.
Speaker Change: You, obviously heard what we're proposing and you've heard some of these other alternatives, they're going to need really all of that capacity to meet the mission and the needs with the numbers that youre looking to get from from Congress. So I think thats, an important point too.
Speaker Change: That's helpful. Thank you.
Speaker Change: And it Hasnt come up on this call, but are you hearing anything on ISR and how the new administration is thinking about.
Speaker Change: Alternatives to detention.
Speaker Change: Not much to be honest with you as I mentioned earlier I mean, the again.
Speaker Change: It's almost hourly that we're talking to to ice and members of the administration and again the focus has been all under attention and so all the all the discussion all of the proposals all the information, we're getting given to them on costs.
Speaker Change: We've got active tours going on it either vacant facilities occurring operating facilities and it's all been around attention. So we're prepared we think that potentially that could be a tool. They look out down the road and we've obviously rail recounted to this group our capabilities on that front and we think we're well positioned if the need is there but again.
Speaker Change: <unk> been top of the priority list at eastern and here in the near term.
Speaker Change: Got it great. Thank you and then last last topic you.
Speaker Change: You mentioned acquisitions, a couple of times in the prepared remarks.
Are you thinking about others idle facilities of other other operators or are you thinking about actually buying other operators.
Speaker Change: It's a little bit all of the above our real estate team is really good they have a database of all vacant facilities nationwide that they look at a regular basis and they look at that comparative factors relative to the age of facility. The size the location to labor markets et cetera, et cetera, and so we've continued to kind of keep that refresh.
Speaker Change: <unk>, if we think there is an opportunity through an acquisition or maybe through a leased or maybe just have the writer first refusal. If there was a need expressed by ice in a certain location. We just want to make sure we get ourselves prepared so that's an active again analysis that we're doing with our with our real estate team and the other thing is not to your question, but I think.
Speaker Change: And to note is that.
Speaker Change: The majority of our facilities have a lot of space, so that mean space property.
Speaker Change: Availability around the actual physical structure, where we operate where we could expand either inside the actual facility itself or maybe outside the fence and so thats also part of the part of the analysis. So just trying to get ourselves prepared again, if that number is going to be 150 to 200000 beds from ice.
Speaker Change: We want to get ourselves prepared for not only the near term, but also long term and look at all of these alternatives.
Speaker Change: And I'd add we're talking about acquisitions in the core business. So they would be tuck ins.
Speaker Change: That look very similar to what our existing facilities look like.
Speaker Change: We want to make sure. The cash flows are going to be sustained over the long term because we have seen a number of assets become available in this marketplace, but we're going to be very disciplined.
Speaker Change: Great. Thank you for the extra time.
Speaker Change: Thank you Sir.
Speaker Change: Thank you.
Our next question comes from the line of Jay Mccanless from Wedbush. Your question. Please.
Speaker Change: Hey, good morning, everyone. So the first question I had.
Speaker Change: And I think you answered part of this and you're talking about the Marshal service.
Speaker Change: We think about now the rules have essentially been reset to where we were pre COVID-19.
Speaker Change: Do business with marshals.
Speaker Change: I guess, what's the path to getting there.
Speaker Change: Occupancy back up above 80% and keeping it there longer term.
Speaker Change: Thank you for that question is your question and more about the Marshal service or more just just generally about yes. I mean now that you have the flexibility to work with the VIP and the subsidiaries of the GOP again that along with what you guys have given us on ice et cetera, yes.
Speaker Change: Yes, absolutely well, yes, I mean rig count all of the opportunities with ice.
Speaker Change: I mean, you can get to that number just that customer alone to your 85% number you mentioned a second ago, but let me just maybe just do a quick headline on the Marshal service I mentioned this in the script, but it's worth noting I mean more service I think nationwide populations around 54000.
Speaker Change: That guide is high I think 66 67000 under the previous Trump Trump administration. So that also could be a meaningful opportunity. In fact again, we didn't really talk about this in the script that that's another customer that is knocking on our door, we're already having active conversations with the Marshal service on facilities that maybe they weren't.
Speaker Change: <unk> able to access.
Speaker Change: Recently, they are interested in potentially a ride in an ice contracts or maybe using high utilization of their existing contracts. So more service that actually that engagement with us has picked up pretty significantly here in the last 30 days, but anything you'd add to that Dave I was going to say exactly what you did with it's over.
Speaker Change: <unk> of over 10000 detainees.
Speaker Change: <unk>.
Speaker Change: Early 2000 late 2020 early 2021, so there is a large opportunity there.
Speaker Change: Would expect as U S attorneys to get put in place.
Speaker Change: We would expect those populations to increase so.
Speaker Change: That is another opportunity that perhaps underappreciated by the market.
Speaker Change: This is focused on ice right now.
Speaker Change: And our state business.
Speaker Change: The contracts that we've entered into.
Speaker Change: Over the past year, plus Montana as early as recently as last month.
Speaker Change: Wyoming and a couple of counties as well, we do see growth in the state business. So we see a number of avenues to get to the mid <unk> in terms of occupancy yes. That's a good point to kind of reinforce what Dave just said on the state side I mean, we've really thankful for the recent contracts with Montana.
Speaker Change: As you know we've had recent contracts with my Omi and with Idaho, and even a couple of counties in our <unk> facility out in Arizona, I mean, as a result of a couple of those contracts coming together, we're at full utilization there that facility probably the first time in probably a decade at that facility. So a lot of great kind of activity going on with state business right.
Speaker Change: Now in some of these contracts that we've gotten recently.
Speaker Change: Okay, that's great.
Speaker Change: Second one I had can you talk.
Speaker Change: Earlier in the script about $200 million to $275 million of potential incremental EBITDA can you walk us through where that comes from again please.
Speaker Change: Yes, so that was.
The EBIT as we could potentially generate if we activated all of our idle capacity and the South Texas family residential center. So it's little over 15000 beds in total.
Speaker Change: Great.
Speaker Change: And then the only other question I had.
Speaker Change: You've addressed this earlier, but when.
Speaker Change: When you when you think about it.
Speaker Change: Potentially rising inflationary environment tariffs et cetera, and the cost of certain things starting to go up again.
Speaker Change: I guess, how how comfortable are you with the discussions you are having advice of being able to cover cost, especially costs start to move against you for the different things you have to provide into the facilities.
Speaker Change: We work very closely with all of our vendors and have strong visibility and in some cases have made.
Speaker Change: Preemptive purchases on goods that are necessary for the activation of our facility. So in the short run we feel very good about how we're positioned and our ability to provide our best in a cost effective way.
Speaker Change: Would be consistent with historical spend levels, obviously, we'll have to watch over the long term to the extent the environment shifts and changes then we obviously have to be sensitive to that but when you look at the mix of our cost structure about two thirds of our cost structure staffing. So its combination of staffing and benefits. If you were to look at actual supplies that you need to operate the facility.
Speaker Change: <unk>, it's relatively small as a percentage of our overall cost structure. So that's not to say that we're not focused on it.
Speaker Change: In terms of where were most sensitive to inflation, it's going to be on staffing and benefits and we feel like we're very well positioned in the market right now.
Speaker Change: Our ability to hire and retain staff.
Speaker Change: If I could just add one thing I think one thing I would add to that is that I think youre aware that under federal contracts, we have to pay wage termination.
Speaker Change: And if the waste termination from one contract period to the next goes up.
Speaker Change: We have to do that raise so the lease termination tells US okay. The new salaries. This so we have to raise the salaries as directed by the waste termination, but we also get reimbursed dollar for dollar from the federal government through higher compensation and so that's a nice feature in the federal federal contracts. If we are in inflationary environment and that does have an impact on salary and wages, we get reimbursed from that from the.
Speaker Change: Federal government.
Speaker Change: And of course, 100% domestic operations. So unlike many other companies in corporate America, we don't have to worry so much about tariffs.
Speaker Change: As Patrick mentioned, we do have some supplies and things like that that would be potentially impacted Boe and two thirds of our costs are in salaries and benefits.
Speaker Change: Small component of our expense structure.
Speaker Change: Understood great. Thanks for taking my questions. Thank.
Jack: Thank you Jack Thank you.
Speaker Change: Thank you.
Speaker Change: Our final question for today comes from the line of Ben breaks from <unk> financial your question. Please.
Speaker Change: Hey, good afternoon, guys. Thank you for taking the call and the questions.
Speaker Change: Hey, Ben.
Speaker Change: Yes, hi.
Speaker Change: I know we've already touched on this a few times, but I just want to make sure that I understand these numbers correctly.
Speaker Change: So you currently have a proposal in front of ice for up to 28000 beds is that correct.
Speaker Change: Correct.
Speaker Change: And if 15000 of those beds are activated.
Speaker Change: That could result in up to $1 5 billion of additional revenue and $200 million to $275 million of additional EBITDA.
Speaker Change: So let me I'm going to tag team with Dave on the revenue side, what I was doing.
Speaker Change: Doing the total office the 28000, so if you do okay got it and then Dave will walk you through the math on the <unk>.
Speaker Change: Contribution, yes, I was just given the contribution from the idle beds that we have again thats, assuming every one of our idle beds is activated.
Speaker Change: At March at a margin consistent with where we have historically generated margins from the federal government. So if you do back into the math, that's probably $750 to $800 million of revenue.
Speaker Change: Okay. So the $15000.
Speaker Change: 15000 beds would be around $715 million of revenue and anywhere between $200 million and $275 million.
Speaker Change: Of additional EBITDA.
Speaker Change: $750 million to $800 million of revenue.
Speaker Change: Got it I just wanted to make sure I had those numbers right. Thank you for that clarification.
Speaker Change: And then.
Speaker Change: The majority of my ask just by way of kind of managing that and being able to put.
Speaker Change: Hedge and idle beds.
Speaker Change: Are you able to mixed populations like can you put it.
Speaker Change: And ice detainee with a state or U S marshals detainee or does that depend by the contract are there any restrictions around that.
This is Patrick so that each facility is designed a bit differently, but our facilities can be very flexible in terms of housing.
Speaker Change: New populations, our tallahatchie facility in Mississippi presently houses eight different customers in that facility and we're able to manage the services for each of their individual contractual requirements appropriately.
Speaker Change: Just on some combination of combining customers and housing unit and separating them.
Speaker Change: Generally what youre going to see in our facilities are going to have separation by pod and so you would not have the U S. Marshal service and ice for example in the same part, but you could have them adjacent and so our responsibilities to managed separation of the populations in a way that allow us to deliver services appropriate for each of those customers better.
Speaker Change: Our facilities are designed in a very flexible way that allows us to maximum maximize utilization of the pockets of beds that we do have again, while maintaining appropriate levels of separation.
Speaker Change: Understood got it got it.
Speaker Change: Obviously, we've been talking a lot about capacity here and everything from you.
Speaker Change: Using repurposed repurpose space, maybe even M&A is there any chance of like brand new facility builds or is that something that might be farther out.
Speaker Change: Thats, a possibility as Dave Thats, a possibility, but again based on what we've got in our system today our capabilities.
Speaker Change: The various kind of building blocks that makeup the total amount of the 28000 and again also our capability of potential to expand facilities and then finally your facilities that may be out there today that we could buy purchase lease or maybe have writer first refusal I don't see that as a kind of near term kind of need or opportunity, but but also it will be.
Speaker Change: You're watching closely to again see what.
Speaker Change: Ics total funding is and what their needs needs are but again I think we've got a lot of capability right in front of us to provide a lot of support for ice in their current mission.
Speaker Change: And expanding mission got it.
Speaker Change: Got it okay. Thank you and then final one from me is going to be so the new executive order that.
Speaker Change: Basically lifted.
Speaker Change: Prohibition on new or renewed department of Justice contracts now that Thats formally lifted.
Speaker Change: Do you see anything by way of New Bureau of prisons opportunities I know that <unk> was a relatively small percentage of revenue even immediately prior to Bidens executive order.
Speaker Change: But I'm curious if you see any opportunities for growth there.
Speaker Change: Yes, great Great question and give you two answers.
Speaker Change: One is that you may be aware that the.
Speaker Change: Most recent director she left agency I think within the last two weeks of the currently being led by interim director.
So I think the first part of the answer is is that once the permitted is selected and he or she is in place. Then obviously it will have a vision that I am sure. The lay out not just for the agency, but also the partnership with the private sector. So that'd be part a of the answer part beta answer would be is what I alluded to earlier.
Speaker Change: Do we do get the sense, there's a lot of frustration and consternation, especially with this new administration about the lack of increase of community confinement and halfway house beds.
Speaker Change: As a result of the first step to act and so what we're hearing pretty loudly is that they think there is an opportunity to lean on the private sector to really substantially expand that part of the business now that wasn't impacted by the executive order, but we do think kind of near term. The bureau is going to look to the private sector is significant.
Speaker Change: Increase.
Speaker Change: Pass it again for both.
Speaker Change: Home confinement community confinement graph, we're halfway house beds.
Speaker Change: Okay got it that's incredibly helpful. Thanks, very much guys.
Speaker Change: And thats it from me.
Speaker Change: Thank you. Thank you.
Tim: This does conclude the question and answer session of today's program I'd like to hand, the program back to Tim <unk> for any further remarks alright.
Speaker Change: Alright, Thank you Sir well. Thank you all so very much a lot a lot of great questions and sorry, we went over a little bit a lot of great detail. As you know we've got a lot of activity going on in the organization a lot of opportunity. So it's a very exciting time.
Speaker Change: Within our company as always we are grateful for your support your advice.
Speaker Change: All of that you do for us and all you do to invest in our company. So we're excited about the near term and look forward to sharing our results here in the coming days and weeks as we lead up to the second quarter. Thanks, everyone for calling us calling in today.
Speaker Change: Yes.
Speaker Change: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.