CoreCivic Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 8, 2024

There are 9 speakers on the call.

Operator

Thank you for standing by, and welcome to the CoreCivic 4th Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. Mike Grant, Managing Director of Investor Relations.

Speaker 1

Thank you, operator. Good morning, ladies and gentlemen, and thank you for joining us today. Participating on today's call are Damon Henniger, CoreCivic's President and Chief Executive Officer and David Garfinkel, our Chief Financial Officer. We are also joined here in the room by our Vice President of Finance, Brian Hammonds. On today's call, we will discuss our financial results for the Q4 of 2023 as well as financial guidance for the 2024 year.

Speaker 1

We'll 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 provision 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 Q4 2023 earnings release issued aftermarket yesterday and in our Securities and Exchange Commission filings, including Forms 10 ks, 10 Q and 8 ks reports. 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 such statements in the future. On this call, management will also discuss certain non GAAP measures.

Speaker 1

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 corecivic.com. With that, It's my pleasure to turn the call over to our President and CEO, Damon Hettinger.

Speaker 2

Thank you, Mike. Good morning and thank you for joining us for our Q4 2023 Earnings Call. On today's call, I will provide details of our 4th quarter financial performance and introduce our 2024 full year financial guidance. I will also discuss with you our latest operational developments and update you on the latest developments with our government partners. Following my remarks, I will turn the call over to our CFO, Dave Garfinkel, who will review our financial results and our 2024 financial guidance in greater detail.

Speaker 2

He will also provide a more detailed update on our ongoing capital structure initiatives, including debt reduction, share buybacks and our new bank credit facility attained in the 4th quarter. I'll now provide a brief overview of our Q4 financial results. In the Q4, we generated revenue of $491,200,000 which was a 4% increase compared to the prior year quarter. This increase comes in spite of the expiration of our final prison contract with the Federal Bureau of Prisons at our previously owned Macrae Correctional facility in November of 2022 and the expiration of our lease agreement with the Oklahoma Department of Corrections at our North Fork Correctional Facility on June 30, 2023. Excluding these two expirations, our total revenue increased 6%, demonstrating strong occupancy and revenue growth from our CoreCivic Safety and Community portfolios.

Speaker 2

We generated normalized funds from operations or FFO of $51,300,000 or $0.45 per share compared to $49,100,000 or $0.42 per share in the Q4 of 2022, representing a 1st share increase of 7%. The increase in FFO was driven by the higher federal and state populations combined with lower interest expense resulting from our debt reduction strategy. The increase in FFO occurred despite the sale of our McCray facility and the expiration of the lease with Oklahoma, which resulted in a combined reductions to EBITDA of $2,300,000 from the prior year quarter. We have achieved significant improvements in our and retention rates resulting from staffing strategies as well as an overall improvement in the hiring environment. That said, labor market pressures have necessitated temporary incentives and related incremental operating expense experienced through 2023, including the Q4.

Speaker 2

As we leave 2023, we believe that more favorable operating expense trends should continue as the labor market continues to loosen and as we continue to progress toward pre pandemic staffing and Oxy levels. As mentioned on the past several conference calls, we have made significant investments in our existing staff and have successfully increased our staffing levels through improved recruiting and retention. These were the right investments to make And they have enabled us to reduce usage of temporary incentives and costs from the prior year quarter and have positioned us well to manage our customers' higher population needs. In the Q4 of 2023, we achieved our high end oxy rate since the Q2 of 2020, which, as you may recall, is the quarter immediately following the start of the COVID-nineteen pandemic response. From the Q4 of 22 to the Q4 of this year, occupancy in our Safety segment increased from 72% to 74.7% And Oxy in our Community segment increased from 58.4% to 63.7%.

Speaker 2

The increase in Oxy in our Safety segment primarily resulted from higher detention populations from our largest government partner, Immigration, Civil Customs and Enforcement On May 11, Title 42, a temporary public health order issued by the CDC that had essentially our nation's border to asylum seeking individuals since the onset of the COVID-nineteen pandemic came to an end. At the same time, proxy restrictions implemented during the pandemic at our ICE facilities also came to an end. Without the authority granted under Title 42 to deny entry to or quickly remove individuals from the United States, There has been an increase in the number of people in custody of the Department of Homeland Security or DHS. ICE is one of the 2 agencies within the DHS that is responsible for enforcing immigration laws, arresting and attaining individuals who have entered the country illegally. These activities have increased since the end of Title 42 And the country continues to report record numbers of people encountered at the southern border.

Speaker 2

Last quarter, we on the increase in demand for detention capacity since Title 42 was lifted. From mid May 2023 through December of 2023, The number of individuals in the custody of ICE increased 74%. Over the same period, ICE detention populations within our increased 76%, which we believe was possible in part because of our investments in staffing. Because many of our federal contracts include a fixed payment component, the increase in residential populations do not result in proportionate increase in our results as such facilities until the population is clear the minimum compensated bed total associated with the fixed payment levels. Most of our facilities are now at or above that level.

Speaker 2

The increased Oxy in our Safety segment also resulted from broad based higher Oxy levels from many of our state government partners, notably from the states of Arizona, Georgia, Idaho and Colorado. Now it's in 2nd year under management contract with State of Arizona. Our La Palma Correctional Center in Eloy, continues to show improvements in Oxy as well as operating and financial metrics. During the Q4, we were able to sharply reduce the facility's reliance on temporary labor resources and incentives due to strong local hiring and oversight. The Q4 was an exceptionally busy quarter for new contracts as our best of class services, Demonstrated outcomes and facilities provide a flexible resource to partners requiring our legal services.

Speaker 2

During the quarter, we signed and commenced 3 new management contracts, each of which boosts incremental occupancy at already ready facilities with available As a reminder, ours is a leverage business model and higher utilization of our facilities is correlated with expanded margins. In November, we announced a new management contract with the state of Montana to care for up to 120 Male inmates are at our 1896 bed at Saguaro Correctional Facility in Eloy, Arizona. The initial term of the contract is for 2 years and it may be extended by mutual agreement. The total term including renewals is up to 7 years. We completed the intake process for the 120 inmates before year end.

Speaker 2

At December 31, 2023, we also cared for approximately 875 residents from Hawaii and nearly 600 residents from the State of Idaho at a restored correctional facility. This new contract represents an expansion of our relationship with the state of Montana as we also manage for them the fully occupied company owned Crossroads Correctional Center in Shelby, Montana under a separate management contract. Also in November, we announced a new management contract with the state of Wyoming to care for up to 240 inmates at our 2,672 bed Tallahatchie County Correctional Facility in Tuttlewyther, Mississippi. This is not our first time partnering with Wyoming as we previously cared for their inmates under a management contract that had not been utilized since 2019. The term of the new contract runs through June 30, 2026.

Speaker 2

The intake process for the 2 40 inmates was complete as of December 31, 2023. Finally, we announced a 3rd new management contract during November. This new contract is with Harris County, Texas to care for up to 3 60 inmates at Tallahatchie County Correctional Facility. The contract includes the option for the county to access an additional 3 60 beds at the Tallahatchie facility. The initial contract term began on December 1, 2023 and ends November 30 this year.

Speaker 2

The contract may be extended at the county's option for up to 4 additional 1 year terms. We began receiving inmates from Harris County during the Q4 of 2023 and we anticipate the intake process to be complete in the Q1 of this year. Also, as an update on our accounting relationships, at the end of the third quarter, We signed a new management contract with Hinds County, Mississippi for up to 250 adult male pretrial detainees also at our Tallahatchie County Correctional Facility. We completed the intake of that population during the Q4. While historically we have focused more on federal and state contracts, it is interesting to know that many large counties throughout the United States have begun to experience capacity constraints as a result of both larger populations and infrastructure problems.

Speaker 2

Expanded candidate jail populations typically precedes growth in state prison populations as the jail population is adjudicated and sentenced. Further, we've remained in discussions with several additional jurisdictions to help address their challenges in the near to long term. Now turning to our Community segment, which is comprised of 23 residential reentry facilities. We experienced an increase in of 63.7% in the Q4 of 2023 from 58.4% in the prior year period. Populations continue to improve across many of our facilities serving both the Bureau of Prisons or BOP as well as states including Texas and Colorado.

Speaker 2

We also provide electronic monitoring and case management services in our community segment. Our community segment represents a mission and is often critical to the successful reentry of residents in our care. Net operating income in this segment increased 66% in the Q4 of 2023 from the prior year quarter due to the increase in occupancy as well as per diem increases we have been able to attain in contract renewals. We were also able to reduce temporary staffing incentives just as we did in our Safety segment. We expect the Oxy trend to continue in the community segment now that pandemic related public health policies have come to an end And as more of our government partners return to these important residential reentry programs that help individuals be better prepared for successfully transitioning back from a period of incarceration into our communities.

Speaker 2

Finally, the high performance of our colleagues and the high quality of our facilities continue to be rewarded with long term commitments from our government partners. We never take for granted renewals of existing management contracts and continue to enjoy a contract retention rate of 95% Over the 5 years through 2023, including the renewal of all 44 management contracts in our Safety and Community segments that came up for renewal during the course of the year. As a reminder, we entered into an agreement the state of Oklahoma to lease our 1670 Bed Davis Correctional Facility effective October 1, 2023. We successfully transitioned operations to the state, which is now operating our facility with government employees, effectively converting the from one in which we own and operate in our Safety segment to one that we simply leased to the state. That facility is now named the Allen Gamble Correctional Center and is now reported in our property segment.

Speaker 2

We remain pleased to have reached a mutually advantageous contract for this facility and we value our ongoing relationship with the State of Oklahoma. Looking forward, we remain optimistic in the long term macro environment for our federal, state and local business. Our governments are facing complex capacity, infrastructure and population challenges and we see increased opportunities to serve their growing needs. At the federal level, although we continue to see a steady increase in detention bed utilization, The long term impact of the end of Title 42 is still unclear as there are other factors that impact detention utilization levels by ICE. The most significant factor historically has been funding levels approved by Congress annually.

Speaker 2

However, the country is still facing significant challenges at the southern border and geopolitical events only enhance the need for border security. Although we are over a third of the way into the federal fiscal year, which ends September 30, 2024, The appropriations process for funding the remaining fiscal year remains in flux. Further, a supplemental funding bill proposed the administration that includes significant funding for DHS and ICE has not been acted upon by Congress. While there is bipartisan recognition of the need to fund DHS and ICE more robustly to address challenges at the southern border, A funding resolution has not been reached. The outcome of the appropriations process is expected to have significant impact on the overall population levels in our ICE facilities moving forward.

Speaker 2

And even though detention funding and related services are just part of the overall solution, We are positioned well to serve their needs. Another part of the overall management of the border that could potentially expand the scope of services includes alternatives to detention. Earlier last year, ICE issued a request for information or RFI for Release and Reporting Management Services. This RFI is seeking information about monitoring technology, participant coordination services, including physical space, participant engagement and interactions and program management and community service to help people comply with their immigration obligations. So not yet funded by Congress and only in the early stages, The RFI is intended to apply to non citizens released from DHS custody and according to the RFI involves engaging with a large portion of the 7,000,000 individuals on the current nonattained docket.

Speaker 2

At the state level, overall state budgets are in very good shape. Most of our state partners are reporting increases in their prison populations and many states are also projecting further increases in their prison populations. Jail backlogs, which are a leading indicator for state prison populations, remain significant. Additionally, efforts continue to normalize operations and as cases are adjudicated, state correctional agencies will certainly be impacted. In summary, while challenges and uncertainties remain, the general macro environment in which we operate continues to improve and our financial results have begun to reflect that improvement.

Speaker 2

Our occupancy is at multiyearhigh. Our margin has begun to reflect the operating leverage that comes with higher occupancy and we are making solid progress against labor related cost pressures That rose sharply during the COVID-nineteen period. In our press release, we introduced our 2024 full year financial guidance. It includes normalized FFO per share forecast, a range of $1.46 to 1.61 and EBITDA range of $300,000,000 to $313,000,000 As we have been sharing on these calls for over a year, Our lease with the State of California for our California City Correctional Center ends March 31st this year. That facility has generated slightly over $25,000,000 in EBITDA.

Speaker 2

So the anticipated absence of that lease for the final quarters of 2024 negatively impacts EBITDA and is reflected in our guidance. Obviously, we are focused on a solution to the pending lease expiration with the State of California at California City. Finding a positive solution for this facility, which is in a great location and is comprised of larger replicate beds is a top priority for CoreCivic. I'll now turn the call over to Dave Garfinkel, our CFO, who will provide a more detailed look at financial results in the Q4. He will also discuss in detail our financial guidance for 2024 as well as progress on our capital markets and further details about our new bank credit facility and capital allocation strategy, including debt reduction and share buybacks.

Speaker 2

Over to you, Dave. Thank you, Damon, and good morning, everyone.

Speaker 3

In the Q4 of 2023, we reported GAAP net income of $0.23 per share compared to $0.21 per share in the prior year quarter. Adjusting for special items, adjusted EPS during the Q4 of 2023 was $0.23 compared to $0.22 per share in the prior year quarter. Normalized FFO per share was $0.45 during the Q4 of 2023 compared with $0.42 in the prior year quarter. As we disclosed last year, adjusted and normalized figures in the Q4 of 2022 Included the impact of certain tax credits, we were entitled to under the CARES Act. These credits were reflected as a reduction to operating expenses and favorably impacted per share results by $0.02 in the prior year quarter, net of related expenses resulting from the credits.

Speaker 3

The increase in adjusted EPS and normalized FFO per share resulted from higher occupancy from federal and state populations, The continued normalization of our operating expense structure and lower interest expense, partially offset by an increase in G and A expenses. The trend of increasing ICE detention populations nationwide continued during the Q4, albeit at a slower pace than the 2nd and third quarters following the expiration of Title 42 on May 11, 2023. Title 42 is a policy that had been used since March 2020 the denied entry at the U. S. Border to asylum seekers and anyone crossing the border without proper documentation or authority in an effort to contain the spread of COVID-nineteen.

Speaker 3

At December 31, 2023, ICE detention populations nationwide were up to 37,131, a 5.2% increase from September 30. Average daily ICE detention populations within our facilities increased by 2023 residents or 23% during the Q4 of 2023 compared with the Q3. Note that due to fixed payments at certain of our facilities, Increases in populations do not always result in incremental revenue and compensated occupancy because increases can occur at facilities where population levels were already included in our compensated population. Our average daily compensated population from ICE was up expenses contributed to the increase in normalized FFO per share from Q3 of $0.35 to $0.45 in Q4, an increase of 29% and adjusted EPS from Q3 of $0.14 to $0.23 in Q4, an increase of 64%. Operating margins at our Safety and Community Facilities improved to 24.4% in the Q4 of 2023 compared to 24.1% in the prior year quarter and 21.3% in the Q3 of 2023.

Speaker 3

Excluding the impact of the aforementioned tax credits, margins were 22.6% in the prior year quarter. The increase in our operating margins was due to the increases in occupancy, per diem increases we have been successful in obtaining, the continued normalization of operating expenses and the successful transition of the Allen Gamble Correctional Center to a lease in our property segment Compensated occupancy in our safety and community facilities was 74% in the Q4 of 2023 compared to 71.1% in the prior year quarter and up from 72% in the Q3 of 2023. The increases in occupancy enabled us to leverage incremental revenue over our fixed operating expenses. The increase in revenue resulting from the increases in occupancy was amplified by per diem increases we have been able to obtain, which increased 0.5% over the Q4 of 2022. During the Q4, we were able to continue reducing certain incremental labor related expenses such as registry nursing, temporary wage incentives and travel despite inflation and labor market pressures that have been steadily easing over the past several quarters.

Speaker 3

These three expense categories declined by $6,300,000 from the Q4 of 2022 and 1.8 $1,000,000 from the Q3 of 2023. The successful transition of the Allen Gamble facility effective October 1, 2023, improved operating margins in the Q4 of 2023 and will continue to provide a stable return in our Property segment going forward. Turning next to the balance sheet. As previously disclosed, during the Q4, we completed an amendment and extension of our bank credit facility, effectively replacing our previous bank credit facility, increasing the total size from $350,000,000 to $400,000,000 The new bank credit facility increases available borrowings under the revolving credit facility, which remains undrawn from $250,000,000 to $275,000,000 and increases the size of the term loan from an initial balance under the previous facility of 100,000,000 $125,000,000 extended the maturity date to October 2028 from May 2026 and relaxed certain covenants while maintaining a similar pricing structure. We remain focused on paying down debt and continue to make progress on our debt reduction strategy.

Speaker 3

Our debt reduction strategy resulted in a decrease to interest expense of $1,900,000 from the Q4 of 2022 and a decrease in interest expense of $12,000,000 from the full year of 2022. During 2023, we repaid 157 point $8,000,000 of debt or $130,300,000 net of the change in cash. During 2023, We repurchased $27,900,000 of our unsecured notes in the open market, including $6,900,000 in the 4th quarter. With clear visibility of reaching our targeted leverage ratio of 2.25x to 2.75x, during the 4th we repurchased 872,000 shares of our common stock under our share repurchase program at an aggregate cost of $12,500,000 bringing our 2023 totals to 3,500,000 shares at an aggregate cost of $38,100,000 or an average price of $10.97 per share. Going forward, we expect to allocate our free cash flow toward both paying down debt and repurchasing shares maintaining discipline on our targeted leverage ratio.

Speaker 3

Our leverage measured by net debt to EBITDA was 2.8 times using the trailing 12 months ended December 31, 2023. As of December 31, We had $122,000,000 of cash on hand and an additional $257,000,000 of borrowing capacity on our revolving credit facility, providing us with total liquidity of $379,000,000 Moving lastly to a discussion of our 2024 financial guidance. We expect to generate EPS of $0.58 to $0.72 and FFO per share of $1.46 to 1.61 Our guidance reflects growth in state and local residential populations, largely attributable to the new contract awards obtained during the second half of twenty twenty three. Intakes under those contracts are substantially complete. Our state populations also reflect higher utilization expected under existing contracts that we began to experience in 2023.

Speaker 3

Our guidance further reflects an increase in our average daily federal populations in 2024 compared with 2023, mainly due to the expiration of Title 42 in May. We expect these federal populations to remain stable throughout 2024. The most significant factor impacting detention utilization by our federal partners has historically been funding levels approved by Congress for ICE as detention capacity is insufficient to meet the demand at the southern border. Funding under a continuing resolution for the Department of Homeland Security, including ICE, expires March 8. If Congress provides higher funding levels for detention beds or if the highly publicized supplemental funding bill is approved to include additional funding for border security, there could be upside to our guidance.

Speaker 3

Our guidance contemplates the continuation of an improving hiring market for labor with less reliance on temporary incentives, but resulting in higher staffing costs as we continue to progress toward pre COVID staffing levels. Our guidance contemplates the expiration of the lease with the State of California at our California City Correctional Center effective March 31, 2024. This facility generated $31,100,000 in revenue and 25 point $5,000,000 in EBITDA during 2023 and is expected to result in a reduction to EBITDA of approximately $23,000,000 to $24,000,000 in 2024, including carrying costs such as maintenance, property taxes and insurance that we will continue to incur after the lease expiration. Our guidance does not include any other contract losses or any new contract awards not previously announced because the timing of government on new contracts is always difficult to predict. While we are encouraged by the strength of our margins in the 4th quarter, Sustained margins at this quarter's level are likely to require higher populations as our staffing continues to return to pre COVID levels.

Speaker 3

For modeling our quarterly results, as a reminder, compared to the Q4, Q1 is seasonally weaker because of 1 fewer day in the quarter, Higher utilities and because we incur approximately 75% of our unemployment taxes during the Q1, resulting in a collective $0.04 per share decline from Q4 to Q1 and negatively impacting our operating margins. Moving now to our capital allocation strategy. Since our Board authorized the share repurchase program in May 2022 through December 31, 2023, we repurchased 10,100,000 shares of our common stock at an aggregate cost of $112,600,000 leaving $112,400,000 under the Board authorization. We will remain opportunistic in repurchasing shares of our common stock and expect to repurchase additional shares in 2024, taking into consideration our leverage, earnings trajectory, stock price, liquidity and alternative opportunities to deploy capital. Our guidance includes a range of repurchase scenarios at various amounts and at various assumed prices.

Speaker 3

We also expect to use our cash on hand and cash flow from operations to continue paying down debt, which could include additional open market purchases or partial redemptions of our 8.25 percent senior notes, which are scheduled to mature in 2026 and become redeemable at 104.125 percent of par on April 15, 2024. We continue to monitor the debt capital markets and could issue additional debt securities to refinance portions of our existing debt to extend our weighted average debt maturities if and when we determine that market conditions and the opportunity to utilize the proceeds are favorable. Given the strength of both our balance sheet and cash we have tremendous flexibility in how we deploy our liquidity and free cash flow and balance our capital allocation strategy between debt repayments and share repurchases. Again, our guidance contemplates a range of scenarios associated with debt reduction and share repurchases. We expect AFFO, which we consider a proxy for our cash flow available for capital allocation decisions to range from $158,300,000 to $175,300,000 or $1.42 to $1.57 per share.

Speaker 3

We expect our normalized effective tax rate to be 27% to 29% and the full year EBITDA guidance in our press release provides you with our estimate of total depreciation and interest expense. We are forecasting G and A expenses in 2024 to be consistent with 2023. We plan to spend $62,000,000 to $66,000,000 on maintenance capital expenditures during 20 dollars incurred during 2023 $7,000,000 to $9,000,000 for other capital investments compared with $4,000,000 in 2023. I will now turn the call back to the operator to open up the lines for questions.

Operator

Certainly. Our first question comes from the line of Joe Gomes from NOBLE Capital. Your question please.

Speaker 4

Good morning, David and David. Nice quarter.

Speaker 2

Hey, good morning, Joe. Good morning, Joe. Thank you so much.

Speaker 4

So I wanted to start with the ICE populations in the quarter. It sounds like you had some good growth sequentially there. And kind of like where are we today? And kind of in conjunction with that, going through the supplemental, it looks like you had 2 facilities that were not yet to 75% occupancy, 2 ICE facilities at the end of the year, Where are they today and how do we get those up and above that 75% occupancy level?

Speaker 1

Yes.

Speaker 2

So Joe, let me tag team with Dave on that one. First part of your question, as of yesterday, our total population in our So these from ICE was at 11,334. So I give you a real time number on current utilization. And I think that's I think we did see a little bit of which is pretty typical that time of year with the holidays. I think we saw a little decline between Thanksgiving and Christmas again, that's pretty typical based on seasonality.

Speaker 2

And then maybe, yeah, just a quick comment. Obviously, you probably know as much as I do. I'm just Following the discussions within Congress between the Senate leadership and House leadership and where that all ends up. I know there's a lot of people that Don't know if that's going to be the path forward on the funding for additional resources with ISOs. That's kind of bigger bill with Ukraine and Taiwan and It is real fine, Nate.

Speaker 2

So again, we'll see what happens here in the coming days weeks. So on a parallel path, we'll watch out too closely. The current fiscal year, as you know, is through early March and we'll be watching closely on kind of what appropriations adjustments are done there, especially for DHS and ICE and border patrol, but on your facilities, let me pass that over to Dave.

Speaker 3

Yes. I think, Joe, you may be asking kind of where the Facilities stand relative to fixed payments because not all of our facilities have those fixed payments. So I'm not sure which facilities referring to that are below the 75%. They may or may not have fixed payments. But in total, we're really clearing those fixed payment hurdles at this point.

Speaker 3

They're Probably in aggregate across the portfolio, a few 100 below the fixed payment level. So they're not 1,000. So any incremental populations at this point would translate into incremental revenues for the most part.

Speaker 4

Okay, great. Thanks for that. And then in the guidance, you talked about you're assuming kind of the flat ICE population. As we all know, the funding for last year was 34,000 beds, we're at 38 5, I think, was the most recent ICE population number. When you look at your guidance, are you expecting to be at that 34 level for funding or do you think it stays more in that 38?

Speaker 4

Just trying to get a little more detail there.

Speaker 2

Yes, that's I'll let Dave talk a little bit about our actual guidance, but I just the bigger number for ICE, So all populations, not just CoreCivic. It's kind of hard to say. They've been working, as you know, since October 1 on the continued resolutions. And so basically, that's taken the funding level from last year of $34,000 in this year. So they clearly feel like they're in a position to go a little as we've gotten into a couple of months into the fiscal year.

Speaker 2

So could they go ahead and maybe fund that for the rest of the year at 34,000 but still 38,000 that's possible. As you know, last year, they did, I think the reprogramming, I think, during the middle of fiscal year that may be of the strategy that maybe plan B, don't know. But again, I think the next couple of weeks will be pretty critical on determining obviously what happens for the rest of the year. I will say though that and maybe a little more to your second part of your question about the guidance, the national number, obviously, that will go up and down. It doesn't necessarily go in proportion with our populations.

Speaker 2

So the national number maybe go down a little bit, but our population is pretty flat. And based on utilization and what we're here on the ground with our various stakeholders from ISE and the different parts of the country where we operate gives us some comfort that we've got a pretty good number for the rest of the year. But let me add let Dave add to that. Yes.

Speaker 3

I think probably at a high level, Joe, the guidance would reflect population is consistent with what we saw in the Q4. So we're not anticipating a supplemental funding going through or even When funding gets refreshed on March 8, whether that's a continuing resolution or a full budget for the rest of the year, we're not anticipating significant increases. And as I mentioned in my prepared remarks, if they do see increases in funding for detention beds, that could be upside to our guidance. And likewise, we're not assuming a decline in those populations. Our population, like I said, probably from the Q4.

Speaker 3

So pretty stable populations at least at the federal level throughout 2024.

Speaker 4

Okay. Thanks. Damon, you didn't mention anything really on the U. S. Marshals Service.

Speaker 4

I'm wondering if you might give us a little update on that client.

Speaker 2

Yes, I appreciate that question. Yes, we're basically just kind of seeing steady as it goes. The populations have been up or down a little bit nationally. Our population has also been up a little bit. I think the national population right now for the March service is around 57, 58 And that's been pretty stable over the last probably 6, 8 months, down a little bit over the last 2, 3 years.

Speaker 2

But last again, 6, 8,

Speaker 4

10

Speaker 2

months, we've been pretty stable. So we're kind of forecasting that for the rest of the year. Don't see any big real changes With that customer for the rest of the year, I don't know if anything you would add

Speaker 3

to that, Steve?

Speaker 2

Yes. Our

Speaker 3

market populations were very consistent in Q4 with Q3. In fact, they were up slightly.

Speaker 4

Okay, great. And then on the Community segment, You kind of touched on this a little bit, David. There was a large increase in the revenue per compensated mandate. I think year over year it's up about $12 Just you mentioned a little bit about some contract renewals you got. Is there anything else that's driving that?

Speaker 4

Should we kind of expect that as a more of a high watermark? Or do you think there more potential upside in that revenue per compensated mandate on the community side?

Speaker 2

Yes. Joe, actually, I'll tackle that one. Yes, we've seen a couple of quarters in a row of really strong growth on the community side. So as you know, both occupancy growing, but also we've had some really good renewals where we've gotten kind of reset the pricing on the compensated for the contract, I should say. So, we continue to see good support to increase Populations there, again, that was part of the population that was easy to go ahead and release with social distancing and everything going on with COVID.

Speaker 2

So, we Really thinking the big kind of bounce back is because now that the pandemic is over and some of those concerns were alleviated from a health perspective, We continue to see populations go up. So again, really, really pleased with that and continue to see good growth there.

Speaker 4

Okay. One more for me and I'll step aside here. Just you mentioned Cal City and you're looking for alternatives there. I wonder if there's Anything significant you can tell us in terms of who you're talking to for that and any other types of new business that might be

Speaker 2

any specific client for that facility. But as noted in my script, I mean, it is a great location. Southwest, it's Not far from Los Angeles. So we think a state partner or a federal partner would be a good solution to facilitate this. I think you know, Joe, in the past, the marketing service and ICE have used that facility in the past.

Speaker 2

So it's a great facility for from their mission. So we are continuing to have conversations and see that again as a great solution, not only just location, but also its capabilities within the actual facility. To your second question about just generally about new business, I'll tell you, I have met with a lot of governors and secretaries and directors of corrections here in the last probably 6 or 8 months. And the message just continues to be the same, really challenging infrastructure issues within their system. Facilities are becoming more and more overcrowded because populations are starting to come out of the jails that have been backed up because, of course, being closed.

Speaker 2

And then also seeing significant population increases over the next 3 to 5 years. So that message continues to be conveyed to us from our partners. The other thing I'll just say that maybe is a little bit surprise for folks is that Some of our customers, they closed either units or maybe entire facilities during COVID. And what facilities they for closure are usually the ones, again, that are maybe older, maybe more difficult to operate, but maybe really challenging the staff. And so some of this, I think, kind of more immediate opportunities for us are coming from customers to say, we closed X, Y, Z facility in certain part of our jurisdiction and it just doesn't make operational sense for us to reactivate it.

Speaker 2

So basically what I'm saying is that you may have a system or systems that their operational capacity has declined a little bit because they've got units or facilities that just didn't make sense to reactivate. So that's created a little more demand from them to use capacity in our system being there. I guess you'd add to that Dave?

Speaker 3

Yes. Just to reemphasize, the underlying drivers The new contracts that we signed in the second half of twenty twenty three are still there and as Damon just mentioned, getting more urgent. So we feel really good about prospects moving into 2024 and have good momentum having signed 3 new contracts in the Q4 and another contract in the Q3, that's both with state and county governments. So good momentum as we're going into 2024.

Speaker 2

Yes. And I appreciate that. One other thing I'd just say, Joe, and we mentioned in our script, but I want to reinforce it. And that is, As you know, we leaned a little forward on staffing around the enterprise about a year ago and also that impacted a little bit margins. And I know we had Good conversations about that along the way.

Speaker 2

But we think some of those investments are really now we're getting the benefits of that now with some of these new contracts. Again, obviously, we're watching closely what happens with the ICE with the supplemental. There's some discussion about funding there for 50,000 beds nationwide. Again, who knows how likely that is with the supplemental. But it's a long way of saying we continue to be very thoughtful on the staffing front, not just on what the needs are today, but trying to probably anticipate a little bit what customer need is either with existing customers or new customers.

Speaker 4

Great. Thanks again for taking my questions and congrats on the quarter.

Speaker 2

Thank you, sir.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Anne Miren from Zacks. Your question please.

Speaker 5

Thank you. So during COVID, the courts We're obviously in advance and now that they're back up and running, it seems that we're still seeing a back and it seems like rather than getting smaller, it's appearing treatment to grow. So if that's the case, How do you think that might impact some of your utilization rates and some of your post COVID facilities?

Speaker 2

Yes, it's a good question. And yes, it's a little bit of a couple of different catalysts. You alluded to it with the course kind of getting back So where they were operationally pre COVID and this backlog that as we've seen the numbers in jail populations nationwide. So we again, we're seeing that now. I think again with contracts like with Montana, increased utilization in Idaho, Wyoming, as we talked about, I mean, I think that's part of the reason.

Speaker 2

I think again, I think another part of the reason is, again, Some of these systems took some capacity offline and just said, okay, it just makes sense for us to reactivate it. It's more cost effective and probably going to get a lot better outcomes too by using capacity within CoreCivic. And I guess the third thing I'd just say is that looking at Another leading indicator, which is kind of crime rates around the country and some of the actions that are happening at the state and local level, I think that's also going to have So a material impact on populations on top of what we're seeing today because of the backlog with COVID. But I don't know anything you'd add to that, Dave?

Speaker 3

No, I don't have anything to add then.

Speaker 1

You covered it.

Speaker 5

Okay. So You also talked about in your prepared remarks, you mentioned alternatives to detention. And I'm guessing that that would include your electronic monitoring services, maybe the community service operations. Do you see and you talked before about how you've had some good quarters on community services operations. Do you see that as potentially benefiting from Some of the changes we're seeing in the courts and in prison views about prison detention?

Speaker 2

Yes. I mean, keep me off here, Dave. Say of the community, again, the big Driver there has been just increased utilization from a population perspective in our facilities and also Some favorable renegotiation of contract terms, again, where we've had some improvements on the per diem and the compensated per day rates. But we also are seeing again good use and good attraction to our monitoring, our case management services and other support services we could do within the community segment. But I also say, and this I think may be a part of your question too, we remain really bullish on that the community business.

Speaker 2

And so we continue to make investments in both people and technology to meet the needs either with existing partners or potentially new partners. Again, going back to the lease proposed supplemental from Congress on Sunday night of this week, Again, who knows how much of this will carry on either through a supplemental be a and or moved on to a full funding year. But there was almost over $1,000,000,000 I think that was earmarked for additional expansion of alternative detention under ISO. I think the continued investment not only just for that opportunity, but also what we're seeing in with cities and counties and even the Bureau of prisons, I think are good investments. And again, we continue to be really bullish on a business.

Speaker 2

But anything you could add to that, Dave?

Speaker 3

Yes. I think there's some inertia from the Federal Bureau of Prisons as well to expand the utilization of residential reentry centers, whether that's due to infrastructure, trying to get more people out of prison into the communities and helping them assimilate. So I think there could be some more funding there that kind of began during the last administration and it seems to be getting some legs now. So I wouldn't be surprised If we saw the BOP expand its utilization of our RCs by early release programs, alternatives to detention and things like that. So, agree that there's a lot of upside there, and we have a lot of capacity within our community portfolio to accommodate that need.

Speaker 5

Okay. Thank you.

Speaker 3

Thank you, Em.

Operator

Thank you. One moment for our next question. And our next question comes from the line

Speaker 2

of Kirk Lippske

Operator

from Imperial Capital. Your question please.

Speaker 6

Hello, David, David, Brian, Mike, thanks for the call.

Speaker 1

Good morning. Good morning, Kirk.

Speaker 6

Congratulations on the quarter. Just a couple of follow ups. On the ICE population, did I hear that the immigration bill included funding for 50,000 beds, did I hear that correctly?

Speaker 2

That's correct. Yes, the bill that came out Sunday night, and as you know, this was out of the Senate. And you heard this a couple of times during the course of the week where The negotiators of Bill noted that they were looking at funding for taking up the population of 50,000 beds. So that's been part of the talking points with the unveiling of this bill on Sunday. So again, you probably know as well as I, there's obviously some strong views about that bill on the House.

Speaker 2

So again, not here to handicap it, but at least just want to indicate that's least with the thin it was making relative to that supplemental.

Speaker 6

Got it. Well, that's helpful. Thank you. And Where did your ICE population peak pre pandemic?

Speaker 2

Pre pandemic, keep me honest with you, Dave, I think in the of 2019, we got near 15,000.

Speaker 6

From 11,300 today? Yes. Got it. Thank you. And do you remember what the How many beds were funded back then?

Speaker 3

I know that nationwide populations are around 55,000. I don't know if they were necessarily funded at that level. It was probably less than I know it was less than that.

Speaker 2

Yes. Actually, yes, I think it was pretty meaningful less than that now that I think about it.

Speaker 6

Interesting. Okay. Thank you. That's helpful. And then on California City, so now the lease expires in just a couple of months.

Speaker 6

Has the state started to ramp that facility down?

Speaker 2

They have. Yes, they've been going through the steps for kind of deactivation, I think both population and staffing.

Speaker 6

Okay, got it. And are there any legal limitations as to what you can use That facility, Ward?

Speaker 2

There are a couple. I don't know right off the top of my head. I think there's a few. But obviously, yes, we're obviously California was in there and then yes, we've No issues on the housing controls there and ice in the past.

Speaker 3

So It would be the type of inmate that you're Yes, maybe that's right.

Speaker 2

If I type of inmate, then I don't know off top of my head, we can follow-up with you offline on that, but I expect there's probably some limitations on maybe classification or something like that.

Speaker 6

Got it. Got it. Thank you. And then on Harris County, that's a nice win. Can you just expand on that and how that came about and why they Because if my Google Maps is working correctly, that's over 500 miles between Harris County and Tallahatchie.

Speaker 6

So I'm just Curious, what maybe expand on how that came about and why Tallahatchie?

Speaker 2

Yes, yes, sir. So we part of the playbook is that, obviously, we're always monitoring not only the existing needs with These with existing partners, I should say, but also partners like Harris County or potential partners, what's their system utilization capacity, maybe some challenges that they're experiencing. And Houston is, I think, that's where the company really got Our very first contract was in Houston almost 40 years ago. So we did that in that county and that city really, really well. And so I think they just expressed they had some issues with physical plants.

Speaker 2

They had some I think some really difficult outcomes here in the last couple of years because of overcrowding. I think there were some staffing issues. And it's a pretty big system. I'll say, Metropolitan, Houston and Harris County, it's a big system. Don't hold me to this, but I think they have almost 10,000 people in their jail system.

Speaker 2

So what that allowed us to do to kind of your last part of your question about the distance is to say, okay, look at your entire population and is there population that would be well suited and this is individuals that don't have to go to jail or go to the port every day that could Be in the setting of Tallahatchie County and of course, we'll work with them on transportation, video conferencing and whatnot to keep them connected as appropriate with the courts and the office there in Harris County. So we've got a lot of plays in the playbook on helping them deal with some of the distance issues. But again, with a system that large, There's parts of the population that would be well suited again from a distance of you, again, you said 500 miles from Houston, maybe you could add to that, Dave?

Speaker 3

Yes. I mean, Tallahassee was a great facility. It was around 25% occupied. So it was a location where we could Immediately satisfy the need and bring the detainees in quickly. We could probably I mean, there's about or 8 different customers at that facility, so they're doing a fantastic job there.

Speaker 3

But with the exception of probably a handful of Locations where we could accommodate a new customer, like what we did at our Saguaro facility with Montana, the Saguaro facility is in Arizona. So Montana moved 120 inmates there. We do have it's like 120 and we have dozens of facilities, but It's getting to the point now where we may have to look at activating a new facility to accommodate new contract awards if we see that kind of demand. Obviously, we wouldn't do that speculatively. It's expensive to open up and staff a facility in advance of visibility on a customer.

Speaker 3

But Tallahatchoo is a great location where we could accommodate Harris County, and there aren't many of those left.

Speaker 6

That's interesting. I appreciate it. Thank you.

Speaker 1

Thank you, Carter.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Brian Violino from Wedbush. Your question please.

Speaker 7

Hey, good morning. Thanks for taking my question.

Speaker 3

Good morning, Brian.

Speaker 2

Good morning.

Speaker 7

Good morning. Just Firstly, you talked quite a bit about the 3 state and local contract wins you end the Q4. Could you give us how much EBITDA you anticipate those contracts will contribute in 2024?

Speaker 3

We haven't disclosed that. But they're probably different profiles. 1 was facility that was largely occupied, the one in Arizona and then Tallahatchie, as I just mentioned, was like 25% occupied. So it's probably a few $1,000,000 in EBITDA between the 2 of them over the year, maybe a little bit north of that.

Speaker 2

Got it.

Speaker 7

Okay. Thank you. And then maybe hard for you to answer from your seat, but it seems like DHS has been reallocating funds to ICE for additional bed funding given that we're over the $34,000 number. I guess from your perspective, do you anticipate that there's additional dollars that could be reallocated within DHS or do we really need supplemental funding to see bed counts rise much than they are today?

Speaker 1

Well, the first part of

Speaker 2

your question, you're exactly right. That's really hard to answer. Again, they had that play in the playbook last year. As you know, I think the secretary came out May or June of last year and indicated they were reallocation of funding. So can they do that again?

Speaker 2

And do they have the ability? It really be hard for me to say. I don't know if they even said What the amount was, I think that secretary just came out saying we're doing it, but I don't think I ever heard an actual number. I think population, again, a little bit to the question earlier about, they're currently at the 37,000, 38,000. Again, they're officially funded at 34.

Speaker 2

Again, that number, as Dave said, that was pretty consistent during the Q4,

Speaker 4

had a little bit

Speaker 2

up and down because again seasonality. So do they feel like they could do that rest of the year if they come to end of February March and do the full funding till the end of fiscal year at 34,000. Maybe, again, we'll just have to wait and see. And again, I think for them to go meaningfully above that. And I think this is the last part of your question.

Speaker 2

It will require additional funding and again, that could potentially be through supplemental we just talked about. Or they could also they've got the ability to go ahead and do additional funding through the full funding year, full budget for the full year. So that's still an option too. Again, we'll be watching, I'll say, all these different discussions for these different vehicles where they could increase funding. Howard, anything you add to that, David?

Speaker 3

No, that's right. Great.

Speaker 7

Great. Thanks. And then just one last one, if I could. Kind of on a similar note, In terms of ICE looking at idle facilities, is that something that you think that they can be involved with without supplemental funding, looking at some of your drydock facilities, maybe even outside of Cal City?

Speaker 2

Well, I guess I'll say it this way. I mean, we have been in the last, I guess, year and it's a little bit to the discussion we had on staffing. I mean, obviously, we've worked with ICE for 40 years. So we're in daily conversations about what their needs are. And obviously, we're getting direction from DHS administration And to somewhat from members of Congress.

Speaker 2

So we're always having a constant conversation of our capabilities where we've got capacity, either that's in burning facilities or vacant facilities. And then with that, we make certain decisions based on that information on investments we need to do on either CapEx and or on staffing. And again, that's a little bit of what we did last year. We felt like before Title 42 went away. As you know, we were at 5,000.

Speaker 2

We felt like we needed to make some steps to get staffing in place For if and when the ice population do go up, we will be prepared for that. So we're continuing to have those discussions internally, but also with That's just part of the kind of normal behavior and working with them. And we know that they're obviously a lot of eyes on them and They get a lot of direction from a lot of different stakeholders, but we do our best to acknowledge just to hear what they're saying, but also make proactive steps as appropriate, also want to be prudent on that as appropriate to prepare for any future demand. But I guess, Andy, you guys have a Dave?

Speaker 3

Yes. I'd say if they want consolidate populations from a number of local jails, for example, and then consolidate them into one of our facilities, That would not require incremental funding because you're just transferring dollars from multiple facilities into one facility. So we have had conversations with ICE at a particular facility on that. I haven't taken action on it yet, but that could be a potential where you could activate an auto facility without incremental funding. That's a good point.

Speaker 7

Okay, great. Thank you. Appreciate it.

Speaker 1

Yes, sir.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Greg Gibas from Northland Securities. Your question please.

Speaker 8

Hey, Damon and Dave. Thanks for taking the question. Congrats on the results. Thank you, guys. I was wondering if you could maybe Elaborate a little bit more on the assumptions for occupancy and compensation per bed that is implicit in your guidance.

Speaker 8

It sounds like ICE not really forecasting a a change in population size there. But just if you could talk about kind of any changing dynamics with respect to the split between occupancy changes versus increased revenue per bed?

Speaker 3

Yes. In the occupancy front, The forecast is fairly stable, so not much higher than 74%. We've talked in past calls about get to that magical pre pandemic occupancy of just north of 80%. So the guidance certainly does not include that. It's probably stable, Maybe a slight increase from the 74% occupancy we achieved in the Q4.

Speaker 3

With respect to and that would include The populations that we're bringing in under the or have actually already brought in under the 4 new contracts that we during the second half of twenty twenty three, as well as some population increases that we saw from a number of states under existing contracts. So those will contribute to increases in occupancy. On the per diem rate, most of our per diem increases take back in July, particularly from our state customers since that's when their fiscal years begin. So we'll be beginning those conversations if we haven't already, Engaging with our partners, talking about our needs for per diem increases related to staffing and other inflationary costs. So, hard to get that visibility now.

Speaker 3

We take a pretty conservative approach when we talk about per diem increases that we include. Some of our contracts have stipulated per diem increases in them, in which case, obviously, we're going to put those per diem increases in the forecast. Others are dependent on appropriations. So depending on the history with a particular customer, we may or may not include that. Our federal contracts, on

Speaker 1

the other hand, most of them have

Speaker 6

SkipCorp per

Speaker 3

diem increase is built into those contracts. And so they would be built into the guidance as well. So I'd say, probably a pretty average year. Last year, 2023, we were quite successful in per diem increases, particularly from states that hadn't provided per diem increases during the pandemic and we continue to provide wage increases. As I said, we really need to get a per diem increase to maintain our margins and pay our staff appropriately.

Speaker 3

So I wouldn't say we're forecasting as good a year in 2024 as we had in 2023 because 2023, we were making up for some lost ground during the pandemic.

Speaker 8

Great. Makes sense. That's very helpful. And I wanted to follow-up to, it seemed like there was some nice profitability upside just from the normalization of particularly reducing temporary staffing and more so going to a higher percentage of local based, more permanent. And just wanted to ask if you see that as kind of a tailwind for continued margin improvement in 20 or do you kind of see that mostly already normalized?

Speaker 3

That's a great question. I'd say a little bit of both. There are some facilities where we still have some opportunities to normalize the expense structure, but we've made A lot of progress. And so if you go back to Q4 of 2022 compared with the Q4 of 2023, Significant reductions, as I pointed out in my prepared remarks. But I wouldn't say it's totally complete.

Speaker 3

There's still some opportunities where we could reduce those travel expenses a bit further. We will also be hiring some additional staff too. So there's the Put and takes on that. But overall, I'd say there's still some opportunities to normalize expenses.

Speaker 8

Okay, good to hear. Thanks guys.

Speaker 1

Thank you. Thank you.

Speaker 2

Thank you.

Operator

I'd like to hand the program back to Damon Hettinger for any further remarks.

Speaker 2

Thank you so very much, and thank you all for joining us on our call today and especially to our investors, thank you for your trust and confidence and your investment in the company. We look forward to talk to you in May as we talk about our first Quarter results. Have a great day, everyone.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program.

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Earnings Conference Call
CoreCivic Q4 2023
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