CoreCivic, Inc. (NYSE:CXW) Q1 2024 Earnings Call Transcript

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Damon Hininger: Yes, good — good question. I think it’s probably — well, short answer is probably going to be higher than it is today. So as you know, again, they’ve got the funding for the rest of this year, 41,500. That is obviously a meaningful increase on last year’s funding, which was 34,000. Now last year, as you know, they were able to go to elevated number on population just because they did some reprogramming that was mentioned by the sector of Homeland Security last summer, but nonetheless very notable that they’re at 41,500 today. It’s our sense, the populations again, before this recent dip; populations were at 38,000 to 39,000. We got a sense, as you know, not just really, not with us, but I think other jurisdictions, they do have — they did have some guaranteed minimum beds that were not occupied.

And so once you factor kind of actual population with maybe some beds that are under contract but currently not utilized for whatever reason, because I think they always have a little bit of slack in the system, they’re pretty much at full utilization at that kind of 41,000. So I think the short answer is they probably are going to need additional funding and that could happen again, possibly this year. Obviously, we don’t know of anything that’s underway, but again, years past they have done some reprogramming for specific needs on the Southwest border. And then also we’ll be watching closely what happens going into the next fiscal year for funding numbers. I guess, I will also note, I mean, there is very broad bipartisan support on a higher population number.

And the reason I say that it was the supplemental that obviously didn’t pass the House but did pass the Senate in February had a number of, I think, 50,000 or 55,000 beds. And so there is support for additional capacity. But also we’ll just have to watch closely what happens for us this year, going to next year. But anything you’d want to add, Dave?

David Garfinkle: Yes, I still think there is a chance we have one facility where they could consolidate populations from public sector facilities and move it to a private sector facility, and that would not require new funding because it’s really they’re already using that funding at multiple facilities. So I think there’s a chance that happens this year. It’s not in our guidance, but something where we continue to discuss with ICE and continue to monitor.

Damon Hininger: That’s a good point. I probably should highlight that because back to the earlier question about the Marshals Service. I mean, ICE again is still in that same pressure where local jurisdictions, for whatever reason, just can’t support the agency’s mission either with capacity and/or standards. So I guess that is an important caveat that, I mean, it could be the case, and we’ve seen this in years past, where they say, hey, let’s just consolidate a population at a facility and back out and vacate local facilities that maybe are very fragmented and very diverse regionally located long distances from the agency’s office.

Kirk Ludtke: Got it. Thank you. That’s helpful. I guess the other option, maybe to that California might want it for their own purposes. And I know the population there is coming down. What is the likelihood of them having in the State of California?

Damon Hininger: Well, again, they were there for a decade, and we know they really, really liked the facility, I mean, one of the newest most modern facilities in the state and continues to be. And we did some pretty meaningful improvements over the physical plant during that period of time. So I think based on not only just their populations, but maybe some of the uniqueness they want relative to the environment with programs and other services. I mean, obviously the private sector can deliver on that faster than any state agency can. So I think if there’s continued kind of innovation on their part where they want a unique mission, especially for unique programs or services, that could be a good location for them, because I know they’ve done some work on their San Quentin, so which is primarily servicing the needs of the Northern part of the state.

Cal City to be in the Southern part of the state could be another complimentary facility for some of that programming improvements.

David Garfinkle: And it may take a better budget situation in the state because that may be an impediment right now too.

Kirk Ludtke: Right. Yes. Got it. I appreciate that. Yes. I would think this is materially younger than the average age of the facilities in California. Is that fair to say?

Damon Hininger: That’s super fair to say.

Kirk Ludtke: Got it. That’s helpful. And then, you mentioned the — that that border security bill that didn’t pass but had a lot of support. What — do you have a, I guess, high level, any thoughts on what that would mean for alternatives to detention? What that bill, if it had passed, what that would have meant for ATD?

Damon Hininger: Good question. I don’t keep me honest here. I don’t remember any meaningful adjustment on ATD under that bill. Again, it seemed like most of the focus was on additional detention capacity. So again, to say, there may be some movement there, but I think at least for now, I mean, it seems like the focus has really shifted here in the last year or so on more detention capacity. But anything you’d add to that, Dave?

David Garfinkle: I don’t. We saw an article yesterday about potential action on bringing back the supplemental, and I think that would be focused more on detention than it would ATD, right.

Operator: One moment for our next question. Thank you. Our next question comes from the line of Brian Violino of Wedbush. Your line is now open.

Brian Violino: Great. Thanks for taking my question. Just to kind of ask the expense question in a different way. I think in the past you’ve talked about a 25% NOI margin in the Safety and Community segments combined being sort of a target range, going back to pre-pandemic. You’re just under 24% this quarter. It seems like you’re seeing some positive trends on the expense side. Just wondering if you have updated views on when we might be able to get to that level on a sustainable basis and if there’s possible upside given the relief on the labor market that you’ve seen.

David Garfinkle: Yes. I’ll take that one. Brian thanks for the question. Yes, we have made a lot of good progress, and in fact, Q1 is typically seasonally one of our worst quarters because of the reset of unemployment taxes. So that actually was a headwind for the margin in Q1. So as we look forward, I do going back to the statement I made earlier, I think we still have some hiring to do to get back to pre-pandemic staffing levels. But again, that will be offset somewhat by the temporary incentives that we would incur. So it’s certainly, we’ve never wavered from getting back to 25% margins on the Safety and Community segments. Whether that’s achievable in 2024, I think will be dependent on occupancy, since that’s the primary driver.

You get so much leverage over the model when you’re increasing your occupancy, so that’s going to be the key and the closer we get to that 80% occupancy, the faster we’ll get to that 25%. So I wouldn’t rule it out this year. Not sure we’ll hit that, but it’s possibility.

Operator: I’m showing no further questions at this time. I would now like to turn it back to Damon Hininger, Chief Executive Officer, for closing remarks.

Damon Hininger: Thank you so much. And before we turn, let me just also do a public service announcement and note on corecivic.com is our newest ESG report. We just released that here in the last couple of weeks. It’s our sixth consecutive year of doing ESG report. Take a few minutes and check it out. We’ve completely reformatted, but more importantly, it just shows a great window into our organization, on what we’re doing on, on the human rights fronts — front within our facilities to how we’re working on talent acquisition, but most notably, the outcomes that we’re producing for the people in our care through programs, through academic and vocational programs. Take a few minutes, run through it. It shows, again, a great window in our organization, the great work our team does each and every day.

So with that, thank you so much for having attention on our call today. Thank you also our investors, for your trust and support of the company. And with that, we’re adjourned. Thanks, everyone.

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

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