CoreCivic, Inc. (NYSE:CXW) Q4 2024 Earnings Call Transcript

CoreCivic, Inc. (NYSE:CXW) Q4 2024 Earnings Call Transcript February 11, 2025

Operator: Thank you for standing by. Welcome to the CoreCivic 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 the session, you’ll need to press star one one on your telephone. If your question has been answered, as a reminder, today’s program is being recorded. And now I’d like to introduce your host for today’s program, Michael Grant, Managing Director of Investor Relations.

Michael Grant: Thank you, operator. Good morning, everyone, and welcome to CoreCivic’s fourth quarter and full year 2024 earnings call. Participating on today’s call are Damon T. Hininger, CoreCivic’s Chief Executive Officer, Patrick Swindle, CoreCivic’s President and Chief Operating Officer, and David Garfinkle, our Chief Financial Officer. We are also joined here in the room by our Vice President of Finance, Brian Hammonds. On this call, we will discuss financial results for the fourth quarter of 2024 as well as financial guidance for the 2025 year. We will also discuss developments with our government partners and provide you with other general business updates. During today’s call, our remarks, including all answers to your questions, will include forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities and Litigation Reform Act.

Our actual results or trends may differ materially as a result of a variety of factors including those identified in our fourth quarter 2024 Earnings release issued after market yesterday, as well as in our Securities and Exchange Commission’s filings including forms 10-K, 10-Q, and 8-K reports. You are also cautioned that any forward-looking statements reflect management’s current views only and that the company undertakes no obligation to revise or update such statements in the future. Management will also discuss certain non-GAAP metrics. 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 is my pleasure to turn the call over to our CEO, Damon T. Hininger.

Damon T. Hininger: Thanks, Mike. Good morning, and thanks everyone for joining us for CoreCivic’s fourth quarter 2024 earnings call. On this morning’s call, we will discuss our latest operational results and update you on the latest developments and opportunities with our government partners. Following our opening remarks, we will turn the call over to our CFO, David Garfinkle, who will provide greater detail on our fourth quarter and full year 2024 financial results, as well as introduce our 2025 financial guidance. Dave will also provide an update on our capital structure initiatives, including progress on our leverage target and share repurchase program. I’m going to tag team to open your remarks today with our Chief Operating Officer, Patrick Swindle, who was also named CoreCivic’s President in December 2024.

Patrick has been with CoreCivic for seventeen years and positions of increasing responsibility within finance and operations. 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 to the president position. We truly look forward to his leadership during what we anticipate to be a period of rapid growth and opportunity. So let me start with this. I’ve worked at CoreCivic for thirty-two years, and this is truly one of the most exciting periods in my career with the company. Having just wrapped up a strong 2024, we’re anticipating significant growth opportunities, perhaps the most significant growth in our company’s history over the next several years.

We believe CoreCivic 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. The change in presidential administration on January twentieth 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. Upon inauguration, President Donald Trump issued nine executive actions intended to secure the borders of the United States and remove illegal immigrants. These initial orders included the declaration of a national emergency on the southern border aiming to effectively shut down the border to illegal immigration.

One notable executive order issued on January twentieth was titled Protecting the American People Against Invasion. In this EO, 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. Included in this EO is language calling on the Secretary of Homeland Security to take all appropriate action and allocate all legally available resources or establish contracts to construct, operate, control, or use facilities to detain removal aliens. 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 EO increases interior enforcement by ICE, and directs the Department of Homeland Security to detain those arrested by ICE pending their removal. The Lincoln Riley Act was passed by the Senate with bipartisan support on January twentieth and signed into law by President Trump on January twenty-ninth, making it the first law of the current Congress. The act was named for Lincoln Riley, the nursing student who was murdered on the University of Georgia campus by an undocumented immigrant with a history of arrest and releases. The Lincoln Riley Act requires ICE to detain certain non-US nationals who have been charged, arrested, or convicted of crimes, including burglary, theft, assault of a law enforcement officer, as well as killing or injuring another person.

ICE has estimated that this act could require sixty thousand to a hundred and ten thousand additional detention beds. This obligation is not specifically funded. However, since this requires mandatory detention, funding will have to be secured shortly. Also, on January twentieth, President Trump reversed a January twenty-six, 2021, executive order that had directed the Justice Department, which includes the Federal Bureau of Prisons, and the United States Marshals Service, to not renew direct contracts with privately operated criminal detention facilities. The administration had the authority to waive its own order where no alternative capacity is available, and it often did so over the past four years, renewing a number of significant Marshals’ contracted facilities.

Still, the Biden executive order did result in a closure of two CoreCivic facilities that were previously contracted to the Marshals: our West Tennessee Detention Facility in Mason, Tennessee, and our facility in Leavenworth, Kansas, now named the Midwest Regional Reception Center. We enjoy a strong relationship with the United States Marshals Service, our second largest customer, and it is very helpful to both parties to have the tool of direct contracting available again. The Marshals 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 renewing discussions about those and other locations with them. We expect increased demand to come from the United States Marshals, which could require an additional ten thousand or more beds over the next several years, based on past usage.

Finally, as for the Bureau of Prisons, one item of note. During her Senate confirmation hearing, Attorney General Pam Bondy emphasized the importance of fully implementing the First Step Act, a law that was passed with strong bipartisan support in 2018. Specifically, she referenced the need to increase capacity above their twelve thousand current community placements. The First Step Act allows federal adults in custody or AIC, especially in minimum and low-security facilities, to earn time credits through meaningful programs, reducing their sentences, and expanding pre-release custody options like halfway houses or home confinement. 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.

Because of this, I think the BOP will lean on the private sector to fill this gap in implementation. For over twenty years, we have been a trusted partner to the BOP for residential and home confinement community services. 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. Regarding new contracts, we are engaged in active conversations with ICE and United States Marshals Service in preparation for their increased secure bed needs. This has included the submission of multiple proposals of our capabilities, tours of existing facilities, and anticipated cost estimates. 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 forty to forty-five million dollars.

For ICE, most new contracts may come after funding is established via a congressional budget agreement, and the timing and structure of those contracts are still to be determined. That said, it is possible that contracts could precede a congressional budget agreement. We’re still just a few weeks into the administration, so stay tuned for more on ICE contracting. One final comment on ICE, if I may. The detention beds supplied by the private sector are the least expensive, most humane, most efficient logistically, have the highest audit compliance scores in the system, and are readily available. Additionally, with forty-two years of operating experience with ICE, the private sector beds are the least likely to be legally challenged. Looking at specifically previously publicly 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, we only have one minor update that we mentioned last quarter to an RFP issued in June of 2024 for up to six hundred detention beds in the state of New Jersey, which would expand their capacity in the state. As a reminder, we have responded with our Elizabeth Detention Facility in Elizabeth, New Jersey. ICE has extended our existing contract there several times, now through the end of February, as it continues to evaluate proposals. We continue to believe that the Elizabeth Detention Facility responds well to ICE’s needs in that market where bed space is scarce. 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 CoreCivic facilities that can serve the state of Montana to the east of the Mississippi.

We expect to care for two hundred forty inmates at our two thousand six hundred and seventy-two bed Tallahatchie County Correctional Facility in Tuck Wyler, Mississippi, under this contract commencing during the first quarter of 2025. 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 two hundred and forty, runs through December of 2026, and contract extensions could run as long as seven years. During January of 2025, we also received an additional hundred and twenty Montana inmates at our eighteen hundred and ninety-six bed Saguaro Correctional Facility in Eloy, Arizona, under an existing contract with the state of Montana. And those beds bring us close to that facility’s capacity.

We enjoy a strong partnership with Montana, and we appreciate the trust they put in our company and our facility teams. CoreCivic remains in 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. These opportunities could manifest as early as 2025. Now, I’ll pass it over to Patrick Swindle for an overview of the fourth quarter.

Patrick Swindle: Thanks, Damon. I’ll start with a high-level overview of our fourth quarter and full year financial results. Overall, CoreCivic’s financial results exceeded our internal forecast and annual assessment helped by tight cost discipline and higher occupancy. Occupancy for the quarter was seventy-five point five percent, marking our highest occupancy level since the first quarter of 2020, right at the start of the COVID-19 pandemic. In the fourth quarter, we generated revenue of four hundred and seventy-nine point three million dollars, a two percent reduction compared with the prior year quarter. 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 eight percent against the prior year quarter.

For the full year, CoreCivic generated two billion in revenue. The fourth quarter of 2024, adjusted EBITDA, which excludes expenses associated with debt refinancing, gains on the sale of real estate, and asset impairments, was seventy-four point two million, down from ninety million in the fourth quarter of 2023. For the full year, adjusted EBITDA increased to three hundred and thirty point eight million from three eleven million dollars. 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 the California City, 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.

Federal partners, primarily Immigration and Customs Enforcement, the US Marshal Service, comprised almost exactly half of CoreCivic’s total revenue in 2024. During the fourth quarter of 2024, revenue from our federal partners declined twelve percent compared with the fourth quarter of last year. Revenue from ICE, our largest partner, declined twenty-two percent when comparing the fourth quarter 2024 versus the prior year quarter. However, excluding the South Texas Family Residential Center, revenue with ICE increased five percent versus the fourth quarter of 2024, a rate indicative of ICE’s continued detention capacity needs even during a political transition period. Our fourth quarter revenue with the US Marshal Service grew by one percent.

Excluding South Texas, overall federal revenue for CoreCivic in the fourth quarter of 2024 increased three percent year over year. Now I’d like to discuss ICE’s usage of detention capacity nationally across all facilities. As you will recall, in a bipartisan funding bill passed in March 2024, Congress provided funding for forty-one thousand five hundred detention beds. During the fourth quarter, ICE’s usage of detention beds was within a range of thirty-eight to forty thousand, up slightly from thirty-six thousand to thirty-eight thousand in the third quarter. The most recently published ICE detention total was thirty-nine thousand one hundred and sixty-three on January twenty-fifth, 2025, which is just after President Trump’s inauguration.

From what we are seeing so far, we believe that the total ICE detention population is holding about steady with more arrests from ICE’s interior enforcement operations offsetting declining immigration arrests from Customs and Border Patrol at the border. Over the next month or two, we would expect to see these accelerated rates of interior enforcement arrests to result in capacity limitations at the forty-one thousand five hundred funded beds level. CoreCivic’s fourth quarter revenue from State Partners and our Safety and Community segments grew six point four percent versus the prior year quarter. This increase is a result of higher per diem rates and higher occupancy from our state government partners, as well as contributions from new state contracts with Wyoming and Montana signed in the fourth quarter of 2023 and the third quarter of 2024.

These new contracts contributed one point three percent of that growth. As Damon mentioned in his remarks, we have added another contract with Montana during January 2025. We’ve already received a hundred and twenty inmates at our Tallahatchie facility in Mississippi and anticipate receiving additional inmates in the near future. The transfer and intake processes have gone smoothly, and we are pleased to expand our relationship with Montana to boost our Tallahatchie facility to a higher level of occupancy. Within our safety portfolio, the greatest operational improvements have come in facilities serving ICE. Much of this operational improvement has related to improved staffing levels, which have allowed us to reduce or eliminate expensive short-term labor measures that were not necessary during as we emerge from the COVID-19 pandemic.

Staffing that is permanent and locally hired improves facility performance in such areas of safety, program outcomes, and audit performance. It is also the most cost-effective and stable approach to staffing our facilities. For example, our La Palma Correctional Center in Eloy, Arizona, experienced meaningful improvements in performance as our investments and hard work directed at local hiring helped eliminate the facility’s reliance on temporary labor resources. I’m also excited to share that Rusty Washburn, the warden of La Palma, was recently recognized as Warden of the Year by the North American Association of Wardens and Superintendents or NAWS. To round out our discussion of fourth quarter 2024 revenue, local revenue in our Safety and Community segments, which is revenue generated from contracts with county governments, increased twenty-six percent.

This growth reflects new management contracts signed in the second half of 2023 with Hines County, Mississippi, and Harris County, Texas. Both populations are housed at our Tallahatchie County Correctional Facility located in Tuck Wyler, Mississippi. I’d like to thank Warden Luis Rosa and the whole team at the Tallahatchie facility for all their efforts in satisfying the needs of seven different government partners, including four new partners at this facility over the past two years. CoreCivic’s overall occupancy in our Safety and Community segments for the fourth quarter of 2024 increased to seventy-five point five percent from seventy-four percent in the prior year period. This growth in occupancy stems from both higher use of existing contracts, particularly with ICE, also from greater utilization of the four new contracts signed in the second half of 2023 as well as the new contract with Montana at Saguaro signed in the third quarter of 2024 that we previously mentioned.

From the fourth quarter of 2023 to the fourth quarter of this year, occupancy in our Safety segment increased from seventy-four point seven percent to seventy-six percent, while occupancy in our Community segment improved from sixty-three point seven percent to sixty-eight point eight percent. As we have 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. Throughout 2024, our ongoing labor attraction and retention efforts generated operational and financial improvement following the very challenging labor markets experienced 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.

We’ve invested significantly in our frontline employees and implemented human capital attraction and retention strategies. I’m excited to report that our staffing has improved to nearly pre-pandemic levels and that has allowed us to reduce elevated spending on temporary staffing expenses. Maintaining strong staffing levels in our current base facilities is particularly important as we now look forward to higher demand under existing contracts and the possibility of future activations. In short, improved staffing positions us well operationally to maintain the trust of our partners to manage their higher population needs and respond swiftly to new opportunities. Our Safety segment, which includes our large higher security level prison and detention facilities, is CoreCivic’s largest segment, having provided ninety-three percent of 2024 total revenue.

Net operating income for our Safety segment fell three percent 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. For the full year, Safety’s facility net operating income increased six percent. CoreCivic’s Community segment comprises twenty-one residential reentry facilities serving the Federal Bureau of Prisons as well as various state and county governments. The Community segment facilities are typically smaller than our Safety facilities and are 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.

CoreCivic’s electronic monitoring and case management services are also included in our Community segment. 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 of an idle residential reentry facility. Net operating income of six point three million dollars in this segment declined one million dollars versus the fourth quarter of last year. For the full year, community facility net operating income increased slightly to twenty-one point seven million dollars. Similar to our Safety segment, our Community segment facilities have been able to normalize their staffing levels and reduce dependence on temporary solutions. We remain positive about the occupancy outlook for the Community segment as more of our government partners, including the BOP, return their focus to successful reentry in order to curb the recidivism challenge.

To conclude this business update, we believe the longer-term macro environment for federal, state, and local businesses remains positive, particularly as we enter a new presidential administration that is emphasizing public safety and immigration priorities. Our government partners face complex challenges, including capacity limitations, aging, expensive to maintain and expensive to build facilities, persistent staffing challenges, and populations that are increasing in numbers and evolving in their needs. Conversations with our partners highlight the growing need, as do other metrics, including jail backlogs and prison population forecasts. 2025 is likely to bring significant opportunities, particularly on the federal side, and these opportunities may require activations of several of our idle facilities.

CoreCivic has already taken proactive steps, including capital improvements, preparatory maintenance, and labor force readiness to prepare facilities for activation. From an operations perspective, CoreCivic’s activation team has already been busy at a number of our facilities in anticipation of potential new contracts with ICE or other partners. CoreCivic’s team stands prepared to start hiring and training as soon as our government partners are ready. When we believe the need is clear, we do not wait for a contract award to begin preparation. Also, just as important as facility activations are likely to be in the next several years, we recognize that growth only works if our foundation of existing facilities remains strong. With that, we are continuing to commit the necessary resources to fortify operations at our current facilities and build on the operational progress we have made in such areas of staffing, contraband intervention, and program outcomes.

I’ll turn the call over to David Garfinkle, who will provide a detailed look at our fourth quarter financial results, our capital market activities, and assumptions included in our 2025 financial guidance.

David Garfinkle: Thank you, Patrick, and good morning, everyone. In the fourth quarter of 2024, we generated GAAP net income of seven cents 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 fifteen cents, exceeding average analyst estimates by six cents per share. Normalized FFO per share was thirty-nine cents during the fourth quarter of 2024, exceeding average analyst estimates by five cents per share, and adjusted EBITDA was seventy-four point two million dollars, exceeding average analyst estimates by seven point nine million dollars. A decrease in adjusted EBITDA from the prior year quarter of fifteen point eight million dollars and decreases in adjusted EPS of seven cents and normalized FFO per share of six cents resulted from the termination of our contract with ICE at the South Texas Family Residential Center effective August ninth, 2024, and a lease expiration with the state of California effective March thirty-first, 2024, at our California City Correctional Center.

These terminations accounted for a decrease in facility net operating income of fifteen cents per share from the prior year quarter. These reductions were partially offset by higher occupancy from state and local partners, as well as from ICE across the remainder of the portfolio. Decreases in interest expense, a lower effective tax rate, and fewer shares outstanding also contributed to increases in per share earnings aggregating approximately four cents per share. Federal revenue in our Safety and Community segments decreased thirty-two point eight million dollars from the fourth quarter of 2023 to the fourth quarter of 2024, including a reduction in management revenue at the South Texas facility of thirty-nine point one million dollars. So excluding this facility, federal revenue in our Safety and Community segments increased six point three million dollars or two point eight percent.

State revenue in the Safety and Community segments increased twelve million dollars or six point four percent from the fourth quarter of 2023 to the fourth quarter of 2024, which included revenue from new contracts with the states of Wyoming and Montana, awarded in the fourth quarter of 2023 and the third quarter of 2024. We expect our state revenue to further increase from another new contract award from the state of Montana we announced last month, with a hundred and twenty inmates having already arrived at our Tallahatchie County Correctional Facility in Mississippi. Local revenue in our Safety and Community segments increased two point seven million dollars or twenty-six percent from the fourth quarter of 2023 to the fourth quarter of 2024, primarily resulting from new contracts with Hines County, Mississippi, and Harris County, Texas, both awarded in the second half of 2023.

Revenue in our Property segment declined seven point four million dollars, primarily due to the aforementioned expiration of the lease at our California City facility. Operating margin in our Safety and Community facilities combined was twenty-three point six percent in the fourth quarter of 2024 compared to twenty-four point four percent in the prior year quarter. The decrease in our operating margin was due to the termination of the ICE contract at the South Texas facility. 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. Excluding the South Texas facility, operating margin was twenty-two point eight percent in the prior year quarter.

The increase in our operating margin excluding the South Texas facility was due to an increase in occupancy from seventy-three percent to seventy-five point five percent for our Safety and Community segments combined, and a reduction in certain operating expenses. During 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. These three expense categories declined by eight point three million dollars from the fourth quarter of 2023 and during the fourth quarter of 2024, at levels comparable to pre-pandemic levels. Turning next to the balance sheet. During 2024, we repaid ninety-five million dollars of debt, net of the change in cash, including seven point two million dollars repaid in the fourth quarter.

In recognition of our earnings outlook and based on our confidence in the business, during the fourth quarter, we resumed share repurchases under our three hundred and fifty million dollars share repurchase program, which we had deprioritized in June upon receipt of the contract termination at the South Texas Family Residential Center. During 2024, we repurchased sixty-eight point five million dollars of our common stock, including nine million dollars in December. Since our share repurchase program was announced in May 2022, through December thirty-first, we have repurchased fourteen point five million shares of our stock at a total cost of one hundred and eighty-one point one million dollars or an average price of twelve point four seven dollars per share.

As of December thirty-first, 2024, we had a hundred and sixty-eight point nine million dollars available under the board authorization. Our leverage measured by net debt to adjusted EBITDA was two point three times using the trailing twelve months ended December thirty-first, 2024. As of December thirty-first, we had a hundred and seven million of cash on hand and an additional two hundred and fifty-seven million dollars of borrowing capacity on our revolving credit facility, providing us with total liquidity of three hundred and sixty-four million dollars. We have no debt maturities until 2027 when two hundred and thirty-eight point five million dollars of senior unsecured notes mature. Moving lastly to a discussion of our 2025 financial guidance.

We expect to generate diluted EPS of forty-eight cents to sixty-one cents and FFO per share of one point three seven dollars to one point five zero dollars. Our guidance assumes steady increases in federal populations throughout 2025, assuming higher utilization of existing contracts. As a reminder, compared with 2024, our 2025 guidance includes a collective per share reduction of forty cents from 2024 resulting from the termination of the contract at the South Texas Family Residential Center effective August ninth, 2024, and the lease termination of the California City Correctional Center, effective March thirty-first, 2024. 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.

Based on immigration policies of the new administration, as well as newly enacted legislation requiring the utilization of more detention for certain criminal violations, we expect new contracts to require the activation of one or more of our idle facilities. We currently own nine idle correctional and detention facilities that have over thirteen thousand available beds. Although we can provide no assurance, activations could also include the South Texas Family Residential Center, which is owned by a third party. We will revise our financial guidance throughout the year as new contracts are signed. 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.

To the extent any new contract requires the activation of an idle facility, our guidance will likely be negatively impacted by these 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. Therefore, any idle facility activations this year would likely more favorably be impactful in 2026. Activating an idle facility is a complex and fluid process. We generally estimate startup expenses to be four thousand dollars to six thousand per bed for the startup period before we are able to accept residential population. Positive EBITDA and cash flows occur at approximately fifty to sixty-five percent occupancy depending on the contract structure. We plan to spend sixty million dollars to sixty-five million dollars on maintenance capital expenditures during 2025 compared with sixty-three point five million dollars in 2024 and six million dollars to seven million dollars for other capital expenditures compared with seven million dollars in 2024.

Even though our guidance does not include any new contract awards, our 2025 forecast also includes forty million dollars to forty-five million dollars of capital expenditures associated with potential idle facility activations in order to prepare these facilities to quickly accept residential populations if opportunities arise, as well as to provide transportation services. We review our activation plans frequently and could decide 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 exceeds the period needed to hire, train, and prepare a facility to accept residential populations. We estimate capital expenditures to reactivate an idle facility of two thousand five hundred dollars to five thousand dollars per bed depending on how long a facility has been idle.

Although we have seen an increase in M&A opportunities in our core business, our guidance does not include any M&A activity. However, we could deploy additional capital for a 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 and a quarter 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. Our guidance also does not contemplate any share repurchases beyond those completed today or M&A activity. 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, stock price, liquidity, and alternative opportunities to deploy capital, and would expect to naturally achieve and sustain our targeted leverage over the medium and long term.

We are entering a unique period that could result in significant growth in earnings and cash flows. Our balance sheet and cash flows remain 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. We expect adjusted funds from operations or AFFO, which we consider a proxy for our cash, to be between one hundred and forty-eight point five million and one hundred and sixty-five point five million for 2025. 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, because we incur approximately seventy-five percent of our unemployment taxes during the first quarter, resulting in a collective four cents per share decline from Q4 to Q1 and negatively impacting our operating margins.

We expect our normalized annual effective tax rate to be twenty-five percent to thirty percent 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. We are forecasting G&A expenses in 2025 to be between one hundred and forty-five and one hundred and fifty million dollars. I will now turn the call back to the operator to open up the lines for questions.

Q&A Session

Operator: Certainly. And our first question for today comes from the line of Joseph Gomes from Noble Capital. Your question, please.

Joseph Gomes: Good morning. Thanks for taking my questions. Nice end to the year. Can you guys hear me?

Damon T. Hininger: Yes.

Joseph Gomes: So, Damon, first question I kinda wanted to look at big picture. You know, what total capacity do you think ICE 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 prisons, in terms of what demands might be for the private sector.

Operator: Hello?

Joseph Gomes: And I believe our speaker line is currently muted. You’ll need to unmute at this time.

Damon T. Hininger: Again? Great. We can hear you now. Thank you for that, Joe. Can you hear me okay?

Joseph Gomes: I can hear you.

Damon T. Hininger: Very good. Well, good morning again, my friend. And I heard your question completely. So let me give you the answer. So big picture, first is just let me say that we’ve been talking to members of the transition team now of the part of administration really on a daily basis since the election in November. One thing that’s very clear to us is that there is a very strong focus on detention. And, obviously, you’re seeing that play out in the press, and you’ve got many spokes persons for the administration that are talking about that. The need for additional capacity and the detention is a key focus for the administration. So I start with that as number one. Number two, to your bed number question. So this has been a little fluid, but it feels like in the last probably two, three weeks, it’s kinda circling in into a pretty close range on needed capacity.

So let me give you kind of two numbers here. One is that you’re hearing in the press, and, again, we’re hearing this also privately, that there is a need for about a hundred thousand beds for enforcement operations, both on the southwest border, but also for interior enforcement. That’s been pretty consistent here in the last thirty days. The other, which is more recent, is that you’ve heard obviously, is the passage of Lincoln Riley bill. I mentioned that in my scripts. And, again, this has been reported in the press two, but we’ve heard a range of numbers of about sixty thousand beds to a hundred and ten thousand beds needed for that requirement, which is gonna require mandatory detention for certain individuals arrested for certain crimes.

So it feels like you’ve kinda put those two numbers together, They’re going into a range of a hundred thousand to two hundred thousand. If you wanted to be a little more, I think, precise, it feels like a hundred and fifty to two hundred thousand is where they’re going to end up. Now, obviously, that is gonna be driven by the budget. And you’re seeing this 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’s been discussion if it’s one bill or two bills. And so I won’t get into details on that. Like, so there’s a lot of press and media reports on that on a daily basis. But I will say that the senate, you know, it’s released some detail on what a reconciliation would look like with a two bill approach.

And the two bill approach would have one that would focus on border security, defense, and energy. And if you look into detail that’s 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 immigration and border security, it’s a hundred and seventy-five billion dollars. And just to put that perspective, I know you know this already, Joe, but for the benefit of the rest of the callers, the current funding budget for the current fiscal year is nine point six billion, and that’s forty-one thousand beds. So nine point six billion is the current run rate for ICE for forty-one thousand beds. Reconciliation proposed by the senate version is a hundred and seventy-five billion.

So go back to the numbers. If the numbers were a hundred and fifty to two hundred thousand beds, if that’s ultimately the funding, that feels pretty realistic. The second part of your question is about the value proposition. So let me tell on that a little bit. So to your point, you know, here’s there’s been some reports about Guantanamo Bay potentially utilizing capacity or new capacity there, El Salvador, And then there’s also some reports about, you know, you know, state or local governments providing land and doing some soft-sided structures. As I mentioned in my script, If you look at kind of five to six, what I call, factors, showing our value proposition, think we’re superior on all six of these versus these other alternatives. First of which is cost.

And so it’s been well documented on the cost to operate Gitmo over the last, you know, ten, twenty years, That’s obviously with a smaller number versus what they’re talking about, which is thirty thousand beds. But we estimate that we’re five to ten times less than what it would cost to operate the facility down in at Gitmo. Also, if you look at the soft side of structures, we’re estimating that we’re probably you know, two to three times less than, those structures too. So that’d be number one. We we think we’ve got a real advantage on the cost side, especially in this environment. We’ve got Doge out there looking at you know, the best value for for government. The second part of our value proposition is the having the most humane facilities and that’s because we meet all the national and key requirements around this.

We have always, you know, incorporated that our training, into our facilities relative to how we operate. And and other requirements. So that’d be number two, more humane than other alternatives. Third, and this is kinda captain obvious, is we’re logistically more efficient. So our facilities are here in the US during close to key ports of entry. They’re close to airports. Versus, obviously, if the population’s out of the country, that make it a little more challenging logistically. Fourth is that we have and we’re very proud of this. We wear it as a badge of honor but we’re the most audited and inspected facility in the country. And with that, have the highest scores relative to audits. On a consistent basis. And so our team works really hard.

We don’t take that for granted. We work hard every day to make sure that versus all other alternatives, we have the highest review. Rates and also the high auto scores versus other alternatives. The fifth thing is that we’re available today. So we got capacity available today where they could utilize it with within our system very, very quickly. And then finally, we’ve been doing this for forty-two years. So we know ICE really, really well. They know us, obviously, very well. And so with that, we’re the we think of all the alternatives, the least likely to get litigation risk, versus other alternatives. Because, again, we’ve got a forty-two year history showing that we’ve been able perform at a very high level. So that’s put the boat on the value proposition.

The last thing I’ll just say, Joe, a little bit more to your you know, discussion we’ve had with you and others in the last few days about, you know, what our capabilities are. So we have got, obviously, vacant capacity today. We’ve actually given ICE a proposal to do twenty-eight thousand beds and that’s capacity. We’ve got an existing facilities that are partially operated, maybe existing contracts with ICE, That’s also in vacant facilities that are currently not activated that could be activated very quickly. And then third part of that total comes from facilities that we could lease, i.e., Target, where we’ve got the South Texas and and Dilly. And then even be behind that twenty-eight thousand bed that we proposed to ICE, 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 for for lease.

So Dave’s gonna touch a little bit on, I think, potentially the margin opportunity with this. But I’ll just say, with twenty-eight thousand beds that we put in front of ICE, I mean, if you just put a number to a relative to revenues, that could be a billion and a half relative to potential revenues for the for the company. And again, I think a little later, Dave will talk about you know, potentials and margin opportunity. But the final thing I’ll just say, Joe, is as I said in our script and also in the press release, we’re spending forty to forty-five million dollars in CapEx. So we’re feeling very encouraged by the conversations with ICE to date. They’ve given us 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 about that forty to forty-five million. We’re obviously spending that towards the first five or six that we think gonna be the highest priority initially for ICE for a capacity utilization. Again, we’ve been spending that money in the last, you know, probably, you know, four to four to six weeks getting ourselves prepared along with what Patrick talked about getting ourselves ready for you know, staffing and other kinda logistical 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 the margin profile and the capacity utilized.

David Garfinkle: Sure. Thanks, Damon. And thanks, Joe, for your question. Yeah. We were estimating if if we activated all of our idle capacity, so that’s the nine facilities that that we have over thirteen thousand bed 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 two hundred to two hundred seventy-five million dollars 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, you know, the the punchline is is that we’ve gotten proposal in front of us for twenty-eight thousand beds.

Obviously, Dave just went through the numbers rolled up to capacity. We’ve got you available today. We’ve got an opportunity to really double the the amount of EBITDA this company this company produces on an annual basis. So that’s that’s what we’re focusing on and as an opportunity.

Joseph Gomes: Great. Thanks for that very detailed. That Just on on South Texas for a second, know, there’s indications out there from ICE, from Trump that they want to reopen a family center facility. Obviously, you know, as you see us mention, you are you remain in discussions with Target on that. But are there any other all alternatives out there to South Texas that could be family center and, you know, is that something that would have to go through, you know, an RFP, or do you think you’d get something and I’m using air quotes here, something like emergency dispensation to open that facility without going through an RFP. And how quickly could that facility be reopened since it wasn’t closed that long ago?

Damon T. Hininger: Yeah. Great great question. And short answer is yes, we think their ICE is considering a couple alternatives. Notably, I think the Karnes facility that’s under Jio’s control is potentially an opportunity there for families. But to your question, yeah, we’re talking to Target daily, maybe, like, maybe even hourly, and let me just say they’re great great partner of ours. And looking at not just Dilly, but if the need is greater than the size of Dilly, Joe, we’re talking to a target on expansion either there locally or maybe other parts of the Southwest. So we think we’ve got expansion capability with them above and beyond the twenty-four hundred bed that, ideally, if ICE say they needed a bigger they have a bigger requirement.

But, yeah, we’re leaning forward on staffing, making sure that we can activate very quickly. We’ve had additional conversations on this very topic with ICE in the lab, you know, seven days. So we’re leaning again forward on getting ourselves self prepared. As it relates to the way they would contract it, I think they’re evaluating that. Also, we’ve given them a couple different ideas. To your point, this just deactivated here in the last, what, six, seven months. So I think some of the things that they would never normally have to do for a new contract, they probably don’t have to since, again, just was recently deactivated. So and that also gives us an advantage because since it was recently deactivated, that gives us a much quicker way to activate the facility versus if we’re starting with a blank sheet of paper.

But maybe, Patrick, I’ll look to you, see if he would add to that.

Patrick Swindle: No. Only thing I would add is that to your point, we’ve taken a number of steps to prepare for activation that might typically occur later in an activation cycle. So we’re doing our best to minimize the cycle time that would require the time that we would need to accept our first group of detainees at the facility. So we’re doing everything within our power to shorten that time horizon. To give ICE the support they need as quickly as possible. We’ll be able to support the mission feel like we’re in a great place to the extent that we get that phone call. Be able to deliver for them very, very quickly.

Joseph Gomes: Okay. And then I had a a a question. So, you know, if I’m I’m looking through your supplemental and, you know, looking at occupancy, pardon me, The the Laredo facility has been above a hundred percent percent occupancy or capacity all year. Is that, you know, something you can do at some of your ICE other ICE facilities and know, at I guess, I’d kind of what what percent of capacity does it become you know, this is the max that we can operate at and and, you know, kind of how long could you do something like that for?

Patrick Swindle: 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. 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 many of our facilities. Would help us increase capacity beyond what might be our rated capacity 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 to think about long term, we’ve also looked at potential more permanent capacity additions or conversions of space that would make that flexing up more permanent.

Damon T. Hininger: And one thing I’d add to that, Joe, is that the number I shared earlier, again, the twenty-eight thousand 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 have capability by location.

Joseph Gomes: Okay. And then one more for me and and I’ll I’ll get back in queue. So you you talked about the the the forty to, you know, forty-five million, but dish additional CapEx to you know, reopen facility, idle facilities and that other some transportation dollars in there. Does that have or or what impact, if any, would that additional CapEx have on, you know, the the amount of share repurchases that you would do?

David Garfinkle: Joe, I’ll take that one. I mean, that that won’t impact it. I mean, it’s been factored into our thinking. As I mentioned in my prepared remarks, our leverage is projected to be within the within the target of two and a quarter and two and three-quarters times, that incorporates that forty million dollars to forty-five million dollars. So really won’t impact it impact our thinking going forward. The only things I would consider that would affect the pace at which we repurchase shares are the pace of our react how much What other M&A, you know, tuck-in acquisitions are available and other capital deployment opportunities. So, you know, we could, as I as I mentioned, exceed our target leverage in the short term.

That’s if kinda all the stars align and we’re deploying capital for all of those things. I tend to think there would be kinda more moderate moderately paced. But no doubt once a reactivation starts generating cash flow, we will be back within the targeted leverage on a sustainable basis. Over the medium and long term.

Joseph Gomes: Great. Thanks for taking my questions on sure other people wanna ask them, so all step aside. Thanks again.

Damon T. Hininger: Great. Thanks, Joe.

Operator: Thank you, Joe. Thank you. And our next question comes from the line of Greg Gibas from Northland Securities. Your question, please?

Greg Gibas: Hey. Good morning, Dave and Dave. Thanks for taking the questions.

David Garfinkle: Good morning.

Greg Gibas: You know, I appreciate all the color that you provided earlier in terms of your proposal to ICE. And and I guess to clarify or put more of a fine point on it, I think it was, like, eighteen thousand or so available beds that you had. You know, last time we kinda got an update in Q3 and You know, one of the kinda get Better sense of, you know, maybe where those additional ten thousand where you acquired those. And as it relates to that two hundred to two seventy-five million EBITDA uplift number, So does that reflect, like, the eighteen thousand or how how should we think about that that maybe Total twenty-eight thousand opportunity in terms of EBITDA uplift.

Damon T. Hininger: Yeah. So let me tag team with Dave on this a little bit, but the twenty-eight thousand has made from a couple buckets of beds. So the first one is Facilities that are currently operating today but are at lower occupancy and some of those are don’t have a contract with ICE Mark service, some of them do. But that’s the first one. Facilities operating today with lower occupancy where we’ve got available capacity. The second bucket is facilities that are currently vacant today. So there’s no one there’s no contract to the facilities or completely mothballed. And could be activated in short order. The sec the third one is the question that Joe just asked her again, and that’s capacity that where we could go in a safe and secure way above and beyond the rated 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 twenty-eight thousand is third-party capacity. And the obvious one on that and this is just one piece of that total, But obvious one is, like, South Texas. So that’s a facility that we lease a half leased in the past with Target. In addition to Dilly and South Texas twenty-four hundred beds, they also have given us line of Right. Of additional capacity they can make available within within our system. So those are the building blocks that make up the total twenty-eight but Dave, I’ll let you.

David Garfinkle: Yeah. And thanks, Greg. On the eighteen thousand, and then with respect to the two hundred million dollars to two seventy-five million dollars of incremental EBITDA, I was counting it’s about fifteen thousand beds. The other three thousand beds and that fifteen thousand is roughly all of our idle capacity plus the South Texas facility, which we don’t own. The other several thousand beds that you that you’re quoting, the eighteen thousand, is already embedded in our guidance. That would be the couple thousand beds that are already under contract with ICE.

Greg Gibas: Great. Makes complete sense. And nice to hear that there’s you know, seemingly a lot of opportunity above that that fifteen thousand or so that you you speak to that opportunity. So very helpful there. I guess as it relates to more near term, does your guidance account for any strength that you’re seeing in Q1 so far. Wanted to get a sense of maybe how Q1 has trended relative to Q4. I know you provided some high-level ICE numbers. But if you could maybe speak to how it’s trending relative to last quarter and maybe relative to your guidance.

David Garfinkle: Yeah. You know, our populations are they’re up slightly. If you go back to say inauguration date, they’re up a few hundred. That’s not a significant increase. And so our guidance for Q1 does not include a a big increase in populations. Our guidance, I would say, includes kind of a steady increase throughout the year. From, you know, Q1 to Q4.

Greg Gibas: Fair enough. And as it relates to some of your guidance commentary mentioning, you know, the activating of an idle facility negatively impacting guidance just due to those startup expenses until the revenue catches up. Wanted to see if you could get the I guess provide a little bit more color on you know, what degree it can impact financials. And and maybe the better question would be kind of you know, how long on average or as an example would it take to maybe cover those costs?

David Garfinkle: Yeah. So it takes about four to six months to activate a facility depending on the facility. I think you know, we talked 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 still within the company, and then I’m sure there’s still some in the area that we could rehire. But the startup cost that I was kinda quoting in in my script, covers that four to six month period. Then you’ve probably got another, you know, six to twelve months where you’re fully activating a a facility because you can only take on so many intakes per week.

Damon T. Hininger: And let me add a little bit to your earlier question and say, that, you know, budget is gonna obviously drive higher utilization. So that’s being kept in obvious, but As I mentioned earlier, watch you watch you closely. You got kinda actions both on the house the senate and talk through the kinds of numbers there. And I think the timetable on that is kind of March, maybe early April. But you you’re looking at those numbers off the deck, it’s significantly increase utilization very, very quickly depending on where they go first where you’ve got available capacity. The second thing is I mentioned in my script, we do think there is some effort underway to, you know, to get maybe some funding over over to ICE to increase utilization in advance of anything done by the the congress.

And so so again, being captain obvious, funding’s gonna be key here in the coming, you know, days and weeks to drive higher utilization pretty quickly. Anything you wanna add to that?

David Garfinkle: Nope. I think that covers it. Yep.

Greg Gibas: Thank you. Great. Very helpful, guys. Appreciate the color, and congrats on the quarter.

David Garfinkle: Yeah. Thank you.

Operator: Thank you. And our next question comes from the line of Anne Merrick from Zacks. Your question, please.

Anne Merrick: Thank you. So good morning. I I I think in your prepared remarks, you indicated that you might act in advance of actually securing a contract if you believe the need is clear, which you know, I’m sure is based on having, you know, consistent and extensive conversations. With with potential customers. So can you walk us through what, if any, are potential low-cost initiatives that you might be able to do to shorten the startup time in activating a a currently idled facility.

Patrick Swindle: Sure. This is, this is Patrick. 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 government’s demand need as quickly as possible. And so we put together internal activation team 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. 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. Each location, we’re trying to evaluate relative priority for activation timing.

And so we’re having conversations with our customer on a consistent basis. Trying to identify those facilities that might be highest priority. We can take steps forward as in 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 to shorten the timeline at which it would take to receive the first detainee. We’re trying to remove any barriers that we can remove to allow us to accelerate the activation timing and we’re trying to react in in a prudent way but also in an aggressive way in those locations where we believe we have the greatest to act quickly to make sure that, again, we can shorten that time horizon.

And so as they’ve talked about, if we would look at traditionally a four to six month time horizon, if we have high levels of certainty that we may be moving forward, We 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 gonna be situational, and there are so many locations We don’t think it prudent to lean that floor forward in every location but we are going to do that where that makes sense and where we believe the priority is highest.

Anne Merrick: Okay. Got it. So so then the six months could be just, you know, your You know, you are being very conservative, and it could be shorter than that depending upon what we do now, depending upon where the location so would it be fair to think that the the earlier activations would be at locations where you’re already doing some prep work. And so that four to six months is probably a little too long for the the first and maybe second location if, you know, if things go the way you know, we’re expecting,

Patrick Swindle: I think that’s a fair assessment. We are going again, we’re prioritizing those facilities that we think would be a priority for our customer. We’re leaning forward in those locations, progressively in some cases. And so we wanna shorten the timeline as much as possible. Now the the counterbalance then is we wanna make sure when we activate, we activate well we’re able to deliver high-quality services in a safe secure, and humane environment. And so to do that, we traditionally have said to six months is optimal. But again, we’ve shortened that time horizon and so I can argue that we’re thirty days or sixty 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. We are working to 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 Alright. Not constrain their ability to use that capacity if we were ready sooner. We’re gonna strive to do that.

Anne Merrick: Okay. Great. Thanks. And last question from me is specifically on the South Texas facility, if that were to be, you know, renewed as a as an under an ICE contract, I think the last contract was terminated because it was operating under a model that was significantly higher cost model. Than the standard one in most of your facilities. Would the facility require any retrofitting or, you know, significant changes in order to go forward as operating under a more standardized contract?

Damon T. Hininger: This is Damon, and thank you again for that question. I would say very modest. I mean, again, we’ve only had a deactivated, you know, about six, seven months. And so there is some stuff that we’re working on, with with Target, but the pretty modest to your point because I said it was just recently deactivated.

Anne Merrick: Mhmm. Okay. Thank you.

Operator: Thank you. And our next question comes from the line of Kirk Ludtke from Imperial Capital. Your question, please.

Kirk Ludtke: Hello, everyone. Thank you for the call. Guess the can can you talk a little bit about How ICE deportations might ramp and And how you’re protecting yourself with contracts that have maybe Minimum beds and contract length and, you know, how all that how all that might work and you know, how you protect yourself.

Damon T. Hininger: Thank you so much for your question. This is Damon. And short answer is that we expect that the structure of our ICE agreements or new agreements that we will have with ICE would be very similar to what we’ve done historically. So to your point, it’s very, very clear on how fixed cost within the facility. ICE stands very agreeable and understands the reason behind that. So we think those type of features that are in our contracts previously would be in the contracts that would be going forward. Either new contracts or maybe modifications to existing contracts where ICE would be a a user or a a rider. The other thing I will say, as I mentioned, earlier, the value proposition, us versus you know, other all alternatives.

I kinda went through the six factors that give us, we think, a superior edge on this other alternative. I wanna 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’s important to reinforce that because again, if they’re looking at numbers at a hundred and fifty thousand to two hundred thousand, you obviously heard what we’re proposing, and you’ve heard some of these other all alternatives. They’re gonna need really all that capacity to meet the mission and the needs with numbers that you’re looking to get from from congress. So I think that’s an important point too.

Kirk Ludtke: That’s helpful. Thank you. And I it hasn’t come up on this call, but I are are you hearing anything on ISAP and how the new administrator Alternatives to detention?

Damon T. Hininger: Not much, to be honest with you. As I mentioned earlier, I mean, the again, it’s it’s almost hourly that we’re we’re talking to to ICE and members of the administration. And, again, the focus is been all on detention. And so all the all the discussion, all the proposals, all the information we’re getting given to them on cost. I mean, we’ve got active tours going on at either vacant facility, the current operating facility. It’s all been around detention. So we’re prepared. We we think, you know, that potentially that could be a tool they’d look out down the road, and we’ve obviously a well recounted to this group our capabilities on that front and we think we’re well positioned if the need is there. But again, that’s not been top of the priority list. These are near and near term.

Kirk Ludtke: Got it. Great. Thank you. And then last, last topic. Mentioned acquisitions a couple times in the prepared remarks. Are are you are you thinking about others the idle facilities of other other operators, or are you thinking about actually buying other operators?

Damon T. Hininger: It’s a little bit all of the above. So our 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 compare the factors rolled up to the age of facility, the size, the location the labor market, etcetera, etcetera. And so we’ve continue to kinda keep that refreshed. And if we think there is an opportunity, through an acquisition or maybe through a lease or maybe just to have the right first refusal if there was a need expressed by ICE in a certain location We just wanna make sure we get ourselves prepared. So that’s 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 it’s, I think, important to note is that you know, majority of our facilities have a lot of space.

That means space, property, and availability around the actual physical structure will re operate, where we could expand either inside the actual facility itself or maybe outside fence. And so that’s also part part of the analysis. And so just trying to get ourselves prepared again. If the number is gonna be a hundred and fifty to two hundred thousand beds from ICE, we wanna get ourselves prepared for, not only the near term, but also the long and look at all these alternatives.

David Garfinkle: And I’d add Kirk. We’re talking about acquisitions in the core business, so they’d be that look very similar to what our existing facilities look like. We wanna make sure the cash flows are gonna be sustained over the long term. Because we have seen a number of assets become available in this marketplace, but we’re gonna be very disciplined.

Kirk Ludtke: Great. Thank you for the extra time.

Operator: Thank you. And our next question comes from the line of Jay McCanless from Wedbush. Your question please.

Jay McCanless: Hey. Good morning, everyone. So the the first question I had And and I think, Nancy, part of this, you were talking about the marshal service. But if we think about now the the rules have essentially been reset where we were pre-COVID, that you can do business with Marshalls at BOP. I guess, what’s what’s the path to getting safety occupancy back up above eighty percent and keeping it there longer term?

Damon T. Hininger: Thank you for that question. And your is your question more about the Marshall service or more just just generally about Yeah. Just in I mean, now that now that you have the flexibility to work with with the BOP and and the subsidiaries of the BOP again, that along with with what you you guys have given us on on ICE, etcetera. Yeah. Absolutely. Well, yet, I mean, recounting all the opportunities with ICE, I mean, you can get to that number just that customer alone to your eighty-five percent number you mentioned a second ago. But let me just maybe just do a quick headline on the Marshall service. I mentioned this in the script, but it’s worth noting. I mean, Marshall service, I think nationwide population around fifty-four thousand.

That got us high, I think. Sixty-six, sixty-seven thousand 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 scripts, but, you know, that’s another customer that is knocking on our door. We’re already having an active conversation with the Marshall Service on facilities that maybe they weren’t able to access Recently, they’re interested in potentially writing on ICE contracts, or maybe using the higher utilization in their existing contracts. So more service that actually that engagement with us has picked up pretty here in the last thirty days. Anything you’d add to that, Dave?

David Garfinkle: I I was gonna say exactly what you did with, you know, October reduction of over ten thousand detainees. Since know, early two thousand late two thousand twenty, early two thousand twenty-one. So there’s a large opportunity there. Would expect as US attorneys get put in place we would expect those populations to increase. So that that that is another opportunity that perhaps underappreciated by the market. That is is focused on ICE right now. And and our state business, you know, with the the contracts we’ve we’ve entered into over the past, you know, got a year plus, Montana’s as early as as recently as last month, Wyoming, and a and a couple counties as well. We do see growth in the state business. So we see a number of avenues to get to the mid-eighties in terms of occupancy.

Damon T. Hininger: Yeah. That’s a good point to kinda reinforce what Dave just said on the state side. I mean, we’re really thankful for the recent contracts with Montana, but we, you know, as you know, we’ve had recent contracts with Wyoming and with Idaho and even a couple of counties. And our Sahuaro facility out in Arizona, I mean, as a result, a couple of those contracts coming together, we’re at full utilization there at that facility by the first time in probably a decade at that facility. So lot of great kind of activity going on with state business right now and some of these contracts that we’ve gotten recently.

Jay McCanless: That’s great. The the second one I had talked earlier in the script about two hundred to two hundred seventy-five million and potential incremental EBITDA. Can you walk us through where that comes from again, please?

David Garfinkle: Yes. So that was the EBITDA that is we could potentially generate if we activated all of our idle capacity and the South Texas Family Residential Center. So it’s little over fifteen thousand beds in total.

Jay McCanless: Great. Then the only other question I had, I think you’ve addressed this earlier, but when you when you think about potentially rising inflationary environment tariffs, etcetera, and the cost of certain things starting to go up again. You know, I guess, how how comfortable are you with the discussion you’re having with being able to cover costs especially if costs start to move against you for the different things you have to provide in into the facilities.

Patrick Swindle: We work very closely with all of our vendors and have strong visibility and in some cases have made pre preemptive purchases on goods that are necessary for the activation of our facilities. So in the short run, we feel very good about how we’re positioned and our ability to provide our beds in a cost-effective way that 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 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 it’s a combination of staffing and benefits. If you were to look at actual supplies that you need to operate the facility, it’s relatively small as a percentage of overall cost structure.

So that’s not to say that we’re not focused on it. But in terms of where we’re most sensitive to inflation, it’s going to be on staffing and benefits. And we feel like we’re very well positioned at the market Right now, for their ability to hire and retain staff.

Damon T. Hininger: And, you know, if I could just add one thing. One thing I would add to that is that I think you’re aware you know, under federal contracts, we have to pay wage termination. And if the wage termination from one contract period to the next goes up, we have we have to do that raise. The wage termination tells us, okay, the new salary is this, so we have to raise those salaries. It’s directed by the wage 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 an inflationary environment and that does have an impact on salary and wages, get reimbursed from that from the the federal government.

David Garfinkle: And, of course, a hundred percent domestic operations. So unlike many other companies in corporate America, we don’t have to to worry so much about tariffs.

Patrick Swindle: Yeah. As Patrick mentioned, you know, we do have some supplies and things like that that would be potentially impacted. But when two-thirds of our costs are in salaries and benefits, that’s that’s a small component of our expense structure.

Jay McCanless: Understood. Great. Thanks for taking my questions.

David Garfinkle: Thank you, Jay.

Operator: Thank you. And our final question for today comes from the line of Ben Briggs from Stonex Financial. Your question, please.

Ben Briggs: Hey, good afternoon, guys. Thank you for taking the call and the questions.

Damon T. Hininger: Hey, Ben.

Ben Briggs: Yeah. Hey. So I know we’ve already touched on this a few times, but I just wanna make sure that I understand numbers correctly. So you currently have a proposal in front of us for up to twenty-eight thousand beds. Is that correct?

Damon T. Hininger: That’s correct.

Ben Briggs: And if fifteen thousand of those beds are activated, that could result in up to one point five billion of additional revenue and two hundred to two hundred and seventy-five million of additional EBITDA.

Damon T. Hininger: So yeah. Let me I’m a tag team with Dave. On the revenue side, what I was doing the total office, the twenty-eight thousand, So if you do Oh, got it. Yep. And then Dave will walk you through the math on the contribution.

David Garfinkle: Yeah. So I was just given the contribution from the idle bed that we have. Again, that’s assuming every one of our idle beds is activated. At at a margin 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 seven hundred fifty to eight hundred million of revenue.

Ben Briggs: Okay. So the fifteen thousand doll the the fifteen thousand beds would be around seven hundred and fifty million of revenue and anywhere between two hundred million and two hundred and seventy-five million of additional EBITDA.

David Garfinkle: That’s right. Seven fifty to eight hundred million. Yep. Of revenue. Yep.

Ben Briggs: Got it. I just wanted to make sure I had those numbers straight. Thank you for that clarification. And then I’d say the majority of my not asked just by way of kind of managing this and and being able to put heads in idle beds, are you able to mix populations? So, like, can you put in an ICE detainee with a state or US marshals detainee? Or does that depend by the contract? Or are are there any restrictions around that?

Patrick Swindle: This is Patrick. So that each facility is designed a bit differently, but facilities can be very flexible in terms of housing. New populations. Our Tallahatchie facility in Mississippi presently houses eight different customers in that facility. We’re able to manage the services for each of their individual contractual requirements appropriately. Based on some combination of combining customers in a housing unit and separating them. Generally, what you’re going to see in a facility is you’re gonna have separation by pod. And so you would not have the US Marshals Service and ICE, for example, in the same pod, but you could have them adjacent. And so our response and of the populations in a way that allow us to deliver services appropriate for each of those customers.

But our facilities are designed in a very flexible way that allows us Maximum. Maximize utilization of the pockets of beds that we do have again, while maintaining appropriate levels of separation.

Ben Briggs: Understood. Got it. Got it. Obviously, we’ve been talking a lot about capacity here. And everything from, you know, using, repurpose repurposed space to maybe even M&A. Is there any chance of, like, brand new facility builds, or is that something that might be farther out?

Damon T. Hininger: That that’s a possibility to say, Damon. That’s a possibility. But, you know, again, based on what we’ve got in our system today, our capabilities and the again, the various kind of building blocks that make up the the total amount of the twenty-eight thousand, And, again, also our capability of the attention to expand facilities And then finally, you have facilities that may be out there today that we could you know, buy, purchase, lease, or maybe, have right of first refusal. I don’t see that as a kinda near term kinda need or opportunity, but but also will be you know, watching closely to, again, see what, you know, ICE is total funding is and what their need needs are. But I think we’ve got a lot of capability right in front of us to provide a lot of support for ICE and their current mission. And expanding mission.

Ben Briggs: Got it. Got it. Okay. Thank you. And then final one from me is gonna be so the the new executive order that basically lifted the the prohibition on new or renewed department of justice contracts. Now that that’s formally lifted, do you see anything by way of new bureau of prisons opportunities? I know that BOP was a relatively small percentage of revenue even immediately prior to Biden’s executive order. But I’m curious if you see any opportunities for growth there.

Damon T. Hininger: Yeah. It’s a great great question, and I’ll give you a two answers. One is that, you may be aware that the most recent director, she left the agency, I think, within the last two weeks. So they’re currently being led by an interim director. So I think the first part of the answer is that once the permanent is selected and he or she is in place, then obviously, they’ll have a vision I’m sure the layout, not just for the agency, but also the partnership with the private sector. So that’d be Part a is the answer. Part b, the answer would be is what I alluded to earlier. We 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.

As a result of the First Step ActDamon T. Hininger: And so what we’re hearing pretty loudly is that they think there’s 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 kinda near term the bureau is gonna look to the private sector to significantly increase that capacity again for both home confinement, community confinement, growth for halfway house beds.

Ben Briggs: Okay. Got it. That’s incredibly helpful. Thanks very much, guys. And that’s it for me.

Operator: Thank you. And this does conclude the question and answer session of today’s program. I’d like to hand the program back to Damon T. Hininger for any further remarks.

Damon T. Hininger: Alright. Thank you, sir. Well, thank you all so very much. 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 opportunities. So it’s a very exciting time within the company. As always, we’re grateful for your support, your advice, all that you do for us, and all that you do to invest in our company. So we’re excited about the near term and looking forward to sharing our results here in the coming days and weeks as we lead up to the second quarter. Thanks, everyone, for calling in today.

Operator: Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.