CoreCivic, Incorporated (NYSE:CXW) has reported a 9% increase in revenue for the first quarter of 2024, reaching over $500 million. The growth was attributed to higher contributions from federal, state, and local government partners, with federal revenue climbing by 11% following the end of Title 42 and the passage of a bipartisan funding bill.
Occupancy rates reached 75.2%, the highest since Q1 2020, and net operating income for the Community segment surged by 56%. CoreCivic also announced an aggressive share repurchase program, buying back 2.7 million shares. The company has updated its full-year financial guidance, expecting increases in adjusted EBITDA, EPS, and normalized FFO per share.
Key Takeaways
- CoreCivic's Q1 2024 revenue increased by 9% year-over-year, driven by growth across all government partner groups.
- Federal revenue rose by 11%, state revenue by 5%, and local revenue by 44%.
- The company's occupancy rate was the highest since Q1 2020 at 75.2%.
- Net operating income in the Community segment, which includes residential reentry facilities, increased by 56%.
- CoreCivic repurchased 2.7 million shares and achieved a target leverage range, refinancing a significant portion of debt.
- Updated full-year financial guidance anticipates growth in adjusted EBITDA, EPS, and normalized FFO per share.
- Plans include further share repurchases and debt repayment.
Company Outlook
- CoreCivic expects adjusted EPS of $0.66 to $0.76 and normalized FFO per share of $1.56 to $1.66 for the full year.
- The company sees increased opportunities with government partners and plans for growth in state and local residential populations.
- Federal populations are expected to remain stable with potential for an increase.
- CoreCivic is preparing to bid on the monitoring ISAP contract, expiring in July 2025, and considering partnerships for its California City Correctional Center facility.
Bearish Highlights
- GAAP net income per share decreased from $0.11 in the previous year to $0.08 in Q1 2024.
- The company acknowledges the uncertainty in achieving a 25% NOI margin in the Safety and Community segments, which is dependent on occupancy levels.
- G&A expenses are expected to be slightly higher in 2024 compared to 2023.
Bullish Highlights
- The increase in adjusted EBITDA was 21%, driven by higher occupancy and normalized operating expenses.
- CoreCivic completed the issuance of $500 million of unsecured notes.
- The company achieved its targeted leverage of 2.7x net debt to adjusted EBITDA for the trailing 12 months.
Misses
- GAAP net income per share saw a decline when compared to the same quarter in the previous year.
Q&A Highlights
- CoreCivic has the capabilities and qualifications for the ISAP contract, having worked with ICE for decades.
- The increase in jail populations is believed to be a record, attributed to court backlogs from the COVID-19 pandemic.
- The company is close to being fully staffed with permanent employees but still relies on temporary staff to some extent.
- The CEO discussed the potential to reopen a facility in California and highlighted the release of the company's latest ESG report.
In conclusion, CoreCivic's Q1 2024 performance reflects a company capitalizing on increased demand from government partners, with a strategic focus on repurchasing shares and managing debt. The company's outlook remains positive, with updated financial guidance indicating confidence in sustained growth and operational efficiency.
InvestingPro Insights
CoreCivic's (CXW) recent financial performance and strategic moves have been reflected in several key metrics. With a market capitalization of approximately $1.73 billion and a price-to-earnings (P/E) ratio of 27.24, the company shows a significant presence in the industry. Notably, the adjusted P/E ratio for the last twelve months as of Q4 2023 stands at 24.78, indicating a slightly more favorable valuation when considering specific adjustments.
InvestingPro data highlights a stable gross profit margin of 22.89% for the last twelve months as of Q4 2023, which aligns with CoreCivic's reported increase in net operating income. This profitability is further underscored by the company's high return over the last year, with a 61.51% price total return, showcasing strong investor confidence and market performance.
Moreover, CoreCivic's liquid assets surpass its short-term obligations, suggesting a robust financial position to meet its immediate liabilities. This financial health is critical for the company as it continues to navigate the complexities of its industry and maintain its operations efficiently.
For a deeper dive into CoreCivic's financial health and performance, investors can explore additional InvestingPro Tips. There are six more tips available on https://www.investing.com/pro/CXW, which can provide further insights into the company's shareholder yield, profitability forecasts, and dividend policies. Interested readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking a wealth of data and analysis to inform their investment decisions.
Full transcript - CoreCivic Inc (CXW) Q1 2024:
Operator: Good day and thank you for standing by. Welcome to the Q1 2024 CoreCivic, Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mike Grant, Managing Director of Investor Relations. Please go ahead.
Mike Grant: Thank you, Operator. Good morning, ladies and gentlemen, and thank you for joining us today. Participating on today's call are Damon Hininger, CoreCivic's President and Chief Executive Officer; and David Garfinkle, our Chief Financial Officer. We 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 first quarter of 2024 as well as updated financial guidance for the 2024 year. We'll also discuss developments with our government partners and provide you with other general business updates. During today's call, our remarks, including our answers to your questions will include forward-looking statements pursuant to the Safe Harbor provision of the Private Securities and Litigation Reform Act. Our actual results or trends may differ materially as a result of a variety of factors, including those identified in our first quarter 2024 earnings release issued after market yesterday as well as in our Securities and Exchange Commission filings, including Forms 10-K, 10-Q and 8-K reports. You are also cautioned that any forward-looking statements reflect management's current views only and that the company undertakes no obligation to revise or update such statements in the future. Management will also discuss certain non-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 President and CEO, Damon Hininger.
Damon Hininger: Thank you, Mike. Good morning, and thank you for joining us for our first quarter 2024 earnings call. On today's call, I will provide details of our first quarter financial performance. I will also discuss with you our latest operational results, and update you on the latest developments with our government partners and our capital allocation strategy. Following my remarks, I will turn the call over to our CFO, Dave Garfinkle, who will provide greater detail on our financial results and on our updated 2024 financial guidance. Dave will also provide an update on a very active quarter for our ongoing capital structure initiatives, including details regarding our recently completed debt refinancing. I'll start with a high level overview of our first quarter financial results. In the first quarter, we generated revenue just over $500 million, a 9% increase compared with the prior year quarter. This is our highest level of quarterly revenue achieved since the third quarter of 2019, 18 quarters ago, and it is also our highest rate of year-over-year revenue growth since the same quarter of 2019. The composition of our revenue growth also speaks to the current strengths of our business, as well as to the level of partners' needs and their trust in us. During this quarter, we experienced revenue growth from all three of our partner groups, federal, state and local governments. I will provide more color on each later in this call. For the first quarter of 2024, we generated normalized funds from operation, or FFO, of $52.6 million or $0.46 per share, compared to $38.9 million or $0.34 per share in the first quarter of 2023, representing a per share increase of 35%. The increase in FFO was driven by the higher federal, state and local populations combined with expense normalization and lower interest expense resulting from our debt reduction strategy partly offset by higher G&A expenses. Revenue from our federal partners, primarily Immigration and Customs Enforcement and the United States Marshals Service increased 11% versus the first quarter of last year. ICE in particular was up significantly as Title 42 was still in place in the comparable period of last year. As a reminder, Title 42, which was invoked in March of 2020, at the start of the COVID-19 response, is a law that empowers federal health authorities to deny migrants entry into the United States in order to prevent the spread of contagious diseases. Title 42 officially ended May 11 of 2023, and our populations with ICE have been consistently higher since then. As mentioned in our earnings release, during the first quarter of 2024, revenue from ICE was $153.8 million, compared to $130.7 million during the comparable quarter in 2023. After several months of deliberation, Congress passed a bipartisan funding bill in March providing for 41,500 ICE detention beds. Note that these funded beds also include a number of beds reserved at certain facilities under fixed monthly payment contracts, so the actual number detained will likely not achieve that full 41,500 level in the near-term. Interestingly, ICE's total detainee population declined towards the end of the quarter and into the start of the second quarter, and the most recent detainee count published by ICE was 34,373 as of April 20, down from roughly 37,000 to 39,000 during most of the first quarter of 2024. We believe that this was the result of an expectation of lower number of funded detention beds following the unsuccessful passage of the supplemental funding bill in the early part of the calendar year. As you know, ICE populations are rarely static and we continue to work closely with ICE’s system in their important mission. Our state revenue in the first quarter grew 5% versus the prior year based on higher per diem rates and sturdy occupancy from many of our state government partners, as well as contributions from two new state contracts signed in the fourth quarter of 2023. Now, in its second full year under a management contract with the State of Arizona, our La Palma Correctional Center in Eloy, Arizona continues to show stable occupancy as well as improving operating and financial metrics. During the first quarter, we were able to discontinue the facility's reliance on temporary labor resources and incentives due to strong local hiring and management oversight. This is a welcomed accomplishment as La Palma is our second largest facility by capacity, so moving its financial performance in the right direction has been and continues to be a priority. To round out our revenue discussion, local revenue, which is primarily revenue generated from contracts with county governments grew by 44% albeit off a smaller base. This was the first full quarter with both Hinds County, Mississippi, and Harris County, Texas, as partners resulting from management contracts signed during the second half of 2023. Both populations are housed at our Tallahatchie County Correctional Facility located in Tutwiler, Mississippi, and both contracts are now fully ramped. Our occupancy for the first quarter of 2024 was 75.2%. This is our highest occupancy rate since the first quarter of 2020, which as you may recall is the quarter that marked the start of the COVID-19 pandemic response. From the first quarter of 2023 to the first quarter of this year, occupancy in our Safety segment increased from 71% to 76% and occupancy in our Community segment increased from 59% to 63%. As we have mentioned in the past, our operating model has significant operating leverage to changes in occupancy and this was a factor in our margin improvement during the first quarter. In addition to receiving larger populations from existing contracts with ICE and state customers, our strong occupancy also reflects the successful ramp of four new contracts announced during the third and fourth quarters of 2023. These new contracts include a contract for 120 Montana inmates at our Saguaro Correctional Facility in Eloy, Arizona, a contract for 240 Wyoming inmates at our Tallahatchie County Facility in Mississippi, and the two new county contracts mentioned previously for up to 610 detainees also at our Tallahatchie facility. These four new contracts completed their initial intakes during the fourth quarter of 2023 and into the first quarter of 2024 and contributed to our growth in occupancy and revenue. We are grateful for the high degree of trust from our partners that these existing expanded contracts represent, and I couldn't be more prouder of our dedicated employees who helped earn that trust by providing the flexibility and timely delivery of quality services our partners rely on to fulfill their missions. Next, I want to provide an update on labor attraction and retention, an important component of our business that became unusually challenging starting with the onset of the COVID-19 pandemic. During 2022 and 2023, labor market pressures necessitated temporary incentives and related incremental operating expenses. During those two years, we designed and deployed different human capital strategies and made significant investments in our frontline employees. Through those actions, we have increased our staffing levels through improved recruiting and retention. We are now seeing significant normalization in our labor market as well as greater workforce stability. Financially as we review first quarter results, our improved staffing has allowed us to dial back the higher spending on temporary incentives and associated travel expenses and has positioned us well operationally to manage our customers' higher population needs. Turning to our Community segment, which is comprised of 23 residential reentry facilities, we experienced an increase in occupancy to 63.1% in the first quarter of 2024 versus 59.4% in the prior year period. Our facilities in this segment serve the Bureau of Prisons as well as state and county governments, and the increase in occupancy in this segment was broad-based. We also provide electronic monitoring and case management services in our Community segment. Our Community segment represents a vital part of our reentry mission and is often critical to the successful reentry of residents in our care. Net operating income in this segment increased 56% in the first quarter of 2024 from the prior year quarter due to increased occupancy as well as per diem increases obtained in connection with contract renewals. Similar to our Safety segment, our Community segment facilities have been able to reduce temporary staff incentives. The positive occupancy trend in the Community segment is likely to continue now that pandemic-related public health policies have ended and as more of our government partners return to these important residential reentry programs that help individuals better prepare for successfully returning our communities. The strong financial results reflected throughout our business have enabled us to execute on our long-term capital allocation strategy with more intensity. During the first quarter of 2024, we repurchased 2.7 million shares of our common stock at a cost of nearly $40 million, surpassing the amount we repurchased during all of 2023. Even after these repurchases, we ended the quarter with leverage measured as net debt to adjusted EBITDA at 2.7x for the trailing 12 months, placing us for the first time within our target leverage range of 2.25x to 2.75x that we established in August of 2020. This is a significant accomplishment and we are proud of the strategy, focus and discipline that has led us here. We believe maintaining a disciplined capital allocation strategy, combined with strong financial results, also contributed to the successful refinancing of substantial portion of our debt during the quarter, including the issuance of $500 million of 8.25% senior unsecured notes and the repayment of nearly $600 million of our senior unsecured notes. Dave will provide you further detail regarding these significant capital market activities. Looking ahead, the longer-term macro environment for our federal, state and local business remains positive. Our government partners are facing complex capacity, infrastructure, budgetary and population challenges, and we see increased opportunities to serve their evolving needs. This demand potential is evident from looking at jail backlogs, prison forecasts, and from discussions with our government partners. In particular, we remain in discussions with federal, state and local government agencies, including agencies we do not currently serve to help address their various challenges in the near to long-term. In conclusion, the macro environment in which we operate continues to improve. Our financial results, including those published last night, reflect that improved environment, but those results also reflect the hard work, the attention to detail, and the smart decisions made by our dedicated team here at CoreCivic. Our occupancy is rebounding to its highest level in nearly four years, and our margin is beginning to illustrate the operating leverage that comes with higher occupancy and normalized expense structure, reflecting our progress against labor-related cost pressures that rose sharply during the COVID-19 pandemic. Our strong financial results and disciplined capital allocation strategy has provided us with tremendous balance sheet flexibility to better maximize shareholder value. Based on our financial performance to start 2024 and positive outlook for the remainder of the year, we have updated our full year financial guidance, including increases to our adjusted EBITDA by nearly $10 million, adjusted EPS by $0.06, and normalized FFO per share of $0.08. One more comment if you don't mind, before I turn the call over to Dave. This week is National Correctional Officers and Employees Week, a week started by President Ronald Reagan in the 1980s to recognize the contributions of the professionals in our vocation. I would like to say to our teachers, nurses, chaplains, those who wear the uniform, and all who work within our company, my sincere appreciation for what you do in helping us achieve our mission each and every day. Now, I will turn the call over to Dave Garfinkle, our CFO, who will provide a more detailed look at our strong first quarter financial results, assumptions included in our newly updated financial guidance, as well as further details regarding our capital market activities. Over to you, Dave.
David Garfinkle: Thank you, Damon, and good morning, everyone. In the first quarter of 2024, we reported GAAP net income of $0.08 per share compared with $0.11 per share in the prior year quarter. Excluding special items, adjusted EPS during the first quarter of 2024 was $0.25 compared with $0.13 per share in the prior year quarter. Special items in the first quarter include $27.2 million of expenses associated with debt repayments and refinancing transactions and a small gain on sale of real estate assets. Normalized FFO per share was $0.46 during the first quarter of 2024, compared with $0.34 in the prior year quarter, an increase of 35%. Adjusted EBITDA was $89.5 million during the first quarter of 2024, compared with $73.7 million in the prior year quarter, an increase of $15.8 million, or 21%. The increase in adjusted EBITDA resulted from higher occupancy from federal, state and local populations and the continued normalization of our operating expense structure, partially offset by an increase in G&A expenses. These factors, along with a lower normalized effective income tax rate in the current year quarter, also contributed to the increase in adjusted EPS and normalized FFO per share. The lower normalized effective income tax rate resulted from an income tax benefit associated with stock-based compensation vesting, contributing to a favorable impact of $0.02 per share. While this tax consequence occurs every year, the benefit was amplified by a rise in our stock price since the grant date, resulting in a higher tax deduction. In our Safety segment, our largest segment facility net operating income increased $18.4 million, or 21%, to $107.6 million in the current year quarter from $89.3 million in the prior year quarter. The increase in NOI was driven by an increase in occupancy in this segment from 70.9% to 76.1% primarily resulting from higher populations from ICE due to the expiration of Title 42 on May 11, 2023. Title 42 is a policy that had been used since March 2020 that denied entry at the U.S. border to asylum-seekers and anyone crossing the border without proper documentation or authority in an effort to contain the spread of COVID-19. Since Title 42 expired, ICE detention populations have grown nationwide. Occupancy also increased due to new contracts signed in the second half of 2023, including two new state contracts with the states of Montana and Wyoming, and two new county contracts with Hinds County, Mississippi, and Harris County, Texas. In our Community segment, facility net operating income increased $2.1 million, or 56% to $5.8 million in the current year quarter from $3.7 million in the prior year quarter. Occupancy in the Community segment increased from 59.4% to 63.1% and was broad-based as more of our government partners are returning to these important residential reentry programs that help individuals to be better prepared for successfully transitioning from a period of incarceration into our communities following systemic disruptions during the COVID-19 pandemic. Operating margins in our Safety and Community facilities combined improved to 23.7% in the first quarter of 2024, compared to 21.2% in the prior year quarter. The increase in our operating margins was due to the increase in occupancy from 70.1% to 75.2% for our Safety and Community segments combined. Per diem increases we have been successful in obtaining, which served to increase revenue per mandate by 4.1% over the prior year quarter and the normalization of operating expense trends we have experienced over the past several quarters continuing into the first quarter of 2024. During the first quarter, we were able to continue reducing certain incremental labor-related expenses such as registry nursing, temporary wage incentives, and travel, despite inflation and labor market pressures that have been steadily easing over the past several quarters. These three expense categories declined by $6.1 million from the first quarter of 2023. In our Property segment, facility net operating income declined $1.3 million due to the expiration of the lease with the State of Oklahoma at our North Fork Correctional Facility effective June 30, 2023, partially offset by the transition of the Allen Gamble Correctional Center from a facility we operated in our Safety segment to a facility we leased to the State of Oklahoma in the Property segment effective October 1, 2023. Turning next to the balance sheet, during the first quarter, we completed the issuance of $500 million of unsecured notes at an interest rate of 8.25%. The proceeds of these notes, which have a maturity date of April 15, 2029, were used to tender for our then outstanding 8.25% unsecured notes with the maturity date of April 15, 2026. Note holders with an aggregate principal amount of $494.3 million, or 83.3% of the aggregate principal amount of the old 8.25% unsecured notes outstanding tendered their notes by the expiration date on March 11, and on April 15, we redeemed the remaining $98.8 million balance outstanding. In addition to the net proceeds received from the issuance of these notes, we used borrowings under our revolving credit facility and cash on hand to fund the tender and redemption of the old 8.25% unsecured notes. The old 8.25% unsecured notes were originally issued in 2021, and we were very pleased to be able to issue the new notes with the same coupon as the old notes, even though treasury rates have risen by approximately 325 basis points since then, which we believe is a testament to our disciplined capital allocation strategy and ongoing strength of our business. During the first quarter, we also repurchased 2.7 million shares of our common stock at an aggregate purchase price of $39.4 million, or $14.52 per share, exceeding the $38.1 million of shares we repurchased throughout all of 2023. Since our share repurchase program was announced in May 2022 through March 31, we have repurchased 12.8 million shares of our stock at a total cost of $152 million, or an average price of $11.87 per share, leaving $73 million available under our $225 million Board authorization. Our leverage measured by net debt to adjusted EBITDA was 2.7x using the trailing 12 months ended March 31, 2024, down from 2.8x at December 31, 2023, and reaching our targeted leverage of between 2.25x and 2.75x. We achieved our targeted leverage in the first quarter despite using $32 million of cash for costs associated with the debt repayments and issuance of the new notes, and despite repurchasing shares of our stock at an accelerated pace during the quarter. Following the repayment of the old 8.25% unsecured notes; we have no debt maturities until 2027, when a modest $243.1 million of unsecured notes at a rate of 4.75% mature. As of March 31, we had $111.4 million of cash on hand and an additional $257 million of borrowing capacity on our revolving credit facility, providing us with total liquidity of $368.4 million. We used $106.9 million of this liquidity to fund the aforementioned final redemption of the old 8.25% unsecured notes in April, including the redemption premium and accrued interest on these notes. Moving lastly to a discussion of our 2024 financial guidance, we expect to generate adjusted EPS of $0.66 to $0.76, up from our previous guidance of $0.58 to $0.72 and normalize FFO per share of $1.56 to $1.66 up from our previous guidance of $1.46 to $1.51. Our guidance reflects our outperformance in Q1 relative to our internal forecast, leaving the remainder of our forecast essentially unchanged from our previous guidance. Relative to 2023, our guidance continues to reflect growth in state and local residential populations largely attributable to the new contract awards obtained during the second half of 2023. Our guidance further reflects an increase in our average daily federal populations in 2024 compared with 2023, mainly due to the expiration of Title 42 in May. As with our previous guidance, we expect federal populations to remain within a stable range throughout 2024. Even though Congress appropriated additional funds for 41,500 detention beds, ICE detention populations nationwide have yet to approach this higher funded level. If federal populations increase toward the higher levels funded for detention beds, there could be upside to our guidance. Consistent with our last guidance, our updated guidance contemplates the continuation of a normalized hiring market for labor with less reliance on temporary incentives but resulting in higher staffing costs as we continue to increase staffing levels in response to the higher occupancy we are experiencing post-COVID. Our guidance continues to contemplate the expiration of the lease with the State of California at our California City Correctional Center effective March 31, 2024. This facility generated EBITDA of $7.2 million and $25.5 million for the three months ended March 31, 2024 and the 12 months ended December 31, 2023, respectively, and is therefore expected to result in a per share reduction of $0.06 from Q1 to Q2 and $0.15 to $0.16 from 2023 to 2024. Our guidance does not include any other contract losses or any new contract awards not previously announced because the timing of government actions on new contracts is always difficult to predict. With respect to our capital allocation strategy, we expect to repurchase additional shares of our common stock, taking into consideration our leverage earnings trajectory, stock price, liquidity, and alternative opportunities to deploy capital. Our guidance includes a range of pre-purchase scenarios at various amounts and at various assumed prices, but we will not likely sustain the pace in Q1 unless we experience a larger increase in populations than we had forecasted, maintaining discipline on our targeted leverage ratio. We also expect to use our cash on hand and cash flow from operations to continue paying down debt, prioritizing debt repayments on our revolving credit facility, which we utilize to redeem the remaining balance of our old 8.25% unsecured notes in April. Given the strength of both our balance sheet and cash flows, and newly extended debt maturities, we have considerable flexibility in how we deploy our liquidity and free cash flow as well as how we balance our capital allocation strategy between debt repayments and share repurchases. Again, our guidance contemplates a range of scenarios associated with debt reduction and share repurchases. We expect AFFO, which we consider a proxy for our cash flow available for capital allocation decisions to range from $172.8 million to $185.3 million or $1.55 to $1.66 per share, up from our previous guidance of $158.3 million to $175.3 million or $1.42 to $1.57 per share. We expect that our normalized effective tax rate to be approximately 29% for the remainder of the year, which after considering the lower effective tax rate for the first quarter equates to an annual effective tax rate of approximately 27%. The full year EBITDA guidance in our press release provides you with our estimate of total depreciation and interest expense. We are forecasting G&A expenses in 2024 to be slightly higher than 2023. We plan to spend $62 million to $66 million on maintenance capital expenditures during 2024, unchanged from our previous guidance, and $8 million to $10 million for other capital investments, up $1 million from our previous guidance. I will now turn the call back to our operator to open up the lines for questions.
Operator: Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions]. Our first question comes from the line of Joe Gomes of Noble Capital. Your line is now open.
Joe Gomes: So I wanted to start you talked a little bit on the ICE populations from the overall level. Just maybe give us a little more color and detail on what you saw in your populations, especially as you mentioned somewhat coming down at the end of the first quarter into the second quarter, they rebounded -- what kind of rebound have you seen in them since they bottomed out?
Damon Hininger: Yes, sir. So this is Damon. Let me give you a couple of numbers. So as of yesterday, our system-wide population was 10,310. So 10,310 was our system-wide population as of yesterday. In April, let me give you two numbers, in April -- on April 1, we were at 9,772, and then on April 20, and I say the 20th because that's the last publicly available report for ICE nationwide populations. So on April 20, our system population was 9,208. So coming into the month of April, we are almost at 10,000. We went as low as 9,200 on April 20. And as of today, or I should say yesterday, we were at 10,310. So, as you know, and as I said in my comments, again, the last publicly available report for ICE was 34,000, about 600 or 500. And so we don't know what the new numbers are nationally, but our sense is if our populations are going up, likely the nationwide number is going up, too.
Joe Gomes: Okay. Great. Thanks for that detail. Much appreciated. And just looking through the supplemental, and if you look at the Safety segment, the revenue per compensated mandate is now $102, which is up from the $90 level a couple of years ago. How much more increase do you think you can get out of that? Are you seeing any pushback from your government partners on the steady increase in the revenue per compensated mandate?
Damon Hininger: Yes, good question. And I'll probably tag team with Dave on this a little bit, but I'd say a couple of things. One is, as you know, we've talked a lot about last couple of years, I mean; we have needed to do some big investments in our employees. So we're really thankful for, especially our state partners through the appropriation process through various state legislatures around the country to get increases in salaries and in turn, obviously get reimbursed through per diem increases with our contract, either through the renewal process or new contracts. Generally, it's not part of your question, but generally the labor market feels like it's stabilize not only just on the vacancy rate going down dramatically, but also the need for major adjustments in salary. So, like, we're stabilized and somewhat getting into a kind of normal year-over-year increase on that front. And then, as you know, on our federal contracts, wage determinations are required by contract, which in turn we have to pay those rates with our employees under those contracts. So if those wages go up and go up -- regardless if they go up modestly or meaningfully, we get reimbursed dollar for dollar through our contracts and so -- and also that's a great feature in those contracts. So if those wages continue to go up, which typically those are a little slower to see adjustments year-over-year versus our state contracts. So we could see some meaningful increases in salaries through the wage termination process here in the next couple of years and in turn opt to get reimbursed for that. And now so that could adjust our per diems in a pretty meaningful way. So that's a long way of saying yes. Maybe not so much on the state business, but I think maybe on the federal business next year or two, as wage determinations continue to kind of keep up with the labor market data, we could see adjustments there. But would you add to that, Dave?
David Garfinkle: Yes, I think 2022 was a decent year, 2023 was a better year. So I'm thinking specifically for our state government partners, where per diems typically go up July 1 in connection with the renewal of their fiscal years. And so 2023 was a good year. And as Damon mentioned, we were recovering a lot of the salaries that we had been providing to our staff, our customers, the unique industry, our customers do what we do, so they experience what we do. So they saw the demand for their salaries increasing within the public sector system. So those conversations are never easy. I mean, trying to get budget dollars appropriated is always difficult, but they were at least a little more sympathetic when they understood the labor market. So I think we've been really good at getting those per diem increases the past couple of years. We're in most states are in legislative session right now. So hard to say what is going to happen July 1 of 2024. But we continue to have those conversations, particularly in states where we didn't necessarily get a per diem increase that fully compensated us for the wages that we provided the past year or two.
Joe Gomes: Okay. Thank you. Thanks for that. And you mentioned Cal City is expired here now, maybe you give us a little more update or color on what you're doing there, who you think could be a potential partner there in taking that facility, if you can come to some type of agreements there, who are your target customers, I guess, for that facility.
Damon Hininger: Yes. We thank you for that question in Cal City, I mean, we think it's a great solution for, even though the lease ran out, think it could be a good solution long-term or even mid-term for the state as their needs changes. Obviously, their populations got impacted probably more dramatically than any other state with COVID and the populations going down. So obviously, we'll continue to keeping lines of communication open with the state. But as we've said before, being in Southern California, being in the Southwest, knowing that ICE and their needs are very fluid and very dynamic. And obviously, a lot of discussion going on both nationally and regionally in that part of the country about border security and the needs for ICE, maybe more decision capacity. We think that'd be a natural fit for that agency if and when they need more capacity period. Not just in that part of the country, but anything you'd add to that, Dave?
David Garfinkle: Yes. I think we've mentioned before both ICE and Marshals have used that facility before California was in it. So they're familiar with it, they've toured it. So we think it would be a good solution for them as well.
Joe Gomes: Okay. Thanks. And then on the monitoring the ISAP contract comes up in about, I guess, 15 months here. Any color you can provide on what your thoughts are on the monitoring ISAP contract and if that's something that you're going to go back in and look to potentially win.
Damon Hininger: Yes, absolutely. So that, as you know, that contract's up for rebid. I think the contract expires July of next year in 2025. Obviously, we've got the capability. Our community division has got monitoring underneath that. We've been doing it for decades within that division. So we've got the capability and the qualifications for it. And probably more importantly, I mean, no one's been working with ICE longer than we have, so we know that agency really well. We've done some really complex and large solutions for them over the years. Think about our South Texas facility in Dilley, Texas, being one example. So something of that size and that complexity, it's right in our wheelhouse because we've done that many times over the years with ICE. So we're getting ourselves prepared obviously, we've participated in that procurement in years past, and again think we're well qualified, not only just with the relationship with the agency, but also working through complex projects. And also I think we've got a really good track record on being very innovative and showing great outcomes. So as they think about kind of the future of that program and maybe some changes they want relative to not only outcomes, but performance metrics and show that it's a very effective program, we think we bring a lot to the table. But anything you'd add to that, Dave?
David Garfinkle: The only thing I'd add there was that reporting and release management RFI last year. I think we don't know what it's going to look like whether they want the same services that are currently provided under ISAP or whether they're going to expand it like they contemplated under the RRM, RFI. We have not seen an RFP. There's not -- it's not come out yet. I expect that would come out sometime during the second half of 2024. So they're probably still compiling the data from that, from the responses to that RFI. And it could -- it depends on how much money gets appropriated toward that type of monitoring case management program as well. And there could be multiple vendors, both profit and non-profit, depending on what it looks like. So we're standing ready to see what that RFP looks like that we'd expect in the second half of this year, and we'll respond accordingly.
Joe Gomes: Great. And one last one for me. I'll get back in queue. Anything new on state and local opportunities?
Damon Hininger: Yes, great -- great question. So as you know, we've been on a great run. I mean, we go into the last half of last year, I mean, a lot of great new relationships. Wyoming comes to mind. Hinds County comes to mind. Harris County comes to mind. And it's probably important to note, I know there's always a question about kind of public available procurement. A lot of these opportunities that we have secured here the last 6, 8, 10 months have been through just shoe leather and engaging these partners understand their complex issues and challenge they have lead to these opportunities. So we're excited about having a lot of these new partners now on the roster with CoreCivic. But I guess I'd point to a couple of things. We look opted closely at prison forecast next five years. We've talked about some of those numbers here the next five years. But if you look at our existing customer base, just the last two years in population growth, and if you exclude the Federal Bureau of Prisons, which we don't work with them now in the Safety side, we just work with them a little bit on the Community side. And also the State of California, that collective portfolio of state customers we worked with, they've increased by 30,000 inmates here in the last two years. And that's again existing state partners working with CoreCivic. So you look at a State like Georgia, they've gone up 3,600, you look at the State of Florida, they've gone up 5,000 the last two years. So states are dealing with a lot of challenges, continue to deal with not only the issues coming out of COVID and maybe facilities they took offline because of staffing issues or capital or physical plan issues, they're looking at the next three to five years seeing some increases in population too, especially if there's been some changes within the state legislatures on sentencing reform. So that's a long way of saying, yes, we're hearing a lot of engagement from our partners, our state partners, on needs that they may have not only just in the near-term, again, not only just with physical plan or labor issues, but also growth here in the next couple of years. But anything you'd add to that, Dave?
David Garfinkle: No, I think you covered it, Damon,
Joe Gomes: Great. Thanks again for taking my questions, and congrats on the quarter.
Damon Hininger: Thank you, sir.
Operator: One moment for our next question. Thank you. Our next question comes from the line of M. Marin of Zacks. Your line is now open.
M. Marin: Thank you. So I was hoping to get a little bit more color on the Cal City facility. So on the supplement; I think it says that the facility was built in 1999. Has there been any spending on upgrades? And so in other words, where I'm going with this question is, you see this as a long-term solution for ICE because of the location and the relationship you have. Would you -- in order to start a new contract, would you need to do any kind of upgrades to the facility, or do you think it's ready to go for a new contract?
Damon Hininger: Yes. Thank you for that question. That's a good one. I would say there's probably some modest improvement we would need to make to it. And again, we've been working with ICE for 40 years, so we know kind of their MO on how they think about physical plant and maybe some modifications you want. So, for example, those modifications could be additional office space for government staff, lawyers that are helping support the residents in their legal cases. There are some cases where we do courtrooms where actually have physical space for judges and court staff to come on-site. Obviously, the world's changed here in the last couple of years on that front with COVID and so a lot of that stuffs being done virtually even with the pandemic behind us. So it could be the case where it's a little bit of not only space for courtrooms, but also maybe space for technology where they could do virtual hearings or whatnot so pretty modest investment. But again, we've been doing this for a long time for ICE. So we kind of know what they would want. And also we could be flexible. If they've got some very unique needs, they've got a certain location. And I'll give you another example. It could be maybe one of more of a very intensive medical component for chronic care or maybe some infirmary beds. Those could be some adjustments to make into the medical unit. But anything you'd add to that, David, on Cal City?
David Garfinkle: Yes, I mean, California was just using it. They just left the facility in March. So obviously, everything, all the systems are up to-date, so don't have to put any CapEx in for those things. I think, like Damon said, it depends on who the user would be, and every user is a little unique in their needs. And Damon outlined the details for ICE. So I estimate it's hard to tell without a real opportunity in front of us, but it could range from very minimal to, I don't know, $15 million, $20 million, maybe higher than that. But I think that'd be a lot depending on the customer.
M. Marin: But it also sounds to me, from what you're saying, that if some of those modifications were made, it would also have a positive impact on your per diems in the facility. Is that the right way to think about it?
David Garfinkle: Absolutely, yes. I mean, we build that into our pricing model and make sure that we get an adequate return for any CapEx that we have to put into it.
Operator: One moment for our next question. Thank you. Our next question comes from the line of James Godvin of StoneX Group Incorporated. Your line is now open.
Ben Briggs: Yes. Hi, this is actually Ben Briggs from StoneX.
Damon Hininger: Hey, Ben.
Ben Briggs: So -- hey, guys. How are you? So first of all, congratulations on the quarter and congratulations on being able to raise the guidance.
Damon Hininger: Thank you.
Ben Briggs: Really a strong showing here. So most of my questions, frankly, got addressed, but one that I wanted to dive in a little bit on is obviously a lot of the federal government increase in revenue came from ICE, and that was driven by some of the immigration issues we've seen in the changes in policy during the year. You also saw a pretty significant increase in state and local revenue. I know that some of that was driven by new contracts that you won over the course of the last year or so. But could you give any insight into if there's any macro drivers that's driving that increased demand by states and localities? And is any of that additional revenue due to increased headcount at contracts that already existed prior to these new ones being added during the year?
Damon Hininger: Thank you for that question. Make sure I understand kind of the gist of your question. So you just some of the macro drivers that are driving state populations is that particular kind of the gist of your conversation, what's driving that?
Ben Briggs: Precisely, yes. Got you.
Damon Hininger: Very good. Well, so I point to two things. The first is kind of everything related to COVID. So what we saw during COVID on the state populations is that they had the usual behavior of discharges, people getting into sentence that they would get released from prison. But people coming into prison that slowed down pretty dramatically because people that were maybe arrested of a crime and were held in a local jail, say at a city or county facility, their cases were not getting adjudicated because the courts were closed during the pandemic. And so what we saw kind of 2020, 2021, 2022 and even a little bit into 2023 is that jail populations were increasing dramatically around the country. In fact, I think on the last quarter or maybe two quarters ago, I shared the metric of a two-year trend of 22% increase in jail populations nationally. So that's every city or county that operates a jail, and that's -- we think that's a record. We don't think we've ever seen a percentage increase like that in a short period of time. And again, what the data indicated, but also what we hear anecdotally is that courts were closed, people were arrested, cases were not getting adjudicated. So populations were swelling at the local level, which meant that they were not getting ultimately convicted in the sentence of a crime once their case got adjudicated and going to a prison. So now, what we're seeing is courts are back to natural, kind of regular order. People are going through the process, getting their cases adjudicated. And now the population is coming pretty dramatically, pretty quickly into the state level. What the states had done during COVID since populations went down, they took either units in some cases, some states took actual prisons offline. So they closed them because they maybe were old, antiquated, hard to staff, maybe all the above. And we're hearing anecdotally from a lot of the jurisdictions, they don't want to reopen those units or facilities for all the reasons I just said. So their footprint, basically their sizes, their capacity in their system shrunk. And so we think that's again, number one, why we're getting a lot of quick engagement from our partners, either existing or new partners, that they need help and they need it quickly. Again, I'd point to Montana and Idaho and a couple other jurisdictions for that. The second piece, which is kind of this point going forward is that there has been a fair amount of activity both this year and really by the last two years within state legislatures on adjustments to sentencing reform. And so most states do a five-year forecast. I'm sure we'll get another set of new forecasts after all these sessions are adjourned around various state legislatures around the country. But what the data indicates is that the next three years to five years are looking at pretty meaningful increases in most, if not all states. And so part of it, so to answer your question again, part of it is the going back during COVID and how that created some real constraints in the system because of courts being closed. And then the second part is that going forward the next three years to five years, a lot of states are looking at pretty significant increases because again, of changes, maybe in sentencing reform. Anything you'd add to that, David?
David Garfinkle: Yes, no, I think at a macro level, our state populations, if you back out the facility in Oklahoma that transitioned from one that we operated to one that we leased, if you back that one out, our populations were up a few percent from Q1 2023 to Q1 2024. And then going back to the discussion we had earlier about wage increases and getting reimbursed through per diem increases, it's the combination of those that's driving the revenue. But certainly, as Damon mentioned more thoroughly, the demand and the challenges that our state customers are facing are getting more intense.
Ben Briggs: Got it. That's incredibly helpful. Thank you. So one follow-up question to that is that as these states and localities are utilizing and have demand for more and more space, I know that historically the U.S. Marshals Service has used some in addition to you guys, has used some state and local space to house their detainees, are states and localities going to be faced with a situation where they don't have enough space to lease to the U.S. Marshals Service? And could that create opportunities for you guys in the future?
Damon Hininger: Yes, that's a great question. And I think the short answer is absolutely. I mean, we're hearing a little bit of that, not only anecdotally, but also a little bit in our system where maybe a jurisdiction. Yes, it's either out of space. Another part of it is that, I mean, the federal government to their credit, and they're seeing this for ICE too, I mean, they're raising the bar on operational standards and requirements. And so we're hearing through our -- through those two partners, Marshals Service and ICE is that some local agencies not only don't have capacity for all the reasons we just talked about, but also maybe they've kind of thrown up their hands and say there's just no way we can comply with these standards that these agencies are requiring at the cities or counties that they house population. So I think kind of both those factors are drawing or driving a little bit of opportunity and demand for us to use capacity in our system because we wear it as a badge of honor. These requirements and standards that we have to comply with. We've been doing that for years, and at the end of the day, we think that's the right thing to do to improve the quality within our facilities. But also we're very supportive of on-site monitors, contract monitors, whatnot. And I know a lot of local jurisdictions are not too keen to that type of oversight. So yes, I think that's exactly right.
Ben Briggs: Okay. Great. Very -- that's very helpful. And then last one from me is just regarding labor, I know that temporary labor usage has been an issue. It seems like it's less of an issue now, as you guys are getting more staffed up, would you say that we're back to a run rate as far as temporary labor is concerned? And would you consider yourself fully staffed as far as permanent labor is concerned, or is there potentially a little bit more hiring to do?
Damon Hininger: Good question again. I'll tag team a little bit of Dave on this one. I would say we're close on the second part of your question. Not quite there, but we really have gotten pretty darn close on permanent staff. So, yes, we've seen a lot of improvement on that in probably the last 12 months to 18 months. On the temporary staff, we've had said in our remarks, I mean, a lot of improvement on it front, but probably not quite. Keep me honest here, Dave, probably not quite where we were pre-COVID.
David Garfinkle: Yes. There's a few facilities where we're still deploying temporary staff. It's certainly not the magnitude it was throughout 2023 or even 2022, and we still do continue to incur some of those temporary incentives for that staff. So I would expect as the year goes by, we will have higher staffing levels, but less reliance on temporary staff. So it's a continuation of that trend that we've been seeing over the past several quarters.
Ben Briggs: All right. Great. That's extraordinarily helpful. Congratulations again on the quarter, and thank you for taking the questions.
Damon Hininger: Thank you, sir.
David Garfinkle: Thank you so much.
Operator: One moment for our next question. Thank you. Our next question comes from the line of Kirk Ludtke of Imperial Capital. Your line is now open.
Kirk Ludtke: Congratulations on the refi.
Damon Hininger: Thank you so much.
Kirk Ludtke: Just a couple follow-ups on California City. You mentioned that this used to be an ICE, Marshals facility. What -- and that the current or the population, the ICE population was 34,500. It's probably higher now. At what level -- what national ICE population would you think; ICE would have to be before they would reopen an idle facility?
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.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.