CoreCivic, Inc.

Good day and thank you for standing by. Welcome to the Quarter 1, 2023 CoreCivic Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, Press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Cameron Hopewell, Managing Director of Investor Relations. Please go ahead.

Cameron Hopewell Thanks, operator. Good morning, ladies and gentlemen, and thank you for joining us. Participating on today's call are Damon Heiniger, President and Chief Executive Officer, and David Garfinkel, Chief Financial Officer. We're also joined here in the room by our Vice President of Finance, Brian Hammons. On today's call, we will discuss our financial results for the first quarter of 2023, 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 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 first quarter 2023 earnings release issued after market yesterday and in our Securities and Exchange Commission filings, including the 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. On this call, we will also discuss certain non-GAAP measures. A reconciliation of the most comparable GAAP measurement is provided in our corresponding earnings release and included in the supplemental financial data on the investor's page of our website, CoreCivic.com. With that, it's my pleasure to turn the call over to our President and CEO, Damon Heinegger.

Thank you, Cameron. Good morning, and thank you for joining us today for our first quarter 2023 earnings call. On today's call, I will provide you with details of our first quarter financial performance and our updated 2023 full-year financial guidance. I will also discuss with you our latest operational developments, update you on our capital allocation strategy, and discuss the latest developments with our government partners. Following my remarks, I will turn the call over to our CFO, Dave Garfinkel, who will review our first quarter 2023 financial results and our updated full year 2023 financial guidance in greater detail. He will also provide a more detailed update on our ongoing capital structure initiatives. I'll now provide a brief overview of our first quarter financial results and our updated 2023 financial guidance. In the first quarter, we generated revenue of $458 million, which was a 1% increase compared with our prior year quarter. This is in spite of the expiration of our contract with the Federal Bureau of Prisons, or BOP, at our previously owned McCray Correctional Facility in November of 2022, and that facility that we sold later last year. We generated normalized funds from operations, or FFO, of $38.9 million, or $0.34 per share compared with $41.5 million or 34% per share in the first quarter of 2022. Now, the decline was driven by the sale of our McCray facility that I mentioned, the transition of populations at our La Palma Correctional Center pursuant to a new contract with the state of Arizona that began in April of 2022, and a challenging labor market. Dave will provide more detail regarding the financial impact of these items along with other factors that impacted our first quarter results. While our operating costs remain elevated compared with pre-pandemic levels, during the quarter we experienced a continuation of modest improvements in the employment market, a trend that began to develop in the second half of 2022. Now to our updated 2023 financial guidance. We are forecasting full year FFO per share in the range of $1.31 to $1.42 and adjusted funds from operation or AFFO per share in the range of $1.25 to $1.37. These represent declines of six cents at the midpoint of our previously issued guidance. They will provide greater details about our first quarter financial results as well as the financial impact of the more significant assumptions included in our full year 2023 financial guidance following the remainder of my comments. Moving now to one of our federal customers, Immigration Customs Enforcement, or ICE. The most current expectation is that Title 42, a temporary public health order issued by the CDC that has essentially closed our nation's borders to asylum-seeking individuals, since the onset of the COVID-19 pandemic is scheduled to come to an end on May 11th. In all likelihood, the lifting of Title 42 will result in a significant increase in the number of individuals illegally entering the country between ports of entry. Without the ability to quickly remove individuals using the authority granted by Title 42, it is expected the government will experience a significant increase in the number of people in the custody of the Department of Homeland Security or DHS. ICE is one of the agencies within the DHS that is responsible for enforcing immigration laws, arresting, and detaining individuals who have entered the country illegally. As our largest customer, it is anticipated that ICE will experience a significant increase in demand for detention capacity when Title 42 is lifted. ICE has been the government partner most impacted by COVID-19 era public health measures. Notably, ICE implemented occupancy restrictions at its facilities nationwide to improve the ability for resident populations to social distance. These occupancy restrictions have remained in place for more than three years, so the removal of these restrictions could result in a significant increase in utilization of our facilities under contract with ICE. There is a possibility that legal challenges or some other unexpected development could change the date that Title 42 is lifted. In fact, this has happened on multiple occasions in the last few years. But it's important to note, and what is different this time, is that the Secretary of the State and the Secretary of Homeland Security have made some definitive statements this past week that the Title 42 public health order will expire as required by court order on May 11th. Our updated four-year financial guidance does not contemplate an increase in utilization from ICE. However, as mentioned last quarter, we have elevated our staffing levels in anticipation of higher occupancy levels. Utilization by ICE is also impacted by their annual funding levels. For the current fiscal year that will end September 30th, 2023, ICE is funded for 34,000 pension beds. Based on the latest available data, ICE is utilizing approximately 25,000 beds. So, they have the ability to increase utilization. However, as noted in a DHS fact sheet that was published last week, their current funding levels represent only a fraction of what DHS will ultimately need in a post-Title 42 environment. Finally, the DHS Secretary indicated in recent public remarks that DHS has informed Congress this past week their intent to reprogram funds in their budget to support emerging requirements within DHS. Now for an update on our other federal partner, which is within the Department of Justice, the United States Marshals Service. The U.S. Marshals' prisoner populations have remained consistent in recent years. So their need for capacity around the country remains unchanged and significant due to their reliance on contracted detention capacity. The marshals were impacted by the executive order signed by President Biden and issued in January of 2021 that directed the Attorney General to not renew Department of Justice contracts directly with privately operated criminal detention facilities. We have only two remaining direct contracts with the marshals. One of those contracts is with our 4,128-bed Central Arizona Florence Correctional Complex in Arizona and has a contract expiration in September of 2023. Both facilities provide significant capacity to the marshals that we believe would be very challenging to replace. But as we've previously stated, we likely will not have a resolution on potential contract extensions until we are closer to the existing contract expiration date. We continue to work closely with the marshals to ensure their capacity needs are being met in order to support their critical public safety mission. At the state level, we continue to hear that state correctional systems' largest challenge remains the tight labor market. We have had conversations with a handful of states to help address their challenges in the near to long term. We have discussed available capacity we have within our system that could assist those states in dealing with their operational challenges And we are currently in discussions with several government agencies to help assist them with their need for bed capacity. Now, it wouldn't be appropriate to disclose all of the states we are currently talking to, but I will highlight one that recently has been reported on publicly. The state of Montana has taken steps during their recent legislative session to possibly place 120 individuals out of state. We have been actively talking to the state for quite some time about their needs, and they recently toured a facility of ours that we think would be a good fit for them. We will report more on this opportunity and others later this year. I will close out my comments by discussing our continued progress with reducing our overall debt and returning capital to our shareholders. In February, we repaid the remaining $153.8 million on our 4 and 5 eighths percent senior unsecured notes that were originally scheduled to mature in May of this year. At the time, we used a combination of cash on hand and a $35 million draw under our revolving credit facility to repay these notes. By the end of the first quarter, we had repaid all but $10 million of the draw on the revolver through free cash flow generated during the quarter. We now have no debt maturities until April of 2026, which provides us with flexibility in how we deploy our free cash flow for the next three years. To that point, We also repurchased an additional 2.5 million shares of our common stock during the first quarter at an aggregate purchase price of 24.9 million. Our total share repurchase authorization is up to 225 million, of which we have approximately 125 million of the authorization remaining. We believe taking a balanced approach of both reducing debt and repurchasing shares will unlock substantial value over time while also reducing our future debt refinancing risk. We remain committed to our targeted leverage ratio or net debt to adjusted EBITDA range of two and a quarter to two and three quarters time. We have made meaningful progress in reducing our overall leverage due to the strong cash flow that the company generates, reducing our overall debt balance by $1.2 billion since announcing our updated capital allocation strategy in the summer of 2020. We expect our leverage to continue to decline as we prioritize our cash flows on reducing debt, understanding that in recent quarters, our EBITDA has been negatively impacted by the short-term transition of contracts at our La Palma facility in Arizona and ongoing pandemic-related oxygen restrictions with our federal partners, mathematically slowing the rate of leverage decline, though we have continued to reduce our debt levels while repurchasing our shares of common stock. I'll now turn the call over to Dave, who will provide a more detailed look at our financial results in the first quarter. He will also discuss in detail our updated four-year 2023 financial guidance, including the most significant factors behind the change in that guidance.

Dave? Thank you, Damon, and good morning, everyone. In the first quarter of 2023, we reported gap net income of 11 cents per share compared with 16 cents per share in the prior quarter and adjusted EPS of 13 cents compared with $0.14 per share in the prior year quarter. Normalized FFO per share was $0.34 during the first quarter of 2023, and AFFO per share was $0.37, both unchanged from the prior year quarter. Adjusted EPS and normalized FFO per share were each in line with average analyst estimates and one cent higher than our internal forecast. Adjusted and normalized per share amounts in 2023 exclude a non-cash income tax expense of $2.3 million for the revaluation of net deferred tax liabilities associated with a change in our corporate tax structure as we completed a reorganization of our tax structure to simplify and more closely align operations and assets of certain of our subsidiaries and to reduce administrative efforts following our conversion from a REIT to a taxable C corporation. Adjusted and normalized per share amounts in the prior quarter exclude a gain on sale of real estate assets. Compared with the prior year quarter, operating expense improvements in the portfolio, combined with a reduction in interest expense and the impact of our share repurchase program, were offset by a reduction in EBITDA of $7.4 million, or 5 cents per share, at the La Palma Correctional Center. and the expiration of our final prison contract with the Federal Bureau of Prisons in November 2022 at the McCray Correctional Facility, which resulted in a reduction of EBITDA of $2.3 million, or a penny per share. We began transitioning a contract with ICE at the 3060-bed La Palma facility to a new contract with Arizona during the second quarter of 2022. The transition is complete and therefore the second, third, and fourth quarters of 2023 will reflect favorable comparisons to the prior quarters of this facility, particularly as we expect operating expenses to continue to normalize throughout 2023. Margins at our safety and community facilities decreased from 22.5% in the first quarter of 2022 to 21.2% during the first quarter of 2023. Excluding the impact of ongoing transitional expenses at our La Palma facility, which, as I mentioned, was still operating under a contract with ICE in the prior quarter, operating margins increased by 0.3%. Compared with the fourth quarter of 2022, operating margins declined as a result of a Q4 benefit for employee retention credits we mentioned last quarter and higher staffing levels and unemployment taxes in the first quarter of 2023. We incur approximately 75% of our unemployment taxes during the first quarter when base wages reset for unemployment tax purposes. Our financial results continue to be impacted by occupancy restrictions implemented during the COVID-19 pandemic that largely remained in place during the first quarter, most notably for Title 42, a policy that denies 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. Occupancy in our safety and community facilities was stable at 70.1% in the first quarter of 2023, compared with 70.6% in the prior year quarter. As Damon mentioned, Title 42, which has been in effect since the beginning of the pandemic, is currently scheduled to end next week, which is expected to result in an increase in the number of undocumented people permitted to enter the United States claiming asylum and could result in an increase in the number of people apprehended and detained by ICE. Longer term, we expect operating margin percentages to trend toward those we experienced pre-pandemic of approximately 25%, as higher per diem rates we have been successful in obtaining from many of our government partners are expected to translate into increasing margins as they are applied to increasing occupancy levels and as labor-related expenses continue to normalize. Turning next to the balance sheet, As of March 31st, we had $51 million of cash on hand and an additional $223 million of borrowing capacity on our revolving credit facility, providing us with total liquidity of $274 million. During the first quarter of 2023, we repaid in full the outstanding principal balance of our 4.58% senior unsecured notes amounting to $153.8 million using a combination of cash on hand and available capacity under our revolving credit facility. We reduced our total debt balance by $146.2 million during the quarter, or by $48.2 million net of the change in cash. We now have no debt maturities until 2026. During the first quarter of 2023, we also repurchased 2.5 million shares of our common stock at an aggregate purchase price of $24.9 million. In less than a year since our board authorized the repurchase program in May 2022, we have repurchased over 7% of our outstanding shares for a total of 9.1 million shares at a total purchase price of $99.4 million and have remaining authorization for over $125 million more of our shares. Leverage measured by net debt to EBITDA was 3.1 times using the trailing 12 months ended March 31st, 2023. of course, after the share repurchases, down slightly from 3.2 times at the end of 2022. In order to progress toward our leverage target of two and a quarter times to two and three quarters times, we do not expect the same level of share repurchases in future quarters as we completed during the first quarter, as our cash flow will be prioritized on debt reduction. However, we will remain opportunistic in repurchasing additional shares. Moving lastly to a discussion of our 2023 financial guidance. For the full year 2023, we expect to generate adjusted EPS of 46 to 57 cents and normalized FFO for share of $1.31 to $1.42. Our guidance has been updated to reflect the penny beat during the first quarter of our internal forecast. offset by 4 cents to reflect the non-renewal of our lease with the State of Oklahoma at our North Fork Correctional Facility, which expires June 30, 2023. In addition, we continue to negotiate in good faith with the State of Oklahoma for the renewal of our contract to manage our Davis Correctional Facility, which also expires June 30, 2023, and operated at a loss during 2022 and the first quarter of 2023. However, we have not yet been able to reach acceptable terms. Our updated guidance was further reduced by 3 cents per share to reflect the potential ramp down of populations at the Davis facility during the second quarter and idle operations during the second half of the year, which we did not contemplate in our previous forecast. If we are able to reach acceptable terms on a new agreement, the 3 cent reduction will be avoided as we would exceed our forecast by approximately 2 cents per share during the second quarter by avoiding the ramp down of populations. and we would further exceed our guidance during the second half of 2023, the magnitude of which would depend on the terms of a new agreement. Our guidance contemplates the continuation of a tight, albeit improving, labor market with a continuation of favorable operating expense trends, but offset by higher staffing levels to accommodate an expected increase in federal and state residential populations. Although we expect to be prepared for an increase in occupancy that could occur once Title 42 comes to an end, our guidance does not contemplate a surge in ICE detainees in the second half of the year, but a more measured increase consistent with our previous guidance. Although we are in discussions with a number of government agencies for new opportunities, our guidance does not include any new contract awards because the timing of government actions on new contracts is always difficult to predict, which would be upside to our guidance. if we are successful. We expect AFFO, which we consider a proxy for free cash flow after interest expense, income taxes, and maintenance capital expenditures, to range from $144 million to $157.5 million, or $1.25 to $1.37 per share. This quarter, we have inserted a reconciliation of EBITDA to AFFO in our supplemental disclosure report posted on our website. We expect leverage to temporarily take up a tenth of a turn to 3.2 times in the second quarter when we have several large working capital payments, including the semiannual interest payments on all of our outstanding unsecured notes. But we expect to continue reducing debt throughout the year with our free cash flow and expect our only variable rate debt outstanding to be the term loan A with the revolving credit facility undrawn during the second half of 2023. We expect our normalized effective tax rate to be 25% to 28%, and the 2023 full-year EBITDA guidance in our press release provides you with our estimate of total appreciation and interest expense. We expect G&A expenses in 2023 to be comparable to 2022. Our 2023 capital expenditure forecast remains consistent with the guidance we provided last quarter, consisting of 61 million to 63 million of maintenance capital expenditures and $3 million to $4 million for other capital investments. We have no need to access the capital markets in the near term. We remain focused on managing to our leverage target and have not included any additional share repurchases in our forecast. However, we will remain flexible and will continue to be opportunistic in repurchasing shares, prioritizing our cash flows on debt reduction and sculpting stock repurchase levels to EBITDA performance. I will now turn the call back to the operator to open up the lines for questions.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Joe Gomes at Noble Capital. Your line is open.

Good morning. Thanks for taking my questions.

Absolutely. Good morning, Joe. Good morning, Joe.

So kind of want to start out, you know, you've got the employee base that you've built in anticipation of higher populations. It negatively impacted results given the difficult employment, the tight employment market out there. So kind of wanted to look, you know, kind of multi-part here. What gives you confidence that, you know, the ending of Title 42 will result in additional flow into your facilities? I think we all expect to see people coming across the border, but, you know, I guess What do you believe the administration plans are for adding people to the populations in the facilities? How high do you think you could go for your facilities? And if your assumptions don't prove to turn out correctly in what you're thinking now, at what point do you start to reduce the employee base?

Yeah, great questions. This is Damon, and so let me tag team with Dave, but let me tackle those kind of two parts there about the population and then the staffing question. Let me just first say we're in unprecedented times, so no one, I think, can definitively say what the world's going to look like after May 11th. There's a lot of smart people out there that follow immigration law and how it impacts certain populations for detention capacity, how it affects populations for the Marsh Service, for people that get referred over for immigration cases. The reason we didn't assume any adjustment or increase in populations for the rest of the year is that I just think it's impossible to say what that number is because, again, I think a lot of smart people are struggling with the same question. But I guess I will point to a couple things that give us at least some indication that ICE and DHS are thinking about increased demand for the rest of the year, first of which is um last week i noted it a little bit in my script but last week the department of homeland security secretary and also department or excuse me secretary of state came out in a joint statement this was uh titled uh or dated april 27th uh talking about kind of their plan kind of post may 11th on what they're going to do on the southwest border of note in that comment uh and statement and they actually had a press release and a um media press release, too, they talk about after May 11th, Title 42 going away, but also Title VIII immigration authority comes back. And so that's been well reported. But what they've also noted that, and I'm reading here from the statement, it says, the decades-old authorities carry deep consequences for unlawful entry. This is Title VIII. including at least a five-year ban on reentry and potential criminal prosecution for repeated attempts to enter unlawfully. The return to processing under Title VIII is expected to reduce the number of repeat border crossings over time, which has increased significantly under Title 42. So again, that's word for word from their statement, and that's in the first paragraph. So if you take that statement and then you look at a couple of numbers, one of which is during COVID, the majority of encounters that were on the southwest border, those individuals were expelled under Title 42. So the majority of people sent back across the border was under the authority of Title 42. So again, that's gone away on May 11th. What's also notable is that Before COVID, the recidivism rate of people on the southwest border, so these are people that have crossed at least twice in the last 12 months on the southwest border, that recidivism rate has been as high as 40% during COVID. To get you in perspective, pre-COVID to five years before COVID, it was somewhere in the range of like 12% to 15%. So the recidivism rate has been very, very high. And these are just people that are processed. There's a fair amount of folks that were not processed under Title 42, so that number actually could be higher. So, we're looking at that data point along with the final data point is to say, you know, immigration cases that were referred from Border Patrol or ICE over to Marshal Service If you look at the year before COVID, so 2019, that number was 118,000 in referred cases. This past year, it was 20,000. So, you take all those numbers together, you've got people coming across the border, pushback quickly under Title 42, recidivism rates being higher, and then the cases referred over to U.S. attorneys and emergency service custody are a lot lower than they were pre-COVID. And indications would say that with these numbers that there's going to be increased need after May 11th. Let me go back to what I said earlier, though. This is unprecedented. No one that I've seen here recently has been able to accurately predict kind of what the numbers are going to look like after May 11th. So with those numbers, but also, of course, we're talking to ICE on a regular basis. They know our capabilities. They've talked about our capacity in great detail the last couple weeks and what we've got available and could have available. And so we feel like based on all the data but also kind of real-time interaction with our ICE partners, having staffing in places, especially under ICE contracts, at an elevated level for potential demand is a good investment. But to your point, after May 11th, and if we get days and weeks after May 11th and it's not materialized, then we obviously can recalibrate our staffing as appropriate based on actual population levels. Last thing I'll just say before I tag team with Dave is that, and we said this also back in February, if you look at our staffing levels today, and again, they're elevated within our ICE facilities for this potential demand, if you look at our midpoint, as we just announced here in the last 24 hours for our guidance, I think you could add probably another 10% on top of if we were able to recalibrate our staffing based on actual population levels. So say a different way, probably about 12, 14 cents, probably, keep me honest here, Dave, is what you could add back to our midpoint if we brought staffing levels back down to what populations are today. So that gives you a sense of if we do need to do that, potentially what the magnitude could be. Now, again, that won't be perfect and I'll fit or depend on, again, what the needs are for mice, but also our other partners, but maybe add an amplifier to that, Dave.

Yeah, you covered everything I was going to say. I would only amplify where an unprecedented times haven't been through a pandemic before like those haven't had. Title 42 in place, I would say the closest we had was at the end of 2022 in December when ICE started to bring populations down in anticipation of Title 42 coming to an end then in December. And then we saw some lower populations in January that ultimately recovered. I would say those populations are going down, if not as much as they came down at the end of the year, they're probably coming down more than what we saw at the end of the year. And it just kind of feels like we're leading up to an end of Title 42. So the only thing I would add, you know, our approach to guidance was guarded. It was conservative. We don't know if there could be a surge of ICE detainees. We have seen that in previous years. Or we don't know if it could be more measured over time. And our guidance really is just taking a wait-and-see approach to that. So we will monitor closely. We should know something, you know, you'd expect probably within a month after May 11th would be the time where we start looking internally to see what's going on and whether we need to accelerate preparations for additional populations or scale back the staff because they're not occurring. So that's where we are.

Okay. Thank you for that very detailed update. Just to put a final point on that, so you mentioned populations increase in the fall almost up to 30,000, dropped down to the beginning of the year to like 20,000, increased again to mid-March to about 28, and now that you said they're back down to 25, do you think that The most recent decline is just, again, ICE trying to, you know, clear out space for an anticipated people coming to cross the border in May?

Yeah, yes. In fact, yeah, told us that. Told us that, exactly.

Okay. And moving on to the, your state business, I know you don't want to talk too much about, you know, details. But maybe give us a little, you know, timing on some of these discussions. I mean, we're talking a quarter, you know, six months, next year for some of these discussions that you're currently having with the states.

Yeah, great question. I would say, let me just make just a general comment and then answer your question. The engagement from our state partners, I'd say it's accelerated a little bit here in the last 12 months. I mean, we had a lot of engagement with new partners pre-COVID, as you know, Joe. Obviously, that all slowed down during the pandemic. But I'd say here in the last six to 12 months, we've seen some pretty good engagement with not only existing partners, as I mentioned, like Montana, but also potentially some new partners. So sitting here today, knowing the discussion that we've got going, I think we could get one, maybe a couple before the end of the year under new contracts, or I'd say even expanded contracts, maybe someone that we've already got and they just want to expand. It was also interesting, I didn't have this in my script, but we do have some interesting conversations going on also at the county level, so maybe one of those get across finish line before the end of the year, but I don't know if any of you had that.

Yeah, now is when legislatures are in session, so they're going through preparing their budgets for the fiscal year that begins July 1st. That can often be a catalyst for decisions once they get funding, if they get funding for new beds, whether it's in-state or out-of-state. We'd hope to get something across the finish line in Q3 and actually begin ramping if budgets are appropriated for additional populations. Again, none of that is in our guidance, as that is always difficult to predict, but as I mentioned in my script, would be upside our guidance if we get something.

One other thing, you know this already, Joe, but maybe for the benefit of others, a lot of these new contracts, especially if it's a new partner, for their benefit and our benefit, it starts very small. It might be for 100 beds or a couple hundred beds. But, you know, over time, that could grow to 500 to 1,000. So, we'll always work really hard just to, you know, get that initial relationship going and start with a population that they feel comfortable with to get the relationship going and obviously improve our capabilities and show some what we think will be really good outcomes. And then that hopefully grows into a larger solution that we could do for them over time.

Okay. And to kind of follow in on the state, you know, There's been some news out here recently in California, you know, potential flooding. I think it's Corcoran, a big facility there that they have. I think they said maybe 6,000 or 8,000 people that are in that facility in the line of potential flooding. Would you guys have capacity in the state of California if, worst scenario came and California had to move people out of that facility into other facilities in California, or does California have enough capacity on its own that they wouldn't need the private operators?

Yeah, good good question. I am aware of the flooding effect impacting a couple of public facilities. I think the secretary or I think soon to be secretary. I think he's actually going through the confirmation process right now. indicated in a recent testimony within the legislature that they're monitoring that closely, but I don't think he sees that as a huge risk here near term. But I guess to your first part of your question, I think obviously we've got the Cal City facility. It's through March of 24, that lease. And if for some reason they need that capacity longer term because of that potential threat of flooding into those state facilities, hopefully we can make that available. And to the last part of your question, I'm not aware of other facilities where they'd have capacity, but as you know, they were severely overcrowded once upon a time. So I think if that was a risk and they wanted to use maybe they've pulled back on or closed during the last five years, then maybe that's available. I don't know if you can answer that, Dave.

Yeah, of course, we've had out-of-state populations through a relationship with the state of California. If they wanted to pursue that option again, we do have capacity both at the Cal City facility in-state as well as out-of-state. But right now, we don't think that's an opportunity, but we'll obviously continue to monitor it.

Okay, great. And one more, if I may, you know, the buyback, congrats on doing some more here. But you kind of, you know, Dave talked about in the past, you know, you really didn't want to be buying back stock unless you were within that 2.25 to 2.75 leverage ratio. You were above that at year end, ended the quarter above that number, but you still went in the market and bought some more. and you know again today you mentioned you didn't think you'd see the same level although you'd be opportunistic but with the stock at you know 20 below where you were buying in the first quarter today um you know would it still be you know something where that would be an opportunity opportunity opportunistic uh purchases here even though you remain above the your your goal for debt leverage

Yeah, it would definitely be opportunistic. We bought back more probably than we originally expected to when we set our budget for the year during the first quarter. Our balance sheet is in great shape. We don't have any maturities until 2026. So I think, you know, we thought if we're going to buy shares, why not buy sooner, given the reduction in stock price? We thought and still think it's an attractive purchase price at today's price. We were, despite the Roughly $30 million in repurchases during the quarter, able to reduce our leverage slightly down from 3.2 times to 3.1 times. But, you know, we're serious about the leverage at two and three quarters. So we really want to see clarity on our ability to backfill the leases at both Cal City and North Fork. before we execute further on the share repurchase program, at least meaningfully. That's not to say we won't buy any shares, but certainly our cash flow now is going to be prioritized on paying down debt, you know, accumulating cash. preparing ourselves for uh for uh you know refinancing of those 26 notes uh they've got to make all till uh april of 24 so wouldn't expect to do anything at least until then and then maybe even not not uh right away uh but you know it's still it's a it's a decent size 615 million dollars so we don't want to find ourselves in a position uh where we're a taker of whatever terms we have to take when we want to refinance So, we'll be keeping that dry powder, again, focusing in on the backfilling of the EBITDA that's currently scheduled to be lost from North Fork and Cal City before we execute anything meaningful in the share repurchase program.

Great. Thanks for answering my question, and I'll pass it along. Yes, sir. Thank you, Joe.

Please stand by for our next question. Our next question comes from Jay McCandless from Wedbush.

Hey, good morning. First question I had, maybe an update on the EIDL facilities and where you stand with either selling or leasing some of those. And then as part of that, could you talk about which of the EIDL facilities might be available and useful to ICE if they need to increase some of the populations that they're holding?

Absolutely. And I'll thank you again, Dave, on this one. This is Damon. We have, I guess, answer your last part of the question first. We have had multiple conversations here from the last two weeks. uh with ice leadership again kind of how they're seeing the world after may 11th and so they're clearly doing a lot of scenario planning not just for detention capacity but also for monitoring for transportation for case management and so they have a good understanding of our capabilities but also what we've got available capacity-wide so we've gone through with them uh capacity in a couple buckets one is you know capacity we've got within dedicated ice facilities where they're the exclusive user of that facility we've also given them updated capacity we've got where we've got shared uh facilities where we've got maybe multiple state and or uh marshals in there and then also facilities that we've got vacant but we could activate fairly fairly quickly so um We've given them a couple updates on that front, probably in the last two weeks, real-time numbers, so they know our capabilities and, again, know kind of time and action plan if we need to activate some capacity. So those conversations are ongoing. And I think my guess is as we go into next week and even the weeks after that, that will continue to be discussed on what their needs are, what they're seeing on the south of the border, and then, again, what – capacity we've got available real-time today, but also what we could make available, say, in the next 60, 90 days. Anything you'd add to that, Dave?

Yeah, as far as selling existing facilities, as you probably know, despite our successful transaction of the sale of McCray last year, not a lot of prison facilities trade hands, and there's not a lot of buyers and sellers of correctional facilities. We would be open to selling one or more of our idle facilities if the most logical buyer would be the state in which the idle facility is located. You think of a California city facility, we will obviously have conversations about their desire to I wouldn't put it on a high probability list, but certainly as they evaluate their needs and structure and design of what they're looking for, that's a really good facility that they may need one day. There are some smaller residential reentry facilities that we are considering for sale. We closed on one just earlier this week. They're not large dollar amounts. I'd say probably in the $10 million range we could complete this year, but not really in a position to report anything on any pending prison facility sales.

Okay, got it. And then you answered my question around the stock repurchase. I guess the other question that we've had is generally especially in the areas where you might need to flex up for ice? How is labor availability? And in terms of, you know, payroll or hourly pay versus where your normal average is now, do you feel like it would have to be more in order to get those facilities ramped up pretty quickly?

Yeah, great, great question. We've had pretty good success even going through COVID to have a pretty strong applications and low vacancy rates in our ice facilities. Most of them are in areas where, since it's under a federal contract and we're paying DOL wages, they're well above market. And so we've had great success, and this is not just here recently, but historically, very low vacancy rates within those facilities. So one kind of play in the playbook is to take our existing facilities to staff up to a level to make sure we can go to 100% occupancy if ICE needs all that capacity available. But there's also a couple locations where we've even gone above that, where we've had really, really, really favorable tailwinds from the labor perspective. And so having employees under an ICE contract that have the background clearance that can be deployed other parts of the enterprise if we do need to flex up staffing somewhere else, especially if we're activating a facility we think is a good investment for the near term. So not perfect, but I'd say generally we've been pretty blessed on the labor front under our ICE facility. So I don't think you'd add to that, Dave.

Yeah, no, no. There are certainly signs that the labor market is improving. I think you're seeing that nationwide. We're seeing it at the correctional staff level as well. We're also finding there's a constituent group of a mobile workforce, if you will, that really enjoy going from facility or location to location. That's proven to be an asset for us. It's a benefit that the private sector can provide that It's more difficult in the public sector where you can deploy staff at facilities that we have throughout the country. So, as Damon mentioned, we're able to overhire in areas where there's an abundant labor pool. There may be a group of those people who are willing to transfer to another facility on a temporary basis. We've been doing that at our La Palma facility. Obviously, we would want to have more permanent staff at the La Palma facility at the moment, but we're able to backfill on a temporary basis where we have those needs. And we may have to do that depending on how much ICE needs post-Tile 42, at least temporarily bring in staff until you get a full workforce. But things do seem to be improving. And as Damon mentioned, the wage rates at ICE facilities, because they're federal facilities, tend to be above market. So those would be attractive employment locations.

Got it. Okay, great. Thanks for taking my questions.