CoreCivic - Q2 2023
August 8, 2023
Transcript
Operator (participant)
Good morning. My name is Amber, and I will be your conference operator. As a reminder, this call is being recorded. At this time, I would like to welcome you to CoreCivic's second quarter 2023 earnings conference call. All the lines have been placed on mute to avoid any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press * 1 1 on your telephone keypad. If you would like to withdraw your question, press * 1 1 again. Thank you. I would now like to turn the call over to Cameron Hopewell, CoreCivic's Managing Director of Investor Relations. Mr. Hopewell, you may begin your conference.
Cameron Hopewell (Managing Director of Investor Relations)
Thanks, operator. Good morning, ladies and gentlemen, and thank you for joining us. Participating on today's call are Damon Hininger, President and Chief Executive Officer, and David Garfinkel, Chief Financial Officer. We are 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 second 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 second quarter 2023 earnings release issued after market yesterday, and in our SEC 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 quarterly supplemental financial data report posted on the investors page of our website, CoreCivic.com. With that, it's my pleasure to turn the call over to our President and CEO, Damon T. Hininger.
Damon T. Hininger (President and CEO)
Thank you, Cameron. Good morning, everyone, and thank you for joining us today for our second quarter 2023 earnings call. On today's call, I will provide you with details of our second 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 second quarter 2023 financial results and our increased 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 second quarter financial results and our updated 2023 financial guidance.
In the second quarter, we generated revenue of $463.7 million, which was a 2% increase compared to the prior year quarter. This is in spite of the expiration of our final prison contract with the Federal Bureau of Prisons at our previously owned McRae Correctional Facility in November of 2022. We generated normalized funds for operation, or FFO, of $37.8 million, or $0.33 per share, compared to $40.7 million, or $0.34 per share in the second quarter of 2022. The decline was driven by the sale of our McCray facility, which generated EBITDA of $2.4 million in the prior year quarter, and higher staffing levels, which we anticipated and communicated on our last quarter's earnings conference call in anticipation of increasing demand.
While our operating costs remained 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. We believe the favorable operating expense trends will continue as the tight labor market continues to loosen. However, the pace of operating expense reductions will largely depend on the condition of the labor market, which we believe will take some time to normalize. As for our updated 2023 financial guidance, we are forecasting full-year normalized FFO per share in a range of $1.37-$1.45, and adjusted funds for operation, or AFFO, per share in the range of $1.31-$1.39. These represent increases of $0.04 at the midpoint of our previously issued guidance.
Moving now to one of our federal customers, Immigration and Customs Enforcement, or ICE. On May eleventh, 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 COVID-19 pandemic, came to an end. It is also important to note, at the same time, occupancy restrictions implemented during the pandemic at our ICE facilities also came to an end. Without the ability to quickly remove individuals using the authority granted by Title 42, there has been an increase in the number of people in the custody of the Department of Homeland Security, or DHS. ICE is one of the agencies within DHS that is responsible for enforcing immigration laws, arresting, and detaining individuals who have entered the country illegally.
As expected, ICE has experienced a significant increase in demand for detention capacity since Title 42 was lifted. In fact, ICE occupancy has increased approximately 43% nationwide since the end of Title 42, we experienced a similar increase in our ICE facilities. Due to fixed payments under many of our federal contracts, the increase in the residential populations does not result in a proportionate increase in our financial results at such facilities until populations clear the fixed payment levels at a certain bed capacity utilization. This gap has narrowed significantly, the majority of our facilities are now near or above the fixed payment levels. The long-term impact of the lifting of Title 42 is still unclear, there are other factors that impact detention utilization levels by ICE. The most significant factor has historically been funding levels approved through Congress.
While the outcome of the appropriations process for the upcoming fiscal year, beginning on October first, is still unknown, there appears to be growing appreciation for the need for additional funding to help the agency address the challenges at our southern border. The outcome of the appropriations process is expected to have a significant impact on the overall population levels in our ICE facilities moving forward. For an update on our other major 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 2 total remaining direct contracts with the Marshals. One of those contracts is at our 4,128 bed Central Arizona Florence Correctional Complex in Arizona and has a contract expiration in September of 2023. Both facilities provide significant facility capacity to the Marshals that we believe would be very challenging to replace. 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 dates.
We continue to work closely with the marshals to ensure their capacities 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, and the number of states with we've had conversations about additional bed capacity has increased since the last quarter. It wouldn't be appropriate to disclose all the states that we are currently talking to, but I will highlight one that recently has been reported on publicly. The state of Montana has appropriated funding to place 120 individuals out of state.
We currently expect Montana to issue an RFP later this quarter. As a current government partner of ours, we believe we are in an excellent position to serve their growing needs. We have already achieved several successful outcomes from discussions with other state government partners. We recently renegotiated our contract with the state of Tennessee for the managed-only 1,676-bed South Central Correctional Center. Early this year, we notified the state of our intent to not renew the contract when it was scheduled to expire on June 30th. We successfully negotiated contractual terms that once again made the facility viable for continued operations over the long term, both in terms of an increased per diem and investments in the facility infrastructure.
We are pleased to reach this positive outcome and continue operations at the South Central Correctional Center to serve the increasing demand for bed capacity from the state of Tennessee. We also reached a new agreement with the state of Oklahoma to enter into a new lease agreement at our 1,670-bed Davis Correctional Facility, effectively converting the facility to one in which we own and operate, to one that we simply lease to the state, which will operate the facility with government employees effective October 1 of this year. We were pleased to reach a positive conclusion to this facility's contract renegotiation, and we believe that a lease agreement is best for the long-term outlook for the facility that also meets the long-term needs of the state.
We have signed a 90-day extension under the current management contract and continue to work through the transition process, expecting to transition operations to the state of Oklahoma effective October 1st. Finally, we agreed with the state of Idaho to increase the number of individuals we care for at our 1,896-bed Saguaro Correctional Facility in Arizona. Over the past year, Idaho has utilized approximately 450 beds at the Saguaro facility. Based on recent conversations, we expect the state to increase their utilization of up to 600 beds over the next few months. We are also pleased with the overall success in achieving per diem increases under our state management contracts, as our government partners recognize the challenging labor market and cost inflationary environment, which they, of course, are experiencing as well.
Most of our state per diem adjustments occur effective July first, coinciding with the state's fiscal year budgets, and we estimate annual incremental revenue from our state government partners of approximately $35 million resulting from these per diem increases, which will help to offset the incremental labor costs we are incurring. I also wanted to note another component of our business, and that is our community segment, which represents a vital part of our mission and is often critical to the successful reentry of residents in our care. Net operating income in this segment increased by 22% in the second quarter of 2023 from the prior year quarter, as occupancy increased 3.5% to a total of 62.8% in the second quarter of 2023.
We expect these trends to continue in the community segment now that all pandemic-related public health policies have come to an end. Pre-pandemic occupancy in this segment was closer to 35%, so there is still a lot of, a lot more opportunity to grow. However, it appears that more of our government partners are once again choosing to use residential reentry programs to help individuals better prepared for successfully transitioning into our communities. To summarize, the macro environment is improving. ICE populations have increased with the lifting of Title 42 oxy caps and increasing demands on the Southwest border. Demand at the state level also appears to be increasing. Courts nationwide were significantly hampered operationally during the pandemic, and that has contributed to jail populations growing by 24% in the last 24 months.
As courts normalize operations and cases are adjudicated, state correctional agencies will clearly be impacted. Additionally, several states have recently passed legislation that could result in them needing additional services or capacity. Finally, we have had discussions with a few county governments, not historically an avenue of growth for us, struggling with jail overcrowding and challenges with staff. While we can never say definitively when an agency may engages for our services, some of the leading indicators are notable as we look to future demand. As a reminder, we were at 82% occupancy in 2019 versus occupancy of 70% today, and our financial model is a high fixed cost model with significant operating leverage and earnings potential with increases in utilization. I will close out my comments by discussing our continued progress with reducing our overall debt and returning capital to our shareholders.
First, an update on our buyback plan. Year to date, we have repurchased 2.6 million shares at an aggregate purchase price of $25.6 million. In the second quarter, we purchased $21 million of our 8.25% senior unsecured notes that are scheduled to mature in April 2026, which is our next scheduled debt maturity. We used cash on hand and free cash flow to purchase bonds through open market transactions. Should opportunities continue to rise, we could elect to use our free cash flow to purchase additional senior notes in open market transactions to further our capital allocation strategy of reducing overall debt levels and reduce our net debt to EBITDA to a range of 2.25x-2.75x.
We have no debt maturities until April of 2026, which provides us flexibility in how we deploy free cash flow for the next 3 years. We have made meaningful progress in reducing our overall leverage due to the strong cash flows the company generates, reducing our overall debt balance by over $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, EBITDA has been negatively impacted by the short-term transition of contracts at our La Palma facility in Arizona and ongoing pandemic-related oxy restrictions with our federal partners, which have now largely come to an end and trends are reversing.
These issues mathematically slowed the rate of leverage decline, though we have continued to reduce our debt levels even while purchasing 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 second quarter. He will also discuss in detail the increase of our full year 2023 financial guidance, including the most significant factors behind the change in that guidance. Dave?
David Garfinkel (CFO)
Thank you, Damon, and good morning, everyone. In the second quarter 2023, we reported GAAP net income of $0.13 per share, compared with $0.09 per share in the prior year quarter, and adjusted EPS of $0.12, compared with $0.13 per share in the prior year quarter. Normalized FFO per share was $0.33 during the second quarter 2023, compared with $0.34 in the prior year quarter, and AFFO per share was $0.32, compared with $0.33 in the prior year quarter. Compared to the second quarter 2022, a reduction in interest expense and the impact of our share repurchase program were offset by the expiration of our final prison contract with the Federal Bureau of Prisons in November 2022 at our previously owned and operated McRae Correctional Facility.
This facility generated $2.4 million of EBITDA, or $0.01 per share, in the prior year quarter. Further, as we discussed last quarter, we have increased staffing levels in anticipation of increasing demand. During the second quarter, we began to experience an increase in the number of residents detained by ICE as a result of the termination of Title 42 on May 11, 2023, a policy 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. From May 11 through June 30, ICE detention populations increased nationwide by 41%, and within our facilities by approximately 2,800 residents, or 49%.
Note, however, that due to fixed payments at certain of our facilities, only a portion of this increase resulted in incremental revenue and compensated occupancy, because a substantial portion occurred at facilities where population levels were already included in our compensated population, though we did incur variable expenses associated with the total increase in the number of residents under our care. Compensated occupancy in our safety and community facilities was 70.3% in the second quarter of 2023, compared with 69.5% in the prior year quarter. The increases in staffing and variable expenses negatively impacted our margins in the safety and communities facilities, decreasing from 22.2% in the second quarter of 2022 to 20.6% during the second quarter of 2023. This decline was somewhat expected because of our staffing strategy.
Sustained population levels for a full quarter, as well as further population increases, would have a favorable impact on our margins as population levels clear the fixed payments and move into an incremental per diem structure. Further, despite inflation and the difficult labor market, which have required us to provide above historical wage increases, we have been able to reduce certain labor-related expenses, such as registry nursing, temporary wage incentives, and travel, each of which moderated during the second quarter of 2023 compared with the prior year quarter. We believe we can further reduce these expenses as the tight labor market continues to alleviate, which we expect will take additional time.
Longer term, we expect operating margins 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, our leverage, measured by net debt to EBITDA, was 3.1x using the trailing 12 months ended June 30th, 2023. As of June 30th, we had $42 million of cash on hand and an additional $233 million of borrowing capacity on our revolving credit facility, providing us with total liquidity of $275 million.
During the second quarter, we repurchased 0.1 million shares of our common stock at an aggregate purchase price of $0.7 million, focusing our cash flows on paying down debt after repurchasing 2.5 million shares of our common stock during the first quarter at an aggregate purchase price of $24.9 million. Since our board authorized the share repurchase program in May 2022, we have repurchased over 7% of our outstanding shares, or a total of 9.2 million shares at a total purchase price of approximately $100 million, and have remaining authorization for $125 million more of our shares.
During the second quarter of 2023, we purchased $21 million of our 8.25% senior notes in open market purchases using our free cash flow, reducing the outstanding balance of these notes to $593.1 million. We reduced our total debt balance by $34.1 million during the second quarter, or by $24.5 million net of the change in cash, increasing the total outstanding principal balance of debt repaid in 2023 to $180.3 million, or $72.7 million net of the change in cash.
We have no debt maturities until 2026, and the only variable rate debt we have outstanding is a $93.1 million term loan, which is about 1/3 of our forecasted EBITDA for 2023. Moving lastly to a discussion of our 2023 financial guidance. For the full year, we expect to generate adjusted EPS of $0.52-$0.59, up from our previous guidance of $0.46-$0.57, and normalized FFO per share of $1.37-$1.45, up from our previous guidance of $1.31-$1.42. We have updated our guidance to reflect the new lease agreement with the state of Oklahoma for our Davis Correctional Facility, effective October 1, 2023. We currently manage the Davis facility under a management contract recently extended through September 30.
Under the management contract, we incurred operating losses of $1.5 million through June 30, 2023, and $0.9 million during 2022. The new lease agreement will generate annual revenue of $7.5 million, and we expect the facility to generate net operating income and margins consistent with the average margin in our property segment, which was 76% during the second quarter and year-to-date. Our guidance also reflects sustained populations from ICE, per diem increases we were able to achieve from many of our state partners effective July 1, 2023, and a continued moderation of our expense structure.
Although the number of government agencies with which we are discussing additional bed capacity needs has increased since last quarter, our guidance does not include any new contract awards because the timing of government actions on new contracts is always difficult to predict. While we could execute on one or more of these opportunities this year, which would be upside to our guidance, they would likely be more impactful in 2024.
We expect AFFO, which we consider approximately for our cash available for capital allocation decisions after interest expense, income taxes, and maintenance capital expenditures, to range from $149.8 million-$159.3 million, or $1.31-$1.39 per share, up from $144 million-$157.5 million, or $1.25-$1.37 per share in our previous guidance. We expect our normalized effective tax rate to be 26%-28%. The 2023 full-year EBITDA guidance in our press release provides you with our estimate of total depreciation and interest expense. We expect G&A expenses in 2023 to be comparable to 2022.
We expect to incur $68 million-$71 million in capital expenditures during 2023, including $61 million-$63 million of maintenance capital expenditures, unchanged from our prior guidance. Seven million to eight million dollars for other capital investments, up slightly from our prior guidance for capital items requested by one of our government partners that will be reimbursed over time. We remain focused on managing to our leverage target of 2.25x-2.75x, 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 shaping stock repurchase levels to EBITDA performance. I will now turn the call back to the operator to open up the lines for questions.
Operator (participant)
Thank you. We will now conduct the question-and-answer session. As a reminder, to ask a question, please press * 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press * 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from Joe Gomes at Noble Capital. Please go ahead.
Joe Gomes (Senior Research Analyst)
Good morning. Congratulations on the quarter.
Damon T. Hininger (President and CEO)
Hey, Joe. Good morning. Thank you.
Joe Gomes (Senior Research Analyst)
I want to start out, maybe you can give us, Damon, a little update on La Palma. How is that progressing, and, and how do you see that working out for the rest of this year?
Damon T. Hininger (President and CEO)
Yeah, thank you for that, Joe, and I'll tag team a little bit here with Dave on that. La Palma has made it almost, I guess, just over a year, I guess, on the activation, with the swapping of the contract with ICE that we had until, I guess, early part of 2022. We're going through that process. Populations have been pretty steady around 2,300-2,400 here during the summer months. We've been working through our biggest challenge on the staffing front. The labor market has been pretty tight in Arizona, but we've seen really, I think, in the last probably 90-120 days, a pretty favorable turn of events.
Some of the, some of the competition, I should say, in the labor market, they have pulled back a little bit on recruiting and retaining employees, that's been helpful from a labor perspective. Some of the incentives and adjustments we've done relative to our compensation program there has been helpful too. We've gone through a pretty detailed review here in the last month or so to look at not only just the rest of this year, but going to next year. We feel like we're really on a good path to improve the performance there from a margin perspective. I guess, what would you add or amplify there, Dave?
David Garfinkel (CFO)
Yeah, most of the disruption was in 2022. We actually even paused the ramp during 2022 to make sure we could do it safely and securely and up to our customers' expectations. You know, labor market has improved there, as Damon mentioned. It gets progressively better every quarter. We're laser focused on it because it has not, you know, we really have not stabilized the operations as quickly as we would have preferred, but it's, it's heading in the right direction. The labor market's really been the issue there, and it is improving. We're confident that it's gonna continue to improve in future quarters, and it is 1 of the reasons our margins have not been as high as we would have expected, but we'll get there.
Damon T. Hininger (President and CEO)
Yeah, exactly. We, we went through, actually just this week, we went through another review here, for the last, I guess, 4 months for this year, going into 2024. Again, we're getting really good intel, and the numbers bear out relative to the labor market. We're seeing good numbers on applications and people going through the academy and hopefully getting on, on post within the facility. So, we think the financial performance will continue to improve this quarter into the 4th quarter, but notably, we'll improve pre- pretty nicely in 2024 as we continue to get more and more staffing. A little bit to Dave's last point, we actually were going through a little bit of exercise last night.
You know, we've got several facilities that are going through a process to get renegotiated pricing, which will be helpful from a margin perspective, assuming these proposals get accepted later this year, along with the improvement we're seeing in South Central that I noted in my script. La Palma obviously being the big one. If we get La Palma fixed, which I know we will, going into early part of next year, I mean, that'll be a nice catalyst for improving the margin enterprise-wide in 2024.
Joe Gomes (Senior Research Analyst)
Okay, thank you for that insight. Also, you know, Homeland is seeking supplemental funding. I think what I read was, you know, about $2 billion. Supposedly a significant portion of that would go to ICE partly for detention. You know, kind of if you could give us your insight into that, and, you know, if they don't get the funding, which they are saying they need it to take them through September, what could that possibly impact? How could that possibly impact you guys? If they do get the funding, what do you see as the potential positive impact?
Damon T. Hininger (President and CEO)
Yeah, thank you for that. A couple, couple observations. I'm gonna first touch on this year, that was your question, and then just give you a little bit of, you know, what we're seeing and hearing going into 2024. This year, we did hear, I think it was in early May, from the DHS Secretary, that they were looking to do a reprogramming of funds within DHS to help support both Border Patrol and ICE. We've never heard a publicly reported number, but he did give an indication in some public remarks with the Secretary of State that they were going to do that. Again, you know how that works. They take money from another component within DHS, they reprogram that money to, again, to ICE or to Border Patrol. We assume that has moved forward.
Again, we have not heard a public reported number on what that dollar amount was. We've also heard, a little bit to your question, that there was some discussion about maybe a supplemental, which obviously, that requires some support from leadership within the House and Senate, and ultimately acted on within those 2, 2 chambers. I have nothing to report on that front. Again, probably seen the same, same reports that you've seen where that's been talked about a little bit. If that was going to be the case, then I think you probably would see populations today where they're at... The last report we saw, I think, was on Friday last week. At the end of July, they were at 30,400 nationwide on ICE detention pops.
If they had additional funding, you may see that number go up higher. Again, we're only about 45 days from the end of the fiscal year. If they get that done and use that for additional capacity, I mean, it would be notable, but again, it's only about 45 days until the end of the fiscal year. Into next year, which obviously starts on October 1st, it'd be hard for me to say definitively how this all works out. Obviously, there's been talk in national press about the funding bills and the debt deal that was worked out in May. House and Senate leaders, how they come together, and they think about the appropriation process for next fiscal year.
There's really nothing I can add to that, other than to note that there's been a request from the House to look at a higher per diem or higher bed utilization rate through funding of around $41,000. I think the Senate is maybe looking around $34,000. Again, that is, that is consistent or potentially higher than this fiscal year. As we get closer to the end of the fiscal year, I mean, there's a chance they do a, I think, a continued resolution, which they've done historically, and that pushes it out 30 or 60 days, and then allows them more time to think about, not only total funding for the federal government, but also for ICE and DHS. I guess, what would you add to that, Dave?
Joe Gomes (Senior Research Analyst)
That's pretty thorough. I don't know that I have much to add. It is, obviously, funding is a big factor in the number of people that they detain at the border, and there really just could not be enough funding to detain everybody that crosses the border. That's why funding is so important to ICE and Border Patrol.
Damon T. Hininger (President and CEO)
It is clear, I guess I'd just say also, you know, going back to, you know, May, so if you look at the numbers in May, I think the average for the month or pretty close to the average, was around 21,000. Again, they're, they're north, they're north of 30,000. It got as high as 31,000 into July, so it's backed up a little bit. There is, you know, some, some focus clearly on using detention capacity for all the needs and challenges they have from a policy perspective on the southwest border.
Joe Gomes (Senior Research Analyst)
Okay, thank you for that. One more from me, and I'll, I'll then jump back in line. You know, we, we talked, you know, quarter in and quarter out about the state opportunities and, you know, you talked today that you're engaging more states and the, the potential for Montana, although that's, you know, not, not a big, big number here. You know, as, as, as you look at it in your crystal ball, you know, what, what really is the, the potential here for some of these discussions you're having with some of these, these state opportunities? Similarly, you mentioned today about county opportunities. What, what could really be the potential there if some of that was to come to fruition?
Damon T. Hininger (President and CEO)
Yeah, good, good question. I appreciate that. Let me... yeah, let me go to the county first and then link it up to the state opportunity. As I mentioned in my script, you know, the last 24 months, county populations nationwide have grown by 24%. We think that's probably the largest increase in that period of time, maybe in the last 20 or 30 years. If, if you look at it, just the total number, it's about 130,000 more people in jail today than there were 2 years ago. The reason we hear, as we travel around the country, the reason we hear is that courts were virtually shut down, or significantly curtailed in their operations here the last few years with the pandemic.
You have a lot of people that are waiting for their court process to play out, and the cases ultimately get adjudicated. As they make it through that process, then ultimately they're gonna be at the doorstep at the state level to go into prison and utilize prison capacity within the respective states. The discussion we've had here with states here in the last couple of quarters have been significant because states are seeing this. They're seeing the numbers of it at the local level. I was just in a state last week that has about 15,000-20,000 people within their Department of Corrections, but they indicated they had 70,000 pending felony cases within that state.
They're thinking, okay, we're seeing the numbers in the jails, but we also know there's a lot of cases still working their way through the courts, and ultimately, that's gonna affect prison population. Long story short, we're seeing a lot, a lot of activity here in the last 2 quarters. Yeah, I noted Montana, Idaho, those are notable numbers because obviously they're gonna more fully utilize our Saguaro facility out potentially in Arizona. I mean, we're hearing from states that they're thinking about in pretty big quantities, both for capacity they need in state, but also capacity we can provide out-of-state in places like Tallahatchie. You know, Tallahatchie is another facility that's just under break even right now.
The reason we're keeping that facility open is because we are having some pretty good conversations, both with states and with counties, about potentially using capacity there and other facilities where we've got vacant capacity. Obviously, from a utilization perspective, that's notable, but also a margin perspective, that'll be positive. Anything you'd add or amplify there, Dave?
David Garfinkel (CFO)
Yeah, just that, as Damon did mention in his script, county governments are not normally an avenue of growth for us. We don't do a lot of jail business. Just to back up and clarify, jail population, those are folks who've been charged with a crime, but their case hasn't been adjudicated yet. We normally get involved once their case has been adjudicated, they're sentenced to a prison facility, because that's what we own and manage. But it's interesting to see some of the county sheriffs needing bed capacity, and we're having conversations with those county governments. That-that's interesting. And ultimately, like I said, they, they end up in some percentage of them end up incarcerated.
We're seeing potential there as some states have enacted legislation that could result in an increase in their populations, like, here in Tennessee, I think we're projecting 1,000 additional people per year. States are really facing some increased demand. That's one of the reasons we were able to renew the managed-only South Central contract that we mentioned, effective July 1. It was one where, you know, we had given notice to terminate, but the state really needs the beds. We were able to come to terms with the state to keep that facility viable for the long term. We expect to see that expand into other states as well.
Joe Gomes (Senior Research Analyst)
Great. Thanks much. Appreciate the insight. Thank you.
David Garfinkel (CFO)
Yes, sir. Thanks, Joe.
Operator (participant)
One moment for our next question. Our next question comes from Kirk Ludtke at Imperial Capital. Please go ahead.
Kirk Ludtke (Analyst)
Hello, everyone. Thank you. Thank you for the call.
David Garfinkel (CFO)
Morning, Kirk.
Damon T. Hininger (President and CEO)
Good morning.
Kirk Ludtke (Analyst)
The per diem increase, you mentioned $35 million of incremental revenue beginning July 1, I believe you said. Is that-
Damon T. Hininger (President and CEO)
Yes, sir.
Kirk Ludtke (Analyst)
$35 million? Is that $35 million of incremental EBITDA?
Damon T. Hininger (President and CEO)
No, the big chunk of that goes towards salary increases. We've had really good success both this year, really, I guess, the last three years, we've gone to our state partners and said, "You know, in this challenging labor market, we need to raise salaries and in turn, seek per diem increases." Big, big chunk of that goes towards salary increases that we've been able to get in place for our employees nationwide.
Kirk Ludtke (Analyst)
Those have already been incurred, right? Those are already in your cost base.
Damon T. Hininger (President and CEO)
Some have. Some have also been put in place effective July first of this year. We, we have had some increases the last couple of years, so we try to time the increases with the timing of the per diem adjustments, if that makes sense.
Kirk Ludtke (Analyst)
Okay, got it. That's, that's, that's very helpful. Thank you. You mentioned 130,000 more people in county jails since the end of COVID. Did I get that correctly?
Damon T. Hininger (President and CEO)
No, during COVID. Basically, if you go back the last 24 months, that's been the net increase. Very significant number. Again, we can't go back really a long way, but we think the last 20 years, that's probably the most significant increase that we've seen here nationally.
Kirk Ludtke (Analyst)
That's interesting. would you expect-- With that kind of an increase, would you expect the Marshals population to increase?
Damon T. Hininger (President and CEO)
Good question, but, yeah, let me, let me distinguish this a little bit, or pull these apart a little bit. The number I was referring to are county-level jails. These are people that are awaiting to go through courts for a local crime or a state-level crime, not a federal crime that typically the marshals would handle. These are individuals at the city, county, sitting in a local facility. Ultimately, if they are convicted and sentenced of a crime, then they likely would serve their sentence in a state prison, whereas the Marshals Service are working with the U.S. attorneys or anybody that's going through the federal courts. The number I was referring to was just local crimes, not federal crimes.
Kirk Ludtke (Analyst)
Got it. It wouldn't. Wouldn't there be a similar trend at the federal level?
Damon T. Hininger (President and CEO)
Not really. I mean, we're, we're tracking the numbers pretty closely on the Marshals Service. Their, their pops have been pretty flat. Then I would say the courts at the federal level, I think, probably have had a little more leeway or were able to be a little more kind of normal operations than city or county jurisdictions.
Kirk Ludtke (Analyst)
Got it. Got it. Thank you. As population's up, has the mix changed? Would you expect... More specifically, would you expect the length of, length of stay to change?
Damon T. Hininger (President and CEO)
I don't think, looking at the numbers here, I don't think the mix has changed that dramatically here in the last couple of months. I think the length of stay, I think there maybe was a little bit of increase there, but I mean, it's only been a couple of months, so it's probably too early to say there's a, there's a trend. Yeah, looking at the numbers here, yeah, I'd say the mix and the, the length has probably been pretty consistent.
Kirk Ludtke (Analyst)
Got it. Thank you. Last question. Central Arizona, almost 4,000 detainees there. I mean, as you point out, it's a lot of people. When would you expect them to engage?
Damon T. Hininger (President and CEO)
I would guess, I mean, here we are almost-
Kirk Ludtke (Analyst)
Start arranging.
Damon T. Hininger (President and CEO)
I'm sorry?
Kirk Ludtke (Analyst)
Start arranging capacity elsewhere. I mean, when would you start to get a sense that this isn't going to be renewed?
Damon T. Hininger (President and CEO)
Oh, gosh, yeah. I mean, all indications, I mean, here we are almost 45 days away from the expiration. All the discussions have been very positive. I know that the Marshals Service and other stakeholders have toured the facility in the last year. Our expectation is gonna get extended, again, with only 45 days left. To your point, there's no other alternatives in the state or even close proximity in that region of the country. My guess would be is, again, here, mid-August. My guess would be probably maybe before Labor Day, but it'd be my guess, maybe right after Labor Day, we'll have, the administrative steps with the contracting officer to do the extension. I don't know anything to add to that.
David Garfinkel (CFO)
Yeah, there's, there's 3,700 people there. If they were going to be moving all of them out, I think we would have seen some indications by now. As Damon mentioned, we've been told that there's really not alternative capacity, in the area, even outside the state. We feel pretty good providing a really invaluable service to 3,700 people. That facility, it's a large, large facility, our largest facility. Yeah, yeah, we feel, we feel pretty good about it right now.
Kirk Ludtke (Analyst)
Fantastic. That's it for me. A lot of tailwinds. Thank you, guys.
David Garfinkel (CFO)
Thank you, Kirk.
Damon T. Hininger (President and CEO)
Thank you, sir.
Operator (participant)
One moment for our next question. The next question comes from Brian Violino at Wedbush. Please go ahead.
Brian Violino (Equity Research Analyst)
Hi, thanks for taking my question.
Damon T. Hininger (President and CEO)
Good morning, Brian.
Brian Violino (Equity Research Analyst)
Good morning. On the ICE population, you know, clearly a nice rise post Title 42. Just wondering, have you had any sort of incremental discussions with ICE as it relates to idle facilities reopening? I guess, could you also remind us of what the ramp-up time and any associated costs would be with reopening an idle facility?
Damon T. Hininger (President and CEO)
Yeah, great question, and let me tag team here a little bit with Dave. Yeah, we've had conversations with ICE about, yeah, vacant facilities or idle facilities. Those conversations have been really good and productive, so we think there's some pretty strong interest on at least one of our facilities within the portfolio where they could expand their kind of footprint primarily in the south or in the Midwest. We've also had some pretty productive discussions with them, too, about, you know, just incremental capacity we've got in currently operating facilities. Notably, you know this already, I mean, notably, we've got facilities where maybe the Marshals Service already has a contract and we currently provide services. That's a natural partner for them, partner being ICE.
I'd say both, both idle facilities and also pockets where we've got vacant capacity, there's been some pretty strong interest from ICE on both fronts. What would you add to that, Dave?
David Garfinkel (CFO)
Yeah, on an activation to part of your question, an activation, probably in this environment, is a 6-month process, to hire, train, get people through the academy, on a post, ready to accept, detainees. Probably 6 months. Likewise, so-- and we are having those conversations with ICE. On existing facilities, we are currently staffed to accept additional populations. That's really part of the reason you saw margins come down in Q2, as we talked about last quarter, we're staffing in anticipation of increasing demand. We are prepared to accept additional populations and facilities where we already have contracts with ICE, so could accommodate that on a more expeditious basis.
Brian Violino (Equity Research Analyst)
Great. That's helpful. One more from me. There's a couple of outstanding federal appeals cases, you know, from the fallout of Title 42 relating to the trans event, and there's also the Parole Plus conditions case in Florida. Obviously, you know, the outcome is still very much up in the air, but just, you know, wondering if you had any commentary on, you know, what kind of impact, depending on, you know, which way those are ruled, those could have an ICE populations going forward?
Damon T. Hininger (President and CEO)
Yeah, you're probably as well versed as I am on the, on the court cases. There, to your point, there are several cases that have been working their way through the, through the federal courts. A couple of them have been reported on here in the last, I guess, probably week, week or 2. To your question, it's pretty much impossible for us to say exactly if, if there was an, an outcome that's a little different than what's in place today, either a program pulled back or a policy pulled back, what that impact would be on, on populations. It'd be probably difficult for me to speculate on, on impacts.
We're obviously watching closely and trying to understand, you know, if there is an outcome or a couple of different outcomes, you know, potentially how ICE is thinking about that and what their needs are. Again, it probably would be inappropriate for me to say or speculate, I should say, on what that impact would be on populations. Anything, I guess, you'd add to that, Dave?
David Garfinkel (CFO)
No, sir.
Brian Violino (Equity Research Analyst)
Understood. Thanks a lot.
Damon T. Hininger (President and CEO)
Thank you, sir.
Operator (participant)
One moment for our next question. Our next question comes from M. Marin at Zacks. Please go ahead.
Marla Marin (Analyst)
Thank you. A lot of information and a lot of tailwinds, as I think someone else earlier said. I want to get my arms around, you know, some of the potential here in terms of, you know, where the future revenue growth might come from. Do you see the increase in jail populations, do you see that as potentially being another, you know, sustainable revenue channel for you going forward?
Damon T. Hininger (President and CEO)
Yeah. I would maybe break it into a couple of buckets here. For, for federal side, like I said in my script, I think the Marshals Service populations are going to be stable. As we look into 2024, and kind of what the policies are from a prosecution perspective with this administration, I think 2024, maybe even going into 2025, I think Marshals Service populations will be pretty, pretty stable. I think maybe some incremental demand here and there, in different parts of the country, but overall, I'd say pretty stable. ICE, the other federal partner that we work with, that will be driven by appropriations. You have seen, obviously, an increase of about 10,000 in detention capacity here since Title 42 goes away.
The numbers, again, they got up as high as 31,000. They're about 30,500 today, so I'd say they're pretty stable at the moment. You know, as I look at the end, the rest of the fiscal year, next 45 days, I think that's probably the case unless they get some emergency supplemental funding. Next fiscal year, again, all eyes will be on Congress, and ultimately what they work out. Again, you've got pretty significant delta, pretty significant delta right now between the House and Senate role. There's a 34,000, I think, out of the Senate proposal, 41,000 out of the House proposal. That will obviously ultimately determine what demand is going into 2024. Then going back to the state side, like I said, we are seeing a significant increase in jail populations nationwide.
I think that's a leading indicator on prison populations nationwide, and we're hearing that in our discussions with various states. Either states that we currently work with, or, or potentially prospective states where they maybe have not used privatization in the past, but they clearly are gonna see a pretty significant impact with these populations that are coming from the local level, ultimately will reside in either a jail or in a prison bed within that state, or need maybe capacity as a relief valve out, out of state. As I look the next couple of years, I think we'll see stable Marshals. We'll see potentially some increased demand from ICE, but I think we potentially could see some pretty strong demand from states that are gonna, again, deal with the aftereffects of the pandemic.
A lot of people at the local level that haven't had their cases adjudicated, that are now gonna ultimately, potentially be convicted and sentenced of a crime and gonna need that capacity within that state system. You know, I guess anything you'd add to that, Dave, at our level?
David Garfinkel (CFO)
Yeah, I mean, as we mentioned, we've already, you know, completed some restructurings of some contracts and kind of right-sized some where we were struggling or, or wanted to exit but didn't end up exiting. There's probably 2 or 3 contracts that we've kind of reversed from losses to, to are now profitable. We mentioned the state per diem increases. Other tailwinds, I'm hoping the labor market is a tailwind as, as the labor market continues to, you know, come up with more... The labor pool grows, I should say, at least for our business. Those things are already in place. We're working on a couple other contracts where we think we can improve the terms. Having discussions with government partners, those are always difficult negotiations.
We've been quite successful in, in getting some of them done to point, so heading into the second half of the year with those things behind us. There's definitely some tailwinds. Then whether the jail populations are translate into direct contracts with the, the county governments or, or longer term, as those cases get adjudicated and move over to state populations, I think that could be a tailwind and an opportunity going forward as well.
Damon T. Hininger (President and CEO)
One thing I would add, too, guys, you know, staying on our state book of business. You know, as I mentioned in my remarks, I mean, we were at about 82% occupancy in 2019. End of 2019, obviously pre-COVID, I mean, we were seeing a very pretty intense engagement from state partners, either new state customers or existing state partners that were expanding. That, that kind of momentum and feel that we had back in 2019 is starting to feel like we're seeing that again here this summer, going into 2024. Also, being at 70% occupancy, I mean, with little, if any, capital investment, I mean, we could see ourselves getting back up to that level. Now timing is always the uncertainty. We never know exactly when a government partner is gonna make a decision to contract us for services.
I do feel like that we're starting to see some of the engagement and some interest from our state partners, like we did in 2019. We're starting to see that now going into 2024.
Marla Marin (Analyst)
Okay, thank you. Thank you for that. Then one housekeeping question, which is, as you shift to the lease agreement in Oklahoma, you move staff out, presumably. Does any, like, small, you know, group of people, group of staff stay on site to, you know, to be the interaction with the company?
Damon T. Hininger (President and CEO)
Yeah, great, great question. A couple answers there. Yeah, we do expect a big amount of our staff that currently work at the facility and maybe live and reside with their families locally, that will want to stay there past October first and work for the state of Oklahoma. We're, we're working with Oklahoma on that, and that's a very natural process, and we do appreciate people who have that desire to stay within the local community and continue to work at Davis. As we get closer with the transition, I wouldn't be surprised if we have some, some probably just leadership, probably provide some support, you know, past October first to help with a smooth transition to Oklahoma.
At this, they also will follow Oklahoma's lead on what they request and desire, but also we stand ready to help them with a, again, ensuring a very smooth and safe transition.
Marla Marin (Analyst)
Okay, thank you.
Operator (participant)
One moment for our next question. Our next question comes from Edwin Groshans at Compass Point Research and Trading LLC. Please go ahead.
Edwin Groshans (Analyst)
Good afternoon, thank you for taking my question. I, I know you don't wanna talk about the court cases, so, I'm not gonna ask directly about the court cases. I, I think it's unusual that the judge put a preliminary injunction on one of the Florida cases, and it, it does seem that coincided with increased detention. In your discussions with ICE, do they discuss the impact of those cases and, and changes in, in what they're doing with detainees, or is that all driven by Title VIII? You know, moving from Title 42 to Title VIII.
Damon T. Hininger (President and CEO)
Yeah, I would say, at, at the leadership level, I would say they kinda take it all into account. They look at, you know, what needs to be done after Title 42 went away on May 11th. They also are, you know, determining the impact on, yeah, these court cases and what that's gonna direct them from a prosecution and detention perspective. Then obviously, the other key variable is the budget and, you know, funding. Do they have funding come near term, or are they gonna require a reprogram or supplemental? And or if they get one or both, and how that impacts detention population. I'd say at, at a high level, it's all taken into account.
It's not, it's not a, you know, court case or, or this change in a certain part of the southwest border from a policy perspective. I think it's all taken into account, and that's kind of instructed us when we're having conversations with ICE from a leadership perspective, saying, "Okay, here's what we're, here's what we're taking into account. This is what we think we need nationally," and then also then we break it down regionally on what capacities are. I guess, anything you'd add or amplify there, Dave?
David Garfinkel (CFO)
I, I don't... It's really hard to say what the impact of any of these cases, and there's probably four cases that are related directly to ICE populations. It's, it's just really, really difficult to determine on any one case what the impact would be and how that would translate into increases or decreases in, in ICE populations. So, it's, you know, it's, it's a factor that we think about as we prepare our forecast, but it's, it's, you know, down on the, down on the list in terms of what we think the impact could be, just because it's so unpredictable to determine what the impact would be.
I go back to, I think funding levels are, are much more important, and, and given the number of people on the border, that's really gonna drive, the detention beds more than the, the individual court cases, I would, I would guess.
Edwin Groshans (Analyst)
Okay. Fantastic. I appreciate that. I guess then, you know, I guess the news was out. CBP put out their data. They showed that crossings were down significantly in June. It looks like they might be up again in July. If we look at crossings that were close to or over 200,000 per month, to dropping to anywhere from 100,000-130,000 per month, then we look at the level of detainees jumping from 21,000 to 30,000-31,000. I mean, is that really... Do you-- It seems incongruent, right? That those two are divergent like that.
Is it really just the change in occupancy restrictions that is driving increased detentions, or is there something else going on between ICE and CBP that's resulting in those detentions? Because crossings don't seem to support the increase, just from the outside.
Damon T. Hininger (President and CEO)
Well, I guess, again, I guess, Jim, tag-team with you here, Dave. I guess if you look historically, I'm going back to, looks like the summer of 2019, you know, total count orders by Customs and Border Patrol, I think, was in the 40,000 range on average by month. Yeah, you've seen some pretty wild swings here in the last six months, but historically, you know, looking at today's numbers versus historically what the numbers are, they're really, really elevated. I mean, still very elevated. Even though you've seen a drop, to your point, saw a drop, I guess, in May, June, you saw a little bit of increase in July. Again, based on the historical numbers going back several years, they're still very elevated.
I think, you know, part of the answer is, yeah, I think it does give them flexibility. I mean, with the occupancy caps going away from our facilities in, in May, again, Title 42 going away, too, obviously, that's a, a notable, policy change, then that probably has been part of the driver on, on capacity utilization going up. I guess anything you'd add?
David Garfinkel (CFO)
I was gonna say the same exact thing with respect to elevated levels. I mean, everything's relative, right? We've seen a, a, a decrease from 200,000 to 140,000 in a month, and say that's a, a big reduction, but that still, you know, compares to 45,000 back in 2019, 2020. I do think, yes, to, to your direct question, I think, I think the occupancy Removal of the occupancy restrictions and the removal of Title 42, I would say, definitely had an impact on the number of detention populations post Title 42. You know, I think the big question that's very difficult for us to answer is: what does that look like? You know, do those populations sustain themselves going forward? Does it go up?
Does it, does it go down? I think that's, that's a harder question to answer. I mean, and then one other point I'd say, you know, we are in the peak summer months, so it's not surprising that they went down in June, probably July as well. Really, really hot temperatures, particularly on the southern border, but that does influence the, the migration patterns from Central America and so forth. I, I, I expect, you know, hard to say, but I would think that they'd go up again as the fall arrives and you get more temperate temperatures. Yeah, I, I do think ending Title 42 and the occupancy restrictions was the main driver for the increases in detention beds.
Edwin Groshans (Analyst)
Okay. Thank you for that as well, 'cause I'm, I'm sorry, I've been scratching my head on that, so that's helpful. I do have one more question. This one, answer how you can, if you will. You've been talking about the states. You said, you know, staffing costs have gone up, we're, we're in an inflationary period or have been, and so you see increases in some of your per diem contracts there. How does that work when you're discussing it with ICE, right? 'Cause ICE may say, "Yes, you're right, we probably should pay you more." If Congress doesn't cut them the check, then there's not much more they can do.
If you could just walk us through, like, I guess, the potential for your discussions with ICE to also result in either higher fixed payments because of inflation or higher per diem if those fixed payments are exceeded.
Damon T. Hininger (President and CEO)
Yeah, great, great question. Let me let me back up just a tad, and, and I'm gonna answer your question first on ICE, but then give you a little commentary around state contracts and how that affects wages. Both ICE and Marshals Service, on the direct contracts they've got with us, require us to pay wage determination, and these are set by the Department of Labor. The wage rates are instructed by data they get from.
David Garfinkel (CFO)
Department of Labor.
Damon T. Hininger (President and CEO)
... Department of Labor throughout the country. They're looking at wages in regional areas. All that is taken into account, especially if there's increases in wages in a certain area because of inflation. That's published by the Department of Labor, the wage determination, and then that's incorporated to our contract. If a salary in a certain region under a federal contract goes up from X to Y, we have to pay that wage. That's required in our contract. We're also getting reimbursed dollar for dollar from the federal government through an equal adjustment with the contract. So, wages go up, which they do, especially in an inflationary environment. Wage determinations incorporated in our contract; we're contractually required to increase wages.
With that, we're also allowed to get reimbursed dollar for dollar for those wages that we have to increase. That's a, that's a good feature of our federal contracts. That, that really doesn't require a conversation. It's really just administrative, that if our wages go up, we tell the contracting officer our wages are going up, say, by $1 million on an annual basis, and we get reimbursed for that for dollar for dollar. Put that aside. On the state contracts, what we do is we try to educate, primarily folks within the legislature, where we're operating in that state, to say, "We're seeing an inflationary environment. We're seeing competition for labor." By the way, the Department of Corrections is also seeing the same thing within their public facilities.
We go through the educational process to say that we think, you know, salaries need to go from X to Y and work with the appropriate appropriators within the legislature to get funding support. Ultimately, that gets signed by the governor, hopefully, and then with that, we get a per diem increase by X amount, and with that, during that process, we're determining, okay, exactly what we would need to wage, raise salaries. That's really a, a conversation that's ongoing during the spring as legislative sessions are going on around the country. Again, we're trying to educate people what we think wages need to do, and then with that, we're looking for offsets with, with per diems. It's not always perfect.
There's always a little bit of give and take, but I'd say in the last 24 to 36 months, we've been really, really successful on saying, "With all these, you know, potential challenges, we've got a labor perspective. We need some support for some funding increases." Again, it's always helpful when the DOC is kind of seeing the same issues within their facilities, so they're kind of working arm in arm with us, with the appropriators, within the legislature. Then ultimately, if we do get a per diem increase, then we try to time that increase with the timing of wages going up within our, within our facilities. Another thing I'd just say is that, I mean, it's been helpful that the fiscal environment state level's been pretty favorable.
I know there's, you know, still some wringing of hands about potential recession and how that affects revenues at the state level, but that's been a little bit of a tailwind for us as we've been working through some of these discussions with, with, with the, with the various states. I don't think you need to add to that, Dave.
David Garfinkel (CFO)
Going back to the federal side on ICE, you know, some of our contracts have those fixed payments that we talked about, that's one of the benefits that we provide. They have that flexibility to increase capacity that doesn't require a conversation either, because they're not required to have additional funding. If they're under those, you know, if the populations are under those occupancy guarantees, if you will, they can increase the capacity without having to appropriate new funds. It's not additional funding. They're already paying that fixed monthly payment. It's only when they're above those fixed monthly payments, when they get into a per diem tiered structure, where they would have to have funds available to increase occupancy further.
That's where you could get, you know, if the system-wide, they're at the 34,000 level that they're currently funding, funded for, and they have to go higher, that's when they're gonna have to go back to Congress to get additional funding. Most of what they do on a day-to-day operation doesn't require a conversation with us. It doesn't require a conversation with the appropriators. They've got that capacity, that flexible capacity available to them to use.
Edwin Groshans (Analyst)
That is very helpful. Thank you very much.
David Garfinkel (CFO)
Yes, sir.
Edwin Groshans (Analyst)
Nice quarter. Thank you.
Damon T. Hininger (President and CEO)
Yes, sir. Thank you.
Operator (participant)
Thank you. I am showing no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.