CoreCivic, Inc. (CXW) Q2 2025 Earnings Call Transcript

good day and thank you for standing by welcome to the core civic two quarter 2025 earnings call at this time all participants are in this and only mode after the speaker's presentation there'll be a question and answer session to ask a question during the session you'll need to press star one one on your telephone you will then hear an automated message advising your hand is raised To a story or question, please press start when we're in the game. Please be advised that today's conference is being recorded. I would now like to turn the call over to David Gutierrez. You may now begin.

Thank you, Operator. Good morning, everyone, and welcome to CoreCivics' second quarter 2025 earnings call. Participating on today's call are Damon Heinegger, CoreCivics' Chief Executive Officer, patrick swindle for civics president and chief operating officer and david garfinkel our chief financial officer we also are joined here in the room by our vice president of finance brian hammond on this call we will discuss financial results for the second quarter of 2025 as well as updated financial guidance for the 2025 year we will also discuss developments with our government partners and provide you with other general business updates. During today's call, our remarks, including 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 2025 earnings release issued after market yesterday, as well as in our Securities and Exchange Commission filings, including Forms 10-K, 10-Q, and also 8-K reports. You are cautioned that any forward-looking statements reflect management's current views only, and the company undertakes no obligation to revise or update such statements in the future. Management will discuss certain non-GAAP metrics. A reconciliation of the most comparable gap measurement is provided in the corresponding earnings release and including it in the company's quarterly supplemental financial data report posted on the investors page of the company website at corecivic.com. With that, it is my pleasure to turn the call over to our CEO, Damon Heinecker.

Thank you, David. Good morning, and thanks, everyone, for joining us for CoreCivic's second quarter 2025 earnings call. On this morning's call, I will provide an overview of the current environment, briefly review our second quarter financial highlights, and discuss our outlook, contracting and acquisition activity, and opportunities resulting from government funding initiatives at both the federal and state level. Following my open remarks, I will hand the call over to Patrick Swindle, our President and Chief Operating Officer. Patrick will review the performance of our core portfolio, discuss in further detail our operational activities relating to facility activations during the quarter, and how we are preparing for additional demand from our government partners. Finally, we will turn the call over to our CFO, Dave Garfinkel, who will provide greater detail on our second quarter financial results, as well as our updated 2025 financial guidance. Dave will also provide an update on our capital allocation strategy. Moving first to a discussion of the business climate, our business is to help solve tough government challenges in flexible, cost-effective ways and to provide safe environments where people in our care can reside temporarily as they go through their legal due process. Our business is perfectly aligned with the demands of this moment. We are in an unprecedented environment with rapid increases in federal detention populations nationwide and a continuing need for solutions we provide. At the end of June of 2025, nationwide ICE detention populations were 57,861, the highest detention populations ever recorded by ICE, which has been our largest customer for over 10 years. from the end of 2024 through the end of the second quarter ice populations in our care increased to just over 13,000 or 28% and we know the demand from ice will increase just last month Congress reached final resolution on federal funding for border security through the one big beautiful act that is historically unmatched and will be available through September of 2029 I will elaborate more on the impact of this funding later in the call nationwide populations from the United States Mars service our second largest customer have also begun to increase although we expect the marshals population to increase further towards the end of 2025 and into 2026 our year-over-year marshals population increased slightly to just over 7,700 at the end of June many of our state partners continue to face complex correctional challenges either because of staffing shortages overcrowding or outdated infrastructure our year-over-year state populations were up about 3.5 percent driven most notably from new contracts with the state of Montana the business environment contributed to the strength of our second quarter financial results total revenue increased by 9.8% from the second quarter of 2024 to the second quarter of 2025, and we generated double or even triple-digit percent increases in GAAP net income, adjusted net income, or their corresponding per-share amounts, as disclosed in our earnings press release. Adjusted EBIT out for the quarter increased to $103.3 million, up $19.5 million, or 23.2% from the prior year quarter. While the second quarter included certain payroll tax credits that Dave will explain further, even excluding these credits, we exceeded our internal projections for adjusted EPS and normalized FFO per share by 7 cents and adjusted EBITDA by 9.2 million. We have carried these favorable financial results to our updated full year 2025 financial guidance and further increased guidance for updated OCSE projections and new developments, which Dave will review in detail. During the second quarter, we repurchased 2 million shares of our common stock at an aggregate cost of 43.2 million, increasing our year-to-date repurchases to 3.9 million shares at an aggregate cost of $81 million. During the second quarter of 2025, we also announced that we had entered into an affirmative agreement to acquire the Farmerville Detention Center located in Virginia for a total purchase price of $67 million, which was completed on July 1st at an attractive EBITDA multiple and accretive to earnings. We believe the deployment of capital on these opportunities adds substantial value to our shareholders. Turning next to an update on our reactivation activities, as we disclosed in the first quarter, we entered into an agreement with ICE to resume operations at the Dilley Immigration Processing Center in Dilley, Texas, a 2400-bed facility originally constructed in 2014 to provide a safe and secure environment appropriate for family populations. Before resuming operations in the first quarter, this facility, which we leased from Target Hospitality, had been idle since August of 2024. We began receiving residence at this facility during the second quarter, and we are scheduled to complete the full reactivation by the end of the third quarter of 2025 in the first quarter we also announced we entered into a letter contract with ice to reactivate our 2,560 bed California City Immigration Processing Center effective April 1st of 2025 the letter contract provides funding to begin startup activities while we work to negotiate and execute a longer term contract as a result the process made on this reactivation we expect to receive detainees in the third quarter based on the status and negotiations with ice we also believe we will be successful in entering into a longer-term contract before the end of the third quarter effective March 1st 2025 we entered into another letter contract with ice to begin activation efforts at the 1033 bed Midwest Regional Reception Center the intake process has been delayed by a lawsuit filed by the City of Leavenworth alleging that a special use permit is required to operate the facility which we do not believe is required ice remains very intent on using the facility and we are pursuing several avenues through the course to be able to accept detainees the timing for resolution is currently uncertain. Patrick will provide further details on the progress of these activations. Looking forward, we are in advance negotiations to activate a fourth EIDL facility and have just recently begun discussions to activate a fifth EIDL facility. Although it is difficult to predict if and when government actions might be taken on these potential contracts, we are optimistic that we will be successful in obtaining contract awards to activate additional EIDL facilities, especially now that historic funding levels for border security and immigration detention have been obtained. We also provide one other legal case update that I know many of you have been following. We are pleased that the Third Circuit Court of Appeals upheld a lower court's judgment that determined that New Jersey could not block private immigration detention facilities like Elizabeth Detention Center from operating in the state. The court again found New Jersey's law unconstitutional under the Supremacy Clause of the U.S. Constitution. We strongly believe that this was the right decision. We're very proud of our long partnership with ICE at Elizabeth, and as the filings in the case made clear, Elizabeth is absolutely critical to the successful execution of ICE's national mission. Before I turn the call over to Patrick, I want to provide some details of this government funding approved by Congress under the reconciliation process, remind you of our detention bed capacity, and close my remarks on additional business opportunities. On July 4th, President Trump signed the One Big Beautiful Bill Act, a pivotal moment for funding related to our industry. This act appropriates $75 billion in mandatory funding to ICE for immigration enforcement activities and to increase detention capacity specifically the act appropriates 45 billion dollars of the 75 billion for single adult alien detention capacity and family residential center capacity which represents more than three times previous budgeted levels the remaining 30 billion of this 75 billion to ice was appropriated for among other expenditures hiring and training of new ICE agents, transportation costs for alien removals, and promoting family unity by detaining aliens that have been charged with a misdemeanor with the alien's children. This funding is a historic increase in funding provided to ICE for border security and immigration detention, which we know will further drive demand for the solutions we provide. It has been widely reported in the press that the act is intended to fund approximately 100,000 beds, an increase from $41,500 that had been funded since late 2024, which was an increase from about $34,000 generally funded, with a few exceptions, over the past 15 years. The funding under the Act will remain available through September 30, 2029 and will be in addition to base annual appropriations during that time period. We also understand that these funds will be released from the Treasury and available to ICE in the coming weeks. In addition to funding directly for ICE, the Act also appropriates $23 billion in mandatory funding to the Department of Homeland Security, or DHS, for border support activities, including $10 billion to the DHS Secretary for reimbursement of costs incurred in undertaking activities in support of DHS's mission to safeguard U.S. borders. This funding is available for use at the discretion of the DHS Secretary. The Act appropriates an additional $65 billion in mandatory funding to Customs and Border Protection, or CBP, for border control and security activities, including border infrastructure, personnel, fleet vehicles, facilities, border surveillance, and technology. Finally, the act appropriates roughly $12 billion to the Department of Justice, or DOJ, for immigration enforcement and border security related activities and programs. These funds are to be used to combat drug trafficking, prosecution of immigration matters, and hiring of immigration judges and staff to address backlogs of petitions, cases, and removals. Law enforcement activities by DHS, ICE, CBP, and DOJ often contribute to the demand and utilization of our bed capacity. On prior earnings calls, we have discussed the detention bed capacity we can make available to our federal partners to accommodate their needs. But as a reminder, we own nine idle corrections and detention facilities containing 13,400 beds including the two facilities under letter contracts that I mentioned earlier that contains 3,600 beds by adding surge capacity we have made available at certain facilities partial capacity we have in facilities that are currently in operation and capacity we can make available through 30 third party leases like our great partnership with target hospitality I have previously mentioned we have close to 30,000 beds that we have informed ice we could make available we also continue to evaluate additional opportunities for expansion that could be cost-effective and allow for greater efficiencies we know that detention beds like these represents the best value and are the most humane most efficient logistically have the highest audit compliance scores in their system are more secure weatherproof and are readily available additionally with 42 years of operating experience with ice private sector beds are the least likely to be legally challenged particularly relative to international and some other options. Before I move on let me reinforce these two points. First, the passage of the One Big Beautiful Bill has changed dramatically the activity of ICE in securing bed capacity. We did see very brisk contracting activity for detention bed capacity since the first of the year through the end of the second quarter. However, ICE didn't have enough funding for all this new capacity so they knew that they would have to get several reprogramming the funds to meet the increased utilization and even with that it was not enough funding because we knew that they were running a significant budget deficit over the last 60 days but now with the passage of the one big beautiful bill act contracting activity is running at a much faster pace and not just for capacity on July 29th I saw a very aggressive nationwide hiring program for 10,000 employees. This is very important for two reasons. One, it is another sign of the intensity of ICE behavior with the passage of the One Big Beautiful Bill Act. And two, this increase in law enforcement personnel will obviously raise the level of individuals arrested and the requirement for detention capacity. My second point is to reinforce that all of the proposed or implemented detention solutions discussed publicly soft-sided solutions at military bases or at locations like Alligator Alcatraz, capacity at Guantanamo Bay, or traditional secure capacity that historically we have provided, ICE's view of all of these offerings is an all-of-the-above approach, and not one solution is preferred over the others that are available in the near term. They have a need and funding for all of these solutions. But in addition to the superior benefits that I noted earlier in our solutions, it is important to note that ICE does not see soft-sided facilities as long-term solutions. And as you can see in these agreements that have been put in place, minimum standards and requirements have been incorporated, whereas our agreements have comprehensive requirements and mandate national detention standards that we have complied with over many, many years. Wrapping this section up, and as I previously mentioned, in addition to increasing utilization of beds under existing contracts we have experienced over the past couple quarters, and the expansion of contracts at our Ohio, Mississippi, Nevada, and Oklahoma facilities we have previously disclosed, we are in various stages of negotiation on multiple idle facilities to provide additional bed capacity to ICE. In addition to these federal opportunities, we continue to have active dialogue with several existing state partners as well as new state partners that could result in additional populations including the possible use of idle facilities we have also responded to a proposal from the Florida Department of Corrections to manage one or more facilities they own and hope to hear results of that procurement in the near future one final note on state budgeting activity state budgets are typically approved and start annually on July 1st we are pleased with the level of funding approved by state legislatures for our state contracts including prudium increases that were important for us to obtain. The increases approved across our state portfolio averaged in the mid single digits and were about double the increases that we were able to obtain last year. We are extremely grateful for the support of our state government partners. Now I'll pass a call over to Patrick Swindle for a further review of our operations activity during the second quarter. Patrick.

Thanks Damon. I'll start with a high-level overview of top-line revenue and second quarter operational performance. Federal partners, primarily Immigration and Customs Enforcement, and the U.S. Marshal Service comprise 50% of CoreCivic's total revenue in the second quarter. Revenue from our federal partners increased 11% during the second quarter of 2025 compared with the prior year quarter, including a reduction in revenue at the Dilley Immigration Processing Center, which closed in August 2024, but resumed operations in the first quarter of 2025 and continues to ramp toward full operations. Excluding the Dilley Immigration Processing Center from both years, the revenue from federal partners increased 19 percent versus the second quarter of 2024. Further breaking down our federal revenue, revenue from ICE increased 25.9 million, or 17 percent, while revenue from the U.S. Marshalls service was up 2.7 million or 3%. As Damon mentioned, we expect increases in US Marshalls populations later in 2025 and into 2026. Revenue from our state partners increased 9.9 million or 5% from the prior year quarter. These increases include additional revenue from the state of Montana resulting from two new contracts we signed with the state since the second quarter of 2024. We care for these additional populations at our Saguaro Correctional Facility in Arizona and our Tallahatchie County Correctional Facility in Mississippi. Total occupancy for our safety and community segments for the quarter was 76.8%, up 2.5 points since the year-ago quarter. Note that occupancy for the second quarter reflects the transfer of our 2,560-bed California City Immigration Processing Center from our property segment, which isn't included in these occupancy statistics to our safety segment this facility has been in our property segment because it was previously leased to the state of California at the lease expired in March 2024 we resumed operations at this facility in the second quarter of 2025 due to a letter contract signed with ice effective April 1st 2025 although we had not yet received any detainees during the second quarter therefore if we exclude this additional capacity from the calculation making more apples-to-apples comparison with prior periods a reported occupancy would have been 79.7 percent occupancy has been on an upward trajectory since early 2023 when it stood at approximately 70 percent another way to look at occupancy is the average population we manage on a daily basis the average daily population across all of the facilities we manage was 54,026 during the second quarter of 2025 compared with 51,541 in the year ago quarter this increase was driven by more demand for services and new contracting activity our teams have been very successful in working with our government partners and managing the additional people in our care which we are focused on every day and do not take for granted as Damon alluded, the second quarter was a very busy quarter with reactivation activities at several previously idle facilities. We resumed operations at the Dilley Immigration Processing Center in the first quarter under an amendment to an Intergovernmental Services Agreement or IGSA and we are on schedule to complete full activation by the end of the third quarter when we expect to generate the full fixed monthly revenue for the facility. We've activated four neighborhoods at the facility and have hired approximately 550 staff at this facility, progressing towards 640 staff when we expect all five neighborhoods to be fully activated. Effective April 1st, 2025, we entered into a letter contract with ICE to begin activation efforts at our 2,560-bed California City Immigration Processing Center. The letter contract provides funding for a six-month period to begin startup activities while we work to negotiate and execute a longer-term agreement. We have hired over 200 staff, held 10 pre-service training academies, and have invested $3.5 million in capital expenditures in preparation for receiving detainees from ICE. As a result of the progress made on this reactivation, and based on communications from ICE, we currently expect to begin receiving detainees from ICE in the third quarter under the terms of letter contract. Along with the progress we believe we have made on the negotiations with ICE, this milestone gives us confidence that we would be successful in entering into a longer-term contract before the end of the third quarter. Effective March 7th, 2025, we entered into a letter contract with ICE to begin activation efforts at our 1,033-bed Midwest Regional Reception Center. We've hired approximately 130 of the approximately 300 staff that will be needed to operate a full facility. We've also held 12 pre-service training academies and invested $3.5 million in capital expenditures in preparation for receiving detainees from ICE based on the progress we have made we are ready to begin accepting detainees at this facility under the terms of letter contract however the intake process has been delayed by the lawsuit with the city of Leavenworth that Damon mentioned ICE is eager to begin utilizing this facility and we are optimistic about successfully resolving the dispute but ICE and we will both have to wait until the disagreement is resolved in the meantime we will continue to negotiate with ICE for a longer-term contract it's previously reported on July 1st we completed the acquisition of the 736 bed farm bill detention center in Virginia and immediately began implementing the integration plan we designed during the due diligence period the facility provides transportation care and civil detention services to adult male non-citizens through an IGSA between Prince Edward County Virginia and ice which expires in March 2029 well we haven't exercised this integration muscle in several years I'm pleased with the status of the integration of systems processes and of course the team which is already substantially complete we're excited to welcome the 200 plus employees Farmville facility the core civic team and are pleased to expand our book of business with ice at such a critical location which ice is used since the facility was constructed in 2010 I would like to extend my gratitude to our activation team that has worked so diligently on all of these activations integrations along with the countless professionals executing our activation plans who reserve credit for these activities these accomplishments have only been possible due to months of pre-planning and hard work we know there is more work to be done while the activations of the Dilley California City and Midwest Regional Reception Center facilities are not done we continue to prepare for additional idle facility activations we are in advanced negotiations to activate a fourth idle facility and I've just begun discussions to activate a fifth EIDL facility. And we continue to lean forward on capital expenditures for additional facility activations, demonstrating our confidence in future contracting activity. Including the capital expenditures previously mentioned, through June 30th, we've incurred over $30 million associated with activations in new transportation vehicles and plan to spend $40 to $45 million more. With all of this activity, we remain focused on effectively managing our core portfolio. It is the stability of operations and financial results at these facilities that gives us the opportunity to grow our business. We're managing our costs prudently, making investments where we see needs. We're meeting with customers to help ensure we're meeting their needs and expectations, and we're tending to our residential populations, providing the programs and services they need to transition successfully upon their release from our care. And so as I turn it over to Dave to discuss our second quarter financial results in more detail, our capital allocation activities, and assumptions included in our updated 2025 financial guidance, I'd like to express my appreciation to our 13,000 employees for their focus and commitment to our mission. Dave?

Thank you, Patrick, and good morning, everyone. In the second quarter of 2025, we generated GAAP EPS of $0.35 per share and FFO per share of $0.58. Excluding special items, adjusted EPS in the second quarter was $0.36 compared to $0.20 in the second quarter of 2024, an increase of $0.16 per share or 80%. And normalized FFO per share was $0.59 per share compared to $0.42 per share in the prior year quarter, an increase of $0.17 per share or 40.5%. Special items for the second quarter of 2025 included $1.5 million of charges associated with our acquisition of the Farmville Detention Center reported in G&A expenses. Special items in the prior year quarter included $4.1 million of expenses associated with debt payments and refinancing transactions. Adjusted EBITDA was $103.3 million, dollars, exceeding average analyst estimates by $21 million, and compared with $83.9 million in the second quarter of 2024. The increase in adjusted EBITDA from the prior year quarter of $19.5 million resulted from higher federal and state populations, as well as higher average per diem rates across much of our portfolio, which contributed to approximately $20 million in incremental facility net operating income over the prior year quarter. The increase also resulted from the recognition of employee retention credits available under the CARES Act amounting to $8.3 million or eight cents per share including $3.2 million of interest on the on the credits. These increases were net of the financial impact of the termination of the contract with ICE at the Dilley Immigration Processing Center effective August 9, 2024. However, we began reactivating the Dilley facility during March 2025 under a new five-year agreement and accepted our first residence at this facility April 8. This facility accounted for a net decrease in facility net operating income of $11.4 million or seven cents per share from the second quarter of 2024. As Damon and Patrick both mentioned, we expect this facilities to be fully operational by the end of the third quarter of 2025 when we expect to generate revenue for the full fixed monthly payment from ICE. Other factors affecting EBITDA and per share results included higher G&A expenses and the favorable impact of our capital allocation strategy, contributing to increases in per share earnings of two cents per share through reductions in gross interest expense and common shares outstanding. We exceeded our internal forecasted adjusted EBITDA by $20.7 million and both adjusted EPS and normalized FFO per share by $0.15 per share. Even after excluding the employee retention credits, we exceeded adjusted EBITDA by $9.2 million and our per share results by $0.07, reflecting the strength of the quarter driven primarily by higher federal populations under existing contracts combined with new contracting activity. The number of ICE populations in our care followed national trends, which reached a record high at the end of June. Operating margin in our safety and community facilities combined was 26.2% in the second quarter of 2025, compared with 23.7% in the prior year quarter. Again, the increase in our operating margin was due to higher occupancy, as well as the employee retention credits, which are reflected as a reduction to operating expenses. Excluding the employee retention credits, our operating margin was 24.6%, a 90 basis point increase from the prior year quarter. Turning next to the balance sheet, during the second quarter, our Board of Directors authorized an increase to our share repurchase program by $150 million, increasing the total aggregate authorization up to $500 million. During the second quarter, we repurchased 2 million shares of our common stock at an aggregate cost of $43.2 million, increasing our year-to-date repurchases to 3.9 million shares at an aggregate cost of $81 million. Since our share repurchase program was announced in May 2022 through June 30th, we have repurchased 18.5 million shares of our stock at a total cost of $262.1 million, or an average price of $14.19 per share. As of June 30th, we had $237.9 million available under the updated board authorization. After taking into consideration these share repurchases, our leverage measured by net debt to adjusted EBITDA was 2.3 times using the trailing 12 months ended June 30th, 2025. As of June 30th, we had $130.5 million of cash on hand and an additional $216.4 million of borrowing capacity on our revolving credit facility, which had a balance of $40 million outstanding, providing us with total liquidity of $346.9 million. On July 1st, 2025, we used our existing liquidity to acquire the Farmville Detention Center, a 736-bed facility located in Virginia, for a total purchase price of $67 million. ICE has been using this facility since it was constructed in 2010. Our strong balance sheet and cash flows provide us with significant flexibility to implement our capital allocation strategy of returning capital to shareholders and to take advantage of unique tucking acquisition opportunities like this with favorable investment returns. Moving lastly to a discussion of our updated 2025 financial guidance, we expect to generate adjusted diluted EPS of $1.07 to $1.14 up from $0.83 to $0.92 in our previous guidance and normalized FFO per share of $1.99 to $2.07 up from $1.72 to $1.82. We expect adjusted EBITDA of $365 to $371 million up from $331 to $339 million. Our updated guidance reflects the favorable results for the second quarter, updated occupancy projections consistent with current trends the acquisition of the Farmville Detention Center on July 1st as well as the reactivation of the California City Immigration Processing Center based on the expectation of receiving detainee populations during the third quarter of 2025 our guidance reflects a range of assumptions pertaining to the activation of our California City facility which is still operating under terms of the letter contract there could be upside to our guidance if the timing or terms of a longer term contract at our California City facility, including the pace of receiving detainees, is more favorable than our forecast. Our guidance does not include the impact of a potential longer term contract at our 1,033 bed Midwest Regional Reception Center, as the intake process has been delayed by the lawsuit Damon and Patrick mentioned, as we have not yet completed negotiations on a long term contract. The timing of any resolution on this legal matter is difficult to predict. We have updated our guidance to reflect a reduction in facility net operating income at this facility in the second half of 2025, compared with our previous guidance, as we continue to ramp up our staffing levels and other operating expenses, which are expected to exceed the revenue available under the letter contract. There could be upside to our guidance if the litigation is resolved expeditiously. expeditiously. As a reminder, the new agreement reached in March to activate the DILIA facility provides for a fixed monthly revenue payment in accordance with a graduated schedule to correlate with the activation of each neighborhood within the facility. Our guidance reflects revenue for the full facility beginning September 2025, which is unchanged from our previous guidance. Consistent with our past practice, our guidance does not include the impact of new contract awards not previously announced because the timing of government actions on new contracts is always difficult to predict we are in advanced negotiations to activate a fourth idle facility and have just begun discussions on activating a fifth idle facility although it is difficult to predict if and when government actions might be taken on these potential contracts we are optimistic that we will be successful in obtaining contract awards to activate additional idle facilities especially now that historic funding levels for border security and immigration detention have been obtained under the One Big Beautiful Bill Act. We expect to revise our financial guidance throughout the year if and when new contracts are signed. In addition to our 2,560 bed California City Immigration Processing Center and our 1,033 bed Midwest Regional Reception Center, we own seven idle correctional and detention facilities that have 9826 available beds or a total of 13,419 available beds as of June 30th the activation of an idle facility involves hiring training and preparing the facility to accept residential populations which depending on contract structure could result in substantial startup expenses before we realize additional revenue to the extent any new contract requires the activation of an idle facility before we begin to recognize revenue our guidance could be negatively impacted by these startup expenses until the revenue we generate offsets these expenses for modeling purposes when bridging results from q2 to q3 it is important to take into consideration the 11.5 million dollars of ebitda or eight cents per share associated with the employee retention credits recognized in the second quarter further during q3 we expect to continue to increase staffing levels to prepare for the receipt of detainees under both letter contracts without a proportionate increase in revenue negatively impacted q3 by approximately six cents per share compared with q2 the negative impact of the letter contracts in q3 is more than offset in the fourth quarter by the assumption of a longer term contract at our california city facility and a continuing increase in detainee populations at that facility as well as a fully operational dilly facility We plan to spend $60 to $65 million on maintenance capital expenditures during 2025 and $9 to $10 million for other capital expenditures, both unchanged from our prior guidance. Our 2025 forecast also includes $70 to $75 million of capital expenditures associated with potential idle facility activations and for additional transportation vehicles, up $5 million from our prior guidance. during the first half of the year we spent thirty point seven million dollars on potential idle facility activations and additional transportation vehicles our guidance includes a similar level of share repurchases as we purchased during the first two quarters our share repurchases will take into consideration our stock price earnings trajectory liquidity and alternative opportunities to deploy capital our guidance does not include any additional capital expenditures beyond those mentioned that could be needed in connection with the reactivation of our idle facilities which may depend on customer needs and preferences we expect adjusted funds from operations or a FFO which we consider a proxy for our cash flow available for capital allocation decisions such as share repurchases and growth CapEx such as facility activations to range from 216 million to 227 million dollars for 2025 we expect our normalized effective tax rate to be 25% to 30% unchanged from our prior guidance. The full year EBITDA guidance in our press release provides you with our estimate of total depreciation and interest expense. And we are forecasting G&A expenses in 2025 to be approximately $160 million, excluding expenses associated with M&A transactions. I will now turn the call back to the operator to open up the lines for questions.

Thank you. if you would like to ask a question please press star on one of your telephone you'll hear an automated message advising your hand is raised we also ask that you please wait for your name and company to be announced before proceeding with your question one moment for the first question and our first question will come from the line of Joe Gomez of Noble Capital your line is open Jeff can you hear me yes we can hear you sir good morning Hey.

Okay. Good morning. Thank you. Congrats on the quarter, on the raised guidance. I did want to start with, you know, you talked about, you know, alternative solutions like the soft-sided, international, things of that nature. And I guess the kind of two-multipart question here is, you know, one, as ICE starts to look at the solution, you know, is it slowing down, you know, the process with discussions with you guys and your type of solutions? And secondly, what would be your interest in either participating in some of these soft-sided spaces or, you know, maybe just managing them if not actually constructing them?

Yeah, great question, Joe, and thank you for that and thank you for the comments. Let me start with the first part, and as I indicated on the call or in my script, I should say, the intensity has really picked up here in the last couple weeks with the passage of the One Big Beautiful Bill Act. So we obviously saw a lot of activity, as I mentioned, from kind of January through end of June. office. We've got the letter contracts. We've got the new contract at Dilley. So a lot of activity for sure, but with the funding now in place, we clearly are seeing a lot of intensity both at the national level with DHS and ICE leadership, but also seeing it play out with field offices where they're engaging us on tours, contract negotiations. As we all alluded to, we've got multiple facilities that are in some level of discussion relative to activation and final and long-term contracts. But maybe if I could, let me just step back for a minute and just give you kind of big picture how we see things and then kind of answer a second part of your question about these other alternatives. Let me just first just give you a kind of reminder for you and the rest of the folks on the call, just the demand as we see it today. So as you know, it's been reported in the press over the last 12 months, there is about 14 million people in the country illegally, about half of that amount is what we call non-detained docket or people in the immigration proceedings. So these are folks, as we understand it from eyes, it's 7.5 million that they're focusing on, especially ones that have a criminal record. And so 7.5 million, and if they've got a goal with this administration to do deportations at a clip of a million a year, that's obviously a lot of people that they're going to have to work through here in the next three, four, five years. So those are big, big numbers, and that's going to be a multi-year effort. So that would be number one, as I think about the demand. The second thing I would say about the demand is that resources obviously had to be recalibrated here in the last few months. So first of this year, most of the resources, no surprise, were focused on the southwest border. And if you look at the detention populations at that time, about 90% of all people detained in facilities at the first of the year were people that were arrested at the southwest border. That is now completely flipped. If you look at the detention population today, which is, again, about 56,000 people, about 70% of those individuals were arrested in the interior. So it's completely flipped here in the last seven, eight months. It's gotten some press on that, but I think it's important to note that ICE has been working hard along with DHS leadership to recalibrate their resources for enforcement within the interior and, again, focus on that 7.5 million people that are in immigration proceedings or maybe have removal orders. The last thing I'll just say on the demand side is that, as reported in the press, the last two or three months, basically the southwest border has been completely closed down. The apprehensions are at record lows, but we know that ICE and even Customs Border Patrol, they can recalibrate as appropriate if that changes. So that's the demand side. So now let's flip over to the supply side. Again, widely reported, and we noted some of these things in my script, there was this big, beautiful bill act, $175 billion under that act for border security. That's going to take many different personnel levels within the federal government to higher levels. It's obviously going to put a lot of resources in place, but I guess a couple of things I'd point to of note, one of which is there's 6,000 frontline officers, law enforcement officers on ICE today. they want to take up to 16,000. So 6,000 is 16,000. So that would be a lot more people that will be able to do these enforcement actions within the United States. Secondly, there's a lot of resources for Custom Border Patrol. I touched on that in my script. A lot of resources for immigration judges and courts. A lot of resources for technology, especially on the southwest border, vehicles, et cetera, et cetera. So they're clearly doing a ton of investment, what I'd say kind of on the front of the funnel to get the ability to have more enforcement efforts around the United States. But coming back to us and then going back to your second part of your question, if you look at just the dollars that were appropriated for detention capacity, so again, in my script, it's been widely reported, that's about $45 billion. That's just for detention. If you take that over the next four to five years and layer that on top of the $3.5 billion that's been appropriated the last couple of years for ICE detention. At round numbers, that's about $13.5 billion on annual basis over the next four to five years. And if you take their per day average, ICE's average per day for detention beds in the United States, which is about $165, that's about 200,000 beds that they could purchase either from the private sector, from state and local governments, or other offers that they have and who've made solutions available to them. But 200,000 beds is the capability if you look at just purely from a dollar's perspective. And so to answer your question, you know, we've got the 30,000 beds that we've offered to ICE. Those are in the facilities that we've talked about, and Dave noted that I'm not going to buy the 13,400 in vacant facilities. But we've also got surge capacity that we've made available in our facilities that are currently operational but where we've reconfigured the operational capacity where we've added some beds. The third is where we've added some partial capacity in places where we've got maybe lower Oxy where we can provide solutions for ice and it's already taken place in places like Nevada and Oklahoma. And then finally the third party leases through Target, you know, we've got either opportunities with, you know, a vendor like them where they could do a completely new activation or do an expansion and an example expansion would be at our Dilley facility which we've talked previously that's got a lot of capabilities for expansions so we've got 30,000 beds available today some of this is already under contract or letter contracts with like Cal City and Midwest but also a lot of other capabilities to provide capacity in a very short term so to your last part of your question if that comes through a solution with a state government or is that a solution that we do on a military base we're all all the above are very interested we've got the capabilities obviously we've been working with state governments for almost 42 years we've been in constant conversations with them as I think kind of the for the federal government and as you're seeing there is some interest from states to partner so we think there's a great kind of win-win where we could partner with someone like that to provide these these solutions so let me tag team a little bit see Patrick anything you'd add to that?

Thank you, Damon. The only thing that I would add is I think it's really important to look at prioritization of the different solutions or alternatives that ICE is considering. And as you can imagine, as they shifted from the border to interior enforcement, there are gaps that present across the country. And so you may see, for example, a private sector solution like our California City facility contracted for. You might see a state solution like it's presented in Florida or a military-based solution like it's presented with four textualized all those because in the beginning, ICE is ensuring that it has the capacity that needs and specific. It doesn't mean necessarily that it would displace a private sector. It may be a function of timing and location. We continue to believe that capacity.

Thank you for that, Patrick. I mean, that's a really important point. Again, you go back to the dollars. They've got the funding capability to go to 200,000 beds today, and their current population is 56,000. So they really, to Patrick's point, have opportunities to say, okay, where's the near-term need and demand at, and then look at the alternatives they've got in those various locations. So I think that's an important point. And lastly, I'll just say, you think about our financial performance today, you think about our guidance for the rest of the year, that just assumes, obviously, South Texas, which we've announced is part of our guidance, but also Cal City, and also a couple of smaller contracts where they've had increased utilization, our financial performance, which has been pretty significant this year, only incorporates really kind of a very small part of the opportunity that's going to be, I think, near term for us as we go into this year, into 2026.

Great. Thanks for that. And then you brought up the non-detained docket, so, you know, how many people are there. So I'll switch gears for a second. You know, it's common knowledge the ISAP contract is coming up for renewal here. You know, your competitor's got an extension on it for right now. They're hoping to get at least a six-month to a year on it, but I think after that it would come up for rebid. One, is that something you'd be interested in? Two, you know, kind of capabilities, you know, do you have for that? Do you think, given the potential size we're talking about here, you know, Again, the $7 million non-detained docket, is this something maybe, in your view, ICE would look into split into multiple contracts out there like they do on the detention side, given that the past high here was, you know, roughly 375,000 people?

Yeah, great, great question. and let me first just say, and I think we've been pretty consistent on this, is that really in the days since the election, the message has been pretty darn clear from the administration, DHS leadership, and ICE leadership that detention's going to be the priority. So we've been working around the clock, really almost for a year, on getting ourselves ready with capital improvements to facilities that are currently either personally utilized or completely vacant, leaning forward on buying buses and vans for transportation needs, making sure that we've got strong pipelines for the labor that we'll need for these activations or additional staff will need for facilities that go up to a hierarchy. So detention has been the priority. It's been made clear to us from, again, from leadership, administration, DHS, and ICE. And so, again, that's what we've been focusing on. Having said that, obviously, we've been watching to see what's going on with the ISUP contract. Obviously, we heard some of the comments from GEO's leadership yesterday on their call, and we are interested. And so we're going to watch closely what plays out relative to their extension and then the RFP once it comes out, which I guess could be later this year or maybe early next year. But to answer the second part of your question, we absolutely have got the capability, especially, and I think this came out a little bit yesterday on the GEO call, if they go to more of an active monitoring solution, I mean, that is right on our wheelhouse. Our community division has been doing those types of solutions for nearly 30 years with jurisdictions all over the country. So we clearly have got that capability and competency, and also we've got the leadership, and also we've got the financial worth on the technology to scale up. So we're monitoring very closely. We'd be interested, But I'll say, again, we know right now in this moment the tension is the priority, and that's been our focus since the first of this year, late last year.

And one more for me, and I'll pass it on. The Midwest facility, and, you know, unfortunately we're kind of the loggerheads here right now, hopefully it gets dissolved quickly. But given its location and ICE's interest in it, you know, are there other potential facilities in that location that ICE, if this continued to drag along, could decide to move their interest to?

I would say, I mean, ICE has always been very interested. I say always. Recently, in the last couple of years, they've been very interested in this facility. I mean, for all the points you just made, the location is ideal. It's near a major metropolitan airport. It's close to I-70. So from a transportation perspective, it's very good location-wise. But I'm confident, obviously, I don't want to speak to any kind of pending legal matters. You heard what we said in our script, so I really can't add more than that. But I'm confident we're going to get through a resolution on this near term, and that facility will be made available to ICE.

Thanks for taking my questions, and I'll pass it on. Yes, sir.

Thank you. One moment for the next question. And our next question will be coming from the line of Jason Weaver of Jones Trading. Your line is open.

Hi, guys. It was great to see the updated guidance. You know, as you're well on your way to activating these new facilities, are you seeing any efficiency gains in the expected timeline to staff and get everything new prepared for intake? I know Dilley's a unique case here, but just overall?

This is Patrick. I guess the way I would answer that is we started preparing for activations in the fourth quarter of last year. And the timeline, as we talked about, being somewhat funding-driven has given us a window in the first half of 2025 to really invest resources in making sure that our facilities are positioned to activate quickly. So we've had strong visibility on where the initial demand would manifest, and we've made preemptive investments to make sure that we can meet that demand as quickly as possible. And so I think because of the preparation work that we did, it really has made the act in Midwest, at Cal City, and in South Texas very similar.

And then I believe we touched on it in the past, but do you have any new visibility into or have you had any incremental discussion regarding the Pecos, Texas facility that was formerly managed by HHS?

Nothing new to report. Obviously, we're, again, monitoring kind of more globally what the needs are there in the southwest border and kind of recalibration of where the needs are based on kind of enforcement actions there. And, again, the focus more on the interior versus the southwest border. So, again, we're well aware of that facility and its capabilities and then continue to kind of monitor based on what the needs are for mice in that moment of time in that part of the country.

Got it. And just one more. I think you might have mentioned in your prepared remarks, but just to clarify, Farmville, can you talk about the timing of that when you expect that incremental $40 million revenue run rate?

Yeah, I can take that one. So, immediately. So, we closed on a July 1st. It was a $40 million annual revenue. And so, it was a contract in place, so I would expect approximately $20 million for the second half of the year. Got it.

Fair enough. Thanks a lot, Guy.

Thank you.

Thank you. One moment for the next question, please. And the next question will come from the line of M. Moran of Zax. Your line is open.

Thank you. So, I have a couple of questions. You know, we've touched upon both of the topics that I'd sort of like to get a little bit more color on. You know, given what you've said, ICE is extremely, you know, well-funded at the moment and has significant need. You have a strong relationship, you know, with ICE and a long-term relationship, and you have, you know, significant ongoing discussions. All that said, we still hear, you know, in the news, as you mentioned, alligator, Alcatraz and other solutions. Can you give us a little bit more color on, you know, what you see as the possible advantages of core civic facilities compared to some of these other solutions we're hearing about.

Absolutely. So, tag team on this one also, but I appreciate your question. So, again, as I said in my script, you think about our facilities, they're very secure, made with hardened construction. They have been tested by ICE or INS for the last 40 years. They have got the most superior Audis Accords versus any alternative they've ever had in the United States, even more recent solutions that you just noted. They've got great capabilities. So many of our facilities have courtrooms and other solutions on site to make the mission a lot more efficient. And they're extremely cost effective. I mean, you look at our per-day rates versus some of these alternatives that were recently procured. I mean, they're dozens if not hundreds of dollars cheaper for us versus the other alternatives. So a lot more cost effective. The other thing that we're watching closely on some of these other solutions, as you mentioned, like Alligator Alcatraz, what we're seeing once these contracts are in place, they've got really minimum standards, both for the operation facility but also for the staff. And what we're hearing kind of back channel is that they kind of see these solutions at very short term, that there is, as Patrick said, there may be a very unique and a short period of time in a third part of the country, and these facilities can be rapidly deployed, but they don't want to do a huge investment, both on not only the physical asset, but also the standards and requirements, some of the infrastructure, and also the personnel. And so flip it back to us, you know, our solutions and the contracts that we've had, like DILI and some of the others that we've been working on the last couple of months, like Cal City and Midwest, they're going to have a comprehensive set of terms and conditions and requirements. They're going to have all the newest detention standards and requirements, again, that we've been doing for decades and we can comply with very easily and quickly, and then also they're going to have the highest standards from a personnel perspective. And so I think the better way to say it or kind of think about this is that not only are facilities more cost effective and have all these other benefits, but I think they ACDR facilities is now a more secure, but also a longer term solution, more permanent solution versus these others where we're here and privately, they could be only for six to 12 months. I don't know anything you add to that, Patrick.

Yeah, the only thing that I would add is, I think, again, this goes back to my comments earlier, which is, I think ICE is in the process at this moment of identifying where it has the greatest geographic needs. And so that might be a focus on an area of the country where you have significant needs for internal, But there isn't, so you can't pick. I look at the problem.

Thank you. Okay, so that sort of segues into my next question, which is about occupancies. And you talked in your prepared remarks about how occupancy is on an upward trajectory. I think you gained about 200 basis points year over year in the second quarter. So just, I went back and I looked at some of your, you know, metrics prior to the pandemic, and it looked like at one point, and this might not be the high, but it looked like occupancy was close to 87%. I'm wondering, you know, what you see as your potential runway here.

Yeah, and this is Dave. Yeah, absolutely. We've got a lot of runway on occupancy. We do include our idle bed capacity in our occupancy statistics. So even as we activate those idle facilities, that's going to improve our occupancy statistics dramatically. That obviously has a big impact on our margins, although I'd say the margin improvement is more impacted by higher utilization at existing facilities. But getting back to occupancy, as we fill idle capacity and provide other bed capacity available to ICE and the U.S. Marshall Service as we get into later 2025 and into 2026. Certainly we could see high 80s in the relatively short term. It is not the high. I think the high I've been with the company since 2001, and I think we were in the mid-90s back then. So we certainly have the capability to go higher.

And only I've got to add to that is that, again, going back to you know, pre-COVID, yeah, 87% sounds right. Again, we had several vacant facilities, I think, in that period of time, but it's crystal clear to us that ICE is interested in every single bed that we've got in the enterprise. So today's point, and going back to, you know, pre-COVID, 87%, but sitting here today, knowing what we know and know what the demand is, and also knowing what the financial capability of ICE, I think every single bed that we've got in our enterprise is very attractive eye for multiple reasons.

Okay. Thank you very much.

Thank you.

One moment for the next question. And our next question is coming from the line of Ben Briggs of StoneX Financial. Your line is open.

Hey, guys. Congratulations on the quarter and the guidance. And thank you for taking the call. Thanks, Ben. Yeah. So a couple of things. First of all, and maybe I missed this, I know you said you've got 30,000 idle beds. If those were to get activated theoretically immediately, can you put some number on the revenue potential for that? I'm not sure if you already gave it or if I missed it.

Yeah, I'll let Dave tackle that one.

Yeah, we did not. But if you took the $165 per diem that Damon mentioned, that's kind of the average across the country for ice beds and apply that to the 30,000 beds, you're at $1.8 billion of incremental revenue. And again, not all of that is capacity in our portfolio today. As Damon mentioned, some of that's relationships with other parties to lease facilities. But I think we've said if you activated all of our idle 13,419 beds, we get around $500 million in annual revenue, and that would translate around $200 to $225 million in incremental EBITDA.

Okay, got it. So $500,200 to $225 of additional EBITDA. got it thank you i appreciate that um and then next thing for me uh so you were talking a little about how a lot of the um the apprehensions are no longer happening on borders but they're now happening in the interior um and obviously there are detention facilities located around the country um and people have to get transported from you know where they're detained to those bench facilities. Can you talk a little bit about what your transportation capabilities are and how they might be expanding and any opportunities that you guys see there?

Yeah, great question and tag team with Dave and Patrick on that. But let me just say at a high level, as I mentioned earlier, I guess it was probably October, November of last year, we started leaning way far forward on buying vans and buses because the clear message was, I said earlier was detention but the second message was we need real help on transportation too so we started leaning pretty far forward on getting ourselves in the queue for the purchase of vans and buses that were being constructed to different manufacturers around around the country so we have seen a dramatic increase in the use of our transportation assets around around the country and you know last thing I'll say before I give it over to Patrick is is that we've gotten ourselves capability-wise where if someone is being arrested in a certain geographical location where we don't necessarily have a detention facility, we are positioning assets around the country where we can quickly go ahead and pick them up from a local jail or a local facility and then move them to one of our facilities, and so that's worked out pretty well. And that's the capability and competency that we've had for, gosh, over 30 years, but Patrick, what would you add to that?

Yeah, I just had a couple things. So, obviously, our transport operation supports our ICE and Marshall transport network, obviously, key focus runners. This year, the investment that we're making in vehicles is over five times.

Got it. What percentage, I'm not sure if you disclose this, what percentage of, call it, I guess, LTM or 2024 revenue is transport?

Well, most of our transportation revenue is kind of intercompany. So we do a lot of the transportation among our own facilities. I don't have the breakout of – but we do do mass moves for certain states like Hawaii, Vermont, et cetera. So that is third-party revenue that shows up in our financial statements as incremental revenue. But a lot of our transportation, it comes in various forms. So we have some fixed – some of our contracts have fixed monthly amounts that they pay us for to provide a minimum number of miles of transportation. and then other contracts will get paid on a per-mile basis. So I don't have our third-party transportation revenue is not a material number, but most of the transportation revenue that we really generate is through the management contracts where it's eliminated in intercompany but is kind of like embedded in the per diem.

Understood. Got it. So it's kind of baked into the rest of the content. That's right. Got it. Well, this has been very helpful. Again, thank you, guys, and congratulations. And I look forward to talking to you soon.

Thank you so much.

Thank you. One moment for the next question. The next question I have is coming from the line of Mason Bourne of AWH Capital. Your line is open.

Hi, guys. Thanks for the question. More a point of clarification. But I just wanted to ask about the reported beds from ICE. And so I think the current level, like you mentioned, is about 57,000. At the beginning of the year, it was pretty easy to see where those beds were occupied by facility. And more recently, that gap has really widened. And so I think most recently, I'm kind of calling them phantom beds. It's about 15,000 of the 56,000 are not broken out by facility. It seems like you're capturing them given your financial results, but just hope you could talk about that if that's a reporting issue, if it's just due to the activity or what you might think might be going on there.

Yeah, I appreciate your question. I'm not sure I've got an answer for you, but, yeah, again, to go to the high-level number, I'm looking at the most recent report. Yeah, it's $56,945 that ICE reported. Again, that was on July 27th. And, you know, as of yesterday, I think we were at about 13,500 within our facilities. But I don't know if you had anything to add to that, Patrick.

I don't. No, but we do track where growth is occurring really by facility nationally. And so we're certainly willing to share with you our approach for gathering that data if you want to touch base with us.

One other quick one. I appreciate your conservatism and the guidance. I just want to make sure that I understand it right. So I think it's not very well understood between you and your main public competitor, but you're basically at or above all of your contractual minimums, So as you capture an incremental bet, you're getting the incremental economics of that, which I think maybe isn't necessarily the case with your competitors. Is that fair?

Yeah, it absolutely is fair. I would say, oh gosh, I'd say during the pandemic we were below some of the fixed monthly guarantees, but nowadays we have a couple contracts that can bounce around that level. But for the most part, yes, every incremental detainee is contributing to additional revenue. Good question. Thank you.

You're welcome. Thank you. One moment for the next question. And the next question is coming from the line of Jay McCandless of Woodbush. Your line is open.

Good morning, everyone. The first question, and apologies, is a pretty basic modeling question, but if you look at the 66,100 beds that were in safety at the end of the quarter, does that include both Dilley and Cal City, or are those going to get included later in the year?

It now includes both Dilley and Cal City. That's correct.

Okay. And then, so when Farm Bill comes on, that's an immediate add of 736 for that number. I believe that facility was full when you all bought it, correct?

Yes, definitely will come into that number in the third quarter, and it was about full. I had some capacity. It wasn't completely full, but high occupancy. Pretty darn close.

All right. Thank you for that. And then, David, I want to go back to what you said about occupancy potentially getting into the mid-80s. Is that something that happens this year? Is that more of a 26 type of probability? Just maybe give us some guideposts for that.

Yeah, I think even if we're activating facilities like we talked about, Cal City, in our guidance because we think we could accept detainees in the coming days and weeks, it will take some time to ramp those up. So I think that's really a 2026 before we get to the mid-80s. But certainly, I mean, we're already in the high 70s. We could be low 80s by the end of the year, depending on our ability to sign new contracts. I think if you exclude any new contracts, we're probably going to still be in the upper 70s, maybe low 80s. But as we expect these new contracts to come online, we'll ramp up to the mid-80s.

Yeah, great. And then just the last question, you all referenced some, I think it was $10 billion in border funds that was allocated to DHS. Are there any revenue opportunities for Civic inside that pool of money?

Well, yeah, so the $10 billion, this is Damon, the $10 billion I was referring to, yeah, that's the dollars of the total $175 billion for border security under the big, beautiful bill act that's for detention. So absolutely, that's the money. So, again, $10 billion, and, again, that's on top of the $3.5 billion that's in the base appropriation that Congress does on an annual basis. So, you add those two numbers together, that's $13.5 billion on an annual basis. And, again, this money is multi-year money that goes through 2029. So, that is going to be the money that ICE is going to look to fund existing capacity, but also new capacity they get under contract in the coming days and weeks. And that's theoretically... Of the 40 billion. Exactly right. Carving it out by year. That's exactly right. So that's a good clarification. So, yeah, that's prorated. So, again, 40 billion. We're saying 40 billion. It's actually 45. There's going to be some money, as we understand it, to fix a couple deficits here and there within DHS. But, yeah, 40 billion is probably a good number for the next, you know, four-plus years on top of the three-and-a-half that they get from Congress on an annual basis. Right.

And so, I mean, you know, since the letter contracts, something y'all have been receiving this year, there's potential if they wanted to do something with that, they could, with that $10 billion per year, issue some new letter contracts, potential revenue opportunities for CoreCivic down the road. Is that the right way to think about it?

Pretty darn close. One thing I would say is that the letter contracts that we got, again, Cal City and Midwest, that was during earlier this year, and the way we thought about those agreements is they were basically a bridge to help with activation activities, but also get on the other side of the big, beautiful Bill Act. We think now, now that that has been passed, and as we said earlier, we think in probably by the end of August, the actual dollars will be transferred to accounts within DHS. We think now they're going to go straight into direct contracts or IGAs with us. They're not going to use letter contracts because now they've got the funding. They don't need a bridge. They don't need to wait for kind of funding as they were earlier this year. So we think it's going to not only accelerate contracting activity, but also they're going to go straight into agreements and not do these letter agreements.

That's great. Appreciate it.

Yes, sir. Thank you. One moment for the next question. Our next question is coming from the line of Greg Gibbous of Northland Securities. Your line is open.

Hey, thanks for taking the questions, guys. Congrats on the quarter. You mentioned expectations for U.S. Marshall Service population growth towards the end of 2025 into 2026. What, I guess, are you hearing that supports those expectations, and what facilities in the portfolio are maybe best positioned to meet their needs, you know, kind of based on what they're looking for from a regional capacity perspective?

Yeah, great question. The first part is that just history indicates that will happen. So if you look over the last, you know, 10, 15 years when you have, you know, a new administration, It usually takes a year, maybe 18 months, maybe a little longer for every individual U.S. attorney that is needed in different court districts around the country to get nominated and get through the process through the Senate. And, again, there's probably about 94 U.S. attorneys around the country. So, again, that's going to take a while. Once those U.S. attorneys get in place in different court districts around the country, then, obviously, they can start implementing the direction from the administration from relative to focus on prosecutions and certain crimes and offenses. And so history indicates that once that happens and these people get in place, they build their staff, they're getting direction from kind of behavior and prioritization relative to prosecutions in certain parts of the country, you'll start to see an increase in the federal prisoner population for the marshal service. And so we're already seeing that a little bit, but once I think they get fully staffed and get through all these nominations, you'll see an increase pretty dramatically. I don't know anything you add to that, Patrick.

The only thing I would add is that obviously in addition to the staffing changes, there are enforcement changes that combination of the appointment of the U.S. attorneys combined with a shift in enforcement priorities towards, in terms of magnitude of demand, initially I would expect that would be additional utilization of existing contracts in existing facilities more than it would be.

And to the second part of your question, I think we've got really good opportunities in Arizona, Oklahoma, potentially Mississippi, and New Mexico, all those states. We have facilities in those states with existing U.S. Marshals contracts that have capacity.

Sure. Very helpful. And I guess simply because I don't think it was asked yet, are you able to provide any color or is there anything you can share on the fourth and fifth idle facility discussions and maybe more particularly the fourth that you're in advanced discussions for?

Nothing more than we shared already. Yeah, we're having discussions, but not at a point yet to reveal. Obviously, we're going to get a little further down the road with ICE on those discussions.

Fair enough. And I guess lastly, you know, just as we think about kind of quarterly cadence, you know, as Cal City begins intake this quarter, Dilley ramps to full occupancy by the end of this quarter. You know, do you kind of see Q4 as a fair run rate of maybe the currently contracted facilities going forward, you know, obviously with the exclusion of Midwest Regional?

Yeah, we do. Yeah, I'd say if you look at Q4 on a run rate basis, you're probably no less than $400 million in EBITDA on an annual basis, and that does not include any of the additional contracts like the fourth and fifth idle facilities we just mentioned that we're in discussions with. One is in the advanced stages of discussions. One's kind of in the earlier stages, and that's just two of them. And, you know, we've got additional opportunities after that. So, as we look, obviously, we're not putting out guidance for 2026, but as we look out to 2026, based on the book of business that we have in 2025, and as these contracts ramp up, and some of them will be fully ramped, like Dilley in Q4, we don't see, well, we see a minimum EBITDA of $400 million going into $26 million without new contracts. Right. Thanks very much.

Thank you. One moment for the next question. And the next question comes from the line of Raj Shama of Texas Capital. Your line is open.

Yes, thank you for taking my questions. Congratulations on a solid quarter and raised guidance. My first question is can we go back to the electronic monitoring business? If you could comment on what you think the cadence of it is, you know, does the supervision sort of monitoring business, does it stay at current levels here, as your competitor has indicated? And then, you know, when should it pick back up once detention sort of goals are reached? And my question really is that if ICE levels of ISEP go back to $375,000, you know, and you're up for a contract, you know, in six months or a year, how much of that business are you ready to take, get? what is the capacity of how much you can handle in the electronic monitoring and supervision?

Yeah, thank you so much. I appreciate that question. And again, I'll just reinforce, I mean, the laser focus from DHS, ICES leadership, administration, is detention. And again, as I said earlier, I mean, we're working, you know, 24-7 on to accommodate that. And again, you look at our Oxy today, we've got a lot of runway to help support that prioritization of using detention capacity. So I won't rehash that, but obviously that's our focus. And so to answer your question, yeah, I think we would agree with GEO. Connor, our view is that the current program and its size is probably where it's going to be for the foreseeable future. Again, we're going to watch closely on kind of the timing of RFP. As GEO said yesterday, they've got the one-month extension through August. They're waiting to see if they do a six or 12-month extension after that to allow time for or RFP, and again, as I said earlier, we've got the competency and the capability, and also, if they kind of shift more to active monitoring, which is the ankle bracelet, GPS type solution, we've been doing that for 30 plus years, so we've definitely got, you know, we check all the boxes relative to our ability and being very competitive in that procurement, but anything you'd add to that, Patrick?

Yeah, only thing that I would add is that I think it's really important to contextualize the program overall, which is, it isn't a singular service. It's a program that's actually evolved over time based on the needs of ICE and the type of monitoring that might be required during a particular period, and those priorities may shift. And so clearly the prioritization is around detention services through the end of the year. That is very clear. I think the question beyond that, and it really goes back to Damon's answer earlier to one of the questions, which is the funding that's available under the One Big Beautiful Bill Act is actually in excess of the 100,000 beds that gets talked about a lot right now is a targeted bed number. And I think really to think about what the world looks like in six months or 12 months of being different than today is somewhat. Obviously, this is a program that we've looked at for some time as an alternative. I think we've positioned ourselves well. The current level and capabilities that we think were, again, in the short run.

Thank you. That's really helpful. And then my next question is on the contribution of EBITDA from the reactivated facilities. How much, you know, what's the current contribution from reactivated facilities right now in your EBITDA number? And when would you, when you think you'd reach mature margin profile on these facilities that we can, I know that David has talked about the potential add-on in EBITDA once they turn on fully. Could you talk about that, please?

So, first of all, we typically don't parse the economics of our individual contracts from a contribution perspective. And so I know that's something that would be helpful from an external modeling perspective, but it's something that we typically don't do and have not done. And we've talked about what the contribution could be from a revenue perspective around our new contracts. From a timeline standpoint, we do expect our South Texas facility will hit normalized run rate for the fourth quarter. So you would expect that facility would be fully contributing and fully ramped in the fourth quarter. You would expect our Cal City facility would be ramping up and achieving normalized run rate at some point during the fourth quarter. And as Dave said during his most recent question, we would expect our run rate would be north of $400 million as we exit this year. And obviously you can look at the puts and takes that have contributed to our outperformance this year. But, again, we typically don't.

Got it. Thank you for taking my questions. I'll take it offline. Thanks a lot. Congratulations, Gary.

One moment for the next question. And the next question is coming from the line of Jordan.

Hemowitz of Philadelphia Financial Management of San Francisco please go ahead thanks guys a couple questions um the last time your occupancy was above 80% could you remind us of the EBITDA margins and would it actually be higher than that now given the ice mix is a little higher profit margin of the federal more specifically than the state I would say we were around 25% if I to recall correctly, I have to go back and check to confirm for sure, but I think we are on 25%, 26% total operating margin.

That's across the whole portfolio. So, again, as we've mentioned, in a portfolio of our size, you have some better margins and some worse margins, but that's the average across the portfolio. I wouldn't say our margin profile would change materially, just with an increase in ICE business. I think they're consistent with the overall margin profile of the safety segment. So I'd expect us, as we increase occupancy, to approach and perhaps exceed that 25% margin again just because of higher occupancy, not necessarily because of the specific customer.

Second question. Could you remind people, you bid on the ISAP contract last time, and I believe you were the lower bidder and did it win the contract. Do you see this administration possibly ignoring the lower bid, if that was the case again?

Yeah, it's hard to say to get into the heads of people that evaluate the proposals through a procurement process. So it would be really kind of hard to answer that question. So, again, we're waiting to see when the procurement comes out. Again, GEO said it could be a six-month or 12-month extension that they get after this current extension in August. and then we'll have to evaluate when it comes out and see if they've got any kind of new requirements. And also with that, to your question about kind of weighting of price, if that changes how they consider the overall arching kind of cost of the contract with the proposal from us and the overall arching kind of scoring of the proposal.

Okay, and final question is, do you see yourself initiating a dividend in 26 given the increased cash flow and buyback already ongoing?

Not at the current prices, no. at the current stock price.

Okay, thank you.

You're welcome. Thank you for your question.

Thank you. That does conclude today's Q&A session. I would like to go ahead and turn the call back over to Damian Heininger for closing remarks. Please go ahead.

Thank you so very much. And thank you so much for your interest in the company. I know we went a little over, but obviously we had a lot to talk about. On behalf of the team here in the room and throughout the organization, We're deeply grateful for your interest in the company, but more importantly, your support and investment in our company. We have had a tremendous, tremendous first half of 2025, as you see from the financial performance, but also the forecast for this year, we're going to have a very strong year as we end 2025 and go into 2026. So we look forward to talking to you at our next call in early fall. Thank you so much.

This does conclude today's conference call. You may all disconnect.