CoreCivic, Inc. Q2 FY2025 Earnings Call

Good day, and thank you for joining us. Welcome to CoreCivic's Second Quarter 2025 Earnings Call. Please note that today's conference is being recorded. I will now hand the call over to David Gutierrez. You may begin.

Thank you, operator. Good morning, everyone, and welcome to CoreCivic's Second Quarter 2025 Earnings Call. Participating on today's call are Damon Hininger, CoreCivic's Chief Executive Officer; Patrick Swindle, CoreCivic's President and Chief Operating Officer; and David Garfinkle, our Chief Financial Officer. We also are joined here in the room by our Vice President of Finance, Brian Hammonds. 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 GAAP 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 Hininger.

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 opening 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 related 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 Garfinkle, 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 population from the United States Marshals 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%, driven most notably by 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 EBITDA 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 $0.07 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 occupancy 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 a definitive agreement to acquire the Farmville Detention Center located in Virginia for a total purchase price of $67 million, which was completed on July 1 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 2,400-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 has been idle since August of 2024. We began receiving residents at this facility during the second quarter and we are on schedule 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 1, 2025. The Letter Contract provides funding to begin startup activities while we work to negotiate and execute a longer-term contract. As a result of the progress made on this reactivation, we expect to receive detainees in the third quarter. Based on the status of 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 1, 2025, we entered into another Letter Contract with ICE to begin activation efforts at the 1,033-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 advanced negotiations to activate a fourth idle facility and have just recently begun discussions to activate 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 obtaining contract awards to activate additional idle facilities especially now that historic funding levels for border security and immigration detention have been obtained. Let me 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 may 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 4, 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 of the $75 billion for single adult alien detention capacity and family residential center capacity represents more than three times previous budgeted levels. The remaining $30 billion of the $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 well 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 preparations 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 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 appropriated 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 9 idled corrections and detention facilities containing 13,400 beds, including the 2 facilities under Letter Contracts that I mentioned earlier that contained 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 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 to 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 represent the best value and are the most humane, most efficient logistically have the highest audit-compliant 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 and 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 reprogrammings of 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, while on July 29, ICE launched 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 secured capacity that historically we have provided. ICE's view of all of these offerings is an all-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 could 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 of 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 idled 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 the idled 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 1. We are pleased with the level of funding approved by state legislatures for our state contracts, including per diem increases that were important for us to obtain. The increase has 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 the call over to Patrick Swindle for a further review of our operations activity during the second quarter.

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 in the U.S. Marshals Service comprised 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 that resumed operations in the first quarter of 2025 and continues to ramp towards full operations. Excluding the Dilley Immigration Processing Center from both years, our revenue from federal partners increased 19% versus the second quarter of 2024. Further breaking down our federal revenue. Revenue from ICE increased $25.9 million or 17%, while revenue from the U.S. Marshals Service was up $2.7 million or 3%. As Damon mentioned, we expect increases in U.S. Marshals 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 1, 2025, although we have not yet received any detainees during the second quarter. Therefore, if we exclude this additional capacity from the calculation, making a more apples-to-apples comparison with prior periods, our reported occupancy would have been 79.7%. Occupancy has been on an upward trajectory since early 2023 when it stood at approximately 70%. 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 our 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 idled 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, and we expect all five neighborhoods to be fully activated. Effective April 1, 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 start-up activities while we work to negotiate and execute a longer-term agreement. We've 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 upon communications from ICE, we currently expect to begin receiving detainees from ICE in the third quarter under the terms of the Letter Contract. Along with the progress we believe we have made on the negotiations with ICE, this milestone gives us confidence that we will be successful in entering a longer-term contract before the end of the third quarter. Effective March 7, 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 the 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. As previously reported, on July 1, we completed the acquisition of the 736-bed Farmville 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 noncitizens through an IGSA between Prince Edward County, Virginia and ICE, which expires in March 2029. While 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 are excited to welcome the 200-plus employees at the Farmville Facility to the CoreCivic team and are pleased to expand our book of business with ICE at such a critical location, which ICE has 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 and integrations, along with the countless professionals executing our activation plans to reserve credit for these activities. These accomplishments have only been possible due to months of preplanning 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 have just begun discussions to activate the fifth idle 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 30, we've incurred over $30 million associated with activations and new transportation vehicles and plan to spend $40 million to $45 million or more. With all of this activity, we remain focused on effectively managing our core portfolio. It is the stability of operations and financial results of 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 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.

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, which is an increase of $0.16 per share or 80% compared to $0.20 in the second quarter of 2024. Normalized FFO per share increased to $0.59 from $0.42 per share in the prior year quarter, up $0.17 or 40.5%. Special items for this quarter included $1.5 million of charges related to our acquisition of the Farmville Detention Center, reported in G&A expenses, and the prior year quarter included $4.1 million of expenses related to debt payments and refinancing transactions. Adjusted EBITDA was $103.3 million, exceeding analyst estimates by $21 million, compared to $83.9 million in the second quarter of 2024. The $19.5 million increase in adjusted EBITDA was driven by higher federal and state populations and higher average per diem rates, contributing approximately $20 million in incremental facility net operating income over the prior year quarter. We also benefited from employee retention credits under the CARES Act, amounting to $8.3 million or $0.08 per share, which included $3.2 million in interest. These increases were partially offset by the financial impact of terminating our contract with ICE at the Dilley Immigration Processing Center, effective August 9, 2024. We began reactivating the Dilley facility in March 2025 under a new 5-year agreement, accepting our first residents on April 8. This facility accounted for a net decrease in facility net operating income of $11.4 million or $0.07 per share compared to the second quarter of 2024. As mentioned by Damon and Patrick, we expect this facility to be fully operational by the end of the third quarter of 2025, when we anticipate generating revenue from ICE. Other factors influencing EBITDA and per share results included higher G&A expenses and the positive impact of our capital allocation strategy, which contributed to an increase of $0.02 in per share earnings through reductions in gross interest expense and common shares outstanding. We exceeded our internal adjusted EBITDA forecast by $20.7 million and adjusted EPS and normalized FFO per share by $0.15 per share. Even after excluding employee retention credits, we still exceeded adjusted EBITDA by $9.2 million and our per share results by $0.07, reflecting a strong quarter driven by higher federal populations under existing contracts and new contracting activity. The number of ICE populations in our care followed national trends, reaching a record high at the end of June. The operating margin in our safety and community facilities combined was 26.2% in the second quarter of 2025, up from 23.7% in the prior year quarter. This increase was due to higher occupancy and the employee retention credits, which appeared as a reduction in operating expenses. Excluding these credits, our operating margin was 24.6%, a 90 basis point increase from the prior year quarter. Moving to the balance sheet, our Board of Directors authorized a $150 million increase to our share repurchase program, raising the total to $500 million. In the second quarter, we repurchased 2 million shares at a cost of $43.2 million, bringing our year-to-date total to 3.9 million shares at a cost of $81 million. Since the announcement of our repurchase program in May 2022, we have repurchased 18.5 million shares at a total cost of $262.1 million, averaging $14.19 per share. As of June 30, we had $237.9 million available under the updated Board authorization. After considering share repurchases, our leverage ratio was 2.3x based on net debt to adjusted EBITDA for the trailing 12 months ended June 30, 2025. We had $130.5 million in cash and an additional $216.4 million in borrowing capacity on our revolving credit facility, with a $40 million balance outstanding, giving us total liquidity of $346.9 million. On July 1, 2025, we used our liquidity to acquire the Farmville Detention Center, a 736-bed facility in Virginia, for $67 million, which ICE has utilized since its construction in 2010. Our robust balance sheet and cash flows provide significant flexibility for returning capital to shareholders and pursuing unique acquisition opportunities that offer favorable investment returns. Concluding with our updated 2025 financial guidance, we expect adjusted diluted EPS of $1.07 to $1.14, up from previous guidance of $0.83 to $0.92, and normalized FFO per share of $1.99 to $2.07, up from $1.72 to $1.82. Our expected adjusted EBITDA is $365 million to $371 million, an increase from $331 million to $335 million in prior guidance. This updated guidance reflects favorable results for the second quarter, updated occupancy projections, the acquisition of the Farmville Detention Center, and the reactivation of the California City immigration processing center with anticipated detainee populations in the third quarter of 2025. There is potential upside to our guidance if the timeline or terms of a longer-term contract for our California City facility become more favorable than forecasted. However, our guidance does not account for a potential long-term contract at our Midwest Regional Reception Center, as intake has been delayed due to ongoing litigation. The timing of any resolution to this legal matter is unpredictable. We have adjusted our guidance to reflect reduced facility net operating income at this center in the second half of 2025 compared to our previous outlook due to ramping up staffing and operating expenses that are expected to exceed our revenue under the letter contract. If this litigation is resolved quickly, there could be positive revision to our guidance. Additionally, the new agreement to activate the Dilley facility outlines a graduated fixed monthly revenue payment and our guidance reflects full revenue beginning in September 2025. As in the past, our guidance excludes the impact of new contracts not previously disclosed since the timing for government contract actions can be uncertain. We are in advanced negotiations for activating another idle facility and have started discussions for a fifth idle facility. While predicting government actions on these potential contracts is challenging, we remain optimistic about obtaining contract awards to activate more idle facilities, especially with the funding levels secured through the One Big Beautiful Bill Act. We plan to update our financial guidance throughout the year as new contracts are signed. In addition to our 2,560-bed California City facility and 1,033-bed Midwest Regional Reception Center, we own seven idle correctional and detention facilities with 9,826 available beds, totaling 13,419 as of June 30. Activating an idle facility requires hiring, training, and preparing the site for occupants, which can lead to substantial start-up costs before generating additional revenue. Any new contract requiring the activation of an idle facility before we can recognize revenue may negatively impact our guidance due to those start-up costs. For modeling purposes, it's important to factor in the $11.5 million of EBITDA or $0.08 per share from employee retention credits recognized in the second quarter. In Q3, we anticipate continuing to increase staffing levels to prepare for receiving detainees under letter contracts without a corresponding revenue increase, which may negatively impact Q3 by about $0.06 compared to Q2. The adverse effect of letter contracts on Q3 will be outweighed in Q4 by the expected long-term contract at our California City facility and a continued rise in detainee populations there, as well as a fully operational billing facility. We plan to allocate $60 million to $65 million for maintenance capital expenditures in 2025 and $9 million to $10 million for other capital expenditures, both unchanged from our previous guidance. Our 2025 forecast includes $70 million to $75 million for capital expenditures related to possible idle facility activations and additional transportation vehicles, an increase of $5 million from prior guidance. In the first half of the year, we spent $30.7 million on potential idle facility activations and transportation vehicles. Our guidance anticipates a similar level of share repurchases as in the first two quarters, considering our stock price, earnings trends, liquidity, and other capital allocation opportunities. Additional capital expenditures related to reactivating idle facilities may arise, depending on customer needs and preferences. We expect adjusted funds from operations, a proxy for our cash flow for capital allocation, to range from $216 million to $227 million for 2025. Our normalized effective tax rate is expected to remain at 25% to 30%. The total EBITDA guidance in our press release outlines our estimates for depreciation and interest expense, and we forecast that G&A expenses in 2025 will be around $160 million, excluding M&A transaction expenses. I will now turn the call back to the operator for questions.

And our first question will come from Joe Gomes of NOBLE Capital.

Can you hear me?

Yes, we can hear you.

Okay. Congrats on the quarter on the raised guidance. I did want to start with you talked, Damon, about alternative solutions like the soft side and international, things of that nature. And I guess, the kind of to multipart question here is. One, as I start to look at the solutions, is it slowing down 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 maybe just managing them, if not actually constructing them?

Yes, thank you for your question and your comments. To begin, I've observed a significant increase in activity recently, particularly following the recent passage of the One Big Beautiful Bill Act. We saw considerable movement from January to June after securing our letter contracts, including a new contract at Dilley. With funding now established, we are experiencing heightened focus both at the national level with DHS and ICE leadership, as well as in field offices engaging us on tours and contract negotiations. There are multiple facilities currently under discussion for activation and long-term contracts. In terms of demand, it's been highlighted in the media that there are approximately 14 million people in the country illegally, with about half of that number involved in immigration proceedings. This is a serious focus, particularly for those with criminal records, amounting to about 7.5 million people. The administration aims to increase deportations by one million people annually, which represents a significant effort over the next few years. Regarding resources, there's been a noticeable recalibration over the past few months. Earlier this year, the majority of resources were concentrated on the Southwest border, where nearly 90% of detainees were apprehended. However, that landscape has changed; currently, about 70% of the 56,000 individuals detained were arrested interiorly, a significant shift within the last several months. ICE has been aligning its resources accordingly to focus on the 7.5 million individuals in immigration proceedings or those with removal orders. On the supply side, the Big Beautiful Bill Act allocated $175 billion for border security, which will enhance staffing levels within the federal government. Currently, ICE employs 6,000 frontline law enforcement officers, with plans to increase that to 16,000. There is also a considerable investment in Customs and Border Protection, immigration judges, technology, and resources at the Southwest border. Regarding our capacity, there has been approximately $45 billion appropriated for detention capacity over the next four to five years, adding to the $3.5 billion for ICE detention in previous years. This total could support around 200,000 detention beds, providing significant capability to meet demands from the private sector, state, and local governments. We have offered 30,000 beds to ICE, with 13,400 in vacant facilities, and we also have surge capacity in operational facilities where we've added beds and partial capabilities in areas with lower occupancy. We've explored partnerships with entities like Target for third-party leases, and there are opportunities for activation or expansion, like at our Dilley facility. We are open to collaborating with state governments or exploring military base solutions and are actively engaged in discussions to meet these needs. There is mutual interest in partnering with states, presenting an opportunity for effective solutions. Let me know if Patrick has anything further to contribute.

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 enter 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 is presented in Florida, where military based solutions like is presented with Ford Blitz. And I think it's important to contextualize all those because in the beginning is ensuring that it has the capacity to need locations across the country. And so it isn't necessarily an either/or but a prioritization in terms of filling out the resource gaps or needs across the country. And so if you see a solution, for example, that might be a military-based solution or a state level solution that doesn't mean necessarily that it would displace a private sector solution or vice versa, it may be a function of timing and location and resource needs. So we believe that is considering all of those alternatives, and we continue to believe that the investments that we've made in our capacity position it well to meet ICE needs at the appropriate time.

And thanks for that, Patrick. I mean, that's a really important point. Again, you go back to the dollars, then you've got the funding capabilities to go to 200,000 beds today and their current population is 6,000. So they really, to Patrick's point, have opportunities to say, okay, where is the near-term need and demand at and then look at the alternative they've gotten us various locations. So I think that's an important point. And lastly, I'll just say when 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 as 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 to end of this year into 2026.

Great. And then you brought up the non-detained docket. So how many people are there. So I'll switch gears for a second. It's common knowledge, the ISAP contract is coming up for renewal here. Your competitors got an extension on it for right now. that we're hoping to get at least a 6 months 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 to kind of capabilities do you have for that? Do you think given the potential size we're talking about here, again, the $7 million 900 docket is something maybe in your view, I would look into split multiple contracts out there like they do on the retention side, given that the past highs here was roughly 375,000 people.

Yes, that's a great question. First, I want to emphasize that since the election, the leadership at the administration, DHS, and ICE has made it clear that addressing the tension will be our top priority. We have been working diligently for almost a year on capital improvements for facilities that are either underutilized or vacant, ensuring we have the necessary transportation like buses and vans, and building a strong labor pipeline for future staffing needs as facilities increase in occupancy. Detention remains our primary focus, as indicated by leadership from DHS and ICE. That said, we're closely following developments with the subcontract and have noted comments from Geo's leadership in their recent call, which piqued our interest. We're paying attention to how their extension unfolds and will keep an eye on the RFP when it becomes available, likely later this year or early next year. Regarding your second question, we absolutely have the capability for an active monitoring solution. Our community division has been providing these types of solutions for nearly 30 years across various jurisdictions in the country. We possess the necessary competency, leadership, financial resources, and technology to scale up as needed. While we are monitoring the situation closely and are interested, our current focus remains on addressing detention as our top priority since late last year.

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

I would say that ICE has shown significant interest in the facility, especially in the past couple of years. The location is ideal, being near a major metropolitan airport and close to I-70, making it very advantageous from a transportation standpoint. While I cannot discuss any pending legal matters beyond what we've already shared, I am confident that we will reach a resolution soon and that the facility will be made available to ICE.

Next question. our next question will be coming from the line of Jason Weaver of JonesTrading.

It was great to see the updated guidance. As you're well on your way to activating these new facilities, are you seeing any efficiency gains in the expected timeline of staff and getting everything you prepared for intake. I know Dilley is 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 nations that we've initiated so far in Midwest, Cal City and in South Texas, very smooth. Now I think one of the things we're obviously sensitive to is the ramp-up in activity nationwide after the passage of the funding of One Big Beautiful Bill Act. So we do believe that there may be an acceleration. But we also believe that the work that we've already done in our existing sites is helpful with our existing facilities that those facilities are already in place. They don't have to be constructed on a very rapid timeline. The ready. We can have them prepared The physical plant prime for activation puts us in a great position to activate those quickly. So again, the timelines, the resource investments we made early we think position us really well depending on where demand does shift and manifest to be able to meet that within our existing portfolio.

Great. 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 facility in Texas that was formerly managed by HHS?

Yes, we have nothing new to report. We are continuously monitoring the needs in the Southwest border and adjusting our focus based on enforcement actions there. We are paying closer attention to the interior rather than just the Southwest border. We are fully aware of that facility and its capabilities, and we will continue to monitor the needs for ICE at that time in that region.

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?

Yes. I can take that one, so immediately. So we closed on July 1. 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.

And the next question will come from the line of M. Marin of Zacks.

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

Certainly. I want to thank the team for this, and I appreciate your question. As I mentioned earlier, our facilities are highly secure and constructed to withstand challenges. They have been evaluated by ICE or INS for the past 40 years. Our ICE courts are superior compared to any alternatives available in the United States, including more recent options, and our facilities offer excellent capabilities with many having on-site courtrooms to enhance mission efficiency at a lower cost. When you compare our daily rates to some recently procured alternatives, we are often significantly cheaper, sometimes by dozens or even hundreds of dollars. Additionally, we are closely monitoring other solutions like Alligator Alcatraz. Once contracts are established, these alternatives often have minimal operational standards for facilities and staff. We are hearing through informal channels that these solutions are viewed as short-term. As Patrick noted, they may only be suitable for a limited timeframe in specific regions and operators are reluctant to make substantial investments in physical assets, infrastructure, and personnel. In contrast, our contracts, such as Dilley and others we are currently working on like Cal City and Midwest, will be comprehensive with clear terms and conditions. They will incorporate the latest detention standards that we have been complying with for decades, with the capacity for quick adherence. Furthermore, our facilities uphold the highest personnel standards. In summary, not only are our facilities more cost-effective and beneficial, but they are also perceived as more secure and long-term solutions compared to others, which we understand may only be viable for 6 to 12 months. Patrick, would you like to add anything?

Yes. The only thing that I would add is, I think, again, this is back to my comments earlier, which is I think ICE is in the process at this moment 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 enforcement support but there isn't existing capacity. Obviously, you can't pick up one of our facilities and drop it in Florida, for example. And so there are very specific geographic needs or support needs for the emission in various parts of the country that are going to require alternatives to our capacity to be used that again, as Damon said, our facilities are both our facilities and our operations very well understand the standards that ICE has for its operations and our ability to scale those is very rapid in a way that's consistent with the way that we performed with ICE for 40 years of operations. And so we feel like our assets are very well positioned they meet all applicable standards. We can activate those very quickly. And again, I look at the prioritization right now being a function of where the geographic need is and the mission support need is for ICE, but ultimately, funding as such that we would expect our facilities are very well positioned to meet the interim long-term needs for ICE as they ramp up their activities nationwide.

And I think that's an important point. And lastly, I'll just say when 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 as 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 to end of this year into 2026.

Great. And then you brought up the non-detained docket. So how many people are there. So I'll switch gears for a second. It's common knowledge, the ISAP contract is coming up for renewal here. Your competitors got an extension on it for right now. that we're hoping to get at least a 6 months 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 to kind of capabilities do you have for that? Do you think given the potential size we're talking about here, again, the $7 million 900 docket is something maybe in your view, I would look into split multiple contracts out there like they do on the retention side, given that the past highs here was roughly 375,000 people.

Yes, that's a great question. Since the election, the message from administration, DHS, and ICE leadership has been clear that detention is the priority. We have been working diligently for nearly a year to prepare with capital improvements to facilities that are either partially utilized or vacant, along with acquiring buses and vans for transportation needs. We are also ensuring we have a strong labor pipeline for any additional staff required for facilities that see higher occupancy. Detention has been our focus, as reiterated by leadership from DHS and ICE. We are closely monitoring developments regarding the subcontract, especially in light of comments from Geo's leadership. We are interested in how things unfold concerning their extension and the RFP, which may be released later this year or early next year. Regarding your second question, we indeed have a capability plan. If Geo shifts towards more active monitoring solutions, that aligns perfectly with our expertise. Our community division has been implementing such solutions for nearly 30 years across various jurisdictions in the country, demonstrating our capability and experience. We also possess the necessary leadership, financial strength, and technology to scale up. While we are keeping an eye on these developments and are interested, it is important to note that our primary focus remains on detention at this time.

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

I would say ICE has always been very interested in the facility, especially in the last couple of years. The location is ideal; it’s near a major metropolitan airport and close to I-70, making it very good from a transportation perspective. I'm confident but I can't comment on any pending legal matters beyond what we've stated. However, I believe we'll reach a resolution soon, and the facility will be made available with ICE.

Next question. our next question will be coming from the line of Jason Weaver of JonesTrading.

It was great to see the updated guidance. As you're well on your way to activating these new facilities, are you seeing any efficiency gains in the expected timeline of staff and getting everything you prepared for intake? I know Dilley is 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 nations that we've initiated so far in Midwest, Cal City and in South Texas, very smooth. Now I think one of the things we're obviously sensitive to is the ramp-up in activity nationwide after the passage of the funding of One Big Beautiful Bill Act. So we do believe that there may be an acceleration. But we also believe that the work that we've already done in our existing sites is helpful with our existing facilities that those facilities are already in place; they don't have to be constructed on a very rapid timeline.