CoreCivic Inc

NYSE:CXW

Earnings Call Transcript 2021-Q1

[Operator]

Good morning. My name is Travis, and I will be your conference operator. As a reminder, this call is being recorded. At this time, I'd like to welcome you to CoreCivic's First Quarter 2021 Earnings Conference Call. All lines have been placed on mute to avoid any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]

Thank you. I would now like to turn the call over to Cameron Hopewell, CoreCivic's Managing Director of Investor Relations. Mr. Hopewell, you may begin your conference.

[Cameron Hopewell, Managing Director of Investor Relations]

Thank you, Travis. Good morning, ladies and gentlemen, and thank you for joining us. Participating on today's call are Damon Hininger, President and Chief Executive Officer; and David Garfinkle, Chief Financial Officer. We are also joined here in the room by our Vice President of Finance, Brian Hammonds.

The call today, we will focus on our financial results for the first quarter and provide you with some general business updates. During today's call, our remarks, including our answers to your questions, will include forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities and Litigation Reform Act.

Our actual results or trends may differ materially as a result of a variety of factors, including those identified in our first quarter 2021 earnings release, issued after market yesterday and in our SEC filings, including Forms 10-K, 10-Q and 8-K reports. You are also cautioned that any forward-looking statements reflect management's current views only, and that the company undertakes no obligation to revise or update such statements in the future.

On this call, we will also discuss certain non-GAAP measures. A reconciliation of the most comparable GAAP measurement is provided in our corresponding earnings release and included in the supplemental financial data disclosure on the Investors page of our website, corecivic.com.

With that, it's my pleasure to turn the call over to our President and CEO, Damon Hininger. Damon?

[Damon Hininger, President and Chief Executive Officer]

Thank you, Cameron. Good morning, everyone, and thank you for joining us today for our first quarter 2021 conference call. Before I start my usual remarks, I would like to note that this week is National Correctional Officers and Employees Week. On the first Saturday in May of 1984, Then President Ronald Reagan issued a proclamation claiming, calling I should say upon the country to pay tribute to correctional professionals.

This proclamation created a week of recognition of the work done by correctional officers. Later in 1996, Congress changed the name of National Correctional Officers Week to National Correctional Officers and Employees Week to rightfully credit all the women and men who serve by working in corrections. With the year that has just passed, it is especially important to recognize the men and women who worked day in and day out in facilities across the country. I would like to express my deep and sincere thanks and gratitude, not only to the course of a team of professionals, but to all who work in our profession.

Going now to our agenda for the call, we will provide you with an overview of our first quarter financial performance, update you on continued response to the COVID-19 pandemic. Discuss business development opportunities, discuss the latest developments with our government partners, update you on the potential sale of certain non-correctional real estate assets in our property segment and provide you with an updated strategic outlook. Following my remarks, I will turn the call over to our CFO, Dave Garfinkle, who will review our financial results in greater detail.

Our first quarter revenue of $454.7 million represented a 7% decline over the prior year quarter due to continue the impact of the COVID-19 pandemic on occupancy within our safety and community segments and the sale of 42 GSA leased assets within our property segment in December of 2020. As mentioned late last year with our criminal justice related populations declined mostly due to a reduction in new intakes rather than early releases with a disproportionate impact on our community segment, which is considered a lower risk population.

Governments have acted faster to transfer a certain residence assigned to our reentry facilities to non-residential statuses such as furloughs, home confinement, or early releases to create additional space for enhanced social, distancing within our reentry facilities. Although only being approximately 5% of our revenues, our community segments occupancy registered 51.6% in the quarter versus 73.5% in Q1 of 2020. However, both safety and community occupancy rates in the first quarter remained relatively stable, with those experienced in the third and fourth quarters of 2020.

Normalized funds from operations or FFO for the quarter was $0.44 per share a decline of 19% compared with the first quarter of 2020. However, this decline was primarily driven by our decision to convert to a taxable C Corporation effective January 1 of this year. We have added a new disclosure in our first quarter supplemental financial information document available on our website, which provides a pro forma results for 2020 reflecting income tax expense by applying our estimated tax rate to pre-tax income in the prior year. Comparing our first quarter 2021 normalized FFO of $0.44 per share to our pro forma first quarter 2020 normalized FFO of $0.46 per share, it shows a decline of just 4%.

Our adjusted EBITDA of 96.3 million was also resilient, declining only approximately 4% also compared to the first quarter of 2020, a quarter that was not materially impacted by COVID-19. Our GAAP results included some larger than average special items, including a onetime non-cash 114 million in income tax expense resulting from the reevaluation of the company's net deferred tax liabilities, due to the completion of all necessary actions taken to revoke our REIT election, and approximately 52 million from our recently announced litigation settlement. Dave will provide greater details about our first quarter financial results, including reconciling between our GAAP and normalized results, following the remainder of my comments.

As I have for the last year, I will kick off our operational and business development discussion with an update on our ongoing response to the COVID-19 pandemic and its continuing impact on our day to day operations. We have worked diligently throughout the pandemic to collaborate with our government partners, be responsive to evolving guidance from leading health experts, secure our supply chain with clinically effective personal protective equipment for residents and facility staff and provide proper training and advice to help mitigate the risk of contracting and spreading the virus.

Since the approval of the COVID-19 vaccines, we have made every effort to coordinate with our partners as well as state and local health departments. As I described on our last conference call in February, how to allocate the vaccines they receive is at the discretion of the state and local health authorities. And each community where we operate has unique differences in the process of developing their vaccine rollout plans. The great news is that vaccine supplies continue to grow, which has accelerated our ability to administer doses to residents and our employees.

We have been disclosing weekly updates on the number of vaccine doses we have been able to administer on our website. Our latest data shows we have administered approximately 19,000 doses. We are committed to working closely with our government partners and local health officials to ensure everyone in our facilities has access to the vaccine as it becomes available. And so far I believe we have made great progress. During the first quarter we continue to see a decline in positive cases within our facilities. This trend has been consistent across all of our facilities.

And we are optimistic that additional vaccination availability will continue this trend. We expect that new challenges and mitigating the risk of virus transmission will arise as facility operations begin to normalize. We have already seen some partners reinstate in person visitation, and many are looking to restart classroom based programming. We continue to work closely with our government partners to thoughtfully enact these changes over time in order to make the best possible measures of prevention.

We are continuing to evaluate the impact of the executive order signed by President Biden issued in January that direct the Attorney General to not renew Department of Justice contracts with privately operated criminal detention facilities. Two agencies of the Department of Justice utilize our services, the Federal Bureau of Prisons or BOP, and the United States Marshal Service or USMS. As a reminder, the BOP houses inmates who have been convicted for federal crimes, and the United States Marshal Service is responsible for prisoners who are awaiting trial in federal court.

The BOP has experienced a significant decline in inmate population since 2013, and simply does not have as much of a need for prison capacity for the private sector. We currently have one further contract with the BOP accounting for approximately 2% of our total revenue. Marshal Service populations have remained relatively consistent in recent years, so their capacity needs remain unchanged. We continue to believe that the Marshals do not have sufficient attention capacity that satisfies its current needs without much of the capacity we provide.

We currently have four contracts with the Marshals that expire in 2021. The first is that our Northeast Ohio Correctional Center which is set to expire May 30 of 2021. We are exploring opportunities with various government agencies including the state of Ohio, the primary user of the Northeast Ohio facility on a coordinated approach that meets the needs of all agencies. Our contracts at the 600 bed West Tennessee Detention Facility, and the 1033 bed Leavenworth Detention Facility are set to expire in September and December, respectively. The Marshals also utilized less than 100 of the 664 bed at our Crossroads Correctional Center under a contract that was scheduled to expire in April of 2021, but was extended through June and is not expected to be renewed thereafter.

We currently expect the Marshals to relocate detainees presently held at the Crossroads Correctional Center. The state of Montana, which utilizes the remaining capacity at the Crossroads facility has expressed interest in utilizing the soon to be vacated capacity at the facility beginning in July. We do not yet know if the Marshals will relocate the detainees that are with Tennessee and Leavenworth facilities. We continue to work with the Marshals to find solutions that will allow the agency to continue to fulfill its mission. Our third federal partner is Immigration and Customs Enforcement or ICE. They continue to be the government partner with the most significant impact from COVID-19 on their capacity utilization.

The largest driver of their lower utilization levels has been the enactment of Title 42 since March of last year, which was put in place to prevent essentially all asylum claims at the country's borders and ports of entry in order to prevent the spread of COVID-19. In the simplest of terms, Title 42 allows the government to remove all individuals illegally crossing the southwest border back to Mexico, regardless of their country of origin or validity of their asylum claim. In recent months, the administration has discontinued applying Title 42 to unaccompanied minors, which is why there has been a sharp increase in the number of children in custody of the US government.

This is not a population we serve. So we have not been impacted. We primarily provide ICE with detention capacity for adult populations. We have one facility in Dilley, Texas that has a family mission. The purpose built facility was open in 2014 when the Obama Biden administration was dealing with a humanitarian crisis on the southwest border. The crisis was due to a significant increase in the number of families illegally crossing into the country, a trend that has continued since that time. In recent weeks, the administration has analysis and intent to shift the mission of our family facility to a family staging center with the goal of processing families into the country within 72 hours.

We are working with ICE to implement the operational changes that this facility at the AC prepares for Title 42 to not be applied to families at the border. It is unclear when Title 42 will no longer be applied to adults who represent a significant majority of the people being apprehended after having entered the country illegally. However, we believe that increasing vaccination rates and availability will eventually remove the need to keep our borders and ports of entry closed. We provide critical capacity to ICE that assist them in processing these individuals. So we would expect to see demand for our capacity to increase meaningfully once this occurs.

Looking now at state level opportunities, I will begin with an update on our efforts to complete the financing of two new facilities that we would construct and lease to the state of Alabama. There has been a great deal of headlines in recent weeks, but we are continuing to move forward. It is unfortunate that reckless and irresponsible activists who claim to represent the interest of the incarcerated individuals at Alabama are in effect advocating for outdated facilities, less rehabilitation space and potentially dangerous and less humane conditions for correctional staff and inmates. Opposition to the governor solution representing an extremism that puts political agendas over people, I encourage those opposes this project to learn what conditions are currently like for inmates in Alabama.

The solution by the state that we're providing also does nothing to inhibit or prevent the state from pursuing additional criminal justice reform initiatives, or making additional investments to improve reentry opportunity for formerly incarcerated individuals. If socially conscious investors are truly focused on tangible societal benefits and not politically motivated activism. There are a few important points I'd like to clarify. This project will replace correctional beds that have far outlived their useful life. Facilities at the state's governor has described as dilapidated and structurally failing.

It will not increase the available space to incarcerate. The facilities will be managed and operated by the state of Alabama, not CoreCivic. These are not privately run prisons. These new facilities will greatly improve the quality of life for both inmates and dedicated state employees who will be operating them, making it easier to recruit and retain correctional staff. Modernizing antiquated correctional infrastructure providing space for more reentry programming, and improving the lives of incarcerated individuals provides a direct benefit to society that everyone should be proud to help deliver.

Shortly after the close of the first quarter, we completed the offering of 450 million in senior unsecured notes. For the last few years, we have received the inquiry into our ability of the company's access to the debt capital markets. And we were pleased that our response is an emphatic yes. There was strong investor interest in the bond offering, which is why we ultimately increased the size of the issuance. We view this offering as an opportunity to push out our debt maturity schedule, enhancing our ability to continue to use our cash flows to repay debt and minimize future refinancing risk.

We continue to have four remaining non-core real estate assets held for sale, which we anticipate will generate net proceeds of up to $120 million. We're hopeful to consummate this sale of these assets during the second quarter of 2021, accelerating the pace of our debt reduction strategy to lower leverage between two and a quarter and two and three quarter times debt to EBITDA. I would like to briefly discuss a couple additional topics before turning the call over to Dave.

First, we are excited to announce that in the next few weeks, we'll be issuing our third annual ESG report. The report will provide interested parties with a fresh look at how we uphold our commitment to valuing human dignity within our facilities and provide quality services. Our process for reporting is robust, transparent and always seeking improvement. The report contains extensive information on how we operate our achievements and develop developing and implementing robust educational and reentry programming and the tangible progress that we have made an advocacy to remove barriers to successful reentry, amongst many others. We are proud of our progress and transparency in the area of ESG reporting and our doors remain open to engagement and opportunities to make additional progress.

Lastly, I wanted to highlight that in recent years the federal government has officially designated the month of April as Second Chance Month. It is a time to raise public awareness about the need to give those who have been convicted of crimes they complete and complete their sentences a real opportunity for and a second chance at successfully reentering our communities. At CoreCivic, this focus on reentry and reducing recidivism has been and continues to be a major part of what we do year round. We believe we have a moral, social and economic obligation to provide those who have been entrusted into our care with the tools they need to successfully reenter their communities upon release, and to stay out of prison.

We launched an unprecedented effort many years ago to advocate for state and federal legislation aimed at reducing the rate at which formerly incarcerated individuals returned to prison. Our advocacy has included and provided protections for employees who hire incarcerated individuals, increasing funding for reentry programs, restoration of Pell Grants for education and training while in prison, and restoration of voting rights after incarceration among others. We have achieved meaningful progress in those areas. But there is much more work to be done. We know America's recidivism crisis will not be solved overnight. But if the public, private and nonprofit communities all work together, we can continue to improve the opportunity for the formerly incarcerated individuals to rebuild their lives after prison and for other justice involved in individuals to avoid incarceration altogether.

I'll now turn the call over to Dave to provide a more detailed look at our financial results in the first quarter of 2021 as well as factors that affect our business for the remainder of the year. Dave?

[David Garfinkle]

Thank you, Damon and good morning everyone. In the first quarter of 2021, we reported a net loss of $1.05 per share, or $0.24 of adjusted earnings per share excluding special items. We generated $0.44 cents of normalized FFO per share, and AFFO per share of $0.47.

Adjusted EBITDA was 96.3 million in the first quarter of 2021, compared with 100.4 million in the prior year quarter. Recall that the first quarter of 2020 did not include any impact from COVID-19, which was declared a pandemic at the very end of the prior year quarter.

During the first quarter of 2021, we completed all steps to revoke our REIT election. As a result, effective January 1, 2021, we became subject to federal and state income taxes on our taxable income at applicable tax rates without the benefit of a tax deduction for dividends paid.

For illustration purposes, in our supplemental disclosure report posted on our website, we presented a calculation of adjusted net income, normalized funds from operations and AFFO for each quarter and full year of 2020 on a pro forma basis, to reflect such metrics, by applying an estimated effective tax rate of 27.5%.

Adjusted net income per share in the first quarter of 2021 of $0.24 compares to $0.23 on a pro forma basis, applying this estimated effective tax rate for the first quarter of 2020. While normalized FFO per share in the first quarter of 2021 of $0.44 compares to $0.46 on a pro forma basis for the first quarter of 2020 and AFFO per share for the first quarter of 2021 of $0.47 compares to $0.50 on a pro forma basis for the first quarter of 2020.

Adjusted amounts during the first quarter of 2021 include a onetime income tax charge of $114.2 million primarily associated with our changing corporate tax structure. This charge is not a cash payment, but represents an accounting adjustment to revalue our deferred tax liabilities in connection with the revocation of our REIT election similar to the onetime tax benefit of $138 million we recognized when we converted to a REIT in 2013.

There is no transitional tax or any other payment associated with the revocation of our REIT election. Adjusted amounts during the first quarter of 2021 also include a pre-tax charge of $51.7 million for the previously disclosed settlement of shareholder litigation originating in 2016 and asset impairment of $1.3 million and $1.6 million of expenses associated with COVID-19.

So while there was a lot of noise in the quarter, core operating results compared with the prior quarter can be summarized by a reduction in facility EBITDA of $5.5 million and lower G&A expenses of $1.4 million which resulted in a reduction in adjusted EBITDA of $4.1 million.

Of the $5.5 million reduction in facility EBITDA, 2.3 million was generated in the prior year quarter from 42 GSA leased properties that we sold in the fourth quarter of 2020, with the remainder due to reduction in occupancy primarily resulting from COVID-19. We also incurred lower interest expense from lower debt levels and reported higher income taxes under our new corporate tax structure.

Compared with the fourth quarter of 2020, adjusted net income per share decreased to $0.24 from $0.30 on a pro forma basis, and normalized FFO per share decreased from $0.44 – from $0.53 per share on a pro forma basis. As a reminder, the first quarter has always seasonably lower due to fewer days in the first quarter and because we incur about 75% of our annual unemployment taxes in the first quarter, when base wage is reset.

You will also recall last quarter we mentioned that our G&A expenses were unusually low due to lower incentive compensation in the fourth quarter, and we incurred a more normal level of G&A expenses in Q1, although still reflecting lower travel because of COVID-19 restrictions.

Last quarter, we also mentioned that we experienced lower employee benefits expenses due to more favorable claims in our self-funded employee medical plans and lower property taxes. We incurred more normal levels of these expenses in the first quarter.

Again, compared to the sequential fourth quarter AFFO per share decreased only a penny to $0.47 from $0.48 on a pro forma basis, while AFFO was impacted by the same factors affecting adjusted net income and FFO, AFFO reflects significantly lower maintenance capital expenditures on real estate in the first quarter compared with the fourth quarter.

Our maintenance capital expenditures can fluctuate from quarter to quarter, but are typically seasonally lower in the first quarter. As of March 31, we had $168 million of cash on hand and 587 million of availability on our revolving credit facility, which matures in 2023.

During the first quarter of 2021, we continued our de-levering strategy, reducing our debt level by $84.9 million net of the change in cash. Our leverage measured by net debt to EBITDA was 3.5 times using the trailing 12 months down from 3.9 times using the trailing 12 months at the end of the third quarter of 2020, when we announced our revised capital allocation strategy and further down from 3.7 times, using the trailing 12 months at the end of the fourth quarter of 2020.

Following quarter end, we access the debt capital markets raising $450 million of unsecured senior notes maturing in 2026. We use the net proceeds of approximately $435.1 million after the original issuance and underwriting discounts and transaction costs to redeem all of the outstanding 250 million of unsecured notes that were scheduled to mature in 2022, including the make-whole amount.

In addition, we repaid 149 million of the 350 million unsecured notes scheduled to mature in 2023 at an aggregate purchase price of $151.2 million in privately negotiated transactions, reducing the outstanding balance of the 2023 notes to $201 million. The remaining net proceeds from the offering were used to pay down our revolving credit facility and for general corporate purposes.

Since quarter end, we have paid down our revolving credit facility by $80 million using net proceeds from the issuance of the notes and cash on hand. As a result of these refinancing transactions, we extended our weighted average debt maturity from 5.3 years to six years.

As mentioned last quarter on February 1, we were awarded two new 30 year lease agreements with the Alabama Department of Corrections for the development of two correctional facilities with a total project cost of over $900 million subject to the completion of project specific financing, which we will pursue in multiple capital markets.

We currently expect to fund approximately 10% of the project costs with existing resources, which we expect to provide upon completion of the project specific financing. The Alabama Department of Corrections will lease and operate both facilities. We will be responsible for facility maintenance and will retain ownership of the facilities.

Despite the well publicized opposition by some to this project, Alabama has reiterated the critical need for the new facilities, and we expect to continue assisting the state and achieving their objectives. Nonetheless, the challenges encountered in constructing desperately needed criminal justice infrastructure in the United States further demonstrates the importance of the very valuable real estate assets we own across the country.

With respect to future commitments, in addition to our investment in the Alabama project, we also expect to pay the shareholder litigation settlement during the second quarter of 2021. We incurred $12.2 million of maintenance capital expenditures in the first quarter, leaving $53 million to $57 million for the remainder of the year, which is consistent with the guidance we provided last quarter. We have no other substantial capital commitments and expect to continue using all remaining cash flow we generate to repay debt.

As of March 31, we had four non-core real estate assets held for sale with a net book value of $281 million. Based on interest expressed to date, we currently expect to consummate the sale of all of these assets in multiple transactions during the second quarter of 2021. We expect to generate aggregate net proceeds from the sale of these assets of approximately $120 million after the repayment of non-recourse mortgage notes associated with two of the properties and after defeasance and transaction costs.

We expect to use the net proceeds toward our investment in the Alabama project in order to repay debt. Although a more difficult decision this quarter, at this time, we are not yet reinstating financial guidance because of uncertainties associated with COVID-19 as well as uncertainties associated with the application of the administration's various executive actions and policies related to immigration and criminal justice.

While we remain focused on the long-term success of the business, and an executing rd levering strategy, we can provide some high level observations. First, with respect to facility operations, because of the pandemic operations in the criminal justice system have not yet normalized and the southern border remains effectively closed to undocumented adults under Title 42 implemented during the last presidential administration to prevent the spread of COVID-19.

The duration of these disruptions and the response to the various executive orders are difficult to predict. As a reminder, about two thirds of the federal contracts in our safety segment have fixed monthly based payments that help ensure our partners have access to the capacity they need, if and when populations increase, minimizing the impact of any further occupancy reductions at such facilities.

Conversely, increases from current population levels would not result in incremental revenue under these contracts until populations exceed the first tier fixed payments. Although staffing levels have been reduced to reflect lower offender populations in many of our safety and community facilities, recruiting staff remains a challenge. And we have made and expect to continue to make wage adjustments to help ensure appropriate staffing levels.

Further, most of our facilities in our safety segment are still under restrictive movement because of COVID-19. We intend to work with our government partners and follow national health standards in reinstating normal movement and staffing within our facilities. Both of these factors would result in lower operating margin percentages in the second half of the year, absent increases in resident populations.

Second, the properties we sold in the fourth quarter of 2020, generated $9.3 million of EBITDA in 2020. The properties we are holding for sale generated $20 million of EBITDA in 2020, which combined with the sales completed in the fourth quarter of 2020, would translate into a reduction of approximately $19 million of EBITDA, compared with 2020 if we are successful in selling these assets near the end of the second quarter, as I mentioned earlier.

Third, while we are very pleased with extending maturities through the debt capital markets transaction consummated last month, repayment of the 250 million 5% unsecured notes and 149 million of 4.625% unsecured notes with proceeds from the new 8.25% senior notes will result in an increase in interest expense in future quarters because of an increase in the average coupon rate applicable to our outstanding debt.

Further, we will continue to accrue interest on the 5% senior notes until the redemption date on May 14, 2021, thereby incurring interest expense on both the 8.25% senior notes and the 5% senior notes for the 30 day notice period for redemption. The increase in interest expense associated with this transaction is approximately $15 million in 2021.

We currently estimate our normalized effective tax rate to be 27.5% each quarter, although we estimate our cash taxes to be approximately 20% for the year because of deductions for special items, which also contemplates a taxable gain on the assets we are holding for sale.

And finally, wrapping up my comments with additional detail with respect to the US Marshal Service, as Damon mentioned, we continue to work with the US Marshal Service on solutions that will enable them to continue to fulfill their mission. We have four direct contracts with the US Marshals expiring this year. Two contracts are at facilities shared with the respective state customer where the state customer is the primary user of each facility.

Both states have expressed the desire to utilize the space occupied by the US Marshal Service. And we are working through the coordinated transition of capacity that could potentially benefit all government agencies. The other two contracts with the US Marshals expire in September and December 2021. We do not yet know if the US Marshals will vacate these two facilities. We continue to work with various government agencies to meet the needs of the US Marshals.

However, at this stage of the discussions, it is too early to predict the ultimate outcome or the financial impact to us, if any. While we have some work to do to consummate the financing for the two new correctional facilities in Alabama. And we'll pursue similar opportunities in Hawaii and potentially other states for our property segment. Those opportunities are longer term, and would have no impact on our earnings or our financial position in 2021.

In our safety segment, we are pursuing a number of non-public opportunities, including a new state contract to utilize available capacity in our system, and the transition of an existing state contract to our property segment, resulting in stable, consistent cash flows. These opportunities could be consummated in the second half of this year, but would be more impactful in 2022.

I will now turn the call back to the operator Travis to open up the lines for questions.

[Operator]

Thank you. [Operator Instructions] Our first question comes from Joe Gomes, Noble Capital.

[Joe Gomes, Noble Capital]

Good morning, and thanks for taking my questions.

[Damon Hininger, President and Chief Executive Officer]

Good morning, Joe.

[David Garfinkle]

Good morning, Joe.

[Joe Gomes, Noble Capital]

Want to start with the US Marshal Service, obviously, in the press we've seen reports about the proposal you've made to Leavenworth County. And so putting aside whether it actually goes through, A – one, the US Marshal Service, would they be on board with this type of arrangement and two, what do you guys see as the biggest obstacles for counties or cities that they need to consider in order to kind of do what you guys are talking about there and having the county takeover the actual contract with the US Marshals and you guys just become the lessor of the building?

[Damon Hininger, President and Chief Executive Officer]

Joe thanks again for calling in and thank you for your questions. This is Damon. So a couple of good questions there. Let me do the first part and just say, can't speak for the Marshal Service. What we're trying to do is you give them various options and alternatives that they can consider. Obviously, they've got to evaluate those accordingly, and reconcile that with the direction with the executive order. But as we've tried to allude to in the last couple of months with the investment community is being part – being the private sector we've got responsibility to be flexible, be innovative, and provide different alternatives to our government partners depending on either direction, or policy that they are governed by, or maybe emerging kind of issues or challenges they've got with their respective system and so that's exactly what we're doing right now and looking at those various options. To your second question, as you may know the Marshal Service have about 65,000 federal prisoners in custody on any given day, just over half that population are in city or county facilities or city or county operations.

Sometimes it may be the government operate or real estate, I should say, or they potentially could use another facility, depending on the circumstance. So I think the Marshal Service have obviously, that awareness and an understanding that that comfort on working with cities and counties, and it's my understanding, they've been working with those jurisdictions for decades. So I think talking to a county or a city about potentially, that type of service to the federal government, they could just look across the country and see that be done probably in neighboring communities in some of these jurisdictions where we operate, it's more – it's probably very likely just down the street at the county jail, they actually held some federal prisoners, so is maybe a relationship they already have and aware and understand kind of the unique requirements and needs for that population. But I don't know if you have anything you'd add to that, Dave?

[David Garfinkle]

I think the solutions are going to be unique for each location, for each facility that we have, particularly if we have a shared facility. So the US Marshals uses the facility that has another customer in that facility. The solutions could be different, so we're looking at different options for our northeast Ohio facility in our Crossroads facility then we are our West Tennessee and Leavenworth facilities. But it's a little early to have any – we don't have any announcements to make at this point on any of those beyond what we reported in the press release.

[Joe Gomes, Noble Capital]

Okay, thanks. Thanks for that. And switching gears to ICE, I mean, I've noticed the numbers coming out of ICE is that you're seeing a little bit modest increase in the number of detainees there. In April over March, you went from about 14,100 to about 15,300. Are you seeing some improvement in numbers on your ICE facilities? And have you seen any pushback from ICE to try and get lower rates on their contracts due to decreased occupancy we've seen over the past year?

[Damon Hininger, President and Chief Executive Officer]

Yeah, a couple of good questions, so you're exactly right on kind of your global numbers there. We're kind of seeing and hearing the same thing especially in our day to day actual interactions with the customer. Specific to CoreCivic, yeah, I think we were just a hair under 3000 at the beginning of February, like 25 – 2924. And then as of May 4, we were at about 5600. So we have seen increased utilization by ICE within our ICE facilities that we've got under contract with them. To your second question, I think, probably going to be some discussion potentially down the road on kind of as they see kind of emerging trends on the southwest border, especially as mentioned earlier, they roll back Title 42.

They may look at okay, we've got capacity in this location versus location, do we want to reallocate kind of where that capacity is, but that's a – to be honest with you, that's a pretty common practice, regardless of the administration. We've seen over the last probably 10, 15 years and things change and priorities change and needs change which is especially on the southwest border, they may ask us to help them adjust maybe capacity a little bit within our system in certain facilities. So that's a pretty common practice. And I wouldn't be surprised we have some of that coming this year going to next year. But anything you'd add to that, Dave?

[David Garfinkle]

No, nothing Damon.

[Joe Gomes, Noble Capital]

Thanks for that. And just I noticed you call out you're negotiating with Montana, and in Ohio for taking on some of the excess capacity you may have if the US Marshal Service does leave certain facilities. Can you remind us – I know, on the federal side, the contracts are, I believe, mostly at will, so to speak, where they can cancel them pretty much anytime. Is that also true on your state contracts that they can – the state can cancel them whenever they desire? Or there's a difference between the two?

[Damon Hininger, President and Chief Executive Officer]

Yeah, it's very consistent. Good question. But yeah, they're very consistent. Those provisions and those kind of terms between the federal contracts, state contracts. Yeah, the other key differences really between the two is typically the term, but a lot of the provisions and rights enjoyed by either the government or us are pretty, pretty similar.

[Joe Gomes, Noble Capital]

Okay, and then one last one for me, and I'll get back in line. So on the litigation expense, you said that roughly $52 million. Do you have any insurance coverage for any of that?

[David Garfinkle]

Yeah, Joe, and that number that we reported in the financial is net of the remaining insurance that was be applicable to that case.

[Joe Gomes, Noble Capital]

Okay, thank you. I'll get back in queue.

[David Garfinkle]

Thanks Joe.

[Damon Hininger, President and Chief Executive Officer]

Thanks Joe.

[Operator]

Our next question comes from Ben Briggs, StoneX Financial.

[Ben Briggs, StoneX Financial]

Hey, guys, thank you for taking the questions. So kind of circling back to the US Marshal Service and the contract, they have stated that they will not be renewing and just use an example, Crossroads Correctional Center contract that expires at the end of June. Do you expect the state of Montana to take over? Can you just talk about what this transition exactly is going to look like and what if any material costs will be associated with it when it does happen?

[Damon Hininger, President and Chief Executive Officer]

Yeah, good question. This is Damon. Thank you for that. So basically what would happen in that situation would be the more service you're going to have the less than 100 beds at our Crossroads facility, the vast majority is hold but are housing Montana department correction inmates. And so the thought would be is that the Marshals would transition a population out actually to a local facility or two. And then that population that's at the local facility to that held by the DOC actually would go to Crossroads, so almost a swap, they won't be exactly that way. But it's probably the best way to describe it. It's kind of a swap of populations from a county facility to our facility with the federal population and DOC population. Incremental costs will be a little bit of cost, I'm sure with transportation and probably some transitions that will help with the Marshal Service and the Department of Corrections. But CapEx wise or staffing wise, probably nothing material. But anything you'd add to that, Dave?

[David Garfinkle]

Yeah. I think in the case of Montana, the contracts align pretty closely with the expiration, now that it's been – the Marshals contract's been extended. I think it's through June. And then a new contract year begins for Montana, July 1. So they're able to transition smoothly. There'll be minimal disruption at that facility. Again, it's less than 100 detainees for the US Marshals at that facility. So not that big of an exercise to move the detainees out and new Montana inmates if that's the direction we go. Northeast Ohio is a little bit larger. So we had over 850, say Ohio inmates there and one point we were less than 800 US Marshals detainees. So that's a bigger exercise and a longer transition period. So I would expect a little bit of disruption there toward the middle of the year as we transition the US Marshals out and hopefully, Ohio backfilling that space. But again, no, don't think – no, we wouldn't have any CapEx or any other capital costs associated with either of those two transitions.

[Ben Briggs, StoneX Financial]

All right, great. Thanks very much. That's going to be the only one for me. I appreciate the time guys

[David Garfinkle]

Thank you.

[Damon Hininger, President and Chief Executive Officer]

Thank you, sir.

[Operator]

Our next question comes from Kirk Ludtke, Imperial Capital.

[Kirk Ludtke, Imperial Capital]

Hello, everyone. Can you hear me?

[David Garfinkle]

Yes. Good morning.

[Damon Hininger, President and Chief Executive Officer]

Good morning Kirk.

[Kirk Ludtke, Imperial Capital]

Hey, I think you mentioned that there may be some changes in the way the family centre will be used going forward. Can you elaborate on that? And what the financial impact may be?

[Damon Hininger, President and Chief Executive Officer]

Yeah, good question. So the administration, you may have seen kind of more globally reported, they really are trying to expedite the time in custody or the time in detention for populations you hear and it is not only for a couple of minors, but I think they're talking about generally to about families and adult males and females. And so what we're doing at South Texas, which historically have pretty short time in custody anyway, usually two or three weeks, they're looking to try to shorten it to about two or three days. So it's about 72 hours. And so in kind of perspective – from an operational perspective, I should say, what that means is also a lot more folks coming in and out the facility much more faster.

So it's probably going to – we are – reconfiguration in space around intake, helping to support the medical provider there, which is actually the government, because obviously, they're going to have to do a lot more screening much more quickly of populations going into the facility, especially with COVID. And so a little bit of CapEx around those type of adjustments within the fiscal plan. And then we are tweaking staff appropriately too just because again, we just need to be able to scale up and help with quick turnaround to these families. But I don't know if you have anything you'd add to that, Dave?

[David Garfinkle]

Yeah, on the revenue side, the fixed monthly payment, so there'd be no impact on top line there.

[Kirk Ludtke, Imperial Capital]

Okay. Great. On Alabama, you mentioned that the number of beds won't increase. I think I read somewhere that 11 of the older facilities will close when the new – the three new facilities are opened. Do you know how many of the 11 will close when the two facilities you're building are open?

[Damon Hininger, President and Chief Executive Officer]

Yeah, good question. I think Alabama has given themselves a little flexibility on that question specifically. They've indicated that just over half of their currently operating facilities would be closed with the new facilities. But the timing and order probably still to be determined since that's probably a decision that doesn't have to be made now and it's probably a year or two out. But anything you'd add to that, Dave?

[David Garfinkle]

Yeah, right. That's exactly right. It's a three year construction timeline. So they've got plenty of time to make those decisions and I don't know that they've actually definitively made them yet. So we don't know. But you're right, there'll be no incremental bed capacity in the state by constructing the two that we're going to construct, and then the third that they have on the docket as well. So it would just be replacement capacity, and they'd be shuttering some of the older, outdated facilities.

[Kirk Ludtke, Imperial Capital]

Okay, and then presumably, the people that work at those facilities that are closing will have an opportunity to work at the new facilities.

[David Garfinkle]

Yeah, I think that's for the most part. That was a very conscious thought and where the new facilities are going to be located, proximity, so that they could transfer to the new facilities from the old ones.

[Kirk Ludtke, Imperial Capital]

Okay. Do you know how much the state saves by closing those old facilities?

[David Garfinkle]

I've heard numbers in the upper 70s million dollars on an annual basis in total expense savings by eliminating the repairs. The inefficiency from having disparate or facilities spread out, you've got 11 or more, it could be more than 11 that you're consolidating into three facilities. So you gain a lot of efficiencies from a staffing, because you don't – you've got everything concentrated in one place. So among the staffing, the maintenance and all the other operational expense savings, I believe it's in the upper $70 million range.

[Kirk Ludtke, Imperial Capital]

Okay. Can you elaborate on how the new facilities would improve quality of life for inmates?

[Damon Hininger, President and Chief Executive Officer]

Dramatically, to give you a guess a couple of visuals, mind visuals, I mean, you think about some old facilities, they've got there, some of them are up to 100 years old and so if you've ever done a tour of an old facility like Alcatraz, I mean, it's just – the design and the quality of that construction in the late 1800s, early 1900s, I mean, just very poor line of sight. A lot of these facility built that time not capable of having air conditioning or modern HVAC systems, even if you try to retrofit smaller cells, smaller program space, I mean program, sorry to say programming was not a big priority, when facilities were built during that period of time in the country's history. So these new facility is going to be big. They're going to have cells and day rooms and hallways and service areas that are a lot bigger.

Obviously, going to have air conditioning, going to have your modern HVAC systems, which is – from a comfort perspective that's extremely important, but even more so now, in this environment where you've had this pandemic, I mean, just imagine a 100 year old prison with a pandemic, it's very hard to segregate and quarantine and deal with a virus like we've had with COVID-19 this past year. Additionally, I mean, there's a concerted effort on more program space, more medical space all the key kind of knowledge service that programs that help expand academic and vocational offerings. I mean, I can keep going on and on. But it'll be especially for the inmates, but also the staff, I mean, it just will be a dramatic improvement in the quality of life for inmates, but also the kind of safe and secure kind of feel, I think to staff will be dramatic. I don't know if you have anything to add to that, Dave?

[David Garfinkle]

I think you hit most of them, but mental health. So there's – the first facility that we're constructing will have a mental health unit dedicated for mental health needs. So that will be able to help some of the inmates who are in the system as well. So natural lighting, I think is the other one that you didn't mention, Damon, but everything else. Yeah, it's the work program space, more space in general. And that does – that's focused in on the inmates, but the staff with the air conditioning is a big deal in Alabama. So I think that will make it easier for them to recruit and retain correctional staff.

[Damon Hininger, President and Chief Executive Officer]

And Kudos I'll just say within your question, but I'll just say kudos to Alabama, the governor, the Department of Corrections, I mean, they have really felt strongly and as you know, they've taken a lot of hits unfairly and inappropriately here in the last year or two, but to be kind of strong advocates to say, hey, we're going to do better in the state, we're going to improve the conditions for the people that are entrusted in our care, help them have a setting that is safe and secure, but again, allow them to appropriate access to medical, mental health programs, but also for the people that put the uniform every day and go through those front gates. That's the place that they feel proud to work at that they feel safe and can be very effective in their mission and not have to worry about some of the challenges of physical plant that's been 100 years old, are great.

[Kirk Ludtke, Imperial Capital]

Got it, I appreciate it. Thank you.

[Kirk Ludtke, Imperial Capital]

Our next question comes from Kenneth Williamson, JP Morgan.

[Kenneth Williamson, JP Morgan]

Hey, guys, thanks for taking my call. I just – I don't know if I missed this earlier. But when you were talking about the refinancing during the quarter, but has there been any progress made in discussions to extend the revolver?

[David Garfinkle]

That'd be next on the list. Yeah, we took care of that 2022 maturities. So we had enough cash on hand and resources through the revolver to repay the '22 notes when they were scheduled to mature. So raising 450 million and redeeming all of those. And in fact, redeeming 149 million of the 2023 notes really puts us in a much better position to refinance the – or extend them at maturity on the revolving credit facility. We have less need for it, certainly, because we pushed out maturities and are in really good position to meet the next maturity and the non-bank credit facility maturity would be the 200 million of senior notes in 2023.

So that is next on the list. We'll evaluate later this year, certainly no later than next year. And what the appetite is for the banks, what the terms look like? So we've already begun those conversation with banks. We've mentioned before we've had conversation with banks, not in the credit facility, to try to garner some interest and gauge their interest in coming into the facility. And I think we've got some, some – I think we're optimistic on what we can do there. We've mentioned before, it's a billion dollar credit facility, we do not need a billion dollar credit facility, we don't need half that size. So we'll pay a certain amount for additional liquidity. But there's a size that we can operate, it's very small, and then there's kind of want to have or there's difference we want to have a need to have. So that is next on the financing agenda, though.

[Kenneth Williamson, JP Morgan]

Okay, fair enough. And then for the Alabama facility, do you have a sense for when you might be able to complete the financing aspect of that transaction? Have those conversations advanced any since last quarter?

[David Garfinkle]

Yeah, so we were getting ready to price a few weeks ago. And so we're kind of taking a reset, got to update the legal documents. Change against conduit issuer. There's a lawsuit right now in the state. We'll see what impact that has, if any, on the timing. But I would expect later this quarter, we'll be able to take it back out to market, but that's not yet been definitively determined.

[Kenneth Williamson, JP Morgan]

The lawsuit, is that – is CoreCivic subject to that lawsuit, or is that between the state and –

[David Garfinkle]

It's primarily for the state. I think the argument was that the transaction leases weren't structured in accordance with Alabama law. The two entities that are the lessors have been named in those lawsuits. So yes, I guess is the short answer to your question.

[Kenneth Williamson, JP Morgan]

Got it, okay. All right, thank you.

[Damon Hininger, President and Chief Executive Officer]

Thank you.

[David Garfinkle]

Thank you.

[Operator]

I'd now like to turn the call back over to management for closing remarks.

[Damon Hininger, President and Chief Executive Officer]

Thank you, Travis. And thank you everyone for your interest in CoreCivic and joining our call today. As a reminder to our shareholders, next week is our Annual Shareholder Meeting. Once again, this year, we are hosting the meeting virtually. The virtual format was successful last year, and we have made enhancements to improve the experience for all participants and for interested parties who cannot participate in the live event. Once again, shareholders will have an opportunity to ask questions about the company. So we encourage your participation. Thank you again for joining us today.

[Operator]

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.