David Garfinkle: Yes, I mean, California was just using it. They just left the facility in March. So obviously, everything, all the systems are up to-date, so don’t have to put any CapEx in for those things. I think, like Damon said, it depends on who the user would be, and every user is a little unique in their needs. And Damon outlined the details for ICE. So I estimate it’s hard to tell without a real opportunity in front of us, but it could range from very minimal to, I don’t know, $15 million, $20 million, maybe higher than that. But I think that’d be a lot depending on the customer.
M. Marin: But it also sounds to me, from what you’re saying, that if some of those modifications were made, it would also have a positive impact on your per diems in the facility. Is that the right way to think about it?
David Garfinkle: Absolutely, yes. I mean, we build that into our pricing model and make sure that we get an adequate return for any CapEx that we have to put into it.
Operator: One moment for our next question. Thank you. Our next question comes from the line of James Godvin of StoneX Group Incorporated. Your line is now open.
Ben Briggs: Yes. Hi, this is actually Ben Briggs from StoneX.
Damon Hininger: Hey, Ben.
Ben Briggs: So — hey, guys. How are you? So first of all, congratulations on the quarter and congratulations on being able to raise the guidance.
Damon Hininger: Thank you.
Ben Briggs: Really a strong showing here. So most of my questions, frankly, got addressed, but one that I wanted to dive in a little bit on is obviously a lot of the federal government increase in revenue came from ICE, and that was driven by some of the immigration issues we’ve seen in the changes in policy during the year. You also saw a pretty significant increase in state and local revenue. I know that some of that was driven by new contracts that you won over the course of the last year or so. But could you give any insight into if there’s any macro drivers that’s driving that increased demand by states and localities? And is any of that additional revenue due to increased headcount at contracts that already existed prior to these new ones being added during the year?
Damon Hininger: Thank you for that question. Make sure I understand kind of the gist of your question. So you just some of the macro drivers that are driving state populations is that particular kind of the gist of your conversation, what’s driving that?
Ben Briggs: Precisely, yes. Got you.
Damon Hininger: Very good. Well, so I point to two things. The first is kind of everything related to COVID. So what we saw during COVID on the state populations is that they had the usual behavior of discharges, people getting into sentence that they would get released from prison. But people coming into prison that slowed down pretty dramatically because people that were maybe arrested of a crime and were held in a local jail, say at a city or county facility, their cases were not getting adjudicated because the courts were closed during the pandemic. And so what we saw kind of 2020, 2021, 2022 and even a little bit into 2023 is that jail populations were increasing dramatically around the country. In fact, I think on the last quarter or maybe two quarters ago, I shared the metric of a two-year trend of 22% increase in jail populations nationally.
So that’s every city or county that operates a jail, and that’s — we think that’s a record. We don’t think we’ve ever seen a percentage increase like that in a short period of time. And again, what the data indicated, but also what we hear anecdotally is that courts were closed, people were arrested, cases were not getting adjudicated. So populations were swelling at the local level, which meant that they were not getting ultimately convicted in the sentence of a crime once their case got adjudicated and going to a prison. So now, what we’re seeing is courts are back to natural, kind of regular order. People are going through the process, getting their cases adjudicated. And now the population is coming pretty dramatically, pretty quickly into the state level.
What the states had done during COVID since populations went down, they took either units in some cases, some states took actual prisons offline. So they closed them because they maybe were old, antiquated, hard to staff, maybe all the above. And we’re hearing anecdotally from a lot of the jurisdictions, they don’t want to reopen those units or facilities for all the reasons I just said. So their footprint, basically their sizes, their capacity in their system shrunk. And so we think that’s again, number one, why we’re getting a lot of quick engagement from our partners, either existing or new partners, that they need help and they need it quickly. Again, I’d point to Montana and Idaho and a couple other jurisdictions for that. The second piece, which is kind of this point going forward is that there has been a fair amount of activity both this year and really by the last two years within state legislatures on adjustments to sentencing reform.
And so most states do a five-year forecast. I’m sure we’ll get another set of new forecasts after all these sessions are adjourned around various state legislatures around the country. But what the data indicates is that the next three years to five years are looking at pretty meaningful increases in most, if not all states. And so part of it, so to answer your question again, part of it is the going back during COVID and how that created some real constraints in the system because of courts being closed. And then the second part is that going forward the next three years to five years, a lot of states are looking at pretty significant increases because again, of changes, maybe in sentencing reform. Anything you’d add to that, David?
David Garfinkle: Yes, no, I think at a macro level, our state populations, if you back out the facility in Oklahoma that transitioned from one that we operated to one that we leased, if you back that one out, our populations were up a few percent from Q1 2023 to Q1 2024. And then going back to the discussion we had earlier about wage increases and getting reimbursed through per diem increases, it’s the combination of those that’s driving the revenue. But certainly, as Damon mentioned more thoroughly, the demand and the challenges that our state customers are facing are getting more intense.
Ben Briggs: Got it. That’s incredibly helpful. Thank you. So one follow-up question to that is that as these states and localities are utilizing and have demand for more and more space, I know that historically the U.S. Marshals Service has used some in addition to you guys, has used some state and local space to house their detainees, are states and localities going to be faced with a situation where they don’t have enough space to lease to the U.S. Marshals Service? And could that create opportunities for you guys in the future?
Damon Hininger: Yes, that’s a great question. And I think the short answer is absolutely. I mean, we’re hearing a little bit of that, not only anecdotally, but also a little bit in our system where maybe a jurisdiction. Yes, it’s either out of space. Another part of it is that, I mean, the federal government to their credit, and they’re seeing this for ICE too, I mean, they’re raising the bar on operational standards and requirements. And so we’re hearing through our — through those two partners, Marshals Service and ICE is that some local agencies not only don’t have capacity for all the reasons we just talked about, but also maybe they’ve kind of thrown up their hands and say there’s just no way we can comply with these standards that these agencies are requiring at the cities or counties that they house population.
So I think kind of both those factors are drawing or driving a little bit of opportunity and demand for us to use capacity in our system because we wear it as a badge of honor. These requirements and standards that we have to comply with. We’ve been doing that for years, and at the end of the day, we think that’s the right thing to do to improve the quality within our facilities. But also we’re very supportive of on-site monitors, contract monitors, whatnot. And I know a lot of local jurisdictions are not too keen to that type of oversight. So yes, I think that’s exactly right.
Ben Briggs: Okay. Great. Very — that’s very helpful. And then last one from me is just regarding labor, I know that temporary labor usage has been an issue. It seems like it’s less of an issue now, as you guys are getting more staffed up, would you say that we’re back to a run rate as far as temporary labor is concerned? And would you consider yourself fully staffed as far as permanent labor is concerned, or is there potentially a little bit more hiring to do?
Damon Hininger: Good question again. I’ll tag team a little bit of Dave on this one. I would say we’re close on the second part of your question. Not quite there, but we really have gotten pretty darn close on permanent staff. So, yes, we’ve seen a lot of improvement on that in probably the last 12 months to 18 months. On the temporary staff, we’ve had said in our remarks, I mean, a lot of improvement on it front, but probably not quite. Keep me honest here, Dave, probably not quite where we were pre-COVID.
David Garfinkle: Yes. There’s a few facilities where we’re still deploying temporary staff. It’s certainly not the magnitude it was throughout 2023 or even 2022, and we still do continue to incur some of those temporary incentives for that staff. So I would expect as the year goes by, we will have higher staffing levels, but less reliance on temporary staff. So it’s a continuation of that trend that we’ve been seeing over the past several quarters.
Ben Briggs: All right. Great. That’s extraordinarily helpful. Congratulations again on the quarter, and thank you for taking the questions.
Damon Hininger: Thank you, sir.
David Garfinkle: Thank you so much.
Operator: One moment for our next question. Thank you. Our next question comes from the line of Kirk Ludtke of Imperial Capital. Your line is now open.
Kirk Ludtke: Congratulations on the refi.
Damon Hininger: Thank you so much.
Kirk Ludtke: Just a couple follow-ups on California City. You mentioned that this used to be an ICE, Marshals facility. What — and that the current or the population, the ICE population was 34,500. It’s probably higher now. At what level — what national ICE population would you think; ICE would have to be before they would reopen an idle facility?
