CoreCivic, Inc. (CXW) Q4 2021 Earnings Report, Transcript and Summary

Good morning. My name is Anita, 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 Fourth 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]. I would now like to turn the call over to Cameron Hopewell, CoreCivic's Managing Director of Investor Relations. Mr. Howell, you may begin your conference.

Thanks, Anita. 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 will focus on our financial results for the fourth quarter, our 2022 full-year financial guidance, 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 fourth quarter 2021 earnings release, issued after market yesterday, and in our Securities and Exchange Commission 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 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.

Thank you, Cameron. Good morning, everyone, and thank you for joining us today for our fourth quarter 2021 earnings conference call. Going to our agenda for the call, we will provide you with a breakdown of our fourth quarter financial performance, recent developments in our ongoing response to COVID-19, discuss business development opportunities and the latest developments with our government partners. We will also provide you with an update on our capital allocation strategy, and I will discuss our full-year 2022 financial guidance, issued in our press release yesterday. I will then turn the call over to our CFO, Dave Garfinkle, who will review our financial results and our 2022 guidance in greater detail, and we'll update you on our ongoing efforts to enhance our capital structure. In the fourth quarter of 2021, we generated revenue of $472.1 million, which was consistent with the prior-year quarter, despite the sale of 47 noncore real estate assets within our Property segment in multiple transactions between December of 2020 and June of 2021, and our decision to exit 2 managed-only contracts with local governments in the state of Tennessee during the fourth quarter of 2020. Collectively, the assets we sold and managed-only contracts we exited accounted for revenue of more than $15 million in the prior-year quarter. For the full year of 2021, we generated normalized funds from operations, or FFO, of $225.5 million, or $1.85 per share, which was a decline from the $2.25 per share we generated in 2020. Now the year-over-year decline was driven by our election to become a taxable C-corp, effective January 1, 2021. For illustrative purposes, we have presented the calculation of normalized FFO for each quarter of 2020, pro forma to reflect the estimated taxes had we been a C-corp in 2020 in our quarterly supplemental financial information package on our website. 2020 pro forma normalized FFO was $228.8 million, or $1.89 per share, so our financial performance in 2021 was very consistent with the prior year, despite executing several transactions that strengthened our balance sheet but negatively impacted earnings, as Dave will review in further detail. In early January of this year, we were awarded a new contract with the State of Arizona to care for up to 2,706 adult male residents at our La Palma Correctional Center for the Arizona Department of Corrections, Rehabilitation and Reentry. We were deeply honored to be selected by the state, following a public competitive procurement process. The new contract has an initial term of 5 years and includes an option to extend the term for an additional 5 years. This new contract represents the largest contract awarded to the private sector by any state corrections agency in over a decade, which is expected to generate approximately $75 million to $85 million in annualized revenue upon reaching full utilization while the La Palma facility currently supports the mission of Immigration and Customs Enforcement, or ICE, our largest federal customer, by caring for approximately 1,800 detainees. As a result, we are currently working with both the Arizona Department of Corrections, Rehabilitation and Reentry, and ICE on a plan for transitioning resident populations from ICE detainees to residents from the state of Arizona. While the plans are not yet finalized, we currently expect the transition to begin late in the first quarter or early in the second quarter of 2022 and completion of the transition taking place in the fourth quarter of 2022. We are working closely with ICE to facilitate a smooth transition of their detainee populations to other facilities, including facilities where we have available capacity within the region. We are pleased to be in a position to once again provide you with forward-looking financial guidance for 2022. Our full-year 2022 financial guidance forecast normalized FFO per share in the range of $1.55 to $1.70 and adjusted funds from operations, or AFFO, per share in the range of $1.48 to $1.63. Our guidance reflects a continuation of utilization restrictions placed on our facilities by many of our government partners because of the ongoing COVID-19 pandemic. We would expect to generate positive earnings growth when COVID-19 restrictions are relieved and capacity utilization is allowed to return to pre-pandemic levels, but we currently cannot forecast the timing of these changes. We are also forecasting higher operating expenses due to above-average wage inflation we are experiencing across the country. In 2021, we invested the largest wage increases the company has given to CoreCivic team in over a decade, and we are forecasting additional meaningful investments in 2022. Our guidance also reflects the transition of resident populations at our 3,060-bed La Palma Correctional Center as a result of the new contract with the State of Arizona, which I discussed earlier. The transition is expected to take place over the majority of 2022, beginning late in the first quarter or early in the second quarter. So, for much of the year, we will have disruptions of earnings and cash flows until utilization of the facility by the State of Arizona reaches stabilization. The La Palma facility is the second-largest property in our portfolio, so these transition-related expenses in 2022 are a meaningful headwind compared to 2021. Dave will provide greater details about our fourth quarter financial results, as well as some of the more significant assumptions included in our full-year 2022 financial guidance, following the remainder of my comments. We will start our operational and business development discussion with a brief update on the impact of COVID-19 pandemic and our ongoing response. We continue to see criminal justice-related populations meaningfully below their pre-pandemic levels. The declines have mostly been due to a reduction in new intakes, rather than early releases. Governments have acted faster to transfer certain residents assigned to reentry facilities to nonresidential statuses, such as furloughs, home confinement, or early releases, to create additional space for enhanced social distancing within facilities. The trends have not yet begun to meaningfully reverse. However, during the fourth quarter, we did see the continuation of a recent trend of many of our state customers increasing their utilization of our safety facilities, which contributed to a modest increase in utilization compared to the prior-year quarter. Our safety statements facility utilization was 73.8% in the quarter, an increase of 110 basis points compared with the prior-year quarter. Our Community segment was relatively consistent with the prior-year period. As courtroom operations gradually reopen and operations normalize, we anticipate increased need and utilization to continue in both segments. This trend has also motivated us to raise staffing levels in anticipation of possible higher capacity utilization requirements needed by our partners later this year going into 2023. Pertaining directly to COVID-19, the rate of positive cases around the nation rose dramatically during the fourth quarter due to the emergence of the more transmissible Omicron variants. We experienced an increase in the number of positive cases among staff and residents across many of our facilities during the fourth quarter, but the impact has been less significant to our operations than in the first year of the pandemic. We believe the rate of vaccinations of our facility staff and resident populations and the well-established safety protocols we put in place have certainly helped mitigate the impact of the Omicron variants. However, positive cases around the country remain high, and therefore, the time line for normalization of facility operations to remove various protocols that were enacted in response to the pandemic continue to be extended. Leading health experts have indicated the widespread, rapid transmission of the Omicron variant could lead to an end of the pandemic. But until that occurs, we remain vigilant in our efforts to mitigate the transmission of COVID-19 across our facility operations. I should say, though, the significant decline in new cases nationally over the past few weeks is so very encouraging to us. Finally, the most substantial challenge in today's environment continues to be attracting and retaining qualified employees. The nation has experienced a meaningful reduction in workforce over the last 2 years, and it remains unclear how quickly workforce participation will improve once the pandemic reaches its end. However, we have been nimble in our response to the staffing challenges. We have responded to the challenge by aggressively developing new and creative hiring and retention strategies. And as a national employer in the private sector, we have a lot of tools we are deploying in this environment. These include increasing wages, providing housing solutions, sign-on and retention bonuses, and multiple other incentives and programs that we can increase engagement, a sense of shared mission, and overall job satisfaction. We have worked with many states to increase starting wages for our correctional officers by well over double-digit percentages. It is important to note that our government partners have been very collaborative in this effort by supporting our request for per diem increases that reflect above-average wage inflation in the current market. In 2021, our average per diem increased by approximately 6.1%, more than double our historical averages, as a direct response to the wage inflation we are experiencing. The support of our government partners allowed us as a company to provide the largest wage increases in over a decade, and we are committed to utilizing all necessary resources to address this challenge. We expect wage inflation to remain elevated in 2022, and we are working closely with our government partners to be able to continue to invest in our employees and facility operations as high inflation persists. I will move next to discuss some recent federal and state-level business development updates, beginning first with our federal customers within Department of Justice, the Federal Bureau of Prisons, or BOP, and the United States Marshals Service, or USMS. The BOP experienced significant declines in their inmate populations in the last decade, and we have significantly diversified our business to other government partners. Our last remaining prison contract with the BOP is our McRae facility in Georgia, which expires in November of 2022, representing less than 2% of our total revenue. We anticipate that contract will not be renewed and have already begun marketing the facility as a potential solution to other government partners. Following the anticipated nonrenewal, revenue from the BOP will come exclusively from multiple smaller residential [indiscernible] facilities providing services through our community segment. As for the USMS, their overall prisoner populations have remained relatively consistent in recent years, so their need for capacity around the country remains unchanged. The USMS continues to navigate the impact of the executive order signed by President Biden and issued in January of 2021 that directed the attorney general to not renew Department of Justice contracts directly with privately operated criminal detention facilities. Last year, we had 4 direct contracts with the USMS that were set to expire. In the first half of 2021, we were able to enter into new contractual arrangements for our Northeast Ohio Correctional Center and Crossroads Correctional Center in Montana to remain operational and serve various government partners, where both facilities previously had direct contracts with the marshals. In the second half of 2021, our contracts with USMS at our 600-bed West Tennessee Detention Facility and 1,033 bed Leavenworth Detention Center expired, and federal detainee populations were transferred to alternative locations. Much of the staff from both West Tennessee Detention Facility and Leavenworth Detention Center have been redeployed to other facilities we operate and could return, should we be successful in securing opportunities at these facilities with other government partners. The impact of these contract non-renewals are fully reflected in our full-year 2022 financial guidance. In 2022, we have no direct contracts with USMS that are set for expiration and now have only 2 total remaining direct contracts with the USMS that are set to expire in later years. We continue to work closely with the USMS to ensure their capacity needs are being met in order to support their critical public safety mission. Immigration and Customs Enforcement, or ICE, is our third federal partner and is within the Department of Home and Security. They continue to be the government partner with the most significant impact from COVID-19 on their capacity utilization. Nationwide, ICE detainee populations remained well below the historical levels throughout 2021. During the fourth quarter of 2021, ICE detainee populations remained relatively flat quarter-over-quarter. As a result, our facility utilization levels continue to remain materially below historical averages. Current utilization levels are also well below the number of beds funded through the annual budget appropriation process. At the end of 2021, ICE detained approximately 21,000 individuals nationwide, while they are funded for approximately 34,000 detainees. The largest driver of their lower utilization levels has been the enactment of Title 42, since March of 2020, which prevents nearly all asylum claims at the country's borders and ports of entry, in order to prevent the spread of COVID-19. Instead, Title 42 allows for individuals apprehended at Southwest border to immediately be expelled to Mexico or the individual's country of origin. Administrative changes and core decisions have occurred since the original enactment of Title 42, which have enabled unaccompanied minors, many family units, and some individual adults to remain -- to enter and remain in the United States while their immigration cases are adjudicated. As I discussed last quarter, these changes have essentially no impact on the demand for our traditional detention services by ICE because we do not house unaccompanied minors in any of our facilities, and our one facility that had a family mission, the South Texas Family Residential Center transitioned to an adult female mission in the fourth quarter of 2021. We have historically provided ICE with detention capacity for adult populations, and it is unclear when Title 42 will no longer be applied to all adults. Certain factors, such as criminal histories or previous deportations, may compel the government to keep individuals in custody instead of applying Title 42. These situations appear to be the primary driver of the increase in ICE utilization we have experienced in 2021. However, the elevated rate of apprehensions along the Southwest border that have persisted for the last year have created an increased demand for nonresidential alternatives to detention, or ATDs. In fact, legacy ATDs program for ICE, which is called the Intensive Supervision Appearance Program, commonly referred to as ISAP, has doubled the number of active participants in the last year. This is quite significant, because at the beginning of 2021, ISAP was already the largest nonresidential electronic monitoring contract in the world. The rapid increase in utilization of ATDs has a potential to create new market opportunities in areas where we have the core competency to compete and win new business. In fact, just this last month, ICE issued a formal procurement for a new case management ATD program, specifically for young adults. The program is intended to provide monitoring services for participating non-dangerous, low flight-risk young adults, ages 18 to 19 within a framework that promotes compliance with immigration obligations, until removal or other resolution of their immigration cases. This program is designed to assist young adults who age out of the custody of the Office of Refugee Resettlement, ORR, O-R-R, the agency that is responsible for carrying for unaccompanied minors apprehended along our Southwest border until they reach age 18. We are actively evaluating those procurement details, and we know that these case management services are consistent with the type of case management services we can provide in our community segment. Additionally, whenever Title 42 is rescinded, we believe there will be a significant surge in the need for detention capacity. Our facilities support ICE by providing safe, appropriate housing and care for individuals as the agency works through the various processes associated with the individual's immigration case, deportation order, or initial processing. While we have no involvement or influence on anyone's immigration-related case, we know these matters are often quite complex, and typically, they take days or weeks to be adjudicated. This results in a need for various solutions and a diverse portfolio of real estate across the country to provide housing and care for individuals while they are an ice custody. Our facilities serve as a critical component of the real estate infrastructure needed by ICE to help them carry out their mission. Moving now to state-level developments and opportunities, as I mentioned earlier, we are deeply honored to have been selected as part of the competitive procurement process for our new 2,006-bed contract with the state of Arizona. I mention this contract once again in order to highlight that the opportunity was not a result of population growth, but instead was a result of outdated and inefficient government-owned and commercial assets that have far exceeded their useful lives. Arizona will be closing that facility, originally constructed in the early 1900s, and moving into our La Palma facility, which is only 14 years old. We see the same situation across the country, and we expect more and more correctional systems to begin seeing the wisdom of updating their correctional infrastructure to improve safety for staff and residents, increase access to life-changing rehabilitative programming, and improved health outcomes with modern facilities. Recently, the governor of Georgia released his budget proposal for the next fiscal year, which includes a plan for closing multiple outdated state-owned facilities. State budgets across the country are strong, with many states forecasting significant budget surpluses. These robust market conditions could push states to make the bold choices necessary to address longstanding issues within their corrections infrastructure, and we believe we can help deliver many of those solutions. These opportunities come -- could come to market through a formal procurement process, such as the potential opportunity in Hawaii to replace the state's largest jail facility. In prior quarters, I have highlighted that we anticipate a formal procurement for this project to be issued this year. Other opportunities could come through sole-source negotiations. We remain actively engaged with states across the country to ensure that they are educated on the solutions we can provide. 'll close out my comments by briefly providing an update on our capital allocation strategy. We remain committed to reaching and maintaining a total leverage ratio, or net debt to adjusted EBITDA, of 2.25x to 2.75x. Using the trailing 12 months ended December 31, 2021, our total leverage ratio was 2.9x. As we detailed last quarter, we expect the leverage to slightly increase during the fourth quarter, due primarily to the timing of semiannual interest payment on our debt. However, we continue to generate positive cash flows and expect leverage to continue to decline throughout 2022. Our credit facility is scheduled to expire in April of 2023, so we will soon be looking to extend its maturity. We currently have no drawn balance on our revolving credit facility and only $170 million outstanding on our term loan A, so we will significantly reduce the current $1 billion size of the existing credit facility. As a C-corp, we no longer need a credit facility of the current size, and we believe our debt reduction strategy over the last 18 months has positioned the company well to enter into a new credit facility cost effectively. We continue to believe our capital allocation strategy is the most prudent approach for positioning the company to generate long-term value through a stable capital structure and continue to cost effectively meet the needs of our customers with less reliance on outside sources of capital. However, within the next quarter or two, we expect to be in a position to shift our capital allocation strategy to one that, once again, returns a portion of our cash flows to our shareholders, while continuing to reduce leverage. The valuation of our equity remains well below its fair value, and we feel strongly that once we achieve our debt reduction goals, we could create substantial value for our shareholders by repurchasing shares. One final comment: I would like to express my deep appreciation and gratefulness for our CoreCivic team. Their passion and heroic efforts supporting the individuals in our care during this pandemic has been inspiring to see, and for that, I remain thankful and honored to work alongside them. I especially want to thank our Board of Directors and government partners for their support in allowing us to make historic compensation investments that we have made in our team these past few years. I'll now turn the call over to Dave to provide a more detailed look at our financial results in the fourth quarter of 2021, discuss in detail our newly released full-year 2022 financial guidance, and provide additional financial updates. Dave?

Thank you, Damon, and good morning, everyone. In the fourth quarter of 2021, we reported net income of $0.23 per share, or $0.27 of adjusted earnings per share; $0.48 of normalized FFO per share; and AFFO per share of $0.41. Adjusted and normalized per-share amounts exclude $4.1 million of noncash expenses for the write-off of costs associated with the pay-down of our term loan B and an impairment charge of $2 million to write down an asset held for sale to its fair value less cost to sell. Financial results in 2021 reflect a higher income tax provision under our new corporate tax structure, compared with 2020, when we operated as a REIT. For illustration purposes, in the supplemental disclosure report posted on our website, we present the calculations 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 applying an estimated effective tax rate of 27.5%. Adjusted net income per share in the fourth quarter of 2021 of $0.27 compares to $0.30 on a pro forma basis, applying this estimated effective tax rate for the fourth quarter of 2020, while normalized FFO per share of $0.48 compares to $0.53 on a pro forma basis for the prior-year quarter and AFFO per share of $0.41 compared to $0.48 on a pro forma basis for the prior-year quarter. The decline in adjusted per-share amount was primarily the result of property sales and refinancing transactions, both of which strengthened our balance sheet, and an increase in G&A expenses. Facility-level EBITDA increased $6.1 million to $139.2 million in the fourth quarter of 2021 from $133.1 million in the fourth quarter of 2020, excluding $2.8 million of COVID-19 expenses. The growth in facility EBITDA was achieved despite the sale of 47 noncore assets since the end of the third quarter of 2020. The 47 properties that we sold accounted for $7.4 million of facility EBITDA in the prior-year quarter. Therefore, excluding these sales, facility EBITDA increased $13.5 million, or 11% from the prior-year quarter, demonstrating strong core operating results. A decrease in consolidated adjusted EBITDA to $103.2 million in the fourth quarter of 2021 from $108.7 million in the prior-year quarter was impacted by an increase in G&A expenses. The increase in G&A expenses was mostly attributable to lower incentive compensation in 2020 due to the onset of COVID-19, after metrics had been established under our incentive compensation plan, while financial performance in 2021 exceeded targets. As mentioned, our per-share results in the fourth quarter of 2021 were also negatively affected by the property sales and numerous refinancing transactions that were dilutive for the quarter, as we paid down low-cost, short-term, variable-rate bank debt with the proceeds from the property sales and issued new, unsecured senior notes that have interest rates higher than the debt we repaid. The property sales and refinancing transactions strengthened the balance sheet by lowering our overall debt levels and extending our weighted average debt maturities, but resulted in a reduction in per-share results by approximately $0.07 from the prior-year quarter. Occupancy in our safety and community facilities continues to reflect the impact of COVID-19, but increased to 72.5% in the fourth quarter of 2021 from 71.6% in the prior-year quarter, and increased from 72.1% in the third quarter of 2021. The impact of COVID-19 began in the second quarter of 2020, as populations, primarily ICE, declined sequentially throughout 2020, as the Southwest border was effectively closed to asylum seekers and adults attempting to cross the southern border without proper documentation or authority, in an effort to prevent the spread of COVID-19. This policy, known as Title 42, has continued through today, and ICE detainee populations, therefore, remain well below historical levels. Pre-pandemic, our occupancy was 81.9%, translating into a decrease in our average daily population by about 7,000 residents. COVID-19 has placed restrictions on our bed utilization that is expected to result in enhanced earnings power when relieved. Operating margins were 28.4% in the fourth quarter of 2021, compared with 25.7% in the prior-year quarter and 27.2% in the third quarter of 2021. The increase in our operating margin percentages primarily reflects the continuation of lower cost trends, impacted by the pandemic-related capacity and operating restrictions. Further, staffing in this challenging labor market has been increasingly difficult, and we have provided annual, as well as additional off-cycle, wage increases and special incentives to help address depressed staffing levels. Our government partners are experiencing the same staffing challenges, which has contributed to some of the per diem increases we have been able to achieve. Turning to the balance sheet, as of December 31, we had $300 million of cash on hand, which was after the repayment during the fourth quarter of 2021 of $90 million of the outstanding balance on our term loan B, which matures in 2024, reducing its outstanding balance to $128.8 million as of December 31. Including the repayments of the mortgage notes associated with the aforementioned sale of noncore assets, during 2021, we reduced our total net debt balance by $444 million and our net recourse debt balance by $276 million. Although leverage was up slightly from the third quarter of 2021, as expected, for changes in working capital that we discussed on our previous earnings call, as of December 31, leverage measured by net debt to EBITDA was 2.9x, down from 3.7x at the end of last year. During 2022, we expect to be sustainably within our targeted leverage range of 2.25x to 2.75x, positioning us to return capital to shareholders. Returning capital to shareholders has been in our capital allocation plan following our priority of reducing debt since we made our announcement in August 2020 to revoke our REIT election. In fact, it was part of the rationale for revoking our REIT election. Since that announcement, we have made great strides in enhancing our capital structure by revoking our REIT election, selling noncore assets, thereby accelerating our debt reduction, accessing the debt capital markets, extending debt maturities, and positioning the balance sheet to enable us to take advantage of growth opportunities and return capital to shareholders. These steps have also enabled us to reduce our reliance on our revolving credit facility, which has a borrowing capacity of $800 million. We fully repaid the $112 million outstanding balance on our revolving credit facility during the third quarter, which has remained undrawn since. The credit facility matures in April 2023, and we currently expect to obtain a new facility in the near term, reducing the capacity and extending the maturity, enabling us to continue operating with flexibility and cost efficiency. Moving lastly to a discussion of our 2022 financial guidance, for the full year 2022, we expect to generate EPS of $0.72 to $0.86 per share, FFO per share of $1.55 to $1.70, and AFFO per share of $1.48 to $1.63. These ranges are a bit wider than we have historically provided because of the uncertain environment in which all businesses continue to operate, such as the tight labor market and higher inflation, as well as uncertainties that are unique to CoreCivic such as the transition of populations at our second largest facility, immigration policies, and government funding priorities. As mentioned, we continue to operate under COVID-related restrictions on bed utilization implemented by many of our government partners, which will eventually be relieved. However, the timing of when these restrictions are lifted is uncertain, and we are not only retaining staff levels at certain facilities in anticipation of these restrictions being lifted, but expect to increase staffing levels at other facilities in order to prepare for an increase in demand for our bed capacity. Likewise, it is also difficult to predict when Title 42 will be lifted. The Biden administration just extended Title 42, and it continues to be evaluated every 60 days. We expect the demand for detention housing to increase whenever Title 42 is lifted. Our guidance contemplates a persistent challenging labor market, where we expect to continue to provide wage increases and various types of incentives to attract and retain staffing levels, which were depressed during 2021 because of the occupancy restrictions and labor shortages in many of our markets. Our government partners have been supportive of per diem increases above historic averages in response to the wage inflation we are experiencing, and we will continue to work closely with our government partners to provide ongoing support to our employees and facility operations in this inflationary environment. But when combined with the aforementioned higher staffing levels, we expect operating margin percentages to trend toward those we experienced pre-pandemic. As Damon mentioned, we were extremely pleased to have been awarded a new contract from the State of Arizona to care for up to 2,706 inmates at our 3,060-bed La Palma Correctional Center in Eloy, Arizona, the second largest facility in our portfolio. We are currently working with Arizona on a ramp plan that is expected to begin late in the first quarter or early in the second quarter of 2022. We currently care for 1,800 ICE detainees at this facility and are simultaneously working with ICE to coordinate the transition of their populations to other facilities, including at facilities where we have available capacity within the region. This transition is a significant undertaking and is expected to result in the disruption of earnings and cash flows for most of the year, until the occupancy of inmates from the State of Arizona reaches stabilization, not currently expected to occur until the end of the year. The range of our financial guidance reflects a number of assumptions with respect to this transition. Our guidance does not contemplate any new management contracts other than the new Arizona -- award from Arizona or significant changes in occupancy, which could provide some upside to our guidance if we are awarded any other new contracts, such as those Damon described, or if an increase in demand occurs sooner than we are forecasting. Any new federal contracts would likely require longer-term funding levels for the federal government approved by Congress, which is difficult to predict if and when that might happen. Our guidance also reflects the termination of contracts at the Leavenworth and West Tennessee facilities, as well as at the managed-only Marin County Jail. For modeling our quarterly results, as a reminder, compared to the fourth quarter, Q1 is seasonally weaker because of 1 fewer day in the quarter and because we incur approximately 75% of our unemployment taxes during the first quarter, resulting in a collective $0.03-per-share decline from Q4 to Q1. The EBITDA guidance in our press release enables you to calculate our estimated annual effective income tax rate of 26% to 30% and provides you with our estimate of total depreciation and interest expense. We expect 2022 G&A expenses to be comparable to 2021. During 2022, we expect to incur $63.8 million to $66.3 million of maintenance capital expenditures, in line with 2021. We also expect to incur $12 million to $13 million for facility renovations, including $3.1 million at La Palma for the new Arizona contract, down from $19.1 million in 2021. With depressed occupancy levels, we are in a position to significantly grow earnings whenever the impact of COVID-19 subsides, without the need to construct new capacity. I will now turn the call back to the operator, Anita, to open up the lines for questions. Anita?

[Operator Instructions]. We'll take our first question from Joe Gomes with Noble Capital.

So I wanted to start maybe here with Arizona, trying to get just a little more color here. First, on the ICE populations that you're moving, you keep saying they're moving to other facilities, including ones where you have excess space right now. Do you anticipate all of the ICE population to move into your facilities? Or is there an option for ICE to move some of those into other non-CoreCivic facilities. And two, you talked about the disruption of earnings and cash flow as you transfer the ICE out and Arizona in, and I know it's in your guidance. Can you get any type of quantification to what that disruption of earnings and cash flow is going to be?

Joe, thank you for that. I'll tackle the first part of your question, and I'll let Dave tackle the second part of your question. So for the first part, we started conversations with ICE well in advance of the due date at the proposal to Arizona. So we -- as you know, we've got a 40-year relationship with ICE. We're always talking to them about kind of their emerging or growing needs in certain parts of the country. So we, well in advance before we put in the paper on a proposal, we had a conversation with ICE. And with that, to say, if we did submit a proposal and we were successful on La Palma being the place [indiscernible] its new contract, give them ideas on alternate capacity that we would have available within our system, notably within the state of Arizona. So we can't say definitively right now, because as we said earlier, it's still a work in progress on kind of the ramp. But clearly, we've got capacity in Eloy. As you know, we've got the Eloy Detention Center just down the street from La Palma, and then we've also got capacity over in Florence, Arizona. But I think also, as I think you're well aware, ICE has got one facility, a processing center in Florence, too. And I'm sure that will be part of the equation as they think about, once we finalize the ramp-down of the population in La Palma, think about where we've got capacity available, but also maybe some capacity that's got with their own facility. So, a little bit more of kind of stay tuned. We're still in kind of active discussions with ICE on that. But as always, we've been very transparent, very collaborative, and obviously want to make sure that they could fulfill their mission on the Southwest border, primarily with their needs within the State of Arizona. But Dave, I'll let you tackle the second part there.

Yes. It's really difficult, Joe, to give you an amount, because that's one of the probably two to three main reasons our guidance range is so wide. As you know, it's wider than when we previously provided guidance; the range is thinner. And the two main reasons are really La Palma, and more -- probably a larger impact would be wage increases and our ability to get per diem adjustments that mitigate those wage increases. So I'd hate to provide you with a number, just because it is so fluid, particularly because we don't have a ramp plan. But one additional thing I'd say, in addition to Damon's comments is, at the La Palma facility, these are very short-term, transitory detainees. So it's not so much transferring the populations from one facility to another. It's really changing the flow of intakes and releases and the whole immigration process from one facility to multiple other facilities. And, as Damon mentioned, we have capacity, our Eloy facility, which is right down the road, so we'd expect that facility to start increasing the number of intakes that they receive. Does not require a contract modification; they could really just change the processing of the detainees currently at La Palma over to Eloy, as well as in Central Arizona, where we also have capacity. So it's very difficult to estimate the amount, because we don't know how many people will ultimately be processed at Eloy, Central Arizona, and other of our facilities. Because, while it's convenient to have facilities on the Southwest border, and that's where they would be logically processed, it's not -- ICE has the ability to transport them, fly them to other facilities. And we do see intakes at other facilities even outside of Arizona for people who are apprehended along the Arizona border. So, for all those reasons, it's just too difficult to give you a range for what the impact would be of the whole La Palma, Arizona ICE transition.

Okay. And just a little follow-up on the higher wages. And you talked -- I think you mentioned the -- your government partners, you saw like a 6% increase in the per diem for covering some of the higher wages that you guys are experiencing. How much of the overall wage increase would those types cover? Is it covering everything? Is it 50%, 75%, and how delayed is it? Is it more of a, we know we're going to get the higher wages covered, it's just on a delayed basis? I mean, maybe you can just kind of walk us through how that whole process works.

Absolutely. So let me just back up a tad and remind the audience, we've obviously got just over half of our business with the federal partners and another half with state partners. So as a reminder, our federal partners, we have -- we are required by contract to pay wage determinations, and those wage determinations are set by data from the Bureau of Labor statistics. And so, with wage inflation happening and likely will happen during the course of the foreseeable future, if those wages go up, we have to, by contract, adjust our salaries accordingly, and with that, have an equitable adjustment feature within our contracts to get reimbursed. So that, in that case, is dollar for dollar. On the state side, we've had really good success, and this is probably an obvious point, but the reason I think we've had good success is not only just a great relationships -- we've got our various state partners around the country -- but also our state partners own facilities, where they own and operate their own facilities, are dealing with the same challenges from a labor perspective like we are. So we're really hand-in-hand with the leadership with the Department of Corrections in these different jurisdictions around the country in asking for additional funding to raise salaries. And so, it's been pretty darn good. I mean, we've had good success on not only making the case of where we think salaries need to be -- and again, we're doing that in collaboration with the Department of Corrections -- but also doing it that quickly, and then with that, getting reimbursed fairly quickly. It's not perfect, but the overlap has been pretty tight, I should say, relative to when we want to do something versus when we get clarity on the reimbursement. So -- and I'll just tell you, Joe, being with this company 30 years and working with a lot of state partners the last 20 years, the rapport and the relationship and the partnership we've got with our state partners has never been better, especially in this environment. There's great appreciation and sensitivity to the labor market and understanding we just need to invest more in our employees with the very challenging mission they have, period, but even more so here in the last 24 months with a pandemic. But anything you would add to that, Dave?

Now that there have been more frequent communications, obviously, and some states have even provided temporary stipends that we get reimbursed to provide to our correctional officers as well. It's been a few states, not across the portfolio, but they're just -- the number of unusual adjustments we're making to salaries and corresponding per diem adjustments. Some of it is temporary to get through the fiscal year ended June 30, and then you'd expect to incorporate some of those into both the long-term wages and a long-term per diem adjustment. But it's just been extraordinary, the adjustments that we've been making and the extraordinary adjustments our partners are providing, as well, to help us support the staff and our operations.

Okay. And on ICE, if you look, and you guys kind of touched on a little bit, if you look at their monthly ADP, they kind of went up from the pandemic lows of the mid- to low teens to the mid-20s. It kind of backed off here lately to the low 20s. How have you guys' ICE populations been holding up across your system?

Yes. I think relatively stable.

Yes, they were very stable, especially if you're comparing Q4 to Q3, they were about flat, almost to the detainee. I think that was somewhat impacted by the Omicron variant because we started to see an increase in some detainee populations earlier in the year and then continue into Q3, but they kind of leveled off and remained flat in Q4. So, with the data getting better on the number of people infected by the Omicron variant of COVID, hopefully, those populations would trend similarly.

Okay. And then, maybe we could just switch gears here for a minute, if I can get one more question in here on the capital allocation. I think you mentioned you're trying to get the credit line facility done here shortly. And maybe give us some kind of timing and maybe just an idea of what kind of size you're looking at now versus where it was. And then, you mentioned share repurchases. When do you think you would go to the board looking for authorization for share repurchases? I don't know if you -- it's probably too early, but I'm going to ask you anyway. And what kind of size would you be talking about here on the share repurchase authorization that you would see?

Let me -- I'll let Dave do the first part second. I'll do the last part first, and that is the buybacks. So we've got a board meeting actually coming up next week. We've had really good, positive conversations with the board, really over the last 24, 36 months on all these really important decisions and things that we've executed on, from the conversion to a C-corp to the selling of assets that were noncore to some of the refinancing transactions we've done this past year. The board has been extremely, extremely supportive. And along the way, obviously, we've been talking to major investors to get their feedback and really appreciate not only their feedback, but really endorsement of the steps that we've been taking. So we, as we've said in the prior couple of quarters, really the next kind of key to-do on the list is the credit facility. And so, I'll let Dave talk about that in a minute, but I'd say once we get past that milestone, again, we've been -- have active conversations with the board. We'll talk about this again next week. But they agree, and again, we're getting good feedback from investors that, let's get the credit facility kind of done, get it finalized so we've got certainty both on the extension and the size, and then we can go to the next item on the to-do list, which is returning capital to shareholders, potentially through a share buyback program. But, Dave, I'll let you tackle the first part.

Yes. Thanks, Damon. Yes. So, as we mentioned, the total facility size today is $1 billion. We don't need anywhere near that; probably 1/4 to 1/3 of that size is what I estimate, and I think we'll have that buttoned up within the next few months with the maturity in April '23. It becomes current in April of '22. There is 0 balance on the revolver today. As I mentioned, we paid that off in the third quarter and have not used the revolver, have not drawn on it since then through today. We have $170 million on the term loan A, and we've got $300 million of cash on the balance sheet. So I think we're in a really, really good position from a debt maturity, being able to address maturities and still return capital to shareholders without needing to draw on a credit facility to any great extent. Nice to have one just for working capital purposes and things like that. So I would estimate, like I said, 1/4 to 1/3 of its size, and we should have that buttoned up over the next few months.

Great. I'll get back in queue, let to someone else ask some questions.

We'll take our next question from Kirk Ludtke with Imperial Capital.

As always, very, very helpful. A couple of topics. A follow-up on the guidance, and then maybe I'd like to touch on this monitoring opportunity and the Georgia opportunity, if I have time. With respect to the guidance, I think you mentioned that it does not reflect any new contracts, including contracts at West Tennessee or Leavenworth, if hopefully, I heard that correctly.

Yes, that's correct.

Could you give us -- I remember it seems like there was an RFP out for at least one of those facilities. And I was just curious if maybe you could give us a little more color as to where those discussions stand. And then I've got a couple of follow-ups on other topics.

Yes, sir. So this is Damon. So I think you're referring to West Tennessee. We did have very productive conversations with a couple of different government partners on that facility. And our sense is, and we've had interest from ICE probably most notably in that facility. Our understanding is that they're trying to get some clarity on the rest of the funding for this fiscal year. So, as you may know, the current federal government is funded through February 18. There has been some news reports here in the past week that they're potentially going to do a very short-term extension, maybe to early into March, and then do a full year funding. So our understanding, that is going to be kind of the milestone they'll be looking at on not only what their potential needs are going to be based on the funding they get from the budget, but also, again, as I said earlier, Title 42 and some of the other kind of policy things that they put in place, how that reconciles what kind of their needs this fiscal year going to the next fiscal year. So those are the things we're in looking at closely.

And Kirk, yes, you're correct. Our guidance is conservative with respect to both West Tennessee and Leavenworth and does not include any new contracts in 2022.

Got it. And on that topic, did the marshals enter into contracts to replace the capacity that they had at West Tennessee and Leavenworth, or are they still in place?

They've replaced. So it's our understanding they looked at either other government entities, either at the local level or the Federal Bureau of Prisons. And that's actually been one of the things they've put on the table with the enactment of the executive order, even going back to Ohio and Montana, that they were looking at all alternatives, and then based on all those alternatives kind of prioritize what is the most advantageous for their needs kind of going forward with those respective districts. So it's our understanding they looked at and utilized local capacity, and also capacity within the Federal Bureau of Prisons.

Okay. Got it. And then you mentioned this new monitoring program. Does -- is it incremental to -- I know there are -- ICE already has some monitoring contracts out there. Is it incremental to those contracts? Or does it cannibalize those contracts?

Good question. It's incremental. So it's our understanding with kind of this uniqueness of potentially, individuals that were initially unaccompanied minors that were under authority of another jurisdiction, as they reach age 18 or above, they're looking for a solution for that population -- so basically, 18- to 19-year-old males in different parts of the country. So it would be an addition to not in place of.

Okay. Excellent. And is it too early to estimate how big it might be and what -- if you win it, what the capital requirements might be?

It would be -- to the first part, yes, I'd say it's too early to say. It just came out here within, I think, the last 14 days, so we're still kind of assessing both the need and the opportunity and the size. But the second part, at the moment, we don't think there's going to be a big capital requirement. Still assessing that, but that is our kind of read at the moment.

Okay. Great. And then lastly, if I can squeeze this in, on Georgia, you mentioned the governor's budget includes some facility closures. And I know the lead time on these types of things can be long. But do you have a sense for timing and how many individuals are detained at those facilities that are potentially closing?

Yes. The first part is probably the easiest part. So the governor released a budget. I think Governor Kemp released it within the last probably 2 weeks. And don't hold me to this, but I want to say history has indicated that they usually enact their budget usually late April or early May. I think I've got that right in Georgia. Every state's a little different. So that, obviously, will work its way through the legislature. I'm sure legislature will have pretty strong feelings on this. Notably, if there is going to be multiple facilities closed in various districts around the state, that potentially are sensitive to these members of both the legislature and the Senate. But that, I think, is when we'll get clarity, ultimately, what is enacted when that budget gets finalized -- again, probably late April or early May. I think -- keep me honest here, Dave. I think we have heard it's probably a couple of thousand beds, maybe up to 3,000 beds potentially, they are looking at for potentially a population that would be displaced with multiple facility closures that are envisioning.

Yes, I think it was 3 to 5 facilities. I think they named a couple of them. But it's interesting that it sounds an awful lot like the same situation that Arizona was in where they had an outdated correctional facility that was obsolete and it needed to be shut down, so transferring the populations to the private sector. So we've talked about in the past that opportunity, either through the development opportunity and where we'd just be the landlord and managing the real estate, or an opportunity like Arizona, where we also manage the population. So we continue to believe that that's an opportunity going forward with a lot of states throughout the country with outdated criminal justice infrastructure that could result in a growth in our business without an increase in overall inmate populations. They're just transferring from older, outdated facilities to newer facilities.

Interesting. Do you have capacity in Georgia for that --

Yes. I mean, we mentioned the facility that currently has a BOP contract that expires in November. So, if that one is not renewed, that would certainly become available.

Got it. Fantastic. I appreciate it.

We'll take our next question from Ben Briggs with StoneX Financial.

So I think you addressed most of my questions on the higher general and administrative costs that we saw this quarter. So, if I heard you correctly, those were due entirely to increased incentive comp, correct?

Yes, if you're comparing Q4 '21 to Q4 '20, yes, almost -- a substantial portion of it due to higher incentive compensation, because as I mentioned, we haven't set -- the compensation committee had not set compensation level targets, or they had already been said, I should say, before the onset of COVID-19 in 2020. In this year, there were a couple of unusual, might even categorize them as nonrecurring expenses in Q4, if you're comparing it to Q3. But as I indicated in my comments, our 2022 guidance reflects a G&A level that's very comparable to the total G&A expense in 2021.

Right. Okay. So that increased G&A expense is going to kind of be offset a lower G&A expense later in the year, is kind of what it sounds like you're alluding to.

Yes. Correct; that's a fair statement, yes.

Got it. Got it. That's very helpful. And then next thing for me, so obviously, inflation is on the top of everybody's minds, and you guys addressed inflation, specifically wage inflation. Are you seeing any cost inflation impacting any purchased goods either in OpEx or CapEx? I know obviously, there's not a ton of purchased goods in your business, but you have food. And then obviously, for CapEx, it could impact some of that. So I'm curious to hear about what impact you're seeing from inflation.

Yes. I mean, for the most part, it's in salaries and wages, that's 2/3 of our cost structure. So I mean, we are seeing inflation in other expense areas, but those are not needle-moving for us as much as the salaries and wages are. We don't have -- I mean construction costs are certainly going up, but we don't have construction going on at our facilities. As I mentioned, our maintenance CapEx in '22 is comparable to 21%. Some of the costs in the construction area are higher, but that's factored into our guidance. So for us, unlike many other companies throughout the country, inflation is not as impactful.

Okay. All right. That's very helpful. I appreciate the time.

We'll now take our next question from Marla Marin with Zacks.

So I'm just wondering, it sounds like we're sort of in a situation now where you could see some really nice opportunities emerge, given the state of infrastructure of some of these federally or state-owned facilities. But given the challenges with hiring and all, what are you thinking in terms of are you hearing of anything? Is there -- are there certain geographic areas where you think you're more likely to be presented with an opportunity? And given what we're seeing with wage inflation and difficulties in actually even hiring people, what would be the timing, do you think, if you were presented with the new opportunity?

Yes, great question. Again, this is Damon. I'd say to the first part, pretty much nationwide. I mean, we've seen here in the last couple of years, especially with the property solutions in places like Kansas and New Mexico materialize. Again, we've talked about Arizona where, again, we're replacing the 110 or 120-year-old prison with our La Palma facility. We talked about Georgia and Hawaii earlier. So it's really kind of nationwide where you've got a lot of jurisdictions. And I think, to be honest, I think its manifested itself even more so here in the last 24 months, just because everybody has appreciated this old antiquated infrastructure is very difficult when you're living through a pandemic like we have with COVID-19 -- very hard to quarantine, very hard to make sure that transmission is limited if you don't have new modern HVAC systems and whatnot. So I think a lot of these systems knew they needed to improve, but even more so here in the last 24 months, just because they've had kind of tragic consequences with their facilities because of COVID-19. On the staffing front, again, we've got increases that we've put in place, and we're seeing great response where we've done these increases around the country. I'm encouraged. Labor workforce participation is starting to improve a little bit in certain parts of the country. So I think along with that and these wage increases, and again, I'll just reinforce, our partners have been extremely supportive of the need for these increased investments and in turn, reimbursing us through a per diem adjustment. So part of the lean forward this year is not just obviously to keep up on the labor market needs around the country, but also part of it is, I think as we all continue to feel pretty darn good -- obviously, we're not sure if we're there yet, but continue to feel pretty good that we're getting out of this pandemic -- we're starting to lean forward a little bit on increasing our staff and in anticipation that some of these restrictions will be eased and we'll see some of the capacity that we were utilizing kind of pre-pandemic come back online, so getting ourselves prepared from a staffing perspective. But anything you would add to that, Dave?

Not directly to your question, Em, but I put registry nursing in the same category as staffing. I mean, the national shortage of nursing, our health services department has done a fantastic job in identifying and coming up with resources to fill the shortage of nursing that we see across the country, but nothing else to add to the rest of your answer there, Damon.

We'll now take our next question from Jordan Sherman with Ranger Global.

A couple of quick ones. Did you quantify the amount of incremental labor expense you think you'll have in '22 versus '21? And then, how much of that do you think be able to offset -- directly offset with increased per diem?

Yes. No, that's the real tough question to answer. I think last year, I don't know, correct me if I'm wrong, Damon, I think it was around a $30 million number that we provided total aggregate wage increases. And I'd say we have at least that in the 2022 guidance number. But it is a moving target because it's a very dynamic environment in the labor market. And the other offsetting question is per diem adjustments, which our government partners, as we've mentioned, have been very supportive of per diem adjustments because, quite frankly, we're part of their system. So they don't want us stealing their staff. We don't want to steal their staff. And market's market. So it's been -- they are understanding of the challenges that we have because they do what we do. So that's just a very difficult question to answer to say what is the bottom line impact in our 2022 guidance of both wage increases and offsetting per diem adjustments. They're both in there, but that's the reason we have a wide range.

Yes, understood. That makes sense. And the disruption in -- what would be the -- your approximate disruption of revenue as a result of the La Palma transition? And is there any incremental cost associated with that as well?

There's -- we have about $3 million of capital expenditures that we'll be spending on renovations at the La Palma facility. What we've said is the annual revenue amount for Arizona is $75 million to $85 million, once they reach stabilization, which, again, we don't expect them to reach full stabilization until the end of the year. So again, difficult to say what the reduction in revenue would ICE be, especially if you're taking into consideration potentially just transferring that revenue from La Palma to other facilities in the region. So again, tough question to answer there, but $75 million to $85 million is the annual revenue for Arizona. So that would be the 2023 number, for example.

Okay. And I guess the question, what was the government's run rate in '21 for that facility?

We don't disclose that level of detail on revenue for our individual facilities.

Okay. So is the per diem going up or down? I guess the two questions are change in per diem and change in expected utilization -- full utilization, once all is said and done.

I would say the economics are very similar between the two contracts. So depending on how much we're able to transfer to other facilities, it's certainly -- if you look at '23 and assume that all of the ICE detainees were to go away -- and again, I don't want to lead you to believe that that's going to happen because we do have capacity in the region -- but the economics would be similar in '23 as they were in '21 with the Arizona contract.

So part of the gap in your guidance is you don't know exactly how this transition is going to work. You know when the ICE people are leaving the facility. You don't know exactly how quickly Arizona will ramp up. And so you --

You got it. And we also -- we are going to -- it's 2,700 Arizona inmates compared to 1,800 today, and that population fluctuates with ICE. And it's a longer-term sentenced population with Arizona. So we have programs, we have services that we have to offer that population that is not needed for an ICE population. So ramping up that staffing in anticipation of receiving the additional Arizona inmates is also part of that disruption.

Yes. And just to reinforce, I mean, it's our second-largest facility. So it's 3,000 beds. It's a very large facility, probably one of the largest in the country. So again, just imagine the ramp-down of the population from ICE, the ramp-up of Arizona population. Those were going to overlap, and then obviously, along the way, you've got to do all the appropriate training to make sure our employees meet all the training requirements. So a lot of moving parts that obviously, again, be very disruptive to earnings this year. The only thing I would just say is that Dave indicated that the earnings performance of '23 will be similar to the earnings performance of ICE in '21. But one thing I would just say is probably the earnings kind of ups and downs a little bit are probably a tad more stable with Arizona, just because that is going to be a longer-term population, which you indicated that it will be there for programs and other services. So you may not see as much volatility in earnings from, let's say, a year-over-year or quarter-over-quarter versus a state contract.

Once, I mean the government -- the ICE contract, right, from the state contract, got it. Can I just ask -- I know people have asked a couple of different questions about this potential alternative new ATD alternatives to detention contract. Can you just talk in round terms about the economics of that, how that actually works?

I can't speak to the economics yet, just because, again, it's only been out for a couple of weeks. But keep me honest here, Dave. I know the advertisement indicated probably about 16,000 participants.

Right.

So it gives you a sense of at least the quantity of people that would be in the program. And then it's our sense -- again, we are just now getting through the process on the proposal, but it'd be my sense that they probably would pay on a per-individual basis. So the actual participants in the program would be reimbursable to us from ICE. But again, obviously, more to learn, but at least the amount, which is 16,000, gives you a sense of the quantity.

I apologize. You answered the question I asked, but not the question I was hoping you could answer. I meant more in general. Not specifically to this contract, but in general, how do those contracts -- like what are the economics of those contracts for you? You have some in place now. Like, how does that look on a per-day basis, on a revenue, on a margin basis? I guess that's what I was sort of aiming at. And again, it can be round numbers, so you after disclose anything you don't want to disclose.

Yes. We -- and so, to be clear, we don't have an agreement in place like this with ICE. So this -- we provide these type of services with other jurisdictions and even on our community and safety segment. But to be clear, we don't have an existing contract today where I could point to relative to kind of revenues and margin. What I would say though, generally, obviously, we look at this throughout the entire profession and market. What I would say is, generally, the margins are actually pretty consistent with what you'd see in our owned and safety -- our owned and managed segment. So kind of 20% to 30% margins is typically what we have in that segment. And I'd say, generally, that's what we observe with other providers providing these solutions for the government.

And per diems in what kind of ranges for existing, not for ICE but for any other -- just some idea of per diem.

Yes, that being through a pending competitive procurement, it probably wouldn't be appropriate for me to give any detailed cap rate.

Fair enough. Okay. We'll follow up on that.

We'll now take our last question from Michael Christodolou with Inwood Capital Management.

Good discussion, and thanks for all the time on the call. I've got a few questions about occupancy and operating leverage. So first, at La Palma, Damon, you mentioned that's your second-largest facility. As I look at the sheet, it's I think the second-lowest occupancy right now at 60%. So looking through all the noise of 2022, it looks like that facility might jump to 88% occupancy when things stabilize in 2023. What kind of operating margin lift should that facility have, again, under a normalized cost structure? And then, I guess the same question would apply to the whole system. You're at 75,000 beds, 73% occupancy. La Palma would add 3.6 points, gets you towards 77%. You might lose a little bit, as you say, if ICE takes some prisoners back to Florence. But it looks like you could be high 70s operating margin or utilization. And then if you had Title 42 or COVID relax, could we see north of 80% occupancy? And talk through maybe what the operating leverage would be at that point.

Yes. I'll let -- great question. I'll have Dave tack a little bit on La Palma specifically, but let me tackle the last part of your question. We were -- I think -- keep me honest here, Dave. I think pre-COVID, we were, I think, system-wide in the low 80s.

81.9%, yes.

What was it?

81.9%.

81.9%. So I think yes, and we were getting great momentum there. You may remember, I mean, with a lot of new contracts, especially on the state side. So yes, again, being about 7,000 beds away from that mark, potentially, you could have -- keep me honest here, Dave -- probably $40 million to $50 million in EBITDA growth without a single dollar deployed for capital. So we think that's very, very possible. And again, that's why we're leaning forward this year a little bit to get staffing levels back to a level where we could get to that occupancy, potentially as early as the next, say, 24, 36 months. But I'll let you tackle the first part of that question, David, La Palma.

Yes. So La Palma, in 2021, has been subject to the occupancy restrictions for ICE to prevent the spread of COVID-19. And across the ICE portfolio, I think they tried to keep occupancy below 75%. You're right. I would say, generally speaking, across the portfolio, it is a leveraged model. You get mostly fixed costs. Your staffing doesn't fluctuate that much unless you're opening up a new housing unit or closing a housing unit. So obviously, the higher the occupancy, the more leveraged the model becomes, and the higher your margins are. And to go back on Damon's point, yes, at 81.9%, that was actually the number I was using in my script by saying we're down 7,000 residents from 2019 occupancy levels. If you just took Q4, it was 79.4%. So that would be about 5,200 residents that translates into about $45 million of incremental EBITDA, if you were to get those residents back.

Okay. And then, David, just one last question. You talked through the debt and the cash balance and the revolver. Where does the term loan B fit into the picture on that? Your most onerous on the covenants and the second-highest [indiscernible].

Yes, we paid it down by $90 million in the fourth quarter. It has a balance of about $130 million, I think it's $129 million outstanding as of the end of the year, and it matures in 2024.

There are no further questions at this time. This concludes today's call. Thank you for your participation. You may now disconnect.