Thank you for standing by, and welcome to the CoreCivic Fourth Quarter 2023 Earnings Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. Mike Grant, Managing Director of Investor Relations.

Thank you, operator. Good morning, ladies and gentlemen, and thank you for joining us today. Participating on today's call are Damon Hininger, CoreCivic's President and Chief Executive Officer; and David Garfinkle, our Chief Financial Officer. We are also joined here in the room by our Vice President of Finance, Brian Hammonds. On today's call, we will discuss our financial results for the fourth quarter of 2023 as well as financial guidance for the 2024 year. We'll also discuss developments with our government partners and provide you with other general business updates. During today's call, our remarks, including our answers to your questions will include forward-looking statements pursuant to the safe harbor provision 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 2023 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, management will also discuss certain non-GAAP measures. A reconciliation of the most comparable GAAP measurement is provided in the corresponding earnings release and included in the company's quarterly supplemental financial data report posted on the Investors page of the company's website at corecivic.com. With that, it is my pleasure to turn the call over to our President and CEO, Damon Hininger.

Thank you, Mike. Good morning, and thank you for joining us for our fourth quarter 2023 earnings call. On today's call, I will provide details of our fourth quarter financial performance and introduce our 2024 full-year financial guidance. I will also discuss with you our latest operational developments, and update you on the latest developments with our government partners. Following my remarks, I will turn the call over to our CFO, Dave Garfinkle, who will review our financial results and our 2024 financial guidance in greater detail. He will also provide a more detailed update on our ongoing capital structure initiatives, including debt reduction, share buybacks and our new bank credit facility obtained in the fourth quarter. I'll now provide a brief overview of our fourth quarter financial results. In the fourth quarter, we generated revenue of $491.2 million, which was a 4% increase compared to the prior year quarter. This increase comes in spite of the expiration of our final prison contract with the Federal Bureau of Prisons at our previously owned McRae Correctional facility in November of 2022 and the expiration of our lease agreement with the Oklahoma Department of Corrections at our North Fork Correctional Facility on June 30, 2023. Excluding these two expirations, our total revenue increased 6%, demonstrating strong occupancy and revenue growth from our CoreCivic Safety and Community portfolios. We generated normalized funds from operations, or FFO of $51.3 million or $0.45 per share compared to $49.1 million or $0.42 per share in the fourth quarter of 2022, representing a per share increase of 7%. The increase in FFO was driven by the higher federal and state populations combined with lower interest expense resulting from our debt reduction strategy. The increase in FFO occurred despite the sale of our McRae facility and the expiration…

Thank you, Damon, and good morning, everyone. In the fourth quarter of 2023, we reported GAAP net income of $0.23 per share compared to $0.21 per share in the prior year quarter. Adjusting for special items, adjusted EPS during the fourth quarter of 2023 was $0.23 compared to $0.22 per share in the prior year quarter. Normalized FFO per share was $0.45 during the fourth quarter of 2023 compared with $0.42 in the prior year quarter. As we disclosed last year, adjusted and normalized figures in the fourth quarter of 2022 included the impact of certain tax credits we were entitled to under the CARES Act. These credits were reflected as a reduction to operating expenses and favorably impacted per share results by $0.02 in the prior year quarter, net of related expenses resulting from the credits. The increase in adjusted EPS and normalized FFO per share resulted from higher occupancy from federal and state populations, the continued normalization of our operating expense structure and lower interest expense partially offset by an increase in G&A expenses. The trend of increasing ICE detention populations nationwide continued during the fourth quarter, albeit at a slower pace than the second and third quarters, following the expiration of Title 42 on May 11, 2023. Title 42 is a policy that had been used since March 2020 that denied entry at the U.S. border to asylum-seekers and anyone crossing the border without proper documentation or authority in an effort to contain the spread of COVID-19. At December 31, 2023, ICE detention populations nationwide were up to 37,131, a 5.2% increase from September 30th. Average daily ICE detention populations within our facilities increased by 2023 residents or 23% during the fourth quarter of 2023 compared with the third quarter. Note that due to fixed payments at…

Certainly. [Operator Instructions]. Our first question comes from the line of x. Your question please.

Good morning, Damon and David. Nice quarter.

Hey, good morning, Joe.

Good morning, Joe.

Thank you so much.

So I wanted to start with the ICE populations in the quarter. It sounds like you had some good growth sequentially there. And kind of like where are we today. And kind of in conjunction with that, going through the supplemental, it looks like you had two facilities that were not yet to 75% occupancy to ICE facilities at the end of the year. Where are they today? And how do we get those up and above that 75% occupancy level?

Yes. So Joe, let me tag team with Dave on that one. First part of your question, as of yesterday, our total population in our facilities from ICE was at 11,334. So I give you a real-time number on current utilization. And I think that's up, I think we did see a little bit of which is pretty typical at that time of year with the holidays, I think we saw a little decline between Thanksgiving and Christmas again, that's pretty typical based on seasonality. And then maybe just a quick comment. Obviously, you probably know as much as I do and just kind of following the discussions within Congress between the Senate leadership and House leadership and where that all ends up. I know there's a lot of people that don't know if that's going to be the path forward on the funding for additional resources with ICE with that's kind of bigger bill with Ukraine and Taiwan and is real funding. So again, we'll see what happens here in the coming days and weeks. So on a parallel path, we'll watch off closely. The current fiscal year, as you know, is funded through early March, and we'll be watching closely on kind of what appropriation of adjustments are done there, especially for DHS and ICE and Border Patrol. But on your facilities, let me pass it over to Dave.

Yes. I think, Joe, you may be asking kind of where the facility stand-alone to fixed payments because not all of our facilities have those fixed payments. So I'm not sure which facilities you're referring to that are below the 75%, they may or may not have fixed payments. But in total, we're really clearing those fixed payment hurdles at this point. They are probably in aggregate across the portfolio. A few hundred below the fixed payment level. So they're not thousands. So any incremental populations at this point would translate into incremental revenues for the most part.

Okay. Great. Thanks. And then in the guidance, you talked about you're assuming kind of the flat ICE population. As we all know, the funding for last year was 34,000 beds. We're at 38,500, I think, was the most recent ICE population number. When you look at your guidance, are you expecting to be at that 34 level for funding? Or do you think it stays more in that 38? Just trying to get a little more detail there?

Yes. That's -- I'll let Dave talk a little bit about our actual guidance, but I just -- the bigger number for ICE, so all populations, not just CoreCivic, it's kind of hard to say. They've been working, as you know, since October 1st under continued resolutions. And so basically, that's taking the funding level from last year of 34,000 in this year. So they clearly feel like they're in a position to go a little higher than that as we've gotten into a couple of months into the fiscal year. So could they go ahead and maybe fund that for the rest of the year at 34,000, but still run at 38,000. That possible. As you know, last year, they did, I think the reprogramming, I think during the middle of the fiscal year, that may be part of the strategy that maybe Plan B don't know. But again, I think the next couple of weeks will be pretty critical on determining obviously what happens for the rest of the year. I will say, though, that -- and maybe a little more to your second part of your question about the guidance. The national number, obviously, that will go up and down. It didn't necessarily go in proportion with our populations. So the national number maybe go down a little bit, but our population is pretty flat. And based on utilization and what we're hearing kind of on the ground with our various stakeholders from ICE and the different parts of the country where we operate gives us some comfort that we've got a pretty good number for the rest of the year, but let me add -- let Dave add to that.

I think probably at a high level, Joe, the guidance would reflect populations consistent with what we saw in the fourth quarter. So we're not anticipating a supplemental funding going through or even when funding gets refreshed on March 8th, whether that's a continuing resolution or a full budget for the rest of the year. We're not anticipating significant increases. And as I mentioned in my prepared remarks, if they do see increases in funding for detention beds that could be upside to our guidance. And likewise, we're not assuming a decline in those populations, or populations, like I said, probably from the fourth quarter. So pretty stable populations, at least at the federal level throughout 2024.

Okay. Thanks. Damon, you didn't mention anything really on the U.S. Marshals Service. I'm wondering if you might give us a little update on that client?

Yes, I appreciate that question. Yes, we're basically just kind of seeing a steady as it goes. The populations have been up or down a little bit nationally. Our populations also fit up down a little bit. I think the national population right now for the March service is around 57,000 and 58,000. That's been pretty stable over the last probably six, eight months down a little bit over the last two, three years. But last -- again, six, eight, 10 months we're pretty stable. So, we're kind of forecasting that for the rest of the year. Don't see any big, real changes with that customer for the rest of the year. I don't know if anything you would add to that, Dave?

Yes, our [indiscernible] populations were very consistent in Q4 with Q3. In fact, they were up slightly.

Okay, great. And on the community segment, you kind of touched on this a little bit, David. There was a large increase in the revenue per compensated mandate. I think year-over-year was up about $12. Just, you mentioned a little bit about some contract renewals you got. Is there anything else that's driving that? Should we kind of expect that as more of a high water mark? Or do you think there's more potential upside in that revenue per compensated mandate on the community side?

Yes. Joe, actually, I'll tackle that one. Yes, we've seen a couple of quarters in a row of really strong growth on the community side. So as you know, both occupancy growing, but also we've had some really good renewals where we've got kind of reset the pricing on the compensated for the contract, I should say. So we continue to see good support to increase populations there. Again, that was part of the population that was easy to go ahead and release with social distancing and everything going on with COVID. So we really think the big kind of bounce back is because now that the pandemic is over and some of those concerns were alleviated from a health perspective, we continue to see populations go up. So again, really, really pleased with that and continue to see good growth there.

Okay. And one more for me, and I'll step aside here. Just you mentioned Cal City and you're looking for alternatives there. I wonder if there's anything significant you can tell me in terms of who you're talking to for that and any other types of new business that might be here in the near-term?

Yes. So Cal City is a new business. So not here to discuss any specific client for that facility. But as noted in my script, I mean it is a great location. Southwest is not far from Los Angeles. So we think a state partner or a federal partner would be a good solution for this facility. So I think you know Joe, in the past, the marshal service and ICE have used that facility in the past. So it's a great facility for their mission. So we are continuing to have conversations and see that again as a great solution, knowing this location, but also its capabilities within the actual facility. To your second question about just generally about new business, I'll tell you, I have met with a lot of Governors and secretaries and directors of corrections here in the last probably six or eight months. And the message just continues to be the same really challenging infrastructure issues within their system, facilities are becoming more and more overcrowded as populations are starting to come out of the jails that have been backed up because, of course, being closed and then also seeing significant population increases over the next three to five years. So that message continues to be conveyed to us from our partners. The other thing I'll just say that maybe is a little bit surprise for folks is that some of our customers, they closed either units or maybe entire facilities during COVID and what facilities they targeted for closure are usually the ones again that are maybe older, maybe more difficult to operate, but maybe really challenging the staff. And so some of this, I think kind of more immediate opportunity for us are coming from customers to say, we close XYZ facility in certain part of our jurisdiction, and it just doesn't make operational sense for us to reactivate it. So basically, what I'm saying is you may have a system or systems that their operational capacity has declined a little bit because they've got units or facilities that just didn't make sense to reactivate and so that's created a little more demand from them to use capacity in our system there. But I don't know, I guess you'd add to that, Dave?

Yes. Just to reemphasize, the underlying drivers of the new contracts that we signed in the second half of 2023 are still there. And as Damon just mentioned, getting more urgent. So we feel really good about prospects moving into 2024 and have good momentum, having signed three new contracts in the fourth quarter and another contract in the third quarter that's both with state and county governments, so good momentum as we're going into '24.

Yes. I really appreciate. And one other thing I'd just say, Joe, and we mentioned in our script, but want to reinforce it, and that is as you know, we leaned a little forward on staffing around the enterprise about a year ago and also impacted a little bit margins, and I know we had some good conversations about that along the way. But we think some of those investments are really now -- we're getting the benefits of that now with some of these new contracts. Again, obviously, we're watching closely what happens with ICE with this supplemental. There was some discussion about funding there for 50,000 beds nationwide, again, who knows how likelihood that is with the supplemental. But as long as we saying, we continue to be very thoughtful on the staffing front, not just on what the needs are today, but trying to probably anticipate a little bit what customer need is either with existing customers or new customers.

Great, thanks again for taking my questions and congrats on the quarter.

Thank you sir.

Thank you. One moment for our next question. And our next question comes from the line of M. Marin from Zacks. Your question please.

Thank you. So given COVID, the courts were obviously in advance and now that they're back up and running, it seems that we're still seeing a backlog, and it seems like rather than getting smaller, it's appearing treatment to grow. So if that's the case, how do you think that might impact some of your utilization rates and some of your post COVID facilities.

Yes. It's a good question. And yes, it's a little bit of a couple of different catalysts. You alluded to it with you, of course, going to get back to where they were operationally pre-COVID in this backlog that is we've seen in numbers and jail populations nationwide. So we -- again, we're seeing that now. I think again, with contracts like with Montana, increased utilization in Idaho, Wyoming as we talked about, I mean, I think that's part of the reason. I think again, I think another part of the reason is, again, some of these systems took some capacity off-line and just that, okay, it just makes sense for us to reactivate it to more cost effective, you're probably going to give a lot better outcomes too by using capacity within CoreCivic. And I guess the third thing I'd just say is that looking at another lead indicator, which is kind of crime rates around the country and some of the actions that are happening at the state and local level, I think that's also going to have some material impact on populations on top of what we're seeing today because of the backlog with COVID. But is there anything you'd add to that, Dave?

No, I don't have anything to add, Damon. You covered it.

Okay. So you also talked about in your prepared remarks, you mentioned alternatives to retention. And I'm guessing that, that would include your electronic monitoring services, maybe the community service corporations, do you see and you talked before about how you had some good quarters on community services operations. Do you see that as potentially benefiting from some of the changes we're seeing in the courts and in prison, views about prison detention?

Yes. I mean -- and keep me answer, Dave. I say on the community, again, the big driver there has been just increased utilization from a population perspective into our facilities and also some favorable renegotiation of contract terms, again, we've had some improvements on the per diem and the compensated day rates. But we also are seeing, again, good use and good attraction to our monitoring, our case management services and other support services we can do within the community segment. But I'll also say, and I think maybe a part of your question, too, we remain really bullish on that for the community business. And so we continue to make investments in both people and technology to meet the needs either with the existing partners or potentially new partners. Again, going back to the lease proposed supplemental from Congress on Sunday night of this week. Again, who knows how much of this will carry on either through a supplemental being passed or moved on to a full funded year, but there was almost over $1 billion. I think that was earmarked for additional expansion of alternative detention under ICE. So again, I think the continued investment, not only just for that opportunity, but also what we're seeing in with cities and counties and even the bureau prisons, I think, are good investments. And again, we continue to be really bullish on the business. But anything to add to that, Dave?

Yes, I think there's some inertia from the Federal Bureau of Prisons as well to expand the utilization of residential reentry centers whether that's due to infrastructure, trying to get more people out of prison into the communities and helping them assimilate. So I think there could be some more funding there that kind of began during the last administration. And it seems to be getting some legs now. So I wouldn't be surprised if we saw the BOP expand its utilization of our RCs by early release programs, alternatives to detention and things like that. So I agree that there's a lot of upside there. And we have a lot of capacity within our community portfolio to accommodate that need.

Okay, thank you.

Thank you.

Thank you. One moment for our next question. And our next question comes from the line of Kirk Ludtke from Imperial Capital. Your question please.

Hi, Damon, and David, Brian, Mike, thanks for the call.

Good morning.

Good morning, Kirk.

Congratulations on the quarter. Just a couple of follow-ups. On the ICE population, did I hear that the immigration bill included funding for 50,000 beds, did I hear that correctly?

That's correct. Yes. The bill that came out Sunday night, and as you know, this was out of the Senate and you heard this a couple of times during the course of the week where the negotiators that Bill noted that they were looking at funding for taking up the population of 50,000 beds. So that's been part of the talking points with the unveiling of this bill on Sunday. So again, you probably know as well as I, there's obviously some strong views about that bill on the House. So again, not here to handicap the bill, but at least just want to indicate, that's at least what the Senate was making relative to that supplemental.

Got it. Well, that's helpful. Thank you. And where did your ICE population peak pre-pandemic?

Pre-pandemic, keep me honest with you, Dave. I think in the summer of '19, we got near 15,000.

From 11,300 today?

Yes.

Got it. Thank you. And do you remember what the -- how many beds were funded back then?

I know that nationwide populations are around 55,000. I don't know if they were necessarily flooded at that level. It was probably less -- I know it was less than that.

Yes. Actually, I think it was pretty meaningful less than that. Now I think about it.

Interesting. Okay. Thank you. That's helpful. And then on California City. So now the lease expires in just a couple of months, has the state started to ramp that facility down?

They have. Yes, they've been going through the steps for kind of deactivation, I think, both population and staffing.

Okay. Got it. And are there any legal limitations as to what you can use that facility for?

There are a couple. I don't know right off the top of my head, I think there's a few. But obviously, California was in there, and then we've had no issues on housing Marshals there and ICE in the past.

Would be the type of inmate that you're…

Yes, maybe that's right. It is type of inmate and I don't know off top of my head. We can follow-up with you offline on that, but I suspect there's probably some limitations on maybe classification or something like that.

Got it. Thank you. And then on Harris County, that's a nice win. Can you just expand on that? And how that came about? And why they -- because if my Google Maps is working correctly, that's over 500 miles between Harris County and Tallahatchie. So I'm just curious what maybe expand on how that came about and why Tallahatchie?

Yes. Yes, sir. So we -- part of the playbook is that, obviously, we're always monitoring not only the existing needs with the existing partner, I should say, but also partners like Harris County or potential partners, what's their system utilization capacity, maybe some challenges that they're experiencing. And Houston is -- I think that's where the company really got started. Our very versed contract was in Houston almost four years ago. So either in that county in that city really, really well. And so I think they just expressed they had some issues with physical plant. They had some, I think some really difficult outcomes here in the last couple of years because of overcrowding. I think there were some staffing issues. And it's a pretty big system. Obviously, Metropolitan Houston and Harris County. It's a big system. Don't hold me to this, and I think they have almost 10,000 people in their jail system. So what that allowed us to do to kind of your last part of your question about the distance is to say, okay, look at your entire population and is the part of the population that would be well suited and this is individuals. They don't have to go to jail or go to court every day that could be in a setting of Tallahatchie County. And of course, we'll work with them on transportation, video conferencing and whatnot to keep them connect as appropriate with the courts and the Sheriff's office here in Harris County. So we've got a lot of plays in the playbook on helping them deal with kind of some of the distance issues. But again, with the system that large, there's parts of the population that would be well suited again from a distance of again, you said 500 miles from Houston. If anything you'd add to that, Dave?

Yes. I mean Tallahatchie was a great facility. It was about 25% occupied. So it was a location where we could immediately satisfy the need and bring the detainees in quickly, we could probably -- I mean, there's about seven or eight different customers that facility. So they're doing a fantastic job there. But with the exception of probably a handful of locations where we could accommodate a new customer, like what we did at our Saguaro Facility with Montana, Saguaro Facilities in Arizona, so Montana moved 120 inmates there. We do have -- it's like 120, and we probably have a dozen facilities, but it's getting to the point now where we may have to look at activating a new facility to accommodate new contract towards if we see that kind of demand. Obviously, we wouldn't do that speculatively. It's expensive to open up and staff a facility in advance of visibility on a customer. But it's -- Tallahatchie was a great location where we could accommodate Harris County, and there aren't many of those left.

That's interesting. I appreciate it. Thank you.

Thank you, Kirk.

Thank you. One moment for our next question. And our next question comes from the line of Brian Violino from Wedbush. Your question please.

Great. Good morning. Thanks for taking my question.

Good morning, Brian.

Good morning.

Good morning. Just quickly, you talked quite a bit about the three state and local contract wins you had in the fourth quarter. Could you give us how much EBITDA you anticipate those contracts will contribute in 2024?

We haven't disclosed that, but they're probably different profiles. One was a facility that was largely occupied the one in Arizona and then Tallahatchie, as I just mentioned, was like 25% occupied. So it's probably a few million dollars in EBITDA between the two of them over a year, maybe a little bit north of that.

Got it. Okay. Thank you. And then maybe hard for you to answer from your seat, but it seems like DHS has been reallocating funds to ICE for additional bed funding given that we're over the 34,000 number. I guess from your perspective, do you anticipate that there's additional dollars that could be reallocated within DHS or do we really need supplemental funding to see bed counts rise much more than there are today.

Well, the first part of your question, you're exactly right. That's really hard to answer. Again, they had that play in the playbook last year. As you know, I think the secretary came out May or June of last year and indicated they were doing a reallocation of funding. So can they do that again? And do they have the ability, it really be hard for me to say. I don't know if they even said publicly what the amount was. I think the secretary just came out saying we're doing it, but I don't think I ever heard an actual number. I think population, again, a little bit to the question earlier about you're currently at the 37,000, 38,000. Again, they're officially funded at 34,000. Again, that number as Dave said, that was pretty consistent during the fourth quarter. You had a little bit up and down because it's again seasonality. So do they feel like they could do that rest of the year if they come to end of February and March and due to the full funding until the end of fiscal year at 34,000. Maybe again, we'll just have to wait and see. And again, I think for them to go meaningfully above that, and I think this is the last part of your question, it will require additional funding. And again, that could potential be supplemental. We just talked about or they could -- I'll say they've got the ability to go ahead and do additional funding through the full funded year, full budget for the full-year. So that's still an option, too. Again, we'll be watching, obviously, all these different discussions for these different vehicles where they could increase funding. I don't know anything you want to add to that Dave?

No, that's right. Great.

Great. Thanks. And then just one last one, if I could. Kind of on a similar note. In terms of ICE looking at idle facilities, is that something that you think that they can be involved with without supplemental funding potentially looking at some of your vital facilities, maybe even outside of Cal City?

Well, I guess I'll say it this way. I mean we have been in the last, I guess year and it's a little bit to the discussion we had on staffing. I mean obviously, we've worked with ICE for 40 years, so we're in daily conversations about what their needs are. And obviously, they're getting direction from DHS administration and to somewhat from members of Congress. So we're always having a constant conversation of our capabilities where we've got capacity, either that's in printing facilities or vacant facilities. And then with that, we make certain decisions based on that information on investments we need to do on either CapEx and/or on staff. And again, that's a little bit of what we did last year. We felt like before Title 42 went away -- as you know, we were at 5,000. We felt like we needed to make some steps to get staffing in place for if and when the ICE populations do go up, we would be prepared for that. So we're continuing to have those discussions internally, but also with our customer, and that's just part of the -- kind of normal behavior working with them. And we know that there a lot of eyes on them and they get a lot of direction from a lot of different stakeholders, but we do our best to acknowledge just to hear what they're saying, but also make some proactive steps as appropriate. I also want to be prudent on that as appropriate to prepare for any future demand. But I guess, anything you'd add to that, Dave?

Yes, I'd say if they wanted to consolidate populations from a number of local jails for example, and then consolidate them into one of our facilities, that would not require incremental funding because you're just transferring dollars from multiple facilities into one facility. So we have had conversations with ICE at a particular facility on that. I haven't taken action on it yet, but that could be a potential where you could activate an auto facility without an incremental funding.

That's a good point.

Okay. Great. Thank you. Appreciate it.

Yes sir.

Thank you. One moment for our next question. And our next question comes from the line of Greg Gibas from Northland Securities. Your question please.

Hey Damon and Dave. Thanks for taking the question. Congrats on the results.

Thank you, Greg.

I was wondering if you could maybe elaborate a little bit more on the assumptions for occupancy and compensation per bed that is implicit in your guidance. It sounds like ICE not really forecasting a change in population size there. But just if you could talk about kind of any changing dynamics with respect to the split between occupancy changes versus increased revenue per bed.

Yes, on the occupancy front, the forecast is fairly stable, so not much higher than 74%. We've talked in past calls about getting to that magical pre-pandemic occupancy of just north of 80%. So the guidance certainly does not include that. It's probably stable, maybe a slight increase from the 74% occupancy we achieved in the fourth quarter. With respect to -- and that would include the populations that we're bringing in under the -- or have actually already brought in under the four new contracts that we executed during the second half of 2023 as well as some population increases that we saw from a number of states under existing contracts. So those will contribute to increases in occupancy. On the per diem rate, most of our per diem increases take effect in July particularly from our state customers since that's when their fiscal years begin. So we'll be beginning those conversations if we haven't already engaging with our partners, talking about our needs for per diem increases related to staffing and other inflationary costs. So it's hard to get that visibility now. We take a pretty conservative approach when we talk about per diem increases that we include some of our contracts have stipulated per diem increases in them, in which case, obviously, we're going to put those per diem increases in the forecast. Others are dependent on appropriations. So depending on the history with a particular customer, we may or may not include that. Our federal contracts, the other hand, most of them have per diem increases built into those contracts. And so they would be built into the guidance as well. So I'd say probably a pretty average year. Last year 2023, we were quite successful in per diem increases, particularly from states that hadn't provided per diem increases during the pandemic. And we continue to provide wage increases as we really need to get a per diem increase to maintain our margins and pay our staff appropriately. So I wouldn't say we're forecasting as good a year in 2024 as we had in '23 because '23, we were making up for some lost ground during the pandemic.

Great. Makes sense. That's very helpful. And I wanted to follow-up to -- it seems like there was some nice profitability upside just from the normalization of expenses, particularly reducing temporary staffing and more so going to a higher percentage of local based, more permanent. And I just wanted to ask if you see that as kind of a tailwind for continued margin improvement in 2024? Or do you kind of see that mostly already normalized?

That's a great question. I'd say a little bit of both. There are some facilities where we still have some opportunities to normalize the expense structure, but we've made a lot of progress. And so if you go back to fourth quarter of 2022 compared with the fourth quarter of 2023 significant reductions, as I pointed out in my prepared remarks. But I wouldn't say it's totally complete. There's still some opportunities where we could reduce those travel expenses a bit further. We will also be hiring some additional staff, too. So there's the put and takes on that. But overall, I'd say there's still some opportunities to normalize expenses.

Okay, good to hear. Thanks guys.

Thank you.

Thank you.

Thank you. [Operator Instructions] And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Damon Hininger for any further remarks.

Thank you so very much, and thank you all for joining us on our call today and especially to our investors, thank you for your trust and confidence and your investment in the company. We look forward to talking to you in May as we talk about our first quarter results. Have a great day, everyone.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.