CoreCivic, Inc. (CXW) Q3 2026 Earnings Call Transcript

Operator: Sounds good. Good day, and thank you for standing by. Welcome to ColeCivic's third quarter 26 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star-1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star-1-1 again. In the interest of time, please limit yourself to 1 question and 1 follow-up. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jeb Bachmann, Managing Director of Investor Relations. Please go ahead.

Jeb Bachmann: Thank you, operator. Good morning, everyone, and welcome to ColeCivic's Third Quarter 26 Earnings Call. Participating on today's call are Lucibeth N. Mayberry, 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 this call, we will discuss financial results for the third quarter of 26 as well as updated financial guidance for the 2026 year. We will also discuss developments with our government partners and provide you with other general business updates. During today's call, our remarks, including our answers to your questions, include forward looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act. Our actual results or trends may differ materially as a result of a variety of factors, including those identified in our third quarter 26 earnings release issued after market yesterday as well as in our Securities and Exchange Commission's filings, including Forms 10-K, 10-Q, and also 8-K reports. You are cautioned that any forward looking statements reflect management's current views only and that the company undertakes no obligation to revise or update such statements in the future. Management will discuss certain non GAAP metrics. A reconciliation of the most comparable GAAP measurement is provided in the corresponding earnings release and 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 CEO, Lucy Beth Mayberry.

Lucibeth N. Mayberry: Thank you, Jeb. Good morning, and thank you for joining us for ColeCivic's third quarter 26 earnings call. Before we turn to our results, I would like to take a moment to address the leadership transition we announced on September 20 fifth. As we shared at that time, Patrick Swindle made the decision to step down due to health reasons. This was a difficult development for all of us at ColeCivic, and it is certainly not how we expected this chapter to unfold. Patrick approached that decision with characteristic grace and with ColeCivic's best interest at heart. During his time with the company, Patrick made numerous contributions. Most recently serving as our chief executive officer since the beginning of this year. In that time, he helped lead CoreCivic through a significant period of development and change. Including the facility sales that have strengthened our balance sheet and given us meaningful flexibility to create long term value for our shareholders through solutions for our partners that provide better outcomes for those in our care. On a personal level, I have been honored to work closely with Patrick for almost 20 years, and I am particularly pleased that he will continue to lend guidance to the company as a special adviser. On behalf of our board, our leadership team, and our employees across the country, we extend our gratitude and continued support to Patrick and his family. As we look ahead to the fourth quarter and beyond, I would like to stress that our mission and strategy are unchanged. We remain fully committed to strategic and timely capital allocation, to operational excellence and to being a dependable partner for government all in service of our mission to build safer, healthier, and more productive communities 1 person at a time. We are focused on maintaining the company's forward momentum by delivering on this mission. On this morning's call, we will discuss our third quarter operational results and provide updates on the latest developments with our government partners. Following my opening remarks, I will hand the call over to our CFO, David Garfinkel. Who will provide greater detail on our third quarter 26 financial results as well as our updated 2026 financial guidance. David will also provide an update on our capital structure, including recent actions to reduce our outstanding indebtedness and planned uses for remaining proceeds from our recent asset sale activities. Before we discuss this quarter's financial performance, I want to reemphasize the value creation events that occurred during the quarter. In the third quarter of 26, we announced the sale of 4 facilities to the Department of Homeland Security for after tax net proceeds of approximately $1.6 billion These sales were undertaken at an average price of $307 thousand per bed ranging from $371 thousand per bed at the Otay Mesa facility in California to $231 thousand per bed at the Midwest facility in Kansas. The federal government determined the fair market value of these properties by engaging independent appraisers who follow the government mandated yellow book standards as required by federal statute. These rigorous standards direct appraisers to base value on replacement cost under provisions specifically designed to determine a fair market value for special purpose highly improved properties. This methodology incorporates a variety of relevant factors, including design, condition, age, location, size, available land, and expansion capacity. Under this federal statutory framework, the sales price rests on the appraiser's independent conclusions and the government's review of them. Not a price set by either party. These transactions provided the federal government with immediate control of strategic capacity that would otherwise take years to deliver. We believe these transactions also demonstrate the underlying value of the company's real estate portfolio. The sales further strengthen our already solid financial position and create meaningful balance sheet flexibility. Enabling us to return capital to shareholders while also evaluating opportunities to reinvest in and grow complementary businesses. Both organically and through disciplined strategic investment. As we have previously disclosed in the press releases for the facilities that we have sold, we continue operating these 4 facilities under terms of the existing management contracts. However, contract terms may ultimately be due to the transfer of ownership to the federal government. And we continue to reflect the expectation of modified terms in our FY 2026 guidance. While we cannot predict when those modifications will happen, they will discuss the impact of our assumptions to both third quarter results and updated guidance. In addition to the asset sales completed to date, we continue to have discussions with ICE about the potential acquisition of additional CoreCivic detention facilities. These discussions remain in preliminary stages we can provide no assurance as to the certainty or timing of any additional sales. However, we do believe additional facility acquisitions continue to be a key element of ICE's detention strategy as such acquisitions offer a unique opportunity for immediate government owned detention capacity. As previously announced, during the third quarter of 26, and prior to closing on the sale of the Appleton Correctional Facility, we announced a new contract award to manage the 1.6 thousand-bed facility that had been idled since 2010. We continue to expect this facility to have a minimal contribution to earnings in 2026 and expect to begin receiving detainees at this facility in the fourth quarter. With activation estimated to be complete in the second quarter of 27. On the heels of the cash generating events that occurred during the quarter, we moved quickly to reduce our outstanding indebtedness and to increase the pace of our share repurchases. A portion of the net sale proceeds was used to repay in full the outstanding balance under our $575 million revolving credit facility, our incremental term loan, our initial term loan, and our senior notes that were scheduled to mature in 2027. Our $575 million revolving credit facility remains available to be redrawn. Additionally, we launched a $500 million accelerated share repurchase agreement that enabled us to take immediate delivery of and retire 12.4 million shares of common stock. Contributing to a 13.8% reduction to weighted average diluted shares outstanding versus the prior year quarter. As a percentage of market capitalization, the ASR is among the largest ever executed. At the end of the quarter, we had $255.8 million of availability remaining under the company's existing share repurchase program. Subsequent to the end of the third quarter 26, our Board of Directors approved a $500 million increase to our share repurchase authorization, bringing the total availability $755.8 million and giving us additional flexibility to deploy capital towards share buybacks under scoring our commitment to driving shareholder value and returns. In sum, it was an exceptionally robust quarter for value creating transactions, I am proud of the work our teams do every day to support our government partners and their ability to move with velocity when the partner requires it. The timely execution of the facility sales and immediate thoughtful allocation of the proceeds showcases the intensity and professionalism the CoreCivic team is known for and I am appreciative of their efforts.

David Garfinkle: I will now move on to a high level overview of our third quarter operational performance. Higher enforcement activity and increases in nationwide ICE detention populations contributed to our third quarter results. Which exceeded average analyst estimates for adjusted EPS by $0.06 and adjusted EBITDA by $2.7 million Total occupancy for our residential segment for the quarter was 84%, up 7.3 points since the year ago quarter and the highest rate since the onset of the pandemic. Across all of the facilities in the residential segment, we cared for a daily average population of 60.3 thousand individuals during the third quarter of 26 compared with 55.2 thousand individuals in the year-ago quarter. That growth reflects increased demand from our government partners as they rely on our staff to provide safe, humane housing, and services to those in their care.

Lucibeth N. Mayberry: Federal partners, primarily ICE and the US Marshals Service, comprised 53% of ColeCivic's total revenue in the third quarter, Revenue from our federal partners increased 22.2% during the third quarter of 26 compared with the prior year quarter. Further, breaking down our federal mix, revenue from ICE increased $75.2 million or 34.8%, while revenue from the US Marshals Service decreased by $5.2 million versus the prior year quarter. Some of this decline is simply a shift in mix where ICE and the Marshals share a contract. Revenue in the third quarter of 26 also benefited from the contribution of Clinical Solutions Pharmacy, or CSP, which generated total revenue of $82.8 million during the quarter. We are particularly excited about the opportunities presented by CSP to better serve the pharmacy needs of our partners and believe their growing market reinforces our decision to purchase the company earlier this year. Populations from ICE and our care increased by approximately 8.1 thousand individuals or 80.1% from the beginning of 2025 through 09/30/2026 when we cared for 18.3 thousand individuals. Our average daily population increased by 3.3 thousand individuals in the third quarter of 26 from the second quarter of 26, Including a 1.16 thousand-person increase that incurred at the 5 facilities we have activated since the beginning of 2025. Consistent with our internal forecast, ICE populations nationwide continue to rise in the second half of 26, approaching the record levels seen earlier this year after experiencing a decline in the second quarter of 26. David will review our population assumptions at a high level as reflected in our financial guidance. Populations at recently activated facilities have continued to increase driven by significant ICE demand. We continue to receive detainee populations at the 2.56 thousand-bed California City detention facility we signed a new contract effective 09/01/2025. And at our 2.16 thousand-bed Diamondback correctional facility, where we signed a new contract effective September thirtieth 25. As of 09/30/2026, we care for 1.94 thousand and 1.95 thousand individuals, respectively, at these 2 facilities. At the 1.03 thousand-bed Midwest Regional Reception Center, we began accepting detainees in March. As of September 30, we care for 451 individuals at this facility. We continue to maintain 4 idle corrections and detention, containing 5.5 thousand beds to meet federal or state needs. As a long term provider of detention and corrections capacity to government agencies across the country, our available capacity was built to meet established detention standards and ensures that we can offer humane, secure capacity in strategic locations. While we do not control or influence the capacity needs of any government partner, we do ensure that the capacity in our system remains ready for activation should a need arise. Specifically, we believe our immediately available capacity continues to offer the most viable solution to meet ICE's anticipated continued needs. Their continued use of detention capacity is proactively supported by funding provided through the Homeland Security appropriations bill and the Secure America Act. This multiyear funding framework provides visibility into resources available for detention operations throughout its statutory authorization period and can be supplemented by annual appropriations to support these contracts going forward. While future administration priorities, congressional policy decisions, and funding levels may evolve, We believe this funding framework positions ICE to maintain its detention capacity at or near current contracted level for the foreseeable future. As such, we continue to believe that our current share price implies a significant discount to the fair value. Based on updated guidance, our enterprise value to EBITDA multiple remains contracted, and we trade at a meaningful discount to our long term average. Accordingly, we view share repurchases as an attractive use of capital. The facility sales have also given us substantial financial flexibility and we will continue to evaluate opportunities to grow our business including disciplined strategic acquisitions. While any potential transaction would need to be a strategic fit and compare favorably with repurchasing our own shares. We believe the continued prudent pursuit of high quality companies with growing markets like our acquisition of CSP earlier this year allows us to offer value to our shareholders for the long term. With that, I will turn the call over to David to discuss our third quarter financial results in more detail, our capital allocation activities and the assumptions underlying our updated 2026 financial guidance. David?

David Garfinkle: Thank you, Lucie Beth, and good morning, everyone. In the third quarter of 26, we generated GAAP EPS of $14.49 per diluted share and FFO per share of $0.84 Our GAAP results for the third quarter of 26 were significantly impacted by 5 discrete special items each as detailed in our earnings press release that favorably impacted GAAP net income by a net amount of $1.3 billion or $14 per diluted share, including most notably an after-tax $1.3 billion gain on the sale of 4 detention facilities. Excluding special items, adjusted EPS was $0.49 In the third quarter of 26, compared with $0.24 in the prior year quarter, an increase of 104%. Normalized FFO per share was $0.75 per share, compared with $0.48 per share in the prior year quarter, an increase of 56%. And adjusted EBITDA was $117.8 million compared with $88.8 million in the third quarter of 25, an increase of 33%. Increase in adjusted EBITDA from the prior quarter resulted from the activation of 5 previously idled facilities under new management contracts with ICE. And the acquisition of Clinical Solutions Pharmacy or CSP on 04/01/2026. Our per share results were also favorably impacted by a 13.8% decrease in weighted average diluted shares outstanding as a result of our share repurchase program, including an accelerated share repurchase agreement ASR, implemented August 10, 26. Our residential segment, which consists of the 64 correctional, detention, and reentry facilities we manage, generated 92.4% of our segment net operating income. Occupancy in the residential segment increased from 76.7% to 84% the highest occupancy level since the onset of the pandemic. Operating margin in the residential segment was relatively flat at 22.3%, versus 22.5% in the prior year quarter despite the increase in occupancy as the increase in occupancy was substantially attributable to the 5 previously idle facilities. Operating margins at the 4 facilities we were still activating during the third quarter were not yet contributing fully activated margin percentages. These facilities, which were 72.7% occupied during the quarter, generated total EBITDA of $19.9 million operating margin of 8.7% in the third quarter of 26 up from 5.3% in the prior year quarter. As a reminder, the services segment consists of the delivery complementary services to the corrections industry, including pharmaceutical supplies and services through CSP, transportation through our subsidiary TransCore, and electronic monitoring and case management services as alternatives to incarceration through our subsidiary Recovery Monitoring Solutions. Net operating income in this segment increased $8.5 million from the prior year quarter, primarily due to the acquisition of CSP. The Services segment generated 6.1% of our segment net operating income In the third quarter of 26, up from 0.9% in the prior year quarter due to the acquisition of CSP. Turning next to the balance sheet. As previously disclosed, during the third quarter, we completed the sales of 4 detention facilities containing 7.19 thousand beds to the Department of Homeland Security for a total gross sales price of $2.2 billion while retaining management of these facilities. Net proceeds were $1.6 billion after transaction costs and approximately $500 million in estimated federal and state income taxes including approximately $55 million still due in December. We used a portion of the net proceeds to promptly repay over $700 million of debt during the third quarter, including the then outstanding balance of $270 million on our $575 million revolving credit facility that remains undrawn. $207.8 million of term loans under our bank credit facility and $238.5 million of principal amount of unsecured notes. As a result of these debt repayments, we expect to save over $40 million of annual interest expense. As mentioned, in August 2026, we entered into an ASR to purchase $500 million of our common stock. We paid $500 million and received an initial delivery of 12.4 million shares, representing 80% of the payment based on the August 7 closing price of $32.27 per share. The final number of shares we will repurchase through the ASR will be based on the average of the daily volume weighted average price of our stock during the term of the ASR less a discount, with settlement expected to occur prior to the end of the second quarter of 2027. If we were to settle the ASR based on the average daily volume weighted average price through 10/31/2026, we would retire an additional 3.1 million shares at no additional cost. We believe the ASR is the second largest ASR to be executed in the last 5 years, underscoring our commitment to returning capital to shareholders through share repurchases. As of September 30, excluding a non recourse mortgage, we now have more cash than debt with $1.1 billion of total liquidity available consisting of $547 million of cash on hand and $551 million of undrawn borrowing capacity under our revolving credit facility. This liquidity provides us with significant flexibility to our capital allocation strategy and growth plans. We have a track record of prudently allocating capital to create shareholder value. Since we began the share repurchase program through the end of the second quarter of 26, we had repurchased 28.1 million shares of our stock at an aggregate cost of $444.2 million or $15.82 per share, amounting to 23% of the outstanding shares at the time of the authorization in May 2022. On 07/01/2025, we completed the acquisition of the Farmville Detention Center for a purchase price of $71.3 million And on 04/01/2026, we completed the acquisition of CSP for an initial purchase price of $148 million. These acquisitions were completed at a blended multiple of under 6x. As previously mentioned, we reacted quickly to an opportunity to create additional shareholder value through the sales of 4 detention facilities and separate transactions generating gross proceeds of $2.2 billion during the third quarter of 26. And as mentioned, we rapidly deployed a portion of the net proceeds to repay over $700 million of debt within the same quarter and entered into the $500 million ASR agreement. Earlier this week, the Board of Directors authorized an increase to our existing share repurchase program under which we may purchase up to an additional $500 million in shares of our common stock increasing the total repurchase authorization to $1.7 billion Including the additional authorization, we have $755.8 million of repurchase authorization available under the share repurchase program. Given our substantial liquidity and our belief that our shares remain undervalued, we expect share repurchases to remain a priority for capital deployment. We expect to repurchase shares using the most expedient available methods subject to applicable legal requirements restrictions under our existing ASR agreement, and trading window limitations. We will also continue to evaluate strategic acquisitions in attractive growth markets where we can have a competitive advantage in the market, but any acquisition would need to be strategically compelling, financially attractive, and compare favorably with repurchasing our own shares and other capital allocation alternatives. Moving lastly to a discussion of our updated 2026 financial guidance, we expect to generate diluted EPS of $15.42 to $15.48 which includes the impact of the special items and adjusted diluted EPS, which excludes the special items, of $1.74 to $1.80 up from $1.64 to $1.73 in our August 10 guidance. We expect to generate normalized FFO per share of $2.78 to $2.85 up from $2.68 to $2.77 We expect adjusted EBITDA of $442.5 million to $445.5 million compared with $434.5 million to $439.5 million Our updated guidance reflects stable residential populations for the rest of the year, except the facilities we are activating where we expect populations to continue to increase. Our updated guidance contemplates additional G&A expense in Q4 associated with the executive leadership change and incremental technology expenses to assess opportunities to streamline operations and improve outcomes for residents in our care. Our updated guidance carries forward the Q3 beat on facility margins against our forecast, a substantial portion of which was attributable to modifications contemplated to our contracts at the 4 facilities we sold during the third quarter, which has not yet occurred. The range of our updated guidance incorporates our best estimate of the financial impact of the change in ownership. Finally, we expect our annual effective tax rate to be 27% to 28%, slightly higher related to the asset sales during the third quarter as well as higher nondeductible expenses. In addition to the facility sales completed to date, we have been in discussions with ICE about the potential acquisition of additional detention facilities from us. These discussions are in preliminary stages and we can provide no assurance that any additional sales will occur. Our updated guidance does not include the impact of any potential additional facility sales. We plan to spend $65 million to $75 million on maintenance capital expenditures during 2026 and $12 million for other capital expenditures down $3 million from our prior guidance. Our 2026 forecast also includes $35 million to $40 million for capital expenditures associated with previously idled facilities we are activating and for additional potential facility activations, unchanged from our prior guidance. We expect adjusted funds from operations or AFFO which we consider a proxy for our cash flow available for capital allocation decisions such as share repurchases and growth CapEx such as acquisitions and facility activations, to range from $260.3 million to $272.3 million for 2026. Although we do not expect to need any meaningful capital expenditures to activate additional idle facilities in 2027, we currently expect some incremental capital expenditures in 2027 to expand the distribution capability of CSP to meet growing market demands for our pharmaceutical services and incremental technology investments to implement opportunities to streamline operations and improve outcomes for residents in our care. The earn out payment for CSP will also be due next year which we currently estimate to be $29.5 million. We are currently preparing our 2027 budget and expect to provide full year 2027 guidance in connection with our fourth quarter earnings release in February including further detail on our capital expenditures in 2027. That guidance will also reflect estimated financial impact of the change in ownership of the facilities we have sold which may be known by then. I will now turn the call back to the operator to open up the lines for questions.

Operator: Thank you. As mentioned, at this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star-1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star-1-1 again. Also, please limit yourself to 1 question and 1 follow-up. Standby please while we compile our Q&A roster. Your first question comes from the line of Greg Gibas with Northland Securities. Your line is now open.

Greg Gibas: Good morning, Lucibeth and David. Thanks for taking the questions. Wondering what you believe ICE behavior or activity will look like post election. Maybe based on what you are hearing from officials or elsewhere, and then perhaps you know, maybe their capacity to ramp activity from existing levels.

Lucibeth N. Mayberry: Thank you for the question. I think it is a stable environment for them as far as their needs and their abilities to ramp. They have a framework in place to continue to utilize the beds. You have seen them continue to enter into contracts to utilize beds, and they also have again begin increasing enforcement activities and growing the number. We currently believe their population is around 69 thousand based on public reports. And that seems to indicate that they are continuing to grow, and I would expect that they would be stable in that amount while continuing to utilize the beds that they have contracted for. there is nothing that would cause us to think otherwise. They have the secure funding to do so, and that goes through 2029, and they can continue to enter contracts and utilize that capacity. Through that funding up until then. So we believe that they will continue to do so. We have not seen signals that they would not, and so we continue to offer our beds to them and operate with them in the way that we always have.

Greg Gibas: Got it. that is helpful. And maybe 1 for David. As we think about 2027 expectations, I realize you are not providing official outlook, but what adjustments would you make to the implied fourth quarter run rate as it relates to your Q4 expectations or assumptions and the ongoing ramping of your Appleton facility?

David Garfinkle: Yes. Thanks for that question, Greg. Q4 is a pretty clean quarter. Would say it does reflect the anticipated reduction in the per diems at the 4 ICE contracts for the facilities we sold. If you extrapolated that for a full year, you would end up around $426 million in guidance in a run rate EBITDA, not our guidance, but that is taking basically our full year 2026 EBITDA guidance backing out year to date EBITDA through September. And multiplying that by 4, you end up with $426 million to $427 million something like that. And that does not include Prairie. So Prairie, will begin taking its first detainees toward the end of this year. So I would probably add, oh, say, $10 million round numbers for 2027 for Prairie. It will not be a full year in 2027 either. It will be ramping up probably into the second quarter of 27, some taking really probably a $10 million real rough number to add on to that annualized Q4 EBITDA. And then maybe I would probably G&A expenses are probably a little bit elevated in Q4. So if I annualize it, that number, that is probably too high relative to full year of 2027. So you can probably get somewhere I was at $436 million to $445 million, $450 million maybe. Again, we will provide that full year guidance in February. But I think that is probably a good rough estimate for where we are thinking about things now as we are preparing our 2027 budgets and are not yet quite complete.

Greg Gibas: Appreciate your thoughts there. I will pass it on.

David Garfinkle: Sure. Thanks, Greg.

Operator: Thank you. Your next question comes from the line of Joe Gomes with Noble Capital.

Joe Gomes: Good morning. Thanks for taking my questions.

Lucibeth N. Mayberry: Good morning, Joe.

Joe Gomes: I want to start out, you know, looking at the supplemental Pardon me. You have a fair number of facilities that are running today at over 100% capacity. You know, how long is that a tenable position for a facility to be running over 100%? And does that cause additional expenses on your side to run something at over 100% capacity?

David Garfinkle: I will take that, and maybe we can tag team. I would say facilities that are operating over 100% are typically facilities where it is a very transient population, so they are there for a very short period of stay. But I would not think that it would require additional expenses. There could be some overtime if they are managing that level of population, but I do not think it would require an additional staffing component. So we actually do get some leverage of those higher occupancy levels. So I do not think it would negatively impact our expense structure But like I said, could maintain those levels for a transient population for some brief periods of time as those populations that trade out 60 days, something like that. Anything to add to that, Lucibeth?

Lucibeth N. Mayberry: I would say from a real estate perspective, our facilities are designed with you know, ample square footage. So there are beds that are permanently affixed in every place that they could be, which is how you would determine their rated capacity. But the capacity that they are running at now is still a safe and operable capacity, and we do have a limit at which we would not take additional population in the facilities. So running over rated capacity does not imply overcrowding. It just means that we are using the flexible space to actually help the population, you know, everywhere that we can. there is no reason to put permanent beds in because then you reduce your flexibility on being able to utilize those areas of the facilities for other purposes. So it is 1 of the great things about having the actual purpose built detention capacity and not using some sort of other temporary capacity is that those facilities are built to be able to go up and down as population demands. Allowing government to take advantage of the in place seasoned staff that we have there and the fact that our facilities are built to actually accommodate that population. So it is actually a great option for our ICE partner to be able to utilize those beds because that is exactly what they were built for. We have had this happen many times over the years where we have fluctuated up and down. And we are really glad that we are able to offer that service to our partner in a safe, secure way so they can continue the humane housing that we are known for.

Joe Gomes: Okay. Thanks for that. And then, you know, you know, each quarter, you typically do your per diem increases on the state side. And just wondering if there is been any pushback on per diem increases by any of your state and or federal partners here recently?

Lucibeth N. Mayberry: No.

David Garfinkle: I think on the federal side, most of our per diem increases are built into the contracts. So they are just kind of a matter of course. On the state side, you are right. They typically do go into effect July 1. Which coincides with the beginning of the state fiscal year. I think, you know, we have had years where during the pandemic, for example, it was really difficult to get per diem increases, And now we are through that. we are able to catch up some of those per diem increases that were not given. It is state-by-state, and different states have different fiscal situations. But I think 2026 was a pretty good year as far as per diem increases went. We were able to work with legislatures, work with our government partners, You have to remember, they do what we do, so they see the same inflationary pressures on staffing wages and so forth. So that always helps when we go to the legislatures looking for per diem increases.

Joe Gomes: Great. Thanks for that. I will pass it on.

David Garfinkle: Greg. Thanks, Joe.

Operator: Thank you. Your next question comes from the line of Marla Marin with Zacks. Your line is now open.

Marla Marin: Thank you. So I am continuing on a line of thought here that you had mentioned in your prepared remarks. I think you also got a follow on question. You characterized the nature of the conversations you are having with ICE about additional asset sales and potential management contracts as preliminary. But do you think that there is any way the election results might affect the timing? Of those or, you know, if those discussions were to come to some sort of a transaction, do you think that the elections could affect the timing?

Lucibeth N. Mayberry: Thank you for that question. it is a good 1. While discussions are preliminary and we cannot predict what will happen, you know, 1 way or the other on timing or really on whether they will happen at all. You know, we would urge the, you know, ICE administration to move quickly. I think they have a need for capacity. We have the capacity. there is no reason to wait. So I would, you know, urge them to do that and hope that they would. You know, as far as the impact of the midterm elections, you know, we are as ready as we were prior to the elections and continue to offer really valuable options for ICE. So I would say we would urge them to go ahead and take advantage of that, but we cannot predict if they will do so.

Marla Marin: Okay. Thank you. 1 follow-up. You know, for a period of time there in the press, there was a lot of talk about the alternative solutions for ICE. I think you possibly even alluded to that a few moments ago. Alligator Alcatraz, and Forklift. Are you. Is it your sense that ICE has sort of retreated from those alternatives now as a potential solution?

Lucibeth N. Mayberry: Also a very good question. I think that what we see at the moment is while they seem to have a few of the warehouse solutions that they are focused on. We have seen them pull back from a broader usage of any of the, you know, less traditional, capacity. And I think that is something that we think is, you know, prudent move. I think that with the availability of first-rate humane safe detention capacity nationwide. it is really a great option for them, and we would hope that they would continue to use that rather than trying some of the untested you know, methodologies that have not been as easy for them to execute. Okay.

Marla Marin: Thanks so much.

Lucibeth N. Mayberry: Thanks, Marla.

Operator: Thank you. I am showing no further questions at this time and would now like to turn it back to Lucibeth N. Mayberry for closing remarks.

Lucibeth N. Mayberry: Thank you. Before we conclude this morning's call, I would like to thank our investors, CoreCivic team members, government partners and fellow Board members for joining us this morning. And supporting our mission of building safer, healthier, more productive communities 1 person at a time. I firmly believe that while private companies make up a small percentage of the system nationwide, we play a critical role in bringing innovation and solutions to help corrections professionals deliver better outcomes to justice involved individuals. Wake up each morning grateful for the work of our more than 14 thousand team members that they do each and every day. The corrections profession is not an easy 1, but it is a worthy 1. And I am excited about the investments we are making across our system to assist our corrections professionals as we look to improve their ability to perform their critical duties. I am also proud to be a 20 plus year member of the corrections profession because I see the work our government partners deliver in often difficult environments to overcome challenges and address the needs of those in their care. Thank you for allowing us to support you for more than 40 years. We look forward to working alongside you to deliver new solutions to our teams and are grateful to be part of your mission. In closing, thank you to the board of directors. We have called on you this year to convene many times, and we have relied on your guidance and input as we delivered on value creating events for our company. On a personal note, thank you for the support you have given to me and to Patrick during the transition Your support allows us to continue delivering on our strategy without interruption. Thank you all again for joining us this morning, and we look forward to sharing our progress in our next call in the New Year.

Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.