Good Morning. My name is David, 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 the CoreCivic's previously known as the Corrections Corporation of America, Third Quarter 2016 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 instruction] I would now like to turn the call over to Cameron Hopewell, CoreCivic's Managing Director of Investor Relations. Mr. Hopewell, you may now begin your conference.

Thanks, David. 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. During today's call, our remarks 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 third quarter of 2016 earnings release 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. This call will include discussion of non-GAAP measures. A reconciliation of the most comparable GAAP measurements is provided in our corresponding earnings release and included in the supplemental financial data on the Investors page of our website. With that, it's my pleasure to turn the call over to our President and CEO, Damon Hininger.

Thank you, Cameron, and good morning and thank you to everyone for joining our call today. Also joining us here in the room is our Vice President of Finance, Brian Hammonds. I'd like to start the call off today by once again expressing how proud I am of the entire team for maintaining a sharp focus on providing outstanding service and high-quality operations across each of our facilities, not just recently, but for many years. Despite poorly-source claims from industry critics and activists to the contrary, our continued focus on operational excellence, flexibility and our compelling value proposition have continued to create opportunities for the Company to grow, where our partners need and want solutions that we can deliver. In the last few weeks, we have secured an important contract retention with Immigration and Customs Enforcement at our South Texas Family Residential Center, while also executing a new contract with ICE at our Cibola County Correction Center. These achievements are only possible because our government partners have an appreciation for the dependability and professionalism of our people and we are capable of delivering solutions to answer their challenges -- the challenges they face. Also announced last week was our intention to rebrand the corporate enterprise as CoreCivic. This announcement was a culmination of a multi-year strategy to transform the Company from largely corrections and detention services to a diversified government solutions provider. This strategy has included converting to a real estate investment trust in 2013, making unprecedented public commitments to re-entry programs at our correction facilities and we did that in 2014, launching a comprehensive real estate solutions business in 2015 and finally investing nearly $250 million in acquisitions over the last three years to build an expanding network of residential reentry, and community corrections facilities. The result of these…

Thank you, Damon, and good morning everyone. In the third quarter, we generated $0.49 of adjusted EPS compared to our prior guidance range of $0.47 to $0.48. Normalized FFO totaled $0.69 per share compared to our prior guidance range of $0.67 to $0.68 and also $0.03 ahead of the first call consensus estimate. AFFO totaled $0.68 per share ahead of our prior guidance range of $0.63 to $0.64. Adjusted and normalized results exclude a $2 million gain on settlement of contingent consideration and $4 million of restructuring charges we announced on September 27. Per share results exceeded expectations largely due to stronger revenue driven by higher than anticipated inmate populations across numerous facilities. Our federal revenue, particularly from Immigration and Customs Enforcement, remained elevated during the third quarter in Arizona and California, and we also recently experienced higher than expected federal populations at our Torrance facility in New Mexico. AFFO exceeded expectations by more than adjusted EPS and normalized FFO because maintenance capital expenditures on real estate were $2.7 million lower than expected. As I've mentioned in the past, the timing of maintenance capital expenditures is difficult to predict and can fluctuate from quarter-to-quarter. We have maintained our annual guidance for maintenance CapEx on real estate, so we expect to incur higher CapEx levels in the fourth quarter relative to the first three quarters. Adjusted EPS was 9% higher than the prior-year quarter while normalized FFO per share and AFFO per share were both 8% higher than the prior-year quarter. The most significant factors affecting third quarter results compared with the prior year-quarter include higher populations from Immigration and Customs Enforcement, most notably in Arizona and at our new Otay Mesa Detention Center in California, lower expenses at the South Texas Family Residential Center, a new lease with the State…

Thank you, gentlemen. [Operator Instructions] And we'll take our first question from Tobey Sommer with SunTrust. Your line is open.

Thank you. Good morning. I was wondering if you could start off by giving us a little bit more color about the interest you are receiving in idle capacity it could take multiple flavors, I don't know if it could all be categorized the same, but more color would be helpful. Thank you.

Absolutely Tobey and thanks for your question. We've got, as you know, kind of pockets of beds in Oklahoma, Kentucky, Minnesota, Colorado, Ohio, those are kind of the big pockets and we are seeing good interest in several those states who have maybe overcrowding in their system or projected growth. And so, I would say, the interest and the need is probably greater than it was, say, 6, 12 months ago. So, we're seeing some good interest and as I think about those respective states that I just mentioned they're looking at our capacity. So, as there is no development, looking purely at our capacity, is kind of a long-term solution.

To the extent that you are able to kind of capitalize on new projects and they require capital and I'm interested to hear what you think about the different avenues you have to finance those investments and where you may source the capital? Thanks.

Yes, obviously the filling of the idle capacity wouldn't require any capital, but we obviously have a revolving credit facility -- our $900 million revolving credit facility available for that. Then, we have an ATM program in place, but at this point, we don't see any need to issue of the ATM program and obviously we have access to debt capital markets in the past, but I'd say for the near-term and even medium-term any capital requirements would be funded from our revolving credit facility.

And then, I'm interested with the CoreCivic brand coming out and that the brands underneath I guess that, could you talk about the value proposition in the real estate only solution under CoreCivic Properties and how do you see maybe the importance of that contributing to growth in the future?

Absolutely, and so, let me -- before I answer that maybe let me give a little more definition on kind of what the problem that we're seeing with our existing or potential prospective partners. So, what we are seeing is that we've got some partners who have an old facility or facilities, some of which are 100 years old or older. They're very, very inefficient to operate from a staffing perspective and costly to maintain. And so, it is very clear to them that they need a new facility to replace the older facility as well pass its useful life cycle. And so a new facility to them brings a lot of economic benefits, which I could touch on here in a minute, but I think more importantly a new facility brings state-of-art systems that provide a safer and more humane environment for the staff and its inhabitants. So, what do we bring to the table, I'd say, there are several things, one of which is a deep expertise on how to build these facilities. So, no one in the last 15 years has built more mission-critical criminal justices real estate projects than CoreCivic here in United States. And so why does that matter, and I'd say, it matters for a couple reasons, one of which is if you're a county or a smaller state you may build a project like this only once every 50 years. So, you got a leader if it's a the Director of Corrections or Sheriff and they clearly needed new facility, but you've only done it once or twice in the history that jurisdiction, the question is where do you start, and how do get started and what you do? So, that's one thing would bring to the table. The second thing is that…

Thanks for expanding upon that. If I could ask a follow-up to an earlier question, then I'll get back in queue. Among the conversations you are having regarding potentially contracting your idle capacity, does that include CoreCivic properties real estate type transactions or is that more along the traditional lines? Thanks.

It's both. Yes, great question, it's both. Yes, so we've got conversations with both a lease only and then also a complete management and own-and-manage solution.

Thank you very much.

You bet. Tobey, thank you.

And we'll take our next question from Michael Kodesch with Canaccord. Your line is open sir.

Hey. Good morning, guys Just a couple of questions from me here. I guess starting with the Cibola contract -- congratulations on that by the way and for a short turnaround from the BOP contract, but I think the two things that were most intriguing from that were the pricing, which seems to be equal to, if not better than what you had at the BOP contract, but then also the five-year term. So, considering that, I think US Newsweek reported somewhere around 47,000 beds would be needed, reaching that number in fiscal year 2017, and it's currently, I think, at 44,000, the mandates at 34,000. I'm just trying to get an idea of, not only the subset or the opportunity set here for an increase in beds, but also the sustainability of ICE and kind of what your expectations are for that 45,000 or 47,000 number? Thanks.

I appreciate your question. So, the first part is, we've had, as I mentioned in my prepared marks, ongoing conversations with ICE. It led to the contract of Cibola which you just talked about. But as I mentioned also, we've seen increased utilization of existing capacity in our system that's already under contract with ICE. So, those conversations are ongoing. It's a very fluid kind of dynamic on the border right now with the population they're seeing come across primarily Asian nationals, which is reported widely in the press. And so, I think, they see a potential need going into not only 2017 but potential beyond based on some of the numbers I think they're hearing coming up through Central and South America. And so, I'd say, longer-term, I think the expiration of their contract, five years, I think, gives us a sense and hopefully gives you a sense to how to think about the need for the foreseeable future. We've had contracts ensures a couple years with ICE, and we've had contract as long as up to 10 years and even 20 years with Marshals Service. So, I think the expiration of a five-year term, I think, give the sense of how ICE will think about the need that they have for this population.

Thanks, that's helpful color. And then just kind of touching on some of -- on an earlier question with an idle facility. I noticed that Kit Carson was idled in the quarter and their populations I think were moved to the other two facilities in Colorado. It looks like they might not need as much capacity as previous. Just kind of wondering what the decision to idle that facility was there and then also if you actually see an opportunity with that facility near-term or if it's maybe with the federal agency or it's just kind what you're seeing there. Thanks.

Absolutely. So, let me, this is David again. Let me tackle that question. So, Kit Carson has been a facility, probably for two, three years where it's been at kind of 50%, maybe just below on occupancy. So, it's been really right on the edge of, is it viable to keep it open or is it makes sense to consolidate that population to Bent and Crowley, two other facilities that we own or operate within the state of Colorado. And so, a reminder, and then you remember this is, in the last two years, we did have another contract to Kit Carson with the state of Idaho. So, that contract really was helpful to kind of keep it north of earnings being positive there from a financial perspective. And so when we lost Idaho contractor just because of reduction of their system-wide or overcrowding going down, we came to this decision to go ahead on Idaho facility and consolidate within the other two facilities. And that's not your question, but as it -- this is a constant question we are always asking ourselves internally to the management team, you know, there are opportunities to optimize our system-wide capacity especially with we've got multiple is in a certain geographic location or in a state like Colorado. The last part of your question is that being in the western part of U.S. and being a fairly good proximity to the Southwest border, it could be a good solution for some of the emerging federal needs that we are seeing come up in the last half of 2016 going into 2017.

Great, that's really helpful. Moving to your managed business so we've kind of seen NOI margins fall at your managed properties over the last couple of years even beds as well continue to fall there. Are you guys thinking from kind of a long-term strategy to phase out the managed-only business or are you guys kind of just expecting kind of status quo for now?

I think status quo is the right answer. One key milestone that always happens on those contracts when they come for expiration is, as we think about the renewal of those contracts, what's the environment within that respective jurisdiction or state, what's the needs, were some of the dynamics, good and bad relative to respective needs in that state. And I think what we've shown especially during the five, six, seven years is that we've got to have an appropriate margin and with that we've got to be resource appropriately through our per diem so we can pay competitive salaries to our staff within those facilities provided they can secure a facility but also adequate programming. So, as you know, what we are during our last six, seven years we have in essence kind of divested or moved out of some jurisdictions where we just didn't feel like we had appropriate amount of resources or per diem levels to help support safe and secure operation. So, the short answer is, I think status quo. Again, I think when we've got some contracts coming for renewal, we will always ask that question about what's the foreseeable future look like at that jurisdiction and how do we need to think about the proposal and the pricing on that, but I think there is going to be some managed-only contracts that we have today that are always going to be part of our operation that we're very proud of and feel like we're providing great, great solution to those jurisdictions be it at the local or at the state level.

And then one last quick question on just kind of an administrative note here. In your supplemental, you note that Whiteville facility in Tennessee, I believe, that had a July or -- June or July 2016 term. I was just kind of wondering what that was a typo, that it was renewed and then just kind of left in there or if that was still under negotiation?

Nothing unusual there. We would expect to renew that contract. It just was not signed as of the date of the report.

Okay. That's all for me. I'll jump back with anything else. Nice quarter guys, thanks.

Thanks so much. Appreciate your questions.

[Operator Instructions] And we'll return to Tobey Sommer with SunTrust. Please go ahead.

Thank you. Wanted to ask, if you could offer your perspective on the differences between Prop 57 in California, that's on the ballot next week, and Prop 47, a couple years ago, and maybe in the course of that explanation I'll inform us as to how you think about the stickiness of that business. Thanks.

Absolutely. So let me tackle that one. Tobey, I appreciate your question. So, Prop 57, which I think most people think next week it's going to pass, I would say, a couple things kind of unique about that Prop 57 as they compare to the previous one, one is that the governor, who has been a proponent on the passage of this provision has said publicly that this is basically a way to kind of create a kind of durable tools that they have on managing population long-term. And so, it's a different way, as you know, they've been under Federal court order for many years and then with that, that granted them special powers on how they kind of manage their system, be under that federal court order, but one thing that the courts have said is that you've got to do something regulatory or passage of some of these props to make sure that you've got to power yourself after the federal court decide is removed to basically have these tools in place long-term. And so, his view is that, by the passage of that, it really basically allows him to have this ability long-term, which they have in place today and it's been effective on managing their population. The other thing I'd say is that the Prop itself is to deal with lower custody populations and they are typically non-violent individuals and so we think that it is important to note because our capacity out of state that we provide for California, which is about 5,000 beds, we are holding higher custody inmates in celled capacity and this is a higher-custody population that has to be in celled capacity. So, even if Prop 57 does pass, which again most people think it will, it still in lower…

That's right. Yes. Nothing to add.

Then, maybe, just of a couple more from me. I noticed in New Mexico's the occupancy in your facility with them -- running a little bit hot. I wonder if you can comment on that, and then also generally talk about your state customers where they are either experiencing or expected to experience inmate population growth. Thank you.

Which facility in New Mexico you are referring to Tobey? It's probably the Northwest in Mexico that was formally a female facility started in New Mexico Women's facility. It's actually going through a transition and hence the name change Northwest New Mexico from New Mexico Women's Correctional Center. In the fourth quarter, there is actually close to a penny drag for the transition of populations from a female facility to a male facility, but the state has had growing inmate populations. We just signed that contract with them pursuant to that they had issued to transition that population to a male, so they're kind of realigning where they are housing their female inmates. So, that facility actually will probably drop population during the fourth quarter as we transition it here from female to male, but right now, we have for the third quarter, it was at 120% occupancy.

And then what are you hearing from your state customers about their expectations for inmate population trends ?

So, generally, we're seeing from our existing partners, I would say, modest growth over next three to five years. We will likely see in the spring, let's say, a season-updated population reports or projections, that's typically as you know, when they do them is around budget season. And so, we'll see some fresh numbers in the spring, but, I would say, generally, we're seeing pretty modest population growth for the existing partners over the next three to five years.

And then last question from me. Do you have an expectation for pricing in per diems. I know you've given guidance already for next year, so we're early in that same legislative season in the spring, will inform us more, but what's your outlook at this point?

I think it continues to improve. Over the last few years, we continue to see kind of modest improvement year-over-year. And as we've also talked about, as we see utilization improve in some key jurisdictions, that is also impactful on pricing. So, I would say, it will be modest, but, I would say, I think we'll see a spring as we go into the July 1 start date on many of our state contracts, will see a nice small improvement in the pricing.

With the obvious caveat that when you look at our per mandate statistics, that will be going down for the modified contract at our South Texas Family residential center. We haven't quantified that publicly, but you'll expect to see lower revenue per mandate, as you look at our supplemental disclosure in our 10-Q as that revenue per mandate will reflect the new terms, which as we mentioned on our last call, when we announced that contract was a 40% reduction in the revenue.

Thanks for pointing that out.

Thanks Tobey.

And we'll take our last question from Andrew Berg with the Post Advisory Group. Your line is open.

Thank you. Hey guys. Just a quick question. It looks like there's a small tweak to CapEx for the year and the guidance was up by about $5 million. Is that just a timing issue or is it something that you're purchasing a piece of land or something?

No, actually a part of that was in connection with the transition that we're making at the New Mexico facility I just discussed. They're going to add some programming space and so there's some CapEx associated with that new contract as well as we have some CapEx that we added under the California City lease that we announced when we renewed that lease, I think that was back a couple quarters ago. So, we've added that to the 2016 CapEx. I wasn't sure whether some of that would roll into 2017, but we've kind of put an accelerated plan to put that CapEx into 2016, at least some of it.

And then just to clarify, the New Mexico transition that you're talking about, the transition for Cibola going from BOP to ICE, so you're talking about the women's switchover to the men's facility.

I'm sorry, it was for the switching of the transition of the women to the men's facility.

Got it. Okay. Thank you.

Thank you.

This does conclude our Q&A session. I'll turn it over to you Mr. Hininger for closing comments.

Great. Thank you again, everyone for joining our call today. I am really, really proud of this management team. We are with a laser focus looking at opportunities around the country with either existing or new partners, utilizing existing capacity either through the CoreCivic Property, CoreCivic Safety or CoreCivic Community, different offerings. I want to also say that, I think we probably see many of you at NAREIT's REIT World Conference during the week of November 14. Otherwise, if we don't see you then, look forward to reporting to you again on our fourth quarter results in February. Thank you so much.

This does conclude today's program. Thank you very much for your participation. You may disconnect at any time.