Good morning. My name is Mindy, and I'll be your conference operator. As a reminder, this call is being recorded. At this time, I'd like to welcome you to CoreCivic's First Quarter 2018 Earnings Conference Call. [Operator Instructions] And now I'd like to turn the call over to Cameron Hopewell, CoreCivic's Managing Director of Investor Relations. Mr. Hopewell, you may begin your conference.

Thanks, Mindy. 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, including our answers to your questions, will include forward-looking statements pursuant to the safe harbor provisions of the Private Securities and Litigation Reform Act. Our actual results or trends may differ materially as a result of a variety of factors, including those identified in our first quarter 2018 earnings release and in our SEC filings, including forms 10-K, 10-Q and 8-K reports. You are also cautioned that any forward-looking statements reflect management's current view only and that the company undertakes no obligation to revise or update such statements in the future. On this call, we will also discuss certain non-GAAP measures. A reconciliation of the most comparable GAAP measurement is provided in our corresponding earnings release and included in the supplemental financial data that we provide on our Investors page of our website at corecivic.com. 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 first quarter 2018 conference call today. We are also joined here in the room by our Vice President of Finance, Brian Hammonds. Our first quarter financial performance met the high end of our guidance with normalized FFO of $0.53 per share. Our adjusted EBITDA in the first quarter, $92.1 million, slightly exceeded the high end of our first quarter guidance of $91.4 million. Our first quarter results were aligned with the high end of our expectations, principally due to increasing utilization trends across our portfolio for United States Marshals Service and Immigration and Customs Enforcement facilities. Startup related to expenses at our Lee Adjustment Center for a new contract with Kentucky coming in line with our expectations. And the timing of California's gradual exit from our Tallahatchie County Correctional Facility being consistent with our forecast, supported by stability and the balance of our portfolio. Dave will provide a more detailed summary of our first quarter financial performance at the conclusion of my remarks. Also included in yesterday's earnings release was our updated full year 2018 financial guidance. We currently expect to generate normalized FFO per share of $2.24 to $2.30, and AFFO per share of $2.17 to $2.23. Dave will cover in detail the primary drivers of our guidance. However, it is important to note, our 2018 guidance does not include the potential impact of new contracts or acquisitions. These are important items to keep in mind given that we are seeing more opportunities to serve new and existing partners in the market than we have seen since before the recession of 2008. And some of those opportunities have the potential to have an impact this year. We believe these opportunities could lead to meaningful increases…

Thank you, Damon, and good morning, everyone. In the first quarter, we generated $0.32 of adjusted EPS compared to our guidance range of $0.31 to $0.33 and a $0.01 ahead of first call consensus estimates. Normalized FFO totaled $0.53 per share at the high end of our guidance range of $0.51 to $0.53, and $0.01 ahead of first call consensus estimates. AFFO totaled $0.50 per share compared to our guidance range of $0.51 to $0.53. AFFO during the first quarter reflected the acceleration of certain capital expenditures compared with our forecast. We have not changed our capital expenditure forecast for the full year 2018, and therefore, expect AFFO in future quarters to be higher than previously estimated, with no change to our full year AFFO forecast. Adjusted EBITDA was $1.7 million, higher than the midpoint of our guidance for the first quarter. As mentioned in the press release, our per share results were lower than the prior year quarter, principally due to the expiration of a contract with the Federal Bureau of Prisons at our Eden Detention Center in April of last year, and start-up expenses in the current year quarter at our Lee Adjustment Center, where we prepared to receive inmate populations from the Commonwealth of Kentucky pursuant to a new contract. We began receiving offenders under this new contract in March and are on track to complete the ramp in the third quarter of 2018. We experienced an operating loss at this facility of almost $0.03 per share during the first quarter and I expect to incur an operating loss of a $0.01 per share during the second quarter until the facility ramp is complete and becomes profitable beginning in the third quarter of 2018. In addition, the prior-year quarter reflected a surge of detainees from ICE, creating…

And we'll go first to Tobey Sommer with SunTrust.

I appreciate the color and detail around public procurement opportunities. I was curious if you could update us to the extent you're having any nonpublic ones because the public procurement process can sometimes carry with it some obstacles that elongate the timeline. Whereas, nonpublic ones can occasionally surprise us. So I'd appreciate an update there.

Absolutely, Tobey. This is Damon, and thanks for your question. So I would say – let me maybe answer it this way kind of all the opportunities we see in CoreCivic Safety and CoreCivic Property that break them into kind of 4 buckets. So the first two buckets are the public ones, but just to highlight them again, the first bucket is Oklahoma, Colorado and Minnesota. Those are opportunities for lease capacity we've got in those 3 respective states. Oklahoma and Colorado, as you know, is probably the most public about they're attractive – being attracted to capacity we've got in those respective states. So those are collectively about 4,500 beds. So that's number one. The second bucket is also again, kind of the known procurement opportunities for CoreCivic safety, so utilization of existing capacity. And so that's Puerto Rico, Kentucky, Vermont, which I didn't note on the script, but that is an active procurement and is in Idaho, which we expect that procurement come out shortly. Those beds, collectively of those 4 opportunities could be in a range of 4,000. If Puerto Rico does 1,300 beds, but it tends to up to 6,000, if they do the ultimate 3,000-bed award. So 4,000 to 6,000 is the number in that second bucket. The third, to your question, nonpublic and these are states, so no federal or local jurisdiction. These are just states. We've got active discussions with some states. And I'd say the collective range of need there is about 1,500 to 3,000 beds. And these states that we're talking to, we do think that they potentially could act this year, so in 2018. And then finally, the fourth – again, this is more not necessarily a procurement, so it's just a fourth that we see potential opportunities near term.…

Thanks for that news on the Justice Department. I did not see that. I'm curious, you highlight the funding, in that attractive rate associated with your win in Kansas. How big a deal is this for other opportunities? Is this influential in a way prospective customers think about moving forward?

Great question. Yes, it's huge. We started this process and we didn't talk about this much publicly, but we started this process couple of years ago about alternative financing mechanisms for these type of projects. Didn't get a lot of interest to be honest with you, and we were somewhat surprised by that because there was ton of financing at the federal level for GSA lease properties. I mean, that's a very robust market and a lot of investors who want to invest in those type of leases that are utilized by the federal government. So we are somewhat surprised that there wouldn't be a lot interest in this initially. But in the last – probably last six to twelve months, and I am looking at David as I say this, we started getting a lot more interest, especially where we can point to a national life procurement with the one that was going on within the State of Kansas. So when this deal got done or priced, I should say, there was huge demand. I mean, we actually, as you know, did the deal for $159 million, but there was about $900 million in interest on this financing. So a huge demand, once I think investors got educated to the kind of characteristics of the project. I mean, clearly, it's very efficient way for a government to accomplish their goal. In this case, Kansas to really replace a very old antique facility. So I think, Kansas learned pretty quickly through the procurement process that they can achieve their goal a lot more efficiently by partnering with the private sector. But I think to the financing, you're really just marrying up two things that made this a very attractive investors. You're marrying up the tenant and the credit quality of…

No, I think, that's pretty much says it all. And we were very pleased with the execution, and as Damon mentioned it, yes the strength of a tenant, the lease, just all came together very nicely for us.

Okay. And then on the CoreCivic Properties, what's the pipeline like for available properties and what's your acquisitions or what you're looking at? Just trying to get a sense for whether this is going to be like the buildup in reentry or there is an opportunity for something a little bit more sizable over time?

Absolutely. So give you a little bit of a sense, since the first year. So when we announced the transaction down in Tallahatchie, it clearly woke up a lot of folks. We have had a lot of brokers inbound calls saying, "hey, we've got a owner of an asset, it's 100% leased to X government, good quality asset, long-term lease." So we've had a lot of inbound interest. So kind of give you – kind of what we're seeing in the pipeline really caught up in two categories. So probably, we've seen about a dozen individual properties and I'd say the average kind of price of those properties are in kind of the $50 million range. So we've obviously did the one, first, this year, but don't be surprised if we announce another one later this summer going into last part of this year. So that's one kind of group. We've also looked at several portfolios and the portfolios that we've looked at in the spring have been in a range of about $100 million, up to $500 million. So that gives you a sense of portfolios a size that we have seen so far in the spring, and again, I think we are sensing to that some of these owners either of individual assets or portfolios seeing us as a potential buyer, I think, we'll have a lot more inbound interest in potential opportunities for transaction. I don't know if there is anything you want to add to that. David?

No, no. I think that covers that. We talked about the returns that we expect on those. We're seeing cap rates in the 5% to 8%. We're targeting above the midpoint of that. So again, assuming, we get some attractive financing for them, those returns will exceed our cost of capital on a blended basis.

And let me ask you question, if I could, about the Justice Department moves and I'll get back in the queue. You drew a connection to U.S. Marshals, is there anything relative to ICE populations to draw from that change in kind of forward deployment, let's say?

Yes, great question. So yes, if you look at the detail from the Attorney General's statement, he lays out, so 35 new Assistant U.S. attorneys in about five different districts. Again, primarily just from kind of Brownsville, Texas over to San Diego. But the judges, I think, are going to primarily be focused on kind of immigration-related offenses. So I think that, obviously, we'll have an impact potentially on Marshal Service, but also with ICE. So yes, I think, there is a connection there.

[Operator Instructions] We'll go next to Rob LaQuaglia with Wells Fargo.

Just one for Damon, maybe on Puerto Rico. Is there any way they handicap that contract. Do you think you're still kind of the frontrunner there? And do you have any idea how many other bidders potentially might be vying for that contract?

We've worked with Puerto Rico several times in the last 20 years, since I've been with the company. And I think I have a pretty good appreciation to answer your question about how viable or unviable this opportunity is, and this sounds pretty viable. And we're talking about the pressure the Commonwealth is facing from a budget perspective but, as you know, with these hurricanes last year, we've heard some pretty dire kind of circumstances these facilities are under right now because of – not only infrastructure impacting the utilities, but also the actual physical plan. So this feels like a pretty viable opportunity and it feels like they are also very encouraged by various stakeholders to move as quickly as possible. So I'd say, I feel good about our chance. I think we are in a good position, because we got beds notably in the Southeast, so it makes it easy from a transportation perspective. That I think, we're well suited for this population. So I think, to be able to deliver a solution urgent or quickly, I think, gives us great competitive advantage. Is there anything to add to that, Dave?

Yes, again, we've got facilities that have that kind of capacity with experienced qualified staff in place today. So for us, we think, we have a competitive advantage, where they want to begin ramping in July, which is what they've expressed, we could accommodate that. So we certainly will be competitive in that RFP.

Okay. And are you still expecting sort of the May 17. I think, that was the date they put forward, is that kind of still intact?

Yes, that's – it's moved just a little bit, I think, just because of them accommodating the questions through [indiscernible] process, which is pretty normal. But yes, we're still kind of expecting kind of that mid to say the 20th of May kind of be in the due date.

I think it was expected June – middle of June. June 15, I think.

Okay. And then, I guess, just on the South Texas facility, any color on how populations have been trending there?

There has been activity, if you go globally on Southwest border. Populations have been notable. I think kind of normal though for families coming across the border. But yes, the South Texas has been kind of in the range of kind of 1,500 to 2,000 beds occupied in the spring and kind of early part of the summer months, I guess we're not quite there, but we'll get close.

Which is a strong population given its a 2,400-bed facility, but there are restrictions on how – who you can house together on the same housing unit. So really, it's pretty close to maximum occupancy, which, again, I think everybody, at least most people on the call know that, that's a fixed-price contract. But certainly, the demand has been very strong over the past several months.

Okay. And then just last one from me, as it relates to CAR XIX, is it still your current expectation that the award will be given for all the beds, or do you think that there is a chance that it could be sort of a partial award?

Yes, great question. As you know, kind of leading indicator for potential need for BOP of Marshal Service populations. So I go back to earlier saying that, you've clearly seen investments with some of these U.S. attorney vacancies being filled. Got the announcement yesterday from Sessions on additional resources being deployed on the Southwest border and you're seeing populations from the summer going into this year for the Marshals increasing by about 5,000. So that being kind of the first step for a federal prisoner before they go to BOP, that tells me that I think there is probably a – definitely a likelihood that they're going to need most, if not all, of those 9,500 beds.

[Operator Instructions] And we'll have a follow-up question from Tobey Sommer with SunTrust.

In terms of the budgets question, separate one here on ICE. What does the budget imply for ICE's potential for bad procurement? I'm aware that we talked about your ICE populations being up on existing contracts, but investors are focused on growth and the way the different budget line items kind of appeared for ICE, it was a little bit difficult to kind of draw conclusions?

Yes, another good question. It's hard to be precise on this, but if you are kind of thinking about where they're at today, so just over 40,000 beds that they've got budgeted for this fiscal year. And they're proposing a budget for next year of about 52,000 beds, so say about 11,000 to 12,000 additional bed increase. It's our feeling, again, this is not precise, Tobey, but it's our feeling that they've got capacity under contracts we have and also maybe some other contracts they have, where they don't have to do a new contract, and it can get to about 44,000, maybe 45,000. So we think may be the tipping point is kind of, at that point, I should say, which is kind of 44,000, 45,000. That's the point where they'll need to may be go out and do new procurements. Again, that's not precise. It could be the case where they've got it at a very specific location where they got a capacity. Then they may have to go quicker on doing some contracts and not wait for kind of that overall number to reach a certain point. So again not precise, but I'll give you kind of at least a ballpark of at least what we're thinking.

So what does that mean to the prospects for the RFI that existed for a while to move down a path towards actually generating some new business for the industry?

Yes, I think if it's, again, can't be precise on this. I think there is a view within ICE that again, if they are starting to see activity with these resources on the south of border being deployed, maybe they'll move on those sooner rather than later. And I think if you would have asked me probably 3 months ago, I would have said probably it's going to be tied more to the actual appropriation being approved, in this case fiscal year 2019. But again, I think, with some of the activity we've seen in the Marshals, again, there is some lot of linkages there and also deployment of resources. You could see some activity kind of in the summer and the fall months. Again, not precise, but I think, it's just something we have to continue kind of monitor based on the numbers and the needs.

Sure. And last question for me. With respect to the Southwest border crossings, the timing of the Justice Department announcements seems interesting. What are you hearing from ICE in the Department of Justice about their expectations for Southwest border crossing this year, kind of just – excuse me this summer? And maybe if you could comment on the root causes for the upturn like sort of what are you hearing is happening in Central America that it is spurring the greater numbers?

I think, and Dave help me out here. I'd say, it's generally more just resources. There has been – as we think about the numbers, coming across the border, I'd say the numbers are pretty, pretty similar to historical standards. So with that, I think, it's just maybe the resources being kind of brought up to a point where it really kind of meets the demand that's already been there. And so I think that's just few kind of the general view from the Department of Justice and Homeland Security, not only with some of these directives, but also the appropriations they've got in last fiscal year, this fiscal year and next fiscal year. Do you have anything to add to that, David?

Yes, I mean, the border apprehensions right now in March anyway were almost right on top of where they were in 2014, which for – at least for family immigration that's one we entered into our contract with the South Texas Family Residential Center. So ICE population certainly, as I mentioned in my script, they've been growing for the past couple of quarters. So they kind of returned to a more normal level. It wasn't, again, the levels that we reached in the prior year quarter, but in the summer of last year, they were down significantly there. We have not seen a downturn in this summer. So – and as Damon mentioned that and I mentioned that, U.S. Marshal populations have been growing. I can't point to any particular reason for that or conditions in Central America when it comes to either U.S. Marshal populations or the family migration, but conditions – the economy of United States is very strong. The conditions in Central America are not improving. So this is an attractive place to be for those folks and trying to seek asylum and trying to get entry into the United States.

I'd like to turn the conference back to Mr. Hopewell for any additional or closing remarks today.

Alright. Thank you, again, Mindy. And thanks to everyone for joining our call today. We look forward to reporting to you throughout the rest of the year as we execute on our growth and diversification strategies. Have a great Thursday, everyone.

This concludes today's call. Thank you for your participation. You may now disconnect.