Good morning. My name is Justin. I will be your conference operator today. As a reminder, this call is being recorded. At this time, I would like to welcome you to the CoreCivic’s First Quarter 2019 Earnings Conference Call. [Operator Instructions] Thank you. I would like to turn the call over to Cameron Hopewell, CoreCivic’s Managing Director of Investor Relations. Mr. Hopewell, you may begin your conference.

Thanks, Justin. Good morning, ladies and gentlemen and thank you for joining us. Participating on today’s call are Damon Hininger, President and Chief Executive Officer and David Garfinkle, Chief Financial Officer. We are also joined here in the room by our Vice President of Finance, Brian Hammonds. 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 2019 earnings release issued after market yesterday and in our Securities and Exchange Commission filings, including Forms 10-K, 10-Q and 8-K reports. You are also cautioned that any forward-looking statements reflect management’s current views only and that the company undertakes no obligation to revise or update such statements in the future. On this call, we will also discuss certain non-GAAP measures. A reconciliation of the most comparable GAAP measurement is provided in our corresponding earnings release and included in the supplemental financial data on our Investors page at our website corecivic.com. With that, it’s my pleasure to turn the call over to our President and CEO, Damon Hininger. Damon?

Thank you, Cameron. Good morning, everyone and thank you for joining our first quarter 2019 conference call today. I will provide a brief overview on CoreCivic, followed by a summary of our first quarter performance and our updated outlook and 2019 financial guidance. CoreCivic is a diversified real estate investment trust specializing in developing government real estate solutions to serve the public good. We are the country’s largest private owner of real estate assets and used by U.S. government agencies with 105 facilities, totaling over 17 million square feet of real estate and a 35-year history of delivering a broad range of solutions to help solve tough government problems in flexible, cost effective ways. Our unique diversified portfolio of assets generates a steady reoccurring cash flow stream underwritten by investment grade government tenants. Each of our three complementary business segments provides specialized real estate to government tenants. Our safety segment owns and manages corrections and detention facilities, including 51 correctional and detention facilities with a design capacity to safely and securely care for nearly 73,000 people. Our Community segment is a growing network residential reentry centers and non-residential community-based correctional alternatives that help address America’s recidivism crisis, and includes 27 residential reentry facilities with a design capacity to support 5,274 individuals. Finally, our Property segment is a quickly growing portfolio of mission critical government-leased properties that, as of the end of the first quarter, includes 27 properties representing nearly 2.3 million square feet of real estate Our first quarter financial performance showed positive year-over-year growth across essentially every key metric. Total revenue in the quarter was $484 million, an increase of nearly 10% compared with the first quarter of last year. Each of our 3 business segments posted revenue growth with CoreCivic Safety growing at 7%; and CoreCivic Community and…

Thank you, Damon and good morning everyone. In the first quarter, we generated $0.41 of adjusted EPS compared to our guidance range of $0.36 to $0.38 and $0.05 ahead of the First Call consensus estimate. Normalized FFO totaled $0.64 per share compared to our guidance range of $0.58 to $0.60 and also $0.05 ahead of the First Call consensus estimate. AFFO totaled $0.63 per share compared to our guidance range of $0.56 to $0.58. Adjusted EBITDA was $109.7 million for the quarter, exceeding the midpoint of our guidance by $6.7 million, reflecting strong operating results. Our financial results accelerated beyond our guidance levels, largely the result of higher-than-projected federal populations in our CoreCivic Safety segment. Operating expenses in this segment also came in lower than our forecast. While federal revenue was generally strong across the portfolio, higher utilization of two new contracts executed in the prior year, both intended to replace declining populations at two facilities from the State of California, resulted in higher occupancy levels but also contributed to the higher returns in the quarter. Compared to the prior year quarter, adjusted EPS increased $0.10; normalized FFO per share increased $0.11 and AFFO increased $0.13 per share. The per share growth in adjusted EPS, normalized FFO and AFFO from the prior year quarter represent per share increases of 31%, 21% and 26% respectively. Facility net operating income increased across all 3 business segments from the prior-year quarter by $16.3 million or 13.4% with increases in our CoreCivic Safety segment by $9.7 million, our CoreCivic Community segment by $1.6 million, and our CoreCivic Property segment by $5 million. Occupancy in our Safety segment increased from 79.5% in the prior year quarter to 83% in the first quarter of 2019, contributing to an increase in our operating margin from 25.3% to…

Thank you, Dave. Before we open up the call for Q&A, I want to take a moment to highlight the release next week of the company’s first Environmental, Social and Governance Report. Our report, the industry’s first, will provide a wealth of information to our shareholders and other interested parties about how we responsively and ethically manage our operations. We have invested a great amount of time and effort over the last few years, engaging with our investors, government partners, employees, multiple NGOs and others to develop this comprehensive report. We benchmarked CoreCivic activities against those of peer companies and other organizations including, sustainability leaders across various industries. The report will include new disclosures and company-wide goals focused on the area stakeholders told us that were the most material to them, including our people and culture, including data on our investments we make in workforce training and retention, compensation and benefits, how we operate including data on our corporate governance, facility oversight, and our operational transparency. You will gain a much greater appreciation for the numerous layers of rigorous internal and external oversight of our operations. It also provides a clear picture of how Considerations for Human Rights are integrated throughout the entire organization. How we make an impact? More fully detailed in our commitments to reentry, preparing individuals entrusted in our care with the tools they need to successfully reenter society and to helping removing barriers and impede individual success post release, such as our support of Ban the Box initiatives across the country. Environmental sustainability, while typically not the first thing that comes to mind for our industry, we own and operate over 17 million square feet of real estate. So our environmental impact is very important. We look forward to the release of this report and to receive feedback from the investment Community to expand and further improve our ESG program moving forward. I will now turn it back over to the operator to open the call for Q&A session.

Thank you. [Operator Instruction] Our first question will come from Tobey Sommer with SunTrust.

Thank you. What are the highest probability new business opportunities that you maybe able to close in 2019?

Tobey, good morning. This is Damon. Thank you for your question. And a couple of answers there, let me first start with Safety. So you have seen, obviously from us, in the last year a couple of new contracts with Marshals and ICE both at Tallahatchie and La Palma. I think there is a very good chance just because we know they have been very active and touring our facilities and we have been talking about kind of different programs and scope of services we can provide that Marshals and ICE potentially award contract or contracts, additional ones during the course of this year. You obviously saw that recently with a recent contract the GEO has awarded, I think 2 weeks ago in Louisiana. So, I think that’s very likely where you see one or both agencies do a contract or more contracts within the industry. And I should say not new contracts, but as I mentioned and as you have seen here in the first quarter, I think increased utilization of our capacity under existing contracts, I think is very possible too. On the state side, Alaska, Kansas and Idaho that I mentioned in the opening remarks, all three of them, one of them has got a procurement on the Street, we think the other two would probably be out this summer going to early fall. And I think potentially all three of those get acted on this year where you potentially got an award and then depending on location and where we are at on the operation, you know if it’s a place like Adams County, we could take them immediately. If we have to activate a facility, then it maybe a little further down the road, so it’s more impactful for 2020. So, that’s on the safety…

No, I think you covered them all, so I have nothing to add.

Thank you. Is the expense control that the first quarter showed and the higher margins, is that level of profitability and degree of expense control sustainable or how do we kind of think about that as we lap this a year from now? Thanks.

Yes, Tobey, this is Dave. I’ll take that one. Yeah I think so. I mean it’s obviously a very challenging labor market today with unemployment of 3.6% or something around that level. So we continue to see those challenges, but we have made investments in some salaries where we’ve experienced the most challenges and it’s eliminated our requirement to transfer correctional staff to other facilities which kind of cuts down on the amount of travel and accommodations we see. But we’ve also tweaked our PTO policy to provide more flexibility to our staff and when they take PTO as well as have made some initial investment or made investments in a new workforce management scheduling system that gives our employees better visibility on their schedule, gives us better visibility on overtime and things like that. So I think that’s just really being rolled out now. So it’s in the early stages. So I wouldn’t want to commit any dollar amount of savings going forward, but those are certainly things we are looking at as we try to address the challenging labor market.

You know one thing I would add to and Tobey, this has kind of really been the case historically too, but going back to Dave’s first comment, which is the labor market. Obviously, you have seen the jobs data and unemployment data is obviously very favorable here in the U.S., continues those trends, but as it relates to us, we really only have about two or three key markets where we are seeing tightness. I mean there is generally, obviously you want to keep your eyes on labor markets in every market that we are in, but I’d say it’s really kind of two or three kind of key markets where we are seeing some tightness. And with that now, thinking about the investments we need to make to make sure we continue to kind of recruit and retain the best and brightest, as it relates to our correctional staff. But also how we can offset with pretty increases or maybe estimates that others are making within your department correction, so that is a kind of key area of focus. Well, it has always been and will continue to be. And the other thing I’d just for the benefit, you know this already Tobey, but benefit of the listeners is that on the labor side, with about half of our Safety side under federal contracts, those are typically driven by wage determinations, that are rates that we have to pay our staff and if there is any increases there, we do get reimbursed by the federal government. So that is a nice hedge on that part of the business. So they are going back to the overall the state markets, a little tight in a couple of markets, but in the federal side, we are well positioned just because we have got the ability to get reimbursed for any wage increases there on these federal contracts.

Right, thank you. Couple of questions on the guidance just in terms of your assumptions, just want to be clear with your assumption for the California business you had that kind of zeroing out here relatively soon and then what do you assume for ICE detainee population levels for the balance of ‘19?

Well, probably it’s Dave, again, I’ll take that, Tobey. At La Palma, so we do have California exiting their 675 inmates something like that yesterday. They are projected to leave by June 30, which is consistent with our guidance last quarter. I would say federal populations have backfill those populations faster than what we had expected. And that’s not – we have a little bit of an upside to populations at that facility and as I mentioned in my remarks, not expecting a complete replacement of those populations during the back half of the year. So that could be upside to our guidance. Generally speaking, we also have some increases at our Tallahatchie facility federal populations. Those are the two new contracts that we entered into in the middle of 2018. But beyond those we have, what I’d characterize as modest increases in federal populations. We don’t have that many facilities, although we do have some where there is capacity. I think what could more likely happen is if there’s a continued surge in demand from our federal partners is that we’d end up activating some idle facilities. That will take some time, as you have to ramp up the staff, train the staff. So that’s a 3, 4, 5 months process. And then comes a startup cost too. So that would probably not have as big of an impact on 2019 as it would on 2020.

And one thing, just add on that a little bit is that, as I mentioned earlier, we’ve seen a lot of activity on the federal side and on the state side, but every single facility in our portfolio are actively being considered by jurisdiction and that probably hasn’t happened in a while where not only incremental capacity in existing facilities that are in already operation, but also vacant facilities. We have had tours. We have had inspections. We have had discussions on scope and services, really on every single facility that we have got in the portfolio. And again, that’s probably haven’t happened in a while.

Thanks. Last question from me and I will get back in the queue. What are you expecting for pricing from states as they start their next fiscal years this summer? Thanks.

Historically, as you know Tobey the increases are usually kind of tied to CPI, so kind of 1% to 3% depending on what the index is. We are trying to be a little more thoughtful on those just because my earlier point where we are seeing a little bit of an escalation in salaries in certain markets and we are also seeing our public counterparts making some investments on salaries on their side with their public facilities. We are kind of ratcheting up the conversation a little bit saying, hey, we got to make sure we got to keep pace and again kind of recruit and retain the best workforce for our facility. So, generally kind of 1-to-3, but it could be a couple of markets where we are looking for bigger increases just so we can make the needed investments within our employees.

Thank you.

Absolutely.

The next question comes from Kevin McClure with Wells Fargo Securities.

Good morning. Thanks for taking the questions. Just going back to the Adams County contract, let’s say, ICE or U.S. Marshals wants to backfill some of those beds, that would require a new contract correct or is there an existing capacity within [indiscernible]?

Yes, good question, Kevin. This is Damon. Thank you for that question. So, a couple of answers there, we do think that there is a possibility, just like ICE and Marshals use existing agreements between themselves. We think there is a chance that ICE could use the existing BOP contract, because there are vacant beds there today. So they could use that a vehicle to where potentially use capacity immediately. And then on a parallel path, we work with them on an agreement once the BOP contracts expire. So the current contract as you probably know expires with the BOP at the end of July I believe and then they will probably look to do some type of extension, maybe 3 to 6 months that potentially could take us into third and fourth quarter even first quarter. So, if there is agreements between ICE and BOP to use the existing contract structure and they could piggyback on the BOPs contract with us and work on a parallel path. That might be a good course of action for them.

Got it, okay. And what’s your sense of ICE’s ability to sign new contracts I know they had a step up in their appropriation of the last spending bill. Are they still spending ahead of their annualized run-rate? Is there room for them to go out there and contract for some new beds in chunks, what’s your sense of their ability to go out there and award new business?

Right. So, that’s a good question. So a couple of answers there, is that, yes I think, based on the actions here in the last couple weeks with GEO and the new contract with them in Louisiana. I think that’s clear and we are kind hearing the same thing, because again they are talking to us and touring facilities like Adams County. So I think the ability and desire to sign new contracts. I think is still very interesting and very appropriate for them to do or they are doing, I should say. And then as it relates to your question about funding, as you have probably seen in press reports here in the last couple of weeks, there is a request to Congress for additional funding. You probably have seen really kind of all corners of the cost you are supporting that funding just because of the crisis on the South West border and the activity they are seeing this year. So, you don’t know for sure obviously till it gets enacted if that’s ultimately going to cross finish line, but I would say based on kind of activity we are seeing with them interacting with us directly, touring facilities, talking about contract terms, but also signing the most recent contract with GEO in Louisiana, then obviously the contracted deal with us last year, I would say they are continuing to be moving forward with pretty brisk pace on signing new agreements for additional capacity. I don’t think anything to add to that, David?

No, that is it.

Okay. Do you anticipate a CAR XX down the line or when is the next major BOP procurement?

They have not said, as you may know, typically they do an industry kind of meeting at ACA so that happens in Boston, I think in end of July. So we will have that meeting and I suspect they’ll give us some kind of forecast on not only populations but also potentially new procurements. So I expect we probably won’t hear much until then. I think it is curious though that they had a lot of proposals. I think probably well in excess of the 9,500 beds and they didn’t award it all. They awarded the 6,700. So I think maybe that’s a sign that they may be tapped the brakes just at the moment relative to quantity of beds they want from private sector. But again, I don’t think we will get clarity on kind of future demand until probably later this year.

Got it, okay. And then turning to family detention, what are the current populations at your South Texas facility, family facility?

Yesterday, they were a little over 1,100.

Okay.

Which is as you know that the populations that slowly fluctuate very significantly because it’s a very transient population where the mothers and children are only there for less than 3 weeks, so you can see ebbs and flows that go down to the several hundred and up into the high one thousands I’d say, the max capacity is probably around 1800 maybe 1900 somewhere on there, even though it’s a 2400-bed facility just because of restrictions on the ability to have a certain – boys and girls together and things like that. Dave and I took a large group on a tour late last year and the staff were telling us there that you’d see maybe 100, 200, 300 families kind of transition out through the facility in a 24 or 48-hour period. So it is kind of high volume sometimes.

Okay. So you don’t see much of a risk that ICE could decide to early terminate that contract and focus more on adult immigrant detention and the families, given the transient nature of the population?

We have not had. This is Dave, Kevin. We have not had any indication from ICE that they would want to change the mission of that facility or change its utilization. In fact what we did see was in the funding request that Damon just mentioned, there was actually a request to expand that facility by 910 beds. You know we will have to stay tuned on that.

Got it. Okay, last question for me. Can you provide an update on the class action that’s out there? Where do we stand in the process? I know that you guys had about 2 weeks to initially appeal the class certification that was in mid-April, where do we stand today? Thanks.

Yes. We have filed that appeal with the Sixth Circuit and we are awaiting their decision on whether to accept that appeal – to review it, basically.

Okay. When do you anticipate a decision on whether they will decide to hear the appeal?

I don’t think we have gotten an indication.

Yes, it could be any time, but it also could take a month or several months. So we don’t expect to hear anything in the short term.

Got it. Okay, thank you for the time.

Thank you, Kevin.

We have a follow-up question from Tobey Sommer.

Yes. Just two questions from me. Thank you. With the California business winding down and several years of that being a drag on the company, is there another customer that we should have our eyes on perhaps experiencing inmate population declines and therefore vulnerable to in-sourcing, how do you assess the risks in the portfolio at this stage?

Yes, Tobey, this is Damon. Great question. It’s something that we watch closely and interact with our customers, especially as they think about kind of their needs going forward and also things we can maybe do as I think about consolidation or additional program. So, it’s a constant conversation and kind of forecasting needs, but also what’s the needs of the population and at the moment and this has been pretty consistent. Outside of California, I would say all of our other state partners have been pretty, pretty stable. Some have been kind of flat on population. Some have been growing kind of incrementally a couple of percent, but California is just as you know such a unique situation. I mean they were just severely overcrowded, so a lot of reform that had to be taken place, but I don’t see, as I sit here and look at the map, I don’t see another state that has anything in the near-term where they will do to kind of that activity or have that type of change of population or the ATIs.

Not at the state level. As we mentioned in our script and Damon mentioned in his script, the BOP is down 39,000 inmates over the past several years. So, that’s obviously had a significant impact on their overcrowding situation which has gotten more under control. So we have really been successful at diversifying our cash flows, our exposure to the BOP is down to 2%. Our exposure to California will be 0% beginning in the third quarter. So, looking out, all the other state populations seem to be have reached stable populations probably growing – California aside, state population is growing probably 1% to 3%, consistent with overall population changes.

That’s a good point. You know, let me add one more thing. So keep me honest Dave on the numbers, but in 2010, we had about 15% of our revenue come from BOP. I think, about the same amount from California. So you’ve got California, that will zero, you’ve got BOP that will be 2% going into 2019 and into 2020. So obviously we’ve been very thoughtful in how we’ve been able to not only diversify, but also talk to the existing new partners to utilize the existing capacity being vacated by those two partners.

Right. Thank you. And two kind of numbers question probably for Dave, what should the trajectory of quarterly revenue look like in 2019? I’m just trying to get a sense for whether there are any seasonal patterns you may be able to point us to, not asking for detailed guidance, but broad strokes. And then, when you look at the company’s balance sheet, where are you with respect to wanting to extend debt or credit facility maturities? Thank you.

Yes, sure, Tobey. On revenue we don’t obviously provide revenue guidance, but I’d say directionally first quarter we had $484 million of revenue. I’d expect Q2 to be relatively flat. I mean we do have one more day in the quarter but that’s going to be offset by a decline in California populations, which were at around 1,100 at March 31, down to 675 today and going to zero by June 30. We do project some increases in, I’d say several million dollars in revenue at La Palma for the higher federal population, so somewhat flattish going from Q1 to Q2. And then, on the balance sheet side, with our credit facility matures in 2023. So we’ve got several years before we need to worry about that credit facility. We’ve got $325 million of unsecured notes maturing in April 2020. We’re thinking about that right now, obviously, about how we’re going to deal with that. Most likely, it will be paid off with our credit facility. We’ve got capacity today to pay it off, but it would put that credit facility tight in terms of what its availability would be, if we were to just pay it off on the capacity today. So we are looking at like a term loan B would be in the cards for us as we look out to the second half of the year. That would create some liquidity on the credit facility, so that we could continue to execute on our M&A pipeline, particularly in the property segment. Always want to have capacity to execute on anything that looks attractive to us. So we are in good shape from a liquidity perspective over, I think I have said $570 million plus of capacity today on that credit facility, but thinking about that April 2020 maturity is probably what we are thinking about in the short-term for our balance sheet.

Thank you very much.

Thank you, Tobey.

Thank you, Tobey.

There are no further questions in queue.

Thank you very much. Well, this is Damon again. I want to thank you for joining the call. Before we conclude, I want to highlight that this week is National Correctional Officers and Employees week and really, really great week to recognize the important work that Correctional staff across country, both our employees, but also our public sector counterparts doing great work every day bettering the public good. But I want to take a moment really to recognize our employees, who I just think world of. Our employees are teachers, they’re chaplains or nurses or mothers, veterans and many others and they are really good people doing great work for government partners and individuals that are entrusted in our care. You know that over the last 5 years here at CoreCivic, we have helped more than 30,000 individuals in our care further their educations by earning GED’s and industry recognized certifications that prepares them to restart their lives, but also, as studies have shown, they are 40% less likely to come back to prison. So it’s not lost on me that to have that type of success with helping people get their lives back on track, it takes a talented and passionate team that’s making reentry a day one priority. So, to the CoreCivic team, I am sincerely honored to serve alongside you and I am grateful for all of your efforts. So in closing, I would like to thank everyone for joining our call today. We look forward to reporting to you our second quarter results in August and providing an outlook for the remainder of 2019. Have a great day.