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

Thank you, Travis. 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 provision of the Private Securities and Litigation Reform Act. Our actual results or trends may differ materially as a result of a variety of factors, including those identified in our fourth quarter 2019 earnings release issued after market yesterday, and in our Securities and Exchange Commission's 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 the Investors Page of 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 fourth quarter 2019 conference call today. CoreCivic is a diversified real estate investment trust, specializing in delivering government real estate solutions to serve the public good. We are the country's largest private owner of real estate assets being used by U.S. government agencies. Following our latest portfolio acquisition last month and the recent opening of our newly constructed Correctional Facility in Lansing, Kansas, we own 136 facilities, totaling nearly 19 million square feet of real estate. We have a 35-year history of delivering a broad range of solutions to help solve tough government challenges 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 business segments provide specialized real estate to government tenants. Our safety segment owns and manages corrections and detention facility, including 50 correctional and detention facilities with a design capacity to safely and securely care for over 72,000 people. In the last 5 years, in this segment, we have helped over 30,000 individuals achieve their high school equivalency or an industry-recognized trade certificate, which evidence-based research has shown to materially reduce recidivism rates. Our Community segment is a network of residential reentry centers and nonresidential community-based corrections alternatives that help address America's recidivism crisis and includes 29 residential reentry facilities with a design capacity to support 5,394 individuals. We also provide nonresidential community-based services to approximately 35,000 people on a daily basis. Finally, our Property segment is a portfolio of mission-critical, government-leased properties that, as of the year-end 2019, included 28 properties, representing approximately 2.4 million feet of real estate. Subsequent to year-end, this portfolio has expanded by nearly 1 million square feet due to the recent opening…

Thank you, Damon, and good morning, everyone. For the full year ended December 31, adjusted EPS was $1.72, up 18.6% from the prior year; normalized FFO was $2.62, up 13.4% from the prior year; and AFFO was $2.58, up 17.8% from the prior year. Depending on the metric, these per share amounts were either $0.22 or $0.23 higher than the midpoint of our initial guidance published a year ago at this time. In the fourth quarter, we generated $0.35 of EPS, or $0.36 of adjusted EPS compared to our guidance range of $0.38 to $0.42. Normalized FFO totaled $0.59 per share compared to our guidance range of $0.60 to $0.64. AFFO totaled $0.58 per share compared to our guidance range of $0.59 to $0.63. Adjusted EPS was $103.5 million for the quarter. Adjusted amounts exclude expenses associated with debt refinancing and M&A transactions, including contingent consideration on an M&A transaction reflected in the prior year quarter. Our financial results for the fourth quarter were slightly below our guidance levels due to lower-than-expected populations from U.S. integration and customs enforcement or ICE. Last quarter, I mentioned that we have lowered our Q4 ICE population projections because we did not believe the elevated levels we experienced in the second and third quarters of 2019 were sustainable as total Southwest border apprehensions had reached the highest levels in over a decade. However, ICE populations nonetheless declined to levels below our forecast. Compared to the prior year quarter, adjusted EPS and normalized FFO decreased by $0.04 per share, and AFFO decreased by $0.01 per share. New federal contracts in 2019 to activate our previously idle 1,422-bed Eden Detention Center in Texas, and our 910-bed Torrance County Detention Facility in New Mexico were more than offset by declines in California populations at our 3,060 bed…

[Operator Instructions]. We have a question from Joe Gomes, NOBLE Capital.

First question, looking in the fourth quarter, did understand the whole ICE and everything. But if I'm looking at the Safety segment, revenues increased year-over-year, but we all saw a big increase in expenses in the Safety segment, where they went up to 74.3% of revenues from 72.6% of revenues. I just wonder if you could talk a little bit about what was going on there?

At a high level, yes, our expenses -- let me back up. So when you see declines in populations, we're not able to necessarily reduce staff. So you have a fixed cost of staffing that you can only flex if you have significant reductions in populations. So throughout 2019, we had some pretty meaningful increases in federal populations. And so on the margin, those are higher than if you're activating an idle facility, for example. But as far as kind of at a global level, expenses in 2019 reflect higher wage rates. So you've got a very low unemployment rate so provided wage increases, had to provide several market adjustments in several of our facilities. But beyond that, I can't think of anything out of the ordinary that would influence those expense margins.

Okay. And on ICE, I was wondering if you might be able to talk a little bit about what government funding for 2020 is? Or if there's any new government policies that you guys see being bandied about that could positively or negatively impact demand from ICE?

Yes, this is Damon, and I'll answer that question, and I appreciate the question itself. So a couple of things. One is that as we look at trends month-to-month in addition to kind of real-life feedback from our partner, in this case, being ICE. And both on the data and looking at it historically, but also the kind of feedback from ICE, they indicated last summer that was extraordinary levels of population and in turn needs for capacity within our system and other facility they used throughout the country. So we knew going into the last year that they were going to see decreased utilization and really kind of get back to kind of historical levels. And we should look about 10 years back and kind of look at historical levels, and you may know already, historically too, now as you see kind of level, but you usually see a little bit of a decrease during the winter holidays, which has been pretty consistent in the last 60 days. To your question specifically about policy and funding, so funding has been stable this year based on the demands for ICE. And then the President, I think, just released, a couple of days ago, the budget for 2021. And within that document, there is a request for increased funding of 60,000, so that would be -- 60,000 beds, I should say. So that would be an increase over current funding levels. Now you know as well as I, that's got to go through Congress and the House and the Senate. So a lot more activity on that front to determine exactly what that number is, but at least gives you a preview of what lease administration is looking for next year. From a policy perspective, you've probably seen all the kind of articles and things we hear back from our partner relative to the cooperation or given with some of the Latin Central America countries and also with Mexico. So there's nothing really to add to that. But I'd say, generally, as we said in my comments, and it's been reported in media, I think there is -- some of those policies and agreements they've worked out has an impact on the Southwest border. Anything you would add to that, David?

No, no. But I do want to go back to your first question, Joe. I was thinking if you're looking at expenses year-over-year, we did have start-up expenses to activate our Torrance and Eden facilities. So year-over-year, Q2, we had about $2.7 million of start-up. In Q3, we had about $6.8 million of start. So those would be reflected in our margins and other -- in per diem tables that we present in the supplemental financial.

Okay, great. And one last one for me. One of the opportunities that you guys have mentioned in the past is the potential transfer of some of the ICE, or U.S. Marshals inmates from local jails to, say, a CoreCivic property. What do you guys see is there any progress in that or the actual potential of that in the near term?

Yes, great question. And I would say it's -- over the last couple of years, you don't see a lot of attention to this, but we kind of hear on the ground and different regions where we operate. There has been some incremental movement populations from city County facilities to CoreCivic and even to GEO. And the kind of common thing that we hear is that ICE through their credit, they continue to kind of raise the bar relative to quality and the type of standard they want to put in place a solely, and we have consistently met or achieved compliance with those standards, where that may be challenging for a studio or county. So you don't see a lot of press on this, but we hear anecdotally, we hear from time to time with our folks in various regions in the country. They're hearing about a city or a county facility or jail that has taken a step, either to go ahead and transition that population back to ICE and that's sort of like CoreCivic or they've just made the decision that they cannot comply with the standards that banks expects for those providers, public or private. So again, I'd say it's, incremental. We've seen some opportunity with that in different parts of the country.

[Operator Instructions]. Your next question comes from Jordan Sherman, Ranger Global.

I wanted to go back to your comments about La Palma. I'm not sure I heard that correctly. Did you say that, that is -- in the supplement, it says, it's 60% -- 59% occupied. Is that right? And is that -- where is that trending? I'm sorry, I missed the comments on that.

Yes. So yes, supplemental that, obviously, indicates end of year. I think we're pretty consistent with it today. Maybe it might be a little higher utilization as we go into first part of this year. But yes, I'd say it's trending a little bit of an increase since -- in the fourth quarter. Anything you would add to that, David?

No, and as La Palma recall, in '19, we had California vacating that facility. We've signed a new contract with ICE to kind of replace the California population but as of yet, they've not fully replaced them. So we had a transition going on throughout 2019 and California, really exiting through June, and then ICE are ramping up. I think year-over-year, I think Q4 versus Q4, I want to say they were, let me double check on that so if you want to...

Well, that's okay. What's your expectation on what will happen with that? And is that capacity you might be able to use with the Arizona situation?

Yes, good question. I'd say the first part is, ICE has indicated that location is very important to them. It's in close proximity to our Eloy Facility, which, historically, has always been utilized for ICE for, gosh, almost 20 to 25 years. So operationally, it is a very good facility for them in proximity, not only Eloy but also their Florence Facility. So ICE has indicated, kind of, I'd say, short and midterm interest on full utilization of facility. But to your second part of your question, absolutely, we'll obviously continue to kind of judge that with ICE and determine if there's other partners that could use that capacity and that might be a good fit for them.

In Q4, I averaged about 1,800 people in that facility -- Q4 '19 compared to about 900 in Q4 '18.

Right. And I'm just wondering, in terms of the outlook for the detainees for ICE and U.S. Marshals, considering the new policies in place, I'm wondering -- again, I'm not sure we all know what's going to happen longer-term on that. But I'm just wondering, does the 60,000 beds in the Trump budget actually make sense? I mean, it doesn't look like we're trending in that direction.

Yes. If you look at, I guess, the last 12 months, just look at my chart, we got as high as, I think, 56,000, 57,000 middle of last year, I guess, during the summer months, and that was, again, increased utilization based on historical standards. Today, if you look at the nationwide number, let's see, this was January. Today, that number was about 42,000, 43,000 nationally that I said in detention capacity, public or private. And what I would say is that if you look at just the amount of individuals they've apprehended on the border, that appears to be pretty consistent over the winter with historical standards looking back at 10-plus years. So that's a long way of saying, and it appears that having kind of funding, I don't know if it's 60,000, but probably some funding up to where they were last year, 55,000 based on now kind of unique things that happen from time to time but also seasonal fluctuations in population, that's probably a pretty good number. Again, 50,000, I don't know if that all can get through Congress and through the House and Senate. But I'd say kind of the funding that it got today, that might be a pretty good number for them to think about claiming now on next year. Anything you would add to that, David?

As Damon mentioned, it is typically seasonal, so you'll see declines in illegal immigration during the peak winter months and during the peak summer months. We factored into our guidance the new policies of the administration implemented last year, and that's about when we saw declines in our populations beginning in September, October-ish. So there can be substantial surges. Last year, we would not have predicted -- we did not predict the level of ICE detainees that we had throughout 2019. As I mentioned, Q2 and Q3 were kind of high watermarks for us. And it's just very difficult to predict whether that's going to happen again this year. We're not expecting it to, it's not in our guidance based on the new policies of the administration. So if it does, there would be upside.

And if I could just add one more thing to the question I was asked earlier. One thing that I think gives us -- maybe buffer just a little bit on maybe its population going up and down on is, I mean, we meet all the appropriate standards. I mean, we've got the newest, most modern facilities providing capacity to ICE. Again, we meet all the appropriate standards, not only if it's physical plans but operational standards. And our ICE facilities are the most monitored probably in our portfolio. I mean, there's a lot of government employees that are walking the halls in our facilities every day, monitoring our operations, interaction with the detainees. And so -- and we welcome that. We welcome that oversight and that constant monitoring. I guess, my point is that if ICE had the opportunity to maybe recalibrate a little bit their capacity and their system, I think we'll always get the first look versus a city or county that, again, can't maybe make the capital investment or the dollars investment to meet these standards that continue to increase and raise the bar on quality.

Understood. Actually, let me ask a question along that line before -- how much of ICE's capacity or U.S. Marshals, I don't know if U.S. Marshals has any -- is not -- is in like county or municipal facilities?

Yes, great question. So, going back to that number, let me just use a round number, say, 45,000 or maybe 50,000 of potential capacity that ICE uses on an annual basis. I would say, between us and GEO and MTC, it's probably about half of the capacity. So if the half of that capacity is private sector, so say in a different way, the other half is with the public sector, cities and counties. There is a little bit of ICE capacity that they've got where they own and operate themselves. But that's a -- it's a very small amount. So I think only a couple of thousand beds. So I say half and half. On Marshals Service, we have about, I think, 8,000, 9,000 prisoners on any given day for the Marshals Service. I think it's pretty consistent with GEO. And I'd say, David, probably with almost 60,000 federal prisoners is probably not half, it's probably maybe about 1/3 of Marshals prisoners that are in private facilities like ours and the other 2/3 are in public or -- public facility, city and county jails.

Right. And I'm just wondering, is there any -- I don't know if you've looked at the details of the budget. I know it's just preliminary or just a more talking points than it is actual budget. Is there an increase in funding requested for ICE officers for enforcement? I mean, maybe that, ultimately, would -- could drive increases in the number of detainees, immigrant -- captures and detainees?

Yes, there's actually pretty well kind of funding across the board for all of ICE and Homeland Security, I should say also and even customs and Border Patrol. So yes, staff and personnel, attorneys, so you had a lot of investments, I'd say, throughout their kind of the entire system.

[Operator Instructions]. We do have our follow-up from Mr. Sherman.

Okay. Thought I'd give someone else a chance. So just to go back to the three facilities, Adams, Tornante and Eden, what -- I was just wondering how the contracts are sort of structure? Is there a base minimum and then an incremental per DM for as or when you get above that? I'm just wondering how those work?

Yes. So it's kind of all of the above. Every contract that we negotiate kind of stands on their own. There's many things that we consider based on kind of the dynamics and needs from the partner, also the regional location and maybe flexibility, either ICE or Marshals want or vice versa, we want based on potential opportunities like in Arizona or -- and Mississippi. So it's kind of all of the above. We've got different provisions in all three.

Okay. And then, I guess, with Adams 51% -- what's the outlook for Adams usage, 51% occupied now? If ICE doesn't take up the rest of that, is there opportunities to farm that out somewhere else? Or use that for some other?

Yes, good question. It's almost kind of the same identical situations La Palma on Arizona. So it's a great location for ICE, close proximity in New Orleans, which is a key kind of airport for them on moving of individuals around the country or maybe out of the country. So it's a great location strategically for them. But it's also kind of the same kind of view we have in that facility. ICE has indicated a need and desire to use the entire facility. But we continue to kind of monitor that and talk to them real-time based on their needs because we know we have now a need in state with like Mississippi, the initial contract we did up in Tallahatchie, which is the northern part of the state, but also out-of-state placement could be an opportunity, too. So we're monitoring closely, but I guess the short answer is, ICE has indicated an interest in entire facility.

So is your expectation that they would ramp that up this -- over the next few quarters or next year? How does that sort of sort out?

Yes. I'd say, probably the way to look at that one, I guess probably it's similar to La Palmas probably during the course of this year. Again, it is a conversation and based on kind of either changes they have, we're also communicating with them that, as you heard me say in my script, too. I mean, we've got, gosh, 1, 2, 3, 4, several states, express an interest in capacity in our system. And so we're also keeping them educated about opportunities maybe where we could use capacity like in Atlanta, La Palma. So I'd say during the course of this year. But again, this will be probably kind of a day-by-day, week-by-week, we'll monitor it closely and determine based on their needs, opportunities, we can also use that capacity for someone else.

And then just the last question. I apologize if I missed it. The timing of the Idaho, either RFP or awarding, or where does that stand again?

It's, we think, any day now. So we've had -- the most notable thing was the public announcement by the Board of Corrections in January, indicating authority and approval for them to negotiate, them being the Department of Corrections, negotiate a contract with us, CoreCivic. And so we've been in constant communication with State Idaho. So we think probably any day now.

And as I mentioned in my remarks, we don't have that contract in our guidance. Would likely require the activation of an idle facility, which is probably 120-day ramp as well. So you're probably talking second half of the year before you start seeing a financial impact, if we, ultimately, get that contract awarded.

So some potential addition to this year, but obviously, a bigger, much bigger impact next year?

Right.

Right. That's exactly right.

Okay. And then just finally, I apologize. Arizona, have they said anything about the timing of their decisions? I know that was sort of a -- that came out of a left field that they would shut down that big facility. But have they put any timing on any part of that process?

I don't think they've put a hard time line on it. It was part of -- you probably know already that it was part of the Governor's state of the state address earlier this year. And so it's our anticipation that this would be a fiscal year -- next year, fiscal year event. So that would be starting July 1 of this year. Again, they haven't said exactly what they plan to do, but we anticipate that they probably will do a procurement or a series of procurements for either in-state and/or out-of-state capacity. Longer term, it could be a play where they want a owned and managed, so a safety solution and/or -- because it is a big quantity, and/or maybe a property solution where we lease it to them and develop it for them. So near-term could be capacity utilization, but long-term could be either a new facility or utilizing a lease model like we do in Kansas or proposed in Alabama.

[Operator Instructions]. We have no further questions in the queue. I'd like to turn the call back over to Mr. Hininger.

Thank you, Travis. Before we conclude the call, I once again want to take a moment to recognize all of our employees across the country who are doing great work on behalf of our government partners. Thanks to their hard work and dedication we were able to make a real difference for those in our care. For example, in 2019, approximately 6,500 high school equivalency or career trade certificates were awarded to individuals that trusted in our care. This type of accomplishment for the individuals in our care can drastically improve their ability to successfully reenter society, and it would not be possible without the commitment of our employees. Whether we are for these individuals on the road to reentry or providing a safe environment for people who have just entered our country, our employees play a meaningful and important role, and for that, I am truly, truly thankful. I would like to thank everyone for joining us on the call today. We look forward to reporting to you our first quarter 2020 financial results in May. Thanks again.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.