Good morning. My name is Carrie, and I'll 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 2020 Earnings Conference Call. 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.

Thanks, Carrie. 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. The call today -- on the call today, we will focus on our ongoing response to the COVID-19 pandemic with Damon providing an overview of our preparation and operational response and Dave covering our financial results for the first quarter and providing an update on our financial outlook. 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 2020 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 www.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 2020 conference call today. The start of 2020 has certainly been unprecedented in our company's history due to the rapid spread of COVID-19 and the abrupt negative impact it has had on the health of the nation's people and economy. As COVID-19 continues to threaten our nation, more and more Americans are being affected. At this point, most of us know either someone who has become ill or someone who is working on the frontlines. The inherent nature of our work means thousands of CoreCivic employees are on those frontlines every day. I am immensely proud of our frontline heroes at CoreCivic, and I thought it was only fitting to say upfront, thank you to the CoreCivic team. Working together with such an amazing group of people through this unprecedented event has only reinforced our team's dedication to better the public good every day. During this unprecedented time, our #1 priority is the health and safety of those entrusted to our care, our employees and our communities. For more than 35 years, we have worked closely with our government partners to develop and implement industry best practices to handle the potential spread of infectious diseases. Our executive management team has deep expertise leading the company through times of economic volatility, rapid fluctuations in customer needs and operational complexities. I myself have been with the company for over 28 years and have served in my current role for almost 11 years. Dave has been with the company for nearly 20 years and have served the last 6 years as CFO. Our operational leaders have decades of experience addressing complex and unique challenges across the corrections industry, both public and private. I am very confident in our team's…

Thank you, Damon, and good morning, everyone. In the first quarter, we generated $0.27 of EPS or $0.30 of adjusted EPS compared to our guidance range of $0.26 to $0.29. Normalized FFO totaled $0.54 per share compared to our guidance range of $0.49 to $0.53. AFFO totaled $0.58 per share compared to our guidance range of $0.50 to $0.54 and adjusted EBITDA was $100.4 million for the quarter compared to our guidance range of $96 million to $99 million. Adjusted amounts exclude expenses associated with M&A transactions and a nonrecurring deferred tax expense, both of which were included in our guidance and $500,000 of asset impairments associated with the sale of an idle residential reentry center for $1.6 million completed in the second quarter. Revenue was slightly below our forecast for the quarter due to a reduction in March. However, our financial results for the quarter exceeded our guidance levels due to positive variances in numerous operating expense categories as well as in G&A expenses. Our first quarter results were largely unaffected by COVID-19, although our compensated populations declined by 1,300 from March 20 when the federal government closed the nation's southern border to March 31, in order to help contain the spread of COVID-19. Due to uncertainties related to the potential impact of the pandemic, we withdrew our full year financial guidance on April 1. Our management team and Board have been through numerous crises and have been actively managing this one under protocols that build off our historical experience that have been specifically tailored to the dynamics of COVID-19. We've been focused on the potential impact to our frontline staff and residents entrusted to our care and have made investments to help ensure their safety, as Damon described. I will provide you with additional color about the potential…

[Operator Instructions]. Our first question will be from Joe Gomes from NOBLE Capital.

I would just like to delve a little bit more into the ICE population decline. Listened to your competitor's call last week, and they talked about they have some guaranteed minimum contracts that are helping in this time to keep up a certain level of revenues. I was wondering if you could speak a little bit more about does CoreCivic also operate under such type contracts? A little bit more about the decline in the ICE populations. And on the ICE populations, where on the scale do they land in terms of margin contribution to the business versus the state contracts or the U.S. Marshal or the BOP?

Yes, Joe, this is Damon. Thank you for your question. So a couple of answers there, and I may tag team a little bit with Dave on this. But looking at our federal contracts, I know you asked about ICE, but let me just give you kind of an overview of our federal contracts. We have about 21 federal contracts. And of those, about 14 of them have a monthly fixed payment provision. So the 7 contracts -- again, federal contracts that do not have those fixed monthly payments are mostly smaller facilities, and they have multiple customers, whereas the 14 that do have the fixed monthly payments, the partner is either the anchor customer or they have the exclusive use to the entire facility. So these provisions are offered by government in our contracts really is a way to ensure for them that they have access to our capacity and services, notably our staffing levels, making sure those are stable, even though their needs may materially fluctuate. So they're a really important provision for government to give them that comfort because, again, their populations can fluctuate. And in turn, for us, it gives us great predictability of staffing levels and expenses needed at each individual facility. You asked a little bit about the state side. We've got a fair amount of our state agreements that have similar provisions. But those populations are typically more stable because they're a longer-term population versus ICE and Marshals Service or kind of a more transient population and may only be in our facilities 30, 60 or 90 days. Anything to add to that, David.

Yes. I'd say, to your point on margins or revenues. So for the first quarter, ICE was 28% of our total revenue. I would say those margins for ICE are slightly higher than the average just because, as Damon mentioned, there are more transient populations, and therefore, there's more risk associated with those populations. So margins are typically higher, but we do have those fixed monthly payments, as Damon described, that protect us on the downside. And I would say, today, those populations are around or slightly below those fixed population levels.

Okay. Great. And also, if you guys -- Damon, you talked about the deep experience a lot of the team has. So if we look back at the Great Recession and at that time, again, as we talked a little bit about here in the call, states were having issues with their finances. Can you just give us what was your guys' experience then? Were states looking for concessions? If so, how did you guys deal with them? A little bit more color on that would be appreciated.

Absolutely, and it's a great question. So I'd say a couple of things we learned during that period of time, kind of 2009 through, I'd say, 2011, 2012, one of which is we expected, but it really didn't appreciate how long would be -- how impactful would be for state budgets. And so I think in 2008 and '09, we figured it would impact state budgets, but it really didn't hit them as quickly as you think it would have. It really hit them 2010, 2011. So I think what we've got to do from that lesson is understand that, again, it may not have a real near-term impact, but over the next 12, 24, maybe 36 months, it could have impact as respective states recover. And so that we've got to plan accordingly. The second thing is during that period of time and a little bit to your question, we learned in working with our partners way we can kind of reconfigure the operations to maybe make it not as more efficient, but maybe allow for maybe some change in scope and requirements in the contract that could allow for some cost savings back to government. On the whole, during that period of time, it wasn't perfect and every customer is a little different, but on a whole, we were able to provide some cost savings but didn't materially impact our margins. And so we've got, again, that playbook, and we'll use it as appropriate as we go through this with our respective states. This is kind of an obvious point, and I alluded to this in my comments, but obviously, something very different today than 10 years ago as state -- relates to our state customers. And that is, states during that period of time where they had challenges with their fiscal condition, maybe would overcrowd their facilities, potentially significantly in a measure to kind of provide cost savings. I think -- and this is good news. I think that the mood and the feeling of doing that has changed even before COVID-19. Overcrowding significantly facilities is just challenging for many obvious reasons. And so I think that part of the playbook maybe 10 years ago is not necessarily there today. And then, again, the other thing I would say is with COVID-19 with social distancing and reducing or having a desire, I should say, to reduce density and, again, overcrowding facilities, I think that's going to be top of mind, even though state governments are going to have to work through this challenging economic environment. I don't know, anything to add to that, David?

Yes. I'd emphasize that part. I'd say the biggest impact to us during the Great Recession was loss of populations due to overcrowding in jail systems. And as Damon mentioned, it's just hard to believe that governments are going to want to do that even in the face of severe budget challenges. So I think that will be different this time around than the last time around. I'd also say we do have a playbook today that we created during the last downturn when it comes to working with our government partners in how to identify those cost savings. As I think you know, Joe, most of our contracts have mandatory staffing patterns. And there are certain critical posts that you're never going to not fill. But there are certain positions within a facility that could be reduced with consultation with the partner. Unfortunately, they could reduce programs, and that's one of the tragic outcomes of challenging budget times when you want to make sure inmates are getting the programs so that when they get released they are able to hold the job and have the skills, so they don't end up recidivising back into the system. So there are various things that could be done to work with a partner to identify cost savings. The program is usually the last one, but there's ways to operate facilities safely and securely with fewer staff, again, not taking those critical posts away. And then probably the other -- the last thing I'd say is on the employment front. So over the last, gosh, several years, attracting and retaining staff has been in the top 3 of our enterprise risk management process. And we've had to provide outsized wage adjustments at facilities where we were severely challenged. Another unfortunate situation in this economy is that more jobs will be plentiful. So perhaps we will not have as many of those outsized market adjustments that we've had in the past. So we're happily hiring at all of our facilities, and we'll certainly expect to have a larger talent pool as we identify ways to attract and retain our staff.

One more for me, and I'll jump back in line. I noticed during the quarter that you've lost a contract. Can you give a little more detail on that? And are states still out there in this environment RFP'ing? I know you had talked previously about, I think it was Idaho and Alabama, maybe even Oklahoma, the potential business there. I mean, where do we stand on those?

Yes. Thank you for that question. So I think we had 1 small contract during the quarter. Didn't have a material impact for the quarter or for the rest of the year. To your question about kind of new business prospects, as you can appreciate, everything has basically been put on hold. And to give you a little color and to answer your question a little bit about some specific prospects, when we go through a procurement process, typically, they'll do -- government will do an RFP, or request for proposal. We submit a bid. And then part of that is doing not only maybe in-person interviews, but more importantly, they'll want to go tour the facility or facilities being considered by us as part of our proposal. And of course, with all the travel restrictions, all that has been halted with some activity we had with some current procurements. So notably, you highlighted Idaho. Idaho is still an active opportunity. And we've actually been working with MDB, a little creative on giving them some additional detail on the facilities that we propose to them via kind of virtual conference or video conferencing or videos and whatnot. So those are still pending. Again, kind of to the big question, obviously, in front of all of us is when everything kind of gets back to normal. And again, it will be kind of jurisdiction by jurisdiction. But we are still seeing kind of active needs kind of near term, and we do think probably some procurement activities are probably resuming probably later this year, probably even this summer, I should say. I don't know, anything to add to that, David?

No. Just one finer point on the loss contract. It was a very small contract. It was also in a facility that we leased. So that lease terminated along with the termination of the contract. So it's not like we have an idle facility as a result of that contract termination.

Our next question will be from Kenneth Williamson from JPMorgan.

I apologize, I missed part of the call, but did your contracts -- what percentage of your contracts have like a minimum service level that you are paid for regardless of occupancy?

Yes. Thank you for that question. So probably of most interest would be our federal contracts, which is just over half of our total business as a company. So we have about 21 federal contracts with the federal government, I should say, to have what we call monthly fixed payment provisions. So 21 -- excuse me, I'm sorry, 21 federal contracts and 14 of those have monthly fixed payment provisions. And so the 7 that do not, again, are pretty small facilities and typically have multiple customers in there. The 14 that do have the monthly fixed payment it's because the government is either the anchor tenant or a customer in those facilities or they want exclusive use of the entire facility. So it does give us great certainty on kind of what the needs are for the government to have those provisions. And it's really a nice benefit for the government because they wanted to make sure that even though their populations may fluctuate and in turn their needs may fluctuate they've got access to our capacity. And then David actually mentioned earlier, too. If you look at those agreements, again, those 14 of the 21 that have those monthly fixed payments, populations are generally today consistent with those provisions in those contracts. So anything to add to that, David?

No. I think that covers it.

Yes. I think there was going to be a follow-up. So basically, of those 14, you're already at that kind of -- the occupancy level is such that you are receiving those minimum monthly fixed payments?

Yes, today. I wouldn't say that was the case throughout the first quarter. But as the border has been basically shut down, those populations have declined to about the levels that are guaranteed.

And is there -- are those facilities -- are there any of those facilities that are not profitable when they're operating at those minimum levels?

No.

Our next question will be from Jordan Sherman from Ranger Global.

Just a follow-up on that question. On the state side, are there any guaranteed minimums?

We do. I don't know if you do have off the top of your head, Dave, the exact number, but I'd say probably the majority of our state agreements do, maybe a little less than that. But those populations, again, are very stable. They're typically populations that are very long term. And so they may be in our facilities, 1, 2, maybe 5, even 10 years. So those populations even without those provisions are very, very stable. And even today, even the last 60 days, as I mentioned earlier, I think the high and low with the net side, which is about 30,000, 35,000 individuals, I think the high and low is within 1,000 from the top to the bottom. So again, it's been very stable here in the last 60 days.

Yes. That's right. If you look at our supplemental disclosure report where we disclose the occupancy of every one of our facilities and the major customers. If you look at the ones that have a state customer and you trended it, they are very stable populations, usually in the 90% to 100% occupancy level. So they don't fluctuate very often, and therefore, you don't really have to have the protections that you do on a federal contract where you've got transient populations at ebb and flow.

Understood. And just want to follow-up on this -- on the opportunities on the state side. Alabama, in particular, I guess, is the most active looking to replace their facilities. Where does that stand?

So even with -- this is Damon, again. So even with COVID-19 and how it -- again, it's kind of halted a lot of activities around procurements, that one still is very active. And so there's been a move from where there are a lot of discussions in person in Alabama with the Department of Corrections and other parties that are managing the procurement. A lot of that has now moved to video conferencing. So it's still a very active procurement. We haven't heard any indication relative to kind of the ultimate time line being affected. There has been a couple of adjustments on kind of respective due dates for like clarifications or negotiation details provided from negotiation sessions. But still very active, still looking for several facilities -- 3 facilities, and we think potentially one of them could be awarded end of this year and then maybe the other two next year. So I don't know, anything to add to that, David.

Yes. Initial bids are actually due next week on Alabama. And then Idaho is still an opportunity out there. I think during the COVID-19, they've kind of put things on pause. So we've provided them with a couple options in terms of facilities. So still optimistic. I just don't think that's going to come well. Everybody is trying to deal with this crisis in the short term.

And I should also -- I alluded this in my comments, but in the last, I guess, probably two weeks, we got extensions with both State of Nevada and State of Kansas. Both agencies were looking potentially to move populations within our facilities back in state, but they decided to extend them a year, again, because we think that they want to continue to kind of reduce overcrowding their system and not have any lower density, I should say, because of COVID-19. So those are -- that could be a sign of potentially some additional needs here near term.

And then one last thing. We did disclosed in the press release was Mississippi expanded their contract in April from 375 to 1,000.

Right. Understood. I want to come back to the Nevada, the 2 extensions. But I guess the reason I ask is particularly about Alabama is because that doesn't require -- because there's a new facility, that wouldn't require a touring of existing facilities. So I thought maybe that would be on a -- might be on a different track.

Yes. That's fair. That's exactly right. Yes. Like the discussions on that one were mostly in person leading up to COVID-19. So it slowed down just a tad, I'd say, probably just a couple of weeks, probably the most.

And then I'm just wondering, in response to state budget potential issues about the opportunity side for either overcrowding or for new facilities, it would seem that going forward that many of the states will not -- didn't have it in the past, but probably won't have in the future the funding for any new facilities. I'm wondering what -- how many Kansas like opportunities might be out there or might be coming down the pike as a result of any financial stress that comes along?

Yes. This is Damon again. Great question. So after Alabama, the one that has been most public here recently that you may have heard about was Nebraska. So they put out an RFI early this year. Again, that got slowed down just a tad. But we think that's still a very live and meaningful opportunity for the industry. And I think we've been kind of talking about kind of the real estate solution being an important way to help jurisdictions that are looking for cost-effective ways to modernize their systems. That -- again, it's too early to tell, but I think with this COVID-19, that could accelerate because, again, if you got facilities that are 100 years old that they'll have modern HVA systems, don't have negative pressure rooms. There could be a real catalyst for a lot of these jurisdictions maybe go out more quickly out to the marketplace to try to modernize their system. So I don't have anything to announce today, but it does feel like that potentially a couple of other jurisdictions are going to take a hard look at that. And then maybe try to follow Alabama and Nebraska's, lead. Anything to add to that, David?

No, I don't think so. And to your point, I think it's -- where the private sector can come in and provide the capital that the governments are now going to be even more challenged to provide that bodes well for that future opportunity for us.

And I guess this is an obvious point that I've made before. But by modernizing their system, obviously, it's a better environment, it's a healthier environment, but also could provide meaningful savings. So it's really a double benefit. Your modernizing your system, but also likely it's going to either be cost savings, if not budget neutral.

Yes, that's -- that was what I was thinking. Just quickly on Nebraska, how many -- what's -- any details around the size of that opportunity?

I think it's -- what they've advertised, it's somewhere in the range of 1,500 to 2,000 beds.

Okay. And then just one question on the testing. You gave the numbers of people that have tested or had been positive, I think, a number of cases you mentioned. How -- I guess, is you said most of the people were asymptomatic when you were testing. How is the testing -- how are you deciding who to test and how many tests you can actually do?

Yes. Great question. So a couple of answers. We've been testing, as directed by CDC for people that are expressing symptoms or showing symptoms, I should say, in addition to doing temperature checks of both staff and inmates. But there has been some jurisdictions like Tennessee, who have said, we want to test everybody. So we want to test staff, all staff and all inmates. And so again, we want to work closely with the partners and mirror what they're doing in their system with our system. And so going back to Tennessee, we did Trousdale Turner last week. We've got several facilities this week going into the next couple of weeks. And in this case, with Trousdale, I think it was north of 90% of the folks that were tested who were confirmed positive, were showing no symptoms. And again, from what we've heard from our partners, but also what's been reported publicly, that appears to be pretty consistent with what we're seeing in other places. Like I said, we've heard nationally, there's 39 states who reported testing, and not all of them have reported, but the 39 states that have reported, it's been about half that have been reported as positive. So again, it really just depends on the jurisdiction. If it's no direction from the jurisdiction on mass testing, then we're following CDC guidance. But of course, if it's like Tennessee, who wants to do full testing, then we're also going to collaborate and mirror their testing policy.

And then for those who are positive but asymptomatic, are they isolated as well? Is that part of the protocol?

Exactly right. That's exactly what we're doing. And that's -- again, the benefit we have in new or modern facilities, we can do that where some jurisdictions may be challenged to do that.

This is the operator. I'd like to turn the call back over to the company for closing remarks.

Thank you, Carrie. Before we conclude the call, I would like to remind everyone that our Annual Shareholder Meeting and proxy vote is next Thursday, May 14. Consistent with maintaining safety and health during this pandemic we have made this year's meeting completely virtual for the first time, making it available for all to listen to the webcast at your convenience. We will also be publishing our 2019 ESG report to build upon the industry first ESG report that we published last May. We are excited for this year's report, which includes even more disclosures and metrics that we believe will be useful for the investment community. I would like to thank everyone for joining us on today's call. I hope everyone continues to stay safe as we all continue to do our part to address COVID-19 pandemic, and we look forward to providing you with another update when we report our second quarter results in August. Thank you again.

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