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'd like to welcome you to CoreCivic's First Quarter 2021 Earnings Conference Call. All lines have been placed on mute to avoid any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. 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. We are also joined here in the room by our Vice President of Finance, Brian Hammonds. The call today, we will focus on our financial results for the first quarter and provide you with some general business updates. 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 2021 earnings release, issued after market yesterday 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 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 disclosure 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 us today for our first quarter 2021 conference call. Before I start my usual remarks, I would like to note that this week is National Correctional Officers and Employees Week. On the first Saturday in May of 1984, Then President Ronald Reagan issued a proclamation claiming, calling I should say upon the country to pay tribute to correctional professionals. This proclamation created a week of recognition of the work done by correctional officers. Later in 1996, Congress changed the name of National Correctional Officers Week to National Correctional Officers and Employees Week to rightfully credit all the women and men who serve by working in corrections. With the year that has just passed, it is especially important to recognize the men and women who worked day in and day out in facilities across the country. I would like to express my deep and sincere thanks and gratitude, not only to the course of a team of professionals, but to all who work in our profession. Going now to our agenda for the call, we will provide you with an overview of our first quarter financial performance, update you on continued response to the COVID-19 pandemic. Discuss business development opportunities, discuss the latest developments with our government partners, update you on the potential sale of certain non-correctional real estate assets in our property segment and provide you with an updated strategic outlook. Following my remarks, I will turn the call over to our CFO, Dave Garfinkle, who will review our financial results in greater detail. Our first quarter revenue of $454.7 million represented a 7% decline over the prior year quarter due to continue the impact of the COVID-19 pandemic on occupancy within our safety and community segments and the…

Thank you, Damon and good morning everyone. In the first quarter of 2021, we reported a net loss of $1.05 per share, or $0.24 of adjusted earnings per share excluding special items. We generated $0.44 cents of normalized FFO per share, and AFFO per share of $0.47. Adjusted EBITDA was 96.3 million in the first quarter of 2021, compared with 100.4 million in the prior year quarter. Recall that the first quarter of 2020 did not include any impact from COVID-19, which was declared a pandemic at the very end of the prior year quarter. During the first quarter of 2021, we completed all steps to revoke our REIT election. As a result, effective January 1, 2021, we became subject to federal and state income taxes on our taxable income at applicable tax rates without the benefit of a tax deduction for dividends paid. For illustration purposes, in our supplemental disclosure report posted on our website, we presented a calculation of adjusted net income, normalized funds from operations and AFFO for each quarter and full year of 2020 on a pro forma basis, to reflect such metrics, by applying an estimated effective tax rate of 27.5%. Adjusted net income per share in the first quarter of 2021 of $0.24 compares to $0.23 on a pro forma basis, applying this estimated effective tax rate for the first quarter of 2020. While normalized FFO per share in the first quarter of 2021 of $0.44 compares to $0.46 on a pro forma basis for the first quarter of 2020 and AFFO per share for the first quarter of 2021 of $0.47 compares to $0.50 on a pro forma basis for the first quarter of 2020. Adjusted amounts during the first quarter of 2021 include a onetime income tax charge of $114.2 million primarily…

Thank you. [Operator Instructions] Our first question comes from Joe Gomes, Noble Capital.

Good morning, and thanks for taking my questions.

Good morning, Joe.

Good morning, Joe.

Want to start with the US Marshal Service, obviously, in the press we've seen reports about the proposal you've made to Leavenworth County. And so putting aside whether it actually goes through, A – one, the US Marshal Service, would they be on board with this type of arrangement and two, what do you guys see as the biggest obstacles for counties or cities that they need to consider in order to kind of do what you guys are talking about there and having the county takeover the actual contract with the US Marshals and you guys just become the lessor of the building?

Joe thanks again for calling in and thank you for your questions. This is Damon. So a couple of good questions there. Let me do the first part and just say, can't speak for the Marshal Service. What we're trying to do is you give them various options and alternatives that they can consider. Obviously, they've got to evaluate those accordingly, and reconcile that with the direction with the executive order. But as we've tried to allude to in the last couple of months with the investment community is being part – being the private sector we've got responsibility to be flexible, be innovative, and provide different alternatives to our government partners depending on either direction, or policy that they are governed by, or maybe emerging kind of issues or challenges they've got with their respective system and so that's exactly what we're doing right now and looking at those various options. To your second question, as you may know the Marshal Service have about 65,000 federal prisoners in custody on any given day, just over half that population are in city or county facilities or city or county operations. Sometimes it may be the government operate or real estate, I should say, or they potentially could use another facility, depending on the circumstance. So I think the Marshal Service have obviously, that awareness and an understanding that that comfort on working with cities and counties, and it's my understanding, they've been working with those jurisdictions for decades. So I think talking to a county or a city about potentially, that type of service to the federal government, they could just look across the country and see that be done probably in neighboring communities in some of these jurisdictions where we operate, it's more – it's probably very likely just down the street at the county jail, they actually held some federal prisoners, so is maybe a relationship they already have and aware and understand kind of the unique requirements and needs for that population. But I don't know if you have anything you'd add to that, Dave?

I think the solutions are going to be unique for each location, for each facility that we have, particularly if we have a shared facility. So the US Marshals uses the facility that has another customer in that facility. The solutions could be different, so we're looking at different options for our northeast Ohio facility in our Crossroads facility then we are our West Tennessee and Leavenworth facilities. But it's a little early to have any – we don't have any announcements to make at this point on any of those beyond what we reported in the press release.

Okay, thanks. Thanks for that. And switching gears to ICE, I mean, I've noticed the numbers coming out of ICE is that you're seeing a little bit modest increase in the number of detainees there. In April over March, you went from about 14,100 to about 15,300. Are you seeing some improvement in numbers on your ICE facilities? And have you seen any pushback from ICE to try and get lower rates on their contracts due to decreased occupancy we've seen over the past year?

Yeah, a couple of good questions, so you're exactly right on kind of your global numbers there. We're kind of seeing and hearing the same thing especially in our day to day actual interactions with the customer. Specific to CoreCivic, yeah, I think we were just a hair under 3000 at the beginning of February, like 25 – 2924. And then as of May 4, we were at about 5600. So we have seen increased utilization by ICE within our ICE facilities that we've got under contract with them. To your second question, I think, probably going to be some discussion potentially down the road on kind of as they see kind of emerging trends on the southwest border, especially as mentioned earlier, they roll back Title 42. They may look at okay, we've got capacity in this location versus location, do we want to reallocate kind of where that capacity is, but that's a – to be honest with you, that's a pretty common practice, regardless of the administration. We've seen over the last probably 10, 15 years and things change and priorities change and needs change which is especially on the southwest border, they may ask us to help them adjust maybe capacity a little bit within our system in certain facilities. So that's a pretty common practice. And I wouldn't be surprised we have some of that coming this year going to next year. But anything you'd add to that, Dave?

No, nothing Damon.

Thanks for that. And just I noticed you call out you're negotiating with Montana, and in Ohio for taking on some of the excess capacity you may have if the US Marshal Service does leave certain facilities. Can you remind us – I know, on the federal side, the contracts are, I believe, mostly at will, so to speak, where they can cancel them pretty much anytime. Is that also true on your state contracts that they can – the state can cancel them whenever they desire? Or there's a difference between the two?

Yeah, it's very consistent. Good question. But yeah, they're very consistent. Those provisions and those kind of terms between the federal contracts, state contracts. Yeah, the other key differences really between the two is typically the term, but a lot of the provisions and rights enjoyed by either the government or us are pretty, pretty similar.

Okay, and then one last one for me, and I'll get back in line. So on the litigation expense, you said that roughly $52 million. Do you have any insurance coverage for any of that?

Yeah, Joe, and that number that we reported in the financial is net of the remaining insurance that was be applicable to that case.

Okay, thank you. I'll get back in queue.

Thanks Joe.

Thanks Joe.

Our next question comes from Ben Briggs, StoneX Financial.

Hey, guys, thank you for taking the questions. So kind of circling back to the US Marshal Service and the contract, they have stated that they will not be renewing and just use an example, Crossroads Correctional Center contract that expires at the end of June. Do you expect the state of Montana to take over? Can you just talk about what this transition exactly is going to look like and what if any material costs will be associated with it when it does happen?

Yeah, good question. This is Damon. Thank you for that. So basically what would happen in that situation would be the more service you're going to have the less than 100 beds at our Crossroads facility, the vast majority is hold but are housing Montana department correction inmates. And so the thought would be is that the Marshals would transition a population out actually to a local facility or two. And then that population that's at the local facility to that held by the DOC actually would go to Crossroads, so almost a swap, they won't be exactly that way. But it's probably the best way to describe it. It's kind of a swap of populations from a county facility to our facility with the federal population and DOC population. Incremental costs will be a little bit of cost, I'm sure with transportation and probably some transitions that will help with the Marshal Service and the Department of Corrections. But CapEx wise or staffing wise, probably nothing material. But anything you'd add to that, Dave?

Yeah. I think in the case of Montana, the contracts align pretty closely with the expiration, now that it's been – the Marshals contract's been extended. I think it's through June. And then a new contract year begins for Montana, July 1. So they're able to transition smoothly. There'll be minimal disruption at that facility. Again, it's less than 100 detainees for the US Marshals at that facility. So not that big of an exercise to move the detainees out and new Montana inmates if that's the direction we go. Northeast Ohio is a little bit larger. So we had over 850, say Ohio inmates there and one point we were less than 800 US Marshals detainees. So that's a bigger exercise and a longer transition period. So I would expect a little bit of disruption there toward the middle of the year as we transition the US Marshals out and hopefully, Ohio backfilling that space. But again, no, don't think – no, we wouldn't have any CapEx or any other capital costs associated with either of those two transitions.

All right, great. Thanks very much. That's going to be the only one for me. I appreciate the time guys

Thank you.

Thank you, sir.

Our next question comes from Kirk Ludtke, Imperial Capital.

Hello, everyone. Can you hear me?

Yes. Good morning.

Good morning Kirk.

Hey, I think you mentioned that there may be some changes in the way the family centre will be used going forward. Can you elaborate on that? And what the financial impact may be?

Yeah, good question. So the administration, you may have seen kind of more globally reported, they really are trying to expedite the time in custody or the time in detention for populations you hear and it is not only for a couple of minors, but I think they're talking about generally to about families and adult males and females. And so what we're doing at South Texas, which historically have pretty short time in custody anyway, usually two or three weeks, they're looking to try to shorten it to about two or three days. So it's about 72 hours. And so in kind of perspective – from an operational perspective, I should say, what that means is also a lot more folks coming in and out the facility much more faster. So it's probably going to – we are – reconfiguration in space around intake, helping to support the medical provider there, which is actually the government, because obviously, they're going to have to do a lot more screening much more quickly of populations going into the facility, especially with COVID. And so a little bit of CapEx around those type of adjustments within the fiscal plan. And then we are tweaking staff appropriately too just because again, we just need to be able to scale up and help with quick turnaround to these families. But I don't know if you have anything you'd add to that, Dave?

Yeah, on the revenue side, the fixed monthly payment, so there'd be no impact on top line there.

Okay. Great. On Alabama, you mentioned that the number of beds won't increase. I think I read somewhere that 11 of the older facilities will close when the new – the three new facilities are opened. Do you know how many of the 11 will close when the two facilities you're building are open?

Yeah, good question. I think Alabama has given themselves a little flexibility on that question specifically. They've indicated that just over half of their currently operating facilities would be closed with the new facilities. But the timing and order probably still to be determined since that's probably a decision that doesn't have to be made now and it's probably a year or two out. But anything you'd add to that, Dave?

Yeah, right. That's exactly right. It's a three year construction timeline. So they've got plenty of time to make those decisions and I don't know that they've actually definitively made them yet. So we don't know. But you're right, there'll be no incremental bed capacity in the state by constructing the two that we're going to construct, and then the third that they have on the docket as well. So it would just be replacement capacity, and they'd be shuttering some of the older, outdated facilities.

Okay, and then presumably, the people that work at those facilities that are closing will have an opportunity to work at the new facilities.

Yeah, I think that's for the most part. That was a very conscious thought and where the new facilities are going to be located, proximity, so that they could transfer to the new facilities from the old ones.

Okay. Do you know how much the state saves by closing those old facilities?

I've heard numbers in the upper 70s million dollars on an annual basis in total expense savings by eliminating the repairs. The inefficiency from having disparate or facilities spread out, you've got 11 or more, it could be more than 11 that you're consolidating into three facilities. So you gain a lot of efficiencies from a staffing, because you don't – you've got everything concentrated in one place. So among the staffing, the maintenance and all the other operational expense savings, I believe it's in the upper $70 million range.

Okay. Can you elaborate on how the new facilities would improve quality of life for inmates?

Dramatically, to give you a guess a couple of visuals, mind visuals, I mean, you think about some old facilities, they've got there, some of them are up to 100 years old and so if you've ever done a tour of an old facility like Alcatraz, I mean, it's just – the design and the quality of that construction in the late 1800s, early 1900s, I mean, just very poor line of sight. A lot of these facility built that time not capable of having air conditioning or modern HVAC systems, even if you try to retrofit smaller cells, smaller program space, I mean program, sorry to say programming was not a big priority, when facilities were built during that period of time in the country's history. So these new facility is going to be big. They're going to have cells and day rooms and hallways and service areas that are a lot bigger. Obviously, going to have air conditioning, going to have your modern HVAC systems, which is – from a comfort perspective that's extremely important, but even more so now, in this environment where you've had this pandemic, I mean, just imagine a 100 year old prison with a pandemic, it's very hard to segregate and quarantine and deal with a virus like we've had with COVID-19 this past year. Additionally, I mean, there's a concerted effort on more program space, more medical space all the key kind of knowledge service that programs that help expand academic and vocational offerings. I mean, I can keep going on and on. But it'll be especially for the inmates, but also the staff, I mean, it just will be a dramatic improvement in the quality of life for inmates, but also the kind of safe and secure kind of feel, I think to staff will be dramatic. I don't know if you have anything to add to that, Dave?

I think you hit most of them, but mental health. So there's – the first facility that we're constructing will have a mental health unit dedicated for mental health needs. So that will be able to help some of the inmates who are in the system as well. So natural lighting, I think is the other one that you didn't mention, Damon, but everything else. Yeah, it's the work program space, more space in general. And that does – that's focused in on the inmates, but the staff with the air conditioning is a big deal in Alabama. So I think that will make it easier for them to recruit and retain correctional staff.

And Kudos I'll just say within your question, but I'll just say kudos to Alabama, the governor, the Department of Corrections, I mean, they have really felt strongly and as you know, they've taken a lot of hits unfairly and inappropriately here in the last year or two, but to be kind of strong advocates to say, hey, we're going to do better in the state, we're going to improve the conditions for the people that are entrusted in our care, help them have a setting that is safe and secure, but again, allow them to appropriate access to medical, mental health programs, but also for the people that put the uniform every day and go through those front gates. That's the place that they feel proud to work at that they feel safe and can be very effective in their mission and not have to worry about some of the challenges of physical plant that's been 100 years old, are great.

Got it, I appreciate it. Thank you.

Our next question comes from Kenneth Williamson, JP Morgan.

Hey, guys, thanks for taking my call. I just – I don't know if I missed this earlier. But when you were talking about the refinancing during the quarter, but has there been any progress made in discussions to extend the revolver?

That'd be next on the list. Yeah, we took care of that 2022 maturities. So we had enough cash on hand and resources through the revolver to repay the '22 notes when they were scheduled to mature. So raising 450 million and redeeming all of those. And in fact, redeeming 149 million of the 2023 notes really puts us in a much better position to refinance the – or extend them at maturity on the revolving credit facility. We have less need for it, certainly, because we pushed out maturities and are in really good position to meet the next maturity and the non-bank credit facility maturity would be the 200 million of senior notes in 2023. So that is next on the list. We'll evaluate later this year, certainly no later than next year. And what the appetite is for the banks, what the terms look like? So we've already begun those conversation with banks. We've mentioned before we've had conversation with banks, not in the credit facility, to try to garner some interest and gauge their interest in coming into the facility. And I think we've got some, some – I think we're optimistic on what we can do there. We've mentioned before, it's a billion dollar credit facility, we do not need a billion dollar credit facility, we don't need half that size. So we'll pay a certain amount for additional liquidity. But there's a size that we can operate, it's very small, and then there's kind of want to have or there's difference we want to have a need to have. So that is next on the financing agenda, though.

Okay, fair enough. And then for the Alabama facility, do you have a sense for when you might be able to complete the financing aspect of that transaction? Have those conversations advanced any since last quarter?

Yeah, so we were getting ready to price a few weeks ago. And so we're kind of taking a reset, got to update the legal documents. Change against conduit issuer. There's a lawsuit right now in the state. We'll see what impact that has, if any, on the timing. But I would expect later this quarter, we'll be able to take it back out to market, but that's not yet been definitively determined.

The lawsuit, is that – is CoreCivic subject to that lawsuit, or is that between the state and –

It's primarily for the state. I think the argument was that the transaction leases weren't structured in accordance with Alabama law. The two entities that are the lessors have been named in those lawsuits. So yes, I guess is the short answer to your question.

Got it, okay. All right, thank you.

Thank you.

Thank you.

I'd now like to turn the call back over to management for closing remarks.

Thank you, Travis. And thank you everyone for your interest in CoreCivic and joining our call today. As a reminder to our shareholders, next week is our Annual Shareholder Meeting. Once again, this year, we are hosting the meeting virtually. The virtual format was successful last year, and we have made enhancements to improve the experience for all participants and for interested parties who cannot participate in the live event. Once again, shareholders will have an opportunity to ask questions about the company. So we encourage your participation. Thank you again for joining us today.

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