Good morning. My name is Eli 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 the CoreCivic's Third Quarter 2021 Earnings Conference Call. All lines have been placed on mute to avoid any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to now turn the call over to Cameron Hopewell, CoreCivic's Managing Director of Investor Relations. Mr. Hopewell you may begin your conference.

Thank you Eli. 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 will focus on our financial results for the third quarter and provide you with other 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 third 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 quarterly supplemental financial data report posted 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 third quarter 2021 earnings conference call. Going to our agenda for the call, we will provide you with a breakdown of our third quarter financial performance; discuss business development opportunities and the latest developments with our government partners. We will also provide you with an update on our capital allocation strategy and our continued response to the COVID-19 pandemic. Following my remarks, I will turn the call over to our CFO, Dave Garfinkle who will review our financial results in greater detail. Our third quarter revenue of $471.2 million, represented a 1% increase over the prior year quarter despite the sale of 47 non-core real estate assets within our property segment in multiple transactions between December 2020 and June 2021 and our decision to exit two managed-only contracts with local governments in the State of Tennessee during the fourth quarter of 2020. And in the five quarters, since we announced the change in our capital allocation strategy we have substantially improved our credit profile, reducing our net debt balance by approximately $730 million during a time of unprecedented challenges. We remained committed to reaching and maintaining a total leverage ratio, or net debt to adjusted EBITDA of 2.25 times to 2.75 times. Using the trailing 12 months ended September 30, 2021, our total leverage ratio was 2.7 times. Just one year ago, our total leverage ratio was at 4.0 times, so we have made significant progress. And the last time our total leverage ratio was below three times was in 2012, nine years ago. While we have touched the high-end of our targeted leverage range, we remain committed to continue to reduce debt to ensure we remain comfortably within the range. Our EBITDA has shown…

Thank you Damon, and good morning everyone. In the third quarter of 2021, we reported net income of $0.25 per share, or $0.28 of adjusted earnings per share, $0.48 of normalized FFO per share, and AFFO per share of $0.47. Adjusted and normalized per share amounts exclude an impairment charge of $5.2 million for pre-development activities associated with the Alabama project that we are no longer pursuing, as disclosed last quarter. Financial results in 2021 reflect a higher income tax provision under our new corporate tax structure compared with the prior year when we elected to qualify as a REIT. For illustration purposes in the supplemental disclosure report posted on our website, we present the calculations 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 applying an estimated effective tax rate of 27.5%. Adjusted net income per share in the third quarter of 2021 of $0.28 compares to $0.21 on a pro forma basis applying this estimated effective tax rate for the third quarter of 2020 while normalized FFO per share of $0.48 compares to $0.44 on a pro forma basis for the prior year quarter, and AFFO per share of $0.47 compares to $0.41 on a pro forma basis for the prior year quarter. Adjusted EBITDA, which is obviously before income taxes was $100.9 million in the third quarter of 2021 compared with $94.6 million in the prior year quarter. The growth in adjusted EBITDA and the aforementioned per share metrics were achieved despite the sale of 47 properties since the end of the third quarter of 2020 and the execution of numerous refinancing transactions that were collectively diluted for the quarter, as we paid down low-cost, short-term, variable rate, bank…

Thank you. [Operator Instructions] We'll take our first question from Joe Gomes from NOBLE Capital. Joe, please go ahead.

Can you hear me?

Yes, we can now, Joe. Thank you.

Oh, okay. I previously said good morning.

Oh, good morning, Joe. Sorry, we did not hear you. Good morning, Joe.

Good morning, thanks for taking the question. So really nice job on achieving the target leverage ratio early in my opinion. It would seem to speak not only to your focus on deleveraging, but also the stability of the business overall. You did mention you wanted to see further progress to make on the debt reduction before you started implementing some of the other capital allocation programs such as share repurchases. I was wondering, if you might give us a little more color as to how much progress you're looking at what's your thought and what you want to see before you might implement something like a share repurchase program?

Yes. Great question, Joe. This is Damon and thank you for this. So yes, we're -- just eye lash below the target range as you know with the numbers we released last night. So -- and Dave, I think did a really good job of kind of walking through some of the puts and takes that I think we'll see both in the fourth quarter of this year going to early next year. So it still feels like, it's -- I think we've said previously, it still feels like that we're probably a couple of quarters away to where we could comfortably kind of be embedded within that range. So say a different way. Here we are -- start of the fourth quarter, could that be kind of second third quarter next year? That's a possibility. Again, we're really, really pleased with the progress. We've had great alignment from the management team on kind of working on various activities. Obviously, that drives that number in a positive. Notably the transaction we did early this year with the divestment of the non-core assets. So anything you could add to that, Dave?

Yes. And the credit facility as I mentioned in my script, matures in 2023. We'd really like to amend and extend that credit facility get that behind us. That will give us the clarity on liquidity and capital resources going forward. I think, we've done a really, really good job positioning the balance sheet to return capital to shareholders. We've addressed the short-term maturities for several years out now. So, that risk has really been limited from the balance sheet completely. So, getting through the credit facility would in my mind give us a lot more clarity to move forward and that would fall in-line with the timing that Damon mentioned.

Okay. Thanks for that insight. And on the vaccine mandate, I don't know how deep you can go into or what percent of the CoreCivic employees are vaccinated especially at the facilities, is there any concerns on your part that contract could get terminated if you can't get everyone to be fully vaccinated? And I know that there's a lot of confusion out there over who -- some of these mandates apply to or don't apply to. But simply does the mandate also apply to the BOP that all of their staffing also has to be vaccinated?

Yes. So, several questions there, Joe. This is Damon again. So, a couple of observations. One is that, we have had vaccination acceptance rates a little behind what you see kind of generally in the public, but probably no surprise here in the last probably 30 to 60 days with some of the mandates that have been required. We -- notably all the attention has really been at the federal level. But we have had some local jurisdictions that are required too. So, I gave a pretty good indication of now how to approach it. We'd be thoughtful on how we communicate to employees to give them various options not only for the vaccine, but maybe other employment opportunities. So we had a pretty good playbook before the executive order was signed at the federal level. So we've got work to do. We're clearly working really hard to make sure we again educate our employees, advising appropriately and also leadership as they go through the process if they've got either a physical or health a combination that needs to be considered or religious combination. And again, those are policies that are well-established just because, we're a public employer. So, we're working through that progress. I would tell you I think we are making good progress on that side. As I just said earlier, we're starting to see a pretty meaningful uptick in vaccination rates within the organization. Again, it's focused primarily on our federal contracts with ICE Marshals. And as you know we just have that one BOP contract on the safety side with McRae. So, I think again, we're making good progress. I don't know anything you add to that Dave?

No, I don't that I think covers it.

And do you know that I'm assuming it would but since there's a lot of -- seems to be exceptions. Does this apply -- this mandate also apply to the BOP staff people that work there?

Yes. In my understanding, it’s yes. Federal employees and then federal contractors, obviously, will fall in the second bucket. So that would be the case. So I do not have -- I don't think this is your question. I do not have a sense of how they're doing it and what their levels are. But yeah, my expectation does apply to them.

Okay. And you talked some detail here on the staffing environment and you've got lots of different levers that you can pull to try and help with that. But I mean, what are we talking about here in terms of increased wages or bonuses, sign on bonus, whatever other types of things that you're offering to get people. I mean in this type of environment? Again, it's not just you guys. Almost every company, I talk to these days, has the issues with staffing and in some way shape or form. But, the corrections, is a little more difficult just in a normal time. So maybe you can give us a sense of what are you having to do out there in order to attract the staff that you needed?

Yeah. Great question. So we're -- to your point, we're just like everybody else in the country dealing with some level of labor challenges either public or private companies. And I've made a really conservative point this past year to talk to a lot of my peers, especially here in the national business community. And I've gotten a few good nuggets along the way that we've play drives and used in our playbook as we think about kind of labor opportunities. But having said that, everyone I've talked to here locally, they're dealing with similar challenges, especially my friends here in the healthcare community. So I would say our playbook consists of a couple of things. One the things that you would expect of any employer, so, looking at base salaries and wages, looking at benefits and then the whole range of incentives. If that's a referral bonus, if that's a retention bonus. And we're looking at any incentive that either we've used in the past or we're seeing used by other employers regardless of the industry that maybe transferable and helpful with our challenges. But I'd also say -- and we've got a few proprietary things that I won't go into great detail. But we've done a couple of pilots this summer going into fall that has shown some pretty good results. So we're looking at some things. And these are things that the public side can't do. So being a private employer with a multi-state operation there's a few things that we can do pretty creatively that potentially gives us some help on the labor side. So, what you say very clearly to our HR and operations leadership any idea they have but also anything they're seeing in kind of the larger market again with employers even outside our industry, bring it to the table and let's do analysis, let's determine the risk and reward to make a decision. And I had a call with the Board -- our Board of Directors last week. And I was telling them that we've done about 35 or 40 kind of different actions to deal with individual facilities in certain regions that are dealing with labor challenges. And that's give you a sense in a normal year pre-COVID that would be in a category of maybe five, less than a handful. So we're doing a lot of actions very quickly after we do some analysis to make sure our leadership at the field level has got all the tools they can to be successful in our mission. And with that, seeing, as I mentioned in my comments, potentially increased utilization from our partners to levels closer to where they were pre-COVID. So, anything you would add to that Dave?

Yeah. The number of incentives, the list goes on and on. Our HR Department is, do a phenomenal job coming up with some creative solutions. Overtime premium you're pay for experienced employee, housing, it's just a long laundry list of things that we pull out which, as Damon mentioned, these things are much more easily done in the private sector than what our public sector counterparts are able to do, because they have to get appropriations for budget purposes and special appropriation. So things like that. And we think it actually could end up generating new businesses. Some of the state partners are having the same challenges on staffing and may end up sending some inmates to our facilities as they're not able to staff their facilities adequately. So yeah, it's all of the above.

Okay, great. And one more if I may please. So you talked about the West Tennessee facility you have an RFP out there Leavenworth. You're talking to other people. I think you have five other facilities that are idled right now. If I came to in Title 42 expires and you -- we see a knee by ICE for facilities. Given the staffing challenges you just talked about I mean, how easily or how long would it take for some of these idle facilities if they were needed to actually be back up and running or do you have enough existing facilities and occupancy, excuse me, in the facilities that are currently running you think that you probably wouldn't have to worry about opening one of the idled facilities?

Yes. That's a great question, Joe. This is Damon again. So let me give you a couple of answers. One of which is West Tennessee and Leavenworth, even though Leavenworth is a little further down on the calendar. We have not taken any employment action relative to employees that work at those facilities. So most notably with West Tennessee, with that contract expiring in the September. We've kept that staff and have them working not only to kind of do some maybe work around the facility, do some maybe training in anticipation of some various partners that may use facility but also they could support some other operations here within West Tennessee. And potentially we may do the same thing at Leavenworth. But also part of your question was relative to the other facilities that may be currently vacant at the moment outside of West Tennessee. We do have some challenges globally, I would say on the labor market. So that's been well said. But I will say, again this is the benefit of being a large multi-state operator and employer. We do have a couple of markets actually where the tailwind is with us on the employment side. And so we basically, have told every facility that turn on the spigot wide open relative to employing staff. Even if that means that they go over their kind of budgeted FTE count in anticipation that that staff then maybe could be used for other facilities, as we were potentially activating or maybe other facilities that are going through maybe increase in - and may need some additional staffing while we ramp up the staffing there locally. So we've got -- again the good news for us again be a multi-state, we've got a lot of different options not only with programs and incentives and salaries and other things that we can do. But also we've got like, I said a few markets, where we've got the wind at our back and we can maybe over-hire a little bit and use that staff in other parts of the enterprise. Anything you add to that, Dave?

No. I think that covers it.

Thanks, guys for taking the questions. I'll pass it along and let someone else ask some. Thanks again.

Yes sir. Thank you, Joe.

Thank you, Joe.

And we'll go ahead and move on to our next question from Brian Violino from Wedbush Securities. Please go ahead.

Yes. Thanks for taking my question. Just one quick one for me. Appreciate the color on the 2021 US Marshals contracts. I was hoping you could just remind us about the contracts coming up in 2022 and 2023 and even beyond and I guess, how you're thinking about those? And any sort of commentary around that? Thanks.

Yes, sir. Thank you for that question. This is Damon, again. So we've got after West Tennessee and Leavenworth, which we have talked extensively about it on this call. Only other two after that are one in Arizona, which is in 2023. And then the final one would be in Nevada, in 2025. So several years out and say a different way we have nothing next year after Leavenworth so 2023 would be the next one. So those being so far off. Really the focus for us and I'd say on behalf of the Marshals service, it has really been focused on the ones in this current calendar year. I suspect as we go into 2022, then we'll start having conversations about the one in 2023 and one in 2025.

Great. Thank you.

And we'll go ahead and take our next question from Kirk Ludtke from Imperial Capital. Please go ahead.

Good morning, guys.

Good morning.

I just follow-ups on a couple of topics. New Mexico, Leavenworth and then staffing. So three topics. On New Mexico, you've expressed some interest in the leasing model in the past. And this deal seems to be a step in that direction. I know you don't comment by profitability, by facility on profitability by facility. But maybe directionally, can you give us a sense for the economics of the new deal and maybe even more importantly are other states considering this option bringing operations in-house so to speak?

Yes, sir. Thank you. This is Damon again. I appreciate those questions. So for the first part I would say, I'm going through in my mind of all of the facilities that we've converted from safety to properties like the one you just mentioned with the New Mexico. And I would say, generally, that the return and earnings performance has been consistent with what it's previously safety if not maybe improved. We've got a couple of situations coming to mind where you maybe had one year or two or maybe the earnings was a little stronger on the safety side versus what we did on the lease agreement on the property side, but there may be some times where it was well below. So one nice thing about these agreements and it's probably obvious point is that, it creates a lot of stability and durability and consistency from a returns perspective. And that's a big part of the allure when we're in discussions with these jurisdictions about potentially moving a facility from the safety segment over to the property segment. And then to your last question, I would say, yes. We actually just did a review of a proposal for another existing safety operation that we're going to propose to a state for a lease. So yes, there's really good conversation and interest by jurisdictions for existing properties in the safety segment. And it may be a case where we're flipping one from a say to a federal or federal to a state. But I'd say the conversations are good and pretty robust at the moment. So anything you'd add to that Dave?

Yes. And the economics on Northwest, New Mexico, I think during the initial three-year base term, the average annual rent $3.2 million. So it's not a large facility. Although, it's $4.2 million in the second and third years of that lease, and then there's annual inflators thereafter. And that facility, I think we disclosed was operating at a loss year-to-date just due to COVID related population. So it will actually flip that from an operating loss to a profitable agreement. And I think it will depend facility-by-facility just different dynamics in each location, but it's a stable cash flows. As you can imagine, the value you described the multiple you described with that cash flow is higher than it would be under the own and operated model where revenues are subject to ebbs and flows based on inmate populations versus a fixed multi payment and a lease arrangement.

That's super helpful. Thank you. Encouraging. On Leavenworth, I know sometimes it comes down to alternatives. What other facilities are nearby that the Marshals might utilize. And Leavenworth if I'm reading this correctly, the occupancy was 80% in the third quarter, which seems like a good sign. Do you have a sense or would you be willing to share the occupancy rates at the competing facilities or what -- the facilities are effectively competing with Leavenworth for the next contract?

Yes sir. So I would say, let me say, I know that they're pretty darn well. It's more in Leavenworth so I know that referral. And I would say, they're looking at, I'd say, alternatives in two buckets. One the local bucket, primarily counties. And no one again kind of Eastern Kansas, Western Missouri like I do. I don't think there's a facility even if it's completely vacant that would be equal to size of our facility. So I think on the county side, they are really looking closely at various counties potentially provide capacity, but there clearly is not one. And it's probably -- even if you put five together, I don't know if they would be equal in vacant capacity with what we've got at Leavenworth. Having said that, though, I know they're still looking at that very, very closely and looking at those alternatives, because some of those jurisdictions that you're looking at maybe existing partners with them. So they know those counties well, because they've had a historical relationship with them. The other bucket, I would say is, the United States century there Leavenworth that's been there for about a century. Again that facility I know very well. It's about I think 2,000 beds total capacity. I think that's changed a little bit over the years based on maybe some reconfiguration of the capacity. I don't know to your question though what its actual population is today. My suspicion has been impacted probably like us with COVID. I also suspect with the BOP down almost 70,000 in May since 2013, they probably have got some flexibility and moved to populations out of that facility to other BOP facilities to make capacity available to the Marshal service. So those would be the two buckets looking at counties and/or the BOP. That BOP facility is within probably 10 minutes of our facility. So it's in very close proximity. And again, I don't know the actual population. But again, I suspect that, BOP has got some flexibility on that point. But anything you'd add to that Dave?

Just so we have had a couple of conversations with some other government partners that could back-fill it if Marshals decides to leave the facility. So, there are some things some balls in the air so to speak.

That's a good point. And actually I'd say, at a couple of different levels. So that's an opportunity we'll continue to look at very closely.

Great. Thank you. And then, lastly, a follow-up on the staffing question. Is there a way you can just give us a ballpark how many people you may need to add? And what the average wage rate is?

That would be a good question. And I can understand why you want to ask that. It probably would -- we'd all do ourselves a favor probably wait until we have guidance out in February, but we are leading towards an increase in staff. I don't know if anything you'd add to that Dave?

I don't think so. I mean, again, I think the opportunities with some government partners where you could see a surge in populations, those will be the facilities that we're focused in on, increasing staff, because you wouldn't want to lose business, because you don't have sufficient staff. So those will be the facilities, primarily federal where we would be increasing staff. But there are some other state opportunities too where I think we would like to increase staffing levels too. So yeah, I wouldn't -- it's hard to -- I couldn't give you a number in terms of quantity, of staff, or dollar amount.

Got it. Yeah a lot of moving pieces, I understand, and I appreciate it. Thank you very much.

Thank you, Kirk. I appreciate your questions.

And we'll go ahead and take our next question from Ben Briggs from StoneX Financial. Please go ahead.

Hey guys. Thanks for taking my questions. And great job on the quarter. Kind of a follow-up I had to the previous question about facility level margins as you transfer from an own operate model to more of an own and lease model. Are there any cost saves you guys can realized at the corporate level that are related to that just kind of with fewer operational things to manage as you transfer it to more of a landlord model?

Yeah. That's a great question. We've only had kind of one z two z here in the last couple of years where we've had that move from safety to property. But yeah, I think as we go -- I don't know if any next year, but probably in the next couple of years I think if there continues to be some kind of movement of -- or that migration I should say of safety is going over the properties. And there's probably some opportunity now. I wouldn't let's say put it in the category being largely material. But there could be a few opportunities there. I don't know anything you'd add to that Dave?

Yeah. If we had our portfolio totally converted from own and operate to one, where we're just the landlord obviously we have some decreases in the real estate staff, but more than offset reduction in the rest of the operational staff. But I really don't see that happening. Certainly not over the next year or two like, Damon mentioned you'd have to have a pretty significant shift in the safety segment to the property segment before you'd be able to move the needle on staffing in the corporate office. And it's just -- we're not having those kind of conversations at that scale today.

Okay. Great. That's very helpful. I appreciate that.

Yeah. Thank you for the question.

And we'll go ahead and take our last question from M. Marin from Zacks. Please go ahead.

Okay. Thank you. So, are there any services that you had offered pre-COVID that you're not currently offering? And would like to resume but are being hindered because of the staffing challenges you spoke about?

Keep me honest, here Dave. I'd say no. I mean, we did have kind of early days of the pandemic and this was kind of identical what we saw with our public sector counterparts and that was just scaling back services within our safety facilities around -- notably around programs academic vocational et cetera. But those are starting to -- those have been I should say ramping back up and we'll continue to kind of ramp up based on occupancy within those respective facilities, but outside of that.

No. I agree. In the 2020 time period in consultation with our government partners, unfortunately had to shut down, some of those programs which is an unfortunate byproduct for the residents in our care, because obviously they need the skills training that you want to provide them so that when they get released they've got the tools to get a job and sustain living outside of a correctional facility. But most of those have been reinstated now. And so outside of those types of programs, industry trade certificates that we had temporarily shut down most of which are back operational today. I can't think of any other services that we're not performing today that we were pre-pandemic. : Okay. Thank you.

Okay. Thanks Red.

Thanks for the question.

And we actually got one more question. We'll take it from Michael Christodolou from Inwood Capital. Please go ahead.

Good morning, gentlemen. I'm newer to the name. You've got a fascinating business which is clearly underappreciated. A couple of follow-on questions. You mentioned that you had a Hawaii proposal in Oahu that would be a build own operate. You mentioned there's also another RFP which is a lease only for an existing facility. Are there any RFPs on the horizon where you would envision needing to contribute equity-like was envisioned in that the Alabama project?

Yeah. Good question. The opportunity I alluded to a few minutes ago would not so that been an existing asset that's currently in the safety segment that potentially would go over to the property segment. If there is any investment, I'd say be relatively minor just to maybe make a few changes there for that mission in that new population. And then for Hawaii, I guess your question was outside of Hawaii. But I guess Hawaii that RFP actually won't be out we don't think until next year. And so, it's too early to tell exactly kind of what the opportunity would be and then what potentially the team would have to do or not do from an equity perspective. But outside of that, outside of kind of normal maintenance CapEx that we all talk about on a regular basis and forecast on, I don't see anything else beyond that do you Dave?

Yeah. Arizona is not a new build, so it's existing capacity. So no capital required for that opportunity. Hawaii could be -- I think they'd take the cost of $400 million to $600 million that one we would intend to finance like our Kansas project, a couple of years ago which is project-specific financing and equity -- actually Kansas was 100% debt financed. So no equity contribution on Kansas. I don't know if Hawaii we put in -- we likely have to put in some equity. But beyond that, there's nothing on the table today that would require us to put any equity capital into a new project.

Okay. And then just a question on staffing and margins at the owned and operated facilities. Page 10 of 22 talks about the facilities margin through nine months, right 24% up from 22%. You've kind of signaled that if you have some higher staffing, you might have some margin impact there. But then there's some per diem increases. And I'm wondering I don't know if there's a rule of thumb, but do per diem increases happened in advance or concurrent with or in arrears of a population increase?

Yeah. I'd say most of our per diem increases go in to place July 1 in connection with the fiscal year of our state government customers. So this was a good year for per diem increases. Those are reflected in the third quarter results. Our federal per diem increases are usually on the contract anniversaries so they could be throughout the year. But so as you look at where we would be seeing increases in populations, if they're at the federal level, they're probably going to be -- most of them would be for under existing contracts. So I wouldn't anticipate per diem increases in advance of new populations coming in. That's typically at the end of the contract year. For any new contracts like the one we're describing at West Tennessee, we're negotiating the per diem upfront. So you know going into the new contract with the per diem is going to be and you build in inflators into the contract as…

Thank you very much, commend your execution and your capital allocation journey that you're embarking on.

Good. Thank you.

Thank you so much.

And with that, that does conclude our question-and-answer session. Also, that does conclude today's call. Thank you for your participation. You may now disconnect.