Good morning. My name is Samira 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 Q1 2022 Earnings 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.

Thanks, Samira. 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 first quarter of 2022 and we will 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 first quarter 2022 earnings release issued after market yesterday and 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 that we provide on the Investors page of our website at corecivic.com. With that, it is 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 2022 earnings conference call. Going to our agenda for the call, we will provide you details of our first quarter financial performance, recent developments related to the COVID-19 pandemic, 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 I will discuss our updated full year 2022 financial guidance. I will then turn the call over to our CFO, Dave Garfinkle, who will review our first quarter financial results and full year 2022 guidance in greater detail and will update you on our ongoing capital structure initiatives. In the first quarter of 2022, we generated revenue of $453 million, which was consistent with the prior year quarter, despite the non-renewal of contracts with the United States Marshals Service, or USMS, at our Leavenworth Detention Center and our West Tennessee Detention facility in 2021. The non-renewal of our contract with Marion County, Indiana at the managed-only Marion County Jail effective January 31, 2022 and the sale of 5 facilities in our Property segment during the second quarter of 2021. Collectively, these 8 facilities accounted for $28 million reduction in revenue in the first quarter of 2022 versus the prior year quarter. In the first quarter of 2022, we generated normalized funds from operations, or FFO of $41.5 million or $0.34 per share compared with $53 million or $0.44 per share in the first quarter of 2021. Now, the decline was driven by the non-renewal of the three contracts that I just mentioned, the transition of populations at our La Palma Correctional Center pursuant to a new contract with the state of Arizona, the sale of 5 non-core properties…

Thank you, Damon, and good morning, everyone. In the first quarter of 2022, we reported net income of $0.16 per share or $0.14 of adjusted earnings per share, $0.34 of normalized FFO per share and AFFO per share of $0.37. Adjusted and normalized per share amounts exclude a gain on sale of real estate assets of $2.3 million for the sale of two underutilized residential reentry centers in Denver, generating net proceeds of $9.3 million during the quarter. Several discrete factors contributed to the $0.10 decline in adjusted and normalized per share results compared with the prior year first quarter. The first two factors are attributable to repositioning our balance sheet for our revised capital allocation strategy. During 2021, we sold five properties that generated almost $5 million of EBITDA in the first quarter of 2021 and accounted for a per share reduction of approximately $0.02 per share from the prior year quarter. Second, during the second and third quarters of 2021, we completed the issuance of $675 million of 8.25% senior unsecured notes using the net proceeds primarily to repay shorter-term debt with lower interest rates, resulting in a reduction of approximately $0.04 per share for higher interest expense. These two discrete items were dilutive to earnings but strengthening the balance sheet by lowering overall debt levels by $287 million and extending our weighted average maturities. Lastly, as we have previously disclosed, transitions of populations at our La Palma facility and contract terminations at our Leavenworth, West Tennessee and the managed-only Marion County Jail facilities accounted for a reduction in EBITDA of $9 million or $0.05 per share from the prior year quarter. Occupancy in our Safety and Community facilities continues to reflect the impact of COVID-19, but increased to 70.6% in the first quarter of 2022 from 69.9%…

Thank you. [Operator Instructions] We will take our first question from Joe Gomes with NOBLE Capital Markets. Please go ahead.

Good morning, Damon and Dave.

Good morning, Joe.

So I want to start with the wage inflation and adding on more employees here, the nurses, I’m assuming this is continuing to go and impact right now. And Damon, you mentioned that you’re giving real-time wage increases, but it takes months to negotiate with the government partners. Eventually, when you hopefully get your per diem increases, would you expect to offset all of the wage increases or just a portion of it that you’re giving today?

Yes, great question. The short answer is vast majority of it. It won’t be exactly dollar for dollar. On the state side, it will be on the federal side with those contracts be reimbursed with equal adjustments, but pretty darn close. But your question is a good one, and let me expand a little bit to what I said in my script, and that is we have seen really favorable engagement with our state partners to support wage increases because they have had to do the same thing within their own public facilities. And so states like here in Tennessee and in Colorado, in Arizona, and we’ve got a couple of other states we’re talking to. The discussion about the need to increase wages has been very productive and very positive and the increases that we’ve done have been pretty consistent with what public sector facilities have done themselves. And with that full reimbursement for those increased costs or wages, but it’s a little different on timing on the state contracts. So let me give you an exact example of that. So here in Tennessee, when it became very clear that we were able to raise wages for our staff because the public sector facility are going to do that, we did that right before Christmas. And so those wages happen, I think, around December 16 because we wanted to in real time to really put a jolt in the system and try to get more people in the pipeline to get more people within our facilities. So we lean forward to go ahead and do those sour increases knowing that it would be days and weeks before we get the contracts all papered to get reimbursement. So an actual dollar amount to give you a number for that example,…

Yes. All of that is – you have read my train of thought. But the only thing I would add in our guidance, we continue to use registry nursing. We have got a similar level kind of baked into Q2, and it weans or diminishes as the year goes by. It’s very difficult to get reimbursements to your direct question. When you are talking about increasing salaries, that’s a little bit easier to get reimbursed than it would be for registry nursing, which is meant to be a temporary solution until you can hire the nursing staff full time. So, that’s where you see a little bit of the leakage in the EBITDA is the utilization of those premium high rates for registry nursing, which hopefully will be temporary solutions until we can get the nursing staff online full time.

Okay. Thanks for that clarity. And if could just switch here on the alternatives to detention, ICE has been quoted as saying they – once Title 42 disappears that, that program or those programs could go from 200,000 people participating in them to over 600,000. What is your ability to handle some of that increase if they were to come to you and say, “Hey, we want you guys to participate in some of this and to monitor some people here on the ATD side?” I mean is – could you handle 100,000? And if so, what’s kind of the cost of trying to ramp up to that type of a level for you?

Yes, great question. Short answer is, absolutely. We have been doing similar programs with city and county and states for many years in our Community segment. So, we know what’s needed relative to the services and technology, but also case management. Again, case management is nothing we only do in community. We also do a lot of that in the safety side, too. So, we have that competency really well defined and very, very capable. But yes, to the kind of second part of your question, absolutely, we have got the scale. I mean we are a nationwide employer. We have obviously got 17 million in square footage in real estate around the country that could be leveraged for a program like that if it did have that type of need and scale. But also from a CapEx perspective, obviously, there is some CapEx that we have invested to get ourselves prepared for these opportunities. But it’s not as great, as you know, with what you would need in a kind of property or a safety kind of opportunity where you are building a new prison at maybe $100 million CapEx need, that type of CapEx and that type of investment to get yourself prepared for those opportunities in advance is not that great. But I don’t get anything you would add to that, Dave?

No, nothing to that.

Okay. Thanks. And on the – you talked about the U.S. Marshal Service and part of that, as you mentioned, Damon, is the reduced number of people in the court system or the intake level has been lower, not so much as the fact that people are getting released early has been driving some of the utilization down. I mean as you look around the nation, where kind of like is your impression of where we are getting back to a normalization on the court system side so that maybe we would start to see that the intake level start to get back to a more normal level?

Yes, that’s a great question. Let me maybe take a tad different angle on the answer here and just to give you a little perspective. So, we watch obviously other companies and other industries that are similar. I would say healthcare is a very similar industry to ours. But I would say also the hotel companies, very similar multistate. Labor, they have got needs for high-quality service. And as you know, in the last probably quarter, I saw Marriott actually released their earnings, I think here in the last 24 hours, everybody is seeing a pretty significant increase in kind of earnings performance coming out of the pandemic. I would say for us to age your question, I think for us, we are probably another quarter or two quarters from that kind of dynamic where you see significant movement on populations. I mean we are seeing incremental populations I have noted in my script to improve on the state side. But going back to ICE, I mean we are still under COVID restrictions on occupancy. We still have a cap on occupancy within our facilities. And as I mentioned earlier, we think those are somewhat linked to the kind of timing of Title 42. So, that feels like probably Q3, maybe Q4 to where you start to see the movement because they have released some of these restrictions to kind of go back to where they were kind of pre-pandemic. So, I don’t think you add to that, Dave.

Yes. Just to emphasize, the state populations, it does feel like they are beginning to normalize and the biggest impact on the Federal side are the COVID-related occupancy restrictions, which you may know, they try to keep their occupancy more than 75%. So, you would think once Title 42 gets lifted, let’s continue to pray that the COVID-19 cases decline and we get through the pandemic, then you would expect those occupancy restrictions to be lifted, and that’s really been the biggest impact on our business. And so again, going back to pre-pandemic occupancy, if we got back to that level, that’s somewhere around $40 million to $50 million increase in EBITDA, just to get back to those levels. So, we are looking forward to a lifting of the occupancy restrictions because it does feel like we are – operations throughout the country are starting to normalize post-pandemic. And so that would be one of the last things that we see get lifted.

One thing I would add, though, and Joe, you and I might have talked about this recently, but we look at population data that comes from the Bureau of Justice Statistics. And one thing they noted in their recent report is that jail population. So, these are city or county facilities, jail populations year-over-year have increased by 17%. And I don’t know if that’s the highest increase ever, but we think it’s probably the highest increase year-over-year, at least probably 20 years or 30 years. So, what’s notable about that is that that’s telling us that there is individuals that have been requirement to a local level, but courts have been closed and ability for their cases to be adjudicated have been stalled because of COVID-19. We are seeing active kind of reopening of courts and normal operations to resume here in the last 90 days. So, I think those individuals that have been maybe held up in local jails just because courts have not been able to hear their cases are starting to kind of get back to normal operations. And that, I think in turn should be looked at as a leading indicator for population down the road for our system and public facilities at the state level.

Okay. And if I could sneak one more in here. So, on the guidance, one of the things you mentioned was the uncertainty about when Title 42 is going to be removed. I mean I guess the kind of the question is, but it’s always been a question of when it would be removed and uncertainty of when it would be removed. Was the previous guidance were you guys assuming that Title 42 would have already been removed or would be gone here sooner than what you now your current guidance is? I am just trying to get a better understanding of why the uncertainty about Title 42 being removed is having an impact on the guidance.

Yes. I would say probably a good question, a couple of answers to that. One of which is, yes, we didn’t obviously, when we did the guidance back in early February, we didn’t know anything definitive on timing. And now obviously, that’s come with the anticipated removal at May 23rd, again, held up because of a judge that’s going to be considered through a hearing next week. So, obviously, we didn’t know that in February, but we did assume kind of a broad range of outcomes potentially at the timing of Title 42 it was all taken into account. But I would say, and I noted this a little bit in our – in my script, and that is we are leaning forward in a couple of locations in anticipation. So, obviously, that’s created a little bit of an impact from the earnings profile this year. I would say kind of to say that differently, we weren’t probably lean in as much forward in early February because we were just days of coming out of the Omicron variant and the impact that it was having on policy and public health officials on social and also making sure that facilities operate in a way to make sure they limited the spread of the pandemic. So, whereas we were in early February, taking some outcomes into account relative to the timing of Title 42, didn’t lean quite as far on staffing. But now that we have got a little more definitive kind of timeline on the timing of Title 42 potentially being lifted and likely need in certain parts of the country, we have told our operations and HR team to go ahead and turn on the pipelines to staff at higher levels. But anything you would add to that, Dave?

Yes. And so that would impact Q2 because even if Title 42 gets lifted under the current terms, which will be May 23rd, you don’t really see increases in populations, at least until the end of the second quarter and then even have to surpass the first tier fixed monthly payments for some of our Federal facilities. But we did increase actually in the back half of the year, a gradual increase in Federal population, specifically ICE detention populations. So, it was just more than offset by the increase in labor that Damon just described for leaning forward and the increase in labor for the premium that we pay for registry nursing.

Great. Really appreciate all the insight guys. Thank you.

Thank you, Joe.

[Operator Instructions] And we will take our next question from Kirk Ludtke with Imperial Capital. Please go ahead.

Hello everyone.

Good morning Kirk.

Good morning.

Thank you for the presentation, very helpful. Couple of follow-ups, with respect to alternatives to detention, do you see a scenario where monitoring cannibalizes your ICE population?

No, sir. Yes, that’s been a tool in a toolbox rise. Going back, I guess when the start of the program was probably about 15 years ago. But I see it as a kind of complementary tool to the need for detention capacity. There is always going to be a need, I think for monitoring programs like that and for capacity that we have in places, primarily on the southwest border. And I would say as a provider for solutions for ICE for almost 40 years, the configuration within our facilities may change a little bit, maybe for females, maybe for males. As you know, we have done family solutions two different times in Texas. But the need for thoughtful humane environments for detention for different needs based on policy over the years, I think it will always be a very important tool or the policy leaders and leadership within ICE. But I don’t know if you would add to that, Dave.

No, I don’t have anything to add anything. Thanks.

Great. Thank you. And you mentioned that you expect to recover the vast majority of the wage increases that you are providing from your customers. Is there a potential for you to recover those wage increases retroactively?

In some cases. So, let me just a reminder how it works because it’s pretty different at the Federal and State level. So, the Federal level, if the Department of Labor issues a new, what they call wage termination, and it takes, say, correctional officers in a certain region of the country on an hourly rate up 10% year-over-year, we were required by contract to immediately incorporate it in the contract and deliver that increase to our employees. But also we are allowed under contract on the exact same day to get fully reversed for dollar for dollar. So, those happen instantaneously. So, that’s all well defined, and it’s been part of our contracts for almost 40 years. So, that side is pretty straightforward. On the state side, it’s a little bit of the timing of the increases that the state does. And again, we try to work closely with them to do it in parallel, because we know one increases over the other on timing from a timing perspective. It’s going to impact the other from a labor perspective. So, we try to somewhat coincide any increases we are doing with them, but also having a conversation on a parallel side on making sure we get reimbursed for it. So, in some cases, it may be reimbursement relatively quickly after do increases. And it could be – we do a contract amendment to get reimbursed and it is retroactive. But it’s a little bit kind of case-by-case by state-by-state. But anything to add to that?

No. It does vary by contract by state. So, typically, a state will provide a wage increase – sorry, per diem adjustment as a certain date. And they have typically been July 1, which is coincided with their budget years. But just this past year, we have seen more off-cycle per diem increases than I have ever seen going back to my 20-year history with the company. So, it’s been an unusual environment for our customers as well. They are seeing the same challenges in their staff, and they are making adjustments other than the typical July 1st period of time. But again, one other thing to add, July 1 is typically when we have per diem increases that are just based on CPI. As you know, CPI has been as high as it’s been in decades. So, it should be a good year for per diem increases. As Damon mentioned, states are flushed with cash. They are in good financial situations so that should make the appropriations process easier. Again, it’s never easy because they are always trying to balance their budget with competing budget priorities, but we are optimistic in the second half of the year.

Dave raised a good point earlier. I really want to amplify on that is, yes, this is probably the biggest off-cycle increases we have seen on per diem adjustments and salary increases on our state contracts probably ever, if not in the last 20 years. And so typically, when we are talking to a state about the need to make an adjusted salaries is usually, well, let’s go ahead and kind of bake that into the budget process in the spring and make effective July 1st. But again, it’s been a great discussion with the state partners today, in many cases, we need to act quickly. And we are – again, this is a message that we are delivering exactly the same way as Department of Corrections leadership is saying to their governor. So, that is really, really notable that we have been able to really successful in getting not only salary increases, but also quickly get reimbursed from our state partners.

Great. Thank you. And I suspect that it varies by customer, but is the pass-through already reflected in the guidance?

Well, I said, it’s a little choppy, because again, going back to my Tennessee example, we have had a couple of increases earlier this year. We are anticipating a few more later this year. So, the timing of the increase versus the time of reimbursement, I think there is probably almost all of them. There is going to be a little bit of a lag, some little more notable than others. So, I think probably keep me honest here, David, it’s probably later this year, early next year, we are going to get kind of a clean kind of view of, okay, revenues are aligned with the reimbursement that we have got in salary increases. But there is going to be a few quarters probably this quarter and next quarter where, again, we are going to have a little higher expenses, not get full or reimbursed that will wash out here probably later this year.

Yes. And again, going back to my point on the registered nursing, that’s probably not something we get reimbursed for because it’s not baked into our salaries. It’s temporary solutions to use registry nursing. So, the main factors contributing to the reduction in our guidance was an increase in registry nursing as well as faster ramp down of the ICE populations at our La Palma facility. As I mentioned, that was about half. There were other puts and takes. But of the – I think it was $0.10 on each end, the La Palma decline was about half. Registry nursing was certainly the lion’s share of the balance. Those two together are well over $0.10.

Great. Thank you. And then one last one, it sounds like you may be adding headcount this year? If so, can you give us a sense for how many people and the cadence? And then I will get back in the queue. Thank you.

I don’t have that at my fingertips, but maybe offline, we could share a little more color on that.

But that – I mean we have assumed, again, in our guidance, a ramping up of the staffing levels. So, that is all factored in. Again, it’s a wide guidance, I appreciate that, but – because we have had to make some significant assumptions on labor costs and Title 42 and other things. But that should be baked into our guidance with an increasing staffing level throughout the balance of the year. That’s good.

Got it. Yes, there is a lot of variables, more variables than usual in this year, I would say.

Yes, you said it. Yes, you said it.

Thank you.

Thank you, Kirk.

And we will take our next question from Ben Briggs with StoneX Financial. Please go ahead.

Hi. Good afternoon guys and thank you for the call and taking questions. So, a couple from me. Again, I want to touch on this on the labor issue, but I know you have been asked about a few times. I just want to make sure I have it right so that I understand it. So, are you guys paying – you mentioned that you are paying some signing and retention bonuses. And I imagine you are probably seeing a little bit of a wage pressure at the corporate level also. Is that impacting your operating margins, or are you reimbursed for those signing and retention bonuses as well?

No, that’s a good point. Those would not be reimbursed for the most part either. Again, sometimes the negotiation comes down to not dollar-for-dollar. We are not proving out every expense item in our P&L to our customers. So, it’s not – it’s more of an art than a science. But generally speaking, you are right. I mean we are getting a CPI increase and that’s not necessarily going to cover special incentives that we may put in place until we can stabilize the workforce. So, that’s another good example. Like the registry nursing where we are paying a premium for registry nursing that’s temporary, hopefully. The incentives we are putting in place for a signing bonus and things like that, including at the corporate level, I think we have done a good job managing overall G&A expenses. So, they are not actually going up even much at all from the prior year. When you look at the facility level, signing bonuses, special gift bonuses or shift premiums, things like that, you are right, that’s impacting the margins in a negative way. The good thing about those, though, is they can be temporary. So, you are providing those until you can stabilize your workforce. So, when you ultimately fill those positions, those things can fall away. So, it’s not a permanent part of your cost structure.

Right. Okay. Thank you for that. That’s very helpful. Next thing is, so you have mentioned that you have got two remaining direct U.S. Marshal Service contracts, neither one of which expire in 2022. I don’t think I saw it in your disclosures. When do those direct U.S. Marshal Service contract expires?

Yes, sir. So, they will be in our supplemental, which may go up – is out today. And so it will be the two facilities, is one in Arizona, May of ‘23...

September.

September ‘23, excuse me, and then in 2025 Nevada.

Okay. Nevada, ‘25. That’s very helpful. And then I think the last one for me is going to be, I know that you guys discussed kind of plans for addressing the revolver and extending that maturity and then also addressing this term loan A this is due in April of 2023 with balance sheet cash and you have plenty of balance sheet at $378 million of cash on the balance sheet versus like a $50 million to $90 million run rate pre-pandemic. There is also the four and five eights notes due 2023, the unsecured notes that there is about $174 million out. Those come due within a couple of weeks of that term loan A. I wanted to know, are you planning on addressing that with balance sheet cash at the time as well, or do you have other plans for that?

Yes. Short answer is yes. So, the credit facility, we feel really good about today, as we mentioned in the script. That should be put in place in the very near-term. The ‘23 notes that you described, they have a make-whole associated with them until February of ‘23. So, we would expect to use cash on hand to pay off those notes as soon as we can without a make-whole.

Okay. That’s very helpful and that’s it for me. I will turn it back off.

Thank you.

Thanks so much.

And that concludes today’s question-and-answer session.

Thank you very much. We appreciate you joining our call today and look forward to talking to you in the coming months. Thanks everyone.

And this concludes today’s call. Thank you for your participation. You may now disconnect.