Good morning. My name is Jonathan 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 Second Quarter 2019 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..

Thanks, Jonathan. 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.

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 second quarter 2019 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 measurements.

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, corecivic.com. With that, it’s my pleasure to turn the call over to our President and CEO, Damon Hininger.

Damon?.

We have a long-standing, zero-tolerance policy not to advocate for or against any legislation that serves as the basis for, or determines the duration of, an individual’s incarceration or detention.

We do not enforce immigration laws, arrest anyone who may be in violation of immigration laws or have any say whatsoever in an individual’s deportation or release.

We do not operate facilities on behalf of United States Customs and Border Protection whose facilities have been in the news recently for arduous [ph] conditions and supplemental funding request to cover budget shortfalls due to above average activity along our Southwest border.

And, perhaps most important to the current public debate, we have not, do not and will not house unaccompanied minors in any of our facilities.

Facilities housing unaccompanied minors operate on the half of the United States Department of Health and Human Services, not our government partners in the Department of Justice or the Department of Homeland Security under which immigration and customs enforcement operate.

While these are inarguable facts, politically motivated special interests and politicians have aggressively pushed misinformation campaigns and made public statements attempting to inappropriately implicate CoreCivic in these issues.

The most disappointing aspect of these politicized bank decisions, disingenuous activists efforts, and no solution proposals from politicians, is the people who they ultimately hurt.

It hurts the American people because of poor policies are being discussed, made or awarded based on misinformation rather than an open and honest dialogue on the challenges at hand.

It hurts migrants because it limits the ability of our government to partner with the private sector to provide safe humane housing and critical services while they receive their legal due process they’re entitled to.

It hurts the incarcerated who should never be in overcrowded, dangerous conditions we help alleviate and who will be better equipped for success with the wide variety of reentry programming that we provide.

And it sends a terrible message to others in the private sector who are working to help our government solve serious problems in ways it could not do alone. CoreCivic has a 35-year track record of working with both Democrat and Republican administrations to help solve the very types of crises we are now seeing on our southern border.

Our more than 14,000 employees are proud of the role they play, which they rightfully view as public service. We will vigorously defend against false and misleading statements about our Company and our valued, but limited role in America’s correction and detention systems.

Making false and misleading statements about our Company, whether in the media or to our banking partners, is a direct interference in our business and our ability to help solve the serious corrections and detention challenges facing our government partners.

The good news is that there are plenty of financial partners, both new and existing that are interested in the facts rather than a political posturing and unproductive virtue signaling.

Our banking partners, even those who have recently made politically induced negative statements, now based on decades-long relationships, that we care deeply about doing business in an ethical, responsible way and that we have stepped up as a leader in helping address some of the most serious challenges facing our country.

Having these facts on our side, coupled with our strong credit-worthy fundamentals we feel confident in our ability to cost effectively manage our balance sheet and access capital when necessary. I'll now turn the call over to Dave to provide an overview of our second quarter results and our updated 2019 financial guidance.

Dave?.

Thank you, Damon, and good morning, everyone. In the second quarter, we generated $0.47 to adjusted EPS compared to our guidance range of $0.40 to $0.42, exceeding the midpoint by 14.6%. Normalized FFO totaled $0.69 per share, compared to our guidance range of $0.62 to $0.64, beating the midpoint by 9.5%.

AFFO totaled $0.67 per share, compared to our guidance range of $0.60 to $0.62 exceeding the midpoint by 9.8%. Adjusted EBITDA was $115.3 million for the quarter, exceeding the midpoint of our guidance by $7.3 million or 6.7%, reflecting strong operating results.

Our financial results exceeded our guidance levels, largely the result of higher than projected populations in our CoreCivic Safety segment and lower operating expenses. Compared to the prior year quarter, adjusted EPS increased by $0.11, and each of normalized FFO and AFFO increased $0.12 per share.

The per share growth and adjusted EPS, normalized FFO and AFFO from the prior year quarter represent per share increases of 31%, 21% and 22%, respectively. Occupancy increased from 80.2% in the prior year quarter to 82.8% in the second quarter of 2019.

During June and July 2018, we were awarded two new federal contracts at our Tallahatchie County Correctional Facility in Mississippi and at our La Palma Correctional Center in Arizona. Since the first quarter of 2018, we were also awarded new contracts at our Tallahatchie facility from the states of South Carolina and Vermont.

And during the third quarter of 2018, the State of Wyoming began utilizing a contract this facility that had not been utilized in nearly a decade. These new contracts more than offset the impact from the expected removal of populations from the State of California at these two facilities.

Financial results also reflected the activation of our Lee Adjustment Center in Kentucky in the prior year, pursuant to a new contract award from a Commonwealth.

We believe these new contracts reflect our flexible capacity, a core competency we offer our partners with urgent demand needs as well as the value proposition we provide to states with correctional capacity and programming needs.

We continue to manage a strong prudent balance sheet with leverage of 3.8 times using the trailing 12 months and 3.6 times annualizing second quarter 2019 results.

At June 30, we had $57 million of cash on hand and $523 million of availability on our revolving credit facility in addition to a $350 million accordion feature under our credit facility, which matures in 2023.

We have $325 million of unsecured notes maturing in April 2020 and currently have the capacity under our revolving credit facility to repay these notes if we choose at any time prior to maturity.

Although the price for our debt and equity have been affected primarily by recent headlines from some of the industry's banking partners, we will continue to monitor capital markets and then alternatively issue debt securities or obtain other forms of capital to refinance these notes.

Our 2019 capital expenditure forecast includes $90 million of ongoing capital expenditures for construction of the new Lansing Correctional Facility in Kansas, including $40 million for the remainder of 2019.

The project is being 100% financed with a previously disclosed private placement, drawn in quarterly installments to align with construction expenditures, thereby requiring no cash from operations or our credit facility. The private placement matures in January 2040.

This project is on schedule for delivery in the first quarter of 2020 and on budget at a total estimated cost of $155 million to $160 million.

Our 2019 capital expenditure forecast also includes $26 million in capital expenditures for the 512-bed expansion of our 1,480-bed, Otay Mesa Detention Center in California, including $8 million for the remainder of 2019. This facility has had longstanding demand from both the U.S.

Marshals Service and Immigration and Customs Enforcement or ICE in a strategic locations with limited capacity. The expansion is on budget and a month ahead of schedule, now expected to be ready to accept detainees in October 2019 at a total estimated cost of $42 million. Moving next to a discussion of our earnings guidance.

As indicated in the press release, adjusted EPS guidance for the third quarter of 2019 is a range of $0.37 to $0.39; normalized FFO per share guidance for the third quarter is $0.60 to $0.62; and AFFO per share is guidance and $0.59 to $0.61.

For the full year, adjusted EPS guidance is in the range with our $1.68 to $1.72, up from our prior guidance of $1.56 to $1.62. Full year normalized FFO per share guidance in a range of $2.58 to $2.62, up from our prior guidance range of $2.47 to $2.53.

And full year AFFO per share guidance is $2.53 to $2.57, up from our prior guidance range of $2.42 to $2.48.

At the midpoint, our third quarter guidance reflects an increase over Q3 2018 adjusted EPS of 6%, growth in normalized FFO per share of 5% and AFFO per share growth of 11%, continuing the year-over-year growth trend we achieved in the first two quarters of 2019.

As our outlook has continued to improve, we have increased the midpoint of our 2019 full-year normalized FFO and AFFO per share guidance by $0.20 each, since our initial guidance published in February 2019.

Adjusted EBITDA guidance for the third quarter is $104.8 million to $105.8 million, and for the full year is $440.1 million to $443.9 million, representing increases of 6% and 12% at the midpoint from the comparative periods in the prior year.

Our third quarter guidance is impacted by the transition of offender populations at our 2,232-bed Adams County Correctional Center Mississippi from the Federal Bureau of Prisons or BOP to ICE.

Although we do not yet have a new contract to provide ICE with capacity at this facility, ICE began utilizing the facility pursuant to a modification of our contract with the BOP, earlier this quarter. The contract with the BOP expires at the end of this month.

Our forecast also includes incremental expenses in the third and fourth quarters to staff the expansion of our Otay Mesain Detention Center, which as I mentioned is now expected to begin accepting offenders in October, ramping throughout the fourth quarter of 2019.

Our guidance also reflects the activation in the third quarter of 2019 of two previously idled facilities, our 1,422-bed Eden Detention Center in Texas for the U.S. Marshals Service and our 910-bed Torrance County Detention Center in New Mexico for ICE, both of which are proceeding on schedule.

Aside from these activations, our forecast contemplates a lower level of ICE populations in the second half of 2019, which could provide upside for our guidance if ICE populations experienced during the second quarter are sustained. Our guidance also does not include any new contract awards beyond those I’ve already mentioned.

The adjusted EBITDA guidance in our press release enables you to calculate our estimated effective income tax rate of 4% to 5% for the third quarter and full-year and provides you with our estimate of total depreciation and interest expense for the third quarter and full-year 2019. We expect G&A expenses to be approximately 6% of total revenue.

Before I turn the call back to Damon for closing comments, I want to add to Damon’s comments about recent announcement by some banks to cease providing credit to our industry. First, our senior bank credit facility matures in April 2023.

The facility includes a $200 million term loan and an $800 million revolving credit facility with outstanding balances of $195 million and $252 million, respectively at June 30th. We expect these banks to continue to honor their contractual commitments under the terms of the credit facility, as they have since their announcements.

As I’ve outlined in my remarks, CoreCivic is financially strong and generates significant cash flows. At the midpoint of our updated guidance for 2019, we expect to generate over $300 million of AFFO, a proxy for cash flow after maintenance CapEx but before dividends.

At the current quarterly dividend rate of $0.44 per share, our dividend is annualized to just over $200 million, leaving a $100 million of residual cash flow. Our dividend is well covered with an AFFO payout ratio of 69%, based on our updated guidance, meaningfully lower than our guided dividend policy of 80%.

We provide essential governmental services to government partners that rely on our space and services to fulfill their missions.

In fact, our two largest customers, both federal agencies, do not have their own detention capacity, and therefore rely on the private sector for a substantial portion of their real estate needs, which meet the rigorous national detention standards and have on-site contract monitors.

The third federal agency, the Federal Bureau of Prisons, which does own correctional capacity is expected to generate only 2% of our total revenue going forward.

We are not yet ready to provide financial guidance for 2020 but we already have contracts in place as well as visibility on numerous opportunities that position us well to continue to grow cash flows without the need to deploy any new capital in 2020, which could result in naturally delevering our balance sheet even further from the current conservative level.

Cash flow growth is expected to be driven by the two contracts I previously mentioned for over 2,300 beds we are currently activating that will be in effect for less than 0.5-year in 2019.

The Otay Mesa expansion that is expected to accept additional populations in the fourth quarter of 2019 and the completion of our Lansing Correctional Facility in Kansas and correspondingly lease commencement during the first quarter of 2020 for which we have already secured project specific financing.

Further, several states have either issued solicitations or have announced intention to solicit out of state capacity, either because of overcrowded conditions within their own state correctional systems, or as cost savings measures. We have capacity available to accommodate all of these opportunities with no need for new capital.

Federal, state and local governments continue to see value and outsourcing their needs to CoreCivic and recently at an increasing pace.

In addition to the 2,300 beds I just mentioned that we are currently activating for the federal government, since the beginning of 2018, we have completed the intake of newly inmate populations from the states of Ohio, Kentucky, Nevada, South Carolina, Vermont, and Wyoming.

We will continue to manage our balance sheet prudently and will sharpen the focus on our capital deployment strategy in light of the current bank market.

We currently generate approximately $2 billion of annual revenue and over $4 billion of valuable mission-critical real estate assets used by our government partners that have very little to no alternative capacity. Approximately 92% of our real estate is unencumbered.

We will continue to monitor the capital markets and also evaluate raising alternative sources of capital, including, but not limited to joint ventures, property sales, mortgage indebtedness, private placements and other forms of private capital.

I'm confident that we will continue to have access to capital considering the cash flows that we generate from valuable unencumbered real estate assets and the growth prospects that we continue to see in the business. I will now turn the call back to Damon for closing comments before opening up the lines for questions..

Thank you, Dave. Before we open up the call for Q&A, I want to take a moment to reiterate a few key points. CoreCivic provides essential infrastructure and services that are there when government partners at all levels need them.

Meeting these critical needs transcends politics as is evident from our work with every administration, Democrat or Republican over the past 35 years. Additionally, nearly 50% of our revenue comes from state and local government contracts, which are not impacted by federal policy making.

Our strategy of diversifying our portfolio of mission-critical government lease real estate assets is paying off through strong growth trends in all three of our business segments.

Cash Flow decline from the past five years, particularly from declining populations from California and the Federal Bureau of Prisons are behind us as we have been able to meet the critical needs of new and existing government partners.

Our total revenue and cash flows are at or near record highs, thanks to the growth of CoreCivic Properties and CoreCivic Community in our steadfast commitment to helping people. Our current dividend is well covered. In fact, our AFFO dividend payout ratio of 68% is below the REIT industry average of 78%, and our cash flows are growing.

New and expanded contracts from multiple customers are coming on line in the second half of 2019, setting up 2020 for continued cash flow growth. Our debt leverage, while already very conservative compared to other REITs, is declining as a result of cash flow growth, which further improves the financial strength of the Company.

We currently have no need to deploy new capital in 2020. We believe our fundamental financial strength and commitment to conducting our business in a transparent ethical fashion will continue to attract sufficient sources of capital, regardless of the short-term disruptions caused by politically motivated misinformation efforts.

I'll now turn it over to the operator to open the call for a Q&A session..

[Operator Instructions] At this time I am showing no questions in the queue. I would like to turn the floor back to Mr. Damon Hininger for closing remarks..

Thank you. Before we conclude the call, I once again want to take a moment to recognize our employees who are teachers, chaplains, nurses, mothers, veterans, and many others. These are really good people doing great work for our government partners, and the individuals entrusted in our care.

We understand that recent media and political rhetoric is frustrating to our employees and it's frustrating for me too. We work hard to find the sources of factual information on a daily basis. But most importantly, I wanted to thank them for the meaningful work that we do, making a real difference for those in our care.

Whether we are putting individuals on the road to reentry, or providing a safe environment for people who have just entered our country, they play a meaningful and important role. And for that I am truly thankful. As a 27-year veteran of this Company, I'm extremely proud of the mission and life-changing work that we do for all those in our care.

We are confident in our purpose and reality of who we are and what we do. So, with that said, in closing, I would like to thank everyone for joining us on the call today. We look forward to reporting to you our third quarter results in November and providing an updated outlook for the remainder of 2019 and kicking off of 2020..

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect..