CoreCivic, Inc.

Good morning. My name is Carrie, and I'll be your conference operator today. As a reminder, this call is being recorded at this time. I would like to welcome you to the CoreCivics first quarter 2020 earnings conference call. I would now like to turn the call over to Cameron Hopewell, CoreCivics Managing Director of Investor Relations. Mr. Hopewell, you may now begin.

Thanks, Carrie. Good morning, ladies and gentlemen, and thank you for joining us. Participating on today's call are Damon Heinegger, President and Chief Executive Officer, and David Garfinkel, Chief Financial Officer. We are also joined here in the room by our Vice President of Finance, Brian Hammons. On the call today, we will focus on our ongoing response to the COVID-19 pandemic, with Damon providing an overview of our preparation and operational response, and Dave covering our financial results for the first quarter and providing an update on our financial outlook. During today's call, our remarks, including our answers to your questions, will include forward-looking statements pursuant to the safe harbor provisions of the Private Securities and Litigation Reform Act. Our actual results or trends may differ materially as a result of a variety of factors, including those identified in our first quarter 2020 earnings release issued after market yesterday and in our Securities and Exchange Commission filings, including Forms 10-K, 10-Q, and 8-K reports. You are also cautioned that any forward-looking statements reflect management's current views only and that the company undertakes no obligation to revise or update such statements in the future. On this call, we will also discuss certain non-gap measures. A reconciliation of the most comparable gap measurement is provided in our corresponding earnings release and included in the supplemental financial data on our investors page at www.corecivic.com. With that, it's my pleasure to turn the call over to our President and CEO, Damon Heinegger. Damon? Thank you, Cameron.

Good morning, everyone, and thank you for joining our first quarter 2020 conference call today. The start of 2020 has certainly been unprecedented in our company's history due to the rapid spread of COVID-19 and the abrupt negative impact it has had on the health of the nation's people and economy. As COVID-19 continues to threaten our nation, more and more Americans are being affected. At this point, most of us know either someone who has become ill or someone who is working on the front lines. The inherent nature of our work means thousands of CoreCivic employees are on those front lines every day. I am immensely proud of our frontline heroes at CoreCivic, and I thought it was only fitting to say up front Thank you to the course of a team. Working together with such an amazing group of people through this unprecedented event has only reinforced our team's dedication to better the public good every day. During this unprecedented time, our number one priority is the health and safety of those entrusted to our care, our employees, and our communities. For more than 35 years, we have worked closely with our government partners to develop and implement industry best practices to handle the potential spread of infectious diseases. Our executive management team has deep expertise leading the company through times of economic volatility, rapid fluctuations in customer needs, and operational complexities. I myself have been with the company for over 28 years and have served in my current role for almost 11 years. Dave has been with the company for nearly 20 years and has served the last six years as CFO. Our operational leaders have decades of experience addressing complex and unique challenges across the corrections industry, both public and private. I am very confident in our team's ability to lead the company through these difficult times, and I'm impressed with the speed at which we deployed comprehensive plans to tackle the virus. Under leadership of Patrick Swindle, our Chief Corrections Officer, he directed in early March the activation of our Emergency Operations Center, or EOC, within our Facility Support Center here in Brentwood, Tennessee, to manage and direct leadership and resources across our portfolio as appropriate throughout the pandemic. We structure our EOC platform to follow FEMA's National Incident Command System protocols, so we are following emergency response best practices. Since 2004, our EOC platform has followed these FEMA protocols, so we have dedicated operations staff who have been thoroughly trained and have conducted live simulations in preparation for disruptive events like natural disasters within our facilities, but also like the one we are currently experiencing. We also formed a COVID-19 task force, which is chaired by one of our long-term senior operations leaders, Steve Connery, who is also a former executive with the New York City Department of Correction. The task force is made up of our medical experts, including our chief medical officer and operations leadership, and is charged with monitoring the progression of COVID-19 working with each facility to develop response plans, and exploring emergency contingency options. The resulting COVID-19 medical action plans were specifically developed for each safety and community facility. These plans include implementing current guidelines from the CDC and World Health Organization for COVID-19 at all core civic facilities, structuring plans to separate high-risk individuals in our care who are potentially more susceptible to the virus, urging employees to stay at home if they are ill, have medical staff participate in the intake process to identify those who are deemed high risk of being infected with or contracting COVID-19, working closely with our government partners to suspend in-person visitation at our facilities, and finally, working with local and state health departments to conduct appropriate testing. We quickly pushed out guidance to our facilities to actively promote healthy habits for individuals in our care, including regular hand hygiene, respiratory etiquette, and avoiding touching of one's face. We also implemented strategies for practicing social distancing for all individuals within our facilities. We also trained all our employees to help prevent the spread of COVID-19 and other respiratory diseases through similar guidance expanding the guidance for when our employees are outside of the facilities. In all CoreCivic facilities, staff adhere to the CDC recommendations for cleaning and disinfection. This includes cleaning and disinfecting surfaces, objects, and shared equipment that are frequently touched or used by staff members or those in our care. Our facilities use commercial cleaners and EPA registered disinfectants that are effective against the virus that causes COVID-19, following label instructions to ensure their safe and effective use. We have adequate supplies to support these intensified cleaning and disinfecting practices. The initial nationwide shortage of personal protective equipment and COVID-19 testing equipment required us to coordinate a portfolio-wide supply chain in order to provide face masks to all staff and individuals in our care, consistent with CDC recommendations and ensure availability of testing equipment. As guidance from the CDC on the use of masks recently changed, we have worked hard to quickly ensure that we are in full compliance. We also had to coordinate with each of our government partners as their policies evolved to expand the utilization of PPE. Importantly with PPE, we provided information materials and instructions to employees and those in our care on how to properly use the equipment to reduce the risk of contamination. The CDC makes it clear that the MAS recommendation complements but does not replace other critical steps to help prevent the spread of COVID-19. Other measures, like social distancing and proper hygiene recommendations, as I mentioned earlier, are the primary measures to reduce the spread of the virus. Beyond our supply chain for PPE and testing equipment, our most critical supply lines of food, pharmaceuticals, and other medical equipment were bolstered in advance, and we currently do not anticipate a significant supply chain disruption, nor have we experienced one. The combination of our detailed facility-level action plans, our COVID-19 task force mobilized, and our emergency operations center functional, we believe we position the company to be well prepared to appropriately and thoroughly respond to the virus with care for the safety and well-being of those entrusted to us and our communities. As a 24-7 operation, one of the largest challenges we face is staffing. Particularly in a strong economy with low unemployment, we, along with all public and private correction systems, have faced stiff competition in the market the last few years to attract and retain talent. While the unprecedented increase in unemployment since the start of the pandemic may significantly expand the pool of available employees, corrections is facing an additional challenge in staffing with COVID-19 now. That is, when you have a test come back positive for either staff or inmates, we follow the guidelines that you should proactively isolate for up to 14 days others who may have come in contact with the individual. In certain cases, you could see an individual facility temporarily lose a meaningful percentage of their correctional staff, creating the need for us to take additional steps to fill critical posts. Our action plans included the contingencies to employ staff from other facilities from around the country with lower COVID-19 impacts to support facilities that may have higher COVID-19 impacts, resulting in temporary reductions in available staff. This is an important contingency plan that we have utilized, which can't necessarily be replicated in the public sector when their employee pools are consolidated in a single state. Other challenges our government partners face are that many of their facilities are overcrowded or operating above their design capacity and outdated with physical plant designs that do not allow ease of separation. Social distancing, according to the CDC, is a critical step everyone should take in order to reduce the spread of the virus. When a facility is operating above its design capacity, there is less available square feet per resident in some cases making social distancing in accordance with the CDC guidance impossible. Our facility designs are generally more modern and allow for easier separation and social distancing plans. And as the outbreak of the virus has impacted various public correctional systems, Our bed capacity has become an important part of our government partners' ability to adhere to the CDC guidelines regarding distancing and separation of COVID-19 positive individuals. Examples of this are with both the states of Kansas and Nevada who have extended agreements with us to allow for lower density within their systems by utilizing capacity within our Saguaro facility in Arizona. What is yet to be determined is if these measures to reduce density and capacity levels will be implemented on a more permanent basis across our nation's correctional systems. But as always, we believe our capacity serves an important role in reducing overcrowding among our government partners. Challenges related to outdated facilities can create many situations that increase the risk of transmission of the virus. For example, many older facilities use central HVAC systems that recirculate air throughout the entire facility. This is particularly impactful with airborne communicable diseases. Another example could be that an older facility's medical units may lack negative pressure rooms that allow individuals that have been tested positive to be medically isolated. Our portfolio of correctional real estate assets is newer and more modern, so we do not face the type of significant real estate limitations that many other systems face. And here are a few numbers around us. In states where we conduct business within our safety segment, our facilities are approximately half the average age of the state's public prisons. In fact, there are 39 prisons or about 43,000 beds within our state customer group that are 50 years old or older and even seven prisons that are 100 years old or older. Let me now provide some detail on the number of confirmed cases we have experienced to date. On March 19th, we had our first confirmed case that affected a staff member, and on March 28th was when we had our first resident that was a confirmed case. As of Tuesday of this week, we had 148 staff cases and 1,630 confirmed resident cases. These are not necessarily active cases, just cases that we confirmed over the last 60-plus days. To put this in perspective, we have approximately 15,000 employees working for the company and an average of 56,000 residents in our 70-plus prisons, detention, and community correction facilities over the last 60 days. The vast majority of the confirmed cases we have had were asymptomatic at the time of testing, which is consistent with what other correctional systems around the country are reporting. 39 states have reported their testing results to date, which is approximately 25,000 tests, and they have reported positive results around 42%, which is consistent with our own experience. And as of Tuesday, we currently have three staff members and 13 residents that were receiving local medical treatment near their places of work or facilities where they are housed. Finally, It is estimated that approximately 218 inmates have died nationally because of COVID-19 related causes. And tragically, we have had two deaths, which actually were this week, and they are being monitored for pending autopsies or official death rulings as both tested positive for COVID-19, but also had pre-existing medical issues and multi-day hospitalizations. Finally on this topic, with us working with nearly 20 government partners around the country, we have worked closely with them to mirror proactive testing within our facilities. The most recent partner to conduct wide-scale testing is the state of Tennessee, and that effort is ongoing this week going into later this month. Check out corecivic.com for news releases for more information on what is taking place here in Tennessee, but also information for family members of incarcerated individuals, which includes detail about our 24-7 information hotline with a live operator. And we have made it known that we believe the data gathered from these mass testing efforts can also be critical to public and private health professionals government leaders, and scientists around the country as we try to better understand this virus. I will now take a few minutes to review how COVID-19 pandemic has generally impacted the utilization trends of our government partners. Immigration and Customs Enforcement has experienced the most significant impact of any of our partners and for unique reasons. Today, their total detention population is approximately 30,000 nationwide, which is a sharp decline from their population at year-end 2019 of roughly 43,000 detainees. Some of this decline has been the result of ICE proactively releasing detainees that are deemed to be higher risk. However, the largest impact has been the result of reduced activity at the southwest border, and the federal government's decision to deny entry at the border to asylum seekers and anyone crossing the border without proper documentation in an effort to contain the spread of COVID-19. These factors have resulted in a reduction in the number of people being apprehended and detained by ICE. Beyond the uncertainty of how long the pandemic will play out, we are also uncertain on how long the federal government will keep these border restrictions in place. As our largest customer, representing approximately 28% of our revenue in the first quarter, this reduction in utilization has a material effect on our near-term earnings, but as of now, there is no indication that the pandemic will have a long-term impact on ICE demand for our real estate solutions. Utilization trends for the United States Marshal Service, the Federal Bureau of Prisons, and most of our state partners have modestly declined as a result of COVID-19. This is due to disruptions in the criminal justice system as the number of courts in session and prosecutions have declined. And with many state and local government agencies deciding to release certain offenders to reduce the risk of COVID-19 transmission. With some states already starting to reopen their economies and even more following similar plans over the next few months, We expect a coinciding gradual resumption of these government activities returning to pre-pandemic levels. Now that we've broadly covered our response to the COVID-19 pandemic and impact on our government partners are experiencing, I'd now like to take a moment to touch on our first quarter results. In the first quarter, we posted total revenue of $491 million, a 1.5% increase year over year, and normalized SFO per share of 54 cents, or a penny above the high end of our first quarter 2020 guidance that we reaffirmed last month. The primary driver of financial performance in the quarter versus our original guidance was that we experienced lower than expected operating expenses in our safety portfolio. At this time, we are not providing financial guidance for the second quarter or full year 2020 due to the uncertainties around the length of the COVID-19 pandemic, the timing and pace of the recovery, and policy choices by federal, state, and local governments. We remain focused on positioning the company for the long term understanding that the pandemic will eventually pass and our government partners will continue to face the same challenges that were present prior to COVID-19 and perhaps even more. It is with that focus that we continue to make prudent investments that we believe will provide long-term benefits. As I mentioned earlier, the key to our long-term success is our entire CoreCivic team. To show our appreciation for their service and dedication during the pandemic, all frontline employees will receive a hero bonus. We have also provided additional paid leave and health care benefits for our employees. We believe it is the right thing to do for our employees who have been so dedicated and steadfast through a very difficult time. One thing that is certain is that government revenues will see a meaningful reduction this year due to the shutdown of certain portions of the economy. The pace of economic recovery will also affect future tax revenues, which at this time is difficult to predict and will likely vary greatly state by state. A reduction in tax revenues can be a challenge for state agencies as budget cuts are often the result. The good news is that most states are in a better fiscal health than the last recession due to the financial crisis, with larger rainy day funds to weather disruptions and the economic disruption occurring today is not the result of structural issues within the economy or an industry. There are also discussions in Washington about a potential federal aid to state and local governments to assist in the recovery, which we will continue to monitor. Even without aid or a quick economic recovery, we have the experience to weather these challenges as we did successfully during the last recession and drawn out economic recovery. To date, we have not seen any negative budgetary impacts to our contracts, but we are prepared to address these situations and mitigate our risk should they arise. As you can see, We have been very proactive in our response to this unprecedented pandemic, and we are upholding our commitment to bettering the public good. Whether it's responding to COVID-19 or the work we do every day to help people prepare to return to our communities, we believe strongly in the role that we play and the difference we make in people's lives. Now, before I turn it over to Dave, I want you to know that we're continuing to focus on our core mission and doing everything we can to support our employees, the individuals in our care, our communities, and our government partners. You can see these commitments are ingrained in our response to COVID-19. Here are just a few examples. For our employees, we have expanded healthcare and PTO benefits and provided a hero bonus. For residents, we have negotiated free phone calls from our telecom vendors and obtained government authorization to waive medical co-pays. For our communities, we have offered our idle capacity at no cost to help local health systems combat COVID-19 and hospital capacity shortfalls. We've also donated to local food banks and COVID-19 response funds. And we have worked collaboratively with our government partners to roll out new and enhanced policies and protocols in response to the pandemic, working aggressively to ensure consistent supply chain of critical items and have remained flexible and nimble to address needs as they arise. This represents only a small sample of our response efforts. I encourage all of you to go to our website at corecivic.com to see all the material we have published about COVID-19 response, which includes weekly updates on our efforts. I'd now like to pass the call over to Dave to provide a more detailed look of our financial results in the first quarter, the strength of our balance sheet and liquidity position, and other recent trends. Dave?