CoreCivic, Inc.

Good morning. My name is Lateef, 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 fourth quarter 2022 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. If you would like to raise your hand to ask a question during this time, simply press star, then the numbers 11 on your telephone keypad. If you would like to lower your hand, press the star 1 1 again. Thank you. I would now like to turn the call over to Cameron Hopewell, CoreCivics Managing Director of Investor Relations. Mr. Hopewell, you may begin your conference.

Cameron Hopewell, CoreCivics Managing Director of Investor Relations. Thanks, operator. Good morning, ladies and gentlemen, and thank you for joining us. Participating on today's call are Damon Heiniger, 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 today's call, we will discuss our financial results for the fourth quarter of 2022, developments with our government partners, 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 fourth quarter 2022 earnings release issued after market yesterday. and in our Securities and Exchange Commission's filings, including the 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 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 Heidegger.

Thank you, Cameron. Good morning, everyone, and thank you for joining us today for our fourth quarter 2022 earnings call. On today's call, I will provide you with details on our fourth quarter financial performance and our newly issued 2023 full-year financial guidance. I will also discuss with you our latest operational developments, update you on our capital allocation strategy, and discuss the latest developments with our government partners, including the completion of the transition of contracts at our La Palma facility from a federal mission to a new contract with the state of Arizona. Following my remarks, I will turn the call over to our CFO, Dave Garfinkel, who will review our fourth quarter 2022 financial results and our newly issued full year 2023 guidance in greater detail. He will also provide a more detailed update on our ongoing capital structure initiatives. Before I get started, I would like to take a moment and highlight a significant milestone for the company. On January 28th, we celebrated CoreCivic's 40th anniversary. It brings me deep pride to know that I got to celebrate this milestone alongside a team of some of the most dedicated people in the field of corrections and reentry services. Over the years, we have expanded both in the number of government contracts and our capabilities through our partnerships with federal, state, and local governments. As a result, our workforce has significantly grown and the scope of services we provide has meaningfully expanded. Most excitingly, our reentry services have evolved to reflect a more robust rehabilitative approach to programming to further support the individuals in our care as they prepare to return home to their communities. While 40 years of continuous, 24-7 operations is an achievement worth celebrating, it is important to call attention to the original reason the company was founded. Back in 1983, the courts deemed that prisons in more than 40 states were in crisis due to overcrowded conditions, challenging infrastructure, and the correctional services provided therein. The conditions in many cases were deemed by the courts to be unconstitutional. Two of the company's founders, T. Don Hutto and Tom Beasley, saw the need for the private sector to bring solutions to the pressing issues facing these correctional systems. From day one, the company's purpose has been rooted in service to our nation's criminal justice system. Mr. Hutto was also to go on to help establish the standards of correctional care still upheld by the American Correctional Association and its members today. The American Correctional Association is the leading organization that champions the cause of corrections and correctional effectiveness and has been in existence since 1870. These standards were rooted in CoreCivic's operational approach since day one. During 2022, 15 of the facilities we managed were newly accredited or re-accredited by the ACA with an average score of 99.5%, making our portfolio average 99.5%. Our partnerships with local, state, and federal governments have helped to dramatically improve conditions for all incarcerated individuals, which is clearly something that we should also celebrate. The corrections profession is not an easy field of work. It takes commitment, focus, and a dedication to helping people, even in what can be very difficult circumstances. Through our four decades of dedicated service, CORE Civic has continued to be relied upon again and again as a solution to the needs of our government partners and the individuals in our care. We have earned a reputation as a trusted partner because the entire Core Civic team shows up every day to help improve the lives of incarcerated individuals and keep our community safe. I am deeply proud of the dedication of our team over the last 40 years, and I am truly humbled for the opportunity to work alongside them. I'll now provide an overview of our fourth quarter financial results and our 2023 financial guidance. In the fourth quarter, we generated revenue of $471.4 million, which was a decline of only 0.1% compared to the prior year quarter, despite the non-renewal of a contract with the United States Marshals Service at our Leavenworth Detention Center in 2021, and the non-renewal of a contract with Marion County, Indiana, at the managed-only Marion County Jail, effective January 31, 2022. Collectively, these two facilities accounted for a 13.1 million or 2.7% reduction in revenue in the fourth quarter of this year versus the prior year quarter. In the fourth quarter of this past year, we generated normalized funds from operation or FFO of 49.1 million or 42 cents per share compared to 57.8 million or 48 cents per share in the fourth quarter of 2021. Now, the decline was driven by our non-renewal of the two 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 expiration of our contract with the Federal Bureau of Prisons, or BOP, at our previously owned McRae Correctional Center in November of 2022, and a challenging labor market. Dave will provide more detail regarding the financial impact of these items. But I would add that while we have spent considerable amounts of incentives to recruit and retain viable frontline staff, these investments are positioning us to take advantage of increased demand from our government partners that we believe will occur once the restrictions imposed by our government partners during COVID pandemic are fully relaxed. We're also poised to enter into new contracts and accept additional residential populations from our government partners that are unable to manage their existing population levels because of staffing challenges in their own facilities. We believe these needs could manifest into new contracts in the near term. While our year-over-year financial results decline, we did experience a sequential improvement in financial results. There were three primary drivers of our improved results in the fourth quarter. Before the end of the year, we completed the transition of contracts at our La Palma Correctional Center. As a reminder, in April of this past year, we commenced transitioning populations at our La Palma facility in Arizona from ICE populations to Arizona state populations pursuant to a new contract we were awarded by the Arizona Department of Corrections, Rehabilitation and Reentry late in 2021. While we didn't achieve normalized utilization until the final days of the past year, our average utilization of the facility in the fourth quarter was 66% compared to only 50% during the third quarter of 2022. The Palma facility currently supports the mission of the state of Arizona by caring for approximately 2,500 inmates. We also experienced an increase in average facility utilization by our federal partners, particularly from Immigration and Customs Enforcement, or ICE. Our third quarter earnings call in early November of last year, we mentioned that ICE populations in our facilities increased 26% in the month of October. We attributed that increase to the start of the federal government fiscal year, which meant the agency had more budget certainty with new appropriations to start the year and pandemic-related oxygen restrictions were gradually being lifted. While the increase in utilization was noteworthy and had a modestly positive impact on the fourth quarter, Utilization levels were still below their pre-pandemic levels and occurred despite a reduction in utilization in the final days of December as ICE prepared for the termination of Title 42, which obviously did not occur, which I'll discuss in greater detail shortly. The third driver of our improved fourth quarter performance was a continuation of modest improvements in the employment market, a trend we began to detect in the middle of 2022. That trend has allowed us to reduce reliance on registry nursing and various forms of incentive compensation. These costs still remain elevated from their pre-pandemic levels, but with salaries and benefits representing approximately two-thirds of the operating expenses, even modest improvements in the employment market can result in meaningful cost savings. As for our newly issued 2023 financial guidance, we are forecasting full-year FFO per share in the range of $1.35 to $1.50 and adjusted funds from operations, or AFFO, per share in the range of $1.29 to $1.45. Our guidance is reflective of our completed transition at our La Palma facility, although the cost structure has yet to normalize as we work to fully staff the facility through local employees, and the expectation of utilization by our federal partners to remain below pre-pandemic levels due to the continued application of Title 42. Our guidance also reflects continued efforts to increase staff to position ourselves for increasing advocacy. Dave will provide greater details about our fourth quarter financial results as well as the financial impact of the more significant assumptions included in our full year 2023 financial guidance following the remainder of my comments. Since I brought up the topic of Title 42, I begin our discussion of developments with our government partners with Immigration and Customs Enforcement. ICE is our largest federal partner and is within the Department of Homeland Security. Of any of our government partners, their operations and capacity utilization needs were and continue to be the most significantly impacted by COVID-19. Notably, ICE implemented OCCC restrictions at ICE facilities nationwide to improve the ability for resident populations to social distance. These OCCC restrictions remained in place during the fourth quarter of this past year. In the spring of 2020, the Trump administration enacted Title 42 to close the nation's borders and port of entry to asylum-seeking individuals. Title 42 has remained in place since that time and has also had a significant impact or reduces ICE's demand for detention capacity. As I mentioned earlier, utilization by our fellow partners, particularly ICE, across multiple facilities were up nearly 26% in the month of October alone. Nationwide, ICE was chaining more than 30,000 individuals by mid-November of 2022, a notable increase while still being beautifully below their pre-pandemic levels, as well as the number of beds for which they are funded. We believe the increased utilization was a result of ICE slowly beginning to relax their pre-pandemic Oxy restrictions. This increase also coincided with the federal government's fiscal year beginning on October 1st, 2022. In November, a federal court case overturned the continued use of Title 42 and a date of December 21, 2022 was set as the date that Title 42 would be terminated. In anticipation of a significant increase in the need of detention capacity, ICE began releasing individuals from custody to free up additional capacity. By late December, ICE had released over 10,000 individuals from custody. Shortly before December 21st, there was a successful challenge to the federal court's ruling, which is now waiting to be heard by the Supreme Court in March. Title 42 is now expected to remain in place until the court proceedings are finalized, which likely will not occur until later this year. Also in December, Congress passed an ominous spending bill that funded 34,000 detention beds for the fiscal year ending September 30th, 2023. ICE has yet to increase its detention utilization closer to its funding level, and we expect their utilization to remain well below pre-pandemic levels, at least until the legal challenges to Title 42 are completed. As mentioned previously, we continue to increase staffing levels in order to be well-positioned to accept additional residential populations as pandemic-related Oxy restrictions are removed and the legal proceedings reach a conclusion. We also continue to pursue opportunities to provide ICE with non-residential, alternative to detention, or ATD programs. We remain engaged with ICE as we believe that we can provide unique solutions to provide additional ATD programs. We also know we can provide case management services similar to the type of case management services we already provide in our community segment. The elevated rates of apprehensions along the southwest border continue to create challenges, which are expected to increase the government's demand for both residential detention capacity and non-residential AETDs. Should these arise, we believe we are well positioned to deliver solutions to ICE. Now for an update of our other two federal partners, which are within the Department of Justice, which is the Federal Bureau of Prisons, or BOP, and the United States Marshal Service. The BOP has experienced significant declines in their populations in the last decade. In response to this long-term trend, we significantly diversified our business solutions over the years to meet the needs of other government partners. Last August, we completed the sale of our 1978 BAD-McRae correctional facility to the State of Georgia for $130 million. Our last remaining for the contract with the BOP was that McRae facility, and it represented less than 2% of our total revenue. We leased the McRae facility from the State of Georgia from the sale date through November of 2022, so we could fulfill our contractual obligations to the BOP through the expiration of the contract. Following the expiration of the contract at McRae at the end of November of 2022, we only expect to generate revenue for the BOP through the provision of residential reentry facility contracts. The sale of our McRae facility was a great opportunity to sell an asset at a value far exceeding the valuation of our publicly traded debt and equity securities and accelerate our capital allocation strategy of reducing debt and executing on our share repurchase authorization. While we do not expect the sale of our correctional or detentionally sued government entities to become a growing trend, we view this as an excellent opportunity to finalize our diversification away from prison contracts with the BOP, recycle capital, and create value due to the dislocation of the pricing of our public security and our assets' true market values. The McCrae facility was converted to a facility owned and operated by the state of Georgia upon the termination of our lease with the state of Georgia in November of 2022. As for the U.S. Marshals, their prison populations have remained very consistent in recent years, so their need for capacity around the country remains unchanged and significant due to their reliance on contracted detention capacity. The marshals were impacted by the executive order signed by President Biden and issued in January of 2021 that directed the Attorney General to not renew Department of Justice contracts directly with privately operated criminal detention facilities. In 2022, we had no direct contracts with the marshals that were set for expiration. And now we have only two remaining direct contracts with the marshals. One of those contracts is at our 4,128-bed Central Arizona Florence Correctional Complex in Arizona and has a contract expiration in September of 2023. Both facilities provide significant passage to the Marshalls that we believe would be very challenging to replace, but we likely will not have resolution on potential contract extensions until we are closer to the existing contract expiration dates. We continue to work closely with the marshals to ensure the capacity needs are being met in order to support their critical public safety mission. At the state level, we continue to hear the employment market is the most substantial and ongoing challenge correctional systems are facing. We have certainly faced the same challenges, but we are able to meaningfully increase staffing across the company during 2022, and these efforts will extend into 2023. There are multiple states that are dealing with such significant staffing challenges that they have had to reduce facility capacities and shutter housing units as a result. We are in conversations with a number of states to help address their challenges in the near to long term, and we look forward to providing you updates as these discussions evolve. I will close out my comments by highlighting the great accomplishments we had in 2022 that continue to strengthen our balance sheet. On the capital structure side, we began the year with entering into a new bank credit facility. This process involved bringing together several new banks that are supportive of our company's mission. It allowed us to extend the maturity of the facility to May of 2026, and we reduced our exposure to variable rate debt to just under $100 million. Throughout 2022, we reduced our total debt by $287 million, and just last week, we repaid the remaining $154 million on our 4.625% senior unsecured notes, which were scheduled to mature in May of 2023. Since announcing our updated capital allocation strategy in the summer of 2020, we have cut our overall debt in half by over $1 billion. We now have no debt maturities until April of 2026, which will provide us with a great deal of flexibility in how we deploy our free cash flow. We remain committed to our targeted total leverage ratio or net debt to adjusted EBITDA range of 2.25 times to 2.75 times. We have made meaningful progress in reducing our overall leverage due to the strong cash flows the company generates, and we expect our leverage to continue to decline over time, understanding that recently our EBITDA has been negatively impacted by the short-term transition of contracts at our La Palma facility in Arizona and ongoing pandemic-related Oxy restrictions with our federal partners. Mathematically, increased leverage, though debt levels have declined. As these headwinds near completion, we expect our leverage to naturally decline. We continue to execute our stock repurchase program of $225 million stock repurchase authorization authorized by the Board of Directors last year. During 2022, we repurchased 6.6 million shares of our common stock at aggregate purchase price of $74.5 million, or approximately 5% of our total shares outstanding. In January of this year, we repurchased an additional $10 million of our common stock, so we have $140.5 million remaining on our share repurchase authorization. This would allow us to repurchase an additional 12% of our outstanding shares based on the recent trading price of our equity. Our capital allocation strategy has enabled us to remain flexible and in future quarters is expected to include a combination of sharing purchases and debt repayments, taking into consideration factors such as the price of our securities, liquidity, progress toward achieving our targeted leverage ratio, and potential returns on other opportunities to deploy capital. We continue to believe our capital allocation strategy has been prudent for the positioning of the company to generate long-term value through a stable capital structure and continue to cost-effectively meet the needs of our government customers with less reliance on outside sources of capital. I'll now turn the call over to Dave to provide a more detailed look at our financial results in the fourth quarter, discuss in detail our four-year 2023 financial guidance, and provide additional financial updates. Dave?