CoreCivic, Inc.

Good day and thank you for standing by. Welcome to the Quarter 1, 2023 CoreCivic Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, Press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Cameron Hopewell, Managing Director of Investor Relations. Please go ahead.

Cameron Hopewell 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're 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 first quarter of 2023, 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 first quarter 2023 earnings release issued after market yesterday and in our Securities and Exchange Commission 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 investor's page of our website, CoreCivic.com. With that, it's my pleasure to turn the call over to our President and CEO, Damon Heinegger.

Thank you, Cameron. Good morning, and thank you for joining us today for our first quarter 2023 earnings call. On today's call, I will provide you with details of our first quarter financial performance and our updated 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. Following my remarks, I will turn the call over to our CFO, Dave Garfinkel, who will review our first quarter 2023 financial results and our updated full year 2023 financial guidance in greater detail. He will also provide a more detailed update on our ongoing capital structure initiatives. I'll now provide a brief overview of our first quarter financial results and our updated 2023 financial guidance. In the first quarter, we generated revenue of $458 million, which was a 1% increase compared with our prior year quarter. This is in spite of the expiration of our contract with the Federal Bureau of Prisons, or BOP, at our previously owned McCray Correctional Facility in November of 2022, and that facility that we sold later last year. We generated normalized funds from operations, or FFO, of $38.9 million, or $0.34 per share compared with $41.5 million or 34% per share in the first quarter of 2022. Now, the decline was driven by the sale of our McCray facility that I mentioned, the transition of populations at our La Palma Correctional Center pursuant to a new contract with the state of Arizona that began in April of 2022, and a challenging labor market. Dave will provide more detail regarding the financial impact of these items along with other factors that impacted our first quarter results. While our operating costs remain elevated compared with pre-pandemic levels, during the quarter we experienced a continuation of modest improvements in the employment market, a trend that began to develop in the second half of 2022. Now to our updated 2023 financial guidance. We are forecasting full year FFO per share in the range of $1.31 to $1.42 and adjusted funds from operation or AFFO per share in the range of $1.25 to $1.37. These represent declines of six cents at the midpoint of our previously issued guidance. They will provide greater details about our first 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. Moving now to one of our federal customers, Immigration Customs Enforcement, or ICE. The most current expectation is that Title 42, a temporary public health order issued by the CDC that has essentially closed our nation's borders to asylum-seeking individuals, since the onset of the COVID-19 pandemic is scheduled to come to an end on May 11th. In all likelihood, the lifting of Title 42 will result in a significant increase in the number of individuals illegally entering the country between ports of entry. Without the ability to quickly remove individuals using the authority granted by Title 42, it is expected the government will experience a significant increase in the number of people in the custody of the Department of Homeland Security or DHS. ICE is one of the agencies within the DHS that is responsible for enforcing immigration laws, arresting, and detaining individuals who have entered the country illegally. As our largest customer, it is anticipated that ICE will experience a significant increase in demand for detention capacity when Title 42 is lifted. ICE has been the government partner most impacted by COVID-19 era public health measures. Notably, ICE implemented occupancy restrictions at its facilities nationwide to improve the ability for resident populations to social distance. These occupancy restrictions have remained in place for more than three years, so the removal of these restrictions could result in a significant increase in utilization of our facilities under contract with ICE. There is a possibility that legal challenges or some other unexpected development could change the date that Title 42 is lifted. In fact, this has happened on multiple occasions in the last few years. But it's important to note, and what is different this time, is that the Secretary of the State and the Secretary of Homeland Security have made some definitive statements this past week that the Title 42 public health order will expire as required by court order on May 11th. Our updated four-year financial guidance does not contemplate an increase in utilization from ICE. However, as mentioned last quarter, we have elevated our staffing levels in anticipation of higher occupancy levels. Utilization by ICE is also impacted by their annual funding levels. For the current fiscal year that will end September 30th, 2023, ICE is funded for 34,000 pension beds. Based on the latest available data, ICE is utilizing approximately 25,000 beds. So, they have the ability to increase utilization. However, as noted in a DHS fact sheet that was published last week, their current funding levels represent only a fraction of what DHS will ultimately need in a post-Title 42 environment. Finally, the DHS Secretary indicated in recent public remarks that DHS has informed Congress this past week their intent to reprogram funds in their budget to support emerging requirements within DHS. Now for an update on our other federal partner, which is within the Department of Justice, the United States Marshals Service. The U.S. Marshals' prisoner populations have remained 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. We have only two remaining direct contracts with the marshals. One of those contracts is with our 4,128-bed Central Arizona Florence Correctional Complex in Arizona and has a contract expiration in September of 2023. Both facilities provide significant capacity to the marshals that we believe would be very challenging to replace. But as we've previously stated, we likely will not have a resolution on potential contract extensions until we are closer to the existing contract expiration date. We continue to work closely with the marshals to ensure their capacity needs are being met in order to support their critical public safety mission. At the state level, we continue to hear that state correctional systems' largest challenge remains the tight labor market. We have had conversations with a handful of states to help address their challenges in the near to long term. We have discussed available capacity we have within our system that could assist those states in dealing with their operational challenges And we are currently in discussions with several government agencies to help assist them with their need for bed capacity. Now, it wouldn't be appropriate to disclose all of the states we are currently talking to, but I will highlight one that recently has been reported on publicly. The state of Montana has taken steps during their recent legislative session to possibly place 120 individuals out of state. We have been actively talking to the state for quite some time about their needs, and they recently toured a facility of ours that we think would be a good fit for them. We will report more on this opportunity and others later this year. I will close out my comments by discussing our continued progress with reducing our overall debt and returning capital to our shareholders. In February, we repaid the remaining $153.8 million on our 4 and 5 eighths percent senior unsecured notes that were originally scheduled to mature in May of this year. At the time, we used a combination of cash on hand and a $35 million draw under our revolving credit facility to repay these notes. By the end of the first quarter, we had repaid all but $10 million of the draw on the revolver through free cash flow generated during the quarter. We now have no debt maturities until April of 2026, which provides us with flexibility in how we deploy our free cash flow for the next three years. To that point, We also repurchased an additional 2.5 million shares of our common stock during the first quarter at an aggregate purchase price of 24.9 million. Our total share repurchase authorization is up to 225 million, of which we have approximately 125 million of the authorization remaining. We believe taking a balanced approach of both reducing debt and repurchasing shares will unlock substantial value over time while also reducing our future debt refinancing risk. We remain committed to our targeted leverage ratio or net debt to adjusted EBITDA range of two and a quarter to two and three quarters time. We have made meaningful progress in reducing our overall leverage due to the strong cash flow that the company generates, reducing our overall debt balance by $1.2 billion since announcing our updated capital allocation strategy in the summer of 2020. We expect our leverage to continue to decline as we prioritize our cash flows on reducing debt, understanding that in recent quarters, our EBITDA has been negatively impacted by the short-term transition of contracts at our La Palma facility in Arizona and ongoing pandemic-related oxygen restrictions with our federal partners, mathematically slowing the rate of leverage decline, though we have continued to reduce our debt levels while repurchasing our shares of common stock. I'll now turn the call over to Dave, who will provide a more detailed look at our financial results in the first quarter. He will also discuss in detail our updated four-year 2023 financial guidance, including the most significant factors behind the change in that guidance.