Good morning, everyone, and welcome to CCA's Third Quarter 2013 Earnings Conference Call. If you need a copy of our press release or supplemental financial data, both documents are available on the Investor page of our website at www.cca.com. Before we begin, let me remind today's listeners that this call contains forward-looking statements pursuant to the Safe Harbor provisions of the Securities and Litigation Reform Act. These statements are subject to risks and uncertainties that could cause actual results to differ materially from statements made today. Factors that could cause operating and financial results to differ are described in the press release, as well as our Form 10-K and other documents filed with the SEC. This call may include discussion of non-GAAP measures. The reconciliation of the most comparable GAAP measurement is provided in our corresponding earnings release and included in the supplemental financial data on our website. We are under no obligation to update or revise any forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events. Participating on today's call will be our President and CEO, Damon Hininger; and Chief Financial Officer, Todd Mullenger. I'd now like to turn the call over to Mr. Hininger. Please go ahead, sir.

Thank you, Leo. Good morning and thank you to our valued shareholders, analysts and other participants for joining our call today. Joining me, in addition to Todd, we have our Chairman, John Ferguson; our Vice President of Finance, David Garfinkle; and also Board Member, Bill Andrews. I'd like to start us off giving highlights of the results of the third quarter and give you a business update, and then I'll hand it over to Todd Mullenger. But first, a couple of global comments for new investors. 2012 marked our 12th consecutive year of EPS growth and a compounded average growth rate of 11% over the last 7 years for AFFO per share. And based on our guidance from last night, we are well on our way to our 13th consecutive year. More importantly, our 10-year share price performance is north of 300%, showing our long-term track record of outperformance. Now with CCA, you have a clear market leader, with the company owning and controlling 50% of the privately-owned beds in the U.S. marketplace. And with that, 90% of our net operating income is generated from our own beds. And we enjoy a modest maintenance CapEx of 5% compared to NOI. As for the market, we're experiencing extremely limited public sector investment on new government-owned capacity to deal with growth and overcrowding, which its lack of development is unprecedented in the last few decades within our industry. And with less than 10% penetration by the private sector, we have meaningful opportunities in the U.S. marketplace that are starting to materialize in a meaningful way. Now some highlights for the quarter. First of which was normalized FFO, which came in at $74 million. This was a 17% growth over third quarter of last year. The durable nature of our cash flow growth…

Thank you, Damon, and good morning, everyone. In the third quarter of 2013, we generated $0.46 of adjusted EPS, while normalized FFO totaled $0.63 per share. The sequential decline in EPS from the second quarter is primarily due to the issuance of 14 million shares as part of the special REIT conversion dividend, which was not fully reflected in Q2 shares outstanding, as the shares were issued midway through Q2 on May 20. Moving next to a discussion of our guidance. As indicated in the press release, adjusted EPS for the full year is a range of $1.85 to $1.89. While Q4 2013 adjusted EPS guidance is a range of $0.37 to $0.41. Full year FFO guidance is a range of $2.58 to $2.62. The guidance excludes REIT conversion cost, refinancing cost, CAI acquisition costs and other special items. I would like to spend a few minutes walking through the 4 primary issues affecting fourth quarter guidance. First, our August earnings guidance assumed the continued operation of our California City facility, as we had not entered into a lease arrangement with California at that time. As a reminder, in October, we announced that we'd entered into a lease with the California City facility, which will be operated by the State of California. The lease commences December 1, 2013, with monthly lease payments subject to reductions until certain tenant improvements are completed and all existing inmates currently housed at the facility are removed. The removal of existing inmate populations at the facility during the fourth quarter will negatively impact the fourth quarter EPS by approximately $0.02. We expect that the transition to the lease structure will be completed by January 2014. As a reminder, annual lease payments are $28.5 million, with CCA responsible for property taxes, repairs and maintenance and property…

Thank you, Todd. So let me bring to a close our comments and make these final points. As mentioned and talked about during the last couple of quarters, we're very pleased to have the REIT conversion finalized this year. So for any new REIT investors on the call, we are a company that has had 12 consecutive years of EPS growth and a CAGR of 11% over the last 7 years for AFFO per share. And we're well on our way to our 13th consecutive year, very strong and durable earnings. More importantly, our 10-year share price performance is north of 300%, showing our long-term track record of outperformance. We are the clear market leader with the company owning and controlling 50% of the privately-owned beds in the U.S. marketplace. And with that, 90% of our net operating income is generated from our own beds. We have above average dividend payout ratio and also historical customer retention rate in excess of 90%. With that, managing the business with discipline, we have a strong balance sheet with debt-to-EBITDA at 3x. This is low compared to other REITs, but also a strong operating record, very valuable real estate assets with 75-year life, a high barriers to entry industry and diverse highly-rated government payers. And as for the business outlook, population increases we are seeing indicate future need for the solutions we provide. We're encouraged by the improving budget environment on the state side. We are seeing extremely limited public sector investment on new government-owned capacity to deal with growth and overcrowding. And with less than 10% penetration, meaningful opportunities in the U.S. marketplace. And based on my earlier report, those are starting to materialize in a meaningful way. And we think the progress of the 3 facilities I mentioned earlier, where they're moving towards complete utilization is a good example of this. That now concludes our prepared remarks. Thank you again for calling in today's conference. And let me now turn it back over to Leo, for Q&A.

[Operator Instructions] We'll take our first question from Manav Patnaik of Barclays.

The first question, Todd, you mentioned, obviously, that the fourth quarter is not a good run rate for '14. But how should we think about the typical seasonal shift, from fourth quarter to 1Q? Usually, there's a step down. So will that be less of a step down?

You're probably -- you may be referring to employment taxes. So normally going from fourth quarter to first quarter, we see a significant increase in employment taxes, and we will see that again in Q1. Last year, that number was a $5 million increase in unemployment taxes from Q4 to Q1. You've also got 2 fewer days going from Q4 to Q1. That impacts earnings as well.

Okay. So that sort of step down we usually see from 4Q to 1Q, we'll still see some of that even from your current range?

Yes.

Okay. Then on Cal City, you talked about $0.02 to $0.03 impact because I guess you're moving all the fed populations going elsewhere. Maybe from a sort of facility EBITDA perspective or however you choose, how should we think of the annualized impact of that? I mean, is it just times 4 to think about how we should adjust '14 numbers?

Yes, maybe the best way to look at that, 2012, which is the last kind of full normalized year of operations we had at the facility with ICE and Marshals, we generated about $10 million of EBITDA. Obviously, made some noise in 2013. So maybe that's helpful in helping you understand what the step up will be as we enter the lease structure with the $28.5 million grant. And the another thing we've provided some guidance on the past. So property taxes, we're responsible for property taxes, repairs, maintenance, property insurance. What we said in the past is -- and that's including other fixed costs. So utilities, property taxes, repairs and maintenance and insurance is about 10% of operating cost. On an owned facility, the average is about $46 of operating cost. Everything's more expensive in California. So hopefully that gives you an idea of what our operating expenses will be for property taxes, insurance and repairs and maintenance.

Okay. And just on -- I think in the past, and you guys might have referred to it today, just around some of the unsolicited opportunities in terms of states you don't do businesses with, but have these -- you referred to that in the past. Like what's the update there? Like, do you have a sense of -- can those come to fruition sooner than later? Or is it still one of those things that we will still hear about will be a while before we actually see it?

So Manav, this is Damon. To answer that question, still looking at about half a dozen states that we see as prospects for our #1 goal, which is utilize the existing capacity in the CCA portfolio. And we have not talked about those publicly until something happens until we're -- it does become public. And like for the most recent one is West Virginia. So we actually have been working on West Virginia for about 2 years. It's been part of that group of 6 that we've been targeting. And you heard the numbers I mentioned earlier, where they're dealing with significant overcrowding today, but looking to grow by about another, I think, 1,700 over the next few years. So that's an example of one of those states. And like experienced in the past, it won't all happen at one time. But as we get closer in either the budget environment or maybe the other dynamics happening within -- with respect to, say, like a West Virginia, they'll feel like they've got the ability then to go ahead and go out to the private sector and secure some beds.

[Operator Instructions] We'll move next to Kevin McVeigh of the Macquarie Group.

Damon or Todd, I wonder if you could you give us a sense of fundamentals beyond California? So are you seeing the typical pickup in terms of inmate population growth within kind of your core set of states? Obviously beyond that, the opportunity in California.

Yes, this is Damon, Kevin. So yes, we're seeing a little bit of growth in, what I'd say, kind of the existing state portfolio. For Arizona, we already have a contract but they've shown some growth here in the last year and have projected some growth over the next couple of years. Tennessee is an example. We haven't talked about them publicly, but with our announcement on Trousdale putting a light on them relative to their growth here recently and projected growth. We're talked about West Virginia. Oklahoma's been a state where they've grown, I think, by 1,000 on last year. And we have been virtually responsible for all that growth and providing capacity in our existing facilities. So we are seeing around the state portfolio, outside of California, some growth. And we're well positioned to accommodate those state partners with our capacity to deal with that growth.

Got it. And then, just with the decision to activate Diamondback. Was that done based on kind of the success you had with Cal City? Or ultimately, what drove you -- because, obviously, you incurred some cost in front of what's likely some success with the state. But what kind of gave you the level of confidence to step up that investment?

I'd say a couple of things that were notable. One of which was that the 3-year extension in July. That was a positive element for the out-of-state program. The second is, the governor and the legislature moving forward on adding money back into this year's fiscal year budget. The funding of out-of-state program, we saw that as a positive development. To your point, we absolutely thought it was positive that the state is moving forward on executing contracts in-state for capacity. And we know we benefited with our Cal City, but also GEO and some of their facilities. And then also the state's action here recently with the U.S. Supreme Court on trying to get the moratorium lifted on the out-of-state program and allowing the states to do more contracts. So I'd say, kind of collectively, those 4 items led us to take the steps to activate our Diamondback facility.

Got it. And then, Todd, real quick, relative to progression of FFO, it's kind of $0.71 to $0.63 and obviously, $0.53 in Q4. If we think about the more normalized -- and I noticed this one with California in it, are you thinking it more kind of the 70s, $0.71 to $0.63 steady state as opposed to the investments you've made in Q4? I know there's some kind of oddities in there. But how should we think about the progression into '14? And obviously, I know that wouldn't include any potential benefit from California.

We're really not in a position to provide any guidance on '14 yet, either on EPS or FFO. I think we've tried to provide you enough information on some of the temporary impacts to help you get an idea of what it could be, but not in a position to provide guidance on '14 yet.

We'll take our next question from Kevin Campbell of Avondale Partners.

This is Clara Houin on for Kevin. So managed-only margins were very strong in the quarter. So other than the exiting of the contracts in Texas and Mississippi, is there anything else that explains the increase? And how should we think about that going forward?

Yes, most of that increase was primarily the elimination of some of the lower margin manage-only contracts. Texas and Mississippi, there were probably some other onetime favorable impacts from an expense nature in the managed-only versus the owned and managed. But I think the biggest contributor was probably the elimination of those lower margin contracts we exited.

Okay. And so how should we think about those margins going forward?

Yes, I'd say you're kind of still in that kind of 10% to 14% range going forward. Unfortunately for us, the managed-only business is such a small piece of our book of business, it's not significant one way or the other.

Okay, great. And then on Trousdale, so of the $140 million in CapEx required for that project. Could you give some -- maybe a commentary on how much they've spent already and when do they expect that spending really to ramp up?

Yes, we've got about -- a little bit under $30 million invested today from the previous acquisition and site preparation. And then we'll probably start to incur meaningful amounts of CapEx in the first quarter of '14.

Okay, great. That's helpful. And then just one last quick question, could you give us some comments on your view currently of immigration reform?

Say it again, I'm sorry.

So on immigration reform, could you maybe give a little commentary on what your latest view of that situation is and how it will impact you?

Well, I've been watching the press and kind of media reports, like you and others have, and really we don't see any really discussion on it right now. You saw a fair amount of discussion and deliberation within Congress, I guess it was in the spring. But I think with just everything kind of generally going on with the budget environment and the debt ceiling and the recent government shutdown and sequestration, we haven't seen or heard any real activity or discussion on anything really taking place with immigration reform. So that's kind of our best assessment right now.

[Operator Instructions] We'll move next to Tobey Sommer of SunTrust.

Curious, how does your existing capacity overlay with the 6 states that you're targeting that may have some inmate population growth in their forecasts?

This is Damon. Pretty good. So we've got capacity really eastern and western part of the U.S. So again, West Virginia -- have not disclosed the others, but West Virginia's the one we've been targeting. And we've got capacity in Kentucky and even a little further west. So yes, our capacity overlays pretty well with what we see as potential opportunities there.

Given the lack of investments in recent years by the customers in new capacity, do you have higher expectations for more states sending inmates out of state over the next few years than has historically been the case?

I don't know if I would say higher expectations, but it definitely is a different dynamic. So if you go back a decade ago when I was talking about occupancy percentage within our system and utilization rates. Coming out of the '90s, there was still a fair amount of new builds being done by state governments. Whereas as we've talked about the last couple of years, there's not much. So that is -- it's a very different dynamic. But also I think to your point about or question about out of state, with California, Hawaii, Vermont, other states over the years like Washington, who have been comfortable, Arizona going comfortable going out of state, I think having those states take that action, and those being good solutions, provided good quality and good value, I think as states think about kind of short-term, long-term needs like at West Virginia, they see that as a very viable option, say, compared to a decade ago. Having the largest state agency in the country with California using a lot of beds out of state, I think that gives the ability for states like West Virginia to look at that track record, look at performance and say okay, that's a viable solution and an opportunity for significant value.

That's helpful. If California moves forward and sends a sizable amount of inmates out of state and really absorbs a lot of the vacant and idle capacity available in the market. How do you think that impacts pricing in the industry?

Well, it's hard to say definitively what would happen, but I think if you look from a historical perspective, that if there's meaningful utilization of capacity within the private sector then that should have a potential positive impact on pricing.

And within state customers, are you seeing any restoration of services or other signs that their level of service is increasing and therefore, would perhaps facilitate or be indicative of better pricing from those customers for you and the other private providers?

Yes, we've seen modest improvement here in the last 24 months. So if I look at our pricing escalators that we've negotiated this year, our performance this year was better than last year. And I'd say, last year was better than 2 years ago. So we are seeing modest improvement and link that directly to states feeling that their revenues are coming in a little bit stronger, and they truly have reached the bottom in declining revenues they had to deal with 3 or 4 years ago. So yes, we're seeing modest improvement. And with that, a few states that we negotiated service reductions over the last few years, we are seeing some restoration there. Again, with states feeling good about their revenues and feeling that they can -- they're on stable footing now and go ahead and restore some of these cuts that they've done in the past.

California, there's some flux there still, of course. But given the actions they've already taken and announced. How many potential beds or inmates are we talking about in terms of incremental opportunity to perhaps send out of state to yourselves and others?

That's a hard answer to give, Tobey. If you look at just purely the pop report, if you look at their systemwide capacity versus their actual population, I think they're still about 8,000 to 9,000 short of the cap. We know that they're looking at, obviously, out of state capacity, which we've provided a lot of options to them on what we can do. But we do also know that they're looking at some things they can maybe still do in-state, which is limited, but I think they still think they've got some options there. So I think the round number is kind of 8,000 to 9,000. How much of that's in-state or out-of-state, it's hard to tell.

Okay. And we've had some transition and reshuffling within facilities that are, obviously, kind of impacting the fourth quarter and the first. Is -- are the options that you've laid out to California, could that trigger more reshuffling? or potentially you are moving inmates from an existing facility that is occupied?

I would say not likely. We've got the, what I'd say, kind of 3 base facilities in California, which is Tallahatchie, La Palma and North Fork in Oklahoma. So those facilities have been stable here in the near term, and so we don't see any real changes there. We've talked about Diamondback, which is just west of Oklahoma City, and we've got pockets of beds in other facilities. But Diamondback is, we think, a good choice for California. If they needed more beds, obviously, we've got more capacity. But right now, the only step we've taken is with our Diamondback facility. Tobey are you still there?

Mr. Sommer has left. And it does appear that we have no further questions. I'd like to turn the program back over to our host for any concluding remarks.

All right, Leo, thank you very much. Well, thank you again for your time and your participation today. More importantly, to investors, thank you very much for your confidence in us and your investment in CCA. Your management team is focused on executing another good year for 2013 as it comes to a close. And we look forward to reporting our progress during 2014. Thank you again for participating today.

Thank you. This does conclude our conference call for today. You may now disconnect your lines, and everyone have a great day.