Good morning, everyone, and welcome to the CCA Second Quarter 2014 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 discussions on 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. Please note, today's call is being recorded. Participating on today's call will be our President and CEO, Damon Hininger; and Chief Financial Officer, David Garfinkle. I'd now like to turn the call over to Mr. Hininger. Please go ahead, sir.

Thank you, Tasha. Good morning, and thank you to our valued shareholders, analysts and other participants for joining our call today. In addition to David Garfinkle, we also have on the line John Ferguson, our Chairman of the Board; and also, Brian Hammonds, our Vice President of Finance. After this opening, I'll give a highlight of the results for the second quarter and then give a business update and then finally hand off to David Garfinkle. Let's go straight into the quarter and get some highlights, first of which, normalized FFO was nearly $80 million, an increase in operating cash flow as compared to last year. Second, you have seen this quarter and will see going forward for few quarters a decline in our revenues when comparing year-over-year. This has had minimal impact on our earnings as adjusted net income is actually up year-over-year and this represents, in large part, our successful efforts this past year in transitioning out of several underperforming managed-only contracts. Now you know that this year we have been working diligently on our new Toronto project, and on Thursday, July 3, the State of Tennessee executed the final agreement, which is the agreement between the State of Tennessee and Trousdale County. We're very excited about this new $140 million project that should be completed and on line during the last half of 2015, and we're proud that it will help ease overcrowding in the State of Tennessee. The durable nature of our cash flow growth has enabled us to pay a $0.51 dividend during the quarter and work towards an annual rate of $2.04 a share. We are only just over a year as a REIT and we did a 6.25% increase to our dividend in the first quarter, and we think this is a really…

Thank you, Damon, and good morning, everyone. In the second quarter of 2014, we generated $0.49 of adjusted EPS compared to our May guidance range of $0.45 to $0.47. FFO totaled, $0.68 per share compared to our May guidance range of $0.63 to $0.65. Second quarter adjusted EPS and FFO per share exceeded our expectations, primarily due to higher than anticipated revenues, including higher ICE populations and higher transportation revenue from one of our state partners, combined with lower income tax expense and slightly lower net interest expense. Similar to the first quarter, the lower income tax expense resulted from some additional tax planning strategies and lower taxable income in our taxable REIT subsidiary, driven mainly by our managed-only segment. There were several factors affecting the comparison of Q2 2014 results from Q2 2013. As mentioned in our press release, revenue decreased by approximately $23.2 million due to the loss of several management contracts. However, facility NOI at these facilities decreased by only $300,000. Facility NOI also declined as a result of the transition of our Red Rock facility to a new management contract effective January 1, 2014, and for the transition of the management contract of the Idaho Correctional Center to the State of Idaho, effective July 1, 2014. The Red Rock facility averaged 1,400 Californian inmates during the second quarter of 2013. Most of these inmates were transferred to other CCA-owned facilities during the second half of 2013 as we prepare the Red Rock facility for a new contract with the state of Arizona. We held 500 Arizonan inmates at the facility during Q2 2014, and we expect an additional 500 inmates at Red Rock facility during the first quarter of 2015. These NOI reductions were offset by an improvement in NOI for increases in inmate populations and…

Thank you, Dave. So let me bring it to a close, our comments to make these final points. As many of you know, we're reconverting finalizing past year and for new REIT investors on the call, we are a company that one, has had 13 consecutive years of EPS growth and a compounded average growth rate of 11% over the last 8 years for AFFO per share, and we are well on our way to our 14th consecutive year. This shows a very strong and durable earnings performance by the company. More importantly, our 10-year share price performance is north of 250% showing our long-term track record of outperformance. We are the clear market leader, with the company owning and controlling almost 60% of the privately owned beds in the U.S. marketplace and with that, 95% of our net operating income is generated from our own beds and we enjoy a very modest real estate maintenance CapEx of 5% of the NOI. Historical customer retention rates in excess of 90%, which we easily maintain based on our renewal activity this summer, a very competitive dividend payout ratio of 80% and a 6.25% increase in our annual amount, while deploying $300 million in new facility CapEx, shows our confidence in the business, all the while having a strong balance sheet with a debt-to-EBITDA at 3.1x, which, as you know, is very low compared to other REITs. So a very strong operating record, very viable real estate assets with a 75-year life, high barriers to reentry and a diverse highly-rated government payers. And with less than 10% penetration in the U.S. marketplace, we see meaningful opportunities in front of us. As for the near-term business outlook, population increases we are seeing indicate continued need for solutions we provide, and we're very encouraged…

. [Operator Instructions] We'll take our first question from Kevin McVeigh with Macquarie.

Damon, I wondered if you could give us a sense, as you're thinking about the business, obviously, the yield 6% which is in and of itself is pretty impressive, but how are you thinking about kind of the total return in terms of revenue? And then ultimately, return overall? And if you kind of think about overall earnings growth and then ultimately, what it would look like organic and then if you were to do some transactions as well? Because it definitely sounds like there may be some acquisition opportunities as well. Just so we get a sense of how you're thinking about your total return for the business over a 3- to 5-year period.

Kevin, let me answer that with a couple of points. Again, to your point on about organic versus acquisition, I think it is fair to say that would be probably more organic than acquisition. There -- it's going to be some opportunities in the reentry area, as I mentioned in my comments, and, of course, we executed on last year with CAI. We think that in that part of the business which is again a reentry, a lot of that opportunity we're going through acquisitions versus organic. But it could be a little bit of organic in that piece of the business. As it relates to what I'd call adult secure, so that would be adult correctional, detention jail facilities at the federal or state. I think that is most going to be organic and outcome a couple different ways, one of which is existing capacity that we'd sell to new partners or expanding relationships with existing partners or build suit opportunities like Trousdale that we just executed on here last month. The only other thing, I would say, that adds to the acquisition side is what you think is kind of -- we think it's kind of an opening opportunity or kind of developing opportunity, and that is in the local market, on buying local jails and becoming the landlord. So we see that as more acquisition. There could be an opportunity here and there in the local market going forward where you've got maybe a jurisdiction that has a very old jail and they are looking for someone to provide a new jail so could build a suit and again just be the landlord. But I think, as I -- we think about the opportunity here in the near term, it would be more on acquisition side. So if you kind of take that and kind of fold that into, say, what would be the return story, we think at 5% to 7% in earnings growth over the next 3, 5 years is a good number for the investors to think about likely that would be on top of a 6% dividend yield, so somewhere in a range of, say, 11% to 13% total return.

That's super helpful. And then the other thing is, it definitely sounds like pricing is starting to firm here. How should we think about -- because I know, obviously, when things were a little bit tougher, we're kind of net neutral with this -- the federal government helping out the states here. How we thinking about that from a revenue contribution perspective in '14 into '15 -- or '15 into 16, rather?

We're still are being, I would say, maybe a tad conservative on that. It is improving, globally, state budgets are improving and then in turn that is trickling down to a little bit of pricing improvement, either for new contracts, renewals or getting our set escalators in our existing contracts. So, last year, was improvement over 2 years ago, and this year was clearly improvement over last year, so we are just seeing some modest improvement but, I would say, as it relates to kind of a key contributor over the next couple of years, I wouldn't necessarily point to pricing power but it is improving. It will be a nice little contributor but not, what I say, the key catalyst.

Our next question will come from Manav Patnaik from Barclays.

This is actually, Greg, calling on for Manav. So you talked a little bit about bolstering your reentry capabilities that you gained with CAI. Thinking about potential M&A in that space, how do the targets compare in size to CAI? Would you need a number of smaller acquisitions? Or would that be -- are there some larger players in that space?

It's a little bit all of the board. I would say, CAI was maybe if you look kind of on a 25th to 75th percentile, CAI was maybe a little bit on the higher side relative to size and scope. So, I would say, we're looking at some opportunities that are maybe a little smaller and looking at opportunities maybe a little bigger. So I'd say it's a little bit all over the board.

Okay. And then you mentioned the few managed-only contracts in 2013 that you exited that weren't as profitable. I was wondering if there are still contracts in that managed-only portfolio that are similar in nature and that you could see potential pruning in the future.

There is -- so we've got, still a fair amount of managed-only contracts in the portfolio, and they're great contracts. I mean, we have, overall, had some nice contracts for many years in that side of the business. Is there 1 or 2 more that could get up to a renewal? Or we may see some pricing pressure like we have seen in the last couple of years that we may kind of reassess our desire moving forward on that? I would say, absolutely, that's just part of the business and we'll evaluate that along the way. But again, we do have some contracts. Many of them -- several of them, I should say, that we've had 5, 10, 15, 20 years and they've been good contributors and we've been able to kind of maintain the growth of expenses with pruning increases or population increases. I will say also though, and I think we've talked about this, a fair amount with investors here in the last couple of years, that the growth in that part of the business is really not there. Growth in our industry, say, 20 years ago or longer, there was a fair amount of managed-only opportunities, whereas now they're very limited. In fact, if I think of the last 5 years, there's are probably 3 or 4 less than a handful of managed-only opportunities. So I don't see that as contributor going forward for the company and really for the industry, but again, the current -- the ones we have currently we'll assess along the way we've got some good ones but if we get some pressure like we did some in the past then we'll reassess it at appropriate time.

Fair enough. And then, I guess, finally, from me on the numbers, just trying to bridge the acceleration that's kind of implied from the third quarter to the fourth quarter. Is there an implied increase in utilization? And what are the moving pieces from the third quarter into the fourth quarter?

I think it's a combination of both anticipated occupancy increases as well us some expense savings. We've had some negative experience in the inmate medical area, in certain contracts where we have unlimited exposure. So we've kind of assumed that trend would continue in the very near term, i.e. a little bit in Q3 but expecting that to normalize, like a large, large numbers would be in our favor on that leavening that out as the years go by.

Our next question will come from Tobey Sommer with SunTrust.

This is Frank in for Tobey. In your prepared remarks, you mentioned, U.S. marshals as being a little bit soft going into 3Q. Can you talk a little bit about your forecast for the year and what disability you have in that U.S. marshals population?

I might have Dave add-on to this, but one thing that we're seeing that is -- actually, a couple of key leading indicators is with sequestration that came in the pass late last year, it did have an impact on hiring decisions and hiring freezes with co-agencies. We've most probably noted on, what I'd say, kind of the front end, the law enforcement agencies did see their total employee headcount go down just because they did have either some pressure to not do hiring or actually having a hiring freeze and then we also saw that manifest itself into the U.S. attorney's offices around the country. So we saw kind of both those fronts, again, kind of the leading indicators, where we saw a lower headcount in those organizations or agencies, and, of course, that's the front end where you see federal inmates or federal prisoners coming into the federal system. And that has an impact on the marshal service. Now -- what we're seeing now is, with the sequestration behind us and some budget certainty for this year and next year, a lot of those pressures or potentially policies were put in place where hiring freezes have been lifted and we are starting to see a little bit of increase. So we should see that have an impact -- now will it have a meaningful impact before the end of the year, probably not. So we're going to be cautious as we think about the rest of the year, but we do, let's say, on at least on our front end starting to see a little bit of relief there. So anything to add to that, Dave?

Yes, I'd add. We've seen, at least we believe, there've been some resources diverted toward the southern border, so particularly border patrol agents have been diverted from the southwest region of the United States to the immigrant population in South Texas, which I think has contributed to both the reduction in Marshal's population and an increase in ICE detainees, so.

Okay, that's helpful. And I guess just a follow-up on that, in terms of the outlook for ICE and the funding and what's happening in Texas, what opportunities do you see, and what do you think the pace of that could be as we look forward to the next couple of quarters?

So ICE has been really a long-term customer, in fact, it’s our first partner going back to 1983, so we know them very well and we've been in contact with them virtually on a daily basis going into the summer as they've been dealing with these issues and challenges on the Southwest border. And so we have gone through a different kind of solution that we can provide within existing facilities or new solutions or anything that they think would be maybe of interest or of value to them as they deal with this challenge. So it appears that there is obviously a lot of urgency just because what you're seeing in the newspapers right now, I know GEO has been awarded a contract or a change of contract with the current facility out in Texas, and some activity they're also seeing in Texas with existing facilities, and also, I think, one in Louisiana, so I think that's an indication of the timing and urgency for ICE. So I think, next couple of quarters, I think, you use, what you just add, I think probably seeing some activity in the next couple of quarters is possible. Again, can't say anything definitive right now, it's something that we are in continued discussions with them and continue to provide different solutions that may be attractive to them.

We'll take our next question from Brian Ruttenbur from CRT Capital.

On -- some of the questions have already been asked, but I want to get into you repeating yourself to start off with on Trousdale County. Can you go over the economics again? I know it's going to start the end of '15, but can you give us the economics one more time?

Absolutely. Brian, it is just north of $50 million in revenues and about $0.10 to $0.12 in earnings at full utilization.

Great. The ICE opportunities that was just being addressed, with the $405 million coming out on, I think, yesterday from the President. The President took from other budgets to bridge the gap between now and the end of the fiscal year. Have you talked to any of the -- any of ICE that says this much is going to be going to managing the population versus enforcement and stopping the flow of the immigrants? Do you know any kind of numbers around any of this?

I don't think anything's public. That, I think, came together very quickly because, as you know -- or saw last week, I should say, Congress, the House and Senate tried to come together on the funding bill before the recess. It didn't happen. So it's our sense that came together very quickly over the weekend, knowing that they wanted to put something together, so it was put over the weekend. And, as I understand it, it was approved last night in the range of about $300 million. So the actual kind of where each dollar goes to, don't know that detail.

Okay. And then along the lines of the community corrections, would you be looking internationally? Are you going to focus domestically still on their GEO yesterday, as you know, probably came out and was talking about opportunity they're pursuing in community corrections in the U.K. I don't know if that's something that you've shied away from or moved out of the international market. Would you go back into the international market in the community corrections area?

Yes. In the near term it would be focus purely on the U.S. marketplace and long-term, never say never on international, but as we think about reentry and the opportunities, it focused purely on the U.S. marketplace.

Okay. And then the last question, going back a little bit to ICE. A lot of the need is for youth and families, mothers with children, I believe is a lot of a need. You're out of a lot of the youth market. Would you be willing to get back into that housing of underage?

Well, the families has been the key thing that ICE has been working on and, as you know, HHS is more focused on the accompanied minors. And so families, there's a population actually we know very, very well. We actually had a facility in Austin, near Austin, Texas, in Taylor that for about 3-plus years held families for ICE. So we know that population very well, we know the standards and requirements and the training that staffing that it takes for that population. So that's -- it's something we're very comfortable with and have done in the past.

We'll take our next question from Barry Klein with Macquarie.

Just a clarification on -- I don't know if I misheard this in the prepared remarks. You discussed the tax rate and, historically, I thought you talked about a guidance of like 8% to 9% tax rate. Can you just give me a little bit more clarification on what the tax rate will be this year and what we should expect going forward on the effective tax rate?

Sure, this is Dave. I'll respond to that. We are forecasting a tax rate of 6% to 8% in Q3 and 5% to 7% for the full year. So we had some unusually low tax rates during the first and second quarters of this year. We implemented some tax planning strategies in both quarters that generated some income tax benefits, primarily stating of tax benefits. And then we have experienced lower than what we're forecasting in taxable income in our taxable REIT subsidiary. That's driven mostly by the managed-only market. So as we transitioned our Idaho facility, for example, from CCA to the State of Idaho, we had some transition expenses that drove down the pretax income in the taxable REIT subsidiary. But, like I said, we expect that to normalize back to 6% to 8% in Q3.

So going forward into future years, should I look at a tax rate of 6% to 8%? Or should I look at your previous guidance of 8% to 9%?

Well, when you get into that level of detail, it's hard. The gross dollars of those percentages don't make a material difference and it is largely going to be driven by the allocation of pretax income between the REIT and a taxable REIT subsidiary. So most of our owned and managed business is going to be in the REIT demand, think of the managed, only business in the TRF. So as the income grows on the owned and managed business, it would drive your tax rate lower. And if the managed-only business were to grow, it would result in a higher tax rate. But I think, probably 6% to 8%, I'd say, 6% to 9%, 6% to 10% is a safe range. It's hard to predict depending on that allocation.

[Operator Instructions] Our next question will follow-up from Tobey Sommer with SunTrust.

I had one quick one. As you see improvement in some of the state budgets and then somewhat nice opportunities on the ICE side, just wanted to ask about the hiring and staffing environment you're seeing out there. Your ability to get good people and keep good people.

Great question. We have seen our efforts to recruit and retain employees work out very well. We've been enjoying a pretty nice turnover percentage compared to other service industries, or other companies that have a high service component. But we do have, few challenges here and there, most notably, our facilities that are around the oil and gas industry where we have seen some escalation of wages for that industry have an impacted our facilities. But overall, as I look across the map and think about our facilities, we have had pretty good success on recruiting and retaining the employees. The other thing I would just note, as a reminder, is that a great hedge is that with just over half of business on the federal side being with the federal government those direct contracts require us to pay wage termination, that's set by the Department of Labor. If those wages increase then we have to increase our salaries by equal amount but in turn that we can go back to the customer and get reimbursed dollar-for-dollar. So those are good contracts to hedge a little bit if we do see some escalation there and again that's just over half of our business. So, overall, I'd say generally pretty pleased on our efforts. Again at some pockets where we've had some challenges and again we've got nice the nice feature in our federal contracts that's helped us a little bit on the escalation under those contracts.

And it appears we have no further questions at this time.

All right. Well, thanks, again Tasha, and thank you for everyone on the call, for your participation today. And most importantly, for our investors, thank you for your investment in CCA. We are eternally grateful in your investment in company and confidence in us. Your management team is focused on executing another good quarter and a strong end to 2014, and we really look forward to reporting on our progress later this year. So have a great rest of the day, and again, thanks for calling in.

This concludes today's conference. You may now disconnect your lines and have a wonderful day.