Good morning. My name is Shelby 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 the CoreCivic's Third Quarter 2019 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Cameron Hopewell, CoreCivic's Managing Director of Investor Relations. Mr. Hopewell, you may begin your conference.

Thanks, Shelby. Good morning ladies and gentlemen, and thank you for joining us. Participating on today's call are Damon Hininger, President and Chief Executive Officer; and David Garfinkle, Chief Financial Officer. We are also joined in the room by our Vice President of Finance, Brian Hammonds. 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 third quarter 2019 earnings release issued aftermarket yesterday and in our Securities and Exchange Commission filings, including Form 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 Hininger. Damon.

Thank you, Cameron. Good morning everyone and thank you for joining our third quarter 2019 conference call today. CoreCivic is a diversified, real estate investment trust specializing in delivering government real estate solutions to serve the public good [PH]. We are the country's largest private owner of real estate assets in U.S. government agencies with 105 facilities totaling over 17 million square feet of real estate and a 35-year history of delivering a broad range of solutions to help solve tough government challenges in flexible, cost effective ways. Our unique diversified portfolio of assets generates a steady reoccurring cash flow stream underwritten by investment-grade government tenants. Each of our three business segments provide specialized real estate to government tenants. Our Safety segment owns and manages corrections and detention facilities, including 51 correctional and detention facilities with a design capacity to safely and securely care for over 73,000 people. In the last five years, in this segment, we’ve helped over 30,000 individuals achieve their high school equivalency or an industry-recognized trade certificate, which evidence based research has shown to materially reduce recidivism rates. Our community segment is a network of residential reentry centers and non-residential community-based correctional alternatives that help address America's recidivism crisis and includes 27 residential reentry facilities with a design capacity to support 5,274 individuals. We also provide nonresidential community-based services to approximately 33,000 people on a daily basis. Finally, our Property segment is a portfolio of mission-critical government leased properties that as of the end of the third quarter includes 27 properties representing nearly 2.3 million square feet of real estate with ongoing development of an additional 400,000 square feet to come online in the first quarter of 2020. This portfolio produces predictable reoccurring cash flows through leases backed by high credit quality government tenants with a…

Thank you, Damon, and good morning everyone. In the third quarter, we generated $0.41 of EPS or $0.47 of adjusted EPS compared to our guidance range of $0.37 to $0.39. Normalized FFO totaled $0.70 per share compared to our guidance range of $0.60 to $0.62. AFFO totaled $0.70 per share compared to our guidance range of $0.59 to $0.61. Adjusted EBITDA was $115.4 million for the quarter, exceeding the midpoint of our guidance by $210.2 million. Adjusted amounts exclude start up M&A expenses and charges associated with the adoption of tax reform in the prior year. Our financial results exceeded our guidance levels, largely the result of higher-than-projected populations in our CoreCivic Safety segment, the favorable settlement of a contractual dispute with respect to revenues that would have been recognized during the previous several years, amounting to $0.03 per share and a bonus award earned under one of our safety contracts for exceptional operating performance of $0.02 per share, partially offset by a penny more in G&A expense than we had forecast. Compared to the prior year quarter, adjusted EPS increased $0.11, normalized FFO increased by $0.12 per share, and AFFO increased $0.16 per share. The per share growth and adjusted EPS normalized FFO and AFFO from the prior year quarter represents per share increases of 31%, 21%, and 30% respectively. Occupancy increased from 80.8% in the prior year quarter to 82.9% in the third quarter of 2019. During June and July 2018, we were awarded two new federal contracts at our Tallahatchie County Correctional Facility in Mississippi and at our La Palma Correctional Center in Arizona. In September 2018, we were also awarded the new contract at our Tallahatchie facility from the State of Vermont. During the third quarter 2019, we began accepting federal offenders following the activation of…

[Operator Instructions] We'll take our first question from Joe Gomes with Noble Capital.

On the California AB32, just wondering, have you guys seen any momentum out there for other states to go down that same path?

Yes. So this is Damon. The answer is no. I will tell you that I've been with the company 27 years and I think there has been a couple of times in at least my tenure with the company, where there's been couple of other states that kind of made a similar run; and as you know, as I said in my script, there's various options that the Federal Government can consider, and so what I've seen in the past is the Federal Government will point to the supremacy clause, which you know - which as you know the Constitution and Federal Law, trump in or take precedence over any state laws or state constitution and don’t allow states to interfere with any Federal function, so I don't see, to your question, I don't see anything, as I look around the country, any other efforts. But I do - historically, there has been other states that made kind of similar actions and the Federal Government reminds obviously the supremacy clause, in that case - in those cases trumped any kind of state activities , state laws.

How vulnerable are you guys to other states in sourcing populations or are we at a point where there's just no government capacity that you're - your facilities are really the ones that are available to house populations?

Yes. We don't see any - First, we don't see any new capacity being built virtually anywhere in the country. There’s been a couple of efforts like Alabama, but even in those cases, they'd had difficulty to get the funding from the respective legislature, so even if they need new capacity, they kind of deal with aged or really old infrastructure, they think the private sector, our solutions can bring a solution forward and let them accomplish those type of goals to replace that capacity. But the second is, yes, we don't see any really available capacity around the country. So, we think our capacity based on locations is really mission critical to those respective agency's needs and with that are some of the newest beds within those respective jurisdictions. So if you look at our system on the Safety side, our average age is about 20 years old, and I would say most states, their average age is anywhere from 50 years to 75 years. So not only is there no excess capacity, but we're also the youngest portfolio - or youngest beds I should say in a lot of those jurisdictions. Anything to add to that David?

You saw that I mentioned, a couple of states looking at leasing facilities, so that's an alternative option for states as well if they prefer state employees operate their correctional facilities. We've done that in a couple of states already. We're happy to have those conversations.

And then one last one for me, given that where we are at some record lows unemployment rates, how challenging is the labor market for you guys these days, and what are you doing to deal with the tight labor market?

Yes. So, I would say generally, if I look at kind of our overarching enterprise about 15,000 employees, I'd say we're holding our own, we're actually doing pretty good. We do have a couple of markets like here in Tennessee where the market has been really red hot and obviously puts some strain, a little bit on kind of the labor market as an employer, but I think generally we're in good shape and been holding our own. The other thing I would just say, it's a reminder I think you and many others on the call knows already, but on our federal contracts, which is about half our business, if those wages go up we actually get it reimbursed, dollar-for-dollar through [indiscernible] adjusted general federal contract. So even if the wages go up, that is actually cost that we can get recouped from the Federal Government in those contracts. So that's a nice provision on about half of our business.

We'll take our next question from Dane Bowler with 2nd Market Capital.

Good quarter, guys. Just following up on that previous question from - about the AB32, can you just clarify that because the Otay Mesa facility is ICE and U.S. Marshals, those would be federal and so the supremacy clause would in fact allow those contracts to continue?

Yes. Correct. So I can't speak exactly to what the Federal Government is thinking at the moment. I know they're looking at various options, but again its history is indicated. When I think about this in other states, one thing the Federal Government quickly points out to the state is that the supremacy clause within the constitution, the U.S. Constitution and Federal laws trump and precedent over any state constitution and state law, so that is an option that maybe the Federal Government considers in this case, and I guess one other thing I'd just say about that facility, as I mentioned earlier in my prepared remarks, we just completed an expansion of that facility, and that population is be ramped-up in the expansion. So, I think again they acknowledge – the federal government is considering options, but I feel like that's a good facility for a location where they have additional demand.

And then just following up on the scope of kind of the state contracts like you do in Kansas, you mentioned you believe Alabama and a few others, what potential size of those contracts could you see say five years down the road?

So, you cut out there a little bit, I think it was the size of the contracts that we're currently considering, so Idaho is about up to 1,200 beds. There’re looking for out of state, Kansas is looking for - Kansas, I should say has already awarded about 600 beds, and then I think Alabama, which would be a properties opportunity that would be about 10,000 beds.

And the cost - the only estimate we have on costs would really be in Alabama based on their - on our Q to-date, they have estimated at close to a billion dollars or more precise 3 facilities for approximately $900 million of construction costs.

We'll take our next question from Jordan Chairman with Ranger Global Real Estate Advisors.

I guess I have two questions, one is probably quicker and then another on the sort of political overlay, any update on - and I apologize if I missed this. Any update on Puerto Rico?

We did not provide an update on Puerto Rico, but we are still and constant communication with the government, with the Commonwealth. The conditions in those facilities continue to worsen, especially with the hurricane they had a couple of years ago. And unfortunately, they've had some pretty tragic incidents within their facilities too and obviously their fiscal situation also is in a difficult play, so we'll continue the conversation with them. We do think that provided some capacity within our existing Safety portfolio would be not something that will provide immediate relief, but also be very cost effective, so nothing other than that to report at the moment, but we are in active conversations with them.

And then, considering where the stock is trading, I think people - it seems to me that people are priced in the worst case scenario with a change - a potential change in the administration coming next year and I guess I'm just, you've talked about some of the state opportunities, obviously that will be an offset, but I guess from a federal level, if there was a change of administration with a more say hostile outlook on private prisons, can you just run us through what is - what could they do to impact your business and how that would flow through, I mean what would be the worst case possible scenario considering that ICE and U.S. Marshals have very little of their own capacity?

Yes. An important question, so let me walk you through that. As we think about kind of worst-case scenario, we think that the need for capacity does not change and also the alternatives to our capacity is not available, so I'd start with that kind of overarching kind of assumption. So as we think about kind of worst-case scenario, we think that an option could be if there is a big push now, not only in Federal, but at state level to eliminate use of the private sector to provide real estate and services that may be the option that they ask us to consider is to either buy our existing assets or capacity or lease our facilities and so let me kind of walk you through, I guess first a little bit of math that we explained through. So as you know, we've got about 73,000 beds of capacity in our safety segment; of that about 65,000 is beds that we own outright. So if you take that 65,000 and consider some recent building that the federal or states have done here in the last, let's say probably 4 years or 5 years, at the Federal level, we've seen cost per beds in a range of $200,000 to $400,000 per bed and at the state level, we've seen some building projects in the range of $100,000 to $200,000 a bed. So look at it this way, if you think about half our business with Federal, half our business with the states, $200,000 per bed probably a good average per bed, if you look at recent building projects within our industry. So you take that $200,000 per bed. It gives the 65,000 beds that we own that gives you a evaluation about $13 billion for our real estate. So I…

And just - I just want to drill down a little bit on so that's the alternative capacity. I just wanted to drill down a little bit on the need. I guess what would have to change - how would things change - how could - to reduce the need, I mean what - how could, because that's one of the thing. I mean, clearly if we want open borders that's - but I don't think anyone expects that, we would have a dramatic decrease in need or maybe not, but specifically for who you - who are in your prisons, but can you just talk about how that might play out under worst-case scenario?

Absolutely. So let's just break it again into two pieces, the Federal and the State. So on the State side, what I would say, put California aside, California has also been very unique here in the last 13 years with this year overcrowding and they've done a lot of reforms, but if you take, California out of the mix, what would I would say is we look over the next year, 5-year goal to population growth is probably in the range of 1%, 2% maybe 3% year-over-year and most states virtually all states that should say do 5-year projection, so we're looking at their numbers, not numbers relative to what they're forecasting. So as I think about kind of the need on the State side and the engagements we've already got with our state customers that business looks very stable, in addition, like say we are the newest capacity in those states. I'll give you a quick example, California comes to mind actually. Again I said earlier, our average age of our Safety beds is about 20 years in California, if you look at our capacity, it's about 50 years. So there are 2.5 years - 2.5 times of older capacity, so again not only is our capacity younger, but it's probably a lot more efficient. So again, it makes the real estate very, very valuable. On the Federal side, what I would say that the biggest jurisdiction I see a reduction here the last 10 years is Federal Bureau of Prisons, we are down to one contract with them, so about 2% of our revenue. So if there is any kind of volatility still, where the Federal Bureau of Prisons gets down to one contract so very minimal risk for us, as we think about 2020. And then with ICE and Marshal Service, the funding for market service has been very stable at the end decisions on populations those are driven by U.S. attorneys and federal judges, those are not driven by administration and like the ICE funding - ICE capacity is determined by funding from Congress, it ultimately the President have to sign. So, it's got to go through obviously both chambers within the Congress and then ultimately signed by the President. Populations can obviously be impacted if there is lower funding for ICE, but if you look at last 25 years actually, there has been no year-over-year decrease in funding for ICE detention capacity even with both Democrats and Republicans either in house senate or in the White House, so I don't know, anything to add to that David.

Just to your earlier point Damon, on the math around our real estate. The BOP obviously has their own correctional capacity, their own correctional officers unlike U.S. Marshals and ICE. So U.S. Marshals and ICE are exclusively on the private sector in county jails for their detention capacity. So when it comes to them needing the real estate again to your point on the need, they have the need, we provide our real estate.

We'll take our next question from Steven Roth with The Colony Group.

I want to follow-up from that last, the last bunch of questions, which was very helpful in your answers about that. So I've been very pleased with what you've done over the past year as far as filling capacity and the business is operating quite well and you're making a lot of good smart decisions and getting things done. But of course the stock is almost back towards where it was when President Obama was going to make Federal Prisons a legal private use of it, and so I'm just wondering, you've - things are operating well, obviously we're in a political environment where certain candidate will talk and the stock gets hit harder, but in a year from now, things can change and even though what you just spelled out as to actually how you're positioned is good as far as what might actually happen. I'm just wondering if the Board and management does discuss strategic alternatives to try to realize value, given that the stock by almost any measure, if you were to measure it versus other REITs, where prison REITs have traded in so many different ways, this is stock is trading at a fraction of what it should be, and obviously you can make the point that should the Democrats win, it will be - regardless of how you are actually positioned perception wise, plus the fact of all the political movements against private prisons or whatever you want to say about that? You can make a case that maybe at this the environment, where we are in America right now that may be private prisons shouldn't be a public company or something along those lines, so I'm just wondering if management and the Board does discuss these matters, especially given in light of an election a year from now.

Great question. And the short answer is, absolutely. Yeah, we have constant communication not only with the management team, but also with the Board and we're always assessing now in the current operating environment and political environment, but also with alternatives could be, so I did not here today to disclose anything on, what we're considering and how we waited, but I guess I would look at past history, which is things like share repurchases, things like that those are options that we've considered and actually have executed on. So I think based on the current environment, absolutely agree - look at our share price that could be a good option at the appropriate time. So again, not here to disclose the actual option and how waiting and what timing could be, but I think past history shows that now do we consider but we execute at the appropriate time those various options. Anything to add to that, David.

No. Well, I guess I'd say obviously we think our stock is undervalued, but and stock repurchase program would be a very attractive option for us, if I think we had, we didn't have - work operating in the environment right now, where bank has made announcements not to provide financing to us and until we demonstrate excess capital, which I believe we're going to have or continue to have that's kind of a challenging strategy, but as Damon mentioned, we've done that before and we listen to investors and we'll do this in the best interest of the shareholders.

There are no more questions in the queue at this time. I would now like to turn the conference back over to Damon Hininger for closing remarks.

Thank you, Shelby. Before we conclude the call, I once again to take a moment to recognize our employees who are teachers, chaplains, nurses, mothers, and fathers of veterans and many others. These are really good people doing great work for our government partners and the individuals who trusted in our care. I want to thank them for the meaningful work that they do, making a real difference for those in our care, whether they are pretty individuals on the road to reentry or providing a safe environment for people who have just entered our country, they play a meaningful and important role and for that I am truly thankful. And as I mentioned earlier, many of our employees are veterans, as we come upon Veterans Day next week, I want to thank them and all veterans for their service to our wonderful country. Having spent 27 years working for this company and now just over 10 years as CEO, I'm extremely proud of our mission in the life-changing work we do for all of those in our care. We are confident in our purpose and the reality of who we are and what we do. A couple of additional items I would like to report on before we conclude today's call. First, we will be in Los Angeles next week for Nareit's REITWorld, but Cameron Hopewell, if you would like to meet with us because we would enjoy meet with you and/or catching up with you, if you are going to be at the conference. Second, we are very excited to be one of the founding members along with GEO and MTC for the Day One Alliance. The Day One Alliance is a trade association representing private sector contractors helping address corrections and detention challenges in the United States. For more than 35 years, D1A members have work with local, state and federal governments led by members of both political parties to provide professional, humane, and respectful treatment to incarcerated entertaining individuals. From Day One, we understand we have responsibility to provide safe and dignified care to those in our facilities. Day One members do not lobby for or against policies, regulations, or legislation that impact the basis for or duration of an individual's incarceration or detention. To learn more about D1A, look at their website, which is day1alliance.org, that's day number 1 alliance.org or follow them on Twitter at the Day One Alliance. So finally, I like to thank everyone for joining us on the call today. We look forward to reporting to you our full-year 2019 financial results and provide you with our initial outlook for 2020 in February. Thank you.

This concludes today’s call. Thank you for your participation. You may now disconnect.