CoreCivic Inc (CXW) 2005 Q1 法說會逐字稿

Welcome to the Corrections Corporation of America 2005 first quarter conference call.

Before we begin, let me remind today's listeners that this conference call contains statements that are forward looking, as defined within the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. Factors that could cause operating and financial results to differ are describes in the company's Form 10-K, as well as in other documents filed with the Securities and Exchange Commission. And these factors include, but are not limited to: The growth of the private corrections and Detention industry, the Company's ability to obtain and maintain facility management contracts and general economic market conditions.

The Company does not undertake any obligation to publicly release the results of any revisions to forward-looking statements that may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

Participating in today's call will be the Company's Chairman of the Board, William Andrews, President and Chief Executive Officer, John Ferguson, and its Chief Financial Officer, Irv Lingo. I would now like to turn the call over to Mr. Andrews. Please go ahead, sir.

Good afternoon, everyone, and thank you for attending this first quarter conference call. I think we have some interesting information for you, and Irv will start off the meeting, followed by John, and then we'll take take questions and answers, and I will summarize. So Irv?

Thanks, Bill. Start, I guess, with the first part of the press release for the three months ended March 31st, 2005, we reported a net loss to common shareholders of $8.9 million or $0.24 a diluted share, and that was compared to net income last year -- in last year's comp quarter of $14.4 million or $0.37 a diluted share. As everyone saw, results for this year's first quarter included a $35 million pretax charge associated with certain financing or refinancing transactions, as discussed in the press release. We estimate that net income available to common stockholders for the first quarter, excluding this charge would have been $0.35 a diluted share, somewhat better than the guidance we previously issued this quarter.

Operating income for our first quarter decreased to $38.6 million, compared to $42.6 million last year. Adjusted EBITDA for the quarter decreased to $52.9 million, compared to $55.5 million for the same period last year, while same-store facility EBITDA for the fourth quarter was down approximately 2% over the prior year. In the sum, the results for the quarter were negatively impacted by a loss of inmates at a number of facilities primarily the Prairie facility in Minnesota where as we discussed oftentimes last year, over the course of the past year, we lost substantially all of our Wisconsin inmates. Other facilities experiencing inmate and EBITDA declines were our metro Detention Bay county jail and central Arizona facilities. John will discuss prospects for these facilities and new business prospects in general in just a few moments.

Adjusted free cash flow for this year's first quarter decreased $11.4 million to $15.7 million, compared with $27.1 million generated in our comp quarter last year. The decrease in adjust free cash flow was primarily due to the repayment of $13.5 million in taxes, associated with excess refunds, received by the Company in 2002 and 2003.

As we described in our fourth quarter 2004 earnings release, we received notification from the IRS during last year's fourth quarter, that refunds previously received in 2002 and 2003, would be reduced, as a result of limitations on the amount of taxable losses that we could carry back to prior years. We do expect to recapture these denied losses by offsetting them against taxable income during the current year and adjusting for this item, adjusted free cash flow would have been approximately $29.5 million, which is an increase of $2.4 million over last year.

The press release touches upon several recently completed finance transactions briefly, we successfully tendered for all of our outstanding 9.875 senior unsecured notes, and we funded that transaction with a new $375 million issue of 6.25% senior unsecured notes. We also retired approximately $110 million in bank debt. Subsequent to that sequence of transactions we modified our senior secured credit facility, lowering the rates on both the outstanding term debt, and on our revolver. Clearly these transactions will have a positive impact on our balance sheet, increasing our interest coverage and extending our maturities, while also being accretive to earnings going forward.

Based on the LIBOR rate in place on the date that we did the transaction, which of course, affects only the remaining floating rate portion of our debt outstanding, we would expect interest savings on a full year after-tax basis of over $0.10 a share, again, as a result of those refinancings.

Looking at operations, total revenue for the first quarter increased to $285.9 million, from $276.8 million last year. Total compensated man days increased slightly to 5.6 million, from 5.5 million in last year's comp quarter. Revenue per man day increased to $49.88 per day from $48.83 in the prior year, an increase of 2.2%.

As could be seen from our press release, we spent some time trying to provide an apples-to-apples comparison with the prior year with respect to occupancy. Based on our inventory of beds as we now measure capacity, average compensated occupancy decreased to 89.4% from 95.6% in the first quarter of last year. The decline is misleading, in that we increased the design capacity of a number of facilities, based upon what we expect will be utilization of those facilities going forward. Adjusting for these changes alone would have increased occupancy to 92.5%. Occupancy was driven down further by the addition of 2,500 expansion beds over the last several months.

Looking back to last year's comp quarter we did experience softness in inmate populations in a number of facilities, including Prairie, Bay county and central Arizona. Operating costs increased to $38.19 from $36.71 in last year's first quarter. This was primarily driven by a fixed cost per man day increase of $1.47 to $29.08 from $27.61. Variable costs remained essentially unchanged.

The increase in fixed costs can be substantially attributed to salaries and benefits expenses having increased from last year, primarily due to pay increases, yet the flatness, as you recall, the compensated man days did not increase that much. Particularly in our managed only portfolio, resulted in higher -- these higher payroll costs being spread over roughly the same number of days so, again that would drive your fixed costs higher. The end result was that operating mandate declined $0.43 to $11.69, from $12.12 in the prior year, and our margin percentage declined to 23.4% from 24.8%. General and administrative expenses came in at about 4.4% of revenues, in-line with where we had been in recent quarters.

I will turn now to our outlook and as indicated in our last quarter's conference call, earnings call, we expected our earnings for 2005 and continue to expect them to be substantially back-end loaded for a variety of reasons, including the BOP contract in northeast Ohio, which should begin sometime early this summer. And also because of softness, we began experiencing in our federal inmate populations late last year.

As we look forward to Q2 and beyond, we expect to begin incur staffing expenses in northeast Ohio, in anticipation of the inception of the BOP contract, and we also anticipate the softness in these federal inmate populations to continue well into the second quarter. As we look out beyond Q2, based on discussions with these federal customers and based on an anticipated supplemental funding measure that John will discuss, we expect federal inmate populations to rebound later in the year.

In addition to federal inmates there are a number of opportunities with existing state customers such as Arizona and Hawaii, that are expected to positively influence our results for the year. I think this is an important point, oftentimes investors ask me about the status of specific contract awards, when the real issue is not necessarily contract awards, but whether our populations are increasing. In other words, we are looking at a number of opportunities with existing customers to increase populations, many of which occur under contracts that are already in place, therefore, not requiring a contract award.

I stated in our press release, the Company expects diluted earnings per share for the second quarter of this year to be in the range of $0.37 to $0.39. And full year EPS to be in the range of $1.74 to $1.82 excluding the aforementioned refinancing charges. Our full-year guidance for 2005 includes expenses totaling approximately $0.03 per diluted share, net of taxes for the amortization of restricted stock issued to employees. With the effectiveness of SFAS 123-R, the stock option, being delayed by the SEC until 2006, we will not incur any stock options expense in 2005.

During 2005 we expect to invest approximately $127 million in capital expenditures, consisting of $82.4 million in prison construction and expansion, 23.6 million in maintenance CapEx, and approximately $21 million in CapEx associated with Information Technology.

A following note regarding our guidance, having earned $0.35 in Q1, and forecasting $0.37 to $0.39 in Q2, in order to get to our numbers for the full year, that pretty much requires a fourth quarter that's well in the mid-$0.50 range. I think this reinforces what we have said on almost every earnings call regarding the timing of actions on the part of our governmental customers. Clearly all of us would like for events to unfold in neat, quarterly buckets. That has not exactly happened in 2005, but as we have said time and time again, we do believe investors with a bit of a longer-term horizon will be rewarded.

And with, that I will turn it over to John to get to the specifics of our business prospects.

All right. Irv made the statement that -- that we'll see in the fourth quarter, in the mid-50s, and that a number of factors will influence that, and what I would like to do, is expand on what we see as those factors.

As has been mentioned a couple of times, we will begin our contract with the Federal Bureau of Prisons in northeast Ohio on June the 1st. In addition to that, between the average population of Marshals that we had during the first quarter, at Youngstown, and the month of April, there's some 200 bed increase. In fact we have averaged over 500 marshal inmates during the month of April. And as we stated previously, we anticipate an average population of around 600 marshals, hopefully by the end of the year.

So we have additional growth in the marshal utilization of this facility, as well as the beginning of an 1195 bed contract with the Federal Bureau of Prisons. Both of which we feel will be pretty much a consistent run rate by the fourth quarter of this year. We have indicated that some of the problems with the first quarter this year has to do with the loss of Wisconsin inmates, but that creates the opportunity at our Prairie facility for continued utilization by this facility by Minnesota. We currently have over 300 Minnesota inmates. We have some 800 beds left in the facility. And I will be referring to the latest Bureau of Justice statistics in a few minutes. But Minnesota has grown an average of 1,000 inmates over the last two years, so we feel that sometime over the next year or so, that the remaining beds at Prairie will be absorbed by Minnesota.

We opened our expansion of the Lake City facility, expanding it by some 543 beds, the first part of April, and have begun receiving approximately 50 inmates per week, and we would anticipate that by the last half of the year, that that facility will be completely utilized by the state of Florida.

We anticipate continued growth at Diamondback, but actually that has now taken place. We have had some 350 or so additional Arizona inmates that are now currently being housed in our Diamondback facility in Oklahoma, reaching almost 1200 inmates that -- inmates we were responsible for, for the state of Arizona. We have an expansion in our Hernando jail, some 348 beds that will come online sometime in August. We anticipate the utilization of a large percent of those beds going forward. As you see that we have been running in excess of 100% of capacity at Hernando.

And we have seen over the last four months, the state of Colorado's inmate population, in our facilities go from 2600 to 3000 and as we have been stating in the last several quarters, that the available beds for Colorado, at medium security level, are really in our beds, and we feel that we will continue to see some growth in Colorado this year, and even into next year.

And one of the places that we've seen a little bit of softness is our facility that we operate for D.C. government in the District of Columbia. And which we attributed to budget issues and we think those will all be resolved by the beginning of their new budget year, which will be October 1. Thereby making a positive influence -- or a chance of making a positive influence on the fourth quarter.

And then lastly, a significant factor is that the House and the Senate Conference Committee passed out an emergency supplemental appropriations, just in the last, I think, 48 hours. They have to be ratified, or voted on my each of the chambers but we feel pretty good, that this will probably take place, and what we have seen is that some $454 million has been appropriated for the immigration/custom enforcement. $276 million of that, just to deal with their base funding, meaning that they have had some struggles in meeting their bed needs with the current appropriations, and so this will alleviate some of that, and in addition to that, there's another $93 million to fund some additional investigators, agents, and some 2,000 new beds. So we think that some of the slowness that we had seen in some of the prior trends, our immigration/custom enforcement customers -- I mean, facilities will rebound from that.

And in addition to that, there's $184 million of supplemental funding for the U.S. Marshal Service, and we think that will also have an influence -- on the utilization of the new beds that we have opened at Leavenworth, Houston, as well as the beds that we have had available at our other federal facilities. So we see in these transactions I think -- or events that, and factors that have a reasonable fruition, that would lead us to the annual guidance that we have given.

One other opportunity that we mentioned last time was our facility at Stewart County Georgia. We have had some delay in getting that facility open. We still feel like that if there isn't an opportunity with a federal customer before the end of the year, and, in fact, if it was to play out the way that we forecast, it does have a negative impact on our numbers. But as I will talk about, will have a positive impact on a business going forward.

Just to talk a little bit about the marketplace, as we have had previously, again, we monitor specific states, especially the ones we do business with. We have had the opportunity to provide additional capacity for them when they needed it and there are some 14 of our current or just recently passed customers, who have inmate growth and infrastructure needs.

We also, in four of the jails that we currently manage, or are in discussions about expanding those, very similar to what we have just done at Hernando which leads me to, again, talk a little bit about the Bureau of Justice statistics, recently released their mid-year report, in which they showed the growth at both the jail state and the federal level, the jail growth would confirm while we are in discussions with the jails that we currently manage, and for Hernando needing additional bed space, and that growth, of course, the growth begins at the jails and eventually ends up in the state prisons.

We have seen the state populations grow by some 15,000 nationally. Actually if you take the 20-state customers that we have some meaningful relationship, we've seen that grow by some 16,000. So where the national growth at the state level has been 1.3%, in these 20 customer locations, we have seen the growth at some 3.1%. And interesting enough, of the five fastest growers we currently do business with four of them, and of the five slowest growers, we do business with none of them. So as we have always said, the broad statistics are interesting but what we watch and what we monitor is the growth -- at the state's levels that we currently do business with.

We'll reinforce one more time what we reported on the President's budget last quarter, and that is that we understand that not much has changed, but that there is additional funding for detention beds, of the U.S. Marshal service, as well as the Immigration and Customs enforcement. And then there still is a request for $20 million for funding for 1600 new private contract beds with the Federal Bureau of Prisons.

The current procurements that we disclosed last quarter, are pretty much the same ones this time. The -- again, of note is Graceville, Florida for 1500 beds. That was funded in the appropriation bill that was recently passed by the House and the Senate in Florida. The activity at Shelby county continued for -- of up to 5,000 beds. The solicitation for 1,000 inmates -- I mean 1,000 beds in the state of Arizona continues, but is moving very slowly because of environmental issues. And the thousand bed facility in Arizona for immigration/custom enforcement and the 2800 beds for U.S. Marshal service in Texas, we are unable to report how imminent that might be. And as has been disclosed in the media, the state of Indiana is going to be issuing an RFP for private sector to manage a 2,000 bed prison that they currently have.

So that's a little bit of the outline of kind of what's happening in the -- in the marketplace. So as I have described earlier, the factors that we think influence what we think is the opportunities for earnings in the fourth quarter, and then as I wrap it up, I would like to just speak a little bit to 2006.

Obviously, if we do, in fact, have these factors materialize, as we described, it would lead us to the -- the number -- that Irv discussed in the fourth quarter, that as we look into 2006, we will be bringing online our Red Rock facility which we announced in the last 90 days, and which we've indicated that we currently have state customers who can utilize that, and we are letting the continued growth at our central Arizona Florence facility, by our federal customers who continue to need additional beds.

Although it is a negative on our earnings right now, the fact that Indiana has cancelled their contract and moving their inmates out of Otter Creek, we think Otter Creek is positioned very nicely within the country for us to maybe utilize some for out-of-state beds, as well as -- as you can see from the Bureau of Justice statistics, the fourth largest growth state is Kentucky, and we think that this is also an opportunity for Kentucky to utilize these beds.

We feel that what beds are not absorbed by Minnesota in Prairie by the end of this calendar year, should be so into 2006. We had mentioned that the opening of Stewart is -- has been delayed, therefore, Stewart's effect on our 2005 numbers will actually be a net negative, but it should be a significant net positive for 2006. And then, of course, we -- we hope that the BOP does in fact issue an RFP and we'll, of course, compete for that, and hope that some of the space that we currently have available will be attractive to the BOP.

So, with that, we'll be happy to open it up to questions and answers.

Thank you, sir. Ladies and gentlemen, at this time, we will begin the question-and-answer session. [OPERATOR INSTRUCTIONS] And our first question comes from Patrick Swindle with Avondale Partners. Please go ahead.

Good afternoon. In looking at the federal inmate trends that continued throughout the first quarter, can comment on how the trend has -- have populations continued to deteriorate and then they stabilize, and beyond that would you attribute the population trend to more of a lack of funding, or a change in enforcement patterns, or can you give me any color in terms of what agency you might have been impacted by?

The -- I think if we looked at our total federal population for fourth quarter to first quarter, we really didn't see, you know, as -- as a total, we saw it kind of flat. Obviously we have been watching positive trends over the last several years, and then tried to anticipate that. But specifically, we do feel like the immigration/custom enforcement utilization has been tied to the budget.

They, in fact, can influence their -- the use of -- the utilization of beds unlike the marshals, which has a little bit less latitude because they -- they make arrests and -- and there's an obligation -- to house those inmates. But I would say that knowing how each of these agencies have had concern, and expressing those concerns about their budget, that we do believe that some of the enforcement, that typically might go on, might have been reduced, curtailed, even to the point -- and I won't make mention, but we did hear one U.S. attorney making the comment that, you know, you need to slow it down because I don't have the staff to deal with -- with court cases.

So this $82 billion emergency supplemental, we think will help to give both U.S. Marshals and the immigration/custom enforcement the opportunity to deal with the -- their enforcement a little bit better than they probably have in the last quarter.

All right. And then you mentioned that the appetite for beds at Prairie by the state of Minnesota. Has funding been allocated for those beds so that as new inmates come into the system they could be transferred into Prairie, or would we still need funding for that to occur?

There's a budget that is working its way through the Minnesota legislature and I think has not become law yet. And we believe that that funding should be adequate them to utilize the beds after July 1.

Okay and then the last question, the year-over-year per diem increase, is that primarily the result of a mix shift of the Las Vegas facility coming off late last year, or is there something else driving the increase?

The 2.2%?

Yes.

I think that's the net/net of how the entire basket. I don't think that anything really jumped out. You know, we have told people that we, overall -- last year, everything was obscured by that large Texas award. So we were constantly having to explain that. And now we're dealing apples to apples again. This is pretty much the type of increase that I would have expected.

Okay. Thank you. No further questions.

Thank you. And our next question comes from Scott Schneeberger with Lehman Brothers. Please go ahead.

Good afternoon, guys. I just want to clarify, you know, we are talking about a mid-50s EPS number for fourth quarter. I want to get a better feel, is that at risk if some of these federal initiatives don't come through, or do you have pretty good confidence in that level, I guess is what I'm getting at?

When you say initiatives that meaning, will the trend that we have observed on over the last several years and the continued needs and utilization for Detention beds, by both the Marshals and the Immigration and Custom enforcement, as well as the fact that the -- as the federal -- the BOP needs to grow by some 7000 to 10,000, that means that those inmates at some point in time will be detained while they are awaiting trial, and then they will be detained for some period of time, while they are awaiting assignment. So those add to the need.

We -- it's those kind of things, that yes, we are assuming that some of the trends that we have seen previously will continue. It does not depend on a new piece of business. These will strictly be utilization of beds under current contracts that we have. You know we have some 17 different facilities in which we house either U.S. Marshal and/or U.S. custom enforcement inmates.

Just to add to that, clearly a lot of that is -- is baked into the extent. I don't mean all of it, but to the extent that there's nothing that would cause us to expect the Bureau does not begin with that contract on June 1st. We have expanded Lake City, most of our managed-only contracts typically run around 100%. So I don't think it's a great expectation for them to ramp up occupancy at that facility.

Your question, I think, relates to the supplemental funding and do we -- you know, how much of this forecast hinges on -- on a little bit of normalcy in some regions of the country returning to our normal populations? Clearly that's an important element but there are a number of things that go into the forecast, and so it's not totally dependent on the restoration of the federal population. It's somewhat dependent on the restoration of the federal populations but we feel good, and when we are giving guidance we feel pretty good about it, and that guidance would call for that mid-50s number.

Okay. Yes. That answered my question. I was just kind of concerned too about maybe some slippage from fourth quarter into first quarter '06 on the timing, but regardless it sounds like you are rather confident.

There are no guarantees but, again, we are pretty -- I guess when we put numbers out there, we try to be conservative, and we try to be confident about them. But, again, there are no guarantees.

Sure. Certainly. All right. Great. Thanks. Another question I had on Otter Creek. I guess the question is how long before -- say you were not able to immediately place new inmates, whether they be federal, state or other in that facility, how long until you would make a decision to shut that down, and any unusual costs involved one way or the other?

You know, that's something that we constantly evaluate. We're encouraged that there are imminent opportunities, you know, whether we're dealing with a customer base that obviously moves slow, but that's a hard call.

As to when or if Scott that's a hard call. As to whether there are any costs associated, there wouldn't really be any cost , to speak of, associated with closure. The question just becomes evaluating -- it's very -- it's a very good thing to have trained staff there and ready to go. You know? And so that's a difficult part of the evaluation. But there would be no closure costs if we ultimately had to make that decision.

Okay. Great. Thanks. One final question. You continue to see some, you know, spend on -- in the IT area. Can you talk a little bit about how -- how that's paying off, and if that may help you in -- some of the quarters where you may not be at a higher occupancy, how that's helping you up there?

I don't know that you see a jump out in any quarter. It's -- it won't quite work that way but the IT project is going well. The pilot sites took some time to implement, as would you expect, but it is remarkable the uptake that's going on now, and how quickly we're able to move into a facility and make this happen.

The cooperation between information technology and operations has been more than I could have expected. And we do expect, as I have always said, the way the investors should look at at this is we should get an ROI in excess of what we would get on a prison investment, and I still think that very much appears to be the case. I don't think that you can look at it -- that I can point to any quarter.

You will see a gradual increase in our margins over time, and -- and how visible that will be depends on other things that also affect the margins, but it's going very well. We're very, very pleased with it right now.

Sure. Great. Thanks a lot.

Yes.

Thank you. And our next question comes from Jim Macdonald with First Analysis. Please go ahead.

Good afternoon, guys.

Hi, Jim.

Could you talk a little bit on the managed-only sites there seems to be some cost strength, and then earnings weakness. Anything unusual there this quarter?

Yeah, it -- I think the -- let me go to the Bay county and metro are really the two that, I think, affected that.

Metro opened up a female facility, and in this facility for the last several years, we've -- we've had about 800 or 900 locally sentenced felons for the state of Tennessee, and then we've had about 350 or so females that are actually jail population. And so those were moved out. That has affected the first quarter, and we assume that we'll start to see a little bit of -- slow increase over the next several quarters there.

And then Bay county, we did lose about 120 immigration/custom enforcement inmates we held for some period of time, to another location that they decided to keep them in. And I think those were probably --

Lake City was also a managed facility, and that's where all the start-up costs were incurred.

Yes Lake City we had to hire staff to triple the size of that facility in the quarter prior to receiving them.

So a lot of population softness that we talked about, a lot of it was focused around those managed-only facilities.

And then we did have one medical -- a decent medical expense at one of the other managed-only facilities that hit in the first quarter.

Okay. And while you're talking about Florida in general, when do you expect a Florida rebid, which has been delayed and delayed here?

I don't know. I do know that the contracts will be extended for one more year. I do know that the budget that was just passed by the legislature, I guess two days ago, authorized an expansion at the Bay correctional facility, as well as the Gaston facility, as well as I think it is Morehaven, which is a facility managed by [Geo]. And whether that extension could go beyond one year or not, but right now it appears that we do know that the contracts will be renewed until June 30th, 2006.

And then three technical issues. I think you moved up Red Rock. Could you tell us when you expect to open or how that timing works now?

I would go with April 1 of '06.

That CapEx hits this year.

Most of it will hit this year.

Okay.

Yes.

And Stewart, I think we expected some depreciation this quarter but I don't think we --

Yes there was an issue, an EPA issue that took place in Georgia that delayed our opening. We had to do some work, actually on the city of Stewart's sewage treatment plant. We had to do it. They were not capable of doing it in order to handle the prison. The permitting from the EPA to say that that was okay, has been delayed. We would expect Stewart would be ready for occupancy around July 1. It didn't really hurt us because we didn't have inmates ready to go, but it was out of our control.

And then no depreciation in the second quarter there?

There won't be much in the way of depreciation.

Besides the couple hundred beds you already have.

Yes. I would say the second quarter we won't have any depreciation.

And then the tax rate we calculated in the first quarter seemed kind of low.

Yes.

What are you expecting. Are we right on that calculation and -- what do you expect going forward?

What I would say is this, we have been running 40%. We told everybody at the end of last year, that we had done some work, which is more complicated than I want to get into, to effectively be able to lower our rate to say 38.5%. The rate this quarter was about 35%, give or take, and that -- a lot of that had to do with the deducibility of costs associated with the refinancing. There's a potential that the deductibility of those costs could artificially, if you will, keep our tax rate lower this year. We'll know more about that as we go on, but I would say on a long-term basis, that 38.5 is probably a good rate this year, Jim, you know, if it's in the 35 to 37 range, it wouldn't surprise me.

We should model it going forward and your guidance models it at 38.5?

Yes. That's what I mean.

Not on your guidance numbers.

No, I'm sorry. When you say guidance, are you can asking me about '06 and forward, or '05.

'05.

In '05, we were using the lower number.

36.

Yes, say 36ish.

Okay. Thanks very much.

Thank you. And our next question comes from Barry Stouffer with BB&T Capital Markets. Please go ahead.

Good afternoon, I just had one quick question on depreciation and amortization expense. Why would that number have gone down first quarter versus the fourth quarter?

We'll look at that. It's not on the top of my head, Barry, I'm sorry. Is that your only question?

That was it, thank you.

If I get it, I will interject that. Okay?

Thank you. And our next question comes from Robert Burke with PAR IV Capital Management. Please go ahead.

Hi, guys. I was wondering if you could just walk me through the beds loss and forgive me if you are being redundant. How many beds loss did you say was Indiana?

It will be 640 or so from where we had it when we got notice.

And as far as --

North of 600. I think 460 is the right number.

640. Okay. And just getting my hands around, you know, total beds lost year-to-date, excluding any new additions, is that the same number or is there more than that?

Let me think for a second. I have -- if you move on, and I will try to --

Sure.

Eyeball a couple of things. I can tell you whether we lost anymore or not.

While you are looking for that, because -- if you could just remind me from what I remember, there's a -- some kind of time associated with -- before your cash will breakeven on a new inmate on the start-up costs, because you have a lot more staff than you do initial inmates, could you remind me how long it takes?

Three to four months. It depends on the loading of the inmates by the customer. If it was a federal contract, that's a lot more -- for example, the Bureau of Prisons, I don't have that number in front of me, but it would be a lot more predictable versus, you know, another situation, particularly the expansion situations that we are dealing with. It's hard to put a timeframe on it.

That's okay.

Just in general -- there's no general rule, I don't think.

I'm just trying to -- I'm just trying to model out what I'm modeling out, you know, new builds versus a churn of lost beds.

Yes.

So -- and then as far as any contracts coming up for bid, you know, I know you spoke to that, but any large ones in the immediate future, like of the current quarter that you might be at risk at? I mean I know you probably hopefully not at risk in any of them.

I think we have identified. I think it's really the, All Moss and the Otter Creek. I don't think any other contracts have been deemed to be seriously at risk this year, do you? I think those are the only two, for '05.

And how many beds are those in aggregate? Approximately?

DL Moss is at about 1,000.

1400.

1400. And Otter Creek is in Kentucky. -- one second.

Okay.

I don't have them all at the same time here. 656 for Otter Creek.

656?

Yes.

Okay. And as far as -- and I'm not going to hold this to you, the potential new contracts that you are bidding on that you hope to win, could you -- if you do not feel comfortable with this, that's fine. A range on the positive potential adds.

For Otter Creek?

Yes.

You know, I really don't -- we really try not to -- -- we -- I know we put that we expected a nickel loss from that for the balance of the year if we didn't fill it, what I don't get into is trying to parse out how much each potential opportunity could affect our guidance, because it's like a Pandora's box.

No, that's fair.

I know it's a fair question too. It is just -- we would rather not go there if you don't mind.

I don't know if this will really answer the question the way you asked it. But if I take the inmate population that we had at December 31st, and the inmate population we had at April 30th, it's about 1000 bed growth, net growth and we're still housing about 200 Indiana inmates. If you just took them out of the equation, we would have grown about net of 800 over that four-month period, after losing all of the Indiana inmates.

But I guess just to -- in modeling this out, just to be comfortable with that, the cash might not come until the following -- the benefit of the entire new adds won't come for -- until the next quarter, because of this lag we spoke about? Is that fair to say?

The benefit of --

Cash flow benefit.

I'm sorry, which?

Yeah, I think -- I'm not following you. I'm having a hard time --

That's all right. That's all right. I think I got it.

Why don't you call us back on that, and we'll talk a little bit more about it if you --

I understand.

I'm happy to answer the question -- I guess we're just struggling through the question a little bit.

I understand. All right, guys. Thank you very much.

While we are at it just for Barry Stouffer's benefit, there were two additional days in the fourth quarter than the first quarter, that's the difference in depreciation. We actually depreciate it down to the day. So that's what that is. Operator, if we can have the next question then.

Thank you. And the next question comes from Daniel O'Sullivan with Utendahl Capital Partners.

Good afternoon. Thank you for taking my questions. First a couple of follow-up questions on business development. I think you mentioned a few states, such as Arizona, Hawaii, can you mention some other states that you are actively in discussions with, for new business?

Well, let me think about that. I always have to assume that I've got a competitor listening in on this call.

How about this. I have a list from the last call. If there's anything that's far off base, maybe you can just tell me, I have Alaska, Arizona, Colorado, Florida, Hawaii, North Dakota and Washington.

California.

Did we say California was -- Yeah, we're in discussions with California. That's -- that's a -- we say that list again.

Alaska, Arizona, Colorado, Florida, Hawaii, North Dakota, Washington, and I just added California.

Yeah, those are still things that we are in discussions with, yes.

Okay. Great. And also I think you mentioned on the last call, there was an RFP out from Texas on Smith county, 1200 beds. Is that still on the table?

It is still on the table. There were two or three on the list from last time, I just didn't do it again because it's hard to assess where that one might be heading but they did -- this past week, have the vendors back in to discuss our proposals. It appears that there's -- what happened is that the lead advocate on the county commission died, the weekend before he was supposed to make a presentation to the commission, and it is kind of -- so they are in a little bit of a situation, they are not sure where they want to head.

And the last I heard was they were going to actually going to hire Roger Stallback's company to help them come in and assess some confusion they were having over trying to compare apples to apples. So it is still an active RFP, it's just hard to forecast if it's going to happen and when.

Sure. Sure. And you had mentioned, in addition to that, which out of those would you say are -- is most imminent? You know, maybe a pecking order, as far as you think are going to be awarded sooner rather than later? I mean, I have the list here for Arizona, Tennessee, Texas --

I would say that the Graceville, Florida and the Shelby county, Tennessee are probably the two that could happen in the next four to five months.

Again, not all of these -- going back to what I said, these are not all about awards. We have an existing contract with Arizona. They can increase the number of inmates we get from them under that contract. It's not an award. The same with Hawaii, the same with North Dakota, the same with Washington, and the same with Minnesota. We have an existing contract arrangement. That's the point I'm trying to make.

We typically announce contract awards we don't -- just because it would -- no way you could do it, every up or down in inmate populations, and so these customers, I guess what we are saying is they all have needs, and we do expect growth from them, but it wouldn't necessarily be through an award.

Right. Now turning to Red Rock, do you have a confirmed client, or can you give us a sense of how far along the discussions are in getting someone in there?

We were authorized by the state of Alaska to indicate that they were a prime prospect for the Red Rock facility. We've always said that there's not enough room in our Florence facility to meet the needs of Alaska and the federal customers that are there.

And so Red Rock was developed, or is in the process of being developed in order to release the pressure, if you will at our Florence and central Arizona facilities. And so the plan would be -- although there's no contract again, -- Alaska did approve the press release, to move Alaska and one or two other state customers that we have not named, into Red Rock so that it could be significant or substantially filled pretty quickly, and then we would expect that our federal customers would backfill where we had moved these inmates.

Okay. Great and in addition to that, or it sounds like as far as the guidance is concerned for this year, obviously, I'm sensing there's -- you're not factoring in any new awards from non-existing customers. How much new business or additional business from existing clients, can you give us a sense of how much you are factoring into the guidance for this year?

There is -- there's clearly the federal contract with the Federal Bureau of Prisons. That's a very big piece of it. Clearly, the -- Scott and I were talking about the situation where we do feel that federal populations should increase over the balance of the year, and there are a couple of situations, you know, one or two with respect to state customers. Again I don't like to break out anything specifically and assign dollar values to it.

Right.

But, you know, again, Lake City, state of Florida, expanded that, and, again, when you have a managed-only contract, they typically do fill those facilities. And so we do expect populations to increase at Lake City, and that negative that it was in the first quarter, to gradually go away over the course of the year. I don't think that there are any outlandish -- that's just not who we are -- assumptions that are made in that guidance. We feel pretty good about it.

Okay. Just a quick question on taking a look to the supplemental too. Going through there, it looks like there's a number of contracts that are actually up for renewal this year. Midsummer and fall.

Yes.

Do you have any indication or a sense of any of those that are going to most likely be put up for rebid, an otherwise competitive bid?

Well, we do have the -- there's a current procurement process for Elizabeth and San Diego.

I don't -- again, I think that we're pretty good about, as John was saying there's always some technical RFPs, I guess that are outstanding, but at the present time, we don't feel that for 2005, and at least for the first part of 2006, that we have anything at risk.

Okay. And I know this is always difficult to have some visibility on as well, as far as start-up expenses, can you give us, you know either a magnitude or at least a timing, of when those will hit? If you go for the BOP contract?

Those will be in the second quarter, substantially all of it will be in the second quarter. There may be a little bleed over into July, but I think you will see substantially all of that in Q2.

Okay.

And then the only other thing that I would mention, as John said, is, you know, what happens at Stewart. We don't expect that any inmates will be received in time that Stewart will be a net/net positive this year, but if we are awarded a contract at Stewart that would bode very well for 2006, but we would have to start up -- so Stewart could be a negative this year, and that's a reason we give ranges in our guidance for things like that, that are hard to pin down.

Would you say the guidance -- and it is a little bit lower than what you gave in the previous quarter for 2Q, is a lot of that being impacted by those startup expenses?

It's not necessarily the startup expenses. I would just say that we were -- it's what we talk about all the time. It's just very difficult to pin down timing with respect to our customers. We try to put ranges in for a reason. The -- federal populations we talked about were a little bit slower to occur. The guidance in the first quarter, by the way, did not include anything for stock-based compensation and so there is $0.03 associated with that. So the first quarter was artificially high with respect to that.

And then we have the positive impact it will have this year for the financing. So net/net we're pretty close to the first quarter guidance when you sort it all out.

Okay. And can you give us a sense of what the revenue was for Indiana and Otter Creek together last year?

I -- I don't have that at my fingertips. We can try to get that on the call.

Thanks a lot.

We'll try to work on that and interject that too.

Appreciate it. Thank you. Have a good afternoon.

Thank you. And our next question comes from [Anton High], Jefferies & Co.

Hi, you previously indicated that Shelby county is one of the more imminent pieces of business, and it seems to be a high degree of opposition to privatizing the two lockups there, the county jail and the correctional facility. Can you talk a little bit about about whether you feel like -- is that slowing you down at all or whether, you know, you still feel you have enough legislative support that will go through as expected?

Well, it definitely will slow it down some. If you want to see the opposition to it just come out here on May 10th and watch the street outside our building. There is going to be continued opposition, you know I think ASMI has made that almost a national -- a national interest to them. It's just our sense that it's probably going to come to a head in the next three to four months, and that decision may be not to do it.

We feel pretty good right now that the numbers are pretty compelling and that we're answering a lot of the emotional issues that are there. But it is -- it's going to be noisier than -- than usual, -- and as they get closer to reaching a decision, there could be some activity that could slow it down.

Okay. And then the -- you communicated in the press release that you had some higher inmate medical expenses. Is that primarily a pricing issue, or is there -- can you put your finger on any one or two facilities where you've had higher than usual, you know utilization?

Well, we're going to have in a facility from time to time, an event that will skew those numbers. And that's what we are -- you know we are talking about at the DL Moss facility. It's something that we, of course, try to manage to, and with 63 facilities, you know, we're looking at -- to make sure that we, on a system-wide basis are maintaining -- you know, the -- a reasonable level.

But, yes, from time to time, we will have -- and there are selected contracts in which that exposure is greater than others, and I think we're doing a pretty good job of trying to mitigate that. In fact, I guess there's one advantage of this contract, you know, becoming the responsibility to share, if there is, that this is one of those contracts that was above average in our exposure.

Thank you.

The gentlemen who was asking about revenues from Indiana at Otter Creek, it was a little over $10 million in '04. Operator, we're ready for the next question, if there are any.

The next question is a follow-up question from Patrick Swindle. Please go ahead.

A quick follow-up on the new pipeline. A good amount of that will require new facility builds. Assuming there is success in some of those, would you plan to utilize your revolving -- assume you utilize the revolver to fund the majority of that, or what would be your expectations, given that Red Rock will consume the majority of the cash flow this year?

We said if everything would coalesce, which would be a great problem, one that I would enjoy, that you know, we generate well over $100 million of cash flow. So the first source of funds obviously are just our cash resources. If everything came together, we would clearly use our cash resources and our -- and our revolver. That's why we have it.

And Patrick, it's just really going to depend on, you know, how these things -- how they fall together. I can tell you this: I am extremely confidant that if there is a viable need, this management team feels is good enough to pursue, the community that both the bond community and the equity community that fund us, would be in agreement and we would have access to capital and get it done.

Great. Thank you.

Okay.

Thank you. And gentlemen, at this time, I show no further questions.

Okay. In summary, we did have a net loss for this quarter of $8.9 million. That included a refinancing charge of $35 million. We did that because it improves our results going forward as a result of about $0.10 a share improvement, as a result of lower interest costs, based upon existing costs. As a result of doing that, we did get a rating improvement with Standard & Poor's to a BB-.

Unfortunately we did have a lower per share adjusted earnings of $0.35 a share for this quarter versus $0.37 for the fourth quarter -- I mean first quarter of 2/04. The EBITDA was lower as well 52.9, versus 55.5. Most of this was due to just reduced inmates and unfortunately, we just didn't have the justification for reducing staffing in-line with the inmates, because we expect people to be coming back in, in the very near future.

The good news, going forward, after getting over that not bad news, but not good news, is the latter part of this year, our fourth quarter, with no new contracts, John has said that the facility in northeast Ohio booked with both BOP and Marshals getting more people into Prairie from Minnesota, and they're constantly bringing them in, filling the expansion at Lake City, Diamondback, filling that, Hernando's jail expansion, filling it, and more inmates in Colorado, should allow the fourth quarter to be in the mid-50s, which means going forward to the 2006 on an existing basis, we would be over $2 a share.

Looking at 2006, in addition to going forward, you've got the budget increases, which are favorable now, for the INS and Homeland Security, which should help us. John mentioned you've got 14 customers that we have, that need new beds at the state level. We have 4 local jail expansions coming up. We've got 20 customer locations that are showing -- and these are the ones we do business with -- a 3.1% growth.

In 2006, we've got Red Rock coming on, Otter Creek, a good potential there, Prairie, more beds, and Stewart, and we have RFQs or RFPs out there for Florida, Shelby, two in Arizona, one for Ice and one for the state Indiana, Texas, for the Marshals, and Texas for other beds.

So all in all, although, the first quarter may have been somewhat disappointing to all of us, I think we have a positive outlook going forward and as we said many times and Irv has said, this business is a two or three year growth story, not a quarter by quarter growth story.

So with that, I conclude the day's meeting. Thank you.

Thank you. Ladies and gentlemen, this concludes the Corrections Corporation of America first quarter earnings conference call. If you would like to listen to the replay of today's conference, you may dial 303-590-3000 or 1-800-405-2236, and you need to enter the access code of 11028011 followed by the pound sign.

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