CoreCivic Inc (CXW) 2012 Q2 法說會逐字稿

Good morning everyone and welcome to CCA's Second Quarter 2012 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 Form 10-K and other documents filed with the SEC.

This call may include discussion of non-GAAP measures. The reconciliation of the most of the most comparable GAAP measurement is provided in our corresponding earnings release and included in the supplemental financial data on our website. We are under no obligation to update or revise any forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events. Participating on today's call will be our President and CEO Damon Hininger, and Chief Financial Officer Todd Mullenger. I'd now like to turn the call over to Mr. Hininger. Please go ahead sir.

Thank you Melissa, and good morning and thank you all for joining our call today. With me today is our Chairman John Ferguson, and CFO Todd Mullenger. But also joining us is our Chief Corrections Officer Harley Lappin, and our VP of Finance David Garfinkle. In a few minutes, Todd will take you through the number for the quarter, and then I'll discuss the marketplace and also give an update on Project REIT, after which we look forward to taking your questions.

First though, let me make some comments on the past quarter. First, we had strong cash flow performance for the quarter with FFO near $54 million, and reported $0.38 in adjusted EPS. We also had a very significant couple of contract wins this past quarter with Idaho and Oklahoma, two brand new contracts that will potentially utilize up to 1,000 beds of existing capacity in our system. Now, Oklahoma is already ramping up into our Cimarron facility, and we expect the ramp up of Idaho to start this month. And we think that these wins show again the value of our existing beds, which are just in time. So with these two contracts in addition to our Puerto Rico contract, that we got awarded earlier this year, again shows our existing capacity being very attractive to customers as they grow. And also, we just had a recent development where another customer has come out with a procurement with the Bureau of Prisons looking for 1,000 beds in existing capacity. We also know of two other jurisdictions that are looking for up to 1,000 beds in existing facilities. And we think these procurements could be out in the next 6 to12 months.

We're also very excited that we've kicked off officially our dividend program, and we paid our first dividend of $0.20 on June 22. And also with our Cimarron facility, ramping up with Puerto Rico and then also our Jenkins facility on Georgia ramping up with state of Georgia inmates, both of those have ramped up nicely during the summer months and both contracts are virtually full today. On the cost control side we continued to focus on cost [to deficiencies] as we announced in our press release, but we did have some noise in the quarter as it relates to an activation of our Jenkins and ramp up of Puerto Rico. Also, quarter-over-quarter was impacted by salary increases that we implemented last year.

So here in a second, I'm going to turn the call over to Todd. But before I do, I would like to thank all of you for the outpouring of support you have given me and the Company after we lost one of our team members back in May at our Adams County facility. I visited the facility again this past week, and I'm so proud of the team there as we move forward from this tragic loss. So with that, let me turn it over to Todd.

Thank you Damon, and good morning everyone. In the second quarter of 2012, we generated $0.38 of adjusted EPS excluding the costs associated with our repayment of senior notes and the REIT feasibility study. Funds from operations or FFO, totaled $0.55 per share, while adjusted funds from operations or AFFO totaled $0.43 per share. As a reminder, FFO and AFFO per share are always below average in Q2, due to the fact that nearly 100% on the estimated income tax payments for the first half of the year are made in Q2. FFO per share for the first half of the year totaled $1.37.

Year-over-year in the quarter, we saw revenues increase by $13 million, driven largely by increases in per diem. The assumption of operations in our Lake Erie Ohio facility, activation of the Jenkins County Georgia facility, intake of Puerto Rico inmates at Cimarron, partially offset by declines in populations in our Colorado and CTF facilities. While revenues increased $13 million, we experienced a slight decline year-over-year in net income largely the result of start up of our Jenkins facility and ramp up of Puerto Rico populations at Cimarron. A decline in populations at our Coffee and Wheeler Georgia facilities, which were impacted by the opening of Jenkins. Increases in wages and benefits expenses and declines in populations at our Colorado and CTF facilities.

Moving next to a discussion of our guidance. As indicated in the press release, full year EPS guidance is in the range of $1.53 to $1.57. And guidance for Q3 is in the range of $0.39 to $0.41. Full year FFO guidance per share is in the range of $2.86 to $2.91, while AFFO guidance for the full year is in the range of $2.31 to $2.41. Our guidance excludes any expenses that will be incurred to pursue a REIT conversion. The increase in adjusted EPS from $0.38 in Q2 to a range of $0.39 to $0.41 in Q3 is related primarily to increases in earnings from the normalization of Georgia populations at Jenkins, Puerto Rico and Oklahoma populations at Cimarron, Idaho populations in Kit Carson, partially offset by a reduction in California populations at our North Fork facility.

Our US Marshal populations are a key flex point in our guidance. We have seen some variability in those populations during the first half of the year, and could experience variability in the second half. A small movement up or down from the range of populations assumed could have a meaningful impact on actual earnings, as these populations are largely at facilities that are operating at full capacity where the incremental margins are very high.

General and administrative expenses for 2012 should approximate 5% of revenues, excluding costs for the REIT feasibility study. Depreciation and amortization expense is forecast at approximately $115 million for the full year. Finally, we anticipate that a formal declaration of a $0.20 per share dividend will be made at the upcoming Board meeting next week to be paid in September. I will now turn it back over to Damon.

Thanks so much Todd. Now for our market assessment and a Project REIT update. And let me just first make a couple global comments about the business. All of you are reading the same headlines like I am which are saying that there's obviously fear of another economic slowdown, turmoil in Europe, and fiscal tax and election uncertainty here in the United States. And just like the rest of corporate America, this continues to keep us cautious on what the near term looks like for us.

Additionally, many of you may have read the recent report that was released is the past few weeks that was from the State Budget Crisis Task Force. There was a great editorial this past weekend in the Wall Street Journal titled Coming to a State Near You, that gives a gloomy summary of the issues that are facing the states. Notably, saying that Medicaid is now the largest part of state budgets and forecasted to grow by 8% annually over the next decade, and also increasing burdens the states are feeling from pensions and retiree health benefit obligations. As this made great volatility for all of us in the near term, we think for us in the mid- to long-term innovative solutions like Ohio, where we did Lake Eerie transaction, or the new Jenkins Georgia facility are going to be more attractive as states grapple with balancing their budgets.

Let me now shift gears and talk a little bit about our state book of business. And first to say for this new fiscal year that started on July 1, no new meaningful or new capacity is being funded except for some beds at Arizona and California. And this would be the third consecutive year of minimal appropriations for new state prison capacity. We've also seen eight of our existing state customers grow in the past 12 months at a combined total of 5,700 inmates. An example of one of these eight is Idaho. Idaho has grown by 400 this past year, and as reported earlier, they did a recent procurement in contracts with us to deal with that growth. And looking forward, our ten state customers where we provide owned and managed solutions, and this is excluding California, they are expecting a bed shortfall by 10,000 inmates over the next five years. We are also pursuing eight new state prospects, with their projected overcrowding in the next five years to be just over 14,000 inmates.

Now I want to talk here in a minute about California, but just let me say that as it relates to our remaining state customers and their budgets, all of our state partners have completed and passed their respective budgets. And I want to report that we had about half a dozen that gave us increases starting on July 1, and we didn't have any per diem reduction requests this past Spring. And one encouraging development, we had one existing state customer who did implement a meaningful partial restoration of a per diem effective on July 1. I won't indicate who the customer was, but the reduction we incurred a few years ago was probably the most significant one in our state portfolio.

Let me now move over to the federal book of business and talk first about the federal budget. The President's request for our three federal customers is largely in line with the fiscal year 2012 enacted levels. Now there has been some activity this summer in both chambers, but I think it is safe to say that a final budget likely will not be completed until after the November election. We are hearing that a continued resolution may be as long as six months, could be passed in September to allow enough time to take this up after the election. Now we are also watching the possibility of sequestration, which potentially could go in place in the first of the year. And I don't have any new information to report of this but also we're watching very closely. And again, we think this will be something that will be dealt with after the November election.

Now, also to note that there was no new funding for new BOP beds in President Obama's budget, and is requesting funding for 1,000 new contract beds. And in fact this is the funding that's being used for this new contract procurement that was released last week. And likely going forward for the BOP, no new capacity is being appropriated. I give you a little bit of context on this significant event, nearly $4 billion was appropriated in the last ten years for new BOP capacity. Yet we don't see any capacity coming online for the next five to eight years for the Bureau of Prisons. And as a reminder, this is the largest system in the country with 218,000 inmates and are projected to grow on a rate of 4,000 to 6,000 a year and have an unmet bed demand in the next six years of 26,000.

Let me now move over to [a list] of pending procurements and the first of which is Arizona, and a requirement for new beds owned and operated in state. Arizona released a procurement earlier this year for a contractor owned, contractor operated up to 1,000 beds in-state facility. Proposals were due on March 6, and we anticipate an award by September 1. We also still anticipate a start date in early 2014. To New Hampshire, they released a series of procurements late last year. The primary one being for a new 1,550 bed in-state facility. Proposals were due on February 24, and we anticipate an award no sooner than the fourth quarter. We also anticipate a start date in 2015.

To the BOP, which I gave a little bit of detail earlier. On August 1 they released a procurement for contractor owned and operated 1,000 bed facility that must be ready to accept inmates within 150 days of award or no later than September 1, 2013. This is a CAR solicitation, so it has very similar requirements that the BOP has done in the past. Proposals are due on September 18, and based on their time line we think an award will be likely in the first quarter of next year.

And finally, to Harris County Texas, which is Houston of course. They issued an RFP in June of last year under which the county is seeking proposals for the management of the entire Harris County Jail System of approximately 9,000 beds. We understand it currently costs the County more than $200 million per year to operate their jail system. We submitted a best and final offer this past week, and we think the County could act on this sometime later this Summer or early Fall.

Now a brief update on a couple topics relevant to California. As a reminder, the state and CDCR released a report titled The Future of California Corrections in April. This is a proposal that will have many stakeholders that will have to weigh in. The legislature, the plaintiff council on the Federal Court case, the court appointed federal medical receiver, and of course the Federal Court. The plan's effectiveness and impact on CCA's California population is contingent on several key provisions. First, the state realignment plan secures long term funding, and results in continued declines in the state's inmate population. Second, the state completes in state prison correction projects, and finally but most notable, the assumption that the state is successful in convincing the Federal Court to raise the capacity limit of their 33 facilities from 137.5% to 145%. The plan noted that if the court did not raise the cap that quote alternatives such as continuing to house inmates out of state will have to be considered.

So what is next? So some of the key milestones that we're watching very closely, and one of which has already happened, that is as predicted by us back in May, the state passed funding bill for this fiscal year and it's consistent with the plan. The good news for us, is that we now know what the next 11 months look like for us in our contracts. The second significant milestone is the action by the court. And we think the plaintiffs in the case could be pushing for action sooner rather than later, but the timing is uncertain. I will note though that just this past Friday, the court released an order to the state asking more questions on the potential request. There is some activity by the court as we speak on this potential issue.

And finally, the Schools and Local Public Safety Act of 2012 tax increase that will be on the ballot in November. This is the long term funding vehicle for realignment. It is currently polling just over 50% support statewide. Counties are obviously watching this closely not only for the funding, but also the security that the funding will be there long term. So they could possibly do jail expansions, or enter into agreements for bed space. What we do know at this time, that both the state and legislative analyst's office has said publicly that all key provisions must be affected to meet the court order count. If certain provisions are not effective, then alternatives such as continuing to house inmates out of state will have to be considered.

Now I'd like to provide an update regarding our ongoing analysis of the feasibility and potential benefits in [converting] into a real estate investment trust or REIT. As you may recall on our last earnings call, we discussed how, following a review with the Board of various REIT structures, the management team which supported the Board initiated a project do a deeper dive into a conversion to a REIT making use of a Taxable REIT Subsidiary, or TRS. Under this structure, we would own our own properties through the real estate investment trust and provide incarcerated related services through a subsidiary of the real estate investment trust that would be treated as a Taxable REIT Subsidiary.

While there is more work to be done, both in working with the Internal Revenue Service and also in fully analyzing the business issues, our preliminary conclusion is that a conversion to a REIT using a TRS or the provisional services would provide numerous benefits to CCA, assuming it could be done properly or properly implemented. Accordingly, that lead the management team with the support of the Board to recently file a request with the IRS for a private letter ruling with respect to our possible implementation of a REIT structure. As we said on our last call, we believe a conversion to a REIT has potential to lower our cost of capital, draw in a larger base of potential shareholders, provide greater flexibility to pursue growth opportunities post conversion, and create a more efficient operating structure.

Importantly under this structure, we would not need to divide the Company into an independent REIT and an independent operating Company. This would also enable us to maintain the strategic alignment of our key operating divisions. Accordingly, we believe that this structure would not adversely affect our business or our vital relationships with our government customers. It is important to note that our business involves providing significant facilities and performing essential services for our government customers. And as always, we will take every step to ensure we satisfy full responsibilities in a professional and efficient manner.

Since our last earnings call, our advisers have had a number of discussions including an in-person meeting with representatives of the Internal Revenue Service to discuss our proposed REIT structure. Those discussions were informative, and as mentioned earlier led us to move forward with our request for a private letter ruling. While we believe there is a sound legal basis for the IRS to grant the ruling we have requested, there can be no assurances the IRS will issue a favorable ruling. There is no specific schedule for the IRS to respond to a request for private letter ruling.

As you may know, a REIT election applies on an annual basis and cannot be made for a portion of a taxable year. For CCA, that means any REIT election would need to be effective January 1. We intend to work with the IRS and continue our own analysis of the benefits of REIT conversion as quickly as we can, and we believe that if everything lines up, an election to become a REIT for 2013 calendar year remains a possibility. However, this is a complex process and the precise timing and outcome of the process are still uncertain.

Now I know you may have some questions about the potential REIT conversion, but let me say that we have reached a significant milestone with our filings and we have more steps in this journey. So beyond what I've just stated, I will be limited to what I can say on this subject. And this is especially true regarding the ongoing dialogue we are having with the IRS. Having said all that, as we provided on our last call we have assembled a strong team of advisors for this project. Including Latham & Watkins, Ernst and Young, and JPMorgan, as well as our corporate counsel Bass, Berry. I want to assure you that we are and have been proceeding as quickly as possible to reach a favorable conclusion. We expect that our next update on this important initiative will be on our third quarter earnings call.

With regards to our near term capital strategy, as you know the Company in the past has deployed its cash primarily on speculative capacity, build-to-suit opportunities, and facility acquisitions. We are still holding off on new spec capacity, and aggressively pursuing build-to-suit opportunities and also facility acquisition opportunities like New Hampshire and Ohio. But now with the dividend program fully in place, we will now allocate a third of our AFFO towards our dividend and the remaining towards organic growth. Any unused cash not used for these two, the dividend and growth CapEx, may be used for debt repayments.

So let me bring a close my comments and make these final points. Obviously we're very excited about some of the contract wins we had this summer with Idaho and also with Oklahoma, and obviously looking forward to the opportunities with the BOP. And again, these are the partners that are looking at existing capacity where we think we've got some very competitive and attractive solutions for them. Also in our steps to create more shareholder value, we have the dividend program now firmly in place. And then the last is obviously we've taken a meaningful step on our opportunity to create even more shareholder value which is the progress we just reported on our Project REIT. So that concludes my prepared remarks. Thank you again for calling today's conference, and let me now turn it over to Melissa for Q&A.

(Operator Instructions)

Kevin Campbell, Avondale Partners

Good morning. Congratulations on a good quarter, and more importantly taking the right steps to create shareholder value. Let me ask you just real quickly. Damon, you mentioned two other jurisdictions that are looking at an additional 1,000 beds each. I can understand if you are not able to give the names of those customers, but can you at least maybe provide color? Are these states or jurisdictions that already use the private sector? Are they -- or would they be looking at it for the first time?

This would be jurisdictions that would be looking at it for the first time, as we understand it.

Okay great. And as it writes to the pipeline, in the last couple of 6, 9, 12 months you've talked about ICE and the opportunities there in South Florida, Chicago, San Francisco, and things have changed there. So maybe you can provide us with a little bit of an update on what's happening in those markets and if you think ICE is still interested in beds, or if that's totally off the table at this point?

Yes, good question. So ICE, as you know, they have not been growing in detention capacity nationwide. But they have been attracted to opportunities to consolidate and create more efficiencies by having their population in a centralized location where they could use assets like immigration courts and other workers within the federal government to help support the process as they move through the system. And that's really, as I think we described, Florida and Chicago and even California I guess a year ago when they were looking at something maybe in the northern part of the state. And that's what they were looking at with these type of solutions. So I think our best assessment is a step back. Taking another look at these potential areas, and seeing if there is an opportunity to provide those types of solutions. I think they'll probably do this towards the -- for now towards the end of the year and I think probably after the first of the year they kind of reassess and see if they still have a need for those type of solutions in those areas.

Okay. That's helpful. And Todd, maybe you could talk a little bit about guidance especially. It looks like you're implying an acceleration of expectations for fourth quarter relative to the third. So you talked about 2Q to 3Q. Maybe you can give us color as to what we should expect to drive growth in the fourth quarter as well.

Sure Kevin. So from Q3 to Q4 it's primarily going to be the normalization of increase Idaho and Oklahoma inmates, with the potential for increases in US Marshall inmates.

Okay. And one of the things I wanted to ask about the TRS, is your senior notes and the restrictions that you have on dividend payments there. And maybe you can talk about ways that you can address that, or get around that issue with those senior notes.

A lot of work still to be done, Kevin. We're obviously -- we did a lot of work during the summer obviously to lead to this point and getting the requests into the IRS for the private letter ruling. So that would be one of the things on the list as we go into the early Fall months. We'll set that along with some of the items that we'd have to consider with a possible conversion.

Is there anything specifically with that matter and the dividend payment that gives you cause for concern? Or is it something you think you can address?

Well it's just something, yes, we'll just have to assess as we get later in the year. Like I said our focus has been here during the summer months on the request to the IRS. So that will be one of the many things on the list we'll look at as we consider a potential conversion.

But it is addressable.

Okay. Perfect. Thank you very much.

Todd Van Fleet from First Analysis.

Morning guys. I wanted to get a little bit more insight into this preliminary meeting that was I guess had between your advisors and the IRS. Is this kind of -- what happens in that meeting? Is it they state their views that as your advisors give their view of the world and see if the IRS has an allergic reaction before you decide to move forward with issuing a private letter ruling? What's that -- what happen in that meeting.

Todd, good morning. This is Damon. Good try. I think that's getting a little bit into the back and forth with the IRS. But it is -- I would say that meeting is a pretty standard practice when companies look at potential conversion. That they allow for an in face meeting, allow for some conversations leading to a potential submittal of a private letter ruling.

Okay. Do they give -- or did you get any indications that this being an election year and with the possibility of quite a few things changing beyond 2012 with respect to tax policy and so forth, did you get a sense as to how much the IRS or the agency was willing to have on its plate at this point this year, or no?

Yes that's -- our sense is the IRS has a very straight forward process on looking at these type of conversions. So I think that the outside world doesn't necessarily come into play. I can't speak with any authority on that. But this is an agency that does these type of things from time to time regardless of what's going on with any kind of national environment or election. So it's a pretty straightforward process.

Okay. And then I guess more on the fundamentals. So a lot of moving parts and pieces I think it sounds like in the pipeline. So could you just remind me just quick like, what are the pieces of business that could hit in terms of there being an announcement before the end of this year kind of as you run through your own mental check list?

Well, Mission Arizona. And so we think by the end of this month could have an announcement on that. I mentioned also Harris County, we think there's a possibility that later this Summer early Fall they could have an announcement. There's a chance New Hampshire maybe acts in the fourth quarter. And as I alluded to earlier, we've got some other jurisdictions that are looking at potential existing bed space. We could have one or both of them looking -- not only looking but potentially acting on capacity before the end of the year.

And those are three that haven't been used in the private sector previously?

Yes, it's two.

Or two, okay. Okay. I think that's it for the moment. Thanks.

Thanks Todd.

Tobey Summer from SunTrust.

Thank you. Could you comment on the timing of when you asked for the PLR?

We requested it last month, in the last half of last month.

Okay, thanks. And when you hear from the IRS and other multiple scenarios that could play out. But if a conversion happens after January 1, isn't there some wiggle room as long as you bend compliant since the beginning of the year?

Yes we're -- I think that's a possibility. So we're five months away. And like I said, we submitted our request last month. So that would be obviously something that will come more to light as we get further down the process and continue the dialogue with IRS.

Okay. Are you working the administrative and financial aspects of a conversion in parallel to the process with the IRS so as to compress the timeline to the extent you're able to do so?

That's correct, yes. We obviously it's been a lot of work during the summer leading up to this point. I think I'm giving Todd and David off until about 1 o'clock this after noon, and then they will start the process on all the additional work. So yes, you'll have two parallel tracks. You'll have the discussion with the IRS and the dialogue, and we'll see obviously how that plays during the Fall. And then internal work with the external advisors will continue on a parallel path.

The two jurisdictions that you referenced, are those likely to be seeking out existing capacity as opposed to build-to-suit?

That's correct.

So it's possible that if a decision comes on those, those could actually have a financial impact as opposed to just a headline impact for a future financial period?

That's true. Yes, so we're -- obviously we're in August so as everyday goes by it's going to be less impactful for 2012. But yes, both these agencies are looking at existing capacity.

And then my last question is kind of a broader one relative to state and potential local customers. Are you feeling like there is a bottoming process? You talked about better rates coming from some customers, which could be one sign. And then maybe any pressure from local municipalities and counties back towards the states that may be using them as an outlet to relieve pressure in their systems? Thanks.

Yes. I guess a couple comments. So as I mentioned earlier, we're seeing the states go up to go through a very challenging period for a couple reasons, as I mentioned earlier with the exploding growth of Medicaid within respective budgets and also the pension and healthcare liabilities. But also, I think we've talked the about on this call, there has been basically a period where they've come to the end on the funds that they received at the federal level to help bridge this gap on some of their budgets. Basically you had some very, very significant infusion of funds from the federal into the state budgets that helped them bridge the gap. But basically that's going to run its course.

So I think you've got this short period of time where they're still grappling pretty significantly on balancing their budgets and getting through that period of time. We are though encouraged. We've had some significant developments with not only some new contracts with Oklahoma expanding, the new Idaho contract and also getting a few per diem increases. But we're still cautious. the near term still could see some volatility, but we think the mid to long term is favorable. Because as states deal with this growth, especially with Medicaid and some of these other budget line items, we think innovative solutions that we've been able to provide with the existing partners are going to resonate more and more.

Thank you very much.

Thank you.

Manav Patnaik from Barclays.

Good morning everybody. Firstly, congratulations on your first dividend and for getting PLR filed.

Did you get it in the mail?

Yes, yes I did. It was a huge package. I'll get through all of it soon. But, so I guess the one question I have on the PLR was the -- I guess I thought filing a PLR would be a noteworthy event for you guys to put out the Press Release beforehand. When you get a small contract you do it. I just wanted to see what we should expect going forward in terms of when you do get the approval, the back and forth, how you would do this?

Yes, so we're -- like I said, we see the milestone through this process. So in the coming days and weeks obviously, as I mentioned earlier, we'll continue the work internally with our external advisors. We've got a great team obviously working on this project. And then we'll continue the dialogue with the IRS. So as we get further along in the process and we'll assess as appropriate, what we share and how this flows out to the market place. Like I said earlier, our anticipation is that our next meaningful update will be in the third quarter call. But obviously in the coming days and weeks we'll assess as appropriate.

Okay. Fair enough. And then I guess clearly the markets and all of us are talking about the REIT stuff, but I was curious if any of your customers in your discussions have seen in the headlines, and you guys proactively talked to them about it? And if there's any feedback from those discussions?

Yes we -- when we went into this process, as I mentioned earlier, we saw this really as a kind of non event for our customers. We see this as an opportunity to do it this type of conversion to get to more of an efficient corporate operating structure. And again with the hope and expectation to be a non event for customers. Although I will say, as I mentioned earlier, the hope and expectation is that this would be if we did do this an event to where we could be a lot more competitive on future procurements, provide a lot more value to our partners obviously with a lower cost to capital. So from that perspective, we think it could provide a opportunity for us to be not only more competitive but to provide some more very attractive solutions to our government partners.

Got it. And then one final question on the pricing on the owned and managed side. So for the last few quarters I guess it's been at that 67.2% level. Now that it is going in to the second half of the year with the cycle true of the next budget year, is there any reason with that into account or even considering maybe some makeshift that, that number should change one way or the other?

Yes, so we've tried to I guess in the last 24 or 36 months to give updates on kind of how we're seeing the upcoming legislative session. And then obviously I gave my end of session report a few minutes ago with all the enacted budget. So I would say it's a little early to give any predictions for the Spring since we're a long ways away from that point in time. But I'd say probably in December we'll give, or excuse me November we'll give an update and give a little bit of forecast. Like I said, I think the trend is very modest but it's or I'd say somewhat positive.

Where you had, I'll say, three years ago you had some significant reductions from some of our state partners. And then this year -- fast forward to this year we've got partners increases, no reductions. And we did have, I didn't disclose the state, but we did have one state restore some per diem that they reduced a couple years ago. So it's been somewhat modestly positive. But again, we're continuing to monitor it closely and give another update in November.

All right. Great. Thanks a lot guys and congrats again.

Thank you Manav.

Kevin McVeigh from Macquarie.

Great. Thank you. Damon, any just sense of -- and I know it is still relatively early, but just what a pro forma dividend would look like if in fact you are successful with the conversion?

You trying to build your model there?

Yes exactly, trying to get the answer.

No clarity on that today. That's one of the to dos for us in going into the Fall months. So we couldn't provide anything for you today on that.

Okay. And then just in terms of just as we think about utilization in the back half of the year, how are we thinking about that for success with some of these wins? And then just in terms of California, the November ballot, would that impact the contract at all this year if in fact they're successful or are we pretty well funded?

Yes, I think the contract would be okay. Obviously we've watched it closely. But I think the contract would be okay. I think our sense is on the ballot initiative if it doesn't pass maybe it adds another layer of complexity for the state on how they think about how they comply with the Federal Court order. And, so that gives you a little sense of California. First part of your question was asking about utilization for the rest of the year?

Yes.

Well, I think Todd answered that a little bit earlier. So we've had the ramp ups earlier this year with Jenkins and Puerto Rico. So we saw a lot of that activity in the late first quarter, second quarter. And then obviously continuing to monitor closely, as Todd said earlier, about the Marshall populations. But everything else I think is relatively stable. Like I said, we virtually have reached the contract amounts on both Jenkins and also on Puerto Rico.

Super. Thank you.

Thank you.

Tobey Summer from SunTrust.

Thank you. Could you give us some more color as to the potential for US Marshall populations boosting 4Q?

That's a population we're watching closely as I mentioned earlier and gave a pretty good amount of color in our May call. We did see some volatility with the populations late last year early this year for a couple different reasons. One was which was a sentencing change that the BOP implemented that opened up capacity within their system, and then also traditional slow down you can see a little bit during the December and January Winter months. So they've grown. They still have some capacity that they're moving some populations from their beds over to the BOP, most notably in Texas. But it's something we'll watch very closely. It's -- obviously we've had some very unique situations in the last 24 months with some ups and downs in the southwest. But it's been a little more modest this year than I'd say where you've seen wild swings in the last two years.

Are you having any discussions in interest being expressed on the part of any local agencies in California that are maybe struggling with the growth in inmates that they're expected to have?

Yes, we're looking at that very closely. Because that is obviously a potential key area that may be constrained with this realignment program. So as I mentioned earlier, you've got realignment. You've got these populations going to local levels. And the locals as we understand it are watching closely this ballot initiative in November. Because this would be a funding vehicle to help them offset the costs they incur with this increased population. So our sense is that they're doing a little bit of a wait and see.

They're doing all they can right now, because they're obviously being impacted today on these higher populations. But they're watching closely what happens in the Fall to see if they're get the funding that may then trigger them to either do some expansions within their system, which obviously would take some time to do or maybe enter into contracts to use bed space with another provider. So we are watching those very closely, monitoring and interacting with the local governments as appropriate. And I think later this year then they'll get a little clarity on what steps they may take to deal with these higher populations.

Okay. And my last question has to do with the per diem increases you've received. Are those accompanied by a restoration of services that may have been eliminated while the per diem's were under pressure? Or somehow accompanied by new incremental services and costs associated with them?

It's a little bit of both. Those two in addition to maybe it's just a restoration, maybe of a reduction in the past. So it could be a little bit of both, or all three. Either restoration of a service, maybe an increase because of an increased service they want, or just they restored a rate to a level comparable to what they reduced a couple years ago.

Okay. Thank you very much for the color.

You bet.

Todd Van Fleet from First Analysis.

Sorry, asked and answered. Thanks.

Thanks Todd.

And at this time we have no further questions in the queue.

All right. Thanks again, Melissa. And thank you so much for calling in to today's conference. I really appreciate your time and also your participation today, and more importantly we thank you for your investment in CCA. As always, your management team is focused on executing on another good quarter and strong year. And we look forward to reporting our progress next quarter. So thank you so much.

That does conclude our conference for today. Thank you for your participation.