CoreCivic Inc (CXW) 2014 Q4 法說會逐字稿

Good morning. My name is Erika and I will be your conference operator. As a reminder, this call is being recorded. At this time, I would like to welcome you to the Corrections Corporation of America fourth-quarter 2014 earnings conference call. (Operator Instructions). I would now like to turn the call over to Cameron Hopewell, CCA's Managing Director of Investor Relations. Mr. Hopewell, you may begin your conference.

Thanks, Erika. Good morning, ladies and gentlemen and thank you for joining us. Participating on today's call are Damon Hininger, President and Chief Executive Officer and David Garfinkle, Chief Financial Officer.

During today's call, our remarks will include forward-looking statements pursuant to the Safe Harbor provisions of the Securities and Litigation Reform Act. Actual results may differ as a result of a variety of factors, including those identified in our earnings release and with our various filings with the SEC. You are also cautioned that any forward-looking statements reflect management's current views only and that the Company undertakes no obligation to revise or update such statements in the future.

This call will include discussion of non-GAAP measures. A reconciliation of the most comparable GAAP measurement is provided in our corresponding earnings release and included in the supplemental financial data on the investors page of our website at www.CCA.com.

Before I hand the call over to Damon, I would like to remind analysts to limit themselves to one question and one follow-up during our question-and-answer session so that others may ask their questions. With that, it is my pleasure to turn the call over to Damon Hininger.

Thank you, Cameron. Good morning and thank you to our valued shareholders, analysts and other participants for joining our call today. Also joining us here in the room for our call is our Vice President of Finance, Brian Hammonds.

I will begin today by highlighting our results from the fourth quarter and full-year 2014 before providing a brief update on key business developments. Following my remarks, I will hand the call over to Dave, who will provide a more in-depth review of our fourth-quarter financial performance and our 2015 financial guidance.

To begin, we were very pleased with our overall financial performance as we brought 2014 to a close. In the fourth quarter, we generated nearly $80 million in normalized FFO to bring our full-year total to $311 million, or $2.65 per share, an increase of nearly 5% over the prior year.

In addition, fourth-quarter adjusted diluted EPS increased 11% year-over-year to $0.49 per share. Quarterly revenues on a year-over-year comparison continue to be negative in the fourth quarter of 2014 as a result of transitioning out of several underperforming managed-only contracts over the course of the year. However, that decision has had minimal impact on our overall earnings and the revenue loss has been partially offset by the strong performance of our owned and managed properties. In fact, fourth-quarter revenue from our owned and controlled property segment increased by nearly 4% year-over-year to $368 million, while total facility net operating income increased by over 9%.

Now before providing an update on our facilities under development and our federal, state and local partnerships, I would like to take a few moments to discuss recent news regarding our contract with the Federal Bureau of Prisons at our Northeast Ohio Correctional Center. At the end of the fourth quarter, we received the disappointing news that we were unsuccessful in our rebid for the contract with the BOP at our Northeast Ohio Correctional Center, commonly referred to as CAR 15 RFP. The bidding process was highly competitive and we believe we submitted a compelling proposal. Unfortunately, the BOP chose to move in a different direction, so our current contract is scheduled to expire effective June 1, 2015. Dave will provide additional details of the forecasted impact on our financial results, which is fully reflected in our 2015 guidance we provided in yesterday's earnings announcement.

Within hours of receiving notice of this unsuccessful contract rebid, we mobilized our team to actively market the facility to other government partners and assessed our long-term plans for the facility. Our exceptional team of CCA employees at the Northeast Ohio Correctional Center have had a tremendous operating track record over the 10-year term of the existing contract with the Bureau. Therefore, we know this facility will be very attractive to potential partners who have capacity needs and we'll be aggressively marketing these available beds to them.

Next, I would like to provide an update on our three large facility development projects that are currently underway. First, the South Texas Family Residential Center. As a reminder, the South Texas Family Residential Center is a 2400 bed project for immigration and customs enforcement that we announced in the third quarter of 2014 that will provide a safe, humane and appropriate residential care center for families. The facility is being constructed in two phases. The first phase, which represents 480 beds, began accepting its first residence on December 19, 2014, just 86 days after the project was announced and only 46 days after receiving permits, which is an unprecedented amount of time for a project of this size.

Currently, the facility is housing nearly 400 residents and the second phase of the project is on schedule to open its first what we call neighborhood of 480 beds by the end of March. At that time, additional neighborhoods of 480 beds are scheduled to be completed every few weeks until phase 2 represents the full 2400 beds in late spring. Given this is the largest facility ever developed by the industry for ICE and the short timetable for development, we are very pleased that this project is progressing on schedule to meet our partner's very unique needs.

Moving next to the ongoing construction of the Otay Mesa Detention Center outside of San Diego, California. The construction of this 1500 bed facility is on schedule to be completed in the third quarter of 2015. As a reminder, this is a replacement to our 1000 bed San Diego Correctional Facility, which is subject to a ground lease with the County of San Diego, which is expiring in December of 2015 and also calls for the ownership of the facility to revert to the county upon expiration.

We currently house populations for ICE and the United States Marshal Service at our San Diego Correctional Facility and expect to begin transitioning these populations to our new Otay Mesa facility by the fourth quarter of 2015. This is a market in which capacity needs have been historically underserved and our government partners will benefit from the additional 500 bed capacity at our new facility.

Finally, our other ongoing construction project of the Trousdale Turner Correctional Center here in Trousdale County, Tennessee. Last quarter, we announced we had officially broken ground on this $140 million, 2500 bed facility and I am pleased to say that facility development is progressing on schedule. We expect to be in a position to begin ramping up operations at the facility in the first quarter of 2016 and are proud to offer solutions to help ease overcrowding here in our home state of Tennessee. These three large development projects with a combined total of 6400 beds clearly demonstrate the unique innovative solutions that we can deliver quickly to our government partners and these will be very meaningful contributors to the growth of our business over the next few years.

Next, I would like to touch on additional developments within our facility portfolio. Beginning in early January, our Red Rock facility in Eloy, Arizona began the rampup of an additional 500 beds for the state of Arizona. The ramp is expected to be completed in the next few weeks bringing the total occupancy of this facility up to 1000 beds. We are very proud of our growing partnership with the state and are focused on effectively executing on the ongoing rampup schedule.

In recognition of the state's growing capacity challenges, the Governor's recently released 2016 budget plan requests authorization for an additional 3000 private sector beds. Given our successful activation of the Red Rock facility, we are well-positioned to help the state should the Governor's plan be enacted.

On our third-quarter call, we indicated that we were evaluating opportunities to maximize the value of our remaining non-core properties. We successfully closed on the previously announced sale of our 650 bed Houston Educational Facility in November of 2014 for $4.5 million. Our continued evaluation resulted in the decision to actively pursue the sale of our Queensgate Correctional Facility and Mineral Wells Pre-Parole Transfer Facility. These two currently idle facilities account for nearly 3000 beds in our facility portfolio. However, these are both challenging assets to market to traditional corrections partners given that neither were originally designed as adult correctional facilities and the age of both facilities. The fair value assessments of these facilities resulted in a recognition of a non-cash impairment charge totaling $27.8 million during the fourth quarter, which Dave will explain in more detail during his remarks.

I would like to now provide some observations about the current landscape for our state partners. First, at a high level, the Bureau of Justice Statistics, or BJS, prisoners report from late last year stated that, in 2013, we saw the first increase nationally in state prison populations since 2009. The increase was nearly 6300 inmates over 2012 levels. Notable of this is that 29 states experienced growth in their populations from 2012 to 2013 and that compares to only 19 states seeing growth from 2011 to 2012.

Now at a lower level, we continue to see targeted population growth in a number of our state partners. In fact, eight of our state partners have seen increases over the last 12 months of a combined total of 3700 offenders. We also have 10 state customers where we provide own and manage solutions today that are expecting a significant bed shortfall over the next five years. CCA continues to look to help our state partners in addressing these challenges as public sector investment in new prison capacity continues to remain at historically low levels and our research indicates that more than 200,000 public sector prison beds operating today are in facilities that are more than 75 years old.

Let me now go to California and a comment on a couple recent developments. The first of which is that the state has made meaningful progress towards reaching the benchmark of occupancy at 137.5% of (inaudible) capacity, which they have to hit by February of next year. This was established by the three-judge panel within the federal court. CCA has been a very strong partner in helping California achieve the court-ordered capacity level through the 9000 beds we provide out-of-state, as well as our Cal City lease, each of which are performing extremely well. Our California populations have averaged nearly 8900 over the last quarter of 2014 and this was slightly above levels experienced in the first three quarters of 2014.

As for the upcoming year state of California budget, Governor Brown released his initial budget proposal last month for fiscal year 2016 and all of our 9000 out-of-state beds and our Cal City lease agreement were once again fully funded in his budget proposal. We believe we have continued to strengthen our partnership with the state of California as we have become a fundamental part of their overcrowding solution for the state over the nearly nine-year partnership.

As for the remainder of state budgets, we are in the early stages of the legislative season for many of our state partners and their budget development for 2016. And we will provide a better overview, a more in-depth overview, I should say, of funding levels during our May call. But at a high level, we have seen state economies continue to improve, but revenue growth has been slower than in recent post-recessionary periods. However, we are encouraged by the actions taken more recently by Arizona and Tennessee utilizing the private sector for capacity solutions to manage the issues caused by their growing inmate populations. Other states like Oklahoma and Ohio are experiencing similar growth in overcrowding and we believe CCA could deliver significant value to these and other states that are working through similar issues in their corrections system.

When looking at population trends of our federal partners, we continued to see softness progress through the end of 2014 and a couple of updates on this, first beginning with ICE. ICE began its fiscal year 2015 operating under a short-term continued resolution, which provided funding for approximately 34,000 detention beds, which was at fiscal year 2014 levels even though ICE continued to be tasked with assisting with an unprecedented humanitarian crisis by providing residential care for families.

Prior to its December 11, 2014 expiration, Congress extended the continued resolution for ICE through February 27, 2015. We believe that seasonal fluctuations may have contributed to ICE populations remaining below the 34,000 level during the fourth quarter of 2014 and thus far in the first quarter of 2015. And the uncertainty surrounding the budget for the remainder of this fiscal year could be also playing a meaningful part in and also playing a role in impacting their populations.

And while Congress is still in the process of trying to pass a full-year funding bill for ICE, we believe that such a bill would allow ICE to find 34,000 adult detention beds and an appropriate level of family residential beds through the end of the fiscal year of September of 2015. This expectation is consistent with the proposed funding for ICE in the President's fiscal year 2016 federal budget proposal that was issued last week.

As for the United States Marshals Service and the Federal Bureau of Prisons, we continue to think there could be several factors affecting their populations. First, we have seen that sequestration had lasting effects on staffing levels, hiring and activities for both federal law enforcement agencies and the US Attorney's offices, which impacted both marshals and BOP populations in 2014. Now we have observed in the last half of 2014 an increase in staffing levels at these agencies.

Additionally, the fourth quarter typically leads to a softness in populations due to the impact of the holiday season. However, with the full-year 2015 budgets approved in December and the holiday season behind us and also I'd like to say the notable increase in staffing towards the end of 2014, we believe the United States Marshals Service populations will begin to stabilize. Finally, our review of the President's 2016 budget proposal for the United States Marshals Service and Bureau of Prisons would fully fund our contracts for the next fiscal year.

So with that, I would like to reiterate that we were very pleased with our performance in the fourth quarter and the full year of 2014. I am extremely grateful and appreciative of the CCA management team, our wardens and the entire CCA family of corrections professionals here in Nashville and nationwide for all the work they do every day for CCA. Now I'd like to turn the call over to Dave.

Thank you, Damon and good morning, everyone. In the fourth quarter, we generated $0.49 of adjusted EPS at the high end of our November guidance range of $0.46 to $0.49 and $0.02 ahead of the consensus estimate. FFO totaled $0.67 per share ahead of our November guidance range of $0.64 to $0.66 and AFFO totaled $0.65 per share compared to our November guidance range of $0.62-$0.65.

Compared with the fourth quarter of the prior year, these fourth-quarter results represent increases in diluted EPS, FFO per share and AFFO per share of 11%, 8% and 10% respectively. These increases were achieved through a combination of entering into new contracts, most notably with ICE and the states of Arizona and California, as well as from exiting certain unprofitable contracts. The unprofitable were marginally profitable contracts that terminated in 2014 and occurred mostly at managed-only facilities and resulted in a decrease in revenue of $23.7 million from Q4 2013 to Q4 2014, but actually contributed to an increase in facility NOI of $1.5 million because they incurred net operating losses in Q4 2013. We expect the new contracts with Arizona at our Red Rock facility, which became effective January 1, 2014 and with ICE at our South Texas Family Residential Center, which became effective in October 2014, to contribute to further growth in 2015 as populations under these new contracts continue to ramp.

Note that consistent with the NAREIT definition, FFO and AFFO, as well as our calculation of adjusted EPS in the fourth quarter of 2014, exclude non-cash impairment charges associated with our Queensgate and Mineral Wells facilities. We have previously discussed the challenges and limited number of traditional corrections partners for these two non-core assets, both of which had been acquired in connection with M&A transactions in the 1990s.

There are no additional assets in our portfolio that fit this profile.

Because we no longer expect to market these non-core assets for correctional purposes, they will be removed from our bed count and occupancy percentages as of January 1, 2015. Our balance sheet remains very strong with leverage at 3.1 times, fixed charge coverage at 9 times and solid liquidity. At December 31, we had about $75 million of cash on hand and $360 million of availability on our bank credit facility and no debt maturities until December 2017. The construction of our new Trousdale Turner Correctional Center and Otay Mesa Detention Center both continue on track for completion later this year. As of December 31, we had remaining construction costs of about $115 million on these two projects.

Moving next to a discussion of our guidance, as indicated in the press release, EPS guidance for the full year is a range of $1.94 to $2.02 while Q1 2015 EPS guidance is a range of $0.44 to $0.45. Full-year FFO per share guidance is a range of $2.67 to $2.75 and full-year AFFO per share guidance is $2.62 to $2.69. There are several puts and takes when crosswalking EPS for Q4 to Q1, but the two largest drivers are higher unemployment taxes and two fewer days in Q1.

As a reminder, approximately 75% of our unemployment taxes are incurred during the first quarter resulting in a $0.03 decline from Q4 to Q1. The two fewer calendar days in Q1 versus Q4 is important to consider when forecasting our results because we are paid by the day. The two fewer days in Q1 compared with Q4 accounts for a reduction of an additional $0.02. Our full-year 2015 guidance includes the receipt of 500 additional inmates from the state of Arizona at our Red Rock facility in the first quarter and the continued ramp of the contract at the South Texas Family Residential Center through the second quarter.

I mentioned last quarter that we had experienced some softness in our federal inmate populations. Our forecast contemplates continued softness for the first quarter due to overall lower populations in the federal correctional and detention systems for the gradual increase in federal populations throughout the year. Damon highlighted some of the reasons for these reductions.

Our guidance also includes startup costs in Q4 in preparation for the commencement of the new contract at the Trousdale facility, as well as expenses to transition detainees to our new Otay Mesa detention center in Q3. These costs amount to about $0.04 per share. Our guidance does not include any new contracts, acquisitions or the termination of any contracts beyond the BOP contract at Northeast Ohio effective May 31, 2015. We generated $40 million of revenue from the BOP at Northeast Ohio in 2014 and our 2015 guidance reflects a reduction of about $0.08 in EPS for the termination of this contract.

I have a few final notes for modeling purposes. Because of some very specific accounting rules, the lease agreement with a third-party lessor at our South Texas Family Residential Center is treated similar to capital lease accounting. This results in a portion of the rental payments to the lessor being classified as depreciation and interest expense for GAAP accounting purposes instead of rent expense. The depreciation amount for the first quarter and full-year 2015 amounts to approximately $2 million and $32 million respectively. The interest expense component begins in the second quarter and amounts to about $9 million for the full year. We will be deducting such amounts in our calculation of adjusted EBITDA because we believe this presentation is more reflective of the cash flows associated with the facilities' operations and therefore cash available to service our debt and pay dividends to our shareholders. We have inserted in our press release the calculation of adjusted EBITDA so that you can see these adjustments reflected in our guidance.

Likewise for FFO and AFFO calculations, we will not be adding back to net income this depreciation. Again, adding back the depreciation would apply that the expense is non-cash when this expense is really a component of the rental payments made to the lessor. With the insertion of EBITDA guidance into our press release, we have provided you with our estimate of the effective income tax rate, as well as our estimate of depreciation and interest expense for both the first quarter and full year. You can see that we are projecting an increase in our effective income tax rate compared with 2014. This is attributable to a projection of higher taxable income in our taxable REIT subsidiary partially resulting from the elimination of unprofitable managed-only contracts. G&A expense is expected to be 5.5% to 6% of total revenue.

Finally, dividend levels and our dividend policy are reviewed by our Board every quarter as part of the quarterly dividend declaration process. The next Board meeting is scheduled for February 20. A press release is expected to be issued shortly after that meeting announcing the amount of the next quarterly dividend that would be paid in April. I will now turn it back over to Damon.

Thank you, Dave. So let me bring to a close our comments and make these final points. 2014 was a year in which the foundation was built for the meaningful future growth of CCA. Whether it was the development of an unprecedented solution to a humanitarian crisis facing ICE, the 2400 bed South Texas Family Resident Center, a 2500 bed, build to suit adult secured facility solution for the state of Tennessee, adding incremental beds in San Diego, an underserved market, expanding partnerships with existing partners such as in Arizona or reemphasizing our commitment to creating the best inmate reentry programming value in corrections. We have established a clear path to growth, which will begin to ramp up throughout 2015 coupled with a dividend yielding well over 5% propelling us to a nice growth trajectory in 2016 and beyond.

As for the business outlook, population increases are projected for many states and overcrowding situations are a continued challenge at the state and federal levels, which indicate a need currently and in the future for solutions we provide. We are encouraged by the economic outlook for state and federal budgets while being keenly aware that public sector investments in new government-owned capacity to deal with overcrowding and aging infrastructure are extremely limited and believe there are meaningful opportunities for CCA to expand its presence in the US marketplace.

That concludes our prepared remarks. Thank you again for calling in to today's conference and let me now turn the call back over to the operator for Q&A.

(Operator Instructions). Brian Ruttenbur, CRT Capital.

Just have a question around the guidance that you gave. In terms of facility-level margins, it appears that with the D&A and interest changes because of North Texas, that the facility-level margins are going to go up dramatically year-over-year. Is that what we should be looking at?

Yes, that's a great question, Brian. It's something we're thinking about because if you just continue to report the GAAP expense, the depreciation and interest component as depreciation and interest instead of rent, you are exactly correct. That would have resulted in outsize margins that are probably not realistic. So one of the things we are thinking about doing is just adjusting the operating expenses -- if you are looking at the per man day -- statistics to include the depreciation and interest that is really what we consider rent expense. So something we are considering as we publish our per man day statistics in 2015. We will certainly be clear as to how we are presenting that, but you are right in looking at it that way.

Okay. And then the second question was about new bid activity. Is there going to be increased activity? Is it first, second quarter? What are you seeing from the last quarter to this quarter? Are you seeing any increases, decreases? I'm just trying to get a trend line where things are going.

I would say that you are probably going to see over this quarter and kind of early second quarter I would say states just treading water just so that they get a good sense of what their budgets are going to look like going into the new fiscal year, which as you know is July 1. But as I mentioned in our prepared remarks, we are encouraged seeing some budget proposals like Arizona where they are looking to use more and more of the private sector in future fiscal years. So I think the activity -- you will see maybe a little activity during the first half of the year, but I think as we get into the middle of the year and states get a clearer sense of what their budgets look like then you could see that picking up.

Great. Thank you very much.

Brian, one more point on that. There was no depreciation or interest in Q4. So when you are looking at the per man day statistics for the fourth quarter of 2014, that would have no impact, so that discussion is really only applicable to 2015.

Perfect. Thank you very much.

Kevin McVeigh, Macquarie.

Thanks for all the detail. Hey, Damon, it sounds like, in terms of state trends, Arizona, Tennessee are being more kind of -- aggressive is not the right -- but using you folks quicker than Oklahoma or Ohio. In terms of Oklahoma, Ohio, is that something you expect to play out in 2015 as they get more visibility on the budgets, or is it the political climate, or am I just kind of overthinking the comments here?

I think it's the first part. As I mentioned earlier, states are right in the thick of their budget season and it's really not unlike what happened in Tennessee and Arizona. Before they moved forward on Trousdale here at Tennessee or Arizona, they wanted to -- at that respective time -- this goes back a year or two years ago -- just get some clarity of making sure they had funding for new incremental beds by the private sector for the new fiscal year.

So it's not unlike in past cycles in states where we've got these new contracts, so I think, as I said earlier, as you get a little later in the season, states get a better feel for their budgets and you've got these Department of Corrections that are either growing and/or overcrowded then I would give them a little more comfort and confidence to go ahead and move forward on a new contract or expanded contract.

Got it, got it. That's helpful. M&A in the sector, obviously there was a fairly large transaction in one of your competitors. As you think about putting capital to work, how does profitability scale up on counties versus your core business and just any thoughts as that plays out? Does that help the pricing as consolidation moves forward here?

Well, I would say generally, and it's always been the case for the history of the Company and for the industry, that if you got increased utilization both public and private and you see occupancy go up, especially in the private sector, then that could have a meaningful impact on pricing. So I think that could continue to play out, so if you see beds being absorbed by the private sector, not in a dramatic fashion, but it would have a modest impact on our pricing ability around the country.

Super. Thanks so much.

Tobey Sommer, SunTrust.

This is Frank in for Tobey. Can you talk a little bit about some of the proposed prison reforms and what impact they might have on federal spending levels and what impact that might have on the business?

Absolutely. So a couple of answers there, one of which is, as you see I think with any new Congress, either a new bill is introduced or maybe a bill from previous session is reintroduced and we think generally as I think about those various bills they really are consistent with not only what's been done historically, but also we provide a lot of solutions that those bills are trying to achieve. So for example, there are several bills that are trying to figure out ways to reduce costs within the prison system, reduce overcrowding, utilize more programs within facilities to help reduce recidivism and so that's right in our wheelhouse. So you see these at both the federal level and at the state level.

They could have, depending on the proposal and what exactly they are trying to achieve with those various bills, have an impact on population. But with the end goal of being more successful with programs within facilities and also trying to reduce costs with correction systems, again, that is right in our wheelhouse and those are solutions we can provide both at the state level and the federal level.

Okay, great. And can you talk a little bit about the hiring environment out there right now, what initiatives you are to kind of get good people and keep them and --?

It is -- generally I would say as I look across the country, we are still in a pretty good environment with the labor and workforce and being able to attract and retain employees. We do have spots just like probably other companies and other industries where you do have some challenges, most notably I would say in the southern mid-southern part of the country where you've got the activity in the oil and gas fields. Obviously, that has changed here in the last 3 to 6 months because of the issues with the energy prices, but we do have some spots where we have had to maybe take it up a notch or two and be more aggressive to make sure that we are recruiting and retaining workforce, but I would say generally we are in a pretty good environment and we have continued to enjoy historically low turnover levels. So in the Company as a whole -- and part of that is obviously being competitive on the salary and wages and benefits, but also redoubling our efforts on engagement and making sure our sites are not only safe and secure to operate in, but it's a good place to work and have a career, so we've spent a lot of time on the what I'd say noncompensation efforts to improve turnover and retention; but overall it's a pretty good environment, but we need to keep a close eye on it.

Great. Thanks. That's helpful.

(Operator Instructions). Brian Hoffman, Avondale Partners.

Good morning. Thank you for taking the question. You talked about the US Marshal trends for 2015 and how you expect that to stabilize after the first quarter. Can you talk about trends that you are seeing or expecting for the BOP?

Yes, it's a ripple effect, as you know. So the marshals is the first stop of a federal prisoner and then if they are convicted and ultimate [sentence] of a crime then they will be handed over to the BOP. So we think that marshal populations will stabilize for the reasons I said earlier and then that will have an impact on the BOP, but that will be later, we think this year going into next year. Now the Bureau of Prisons, as you know, has got a few -- not to say reforms, but the Sentencing Commission made some changes relative to certain inmates that would be eligible for early release, so we think that will kind of work its way through the system through 2015. But to the first part of your question as it relates to the population of the Bureau, seeing the marshal stabilize then should have a ripple effect for the Bureau of Prisons later this year going into 2016.

Got it. Thank you. And then you mentioned that Otay Mesa and Trousdale negatively impacted the quarter by $0.04 due to startup expenses. Do you expect that to continue over the next several quarters before those facilities open?

Let me clarify that, Brian. I'm sorry, I was talking about the 2015 numbers. So the 2015 guidance includes startup expenses in Q4 2015 in anticipation of commencement of that contract in early 2016 and then the transition of the inmate population from San Diego to the Otay Mesa Detention Center in Q3 2015, so you've got a $0.04 drag in 2015.

Got it. Okay, thank you for the clarification. And then last question for me, can you give any sort of guidance or help us think about how to think about revenue contribution from the South Texas contract because the $21 million that you got in the fourth quarter -- clearly you only had 480 inmates or residents for a portion of the quarter, so just any color in terms of how we can expect that revenue to ramp as that contract ramps over the next several quarters? Thank you.

Sure. For obvious reasons, we don't disclose per diem rates or provide contract-specific economics, but I can say that the NOI will reflect risk-adjusted returns based on our pricing of the agreement with ICE. That contract contemplated the short-term duration of the contract, the unprecedented accelerated commencement and ramp schedule that ICE requested, as well as some uncertainty in the cost structure, including external versus internal staffing, T&E or combinations for that staff at the facility and a competitive market rate for salaries as Damon was just discussing in that area. We are charged with staffing a 2400 bed facility over a very short period of time, so all that was considered in our pricing and negotiations with ICE. The facility and services are being provided through a unique -- they are highly customized to meet the unique needs of the residents placed in our care there.

And then finally I would say the rental rate with a third-party lessor reflects the capital investment that they had to make to install the facility infrastructure, including courthouses, some dining facilities, educational facilities, recreational areas and all that on an unprecedented acceleration timeframe. So that's really the reason behind a very high per diem at that facility. It's not actually a per diem; it's a fixed monthly payment. It was graduated during the ramp period, but becomes fixed beginning in February. But if you translate or just do the math on a per inmate basis, it's a high per diem, along with very high costs, as I was just discussing. Very high costs associated with that facility, so the margins are actually lower in the fourth quarter, a little bit lower than the average facility in our owned and managed portfolio. But we have never provided consolidated revenue guidance, but recognizing that revenue is only half the equation for NOI and the difficulty in modeling the financial impact of the facility, we've inserted into the press release the calculation of EBITDA and adjusted EBITDA to help you with that.

Great, thank you.

This does conclude the Q&A portion of today's conference call. At this time, I would like to turn it back over to Mr. Damon Hininger for closing remarks. Please go ahead.

Erika, thank you and thank you for your time and participation today. More importantly, thank you for your investment in CCA. Your management team is focused on executing on another good quarter as we begin 2015 and we look forward to reporting on our progress during the course of the year. Have a great day. Thanks again for calling in.

I'd like to thank everybody for their participation on today's conference call. Please feel free to disconnect at any time.