CoreCivic Inc (CXW) 2017 Q1 法說會逐字稿

Good morning. My name is Rochelle, and I will be your conference operator. As a reminder, this call is being recorded. At this time, I'd like to welcome you to the CoreCivic's First Quarter 2017 Earnings Conference Call. (Operator Instructions).

Thank you. I would now like to turn the call over to Cameron Hopewell, CoreCivic's Managing Director of Investor Relations. Mr. Hopewell, you may begin your conference.

Thanks, Rochelle. 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 Private Securities and Litigation Reform Act. Our actual results or trends may differ materially as a result of a variety of factors, including those identified in our first quarter 2017 earnings release and in our Securities and Exchange Commission's filings, including Forms 10-K, 10-Q and 8-K reports.

You are also cautioned that any forward-looking statements reflect management's current views only and that the company undertakes no obligation to revise or update such statements in the future. This call will include a discussion of non-GAAP measurements. A reconciliation of the most comparable GAAP measurement is provided in our corresponding earnings release and included in the supplemental financial data on the Investor page of our website that can be found at www.corecivic.com/investors.

With that, it's my pleasure to turn the call over to our President and CEO, Damon Hininger.

Thank you, Cameron, and good morning, and thank you to everyone for joining our call today. Also joining us here in our room is Vice President of Finance, Brian Hammonds. 2017 has been off to an extremely fast start due to a multiple of opportunities that we've seen to provide solutions for our government partners across each of our 3 lines of business.

Like most of you, we've closely followed the developments with the transition of the new administration at the federal level, which will continue over the next few months as numerous leadership appointments remain unconfirmed. At the same time, we've also been busy marketing our unique and cost-effective real estate solutions and pursuing opportunities with all levels of government.

Year-to-date, we have been actively engaged with opportunities representing well over $1 billion in new real estate development projects. Not all of these are likely to come to fruition, but we believe that magnitude speaks to the positive market responses that CoreCivic brand and a diversed range of solutions we bring to the table.

Our financial performance in the first quarter was strong compared with our initial forecast provided in early February. We generated adjusted diluted earnings per share of $0.43 and normalized funds from operation per diluted share of $0.63, exceeding the high-end of our guidance by $0.04 and $0.05 per share, respectively. Dave will walk you through all the details relating to our performance in the quarter, but more generally, we are efficiently manage operations and expenses across our entire facility portfolio and overall utilization was modestly better than our previous forecast.

Our forecast for the balance of the year has various puts and takes from our previous financial guidance, some of which I will highlight. Importantly, our guidance also does not include any additional new contracts or accretive acquisitions of which, however, we see the potential for multiple throughout the year.

In recent quarters, we have discussed increasing need at the state level and shortly following the close of the first quarter, we contracted with the State of Ohio to house up to 996 offenders at our Northeast Ohio Correctional Center on behalf of the Ohio Department of Rehabilitation and Correction.

On our last call, I mentioned the availability of capacity at our Northeast Ohio Correctional Center and the state's need for additional correctional capacity given their system was operating in excess of 130% of design capacity. We are very proud of the high-quality service our staff at the Lake Erie Correctional institution has provided over the last 5 years, which has provided us this opportunity to expand our partnership with the state to a second facility, and we look forward to commencement of the amended contract in July.

We continue to actively pursue additional opportunities, most notably, in Oklahoma and Kentucky, as well as other states that are not publicly disclosed. Included in the new contract with the State of Ohio, we have the potential to absorb over 8,000 beds or more than 10% of our total company-own beds in 2017 with new contracts with state customers in both idle and active facilities.

Additionally, we continue to see meaningful progress of promoting new real estate solutions offered by CoreCivic Properties with more states considering a privately financed solution to address their aging prison infrastructure. In the last few months, 5 states have publicly disclosed that they're considering a public-private partnership approach to replace outdated prison capacity that would result in the long-term lease of new real estate solutions from the private sector. Alabama, Kansas, Vermont, Wisconsin and Wyoming have acknowledged their interest in evaluating such a solution.

In these institutes, CoreCivic will design, finance and construct a state-of-the-art correctional facility to the exact specifications of the state partner to replace inefficient and outdated government-owned facilities. And upon completion of construction, we would commence a lease agreement with the state that would continue to provide the operations at the new facility. These kinds of transactions allow governments to: One, avoid tapping bonding capacity and spending hundreds of millions of dollars from the taxpayers to replace their prison infrastructure. Second, shift the risk of keeping a large-scale prison construction project on time and on budget, which has been a consistent problem with government-directed prison construction projects through a lease agreement negotiated prior to the construction of the facility. Third, avoid spending any taxpayer money until the facility construction is complete and the certificate of occupancy is obtained. Four, generate day--to-day operational cost savings from operating a modern efficient facility and shift the responsibility of maintaining the facility to CoreCivic, allowing for a comprehensive facility maintenance program that is no longer impacted by year-to-year budget constraints, which often result in significant deferred maintenance on government-owned facilities.

This is all the while the state maintains complete operational control of the facility. We believe these type of transactions offer a compelling value to governments looking for solutions across a broad spectrum of property types, and we will continue to cultivate and pursue these opportunities.

In addition to the publicly disclosed opportunities, we are actively engaged in discussions with a number of other state and local governments who are interested in similar solutions. Our confidence in the growth potential for CoreCivic properties continues to increase as we engage with more potential partners.

During the first quarter, our state occupancy rates were largely consistent with the fourth quarter of 2016 aside from modest increases in our 2 Colorado correctional facilities due to underlying population growth the state has recently experienced and an increase from Hawaii at our Saguaro correctional facility as the state is renovating the housing unit at Halawa-Aiea correctional facility and needed to relocate populations during this construction. The occupancy increases were partially offset by a reduction in the number of California Centers housing our 2 facilities outside the state.

If you recall, in January of this year, the Governor of California released his initial budget proposal for fiscal year 2018 beginning on July 1 of 2017. The Governor expected the new regulation resulting from Proposition 57 to be implemented this year and allow the state to remove all offenders from 1 of the 2 remaining out-of-state facilities. We have worked closely with CDCR as they began to gradually draw down population at our 2,600-bed Tallahatchie County Correctional Facility, Mississippi during the first quarter and have focused on consolidating out-of-state populations to more absolutely occupy our 3,000-bed La Palma Correctional Center in Arizona.

Today, we are housing approximately 3,000 inmates at the La Palma facility and approximately 1,300 offenders at the Tallahatchie County facility. We have identified multiple potential partners that have interest in available capacity at our Tallahatchie County facility and will provide updates in the future on these marketing efforts. We are also closely watching the trend in the state's overall corrections population, which in recent months has grown more quickly than the last projection issued by the state.

Later this month, the Governor will release the May revision of his fiscal 2018 budget proposal, which will provide us with an updated view of the state's expected utilization of the out-of-state capacity.

On a year-over-year basis, our state level performance was positively impacted by the full utilization of our 2,552-bed Trousdale Turner Correctional facility in Tennessee during the first quarter of 2017 versus the facility beginning its operational ramp in the first quarter of 2016. The current quarter also benefited from the ramp up of our newly expanded 2,024-bed Red Rock Correctional Center, which began in the middle of 2016. Both capital projects were completed on time and on budget.

Moving next to discuss the only competitive rebid outstanding with a state customer. During the third quarter of 2016, the Texas Department of Criminal Justice or TDCJ, solicited proposals for the rebid of 4-state jail facilities we currently manage for the state. The current managed-only contracts for these 4 facilities are scheduled to expire on August of 2017. The 4 managed-only facilities have a total capacity of approximately 5,000 beds and facility level net operating results were approximately breakeven during the 3 months of 2017.

On March 31, the TDCJ notified us that in light of the current economic climate as well as the fiscal constraints and budget outlook for the TDCJ for the upcoming fiscal year, they will not be awarding the contract for the Bartlett State Jail. One of the facilities included in the aforementioned rebid but instead, they have decided to close this managed-only facility.

We are in the process of working with TDCJ to help ensure a successful conclusion of operations at Bartlett and continue to wait a decision regarding the remaining 3 facilities. In summary, we have experienced very robust activity at the state and local levels both in terms of new contract awards favorably impacting first quarter results as well as promising potential new opportunities. The remainder of my comments will focus on recent developments at the federal level.

I will touch on recent budget developments and provide an update on our outlook with Immigration and Customs Enforcement, the Federal Bureau of Prisons and the United States Marshals Service. Congress have until tomorrow evening, May 5, to provide or to pass a bill to fund the Federal Government through September 30, 2017.

Over the weekend, it appears that Congress came to an agreement on the fiscal year '17 Omnibus package that would fund the remaining 11 appropriation bills through the end of the fiscal year. I will describe later in more detail, but this package will give updated funding levels and policy guidance for all federal agencies, including those agencies who we do business with. We expect the Congress to pass and the President to sign on this Omnibus Bill before the end of the day on the 5th.

The highlights in this package for Immigrations and Customs Enforcement include $6.4 billion for ICE, which is $550 million over FY '16 enacted levels. $3.7 billion for detention and removal programs. Within this amount, the bill provides ICE with the funding necessary to maintain an average of 39,324 detention beds over the fiscal year 2017, an increase of 5,324 detention beds and nearly 15% over the previous fiscal year.

There are multiple factors that could lead ICE to contract for additional capacity. However, the current trends and data reported by ICE appear to suggest additional needs may not be required immediately. The latest data on total apprehensions by the U.S. Customs and Border Protection along the Southwest border declined substantially in February and March of 2017.

During this time, we saw a modest decline in utilization in our ICE facilities consistent with our initial forecast provided in February, which assume utilization would not remain at the very high levels we experienced in the fourth quarter of 2016. While there are typically seasonal declines in illegal border crossings and apprehensions in January and February, the declines experienced this year were larger than historical norms and the declines continued into March.

Leadership at DHS has attributed the declines to the implementation of new policies and executive new orders issued by the new administration, which have resulted in fewer attempts to illegally cross along the Southwest border. The number of illegal crossings typically increased in the spring and summer, so we could do see the trends experienced early in 2017 begin to reverse. Given how quickly the rate of apprehensions can change along the Southwest border, this tends to have a quickest impact on the capacity needs of ICE and could drive a need for the flexibility of additional capacity assuming sufficient funds are available.

The Attorney General recently announced a renewed commitment by the Department of Justice to pursue criminal immigration enforcement and instructed all federal prosecutors to prioritize immigration-related offenses for prosecution. Border patrol agents has also been instructed to no longer release individuals apprehended illegally crossing the border into the interior of the country, commonly referred to as catch-and-release. A policy has been routinely been used in the past.

While we wait to see how these policies will be implemented, they would appear likely to increase the detention capacity needs for ICE over the medium to long term. An additional factor that will impact the long-term needs for ICE is the rate of apprehensions within the interior of the country. Interior enforcement under the new administration has been a focus of many media reports. The number of ICE arrests in the interior of the country from January through mid-March 2017 increased approximately 33% over the same period in 2016. The administration has indicated a desire to hire approximately 10,000 new ICE agents in order to increase the agency's resources for enforcing immigration law. But doing so, will require additional funding from Congress.

Assuming additional funding is granted, it would also take multiple years to screen, hire and train that many additional agents unless current hiring policy is significantly streamlined. So we believe that meaningful increasing interior enforcement will take the agency some time.

All of these factors led into our continued believe that ICE may have many needs that warrant expanding our partnership over the long term. We have successfully worked with ICE, and as predecessor agency INS for 34 years, and we believe our record of providing high-quality operations and needed flexibility will position us well as new needs arise.

Speaking of our long-standing partnership. Last month, we announced a 1-year extension of our contract with ICE at our 1,000-bed Houston Processing Center, a contract dating back to 1984. The extensive period will allow sufficient time to negotiate a long-term contractual agreement potentially through an inter-governmental service agreement with a local municipality. The facility is ideally located near the southern border and is closed proximity to the ICE Houston field office. We believe ICE will continue to have significant demand for the facility over the long-term, and we are proud of the confidence ICE has placed in CoreCivic throughout the 34 years of operation at the Houston Processing Center.

With respect to the fiscal year '17 omnibus agreement, funding for the BOP would remain relatively stable with no meaningful changes to its typical funding levels. The highlights in this package for the Bureau of Prisons include, language in the agreement that requires the BOP to develop and submit a capacity realignment plan no later than 90 days after enactment of the fiscal year 2017 Omnibus Act. However, the bureau's overall offender population still sits near a 189,000 or approximately 28,000 below its peak from 3 years ago.

To that end, on April 30, 2017, our contract with the Federal Bureau of Prisons at our 1,422-bed Eden Detention Center expires. Our contract at Eden was part of the CAR XVI rebid, which was a competitive rebid of 10,800 beds provided by the private sector to the BOP in the State of Texas. There still has not been a formal award announcement but the Bureau has indicated that it will ultimately only award 3,600 beds as part of the procurement, and we are hearing it could be awarded any day now. However, 2 weeks ago, the BOP issued a free solicitation notice for CAR XIX, which is for the management and operation of privately-owned correctional facilities for up to 9,540 beds with each facility having between 1,200 and 1,800 beds.

The formal RFP is expected to be released on May 24 and responses are due on July 24. The presolicitation did not state when contract awards would be announced or when contract performance would commence. However, we are encouraged with the Bureau's decision to continue to partner with the private sector to meet its system-wide needs. Between CAR XVI and XIX, the bureau would add a minimum return to utilization of private sector beds to similar levels as prior to the DAC memo from last August.

We are disappointed with the decision to allow our contract at Eden to expire, but we do know the facility will be highly competitive option for the pending CAR XIX solicitation. We also believe that Eden facility would be an attractive option for ICE given its location in the Southern border should the demand for detention capacity materialize.

Looking finally at the United States Marshals Service, the average daily detainee population in the first quarter of 2017 was relatively consistent in most districts, except for declines in the Arizona and Texas districts, primarily due to a lower number of prosecutions related to immigration offenses.

With respect to the FY '17 Omnibus agreement, funding for United States Marshals Service would remain relatively stable with no meaningful changes to its typical funding levels. The recent changes to prioritize prosecution for immigration-related offenses announced by the Attorney General, which I mentioned earlier, may lead to increases in an average daily detainee populations over the medium to long-term, particularly in districts along the Southern border. But the reduced utilization in Arizona did provide for a modest headwind because we provide approximately 4,100 beds to the Marshals at our operations in Florence, Arizona.

We have updated our 2017 guidance to reflect this short-term reduction in utilization of our Marshals facilities in Arizona, as Dave will explain in greater detail shortly. In the long run, the Marshals will be impacted by the resources available to and the enforcement priorities of the Department of Justice. The DOJ has many steps remaining in the transition under the new administration as the President and the Attorney General have many outstanding appointments yet to be announced or confirmed by the Senate, including numerous United States Attorneys, Directors for the Bureau of Prisons and the United States Marshals Service along with many other key positions.

As such, the transition of the new administration will continue for some time. However, we believe our value proposition and operational track record positions us well should the Marshals have additional capacity needs over time.

I'd like to close with an update on our pipeline of acquisition targets in the residential reentry market. In the first quarter, we completed 2 small acquisitions for a total of $7 million, 835-bed facility in Colorado and 100-bed facility in California. Both complementing our existing portfolio of reentry facilities in those respective states. We continue to cultivate and pursue attractive acquisition targets in the residential reentry market that will complement our existing portfolio and be accretive on an FFO per share basis. The pipeline is robust as it has been since we began our strategic growth initiative in this space 4 years ago, and we expect to continue a cadence of closing approximately 1 acquisition per quarter with valuations ranging from $5 million to $50 million.

With that, I'd like to turn the call over to Dave to review our first quarter 2017 financial results and provide additional details on our updated full year 2017 financial guidance. Dave?

Thank you, Damon, and good morning to everyone. In the first quarter, we generated $0.42 of EPS and $0.43 of adjusted EPS compared to our guidance range of $0.37 to $0.39 and $0.05 ahead of consensus estimates. Normalized FFO totaled $0.63 per share compared to our guidance range of $0.57 to $0.58 and $0.06 ahead of our -- ahead of consensus estimates. AFFO totaled $0.62 per share ahead of our prior guidance range of $0.55 to $0.56 and $0.07 ahead of consensus estimates.

Our per share results exceeded our forecast as revenues and operating expenses were both better than anticipated by about equal amounts in our internal model. As you may recall from our comments last quarter, we did not expect the elevated population levels from Immigration and Customs Enforcement experienced during the fourth quarter of 2016 to be sustainable. And therefore, our population projections in the first quarter were lower than the fourth quarter. While federal population level did in fact declined during the first quarter, they did not decline at the pace we had projected. Operating expenses were also lower than forecasted as expense controls achieved during the fourth quarter were, again, realized in the first quarter.

AFFO per share further exceeded expectations by more than EPS and FFO per share because maintenance capital expenditures on real estate were $2.1 million lower than expected. Maintenance capital expenditures can fluctuate from quarter-to-quarter, although they are typically lowest in the first quarter. We have maintained our annual guidance for maintenance CapEx on real estate, so we expect the outsized AFFO performance in the first quarter relative to EPS and FFO to contract in future quarters.

Adjusted EPS of $0.43 was 7.5% higher than the prior-year quarter of $0.40, while normalized FFO per share increased by 5% from the prior year quarter. This earnings per share growth was generated from the successful execution of numerous business and strategic development activities within each of the 3 CoreCivic branded government solutions.

Growth in CoreCivic Safety included a full quarter under a new contract with the State of Tennessee at our Trousdale Turner Correctional Facility activated in January 2016. A new contract with the State of Arizona at our newly expanded Red Rock Correctional Center completed in January, 2017. And higher-average daily populations from ICE across multiple facilities when compared with the prior year quarter. Growth in CoreCivic Community included 4 acquisitions totaling $50 million for 10 residential reentry centers from the beginning of 2016 through the end of the first quarter of 2017, including 2 small acquisitions during the first quarter for $7.1 million.

Growth in CoreCivic Properties included the execution of a new lease with the State of Oklahoma at our North Fork Correctional Center effective in May 2016. The positive impact of these transactions was partially offset by the previously disclosed renegotiation and extension of the contract with the South Texas Family Residential Center, which took effect in early November 2016 and a reduction in California populations.

Our balance sheet remains strong with leverage of 3.3x and fixed charge coverage of 6.7x using the trailing 12 months. We calculate leverage by dividing our total principal debt outstanding net of cash by adjusted EBITDA. Based on our updated guidance for 2017, which does not assume EBITDA from any new contracts, M&A activity or the impact on leverage for any capital markets transactions, our total leverage peaks at 3.6x.

At March 31, we had $43 million of cash on hand and $468 million of availability on our $900 million revolving bank credit facility and no debt maturities until 2020. We have no material capital commitments and are in excellent position to grow our cash flows in the current environment through the utilization of idle bed capacity, and have the flexibility to take advantage of M&A and other growth opportunities that require capital deployment.

Moving next to a discussion of our guidance. As indicated in the press release, adjusted EPS guidance for the second quarter of 2017 is a range of $0.35 to $0.36. Normalized FFO per share guidance for the second quarter is $0.54 to $0.55, while AFFO per share guidance is a range of $0.52 to $0.53.

For the full year, adjusted EPS guidance is a range of $1.50 to $1.56, up from $1.46 to $1.54 from our prior guidance. Full year normalized FFO per share guidance is a range of $2.27 to $2.33, and adds up from $2.22 to $2.30 from our prior guidance. And full year AFFO per share guidance is $2.18 to $2.24 compared with $2.13 to $2.21 in our prior guidance. The increase in our annual 2017 guidance reflects the Q1 beat and other business and operational improvements extending through the year partially offset by startup expenses and a measured ramp of Ohio inmates under the new contract with the State of Ohio. Our guidance is also tempered by lower federal populations and inmates from the State of California compared with our previous forecast.

There are a number of factors to note when crosswalking Q1 actual results to Q2 guidance and the rest of the year. First, as Damon discussed, apprehensions on the Southwest border were substantially lower late in the first quarter, which continued into April. With populations in our facilities typically follow the national trend, our forecast contemplates a continuation of these low levels of ICE and Marshals populations in the second quarter, gradually returning to more normal levels during the second half of the year. This reduction not only effects the crosswalk from Q1 to Q2, but also had a negative impact on our prior guidance, as I previously mentioned.

Although, we were directionally accurate in projecting the decline in ICE and Marshal populations during the peak winter months in the first quarter, it is particularly difficult to estimate how immigration and detention activity will be affected by policies of the current administration even though Congress has agreed on funding for the current fiscal year. A range of population assumptions has been incorporated into our guidance.

Next, during April, we announced that we contracted with the State of Ohio for up to 996 offenders to be cared for at our Northeast Ohio Correctional Center. We do not expect to begin the ramp until July, but have already begun hiring and preparing staff to receive the offenders in July with full contract utilization not expected to be complete until beginning of the first quarter of 2018.

This new contract negatively impacts the second quarter compared to the first quarter by $0.02 for startup expenses, which is included in our updated guidance. We expect this new contract to generate approximately $0.05 per share in 2018.

Finally and partially offsetting these negative fluctuations from Q1 to Q2, as you may recall from prior discussions, Q1 is seasonally weaker because approximately 75% of our unemployment taxes are incurred during the first quarter resulting in a $0.02 per share increase from Q1 to Q2 or lower unemployment tax expense in Q2 relative to Q1. This has always been in our forecast, and therefore, has no impact on our previous guidance.

Our 2017 guidance includes $0.05 per share net of interest expense generated from the 4 acquisitions of 10 residential reentry centers we have completed over the past 12 months, which essentially remains unchanged from our previous guidance. Although, we continue to pursue a number of attractive investment opportunities specifically in the reentry space that are accretive to earnings and FFO per share using our long-term weighted average cost of capital, our guidance does not include any new M&A activity. The magnitude and timing of our M&A activity is difficult to predict, and therefore, we will update our guidance on a quarterly basis if and when we successfully complete such transactions.

Further, we have been engaged in active discussions with potential customers at both the federal and state level to utilize our idle facilities and available capacity. The execution of the agreement with the State of Ohio is a good example. However, our guidance does not include any new contract awards beyond those previously announced as the timing on government actions on new contracts is always difficult to predict. Any new contract awards could also come with additional startup costs that are not included in our guidance either. The adjusted EBITDA guidance in our press release, which was increased by $5.2 million at the midpoint compared with our prior guidance enables you to calculate our estimated effective income tax rate of 5% to 6% and provides you with our estimate of total depreciation and interest expense for the second quarter and full year 2017. We expect G&A expenses to be between 5.5% and 5.3% of total revenue for each period.

I will now turn the call back to Rochelle, to open the lines for questions.

(Operator Instructions) And we will take our first question from Michael Kodesch with Canaccord Genuity.

Very comprehensive prepared remarks there. Just starting with Eden. I guess, I wanted to kind of ask a little bit about how you guys are approaching that? And maybe what you're hearing from the BOP in terms of bidding that and the CAR XIX. Seems a little awkward for them to let the contract expire and then month or 2 later, consider turning the facility back on. So, I mean, do you think that -- are you talking that up to government inefficiency? Or is that more of -- are you guys focusing more on pursuing an ICE contract there?

Michael, great question. This is Damon and let me tackle that one. I think, it's more the change in administration and the priorities of the new administration. But you're right. It doesn't quite makes sense when you think about, you've got a facility like Eden and other facilities in the CAR XVI letting them expire and then get to a recontract with them on the CAR XIX. But one thing we heard from the Bureau is that on the CAR XVI, they were really -- they are at the 1-yard line on awarding those contracts as we understand it. And so as they step back and kind of readvertise and took it up to 10,800 beds by their own estimates they said, it probably would take them a year to kind of rego through that process, readvertise it, get revised proposals and then award. But in their view is, let's just go ahead and put a bow on CAR XVI we've already got it. Basically, finalized with 3,600 beds, but I don't -- with that, I think it's no coincidence that when they are getting close as I said earlier, we think it could be any day now and award a CAR XVI. We think it's no coincidence that they have advertised for a 9,500 beds to CAR XIX. So I think that was a sign for both not only the operators like us but also local communities of what their plans are for additional capacity. So both on the quantity and the timing of the announcement we think that was timed somewhat close to what they're getting close to do on CAR XVI, which is the award. Anything to add to that?

Yes. And we don't know the start date when CAR XIX would begin. We'll find out more about that on May 24 when the solicitation comes out. But it could be that the BOP is really just looking for some savings over the next couple of years until they reaward.

Because the Marshals Service unit -- the leading indicator in the Bureau, as you know, Michael, it's the Marshals Service. And I said earlier, we've seen the decline in Texas and Arizona. So if that's not happening right now, that means they give the Bureau a little bit of breathing room on securing additional capacity. So to Dave's point, they can go into '18 and secure these beds and probably be fine from a capacity perspective. The other thing is another lead indicator which I alluded to in my comments is U.S. attorneys. And so there are a lot of U.S. attorney vacancies around the country, and so if you don't have the prosecutors, of course, that's going to effect the prosecutions. So I know the Bureau's looking at kind of those 2 numbers both on vacancies and U.S. attorney officers but also Marshals numbers. But also again, I indicated, they need additional beds but they probably could wait a little while and award CAR XIX a little further down the road.

Great. That's really helpful color. I guess, just one more question on CAR XIX. We saw that come out and it expanded the overall, I guess, procurement to 13,000 beds. Noticed that your Adams facility is up for renewal, I think, in July. It's got a 1-year renewal, I think, extension on it. Is that -- have you guys heard of that's being rebid into the CAR XIX contract? So essentially getting us back to the original allotment.

We have not heard that formally. We are watching that closely. But yes, we do have an extension period on that and we do understand that, that likely will come to pass, we'll do the extension, but as it relates to the CAR XIX or other procurement, we don't know anything formally.

Right, fair enough. I guess, moving on to your community acquisitions and your pipeline there, are you guys seeing any other big portfolios out in the market? I mean, anything like Center Point? I think, CEC was kind of the last big whale that got taken out. But are you guys seeing any other portfolios there?

Yes. Michael, there really are not a lot of large portfolios out there. CEC was obviously the largest. Our acquisition of Avalon in '15 was probably the second largest community corrections provider in the country. And as you know, it's a very fragmented market, full of very small operators of nonprofits, the real estate may or may not be owned and operated by the same entity. So it is really a roll up strategy and it's identifying, sourcing those opportunities, trying to find out which ones are interested in selling. So unfortunately, there's not a lot of large portfolios to acquire. But the ones we are finding, we are finding very attractive and very accretive even though they are small dollar amounts and show our efforts to try to consolidate and acquire as many as we can at the attractive prices.

Yes. Okay. And then, just 1 last one for -- I have to ask a question about ICE. Of your idle capacity out there, I think, you've got a couple of kind of belong to Southern border there and with the Eden now obviously back there, that could make lot of sense too. But which facilities do you think make the most sense from ICE's perspective?

Yes. We've got facilities from Kentucky to Colorado that are either partially utilize or completely vacant today. So let me first talk about the facilities that we don't think would probably make a lot of sense for ICE because we've got line of sight near-term in some opportunities. And that is -- there are 3 facilities in Kentucky, so again, we think we're really in good shape on potential utilization of 1, if not all, 3 facilities there with [the state of] Kentucky based on their needs and also their growth. And then also we continue to hear great interest from the State of Oklahoma about our Diamondback facility. So those 2 states collectively vacant capacity is about 4,500 beds. So we feel like we've got good line of sight with those 2 partners in those 2 respective states. So with that, we don't think those are really in line for ICE opportunities. But we think that in addition to Eden and also some incremental capacity we've got in Arizona, we think the capacity we've got in Tallahatchie could be of interest to ICE, especially, with its close location to Memphis, which is a big hub. And then also our facility up in Minnesota, which is the Prairie. So we're hearing that as I mentioned earlier, with the increased privatization of interior enforcement that in years past, where there has been more kind of interest and demand for beds on the Southwest border there actually could be some interest on capacity in key locations. These are -- we've got a lot of resources with transportation like Memphis or also some activities that have gotten on the Northern border. So we think those 2 facilities would be notable in addition to what we've got on Southwest border for ICE.

Great. That's super helpful. Just 1 last quick one because you mentioned it, and then I'll hop back in the queue. But on Minnesota, you mentioned, you guys are probably looking at ICE there. Have you guys kind of abandoned the thought of going with the state there? I know the state was kind of pursuing it but back-and-forth in the assembly?

Absolutely, not. Minnesota, we think could make a lot of sense for that facility. It's a new modern facility. It's a state that has had some growth and overcrowding and has got some back up of population in local jails. So we'll continue that conversation. So we've got a kind of multi-path approach for a solution there at the Prairie. So we think it's a bit of the ICE, but we also think it makes a lot of sense for State of Minnesota.

And next we'll move to Tobey Sommer with SunTrust.

I was hoping that you could comment a little bit further about 2 seemingly kind of divergent trends. One, is the current [detainee population] trends at ICE coming down from the winter activity, and the expectations that demand and contracting to support future needs is going to drive growth. How do we kind of see that unfolding? How long does it take to get to actual new contract announcements do you think?

Yes. Great question. So sitting here today, Tobey, this is Damon. I think that it's a notable, very notable that ICE got approval for funding for over 39,000 beds. And we're doing a little homework on this yesterday. But it's been about 8, maybe 9 years that ICE has gotten this amount of increase year-over-year in funding. So we think an increase of 15% or about 5,000 beds is really notable. So I think that just shows, one, kind of expectation in their mind what the need is and also support they've got from Congress. The second to your question about contracts. So we've got some contracts already with ICE today that are underutilized. So part of that capacity growth we think is not as a new contract, but just more optimization or increased utilization of existing contracts with ICE. And our sense is with others either at the local level or some of our peers within the industry, that's probably the case too to where they've got contracts already in place, but just have opportunity to provide more capacity under those existing contract vehicles. So new contracts we think could be triggered by the new funding for fiscal year 2018. And we've kind of heard numbers kind of all over the board on potential increased utilization they want for the next fiscal year, which is [going to] start on October 1. But as we get closer to probably September because August is going to be the recess for Congress. As we get into September and they're kind of circle around a number for ICE, then I think that's where you could see potential activity on new contracts for increased utilization for ICE for the detention needs going to the new fiscal year.

Okay. From a broad perspective, you had a range of kind of the customer behavior about near-term either opportunities or maybe withdrawing a little bit of a near-term to only come back to market later. I'm curious about your appetite for capital deployment for new construction in what kind of conditions or terms you might need in that deployment to make you feel comfortable those are kind of big new center blocks (inaudible)?

Tobey, let me make sure I'm following your question. Are you talking about specific customer or are you just talking more generally about capital deployment?

I thought I'd let you answer it generally, if you -- ICE seems to have the most kind of volatility ups and downs, though I have them in mind, but a general answer would suffice.

Yes. Let me take it generally and then I'll provide a specific thoughts on ICE. So generally, we've got a state like Georgia, which we've had a great runway there with solutions that we provide that state and we provide a great solution on the programmatic side. I said this last quarter, but I'd love to say it again. We had #1 and #2 in that state facilities that had most GED completions in 2016. So very proud of our team in Georgia and what they've done for that state. But if Georgia came into market and said they needed a new facility and they've typically have done contracts for 20, 25 years then, yes, we would be very aggressive on pursuing that opportunity and growing capital for additional capacity either expanding facilities or building new facility. So generally, if you got a partner either where we do business today or we feel good about kind of their long-term needs and support to the private sectors and yes, we'll be very aggressive on that front. As it relates to ICE, the view we've had here in the last couple of months is that if we've got vacant capacity in places like Minnesota or Tallahatchie, then we're going to be very aggressive and providing great solutions that are very comprehensive and providing the solution, I should say, for the mission for ICE. So no capital deployment. So that's a pretty straightforward answer. But if it is the case where ICE came to us and say, "Hey, we want a facility or need an expansion to existing facility" then that would be a little longer conversation. And we would want to understand how the long-term need and then also with that get some of our risk mitigated through contract terms, either through compensation or length of term or potential fixed payment. So that would be a little longer conversation with ICE. That conversation gets a little bit easier as you may have heard me saying here recently is that, if it's an expansion at a facility that we've got in Laredo or in Eloy, Arizona or in San Diego where the capital is probably pretty modest. So we're just leveraging the base operations then that's probably a little easier conversation. But it will be a little longer conversation because, again, we didn't want to have a pretty good view of kind of long-term demand for ICE if we had to deploy capital. Anything to add to that, David?

Obviously, coming 10,000 idle -- beds in idle facilities across the country, we think we've got plenty of capacity to accommodate any demands from our federal partners. So there wouldn't be a -- they're just conveniently located. So we wouldn't need to deploy capital except for the circumstances in which Damon mentioned.

Okay. And then [since it has been so long since ICE has discernible] increase in funding for beds. I was curious if you could recall some sort of relationship between ICE's populations and the populations in demand at the other 2 federal agencies and kind of the extent to which those interplay. In other words, does an increase in the ICE activity impact the other 2 customers?

That's a good question. Let me think about that for a minute. So we're doing a little homework on ICE's funding yesterday. As I recall, it was really kind of 2008, 2009 fiscal years where you saw pretty [meagre] increase year-over-year on ICE funding. But thinking back about that time with Marshals and BOP, BOP was growing. They were growing up until 2013. So I couldn't tell you how close and parallel they were in growth. But there was growth there from 2019 to 2013 with the BOP. And Marshals Service I want to say, they -- I think that during that period of time too, I want to say 2006 and 2007, I think they saw a little bit of decline nationwide, but I want to say it about the same period of time. There is some linkage there, and so it could be the case where you see the same thing here is with this increase funding for ICE. And as you know, Tobey, it's not -- virtually the same timing ICE and might see utilization go up pretty quickly, whereas Marshals and BOP is a little bit more gradual over time.

Just 2 questions from me, if you could elaborate on the real estate-only solutions and comment on your prospects to get something done here in 2017 as well as give us an update on how this ICE population in the South Texas family facility is pending.

Absolutely. So let me tackle both of those. So the first one, we feel really good about the real estate-only solutions. I'd tell you what, we've had really 2 notable milestones here in the last couple of years. So first of which is, we blaze the trail on a lease with California in our Cal City facility and then last year, did a lease with Oklahoma at our North Fork facility, and both facilities have been great solutions in those 2 states. One thing I didn't appreciate when we got those solutions in place is that, if there is a boiler that goes out or if there's a leak in the roof, or you got the air conditioner goes out, we're there tomorrow fixing it. And what I heard from leadership here recently in Oklahoma is that, if that was one of their facilities and they had a boiler go out or had a leak in the roof, it may be weeks, months, if not the next fiscal year until they can get that fixed. So that's one thing I didn't really appreciate in this solution is that we're there tomorrow fixing whatever it may happen either because of natural disaster or a system failure. And as, again, part of the overall kind of a value proposition on these real estate-only solutions. But the second milestone is where we're at today. We've been talking about for some time about how this could potentially be a great solution for states where we don't have a footprint today, but where we can go in and develop a new project to replace an old antiquated facility. So I think it's really notable. You've got 5 states today talking publicly how the private sectors could be a great solution in their respective states. What's also notable is you got 1 state, which is Kansas, actually out in a market with a procurement. And I've been with this company now 25 years this month, and I'll tell you one of the hardest thing is for a jurisdiction to really go through the process, appreciate the value proposition and with that take the step for procurement. So we think that's really notable that you've got not only 5 states talking publicly, but you've got 1 actually going out in the market looking for proposals, we think that's really notable. So the last part of your question on this point is, we think very -- we think there's very good chance we could have one, if not a couple of states, that go ahead and get one across the finish line and actually accept one of these proposals for a solution to replace their old antiquated facility. Switching gear to your second question. We have seen just like with our other ICE facilities. We have seen a decline in our family population at our South Texas facility. So it's kind of in the overall kind of theme that ICE has shared with us in the leadership within DHS, which is this is really been an unprecedented decline since March through the early summer months. And so they kind of -- they're categorizing the whole issue with family population with the overall detention population nationwide which has been kind of unprecedented decline for a period of time as we come out of spring into early summer. Anything to add to those 2 points, Dave?

No. Nothing to add. Thanks.

And next we'll move on to Kevin McVeigh with Deutsche Bank.

Very helpful context. What type -- as you kind of think about the development opportunities, 2 full questions. What type of returns are you thinking about in terms of relative to historical goals across the group? And then, Damon, at some point, can those developments lead to owned and managed in terms of a longer-term opportunity? That's my first question.

Yes. So let me, I guess, your last part is the first part of the question, I get what you're saying. So we think that the real estate-only solution really opens the playing field for more opportunities with other jurisdictions. And so where you've got a state like Wisconsin or Vermont, that are talking publicly about private sector coming in and being a real estate solution for replacement of old antiquated facility, we see that long-term being just that. We provide the real estate, they do the operation. And so we've been very clear on that, that our goal is we want to be very, very respectful of what the wishes and desires are in that jurisdiction long term. So they're very clear in the front and saying, "Hey, this is all about we need real estate solution, there'll never be an opportunity to operate the facility," we're very comfortable with that. And again, with Cal city in California and Oklahoma, that's been the case in both the solutions, makes a lot of sense for those jurisdictions that we've been very, very happy with the returns on those 2 projects. So to your first part of your question is that on the returns, what we're thinking about is, we're thinking about these development deals is that it will be a little lower than our historical returns, which has been communicated to the market at 13% to 15% ROI or EBITDA return on capital deployment. We think it's appropriate for us to go below that just because, one, we don't have the operational risk and some of other risks that you have with the operation. So we think that could be in the high single digits on a return. But every situation, every project is going to be a little bit different. So it's going to determine based on the project itself, the length of the term, how comfortable we feel about that respective state, utilization of the facility long term, that will be instructive on how we think about the appropriate return. But I think high single digits would be appropriate for real estate-only solution if not lower double-digit.

Got it. And then, it sounds like you brought some additional capacity online. I mean, is that just given how robust the federal opportunity is to give yourself more room as opposed to -- because if you think back 6 months there was a lot of opportunity about the state level may be not as much at the federal. Is that just kind of service in both aspects of the business given robustness at the federal level? Is that the best way to think about it relative to -- because I know we're not building anything in terms of speculative from a longer-term perspective, I know that it was build out in [advance] to the demand this feels like it's a little more near term in terms of those beds coming online?

Yes. So make sure I'm following your question. Yes, we are -- have definitely taken our foot off the pedal [in any] speculative capacity. So you will not be hearing us talking about that, anything in the near term. But I think if we see a meaningful absorption in places like Kentucky and Oklahoma and all of the other opportunities that we've talked about we'll evaluate that. So it will be kind of a case-by-case either because we see some demand at the federal level, which sitting here today other than ICE, it's going to be a little bit of a wait and see. And -- but at the state level, if we see opportunities there then we'll evaluate that as appropriate. Most of the states that we've done business with is it's when you get, say, a new facility and a new contract, it could be the case where you should say simple conversation with us and them and say, "Hey, we are at full utilization in your facility, here is the 5-year forecast for all the population needs." And so maybe either we optimize or do a maybe smaller expansion in the facility to help accommodate maybe some additional growth. So I think it's about kind of the near-term, we've got a bunch of available beds at appropriate locations. We've got a lot of interest from ICE and other state partners. So I think the only real capital deployment we would have in the near-term outside of M&A on the reentry side would be these real estate-only solutions we talked about or maybe some potentially small expansions around the country that we have where we've got increased utilization with an existing partner.

And next we'll move to (inaudible) Kai with Philadelphia Financial.

I'm just wondering, do you have any update to the slide that you put out with pending facilities available for the lease that you enlisted last quarter? When will that slide be out? And are there any...

I'm not going to (inaudible). So we're preparing our investor presentation now, we'll be on the road in a couple of weeks. We've got this May 15 circled is the date we'll post that. And yes, we could probably put that same schedule that you're referring to. I think, I know what you're talking about with calculating what the impact on FFO per share would be, if we utilize all of our idle and underutilized capacity. And that number -- it's the same number, at least, as of quarter end, it was close to -- a little bit over 8,000 beds and then with Eden coming online it's getting a bit close to 10,000 idle beds. And I think last quarter, we said, that was about $1 in the calculation. But given some of the opportunities that we see, particularly, with certain states and with real estate-only solutions at least in 1 case they would not generate margins consistent with the average in the portfolio so it be more closer to that $0.65 to $0.75 per share.

And it does look like his line disconnected. We'll move on to Michael Kodesch with Canaccord Genuity.

Just one quick follow-up here. Just talking about how the ICE capacity utilization at your existing facility just kind of brought this question up. But what percentage of your ICE capacity or your ICE contracts are fixed price? I mean, are we talking about the upsides from the incentive part of the contract, I guess, you can stay or you can go above and beyond kind of set occupancy?

Well, I don't know if I got an answer for you on that one. I don't know if I can give you a number.

Yes. I'd say, most of them -- at least, in the fourth quarter -- take Q4 compared with Q1. In the fourth quarter, there was maximum utilization. And our contracts with ICE were well over the minimum guarantees. In our forecast, there is -- probably towards the lower end of that, there are a couple that are below the guarantee but they don't always last below the guarantee. So I'd say, our forecast is relatively conservative towards the low end of those guarantees. So not much downside, but some upside to the extent that, that utilization picked up.

Great. And then just lastly, on Leavenworth, obviously, the OIG report came out, which looked to be largely more oversight from the United States Marshals perspective. But I mean, should we expect anything else to come of that? Or I mean, are they pretty happy with your facility operation there, it's just going to be a little bit more oversight from their perspective? Or should we be expecting anything else?

Yes, Michael, nothing else. So yes, a lot of the recommendations were for the Marshals Service, I think they concurred on all of them, which we very much support and think that makes a lot of sense. There was, clearly, few a things that we could have done better but we've already rectified and take the appropriate action. But overall, very, very satisfied with the facility and with the operation from the Marshals Service perspective.

And at this time, I would like to turn the call back over to Mr. Hininger for any additional or closing remarks.

Well, thank you, Rochelle, and thanks, again, for everyone on the call for joining us today. Extremely -- to our investors, extremely grateful of your investment in CXW, and we look forward to reporting to you again with our second quarter results in early August. Thanks so much.

And that will conclude today's call. We thank you for your participation.