Corrections Corporation of America ( CXW)

Q3 2011 Earnings Conference Call

November 3, 2011 11:00 ET


Damon Hininger – President and Chief Executive Officer

Todd Mullenger – Chief Financial Officer


Kevin Campbell – Avondale Partners

Todd Van Fleet – First Analysis

Tobey Summer – SunTrust



Good morning everyone and welcome to CCA’s Third Quarter 2011 Earnings Conference Call. If you need a copy of our press release or supplemental financial data, both documents are available on the Investor page of our website at

Before we begin, let me remind today’s listeners that this call contains forward-looking statements pursuant to the Safe Harbor Provisions of the Securities and Litigation Reform Act. These statements are subject to risks and uncertainties that could cause actual results to differ materially from statements made today. Factors that could cause operating and financial results to differ are described in the press release as well as our Form 10-K and other documents filed with the SEC. This call may include discussion of non-GAAP measures. The reconciliation of the most comparable GAAP measurement is provided in our corresponding earnings release and included in the supplemental financial data on our website.

We are under no obligation to update or revise any forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events.

Participating on today’s call will be our President and CEO, Damon Hininger; and Chief Financial Officer, Todd Mullenger.

I’d now like to turn the call over to Mr. Hininger. Please go ahead, sir.

Damon Hininger – President and Chief Executive Officer

Thank you so much, (Gill). Good morning and thank you for joining our call today. With us today is our Chairman, John Ferguson and our CFO Todd Mullenger. Also joining us is our new Chief Corrections Officer, Harley Lappin and our VP of Finance, David Garfinkle.

In a few minutes, Todd will take you through the numbers for the quarter, then I’ll discuss market opportunities, after which we look forward to taking your questions. First though, I’d like to make some comments on the past quarter.

Let me start by saying that with this quarter, we accomplished a very significant industry milestone which is the purchase of the Lake Erie facility in Conneaut, Ohio. I will provide more commentary on this later, but we are very excited about the industry’s first purchase of a state-owned correctional facility. I am also very pleased with our third quarter results both operationally and financially. Our core business which remains us providing adult secure correctional and detention management services to our federal, state, and local partners remains very strong. As for the business going forward, we are living through a very favorable new development environment and macro environment is also very favorable.

For the second consecutive year, not one of the 50 states is appropriating money for new prisons which is going to further exacerbate the supply/demand imbalance. Additionally, in new state development we are seeing some potential partners come into the marketplace soon in a very meaningful way for new beds. For some, this is their first venture in using the private sector.

Finally, we are increasing occupancy within the system with considerable increases from the State of Gerogia and the United States Marshal Service during the year. And we get a new milestone recently with the United States Marshal Service, which has now have in nearly 12,000 prisoners with them around the country and that compares to 8100 on January 1st of 2010. Let me now say a few words about our focus on managing cost. As you know, we implemented a company-wide initiative in 2009 aimed at driving greater efficiency and we continue to make significant progress. We believe we had another good quarter on managing cost.

However, we did give merit increases this past quarter. And this is our first merit increases to our employees since 2008 and this cost obviously impacted on margin rate for the quarter. So, overall is very pleased with our performance in the third quarter. I would especially like to thank all those, my fellow CCA colleagues with their distinguished performance they have enabled us to achieve for our company this year.

Now, I would like to hand the call over to Todd to discuss the detailed financials. After which, I will discuss how we see the market and our opportunities going forward. Todd?

Todd Mullenger – Chief Financial Officer

Thank you, Damon, and good morning everyone. We’re very pleased with our third quarter operating results. In the third quarter of 2011, we generated $0.37 of EPS. The third quarter financial performance exceeded our forecast due primarily to favorable operating costs performance and our share repurchase program.

Revenue per compensated man-day in Q3 was essentially flat against last year, reflecting increases in per diems from certain federal and state partners offset by change in mix with more managed-only populations that carry a lower per diem.

Operating expenses per man-day increased 1.8% compared to a year ago, which reflects the merit increase we provided to our employees, the first they have seen in three years. The annualized impact of the merit increase is approximately $15 million. Regarding our current share repurchase program during the third quarter, we have repurchased 7.6 million shares, including the shares we purchased under our first share repurchase program announced in November 2008. We have repuchased a total of $28.3 million shares at an average cost per share of approximately $17.87. This represents nearly 23% of the shares outstanding at the beginning of November 2008.

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