Corrections Corporation of America (CXW)

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Corrections Corporation of America (CXW)

Q4 2008 Earnings Call

February 10, 2009 11:00 AM ET


John D. Ferguson - Chairman and Chief Executive Officer

Todd Mullenger - Executive Vice President and Chief Financial Officer


ManAv Patnaik - Barclays Capital

Kevin Campbell - Avondale Partners



Good morning everyone, and welcome to the Corrections Corporation of America's Fourth Quarter and Year End 2008 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 the 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 discussions of the non-GAAP measures. The reconciliation of the most comparable GAAP measurement is provided in our corresponding earnings release or posted 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 Chairman of the Board and CEO, John Ferguson; and Chief Financial Officer, Todd Mullenger.

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

John D. Ferguson

Thank you and welcome everyone to Corrections Corporation's fourth quarter earnings call, as well as our full year earnings call. And with me today is Todd Mullenger, Bruce Scarf (ph), Dave Garfinkle, our Controller and Board member, Bill Andrews. So we will get started with some opening comments by Todd.

Todd Mullenger

Thank you, John. Good morning everyone.

Moving straight to the discussion of our financial results, in the fourth quarter of 2008, we generated $0.32 of EPS compared to EPS for last year's Q4 of $0.28, an increase in EPS of 40%. For the full year, we generated $1.20 of EPS compared to $1.06 in the prior year, an increase of 13%.

EBITDA in Q4 increased 17% to $107 million for the quarter while full year EBITDA increased 14% to $394 million. Adjusted free cash flow for the quarter increased 38% to $65 million. This brings adjusted free cash flow for the full year to $256 million or $2.03 per share, an increase of 24% over the same period last year. Part of the increase in free cash flow is due to the unusually low amount of cash taxes paid as a result of certain one-time tax benefits derived in 2008 and lower year-over-year maintenance CapEx.

Focusing on depreciation, as we mentioned in the past, unlike other industries, our depreciation expense is not reflective of the maintenance CapEx that we will incur to maintain our facilities. For example, depreciation and amortization expense totaled $91 million for 2008 versus only 35 million of facility maintenance and IT CapEx for the year.

So as we commented before, we believe adjusted free cash flow is in many ways a better measure than EPS of the return we are delivering to our shareholders.

Total revenue for this year's fourth quarter was up nearly 9% over the last year, an increase of $33.6 million. Total compensated man-days for the quarter increased 4.1%. Revenue per compensated man-day for the quarter increased 5.2% to $58.21.

For the full year, total revenues increased nearly 10%, driven by a 4.5% increase in per diems and a 5.5% increase in average daily populations.

Average compensated occupancy for the quarter declined from 98% to 92.9% which, taken by itself appears negative. However, keep in mind that compensated man-days actually increased 4.1% while the decline in occupancy percentage was the result of placing approximately 10,000 new beds into service since the end of the third quarter 2007.

With regards to the 5.2% increase in revenue per compensated man-day, results in Q4 2008 reflect the impact from certain pricing leverage we enjoy from renegotiating several contracts, the increase in populations under our state of California contract as well as routine per diem increases.

Moving next to a discussion of operating costs, operating costs per man-day for the quarter were $40.09, a 2.8% increase over the prior year. For the full year, operating costs per man-day increased 3.1%.

Our Q4 2008 operating costs per man-day reflect normal wage and other general inflationary increases, as well as operating inefficiencies associated with the ramp-up of new bed activations at facilities, such as La Palma, Tallahatchie and Davis.

As we have discussed previously, the operating costs per man-day on newly activated beds start off higher, as we are ramping up fixed costs, particularly staffing costs, and then declined as we increased occupancy which allows us to leverage those fixed costs lower on a per compensated man-day basis.

Q4 operating expenses also reflect certain unusually large favorable expense variances, including a favorable adjustment to our self-insured workers' compensation accruals, resulting from updated actuarial studies and lower than average employee medical claims expense. These unusually large favorable items totaled approximately $3.5 million before taxes.

Operating margins per man-day for the quarter increased 11% to $18.12 with an operating margin rate of 31.1% compared to 29.5% last year. For the full year, operating margins per man-day increased 7.9% with an operating margin rate of 30.4%.

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