Corrections Corporation of America (CXW)

CXW 
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Corrections Corporation of America (CXW)

Q1 2009 Earnings Call

May 07, 2009 11:00 AM ET

Executives

John D. Ferguson - Chairman and Chief Executive Officer

Todd Mullenger - Executive Vice President and Chief Financial Officer

Damon Hininger - President and Chief Operating Officer

Analysts

Kevin Campbell - Avondale Partners

ManAv Patnaik - Barclays Capital

Todd Van Fleet - First Analysis

Presentation

Operator

Good morning everyone and welcome to Corrections Corporation of America's First Quarter 2009 Earnings Conference Call. If you need a copy of our press release or supplemental financial data, both documents are available on the investor page of our website at www.correctionscorp.com

Before we begin, let me remind today's listeners that this call contains forward-looking statements pursuant to the Safe Harbor provisions of the Securities and Litigation Reform Act. These statements are subject to risks and uncertainties that could cause actual results to differ materially from 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; President and Chief Financial Officer, Damon Hininger; 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, moderator and welcome everyone to Corrections Corporation's first quarter earnings conference call. In addition to those that the moderator said was in the room, we have David Garfinkle, our Vice President of Finance and Controller, to assist us on some of the questions.

We are very pleased with our results and we will get started with Todd reviewing of the financials.

Todd Mullenger

Thank you, John and good morning everyone. Moving straight to a discussion of our financial results, in the first quarter of 2009, we generated $0.29 of EPS compared to EPS for last year's Q1 of $0.28.

We exceeded the earnings guidance provided in February as a result of better than expected operating expense performance combining with a slight acceleration of our share repurchase program over that assumed in February, more on those in a minute.

EBITDA in Q1 increased 9.6% to $99.6 million for the quarter, Adjusted free cash flow for the quarter totaled $73 million or $0.61 per share. Keep in mind that we paid the cash taxes in Q1, with two payments made in Q2. As a result, Q1 cash taxes are higher than average with Q2 lower than average.

Focusing on adjusted free cash flow, as we have mentioned in the past, unlike other industries, our depreciation expense is not reflective of the ongoing maintenance CapEx that we will incur to maintain our facilities. For example; depreciation and amortization expense totaled nearly $25 million in Q1 versus only $10.3 million of facility maintenance and IT CapEx for the quarter.

So as we have commented before, we believe adjusted free cash flow is in many ways a better measure than EPS for the return we are delivering to our shareholders. Total revenue for the first quarter was up 6.5% over last year, an increase of nearly $25 million. Average daily compensated population for the quarter increased 4.2% compared to the prior year.

Revenue for compensated man-day for the quarter increased 3.9% to $58.45. Average compensated occupancy for the quarter declined from 97% to 89.4%, which taken by itself appears negative. However, keep in mind that our average daily compensated populations actually increased 4.2% with the decline in occupancy percentage coming as result of placing 9300 new beds into service during 2008 and 2009.

Revenues were very much in line with our internal forecast. As I mentioned earlier, we exceeded our earnings guidance primarily as a result of better than expected operating expense performance combined with the slight acceleration of our share repurchases.

In absolute dollars, operating expenses came in lower than anticipated due to better than expected cost performance in areas such as utilities, inmate medical and miscellaneous supplies. Lower supplies is a result of the conservative effort to manage inventories tighter and we negotiate prices lower. Lower inmate medical is related to timing associated with large inmate hospital claims and lower utilities is due to lower than anticipated energy cost and seasonality around usage.

As a result, some of this favorable expense performance may be recurring while some of this timing it may not recur. That said we continue to play strong emphasis on controlling operating costs.

On a cost per man-day basis, operating costs for the quarter were $40.90, up 3.6% increase over the prior year. Our Q1 2009 operating costs per man-day reflect normal wage and other general inflationary increases, as well as operating inefficiencies associated with a ramp-up of new bed activations at facilities, such as La Palma and Tallahatchie as well as operating costs related to our inventory of vacant beds.

During Q1, we averaged approximately 10,000 vacant beds in inventory on which we incurred property taxes, utilities, insurance and other costs without the benefit of any heads in these beds which drives cost per man-day higher.

In general, the inflationary increases we experienced year-over-year were fairly modest. But the operating inefficiencies associated with the ramp-ups and vacant beds resulted in a 3.6% increase in costs per man-day across all beds and a 4.6% increase on owned beds.

All of the ramp-up inefficiencies and the vast majority of the vacant beds are owned beds. Excluding the ramp-up facilities and the impact of the vacant beds, operating costs per man-day in all beds was more in a range of 2% while owned and managed beds saw an increase less than 3%.

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