Corrections Corporation of America (CXW)

CXW 
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Corrections Corporation of America (CXW)

Q2 2011 Earnings Call

August 4, 2011 11:00 AM ET

Executives

Damon Hininger – President and CEO

Todd Mullenger – CFO

David Garfinkle – VP, Finance

Analysts

Todd Van Fleet – First Analysis

Tobey Summer – SunTrust

Kevin McVeigh – Macquarie

Kevin Campbell – Avondale Partners

Scott Grossman – Magnetar Capital

Presentation

Operator

Good morning, everyone, and welcome to CCA’s Second Quarter 2011 Earnings Conference Call. Today’s call is being recorded. If you need a copy of our press release or supplemental financial data, those documents are available on the Investor page of our website at www.cca.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 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 financial 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 would now like to turn the call over to Mr. Hininger. Please go ahead, sir.

Damon Hininger

Thank you, Jessica and good morning and thank you for joining our call today. With me today is our Chairman, John Ferguson, and also board member Bill Andrews along with our CFO, Todd Mullenger. Also joining us is 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 would like to make some comments on the past quarter. Let me start by saying that I am very pleased with the second quarter results both operationally and financially. Our core business which is 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 think this is the most favorable new development environment the industry has even seen. The macro environment has never been more 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, we’re actively pursuing nearly 40,000 new beds and new incremental opportunity that could be decided in the next 6 to 12 months. We estimate these new opportunities to be nearly 700 million in revenues.

Let me now say a few words about our focus on managing costs. 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 our costs. However, we did give merit increases this last month, and this is the first merit increase we’ve given our employees since 2008 and we know this cost will obviously naively impact our margin rate for the third quarter.

Overall, I was very pleased with our performance in the second quarter. I would especially like to thank all of our fellow CCA colleagues for the distinguished performance that they have been able to achieve for our company this year.

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

Todd Mullenger

Thank you, Damon, and good morning, everyone. We are very pleased with our second quarter operating results. In the second quarter of 2011 we generated $0.39 of adjusted EPS compared to $0.34 of adjusted EPS in Q2 2010, a 14.7% increase. The second quarter financial performance exceeded our forecast due primarily to favorable operating costs performance driven by lower than average employee medical expenses and lower than average legal settlement expenses. You may recall from past quarters that these are two expense line items that can experience material variation from one quarter to the next.

Revenue per compensated man-day in Q2 was up slightly against last year at $58.40 reflecting increases in per diem rates from certain federal and state partners, offset by change in mix with more managed-only populations that carry a lower per diem. Although average daily populations 5.4%, average compensated occupancy for the quarter was 89% compared to 90.1% last year, a decrease that reflects the addition of new capacity for the activation of our Nevada Southern facility in 2Quarter 2010.

Operating expenses per man-day declined 1.4% compared to a year ago which reflects the lower than average employee benefits and legal expenses, our efforts to improve operating efficiencies, the low inflationary environment and increases in compensated man-days. The net result was that margin per man-day rates increased against last year with Q2 2011 at 32% versus 30.9% last year.

Regarding our current share repurchase program announced in February 2010 and expanded in May 2011, which authorizes up to $350 million in repurchases, we have repurchased 10 million shares to July 31, 2011. Including the shares repurchased under our first share repurchase program announced in November 2008, we have repurchased a total of 20.7 million shares at an average cost per share of $16.45. This represents over 16% of the shares outstanding at the beginning of November 2008.

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