Corrections Corporation of America (CXW)
Q3 2012 Earnings Conference Call
November 08, 2012 11:00 a.m. ET
John Ferguson – Chairman
Damon Hininger – President & CEO
Todd Mullenger – CFO
David Garfinkle – VP of Finance
Steve Groom – General Counsel
Harley G. Lappin – Chief Corrections Officer
Bill Andrews – Board Member
Kevin Campbell – Avondale Partners
Tobey Sommer – SunTrust
Todd Van Fleet – First Analysis
Manav Patnaik – Barclays
Kevin McVeigh – Macquarie
Clint Fendley – Davenport
Barry Klein – Macquarie
Please stand by, we’re about to begin. Today’s call is being recorded.
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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.
Thank you, Melissa, and good morning, everyone, and thank you so much for joining our call today.
Joining me is our Chairman of the Board, John Ferguson; Todd Mullenger, our CFO; our VP of Finance, David Garfinkle. We also have joining us this morning our General Counsel, Steve Groom; our Chief Corrections Officer, Harley G. Lappin; and board member, Bill Andrews.
I wanted to just take a minute initially to give you a couple highlights of the quarter and then I’ll turn it over to Todd to discuss the quarter in more detail and also give a review of guidance for the full year. So let me just talk a little bit about the quarter. And the first thing obviously is we’re very excited about our new contract with the State of Arizona, which we announced earlier this year. This award, as many of you know, will be utilizing capacity at our current Red Rock facility that’s currently being utilized by the State of California.
Also, we’re very pleased with our performance. Cash flow for the quarter was very strong with FFO performing at nearly 10%, or $79 million, and we reported also $0.43 in EPS adjusted, which is up over 16% quarter-over-quarter.
We’re also very pleased with the performance of growth that we’ve seen with existing state partners, most notably Idaho, which they have ramped up into their new contract to about 250 beds. And that also we’ve expanded our relationship with the State of Oklahoma where we now have 340 additional inmates with the state in our facilities in Davis and also in Cimarron.
So overall very pleased with the Q3 performance for CCA. I’m extremely, extremely appreciative of our CCA management team, our wardens out in the field and the entire CCA team of professionals for their work this quarter and also during the course of 2012.
And with that, let me turn it over time to Todd to review the quarter and talk a bit about the guidance for the rest of the year.
Thank you, Damon, and good morning, everyone. In the third quarter of 2012, we generated $0.43 of adjusted EPS compared to $0.37 in the prior year, a 16% increase.
Funds from operations, or FFO, increased 10% to $0.79 per share, while adjusted funds from operations, or AFFO, increased 15% to $0.68 per share.
The third quarter financial performance exceeded our forecast, due primarily to favorable operating cost performance driven by lower-than-average employee medical and inmate medical expenses.
We also benefited from a lower-than-forecasted income tax rate in the quarter. These favorable items were partially offset by lower-than-anticipated U.S. Marshal populations. These three items net added approximately $0.02 to our EPS for Q3, which we do not expect to be replicated in Q4. So we really need to think about Q3 as a $0.41 quarter on a normalized basis.
Year-over-year in the quarter, we saw revenues increase by $13 million driven largely by increases in per diems; the assumption of operations at our Lake Erie, Ohio facility; activation of the Jenkins County Georgia facility; Puerto Rico inmates at Cimarron; partially offset by declines in populations from the U.S. Marshals, Colorado, California and District of Columbia.
Moving next to a discussion of our guidance. As indicated in the press release, full year EPS guidance is in the range of the $1.53 to $1.55. And guidance for Q4 is in the range of $0.39 to $0.41. Full year FFO guidance per share is in a range of $2.89 to $2.93, while AFFO guidance for the full year is a range of $2.37 to $2.45.