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Abraxas Youth & Family ServicesA Division of Cornell Companies, Inc.
2008 Avondale Behavioral Healthcare Conference
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 1 -
Forward-looking Statements and Non-GAAP Measures
Statements made during this presentation regarding the company, its expected future earnings, operations, strategic direction, and any other statements that are not historical facts are forward-looking statements within the meaning of applicable securities laws. These statements involve certain risks, uncertainties and assumptions including changes in demand for our services, actions by governmental agencies and other third parties and other factors detailed in our most recent Form 10-K and other filings with the Securities and Exchange Commission, which are available free of charge on the SEC's website at http://www.sec.gov. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated. Each forward looking-statement speaks only as of the date of the particular statement, and we undertake no obligation to update or revise any forward looking-statement, whether as a result of new information, future events or otherwise. A reconciliation of all non-GAAP financial measures used in this presentation, including EBITDA, is attached to this presentation.
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 2 -
“Alpha” Story1. Superior ROI by continued leverage
of existing infrastructure2. Leadership across 3 businesses
diversifies revenue & EBITDA stream3. Solid relationships with high credit
customers (single A or better)4. Low maintenance capital required5. Opportunity to monetize $150mm+ of
owned real estate
What Cornell Delivers Investors
“Beta” Story1. Attractive demand & supply
economic fundamentals for next 5+ years
2. Markets largely insulated from economic cycles
3. Increasing long-term contracts with historically high renewal rates
Significant value growth potential across Cornell• Adult Secure: Expand existing programs and win new growth
“footprint” outside commodity RFP competition
• Abraxas Youth: Fill remaining underutilized assets and expand specialty competencies in new geographies & new customers
• Adult Community-Based: Fill existing assets with higher yield customers; add zoning defensible 75-200 bed facilities
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 3 -
• Abraxas History
• Abraxas Today
• Abraxas’ Future Growth
• Supporting Data
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 4 -
Historical Overview
1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
1973: A1
1973: A2
1975: A3
1999: AYC / ERM / Acquisition of Interventions, Inc. in Illinois
1997: Salt Lake Valley Detention Center
1997: Acquisition of Abraxas by Cornell Companies, Inc.
1995: Harrisburg Community Based Programs
1994: PSRU / Delaware & Philadelphia Community Based Programs / LDP
1993: Abraxas Ohio
1989: ACAF opens
1987: Lehigh Community Based Programs / WorkBridge
2007: Hector Garza Center
2006: Fire setter / Sex Offender Program / Abraxas Academy
2004: SPRTC
2003: TATC
2001: Alternative Education
Timeline of Abraxas Program Openings
• Operational history dating back to 1973 with one site and 30 beds
• Acquired by Cornell Companies, Inc. in 1997
• Expanded residential services to include secure, staff-secure, detention, and shelter facilities
• Began providing alternative education programs and community-based services to assist youth and their families in the areas of behavioral health, education, case management, and aftercare
• Abraxas now offers home-based intensive case management programs, family preservation programs, community service and job programs, diversionary programs, reintegration and electronic monitoring
• Currently have 30 locations in eight states with a service capacity of 3,708
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 5 -
Reduced Portfolio & Operating Risk
• Exited programs where risk-adjusted returns deemed not likely to be achieved
• Restructured or replaced underperforming contracts
• Implemented automated Cornell Incident Reporting System– Improved immediacy of communication– Permit early identification of trends to proactively manage and
reduce potential exposure • Improved leadership development and review processes to
increase performance and accountability• Instituted financial and leadership training for organizational leaders• Created Abraxas Performance Improvement Department
Reduced Portfolio Risk:
Reduced Operating Risk:
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 6 -
• Abraxas History
• Abraxas Today
• Abraxas’ Future Growth
• Supporting Data
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 7 -
• Residential, community-based, behavioral health & alternative education programs
• Target ages 10-17• Emphasizes specialized
treatment programs, education, rehabilitation & after care
• 30 facilities• Serving 240 contracts• Service capacity of 3,700
– 1,800 residential, – 1,900 non-residential
Abraxas Today
* Excluding discontinued operations.
Leading provider of innovative treatment programs for youth, adults, and familiesoutsourced by federal, state and local government agencies, and private clients
Abraxas Revenues*$mm
$28
$27
$116$119$114 $109
2004 2005 2006 2007 1Q08
Abraxas Operating Margin
6.5%
12.0%10.9%11.5%
3.3%
2004 2005 2006 2007 1Q08
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 8 -
Abraxas Services
• Behavioral, academic, and attendance improvement programs
• Day Treatment• NRD / NRT• In-home Detention• In-home Family Services• Family Preservation• Supervised Home Services• Intensive Family Program• Reintegration• Services To Children in their
Own Home• Residential Alternative
Program• Family Academy
• Mental Health• Behavioral Modification• Substance Abuse• Fire Setters / Sex
Offenders• Detention / Shelter
Alternative EducationCommunity Based /
Outpatient ProgramsResidential
Populations - Adult and adolescent treatment, including specialized populations such as Females, Sex Offenders, Fire Setters
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 9 -
Market Dynamics
• Total market for juvenile justice, child welfare, and education is estimated at $30b. • Continued strong demand for residential placements, especially for more specialized youth populations:
– Violent crime on the rise among juvenile population with research showing offenders are getting younger– Increasing reliance on private providers, particularly to serve the specialized populations where
preference for privatization has been largely motivated by reduced risk and lower costs– Growing number of youth in some markets due to changes in age legislation and juvenile sentencing
laws• Additional growth in the areas of mental health treatment and community based services
• Considerable barriers for new market entrants include:– Zoning challenges and higher construction costs to design and build new facilities – Lack of established customer relationships and long ramp timelines to build referral pipeline– Complex and time consuming start up including licensing, regulatory approvals, contracts, and
information management systems.
• Juvenile services are typically delivered by small, local operators with varying levels of expertise, agility, and market knowledge
• Small providers are increasingly challenged by evolving milieu making it more difficult to meet licensing and customer demands
• Growing acuity of adolescents challenges the most stable programs where more providers are ill-equipped to manage difficult populations within per diem parameters.
• Abraxas is well positioned in the marketplace with strong referral relationships and future momentum driven by process improvements to enhance the customer experience and reduce risk
• Increased resources and raised profile of performance improvement and quality assurance• Offers a robust continuum of services including specialized residential treatment for females, substance
abuse, sex offenders, and fire setters, as well as community based prevention, reintegration, and education• Increased flexibility and scale over smaller providers to meet changing market need
Positive Outlook
Barriers to Entry
Competitors
Positioning
Abraxas is well positioned to capitalize on the rising demand for juvenile treatment services
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 10 -
Operating “Snapshot” – FY2007
As of 12/31/07
$183.2$44.1
$16.5
$109.3$13.1
10,558
4,326$68.1
3,703
Revenue ($mm) Operating Income ($mm) Service Capacity
$360.6 $73.7 18,587
Adult Secure
Community-Based
Abraxas Youth
Business Segment Data
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 11 -
Broadened Customer Base
New Customers 2005-08
Abraxas Youth• Wyoming, Nevada, Montana,
Maryland & Arizona (Southern Peaks)
• Federal Customer (Hector Garza)
• Louisiana Department of Education
• City of Columbus, OH
Facilities # Service CapacityAbraxas Youth 30 3,708
Shaded states represent customers
As of 03/31/08 Note: 15 out of state contracts and 4 tribal contracts
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 12 -
Abraxas Example: “Leadership Development Program”
• Staff-secure 128 bed residential program• Adjudicated delinquent and dependent 13-18 year old males and females• Primarily first and second time offenders• 8:1 client to direct care staff ratio• Year-round, licensed, private onsite school• Multi-disciplinary, professional treatment staff• Medical, psychological, psychiatric and dental services• Addressing market opportunities has resulted in a shift in program mix and increased
per diems
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 13 -
• Abraxas History
• Abraxas Today
• Abraxas’ Future Growth
• Supporting Data
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 14 -
Youth Services Market Spectrum
Detention/Shelter
Open Residential
Community Based
Independent Living
Foster Care
Secure Residential
Psychiatric Hospitalization – short term
Abraxas
Bandw
idth
Psychiatric Hospitalization – long term
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 15 -
Abraxas’ Future Growth
Asset Maximization:• Complete population ramp Abraxas Academy, Hector
Garza & Southern Peaks: 310 beds• Focus on “last few beds” at other facilities: 287
“unutilized” beds 1Q08
Targeted Product Mix:• Migrate product mix to higher per diem residential
populations (e.g. sex offenders, fire setters) • Market to out of state populations to increase average per
diems within a facility
Targeted Acquisitions:• Accretive deals• Market entry in attractive geographies with expansion
potential
How does Abraxas Youth grow?
Abraxas YouthResidential Capacity
1) Ramp underutilized facilities
2) Focus on “last few beds”
3) Shift “mix” to more profitable services
1,203
310
287 1,800
1Q08 UtilizedBeds
CAA/HG/SP "Last FewBeds"
2009+Utilized Beds
As of 03/31/08
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 16 -
• Cornell History
• Cornell Today
• Cornell’s Future Growth
• Supporting Data
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 17 -
P&L Overview
($mm) 2003 2004 2005 2006 2007 1Q08
Revenue $258.2 $277.2 $310.8 $360.9 $360.6 $95.4Adult Secure 102.1 114.8 128.5 178.8 183.2 49.9Adult Community Based 49.5 48.6 63.3 66.3 68.1 17.7Abraxas Youth 106.5 113.8 119.0 115.8 109.3 27.8
Operating Income 24.5 14.5 27.9 44.8 45.0 14.5Adult Secure 25.6 24.9 26.2 44.8 44.1 15.1Adult Community Based 10.6 9.2 11.9 12.4 16.5 4.8Abraxas Youth 14.2 3.8 13.7 12.6 13.1 1.8
Operating Margin 9.5% 5.2% 9.0% 12.4% 12.5% 15.2%Adult Secure 25.1% 21.7% 20.4% 25.1% 24.1% 30.3%Adult Community Based 21.4% 18.9% 18.8% 18.7% 24.2% 27.1%Abraxas Youth 13.3% 3.3% 11.5% 10.9% 12.0% 6.5%
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 18 -
Balance Sheet Overview
($000) 3/31/2008 12/31/2007 12/31/2006Cash and cash equivalents $2,829 $3,028 $18,529Investment securities 250 250 11,925Working capital 41,697 47,757 75,078Property and equipment, net 400,223 383,952 319,064Total assets 578,530 562,787 523,533Long-term debt 280,341 275,298 255,471Total debt 291,752 286,709 265,981Stockholders' equity 206,877 200,449 181,564
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 19 -
Financial Performance
$90 $95
$361 $361
$277$311
2004 2005 2006 2007 1Q08
Revenue* ($mm)
$12 $19
$61 $61
$43
$28
2004 2005 2006 2007 1Q08
EBITDA* ($mm)
$0.05
$0.32
($0.56)
$0.02
$0.84 $0.82
2004 2005 2006 2007 1Q08
Earnings per Share(Fully Diluted)
($28)($23) ($24)
($5)
$17
2004 2005 2006 2007 1Q08
Free Cash Flow **($mm)
* From continuing operations ** Net cash provided by operations less capital expenditures
Investment Capex $40.2 $51.1 $12.3 $50.9 $11.9
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 20 -
Income From Operations Breakdown
50.6%64.3% 69.7%
17.7%22.2%
26.4%18.0%
8.2%
59.9%
22.4%
23.0%
17.7%
2005 2006 2007 1Q08
Adult Secure
Community-Based
Abraxas Youth
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 21 -
CRN Trading Volatility
0%
1%
2%
3%
4%
5%
January2004
July 2004 January2005
July 2005 January2006
July 2006 January2007
July 2007 January2008
CRN - 30 Day Mov. Avg. Russell 2000 - 30 Day Mov. Avg.
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 22 -
Non-GAAP Financial Measures and Reconciliations
Cornell Companies, Inc.Non-GAAP Financial Measures and Reconciliations: Earnings before interest, taxes, depreciation and amortization (EBITDA) (in thousands)
FY 2008 FY 2007 FY 2006 FY 2005 FY 2004
YTD QTD YTD QTD YTD QTD YTD QTD QTD YTD YTD YTD3/31/2008 3/31/2008 12/31/2007 12/31/2007 9/30/2007 9/30/2007 6/30/2007 6/30/2007 3/31/2007 12/31/2006 12/31/2005 12/31/2004
EBITDA
GAAP income from operations 14,490 14,490 45,009 14,590 30,419 10,538 19,880 12,047 7,833 44,798 27,866 14,459Plus: Depreciation and amortization 4,157 4,157 15,986 4,246 11,740 3,988 7,753 3,912 3,841 16,285 15,200 13,187EBITDA 18,647 18,647 60,995 18,836 42,159 14,526 27,633 15,959 11,674 61,083 43,066 27,646
Pre-opening and start-up expenses, net of start-up revenue - - - - - - - - - 2,657 9,017 8,803EBITDA, as adjusted 18,647 18,647 60,995 18,836 42,159 14,526 27,633 15,959 11,674 63,740 52,083 36,449
Investor Discussion 2Q08 This presentation may not be reproduced without permission of Cornell Companies, Inc. - 23 -
Adult Secure
• Re-entry & alternative to incarceration for parolees & probationers
• Education, employment training, electronic monitoring & drug and alcohol treatment
• 34 facilities/programs• Service capacity of 4,300
• Residential, community-based, behavioral health & alternative education programs
• Target ages 10–17• Emphasizes specialized
treatment programs, education, rehabilitation & after care
• 30 facilities/programs• Service capacity of 3,700
– 1,800 residential, – 1,900 non-residential
Cornell Today
Abraxas Youth Adult Community-Based
• Medium & low security incarceration services
• Male, female & youthful offender facilities
• Federal BOP, USMS, ICE & state DOC customers
• Programming emphasis to facilitate successful community re-entry & reduce recidivism
• 10 facilities• Service capacity of 11,000
* Excluding discontinued operations.
Leading private provider of corrections, treatment and educational services outsourced by federal, state and local government agencies
Adult Secure Revenues*$mm
$50
$179
$47
$128$115
$183
2004 2005 2006 2007 1Q08
Abraxas Revenues*$mm
$28
$27
$116$119$114 $109
2004 2005 2006 2007 1Q08
ACB Revenues*$mm
$18
$66
$16
$63$49
$68
2004 2005 2006 2007 1Q08