CoreCivic, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. CoreCivic operates correctional and detention facilities, residential reentry centers, and government-leased properties through its Safety, Community, and Properties segments. At quarter-end, it operated 45 correctional and detention facilities, owned and operated 24 reentry centers, and owned 8 leased properties.
Financial performance and liquidity
Amounts are in millions except per-share data and per-day figures.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $464.2 | $471.2 | $1,373.9 | $1,390.5 |
| Operating expenses | $368.2 | $338.2 | $1,061.8 | $1,004.1 |
| Net income (loss) | $68.3 | $30.0 | $97.9 | $(79.9) |
| Diluted EPS | $0.58 | $0.25 | $0.82 | $(0.67) |
| Operating cash flow | Not separately provided for quarter | $118.2 | $284.1 |
- Q3 revenue fell 1.5%; operating expenses rose 8.9%. Nine-month revenue declined 1.2%, while operating expenses increased 5.7%.
- Q3 and nine-month net income included real-estate sale gains of $83.8 million and $87.1 million, respectively. The nine-month 2021 loss included a $128.7 million income tax expense, primarily from revaluing deferred tax liabilities following CoreCivic’s conversion from REIT to C-corporation status.
- Operating margin per compensated man-day declined to 19.2% in Q3 from 27.2%, and to 21.3% for nine months from 26.4%. Average compensated occupancy was 70.1% for nine months versus 71.2%.
- Cash from operations was $118.2 million; investing activities provided $101.9 million, including $156.2 million of asset-sale proceeds; financing activities used $331.6 million. Capital expenditures were $52.1 million.
- At September 30, cash and cash equivalents were $185.3 million. Total debt principal was $1.307 billion ($1.114 billion long-term debt, net, plus $177.6 million current debt on the balance sheet). The company reported $233.2 million available on its $250 million revolving facility, with no revolver borrowings and $16.8 million of letters of credit outstanding.
- Debt’s weighted-average effective interest rate was 7.0%, with a weighted-average maturity of 5.1 years. The $166.5 million 4.625% notes mature in May 2023; management said it expected sufficient liquidity to repay them. CoreCivic reported compliance with its credit-facility covenants.
Material changes versus prior periods
- Safety segment facility net operating income fell 30.9% in Q3 and 20.3% for nine months. Lower compensated populations, contract losses, and higher staffing and other costs outweighed higher per-diem revenue.
- Staffing shortages, wage increases, temporary incentives, registry nursing, and travel costs pressured margins. Salaries and benefits represented approximately 58% of nine-month operating expenses, versus 60% a year earlier.
- Federal management revenue declined 6.7% in Q3 and 4.6% for nine months; state revenue increased 10.9% and 9.7%, respectively. The population transition at La Palma from ICE detainees to Arizona inmates contributed to the federal decline and operating disruption.
- Debt principal declined from $1.552 billion at year-end 2021 to $1.307 billion. The company repaid its Term Loan B, amended and extended its bank facility to May 2026, and repurchased shares. Through September 30, it had repurchased 6.6 million shares for approximately $74.5 million under a $225 million authorization.
Outlook, risks, contingencies, and unusual items
- Management expected the Arizona population transition at La Palma to be complete in Q4 2022. At full utilization, the contract was expected to generate approximately $75 million–$85 million of annualized revenue; management cautioned that earnings and cash flow would be disrupted until occupancy stabilized.
- The company does not expect renewal of the McRae BOP contract, which expires in November 2022. The facility was sold to the Georgia Building Authority for $130 million and leased back through contract expiration. The Private Prison Executive Order and uncertainty around USMS contract renewals remain material risks; a USMS contract expiring in September 2023 serves a substantial population management believes may be difficult to replace.
- ICE and USMS represented 29% and 22% of nine-month revenue, respectively. Changes in federal policy, immigration enforcement, government appropriations, contract renewals, and facility utilization could materially affect results. Management also cited labor availability and inflation as continuing risks.
- Q3 results included the $83.8 million net gain on real-estate sales and a $3.5 million impairment charge on the Oklahoma City Transitional Center. Nine-month results included $7.6 million of debt repayment/refinancing expenses and $1.9 million of shareholder-litigation expense.
- A proposed derivative-litigation settlement provides for governance changes and $3.5 million in plaintiff attorneys’ fees; final approval was scheduled for December 1, 2022. The company said it had adequately accrued for the liability. Separately, it cannot reasonably estimate potential loss, if any, in the ICE detainee labor class litigation.
- Management stated that cash, operating cash flows, and revolver availability were expected to meet cash requirements for the next year and beyond. No formal company-wide earnings guidance was provided in the supplied filing text.
Important facts for investors to verify
- Whether the La Palma Arizona inmate ramp-up was completed as expected and achieved the stated annualized revenue range.
- Repayment or refinancing of the May 2023 senior-note maturity and ongoing compliance with tighter credit-facility covenants.
- Trends in staffing costs, vacancy deductions, compensated occupancy, and facility-level margins.
- Renewal or replacement outcomes for USMS contracts, especially the September 2023 contract, and any further effects of federal policy on ICE or BOP business.
- Final court approval and payment timing for the derivative settlement, and developments in the ICE detainee labor litigation.
- Actual proceeds and timing of pending property sales, and the remaining pace and funding of share repurchases.