CoreCivic, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparative period is Q1 2021. CoreCivic operates correctional and detention facilities, residential reentry centers, and government-leased properties. It reported 45 Safety facilities, 24 Community centers, and 10 Properties at quarter-end.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $453.0 million | $454.7 million |
| Operating expenses | $344.6 million | $332.9 million |
| Net income (loss) | $19.0 million | $(125.6) million |
| Diluted earnings (loss) per share | $0.16 | $(1.05) |
| Operating cash flow | $97.7 million | $99.6 million |
| Net cash used in investing activities | $3.8 million | $17.4 million |
| Net cash used in financing activities | $14.1 million | $34.5 million |
Facility net operating income was $108.4 million, down from $121.9 million. Overall operating margin per compensated man-day declined to 22.5% from 25.1%: revenue per day rose 2.3% to $91.88, while expenses rose to $71.20 from $67.23. Average compensated occupancy edged up to 70.6% from 69.9%.
At March 31, cash and cash equivalents were $378.2 million, and $785.3 million was available under the revolving credit facility; there were no revolver borrowings. Total debt principal was $1.544 billion (long-term debt, net, was $1.484 billion). The weighted-average effective interest rate was 6.6%; the company reported compliance with debt covenants. Total assets were $3.530 billion and total liabilities were $2.138 billion.
Material changes versus the prior period
- Revenue fell 0.4%. Management revenue increased 1.2%, but lease revenue declined 31.5%, largely following 2021 property sales. State management revenue grew 7.6%; local revenue fell 25.0% after a contract termination.
- Operating expenses increased 3.5%, driven principally by wage and benefit pressures, staffing shortages, and higher registry nursing costs. Variable expense per compensated man-day rose to $20.41 from $17.58.
- Net income improved primarily because Q1 2021 included a $114.2 million tax charge related mainly to the REIT-to-C-corporation conversion and $51.7 million of shareholder litigation expense. Q1 2022 included a $2.3 million real estate sale gain. The company recorded income tax expense of $6.6 million in Q1 2022 versus $113.5 million in Q1 2021.
- Interest expense, net increased to $22.9 million from $18.4 million, principally reflecting the 8.25% notes issued in 2021.
- The company sold two Community facilities in Q1 2022 for net proceeds of $9.3 million and recognized a $2.3 million gain.
Outlook, risks, and contingencies
- No full-year earnings or revenue guidance is provided. The company expects to meet cash requirements using cash on hand, operating cash flow, and revolver availability or a new/amended facility.
- A new Arizona contract at La Palma began receiving inmates in April 2022, with transfers expected to finish in Q4 2022. At full utilization, CoreCivic expects approximately $75–$85 million in annualized revenue, but anticipates transition-related disruption to earnings and cash flow.
- Management expects the McRae BOP contract, representing 2% of 2021 revenue, may not be renewed when it expires in November 2022. The Private Prison Executive Order and USMS contract expirations pose further utilization and revenue risks. West Tennessee and Leavenworth remain idle; the company is marketing both.
- Federal policy and litigation concerning Title 42 and the Migrant Protection Protocols could affect ICE detention populations. ICE generated $138.7 million of Q1 2022 revenue. The filing described the status of Title 42 and related court proceedings as uncertain.
- Labor shortages, wage inflation, nursing costs, and staffing-related contract deductions may pressure margins or impair the company’s ability to serve customers. Seven idled Safety facilities had aggregate carrying values of $200.9 million; management reported estimated undiscounted cash flows exceeded carrying values at quarter-end.
- The April 2023 maturity of the bank credit facility and Term Loan A, together with $173.7 million of 4.625% notes due May 2023, create refinancing and repayment considerations. The company said it intended to pursue a new or amended credit facility; it noted some lenders’ stated reluctance to finance private detention and correctional operators.
- Contingencies include detainee labor litigation, for which the company said it could not estimate potential loss, and other legal claims. Management had accrued $8.1 million for legal matters and stated that adverse rulings could nonetheless materially affect results in a particular period.
Most important facts for investors to verify
- Progress on refinancing the credit facility and addressing 2023 debt maturities, including terms and borrowing costs.
- Actual Arizona contract population ramp, La Palma transition costs, and realized revenue and margins versus the stated annualized expectation.
- Renewal, replacement, or termination outcomes for BOP and USMS contracts, and utilization plans for idle facilities.
- Staffing levels, wage and registry nursing costs, and any contract deductions or penalties affecting operations.
- Developments in Title 42, MPP, and California AB32 proceedings, and any resulting changes to ICE or other government demand.
- Whether idled-property cash-flow assumptions remain supportable and whether any impairment or material litigation exposure emerges.