CoreCivic, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. Although the request references 2019 Q4, this is an annual filing; fourth-quarter figures are identified separately below. CoreCivic is a REIT operating correctional and detention facilities, residential reentry services, and government-leased properties.
Financial performance and liquidity
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Revenue | $1,980.7 million | $1,835.8 million | +7.9% |
| Operating income | $281.6 million | $249.5 million | +12.9% |
| Operating margin | 14.2% | 13.6% | +0.6 percentage points |
| Net income | $188.9 million | $159.2 million | +18.6% |
| Diluted EPS | $1.59 | $1.34 | +18.7% |
| Cash from operating activities | $354.4 million | $322.9 million | +$31.5 million |
Revenue growth reflected increased federal populations and per-diem rates, acquisitions, and higher rental revenue; lower state revenue partly offset the gains. Federal customers generated 51% of revenue, versus 48% in 2018. Total facility net operating income rose to $558.4 million from $521.0 million. Reported facility operating margin per compensated man-day increased to 26.9% from 25.9%; average compensated occupancy was 81.9% versus 80.7% (93% excluding idled facilities in both years, approximately).
Cash used in investing activities was $244.6 million, including $193.3 million of capital expenditures; cash used in financing activities was $64.8 million. Cash and cash equivalents were $92.1 million at year-end, with $412.7 million available under the revolving credit facility. Gross debt was $1,986.9 million; balance-sheet debt, net of issuance costs and discounts, was $1,959.4 million. Management reported debt leverage of 3.7x, fixed-charge coverage of 5.0x, a 4.4% weighted-average effective interest rate, and a 6.3-year weighted-average debt maturity. The quarterly dividend was $0.44 per share, or $1.76 declared for the year ($211.9 million total).
Fourth quarter: Revenue was $497.8 million versus $482.2 million in Q4 2018; operating income was $66.3 million versus $64.6 million; net income was $42.0 million versus $41.2 million. Diluted EPS was $0.35 in both quarters.
Material changes and notable items
- Federal revenue increased 13.8% to $1,013.8 million; state revenue decreased 4.7% to $673.4 million, mainly following the return of California inmates held out of state.
- CoreCivic Safety revenue increased 6.2% to $1,780.0 million; Community revenue increased 21.0% to $123.3 million; Properties revenue increased 33.5% to $77.3 million. Properties growth included acquisitions of government-leased real estate.
- 2019 earnings included a $4.1 million after-tax gain from settlement of a contractual dispute, $4.7 million of asset impairments, and $0.6 million of debt-refinancing expense. Activation of the Torrance and Eden facilities generated approximately $9.5 million in start-up operating losses.
- CoreCivic adopted the new lease accounting standard in 2019, recognizing right-of-use assets and lease liabilities and recording a $29.9 million cumulative adjustment to accumulated deficit. The standard also changed the classification of South Texas Family Residential Center lease expense.
- The company issued a $250 million secured Term Loan B at a floating rate, reported as 6.3% at year-end, and arranged early redemption of $325 million of 4.125% notes due 2020. The notes were discharged at year-end; the redemption payment was made January 1, 2020.
Outlook, risks and contingencies
Management said long-term opportunities may come from filling available beds, new contracts, real-estate leasing, reentry services, and acquisitions, but provided no numerical 2020 earnings or revenue guidance in the supplied filing text. Management did not expect the unusually elevated ICE populations seen in the second and third quarters of 2019 to recur in 2020. It also said acquisitions had been tempered by the lower market value of the company’s securities.
- Customer and policy concentration: ICE accounted for 29% of 2019 revenue, USMS 17%, and BOP 5%. Contract renewal, appropriations, occupancy, immigration and corrections policy, and resistance to privatization can materially affect results.
- Contract renewals: 49 contracts scheduled to expire by December 31, 2020, including contracts with renewal options, generated $644.1 million, or 33% of 2019 revenue. Management expected to renew materially important near-term contracts but cautioned that renewal is not assured.
- California legislation: California AB32 restricts certain private detention contracts beginning in 2020, with a phase-out provision. The federal government challenged the law; the outcome and potential effect on the Otay Mesa contract and California reentry contracts were uncertain.
- South Texas Family Residential Center: The facility generated $171.1 million of 2019 revenue. Its ICE agreement runs through September 2021 but may be terminated for convenience or non-appropriation; family-detention policy and litigation create additional uncertainty.
- Capital and operating risks: Floating-rate debt, refinancing access, labor and insurance costs, self-insurance claims, REIT qualification and distribution requirements, and the ability to fill or repurpose idle facilities are key sensitivities. Some banks had announced they did not expect to continue financing private correctional and detention operators, although existing credit commitments remained in place through April 2023.
- Legal matters: A securities class action related to prior disclosures was in fact discovery after class certification; the company said it considered the suit without merit and intended to defend it. Management stated pending proceedings were not expected to have a material financial effect, while acknowledging litigation uncertainty.
Most important facts for investors to verify
- Renewal, rebidding, and appropriation status for the contracts representing $644.1 million of 2019 revenue that were scheduled to expire by year-end 2020.
- Current population levels and revenue exposure by major federal customer, particularly ICE, and whether 2019 elevated ICE demand persisted into 2020.
- Developments in the AB32 challenge and implications for Otay Mesa and California reentry operations.
- Debt balances, floating-rate exposure, refinancing access, and the capacity to sustain the $0.44 quarterly dividend while funding investment needs.
- Utilization and impairment assumptions for idle facilities, as well as the progress and returns of the Lansing lease project and other property acquisitions.
The independent auditor issued an unqualified opinion on the 2019 financial statements and internal control over financial reporting. This summary is not a substitute for the complete filing.