CoreCivic, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unless noted otherwise, financial amounts are in U.S. dollars. CoreCivic operates correctional and detention facilities (Safety), residential reentry centers (Community), and leased government properties (Properties).
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $471.2 million | $468.3 million | $1,390.5 million | $1,432.0 million |
| Net income (loss) attributable to common stockholders | $30.0 million | $26.7 million | ($79.9 million) | $81.0 million |
| Diluted EPS | $0.25 | $0.22 | ($0.67) | $0.68 |
| Cash from operating activities | Not separately reported for the quarter | $284.1 million | $281.5 million |
- Q3 operating expenses were $338.2 million versus $347.9 million; nine-month expenses were $1,004.1 million versus $1,063.2 million. Overall operating margin per compensated man-day was 27.2% for Q3 and 26.4% for the nine-month period, compared with 23.8% and 24.0%, respectively, a year earlier.
- Average compensated occupancy was 72.1% in Q3 and 71.2% for nine months, versus 70.9% and 74.9% in the corresponding 2020 periods. Nine-month compensated population fell 8.4% to 53,442.
- At September 30, cash and cash equivalents were $455.5 million; restricted cash was $11.1 million. The company had no revolving-credit borrowings and $786.1 million of availability under its revolver. Operating cash flow less cash capital expenditures of approximately $53.0 million was approximately $231.2 million; this is a simple calculation, not company-reported free cash flow.
- Total debt principal was $1.650 billion, down from $1.810 billion at December 31, 2020. Debt included $675 million of 8.25% senior notes due 2026; weighted-average effective interest rate was 6.3%. The company reported compliance with credit-facility covenants.
Material changes versus prior comparable periods
- Q3 revenue increased 0.6%, while nine-month revenue declined 2.9%. Nine-month management revenue fell 2.0%, mainly reflecting lower average populations; higher revenue per compensated man-day partly offset the decline. Property sales reduced lease revenue.
- Safety segment net operating income rose to $117.3 million in Q3 from $100.7 million and to $334.2 million for nine months from $308.1 million. Properties net operating income declined to $10.6 million in Q3 from $16.7 million and to $39.6 million for nine months from $48.0 million, primarily after property disposals.
- The nine-month net loss chiefly reflected $128.7 million of income tax expense (including a $114.2 million charge, primarily from deferred-tax remeasurement after ending REIT status), $54.3 million of shareholder-litigation expense, and $52.2 million of debt repayment/refinancing expense. These were partly offset by a $38.8 million net gain on real estate sales.
- CoreCivic issued $450 million of 8.25% notes in April and an additional $225 million in September, redeemed $250 million of 5.0% notes, repurchased $176 million principal of 4.625% notes, and used property-sale proceeds to repay debt. In October 2021, it repaid $90 million of Term Loan B using cash.
- The company ended its REIT election effective January 1, 2021, became a taxable C corporation, and discontinued its quarterly dividend to prioritize debt reduction. It terminated its ATM equity offering agreement in August; no shares had been sold under it.
Outlook, commentary, risks and unusual items
- No specific numerical earnings or revenue guidance is provided. Management said it expected available cash and revolver capacity to meet cash needs for the next year, anticipated sufficient liquidity to repay the $174 million 4.625% notes at their May 2023 maturity, and intended to prioritize debt reduction before shareholder returns and growth opportunities.
- Federal policy is a significant risk. For the nine months, ICE represented 30% of revenue ($411.5 million) and the U.S. Marshals Service 23% ($324.3 million); the Bureau of Prisons represented 2% ($30.3 million). The 2021 executive order directs non-renewal of Department of Justice contracts with privately operated criminal detention facilities. Several U.S. Marshals contracts were not renewed; replacement arrangements were secured for Northeast Ohio and Crossroads, but other renewals and replacement contracts remain uncertain.
- The West Tennessee USMS contract expired September 30, 2021 and was not renewed. The Leavenworth USMS contract was due to expire in December 2021; the Tallahatchie arrangement allowing USMS use of capacity was due to expire in June 2022. Management said continued use of Leavenworth was uncertain. The Marion County Jail management contract was expected to end December 31, 2021.
- COVID-19-related population changes, possible policy shifts affecting immigration detention, contract appropriations and renewals, labor shortages, wage pressures, and potential vaccine or testing requirements could affect occupancy, costs, and contract performance. Management cited recruiting and retention challenges and warned that insufficient staffing could lead to penalties or contract loss.
- Alabama terminated two proposed 30-year facility leases; CoreCivic recorded a $5.2 million Q3 impairment for pre-development costs. Five owned Safety facilities were idle, with $128.7 million in carrying value; future utilization and impairment remain uncertain.
- The $56 million shareholder class-action settlement was approved by the court on November 8, 2021, after quarter-end. The company recognized $54.3 million of expense in the nine months, net of available insurance. It reported no accrual for ICE detainee labor litigation, where outcomes and potential losses could not be reasonably estimated.
Important facts for investors to verify
- Contract status, renewal prospects, and replacement utilization for USMS-linked facilities, particularly Leavenworth, West Tennessee, and Tallahatchie; assess the exposure to ICE and possible policy changes.
- Whether occupancy and staffing costs improve or deteriorate, and how labor shortages, wage increases, and COVID-19 requirements affect margins.
- Cash deployment after the October $90 million Term Loan B repayment, including any further debt repurchases, the cost of 8.25% notes, and liquidity available under the revolver.
- Tax expense and deferred-tax balances following the REIT conversion, including whether future reported earnings normalize after the 2021 remeasurement charge.
- Potential impairment exposure at idle facilities and the outcome of unresolved legal matters, including the detainee labor and derivative lawsuits.