CoreCivic, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also provides unaudited fourth-quarter results; it is an annual report, not a standalone quarterly filing.
Business context
CoreCivic is a REIT operating three segments: CoreCivic Safety (correctional and detention services), CoreCivic Community (residential reentry and electronic monitoring), and CoreCivic Properties (government-leased real estate). At year-end, it operated 51 Safety facilities, owned and operated 26 reentry centers, and owned 27 leased properties. Federal agencies generated 48% of revenue.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $1.836 billion | $1.765 billion |
| Operating income | $249.5 million | $260.4 million |
| Net income | $159.2 million | $178.0 million |
| Diluted earnings per share | $1.34 | $1.50 |
| Operating cash flow | $322.9 million | $341.3 million |
Revenue grew 4.0%, while operating income fell 4.2% and net income fell 10.6%. Operating margin declined to about 13.6% from 14.8%; net margin was about 8.7% versus 10.1%. Management cited higher labor costs, lower average compensated population and start-up/underutilization costs at certain facilities. Average compensated occupancy increased to 81% from 80%; excluding idled facilities, it was 93% versus 91%.
Fourth-quarter 2018 revenue was $482.2 million, operating income $64.6 million, and net income $41.2 million; diluted EPS was $0.35. Full-year facility net operating income was $521.0 million: Safety $453.6 million, Community $24.9 million, Properties $42.5 million.
Cash and cash equivalents were $52.8 million, restricted cash $21.3 million, and net working capital $7.1 million at year-end. The company reported $575.3 million available on its revolving facility. Gross debt was $1.815 billion; debt leverage was 4.0x, fixed-charge coverage 5.1x, weighted-average effective interest rate 4.9%, and weighted-average maturity 5.9 years. The filing states no debt maturities before April 2020. Investing cash outflow was $291.1 million, including $175.6 million for acquisitions and $121.6 million of capital expenditures. Dividends declared were $1.72 per share for 2018 ($205.7 million total).
Changes, outlook, risks and unusual items
- Federal revenue rose 6.1%; state revenue declined 2.9%, partly reflecting fewer California inmates housed out of state and prior Texas contract expirations. Rental revenue grew 43.3%, mainly from property acquisitions.
- 2018 included a $6.1 million contingent-acquisition consideration charge, $1.6 million asset impairment on the headquarters sale, $1.0 million debt-refinancing expense, and $1.0 million tax-reform-related charge.
- Management expects to fund near-term needs from operating cash, cash on hand and the revolver, and says it believes it can meet expenditure requirements for the next year. No quantified earnings or revenue guidance is provided. Planned projects include a 512-bed Otay Mesa expansion, expected to finish in Q4 2019 at an estimated $43 million, and the Lansing, Kansas facility, expected to complete in Q1 2020.
- Key risks include dependence on government appropriations and a concentrated federal customer base; contract termination, rebidding and nonrenewal; political or policy changes affecting privatization, immigration detention or incarceration; labor, insurance and operating-cost inflation; leverage, variable-rate exposure and refinancing; and REIT qualification and distribution requirements. Forty-nine facility contracts representing $632.4 million, or 34% of 2018 revenue, were scheduled to expire by year-end 2019, including the BOP contract at Adams County, expiring July 2019. Management expected to renew material contracts, but provided no assurance.
- A shareholder securities lawsuit remained pending; the court denied class certification in January 2019, and plaintiffs sought reconsideration. Management says it will vigorously defend the matter. The company reported an unqualified financial-statement audit and effective internal controls.
Investor verification points
- Track renewal or rebid outcomes for the near-term contracts, especially Adams County and other contracts comprising the disclosed $632.4 million revenue exposure.
- Monitor federal policy and utilization at ICE facilities, including the South Texas Family Residential Center and La Palma.
- Reconcile reported debt measures: gross debt of $1.815 billion versus selected financial data showing $1.802 billion, reflecting a different presentation basis.
- Assess whether operating cash flow and revolver capacity can support dividends, acquisitions, construction commitments and the April 2020 note maturity.
- Verify delivery, cost and lease-up of Otay Mesa and Lansing projects, and progress integrating the 2018 acquisitions.