Business context and reporting period
CoreCivic, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2023. The company provides correctional and detention management, residential reentry, and government real estate services through CoreCivic Safety, Community, and Properties. At quarter-end, it operated 44 correctional and detention facilities, owned and operated 23 residential reentry centers, and owned six properties leased to government agencies.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $483.7 million | $464.2 million | $1,405.4 million | $1,373.9 million |
| Net income | $13.9 million | $68.3 million | $41.1 million | $97.9 million |
| Diluted EPS | $0.12 | $0.58 | $0.36 | $0.82 |
| Operating cash flow | — | $209.6 million | $118.2 million |
- Revenue increased 4.2% in Q3 and 2.3% year to date. Management revenue rose 5.2% and 2.8%, respectively; lease revenue declined 28.1% and 13.3%.
- Facility net operating income was $106.3 million in Q3, versus $96.0 million, and $311.5 million for nine months, versus $312.2 million. The reported operating margin per compensated man-day was 21.3% for Q3 versus 19.2%; year-to-date it was 21.0% versus 21.3%.
- Average compensated occupancy was 72.0% in Q3 and 70.8% year to date, compared with 70.1% in both comparable 2022 periods. Revenue per compensated man-day increased, while staffing costs and other expenses remained elevated.
- Cash and cash equivalents were $103.7 million at September 30, down from $149.4 million at year-end 2022. Restricted cash was $14.2 million. Current assets were $420.0 million and current liabilities $304.4 million.
- Total debt was $1.081 billion, compared with $1.265 billion at December 31, 2022. The company had $232.6 million available under its revolving facility and was compliant with its financial covenants. Reported debt maturities were concentrated in 2026 and 2027; management stated there were no maturities until 2026.
- Cash flow from operations increased year over year, primarily due to favorable working-capital movements. Investing activities used $39.2 million; financing activities used $214.6 million, including debt repayments and $30.5 million for share repurchases and related share retirements.
Material changes versus the prior comparable period
- Net income fell sharply, notwithstanding revenue growth. Q3 2022 included an $83.8 million real estate sale gain, primarily related to the McRae facility; nine-month 2022 included $87.1 million of net gains. 2023 included only $0.4 million in Q3 and $0.3 million year to date.
- State management revenue grew 11.7% in Q3 and 12.9% year to date, driven in part by Arizona utilization of La Palma and per-diem increases. Federal management revenue was up 1.4% in Q3 but down 2.2% year to date, reflecting the McRae contract expiration and changes at La Palma.
- The expiration of the North Fork lease in June 2023 reduced Properties revenue; the facility was idled in Q3. Two leased Pennsylvania properties were sold in May 2023.
- Operating costs increased, including from wage increases and staffing investment. Higher average revenue per compensated man-day helped offset costs, while Q3 facility net operating income improved year over year.
Outlook, commentary, risks, and unusual items
- No numerical earnings or revenue guidance is provided. Management said it expects to meet cash requirements for the next year and beyond using cash, operating cash flow, and revolving-credit availability.
- After quarter-end, on October 11, 2023, CoreCivic amended and extended its bank credit facility to October 2028, increased revolving capacity from $250 million to $275 million, and increased the Term Loan A size to $125 million. It received approximately $33.8 million of net borrowings before transaction costs; the revolver remained undrawn except for letters of credit.
- Management cited potential demand from government partners, including population growth, facility capacity needs, and staffing challenges at public facilities. It reported new Hinds County and Montana contract developments after quarter-end.
- Key risks include government policy and appropriations, contract renewal or termination, reliance on federal customers, immigration and detention trends, labor availability and wage pressure, inflation, and variable-rate debt. ICE and USMS together accounted for about half of revenue in the first nine months of 2023. The Private Prison Executive Order applies to DOJ agencies, not ICE.
- California’s CDCR lease for California City is scheduled to end by March 31, 2024; management is seeking continued use or alternative customers and cannot assure a replacement arrangement. One USMS contract expires in September 2025; another was renewed through September 2028.
- Q3 2023 included a $2.7 million impairment of a contract-acquisition asset after a technology-vendor agreement ended. Eight idled major correctional facilities had a combined carrying value of $250.0 million; management said estimated undiscounted cash flows exceeded carrying values at quarter-end.
- Certified class claims in litigation concerning ICE detainee labor remain pending; the company disputes the allegations and says the potential loss is not presently estimable. A separate Georgia case settled in October 2023 without material liability. Management noted self-insurance exposure and that adverse litigation outcomes could still be material.
Important facts for investors to verify
- Whether California City’s lease is extended, replaced, or terminated as scheduled, and the effect on rental income and facility value.
- Utilization and profitability at idled facilities, including North Fork, and whether management secures new customers.
- Trends in staffing, wages, occupancy, and per-diem rates, particularly whether higher revenue continues to offset operating-cost growth.
- Federal contract exposure, USMS renewals, ICE detention levels, and the impact of government funding or policy changes.
- Debt costs and refinancing needs, covenant compliance, and use of cash for debt reduction versus repurchases or other shareholder returns.
- Progress and potential financial exposure in the detainee-labor litigation and other contingencies.