CoreCivic, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions where appropriate.
Business context
CoreCivic provides correctional and detention management, residential reentry services, and government real estate 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 | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $463.7m | $456.7m | $921.7m | $909.7m |
| Net income | $14.8m | $10.6m | $27.2m | $29.6m |
| Diluted EPS | $0.13 | $0.09 | $0.24 | $0.24 |
| Facility net operating income | $101.7m | $107.7m | $205.2m | $216.2m |
| Operating margin per compensated man-day | 20.6% | 22.2% | 20.9% | 22.3% |
| Average compensated occupancy | 70.3% | 69.5% | 70.2% | 70.0% |
| Normalized FFO | $37.8m | $40.7m | $76.7m | $82.2m |
For the six months ended June 30, operating cash flow was $125.9m, versus $94.3m in 2022; investing cash outflow was $21.6m and financing cash outflow was $211.3m. Cash, cash equivalents, and restricted cash declined by $107.1m to $55.1m. The company attributed the higher operating cash flow mainly to favorable working-capital movements.
At June 30, cash and cash equivalents were $41.8m and total debt was $1.084bn ($1.059bn long-term debt, net, plus $13.2m current debt). The revolver had no borrowings; $232.6m was available after $17.4m of letters of credit. The Term Loan A balance was $93.1m at a variable rate of 8.4%. Weighted-average effective interest rate was 7.5%, and weighted-average debt maturity was 5.0 years. The company reported compliance with its credit-facility covenants.
Material changes versus prior periods
- Q2 revenue rose 1.5% year over year, while six-month revenue rose 1.3%. Higher state revenue, including growth at Arizona’s La Palma facility and per-diem increases, offset lower federal and lease revenue.
- Despite higher revenue, facility net operating income and per-man-day operating margins declined. Wage and benefit costs, staffing levels, and other operating expenses increased; the company said improved staffing reduced temporary incentives, but labor costs remained pressured.
- Q2 net income improved from 2022, which included $6.8m of debt-refinancing costs, $1.9m of shareholder-litigation expense, and a $1.1m property-sale gain. Six-month net income declined year over year; 2022 included a $3.3m property-sale gain and $6.8m of refinancing costs. Q2 2023 included $0.2m of debt-related costs and a $25,000 loss on a property sale.
- CoreCivic redeemed the remaining $153.8m of 4.625% senior notes in February 2023 and repurchased $21.0m of 8.25% notes in Q2. Debt declined from $1.265bn at year-end 2022 to $1.084bn at June 30, 2023. Share repurchases during the first half totaled $25.6m, excluding other share-retirement costs.
- Segment trends diverged: Q2 Safety revenue increased to $421.7m, but Safety facility NOI fell 6.6% to $86.0m; Community revenue rose 10.0% to $28.4m and NOI rose 21.5% to $5.5m; Properties revenue fell 6.6% to $13.6m and NOI fell 8.1% to $10.3m.
Outlook, risks and contingencies
- No quantitative earnings or revenue guidance was provided. Management said it expects to continue investing in staffing during 2023, with associated compensation and incremental expenses; the benefits may not be immediate or realized.
- Management cited potential demand growth as Title 42 ended in May 2023 and government partners face capacity or staffing constraints. However, fixed-payment contract terms mean higher populations may not translate proportionately into revenue until occupancy exceeds specified thresholds.
- Two direct USMS facility contracts expire in September 2023 and September 2025. The company said the detainee population at the September 2023 facility may be challenging to replace and gave no assurance of renewal or replacement. USMS and ICE accounted for 22% and 29% of first-half revenue, respectively. The DOJ private-prison executive order applies to DOJ agencies, not ICE.
- The California City lease is scheduled to end March 31, 2024; the company is seeking continued use or other customers. Oklahoma’s North Fork lease ended June 30, 2023, and the facility was idled in Q3. The Davis facility is transitioning from a management contract to a lease expected to generate $7.5m annual rent during its base term.
- Seven core Safety facilities were idle at June 30, with aggregate carrying values of $191.5m; management reported estimated undiscounted cash flows above carrying values for facilities tested. Future utilization, sale prospects, and impairment assumptions remain relevant.
- In the ICE detainee labor litigation, certified class claims will proceed after the U.S. Supreme Court dismissed CoreCivic’s petition for review. The company disputes the claims, but said it cannot reasonably estimate a loss and has recorded no accrual. It also noted its substantial self-insurance exposure and uncertainty in litigation outcomes.
- Other stated risks include government appropriations and payment timing, contract renewals and terminations, staffing shortages and wage inflation, variable interest rates, and changes in policy or law. Management said it expects to meet cash requirements using cash, operating cash flow, and revolver availability.
Important facts for investors to verify
- Progress and outcome of the September 2023 USMS contract expiration, and any replacement capacity or revenue.
- California City’s post-March 2024 utilization and the financial impact of North Fork remaining idle.
- Whether staffing and wage-cost pressures ease, and whether per-diem increases and improved occupancy offset expense growth.
- Cash generation after working-capital effects, ongoing debt reduction, the 2026–2027 maturity concentration, and sensitivity to variable rates.
- Developments in the certified ICE detainee labor class action and any change in the company’s ability to estimate or accrue potential losses.
Normalized FFO is a supplemental non-GAAP measure and is not a substitute for GAAP net income or operating cash flow.