CoreCivic, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise noted. CoreCivic operates correctional and detention facilities, residential reentry centers, and government-leased properties. At quarter-end it operated 44 Safety facilities, owned and operated 23 Community centers, and owned 8 Properties leased to government agencies.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $458.0 million | $453.0 million |
| Operating expenses | $354.5 million | $344.6 million |
| Income before income taxes | $20.5 million | $25.6 million |
| Net income / diluted EPS | $12.4 million / $0.11 | $19.0 million / $0.16 |
| Net cash from operations | $89.8 million | $97.7 million |
- Revenue increased 1.1%. State management revenue rose 15.8% to $179.1 million, while federal management revenue fell 6.9% to $237.2 million. Higher revenue per compensated man-day more than offset lower average compensated population.
- Net income declined 34.7%. Q1 2023 included a $2.3 million tax expense from revaluing deferred tax liabilities after a change in corporate tax structure. Q1 2022 included a $2.3 million real-estate sale gain.
- Facility net operating income was $103.4 million, down from $108.4 million. CoreCivic Safety NOI declined 4.3% to $89.3 million; Community NOI declined 4.9% to $3.7 million; Properties NOI declined 7.4% to $10.5 million.
- Across correctional, detention, and reentry facilities, average compensated occupancy was 70.1%, versus 70.6%. Revenue per compensated man-day rose to $96.87 from $91.88, but operating expenses per day rose faster, to $76.35 from $71.20. Operating margin per compensated man-day decreased to 21.2% from 22.5%.
- Cash and cash equivalents were $51.5 million at March 31, down from $149.4 million at year-end; cash, cash equivalents and restricted cash totaled $65.2 million. Operating cash flow was $89.8 million. Investing activities used $10.5 million, and financing activities used $176.3 million, including the debt redemption and share repurchases.
- Debt principal was $1.118 billion, compared with $1.265 billion at December 31, 2022. Long-term debt, net, was $1.093 billion. The company had $222.6 million available under its revolving credit facility after $17.4 million of letters of credit; it reported compliance with debt covenants.
Material changes and notable items
- CoreCivic redeemed $153.8 million of 4.625% Senior Notes on February 1, 2023, funded with cash and revolving-credit capacity. Reported debt maturities are concentrated in 2026 and 2027; management said there were no maturities until 2026.
- The company repurchased approximately 2.5 million shares for $24.9 million during the quarter. About $125.6 million remained authorized under its $225 million repurchase program at March 31.
- Arizona state inmate transfers to La Palma drove state revenue growth. Management said full utilization could generate approximately $75–$85 million in annualized revenue at that facility, while noting transition-related staffing costs have weighed on results.
- Management cited labor shortages, wage pressure, inflation, and recruiting and travel costs. It expects continued investment in staffing during 2023; staffing constraints could limit capacity or result in contract deductions, population reductions, or contract cancellation.
Outlook, risks and contingencies
- No specific consolidated earnings or revenue guidance was provided. Management said it expects to meet cash requirements for the next year and beyond using cash, operating cash flows, and revolving-credit availability.
- Federal policy presents material demand risk: the Private Prison Executive Order applies to DOJ contracts, and USMS and ICE accounted for 22% and 29% of Q1 revenue, respectively. A direct USMS contract expires in September 2023 and management said the detainee population served may be difficult to replace; another expires in September 2025. Renewal or replacement is not assured.
- California’s CDCR notified CoreCivic of its intent to terminate the California City lease by March 31, 2024; funding beyond June 30, 2023 remained subject to the state budget process. On April 25, 2023, Oklahoma notified the company it intended to end the North Fork lease at June 30, 2023. CoreCivic was also negotiating renewal terms for the Davis facility contract, also due to expire June 30, 2023.
- Title 42 and immigration policy remained uncertain, with possible effects on ICE detention demand. Management noted that expiration of Title 42 could increase apprehensions and detention, but outcomes and timing were uncertain.
- A detainee labor and related claims class action remains pending. The company disputes the allegations and said it cannot reasonably predict the outcome or estimate a loss; no accrual was recorded. CoreCivic also faces self-insurance exposure and other litigation risks, though management did not expect additional recognized losses to be material.
- Q1 operating results are not necessarily indicative of full-year results. Interest-rate exposure remains on variable-rate Term Loan A and revolver borrowings; a 100-basis-point rate change would have affected quarterly net interest expense by approximately $0.3 million.
Important facts for investors to verify
- Progress and final terms for the USMS contract expiring in September 2023, and the effects of the DOJ policy on renewals and replacement populations.
- California City lease funding and utilization after June 30, 2023; North Fork’s June 30, 2023 lease expiration; and the Davis contract negotiations.
- Whether Arizona utilization and per-diem increases offset staffing, wage, and inflation-related cost pressures, including at La Palma.
- Cash generation, debt balances and maturities, covenant compliance, and the pace of share repurchases relative to liquidity needs.
- Developments in the detainee labor litigation and any material changes to self-insurance or other contingencies.