CoreCivic, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. CoreCivic operates correctional and detention facilities, residential reentry centers, and government-leased properties. At quarter-end it operated 47 Safety facilities, 26 Community centers, and owned 10 Properties-segment buildings.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $464.6 million | $472.6 million | $919.3 million | $963.7 million |
| Net income (loss) attributable to common stockholders | $15.6 million | $22.2 million | $(109.9) million | $54.2 million |
| Diluted earnings (loss) per share | $0.13 | $0.18 | $(0.92) | $0.45 |
| Operating cash flow | Not stated for the quarter | $82.3 million | $174.3 million |
Q2 revenue declined 1.7%; first-half revenue declined 4.6%. The six-month loss included a $120.1 million income tax expense, largely reflecting $114.2 million of deferred tax revaluation and other tax items associated with revoking REIT status. CoreCivic’s segment facility net operating income was $131.6 million in Q2, up from $119.8 million; first-half segment net operating income was $253.5 million versus $248.7 million. Operating margin per compensated man-day improved to 26.8% in Q2 from 23.5%, and to 26.0% for the first half from 24.0%.
At June 30, cash and cash equivalents were $162.9 million, restricted cash was $8.9 million, and total debt principal was $1.545 billion. The revolving facility had $112.0 million drawn and $674.1 million available, including the effect of letters of credit. Total assets were $3.424 billion and total liabilities were $2.114 billion. Management reported compliance with credit-facility covenants and expected available cash and revolver capacity to meet expenditure needs for the next year.
First-half operating cash flow fell by $91.9 million year over year, primarily due to working-capital changes and payment of the $56.0 million shareholder-litigation settlement. Investing cash flow was $286.6 million, mainly from asset-sale proceeds; financing cash flow was a $333.9 million outflow, including debt repayments and refinancing costs. Property sales generated $320.7 million in net proceeds in investing activities.
Material changes versus the prior period
- Average compensated population declined 8.0% in Q2 and 11.4% in the first half year over year; occupancy was 71.6% and 70.7%, respectively, compared with 74.9% and 76.9%. Management attributed declines primarily to COVID-19-related government actions and prior contract terminations. Higher revenue per compensated man-day partly offset lower populations.
- Safety segment revenue declined 1.0% in Q2 and 3.7% in the first half, while Safety segment net operating income rose 12.2% and 4.6%, respectively. Community revenue and first-half net operating income declined; Properties revenue and net operating income also declined, largely following property sales.
- CoreCivic completed sales of three actively leased properties in Q2 for $326.0 million aggregate consideration, generating $122.6 million net proceeds after debt repayment and transaction costs. The sales produced a reported $38.8 million net gain. Proceeds were used to reduce debt.
- Debt refinancing included issuing $450.0 million of 8.25% senior notes due 2026, redeeming $250.0 million of 5.0% notes, and repurchasing $176.0 million principal amount of 4.625% notes. The transactions and property-related mortgage prepayments generated $52.2 million of Q2 debt repayment and refinancing expense. Total weighted-average effective interest rate was 5.7%; weighted-average maturity was 5.4 years.
- CoreCivic became a taxable C corporation effective January 1, 2021, ending its REIT election. The board also discontinued the quarterly dividend and prioritized debt reduction. No common-stock dividends were paid in the first half of 2021; $106.0 million was paid in the comparable 2020 period.
Outlook, risks, contingencies, and unusual items
- Management’s capital-allocation priority is debt reduction, followed by a substantial portion of free cash flow potentially directed to shareholder returns and growth opportunities. No quantified earnings or revenue guidance is provided.
- The January 2021 federal Private Prison Executive Order directs the Attorney General not to renew DOJ contracts with privately operated criminal detention facilities. For the first half, USMS represented 23% of revenue, ICE 29%, and BOP 2%. Two USMS direct contracts expired without renewal in Q2; CoreCivic reported replacement arrangements with Mahoning County, Ohio, and, after quarter-end, an amended Montana state contract. Three other USMS-related contracts had expirations within 12 months as of June 30. Potential nonrenewals or similar action affecting ICE could materially harm results.
- Management cited COVID-19 effects on populations and court referrals, labor shortages and wage pressure, contract-renewal and government-appropriation risks, and possible future impairment of idle facilities. Salaries and benefits were approximately 60% of first-half operating expenses. The company reported $46.4 million in accrued self-funded insurance liabilities.
- CoreCivic recorded $54.3 million of first-half shareholder-litigation expense, net of remaining insurance, for an agreed-in-principle $56.0 million settlement subject to definitive documentation and court approval. ICE detainee-labor litigation remains unresolved; the company said it could not estimate a loss and recorded no accrual. Related derivative suits were stayed.
- After quarter-end, Alabama terminated two 30-year facility leases effective August 6, 2021. Management expected $4.0 million to $6.0 million of third-quarter impairment charges for pre-development costs, subject to vendor negotiations.
- Normalized FFO, a non-GAAP supplemental measure, was $56.0 million for Q2 versus $67.8 million and $109.0 million for the first half versus $133.1 million. The company cautions that FFO is not cash from operations or a liquidity measure.
Important facts for investors to verify
- Whether the USMS and ICE contracts, including those nearing expiration, are renewed, replaced, or lose utilization, and the revenue and occupancy impact of each outcome.
- Whether the proposed shareholder settlement receives court approval and whether any further costs arise from detainee-labor or derivative litigation.
- The sustainability of lower occupancy, improved per-diem revenue, and higher staffing and wage costs, as well as the utilization or impairment outlook for idle facilities.
- Debt-reduction progress, refinancing costs and interest burden, revolver availability and covenant compliance, and the timing and terms of any future shareholder returns.
- The effect of C-corporation taxation on ongoing cash taxes and earnings after the one-time deferred-tax revaluation, and the final impairment impact of the terminated Alabama leases.