CoreCivic, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unless otherwise noted, amounts below are in U.S. dollars. Comparisons are with Q1 2020; balance-sheet comparisons are with December 31, 2020.
Business context
CoreCivic operates correctional and detention facilities, residential reentry centers, and government-leased properties through its Safety, Community, and Properties segments. At quarter-end, it operated 47 correctional and detention facilities, owned and operated 26 reentry centers, and owned 15 properties leased to third parties.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 or comparison |
|---|---|---|
| Revenue | $454.7 million | $491.1 million; down 7.4% |
| Operating income | $6.5 million | $59.0 million |
| Net income (loss) attributable to common stockholders | $(125.6) million; $(1.05) per diluted share | $32.1 million; $0.27 per diluted share |
| Cash from operating activities | $99.6 million | $75.4 million |
| Cash used in investing activities | $17.4 million | $42.1 million |
| Cash used in financing activities | $34.5 million | Cash provided: $199.9 million |
| Cash and restricted cash | $184.6 million | $136.8 million at beginning of quarter |
| Total debt, principal amount | $1.780 billion | $1.810 billion at December 31, 2020 |
Cash and cash equivalents were $168.1 million; restricted cash was $16.4 million. The company reported $587.1 million available under its revolving credit facility, after borrowings and letters of credit. Current assets were $753.4 million and current liabilities were $385.4 million. CoreCivic said it expected available cash and revolver capacity to meet cash requirements for the next year. It was in compliance with its credit-facility financial covenants.
Q1 segment revenue was $409.8 million for Safety, $23.7 million for Community, and $21.3 million for Properties. Segment facility net operating income was $104.3 million, $2.6 million, and $15.0 million, respectively. Average compensated occupancy fell to 69.9% from 79.0%; revenue per compensated man-day rose to $89.80 from $81.92, while operating expense per compensated man-day increased to $67.23 from $61.79.
Material changes and unusual items
- Revenue declined $36.4 million, primarily reflecting lower compensated populations amid COVID-19, fewer state and local populations, and the prior-year leap day. Federal management revenue increased modestly, while state and local management revenue declined.
- The reported loss included $113.5 million of income tax expense, including a $114.2 million charge primarily from remeasuring deferred tax liabilities after the company’s conversion from REIT to taxable C corporation status effective January 1, 2021. CoreCivic had reported $3.8 million of tax expense in Q1 2020.
- Operating results included $51.7 million of shareholder-litigation expense, net of remaining insurance, and $1.3 million of asset impairments. The litigation expense followed an April 16, 2021 agreement in principle to settle for $56.0 million, subject to definitive documentation and court approval. The filing also reports $1.6 million of incremental COVID-19 expenses.
- The board discontinued the quarterly dividend and prioritized debt reduction following the REIT conversion. The company paid $1.6 million of dividends in Q1 2021, compared with $54.5 million in Q1 2020.
- Four real estate assets, with a combined carrying value of $281.5 million, were classified as held for sale. Management hoped to complete sales during 2021; proceeds were intended for debt repayment or reinvestment.
Outlook, risks, and contingencies
- Federal contract exposure: The January 2021 executive order directs the Attorney General not to renew Department of Justice contracts with privately operated criminal detention facilities. The U.S. Marshals Service had notified CoreCivic it would not renew the Northeast Ohio contract; renewal or future utilization at other facilities was uncertain. Four specifically identified USMS contracts generated $87.7 million of 2020 revenue. ICE is outside the order’s stated scope, but the company warned similar future action could materially affect it.
- COVID-19 and occupancy: The company cited reduced inmate and resident populations, disrupted court activity, border restrictions, staffing challenges, and additional operating costs. It noted ICE detention populations had begun increasing monthly since February 2021, but the outlook remained uncertain.
- Debt refinancing after quarter-end: On April 14, CoreCivic issued $450 million of 8.25% senior notes due 2026, with an effective yield of 8.50%. Proceeds funded redemption of all $250 million of 5.0% notes, repurchase of $149 million principal of 4.625% notes, revolver repayment, and general purposes. The transactions were expected to generate approximately $17.7 million of Q2 charges and increase future interest expense. Management stated that, after the refinancing, it had no debt maturities until May 2023.
- Alabama development: The company entered into two 30-year lease agreements for planned facilities totaling about 7,000 beds, contingent on financing. Construction was expected to begin in late 2021 or early 2022. A lawsuit seeking to stop the project was filed April 27, 2021; financing, litigation outcome, and project timing were uncertain.
- Legal matters: In ICE detainee-labor lawsuits, the company said it could not reasonably predict the outcome or estimate a loss. Six related derivative suits were stayed, with no accrual recorded. Management cautioned that litigation, self-insurance claims, contract nonrenewals, and impairment assumptions could affect future results.
- No formal earnings guidance was provided in the supplied filing text. Management described long-term growth opportunities but emphasized uncertainty over government utilization, contract renewals, asset sales, and development financing.
Important facts for investors to verify
- Whether the $56 million shareholder settlement receives final documentation and court approval, and how the payment and insurance recovery affect cash and reported results.
- Actual timing, proceeds, and gains or losses from the four properties held for sale.
- USMS contract outcomes and facility populations, including Northeast Ohio, West Tennessee, Leavenworth, and Crossroads.
- Progress and financing for the Alabama facilities, including the effect of pending litigation.
- Post-refinancing debt balances, interest expense, covenant headroom, and the company’s ability to reduce debt while managing lower occupancy and higher per-day costs.