CoreCivic, Inc. (CXW): Diversified Government Solutions Provider Delivering Consistent Results

Published on September 24, 2024 | Ticker: CXW

CoreCivic, Inc. (NYSE:CXW) is the nation's largest owner of partnership correctional, detention, and residential reentry facilities and one of the largest prison operators in the United States. Through three segments - CoreCivic Safety, CoreCivic Community, and CoreCivic Properties - the company provides a broad range of solutions to government partners that serve the public good through corrections and detention management, a network of residential reentry centers, and government real estate solutions.

Financials

In fiscal year 2023, CoreCivic generated annual revenue of $1,896,635,000 and net income of $67,590,000. The company's annual operating cash flow was $231,901,000, while its annual free cash flow reached $161,646,000. These strong financial results demonstrate CoreCivic's ability to consistently deliver value to its government partners and shareholders.

For the first quarter of 2024, the company reported revenue of $500,686,000, a 9.3% increase compared to the same period in the prior year. Net income for the quarter was $9,543,000, or $0.08 per diluted share. Normalized funds from operations (FFO), a key performance metric for the company, increased 35% to $52,643,000, or $0.46 per share, in the first quarter of 2024 compared to $38,879,000, or $0.34 per share, in the same period of 2023.

Segment Performance

The increase in first quarter revenue was driven by growth in two of CoreCivic's business segments. In the CoreCivic Safety segment, which includes the company's correctional and detention facilities, revenue increased 9.6% to $457,746,000, primarily due to higher federal, state, and local populations. The CoreCivic Community segment, which operates residential reentry centers, saw a 13.2% increase in revenue to $29,900,000, while the CoreCivic Properties segment, which owns properties leased to government agencies, generated $13,039,000 in revenue, a 5.8% decrease compared to the prior year period.

Revenue Sources

The company's federal partners, including Immigration and Customs Enforcement (ICE) and the United States Marshals Service (USMS), accounted for 52% of total revenue in the first quarter of 2024 and 2023. Revenue from federal partners increased 10.6% year-over-year, driven by higher occupancy and per diem increases at certain facilities. State revenue grew 5.4% in the first quarter, reflecting per diem increases and higher utilization from new management contracts. Local revenue, primarily from county governments, increased 44.2% due to new contracts at the company's Tallahatchie County Correctional Facility in Mississippi.

Occupancy and Margins

CoreCivic's average compensated occupancy increased to 75.2% in the first quarter of 2024, up from 70.1% in the same period of 2023. This improvement was driven by higher populations from ICE following the expiration of Title 42, a policy that had restricted entry at the U.S. border, as well as new management contracts signed in the second half of 2023. The company's Safety and Community segments both experienced occupancy increases, with the Safety segment reaching 76.1% and the Community segment reaching 63.1%.

The increase in occupancy, combined with per diem increases and the normalization of operating expenses, led to an improvement in operating margins. In the first quarter of 2024, the combined operating margin for the Safety and Community segments was 23.7%, up from 21.2% in the prior year period.

Outlook

Looking ahead, CoreCivic's management remains optimistic about the company's growth prospects. The company has recently signed several new management contracts, including agreements with the states of Montana and Wyoming, as well as Hinds County, Mississippi and Harris County, Texas. These new contracts, along with the company's strong relationships with federal partners like ICE and USMS, position CoreCivic well to capitalize on the increasing demand for correctional and detention capacity across the country.

Liquidity

In terms of capital allocation, CoreCivic has made significant progress in strengthening its balance sheet. During the first quarter of 2024, the company repurchased 2.7 million shares of its common stock at a cost of $39.4 million, exceeding the $38.1 million in share repurchases made throughout 2023. As of March 31, 2024, the company's leverage ratio, measured by net debt-to-adjusted EBITDA, was 2.7x, within the company's target range of 2.25x to 2.75x.

In addition to share repurchases, CoreCivic has also been actively managing its debt profile. In the first quarter, the company issued $500 million of 8.25% senior unsecured notes due 2029 and used the proceeds, along with borrowings under its revolving credit facility and cash on hand, to redeem the remaining $98.8 million of its outstanding 8.25% senior notes due 2026. This refinancing activity has extended the company's debt maturities, with no significant maturities until 2027.

Conclusion

Overall, CoreCivic's diversified business model, strong relationships with government partners, and disciplined capital allocation strategy have positioned the company for continued success. The company's consistent financial performance, including its annual revenue of $1,896,635,000, net income of $67,590,000, operating cash flow of $231,901,000, and free cash flow of $161,646,000 in fiscal year 2023, demonstrate its ability to deliver value to shareholders. With a focus on operational excellence, strategic growth, and balance sheet optimization, CoreCivic is well-equipped to capitalize on the evolving needs of its government partners and drive long-term shareholder value.

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