By M. Marin
NYSE:CXW
READ THE FULL CXW RESEARCH REPORT
New contract with Montana, others help offset impact of two expired agreements
CoreCivic (NYSE:CXW) reported 4Q24 results and hosted a call yesterday, beating our/consensus EPS projections. Total 4Q24 revenue came in at $479.3 million, compared to our forecast of $464.6 million. We believe the primary factor behind the topline variance was that the impact of the expiration of two contracts was partially offset by recent new contracts. Two agreements expired earlier in 2024. The company’s lease at its California City Correctional Center expired on March 31, 2024, and the company’s lease at its South Texas Family Residential Center in Dilley, Texas expired in August 2024. In each case, we see the expiration as related to exogenous factors and believe they do not reflect on the company’s relationships with its government partners. For instance, the Cal City facility closed primarily because prison populations in the state of California have declined in recent years and are projected to decrease further. The South Texas facility closed because it was more expensive for ICE to operate compared to other detention facilities. It had been operated under a costly Family Residential Standards (FRS) model versus CXW’s standard model because the facility was initially designed to house families seeking asylum when the contract was originally awarded in 2014. At that time, ICE sought to provide solutions for the high volume of families seeking to enter the U.S. However, subsequently in 2021, the facility transitioned primarily to detention of single adults, although it continued to operate under the original FRS model.
Compensated occupancy in 4Q24 increased to 75.5%, up from 74.0% in 4Q23. The company recorded 4Q24 adjusted EPS of $0.16, significantly ahead of our forecast of $0.11 and consensus of $0.10. In 4Q23, CXW reported adjusted EPS of $0.23.
Subsequent to 4Q24, CXW was awarded a new management contract with Montana for additional inmates outside the state. The company expects 240 inmates to arrive at its 2,672-bed Tallahatchie County Correctional Facility in Tutwiler, Mississippi in 1Q25. The incremental Montana inmates are expected to boost the company’s occupancy, bed utilization and efficiency at the Tallahatchie County Correctional Facility, which also serves the state of Wyoming, Harris County, Texas and Hinds County, Mississippi. Moreover, in January 2025, 120 Montana inmates were received at CXW’s 1,896-bed Saguaro Correctional facility in Eloy, Arizona under an existing contract with Montana that runs through December 31, 2026.
We expect the expanded occupancy with Montana to positively impact CXW’s occupancies in 2025. Moreover, we remain optimistic about CXW’s business trends going forward and expect further contract renewals, extensions and new business agreements with ICE and CXW’s other government partners. Reflecting the limited supply of and older state of many government owned correctional facilities, we expect new business awards for CXW. The BOP is a relatively small customer for CXW but we believe that the overall state of its facilities provides insight into the general state of government detention facilities in the U.S., reflecting budgetary constraints and other challenges to constructing newer facilities. Thus, over the past five years, retention rates on owned and controlled facilities is over 95% and the company is engaged in discussions for additional contracts with existing and potential partners.
Reflecting Administration’s measures, Laken Riley Act, other factors, believe guidance will prove conservative
CXW’s relationship with ICE, its largest government partner, continues to be strong, in our view. The recently passed Laken Riley Act requires DHS (Department of Homeland Security) to detain certain non-U.S. nationals who have been charged, arrested, or convicted of certain crimes. According to CXW, ICE estimates that the act could require 60,000 to 110,000 incremental detention beds. The new administration also reversed an executive order implemented during the prior administration that directed the Justice Department to not renew direct contracts with private detention facilities. Reflecting the additional capacity required by ICE and potentially other government partners, we believe the company’s newly issued guidance likely will prove conservative.
Balance sheet strengthening measures and share repurchases continue
CXW continues to strengthen its balance sheet and repaid about $95 million of net debt in 2024. CXW’s leverage ratio (measured as net debt-to-TTM adjusted EBITDA) was 2.3x at the end of 4Q24; the company’s target leverage range is 2.25x to 2.75x. Moreover, the company has no major debt maturities before 2029 other than some $258 million maturing in 2027, which notably carry a 4.75% stated interest rate. Given the current interest rate environment, we therefore do not expect the company to refinance these in advance.
CXW’s capital allocation strategy also includes share repurchases. CXW repurchased nearly $69 million of its shares in 2024. Since the share repurchase program was initially implemented in May 2022 through December 31, 2024, the company has repurchased an aggregate 14.5 million shares at a total of $181.1 million, with $168.9 million remaining under the share repurchase program as of September 30, 2024. CXW increased the aggregate share repurchase authorization to $350.0 million on May 16, 2024.
CXW had $107.5 million of cash at the end of 4Q24 and $257.0 million available under its revolver, for liquidity of about $365 million. Moreover, we are optimistic about CXW’s opportunity to continue generating stable cash flow, reflecting the company’s renewal rate on its facilities over the past five years.
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