By M. Marin
NYSE:CXW
READ THE FULL CXW RESEARCH REPORT
Multiple 2H23 contract wins illustrate ongoing momentum with existing / prospective customers…
CoreCivic’s (NYSE:CXW) reported 2023 results and initiated 2024 guidance last week. Reflecting positive trends, including rising average compensated occupancies at its facilities and normalizing costs, we are optimistic about operating improvements going forward. In our view, 4Q23 results highlight robust momentum in the company’s business, as occupancies rise and costs slowly begin to normalize. CoreCivic reported 4Q23 total revenue of $483.7 million, up 4%, compared to $471.4 million in 4Q22. On an adjusted same-store basis, total revenue growth would have been 7%. The company reported EPS of $0.23 compared to $0.21 and our forecast of $0.20. Normalized funds from operations (FFO) was $51.3 million or $0.45, up 7% from $49.1 million or $0.42 in the same period of 2022.
The 5-year contract renewal rate average is a high 95%, with strong momentum in new wins in recent months with both new and existing customers. We expect several new contracts announced in 2H23 will benefit 2024 results. Moreover, reflecting growing demand for capacity post-pandemic, we anticipate further awards. Management believes renewal rates remain high, reflecting the limited supply of and older state of many government owned correctional facilities, the programs the company offers inmates and the cost effectiveness of its services, among other factors.
Takeaways
▪ Occupancies at CXW facilities are up and likely to increase further
▪ Costs appear to be normalizing, particularly as labor market conditions improve
▪ CXW has executed or renewed several contracts in recent months, is in additional contract discussions
▪ Continued cost & debt reductions contribute to improving margins, substantially lower interest expense
▪ Trends in CXW’s Community segment also appear strong
Occupancies at CXW facilities are up following the termination of Title 42 and likely, we believe, to increase further as ICE and multiple government organizations seek capacity. At the same time, costs appear to be normalizing, particularly as labor market conditions improve, which likely leads to margin improvements. CXW has executed or renewed several contracts in recent months.
With operating factors appearing favorable, CXW also continues its debt reduction / maturities extending measures and cost cutting initiatives. These steps likely contribute to further margin improvements and a stronger balance sheet. Moreover, trends in CXW’s Community segment also appear strong, in our view & we believe the segment could offer an alternate solution in certain cases to help ease the growing court backlog and challenges with mounting numbers at the border. In 3Q23 ICE issued an RFI for community services.
Community segment: higher occupancy levels, potential alternate solution in certain cases
CXW’s community segment operates residential reentry facilities and the company is optimistic about opportunities for this segment. Segment revenue increased to $115.1 million in 2023, from $103.3 million in 2022, as occupancy levels in the community segment advanced to 63.7% in 4Q23 from 58.4% in 4Q22. In addition to beds, the company also provides electronic monitoring and case management services in through this operating segment. We believe this segment could be seen as a partial alternate solution in certain cases to help ease the growing court backlog and challenges at the border.
In fact, in 3Q23 ICE issued an RFI (request for information) for Release and Reporting Management Services, as noted, including information about monitoring technology, coordination services, residential space and other community services for non-U.S. citizens. This initiative is in early stages and likely will depend on budgetary allocations. However, given that more than two million cases are pending in U.S. immigration courts, according to the Government Accountability Office (GAO), we expect ICE to continue to seek these and other measures. At the same time, there is still a trial court backlog that worsened during the pandemic.
Debt reduction / extension measures strengthen balance sheet, no debt maturities before 2026
Refinancing and debt reduction measures over the past couple of years have contributed to substantially lower debt levels and lower interest expense. We expect these measures to continue and it would not surprise us if CXW opportunistically issued new debt, depending on market conditions, to refinance portions of existing debt to extend our weighted average debt maturities and / or lower overall debt expense.
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