CoreCivic, Inc. Q3 FY2024 earnings call

• Financial Performance: Q3 2024 normalized funds from operations (FFO) were $47.6 million ($0.43 per share), a 23% per share increase from the prior year. Adjusted EBITDA was $83.3 million, up 11% YOY. - Government Partners: Federal partners, primarily ICE and US Marshals, make up over half of revenue. Revenue from ICE declined 3.4% YOY but increased 10.9% excluding South Texas. State revenue grew 3% YOY with new contracts from Wyoming and Montana. Local revenue grew 39% YOY from new management contracts. - Capital Structure: Leverage was 2.2x trailing 12-month adjusted EBITDA, below the target range. The company has $177.9 million remaining under the share repurchase program.

In the third quarter of 2024, CoreCivic generated revenue of $491.6 million, a 2% increase compared to the prior year quarter. Excluding the closed South Texas family residential center, underlying revenue growth was over 5%. The Safety segment was the largest, providing 93% of total revenue year-to-date, with net operating income increasing 25% in Q3 2024 compared to Q3 2023. Occupancy in the Safety segment rose from 72.6% to 75.7% year-over-year. The Community segment had improved occupancy in Q3 2024 but saw a $2.9 million decline in net operating income due to a legal settlement. The Property segment's revenue decreased $6.4 million primarily due to the expiration of a lease with California.

CoreCivic updated 2024 guidance: adjusted EPS is expected to be $0.69 to $0.75 (up from prior $0.58 to $0.66), normalized FFO per share is $1.59 to $1.65 (up from prior $1.48 to $1.56). AFFO is projected to be $177.8 million to $185.8 million ($1.58 to $1.65 per share). Leverage may increase in the coming quarters, but the balance sheet remains strong.

• Election Impact: Uncertainty in policy changes related to immigration, criminal justice, and government contracts could affect revenue. - Operational Risks: Dependence on government funding and potential changes in policy or staffing challenges. - Labor Market: While labor inflation normalized, continued labor market issues could impact expenses.

Q: Jason Weaver on margin profile with increased Safety segment occupancy A: Damon Hininger said margins were around 22.3% excluding South Texas in Q3. At low-80s occupancy, margins could be around 25% but adjusted for South Texas, and mid-80s occupancy could add a couple hundred basis points.

Q: M. Marin on Marshals Service and contracting A: David Garfinkle stated if USMS uses fewer third-party entities, it could remove bottlenecks, making it easier to use private providers like CoreCivic.

Q: Brian Violino on ICE needs beyond idle beds A: Damon Hininger and David Garfinkle discussed that ICE needs would be addressed through temporary or leased facilities rather than permanent construction initially, with focus on flexible solutions.

Q: Joe Gomes on ATD RFI and competitors A: Damon Hininger and David Garfinkle noted CoreCivic is well-prepared with investments, and the RFI indicates ICE is seeking multiple partners, but competition is likely limited to a few major players.

Q: Greg Gibas on ICE bed capacity and margins A: Damon Hininger explained breakdown of idle beds, with margins higher in already operational facilities once stabilized compared to idle facilities during startup.

Q: Kirk Ludtke on deportations and business mix A: Damon Hininger and David Garfinkle discussed that facility flexibility allows handling transient or longer-term populations, and deportation mix could impact stay length but CoreCivic is equipped to adapt.

Q: Ben Briggs on RFIs/RFPs and Q4 guidance A: David Garfinkle explained Q4 guidance adjustments due to South Texas termination and California lease expiration, with EBITDA impacted by these factors.