CoreCivic(CXW) - 2019 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the full year 2019, the company generated $1.98 billion in revenue, an 8% increase from the prior year, leading to strong double-digit growth in earnings per share, FFO, and EBITDA [10] - Normalized FFO per share was $2.62, an increase of 13%, and adjusted EBITDA was $444 million, a 12% increase from the prior year [10][36] - In Q4 2019, total revenue was $498 million, a 3% increase year-over-year, with normalized FFO per share of $0.59, which was $0.01 below the low end of guidance [17][37] Business Segment Data and Key Metrics Changes - The Safety segment, which accounted for approximately 85% of the company's EBITDA, generated year-over-year revenue growth of 6% [11] - The Property segment, accounting for 10% of the company's EBITDA, saw year-over-year revenue growth of 34%, driven by M&A activity completed in 2018 [13] - The Community segment accounted for 5% of the company's EBITDA in 2019, with a revenue growth of 21%, largely driven by acquisitions in nonresidential correctional alternative services [15] Market Data and Key Metrics Changes - ICE utilization is historically difficult to predict, with recent trends returning to historical norms, impacting expectations for 2020 [20] - The company noted that the Southwest border activity returned to historical levels in the fall of the previous year, influencing current expectations for ICE utilization in 2020 [20] Company Strategy and Development Direction - The company is focused on pursuing accretive M&A opportunities to grow its properties and community segments, with a narrowed focus on portfolios with above-average, risk-adjusted returns [14] - The company is actively pursuing limited M&A opportunities for residential municipalities and nonresidential service providers, having acquired two RRCs in Virginia during Q4 2019 [16] - The company is positioned to capitalize on market opportunities, with no material contracts subject to competitive rebids over the next 12 months [33] Management's Comments on Operating Environment and Future Outlook - Management indicated that funding for ICE has been stable, with a request for increased funding of 60,000 beds in the 2021 budget proposal [59] - The company expects normalized FFO per share in the range of $2.30 to $2.40 for the full year 2020, reflecting anticipated lower utilization from ICE compared to 2019 levels [21][44] - Management acknowledged the volatility of ICE populations and the potential for upside in guidance if populations increase unexpectedly [48] Other Important Information - The company has maintained a targeted AFFO payout ratio of 80% since converting to a REIT in 2013, with a current attractive yield of over 10% [35] - The company completed the construction and activation of the Lansing Correctional Facility ahead of schedule and below budget, with a total cost of $155 million [41] Q&A Session Summary Question: What was the increase in expenses in the Safety segment? - Management explained that fixed staffing costs could not be reduced with declining populations, leading to higher expenses due to wage increases and start-up costs for activated facilities [57] Question: What is the outlook for government funding and policies affecting ICE? - Management noted stable funding for ICE and mentioned a request for increased funding in the 2021 budget, which must pass through Congress [59][60] Question: Is there progress on transferring ICE or U.S. Marshals inmates from local jails to CoreCivic properties? - Management indicated incremental movement of populations from local facilities to CoreCivic, with ongoing discussions about compliance with ICE standards [62] Question: What is the current occupancy rate of the La Palma facility? - Management confirmed that the La Palma facility was approximately 59% occupied at year-end, with expectations for slight increases in utilization [64][68] Question: What is the outlook for the Adams facility's usage? - Management stated that ICE has indicated interest in utilizing the entire Adams facility, with ongoing monitoring of needs and potential opportunities for out-of-state placements [77]