CoreCivic(US:CXW)2019-11-07 21:16Financial Data and Key Metrics Changes - Total revenue for Q3 2019 was $509 million, a 10% increase from the prior year, marking a record high for quarterly revenue in the company's history [13] - Normalized FFO was $0.70 per share, representing a 21% increase year-over-year, exceeding guidance by $0.08 [16] - AFFO also stood at $0.70 per share, a 30% increase from the previous year, and 9% above the high end of guidance [16] - Adjusted EBITDA for the quarter was $115.4 million, a 16% increase from the prior year, exceeding guidance by nearly $10 million [16][61] - Full-year 2019 normalized FFO guidance was updated to a range of $2.64 to $2.68, reflecting a 15% increase over 2018 [17] Business Segment Data and Key Metrics Changes - CoreCivic Safety segment reported revenue of $458 million, an 8% increase year-over-year, driven by new state and federal contracts [15] - CoreCivic Community segment experienced a 30% year-over-year revenue growth, attributed to recent acquisitions [14] - CoreCivic Property segment saw a 23% year-over-year revenue growth, bolstered by acquisitions including the SSA Baltimore property [14][22] Market Data and Key Metrics Changes - The company has been awarded or activated 11 new contracts since the start of 2018, totaling up to 12,000 beds across 8 facilities [18] - The occupancy rate increased from 80.8% in the prior year quarter to 82.9% in Q3 2019 [64] - The company has 6 idle facilities representing a total idle capacity of 7,482 beds, indicating potential for future contract wins [34] Company Strategy and Development Direction - The company is focused on expanding its market share in the Community segment and pursuing additional acquisitions [35][21] - CoreCivic is positioned to capitalize on new market opportunities, particularly in the Safety segment, with ongoing facility activations expected to contribute to future growth [25] - The company is exploring leasing idle facilities to states to address overcrowding and infrastructure challenges [45] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the continued demand for their services, noting that no new capacity is being built in the country [94] - The company is monitoring the impact of California's AB32 legislation but believes federal contracts will remain unaffected due to the supremacy clause [49][92] - Management anticipates that the demand for their facilities will remain stable, with a projected population growth of 1% to 3% annually in most states [120] Other Important Information - The company has a strong balance sheet with total debt leverage declining to 3.5 times by Q3 2019 [52] - The quarterly dividend is well covered with an AFFO payout ratio of 66%, significantly below the average REIT payout ratio [55] - The company is actively engaged in discussions for potential new contracts and acquisitions, indicating a proactive approach to growth [77] Q&A Session Summary Question: Is there momentum in other states following California's AB32? - Management indicated no significant momentum in other states, citing the supremacy clause of the Constitution as a barrier to state laws interfering with federal functions [92][93] Question: How vulnerable is the company to sourcing populations from other states? - Management noted that there is no new capacity being built and that their facilities are critical to meeting government needs [94][95] Question: How is the company managing the tight labor market? - Management reported that they are holding their own in the labor market, with federal contracts allowing for wage increases to be reimbursed [97][99] Question: Can you clarify the implications of AB32 on federal contracts? - Management confirmed that federal contracts would continue due to the supremacy clause, allowing for ongoing operations at facilities like Otay Mesa [101][102] Question: What is the potential size of future state contracts? - Management mentioned potential contracts in Idaho and Alabama, with Alabama's opportunity estimated at around 10,000 beds [103][104] Question: Any updates on Puerto Rico? - Management stated they are in constant communication with the government of Puerto Rico, but conditions in facilities continue to worsen [106][107] Question: What could a change in administration mean for the business? - Management outlined that even in a worst-case scenario, the need for capacity remains, and alternatives to their facilities are limited, potentially leading to asset purchases or leases by the government [108][110]