By M. Marin
READ THE FULL CXW RESEARCH REPORT
Believe reinstated guidance reflects management's confidence in the stable outlook of the business
CoreCivic (NYSE:CXW) reported 4Q21 results this week. Positive takeaways from the 4Q21 results include improving operating trends and strengthening balance sheet, reinstated guidance, a significant new contract and potential for other new contract awards. We expect further improvements in 2022 and view it as a bullish signal that CXW has reinstated guidance.
After a 7.4% year-over-year revenue decline in 1Q21, largely reflecting the impact of the pandemic and lower occupancies as well as asset divestitures, CXW ended 2021 with only a 2.2% decline in total revenue. Revenue came in at $472.1 million in 4Q21. That was in-line with both the prior 2021 quarter and 4Q20, despite CXW's sale of 47 non-core real estate assets over the past several quarters and 4Q20 decision to exit two managed-only contracts in Tennessee. In the aggregate, the divested properties and managed contracts represented about $15 million of quarterly revenue that CXW was able to offset. We expect further improvements in occupancy rates and revenue in 2022 and, as noted, view the company's reinstated guidance as evidence of its confidence in the stable outlook of the business.
Balance sheet strengthen, with further measures expected to continue; CXW has strong liquidity
We also expect initiatives to strengthen the balance sheet to continue, the improvements in 2021 notwithstanding; the TTM leverage ratio was 2.7x, down from 3.7x at YE 2020 and within the targeted range of 2.25x to 2.75x. The TTM leverage ratio represents net debt to adjusted EBITDA. Although the ratio was within the targeted range at year-end 2021, and we would expect CXW to begin to deploy capital in other ways to return value to shareholders, we nevertheless expect deleveraging measures to continue. We also believe that with $299.6 million of cash at the end of 4Q21, plus an additional $11.1 million of restricted cash and no funds drawn against its revolver, the company has significant liquidity.
Significance of new contract:
➢ Largest to private sector in a decade
➢ Validates CXW's positive view of its modern facilities relative to government facilities
Last month, the company announced today that it had been awarded a new 5-year contract with the state of Arizona for up to 2,706 inmates at its 3,060-bed La Palma correctional center in Eloy, Arizona. Importantly, in our view, this represents the largest prison contract awarded to the private sector by any state in over a decade. Moreover, we also believe it validates the company's view that the relatively dilapidated state of many federal and state facilities could translate into opportunities for CXW, which operates more modern venues.
The company continues to engage in discussions with the USMS and other government agencies to secure new contract awards. We believe that the dual or perhaps even multiple service model that CXW resolved on in Ohio could serve as a template for other facilities, as well. Specifically, in 2021, CXW signed a new contract with Mahoning County, Ohio to utilize up to 990 beds at the company's 2,016-bed Northeast Ohio Correctional Center. The Northeast Ohio Correctional Center also houses about 800 inmates under a management contract with the state of Ohio. CXW continues to operate the correctional facility under both contracts.
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