CXW: Delays in La Palma Transition & Title 42 Reversal Mask Underlying Strength
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CXW: Delays in La Palma Transition & Title 42 Reversal Mask Underlying Strength

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By M. Marin



Slower than expected population transition at La Palma facility constrains occupancy

CoreCivic (NYSE:CXW) reported 2Q22 results that we believe reflect the underlying strength of the company’s core business, although timing delays at the La Palma facility, which is taking longer than originally anticipated to transition to a new contract with Arizona, and in reversing Title 42 led to a shortfall from our revenue expectations. As CXW prepares to receive Arizona state inmates at the La Palma facility, the average daily population of ICE (Immigration and Customs Enforcement) populations at the facility is declining. Moreover, court action to stop the reversal of Title 42 also impacted revenue. Once Title 42 is lifted, we anticipate an increase in demand for occupancy at CXW facilities, as ICE apparently does not have sufficient supply to satisfy demand.

McRae & other divestitures will generate 3Q22 gains, enhance CXW liquidity

The divestitures of non-core assets have been a consistent part of the company’s strategy to strengthen its operating footprint and balance sheet and enhance shareholder value. CXW sold its McRae correctional facility in 2Q22 for $130.0 million. The sale is expected to produce a gain of about $75.0 million to $80.0 million in 3Q22. Subsequent to 2Q22, the company divested other noncore assets, resulting in aggregate net proceeds of $15.7 million. The proceeds will enhance the company’s liquidity. CXW has earmarked a portion of its capital deployments to share repurchases, as well as debt reduction, and recently increased its share buyback authorization.

Company better positioned with extended maturities, lower debt levels … improving refinancing prospects, in our view

CXW has executed on its strategy to pare debt and deleverage via cash generated from operations, asset sales and opportunistic financings. Long-term debt was $1.148 billion at the end of 2Q22, down from $1.492 billion and $1.748 billion at the end of 2021 and 2020, respectively. CXW had $115.6 million of cash at the end of 2Q22, plus an additional $11.8 million of restricted cash. Following recent measures, the company has no major debt maturities before 2023 and we believe the company is significantly better positioned to refinance and / or pare that currently than it was a few quarters back.

Enhancing shareholder value: increased share buyback authorization

We expect the company to continue balance sheet measures and CXW is also implementing additional steps to enhance shareholder value. The company’s board recently increased the share buyback authorization to $225.0 million (from $150 million). Through August 1, 2022, the company had repurchased about $50.6 million of its shares, with roughly $174.4 million remaining under the repurchase plan. We anticipate further share buybacks, depending on market conditions.

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