Private prison operator CoreCivic (NYSE: CXW) announced better-than-expected revenue in Q3 CY2025, with sales up 18.1% year on year to $580.4 million. Its non-GAAP profit of $0.24 per share was 7.7% below analysts’ consensus estimates.

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StockStory’s Take

CoreCivic’s third quarter results prompted a negative market reaction, with shares declining sharply after earnings. Management attributed the revenue growth to a surge in new federal contracts, notably with Immigration and Customs Enforcement (ICE), and the reactivation of previously idle facilities. However, CEO Damon Hininger acknowledged that start-up costs for these newly activated centers and a legal delay at the Midwest Regional Reception Center weighed on profitability, contributing to the shortfall in non-GAAP earnings per share versus Wall Street estimates. Hininger described the quarter as “very busy” due to the complexity of activating four facilities at once and noted the impact of associated operational losses.

Looking ahead, CoreCivic’s updated guidance reflects both the ramp-up of new contracts and ongoing start-up costs, leading to a reduction in full-year profit expectations. Management emphasized that most of the near-term margin pressure stems from start-up losses at recently awarded facilities, but projected significant earnings growth once stabilized occupancy is achieved in 2026. President Patrick Swindle stated, “Activations are complex, but we believe the groundwork laid this year will position us for a stronger 2026.” CFO David Garfinkle cautioned that the pace of start-up activities and resolution of legal disputes could affect timing, but highlighted a run-rate EBITDA target above $450 million once new contracts are fully online.

Key Insights from Management’s Remarks

Management credited the quarter’s top-line growth to new ICE contract wins and increased federal partner activity, while noting that start-up costs and legal delays tempered profit margins.

• New federal contract wins: CoreCivic secured four significant facility contracts with ICE and state partners, expected to contribute approximately $320 million in annual revenue once fully ramped.
• Start-up and activation costs: The simultaneous activation of multiple idle facilities led to higher operating expenses, with management citing these costs as the primary reason for near-term margin compression.
• Legal delay impacts: The intake process at the Midwest Regional Reception Center was delayed by a lawsuit, which postponed expected occupancy and revenue generation from that facility.
• ICE population trends: Nationwide ICE detention levels reached historical highs, with CoreCivic reporting a 37% year-over-year increase in ICE populations within its facilities, reflecting heightened federal enforcement activity.
• Share repurchase acceleration: Management plans to accelerate share buybacks in coming quarters, viewing the current stock price as undervalued relative to anticipated cash flows and recently awarded contracts.

Drivers of Future Performance

CoreCivic’s forward outlook is shaped by contract ramp-ups, start-up cost management, and evolving demand from federal and state partners.

• Facility ramp-up and stabilization: Achieving stabilized occupancy at newly awarded facilities is expected to drive substantial revenue and EBITDA growth in 2026, but management flagged that activation timelines depend on legal outcomes and hiring progress.
• Federal and state demand dynamics: The company anticipates continued robust demand from ICE, with potential for additional contracts as enforcement expands, while also engaging with multiple states facing overcrowding and staffing challenges in their correctional systems.
• Cost and margin pressures: Start-up losses and increased capital expenditures for facility upgrades will continue to impact margins in the near term, but management expects these pressures to ease as occupancy and operational efficiency improve at new sites.

Catalysts in Upcoming Quarters

In the coming quarters, our team will watch (1) the pace of facility ramp-ups and resolution of legal disputes affecting occupancy, (2) whether ICE and state partner demand translates into additional contract wins or further facility activations, and (3) the impact of ongoing start-up expenses on margins and cash flow. Execution on share repurchases and management transition will also be important indicators of strategic progress.

CoreCivic currently trades at $16.66, down from $18.62 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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