HOUSTON, Aug. 9, 2005 (PRIMEZONE) -- Cornell Companies, Inc. (NYSE:CRN) today reported results for the period ended June 30, 2005. The Company reported a net loss of $0.3 million, or $0.02 per diluted share, compared with a net loss of $1.1 million, or $0.08 per diluted share, in same period last year. This year's second-quarter results included $0.7 million of start-up costs (net of start-up revenues) for new facilities, $1.7 million of losses from discontinued operations, and $0.5 million of losses associated with New Morgan Academy. The 2004 second-quarter results included a total of approximately $1.0 million for start-up costs (net of start-up revenues) for new facilities and losses associated with New Morgan Academy, and $1.4 million for charges related to the early extinguishment of debt.
Second-quarter 2005 pro forma earnings were $0.9 million, or $0.06 per diluted share, versus pro forma earnings of $1.3 million, or $0.10 per diluted share, in the comparable 2004 quarter. Pro forma amounts exclude the effects of start-up costs (net of start-up revenues) for new facilities and losses associated with New Morgan Academy, and the 2004 debt extinguishment charge. Cornell calculates pro forma amounts for comparative purposes to help analyze its business performance and assist investors to better understand the operating results attributable to the Company's core continuing business operations. Reconciliations of these non-Generally Accepted Accounting Principles (GAAP) measures to the comparable GAAP measures are included in the attachments hereto.
James E. Hyman, Cornell's chairman and chief executive officer, said, "We made good progress in our core operations during the second quarter. As we progressed with restructuring, that core operational strength allowed us to offset some, but not all, of our one-time events. As a result, the quarter met our expectations on an as-reported basis, but came in below our pro forma outlook. Also during the second quarter, we saw trends at three programs that will have a significant impact during the second half of the year. We know the issues related to the trends, and we continue to focus on fixing where we have weakness and growing where we have strength."
Second-Quarter Summary (Amounts in thousands, except per share data)
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Second Quarter Six Months Ended
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As Reported 6/30/2005 6/30/2004 6/30/2005 6/30/2004
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Revenue from
operations $ 78,502 $ 66,377 $ 152,142 $ 131,952
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Income from
operations 8,127 5,409 12,475 11,797
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Net loss from
discontinued
operations (1,682) (412) (3,115) (733)
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Net loss (311) (1,099) (2,584) (393)
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EPS -- diluted $ (0.02) $ (0.08) $ (0.19) $ (0.03)
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Shares
outstanding
used in per
share
computation 13,600 13,146 13,686 13,330
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Pro Forma, excluding New Morgan Academy, charges related to the early
extinguishment of debt, and pre-opening and start-up costs
and related revenue: (a)
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Revenue $ 77,455 $ 66,347 $ 148,108 $ 131,922
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Income from
operations 9,620 6,784 16,040 13,884
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Net income 861 1,312 123 2,676
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EPS -- diluted $ 0.06 $ 0.10 $ 0.01 $ 0.20
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(a) See reconciliation of historical GAAP and non-GAAP information
attached.
Second-Quarter Results
Revenues increased 18.2 percent to $78.5 million for the second quarter of 2005 from $66.4 million in the 2004 period. Strong contributions from existing facilities, including Big Spring Correctional Center, facilities acquired April 1, 2005 from Correctional Systems, Inc., as well as those facilities/programs initiated in 2004 -- Walnut Grove Youth Correctional Facility, Regional Correctional Center and Southern Peaks Regional Treatment Center -- accounted for the revenue increase.
Pro forma second-quarter 2005 revenues, which exclude the impact of start-up revenues, were $77.5 million compared with $66.3 million in the prior year's quarter. Average contract occupancy levels were 98.6 percent in residential facilities compared with 101.3 percent in last year's second quarter. Excluding start-up operations in both quarters, average contract occupancy was 105.2 percent in the Company's residential facilities in the 2005 quarter and 101.6 percent in the 2004 period.
The Company reported income from operations of $8.1 million for the second quarter of 2005 compared with $5.4 million in the same quarter of 2004. The increase in 2005 second-quarter results was due to improved/increased operations at those facilities previously noted, and also reflected the benefit of the restructuring activity undertaken in the first quarter of 2005 to streamline management and eliminate underperforming programs. The 2005 period's results included a previously announced $0.3 million charge relating to Cornell's plan to close several underperforming programs. Additionally, comparisons of income from operations were affected by $1.1 million in net start-up costs in 2005 and $1.0 million in 2004, and on-going costs related to New Morgan Academy of $0.4 million in each of 2005 and 2004.
Excluding the effects of start-up costs (net of start-up revenues) for new facilities, and losses associated with New Morgan Academy, pro forma income from operations was $9.6 million in the second quarter of 2005 compared with $6.8 million in the 2004 quarter. The increase in the 2005 second-quarter results was principally attributed to the previously noted improved/increased operations, restructuring and program-closure activity.
Six-Month Results
For the six months ended June 30, 2005, revenues increased 15.2 percent to $152.1 million from $132.0 million in the six months ended a year ago, principally due to contributions from those facilities/programs previously noted. Income from operations was $12.5 million for this year's six-month period compared with $11.8 million in the prior-year period. The net loss was $2.6 million, or $0.19 per diluted share, compared with a net loss of $0.4 million, or $0.03 per diluted share, in the previous year's first six months. The 2005 period included charges totaling $2.4 million to streamline management and close several underperforming programs. The 2004 period included a $2.4 million charge from the early extinguishment of debt.
Pro forma six-month 2005 revenues were $148.1 million compared with $131.9 million in the prior year's period and pro forma income from operations was $16.0 million compared with $13.9 million. Pro forma net income was $0.1 million, or $0.01 per diluted share, compared with $2.7 million, or $0.20 per diluted share, for the six months ended June 30, 2004.
Discontinued Operations
As previously announced, Cornell has taken actions to shut down operations at several underperforming facilities/programs. These include Residential School, Maple Creek Home and the mental health WRAP programs in Pennsylvania in the first quarter 2005, and Jos Arz Academy and Northside Clinic in the second quarter of the year. The increase in the 2005 net loss from discontinued operations over the 2004 period reflects reduced revenues as the programs are shut down, a $0.9 million charge to reserve certain accounts receivable and certain closure costs.
CSI Integration Complete
The integration of the Company's April 1, 2005 acquisition of Correctional System, Inc. (CSI) proceeded smoothly and is substantially complete. The acquisition added nearly 1,000 new beds to Cornell's service capacity, and was immediately accretive.
Outlook for 2005
Despite the good performance from core operations, weaknesses at certain programs have led Cornell to lower earnings guidance for the second half of 2005. The Company now expects third-quarter results to range from income per share of $0.03 to $0.06 on an as-reported basis, and income per share of $0.11 to $0.14 on a pro forma basis, which excludes pre-opening and start-up costs for new facilities, and losses associated with New Morgan Academy. The Company also expects fourth-quarter results to range from income per share of $0.03 to $0.07 on an as-reported basis, and income per share of $0.08 to $0.12 on a pro forma basis, which excludes pre-opening and start-up costs for new facilities, and losses associated with New Morgan Academy.
For the full year, the Company expects loss per share to range from $0.06 to $0.13 on an as-reported basis, and income per share from $0.20 to $0.27 on a pro forma basis, which excludes pre-opening and start-up costs for new facilities, and losses associated with New Morgan Academy. Reconciliations of these forward-looking non-GAAP measures to the comparable GAAP measures are included in the attachments hereto.
Cornell provided additional details on the facilities that led to the change in guidance:
At Southern Peaks Regional Treatment Center in Colorado, an increase in the ramp-up with the new state budget year and our own marketing effectiveness has not been seen. At the close of business Monday, August 8, 2005, the population was 96. Previous guidance indicated a population of 156 at year end, but the program is now expected to reach 125 by December 31, 2005. The impact of this revision is a reduction of approximately $0.06 per diluted share on an as-reported basis for the second half of 2005.
At Regional Correctional Center in Albuquerque, N.M., ramp-up under the previously announced Intergovernmental Service Agreement (IGSA), which guarantees a population of 500 federal detainees, is currently proceeding slower than anticipated. Based on the inability to ramp-up under the IGSA, it is possible the Company will receive a "true up" payment under the agreement in the first quarter of 2006. The Company has not included such a payment in either its previous or revised guidance, and as a result, the impact is a reduction of approximately $0.12 per diluted share on an as-reported basis for the second half of 2005.
In May, the Campbell Griffin Treatment Center in San Antonio, Texas was informed by a customer that its expectations were not being met. This resulted in the customer stopping admissions. By the end of June, the Company had identified and implemented an improvement plan that satisfied the customer. During the third quarter, it is expected that the customer will resume admissions as it sees the program's performance improve. The Company anticipates the facility to operate near capacity by the end of the year. However, the population shortfall and client mix change during this period will reduce earnings by approximately $0.04 per diluted share on an as-reported basis for the second half of 2005.
The 2005 guidance reflects an annual effective tax rate of approximately 35.0 percent on discontinued operations and 41.3 percent on continuing operations. It also includes contributions from CSI (from its acquisition date of April 1, 2005), as well as the closure of certain programs.
Quarterly Webcast
Cornell's management will host a conference call and simultaneous webcast at 11 a.m. Eastern today. The webcast may be accessed through Cornell's home page, www.cornellcompanies.com. A replay will also be available on the above web site and by dialing 800-405-2236 or 303-590-3000 and providing confirmation code 11035966. The replay will be available through August 16, 2005 by phone and for 30 days on the web site. This earnings release can be found on Cornell's website at www.cornellcompanies.com under "Investor Relations -- Press Releases."
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current plans and actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. Important factors that could cause actual results to differ include, among others, (1) the outcomes of pending putative class action shareholder and derivative lawsuits, and related insurance coverage, (2) Cornell's ability to win new contracts and to execute its growth strategy, (3) risks associated with acquisitions and the integration thereof (including the ability to achieve administrative and operating cost savings and anticipated synergies), (4) the timing and costs of the opening of new programs and facilities, including Southern Peaks Regional Treatment Center and Regional Correctional Center, or the expansions of existing facilities and the related ramp-up of expected occupancy, (5) the resumption of admissions at the Campbell Griffin Treatment Center, (6) Cornell's ability to negotiate contracts at those facilities for which it currently does not have an operating contract, (7) significant charges to expense of deferred costs associated with financing and other projects in development if management determines that one or more of such projects is unlikely to be successfully concluded, (8) results from alternative deployment or sale of facilities such as New Morgan Academy or the inability to do so, (9) Cornell's ability to complete the construction of the Moshannon Valley Correctional Center as anticipated, (10) changes in governmental policy and/or funding to discontinue or not renew existing arrangements, to eliminate or discourage the privatization of correctional, detention and pre-release services in the United States, or to eliminate rate increase, (11) the availability of financing on terms that are favorable to Cornell, and (12) fluctuations in operating results because of occupancy levels and/or mix, competition (including competition from two competitors that are substantially larger than Cornell), increases in cost of operations, fluctuations in interest rates and risks of operations.
Cornell Companies, Inc. is a leading private provider of corrections, treatment and educational services outsourced by federal, state and local governmental agencies. Cornell provides a diversified portfolio of services for adults and juveniles, including incarceration and detention, transition from incarceration, drug and alcohol treatment programs, behavioral rehabilitation and treatment, and grades 3-12 alternative education in an environment of dignity and respect, emphasizing community safety and rehabilitation in support of public policy. The Company (http://www.cornellcompanies.com) has 81 facilities in 17 states and the District of Columbia, which includes two facilities under development or construction. Cornell has a total service capacity of 19,266, including capacity for 1,514 individuals that will be available upon completion of facilities under development or construction.
CORNELL COMPANIES, INC.
FINANCIAL HIGHLIGHTS
($000's except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Revenues $ 78,502 $ 66,377 $ 152,142 $ 131,952
Operating expenses 59,508 51,280 114,039 102,953
Pre-opening and
start-up
expenses (A) 2,152 990 6,846 1,268
Depreciation and
amortization 3,816 3,093 7,545 6,169
General and
administrative
expenses 4,899 5,605 11,237 9,765
--------- --------- --------- ---------
Income from
operations 8,127 5,409 12,475 11,797
Interest expense,
net 5,580 4,216 11,324 8,864
Loss on
extinguishment of
debt -- 2,357 -- 2,357
--------- --------- --------- ---------
Income (loss)
before provision
(benefit) for
income taxes and
discontinued
operation 2,547 (1,164) 1,151 576
Provision (benefit)
for income taxes 1,176 (477) 620 236
--------- --------- --------- ---------
Income (loss)
before
discontinued
operations 1,371 (687) 531 340
Discontinued
operations, net of
tax provision
(benefit) (1,682) (412) (3,115) (733)
--------- --------- --------- ---------
Net loss $ (311) $ (1,099) $ (2,584) $ (393)
========= ========= ========= =========
Earnings (loss) per
share:
-- Basic $ (0.02) $ (0.08) $ (0.19) $ (0.03)
-- Diluted $ (0.02) $ (0.08) $ (0.19) $ (0.03)
Number of shares
used in per share
computation:
-- Basic 13,474 13,146 13,451 13,114
-- Diluted 13,600 13,146 13,686 13,330
Total service
capacity (end of
period) (B) 19,266 17,064 19,266 17,064
Contracted beds in
operation (end of
period) (B) 11,761 10,316 11,761 10,316
Average contract
occupancy (B) (C) 98.6% 101.3% 96.4% 101.4%
Average contract
occupancy
excluding start-up
operations (B) 105.2% 101.6% 103.4% 101.5%
(A) Revenues associated with reported start-up expenses were $1.0
million and $0.03 million for the quarters ended June 30, 2005
and 2004, respectively. Revenues associated with reported
start-up expenses were $4.0 million and $0.03 million for the
six months ended June 30, 2005 and 2004, respectively.
(B) Data presented excludes discontinued operating facilities.
(C) Average contract occupancy percentages are based on actual
occupancy for the period as a percentage of the contracted
capacity of residential facilities in operation. Since certain
facilities have service capacities that exceed contracted
capacities, average contract occupancy percentages can exceed
100% if the average actual occupancy exceeded contracted
capacity.
Balance Sheet Data:
------------------
June 30, December 31,
2005 2004
--------- ---------
Cash and cash equivalents $ 12,947 $ 9,895
Investment securities 39,450 51,740
Working capital 89,550 107,597
Property and equipment, net 292,190 282,255
Total assets 511,247 507,631
Long-term debt 279,752 279,528
Total debt 288,753 288,533
Stockholders' equity 159,622 161,312
Non-GAAP Financial Measures
The Company uses non-GAAP financial measures to assess the operating results and effectiveness of the Company's core continuing business operations. Pro forma measures exclude the effect of pre-opening and start-up revenues and costs, charges related to the early extinguishment of debt, and revenues and costs associated with New Morgan Academy. Earnings before interest, taxes, depreciation and amortization (EBITDA) measures operating income before depreciation and amortization, excluding the effect of pre-opening and start-up expenses, net of start-up revenue. The Company calculates EBITDA amounts for comparative purposes to assist investors to analyze its business performance. These non-GAAP financial measures may not be comparable to similarly titled measurements used by other companies and should not be used as a substitute for net income, earnings per share or other GAAP operating measurements. Set forth below are reconciliations to GAAP measures of non-GAAP measures used herein.
RECONCILIATION OF HISTORICAL GAAP
BASIS RESULTS TO HISTORICAL NON-GAAP
BASIS INFORMATION:
------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2005 2004 2005 2004
--------- --------- --------- ---------
GAAP revenues from
operations $ 78,502 $ 66,377 $ 152,142 $ 131,952
Less: Start-up
revenue 1,047 30 4,034 30
--------- --------- --------- ---------
Pro forma revenues
from operations $ 77,455 $ 66,347 $ 148,108 $ 131,922
========= ========= ========= =========
GAAP income from
operations $ 8,127 $ 5,409 $ 12,475 $ 11,797
Plus:
New Morgan
Academy loss
from operations 388 415 753 849
Pre-opening and
start-up
expenses, net
of start-up
revenue 1,105 960 2,812 1,238
--------- --------- --------- ---------
Pro forma income
from operations $ 9,620 $ 6,784 $ 16,040 $ 13,884
========= ========= ========= =========
GAAP net loss $ (311) $ (1,099) $ (2,584) $ (393)
Plus:
New Morgan
Academy net loss 520 454 1,048 948
Pre-opening and
start-up
expenses, net of
start-up revenue 652 566 1,659 730
Loss on
extinguishment
of debt -- 1,391 -- 1,391
--------- --------- --------- ---------
Pro forma net
income $ 861 $ 1,312 $ 123 $ 2,676
========= ========= ========= =========
GAAP loss per
share--diluted $ (0.02) $ (0.08) $ (0.19) $ (0.03)
Plus:
New Morgan
Academy 0.03 0.03 0.08 0.07
Pre-opening and
start-up
expenses, net of
start-up
revenue 0.05 0.04 0.12 0.05
Loss on
extinguishment
of debt -- 0.11 -- 0.11
--------- --------- --------- ---------
Pro forma earnings
per share--diluted $ 0.06 $ 0.10 $ 0.01 $ 0.20
========= ========= ========= =========
RECONCILIATION OF HISTORICAL GAAP BASIS
RESULTS TO HISTORICAL NON-GAAP BASIS
INFORMATION:
---------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2005 2004 2005 2004
-------- -------- -------- --------
GAAP income from
operations $ 8,127 $ 5,409 $ 12,475 $ 11,797
Plus:
Depreciation and
amortization 3,816 3,093 7,545 6,169
Pre-opening and
start-up expenses,
net of start-up
revenue 1,105 960 2,812 1,238
-------- -------- -------- --------
EBITDA $ 13,048 $ 9,462 $ 22,832 $ 19,204
RECONCILIATION OF FORWARD-LOOKING INFORMATION:
----------------------------------------------
Third Quarter Fourth Quarter Twelve Months
Ending Ending Ending
September 30, December 31, December 31,
2005 2005 2005
----------------------------------------------------
GAAP earnings
(loss) per
share --
diluted $ 0.03 -- 0.06 $ 0.03 -- 0.07 $ (0.13) -- (0.06)
New Morgan
Academy 0.04 0.04 0.16
Pre-opening
and start-up
expenses,
net of start
up revenue 0.04 0.01 0.17
----------------------------------------------------
Pro forma
earnings per
share --
diluted $ 0.11 -- 0.14 $ 0.08 -- 0.12 $ 0.20 -- 0.27
====================================================
Cornell Companies, Inc.
Operating Statistics from Continuing Operations
For the Three and Six Months Ended June 30, 2005 and 2004
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- --------------------------------
2005 2004 2005 2004
--------------- --------------- --------------- ---------------
% % % %
---------- ---- ---------- ---- ---------- ---- ---------- ----
Contracted beds in operation:
-----------------------------
Secure
Institutional
(a) 7,695 65% 5,844 63% 7,695 65% 5,844 63%
Adult
Community-
Based
(a) 2,340 20% 1,854 20% 2,340 20% 1,854 20%
Juvenile
(a) 1,726 15% 1,642 18% 1,726 15% 1,642 18%
---------- ---- ---------- ---- ---------- ---- ---------- ----
Total 11,761 100% 9,340 100% 11,761 100% 9,340 100%
========== ==== ========== ==== ========== ==== ========== ====
Number of billed mandays:
-------------------------
Secure
Institu-
tional 657,335 47% 540,383 46% 1,293,913 48% 1,077,281 45%
Adult
Community-
Based
Residen-
tial 249,088 18% 174,337 15% 439,331 16% 360,013 15%
Non-residential
(b) 131,153 9% 120,501 10% 254,392 9% 246,821 10%
Juvenile:
Residen-
tial 146,566 11% 145,004 12% 291,954 11% 286,753 12%
Non-residential
(b) 207,218 15% 204,516 17% 407,977 15% 409,919 17%
---------- ---- ---------- ---- ---------- ---- ---------- ----
Total 1,391,360 100% 1,184,741 100% 2,687,567 100% 2,380,787 100%
========== ==== ========== ==== ========== ==== ========== ====
Revenues:
---------
Secure
Institu-
tional $ 32,295 41% $ 26,681 40% $ 63,154 42% $ 52,465 40%
Adult
Community
Based
Residen-
tial 14,636 19% 10,871 16% 26,362 17% 21,937 17%
Non-residen-
tial 1,252 2% 1,029 2% 2,172 1% 2,147 2%
Juvenile:
Residen-
tial 23,687 30% 22,866 34% 47,573 31% 45,625 35%
Nonresiden-
tial 6,632 8% 4,930 7% 12,881 8% 9,778 7%
---------- ---- ---------- ---- ---------- ---- ---------- ----
Total $ 78,502 100% $ 66,377 100% $ 152,142 100% $ 131,952 100%
========== ==== ========== ==== ========== ==== ========== ====
Average revenue per diem:
-------------------------
Secure
Institu-
tional $ 49.13 $ 49.37 $ 48.81 $ 48.70
Adult
Community-
Based
Residen-
tial $ 58.76 $ 62.36 $ 60.00 $ 60.93
Non-residen-
tial(b) $ 9.55 $ 8.54 $ 8.54 $ 8.70
Juvenile:
Residen-
tial $ 161.61 $ 157.69 $ 162.95 $ 159.11
Non-residen-
tial(b) $32.00 $ 24.11 $ 31.57 $ 23.85
---------- ---------- ---------- ----------
Total $ 56.42 $ 56.03 $ 56.61 $ 55.42
========== ========== ========== ==========
(a) Residential Contract Capacity Only
(b) Non-residential "mandays" includes a mix of day units and
hourly units. Mental health facilities are reported in hours.
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