May 7, 2009
Executives
John D. Ferguson - Chairman and Chief Executive Officer Todd Mullenger - Executive Vice President and Chief Financial Officer Damon Hininger - President and Chief Operating Officer
Analysts
Kevin Campbell - Avondale Partners ManAv Patnaik - Barclays Capital Todd Van Fleet - First Analysis
Operator
Good morning everyone and welcome to Corrections Corporation of America's First Quarter 2009 Earnings Conference Call. If you need a copy of our press release or supplemental financial data, both documents are available on the investor page of our website at www.correctionscorp.com Before we begin, let me remind today's listeners that this call contains forward-looking statements pursuant to the Safe Harbor provisions of the Securities and Litigation Reform Act.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made today. Factors that could cause operating and financial results to differ are described in the press release, as well as our Form 10-K and other documents filed with the SEC.
This call may include discussions of the non-GAAP measures. The reconciliation of the most comparable GAAP measurement is provided in our corresponding earnings release or posted on our website.
We are under no obligation to update or revise any forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events. Participating on today's call will be our Chairman of the Board and CEO, John Ferguson; President and Chief Financial Officer, Damon Hininger; and Chief Financial Officer, Todd Mullenger.
I'd now like to turn the call over to Mr. Ferguson.
Please go ahead, sir.
John D. Ferguson
Thank you, moderator and welcome everyone to Corrections Corporation's first quarter earnings conference call. In addition to those that the moderator said was in the room, we have David Garfinkle, our Vice President of Finance and Controller, to assist us on some of the questions.
We are very pleased with our results and we will get started with Todd reviewing of the financials.
Todd Mullenger
Thank you, John and good morning everyone. Moving straight to a discussion of our financial results, in the first quarter of 2009, we generated $0.29 of EPS compared to EPS for last year's Q1 of $0.28.
We exceeded the earnings guidance provided in February as a result of better than expected operating expense performance combining with a slight acceleration of our share repurchase program over that assumed in February, more on those in a minute. EBITDA in Q1 increased 9.6% to $99.6 million for the quarter, Adjusted free cash flow for the quarter totaled $73 million or $0.61 per share.
Keep in mind that we paid the cash taxes in Q1, with two payments made in Q2. As a result, Q1 cash taxes are higher than average with Q2 lower than average.
Focusing on adjusted free cash flow, as we have mentioned in the past, unlike other industries, our depreciation expense is not reflective of the ongoing maintenance CapEx that we will incur to maintain our facilities. For example; depreciation and amortization expense totaled nearly $25 million in Q1 versus only $10.3 million of facility maintenance and IT CapEx for the quarter.
So as we have commented before, we believe adjusted free cash flow is in many ways a better measure than EPS for the return we are delivering to our shareholders. Total revenue for the first quarter was up 6.5% over last year, an increase of nearly $25 million.
Average daily compensated population for the quarter increased 4.2% compared to the prior year. Revenue for compensated man-day for the quarter increased 3.9% to $58.45.
Average compensated occupancy for the quarter declined from 97% to 89.4%, which taken by itself appears negative. However, keep in mind that our average daily compensated populations actually increased 4.2% with the decline in occupancy percentage coming as result of placing 9300 new beds into service during 2008 and 2009.
Revenues were very much in line with our internal forecast. As I mentioned earlier, we exceeded our earnings guidance primarily as a result of better than expected operating expense performance combined with the slight acceleration of our share repurchases.
In absolute dollars, operating expenses came in lower than anticipated due to better than expected cost performance in areas such as utilities, inmate medical and miscellaneous supplies. Lower supplies is a result of the conservative effort to manage inventories tighter and we negotiate prices lower.
Lower inmate medical is related to timing associated with large inmate hospital claims and lower utilities is due to lower than anticipated energy cost and seasonality around usage. As a result, some of this favorable expense performance may be recurring while some of this timing it may not recur.
That said we continue to play strong emphasis on controlling operating costs. On a cost per man-day basis, operating costs for the quarter were $40.90, up 3.6% increase over the prior year.
Our Q1 2009 operating costs per man-day reflect normal wage and other general inflationary increases, as well as operating inefficiencies associated with a ramp-up of new bed activations at facilities, such as La Palma and Tallahatchie as well as operating costs related to our inventory of vacant beds. During Q1, we averaged approximately 10,000 vacant beds in inventory on which we incurred property taxes, utilities, insurance and other costs without the benefit of any heads in these beds which drives cost per man-day higher.
In general, the inflationary increases we experienced year-over-year were fairly modest. But the operating inefficiencies associated with the ramp-ups and vacant beds resulted in a 3.6% increase in costs per man-day across all beds and a 4.6% increase on owned beds.
All of the ramp-up inefficiencies and the vast majority of the vacant beds are owned beds. Excluding the ramp-up facilities and the impact of the vacant beds, operating costs per man-day in all beds was more in a range of 2% while owned and managed beds saw an increase less than 3%.
Despite those operating inefficiencies, operating margins per man-day for the quarter increased 4.4% to $17.55 with an operating margin rate of 30%. G&A expenses for the quarter increased 1% over the prior year and were 4.9% of revenues.
GAAP income tax expenses were approximately at 38% for the quarter. With regards to our share repurchase program announced in November of last year, from November through March 31st, we have purchased approximately 10.7 million shares of the total cost of $125 million with an average cost per share at $11.72.
These numbers have remained unchanged through today, as we have not repurchased any additional shares since Q1. At March 31st, the diluted shares outstanding totaled approximately $115.5 million, then as the number at March 31st is not a weighted average for the quarter.
The repurchases made in Q1 were at a slightly higher level than we originally assumed in developing guidance delivered in February. As we originally expected, some of the share repurchases would fall into Q2.
We have $25 million left remaining under the original $150 million authorized in total by the Board of Directors. As a reminder we consider the share repurchase program, another capital allocation alternative with the decision to repurchase shares based upon a return on investment analysis driven by the repurchase price.
We are very pleased with our first quarter operating results, having generated year-over-year growth and EBITDA, EPS and adjusted free cash flow per share. We also secured three new contract awards for nearly 4000 inmates, all accomplished against the backdrop of a very challenging economic environment.
Moving next to the discussion of our guidance, as indicated in the press release, our guidance for Q2, 2009 is a range of 26 to $0.28 and guidance for the full year is in the range of $1.17 to $1.25 both are inclusive of start-up costs which were not included in previous guidance numbers as these start-up costs are primarily related to contract awards received after our February earnings call. Q2 is negatively impacted by start-up costs associated with the new contract awards from the BOP at Adams County, State of Arizona at Huerfano and ICE at our North Georgia facility.
We estimate approximately $0.02 of start-up costs will be incurred in Q2. The combined EBITDA contribution from these three new contracts is expected to reach breakeven in Q3 and turn positive in Q4.
For the full year, we expect the impact of these new contract awards on EPS to be neutral to slightly positive. However implicit in our guidance range, we expect to see sequential EPS growth from Q2 to Q3 accelerating into Q4.
This is a result of improving contributions from these three new contract awards combined with additional population growth primarily from the California ramp up. The ramp up of state of California inmates is expected to take longer than previously anticipated back in February when we last provided guidance.
Delays by the state of California and processing inmates where they transfer are the main reasons for revision in the ramp up schedule. However, we remain very confident that California will ultimately fully utilize all 8100 beds available to it under our contract.
Our guidance incorporates the revised ramp up assumptions for California. Next, with regards to the better than expected operating expense performance in Q1, the current guidance has been adjusted to reflect some continuation of that favorable performance in certain areas, primarily utility rates.
However the other areas in which we saw favorable performance inmate medical and miscellaneous supplies appear to be timing differences that are not likely to recur. Finally, many states are nearing completion of their budgets for the fiscal year that runs July 1st, 2009 thorough June 30, 2010.
The federal fiscal stimulus bill passed during Q1 provides significant funds to the states over several years, which has allowed them to avoid making larger budget reductions than they would otherwise had to make without the benefit of those funds. Obviously uncertainty remains related to the general economy, merchant trading credits and uncertainty around the magnitude of state budget assets and the steps those states may take to balance their budgets going forward.
However, in developing the asset range within our full year EPS guidance, we have incorporated our best estimate of the range of potential outcomes related to risks associated with state budget uncertainties as well as ramp up the populations from California and under our other recent contract awards. If none of these risks are realized, we should perform at the high end of our guidance range.
If all of these risks are realized, we should be at the low end of the guidance range. Turning next to discussion of our liquidity, as of March 31st, our liquidity is provided by approximately $119 million of availability on our bank credit facility plus approximately $44 million of cash on hand.
This is in addition to our very strong and reliable cash flow from operations. In addition, we ended the quarter with a debt to EBITDA leverage ratio of a little over three times and interest coverage of approximately six times with no pending debt maturities until May 2011.
Cash taxes are estimated at 80 to $85 million for the full year 2009 with 40 to $45 million in Q2 alone. Keep in mind we paid virtually no cash taxes in Q1 as the first quarterly payment of cash income taxes was not made until April with the second quarterly payment of cash taxes coming in June.
As a result, as I mentioned earlier, adjusted free cash flow is a little bit higher than average in Q1 and lower than average in Q2. Let me close by saying we remain optimistic about our long-term growth prospects.
Current government budget deficits will likely result in institution bed development by the public sector, necessary to meet their future bed needs. Our development efforts have rewarded us with recent contract awards and positioned us within inventory beds our customers will attractive to meet future bed needs.
This combined with our strong financial position and cash flow, position us well to capitalize on a long-term growth prospects offered by continuation of the supply and demand imbalance that has been the primary driver of the tremendous growth CCA has experienced over the past five years. I will now turn it over to Damon for specifics on our new business prospects and bed development.
Damon Hininger
Thank you, Todd and thank you so much callers for calling into the conference today. I would like to break my comments into two topics, the first of which is our business strategy in our short term and long term focus, and second, our market observations and opportunities.
So first our business strategy in a short term and long term focus. Our vision has been and continues to be the best full service adult corrections system in the United States.
We believe this mission continues to be relevant and appropriate even in the current economic environment. As it relates to our business strategy, our plan continues to be to build capacity in front of demand.
I will give some recent examples later in my comments on why this continues to be a sound strategy. Let me first say that the U.S.
marketplace still looks very favorable for the company and the industry. A couple of metrics that shows the long term opportunities for the company.
First, of the $65 billion U.S. corrections marketplace only approximately 7.8% is managed by the private sector.
We think this still shows a largely un-penetrated market here in the U.S. Second, of the incremental inmate growth in 2007 among all 50 states, which was approximately 27,000, about 49% of that growth was captured in house in five facilities.
We think this shows the maturity of the market and companies like CCA to manage this type of population, but also shows the constraints that states are feeling on building new capacity. And third and finally the supply and demand imbalance.
Of the 19 state customers that CCA does business with, we are currently estimating those states will have an incremental growth that will be twice as much as their funded planned capacity by 2013. As it relates to our short and long-term focus, let me start with our short term focus.
And the first one quite simply is to fill excess capacity. With the North Georgia and Huerfano, Arizona announcements in March and Adams County announcement in April this gives us good momentum as it relates to this priority.
And as Todd outlined these contracts as a whole will not have any meaningful impact on 2009 earnings, but clearly will have a very favorable impact on 2010 earnings. As Todd mentioned, we have and will continue to place strong emphasis on controlling operating costs.
Additionally, we will look at opportunities for consolidation. I think the recent award with Arizona and Huerfano County Colorado is a great example of this, where we saw an opportunity to consolidate our Colorado population to three of the four Colorado facilities and then also Huerfano as a standalone facility for the state of Arizona.
We see those opportunities and we'll continue to monitor as appropriate those opportunities in the future. And for our long term focus, this continues to be one and as mentioned earlier, one of our key business strategies has been a thoughtful methodical way build capacity in front of demand.
This strategy has fueled significant growth over the past five years and we believe it was re-affirmed as a sound strategy with the recent awards by the Federal Bureau of Prisons and the State of Arizona. And second, even though we have temporarily taken our foot of the pedal, our new bricks and mortar construction, we are taking advantage of a depressed real estate mortgage, so as to acquire property in key locations for future development to help us execute against our business strategy.
As mentioned in our press release, CCA has nearly 10,900 beds available in inventory that are under development. As of today, with the BOP & Arizona Awards and the continuing of the California ramp, we have about 6700 beds of available inventory.
So, obviously we will continue to monitor closely the needs and timings of new bed development, but clearly we would like to see some more meaningful utilization of our remaining capacity before we add additional capacity. Finally, we will also continue to aggressively pursue built to suit opportunities.
Third and finally your management team is committed and focused on building sustainable and long-term value for shareholders. With that we continue to drive value to our customers that continues to make us competitive in the marketplace by doing the following: One, quality and safe and secure operations as cost effective to our customers and two, also drive value in our construction of new expansion or greenfield sites.
Two recent examples that show our competitiveness in the marketplace not only in quality of services, but cost per services and cost per bed. The first is our Vegas, United States Marshall's award in Nevada which was a build-to-suit competition.
This was a full and open competition with all major contractors in the industry competing on price, quality of services and track record of servicing the customer. Second was the Coreay Adams County contract.
We mentioned this earlier, but it's worth repeating that. We delivered this facility at $56,000 a bed and provided considerable value to the BOP while providing significant ROI for the company.
Let me now move on to the second portion of my comments, and talk about the market and industry observations and opportunities. First just some general opportunities and observations on our federal and state customers.
Since the beginning of the year, we have had a total of four contract awards from the Federal government, two the immigration and custom enforcement, one with the Bureau of Prisons and one with the United States Marshall Service. We think this is noteworthy for several reasons.
First, and again it shows that we continued to provide value to our federal customers and second, even with the new administration and a heightened awareness on several procurement guidelines and processes as long as we're providing and delivering a comprehensive solution that is cost effective to the government, we believe we will remain competitive in the federal marketplace and there will be a need for our services. Let me now make a couple of comments about the 2009 federal budget and the 2010 federal budget.
As you all know, the 2009 budget passed in March. There was no significant changes to funding as it relates to our book of business, and we do believe that this was the final hurdle on the contract award.
Detail on the present 2010 budget will be a lot clear as earlier today. The total proposed amount were outlined earlier this year and our initial read is that our free federal customers would be fully funded.
Now, a few comment s on our state budgets. As Tom mentioned, our state customers are not out of the woods yet.
Eight of our 19 state customers have passed their 2010 budgets, which would begin July of this year. But as in the past 12 months have shown the ability to forecast actual projections has been extremely difficult at the state level.
So budget revisions are possible as we go into the new fiscal year. And as we mentioned in February, we have been approached by half a dozen states and have conducted different levels of negotiations to lower competition to us.
This number has not changed since February. On the whole, we have been successful on nearing our scope of services to our customers to offset any reduction or compensation.
Additionally, some of the offsetting compensation has been managed by reduction of populations and the narrowing scope of service so as to leave a pretty untouched. And as mentioned in the past, we have had seen, we have seen some population reductions from Washington, Minnesota and New Mexico as they have had new capacity come on line.
As of march 31, we had 748 Washington inmates and 482 Minnesota inmates in our system. We could see some further declines, which are built into our guidance.
Foe the Mexico, we believe we will not see any further reductions. So although there is some uncertainty still as it relates to our state budgets, let me point out several positive things that we see with the states.
The first, it should be timing issue. Most of, most all of our states operate on a July 1 to June 30 fiscal year.
We are hopeful that was less than 60 days left in the fiscal year, the risk of any additional pressure has subsided. And for the next fiscal year, if this year's any example, we think any pressure we feel from our customers will be realized until first or second quarter of 2010.
Improvement in the economy and the use of the federal stimulus fund helps to abate the pressure even further. Second, let me make a comment about the State of Arizona.
Arizona has the largest deficit of any state as a percentage of their overall budget for this fiscal year and fiscal year 2010. Additionally, the Bureau of Statistics just recorded that the State of Arizona was number two in inmate growth this past reporting period.
Now why is this significant? Do you guys stay with the large deficit, increasing population was no capacity or release them side and every dollar we're spending in this environment is being scrutinized.
So, pressure can only be held back for so long and we think this example is indicative of what other states are going to have to do to relief pressure within their respective systems long-term. Three, a significant portion of our state business is in owned and managed facilities.
So, this continues to give us flexibility to offer capacity as it's made available to other states. Fourth, and finally, for many of our state customers, we do expect to receipt bureau of statistics pretty impressive this year.
Let me now make a couple of comments about new opportunity procurements. The first is the State of Georgia, we think -- I think we've mentioned this in previous calls, but just a brief update to say that they have two procurements still on the street, one for 1500 beds total through expansion of existing facilities within State of Georgia and then also a 1000 bed requirement for a new standalone facility.
The State of Georgia as we understand are still evaluating and analyzing these proposals and a potential decision on one of both could be later this year. Let me now talk about the Criminal Alien Requirement number 9, or CAR 9 procurement by the Federal Bureau of Prisons.
We were notified last week that we were dropped for consideration and based on the landscape of potential offers we knew we were not likely to be successful. It is our understanding that BOP may act on this later this year or early 2010.
Let me now talk about CAR 10 and CAR 11 with the Bureau of Prisons. As a reminder, these procurements offer the re-bid of our soon to expire BOP contracts at our California City, California and Milan (ph) New Mexico facilities.
CAR 10 and CAR 11 were contained solicitations for the same requirement. CAR 10 only considered existing facilities and CAR 11 only consider new construction.
As I think was reported a couple of weeks ago in the marketplace CAR 11 has been cancelled. So only existing facilities submitted under CAR 10 will be considered for this requirement.
We think this obviously narrows the competition dramatically for this requirement. One other brief comment on pending procurement, it's not really procurement it's more just a source of side that you may remember early this year ICE had to put out a notice for potential requirement for 2000 beds in Los Angeles California.
It's our understanding that they are still working on the procurement and could be released potentially late in this year. Let me now make some specific comments on our four largest individual customers.
First, let me make a couple of comments about the United States Marshals Service. First of which we announced earlier this year that we did get the notice to proceed from their Office of Federal Detention Trustee to move forward on this project.
And as mentioned, we anticipate this facility open up in the third quarter of 2010. Second, we continue to meet the needs reasonably as appropriate and as a reminder they are the only customer we have where they rely 100% on other providers for bed capacity.
And third, let me just make a brief comment on operation streamline. John has mentioned in some previous calls but as a reminder the border town Tucson, commenced operations streamline in January of 2008.
Before this initiative was put in place, only a small percentage of legal persons crossing the U.S. Mexico border were prosecuted.
Operations streamline uses criminal charges to deter illegal border crossings. Border patrol has consistently indicated from the planning stage of the initiative to the present that operation streamline will require additional detain beds due to increased prosecution and length of stay anticipated by the initiative.
Although we did not see the expected in thoughts (ph) of prisoners in early 2008, we are now experiencing significant numbers to further be in place in custody as a result of operation streamline. Now, a couple of comments on Immigration and Customs Enforcement.
Our really read on the new leadership within Homeland Security and ICE that their focus will be on several fronts as it relates to detention needs. One, consolidation of populations from small regional drills to help gain efficiencies; two, ensuring that all the teams at housing facilities that use and enforce ICE's detention standards and have appropriate conditions as consignment, and three, the housing approval airing through the Secure Communities program and also non-detained illegal aliens.
John has mentioned the Secure Communities program on prior calls and as mentioned earlier, it appears to be a priority for the new leadership. Just as a reminder, a couple of key points about the Secure Communities.
It was described in March of 2008 in a ICE press release with a multi-year initiative to more effectively identify, detain and return removal for more aliens in cars raid in Federal, State and local prisons and jails. ICE's plan is to use expanded integration technology and build upon relationships with state and local law enforcement agencies to ensure the encroached criminal aliens are removed from the country instead of being released into our communities after their time in custody.
ICE currently conducts screening for these criminal aliens at all, Federal and State prisons and that's only 10% of the approximate 3100 local jails in the United States. ICE estimates that approximately 300,000 or 450,000 convicted criminal aliens who were removable are detained each year at Federal, State and local prisons and jails.
And based on reason activity, ICE is already removing approximately 20 to 30% of these totals. We believe this suggests that ICE will continue providing meaningful opportunity for the industry for the foreseeable future.
Just a brief comment also on immigration reform. We like many of you on the phone have been watching the media reports where we think that there potentially could be some discussion nationally about some meaningful changes on immigration.
And of course, we'll continue to monitor and advise market as appropriate as details get clear and any potential impact to the industry and to the company. Now couple of comments on the Federal Bureau of Prisons.
I mentioned the activity on CAR 10 and 11, so I won't repeat that. But I will say as for new demand based on recent estimates and capacities they are brining online plus the beds they secured through CAR 8 and CAR 9 it appears that they will still need several thousand beds by 2011.
Finally with the recent award of CAR 8 we believe hat the Federal Bureau of Prisons continues to see value and using the private sector to meet their overall capacity needs, and will continue to provide a meaningful opportunity for the industry for the foreseeable future. The last customer I want to talk about is the State of California.
So just a couple of comments. Let me first reinforce Todd's comment as it relates to the ramp-up California made into our system.
While the ramp-up California was slower than we would have liked to see due to delays of processing, we have seen additional transfers in Q2 and expect more in the quarter. As of yesterday, California's total population in our system was 6,887.
We have been and will continue to work very closely with CDCR on a continued ramp up of inmates into our system, but it is very clear to us that one, overall our relation with State of California remains very strong.] Two, CDCR remains very committed to the total allotment of 8100 beds in our system, and they have given us a very clear roadmap to ramp us to the 8100.
And any misses on schedule transports in the past was not resolved of funding constraint to lack of need and fourth and finally, we also believe that there will be a need for additional outstay beds in the future. Now, comment on California's budget situation.
The State passed a budget in February that closed a $40 billion General Fund shortfall for fiscal year 2009 and fiscal year 2010. The package of the budget fix...
stopped the threat of our use being issued to State contractors due to cash flow problems associated with revenue declines. Again we also think the Federal stimulus has also relieved pressure on California.
Next, as part of that package CDCR's budget included a $400 million unallocated cut through, thought to be related to for all reforms expected to be implemented later on in the legislative session. CDCR has proposed reducing the inmate population by 8,000 through poll changes, raising the dollar limit on grand test and giving inmates more time off for good behavior as a way in which to achieve a portion of the $400 million reduction.
Just as a reminder, CDCR's total population today is 167,821 and even with an 8,000 inmate reduction they would still be at a 177% of the weighted capacity. My final California comment is about the three-judged panel.
The three-judged panel issued a tentative ruling indicating that prisoner overcrowding is the primary cause of unconstitutional healthcare and recommended that CDCR's population be kept somewhere between 120% and 145% of design capacity or approximately 58,000 inmates. The state is expected to appeal the ruling to the Supreme Court and it is our understanding that the outstay program would not be counted towards the cap.
That concludes my prepared comments. So, let me again thank you for calling in today and also turn it over to John who will wrap up our prepared remarks.
John D. Ferguson
Okay. As we finish up my remarks I just want to take a minute and highlight what I think are the important takeaways from our earnings announcement of press release and the comments by Todd and Damon.
First, I think it -- as obviously we're pleased with our first quarter with a growth in earnings per share, growth in revenue, growth in EBITDA, growth in free cash flow is a significant accomplishment in today's challenging economic environment. We believe that these put us in a pretty select class of businesses in America today and helps demonstrate that the company as a resistance to the current recession.
I'll also point out once again as we mentioned last time, that 2009's performance includes somewhere between 10 - $0.12 a share of additional depreciation and interest costs. We believe the supply and demand imbalance continues and that there will be insufficient public sector capital investments.
They will ensure that the storage of beds in the public sector will continue. We think that recent CAR 8 and state of Arizona awards validates this demand and of course our business strategy.
We hope should you recognize the benefit from the repurchase of nearly 8.5% of our outstanding shares. And even with the purchase of these shares as well as placing over 9300 beds into service in the last 15 months, we continue to have strong balance sheet, good liquidity and strong cash flow.
And then if you -- as we pointed out there were some 10,900 vacant beds in our system on May 1, in addition to 1000 beds that we now have under development in Nevada. And if you put potential to that we would estimate that the potential annual incremental facility EBITDA for those beds is well in excess of $90 million and well north of $0.40 a share and of course as William pointed out some 5200 of those beds are under contract.
Before we enter into the question and answer session, I do want to ask the shareholders on the line today. Those of you who have not voted for the annual meeting coming up next Thursday, there is a shareholder proposal that requires certain disclosure which we think would put CCA in a unique position, one it's unfavorable, one that if the proposal is good public policy should be, one that requires all companies to do, as opposed to just selecting a few.
So that we would ask each of who have not voted yet or even if you voted to change the vote, to vote against the shareholder proposal. So, with that moderator, we would be happy to open the lines up to answer any questions.
Operator
Thank you, Mr. Ferguson.
(Operator Instructions). We'll go first to Kevin Campbell with Avondale Partners.
Kevin Campbell - Avondale Partners
All right. Good morning, and thanks for taking my question here.
I hope you could start off by discussing the outlook for filling the remaining 6700 beds. I mean, what would be your expectations as to not specifically whom am I selling but over what timeframe perhaps you might look to fill those beds?
Damon Hininger
Well, we've got several states both existing customers and new customers that would be prospects. It would be difficult to say, with any obviously clarity today on the actual timing and utilization of those beds.
But as I mentioned earlier, our short-term focus is all about trying to get the excess capacity utilized.
Kevin Campbell - Avondale Partners
And, are there any -- it doesn't sound like any of the existing RFPs opportunities for those beds?
Damon Hininger
Well, we've got, as I mentioned we have got the Georgia procurements are still pending. So that's all within the state of Georgia, and that all will be new construction and then obviously the BOP requirements are one for our existing capacity, our existing population.
And then also we're not involved to CAR 9. So, the procurements I outlined that would not be -- those would not be candidates.
Kevin Campbell - Avondale Partners
Okay. And could you talk a little bit more about the opportunities for consolidation?
You mentioned I think that is a good opportunity, what -- is there anything out there sort of percolating that's more of near-term?
Damon Hininger
No, I mean I think that this is something we're always looking at and always talking to the both, existing or future customers. But obviously, not anything I could specify on today.
Kevin Campbell - Avondale Partners
Okay. And then looking at some of the states, as we've talked about before Washington and Minnesota have brought on new capacity and drew down populations.
Should we be looking at or expecting any states, Wyoming for instance that are bringing on beds that might be then drawing down population in the back half of the year, can you give us some clarity there?
Damon Hininger
Well, I think you would -- outlined in the press release, the states where we think we've got some drawdown population, I mentioned specifically the numbers on Minnesota and Washington. So one of the things we do obviously everyday, we talk to all of our states to understand their capacity, it's long-term and short-term.
And there may be in fluctuation. So, we think we've adequately discussed and have a fair understanding of what their needs are for the rest of the year and we'll guide it quarterly into our guidance.
Kevin Campbell - Avondale Partners
And last question before I jump back in the queue, can you give some color as to what your expectations are for California? I know you don't like to be specific, but at this point it looks like you have around 1300 inmates, they were doing prior to the slowdown, 3 to 400 a month.
Are you more conservative than say 3 to 400 a month from this point? Or if you could just give us some clarity so we have some expectations there.
Todd Mullenger
Yeah Kevin, this is Todd. Really I don't want to parse guidance on a customer-by-customer basis.
One reason for that, unique to California is what we've learned from past experience. Any number we put out there is compared to data presented on the State to California's website related to other state transfers.
And that data has been very inaccurate, inconsistent in the past, which can create unwarranted concerns. That said, California is committed to using the beds.
Those beds are fully funded in our budget and we're optimistic they will eventually get to 8100 beds.
Kevin Campbell - Avondale Partners
Okay. Thank you.
Todd Mullenger
Thanks, Kevin.
Operator
Our next question will come from Emily Shank with Barclays Capital.
Unidentified Analyst
Hi, good afternoon. This is actually Jason Trihio (ph) in for Emily.
Todd Mullenger
Good afternoon.
Unidentified Analyst
Good afternoon. First, you actually touched on this briefly in some sense, but outside of the current CapEx guidance, if you have given us are there any new greenfield facilities that you're contemplating for 2009 perhaps the occupancy would have ramped up?
Todd Mullenger
Yeah, nothing we're contemplating. We suspend a construction on Turbeville and like we said publicly, we want to see some additional utilization of existing capacity before we initiated any speculative building, which is what Turbeville is.
So, asking the bill that's suited for more dropdowns on another facility, going to suspend a new Greenfield initiation in 2009.
Unidentified Analyst
All right, great. That's helpful.
And then just lastly, I thought you can quantify for us the supply demand imbalance if you look at the industry broadly over the next couple of years, how does the demand for new beds stock up, both to public supply but also to private supply, just any of the states that you cover as well as the federal government?
Damon Hininger
Well, it's very full and dynamic couple of numbers both on the population demand and also potential funded capacity. I would say there is a lot of things that can drive the population.
And then also we think also in this environment, especially on the safe side with every dollar getting scrutinized and resources very scarce in this environment, even some planned capacity may not ultimately be funded. So, it's a pretty much a moving number.
But it was really clear to us is that if you look out through 2012, 2013 just the known planned capacity that's out there versus the incremental growth, the growth is twice as much as the planned capacity. So we think that that's going to continue to be case here in the short to mid term.
Unidentified Analyst
All right, great. That's very helpful.
Thank you very much.
Operator
And we'll go next to ManAv Patnaik with Barclays Capital.
ManAv Patnaik - Barclays Capital
Hi. Good afternoon, guys.
First congrats on the good quarter and I guess welcome Damon to the call and thank you for providing all that color both Todd and Damon on the industry and the guidance. And it's definitely helpful.
Just a few add on questions, you mentioned eight of the 19 states customers have already passed their budgets and there is six (ph) -- go from last time who had come up looking for negotiating terms. I was just curious if you could give a little more color on if there is any overlap there like any of those six customers looking for negotiations out of those eight that passed their budgets?
And also somewhere along the lines you mentioned that you are expecting increases some of the state customers, are those also within those eight that you mentioned or just a little more clarity around those?
Todd Mullenger
A couple -- Good morning and I guess couple of comments there let me just talk about this current fiscal year, as I said we're more within 60 days at the end of the year. So, we don't think I'd say don't know for sure but we're hopeful that we're kind of not going to see additional pressure this fiscal year.
So, I don't know that for sure but we just think with 60 days less are pretty close. Going into next fiscal year obviously if the economy in the recession continues to worsen, we could see some same level of kind of engagement from our customers and another level of negotiation.
But going into the new fiscal year, that pressure probably won't be felt until the last half of this fiscal year, which should be the first or second quarter of 2010. Relative to your question about the eight of the 19 customers that passed their budget, I couldn't tell you exactly which ones are allowing pretty increases or not and we won't be able to parse that out in that greater detail.
But we should have a little more clarity here the next month or so with these remaining states passing their budget and any pressure from additional on the podiums or compensation to us.
John Ferguson
Todd's comment about the range is trying to take all that into consideration.
Unidentified Analyst
But I mean just, is there any overlap between the six and the eight, that's all I'm asking. I'm not looking for a specific state customer.
Just curious if there was overlap in the six that came from negotiations and the eight that passed their budget?
Todd Mullenger
I don't have that in front of me. So I couldn't say definitely, there may be a case of couple there, but I couldn't tell you definitely.
Unidentified Analyst
All right, fair enough. And then I guess a question and maybe for Todd on the managed only side.
Could you give us a little color on what or how we should model the margins there going forward and maybe some idea on just how per diems might work out in that aspect too?
Todd Mullenger
On a managed only side, we've said historically that's where all the competition comes from.
Unidentified Analyst
Yep.
Todd Mullenger
Personally for us it's about 10% of our facility level EBITDA. We've obviously seen some pressure historically.
We're becoming more and more disciplined in our pricing there in terms of the minimum level of EBITDA we're willing to accept. So we'll probably see some continued pressure going forward.
With that said we don't have a whole lot of managed only contracts coming up for renegotiation that would encourage a lot of competition, there is one or two. So but in terms of specifics around margin I'm not sure I'm prepared to give you any guidance on kind of long term margins in the managed only side.
Unidentified Analyst
Got it, but I guess could you just then point out what the reason for the drop from the 16.5 in the fourth quarter down to 13 this quarter?
Todd Mullenger
Some of that's got to be seasonality on some of the populations perhaps and mix on some of it. You're also going to have items such as unemployment taxes that impact Q1 versus Q4.
So, there is some items like that.
Unidentified Analyst
And I guess just final sort of housekeeping item. What was your total construction CapEx this quarter?
Todd Mullenger
Total construction CapEx for the quarter, including new build $10.3 million, that's maintenance. He's asking on new construction.
Unidentified Analyst
Yes.
Todd Mullenger
15.5 on the new construction.
Unidentified Analyst
All right got it. Thank you guys.
Todd Mullenger
Thank you.
Operator
(Operator Instructions). We will go next to Todd Van Fleet with First Analysis.
Todd Fleet - First Analysis
Hi good morning guys. A nice quarter, am I coming through okay here?
John Ferguson
You are.
Todd Mullenger
Yes.
Todd Fleet - First Analysis
And I wanted to ask Todd on new pricing to be extent that you can help us flush this out. The business that you had a year ago, I mean is there anyway to parse out business mix in terms of revenue per compensated man-day which I think you reported as what 58.45 this quarter.
Is there anyway to segment the upward drift here? So if I were to look at revenue per comp man-day a year ago was about $56, today it's 58.45.
How much of that increase is due to a shift in business mix and how much is due to pricing year-over-year? Can you is there a way to -- I know that there is a way, but do you have that information there available for us?
Todd Mullenger
Yeah. I don't have that here with us.
Some it is mix, some it's pricing leverage but I think at the end of the day when you look at our operating margins, an increase of 4.4% in operating margins year-over-year. I think that's reflective of whether it's mix or pricing leverage that it's fair amount of that stuff at the bottom line.
Todd Fleet - First Analysis
Sure. Sure, I guess I am just try to get a sense for kind of reading what you're saying regarding, you are getting the pricing request from some customers but, so other customers you are getting pricing increase.
So, ignoring the mix issue, would you say that on balance you would expect pricing to be a positive influence for you this year or a negative influence?
Todd Mullenger
Positive.
Unidentified Analyst
Okay. But you don't want to say at this point, how much whether it's 1, 2, or 3% what have you?
Todd Mullenger
Yeah I don't want to put guidance to that.
Todd Fleet - First Analysis
All right. Maybe I should stop bleeding the question, maybe I should just watch your answer.
On operating expenses, great job in the quarter. In the quarter, you would have expected or you have two more days in the December quarter right.
And but you also have higher payable taxes in Q1. So were there new contract negotiations that kicked in at the beginning of this year that we're seeing impact to March result relative to the December result?
Just trying to understand why we would have seen a sequential decline in operating expense apart from just a fewer number of days?
Todd Mullenger
Yeah. I think it's a combination of things; one, a redoubling of our efforts on controlling operating expenses, so in an environment where there is limitations on our ability to grow the top-line we focus more and more attention on controlling expenses.
And historically we've done good job over there in the past. But in this economic environment you are supposed to focus even more attention on doing that.
And so, some of the results on supplies even on utilities and a couple of smaller areas, are a result of kind of a redoubling of our efforts if you will on controlling operating expenses. And that's going to be a focus moving forward during the balance of the year, as it is for many companies in corporate America.
Todd Fleet - First Analysis
The result of any renegotiated or contracts with or agreements with your customers such that the ones you did won a little bit pricing concession that we're seeing the impact of lower cost base as well because of those contract renegotiations?
Todd Mullenger
Not, not really.
Todd Fleet - First Analysis
So, I guess lastly on balance and is it fair to describe your take on -- you look across the landscape, obviously the situation is what it is from a fiscal point of view, and populations are still increasing and the pressure continues to go so on. But would it fair to describe on balance and you can call it State versus Federal if you'd like, but on balance so we're still in bit of a holding pattern here with respect to procurements and new business activity for say another 3 to 6 months?
Todd Mullenger
I would say there's going to be a continued pressure as a result of uncertainty around the budget with most states around initiating new bed procurement. That said, state of Arizona, significant budget and they decided to move forward with new bed procurement there.
So, a lot will be dependent upon the individual states situation. But I'd say on balance the uncertainty around state budgets will limit their ability to initiate new bed procurements.
Todd Fleet - First Analysis
Okay, thank you.
Operator
And our next question will come from Mark Paulstar (ph) with Lucent Investment Management.
Unidentified Analyst
Thank you. I apologize, I missed the middle portion of the call.
So I'm going to do my best not to repeat questions. Can you talk about the remaining cash spend for the two development facilities in North Georgia and Nevada?
Todd Mullenger
As we've outlined in the press release, we've got, we've broken out the detail there in terms of CapEx for the remainder of the year. So we've got about $60 million in prison construction for 2009 in total.
And then we'll have about 30 to $40 million left to spend to complete those projects we've initiated in 2009, left to spend in 2010.
Unidentified Analyst
Great and if you were to win Georgia extension -- can I use a historical expansion construction cost or is there anything unusual about how that would come through?
Todd Mullenger
You can use the average historical.
Unidentified Analyst
Okay. And then one of the states that you're contracted with has just put out solicitation and mentioned that some of the public state systems had gotten back to them.
Do you have any particular feel of state systems that might have more than 300, 500 bed capacity in a place most of those wouldn't be your customers but maybe in the Northeast or somewhere that might be able to be competitive with your own bed capacity at this point?
Damon Hininger
Good morning Mark. This is Damon, don't have a definitive list in front of me but there are some states that does have capacity from time to time.
And also we monitor very closely as it relates to marketing of those beds so other states. One thing -- I think that's challenging for one state to buy beds from another state is that a lot of time that is not a long-term commitment.
So as the state populations kind of fluctuate and they may have their capacity available their own, maybe only willing to make six months to 12 months commitment and make those beds available. So even though those pockets may be out there may not be pretty attractive to states that are especially trying to figure out a solution for several years.
Unidentified Analyst
Okay. So it's more about the commitment than the critical mass of having a large number of beds in a single facility?
Damon Hininger
Right.
Unidentified Analyst
Okay. And then my last question, just mathematically and I am looking at against EBITDA, the conversations that we've had regarding the buyback being above the development hurdle rate, you're still I think nicely above a 20% return on the buyback at 16 - $17.
Is there a point where development is a better idea even if the point return doesn't look quite as good?
Todd Mullenger
Those are never issues we factor in to the decision making around repurchasing shares, are with liquidity, progressive (ph) return. Yeah there is some risk associated with new bed development that you don't have with the share buyback, right?
The share buyback, you don't have construction risk, you don't have operating risk. So those things had to go and hop around our decision.
We've got -- that said and we just got $25 million left authorized under the current repurchase plan. And while we don't want to take anymore options for deploying capital off the table including a share repurchase program, we're hopeful the stock price increases to a level that doesn't make our ROI hurdle rate for restructuring to that.
Unidentified Analyst
Is it fair to say that the current return is, basically I'm just thinking you could buy 4 or $5 million worth of EBITDA for a million shares, which at this point would be 20 some percent?
Todd Mullenger
Yeah, we haven't got into specifics around what the ROI is on the repurchasing stock at certain repurchase prices and don't want to do that I think for obvious reasons. So, don't want to tip our hand there.
Unidentified Analyst
Fair enough. Thanks for your time.
Todd Mullenger
Sure.
Operator
And we take a question now from Clint Finley with Davenport.
Unidentified Analyst
Good morning, guys. I think we've talked recently about prison reform from Senator Webb and others, what kind of timeline do you think we're looking at before we see any action here?
Damon Hininger
Good morning, this is Damon. This short answer is don't know.
I know that Senator Webb put forth his panel to look at a kind of broad and sweeping level of analysis on the criminal justice system and potential reforms. And I think you've outlined some narrow areas of focus potential kind of timeline.
But I think it's very early in the process. So, the result to recommendation's conclusion to that is probably going to be I would say, over probably several years.
So I think it's probably too early to say what it looks like and timing and impact.
Unidentified Analyst
And just given his areas of focus, any idea of the impact on the private sector here?
Damon Hininger
We're right now looking at it at a very broad level. And that's always been really disseminated out in both media and also in some of his remarks up on the Hill.
But as of right now, it does not look like specifically our book of business and I should say, our book of business with the private corrections area is going to be an area of focus, but it's, I think it's too early to tell.
Unidentified Analyst
Thanks, guys. Nice quarter.
Damon Hininger
Thank you.
Operator
And we have follow-up question from Kevin Campbell with Avondale Partners.
Kevin Campbell - Avondale Partners
Thanks. Can you just confirm for us whether or not you kept all of those Colorado inmates in your other three facilities?
I just want to make sure that they didn't get distributed to other Colorado facilities run by the state.
Todd Mullenger
Yeah. So, the inmates coming out of Huerfano, we have retained all those inmates.
Kevin Campbell - Avondale Partners
Okay. And looking at some of the proposals, I think Mark was talking about Alaska having issued an RFP, Tennessee has a proposal in their budget potentially for closing one of your facilities.
So, is that incorporated in say, the roll into your guidance if something were to happen to one of those two or even some other facilities? Is that -- again, if those would happen, are you accounting for that at this point in your guidance?
I guess it's a really question.
Damon Hininger
Well, Kevin, let me -- this is Damon, and let me kind of address both of those separately. As it relates to Alaska, we mentioned, I mentioned in my prepared remarks that we're also always looking opportunities for moving inmates in our system to take advantage of excess capacity.
And obviously I mentioned that Arizona award the 12, I would say solution as an example of this. So, we have discussed with Alaska, the prospect of moving their population out of the state of Arizona to another CCA facility and there appears to be genuine interest to do that.
So this will make capacity available in Arizona for potentially other customers, which we think would be very attractive to several states. So, we've done business with the State of Alaska for 15 years.
They set their bar very high relative to sources they expect out of their contract. So we think obviously being the incumbent, we're well suited to meet their needs going forward.
But it is an open procurement, and if they do get potential offers, we think that their worst case, the risk would be in 2010 versus 2009. As it relates to Whitefield, that is a budget proposal from the Governor here in State of Tennessee for this upcoming fiscal year.
And it's also very early kind in the a process, so on finalizing I should say early, but it s going to probably sometime until they finalize the budget for 2010. And it makes us -- as it makes its way through the legislature.
So kind of use the baseball analogy, it's probably an early innings, probably going to be several more innings before we see a final outcome on this. And again I would say that any outcome -- potential worse case outcome on Whitefield would be a 2010 versus 2009.
Kevin Campbell - Avondale Partners
Okay and looking at Alaska real quickly. If you were to compete with some of these public states, I mean historically the states themselves can't compete on a -- as well as on the labor front.
And so do -- is there any reason why in this instance competing for other state's inmates that they would be better suited to go up against you on the labor cost front?
Damon Hininger
Yeah, I think there is going to be several challenges if I consider another state. One is what I mentioned earlier.
It's been our experience it's pretty well communicated out into the industry that if the state has capacity available and they are offering to another state, there is a very narrow window relative to their willingness and commitment to allow that capacity to be made available. So maybe six to 12 months.
So with the state of Alaska that's potentially looking at a three year horizon only having a six to 12 month commitment may not be very closely aligned to their interest. The second thing is that state may not be willing to make an investment both from a staffing and also a CapEx perspective, especially if they require significant programs to accommodate another state.
So from both the financial perspective, but also a timing perspective it may be not advantageous for Alaska to consider those options.
Kevin Campbell - Avondale Partners
And then last question on Alaska. Is there any thoughts -- what's the size of the prisons that they're going to build in I guess -- from that two (ph).
Is that moving forward? Is that being put on hold, because of budgetary concerns?
Todd Mullenger
It is -- I think in significant debate within the legislature, I think the last report I read was that they were hoping to get about 20 million appropriate this upcoming year. But I think the last estimate and I think is still influx is that they've impaired down to six million.
So that probably is a subject for continued debate. But based on timing, I think they are still kind of looking at that 2012-2013 window for this facility come online.
That is I'd say if they were successful to get funding based on the current timeline.
Kevin Campbell - Avondale Partners
Okay, and then last question as it relates to your labor costs. So, obviously your fixed costs were little bit higher.
You had the issue with startup expenses, I think. And if you were to back off those facilities where you had the cost from the startup expenses, would you have seen better leverage on your labor expenses or your fixed cost than you might have otherwise expected?
Todd Mullenger
Then we otherwise might have expected. I didn't drill down into that level of detail for perhaps the discussion today.
Let me say we have seen some improvement in turnover with the economic downturn and the unemployment rates going gone from 4% to 8%. It's on its way to 10%.
And that may have a favorable impact on operating expenses going forward, but little too early to quantify at this point.
Kevin Campbell - Avondale Partners
Okay so really on the operating expense line there probably was little related to sort of labor cost being lower, because of the economy and it was more to the items that you mentioned that were fixed or variable cost.
Todd Mullenger
Yes.
Kevin Campbell - Avondale Partners
Okay thank you.
Operator
And Mr. Ferguson, there are no questions in the queue sir.
I'd like to turn the call back over to you for any additional or closing remarks.
John Ferguson
Thank you moderator and thank everyone for taking the time to hear our comments. As I said earlier, we are very pleased with the performance of this quarter and we continue to hope that we can provide value to you as shareholders.
And we will see you in about 90 days. Thank you.
Operator
Ladies and gentlemen that does conclude today's conference. We thank you for your participation.