Nov 7, 2013
Executives
Damon T. Hininger - Chief Executive Officer, President, Director and Member of Executive Committee Todd J.
Mullenger - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Assistant Secretary
Analysts
Manav Patnaik - Barclays Capital, Research Division Kevin D. McVeigh - Macquarie Research Clara Houin - Avondale Partners, LLC, Research Division Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division
Operator
Good morning, everyone, and welcome to CCA's Third Quarter 2013 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.cca.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 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 discussion of non-GAAP measures.
The reconciliation of the most comparable GAAP measurement is provided in our corresponding earnings release and included in the supplemental financial data 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 President and CEO, Damon Hininger; and Chief Financial Officer, Todd Mullenger. I'd now like to turn the call over to Mr.
Hininger. Please go ahead, sir.
Damon T. Hininger
Thank you, Leo. Good morning and thank you to our valued shareholders, analysts and other participants for joining our call today.
Joining me, in addition to Todd, we have our Chairman, John Ferguson; our Vice President of Finance, David Garfinkle; and also Board Member, Bill Andrews. I'd like to start us off giving highlights of the results of the third quarter and give you a business update, and then I'll hand it over to Todd Mullenger.
But first, a couple of global comments for new investors. 2012 marked our 12th consecutive year of EPS growth and a compounded average growth rate of 11% over the last 7 years for AFFO per share.
And based on our guidance from last night, we are well on our way to our 13th consecutive year. More importantly, our 10-year share price performance is north of 300%, showing our long-term track record of outperformance.
Now with CCA, you have a clear market leader, with the company owning and controlling 50% of the privately-owned beds in the U.S. marketplace.
And with that, 90% of our net operating income is generated from our own beds. And we enjoy a modest maintenance CapEx of 5% compared to NOI.
As for the market, we're experiencing extremely limited public sector investment on new government-owned capacity to deal with growth and overcrowding, which its lack of development is unprecedented in the last few decades within our industry. And with less than 10% penetration by the private sector, we have meaningful opportunities in the U.S.
marketplace that are starting to materialize in a meaningful way. Now some highlights for the quarter.
First of which was normalized FFO, which came in at $74 million. This was a 17% growth over third quarter of last year.
The durable nature of our cash flow growth enabled us to pay a $0.48 dividend and work towards an annual rate of $1.92 a share. With a secure and attractive dividend payout ratio, we are well-positioned to continue at our recent record providing a dividend at above-average levels, a competitive advantage in delivering superior total shareholder return.
At the same time as we are focused on delivering continued shareholder value, we are also consistent in managing our business with discipline. At the end of the quarter, our debt-to-EBITDA was 3x, which you know is low compared to other REITs.
Recognizing our outstanding credit metrics, scale of our real estate assets with a 75-year life, extremely durable earnings record, high barriers to entry, diverse highly-rated government payers, strong customer retention rates in excess of 90%, Moody's improved its outlook on our corporate credit to positive in April; while at the same time, S&P upgraded us. As reported in October, we're extremely pleased about our new lease agreement with California at our 2,300-bed California City facility.
This is a great solution for California in providing in-state capacity at a critical juncture in their federal court overcrowding case. Now because we know we have a tremendous opportunity to create value for our shareholders by offering our partners solutions that optimize occupancy within our existing owned facilities, this continues to be our #1 priority.
We are sitting here today with our occupancy percentage in the mid-80s, which is very similar to where we were about 10 years ago, coming out of the last recession. Our occupancy peaked around 98% in 2007, which led us to build additional capacity for new and existing partners.
And we have made great progress against this goal during the last half of this year, with us having both our 2,400-bed North Fork and 1,700-bed Cimarron, Oklahoma facility being ramped up so they will be fully utilized going into 2014, along with the entire capacity at our 2,300-bed Cal City facility being absorbed now by California in 2014. Even with this progress, our CCA team continues to actively identify ways to meet the significant needs of existing or new partners to utilize existing capacity, as we look to the balance of 2013 and into 2014.
As I wrap up this section, I wanted to highlight what we announced in July, which was another positive element with California related to our out-of-state contract, which extends the agreement with our largest state partner for 3 more years, allowing us to continue to help them relieve the significant overcrowding that they face. Now let me provide a few specific updates on the business.
And first, on the state side of business. First of which is just giving another update on our Arizona contract that we're very thankful to have.
As a reminder, this contract is utilizing capacity at our Red Rock facility that was previously occupied by the State of California. The retrofits that we have to do at the facility are well underway or almost completed, and we're still targeting a January 2014 start date.
As you saw in our press release, we're extremely excited about our new Trousdale County prison here in Tennessee, which will help the state address overcrowding. This new facility will be for 2,500 beds approximately, and we are looking at activation in 2015.
This new contract is our first one in nearly 10 years here within the State of Tennessee. Now a couple of specific observations about the current landscape and how state partners will be looking at CCA to help them -- how we can help them address their challenges.
First, there's a report that 9 of our existing state customers have seen increases in population in the last 12 months at a combined total of approximately 3,500 inmates. And looking forward, our 11 state customers where we provide owned and managed solutions, and this is excluding California, these customers are expecting a bed shortfall of nearly 12,000 beds over the next 5 years, which can create overcrowded situations for all of these states.
Now Tennessee has been one of these states that we've been monitoring. They have had -- they have seen an increase by nearly 1,300 inmates over the last 2 years and is projected to be overcrowded by another 3,000 beds or inmates, I should say, over the next 5 years.
We've been reporting for several quarters our pursuit of new state prospects, with significant projected overcrowding in the next 5 years and West Virginia is one of those states that we've been pursuing. Now West Virginia has [indiscernible] for 400 beds on the street and proposals are due on November 26.
We think our available capacity will be very attractive to them. Now as it relates to West Virginia, they have seen an increase by nearly 700 inmates over the last 2 years, and they are projected to be overcrowded by nearly another 1,700 inmates in the next 5 years.
Now I want to give an update on California, but I'll do that here in a few minutes at the end my comments. But let me just make a comment on state budgets.
First of which is that state economies continue to improve and many states are exceeding their revenue forecast. With this, we continue to be cautiously optimistic that this will manifest itself into pricing improvement going forward.
But in the near term, we are encouraged that this improved budget environment has led to recent actions taken by West Virginia, Oklahoma and Arizona in moving forward and using the private sector to manage their very real challenges for growth and overcrowding. Last year, we closed the first-of-its-kind transaction within our industry by buying a government-owned prison.
This type of solution, which is monetizing a government-owned asset with a fixed income stream provided through a long-term management contract, we know, is still very attractive for many governments. And state budgets in their requested -- request for capacity, we continue to observe minimal new appropriations for construction of new government-owned capacity to address overcrowding and population growth.
And as I mentioned earlier, this limited amount of public sector investment in prison capacity is truly unprecedented. Now to the federal book of business and the current year funding.
In mid-October, Congress passed a partial year continuing resolution or CR to fund the federal government through January 15, of 2014. As it relates to the BOP, ICE and the Marshal Service, the CR provides a full appropriation for our base populations within our contracts for those 3 respective agencies for that period of time, which, again, is through January 15.
As reported in the press, Congressional Budget conference committee members are working to a December 13 deadline to reconcile House and Senate budget bills, which set the overall spending limits for fiscal year 2014 and allows Congressional appropriators to finish their work on the fiscal year '14 spending bills. Now just a quick comment on the government shutdown which happened in October.
The first of which was -- this didn't happen since 1995. As we looked at our populations, our base populations within our facilities were stable, but some anticipated growth that we indicated in the press release with the Marshal Service was deferred.
And there continues to be concerns, as you see in the press, about another government shutdown, as we get closer to January 15. Now the president's proposed budget for 2014 was released on April 10 and, over the summer, both House and Senate appropriator -- Appropriation Committees passed spending bills for BOP and Marshals.
And our review of these spending bills showed generally appropriate funding levels for Marshals and BOP, as it relates to our contracts, but also increased funding for the BOP for an additional 1,000 contract confinement beds. But again, it's important to point out full year funding levels for BOP, Marshals and ICE will not be certain until Congressional Budget conference committee and budget appropriators complete their work in accordance with the December and January deadlines.
Now to California. And we provided a pretty wholesome overview in our press release last night.
So I won't repeat it all here, but I did want to highlight a couple of developments. First of which is on October 21, the 3-judge court extended the deadline for compliance with the population reduction order to February 24, 2014.
In that same order, the panel of 3 judges extended the ongoing meet and confer process until -- excuse me, until November 18. So it will be likely -- be at least to November 18 before any further information about the status of negotiations between the state and the inmate plaintiffs is available.
The judges, however, also placed a moratorium on the state signing new contracts for out-of-state capacity while the meet and confer process is ongoing. On October 14, the Supreme Court -- U.S.
Supreme Court, I should say, declined to hear the state's appeal of the lower court's capacity cap order. In October 24, the state filed a new appeal with the U.S.
Supreme Court seeking relief from the out-of-state contract moratorium. Now timing on this decision is unknown at this time.
And I'll comment also about our Diamondback facility, which we also indicated in the press release. And this was a previously dormant facility.
As mentioned in the press release, we see a potential for California to use more beds out of state. This 2,000-bed facility is near Oklahoma City and is in close proximity to our North Fork facility, a facility that's been operating with California inmates for many years.
So we're very pleased about the quarter and the full year and appreciate the CCA management team, wardens and our entire team of CCA corrections professionals here in Nashville and nationwide. With that, let me now hand the call over to Todd.
Todd J. Mullenger
Thank you, Damon, and good morning, everyone. In the third quarter of 2013, we generated $0.46 of adjusted EPS, while normalized FFO totaled $0.63 per share.
The sequential decline in EPS from the second quarter is primarily due to the issuance of 14 million shares as part of the special REIT conversion dividend, which was not fully reflected in Q2 shares outstanding, as the shares were issued midway through Q2 on May 20. Moving next to a discussion of our guidance.
As indicated in the press release, adjusted EPS for the full year is a range of $1.85 to $1.89. While Q4 2013 adjusted EPS guidance is a range of $0.37 to $0.41.
Full year FFO guidance is a range of $2.58 to $2.62. The guidance excludes REIT conversion cost, refinancing cost, CAI acquisition costs and other special items.
I would like to spend a few minutes walking through the 4 primary issues affecting fourth quarter guidance. First, our August earnings guidance assumed the continued operation of our California City facility, as we had not entered into a lease arrangement with California at that time.
As a reminder, in October, we announced that we'd entered into a lease with the California City facility, which will be operated by the State of California. The lease commences December 1, 2013, with monthly lease payments subject to reductions until certain tenant improvements are completed and all existing inmates currently housed at the facility are removed.
The removal of existing inmate populations at the facility during the fourth quarter will negatively impact the fourth quarter EPS by approximately $0.02. We expect that the transition to the lease structure will be completed by January 2014.
As a reminder, annual lease payments are $28.5 million, with CCA responsible for property taxes, repairs and maintenance and property insurance. All other expenses associated with the operation of the facility will be borne by the State of California.
Second, we have experienced an acceleration on the removal of California populations at our Red Rock facility compared to the assumption in our August guidance. Our August guidance assumed California populations at Red Rock would average approximately 400 higher during Q4 than we now believe will be the case.
This acceleration on the removal of California inmates at our Red Rock facility will negatively impact the fourth quarter EPS by approximately $0.02 to $0.03. As a reminder, Red Rock will begin housing approximately 500 State of Arizona inmates in January 2014, which we believe will eliminate the $0.02 to $0.03 drag on earnings we are forecasting for the fourth quarter.
Next, as Damon mentioned during the third quarter, we activated our Diamondback Correctional Facility and began preparing the previously dormant facility to receive inmates. The activation has included hiring staff and purchasing supplies.
The decision to activate the facility was made as a result of the State of California's potential need for additional out-of-state beds before the end of 2013. While we're optimistic we will secure a contract in the near future, the activation of the facility will negatively impact Q4 EPS by approximately $0.02, as we are currently assuming no inmates will be housed at the facility during the fourth quarter.
Finally, our August guidance assumed growth in U.S. Marshal populations during the fourth quarter as a result of an expansion of an existing contract serving Marshal districts in the southwest.
While those Marshal populations have increased slightly from their levels in August, the growth has been below expectations, which we believe is largely a consequence of the federal government shutdown. Therefore, we've reduced our growth assumptions for Marshal populations in the fourth quarter, which negatively impacts fourth quarter EPS by $0.03 to $0.04.
It is unclear whether future government budget deliberations will impact growth in our Marshal populations beyond the fourth quarter. While we're not providing guidance for 2014, obviously, Q4 2013 guidance is not a good indicator of the normalized run rate going into 2014, given the temporary nature of some of the items I just reviewed.
Depreciation expense for the full year of 2013 is estimated at $115 million to $116 million, while G&A expense is estimated at 5.25% of revenues for the full year. Weighted average diluted shares outstanding for Q4 is expected to be approximately 117 million, while full year weighted average shares outstanding is estimated at 111 million.
Finally, the next dividend declaration will be in December when we expect to declare a $0.48 dividend payable in January. I will now turn it back over to Damon.
Damon T. Hininger
Thank you, Todd. So let me bring to a close our comments and make these final points.
As mentioned and talked about during the last couple of quarters, we're very pleased to have the REIT conversion finalized this year. So for any new REIT investors on the call, we are a company that has had 12 consecutive years of EPS growth and a CAGR of 11% over the last 7 years for AFFO per share.
And we're well on our way to our 13th consecutive year, very strong and durable earnings. More importantly, our 10-year share price performance is north of 300%, showing our long-term track record of outperformance.
We are the clear market leader with the company owning and controlling 50% of the privately-owned beds in the U.S. marketplace.
And with that, 90% of our net operating income is generated from our own beds. We have above average dividend payout ratio and also historical customer retention rate in excess of 90%.
With that, managing the business with discipline, we have a strong balance sheet with debt-to-EBITDA at 3x. This is low compared to other REITs, but also a strong operating record, very valuable real estate assets with 75-year life, a high barriers to entry industry and diverse highly-rated government payers.
And as for the business outlook, population increases we are seeing indicate future need for the solutions we provide. We're encouraged by the improving budget environment on the state side.
We are seeing extremely limited public sector investment on new government-owned capacity to deal with growth and overcrowding. And with less than 10% penetration, meaningful opportunities in the U.S.
marketplace. And based on my earlier report, those are starting to materialize in a meaningful way.
And we think the progress of the 3 facilities I mentioned earlier, where they're moving towards complete utilization is a good example of this. That now concludes our prepared remarks.
Thank you again for calling in today's conference. And let me now turn it back over to Leo, for Q&A.
Operator
[Operator Instructions] We'll take our first question from Manav Patnaik of Barclays.
Manav Patnaik - Barclays Capital, Research Division
The first question, Todd, you mentioned, obviously, that the fourth quarter is not a good run rate for '14. But how should we think about the typical seasonal shift, from fourth quarter to 1Q?
Usually, there's a step down. So will that be less of a step down?
Todd J. Mullenger
You're probably -- you may be referring to employment taxes. So normally going from fourth quarter to first quarter, we see a significant increase in employment taxes, and we will see that again in Q1.
Last year, that number was a $5 million increase in unemployment taxes from Q4 to Q1. You've also got 2 fewer days going from Q4 to Q1.
That impacts earnings as well.
Manav Patnaik - Barclays Capital, Research Division
Okay. So that sort of step down we usually see from 4Q to 1Q, we'll still see some of that even from your current range?
Todd J. Mullenger
Yes.
Manav Patnaik - Barclays Capital, Research Division
Okay. Then on Cal City, you talked about $0.02 to $0.03 impact because I guess you're moving all the fed populations going elsewhere.
Maybe from a sort of facility EBITDA perspective or however you choose, how should we think of the annualized impact of that? I mean, is it just times 4 to think about how we should adjust '14 numbers?
Todd J. Mullenger
Yes, maybe the best way to look at that, 2012, which is the last kind of full normalized year of operations we had at the facility with ICE and Marshals, we generated about $10 million of EBITDA. Obviously, made some noise in 2013.
So maybe that's helpful in helping you understand what the step up will be as we enter the lease structure with the $28.5 million grant. And the another thing we've provided some guidance on the past.
So property taxes, we're responsible for property taxes, repairs, maintenance, property insurance. What we said in the past is -- and that's including other fixed costs.
So utilities, property taxes, repairs and maintenance and insurance is about 10% of operating cost. On an owned facility, the average is about $46 of operating cost.
Everything's more expensive in California. So hopefully that gives you an idea of what our operating expenses will be for property taxes, insurance and repairs and maintenance.
Manav Patnaik - Barclays Capital, Research Division
Okay. And just on -- I think in the past, and you guys might have referred to it today, just around some of the unsolicited opportunities in terms of states you don't do businesses with, but have these -- you referred to that in the past.
Like what's the update there? Like, do you have a sense of -- can those come to fruition sooner than later?
Or is it still one of those things that we will still hear about will be a while before we actually see it?
Damon T. Hininger
So Manav, this is Damon. To answer that question, still looking at about half a dozen states that we see as prospects for our #1 goal, which is utilize the existing capacity in the CCA portfolio.
And we have not talked about those publicly until something happens until we're -- it does become public. And like for the most recent one is West Virginia.
So we actually have been working on West Virginia for about 2 years. It's been part of that group of 6 that we've been targeting.
And you heard the numbers I mentioned earlier, where they're dealing with significant overcrowding today, but looking to grow by about another, I think, 1,700 over the next few years. So that's an example of one of those states.
And like experienced in the past, it won't all happen at one time. But as we get closer in either the budget environment or maybe the other dynamics happening within -- with respect to, say, like a West Virginia, they'll feel like they've got the ability then to go ahead and go out to the private sector and secure some beds.
Operator
[Operator Instructions] We'll move next to Kevin McVeigh of the Macquarie Group.
Kevin D. McVeigh - Macquarie Research
Damon or Todd, I wonder if you could you give us a sense of fundamentals beyond California? So are you seeing the typical pickup in terms of inmate population growth within kind of your core set of states?
Obviously beyond that, the opportunity in California.
Damon T. Hininger
Yes, this is Damon, Kevin. So yes, we're seeing a little bit of growth in, what I'd say, kind of the existing state portfolio.
For Arizona, we already have a contract but they've shown some growth here in the last year and have projected some growth over the next couple of years. Tennessee is an example.
We haven't talked about them publicly, but with our announcement on Trousdale putting a light on them relative to their growth here recently and projected growth. We're talked about West Virginia.
Oklahoma's been a state where they've grown, I think, by 1,000 on last year. And we have been virtually responsible for all that growth and providing capacity in our existing facilities.
So we are seeing around the state portfolio, outside of California, some growth. And we're well positioned to accommodate those state partners with our capacity to deal with that growth.
Kevin D. McVeigh - Macquarie Research
Got it. And then, just with the decision to activate Diamondback.
Was that done based on kind of the success you had with Cal City? Or ultimately, what drove you -- because, obviously, you incurred some cost in front of what's likely some success with the state.
But what kind of gave you the level of confidence to step up that investment?
Damon T. Hininger
I'd say a couple of things that were notable. One of which was that the 3-year extension in July.
That was a positive element for the out-of-state program. The second is, the governor and the legislature moving forward on adding money back into this year's fiscal year budget.
The funding of out-of-state program, we saw that as a positive development. To your point, we absolutely thought it was positive that the state is moving forward on executing contracts in-state for capacity.
And we know we benefited with our Cal City, but also GEO and some of their facilities. And then also the state's action here recently with the U.S.
Supreme Court on trying to get the moratorium lifted on the out-of-state program and allowing the states to do more contracts. So I'd say, kind of collectively, those 4 items led us to take the steps to activate our Diamondback facility.
Kevin D. McVeigh - Macquarie Research
Got it. And then, Todd, real quick, relative to progression of FFO, it's kind of $0.71 to $0.63 and obviously, $0.53 in Q4.
If we think about the more normalized -- and I noticed this one with California in it, are you thinking it more kind of the 70s, $0.71 to $0.63 steady state as opposed to the investments you've made in Q4? I know there's some kind of oddities in there.
But how should we think about the progression into '14? And obviously, I know that wouldn't include any potential benefit from California.
Todd J. Mullenger
We're really not in a position to provide any guidance on '14 yet, either on EPS or FFO. I think we've tried to provide you enough information on some of the temporary impacts to help you get an idea of what it could be, but not in a position to provide guidance on '14 yet.
Operator
We'll take our next question from Kevin Campbell of Avondale Partners.
Clara Houin - Avondale Partners, LLC, Research Division
This is Clara Houin on for Kevin. So managed-only margins were very strong in the quarter.
So other than the exiting of the contracts in Texas and Mississippi, is there anything else that explains the increase? And how should we think about that going forward?
Todd J. Mullenger
Yes, most of that increase was primarily the elimination of some of the lower margin manage-only contracts. Texas and Mississippi, there were probably some other onetime favorable impacts from an expense nature in the managed-only versus the owned and managed.
But I think the biggest contributor was probably the elimination of those lower margin contracts we exited.
Clara Houin - Avondale Partners, LLC, Research Division
Okay. And so how should we think about those margins going forward?
Todd J. Mullenger
Yes, I'd say you're kind of still in that kind of 10% to 14% range going forward. Unfortunately for us, the managed-only business is such a small piece of our book of business, it's not significant one way or the other.
Clara Houin - Avondale Partners, LLC, Research Division
Okay, great. And then on Trousdale, so of the $140 million in CapEx required for that project.
Could you give some -- maybe a commentary on how much they've spent already and when do they expect that spending really to ramp up?
Todd J. Mullenger
Yes, we've got about -- a little bit under $30 million invested today from the previous acquisition and site preparation. And then we'll probably start to incur meaningful amounts of CapEx in the first quarter of '14.
Clara Houin - Avondale Partners, LLC, Research Division
Okay, great. That's helpful.
And then just one last quick question, could you give us some comments on your view currently of immigration reform?
Damon T. Hininger
Say it again, I'm sorry.
Clara Houin - Avondale Partners, LLC, Research Division
So on immigration reform, could you maybe give a little commentary on what your latest view of that situation is and how it will impact you?
Damon T. Hininger
Well, I've been watching the press and kind of media reports, like you and others have, and really we don't see any really discussion on it right now. You saw a fair amount of discussion and deliberation within Congress, I guess it was in the spring.
But I think with just everything kind of generally going on with the budget environment and the debt ceiling and the recent government shutdown and sequestration, we haven't seen or heard any real activity or discussion on anything really taking place with immigration reform. So that's kind of our best assessment right now.
Operator
[Operator Instructions] We'll move next to Tobey Sommer of SunTrust.
Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division
Curious, how does your existing capacity overlay with the 6 states that you're targeting that may have some inmate population growth in their forecasts?
Damon T. Hininger
This is Damon. Pretty good.
So we've got capacity really eastern and western part of the U.S. So again, West Virginia -- have not disclosed the others, but West Virginia's the one we've been targeting.
And we've got capacity in Kentucky and even a little further west. So yes, our capacity overlays pretty well with what we see as potential opportunities there.
Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division
Given the lack of investments in recent years by the customers in new capacity, do you have higher expectations for more states sending inmates out of state over the next few years than has historically been the case?
Damon T. Hininger
I don't know if I would say higher expectations, but it definitely is a different dynamic. So if you go back a decade ago when I was talking about occupancy percentage within our system and utilization rates.
Coming out of the '90s, there was still a fair amount of new builds being done by state governments. Whereas as we've talked about the last couple of years, there's not much.
So that is -- it's a very different dynamic. But also I think to your point about or question about out of state, with California, Hawaii, Vermont, other states over the years like Washington, who have been comfortable, Arizona going comfortable going out of state, I think having those states take that action, and those being good solutions, provided good quality and good value, I think as states think about kind of short-term, long-term needs like at West Virginia, they see that as a very viable option, say, compared to a decade ago.
Having the largest state agency in the country with California using a lot of beds out of state, I think that gives the ability for states like West Virginia to look at that track record, look at performance and say okay, that's a viable solution and an opportunity for significant value.
Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division
That's helpful. If California moves forward and sends a sizable amount of inmates out of state and really absorbs a lot of the vacant and idle capacity available in the market.
How do you think that impacts pricing in the industry?
Damon T. Hininger
Well, it's hard to say definitively what would happen, but I think if you look from a historical perspective, that if there's meaningful utilization of capacity within the private sector then that should have a potential positive impact on pricing.
Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division
And within state customers, are you seeing any restoration of services or other signs that their level of service is increasing and therefore, would perhaps facilitate or be indicative of better pricing from those customers for you and the other private providers?
Damon T. Hininger
Yes, we've seen modest improvement here in the last 24 months. So if I look at our pricing escalators that we've negotiated this year, our performance this year was better than last year.
And I'd say, last year was better than 2 years ago. So we are seeing modest improvement and link that directly to states feeling that their revenues are coming in a little bit stronger, and they truly have reached the bottom in declining revenues they had to deal with 3 or 4 years ago.
So yes, we're seeing modest improvement. And with that, a few states that we negotiated service reductions over the last few years, we are seeing some restoration there.
Again, with states feeling good about their revenues and feeling that they can -- they're on stable footing now and go ahead and restore some of these cuts that they've done in the past.
Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division
California, there's some flux there still, of course. But given the actions they've already taken and announced.
How many potential beds or inmates are we talking about in terms of incremental opportunity to perhaps send out of state to yourselves and others?
Damon T. Hininger
That's a hard answer to give, Tobey. If you look at just purely the pop report, if you look at their systemwide capacity versus their actual population, I think they're still about 8,000 to 9,000 short of the cap.
We know that they're looking at, obviously, out of state capacity, which we've provided a lot of options to them on what we can do. But we do also know that they're looking at some things they can maybe still do in-state, which is limited, but I think they still think they've got some options there.
So I think the round number is kind of 8,000 to 9,000. How much of that's in-state or out-of-state, it's hard to tell.
Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division
Okay. And we've had some transition and reshuffling within facilities that are, obviously, kind of impacting the fourth quarter and the first.
Is -- are the options that you've laid out to California, could that trigger more reshuffling? or potentially you are moving inmates from an existing facility that is occupied?
Damon T. Hininger
I would say not likely. We've got the, what I'd say, kind of 3 base facilities in California, which is Tallahatchie, La Palma and North Fork in Oklahoma.
So those facilities have been stable here in the near term, and so we don't see any real changes there. We've talked about Diamondback, which is just west of Oklahoma City, and we've got pockets of beds in other facilities.
But Diamondback is, we think, a good choice for California. If they needed more beds, obviously, we've got more capacity.
But right now, the only step we've taken is with our Diamondback facility. Tobey are you still there?
Operator
Mr. Sommer has left.
And it does appear that we have no further questions. I'd like to turn the program back over to our host for any concluding remarks.
Damon T. Hininger
All right, Leo, thank you very much. Well, thank you again for your time and your participation today.
More importantly, to investors, thank you very much for your confidence in us and your investment in CCA. Your management team is focused on executing another good year for 2013 as it comes to a close.
And we look forward to reporting our progress during 2014. Thank you again for participating today.
Operator
Thank you. This does conclude our conference call for today.
You may now disconnect your lines, and everyone have a great day.