Parks! America, Inc. (PRKA) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to Parks! America's Fiscal Year-end 2024 Earnings Call. My name is Ralph Molina, and I will be your operator for today's call. Today's call is being webcast and recorded. Before we begin, I'd like to remind everyone that our comments today will contain forward-looking statements within the meaning of the federal securities laws. These statements may involve risks and uncertainties that could cause actual results to differ from those forward-looking statements. For a more detailed discussion of those risks, you may refer to the company's filings with the SEC. In addition, we may reference non-GAAP financial measures and other financial metrics on the call. More information regarding our forward-looking statements and reconciliations of non-GAAP measures to the most comparable GAAP measure is included in our Form 10-K. Last Friday, we filed our quarterly earnings release and 10-K with the SEC. In our quarterly earnings release, you will find summary information related to fiscal year 2024 segment financial results. We encourage all of our shareholders to read our complete 10-K. In a few moments, I will turn the call over to our President, Geoff Gannon, to answer any questions. All participants on today's call are invited to ask a question. [Operator Instructions] For those dialed into the teleconference line, you can e-mail your questions to [email protected]. For today's call, we will dedicate the first 15 minutes for live questions from individuals using the Zoom platform. After that, we will respond to questions submitted via e-mail. We will take as many questions as possible within a 30-minute window. That concludes my instructions. I will now turn the call over to Geoff Gannon for opening remarks.

Okay. So I just want to give updates on anything that I mentioned in the previous earnings call. I mentioned that I was acting as the GM of Aggieland, which doesn't have a permanent GM there. That continues to be the case. I think on January 1, we will have sort of a relaunch of some of the ticket levels, pricing things, a lot of the marketing stuff will have already been changed over there and then that would be a time where I hope to look for someone more to do operations in those things. So a lot of that work has been done there, but still no permanent GM there that isn't me acting there. Ad agency, we hired a new ad agency. However, I still think that you'll see the pattern of lower advertising than is normal through at least probably till or beyond February of next year because we're a seasonal business, and you won't really see a pickup until around spring break or something March. So February might be the first month that looks like it's a normal sort of level. So I think you saw at the end of this year covered in the 10-K, advertising was less than normal. It continues to be less than normal. This is because of a transition and it doesn't indicate that that's what we intend to have advertising be in the future. Then just a technical point. There's 2 subsequent events: one was a pretty major one that's covered in the 10-K, and that is the refinancing of a loan. Just for that technical point, make sure that you know that some parts of the 10-K, like the debt maturity schedule are reflecting things after the date shown on the balance sheet. That's how it's done with the SEC. So just be aware of that like if we need to get any technicalities of that, that event happened right after the end of the quarter. And so it's going to have some slight differences in notes that we have for that versus what you see in the balance sheet, and that could be confusing. It's the only thing I think is not intuitive about the 10-K. And then the last one is just I want to make sure that everyone after the earnings call feels free to e-mail Ralph and give suggestions about how to do this in the future. We did this where we put out the 10-K on a Friday after the close, and then we had the earnings call on a Monday after the close. We felt it was too hard for people all around the country to do an early morning one before they open, and we thought giving you a few days to have to look over the 10-K was a good idea. But if you have different opinions on that, a great thing to do would be to e-mail Ralph and give suggestions about how better we could do these earnings releases. And that's it from my opening remarks.

Thanks, Geoff. [Operator Instructions] Okay, Geoff, at this time, there are no live questions. We have a few written questions that we will proceed to address and respond to. [Operator Instructions] First question. Parks! America recently refinanced Aggieland's debt. As you talk about Aggieland being in review, can you tell us what the appraised value of Aggieland was for the purpose of obtaining the new loan?

Okay. I want to give some context on this, though, just so people know what an appraisal is and what that would look like. So yes, obviously, we've got a new loan on it. You would expect that there'd be an appraisal that we pay for, but that goes to the bank. That's normal in these sorts of things. I mean, any refinancing is going to have that, any loan is going to have that. The context I want to give is that an appraisal of a property like this is done for the real property, which is going to be the land, and it's going to be the improvements on that land. What it's not going to cover is one, mineral rights. We have some oil at Aggieland, tiny bit of natural gas too, but overwhelmingly oil and that they're not going to look at that. And then the other thing is we have animals and they're not going to look at that, right? On the flip side of that, on the downside to what the appraisal will look like versus what the market value might be, I also want you to keep in mind that improvements may not necessarily be worth their cost to reproduce, right? So the appraisal is going to be a very accurate number sort of in terms of -- if you think about it most in terms of what's the reproduction cost of this property. But you have to think with Aggieland, while it's not making its cost of capital. It's not getting good returns. So why would someone reproduce it. In that case, maybe the highest and best use of the land is for something that isn't -- that doesn't have all these improvements on it, okay? So Aggieland appraised for $9.2 million, of which $6.3 million was the land. And the $6.3 million for the land, that is the part that I would feel is the harder more firm value that you can kind of think about to the company and everything. The improvements -- some of the improvements are things that would have value to people using it as a ranch, as a breeding facility whatever but some of them are absolutely not. They are things that are just for something that is serving guests, and we haven't been successful in ever earning an adequate return serving the public that way. So that may not be what any buyer would want to use it for. So I would be skeptical of the value of the improvements. Like I said, that doesn't include the value of the mineral rights. You can see what they're carried on our books at. I don't have an updated number for you. We haven't like had that appraised separately. But it would be -- it's not millions of dollars certainly. It's not $8 million. It's well below that. And then animals, we're talking hundreds of thousands of dollars or something. So both of those items, I would say, together are small compared to, say, the value of the land or something. So the total appraisal was $9.2 million, of which $6.3 million was land. Remember, that's 450 acres of Aggieland, although we don't utilize all of it for the actual operations.

All right. Next question, what is the likelihood that the Texas Park is listed for sale or sold in 2025?

I think this decision will happen in about 9 months or so. Like we said before, fiscal year-end for us is in September in 2025. I think that's when we'll be looking at it. I think you have to keep in mind that a property like this would take a while to sell, and there will be a winddown of the operations and stuff probably before there would be any sale of that. So a long time in terms of from when you've decided to do something like that. And I think, like I said, there hasn't been a big change yet in terms of the actual prices, marketing, operations, all the things facing the guest at Aggieland yet, and that's likely to happen like January 1. So a lot of the things that you see right now of Aggieland are very similar to what they were before in terms of operations. I think the patterns are a lot the same before and after the change in management earlier this year. And then I think also the ad agency has just come on and hasn't started doing paid advertising for Aggieland or anything. So I think the results of Aggieland will start to show for better or worse, what changes have been made starting around the beginning of January, but that's such a slow season for us in Aggieland as it is at the other parks that really is not like until April in that period, really March and spring break for Aggieland. But it's not going to be until that period through September that you would see materially, whether there's a big difference in like sales and profitability and stuff. So I just think that you're not going to see possibly different results and be able to judge much on it until kind of the 6 months leading up to September. But it is something that we look at and obviously done an appraisal on, and we do plenty of analysis of it. But I just think that there's not going to be much different evidence to work from about whether there are changes that could be made to turn it around or not in the winter. It's just really hard to get to a -- to make a judgment based on that.

Yes, we have a question about Missouri. Missouri Park results for this fiscal year seem promising. What are your hopes of lifting segment margin of Missouri next fiscal year somewhere closer to the 38% margin that Georgia generates?

Next fiscal year, my hopes for that are not high. Missouri is a much smaller part, and there's a lot of economies of scale in the operations of those businesses. So you're talking about like sales levels and things that Georgia that have often been 3x or something Missouri. And -- but like longer term, is that possible? It's -- I mean it's not impossible, but it might also require then like investment in it and things like that. You have to keep that in mind. So the item that you're talking about there is like an EBITDA number. And so yes, is EBITDA possible? Yes. Getting a higher EBITDA margin over time is certainly possible. And it drops to the bottom line quite well as you increase sales at some place like Missouri because it just looks that way because it was close to breakeven on an EBITDA basis. And once it passes that each dollar seems to drop at a very, very high rate in terms of what the margin looks like. But yes, a successful park that's a few times bigger than Missouri has big EBITDA margins. But it would be hard without considerably higher sales. I don't think that you can reduce expenses or investment in Missouri beyond where they are now. So it has to come from higher sales.

Next question, how close are we to doing a reverse stock split, the massive number of tiny holders?

So reverse stock split is something that's been discussed at the Board level. It's something that's -- Ralph has an analysis on that I've analyzed for a while and all of that. I guess we could start by talking about the dates and everything just so people know why we can't have a final -- or I should say, I don't think we can really finalize information for you on that, unless it's things that are going out with notice to shareholders and all of that. There's a whole formal process for this. But I think Ralph -- so an actual annual meeting could be as late as the beginning of March and the first time that people could see information about this in terms of notice will be sometime in January. Is that right? Or is there a different dates for that?

Yes, that's correct.

Okay. So that's what I would say that an actual annual meeting could be as late as early March and that the first time that you would have formal notice of this could be as early as the month of January. I want to be careful on that because anything that we decide will be what is formally in those things that you are sent. And so up to that moment, we could change what we want to do in terms of the numbers of what's done in proposing a reverse split and all of that. The other thing that I want to remind everyone is that it has to be 50% of shares outstanding voting for it and not just a lot of just -- and not just many more yes votes than no votes on the proposal. So that would be an issue of just turn out, too, right, because we have around 3,000 or so shareholders of record who are quite small, and then we have a couple of hundred shareholders that are meaningful. And it would have to be -- it's only those people turning out basically in enough number to pass anything even if most of the shareholders aren't favor of something. So working on it for this annual meeting, but then it's a question of how much would it cost, obviously. So if you have fractional shares in reverse split, you're going to buy out those people effectively because you'll get cash in lieu of your shares. Were that to happen, that's a use of cash by the company. And so you have to have a calculation of how much use of cash would you have? When would you be having it seasonally for us, that's very important. And to make sure that you have plenty of cash on hand and stuff. I would say it is a very, very high priority, the reverse split and all that, but it is a second priority to having an appropriate liquidity level. So #1 priority is always appropriate levels of liquidity and only #2 would be things like a reverse split and buybacks. So it is contingent on having adequate cash at the time. So we feel very comfortable in doing it. And we would not do it if we felt that it put us in an uncomfortable cash position. But yes, we -- it's very, very popular, like with shareholders, right? This has obviously been historically the idea of some reverse split, some sort of buying back a fractional shares effectively. It's something that all very small shareholders up to somewhat large shareholders all talk to about all the time. And so that is something that we talked about in the proxy campaign, something that we'd like to deliver and everything, but it cannot be done before the times that we just said. So annual meeting times, we would always want to have it attached to an annual meeting not be a special meeting for cost reasons. And then it's also a question of making sure that you're super comfortable with your cash levels. And you can't predict exactly ahead of time how many shareholders you'll have of exactly what numbers because some people could anticipate a reverse split or something you could be listening to this call and be like, oh, I'll buy x number of shares at different levels, trying to get an amount that they could arbitrage or something. So it can change before you're ready for it. And so you can't predict it with perfect certainty. Well, basically, the answer is we're not closer than an annual meeting, but it is something that we think about when we think about when our annual meeting will be, and we'll be taking up anything like that. The biggest topic of conversation would be a reverse split. That's the most time the Board has spent on talking about things about the annual meeting is talking about reverse split.

Geoff, we have a related question, how close are we to a meaningful full stock buyback?

So that one, I would say, not close except for what we just talked about with reverse split. So the thing with the reverse split that's complicated, and this is why I don't want to get into like getting pinned down anyway about dates or details of it beyond what we kind of know is you want to do it in a way that makes the most sense overall, and that can be doing just a reverse split. It could be doing a reverse combined with the forward split. It can be done in such a way that effectively if you're buying out small shareholders and fractional shareholders through the reverse split, it functions somewhat in helping us with providing liquidity to very, very small shareholders reducing cost for transfer agent things and it makes it more likely one day that if say we wanted to go on to OTCQX or something that we could do that because it also would probably bring your stock price into being a normal stock price instead of a penny stock price. So I think the most likely -- the thing that we're close to in terms of any possible buyback would be something that is effectively a buyback through the reverse split process of the buying out fractional shares rather than going out and having a tender generally to people or obviously, with the way that our stock trades and everything, I know people own some big companies, and there's these just buyback programs in the market, that would not be what would happen with us for a buyback. So what we'd be closest to in terms of any sort of buyback would be that a reverse stock split functions as a buyback through buying out of your fractional shares, right? So if it's whatever number it might be, if you do a 1 for 100, you get 1 share for the 100 you currently have, then whatever shares you have that are 99 or less would be something that could be bought back, right, through that same process. And not just that for shareholders who are below that number in total, but also if you have fractional shares because you're between 100 and 200 or something, right? And so you can imagine that for different stock levels, okay, that can function as a buyback to some extent. I'd say we're closer to that as reverse split having buyback like function to it than we are to a more traditional buyback.

Yes, shifting gears to park level trends. Can you please explain the drivers behind the significant pro forma decline in the Georgia Park revenue? There is limited or no detail in the press release or 10-K.

Yes. A few things. One is how pro forma is calculated in the first place. We continue to do that because that was what was done with previous management, and it was in the filings, and we'll continue to have that for purposes of comparison. We don't want to have year-over-year things that don't compare the pro forma, but I wasn't involved in calculating what the pro forma would be initially. And so I think that honestly, to me, part of that captures to a significant extent the effects of COVID. I think that our parks, especially Georgia overwhelmingly, Georgia, the supplies to, had much higher attendance levels during the years 2020, our fiscal years in 2020, 2021, 2022, that would be normal. And so if you're calculating pro forma things based off of those past years, then I think that you would underestimate how -- I mean, I'm sorry, you would overestimate what level the revision needs to be. I think it would have dropped anyway regardless of if there was a tornado or not. And then I would say other factors involved are competition, to some extent, with Georgia, right? So we've had close to half a dozen competitors, maybe a little less than that in the last since COVID and then a couple of years earlier than that. One of the biggest ones is a couple of years earlier than that. They're large in number, but they haven't been very successful, and they don't necessarily take up a huge amount of attendance away from us probably because on a total basis, when you open these parks, it's not like they steal zero sum, you end up with the same number of people going to animal safaris, but now it's split among 5 or 6 different competitors, you end up with a lot more people going to animal safaris. But yes, there's a huge increase in total number of sites competing with us in Georgia and more significantly, I think, Alabama. And I think that's had a factor. And then I think advertising has been not good. And so you've seen -- I think in this fiscal year, advertising has declined 19%. We don't break out the advertising by park to show you that number versus the sales and everything, but you can kind of look at overall advertising and overall sales and see that that has been a factor that when advertising has been cut, it's probably been cut in a way that sales would drop, but they wouldn't necessarily drop by much more than the cut in advertising, right? So that's not very good advertising is if you cut $100,000 of advertising and your sales drop by $110,000 or something, you know what I mean? So I think that very poor advertising. The marginal advertising that was done, it looks to be very, very poor. And that's a particular issue in Georgia probably, in that the advertising used to be more effective and that the advertising that was added was less effective. The advertising effectiveness in Aggieland is also extraordinarily poor, but it has always been extraordinarily poor and it's kind of been similar advertising levels, whereas Georgia increased advertising by a lot. And it was that added advertising and changes in advertising in the last 1.5 years or whatever has been quite bad compared to probably what it was before and hopefully, what it will be in the future. So I do think advertising effectiveness and increased number of competing locations are some of the biggest issues. And then the other issue to some extent is pulling forward demand during COVID because our attendance was probably at times 30% higher than it would be normal or should have been. And so these are low frequency visit places. So there was some initial impact of that, too. So come down from COVID, increased competition and poor advertising effectiveness, I think, are the major factors. I should say, on the competition, although the number of competition competing locations is large, it's not like any of them perform nearly as well as we do even on a combined basis of all them taken together, they cost way, way more to invest and to capitalize on everything and their returns are not good. But I don't know that, that means they'll ever leave, but it's not like anyone's duplicated our success or anything, but there is competition.

Another related question. Should we use the past financial year as a reasonable run rate for normalized revenue for the 3 parks? If not, please highlight the bridge to a normalized level, for example, higher tenants and higher revenue per visitor for some or all of the parks?

Do we use the past fiscal year for run rate for -- I think on a aggregated basis, that might not be that far off. The issues with doing that are the trends are most dramatic at Missouri. Though Missouri is not that big. And then Georgia is going to just when blended into that have the biggest effect. And so I think that the actual results that you're going to get in terms of revenue and stuff is going to be heavily weighted to how Georgia does. And that's depending on a few things, but mainly, it's dependent on advertising effectiveness and also just improvements in possible like park's value proposition, let's say. Is it getting better over time than it was during the tornado and COVID years? Are we offering a better product that way? The thing that has deteriorated the most in terms of what we offer versus our price and everything is Georgia. And then it wasn't helped on top of that, but like the advertising not being great. But advertising alone isn't going to fix a problem if you've had kind of a deterioration in what you're offering the public there. And I think it will get better, that we'll do better on that. But that's the one that is just one blended and is such a big part of the overall revenue run rate. Trends are good in Missouri right now. So I just don't want to oversell that because Missouri is a much, much smaller relative size to Georgia. So it is less important in that way. But if you're saying could revenue be higher over time in Missouri, then what the run rate that you're looking at, it is possible. That's possible. But it just matters so much less than Georgia. I mean I can say right now -- yes, I was just going to say just -- same thing I brought up before. There's a reason I brought it up. Advertising and sales are both down. They've been down recently. They're kind of down now, and I would expect them to continue to be down. So I would expect that. So when you're looking at the revenue run rate, I do think that that is something to keep in mind what I said no matter what, even if advertising isn't very good, it does get you some sales. And so I would caution that, yes, you should not expect a big pickup in like sales if you don't have a pickup in advertising. Like I said, I don't think until we get out of the winter that we intend to push advertising back to levels that it was at in the recent past.

Great. Geoff we have 3 more questions if we can just finish those off.

Okay. Sure.

We have one question that says, please recap your current strategy for the business and what has changed since your original plan highlighted during the proxy slide. It feels like most points have changed or dropped off completely.

The plan is to work on, like we said, a reverse split, which I think is mentioned in the earnings call today and in the proxy to work on the debt situation, in terms of extending it out, getting better liquidity and slowing down the pace of the debt repayments, which we did do that. But again, that was after the 10-K that closed one day after, but you can see that in there. And then to look at the capital allocation of places where capital may be misallocated and to look at selling those things, returning capital, et cetera. And I think we've talked a bunch about that on the earnings call. I mean I think the first couple of questions are basically about that. So I would say it's true that the pace may be a lot different than you'd expected. I can understand that definitely. When I'm talking about making decisions about things months away from now. And of course, the proxy by itself was like 6 months or something. So the pace may be very different. But I don't think that the things that we talked about are different. If you take it through where we've said we like to review things and stuff for the entire next fiscal year and then I think that the strategy and everything is similar to what we discussed. But the pace may be slower, sure. I'm sorry, did I forget part of that question, Ralph?

No. You addressed it. Last few questions, any update on the prospect of Texas and/or Missouri's parks earnings adequate return on the capital just to justify keeping them rather than selling the park?

I mean -- okay. So we talked about run rates and stuff. Look, if you look at Missouri in terms of EBITDA, which we disclosed things about adjusted EBITDA segment income, things like that, I mean we don't give you all the details for how to calculate things further down the income statement. I mean, we give you some, but you might not be able to perfectly do the calculation yourself of what it looks like as a stand-alone business. But we're at kind of the level of where -- I mean to be blunt about it, Missouri has pretty much never earned its cost of capital until last year in which you could argue that maybe it earned its cost of capital. And then the question is what are the trends in the future and whether you should hold on to it and you think that the future will be different from the past. Based on the long-term past, Missouri has not earned its cost of capital, and it wouldn't make sense to keep it. Based on present day and present trends as we see them now, it wouldn't make sense to sell it. So that's your question. Do you trust more what the present is and what the short-term future looks like? Or do you trust the long-term past? There are factors involved that we're hopeful, but that's not always a good thing to go on what you're hoping instead of what you analyze that otherwise, that it makes more sense to use the results that we're seeing right now. I do think there's more potential in Missouri, given the market and everything and always has been than there is in Texas, right? So Texas, I think that the market has always been less feasible in terms of its location property than in Missouri. And Missouri, I think, has performed much worse than something in that location should perform for much of its history, right? So that's also another factor is that, look, if you have a really strongly performing park in that Missouri location, you have the right GM there. They're doing the right things. You got the right ad agency behind them, whatever. Does that look good? Is the ceiling higher there than it would be in Texas with, I think, more of an issue of what we've discussed with the appraisal and with location, all that is like does that investment make sense? Did it ever make sense to develop a property there? It's much easier to argue that it's always made sense for a property to be where it is in Missouri. It's just that it hasn't been executed very well than it is to make that argument for Texas. But that doesn't mean that it's impossible or something, but I just think the -- it is more feasible if you have a really good operator, and you do everything right. You control your own destiny more with Missouri. The one thing you can't do with any of these parks no matter what is we can't change the locations, and we can't change the cost of how much capital had to be put into them and has to be maintained in them. So what issues Missouri has had seems to me more fixable. And I think they've kind of been fixed. And so the potential exists more for consistent performance in the future that looks more like the recent past there. Texas, I mean, let's just put this, like there's a lot more capital -- we disclosed this. There's a lot more capital invested in Texas earning much more returns than there is in Georgia or in Missouri. I mean -- so even if Aggieland and Missouri were comparable parks, the amount of capital invested and likely to have to invest in the future in Texas is kind of high versus Missouri. And the big thing with that is obviously tourist flows and things like that. There's nothing in Bryan-College Station for the most part, other than A&M, and there is one seasonal traction that's really big, Santa's Wonderland. Those are the 2 big draws in the area. Missouri is close to Branson, right? Our Missouri Park isn't far from Branson. So totally different tourist flow situation there, too. So yes, I think that -- it's just, like I said, a question of do you take the long-term past record or you take the present and your hopeful projections of the future or something. And the past record for both is insufficient, but the present record and maybe hopeful future from Missouri looks okay.

All right. Last question is about Georgia. Will the CapEx at Georgia over the next few years likely match 2024 CapEx and good reinvestment opportunities there?

I'm sorry, can you read the second part? Did you say any good reinvestment opportunities there?

Are you seeing good reinvestment opportunities at Georgia?

Yes. I mean I think that the history of Georgia is that it's been severely starved for capital compared to what would have made sense for it. I mean, basically, the -- we break this down in the 10-K, but the company's history goes back to 2005 effectively with buying that Georgia Park, getting this business that way and then basically taking a lot of the capital from Georgia and putting into buying Missouri and then Missouri didn't perform well for 15 years, buying -- Texas and Texas hasn't performed well for 5 years, and that's probably caused Georgia to have less investment in it in terms of possibly even other things besides just capital. But certainly capital versus what maybe would have made the most sense on an analysis of like the market and what's the optimal level of investment because it's just -- we're a very small company and if we're stretched across several different parks, some of them not doing as well as others, there's just always been an issue that way, and they will continue to be an issue that way unless we slim down and focus on fewer parks or unless our results get better and we just focus on reinvesting that improvement. The question of the first part of it was whether it be the same, the current level that you see versus the future and the CapEx. So what we see in the 10-K there, which is -- and also, I believe our earnings release also has, I think. The answer is no. This upcoming year will be very, very high at Georgia compared to a normal year because of the restaurant project that we mentioned. So the restaurant project is very expensive. And it alone would probably add up to as much or of all the normal projects at Georgia. So it's like you're adding an entire year of normal CapEx would be my guess. That's ballpark, but that's my guess. So I think we'll have like 2 years' worth of capital expenditures in Georgia in a single year because of the restaurant project. The good side of that, though, is that in theory, right, a big bathroom building is it doesn't depreciate very quickly and stuff in terms of real economic use, it should last for a really, really long time. It's not something that you have to do every year. So it should be an outlier that way. But yes, I think that capital spending with Georgia will be huge for the next year. And then after that is when you would say, ask more likely is normal to be lower in future years than it is in 2025, but 2025 will be a high CapEx year for Georgia, because like I said, I wouldn't be surprised if the restaurant project alone is 50% or more of CapEx, we'll see. I mean you could -- I don't want to say that it definitely will be or something, but ballpark, you should think of it almost as a restaurant project is an entire year's worth of CapEx. So it will be a heavy spend year for that one year and then after that is when you would see more of the pattern of normalcy.

All right. That concludes today's call. A transcript of the call will be available on the company's website. If you have any questions related to how the earnings call should be conducted or comments, e-mail me at [email protected]. Thank you for joining us today. You may now disconnect.