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

Good afternoon, everyone. Welcome to Parks! America's Third Quarter Fiscal Year 2026 Earnings Call. My name is Doug Jaffe, 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 law. 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 Securities and Exchange Commission. 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 on our Form 10-Q. This past Friday, we filed our quarterly earnings release with our 10-Q -- and our 10-Q with the SEC. In our quarterly earnings release, you will find summary information related to our segment financial results. We encourage all of our shareholders to read our complete 10-Q. In a few moments, I will turn the call over to our President, Geoff Gannon, for opening remarks. Then we will respond to questions previously submitted via e-mail, after which we will take any follow-up questions from live participants on today's call. [Operator Instructions] We will take as many questions as possible within a 30-minute window. That concludes my instructions, and I'm now going to turn the call over to Geoff Gannon for opening remarks.

Thank you. I just wanted to go over the things that are that happened in the quarter or are related to things I talked about last quarter to kind of update you on. Number 1 for that is that we refinanced a loan at Aggieland, and that's in an 8-K that was released during the quarter and then also in the 10-Q. So for the details on that, you should go and see the exact numbers there in our disclosures there in the 10-Q and in the 8-K that we had. The main points on that, though, is that it's a 7-year term and a 25-year amortization, meaning it pays down like it's a 25-year loan, but then it's due in full at the end of 7 years. It's fixed as opposed to as floating before. It's fixed at just under 7%. You can see that we entered into an agreement to convert the rate there to a fixed rate, and then you can also see that there's a covenant on that both in terms of debt service for the borrower, which is Aggieland Parks, Inc., that's the Texas subsidiary. And then you can also see that there's also a covenant for the parent company. So if you do the math on that, you can see that with debt services and then you'd multiply that by 1.2, the exact numbers are there in the 10-Q, but basically, it means that the payments will tend to be lower in the future and that will be reflected eventually in the debt. Actually, there is that schedule that you can see already on that to give you some idea. But the loan amount is the same, which I wanted to stress that there was no cash back on that or anything like that. So it's just a refinancing of the tool, a longer-term paying down slower. The other 2 points were, I had mentioned insurance because someone asked about inflation in the last quarter. I had said that if we didn't make changes to the program, it was likely that I thought our insurance costs would rise about 5% for the next fiscal year. Our -- most of our insurance policies were new, effective as of August 1. So it's already happened. It was after the end of the quarter, but it's happened now. And actually, it will be down about 8%. And that's because of changes to the program. Had that not been the case, it probably would have been up about 5% or something. So you should see slightly lower insurance costs in the next fiscal even though I said slightly higher, was more likely. And then the last point is cost of goods sold because there have been questions about inflation in the last quarter. But we're not generally seeing inflation pressures. And I would say that they are lower now than they were in the past, especially in things like increases in earnings -- weekly earnings, so payroll has been declining in line with kind of the overall economy. And so I don't think we'll see as much pressure on that in the next fiscal year as we have this year or in previous years. The 1 thing that we have seen it on, and it's only been since the start of the Iran war is animal feed. And animal feed is a very substantial part of our cost of goods sold, especially at Georgia. So actually, the entire increase that you have on a consolidated basis for that you can see is really all due to increases in it's animal food. So it says animal food, merchandising food, but it's animal food. And those prices are highly commodity-based, but kind of similar to like fertilizer prices and things like that, that you're probably familiar with those things going up just since the war started a few months ago. So it's a very sharp increase in a short period of time. I don't know that, that will be sustained long term, but that's why you see that number going up so much. Hay prices, nothing has happened on them. That's the other kind of feed that we have. So this is the feed by guests in animals and that also we feed animals with not for guests. So these are pillars that you see in the park, and that's a commodity cost increase and that really explains all of the increase that you saw in cost of goods sold for the quarter, which you can see is mainly Georgia. There was a very significant increase. It's like a 40% increase or something that's not due to a higher volume, that's due to just higher prices, but you shouldn't expect that they'll be seeing like 40% year-over-year increases all the time in the future, but right now, commodity prices have jumped by 20%, 40% for some sorts of things like this. And so that kind of explains that. Those are my only 3 for comparisons with things that are questions from last quarter that there have been any developments on. So that's it for me.

Okay. Thank you, Geoff. We actually have a couple of questions here from a shareholder by the name of Rich. The first 1 is dealing with the Texas Park. Can you explain why the Texas Park was closed 2 days a week versus previously being open 7? And is this a permanent change going forward?

Sure. So the Texas Park, when I came in as President of the company, I was briefly the General Manager of Texas as well, while we look for another general manager. And we found another general manager about a year ago, a little bit a year ago at the start of this past quarter that we're reporting, so well over a year now. So what you're seeing is we're now getting to a point where it's been about a year, you won't see comparisons anymore after this quarter for where we were open 7 days a week last year and only 5 this year. That change was made by the new GM coming in. You've seen expenses being cut by this GM. In fact, I think for the quarter, every line that we break out actually was down in Texas in terms of expenses, even though the segment income was down as well, that was entirely due to a decline in revenue, right, that all sorts of expenses have been cut. And part of the reason for doing that or part of the way that was accomplished is by reducing the number of operating days. Some other companies, public companies, so like our most comparable public companies are not in our animal attraction industry so much. There's 1 that kind of is United Parks, CRKS and then other comparables we have are Blake Six Flags and Dave & Buster's to some extent. Those kinds of companies do sometimes break out things about operating days, we don't. Our parks are generally open every day except Thanksgiving and Christmas, but sometimes we have days where we're not open for whatever reason, we don't really update that and tell you that we have fewer or more operating days. We don't adjust things for that. We have no plans to do that. I will tell you that in general, at Aggieland, about 15%, 1-5 percent attendance is on the combined days of Tuesday and Wednesday, which are the days that were closed. And now be true to other parks, too. Their Tuesday, Wednesday attendance combined is 15%. So about 85% of your attendance in the industry is normally on the 5 days that aren't Tuesdays and Wednesdays. The reason why we don't close on Mondays, that's when our holidays are on Mondays, so it complicates the schedule more Tuesdays and Wednesdays or middle of the week and not common for holidays. I don't know if it will be something that some permanently. You've obviously seen that attendance has been down a lot in Texas as compared to the other parks. And even sales -- even revenue was down this quarter, despite the fact there's higher prices. So the complication from not being open on certain days is an issue for marketing and customer acquisition cost, right? Because even though you might only get 15% on those days, there is an advantage feel being able to come at any time. They can just show up and it's never closed. They don't have to worry about that. So there is some complication to doing that. And there's a good reason why many parks in the industry and why we historically have been opened 7 days even though it's generally hard to justify a good economic return on, say, Tuesdays and Wednesdays combined throughout the year. So as an effort to make a lot more profit at Texas without necessarily having to increase attendance, right? And that decision was made mainly because of the condition that Texas was in a few years ago, which you saw, I think last year was the first EBITDA positive year. And then this year was significantly higher EBITDA than last year. So lately, the park has been operating at levels of attendance and sometimes even sales that are in line with not last year, but the levels that they were at 2, 3, 4 years ago on average. So it's returned a lot of ways to what that was. And yet, it is reporting profitability in quarters where it did not historically. So the reason for that is many things, putting payroll, cutting different expenses in the park, increase in prices, but also being not the 2 days being open. So I was trying to get a much lower cost structure, a much lower expense structure. There is also an advantage, and this is why you can get payroll. There's an advantage because if you're open 7 days a week, there's a minimum level of staffing that you have to have, and so there isn't as easy to schedule people to do office work and everything. Managers if they are doing work with guests, let's say, and if they're open 7 days a week, they're more likely to have to do that, right? So the least 50 days allows a lot of things to be done that aren't guest-facing things on the other days, which allows not having to schedule as many hours and things like that. So that's the logic behind it, it makes a lot of sense that way. But I don't know that it offsets the possible marketing problems that it causes via added complexity. In theory for a lot of parks, it would probably be more profitable to operate 5 days a week instead of 7. But in practice, I'm not sure if it's a big difference. But obviously, we would show lower attendance, no doubt about that because all the people who come on Tuesdays and Wednesdays won't definitely shift, some of them won't shift. So it will lower your attendance and your sales to some extent, though I don't know if it really has a huge effect on your profitability. And so I can't tell you if it's a permanent change. I mean we're looking at it and saying, okay, we can see the expense reductions that there were from it. But on the other hand, although we had higher attendance in general, initially, even when we were only doing 5 days instead of 7, we were doing more people on those 5 days. That's not the case now a year later, you can see that. So it may be that it doesn't make sense to do it. And so we'll definitely always be reevaluating that. It's -- whether those are the best days, whether you should do 5 instead of 7 is something that we think about. So I don't know if it's completely permanent, but there are no immediate plans to change it.

Okay. Got it. And I know you just commented a little bit on the EBITDA at the Texas Park. More broadly, can you comment on EBITDA and cash flow margins and whether you're seeing the type of improvement in the measure against what your efforts are planned to improve them further?

Yes. So actually, I would say in terms of margins and looking at the entire year now, margins are not really the problem. I know that our margins are down this year versus last year for the same quarter, and a large part of that is the heavy blending in of the size effect of Georgia, right? So even if Georgia is only down 500 basis points or something, that's super significant because it's a bigger part of the overall mix of all 3 parks, right? But you have margins at Texas, even in a bad quarter for them in terms of biggest attendance declines that they've ever seen really, where they still did 34%, 35% EBITDA margins. So obviously, seasonally it's a good time of the year for them. But even at earlier parts of the year, the margin is fine that way. So I don't know that we would be questioning from much higher margins. What I would say, though, is that our real target is EBITDA divided by the assets invested business really. So the -- basically a measure of return on invested capital on a cash flow basis, and that is an issue at Texas in at the sales level, right, is very low versus the amount of assets that it has. So it's really the sales turnover sales divided by assets, that's a big issue. Certainly, the park could be profitable and successful with these margins if it had higher sales and higher expenses but not higher assets. So it -- it's obvious from the perspective of, say, Texas or something that large increases in sales, even if they also have fairly large increases in expenses. So that dollar for dollar, we are making more dollars, but we weren't necessarily making much higher margins, would be fine. I mean a park that's doing what Texas, for instance, is doing throughout the year, in terms of margins is actually fine for the industry for a well-performing park. What is not fine is the sales level versus the amount of assets, that's really low. And so that is a problem. I think our goals are always on the side of the return on the capital. And so it's both a matter of how much capital is invested in and what the sales level needs to be to justify that and not purely on a margin basis. I know that we break out the margins, talked a lot about the margins, and that's the thing you see fluctuating year-to-year, but these are all now pretty high-margin businesses, at least in their -- at their stronger part of their season. So I don't know that you need to get your margins from, say, 30% to 50% or something. A good quarter for a great park like 2 quarters might be 50% and not so good quarter for a park that isn't doing as well might be 30%. I don't think that's just targeting the margins up that way. I think it is really the level of sales and stuff so you can see, for instance, that Georgia has much higher expenses, but it also has over 3x the sales that Texas had this quarter, right? So it's that kind of thing is needing to get sales up, but not necessarily needing to squeeze margins, any type on that. Having said that, I do think we are getting closer to what we want, where we want to be in terms of operating costs that aren't not cost of goods sold, but the other parts of it. So our corporate costs are getting to where we want them to be. And I think that certain other things that we break out as other segment expenses, things like that at the parks are also good on those things. I talked about insurance, insurance as a percent of revenue should be down. This year, it was down, each of the past 2 years because insurance costs are down a little bit in dollar terms, and then if revenue is a little bit higher, that gets better over time. So I do think that some of those costs are in line with what we need them to be. So I don't have problems on that. The 2 categories which are an issue, our cost of goods sold, which we talked about, and that was a commodity increase this time. And eventually, we may have to have price increases at times on things like animal feed and on tickets even or other things like that, eventually, if you have a lot of pressure on that. But I think that, that is -- it's not necessarily super short term, but it is something that you're adjusting to all the time. If the overall price level will adjust, then we do have to adjust our prices, but that happens throughout the economy, and it's just a lag effect, and I'm not too worried about that. The much bigger 1 is the advertising and marketing, which you saw we did cut during the quarter, but I did not cut it fast enough. We had really bad results, like I said it started from basically March. And so we saw that, and I did not slash those down to dramatically at the beginning of the quarter or something. So only part of that is what you're seeing in the quarter. And that is definitely the area where we have the most problem. So return on ad spend is by far the most important thing for driving the kinds of results that we want. But I can't guarantee that, that would be higher margins as much as it there'll be -- that what we're going for is higher returns on capital.

Okay. And the next question from Rich is, in regards to new business, wanting to know if there are any new business initiatives on the horizon?