Butler National Corporation (BUKS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Today is Monday, July 18, and welcome to the Butler National Corporation Fourth Quarter Fiscal Year-End 2022 Financial Results Conference Call. [Operator Instructions] Your call leaders for today are David Drewitz, Creative Options Communications; Clark Stewart, President and CEO; and Craig Stewart, President of Aerospace. I would like to now turn the call over to Mr. David Drewitz. Mr. Drewitz, you may begin.

Thank you, and good morning to everyone. Before Mr. Stewart begins, I would like to draw your attention to, except for historical information contained herein, the statements in this conference call are forward-looking and made pursuant to the safe harbor provisions as outlined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause Butler National's actual results in future periods to differ materially from forecasted results. Those risks include, among other things, the loss of market share through competition or otherwise; the introduction of competing technologies by other companies; new governmental, safety, health and environmental regulations, which could require Butler to make significant capital expenditures. The forward-looking statements included in this conference call are only made of the date of this call, and Butler National undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include, but are not limited to, factors described under the cation Risk Factors in the company's annual report on Form 10-K filed with the Securities and Exchange Commission. So with that statement completed, I'm going to turn the call over to Mr. Clark Stewart. Mr. Stewart, it's all yours.

Thank you, Mr. Drewitz, and thank you, everyone, for joining us this morning to discuss Butler National's year-end 10-K. We had a great year. As you can tell, we got $0.14 a share earnings compared to $0.02 a share in the previous year. And we're really, really proud of that. I would caution you that you need to read all of those risk factors in there. As we go into the next couple of years here in this economy, we don't know for sure how it's going to all perform. The other thing that we have 2 nonrecurring items in this 10-K that we need to be aware of is, first of all, we recognize the income of the $2 million PPP loan that we got and paid all the employees a couple of years ago. So that is eventually forgiven. And when that happened, we recognize the revenue. The other one is the buyout of our partner, BCS, or BHC development and BHC development, of course, as you know, had 40% of the income from the casino. Those 2 items are now much more favorable to us than we ever imagined. So you can see the income is an important part of what we earned this year. We've done some work looking at prospective purchase companies, and they've ranged from airplane, avionics to repair and refreshment of airplanes to miscellaneous products related to the airplane avionics and some just to the airplane and one charter service company. Revenue is running from basically $5 million to $20 million. We've signed some nondisclosure agreements, and we're looking at some paperwork. We have not committed to do anything. I just wanted to make sure that everyone knew that before we got into the details of the 10-K. So having said that, now we're looking at the operating revenue for the year of about $73.5 million compared to $61.5 million in the previous year and an income of $10.3 million compared to $1.4 million a year ago. Our total assets are right at $100 million. We have $46 million in debt, and our stockholder equity is about $41 million. So that's kind of the summary of that. We've spent about $2.4 million on product development this year and $3.5 million last year. We continue to do that, and that will probably be an ongoing event as long as we're in business because we've got to continue to support the product line and enhance it. That's where the real airplane business comes from. The business segment highlights in the Aerospace business, Craig, do you want to cover some of those, and Aric, you can help it as you need -- as you feel like you need to on that. So Craig, go ahead.

All right. The Aerospace revenue were up 10%. Majority of that increase or we had a $3.1 million increase in our aircraft avionics, which majority of that was out in Tempe, Arizona with the Gun Controls. Our modification business was a little bit down over last year, but that was -- we had a pretty good year at Avcon in the last year. So it was up against a pretty stout year. Everything continues to be moving pretty well. We are running into some supply chain issues out in Arizona. I think we've worked through most of those. And obviously, we're dealing with inflationary situations with costs -- but I think we're -- we've got a pretty good handle on those as well. The backlog is pretty strong, $22 million compared to about $24 million last year. I think that $24 million backlog last year was the biggest we've ever seen. We're at $22 million now, which is a pretty strong backlog. Aric, do you have any additional comments?

No, I think most of our business right now is moving towards fire protection or fire detection on the ground from the air. And Europe is coming around really strong right now with all that's going on over in the Ukraine. So that's kind of what's driving it.

Okay. That backlog is about 230 days of work at Avcon and Tempe and at Butler Avionics here in Olathe. So that's about 2/3 to 3/4 of the year. And Aric, of course, is continuing to add to that as we speak. As far as the backlog at the casino, it's a much shorter time and the engineering services, that's about 4.2 days. So that's not a big business because we're in the retail business of the casino. Professional services did increase 30% and from $30.2 million to $39.1 million. And even if you take out the $2 million for the PPP, where you got to $37 million. So that's really good. The casino is doing a great job out there. We're well accepted. The situation in Western Kansas. As you know, there's new business coming in out there appears to be starting here sometime in the fall into Dodge City. And of course, then there's new business coming in here in Johnson County for the battery plant from Panasonic. So there's a lot of activity in this part of the country, and we intend to participate in that business, and we're really optimistic about our future management and all employees are focused on development of new products and opportunities and increasing revenue and of course, increasing profit. You'll notice that our expenses are down slightly in various places relative to sales because the sales have increased faster than the expense and actually we did reduce some expenses in certain places. Mr. David, I think that wraps up my comments. And if we have questions, it seems like maybe we should take them now.

Excellent. Let's go ahead and open up for all questions.

[Operator Instructions]

No questions?

We do have one. So Mr. Keith Vickers from -- who's a private investor.

A good fiscal year end. One thing that has not been talked about is the impact of the recent legislation in Kansas related to sports gaming. Would you mind commenting on that topic?

Well, I will comment. I can't really tell you what we think the revenue is going to be or anything like that. I can tell you that we have prepared all the documents to help the state come up with a contract for the casinos and that the sports books are supposed to go through the casino operations, which means there are 4 of us in the state. We also have assisted -- Mr. Reed, do you want to describe what you've worked on with the state?

Yes. We're really pleased to be able to assist Kansas with being able to access sports betting. We've partnered now with 3 different entities. We are going to partner online, as you probably knows, in the press releases with DraftKings and Bally's will be soon announcing a third partner. We're excited to operate -- or to offer as a manager in Dodge City retail sports book through DraftKings in Dodge City. It's exciting time. The regulators are working very diligently to provide regulations and all sorts of the background requirements that's necessary to implement sports wagering. As you may recall from our previous publications, in Kansas, the state owns and operates all gaming. The same will be true with sports betting. We will help manage or facilitate that through our vendors.

A follow-up to [ Mike ]...

Okay.

Yes. These relationships that you have now with 2 and soon to be perhaps 3, are those exclusive to your operations? Or do other casinos in Kansas have the same relationships?

No. Those are all 3 going -- the 2 that we've signed and the 1 that's coming up, all 3 are exclusive for us for the state of Kansas. Any further questions?

We have another question from Mr. [ Dan Fed ] with West Capital.

Have you guys considered or you've discussed in the past the reverse stock split and a spin-off of the other division? And are there other options you've thought about, like a Dutch tender offer at a price range of $1 plus to create liquidity and offset the ongoing dilution from share issuances, so nonoperational strategic opportunities besides acquisitions?

Well, we have -- as you know, we've talked about a reverse split for a number of years. And I think my reading of the shareholders is that they just assume not do a reverse split at this point, but that doesn't mean that we -- that might change tomorrow. So I think that we look at those things on a fairly -- at least a quarterly basis, for sure. And so far, we -- just a minute. Okay. So far -- the guard dog gets excited. But anyway, the status is yes, we thought about it. We go -- we have all the documentations to do a reverse split, but it's been put on the shelf for a number of years. And whether we split out the company or the 2 segments or not, I guess I'm thinking that as we go into 2023 and '24, which is supposed to be recession years, I think we'll be real glad that we have the 2 of them together. And at some point in time, I'm sure a split out makes sense, but I'm not sure that we have the right timing at this point. I'd rather go into a strong economy doing that rather than one that appears to be coming up here. So I think that's my answer there. I don't know whether that satisfies the question.

And the third part was a Dutch tender offer. I brought that up before as a potential way to allow legacy shareholders to exit at a reasonable price. And it's a good investment in your own company, I believe. And what you do is create a range of prices where you allow people to sell. And I know you have a buyback in place, but this would be much more decisive and effective at offsetting the dilution. Have you looked into something of that nature?

I did read -- just in the last 3 or 4 days, I read the Bally's -- Bally proposal.

That's right. Bally is doing one.

That's right because I happen to own some Bally stock, and got all the paperwork in the mail. And I thought, well, I better read it. So no, I understand what they're doing. We have not considered doing that yet, but I think that's a very good suggestion, and I think we should look at that. Yes, I agree.

Terrific. It tends to work very well for creating value and allowing liquidity. But besides that, you're going to create a lot of cash this year, probably $10 million to $20 million, it looks like. I could be wrong, but those are -- that's based on your backlog and what you've said and your CapEx expectations going down. Are you going to pay down a bunch of debt besides potential acquisitions? Or what would you use that additional cash flow for?

Yes. We will be paying down the debt. We have a requirement in the gaming side to spend a certain amount of money by the end of 2024, I believe it is, which is about $9 million. And so that has to be capital investment. And then going forward out of that, there's another -- in the next 15-year contract, there's another $1 million-plus per year required. And we're looking at -- we're going to have to do something about housing as far as hotels, stuff like that, in Dodge City, and we're going to have to worry about that. So yes, we have plenty -- we will generate a lot of cash, and we will have places that need to go that increases the revenue, yes. And we have the Bally agreement, and I see what that's doing. I'm not going to sell my shares though.

Okay. I mean that is the idea you -- right, you let people who want out sell their shares and then you own more.

That's right. It's what works. It's a metric, yes. Good thing.

Now was this a high watermark year with the -- there were onetime items and things like that. And I'm speaking organically before you might make an acquisition. Or can this company make more revenues and more net income organically over time based on the new hanger and the new business opportunities in both sides of the businesses?

I think this is -- this was a really good year and probably in our memories, it's probably the best one that any of us have been around for. But I don't think it's as good as it can get. I think there's a lot -- there's more room for growth in both the Arizona business as well as the modification business. And so -- and as well in avionics business. So I think we've got all 3 that have areas that we can expand those businesses, continue to grow them. The casino revenue seems to be continuing on an uptrend. So I think this was a good year. We're hoping that fiscal 2023 as a better year.

So if the economy will stay like it is, we should be continuing to increase the revenue.

Is there M&A opportunities -- are there M&A opportunities on the casino front as well? Or is that an organic deal right now moving forward?

There's a provision, as you know, in the sports book law that we can set up remote marketing locations for sports book, I guess that's the best way to describe it. Like I got a call from the local American Legion, which I happen to be a member, and they wanted to know how soon they could set them up as a sports book marketing location. So I think there's some -- we can do 50 of those, by the way, for each of the 4 casinos. So if that happened, as we think it might, you would see a lot more people involved with the casino operation in the state of Kansas, not only ours but the other 3. And all of a sudden, you're going to have and reach a new market that we probably aren't very strong in today.

Dan, I think -- kind of to answer your question, I think there are opportunities out there, possibly acquiring other casinos. We're not -- I wouldn't say we're in discussions with any of them at this point, but it's something that is on our radar. And as opportunities present themselves, it's definitely something we'd be interested in.

Okay. Great. Well, you guys have done a very nice job, executing the parts of the business you said you would, and that's both operationally and buying out your partners and the building and things like that. But there's still a lot of ill will among the investment community because of the dilution that you create as well. So thinking about how to get the stock above $1, maybe Dutch tender, I'm thinking about how to present it to the market, could create a lot of more value moving forward. And we'd like to participate in that, and we believe in your business abilities. So thank you.

Thank you, Dan.

Thank you, Dan. We appreciate your support, and we're looking forward to doing new and exciting things. Thank you. Any other questions?

There seems to be no further questions.

Very good. Thank you, everyone, for coming out this morning and spending your time with us at Butler National. We appreciate all your support and all of your comments as far as recommendations for us to do and consider and so on. So thank you very much and continue to let us know how you feel. Appreciate all your help. Bye.

Thank you, everyone.

Thank you.

Thank you. This concludes today's Butler National Corporation Conference Call. Thank you, everyone, for attending.