Butler National Corporation (OTCQB:BUKS) Q4 2022 Earnings Conference Call July 18, 2022 11:00 AM ET
Company Participants
David Drewitz – Investor Relations, Creative Options Communications
Clark Stewart – President and CEO
Craig Stewart – President, Aerospace Group
Aric Peters – Director, Business Development
Christopher Reedy – Vice President, Secretary
Conference Call Participants
Operator
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. At this time, all participants are in listen-only mode. After the presentation, we will conduct a question-and-answer session. [Operator Instructions]
Your call leaders for today are David Drewitz, Creative Options Communications; Clark Stewart, President and CEO; Craig Stewart, President of Aerospace Group.
I would like to now turn the call over to Mr. David Drewitz. Mr. Drewitz, you may begin.
David Drewitz
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 actual results to future — 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 obligations 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 caption 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 am going to turn the call over to Mr. Clark Stewart. Mr. Stewart, it’s all yours.
Clark Stewart
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’ve got $0.14 a share earnings compared to $0.02 a share in the previous year and we’re 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 two non-reoccurring 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 only employees a couple of years ago. So, that is — was 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 two items are now much more favorable to us than we ever imagined. So you can see the income is 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.
Revenues running from both basically $5 million to $20 million. We’ve signed some non-disclosure 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 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 $40 — $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 sport 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 as you need — as you feel like you need to on that. So, Craig, go ahead.
Craig Stewart
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’d ever seen. We’re at $22 million now, which is a pretty strong backlog. Aric, do you have any additional comments?
Aric Peters
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.
Craig Stewart
Okay.
Clark Stewart
Yes. Thank you. That backlog is about 230 days of work at Avcon and Tempe, and at Butler Avionics here in Olathe. So that’s about two-thirds to three-fourths 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. That’s not a big business because we’re in the retail business at 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 $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, all employees are focused on developing 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 expanse and actually we did reduce some expenses in certain places.
Mr. Drewitz, I think, that wraps up my comments and if we have questions things like maybe we should take them now.
David Drewitz
Excellent. Let’s go ahead and open up to all questions. Operator?
Question-and-Answer Session
Operator
[Operator Instructions]
Clark Stewart
No questions.
Operator
We do have one, sir. Mr. Keith Vickers [ph] from — who’s a Private Investor. Go ahead, sir.
Unidentified Analyst
Good morning.
Clark Stewart
Good morning.
Unidentified Analyst
A good fiscal year and one thing that is not been talked about is the impact of the recent legislation in Kansas related to sports gaming. Would you mind commenting on that topic?
Clark Stewart
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 four of us in the state. We also have assisted. Mr. Reedy [ph], do you want to describe what she have worked on with the state?
Christopher Reedy
Yeah. We’re really pleased to be able to assist Kansas with being able to access sports betting. We’ve partnered now with three different entities. We are going to partner online as you probably noticed in the press releases with Draft Kings 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 Draft Kings and Dodge City. It’s exciting times. 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.
Unidentified Analyst
A follow up…
Clark Stewart
Thanks…
Unidentified Analyst
… from me.
Clark Stewart
Okay. Yes. These relationships that you have now with two and soon to be perhaps three. Are those exclusive to your operations or do other casinos in Kansas have the same relationships?
Clark Stewart
No. Those are all three going. The two that we have signed and the one that’s coming up, all three are exclusive for us for the State of Kansas.
Unidentified Analyst
Okay. Thank you.
Clark Stewart
Thank you.
Clark Stewart
Any further questions?
Operator
We have another question from Mr. Dan Ives with Invest Capital [ph]. Go ahead, please.
Unidentified Analyst
Hi. 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 non-operational strategic opportunities besides acquisitions?
Clark Stewart
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 assumed not do a reverse split at this point. But that doesn’t mean we — 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 — wait a minute. Just a minute. Okay, so far — the guard dog gets excited. But…
Unidentified Analyst
Okay.
Clark Stewart
Anyway that the — the status is, yes, we thought about it. We got — we have all the documentation 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 two segments or not, I guess, I’m thinking that way as we go into 2023 and 2024, which is supposed to be recession years. I think we’ll be real glad that we have the two 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’s appears to be coming up here. So I think that’s my answer there. I don’t know whether that satisfies the question.
Unidentified Analyst
And the third part was a Dutch tender offer. I’ve 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?
Clark Stewart
I did read — just in the last three days or four days I read the Bally’s — Bally proposal.
Unidentified Analyst
That’s right. Bally is doing one.
Clark Stewart
That’s right. Because I happen to own some Bally’s stock and I got all the paperwork in the mail, and I thought, well, I better read it. So now 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.
Unidentified Analyst
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?
Clark Stewart
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 and 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…
Unidentified Analyst
Okay.
Clark Stewart
…Bally agreement and I see what that’s doing. I’m not going to sell my shares though.
Unidentified Analyst
Okay. I mean, of course…
Clark Stewart
But our…
Unidentified Analyst
…the idea you — right, you let people who want out, sell their shares and then you own more?
Clark Stewart
That’s right. It’s our work. It’s a neat trick. Yeah. Good thing.
Unidentified Analyst
Now was this a high watermark year with the, there were one-time 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 hangar and the new business opportunities in both sides of the businesses?
Craig Stewart
I think, this is — this was a really good year and probably and our memories is 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 Arizona business, as well as the Modification business and so — and as well as in Avionics business.
So I think we’ve got all three 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 is a better year.
Unidentified Analyst
Terrific.
Clark Stewart
Just one and the economy will stay like it is. We should be continuing to increase the revenue.
Unidentified Analyst
Is there M&A opportunities, are there M&A opportunities on the casino front, as well, or is that an organic feel right now moving forward?
Clark Stewart
There’s a provision, as you know, in the sports book and 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 him 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 four 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 three and all of a sudden you’re going to have reach in new market that probably aren’t very strong in today.
Craig Stewart
Dan, I think…
Unidentified Analyst
Okay.
Craig Stewart
…to 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 that as opportunities present themselves, it’s definitely something we’d be interested in.
Unidentified Analyst
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 your — 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 and thinking about how to present it to the market could create a lot of more value moving forward and we’d like to participate that and we believe in you — your business abilities. So thank you.
Craig Stewart
Thank you, Dan.
Clark Stewart
Thank you, Dan. We appreciate your support and we’re looking forward to doing new and exciting things. Thank you. Any other questions?
Operator
There seems to be no further questions.
Clark Stewart
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 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.
Operator
Thank you, everyone.
Craig Stewart
Thank you.
Operator
This concludes — thank you. This concludes today’s Butler National Corp. — Corporation conference call. Thank you everyone for attending.
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