Butler National Corporation 10-K (Year-ended April 30)

Re-org and Q4 / Annual earnings

See my original investment case on BUKS here: Butler National Corporation (BUKS)
See my second article on BUKS here: Butler National Corporation (BUKS) Q3 Earnings
See my third article on BUKS here: Butler National Corporation (BUKS) May 12 PR

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Since BUKS’ last filing and my last post there have been additional developments in the management re-org. (Link to Mutual Release Agreement)

1. Both Craig and Clark will resign from the Board and sell a portion of their shares to the company.

   1. The separation fee is a one-time charge of approx. $4.5M ($2.7M for Clark & $1.8M for Craig).

   2. The company will buy-back 5.9M shares (4.0M from Clark & 1.9M from Craig), which is 7.7% of the shares outstanding, and 1.1M restricted shares will be forfeited.

Wow; some big news over the last few months, BUKS’ long-standing executives are leaving and selling most of their shares; BUKS will be entering a post-Clark family era. We can only speculate on why they are leaving and if it was their choice.

This could be viewed as a negative, but there could also be long-term benefits resulting from the re-organization:

1. Earnings per share (EPS) could grow driven by lower operating expenses and a lower share count.

2. It could open the door to developments and options that the Clarks did not want to pursue, does BUKS:

   1. Explore a sale of the casino?

   2. Spin-off Aerospace or the Casino business?

   3. Do they buy-back more shares while they appear undervalued?

These actions may help to unlock shareholder value.

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Butler National Corporation (BUKS) filed their 10-K annual report on July 31, 2023.
(Link to SEC filing)

Here are some items I found interesting:

1. Sportsbook revenue was the lower than in Q2 which only had 2 months of operations (opened September 1, 2022):

• I didn't see any commentary on the change in sportsbook revenue, so we can only speculate why revenue was lower.

  • Q4 was the quarter which the Kansas City Chiefs won the Superbowl and Boot Hill Casino is in Kansas, so I would have expected a lot of betting this quarter. If most bettors were betting on KC Chiefs, it's possible they could have lost money on the Superbowl betting or maybe the sportsbook won’t contribute much to BUKS’ revenue.

  • We'll need to see more quarters to get a reliable run-rate for the Sportsbook revenue.

2. Architecture revenue was lower than the prior year and it sounds like they are winding down the architecture business. This is interesting because their architect is a related party of the former CEO (his son-in-law). This move could indicate that they are cutting down on the remaining related party transactions now that the Clarks are gone.

   

   

3. It appears all of the $4.5M severance costs were accrued in the annual financial statements even though the changes are considered subsequent to April 30, 2023. 

Here is a quarterly breakdown of the income statement:

If we (1) add the one-time $4.5M severance costs back to net income (included under 'General, administrative and other' above) and (2) annualize the ~$1.3M per year in executive salary savings, then annualized net income could be ~$10.4M implying a P/E of ~5.3 for BUKS at today’s prices.

Overall, YoY revenue grew in Aerospace and slightly declined in the Casino business. We may not see substantial revenue growth in the Casino segment going forward, depending on the sportsbook results, but Aerospace continues to grow with a strong backlog of $28M at the end of the year.

The company still looks cheap to me and hopefully the market will recognize that in the new post-Clark era.

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Recent insider buying

Finally, it appears some insiders liked the recent developments and re-org because they have bought more shares:

1. Zeff Capital marginally increased their holding by ~50K shares.

2. Joseph Daly and his company EssigPR Inc. (~9% holder) increased their holding by 313K shares from June to July, with the majority of purchases occurring after July 20th when it was announced the Clarks were leaving the Board.

   1. Joseph Daly is the CEO and Founder of Essig a “high-tech engineering and manufacturing services company” which works in the aviation and aerospace industry. His confidence could be considered a good sign for the Aerospace portion of the business.

Disclaimer: As of August 6, 2023, I am a shareholder of Butler National Corporation at an average cost base of $0.70. My plan at the time of writing is to hold these shares long-term, but I may have sold my position by the time you’re reading this. This is not a purchase recommendation and I can only hope that I’m right on 3 out of 5 (60%) investments I make — this could be one I’m wrong on. Please do your own research and double-check my data & findings.