Butler National Corporation (BUKS) Q3 Earnings
Could look cheap over the next two quarters due to "easy" comparisons
Butler National released their Q3 earnings report last week.
A few items of note:
Revenue decreased slightly in Q3 YoY, driven by Aerospace which tends to have lumpy revenue. Aerospace has grown consistently over the last 10 years and I expect it to keep growing when measured over longer time-frames, supported by their backlog totals:
Aerospace backlog has grown to $30.4M as of January 31, 2024 ($26.4M – April 30, 2023 & $22.1M – April 30, 2022).
Net income increased 20%.
Sports wagering earned $1.5M in Q3 – this is the highest quarter since launch which is a great sign. The KC Chiefs had a playoff run and won the Super Bowl so this likely led to higher betting volumes; however, since the Chiefs won the Super Bowl and beat the spread in every game, the sportsbook may not have fared as well on each bet if the locals were betting on KC.
Note the Superbowl occurred after quarter-end.
EV (price) should continue to go down approx. $4M every year as they continue to pay down their debt.
Free cash-flow (FCF) doesn’t look great YTD due to high capital expenditures (CapEx), and this quarter they noted they plan to spend $6.5M on airplanes, excerpt below. I haven't seen this mentioned before (usually CapEx consists primarily of STCs & equipment) and it could indicate they plan to buy airplanes and perform modifications with the eventual goal of re-selling for a gain (as evidenced in Q2 with a $3.9M gain on sale of airplanes). Historically they haven't had issues converting positive earnings into positive FCF although they will always have some level of maintenance CapEx.
Additional thoughts:
The company has beat prior year earnings handily over the last two quarters driven by the gain on sale of airplanes and the recent restructure of management with related cost savings. They have two “easy” comps coming up in the next two quarters: -$575K in Q4 (included significant one-time adjustments for re-org) and $719K in Q1. As a result, over the next couple of quarters, the company could look very cheap on a fundamental basis if the price stays around here. I have no guess on when or if the market will agree BUKS is undervalued, but I continue to hold that belief.
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Disclaimer: As of March 24, 2024, I am a shareholder of Butler National Corporation at an average cost base of $0.74. 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. Please also read my disclaimer and process here: Curious Investing Disclaimer and Process
All in good time Curious Investor.