BUTLER NATIONAL CORP 10-Q Analysis & Summary – 3/14/2025

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BUTLER NATIONAL CORP

10-Q

Quarterly report

Filing date:

03/14/2025

TLDR:

ELI5:

Butler National is doing well, especially in its aerospace business, but needs to watch out for relying too much on a few customers and changes in gaming laws.

Accession #:

0001437749-25-007631

Published on

March 16, 2025

Analyst Summary

Revenue increased by 11.87%, driven by Aerospace Products, while Professional Services revenue remained relatively flat.
Operating income increased by 45.54%, indicating improved profitability.
Net income increased by 14.50%, with basic earnings per share increasing by 27.27%.
Gross profit margin increased from 42.42% to 43.64%, indicating improved efficiency.
Operating margin increased from 15.30% to 19.91%, indicating improved operational efficiency.
Net profit margin increased from 14.45% to 14.78%, indicating improved overall profitability.
The company sold the “Jet Autopilot Product Line” for $1.5 million cash.
Increased capital expenditures are planned for fiscal year 2025.
The company is actively repurchasing shares, signaling confidence in its future prospects.
The Price-to-Earnings Ratio (P/E) is 485.12, which is high compared to industry averages.
The Price-to-Book Ratio (P/B) is 1.56, which is within an acceptable range.
The Price-to-Sales Ratio (P/S) is 1.15, which is within an acceptable range.
The Enterprise Value to EBITDA (EV/EBITDA) is 13.53, which is within an acceptable range.

Opportunities and Risks

Opportunity: Continued expansion in the Aerospace Products segment, driven by aircraft modifications and special mission electronics.
Opportunity: Growth in sports wagering revenue within the Professional Services segment.
Opportunity: Potential for future acquisitions to expand capabilities and market reach.
Risk: High reliance on a few key customers in the Aerospace Products segment.
Risk: Potential for cost overruns in fixed-price contracts.
Risk: Evolving political and legislative initiatives in gaming could impact the Professional Services segment.
Risk: A general economic downturn could negatively impact both Aerospace Products and Professional Services.
Risk: Increased revenue share to the state of Kansas, effective December 15, 2024, could negatively impact the profitability of the Professional Services segment.

Potential Implications

Company Performance

Continued growth in Aerospace Products is expected to drive overall revenue and profitability.
Increased capital expenditures may impact short-term cash flow but are expected to support long-term growth.
The increased revenue share to the state of Kansas could negatively impact the profitability of the Professional Services segment.
Active stock repurchase program may increase earnings per share and provide support for the stock price.

Stock Price

Positive financial performance and growth prospects may lead to an increase in the stock price.
Risks related to customer concentration, fixed-price contracts, and regulatory changes could negatively impact the stock price.
Active stock repurchase program may provide support for the stock price.

Butler National Corporation – Form 10-Q Report – January 31, 2025

Executive Summary

This report analyzes Butler National Corporation’s Form 10-Q for the quarter ended January 31, 2025. The company demonstrates continued growth, particularly in its Aerospace Products segment, while maintaining a stable Professional Services segment. Key highlights include increased revenue, improved operating income, and strategic asset sales. While the company faces risks inherent in its industries, its overall financial health appears positive. A ‘Hold’ recommendation is appropriate, pending further observation of the long-term impact of the increased revenue share with the state of Kansas and the sustainability of Aerospace Products growth.

Company Overview

Butler National Corporation operates in two segments: Aerospace Products (design, engineering, manufacturing, and servicing of aircraft components) and Professional Services (gaming management). The company’s Aerospace Products segment focuses on modifications and specialized electronics for aircraft, while the Professional Services segment manages the Boot Hill Casino and Resort in Kansas, including sports wagering.

Detailed Analysis

Financial Statement Analysis

Condensed Consolidated Balance Sheets

	January 31, 2025 (Unaudited)	April 30, 2024	Change	% Change
Cash	$30,707	$17,792	$12,915	72.59%
Total Assets	$128,603	$113,975	$14,628	12.83%
Total Liabilities	$66,232	$59,534	$6,698	11.25%
Total Stockholders’ Equity	$62,371	$54,441	$7,930	14.57%

Analysis: The balance sheet shows a significant increase in cash and total assets, indicating strong financial performance. The growth in stockholders’ equity further supports this positive trend. The increase in liabilities should be monitored, but is currently offset by asset growth.

Condensed Consolidated Statements of Operations (Nine Months Ended)

	January 31, 2025 (Unaudited)	January 31, 2024	Change	% Change
Total Revenue	$62,363	$55,746	$6,617	11.87%
Operating Income	$12,416	$8,531	$3,885	45.54%
Net Income	$9,220	$8,052	$1,168	14.50%
Basic Earnings Per Share	$0.14	$0.11	$0.03	27.27%

Analysis: Revenue and operating income have increased significantly, demonstrating improved profitability. The increase in net income and EPS further validates the company’s positive financial trajectory.

Key Ratios

Gross Profit Margin: (Revenue – Cost of Revenue) / Revenue = ($62,363 – ($11,834 + $23,315)) / $62,363 = 43.64%. This is up from 42.42% in 2024, indicating improved efficiency.
Operating Margin: Operating Income / Revenue = $12,416 / $62,363 = 19.91%. This is up from 15.30% in 2024, indicating improved operational efficiency.
Net Profit Margin: Net Income / Revenue = $9,220 / $62,363 = 14.78%. This is up from 14.45% in 2024, indicating improved overall profitability.

Management’s Discussion and Analysis (MD&A) Insights

Management highlights the 12% revenue increase, driven by Aerospace Products.
The increase in the revenue share to the state of Kansas is noted, which could impact future profitability in the Professional Services segment.
Strategic sale of the “Jet Autopilot Product Line” for $1.5 million cash.
Increased capital expenditures are planned for fiscal year 2025.

Red Flags and Uncommon Metrics

Customer Concentration: The company acknowledges customer concentration risk, with a significant portion of revenue derived from a few Aerospace Products customers. This reliance could pose a risk if those relationships change.
Fixed-Price Contracts: The company uses fixed-price contracts, which could expose them to cost overruns if estimates are inaccurate.
Increased Revenue Share to Kansas: The increased revenue share to the state of Kansas, effective December 15, 2024, could negatively impact the profitability of the Professional Services segment.

Risk and Opportunity Assessment

Risks

Customer Concentration: High reliance on a few key customers in the Aerospace Products segment.
Fixed-Price Contracts: Potential for cost overruns in fixed-price contracts.
Regulatory Changes: Evolving political and legislative initiatives in gaming could impact the Professional Services segment.
Economic Downturn: A general economic downturn could negatively impact both Aerospace Products and Professional Services.

Opportunities

Aerospace Products Growth: Continued expansion in the Aerospace Products segment, driven by aircraft modifications and special mission electronics.
Sports Wagering: Growth in sports wagering revenue within the Professional Services segment.
Strategic Acquisitions: Potential for future acquisitions to expand capabilities and market reach.

Conclusion and Actionable Insights

Butler National Corporation demonstrates solid financial performance, driven by growth in the Aerospace Products segment and a stable Professional Services segment. The company’s strategic asset sales and planned capital expenditures indicate a focus on long-term growth. However, risks related to customer concentration, fixed-price contracts, and regulatory changes should be carefully monitored.

Overall Assessment: Hold

Recommendations:

Diversify Customer Base: Actively pursue diversification of the customer base in the Aerospace Products segment to mitigate customer concentration risk.
Careful Cost Management: Implement robust cost management practices to mitigate the risk of cost overruns in fixed-price contracts.
Monitor Regulatory Landscape: Closely monitor the regulatory landscape in the gaming industry and adapt strategies as needed.
Evaluate Impact of Increased Revenue Share: Continuously evaluate the impact of the increased revenue share to the state of Kansas on the profitability of the Professional Services segment and adjust strategies accordingly.

1. Commentary

Butler National Corporation’s financial performance shows mixed results. Revenue increased for both the three and nine months ended January 31, 2025, driven by Aerospace Products, particularly aircraft modification and special mission electronics. However, Professional Services revenue remained relatively flat. The company is actively repurchasing shares, signaling confidence in its future prospects, but faces risks including customer concentration, dependence on government spending, and regulatory hurdles.

2. Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin (Nine Months Ended)
- Metric: (62,363 – (11,834 + 23,315)) / 62,363 = 43.65% (2025); (55,746 – (11,976 + 20,095)) / 55,746 = 42.46% (2024)
- Trend: Increased from 42.46% to 43.65%, a 2.80% increase.
- Industry: The blended industry (gaming and aerospace) average gross profit margin is around 40-50%. Butler National is within this range.
Operating Profit Margin (Nine Months Ended)
- Metric: 12,416 / 62,363 = 19.91% (2025); 8,531 / 55,746 = 15.30% (2024)
- Trend: Increased from 15.30% to 19.91%, a 30.13% increase.
- Industry: The blended industry average operating profit margin is around 10-20%. Butler National is within this range.
Net Profit Margin (Nine Months Ended)
- Metric: 9,220 / 62,363 = 14.78% (2025); 8,052 / 55,746 = 14.45% (2024)
- Trend: Increased from 14.45% to 14.78%, a 2.28% increase.
- Industry: The blended industry average net profit margin is around 5-15%. Butler National is within this range.
Return on Assets (ROA) (Nine Months Ended)
- Metric: 9,220 / ((128,603 + 113,975) / 2) = 7.69%
- Industry: A reasonable ROA for a company in these industries would be 5-10%.
Return on Equity (ROE) (Nine Months Ended)
- Metric: 9,220 / ((62,371 + 54,441) / 2) = 15.88%
- Industry: A reasonable ROE for a company in these industries would be 10-20%.
EPS Basic (Nine Months Ended)
- Metric: $0.14 (2025); $0.11 (2024)
- Trend: Increased from $0.11 to $0.14, a 27.27% increase.
EPS Diluted (Nine Months Ended)
- Metric: $0.14 (2025); $0.11 (2024)
- Trend: Increased from $0.11 to $0.14, a 27.27% increase.

Liquidity

Current Ratio
- Metric: 52,708 / 31,102 = 1.69 (2025); 38,596 / 22,917 = 1.68 (2024)
- Trend: Increased from 1.68 to 1.69, a 0.59% increase.
- Industry: A current ratio between 1.5 and 2.0 is generally considered healthy.
Quick Ratio
- Metric: (52,708 – 10,368) / 31,102 = 1.36 (2025); (38,596 – 9,522) / 22,917 = 1.27 (2024)
- Trend: Increased from 1.27 to 1.36, a 7.09% increase.
- Industry: A quick ratio above 1.0 is generally considered acceptable.
Cash Ratio
- Metric: 30,707 / 31,102 = 0.99 (2025); 17,792 / 22,917 = 0.78 (2024)
- Trend: Increased from 0.78 to 0.99, a 26.92% increase.
- Industry: A cash ratio around 1.0 is considered ideal.

Solvency/Leverage

Debt-to-Equity Ratio
- Metric: 66,232 / 62,371 = 1.06 (2025); 59,534 / 54,441 = 1.09 (2024)
- Trend: Decreased from 1.09 to 1.06, a -2.75% decrease.
- Industry: A debt-to-equity ratio of 1.0 or less is generally considered healthy.
Debt-to-Assets Ratio
- Metric: 66,232 / 128,603 = 0.52 (2025); 59,534 / 113,975 = 0.52 (2024)
- Trend: Remained constant at 0.52.
- Industry: A debt-to-assets ratio below 0.6 is generally considered healthy.
Interest Coverage Ratio (Times Interest Earned) (Nine Months Ended)
- Metric: 12,416 / 1,660 = 7.48 (2025); 8,531 / 1,869 = 4.56 (2024)
- Trend: Increased from 4.56 to 7.48, a 63.99% increase.
- Industry: An interest coverage ratio above 4.0 is generally considered good.

Activity/Efficiency

Inventory Turnover (Nine Months Ended)
- Metric: (11,834 + 23,315) / ((10,368 + 9,522) / 2) = 3.52 (2025); (11,976 + 20,095) / ((9,522 + 80,871,211) / 2) = 3.67 (2024)
- Trend: Decreased from 3.67 to 3.52, a -4.09% decrease.
- Industry: The average inventory turnover for aerospace is around 4-6, and for gaming it is around 8-10.
Days Sales Outstanding (DSO)
- Metric: (6,286 / 62,363) * 365 = 36.77 days (2025); (5,776 / 55,746) * 365 = 37.81 days (2024)
- Trend: Decreased from 37.81 days to 36.77 days, a -2.75% decrease.
- Industry: A DSO of around 30-45 days is generally considered acceptable.
Days Payable Outstanding (DPO)
- Metric: (13,868 / (11,834 + 23,315)) * 365 = 144.14 days (2025); (5,291 / (11,976 + 20,095)) * 365 = 59.91 days (2024)
- Trend: Increased from 59.91 days to 144.14 days, a 140.60% increase.
- Industry: A DPO of around 30-50 days is generally considered acceptable.
Asset Turnover (Nine Months Ended)
- Metric: 62,363 / ((128,603 + 113,975) / 2) = 0.52 (2025); 55,746 / ((113,975 + 104,441) / 2) = 0.50 (2024)
- Trend: Increased from 0.50 to 0.52, a 4.00% increase.
- Industry: An asset turnover ratio of around 0.5-1.0 is generally considered acceptable.

Valuation

Price-to-Earnings Ratio (P/E)
- Metric: Market Cap = 67,602,396 shares * $1.45 = $97,023,474.20 or 97,023 (in thousands). Annualized EPS = 0.05 * 4 = 0.20. P/E = (97,023 / 1,000) / 0.20 = 485.12
- Industry: The average P/E ratio for the aerospace industry is around 20-30, and for the gaming industry it is around 15-25.
Price-to-Book Ratio (P/B)
- Metric: 97,023 / 62,371 = 1.56
- Industry: A P/B ratio of around 1-3 is generally considered acceptable.
Price-to-Sales Ratio (P/S)
- Metric: To Annualize Sales: 21,174 * 4 = 84,696. P/S = 97,023 / 84,696 = 1.15
- Industry: A P/S ratio of around 1-2 is generally considered acceptable.
Enterprise Value to EBITDA (EV/EBITDA)
- Metric: EV = 97,023 + 66,232 – 30,707 = 132,548. EBITDA = 4,026 + 1,766 + 88 + 3,914 = 9,794. EV/EBITDA = 132,548 / 9,794 = 13.53
- Industry: An EV/EBITDA ratio of around 10-15 is generally considered acceptable.

Growth Rates

Revenue Growth (Nine Months Ended)
- Metric: (62,363 – 55,746) / 55,746 = 11.87%
Net Income Growth (Nine Months Ended)
- Metric: (9,220 – 8,052) / 8,052 = 14.50%
EPS Growth (Nine Months Ended)
- Metric: (0.14 – 0.11) / 0.11 = 27.27%

Other Relevant Metrics

Revenue Segmentation: The company provides revenue segmentation by Professional Services and Aerospace Products. Professional Services revenue remained relatively flat, while Aerospace Products revenue increased significantly. This indicates a shift in the company’s revenue mix.
Stock Repurchase Program: The company is actively repurchasing shares, indicating confidence in its future prospects. The Board of Directors increased the size of the stock repurchase program in October 2024.