Butler National Corp. Q2 FY2026 earnings call

Management Statement and Operational Highlights

• Resumption of Earnings Calls: Resuming quarterly earnings calls is an important step in strengthening communication with shareholders and the investment community, ensuring transparency and keeping investors informed about the company's performance and direction.
• Aerospace Products: Record performance with a 20% revenue increase in aerospace products. Efforts to bring outside parts manufacturing back in-house with the acquired Newton, Kansas fabrication facility. Backlog remains robust at $46.3 million.
• Gaming Segment: Impacted by economic factors in the local market (low cattle prices, distressed agricultural economy) leading to a decrease in casino gaming revenue. Sold the administrative building and plans to construct a replacement facility for training and storage. Costs were flat for gaming, but expenses were up 9%.
• Financials: Total revenue for the quarter was $23.3 million (+9% Y/Y), net income was $6 million (+67% Y/Y). Purchased 687,000 shares of outstanding common stock during the second quarter and invested in new production equipment for the aircraft modification fabrication facility.

Segment Performance

• Aerospace Products: Revenue was $14 million in the quarter, compared to $11.7 million same quarter last year, representing a 20% increase. It contributes approximately 60% to total revenue ($14M / $23.3M). Operating margin in the current quarter was 38% compared to 21% in the prior fiscal Q2.
• Professional Services Gaming: Revenue was $9.2 million, down from $9.7 million same quarter last year, a 5% decrease. It contributes approximately 40% to total revenue ($9.2M / $23.3M). Impacted by economic factors in the local market related to cattle and agricultural industries, leading to a decrease in casino gaming revenue.

Guidance

• No specific forward-looking guidance provided beyond general statements about continuing to focus on reinvestment in operations, particularly in aviation, maintaining financial strength, and pursuing growth opportunities responsibly.

Risks

• Economic factors such as low cattle prices and a distressed agricultural economy impacting discretionary spending in the local market, which affects the gaming segment.
• Uncertainties in the FAA certification process for STC projects in the aerospace segment.
• Fluctuations in aerospace margins depending on the mix of work between development programs, repeat modification projects, and kit sales.

Question and Answer Q: Butler National is resuming earnings calls after a period without them. Can you talk about what prompted that decision and how you see the calls fitting into the broader approach to investor communications going forward?

A: Jeffrey Yowell stated that resuming quarterly earnings calls is an important step in strengthening communication with shareholders and the investment community, ensuring transparency and providing context on financial results and operational developments.

Q: Avcon continues to be a key contributor to Butler National's growth. Can you discuss the current status of your major STC projects and how management views the demand outlook for aircraft modification and engineering services?

A: Christopher Reedy mentioned Avcon remains a strong performer. There are several STC programs in process, with most focused on special mission modifications. Demand for aircraft modification and upgrades is steady, though the government shutdown impacted some business. Encouraged by the pipeline of projects and customer engagement.

Q: Boot Hill Casino & Resort has remained a consistent performer. How are gaming trends shaping up this year? And what initiatives are in place to enhance the guest experience or expand entertainment offerings?

A: Christopher Reedy said Boot Hill Casino has stable results with constant visitation, but local economy factors impact discretionary spending. They continue to invest in customer experience improvements, including a renovation of the casino restaurant Fireside Grill.

Q: The company has maintained profitability and a strong balance sheet. Can you share management's current priorities around capital allocation, whether that's reinvestment in operations, debt reduction or potential shareholder returns?

A: Adam Sefchick said priority is reinvestment in operations, particularly in aviation. Invested over $1.75 million in fabrication expansion and $0.75 million in new CNC equipment. Also focusing on debt reduction and prudent cash management, and has purchased shares of stock.

Q: Looking ahead, how is Avcon positioned to expand its customer base or capabilities? Are there specific market segments or technologies you're targeting for future growth?

A: Christopher Reedy said Avcon sees opportunity to expand customer relationships, especially with operators seeking custom modifications. Targeting emerging market needs like technical/sensor modification, special mission conversions, and aerodynamic improvements. Strength lies in engineering expertise and flexibility.

Q: What are Butler National's top strategic priorities over the next few years? And how do you define success in terms of creating long-term shareholder value?

A: Christopher Reedy stated strategy is to grow shareholder value through consistent execution and prudent capital allocation. In aviation, expand Avcon's STC portfolio, increase engineering capacity, and deepen customer relationships. In gaming, focus on operational stability and cash generation for reinvestment. Success is steady earnings growth, balance sheet strength, and disciplined approach for sustainable performance.

Q: How should we view the significant improvement in aerospace performance in fiscal year '25 and '26? Is this temporary, driven by defense spending or a sustainable base for mid- to long-term growth?

A: Christopher Reedy said improvements are due to structural changes like focusing on higher-margin businesses, reducing personnel costs, and greater accountability. Believes performance improvements driven by these changes will be permanent, not just due to customer demand.

Q: How are you able to earn such high margins in special mission projects - Special Mission Electronics relative to the rest of Aerospace?

A: Christopher Reedy said Special Mission Electronics benefits from proprietary designs, increasing production volumes for efficiencies, and being more production-oriented compared to Avcon's custom modification projects. Steps taken to improve efficiency at Tempe also contribute to margin improvement.

Q: Was there consideration of a reverse split in the past? And if so, is it being considered?

A: Jeffrey Yowell said the Board previously sought shareholder authorization for a reverse split but received adverse feedback. Currently, the Board has no plans to pursue a reverse split, focusing on organic operational performance and growth.

Q: Butler National's stock currently trades on the OTCQX. And some shareholders have asked why the company has not pursued an uplisting to NASDAQ or another national exchange. Can you talk about management's thinking around that decision and what uplisting is and whether future plans?

A: Jeffrey Yowell said uplisting is a goal, but previously voting for a reverse split faced adverse feedback. Uplisting requires additional governance and administrative requirements, which the Board believes wouldn't meaningfully change liquidity or valuation soon. Focus is on operational execution and financial performance now, and will revisit uplisting when strategic sense makes sense.