Butler National Corporation (BUKS) 2025 Form 10-K Review

In its most recent annual report for the fiscal year ended April 30, 2025, Butler National Corporation (OTCQX: BUKS) delivered a solid performance in two very different business lines: aerospace products and casino management services. The company posted record revenues of $83.97 million, up 7% from $78.38 million a year earlier, and net income of $12.55 million, roughly level with the prior year. While the operating margin expanded to 20.0% (from 16.9% in FY24), key challenges remain, including customer concentrations, fixed-price contract risk and a local economic slowdown in its gaming market.

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1. Company Profile & Operating Segments

BNC divides its operations into two distinct segments:

1. Aerospace Products (54% of FY25 revenue):

• Aircraft structural modifications, special-mission electronics, avionics installations, spare parts and repair services.
• Key sub-brands include Avcon Industries (aircraft mods), Butler Machine (precision fabrication) and Butler Avionics (radio/flight electronics).
• 22% of sales are outside North America, with recent growth in Europe and Asia.

1. Professional Services (46% of FY25 revenue):

• Management services for the Boot Hill Casino & Resort in Dodge City, Kansas.
• Traditional slot and table-game operations, plus a DraftKings-powered sports wagering platform (launched Sept 2022).

Each segment runs its own operations, customers and supply chains. Q: Has the college of segments diversified risk? A: Partly, but the casino business remains tied to a single geography.

2. Fiscal 2025 Financial Highlights

Metric	FY25	FY24	Change
Revenue	$83.97 M	$78.38 M	+7.1%
Cost of Revenue	$45.92 M	$44.47 M	+3.2%
Operating Income	$16.83 M	$13.24 M	+27.1%
Operating Margin	20.0%	16.9%	↑ 3.1 pts
Net Income	$12.55 M	$12.51 M	+0.3%
EPS (diluted)	$0.19	$0.18	+5.6%

Aerospace Products

• Revenue: $45.70 M (+15% YoY)
• Aircraft Mods: $29.59 M (+18%)
• Special Mission Electronics: $12.74 M (+7%)
• Avionics Installations: $3.38 M (+24%)
• Cost of Sales: 65% of segment revenue (down from 72%), reflecting improved labor and material efficiencies.
• Segment Income: $7.69 M (17% margin) vs $4.52 M (11% margin) in FY24.
• Growth driven by new FAA supplemental type certificates (STCs) for Learjet/King Air mods and first deliveries of M134 gun control units.
• Backlog at 4/30/25: $33.61 M (up from $30.27 M).

Professional Services (Boot Hill Casino)

• Revenue: $38.27 M (–<1%)
• Slots & Table Games: $27.92 M (–5%)
• Sportsbook (DraftKings): $5.79 M (+26%)
• Non-Gaming: $4.56 M (flat)
• Cost of Services: 42% of segment revenue (vs 41%).
• Segment Income: $9.14 M (24% margin) vs $8.72 M (23%) in FY24.
• Recent state tax increase (+2 pts to 29% of gaming win) partially offset by higher sports wagering volume.
• Traditional gaming slowed by local agricultural and meat-packing layoffs, inflation and weather conditions.

3. Cash Flow & Liquidity

• Operating Cash Flow: +$18.4 M (driven by net income and working capital improvements)
• CapEx: –$8.3 M (STC development, equipment, acquisition of fabrication facility in Newton, KS)
• Financing: –$5.6 M (debt repayments $5.0 M, stock repurchases $2.3 M offset by $2.0 M new borrowings)
• Year-End Cash: $25.2 M vs $17.8 M a year ago
• Debt: $35.3 M total ($5.3 M due <12 months; interest rates 4.35–8.13%)
• Covenants: Maintaining >1.3× debt service coverage and $1.5 M unrestricted cash minimum.
• Stock Repurchase: $2.3 M used in FY25; program expanded to $15 M through April 15, 2027.

4. Balance Sheet Highlights & Book Value

Metric	4/30/25	4/30/24	Change
Total Assets	$123.30 M	$113.98 M	+8%
Cash & Equivalents	$25.23 M	$17.79 M	+42%
Inventory, net	$10.92 M	$9.52 M	+15%
PP&E, net	$60.26 M	$59.59 M	+1%
Total Liabilities	$58.18 M	$59.53 M	–2%
Total Equity	$65.11 M	$54.44 M	+20%
Book Value / Share	$0.97	$0.79	+23%

At the end of FY25, BNC had book value of approximately $0.97 per diluted share. With a current share price near $1.50, the shares trade at ~1.5× book.

5. Key Risks & Uncertainties

Both segments face headwinds in FY26:

• Customer Concentration (Aerospace): Top five customers = 25% of sales; one major customer ≈15%.
• Government Dependency: 58% of Aerospace sales on fixed-price government contracts subject to budget, regulation and procurement cycles.
• Regulatory & FAA Approval: New STCs, DER certifications and global export controls can delay or derail product launches.
• Labor & Supply Chain: Plumbing adequate DER and technician staffing, rising wages, and material lead times.
• Local Economic Sensitivities: Dodge City, KS downturn (meat-packing layoffs, drought, inflation) cut casino foot traffic.
• Competitive Dynamics: Native American casinos, online gaming, other entertainment options.
• Sportsbook Renewal Risk: DraftKings contract extension and Kansas-themed management contract expires 2027.
• Fixed-Price Margin Risk: Increased cost of labor and materials could squeeze profits.

6. Managements Outlook

• Aerospace: Focus on lowering backlog, expanding internal fabrication capacity at Newton, KS (new 33,600 sq ft plant), and launching new STCs for King Air/Learjet missions.
• Gaming: Support sports wagering growth, launch mobile platforms, optimize table floor mix in Dodge City and manage promotional spend.
• Liquidity: Plan for capex of ~$12.5 M in FY26 (STCs $5 M; equipment $4.5 M; facilities $3 M), funded by cash flow and existing credit lines.
• Margins: Target to maintain or improve ~20% overall operating margins via mix shift to higher-margin Aerospace services and disciplined operating expenses.

7. Investment Analysis & Score (6.5 / 10)

Pros:

• Strong ramp in aerospace revenue (+15%) and backlog ($33.6 M).
• Expanding operating margin (20% vs 16.9%).
• Healthy cash flow and low leverage; $25 M cash vs $35 M debt.
• STC portfolio and internal fabrication build-out support long-term growth.
• Sportsbook up 26% at a regional casino diversifies revenue streams.
• Aggressive share repurchases signal confidence.

Cons:

• Single geography gaming exposure to Dodge City’s economic swings.
• High customer concentration in Aerospace (one AR share = 32%).
• Fixed-price contract risk could erode margins if costs jump.
• Regulatory, labor and supply chain uncertainties in Aerospace.
• Kansas sports wagering renewal uncertainty 2027.

Conclusion: Butler National is aggressively investing in its aerospace business through STCs, plant expansion and new product launches while offsetting a modest gaming slowdown with rising sports wagering revenue. With solid free cash flow, margin expansion and a $15 million buyback plan, BNC offers mid-teens revenue growth potential at a reasonable valuation. However, aerospace customer concentration, regional gaming risk and fixed-price margin volatility temper the thesis.

Net Profit (FY25): $12,551,000

Investment Score: 6.5 / 10