David Drewitz - Creative Options Communication Clark Stewart - President and CEO Craig Stewart - President of Aerospace Group

Timothy McMillan - Private Investor Sam Robiskie - Private Investor

Good morning, ladies and gentlemen. Today is March 21. And welcome to the Butler National Corporation Third Quarter Fiscal 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. [Operator Instructions] Your call leaders for today's call are David Drewitz, Creative Options Communication; Clark Stewart, President and CEO; Craig Stewart, President of Aerospace Group. I'll now turn the call over to Mr. David Drewitz. Mr. Drewitz, you may begin.

Thank you, and good morning to everyone. Before Mr. Stewart begins, I would like to draw your attention to except for historical information contained herein, the statements in this conference call are forward-looking and made pursuant to the Safe Harbor's provisions as outlined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties which may cause Butler National's actual results and future periods to differ materially from forecasted results. Those risks include among other things the loss of market share through competition or otherwise, the introduction of competing technology by other companies, new governmental safety, health, and environmental regulations which could require Butler to make significant capital expenditures. The forward-looking statements included in this conference call are only made as of the date of this call, and Butler National undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include but are not limited to factors described under the caption Risk Factors in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. With that statement completed, I would like to turn the call over to Mr. Clark Stewart. Mr. Stewart, it's all yours.

Thank you, David. Good morning, ladies and gentlemen. Thank you for joining us here early morning on Tuesday. I believe you should all have received a press release, and we filed the 10Q on the 16, and you should have a press release that we filed on the 17. So, talking about this call, I notice that the price is about the same as it was the last time we had this call. And our performance this quarter is about the same as the price performed looks to me like. We did make money, but we didn't make near as much money as we'd like to. There is a couple of reasons; timing off on some of the production, but really we had an exciting January in Dodge City with ice storms and projected ice storms and all this kind of stuff. Welcome to March, we now have fires in Western Kansas, thousands of acres. So, we are having a real challenge, but we are progressing. So, we might look at the revenue a little bit; you'll notice it's the best of the last three years for the quarter. And it's up from 2016 about equal to 2015 year-to-date. That's a little more than 2015, but it's about the same. Our operating income is the weakest to the last three years. At 122, it's the best of the last three years for the nine months, however. We do expect that to improve a little bit this quarter, maybe we won't have quite as many distractions. And I would like to say the net income was basically a breakeven. You will note that our debt did go down about $500,000 in the last quarter and we continue to reduce that at a fairly rapid rate. Equity goes up 27 million from last year, and -- or up to 27 million about 2 million up from last year. R&D continues at about 434,000 up from 418 in the last quarter. We are down some from year-to-date, but we do have new projects coming in that we we're going to have to do and got them set-up, and so, we probably will expand it about the same rate. Our backlog is strong here at 9.6 million. Last quarter, we were 8.2 million, and a year ago we were 8.9. So, our backlog is building, and like I say, our timing was off a little at the end of January, and so, the backlog stood up and we didn't get the revenue. So, that pretty much tells you where we are there. On the option to purchase the land and building, we're moving forward in a positive nature, and hopefully we will have some information during this next quarter that will be positive. Who knows? We've said that before and thought that before, and never been able to deliver it; may be we can do it this time. We have purchased some stock under our purchase option program by approximately 15,000 shares. And we expect to continue to do that as we move forward during the coming year. Our experience in Dodge City in January, essentially we operated the casino for three weekends out of five, and that was primarily due to the weather. We had severe icing and lot of damage and lot of forecasting going on, and basically we lost a full weekend, which is almost half million dollars normal revenue this time of the year. So, that was -- they did spend some extra money trying to recover as well as they could. We have since recovered and we're operating ahead of budget a little bit and a little ahead of last year for the last period since then. So, I think we have recovered and we've got an upswing going out there. So, I think that's important. As far as Tempe is concerned, they are busy and their backlog is holding steady. Avcon is the same way and Newton and Butler Avionics is in the process of transitioning the rest of the autopilots for the Learjet to [indiscernible] from down in Fort Lauderdale, and that is going well and seems to be a real positive venture, our net income should increase. So with that, I think I have covered the real questions that we see. And I guess, David, it's time for questions from the shareholders if you have some. Thank you very much for paying attention everyone.

All right, let's open up. Erica, if you will open up the floor to shareholders.

Ladies and gentlemen, at this time we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from Timothy McMillan. Please state your question.

Good morning, gentlemen. Clark, on the stock buyback, now are you under some restrictions anytime you announce like can you -- you can only buy stock before an earnings -- I mean after an earnings announcement and so forth, are there some restrictions here you face going forward?

Tim, we've got…

That's Craig. He is going to answer.

I am on this one.

He has got all the technical…

Okay, great.

We can't buy any stock from the time the quarter ends until we have released the 10Q or the 10K.

Okay.

There are a couple things you can put in place that will allow you to continue to buy, and we're looking at those as we head through the end of April, because then you will have the longer blackout period between April 30 and end of July when we file the K.

Right.

And so, we are looking at a few things that will allow you to continue -- allow the company to continue to purchase during that period. But yes, we are in a blackout anytime like we would be -- as any employee, you would be in blackout during that same time period.

So, obviously you can be buying between now and April 30, is what you are saying?

Right.

Subject to a bunch of rules each day.

There is a whole bunch of rules, but yes, the answer is yes, we can be buying as long as daily requirements from that. I think we can't be the first transaction of the day. We can't purchase in the last hour or 30 minutes or something like that of each day, there is the whole laundry list of restrictions that we are not in a blackout period at this point.

Okay, great. And again, on the real estate, you are hopefully saying something the next quarter without going into detail, is there a reason to think that, or was that a hopeful thought that at some point of time, this is going to happen, or is there a little bit of movement heading in the right direction, is that what you are saying?

Tim, that's a real good question. I guess I have a good feeling about it. We have -- as in normal quarters we've had number of discussions each quarter. And we feel good and we feel depressed, but this quarter, we feel pretty good. Actually we probably feel better than we felt in a lot of quarter. How is that?

Okay, and clearly you have some reason for feeling better, so…

That's all I can tell you, Tim.

Okay, all right. Well, that's been a long project, Clark, I know you are frustrated and the shareholders, it's been a though deal getting this thing, the casino brought [ph] back and so forth. And there is a little worry with these interest rates going up that your advantage is going to be diminished a little bit. So, I don't know if that's a concern also or not.

It's a concern, and that's a whole another topic about what you do about the interest rate, right?

All right.

And we spend an hour or two yesterday trying to get educated as to what to do. So, yes, that is correct.

Okay.

Now, the other thing is you understand this is land and building only, Tim.

Right.

Yes.

Okay. Land and building only, okay, that's it. Okay, well, thank you, Clark.

You bet.

Thank you.

Our next question comes from Sam Robiskie. Please state your question.

Yes, good morning gentlemen. As far as the aerospace, what percentage of capacity you are working at?

All right. This is Craig, and thanks for your question. The aerospace probably right now is operating at around 85 – 90% capacity. We're pushing out in Arizona. We are probably sitting right at 90%. The avionics group here is probably pushing 100%. And the modification group is pushing about 100% as well.

So, with the percentage of capacity almost pretty full, how do you improve profitability?

I think it's just a matter of efficiencies. And depending -- a lot of the modification business depends on which types of projects we are doing. Some of them have different profit margins. And yes, the more you get into the special mission world; those projects are going to be a higher margin than doing maintenance or something like that down at Avcon. So we're moving. As we get into a higher capacity situation we move towards more of the special mission. When we are in little lower capacity, we'll take more of the maintenance and those types of job just to just stay busy.

Okay. So the backlog would be -- is for the next 12 months you say?

That's what we have visibility to right now that are signed orders.

And can you take more backlog based on the capacity or are you basically at the upper limit? Or, do you need more profitable items?

We can take more backlog. I mean I think we've been up in the 11-$12 million in the backlog. It's if we're out -- you look at the revenue of the aviation segment and we've been in the 16 - $17 million range before. And that's if we get back to that level of revenue, the profitability is pretty good at that level. So, that's really where we were pushing to get back from an annual basis up $16 million, $18 million, and we can increase probably capacity through adding employees up to around 20 million it would be my guess at this point.

Okay. And then, as far as the real estate I presume gambling would be more profitable than the avionics or…?

It's more -- this is Clark. It's more stable let's say except for ice storms. But the profitability probably is not as good as the avionics if can get repetitive jobs of the like kind of modifications so that you can get them back to back. I mean that's when you do the best. But you also need to understand that in the order stream on those things, a lot of those take anywhere from walking in tomorrow to five years from now, they are going to do the project. They are liable to send you money a year in advance before you ever get to start on the work. So, you have a very stable demand, but it's unstable schedule. In other words, schedule is real variable. And so, once you look at it and you say, yes, we are really busy, but we will always take in more orders because you don't know what's going to happen to one month from now. It's not like the casino where you can pretty project how many people coming into the door you know.

As far as the casino, if the economy is better and stable, what is the relevant benefit of the casino? Are you better off when the economy is stronger? And…

It's all -- sir, it's all driven by the disposable income. In other words, if there is more disposable income in the market area, the casino is going to do better. If there is a lot of programs that eat up that disposable income especially in the more senior customers, patrons, then you are going to hurt. And so, it all depends whether the free enterprise system is going to let the people decide what they are doing with their money or whether we are going to go more to a predetermined disposition of their money.

And how is it now compared to the last year and the last quarters?

Attitudes are whole lot better. I think that's probably the biggest thing the attitude of the customer coming in the door of the casino is definitely positive compared to a year ago when it was not.

Okay. All right, hopefully things click a little better.

You bet, thank you.

[Operator Instructions] At this time, I have no further questions.

Well, I thank everyone for taking your time here this morning to visit Butler National. We appreciate all your support and your help and your questions actually because it makes us think about what's happening and what you would like to know. So, thank you very much for attending and we appreciate all your help. Thank you, David.

Thank you everyone.

This concludes today's conference call. Thank you for attending.