ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THROUGHOUT THIS ITEM 2 ALL NON TABULAR FINANCIAL RESULTS ARE PRESENTED IN THOUSANDS OF U.S. DOLLARS EXCEPT WHERE MILLIONS OF DOLLARS IS INDICATED.
Forward-Looking Statements
Statements made in this report, other reports and proxy statements filed with the Securities and Exchange Commission, communications to stockholders, press releases, and oral statements made by representatives of the Company that are not historical in nature, or that state the Company or management intentions, hopes, beliefs, expectations or predictions of the future, may constitute "forward-looking statements" within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements can often be identified by the use of forward-looking terminology, such as "could," "should," "will," "intended," "continue," "believe," "may," "expect," "hope," "anticipate," "goal," "forecast," "plan," "guidance" or "estimate" or the negative of these words, variations thereof or similar expressions. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties, and assumptions. It is important to note that any such performance and actual results, financial condition or business, could differ materially from those expressed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 1A (Risk Factors) of the Annual Report on Form 10-K for the fiscal year ended April 30, 2021, and elsewhere herein or in other reports filed with the SEC. Other unforeseen factors not identified herein could also have such an effect. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time.
The forward-looking statements in this report are only predictions and actual events or results may differ materially. In evaluating such statements, a number of risks, uncertainties and other factors could cause actual results, performance, financial condition, cash flows, prospects and opportunities to differ materially from those expressed in, or implied by, the forward-looking statements. These risks, uncertainties and other factors include those set forth in Item 1A (Risk Factors) of the Annual Report on Form 10-K for the fiscal year ended April 30, 2021, including the following factors:
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the geographic location of our casino;
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customer concentration risk;
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executive officers are family members;
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industrial business cycles;
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development, production, testing and marketing of new products;
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risks associated with international sales;
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future acquisitions and investments;
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change of control restrictions;
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cyber-security threats;
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extensive regulation across our industries;
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evolving government regulations and law;
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changes in regulations of financial reporting;
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the stability of credit markets;
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potential impairment losses;
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marketability restrictions of our common stock;
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the possibility of a reverse-stock split;
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stock dilution caused by the annual employer match to our 401(k) plan;
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acts of terrorism and war;
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inclement weather and natural disasters;
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pandemics or other national health crisis (including COVID-19);
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fluctuating fuel and energy costs;
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Except as expressly required by the federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this report. Results of operations in any past period should not be considered indicative of the results to be expected for future periods. Fluctuations in operating results may also result in fluctuations in the price of the Company's common stock.
Investors should also be aware that while the Company, from time to time, communicates with securities analysts; it is against its policy to disclose any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, the Company has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of Butler National Corporation.
Management Overview
Management is focused on increasing long-term shareholder value from increased cash generation, earnings growth, and prudently managing capital expenditures. We plan to do this by continuing to drive increased revenue from product and service innovations, strategic acquisitions, and targeted marketing programs.
We have two separate reporting segments: Aerospace Products and Professional Services. Aerospace Products and Professional Services do not share the same customers and suppliers and have substantially distinct businesses. The Aerospace Products operating segment provides products and services in the aerospace industry. Companies in Aerospace Products derive their revenue from system design, engineering, manufacturing, integration, installation, repairing, overhauling, servicing and distribution of aerostructures, avionics, aircraft components, accessories, subassemblies and systems. The Professional Services operating segment provides services in the gaming industry. Professional Services companies manage a gaming and entertainment facility and provide architectural and engineering services. These reporting segments operate through various subsidiaries and affiliates listed in the Company’s fiscal year 2021 Annual Report on Form 10-K.
Aerospace Products. The Aerospace Products segment includes the manufacture, sale and service of electronic equipment and systems and technologies to enhance and support products related to aircraft. Additionally, we also operate several Federal Aviation Administration (the "FAA") Repair Stations. Companies in Aerospace Products concentrate on Learjet, Beechcraft King Air, Cessna turbine engine, Cessna multi-engine piston and Dassault Falcon 20 aircraft. Specifically, the design, distribution and support for products for older aircraft, or “Classic” aircraft are areas of focus for companies in Aerospace Products.
Products. The products that the companies within this group design, engineer, manufacture, integrate, install, repair and service include:
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Aerial surveillance products
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GARMIN GTN Global Position System Navigator with Communication Transceiver
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Aerodynamic enhancement products
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J.E.T autopilot products
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Airspeed and altimeter systems
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Electrical systems and switching equipment
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Avcon Fins
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Noise suppression systems
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ADS-B (transponder) systems
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Rate gyroscopes
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Conversion of passenger configurations to cargo
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Replacement vertical accelerometers
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Cargo/sensor carrying pods
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Provisions for external stores
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Electronic navigation instruments, radios and transponders
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Attitude heading reference systems
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Modifications. The companies in Aerospace Products have authority pursuant to Federal Aviation Administration Supplemental Type Certificates (“STCs”) and Parts Manufacturer Approval (“PMA”), to build required parts and subassemblies and to make applicable installations. Companies in Aerospace Products perform modifications in the aviation industry including:
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Aerial photograph capabilities
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Extended tip fuel tanks
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Aerodynamic improvements
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Radar systems
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Avionics systems
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ISR – Intelligence Surveillance Reconnaissance
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Cargo doors
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Special mission modifications
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Conversion from passenger to freighter configuration
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Stability enhancements
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Extended doors
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Traffic collision avoidance systems
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Special Mission Electronics. We supply defense-related, commercial off-the-shelf products to various commercial entities and government agencies and subcontractors in order to update or extend the useful life of aircraft with older components and technology. These products include:
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Cabling
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HangFire Override Modules
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Electronic control systems
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Test equipment
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Gun Control Units for Apache and Blackhawk helicopters
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Gun Control Units for land and sea based military vehicles
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Professional Services. The Professional Services segment includes the management of a gaming facility and related dining and entertainment facilities in Dodge City, Kansas. Boot Hill Casino and Resort features approximately 645 slot machines and 20 table games. Due to COVID-19, Boot Hill Casino and Resort currently operates 520 slot machines and 16 table games. Companies in Professional Services also provide licensed architectural services, including commercial and industrial building design, and engineering services.
Boot Hill. Butler National Service Corporation (“BNSC”), via BHCMC, LLC (“BHCMC”), a company in Professional Services, has managed The Boot Hill Casino and Resort in Dodge City, Kansas (“Boot Hill”) since 2009 pursuant to the Lottery Gaming Facility Management Contract, by and among BNSC, BHCMC and the Kansas Lottery, originally dated December 8, 2009, as subsequently amended (“Boot Hill Agreement”). As required by Kansas law, all games, gaming equipment and gaming operations at Boot Hill are owned and operated by the Kansas Lottery.
Architectural and Engineering Services. Companies in Professional Services provide licensed architectural, including commercial and industrial building design, and engineering services.
COVID-19 Overview
The pandemic caused by the disease COVID-19 was first reported in Wuhan, China in December 2019 and has since spread throughout the world. Financial markets have been volatile in 2020 and 2021, primarily due to uncertainty with respect to the severity and duration of the pandemic.
The pandemic resulted in federal, state and local governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions or bans, business curtailments, school closures, and other protective measures.
Our aerospace segment qualified as “essential” under applicable federal guidance and state orders. The facilities have continued operations. We are enforcing social distancing and enhanced health, safety and sanitization measures in accordance with guidelines from the Center for Disease Control (the “CDC”).
Our professional services operations at the Boot Hill Casino & Resort was forced to close from March 18, 2020 thru May 21, 2020. The casino reopened to the public on May 22, 2020 with reduced hours to allow for extra time for cleaning and sanitizing in accordance with CDC guidelines and limited number of games and food offerings. We are also continuing to enforce social distancing measures throughout the casino and are subject to state mandated restrictions. Since reopening the Boot Hill Casino & Resort we have experienced lower customer headcount, which has been off-set by a larger net revenue per customer.
The COVID-19 pandemic impacted our business operations and financial results beginning in the fourth quarter of fiscal 2020 and continues to impact us. We face numerous uncertainties in estimating the direct and indirect effects on our present and future business operations, financial condition, results of operations, and liquidity. Due to several rapidly changing variables related to the COVID-19 pandemic, we cannot reasonably estimate future economic trends and the timing of when stability will return.
As schools, businesses and the economy in general have slowly reopened, and vaccinations rates in our operating territory improve and new infections decline, we have continued to see improvements in customer headcount. However, the unpredictable nature of the pandemic could again lead to closures, decreased traffic and demand, and increased COVID-19- related operating expenses, for the foreseeable future. While COVID-19 has resulted in, and will continue to bring, significant challenges and uncertainty to our operating environment, we believe that our resilient business model and the strength of our brand and balance sheet position us well to emerge from the pandemic.
Results Overview
The six months ended October 31, 2021 revenue increased 29% to $37.2 million compared to $29.0 million in the six months ended October 31, 2020. In the six months ended October 31, 2021 the professional services revenue was $19.4 million compared to $13.0 million in the six months ended October 31, 2020, an increase of 49%. In the six months ended October 31, 2021 the Aerospace Products revenue was $17.8 million compared to $16.0 million in the six months ended October 31, 2020, an increase of 12%.
The six months ended October 31, 2021 net income increased to $6.1 million compared to a net income of $306 in the six months ended October 31, 2020. The six months ended October 31, 2021, operating income increased to $8.8 million from an operating income of $1.8 million in the six months ended October 31, 2020.
RESULTS OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 2021 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 2020
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(dollars in thousands)
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Six Months Ended October 31, 2021
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Percent of Total Revenue
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Six Months Ended October 31, 2020
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Percent of Total Revenue
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Percent Change 2020-2021
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Revenue:
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Professional Services
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$
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19,401
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52
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%
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$
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13,001
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45
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%
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49
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%
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Aerospace Products
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17,836
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48
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%
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15,960
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55
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%
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12
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%
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Total revenue
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37,237
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|
100
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%
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28,961
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100
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%
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29
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%
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Costs and expenses:
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Costs of Professional Services
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7,578
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20
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%
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6,828
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24
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%
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11
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%
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Cost of Aerospace Products
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11,939
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32
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%
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11,788
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41
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%
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1
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%
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Marketing and advertising
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2,471
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6
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%
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1,845
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6
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%
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34
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%
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Employee benefits
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1,121
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3
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%
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1,151
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4
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%
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-3
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%
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Depreciation and amortization
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1,407
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4
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%
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2,118
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7
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%
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-34
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%
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General, administrative and other
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3,956
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|
11
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%
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3,416
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|
12
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%
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|
16
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%
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Total costs and expenses
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|
|
28,472
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|
76
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%
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27,146
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|
|
94
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%
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|
5
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%
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Operating income
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$
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8,765
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|
24
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%
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$
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1,815
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|
6
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%
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|
383
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%
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Revenue:
Revenue increased 29% to $37.2 million in the six months ended October 31, 2021, compared to $29.0 million in the six months ended October 31, 2020. See "Operations by Segment" below for a discussion of the primary reasons for the increase in revenue.
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Professional Services derives its revenue from (a) professional management services in the gaming industry through Butler National Service Corporation ("BNSC") and BHCMC, LLC ("BHCMC"), and (b) professional architectural, engineering and management support services. Revenue from Professional Services increased 49% for the six months to $19.4 million at October 31, 2021 compared to $13.0 million at October 31, 2020.
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Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft. Aerospace Products revenue increased 12% for the six months to $17.8 million at October 31, 2021 compared to $16.0 million at October 31, 2020.
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Costs and expenses:
Costs and expenses related to Professional Services and Aerospace Products include the cost of engineering, labor, materials, equipment utilization, control systems, security and occupancy. Costs and expenses increased 5% in the six months ended October 31, 2021 to $28.5 million compared to $27.1 million in the six months ended October 31, 2020. Costs and expenses were 76% of total revenue in the six months ended October 31, 2021, as compared to 94% of total revenue in the six months ended October 31, 2020.
Costs of Professional Services increased 11% in the six months ended October 31, 2021 to $7.6 million compared to $6.8 million in the six months ended October 31, 2020. Costs were 20% of total revenue in the six months ended October 31, 2021, as compared to 24% of total revenue in the six months ended October 31, 2020.
Costs of Aerospace Products increased 1% in the six months ended October 31, 2021 to $11.9 million compared to $11.8 million for the six months ended October 31, 2020. Costs were 32% of total revenue in the six months ended October 31, 2021, as compared to 41% of total revenue in the six months ended October 31, 2020.
Marketing and advertising expenses increased 34% in the six months ended October 31, 2021, to $2.5 million compared to $1.8 million in the six months ended October 31, 2020. Expenses were 6% of total revenue in the six months ended October 31, 2021, as compared to 6% of total revenue in the six months ended October 31, 2020. Marketing and advertising expenses include advertising, sales and marketing labor, gaming development costs, and casino and product promotions.
Employee benefits expenses as a percent of total revenue was 3% in the six months ended October 31, 2021, compared to 4% in the six months ended October 31, 2020. These expenses decreased 3% to $1.1 million in the six months ended October 31, 2021, from $1.2 million in the six months ended October 31, 2020. These expenses include the employers' share of all federal, state and local taxes, paid time off for vacation, holidays and illness, employee health and life insurance programs and employer matching contributions to retirement plans.
Depreciation and amortization expenses as a percent of total revenue was 4% in the six months ended October 31, 2021, compared to 7% in the six months ended October 31, 2020. These expenses decreased 34% to $1.4 million in the six months ended October 31, 2021 from $2.1 million in the six months ended October 31, 2020. These expenses include depreciation related to owned assets being depreciated over various useful lives and amortization of intangible items including the Kansas privilege fee related to the Boot Hill Casino being expensed over the initial term of the gaming contract with the State of Kansas. BHCMC, LLC depreciation and amortization expense for the six months ended October 31, 2021 was $1.2 million compared to $1.8 million in the six months ended October 31, 2020.
General, administrative and other expenses as a percent of total revenue was 11% in the six months ended October 31, 2021, compared to 12% in the six months ended October 31, 2020. These expenses increased 16% to $4.0 million in the six months ended October 31, 2021, from $3.4 million in the six months ended October 31, 2020.
Other expense:
Interest expense was $1.3 million in the six months ended October 31, 2021, compared with interest expense of $1.7 million in the six months ended October 31, 2020. Interest related to obligations of BHCMC, LLC was $1.1 million in the six months ended October 31, 2021 compared to $1.5 million in the six months ended October 31, 2020.
Operations by Segment
We have two operating segments, Professional Services and Aerospace Products. The Professional Services segment includes revenue contributions and expenditures associated with casino management services and professional architectural, engineering and management support services. Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft.
The following table presents a summary of our operating segment information for the six months ended October 31, 2021 and October 31, 2020:
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(dollars in thousands)
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|
Six Months Ended October 31, 2021
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Percent of Total Revenue
|
|
|
Six Months Ended October 31, 2020
|
|
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Percent of Total Revenue
|
|
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Percent Change 2020-2021
|
|
|
Professional Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Revenue
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Boot Hill Casino
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|
$
|
19,237
|
|
|
|
99
|
%
|
|
$
|
12,863
|
|
|
|
99
|
%
|
|
|
50
|
%
|
|
Management/Professional Services
|
|
|
164
|
|
|
|
1
|
%
|
|
|
138
|
|
|
|
1
|
%
|
|
|
19
|
%
|
|
Revenue
|
|
|
19,401
|
|
|
|
100
|
%
|
|
|
13,001
|
|
|
|
100
|
%
|
|
|
49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Professional Services
|
|
|
7,578
|
|
|
|
39
|
%
|
|
|
6,828
|
|
|
|
52
|
%
|
|
|
11
|
%
|
|
Expenses
|
|
|
6,464
|
|
|
|
33
|
%
|
|
|
5,446
|
|
|
|
42
|
%
|
|
|
19
|
%
|
|
Total costs and expenses
|
|
|
14,042
|
|
|
|
72
|
%
|
|
|
12,274
|
|
|
|
94
|
%
|
|
|
14
|
%
|
|
Professional Services operating income before former noncontrolling interest in BHCMC, LLC
|
|
$
|
5,359
|
|
|
|
28
|
%
|
|
$
|
727
|
|
|
|
6
|
%
|
|
|
637
|
%
|
|
(dollars in thousands)
|
|
Six Months Ended October 31, 2021
|
|
|
Percent of Total Revenue
|
|
|
Six Months Ended October 31, 2020
|
|
|
Percent of Total Revenue
|
|
|
Percent Change 2020-2021
|
|
|
Aerospace Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
17,836
|
|
|
|
100
|
%
|
|
$
|
15,960
|
|
|
|
100
|
%
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Aerospace Products
|
|
|
11,939
|
|
|
|
67
|
%
|
|
|
11,788
|
|
|
|
74
|
%
|
|
|
1
|
%
|
|
Expenses
|
|
|
2,491
|
|
|
|
14
|
%
|
|
|
3,084
|
|
|
|
19
|
%
|
|
|
-19
|
%
|
|
Total costs and expenses
|
|
|
14,430
|
|
|
|
81
|
%
|
|
|
14,872
|
|
|
|
93
|
%
|
|
|
-3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace Products operating income
|
|
$
|
3,406
|
|
|
|
19
|
%
|
|
$
|
1,088
|
|
|
|
7
|
%
|
|
|
213
|
%
|
Professional Services
|
|
●
|
Revenue from Professional Services increased 49% for the six months ended October 31, 2021 to $19.4 million compared to $13.0 million for the six months ended October 31, 2020.
In the six months ended October 31, 2021 Boot Hill Casino received gross receipts for the State of Kansas of $25.0 million compared to $17.1 million for the six months ended October 31, 2020. Mandated fees, taxes and distributions reduced gross receipts by $7.9 million resulting in gaming revenue of $17.1 million for the six months ended October 31, 2021, compared to a reduction to gross receipts of $5.5 million resulting in gaming revenue of $11.6 million for the six months ended October 31, 2020. Non-gaming revenue at Boot Hill Casino increased to $2.2 million for the six months ended October 31, 2021, compared to $1.3 million for the six months ended October 31, 2020.
The remaining management and Professional Services revenue includes professional management services in the gaming industry, and licensed architectural services. Professional Services revenue excluding Boot Hill Casino increased 19% to $164 for the six months ended October 31, 2021, compared to $138 for the six months ended October 31, 2020.
|
|
|
●
|
Costs of Professional Services increased 11% in the six months ended October 31, 2021 to $7.6 million compared to $6.8 million in the six months ended October 31, 2020. Costs were 39% of segment total revenue in the six months ended October 31, 2021, as compared to 52% of segment total revenue in the six months ended October 31, 2020.
|
|
|
●
|
Expenses increased 19% in the six months ended October 31, 2021 to $6.5 million compared to $5.4 million in the six months ended October 31, 2020. Expenses were 33% of segment total revenue in the six months ended October 31, 2021, as compared to 42% of segment total revenue in the six months ended October 31, 2020.
|
Aerospace Products
|
|
●
|
Revenue increased 12% to $17.8 million in the six months ended October 31, 2021, compared to $16.0 million in the six months ended October 31, 2020. The increase in revenue is primarily due to an increase in special mission electronics business of $918 and an increase in aircraft modification business of $957.
|
|
|
●
|
Costs of Aerospace Products increased 1% in the six months ended October 31, 2021 to $11.9 million compared to $11.8 million for the six months ended October 31, 2020. Costs were 67% of segment total revenue in the six months ended October 31, 2021, as compared to 74% of segment total revenue in the six months ended October 31, 2020.
|
|
|
●
|
Expenses decreased 19% in the six months ended October 31, 2021 to $2.5 million compared to $3.1 million in the six months ended October 31, 2020. Expenses were 14% of segment total revenue in the six months ended October 31, 2021, as compared to 19% of segment total revenue in the six months ended October 31, 2020.
|
SECOND QUARTER FISCAL 2022 COMPARED TO SECOND QUARTER FISCAL 2021
|
(dollars in thousands)
|
|
Three Months Ended October 31, 2021
|
|
|
Percent of Total Revenue
|
|
|
Three Months Ended October 31, 2020
|
|
|
Percent of Total Revenue
|
|
|
Percent Change 2020-2021
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Services
|
|
$
|
9,676
|
|
|
|
51
|
%
|
|
$
|
7,648
|
|
|
|
48
|
%
|
|
|
27
|
%
|
|
Aerospace Products
|
|
|
9,417
|
|
|
|
49
|
%
|
|
|
8,324
|
|
|
|
52
|
%
|
|
|
13
|
%
|
|
Total revenue
|
|
|
19,093
|
|
|
|
100
|
%
|
|
|
15,972
|
|
|
|
100
|
%
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Professional Services
|
|
|
3,877
|
|
|
|
20
|
%
|
|
|
3,418
|
|
|
|
21
|
%
|
|
|
13
|
%
|
|
Cost of Aerospace Products
|
|
|
5,927
|
|
|
|
31
|
%
|
|
|
6,687
|
|
|
|
42
|
%
|
|
|
-11
|
%
|
|
Marketing and advertising
|
|
|
1,267
|
|
|
|
7
|
%
|
|
|
893
|
|
|
|
6
|
%
|
|
|
42
|
%
|
|
Employee benefits
|
|
|
546
|
|
|
|
3
|
%
|
|
|
566
|
|
|
|
3
|
%
|
|
|
-4
|
%
|
|
Depreciation and amortization
|
|
|
705
|
|
|
|
4
|
%
|
|
|
1,075
|
|
|
|
7
|
%
|
|
|
-34
|
%
|
|
General, administrative and other
|
|
|
2,028
|
|
|
|
10
|
%
|
|
|
1,646
|
|
|
|
10
|
%
|
|
|
23
|
%
|
|
Total costs and expenses
|
|
|
14,350
|
|
|
|
75
|
%
|
|
|
14,285
|
|
|
|
89
|
%
|
|
|
0
|
%
|
|
Operating income
|
|
$
|
4,743
|
|
|
|
25
|
%
|
|
$
|
1,687
|
|
|
|
11
|
%
|
|
|
181
|
%
|
Revenue:
Revenue increased 20% to $19.1 million in the three months ended October 31, 2021, compared to $16.0 million in the three months ended October 31, 2020. See "Operations by Segment" below for a discussion of the primary reasons for the increase in revenue.
|
|
●
|
Professional Services derives its revenue from (a) professional management services in the gaming industry through Butler National Service Corporation ("BNSC") and BHCMC, LLC ("BHCMC"), and (b) professional architectural, engineering and management support services. Revenue from Professional Services increased 27% for the three months to $9.7 million at October 31, 2021 compared to $7.6 million at October 31, 2020.
|
|
|
●
|
Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft. Aerospace Products revenue increased 13% for the three months to $9.4 million at October 31, 2021 compared to $8.3 million at October 31, 2020.
|
Costs and expenses:
Costs and expenses related to Professional Services and Aerospace Products include the cost of engineering, labor, materials, equipment utilization, control systems, security and occupancy. Costs and expenses increased 0% in the three months ended October 31, 2021 to $14.4 million compared to $14.3 million in the three months ended October 31, 2020. Costs and expenses were 75% of total revenue in the three months ended October 31, 2021, as compared to 89% of total revenue in the three months ended October 31, 2020.
Costs of Professional Services increased 13% in the three months ended October 31, 2021 to $3.9 million compared to $3.4 million in the three months ended October 31, 2020. Costs were 20% of total revenue in the three months ended October 31, 2021, as compared to 21% of total revenue in the three months ended October 31, 2020.
Costs of Aerospace Products decreased 11% in the three months ended October 31, 2021 to $5.9 million compared to $6.7 million for the three months ended October 31, 2020. Costs were 31% of total revenue in the three months ended October 31, 2021, as compared to 42% of total revenue in the three months ended October 31, 2020.
Marketing and advertising expenses increased 42% in the three months ended October 31, 2021, to $1.3 million compared to $0.9 million in the three months ended October 31, 2020. Expenses were 7% of total revenue in the three months ended October 31, 2021, as compared to 6% of total revenue in the three months ended October 31, 2020. Marketing and advertising expenses include advertising, sales and marketing labor, gaming development costs, and casino and product promotions.
Employee benefits expenses as a percent of total revenue was 3% in the three months ended October 31, 2021, compared to 3% in the three months ended October 31, 2020. These expenses decreased 4% to $546 in the three months ended October 31, 2021, from $566 in the three months ended October 31, 2020. These expenses include the employers' share of all federal, state and local taxes, paid time off for vacation, holidays and illness, employee health and life insurance programs and employer matching contributions to retirement plans.
Depreciation and amortization expenses as a percent of total revenue was 4% in the three months ended October 31, 2021, compared to 7% in the three months ended October 31, 2020. These expenses decreased 34% to $705 in the three months ended October 31, 2021 from $1.1 million in the three months ended October 31, 2020. These expenses include depreciation related to owned assets being depreciated over various useful lives and amortization of intangible items including the Kansas privilege fee related to the Boot Hill Casino being expensed over the initial term of the gaming contract with the State of Kansas. BHCMC, LLC depreciation and amortization expense for the three months ended October 31, 2021 was $575 compared to $954 in the three months ended October 31, 2020.
General, administrative and other expenses as a percent of total revenue was 10% in the three months ended October 31, 2021, compared to 10% in the three months ended October 31, 2020. These expenses increased 23% to $2.0 million in the three months ended October 31, 2021, from $1.6 million in the three months ended October 31, 2020.
Other expense:
Interest expense was $640 in the three months ended October 31, 2021, compared with interest expense of $1.1 million in the three months ended October 31, 2020. Interest related to obligations of BHCMC, LLC was $576 in the three months ended October 31, 2021 compared to $1.0 million in the three months ended October 31, 2020.
Operations by Segment
We have two operating segments, Professional Services and Aerospace Products. The Professional Services segment includes revenue contributions and expenditures associated with casino management services and professional architectural, engineering and management support services. Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft.
The following table presents a summary of our operating segment information for the three months ended October 31, 2021 and October 31, 2020:
|
(dollars in thousands)
|
|
Three Months Ended October 31, 2021
|
|
|
Percent of Total Revenue
|
|
|
Three Months Ended October 31, 2020
|
|
|
Percent of Total Revenue
|
|
|
Percent Change 2020-2021
|
|
|
Professional Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boot Hill Casino
|
|
$
|
9,573
|
|
|
|
99
|
%
|
|
$
|
7,555
|
|
|
|
99
|
%
|
|
|
27
|
%
|
|
Management/Professional Services
|
|
|
103
|
|
|
|
1
|
%
|
|
|
93
|
|
|
|
1
|
%
|
|
|
11
|
%
|
|
Revenue
|
|
|
9,676
|
|
|
|
100
|
%
|
|
|
7,648
|
|
|
|
100
|
%
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Professional Services
|
|
|
3,877
|
|
|
|
40
|
%
|
|
|
3,418
|
|
|
|
45
|
%
|
|
|
13
|
%
|
|
Expenses
|
|
|
3,433
|
|
|
|
36
|
%
|
|
|
2,714
|
|
|
|
35
|
%
|
|
|
26
|
%
|
|
Total costs and expenses
|
|
|
7,310
|
|
|
|
76
|
%
|
|
|
6,132
|
|
|
|
80
|
%
|
|
|
19
|
%
|
|
Professional Services operating income before former noncontrolling interest in BHCMC, LLC
|
|
$
|
2,366
|
|
|
|
24
|
%
|
|
$
|
1,516
|
|
|
|
20
|
%
|
|
|
56
|
%
|
|
(dollars in thousands)
|
|
Three Months Ended October 31, 2021
|
|
|
Percent of Total Revenue
|
|
|
Three Months Ended October 31, 2020
|
|
|
Percent of Total Revenue
|
|
|
Percent Change 2020-2021
|
|
|
Aerospace Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
9,417
|
|
|
|
100
|
%
|
|
$
|
8,324
|
|
|
|
100
|
%
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Aerospace Products
|
|
|
5,927
|
|
|
|
63
|
%
|
|
|
6,687
|
|
|
|
80
|
%
|
|
|
-11
|
%
|
|
Expenses
|
|
|
1,113
|
|
|
|
12
|
%
|
|
|
1,466
|
|
|
|
18
|
%
|
|
|
-24
|
%
|
|
Total costs and expenses
|
|
|
7,040
|
|
|
|
75
|
%
|
|
|
8,153
|
|
|
|
98
|
%
|
|
|
-14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace Products operating income
|
|
$
|
2,377
|
|
|
|
25
|
%
|
|
$
|
171
|
|
|
|
2
|
%
|
|
|
1290
|
%
|
Professional Services
|
|
●
|
Revenue from Professional Services increased 27% for the three months ended October 31, 2021 to $9.7 million compared to $7.6 million for the three months ended October 31, 2020.
In the three months ended October 31, 2021 Boot Hill Casino received gross receipts for the State of Kansas of $12.4 million compared to $9.8 million for the three months ended October 31, 2020. Mandated fees, taxes and distributions reduced gross receipts by $3.9 million resulting in gaming revenue of $8.5 million for the three months ended October 31, 2021, compared to a reduction to gross receipts of $3.0 million resulting in gaming revenue of $6.8 million for the three months ended October 31, 2020. Non-gaming revenue at Boot Hill Casino increased to $1.1 million for the three months ended October 31, 2021, compared to $784 for the three months ended October 31, 2020.
The remaining management and Professional Services revenue includes professional management services in the gaming industry, and licensed architectural services. Professional Services revenue excluding Boot Hill Casino increased 11% to $103 for the three months ended October 31, 2021, compared to $93 for the three months ended October 31, 2020.
|
|
|
●
|
Costs of Professional Services increased 13% in the three months ended October 31, 2021 to $3.9 million compared to $3.4 million in the three months ended October 31, 2020. Costs were 40% of segment total revenue in the three months ended October 31, 2021, as compared to 45% of segment total revenue in the three months ended October 31, 2020.
|
|
|
●
|
Expenses increased 26% in the three months ended October 31, 2021 to $3.4 million compared to $2.7 million in the three months ended October 31, 2020. Expenses were 36% of segment total revenue in the three months ended October 31, 2021, as compared to 35% of segment total revenue in the three months ended October 31, 2020.
|
Aerospace Products
|
|
●
|
Revenue increased 13% to $9.4 million in the three months ended October 31, 2021, compared to $8.3 million in the three months ended October 31, 2020. The increase in revenue is primarily due to an increase in special mission electronics business of $1.1 million.
|
|
|
●
|
Costs of Aerospace Products decreased 11% in the three months ended October 31, 2021 to $5.9 million compared to $6.7 million for the three months ended October 31, 2020. Costs were 63% of segment total revenue in the three months ended October 31, 2021, as compared to 80% of segment total revenue in the three months ended October 31, 2020.
|
|
|
●
|
Expenses decreased 24% in the three months ended October 31, 2021 to $1.1 million compared to $1.5 million in the three months ended October 31, 2020. Expenses were 12% of segment total revenue in the three months ended October 31, 2021, as compared to 18% of segment total revenue in the three months ended October 31, 2020.
|
Employees
Other than persons employed by our gaming subsidiaries there were 115 full time and 4 part time employees on October 31, 2021, compared to 111 full time and 5 part time employees on October 31, 2020. As of December 10, 2021, staffing is 112 full time and 5 part time employees. Our staffing at Boot Hill Casino & Resort on October 31, 2021 was 172 full time and 48 part time employees compared to 166 full time and 66 part time employees on October 31, 2020. At December 10, 2021 there are 174 full time and 50 part time employees. None of the employees are subject to any collective bargaining agreements.
Liquidity and Capital Resources
We believe that our current banks will provide the necessary capital for our business operations. However, we continue to maintain contact with other banks that have an interest in funding our working capital needs to continue our growth in operations in fiscal 2022 and beyond.
Analysis and Discussion of Cash Flow
During the six months ended October 31, 2021 our cash position decreased by $9.1 million. Net income was $7.9 million for the six months ended October 31, 2021. Cash flows provided by operating activities was $3.7 million for the six months ended October 31, 2021. Non-cash activities consisting of depreciation and amortization provided $2.6 million, while deferred compensation provided $297, gain on the sale of an airplane provided $75, and forgiveness of debt used $2.0 million. Contract assets decreased our cash position by $680. Contract liability decreased our cash position by $4.6 million. Inventories increased our cash position by $109. Accounts receivable decreased our cash position by $1.6 million. Gaming facility mandated payments increased our cash position by $100. Prepaid expenses and other assets decreased our cash by $296. An increase in accounts payable, a decrease in accrued expenses, and an increase in other current liabilities increased our cash by $993. Income tax payable increased our cash position by $710. A decrease in lease liability decreased our cash position by $57.
Cash used in investing activities was $3.3 million for the six months ended October 31, 2021. We invested $467 towards STCs, and $888 on equipment and furnishings and $2.0 million on the construction of new hangers. We received $75 in proceeds from the sale of an airplane.
Cash used by financing activities was $9.5 million for the six months ended October 31, 2021. We made repayments on our debt of $1.9 million. We used $7.7 million to purchase the noncontrolling interest of BHCMC, LLC. We purchased company stock of $4. The stock acquired was placed in treasury.
Critical Accounting Policies and Estimates
We believe that there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amount of revenue and other significant areas involving management judgments and estimates. These significant accounting policies relate to revenue recognition, the use of estimates, long-lived assets, and Supplemental Type Certificates. These policies and our procedures related to these policies are described in detail below and under specific areas within this "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Revenue Recognition: See footnote 3 to the condensed consolidated financial statements.
Lease Right-to-Use: See footnote 13 to the condensed consolidated financial statements.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Future events and their effects cannot be determined with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to our financial statements. Significant estimates include assumptions about percentage-of-completion, collection of accounts receivable, inventory obsolescence, the valuation of long-lived assets, including the STC’s, valuation for deferred tax assets and useful life of fixed and other long-term assets.
Long-lived Assets: The Company accounts for its long-lived assets in accordance with ASC Topic 360-10, "Accounting for the Impairment or Disposal of Long-Lived Assets." ASC Topic 360-10 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value or disposable value.
Supplemental Type Certificates: Supplemental Type Certificates (STCs) are authorizations granted by the Federal Aviation Administration (FAA) for specific modification of a certain aircraft. The STC authorizes us to perform modifications, installations, and assemblies on applicable customer-owned aircraft. Costs incurred to obtain STCs are capitalized and subsequently amortized over a seven year life. The legal life of an STC is indefinite.
Changing Prices and Inflation
We have experienced upward pressure from inflation in fiscal year 2022. From fiscal year 2021 to fiscal year 2022 most of the increases we experienced were in material costs. This additional cost may not be transferable to our customers resulting in lower income in the future. We anticipate fuel costs and possibly interest rates to rise in fiscal 2022 and 2023.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.