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Management Comments:
"Fiscal 2014 was a challenging period for Butler National Corporation. Following three difficult quarters, Butler National Corporation rebounded with a strong fourth quarter heading into fiscal year 2015. Revenue decreased 4% to $47.3 million in fiscal 2014, as compared to $49.2 million in fiscal 2013. Professional Services revenue decreased (down 13%), but Aerospace Products increased 19% primarily due to a strong fourth quarter. Butler National Corporation continues to drive growth in international markets and through the development of new supplemental type certificates. This includes significant efforts in South America, Europe, Africa, and Asia.
Fiscal 2014 net income was $112,000 compared to a net loss of $148,000 in fiscal 2013. The increase in net income was primarily due to our margin expansion initiatives. Fiscal 2014 operating margin was 4% compared to a 3% in fiscal 2013. The margin expansion initiatives include efficiencies in our implementation and operational processes and controlling general and administrative expenses.
The fourth quarter of fiscal 2014 resulted in the highest quarterly revenue in the past three fiscal years. Revenue increased 19% to $14.6 million in fourth quarter fiscal 2014, as compared to $12.3 million in fourth quarter fiscal 2013. The fourth quarter of fiscal 2014 resulted in a net income of $965,000 compared to a net income of $225,000 in fourth quarter fiscal 2013. This was driven by a strong demand in Aerospace Products.
During fiscal 2014, we invested approximately $1.8 million in projects focused on product development of new products. We feel these expenditures for the design and development engineering, testing, and certification of new products may help stabilize our long-term revenue and enhance our profits.
This is an exciting time for Butler National Corporation. Management and all employees are focused on the execution of our numerous business development opportunities as well as increasing revenue while managing costs. We believe we are positioned for the future as we focus on serving the needs of our customers and enhancing shareholder value," commented Clark D. Stewart, President of the Company.
Business Segment Highlights
Professional Services:
Revenue from Professional Services decreased 13% to $31.0 million in fiscal 2014 from $35.5 million in fiscal 2013. The decrease in Professional Services revenue was driven by decreased revenue in gaming activities of $2.6 million and other management and Professional Services of $1.9 million. There was a $1.3 million decrease in revenue from monitoring services due to the sale of Butler National Services, Inc. Costs decreased 11% in fiscal 2014 to $18.8 million compared to $21.1 million in fiscal 2013. The decrease in direct costs was a result of reductions in the number of electronic gaming machines. Expenses decreased 9% in fiscal 2014 to $10.4 million compared to $11.4 million fiscal 2013. Operating income from Professional Services decreased 39% to $1.8 million in fiscal 2014 from $3.0 million in fiscal 2013.
Aerospace Products:
Revenue increased 19% to $16.2 million in fiscal 2014 compared to $13.6 million in fiscal 2013. This increase is attributable to increased revenue of $2.3 million related to aircraft modifications. In an effort to offset decreased domestic military spending, the Company has invested in the development of several supplemental type certificates (STCs). These STCs involve state-of-the-art avionics. We are aggressively marketing these STCs both domestically and internationally. Costs increased 6% to $12.1 million in fiscal 2014 compared to $11.5 million in fiscal 2013. Costs were 74% of segment total revenue in fiscal 2014, as compared to 84% of segment total revenue in fiscal 2013. Expenses increased 10% in fiscal 2014 to $4.0 million compared to $3.7 million in fiscal 2013. Expenses were 25% of segment total revenue in fiscal 2014, compared to 27% of segment total revenue in fiscal 2013. Aerospace Products had an operating income of $103,000 in fiscal 2014 compared to an operating loss of $1.5 million in fiscal 2013.
Costs related to Professional Services and Aerospace Products include the cost of engineering, labor, materials, equipment utilization, control systems, security and occupancy. Expenses related to Professional Services and Aerospace Products include marketing and advertising, employee benefits, depreciation and amortization, general and administrative and other expenses.
Backlog:
As of April 30, 2014, our backlog totaled approximately $5.6 million. The backlog includes firm, pending, and contract orders, which may not be completed within the next fiscal year. As of July 4, 2014, our backlog totaled approximately $5.0 million. This is consistent with the industry in which modification services and related contracts may take several months, and sometimes years, to complete. There can be no assurance that all orders will be completed or that some may ever commence.
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