Core Insights - The recurring revenue model of Napco Security Technologies, Inc. is strong enough to sustain the business despite a weak year in hardware sales [1] Company Analysis - Napco Security Technologies, Inc. is expected to benefit from its recurring revenue engine, which is crucial for navigating challenges in the equipment segment [1] Analyst Background - The analyst has a background in petroleum and gas engineering and has transitioned into finance, focusing on technology, infrastructure, and internet services [1]

Accessibility StatementSkip Navigation AMITYVILLE, N.Y., Nov. 17, 2025 /PRNewswire/ -- NAPCO Security Technologies, Inc. (NASDAQ: NSSC), one of the leading designers and manufacturers of high-tech electronic security devices, and wireless communication services for intrusion, commercial fire alarm, access control and locking applications, as well as a leading provider of school safety solutions, today announced that it will be showcasing its latest innovations at the International Security Conference & Expo ...

Revenue and Income - Total revenue increased by 11.7% to $49.2 million, with equipment revenue rising 12.3% to $25.7 million and recurring service revenues increasing 11.1% to $23.4 million[152]. - Operating income rose by 15.1% to $13.6 million, reflecting strong performance in both equipment and service revenues[160]. - Net income for the three months ended September 30, 2025, increased by 8.8% to $12.2 million compared to $11.2 million in the same period last year[162]. - The increase in net service revenues to $23.4 million was driven by a higher number of activated cellular communication devices[164]. Profitability and Margins - Gross profit margin improved from 55.9% to 56.6%, with equipment gross margin increasing from 23.6% to 26.0%[152][160]. - The provision for income taxes increased by 36.1% to $2.5 million, with an effective tax rate of 16.9%[171]. Expenses - Research and development expenses increased by 6.0% to $3.2 million, representing 6.6% of net sales[168]. - Selling, general and administrative expenses rose by 13.0% to $11.0 million, primarily due to increased legal fees and commission expenses[169]. Cash Flow and Liquidity - Cash and cash equivalents increased by $12.3 million during the quarter, totaling $105.8 million as of September 30, 2025[173]. - Net cash provided by operating activities for Q3 2025 was $11.6 million, up from $12.0 million in Q3 2024, with net income of $12.2 million in 2025 compared to $11.2 million in 2024[175][176]. - Cash flows from investing activities in Q3 2025 were $5.6 million, primarily from the redemption of marketable securities of $8.4 million, a decrease from $15.5 million in Q3 2024[177]. - Cash used in financing activities for Q3 2025 was $5.0 million, mainly for stockholder dividends, compared to $7.2 million in Q3 2024 for treasury share repurchases[178]. - The company has a revolving credit line of $20 million, which expires in February 2029, with no outstanding debt[174]. Investments and Commitments - The company has no material commitments for capital expenditures or inventory purchases as of September 30, 2025[179]. - The investment portfolio includes U.S. treasury securities valued at approximately $10.3 million, with a potential decrease of $207,000 in fair value for a 100 basis point increase in interest rates[180]. Market and Economic Factors - A 10% change in the exchange rate between the U.S. dollar and Dominican Pesos could result in an annual income change of approximately $865,000[184]. - Recent tariffs announced on U.S. imports, including a new 10% baseline tariff, could increase product costs and impact margins[185].

Financial Performance - Record Q1 net revenues of $49.2 million, an 11.7% year-over-year increase[9] - Net income increased 8.8% year-over-year to a Q1 record of $12.2 million[5] - Diluted EPS increased year-over-year to $0.34 from $0.30[9] - Net income for Q3 2025 increased to $12,165,000, up from $11,185,000 in Q3 2024, representing a growth of 8.8%[16] - EBITDA for Q3 2025 was reported at $14,351,000, compared to $12,405,000 in Q3 2024, reflecting a year-over-year increase of 15.7%[18] - Adjusted EBITDA for Q3 2025 reached $14,942,000, up from $12,335,000 in Q3 2024, indicating a growth of 21.2%[18] - Adjusted EBITDA for Q1 2026 was $14.9 million, representing a 21.1% increase year-over-year[3] Revenue Breakdown - Equipment revenue increased 12.3% year-over-year to $25.7 million[9] - Recurring service revenue (RSR) increased 11.1% year-over-year to $23.4 million with a gross margin of 90%[9] - RSR has a prospective annual run rate of approximately $95 million based on October 2025 recurring service revenues[5] Profitability Metrics - Gross profit margin for Q1 2026 was 56.6%, compared to 55.9% in the prior fiscal year quarter[9] Cash Flow and Dividends - Cash flows from operating activities were $11.6 million, a decrease of 3.2% year-over-year[3] - Cash and cash equivalents at the end of Q3 2025 totaled $95,400,000, an increase from $85,596,000 at the end of Q3 2024, marking a rise of 11.1%[16] - Net cash provided by operating activities for Q3 2025 was $11,637,000, slightly down from $12,025,000 in Q3 2024, a decrease of 3.2%[16] - The company reported a net cash provided by investing activities of $5,674,000 in Q3 2025, compared to $15,456,000 in Q3 2024, a decline of 63.3%[16] - Dividends paid in Q3 2025 amounted to $4,992,000, with no dividends paid in Q3 2024[16] - The Board declared a quarterly dividend of $0.14 per share, payable on January 2, 2026[7] Shareholder Metrics - The diluted net income per share for Q3 2025 was $0.34, up from $0.30 in Q3 2024, representing a growth of 13.3%[18] - Adjusted EBITDA per diluted share for Q3 2025 was $0.42, compared to $0.33 in Q3 2024, reflecting an increase of 27.3%[18] Accounts Receivable - The company experienced a change in accounts receivable of $(561,000) in Q3 2025, contrasting with a positive change of $3,671,000 in Q3 2024[16]

Financial Data and Key Metrics Changes - Total revenue for Q1 2026 was $49.2 million, a record for the quarter, representing a 12% increase year-over-year [9][12] - Net income rose 9% to $12.2 million, which is 25% of revenue, and adjusted EBITDA increased 21% to $14.9 million, equating to an adjusted EBITDA margin of 30.4% [10][16] - Cash reached $106 million as of September 30, 2025, with cash from operations at $11.6 million [10][17] Business Line Data and Key Metrics Changes - Equipment sales were $25.7 million, up 12% year-over-year, supported by price adjustments and strong distributor relationships [9][12] - Recurring revenue grew 11% to $23.5 million, maintaining a gross margin of 90.3%, driven by Starlink Fire Radios [10][12] - Equipment gross margin improved to 26%, a 300 basis point increase from the previous quarter [10][14] Market Data and Key Metrics Changes - The company reported strong sell-through stats for locking products, with locking sales at $17.1 million for Q1, a significant increase from $13.9 million in the same period last year [36][37] - The recurring revenue service now has a prospective annual run rate of approximately $95 million, reflecting continued demand for StarLink Fire Radios [12][13] Company Strategy and Development Direction - The company is focused on enhancing shareholder value through a recurring revenue model, which now represents nearly half of total sales [19][20] - NAPCO is investing in school security solutions, integrating locking, access control, and alarm technologies to provide comprehensive safety solutions [20][21] - The introduction of the MVP Cloud-Based Access Control platform aims to create a new subscription-based revenue stream, enhancing the company's market position [21][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to weather economic challenges and continue executing its growth plan [6][7] - The company anticipates further benefits from pricing strategies and expects to see a larger impact in upcoming quarters [9][10] - Management highlighted the importance of innovation and operational efficiency in maintaining competitive advantages [19][20] Other Important Information - The company declared a quarterly dividend of $0.14 per share, payable on January 2, 2026 [10][11] - NAPCO's manufacturing facility in the Dominican Republic is noted for its cost efficiency and stability, providing a competitive edge [23][57] Q&A Session Summary Question: What percentage of your locking mix is represented by networked products? - Most sales in locking are traditional products, with MVP just starting to gain traction [26][27] Question: How does MVP technology differ from competitors? - MVP is a fully integrated system that combines locks and cloud services, allowing for enhanced functionality and recurring revenue [29][30] Question: How much of the hardware revenue growth was due to price versus volume? - Approximately 60% of the 12% increase in equipment revenue was due to volume increases, with 40% tied to pricing increases [34] Question: What is the status of the Pasadena school contract? - The project was completed successfully, and there are significant opportunities in school security across the country [82][84] Question: What are the plans for the cash on the balance sheet? - The company is considering potential M&A opportunities but remains cautious to ensure any acquisition is accretive [87][89]

Core Insights - NAPCO Security Technologies, Inc. reported strong financial results for Q1 of fiscal 2026, with net revenues reaching $49.2 million, an increase of 11.7% year-over-year [2][6] - The company experienced double-digit growth in both equipment and service revenue, driven by strong demand for door-locking products and a robust recurring service revenue (RSR) segment [4][6] Financial Highlights - Net Revenue: $49,168,000 in Q1 2026 compared to $44,003,000 in Q1 2025, reflecting an 11.7% increase [2][6] - Gross Profit: $27,846,000, up 13.1% from $24,616,000 in the previous year [2][6] - Gross Profit Margin: Improved to 56.6% from 55.9% year-over-year [2][6] - Net Income: Increased to $12,165,000, an 8.8% rise from $11,185,000 [2][6] - Diluted EPS: Rose to $0.34 from $0.30, marking a 13.3% increase [2][6] - Adjusted EBITDA: $14,942,000, a 21.1% increase from $12,335,000, with an adjusted EBITDA margin of 30.4% compared to 28.0% in Q1 2025 [2][6] Recurring Service Revenue (RSR) - RSR reached $23.4 million, an 11.1% increase year-over-year, with a gross margin exceeding 90% [4][6] - RSR accounted for 48% of total revenue in Q1 2026, with a prospective annual run rate of approximately $95 million based on October 2025 figures [4][6] Dividend Declaration - The Board declared a quarterly dividend of $0.14 per share, payable on January 2, 2026, to shareholders of record on December 12, 2025 [6][7] Strategic Focus - The company aims to expand RSR solutions across various platforms, including wireless fire and intrusion alarms and enterprise access control systems [5][6] - NAPCO is committed to maintaining financial strength, product innovation, and strong profitability for fiscal 2026 and beyond [6][7]

Core Viewpoint - NAPCO Security Technologies, Inc. is set to release its financial results for Fiscal First Quarter 2026 on November 3, 2025, before market opening, followed by a conference call for analysts and investors [1]. Company Overview - NAPCO Security Technologies, Inc. is a leading manufacturer and service provider of high-tech electronic security devices and school safety solutions, with a reputation for innovation and reliability [3]. - The company operates through four divisions: NAPCO and three wholly owned subsidiaries: Alarm Lock, Continental Instruments, and Marks USA [3]. - NAPCO's products are widely used across various sectors, including commercial, industrial, institutional, residential, and government applications [3]. Financial Communication - The upcoming conference call will be accessible via webcast and phone, with details provided for participation [2]. - A replay of the webcast will be available on the company's Investor Relations website [2].

Core Viewpoint - Halper Sadeh LLC is investigating potential breaches of fiduciary duties by certain officers and directors of NAPCO Security Technologies, Inc. (NASDAQ: NSSC), urging shareholders to contact the firm to discuss their rights and possible legal actions [1][2]. Group 1: Shareholder Rights and Legal Options - Shareholders who acquired NAPCO stock on or before November 7, 2022, may seek corporate governance reforms, return of funds, court-approved financial incentives, or other benefits [2]. - The firm operates on a contingent fee basis, meaning shareholders would not incur out-of-pocket legal fees [2]. Group 2: Importance of Shareholder Participation - Shareholder involvement is crucial for improving company policies, practices, and oversight, which can lead to enhanced transparency, accountability, and ultimately, shareholder value [3]. Group 3: Firm's Background and Experience - Halper Sadeh LLC represents global investors affected by securities fraud and corporate misconduct, having successfully implemented corporate reforms and recovered millions for defrauded investors [4].

Core Insights - Liberty Park Fund, LP's value increased by 1.13% in Q3 2025, underperforming the Russell 2000's 12.40% increase, with long positions contributing positively and shorts detracting significantly [2][4][21] - Liberty Park Select Opportunities, LP's value increased by 14.27% in the same period, indicating a strong performance in its investment strategy [3][21] - The Federal Reserve's interest rate cuts are expected to stimulate the economy, but have also inflated a bubble in speculative stocks, reminiscent of the dot-com bubble [4][10] Performance Analysis - Long positions saw a 14.42% increase, contributing 12.38% on a weight-adjusted basis, while shorts increased by 18.60%, detracting 10.85% [2][4] - The gross exposure for Liberty Park Fund averaged 142.48%, while net exposure averaged 33.61% [2][21] - Gross Pure Alpha for the quarter was -3.11%, indicating challenges in stock selection [2] Long Performance - Best-performing long positions included Xometry Inc (61.20% return), BK Technologies Corp (79.25% return), and Napco Security Technologies (45.13% return) [5] - Worst-performing long positions included Limbach Holdings Inc (-30.68% return), DMC Global Inc (-20.84% return), and Whirlpool Corp (-24.49% return) [6] Short Performance - The short portfolio faced significant pressure, with seven companies accounting for over half of the negative contribution, surging an average of 170% without fundamental changes [7] - These companies collectively have a market cap of $100 billion, reflecting unrealistic valuations based on 2026 revenue estimates [7] Portfolio Outlook - The investment environment is complex, with interest rate cuts expected to boost consumption while speculation in certain sectors has risen dramatically [10] - The fund's strategy is to remain invested in real economy, non-bubble names while being short on profitless hype [11] Adaptation and Strategy - The fund is considering single-name equity shorts as a core competency, but currently finds few attractive traditional economy shorts [12] - Options have been introduced for risk management, including long call and put positions to hedge against potential market corrections [13][14] Communication Changes - The fund will no longer disclose top positions or highlight individual investments in quarterly communications to protect proprietary research and focus on new initiatives [15][17]

Core Thesis - Napco Security Technologies, Inc. (NSSC) is viewed as a mispriced quality compounder with potential for rebound following a period of inventory destocking [2][5] Business Transformation - The company has shifted from traditional hardware sales to a hybrid model that includes a high-margin, recurring service revenue stream, with monthly recurring revenue (MRR) from fire and intrusion radio communicators accounting for over 75% of gross profit and achieving 90% gross margins [2] - The connected radio base has expanded from approximately 200,000 units in 2017 to over 800,000 units currently, with growth expected from replacement demand, new installations, and market share gains [2] Financial Performance - Napco's free cash flow conversion exceeds 85%, and it demonstrates robust returns on invested capital [2] - The company holds a clean balance sheet with net cash representing about 8% of its market cap, supporting strong downside protection [3] Market Position and Growth Potential - Hardware sales are anticipated to recover as distributor inventories normalize, which could enhance near-term revenue [3] - Structural advantages such as nearshore manufacturing in the Dominican Republic and low tariff exposure bolster margins and market share [3] - The company trades at 19x EV/EBITDA on consensus estimates, comparable to industrial peers, but growth normalization and MRR compounding may lead to multiple expansion [3] Risks and Catalysts - Key risks include prolonged weakness in hardware sales, macroeconomic pressures, leadership transitions, and the success of new MRR initiatives [4] - Catalysts for re-rating include unexpected hardware revenue growth, stabilization of MRR growth at 10-12%, ongoing earnings compounding, and continued share buybacks [4] - The company is expected to achieve double-digit earnings CAGR over the next two years, presenting a compelling risk/reward opportunity for long-term investors [4]