NAPCO Security Technologies(NSSC)

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NAPCO Security Technologies(NSSC) - 2020 Q3 - Earnings Call Transcript
2020-05-04 18:51
Financial Data and Key Metrics Changes - For Q3 2020, net sales increased 4% to $26.2 million, marking a record performance and the 23rd consecutive quarter of year-over-year record sales compared to $25.1 million in the same period last year [15] - Gross profit for Q3 increased 11% to $12 million with a gross margin of 46%, up from $10.7 million and 43% last year [17] - Net income for Q3 increased 16% to a record $3.6 million or $0.20 per diluted share, compared to $3.1 million or $0.17 per diluted share last year [23] - Adjusted EBITDA for Q3 increased 22% to $4.9 million or $0.26 per diluted share, compared to $4 million or $0.22 per diluted share last year [24] Business Line Data and Key Metrics Changes - Recurring monthly revenue for the Alarm division increased 37% for the quarter and 39% for the nine months, with an annual run rate of $25.4 million as of March 2020 [16] - Sales of alarm communication services and intrusion and access products contributed to the increase in sales, while door locking products saw a decrease [15] Market Data and Key Metrics Changes - The company noted a 25% rise in commercial burglaries during the COVID-19 shutdown, indicating increased demand for security products [34] - The school security market remains a significant growth contributor, with new funding initiatives for school security upgrades [36] Company Strategy and Development Direction - The company aims to expand its cellular communications technology to other areas in the security business, focusing on generating recurring revenue from new product lines [42][43] - Management emphasized the importance of maintaining a high level of ownership in equity, with senior management owning approximately 38% [13][48] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to weather market challenges due to its strong balance sheet and focus on non-discretionary commercial sectors [47] - The company anticipates continued growth in recurring revenue and profitability, aiming for a 50% split between recurring revenue and equipment sales in the long term [59][74] Other Important Information - The cash balance at March 31, 2020, was $11 million, up from $8 million at June 30, 2019, with zero debt [25] - The company repurchased approximately $2.4 million worth of stock during the quarter, indicating a strategic use of capital [29] Q&A Session Summary Question: Update on the production facility in the Dominican Republic - The Dominican Republic facility experienced some disruption but is now operational, allowing the company to maintain production levels [51][54] Question: Update on a large distributor's purchasing status - The distributor's business increased by 64% sequentially, indicating a return to normal purchasing levels [55][56] Question: Future gross margin expectations for recurring revenue - Gross margins are expected to fluctuate, but the company aims to increase the proportion of high-margin fire radios in its product mix [57][64] Question: Market position and potential for market share gain - The company is optimistic about gaining market share due to its strong balance sheet and innovative product offerings, particularly in the recurring revenue segment [72][74] Question: Interest in anti-microbial locks - The company has seen growing interest in anti-microbial locks, particularly in healthcare settings, and expects this trend to continue [90][91] Question: Supply chain interest from new distributors - The company is experiencing increased interest from distributors who prefer American-made products due to supply chain disruptions affecting competitors [95][96]
NAPCO Security Technologies(NSSC) - 2020 Q2 - Earnings Call Transcript
2020-02-03 23:17
Napco Security Technologies, Inc. (NASDAQ:NSSC) Q2 2020 Results Earnings Conference Call February 3, 2020 11:00 AM ET Company Participants Patrick McKillop - Director, Investor Relations Richard Soloway - President and CEO Kevin Buchel - Senior Vice President and CFO Conference Call Participants Mike Walkley - Canaccord Genuity Jaeson Schmidt - Lake Street Matt Pfau - William Blair Jeff Kessler - Imperial Capital Operator Greetings. And welcome to the NAPCO Security Technologies, Inc. Fiscal Second Quarter ...
NAPCO Security Technologies(NSSC) - 2020 Q2 - Quarterly Report
2020-02-03 22:27
PART I: FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) NAPCO reported strong growth in H2 2019, with net sales up 8.1% to $52.1M and net income up 55.6% to $6.8M, driven by service revenue growth [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets grew to $101.4M, driven by cash, inventory, and new lease assets, while liabilities increased to $23.1M Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2019 (unaudited) | June 30, 2019 | | :--- | :--- | :--- | | **Total Current Assets** | $71,278 | $65,455 | | **Total Assets** | **$101,360** | **$85,908** | | **Total Current Liabilities** | $15,080 | $14,372 | | **Total Liabilities** | **$23,058** | **$14,736** | | **Total Stockholders' Equity** | **$78,302** | **$71,172** | - The adoption of the new lease accounting standard (ASC 842) resulted in the recognition of a **$7.4 million** operating lease right-of-use asset and a **$7.1 million** operating lease liability as of December 31, 2019[7](index=7&type=chunk)[102](index=102&type=chunk) [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Net income surged 24.5% to $3.6M for Q2 and 55.6% to $6.8M for H1, driven by strong service revenue growth Three Months Ended December 31 (in thousands, except per share data) | Metric | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | **Net Sales** | **$25,829** | **$24,829** | **4.0%** | | - Equipment Revenues | $20,045 | $20,685 | -3.1% | | - Service Revenues | $5,784 | $4,144 | 39.6% | | **Gross Profit** | **$12,127** | **$10,671** | **13.6%** | | Gross Margin | 47.0% | 43.0% | +4.0 p.p. | | **Operating Income** | **$3,994** | **$3,294** | **21.3%** | | **Net Income** | **$3,572** | **$2,869** | **24.5%** | | **Diluted EPS** | **$0.19** | **$0.15** | **26.7%** | Six Months Ended December 31 (in thousands, except per share data) | Metric | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | **Net Sales** | **$52,114** | **$48,205** | **8.1%** | | - Equipment Revenues | $40,966 | $40,275 | 1.7% | | - Service Revenues | $11,148 | $7,930 | 40.6% | | **Gross Profit** | **$23,645** | **$20,230** | **16.9%** | | Gross Margin | 45.4% | 42.0% | +3.4 p.p. | | **Operating Income** | **$7,603** | **$5,053** | **50.5%** | | **Net Income** | **$6,805** | **$4,373** | **55.6%** | | **Diluted EPS** | **$0.37** | **$0.23** | **60.9%** | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow decreased to $4.8M due to inventory build, while cash and equivalents increased to $11.8M by period end Six Months Ended December 31 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $4,813 | $6,346 | | Net Cash Used in Investing Activities | ($1,063) | ($1,119) | | Net Cash Used in Financing Activities | $0 | ($2,614) | | **Net Change in Cash and Cash Equivalents** | **$3,750** | **$2,613** | | **Cash and Cash Equivalents - Ending** | **$11,778** | **$7,921** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail ASC 842 adoption, revenue disaggregation, significant customer concentration, and an ongoing IRS tax examination - The company adopted the new lease accounting standard (ASC 842) on July 1, 2019, using the modified retrospective method, resulting in the recognition of an operating ROU asset and lease liabilities of approximately **$7.7 million**[102](index=102&type=chunk) - One customer accounted for **21%** of accounts receivable as of December 31, 2019, and **8%** of net sales for the quarter[69](index=69&type=chunk) - The IRS is examining the company's fiscal 2017 tax return. Additionally, the IRS has proposed a **$1.8 million** tax adjustment for fiscal 2016 related to intercompany balances, which the company is protesting and has not reserved for[78](index=78&type=chunk)[79](index=79&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Sales grew 8.1% driven by service revenues, expanding gross margin to 45.4%, while strong liquidity supports strategic inventory build [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Net sales increased 8.1% to $52.1M, driven by service revenues, boosting gross profit by 16.9% and operating income by 50.5% Results of Operations Summary (in thousands) | Metric | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $52,114 | $48,205 | 8.1% | | Gross profit | $23,645 | $20,230 | 16.9% | | Operating income | $7,603 | $5,053 | 50.5% | | Net income | $6,805 | $4,373 | 55.6% | - The increase in sales for the six months was primarily due to increased communication service revenues (**+$3,218,000**) and sales of intrusion and access products (**+$971,000**), partially offset by a decrease in sales of door-locking products (**-$280,000**)[118](index=118&type=chunk) - The increase in gross profit and margin was primarily due to the higher mix of service revenues[119](index=119&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) Strong liquidity, including an $11M credit facility, supports operations, with a strategic $7.1M increase in inventories - The company believes its current working capital, cash flows from operations, and its revolving credit agreement will be sufficient to fund operations through the next twelve months[126](index=126&type=chunk) - As of December 31, 2019, the company had no outstanding borrowings and **$11,000,000** in availability under its revolving credit facility[130](index=130&type=chunk) - Inventories increased by **$7.1 million**, primarily to build stock of new devices related to recurring communication service revenues and to level-load production output[128](index=128&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Primary market risk is foreign currency exposure to the Dominican Peso, with a 10% USD/RD$ change impacting income by $700,000 - The company is exposed to foreign currency risk related to expenses incurred in Dominican Pesos (RD$) at its production facility[132](index=132&type=chunk) - A **10%** strengthening or weakening in the U.S. dollar to the RD$ would result in an annual increase or decrease in income from operations of approximately **$700,000**[132](index=132&type=chunk) [Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including CEO and CFO, concluded disclosure controls and procedures were effective with no material changes - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[134](index=134&type=chunk) - No changes in internal controls over financial reporting occurred during the six months ended December 31, 2019, that have materially affected, or are reasonably likely to materially affect, these controls[135](index=135&type=chunk) PART II: OTHER INFORMATION [Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported from the prior fiscal year's Form 10-K filing - There has been no material change in the risk factors previously disclosed in the Company's Form 10-K for the year ended June 30, 2019[136](index=136&type=chunk) [Exhibits](index=29&type=section&id=Item%206.%20Exhibits) Required CEO/CFO certifications and XBRL data files are included as exhibits to this report - Exhibits filed with this report include CEO and CFO certifications (31.1, 31.2), Section 1350 certifications (32.1), and XBRL data files (101 series)[137](index=137&type=chunk) Signatures [Signatures](index=30&type=section&id=Signatures) The quarterly report was signed on February 3, 2020, by the Chairman, President, CEO, and Principal Financial Officer - The report was duly signed and authorized on February 3, 2020[140](index=140&type=chunk)
NAPCO Security Technologies(NSSC) - 2020 Q1 - Quarterly Report
2019-11-08 22:01
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2019 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________. Commission File number: 0-10004 NAPCO SECURITY TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) Delaware ...
NAPCO Security Technologies(NSSC) - 2020 Q1 - Earnings Call Transcript
2019-11-04 22:34
NAPCO Security Technologies, Inc. (NASDAQ:NSSC) Q1 2020 Earnings Conference Call November 4, 2019 11:00 AM ET Company Participants Patrick McKillop - Director IR Richard Soloway - President & CEO Kevin Buchel - SVP Operations & Finance Conference Call Participants Matt Pfau - William Blair Jaeson Schmidt - Lake Street Capital Jeffrey Kessler - Imperial Capital Operator Greetings, welcome to the NAPCO Security Technologies, Inc. Fiscal First Quarter 2020 Earnings Release Conference Call. At this time, all pa ...
NAPCO Security Technologies(NSSC) - 2019 Q4 - Annual Report
2019-09-13 21:01
PART I [Business](index=3&type=section&id=ITEM%201%3A%20BUSINESS.) NAPCO is a diversified security product manufacturer and service provider, selling globally through distributors, with R&D focus and seasonal sales peaks - NAPCO is a diversified manufacturer of security products (access control, door-locking, intrusion/fire alarm, video surveillance) and provides wireless communication services for these systems[8](index=8&type=chunk)[144](index=144&type=chunk) - Products are sold worldwide to independent distributors, dealers, and installers for commercial, residential, institutional, industrial, and governmental applications[8](index=8&type=chunk)[77](index=77&type=chunk)[144](index=144&type=chunk) - The company expended approximately **$7.212 million** on R&D in fiscal year 2019, an **8.8% increase** from **$6.630 million** in fiscal year 2018, primarily for product development and improvement[22](index=22&type=chunk)[105](index=105&type=chunk)[161](index=161&type=chunk) - Independent distributors and wholesalers represented approximately **57% of total sales** for fiscal year 2019 (**54%** in fiscal year 2018)[24](index=24&type=chunk) - As of June 30, 2019, the Company had **1,076 full-time employees**[23](index=23&type=chunk) - Sales historically peak in the fiscal fourth quarter (April 1 through June 30) and are reduced in the fiscal first quarter (July 1 through September 30) due to end-user installation preferences[29](index=29&type=chunk)[75](index=75&type=chunk)[145](index=145&type=chunk) - Sales backlog decreased from **$2.151 million** as of June 30, 2018, to **$992,000** as of June 30, 2019, with the entire backlog expected to be filled during fiscal 2020[31](index=31&type=chunk) Sales to External Customers and Identifiable Assets by Geography (in thousands) | Category | Fiscal Year Ended June 30, 2019 | Fiscal Year Ended June 30, 2018 | | :-------------------------- | :------------------------------ | :------------------------------ | | **Sales to external customers:** | | | | Domestic | $100,716 | $89,490 | | Foreign | $2,216 | $2,256 | | Total Net Sales | $102,932 | $91,746 | | **Identifiable assets (as of June 30):** | | | | United States | $59,683 | $52,928 | | Dominican Republic | $26,225 | $20,341 | | Total Identifiable Assets | $85,908 | $73,269 | [Risk Factors](index=6&type=section&id=ITEM%201A%3A%20RISK%20FACTORS.) The company faces risks from economic conditions, CEO dependence, intense competition, operational inefficiencies, market demand fluctuations, and potential future internal control weaknesses - General economic and market conditions, including deterioration in the U.S. or international economy, could materially adversely affect revenue, profit, and cash flow levels[37](index=37&type=chunk)[74](index=74&type=chunk) - The Company's success is largely dependent on the efforts of **Richard L. Soloway, Chief Executive Officer**, and there is currently no succession plan in place, posing a material adverse effect risk[38](index=38&type=chunk)[109](index=109&type=chunk) - The security products industry is highly competitive, with approximately **12 other companies**, many having substantially greater financial resources, competing on features, quality, reliability, pricing, innovation, and technical support[26](index=26&type=chunk)[27](index=27&type=chunk)[43](index=43&type=chunk) - The Company regularly grants extended payment terms (beyond 30 days) to certain customers, increasing the inherent risk in collecting receivables[44](index=44&type=chunk) - Reliance on independent distributors and wholesalers, who also sell competitors' products, could lead to a loss of revenue if they favor competitors or face financial weakening[45](index=45&type=chunk) - Members of management and the Board of Directors beneficially own approximately **38% of outstanding common stock**, potentially influencing corporate elections and making acquisitions more difficult[46](index=46&type=chunk) - Offshore operations in the Dominican Republic expose the Company to adverse tax consequences if indefinitely reinvested foreign earnings are repatriated, subject to additional withholding taxes[48](index=48&type=chunk)[49](index=49&type=chunk) - Exposure to foreign currency risks due to operations in the Dominican Republic; a **10% strengthening or weakening** of the U.S. dollar against the Dominican Peso could result in an annual increase or decrease in income from operations of approximately **$700,000**[55](index=55&type=chunk)[111](index=111&type=chunk) - A material weakness in internal control over financial reporting identified at June 30, 2018, was remediated during fiscal 2019, but there is no assurance that future material weaknesses will not arise[53](index=53&type=chunk)[54](index=54&type=chunk)[235](index=235&type=chunk) [Unresolved Staff Comments](index=9&type=section&id=ITEM%201B%3A%20UNRESOLVED%20STAFF%20COMMENTS.) This item states that there are no unresolved staff comments from the SEC [Properties](index=9&type=section&id=ITEM%202%3A%20PROPERTIES.) The Company owns executive offices and production/warehousing facilities in Amityville, New York, and a larger production/warehousing facility in the Dominican Republic, where a majority of products are manufactured - The Company owns a **95,000 square foot facility** in Amityville, New York, for executive offices, production, and warehousing, with space for expansion[57](index=57&type=chunk) - A foreign subsidiary in the Dominican Republic owns a **167,000 square foot production and warehousing facility**, with the land leased under a 99-year agreement expiring in 2092 at an annual cost of approximately **$288,000**[58](index=58&type=chunk)[98](index=98&type=chunk)[221](index=221&type=chunk) - A majority of the Company's products are manufactured at the Dominican Republic facility, utilizing U.S. quality control standards[58](index=58&type=chunk) - Management believes these facilities are more than adequate to meet the Company's needs in the foreseeable future[59](index=59&type=chunk) [Legal Proceedings](index=9&type=section&id=ITEM%203%3A%20LEGAL%20PROCEEDINGS.) There are no pending or threatened material legal proceedings against NAPCO or its subsidiaries, though the Company is appealing a proposed IRS income adjustment for fiscal year 2016 - There are no pending or threatened material legal proceedings to which NAPCO or its subsidiaries are subject[60](index=60&type=chunk) - The Company is party to an IRS proceeding concerning a proposed **$1.8 million income adjustment** for fiscal 2016 related to deemed dividends; the Company has filed a formal protest and believes it will prevail[60](index=60&type=chunk)[90](index=90&type=chunk)[192](index=192&type=chunk) [Mine Safety Disclosure](index=9&type=section&id=ITEM%204%3A%20MINE%20SAFETY%20DISCLOSURE.) This item states that mine safety disclosure is not applicable to the Company's operations PART II [Market for Common Equity, Stockholder Matters and Issuer Purchases](index=10&type=section&id=ITEM%205%3A%20MARKET%20FOR%20THE%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES.) NAPCO's common stock is traded on NASDAQ under NSSC, with 18.48 million shares outstanding as of September 10, 2019, and no cash dividends declared in the past two fiscal years - NAPCO's Common Stock is traded on the NASDAQ Stock Market, Global Market System, under the symbol **NSSC**[64](index=64&type=chunk) - As of September 10, 2019, there were **82 holders of record** of NAPCO's Common Stock and **18,477,784 shares outstanding**[4](index=4&type=chunk)[65](index=65&type=chunk) - NAPCO has not declared any cash dividends on its Common Stock during the past two fiscal years[66](index=66&type=chunk)[69](index=69&type=chunk) Equity Compensation Plan Information as of June 30, 2019 (in thousands) | Category | Number of Securities to be Issued Upon Exercise of Outstanding Options (a) | Weighted Average Exercise Price of Outstanding Options (b) | Number of Securities Remaining Available for Future Issuance (Excluding Securities Reflected in Column (a)) (c) | | :------------------------------------ | :--------------------------------------------------------------------- | :------------------------------------------------------- | :---------------------------------------------------------------------------------------------------------------- | | Equity compensation plans approved by security holders | 97,900 | $11.50 | 822,900 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 97,900 | $11.50 | 822,900 | [Selected Financial Data](index=11&type=section&id=ITEM%206%3A%20SELECTED%20FINANCIAL%20DATA.) The selected financial data highlights a positive trend in net sales, gross profit, and net income from fiscal year 2015 to 2019, with strong liquidity and no long-term debt as of 2019 Selected Financial Data (in thousands, except share and per share data) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :-------------------------------------- | :----- | :----- | :----- | :----- | :----- | | **Statement of earnings data:** | | | | | | | Net Sales | $102,932 | $91,746 | $87,374 | $82,513 | $77,762 | | Gross Profit | $43,890 | $37,995 | $36,301 | $33,753 | $31,429 | | Income from Operations | $13,466 | $8,414 | $6,378 | $6,323 | $5,281 | | Net Income | $12,223 | $7,649 | $5,599 | $5,773 | $4,845 | | **Cash Flow Data:** | | | | | | | Net cash flows provided by operating activities | $8,653 | $7,864 | $2,448 | $9,160 | $3,887 | | Net cash flows used in investing activities | $(1,988) | $(1,280) | $(1,414) | $(693) | $(730) | | Net cash flows used in financing activities | $(3,945) | $(4,730) | $(1,385) | $(7,008) | $(3,294) | | **Per Share Data:** | | | | | | | Basic Net earnings per common share | $0.66 | $0.41 | $0.30 | $0.31 | $0.25 | | Diluted Net earnings per common share | $0.66 | $0.41 | $0.30 | $0.31 | $0.25 | | **Balance sheet data:** | | | | | | | Working capital | $51,083 | $44,301 | $40,798 | $36,888 | $35,590 | | Total assets | $85,908 | $73,269 | $70,862 | $64,769 | $65,037 | | Long-term debt | $0 | $0 | $3,500 | $4,500 | $9,100 | | Stockholders' equity | $71,172 | $63,453 | $56,889 | $51,273 | $46,504 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=12&type=section&id=ITEM%207%3A%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS.) This section provides an overview of NAPCO's business, financial performance, and key factors influencing its operations, highlighting significant increases in net sales and net income for fiscal 2019, supported by strong liquidity [Overview](index=12&type=section&id=Overview) This section provides an overview of NAPCO's diversified security product business, its revenue streams, cost structure, and R&D investment strategy - NAPCO is a diversified manufacturer and service provider of security products, with international sales accounting for approximately **2% of revenues** for both fiscal years ended June 30, 2019 and 2018[71](index=71&type=chunk) - Recurring revenue from service was **$17.427 million** in fiscal 2019, representing approximately **17% of Net sales**[71](index=71&type=chunk) - A significant portion of operating costs are fixed, meaning increased production levels and factory utilization can contribute to increasing profit margins[72](index=72&type=chunk) - The Company generally devotes **6-8% of revenues** to research and development (R&D) annually, primarily for enhancing existing products, with benefits expected over future years[73](index=73&type=chunk) [Economic and Other Factors](index=12&type=section&id=Economic%20and%20Other%20Factors) General economic and market conditions, both domestic and international, can significantly impact the company's revenue, profit, and cash flow levels - General economic and market conditions, both U.S. and international, can materially adversely affect revenue, profit, and cash flow levels, potentially leading to delayed payments or cancelled purchases[74](index=74&type=chunk) [Seasonality](index=12&type=section&id=Seasonality) Sales historically peak in the fiscal fourth quarter and are reduced in the first quarter, influenced by installation timing and housing market trends - Sales historically peak in the fiscal fourth quarter (April 1 through June 30) and are reduced in the fiscal first quarter (July 1 through September 30), influenced by end-user installation timing and housing/construction markets[75](index=75&type=chunk) [Critical Accounting Policies and Estimates](index=12&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's critical accounting policies involve significant judgments and estimates for sales returns, doubtful accounts, inventory reserves, intangible assets, and income taxes - The Company's critical accounting policies involve significant judgments and estimates for sales returns and allowances, allowance for doubtful accounts, inventory reserves, intangible assets, and income taxes[76](index=76&type=chunk)[147](index=147&type=chunk) - Revenue is recognized upon transfer of control of products or services; product sales are recognized at shipment or delivery, and monthly communication services are recognized over the monthly period as services are rendered[78](index=78&type=chunk)[179](index=179&type=chunk) - Sales returns, rebates, and allowances were **8% of gross sales** in fiscal 2019, up from **7%** in fiscal 2018, with reserves established based on historical data and expected returns[82](index=82&type=chunk)[183](index=183&type=chunk) - One customer comprised **19% of accounts receivable** and **10% of net sales** at June 30, 2019 (**22% and 10%** at June 30, 2018); another customer comprised **11% of accounts receivable** in both years but did not exceed 10% of net sales[83](index=83&type=chunk)[185](index=185&type=chunk) - The reserve for doubtful accounts was **$88,000** at June 30, 2019, down from **$195,000** at June 30, 2018, based on evaluation of aging, specific exposures, and historical/anticipated events[84](index=84&type=chunk)[150](index=150&type=chunk) - Inventories are valued at the lower of cost (FIFO) or net realizable value, and an obsolescence reserve is recorded based on product sales projections, age, and historical trends[85](index=85&type=chunk)[86](index=86&type=chunk)[151](index=151&type=chunk)[152](index=152&type=chunk) - No impairment of long-lived assets or indefinite intangible assets was determined for the years ended June 30, 2019 and 2018[87](index=87&type=chunk)[88](index=88&type=chunk) - The Company recognized a net income tax expense of **$1.222 million** for fiscal 2019, with an effective tax rate of **9.1%** (compared to **8.2%** in fiscal 2018)[91](index=91&type=chunk)[108](index=108&type=chunk)[190](index=190&type=chunk) - The Company is appealing an IRS proposed adjustment of approximately **$1.8 million** to income for fiscal 2016, believing it will prevail[90](index=90&type=chunk)[192](index=192&type=chunk) - The reserve for uncertain income tax positions decreased by **$96,000** during fiscal 2019, with **$125,000** of unrecognized net tax benefits as of June 30, 2019[91](index=91&type=chunk)[195](index=195&type=chunk)[197](index=197&type=chunk) [Liquidity and Capital Resources](index=15&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is primarily driven by operating cash flow and an $11 million revolving credit facility, with no outstanding long-term debt - The Company's primary internal source of liquidity is cash flow from operations, supplemented by an **$11 million revolving credit facility** expiring in June 2021, with **$0 outstanding** as of June 30, 2019 and 2018[93](index=93&type=chunk)[96](index=96&type=chunk)[198](index=198&type=chunk) - Cash and cash equivalents increased to **$8.028 million** at June 30, 2019, from **$5.308 million** at June 30, 2018[93](index=93&type=chunk)[133](index=133&type=chunk) - Working capital increased by **$6.782 million** to **$51.083 million** at June 30, 2019, from **$44.301 million** at June 30, 2018[99](index=99&type=chunk) - Accounts Receivable increased by **$3.232 million** to **$25.970 million** at June 30, 2019, primarily due to increased sales[99](index=99&type=chunk) - Inventories increased by **$5.904 million** to **$34.838 million** at June 30, 2019, primarily due to building levels of recently introduced and soon-to-be-introduced new products[100](index=100&type=chunk) - Accounts payable and accrued expenses increased by **$4.715 million** to **$13.824 million** at June 30, 2019, primarily due to the increase in inventory[101](index=101&type=chunk) - The Company repurchased **274,065 shares** of its common stock for **$3.998 million** during fiscal 2019[95](index=95&type=chunk)[215](index=215&type=chunk) Liquidity Ratios (as of June 30) | Ratio | 2019 | 2018 | | :---------------- | :------- | :------- | | Current Ratio | 4.6 to 1 | 5.7 to 1 | | Sales to Receivables | 4.0 to 1 | 4.0 to 1 | | Total debt to equity | 0.0 to 1 | 0.0 to 1 | [Off-Balance Sheet Arrangements](index=16&type=section&id=Off-Balance%20Sheet%20Arrangements) The company does not maintain any off-balance sheet arrangements - The Company does not maintain any off-balance sheet arrangements[102](index=102&type=chunk) [Results of Operations](index=16&type=section&id=Results%20of%20Operations) Net sales and gross profit significantly increased in fiscal 2019 compared to 2018, driven by growth in alarm communication services and various product lines Fiscal Year Ended June 30 (dollars in thousands) | Metric | 2019 | 2018 | % Increase/(decrease) | | :-------------------------------------- | :----- | :----- | :-------------------- | | Net sales | $102,932 | $91,746 | 12.2% | | Gross profit | $43,890 | $37,995 | 15.5% | | Gross profit as a % of net sales | 42.6% | 41.4% | 2.9% | | Research and development | $7,212 | $6,630 | 8.8% | | Selling, general and administrative | $23,212 | $22,951 | 1.1% | | Selling, general and administrative as a % of net sales | 22.6% | 25.0% | (9.6)% | | Income from operations | $13,466 | $8,414 | 60.0% | | Interest expense, net | $21 | $81 | (74.1)% | | Provision for income taxes | $1,222 | $684 | 78.7% | | Net income | $12,223 | $7,649 | 59.8% | - The **$11.186 million increase in net sales** was primarily driven by increased sales of alarm communication services (**$5.425 million**), Napco brand intrusion products (**$2.809 million**), Alarm Lock brand door-locking products (**$2.246 million**), Marks brand door-locking products (**$568,000**), and Continental brand access control products (**$138,000**)[104](index=104&type=chunk) - Gross profit increased by **$5.895 million**, and gross profit margin improved from **41.4% to 42.6%**, primarily due to increased net sales, partially offset by higher salary and freight expenses[105](index=105&type=chunk) - Selling, general and administrative expenses increased by **$261,000** but decreased as a percentage of net sales from **25.0% to 22.6%**, indicating improved operating leverage[106](index=106&type=chunk) - Interest expense decreased significantly by **$60,000** due to the elimination of outstanding debt during fiscal 2018[107](index=107&type=chunk) [Forward-looking Information](index=18&type=section&id=Forward-looking%20Information) The report contains forward-looking statements subject to risks and uncertainties, including economic conditions, CEO dependence, and foreign currency fluctuations - The report includes "Forward-Looking Statements" covered by Safe Harbor Provisions, which are subject to risks and uncertainties that could cause actual results to differ materially[109](index=109&type=chunk) - Key factors that could cause actual results to differ include uncertain economic, military, and political conditions, dependence on the CEO, ability to maintain competitive products, adverse tax consequences of offshore operations, ability to maintain adequate financing, and significant fluctuations in the exchange rate between the Dominican Peso and the U.S. Dollar[109](index=109&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=19&type=section&id=ITEM%207A%3A%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exposed to market risk primarily through interest rate changes on its revolving credit facility and foreign currency fluctuations, particularly between the U.S. dollar and the Dominican Peso - The Company is affected by market risk exposure primarily through the effect of changes in interest rates on amounts payable under its revolving credit facility, which provides for LIBOR-based or prime rate-based interest[110](index=110&type=chunk)[198](index=198&type=chunk) - All foreign sales transactions are denominated in U.S. dollars, shifting foreign currency exposure to customers, but the Company is exposed to foreign currency risk for expenses incurred in Dominican Pesos[111](index=111&type=chunk) - A **10% strengthening or weakening** in the U.S. dollar to the Dominican Peso would result in an annual increase or decrease in income from operations of approximately **$700,000**[111](index=111&type=chunk) [Financial Statements and Supplementary Data](index=19&type=section&id=ITEM%208%3A%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA.) This item presents the audited consolidated financial statements for NAPCO Security Technologies, Inc. and its subsidiaries, along with management's report and the independent auditor's report on internal control - The item includes the Management Report on Internal Control, Report of Independent Registered Public Accounting Firm, and Consolidated Financial Statements (Balance Sheets, Statements of Income, Stockholders' Equity, Cash Flows, and Notes)[113](index=113&type=chunk)[245](index=245&type=chunk) - Management assessed and determined that the Company maintained effective internal control over financial reporting as of June 30, 2019[117](index=117&type=chunk) - Baker Tilly Virchow Krause, LLP, the independent registered public accounting firm, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of June 30, 2019[122](index=122&type=chunk) - The Company adopted FASB Accounting Standards Update No. 2014-09 (Topic 606), Revenue from Contracts with Customers, effective July 1, 2018[123](index=123&type=chunk)[175](index=175&type=chunk) [Management Report on Internal Control](index=20&type=section&id=Management%20Report%20on%20Internal%20Control) Management is responsible for and assessed the effectiveness of internal control over financial reporting, concluding it was effective as of June 30, 2019 - Management is responsible for establishing and maintaining adequate internal control over financial reporting and assessed its effectiveness based on the COSO framework[114](index=114&type=chunk)[117](index=117&type=chunk) - Management determined that as of June 30, 2019, the Company maintained effective internal control over financial reporting[117](index=117&type=chunk) [Report of Independent Registered Public Accounting Firm](index=21&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Baker Tilly Virchow Krause, LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting - Baker Tilly Virchow Krause, LLP audited the consolidated financial statements and the Company's internal control over financial reporting[121](index=121&type=chunk) - The auditors issued an unqualified opinion, stating that the financial statements present fairly, in all material respects, the financial position and results of operations, and that the Company maintained effective internal control over financial reporting as of June 30, 2019[122](index=122&type=chunk) - The Company changed its method of accounting for revenue for the year ended June 30, 2019, due to the adoption of FASB Accounting Standards Update No. 2014-09 (Topic 606)[123](index=123&type=chunk) [Consolidated Financial Statements](index=19&type=section&id=Consolidated%20Financial%20Statements) This section includes the Consolidated Balance Sheets, Statements of Income, Stockholders' Equity, and Cash Flows for fiscal years 2019 and 2018 - The report includes Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Stockholders' Equity, and Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2019 and 2018[113](index=113&type=chunk)[132](index=132&type=chunk)[135](index=135&type=chunk)[138](index=138&type=chunk)[140](index=140&type=chunk)[245](index=245&type=chunk) [Notes to Consolidated Financial Statements](index=27&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed information on the company's accounting policies, revenue recognition, inventory, property, debt, stock-based compensation, and other financial disclosures - The Company adopted ASC 606, Revenue from Contracts with Customers, effective July 1, 2018, resulting in a net decrease to opening retained earnings of approximately **$719,000**[175](index=175&type=chunk)[176](index=176&type=chunk) Disaggregation of Revenues by Major Product Lines (in thousands) | Major Product Lines | Fiscal Year Ended June 30, 2019 | Fiscal Year Ended June 30, 2018 | | :-------------------------- | :------------------------------ | :------------------------------ | | Intrusion and access alarm products | $31,557 | $28,610 | | Door locking devices | $53,948 | $51,134 | | Services | $17,427 | $12,002 | | Total Revenues | $102,932 | $91,746 | Inventories, Net of Reserves (in thousands) | Category | June 30, 2019 | June 30, 2018 | | :-------------------------- | :------------ | :------------ | | Component parts | $21,543 | $16,495 | | Work-in-process | $5,377 | $4,491 | | Finished product | $7,918 | $7,948 | | **Total Inventories** | **$34,838** | **$28,934** | | Classification of inventories: | | | | Current | $29,576 | $24,533 | | Non-current | $5,262 | $4,401 | - Property, plant, and equipment, net, totaled **$7.694 million** at June 30, 2019, with depreciation and amortization expense of approximately **$1.085 million** in fiscal 2019[188](index=188&type=chunk) - The Company has an **$11 million revolving line of credit** expiring in June 2021, with **no outstanding balances** as of June 30, 2019 and 2018[198](index=198&type=chunk) - Total stock-based compensation expense recognized was **$160,000** in fiscal 2019 and **$146,000** in fiscal 2018, across three stock option plans (2012 Employee, 2012 Non-Employee, 2018 Non-Employee)[167](index=167&type=chunk)[200](index=200&type=chunk) - The Company repurchased **274,065 shares** of its common stock for **$3.998 million** during fiscal 2019[215](index=215&type=chunk) - Company contributions to its 401(k) plan totaled **$133,000** in fiscal 2019[218](index=218&type=chunk) - Operating lease payments total **$85,000** through fiscal 2023, and the annual land lease cost in the Dominican Republic is **$288,000** until 2092[219](index=219&type=chunk)[221](index=221&type=chunk) - The Company has employment agreements with its CEO, Senior Vice President of Sales and Marketing, and Senior Vice President of Engineering, and a severance agreement with the Senior Vice President of Operations and Finance[223](index=223&type=chunk) PART III [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=44&type=section&id=ITEM%209%3A%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE.) This item confirms that there have been no changes in or disagreements with the Company's accountants on accounting and financial disclosure matters [Control and Procedures](index=44&type=section&id=ITEM%209A%3A%20CONTROL%20AND%20PROCEDURES.) Management concluded that disclosure controls were effective as of June 30, 2019, and a prior material weakness in internal control was remediated - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2019[231](index=231&type=chunk) - Management's Report on Internal Control over Financial Reporting states that management determined effective internal control over financial reporting as of June 30, 2019[117](index=117&type=chunk)[232](index=232&type=chunk) - The effectiveness of the Company's internal control over financial reporting as of June 30, 2019, was audited by Baker Tilly Virchow Krause, LLP, who issued an unqualified opinion[118](index=118&type=chunk)[122](index=122&type=chunk)[232](index=232&type=chunk) - A material weakness in internal control over financial reporting identified during the quarter ended June 30, 2018, was remediated during the fiscal year ended June 30, 2019[235](index=235&type=chunk) [Other Information](index=44&type=section&id=ITEM%209B%3A%20OTHER%20INFORMATION.) This item states that there is no other information required to be reported [Directors, Executive Officers and Corporate Governance](index=44&type=section&id=ITEM%2010%3A%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Information regarding the Company's directors, executive officers, and corporate governance practices is incorporated by reference from the 2019 Proxy Statement - The Company has adopted a Code of Ethics applicable to senior executive and financial officers, which is posted on its website[237](index=237&type=chunk) [Executive Compensation](index=45&type=section&id=ITEM%2011%3A%20EXECUTIVE%20COMPENSATION) Information concerning executive and director compensation is incorporated by reference from the Company's 2019 Proxy Statement [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=45&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Information regarding security ownership and equity compensation plan details is incorporated by reference from the 2019 Proxy Statement and Item 5 [Certain Relationships and Related Transactions, and Director Independence](index=45&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) Information on certain relationships, related transactions, and director independence is incorporated by reference from the Company's 2019 Proxy Statement [Principal Accounting Fees and Services](index=45&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) Information regarding principal accountant fees and the Audit Committee's pre-approval policy is incorporated by reference from the Company's 2019 Proxy Statement PART IV [Exhibits and Financial Statement Schedules](index=45&type=section&id=ITEM%2015%3A%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES.) This item lists the financial statements, schedules, and exhibits filed as part of the 10-K report, including corporate documents and certifications - The item includes the consolidated financial statements of NAPCO Security Technologies, Inc. and its subsidiaries, as presented in Part II, Item 8[245](index=245&type=chunk) - Exhibits include corporate organizational documents, credit agreements, various stock option plans (2002, 2012, 2018), employment agreements, the Code of Ethics, a list of subsidiaries, consent of independent auditors, and Section 302 and 906 certifications[247](index=247&type=chunk)[249](index=249&type=chunk)[250](index=250&type=chunk) [Signatures](index=50&type=section&id=SIGNATURES) The report is signed by authorized representatives of NAPCO Security Technologies, Inc., including the Principal Executive and Financial Officers, dated September 13, 2019 - The report was signed on September 13, 2019, by **Richard Soloway** (Chairman of the Board of Directors, President and Secretary, Principal Executive Officer) and **Kevin S. Buchel** (Senior Vice President of Operations and Finance and Treasurer, Principal Financial and Accounting Officer), along with other directors[252](index=252&type=chunk)[253](index=253&type=chunk)
NAPCO Security Technologies(NSSC) - 2019 Q4 - Earnings Call Transcript
2019-09-03 19:50
NAPCO Security Technologies, Inc. (NASDAQ:NSSC) Q4 2019 Results Earnings Conference Call September 3, 2019 11:00 AM ET Company Participants Patrick McKillop - Director of Investor Relations Richard Soloway - President and CEO Kevin Buchel - Senior Vice President of Operations and Finance Conference Call Participants Jaeson Schmidt - Lake Street Capital Jeffrey Kessler - Imperial Capital Matt Pfau - William Blair Operator Greetings, and welcome to the NAPCO Security Technologies Inc. Fiscal Fourth Quarter 20 ...
NAPCO Security Technologies(NSSC) - 2019 Q3 - Quarterly Report
2019-05-08 20:55
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2019 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________. Commission File number: 0-10004 NAPCO SECURITY TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) (State or oth ...
NAPCO Security Technologies(NSSC) - 2019 Q3 - Earnings Call Transcript
2019-05-06 17:39
NAPCO Security Technologies, Inc. (NASDAQ:NSSC) Q3 2019 Results Earnings Conference Call May 6, 2019 11:00 AM ET Company Participants Patrick McKillop - Director of IR Richard Soloway - President and CEO Kevin Buchel - SVP and CFO Conference Call Participants Matt Pfau - William Blair Mike Walkley - Canaccord Genuity Operator Greetings, and welcome to NAPCO Security Technologies Fiscal Third Quarter 2019 Results Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded. I ...
NAPCO Security Technologies(NSSC) - 2019 Q2 - Quarterly Report
2019-02-08 21:46
PART I: FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=ITEM%201.%20Financial%20Statements) Financial statements for the period ended December 31, 2018, reflect significant growth in revenue and profitability, with total assets increasing and net income more than doubling [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $78.3 million as of December 31, 2018, driven by higher cash and inventories, with total liabilities rising to $13.7 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2018 (unaudited) | June 30, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $7,921 | $5,308 | | Accounts receivable, net | $19,845 | $22,738 | | Inventories, net (Current + Non-current) | $33,183 | $28,934 | | Total Current Assets | $56,516 | $53,703 | | **Total Assets** | **$78,301** | **$73,269** | | **Liabilities & Equity** | | | | Total Current Liabilities | $13,242 | $9,402 | | **Total Liabilities** | **$13,656** | **$9,816** | | **Total Stockholders' Equity** | **$64,645** | **$63,453** | [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Net sales for the six months ended December 31, 2018, rose 14.0% to $48.2 million, with net income growing 106.0% to $4.4 million Three Months Ended December 31 (in thousands, except per share data) | Metric | 2018 | 2017 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $24,829 | $21,112 | 17.6% | | Gross Profit | $10,671 | $8,479 | 25.9% | | Operating Income | $3,294 | $1,166 | 182.5% | | Net Income | $2,869 | $1,233 | 132.7% | | Diluted EPS | $0.15 | $0.07 | 114.3% | Six Months Ended December 31 (in thousands, except per share data) | Metric | 2018 | 2017 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $48,205 | $42,286 | 14.0% | | Gross Profit | $20,230 | $16,965 | 19.2% | | Operating Income | $5,053 | $2,225 | 127.1% | | Net Income | $4,373 | $2,123 | 106.0% | | Diluted EPS | $0.23 | $0.11 | 109.1% | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations significantly increased to $6.3 million for the six months ended December 31, 2018, leading to a $2.6 million net increase in cash and equivalents Six Months Ended December 31 (in thousands) | Cash Flow Activity | 2018 | 2017 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $6,346 | $2,824 | | Net Cash Used in Investing Activities | ($1,119) | ($651) | | Net Cash Used in Financing Activities | ($2,614) | ($1,678) | | **Net Change in Cash and Cash Equivalents** | **$2,613** | **$495** | | **Cash and Cash Equivalents - Ending** | **$7,921** | **$3,949** | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, ASC 606 adoption, significant credit concentration, and an ongoing IRS examination with a potential $1.8 million liability - The company adopted the new revenue recognition standard (ASC 606) on July 1, 2018, using the modified retrospective method, resulting in a net decrease to opening retained earnings of approximately **$720,000** (net of tax)[55](index=55&type=chunk)[56](index=56&type=chunk) Disaggregation of Revenues by Major Product Lines (in thousands) | Major Product Lines | Six months ended Dec 31, 2018 | Six months ended Dec 31, 2017 | | :--- | :--- | :--- | | Intrusion and Access alarm products | $14,815 | $13,122 | | Door locking devices | $25,460 | $23,733 | | Services | $7,930 | $5,431 | | **Total Revenues** | **$48,205** | **$42,286** | - The company has a significant credit concentration, with one customer comprising **21%** of accounts receivable at December 31, 2018, and **12%** of net sales for the six-month period[65](index=65&type=chunk) - The IRS has proposed an adjustment for the fiscal 2016 tax year related to deemed dividends, which could result in an incremental tax liability of approximately **$1.8 million**[73](index=73&type=chunk) - During the six months ended December 31, 2018, the company repurchased **186,393 shares** at a weighted average price of **$14.13**, and in December 2018, the board authorized the repurchase of an additional **500,000 shares**[96](index=96&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong financial performance to increased sales and improved gross profit margins, believing current working capital and cash flows are sufficient for the next twelve months Results of Operations Highlights (in thousands) | | Six months ended Dec 31, 2018 | Six months ended Dec 31, 2017 | % Increase | | :--- | :--- | :--- | :--- | | Net sales | $48,205 | $42,286 | 14.0% | | Gross profit | $20,230 | $16,965 | 19.2% | | Operating income | $5,053 | $2,225 | 127.1% | | Net income | $4,373 | $2,123 | 106.0% | - The sales increase for the six months ended Dec 31, 2018, was primarily driven by communication services (**+$2.5M**), door-locking products (**+$1.7M**), and intrusion and access products (**+$1.7M**)[112](index=112&type=chunk) - Gross profit margin for the six-month period increased to **42.0%** from **40.1%** year-over-year, primarily due to the increase in sales[113](index=113&type=chunk) - The company believes its current working capital, cash flows from operations, and its **$11 million** revolving credit facility will be sufficient to fund operations through the next twelve months[119](index=119&type=chunk)[123](index=123&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=27&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is foreign currency exposure from Dominican Peso expenses, where a 10% exchange rate change could impact annual income by $630,000 - The company is exposed to foreign currency risk from expenses incurred in Dominican Pesos (RD$)[126](index=126&type=chunk) - A **10%** strengthening or weakening in the U.S. dollar against the RD$ would result in an annual increase or decrease in income from operations of approximately **$630,000**[126](index=126&type=chunk) [Controls and Procedures](index=27&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were not effective as of December 31, 2018, due to a material weakness, with remediation actions expected to be completed during fiscal 2019 - The Company determined that it did not have effective disclosure controls and procedures as of December 31, 2018[128](index=128&type=chunk) - A material weakness was identified due to a lack of supervision and review to ensure proper internal control over financial reporting[129](index=129&type=chunk) - Management is designing additional controls and expects to complete remediation actions during fiscal 2019[129](index=129&type=chunk) PART II: OTHER INFORMATION [Risk Factors](index=27&type=section&id=ITEM%201A.%20Risk%20Factors) No material changes to risk factors were reported from those previously disclosed in the Annual Report on Form 10-K for fiscal year ended June 30, 2018 - No material change in risk factors was reported for the three months ended December 31, 2018[131](index=131&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the quarter ended December 31, 2018, the company repurchased 147,230 shares at an average price of $14.17, with the board authorizing an additional repurchase of 500,000 shares Share Repurchases for Quarter Ended Dec 31, 2018 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2018 | 112,474 | $13.94 | | Nov 2018 | 5,100 | $14.28 | | Dec 2018 | 29,656 | $15.01 | | **Total** | **147,230** | **$14.17** | - On December 21, 2018, the board authorized the repurchase of an additional **500,000 shares**[132](index=132&type=chunk) [Exhibits](index=28&type=section&id=ITEM%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including CEO and CFO certifications and XBRL interactive data files - Exhibits filed include CEO and CFO certifications and XBRL data files[133](index=133&type=chunk)