Financial Data and Key Metrics Changes - Total revenue for Q2 2026 was $48.2 million, a record for the quarter, representing a 12.2% increase year-over-year [8][12] - Equipment revenue increased by 12% to $24.3 million, driven by strong demand and pricing strategies [10][14] - Recurring revenue grew by 12.5% to $23.8 million, maintaining a gross margin of 90.2% [9][13] - Operating income rose by 32% to $14.8 million, while net income increased by 29% to $13.5 million, representing 28% of revenue [10][22] - Adjusted EBITDA increased by 26% to $15.3 million, with an EBITDA margin of 32% [23] Business Line Data and Key Metrics Changes - Equipment revenue growth was supported by the locking segment and intrusion and alarm products, both showing double-digit increases [6][28] - Gross margin for equipment revenue improved to 28%, up from 24% a year ago, reflecting pricing discipline and operational efficiency [9][10] - Recurring service revenue now has a prospective annual run rate of approximately $99 million, up from $95 million last quarter [10][13] Market Data and Key Metrics Changes - The company reported strong demand across its product portfolio, particularly in school security solutions and door locking products [31][32] - The transition away from legacy copper phone lines is expected to drive additional market share for StarLink radios [33] Company Strategy and Development Direction - The company is focused on enhancing shareholder value through its recurring revenue model, which is expected to provide steady growth and profitability [6][27] - The appointment of a new Chief Revenue Officer aims to accelerate revenue growth and strengthen customer relationships [29][30] - The company is investing in innovation and infrastructure while maintaining a debt-free balance sheet, allowing for strategic opportunities and capital returns [29][30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining momentum through fiscal 2026, with strong demand and operational discipline in place [7][31] - The company is optimistic about the growth of its recurring service revenue and the impact of new product offerings like the MVP cloud-based access control platform [32][33] - Management acknowledged the importance of school security and the integration of various technologies to drive future growth [31][32] Other Important Information - The company increased its quarterly dividend to $0.15 per share, reflecting confidence in its cash generation capabilities [11][29] - Cash and marketable securities totaled $115 million, providing substantial flexibility for investments and shareholder returns [11][25] Q&A Session Summary Question: What is the current inventory situation in the dealer channel? - The channel has normalized, with more stable buying patterns observed, contributing to improved gross margins [36][37] Question: What is the outlook for the MVP Access platform? - The MVP Access platform is expected to contribute meaningfully to recurring service revenues in the second half of calendar 2026 [39][40] Question: How is the hardware growth characterized, particularly in larger projects? - The company is seeing ongoing projects, particularly in schools, with no difficult comparisons expected for the remainder of the fiscal year [49][50] Question: What is the status of the ADI partnership? - The ADI relationship continues to be beneficial, with ongoing introductions to large dealers, although there is room for improvement in locking contributions [54][55] Question: Is there a need for additional pricing actions in the second half? - Current pricing adjustments are expected to be fully realized, with no immediate need for further increases [48][60] Question: What is the outlook for cash management and potential acquisitions? - The company is considering various options for capital allocation, including acquisitions and increasing dividends, while ensuring any acquisitions are accretive [70][72]

Financial Data and Key Metrics Changes - Total revenue for Q2 2026 was $48.2 million, a record for the quarter, representing a 12.2% increase year-over-year [9][13] - Equipment revenue increased by 12% to $24.3 million, driven by pricing strategies and strong demand [10][15] - Recurring revenue grew by 12.5% to $23.8 million, maintaining a gross margin of 90.2% [10][14] - Operating income rose by 32% to $14.8 million, while net income increased by 29% to $13.5 million, representing 28% of revenue [11][24] - Adjusted EBITDA increased by 26% to $15.3 million, resulting in an EBITDA margin of 32% [25] - Cash and marketable securities totaled $115 million, reflecting a 16.3% increase from the previous period [26][27] Business Line Data and Key Metrics Changes - Equipment revenue growth was supported by strong performance in door locking solutions and intrusion and alarm segments [30] - Gross margin for equipment revenue improved to 28%, up from 24% in the prior year [10][18] - Recurring service revenue now represents nearly half of total sales, with an annualized run rate of approximately $99 million [29] Market Data and Key Metrics Changes - The company continues to see strong demand across its product portfolio, particularly in school security solutions [34] - The transition away from legacy copper phone lines is expected to drive significant growth in radio sales, with a projected increase in market share [36][71] Company Strategy and Development Direction - The company is focused on enhancing shareholder value through its recurring revenue model, which provides predictable cash flow and long-term growth [8][29] - The appointment of a new Chief Revenue Officer aims to accelerate revenue growth and strengthen customer relationships [32] - The company is investing in innovation and infrastructure while maintaining a debt-free balance sheet [33] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining momentum through fiscal 2026, with strong operational discipline and a focus on expanding recurring revenue [8][34] - The company is optimistic about the demand for its products and the potential for new market opportunities, particularly in school security [34][35] Other Important Information - The board approved a quarterly dividend increase to $0.15 per share, reflecting confidence in the business [12][32] - The company is actively managing inventory and investing in product development to support growth [33] Q&A Session Summary Question: What is the current inventory situation in the dealer channel? - The channel has normalized, with more stable buying patterns observed, contributing to improved gross margins [39][40] Question: Can you provide an update on the MVP access platform? - The MVP platform is expected to contribute meaningfully to recurring service revenues in the second half of calendar 2026 [42][44] Question: Has storm activity impacted supply chain operations? - There has been no significant impact on supply chain operations, with only minor delays noted [45][47] Question: What is the outlook for pricing actions in Q3? - Pricing adjustments have been fully implemented, with no additional increases expected for the remainder of the year [51][52] Question: How is the ADI partnership progressing? - The ADI partnership continues to yield introductions to large dealers, with ongoing efforts to enhance contributions from the locking segment [57][58] Question: What are the plans for capital allocation given the increasing cash reserves? - The company is considering various options for capital allocation, including potential acquisitions and increasing dividends [73][75]

Industry Overview - The Zacks Security and Safety Services industry is positioned to benefit from strong demand for security products and solutions due to increasing awareness of safety for people and infrastructure [1] - The industry includes firms providing sophisticated security solutions for residential, commercial, and institutional purposes, including personal defense and vehicle recovery [3] Demand Drivers - Growing instances of terrorism and criminal activities are driving demand for security services, with rapid deployment of IP-based cameras enhancing safety and surveillance [4] - The rise in hacking incidents is increasing demand for Internet security products such as firewalls and intrusion detection systems [4] - E-commerce platforms are creating new opportunities for industry players [4] Government Support - Strong budgetary provisions and government funds are encouraging significant investments in research and development for advanced security products [5] - Collaboration between government agencies and industry participants is strengthening the security infrastructure of smart cities [5] Financial Metrics - The industry's long-term debt/capital ratio is 0.61, significantly higher than the Zacks S&P 500 composite index's 0.27, indicating a focus on innovation and product development [6] - The industry currently carries a Zacks Industry Rank of 97, placing it in the top 40% of 244 Zacks industries, indicating solid near-term prospects [7][8] Performance Comparison - Over the past year, the industry has increased by 14%, underperforming the S&P 500's 17.7% and the broader Industrial Products sector's 14.1% [9] Valuation - The industry is trading at a forward P/E of 16.89X, lower than the S&P 500's 23.36X and the sector's 21.57X, suggesting potential undervaluation [12] Notable Companies - **Intellicheck (IDN)**: A technology company benefiting from a strong customer base and demand for identity verification technology, with shares up 120.2% in the past year [16][17] - **Allegion (ALLE)**: A global provider of security products, well-positioned due to strong demand in the Americas and strategic acquisitions, with shares gaining 25.5% in the past year [20][21] - **Resideo Technologies (REZI)**: Engaged in home safety and security products, poised to benefit from demand for connected smoke detectors, with shares up 48.4% in the past year [24][25] - **Napco Security (NSSC)**: Provides electronic security systems, benefiting from growth in equipment revenues, with shares gaining 6.5% in the past year [28][29]

Core Viewpoint - NAPCO Security Technologies, Inc. is set to release its financial results for the Fiscal Second Quarter 2026 on February 2, 2026, 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 [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 installed by security professionals across various sectors, including commercial, industrial, institutional, residential, and government applications [3]. - The company is recognized for its innovation, technical excellence, and reliability, positioning it for growth in the expanding electronic security market [3].

Group 1 - Liberty Park Fund reported a net return of 1.13% in Q3 2025, significantly underperforming the Russell 2000, which returned 12.40% [1] - The fund's long positions increased by 14.42%, contributing 12.38% on a weight-adjusted basis, while short positions rose by 18.60%, detracting 10.85% [1] - The average gross exposure of the fund was 142.48%, and the average net exposure was 33.61% [1] Group 2 - Napco Security Technologies, Inc. (NASDAQ:NSSC) had a one-month return of 1.88% and a 52-week gain of 19.18%, closing at $41.70 per share with a market capitalization of $1.487 billion on December 31, 2025 [2] - The company reported a better-than-expected quarter and addressed an accounting weakness, with hardware sales expected to grow at a double-digit rate based on pricing alone [3] - Napco Security Technologies, Inc. generated total revenue of $49.2 million in Q1 of fiscal 2026, reflecting a 12% increase compared to the same period last year [3]

Core Viewpoint - Halper Sadeh LLC is investigating potential breaches of fiduciary duties by certain officers and directors of NAPCO Security Technologies, Inc. [1] Group 1: Legal Investigation - The law firm is urging shareholders of NAPCO to contact them promptly due to potential time limitations in enforcing their rights [1] - Long-term shareholders may seek corporate governance reforms, return of funds, court-approved financial incentives, or other benefits [2] Group 2: Importance of Shareholder Participation - Shareholder involvement is crucial for improving company policies, practices, and oversight, which can enhance overall shareholder value [3] Group 3: Firm's Background - 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 - 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]

Core Insights - NAPCO Security Technologies, Inc. will showcase its latest innovations at the International Security Conference & Exposition (ISC East 2025) in New York City, expected to attract over 7,000 participants [1][2][3] Company Overview - NAPCO is a leading designer and manufacturer of high-tech electronic security devices and wireless communication services, focusing on intrusion, commercial fire alarm, access control, and school safety solutions [1][5] - The company operates four divisions, including Alarm Lock, Continental Instruments, and Marks USA, and is headquartered in Amityville, New York [5] Product Innovations - At ISC East, NAPCO will unveil a suite of advanced products as part of its unified MVP ecosystem, which includes access control panels, electronic locks, and credential readers integrated with the MVP Cloud Platform [3][4] - The MVP Cloud Platform is designed for scalable performance and supports various security applications across education, healthcare, commercial, and government sectors [3] Market Strategy - NAPCO aims to meet rising market demand and empower its dealer network by creating new hardware sales opportunities and enabling recurring monthly revenue (RMR) with every installed system [4][5] - The company emphasizes its leadership in unified cloud-based access control and advanced communications technology, focusing on delivering connected and scalable security solutions [5] Upcoming Products - NAPCO will showcase new TriCarrier Cellular StarLink Intrusion Communicators, which provide an easy migration path from legacy POTS lines, and the XK5 slimline keypad and 2R touchscreen for system upgrades [6]

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]