NAPCO Security Technologies(US:NSSC)2020-09-08 20:18Financial Data and Key Metrics Changes - For Q4 2020, net sales decreased by 22% to $23 million compared to $29.6 million in the same period last year [14] - For fiscal year 2020, net sales decreased by 2% to $101.4 million from $102.9 million in the previous year [14] - Recurring monthly revenue increased by 35% for Q4 and 38% for the fiscal year, with an annual run rate of $27.5 million as of June 2020 [11][15] - Gross profit for Q4 decreased by 38% to $8 million, with a gross margin of 35%, compared to $12.9 million and 44% last year [16] - Net income for Q4 was a loss of $1.9 million, or negative $0.10 per diluted share, compared to a profit of $4.7 million or $0.26 per share last year [27] - Net income for fiscal year 2020 was $8.5 million or $0.46 per diluted share, down from $12.2 million or $0.66 the previous year [28] Business Line Data and Key Metrics Changes - Equipment sales were significantly impacted by COVID-19, leading to decreased sales across the board [10] - Recurring revenue gross margins improved to 83% for Q4, up from 78% last year, driven by increased sales of higher-margin products [18] - Research and development costs remained constant at $1.9 million for Q4 and $7.3 million for the fiscal year, representing 8% and 7% of sales respectively [19][20] Market Data and Key Metrics Changes - The company noted a strong demand for school security solutions, with increased availability of grants for funding these projects [35][66] - The healthcare vertical is also highlighted as a significant market opportunity, particularly for locking and access control products [33] Company Strategy and Development Direction - The company is focused on expanding its recurring revenue model, aiming for a 50:50 split between recurring and hardware sales in the long term [60][87] - New product innovations, such as the iSecure alarm system and air access control system, are expected to drive future growth and recurring revenue [39][52] - The management emphasized the importance of adapting to changing market conditions and increasing security needs due to civil unrest and the ongoing pandemic [74][76] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about a rebound in business as buildings reopen and installation access improves [10] - The company is well-positioned for economic recovery, with a strong balance sheet and zero debt [12][29] - Management noted that the need for security is greater than ever, particularly in commercial settings [34][74] Other Important Information - The company recognized a one-time impairment charge of $1.85 million in Q4 due to a decline in revenue related to a trade name intangible asset [23] - Cash balance increased to $18.2 million as of June 30, 2020, compared to $8 million the previous year [29] Q&A Session Summary Question: Can you provide more detail on sell-through improvements post-Q4? - Management noted a significant increase in sell-through rates, with one distributor up 41% in July and another up 25% [44][45] Question: When will iSecure become a material contributor to recurring revenue? - Management expects iSecure to add significant recurring revenue, with a potential of $7 to $13 per month per installation [46][48] Question: What is the market for the new air access product? - The air access product targets enterprises of all sizes, providing a cellular access control system with recurring revenue potential [50][52] Question: How are inventory levels among distributors? - Distributors did not load up on inventory, indicating a need for replenishment based on strong sell-through [55][56] Question: What are the expectations for school security projects? - Management indicated that many schools are ready to award jobs, but timing is uncertain due to access issues [65][66] Question: Is there any pricing power in hardware sales? - Management confirmed that the decline in gross margins was strictly due to volume, not pricing issues [82][83]