NAPCO Security Technologies(US:NSSC)2020-05-04 18:51Financial 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]