Q2 2020 Earnings Call
Ladies and gentlemen, thank you for standing by our conference will begin momentarily.
Once again, thank you for standing by our conference will begin momentarily.
[music].
Greetings and welcome to the NAPCO Security technologies Inc. fiscal second quarter 2020 earnings call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation, but once you require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
Now I'll turn the conference over to your host director of Investor Relations, Patrick Mckillop, Mr. Mccullough you may begin.
Thank you Daniel morning, My name is Patrick Mckillop, I'm, the director of Investor Relations for NAPCO security.
Thank you for joining us for today's conference call to discuss our financial results for our fiscal second quarter 2020.
By now all of you shouldn't had the opportunity to review the press release discussing the results.
If you have not a copy of the releases available in the Investor Relations section never website.
W. Dot NAPCO security Dot com.
On the call today's Richard Soloway, President and CEO of NAPCO Security technologies, Inc. hadn't bookshelves senior Vice President and CFO.
Before beginning let me take a moment to read the forward looking statement.
This conference call may contain forward looking statements involve numerous risks and uncertainties.
Actual results performance or achievements may differ materially from those anticipate in such forward looking statements.
As a result, a certain factors, including those set forth in the company's filings with the FCC.
During the call. We May also present certain non-GAAP financial measures such as adjusted EBITDA and certain ratios that are used with these measures.
In the press release and on the financial tables.
Earlier today, you'll find a definition of these non-GAAP financial measures reconciliations.
These non-GAAP financial measures.
Closest GAAP financial measure as both the discussion about why we think these non-GAAP financial measures.
Relevant to our results.
These financial measures are excluded from the benefit investors and should not be considered instead of GAAP measures.
I'll turn the call over to take a moment before I do but I just want to Ted mentioned, a few things on the IR.
In terms of upcoming Investor outreach, we will be marketing in Boston on February 15th.
Continuing to plan more events in other regions during the next few months.
Also on March 17, two the 19th will be showcasing our products at the I guess he was trade show.
Sands EXFO Convention center in Las Vegas, Nevada.
He'd like to weekend I see west.
We are interested in having a visit with you or need to arrange more time with US post this earnings call. Please contact me.
Investor outreach in a crucial especially for small cap companies such NAPCO.
Yeah, we'd like to thank all those folks that assist us in these conferences in marketing marketing troops.
But that all the way, let me try to call over to Richard <unk>, President and CEO NAPCO security technologies.
The floor is yours.
[noise]. Thank you Patrick good morning, everyone and welcome to our Conference School.
Thank you for joining us today to discuss our results.
Its fiscal second quarter 2020 marked another record revenue and profitability performance for NAPCO.
Our SAS recurring revenues continue to grow at a rapid rate.
Our recurring revenues annual run rate is now 24 million.
As of December.
Our focus on targeting mostly commercial end markets and professional installation is driving this continuous growth.
Our cash balances continue to grow and our cash balances clean with no debt.
[noise] capitalizing on key industry trends remains our focus [noise].
These trends include wireless Byron intrusion alarm communicators.
School Security solutions.
Enterprise access control systems and architectural locking products.
Management here at NAPCO continues to focus on key metrics of growth.
Profits and returns on equity.
These metrics are important to us as well as our shareholders.
Our business strategies executing well and our interests are aligned with our shareholders as senior management NAPCO owns 38% of the equity.
Before I go into great detail I'll now turn the call over to our CFO, Kevin but show.
Well I Didnt overview of our fiscal second quarter financial results and then I'll be back with more on our strategy is an outlook Kevin.
Thank you Dick and good morning, everybody.
So the second quarter.
Net sales increased 4% to $25.8 million, which was a record second quarter performance.
The 22nd consecutive quarter every year over year record sales.
As compared to 24.8 million for the same period a year ago.
For the six month ended December 31 2019.
Net sales increased 8%.
52.1 million as compared to $48.2 million last year.
The increase in sales for the quarter end. The six month were primarily related to increased sales of our alarm communication services and intrusion and access products.
As partially offset by a decrease in sales door locking products.
Recurring monthly revenues from the alarm division increased 40% sort of quarter at 41% for the six month.
And now has an annual run rate of $24 million based on December two 2019 recurring revenue.
Sales of intrusion and door locking products were affected in the second quarter due to the companys largest customer.
A leading distributor.
Network Security solutions.
Began the process are being acquired.
The sell through of our products.
I eat sales of these products from this distributor.
A little arm and locking dealers, who ultimately receive on products with strong.
Increasing 15% in Q2 compared to last year.
Increasing 11% sequentially versus Q1 this year.
As a result of this increased demand the bought products.
It is our belief that the aforementioned impact on sales.
Temporary.
Gross profit for the second quarter increased 14%.
A $12.1 million, where the gross margin of 47%.
As compared to $10.7 million.
Well the gross margin of 43% last year.
For the six month gross profit increased 17%.
The $23.6 million.
Gross margin of 45%.
As compared to $20.2 million, where the gross margin of 42% last year.
The 403 hundred basis point increases in gross margin for the quarter and six months respectively.
Primarily driven by the previously mentioned continued strong increases in recurring revenue, where the gross margin increased 81%.
For the quarter.
Versus 77% last year and was 80% for the six months versus 78% last year.
R&D expenses for the second quarter remain relatively constant.
At $1.8 million was 7% of sales compared to $1.8 million, a 7% of sales last year.
For the six month, R&D expenses increased 2% to $3.6 million, what 7% of sales.
Compared to $3.5 million worth 7% of sales last year.
Selling general and administrative expenses for Q2 increased 12% to $6.3 million.
Or 24% themselves as compared to $5.6 million or 23% himself the same period a year ago.
The six months, that's DNA expenses increased 7% to $12.5 million or 24% of sales.
As compared to $11.7 million were 24% of sales last year.
The increases for the three and the six month was primarily due to increased media advertising additional sales staff and salary increases.
As well as increased stock option expense it [noise].
Resulting from the significant increase in the company's common stock price, which is used in the valuation of the options granted during the three months ended December 31 2019.
Operating income for the second quarter increased 21% to $4 million as compared to $3.3 million last year.
For the six month.
Operating income increased 50% to $7.6 million as compared to $5.1 million a year ago.
Income tax expense for the quarter increased by $12000 to $431000.
As compared to $419000 last year.
For the six months income tax expense increased 20% to $800000 as compared to $667000 last year.
The increase in the provision for income taxes for the three on the six months. This caused primarily by increasing income before provision for income taxes.
The company's effective rate for income taxes was 11% and 13% for the three and six months ended December 31, 2019, and 2018, respectively.
[noise] net income for the second quarter increased 25% to second quarter record of $3.6 million or 19 cents per diluted share as compared to $2.9 million or 15 cents per diluted share last year.
Six months net income increased 56% to $6.8 million with 37 cents per diluted share as compared to $4.4 million or 23 cents per diluted share last year.
The change in net income for the 306 months ended December 31, 2019 was primarily due to the items previously mentioned.
Adjusted EBITDA for the quarter as outlined in the schedule included in today's press release.
Increased 24% to $4.7 million were 25 cents per diluted share as compared to $3.8 million or 20 cents per diluted share last year for the six months adjusted EBITDA increased 48% to $8.7 million or 47 cents per diluted share.
As compared to 5.9 million or 31 cents per diluted share last year.
Moving onto the balance sheet.
The cash balance at December 31, 2019 was $11.8 million as compared to $8 million at June 32019.
Our working capital as of December 31, 2019 was $56.2 million.
As compared with $51.1 million at June 32019.
The current ratio with 4.7 to one at December 31 2019.
As compared with 4.6 to one at June 32019.
And that remained at zero at December 31, 2019.
Net cash provided by operating activities for the quarter was $1.9 million.
For the six months ended December 31, 2019 was $4.8 million.
Inventory levels remain higher than normal as we continue to gear up at several new product launches that we have mentioned on previously called a previous calls, including I. secure which started to ship at the end of Q2, our new marks and finally get sherlock's.
Several starlink radios, including our new line of 80 in T. L T Starlink radios.
Inventory levels are also impacted by the level loading up on production output throughout the year.
Whereas sales are historically highest in the fourth quarter.
[noise] Capex was $882000 during the quarter versus $695000 in the year ago period.
That is $1.1 million for the six month versus $1.1 million in the comparable period last year.
That concludes my formal remarks, and I would now like to return the call back to Dick.
Kevin Thank you.
We continue to believe that growth we have witnessed in our business should continue in the future.
Growth drivers for the business are coming from areas of the long communications for fire intrusion and the smartphone category as evidenced by the growth of recurring revenue products.
The fire radios in particular are what we call in the house on fire.
As evidenced by the 81% gross margin.
Or recurring revenue in Q2.
[noise]. Additionally, the school security market remains a contributor to our growth.
And there is a significant market opportunity here.
There are positive tailwinds with our new funding with new funding over the past year, well, so coming to help the schools paid for the upgrades they need.
State of Minnesota recently, released a $30 million to schools. The security upgrades, which is in addition to the 25 million that was released in 2018.
So the clawson from Minnesota is currently sponsoring a bill for an additional 500 million in funding and this type of activity is occurring throughout the U.S.
Oh, the pending legislation well the school security includes the school violins protection and mitigation Act of 2019 would choose proposed by Representatives Williams indoor each and the U.S. House of Representatives in July 2019.
This legislation would authorize $2 billion over 10 years to identify and address any should fall insecurity and K through 12 schools.
NAPCO is dedicated to providing all schools with the solutions and products they need to help protect the students and faculty.
The funding backdrop, plus the continued focus by parents teachers and students for more school school security should continue to have a positive impact on the growth of our business in this vertical.
NAPCO announces project wins at schools and universities when the opportunity is allowed for us.
As we must get approval.
To make these announcements.
Pipe like the school security projects remains robust.
Active shooter incidents also continue to happen in public places like houses of worship and other meeting areas.
Our savvy audit system, which is currently used in schools also has the ability to be used in these areas in order to help find security deficiencies.
It needs to be addressed.
The need for more security with a locking in access control products in these areas is clear.
The recent launch of our new L. T E store link line of Universal fire intrusion alarm.
And I O T communicators continues to perform well.
Stolen communicators now offer the widest L. T E coverage in the U.S. to dealers in on that work with both the horizon and 18 T. service.
Fire link another recent product, we launched isn't all in one fire alarm control panel well the cellular communicator inside and there's eight to 32 zones capabilities, Preconfigured and pre activated which saves the dealers installation time and.
Money, well, replacing agent aging landline connected systems.
The fire link continues to see sales growth and also is generating recurring revenue.
Recently.
We began our first shipments of our latest product introduction the ice secure.
The ice secure is designed for the new breed and professional installers and savvy consumers I secure as installation times of one hour and office a feature rich sets of a functions for smart home capabilities that many residential and small midsized.
Businesses are looking for.
The ice secure one the M D P. Most valuable product award at the home controls category as the I you see West trade show in 2019, and true lots of traffic from dealers into our Tradeshow booth.
Most importantly every ice secure as a cellular radio built in so every units sold will generate additional recurring revenue.
Our future plans to continue growing recurring revenues.
Including bringing recurring revenues the all divisions of the NAPCO family of companies is our goal.
During this summer we expect to be launching cloud based wireless electronic locks and enterprise access control with the use of stalling cellular technology.
These products will generate incremental recurring revenue from the large access control and door locking segments for us well, providing valuable new services to end users.
We will begin our Q and a session portion of this call in a moment.
Fiscal Q2, 2020 was a very successful record breaking quarter for us as we continue to grow the company and deliver strong profit.
Our shareholders have been rewarded with very healthy returns and stock performance over the last few years.
NAPCO is in a strong position.
To continue its growth in sales and profits going forward.
We're excited about the remainder of fiscal year 2020 and beyond.
That goes senior management maintains a high level of ownership in our equity.
Approximately 38%.
And I would like to thank everyone for their support and for joining us in this exciting future we have.
Operator, our formal remarks have now concluded.
We would like no the open the call for the Q when a session.
Thank you at this time, we will be conducting a question and answer session.
I'd like to ask a question. Please press star one on your telephone keypad.
A confirmation telling will indicate your line is in the question Q you made press star to appeal would like to remove your question from the Q for participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star Keith one moment, please while we poll for questions.
Our first questions come from a lot of Mike Walkley of Canaccord Genuity. Please proceed with your question.
Great. Thanks for taking my question.
First question, just a little more clarity and about your large customer go into a sale process. It sounds like sell through was strong there do you have an indication of how low they want to get their inventory before the sale and a any color on the end buyer if they they still think your products our right to move through that channel.
Evan Yeah, I believe it's Mike that aim the sell through which is very strong. That's the first thing we look at with all of our.
Customer and so our distributor that because these distributors their shelves their shelf space for us. The main thing is how is sell through doing we saw it. This particular case very strong sell through.
Both versus a year ago at birth and versus last Q last quarter Q1.
So our expectation is if they are lower than their lowering their inventory levels or whatever that too and I think it's this was more about there in the midst of being sold and they kinda like a deer in the headlights freezing not sure what to do they have to buy more inventory well, they're going to lose sales when the sell through is strong and.
The man is there they don't want to lose sales, they're going to react maybe this coming quarter that we're in now maybe it'll take another quarter ultimately they have to react or they're going to lose themselves to another distributor remember their shelves.
These ultimate customers the alarm dealers the lock blocking deal is those are the our ultimate customers and as long as that demand is there whether we sell these products through this distributor or someone else. So be it I believe the new the new owner not going to want to lose sales I think things will get back.
Back to normal.
In the near future. We think this is a temporary thing.
In the long run.
[noise] right now that that's helpful and you know the the mix this quarter both for this recurring revenue and for the equipment sales.
Gross margin came in much stronger than what.
We've seen for a lower revenue quarter, especially on the equipments I can you talk about the strong gross margin trends and you maybe how we should think about them going forward.
So.
The recurring revenue margins.
We've been talking we always talk about how great. They are it was in the 77% range 78, sometimes it even went up to 79.
We said that as the fire radios become a larger and larger portion of the mix of overall starlink radios. The margins are going to go up because fire radios get more money per month and the other radios.
And that has begun to happen.
And that's why we got up to 81%.
And going forward listen it might even get better than that.
It's it's a good thing whether it's at 80 81, no matter, where it is in that range, it's very powerful and of course, we need the recurring revenue itself to keep growing and it did at its at 40 million at 40% and a 24 million run rate that's all important.
We think the best is yet to come.
Nick mentioned in his comments, we're gonna be putting recurring revenue products out in the other areas of the company the lacking.
The access control that's a project that we're working on as it's a physical 21 probably event.
But that's going to be very very important for us because remember the 24 million that we're getting now run right now really only comes from one segment of the business. It could just imagine if it's in the rest of the business how powerful this could get.
So we think you know, 81% maybe that was higher than it will be next quarter, but whether its high seven days or what ways. It's all the good thing.
And then on the margins on the hardware.
That was very good too because this quarter. Obviously, we were disappointed in the hardware level, we hit 20 million.
I've talked about why it wasn't higher and we believe it will be higher and the upcoming quarters.
So we didn't get Dominican Republic manufacturing leverage that we always talk about.
We get that when it goes you know nicely above the 20 million, but what we did get is a nice mix of high margin products, a bunch of school wins, a bunch of access control projects high margin high margin sales are just as important as the Dominican leverage part of the story So 30.
7% was very very good and going forward.
And the margins could jump around big picture, we're going into right direction and as we head towards our goal, which is still to get to $100 million of hardware revenue. We saved by June of 21, maybe it'll be a little longer than that maybe it'll take another quarter, we'll see but the big picture.
That's where we're going and we still feel very confident that those margins will go up as that happens.
Great. Thanks, and last question for me and I'll pass it on it you know with a strong mix of margins. This quarter EBITDA came in line with our expectations with yeah. Good EBIDTA margins, Yeah. As you look out in the model with recurring revenue growing faster than hardware, yeah. How should we think about kind of EBITDA margins in the back half for the year fiscal year.
Sure and then longer term as you did you get some of your goals and run rates what to what's a reasonable long term adjusted EBIT to target.
Well <unk> EBITDA margin last year was 15%. It was 15 million on basically 100 million. This year the expectation it is higher because obviously as recurring revenue grows 40% range at such high margins EBITDA.
Margins are going to are going to go even higher.
You know in the next couple of years, we expect the EBITDA margins to be 25%.
If we get to the point, where a recurring revenue is in all aspects of the business.
Then down the road five years from now let's say.
We could be it 50, 50 split between recurring revenue and hardware sales.
That's obviously good long term goal for us the next five years.
At that at those kinda levels, we get to that point EBITDA margins are gonna be you know 30, 40%.
And that long term vision this year obviously.
If we can get to be about the 15% we were last year more like 20% I think thats the reasonable short term goal long term, let's get recurring revenue in all parts of the business, where it becomes the main part of the business today recurring revenues like 20% of the total let's get it to the point.
Where it's 50% that's what we're working hard on long term.
Okay. Thank you in a well look forward to track it some of the new products as they come into the market.
Great. Thank you.
Our next set of questions come from the line of Jason Smith of Lake Street. Please proceed with your question.
Hey, guys. Thanks for taking my questions are understanding sort of the headwinds from this one large customer can you just talk about what you're seeing from a competitive landscape and if you think you're still gaining share in the market.
Evan why did you discuss that okay. So.
Obviously, there's a lot of lot of competition in the different segments, remember, where and both alarms, where unlocking where it access control and each competitor within those areas has its own set of issues.
So what we've seen in the intrusion the alarm side of the business.
As we've seen our competitors having issues we have one one competitor who has pulled out of.
Of the residential intrusion part of the business.
Because they weren't getting any recurring revenue.
And recurring revenue is the name of the game.
So they pulled out of a segment of their market.
Which is a great opportunity for us, especially with us coming out with ice secure.
That.
Could be very good for us because we have an offering that will be.
Great for the residential and small business market.
Price really well we've talked about it $99.
What our install.
And has recurring.
So.
Were going up against.
A lot of competitors.
We go up against some competitors that don't even make alarm systems, we feel very good about taking market share.
In the alarm segment.
As a lacking segment lacking is the biggest part of our business.
It's.
Between our two companies. It's the number one part of the business there will be fooled by the fact that locking sales were down this quarter because it is one.
Customer distributor.
Overall locking sales are strong we continue to gain share winning a bunch of school job.
Which again will announce when we can.
We have a couple more of that where that we've won that we're trying to get approval on.
The locking pot and they access they work together because how are the university side.
Both.
That has become the strongest part of our business.
And there's no reason to believe that's not getting continue also.
And if we get to the point, where we have recurring revenue in this look out that could be phenomenal. So we're not there yet, but we think where we're doing all the right thing to keep winning more market share is led to strong big competitors out there but were doing what we can gain.
That share.
Okay. That's helpful. And then just following up on that last comment on adding a recurring revenue to locking in access control. After I imagine you Bob discussed this with your customers just curious I know, it's not lodging and told this summer, but what has customer response been too.
Adding that to those two segments.
The the customers that this produce projects is aim for don't necessarily get recurring revenue now they just do installations in their paid for those jobs. So the excitement of recurring revenue is the new phenomenon for them.
We know that there are certain traces of service contracts that excite them in certain ways.
And with our radio communicator locks that we'll be introducing the deals again and tap into.
The exciting portions of recurring revenue and be able to sell those other end user customers because in little for lot of advantages over.
Non reporting type of locking.
And because of the fact that utilizes cellular it doesn't utilize the.
The computer departments.
In these.
Firms that you're gonna be doing business and so it gets into detainees data directly from the locking products to the a into installing dealer and also it will be to central station. So.
We have very high confidence rate that it's going to be very successful exciting part of growth of our business and one of the major contributors to the 50% of recurring revenue in five year number that Kevin was discussing in this call. So.
We expect sometime during the summer months, we'll be introducing the first versions of it it will take a while little things you year was so for it to get to the point, where lots of dealers will understand it be clamoring to use it like any new product, but because it builds equity for these it's still holding.
Dealers, they're going to be very happy to get behind it and put equity in their business models. So we're excited about that.
Okay. That's helpful. And then just lastly, what are you just mentioned kind of 50% recurring revenue target in five years do you still feel confident in that $40 million target exiting fiscal 21.
Yes, we do.
Perfect. Thanks, a lot guys.
Thanks, Jason Thank you.
Our next set of questions come from the line of Matt Pfau of William Blair. Please proceed with your question.
Hi, guys. Thanks for taking my questions wanted to ask first on the ice secure product and did that contribute at all to the strength in the recurring revenue in the corner or and if not when should we start to expect I secure to become a more material contributor to that.
<unk>.
Evan you want to explain that so this quarter Matt.
Hi, secure a ship the very end.
Very ended the quarter.
So yeah, we hit 81% recurring revenue gross margin not because of that.
The dealers the customers just got a taste of this product at the very end.
Of the quarter.
As this becomes a bigger and bigger salary and as we've said new products take a few quarters, let's call. It nine months to really have an impact.
Then you'll start to see stat, even better.
Really the stats that you saw this quarter was more about firing radios.
Well, we have our projection of 40 million run rate.
By the end of.
21.
We were not even counting ice secure.
We think just what we have that's out there now not counting I'd secure not counting getting recurring revenue out of the locking in access sides of the business. We're not counting on that that's good to be even gravy on what we're calling the 40 plus the 40 billion run rate by the end at 21.
So.
Stay tuned it could be could be even more exciting then were saying and one thing I'd like to point out we say it's by the end of June could it be earlier, yes could take a little longer yes, but it's in that range.
That's right now we feel are on target for that 40 million.
Yeah got it and.
Then what's the new recurring revenue locking in an access control products. So I think the its clear what the incentive is for the dealer base to go out and sell these products from the end customer perspective. These are two areas, where there historically has not been.
Recurring fee associated with them. So how do you go about I guess selling the value proposition to the till the end customer to get them to transition to start paying a recurring fee for for some of these unlocking and access control products.
It will come from the functionality that the dealer can offer the end user customer.
That functionality and a lot of applications is very powerful does not exist.
The data does not exist the end user customers again, but he would like to have it because who unhelpful manages business better it would help him.
Build.
Help them build a stronger network of employee.
That work in the office.
Gives them additional information that they need to work with so I can't get it anymore specific cement, but it's really powerful enough to pull itself over and sell it for a price point to those end user.
Customers.
And certain classes will use it certain might not in the beginning but it's going to pick up a lot of momentum.
And it won't affect the T. Department.
T approval because it affects it doesn't get onto the network of the company, it's a direct using our cellular radio cloud and.
That makes it very exciting it much easier to sell into these corporations.
Yes.
Great and then last one for me just.
On the distributor that pulled back on their around their purchases because or an acquisition process. You know have you ever seen a situation before in your business, where there's been this disconnect between.
Distributors purchasing and the actual sell through and if so out what is the end result been previously and how long did those situations take to get a ticket normalized.
Yeah.
You know we've seen this on guys trying to lower their inventory levels.
Periodically that happens.
You know there come into the end of the here they want their inventory to be lower at the end of December.
They want they want to be you know virtual distributors just in time distributors, which is crazy, but we've seen that.
This one was different I you know I don't I have to think back I don't remember, where a distributor was being sold.
This is a big transaction there are big customer for us.
I don't recall that but I do know that anytime inventory level levels were adjusted for whatever reason.
As long as the sell through is strong it comes back that's the key we didn't have that we'd be a lot more worried why don't you described to sell through numbers again, so everybody understands that the products are checking you really well right. So just to reiterate what they work to sell through.
For Q2.
Was up 15%.
Versus last year's Q2.
And the sell through for Q2 was sequentially up 11%, meaning it was 11% better than it was in Q1.
Those are the kind of stat that we monitor we monitor with all our distributors not just this morning.
And.
And it's that strong it usually mean, Scott I mean that they'll be buying short short or otherwise they lose sales data one of those sales no matter, who it is whether it's the existing owners a new owners.
Right.
Okay. That's it for me guys. Thanks, a lot for the additional detail.
Thank you.
Our next set of questions come from the line of Jeff Kessler of Imperial Capital. Please proceed with your question.
Thank you could you part do can you parse out on your recurring revenue product or the part that's going into that's being sold into 20% of your business that is residential are there areas of.
Strength.
Areas of weakness, depending on either the size where the type of.
Of end user that's ultimately ultimately getting that or is it more dependent on the type of.
Type of dealer, who is selling to those end users [noise].
Hi, Jeff.
A question news.
Always stronger in commercial or residential where 80% commercial we sell much more in the way.
We do residential.
But I can't really stood out for you because a lot of the people that are involved as competitors will listen in on what what our strategy is but we can just tell you that 80% of our RMR is on the commercial side and growing very rapidly and it's complicated commercial.
Meaning it is commercial that needs a lot of codes and Thirtys little jurisdiction fire marshals two agreed to use it and we've been asked that stage, we're into blossoming out our business and self-contained radio so you'll have communicators.
And now we're incorporating building into panels. So we can get both the aftermarket.
And we can get new business and as the phone companies become less in managing their copper they don't want to spend time in repairing copper lines is stalling copper lines.
This will get stronger and stronger and stronger hence we feel our oh.
2011 plan and our 12 and a five year plan of being 50 50, we believe will come into fruition.
Okay.
With regard to a with regard to old LT and Fiveg. The two are.
Or not exactly the same but they.
They are coming about and about the same time in each effect.
Each kind of effect each other are you.
When you were looking talking to your larger your commercial customers Oh, what functionality.
Do they want from you.
That would.
You know what functionality the do they want for you that is going to.
That was going to affect your view as to what what type of product you think is going to sell through better to them depending on the new technology that is being.
Introduced out there now.
It's not really the end user that makes a decision.
Well, it's our dealers.
Do you lose one coverage.
Reliable coverage in the areas, where they do the installations.
And also in the commercial business, you don't need a lot of fast data.
A typical it's typical machine to machine so slow data the type of data you get a L. T works just fine for all along and security applications. Fiveg is overkill, it's like do you need a Ferrari to go to work in the morning, well we.
Sure as you V.
Worked just fine.
The Ferrari is not needed, but we have made our products such that you can put a ferrari engine in them. If that's the only thing available.
The manufacture is that make the chips the service providers like for a rise in an 18 tea.
Our agreeing to keep the L.P. networks.
Going on for use in use in years.
And therefore, it right now it's the best choice as the greatest coverage the greatest range and that's what the dealers cells to their because their end user customers using us with just one service. He wants a monitoring contract with people that can call the fire in police in medical and.
Steelers do that type of work and we sold tons of them.
Okay. One other question as you as you increase your penetration into a adding I secure and also if you want to cool and then and in the generic sense, adding cellular on top of.
On on top of the products that are already out there.
Do you see demand from the dealers for.
Essentially for.
Adding more than just your cellular add on or getting in fact, ultimately getting you involved.
In on their network in some way Youre shape.
That would either present, either more obviously complication for you, but also could present more revenue for you as well.
I don't understand the question.
Are you, saying a beyond lobby on an access control beyond fire beyond intrusion beyond medical services beyond all of that.
I'm talking about within the within those verticals, yes, you do you within those verticals do you see.
And he demands for more functionality with the products that you off.
On top of the product offering now, yes, we what we offer a whole a menu of services and they pick and choose that menu services. The menu together for all these things not including the locking in axis, which will be coming onboard will be 100 different items that are offered.
What's your features that are added to our recurring revenues cellular service cloud service. So.
That that's our plan everything under our umbrella.
That we hope that I just to Numerated will offer every single feature and if something new comes up over the years that we invent or somebody else comes up with something and they need it.
Made in cellular rise into way, where it becomes bought about menu. We will do that also good that's kind of what I was asking a you know the.
I'm getting out to the some of the new features that you're not offering yet that you might that are actually being talked about now are you able to I realize you have competitors on just on the slide but.
I'm trying to get I'm trying to get to some of the new features that you might be able to offer.
Why don't I invite you to lunch and we can have a tech discussions about this and find out exactly where each of us.
Okay.
[laughter].
Okay.
That's great. That's much that's the question the but I wanted and a and that's the answer that I got and Dol, We'll we'll see each other stuff.
Okay. Thank you.
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Thank you for your interest and support and we look forward to speaking to you all again in a few months to discuss Napcos fiscal Q3 20 results.
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