Q4 2021 NAPCO Security Technologies Inc Earnings Call
[music].
Greetings and welcome to NAPCO Security Technologies, Inc, fiscal fourth quarter and full year 2021 earnings release conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being risk being recorded.
It is now my pleasure to introduce your host Patrick Mckillop director of Investor Relations. Thank you you may begin.
Hello, Good morning.
Patrick Mckillop director of Investor Relations for NAPCO security.
Morning, and thank you all for joining us for today's conference call to discuss our financial results for our fiscal fourth quarter and fiscal year 2021.
By now all of you should have had the opportunity to review the press release discussing the results.
If you have not a copy the release is available in the Investor Relations section of our website.
W. W. W Dot NAPCO security Dot com.
On the call today is Richard Soloway, President and CEO of NAPCO Security technologies, and Kevin Bookshelves, Senior Vice President and CFO.
Before we begin let me take a moment to read the forward looking statements.
This presentation contains forward looking statements that are based on current expectations estimates forecasts and projections of future performance based on managements.
Judging me beliefs current trends and anticipated product performance east.
These forward looking statements include without limitation statements relating to growth drivers of the company's business, such a school security products and recurring revenue services.
Central market opportunities the benefits of our recurring revenue products to customers and dealers.
Our ability to.
To control expenses and costs and expect the expected annual run rate for SaaS recurring monthly revenue.
Forward looking statements involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward looking statements.
These factors include but are not limited to such risk factors described in our SEC filings, including our annual report on Form 10-K.
Other unknown or unpredictable factors or underlining assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward looking statements.
Although we believe that the expectations reflect reflected in the forward looking statements are reasonable we cannot guarantee future results level of activity performance or achievements you should not place undue reliance on these forward looking statements all information.
Provided in todays.
Press release, and this conference call is as of today's date, unless otherwise stated and we undertake no duty to update such information, except as required under applicable law.
I will turn the call over to <expletive> in a moment, but before I do I just wanted to mention a few things in the IR slide.
Tomorrow September 14th we will be presenting and hosting one on one on one meetings at the C. L King conference.
Which is being held virtually.
And we're looking forward to another great conference.
Planning for more virtual road shows throughout the remainder of the year and look forward to when we can meet in person again.
Investor outreach is crucial, especially for small cap companies, such as NAPCO and I would like to thank all of those folks that assist us in these conferences and marketing trips.
With that out of the way, let me turn the call over to Richard Soloway, President and CEO of NAPCO Security technologies technologies.
<expletive> the floor is yours.
Thank you Patrick good morning, everyone and welcome to our conference call.
Thank you for joining us today to discuss our results.
We are very excited to report our record sales and profits for our fiscal Q4, 'twenty, one and fiscal year 'twenty one.
Our results beat Street consensus estimates for Q4.
And for FY 'twenty, one on sales E. P S.
Income and EBITDA metrics by significant amounts.
EBITDA per share for fiscal 2021 was over one dollar per share.
At $1 six.
We are excited to report that we achieved our goal, which we set several years ago.
$40 million in RMR, that's recurring monthly revenue.
The annual run rate is now 41 million based on July 2021 recurring revenues.
Our balance sheet remains strong with a cash balance is continuing to grow.
We continue to focus on capitalizing on key industry trends, which include wireless fire and intrusion alarms School security solutions, plus enterprise access control systems and architectural locking products.
The management team here at NAPCO continues to focus on the key metrics of growth profit and returns on equity and controlling costs.
Metrics are important for us as well as our shareholders. We continue to execute our business strategy and our interests are aligned with our shareholders as senior management at NAPCO owns approximately 22% of the equity.
Before I go into greater detail I'll now turn the call over to our CFO, Kevin Michelle Who'll provide an overview of our fiscal fourth quarter and fiscal 'twenty. One results and then I'll be back with more on our strategies and outlook Kevin.
Thank you <expletive> and good morning, everybody.
For the fourth quarter net.
Net sales increased 54%.
So a fourth quarter record of $35.4 million.
As compared to $23 million for the same period last year.
Net sales for the fiscal year ended June 32021.
Increased 13% to a record $114 million as compared to $101.4 million for the same period a year ago.
The increase in sales for the quarter and the fiscal year were primarily related to increases in recurring services revenue as well as intrusion products and marks brand door locking products.
<unk> monthly revenue continued its strong growth, increasing 43% for the quarter and 41% for the fiscal year. This strong growth is primarily attributable to the continued strength of our commercial intrusion and fire alarm business, which has not been significantly affected by the cold.
The pandemic as buildings must remain secure.
Recurring revenue now has an annual run rate $41 million based on July 2021, recurring revenue and as <expletive> mentioned before we are excited to report that we have achieved our $40 million goal that was set several years ago. When we had very little recurring revenue.
Gross profit for the three months ended June 32021 increased 90% to $16.0 million with a gross margin of 43%.
That's compared to $8 million with a gross margin of 35% for the same period a year ago gross profit for the fiscal year ended June 32021 increased 15% to $52 million with a gross margin of 44% as compared to $49.0 million.
With a gross margin of 43%, but at the same period a year ago.
Gross margins for recurring revenue in the fourth quarter continued to improve coming in at 87% compared to 83% for the same period, a year ago, a 400 basis point improvement and.
And for the fiscal year, the gross margin for recurring revenue was 86% as compared to 82% last year also a 400 basis point improvement the.
The increase in gross profit for the three months and fiscal year was primarily due to the aforementioned increased recurring revenue as partially offset by lower margins from equipment sales.
Gross margins on equipment sales was primarily affected by the shift in sales.
T O products, which typically have lower margins, but they do result in the recurring service revenues.
And away from school security locking products, which typically have much higher gross margins.
The decrease in sales of school security products was primarily due to school districts and other institutions postponing their capital projects throughout fiscal 2021.
While we have seen delays in school security projects during the Covid pandemic, we have not seen significant cancellations and we expect projects to restart at schools are reopening and this we believe will have a positive effect on equipment sales margins in the future.
Gross margins on equipment sales were also affected by a lower overhead absorption rate, which occurred as a result effective and strategic $12.0 million dollar reduction in inventories during fiscal 2021.
Research and development expenses for the three months ended June 32021 were relatively constant at $1.9 million.
Or 5% of sales as compared to $1.9 million or 8% of sales for the same period a year ago.
Research and development expenses for the fiscal year June 30, 'twenty, 'twenty, one increased 5% to $7.6 million or 7% of sales.
That's compared to $7.3 million or 7% of sales for the same period a year ago. These increases were primarily due to increased payroll.
Selling general and administrative expenses for the three months ended June 32021 increased 41% to $7.2 million or 20% of sales as compared to $6.0 million or 22% of sales for the same period a year ago.
Selling general and administrative expenses for the fiscal year ended June 32021.
Increased 6% to $27.0 million or 22% of sales as compared to $30.0 million.
Or 23% of sales for the same period a year ago.
The increase in selling general and administrative expenses for the three months and the fiscal year was primarily due to increases in payroll and commissions as.
As well as some increases in travel and trade show expenses as our sales team is now out and about and they were at last year.
Operating income for the quarter was $6 million as compared to an operating loss of $835000 for the same period a year ago.
Operating income for the fiscal year ended June 30, 2021 increased 60% to $20.0 million as compared to $18.0 million, but at the same period a year ago.
The company's provision for income taxes for the three months ended June 30, 2021.
Decreased by 52000 to a million $7000 as compared to $1.059 million for the same period, a year ago. The company's provision for income taxes for the fiscal year ended June 32021 increased by 145000 to $2.4 million as compared to two.
$2 million for the same period a year ago the.
Company's effective rate for income taxes, which was 14% for the fiscal year ended June 30, 2021 and it was 21% for the fiscal year ended June 32020, the decrease in the effective tax rate for fiscal 'twenty 'twenty. One is a direct result of an additional tax expense recorded in fish.
'twenty 'twenty for now settled I R. S audit of fiscal 2016.
Yeah.
Net income for the quarter was a fourth quarter record $5 million or 14% of sales.
As compared to a net loss of $1.9 million.
At the same period a year ago.
Earnings per share diluted was the quarter for the quarter was 27 cents as compared to a net loss per diluted share of 10 cents for the same period a year ago.
Net income for the fiscal year ended June 32021 increased by 75% to a record $23.0 million or 13% of sales as compared to $13.0 million or 8% of sales for the same period a year ago.
And earnings per share diluted for the fiscal year increased 76% to 81 cents per share as compared to 46 cents a share for the same period last year.
Adjusted EBITDA for the three months ended June 30, 2021 increased 344% to $6.6 million or 36 cents per diluted share.
As compared to $1.5 million or eight cents per diluted share for the same period last year.
And adjusted EBITDA for the fiscal year ended June 30, 2021 increased 32% to $24.0 million or dollar six per diluted share.
As compared to $21.0 million or 80 cents per diluted share for the same period last year.
Yeah.
Moving on to the balance sheet.
At June 30, 2021 the company had $42 million.
Cash and cash equivalents and marketable securities as.
As compared to $20.0 million as of June 32020.
Working capital defined as current assets less current liabilities.
With $83.0 million at June 32021.
As compared with working capital of $61 million at June 32020.
Current ratio defined as current assets divided by current liabilities.
With 4.8 to one at June 32021.
At 4.5 to one at June 32020.
Cash provided by operating activities for the quarter increased 78% to $12.0 million.
That's compared to $10.0 million last year.
Cash provided by operating activities for the fiscal year increased 123% to $23 million.
As compared to $13.0 million last year.
Inventories at June 30, 2021 decreased by $12.0 million from June 32020.
This decrease is primarily the result of the company the company utilizing some of the additional inventory that built up during the COVID-19 pandemic.
As well as a company wide effort to reduce inventories to more appropriate levels.
Capex was 441000 during the quarter versus $290000 in the year ago period, and was $1 million for the fiscal 2021 period versus $1.6 million last year.
That concludes my formal remarks, and I would now like to return the call back to <expletive>.
Kevin Thank you.
Our fiscal year was a record breaker as we delivered the highest sales and net income for Q4 and fiscal year in the company's history.
Which is an incredible achievement during this ongoing COVID-19 pandemic.
Our success continues to be primarily primarily attributable to the commercial intrusion and fire alarm business.
Importantly, the fire alarm business is a mandated non discretionary item, which means that a commercial building must have and maintain a fire alarm system.
To receive a certificate of occupancy.
We continue to focus on this segment of the business given its high profitability and essential nature.
Recurring revenue products that we sell at the beginning of a new relationship not the and they are a sale it keeps on going.
The recurring revenue annual run rate is now 41 billion as of July 2021, and we are proud to have achieved a 40 million dollar RMR goal that we set for ourselves several years ago.
The alarm communications paradigm is shifting away from legacy copper lines and aging three G infrastructure.
The conversion of these older legacy technologies.
In the early part of the conversion cycle with millions of buildings still requiring upgrades, which creates opportunity for our starlink line of Universal fire intrusion and Iot communicators.
Our starlink communicators offer the widest coverage in the U S to deal with both AT&T and Verizon L. T E service.
Also integrators and dealers need to complete the upgrades for their customers is AT&T and Verizon have both announced the sunset of the three G networks in calendar year 'twenty 'twenty two.
This creates great opportunities for the company.
The school security continues to be a significant opportunity.
Our fully integrated solutions for this market remain a top priority given the healthy margins those products generate.
During the Covid pandemic, we've experienced delays, but not to give it another significant cancellations in school security projects.
As schools are reopening this fall will you reminded that we deem that the need for these solutions is still clear with a few active shooter events already happening. This this year.
Such as new Mexico, and North Carolina.
Also recently authorities in Florida were able to stop a plant mass shooting at a middle school.
The availability of grants for schools to fund. These security projects has never been better options for funding are available from the U S Federal government and state governments, which in total are in the billions of dollars.
We remain focused on providing schools the products and solutions they need to protect their students and faculty.
We look forward to sharing more news about project wins in the future press releases regarding school and University projects security projects are issued when the opportunity is allowed for us as we must receive approval from these institutions prior to release.
During 2020, one our latest product offering called Air access was launched importantly air access will bring recurring revenue to the locking and access control divisions of our company.
Which have not had recurring revenue until now air access is the industry's first cellular based access control system, which we believe is a billion dollar market opportunity.
The benefits of air Axis include no need for upfront investment inexpensive hardware no need to interfere with corporate I T networks, which can be a major problem for installers.
No on site database backups or software updates.
Well we are in the early stages of this launch we've received positive feedback from dealers, while at the ISC West trade show.
A few months ago.
And from dealers in the fields of recently.
The launch of the air access means that NAPCO now generates recurring revenue from each division of our company.
E G.
Alarms locking and access control.
We will begin our Q&A session portion of this call in a moment.
Our fourth fiscal quarter, 2021 and fiscal year was a very successful one before the COVID-19 pandemic began.
Typically impact our country back in March of 'twenty, 'twenty NAPCO had achieved 23 consecutive quarters of year over year record sales.
We've now started a new sales growth streak.
We remain excited about fiscal year 'twenty to 'twenty, two and beyond.
NAPCO Senior management maintains a high level of ownership in Iraq will be approximately 22%.
And I would like to thank everyone for their support and for joining us in the exciting future we have.
Our formal remarks have now concluded we would now like to open the call for the Q&A session.
Operator. Please proceed.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask you. A question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star T O.
Our first question comes from the line of Mike Walkley with Canaccord Genuity. Please proceed with your question.
Alright, Thank you, Kevin and Dave Congratulations on a strong result in achieving the 40 million target yet you said quite a long time ago. Yeah. My first question is just you know on the recurring revenue it's growing over 40% now off a larger numbers how should we think about.
The growth at scale of recurring revenue over time, and then built into that question on air access.
Good feedback from the channel you know when do you think that starts to materially contribute to recurring revenue.
Well, there's a great opportunity for us and I. Thank you for your support of these years are the opportunities we have.
5 million commercial buildings that use old technology copper.
And those buildings have to be converted.
The Starlink radios, which we have are a direct replacement for the copper.
And.
It will be the communications link between the building and the Central station. So we're very excited about that we also have the mothballing of the old cellular networks, which had radios on it those radios were not necessarily primary radios in the backup.
But there's hundreds and hundreds of thousands of those radios that are out there they have to be upgraded.
By next year before it's lights out for that network.
So that's another winded our back to help us create.
Create additional sales so I.
I can't tell you exactly what's that what what looks like except for the fact that the opportunities are great. I think we can keep on going cause the conversions.
In the first inning of a lot of these conversions and.
We have an exciting future to do more conversions.
And then we wanted always to have recurring revenue in each division. It's been very successful since we predicted that the RMR for the fire and intrusion business was going to get to the $40 million number we predicted this years ago. When we could see the changeover is starting to happen.
And now we wanted to get recurring revenue for locking which is unheard of.
And also for access control, which are also we didnt get nobody gets this recurring revenue is not something that the installation companies get for those two product lines, but the new invention of air access it was very exciting to the deal.
Luiz and they can do jobs very very quickly the equipment will be up in the cloud the updates will be up in the cloud it'll be professionally managed.
By us.
And it gives a great opportunity for those installations locking dealers and access.
To make recurring revenue like alarm dealers doing fire dealers do so I figure, it's gonna be a year and a half it's a new creation, but it builds equity and these dealers businesses. So it's going to be very exciting for them and we have a great sales team that's going to get the word out.
And it's already people are already asking for it said where are those over right away I wanted to check it out I was dealing with the I T Department.
In our company and they give me a lot of grief about putting in an access control system, because they're afraid of hacking going through their wiring. So Europe product will separate from from that and allow us to do a lot more work and a lot more jobs. So we're excited about the future of their axes.
Yes.
Great. Thank you.
Okay, then maybe a follow up question for you.
And the radio business has lower margin, but it drives that strong recurring revenue yeah, yeah. What's.
What's the feedback maybe from the channel on the on the school pipeline and how should we think about just gross margin and product mix over the next several quarters and then maybe longer term.
Okay, Mike Thanks for your support and for the question.
So what we see with the school security.
There are lots of jobs out there.
We talk to our integrators and our sales team all the time about lots of jobs that are kind of on hold.
And what I'm hearing from from them is.
We're not concentrating on and now we're concentrating on getting the kids back.
So getting them back in person.
The whole battle over masks and vaccines that that's the focus but as soon as the kids are back and now they're basically back.
We're gonna start focusing on the school security jobs, because they tell US. We've won these jobs. It's just a question of when the schools want to start.
So our expectation is.
Kids are coming back started in August starting you know whats happening now.
We're gonna start we believe the deceased school security jobs in the next couple of quarters.
Certainly I think by Q2, maybe even some this quarter, but you know we'll announce what we can announce.
But this is here to stay at school security. This isn't going anywhere this has been a temporary delay.
Cause of Covid.
But you saw once the kids started to come back already there was a couple of shootings. It's crazy the world is crazy when it comes to school shootings. So.
This will be back when it comes back the margins will shift back.
Right now the radios dominate the margins.
And that's because we're selling so many of them and we're dealing with a lot of big players.
And it's it's phenomenal and yes, we're selling a lot of product at lower margins.
But you know it leads to that recurring.
Recurring had the margin of 87% this past quarter. So we will we'll take that every day of the week, but when the school jobs come back into the mix then the gross margins for hardware I believe we'll be back into the thirties.
And again the higher we go on the hardware number the higher that margin it'll go.
So to us it's a temporary it's a temporary situation.
Okay.
The question to me on the gross margin I'll pass it on just just as you think about it.
The September quarter, usually seasonally down harder on revenue off of the June quarter, but you probably won't have.
The inventory reduction like you'd had congrats on getting that where you want it in the cash generation. So should we think kind of stable ish gross margin in the short term with similar mix or is there any other puts and takes you would guide us to on sequential gross margin changes. Thank you.
Yeah, I would say.
In Q1.
We're not going to see the inventory decline like we saw throughout the year one of the things we're doing just talking about inventory.
We you know we made a conscious effort to reduce it.
But now we're making a conscious effort to make sure. We don't run out of any of those hard to get components, we all read about.
Apply chain mess and the difficulty in getting parts.
Well, we spend I spend a lot of time, making sure that doesn't happen to us and if we have to buy extra inventory on those key parts. So be it I'd rather have that than run out we've got plenty of cash.
On an issue so I don't expect inventory to drop in the short term the way it has been.
And I also expect the margins to be similar.
These next couple of quarters to what we just saw maybe a little better but.
Certainly I don't think it'll be less.
Right. That's helpful and makes sense to use the strong balance sheet to get those tough to get components I'll pass the line and best wishes for another strong fiscal year.
Thank you Mike.
Our next question comes from the line of Jim Ricchiuti with Needham <unk> Company. Please proceed with your question.
Alright. Thank you so it sounds like if we think about gross margins and a sequential decline.
From Q3 to Q4, it's still a function it's fair to say a of just mix or just higher level of radio revenue in the mix and again I'm just going back to.
The overall concerns people have about some of the things you just alluded to cabinet components side was that all a headwind at all as it related to to your overall hardware gross margin.
Well the first thing I'll say Jim.
Is that the.
The.
The margin mix that we saw.
Is.
Two fold one is the strong <unk>.
Sales were seeing from radios, it's even beyond what we projected.
And.
That's that's going to lead to future recurring revenue that's phenomenal we're dealing with some big big players.
And as well as our typical customers.
And.
That makes for a tremendous shift even when the school jobs come back.
This is the radio part of the business is huge now.
And so I believe margins will come back into the theories in the next.
And in the foreseeable future, maybe not next quarter, maybe not the one after but maybe by our fiscal Q3.
Yeah.
It's a good thing in the end, we're happy with where its going schools will come back margins will come back.
And recurring is here to stay and then some.
And with regard to those hard to get components.
We are very very vigilant on making sure.
That we don't run out.
This is this is I think we see this with a lot of automakers and we see this with a lot of our competitors.
We're not going to go down that road, we're going to make sure that we have parts.
And if we have to have extra inventory and like.
We were saying before utilize our balance sheet to make sure. We don't run out we're going to do that but I think supply chain issues are here to stay and we will do everything in our power to make sure it doesn't affect us.
And Uh huh.
A follow up question it looks like you're getting back to what's a more normalized level of operating expense, particularly on the SG&A side and the sales and marketing side.
Is this the way we should be thinking of it sounds like you know the the trade show expenses coming back in you've got folks that are traveling presumably more now so I'm wondering and maybe this question for you Kevin how should we think about.
About opex going forward is it more normalized now.
Yeah, I would say.
SG&A was was particularly high also because commissions were higher in this quarter, but with the other things coming coming back.
I think an SG&A level and in the 656667 that range is is more normalized.
Hopefully, we don't have any more.
Travel bans and Covid doesn't come back in.
For us for our team our sales guys are traveling it's business as usual, we had our ISC west trade show.
In July in Las Vegas, there's nothing like.
Being in Las Vegas, and in July, but they had the show and you know so it shows her back traveling is back and.
And yes. These are the SG&A, maybe not as high as we just saw but more normalized and R&D.
You know that's pretty normal as well.
Right [noise], if we have special projects and we need to move things fast it will add a few engineers here and there but.
But for right now at a level that you see is what it's going to be where it grows 567% if anything changes.
I'll, let you guys know.
Okay.
Thank you congratulations on the year by the way.
Thank you so much.
Our next question comes from the line of Matt who with William Blair. Please proceed with your question.
Hey, guys. Thanks for taking my taking my question and congrats on the good results.
I wanted to ask on the hardware result in the quarter.
How much of that was driven by pent up demand and then what have you seen in terms of demand levels relative to where they are or where they were pre COVID-19.
Thanks, Matt so.
And one of the things that I look at.
I like to look at the distributors sell through stats.
That's how I can tell what the demand is.
As I've mentioned on prior calls.
Distributors are much more conservative than what they keep on hand.
They're still in this wait and see mode, but with strong sell throughs stats, they have no choice but to buy.
So as I look at our <unk>.
Intrusion customers our top customers.
The sell through stat of our of our number one guy.
Was up.
34%.
Year over year for the full year.
About 54%.
For the quarter year over year.
So I said, maybe you know it's COVID-19 COVID-19 the Covid years, 'twenty 'twenty was low.
Look at 2019.
It was even better.
So compared to 2019 again looking at our number one customer was up 51% for the year.
And for the quarter was up 55%.
So.
It looked really good but then I said that that was an intrusion customers. So let me look at locking.
And locking.
Hasnt done as well as the intrusion right radios versus at least the schools holding down some of the locking sales.
But I was impressed so our number one walking customer.
It was up.
31% for the year sell through.
Year over year, then I look versus 19, it was 22% still pretty good.
Then I looked at for the quarter was up 46% and then I looked at the number two guy.
I saw it was up 17%.
Year over year.
And then I went back to 2019, it was 48% the better. So you know all the sell through stats are still very strong.
Which means these numbers should stay strong.
You know the sales, maybe they're not going to carry three months supply anymore.
They have no choice with sell through stats like this they don't want to lose the sales.
So we believe hardware sales.
It keeps getting stronger.
My hope is that the locking side holds up at the end of the bargain so that the margins do better than that.
What I think will ultimately happen.
But where we're going in the right direction and all the stats all the metrics are strong.
Got it great to hear and then just wanted to ask on ice secure and what sort of traction or update there is with that product. Thanks.
Hi, secure has unique place in our product line.
It allows us to sell to the dealers have full complement not only fire, but also.
Intrusion aspect of it and it's a quick in store. So it's building volume Ah and it is sort of recurring revenue. It's part of the reason, we got to the $40 million number that we've hit.
As a prediction years ago, and I expect it to continue to keep growing.
In the future. So you have a combination of the style links you have fire control panels with installing spilt and you have ice secure which has a style at a starlink built in.
Now we have the year axis, which is for locking and access control, which integrates a locking and access control business with stalled in particular allergy in it.
So all of this keeps building for our future our goals and we expect our we expect great success going forward.
So.
In addition to that of course, there's always new products that we are we will invent and add to our product line.
That'll even contribute to more and more recurring revenue. The goal of course is that recurring revenue.
The 50% of our volume.
By 2026, and also the hardware to be also a 50% of our volume which is we expect.
Trying to be a $300 million company 50, 50 by that time and.
That is our goal and that great creates great profitability for our company because it's amortization of our overhead in the factory and also the great margins you get on a recurring monthly revenue. So it really contributes a lot to an exciting future for us.
Great.
Thanks, a lot guys for taking my questions I appreciate it thank you.
Right.
Our next question comes from the line of Jason Smith with Lake Street. Please proceed with your question.
Hey, guys. Thanks for taking my questions just wanted to follow up on your comments on the school projects. I know you mentioned there were some delays just just curious if these have been rescheduled for specific timetables or their rollouts of these remain up in the air.
I'm, Jason summer have been scheduled.
And some are not.
Typically.
If it's a K through 12.
They don't care about a certain time of year.
They can do these projects when the kids are in school.
Or not so we don't necessarily hear okay, it's going to happen it's been rescheduled.
Expect it to happen.
Yeah.
Kids don't have to be out of the school and a K through 12 setup.
University, it's different.
University typically they don't want the kids there.
What we've been hearing as well.
They want to start up soon anyway with some of these schools.
Want to start up soon.
You know once they settle the kids are in they know what's in person and it's not going to be virtual anymore.
They want to get these things started they've been waiting they've been approved.
So that's why we feel pretty good about the latter part of this this calendar year, which were almost at.
That these jobs are going to start up.
I can't be more specific than that.
I will tell you will announce whatever whatever wins, we can we get and we get our approval on them, we will announce and you guys all know.
Okay.
Helpful. And then congrats on achieving that $40 million annual water on your rate. This past year, just curious if you'd be willing to throw out sort of a new goal going forward that we can look for.
Well the goal we have that we said is a two by 2026, you Wanna be 150, and recurring and 150 and hardware that's our new goal and with the products that we have are in the marketplace now and the new products that are have been launched.
We expect to reap.
Very strong benefits from and the products that are in our development.
We believe that it's a very doable goal.
And I say stay tuned and keep an eye on us and we're in a great business and as we've said a big part of our business is mandated gotta habit. So.
So we have all those conversions of buildings commercial buildings residential buildings that have to get off copper because copper's going light Joe.
It's over so since Starlink is considered the best radio in the business.
And it works in all areas of the country, because we have it we work the AT&T network as well as the Verizon network.
The dealers are utilizing it as a competitive substitute for the copper which is going away.
And a lot of copper work and a lot of dealers out there, they're going to make money, whereas in the past building owners paid the cash paid to AT&T and Verizon for the copper wires to use those copper wires.
Now these carriers wont be involved so the dealers can make money instead of the instead of those carriers. So that's very exciting for the deal. That's why they are out beating the bushes getting converting conversions over and as light to going out around the country with the copper.
They've got a competitive substitute on their truck, which is the starlink that can do any type of job any type of control panel. That's been installed in the last 25 years, it's a very very unique technology and it makes their life, a more profitable and and and easier.
For them to get business. So we're excited about the offerings that we're giving to our dealers.
Alright, Thanks, a lot guys.
Thanks, Jason Thank you.
Our next question comes from the line of Brian Rottenberg with Imperial Capital. Please proceed with your question.
Right. Thank you very much great quarter and year.
Question, let's start with a macro one that hasn't been addressed yet is after all boy acquiring spectrum brands, how does that impact you.
You're obviously.
Paul did that sector can you talk about that.
And the impact to often allegiant now getting into a a nice bite at that lock level.
Well, we like it when the big guys fight it out.
We make a lot of customized hardware.
And our customers' hardware are the dealers use it when they're doing all kinds of jobs, where is the big guys don't do the customized hardware they have more or less a turnkey run of the mill type of of hardware. In addition to that the big guys are not into RMR or recurring monthly revenue.
They don't know about the technology of radios.
It's it's foreign to them they stay in their lane of hardware manufacturing of door locks commercial buildings.
I'm kind of like catalog items and now that the acquisition.
You're referring to that's come about that's kind of like a retail business a lot of retail in that we're not in the retail business. We don't make grade to grade three would your lower quality locks, we only make grade one locks unique customer.
<unk> architectural grade, one locks, which network or stand alone, but network. We went to technology, We're a technology company and they are more or less a commodity companies a lot of commodities big because these companies have been around for 100 years, but.
Got into the unique technology that we have and it's very hard to get into this technology. This technology took us many years to generate it started out a company started out as an electronics company and then went into mechanical products, but we're primarily in electronics and.
Software company and understand so for us, we're not going to see much in the way of any any interference in our business model at all.
Great and then as a follow up a separate line.
Can you talk a little bit about our school funding at the federal level, there's anything coming down.
From you know the big budgets coming down from the federal government that you guys would benefit from a at the school level.
Patrick.
That one yeah.
Yeah, I would just say that.
The federal government after the shooting in Florida in 2018 committed too.
100 million per year for the next 10 years. So we're only three years into that program.
And there has been talk.
Of adding more school supporting them into these are infrastructure bills, but.
But we haven't seen any details on that as of yet, but nonetheless, as we stated earlier in the call between the federal government.
And the state governments stepping up on their own.
We know states like Florida for example have committed 500 million in funding our.
States like Maryland have committed 125 million for a number of years going out.
There really is a.
More options for funding than there ever was before so if you do want to get a system installed and you need money to do so there's plenty of it available.
In terms of getting getting the school security jobs completed.
Alright, Thank you very much.
Okay.
Our next question comes from the line of Raj Sharma with B Riley. Please proceed with your question.
Hi, Thank you congratulations on a solid quarter solid a year. Thank you Roger I just wanted to.
Yeah, Yeah, I just wanted to recap on the hardware margins were impacted.
Mostly by inventory reductions, but also by a greater number of alarm systems sold.
And should you continue to see this.
Going forward you already you already commented that the distributor sell through is really good. So I just wanted to get a sense of that.
I think the mix.
Selling more radios.
Hum.
That's the mix has shifted to more radios less school jobs the school jobs will come back.
The radios are here to stay and medicine.
So.
Again, the margins on the on the radios, 20%, 25% whatever it is it's lower.
Or do we enjoy the recurring revenue that comes thereafter.
The inventory reduction was just a part of the of the margins.
That to me that that's not going to last that had an impact.
I don't expect the inventory to drop in at least in the next couple of quarters for the reasons I said earlier, so that I don't think that's going to have an impact on margins.
But that that mix shift that will have an impact at least for the next couple of quarters, maybe less school jobs come back strong now the margins on school jobs are tremendous.
And so when.
Comments, we Miss it we love, having those higher margin jobs.
But believe me, we're not complaining with all the radios, we're selling it's.
More than makes up for it.
Right and then on the schools are talking about the schools the schools picking up should help the gross margins on the equipment side, but on any change in gross margins for the air axis relative to the existing recurring revenues.
Are you talking about the margins from the recurring revenue.
Get all tribute from air access.
Yes, yes, I said that is that profile going to be any different from the existing recurring revenue stream.
The best.
It's great recurring revenue also when again, we don't we don't have any of it.
Well, we never did and now we're starting to see it.
But nothing is like the fire.
The fire radio recurring nothing.
Nothing is as good as that.
It's all good you know when we we get seven $8 a month.
For our residential radio we're thrilled with that when you get up to $15 a month, if it's a fire radio even better.
Oh, the air access probably not going to be as strong as a fire radio.
Think about all the locks that are out there.
So it could make up for it in volume.
So the pure right.
The pure recurring revenue per door may not be the same.
But with a lot of doors.
It'll it'll still be a very very.
Profitable.
Situation.
Right and then just lastly, when do you expect the schools to come back or should we assume that would be sort of first half of this fiscal year or the second half.
I would think the latter half of this calendar year.
And into next year.
Yeah.
Got it. Thank you again for a solid quarter I think you don't take my questions offline. Thank you Raj.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Thank you everyone for participating in today's conference call as always should you have any further questions. Please feel free to call Patrick Kevin or myself for further information. We thank you for your interest and support and we look forward to speaking to you all again in a.
<unk> months does discuss snap goes fiscal Q1 'twenty two results.
Bye bye.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Okay.