Q1 2023 NAPCO Security Technologies Inc Earnings Call
[music].
Greetings and welcome to the NAPCO Security technologies fiscal first quarter 2023 results conference call. At this time, all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation, if anyone should require operator assistance. During this conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I will now turn the conference over to our host Patrick Mckillop, Vice President of Investor Relations. Thank you you may begin.
Thank you. Good morning, My name is Patrick Mckillop, Vice President Investor Relations for NAPCO security.
Thank you all for joining us for today's conference call to discuss our financial results for our fiscal first quarter 2023.
By now all of you should have had the opportunity to review the press release discussing the results. If you have not a copy of the release is available on the Investor Relations section of our website.
Www Dot NAPCO security Dot com.
On the call today is Richard Soloway, President and CEO of NAPCO Security Technologies, Inc.
Kevin Michel Executive 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 management's judgment beliefs current trends.
The anticipated product performance.
These forward looking statements include without limitation statements relating to growth drivers of the company's business, such as school security products and recurring revenue services.
Potential market opportunities the benefits already.
Of our recurring revenue products to customers and dealers.
Our ability to control expenses and costs and 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.
<unk> our annual report on Form 10-K.
Other unknown or unpredictable factors or underlying assumptions.
Subsequently proving to be incorrect could cause actual results to differ materially from those in the forward looking statements.
So we believe that TX expectations 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 today's press release.
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 on the IR calendar.
We are attending and hosting one on one meetings at the sixth annual Wells Fargo TMT Summit conference taking place in Las Vegas November 29 through December 1st.
Also we will be attending the imperial capital email security Investor Conference on December 14th through the.
15th in New York City.
And finally, it will be at the annual Needham growth Conference in New York City on January 10th through the 12 2023.
We would also like to invite investors and our sell side analysts to come to the ISC East trade show.
Place at the Javits Center in New York on November 15 through the 17th.
I see east is one of the largest trade shows in the industry and NAPCO will have a premier location towards boots displaying all of our great products.
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.
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.
We are very pleased to report our fiscal Q1, 'twenty two 'twenty three record sales of $39 5 million.
Recurring revenue continue to grow at a very strong rate and the annual run rate is now approximately 58 million based on October 2022 recurring revenues.
Our balance sheet remains strong with our cash balances at $44 4 million and we have no debt.
We continue to focus on capitalizing on key industry trends, which include wireless fire and intrusion alarm.
School security solution, plus enterprise access control systems and architectural locking products.
The management team here at NAPCO continues to focus on the key metrics of growth profits and returns on equity and controlling costs.
These metrics are important for us as well as our shareholders.
Continuing to execute our business strategy and our interests are aligned with our shareholders as senior management of NAPCO owns approximately 21% of the equity.
Before I go into greater detail I'll now turn the call over to our CFO Kevin Michelle.
Provide an overview of our fiscal first quarter results and then I'll be back with more on our strategies and outlook Kevin.
Thank you Jack and good morning, everybody.
Net sales for the quarter increased 27%.
On a quarterly record of $39 $5 million.
Pet to $31 $1 million.
At the same period, one year ago.
Our equipment sales in Q1 increased 23%.
$25 $7 million as compared to $28 million for the same year ago period.
Recurring monthly revenue continued its strong growth increasing 35% in Q1.
$13 $8 million compared to $10 $2 million.
Same period last year.
Our recurring service revenues now have a perspective annual run rate of approximately $58 million based on a couple of October 2022 recurring service revenues.
The increase in equipment sales for the quarter were <unk>.
Weighted to increases in all segments of our business.
Intrusion products locking product and access control products. They all increased.
The strong growth of our recurring revenue is primarily attributable to the continued strength of our starlink cellular radio products.
Driven by increases in the commercial intrusion and fire alarm business.
Gross profit for the three months ended September 32022.
Increased 35% to $18 $2 million with a gross margin of 46%.
That's compared to $13 $5 million with the gross margin.
43%.
The same period a year ago.
Gross profit for equipment sales for Q1 increased 29% to $6 million.
With a gross margin of 23% as compared to $4 $7 million with.
But the gross margin of 22% last year.
Gross profit for recurring revenue for the first quarter increased 38% or $12 $1 million with an 88% gross margin.
As compared to $8 $8 million with a gross margin of 86%.
Same period last year.
The increase in gross profit dollars as well as the 300 basis point increase in gross margin.
Primarily the result of the aforementioned increase in revenues.
Leads to greater overhead cost absorption in our Dominican Republic manufacturing facility.
As well as improved product mix more higher margin equipment sales.
Strategic price increases, which we have implemented on select products.
Another key factor in the increases in gross profit and gross margins.
Is the 200 basis point increase in gross margin on service revenues now 88%.
Which was primarily due to the continued increase in service revenues relating to the company's fire radios.
Which have higher monthly selling prices than the company's intrusion radios.
Research and development costs for the quarter increased 26% to $2 $4 million.
Or 6% of sales as compared to $1 $9 million or 6% of sales.
At the same quarter a year ago.
The increase in dollars was due primarily to salary increases and some additional staff.
[laughter].
Selling general and administrative expenses for the quarter.
Increased 16% to $8 $5 million or 22% of net sales.
As compared to $7 $3 million.
24% of sales for the same period last year.
The increase in selling general and administrative expenses for the first quarter.
It was due primarily to increased sales incentive compensation.
Relating to the increase in net sales.
As well as increases in stock based compensation and legal expenses.
The decrease as a percentage of net sales due primarily to the increase in net sales, partially offset by the aforementioned increase in.
<unk> dollars.
Yeah.
Operating income for the quarter increased 71%.
The $7 $2 million as compared to $4 $2 million at.
At the same period last year.
The company's provision for income taxes for the three months ended September 32022.
Increased by $396000 to $744000.
That's compared to $348000 for the same period a year ago.
The increase in the provision for income taxes for the three months was primarily due to higher U S taxable income.
The company's effective rate for income tax.
It's 10, 4%.
And four 3% for the three months ended September 32022, and 2021, respectively.
The effective tax rate of four 3% for Q1 last year was the result of other income of $3 $9 million being non taxable.
Net income for the quarter was $6 $4 million or 17 cents per diluted share.
As compared to $7.8 million or 21 cents per diluted share for the same period last year, an 18% decrease.
Net income and earnings per share for last year's Q1 benefited from $3 $9 million of other income as there is as a result of extinguishment of debt without such benefit net income and earnings per share for Q1 last year would have been $3 8 million and 10 cents per share respectively.
Adjusted EBITDA for the quarter increased 77% to.
The $8 $3 million or 22 cents per diluted share as compared to $4 $7 million.
13th sense Chris.
<unk> share for the same period last year.
The EBITDA margin for Q1 was 21% as compared to 15% in the year ago period.
Moving on to the balance sheet.
At September 32022, the company had $44 $4 million in cash cash equivalents and marketable securities.
As compared to $46 $8 million at June 32022.
Working capital defined as current assets less current liabilities was $97 million at September 32022, as compared with working capital of 93 million at June 32022.
Current ratio defined as current assets divided by current liabilities was five point O to one at September 32022, and was four five to one at June 32022.
Cash used in operating activities for the three months.
Well, it's $2 million.
As compared to cash provided by operating activities of.
$3 $5 million for the same period last year.
The decrease was primarily due to inventory increased by $14 million.
As a result of the company's decision to purchase an abundance of hard to get parts that are used in our starlink radio products, which generate the highly profitable and continuous recurring revenue.
Capex for the quarter was 372000 versus $522000 a year ago period.
And we have no debt.
That concludes my formal remarks, and I would now like to return the call back to <expletive>.
Kevin Thank you.
Our first quarter was a sales record breaker.
Continuing on our sales growth streak.
Which is now our eighth consecutive.
Quarter of year over year sales growth.
Prior to the Covid pandemic, we had 23 consecutive quarters of growth.
And we look forward to support surpassing that streak in the future.
We are pleased that we were able to beat published street consensus estimates for revenue.
E P S net income adjusted EBITDA metrics.
One key area of our success continues to come from our commercial fire and intrusion alarm business.
Today's news headlines were all about the continued interest.
Rates hikes, and when the U S might fall into a recession.
I would like to remind you that our company is highly recession resistant.
80% of our business is commercial.
And one of our primary growth drivers the commercial fire alarm business is a mandatory non discretionary item.
Commercial buildings must have and maintain a fire alarm system in order to receive a certificate of occupancy.
Given the high profitability and essential nature of this business, we focus on this as a key area of our resources.
Our equipment, our recurring revenue both generated exceptional growth this quarter, increasing 23% and 35% respectively.
The annual run rate for recurring revenue is now approximately $58 million as of October 2022.
Our starlink radios continue to have strong sales and we are optimistic that we can reach our previous mentioned goes well 150 million and recurring revenue and $150 million of equipment revenue by the end of fiscal 2020 six or possibly sooner.
Achievement of those goals as well as our gross margin goals of 80% recurring revenue and 50% for equipment revenue could generate generate EBITDA margins in excess of 45%.
As a three G sunset at the end of calendar 2022 is fast approaching and dealers are racing to complete commercial fire alarm upgrades.
We believe that we are in a strong position to benefit.
Additionally, the continued need to upgrade legacy systems from old fishing copper phone lines still exists.
We estimate that there are millions of commercial buildings of all types, such as offices hospitals schools coffee shops, fast food restaurants, plus others that need to either upgrade from copper or replace an older three G cellular radio.
Our starlink radios have the widest widest coverage with both AT&T and Verizon service and.
And rich feature sets, which are ideal is love.
The constraints of the supply chain continue to be challenging, but clearly our strategy to temporarily sacrifice hardware gross margin by purchasing components at higher prices. So we can continue to manufacture radios, which lead to continued high margin recut.
Revenue for each radio installed and operating is working.
We are pleased that the equipment margins improved by 100 basis points to 23% in this quarter.
Versus 22% in the same period a year ago.
Margins for recurring revenue also improved by 200 basis points to 88% for this quarter versus 86% in the same period a year ago.
We continue to aggressively manage supply chain issues by developing alternative supply sources and delivery methods.
So reengineering products where necessary.
We believe that in the next six months the new supply of resources, we are developing will reinvigorate our equipment margins and bring them to even higher levels than what we generated prior to the supply chain crisis.
The backlog for the company remains at historical high levels.
We remain confident in our sustainability demand for our products going forward. We remain encouraged by the continued strength of our sell through is this.
Fix which we are seeing from several of our largest distributors. We believe we're taking market share from our competitors based on customers continuing to tell us they can't get products from the competition.
Our school administrators have started to turn their attention back to the need for security solutions as more incidents happen.
Our fully integrated solutions for the school security.
Generally healthy margins for our business and now more than ever we are laser focused on further penetration of the school security market, which is composed of approximately 130000 K through 12.
And 5000 colleges and universities across the country.
Our fully integrated technologies for the school security market continues to remain a top priority for NAPCO.
The availability of grants for schools to fund the security projects.
Other than better.
As an example, we recently saw that the department of Justice awarded $190 million in grants to support school security and October 'twenty to 'twenty two.
Many other states continue to pass funding initiatives as well.
Offering seamless security solution.
Which allow for our dealers and us to generate recurring revenues.
Central to our strategy historically recurring revenues have been from our NAPCO intrusion alarm division.
And fire Division with recently launched air access products, we are now able to generate recurring revenue from all divisions of our company.
Air access will generate recurring revenues from locking and access control, which has never been done before.
Air acts as the industry's first cellular based access control system, which is which we believe is a billion dollar opportunity. The benefits of air access include no need for upfront investment and expensive hardware no need to interfere with the corporate IP networks.
Which can be a major problem for installers and no onsite database backups of software updates.
Our R&D team remains hard at work developing even more products for the future, which will grow our recurring revenue business.
We are experience experienced tremendous success over the last five years growing our recurring revenue and believe the best is yet to come.
We will begin our Q&A session portion of this call in a moment.
Our fiscal first quarter 2023, despite the continued supply chain challenges was a record breaking successful one we have a strong balance sheet no debt.
And have made the business decision to use the cash we have to spend more on raw materials and logistics as necessary to ensure that we maintain our sales and profitability growth trends.
Our seasoned management team has the experience from previous supply chain disruptions, which is helping us navigate the current environment.
NAPCO Senior management maintains a high level of ownership in our equity approximately 21%.
And I would like to thank everyone for their support and for joining us in the exciting future we have.
Our formal remarks are now concluded we would now like to open the call for the Q&A session. Operator. Please proceed.
Thank you and at this time, we will conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Information 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 queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Mike Walkley with Canaccord Genuity. Please state your question.
Yeah.
Great. Thanks for taking my questions and congratulations on the strong results.
Goodbye.
You have I guess.
For both Kevin and you know it appears your focus on the commercial market is paying dividends as some of your more consumer focused security competitors are struggling with poor results, especially compared to your strong results.
Could you guys update us on the competitive environment and with your near record backlog levels. You know how is the commercial market holding up from your products.
The we focus on the commercial and 80% of our business is commercial and we have a lot of new products coming out for the commercial market.
We're doing a lot of our marketing in fact, the show that's coming up in the <unk> and the Javits Center, we are gonna be holding a seminar on the tradeshow floor, we're going to do a party for the dealers a lot of dealers want to know about commercial there.
Hired of the residential dog eat dog. They wanted to go into the commercial business, which is much more stable. So we're gonna be showing a rare access which is a product which will get us recurring revenue from the access division of our company as well as the locking division and.
And we expect to have a show is gonna have thousands of dealers coming from all over the northeast.
To the show.
And we've gotten the most request to come to the seminar ever in our history of our company. So.
Obviously commercial is a great success.
And it's very stable as we know because to have a certificate of occupancy for a building even if half the employees come to work they still have to keep the alarm systems working and they gotta do it either through upgrading the copper which is being taken out of service.
Or are putting in new systems, and we make both we make the rip and replace type of equipment as well as brand new equipment for new jobs. So our dealers are very busy doing that work. So it's a it's a very strong growth area for the company.
Great Thanks, and that's.
That's great to hear the excitement for air access at I S. C next week.
I just wanted to clarify are axis that recurring revenue piece and it takes a while to train the channel that is excluded from your fiscal 'twenty 'twenty six forecast if it starts to pick up with that'd be upside or is it included in those longer term forecast.
Right right. So you're right. The air access is not included in our 2026 goals that's gonna be gravy on top of what is a very exciting 2026 goal.
And air axes.
New product it takes about 18 months to really start seeing results.
So we came out with the beginning of this calendar year.
We think by next year going to start to see some good action familiar access, but it's not part of the 150 150.
Great. That's helpful. Last question for me and I'll pass the line you know, Kevin you're using the strong balance sheet as a competitive advantage and inventory levels are elevated.
What would net cash be if if you like more normal inventory levels.
And there's two parts to that question just with the excess cash you guys are building on your balance sheet. You know what are your thoughts of what.
What you might do with that cash as it continues to accumulate as you start to hit these longer term goals. Thank you.
So Mike as if if we didn't have to increase the inventory to keep.
Things moving along.
Our cash balance probably would have been 70 million instead of the $44 million, but we do what we have to do because we want those sales and those profits to keep going.
This is going to start to change the inventory that we believe it's going to start to come down in the second half of fiscal 2023 that will help cash grow cash grows every.
Every month, because if recurring revenue first.
First of the month cash comes pouring in we've had to use it for inventory when that changes and it's going to change. So the cash number itself will start to grow.
What are we going to deal with it the high class problem again, we've study different things acquisition.
You need one.
Somebody comes to us with a perfect.
Perfect company to be acquired we'd consider it but it's got to be you know just right. It's.
Gotta be something we can manufacture in the Dominican Republic gotta be something that's accretive from day, one we got to be able to sell it in our channel.
Pay a fair multiple things like that somebody comes to us with that we're interested in.
We've got plenty to do and plenty of ammunition to hit our hit our goals.
Somebody said why don't you deal with dividend, we will consider that.
Somebody said buyback stock we've done that in the past they were all good ideas high class problem, and we will figure out what to do.
Great well congrats again on the strong results now I'll pass the line. Thanks, Mike. Thank you.
Our next question comes from Jim Ricchiuti with Needham <unk> Company. Please go ahead.
Hi, Thank you good.
Good morning, just wanted to I can't go back to.
Hardware margins because there there's some moving parts here obviously.
To what extent have you had to step up even further.
Pyramid of some of these hard to get parts and how do we think about that relative to the benefits the tailwind you're getting from corn price increases.
So we've had to.
Do whatever we have to do to get those hard to get parts.
And that means paying much higher pricing.
You try to get it from the supplier.
<unk> tells you nothing available until 2024, we can't wait around.
So we go to brokers the broker market you pay more.
But what it does is it allows us to keep manufacturing radios.
And it allows us to get that 88% gross margin recurring revenue, so it's well worth doing.
But we don't want to live this way forever.
So we have started to develop alternative sources from the traditional sources that are telling us to wait until 2024.
We believe those.
Alternatives are going to become available to us in the next within six months. So we might start to see that in Q3, our fiscal Q3, which is the January .
February March quarter, certainly by the April May June quarter.
It's going to help margins get back to and probably exceed the levels. They were before this whole supply chain mess started.
No.
We do what we have to do the engineers also if we if we.
We asked them to develop alternatives substitution of parts, but whatever has to be done we do to keep that strong revenue going and strong recurring revenue you'll see the results this quarter.
Paid off.
Kevin in the near term potentially still some choppiness.
Where margins until you start yeah, it's not some of the benefit of in spite of the supply chain is not over.
Now there has been some ease easy.
Freight costs freight costs have come down a bit.
There's been it's gotten a little easier on some of the.
Difficult components, but it's still out there.
It's still outage and then we're going to keep doing what we have to do that.
Until it's over.
My follow up question just relates to the channel are you sound like you're you're hearing pretty good things in the channel have you suggested you've seen some share gains just in terms of sell through any color you could provide on that thank you.
Our key distributors sell through stats when compared to a year ago very impressive three of top three or four guys. All about last year. So that's very encouraging and we watch that like a hawk, we watch it every month and we summarized it quarterly.
All moving in the right direction very powerful stats and we expect it to continue going forward.
Jim If you come to the show cause your U.
You are based in New York City, you come to the Javits show, you'll see our booth.
You'll see our products they.
They are head and shoulders.
Better than the competition they look different they have different antenna systems, because the deal just wanted to get long range.
The products they have different functionality.
They have just a different look to them compared to everything else. That's out there plus we deliver we keep those assembly lines working with as Kevin said with the different ways of getting parts redesigning parts to fit into the circuit boards are we keep picking up more and more share we're hearing that all over the place.
But that's why there's a big turn out for people to come and see the air access we're going to do a 45 minute seminar.
It's day, one November 16th of the show and we expect that that's going to be a big contributor and it's going to round out our product lines that every one of our segments of security is going to have a recurring revenue returned to it so you'll be able to see that and we welcome you in any of the other.
Investors and analysts to come to the show.
No. Thanks for the invitation congrats on the quarter by the way.
Thank you Sir.
Our next question comes from Jason Schmidt with Lake Street. Please go ahead.
Hey, guys. Thanks for taking my questions I just wanted to follow up on the equipment gross margin. It sounds like you expect some return to normal legislation sort of in that March and June quarter or is that competence really just driven by the expectation for some of the supply constraints and pricing challenge.
As to start to ease or really more driven by the price increases you guys are starting to flow through.
There's multiple factors that.
Make us feel confident.
That is going to be better.
Certainly by the second half of fiscal <unk>.
23.
Yes, we took price increase in April we took another one in July .
That has to help we didn't do one October 1st we're looking we may do another one January but we haven't made that decision yet so that's one factor.
Mix is a factor we're seeing the locking sales really pick up locking sales have stronger gross margin.
Then radios radios, we'd love because of the recovery, but the actual hardware sales.
Locking has much higher margins, so we're seeing that pick up.
And by by January or sometime in Q3, maybe Q4.
We're gonna start buying these crazy price part Steve.
Difficult chips.
We're paying in some cases 10 times more than we have to wait and.
See that go back to more normalized pricing.
That's why we're so encouraged the hanging in for a little longer you see the kind of numbers.
Put on the board even with paying these prices.
Picture, what it's gonna look like when we can pay more normalized pricing.
A $5 chip not a $30 chip that's why we're we're very optimistic.
One of the other things that advantages we have as we get more normalized is we're spending a lot of time with our engineers are redesigning software and hardware such that we can get a flow of these components are utilizing other components that we've never utilized before but we're working on.
<unk>, if we redesigned the software and changed the board's around so we have a great engineering team here and we have a lot of very exciting products on tap to create more volume for us and more recurring revenue, but they're taking a little bit of a back seat right now because of the fact that we were having the engine.
Hearing departments, keeping the lines going with the rejiggering of the circuit boards and the housings and things like that so we can keep a steady flow of our finished goods.
But as Kevin is talking about as soon as we get normalized which is going to happen in a couple of quarters. Then those engineers can go back to come up and come up with the exciting things that the deal is all one thing we do have lots of focus groups, we have a great industry reputation.
Top of the business.
Our top dog of manufacturing the radios.
Hardware is very very special and we have a lot of new ideas that we wanted to introduce to the marketplace and it's gonna be a very exciting future and as we get back to full new development instead of spending time on rejiggering.
Components and the circuit boards are it'll just drive up business to the highest heights, so very excited about that.
Okay. That's helpful. And then just as a follow up looking at the school security market in your prepared remarks, you called out some funding obviously still a big focus on school security curious if you've seen any change in the deal size in that market and I guess relatedly historically.
Pre Covid you did see some sort of seasonality throughout your fiscal year in that market do you expect that to continue here in this fiscal year.
I don't think our seasonality is an issue any as an issue anymore.
K through 12.
After the shooting in your file the Texas state they want to do whatever they can do right away and really what it what the main thing they have to do is they have to give the teachers the ability to lock the classrooms from the inside that's the biggest problem in K through 12.
Simple solution. So we're seeing a lot of activity hopefully, it's going to lead to a lot more sales, but we're seeing it.
What and they don't have to wait they can do these jobs, while the kids are still in school in the old days yeah.
Years ago, they used to want to do it during the December break or during the summer those days are over these schools can't afford to wait.
Have to act now we're seeing a lot of activity in the K through 12 market universities also but a big change I've seen.
In K through 12 since you bought it.
In the market place case K through 12, we make two different types of locks at the schools like one is with a remote control quicker so that it could be locked across the classroom by the teacher authorized person and they don't have to get near the door because it has been.
A lot of shootings through the doors. So we can make that and we're very good at making wireless and unique products and we're doing very well with the remote control locks that we also make a conventional lock which is more economical.
Which is what they call the grade one lakh, it's the highest security type of lock fits under door replaces the existing lock and it has a mechanical flip her on the back of it which allows the door to be locked because the doors in schools swing outward and Theres no locks on the inside they're all key operator.
Outside with just the way they build schools.
With our replacement lock and we're selling a lot of hardware as Kevin was alluding to it's going into all kinds of commercial buildings schools and we make it two ways wirelessly and we make it with the flipper. So we have a very very good.
Good line of products, which are great one for the schools and hospitals, we see them all over the hospitals all over everywhere you want to keep the bad guys out.
Okay. Appreciate the color thanks, guys.
Thanks, Jason.
Our next question comes from Brian Rutenberg with Imperial capital. Please state your question.
Yeah. Thank you very much a quick question.
In terms of the price increase how much was from a volume versus price increases are in terms of sorry, your revenue from our equipment.
Revenue grew 23%.
So how much of that growth was from pricing versus volume.
I would say the majority was from volume.
Pricing.
Took effect.
The second one was July one.
And it wasn't a huge price increase most of the 23% came from selling more selling more radios selling more locks.
If I had to break it out I would say you know.
18% growth the rest price increase.
Okay, and then just one question on <unk>.
In terms of competitive environment can you talk about I E. The way youre gaining market share because the competitors.
They don't have the product or B that your product is.
Less expensive or is it superior can you talk a little bit more about that youre talking about your product being better but is it because the competitor just doesn't have a product out there that's available.
When we design our products, we design them with features that are very very important to the dealers and we design our products to the universal So they'll work on all kinds of applications a lot of our competitors most of them make it for their own ecosystem and then that universe.
So so the dealers have a product which has a lot of functionality. It works in every system.
We've put a lot of extra features on it if you take a look at our radios is too big rabbit ears stuck up on the top of it which kind of parrots, what the cellular towers look like because it is.
It amplifies the signals if you look at the competitors they have a little pencil sticking up on the top of the thing and it doesn't have the same punch through as our radios.
As an example is a visible example, when you take a look at our software. It works in a way, which is very easy for the consumer the end user to utilize and the product in stores very quickly.
Then you take a look at the hardware for schools. The complete product line, where we have the mechanical ones. We have the electro mechanical and we have the wireless versions. So a deal that can get every single functionality and the functionality is very rich compared to our.
The competition, we prepared checklists and we know what we have to add to it and we've been doing this a long time. So we've added a lot of the functionality that the competition doesn't have that is very wide ranging if you come to the show you'll be able to see if you can walk over to another competitor's boots look at what they do.
And just look at what we've got and you will see the excitement that you could talk to the dealers are and that's why we have the seminar with air access we have.
A big party on the show floor. So it's gonna be a way to get the word out about all of our newest products like air access and we also have new fire panels hold fire link which are with radios built into them. So they're a superior in performance price wise there.
Popularly priced they're not inexpensive isn't that expensive and when you're in the commercial business. The dealers don't really ask too much about pricing, it's not a pricing issue if youre in the residential business everybody wants to know about pricing pricing is very important but in our business just make top.
Quality that the dealers can put in.
And continue to get their recurring revenue and there have no maintenance things of no maintenance per se to talk about it makes a big difference to the dealers and Thats why they are utilizing the products. That's what we're picking up the share and you'll be able to speak to them and hear yourself when you come to the show.
And what you're going to hear is also they can't get delivery on top of everything Vic just said.
You know the competition's quoted 26 weeks 32 weeks guys can't wait these are commercial jobs. They can't wait it allows us to get in their deliver and pick up market share.
Yeah, but as we get into these dealers and because they are getting delivery and I find the products are really superior.
Then they say well what else have you got and we show them other things, which are helpful to them. So it allows us to really expand our market a product placement in these dealers.
Why do area. So from the point of view of Covid helped us get pick up share because we know how to reengineer, we know how to deal with a lot of the vendors because over the years, we've had shortages of components and we just put it our techniques into play so.
It is working out very well.
Great. Thank you very much.
Thanks, Brian .
Our next question comes from Raj Sharma with B Riley. Please state your question.
Yeah. Thanks for taking my questions again, congratulations on the solid results just fantastic amazing.
Given where a lot of competitors you know focused on the residential are showing some struggles.
And your pick up also in recurring revenues is showing strength as you had indicated earlier.
Are you you know that's one of the sell through of dealers are you. So so what I'm hearing is that youre not seeing any.
You know indications of delays or pullbacks at all given.
Kind of weird.
Where the flavor of the economy is currently.
No not not yet and hopefully not ever.
Again, we manage we look at these stats ever.
Every month.
And through September .
Very strong sell through versus a year ago.
And that's that's what we look at it.
Looking really good hopefully it keeps up.
Perfect.
Perfect and then on the school security side.
Any sort of indications that the actual school security sales are picking up how do we how do we tell me you know, obviously locks and access.
So how do we tell.
What sort of what percentage of the business. You know this quarter would you say was would be attributed to school security projects.
Yes, we cant tell you that Raj I wish I could.
A lot of these sales go directly to distribution, we don't even know who it's for.
But I am lacking lacking sales are picking up in that.
That's usually an indication that schools is a nice big part of that and.
And that.
Has become stronger like it was pre COVID-19 during COVID-19. It got weaker now it's picking up again I'm sure that has something to do with schools, but I can't tell you.
Got it and then any traction in.
On on Air access and you know are you doing sales on that product.
Yeah, we're selling air access and as we said there's always a delay when you introduce a product because our products are highly technical so we have to train a lot of dealers, but as I said earlier in the conversation. So the number of inquiries to come to us.
Seminar and talk about a product of air access is the greatest in the history of the company compared to other introductions, so that bodes well for the dealers wanting this type of product. We spent a lot of time developing it we had a lot of focus groups on it and it hits the spot just right.
For access control dealers, where they can get recurring revenue utilizing cell service instead of hard wires and traditional Ah I I T type of installations.
Installations so.
This is a very exciting for us and that's why at the show we have the seminar we're gonna be training dealers and this is a very big show thousands of dealers are coming to the show and the Buzz is starting now but as Kevin said before the 2026 goal of $150 million 150 million.
Our recurring and $150 million in hardware does not even include the air access recurring revenues and hardware sales that we expect.
Great Great and then.
On the sales backlog and you reported that number in the past what was the amount currently and sort of.
How how many quarters do you think you could.
You know you could satisfy that backlog in.
So the backlog is still at historic levels.
At the end of <unk>.
March.
It was about $10 million at the end of June .
About $10 million.
End of September it was between six and $7 million and it's not the same $6 million to $7 million within that 10, it's new.
The more we ship.
Well we.
Get rid of the back like more orders come in its turning turning so orders are rushing in very very quickly.
So it's still a big number where we're not used to those kind of numbers.
But it's good as we head into this new quarter.
Right.
Thank you again, a great great fantastic quarter. Thank you for taking my questions I'll take this offline. Thank you.
Thanks Raj Thank you.
Thank you there are no further questions at this time I'll turn the floor back over 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.
The information.
We thank you for your interest and support and we look forward to speaking to you all again in a few months discuss Knapp goes fiscal Q2 'twenty three results. Thank you for listening and bye bye.
Thank you. This concludes today's conference all parties may disconnect have a great day.