Q4 2023 Napco Security Technologies Inc Earnings Call

August 29, 2023

Okay.

Speaker 1: Welcome to the NAPCO Security Technologies, Fiscal Q4 and Fiscal 2023, earning...

Welcome to the NAPCO security technologies fiscal Q4, and fiscal 2023 earnings call.

Speaker 1: Our host for today's call is Patrick McKillip, Vice President of Investor Relations.

Our hosts for todays call as Patrick Mckillop, Vice President of Investor Relations.

Speaker 1: At this time, all participants will be in a listen only mode. Later, we will conduct a question and answer session. I would now like to turn a-

At this time, all participants will be in a listen only mode.

Later, we will conduct a question and answer session.

I would now like to turn the call over to your host Mr. Mccullough you may begin sir.

Speaker 2: Thank you. Good morning. My name is Patrick Pequilla, Vice President of Industrial Relations.

Thank you.

Morning, My name is Patrick until Vice President of Investor Relations for NAPCO security.

Thank you all for joining us for today's conference call to discuss our financial results for our fiscal fourth quarter and fiscal year 2023.

Speaker 2: Thank you all for joining us for today's conference call to discuss our financial results for our fiscal fourth quarter and fiscal year 20. Thank you all for joining us for today's conference call to discuss our financial results for our financial

By now all of you should have had the opportunity to review the press release discussing the results.

Speaker 2: 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 in the Investor Relation.

You have not a copy of the release is available in the Investor Relations section of our website Www Dot NAPCO security Dot com.

Speaker 2: of our webplay www.mapgosecurity.com

On the call today is Richard Soloway, President and CEO of NAPCO Security technologies, and Kevin Michel Executive Vice President and CFO.

Speaker 2: On the call today is Richard Solaway, President and CEO of Mapgo, security technologies, and Kevin Brichel, Executive Vice President and CFL. Before we begin...

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 and anticipated product performance.

Speaker 2: This presentation contains whole booking statements that are based on current expectations, estimates, forecast.

Speaker 2: projections of future performance based on management's judgment, beliefs, current trends, and anticipated products.

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 of our recurring revenue products to customers and dealers our ability to control expenses and costs.

Speaker 2: for looking statements include without limitation, statements relating to growth drivers at the company's business, such as school security products, and recurring revenues.

Speaker 2: market opportunities, the benefits of our recurring revenue products to customers and dealers, our ability to control expenses and costs, and expected annual run rate.

And expected annual run rate for SaaS recurring monthly revenues.

Forward looking statements involve risks and uncertainties that may cause.

Speaker 2: for looking statements involved risks and uncertainties that may cause actual results to different materially.

Actual results to differ materially.

From those contained in from those contained in the forward looking statements.

Speaker 2: factors include, but are not limited to such risk factors described in RSCC filings, including our annual...

These factors include but are not.

We're not limited to such risk factors described in our SEC filings, including our annual report on Form 10-K.

Other unknown or unpredictable factors.

Speaker 2: 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 AmericanJohn

Underlying 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 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.

Speaker 2: Although we believe that the 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...

Speaker 2: All information provided in today's press release and this conference call is as of today's date, unless otherwise stated. We undertake no duty to update such information except as required under the applicable...

All information provided in today's 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 that we will be attending the Lake Street Capital Conference on September.

Speaker 2: I'll turn the call over to <expletive> in a moment, but before I do, I just want to mention that we will be attending the Lake Decapta Conference on September 17th in New York and are planning for some non-deal roadtrows in the near future.

Number 17th in New York and are planning for some non deal road shows in the near future <expletive> the floor is yours.

Speaker 3: Thank you Patrick, good morning everyone, and welcome to our conference call. Thank you for joining us today to discuss our results.

Thank you Patrick good morning, everyone and.

And welcome to our conference schools.

Thank you for joining us today to discuss our results.

We are very pleased to report our fiscal fourth quarter Records.

Speaker 3: We are very pleased to report a fiscal fourth quarter record sales of 44.7 billion, which was the 11th consecutive.

For $44 7 million.

Which was the 11th consecutive.

Core sales growth.

Speaker 3: A fiscal year 2023 sales, 170 million were also a record.

Our fiscal year 2023 sales of 170 million.

Were also a record.

Recurring revenue continue to grow at a strong rate.

Speaker 3: Becoming revenue continues to grow at a strong rate. And the annual run rate is now approximately 67 million based on July 2023, becoming revenue.

The annual run rate is now approximately 67 million based on July 2023 recurring revenues.

Our balance sheet remains strong with cash balances of approximately $67 million and we have no debt.

Speaker 3: Our balance sheet remains strong with our cash balances at approximately 67 million and we have no debt.

Also we are pleased to report the company announced its quarterly dividend of eight cents per share to be paid on September 22 to 20.

Speaker 3: Also, we are pleased to report the company announced its quarterly dividend of 8 cents per share to be paid on September 22, 2023 to shareholders of record on September 1, 2023.

Three to shareholders of record on Sir.

First 2023.

Speaker 3: This rep presents an increase of 28% from the previous quarterly dividend.

This represents an increase of 28%.

The previous quarterly dividend.

We continue to focus on capitalizing on opportunities.

Speaker 3: We continue to focus on capitalizing on opportunities in our key end markets, which are mostly commercial, such as office and apartment buildings, retail stores and restaurants.

Key end markets, which are mostly commercial sense.

Such as office and apartment buildings retail stores and restaurants schools hospitals airports and government buildings.

Speaker 3: schools, hospitals, airports, and government buildings.

Our product lines, such as wireless fire and intrusion alarm.

Speaker 3: product lines such as wireless, fire, and intrusion alarm.

Speaker 3: schools, security solutions, enterprise action schedule, and architectural locking products are delivering growth to our sale.

School Security solutions enterprise access control and architectural locking products.

Delivering growth to our sales.

Speaker 2: And we were working every day to continue this growth path.

And we're working every day to continue this growth pattern.

Speaker 2: The key metrics that the management team here at NAPGO focuses on are growing profits and returns on equity and consumers.

The key metrics.

Our management team here at NAPCO focuses on our growth profits and returns on equity and controlling costs.

Speaker 2: These metrics are important for us as well as our shelves.

Metrics are important for us as well as our shareholders.

We look forward to continuing our growth streak in fiscal 'twenty 'twenty four and beyond.

Speaker 2: We look forward to continuing our growth streak in fiscal 2024 and beyond.

Before I go into further detail.

Speaker 2: Before I go into further detail, I will now turn the call over to RCFO Kevin Bischoff.

I'll now turn the call over to our CFO Kevin Michelle.

Speaker 2: He will provide an overview of our fiscal fourth quarter and fiscal 2023 results. And then I'll be back with more on our strategies and outlook. Kevin, plight.

He will provide an overview of our fiscal fourth quarter and fiscal 2023 results and then I'll be back with more on our strategies and outlook Kevin.

Thank you <expletive>.

Everybody.

Net sales for the three months ended June 32023.

Speaker 4: Net sales for the three months ended June 30, 2023 increased by 3% to a quarterly record 44.7 million.

Increased by 3% to a quarterly record $44 7 million at.

Speaker 4: as compared to 43.2 million for the same period a year ago.

As compared to $43 2 million for the same period a year ago.

Speaker 4: MedSales for the 12-month Sended June 30, 2023 increased by 18% to 170 million as compared to 143.6 million for the same period a year ago.

Net sales for the 12 months ended June 32023 increased by 18%.

$170 million as compared to $143 6 million.

At the same period a year ago.

Recurring revenue for the quarter increased 27%.

Speaker 4: Returning revenue for the quarter increased 27% to $10.1 million.

$8 $1 million.

As compared to $12 $7 million.

Speaker 4: as compared to $12.7 million for the same period last year.

For the same period last year.

Speaker 4: Recurring revenue for the 12 months ended June 30, 2023.

Recurring revenue for the 12 months ended June 32023.

Speaker 4: increased 30% to $59.9 million compared to $46 million for the same period a year ago.

<unk>, 30% to $59 9 million compared to $46 million for the same period a year ago.

Our recurring service revenues now have a prospective annual run rate of approximately $67 million based on July 2023, recurring service revenues, which compares to the 63 million dollar run rate based on April 22003, recurring service revenues, which we.

Speaker 4: Our recurring service revenues now have a perspective annual run rate of approximately $67 million based on July 2023 recurring service revenue.

Speaker 4: which compares to the $63 million run rate based on April 2023 recurring service revenues, which we reported.

We reported back in May.

Right.

Equipment sales for the quarter decreased 6%.

Speaker 4: Equipment sales for the quarter decreased 6% to $28.6 million as compared to $30.5 million. For this same period.

The $28 $6 million as compared to $30 $5 million.

Same period last year.

Speaker 4: This decrease was primarily due to a decrease in radio sales, as partially offset by increases in both our alarm lock and Mark's door locking product.

This decrease was primarily due to a decrease in radio sales as partially offset by increases in both our alarm lock and marks door locking products.

This slowdown in radio sales in Q4 was primarily the result of excess inventory in the distribution channel and several distributors loaded up with radios when the impending <unk> Verizon Sunset was approaching and they wanted to ensure that they had updated fire radios and their inventory.

Speaker 4: The slowdown in radio sales in Q4 was primarily the result of excess inventory in the distribution channel as several distributors loaded up with radios when the impending 3G Verizon sunset was approaching and they wanted to ensure that they had updated 5G radios in their inventory.

We believe this is a temporary situation situation and we expect radio sales to continue to be a key contributor to our hardware sales.

Speaker 4: We believe this is a temporary situation, and we expect radio sales to continue to be a key contributor to our hardware sales and lead to the continued growth of our highly profitable recurring revenue.

And lead to the continued growth of our highly profitable recurring revenue.

Equipment sales for the year ended June 32023 increased 13% to $110 million as compared to $97 6 million in the prior year.

Speaker 4: Equipment sales for the year-end at June 30, 2023 increased 13% to $110 million as compared to $97.6 million in the priorities.

Speaker 4: This increase in equipment sales was primarily due to increase sales of alarm lock and mark store locking products as well as continental access control products as partially offset by the aforementioned slowdown in radio sales.

This increase in equipment sales was primarily due to increased sales of alarm lock and marks door locking products as well as continental access control products as well as partially offset by the aforementioned slowdown in radio sales.

Gross profit for the three months ended June 32023 increased 20% to $23 million with a gross margin of 52%.

Speaker 4: Gross profit for the three months ended June 30, 2023, increased 20% to $23 million with a gross margin of 52% as compared to $19.2 million with a gross margin of 44% for the same period a year ago.

As compared to $19 2 million with a gross margin of 44% at the same period a year ago.

Profit for the 12 months ended June 32023.

Speaker 4: Gross profit for the 12 months ended June 30, 2023, increased by 24% to $73.2 million with a gross margin of 43%. As compared to $59.2 million with a gross margin of 41% for the same period a year ago.

Increased by 24% to $73 $2 million with a gross margin of 43%.

As compared to $59 $2 million with a gross margin of 41% for the same period a year ago.

Speaker 4: Gross profit for equipment sales for the three months ended June 30, 2023.

Gross profit for equipment sales for the three months ended June 32023.

Increased 7% to $8 $7 million with a gross margin of 30%.

Speaker 4: Increase 7% to $8.7 million with a gross margin of 30% as compared to $8.1 million for the gross margin of 27% for the same period a year ago.

As compared to $8 $1 million with a gross margin of 27% for the same period a year ago.

Gross profit for equipment sales for the 12 months ended June 32023 increased 4% to $19 9 million.

Speaker 4: Gross profit for equipment sales for the 12 months ended June 30, 2023, increased 4% to 19.9 million dollars with a gross margin of 18% as compared to 19.1 million dollars with a gross margin of 20% for the same period a year ago.

With a gross margin of 18% as compared to $19 $1 million with a gross margin of 20%.

At the same period a year ago.

Gross profit for recurring revenues for the three months ended June 32023 increased 29% to $14 3 million with a gross margin of 89%.

Speaker 4: Gross profit for recurring revenues for the three months ended June 30, 2023 increased 29% to 14.3 million dollars with a gross margin of 89%. As compared to 11.1 million dollars with a gross margin of 87% for the same period a year ago.

As compared to $11 $1 million with a gross margin of 87% for the same period a year ago.

Speaker 4: Gross profit for recurring revenues for the 12 months ended June 30, 2023. Increased 33% to 53.4 million dollars with a gross margin of 89% as compared to 40 million dollars with a gross margin of 87% for the same period a year ago.

Gross profit for recurring revenues for the 12 months ended June 32023.

Increased 33% to $53 $4 million with a gross margin of 89% as compared to $40 million with a gross margin of 87%.

Same period a year ago.

The increase in gross profit dollars for equipment sales for both the three and 12 months ended June 32023, as well as the gross margin for equipment sales for the three months ended June 32023.

Speaker 4: The increase in gross profit dollars for equipment sales for both the 3 and the 12 months ended June 30, 2023, as well as the gross margin for equipment sales for the 3 months ended June 30, 2023.

Speaker 4: primarily the result of higher locking sales, which also increased overhead absorption as partially offset by lower radio sales as well as higher prices of certain component parts.

Primarily the result of higher locking sales, which also increased overhead absorption as partially offset by lower radio sales as well as higher prices of certain component parts.

The company purchased these higher priced components at a significant premium during the supply chain interruptions.

Speaker 4: The company purchased these higher priced components at a significant premium during the supply chain interruption.

Speaker 4: during the latter part of fiscal 2022, in order to continue to supply the company's radios, that lead to the increased recurring revenue.

During the latter part of fiscal 2022 in order to continue to supply the companys radios that lead to the increased recurring revenue.

The price of these components began decreasing during fiscal 2023, but it was the primary reason for the 200 basis point reduction in equipment margins for fiscal 2023 as compared to the prior year.

Speaker 4: The price of these components began decreasing during fiscal 2023, but was the primary reason for the 200 basis point reduction in equipment margins for fiscal 2023 as compared to the prior.

The increase in gross profit dollars for recurring service revenues for both three and 12 months ended June 32023.

Speaker 4: The increase in gross profit dollars for recurring service revenues for both the 3N and the 12 months ended to in 30, 2023 was due to the sales of the company's line of stalling radios, which represents approximately 20% of total hardware sales.

This is due to the sales of the company's line of Starlink radios, which represents approximately 20% of total hardware sales.

Speaker 4: The continued increase in the gross margin for recurring revenue from both the three in the 12 months was primarily due to increased service revenues relating to the company's fire radios, which have higher monthly selling prices than the company's intrusion.

The increase in the gross margin for recurring revenue for both the three and 12 months was primarily due to increased service revenues relating to the Companys fire radios, which had higher monthly selling prices than the company's intrusion ratios.

Speaker 4: Research and development costs for the quarter increased 14% to $2.4 million or 5% of sales as compared to $2.1 million or 5% of sales for the same period a year ago. Research and development costs for the 12 months increase 16% to $9.3 million or 5% of sales as compared to $8 million or 6% of sales for the same period a year ago.

Research and development costs for the quarter increased 14% to $2 $4 million or 5% of sales as compared to $2 $1 million or 5% of sales for the same period, a year ago research and development costs for the 12 months.

<unk>, 16% to $9 3 million or 5% of sales.

As compared to $8 million or 6% of sales for the same period a year ago.

The increase in dollars was due primarily to salary increases and some additional staff.

Speaker 4: The increase in dollars was due primarily to salary increases in some additional staff.

Selling general and administrative expenses for the quarter remained relatively constant at $8 $9 million.

Speaker 4: Telling general and administrative expenses for the quarter remain relatively constant at $8.9 million.

Or 20% of net sales as compared to $8 $9 million or 21% of net sales for the same period last year.

Speaker 4: or 20% of net sales as compared to $8.9 million or 21% of net sales for the same period last year.

Speaker 4: Melling general administrative expenses for the 12 months increased 2% to $33.6 million or 20% of net sales.

Selling general and administrative expenses for the 12 months increased 2% to $33 6 million or 20% of net sales.

Speaker 4: as compared to $32.9 million or 23% of sales for the same period last year. 142, Opinion Stage 1, Punished

As compared to $32 $9 million or 23% of sales for the same period last year.

Operating income for the quarter increased 44% to $11 $8 million as compared to $8 $2 million.

Speaker 4: Operating income for the quarter increased 44%.

Speaker 4: to $11.8 million as compared to $8.2 million.

Speaker 4: for the same period last year, an operating income for the 12 months ended June 30, 2023 increased 66%.

At the same period last year and operating income for the 12 months ended June 32023 increased 66% to $30 3 million as compared to $18 $2 million for the same period last year.

Speaker 4: $30.3 million as compared to $18.2 million for the same period.

The companys provision for income taxes for the three months ended June 32023.

Speaker 4: The company's provision for income taxes for the three months ended June 30, 2023, increased by $1.1 million to $1.6 million within effective tax rate of 13%.

Increased by $1 $1 million to $1 $6 million with an effective tax rate of 13%.

As compared to 476000 with an effective tax rate of 6% for the same period, a year ago and the company's provision for income taxes for the 12 months ended June 32023 increased by $1 $9 million to $4 $1 million with an effective tax rate of 13%.

Speaker 4: as compared to 476,000 with an effective tax rate of 6% for the same period a year ago. And the company's provision for income taxes for the 12 months ended to in 30, 2023 increased by $1.9 million to $4.1 million with an effective tax rate of 13%. As compared to $2.2 million with an effective tax rate of 10% for the same period a year ago.

As compared to $2 $2 million with an effective tax rate of 10%, but at the same period a year ago. The.

Speaker 4: The increase in the Provisional For Income Taxes for both the three in the 12 months was primarily due to higher taxable income. The increase in the effective tax rate from 10 to 13 percent was primarily due to $3.9 million in non-taxable income from a one-time extinguishment of debt incurred in fiscal 2022 income.

The increase in the provision for income taxes for both the three and the 12 months was primarily due to higher taxable income the increase in the effective tax rate from 10% to 13% was primarily due to $3 $9 million non taxable income from a onetime extinguishment of debt incurred in fiscal 2022.

<unk> income.

Net income for the quarter was a quarterly record $10 $6 million or 28 cents per diluted share as compared to $7 $5 million of 'twenty.

Speaker 4: net income for the quarter was a quarterly record $10.6 million or $0.28 per deluded share as compared to $7.5 million or $0.20 per deluded share for the same period last year of 40% increase and it represents 24% of sales.

Per diluted share for the same period last year, a 40% increase and it represents 24% of sales.

Speaker 4: Net income for the 12 months was $27.1 million, for 73 cents per deluded share, as compared to 19.6 million dollars or 53 cents per deluded share for the same period last year, that's a 38% increase, and it represents 16% of net sale.

Net income for the 12 months was $27 $1 million or <unk> 73 per diluted share as compared to $19 6 million or <unk> 53 per diluted share for the same period last year, that's a 38% increase and it represents 16% of net sales.

Speaker 4: Adjusted EBITDA for the quarter was a quarterly record $13 million or $35 per diluted share. As compared to $9.3 million or $25 per diluted share for the same period last year, that's a 41% increase and it equates to an adjusted EBITDA margin of 29%.

Adjusted EBITDA for the quarter was a quarterly record $13 million or <unk> 35 per diluted share as compared to $9 $3 million or 25 cents per diluted share for the same period last year, that's a 41% increase and it equates to an adjusted EBITDA margin.

29%.

Speaker 4: Adjusted EBITDA for the 12 months was $34.3 million or 93 cents per deluded share, as compared to $22.6 million or 61 cents per deluded share for the same period last year, that's a 52% increase and equates to an adjusted EBITDA margin of 20%.

Adjusted EBITDA for the 12 months was $34 $3 million or 93 cents per diluted share as compared to $22 $6 million or <unk> 61 per diluted share for the same period last year, that's a 52% increase and equates to an adjusted EBITDA margin of 20%.

Net income and earnings per share for last years 12 months period reflect other income of $3 $9 million, which resulted from the aforementioned extinguishment of debt during the quarter ended September 32021.

Speaker 4: Denning come and earnings per share for last year's 12 month period reflect other income of $3.9 million which resulted from the aforementioned extinguishment of debt during the quarter ended September 30, 2021. Without such benefit, denning come and earnings per share for the 12 months ended June 30, 2022 would have been 15.7 million and 43 cents respectively.

Without such benefit net income and earnings per share for the 12 months ended June 32022 would have been $15 7 million and 43, respectively.

Moving on to the balance sheet.

Speaker 4: At June 30, 2023, the company had $66.7 million in cash and cash equivalents, other investments, and marketable securities. And that compares to $46.8 million at June 30, 2022.

At June 32023, the company had $66 $7 million in cash and cash equivalents other investments and marketable securities and that compares to $46 8 million at June 32022.

Working capital defined as current assets less current liabilities.

Speaker 4: Working capital defines as current assets less current liabilities. The $111.7 million at June 30, 2023, and that compared with working capital of $93.1 million at June 30, 2022.

$111 $7 million at June 32023, and that compared with working capital of $93 1 million at June 32022.

Speaker 4: Current ratio defined as current assets divided by current liabilities was 6.7 to 1 at June 30, 2023. And it was 4.5 to 1 at June 30, 2022.

Current ratio defined as current assets divided by current liabilities was six seven to one at June 32023, and it was four five to one at June 32022.

Speaker 4: Cash provided by operating activities for the 12 months ended June 30, 2023 was $24.7 million and that compared to $8.3 million for the same period last year and that's a 198% increase.

Cash provided by operating activities for the 12 months ended June 32023 was $24 $7 million and that compared to $8 $3 million for the same period last year and that's a 198% increase.

Capex for the quarter was $1 $2 million versus 293000 in the year ago period and for the 12 months ended June 32023 was $2 $96 million compared to $1 $5 million in the prior year period.

Speaker 4: CapEx for the quarter was $1.2 million versus $293,000 in the year ago period. And for the 12 months ended June 30, 2023 was $2.96 million compared to $1.5 million in the prior year period. And we have...

And we have no debt.

Finally, due to the previously announced need to restate, the first second and third fiscal quarters.

Speaker 4: Finally, due to the previously announced need to restate the first, second, and third fiscal quarters of fiscal 2023, the company will delay filing its form 10K for up to 15 college days.

Fiscal 2023, the company will delay filing its Form 10-K for up to 15 calendar days.

Speaker 4: We will file the amended 10 cues as soon as the reshapement process is completed with our current expectation being sometime this week.

We will file the amended 10-Qs as soon as the restatement process is completed with our current expectation being sometime this week.

That concludes my formal remarks, and I would now like to return the call back to <expletive>.

Speaker 4: That concludes my formal remarks and I would now like to return the call back to <expletive> .

Kevin Thank you.

Speaker 2: This year, 2023 showed continued growth with record sales and profits. And we look forward to breaking our previous record of 23 consecutive quarters of growth, which we had prior to the COVID pandemic.

School year 2023.

The continued growth with record sales and profits.

We look forward to breaking our previous record of 23 consecutive quarters of growth.

Which we had prior to the Covid pandemic.

We are not satisfied with the equipment margins, 18% during our fiscal 2023.

Speaker 2: We are not satisfied with the equipment margins of 18% during our fiscal 2023. However, we're pleased to have generated 27 million net income, which is 16% of net sale.

Well, we were pleased to have generated $27 million net income.

16% of net sales.

Patrick McKillop: Welcome to the NAPCO Security Technologies, Fiscal Q4, and Fiscal 2023 earnings call. Our host for today's call is Patrick McKillop, Vice President of Investor Relations. At this time, all participants will be in a listen only mode. Later, we will conduct a question and answer session. I would now like to turn a call over to your host, Mr. McKillop, you may begin, sir. Thank you. Good morning. My name is Patrick McKillop, Vice President of Investor Relations for NAPCO Security.

Yes.

Speaker 2: Also, 34 million can adjust an IVIDA equal in 20% IVIDA.

Also 34 million and adjusted EBITDA.

Equaling, 20% EBITDA.

Margins.

Is another positive takeaway from the fiscal year results.

Speaker 2: is another positive we take away from the fiscal year results.

As we enter fiscal 2024, we believe that most of the additional material and freight costs.

Speaker 2: As we enter the fiscal 2024, we believe that most of the addition of the carry-in and take-go is...

Due to the supply chain crisis.

Speaker 2: due to the supply chain crisis are behind us. This you both welcome.

And behind Us.

This should bode well for improved equipment margins.

Patrick McKillop: Thank you all for joining us for today's conference call to discuss our financial results for our fiscal fourth quarter and fiscal year 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 releases available in the Investor Relations section of our website, www. NAPCOSecurity.com. On the call today is Richard Soloway, President and CEO of NAPCO Security Technologies, and Kevin Buchel, Executive Vice President, and CFO.

The commercial fire alarm business is a mandatory non discretionary items.

Speaker 2: Commercial Fire Law Business is a mandatory, non-discussionary item.

Speaker 2: Commercial building must have and maintain a fire alarm system. You ought to receive a certificate of occupancy.

Commercial building must have and meaningful and fire alarm system you want to.

The certificate of occupancy.

Given the high profitability and essential nature of this business, we focus on this as a key area of our resources.

Speaker 2: Given the high profitability and essential nature of this business, it focus on this as a key area of our resource.

Recurring revenue generating.

Speaker 2: Becoming revenue generated growth, increasing 27% for the quarter and 30% for the first year.

We generated growth, increasing 27% for the quarter and 30%.

Patrick McKillop: Before we begin, let me take a moment to read the forward-looking statement. 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, and anticipated product performance. These forward-looking statements include without limitation, statements relating to growth drivers at the company's business, such as school security products and recurring revenue services, potential market opportunities, the benefits of our recurring revenue products to customers and dealers, our ability to control expenses and costs, and expected annual run rate process recurring monthly revenue.

Yeah.

Speaker 2: The annual run rate for recurring revenue is now approximately $67 million as of July 2023.

Annual run rate.

Culling revenue is now approximately 67 million as of July 21.

We estimate that there are millions of commercial buildings of all types, such as offices hospitals schools coffee shops.

Speaker 2: We estimated there are millions of commercial buildings of all types, such as offices, hospitals, schools, coffee shops, fairs, media restaurants, and others that still require upgrades from old-fashioned copper farmers.

We do have some rights.

Others.

All require upgrades from old copper phone lines.

Speaker 2: our Starlink Radio's at the Whiteest Coverage for both AT&T and Verizon Service. And which feature set to be chose?

Our starlink radios I have the widest coverage for both AT&T and Verizon service and rich feature sets, which are dealers loves.

We continue to focus on our previously mentioned goals of a 150 million run rate.

Speaker 2: We continue to focus on our previously mentioned goals of 150 million one rate in recurring revenue and 150 million of equipment revenue by the end of fiscal 2026.

Patrick McKillop: Forward-looking statements involve risks and uncertainties that may cause actual results to different 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 10K. 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. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements.

<unk> revenue.

$150 million of equipment revenue.

In the fiscal 2026.

Speaker 2: Well, the exact time frame for hitting these goals is uncertain achievement of those goals, as well as our gross margin goals and 80% to the current revenue. And it was 89% of fiscal 2023. And 50% for equipment revenues could generate if it got margins, an excess of 45%.

While the exact timeframe for hitting these goals is uncertain achievement of those goals.

As well as our gross margin goals of 80% recurring revenue.

And it was 89% for fiscal 2020.

50% equipment revenues could generate EBITDA margins in excess of 45%.

School administration.

Speaker 2: School administration are focused on the needs and security solutions as more school shootings continue to happen.

Focused on the needs and security solutions and as more school shootings continue to happen.

Patrick McKillop: We should not place undue reliance on these forward-looking statements. All information provided in today's press release, and this conference call is as up to date, unless otherwise stated, and we undertake no duty to update such information except as required under a applicable law.

Speaker 2: We plead to learn that recently the University of Arizona recently stole over 700 vitriloody electronic locks on a camp.

We were pleased to learn that recently University of Arizona recently installed over 700 yours truly.

Locks on the campus.

Speaker 2: a fully integrated solution to the school security sector, generating healthy margins for our business. And now more than ever, we are lazy to focus on further penetration of the school security market.

Our fully integrated solutions to the school security.

Generating healthy margins for our business and now more than ever we are laser focused on further penetration of the school security market.

Patrick McKillop: I will turn the call over to Dick in a moment, but before I do, I just want to mention that we will be attending the Lake Eataple conference on September 17th in New York and are planning for some non-deal road shows in the near future.

Speaker 2: which is comprised of approximately 130,000 K through 12 schools and 5,000 colleges and universities across the country.

Which is comprised of approximately 130000 K 12 schools.

Richard Soloway: Dick, 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 pleased to report our fiscal fourth quarter record sales of $44.7 million, which was the 11th consecutive quarter of sales growth. Our fiscal year 2023 sales of $170 million were also a record. The current revenue continued to grow at a strong rate, and the annual run rate is now approximately $67 million based on July 2023 recurring revenues.

Richard Soloway: Dick, the floor is yours. Thank you, Patrick.

5000 colleges and universities across the country.

Richard Soloway: Good morning, everyone, and welcome to our conference call. Thank you for joining us today to discuss our results. We are very pleased to report our fiscal fourth quarter record sales of $44.7 million, which was the 11th consecutive quarter of sales growth. Our fiscal year 2023 sales of $170 million were also a record. The current revenue continued to grow at a strong rate, and the annual run rate is now approximately $67 million based on July 2023 recurring revenues.

Offering seamless security solutions, which allow for our dealers and us to generate recurring revenue streams is central to our strategy.

Speaker 2: offering seamless security solutions which allow for our dealers and us to generate your current revenue streams central to our strategy

Speaker 2: The recently launched Air Access Products will enable us to generate the current revenue from all divisions of the company.

We recently launched the interactions products will enable us to generate recurring revenue from all divisions of the company.

Speaker 2: Air access would generate recurring revenue from locking and access control, which has never been done before. Air access is the industry's first cellular base, access control system, which we believe is a large market opportunity.

Air accidents will generate recurring revenues locking and access control, which has never been done before.

<unk> industries, there is cellular based access control system, which we believe is a large market opportunity.

Speaker 2: The product continues to make strides in the market, and we expect more momentum in the future as our sales teams are actively educating and locking and actions control dealers.

The product continues to make strides in the market.

Expect more momentum in the future.

Richard Soloway: Our balance sheet remains strong with our cash balances at approximately $67 million, and we have no debt. But also, we are pleased to report the company announced its quarterly dividend of the 8 cents per share to be paid on September 22, 2023 to share out its record on September 1, 2023. This rep presents an increase of 28% from the previous quarterly dividend. We continue to focus on capitalizing on opportunities in our key end markets, which are mostly commercial, such as office and apartment buildings, retail stores and restaurants, schools, hospitals, airports, and government buildings.

Sales teams actively educating locking and access control dealers about this new exciting opportunity for them with access.

Speaker 2: about this new exciting opportunity for them with Air Act.

Speaker 2: At the recent ISC West Trade Show, back in March.

At the recent ISC West trade show back in March we unveiled a new product with a built in recurring revenue radio it.

Speaker 2: We unveiled a new product with a built-in recurring revenue radio. It is.

It is cool prima.

Which we and our thousands of dealers are very excited about.

Speaker 2: which we and our thousands of people is a very exciting about.

<unk> is a revolutionary Super alarm panel with a full color seven inch LCD touch screen to security via video and automation.

Speaker 2: The screen is a revolutionary super-o-bong panel with a full color 7-inch LCD touchscreen to security, fire, video and automation.

Speaker 2: featuring intuitive use and setup. Smart with self healing Wi-Fi and video and doorbell.

June intuitive use and setup smart with self healing Wi Fi video.

And door bells.

Richard Soloway: A product lines such as wireless fire and intrusion alarms, school security solutions, enterprise access control, and architectural locking products are delivering growth to our sales. And we are working every day to continue this growth pattern. The key metrics that the management team here at NAPGO focuses on are growing profits and returns on equity and controlling costs. These metrics are important for us as well as our shareholders. We look forward to continuing our growth streak in fiscal 2024 and beyond.

That prevent dealer service schools and all.

Speaker 2: that prevent the inner service goals and all of you and all of you powerful back in.

All new powerful back in.

Freedom also was named one security sales and integration magazine as the most valuable product.

Speaker 2: Premo also was known to one security sales and integration magazine as the most valuable product in 2020 today.

In 2023.

Richard Soloway: We look forward to continuing our growth streak in fiscal 2024 and beyond.

We expect to have this available to dealers in early fiscal 2024.

Speaker 2: We expect to have this available to dealers in early physical plumbing 20th more.

Our R&D team remains hard at work developing even more products for the future, which will help grow our recurring revenue business. We've experienced tremendous success over the last several years growing our recurring revenue I believe the growth we have witnessed we will continue at a healthy rate.

Speaker 2: Our R&D team remains hard at work developing even more products for the future which will help grow while becoming the evidence.

Speaker 2: We've experienced tremendous success over the last several years blowing our recurring revenue. And believe the growth we have witnessed, we'll continue at a healthy rate.

Lastly, I mentioned earlier, we are excited to announce an increase in our quarterly dividend by 28%.

Speaker 2: Lastly, I mentioned earlier, we excited to announce the increase in our quarterly dividend by 28%. The eight cents per share, the shareholders of record on September 1, 2023.

Kevin Buchel: Before I go into further detail, I will now turn the call over to our CEO for Kevin Beshell. He will provide an overview of our fiscal fourth quarter and fiscal 2023 results, and then I'll be back with more on our strategies and outlook.

Per share this year.

As of record on September <unk> 2023.

Speaker 2: We believe that it is important to balance our capital allocations priorities, including investing in growth opportunities, maintaining a strong balance sheet, and returning capital to our share.

We believe that it is important to balance our capital allocation priorities, including investing in growth opportunities maintaining a strong balance sheet.

Kevin Buchel: Kevin? Thank you, Dick.

Kevin Buchel: Good morning, everybody. Net sales for the three months ended June 30, 2023 increased by 3% to a quarterly record, $44.7 million, as compared to $43.2 million for the same period a year ago. Net sales for the 12 months ended June 30, 2023 increased by 18% to $170 million, as compared to $143.6 million for the same period a year ago. Returning revenue for the quarter increased 27% to $10.1 million, as compared to $12.7 million for the same period last year.

Turning to capital to our shareholders.

We will begin our question and answer portion of this call in a moment.

Speaker 2: We'll begin our question and answer portion of this call in a moment. Our fiscal year 2023 generated strong sales and profitability. There's a pristine balance sheet and no debt. We believe we can continue this growth in fiscal 2024 and beyond.

Our fiscal year 'twenty, one if we generated strong sales and profitability.

Pristine balance sheet and no debt.

We can continue this growth in fiscal 'twenty 'twenty four and beyond.

Speaker 2: I would like to thank everyone for their support, and for joining us in the exciting future we have.

I would like to thank everyone for their support and for joining us and exciting future we have.

Speaker 2: Our former remarks are now concluded. We'd now like to open the call with for a Q&A session. Operator, please proceed.

Our formal remarks are now concluded I would now like to open the call for a Q&A session.

Operator. Please proceed.

If you would like to ask a question. Please press star one on your telephone keypad now.

Speaker 1: If you would like to ask a question, please press star one on your telephone keypad now. You will be placed into the queue and order received. Please be prepared.

Kevin Buchel: Recurring revenue for the 12 months ended June 30, 2023 increased 30% to $59.9 million compared to $46 million for the same period a year ago. Our recurring service revenues now have a prospective annual run rate of approximately $67 million based on July 2023 recurring service revenues which compares to the $63 million run rate based on April 2023 recurring service revenues which we reported back in May. Equipment sales for the quarter decreased 6% to $28.6 million as compared to $30.5 million for the same period last year.

You will be placed into the queue in the order received.

Please be prepared to ask your question when prompted.

Speaker 1: Once again, if you have a question, please press star one on your phone.

Once again, if you have a question. Please press star one on your phone now.

And our first question comes from Jim Ricchiuti from.

Speaker 1: And our first question comes from Jim Rikudi from Needham McSoon.

<unk> company.

Your line is open.

Speaker 5: I thank you good morning. So I wanted to talk a little bit about the puts and takes in the radio business. I mean, it sounds like you continue to see strong demand for fire radios and...

Hi, Thank you good morning.

I wanted to talk a little bit about the.

The puts and takes.

The radio business I mean, it sounds like you continue to see strong demand for fire radios and.

Speaker 5: where the overhang is in the channel is on the Intrusions Starlink Radios. So two questions, number one is, can you talk a little bit about how you see the channel inventories being worked down on...

Where the overhang is in the channel is on the intrusion Starlink radios. So two questions number one is can you talk a little bit about how you see.

Kevin Buchel: This decrease was primarily due to a decrease in radio sales as partially offset by increases in both our alarm lock and marks door locking products. The slowdown in radio sales in Q4 was primarily the result of excess inventory in the distribution channel and several distributors loaded up with radios when the impending 3G Verizon Sunset was approaching and they wanted to ensure that they had updated 5G radios in their inventory. We believe this is a temporary situation and we expect radio sales to continue to be a key contributor to our hardware sales and lead to the continued growth of our highly profitable recurring revenue.

The channel inventories being worked down.

On the for the intrusion Starlink radios, what kind of shelf where are you hearing from your channel partners and then I have a follow up question as it relates to the the fire radio business. Thank you.

Speaker 5: for the intrusion, Starlink radios. What kind of shelter are you hearing from your channel?

Speaker 5: And then I have a follow-up question as it relates to the fire radio business. Thank you.

Okay, Jim so.

We get statistics from our key distributors.

We watch very closely.

Speaker 4: and what we see with a couple of these distributors, not all of them.

And what we see with a couple of these distributors not all of them.

Speaker 4: is a glut of inventory on the smaller radius.

Is a glut of inventory.

On the smaller radio.

Speaker 4: And it seems to have come about because they loaded...

And it seems to have come about because.

Kevin Buchel: Equipment sales for the year ended June 30, 2023 increased 13% to $110 million as compared to $97.6 million in the prior year. This increase in equipment sales was primarily due to increase sales of alarm lock and marks door locking products as well as continental access control products as partially offset by the aforementioned slowdown in radio sales. Gross profit for the three months ended June 30, 2023 increased 20% to $23 million with a gross margin of 52% as compared to $19.2 million with a gross margin of 44% for the same period a year ago.

They loaded up on radios.

Speaker 4: during the height of the preparedness for the 3G sunset.

During the height of the prep Paradise for the <unk> Sunset.

<unk> Sunset for Verizon.

Speaker 4: three-gree sunset for Verizon was January 2nd or 3rd of 2023. Nobody wanted to really get caught short, and not everybody could deliver radios. Could we talk about this on prior?

January 2nd or third of 2023.

Nobody wanted to really get caught short.

And not everybody could deliver radios.

But you've talked about this on prior calls.

We were able to deliver when others couldn't.

And that ability to deliver.

It has helped US we've picked up more business from large accounts, which we've talked about.

Speaker 4: picked up more business than larger counts which we've talked about.

But these but these distributors they didn't want to get caught short.

Speaker 4: But these, but these distributors, they didn't want to get caught short. They bought up a lot.

Kevin Buchel: Gross profit for the 12 months ended June 30, 2023 increased by 24% to $73.2 million with a gross margin of 43% as compared to $59.2 million with a gross margin of 41% for the same period a year ago. Gross profit for equipment sales for the three months ended June 30, 2023 increased 7% to $8.7 million with a gross margin of 30% as compared to $8.1 million with a gross margin of 27% for the same period a year ago.

Bought up a lot.

And they bought it for the purchase of the <unk> sunset because of lack of delivery from others.

Speaker 4: And they bought it for the 3G sunset because of lack of delivery from others. And now they have too much.

And now they have too much because now.

Speaker 4: Things have settled down, the 3G sunset is finished. They have to work that inventory down. We'll help them.

Things have settled down the <unk> Sunset is finished.

They have to work that inventory down.

We will help them.

This happens periodically volatile time.

The demand for radios as a whole is very good.

Speaker 4: The demand for radios as a whole is very good.

Speaker 4: That's why you saw it grew by 27%.

That's why you saw it grew by 27%.

Speaker 4: quarter versus a year ago. That's why the run rate went from 63 to 67 million. And

Quarter versus a year ago, that's why the run rate went from $63 million to $67 million.

Kevin Buchel: Gross profit for equipment sales for the 12 months ended June 30, 2023 increased 4% to $19.9 million with a gross margin of 18% as compared to $19.1 million with a gross margin of 20% for the same period a year ago. Gross Profit for Recurring Revenues for the three months ended June 30, 2023, increased 29 percent to $14.3 million with a gross margin of 89 percent as compared to $11.1 million with a gross margin of 87 percent for the same period a year ago.

And we can't judge.

Speaker 4: a strength of recurring revenue based on a couple of distributors having too much of one type of radio. So we'll work with them to move.

The strength of recurring revenue based on a couple of distributors, having too much of one type of radio.

So we'll work with them to move it.

We believe it will move.

Speaker 4: And we still feel very good and confident about our recurring revenue and its growth for the future.

And we feel that we still feel very good.

Confident.

About our recurring revenue and its growth for the future.

Speaker 2: on the fire. Let me in one more thing. So the radio's the candidates taught me about on the low cost residential small business it's peeps a radio type radio. so

On the Flyer.

Please let me add one more let me add one more thing.

So the radios that Kevin is talking about are the low cost.

Kevin Buchel: Gross Profit for Recurring Revenues for the 12 months ended June 30, 2023, increased 33 percent to 53.4 million dollars with a gross margin of 89 percent as compared to 40 million dollars with a gross margin of 87 percent for the same period a year ago. The increasing gross profit dollars for equipment sales for both the three end of 12 months ended June 30, 2023, as well as the gross margin for equipment sales for the three months ended June 30, 2023, is primarily the result of higher locking sales which also increased overhead absorption as partially offset by lower radio sales as well as higher prices of certain component parts.

Residential small small business pizza type radios.

And that business.

Speaker 2: And that business is moving along. But we had to supply them to the distributors because they asked for them. And we produced a lot of them. They're a little backed up.

Along what we had seen.

<unk>.

The distributors because they answer them in.

We produce a lot of them, they're a little backed up.

Speaker 2: But what we, and that is a radio that's added to an existing alarm system.

Right.

And that is the radio.

Two existing alarm system.

To replace the copper.

So we expect that to continue the sell through has been.

Speaker 2: So we expect that to continue. The shell food is good on that, but the blood will be eroded down and get more normal.

Good on that.

Good luck.

L B.

I wrote it down and get more normal lives.

At the ISC show.

Speaker 2: At the ISC show out west a few months ago, we showed the entire alarm system with a built-in stalling grid.

Yes.

A few months ago, we showed.

Kevin Buchel: The company purchased these higher priced components at a significant premium during the supply chain interruptions during the latter part of fiscal 2022 in order to continue to supply the company's radios that lead to the increased recurring revenue. The price of these components began decreasing during fiscal 2023 but was the primary reason for the 200 basis point reduction in equipment margins for fiscal 2023 as compared to the prior year. The increasing gross profit dollars for recurring service revenues for both the three end of 12 months ended June 30, 2023, was due to the sales of the company's line of stalling radios which represents approximately 20 percent of total hardware sales.

Higher alarm system with a built installed in greater detail.

Speaker 2: and with technology beyond everything in the marketplace. It was...

With technology beyond everything in the marketplace.

Mendes.

Speaker 2: So that radio, that black radio is now being built into a complete control panel for automation, residential, small business, and that will be out in the next 60 days.

So that radio that Blackberry <unk> is now being built into them.

Complete control panel automation.

As you get into small business and that will be out in the next 60 days.

So what's going to be contributing to the recurring monthly revenue is not only the sell through of the Blackberry as which upgrade.

Speaker 2: So what can be contributing to the recurring monthly revenue? It's not only the shelf view of the Black Rears, which upgrade the existing long systems from Copper, but it's also this brand new unique along panel radio, which will be for new work. And these are the type of things we do in our engineering department. We've added additional products, which are going to add a lot of recurring revenue to the company going forward.

Existing alarm system, some copper, but it's also this brand new new.

Alarm panel radio, which will be for new work and these are the type of things we do in our engineering Department, we add additional products, which are going to hit a lot of recurring revenue to the company going forward.

Kevin Buchel: The continued increase in the gross margin for recurring revenue for both the three end of 12 months was primarily due to increased 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 14 percent to $2.4 million or 5 percent of sales as compared to $2.1 million or 5 percent of sales for the same period a year ago.

Speaker 2: and it's a very exciting future we have with this. And I want to make them understand that. Black reviewers or for graduates.

And it's a very exciting future we have in place and I want everybody to understand that.

Blackberry views or retrofit.

Speaker 2: And that'll continue because you've got millions of jobs. It's still need to be upgraded.

And that will continue because you've got millions of jobs it still needs to be upgraded.

And the new.

Speaker 2: And the new, the new premium radio is a complete allowances that the new jobs and you know that people need more security than any before. We need security for homes, we need security for businesses. And that's what people will do with a built in the current radio where we get the current revenue as well as the PR. So that's have a picture look.

The new premium radio is a complete along Susan for new jobs, and you know that people need more security than ever before we need security for homes, we need security businesses and that's what <unk> will do with a built in recurring.

Kevin Buchel: Research and development costs for the 12 months increase 16 percent to $9.3 million or 5 percent of sales as compared to $8 million or 6 percent of sales for the same period a year ago. The increase in dollars was due primarily to salary increases in some additional staff. Telling general and administrative expenses for the quarter remain relatively constant at $8.9 million or 20 percent of net sales as compared to $8.9 million or 21 percent of net sales for the same period last year.

Arabia, where we get recurring revenue as well as the dealer. So that's how the picture looks.

Speaker 5: got it thank you <expletive> uh... just with respect to the premium let me just ask the question what what kind of expectations do you have for this product and maybe kevin you can have a characterize the margin profile of this product and then lastly just on the rate of fire business fire radio business you anticipate you have got several strong quarters does this begin to plateau for you

Got it. Thank you <expletive> just with respect to premium let me just ask the question.

What kind of expectations do you have for this product and maybe Kevin you can how would you characterize the margin profile of this product and then lastly, just on the fire business fire Radio business do you anticipate you had.

Kevin Buchel: Telling general and administrative expenses for the 12 months increased 2 percent to $33.6 million or 20 percent of net sales as compared to $32.9 million or 23 percent of sales for the same period last year. Operating income for the quarter increased 44 percent to $11.8 million as compared to $8.2 million for the same period last year and operating income for the 12 months ended June 30, 2023 increased 66 percent to $30.3 million as compared to $18.2 million for the same period last The company's provision for income taxes for the three months ended June 30, 2023, increased by $1.1 million to $1.6 million with an effective tax rate of 13% as compared to $476,000 with an effective tax rate of 6% for the same period a year ago.

Several strong quarters does this begin to plateau for you.

Fire radios.

Speaker 6: Bio-rated coefficient. You can answer this. No! Finally. Actually, we'll decide on vice-de DPO phase soon. We've no amount left of the intermediary. We'll decide on vice-de DPO phase soon.

You can answer that.

Do the fire radios, please and then I'll talk about the dream and what its potential news fire radios.

Speaker 2: Do the fire radios please and then I'll talk about the pre-match and what its potential is fire radios

We've talked about this is mandated.

Speaker 4: It has to be, you have to have a working fire radio in a building. They got to get away from copper.

Has to be you have to have a working fire radio in a building they gotta get away from copper.

Speaker 4: This is what we keep talking about that there's a lot of buildings and buildings are not just high rises. When you think of a building, think of buildings coming in all sizes and shapes.

What we keep talking about that.

Lot of buildings and buildings are not just high rises when you think of a building think of buildings coming in all sizes and shapes.

Speaker 4: They all have to get away from copper. Copper's not being supported. So we believe, A, it's mandated, B, they have to get away from it. And C, there's millions more.

I'll have to get away from copper copper is not being supported.

So we believe it's mandated be they have to get away from it and see theres millions.

Hi.

Speaker 4: more to come, more changes to come. So as a result of that, yeah, fire radios we believe is going to continue.

More to come more changes to come.

As a result of that yeah fire radios, we believe it's going to continue to be strong for years to come. It's all number one radio has the best margins.

Speaker 4: be strong for years to come. It's our number one radio. As the best margins, it's more than 50%.

Kevin Buchel: The increase in the provision for income taxes for the two months ended June 30, 2023, increased by $1.9 million to $4.1 million with an effective tax rate of 13% as compared to $2.2 million with an effective tax rate of 10% for the same period a year ago. The increase in the provision for income taxes for both the three in the 12 months was primarily due to higher taxable income. The increase in the effective tax rate from 10 to 13% was primarily due to $3.9 million in non-taxable income from a one-time extinguishment of debt incurred in fiscal 2022 income.

It's more than 50% of our total radios you achieved you see either way what our margins are in recurring revenue the 89% it was 89% for the whole year.

Speaker 4: You see what our margins are in recurring revenue. 89% was 89% for the whole year. That's because.

That's because.

Speaker 4: Fire radios because we get more money for a fire radio than the other types. So

Radio because we get more money for a fire radio than the other types.

No.

We believe.

Speaker 4: This strength is here and it's not going anywhere.

This strength is here and it's not going anywhere.

And don't read into anything.

Speaker 4: and don't read into anything because of a glut of inventory on the black reading.

Cause of that.

A lot of inventory on the black radios.

Speaker 4: Fire has moved very nicely, continues to move. Now when we dig old talk about Prima, when we sell Prima,

<unk> has moved very nicely continues to move that when we talk about framework when we felt prima.

Kevin Buchel: Net income for the quarter was a quarterly record $10.6 million or $0.28 per deluded share as compared to $7.5 million or $0.20 per deluded share for the same period last year of 40% increase and it represents 24% of sales. Net income for the 12 months was $27.1 million or $0.73 per deluded share as compared to $19.6 million or $53 per deluded share for the same period last year that's a 38% increase and it represents 16% of net sales.

The recurring revenue out of that it's not like it is for fire radios.

Speaker 4: The recurring revenue on that is not like it is for fire radio.

Speaker 4: less, but it's incremental recurring revenue. But we did our 150 goals of recurring and hardware sales. We weren't counting on Prima. We didn't even know about Prima. Prima is new.

Wes, but it's incremental recurring revenue when we did our 150 150 goals of recurring.

And hardware sales.

We're counting on prima, we didn't even know about premium payments new.

Incremental recurring revenue it'll help us get to our goals that much sooner, we do get less per month.

Speaker 4: Think for mental recurring revenue. It'll help us get to our goals that much sooner. We do get less per month.

And we went from a fire radio so Michael for recurring revenue when I first did the goals was 80% we're at 89% they've got plenty of room between the gold and the actual so we'll watch it we will see how it goes with the recurring from framework.

Speaker 4: than we would for a fire radio. So my goal for recurring revenue when I first did the goals was 80%. We're at 89%. We've got plenty of room between the goal and the actual. So we'll watch it. We'll see how it goes with the recurring from PRIMA. All right, so PRIMA is the new.

Kevin Buchel: Adjusted EBITDAF for the quarter was a quarterly record $13 million or $0.35 per deluded share as compared to $9.3 million or $0.25 per deluded share for the same period last year that's a 41% increase and it equates to an adjusted EBITDAF margin of 29%. Adjusted EBITDAF for the 12 months was $34.3 million or $93 per deluded share as compared to $22.6 million or $0.61 per deluded share for the same period last year that's a 52% increase and equates to an adjusted EBITDAF margin of 20%.

Alright, so prima is for new work.

Black radio retrofitting the copper.

Speaker 2: I figure we got five to eight million years of retrofitting copper with black raiding.

Here, we've got five to eight years of retrofitting copper.

With black radios.

Speaker 2: because there's many, many jobs as we've done. And the greatest of women as necessary.

Because there's millions and millions of jobs that we've done.

And we would be able to do them.

It is less so.

A lot of deals don't go out and speak to their customers about upgrading.

Speaker 2: A lot of dealers don't go out and speak to their customers about upgrading a way from copper. They wait until there's an event. Maybe the phone companies can enjoy the copper on these issues with the cracking old copper lines and then they go in. Some dealers go in and start promoting right away, but we have a great radio in the black radio and it's moving out nicely. But the dealers are putting a

Kevin Buchel: Net income and earnings per share for last year's 12 months period reflect other income of $3.9 million which resulted from the aforementioned extinguishment of debt during the quarter ended September 30, 2021. Without such benefit, net income and earnings per share for the 12 months ended June 30, 2022 would have been 15.7 million and 43 cents respectively.

Our license copper may wait until recent events may be the phone company trends local compounds issues with the cracking old copper lines and then they go away.

Some deals go in and start promoting right away, but we have Ah.

Great radio and the Blackberry deal and its moving up nicely, but the deals putting lots of new jobs.

Speaker 2: And our new prima is for new work. And what's gonna happen is there are millions of jobs that have to be done with new ideas. And...

Our new prima exclude new work and what's going to happen is there are.

Kevin Buchel: Moving on to the balance sheet. At June 30, 2023 the company had $66.7 million in cash and cash equivalents, other investments and marketable securities and that compares to $46.8 million at June 30, 2022. Working capital defined as current assets less current liabilities, $111.7 million at June 30, 2023 and that compared with working capital of $93.1 million at June 30, 2022. Current ratio defined as current assets divided by current liabilities was 6.7 to 1 at June 30, 2023, and it was 4.5 to 1 at June 30, 2022.

Millions of jobs and has to be done with new radios.

<unk>, new radio panels, and there are some on the market now.

Speaker 2: And there are some on the market now, but they're antiquated compared to what prenat is going to be. Everybody at the show, the dealers came up to the booth and they saw the way the door cameras work. The way the Wi-Fi is automatically self-field, because Wi-Fi systems signals get lost on the premise that this self-fields and six is that. Nothing on the market goes anything.

Antiquated comparing to what premium it is going to be.

Everybody at this show the deals came up with the Blue who may soon.

<unk>.

The door cameras.

The Wifi automatically self heal because Wi Fi systems signals.

Signals get lost on the premise with this salt fields six is that nothing in the market doesn't leak.

Speaker 2: It is a great boon to the deal is because they're not going to have to roll trucks to repair. You set up the Wi-Fi system to do things with the camera as far as the camera going off circuit. The camera does it all. And it's a beautiful looking product.

It is a great boon to the dealers because they're not gonna have to roll trucks to repair.

Kevin Buchel: Cash provided by operating activities for the 12 months into June 30, 2023 was $24.7 million, and that compared to $8.3 million for the same period last year, and that's a 198 percent increase. CapEx for the quarter was $1.2 million versus $293,000 in the year-ago period, and for the 12 months ended June 30, 2023 was $2.96 million compared to $1.5 million in the prior year period, and we have no debt.

Setup wildfire system to do things with the camera and as far as the camera going off circuit premium does it all and it's a beautiful looking Bravo.

Speaker 2: and we expect great results. So we're gonna have, as far as I can see, for the future lots of business and FEMA, as well as the retrofitting Black radios and fire. So all these things are combining together and it both a very strong future. The future.

And we expect great results.

We're going to have as far as I can see into the future lots of business with prima.

As well as the venture.

Retrofitting black radios and Si so all these things combine them together.

It bodes for a very strong future.

Got it thanks very much.

Thank you.

Speaker 1: Thank you. And our next question comes from Matt Fall from William Blair.

Our next question comes from Matt Pfau from William Blair.

Kevin Buchel: Finally, due to the previously announced need to restate the first, second, and third, fiscal quarters of fiscal 2023, the company will delay filing its form 10K for up to 15 college days.

Your line is open.

Great. Thanks for taking my questions wanted to first start on the restatement and was just hoping you could better explain to us what happened here from an accounting perspective, it seems a little bit counterintuitive that both inventory and would be overstated.

Speaker 7: Great, thanks for taking my questions. I wanted to first start on the restatement and we're just hoping you could better explain to us what happened.

Richard Soloway: We will file the amended 10Qs as soon as the that concludes my formal remarks, and I would now like to return the call back to Dick. Kevin, thank you.

Kevin Buchel: We will file the amended 10Qs as soon as the that concludes my formal remarks, and I would now like to return the call back to Dick. Kevin, thank you.

While our Cogs were understated so what happened that that drove that and then on the cash component.

Speaker 7: How did that tie out when the accounting was wrong on the other side of the financial statements? Matt, the inventory for the quarters that succeeded the June 30, 2022.

How did that sort of tie out when when the accounting was what's wrong on the other side of the financial statements.

Richard Soloway: A fiscal year 2023 showed continued growth with record sales and profits, and we look forward to breaking our previous record of 23 consecutive quarters of growth, which we had prior to the COVID pandemic. We are not satisfied with the improvement margins of 18 percent during our fiscal 2023. However, we are pleased to have generated $27 million in net income, which is 16 percent of net sales, or also $30,000,000 in adjusted EBITDA, equaling 20 percent EBITDA.

So Matt the.

Inventory.

For the quarters that succeeded.

June 32022.

Physical inventory audited statements.

What is that followed it which is the September quarter.

Speaker 4: December quarter and the March quarter of fiscal 2023.

The December quarter in the March quarter of fiscal 2023.

The inventory was valued.

Speaker 4: using values from the 630-22 audited numbers.

Using values from the 630 22.

Numbers.

Richard Soloway: Margians is another positive we take away from the fiscal year results. As we enter the fiscal 2024, we believe that most of the additional material and trade goals, due to the supply chain crisis, are behind us. This should both well improve the equipment margins. The commercial fire law business is a mandatory, non-discretionary item. The commercial building must have and maintain a fire law system in order to receive the certificate of occupancy.

Speaker 4: What that means is take as an example.

What that means is take take as an example.

If a component was valued at $50 at June 32022.

Speaker 4: If a component was valued at $50 at June 30, 2022.

Speaker 4: That same $50 was used to value the inventory.

That same $50 was.

Used to value the inventory.

Speaker 4: for the first quarter, and let's say the second quarter, and let's say the third quarter. The cost of that component was coming down. It was no longer...

For the first quarter, and let's say the second quarter.

Richard Soloway: The commercial fire law business is a mandatory, non-discretionary item. The commercial building must have and maintain a fire law system in order to receive the certificate of occupancy. Given the high profitability and essential nature of this business, it focuss on this as a key area of our resources. The current revenue generated growth, increasing 27 percent for the quarter and 30 percent for the fiscal year. The annual run rate for the current revenue is now approximately $60,000,000 as of July The estimated there are millions of commercial buildings of old types, such as offices, hospitals, schools, coffee shops, fairs, media restaurants, and others that still require upgrades from old-fashioned copper phone lines.

And let's say the third quarter.

The cost of that component was coming down.

No longer $50.

$5.

Using this one example.

You value the inventory at 50 here overstating your inventory.

Speaker 4: You value the inventory at 50, you're overstating your inventory.

Richard Soloway: Given the high profitability and essential nature of this business, it focuss on this as a key area of our resources. The current revenue generated growth, increasing 27 percent for the quarter and 30 percent for the fiscal year. The annual run rate for the current revenue is now approximately $60,000,000 as of July The estimated there are millions of commercial buildings of old types, such as offices, hospitals, schools, coffee shops, fairs, media restaurants, and others that still require upgrades from old-fashioned copper phone lines.

When you when you put a valuation on your on your balance sheet.

Speaker 4: when you put a valuation on your balance sheet.

Speaker 4: If you're overstating your inventory and your balance sheet.

If youre overstating your inventory on your balance sheet.

That means the other side of the equation.

Speaker 4: That means the other side of the equation is your understanding your cross the good salt. It has nothing to-

Is your understanding your cost of goods sold.

It has nothing to do with cash.

Speaker 4: This is all book entries, cash is unaffected, cash flow unaffected, cash from apps. None of that is affected. This is strictly your overstated, your inventory. It means you understated, you cost a good sold. If you understated, you cost a good sold. That means you overstated your net income. That's...

This is all book entries cashes unaffected cash flow unaffected cash from ops. None of that has affected this is strictly <unk>.

Overstated your inventory it means you understated your cost of goods sold if you understand your cost of goods sold that means you overstated your net income.

Richard Soloway: Our Starlink radius and the widest coverage for both ATT and the Business Service and which feature sets which our deal is lost. We continue to focus on our previously mentioned goals of 150 million one rate in recurring revenue and 150 million of equipment revenue by the end of fiscal 2026. While the exact time frame for hitting these goals is uncertain, achievement of those goals as well as our gross margin goals of 80% to the recurring revenue and it was 89% of fiscal 2023 and 50% for equipment revenues could generate ethical margins in excess of 45%.

And that's what it is now.

Speaker 4: We're going to fix this and we've begun the process of fixing it. You can't use...

We're getting we're going to fix this and we've begun the process of fixing it.

You can't use the.

Prior years.

Speaker 4: physical inventory, valuation going forward. Normal conditions, it could use it, but inflectuating pricing time.

Physical inventory valuation going forward normal conditions.

It could use it.

But in fluctuating pricing times, and who knows what the times are going to be going forward.

Time seemed to be better now the fluctuation seem to be done, but we're gonna have a system, where we measure every fluctuation during the quarters.

Speaker 4: times seem to be better now. The fluctuation seems to be gone, but we're going to have a system where we measure every fluctuation during the quarters.

Speaker 4: and we utilize that new price, if there is a new price, to value.

And we utilize that new price if there is a new price to.

To value the inventory in.

Speaker 4: in each quarter. We'll do it at the beginning and the first day after the quarter ends. So I'll talk to her first. Let's say it's coming into the quarter.

In each quarter.

Richard Soloway: School administration are focused on the needs of security solutions as more school shootings continue to happen. We are pleased to learn that recently the University of Arizona recently installed over 700 vitrology electronic locks on the campus. A fully integrated solution to the school security sector, generating healthy margins for our business, and now more than never we are lazy focused on further penetration of the school security market, which is comprised of approximately 130,000 K through 12 schools and 5,000 colleges and universities across the country, offering seamless security solutions which allow for our dealers and us to generate recurring revenue streams essential to our strategy.

We'll do it at the beginning at the first day after the quarter ends. So on October 1st let's say for this upcoming ended the quarter.

We will measure every fluctuation that exists.

Speaker 4: We'll measure every fluctuation that exists up or down.

Boy down.

And we will make sure that the inventory valuation for the quarter.

Speaker 4: and we'll make sure that the inventory valuation for the quarter utilizes the

Utilizes the correct price.

Speaker 4: And that's the best way I could explain it, Matt. It's nothing to do with cash.

And that's.

That's the best way I could explain it Matt.

It has nothing to do with cash.

Speaker 4: For those that took accounting in school, you got to credit your inventory, lower your inventory, you got to debit your cost of goods sold, and that reduces profits.

For those that took accounting in school if you you've got to credit your inventory lower your inventory you got a debit your cost of goods sold.

And that reduces profit.

That's that's what it was.

Got it and then with the stock down significantly from the highs are you considering.

Speaker 7: got it and then with the the stock down, and the significant going from the highs are you considering.

Speaker 7: repurchasing any stock or his management team considering any personal purchases themselves. That's all on the table.

Repurchasing any stock or for his management team considering any personal purchases himself.

Richard Soloway: The recently launched air access products will enable us to generate recurring revenue from all divisions of the company. Air access will generate recurring revenue from locking and access control, which has never been done before. Air access is the industry's first cellular base, access control system, which we believe is a large market opportunity. The product continues to make strides in the market and we expect more momentum in the future as our sales teams are actively educating the locking and access control dealers about this new exciting opportunity for them with air access.

That's all on the table.

And its possible we will do that.

First things first.

But.

Speaker 4: Let's get the cues, the restated cues filed. We expect to do that this week. Let's get the K files.

Let's get the Qs restated Q is filed we expect to do that this week, let's get the K filed.

To do that next week.

And then we could look at.

Speaker 4: And then we could look at buybacks and personal buying, all this, it's all on the table.

Buybacks and personal buying all this thrown on the table.

Let's get our house in order with our filings and we go from there.

Speaker 4: Let's get our house in order with our filings and we go from there.

Got it last one for me just on the.

Speaker 7: Got it. Last one for me just on the the radio component of the equipment hardware. I think you called out that was you know 20% of equipment sales. Not sure if that was for the quarter or the full year but how would that compare to the year ago period from a percentage of sales perspective? Yeah that was for the quarter.

The radio component of the equipment hardware I think you called out that was.

20% of our equipment.

Richard Soloway: At the recent ISC West Trade Journal back in March, we unveiled a new product with a built-in recurring revenue radio. It is called Prima, which we and our thousands of deals are very excited about. Prima is a revolutionary super long panel with a full-color 7-inch LCD touchscreen for security, fire, video and automation, featuring intuitive use and setup, smart with self-healing Wi-Fi and video and doorbells. That prevents dealer service calls and an only powerful back end.

Equipment sales not sure if that was for the quarter or the full year, but how would that compare to the year ago period from a percentage of sales perspective.

Richard Soloway: Prima also was known to one security sales and integration magazine as the most valuable product in 2023. We expect to have this available to dealers in early fiscal 2020 more. Our DT remains hard at work developing even more products for the future, which will help grow our recurring revenue business. We've experienced tremendous success over the last several years growing our recurring revenue and believe the growth we have witnessed will continue at a healthy rate.

Yeah that was for the quarter.

And it would have been greater.

Speaker 4: in the prior years period because in the prior years period the radios were stronger and the locking wasn't as strong as it just was.

And the prior in the prior year's period.

In the prior year's period, the radios was stronger in the locking wasn't as strong as it is it just was.

So you know I don't have the.

Speaker 4: So, you know, I don't have the exact stat in front of me.

The exact stat in front of me.

Speaker 4: But I can give you that maybe at a later point, but I'm sure it was a higher percentage. I wouldn't even say much higher. It was a higher percentage.

But.

I can give you that maybe at a later point, but I'm sure. It was.

Much of it was a higher percentage I wouldnt, even say much high it was a higher percentage.

Okay, great. Thank you I appreciate it thanks, Matt.

And our next question comes from Jason Smith from Lake Street Capital.

Speaker 1: And our next question comes from Jason Schmidt, from Lake Street Capital.

Your line is open.

Hey, guys. Thanks for taking my questions just looking at the inventory digestion situation. Just curious how long you think that will last I mean, obviously it will impact the September quarter, but do you think this bleeds into the December quarter.

Speaker 8: Hey guys, thanks for your taking my questions. Just looking at the inventory digestion situation, just curious how long you think that will last. I mean, obviously, it will impact the September quarter, but do you think this bleeds into the December quarter? Well, I just want to make sure everybody understands.

Well I just wanted to.

I wanted to make sure everybody understands.

It's one radio one type of radio.

Richard Soloway: Lastly, I mentioned earlier, we excited to announce the increase in our quarterly dividend by 28% to 8% per share to shareholders of record on September 1st, 2023. We believe that it is important to balance our capital allocations priorities, including investing in growth opportunities, maintaining a strong balance sheet and returning capital to our shareholders.

And it's with a couple of distributors.

Speaker 4: not everything and it's not with every distributor. We're going to work.

Everything and it's not with every distributor.

We're going to.

Our cards.

To move it through.

These distributors just like <unk>.

Speaker 4: distributors this you know like I said earlier this has happened in the past where distributors load up

I've said earlier this has happened in.

In the past.

Where distributors load up on a product.

Speaker 4: and they need help moving it through. That's what we're here for. We can help them.

And they need help moving it through that's what we're here for them, we can help them.

Richard Soloway: We'll begin our question and answer portion of this call in a moment. Our fiscal year 2023 generated strong sales and profitability. There's a pristine balance sheet and no debt. We believe we can continue this growth in fiscal 2024 and beyond. I would like to thank everyone for their support and for joining us in the exciting future we have.

My guess, it's just a guess it.

Speaker 4: My guess, and it's just a guess, it'll take a couple of quarters to move it through. It will work really hard to do this.

We'll take a couple of quarters to move it through.

We'll work really hard to do this.

But that's that's how it looks for right now.

Speaker 8: Okay, that's helpful. And then just as a follow up looking at op-X, it sounds like there could be some incremental costs associated with better accounting controls, et cetera. How should we think about op-X trending for fiscal 24?

Okay. That's helpful. And then just as a follow up looking at Opex. It sounds like there could be some incremental costs associated with a better accounting controls et cetera, how should we think about opex trending for fiscal 'twenty four.

Richard Soloway: Our former remarks are now concluded.

Patrick McKillop: We'd now like to open the call for a Q&A session.

Operator: Operator, please proceed. If you would like to ask a question, please press star one on your telephone keypad now. You'll be placed into the queue in order received. Please be prepared to ask your question when prompted. Once again, if you have a question, please press star one on your phone now.

Yeah, Theres going to be a few things we're going to have to spend some money on.

Speaker 4: Yeah, there's going to be a few things we're going to have to spend some money on. We won't hesitate spending the money we have the money. But

We won't hesitate spending the money we have the money.

But.

Software upgrades.

Personnel.

So this isn't to two main things that I can point to.

Speaker 4: Those are the two main things that I can point to, that would make our, our op-ex more than it was in fiscal 2023. You know, if I'm putting a number on it.

That.

We'd make art.

James Ricchiuti: Our first question comes from Jim Rikuni from Niedemann Company. Your line is open. I thank you. Good morning. I wanted to talk a little bit about the puts and takes in the radio business. It sounds like you continue to see strong demand for fire radios and where the overhang is and the channel is on the intrusion star link radios. So two questions. Number one is can you talk a little bit about how you see the channel inventories being worked down for the intrusion star link radios?

Jim Rikuni: Our first question comes from Jim Rikuni from Niedemann Company. Your line is open. I thank you. Good morning. I wanted to talk a little bit about the puts and takes in the radio business. It sounds like you continue to see strong demand for fire radios and where the overhang is and the channel is on the intrusion star link radios. So two questions. Number one is can you talk a little bit about how you see the channel inventories being worked down for the intrusion star link radios?

Our opex.

More than it was in.

Fiscal 2023.

If I'm, putting a number on it.

I would say, let's assume a $1 million more.

In SG&A.

SG&A.

24 versus 23.

For this type of thing.

Okay sounds good that's it for me thanks, guys. Thanks, Jason.

Speaker 8: Okay, sounds good. That's it for me. Thanks guys. Thanks Jason

Speaker 1: and our next question comes from Chad Bennett of Craig Hallum.

And our next question comes from Chad Bennett of Craig Hallum.

Your line is open.

James Ricchiuti: What kind of shelter are you hearing from your channel partners? And then I have a follow-up question as it relates to the fire radio business. Thank you. Okay, Jim, so we get statistics from our key distributors that we watch very closely. And what we see with a couple of these distributors, not all of them, is a glut of inventory on the smaller radio. And it seems to have come about because they loaded up on radios during the height of the preparedness for the 3G Sunset.

Jim Rikuni: What kind of shelter are you hearing from your channel partners? And then I have a follow-up question as it relates to the fire radio business. Thank you. Okay, Jim, so we get statistics from our key distributors that we watch very closely. And what we see with a couple of these distributors, not all of them, is a glut of inventory on the smaller radio. And it seems to have come about because they loaded up on radios during the height of the preparedness for the 3G Sunset.

Mr. Bennett Your line is open.

Alright moving on.

We have.

Speaker 1: Yeah, thank you for taking more questions.

Raj Sharma from B Riley.

Your line is open.

Yes, Thank you for taking my questions.

I just wanted to understand the.

The alarm sales.

Yeah.

Speaker 9: If you look at the composition in Q4, show a pretty substantial decline of about 33% year on year. How much of that impact do you think was from the Verizon sunset?

If you look at the composition in Q4.

Show show a pretty substantial decline.

So.

About 33% year on year, how much of that impact do you think was from the Verizon Sunset.

Speaker 9: And you commented that the dealers, they started buying up, there was a lot of activity. Was that activity about two, three quarters prior to the sunset date of Jan 2nd?

And and I think you commented that the dealers.

James Ricchiuti: The 3G Sunset for Verizon was January 2nd or 3rd of 2023. Nobody wanted to really get caught short. And not everybody could deliver radios, could. We talked about this on prior calls. We were able to deliver when others couldn't. And that ability to deliver has helped us. We've picked up more business than logic counts, which we've talked about. But these distributors, they didn't want to get caught short. They bought up a lot.

Jim Rikuni: The 3G Sunset for Verizon was January 2nd or 3rd of 2023. Nobody wanted to really get caught short. And not everybody could deliver radios, could. We talked about this on prior calls. We were able to deliver when others couldn't. And that ability to deliver has helped us. We've picked up more business than logic counts, which we've talked about. But these distributors, they didn't want to get caught short. They bought up a lot.

They started buying up there was a lot of activity was that activity about two three quarters prior to the sunset date of Jan second.

Yes, and then.

It was prior.

Yeah, well I'll answer. This part first then you can follow up it was where it was before.

Speaker 4: yeah but we'll answer this part first then you could follow up it was sure it was before they didn't want to be caught short so they were they weren't gonna stop buying it

They didn't want to be caught short so they were they weren't going to stop buying it.

Speaker 4: you know, January or even December . By then they wanted to have it in stock. So this, this, this,

You know January or even December by them. They wanted to have it in stock.

Does this.

Let up too.

The sunset, but like the June quarter June of <unk> 22 was at its height.

Speaker 4: but like the June quarter, June of 22 was at its height. And...

James Ricchiuti: And they bought it because of the 3G Sunset and because of lack of delivery from others. And now they have too much because now the things have settled down. The 3G Sunset is finished. They have to work that inventory down. And we'll help them. This happens periodically all the time. The demand for radios as a whole is very good. That's why you saw it grew by 27 percent of quarter versus a year ago.

Jim Rikuni: And they bought it because of the 3G Sunset and because of lack of delivery from others. And now they have too much because now the things have settled down. The 3G Sunset is finished. They have to work that inventory down. And we'll help them. This happens periodically all the time. The demand for radios as a whole is very good. That's why you saw it grew by 27 percent of quarter versus a year ago.

And even the September quarter.

That's a fiscal 'twenty three to some degree.

Speaker 4: After that, it was over, the guys were there had to be in position to have equipment.

After that it was over the guys.

Or if they had to be in position to have equipment.

Because the sunset was upon them.

Speaker 4: So we saw a lot of activity, and again, it wasn't just because of the sunset. It was also because of the...

So we see we saw a lot of activity and again it wasn't just because of the sunset.

It was also because of delivery.

Delivery.

We were.

One of the few.

James Ricchiuti: That's why the run rate went from 63 to 67 million. And we can't judge the strength of recurring revenue based on a couple of distributors having too much of one type of radio. So we'll work with them to move it. We believe it'll move. And we still feel very good and confident about our recurring revenue and its growth for the future. On the flyer. Let me in one more thing. So the radios that Canada has taught me about are the low cost residential small business people to retype radios.

Jim Rikuni: That's why the run rate went from 63 to 67 million. And we can't judge the strength of recurring revenue based on a couple of distributors having too much of one type of radio. So we'll work with them to move it. We believe it'll move. And we still feel very good and confident about our recurring revenue and its growth for the future. On the flyer. Let me in one more thing. So the radios that Canada has taught me about are the low cost residential small business people to retype radios.

Speaker 4: manufacturers who could deliver radios during these crazy times.

Manufacturers, who could deliver radios during these crazy times.

And as I've said before.

It was.

Speaker 4: The crazy times was almost like a blessing in disguise.

Crazy times, it was almost like a blessing in disguise.

Speaker 4: because it allowed us to pick up some really big dealers which we've talked about before.

Because it allowed us to pick up some really big dealers.

We've talked about before.

And these big dealers.

They couldnt get delivery.

Speaker 4: They couldn't get delivery. They got to look at our product. They got to see what our radios were all about, the fire radios is the one I'm talking about. And they made...

They've got to look at a product they got to see what our radios were all about the fire radios.

What I'm talking about.

And they made the fire radios their radio of choice.

Speaker 4: And that probably wouldn't have happened if delivery...

And that probably wouldn't have happened if delivery.

Speaker 4: was going on from the competitors, but they couldn't deliver we could.

It was going on from the competitors, but they couldnt deliver we could.

James Ricchiuti: And that business is moving along. But we had to supply them to the shouldiness because they asked for them and we produced a lot of them. They're a little backed up. And that is a radio that's added to an existing alarm system to replace the copper. So we expect that to continue. The shelter is good on that. But the glut will be eroded down and get more novel, at the ISC show out west a few months ago, we showed the entire alarm system with a built-in stolen radio and with technology beyond everything in the marketplace.

Jim Rikuni: And that business is moving along. But we had to supply them to the shouldiness because they asked for them and we produced a lot of them. They're a little backed up. And that is a radio that's added to an existing alarm system to replace the copper. So we expect that to continue. The shelter is good on that. But the glut will be eroded down and get more novel, at the ISC show out west a few months ago, we showed the entire alarm system with a built-in stolen radio and with technology beyond everything in the marketplace. It was a tremendous hit.

Speaker 4: He had guys who couldn't get product. They were nervous. He had the 3G sunset. Yeah.

You had guys who couldn't couldn't get product.

They were nervous.

You had the <unk> sunset yeah.

Radio mania going on.

Speaker 4: which was at its height in June of 2022. Continued in September of 22, which is Q1.

It was at its height in June of 2022.

Continued in September of 'twenty, two which is Q1.

A fiscal 'twenty three.

And then as the <unk>.

We are progressing well.

Speaker 4: normalized our cause didn't die normalized the man became more normal And it's still good demand So just because we had this

<unk> stopped caused didn't die normalized demand became more normal.

And it's still good demand so.

Just because we had this heightened situation.

You shouldn't feel like the bottoms dropping out.

Speaker 4: The business is still strong, the recurring stats are still good.

Business is still strong the recurring stats is still good.

But we did we did have this situation.

James Ricchiuti: It was a tremendous hit. So that radio, that black radio is now being built into a complete control panel for automation, residential, small business, and that will be out in the next 60 days. So what's going to be contributing to the recurring monthly revenue, it's not only the shelter of the black areas, which upgrade the existing alarm systems from copper, but it's also this brand new unique alarm panel radio, which will be for new work.

Speaker 2: What's happening, Raj? Raj, Raj, let me just get...

John I think Raj Raj Raj.

Richard Soloway: So that radio, that black radio is now being built into a complete control panel for automation, residential, small business, and that will be out in the next 60 days. So what's going to be contributing to the recurring monthly revenue, it's not only the shelter of the black areas, which upgrade the existing alarm systems from copper, but it's also this brand new unique alarm panel radio, which will be for new work. And these are the type of things we do in our engineering department.

Jim.

It was a great thing for us to ship these radios when our competitors couldn't do.

Speaker 2: It was a great thing for us to ship these radios when our competitors couldn't do it. Because once those radios go in, we picked up brand new market chain.

Cogs once those ratios go in.

The brand new market share.

Quick right because.

Speaker 2: quickly because from the competitors and that recurring revenue stream continues on forever. So it was a blessing.

Maybe our competitors and that.

Recurring revenue stream.

Yes.

Uh huh.

So it was a blessing.

Some of the distributors.

Speaker 2: We want to capture the volume of Natgaridios and they born a lot of race.

And we wanted to capture.

James Ricchiuti: And these are the type of things we do in our engineering department. We've added additional products, which are going to add a lot of recurring revenue to the company going forward, and it's a very exciting future we have with this. And I want everybody to understand that the black radio is off for a retro-state, and that will continue, because you've got millions of jobs that still need to be upgraded. And the new, the new premium radio is a complete allowances for new jobs, and you know that people need more security than anybody for, we need security for homes, we need security for businesses.

Volume not Caribbean and they bought a lot of radios.

Richard Soloway: We've added additional products, which are going to add a lot of recurring revenue to the company going forward, and it's a very exciting future we have with this. And I want everybody to understand that the black radio is off for a retro-state, and that will continue, because you've got millions of jobs that still need to be upgraded. And the new, the new premium radio is a complete allowances for new jobs, and you know that people need more security than anybody for, we need security for homes, we need security for businesses.

Speaker 2: to have in their stocks and they would never run out. Because they didn't know when radius would be.

Having these stocks that they would never run that because they didn't know when radios.

Speaker 2: available from others. So they moved everybody to that place, and they bought unusual amounts. That's skewed in a little bit. But the radio business is strong, and it's gonna get stronger. And without pre-map product.

Available from others, so they moved everybody into that theory.

Bob.

Unusual amounts that skewed it a little bit, but the radio business is strong it's going to get stronger.

With a premium product.

Speaker 2: And the fact that more copper asked to be converted to radio, the future is very, very bright.

And.

The fact that more copper has to be converted to radio for Q3 is very very bright.

James Ricchiuti: And that's what premium will do with a built-in recurring radio, where we get the current revenue as well as a dealer. So that's how the picture looks. Got it, thank you, Dick. Just with respect to the premium, let me just ask the question, what kind of expectations do you have for this product? And maybe Kevin, would you characterize the margin profile of this product? And then lastly, just on the fire business, fire radio business, do you anticipate, you have several strong quarters?

Richard Soloway: And that's what premium will do with a built-in recurring radio, where we get the current revenue as well as a dealer. So that's how the picture looks. Got it, thank you, Dick. Just with respect to the premium, let me just ask the question, what kind of expectations do you have for this product? And maybe Kevin, would you characterize the margin profile of this product? And then lastly, just on the fire business, fire radio business, do you anticipate, you have several strong quarters?

Speaker 9: Got it. So, so I guess they'll be tough comps. You expect tough comps to persist in the first half. Is that fair? On on the equipment side. I think the radio.

Got it so so I guess there'll be tough comps you expect tough comps to persist in the first half is that fair.

On the equipment side.

I think the radio.

Comp.

It's tough for Q1.

Speaker 4: I don't think it's tough after that. Q1 I think was the last of the hard comps for radios. By the same token, locking.

I don't think it's tough after that Q1, I think was the last of the hard comps for radios.

By the same token.

Locking com.

James Ricchiuti: Does this begin to plateau for you? Fire radio. You can answer six. Do the fire radios please, and then I'll talk about the premium and what its potential is. Fire radios, we've talked about this, is mandated. It has to be, you have to have a working fire radio in a building, they got to get away from copper. This is what we keep talking about, that there's a lot of buildings and buildings are not just high rises, when you think of a building, think of buildings coming in all sizes and shapes.

Richard Soloway: Does this begin to plateau for you? Fire radio. You can answer six. Do the fire radios please, and then I'll talk about the premium and what its potential is. Fire radios, we've talked about this, is mandated. It has to be, you have to have a working fire radio in a building, they got to get away from copper. This is what we keep talking about, that there's a lot of buildings and buildings are not just high rises, when you think of a building, think of buildings coming in all sizes and shapes.

That tough at all for Q1.

No.

Kind of like offsetting each other.

Right do you attribute any of this decline.

Speaker 9: Right. Do you attribute any of this decline in the alarming fusion to a commercial residential slowdown or was it entirely because of the Verizon checkpoint?

In alarm intrusion.

Our commercial residential slowdown it was or was it entirely because of the Verizon subset.

I think it was a I think that some of the some of the distributors reacted to capture the market by having tons of inventory.

Speaker 2: I think it was, I think that some of the, some of the distributors reacted to capture the market by having a condo inventory on the...

And and satisfy them since.

Speaker 2: and the service by the sunset, the deal is the service by the sunset.

The dealers are satisfied with that.

Speaker 2: But as Kevin mentioned, this will work it's way through and we'll keep adding new products which have recurring revenue complete control panels.

Right.

James Ricchiuti: They all have to get away from copper, copper is not being supported. So we believe, A, it's mandated, we either have to get away from it. And C, there's millions or more to come, more changes to come. So as a result of that, yeah, fire radios we believe is going to continue to be strong for years to come. So number one radio has the best margins. It's more than 50% of our total radios.

Richard Soloway: They all have to get away from copper, copper is not being supported. So we believe, A, it's mandated, we either have to get away from it. And C, there's millions or more to come, more changes to come. So as a result of that, yeah, fire radios we believe is going to continue to be strong for years to come. So number one radio has the best margins. It's more than 50% of our total radios.

As Kevin mentioned this will work its way through.

And we will keep adding new products, which have recurring revenue.

Control panels.

Other radios for other applications.

Speaker 2: Other radio, it's for other applications. So that's how others see the business. Got it.

So that's how we see the business.

Got it. Thank you that's it for me and I'll take it offline.

Thanks Raj.

Thank you and we have a question from Nick <unk>.

Speaker 1: and we have a question from Nick Matiasi of

James Ricchiuti: You see what our margins are in recurring revenue, the 89% was 89% for the whole year, that's because fire radios, because we get more money for a fire radio than the other types. So we believe this strength is here and it's not going anywhere and don't read into anything because of a lot of inventory on the black radios, fire has moved very nicely, continues to move. Now when we dickle talk about Prima, when we sell Prima, the recurring revenue on that is not like it is for fire radios, it's less, but it's incremental recurring revenue, but we did our 150 goals of recurring and hardware sales, we weren't counting on Prima, we didn't even know about Prima, Prima is new, incremental recurring revenue, it'll help us get to our goals that much sooner, we do get less per month than we would for a fire radio, so my goal for recurring revenue when I first did the goals was 80%, we're at 89%, we got plenty of room between the goal and the actual, so we'll watch it, we'll see how it goes with the recurring from Prima.

Richard Soloway: You see what our margins are in recurring revenue, the 89% was 89% for the whole year, that's because fire radios, because we get more money for a fire radio than the other types. So we believe this strength is here and it's not going anywhere and don't read into anything because of a lot of inventory on the black radios, fire has moved very nicely, continues to move. Now when we dickle talk about Prima, when we sell Prima, the recurring revenue on that is not like it is for fire radios, it's less, but it's incremental recurring revenue, but we did our 150 goals of recurring and hardware sales, we weren't counting on Prima, we didn't even know about Prima, Prima is new, incremental recurring revenue, it'll help us get to our goals that much sooner, we do get less per month than we would for a fire radio, so my goal for recurring revenue when I first did the goals was 80%, we're at 89%, we got plenty of room between the goal and the actual, so we'll watch it, we'll see how it goes with the recurring from Prima.

Hello.

Your line is open.

Hi, This is Nick on for Chad Bennett, Thanks for taking our questions. So with the door locking revenues up 25% year over year, but not quite that sequentially as strong as last year can you just talk about how that that locking segment performed relative to your expectations and how we should think about growth in that segment.

Speaker 10: Hi, this is Nick Conn for Chad Bennett. I think we're taking our questions. So with the door locking revenues up 25% year over year, but not quite as quenchally strong as last year, can you just talk about how that locking segment performed relative to your expectations and how we should think about growth in that segment for the September quarter?

For the September quarter.

It performed really well.

Speaker 4: It was actually even better than I thought.

It was actually.

Even better than I thought.

Speaker 4: This segment has done really well for 3-4 quarters in a row.

This segment has done really well for us.

Three or four quarters in a row.

It actually.

Speaker 4: It actually, you know, there's two locking pieces to it.

There's two locking pieces to it.

We haven't we haven't alarm lock.

Speaker 4: We have a warm lock and we have marks. A warm lock.

And we have marks.

Alarm lock.

Just as well as it did in Q3.

Speaker 4: and it marked it even better than Q4, meditating Q3. So...

And Mark did even better Q4 than it did in Q3.

So.

They both did well.

I wouldn't read anything into whether it's sequentially. It was a little up or a little down.

Speaker 4: I wouldn't read anything into whether it sequentially was a little up or a little down. It was way more in each of the quarters, and Q3, and Q4.

Way more in each of the quarters in Q3 and Q4.

Speaker 4: than it was in the preceding years period.

And it was in the preceding year's period.

James Ricchiuti: All right, so Prima is for new work, the black radio is the retrofitting the copper. I figure we got five to eight million years of retrofitting copper with black radios because there's many of the many of the jobs asked to be done and the deal is agreement as necessary. A lot of dealings don't go out and strictly their customers about upgrading away from copper, they wait until there's an event, maybe the phone company transorca copper on these issues with the cracking old copper lines and then they go in some dealings going and start promoting right away, but we have a great radio in the black radio and it's moving out nicely, but the deal is putting a lot of new jobs and our new Prima is for new work and what's going to happen is there are millions of jobs that have to be done with new radio panels and there are some on the market now, but they're antiquated compared to what Prima is going to be, everybody has to show the dealings can only do the deal, they saw the way the door cameras work, the way the Wi-Fi is automatically self-field because Wi-Fi systems signals get lost on the premise that this self-fields and six is that, nothing on the market does anything like that, it is a great boom to the dealings because they're not going to have to roll trucks to repair, you set up the Wi-Fi system to do things with the camera as far as the camera going off circuit, Prima does it all and it's a beautiful looking grada, and we expect great results.

Richard Soloway: All right, so Prima is for new work, the black radio is the retrofitting the copper. I figure we got five to eight million years of retrofitting copper with black radios because there's many of the many of the jobs asked to be done and the deal is agreement as necessary. A lot of dealings don't go out and strictly their customers about upgrading away from copper, they wait until there's an event, maybe the phone company transorca copper on these issues with the cracking old copper lines and then they go in some dealings going and start promoting right away, but we have a great radio in the black radio and it's moving out nicely, but the deal is putting a lot of new jobs and our new Prima is for new work and what's going to happen is there are millions of jobs that have to be done with new radio panels and there are some on the market now, but they're antiquated compared to what Prima is going to be, everybody has to show the dealings can only do the deal, they saw the way the door cameras work, the way the Wi-Fi is automatically self-field because Wi-Fi systems signals get lost on the premise that this self-fields and six is that, nothing on the market does anything like that, it is a great boom to the dealings because they're not going to have to roll trucks to repair, you set up the Wi-Fi system to do things with the camera as far as the camera going off circuit, Prima does it all and it's a beautiful looking grada, and we expect great results.

Speaker 4: And as they said earlier, the Q1 top.

And as I said earlier the key.

<unk>.

<unk> comp.

It's a fairly.

I'll call it fairly easy so you know I have good very good expectations for the walking in this upcoming quarter as well.

Speaker 4: I don't call it fairly easy. So, you know, I have good, very good expectations for the locking in this upcoming quarter as well. The locking business benefits from seeking.

<unk> business benefits.

From.

The.

School Security segment.

Airport upgrades.

Hospitals.

Lots of things, but those are the three that stand out.

Speaker 4: Lots of things, but those are the three that stand out. The school's security part is difficult.

School security part is difficult.

The measure I always get asked well how much is it tell me how much it is.

Speaker 4: The measure, I always get it, lo-harmatures it, tell me how much it is. They buy through distribution, so we don't know. One of the things we mentioned in the release today was the school job that the University of Arizona did. They had a professor that was killed about.

They buy through distribution, so we don't know.

One of the things we mentioned in the release today.

Was the school.

Job that the University of Arizona.

It.

They had a professor that was killed about nine months ago.

They've recently put in 700 of our.

Trilogy electronic locks.

Speaker 4: I didn't really know about it. They bought it through a distributor. The only reason I heard about it was because it was a big news article.

I didn't really know about it.

Got it through a distributor and the only reason I heard about it.

Because there was a big news article.

And it's a big thing on TV out there.

Speaker 4: And there's a big thing on TV out there.

Speaker 4: A lot of times we don't go through distribution. Sometimes we know, sometimes we don't.

So a lot of times, we don't go stir distribution of sometimes we know sometimes we don't.

But I know when locking is strong.

Speaker 4: But I know when locking is strong, that's a big part of it. And with all the craziness going on, I believe.

This is a big part of it.

With all the craziness going on I believe.

That's that's here to stay.

That's not going anywhere so our expectations is for locking to stay strong for.

Speaker 4: That's not going anywhere. So our expectations is for locking to stay strong for various reasons.

For various reasons.

Speaker 2: One thing I like to mention, one thing I like to mention is given to us about the trilogy locks. The trilogy locks are the standard of the entire locking.

Got it.

One thing I'd like to mention as Kevin talked about the trilogy locks.

Trilogy locks.

The standard of the entire Lockheed.

James Ricchiuti: So we're going to have as far as I can see in the future lots of business and prima as well as the retrofitting black radios and fire. So all these things are combining together and it both is a very strong future.

Richard Soloway: So we're going to have as far as I can see in the future lots of business and prima as well as the retrofitting black radios and fire. So all these things are combining together and it both is a very strong future.

Yes.

Speaker 2: That's the lock everybody's using. All the key larger jobs are using the commercial lock.

That's the lock everybody is using.

All the key larger jobs to commercial launch.

Okay.

Being put into everywhere and more trouble.

Speaker 2: being put in everywhere. And the more trouble to our WS, with schools, with people entering office buildings and taking out things, because of the fact that there's a lot of people that are not working.

The U S with schools with people entering office buildings and thinking about things.

Matthew Pfau: Thank you and our next question comes from Matt Pfau from William Blair. Your line is open. Great, thanks for taking my questions.

Matt Pfau: Thank you and our next question comes from Matt Pfau from William Blair. Your line is open. Great, thanks for taking my questions.

Cause and effect.

There's a lot of people there.

Not working.

Speaker 2: They're putting in trilogy locks and all of our locks, especially the trilogy locks everywhere.

They are putting in trilogy locks.

All of our blocks, especially the trilogy locks everywhere.

Speaker 2: So it boasts well that Trilogy locks should be, we'll be selling continuously. And we've now expanded the Trilogy lock line where they now work with the radio control. They work as standalone on the digital doors.

Kevin Buchel: I wanted to first start on the restatement and we're just hoping you could better explain to us what happened here from an accounting perspective. It seems a little bit counterintuitive that both inventory and would be overstated while cogs were understated. So what happened that drove that? And then on the cash component, how did that sort of tie out when the accounting was wrong on the other side of the financial statements? Thanks.

Oh Wow.

Well that trilogy locks.

We will be selling continuously.

And we've now expanded with trilogy lock line right now.

That work with the radio control.

<unk> standalone individual.

Doors.

Speaker 2: And it's a very, very unique line of products. So that's why the shirt is a carrying it. And we don't always hear that if you say out, we just see the amount of volume that ought to be shirted.

Okay.

Thank you very very unique line of products. So that's one.

Distributors are carrying and we don't always hear about that.

Sale.

So the amount of volume going through distributors and it's it's great much greater.

Speaker 2: And it's, it's greater, much greater this year than the Rose Blank.

Kevin Buchel: So Matt the inventory for the quarters that succeeded the June 30, 2022 physical inventory audited statements, the quarters that followed it which was the September quarter, the December quarter and the March quarter of fiscal 2023. The inventory was valued using values from the 630, 22 audited numbers. What that means is take as an example if a component was valued at $50 at June 30, 2022. That same $50 was used to value the inventory for the first quarter and let's say the second quarter and let's say the third quarter.

Yes.

Thanks for that and then I think in the release you talked about the expectation for much improved gross margins. This year I guess the service gross margins are a little less volatile than equipment gross margins, but should we think about that that 30% equipment gross margin in Q4 sort of being.

Speaker 10: And then I think in the release you talked about an expectation for much improved growth margins this year. I guess the service gross margins are a little less volatile than equipment gross margins but should we think about that 30% equipment gross margin and Q4 sort of...

The baseline or how else should we think about equipment gross margins this year and especially <unk>.

Speaker 10: How else should we think about equipment gross margins this year, and especially related to the seasonality throughout the year? Historically, the equipment gross margins used to be in the 30s. And then...

Related to the seasonality throughout the year.

Historically the equipment gross margins.

Kevin Buchel: The cost of that component was coming down no longer $50, $5 using this one example. You value the inventory at $50, you're overstating your inventory when you put a valuation on your balance sheet. If you're overstating your inventory on your balance sheet, that means the other side of the equation is you're understating your cost of goods sold. It has nothing to do with cash. This is all book entries. Cash is unaffected.

To be in the Thirty's.

And then as the volume picked up.

It's usually was in our fourth quarter and the June quarter.

Speaker 4: and the equipment margins would go up into the high 30s sometimes low 40s. That all went out the window during the supply chain crisis and are in our need to have to buy component parts that are very expensive.

And the equipment margins would go up into the high 30, sometimes low forty's.

That all went out the window.

During the supply chain crisis.

And I now need to have to buy.

Component parts are very expensive.

<unk> just to keep things moving.

Buying a $50.

Micro that's normally $5 from our broker.

Just to keep the radios moving knowing.

Speaker 4: just to keep the radio's moving, knowing that we would get recurring revenue at the end of it.

Kevin Buchel: Cash flow unaffected. Cash from ops. None of that is affected. This is strictly your overstated your inventory. It means you understated your cost of goods sold. If you understated your cost of goods sold, that means you overstated your net income. That's what it is now. We're going to fix this and we've begun the process of fixing it. You can't use, you know, the prior year's physical inventory valuation going forward. Normal conditions, you could use it, but inflectuating pricing times, and who knows what the times are going to be going forward, times seem to be better now, defluxuation seems to be gone, but we're going to have a system where we measure every fluctuation during the quarters, and we utilize that new price, if there is a new price, to value the inventory in each quarter.

That.

We would get recurring revenue at the end of it.

That's why we did it in it.

Speaker 4: paid because we got radio, improved radio sales.

Paid because we got rating.

<unk> radio sales.

Speaker 4: big new dealers, big customers.

Big new dealers big customers et cetera.

But now those those expenses are behind us.

Speaker 4: But now those expenses are behind us.

And not only the cost of the parts.

But the airfare.

Speaker 4: one of the big things with the supply chain crisis was freight.

Great.

One of the big things with the supply chain prices with freight.

Super expensive.

Speaker 4: Whether you're flying, putting it on a boat, the pricing was crazy. A lot of it's come back to Earth. And….

Whether you are flying a putting it on a boat pricing was crazy.

A lot of it to come back to Earth.

And so we wound up having.

Kevin Buchel: We're going to fix this and we've begun the process of fixing it. You can't use, you know, the prior year's physical inventory valuation going forward. Normal conditions, you could use it, but inflectuating pricing times, and who knows what the times are going to be going forward, times seem to be better now, defluxuation seems to be gone, but we're going to have a system where we measure every fluctuation during the quarters, and we utilize that new price, if there is a new price, to value the inventory in each quarter.

By our standards.

Speaker 4: Poor margins. Poor hard-weigh margins for the year.

Poor margins poor poor hardware margins for the year.

So here, we are we did $110 million of hardware sales.

Speaker 4: So here we are, we did 110 million dollars of hardware sales in fiscal 2023.

Fiscal 2023.

With an 18% gross margin.

Which is well below what it should be and what we say what it will be.

Speaker 4: which is well below what it should be and what we say, what it will be.

Speaker 4: To go it forward, you saw in the fourth quarter, the margins were 30% for height.

So going forward you saw in the fourth quarter.

The margins for 30% for hardware.

That's more normalized.

Now, whether we're going to be 30% right out of the gate in Q1.

Speaker 4: Now whether we're going to be 30% right out of the gate in Q1.

Yeah.

Speaker 4: I'd be more conservative about that. I believe we will build ourselves up at the quarters go by to being in the 30s. And that'll become the more normalized level.

I'd be more conservative about that I believe we will build on itself up.

Kevin Buchel: We'll do it at the beginning of the first day after the quarter ends, so on October 1st, let's say, for this upcoming end of the quarter, we'll measure every fluctuation that exists up or down, and we'll make sure that the inventory valuation for the quarter utilizes the correct price, and that's the best way I could explain it, Matt. It's nothing to do with cash. For those that took accounting in school, you've got to credit your inventory, the lower your inventory, you've got to debit your cost of goods sold, and that reduces profits. That's what it was.

As the quarters go by to being in the thirties.

And that will become more normalized.

Level of margin as it used to be.

And then.

Probably go beyond that.

Speaker 4: As the volume kicks up even higher, the volume kicking up leads to the

As the volume kicks up even higher volume kicking up leads to the <unk>.

Speaker 4: overhead absorption and margin expansion from manufacturing in the Dominican Republic. That's one of the benefits you get. So, standard will be in the 30s, might take a quarter or two to get there.

Overhead absorption and margin expansion for manufacturing in the Dominican Republic.

One of the benefits you get.

So.

Standard will be in the Thirty's.

I take a quarter or two to get there.

Yeah.

Got it that's all for US thanks for taking the questions.

Kevin Buchel: Got it, and then with the stock down significantly from the highs, are you considering re-purchasing any stock, or as a management team, considering any personal purchases themselves? That's all on the table, and it's possible we will do that. The first thing is first, let's get the Q's, the restated Q's filed. We expect to do that this week. Let's get the K filed. We expect to do that next week, and then we could look at buybacks and personal buying all the flow on the table. Let's get our house in order with our filings, and we go from there.

Richard Soloway: Got it, and then with the stock down significantly from the highs, are you considering re-purchasing any stock, or as a management team, considering any personal purchases themselves? That's all on the table, and it's possible we will do that.

And our final question comes from.

Jim Ricchiuti from Needham <unk> company.

Your line is open.

Speaker 5: Yeah, Kevin just with respect to the last comment.

Kevin just with respect to the last comment.

I get the fact that the increased volume will be will benefit you from in terms of.

Speaker 5: get the fact that the increased volume will benefit you from in terms of it.

Richard Soloway: The first thing is first, let's get the Q's, the restated Q's filed. We expect to do that this week. Let's get the K filed. We expect to do that next week, and then we could look at buybacks and personal buying all the flow on the table. Let's get our house in order with our filings, and we go from there.

Speaker 5: greater absorption the Dominican Republic but i'm wondering the other way around is with uh... with this bit of an air pocket that you're seeing in the uh... lower-end intrusion radius black radius what about uh... the potential headwind from uh...

Greater absorption in the Dominican Republic, but I'm wondering the other way around is with with.

With this bit of an air pocket that you're seeing and the lower end intrusion radio as a flat radios.

The.

The headwind from.

Utilization being not as strong in the Dominican Republic, and the next quarter or two.

Speaker 5: utilization being not as strong in the Dominican Republic in the next quarter or two. Well, that could have an effect.

Kevin Buchel: Last one from me, on the radio component of the equipment hardware, I think you called out that was 20% of equipment sales. Not sure if that was for the quarter of the full year, but how would that compare to the year-go period from a percentage of sales perspective? That was for the quarter, and it would have been greater in the prior year's periods, because in the prior year's periods, the radios were stronger, and the locking wasn't as strong as it just was.

Well that could that could have an effect.

But on the other side the mix will.

Speaker 4: will be better. So in Q1 as an example of last year, of fiscal 23, the mix was much more heavily

It will be better.

And in Q1 as an example.

Of last year the.

Fiscal 'twenty three.

The mix was.

Much.

More heavily leaned.

Towards the radios in Milwaukee.

Radios, which we love.

You know that's a lower gross margin item.

Speaker 4: you know that's a lower gross margin item best case

Best case.

We don't care so much about the margins.

Kevin Buchel: I don't have the exact stat in front of me, but I could give you that maybe at a later point, but I'm sure it was a higher percentage. I wouldn't even say much higher, it was a higher percentage.

We do care a lot about the recurring revenue which follows.

Speaker 4: We do care a lot about the current revenue which follows.

But for locking.

Speaker 4: and for access control for the other pieces of the business. Those are much higher margin items.

And for access control for the other pieces of the business.

Those are much higher margin items.

And so.

We might lose some.

Speaker 4: overhead absorption if the radios are much lower.

Overhead absorption if the radios are much lower.

Jaeson Schmidt: And our next question comes from Jaeson Schmidt, from Lake Street Capital. Your line is open. Hey guys, thanks for your taking my questions. Just looking at the inventory digestion situation, just curious how long you think that will last. I mean obviously it will impact the September quarter, but do you think this bleeds into the December quarter?

Which I don't think they will I think only on one type it might be.

Speaker 4: which I don't think that will I think only on one tape it will be it might be but we'll pick up

But we will pick up.

Absorption from blocking we saw it in in the fourth quarter. It was.

Speaker 4: absorption from locking. We saw it in the fourth quarter. It was overhead absorption, pickup in the fourth quarter of this.

Overhead absorption pick up in the fourth quarter of this.

This fiscal year that we just finished.

Speaker 4: And that had the lower radios and it had the improved locking and both the mix helped.

And that had the lower radios and it had the improved blocking.

Richard Soloway: Well, I just want to make sure everybody understands it's one radio, one type of radio, and it's with a couple of distributors. Not everything, and it's not with every distributor. We are going to work hard to move it through. These distributors, like I said earlier, this has happened in the past where distributors load up on a product and they need help moving it through. That's what we're here for. We can help them. But my guess, it's just a guess, it'll take a couple of quarters to move it through. We'll work really hard to do this, but that's how it looks for right now. Okay, that's helpful.

And both the mix helped.

And the D R.

Speaker 4: overhead absorption helps. Eventually we're going to get to the point where it's all going and it's all working. Where the radios are up, the locking is up.

Overhead absorption health. So eventually we're going to get to the point, where it's all going and it's all working.

Yeah.

The radios are up.

Locking is up it's all up.

We get the best of both worlds.

Thank you.

Okay Jim.

Okay.

And seeing no further questions I'll turn the call back over to our host.

Speaker 1: and seeing no further questions, I'll turn the call back over to our host.

Speaker 2: This is Richard Salloway. I want to thank everyone for participating in today's conference call. As always, if you have any further questions, please feel free to call Patrick, Kevin or myself. Further information.

This is Richard Sallowy I wanted to thank everyone for participating in today's conference call.

As always you do you have any further questions.

Feel free to call, Patrick Kevin or myself.

Other information.

Speaker 2: We thank you for your interest and support, and we look forward to speaking to you all again in a few months to discuss, Natto's fiscal Q1 2024 results. Have a great day, everybody.

We thank you for your interest and support and we look forward to speaking to you all again in a few months to discuss napkins fiscal Q1, 'twenty 'twenty four result.

Kevin Buchel: And then just as a follow up looking at op-ex, it sounds like there could be some incremental costs associated with better accounting controls, et cetera. How should we think about op-ex trending for fiscal 24? Yeah, there's going to be a few things we're going to have to spend some money on. We won't hesitate spending the money. We have the money. But software upgrades, personnel, those are the two main things that I can point to that would make our op-ex more than it was in fiscal 2023. If I'm putting a number on it, let's assume $1 million more in SG&A in 24 versus 23 for this type of thing. Okay, that sounds good. That's it for me. Thanks, guys. Thanks, Jason.

Have a great day, everybody bye bye.

The meeting has now concluded thank you for joining and have a pleasant day.

Speaker 1: meeting has now concluded. Thank you for joining and have a pleasant day.

Yes.

Speaker 11: The host has ended this call. Goodbye.

The host has ended this call goodbye.

Jaeson Schmidt: That's it for me. Thanks, guys. Thanks, Jason.

Chad Bennett: And our next question comes from Chad Bennett of Craig Hallum, your line is open. Mr. Bennett, your line is open.

Unknown Executive: All right, moving on.

Operator: All right, moving on.

Rajiv Sharma: We have Raj Sharma from Be Riley. Your line is open. Yeah, thank you for taking my questions. I just wanted to understand the alarm sales. If you look at the composition in Q4, they show a pretty substantial decline of about 33% year-on-year. How much of that impact do you think was from the Verizon Sunset? I think you commented that they started buying up. There was a lot of activity with that activity about two, three quarters prior to the Sunset date of January.

Raj Sharma: We have Raj Sharma from Be Riley. Your line is open. Yeah, thank you for taking my questions. I just wanted to understand the alarm sales. If you look at the composition in Q4, they show a pretty substantial decline of about 33% year-on-year. How much of that impact do you think was from the Verizon Sunset? I think you commented that they started buying up. There was a lot of activity with that activity about two, three quarters prior to the Sunset date of January. Yes, and then it was prior to the Sunset date.

Rajiv Sharma: Yes, and then it was prior to the Sunset date. Well, I'll answer this part first, then you could follow up. It was before they didn't want to be caught short, so they weren't going to stop buying it, you know, January or even December. By then they wanted to have it in stock. So this led up to the Sunset, but like the June quarter, June of 22 was at its height and even the September quarter of fiscal 23 to some degree.

Richard Soloway: Well, I'll answer this part first, then you could follow up. It was before they didn't want to be caught short, so they weren't going to stop buying it, you know, January or even December. By then they wanted to have it in stock. So this led up to the Sunset, but like the June quarter, June of 22 was at its height and even the September quarter of fiscal 23 to some degree. After that it was over.

Rajiv Sharma: After that it was over. The guys were, they had to be in position to have equipment because the Sunset was upon them. So we saw a lot of activity, and again, it wasn't just because of the Sunset. It was also because of delivery. We were one of the few manufacturers who could deliver radios during these crazy times. And as I said before, it was the crazy times was almost like a blessing in disguise because it allowed us to pick up some really big dealers which we've talked about before.

Richard Soloway: The guys were, they had to be in position to have equipment because the Sunset was upon them. So we saw a lot of activity, and again, it wasn't just because of the Sunset. It was also because of delivery. We were one of the few manufacturers who could deliver radios during these crazy times. And as I said before, it was the crazy times was almost like a blessing in disguise because it allowed us to pick up some really big dealers which we've talked about before.

Rajiv Sharma: And these big dealers, they couldn't get delivery, they got to look at our product, they got to see what our radios were all about, the fire radios is the one I'm talking about, and they made the fire radios, the radio of choice. And that probably wouldn't have happened if delivery was going on from the competitors, but they couldn't deliver, we could. The guys who couldn't get product, they were nervous, they had the 3G Sunset, they had this radio maniac going on which was at its height in June of 2022, continued in September of 22, which is Q1 of fiscal 23.

Richard Soloway: And these big dealers, they couldn't get delivery, they got to look at our product, they got to see what our radios were all about, the fire radios is the one I'm talking about, and they made the fire radios, the radio of choice. And that probably wouldn't have happened if delivery was going on from the competitors, but they couldn't deliver, we could. The guys who couldn't get product, they were nervous, they had the 3G Sunset, they had this radio maniac going on which was at its height in June of 2022, continued in September of 22, which is Q1 of fiscal 23.

Rajiv Sharma: And then as the year progressed, it normalized, I'll call it, didn't die normalized, the man became more normal, and it's still good demand. So just because we had this heightened situation, we shouldn't feel like the bottom is dropping out. The business is still strong, the recurring stats are still good. But we did have this situation. What's interesting, Raj? It was a great thing for us to ship these radios when our competitors couldn't do it because once those radios go in, we picked up brand new market share quickly because from the competitors, and that recurring revenue stream continues on forever.

Richard Soloway: And then as the year progressed, it normalized, I'll call it, didn't die normalized, the man became more normal, and it's still good demand. So just because we had this heightened situation, we shouldn't feel like the bottom is dropping out. The business is still strong, the recurring stats are still good. But we did have this situation.

Raj Sharma: What's interesting, Raj? It was a great thing for us to ship these radios when our competitors couldn't do it because once those radios go in, we picked up brand new market share quickly because from the competitors, and that recurring revenue stream continues on forever. So, it was a blessing. Some of the distributors said, we want to capture the volume of NAPCO radios and they born a lot of radios to have in their stocks and they would never run out because they didn't know when radios would be available from others.

Rajiv Sharma: So, it was a blessing. Some of the distributors said, we want to capture the volume of NAPCO radios and they born a lot of radios to have in their stocks and they would never run out because they didn't know when radios would be available from others. So, they moved everybody to NAPCO and they bought unusual amounts. That's skewed in a little bit. But the radio business is strong and it's going to get stronger.

Raj Sharma: So, they moved everybody to NAPCO and they bought unusual amounts. That's skewed in a little bit. But the radio business is strong and it's going to get stronger. And with our premium product and the fact that more copper has to be converted to radio, the future is very, very bright. Got it. So, I guess they'll be tough comps. You expect tough comps to persist in the first half. Is that fair on the equipment side?

Rajiv Sharma: And with our premium product and the fact that more copper has to be converted to radio, the future is very, very bright. Got it. So, I guess they'll be tough comps. You expect tough comps to persist in the first half. Is that fair on the equipment side? I think the radio comp is tough for Q1. I don't think it's tough after that. Q1, I think, was the last of the hard comps for radios.

Raj Sharma: I think the radio comp is tough for Q1. I don't think it's tough after that. Q1, I think, was the last of the hard comps for radios. But by the same token, lacking comp, that's tough at all for Q1. No. Kind of like offsetting each other. Right. Do you attribute any of this decline in the alarm intrusion to a commercial residential slowdown or was it entirely because of the Verizon subset? I think it was, I think that some of the, some of the distributors reacted to capture the market by having condo inventory on the onion.

Rajiv Sharma: But by the same token, lacking comp, that's tough at all for Q1. No. Kind of like offsetting each other. Right. Do you attribute any of this decline in the alarm intrusion to a commercial residential slowdown or was it entirely because of the Verizon subset? I think it was, I think that some of the, some of the distributors reacted to capture the market by having condo inventory on the onion. And, and the satisfy the sunset, the deal is satisfied with sunset.

Raj Sharma: And, and the satisfy the sunset, the deal is satisfied with sunset. But as Kevin mentioned, this will work its way through. And we'll keep adding new products, which have recurring revenue, control panels, other radios for other applications. So, that's how you see the business. Got it. Thank you. That's it for me. I'll take it offline. Thank you. Thanks, Raj.

Rajiv Sharma: But as Kevin mentioned, this will work its way through. And we'll keep adding new products, which have recurring revenue, control panels, other radios for other applications. So, that's how you see the business. Got it. Thank you. That's it for me. I'll take it offline. Thank you. Thanks, Raj.

Unknown Executive: Thank you.

Nick Matiasi: And we have a question from Nick Matiasi of Craig Halem. Your lion's open. Hi, this is Nick on for Chad Bennett. Thanks for taking our questions. So, with the door locking revenues up 25% year over year, but not quite as quite as strongly strong as last year. Can you just talk about how that locking segment performed relative to your expectations and how we should think about growth in that segment for the September?

Nick Matiasi: Thank you. And we have a question from Nick Matiasi of Craig Halem. Your lion's open. Hi, this is Nick on for Chad Bennett. Thanks for taking our questions. So, with the door locking revenues up 25% year over year, but not quite as quite as strongly strong as last year. Can you just talk about how that locking segment performed relative to your expectations and how we should think about growth in that segment for the September?

Nick Matiasi: It performed really well. It was actually even better than I thought. This segment has done really well for three, four quarters in a row. It actually, you know, there's two locking pieces to it. We have a long lock and we have marks. A long lock did just as well as it did in Q3 and marks did even better in Q4 than it did in Q3. So they both did well. I wouldn't read anything into whether it sequentially was a little up or a little down.

Nick Matiasi: It was way more in each of the quarters in Q3 and Q4 than it was in the preceding years period. And as I said earlier, the Q1 comp is fairly, I'll call it fairly easy. So, you know, I have good expert expectations for the locking in this upcoming quarter as well. The locking business benefits from the school security, segment, airport, upgrades, hospitals, lots of things. But those are the three that stand out.

Nick Matiasi: The school security part is difficult to measure. I always get in. Well, how much is it? Tell me how much it is. They buy through distribution so we don't know. One of the things we mentioned in the release today was the school job that the University of Arizona did. They had a professor that was killed about nine months ago. They recently put in 700 of our trilogy electronic locks. I didn't really know about it.

Nick Matiasi: They bought it through a distributor. The only reason I heard about it was because it was a big news article and a big thing on TV out there. Well, a lot of times we don't go through distribution. Sometimes we know sometimes we don't. But I know when locking is strong, that's because there's a big part of it. With all the craziness going on, I believe that's here to stay. That's not going anywhere.

Nick Matiasi: So our expectations is for locking to stay strong for various reasons. Got it. One thing I like to mention is given to us about the trilogy locks. The trilogy locks are the standard of the entire locking industry. That's the lock everybody's using. All the key larger jobs are using the commercial lock. It's being put in everywhere. And the more trouble to our WS schools with people entering office buildings and taking out things because of the fact that there's a lot of people that are not working.

Nick Matiasi: They're putting in trilogy locks and all of our locks, especially the trilogy locks everywhere. So it probably as well that trilogy locks should be we'll be selling continuously. And we've now expanded the trilogy lock line where they now work with radio control. They work as standalone on the products. So that's why I'm sure there's a carrying it. And we don't always hear that at the sale. We just see the amount of volume going to be sure to this.

Nick Matiasi: And it's it's greater, much greater this year than those last. Thanks for that. And then I think in the release, you talked about an expectation for much improved growth margins this year. I guess the service gross margins are a little less volatile than equipment gross margins. But should we think about that that 30% equipment gross margin and Q4 sort of being the baseline or how else should we think about equipment gross margins this year and especially related to the seasonality throughout the year?

Nick Matiasi: Historically, the equipment gross margins used to be in the 30s. And then as the volume picked up, which usually was in our fourth quarter, the June quarter, then the equipment margins would go up into the high 30s sometimes low 40s. That all went out the window during the supply chain crisis. And our need to have to buy component parts at very expensive prices just to keep things moving. So buying a $50 micro that's normally $5 from a broker just to keep the radios moving knowing that we would get recurring revenue at the end of it.

Nick Matiasi: That's why we did it. And paid because we got radio, improved radio sales, big new dealers, big customers, etc. But now those expenses are behind us. And not only the cost of the parts, but the airfare, the freight. One of the big things with the supply chain crisis was freight. Super expensive, whether you're flying or putting it on a boat, the pricing was crazy. A lot of it's come back to Earth.

Nick Matiasi: And so we wound up having, by our standards, poor margins, poor, poor hardware margins for the year. So here we are. We did $110 million of hardware sales in fiscal 2023. So the 18% gross margin, which is well below what it should be. And what we say what it will be. To go forward, you saw in the fourth quarter. The margins for 30% for hardware. That's more normalized. Now whether we're going to be 30% right out of the gate in Q1, you know, I'd be more conservative about that.

Nick Matiasi: I believe we will build ourselves up at the quarters, go by, to being in the 30s. And that'll become the more normalized level of margin as it used to be. And then probably go beyond that, as the volume kicks up even higher, the volume kicking up leads to the overhead absorption and margin expansion from manufacturing and the Dominican Republic. That's one of the benefits you get. So standard will be in the 30s, might take a quarter or two to get there. Got it. It's all for us. Thanks for seeing the questions. You're welcome.

Kevin Buchel: You're welcome.

Kevin Buchel: And our final question comes from Jim Ricchiuti from Needham and Company. Your line is open. Yeah, Kevin, just with respect to the last comment, get the fact that the increased volume will benefit you from the greater absorption in the Dominican Republic.

James Ricchiuti: And our final question comes from Jim Ricchiuti from Needham and Company. Your line is open. Yeah, Kevin, just with respect to the last comment, get the fact that the increased volume will benefit you from the greater absorption in the Dominican Republic. But I'm wondering the other way around is with this bit of an air pocket that you're seeing in the lower-end intrusion radius, plaque radius, what about the potential headwind from utilization being not as strong in the Dominican Republic in the next quarter or two?

Kevin Buchel: But I'm wondering the other way around is with this bit of an air pocket that you're seeing in the lower-end intrusion radius, plaque radius, what about the potential headwind from utilization being not as strong in the Dominican Republic in the next quarter or two? Well, that could have an effect. But on the other side, the mix will be better. So in Q1 as an example of last year of fiscal 23, the mix was much more heavily leaned towards the radios than the locking radios, which we love.

James Ricchiuti: Well, that could have an effect. But on the other side, the mix will be better. So in Q1 as an example of last year of fiscal 23, the mix was much more heavily leaned towards the radios than the locking radios, which we love. That's a lower gross margin item. In best case, we don't care so much about the margins. We do care a lot about the current revenue, which follows. But for locking and for access control for the other pieces of the business, those are much higher margin items.

Kevin Buchel: That's a lower gross margin item. In best case, we don't care so much about the margins. We do care a lot about the current revenue, which follows. But for locking and for access control for the other pieces of the business, those are much higher margin items. And so we might lose some overhead absorption if the radios are much lower, which I don't think they will. I think only on one type it might be, but we'll pick up absorption from locking.

James Ricchiuti: And so we might lose some overhead absorption if the radios are much lower, which I don't think they will. I think only on one type it might be, but we'll pick up absorption from locking. We saw it in the fourth quarter. There was overhead absorption take-up in the fourth quarter of this fiscal year that we just finished, and that had the lower radios and it had the improved locking and both the mix helped and the DR overhead absorption helped.

Kevin Buchel: We saw it in the fourth quarter. There was overhead absorption take-up in the fourth quarter of this fiscal year that we just finished, and that had the lower radios and it had the improved locking and both the mix helped and the DR overhead absorption helped. So eventually we're going to get to the point where it's all going and it's all working, where the radios are up, the locking is up, it's all up and we get the best of both worlds. Thank you, a pigeon.

James Ricchiuti: So eventually we're going to get to the point where it's all going and it's all working, where the radios are up, the locking is up, it's all up and we get the best of both worlds. Thank you, a pigeon.

Richard Soloway: And seeing no further questions, I'll turn the call back over to our host.

Patrick McKillop: This is Richard Soloway, I want to thank everyone for participating in today's conference call. As always, if you have any further questions please feel free to call Patrick, Kevin or myself for further information. We thank you for your interest in support and we look forward to speaking to you all again in a few months to discuss NAPCO's fiscal Q1 2024 results. Have a great day everybody. Bye bye. The meeting has now concluded. Thank you for joining and have a pleasant day. The host has ended this call. Goodbye.

Patrick McKillop: And seeing no further questions, I'll turn the call back over to our host.

Richard Soloway: This is Richard Soloway, I want to thank everyone for participating in today's conference call. As always, if you have any further questions please feel free to call Patrick, Kevin or myself for further information. We thank you for your interest in support and we look forward to speaking to you all again in a few months to discuss NAPCO's fiscal Q1 2024 results.

Operator: Have a great day everybody. Bye bye.

Operator: The meeting has now concluded. Thank you for joining and have a pleasant day.

Operator: The host has ended this call. Goodbye.

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