Q1 2024 Napco Security Technologies Inc Earnings Call
This would be conference operator, please standby the call will begin in about two minutes. So once again, please stand up standby and the call will begin in about two minutes. Thank you.
[music].
Welcome to the NAPCO security technologies fiscal Q1 2024 earnings call.
Our host for today's call with Fran Okoniewski, Vice President of Investor Relations at this time, all participants will be in a listen only mode.
We will conduct a question and answer session.
I would now like to turn the call over to your host Brad you may begin.
Thank you Ross and good morning, everyone.
My name is Fran Okoniewski, Vice President of Investor Relations for NAPCO Security technologies.
You all for joining us for today's conference call to discuss our financial results.
For our fiscal first quarter 2024.
By now all of you should have had the opportunity to review our earnings press release discussing the results of our quarter.
If you have not a copy of the release is available in the Investor Relations section of our website www.
NAPCO security Dot com.
On the call today are Richard Soloway.
President and Chief Executive Officer of NAPCO Security technologies, and Kevin do shell, our executive Vice President and Chief Financial Officer.
Before we begin let me take a moment to read the forward looking statement. As this presentation contains forward looking statements that are based on current expectations estimates forecasts and projections a.
Our 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 of the company's business such as school security products reoccurring revenue services.
Potential market opportunities and the benefits of our reoccurring revenue products to customers and dealers.
Our ability to control expenses and costs.
And expected annual run rate for software as a service recurring monthly revenue.
Forward looking statements involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward looking statements.
These factors include but are not limited to such risk factors described in our SEC filings, including our annual report on Form 10-K.
Other unknown or unpredictable factors or 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.
Cannot guarantee future results.
Level of activity performance or achievements.
You should not place undue reliance on these forward looking statements.
All information provided in today's press release and this conference call is as of today's date.
Unless otherwise stated and.
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 want to mention that we will be attending the ISC East <unk>.
Industry trade show.
November 15th and 16th in New York City's Javits Center.
If anyone is interested in attending and meeting with US. Please contact me in our range to get you a pass.
In addition, we will be attending the 26th annual Needham growth conference in January.
We're also planning for some non deal road show activity in the near future.
With that out of the way, let me turn the call over to Richard Soloway, President and Chief Executive Officer of NAPCO Security Technologies <expletive>.
<expletive> the floor is yours.
Thank you Fred good morning, everyone and welcome to our conference call.
Thank you for joining us today to discuss our results. We are pleased to report our fiscal Q1 2020 for record sales of $41 7 million.
This is the 12th consecutive quarter, we achieved record sales for a quarterly reporting period.
Recurring revenue service continues to grow at a very strong rate and the annual perspective run rate is now $72 5 million based on 2023 recurring revenues.
Our balance sheet remains strong with our cash balances at $74 6 million.
Up 68% over fiscal Q1, 2023 and up 12% sequentially.
We have no debt.
We continue to focus on capitalizing on key industry trends, which include wireless fire and intrusion alarms and the related recurring revenue service.
School Security solutions, plus enterprise access control systems and architectural locking products.
The management team here at NAPCO continues to focus on the key metrics of growth profits and returns on equity and controlling our costs.
These metrics are important to us as well as our shareholders. We continue to execute our business strategy and our interests are aligned with our shareholders as senior management of NAPCO owns approximately 10% of the equity.
Before I go into greater detail I will now turn the call over to our CFO, Kevin Michelle who will provide an overview of our fiscal first quarter results and then I'll be back with more on our strategies and view of our markets Kevin.
Thank you <expletive> and good morning, everybody.
Net sales for the three months ended September 32023.
Increased by 6% to our fiscal first quarter record of $41 $7 million.
As compared to $39 5 million for the same period last year.
Recurring monthly service revenue continued its strong growth.
Increasing 25% in Q1 to $17 3 million compared to $13 8 million for the same period last year.
Our recurring service revenues now have a prospective annual run rate of approximately $72 $5 million based on October 2023, recurring service revenues and that compares to $67 million based on July 2023 recurring service revenues.
Which we reported back in August.
Equipment sales for the quarter decreased 5% to $24 $4 million as compared to $25 $7 million last year.
This decrease was primarily due to the expected softness in radio sales as some distributors work off excess inventory, which was the result of distributors loading up with radios when the impending <unk> Verizon Sunset was approaching.
Wanted to ensure that they have updated <unk> radios in their inventory.
And this was partially offset by increases in both our alarm lock and.
Mark's door locking products.
Which increased 24% in Q1 versus last year's Q1.
We believe the excess radio inventory in the channel 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.
Gross profit for the three months ended September 32023 increased 54% to $22 $4 million with a gross margin of 54% and that compares to $14 $6 million with a gross margin of 37%.
But at the same period a year ago.
Gross profit for equipment sales for Q1 increased 188% to $6 $9 million with a gross margin of 28% and that compares to $2 $4 million with a gross margin of 9% last year.
Gross profit for recurring revenues for the first quarter increased 28% to $15 $6 million with a 90% gross margin.
And that compares to $12 2 million.
With a gross margin of 88% for the same period last year.
The increase in gross profit dollars and gross margin for equipment sales.
Primarily the result of more normalized material and freight costs. After the cessation of the global supply chain problems as.
As well as the shift in product mix to higher margin locking products.
The 200 basis point increase in gross margin on service revenues now 90% was primarily due to the continued increase in service revenues relating to the company's fire radios, which have higher monthly selling prices than the company's intrusion radios.
<unk>.
Research and development costs for the quarter remained relatively constant at $2 $4 million or 6% of sales.
For both Q1 this year as well as Q1 last year.
Selling general and administrative expenses for the quarter were also relatively constant.
At $8 $4 million or 20% of net sales.
As compared to $8 5 million or 22% of net sales last year.
Operating income for the quarter increased 222%.
$11 $6 million.
As compared to $3 $6 million for the same period last year.
The companys provision for income taxes for the three months ended September 32023.
<unk> increased by approximately $1 $1 million to $1 $5 million with an effective tax rate of 13% as.
As compared to $461000 with an effective tax rate of 13% for the same period a year ago.
The increase in the provision for income taxes for the three months was primarily due to higher taxable income.
Net income for the quarter increased 239% to a Q1 record $10 5 million or.
Or <unk> 28 per diluted share.
As compared to $3 $1 million or <unk> <unk> per diluted.
<unk> sure, but at the same period last year and it represents 25% of net sales.
Adjusted EBITDA for the quarter increased 174% to a Q1 record $12 $9 million or <unk> 35.
Per diluted share and that compares to $4 $7 million was 13.
Per diluted share for the same period last year and equates to an adjusted EBITDA margin of 31%.
Moving on to the balance sheet.
At September 32023, the company had $74 6 million in cash cash equivalents and marketable securities and that compared to $66 7 million at June 32023, and that represents a 12% increase.
Working capital is defined as current assets less current liabilities was $115 9 million at September 32023, and that compares with working capital of $111 $7 million at June 32023.
And the current ratio defined as current assets divided by current liabilities with $6 three to one at September 32023.
It was six 7% to one at June 32023.
Cash provided by operating activities for the three months ended September 32023 was $11 2 million and that compared to cash used in operating activities of $2 million.
For the same period last year.
Capex for the quarter was $256000 and that compared to $372000 in the prior period last year.
This concludes my formal remarks, and I would now like to return the call back to <expletive>.
Kevin. Thank you as I mentioned, our fiscal 2024 is off to a great start with fiscal Q1 results achieving record profits driven by hardware enabled recurring revenue growth of 25% reps.
Representing 41% of total company revenues.
Total company revenues were up 6% year over year.
And we achieved gross profit growth of 54% to $22 $4 million.
While our equipment revenue declined by 5% gross margins on such sales increased to 28%.
And our recurring revenue grew by 25% to $17 $3 million with an annual run rate of $72 $5 million as of October 2023.
And our locking sales from our alarm lock and marks divisions, which represents 62% of our hardware sales increased 24% in Q1 versus last year's Q1.
As we work through channel inventory, we expect equipment revenues to Reaccelerate has thousands of <unk> radios need to be replaced and we anticipate these will be replace with nap goes newer generation radios.
Cause alarm dealers must have new functioning at a recurring revenue producing radios to monitor alarm conditions.
This would result in both additional hardware revenue and increasing reoccurring revenue for the company.
We continue to focus on our previously stated goals of a $150 million run rate in recurring revenue and a $150 million of equipment revenue on or about the end of fiscal 2026.
<unk> these goals as well as our gross margin goals of 80% for recurring revenue and it was 90% here in Q1.
A 50% go for equipment will generate EBITDA margins in excess of 45%.
We are well on our way to achieving this goal as our EBITDA margin in Q1 was 31%.
There are thousands of commercial buildings of all types, such as offices hospitals schools coffee shops, restaurants, and others that still require upgrades from legacy copper phone lines.
Our Starlink line of radios have the widest coverage range of both AT&T and Verizon with rich feature sets, which are ideal is love.
Margins for recurring revenue improved by 200 basis points to 90% this quarter versus 88% in the same period a year ago.
And as we have previously stated the constraints of the supply chain are abating and we believe in the coming months that combined with new distribution services. We have developed will begin to reinvigorate our equipment sales to even higher levels than any time before.
When that happens we also expect to generate increased hardware gross margins as the higher the level of hardware sales the more overhead absorption occurs as American Republic factory.
And this expands our gross margins.
We also announced the hiring of Deloitte <unk> Touche as a new accounting firm Deloitte has one of the largest professional service networks in the world and is known for their <unk> NAND reputation expertise and having a strong track record of providing high quality audit.
And advisory services to a wide range of clients.
At this stage for NAPCO is essential to choose a big four firm with industry specific experience that aligns with our organization and who understands the unique challenges and regulations relevant to our sector.
An additional highlight in this quarter was a partnering partnering with one of the largest aluminum product distributors in the USA with over 100 branches across the country to service alarm dealers system integrators and locking professionals.
And this and with this new relationship our distribution network expands to over 300 locations.
Our R&D team remains hard at work developing more products for the future, which will help us grow our recurring revenue business.
In October 2023, we introduced a new high volume small business residential burglary fire alarm call Prima.
Which could generate substantial growth in hardware sales and profits and most importantly add substantial recurring revenue service the NAPCO.
Also in the quarter, we have made some strategic investments in personnel, adding to the existing talent of our team.
These additions in engineering and specialized sales will help us continue to develop more new and exciting products faster and take them to market in new ways, So as to get our alarm locking and integrators excited.
Lastly, as indicated in the earnings release, we will be issuing another eight cents per share dividend and we are proud of this program as in that good team has created such tremendous shareholder value over the years and this is another way for us to distribute.
Profitable growth to investors.
We are off to a great start for fiscal 2024, and we have a pristine balance sheet no debt and continue to generate strong sales and healthy profits.
We believe we can continue this growth well into the future as we work toward our fiscal 2026 goals and beyond.
I'd like to thank everyone for their support and for joining us.
This exciting future we have.
Our formal remarks are now concluded and we would like to open the call for the Q&A session.
Ross. Please proceed.
If you would like to ask a question. Please press star one on your telephone keypad now and you will be placed into the queue in the order received.
Please be prepared to ask your question when prompted.
Once again, if you would like to ask a question. Please press star one on your phone now.
And our first question comes from Matt Pfau from William Blair. Please go ahead, Matt.
Hey, guys. Thanks for taking my questions and nice results I wanted to just first ask on the accounting Restatements that you had it looked like you've changed the auditor to help address that anything else youre doing internally to help address some of those past issues and how should we think about those impacting you.
Your expenses thanks.
Thanks, Matt So we've done a few things one our procedures at the end of the quarter is different than it was in the past we perform price testing on any large items that are in the raw materials, we compare it to what we had.
If there's any changes we adjust it we do the same thing in October.
On a test basis, and we continue to investigate any changes that might've occurred we didn't see hardly any changes in this past quarter we.
We didn't expect to see any changes.
The supply chain crisis, the chaos that it brought with it is over.
And that's really what causes these changes in pricing in the last year.
But we still check it and we are investing in a module that will do a lot of this quicker and in a more automated fashion and.
And we expect that to be live by Q3.
We are also we hired a consulting firm to work with us.
To get our procedures and policies and internal controls.
To be perfect. So that we don't have any weaknesses or deficiencies.
They will be working hand in hand, with Deloitte Deloitte will start right. After we file our Q1, which will be in the next day or two once that Q is filed Deloitte becomes our new accountants, they will work hand in hand with the consultant.
We plan on hiring.
And internal control auditor on our staff, we plan on hiring too.
Industrial engineers to focus on the material and the labor cost things.
Each of these things is in motion, we havent felt the impact of any of them yet.
Because this is all happening now.
Over the next 12 months, we'll start to see the expense impact of this.
My guess is.
It will cost up to $1 million over the course of a year.
If you measure us from October.
October through the following September.
Or will it be a $1 billion more than what we've seen up to $1 million.
All well worth it and we're looking forward to working closely with both Deloitte and our consulting firm.
Got it that's helpful.
Wanted to follow up on the equipment revenue result, so it sounds like there was.
And some continued.
Weakness in radio sales, but strength in other areas to help offset that can you give us an idea of the revenue and performance by segment. There. So we can better understand what's going on in the equipment business. Thanks.
Right so.
Youll see this in the Q when it gets filed laser related today or in the next couple of days I'm not sure exactly when it's going to be but it will be soon.
There's a table and footnote two and.
And it shows.
The breakout between intrusion and access alarm products door locking devices and recurring revenue.
So in this quarter that we just completed.
The intrusion and access alarm products was $9 $3 million.
Locking products was $15 1 million.
And the recurring which you can also see on the income statement with $17.3 million.
The <unk>.
Intrusion part.
Was down we expected it to be down.
Last year, a year ago at this time, we were in what I call radio Mania, where everybody was loading up.
Trying to get their hands on.
As many radios as they could given the impending <unk> sunset, which was occurring January of 2023.
<unk> III, which did happen.
A lot of dealers or last minute guys, but they were scrambling around.
To load up.
There wasn't a lot of choices either.
A lot of our competitors were having trouble delivering.
If you remember going back a year ago.
There was we were in the midst of supply chain issues.
Nobody could get their hands on the micros that are required in these radios.
We were able to get our hands on it.
And we spent the money to get our hands on it we spent extra money buying these chips from brokers.
We did whatever we could to keep things moving because we knew how and how important it was to get radios in the hands of all the dealers.
But also we know that it leads to recurring revenue.
And we as we've talked about before picked up some new large accounts, because we were able to deliver and others couldn't.
And.
Some distributors just bought up whatever they can get their hands on so not a surprise now that inventory has to be worked off now that the sunset is has come and gone.
We were encouraged we saw that the sell through stats for Q1 were.
We're better than they were in Q4.
We knew they were going to be less than they were a year ago not a surprise, but we work very closely with our distributors to help them move.
Equipment through opening up also a brand new large distributor with over 100 locations is going to help move overall radio inventory that we expect to happen we've seen signs of that already so that's encouraging.
And from a walking point of view the locking we have two companies alarm lock and marks.
And they've both been doing great for several quarters in a row, it's attributable to infrastructure upgrades at airports.
It's attributable to school security a bunch of school jobs that we're getting.
We can't announce save a lot of times the schools don't let us, but we see it we hear about it we know about it.
Hospitals.
Building that want to go to a more.
Upgradable walking setup, where you don't have to use a key.
Big projects with hotels.
It's happening all over we're very encouraged by the strength of the locking business and.
Of course, the locking margins are better than say the radio margins.
<unk> radio margins might be 20% of course, it leads to the recurring locking margins mid thirty's to over 40.
That help to help the overall gross margin for the <unk>.
Quarter.
Okay.
Great I appreciate the additional detail and you are taking my questions. Thanks. Thanks, Matt.
Our next question comes from Jim Ricchiuti from Needham <unk> Company. Please go ahead Jim.
Alright, thank you.
Wanted to.
And a little bit more color if we could.
On.
The new distribution.
Source.
Talking about it sounds like.
It has the potential to be another important channel for you guys I Wonder if you could elaborate on on how quickly that might scale.
The new distribution.
As another distributor, which is the largest in the industry.
And.
It came to us.
Last ISC show in Las Vegas, and said, we would like to be able to.
Market your products, we have a great network throughout the USA they have 115 branches.
And train our guys and.
We will be a great customer for you.
They have a lot of customers there that are new that we don't have we have approximately 12000 dealers.
All independent business people that run a lot of companies and system integration companies.
This new distributor has additional companies that they can bring to us to sell our products.
Very very unique the most unique company in the security industry, because we manufacture fire alarms burglar alarms.
Locking products and access products Theres no one manufacturer that has all of those segments. So we have a great.
Ability with our sales group to explain to these new customers.
We have an integrated solution and we expect it to add a lot of additional volume to our business.
So now we have about 300 branches between our independent network, which are fabulous guys that have a great customer base and this new network.
There's going to be lots of NAPCO company products out there and a lot of our salesman as we said we've added additional salespeople.
To help sell it and to break in these distributors as to what we make and why it's so such great advantages over anything on the marketplace. So looking for an exciting future with a new distributor.
What kind of traction are you seeing I know, it's early days with premium I'm wondering if you could give us a sense as to how you see that.
Potentially ramping as you go through the year and I assume the margin profile.
This is a little bit lower in terms of as we think about recurring revenue and I Wonder if you could also talk to whether there might be.
Some cannibalization of your perhaps some of your higher priced offerings.
The new prima is completely different than anything else, we have an online we've been making products called Gemini the dealers love It it's rock solid.
It's a fire alarms burglar alarms.
And now Prima is a different type of product is a product designed for smaller enterprises. It's.
It's totally wireless.
Can go either small business or residential.
Installs in we'd like to say five minutes, because its lincoln stick type of product, but it's very very reliable has NAPCO quality to it NAPCO feature sets in it so you have a <unk>.
<unk> key pad that could be putting in the front door of our store.
Home and that has additional satellite keep beds.
Motion detectors.
As <unk>.
Electronic doorbell cameras.
It has very very unique features which make it easy for the dealer that's selling the job to actually install it right. After the job is sold or we can leave it to the customer and the customer can install himself if he's A&D and the type of customer.
It reports to any central station to dealer is comfortable with that he has been using for his regular Gemini line of equipment.
And we get recurring revenue for everyone because it's all.
<unk> added to our knock it's enrolled and on dock.
And we get a service.
Fee like we do for any of our products.
And.
The dealer also charges the end user customer whatever the market will bear for.
This type of.
System the dealer leaves behind.
So it's a win win for dealers and it's a win win for us.
Volume, we expect from this.
Is it going to be a very very high volume because there's lots of stores lots of residences that need this type of product and.
And it's very very good for the dealer to utilize this product because this product also eliminates his technical features in it that nothing else on the market has.
And eliminates Chuck.
Truck rolls by the dealer for repairing and adjusting in the system because it's all self adjusting.
If somebody has a Wi fi issues of the disconnects to Wi Fi and our residents like kids like to play with the Wi Fi network.
Currently the dealers has to go back to that site and reboot and realign all the equipment with prima it's all automatic refines.
The network and it reboots itself on many many different levels. So the deal won't have to go back and roll the truck. So that's a great boon to the dealer not only does it have all the fancy features and installs quickly. We're also as we call self healing.
If the.
System is interrupted.
With people that are.
<unk> in the Wi Fi or adjusting the Wi Fi system.
So it has a lot of features to it. So we expect a lot of great things out of it we started shipping last month typically it takes nine months to a year for a product related.
Grip and get volume this is.
<unk> is very similar to Gemini and other products in the marketplace. So I think the learning curve is going to be quicker.
Got it. Thank you you guys are running into some tougher comps now as we think about the door lock device business and I Wonder what's your what's your line of sight into that business. If you look out over the next.
Well the unlocking.
Strong business for us and it has a lot of tech.
Our products have a lot of tech.
When the business was started.
Wanted the business to be very technical.
And we acquired two companies, which basically may mechanical things locks traditional type of mechanical locks like everybody else in the business, but our idea was to add technology to it.
Ed.
Radios to it so it translates over distance.
Cell phone communications to the locks.
So many different things locks that it made it made locks modern so while we still make traditional hardware mechanical locks. We also make a whole line of electronic oriented which you.
<unk> near field.
Z wave.
Cellular it because now we're getting locks were making locks for the dealers that never got recurring revenue before.
Yes, a whole line of locks with its installed by the dealer, but they get recurring revenue from the customer and for themselves never been done before in this business. So that's what it is we bring a lot of technology to the mechanical locking business and it's really paying off and we expect it to continue to pay off for the future.
Got it and its final question I'll jump back in the queue, Kevin any sense as to where we are in terms of the higher priced components that you had in inventory in terms of.
Where we are and burning battle.
Yes.
We're not buying anything now had to higher pricing those days are over.
Have to work through some radio inventory is like some of the distributors, we have some extra radio inventory as well.
It's a mixed bag some of it was priced at higher component costs some of it at normal component costs.
So that's why.
For this past quarter, you saw a gross margin of 28% on hardware.
Which was great compared to kind of what it's been.
It's going to get better as the year progresses.
For two reasons one.
We're going to not have hardly any of the high radio.
Costs and inventory anymore as we go as we go through it.
And of course, as the volume picks up and.
And our volumes get stronger.
As the year progresses, typically Q2 being better than one three being better than two four being better than three on the hardware side to get that overhead absorption.
And the margins expand.
So.
I'm, a conservative Guy I was happy to see 28% as we move into the balance of fiscal 2024.
My expectation is that these margins will continue to expand even further.
Got it thank you.
Yeah.
And our next question comes from Jason Schmidt from Lake Street Capital. Please go ahead Jason.
Hey, guys. Thanks for taking my questions. Just curious if you could provide some color on what you saw from distributor sell through in the September quarter, and then Relatedly. Obviously, you continue to kind of go through this inventory digestion period. When do you think that period is over or is it largely going to be over.
In this current quarter.
We had said.
Give it a couple of quarters to work to work to the distributors could work through the inventory.
This was the first of the two.
I think we have another quarter to work it through.
Working through the.
We're working with our distributors to help them lower their inventory levels on the radios.
Having this new distributor helps oh, what's going to help the stats a lot.
They're going to move it I think much better pace than the couple of guys that have excess.
We were encouraged in the sell through stats.
The sell through stats on the intrusion guys.
Showed it was lower.
Thats where were lower than they were a year ago.
We expected because of the radios.
We did see it was better than Q4, so sequentially it was up that.
That to be shows starting to move in the right direction and so we're very encouraged by that.
But I would give this we said two quarters, we just saw one another quarter and.
And we think this second quarter of the two will be better than the one we just did.
And then by Q3 for us, it's more normalized or whatever it's going to take we're going to work with the distributors to move it through.
Been through this before this is no different we will put in whatever effort. It takes.
Okay. That's helpful. And then just as a follow up I know you guys are limited what you can announce in the school security market, but just curious if you could provide an update where you are seeing in that space.
Yes, I wish we could announce more.
As I hear about I don't hear about everyone because sometimes the schools go direct to the distributors and.
And the distributors just sell to the schools and school districts.
But I do hear about some.
And I'm always begging to be able to announce it.
There is usually a reluctance they don't they like to keep things off the radar some let us some don't.
But the school business is still a key part of locking it's one of the reasons why the locking sales have grown.
That infrastructure upgrades in airports upgrades in hospitals et cetera, things I mentioned before.
All key to the locking business.
But schools is a part of it and again when we can announce it we will.
We are seeing that the schools are no longer waiting.
Two for.
For the kids to be out of school it used to be that this was somewhat.
A seasonal thing the kids are out of school for the winter break that's when the jobs would get done or the kids are out of schools and universities.
By May and that's when the jobs will get done.
It's happening now we see it all year round schools can afford to wait too much at stake there's no real seasonality to it.
And so we're working hard banging on the doors of all the school districts.
There's lots of K through 12.
Out there.
And there's over 5000 universities.
Even though we've been talking about this for years.
Still many many schools most I would say still don't have equipment that would prevent tragedies.
We always say they asked me what inning are we in the schools segment School security segment, and I say, it's still early innings. Despite all of the things that have gone on.
Okay I appreciate that color. Thanks, a lot guys. Thanks.
Thanks, Jason.
Okay.
And our next question comes from Raj Sharma from B Riley Securities. Please go ahead Roger.
Hi, Thank you for taking my questions and congratulations on the results.
The locking device sales.
Are so strong and they continue to be.
Can you can.
Can you add some color on where that's coming from and should we expect that to continue for the next.
You know the rest of the year.
I see.
That the locking sales are across the board instead.
Institutions schools high rises hospitals airport upgrades, it's everywhere the trilogy line, which is our original invention, which has been improved over the years is the number one locking product electronic logging product and the business.
As I happen to live in Manhattan, I go to Laguardia Airport upgraded with Triologies Kennedy Airport Triologies NYU Hospital Triologies Department stores Triologies, It's a very very key product for security and all kinds of builds.
So we would expect this to continue we are also making different versions to make remote control wireless triologies generate recurring revenue, we make standalone triologies, we make triologies four schools. So we have a very very wide range of applications.
Occasions for this lock in.
Thanks, a locking business to keep on growing and getting stronger as we add new models two trilogy.
And.
That's how we see it.
Great. Thank you and then the alarm sales slowdown.
We're hearing that that should reverse in a quarter or two.
Slowdown is due to dealer inventories not due to end market demand is that.
The correct way to understand that.
Very much so Raj that's how we see it.
Look it is a couple of stats.
That I pointed out.
In our prepared remarks, one of which was the run rate.
The run rate.
We're used to the run rate growing.
Just to grow by about $1 million a month.
Or being what would be up $3 million for a quarter.
And then I had a recurring and.
Our recurring revenue run rate.
And then and what we saw last quarter.
From 63 million to $67 million went up by $4 million that was very encouraging.
More than $1 million per month.
This quarter.
It went from $67 million.
The 72, and a half almost 73 not quite there 72, and a half that's almost a $2 million a month increase.
That run rate is telling you.
There's a lot of radios being activated and those radios that are being activated we're getting paid on that and.
And those are those are very good signs. So that's why we believe that plus our activation stats.
That's why we believe.
The slowdown that we keep talking about.
It's more of an inventory and distribution.
Issue as opposed to a demand issue.
Great. So so there's alarm slowdown then shouldn't impact the recurring revenues down the street down down a few quarters down they should pick it up as.
You see a pick up in alarm sales.
That's what we believe and remember the higher the number goes.
It's recurring was 41% of overall sales remember went.
You've been with us long enough to remember it was a very small percent now it's 41, the higher that number goes the highest the harder it is to keep that increase percentage up just simple math, but we've managed to do a good job keeping it up.
But we're also introducing new stuff new products like frame up to give us more recurring.
We can keep the pace up as we go forward and head to our 2026 goal 2026 scope we didn't even include prima.
So, we're giving ourselves extra ways to get their premium being one of them and also in our 2026 goal we used 80% gross margin on the recurring.
And we were at 90 this quarter. So these are things to keep in mind as we head towards that 2026 timeframe.
Got it great. Thank you for answering my questions I'll take it offline and graduations again.
Thank you.
As a reminder, if you would like to ask a question. Please press star one on your phone now.
Okay.
Okay.
At this time there appears to be no further questions I'd like to turn the call back over to Mr. <unk> for closing remarks.
Thank you everyone for participating in today's conference call as always should you have any further questions feel free to call friend, Kevin or myself for further information. We thank you for your interest and support and we look forward to speaking to you all again in a.
Few months to discuss <unk> fiscal Q2 results.
Bye bye have a wonderful day.
This concludes today's conference call. Thank you for attending.
Right.
The host has ended this call goodbye.