Q1 2025 Napco Security Technologies Inc Earnings Call
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Speaker Change: Good morning, ladies and gentlemen, and welcome to the NAPCO Security Technologies Q1, 2025 earnings Conference call. At this time all lines are in listen only mode.
Speaker Change: Following the presentation, we will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press star zero for there for either this call is being recorded on Monday November four 2024, I wouldn't know liked at the end the conference Oh wait.
Speaker Change: Mr. French's ski please go ahead.
Speaker Change: Thank you al and good morning, everyone My.
Francis Kanceski: My name is Francis how can that ski vice president of Investor Relations for NAPCO Security technologies.
And we want to thank you all for joining today's conference call to discuss financial results for our fiscal first quarter 2025.
By now all of you should have had the opportunity to review our earnings press release discussing our quarterly results.
Francis Kanceski: If you have not a copy of the release is available in the Investor Relations section of our website Www NAPCO security Dot com.
Francis Kanceski: On the call today are <expletive> Soloway, Chairman and CEO of NAPCO Security technologies, and Kevin Michelle President Chief Operating Officer, and Chief Financial Officer before we begin let me take a moment to read the forward looking statement as it is this presentation contains forward looking statements.
Francis Kanceski: Based on current expectations.
Francis Kanceski: Estimates forecasts and projections of future performance based on management's judgment.
Francis Kanceski: Beliefs current trends and anticipated product performance.
Francis Kanceski: These forward looking statements include without limitation.
Francis Kanceski: Statements relating to growth drivers of the company's business, such as school security products reoccurring revenue services potential market opportunities.
Francis Kanceski: Benefits of our reoccurring revenue products to customers and dealers.
Francis Kanceski: Our ability to control expenses and costs and expected annual run rate for software as a service or SaaS recurring monthly revenue.
Francis Kanceski: Forward looking statements involve risks and uncertainties that may cause actual results to differ materially from those contained in forward looking statements.
Francis Kanceski: These factors include.
Francis Kanceski: But are not limited to such risk factors described in our SEC filings, including our annual report on Form 10-K.
Francis Kanceski: Other known unknown or unpredictable factors were underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward looking statements.
Francis Kanceski: 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.
Francis Kanceski: You should not place undue reliance on these forward looking statements all.
All information provided in today's press release and this conference call are as of today's date unless otherwise stated.
Francis Kanceski: And we undertake no duty to update such information, except as required under applicable law.
Francis Kanceski: I'll turn the call over to <expletive> in a moment, but before I do I want to mention we will be attending the international Security Conference industry Trade show November 20th and 21st in New York City, as Jab et cetera.
Francis Kanceski: We will be showcasing an array of exciting new products and if anyone is interested in attending please contact me at our range to get you a pass.
Francis Kanceski: In addition, we're actively planning our Investor relations calendar for non deal Road show and conference attendance in the near future.
Francis Kanceski: Investor outreach is important to knock out I'd like to thank all those who assist us in these types of events.
Francis Kanceski: In the coming weeks, we'll be attending the Robert Baird Global Industrial conference in Chicago.
Francis Kanceski: Stephen's annual investment conference in Nashville.
Francis Kanceski: UBS Global Industrials and Transportation conference in Palm Beach, Florida and <unk>.
Francis Kanceski: <unk> Capital's 21st annual Security Investor Conference in New York City, and Needham's, 27th annual growth Conference also in New York City.
Francis Kanceski: In addition, we will be doing a virtual non deal roadshow with Craig Hallum on November 11th.
Speaker Change: With that out of the way, let me turn the call over to <expletive> Soloway.
Francis Kanceski: Chairman and CEO of NAPCO security technologies.
Speaker Change: <expletive> the floor is yours.
Soloway: Thank you Fred good morning, everyone and welcome to our conference call.
We appreciate you joining us as we review our fiscal first quarter 2025 performance.
Soloway: I'm pleased to announce that we achieved another record sales result of $44 million this quarter.
Soloway: Marking our 16th consecutive quarter of record sales for a quarterly reporting period.
Francis Kanceski: Our recurring monthly service revenue continues to show impressive growth increasing by 22% in Q1.
Francis Kanceski: And representing 48% of total revenue.
Francis Kanceski: Our net income of 11.2 million was also a Q1 records.
Francis Kanceski: Our financial position remains robust with cash balances, reaching 102 million.
Francis Kanceski: Importantly, we remain debt free along with a continued strong cash flow position.
Francis Kanceski: Strategically we are focused on leveraging our key industry trends, including wireless fire and intrusion alarm.
Francis Kanceski: Enhancing recurring service revenues School security solutions.
Francis Kanceski: Enterprise access control systems.
Francis Kanceski: And architectural locking products.
Francis Kanceski: Here at NAPCO, our management team is committed to driving growth profitability and return on equity, while maintaining an effective cost management.
Francis Kanceski: These metrics are core to our business strategy and align closely with shareholder interests.
Speaker Change: Now I'll turn the call over to our President Chief operating Officer, and Chief Financial Officer, Kevin Michelle will provide an overview of our fiscal first quarter 2025 results.
Francis Kanceski: After Kevin's remarks, I'll return to discuss our strategies and outlook in more detail Kevin the floor is yours.
Kevin Michelle: Thank you <expletive>.
Everybody.
Kevin Michelle: Net sales for the three months ended September 32024 increased 6%.
Kevin: So a quarterly record $44 million as compared to $41 $7 billion.
Kevin: Same period a year ago.
Kevin: Recurring monthly service revenue continued its strong growth increasing 22% in Q1 to $21 1 million as compared to $17 $3 million is.
For the same period last year.
Kevin: Our recurring service revenues have a prospective annual run rate of approximately $85 $2 million based on October 2020 for recurring service revenues and that compares to $83 $5 million based on July 2020 for recurring service revenues, which we reported back.
Kevin: In August.
Kevin: The increase is due to the continued strength of our line of Starlink radios, particularly our Starlink fire radios.
Kevin: Our Starlink radio sales increased 93% compared to Q1 last year, it increased 23% sequentially and it represented the highest level of radio sales since Q3 of fiscal 2023, which was the last quarter positively affected by the Verizon.
Kevin: <unk> Sunset.
Francis Kanceski: As we've previously discussed as distributors reduced their radio inventory levels and sell through is strong we expect to see increased radio sales.
Francis Kanceski: That's what we saw in Q1 and.
Francis Kanceski: We expect radio sales to continue to be a key contributor to our equipment sales and lead to the continued strong growth of our highly profitable recurring service revenues.
Speaker Change: Equipment sales for the quarter decreased 6% to $22 $9 million as compared to $24 4 million last year.
Francis Kanceski: This decrease was primarily due to locking sales decreasing 8% as compared to fiscal Q1, 2024, as partially offset by the aforementioned strong Starlink radio sales.
Francis Kanceski: The decrease in locking in sales was primarily attributable to several locking distributors efforts to temporarily lower their inventory levels.
And this we believe is temporary unlike the radios that were in the channel which lasted several quarters. This is different.
Francis Kanceski: Gross profit for the three months ended September 32024.
Francis Kanceski: Increased 10% to $24 $6 million with a gross margin of 56% as compared to $22 4 billion with a gross margin of 54% for the same period last year.
Francis Kanceski: <unk> profit for recurring service revenues for the quarter increased 24% to $19 $2 million with a gross margin of 91% as compared to $15 $5 billion with a gross margin of 90% last year.
Francis Kanceski: Gross profit for equipment revenues in Q1 decreased by 22% to $5 $4 million.
Francis Kanceski: With a gross margin of 24% as compared to $6 $9 million with a gross margin of 28% last year.
Francis Kanceski: The decrease in equipment gross profit was primarily the result of product mix as the strong Starlink radio sales at a significantly lower gross margin and door locking products, but of course ultimately lead to increases in our recurring revenue business.
Francis Kanceski: Research and development costs for the quarter increased 25% to $3 1 million or 7% of sales.
Francis Kanceski: As compared to $2 4 million or 6% of sales for the same period a year ago. The increase for the three months, primarily resulted from annual compensation increases and the hiring of additional engineers.
Francis Kanceski: Selling general and administrative expenses for the quarter increased 15% to $9 $7 million or 22% of net sales as compared to $8 4 million or 20% of net sales for the same period last year the.
Francis Kanceski: The increases in SG&A for the three months was primarily due to compensation increases the hiring of additional staff increases in advertising and insurance costs as partially offset by decreases in professional fees.
Francis Kanceski: Operating income for the quarter increased 3% to $11 9 million compared to $11 $6 million, but at the same period last year.
Francis Kanceski: Interest and other income for the three months increased to 160% to $1 $1 million as compared to $440000 last year.
Francis Kanceski: The increase for the three months ended September 32024 was.
Francis Kanceski: Due to increased interest and dividend income from the company's cash and short term investments.
Francis Kanceski: The provision for income taxes for the three months increased by 20%.
Francis Kanceski: $298000.
Francis Kanceski: Our $298000 to $1 $8 million with an effective tax rate of 14% as compared to $1 $5 million with an effective tax rate of 12, 6% last year the increase in the provision for the three months.
Francis Kanceski: It was due to higher taxable income as well as higher non deductible stock based compensation expense.
Francis Kanceski: Net income for the quarter increased 7% to a quarterly record of $11 $2 million or <unk> 30 cents per diluted share as compared to $10 5 million or 28.
Francis Kanceski: The diluted share for the same period last year and that represents 25% of net sales.
Francis Kanceski: Yeah.
Francis Kanceski: Adjusted EBITDA for the quarter decreased 4% to $12 $3 million or 30 <unk>.
Francis Kanceski: Per diluted share as compared to $12 9 million or <unk> 35 per diluted share for the same period, a year ago and that equates to an adjusted EBITDA margin of 28%.
Francis Kanceski: Moving on to the balance sheet.
Francis Kanceski: As of September 32024, the company had $102 million in cash cash equivalents cash equivalents other.
Francis Kanceski: Other investments and marketable securities and that compares to $97.7 million.
Francis Kanceski: As of June 32024, and that's a 5% sequential increase.
Francis Kanceski: The company had no debt as of September 32024, cash provided by operating activities for the three months ended September 32024 was $12 million and that compared to $11 $2 million with the same period last year and that's a 7% increase.
Francis Kanceski: Working capital is defined as current assets less current liabilities was $146 $7 million on September 32024, and that compared with working capital of $146 5 million at June 32024.
Francis Kanceski: Current ratio is defined as current assets divided by current liabilities six nine to one.
Francis Kanceski: At September 32020, 476 to one at June 32024.
Francis Kanceski: And capex for the quarter was $680000 and that compared to $256000 in the prior year period.
Francis Kanceski: That concludes my formal remarks, and I would now like to return the call back to <expletive>.
Francis Kanceski: Kevin Thank you.
Francis Kanceski: <unk> Q1, 2025 sales of $44 million and net income of 11.2 million, where both Q1 record breakers.
Francis Kanceski: Recurring service revenues remained strong and was 48% of our revenue and it generated a very profitable gross margin of 91%.
Francis Kanceski: Our balance sheet continues to get stronger with cash and cash equivalents and other investments are growing.
Francis Kanceski: Even after our continuing dividend program and opportunistic stock buybacks. Despite the decline in locking hardware. This quarter, we haven't lost sight into the significant opportunity for continued growth through spending.
Francis Kanceski: Driven by funded governmental infrastructure projects.
Francis Kanceski: As well as millions of dollars going forward.
Francis Kanceski: Yes.
Francis Kanceski: Towards state and federal level program.
Francis Kanceski: Yeah.
Francis Kanceski: Like Florida's School Hardening Act.
Francis Kanceski: And as secured school safety Grant program.
Francis Kanceski: In many states like Texas that have approved over $100 million in increased security funds.
Francis Kanceski: Security and health care and retail loss prevention.
Francis Kanceski: As well as in multi dwelling commercial and residential applications are also providing opportunities for growth.
Francis Kanceski: We continue to remain focused on further penetrating each of these markets.
Francis Kanceski: A new growth opportunity in commercial locking and access control is a long awaited M V. P hosted access system, which could generate substantial hardware sales.
Francis Kanceski: Reoccurring revenue so both the installing dealer and for NAPCO.
Francis Kanceski: This new innovative IP technology systems.
Francis Kanceski: Enables wireless cloud access for end users of the system.
Francis Kanceski: We will also be showing the new N V T system as this month's International Security Expo at the Javits Center in New York City with thousands of installing dealers will see it and I will see it in action, we welcome any investor who would like to come and see the show the police car.
Francis Kanceski: Fran and it'll be very exciting youll see dealers distributors and our competitors, there and you'll get a picture of how powerful NAPCO is in the industry.
Francis Kanceski: We're excited about the potential of this technology for new installations, as well as retrofit or upgrade of existing locks with ease.
Francis Kanceski: Which will ultimately drive increased equipment sales and reoccurring revenue.
Francis Kanceski: Our Starlink radio sales were strong in Q1 as.
Francis Kanceski: As alarm dealers recognize that our radios offer the broadest coverage of both Verizon and AT&T networks combined with feature rich capabilities that our dealers generally appreciate.
Francis Kanceski: Our R&D team is continually enhancing these high performance radios designed for a straightforward installations and compatibility with all fire burglar alarm panels.
Francis Kanceski: Ours and our competitors are like no. Other company can also this level of versatility.
Francis Kanceski: Unlike many competitors our radios are also underwriters laboratories certified which is the industry gold standard.
Francis Kanceski: There are still millions of commercial buildings and residences from offices and hospitals schools, and coffee shops, and restaurants that need to transition from legacy copper phone lines to cellular connectivity.
Francis Kanceski: With Starlink.
Francis Kanceski: Ideally positioned to continue strong growth in this market.
Francis Kanceski: Our latest Starlink fire Max to communicator, So commercial fire alarm systems includes dual Sim technology dynamically using either a verizon or the AT&T networks for optimum signals stress.
Francis Kanceski: This streamlined solution, which dealers love will simplify their inventory, while providing a feature rich experience for them.
Francis Kanceski: Yeah.
Francis Kanceski: Our recently introduced Dreamer by NAPCO, our new all in one panel for security installation and connected home with a 15 minute installation remains a very important focus for the company.
Francis Kanceski: Our goal as a premier to address an important mass segment of the security market, including residential and small business systems.
Francis Kanceski: With built in Wi Fi and cellular radio communications customer alert notifications and video and smart home subscription options for each installed system.
Francis Kanceski: The security dealer as well as the company could add more recurring revenue service generate a rig counts.
Francis Kanceski: <unk> now offers a full set of necessary peripherals to go along with the Premier Kit. We believe this will help enhance <unk> sales in the future.
Francis Kanceski: Our strong net income and growing cash balance indicate the financial strength of our business.
Francis Kanceski: As such we are pleased to continue our dividend program with a payout of 12 and a half cents per share.
Francis Kanceski: This will be payable on one 320 25 to shareholders of record on 12 12 24.
Francis Kanceski: In addition, as announced in this mornings earnings release, our board has authorized the company to Opportunistically repurchase up to an additional 1 million shares of our common stock.
Francis Kanceski: As always we will strive to accomplish our goal of continued financial strength product innovation technical superiority and strong profitability for fiscal 2025 and beyond.
Francis Kanceski: I'd like to thank everyone for their support and for joining us in this exciting future. We have our formal remarks are now concluded and we would like to open the call for a Q&A session. Operator. Please proceed.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: Did you have a question. Please press the star followed by the number one on your Touchtone phone you will hear from that you had has been way should you wish to decline from the polling process.
Speaker Change: Press the star followed by the number too.
Speaker Change: If you are using speaker phone please lift the handset before pressing any Q.
Speaker Change: One moment. Please for your first question.
Speaker Change: Your first question comes from Matt Summerville of D. A Davidson. Please go ahead.
Speaker Change: Okay.
Speaker Change: Matt are you on mute.
Matt Summerville: Can you hear me.
Matt Summerville: You hear me, yes, yes, okay.
Matt Summerville: Okay.
Matt Summerville: Alright, yes, sorry, maybe I was on mute.
Matt Summerville: Apologize so anyway, it's Kevin in your prepared remarks, you mentioned several distributors temporarily lowering locking hardware inventory and that the situation is different than the multi quarter trend you saw on the radio side help us understand why this is different and whether or not you think you can grow.
Speaker Change: Equipment revenues for the full year, and then I have a follow up.
Speaker Change: So with radios.
Speaker Change: We were coming off of the <unk> Sunset.
Speaker Change: Were all the distributors were loading up.
Speaker Change: Because they couldn't get radio deliveries from anybody except us.
Speaker Change: And they had to be prepared for the sunset.
Speaker Change: So we saw all of our distributors, having a lot of inventory and then when the sunset came in when they had too much and we knew it was going to take several quarters for.
Francis Kanceski: To work its way through.
Francis Kanceski: And that's what happened it took several quarters.
Francis Kanceski: And now we can say we're finished with that based on the very strong.
Francis Kanceski: Radio sales we saw in this quarter.
Francis Kanceski: With locking it's much different.
Francis Kanceski: We can see from their inventory levels, we can see from the sell through.
Francis Kanceski: It's a much different situation there.
Francis Kanceski: Once it is slow up in this quarter why try to say.
Speaker Change: Is it the election I heard that from a few of the distributors.
Speaker Change: Wait until the election, then will start buying again.
Speaker Change: I heard that from some it was budget related.
Speaker Change: They want to wait till the new budget periods, because a lot of the projects.
Francis Kanceski: With an October one budget period.
Francis Kanceski: Talked to several of them personally.
Francis Kanceski: And they assured me that it was a one quarter type event.
Francis Kanceski: That's what I am going by locked.
Francis Kanceski: <unk> is strong it comes from a lot of different avenues schools.
Francis Kanceski: A lot of school activity, we're hopeful to announce our school. When later this week stay tuned.
Francis Kanceski: This bunch of hospital upgrade projects, we're working on.
Francis Kanceski: So we feel good about it don't take what happened in one quarter as being the new norm. That's how we feel so we think will grow as the year progresses. This is just one quarter even with this <unk>.
Francis Kanceski: With the disappointment of blocking we still earned over $11 million still 25% net income as a percentage of sales.
Francis Kanceski: I'll come back over the next coming quarters Thats, what we believe.
Francis Kanceski: And then.
Speaker Change: As a follow up Kevin can you maybe talk about.
Speaker Change: You guys talk about the magnitude of promotional activity that occurred in the quarter to drive that kind of growth in radios and whether or not you expect maybe not ultimately in percentage terms, but do you expect further growth in radios as the year goes on.
Speaker Change: <unk> to the prior year period. Thank you.
Speaker Change: So radios the radio sales declining was something that bothered us.
Speaker Change: We've talked about it for several quarters.
Speaker Change: Yes, it was because of heavy inventory levels.
Speaker Change: But we felt we could do more to enhance our radio sales.
Speaker Change: And we actively promoted the radios in words, we put out what they call beach sheets, showing our radio compared to the competition.
Francis Kanceski: Showing the differences, where we come up way ahead of our.
Francis Kanceski: Our competitors.
Francis Kanceski: That was made a big difference we made some management changes within the division.
Francis Kanceski: <unk> the radios.
Francis Kanceski: Very happy with that change.
Francis Kanceski: We did a lot of things behind the scenes to get the radio sales to come back to where they should be.
Francis Kanceski: And so.
Francis Kanceski: What we saw this quarter far.
Francis Kanceski: Exceeded what I, even thought I knew it was coming back I knew we had worked through the.
Francis Kanceski: Distribution levels of inventory.
Francis Kanceski: This was even beyond we have to keep it going.
Francis Kanceski: Know how important this is.
Francis Kanceski: We're not going to see an immediate.
Francis Kanceski: It increased to recurring revenue as a result of these higher sales.
Francis Kanceski: A little tied you sell to a distributor it sits with the distributor for a month or so that he sells it to the dealer and the dealer activates it and then there's usually a promotion where they get X dollars of free recovery might be a few months three or four.
Francis Kanceski: Months of free recovery, then it kicks in but the main thing is to see the level that we saw this quarter that means in the future. This is going to only get better and.
Speaker Change: And we're going to keep it going with focused and coming out with new features within the radios, which if you come to ISC east you'll see that too.
Speaker Change: Please go ahead.
Speaker Change: Thank you Matt.
Speaker Change: Okay.
Speaker Change: Your next question comes from Jim Ricchiuti of Needham. Please go ahead.
Speaker Change: Thanks.
Jim Ricchiuti: So Kevin I do want to go back to the Lockheed business.
Speaker Change: Yes.
Jim Ricchiuti: Where are we though.
Jim Ricchiuti: What gives you the assurance that the distributors.
Speaker Change: It's going to be a one quarter basis.
Speaker Change: It's just basically what they're telling you I know it's different but.
Speaker Change: No.
Speaker Change: Yeah.
Speaker Change: Obviously, we've heard of inventory corrections before and it takes a little bit more than a quarter. I mean, how confident are you or have you spoken to or not but.
Speaker Change: The distributors and by the way are these the same distributors that are carrying your radios or are these different players.
Speaker Change: In some cases, it's the same in.
Speaker Change: In some cases, it's not.
Speaker Change: And I spoke to our largest distributor.
Speaker Change: Lacking products the largest one.
Speaker Change: That's not the same they don't distribute radios.
Speaker Change: <unk> guys.
Speaker Change: Spoke to the president.
Speaker Change: We spoke at length.
Speaker Change: He assured me.
Speaker Change: This is just a temporary one quarter event.
Speaker Change: I said to them what is this the election wondering what does the election has to do it is look I just want to say, it's one quarter.
And we will be back next quarter. So.
Speaker Change: Banking on it.
Speaker Change: Just on conversations from him.
Speaker Change: Other things I'm banking on as I see the stats.
Speaker Change: I see the sell through status.
Speaker Change: See their inventory level.
Speaker Change: There's no reason why it shouldnt come back.
Speaker Change: The only differential you have is.
Speaker Change: There are special projects within locking.
Speaker Change: We had a big project that went on last year.
Speaker Change: Waldorf Astoria project.
Speaker Change: That happened throughout fiscal 2024.
Speaker Change: Somewhat still in 2025.
Speaker Change: So that makes for a difficult comp.
Speaker Change: But there are other projects that are going on this year.
Speaker Change: There'll be a school security announcements.
Speaker Change: And there are some other things so as we get those special projects this year.
Speaker Change: And the distributors go back to what they were doing that is how you get the confidence that locking will be very good this year.
Speaker Change: Okay, how much of a catalyst to the radio sales was that your distributor that you added over the past year and how would you.
Speaker Change: The position of the other distributors.
Speaker Change: I'd say our top two.
Speaker Change: The new one that we added.
Speaker Change: Plus our other one.
Speaker Change: Our biggest one.
Speaker Change: Those two I would say with the biggest catalyst, but we saw it across the board.
Speaker Change: Once you work through the inventory.
Speaker Change: It was one distributor left heading into Q1.
Speaker Change: We even saw growth from him.
Speaker Change: So I.
Speaker Change: I'd say, we saw it pretty much across the board.
Speaker Change: And we saw a lot of fire.
Speaker Change: We've talked about this a lot we loved the fire radio is the most profitable one.
Speaker Change: It's probably two thirds.
Speaker Change: Of our active radios and we saw that pattern within the radios, we sold this quarter.
Speaker Change: So it wasn't just one distributor it was more than one it was right down the line.
Speaker Change: Our hope is it continues again this quarter.
Speaker Change: Thanks, I'll jump back in the queue.
Speaker Change: Thank you Jim.
Speaker Change: Your next question comes from Lance Vitanza of Cowen.
Speaker Change: Please go ahead.
Lance Vitanza: Thanks for taking the questions.
Lance Vitanza: Two the first just to sort of stay on the theme of the uptick in radio sales.
Lance Vitanza: I'm interested in how the composition of sales that youre seeing in terms of the rebound.
Lance Vitanza: I heard what you just said fire.
Lance Vitanza: Versus Berg, but how do you expect that's going to impact service revenues and services gross margin going forward and here I'm thinking back half of this fiscal year and fiscal 'twenty six just based on the trends that youre seeing to date.
Speaker Change: Right. So as we said.
Speaker Change: We get strong radio hardware sales.
Lance Vitanza: Don't feel the impact immediately.
Lance Vitanza: In the recurring.
Speaker Change: But you will feel it.
Speaker Change: Again, it takes a little time.
Speaker Change: I always say should sit on distributors shelf for about a month, maybe a little more month and a half.
Speaker Change: After that goes to the dealer dealer activates it right away. He is not interested in keeping inventory on his shelf they usually do.
Speaker Change: They get it so they could do installations.
Speaker Change: So the process is pretty quick.
Speaker Change: And then there's usually some sort of rebate, maybe $50 some amount, which adds up to several months of free recurring after that you feel it that means back end of this fiscal year, we start to feel it.
Speaker Change: And of course, we wanted to we wanted to have another quarter like that in Q2.
Speaker Change: And the same thing we will feel that in Q4.
Speaker Change: We just have to keep it rolling.
Speaker Change: We're being very aggressive getting the word out of why our radios are better than the competition.
Speaker Change: And I think again, if you go to ISC show you will see the difference between hours and the competition.
Speaker Change: And it'll make says why we believe.
Speaker Change: The power of these radios is going to continue and get even better.
Speaker Change: We keep hearing more and more new radios and new products with you, which use these radios within.
Speaker Change: And you're going to see that at the International Security Conference. So it's not like we're standing still with the line of radios that we have the radio line is developing and it's very exciting for the dealers because that's the way they're getting communications from the.
Account that they put the alarm and two they are sent to the deal with central station.
Speaker Change: And it's the best radio out there.
Speaker Change: <unk> as the best.
Speaker Change: And it's multiple radios for different applications. So it will keep contributing lots of recurring revenue.
Speaker Change: For the future as we can see and.
Speaker Change: Introduction of new product, which is.
Speaker Change: Locking product and access product, which we call MVP will also generate a lot of recurring revenue for us over the years as it becomes a standard in the industry.
Speaker Change: <unk> and various special and we're excited about it.
Speaker Change: That's great. Thanks, I guess, what I was trying to get at was the radio sales in the quarter and that you are expecting going forward are those attaching at a higher or lower monthly recurring revenue per unit or or about the same as as the existing.
Speaker Change: The existing suite of devices that you have out in the field.
Speaker Change: Fire gets more than the than the bird.
Speaker Change: This was a very fire heavy radio quarter.
Speaker Change: So while the amounts per radio might be to say that.
Speaker Change: The mix is actually even a little better and the mix has been getting better and better better and better meeting more fire. It was <unk>.
Speaker Change: Actually even better this quarter.
Speaker Change: That could bode well for higher margins, we'll see we're at 91, maybe we go beyond that I don't know yet, but we love fire that's the best way.
Speaker Change: So are a lot of it in Q1.
Speaker Change: Okay, great. Thanks, guys.
Speaker Change: Thanks Lance.
Speaker Change: As a reminder, if you wish to ask a question. Please press star one.
Speaker Change: Your next question comes from Jeremy Hamblin.
Speaker Change: Craig Hallum Capital Group. Please go ahead.
Jeremy Hamblin: Thanks for taking the questions and just wanted to follow up on the last point so.
Jeremy Hamblin: It sounds like Youre, getting a little bit higher monthly.
Speaker Change: Subscription fee.
Speaker Change:
Speaker Change: On the fire Ah I wanted to just understand in terms of the support service.
Speaker Change: Of course, you know Oh fire versus the Burgh.
Speaker Change: Are the margins just flat out there they are better because the support cost is a little lower or similar support costs.
Speaker Change: And again, you're starting to see that a S. P. The monthly fee driving higher.
Speaker Change: Similar support costs minimal <unk>.
Speaker Change: <unk> costs are minutes.
Speaker Change: We buy minutes from the carriers.
Speaker Change: That's the cost.
Speaker Change: So the minutes are inconsequential theyre not its not a lot it's more for.
Speaker Change: For fire that it might be for Barry a fire radio has to check in electronically dual electronics handshake. It uses minutes to do that to show that it's working so it will be more than a burglary radio but in the big picture.
Speaker Change: The amount we get for a fire radio exceeds the amount we get for our Berg radio by more than whatever the differential is.
Speaker Change: And the cost.
Speaker Change: So thats why we love the fire, it's just super profitable and I believe we just have such a better offering.
Speaker Change: Than the competition.
Speaker Change: Even close.
Speaker Change: So and again, if you go to ISC Youll see that.
Speaker Change: But that's why we get more we get better margins.
Speaker Change: And realize that once the radio is put into a commercial building for reporting the commercial fire alarm.
Speaker Change: Asian to the central station the dealer so the dealer can dispatch.
Speaker Change: Fire Department.
Speaker Change: It's something that is basically in for the lifetime of the building.
Speaker Change: Because of the fact that you have to keep the fire alarm system working communicating.
Speaker Change: Because it's inspected by the fire Marshall.
Speaker Change: On a regular basis to make sure. It's it's been communicated so.
Speaker Change: We have a big push into the fire to keep the fire jobs going.
Speaker Change: Millions of millions of buildings is still left to be retooled as copper is going bad it's breaking its cracking.
Speaker Change: And the phone companies in that repairing it we'd become the replacement for the phone companies with that though.
Speaker Change: That's a sale that keeps on giving for both the dealer and for us.
Speaker Change: Just as a follow up question on the.
Speaker Change: The minutes that you're buying from carriers or are you seeing in fleet. I mean, there is inflation across a number of line items. You noted insurance is one of them but.
Speaker Change: You know in terms of the minutes that you're buying from carriers are you seen any inflationary pressure there.
Speaker Change: So at one level we.
Speaker Change: We do competitive bidding with the different carriers. So the prices are not going up for us, we're buying more and more minutes as more and more radios are added to the system.
Speaker Change: More and more control panels with radios.
Speaker Change: And we also make a line of.
Speaker Change: Two or three other styles of radios. One is basic intrusion. One is home automation, we make these different radio so we're buying more and more minutes and all the carriers want us to buy minutes, that's what they sell to us. So we don't see the prices going up.
Speaker Change: Got it last one for me just as we look a little bit further ahead and you know the kind of what you're driving towards for FY 'twenty six and <unk>.
Speaker Change: So you had talked about at your mix of business, hoping to achieve 50 50.
Speaker Change: Equipment rents now our service reps.
Speaker Change: In that fiscal year.
Speaker Change: You're getting close to that 50% already.
Speaker Change: And it sounds like a quite a bit of momentum in the radio portion of your business.
Speaker Change: Is there is there a potential for the service revenues to exceed equipment, you know revs on a go forward basis and take an even higher portion, particularly if.
Speaker Change: You know if the locking part of your business.
Speaker Change: And I know that that sounds like it's a one quarter issue but.
Speaker Change: Just in terms of visibility that you have on what that revenue.
Speaker Change: Revenue mix might look like.
Speaker Change: Next fiscal year.
Speaker Change: Well I would say, we're pushing the pedal to the metal both on a recurring revenue radio business and also on the hardware the locking hardware business locking hardware business has been doing fabulously each quarter in the past so one quarter.
Speaker Change: Speed bump by a couple of distributors have to be looked at as indicative of the future, but we expect both the recurring revenue business with new products and locking business with new products and getting more market share in both of those categories will drive us to higher heights.
Speaker Change: Then.
Speaker Change: We've been talking about.
Speaker Change: We're here for the long haul and we got to keep investing in our engineering and our sales and marketing and we're doing so it's a very exciting future, we love leading the way in the security industry.
Speaker Change: Got it thanks for all the color best wishes.
Speaker Change: Thanks.
Speaker Change: Yeah.
Speaker Change: Your next question comes from Raj Sharma of B Riley. Please go ahead.
Raj Sharma: Yes, hi, thanks.
Raj Sharma: For taking my questions I have a question about the radios you said radios are up strongly up 93% year on year.
Raj Sharma: What else is in the intrusion and the axis alarm segment I believe its access controls and prima.
Raj Sharma: And that is down 42% year on year, the other part of the category.
Raj Sharma: How confident are you.
Raj Sharma: The non radio part of intrusion and access alarms picking up for the rest of the year. So that it helps in overall growth.
In that segment.
Speaker Change: Yes, pretty confident Raj because framer.
Speaker Change: Was introduced.
Speaker Change: In Q1 of 2020 for.
Speaker Change: That was the.
Speaker Change: That was its coming out party so to speak.
Speaker Change: And we.
Speaker Change: We had a lot of sales that quarter.
Speaker Change: But what we didn't have.
Speaker Change: We didn't have.
Speaker Change: The peripherals the accessories.
Speaker Change: And so that kind of stalled the growth as the year progressed.
Speaker Change: And so we came to Q1 of 2025.
Speaker Change: We're just starting to have a full line of accessories.
Speaker Change: And so when you compare last year, the coming out party of Prima.
Speaker Change: To this year's Q1, it was different than it was.
Speaker Change: Down.
Speaker Change: But because the accessories now are available we're starting to see an up tick up those sales.
Speaker Change: And so going forward in the rest of this fiscal year I think on a comparative basis, I think it'll be up every quarter, but it wasn't in Q1 and.
Speaker Change: And that's what drove it.
Speaker Change: That segment.
Speaker Change: To be down versus a year ago.
Speaker Change: Versus where the radios were so amazingly.
Speaker Change: Higher than they were a year ago, so kind of kind of masks that a little bit.
Speaker Change: That's why we disclosed what the radio part of it was.
Speaker Change: Got it.
Speaker Change: Got it. Thank you for that and then just on the buyback authorization.
Speaker Change: <unk>.
Speaker Change: Was the amount of the authorization and how long.
Speaker Change: Is it.
Speaker Change: Valid till or effective.
Speaker Change: Alright so.
Speaker Change: We had we bought back.
Speaker Change: I think it was 193000 shares.
Speaker Change: In this past quarter.
Speaker Change: We had stopped and that we.
Speaker Change: Hit the quiet period.
Speaker Change: And there was 387000 shares left from this prior authorization.
Speaker Change: And so we wanted to make sure we had more than that.
Speaker Change: Two potentially opportunistically buy back so.
Speaker Change: With the authorization of the board added $1 million to that do you have a million plus the 387 388 that we had before so basically it is a $1 four available for buyback.
Speaker Change: There is no time limit on it.
Speaker Change: The only thing as we will lap buyback during quiet period.
Speaker Change: Again last quarter, we bought back.
Speaker Change: 193000 shares we spent $7 $2 million, so we'll see how it goes.
Speaker Change: We watch it close it makes sense, we're going to do it that's why we added the 1 million shares.
Speaker Change: Got it thank you for answering the questions I'll take it offline.
Speaker Change: Thanks Raj.
Speaker Change: Thanks.
Speaker Change: Your next question comes from Jim Ricchiuti SD Pam <unk>. Please go ahead.
Jim Ricchiuti: I just wanted to follow up.
Speaker Change: Yeah, I know theres a lot of noise.
Jim Ricchiuti: With respect to the distributors and inventories, but remind us again of the seasonality on both parts of the business as we look at Q2 and the fiscal second half.
Speaker Change: Our our quarters historically get stronger.
Jim Ricchiuti: With Q1 being the weakest Q4 being the strongest.
Speaker Change: That that's one aspect of seasonality.
Speaker Change: Also.
Speaker Change: The school business it used to be very seasonal.
Speaker Change: Where the schools would only want to do.
Speaker Change: Jobs when the kids were at school.
Speaker Change: And what that means is they'd want to do jobs in the summer.
Speaker Change: Or they would want to do jobs in December January.
Speaker Change: Winter recess.
Speaker Change: That's really changed.
Speaker Change: No real seasonality to that.
Speaker Change: But it.
Speaker Change: It is affected by budgets.
Speaker Change: A lot of the fiscal budget start October one.
Speaker Change: And they will we will we won't see projects until the budget of October one starts.
Speaker Change: So I think budgeting more than seasonality.
Speaker Change: Has something to do with it.
Speaker Change: But again, our quarters typically get stronger.
Speaker Change: As the year progresses, so too is usually better than one three is better than two and four is usually better than three that's.
Speaker Change: Okay storage product.
Speaker Change: A lot of parts of the business it sounds like.
Speaker Change: Kevin.
Speaker Change: Actually with with with radios.
Speaker Change: Radios.
Speaker Change: Radio is just should happen.
Speaker Change: Yeah, I don't think thats affected by this when radios as strong just get it all year round.
Speaker Change: That's how it should be.
Speaker Change: Got it.
Speaker Change: How satisfied are you with prima in terms of whether it's meeting your expectations or ramping a bit more slowly just given that it's a new area for you.
Speaker Change: We want it to be a major contributor.
Speaker Change: And we still think it will be.
Speaker Change: The Miss step if you will.
Speaker Change: Was that you can't really have a product that doesn't have a full complement of accessories and.
Speaker Change: I would expect it to be successful.
Speaker Change: When a dealer is putting in a job.
Speaker Change: He needs the foals he needs the full set.
Speaker Change: You can't put in a system, but he doesn't have door bells. He's got to have the door bells. It's got to have the right transmitter he's got to have the right Cyrus whatever it is.
Speaker Change: And so we introduced a quick maybe two quick in retrospect.
Speaker Change: But now <unk>.
Speaker Change: All of the accessories are there.
Speaker Change: So it's time for it to perform.
Speaker Change: And so our expectation is it's going to do much better in this fiscal year.
Speaker Change: And we were starting to see the results of that.
Speaker Change: Towards the back end of Q1, so we'll see how it goes we always say it takes a new product 12 to 18 months too.
Speaker Change: To really performance.
Speaker Change: Well.
Speaker Change: So we're getting to that point with prima.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: As a reminder, if you wish to ask a question. Please press star one.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: There are no further questions at this time please continue Mr. Kevin.
Kevin Michelle: So I waited to Richard for closing comments.
Richard: Thank you everyone for participating in today's conference call as always should you have any further questions feel free to call, Kevin Fran or myself further information.
Kevin Michelle: Thank you for your interest and support and look forward to speaking to you all again in a few months to discuss NAPCO is fiscal Q2 results.
Speaker Change: As I said.
Speaker Change: We'll be at the ISC show a javits.
Speaker Change: This month and I think it would be wonderful if you would come and see US we could show you the new products going to show you the products, which are going to generate more equipment sales and more reoccurring revenue sales for the company and you'd be able to talk and see dealers, there and get their feeling about the NAPCO.
Speaker Change: Lives.
Speaker Change: Hi, Saul links are the best in the business. So I look forward to welcoming you anybody that wants to come and take care and have a wonderful day.
Speaker Change: Yeah.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
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Speaker Change: Okay.