Q3 2025 Napco Security Technologies Inc Earnings Call
Good morning, ladies and gentlemen and welcome to the NAPCO Security Technologies Fiscal Q3 2025 Earnings Call.
At this time, Online Journalism Only Mode [inaudible]
Following the presentation, we welcome back a question and answer session
Speaker Change: If at any time during this call you're required immediate assistance, these threats are zero for the operator This call has been recorded on Monday, May 5th, 2025 I would now like to turn the conference over to Francis Okoniewski, Vice President of Investor Relations, please go ahead Thank you very much for your time, please go ahead, please go ahead, please go ahead, please go ahead, please
Thank you, Ludia. Good morning, everyone.
Speaker Change: This is Fran Okoneski, Vice President and Investor Relations for NAPCO Security Technologies.
Speaker Change: We want to thank you all for joining today's conference call to discuss financial results for our fiscal 3rd quarter 2025.
Speaker Change: By now, all of you should have had the opportunity to review our earnings press release discussing our quarterly results.
Dick Soloway: On the call today are <expletive> Soloway, or Chairman of CEO of NAPCO Security Technologies, Kevin Buchel, President, Chief Operating Officer, and Chief Financial Officer, and Andrew Vono are Senior Vice President of Finance and Chief Accounting Officer.
Dick Soloway: 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 of future performance based on management's judgment, beliefs.
Current trends in anticipated product performance.
Dick Soloway: These forward-looking statements include, without limitation, statements relating to growth drivers of the company's business.
Dick Soloway: such as school security products, reoccurring revenue services, potential market opportunities, the benefits of our reoccurring revenue products to customers and dealers, our ability to control expenses and costs and expected annual run rate.
or SAS Reoccurring Monthly Revenue.
Dick Soloway: Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those contained in the Forward-looking statements.
Dick Soloway: These factors include but are not limited to such risk factors described in our SEC
including our Annual Report on Form 10K.
Dick Soloway: 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.
Dick Soloway: 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.
Dick Soloway: All information provided in today's press release and this conference call are as of today's date unless otherwise stated.
Dick Soloway: and we undertake no duty to update such information except as required under a applicable law.
Dick Soloway: I'll turn the call over to <expletive> in a moment. Before I do, I want to mention we're actively planning our investor relations calendar for Nandio Roadshow and conference attendance
Investor Outreach is an important...
Dick Soloway: Part of NAPCO, and I'd like to thank all those folks who assist us in these types of events.
Dick Soloway: We're looking forward to a packed and dynamic schedule of investor engagement this quarter.
Dick Soloway: Later this month, we'll be on the ground in New York City for the Bank of America, industrial transportation and airlines key leaders conference.
Needham's 20th Annual Technology Media and Consumer Conference.
and TD Counts 53rd Annual Technology Media and Telecom Conference.
Dick Soloway: We're also participating in a couple of virtual non-deal road shows with Keybank and Seaport Global.
Dick Soloway: Then, in June , our momentum continues with appearances at the Robert W. Beard 2025 Global Consumer Technology and Services Conference in Deutsche Bank's 16th Annual Global Industrials and Materials Conference, both in New York, as well as the Wells Fargo Industrial Conference in Chicago.
Dick Soloway: It's a great opportunity to share our story, connect it with investors and continue building excitement around our vision and performance.
Speaker Change: With that out of the way, let me turn the call over to <expletive> Soloway, Chairman and CEO of NAPCO Security Technologies.
<expletive> , the floor is yours [inaudible]
Thank you.
Speaker Change: Thank you, friend. Good morning, everyone, and welcome to our conference school.
Speaker Change: We appreciate your participation today, as we review our fiscal Q3 2025 performance.
Speaker Change: A performance in Q3 continues to demonstrate the strength and resilience of our operating model.
Speaker Change: Even as we navigate an environment shaped by ongoing micro-economic headwinds
Speaker Change: We achieved a 30% adjusted EBITDA margin and maintained an exceptional 91% gross margin in our service revenues.
Recurring service revenue remains a foundational component of our business.
Speaker Change: Accounting for 49% of total revenue this quarter with an annualized rent rate of approximately eighty-nine million based on April results.
Speaker Change: which is an increase of 3 million over the run rate for January reported last quarter.
Our balance sheet remains a core strength.
Speaker Change: We are dead free and maintain substantial cash reserves and continue to generate strong cash flow giving us the flexibility to invest competently and execute on our long-term growth strategy.
Speaker Change: Well, demand signals in the broader market have shown some variability. We remain focused on what we can control.
Speaker Change: We are accelerating innovation and our product development pipeline is the strongest it has ever been.
Speaker Change: These advancements are helping expand our portfolio of high margin with current service revenue offerings, positioning us for continued success.
Speaker Change: Now I'd like to turn the call over to our President, Chief Operating Officer and Chief Financial Officer, Kevin Buchel, who will provide an overview of our fiscal third quarter
Speaker Change: Following Kevin's remarks, I will return to Dell's deeper into our strategies and market outlook. Kevin, the floor is yours.
Thank you <expletive> , good morning everyone.
Speaker Change: Net sales for the three months ended March 31, 2025 decreased 10.8% to $44 million as compared to $49.3 million for the same period a year ago.
Speaker Change: And that sales for the nine months ended March 31, 2025.
decreased 5.5% to $131 million.
Speaker Change: as compared to $138.5 million for the same period one year ago.
Recurring Monthly Service Revenue Group 10.6%, Inc. 3.
Speaker Change: The $21.6 million as compared to $19.5 million for the same period last year. Recurring monthly rent service revenue for the nine months ended March 31, 2025 increased 15.4%.
to 63.9 million as compared to 55.4 million last year.
Speaker Change: Our recurring service revenues now has a perspective annual run rate of approximately 89 million.
based on April 2025 recurring revenues.
Speaker Change: And that compares to age 6 million based on January 2025 recurring service revenues, which we reported back in February .
Speaker Change: The increase in service revenues for the three and the nine months was due to the continued increase in the number of our cellular, which radio communication devices.
which we pivot to service and have been activated.
Speaker Change: Equipment sales for the quarter decreased 24.8% to 22.4 million as compared to 29.7 million last year.
Speaker Change: Equipment Sales for the nine months decreased 19.4% to 67 million as compared to 83.1 million for the same period last year.
The decrease in net equipment sales for the three months
Speaker Change: was primarily due to reduced sales of approximately $5.1 million at three of our largest distributors as follows. The first distributor purchases both our intrusion and our locking products.
Speaker Change: and made a corporate-wide decision to reduce purchases to stabilize their existing inventory levels.
Speaker Change: The second distributor, a locking distributor, reduced their purchases due to the timing of a project.
Speaker Change: and the project work with their customer was last this year, that it was last year.
Speaker Change: And the third distributor, also a lucky distributor, made the decision to reduce their inventory levels due to the uncertainty of the economy, including pending tariffs.
Speaker Change: For the nine months, 10.4 million of the decrease was primarily due to those same reasons at those three distributors I just mentioned.
Plus, an additional $3.7 million.
Speaker Change: of the reduction was due to reduced sales from two additional locking distributors who also made the decision to reduce their inventory levels.
Gross Profit for the three months ended March 31, 2025 25
Speaker Change: Decreased 5.1% to 25.1 million with a gross margin of 57.2% and that compares to 26.5 million with a gross margin of 53.8% for the same period last year.
Speaker Change: and the gross profit for the nine months increased 0.4% to 74.2 million with the gross margin of 56.7% as 73.9 million with the gross margin of 53.4% a year ago.
Speaker Change: Gross Profit for Recurring Service Revenue for the Quarter increased 9.5% to 19.6 million, with a gross margin of 91%.
Speaker Change: as compared to 17.9 million with the gross margin of 92% last year.
Speaker Change: The decreasing growth profit percentage was a result of a negotiation of a one-time lower royalty payment in the comparable quarter.
Gross Profit for Recurrent Service Revenues for the 9 Months
Speaker Change: And the increase in the girls' profit percentage was the result of the renegotiations of royalty arrangements and volume rebates received from the carriers.
Speaker Change: Gross profit for equipment revenues in Q3 decreased by 35.7% to 5.5 million, with a gross margin
Speaker Change: And that compares to 8.6 million with the gross margin of 28.8% last year.
Speaker Change: The equipment gross margins for the three months ending 12, 31, 24 was 23.5%, so that's an 1,100 basis point sequential improvement.
Speaker Change: Gross profit for equipment revenues for the nine months decreased by 32.7% to 16 million with a gross margin of 23.9% as compared to 23.8 million with a gross margin of 28.6% for the same period last year.
Speaker Change: The decreasing gross profit dollars and the percentage from equipment sales for the three and the nine months.
Speaker Change: was primarily a result of product mix and lower absorption of fixed overhead costs as a result of the decrease in equipment revenue.
Speaker Change: Research and development costs for the quarter increased 15.5% to 3.2 million or 7.2% of sales.
Speaker Change: as compared to 2.8 million or 5.6% of sales for the same period a year ago.
Speaker Change: Or 7.1% of sales, and that compares to 7.7 million or 5.6% of sales for the same period a year ago.
Speaker Change: The increase for the three and the nine months primarily resulted from annual compensation increases.
and The Hiring of Additional Resources.
Speaker Change: Selling general and administrative expenses for the quarter increased 16.9% to 10.8 million or 24.5% of net sales as compared to 9.2 million or 18.7% of net sales for the same period
Speaker Change: Selling General and Administrative Expenses for the nine months ended March 31, 2025, increased 16.7% to 30.7 million or 23.4% of net sales.
Speaker Change: as compared to 26.3 million or 19% of sales for the same period last year.
Speaker Change: The increase for the three and the nine months was primarily attributable to increased legal fees, increased insurance costs, and compensation and benefit increases, including the hiring of additional staff.
Operating income for the quarter decreased 23.1% to 11.1 million.
Speaker Change: and that compares to 14.5 million for the same period last year.
Operating Income For The Nine Months
Speaker Change: Decreased 14.3% to 34.2 million as compared to 39.9 million for the same period last year.
Speaker Change: Interest and other income for the three months increased 35.3% to $862,000 as compared to $637,000 last year and for the nine months interest and other income increased 62% to $2.9 million compared to $1.8 million last year
Speaker Change: The increases for both the three and the nine months was due to increased interest income from short-term investments as a result of higher interest rates and larger deposit balances.
Speaker Change: The provision for income taxes for the three months remain consistent at 1.9 million with an effective tax rate of 15.7%.
Speaker Change: increased as a result of lower estimated R&D tax credits for the period.
Speaker Change: For the nine months, the provision for income taxes remained consistent. At 5.3 million, with an effective tax rate of 14.4%, compared to 5.4 million with an effective rate of 12.9% last year.
Speaker Change: Net income for the quarter decreased 23.3% to 10.1 million, or 28 cents per share, and that compares to 13.2 million, or 36.
Speaker Change: Sense-Predoluted Chair for the same period last year, and that represents 23% of net sales.
Speaker Change: And net income for the nine months decreased 12.4% to 31.8 million or 86 cents per diluted share.
Speaker Change: And that compares the 36.3 million or 98 cents put the alluded share for the same period last year and it represents 24.3% of net sales.
Speaker Change: Adjusted EBITDA for the quarter, decreased 15.4% to 13.2 million, or 36 cents per deluded share, and that compares to 15.6 million or 42 cents per deluded share.
Speaker Change: for the same period a year ago, and that equates to an adjusted EBITDA margin of 30%.
Adjusted either that for the 9 months.
Decreased 13% to 38 million.
Speaker Change: or $1.3 per diluted share, and that compares to $43.5 million or $1.18 per diluted share for the same period last year, and that equates to an adjusted EBITDA margin of 29%.
Moving on to the balance sheet [inaudible]
Speaker Change: As of March 31, 2025, the company had 89.3 million in cash and cash equivalents, other investments in marketable securities.
and that compares to 97.7 million at June 30, 2024.
Speaker Change: The company had no data as of March 31, 2025. The cash provided by operating activities for the nine months ended March 31, 2025.
Speaker Change: It was $38.9 million and that compares to $31 million for the same period last year and that's a 25.4% increase.
Speaker Change: Working Capital as defined as current assets, less current liabilities, was 130 million on March 31, 2025, and that compares with working capital of 146.5 million at June 30, 2024.
Speaker Change: Current ratio defined as current assets divided by current light abilities was 6.7 to 1 at March 31, 2025 and 7.6 to 1 at June 30, 2024.
CAPEX for the quarter was $65,000, that compares.
Speaker Change: with $361,000 in the prior year period, and it was $1.9 million for the nine months compared to $1 million in the prior year period.
Speaker Change: Finally, we paid $4.6 million in dividends for the quarter, $9.2 million for the nine months.
Speaker Change: and we spent $18.8 million on stock buybacks for the quarter, and $36.7 million for the nine months.
Speaker Change: That concludes my formal remarks, and I would now like to return the call back to <expletive> .
Thank you, Kevin.
Speaker Change: It's also worth noting that all of our growth is organically driven.
These are stats that we're very proud of.
But we know there is more work to be done.
Speaker Change: We are also very pleased with the increase in the recurring revenue annual run rate which increased to 89 million based on April 2025 recurring revenues.
Speaker Change: Compared to an annual run rate of 86 million based on January 2025, recurring revenues.
Speaker Change: In addition, to date, our recurring revenue has been principally generated from our Starlink Radio Line of Equipment, which is just a portion of our overall equipment offerings.
Speaker Change: We anticipate continued growth in our recurring revenue from the Starlink line as we enhance
Speaker Change: But we also are introducing new product lines with the ability to generate cloud-based recurring revenue, which we featured at the April ISC West Expo.
that we have already seen initial adoption by our dealers.
Speaker Change: Our long lock of marks, locking hardware, continue to see growth in school and classroom security, health care, and retail laws prevention, as well as multi-dwelling, commercial and residential applications.
Speaker Change: We continue to remain focused on further penetrating each of these markets.
A balance sheet remains strong.
Speaker Change: Ending the quarter at 90 million, even after the expenditure of 46 million on dividends and stock repurchases.
Speaker Change: There are millions of commercial buildings of all types such as offices, hospitals, schools, coffee shops, restaurants, as well as residences that will still require upgrades from legacy
Speaker Change: Our Starlink line of radios have the widest coverage range of both AT&T and Verizon with rich feature sets which our deal is really love.
Speaker Change: As we've stated previously, the increase in the volume of our hardware sales results in improved absorption of our overhead costs in the Dominican Republic factory, which would result in the expansion of our gross margins.
Speaker Change: While industry sentiment has already become more measured earlier this year
Speaker Change: As many of you know, ISC West is the security industry's largest annual trade show and drew over 30,000 attendees.
Speaker Change: including manufacturers, integrators, service providers, dealers, as well as the attendance by some of our investors and analysts.
The feedback from the dealers we met.
Speaker Change: With was it was very positive and was clear that the man for innovation integrated security solutions remains robust.
Speaker Change: At the show, we unveiled several new offerings that received excellent feedback.
Speaker Change: Particularly those that generate recurring monthly revenue an increasingly important differentiator in today's market.
Speaker Change: Among the highlights were our new cloud-based MVP remote access control platforms available in two configurations.
Speaker Change: MVP access are high-end, fully customized enterprise grade solution supporting unlimited user ID types.
Speaker Change: and MVPEZ, an app-based mobile, first-solution design for locksmiths and smaller dealers operated solely by smartphone and supporting up to 50 doors.
Speaker Change: We also introduce the next generation of our fire and burglary radios.
Stole Link Firemax 2 and Stole Link Blackmax 2
Speaker Change: These products were very well received and the positive deal of feedback we received in reinforces our leadership in this critical market segment.
Speaker Change: We expect both offerings who contribute meaningful meaningfully to our acceleration and service revenue growth over the coming corners.
Speaker Change: In regards to our operations, the manufacturing facility in the Dominican Republic continues to provide a meaningful competitive advantage.
Speaker Change: We benefit from a favorable course structure, efficient logistics, currency stability.
and at least for now relatively low tariff exposure.
Speaker Change: Well, there is a lot of uncertainty with tariffs. We strongly believe NAPCO is better positioned than many of our competitors who manufacture in Southeast Asia, Europe , Canada, or Mexico.
Regions where proposed tariffs are significantly higher.
Speaker Change: External market and regulatory pressures may persist into the next quarter, but we are actively managing these risks, adjusting our near-term plans as needed and focusing on the things we can't control, namely driving innovation.
Executing operationally and expanding our base of recurring revenue.
We remain confident that our strong net income
Adjusted EBITDA and cash flow will continue to improve.
Speaker Change: As a result, and as indicated in this morning's earnings release, the company will be issuing a quarterly dividend of 14 cents per share, which represents a sequential increase over the recent dividend paid of 12.5 cents per share.
Speaker Change: And we'll be paid on July 3rd, 2025 to share this of record on June 12th, 2025.
Speaker Change: We were proud of this program as NAPCO, as NAPCO team has created such tremendous shareholder value over the years and this is another way for us to distribute profitable growth to investors.
Speaker Change: Our formal remarks are now concluded. We'd like to open the call for the Q&A session.
Operator, please proceed.
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press a star followed by the number one on your telephone keypad. If you're using a speaker phone, please speak of your hands before pressing NAKs.
Speaker Change: Do we draw your question? You may do so by pressing star two. Once again, these presses star one to ask a question. And with that, our first question comes from the line up, Matt Summerville with D.A. Davidson, please go ahead.
Thanks, couple of questions. Can you maybe talk about...
Speaker Change: The mix of hardware today that's capable of generating recurring services revenue and with the additional offering you launched at ISC West and what's in what sounds like a very strong new product pipeline.
Speaker Change: All of that evolves over the next couple of years, and when some of this incremental offering starts to be materially additive to services revenue.
I can describe the product line that we have.
Speaker Change: The hiring revenue for the most part comes from our stall link radios.
Speaker Change: which are fire radios, predominantly and burglary radios. And we also make home automation radios.
Speaker Change: The new product Zoe introduced at the IAC is more expansive to that.
Speaker Change: It's more advanced fire radios with dual carriers and other features that the dealers requested.
Speaker Change: and it really propels our radios forward as staying ahead of the pack.
Speaker Change: Fabulous for the fire business because a lot of fire panels are located in basements and you need communications strength.
Speaker Change: And our radios have it just looking at the radio. It's like a race car compared to an economy car with the other manufacturers. So there's a big difference.
Speaker Change: So we're adding more radios to do more things with more features, and then we're offering the MVP line.
Speaker Change: which is basically for locksmiths. We make a smaller version of it and we're making a larger version of it for access control dealers.
Speaker Change: where everything is all for cloud, there's no equipment required on the site and very reasonably priced for a door so if you're in a hospital, you're a hospital manager [inaudible]
Speaker Change: You're a security manager in the department store and you want to see what's going on real time or if the cloud MVP can do it for you.
Speaker Change: There are cloud-operated locking systems, but the manufacturers don't have their own hardware. We do the total integration, so we offer more functionality than anything else on the market.
So, I call it piling on you.
Speaker Change: We have our fire radios, our burglar radios, our home automation radios. Now we have new models that have additional capability and now we're piling on more MVP
by the door .
and the future is very very bright.
We believe it's because of the fact...
You mention how many doors there are [inaudible]
in Commercial Buildings [inaudible]
where you want to see what's going on. [inaudible]
Speaker Change: It's a huge market and we make both sides of it, both the recurring revenue cloud software and we make the hardware that works with that so we're very excited about that.
Speaker Change: So, we've added more engineers to the company, more new products are in development, recovering monthly revenue is now 49% of our business, we expect the crossover shortly into more than half our business and keep on building for the future.
And one of the things we make fire panels...
Speaker Change: that have the radios built in. So we get recurring from that too. So we get a lot of different ways and more ways to come.
Speaker Change: And then, thanks. It's a follow-up. Can you maybe just talk about what you're seeing in terms of quoting activity for projects and what you see as...
Speaker Change: To describe what you're seeing in terms of cell through in the context of the latter, when you see these major distributors, I think you referenced five today, when you see these major distributors, kind of at a normal sort of inventory level.
Speaker Change: So we get self-true stats, that is the key stat to look at.
Speaker Change: Because that's the vibrancy of the business. That shows what are...
What our distributors are selling of our product to dealers?
Speaker Change: It's the dealers, that's the key. More dealer sales, the better it all is in the end.
Speaker Change: So, despite the woes of the distributors and the woes exist for the reasons I mentioned.
It has formal remarks.
Our cell-through stats are encouraging.
So our self-restats in the intrusion segment
Ara, sequentially, 7%
I self-dressed for a long month.
sequentially up 16%
Our Celtery stats for the marks locking up sequentially, 7%.
What that means...
Speaker Change: The man is getting better and what that translates into is the ordering patterns for the distributors.
should improve.
Speaker Change: They're cautious. They're working their inventory down. It feels I was saying this earlier.
Speaker Change: It almost feels like COVID times. They're very cautious. I don't know what's going to be with tariffs, etc. They're buying more cautiously. But if the cell three stats are good...
Speaker Change: They have to buy. They have no alternatives. So we're feeling good about that. The quoting activity is strong.
Speaker Change: We have a lot of things going on. I can't tell you when they're going to hit.
Speaker Change: As soon as they hit, you guys will be the first to know, but there's a lot of activity.
In schools and otherwise. [inaudible]
Speaker Change: Let me describe to you what it's like if the distributors run their inventory down because they're so cautious to a point where the dealers can't get the product from them.
Speaker Change: The dealers will move on to another distributor because they like the product. It's like you go into a store, you want a deed of sneakers, but they don't have the model. You're going to go to another store.
Speaker Change: So the distributors can't play in too cautious, too tight because the demand is such that they have to keep the inventory up otherwise the dealer will go somewhere else to get it and a lot of dealers have multiple accounts.
Speaker Change: So, this is what Kevin is referring to. South America is good, they must have enough inventory to carry it, otherwise they're going to lose the business. Once they lose that business, they're going to lose the other business also.
Speaker Change: The wire, the tools, the batteries, all these things which we don't make wire, we don't make batteries and we don't make tools but the deal is buy those things in conjunction with our equipment.
Speaker Change: So, that means that the distributor will probably lose the sale of the twice as bad as the equipment but by the time it only accessories up, it equals the equipment price so the distributor is going to have to keep it going and not run it too tight.
Thank you, guys.
Thanks Matt.
Speaker Change: Thank you so it sounds like it just from the standpoint of the equipment business you're seeing.
Speaker Change: More weakness in the locking products area, and some of that may also be the result both.
Speaker Change: the impact that you're seeing on tariffs as it relates to, I assume you're taking steps on pricing to help mitigate that. What are you hearing or seeing from competitors?
Speaker Change: That source product from Southeast Asia, and by that I mean, do you anticipate potentially being in a stronger pricing, having a stronger pricing advantage as you look out over the balance of calendar 25?
Speaker Change: So, distributors are nervous as we said. Their sales are down with us for various reasons. A lot of it is tariff driven. A lot of it is trying to manage their own inventory levels beyond us.
and one of them relates to a large project.
Speaker Change: that we had in 2024. We don't have it this year, so obviously they're buying less on that from that front.
But beyond all that, that to me is just noise.
The key thing...
You gotta have good sell-through [inaudible]
If the self-restarts that I just read, were down.
Speaker Change: Then I would tell you, you know, these numbers may stay down for a while.
Speaker Change: But they're up, and when they're up, like fix it early. These guys have no choice. They have to buy or they'll lose the business.
So, we're feeling overall very good about that.
Speaker Change: We don't know what's going to happen with tariffs. We do know we're in a better spot than any of the competition.
Many of you have seen our competitive landscape slide.
So, you know, our competitors are in China.
They're in Mexico, they're in Canada, they're in Europe .
These are all air...
Speaker Change: We have the Dominican Republic is a lot of our manufacturing. It has the lowest tariffs of all the countries that our competitors are located in.
Speaker Change: We also manufacture a nice amount in the USA, because when we started the business, it was all in the USA and then slowly we had to move offshore to get enough labor to assemble and let's because our products have a lot of labor to them.
Speaker Change: So we have low tariffs of the DR, they're the lowest, they're 10% and only a portion of that is charged to...
Speaker Change: for tariffs, very low on input duties and everything else is made in New York. So we think we have an advantage.
Some of the distributors said holy macro, all our products come from Southeast Asia.
Speaker Change: We better, before they raise their prices, whatever they're going to be, 30%, 50% we don't even know. Before they raise their prices, these other competitive manufacturers, we should have our open to buy, buy some of that stuff. So because the next time we buy, it's going to be a higher prices.
So that impacted our distribution.
Speaker Change: But it's not a permanent thing, it's a temporary thing. As Kevin was just stating, they got to buy product, to satisfy the dealers.
Speaker Change: to get for the dealers to keep doing their jobs and the dealers are busy and they're buying both our products and all the tools and the support peripherals that they need and the distributor will lose all of that if a dealer moves to another distributor and gets the merch.
Speaker Change: So it's going to come around and come back. At the meantime we're beating the bushes for new customers.
Speaker Change: New Blood, we want New Blood and that's a big push in our company. We want New Dealers, Integrators, Locksmiths, [inaudible]
Speaker Change: We want large OEM accounts, private label accounts, so that's a big driving for us and that's part of the growth strategy going forward.
Speaker Change: And quick follow-up questions just on RPX. Obviously you'd get the ASC trade show expense.
Speaker Change: in the current quarter, but your op-x levels are at somewhat more elevated levels. So, Kevin, I don't know if you want to talk a little bit about how you see that even beyond the unusual, the trade show expense that you have in the right quarter.
So, OPEX
Speaker Change: was hired A because of legal. We have some legal matters going on, so OptX was impacted by that.
Speaker Change: Impacted by we added some personnel. We have an internal auditor on staff.
Speaker Change: Our goal as you guys all know is we don't want any material weaknesses.
Come, our sharks audit, that's coming up.
Speaker Change: So we want to make sure we do what's needed for that.
So, I think we're at a higher level now.
We have deloid as our auditors [inaudible]
The Big Four Firm
So, the S-TNA level you saw in Q.
3.
Speaker Change: It'll be even a little higher because of high at Sea West.
Speaker Change: That these levels will carry into fiscal 2026. We'll have IAC East, which will be in Q2 of fiscal 2026.
Speaker Change: But these are the levels that we're at now. As we always do, we will work hard.
to keep our HDNA costs or RPEX costs.
It's tight and it's tidy as they can be.
Thank you. I'll jump back on the queue.
Jason Smith: And your next question comes from the line of patients, a Jaeson Schmidt with Lake Street Peace Go ahead.
Jason Smith: But guys, thanks for taking my questions. Just curious if you could discuss any sort of price increases around the portfolio that you're implementing. Just give them the tariff background.
We implemented a price increase.
I call it a surcharge.
Jason Smith: Not really a price increase, but it's a surcharge, but it's in the form of a price increase to cover the tariff cost that we're faced with.
and we announced it.
in April.
Towards the end of April [inaudible]
Jason Smith: It was taken as a very fair request on our plane.
Jason Smith: and a lot of locking dealers, a lot of locking distributors rather.
Place the words.
Jason Smith: to try to beat the increase, because we put a time frame.
Jason Smith: It's going with implementing that increase by such and such a date.
We saw a lot of activity.
That's a good thing.
Jason Smith: I don't know what's going to happen as the rest of the quarter progresses, but that was a good thing. We typically take a price increase.
in July .
We do it once a year typically
So I expect we'll probably announce something soon.
And, usually...
That helps sales in the fourth quarter.
Jason Smith: as they try to beat the rush for that too. Again, we'll see what happens.
But as I said earlier, we're not going to allow.
Jason Smith: The tariffs to impact our margins. We're going to cover whatever is needed.
and we'll take price increases as we do every year.
and in our business we know we're mostly commercial.
is not a lot of pushback over pricing.
We've got to have the product to expect to pay.
Speaker Change: Gotcha, that's helpful. And then, just as a follow-up, can you discuss how the relationship can roll out at ADI's progressing?
Speaker Change: Right, so ADI, the relationship is about two years old now.
Speaker Change: It will be so maybe it's a year and a half [inaudible]
It's good. Their self-restats are very good.
They buy a lot of radios.
We'd love them to buy more things, more locks.
Speaker Change: But right now, they do a very good job. They've introduced us to a lot of dealers.
Speaker Change: Like a security task, which we've mentioned before, so they're on trade to a lot of lodge deals, so that part's a good thing.
Speaker Change: On previous calls, I thought, I said, maybe they'll get to be a 5% of total revenue customer, so that's the whole possibility, so they're doing well.
Ok, thanks a lot guys [inaudible]
Thanks, Jason.
Speaker Change: Going to be our next question, come from the line of Lance Vitanza with T.D.
Lance Vedanta: Thank you for taking the questions. I have two, basically. The first is back on the tariffs. Clearly from the standpoint of supply and cost.
Lance Vedanta: You have something of a strategic advantage relative to your peers, but thinking about tariffs from the demand side.
Lance Vedanta: Could you talk about historically speaking, how sensitive is the demand for security systems just relative to the just general ups and downs in the economy? If we if we have a tariff driven recession...
Lance Vedanta: Do you see that in a pullback in end-user demand or how resilient should we think about security in the context of that?
Lance Vedanta: There's a lot of criminality that's going on.
Lance Vedanta: The government wants to deport these people, but there's a whole faction that doesn't want these people deported. So there's a lot of nervousness in the general public.
Lance Vedanta: and there's a lot of shoplifting that goes on in the stores.
Lance Vedanta: is a certain decay of law and order in the U.S.
Lance Vedanta: And everybody knows about that. So we believe that we supply great security and safety to protect commercial buildings, inventories of all types, as well as residential.
Lance Vedanta: And the dealers are always going to be very busy from what we could tell.
Lance Vedanta: Our goal is to come out with new products, win more market share so that more of those dealers that are out there doing these jobs.
Lance Vedanta: have the best product to offer which does a lot of things like the MVP product for the
Lance Vedanta: and the cloud communications. And that's our goal. So we predicted that we were going to be more than 50% in recurring monthly revenue and that's a very important part of our driving force going
Lance Vedanta: and the manufacturing of that equipment in the DR factory will amortize our overheads and give us more margin on the hardware.
Lance Vedanta: So that's what we see and we expect to have continued success going forward. At long term we've been very, very successful in growing our business and we expect it to continue.
Lance, you know we've been doing this a long time.
And we've been through recessions.
Economic downturns, whatever it is.
Lance Vedanta: We think our business is pretty much recession resistance, recession proof, whatever words you want to use people need security good times and bad times.
Lance Vedanta: So we'll navigate through this like we have in the past.
Lance Vedanta: for 2026, or if you prefer, maybe just maybe talk about it on a normalized basis.
Lance Vedanta: And, you know, I guess related to that, the the sharey purchases have accelerated, right, throughout the course of the year.
Lance Vedanta: Basically, Sherry purchases over the first nine months of the fiscal year have been equal to 100% of EBITDA If the shares remain undervalued
Lance Vedanta: You know, would you continue to sort of use the bulk of your cash flow to repurchase shares in 2026 or is there a reason that we should think that 2025 these past nine months have been something of a fluke? And again, I'm just, you know, we don't know where the stock is going to go but if the stock were to stay where it is today. [inaudible]
Thank you.
in these times, buying back stock.
Lance Vedanta: You know, may not get you with what you think it'll get you.
and I like having a lot of cash.
And if you look at how much we spent...
Lance Vedanta: In the nine months between dividends and buybacks, we spent a lot of money. We generated cash from operations.
That $39 million in the nine months.
And we spent way more than that.
Doe
That's the beauty of having powerful cash flow.
We don't rule anything out.
It's possible we'll do more by-backs [inaudible]
We got to see.
Lance Vedanta: We got to see how things have the stock behaves, how the economy behaves.
It's nice to have the luxury [inaudible]
to have the ability.
Lance Vedanta: to do it if we want to do it. And, you know, we're not saddled with any debt.
Cash flow will stay strong.
Lance Vedanta: It's been strong for the last several years, not gonna get any weaker [inaudible]
Lance Vedanta: So we'll watch it, we'll see. We don't rule anything out.
Fair enough, thanks guys.
Lance Vedanta: As a question, these dresses star one on your telephone keypad.
Speaker Change: We do have our next question coming from the line of Jeremy Hamblin with Craig Hall and Capital Group, please go ahead.
Speaker Change: Great. Thanks for taking the questions. Wanted to come back to the price increases or the surcharges?
Speaker Change: that you noted and just get a sense for the magnitude of what you announced in April and then I think maybe as you get to July one, typically you're more in like a two, three, four percent, just to get a sense for the magnitude of how much cumulatively.
You're looking out here.
We announced an 8.5% increase.
Speaker Change: Again, I call it a surcharge, but it was to cover tariffs.
And that's when in effect, and the Vapro.
Separate and apart from that, we take a price increase.
Typically, once a year in COVID times in the past,
We did multiple price increases.
The expectation is we'll do one, we'll announce once soon.
As you mentioned, it usually lists...
3 and 4%
Speaker Change: It might be more than that this time, we're looking at it. So, we haven't decided that yet.
Speaker Change: We've got it helpful. And then as we look ahead here, typically fourth quarter is, as you know that you're strongest.
Speaker Change: From a seasonal perspective, you had to have a little bit softer equipment revenues, though the last couple of quarters which can sometimes impact your service revenue growth.
Speaker Change: Wanted to get a sense as we look here at Q4 if that typical seasonality plays out, and then, you know, as you've had a little bit softer equipment sales, you know, will that kind of impact the beginning of fiscal 26?
from a Service Revenue Growth Perspective.
Well, we saw...
the benefits of COD.
of the Strong Inc.
Radio Quarter, that we had in Q1.
Speaker Change: Just started to feel it, to taste it. The run rate was 89 million versus 86.
The pure increase.
Sequential increase was 400,000, it was 100,000 prior.
So, we need strong radio cores
Speaker Change: We expect to have strong radio quarters going forward as evidenced by...
the self-destance that we see.
So that's part A, part B.
Speaker Change: 2-4 has always been the best quarter few reasons.
The weather gets nicer, the selling season.
Speaker Change: People tend to do more jobs, projects, etc. in the spring and the summer than in the heart of the winter. So historically, we've always had a strong April-May June announcing a price increase that's going to take effect.
in July Bye.
Speaker Change: That helps too, and that's kind of how we've always done it.
So...
Again?
We usually do.
Speaker Change: They're craziness, tariff, mania out there, I don't know, I can't predict to you 100% going to happen, but that's why Q4 is always so good.
Speaker Change: Dufours is usually the best of the four quarters. Our hope is it'll be that way again. We can't really comment on it and more.
Speaker Change: Self-thru stats are good because we're good in any kind of economic environment, security is needed.
I think the outlook is good.
We'll get through these.
Distributor Issues That's Going On Now
Speaker Change: that we have increased our engineering diploma to come out with new innovations and new products at the dealers are liking.
Thank you.
Speaker Change: We expect to pick up share in the business and then we have the fundamental Dominican aspect of our business which has the lowest tariffs of all the countries in the world, it's at the lowest level.
So...
Speaker Change: If I was a dealer and I have products with competitive advantages over anything that I'm using now do a lot more things get me more recurring revenue.
Speaker Change: Or maybe I don't get recurring revenue at all from the products that I am using and the NAPCO Alomlock Continental and Mark's products do get me recurring revenue.
Speaker Change: and the prices are going to be less expensive than the products I'm using now and the sales forces out beating the bushes to bring new blood in.
Speaker Change: As a dealer, I would be remiss not to start using the NAPCO products with better pricing and better functionality.
Speaker Change: So that's an important advantage for NAPCO, having a Dominican connection, manufacturing products between Dominican and America.
Speaker Change: Virtually 100% and have any advantages over the competition. So it bodes well for the future for us.
Speaker Change: Right. And then as a follow-up question, what about in terms of dealer incentives?
Speaker Change: Given your supply chain, do you sense that, you know, kind of dealer incentive that you might need to offer?
Speaker Change: or that your dealers are offering, is that something that you feel like might come down in this environment? Or any color you might be able to share on that would be great.
Speaker Change: You know, we announced the 8.5% increase wasn't sure what the reaction to that was going to be.
The reaction was...
Speaker Change: That's good, that's fair, and we saw a lot of distributors race to get in there.
So, I don't know if we have to incentivize and-
We usually take that and play that as we go.
We make enough good margin if we had to.
Speaker Change: off of more incentives we could, but I think we're doing a lot already.
We'll just watch that.
as it comes [inaudible]
Obviously, we're not afraid to be aggressive [inaudible]
especially with radios [inaudible]
Speaker Change: You remember what we did years ago when we were the only company who could get that hard to get micro.
to build radios [inaudible]
Speaker Change: Nobody can get it. We had to pay $50 for the micro and the normal price of $5.
Everybody else? Bros, they wouldn't do it. We did.
We picked up chair.
Speaker Change: picked up a lot of big dealers who were dying to get radios at that time.
So, I think we're pretty sensitive to market conditions.
Speaker Change: And if we need to be more aggressive, we will be [inaudible]
Speaker Change: One of the things we did show at the show, which Kevin brought up before, just wanted to add to it, we showed our line of fire panels.
Speaker Change: And you know, fire is a legislative type of product for buildings, commercial buildings.
So we have new fire panels that we showed.
Speaker Change: And all those firepattles have a radio. In the days previous to radio business, they connected those firepattles up to copper wires. They don't do that anymore.
Speaker Change: So our line of fire panels are great for new construction.
Speaker Change: Are in it so we get recurring revenue for the new work as well as all the millions of jobs that still have to be upgraded that are still using traditional copper. So we think of this...
Upgrading, there has to be done
and then all the new work.
Speaker Change: Great, thanks so much for all the color and best wishes.
Thanks, Jeremy.
Speaker Change: If your next question comes from the mind of Jim Ricchiuti, we need him and combine a piece ahead.
Jim Bricutti: I think so. We've gotten a few questions just in light of some of the spending actions on the part of the federal government as it may relate to school funding. And I know you guys are a little bit removed from
Jim Bricutti: I'm being able to identify specifically how much of the business is coming from that area but in general what are you seeing as it relates to that market opportunity if you as you can.
Jim Bricutti: That market is as good as ever. Whatever cuts are going on in the federal government.
The government is not going to mess with school security [inaudible]
The shootings continue, we all know this.
And the funding is available, it's not touched.
And it's just the question of getting more schools.
To Take Action
Jim Bricutti: There's many schools that still have not done anything about it. The two most recent shootings that we have last month, in both cases, they didn't have equipment to protect the kids.
Jim Bricutti: They were barricading chairs against the doors, the old at the same old story.
Jim Bricutti: So, we have to keep trying to educate these school districts and universities. They have the money whether it's through legislation or endowments, they have the money.
To do it, nothing has changed with that [inaudible]
So.
Jim Bricutti: We continue to push to get as many schools to do upgrades as possible.
Speaker Change: Thanks, and one quick question, if we could an update on Prima, didn't hear, I haven't heard much on that. How satisfied are you with the progress you're seeing on that product?
We thought this could be...
A big, you know, 10,000 a month private.
Speaker Change: It hasn't gotten to that point. It's much better than it was.
I think you've heard us say that… [inaudible]
Speaker Change: We introduced it to soon. Didn't have all the accessories. Has all the accessories.
Numbers Have Improved [inaudible]
Speaker Change: We're still working hard because we wanted to improve even more. It's a very cut-throat segment. It's not residential, it's much different than commercial.
We're working at heart.
So...
Speaker Change: You saw it. If you were at INC, you saw it. You got a lot of attention.
To the point where we want a biddy [inaudible]
Got it. Thank you.
Okay, Jim.
Speaker Change: And we have no further questions at this time. I would like to start it back to Richard Soloway for closing remarks.
Speaker Change: Thank you everyone for participating in today's conference call. As always should you have any further questions, please feel free to call friend Kevin or myself for further information. We thank you for your interest and support and look forward to speaking to you all again in a few months to discuss NAPCO's fiscal Q4. Thank you very much.
and full-year results.
Thank you and bye-bye everybody.
Speaker Change: Thank you, presenters and ladies and gentlemen. This concludes today's conference call. Thank you all for joining. You may now disconnect.