NAPCO Reports 23% Q2 Sales Increase on Strong Equipment Revenue

Recurring service revenue for the quarter also increased 35% to $11 million as compared to $8.2 million for the same period last year.

AMITYVILLE, N.Y. — NAPCO Security Technologies (Nasdaq: NSSC) on Monday reported net sales for the quarter increased 23% to a second-quarter record of $33.4 million, as compared to $27.2 million for the same period one year ago.

Net sales for the six months ended Dec. 31, 2021, increased 28% to $64.5 million as compared to $50.4 million for the same period a year ago.

Operating income for the quarter was $1.3 million as compared to $3.7 million for the same period last year, a 65% decrease. Operating income for the six months ended Dec. 31, 2021, was $5.4 million as compared to $6.3 million for the same period last year, a 14% decrease. Net income for the quarter was $1 million or 3 cents per diluted share as compared to $3.2 million or 9 cents per diluted share for the same period last year, a 68% decrease.

Net income for the six months ended December 31, 2021, increased 59% to $8.8 million or 24 cents per diluted share as compared to $5.5 million or 15 cents per diluted share in the same period last year. Both operating income and net income for the quarter were impacted by supply chain disruptions which affected hardware gross margins as well as the aforementioned stock-based compensation charge of $1.3 million.

Adjusted EBITDA for the quarter was $3 million, or 8 cents per diluted share, as compared to $4.2 million, or 11 cents per diluted share for the same period last year, a 29% decrease. Adjusted EBITDA for the six months ended Dec. 31, 2021, increased 57% to $11.6 million or 31 cents per diluted share as compared to $7.4 million or 20 cents per diluted share in the same period last year.

Net income, earnings per share, adjusted EBITDA and adjusted EBITDA per share for the six months ended Dec. 31, 2021, all reflected other income of $3.9 million which resulted from extinguishment of debt during the quarter ended Sept. 30, 2021. Without such benefit, net income, earnings per share, adjusted EBITDA and adjusted EBITDA per share would have been $4.9 million, 13 cents, $7.7 million and 21 cents, respectively.

In a press release, Richard Soloway, chairman and president, explains both equipment revenue (up 18%) and recurring service revenue (up 35%) contributed to the quarter’s sales growth, marking the fifth consecutive quarter of year-over-year sales growth.

NAPCO now has a prospective annual run rate of $46.2 million based on January 2022 recurring service revenues. Gross margin for recurring service revenue also continued to be strong at 87% for the quarter, which compared to 85% for the same period last year.

“While our overall gross profit remained relatively constant at $11.4 million, our gross margin on hardware decreased by $2.6 million as it continued to be dramatically affected by the current, worldwide supply chain problems, particularly with increased freight and component parts costs,” Soloway says. “In addition, another significant factor affecting hardware margins was the continued shift in product mix to more of the company’s Starlink radios, which have lower gross margins than many of the company’s other products, but lead to the profitable recurring service revenues.”

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