NAPCO Posts 42% YOY Recurring Revenue Increase in Q2

Gross margin for recurring service revenue for the second quarter was 85% as compared to 81% for the same period last year.

AMITYVILLE, N.Y. — NAPCO Security Technologies (NASDAQ: NSSC) posted a second-quarter net sales record of $27.2 million, representing a 17% increase as compared to the previous quarter and a 5% increase for the same period last year.

Recurring service revenue for the second quarter increased 42% to $8.2 million as compared to $5.8 million for the same period last year.

Net income for the quarter was $3.2 million, as compared to net income of $2.3 million last quarter, representing a 38% increase and net income of $3.6 million for the same period a year ago, a 10% decrease.

Earnings per share (diluted) for the quarter was 17 cents as compared to earnings per share of 13 cents last quarter and earnings per share of 19 cents for the same period a year ago.

Second quarter adjusted EBITDA was $4.2 million as compared to $3.2 million last quarter, representing an increase of 31%, and $4.7 million for the same period a year ago, an 11% decrease. Adjusted EBITDA per share for the quarter was 23 cents as compared to 17 cents last quarter and 25 cents for the same period a year ago.

Prior to the onset of the coronavirus pandemic, the company posted 23 consecutive quarters of sales growth and now has started a new streak, Richard Soloway, chairman and president, states in a press release. When COVID-19 restrictions to hold, many security and fire/life-safety dealers experienced limited or no access to buildings and homes to perform commercial or residential security installations, he says.

NAPCO products are primarily sold through distribution to dealers. The company is seeing strong sell-through statistics from several of its largest distributors, according to Soloway.

“Increased sell-through of our products from our distributors to the alarm and locking dealers during the quarter as compared to the same quarter last year, which was pre COVID-19, indicates that security equipment professionals are getting increased access to both commercial and residential installation sites and using more and more of our products,” he says.

The company’s fully integrated technologies for the school security market remain another top priority for the company. Soloway explains the COVID-19 pandemic has caused some delay in spending at certain K-12 schools, colleges and universities. And although the company has experienced postponements of planned security upgrades, it has not seen a significant number of cancellations. On a positive note, Soloway says, the pandemic has presented extended windows for system installations due to the absence of students and teachers.

NAPCO recently introduced Air Access, a cellular, Cloud-hosted access control product line that is said to allow access control integrators and locking professionals to build a recurring revenue business for themselves, similar to how the company’s intrusion and fire alarm dealers do. While still in the very early stages, Soloway says the company expects the product line to provide it the opportunity to generate recurring service revenue from each of its divisions: alarms & connectivity, locking and access control.

“As we enter the second half of fiscal 2021, we are well-positioned for the economic recovery we expect to occur. I am proud of our resiliency and ability to execute even during difficult and uncertain times,” Soloway concludes. “We remain focused on generating continued strong recurring revenue growth as well as increasing overall gross margins.”

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