Napco’s Emphasis on RMR Is Paying Off Despite Dip in Q4 Sales

Prior to the pandemic, Napco had 23 consecutive quarters of record sales. CEO Soloway says his vision is to get all equipment to generate RMR.

AMITYVILLE, N.Y. — During a fourth-quarter earnings call Tuesday, Napco President and CEO Richard Soloway told investors although fiscal year 2020 equipment sales were impacted by the COVID-19 pandemic, the company was beginning to see a pickup in its business as dealers and integrators gain more access to install equipment as businesses continue to reopen.

Net sales for the quarter decreased 22% to $23 million as compared to $29.6 million for the same period last year. Net sales for the fiscal year decreased 2% to $101.4 million as compared to $102.9 million for the same period last year.

Napco (Nasdaq: NSSC) said it had a loss of 10 cents per share. Earnings, adjusted for asset impairment costs, were less than 1 cent on a per-share basis. For the year, the company reported profit of $8.5 million, or 46 cents per share.

Recurring service revenue for the quarter increased 35% to $6.7 million as compared to $5 million for the same period last year. Recurring service revenue for the fiscal year increased 38% to $24 million as compared to $17.4 million for the same period last year.

“We are pleased to emphasize that despite the pandemic, our recurring revenues continue to grow at a rapid rate,” Soloway told investors. “Our recurring revenues increased 35% in Q4, with a gross margin of 83% and now has an annual run rate of $27.5 million as of June. Our focus on targeting the professional installation and mostly commercial end markets is driving this continuous growth.”

Adjusted EBITDA for the quarter was $1.5 million or 8 cents per share, compared to $5.2 million and 28 cents per share last year. For the year adjusted EBITDA earnings per share was 80 cents, as compared to 81 cents for the same period a year ago.

Prior to the onset of the pandemic, Napco had achieved 23 consecutive quarters of year-over-year record sales. Soloway said he remains confident the company is well positioned to resume record sales and will continue to add products and services to enhance recurring revenues.

“The big picture here, the vision is to get all of our equipment to generate recurring revenue,” he said.

As an example, Soloway referenced the company’s latest RMR product innovation, the iSecure commercial and residential 80-zone alarm system, continued its rollout during Q4. The new offering is enabled by communication technology which allows the company and authorized dealers to generate recurring revenue with every sale and installation.

“As we look into the future, expanding our cellular communications technology to other areas in the security industry is a focal point of our strategy. During the late fall-early winter months we plan to introduce a cellular-based locking and access control product line using our StarLink technology,” Soloway explained. “This new product, called Air Access, allows dealers and Napco to generate recurring revenue. A few of the benefits that end users will enjoy include no need for upfront investment in hardware or additional IT personnel, no onsite database, no backups or software updates.”

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Although Bosch’s name is quite familiar to those in the security industry, his previous experience has been in daily newspaper journalism. Prior to joining SECURITY SALES & INTEGRATION in 2006, he spent 15 years with the Los Angeles Times, where he performed a wide assortment of editorial responsibilities, including feature and metro department assignments as well as content producing for latimes.com. Bosch is a graduate of California State University, Fresno with a degree in Mass Communication & Journalism. In 2007, he successfully completed the National Burglar and Fire Alarm Association’s National Training School coursework to become a Certified Level I Alarm Technician.

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