Pandemic Takes Bite Out of NAPCO Q1 Revenues as RMR Climbs 36%
Napco says the COVID-19 pandemic negatively impacted equipment sales, which was the principal reason for the decline in total revenue.
First quarter recurring service revenue, gross margin, net income and non-GAAP adjusted EBITDA exceeded analysts' expectations.
AMITYVILLE, N.Y. — NAPCO Security Technologies (Nasdaq: NSSC) reported a profit in the fiscal first quarter ended Sept. 30 that dropped from the same period last year.
The company posted earnings of $2.3 million, or 13 cents per share. This compares with $3.2 million, or 17 cents per share, in last year’s first quarter.
Analysts had expected the company to earn 10 cents per share, according to figures compiled by Thomson Reuters. Analysts’ estimates typically exclude special items.
The company’s revenue for the quarter fell 12% to $23.2 million, as compared to $26.3 million for the same period one year ago.
Recurring service revenue for the quarter increased 36% to $7.3 million as compared to $5.4 million for the same period last year. Recurring service revenue now has a prospective annual run rate of $29.7 million based on September’s recurring revenues. Gross margin for recurring service revenue for the quarter was 84% as compared to 79% for the same period last year.
Non-GAAP adjusted EBITDA for the quarter was $3.2 million as compared to $1.5 million in the 4th quarter of fiscal 2020, representing an increase of 115%, and $4 million for the same period a year ago. Non-GAAP adjusted EBITDA earnings per share for the quarter was 17 cents as compared to 8 cents in the 4th quarter of fiscal 2020 and 22 cents for the same period a year ago.
In a press release, Richard Soloway, NAPCO chairman and president, comments, “The robust growth in recurring service revenue and the associated gross margin is primarily attributable to the fire alarm business, which has not been significantly affected by COVID-19. The fire alarm business is a ‘mandated business’ which means, to receive a certificate of occupancy for a building, a fire alarm system is mandatory and must always function in compliance with fire codes. Because of the essential nature and high profitability of this sector, the commercial fire alarm business continues to be one of the key areas that we focus our resources on.”
Prior to the onset of the coronavirus pandemic, the company reported 23 consecutive quarters of sales growth. Upon shutdown orders, many installing security contractors experienced limited or no access to buildings and homes to perform commercial or residential security installations.
“We sell our products primarily through distribution to dealers and we are seeing improved sell-through statistics from several of our largest distributors,” Soloway says. “Increased sell-through of our products from our distributors to the alarm and locking dealers during the quarter as compared to the previous quarter indicates that security equipment professionals are getting increased access to both commercial and residential installation sites.”
Expanding the NAPCO’s fully integrated technologies into the education market remains another top priority, Soloway says.
“The COVID-19 pandemic caused some delay in spending at certain K-12 schools, colleges, and universities. While we have seen postponements of planned security upgrades, we have not seen a significant number of cancellations. On the positive side, it has also presented extended windows for system installations due to the absence of students and teachers. As a result, we are seeing encouraging levels of quotation activity,” he says.
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