Napco Security Technologies, Inc. Q4 FY2025 earnings call

• Received a clean opinion on internal controls over financial reporting for fiscal 2025. - Recurring revenue run rate at $94 million, up $5 million from prior quarter, with gross margin 91%. - Equipment sales in Q4 up 27% sequentially from Q3. - Reduced inventory levels by $8.6 million as of June 30, 2025. - Returned $13.6 million in dividends and repurchased $36.8 million of stock. - Implemented two pricing increases: 8.5% in April to offset tariff costs and 5% standard annual increase. - StarLink fire radios are a strong part of the recurring revenue mix. - Focus on school security solutions with integrated locking, access control, and alarm technologies. - Invested in R&D, with R&D costs increasing in Q4. - Ended fiscal year with over $99 million in cash and debt-free balance sheet.

Recurring revenue run rate in Q4 was $94 million, up $5 million from prior quarter, representing a large quarterly increase in the past 2 years. Recurring monthly service revenue in Q4 increased 10% to $22.4 million, and for the 12 months ended June 2025, it increased 14% to $86.3 million. Equipment sales for the quarter decreased 5.5% to $28.3 million, but increased 27% sequentially from Q3. Recurring revenue gross margin was 91%, while equipment revenue gross margin was 23% in Q4. Equipment sales for the year ended June 2025 decreased 15.7% to $95.3 million.

• Expect continued growth in recurring revenue, with momentum building. - Anticipate double-digit growth in equipment sales due to easy comps and pricing actions. - Benefits of pricing actions expected to be reflected in Q1 2026. - Confident in sustainable growth while protecting margins through diversification, automation, and StarLink platform enhancement. - Strong balance sheet provides flexibility for organic growth and potential acquisitions.

• Tariff policy and broader market conditions remain dynamic and uncertain, potentially impacting margins. - Uncertainties in distributor inventory levels and market demand could affect sales. - Impact of unforeseen factors on underlying assumptions in forward-looking statements.

Q: Given that some distributors are still taking down inventories, should we be concerned with respect to where channel inventories sit today, given that it sounds like there may have been a little bit of a broader buy ahead related to the tariff-driven price increases?

A: Kevin S. Buchel stated that inventory bought pre-tariff price increase was in April, sell-through stats are good, tariff chaos has cleared up, and distributors know Napco is the best game in town with clear direction, expecting inventory to continue to be strong.

Q: To what extent there was a benefit from the first price increase in the June quarter? And broadly, if you can help us with the overall impact on gross margins, equipment gross margins from tariffs in the quarter?

A: Andrew J. Vuono said limited benefit in Q4 from price increases as company honored orders placed prior to price increases, tariffs had full impact in Q4, and expecting lift from pricing adjustments in Q1.

Q: How is the channel uptake relative to the plan for MVP and Prima launches?

A: Richard L. Soloway said MVP cloud-operated system is expected to be a strong growth product, with two basic models for enterprise and smaller buildings, and salespeople demoing and training on it.

Q: Curious if the strong sell-through seen in September is being seen both on the radio and locking side?

A: Kevin S. Buchel mentioned sell-through was very good in the June quarter across the board, including fire radios and locking, with expectations of continuation in Q1.