Napco Security Technologies, Inc. Q1 FY2026 earnings call

• Record Q1 revenue continues momentum from Q4 2025, reflecting focus on long-term growth and resiliency. • Recurring revenue has steady growth with substantial profitability, now nearly half of total sales with 90%-plus gross margin. • Equipment revenue strong due to distributor relationships and early impact of price adjustments (tariffs and annual increase). • Operating income increased 15% year-over-year, net income rose 9% to a Q1 record of $12.2 million, adjusted EBITDA up 21% with margin of 30.4%. • Cash reached $106 million as of September 30, 2025, with no debt, and dividend declared. • Focus on school security with integrated solutions, StarLink Fire radio platform as industry standard, MVP cloud-based access control platform driving recurring revenue, expansion of hardware lines in various sectors, and Dominican Republic manufacturing facility for cost efficiency and stable logistics.

Total revenue for the quarter was $49.2 million, a Q1 record and up 12% compared to the same period last year. Equipment sales reached $25.7 million, also up 12% year-over-year. Recurring revenue grew 11% over last year's Q1 to $23.5 million, maintaining a gross margin of 90.3%, with StarLink commercial fire radios being the key driver. Equipment gross margin improved to 26%, representing a 300 basis point sequential increase from fiscal 2025's Q4. Recurring revenue now represents nearly half of total sales.

• Expect larger benefit from pricing adjustments in upcoming quarters of fiscal 2026. • Optimistic about market dynamics, having implemented pricing actions, diversified distribution base, and invested in automation/enhancements to StarLink platform for sustained growth and margin protection. • Strong balance sheet provides flexibility for organic investments and potential strategic acquisitions. • MVP cloud-based access control platform has potential to be a game changer for higher-margin recurring revenue.

• Market dynamics and regulatory changes may impact performance. • Tariff uncertainties could affect pricing and margin. • External factors may influence distributor behavior and inventory management.

Q: On locking, what percent of locking mix is networked product and how MVP technology differs from others?

A: Kevin Buchel said most locking sales are traditional products, MVP is just starting, locking is 66% of equipment sales. Richard Soloway explained MVP is a total integrated hardware-software package with recurring revenue tail, manufactured in-house, unique as they do it all from hardware to software.

Q: In fiscal first quarter, how much of hardware revenue growth was price vs volume?

A: Andrew Vuono said approximately 60% of equipment revenue increase in Q1 is related to volume increases and 40% tied to pricing increases in Q1.

Q: Service margins decline, what's causing pressure?

A: Kevin Buchel said factors include introducing T-Mobile into triple carrier radio requiring buying minutes and large dealers commanding slightly better prices but picking up more recurring revenue.

Q: Manufacturing facility and tariff impact?

A: Richard Soloway said Dominican Republic facility was unaffected by hurricane, tariffs are stable at 10%, no need for additional price increases now but expecting more benefit as year progresses.

Q: Update on ADI relationship and school security?

A: Kevin Buchel said ADI relationship is excellent but wants more locking sales through them. Richard Soloway talked about school security opportunities being tremendous with ongoing shootings and schools moving slowly but NAPCO having solutions and being a one-stop shop.