Napco Security Technologies, Inc. Q2 FY2026 earnings call

• Record Q2 revenue of $48.2 million, continuing momentum from Q1, fueled by the recurring revenue model. • Equipment revenue showed consistent growth with double-digit increases, bolstered by door locking and intrusion/alarm segments. • Recurring revenue maintained strong performance with a run rate of $99 million, driven by StarLink commercial fire radios. • Added Chief Revenue Officer Joe Paczynski with 35+ years of business development experience. • Balance sheet strength with $115 million in cash and marketable securities, no debt, and a quarterly dividend increase to $0.15 per share. • Operational highlights include tight inventory management, product development, compliance, automation, and a Dominican Republic manufacturing facility providing cost efficiency and low tariff exposure.

Total revenue for the quarter was $48.2 million, a 12.2% increase compared to the previous year's second quarter. Equipment revenue was $24.3 million, up 12% year-over-year, with an equipment gross margin of 28%. Recurring revenue grew 12.5% over the previous year's Q2 to $23.8 million, maintaining a strong gross margin of 90.2%. The recurring revenue prospective annual run rate was $99 million as of January 2026, an increase from the $95 million run rate reported last quarter.

• Continued momentum expected through fiscal 2026, with confidence in executing the plan to enhance shareholder value. • MVP cloud-based access control platform expected to contribute meaningfully to recurring service revenues in the second half of 2026. • Focus on sustaining growth through innovation, infrastructure investment, and expanding recurring service revenue opportunities. • Expectation of maintaining strong operating leverage with EBITDA margins exceeding 30%.

• Forward-looking statements subject to risks outlined in SEC filings, including unknown or unpredictable factors that could cause actual results to differ materially from projections. • Risks related to market conditions, regulatory changes, and unforeseen events affecting product performance and revenue growth.

Q: Congrats on the strong results. Wanted to start by getting into the dealer channel and inventory levels. Also asked about the MVP access platform uptake and impact on recurring service revenues.

A: Kevin Buchel noted the channel is more normalized, less discounting, and gross margin helped by less discounting and price increases. On MVP, uptake is encouraged, with meaningful contributions expected in the second half of 2026.

Q: Just on the hardware growth, asked about additional pricing benefit in Q3 versus Q2 and the larger projects business.

A: Andrew Vuono stated pricing increases were effective beginning Q2, fully baked in for the year. Kevin Buchel mentioned no difficult comps in larger projects business going forward.

Q: Could you just provide an update around the ADI partnership? Also asked about incremental pricing actions to offset raw material pressures.

A: Kevin Buchel said ADI relationship is great, with continued introductions to large dealers, but more work needed on locking contribution. Andrew Vuono stated they are monitoring component costs but not seeing incremental inflation, and pricing increases were positive.

Q: Wanted to start with a question regarding the schools and door locking remote access. Also asked about the equipment side outlook and capital allocation.

A: Kevin Buchel said there are projects all the time, spread over years. On equipment, radio sales growth feeds into recurring service revenue growth. Andrew Vuono mentioned capital allocation considerations including acquisitions, dividends, and other return of capital methods, with careful consideration to maintain business stability