Napco Security Technologies, Inc. Q3 FY2026 earnings call

• Actively building out investor relations calendar with non-deal roadshows and conference appearances. • Operational drivers include continued growth of recurring service revenue, improvements in product margins, and strong expansion in profitability metrics. • Recurring service revenue has an annualized run rate of over $100 million with gross margins exceeding 90%. • Hardware business achieved solid performance with equipment revenue growth and margin improvement. • Non-GAAP net income increased nearly 37% year over year, and adjusted EBITDA increased more than 20% compared to the prior year. • Focus on driving growth in recurring service revenue, improving product margins, and maintaining focus on profitability and cash generation.

Recurring service revenue increased over 15% year over year and represented approximately 51% of total company sales, with an annualized run rate of over $100 million. Equipment revenue grew over 8% year over year, and equipment gross margins improved to approximately 29%. Overall gross margins expanded to approximately 60% for the quarter.

• Continue to drive growth in recurring service revenue. • Further improve product margins through operational discipline and efficiency initiatives. • Maintain strong focus on profitability and cash generation. • Expect to see continued progress against long-term strategy with focus on recurring service revenue platform and equipment business.

• Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements. • Factors include those described in SEC filings, and other unknown or unpredictable factors could cause actual results to differ materially. • Litigation settlement and related uncertainties were discussed as a risk factor.

Q: How should we be thinking about pricing actions for fiscal 27 and balancing discounting programs?

A: This year has a general price increase but is more disciplined in discounting, aiming for both more hardware sales and maintained margins.

Q: Traction in revenue from MVP?

A: MVP started clock from ISC West last year, expect meaningful recurring revenue by October this year, getting good interest and doing training.

Q: Activity in door-locking business and architectural engineering-related parts?

A: School segment strong, locking sales strong with big projects in the works.

Q: Distributor channel and equipment revenue margin drivers?

A: Distributor channel stable, equipment revenue margin drivers include less discounting, favorable mix, and volume from Dominican Republic factory.

Q: Cost side of business and tariffs?

A: ISC West expense in Q3 this year favorable, R&D in 7 - 7.5% of sales range, tariff exposure being managed with refund claims process.

Q: Cashflow, dividend, and share repurchase?

A: Working capital managed well, dividend not affected by litigation settlement, share repurchase possible depending on stock performance