It's safe to say Napco Security Technologies had a pretty good 2016.
The company has reported net sales for the second quarter (ending Dec. 31, 2016) increased to record revenue of $20.7 million, compared to $20.5 million for the same period one year ago.
Net sales for the six months increased to $40.9 million compared to $38.6 million for the year prior, an increase of 6 percent.
Net income for the three months decreased to $857,000 compared to $976,000 for the same quarter last year, a decrease of 12 percent. Net income for the six months increased to $1.4 million compared to $1.3 million for the year prior, an increase of 10 percent.
During a recent earnings call, the company said the decrease in net income for the quarter was due to an additional $187,000 tax provision this year compared to last year, which was primarily due to higher R&D tax credit last year. The increase in net income for the six months was primarily due to increased sales and higher margins this year versus last year.
On a per-share basis, the company said it had profit of 5 cents. Napco shares have increased nearly 9 percent since the beginning of the year. The stock has increased 74 percent in the last 12 months.
RMR Plays a Role
Recurring monthly revenue (RMR) for the second quarter increased 68 percent compared to the same quarter a year ago and grew 14 percent sequentially. During an earnings call this week, the company said recurring revenue is approaching 10 percent of its total sales.
The company said its subscription-based RMR is being fueled by increased sales of its base StarLink 3G/4G, Verizon CDMA and commercial fire and intrusion alarm communicators, as well as iBridge Connected Home products.
The positive Q2 sales were primarily related to increased sales of intrusion products, as well as RMR growth, as partially offset by increased sales of door locking products, according to the company.
“Door locking products were impacted by some locking distributors deploying an inventory reduction year-end strategy. However, we continue to sell-through data with such distributors, and it indicates increased vitality in their businesses,” Napco CFO Kevin Buchel said during the earnings call. “And, thus, we expect a return to normal purchasing habits in the upcoming quarters.”
EBITDA and R&D
Gross margin for the second quarter was 31.9 percent of sales, a 160 basis-points improvement versus the second quarter last year. Gross margin for the six months was 32 percent, a 140 basis-points improvement compared to the same period the year prior.
The margin improvement was partially offset by an increased investment in R&D to support the launch of new products and services, as well as investment in sales and marketing to support a portfolio of new products.
The incremental investment was one of the primary drivers of the increase in SG&A costs during quarter, Buchel explained. SG&A costs for the second quarter increased 7.2 percent year-over-year to $5.6 million, and as a percentage of sales, increased to 26.8 percent from 25.3 percent last year. For the six months, SG&A increased 7.6 percent to $11.2 million, and as a percentage of sales, increased to 27.6 percent from 27.2 percent last year.
Adjusted EBITDA for the second quarter increased approximately 2 percent to $1.5 million or 8 cents per diluted share, compared to $1.4 million 8 cents diluted share the previous year. For the six months, adjusted EBITDA increased 19 percent to $2.5 million 13 cents per diluted share, compared to $2.1 million or 11 cents per diluted share the year prior.
Napco reported a cash balance on Dec. 31, 2016, of $3.8 million.
ISC West Portfolio Highlights
During the earnings call, Napco president and CEO Richard Soloway provided a glimpse of what the company will be highlighting from its portfolio at ISC West 2017.
One example is CA4K, an enterprise-class access and security software platform. The updated software program for Continental Access customers will provide the ability for real-time screening against regional and governmental data bases to pre-screen for potential threats. Among other features, the update is said to allow for easy integration with older systems made by Napco competitors, Soloway said.
The StarLink Dual-Path Fire Communicator, expected to be released in the third quarter, will also be highlighted at ISC West. The radio addresses the need in certain markets where it is required for both a cellular and Internet signal to be sent to the central station. “This should expand the fire communicator business nationwide and generate more recurring revenue,” Soloway said.
In the locking side of the business, Napco will unveil its new iLock app, which works with Alarm Lock and Marks Locks that are already deployed in many schools, universities and high-rise buildings. The app allows for control from a smartphone to lock and unlock doors.