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Napco Reports Strong Q2 Performance

Napco says its net sales rose 4% in Q2 and the company increased its recurring service revenue by 44%.

Rodney Bosch

Napco Security Technologies (Nasdaq: NSSC) on Monday reported second-quarter net sales rose 4% to $25.8 million, a record performance for the period and the 22nd consecutive quarter of year-over-year record sales, as compared to $24.8 million for the same period a year ago.

The company reported 19 cents earnings per share for the quarter, topping analysts’ consensus estimates of 18 cents.

Adjusted EBITDA for the quarter increased 24% to $4.7 million or 25 cents per diluted share, as compared to $3.8 million or 20 cents per diluted share last year. For the six months, adjusted EBITDA increased 48% to $8.7 million or 47 cents per diluted share, as compared to $5.9 million or 31 cents per diluted share last year.

For the six months ended Dec. 31, net sales increased 8% to $52.1 million as compared to $48.2 million last year. The increase in sales for the quarter and the six months were attributed primarily to increased sales of alarm communication services, plus intrusion and access products, and partially offset by a decrease in sales of door locking products.

Recurring monthly revenue (RMR) from the alarm division increased 40% for the quarter and 41% for the six months. The company’s recurring revenue now has an annual run rate of $24 million based on December 2019 numbers.

During an earnings call with investors, Kevin Buchel, senior vice president of operations and finance, said sales of intrusion and door locking products were affected in the second quarter due to the company’s largest customer, wholesale distributor Anixter, being in the midst of a bidding war to be acquired.

“The sell-through of our products, i.e., sales of these products from this distributor to alarm and locking dealers who ultimately receive our products was strong, increasing 15% in Q2 compared to last year, and increasing 11% sequentially versus Q1 this year. As a result of this increased demand of our products, it is our belief that the aforementioned impact on sales is temporary,” he said.

Gross profit for the second quarter improved 14% to $12.1 million, with a gross margin of 47%. That compares to $10.7 million with a gross margin of 43% for the prior year period. For the six months, gross profit increased 17% to $23.6 million with a gross margin of 45% as compared to $20.2 million with a gross margin of 42% last year.

The 400 basis point and 300 basis point increases in gross margin for the quarter and six months respectively was primarily driven by continued strong increases in RMR, where the gross margin increased to 81% for the quarter versus 77% last year and was 80% for the six months versus 78% last year, Buchel explained.

During the earnings call, Napco President and CEO Richard Soloway explained growth drivers for the business are coming from areas of alarm communications for fire intrusion and the smart home category, as evidenced by growth in RMR products. Fire radios, in particular, are performing well as evidenced by an 81% gross margin for recurring revenue in Q2, he said.

Soloway shed some light on future plans to continue growing RMR, including bringing recurring revenues to all divisions of the Napco family of companies as a stated goal.

“During this summer, we expect to be launching Cloud-based wireless electronic locks and enterprise access control with the use of StarLink cellular technology. These products will generate incremental recurring revenue from the large access control and door locking segments for us, while providing valuable new services to end users,” he said.

This article originally appeared on our sister publication Security Sales & Integration‘s website.