Napco Security Technologies, Inc 2026 Q4 Earnings Call

Good morning, everyone. This is Fran Okoniewski, Vice President of Investor Relations for NAPCO Security Technologies. Thank you for joining today's conference call to discuss our financial results for the fiscal fourth quarter and fiscal year 2026. By now, you should have all had the opportunity to review our earnings press release, which discusses our fiscal fourth quarter and full year results. If you have not yet received it, a copy is available in the investor relations section of our website, www.napcosecurity.com. Joining me on today's call are Dick Soloway, Founder and Executive Chairman, Kevin Buchel, Chief Executive Officer and President, and Andrew Vuono, our Chief Financial Officer. Before we begin, I would like to review our forward-looking statement. This presentation contains forward-looking statements based on current expectations, estimates, forecasts, and projections of future performance, as well as management's judgment, beliefs, current trends, and anticipated product performance.

These statements include, without limitation, comments regarding growth drivers of the company's business, including school security products, recurring revenue services, potential market opportunities, the benefits of our recurring revenue products to customers and dealers, our ability to control expenses and costs, and the expected annual run rate for Software-as-a-Service, or SaaS, recurring monthly revenue. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those expressed or implied in those statements. These risks include, but are not limited to, the factors described in our SEC filings, including our annual report on Form 10-K. Other unknown or unpredictable factors or underlying assumptions that later prove to be incorrect could also cause actual results to differ materially from those discussed in the forward-looking statements.

Although we believe expectations are reflected in these statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. You should not place undue reliance on forward-looking statements. All information provided in today's press release and on this conference call is as of today's date, unless otherwise stated, and we undertake no duty to update such information except as required under applicable law. Throughout the presentation, management will discuss certain non-GAAP financial results. We encourage you to refer to the reconciliation between GAAP and non-GAAP results included in our press release. Before turning the call over to Dick, I want to note that we are actively planning our investor relations calendar for upcoming non-deal roadshows and investor conferences. Investor outreach is important to NAPCO, and we appreciate the support of those who help us participate in these events.

Over the coming weeks, we will participate in several key investor events, including the Jefferies Industrial Conference in New York City on September 10, a virtual non-deal roadshow hosted by Lake Street on September 16, and D.A. Davidson's 25th Annual Diversified Industrials and Services Conference in Nashville, Tennessee later in September. In addition, NAPCO will be exhibiting at ISC East in New York City from November 3 through the 5th, where we will be introducing a number of new products. ISC East is one of the security industry's premier events on the East Coast, and we welcome investors and analysts who plan to attend to stop by our booth. With that, let me turn the call over to Dick Soloway, our founder and Executive Chairman. Dick, the floor is yours.

Thank you, Fran. Fiscal 2026 was a year of exceptional performance and meaningful progress for NAPCO. We strengthened our market position, expanded our capabilities, served our customers at a high level, and delivered results that reflect both the resilience of our business model and the dedication of our employees. At the same time, we continued an important evolution of our company. After five decades of founder-led growth, Kevin Buchel has assumed the role of Chief Executive Officer and President. Having been an important member of our organization for over 25 years, Kevin brings a deep understanding of our business, our customers, and our culture to the role. I have taken on the role of founder and Executive Chairman, allowing me to remain closely involved in the strategic direction of the company while supporting Kevin and the management team in leading the business day to day.

I built this company for 50 years. It is strong enough to evolve beyond my day-to-day leadership, and I am confident in Kevin Buchel that I can remain focused on the long-term future. This transition represents continuity. The values that have guided us for 50 years remain unchanged, while our leadership structure positions us well for the next phase of growth. With that, I will turn the call over to Kevin Buchel. Kevin, the floor is yours.

Thank you, Dick. Good morning, everyone, and thank you for joining us Before reviewing our fourth quarter and fiscal 2026 results, I want to thank Dick Soloway for his comments and for his confidence in our leadership transition.

Having worked alongside Dick for more than 25 years, I am honored to lead NAPCO into its next chapter. Our company wouldn't be where it is today if not for the outstanding leadership and vision Dick has demonstrated since he founded the company back in 1972. I also want to thank our employees, our dealers, our distributors, our integrators, and shareholders for their continued support. Now, let's talk about the quarter and the year. I am pleased to report another outstanding quarter and a strong finish to fiscal 2026. Our fourth quarter net sales increased 10% to a record $55.8 million, driven by continued demand across our product portfolio and another quarter of double-digit recurring service revenue growth.

Equipment sales increased nearly 8%, while recurring service revenue grew almost 13% to $25.3 million and produced another exceptional 90.1% gross margin. Our recurring service business continues to build long-term shareholder value. Based on our July recurring revenues, our annualized recurring revenue run rate has reached approximately $103 million, an important milestone that reflects the strength of our connected services strategy and the increasing value of our installed base. The combination of revenue growth and improved operating leverage produced exceptional profitability during the quarter. Gross margin expanded to 61.3%, GAAP net income increased approximately 53%, and adjusted EBITDA grew by more than 44%. For the full fiscal year, non-GAAP net income increased 32% to a record $57.3 million, while non-GAAP diluted earnings per share increased 34.5% to $1.60. These results demonstrate the strength of our operating model and our ability to convert revenue growth into meaningfully higher earnings.

Looking at the full fiscal year, we generated record annual revenue of $202.3 million, surpassing the $200 million mark for the first time in our company's history. We also delivered adjusted EBITDA of $66.7 million with an adjusted EBITDA margin of approximately 33% and generated more than $59 million of free cash flow. Our strategy remains consistent. We will continue investing in innovative products, expanding our recurring service offerings, strengthening our dealer and integrated relationships, and executing with the financial discipline that has long differentiated NAPCO. As I assume the role of Chief Executive Officer, there is no change to the principles that have made this company successful. We have an outstanding management team, an exceptional balance sheet, and a growing base of recurring revenue and significant opportunities ahead.

Working closely with Dick in his role as Executive Chairman, I am confident we are well-positioned to continue delivering profitable growth and creating long-term value for our shareholders. With that, I will turn the call over to our Chief Financial Officer, Andy Vuono, to review the financial results in greater detail.

Andy? Thank you, Kevin, and good morning, everyone.

The momentum we generated during the first three quarters of fiscal 2026 continued into the fourth quarter. Net revenue for the quarter increased 10% to a quarterly record of $55.8 million. Recurring monthly service revenue continued to grow steadily, increasing 12.9% to $25.3 million, primarily driven by ongoing activations of our StarLink radio fire communicators. Equipment revenue increased 7.7% to $30.5 million. Sales of intrusion access control products increased 20.9%, which was driven by continued strength within the intrusion category. Intrusion product sales, including StarLink radios, increased 35.8%. The total category was partially offset by a 13.8% decrease in access control product sales. Door locking revenue increased 2.2% for the quarter. This consisted of an 18.4% increase in Marks USA lock sales, partially offset by a 5.6% decrease in Alarm Lock sales.