NAPCO announces strong third quarter fiscal 2020 results

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Monday, May 11, 2020

AMITYVILLE, N.Y.—NAPCO Security Technologies, Inc., manufacturers of high-tech electronic security devices as well as a provider of school safety solutions, announced financial results for its third fiscal quarter ended March 31, 2020.

The company also announced the appointment of Stephen M. Spinelli as its senior vice president of sales while Jorge Hevia, a valuable long-time employee, will become a consultant to the company as its new chief of marketing to further develop sales in its robust industry. 

"We are encouraged by our Q3 record sales and profit performance, despite our having to navigate through the headwinds created by COVID-19,” NAPCO Chairman and President Richard Soloway commented in the announcement. “Importantly, since over 80% of our sales are conducted in the commercial security sector and thousands of our dealers are deemed an ‘essential service’ during the pandemic, this provided our company with some level of insulation to the fallout the economy is experiencing. Also, a large majority of our recurring service, subscription-based income stream is comprised of non-discretionary, commercial fire and intrusion alarm communication, largely mandated by local code and laws. Going forward, NAPCO should be well positioned for growth, as we manage the challenges wrought by COVID-19.”

Financial Highlights include:
•    Net sales for the quarter increased 4% to a third quarter record $26.2 million as compared to $25.1 million for the same quarter last year. Net sales for the nine months increased 7% to $78.4 million as compared to $73.3 million for the same period last year.

•    Recurring service revenue for the quarter increased 37% to $6.2 million as compared to $4.5 million for the same quarter last year. Recurring service revenue for the nine months increased 39% to $17.4 million as compared to $12.5 million for the same period last year. Recurring service revenue now has a prospective annual run rate of $25.4 million based on March 2020 recurring revenues.

•    Net income for the quarter increased 16% to a third quarter record of $3.6 million from $3.1 million a year ago. Earnings per share (diluted) for the quarter increased 18% to $0.20, as compared to $0.17 for the same period a year ago. Net income for the nine months increased 39% to $10.4 million from $7.5 million a year ago. Earnings per share (diluted) for the nine months increased 40% to $0.56, as compared to $0.40 for the same period a year ago.

•    Adjusted EBITDA for the quarter increased 22% to $4.9 million from $4.0 million a year ago. Adjusted EBITDA earnings per share for the quarter increased 18% to $0.26, as compared to $0.22 for the same period a year ago. Adjusted EBITDA for the nine months increased 34% to $13.3 million from $9.9 million a year ago. Adjusted EBITDA earnings per share for the nine months increased 36% to $0.72, as compared to $0.53 for the same period a year ago.

“Our StarLink line of wireless cellular alarm communicators continues to experience substantial market share and recurring service revenue growth, with a 37% increase in RSR for Q3, versus year-ago,” said Soloway. “Our StarLink Fire communicators, with their unique Panel-Powered Technology, lead the communicator product line in growth, as there exists a need to upgrade millions of legacy fire panels, currently communicating via increasingly obsolescent landlines, to wireless cellular alarm communication technology.”

StarLink Fire communicator growth, he said, with its highly profitable recurring revenue sales levels, continues to “fuel strong gross margin increases for our company. Our new AT&T LTE StarLink line of universal fire, intrusion alarm and IoT communicators, continues to garner market share and is now playing a vital role in upgrading old AT&T 3G communicators to the latest LTE network. StarLink now provides security dealers with  broad LTE service coverage area, encompassing both Verizon and AT&T, in the Wireless Cellular Alarm Communicator Category."

Soloway added, "Q3 sales growth of FireLink, an innovative all-in-one, 8-32 zone fire alarm control panel, with a built-in cellular LTE StarLink-powered alarm communicator, is a reflection of our focus on introducing and marketing security products which deliver substantial recurring service revenue growth. Utilizing our 'StarLink Inside' product marketing strategy, FireLink was developed to be a panel that comes pre-configured and pre-activated, with a StarLink communicator included, saving considerable installation time and money for the dealer to replace an aging landline-connected fire panel. This strategy insures that every FireLink control panel sold will automatically generate RSR, as well as hardware sales, to NAPCO.”

Following through on the company’s focus for accelerating RSR growth, Q3 saw our continued rollout of NAPCO's new iSecure Cellular Commercial and Residential, 80 Zone Alarm System.

NAPCO also plays a role in the vital health care vertical market through its Alarm Lock, Marks and Continental Access Control Divisions. Alarm Lock access control locks and Marks exit devices, push/pull locks, with anti-microbial finishes are installed in thousands of hospitals across the U.S. “Alarm Lock markets the DL-2700, which is a technologically advanced lock, with all of the advanced features of the most sophisticated access control systems, all encased in a portable, easily-installed lock,” said Soloway. “At the end of March, the U.S. Army Corp of Engineers was outfitting a temporary field hospital in the McCormick Place Convention Center in Chicago and we are honored that they selected our DL-2700 locks to provide access control at that location."

With the company now in its fiscal fourth quarter, and with shelter in place directives continually changing, the company will continue to “carefully monitor and fine-tune the best ways to service our customers during a time that our business, like countless others, will likely encounter market challenges that can neither be fully anticipated nor quantified,” he said. “As we make progress against COVID-19 and look forward to the resurgence of our economy, we believe we are well-positioned in the non-discretionary, commercial, high gross margin sector, of the security industry, to weather the storm. We believe our continued strong levels of recurring service growth and accompanying expansion of our profitability should continue into the future. We will continue our focused commitment to identifying new, large growth opportunities to continue to add incremental recurring service revenue sales and income to NAPCO."