NAPCO Q3 - Recurring revenue tops 50% as margins expand

AMITYVILLE, N.Y.—NAPCO Security Technologies reported solid fiscal Q3 2026 results, highlighted by double-digit revenue growth, expanding margins and continued strength in its high-margin recurring service revenue (RSR) business.

Total net revenue for the quarter ended March 31 increased 11.8% year over year to $49.2 million, driven by growth across both equipment sales and recurring services.

By the Numbers: NAPCO Fiscal Q3 2026

• Revenue: $49.2M (+11.8% YoY)
• Recurring Service Revenue: $24.9M (+15.4% YoY)
• RSR Mix: 51% of total revenue
• RSR Gross Margin: 90.4%
• Equipment Revenue: $24.2M (+8.4% YoY)
• Gross Margin: 60.0% (up from 57.2%)
• Adjusted EBITDA: $15.8M (+20.2% YoY)
• Adjusted EBITDA Margin: 32.2%
• Non-GAAP EPS: $0.39 (vs. $0.28)
• GAAP Net Income: $(0.4)M (impacted by $16M litigation charge)
• RSR Run Rate: ~$101M annually

Recurring revenue drives performance

Recurring service revenue accounted for approximately 51% of total revenue i the quarter, continuing to serve as a key profitability engine with gross margins above 90%.

NAPCO said its RSR business now has a prospective annual run rate of approximately $101 million based on April 2026 results, underscoring its growing importance to the company’s long-term strategy.

“RSR continues to sustain gross margins of over 90% and represents approximately 51% of total revenue,” said Chairman and CEO Richard Soloway.

Equipment segment contributes to growth

Equipment revenue growth was supported by ongoing demand for the company’s door-locking and access control solutions.

Improved mix and pricing contributed to margin expansion in the segment, with equipment gross margins rising to approximately 29%, according to the company.

Margin expansion and EBITDA gains

Overall gross margin improved to 60.0%, up from 57.2% in the year-ago period, reflecting a favorable shift toward higher-margin recurring revenue.

Adjusted EBITDA increased 20.2%, reflecting both revenue growth and improved mix.

Non-GAAP net income climbed 36.9% to $13.9 million, while diluted earnings per share increased to $0.39 from $0.28 a year ago.

Litigation charge impacts GAAP results

Despite strong operational performance, GAAP results were significantly impacted by a $16 million litigation settlement charge recorded during the quarter.

As a result, NAPCO reported a net loss of $0.4 million for the quarter, compared with net income of $10.1 million in the prior-year period. Diluted loss per share was $(0.01), versus earnings of $0.28 per share a year earlier.

Operating loss for the quarter totaled $1.2 million, compared with operating income of $11.1 million in fiscal Q3 2025.

Nine-month performance remains positive

For the first nine months of fiscal 2026, NAPCO generated net revenue of $146.5 million, up 11.9% year over year.

Net income for the period totaled $25.3 million, down from $31.8 million last year due to the litigation charge. On a non-GAAP basis, net income rose 24.4% to $39.5 million, with diluted earnings per share increasing to $1.10 from $0.86.

Adjusted EBITDA for the nine-month period increased 21.7% to $46.1 million.

Dividend maintained

Reflecting confidence in its underlying business, NAPCO’s board declared a quarterly dividend of $0.15 per share, payable July 3, 2026, to shareholders of record as of June 12.

Soloway said the company’s strong cash flow and expanding recurring revenue base continue to support shareholder returns.