NAPCO Reports Record Revenues, Net Income and Adjusted EBITDA* for Q3 of Fiscal 2024

Rhea-AI Summary

NAPCO Security Technologies, Inc. (NSSC) reported record revenues, net income, and adjusted EBITDA for Q3 of fiscal 2024, with net sales increasing by 13% to $49.3 million, net income increasing by 38% to $13.2 million, and adjusted EBITDA increasing by 37% to $15.6 million. The company also declared a quarterly dividend of $0.10 per share. Recurring service revenues saw a 29% increase to $19.5 million with a gross margin of 92%. NAPCO's financial performance was the strongest in its history, driven by growth in recurring revenues and strong hardware sales.

Positive

• Record net sales, net income, and adjusted EBITDA for Q3 of fiscal 2024.

• Recurring service revenues increased by 29% to $19.5 million with a gross margin of 92%.

• Declared a quarterly dividend of $0.10 per share.

• Cash and cash equivalents increased by 31% to $87.5 million.

• Net income increased by 38% to $13.2 million, representing 27% of net sales.

Negative

• Research and development costs increased by 19% to $2.8 million.

• Selling, general, and administrative expenses increased by 10% to $9.2 million.

• Radio sales only improved by approximately 2% over the previous quarter.

• Gross margin for equipment revenues was 29% for the quarter.

• Reported operating income of $14.5 million for the quarter, representing a 38% increase.

Financial Analyst

Examining the financial health of NAPCO Security Technologies in their Q3 of Fiscal 2024 report, the increase in net sales to $49.3 million and net income jumping to $13.2 million are robust signals of the company's revenue growth and profitability. The growth trajectory is evidenced by the 13% jump in quarterly sales and a 38% rise in quarterly net income compared to the same period last year. The substantial 29% rise in Recurring Service Revenues (RSR) to $19.5 million is significant as it suggests a stable and possibly expanding revenue base, important for long-term sustainability. The RSR, coupled with a gross margin of 92%, indicates a highly profitable segment for the company. Furthermore, the company's no-debt financial position and increased cash reserves, now at $87.5 million, provide a solid balance sheet that should instill investor confidence. However, it's worth noting that R&D costs have increased by 19% which, while indicative of investment in innovation, will need to yield results to justify the expenditure.

Market Research Analyst

From a market perspective, the reported increase in NAPCO's quarterly dividend to $0.10 per share signals management's confidence in the company's earnings stability and cash flow. This move might attract income-focused investors. Additionally, the reported growth in areas like school security and healthcare indicates alignment with current and emerging market demands. The introduction of the Prima All-in-One Panel suggests that NAPCO is innovating to capture more market share in the residential and small business segments. This positions the company to potentially increase its market penetration and gain a competitive advantage. However, it is necessary to keep an eye on industry trends and competitive responses to gauge whether NAPCO will continue to outperform and maintain its market position.

Investment Analyst

For retail investors, the declared quarterly dividend and the consistent record-breaking financial results might be interpreted as signs of a strong investment. However, it's important for investors to understand terms like Adjusted EBITDA, which refers to earnings before interest, taxes, depreciation and amortization, adjusted for certain non-recurring items, to get a true sense of the company's operating performance. The Adjusted EBITDA margin of 32%, up from the previous year, illustrates operational efficiency and profitability. Timing the market based on such reports can be challenging; investors may consider a long-term horizon, especially given the strong RSR and gross margins reported. Still, it's wise to diversify one's portfolio to mitigate risk, as sector-specific and broader market factors can impact stock performance.

-Net Sales for the Quarter Increase 13% to $49.3 Million-

-Net Income for the Quarter Increases 38% to $13.2 Million-

-Adjusted EBITDA* for the Quarter Increases 37% to $15.6 Million-

-3rd Quarter Recurring Service Revenues Increase 29% to $19.5 Million With a Gross Margin of 92%-

-Board Declares Quarterly Dividend of $0.10 per share-

AMITYVILLE, N.Y., May 6, 2024 /PRNewswire/ -- NAPCO Security Technologies, Inc. (NASDAQ: NSSC), one of the leading manufacturers and designers of high-tech electronic security equipment, wireless communication devices for intrusion and fire alarm systems and the related recurring service revenues as well as a provider of school safety solutions, today announced financial results for its third quarter of fiscal 2024.

Financial Highlights:

• Net sales for the quarter increased 13% to $49.3 million (the highest quarterly sales in the Company's history) as compared to $43.5 million for the same period last year. Net sales for the nine months ended March 31, 2024 increased 10% to a nine month record $138.5 million as compared to $125.3 million last year.
• Recurring service revenue ("RSR") for the quarter increased 29% to $19.5 million as compared to $15.1 million for the same period last year. Recurring service revenue for the nine months ended March 31, 2024 increased 26% to $55.4 million as compared to $43.8 million last year. Recurring service revenue had a prospective annual run rate of approximately $81 million based on April 2024 recurring revenues.
• Gross margin for recurring service revenue increased to a record level 92% for the quarter and 91% for the nine months as compared to 90% and 89%, respectively, for the same periods last year.
• Gross margin for equipment revenues was 29% for the third quarter compared to 27% in last year's 3^rd quarter. Gross margin for equipment revenues was 29% for the nine months ended March 31, 2024, compared to 14% for the same period last year.
• Net income for the quarter increased 38% to a quarterly record $13.2 million as compared to $9.5 million for the same period a year ago. Net income for the nine months ended March 31, 2024 increased 119% to a nine month record $36.3 million as compared to $16.6 million last year.
• Earnings per share (diluted) for the quarter increased 38% to $0.36 as compared to $0.26 for the same period a year ago. Earnings per share (diluted) for the nine months ended March 31, 2024 increased 118% to $0.98 as compared to $0.45 last year.
• Adjusted EBITDA* for the quarter increased 37% to a quarterly record $15.6 million as compared to $11.3 million for the same period a year ago. Adjusted EBITDA* for the nine months ended March 31, 2024 increased 105% to a nine month record $43.5 million as compared to $21.3 million for the same period last year.
• Adjusted EBITDA per share (diluted)* for the quarter increased 35% to $0.42 as compared to $0.31 for the same period a year ago. Adjusted EBITDA per share (diluted)* for the nine months ended March 31, 2024 increased 107% to $1.18 per diluted share as compared to $0.57 last year.
• Cash and cash equivalents, other investments and marketable securities were $87.5 million at March 31, 2024 as compared to $66.7 million at June 30, 2023, a 31% increase. The Company had no debt as of March 31, 2024.
• Cash Provided by Operating Activities for the nine months ended March 31, 2024 was $31 million as compared to $12.4 million for the same period last year.
• The Company has declared a quarterly dividend of $0.10 per share to be paid on June 24, 2024 to shareholders of record on June 3, 2024.

Richard Soloway, Chairman and CEO, commented, "The third quarter of fiscal 2024 was the strongest quarter in our Company's history. Revenue was $49.3 million, which was the highest quarterly sales we ever achieved and was the fourteenth consecutive quarter of record sales for a quarterly reporting period. Our net income of $13.2 million and Adjusted EBITDA* of $15.6 million were also quarterly record-breakers. Equipment revenue grew at 5% for the quarter, with gross margins on such sales sequentially remaining consistent at 29% each of the last two quarters. Recurring service revenues, which increased 29%, was a major contributor to the year-over-year overall sales and earnings growth and represents 40% of total revenue. Gross margin for recurring service revenues was the highest in our history, at 92% and when combined with gross margin on equipment revenues of 29%, the total gross margins for Q3 amounted to 54%, which compared to 49% for last year's Q3.

We were also pleased with the increase in the recurring revenues annual run rate, which increased to $81 million based on April 2024 recurring revenues, compared to an annual run rate of $76.5 million based on January 2024 recurring revenues.

Net income of $13.2 million, besides being a Q3 record breaker, represents 27% of our net sales. Adjusted EBITDA* of $15.6 million,  also a Q3 record, represents an Adjusted EBITDA* margin of 32%.

Our balance sheet continues to get stronger, with cash and cash equivalents, other investments and marketable securities increasing 31% to $87.5 million as compared to $66.7 million at June 30, 2023, We have no debt and the net cash provided by operating activities for the nine months ended March 31, 2024 was also strong, amounting to $31.0 million.

Our Alarm Lock and Marks locking hardware lines continue to see growth in school and classroom security, healthcare, and retail loss-prevention, as well as in multi-dwelling commercial and residential applications. Locking sales in Q3 grew approximately 16% compared to last year and approximately 10% compared to Q2 and represents 66% of hardware sales. We continue to remain focused on further penetrating each of these markets.

We recently announced the introduction of Prima by NAPCO, a new All-in-One Panel for security, fire, video and connected home. Our goal is for Prima to address an important mass segment of the security market, including residential and small business systems. With built-in Wi-Fi/cellular radio communications, customer alert notifications, and video and smart home subscription options for each -installed system, the security dealer, as well as the Company, can add more recurring-revenue generating accounts.

NAPCO's record-breaking results for Q3 of fiscal year 2024, was primarily the result of the continued growth and profitability from recurring revenues as well as the strong sales from our Alarm Lock and Marks locking product lines. Radio sales in Q3 improved over Q2, increasing by approximately 2%. We expect radio sales to continue to be a key contributor to our hardware sales and continue to lead to the continued growth of our highly profitable recurring revenues."

Mr. Soloway concluded, "We are nine months through fiscal 2024 and while we have already generated net income of $36.3 million, Adjusted EBITDA* of $43.5 million and our Adjusted EBITDA* margin is now 31%, there is more work to be done.  While we continue to be  encouraged with the gross margin for hardware sales of 29%, we believe this could improve further in Q4 and beyond . Our strong net income and Adjusted EBITDA* margins indicate the financial strength of our business. As such, we are pleased to continue our dividend program and we will be paying another dividend of $0.10 per share on June 24, 2024. As always, we will strive to accomplish our goal of continued financial strength, product innovation, technical superiority, and strong profitability, for the balance of fiscal 2024 and beyond".

Financial Results

Net sales for the quarter increased 13% to $49.3 million (the highest quarterly sales in the Company's history), as compared to $43.5 million for the same period one year ago. Net sales for the nine months ended March 31, 2024 increased 10% to a nine month record $138.5 million, as compared to $125.3 million for the same period one year ago. Research and development costs for the quarter increased 19% to $2.8 million, or 6% of sales, as compared to $2.3 million or 5% of sales for the same period a year ago. Research and development costs for the nine months ended March 31, 2024 increased 11% to $7.7 million, or 6% of sales, as compared to $7.0 million or 6% of sales for the same period a year ago. Selling, general and administrative expenses for the quarter increased 10% to $9.2 million or 19% of net sales, as compared to $8.4 million, or 19% of sales for the same period last year. Selling, general and administrative expenses for the nine months ended March 31, 2024 increased 6% to $26.3 million or 19% of net sales, as compared to $24.7 million, or 20% of sales for the same period last year.

Operating income for the quarter increased 38% to $14.5 million as compared to $10.5 million for the same period last year. Operating income for the nine months ended March 31, 2024 increased 115% to $39.9 million as compared to $18.5 million for the same period last year. Net income for the quarter increased 38% to a quarterly record $13.2 million, or $0.36 per diluted share, as compared to $9.5 million, or $0.26 per diluted share, for the same period last year and represents 27% of net sales. Net income for the nine months ended March 31, 2024 increased 119% to a nine month record of $36.3 million or $0.98 per diluted share as compared to $16.6 million or $0.45 per diluted share for the same period last year and represents 26% of net sales.

Adjusted EBITDA* for the quarter increased 37% to a quarterly record $15.6 million, or $0.42 per diluted share, as compared to $11.3 million, or $0.31 per diluted share for the same period last year and equates to an Adjusted EBITDA* margin of 32%. Adjusted EBITDA* for the nine months ended March 31, 2024 increased 105% to a nine month record $43.5 million, or $1.18 per diluted share, as compared to $21.3 million, or $0.57 per diluted share for the same period last year and equates to an Adjusted EBITDA* margin of 31%.

Balance Sheet Summary

As of  March 31, 2024, the Company had $87.5 million in cash and cash equivalents, other investments and marketable securities as compared to $66.7 million as of June 30, 2023. Working capital (defined as current assets less current liabilities) was $138.3 million at March 31, 2024 as compared with working capital of $111.7 million at June 30, 2023. Current ratio (defined as current assets divided by current liabilities) was 7.9:1 at March 31, 2024, and 6.7:1 at June 30, 2023.

Conference Call Information

Management will conduct a conference call at 11 a.m. ET today, May 6, 2024, in order to participate please go to the Investor Relations section of Company's website at https://investor.napcosecurity.com. Alternatively, interested parties may participate in the call by dialing, in the (US) 1-800-836-8184 or for international callers, 1-646-357-8785. A replay of the webcast will be available on the Investor Relations section of the Company's website.

About NAPCO Security Technologies, Inc.

NAPCO Security Technologies, Inc., is one of the leading manufacturers and designers of high-tech electronic security devices, wireless recurring communication services for intrusion and fire alarm systems as well as a provider of school safety solutions, The Company consists of four Divisions: NAPCO, plus three wholly owned subsidiaries: Alarm Lock, Continental Instruments, and Marks USA. Headquartered in Amityville, New York, its products are installed by tens of thousands of security professionals worldwide in commercial, industrial, institutional, residential and government applications. NAPCO products have earned a reputation for innovation, technical excellence and reliability, positioning the Company for growth in the multi-billion dollar and rapidly expanding electronic security market. For additional information on NAPCO, please visit the Company's web site at http://www.napcosecurity.com.

Safe Harbor Statement

This press release contains forward-looking statements that are based on current expectations, estimates, forecasts and projections of future performance based on management's judgment, beliefs, current trends, and anticipated product performance. These forward-looking statements include, but are not limited to, statements relating to the impact of COVID-19 pandemic; supply chain challenges and developments; the growth of recurring service revenues and annual run rate; the strength of our balance sheet; our expectations regarding future results; the introduction of new access control and locking products; the opportunities for school security products; business trends , including the replacement of 3G radios, and our ability to execute our business strategies. Actual results, performance or achievements could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those risk factors set forth in the Company's filings with the Securities and Exchange Commission, such as our annual report on Form 10-K and quarterly reports on Form 10-Q. Other unknown or unpredictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. You should not place undue reliance on these forward-looking statements. All information provided in this press release is as of today's date, unless otherwise stated, and the Company undertakes no duty to update such information, except as required under applicable law.

*Non-GAAP Financial Measures

Certain non-GAAP measures are included in this press release, including non-GAAP operating income, Adjusted EBITDA and Adjusted EBITDA per share (diluted). We define Adjusted EBITDA as GAAP net income plus income tax expense, net interest expense, non-cash stock-based expense, non-recurring legal expense, other non-recurring income and depreciation and amortization expense. Non-GAAP operating income does not include amortization of intangibles or stock-based compensation expense. These non-GAAP measures are provided to enhance the user's overall understanding of our financial performance. By excluding these charges our non-GAAP results provide information to management and investors that is useful in assessing NAPCO's core operating performance and in comparing our results of operations on a consistent basis from period to period. Our use of non-GAAP financial measures has certain limitations in that such non-GAAP financial measures may not be directly comparable to those reported by other companies. For example, the terms used in this press release, such as Adjusted EBITDA, do not have a standardized meaning. Other companies may use the same or similarly named measures, but exclude different items, which may not provide investors with a comparable view of our performance in relation to other companies. The presentation of this information is not meant to be a substitute for the corresponding financial measures prepared in accordance with generally accepted accounting principles. Investors are encouraged to review the reconciliation of GAAP to non-GAAP financial measures set forth above.

NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)
		March 31, 2024			June 30, 2023
		(in thousands, except share data)
CURRENT ASSETS
Cash and cash equivalents		$	55,518		$	35,955
Investments - other			26,671			25,660
Marketable securities			5,348			5,136
Accounts receivable, net of allowance for credit losses of $105 and $131 as of March 31,  2024 and June 30, 2023, respectively			30,273			26,069
Inventories, net			37,010			35,062
Income tax receivable			—			75
Prepaid expenses and other current assets			3,379			3,402
Total Current Assets			158,199			131,359
Inventories - non-current, net			13,093			13,287
Property, plant and equipment, net			8,978			9,308
Intangible assets, net			3,686			3,939
Deferred income taxes			4,983			2,652
Right-of-use asset			5,564			5,797
Other assets			289			312
TOTAL ASSETS		$	194,792		$	166,654
CURRENT LIABILITIES
Accounts payable		$	6,913		$	8,061
Accrued expenses			9,737			8,079
Accrued salaries and wages			3,095			3,546
Accrued income taxes			203			—
Total Current Liabilities			19,948			19,686
Accrued income taxes			1,102			1,110
Long term right-of-use liability			5,556			5,689
TOTAL LIABILITIES			26,606			26,485
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY
Common Stock, par value $0.01 per share; 100,000,000 shares authorized as of March 31, 2024 and June 30, 2023; 39,766,354 and 39,663,812 shares issued; and 36,872,639 and 36,770,097 shares outstanding, respectively.			398			397
Additional paid-in capital			22,855			21,553
Retained earnings			164,454			137,740
Less: Treasury Stock, at cost (2,893,715 shares)			(19,521)			(19,521)
TOTAL STOCKHOLDERS' EQUITY			168,186			140,169
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	194,792		$	166,654

 

NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
		Three Months ended March 31,
		2024			2023
		(in thousands, except for share and per share data)
Net sales:
Equipment revenues		$	29,735		$	28,390
Service revenues			19,532			15,142
			49,267			43,532
Cost of sales:
Equipment related expenses			21,179			20,780
Service-related expenses			1,604			1,473
			22,783			22,253
Gross Profit			26,484			21,279
Operating expenses:
Research and development			2,757			2,314
Selling, general, and administrative expenses			9,233			8,425
Total Operating Expenses			11,990			10,739
Operating Income			14,494			10,540
Other income:
Interest and other income, net			637			437
Income before Provision for Income Taxes			15,131			10,977
Provision for Income Taxes			1,935			1,428
Net Income		$	13,196		$	9,549
Income per share:
Basic		$	0.36		$	0.26
Diluted		$	0.36		$	0.26
Weighted average number of shares outstanding:
Basic			36,835,000			36,793,000
Diluted			37,118,000			37,082,000

 

NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
		Nine Months Ended March 31,
		2024			2023
		(in thousands, except for share and per share data)
Net sales:
Equipment revenues		$	83,133		$	81,511
Service revenues			55,357			43,828
			138,490			125,339
Cost of sales:
Equipment-related expenses			59,332			70,341
Service-related expenses			5,249			4,799
			64,581			75,140
Gross Profit			73,909			50,199
Operating expenses:
Research and development			7,736			6,964
Selling, general, and administrative expenses			26,319			24,719
Total Operating Expenses			34,055			31,683
Operating Income			39,854			18,516
Other income:
Interest and other income, net			1,806			521
Income before Provision for Income Taxes			41,660			19,037
Provision for Income Taxes			5,376			2,475
Net Income		$	36,284		$	16,562
Income per share:
Basic		$	0.99		$	0.45
Diluted		$	0.98		$	0.45
Weighted average number of shares outstanding:
Basic			36,792,000			36,736,000
Diluted			37,032,000			36,983,000

 

NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		Nine Months ended March 31,
		2024			2023
		(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	36,284		$	16,562
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			1,627			1,398
Gain on disposal of fixed asset			—			(15)
Interest expense (income) on other investments			112			(177)
Unrealized (gain) loss on marketable securities			(52)			23
(Recovery) of credit losses			(26)			(118)
Change to inventory reserve			634			(85)
Deferred income taxes			(2,331)			(1,400)
Stock based compensation expense			876			1,134
Changes in operating assets and liabilities:
Accounts receivable			(4,178)			5,166
Inventories			(2,388)			(813)
Prepaid expenses and other current assets			23			228
Income tax receivable			75			(688)
Other assets			22			48
Accounts payable, accrued expenses, accrued salaries and wages, accrued income taxes			354			(8,847)
Net Cash Provided by Operating Activities			31,032			12,416
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant, and equipment			(1,043)			(2,547)
Proceeds from disposal of fixed asset			—			38
Purchases of marketable securities			(160)			(110)
Purchases of other investments			(1,123)			(30,185)
Redemption of other investments			—			10,091
Net Cash Used in Investing Activities			(2,326)			(22,713)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock option exercises			427			82
Cash paid for dividend			(9,570)			—
Net Cash (Used in) Provided by Financing Activities			(9,143)			82
Net increase (decrease) in Cash and Cash Equivalents			19,563			(10,215)
CASH AND CASH EQUIVALENTS - Beginning			35,955			41,730
CASH AND CASH EQUIVALENTS - Ending		$	55,518		$	31,515
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid		$	8		$	12
Income taxes paid		$	7,437		$	6,421

 

NAPCO SECURITY TECHNOLOGIES, INC.
NON-GAAP MEASURES OF PERFORMANCE* (Unaudited)
(in thousands, except share and per share data)
	3 months ended March 31,		9 months ended March 31,
	2024	2023	2024	2023
Net income (GAAP)	$        13,196	$           9,549	$         36,284	$         16,562
Add back provision for income taxes	1,935	1,428	5,376	2,475
Interest and other (income), net	(637)	(437)	(1,806)	(521)
Operating Income (GAAP)	14,494	10,540	39,854	18,516
Adjustments for non-GAAP measures of performance:
Add back amortization of acquisition-related intangibles	85	90	253	271
Add back stock-based compensation expense	266	322	876	1,134
Add back non-recurring legal expenses	267	13	1,162	203
Adjusted non-GAAP operating income	15,112	10,965	42,145	20,124
Add back depreciation and other amortization	454	380	1,374	1,127
Adjusted EBITDA* (earnings before interest, taxes, depreciation and amortization)	$         15,566	$         11,345	$         43,519	$         21,251
Adjusted EBITDA* per Diluted Share	$             0.42	$             0.31	$             1.18	$             0.57
Weighted average number of Diluted Shares outstanding	37,118,000	37,082,000	37,032,000	36,983,000

 

Contacts:
Francis J. Okoniewski
Vice President of Investor Relations
NAPCO Security Technologies, Inc.
Office 800-645-9445 x 374
Mobile 516-404-3597
fokoniewski@napcosecurity.com

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SOURCE NAPCO Security Technologies, Inc.

FAQ

<p>What were NAPCO's net sales for Q3 of fiscal 2024?</p>

NAPCO's net sales for Q3 of fiscal 2024 increased by 13% to $49.3 million.

<p>How much did NAPCO's net income increase by for Q3 of fiscal 2024?</p>

NAPCO's net income for Q3 of fiscal 2024 increased by 38% to $13.2 million.

<p>What was the percentage increase in adjusted EBITDA for NAPCO in Q3 of fiscal 2024?</p>

NAPCO's adjusted EBITDA increased by 37% to $15.6 million for Q3 of fiscal 2024.

<p>What was the gross margin for recurring service revenue in Q3 of fiscal 2024?</p>

The gross margin for recurring service revenue in Q3 of fiscal 2024 was 92%.

<p>How much did NAPCO's cash and cash equivalents increase by from June 30, 2023, to March 31, 2024?</p>

NAPCO's cash and cash equivalents increased by 31% to $87.5 million from June 30, 2023, to March 31, 2024.