NAPCO announces record-setting third quarter fiscal 2021 results

AMITYVILLE, N.Y.—NAPCO Security Technologies, Inc., 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 leading provider of school safety solutions, announced record-setting financial results for its fiscal third quarter ended March 31, 2021.

Financial Highlights

Among the financial highlights for the fiscal third quarter were:                                         

Net sales for the quarter was a third quarter record of $28.2 million as compared to $26.2 million for the same period last year, an 8 percent increase.

Net income for the quarter was a third quarter record of $4.4 million, as compared to net income of $3.6 million for the same period a year ago, a 21 percent increase. Earnings per share (diluted) for the quarter was $0.24 as compared to earnings per share of $0.20 for the same period a year ago, a 21 percent increase.

Recurring service revenue for the quarter increased 43 percent to $8.9 million as compared to $6.2 million for the same period last year. Recurring service revenue now has a prospective annual run rate of $36.7 million based on March 2021 recurring revenues.

"NAPCO delivered a record-setting performance in Q3 as we generated the highest sales and net income for a Q3 in our company's history,” said NAPCO Chairman and President Richard Soloway. “The robust growth in recurring service revenue and the associated gross margin continues to be primarily attributable to our commercial business, which has not been significantly affected by COVID-19 as commercial buildings must be kept secure.

“Additionally, the fire alarm business is a ‘mandated business’ which means, to receive a certificate of occupancy for a building, a fire alarm system is mandatory and must always function in compliance with fire codes. Because of the essential nature and high profitability of this sector, the commercial fire alarm business continues to be one of the key areas that we focus our resources on. As the communication paradigm continues to ‘sunset’ away from legacy copper and 3G infrastructure, it continues to create a significant opportunity for our proprietary Starlink radios and alarm systems, for both fire and burglary, to generate additional, steady streams of recurring service revenue growth.”   

Other financial highlights included:

Gross margin for recurring service revenue for the quarter was 86 percent as compared to 84 percent for the same period last year.

Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) for the quarter was $5.5 million as compared to $4.9 million for the same period a year ago, a 13 percent increase. Adjusted EBITDA per share for the quarter was $0.30 as compared to $0.26 for the same period a year ago, a 14 percent increase.

Cash and cash equivalents and marketable securities were $34.1 million at March 31, 2021 as compared to $18.2 million at June 30, 2020.

Cash Provided by Operating Activities for the quarter increased 314 percent to $7.5 million as compared to $1.8 million last year and for the nine months increased 148 percent to $16.4 million as compared to $6.6 million last year. 

“When COVID-19 hit, many dealers experienced limited or no access to buildings and homes to perform commercial or residential security installations,” Soloway noted. “We are now seeing promising signs of a recovery and we are poised to capitalize on new business opportunities as they arise. We sell our products primarily through distribution to dealers and we continue to see strong sell-through statistics from several of our largest distributors. While some of our distributors are keeping lower inventory levels than they have in the past, which is a function of the pandemic, increased sell-through of our products from our distributors to the alarm and locking dealers during the quarter as compared to the same quarter last year, indicates that security equipment professionals are getting increased access to both commercial and residential installation sites.”   

Soloway also pointed out that school safety remains a priority at NAPCO.

“Our fully integrated technologies for the school security market continues to remain a top priority,” he said. “The COVID-19 pandemic has caused some delay in spending at certain K-12 schools, colleges, and universities, but with the country starting to open up again, including schools at all levels, we are beginning to see more activity. While we have seen postponements of planned security upgrades, we have not seen a significant number of cancellations.”

Financial Results

In addition to the net sales Q3 record, net sales for the nine months ended March 31, 2021 increased 0.3 percent to $78.6 million, as compared to $78.4 million for the same period a year ago.

Research and development (R&D) costs for the quarter were $1.9 million as compared to $1.8 million for the same quarter a year ago and were 7 percent of sales for each of the quarters ended March 31, 2021 and 2020. Research and development costs for the nine months ended March 31, 2021 were $5.7 million as compared to $5.4 million for the same period a year ago and were 7 percent of sales for the nine months ending March 31, 2021 and 2020, respectively.

Selling, general and administrative expenses for the quarter decreased 2 percent to $6 million, or 21 percent of sales, as compared to $6.1 million, or 23 percent of sales for the same period last year. Selling, general and administrative expenses for the nine months ended March 31, 2021 decreased 3 percent to $18 million, or 23 percent of sales, as compared to $18.6 million, or 23.7 percent of sales for the same period last year.

Operating income for the three months ended March 31, 2021 increased 24 percent to $5 million as compared to $4 million for the same period a year ago. Operating income for the nine months ended March 31, 2021 was $11.4 million as compared to $11.6 million for the same period a year ago, a 3 percent decrease.

Net income for the three months ended March 31, 2021 increased 21 percent to $4.4 million, or $0.24 per diluted share, as compared to $3.6 million, or $0.20 per share, for the same quarter last year. Net income for the nine months ended March 31, 2021 decreased 5 percent to $9.9 million, or $0.54 per diluted share, as compared to $10.4 million, or $0.56 per share, for the same period last year.

Adjusted EBITDA for the nine months ended March 31, 2021 was relatively constant at $12.9 million, or $0.70 per diluted share, as compared to $13 million, or $0.70 per diluted share for the same period last year.

R&D Investments

With the country reopening at a faster pace as COVID rates decline nationwide, Soloway noted that the results of NAPCO’s R&D investments should become more evident.

“In the last 18 months we have launched several new major products and solutions, including iSecure, our all-inclusive cellular alarm system which offers the dealer the lowest upfront equipment cost in the industry, easy installation, fast programming and a quick return on investment, and (2) Air Access, our new cellular, cloud-hosted access control product line which will allow access control integrators and locking professionals to build a recurring revenue business for themselves, just like our burglar and fire alarm dealers do,” he said. “While still in the very early stages, we expect both of these products to provide the company the opportunity to generate recurring service revenue from each of our divisions: alarms and connectivity, locking and access control." 

Balance Sheet Summary

On March 31, 2021, NAPCO had $34.1 million in cash and cash equivalents and marketable securities as compared to $18.2 million as of June 30, 2020. Working capital (defined as current assets less current liabilities) was $70 million at March 31, 2021 as compared with working capital of $61 million at June 30, 2020. Current ratio (defined as current assets divided by current liabilities) was 5.5:1 at March 31, 2021 and 4.5:1 at June 30, 2020.

"Our record-setting revenue and profitability in Q3, along with continued strong recurring revenue margins, gives us tremendous momentum as we head into Q4, historically our strongest quarter,” Soloway concluded. “I am proud of how the NAPCO team responded to the challenges brought on by COVID-19 and of our resiliency and ability to execute even during difficult and uncertain times. We remain focused on generating continued strong revenue growth as well as increased profitability. We will continue our efforts to expand our recurring revenue product offerings into all segments of the company. As we look to the balance of fiscal 2021 and beyond, NAPCO is well positioned for long-term growth and profitability expansion."