Napco signals double-digit equipment sales growth for fiscal 2026 as recurring revenue momentum accelerates

Earnings Call Insights: Napco Security Technologies (NSSC) Q4 2025

MANAGEMENT VIEW

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Richard L. Soloway, CEO, opened by addressing macroeconomic uncertainty and tariff-related pressures, but emphasized "our recurring revenue model continues to provide significant profitability and stability and a strong foundation for future innovation and customer engagement." He expressed confidence in the ongoing momentum of recurring revenue growth and highlighted a strong rebound in hardware sales in Q4, with quick adaptation to shifting demand and effective inventory management.

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Soloway stated that "we continue to invest in product development and customer success while also returning significant value to shareholders, all without taking on debt." He referenced proactive steps to protect margins through pricing adjustments expected to impact results beginning in Q1 of fiscal 2026.

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Kevin S. Buchel, President and COO, reported, "The run rate this quarter reached $94 million, and that's up $5 million from the prior quarter. This marks the largest quarterly increase we've seen in the past 2 years." He added, "Equipment sales for the quarter, while down 5% versus last year's Q4, had a much improved performance, increasing 27% sequentially from Q3." Buchel also relayed, "We paid out $13.6 million in dividend and repurchased $36.8 million of our stock... Even after these returns, we ended the fiscal year with approximately $100 million in cash and no debt."

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Andrew J. Vuono, CFO, stated, "Net sales for the 3 months ended June 30, 2025, increased 0.8% to $50.7 million as compared to $50.3 million for the same period a year ago." Vuono reported recurring monthly service revenue rose 10% in Q4 to $22.4 million and reached $86.3 million for the full fiscal year, a 14% increase over the prior year.

OUTLOOK

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Management expects the full benefit of recent pricing actions to be reflected starting in Q1 of fiscal 2026. Soloway said, "We enter fiscal 2026 with strong momentum, a clear focus and confidence in our ability to execute."

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Buchel addressed equipment growth expectations: "Given we took two increases, the 8.5% to offset the tariffs and the 5%... our belief is that we will grow double digits. We have very easy comps this year, in my opinion, Qs 1, 2 and 3, especially."

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On recurring revenue, Buchel remarked, "We expect the increases to keep coming for the foreseeable future," supported by strong radio sales and new product launches.

FINANCIAL RESULTS

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Recurring revenue run rate reached $94 million, up $5 million from the prior quarter, marking the largest quarterly increase in two years.

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Equipment sales for the quarter decreased 5.5% year-over-year to $28.3 million but rose 27% sequentially from Q3. Equipment sales for the year ended June 2025 totaled $95.3 million.

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Gross profit for the quarter decreased 3.8% to $26.8 million with a gross margin of 53%. Gross profit for recurring service revenue increased 10.3% to $20.3 million with a gross margin of 91%.

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Net income for the quarter was $11.6 million or $0.33 per diluted share. Full year net income was $43.4 million or $1.19 per diluted share.

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Adjusted EBITDA for the quarter was $14.2 million (28.1% margin); for the year, $52.1 million (28.7% margin).

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Cash flow from operations for the year was $53.5 million. The company ended the year with $99.1 million in cash and no debt.

Q&A

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Matt J. Summerville, D.A. Davidson: Asked about channel inventories and whether the Q4 sales spike was pull-forward or true demand. Buchel replied, "We expect distributors to buy more, the sell-through stats are good. The tariff chaos has kind of cleared up... So our fourth quarter sales was not only tariff-driven, pulling ahead driven, but also real demand."

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Summerville asked about recurring service revenue (RSR) growth and equipment growth for fiscal 2026. Buchel indicated ongoing strong increases in RSR, "I think we have some more of that in us... We have to keep having strong radio quarters for that to happen." Regarding equipment sales, "our belief is that we will grow double digits."

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James Andrew Ricchiuti, Needham: Inquired about the impact of pricing actions on margins and tariffs. Vuono responded, "We received limited benefit, I would say, in Q4 from the price increases... So we had pretty much a straight dollar-for-dollar hit in Q4, but we're expecting going into Q1, those pricing adjustments are now in place, and we're expecting to see a lift from there moving forward."

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Peter James Costa, Mizuho: Asked about MVP and Prima launches. Soloway described MVP as "a very strong growth product... for both enterprise customers and smaller facilities," highlighting its cloud-based model and integration with hardware.

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Jeremy Scott Hamblin, Craig-Hallum: Asked about churn and price increases. Buchel stated, "We don't really have any churn, churn being accounts that disconnect from us from our radios because we're mostly commercial. The pricing that we put in place sticks. Nobody complains about it... no pushback at all."

SENTIMENT ANALYSIS

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Analysts' tone was neutral to slightly positive, focusing on growth sustainability, pricing actions, and channel health. Questions emphasized recurring revenue momentum and the impact of tariffs, with follow-up on execution and the outlook for both recurring and equipment revenue.

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Management maintained a confident and upbeat tone in prepared remarks and Q&A. Soloway and Buchel consistently expressed confidence, with Soloway stating, "We enter fiscal 2026 with strong momentum, a clear focus and confidence in our ability to execute." Buchel affirmed expectations for double-digit equipment sales growth and ongoing recurring revenue momentum.

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Compared to the previous quarter, both analysts and management expressed greater optimism, with less concern about channel inventory and more focus on growth drivers and pricing power.

QUARTER-OVER-QUARTER COMPARISON

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Guidance language has grown more assertive, with management signaling expectations for double-digit equipment sales growth, compared to prior caution amid inventory destocking and tariff uncertainty.

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Strategic focus has shifted from managing distributor inventory and mitigating tariff impact to advancing recurring revenue products (notably MVP) and leveraging pricing power.

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Key metrics improved sequentially: recurring revenue run rate surged by $5 million; equipment sales rebounded 27% from Q3; and full-year cash flow from operations increased.

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Analysts' questions shifted from concerns about end-market weakness and tariff headwinds to the sustainability of recurring revenue growth and the impact of price increases.

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Management's confidence in pricing strategies and product innovation is noticeably higher than in the previous quarter, with repeated references to competitive advantages and strong distributor relations.

RISKS AND CONCERNS

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Management highlighted ongoing uncertainty in the tariff environment but pointed to proactive mitigation through pricing and supply chain strategy.

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Inventory destocking at distributors and timing of large project work remain risks for equipment sales, though management believes these headwinds are easing.

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Buchel noted, "The churn is inconsequential as it pertains to commercial radios," reducing concern about customer attrition.

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Analysts continue to monitor the impact of pricing actions and tariff pass-through on margins and sales volume, but management expects pricing benefits to materialize in Q1 2026.

FINAL TAKEAWAY

Napco Security Technologies enters fiscal 2026 with increased momentum, signaling confidence in both recurring and equipment revenue growth. The company highlights the successful implementation of pricing actions, a robust pipeline of new recurring revenue products, and a strong balance sheet with no debt. Management underscores a competitive edge in tariffs and supply chain, and expects double-digit equipment sales growth, supported by expanding adoption of its StarLink and MVP platforms. Investors are directed to watch for the full impact of tariff-offsetting price increases and sustained recurring revenue growth as key drivers in the new fiscal year.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/nssc/earnings/transcripts]

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