NAPCO sets another net sales record in the third quarter

Despite strong sales growth in the third quarter, NAPCO says its ability to fully meet product demand continues to be limited by ongoing supply chain challenges, electronic component shortages and logistical delays.

AMITYVILLE, NY—NAPCO Security Technologies (Nasdaq: NSSC) not only achieved record sales in the third quarter of its fiscal year 2022, but the company also saw its hardware gross margin rebound from the tighter margins experienced in 2021.

The company saw its net sales for the quarter ending March 31 increase 27% to a quarterly record of $35.9 million, from $28.2 million for the same period last year. Its recurring services revenue (RSR) for the quarter increased 35% to $12 million from $8.9 million for the same period last year.

Services recurring revenue now has a forward-looking annual operating rate of $49.9 million based on April 2022 recurring revenue. Meanwhile, adjusted EBITDA for the quarter was $5.2 million, compared to $5.5 million for the same period a year ago, a decrease of 5%, due to the increased costs of the supply chain situation.

Richard Soloway, Chairman and President of NAPCO, comments, “Our third quarter of fiscal 2022 delivered strong revenue growth, with the highest sales of any quarter in company history of 35.9 million, an increase of 27% over last year.

Equipment revenue (+23%) and recurring service revenue (+35%) contributed to this sales growth. This is the sixth consecutive quarter of year-over-year sales growth. Our recurring services revenue now has a forward-looking annual operating rate of approximately $50 million based on April 2022 recurring services revenue.”

NAPCO’s gross margin for recurring services revenue was 87% for the quarter, down from 86% for the same period last year, but it was the hardware margin that got Soloway excited.

“I was very pleased to see our hardware gross margins increase to 17%, more than double last quarter’s hardware gross margin of 8%. Clearly, hardware margins continue to be impacted by the continued impact of supply chain constraints. However, our strategy of temporarily sacrificing hardware gross margin by purchasing components at higher prices so that we can continue to manufacture radios, which generates continued high-margin recurring revenue for every radio installed and in operation, works.

“Radio sales and activations continue to be strong. This, combined with some strategic price increases and continued strong revenue, allowed us to increase our overall gross margin from last quarter and beat street consensus estimates for the third quarter on revenue. business, EPS, net income and adjusted EBITDA. Additionally, our overall gross profit increased 27% to $14.6 million from last quarter ($11.4 million) and 13% from the third quarter of last year (12. $9 million).

Soloway says electronic component suppliers are ramping up capacity. He believes that once that happens, parts prices will normalize and NAPCO will see an increase in gross margin.

“Our radio and fire alarm business, and the RSR associated with each, continues to grow significantly as commercial buildings must be secure. Additionally, the commercial fire alarm company is a mandatory, non-discretionary business, which means that in order to receive a certificate of occupancy for a building, a fire alarm system is mandatory and must always operate in accordance with codes. fire prevention.

“Due to the critical nature and high profitability of this sector, the commercial fire alarm sector continues to be one of the key areas where we focus our resources,” he adds.

Despite strong sales growth in the third quarter, Soloway says NAPCO’s ability to fully meet strong product demand continues to be limited by ongoing supply chain challenges, electronic component shortages and product delays. logistics.

“NAPCO’s delivery performance has been excellent during these very difficult times. However, these aforementioned constraints have slowed the pace of revenue realization and led to historically high backlog levels that may continue through calendar year 2022, particularly for electronics.

“The strong sales performance during the third quarter was achieved, in part, because NAPCO continues to focus on aggressively managing these logistical challenges to ensure we remain well positioned to meet the needs of our customers. We continue to manage these issues by redesigning products, developing alternative and lower-cost sources of supply and delivery methods, and continuing to work closely with our customers and suppliers to get through these extraordinary times.” he declared.

NAPCO has $47.4 million in cash and no debt.


This article first appeared on SSI’s sister site CEPro.com.

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