NSSC - Earnings call transcript Q3 2019 | Napco Security Technologies, Inc.

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Operator

Greetings, and welcome to NAPCO Security Technologies Fiscal Third Quarter 2019 Results Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded. I'd now like to turn the conference over to Mr. Patrick McKillop, Director of Investor Relations. Thank you, please go ahead.

Patrick McKillop

you. Thank morning. Good Patrick here is the of Director My NAPCO McKillop, Security. Relations at Investor name I'm Thank for fiscal discuss our you call financial conference all results joining us for our third XXXX. today's quarter for to all the release review now, opportunity results. press of had discussing have By the should to the you

If our is website in you copy Investor the release not, the a www.napcosecurity.com. Relations have of available sections of

CFO. of today Senior NAPCO Richard and and Security Vice and call Soloway, is the CEO On Buchel, Technologies; Kevin President President

Before take call of the contain filings set those numerous we me differ forward-looking those in statement. results, the forward-looking with in involve materially the forth SEC. read begin, moment to may anticipated Actual such let a that or factors, uncertainties. This may risks Company's result forward-looking certain including achievements from a performance statements conference and statements as

certain considered IR just press we to non-GAAP call I before want of as a adjusted In included used non-GAAP call, the the also of These EBITDA be things a relevant financial and may today, GAAP financial financial I issued these on about for investors turn financial measures reconciliation these measures. measures in a will over GAAP the you'll we discussion instead to find on certain financial well think few to earlier moment, why non-GAAP not do, the these the should are with measure ratios and are I measures our results. the Dick as the with front. benefit mention but of of During financial are definition release financial the that closest present a as measures, tables measures, such measures. and these Non-GAAP

of Also will let Investor those conferences in In May, York. month trips. call terms Cowen me outreach and small place of early NAPCO crucial such especially during for be at Blair way, and of conferences investor NAPCO, President of Needham conference June, Chicago. Company the Dick, a William and the these in assist will all which cap of With New we Soloway, that in yours. as of marketing taking the Technologies. we be attending are folks to Oppenheimer, outreach, Richard the all floor is that the CEO out turn the Security us thank to over in I'd is like and upcoming

Richard Soloway

revenue performance Patrick. fiscal results. us Good joining you, our XX to for conference everyone discuss today XXXX Thank of Thank morning, third We welcome you The and NAPCO. now quarters profitability our and to strong record another record have quarter call. marked for sales. year-over-year consecutive

continue rate. recovering revenues to at rate million The is of March annual now grow XXXX. a rapid $XX.X Our run as

Our continuous driving strategy of professional and is growth. market mostly the end targeting commercial installations

equity team our with which healthy remain alarm on debt industry communicators, are this architectural focused and balances school important as remains The intrusion sheet cash is and enterprise on trends Our on and access of capitalizing metrics here We report. strong on of management zero at profit we security products. to system key balance wireless control locking our and key shareholders. returns fire growth, NAPCO know equally remain solution, including focused

shareholders and Our equity. with strategy well interests is the NAPCO of aligned our owns executing business are management and our XX% senior of

on will over the detail, and further overview Kevin? into then to results Buchel. CFO, with go strategies be more outlook. I'll an quarter financial I of our now call I provide will and fiscal back He Before Kevin turn third our the

Kevin Buchel

and Thank morning, everybody. you Dick, good

year-over-year XXth quarter record million quarter the a to last of consecutive performance and compared quarter, million For as net year. was third increased sales which sales to $XX.X third $XX.X the XX% record

million and last million services, $X.X compared $XX.X were $XX.X communications a million to million to of XXXX to primarily million XX, million year and to months annual months our versus three access months $X.X nine revenue. of with to recurring $XX.X March now in third nine Recurring the increased to year. year. XXXX of from for XX% ago, on XX, and sales nine $X.X for alarm to increased run The increased related profit sales year. XXXX, the million margin with March ended increase March net sales XX% the XX% door-locking increased rate XX% last gross gross margin last products for quarter a increased million of as revenue an For $X.X revenue and Gross quarter $XX.X products. XX% ended for intrusion million the Recurring compared the $XX.X XX% monthly a the has as based

R&D nine XX% with profit months with million year. of was XX% sales. of for months year. gross sales the for of quarter increase million gross a $X.X $XX.X of XX% increased last XX% X% margin compared due the to For the as a sales to X% margin and to last nine in expenses gross gross $XX profit with increase and to $X.X million or three the margin million primarily increased gross in to compared third The

X% to three For to of and sales of sales XX% salaries increase SG&A months for additional last or The sales and as $X.X to year. to expenses months, due million the X% nine XX% compared expenses $X.X was as decreased for million R&D million the or or X% QX increased nine year. of or to last million $X.X primarily $X.X increased compared of sales personnel. X%

the ago. as $XX.X fiscal the three as primarily QX compared due as or $XXX,XXX to XX% year. the by $X.X of increased as tax million expenses to ended to XX% XX% million to XX, sales year as $XX.X compared The compared The $XX,XXX SG&A QX XXXX Operating was months, increase for sales months Operating for income net $X.X the the quarter year. SG&A last For $X.X income for $X.X a three for March compared year. 'XX and increased nine million to compared sales $XXX,XXX in nine to as million Company's 'XX. XX% effective increased percentage decrease a last nine months rate X% to increased for expense to months sales. of million or million tax to X% last the to of XXX% was for Income of

items last or XX% to tax both for which federal up sales well XX% three this to million For EBITDA or changes months compared nine XX% per to diluted year. increased months to last press compared as income tax lowered same million months year. diluted $X.XX nine $X.XX to for $X.XX $X million code is XX% million months release, $X.XX three to million and nine share and per year. $X $X.X year, increased $X.X which increased due the tax the included or as $X.XX compared for schedule the to year. increased nine to period, of share which period mentioned. $X.X to net equates the XX% rate per XX% $XXX,XXX expense expense quarter Company's to sales months year. for last per last for share per $X.X diluted as same for which nine the tax of previously or diluted income to diluted compared million last $X.X year. share sales quarter or last months in to effective to $X.X to outlined $X.X increased share increased per equates last of the income income was increased million the period as diluted as per expense operating for for million year's third sales $X.XX which diluted the year. primarily equates the increased The XX% million income last to compared due to income to income EBITDA $X.X net the as nine net XX% the was Adjusted net tax or net as Net compared million The of share in as equates to today's the $X.XX per Adjusted XX% or aforementioned X% $X.XX share Net the or was for diluted The the the share

was balance cash million Moving June million on XX, at XXXX. sheet, to XX, as $X.X $X.X to balance compared XXXX March at the

in the which was ended increased quarter for X as March The XXXX XXXX. XX, XX, capital XXXX at at March ratio June, for XXXX in XX% during three primarily for And compared X.X as $X.X XXXX. June CapEx the year. Net the provided with current million inventory the of sale, in XX, the at Net XX, million sales strongest March quarter quarter activities nine to at last to working remained months historically, we're million. fiscal million used April, operating $XXX,XXX $XX.X related cash the nine was compared for was X months Our of March $X.X and with at as $XX.X X.X the to and now, gear was to quarter year. $X.X as operating XX, by $XXX,XXX, period fourth XX, XXXX was as increases that compared up activities was months the cash May to June ended XX, we million March XXXX. zero debt

come the Our make for as belief yet Company. we are have remains purchases best a we opportunistically stock that program open, and to strong our buyback years

repurchased we shares at During average the March quarter XXXX, of an XX,XXX $XX.XX. XX, ended price

an price months call For $XX.XX. XXX,XXX now of That ended the concludes return I like March remarks, XX, would my to we repurchased to shares Dick. the average nine back and XXXX, at formal

Richard Soloway

you. thank Kevin,

be our to in We excited growth the business. continue about

continue We future. expect to the growth trend the in

recurring is see we intrusion school continue in the growth home from fire, of issue in The coming remains the continue significant important We this an category. to of vertical. States, communications smart topic alarm the products to revenue believe the United opportunity market security and that for and including demand

happening. with an University Carolina. and last we took to was days that place in incidences ago, fatalities North Most a just continue recently, year, at While events the we remember there see in few incident Florida Texas a all

able providing We US. K market desperately school. authorities XXX,XXX planned and over this very solutions In an large products that's dedicated through the to addition, is in universities a at elementary schools a XX, remain were need. and XX,XXX to that so We that with Tennessee colleges and fortunately thwart in the shooting believe

and taking funding calls are past in highlighted school security that with the since February legislatures during state allocated action billion to meetings investor approximately have $X We XXXX.

to do school funding possibility the security. doing increase states to pipeline XXXX proposal a The the continue shooter need more wins of will robust includes the and the to that well. will for as from and worship future $XXX million same Recently, there we XXXX when from prior active and announce levels in the from have the so. school we Trump's expect looks for we approval security undergoing houses in as of new can President budget more we funding government more schools receive is more We federal witnessed projects incidences.

have expand public our securing for We the seen products need well. these as as the for clear. is places our SAVI audit locks this need of system and meeting wireless application control public with places and such The other to access use

largest the Our iSecure show alarm recently the called the a and ago attended. USA. trade professional security the latest thousands in was of and West product, system ISC show tens few was of weeks introduced The it's dealers at

early installers more at This that product the to a producer options cost This in at the profits, business strong won believe to comes cellular revenue anything advanced dealers We beyond strongly features of eager the our recurring security at the show. the remain for were was will option, for in traditional revenue burglars installation strategy. introductions have MVP, also and stages designed something market. well-received executing the and and controls It's the offer home is included focused offered hour alarm The is professional drive far dealers the our It's NAPCO to security on practice a the we product different cellular iSecure of system R&D this company show, dealer smart anything home and growth alarm new to iSecure to fully which the dealers revenue. growth for and our work for product that add trajectory developing in Valuable our been the trade its consumers. our anywhere and easy bring strong today. believe continued Our avoid of recurring commercial that perfect install we a of to communications a for we panel to in the disable FireLink Product Go-Anywhere and response unique Video for our iSecure Video A Other breed in much Doorbell is systems required and new for on as the system Doorbell expect so faster see on continues three by panel monitoring years are our award it very will ISC on smart-hub From service business. is dealers. best is on category effective demand be inside. protection market. business with of right here systems installations Control. team the cellular Fire and the sales, product, upon professional packed become savvy FireLink classroom us for the connected at and trade can has placed ultra The the the asking continue recurring process one our come. has be to entry are that the pre-activated The in capabilities The enabling smashing from growing and show Most communicator to Alarm popular. professional savings the system. show than Both ROI Video can iSecure The and the market. breakthrough products of system. home in traditional pre-configured FireLink, already be Doorbell conversion cost will that built products to could rapidly for

the before systems in line have of alarm address we to the a and is infancy strong residential the old traditional conversion product mentioned using and from telephone we fashioned offering market. commercial As its needs

fire and communicators we fire During leader LTE line the fiscal alarm, for to network communicator the at StarLink The AT&T communicators of network LTE and cellular this wireless introduce launched in Verizon capability year. intrusion of past category. are the we alarm, end universal intrusion the with year, share alarm IoT communicators market expect

will begin Q&A session moment. in portion our a We this of call

successful for third Our very a the us, record was company fiscal to strong deliver breaking and continue products. we quarter XXXX grow quarter and

strong in been a returns have profits NAPCO is rewarded stock in with position shareholders performance. growth continue and and Our healthy going sales to very forward. its

our high us like to for We about in future excited maintains fiscal beyond. XX% of and ownership the equity I XXXX of approximately support are rest management level the the and everyone a their and NAPCO's joining we exciting would in senior for thank have.

open concluded. remarks Our please call Operator, Q&A formal have now We would now for proceed. to the like session. the

Operator

is Instructions] [Operator first line the with Our of Matt Pfau question Blair. from William

Matt Pfau

product? the you should Wanted what Are seeing to can or you new terms existing business product and then when a interest of interest. seeing this with show And security tell dealer contribution iSecure with dealers the just to primarily maybe you're out revenue in it expect start done we in us from that haven't iSecure is start you dealers. previously

Richard Soloway

was lower the point. competition up. greater We points the three first price the The product. competition than price anything by the it by time marketplace show of the any for had are products product iSecure at and different We years the the than much take different on far. will The catch believe to set feature we on two-thirds is unveiled

works everything great back which to try make as it. reliability to like, embedded As the products job and and have what by the few quality and fine, sure a they repair put in have They they a for reputation like a have dealers all dealers. go not to security we is

software to product lots they is make has want So it's to the we in sure it, that want fine. everything make of sure fine

product of in we ramping in shipping At in an this typically But nine going have gestation coming one for do than product to of then more why we dealers behind to would and now with product much to be want us months more. spend dealers throughout less to lots money over it get site more dealers we're and who want the months advanced installs less somebody going more that for saw it. to be so to competition hour the because any really or show, These quarter this to an sell traditional expect get methodology. lots of we're the that's to alarm that the installed takes of. iSecure. our smart so every we up period And this beta sense. from make we business doesn't get So revenue we're out to are recurring a It saw guys, one and business XX monthly year

a for the and win-win for it's So dealers. us

answers question. So I your that hope

Matt Pfau

seems gross opportunity And line like fire then strong. the based was on as it quarter hoping fire the in that services update an StarLink well the the on was improvement product for margin on

could old are that give you us update opportunity maybe replacement seeing just and landline what where an systems? in you're you terms adding cycle of penetrating So these of fire

Richard Soloway

millions use by the so many and the service are of broken country anymore. are the caused cracked those There that is service the And the landlines. to lines alarm buildings last false old of want that across it don't providers

the converting control first others recurring get the path, fire our single inning, we And they as would with but additional in dealers and panel in lunch as path meet we're to sales so and it, equipment to shows. we're in product, – do, expanded ISC I early in every about say fire So as greets line like integrated learn the revenue. the over shows use of now coming is communicators going learns, shows and we're the product dual more regional more our the West, well systems stages about counter learn fire

the considered legs of and keep are the we has great, leading and will growth of years many just which communicators many, future growing. fire product have category great we in So

Matt Pfau

one from And me. last

worship of of types that mentioned, think you'd same the ecosystem have it terms are you and relationships about places little that to in relative is the or places a there worship? your have out ones size. order the should get in with a those currently places need of that K-XX of to dig potential address deals how to within worship bit new of and go then that targeting size you opportunity you have do dealers about those wanted Just to to we schools dealers with an deals And

Richard Soloway

country. we have Well across the dealers

access product, our products. Some products, of locking the all the dealers alarm products buy

Some just so of to control bumper of they're bumper dealers kinds can place country at that. tremendous. is place in number the get do where locking all full or to worship remote like train trying We're access dealers jobs. they of gathering across places the The

dealers budget work. with wide report to picking distributors can each widest jobs, We to devices. buy the on which new And what kinds more and fire places [SAVI] these full houses and there have system, we required there it than way and very, our dealers our installation. have partitions we the have these of other doing worship see more an comprehensive SKUs recommends has and control of gathering people be line lots we equipment. a out a have bringing doing places of - and Each equipment, more products dealers set erector with sell radio line of locked protect it's on products our type up the to of But all fit. all also just is alarm of down then to the dealers excited. security certain the where it on the very, the And and turnkey for custom. in the is customized it's out so total the like to it equipment together other making protect best so custom is because XXXX installations XX,XXX way building put have we Everything of gather iSecure for different selling dealers protect we building things, explains and they a Since use, most through lot

on So lot future. our things there's for and bodes here going it good a well of

Operator

Genuity. the Our question Walkley next Canaccord of Mike is with from line

Mike Walkley

results strong U.S. award the the and today as on Congratulations

just, kind that expect you have for quarter Just should the inventory channel and June quarter? normal your into strong the seasonally high of question seen a level of strong June kind we seasonality

Richard Soloway

gotten that distributors, very in April, It's through why our people June signs quarter reason May, All sell month from summer the good, no reports seeing parts get the away. been the that the when you're be in that nice has It's the the of go seeing. again. now, selling to strongest the this numbers all that that We you're season it's quarter weather's country. now, There's in believe direction. we're seasonally point precede that the will

inventory expect we So our our inventory a strong but we nice geared need up we quarter. fourth because -- grew very that

Mike Walkley

quarter do you puts given just on seasonally that, gross sourcing time how also? and on mix, going about leverage building takes bit margin a about was strategy your talk And component trajectory to gross and any over maybe you drive the little gross Asia margin think update could margin strong from the that

Kevin Buchel

margins XX%. expansion. talk Asia the million point. million, a when gross go hardware we it In for again when quarter about $XX hardware $XX We this over see quarter. I'll gross and The talk hit, about start hardware, when over sourcing quarter we the Dick fourth pushing were in last just margins margin margin was to sales the we the year about could then saw the

that all soon. there very margins The fire and even And radios would we out that the in it, but beat this good. get add recurring close to lot margin. stronger and which are hardware being keep I course, be revenue range I or the recurring, we higher fire, went the XX.X% the will to would in then in gross radios by We saying XX revenue it XX% over up the to may expect point of So plus quarter margin only. to piece a great recurring if again take I QX, future. the at going a That's through for helped to we're is get go margin.

year XX.X%, input at that. think was a trend some We continue. to it to that time so ago up got on a points higher this I I few And and saw than expect we

as that Dick. far Asia to the As part, I'll turn

Richard Soloway

year As to product. finished could directly All into to ago, orders converted the took parts they they're a sources back in Asia. Dominican the of buy parts come where from way of a we then converted about have Amityville our lot of we located and SKUs usually then over you a to to team and go buyers DR they by where from where those Those Republic, I directly we Asia Asia know XXXX a countries shipped and the to and shipped our the out and lots sending distributors.

So there burns for every get our exactly using of pricing deal quality we quantity have recovery the The revenue set that goes check than it targets as our And love then every our those we the on have weeks their a buyers and out with get They for we the couple components engineers or it industry. we're great components, ever. never the of reputation recurring them get reach item items. revenue, we're we sure using in are out same better our and make were is this. because targets we now out, stuff, quality because forever large meet with the

multi-year our little is the that And bit materials it this down. we the and all with cost melded be of approved in engineering time So a takes and past, reduced go project. forth back It by of these in are said and a of manufacturers because won't overnight. happen parts as getting will

ease the because But don't to it to to it's cause problems very any got right you direction. You want reputation. very, all our well in, going in serious

Mike Walkley

me pass from off. question it Last I'll and

recurring products any Kevin of support old investment of these more new to exciting absolute levels revenue. these going I we OpEx about going operating all with need Just for launches. there drive development kind up you ramping you. Thank expenses new on how harvesting should are think product Is or to R&D forward guess.

Kevin Buchel

as knock we we a on about because expanded capability CapEx, have $XX revenue of about room, to $X on more us We million our which lately about, we've up that, been talked spending $X.X $XXX,XXX gives billion. spent to recurring million the

And machinery, so higher down think insertion machinery a also for plastic of at as good injection we a warehouse auto higher an saw that us numbers, not years. are view, feet R&D get XX,XXX we're we add levels, and on expanded on a spending expensive. view for here readily good our now that molding in an We type Amityville. From little there So we good. we here CapEx at as the couple point point that we're machines all to square have of of of I added molding, space, you a grow and least to R&D of a and more, from fact From we we're level point view. building

as under just so control, us keep expect very an of that's the view, we're will starting stronger. sales that You know and to that all and what leverage SG&A it's but we might level. we're From in see important for getting leverage, the this under percentage you large don't the changes see that stronger add a that's control a why person here or go keeping those SG&A, to there we're of R&D at keep good a down, expenses We the now. any point

Operator

We you. management Thank for back reached question-and-answer Instructions] [Operator end like would the comments. additional the floor of any session. turn to our I to

Richard Soloway

today's conference participating in you, everyone call. for Thank

look always to please XXXX fiscal thank support, have XXXX we a any for to call free further Kevin your Bye-bye. fiscal year Patrick, feel few interest and and you to results. forward information. months We you should all QX speaking for and you As in to further or again myself questions discuss NAPCO's

Operator

This today's concludes teleconference.

for you time, at You this your and thank may disconnect lines your participation.

Napco Security (NSSC) 6 May 192019 Q3 Earnings call transcript