NAPCO Security Technologies — Fiscal Q1 2027 Earnings Summary

Financial Performance:

• Net revenue increased 1.7% year-over-year to a record $50.0 million (from $49.2 million in Q1 2026).
• Recurring service revenue (RSR) increased 11.5% to a record $26.1 million, representing over 90% gross margin.
• Equipment revenue decreased 7.3% to $23.9 million (from $25.7 million in Q1 2026).
• Gross profit margin improved to 58.7% from 56.6% in the prior year quarter.
• Net income increased 6.9% year-over-year to a record $13.0 million (from $12.2 million in Q1 2026).
• Diluted net income per share increased 5.9% to $0.36 (from $0.34 in Q1 2026).
• Non-GAAP Adjusted EBITDA increased 3.8% to a record $15.5 million with a margin of 31.0% (compared to $14.9 million and 30.4% margin in Q1 2026).
• Free cash flow decreased 79.8% to $2.3 million (from $11.4 million in Q1 2026), with a margin of 4.6% versus 23.3% previously.
• Cash and cash equivalents stood at $123.9 million as of September 30, 2026, down from $126.9 million at June 30, 2026.
• Total assets were $231.5 million as of September 30, 2026, compared to $238.7 million at June 30, 2026.
• Total liabilities decreased to $33.3 million as of September 30, 2026, from $47.7 million at June 30, 2026, driven by the reduction of accrued litigation costs from $16.0 million to zero.

Guidance and Future Outlook:

• RSR prospective annual run rate is approximately $106 million based on October 2026 recurring service revenues, an increase of $3 million from the run rate reported in July 2026.
• Management expressed confidence in the underlying health of the business, citing that sell-through at distributors grew year-over-year and strengthened sequentially despite distributor purchase reductions.

Business Segments and Product Lines:

• The company operates four divisions: NAPCO, Alarm Lock, Continental Instruments, and Marks USA.
• Equipment revenue decline was attributed to two locking distributors reducing their purchases during the quarter.
• Sell-through data at these distributors indicated growth year-over-year and sequential strengthening.

Market and Competitive Landscape:

• The company operates in a multi-billion dollar and rapidly expanding electronic security market.
• Products are installed by tens of thousands of security professionals worldwide in commercial, industrial, institutional, residential, and government applications.

Risks and Challenges:

• Forward-looking statements note potential risks including supply chain challenges and developments.
• Risks include the growth of recurring service revenues and annual run rate, balance sheet strength, and execution of business strategies.
• Actual results may differ materially due to factors outlined in the company's SEC filings (Form 10-K and 10-Q).

Management Commentary and Tone:

• CEO Kevin Buchel stated that Q1 performance reflected continued positive financial results, highlighting record revenue and Adjusted EBITDA bolstered by recurring service revenue.
• Management emphasized that sell-through is the "truest indicator of end-market demand" and noted strengthening trends.
• The tone was confident regarding the business's underlying health despite the temporary reduction in distributor purchases.

Other Key Points:

• The Board declared a quarterly dividend of $0.17 per share, payable on January 4, 2027, to shareholders of record on December 14, 2026.
• A litigation settlement of $1.0 million was recorded as a reduction in operating expenses for the quarter.
• Non-GAAP adjustments included $1.5 million in nonrecurring legal expenses and the $1.0 million litigation settlement credit.
• The company held $10.7 million in marketable securities as of September 30, 2026.
• Inventories increased to $34.1 million from $30.1 million in the prior quarter.
• Accounts and other receivables decreased to $29.2 million from $36.0 million in the prior quarter.