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DATE
Monday, August 25, 2025 at 11 a.m. ET
CALL PARTICIPANTS
Chairman and Chief Executive Officer — Richard Soloway
President and Chief Operating Officer — Kevin Buchel
Chief Financial Officer — Andrew Bono
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RISKS
Equipment Gross Margin Decline— CFO Bono stated, "Gross profit per equipment revenue decreased 31.2% in Q4 FY2025 to $6.4 million with a gross margin of 23%, compared to $9.4 million and a 31% margin in Q4 FY2024." citing higher tariff costs and reduced absorption of fixed manufacturing costs as primary causes.
SG&A Cost Pressure— CFO Bono noted, "SG&A expenses for the twelve months ended June 2025 increased 13.5% to $42.2 million or 23% of net sales as compared to $37.1 million or 20% of sales" attributing the increase to higher personnel, insurance, legal, and professional fees.
Decreased Operating Income— CFO Bono reported, "Operating income for the twelve months ended June 2025 decreased 14% to $46.3 million as compared to $53.8 million for the same period last year."
Distributor Destocking and Timing Impact on Equipment Sales— Bono explained, "The decrease in equipment sales was primarily a result of extended destocking strategies by some of our largest distributors throughout the year, in addition to the timing of large project work for our dual locking business."
TAKEAWAYS
Recurring Revenue Run Rate-- $94 million in Q4 FY2025, up $5 million sequentially from Q3, marking the largest quarterly increase in two years and accounting for nearly half of annual sales.
Q4 Net Sales-- $50.7 million, up 0.8% year-over-year; equipment revenue fell 5.5% to $28.3 million, while Recurring service revenue rose 10% to $22.4 million.
Annual Net Sales-- $181.6 million in net sales for FY2025, down 3.8% year-over-year, consisting of $86.3 million in recurring service revenue (up 14%) and $95.3 million in equipment sales (down 15.7%).
Recurring Revenue Gross Margin-- 91% during Q4 and full year, supported by high-margin StarLink Fire Radio services.
Q4 Equipment Gross Margin-- 23% gross margin for equipment revenue in Q4 FY2025 (down from 31% last year), reflecting increased tariff costs and limited benefit from price hikes due to advance orders.
Q4 and Annual Net Income-- Net income for Q4 FY2025 was $11.6 million (23% of net sales), down 14%; Annual net income (GAAP) was $43.4 million (24% of net sales), down 13%, with diluted EPS of $1.19 for FY2025.
Adjusted EBITDA-- Adjusted EBITDA for Q4 FY2025 was $14.2 million (28.1% margin), down 7.6%; Adjusted EBITDA for FY2025 was $52.1 million (28.7% margin), down 11.6% year-over-year.
Cash Position-- $99.1 million in cash and marketable securities as of FY2025, up 1.5% year-over-year; no debt outstanding as of June 2025.
Shareholder Returns-- $13.6 million paid in dividends and $36.8 million used for share repurchases (1.2 million shares at a $30.40 average) during FY2025.
Inventory Reduction-- Inventory at June 30, 2025 (Q4 FY2025), was $8.6 million lower than the prior year due to active working capital management.
Tariff Response and Pricing-- Two equipment price increases: 8.5% in April FY2025 and an additional 5% annual adjustment effective mid-July FY2025. Management expects margin benefits from these to begin in Q1 FY2026.
StarLink Platform Strength-- High-margin StarLink Fire Radios remain the leading contributor to recurring revenue growth and adoption.
R&D and SG&A Spending-- R&D for FY2025 increased 16.9% to $12.6 million (7% of sales); SG&A for FY2025 increased 13.5% to $42.2 million (23% of sales), driven by wage and hiring increases as well as higher legal and insurance costs.
Dividend Activity-- Quarterly dividend was maintained at $0.14 per share for Q4 FY2025; management noted room for future increases.
SUMMARY
Napco Security Technologies(NSSC 6.06%) delivered its highest-ever quarterly recurring revenue run rate, reaching $94 million in Q4 FY2025 and accounting for almost half of total sales. Management implemented two equipment price increases—8.5% in April and 5% in mid-July—in direct response to tariff pressures, with the full margin impact expected in Q1 FY2026. The StarLink Fire Radio platform continues to drive high-margin recurring revenue, achieving a 91% gross margin in both Q4 FY2025 and FY2025. Annual equipment sales declined 15.7% to $95.3 million in FY2025 due to distributor destocking and challenging project timing. However, Q4 FY2025 rebounded 27% sequentially versus Q3 FY2025. Despite increased R&D and SG&A spending attributed to salaries, hiring, and legal costs, the company preserved cash flow in FY2025. It ended the year with $99.1 million in cash, cash equivalents, and marketable securities, and operated with no debt.
Chairman Soloway said, "This year, recurring revenue grew by more than $10 million and now represents nearly half of our total sales with a sustained gross margin of 91%," emphasizing the importance of this revenue stream for stability and future reinvestment.
President Buchel stated, "We paid out $13.6 million in dividends and repurchased $36.8 million of our stock," reflecting Napco's ongoing commitment to capital returns.
Bono confirmed, "So, you know, we had pretty much a straight dollar-for-dollar hit in Q4 FY2025, but going into Q1 FY2026, those pricing adjustments are now in place, and we're expecting to see, you know, a lift from them moving forward."
Soloway highlighted the MVP platform as "a brand new recurring revenue stream for us and for our dealers," signaling expansion into cloud-based access control with the expectation that MVP "can potentially be a game changer"
Management anticipates double-digit equipment sales growth in FY2026, supported by easier year-over-year comparables and the benefit of recent price adjustments, as expressed by Buchel: "Well, given we took two increases, you know, the 8.5% to offset the tariffs and the 5%, which is a straight price increase, our belief is that we will grow double digits. We can't, you know, we take it quarter by quarter. We have very easy comps this year, in my opinion—Q's one, two, and three, especially. So it's not a hard task from my perspective. But we gotta perform."
INDUSTRY GLOSSARY
StarLink Fire Radio: Proprietary Napco wireless fire alarm communicator for commercial fire systems, driving recurring service revenue at premium margins.
MVP Platform: Napco's new cloud-based access control system, integrating with locking hardware to enable remote building entry management and add recurring revenue opportunity.
PASS: Partner Alliance for Safer Schools, an industry standard referenced for best practices in school security technology implementations.
Full Conference Call Transcript
Dick Soloway, our Chairman and CEO, Kevin Buchel, President and Chief Operating Officer, and Andrew Bono, Chief Financial Officer. Before we begin, let me take a moment to read the forward-looking statement. As this presentation contains forward-looking statements that are based on current expectations, estimates, forecasts, and projections of future performance based on management's judgment, beliefs, current trends, and anticipated product performance. These forward-looking statements include, without limitation, statements relating to growth drivers of the company's business, such as school security products, recurring revenue services, potential market opportunities, the benefits of our recurring revenue products to customers and dealers, our ability to control expenses and costs, and expected annual run rate for SaaS recurring monthly revenue.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. These factors include, but are not limited to, such risk factors described in our SEC filings, including our annual report on Form 10-K. Other unknown or unpredictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. You should not place undue reliance on these forward-looking statements.
All information provided in today's press release and this conference call are as of today's date unless otherwise stated. And we undertake no duty to update such information except as required under applicable law. I'll turn the call over to Dick in a moment. Before I do, I want to mention we are actively planning our investor relations calendar for non-deal roadshow and conference attendance in the near future. Investor outreach is important to Napco. I'd like to thank all those folks who assist us in these types of events. Over the coming weeks, we will be participating in several key investor events.
We'll be attending the Jefferies Industrials Conference in New York City in early September, followed by a virtual non-deal roadshow hosted by Craig Hallum on September 8. In mid-September, we'll take part in DA Davidson's 24th annual Diversify Industrials and Services Conference in Nashville, Tennessee. And on October 8, Lake Street will host a virtual non-deal roadshow on our behalf. With that out of the way, let me turn the call over to Dick Soloway, Chairman and CEO of Napco Security Technologies. Dick, the floor is yours.
Dick Soloway: Thank you, Fran. Good morning, everyone, and welcome to our conference call. We appreciate your participation today as we review our fiscal Q4 and fiscal 2025 performance. This past year has presented its fair share of headwinds, particularly around microeconomic uncertainty and tariff-related pressures. But through it all, we have maintained focus on our long-term strategy. Delivering best-in-class solutions, maintaining operational discipline, and investing for sustainable growth. Our recurring revenue model continues to provide significant profitability and stability and a strong foundation for future innovation and customer engagement. As you will hear shortly, we have once again attained meaningful growth in this area, and we are confident this trend will continue.
We are also encouraged by our Q4 hardware sales performance and how quickly our team adapted to shifting demand. Our ability to control inventory, manage supply chain complexity, and continue delivering on customer commitments has put us in a strong position. One of the things I am most proud of is how we have balanced growth with financial stewardship. We continue to invest in product development and customer success while also returning significant value to shareholders. All without taking on debt, which speaks to the strength of our business model and the effectiveness of our leadership team. Looking forward, the tariff landscape will continue to evolve.
And while we cannot predict how that will play out, we have taken proactive steps both operationally and strategically, to address this. The pricing adjustments we have implemented are a key part of that, and we expect to see its impact starting in Q1. We enter fiscal 2026 with strong momentum, a clear focus, and confidence in our ability to execute. With that, I will turn the call over to our President and Chief Operating Officer, Kevin Buchel, who will comment on some of our operational and financial performance highlights. Following Kevin's remarks, our CFO, Andy Bono, will go through the financials in detail. And then I will return to delve deeper into our strategies and market outlook.
Kevin, the floor is yours.
Kevin Buchel: Thank you, Dick, and good morning, everyone. I'm pleased to start off by highlighting several key accomplishments and financial milestones from 2025. First, I'm proud to report that we will be reporting that the company received a clean opinion on its internal controls over financial reporting for fiscal 2025, which means our auditors, Deloitte, issued an unqualified opinion under the Sarbanes-Oxley Act indicating that our company's internal controls over financial reporting were designed and operating effectively as of June 30, 2025. You will see that as part of the 10-K, which we will be filing later today. This reflects the strength of our internal controls and the continued diligence of our finance and compliance teams.
And I would like to congratulate them for all of their efforts. Our recurring revenue continues to be a cornerstone of our business. 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 two years, and it's a strong signal of the momentum that we're building. Equipment sales for the quarter, while down 5% versus last year's Q4, had a much-improved performance, increasing 27% sequentially from 2025. This growth underscores the value of our offerings and the continued strength of our customer relationships, particularly in uncertain economic times caused in large part by the effect of tariffs.
From a profitability standpoint, our recurring revenue gross margin remained very strong at 91%, with Starling Commercial Fire Radios continuing to be a strong part of the mix. We also made meaningful progress on inventory management, reducing inventory levels at June 30, 2025, by $8.6 million compared to this time last year. Cash flow from operations for the year came in at $53.5 million, which reinforces our ability to generate consistent cash flow to support both strategic investments and shareholder returns. Speaking of which, we returned significant value to our shareholders during the fiscal year.
We paid out $13.6 million in dividends and repurchased $36.8 million of our stock, which is equivalent to 1.2 million shares at an average price of $30.40. Even after these returns, we ended the fiscal year with approximately $100 million in cash and no debt, giving us tremendous flexibility going forward. On pricing, we announced two pricing increases during the quarter. The first in April was an 8.5% increase to help offset rising tariff costs. The second was our standard annual price increase, which this year was 5% and went into effect approximately mid-July. We expect the full benefit of these actions to be reflected starting in our fiscal 2026 Q1.
Finally, while there remains considerable uncertainty in the market around tariffs, we believe we are in an advantageous position as compared to some of our competitors. Our supply chain planning, pricing strategies, and balance sheet strength give us a competitive advantage in navigating these challenges. Overall, it was a very strong quarter and a solid close to the fiscal year, with net income of $43.4 million or 24% of sales and adjusted EBITDA of $52.1 million, which equates to an EBITDA margin of 29%. I am proud of the team's execution and the financial strength we are carrying into the new fiscal year.
With that, I will turn the call over to our CFO, Andy Bono, for a deeper dive into the financials. Andy?
Andrew Bono: Great. Thank you, Kevin, and good morning, everyone. Net sales for the three 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. Net sales for the twelve months ended June 30, 2025, decreased 3.8% to $181.6 million as compared to $188.8 million for the same period a year ago. Recurring monthly service revenue continued its strong growth, increasing 10% in Q4 to $22.4 million as compared to $20.4 million for the same period last year. Recurring monthly service revenue for the twelve months ended June 2025 increased 14% to $86.3 million as compared to $75.7 million last year.
These increases reflect the continued demand for our StarLink radios. Equipment sales for the quarter decreased 5.5% to $28.3 million as compared to $29.9 million last year. And equipment sales for the year ended June 2025 decreased 15.7% to $95.3 million as compared to $113.1 million for the same period last year. The decrease in equipment sales was primarily a result of extended destocking strategies by some of our largest distributors throughout the year, in addition to the timing of large project work for our dual locking business.
Gross profit for the three months ended June 2025 decreased 3.8% to $26.8 million with a gross margin of 53%, as compared to $27.8 million with a gross margin of 55% for the same period last year. Gross profit for the twelve months ended June 30, 2025, decreased 0.7% to $101 million with a gross margin of 56% as compared to $101.8 million with a gross margin of 54% a year ago. Gross profit for recurring service revenue for the quarter increased 10.3% to $20.3 million with a gross margin of 91% as compared to $18.4 million with a gross margin of 90% last year.
Gross profit for the recurring service revenue for the twelve months ended June 2025 increased 14.6% to $78.5 million with a gross margin of 91% as compared to $68.5 million with a gross margin of 90% last year. Gross profit per equipment revenue in Q4 decreased 31.2% to $6.4 million with a gross margin of 23% as compared to $9.4 million with a gross margin of 31% last year. Gross profit for equipment units for the twelve months ended June 30, 2025, decreased 32% to $22.5 million with a gross margin of 24% as compared to $33.2 million with a gross margin of 29% for the same period last year.
The increase in both gross profit dollars and gross margin for recurring revenue for the three and twelve months ended June 2025 was primarily the result of the previously mentioned increase in recurring revenue as well as a higher proportion of those revenues being generated by our StarLink fire radios, which generate higher monthly service charges than the other StarLink radios. The decrease in both gross profit dollars and gross margin for equipment revenues for both the three and twelve months ended June 2025 was primarily the result of the aforementioned decrease in revenue, which resulted in less absorption of our fixed manufacturing overhead costs.
In addition, Q4 was further negatively impacted by increased tariff costs in the fourth quarter and the impact of distributors pulling forward certain orders before our announced price increase went into effect. R&D costs for the quarter increased 6.8% to $3.2 million or 6.4% of sales as compared to $3 million or 6% of sales for the same period a year ago. R&D costs for the twelve months ended June 2025 increased 16.9% to $12.6 million or 7% of sales as compared to $10.8 million or 6% of sales for the same period a year ago. The increase for the three and twelve months was a result of salary increases and the hiring of additional staff.
SG&A expenses for the quarter increased 5.8% to $11.5 million or 23% of net sales, as compared to $10.9 million or 22% of net sales for the same period last year. SG&A expenses for the twelve months ended June 2025 increased 13.5% to $42.2 million or 23% of net sales as compared to $37.1 million or 20% of sales in the same period last year. The increase in SG&A for the three months was primarily due to increased legal expenses and increased wages as a result of salary increases and certain additional hirings in the finance and IT departments.
The increase for twelve months was primarily due to increased personnel-related expenses, mainly from merit increases and hiring additional personnel in finance and IT, in addition to increases in insurance, advertising, legal, and professional fees, which was offset by decreases in director fees and nonrecurring transactional costs. Operating income for the quarter decreased 13.4% to $12.1 million as compared to $14 million for the same period last year. Operating income for the twelve months ended June 2025 decreased 14% to $46.3 million as compared to $53.8 million for the same period last year. Interest and other income for three months increased 16% to $883,000 as compared to $762,000 last year.
For the twelve months ended June 2025, interest and other income increased 48% to $3.8 million compared to $2.6 million last year. The increase for both the three and twelve months ended June 2025 was primarily due to increased interest and dividend income from the company's cash and short-term investments. The provision for income taxes for the three months increased 12% to $1.3 million with an effective tax rate of 10%, as compared to $1.2 million with an effective tax rate of 8% last year.
For the twelve months ended June 2025, the provision for income taxes increased 1.4% or $95,000 to $6.7 million with an effective tax rate of 13% as compared to $6.6 million with an effective tax rate of 12% last year. The increase in the provision for the three and twelve months ended June 2025 was due to a larger portion of our tax being attributable to the US operations. Net income for the quarter decreased 14% to $11.6 million or $0.33 per diluted share as compared to $13.5 million or $0.36 per diluted share for the same period last year and represents 23% of net sales.
Net income for the twelve months ended June 30, 2025, decreased 13% to $43.4 million or $1.19 per diluted share as compared to $49.8 million or $1.34 per diluted share from the same period last year and represents 24% of net sales. Adjusted EBITDA for the quarter decreased 7.6% to $14.2 million or $0.40 per diluted share as compared to $15.4 million or $0.41 per diluted share for the same period a year ago and equates to an adjusted EBITDA margin of 28.1%.
Adjusted EBITDA for the twelve months ended June 2025 decreased 11.6% to $52.1 million or $1.43 per diluted share as compared to $58.9 million or $1.59 per diluted share for the same period last year and equates to an adjusted EBITDA margin of 28.7%. Discussing our balance sheet, as of June 2025, the company had $99.1 million in cash and cash equivalents and marketable securities as compared to $97.7 million as of June 2024, a 1.5% increase. The company had no debt as of June 2025, and cash provided by operating activities for the twelve months ended June 2025 was $53.5 million as compared to $45.4 million for the same period last year, an 18% increase.
Working capital, which is our current assets less current liabilities, was $138.4 million as of June 2025, as compared to working capital of $146.5 million at June 2024. CapEx for the quarter was $237,000 as compared to $551,000 in the prior year. And for the full fiscal year, CapEx was $2.1 million as compared to $1.6 million last year. That concludes my formal remarks, and I'd like to return the call back to Dick.
Dick Soloway: Thank you, Andy. Let me take a moment to wrap up with a few reflections on where we've been and where we're headed. Fiscal 2025 is a year of both challenge and resilience. Yet through it all, Napco demonstrated the strength and durability of its model. We stayed focused on creating lasting value for our customers, partners, and shareholders. One of the clearest indications of that strength is our recurring revenue. This year, recurring revenue grew by more than $10 million and now represents nearly half of our total sales with a sustained gross margin of 91%, which provides consistent cash generation and opportunity for continued reinvestment.
A major driver of this growth has been the success of our StarLink Fire Radio platform, which is increasingly viewed as the industry standard for fire communications in commercial buildings. Operationally, I'm extremely proud of the performance that our team delivered. We reduced inventory by more than $8 million, and despite providing nearly $50 million of value to shareholders through dividends and share repurchases, and continue to invest in product development, compliance, and systems infrastructure, we still ended the year with over $99 million in cash while maintaining a debt-free balance sheet. On the hardware side, as mentioned earlier, we saw a strong rebound in Q4, up 27% sequentially from Q3.
This rebound reflects our team's agility in adapting to shifting demand dynamics. Looking ahead, we remain cautiously optimistic. Tariff policy and broader market conditions remain dynamic, but we're not standing still. Our pricing actions have been implemented, and we continue to diversify our distribution base, invest in automation, and enhance our StarLink platform, ensuring we're driving sustainable growth while protecting margins. Our strong balance sheet gives us meaningful flexibility to respond to opportunities both organically and through potential strategic acquisitions. At the same time, we remain committed to returning capital to our shareholders while operating with zero debt. Now stepping back for a broader view, I want to highlight one vertical where Napco continues to make a difference: school security.
School safety remains one of the most critical challenges of our time, and Napco is proud to be a trusted and proven partner to school districts all across the country. Our divisions work together to deliver a full suite of integrated solutions, from the advanced Trilogy and ArchiTech lock sets to enterprise-scale Continental CA4K access control systems. These platforms are secure, scalable, and align with important standards like PASS, or as it's called, the Partner Alliance for Safer Schools, to help schools implement practical, best-in-class security. We know that educators, administrators, and communities are looking for solutions they can trust.
What makes Napco unique is our ability to bring together locking, access control, and alarm technologies into a unified, often interoperable platform. It's extremely gratifying to know that our solutions are helping to protect students and staff every single day, and we see this as an area of ongoing growth and responsibility. In parallel with our work in education, we continue to invest heavily in R&D to expand recurring revenue opportunities across our product line. One of the most exciting of these is our MVP platform, a next generation of cloud-based access control systems that integrates seamlessly with our locking hardware.
It represents a brand new recurring revenue stream for us and for our dealers, with configurations tailored for both enterprise customers and smaller facilities. We believe MVP can potentially be a game changer and become a foundational contributor to our growth over the coming years, as it extends our leadership into the hosted access control market and reinforces our core strategy of integrating innovative hardware with cloud-based services to deliver long-term, high-margin recurring revenue. In summary, we are entering fiscal 2026 with solid momentum, clarity of focus, and a strong financial foundation. We built a resilient business model that continues to deliver even in challenging environments.
I'm incredibly proud of our team and what it has accomplished, and I'm energized by what lies ahead. I'd like to thank everyone for their support and for joining us in this exciting future we have. Our formal remarks are now concluded, and I'd like to open the call to the Q&A session. Operator, please proceed.
Operator: Thank you.
Operator: Ladies and gentlemen, we will now begin the question and answer session. You will hear a prompt that your hand has been raised. And should you wish to cancel your request, please press star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any keys. Thank you. And your first question comes from the line of Matt Summerville from D.A. Davidson. Please go ahead.
Matt Summerville: Thanks. A couple of questions. Given that some distributors are still taking down inventories, should we be concerned with respect to where channel inventories sit today, given that it sounds like there may have been a little bit of a broader buy ahead related to the tariff-driven price increases you mentioned on the call?
Dick Soloway: So, Matt, the inventory that was bought pre-tariff increase price increase was done in April, pretty much. So that's four or five months, you know, before the end of this quarter that we're in now. We expect distributors to buy more. The sell-through stats are good. The tariff chaos has kind of cleared up. The distributors know that we're the best game in town when it comes to tariffs. That our direction is clear. Some of the other competitors, it's a little chaotic. And they don't know where the tariffs are going. We saw some of the inventory declines in the channel start to change in the fourth quarter.
So our fourth quarter sales were not only tariff-driven, pulling ahead driven, but also real demand. So we expect that to continue. We have a strong group of distributors. We have a strong group of dealers. We have excellent products. And we expect this to be a very good year, fiscal 2026. Matt, I'd like to mention that our tariff arrangement we're in the Dominican Republic is 10%. All of our competitors are either in Asia or in Europe, and Europe is now 15% in Asia. Who knows, you know, what that's gonna be, but it's much higher than all of the tariffs. So we have an advantage.
And our technology and the fact that we're so broadly diversified with our product line that all integrates together bodes well for getting additional dealers and doing more jobs. And they can count on stable prices from us. Thank you for that. As you think about the magnitude of increase you saw in the RSR from $89 million, I think, in April to $94 million as you described it in July. Do we have another quarter or two of that sort of magnitude of sequential increase based on timing of, you know, historical activations of fire radios?
And then given the magnitude of price increase you're talking about on equipment between the two different actions you've taken, is there any reason the equipment side of the business doesn't grow double digits in fiscal '26? Thank you.
Kevin Buchel: So we went up $5 million. We saw this coming. I didn't know it was gonna be $5 million, but if you go back, you remember I said when you have strong quarters of radio sales, the recurring comes. Doesn't come right away. Because there's a delay because if we give out rebates. So I wasn't surprised that it went up. It went up $5 million. It was maybe a little more than I thought. I think we have some more of that in us. I don't know if it'll be $5 million, but I think it'll be a nice increase again. We have to keep having strong radio quarters for that to happen. And that's our intention.
We're coming out with a lot more recurring revenue radio products, not just the ones that are out there now. We're not standing still. We're aggressively marketing what we have. It all comes together when you have radio sales. Doesn't come immediately. But it comes after maybe six, eight, nine months later. So we expect the increases to keep coming for the foreseeable future.
Matt Summerville: Then my question on equipment revenue. Given the magnitude of pricing, is there any reason that equipment sales don't grow double digits next year or in fiscal 2026, I should say? Thanks.
Kevin Buchel: Well, given we took two increases, you know, the 8.5% to offset the tariffs and the 5%, which is a straight price increase, our belief is that we will grow double digits. We can't, you know, we take it quarter by quarter. We have very easy comps this year, in my opinion. Q's one, two, and three, especially. So it's not a hard task from my perspective. But we gotta perform. Thank you.
Operator: Thank you. And your next question comes from the line of Jim Ricchiuti from New Haven and Co. Please go ahead.
Jim Ricchiuti: Hi. Thank you. It's maybe a tougher question to answer, but you sometimes are a little bit further removed from the end demand. So, you know, I'm wondering, is there any way for you to size the pull forward that you saw on equipment sales? You mentioned, Kevin, I think that the sell-through stats are good. Maybe you could elaborate on that as well.
Kevin Buchel: Well, we talk about sell-through stats all the time. The sell-through stats that I have talked about usually relate to the quarter that we just reported on. And so our sell-through stats for the June quarter were good. They were up across the board. The key is what do they look like in this quarter? The one we're in now? And I don't really want to comment on it. But the expectation is they'll stay strong. The ordering activity has been good this quarter. I feel like the distributors have felt like something has a relief has come over them. They're not panicking over tariffs, at least not with us. They know where they stand.
And so that standing still waiting to see what happened has subsided. We've talked a lot about WESCO in the past. They seem to be getting their act together more. So I think it bodes well. ADI is doing really well with us. I think it bodes well for Q1, but, you know, we gotta perform.
Dick Soloway: Thinking that, well, thinking out a little further than the quarter here and the next quarter. Our goal, and we increased our engineering department, is to come out with additional recurring revenue products. More radios in other verticals that are needed, new creations of communications devices, more fire devices, more locking devices, and it's very important to us to make sure that everything has a recurring revenue component to it. So we're on a roll with our technology. The dealers love it. And we're gonna expand markets for everybody. And you will see this evolving as the years go by.
Jim Ricchiuti: Thanks. Andy, maybe a question for you. With the price increase, the first price increase, some of that obviously was passed in April. There was, I presume, some benefit in June. And I'm wondering two things. You know, to what extent there was a benefit? And just broadly, if you can help us with the overall impact on gross margin equipment gross margins from tariffs in the quarter?
Andrew Bono: Thank you. So we received limited benefit, I would say, in Q4 from the price increases. The company honored orders that were placed prior to those price increases going into the price books officially. So from a cost perspective, you know, the tariffs really kicked in at the start of our Q4. So we had the full impact of the cost for the period. And I would say limited benefit of our price increases based upon the timing of when orders were placed. I think from a dollar perspective, it probably impacted the COGS by about a million dollars or something short of a million dollars.
And pretty much all of the items that were subject to the tariff in Q4 were sold through, and the vast majority was shipped out by June 30. So, you know, 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, you know, a lift from them moving forward.
Jim Ricchiuti: Thank you. I'll jump back in the queue.
Operator: Thank you. Once again, that is. And your next question comes from the line of Peter Costa from Mizuho. Please go ahead.
Peter Costa: Hey, guys. Good morning. Congrats on the quarter here. Maybe if you could just start with some details on the MVP and Primal launches. You know, how's the channel uptake there relative to your plan? And just any color about how you're thinking about that opportunity over the longer term?
Dick Soloway: Thanks. The MVP, the cloud-operated system, which allows the security company that puts it in a job, for instance, at a hospital, also allows the security manager of that property to get instantaneous information about who goes into buildings, who went into certain rooms, at what time, and we expect this to be a very strong growth product with our company going forward. We're introducing it in two basic models. One is enterprise class, those large enterprises. And also there are smaller buildings and smaller businesses. And we expect that there's so many doors out there. So many people need access control, and the cloud-operated requires no equipment in the building. Everything is up in the cloud.
We make all the changes for the dealers. The dealers can get reports. Everybody can get instantaneous information about doors, openings, where people are in a building in case of a fire or an emergency. So this is gonna be quite an exciting product for us going forward. And we're gonna be showing it in New York at the International Security Conference, which is the next big show coming up. And our salespeople who are around the country demoing it and training on it. So it's gonna be a great contributor.
Peter Costa: Okay. And then maybe just back to the ARR increase. That $5 million sequential increase was very encouraging. You know, it seems like the actual uplift in service revenues is lagging that a little bit. Would you kind of expect a pretty material uptick in Q over Q service revenue in 2026? How are you guys thinking about that? Thanks.
Kevin Buchel: Well, we grew, I think it was 10% year over year. And the expectation is that we can sustain that rate. Maybe even do a little better than that. Not go down.
Peter Costa: Perfect. Thank you.
Operator: Thank you. And your next question comes from the line of Jeremy Hamblin from Craig Hallum Capital. Please go ahead.
Jeremy Hamblin: Congrats on the results, and thanks for taking the questions. I wanted to come back to churn rates that you were seeing, you know, in whether or not kind of the price increases are having any impact on whether or not your on both equipment side but certainly also for the recurring revenues and whether or not you're getting any pricing on that aspect of the business.
Kevin Buchel: So, Jeremy, we don't really have any churn, churn being accounts that disconnect from us from our radios. We're mostly commercial. So our churn is inconsequential as it pertains to commercial radios. And, you know, we do mostly commercial. The pricing that we put in place sticks. Nobody complains about it. Everybody understands it. Everybody expects it. No pushback at all. We did not take price increases on the recurring revenue amounts we charge every month. There was some talk that maybe we should. We didn't take a price increase on the radios themselves. Maybe there was talk that maybe we should. Our feeling is let's get as much as we can get.
Let's not mess with the formula that's working well. It's not about the extra 50¢ or a dollar we could potentially charge and the recurring every month. It's about getting more radios, more of them. Because once you get it, it lasts pretty much forever. So that was our strategy. The strategy's worked pretty well. In ten years or so, we've built this up to about $100 million of recurring at 91% margin. So I think we're doing it the right way, and I'm comfortable with the strategy that we chose.
Jeremy Hamblin: Got it. And you've also built a strong balance sheet. And wanted to just get a sense for, you returned some capital here in the form of dividends, some buybacks. Is there room to potentially take up either the dividend payout rate or are you thinking about adding on to the current buyback program?
Kevin Buchel: The dividends, we've raised that, I don't know, at least three, maybe four times. So we didn't really talk about it. We announced another dividend. We kept it the same, $0.14. Certainly, having increased it four times or so in a short period of time, there's room for that to grow and to get to become a higher amount. So I think that will happen. We'll talk about when that should be. For this coming one, it's $0.14. When it comes to buyback, we're always looking. We're always opportunistic. We got our eye on it. We are cognizant of the float. We're dealing with a lot of larger investors who care about the float.
But there could be room to do more buyback, but we'll see. We'll play that by ear as we go forward.
Jeremy Hamblin: Thanks for taking the questions.
Operator: Thank you. And your next question comes from the line of Jaeson Schmidt from Lake Street Capital Markets. Please go ahead.
Jaeson Schmidt: Hey, guys. Thanks for taking my questions. Kevin, you noted strong sell-through has continued here in September. Curious if that strength is being seen both on the radio and locking side.
Kevin Buchel: Well, my comment about sell-through was in the June quarter. I didn't really comment on the quarter that we're in now. So it was in the June quarter. And it was very good across the board. And we were particularly encouraged by the fire radios. They did really well. And, you know, like I talked about before, you sell fire radios today to a distributor, you may not feel the benefit of that from the recurring revenue side for six, eight, nine months. So that's coming. We'll see that. So we're encouraged by what we saw from our distributors. We expect it to continue in Q1, the one that we're in now.
We'll talk about it more when we're able to, but we can't. But the June quarter was very good. Pretty much across the board. And locking was very good. Locking had a very difficult comp. Locking had that big project that we've talked a lot about, Waldorf Hotel in Manhattan. So that made for a difficult comp. There's a little bit more of a difficult comp in Q1, and then that's gone from a comp point of view. And there's other projects that we expect that could be hitting in this fiscal year. And then since the comp is not that tough, we should be able to blow past last year's numbers. But we'll see.
We'll see when those things hit.
Jaeson Schmidt: Gotcha. And then just following up on your comments on the school market. I know you can't disclose all your wins, but just curious if you've seen a noticeable pickup in that space.
Kevin Buchel: The school business is steady. Steady, good, steady, strong. I wish it was more. It's frustrating. You know, there was an incident at Villanova last week. It wasn't a shooting. They thought it was a shooting. But what I heard in the news report was they announced that the students should lock their doors and barricade chairs against the door. That's the old thing that we've been hearing about for years, for years. And that means to me that there's still plenty of schools. Villanova is a very well-known school. That still has to upgrade. And our sales guys better be talking to Villanova pretty soon. But school business is good. We're working hard for it to be even better.
There's plenty of money and plenty of opportunity. And there will be for years to come.
Jaeson Schmidt: Okay. Thanks a lot, guys.
Operator: Thank you. There are no further questions at this time. I want to hand the call back to Mr. Richard Soloway for any closing remarks.
Dick Soloway: Thank you, everyone, for participating in today's conference call. As always, should you have any further questions, feel free to call Fran, Kevin, or myself for further information. We thank you for your interest and support and look forward to speaking to you all again in a few months to discuss Napco's fiscal Q1 2026 results. Have a wonderful day, everybody.
Operator: And this concludes today's call. Thank you for participating. You may all disconnect.