What happened
Shares of security products and services company Napco Security Technologies (NSSC -1.41%) rose dramatically at the open of trading on Feb. 6, gaining as much as 18% in early trading. By roughly 3:30 p.m. ET, that gain had been pared somewhat to around 11%. The big news was the company's fiscal second-quarter 2023 earnings, which came out prior to the market's open.
So what
Napco reported quarterly sales of $42.3 million, up 27% from the fiscal second quarter of 2022. That top-line figure was a record result for the second stanza of a fiscal year. Notably, recurring revenue increased 35% year over year to $14.9 million. Based on the January 2023 recurring revenue figures, management estimates that the annual run rate for recurring revenue is roughly $59 million, down slightly from December. Still, the gross margin for recurring revenue was a very notable 89% in the fiscal second quarter, up from 87%, meaning this is a highly profitable line of business. Sales of hardware rose 23% year over year, with margins of 23%, up from 8% in the year-ago period.
On the bottom line, earnings came in at $0.23 per share in the fiscal second quarter of 2023, up from $0.03 per share in the same quarter of the prior year. Wall Street consensus estimates had been calling for $0.14 per share, so it was a fairly large beat. Combine that with the more modest beat on the top line, however, and it's easy to see why investors were particularly positive about Napco's shares today.
Now what
Napco's business appears to be doing fairly well, and certainly better than analysts had been expecting. There's also the not-so-trivial advantage of a balance sheet that's devoid of long-term debt, meaning the company has a solid foundation on which to continue building out its hardware customer base and, thus, its high-margin services revenue. All in all, there's a lot to like.
