NAPCO Security Technologies, Inc. Aktie

Good morning, ladies and gentlemen, and welcome to the Napco Security Technologies Fiscal Fourth Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference call over to Francis Okoniewski, VP, Investor Relations. Please go ahead.

Thank you, Jenny. Good morning, everyone. This is Fran Okoniewski, Vice President of Investor Relations for Napco Security Technologies. Thank you for joining today's conference call to discuss our financial results for the fiscal fourth quarter and fiscal year 2026. By now, you should have all had the opportunity to review our earnings press release, which discusses our fiscal fourth quarter and full year results. If you have not yet received it, a copy is available in the Investor Relations section of our website, www.napcosecurity.com.

Joining me on today's call are Dick Soloway, Founder and Executive Chairman; Kevin Buchel, Chief Executive Officer and President; and Andrew Vuono, our Chief Financial Officer. Before we begin, I would like to review our forward-looking statement. This presentation contains forward-looking statements based on current expectations, estimates, forecasts and projections of future performance as well as management's judgment, beliefs, current trends and anticipated product performance. These statements include, without limitation, comments regarding growth drivers of the company's business, including 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 the expected annual run rate for Software as a Service or SaaS recurring monthly revenue.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those expressed or implied in those statements. These risks include, but are not limited to, the factors described in our SEC filings, including our annual report on Form 10-K. Other unknown or unpredictable factors or underlying assumptions that later prove to be incorrect could also cause actual results to differ materially from those discussed in the forward-looking statements. Although we believe expectations are reflected in these statements, are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

You should not place undue reliance on forward-looking statements. All information provided in today's press release and on this conference call is as of today's date, unless otherwise stated, and we undertake no duty to update such information, except as required under applicable law. Throughout the presentation, management will discuss certain non-GAAP financial results. We encourage you to refer to the reconciliation between GAAP and non-GAAP results included in our press release. Before turning the call over to Dick, I want to note that we are actively planning our Investor Relations calendar for upcoming non-deal roadshows and investor conferences.

Investor outreach is important to Napco, and we appreciate the support of those who help us participate in these events. Over the coming weeks, we will participate in several key investor events, including the Jefferies Industrial Conference in New York City on September 10, a virtual non-deal roadshow hosted by Lake Street on September 16 and D.A. Davidson's 25th Annual Diversified Industrials & Services Conference in Nashville, Tennessee later in September.

In addition, Napco will be exhibiting at ISC East in New York City from November 3 through the 5th, where we will be introducing a number of new products. ISC East is one of the security industry's premier events on the East Coast, and we welcome investors and analysts who plan to attend or stop by our booth. With that, let me turn the call over to Dick Soloway, our Founder and Executive Chairman. Dick, the floor is yours.

Thank you, Fran. Fiscal 2026 was a year of exceptional performance and meaningful progress for Napco. We strengthened our market position, expanded our capabilities, served our customers at a high level and delivered results that reflect both the resilience of our business model and the dedication of our employees. At the same time, we continued an important evolution of our company. After 5 decades of founder-led growth, Kevin Buchel has assumed the role of Chief Executive Officer and President. Having been an important member of our organization for over 25 years, Kevin brings a deep understanding of our business, our customers and our culture to role.

I have taken on the role of Founder and Executive Chairman, allowing me to remain closely involved in the strategic direction of the company, while supporting Kevin and the management team in leading the business day-to-day. I've built this company for 50 years. It is strong enough to evolve beyond my day-to-day leadership, and I am confident in Kevin Buchel that I can remain focused on the long-term future. This transition represents continuity. The values that have guided us for 50 years remain unchanged, while our leadership structure positions us well for the next phase of growth. With that, I will turn the call over to Kevin Buchel. Kevin, the floor is yours.

Thank you, Dick. Good morning, everyone, and thank you for joining us. Before reviewing our fourth quarter and fiscal 2026 results, I want to thank Dick Soloway for his comments and for his confidence in our leadership transition. Having worked alongside Dick for more than 25 years, I'm honored to lead Napco into its next chapter. Our company wouldn't be where it is today if not for the outstanding leadership position Dick has demonstrated since he founded the company back in 1972. I also want to thank our employees, our dealers, our distributors, our integrators and shareholders for their continued support.

Now let's talk about the quarter and the year. I'm pleased to report another outstanding quarter and a strong finish to fiscal 2026. Our fourth quarter net sales increased 10% to a record $55.8 million, driven by continued demand across our product portfolio and another quarter of double-digit recurring service revenue growth. Equipment sales increased nearly 8%, while recurring service revenue grew almost 13% to $25.3 million and produced another exceptional 90.1% gross margin.

Our recurring service business continues to build long-term shareholder value. Based on our July recurring revenues, our annualized recurring revenue run rate has reached approximately $103 million, an important milestone that reflects the strength of our connected services strategy and the increasing value of our installed base. The combination of revenue growth and improved operating leverage produced exceptional profitability during the quarter. Gross margin expanded to 61.3%. GAAP net income increased approximately 53% and adjusted EBITDA grew by more than 44%.

For the full fiscal year, non-GAAP net income increased 32% to a record $57.3 million, while non-GAAP diluted earnings per share increased 34.5% to $1.60. These results demonstrate the strength of our operating model and our ability to convert revenue growth into meaningfully higher earnings. Looking at the full fiscal year, we generated record annual revenue of $202.3 million, surpassing the $200 million mark for the first time in our company's history. We also delivered adjusted EBITDA of $66.7 million with an adjusted EBITDA margin of approximately 33% and generated more than $59 million of free cash flow.

Our strategy remains consistent. We will continue investing in innovative products, expanding our recurring service offerings, strengthening our dealer and integrator relationships and executing with the financial discipline that has long differentiated Napco. As I assume the role of Chief Executive Officer, there is no change to the principles that we have made this company -- that have made this company successful. We have an outstanding management team and exceptional balance sheet and a growing base of recurring revenue and significant opportunities ahead. Working closely with Dick in his role as Executive Chairman, I'm confident we are well positioned to continue delivering profitable growth and creating long-term value for our shareholders. With that, I'll turn the call over to our Chief Financial Officer, Andy Vuono, to review the financial results in greater detail. Andy?

Thank you, Kevin, and good morning, everyone. The momentum we generated during the first 3 quarters of fiscal 2026 continued into the fourth quarter. Net revenue for the quarter increased 10% to a quarterly record of $55.8 million. Recurring monthly service revenue continued to grow steadily, increasing 12.9% to $25.3 million, primarily driven by ongoing activations of our StarLink radio parts communicators. Equipment revenue increased 7.7% to $30.5 million. Sales of intrusion access control products increased 20.9%, which was driven by continued strength within the intrusion category. Intrusion product sales, including StarLink radios increased 35.8%. The total category was partially offset by a 13.8% decrease in access control product sales.

Door locking revenue increased 2.2% for the quarter. This consisted of an 18.4% increase in Marks USA lock sales, partially offset by a 5.6% decrease in overall lock sales. Overall locking revenue was relatively flat compared with the fourth quarter of fiscal 2025 when we experienced a pull-through of locking sales in response to anticipated tariff-related price increases. For the year ending June 30, 2026, net revenue increased 11.4% to a record $202.3 million. Recurring monthly service revenue increased 13% to $97.5 million, primarily driven by steady activations of our StarLink radio part communicators.

Based on our July 2026 recurring service revenue, our estimated prospective annual run rate is now approximately $103 million. Equipment revenue for the year increased 10% to $104.8 million. The full year increase in equipment revenue reflected growth across several product categories. Intrusion and access control product sales increased 7.8%, driven by a 14.3% increase in intrusion product sales, partially offset by 11% decrease in access control product sales. Door locking revenue increased 11.1% for the year, reflecting a 19.7% increase in Alarm lock product sales, partially offset by a 3.3% decrease in Marks USA sales.

Gross profit for the quarter increased 27.7% to $34.2 million. Gross margin expanded to 61.3% compared with 62.8% in the prior year period. Overall gross profit for the quarter benefited by approximately 600 basis points from IEEPA tariff refunds. Recurring service revenue continued to deliver strong profitability. Gross profit from recurring service revenue increased 12.3% to $22.8 million with a gross margin of 90.1%. Recurring revenue gross margins remained above 90% and were consistent with the comparable quarter in fiscal of 2025. Gross profit from equipment revenue increased 76.2% to $11.4 million in the fourth quarter, with gross margin expanding to 37.4% compared with $6.5 million and a gross margin of 22.9% in the prior period.

Equipment margins benefited from the IEEPA tariff refunds discussed earlier and lower inventory reserve adjustments. These benefits were partially offset by Section 122 tariff costs during the period as well as increased technical service costs related to investments in AI solutions to improve customer experience. We are also seeing supply chain challenges as a result of data center expansion, which is putting pressure on the cost of electronic component parts. For the year ended June 2026, gross profit increased 18.6% to $119.8 million with gross margin expanding to 59.2% compared with $101 million and a gross margin of 55.6% in fiscal 2025.

Overall gross profit for the year benefited by approximately 50 basis points from the IEEPA tariff refunds. Recurring service revenue continued to generate strong profitability. Gross profit from recurring service revenue increased 12.1% to $88 million with a gross margin of 90.3%, and recurring revenue gross margins continue to exceed 90% and remain consistent with fiscal 2025. Gross profit from equipment revenue increased 41.2% to $31.8 million for the year ended June 2026, with gross margin expanding to 30.3% compared with $22.5 million and a gross margin of 23.6% in fiscal 2025.

Equipment margins benefited from product price increases implemented at the end of fiscal 2025, lower discounted sales allowances throughout the year, tariff refunds and lower inventory reserve adjustments. These benefits were partially offset by higher tariff costs during the period and increased technical service costs. R&D costs increased 13.2% to $3.7 million in the fourth quarter, representing 6.6% of net revenue compared with 6.4% in the prior year. For the year ended June 2026, R&D costs increased 9.6% to $13.8 million, representing 6.8% of net revenue compared to 6.9% in fiscal 2025.

The increase in R&D spend for both the quarter and full year was primarily driven by annual salary increases, the hiring of additional engineering staff and higher UL approval costs for new products. SG&A expense increased 5.6% to $12.1 million in the fourth quarter, representing 21.7% of net revenue compared with 22.6% in the prior year. The quarterly increase was primarily driven by higher professional fees, increased wages and benefits related to salary increases and higher advertising costs. These increases were partially offset by lower trade show expenses due to timing of events.

For the year ended June 2026, SG&A expenses increased 5.1% to $44.4 million, representing 21.9% of net revenue compared with 23.2% in fiscal 2025. The full year increase was primarily due to higher commissions associated with increased equipment revenue, higher personnel-related expenses from merit increases and the hiring of additional sales and information technology personnel and increases in insurance, credit card processing fees and trade show expenses. These increases were partially offset by lower legal and professional fees. Operating income for the quarter increased 52.5% to $18.4 million, reflecting 10% revenue growth, improved margins and the benefit of power during the quarter. For the year ended June 2026, operating income decreased 1.3% to $45.6 million.

Full year operating income was negatively impacted by the $16 million legal settlement announced in our fiscal third quarter. The effective tax rate for the fourth quarter was 9.6% compared with 10.3% in the prior period. The lower quarterly effective tax rate was primarily due to tax benefits from exercise of equity awards. And for the year ended June 2026, the effective tax rate was 13.3%, which was consistent with fiscal 2025.

Net income for the fourth quarter increased 52.7% to $17.8 million or $0.50 per diluted share compared with $0.33 per diluted share in the prior year. Net income represented 31.8% of net revenue for the quarter and diluted EPS benefited by approximately $0.09 from tariff refunds. For the year ended June 2026, GAAP net income increased 0.9% to $43 million or $1.20 per diluted share. Non-GAAP net income increased 32% to $57.3 million or $1.60 per diluted share compared to $1.19 per diluted share in fiscal 2025.

Non-GAAP net income represented 28.3% of net revenue for the year. Adjusted EBITDA for the fourth quarter increased 44.3% to $20.6 million or $0.57 per diluted share compared with $0.46 per diluted share in the prior year. And adjusted EBITDA margin for the quarter was 36.8%. For the year, adjusted EBITDA increased 27.9% to $66.7 million or $1.86 per diluted share compared with $1.43 per diluted share in fiscal '25 and adjusted EBITDA margin for the year was 33%. Free cash flow for the quarter increased 19.9% to $17.2 million representing a free cash flow margin of 30.9%. And for the full year, free cash flow increased 15.2% to $59.2 million, representing a free cash flow margin of 29.3%.

Turning to our balance sheet. We ended fiscal 2026 with substantial liquidity and no debt. As of June 2026, the company had $137.6 million in cash, cash equivalents and marketable securities compared with $99.2 million as of June 2025, an increase of 38.7% and the company had no debt as of June 2026. Working capital increased 19.6% to $165.5 million as of June 2026. Capital expenditures was $405,000 for the quarter compared with $237,000 in the prior period. For the full fiscal year, CapEx was $1.9 million compared with $2.1 million for fiscal 2025. That concludes my formal remarks. I will now return the call to Kevin.

Thank you, Andy. I want to close with a few reflections on the year behind us and the one ahead. Fiscal 2026 was a year of resilience. Napco once again demonstrated the durability of its business model while staying focused on what matters most, creating lasting value for our customers, partners and shareholders. That durability is most evident in our recurring revenue, which grew 13% this year while sustaining the gross margins above 90%. This high-quality revenue stems from -- generates consistent cash flow and provides funds for reinvestment in the business. The engine behind that performance remains StarLink, which is now widely regarded as the industry standard for commercial fire communications.

One number I want you to take away from this call is this. Sales of radio units in the fourth quarter grew 40% year-over-year and nearly 30% sequentially. This is among the highest growth rates in Napco's history. Radio sold today become recurring revenue tomorrow. So that figure says a great deal about the quality of the year ahead. We are winning that business alongside larger dealer and integrators, and we expect those relationships in addition to many new ones we're working on to continue helping us gain share. As I've stated before, the conversion from copper phone lines will continue until the end of the decade, and we expect to win a large share of the over 2 million buildings that need to convert.

And even after the conversion is complete a few years from now, we'll continue to generate recurring revenue from new work where our StarLink radios are built into our fire and alarm panels. Our hardware business also delivered double-digit year-over-year growth, a credit to our team's agility in adapting to shifting demand. Behind that growth, we see a healthy pipeline of project and contract opportunities in equipment. These include larger opportunities across schools, health care, airports, multi-dwelling housing as well as government projects.

By their nature, these projects arrive over time rather than all at once. Some are already in motion, while others should begin to move through the funnel over the coming quarters. We generally are not permitted to name them, and I will not put a number or a date on them today because work of this kind is lumpy and often extends across multiple years. Still, the breadth of what we see in that funnel is a genuine source of confidence as we look to fiscal 2027 and beyond.

Operationally, I could not be prouder. We finished the year with $137 million in cash and no debt. Looking ahead, we remain optimistic. Tariff policy, supply chain challenges and market conditions are still dynamic, but we're not standing still. Our pricing actions are in place, and we continue to diversify distribution, invest in automation and enhance the StarLink platform. That is how we sustain growth while protecting margin. As Andy mentioned earlier, our R&D spend increased 10% to $13.8 million. Much of that spend relates to new recurring revenue products.

Please come to ISC East November 4 and 5, and you'll get to see firsthand some of the new and exciting products that are forthcoming. Our balance sheet gives us real flexibility to invest organically to act on strategic acquisitions if the right one comes along and to return capital to shareholders. That last commitment is not theoretical. This morning, we announced an increase in our quarterly dividend to $0.17 per share. That's a 13.3% increase over the previous quarterly dividend. We are raising the dividend while carrying 0 debt and while continuing to fund every growth initiative in front of us.

That is the kind of financial position this business has earned. Let me turn to one vertical in particular, school security. School safety remains one of the most urgent challenges of our time, and Napco is honored to be a proven partner to districts across the country. I'm proud to announce that we recently received the 2026 Annual Deans List Award. This award sounds like it's for academics, but it's really an award that recognizes premier security providers serving private colleges and universities. School security continues to be a big problem in our country, and we will continue to work hard to provide the over 131,000 K-12 schools and 5,300 colleges and universities, state-of-the-art products that protect students and faculty.

Our divisions work together across this market from Trilogy and architect locksets to enterprise scale Continental CA4K access control. These platforms are secure, scalable and aligned with strict code guidelines. What sets us apart is our ability to unify locking, access and alarm technology on a single interoperable platform. Knowing our solutions help protect students and staff every day is gratifying, and we see continued responsibility in that effort. In addition, as I mentioned earlier, we continue investing heavily in R&D to open new recurring revenue opportunities across the portfolio.

One of the most exciting of these is MVP, our next-generation cloud-based access control platform built to integrate seamlessly with our locking hardware. MVP creates an entirely new recurring revenue stream for Napco and our dealers with configurations for both enterprise customers and smaller facilities. We believe it could be a game changer and a foundational contributor to growth in the years ahead, extending our leadership into hosted access control and reinforcing the strategy at the core of this company, innovative hardware paired with cloud services, generating long-term high-margin recurring revenue.

We exit fiscal 2026 with a strong finish and enter fiscal '27 with momentum, clarity and the strongest financial foundation in our history. We have built a business model that delivers even in difficult environments. I'm proud of what this team has accomplished, and I'm energized by what lies ahead. Thank you all for your support and for joining us in the future we are building. Our formal remarks are now concluded, and we would like to open the call for the Q&A session. Operator, please proceed.

[Operator Instructions] Your first question is from Matt Summerville from D.A. Davidson.

I was hoping, first, maybe you could elaborate on some of the supply chain challenges you're experiencing, what mitigation plans you're sort of working on as we speak? And is this hurting your ability to actually ship product? Just maybe a little more detail around that, and then I have a follow-up.

So we have not been impacted at all as of yet by supply chain issues. This kind of reminds me of the COVID times when parts were hard to get, because they're hard to get, prices tend to go up. Back in that time, I would get on the phone with the presidents of the various suppliers. and bang away at solutions, whether it's to keep the pricing stable, whether it's to make sure we get our fair share of shipments, I'm doing that again, and we're having a lot of success. We're very aggressive on trying to keep things going the way they should. If we have purchase orders out there for various parts and the suppliers try to increase because there's shortages out there, we don't put up with that.

We battle, we get the pricing that we were promised, and we make sure that we get our fair share of shipments. We have not been impacted at all, but it's fair for us to say that this is something we're going to have to deal with in this upcoming fiscal year. And I think we have a lot of experience. We've been through this type of thing before, different ways, but we know how to handle it. And my efforts will be 100% to make sure we get our components on time and at the pricing we've agreed to.

Understood. I appreciate that. As a follow-up, can you maybe spend another moment talking about MVP kind of where you're at in that sort of launch cycle, if you will? And if you have any early read on sell-through or uptake or some other similar KPI that we would want to be tracking. And then also, I was wondering, while appreciating you wouldn't want to comment on individual projects, is there a way to either quantitatively or qualitatively think about how that project funnel looks for you guys today versus a year or 2 ago?

The MVP, we have said, give us till kind of the back end of the calendar year, which is coming up, October, November. That's when we expect to be able to report meaningful recurring revenue. That's our hope. We don't really want to talk about it until we get to that point. It's not meaningful yet. We're working hard for it to become meaningful. Our expectation is it will get there. Whether it's a couple of months before or after that time frame, can't be exactly sure. But by the end of this calendar year, we should be in a position where we're talking about this in a very favorable way. We'll keep everybody posted as it warrants. So that's on MVP. What was the second part, Matt?

Either yes, appreciating that you can't talk about individual projects in any sort of specificity. Is there a way that we can qualitatively or quantitatively look at the aggregate funnel you see for what you deem as a "project" and kind of compare that to how that's maybe looked a year or 2 ago?

Yes. It's clearly more than it's been. The issue we have is we don't necessarily get the order for the project until they're ready for it. Like we know we're getting the project, the project will be awarded to us, but we have to -- I don't like to talk about things unless we have an order in place. So there are government ones, there are school ones. It's more than we've had in the last couple of years. We'll talk about them when, a, we get the order, whether it's shipped or not; and b, we'll talk about it if the entity, the customer allows us to. Often, they don't. They like to keep things quiet. But as I sit here today versus a year ago, this is much more than it's been in the last couple of years.

Next question is from Jim Ricchiuti from Needham & Company.

Congrats on the quarter. A couple of questions. Yes, obviously, you've got some moving parts to the margins. But if we exclude the tariff refund benefit, I'm wondering if you could speak to the impact of the higher revenue contribution from the door locking portion of the business, which have better hardware margins and the high contribution you saw from radio sales. Is that the right way to think about the overall impact on equipment gross margins, which it seems like excluding the tariff refund benefit were down a bit sequentially. I'm trying to get a sense also as to how we think about that dynamic in the first quarter when you may still have some strength in door locking.

So Jim, when the radio sales are average, the good news is the equipment margins are going to be higher I don't know what that is. You still can hear me.

Yes, I can, Kevin. it's good.

Okay. So the locking has the better margins when locking is dominating, then you might see higher margin. This quarter, the radios were tremendous. So that radio sales, what is it, a 20% gross margin item. It's going to bring down the equipment margins in total. However, it leads to the beautiful recurring revenue, which is the big price. In our case, it comes later because we sell to distribution. The distributor sits with it for a month or 2. Then the distributor sells it to the dealer. The dealer activates it right away typically. And then we offer rebates. So there's like a 5-, 6-, 7-month gap from the time we ship the radios, the hardware till the time we feel the beauty of the recurring revenue. So yes, it brought down the margins, the equipment margins because it was so strong, but it's going to bring our margins way up in total because of recurring that's coming in the back end. So I'll take this all day long.

The follow-up question I have is we're about halfway through the fiscal first quarter. I wonder if you could talk a little bit about the demand trends you're seeing. Are you seeing any changes in behavior from some of your larger distributors either related to the macro or possibly even as they may be considering getting ahead of higher component costs?

We don't usually like to comment on the months ahead. Here we are talking about through June. But having said that, there's been no difference in what we're feeling. The distribution channel, and I think you do channel checks, you probably talked to several of the distributors. It's in a good place. They're all in a good place now. Every now and then it gets a little chaotic, a little lumpy. Right now, the distributors are in a good place. Their inventory levels are good. Their sell-through is good. Hopefully, it stays that way. And our expectation is it will stay that way. Again, there's issues out there, supply chain issues. We've dealt with them before. We'll deal with them again. We have a lot of experience on how to manage that. And just -- it's part of what we do, and we'll have to do it again.

Your next question is from Lance Vitanza from TD Cowen.

Congrats on the quarter. I have a couple of questions, if I can. The first is on the recurring service revenues. And you talked earlier in the prepared remarks that we've seen sort of this $2 million increase per quarter in sort of the run rate level. As we look into fiscal '27, and you talked a little bit about MVP, you talked a little bit about the big radio sales in this quarter that we're discussing today. Do we think that there's some upside to that $2 million per quarter increase? And if so, is it sort of more back half weighted in terms of when we see that? Or how would you sort of expect the cadence to look as we go through 2027?

Well, because there's this delay of feeling the effects of the recurring revenue after you sell the radios, the hardware and the delay is a good 6 months, that suggests that the run rate should go up to the back end of the year because you get 6 months from now, when we'll start to feel the recurring revenue from what good work we just did on the hardware sales and the radios. So yes, back end, my hope is that it goes up. Now MVP, if it's a contributor by then, we hope it will be, that just adds to it. But even without that, I would expect the run rate to increase.

Okay. And then just sort of pulling back a little bit, Kevin, I know you mentioned during your prepared remarks and Dick mentioned that this is -- the continuity is very important to you. That being said, should we expect that there could be areas where your priorities, perhaps strategic, perhaps capital allocation, do they perhaps differ from what Napco has historically emphasized?

I don't think so. I think Dick and I kind of are on the same page. We're looking potentially at acquisitions, but it's got to be right. If it's right, certainly, we have the cash to do it. We have the balance sheet to support it. So the last one we did was 17 years ago, 18 years ago. So it's time to do one, but only if it's right, you saw.

And we have the factory capacity also to handle it if it fits our criteria. Amortize roll ahead in the factory to raise our margin. So we're looking very hard at a couple of them right now.

Right. And so that's -- maybe it will feel different when it happens, but we're looking at it. But you saw our EBITDA margin for the quarter, it's pushing 40%. That's one of the goals that we have here. We want to get it over 40%. Nobody thought we would get close to that. We're getting pretty close. So I'm not going to want to do anything that's going to screw that up, but we're going to want to do something that could enhance it. So if that comes about, we'll do it.

You also saw that we increased our R&D 10%. That's because we're creating a sequel to StarLink, which will keep the momentum going in the future.

Your next question is from Jaeson Schmidt from Lake Street.

Just curious if you could comment what you're seeing at ADI and specifically, how expanding your product portfolio with them is progressing?

ADI has been a great partner since we started up with them, I guess is now about 3 years ago. They're very organized buttoned up. They buy a lot of intrusion products, a lot of fire radios. They have a lot of relationships with some of these large dealers that we are now adding to our list of dealers who use our products. And so it's working great on that end. We're trying to get them into the locking side, and they've actually trained many of their branches on the MVP products. So that could be very good going forward if we can get that big strong machine that they are into locking, it's going to be amazing for us. So we're working on that while continuing to sell them a lot of intrusion products.

Okay. That's helpful. And then just as a follow-up, going up your comments on the school security market. Just curious if the K-12 market or the university market is stronger based on what you currently have in the funnel?

Both, they're both strong. The need is in all areas. When we hear the horrific stories that come out, a lot of them are in universities, a lot of them are in K-12, both. And even though these things have been going on for so long, so many of these schools still are without equipment. And so the challenge for us is to get out there, the big country to get our integrators to understand what products we have to offer and to get in there. Even I was happy to see at the ISC West show, which was in March, the folks from Pepperdine were there. And Pepperdine is now -- they were a big customer. They did a lot of things. They did all the dorms. They did all the classrooms, the admin offices, et cetera, remote campuses, -- they're ready for more now. They've added more dorms and they love our products. So this is an ongoing thing. So even with some of the schools that have used our product, they come back for another round.

[Operator Instructions] And your next question is from Jeremy Hamblin from Craig-Hallum.

This is Will on for Jeremy. Just wanted to touch on your discount and pricing strategy for the year. I think you previously noted a little less discounting to smooth out orders and kind of support higher margins. But I guess just how should we be thinking about that strategy in fiscal '27 and then some of the puts and takes in getting equipment margins back up to 30%?

I'm going to let Andy answer this way. Andy is a great CFO, and he spends time trying to improve our margins with the discounting. So he works with the sales team. He looks at this closely. So Andy, why don't you answer this one?

Sure, Kevin. So I would say fiscal '26 is reflecting the improved discipline, one around our rebate programs. So we have volume rebates with our -- with the vast majority of our distributors if they hit certain revenue thresholds. We are more disciplined in the program as far as framing the program, what criteria they need to hit, what bogeys they need to attain. So I think we saw the benefits of that in fiscal '26. And then on top of that, a concerted effort to one lessen the amount of orders and activity we had at the end of the quarter, which we'll never get away from, but to have the sales force be more focused on trying to secure those orders earlier and really negotiating hard with our distributors to get away from large discounts.

So I think it just reflects the discipline that we saw in fiscal '26, and we're expecting more into 2027. I have conversations with our Chief Revenue Officer, Joe Pipczynski, about what our strategies are, our pricing and/or discounting. I would expect us to hopefully improve on where we are. I think we picked up 2 points on the equipment revenue in fiscal '26. So our goal is to continue bangway that and raise that efficiencies even more.

Okay. That's helpful. And then just besides ISC West falling in Q4, is there anything else to consider in terms of sort of incremental OpEx for '27, whether that's on the R&D side or any sort of SG&A build-out needed over the coming quarters?

I mean I'll weigh in on the SG&A. On the SG&A, no, nothing in particular other than I expect us to add some more talent to our internal IT group as one to meet the needs of the organization to respond to the obvious risks out there regarding cyber. But outside of that and the unknowns with some of the litigation we're dealing with on legal, I don't expect any other significant changes in the SG&A. I'll let Kevin comment on the R&D.

Yes. On the R&D, I have a lot of confidence in our Chief Technology Officer. He's great. He's a very smart guy with products and he's very good with budgets. So when he says, I need more help, I say how many you need? We have the money to do it. I give him whatever he needs because when we give him what he needs, that leads to more recurring revenue products. And so the spend will go up. It won't be anything crazy. It will be what's necessary to keep the development going so that we come out with more innovative, exciting products all the time.

[Operator Instructions] It seems there are no further questions at this time. Please proceed with the closing remarks.

Okay. So thank you, everybody, for participating in today's conference call. As always, should you have any further questions, feel free to call Dick, call Fran, Andy or myself for further information. We thank you for your interest and support, and we look forward to speaking with you all again in a few months to discuss Napco's fiscal Q1 2027 results. Thank you all. Have a great day.

Thank you, ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.

Good morning. Ladies and gentlemen, and welcome to the NAPCO Security Technologies Fiscal Q3 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Monday, May 4, 2026.

I would now like to turn the conference over to Francis Okoniewski, Vice President of Investor Relations. Please go ahead.

Thank you, Matthew, and good morning, everyone. This is Fran Okoniewski, Vice President of Investor Relations for Napco Security Technologies. Thank you all for joining today's conference call to discuss financial results for our fiscal third quarter 2026.

By now, all of you should have had the opportunity to review our earnings press release discussing our quarterly results. If you have not, a copy of the release is available in the Investor Relations section of our website, www.napcosecurity.com.

On the call today are Dick Soloway, our Chairman and CEO of Napco Security Technologies; Kevin Buchel, President and Chief Operating Officer and Chief Financial Officer, Andrew Vuono.

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 our Software as a Service reoccurring 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 in 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. Throughout the presentation, management will address certain non-GAAP financial results. We encourage you to refer to our reconciliation between GAAP and non-GAAP results, which you can find in our press release.

I'll turn the call over to Dick in a moment. But I'd first like to highlight our upcoming Investor Relations engagement plans. We're actively building out our Investor Relations calendar with a series of non-deal road shows and conference appearances. Investor outreach remains a top priority for NAPCO and I want to thank everyone who helped support these efforts. We're looking ahead to a full and dynamic schedule this quarter.

Later this week, will participate in Oppenheimer's 21st Annual Industrial Growth Conference, followed by a virtual non-deal roadshow with KeyBank on Thursday, May 7. On May 13, we'll be in New York City for Needham's 21st Annual Technology, Media and Consumer Conference. And later in May, we'll attend Cowen's 54th Annual Global TMT Conference also in New York.

In June, we'll participate in Robert W. Baird's 2026 Consumer Technology and Services Conference in New York City. We'll wrap up this stretch at the Wells Fargo Industrials and Materials Conference in Chicago on June 11. These events provide value opportunities, valuable opportunities to share our story, strengthen our relationships with the investment community and continued building momentum around our strategy and performance.

With that out of the way, let me turn the call over to Dick Soloway, Chairman and CEO of NAPCO Security Technologies, who will make a brief introductory comment after which our President and COO, Kevin Buchel, will make a comment on some operational and financial performance highlights. Following Kevin's remarks, our CFO, Andrew Vuono, will go through the financials in more detail, and then Kevin will return to delve deeper into NAPCO's strategies and market outlook.

Dick, the floor is yours.

Good morning, everyone. Thank you for joining. Kevin Buchel will take you through the highlights of fiscal Q3. Kevin, the floor is yours.

Thank you, Dick. Good morning, everyone. I'd like to focus my remarks on the operational drivers behind our performance this quarter, with particular emphasis on the continued growth of our recurring service revenue, improvements in product margins and the strong expansion in profitability metrics that demonstrate the effectiveness of our business model.

During the quarter, total company sales grew nearly 12% year-over-year, reflecting steady demand across both our recurring services and hardware product lines. This level of growth combined with disciplined cost management allowed us to deliver meaningful expansion in profitability and operating leverage. Our recurring service revenue once again delivered outstanding performance, increasing more than 15% and year-over-year and representing approximately 51% of total company sales. The scale of this business is particularly important as it now reflects an annualized run rate of over $100 million.

Just as important, the quality of this revenue remains exceptional with gross margins once again exceeding 90%, providing strong visibility and predictability to our financial results. The continued expansion of recurring services as a percentage of total revenue is one of the most significant achievements for the company. This shift towards a higher proportion of recurring revenue strengthens the overall margin profile of the business and enhances long-term earnings stability. It also reflects the growing installed base of connected devices and the increasing adoption of our subscription-based solutions by security dealers and integrators.

In our hardware business, we also achieved solid performance and meaningful margin improvement. Equipment revenue grew over 8% year-over-year, predominantly driven by continued demand for our locking products. At the same time, equipment gross margins improved to approximately 29%, reflecting disciplined pricing, favorable product mix and continued operational efficiencies within our manufacturing operations.

Our teams executed exceptionally well in managing materials, labor and overhead expenses, while maintaining consistent product quality and delivery performance. These efforts allowed us to expand overall gross margins to approximately 60% and for the quarter, and that represented a significant improvement from the prior year period and demonstrates the effectiveness of our operational discipline. From a bottom line perspective, we delivered particularly strong growth in profitability. Non-GAAP net income increased nearly 37% and year-over-year, reflecting the combined impact of revenue growth, margin expansion and disciplined expense management.

This level of earnings growth demonstrates the scalability of our business model and the benefits of our increasing mix of high-margin recurring revenue. We also generated impressive growth in adjusted EBITDA, which increased more than 20% compared to the prior year. Our adjusted EBITDA margin expanded to over 32%, highlighting improved operating leverage and the strength of our core operations. These results demonstrate our ability to convert revenue growth into meaningful earnings and cash flow. Cash flow generation remain another key strength of the business. Free cash flow increased more than 20% during the quarter, providing the financial flexibility to invest in innovation, support growth initiatives and returning capital to shareholders through our dividend program which continues with this morning's announcement of another dividend of $0.15 per share, payable on July 3, 2026, to shareholders of record on June 12, 2026.

As was noted in our press release, we recorded a charge of $16 million in connection with the settlement of outstanding litigation. We are pleased to have that uncertainty behind us and the distractions it presents. Operationally, we continue to focus on execution across the organization. Our manufacturing and supply chain teams maintained reliable production levels and ensured product availability for our customers. Our sales and technical support organization remain highly engaged with dealers and distributors, helping them deploy our solutions efficiently and expand their use of our recurring service offerings.

Looking ahead, our priorities remain clear. We will continue to drive growth in recurring service revenue further improved product margins through operational discipline and efficiency initiatives and maintain a strong focus on profitability and cash generation. We believe these priorities position us well to deliver consistent financial performance and long-term value for our shareholders. This quarter demonstrated the strength of our operating model and the dedication of our employees across the organization. Their commitment to execution, innovation and customer service is what enables us to achieve strong financial results and continue building momentum.

I will now turn the call over to our Chief Financial Officer, Andy Vuono, to review the financial details, Andy?

Thank you, Kevin, and good morning, everyone. Net revenue for the quarter ended March 31, 2026, increased 11.8% to $49.2 million as compared to $44 million for the same period a year ago. Net revenue for the 9 months ended March 31, 2026, increased 11.9% to $146.5 million as compared to $130.9 million for the same period 1 year ago.

Recurring monthly service revenue in Q3 grew 15.4% to $24.9 million as compared to $21.6 million for the same period last year and recurring monthly service revenue for the 9 months ended March 2026 increased 13% to $72.2 million as compared to $63.9 million last year.

Our recurring service revenue now has a prospective annual run rate of approximately $101 million based on April 2026 recurring revenue which compares to $99 million based on January 2026 recurring service revenue, which we reported back in February. The increase in service revenues for the 3 and 9 months was due to the increase in number of our cellular radio communication devices put into service and activated.

Equipment revenue for the quarter increased 8.4% to $24.2 million as compared to $22.4 million last year. Equipment revenue for the 9 months increased 10.9% to $74.3 million as compared to $67 million for the same period last year. The increase in net equipment revenue for the quarter and for the 9 months was primarily due to increased volume of our door locking products and the impact of price increases in both locking and door intrusion and access products.

Gross profit for the 3 months ended March 2026 increased 17.4% to $29.5 million with a gross margin of 60% as compared to $25.1 million with a gross margin of 57.2% for the same period last year. Gross profit for the 9 months increased 15.3% to $85.6 million with a gross margin of 58.4% as compared to $74.2 million with a gross margin of 56.7% a year ago.

Gross profit as a percentage of service revenue was consistent in both the quarter and the 9 months ended March 2026 as compared to the prior year. Gross profit for recurring service revenue for the quarter increased 14.8% to $22.5 million, with a gross margin of 90.4% as compared to $19.6 million with a gross margin of 90.8% last year.

Gross profit for recurring service revenue for the 9 months increased 12% to $65.2 million with a gross margin of 90.3%, as compared to $58.2 million with a gross margin of 91.1% last year. Gross profit from equipment revenue in Q3 increased 26.4% to $6.9 million with a gross margin of 28.7% as compared to $5.5 million with a gross margin of 24.6% last year. Gross profit from equipment revenue for the 9 months increased 27% to $20.4 million with a gross margin of 27.4% as compared to $16 million with a gross margin of 23.9% for the same period last year.

The 280 and 170 basis point increase in overall gross margin for the quarter and the 9 months ended March 2026 is due to the substantial profitability of recurring revenue, but the overall improved margins on our equipment revenue. The increase in gross profit percentage from equipment revenue for the quarter and the 9 months was primarily a result of product sales mix, increased volume on unlocking products, which improved the absorption rate of our fixed overhead costs and certain price increases that went into effect during fiscal 2026 and reduction in sales discounting during the periods.

Research and development expense for the quarter increased 7.3% to $3.4 million or 7% of net revenues as compared to $3.2 million or 7.2% of net revenues for the same period a year ago. Research and development costs for the 9 months ended March 2026 increased 8.4% to $10.1 million was 6.9% of net revenues as compared to $9.3 million or 7.1% of net revenue for the same period a year ago. Increase for the 3 and 9 months primarily resulted from annual compensation and benefit increases and hiring of additional resources.

Selling, general and administrative expenses for the quarter increased 4.3% to $11.3 million or 22.9% of net revenues as compared to $10.8 million or 24.6% of net revenues for the same period last year. SG&A expenses for the 9 months ended March 2026 increased 5%, the $32.2 million or 22% of net revenue as compared to $30.7 million or 23.5% of revenue for the same period last year.

The increase for the 3 and 9 months was primarily attributable to increases in trade share-related expenses, the ISC West show occurred in Q3 this year as compared to Q4 of last year, wages, bonuses, compensation and benefits, sales commissions and related expenses and insurance expense, which was offset by decreases in professional fees and legal fees.

As Kevin previously mentioned, for the 3 and 9 months ended March 2026, we recorded a litigation settlement expense of $16 million as a result of settling existing litigation subsequent to the end of Q3. Non-GAAP operating income for the quarter increased 32.9% to $14.8 million as compared to $11.1 million for the same period last year. Non-GAAP operating income for the 9 months ended March 2026 increased 26.4% to $43.2 million as compared to $34.2 million for the same period last year.

Other income for the quarter increased 14.4% to $986,000 as compared to $862,000 last year for the 9 months, other income increased 1.3% to $3 million as compared to $2.9 million last year. The increases for both the 3 and 9 months ended March 2026 was due to increased interest income from larger deposit [indiscernible].

As a result of the aforementioned litigation settlement, the provision for income taxes for the quarter was $200,000 as compared to $1.9 million last year. For the 9 months, the provision for income taxes was $4.9 million, which represents an effective tax rate of 16.3% as compared to $5.2 million for the same period last year with an effective tax rate of 14.4%. The company's effective tax rate for the 9 months ended March 2026 increased as a result of the increase in the portion of taxable income allocated to the United States as a result of the litigation settlement offset by windfall benefits from the exercise of employee stock options during the period.

Non-GAAP net income for the quarter increased 36.9% to $13.9 million or $0.39 per diluted share as compared to $10.1 million or $0.28 per diluted share for the same period last year and represented 28.2% of net revenue as compared to 23% for the same period last year. Non-GAAP net income for the 9 months ended March increased 24.4% to $39.5 million or $1.10 per diluted share as compared to $31.8 million or $0.86 per diluted share for the same period last year and represents 27% of net revenue as compared to 24.3% for the same period last year.

Adjusted EBITDA for the quarter increased 20.2% to $15.8 million or $0.44 per diluted share as compared to $13.2 million or $0.36 per diluted share for the same period a year ago and equates to an adjusted EBITDA margin of 32.2% as compared to 29.9% for the same period last year. Adjusted EBITDA for the 9 months ended March 2026 increased 21.7% to $46.1 million or $1.28 per diluted share as compared to $37.9 million or $1.03 per diluted share for the same period last year and equates to an adjusted EBITDA margin of 31.5% as compared to 28.9% for the same period last year.

Free cash flows for the quarter increased 20.3% to $16 million as compared to $13.3 million for the same period a year ago and equates to a free cash flow margin of 32.6% this year compared to 30.3% last year. Free cash flow for the 9 months increased 13.4% to $42 million as compared to $37 million for the same period a year ago and equates to a free cash flow margin of 28.7% this year compared to 28.3% last year.

Moving on to our balance sheet. As of March 2026, the company had $125 million in cash and cash equivalents and marketable securities as compared to $99.1 million as of June 2025. The company had no debt as of March, working capital. As of March 2026, was $153.8 million as compared to working capital of $138.4 million as of June 2025.

Our current ratio was 4.9:1 as of March 2026 as compared to 6.8:1 as of June 2020. CapEx for quarter was $734,000 as compared to $65,000 in the prior year and $1.5 million for the 9 months as compared to $1.9 million last year.

That concludes my formal remarks, and I would like to turn the call back to Kevin.

Thank you, Andy. As you've heard today, our fiscal third quarter 2026 results reflect another strong period of execution and meaningful progress against our long-term strategy. These results reinforce that our business model is working exactly as intended.

Our inclusion in the S&P Small Cap 600 is an important milestone for NAPCO Security Technologies and it reflects the progress we've made in scaling the business and delivering consistent results. While this enhances our visibility and broadens our shareholder base, our focus remains firmly on execution and long-term value creation. At the core of our strategy is our recurring service revenue platform, which continues to deliver consistent high-margin growth.

Recurring service revenue exceeded 50% of our total Q3 sales, supported by sustained gross margins above 90%, with an annualized run rate exceeding $100 million. This provides a predictable, high-quality revenue stream that drives strong cash generation and long-term value creation. A key contributor to this performance is our Starling commercial fire radio platform, which has firmly established itself as the industry standard for commercial fire alarm communicators.

Demand remains healthy across both new installations and our growing installed base, and we continue to see meaningful runway ahead. particularly as the transition away from legacy copper phone lines to cellular connectivity accelerates. With connectivity across AT&T, Verizon and now T-Mobile networks, StarLink is well positioned to capture additional market share across millions of commercial buildings that have not yet converted to a cellular solution. We also saw a strong validation of that demand at ISC West 2026 at the end of March, which was a tremendous success for us and generated a record number of leads across all NAPCO platforms.

Our sales and marketing teams are now actively qualifying and pursuing these opportunities, building a robust pipeline that supports continued growth. On the equipment side, we are equally encouraged by the continued momentum driven by door locking installations and in our intrusion and on product segments. Pricing actions, more disciplined discounting and rebate practices and favorable mix have led to significantly improved equipment gross margins, and we believe more improvements can be made. Profitability remains a major strength of the company.

Non-GAAP operating income, net income and adjusted EBITDA all grew significantly faster than revenue, demonstrating continued strong operating leverage, with EBITDA margins exceeding 30%, we're generating substantial cash flow while continuing to invest in innovation, infrastructure and growth initiatives. Our balance sheet further differentiates us with $125 million in cash and marketable securities and no debt. which gives us exceptional financial flexibility and enables us to invest organically, pursue strategic opportunities and continue returning capital to shareholders.

Operationally, our team continues to execute at a very high level. We're managing inventory tightly while investing in product development, compliance automation and infrastructure, all while maintaining a debt-free balance sheet. Our manufacturing facility in the Dominican Republic remains a key competitive advantage, providing cost efficiency, stable logistics and lower tariff exposure as compared to many competitors operating in higher tariff regions. We're also driving a new phase of commercial expansion by entering the architectural and engineering specification market, positioning us so the specification-driven opportunities across the entire NAPCO portfolio.

In parallel, we continue to broaden our distribution footprint through new and expanding channel partnerships. These initiatives are expanding our reach across a broader branch network and enhancing product availability in the field. Innovation remains central to our strategy. We continue to enhance our MVP cloud-based access control platform, incorporating customer-driven features based on continual customer feedback. MVP represents a meaningful step forward introducing a subscription-based revenue model for both NAPCO and our locking and access control dealers. We believe MVP has the potential to be a game changer, extending our leadership into the hosted access control market, while reinforcing our strategy of pairing innovative hardware with cloud-based services to drive high-margin recurred revenue.

In addition, our new smart and interconnected dead bolt platform positions both the company and our dealers to capitalize on the fast-growing U.S. multifamily market, expanding beyond traditional security hardware into unit level access control and scale. Beyond access control, our Alarm Lock and Marks hardware lines continue to grow across key verticals, including health care, retail, multi-dwelling housing, airport infrastructure and especially school security, where our integrated solutions are viewed favorably alongside enterprise scale access control systems. NAPCO platforms are secure, scalable and aligned with the partner alliance for safer schools guidelines. I mean ongoing market and geopolitical uncertainty we remain grounded in what we can control our strategy, our execution and our commitment to creating sustainable shareholder value.

Looking ahead, we remain optimistic about the remainder of fiscal 2026 and beyond. Demand, of course, our product portfolio remains strong. Our recurring revenue base continues to expand and our operating discipline remains firmly in place. Dick and I would like to thank you all for your continued support and confidence in NAPCO.

Our formal remarks are now concluded and we would now like to open the call up for the Q&A session. Operator, please proceed.

[Operator Instructions]

And your first question comes from Matt Summerville of D.A. Davidson.

I apologize for background noise in the airport, but I was curious how we should be thinking about pricing actions for 2020 or fiscal '27? And ultimately, how you're balancing your discounting programs in that if discounted is coming down, that would theoretically have an impact on equipment volume, which would then theoretically have a downstream impact the growth rate in RSR. How should I be thinking about that dynamic? And then I have a follow-up.

Last year at this time, we had 2 price increases we announced. We announced a tariff one and a general one and that drove a lot of business into Q4 as the distributors try to avoid these increases. This year, we have a general price increase. And so we don't have as much of pricing increases this year as we did last year, but we still have a general one. So it's not going to be the same from that point of view. And also, we are much more disciplined in our discounting now than we've ever been. And the good part of that is our margins go up, and they did go up this quarter to close to 29%. And we're going to continue to be disciplined like that. What we want to do is generate more hardware sales but also not give away margin along the way.

So we're working hard to have both. And so as we're into this fourth quarter that we're in now, it might be a little different than it was a year ago. But from a profitability point of view, it should be better than it was a year ago.

Got it. And then can you talk about whatever or not you're starting to see any traction, discernable traction in revenue and recurring from MVP and how we should be thinking about kind of uses of cash M&A-wise over the next 6 months.

So MVP, we have said -- it's an 18 -- give it 18 months. I started the clock from ISC West last year, 18 months puts us about October of this year. That's when we expect meaningful recurring revenue to begin. That's what I expect we can talk to you about it. It gives you say, hey, it's x percent of our total recurring or it's X dollars. So we're not there yet. We're encouraged to those of you who were at the show, you saw a mix in our booth wanting to see MVP getting a lot of great interest. We're doing a lot of training.

We don't want to screw this thing up. We want to do it right, get everybody's feedback and then we think it will be super successful. And so give it a few more months, Matt, and then I think we'll start to feel it. And then with regard to M&A activity, we and have a lot that's being served up to us. We have a lot of bankers who are interested in working with us. We have a couple that particularly we're interested in, nothing imminent. But as you guys know, we have the cash to do it. It's a good time. The last one we did was many years ago. And at that time, we had lots of debt, minimal cash. It's a much different story now.

So -- we're in a good position to do something. But as we've said, got to be right. We're not going to just do one for the sake of doing it. It's got to check all the boxes of things like being accretive from day 1 paying a fair multiple, utilizing our Dominican factory, so we can get the leverage from the factory. Pay a fair multiple, wanted to stick in our lane. It has those things. We're interested -- there's a couple that we've got our eye on, and we'll keep you posted as things develop.

And your next question comes from the line of Jim Ricchiuti of Needham and Company.

I'm curious on the door locking side of the business. What kind of activity are you seeing both from the standpoint of school security and then the efforts you've been talking about each quarter now about potentially larger project, architectural engineering related parts of the business. How are we thinking about that area of the business?

The school segment remains strong. We always are asked, and I'm sure you asked us as well. Well, how much is it of your locking? And I wish we could tell you, we sell, as you know, to distributors for the most part and the distributors are the ones that's out of the schools.

In some cases, we'll sell directly to the integrator who will do the installation at a live school and we know about those, but it's hard for us to tell you exactly how much is school security. But we know it's been very strong. It's very good. Our locking sales, which you guys will see when you look at the Q and you see the breakout between our segments, locking was very strong once again this quarter. It's a reflection of all of these areas, whether it's airports, hospitals, schools, all of them. It's clicking on all cylinders. There are some big projects when we can tell you about it, we will.

Sometimes there's a hesitation. They don't want it publicized, but there are some that are out there that we expect to be contributors in the future, and we'll keep you posted on that. And generally speaking, we are very happy with the way the locking area is going, and there's more work to be done. We want to get locking to be even stronger. We want the radio business to get stronger. The radio business contributes to the recurring revenue. We want MVP to start to contribute as MPP gives us more recurring revenue. So each of these areas, we're focused heavily on, Jim.

Got it. Yes, the recurring service revenue margins have remained elevated, which I'm assuming, I think you guys have said so, is being helped by mix. How much of that is associated with fire radios versus, say, a year ago? Are you able to give us that?

Yes, we can. So we started the recurring revenue journey 10 years ago roughly. At that time, when we first started, we didn't even have a fire radio, in the first few years was just Burberry radio. Maybe 3 years in fire radio came out, and it has become the dominant piece of the pie. We have roughly 1 million radios active out there. And I'd say 75% of them are fire radios. That's why you see the margins, the strong margins because we get more money for the fire radios and it's keeping up. I was very happy to see 15.4%. That was a higher increase than we've seen in a while. Very happy to see the 90% plus margin. It actually went up a bit to 90.4%. That's all very good. We expect it to continue, and there's lots more buildings that have not yet converted to copper -- away from copper to cellular.

As you remember, with the 3G sunset by the dealers wait for the end, they wait to the bidder end by 2029, 2030, they're going to have to convert because the carriers are not going to fix it anymore. So we're seeing steady growth. It'll probably be a big push few years from now. But in the meantime, steady growth, lots of radios. And also just to remind everybody, we sell fire panels with the radio built in. So that's for new work. So it's for existing who wants to convert away from copper and it's also for new. But this has been going on now for a while. It remains strong. It remains a key part of our future.

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And your next question comes from Jaeson Schmidt of Lake Street.

Kevin, just curious if you could comment on what you're seeing from the distributor channel and kind of what sell-through stats you saw in this past quarter?

Distributor channel seems stable. As you know, it has its ups and downs. Sometimes they're too light. Sometimes, they're too heavy. They're in a good spot now. and we'd like to keep it that way. Sometimes when we do these big deals with these distributors give big discounts -- they carry too much inventory from their point of view. They forget that we gave them an incentive to do that, to discount.

Without giving huge discounts, it's kind of nice. The channel seems smooth, nice I hope it stays that way. It could even tell, but right now, it's in a good spot, Jaeson.

Okay. That makes sense. And then just following up on that, as you noted, kind of you're doing less discounting and seeing some nice margin on that equipment revenue line. When you think about the path back to sort of 30% plus gross margins on equipment, what are going to be the primary drivers there?

Well, you need volume besides doing less discounting, you need volume. The reason you need volume is you get overhead absorption from the Dominican Republic Factory. The more goods that flows through the Dominican Republic factory, the higher the margins go. Because if you think about it, we have the facility, the facility in the DR to do $300 million of revenue.

So the facility could handle additional volume. We have lots of machines that could handle the volume. We have supervision. They can handle the volume, you have to add more direct labor. Luckily, in the DR, we can get all the labor we want, and they all want to work for us. compared to others, other companies down there. So if you're only adding direct labor, and that's it, the margins expand that helps us get into the 30s.

So that less discounting and mix. Remember, you get more money for a locking product than you do for a radio -- now radio, we love because it gives us the recurring revenue. But from a hardware point of view, it makes modest profit locking, access. They do bet. So you need a good mix -- you need less discounting, you need volume, you get all of that. We're in the 30s, pushing to 40.

And your next question comes from Jeremy Hamblin of Craig-Hallum Capital Group.

Congrats on the strong results and the record gross margins. I wanted to just get into the cost side of the equation a little bit. And just in terms of a little bit of noise in the quarter, obviously related to the litigation settlement -- but in terms of the underlying OpEx of the business, whether it's your R&D, the SG&A side of your business, I know you had, I think, ISC West expenses really in the March quarter. I think next year, that shifts into Q4 and fiscal '27. But in terms of the hiring that you might need to do on the R&D portion of your team and then in terms of kind of the corporate staffing and the rest of your SG&A. Can you just give us a sense for what you might be looking to build out here over the next 4 or 5 quarters?

Well, the biggest thing we could comment on with regard to this quarter that we're in is what you mentioned that ISC West was in Q3, March. We had it. It's already reflected in the numbers. As we -- in Q4 now on fiscal '26, we won't have that.

Last year, we did. So that's a nice favorable comparison -- it's in the range of, I don't know, $700,000 to $800,000, something like that. So that's a big plus. And next year, we'll be in April. Usually, it is in April this year because of the calendar and the holidays it fell in March. In general, we do not anticipate any huge increases in SG&A. The things that drive SG&A higher commissions, you have higher sales, you're going to have more commissions.

You might have higher freight costs also. There's salary increases that you give out every year. The wildcard within SG&A is legal. Now settling this lawsuit is good. It will put more predictability into our the legal portion of the SG&A. On the R&D side, we try to keep the R&D as a percentage of sales somewhere in the 7% to 7.5% range. Our sales obviously are growing, and so is our -- number of our engineers. We are expanding as fast as we can. We're adding more engineers all the time, what we want, more products, get them to market faster get products to market faster than have recurring revenue. And so we want to be the first guy out there with the new product, not the second or the third guy.

So hence, add more people. But we watch it, it's not just higher wildly. We're still -- even though we've added many more engineers, we're still in the 7% to 7.5% of sales range, and I expect it to stay in that range.

Got it. And then I wanted to ask a question on tariffs. So -- in terms of -- we've got some change since you guys last reported with the Supreme Court ruling the DR, we run a trade surplus with the DR. And then I think that under the current kind of tariff guidelines being applied, it looks like those would expire at the end of July, if no new tariffs are slapped on. Can you give us a sense for what, on an annual basis, kind of the range of what you're paying in terms of tariffs under the kind of the current rate, what you paid? And then whether or not you expect to recover some of what you might have paid here in the last year or so.

I refer to my tariff expert to Andy. Okay.

So Jeremy, just from a tariff perspective, so I mean we're at 10% now. We were preruling EBIT rates were 10% for us. We were the baseline range. We can't predict what, if anything, will happen legislatively with Congress if they're going to make any of these existing tariffs permanent. We are going through the process of the refund claim like many companies are.

So the portal opened up, I believe, a week or so ago, so we're in the process of submitting our plans. On average, our TAV cost was running about just under $2 million, I would say, on an annual basis at that 10% level. We have -- the bulk of our tariff is the movement of goods from the DR up to the U.S. We have to a less extent, importing directly into the U.S. since most of the manufacturing happens in the DR. But as of now, we wouldn't expect our TAF exposure to increase from where it is today. And some legislation potentially the deal to go back to where we were pre-liberation day to zero. So let's wait and see for us.

And your next question comes from Lance Vitanza of TD Cowen.

Let me start just to go back to the equipment revenue and the discounting. And I understand that the discounting is great, not just for the margin, but for gross profit dollars, but -- is it going to create a drag on recurring service revenues in either Q4 or next year? I feel like we've kind of been talking around this question, but I just want to ask you real direct.

No. It won't. The discounting -- whatever discounting we've done or haven't done, it's never around radios. Radios is what gives us the recurring it's almost unaffected. Radio, people want them. No, that's not an issue in the least.

Okay. So just a couple of questions on cash flow. The first is I've consistently been overestimating your working capital as a use of cash. And it's surprising, just given the growth that we're seeing in the business, right? Normally, I would expect working capital to build more quickly given the growth that we're seeing here. So the question is, should we expect sort of like a catching up like a big uptick in working capital in either the fourth quarter of this year or perhaps next year?

Andy, you want to take that one?

Yes. I'm not sure I'm following that it's not growing at a rate we're expecting. Lance, I'm not sure what the...

Correct, right? I mean, so the working capital has been relatively flat. It's really not been consuming much cash. And so my question is, do you expect there to be a big bump up in the amount of working capital such that your cash flow is going to be negatively impacted in the fourth quarter of next year.

No, because I think we have done a much better job in the last 12, 18 months of managing inventory. So we're trying to manage the levels of inventory. We've worked out our inventory substantially from going back at tight probably 2 years ago. So from a use of cash perspective, I would expect us to not eat into our cash will continue to grow.

Okay. Great. And then last question for me, just again on the cash flow side of the settlement. I'm very glad that you got it behind you. I was surprised by the size of the [ payout ] given the lack of merit in these claims question. Does this sort of $16 million outflow, which I assume is coming in the current quarter. Does this put any pressure on the dividend or your ability to continue increasing the dividend or or given the reduction maybe in litigation expense going forward, is it kind of a wash?

We have $125 million in cash. So we could afford this. We don't love it, who loves it. It's -- in the end, it's good to get rid of it, but we can afford it. No, it's not going to affect our ability to do dividends. The 1 thing we did, we didn't increase it this round. You've been with us for a while. We've increased the amount of the dividend 3, 4, 5x already. We kept it the same but there will be more increases down the road and this company generates a lot of cash, so there's no issue on continuing dividends.

And last question, I'm going to squeeze one more in. Someone earlier had asked about your stance towards M&A going forward. What about your stance towards share repurchase, given, as you point out, you got $125 million of cash.

We don't like to mess with the float. But as you know, we've done it before, depending upon where the stock is, we could do it again. We have authorization, we have the money, but we don't need to do it. The stock is performing well, and I don't want to force anything I like where our float is at and so do a lot of our investors.

[Operator Instructions] And there are no further questions at this time. I'd now like to turn the call back over to Kevin Buchel, President and Chief Operating Officer, for closing comments.

Thank you, Matt. Thank you, everybody, for participating in today's conference call. As always, should you have any further questions, feel free to call Dick, Andy, Fran or myself for further information.

We thank you for your interest and support and we look forward to speaking to you all again in a few months to discuss NAPCO's fiscal Q4 and full year results. Thanks again.

Ladies and gentlemen, this concludes today's conference. We thank you for participating and ask that you please disconnect your lines.

Good morning, ladies and gentlemen, and welcome to Napco Security Technologies Fiscal Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Also note that this call is being recorded on Monday, February 2, 2026.

And I would like to turn the conference over to Francis Okoniewski, Vice President, Investor Relations. Please go ahead.

Thank you, Sylvia, and good morning, everyone. This is Fran Okoniewski, Vice President of Investor Relations for Napco Security Technologies. Thank you all for joining today's conference call to discuss financial results for our fiscal second quarter 2026.

By now, all of you should have had the opportunity to review our earnings press release discussing our quarterly results. If not, a copy of the release is available in the Investor Relations section of our website, www.napcosecurity.com.

On the call today are Dick Soloway, Chairman and CEO of Napco Security Technologies; and Kevin Buchel, President and Chief Operating Officer; as well as Andrew Vuono, our 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 our SaaS recurring monthly revenue.

Forward-looking statements invoke 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 proved 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 the schedule of investor outreach in the coming months. On February 17th, we're participating in the Barclays' 43rd Annual Industrial Select Conference in Miami Beach, Florida. We're also attending Citigroup's Global industrial tech and mobility conference also in Miami Beach, Florida on February 19th. In March, our engagements include the Raymond James' 47th Annual Institutional Investors Conference in Orlando, Florida on March 4th. We will attend Cantor Fitzgerald's Global Technology & Industrials Conference in New York City, March 10th and 11th. And finally, we'll cap off this busy period by attending our industry's largest trade show ISC West at the Venetian Expo in Las Vegas, March 23rd through March 27th. If anyone is interested in attending, please reach out to me, and we'll range to get you a pass. Investor outreach is a vital part of Napco's strategy, and we'd like to extend our gratitude to everyone who contributes to the success of these events.

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.

Thank you, Fran. Good morning, everyone, and welcome to our conference call. We appreciate you joining us as we review our fiscal second quarter 2026 performance. Our second quarter results, which reflect record Q2 revenue is the continuation of the momentum we reported from Q1 and is evidence of our focus on long-term growth. Our strong financial results continue to be fueled by our recurring revenue model, which delivers steady growth while maintaining its substantial profitability. Our equipment revenue has shown consistent growth as our pricing and market strategies have yielded double-digit increases in equipment revenue for consecutive quarters, bolstered by our unlocking as well as double-digit growth in our Intrusion and Alarm segment. The first half of fiscal 2026 delivered strong financial results, and we are confident in our ability to continue the momentum through the end of the fiscal 2026 and to execute on our plan to provide enhanced shareholder value and growth. In addition to our financial performance, we are pleased with the recent addition of our Chief Revenue Officer, Joe [ Ofinski, ] with his 35-plus years as a business development executive. He will provide the company with strong leadership, vision and the ability to help Napco achieved even stronger revenue growth.

Now I'll turn the call over to our President and Chief Operating Officer, Kevin Buchel, who will comment on some operational and financial performance highlights. Following Kevin's remarks, our CFO, Andy Vuono will go through the financials in more detail, and then I will return to delve deeper into our strategy and our market outlook. Kevin, the floor is yours.

Thank you, Dick. Good morning, everyone. I'm going to take a few minutes to highlight our performance for the second quarter, which marked another strong period of execution for the company. We are extremely pleased with the results this quarter, which reflect disciplined execution, strong demand across our portfolio and the continued focus of our teams on driving profitable growth. Total revenue for the quarter was $48.2 million, and that represents a Q2 record, and it's an increase of 12.2% compared to last year's second quarter. This performance underscores the momentum we are seeing across our business. Within that total, equipment revenue was $24.3 million, and that's up 12% year-over-year. We're particularly pleased with this result as it demonstrates the continued strength and durability of our distributor and dealer relationships as well as the impact of the price increases implemented at the end of fiscal 2025, which are contributing as expected. Equipment gross margin continued to improve, reaching 28% and that compares to 24% in the prior year and 26% from the previous quarter. This improvement reflects ongoing pricing discipline, operational efficiency, as favorable product mix, and we are very satisfied with the progress we are making.

Recurring revenue continued its strong performance, growing 12.5% over last year's Q2, and maintaining a strong gross margin of 90.2%. We're very encouraged by the consistency and the quality of this revenue stream with StarLink commercial fire radios, again, representing a significant portion of the mix. We also saw continued momentum in our recurring revenue base. With the prospective annual run rate increasing to $99 million, and that's based on January 2026 recurring revenue, and that represents an increase of approximately $4 million from the $95 million run rate we reported last quarter, and we are pleased with this steady progress we are making in building long-term, high-margin revenue.

From a profitability standpoint, operating income for the Q2 increased 32% year-over-year to $14.8 million. Net income increased 29% to $13.5 million, and that represents 28% of revenue for the quarter. Adjusted EBITDA increased 26% to $15.3 million and that resulted in an EBITDA margin of 32%. These results demonstrate strong operating leverage, and we are pleased with the level of profitability achieved this quarter.

Our balance sheet remains a significant strength. Cash and marketable securities continued to grow and totaled $115 million as of December 31, 2025, and that gives us substantial flexibility to continue investing in the business, while also returning capital to shareholders. Given our strong financial performance and cash position, our Board approved another increase to our quarterly dividend, raising it to $0.15 per share, which represents a 7% increase. This decision reflects our confidence in the business and our commitment to delivering shareholder value.

Overall, this was another outstanding quarter. We are very pleased with our performance through the first 6 months of fiscal 2026, and while there is still more work to do, we believe the company is well positioned to continue executing at a high level.

With that, I will turn the call over to our CFO, Andy Vuono, for a deeper look at the financials. Andy?

Thank you, Kevin, and good morning, everyone. Net revenue for the quarter increased 12.2% to $48.2 million as compared to $42.9 million for the same period a year ago. Net revenue for the 6 months ended December 31, 2025, increased 12% to $97.3 million as compared to $86.9 million for the same period a year ago. Recurring monthly service revenue continued its growth, increasing 12.5% in Q2 to $23.8 million as compared to $21.2 million for the same period last year. Recurring monthly service revenue for the 6 months ended December 2025 increased 11.8% to $47.3 million as compared to $42.3 million last year. Our recurring service revenue now has a prospective annual run rate of approximately $99 million based on January 2026 recurring service revenues. And that compares to $95 million based on October 2025 recurring service revenues, which we reported back in November. The increase in net service urging was due to increase in the number of cellular communication devices activated during the period. We expect radio sales to continue to be a key contributor to our overall equipment sales, which leads to continued growth of our highly profitable recurring service revenue.

Equipment revenues for the quarter increased 12% to $24.3 million compared to $21.7 million last year. The increase in net equipment revenue was primarily attributable to the impact of price increases and increased volume in our door-locking platforms. Revenue for the six months increased 12.1% to $50.1 million as compared to $44.6 million for the same period last year. The increase was primarily due to increased volume door-locking products as well as increased prices.

Gross profit for the three months ended December 2025 increased 15.3% to $28.2 million, with a gross margin of 58.6% as compared to $24.5 million with a gross margin of 57% for the same period last year. The gross profit for the six months increased 14.2% to $56.1 million with a gross margin of 57.6% as compared to $49.1 million with a gross margin of 56.5% a year ago. Gross profit for recurring service revenue for the quarter increased 11.1% to $21.5 million with a gross margin of 90.2% as compared to $19.4 million with a gross margin of 91.3% last year. And gross profit for recurring service revenue for the six months increased 10.6% to $42.7 million, with a gross margin of 90.3% as compared to $38.6 million with a gross margin of 91.2% last year. Gross profit from equipment revenues in Q2 increased [ 31.2% ] to $6.7 million, with a gross margin of 27.6% and as compared to $5.1 million with a gross margin of 23.6% last year. Gross profit for equipment revenue for the six months increased 27.4% to $13.4 million with a gross margin of 26.8% as compared to $10.5 million with a gross margin of 23.6% for the same period last year.

The 160 basis point increase in overall gross margin due to the continued highly profitable recurring revenue and overall improved margins on equipment revenue. The decrease in gross profit margin from service surgeons from both the three and six months period ended December 2025, was a result of onetime credits reducing royalty expense in the comparative periods and marginal increases in data cost to run our network operation center. The increase in gross profit and gross margin from equipment revenue for both the three and six months ended December of 2025, is attributable to improved manufacturing overhead absorption due to increased production, the impact of price increases in addition to lower sales discounting.

Research and development costs for the quarter increased 11.8% to $3.5 million or 7.2% of revenue as compared to $3.1 million or 7.2% of revenue for the same period a year ago. R&D costs for the 6 months ended December 2025 increased 8.9% to $6.7 million or 6.9% of revenue that compares to $6.2 million or 7.1% of revenue for the same period a year ago. The increase in research for the three and six months is primarily the result of increased labor and benefit costs related to expanding our engineering staff.

Selling, general and administrative expenses for the quarter decreased 1.9% to $10 million or 20.8% of revenue as compared to $10.2 million or 23.8% revenue for the same period last year. SG&A expense for the 6 months ended December 25, increased 5.3% to $21 million or 21.5% of revenue for that and that compares to $19.9 million or 22.9% of revenue for the same period last year. The decrease in SG&A costs for the quarter was primarily due to decreases in legal fees, which are net of insurance reimbursements and accounting fees, offset by increases in wages and bonus compensation and sales commissions. The increase in SG&A costs for the six months ended December 2025 was primarily due to increases in legal fees, commissions and weighted and bonus compensation, offset by decreases in accounting fees and stock-based compensation.

Operating income for the quarter increased 32.1% to $14.8 million as compared to $11.2 million for the same period last year. Operating income for the six months ended December 2025 increased 23.3% to $28.4 million as compared to $23 million for the same period last year. Interest income for the quarter decreased 4.7% to $884,000 as compared to $921,000 for last year, and for the six months, interest income decreased 6.9% to $1.7 million compared to $1.9 million last year. The decrease for both the 3- and 6-month periods was primarily due to lower interest rate yields on our cash and short-term investments.

The provision for income taxes for three months increased 37.6% to $2.2 million with an effective tax rate of 14.2% as compared to $1.6 million with an effective tax rate of 13.4% last year. For the six months ended December 2025, the provision for income taxes increased 36.8% to $4.7 million with an effective tax rate of 15.5% as compared to $3.4 million with an effective tax rate of 13.7% last year. The increase in the provision for the three and six months ended 2025 was due to higher pretax income as well as a larger portion of the company's capital income being attributable to U.S. operations, and the remeasurement of certain deferred tax law believes due to tax rate range changes enacted in the 1 big beautiful billet.

Net income for the quarter increased 29% at $13.5 million with 28% of revenue or $0.38 per diluted share as compared to $10.5 million or 24.4% of revenue or $0.28 per diluted share for the same period last year. Net income for the six months increased 18.5% to $25.7 million or 26.4% of revenue or $0.72 per diluted share. And compared to $21.7 million or 24.9% of revenue or $0.59 per diluted share for the same period last year. Adjusted EBITDA for the quarter increased 26% to $15.3 million or $0.43 per diluted share as compared to $12.2 million or $0.33 per diluted share for the same period a year ago. And equates to an adjusted EBITDA margin of 31.9% this year compared to 28.4% last year. Adjusted EBITDA for the six months ended December 2025 increased 22.6% to $30.3 million or $0.84 per diluted share and compares to $24.7 million was $0.67 per diluted share for the same period last year and equates to an adjusted EBITDA margin of 31.1% this year compared to 28.4% last year.

Free cash flows for the quarter increased 17.4% to $14.5 million as compared to $12.4 million for the same period a year ago and equates to a free cash flow margin of 30.1% this year compared to 28.8% last year. Free cash flows for the six months increased 9.5% to $26 million as compared to $23.7 million for the same period a year ago and equates to a free cash flow margin of 26.7% this year compared to 27.3% last year.

Continuing on to our balance sheet. As of December 2025, the company had $115.4 million in cash and cash equivalents and marketable securities as compared to $99.2 million as of June 2025, a 16.3% increase. That's after paying $10 million in dividends during the 6-month period. The company had no debt as of December 2025. Cash provided by operating activities for the 6 months ended December 2025 increased 4.7% to $26.7 million compared to $25.5 million last year and working capital, which is our current assets plus current liabilities, was $158.8 million as of December 2025 as compared to working capital of $138.4 million at June 2025. The current ratio was 8:1 at December 2025, and 6.8:1 at June 2025. Capital expenditures for the quarter totaled $600,000 compared to $1.1 million in the same period last year and with the six months amounted to $800,000 compared to $1.8 million last year.

That concludes my formal remarks. I would like to return the call back to Dick.

Thank you, Andy. As you've heard today, our second quarter and first half of fiscal 2026 reflect another period of strong execution and meaningful progress against our long-term strategy. Record Q2 revenue of $48.2 million, double-digit growth across both equipment and recurring service revenue, expanding margins and strong operating leverage all reinforce that our business model is working exactly as intended. At the core of our strategy is our recurring service revenue platform, which continues to deliver consistent high-margin growth. Recurring service revenue now represents nearly half of our total sales, supported by sustained gross margins of over 90%, and our annualized run rate has reached approximately $99 million. This steady high-quality revenue stream provides predictability, strong cash generation and long-term value creation.

So in commercial fire radios remain a key driver and have become the industry standard for commercial fire communicators, with continued healthy demand across both new installations and our expanding installed base. On the equipment side, we are equally encouraged by the momentum we're seeing. Equipment revenue increased 12% over year to $24.3 million. Supported by strong performance in our door-locking solutions and in our Intrusion and Alarm product segments. Pricing actions implemented late, late last fiscal year are having the attendant impact contributing to improved equipment gross margins, which expanded 28% in the quarter. These results reflect disciplined pricing, operational efficiency and favorable product mix, all of which we continue to actively manage. Profitability remains a major strength of the company, operating income, net income and adjusted EBITDA all grew at significantly faster rates than revenue, demonstrating strong operating leverage.

With EBITDA margins now exceeding 30%, we are generating substantial cash flow while continuing to invest in innovation, infrastructure and growth initiatives. Our balance sheet further differentiates us with $115 million in cash and marketable securities and no debt. We have exceptional financial flexibility. This allows us to invest organically, pursue strategic opportunities, where appropriate, and continue returning capital to shareholders. The board's decision to increase the quarterly dividend to $0.15 per share reflects our confidence in the sustainability of our cash generation and our ongoing commitment to shareholder value.

In addition to our strong financial performance, as I mentioned earlier, we are pleased to announce the appointment of Joseph Pipczynski as Chief Revenue Officer, a newly created executive role. In this position, Joe will oversee Napco's revenue organization, including sales, channel strategy, pricing and go-to-market execution across the company's full product portfolio. This appointment underscores our continued focus on accelerating equipment revenue growth, expanding recurring service revenue, maximizing operating leverage and strengthening customer and dealer engagement. With more than 35 years of experience in revenue leadership and business development, Joe brings deep experience and a strong execution mindset, and we believe his leadership will further position Napco to capitalize on new market opportunities, deepened dealer and customer relationships and accelerate our long-term growth strategy.

Operationally, our team continues to execute at a very high level. We are managing inventory tightly, investing in product development, compliance, automation and infrastructure and returning capital through dividends, all while maintaining a debt-free balance sheet. Our manufacturing facility in the Dominican Republic remains a key competitive advantage, providing cost efficiency, stable logistics and low tariff exposure compared to many competitors operating in higher tariff regions.

Looking ahead, we remain optimistic about the remainder of fiscal 2026 and beyond. Demand across our product portfolio remains strong. Our recurring service revenue base continues to expand, and our operating discipline remains firmly in place. We've diversified our distribution base, implementing pricing actions and continue to enhance the StarLink platform, while investing in automation and technology designed to sustain growth and expand margins. One area where Napco continues to make a meaningful impact in school security, one of the most critical challenges of our time. We are proud to partner with school districts nationwide, providing integrated solutions that include our trilogy and architect locksets and enterprise scale access control systems. These platforms are secure, scalable and aligned with strict industry standards.

What truly differentiates Napco is our ability to integrate locking, access control and alarm technologies into a unified interoperable platform protecting students and staff every day, while driving future growth. At the same time, we continue to expand recurring service revenue opportunities through innovation. A great example is our MVP cloud-based access control platform, which integrates seamlessly with our locking hardware. MVP introduced a new subscription-based revenue stream to both Napco and our dealers and is offered in two configurations, MVP access and enterprise-grade solutions supporting unlimited users and MVP Easy, a mobile-first solution for locksmith and smaller facilities. We believe MVP has the potential to be a game changer, extending our leadership into hosted access control and reinforcing our strategy of pairing innovative hardware with cloud-based services to drive high-margin recurring service revenue.

Beyond education, our long lock and [indiscernible] hardware lines continue to gain traction in health care, retail, multi-dwelling applications and airport infrastructure upgrades. Additionally, as the transition away from legacy copper phone lines accelerates our solid radios operating on AT&T, Verizon and now T-Mobile networks are well positioned to capture additional market share across millions of commercial and residential buildings. While external market and regulatory conditions remain fluid, we remain focused on what can be -- what we can control, driving innovation, executing with discipline and expanding our base of recurring service revenue.

In summary, we have begun fiscal 2026 with solid momentum, a clear strategic focus and a stronger financial foundation than ever. I'm incredibly proud of our team and what it has accomplished and excited about the opportunities ahead. And I want to thank all of you for continued support and confidence in Napco. Our formal remarks are now concluded, and we'd like to open the call for the Q&A.

Operator, please see.

[Operator Instructions] First, we will hear from Jeremy Hamblin at Craig-Hallum.

And congrats on the strong results. I wanted to start by just getting into the dealer channel, and what inventory levels look like? You saw a really strong improvement in your gross margin obviously getting a little bit of benefit from the price increases that were taken last year. But I wanted to just understand, it looks like you may have a little bit better inventory situation in the channel and getting that better gross margin flow through. But I wanted to see if you could add a little bit of color on how things shape up here in calendar 2026?

Okay. Thanks, Jeremy. So the channel is much more normalized than it was last fiscal year. when there was chaos about tariffs, when there was chaos about certain distributors not wanting to do quarter [ advise, ] it seems to have become stable. And one of the things we did see in Q2 was a more normal buying pattern. They would buy throughout the quarter, not wait until the very end, some distributors, not at all. But what that does for us is that helps reduce the discounting that has to go on. And that's reflected somewhat in the gross margin. Gross Margin was helped by a bunch of things, less discounting, price increases, mix. Locking remained strong. That gives us tremendous margins. And when you discount less, and you wind up with a price increase like we've done, that bodes well. So we wound up having almost a 28% gross margin on revenue that was $24.3 million. Obviously, we want to see that revenue go much higher. And with it, we think we'll get towards our goal, which is to get the hardware margins, the equipment margins back into the 30s, where it used to be, and where it belongs. So that's what I said earlier, we have more work to do. That's one of the things we're working on. We think margins could go even higher, and we think they will as this fiscal year progresses.

Great color. Since we -- you mentioned the strength in the locking segment. Wanted to see if we could dive a little bit deeper into the MVP access platform. I know that you've been rolling that out, look like pretty good response at ISC East in November. But can you give us a sense for what the uptake is on this product? And when you think that it could contribute meaningfully to your recurring service revenues. Is that something that's kind of a second half of calendar '26? Or at what point do you think that, that might be contributing to the run rate?

The first -- we knew the first half of our fiscal year was not going to be a major contributor from MVP. But we are very encouraged. We are getting recurring from it. It's not something we have to disclose. It's more of a second half of calendar '26 story. So maybe by Qs 1 and 2 of fiscal '27, we'll start to see more meaningful contributions. But what we are pleased with is the reception. And you were at ISC East. You saw a lot of dealers all over our booth, and we're still seeing a lot more of that interest. It takes time, new concept, new concept for locking dealers, but they're getting love it because now they're going to get recurring revenue like the a lot people get in. And so they're going to have a business that has equity, and that's what the alarm guys have. So locking guys are next. The opportunity is tremendous. There's much many more doors than there are buildings just got to get there. So we're working hard to get to that point. We're going to show it again at ISC West in the March. And then I think by calendar -- by the end of beginning of fiscal 2027, second half of calendar '26, we should start to see some meaningful contributions.

Last one for me. Just wanted to check to see, obviously, the magnitude of kind of the storm activity has had some impact on -- certainly on construction work and completion of getting some businesses kind of open here in Q1, wanted to see if it's had any impact at all from a supply chain perspective or otherwise for your business?

No, no. Other than our containers, which we get from the Dominican every week, takes about 6 days on the water, other than -- maybe taking 7 days instead of 6, something like that. Other than that, we've seen no impact. It's -- we're just keep growing along, no problems.

Next question will be from Jim Ricchiuti at Needham & Co.

Just on the hardware growth that you saw, it looks like you saw growth in both areas of the business, and you talked about price. Going forward, how much of an additional benefit could we see from the pricing actions in Q3 versus Q2. In other words, has the bulk of the pricing benefit been realized, or is there still more to come in the current quarter versus the December quarter?

Andy, can you take that one?

Sure. So product pricing has been adjusted throughout the portfolio, so that was effective the beginning of Q2. So there's no additional price increases other than some one-offs expected through the end of the year. So that should be fully baked in for the year as far as our price increases go. We did not see the full lift in Q1, I think we discussed. And we had maybe a few trailing things in Q2 on some locking back orders. But going into Q3 and 4, all the pricing has been fully adjusted and is baked in for the balance of the period.

Got it. Andy, just on the strength that you saw in the door locking device business, was there -- how much characterize the larger projects business? I know that can be lumpy at times, and it does create some year-over-year variability. But I was just wondering what are you seeing in that area of the business.

Bunch of projects, school projects, other type projects, nothing that's going to make a comp difficult for next year, $24.3 million. That's not a difficult comp for next year. So we just keep working. I wish we could talk to you about some of these projects because we're not allowed to, especially with schools, they don't want to be known, what's going on. But we continue to have projects as a key part of this. But no difficult comps really coming up in the balance of this fiscal year either, which bodes well for our comparisons as we get to Q3 and 4.

[Operator Instructions] And next, we will hear from Peter Costa at Mizuho.

Could you just provide an update around the ADI partnership? How is penetration at the end dealer level going? And are you still getting incremental new introductions from ADI?

ADI relationship been great, probably a couple of years now. And we've talked about how they've made introductions to some of the largest dealers in the world. and they continue to do that. And it's one of the benefits of having them having the relationship with them because they have entree to certain dealers who only for whatever reason, even if they're large, they like to go through distribution. And so ADI continues to help us every day with that, and ADI stats are very good. ADI buys a lot of fire radios. We want to get ADI to the point where they're a locking contributor also. We're not seeing that part, and we want that. Can you imagine they do so well with us on the intrusion side, we can get them really cooking on the locking, that would be tremendous. So we're working hard on that. So we're not just sitting back and saying everything is great with ADI. There's more work to be done with them as well.

What's interesting, it's Dick Soloway, it's interesting about the ADI relationship as we get introduced to large dealers, both national and international dealers. But we make products for all of North America. We have an engineering department that's been expanded to engineers. We do everything internally, hardware, development, software, all kinds of app work. So the special projects that we do for the large installation companies are very important because it works into their automation systems, and we give real hands on service. We do all of our development in [indiscernible] bill that is for these type of specialized accounts, and it ties us closer together. And we bring a lot of innovation. They bring a lot of ideas. So it's a great collaboration with these introductions and it makes for solid growth, and we're going to see a lot more of this in the future.

And then maybe just one more on pricing. Is there any need for incremental actions in the second half just to offset any raw material pressures? And were you definitively price cost positive in the quarter?

I don't believe the we have any need to do that right, Andy?

Yes. No. I mean we're monitoring our component costs continually. And if we have to make any adjustments in pricing, we will. But we are not seeing any incremental inflation in our component costs, and we were -- our pricing increases were positive as it pertains to the tariff increases and any incremental cost out of components through the 6 months.

[Operator Instructions] Next question will be from Lance Vitanza at TD Cowen.

I wanted to start with a question regarding the schools and door-locking remote access. And I understand that you can't name names, but could you give us a sense for what the sales funnel and the pipeline is looking like? And I guess specifically, is Napco in the running for any new projects that you expect will be awarded over the back half of the year? And if you do get awards, how long of a lag before you start to generate revenue from those awards?

These projects are all the time, and they're different. Some projects the revenue stream could start right away. Some are custom type projects where our engineers have to develop certain things that these projects require and some projects go over a number of years. So they come in all sizes and shapes. And there's no real way to put it in any specific way their contributors, and we need them, and we're getting them, and our sales team is going out, working with integrators to get more of them. Big area for us. We don't really disclose what they are -- if it's a big school win, I would disclose it if they let us, but they don't typically. So just know that we're working hard on it. There's more of them. They will continue and probably spread over a number of years.

Okay. Great. And then just on the equipment side, you had called out door-locking sales in the press release and elsewhere. But it looks like radio sales had nice growth year-over-year in the quarter as well. Could you talk about the outlook there in particular as it feeds into recurring service revenue growth that you're expecting over the back half of the fiscal year?

Well, we were encouraged by the growth rate of the recurring year-over-year. We were encouraged by the run rate, up 4 million. There's a lot of buildings out there that still have to convert away from copper. We talk about this. We probably have about 1 million active radios. There's probably several more million buildings to go by 2029, which is kind of the date that the carriers have put -- as the -- we're not supporting it anymore after that date. So there's going to be a lot of action between now and then. We have a lot of relationships with very large dealers now that we didn't have several years back. We basically built the almost $100 million run rate that we have with a lot of small guys, guys you never heard of. Now -- and we love those guys, believe me, they're like pennies end up to dollars. These are important guys. But now we're dealing with big guys, too. And that could bode well over the next 4, 5 years as the conversion continues. And then of course, we put our stalling radios in our products. So for new work, we make fire panels, control panels with radios in it. So we expect this -- this is the new norm. We expect this to go on forever. So we're very encouraged by what we saw this quarter. We think it will be very good for the balance of fiscal '26 and beyond.

And just one last one for me. On the balance sheet, the cash continues to build up to $115 million of of cash and marketable securities now. I'm just wondering, is there sort of like a point at which you say, hey, maybe we don't want to be walking around with this much cash, and we decide either to pull the trigger on an acquisition or maybe there's a special dividend or some sort of the return of capital. I'm just wondering how you're thinking about capital allocation in the context of the increasing cash build.

I would say all of that you just mentioned, is in our thought process. When we do an acquisition, we want to make sure it fits our criteria, being accretive from day 1. It's a product that our dealers store all the time, and that the company is buttoned up enough, so that doesn't cause disruption to our existing business, but it enhances our business. And if the company is manufacturing products which are in foreign lands. Because of the Dominican operation, we can manufacture it in our factory because we're completely vertically integrated there. Also from the components come in, finished products that goes out and then we get in a week. So there are opportunities. But we don't want to do anything which could cause stress on our operation now. And there are opportunities out there. So we're looking at that very, very carefully. And all the other considerations of increasing our dividend and other things to pay back to shareholders is also on the table. So it's a position that we're very carefully contemplating about on how to do this because we expect the recurring revenue to keep on growing very, very strongly, and now we're piling on more recurring revenue with our Lockheed product line, which is going to be -- it should be a fantastic addition because there are so many doors, and they're so much monitoring of those stores that institutions want to do on a real-time basis. So -- and it's an equity builder for the axis and the locksmith trade, which they don't have now. So we're very innovative, and we're going to keep it up.

[Operator Instructions] And at this time, it appears we have no other questions registered. I would like to turn the conference back over to Richard Soloway, CEO.

Thank you, everyone, for participating in today's conference call. As always, you give any further questions, feel free to call Fran, Kevin, Andy and myself for further information. We thank you for your interest and support, and we look forward to speaking to you all again in a few months to discuss EPCO's fiscal Q3 results. Bye-bye. Have a wonderful day and a great week.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.

Good morning, ladies and gentlemen, and welcome to the NAPCO Security Technologies Fiscal First Quarter 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Monday, November 3, 2025.

I would now like to turn the conference over to Mr. Francis Okoniewski. Please go ahead.

Thank you, Emma. Good morning, everyone. This is Fran Okoniewski, Vice President of Investor Relations for NAPCO Security Technologies. Thank you all for joining today's conference call to discuss financial results for our fiscal first quarter 2026. By now, all of you should have had the opportunity to review our earnings press release discussing our quarterly results. If you have not, a copy of the release is available in the Investor Relations section of our website, www.napcosecurity.com.

On the call today are Dick Soloway, Chairman and CEO of NAPCO Security Technologies; Kevin Buchel, President and Chief Operating Officer; and Andrew Vuono, 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, reoccurring revenue services, potential market opportunities, the benefits of our reoccurring revenue products to customers and dealers, our ability to control expenses and costs, and expected annual run rate for reoccurring 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 predictable 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. But before I do, I want to mention we will be attending the International Security Conference trade show, November 18 through the 20th, in New York City's Javits Center. We'll be showcasing an array of exciting new products. And if anyone is interested in attending, please contact me, and I will arrange to get you a guest pass.

In addition, we're actively planning our Investor Relations calendar for non-deal roadshow and conference attendance in the near future. Investor outreach is important to NAPCO, and I'd like to thank all those who assist us in these type of events. In the coming weeks, we'll be attending the [ Robert Baird ] Global Industrial Conference in Chicago; the Stephens Annual Investment Conference in Nashville; the UBS Global Industrials & Transportation Conference in Palm Beach, Florida; the Melius Research Conference in New York City; and Needham's 28th Annual Growth Conference also in New York City.

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.

Thank you, Fran. Good morning, everyone, and welcome to our conference call. We appreciate you joining us as we review our fiscal first quarter 2026 performance. Our first quarter results, which reflects record Q1 revenue, continues the momentum we reported from Q4 of fiscal 2025 and is a reflection of our continued focus on long-term growth and resiliency of our business. Our recurring revenue model has continued its steady growth, while maintaining its substantial profitability. We remain encouraged with our equipment revenue performance and our ability to weather the various microeconomic challenges we encountered in fiscal 2025 as we started to realize some of the benefits from our pricing strategies in response to tariff uncertainties.

We have started fiscal 2026 with a positive momentum and confidence in our ability to continue to execute on our plan to provide enhanced shareholder value and growth through the balance of the fiscal year.

Now, I'll 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 Vuono, will go through the financials in more detail, and then I will return to delve deeper into our strategies and market outlook.

Kevin, the floor is yours.

Thank you, Dick. Good morning, everyone. I'm pleased to share a few highlights from what was a very strong start to fiscal 2026. Total revenue for the quarter was $49.2 million, and that's a Q1 record and up 12% compared to the same period last year. Within those results, equipment sales reached $25.7 million, also up 12% year-over-year, demonstrating the continued strength of our relationships with our distributors and our dealers. And this increase was also supported in part by the early impact of 2 price adjustments: one related to tariffs, and that was implemented at the end of April; and our normal annual price increase, and that took effect in mid-July. We did not see the full impact of those price adjustments in Q1, but we expect to see a larger benefit in the upcoming quarters of fiscal 2026.

Recurring revenue remained strong as well, growing 11% over last year's Q1 and maintaining an impressive gross margin of 90.3%, with StarLink commercial fire radios continuing to be the key driver within that mix. Our equipment gross margin improved as well to 26%, representing a 300 basis point sequential increase from fiscal 2025's Q4.

From a profitability standpoint, operating income increased 15% year-over-year. Net income rose 9% to a Q1 record of $12.2 million, and that represents 25% of revenue. And our adjusted EBITDA was up 21%, and we now have an adjusted EBITDA margin of 30.4%.

Finally, cash continues to grow. It reached $106 million as of September 30, 2025. Cash from operations was $11.6 million. And of course, we have no debt. As such, we are pleased to announce that we are continuing our dividend program, as our Board of Directors declared a quarterly dividend of $0.14 per share, payable on January 2, 2026 to shareholders of record on December 12, 2025.

Overall, this was a strong start to fiscal 2026, and I'm very proud of the team's execution across the board.

With that, I will turn the call over to our CFO, Andy Vuono, for a deeper look at the financials. Andy?

Thank you, Kevin, and good morning, everyone. Net revenue for the 3 months ended September 30, 2025 increased 11.7% to $49.2 million as compared to $44 million for the same period a year ago. Recurring monthly service revenue continued its strong growth, increasing 11.6% in Q1 to $23.5 million as compared to $21.1 million for the same period last year. Our recurring revenue service now has a prospective annual run rate of approximately $95 million based on our October 2025 recurring service revenues, and that compares to $94 million based on July 2025 recurring service revenues, which we reported back in August. These increases reflect the continued demand for our line of StarLink radios. Equipment revenue increased 11.8% to $25.6 million as compared to $22.9 million for Q1 of fiscal '25, which is a result of increased volume in our door locking product line and the impact of certain product pricing increases that went to effect in the quarter.

Gross profit for the 3 months ended September 30, 2025 increased 13.1% to $27.8 million with a gross margin of 56.6% as compared to $24.6 million with a gross margin of 55.9% for the same period last year. Gross profit for recurring services revenue for the quarter increased 10.7% to $21.2 million with a gross margin of 90.3% as compared to $19.2 million with a gross margin of 91.1% last year. Gross profit for equipment revenues in Q1 increased 21.8% to $6.6 million with a gross margin of 25.7% as compared to $5.4 million with a gross margin of 23.6% last year. The increase in equipment gross profit was primarily a result of product mix as door locking products have a higher gross margin than intrusion. That, coupled with certain price increases and improved overhead absorption as a result of increased volume, contributed to the improvement in the equipment margins.

R&D costs for the quarter increased 6% to $3.2 million or 6.6% of revenue as compared to $3.1 million or 6.9% of revenue for the same period a year ago. The increase for the 3 months primarily resulted from increased labor costs, which was partially offset by reduced consulting fees. Selling, general and administrative expenses for the quarter increased 13% to $11 million or 22.3% of net revenue as compared to $9.7 million or 22.1% of net revenue for the same period last year. The increase in SG&A for the 3 months were primarily due to increased legal fees and sales commissions, partially offset by decreased bonuses and compensation and benefits.

Operating income for the quarter increased 15.1% to $13.6 million as compared to $11.9 million for the same period last year. Interest and other income for the 3 months decreased 13.5% to $1 million as compared to $1.1 million last year. The decrease for the 3 months ended September 25 was due to lower interest income from the company's cash and short-term investments as a result of lower interest rates.

The provision for income taxes for the 3 months increased 36% or $655,000 to $2.5 million with an effective tax rate of 16.9% as compared to $1.8 million with an effective tax rate of 14% last year. The increase in the provision for 3 months was due to higher pretax income, as well as a larger portion of the company's taxable income being attributable to U.S. operations, and the remeasurement of certain deferred tax liabilities due to tax rate changes enacted in the One Big Beautiful Bill Act in the current period.

Net income for the quarter increased 8.8% to $12.2 million or $0.34 per diluted share as compared to $11.2 million or $0.30 per diluted share for the same period last year and represented 25% of net revenue. Adjusted EBITDA for the quarter increased 21.1% to $14.9 million or $0.42 per diluted share as compared to $12.3 million or $0.33 per diluted share for the same period a year ago and equates to an adjusted EBITDA margin of 30.4%.

As it relates to our balance sheet, as of September 30, the company had $105.8 million in cash and cash equivalents and marketable securities as compared to $99.1 million as of June 30, 2025, a 6.6% sequential increase. The company had no debt as of September 30. And cash provided by operating activities for the 3 months ended September 30, 2025 was $11.6 million as compared to $12 million for the same period last year, a 3% decrease. Working capital, which is defined as current assets less current liabilities, was $159.2 million as of September 30 as compared with working capital of $149.9 million on June 30, 2025. Our current ratio was 7.5:1 on September 30 as opposed to 7.3:1 on June 30, 2025. And our CapEx for the quarter was $193,000 as compared to $680,000 in the prior year period.

That concludes my formal remarks, and I would like to return the call back to Dick.

Thanks, Andy. Let me close with a few reflections on where we've been and where we're headed. This quarter, NAPCO once again demonstrated the strength and resilience of our business model. We remain focused on delivering lasting value to our customers, partners and shareholders, and the results speak for themselves.

Recurring revenue now represents nearly half of our total sales, supported by a sustained 90%-plus gross margin. This steady high-margin income continues to drive consistent cash generation and reinvestment in innovation and growth. A key contributor remains our StarLink Fire radio platform, which has become the industry standard for commercial fire communications. Operationally, our team is executing exceptionally well. We manage inventory tightly, continue to invest in product development, compliance and infrastructure, and return capital through dividends, all while maintaining a debt-free balance sheet.

Looking ahead, we remain optimistic. Market dynamics continue to evolve, but we're not standing still. We've implemented pricing actions, diversified our distribution base and invested in automation and enhancements to the StarLink platform, aimed at sustained growth and protecting margins. Our strong balance sheet provides flexibility for both organic investments and potential strategic acquisitions, while keeping us committed to shareholder returns.

One area where NAPCO continues to make a real impact is school security, one of the most critical challenges of our time. We're proud to partner with school districts nationwide, providing integrated solutions that include our Trilogy and ArchiTech lock sets and enterprise-scale access control systems. These platforms are secure, scalable and aligned with the Partner Alliance for Safer Schools, or PASS, program standards, giving educators and administrators solutions they can trust. What truly differentiates NAPCO is our ability to integrate locking, access control and alarm technologies into a unified interoperable platform, protecting students and staff every day, while driving future growth.

At the same time, we continue to expand recurring revenue opportunities through innovation. A great example is our MVP cloud-based access control platform, which integrates seamlessly with our locking hardware. MVP introduces a new subscription-based revenue stream for NAPCO and our dealers, and it's available in 2 configurations: MVP Access, an enterprise-grade solution supporting unlimited users; and MVP EZ, a mobile-first version for locksmiths and smaller facilities. We believe MVP has the potential to be a game changer, extending our leadership into hosted access control and reinforcing our strategy of pairing innovative hardware with cloud-based services to drive higher-margin recurring revenue.

Beyond education, our Alarm Lock and Marks hardware lines continue to gain traction in health care, retail and multi-dwelling applications, as well as airport infrastructure upgrades. And as the transition away from legacy copper phone lines accelerates, our StarLink radios, which operate on both AT&T and Verizon networks and now also T-Mobile, are well positioned to capture additional market share across millions of commercial and residential buildings.

Operationally, our Dominican Republic manufacturing facility continues to be a key competitive advantage, offering cost efficiency, stable logistics and low tariff exposure, a benefit versus many competitors manufacturing in higher-tariff regions. While external market and regulatory conditions remain fluid, we're focused on what we can control, driving innovation, executing with discipline and growing our base of recurring revenue. We're confident that our strong net income, adjusted EBITDA and cash flow trends will continue to strengthen.

In summary, we have begun fiscal 2026 with a solid momentum, a clear focus, a stronger financial foundation than ever before. I'm incredibly proud of our team, what our team has accomplished and excited about the opportunities ahead. Thank you all for your continued support and confidence in NAPCO.

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

[Operator Instructions] Your first question comes from Matt Summerville with D.A. Davidson.

A couple of questions. First, on locking. Can you talk about what percent of your locking mix today is represented by that networked product? And then, can you also discuss how your MVP technology differs from other major locking players in the space today? And then, I have a follow-up.

I'll answer the first part, and then Dick could answer the second part. So the first part, most of our sales in locking are the traditional products. MVP is just starting out. It's gaining some traction. We're going to show it again at ISC East, which is in a couple of weeks. We're going to show upgrades to what we showed at ISC West back in April. The expectation is, once we show that and start shipping that, we'll start to gain more traction in the new stuff. But the old stuff, the traditional stuff is powerful stuff. Locking is 66% of equipment sales. And that includes all the categories we mentioned in our prepared remarks, including schools and lots of things. We don't announce all the school wins. The schools, sometimes they don't want us to talk about it. But believe me, they're there, and that's part and parcel of why locking was so strong. It was very strong in this quarter, and the expectation is it will continue to be strong.

Now Dick, maybe you can comment on why our MVP is different than anybody's product out there.

Sure. So the MVP product that we introduced is a new recurring revenue generator for locksmiths, as well as system integrators. And what's interesting about it is that we have a totally integrated system because we manufacture the locks. We've been gold standard lock manufacturers under the Trilogy brand for many, many years. It's considered the best locking product. Now, we've added the radio aspect to it, which communicates to our cloud and the cloud is owned by us. We built it. So we're a total integrated manufacturer, which allows us to add a lot of extra functionality to the concept of locking with a recurring revenue tail to it. So if you're an administrator in a hospital, you're in charge of the security division, you can get instantaneous information with all the equipment up in the cloud. No longer does it have to be on the site and where the dealer has to go back and make upgrades to the software. It can all be done in the cloud, and we do it all for the dealer. And we charge $3 a door for each door, and there are millions and millions of doors out there.

While we're very successful with the fire alarms and the burglar alarm radio products, which generate recurring revenue, there's millions of those type of buildings where there's one radio per building usually. In this case, you could have 15, 20, 100 doors generating $3 per door with all these services. So it's a totally integrated hardware-software package, and we made it in 2 different ways. One is for basic smaller offices, doctors' offices. You have 6 doors. And that's the MVP EZ. And then, the full-blown access control cloud system is for system integrators to do larger jobs. So we can control our own destiny unlike a lot of our competitors, which have to get locks from one manufacturer, then they do the software themselves or vice versa. We do it all in-house. We have an engineering staff that develops everything from soup to nuts, from the hardware, all the way up to the middle and software of these systems. So it makes us very unique. It's going to be very powerful in the future. It's a way for dealers and locksmiths to build equity in their business now by getting recurring revenue from each door where they install the locks.

And then, just as a follow-up, can you parse out a bit, in the fiscal first quarter, how much of the hardware revenue growth would have been price versus volume? I'm trying to get a feel for how much price has yet to be realized. And any high-level thoughts as to how the remainder of the fiscal year cadences out would be beneficial.

So that's -- it's a combination, Matt. As I said earlier, it's -- we didn't get the full benefit of the price, but we will as the year progresses. Andy could give us some color of kind of what it was in Q1, but we know that there's a lot more to come from the benefit of the pricing.

Andy, do you want to comment on it?

Sure. Matt, so in response to that, so of the approximate 12% increase in equipment revenue for the period, our preliminary analysis has indicated approximately 60% of that is related to volume increases and 40% is tied to the pricing increases that went into effect in Q1.

Your next question comes from Jim Ricchiuti with Needham & Co.

Maybe a follow-up to that, and I know this information is going to be in the Q later today, but can you give us a sense as to what the overall growth was in the door locking products business and whether, when you talk about the early pricing benefits, you saw some benefit in that part of the business as opposed to the radio business?

So locking -- and you'll see this in the Q that's going to be filed today, a little later today. Locking for Q1 was $17,083,000. Last year's Q1, it was $13,854,000. So that's a substantial increase. Locking was very strong. Some of it did come from orders that were placed by distributors trying to beat the price increases. We carried a backlog of several million into Q1 from Q4. But a lot of it was not that. So it was really some of it guys going ahead, trying to beat the rush, but a lot of it is locking being strong. This is one of the strongest locking quarters, maybe the strongest we've ever had. It was right up there. And the expectation is, it's going to continue. We don't have situations in the channel where guys are loaded up and presumably, they're not going to skip when we come to then this quarter, Q2. You never know with distributors. They behave funny sometimes, but the channel is good. The sell-through is strong. The expectations are all very good in the locking segment.

Helpful, Kevin. And I wonder, maybe just to the comment you just made, just the overall tone of demand, what you're hearing from some of your channel partners? You alluded to a good sell-through that you're seeing on the door locking side, maybe on both parts of the hardware business. Any color you could provide in terms of what you're seeing, hearing sell-through stats or otherwise?

Right. So sell-through stats -- this is as of Q1. I can't really comment on what's Q2, which is a month old. But for Q1, we saw very good sell-through stats for all of our locking partners. And we have 2 locking companies, and it was good on both. On the intrusion side, we saw tremendous improvement there, too. So as -- and I look at this very closely every month. So I was [indiscernible] what I'm seeing. I always caution because I never know what distributors are going to do. It's their year-end in December. Who knows what's going to happen. But if we're going to base it solely on what stats we're seeing, and that's their inventory levels and the sell-through, we should be in good shape in both areas, locking and intrusion.

Your next question comes from Peter Costa with Mizuho.

I'd like to maybe dig a little bit further into the service margins. That 80 basis point year-over-year decline was a little bit more than expected. What's kind of causing that pressure? Is there anything on underlying radio margins, an acceleration in MVP? Anything there?

So Peter, there were really 2 factors that affected the margin for the recurring, which still is tremendous. 90.3% is still tremendous. It did go down from a little bit over 91%. So 2 factors. Factor number one, we now have a triple carrier radio. That introduces T-Mobile into the mix. We have to buy minutes to support that. We haven't really charged anybody for that. And even though it's not a lot of money, it did move the needle a little bit. The expectation is, we will increase our radio -- our recurring radio charge to cover that. It's not going to be a lot, but it might be enough to move the needle back to where it was. That's one factor.

Another factor is, we are gaining a lot of business from some very large dealers. I don't want to mention any names, but there are large dealers out there. One in particular has been buying a lot of the smaller dealers. It seems like they do an acquisition every week. And as a result of that, we're picking up more radio business, and we will be picking up more in the future. This consolidation, if you want to call it that, from the big guys buying up some of the smaller guys, and the radio segment has all moved in our favor. But the big guy loves our fire radio. And when he buys a smaller dealer, he is going to make sure that the smaller dealer's customers get our StarLink Fire radio, if they weren't using it. Maybe they were using it. But if they weren't, opportunity for us to pick up even more share.

The one negative of this, and it's mostly positive, is a big guy can command a little bit of a better price. Maybe the big guy pays $1 less than what the smaller guy is paying. We honor that. We're happy to get more business. So if a guy was paying $8 and we have to lower it to $7, just to use an example, we will do that. We'll do that all day long because we're picking up more radio recurring revenue business. So that, too, can move the needle a little bit. Absent of that, it's all the same powerful margins that you've been seeing.

Makes a lot of sense.

Let me add something else to that. I network a lot with the dealers, and some of the dealers in certain parts of the country have told me that T-Mobile is more reliable on their cell phones than the other services. So evidently, the towers are different or the way the reception is for the radios on their towers is different. So by adding T-Mobile to our mix of AT&T and Verizon, now we have all the major carriers. And the areas where T-Mobile is the strongest in pickup and communications is now in our radios. So we're going to pick up market share -- additional market share with a more stable radio network with T-Mobile. So that's going to help us a lot. So overall, it should be a net positive having T-Mobile as part of our mix.

Awesome. Maybe just thinking about the price on the radio, I think that's kind of intended to be under the RSR, and that seems like a pretty big deal. How would you kind of approach that? Is that just the entire installed base would get a little bit of price, just incremental sales or just like the T-Mobile radios? How would you tackle that?

If it's a triple carrier, it's going to be in everybody's radio. So to cover it, everybody would probably get a little bit of an increase, not much. Believe me, we don't want to mess with a very good formula. But I -- like the shareholders, I want to keep that 91% margin as well. And if we have to raise it a little bit to keep it up there, we're going to do that. So we're looking at that now, Peter.

[Operator Instructions] Now our next question comes from Jeremy Hamblin with Craig-Hallum Capital Group.

Congrats on the strong results. Just wanted to start a little bit with kind of the manufacturing facility, making sure that in terms of the hurricane that had some impact in the DR, just understanding what you've seen there. And then, just kind of related note, in terms of how the tariffs are being applied at this point and impact, as you look forward in calendar '26, do you feel like you're going to have kind of normal pricing increase on products? Or is there any incremental that you need to take to cover where tariffs stand today?

This is Dick Soloway. I moved down there to the Dominican Republic after I searched around in China and Mexico and decided Dominican is great for a lot of advantages, closest to the U.S., stable government and being able to get the workers that we needed. And we built this custom building. After we were in individual smaller buildings, we built a custom building, which is Category 5 proof. It's all concrete building. So we don't have any issues. We had no problem with the hurricane that passed by. We generate our own power, make our own water. We're self-contained like city down there. And of course, we have our workers come from around the area. And it's actually a shelter for them in a hurricane because it's stronger than the houses. So it works out really, really well. So we had no issues with that, and we don't expect there's anything that's going to be able to cause us any grief in the future.

And what was the second part of the question?

Just in terms of tariff impact and thinking about pricing in 2026 and whether or not you take kind of your more typical price increase or whether or not you would take slightly more, just given how kind of the tariffs are playing out here. I mean, we've seen some stabilization in kind of tariff mandates, but...

The tariffs for the DR, very stable. It's not like some of the other countries where it's going up, it's down, it's here, it's there. We know what it is, 10%. That's what it is. That's what it's been. We took an increase to cover that back in -- we announced it back in April. We don't need to do anything more on that front. We took a general price increase that we announced in July. We don't expect to do another one until we get to the end of this fiscal year that we're in. So pricing-wise, we're good. The only thing is, we haven't felt it all yet. We expect to feel good about it -- better. We feel good already. We expect to feel better about it as we get deeper into the year as the full effect is felt. We haven't felt it yet.

Great. And then, just coming back to the service revenues. You saw a nice little bit of sequential year-over-year improvement from what you had in the June quarter. And you just had a strong quarter with locking. I wanted to just get a sense with the evolution of that business and potentially getting some recurring revenue associated with that in combination with kind of the radio alarms and so forth. When do you think you might kind of see that show up here in recurring service revenue growth as FY '26 plays out?

When we released it, when we first talked -- started talking about it, showed it at ISC West in April, and we said at that time, give it 18 months to 2 years. That's how long this kind of thing takes. We hope it's sooner, but I would give it time. I think we'll feel a little bit more as this fiscal year progresses. I think fiscal '27 is when I think we'll really start to feel it. So you got to give it time. We're like 6 months removed basically from when we really had a coming out party for it. Now, we're going to have another coming out party in a couple of weeks to show the other versions of MVP. Give it another year after that, and I think it could be meaningful.

I went through -- because I've been in the alarm business for a long time, I went through alarms without recurring revenue. Imagine, in the early years, it was just a hardware job that was put in by a dealer. There was no recurring revenue, and the dealer went on to another hardware job. And then, the intro of recurring revenue in the alarm business revolutionized that business. Every job that goes in, intrusion of fire, has a recurring revenue communicator in it, and it gives great service to the occupant of the building, the owner of the building. So, that change, it took a couple, 3 years for dealers to understand why you want to build equity in your business. You just don't want to do a job and do another job after that without having a recurring revenue tail.

We're going through the same situation now in the locking business, 25 years later. The locking business is such that a dealer will put in a locking job, either a large building or smaller buildings, and then they go on to the next job, but there's no equity building, no recurring revenue. We are unique in the business, having the fact that we make the locks, we make the radios and that the locksmiths and the integrators don't get recurring revenue from this type of service. And we believe, like it happened in the alarm business, there's going to be a changeover that locksmiths are going to want to get recurring revenue tail to everything they do. And that's what we're doing now. Patterning ourselves after the original alarm business, now we're bringing it to the locking business, and we're unique in the fact that we're the company that can do that because we have all these different facets that we've knitted together to make an integrated manufactured locking product and a cloud product for these locksmiths and for the system integrators. So it's going to be an exciting ride going forward. Just piling on more recurring revenue is the name of the game for us. We've become a communications type of company, and it's going to grow ever larger.

Just as a quick follow-up on that point, so as we look to FY '27, do you have a sense for what portion of your total service revenues could be tied to the locking products as opposed to the alarm?

I think it's premature for us to throw out projections like that. I would just say, I think it would be meaningful and just leave it at that.

Just think about how many doors are out there and how many commercial buildings. This is all commercial. This is not residential. And what information you can get from every door who comes in, in case of emergencies, what's going on in the hospital, in the drug area, where the drug cabinets are, and you get instant information and reports, doing time and attendance and all kinds of other great things, knowing everything that goes on in every door in the building that has an MVP system, locking system installed on it. I would say that if you don't have this type of system a couple of years from now, you're really in the blind as a management company or as a security department in an industrial building. You've got to have this information. You shouldn't be in the blind. And MVP will give it to everybody. And it's very, very economical, very reliable because it's all built using our StarLink communications program.

Next up, we have Jaeson Schmidt with Lake Street.

Curious if you can give us an update on how ADI is progressing.

ADI relationship, excellent. They do a great job over there. They move a lot of intrusion equipment on our behalf. I couldn't be happier with the exception of one thing. I'd like more locking sales out of them, and we told them this. They're great with the alarm side. We think there's an opportunity for locking through them. They have over 100 branches. I think it's 115 branches, and it would be nice to move locking through those 115 branches. Absent of that, they're doing a very good job, very happy.

Let me add something to that. There's lots -- there are many, many dealers, and a larger percentage of dealers are going to be doing locking jobs. These are the alarm dealers that do fire and burger alarm jobs, but they're not doing -- not a large percentage of doing locking. They're just staying into the alarm sector of the business. Now, with recurring revenue added on to the locking jobs, it's not just a hardware installation. It's a recurring revenue generator for them. It adds to their fire and burger alarm recurring revenue. And we're going to be training lots of these locking dealers to utilize it and lots of the alarm dealers to utilize it and vice versa. So we're going to be doing a lot of cross-training so that a dealer can be a total wraparound business. He gets recurring revenue from his alarms and he gets recurring revenue from his locking installations and vice versa.

So ADI is a great vehicle because they're the largest distributor. They should -- they will, I'm sure, enter into the locking business all across the country, and it's going to be great for market share for us because we're the only alarm manufacturer that has a locking division, and we're the only locking manufacturer that has an alarm division designing and manufacturing all these things. So we're a natural play for the whole locking and alarm industry. We have 3 locking companies, Marks and Alarm Lock and Continental, and we have the NAPCO burglar and the fire alarm business. So we really have the widest range of products out there. Great partners with ADI, and they're a great company. They're really buttoned up.

Okay. That's helpful. And then, just as a follow-up, sorry if I missed it, but when will the price increase go into effect to account for the T-Mobile compatibility?

We're studying that now, Jaeson. We're very cautious with the pricing for the recurring. But it's very clear that we're adding a cost that we're not being compensated for. So we're looking at it. And I would say it's imminent, but we haven't decided it yet.

[Operator Instructions] Our next question comes from Lance Vitanza with TD Cowen.

So I wanted to talk a little bit about the school security side. And I think it was about a year ago that you announced the Pasadena school contract. I'm wondering what the status is of that, how far along that is or how it went? Any sort of lessons to learn or just how that sort of leaves you feeling about the opportunity more broadly?

That project went well. It's been completed. The opportunities are still tremendous throughout the country. You see all the shootings that are still going on. You still see the announcement that barricade chairs in front of the doors. These are all things we all have been hearing for over 10 years. And unfortunately, a lot of the schools, school districts move very slowly. We do our best to go around the country and show the school districts if they have any issues with money, how to go about getting the money. There's lots of money available. A lot of funds have been allocated to school security. It's there. The universities have no issues. They have the money, and they have the needs as well. Despite the shooting has been going on for over 10 years, we're in the early innings, I would say, fourth or fifth inning of this. Still tremendous opportunity. We win a lot of business, and we don't -- we're not able to tell you about it unless the school grants it, grants us permission. And sometimes, we don't even know about it because the distributors just are doing a job for a school district and they buy a lot of our equipment. We know it's meaningful. We know there's a lot more to go. We know we have the solutions. We know we're the only company because we do locking and access and alarms. We're the one-stop shop that a lot of schools need. So we just keep going out there and getting that word out.

Yes. We manufacture locks, which are inexpensive for K-12s, and then we manufacture versions of that lock with remote control to them, so you can lock doors remotely, do wide area campuses with our locks. And it's a very diversified line of wide-ranging locks. And as Kevin said, we manufacture the locking, the lock set. We make the parts. We assemble it. We do the radios. We have the cloud. We have all of that experience, and schools appreciate it, and we're doing very nice school work. And -- but still, even after hundreds of shootings a year in the U.S. -- it's a tragedy -- a lot of schools haven't installed it yet. So the fourth or fifth inning of the installation availability. So there's a lot more to do. So schools that make great choices will select the NAPCO system, and we can be flexible from the smallest to the largest campuses out there. So it's a great thing that we're manufacturing that. We want to protect the students and the faculty. And with NAPCO, you can. So our guys are beating the bushes and showing this to these facilities. And eventually, everybody will get armed up against intruders that come into schools and cause havoc.

If I could just get one more in on the balance sheet. Cash at $106 million, that's as high as it's been in my memory, recent memory. What do you plan to do with all that cash? I know you talked about possible M&A. The dividend, I mean, you're covering that out of your cash flow. So -- and I'm guessing that the amount of cash that you actually need to run the business is a small fraction of what you had -- what you have. So can we be thinking about any kind of accelerated return of capital to shareholders in 2026?

It's a good problem to have, Lance. We keep generating more and more cash. There's not a lot of M&A that's required to run the business. You heard in Andy's comments that CapEx was minimal. We need lots of labor, and we can get it in the Dominican Republic. So the needs for cash dividends, potential acquisition, we have lots of bankers talking to us. Every banker tells us they have the perfect deal for us, but we're pretty fussy. There's a lot of boxes it has to check. We don't want to be distracted. But if it's the right deal, we certainly would proceed. And there are -- I'm sure there are companies out there, and we go through -- as the bankers present them, we go through them all. And if one hits the right spot, we'll go after it. The last thing we want to do though is get distracted by something that's not accretive from day 1. We don't want to overpay, but it could be a good thing. And we're in a good position to do it much better than the position we were in when we did our last one 15 years ago when we had minimal cash, lots of debt and no recurring revenue. So we got a lot of cash, lots of recurring, no debt. We could do it. It's got to be right.

There seems to be no further questions at this time. So I will now turn the call over back to Richard. Please continue.

Thank you, everyone, for participating in today's conference call. As always, should you have any further questions, feel free to call Fran, Kevin, Andy or myself for further information. We thank you for your interest and support, and we look forward to speaking to you all again in a few months to discuss NAPCO's fiscal Q2 results. Have a wonderful day, everybody. Bye-bye.

Thank you, Richard. Thank you, everyone. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to the NAPCO Security Technologies Fiscal Q4 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Monday, August 25, 2025.

And I would now like to turn the conference over to Francis Okoniewski, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, Anna, and good morning, everyone. This is Fran Okoniewski, Vice President of Investor Relations for NAPCO Security Technologies. Thank you all for joining today's conference call to discuss financial results for our fiscal fourth quarter and fiscal year 2025. By now all of you should have had the opportunity to review our earnings press release discussing our fiscal fourth quarter, and fiscal year 2025 results. If you have not, a copy of the release is available in the Investor Relations section of our website, www.napcosecurity.com.

On the call today are Dick Soloway, our Chairman and CEO; Kevin [ Buchel ], President and Chief Operating Officer; and Andrew Vuono, 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, reoccurring 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 were 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, and 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 D.A. Davidson's 24th Annual Diversified Industrials & Services Conference in Nashville, Tennessee. And on October 8, [ Link Street ] will host a virtual non-deal road show 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.

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 macroeconomic 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 a 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 protect margins and ensure long-term competitiveness. The pricing adjustments we have implemented are a key part of that, and we expect to see its impact starting in Q1.

We entered 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 Vuono 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.

Thank you, Dick, and good morning, everyone. I'm pleased to start off by highlighting several key accomplishments and financial milestones from Q4 fiscal year 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 reported 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 2 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 Q3 of fiscal 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 StarLink 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've paid out $13.6 million of dividends and repurchased $36.8 million of our stock, which is equivalent to 1.2 million shares at an average price of $3.40. 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, at the end of 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 which 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, gives 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 Vuono, for a deeper dive into the financials. Andy?

Great. Thank you, Kevin, and good morning, everyone. Net sales for the 3 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 12 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 12 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 [indiscernible]. 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 destock and strategies of some of our larger distributors throughout the year, in addition to the timing of large project work for our [ dual locking ] business. Gross profit for the 3 months ended June 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 12 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 12 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 for 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 [indiscernible] for the 12 months ended June 30, 2025, and 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 [indiscernible] 12 months ended June 2025 was primarily the result of the previously mentioned increase in recurring revenue, as well as a great proportion of these revenues being generated by our [indiscernible] which generate higher monthly service charges, and other [ stalling radios ]. The decrease in both gross profit dollars and gross margin for equipment revenues for both the 3 and 12 months ended June 2025 was primarily a 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 power costs in the fourth quarter, and the impact of distributors pulling forward certain [indiscernible] 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 12 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. Increase for the 3 and 12 months was a result of salary increases and the [indiscernible] 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 12 months ended June 2025 increased 13.5% to $42.2 million, or 22% of net sales, as compared to $37.1 million or 20% of sales for the same period last year. The increase in SG&A for the 3 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 the 12 months was primarily due to increases in precedent-related expenses, mainly from merit increases and hiring of 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 for the 12 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 the 3 months increased 16% to $883,000, as compared to $762,000 last year. For the 12 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 3 and 12 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 3 months increased by 12% to $145,000 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 12 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 3 and 12 months ended [ June '25 ] was due to a larger portion of our taxable income being attributable to the U.S. 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. Management for the 12 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 for the same period last year, and represents 24% of net sales. Adjusted EBIT 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 12 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 12 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, that's 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 ] 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.

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 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 and 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 to 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 architect locksets to enterprise scale Continental [ CA4K ] access control systems. These platforms are secure, scalable and aligned 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, orphan 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 at Education, we continue to invest heavily in R&D to expand recurring revenue opportunities across our product lines. One of the most exciting of these is our MVP platform, a next generation of cloud-based access control systems that integrate seamlessly with our locking hardware. It represents a brand-new reoccurring 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 [ ending ] fiscal 2026 with a solid momentum, priority of focus and a strong financial foundation. Let me repeat. In summary, we are entering fiscal 2026 with a solid momentum priority of focus and a stronger financial foundation. We've built a resilient business model that continues to deliver even in a challenging environment. I'm incredibly proud of our team, what it has accomplished, and I'm energized what lies ahead. I'd like to thank everyone for their support and for joining us in this exciting future [ year ].

Our formal remarks are now concluded, and I'd like to open the call to the Q&A session. Operator, please proceed.

[Operator Instructions] And your first question comes from the line of Matt Summerville from D.A. Davidson.

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? And then I have a follow-up.

So Matt, the inventory that was bought pre-tariff price increase was done in April pretty much. So that's 4 or 5 months 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 that changed in the fourth quarter. So our fourth quarter sales was 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 Dominica Republic is 10%. All of our competitors are either in Asia, or in Europe, and Europe is now 15% in Asia, who knows what that's going to 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.

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. We have another quarter or 2 of that sort of magnitude of sequential increase based on timing of historical activations of fire radios. And then given kind of 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?

So we went up $5 million. We saw this coming. I don't know it's going to 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 of 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 than us. I don't know if it will be $5 million, but I think it will 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. It doesn't come immediately, but it comes after maybe 6, 8, 9 months later. So we expect the increases to keep coming for the foreseeable future.

And 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 '26, I should say?

Well, given we took two increases, the 8.5% to offset the tariffs, and the 5%, which is a straight price increase. This -- our belief is that we will grow double digits. We can't -- we take it quarter by quarter. We have very easy comps this year, in my opinion. Qs 1, 2 and 3, especially. So it's not a hard task from my perspective, but we got to perform.

And your next question comes from the line of Jim Ricchiuti from Needham and Co.

Is maybe a tougher question to answer. But yes, you sometimes are a little bit further removed from the end demand. So 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?

Well, we talk about sell-through stats all the time. The sell-through stats that I have talked about is usually relates 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 still 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 sale, waiting to see what happened, that has subsided. We talked a lot about [ WESCO ] in the past. They seem to be getting their app together more. So I think it bodes well. ADI is doing really well with us. I think it bodes well for Q1, but we got to perform.

Picking out a little further than the quarter here in 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 going to expand markets for everybody, and you will see this evolving as the years go by.

Andy, maybe a question for you. With the price increase, the first price increase, some of that obviously hit was passed in April, there was -- I presume some benefit in the June quarter. And I'm wondering two things.

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?

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, 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, a limited benefit of our price increases based upon time of what is replaced.

I think from a dollar perspective, it probably impacted the COGS by about $1 million and something short of $1 million. And pretty much all of the items that were subject to the tariff in Q4 was sold through, and the vast majority was shipped out by [indiscernible] so we had pretty much a straight [indiscernible] hit in Q4, but we're expecting going into Q1, those pricing adjustments are now in place, and we're expecting to see a lift from them moving forward.

[Operator Instructions] And your next question comes from the line of Peter Costa from Mizuho.

Congrats on the quarter here. Maybe if you could just start with some details on the MVP and [indiscernible] launches. 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?

The MVP, the cloud operated system, which allows the security company that puts us 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 [indiscernible] 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 in two basic models. One is enterprise class those large enterprises and also smaller buildings and smaller businesses. And we expect that there are so many doors out there, and 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 [indiscernible] fire and emergency. So this is going to be quite an exciting product for us going forward.

And we're going to 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 going to be a great contributor.

Okay. And then maybe just back to the ARR increase. So that $5 million sequential increase was very encouraging. 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 revenues in the beginning of 2026? How are you guys thinking about that?

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.

And your next question comes from the line of Jeremy Hamblin from Craig-Hallum Capital.

Congrats on the results. I wanted to come back to churn rates that you were seeing, in whether or not kind of the price increases are having any impact? And whether or not you're -- 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?

So Jeremy, is we don't really have any churn, churn being accounts that disconnect from us, from our radios, as we're mostly commercial. So our churn is inconsequential as it pertains to commercial radios. 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 amount we charge every month. There was some talk that maybe we should. We didn't take a price increase on the radios themselves. Maybe that was talked -- 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 $0.50 or $1 we could potentially charge in 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 has worked pretty well. In 10 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.

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 the -- either the dividend payout rate? Or are you thinking about adding on to the current buyback program?

The dividends we've raised that, I don't know, at least 3, maybe 4x. So we didn't really talk about it. We announced another dividend. We kept it the same $0.14. Certainly, having increased it 4x 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 [ year ] as we go forward.

[Operator Instructions] And your next question comes from the line of Jason Schmidt from Lake Street Capital Markets.

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?

Well, we saw -- my comment about sell-throughs in the June quarter, I don't really comment on the quarter that were written out. 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 like I've 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 6, 8, 9 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 ones that were [ written ] down. We'll talk about it more when we're able to, [ but ] we can. 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, the [ Waldorf Hotel ] in Manhattan. So that makes 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.

Got you. 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?

The school business is steady, steady, good, steady, strong. I wish it was more. It's frustrating. There was an incident that [ Villanova ] last week, it wasn't [indiscernible] 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, [indiscernible] a very well-known school, that still has to upgrade. And our sales guys better be talking to [indiscernible] 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.

There are no further questions at this time. I will now hand the call back to Mr. Richard Soloway for any closing remarks.

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.

And this concludes today's call. Thank you for participating. You may all disconnect.