NAPCO Security Technologies (NASDAQ:NSSC) reported record fiscal first-quarter revenue, net income and adjusted EBITDA for fiscal 2027, as recurring service revenue growth and expanding margins offset a decline in equipment sales tied largely to distributor purchasing patterns.
Net revenue increased 1.7% from the prior-year period to a first-quarter record of $50 million. Net income rose 6.9% to $13 million, or $0.36 per diluted share, compared with $0.34 per share a year earlier. Adjusted EBITDA increased 3.8% to a record $15.5 million, or $0.43 per diluted share, while adjusted EBITDA margin was 31%.
Chief Executive Officer and President Kevin Buchel said the company’s recurring-service business continued to be the principal driver of its results. Recurring monthly service revenue rose 11.5% to $26.1 million and represented 52% of total revenue during the quarter. The company estimated its prospective annual recurring revenue run rate at approximately $106 million based on October service revenue, up $3 million from the level reported in August.
Recurring Revenue Supports Margin Expansion
Recurring service gross profit increased 11.3% to $23.5 million, while service gross margin remained above 90% at 90.1%. Overall gross profit rose 5.4% to $29.4 million, and consolidated gross margin expanded to 58.7% from 56.6% in the prior-year quarter.
Buchel said StarLink radio communicators remain central to the company’s recurring-revenue strategy. Approximately 75% of NAPCO’s installed base consists of StarLink Fire radios, which are used in commercial buildings and generate what management described as the company’s most profitable recurring revenue.
Chief Financial Officer Andrew Vuono said intrusion product sales, including StarLink radios, increased 1.7% during the quarter. Fire-radio activations rose more than 8% year over year and nearly 3.5% sequentially, which management views as a leading indicator of future service revenue growth.
“We think from a—and you saw it from the run rate growth—that we continue to see growth in the radio sector and double-digit growth,” Vuono said.
Equipment Sales Affected by Distributor Buying Patterns
Equipment revenue declined 7.3% to $23.9 million. Locking revenue fell 10.1%, while the broader intrusion and access-control category decreased 1.8%. Access-control product sales declined 13.8%, offsetting growth in intrusion products.
Management attributed the equipment decline to two factors: a difficult comparison with the prior-year quarter, which benefited from backlog demand before tariff-related price increases, and reduced purchases by two large locking distributors that were working through inventory.
Buchel said the distributors’ sales to end customers increased both sequentially and from the prior year, signaling that underlying demand remained healthy. He said sequential sell-through at the two distributors rose by double digits, while year-over-year sell-through increased about 5%.
“Distributor purchasing patterns can affect quarterly revenue, but strong sell-through remains our best indicator of end customer demand,” Buchel said.
The company said channel inventory was not bloated. Buchel said distributors are generally holding about two months of inventory, compared with three months that NAPCO historically encouraged, but he did not see excess inventory levels that would constrain demand.
Equipment gross profit decreased 13.2% to $5.8 million, and equipment gross margin fell to 24.3% from 26% a year earlier. Vuono cited product mix in the locking segment, higher Section 301 tariff costs and technical-services costs. For the full fiscal year, he said the company expects equipment gross margins in the range of 26% to 27%, driven primarily by higher volume and a more favorable mix of electronic locking products.
Spending, Cash Flow and Capital Position
Research and development expense rose 25.1% to $4.1 million, reflecting salary increases, additional engineering personnel, stock-based compensation, benefits and engineering supplies. Selling, general and administrative expense increased 11.1% to $12.1 million, primarily because of higher legal and professional fees.
Vuono said R&D spending should remain near the first-quarter level, while most other general and administrative expenses should be relatively flat year over year. Legal costs may remain elevated while the company works through litigation disclosed in its filings.
During the quarter, NAPCO recognized a $1 million benefit related to the difference between its accrued litigation settlement cost and the amount ultimately paid, as insurance carriers covered more than initially estimated. Free cash flow fell 79.8% to $2.3 million, largely because the company paid a $15 million litigation settlement during the period.
As of Sept. 30, NAPCO had $134.6 million in cash equivalents and marketable securities, $175.2 million in working capital and no debt. The company also announced a quarterly dividend of $0.17 per share, payable Jan. 4, 2027, to shareholders of record on Dec. 14, 2026.
Growth Initiatives Include OEM, MVP and Canada
Management highlighted several initiatives intended to expand channels and recurring revenue. Buchel said partnerships with original equipment manufacturers involving NAPCO radio communicators could provide the most immediate financial impact, alongside the company’s newly obtained UL-C certification for radios in Canada.
The certification allows NAPCO to sell its communications solutions in Canada, which Buchel described as a sizable growth market. He said the primary investment needed for the expansion would be dedicated sales personnel.
The company is also promoting MVP, its cloud-based access-control platform that integrates with NAPCO locking hardware. A new national dealer signed on during the quarter to include MVP in its offerings, and NAPCO is training the dealer’s sales organizations across multiple locations. Buchel said MVP could ultimately have the largest recurring-revenue potential among the company’s initiatives, though dealer training remains the primary obstacle to broader adoption.
NAPCO is also developing an architecture and engineering specification program, with 40 product-specific offerings expected to be completed by the end of the calendar year. Those offerings are expected to be available through a new portal beginning in April 2027. The company said it is seeing demand across schools, airports, high-rise buildings, hospitals, healthcare, retail and multifamily housing, although management did not provide revenue detail by end market.
About NAPCO Security Technologies (NASDAQ:NSSC)
NAPCO Security Technologies, Inc develops, manufactures and sells electronic security products and solutions for commercial, institutional, industrial and residential applications. Its offerings include intrusion alarm systems, access control systems, fire alarm products, locking systems and related communications technologies.
The company markets products under brands that include NAPCO, StarLink, Alarm Lock, Continental Instruments and Firewolf. Its solutions are designed to support security dealers, alarm monitoring providers, systems integrators and other professional-channel customers, including applications in schools, healthcare facilities, businesses and government buildings.
Founded in 1969, NAPCO is headquartered in Amityville, New York.
