NAPCO Security Technologies, Inc. (NSSC)

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Napco Security Technologies (NSSC)

Q3 2013 Earnings Call

May 13, 2013 11:00 am ET


Peter Seltzberg - Regional Vice President - New York and Partner

Richard L. Soloway - Chairman, Chief Executive Officer, President and Secretary

Kevin S. Buchel - Principal Financial Officer, Principal Accounting Officer, Senior Vice President of Operations & Finance, Treasurer and Director


Walter Christopher Ramsley - Walrus Partners, LLC



Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the NAPCO Security Technologies, Inc. Fiscal Third Quarter 2013 Earnings Conference Call. [Operator Instructions] I will now turn the presentation over to Peter Seltzberg, Vice President of Investor Relations. Please go ahead, sir.

Peter Seltzberg

Good morning, and thank you all for joining us for today's conference call to discuss NAPCO's financial results for the third quarter ended March 31, 2013. By now, all of you should have had the opportunity to review the press release discussing the results. If you have not, please call our office, Hayden IR at (646) 419-4300, and we'll immediately send it to you by either fax or e-mail.

On the call today is Richard Soloway, Chairman and Chief Executive Officer of NAPCO Security Technologies; and Kevin Buchel, Senior VP of Operations and Finance.

Before I ask our host, Dick Soloway, CEO of NAPCO, to discuss the particulars of today's news, let me take a moment to read the forward-looking statement.

This conference call may contain forward-looking statements that involve numerous risks and uncertainties. Actual results, performance or achievements could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those set forth in the company's filings with the SEC.

With that out of the way, let me turn the call over to Richard Soloway, President and Chief Executive Officer of NAPCO Security Technologies. Dick, please proceed.

Richard L. Soloway

Thanks, Peter. Good morning, everyone. Thank you for joining NAPCO's quarterly conference call to discuss the financial results for the 3 months ending March 31, 2013.

The third quarter progressed with mixed results, with progress in certain key areas, both in terms of sales and contribution to our profitability, tempered by continued weakness in our intrusion business, primarily due to Superstorm Sandy and what we would consider a normal learning curve response to the new products that we've just recently introduced to the market. The strength was in the our locking products and in particular, our Marks division product line, which has shown consistent recovery over the last 3 quarters, and I'll get to that in a moment.

Looking to our fourth quarter, which we are already just about halfway through, we are excited about our positioning as a technology leader with new products out in the market. We have seen new products start to ship, with both product and recurring revenue sales. We think as time passes and basic homes and furnishings are restored to those affected by Superstorm Sandy, people will again start to emphasize the security of their home and will choose our products. And historically, the fourth quarter has always been our strongest for bookings, orders and revenues. So we remain highly confident in our ability to grow and materially scale the business.

Now speaking further to the progress we have made in our Marks division, we are encouraged to report that this segment grew 29% in the third quarter compared to last year's third quarter. Marks has turned the corner in our first fiscal year -- quarter of this year, has been growing substantially and year-over-year ever since, and is now exceeding our expectations. Our pipeline for this segment continues to expand, particularly with our LocDown product group. Since the unfortunate incident in Newtown, Connecticut, administrators of schools around the country, from elementary schools to university campuses are pursuing better locking devices on all of the doors to protect their students, teachers and employees from violent attacks and security breaches within their respective domains. Our Marks division has the most effective products on the market for this and after 3 improved quarters in a row, we are confident that this part of the business will continue to grow in our fourth quarter and beyond. In addition, we are also seeing strong improvement in the construction industry and this will also add to revenue expansion in this product line.

Beyond the improvements in Marks, we also generated solid increases in NAPCO's high-margin commercial locking division revenue and increases in recurring revenue from installations of our StarLink2 radios. As a result, we continue to be encouraged by the growth in our recurring revenue streams. The StarLink2 radio delivered a 20% sequential increase in radio installations as compared to the second fiscal quarter. While we have made several recurring revenue products, StarLink2 is our marquee product and is leading the way for us.

As I mentioned, the weakness in our intrusion segment, which is still feeling the impact, especially in the Northeast from the hurricane, was offset to our gains. This region is one of our largest overall in sales, so the negative impact of the storm is significant. While we are confident that the need for safer and more secure environments is a trend that is here to stay, we have found that homeowners still remain focused on purchasing the basic materials and furnishings to rebuild their homes. We expect that our opportunity to provide intrusion devices and services to resume, but when is hard to say with any degree of certainty.

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