NAPCO Security Technologies, Inc. (NSSC)

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NAPCO Security Technologies, Inc., (NSSC)

F2Q 2014 Earnings Call

February 10, 2014 11:00 a.m. ET


Richard Soloway - President and Chairman

Kevin Buchel - Senior Vice President of Operations and Finance

Peter Seltzberg - Hayden IR



Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the NAPCO Security Technologies Inc. 2014 second quarter financial results conference call. [Operator Instructions] I will now like to turn the conference over to Peter Seltzberg of Hayden IR. Please go ahead, sir.

Peter Seltzberg

Thank you. Good morning. Thank you all for joining us for today's conference call to discuss NAPCO's financial results for the second quarter ended December 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, we'll immediately send it to you by either fax or e-mail. On the call today is Richard Soloway, President and Chairman of NAPCO Security Technologies; and Kevin Buchel, Senior VP of Operations and Finance.

Before we begin, 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 may 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 now to Richard Soloway, Chairman and President of NAPCO. Dick, congratulations on another solid quarter. Please go ahead, sir.

Richard Soloway

Thank you, Peter. Good morning, everyone. Thank you for joining NAPCO's quarterly conference call to discuss the financial results for the three months and six months ending December 31, 2013. I am proud to report that the second quarter of fiscal 2014 was the strongest second quarter in five years in terms of revenue, adjusted EBITDA and net income. In addition, our six months year-over-year results were equally solid. These results also show sequential improvement from the fiscal 2014 first quarter in revenue, gross profit, operating income and net income.

Our efforts to transition from a traditional security manufacturer to a company offering some of the most advanced technologies in the industries are helping us grow our revenue and market share. In addition, we have added recurring revenue to our revenue stream and this too is contributing to our growth. Our subscription based service product lines deliver recurring streams and continue to show significant and accelerating growth. These include our iBridge Connected Home, our iSee Video remote video products, and StarLink wireless communication product lines.

Activations and market penetration continued to increase as consumer interest in broadband, internet space, remote control, home automation expands. Recurring revenue for the second quarter increased 115% and for the six months increased to 113%, and grew sequentially by 30%. Our top line results in both periods contributed favorably to the bottom line, demonstrating the strong business model we always speak about. Bottom line results were also favorably impacted by the continuing decrease in interest expense which resulted from lower interest rate and lower debt levels.

These metrics are being driven by two catalysts in the market place which have only recently emerged and are still in the early adoption stage. One is the emergence of the connected home, the second is the urgent and escalating need for sophisticated school security systems to protect students and teachers, young and old, at educational facilities across our nation. Unfortunately, this is the result of the all too frequently occurring gun violence in schools, universities, colleges, and additionally public venues like government buildings and retail shopping malls.

NAPCO has the products to make it safer and our Continental and Networx products are among the top choices for integrators to deploy and schools such as Notre Dame High School, Pepperdine University, the LA Unified School District, NYU, Columbia, Memphis City Schools and other schools and universities nationwide. Our focus over the last two years are diversifying our product line and developing sophisticated products that are scalable and interoperable to deliver a one-stop shopping experience for our dealers, has us well positioned to address these two compelling market drivers.

The trend towards technology to facilitate a connected home is clear and NAPCO's comprehensive iBridge solution enables users to remotely manage thermostats, locks, lighting, video cameras, security systems and small appliances via most smartphones. Built on proprietary patented technology, iBridge is the most flexible, product rich home automation security systems suite of broadband-based connected home solutions on the market today. iBridge works with Wi-Fi, Z-Wave as well as wired and wireless tablets. The architecture of our iBridge system allows any components to communicate in real time with any other part of the system, making permutations of value to the consumer endless. Additionally, text, email and video notifications are sent to users notifying them of any important status conditions or events via free NAPCO proprietary apps when using a Smartphone, tablet or any available internet-connected PC.

Most of these capabilities have been built in-house representing state-of-the-art proprietary technology that is unmatched by any of our competitors. Our iBridge system is the most is the most feature rich option in the connected home category when it comes to video. Our platform uses modern 4G connectivity delivering unrivalled ability to transmit, real time, high resolution and frame rate video consumers, anytime, anywhere to any internet enabled device. By contrast, most of NAPCO's competitors rely on limited bandwidth cellular networks and as a result are limited to distributing low quality, still snapshots rather than true video.

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