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Introduction & Market Context
NAPCO Security Technologies Inc (NASDAQ:NSSC) presented its fiscal fourth quarter 2024 results in an August 2024 investor presentation, highlighting the company’s continued transformation into a recurring revenue-focused security technology provider. As the only company offering products across all three major security verticals—Alarms & Connectivity, Locking, and Access Control—NAPCO is strategically positioned to capitalize on growing demand for integrated security solutions.
The company operates in substantial and expanding markets, with the North American commercial security market projected to grow from $83.5 billion in 2021 to $121.4 billion by 2026, representing a 7.7% CAGR. Similarly, the global school security market is expected to grow at an 11.3% CAGR from $1.5 billion in 2020 to $3.1 billion by 2027.
As shown in the following overview of NAPCO’s business segments and key performance indicators:
Executive Summary
NAPCO delivered strong financial results for its fiscal fourth quarter ended June 30, 2024, with record quarterly sales and significant growth in its high-margin recurring revenue business. The company’s strategic focus on recurring revenue services continues to drive profitability improvements and cash generation.
Key highlights from the quarter include:
Sales reached a quarterly record of $50.3 million, increasing 13% year-over-year, while recurring revenue grew 27% to $20.4 million. This recurring revenue stream now represents 40% of total revenue, up from 35% in fiscal 2023, and generates an impressive 90% gross margin, an improvement of 100 basis points from the previous year.
The company’s profitability metrics were equally impressive, with adjusted EBITDA increasing 18% year-over-year to $15.4 million and net income rising 28% to $13.5 million. GAAP diluted earnings per share came in at $0.36, and the company maintained a strong balance sheet with $97.7 million in cash and investments and zero debt.
Detailed Financial Analysis
NAPCO’s transformation into a recurring revenue business has been remarkable, with recurring revenue growing at a 38.2% CAGR since 2017. The following chart illustrates this growth trajectory:
Recurring revenue has increased from just $7.9 million (9.1% of total revenue) in 2017 to $75.7 million (40% of total revenue) in 2024. The company has set a long-term target of $150 million in recurring revenue, which would represent approximately 50% of total revenue.
This shift toward recurring revenue has significantly enhanced NAPCO’s profitability profile, with recurring revenue gross margins improving from 75% to approximately 90%. The company’s overall financial performance has shown consistent improvement over the past five years, as demonstrated in the following chart:
Revenue has grown at a 16.9% CAGR from 2020 to 2024, while adjusted EBITDA has increased at an even more impressive 44.8% CAGR during the same period. Adjusted EBITDA margin has expanded from 13.8% in 2020 to 31% in 2024, reflecting the company’s improved operational efficiency and the higher contribution from high-margin recurring revenue.
NAPCO’s balance sheet remains exceptionally strong, providing flexibility for future investments and potential acquisitions:
Strategic Initiatives
NAPCO’s growth strategy centers on its unique integrated platform that spans the full security spectrum, offering solutions across three key verticals:
The company’s product portfolio includes a differentiated range of high-margin recurring services targeting various market segments:
NAPCO is particularly focused on the school and campus security market, which represents a significant growth opportunity with 131,000 K-12 schools and 5,300 colleges and universities in the United States. The company’s integrated security solutions address critical needs in this sector, including access control, lockdown capabilities, and emergency communication systems.
Several secular trends are driving increased investment in security and safety solutions, creating tailwinds for NAPCO’s business:
Forward-Looking Statements
NAPCO has outlined ambitious long-term financial goals, targeting $300 million in total revenue (up from $188.8 million) and approximately $150 million in recurring revenue (up from $75.7 million):
The company plans to achieve these targets by continuing to innovate across its product portfolio, with a particular focus on cloud-based and cellular-enabled solutions that generate recurring revenue. New offerings like the Prima for Home and Prima for SMB/Light Commercial Business platforms, as well as the upcoming MVP Access cloud-based scalable access control platform, are expected to drive future growth.
In the recent Q3 2025 earnings call, CEO Dick Soloway noted that recurring monthly revenue had reached 49% of the business, approaching the company’s long-term target of exceeding 50%. CFO Kevin Buchel emphasized the recession-resistant nature of NAPCO’s business, highlighting the stability of the security market even during economic downturns.
While the Q3 2025 results showed some challenges with revenue declining 10.8% year-over-year to $43.96 million, the company still managed to beat EPS expectations with $0.36 per share, driving an 8.26% increase in the stock price. This performance underscores the resilience of NAPCO’s business model and the value investors place on its recurring revenue growth.
As NAPCO continues its transition toward a predominantly recurring revenue business model, the company appears well-positioned to capitalize on growing demand for integrated security solutions across commercial, school, and residential markets, while maintaining strong profitability and a solid financial foundation.
Full presentation:
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