NAPCO Security Technologies, Inc. (NASDAQ: NSSC), one of the world's leading manufacturers of high-tech electronic security devices that are fueling the Company's fast-growing recurring service revenues, as well as a leading provider of school safety solutions, today announced financial results for its fourth quarter and fiscal year ended June 30, 2020.

Financial Highlights:

• The COVID-19 pandemic has caused difficulties for security equipment professionals getting access to both commercial and residential installation sites. The Company believes this access issue is an industry-wide issue related to COVID-19 and not reflective of the loss of any market share unique to the Company or any long-term negative reflection of the post-pandemic vibrancy of the security industry as a whole.
• Net sales for the quarter decreased 22% to $23.0 million as compared to $29.6 million for the same period last year. Net sales for the fiscal year decreased 2% to $101.4 million as compared to $102.9 million for the same period last year.
• Recurring service revenue for the quarter increased 35% to $6.7 million as compared to $5.0 million for the same period last year. Recurring service revenue for the fiscal year increased 38% to $24.0 million as compared to $17.4 million for the same period last year. Recurring service revenue now has a prospective annual run rate of $27.5 million based on June 2020 recurring revenues.
• Gross Margin for recurring service revenue for the quarter was 83% as compared to 78% for the same period last year. Gross Margin for recurring service revenue for the fiscal year was 82% as compared to 78% a year ago.
• Adjusted EBITDA* for the quarter was $1.5 million as compared to $5.2 million a year ago. Adjusted EBITDA earnings per share for the quarter was $0.08 as compared to $0.28 for the same period a year ago. Adjusted EBITDA* for the fiscal year was $14.7 million as compared to $15.0 million a year ago. Adjusted EBITDA earnings per share for the fiscal year was $0.80, as compared to $0.81 for the same period a year ago.
• Non-recurring expenses relating to one-time charges to income taxes and intangible impairment totaled $3.4 million.
• Net income for the quarter decreased to $(1.9) million from $4.7 million a year ago. Earnings per share (diluted) for the quarter was $(0.10) as compared to $0.26 for the same period a year ago. Net income for the fiscal year was $8.5 million as compared to $12.2 million a year ago. Earnings per share (diluted) for the fiscal year was $0.46, as compared to $0.66 for the same period a year ago.
• Cash and cash equivalents were $18.2 million at June 30, 2020 as compared to $8.0 million at June 30, 2019.

Richard Soloway, Chairman and President, commented, "Our fourth quarter results reflect the challenging business environment resulting from the COVID-19 pandemic as well as the strength of our business model. Our recurring service revenues have remained strong with a 35% growth for the fourth quarter despite these challenges. Gross margins for recurring service revenues also continued to be very strong, increasing to 83% for the quarter and 82% for the year. During the quarter we executed in three key areas: (a) driving sales growth in recurring revenue while increasing gross margins, (b) continuing to invest in exciting new technologies that will expand our recurring revenues into all segments of the Company and help keep people safe in difficult times where burglaries and homicides are on the rise across the nation and (c) continuing to tightly manage our costs. Equipment sales for the fourth quarter for both commercial and residential applications were impacted as alarm and locking dealers faced restrictions on building and home access. However, recent feedback from our distributors indicates increased sell-thru of our product to our dealers. Home sales in many non-urban areas are also increasing. The Company views both of these as positive signs.

We were very pleased with the recurring revenue growth, especially from fire radios, which helped fuel the increase in recurring gross margins this past quarter. We continue to see the retirement of POTS or copper telephone land lines which presents an opportunity for installers to upgrade older fire systems, and for new projects to include cellular or other system technologies. The government no longer requires that POTS lines be maintained and we are seeing a shift of the millions of fire alarms in the market transitioning to cellular communications. Another opportunity for the Company is the upgrade and replacement of current cellular alarm reporting systems to meet the deadline for 3G and CDMA cellular sunset cutoffs over the next 18 months.

Our iSecure all-inclusive cellular alarm system, which was introduced at the end of December, continues to show promise. This new small business or residential security & connected home system offers the security dealer the lowest upfront equipment cost in the industry, easy installation, fast programming from a smart-phone or tablet, and a quick return on investment. Despite its low cost, iSecure offers all of the "bells and whistles" of an expensive component alarm system such as touch-screens, connected home devices and services, doorbell and video cameras, wireless carbon monoxide, smoke and glass break detectors, and extra keypads, key fobs and panics. This feature-rich system offers up to 80 intrusion and fire zones and can accommodate up to 96 users. While we are in the early stages of iSecure, the initial reaction to this product offering has been very favorable. Every iSecure is sold with a built-in Starlink radio, which gives the Company an opportunity to obtain recurring revenue when the alarm professional activates these radios on our network.

School security remains a focus for the Company. Despite the COVID-19 pandemic, many K-12 schools, as well as colleges and universities, are moving forward on school security projects as the summer months, with the absence of students, remains the ideal time for security upgrades. As a result, we have seen significant quoting activities for schools in certain geographic parts of the country. There are over 100,000 K-12 schools and over 10,000 colleges and universities with less than 10% of these institutions having adequate protection from an active shooter or intruder. With a full suite of products and solutions, NAPCO is uniquely positioned to meet the security needs of schools, as well as houses of worship and other places where people congregate.

In the upcoming fiscal year, the Company expects to introduce Air Access®, our new cellular access control (cloud- hosted) product line. Easy to install and operate, this cloud-based access locking system utilizes easy-to-connect cellular communication and does not have to be connected to the customer's IT system. The benefits to the end user include no required investments in IT personnel or hardware, no need for onsite data base, backups or software updates and it can be managed from any device. This is designed to generate recurring monthly revenue for locking dealers and, for the first time, generate recurring monthly revenue for the Company from its locking and access control divisions.

Mr. Soloway concluded, "Our focused commitment continues to be identifying new, large growth opportunities that will add incremental recurring service revenue sales and profitability to the Company while we continue to manage our costs and optimize our working capital. Our focus on these new areas provided a significant buffer to the COVID-19 impact on the Company's equipment sales. Before the COVID-19 pandemic began to significantly impact our country in March, NAPCO had achieved 23 consecutive quarters of year-over-year record sales. COVID-19 broke that streak. However, I am confident we will emerge well-positioned for the economic recovery to come and will soon start another record sales streak."

Financial Results

Net sales for the three months ended June 30, 2020 decreased 22% to $23.0 million, as compared to $29.6 million for the same period one year ago. Net sales for the fiscal year ended June 30, 2020 decreased 2% to $101.4 million, as compared to $102.9 million for the same period one year ago. Research and development costs for the quarter were $1.9 million for each of the quarters ended June 30, 2020 and 2019 and were 8% of sales and 6% of sales for the quarters ended June 30, 2020 and 2019, respectively. Research and development costs for fiscal year 2020 remained relatively constant at $7.3 million or 7% of sales as compared to $7.2 million or 7% of sales last year. Selling, general and administrative expenses for the quarter decreased 19% to $5.1 million, or 22% of sales, as compared to $6.3 million, or 21% of sales for the same period last year. Selling, general and administrative expenses for the fiscal year ended June 30, 2020 increased 2% to $23.7 million, or 23% of sales, as compared to $23.2 million, or 23% of sales for the same period last year.

Operating income before impairment for the three months ended June 30, 2020 was $1.0 million as compared to $4.8 million for the same period a year ago, Operating income before impairment for the fiscal year ended June 30, 2020 was $12.7 million, as compared to $13.5 million for the same period a year ago.

Net income for the three months ended June 30, 2020 decreased to $(1.9) million, or $(0.10) per diluted share, as compared to $4.7 million, or $0.26 per share, for the same quarter last year. Net income for the fiscal year ended June 30, 2020 was $8.5 million, or $0.46 per diluted share, as compared to $12.2 million, or $0.66 per share, for the same period last year.

During the quarter, the Company recorded non-recurring expenses relating to one-time charges to income taxes and intangible impairment, totaling $3.4 million.

Adjusted EBITDA* for the three months ended June 30, 2020 was $1.5 million, or $0.08 per diluted share, as compared to $5.2 million, or $0.28 per diluted share for the same period last year. Adjusted EBITDA* for the fiscal year ended June 30, 2020 was $14.7 million, or $0.80 per diluted share, as compared to $15.0 million, or $0.81 per diluted share for the same period last year.

Balance Sheet Summary

At June 30, 2020, the Company had $18.2 million in cash and cash equivalents as compared to $8.0 million as of June 30, 2019. Working capital (defined as current assets less current liabilities) was $62.8 million at June 30, 2020 as compared with working capital of $51.1 million at June 30, 2019. Current ratio (defined as current assets divided by current liabilities) was 5.0:1 at June 30, 2020 and 4.6:1 at June 30, 2019.

About NAPCO Security Technologies, Inc.

NAPCO Security Technologies, Inc. is one of the world's leading manufacturers of high tech electronic security devices that are fueling the Company's fast-growing recurring service revenues, as well as a leading provider of school safety solutions, The Company consists of four Divisions: NAPCO, plus three wholly-owned subsidiaries: Alarm Lock, Continental Instruments, and Marks USA. Headquartered in Amityville, New York, its products are installed by tens of thousands of security professionals worldwide in commercial, industrial, institutional, residential and government applications. NAPCO products have earned a reputation for innovation, technical excellence and reliability, positioning the Company for growth in the multi-billion dollar and rapidly expanding electronic security market. For additional information on NAPCO, please visit the Company's web site at http://www.napcosecurity.com.