On this page of StockholderLetter.com we present the latest annual shareholder letter from NAPCO SECURITY TECHNOLOGIES, INC — ticker symbol NSSC. Reading current and past NSSC letters to shareholders can bring important insights into the investment thesis.

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NSSC Shareholder/Stockholder Letter Transcript:

Smarter Security Solutions for Today   s World
A
Access C
Commercial
i l Intrusion
I t
i
LLocking
ki
Fire
Control
& Video Hardware
2024
ANNUAL REPORT
NASDAQ:NSSC

NAPCO Security Technologies, Inc.
Smarter Security Solutions for Today   s World
Access Control
Commercial Fire Intrusion & Video Locking & Hardware
NAPCO Security Technologies, Inc. is one of the leading manufacturers and designers of high-tech electronic security devices,
cellular communication services for intrusion and    re alarm systems as well as a leading provider of school safety solutions. We offer a diversi   ed array of
security products, encompassing access control systems, door-locking products, intrusion and    re alarm systems and video surveillance products. These
products are used for commercial, residential, institutional, industrial and governmental applications, and are sold worldwide principally to independent
distributors, dealers and installers of security equipment. We have experienced signi   cant growth in recent years, primarily driven by fast growing
recurring service revenues generated from wireless communication services for intrusion and    re alarm systems, as well as our school security products
that are designed to meet the increasing needs to enhance school security as a result of on-campus shooting and violence in the U.S.
Since 1969, NAPCO has established a heritage and proven record in the professional security community for reliably delivering both advanced
technology and high-quality security solutions, building many of the industry   s widely recognized brands, such as NAPCO Security Systems, Alarm Lock,
Continental Access, Marks USA, and other popular product lines, including our StarLink, Gemini, FireLink, Napco Access, Trilogy & ArchiTech product
lines. Today, millions of businesses, institutions, homes, & people around the globe are protected by products from the NAPCO Group of Companies.
with enhanced threat-level management, easy HR
transactions, time & attendance, better elevator
control, lockdown, IP video, VMS & NFC/Bluetooth
& Mobile credential options. And, all are offered
under the all-new Napco Access Pro Dealer
By integrating mechanical and standalone locks
Program, creating value for our integrators.
with electronic security networks, the Company
offers features like keyfob control and keyless Intrusion, Video & Smart Services     NAPCO   s
mobile app credentials. In crisis situations, expanding dealer opportunities continue to grow
networked models enable instant campus-wide with Prima & Gemini Security Systems lines. The
lockdowns. Alarm Lock   s access locks work with Company   s Prima Self-Contained Intrusion/Video/
NAPCO   s MVP Cloud, AirAccess  , E-Access, and Smart Home product continues to get traction,
Continental   s CA4K platforms. Marks USA locks driven by the addition of new complementary
have also grown signi   cantly, being integrated accessories such as video cameras, wireless doorinto domestic and international OEM building bell cam, and retro   t translator modules. Prima is
platforms, with custom locksets featured in an ideal solution for security dealers of all sizes,
high-pro   le architectural projects worldwide.
enabling them to compete with multinational
Access Control System Management     companies and large ad spends. It offers
Integrating it all, NAPCO offers a complete suite dealers a lower account acquisition cost, savfor security management of buildings, schools, ing on labor & services, versus traditional
campuses, businesses or institutions, Its access installations, while delivering the features & techcontrol systems, combine its own cutting-edge nology that attract tech-savvy millennials, Gen Z
hardware & proprietary enterprise & new cloud-    rst-time home-buyers, and Baby Boomers downbased software platforms. Teaming its top-rated sizing into multi-dwelling units, which are rapidly
Alarm Lock & Marks USA architectural locking growing in popularity across the country. The
Company   s mainstay Gemini Security Systems
hardware and/or traditional or self-contained
bene   t from strong brand loyalty and expanded
web-browser-based controllers, our security
features. Designed for systems with 8 to 255 zones,
management & access control systems deliver
Locking & Architectural Hardware     Renowned for unmatched scalability and    exibility & powerful Gemini now includes enhanced interfaces like the
their durability & low maintenance, the Company   s native integration, while also offering technology upgraded Gemini App & Security Touchscreen,
award-winning locking lines have seen steady sales from partner companies, such as for video, increasing its appeal to both dealers & end-users.
growth, particularly in schools, healthcare facilities, intercom, biometrics & power. This bene   ts users
NASDAQ:NSSC
corporate of   ces, & institutions needing security,
Commercial Fire Systems & Communications    
Expanding its leadership in commercial    re
systems, communicators & devices, NAPCO
recently launched its StarLink Fire MAX2
dual-SIM/dual-path    re alarm communicator,
designed to provide dealers the superior
performance & labor-savings StarLink is known
for, & providing the signi   cant operating expense
savings facility managers and building owners
need, by replacing two leased POTs lines on any
brand 12V/24V    re alarm control panel. Already
popular, this next-gen product delivers ultra-fast
5G response when every second counts & offers
UL-listed, end-to-end protection through a
SOC 2-certi   ed Network Operating Center with
disaster recovery redundancy. Supporting both
Verizon and AT&T, the Fire MAX2 ensures optimal
performance & failover redundancy for every
AHJ requirement. Its exclusive Super Dual   
technology provides dual-path, cell-only
communication, avoiding IT network delays &
interruptions. This solution enhances reliability,
ef   ciency, & cost savings, making it an ideal
choice for life safety systems. NAPCO   s FireLink
Fire Alarms, in conventional & addressable
cloud-programmable models, now also feature
the built-in dual-SIM MAX2 communicator.
emergency lockdowns, & design integration
with modern or iconic d  cor. The Company also
provides custom lock solutions, offering architects
tailored designs for both security & aesthetics.

CEO Letter to Shareholders
Dear Fellow Shareholders,
Fiscal 2024 was a historic year for
NAPCO, as we reported record
revenue and pro   tability, driven
by our continued emphasis on
hardware-enabled solutions that
provide recurring service revenue
(   RSR   ), coupled with strong
equipment sales from our Alarm
Lock and Marks locking divisions.
We attained record revenue, net
income and adjusted EBITDA
in Fiscal 2024, with net sales
increasing 11% to $188.8 million;
net income increasing 84% to $49.8
million; and adjusted EBITDA*
growing by 72% to $58.9 million.
Earnings per share (diluted) increased 84% to $1.34 in Fiscal 2024,
while Adjusted EBITDA per share
(diluted)* increased 71% to $1.59 in
Fiscal 2024.
Our    nancial performance resulted
in strengthening an already strong
balance sheet. As of June 30, 2024,
the Company had $97.7 million in
cash & cash equivalents, short-term
investments and marketable
securities, a 44% increase during
the year. Working capital increased
31% to $146.5 million at June 30,
2024. Our current ratio was 7.6 to1
at June 30, 2024, as compared to
6.7 to 1 at June 30, 2023. In
addition, the Company had
no debt at June 30, 2024.
As a result of our strong cash position
& increasing pro   tability, we
increased our quarterly dividend to
$0.125 per share, which was paid
on October 3, 2024. This represents
a 25% sequential increase over the
previous quarterly dividend and is
the third time we have increased the
quarterly dividend since the dividend
program began in    scal 2023.
The continued success of our
business is due to numerous
factors, most notably:
    High margin recurring monthly
subscription services
    Rising security concerns,
especially involving school
security and retail theft
    Increasingly stringent
regulatory mandates
    Growth of IoT-enhanced
systems for security and
building automation
Recurring monthly service revenue
carries higher pro   t margins
Richard L. Soloway
Chairman, and CEO
NAPCO   s strong    nancial
performance is directly related
to our continued emphasis on
Cloud-based RSR technologies that
have generated ever increasing
recurring monthly revenue. We
continue to modify our product mix
to offer additional solutions that
provide recurring service revenue.
This paradigm shift is enabling us
to become more resilient against
seasonal swings in product demand
and the cyclical ups and downs of
the broader economy.
featuresets which our customers
demand. We are continually
enhancing StarLink products to be
easily installed & fully compatible
with all    re and burglar panels,
including our competitors   . StarLink
Fire radios are a prime focus as they
generate higher monthly service
charges than other StarLink products.
RSR increased by 26% in Fiscal
2024 to $75.7 and, based on July
recurring revenues, projects to an
annual RSR run rate of $84 million
for Fiscal 2025. Gross margin on
RSR for Fiscal 2024 was 90.4%.
A cornerstone of our RSR is the
popular line of StarLink cellular
radios that deliver Cloud-based
connectivity to commercial and
residential customers, with the
commercial sector, which is typically
more pro   table than residential,
representing approximately 80% of
our total revenue. StarLink radios
have the widest coverage range of
both Verizon and AT&T, with rich
We employ over 50 engineers
focusing on new product
innovation as well as supporting
RSR. The large amount of data
required for RSR solutions is stored
redundantly at data centers located
at our headquarters in Amityville,
NY as well as a back-up site at a
remote and secure location.
We invest approximately 5-6% of
our annual revenues in new product
research & development resulting
in product innovation that has
led to numerous award-winning
products that have built loyalty and
trust among our broad distribution
network encompassing thousands
of independent security dealers,
locksmiths, and systems integrators.
Rising security concerns for
school security and retail theft

To address the large and growing
school security market, NAPCO
remains well positioned by offering
comprehensive, cost competitive,
fully integrated and interoperable
solutions that are installed and
maintained by leading systems
integrators specializing in the
education market.
Our product breadth enables us
to deliver affordable solutions that
encompass lock-down devices,
alarms, door access, enterprise
access control and video. Working
in close partnership with our
specialized systems integrators, we
have established strong customer
relationships with leading colleges
& universities. We also serve a large
number of K-12 school districts.
Our products address the growing
number of active shooter incidents.
Across the US, there are over
100,000 K-12 schools and 5,000
colleges & universities that provide
signi   cant untapped potential.
In particular, our Alarm Lock and
Marks locking hardware lines
continue to see signi   cant growth
in various sectors, including school
and classroom security, healthcare,
and retail loss-prevention, as well as
in multi-dwelling commercial and
residential applications. In Fiscal
2024, locking sales grew 18%.
Increasingly stringent
regulatory mandates
The commercial real estate security
sector is in the midst of a multi-decade
growth cycle based on municipally
mandated, non-discretionary
expenditures required for the annual
renewal of certi   cates of occupancy
and    re code compliance. Fire alarm
systems are normally required to
be inspected at least annually, but
depending on the jurisdiction the
   re code could require increased
frequencies of inspections.
NAPCO   s RSR business, including
our commercial    re alarm systems,
is bene   ting from Verizon and AT&T   s
decision to no longer support legacy
POTS (   Plain Old Telephone Service   )
copper telephone landlines. Cellular
communicators, such as our line
of StarLink radios, are the primary
mechanism to communicate from
the alarm or    re panel to the central
station. Instead of copper phone
lines, the signal now comes from
our StarLink radio to our Network
Operating Center (   NOC   ) which
then electronically transmits the
signal to the Dealer   s central station
of choice.
Radio sales were down 31% in Fiscal
2024 as compared to the previous
   scal year due to the continued
effect of the sunsetting of 3G
technology and existing high levels
of radio inventory at some of our
distributors. This decrease occurred
predominantly in the burglary radio
model. Radio sales represent 59%
of Intrusion and Access Alarm
Products sales and we expect
distributors to further reduce
inventory levels in the near term,
but as radio inventory levels at our
distributors need to be replenished
it should stimulate higher sales in
future periods. We expect radio
sales to continue to grow and
remain a key contributor to
hardware sales that drive our
recurring monthly service revenues.
Increased hardware sales can also
result in improved overhead
absorption rates at our ISO-9001
certi   ed manufacturing facility
located in the Dominican Republic
(   DR   ). This 180,000 square foot
facility, which we own, has the
capacity to produce up to $300
million in hardware sales annually,
with faster product delivery times
and less risk than Chinese-made
products. Our manufacturing facility
was upgraded at the beginning
of    scal 2024, with a million dollar
investment to install a state-of-the-art
surface mount technology (SMT)
process assembly line capable of
placing ultra-miniaturized
components at speeds up to
3X faster than ever before.
Emergence of IoT-enhanced
systems for building automation
IoT Cloud-based technologies are
reshaping the future of the security
industry, as residential & commercial
customers are demanding more
advanced security systems that are
intelligent, intuitive, and
feature-rich, far exceeding the
capabilities of basic DIY solutions.
As IoT Cloud-based platforms
continue to proliferate, NAPCO is
well positioned to respond based
upon our product innovation DNA,
resulting in    smart    solutions that
encompass building automation,
wireless    re and intrusion alarms,
enterprise access control systems,
and architectural locking products
as an integrated suite of wireless
connectivity solutions.
For example, we recently introduced
Prima by NAPCO, an All-in-One
Panel for security,    re, video and
connected home with a simple
installation that typically takes less
that 15 minutes. Prima by NAPCO
addresses a key mass market
segment for residential and small
business systems. Prima offers
built-in Wi-Fi/cellular radio
communications, customer alert
noti   cations, and video and smart
home subscription options for
each installed system, all without
time-consuming installation.
Looking ahead
We see NAPCO as having a very
bright future as security concerns
are rising everywhere, including
homeowners, renters, retail and
commercial buildings, corporate

headquarters and facilities,
educational & religious institutions
and government facilities.
NAPCO is well-positioned with
an array of products and services
spanning all three security industry
verticals: alarms & connectivity;
locking; and access control. We see
signi   cant opportunity for growth
across all four of our product
brands: NAPCO; Alarm Lock;
Marks; and Continental Access.
The growth of RSR remains our
primary focus as we seek to achieve
our current goal of $150 million
annually in recurring service
revenue, along with $150 million
annually from equipment sales.
Increased equipment sales will
allow us to capitalize on our
existing production capacity which
would enhance our pro   tability on
equipment products through
improved absorption of    xed factory
overhead costs, further expanding
the potential of RSR to amounts
even greater than our goal of $150
million. We currently have over
800,000 active radios, & it is
expected that millions of commercial
buildings and residences still will
need to be upgraded from old
copper wire communications. To
achieve this long-term objective, we
are working in close partnership with
our network of 300+ distributors,
10,000+ independent dealers and
locksmiths, and 2,000+ systems
integrators. Having such a large
sales channel provides us with a
critical & immediate feedback loop
for accelerating product innovation,
ensuring that our products are easy
to install, user friendly, feature-rich,
and compatible with legacy systems
and competing brands. We are
strategically focused on expanding
the pro   t potential for RSR across
all our platforms, including wireless
   re and intrusion alarms, enterprise
access control systems, and
architectural locking products.
Our senior management team
remains closely aligned with fellow
shareholders. For the bene   t of
our shareholders, we will tirelessly
strive to achieve pro   table growth
through product innovation,
technical superiority, cost
competitiveness, outstanding
customer and technical services,
and enduring sales partnerships.
As we have said before, there is
more work to be done. Through
sound management, product
innovation, technical superiority,
and outstanding service we will
strive to continue our record-setting
pace in 2025 and beyond.
Sincerely,
Richard L. Soloway
Chairman and CEO
*Non-GAAP Financial Measures
Certain non-GAAP measures are included in this annual report, including non-GAAP operating income & Adjusted
EBITDA. We de   ne Adjusted EBITDA as GAAP net income plus income tax expense, net interest expense, non-cash
stock-based expense and depreciation and amortization expense. Non-GAAP operating income does not include
amortization of intangibles or stock-based compensation expense. These non-GAAP measures are provided to
enhance the user   s overall understanding of our    nancial performance. By excluding these charges our non-GAAP
results provide information to management and investors that is useful in assessing NAPCO   s core operating
performance and in comparing our results of operations on a consistent basis from period to period. Our use of
non-GAAP    nancial measures has certain limitations in that such non-GAAP    nancial measures may not be directly
comparable to those reported by other companies. For example, the terms used in this press release, such as
Adjusted EBITDA, do not have a standardized meaning. Other companies may use the same or similarly named
measures, but exclude different items, which may not provide investors with a comparable view of our performance in
relation to other companies. The presentation of this information is not meant to be a substitute for the corresponding
   nancial measures prepared in accordance with generally accepted accounting principles. Investors are encouraged
to review the reconciliation of GAAP to non-GAAP    nancial measures set forth on page 67 of this document.
This letter contains statements relating to future results of the Company (including certain projections and business
trends) that are    forward-looking statements    as de   ned in the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but
not limited to, changes in political and economic conditions, demand for and market acceptance of new and existing
products, as well as other risks and uncertainties detailed from time to time in the    lings of the Company with the
Securities and Exchange Commission.
Trademarks of NAPCO: NAPCO, NAPCO Access Pro, NAPCO Commercial, StarLink, StarLink Fire MAX, Super Dual,
Starlink Connect, FireLink, FirstNet, AirAccess, Trilogy, Trilogy Networx, ArchiTech, LocDown, CA4K, Alarm Lock,
Marks USA, ContinentalAccess, Gemini, Gemini-Touch, ArchiTech, SAVI.
Trademarks of their respective companies: FirstNet Ready   , AT&T, Verizon, Control4, NASDAQ, iOS, Android



 10/25/2024 Letter Continued (Full PDF)