NAPCO Security Technologies (NASDAQ:NSSC) executives highlighted record fiscal second-quarter 2026 revenue, expanding margins, and continued growth in the company’s recurring service revenue base during the company’s earnings conference call held Monday.
Management attributed the quarter’s performance to steady demand across the portfolio, the benefits of pricing actions implemented late in fiscal 2025, and operating leverage supported by a high-margin recurring revenue model. The company also announced a quarterly dividend increase and discussed progress in door locking, commercial fire radio communications, and its MVP cloud-based access control platform.
Record Q2 revenue and double-digit growth across revenue streams
Chief Financial Officer Andrew Vuono added that for the six months ended Dec. 31, 2025, net revenue increased 12% to $97.3 million. Recurring monthly service revenue for the first half rose 11.8% to $47.3 million, while equipment revenue increased 12.1% to $50.1 million.
Buchel said the company’s prospective annual recurring revenue run rate increased to approximately $99 million based on January 2026 recurring revenue, up from the $95 million run rate referenced last quarter. Vuono said the increase in net service revenue was driven by a higher number of activated cellular radio communication devices during the period.
Margins improve; operating leverage lifts profitability
NAPCO reported gross profit of $28.2 million in the quarter, up 15.3% year over year, with gross margin of 58.6% compared with 57.0% in the prior-year period, according to Vuono. For the first half, gross margin increased to 57.6% from 56.5% a year earlier.
Equipment gross margin improved notably. Buchel said equipment gross margin reached 28%, up from 24% a year ago and 26% in the prior quarter, citing pricing discipline, operational efficiency, and favorable product mix. Vuono reported equipment gross profit increased 31.2% to $6.7 million, with equipment gross margin of 27.6% versus 23.6% in the prior-year quarter, driven by improved manufacturing overhead absorption from higher production, the impact of price increases, and lower discounting.
Recurring service gross margin was 90.2% in Q2, down from 91.3% in the prior-year period. Vuono attributed the year-over-year service margin decline to one-time credits that reduced royalty expense in the comparative period as well as marginal increases in data costs associated with running the company’s network operations center.
Operating income increased 32.1% to $14.8 million. Net income rose 29% to $13.5 million, or $0.38 per diluted share, compared with $10.5 million, or $0.28 per diluted share, a year earlier. Adjusted EBITDA increased 26% to $15.3 million, representing a margin of 31.9% compared with 28.4% in the year-ago quarter. Free cash flow increased 17.4% to $14.5 million for the quarter.
Pricing and channel conditions discussed in Q&A
During the Q&A, management said distributor buying patterns were “more normal” than last fiscal year, when tariff uncertainty and quarter-end buying behavior created volatility. Executives said steadier purchasing throughout the quarter helped reduce discounting and supported equipment margin improvement, alongside price increases and product mix.
When asked about incremental benefit from pricing in the second half, Vuono said pricing adjustments across the portfolio became effective at the beginning of Q2 and are “fully baked in” for the remainder of the fiscal year, aside from limited “one-offs.” He added the company is monitoring component costs, but is not currently seeing incremental inflation pressure and said pricing increases were positive relative to tariff-related costs.
Management reiterated a goal of bringing equipment margins back into the 30% range over time, noting progress but also “more work to do,” including continued emphasis on reducing discounting and leveraging favorable mix such as locking products.
Strategic focus: StarLink radios, door locking, MVP platform, and school security
CEO Dick Soloway said recurring service revenue remains central to NAPCO’s strategy, noting it represents nearly half of total sales and has sustained gross margins above 90%. He emphasized commercial fire radios as a key driver, describing them as an industry standard for commercial fire communicators and pointing to continued demand in both new installations and the growing installed base.
In response to a question about the outlook for radio-driven recurring revenue growth, Soloway pointed to the ongoing transition away from legacy copper phone lines and the opportunity across “several more million buildings” before carriers’ anticipated 2029 end of support. He said NAPCO has expanded relationships with larger dealers in addition to smaller dealers that helped build the company’s recurring revenue base.
Management also discussed the company’s door locking and access control offerings, including demand tied to projects such as school security initiatives. Soloway said projects vary in timing and complexity, with some generating revenue quickly and others involving custom engineering work and multi-year timelines, and he said the company continues to pursue additional projects with integrators. He noted that school customers often do not want project details publicly disclosed.
The company also highlighted its MVP cloud-based access control platform, which executives described as a subscription-based recurring revenue opportunity that integrates with locking hardware. In response to an analyst question on timing, management said MVP was not expected to be a major contributor in the first half of fiscal 2026, but that the company is already generating recurring revenue from the platform. Soloway said he expects it to be “more of a second half of calendar 2026 story,” with potentially more meaningful contributions by fiscal Q1 and Q2 2027.
Executives also discussed the company’s relationship with distributor ADI, describing it as a source of introductions to large dealers and noting strong performance in fire radios. Management said it wants to expand ADI’s contribution in the locking category, describing that as an area for additional work.
Dividend increase, cash position, and capital allocation
Buchel said NAPCO ended the quarter with $115 million in cash and marketable securities as of Dec. 31, 2025, and emphasized the company’s balance sheet flexibility. Vuono reported cash and marketable securities totaled $115.4 million at quarter end, up from $99.2 million at June 2025, after paying $10 million in dividends over the six-month period. The company reported no debt.
The board approved an increase in the quarterly dividend to $0.15 per share, representing a 7% increase, according to Buchel.
When asked about the rising cash balance and potential capital allocation moves, Soloway said acquisitions, dividend increases, and other shareholder return options are “on the table,” but emphasized that any acquisition would need to meet criteria including being accretive from day one and fitting the company’s dealer-installed product focus without disrupting existing operations. He also referenced the company’s vertically integrated manufacturing operation in the Dominican Republic as a potential advantage in integrating acquired product lines.
Management also announced the appointment of Joseph Paczynski as Chief Revenue Officer, a newly created role overseeing sales, channel strategy, pricing, and go-to-market execution across the portfolio.
About NAPCO Security Technologies (NASDAQ:NSSC)
NAPCO Security Technologies, Inc (NASDAQ: NSSC) is a designer and manufacturer of electronic security solutions for commercial and residential applications. The company’s product portfolio spans intrusion and fire alarm control panels, alarm communicators, access control locks and readers, as well as a broad range of peripheral modules and integrated security accessories. NAPCO’s offerings are engineered to deliver scalable, networked security systems suitable for new installations and retrofit projects alike.
Key product lines include hybrid alarm control panels that support both wired and wireless peripherals, cellular and IP alarm communicators for reliable central station reporting, and the acclaimed “Alarm Lock” series of standalone and networked electronic door locks.
