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TMCNet:  NAPCO Security Technologies Reports 1Q Results

[November 15, 2012]

NAPCO Security Technologies Reports 1Q Results

Nov 15, 2012 (Close-Up Media via COMTEX) -- NAPCO Security Technologies, a supplier of high performance electronic security equipment, announced financial results for its first fiscal quarter ended Sept. 30.

In a release dated Nov. 12, the Company said that highlights include: -Net sales for the quarter decreased by 6 percent to $15.2 million from $16.2 million a year ago. However, management expects revenue and profitability in this fiscal year to increase compared to last year due to three main reasons: -The decrease in revenue this quarter was due to a few customers in a single division rebalancing inventory levels. Management believes this to be temporary, and anticipates improvement before the end of the fiscal year, based on increased sell through and product demand, compared to last year.

-The Marks Division revenue decline last year offset revenue growth in all of NAPCO's other divisions. However Marks sales increased year over year in Q1 and management expects this trend to continue and believes such sales reached a bottom in fiscal 2012.

-Sales of NAPCO's high-margin commercial locking division and recurring revenue products continued to grow and increased versus a year ago.

-Gross margins increased to 27.2 percent compared to 25.6 percent, on $1 million less in revenue year over year. This is a direct reflection of increased sales from higher margin commercial locking and recurring revenue products.

-Cash generated by operating activities increased 100 percent to $1.6 million for the three months ended Sept. 30, compared to $800,000 for the three months ended Sept. 30, 2011.

-Debt, net of cash, has been reduced by $20.1 million from $35.9 million to $15.8 million since acquiring Marks in August of 2008. $2.2 million of this reduction occurred in the first quarter. Debt repayment in Q1 increased 144 percent compared to repayment for the same period in the prior year, which was $900,000.

-As a result of the lower debt levels and reductions in interest rates, net interest expense for the quarter decreased by $127,000 or 42 percent to $177,000 as compared to $304,000 for the same period a year ago.

Richard Soloway, Chairman and President, said, "In the first quarter of fiscal 2013, NAPCO saw year-over-year increases in demand and sell-through by dealers, but this progress was temporarily masked in our revenue reporting, due to a few customers that lowered inventory levels in Q1. Historically, NAPCO customers that have lowered inventory levels when demand is rising replenish inventories within a few quarters. We expect that to be the case this year. The investments we have made in product development and marketing, coupled with modest improvements in the housing sector have resulted in improvement for our Marks division, and we expect this trend to continue. High-margin commercial lock and recurring revenue product sales increased, bolstering our expectation that we will see sales for this fiscal year improve compared to last year. Our gross margin also improved over last year's first quarter due primarily to this more favorable product mix. As a result, we expect the higher margins to drive improved profitability for this year compared to last year.

"NAPCO continues to streamline its balance sheet and strengthen liquidity. While the first quarter is typically our lightest as far as revenues, we reduced the days outstanding in our receivables, continued leveraging our assets in the Dominican Republic, generating $1.6 million in positive cash from operations. We used this cash to continue reductions in our revolving line of credit and term loans, which were reduced by over $2 million this quarter alone.

"The two major strategic initiatives, of increasing our presence in the high-margin, commercial security sector and the aggressive marketing of an increasing number of SaaS-based, recurring revenue generating product lines, are progressing nicely. The introduction of NAPCO's award-winning Gemini Commercial Fire and Intrusion Systems, Alarm Lock's Networx Wireless Locking System and Continental Access Control's new Fusion 2.9 integration software, provide numerous unique security solutions in the growing, highly profitable commercial environment. Product entries that provide the Company with recurring monthly income such as Starlink 2 wireless GSM alarm communicator, iSeeVideo remote video viewing system and Gemini My Remote Keypad, the product that allows consumers to control their security system from any broadband device, all continue to grow in market penetration. The next major augmentation to our SaaS (Software as a Service)-based suite of revenue generating products, will be that of iBridge remote services. Utilizing advanced Z-Wave technology, this product entry will allow consumers to control their thermostats, lighting or home entry locks, from any internet enabled device. Apps are provided free-of-charge, as part of the service, so that consumers can operate all of their services from any iPhone, Blackberry or Droid operating system based smart phone. We expect iBridge to launch before the end of the calendar year, and to further accelerate sales of recurring revenue products like iSee video which interface with iBridge and can be cross sold." Fiscal First Quarter 2013 Results Revenue for the for the three months ended Sept. 30, decreased 6 percent to $15.2 million, compared to $16.2 million for the same period a year ago. Operating income for the three months ended Sept. 30, decreased by $257,000 to an operating loss of $(399,000) as compared to a loss of $(142,000) for the same period a year ago. Selling, general and administrative expenses for the quarter increased by $237,000 to $4.5 million as compared to $4.3 million for the same period a year ago. The increase was due primarily to increased tradeshow expenditures and additional sales staff. These investments negatively impacted NAPCO's EBITDA, net and operating income lines in Q1, seasonally the Company's lowest quarter. However, these investments made in Q1, are important to deliver sustained growth in the Marks and high-margin commercial locking divisions. Adjusted EBITDA for the three months ended Sept. 30, decreased $319,000, or 79 percent, to $85,000 as compared to $404,000 for the same period a year ago. Net income for the three months ended Sept. 30, decreased by $267,000, or 160 percent, to a loss of $(434,000) or $(0.02) per share as compared to a loss of $(167,000) or $(0.01) per share for the same period a year ago. Net income was impacted by a reduction in the benefit for income taxes of $148,000.

Soloway said, "We are looking forward to another highly productive and successful year in fiscal 2013. Our strong balance sheet and cash flows allow us the flexibility to continue to bring innovative, state-of-the-art security products from concept to market at a rapid pace. As the economy, particularly the construction markets, improve, we feel that NAPCO is poised for exciting times ahead." ((Comments on this story may be sent to newsdesk@closeupmedia.com))

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