NAPCO Posts Record Fiscal Q1 Revenue as Recurring Sales Rise 11.5%

NAPCO Security Technologies (NSSC ) reported record fiscal first-quarter revenue of $50.0 million on November 2, 2026, a 1.7% increase from the prior-year period, as growth in recurring service revenue offset a decline in equipment sales. Net income at the Amityville, New York-based company rose 6.9% to a first-quarter record $13.0 million, or $0.36 per diluted share, for the three months ended September 30, 2026, according to its fiscal Q1 2027 earnings release.

Gross profit margin widened to 58.7% from 56.6% a year earlier, and operating income increased 3.5% to $14.1 million. Adjusted EBITDA, a non-GAAP measure that adds back income taxes, depreciation and amortization, stock-based compensation, nonrecurring legal expense and litigation settlement items to net income while excluding net interest income, rose 3.8% to a first-quarter record $15.5 million. The adjusted EBITDA margin was 31.0%, compared with $14.9 million and a 30.4% margin in the prior fiscal year quarter.

Recurring Service Revenue Hits Record as Equipment Sales Fall

Recurring service revenue climbed 11.5% to a quarterly record $26.1 million, carrying a gross margin above 90%. The company said the base implies a prospective annual run rate of approximately $106 million based on October 2026 recurring service revenues. Equipment revenue decreased 7.3% to $23.9 million.

Chief Executive and President Kevin Buchel said the run rate is a $3 million increase from what the company reported in July 2026. On the equipment decline, Buchel said: “the decrease was driven by two locking distributors reducing their purchases during the quarter. Importantly, sell-through at both distributors grew year-over-year and strengthened meaningfully on a sequential basis.” He added that the company views sell-through as the truest indicator of end-market demand.

Litigation Credit, Cash Flow and Dividend

Operating expenses in the quarter included a $1.0 million litigation settlement credit, and accrued litigation costs on the balance sheet fell to zero from $16.0 million at June 30, 2026. The company’s non-GAAP adjustments included $1.46 million in nonrecurring legal expense, up from $282,000 a year earlier, and $273,000 in stock-based compensation.

Free cash flow, which the company defines as net cash provided by operating activities less capital expenditures, fell 79.8% to $2.3 million from $11.4 million a year earlier. Net cash from operating activities was $2.75 million versus $11.64 million, reflecting a $15.0 million combined decrease in accounts payable, accrued expenses, accrued litigation costs, accrued salaries and wages, and accrued income taxes.

Research and development expense rose to $4.05 million from $3.24 million, and selling, general and administrative expense increased to $12.18 million from $10.96 million. The company ended the quarter with $123.9 million in cash and cash equivalents and $10.7 million in marketable securities. Dividends paid during the quarter totaled $5.4 million.

The board declared a quarterly dividend of $0.17 per share, payable January 4, 2027, to shareholders of record on December 14, 2026. NAPCO consists of four divisions: NAPCO and wholly owned subsidiaries Alarm Lock, Continental Instruments and Marks USA.