NAPCO Security Technologies Posts Record Q2 Revenue, Driven by Robust Recurring Service Growth and Margin Expansion

NAPCO Security Technologies (NASDAQ: NSSC) delivered a standout performance in its fiscal second quarter, executives announced Monday, citing record revenue, improved margins, and the relentless expansion of its lucrative recurring service business as key drivers.

Management pointed to resilient demand across its security and fire safety portfolio, the full benefit of prior pricing actions, and the operational leverage of its subscription-based model for the strong results. The earnings call also shed light on strategic advances in door locking systems, commercial fire radio communications, and the rollout of its cloud-based MVP access control platform.

President and COO Kevin Buchel reported total revenue climbed 12.2% year-over-year to a Q2 record of $48.2 million. This growth was balanced, with equipment revenue up 12% to $24.3 million and recurring service revenue—the crown jewel of NAPCO's strategy—rising 12.5% to $23.8 million, maintaining its stellar gross margin above 90%.

CFO Andrew Vuono provided further context, noting net revenue for the six-month period increased 12% to $97.3 million. The company's financial health was underscored by a 32.1% jump in operating income to $14.8 million and a 29% rise in net income to $13.5 million, or $0.38 per diluted share. Adjusted EBITDA margin expanded to 31.9% from 28.4% a year ago.

A significant highlight was the improvement in equipment gross margin, which reached 28%, up from 24% a year ago. Executives credited pricing discipline, operational efficiencies, and a favorable product mix. "We're seeing more normalized distributor buying patterns, which has helped reduce discounting and supported this margin improvement," Buchel noted during the Q&A session.

The heartbeat of NAPCO's story remains its recurring revenue stream, which now represents nearly half of total sales. The prospective annual recurring revenue run rate climbed to approximately $99 million. CEO Dick Soloway emphasized the commercial fire radio business as a core engine, benefiting from the mandatory industry-wide transition away from legacy copper phone lines. "We see a runway across several more million buildings before carriers sunset support in 2029," Soloway stated, outlining a sustained growth opportunity.

Looking ahead, management expressed optimism for newer initiatives like the MVP cloud platform, though meaningful contributions are anticipated later in calendar 2026. The company also announced a 7% increase in its quarterly dividend to $0.15 per share and the creation of a Chief Revenue Officer role, filled by Joseph Paczynski, to spearhead sales and channel strategy.

With a debt-free balance sheet boasting $115.4 million in cash and marketable securities, Soloway confirmed that strategic acquisitions, alongside continued shareholder returns, are under active consideration. "Any deal must be accretive from day one and fit seamlessly with our dealer-centric model," he cautioned, highlighting the company's integrated manufacturing as a potential advantage for integration.

Market Voices: Analyst & Investor Reactions

Michael Thorne, Portfolio Manager at Steadfast Capital: "NAPCO continues to execute flawlessly on its dual-engine model. The equipment margin recovery is particularly encouraging and demonstrates pricing power. The recurring revenue base provides exceptional visibility and cash flow stability, making the dividend increase a logical move."

Rebecca Shaw, Senior Analyst at Clearwater Research: "The results are solid, but the guidance remains cautiously qualitative. I'd like more concrete metrics on the MVP platform's adoption rate. While the fire radio transition is a powerful tailwind, investor enthusiasm seems to have priced in perfection. The stock's reaction may be muted until we see faster growth from these new initiatives."

David Chen, Independent Security Tech Investor: "Another quarter, another beat. The story is becoming predictable—in a good way. The 90%+ service margins are the envy of the industry. My focus is on the capital allocation: with over $115M in cash and no debt, a transformative acquisition could be the next catalyst. The new CRO appointment signals they're getting serious about scaling sales."

Linda Forsyth, Retail Investor & Former IT Manager: "Frankly, I'm tired of the 'wait and see' narrative on MVP. They've been talking about this cloud platform for years. If it's such a great opportunity, where are the numbers? The cash pile is huge, yet the dividend hike is minimal. This feels like management is being overly conservative while sitting on shareholders' money. Either invest it aggressively or return it more substantially."