NAPCO Security Technologies Inc (NSSC) 2012 Q1 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the NAPCO Security Technologies, Inc. first-quarter financial results 2012. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Don Weinberger of Wolfe Axelrod Weinberger Associates. Thank you, sir. You may begin.

Thank you, Dan. Good morning, and thank you all for joining us for today's conference call to discuss NAPCO's financial results for the first quarter ended September 30, 2011. By now, all of you should have had the opportunity to review the press release discussing the results, but if you have not, please call my office, Wolfe Axelrod Weinberger Associates, at 212-370-4500, and we will immediately send it to you either by fax or e-mail.

On the call with me today is Mr. Richard Soloway, Chairman and Chief Executive Officer of NAPCO Security Technologies, and Mr. Kevin Buchel, Senior VP of Operations and Finance. Before I ask our host, Dick Soloway, CEO of NAPCO, to discuss the particulars of this morning's news, let me take a moment to read the forward-looking statement.

This conference call may contain forward-looking statements that involve numerous risks and uncertainties. Actual results, performance, or achievements could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those set forth in the Company's filings with the Securities and Exchange Commission.

With that out of the way, let me turn the discussion over to Richard Soloway, President and Chief Executive Officer of NAPCO Security Technologies. Dick, please proceed.

Thanks, Don. Good morning, everyone. Thank you for joining NAPCO's quarterly conference call to discuss the financial results for the three months ending September 30, 2011.

I'm pleased with the financial results that we reported for the quarter, which, as many of you know, is seasonally the Company's slowest. As the quarters get stronger during the fiscal year -- as the fiscal year progresses, we expect to see improved results.

We experienced solid increases across our income statement, especially starting with the top line growing 6% during the first quarter to $16.2 million, due to the increased sales in the Company's intrusion products and access control products. As a result of the increased sales, adjusted EBITDA for the first quarter increased 240% to $401,000 as compared to $118,000 for the same period a year ago.

Cash generated by operating activities was approximately $800,000 for the three months ended September 30, 2011, as compared to $200,000 for the same period a year ago, and we continued to lower debt levels, which decreased by $893,000 in the first quarter.

The initiatives that the Company began implementing in fiscal 2010 have resulted in increased sales levels, higher operating efficiencies, and improved profitability, as seen in the quarter.

We received an overwhelmingly enthusiastic reception to the debut of our Fusion integrated commercial platform at last week's International Security Conference trade show in New York. This innovative concept in security fuses intrusion, fire, access control and wireless locking systems all into a singular, easily installed program and monitored industrial platform. Our integrators and dealers will be able to work with the most cost-efficient, labor-saving, and complete commercial product option available on the security market today.

Also, the demand for our new cost-effective StarLink wireless GSM communicator has been nothing less than stellar. With the accelerating decline in the use of traditional phone lines, this product will enable our dealers to provide a reliable communications path for alarm signals, as well as remotely troubleshooting and programming their customers' alarm systems. Additionally, this will provide an incremental recurring revenue stream to both NAPCO and our dealers.

Our other powerful entry into the recurring revenue generating sector, unveiled at ISC East, is our new iBridge remote services product. This product gives homeowners and business owners the ability to monitor and control their alarm systems, video cameras, thermostats, and lighting from any smartphone or computer, from anywhere in the world, and at any time. An additional iBridge option includes a wireless 7-inch touchscreen control center for home operation of those systems.

Marks USA also introduced its new LocDown battery-powered, wirelessly controlled line of locks at the ISC show. This product enables schools, college campuses, and other public facilities to cost-effectively retrofit their existing locking hardware with remote-control versions. These locks can be instantaneously locked down in the event of an emergency at the master control level or by use of individual handheld key fobs.

With these exciting new products and our restructured and streamlined operations, I see our Company as optimally aligned to continue these positive trends and to further take advantage of our position as a technological leader in the security industry as economic conditions improve.

To summarize, we believe our new product offerings, combined with our efficiency enhancement and cost-saving measures that we've put into place, have paved the way for renewed growth opportunities and improved financial results for fiscal 2012, with the first-quarter results being a good, strong start.

I would now like to turn the call over to Kevin to briefly review the financial details of the financial results. Kevin?

Thank you, Dick, and good morning, everybody. Sales for the three months ended September 30, 2011, increased by 6% to $16,203,000 as compared to $15,327,000 a year ago. The increase in sales for the three months was primarily due to increased sales in the Company's intrusion products and access control products.

Gross profit for the three months ended September 30, 2011, increased 21% to $4,156,000, or 25.6% of sales, as compared to $3,423,000, or 22.3% of sales, for the same period a year ago. The increase in gross profit in dollars and as a percentage of sales for the three months was primarily due to increases in sales, as well as the Company keeping overhead costs relatively constant.

Selling, general and administrative expenses for the three months ended September 30, 2011, increased by $158,000, or 4%, to $4,298,000, or 26.5% of sales, as compared to $4,140,000, or 27% of sales, a year ago. The increase in selling, general and administrative expenses for the three months was due primarily to a trade show that occurred in the quarter ended September 30, 2011, and last year this same show had occurred in the quarter ended December 31, 2010.

Operating income for the three months ended September 30, 2011, increased by $575,000, or 80%, to an operating loss of $142,000 as compared to an operating loss of $717,000 for the same quarter a year ago.

Interest expense net for the three months ended September 30, 2011, decreased by $290,000 to $304,000, as compared to $594,000 for the same period a year ago. The decrease in interest expense for the three months resulted from lower interest rates charged by the Company's banks as well as lower outstanding debt in the current period.

Net income increased by $967,000, or 85%, to a net loss of $167,000, or negative $0.01 per diluted share, for the three months ended September 30, 2011, as compared to a net loss of $1,134,000, or negative $0.06 per diluted share, for the same period a year ago.

With a lot of non-cash and one-time expenses, as well as our interest expense, it's important to point out that our adjusted EBITDA, as per the schedule included in this morning's release, increased in the first quarter by $283,000, or 240%, to $401,000 as compared to adjusted EBITDA of $118,000 for the same period a year ago.

NAPCO's balance sheet remains strong. Cash at the end of the fourth quarter -- at the end of the first quarter amounted to approximately $3 million. Inventories at September 30, 2011, increased by $2,064,000 to $26,251,000, as compared to $24,187,000 at June 30, 2011. The increase in inventories is primarily the result of the Company level-loading its production facility in anticipation of the Company's historical sales cycle, where more sales occur in the latter quarters relative to the earlier quarters.

Cash generated by operating activities was approximately $800,000 for the first quarter fiscal 2012 as compared to $200,000 for the same period a year ago. Debt, net of cash, has been reduced by $16 million, from $35.9 million to $19.9 million since acquiring Marks USA in August of 2008.

One last note. Our existing revolving line of credit expires in August of 2012. Accordingly, we have classified its balance, $8.6 million, as a current liability as of September 30, 2011. We plan to refinance or extend this line prior to its expiration date. As a result of the significant amount of debt that we've paid back in the last three years, as well as our increased margins and profits in the last few quarters, we are getting a lot of attention from several different banks.

We have been with HSBC since 1997, and it's our hope that we will continue with them for many years to come. We will be meeting with HSBC and other lending institutions in the near future, and we will negotiate the best deal we can for our Company.

That concludes my formal remarks, and I would now like to return the call back to Dick.

Thanks, Kevin. Fiscal 2012 is off to a great start. We saw renewed positive trends, specifically in sales, gross profit, adjusted EBITDA, and net income as compared to recent years. In addition, interest expense continues to be reduced as we further reduce our outstanding debt. We are optimistic that the improved SG&A, overhead and interest expense levels will contribute to increased net income and shareholder value when economic conditions improve and sales growth increases.

As we look ahead, we remain confident in our ability to building NAPCO into a company that develops the most technologically advanced, intuitively designed security solutions for the vast security marketplace. We continue to believe strongly in our business model and believe the integration of Marks USA into the NAPCO family of products, along with our new innovative products, have positioned us very well for future growth.

This concludes our formal remarks. Kevin and I would like to open the call for any questions. Operator, please proceed.

(Operator Instructions) Brad Butler, American High Growth Equities.

Yes, good morning, gentlemen. I have attended a number of these calls and have listened year after year, and over the last four or five years I have heard a lot about recurring revenue. Yet, not a mention of it today.

No. This is Dick. Hi, how are you, Brad?

All right, thanks.

No, I mentioned that we have our new StarLink radio and our new iSee Video, which is now iControl, and both products are recurring revenue-based products. So the recurring revenue-based products seem to be getting an outstanding following and excitement from the security industry.

In fact, last week we were at the International Security Conference in the Javits Center in New York, where we unveiled our new StarLink in a big way, and our new iControl platform, and our new Fusion platform, and there was a lot of excitement. We talked about, with the dealers and the installers and the integrators, all about what the charges would be, and how NAPCO's system works. And there was a lot of excitement.

I believe that the next couple of years, it's going to be very exciting how much additional product sales we are going get from these new products and the recurring revenue base we will build. Our goal is to become less cyclical and more steady as far as our profitability, and we believe the RMR, recurring monthly revenue, will get us that way over the next couple of years.

And we have said when our sales are 10% coming from recurring revenues, we would go ahead and start to publish the numbers. So we're on track to get the products out in big quantities over the next couple of years and kind of change the complexion of our business.

Can you give us a projection on when you will start telling us when you have reached the --when you project to hit that 10% number that you (multiple speakers) --

Well, I said over the next couple of years, depending on how the products are selling, we will be able to do that.

But the encouraging results are -- it's kind of amazing how the dealers are looking for solutions for other communications paths, and that the recurring revenue products that we are doing are going to give that solution, because the dial-up phone systems -- the fact that people rip wires before they -- criminals rip wires before they break into buildings, the fact that certain discount phone services, which get attached to lines to save money for the consumers, destroy the dial-up, you need a radio. And StarLink was designed over the last couple of years, with its network operating center, to give the best results for remote control two-way radio on the market at the right price point. So we believe it is going to be fabulous.

And then the iControl, also, due to the fact that you will be able to carry around a tablet or use a smartphone to be able to get information from your alarm system, control your temperature, your lighting, all on the tablet or the remote services that we are offering on smartphones, should also contribute. So we are in a different mode now of the recurring revenue, and it's a very exciting time.

Terrific. Look forward to hearing more about your recurring revenue in the future.

Okay, thank you.

(Operator Instructions) It appears that we have no further questions at this time. I would now like to turn the floor back to management for closing comments.

Thank you, everyone, for participating in today's conference call. As always, should you have any additional questions, please feel free to call Don Weinberger, Kevin, or myself.

We thank you for your interest and support and look forward to speaking with all of you again in a few months to discuss NAPCO's second-quarter results of fiscal 2012. Take care, and we will speak to you soon.

This concludes today's teleconference. You may now disconnect your lines at this time, and thank you for your participation.