NAPCO Security Technologies Inc (NSSC) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the NAPCO Security Technologies fiscal fourth-quarter 2013 earnings conference call. (Operator Instructions). I will now turn the conference over to Peter Seltzberg from Hayden IR. Please go ahead, sir

Good morning, and thank you all for joining us for today's conference call to discuss NAPCO's financial results for the fourth quarter ended June 30, 2013. By now, all of you should've had the opportunity to review the press release discussing the results. If you have not, please call our office, Hayden IR, at 646-419-4300, and we'll immediately send it to you by either fax or email. On the call today is Richard Soloway, President and Chairman of NAPCO Security Technologies; Kevin Buchel, Junior VP of operations and finance.

Before I ask our host Richard Soloway to discuss the particulars of today'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 may 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 SEC. With that out of the way, let me turn the call over to Richard Soloway, President and Chairman of NAPCO Security Technologies. Dick, please proceed.

Thanks, Peter. Good morning, everyone. Thank you for joining NAPCO's quarterly conference call to discuss the financial results for the three- and 12-month ending June 30, 2013. Our fourth quarter delivered a strong finish for our fiscal year of 2013 and contributed to positive financial metrics for the quarter and year. We generated our highest quarterly revenue levels in five years and matched our best quarter ever for net income.

Gross margin improved 270 points to 38.1% for the quarter. Gross margin increased due to favorable product mix as demand for our more sophisticated, higher-margin product increased. In addition, as we have reiterated on numerous occasions, when our top line exceeds $20 million, we are able to more effectively leverage our low-cost manufacturing infrastructure. These top line results contributed to favorably to the bottom line, in part due to our careful management of expenses and a decrease in interest expense, which resulted from lower interest rates and lower debt levels.

As a result, we matched our best-ever quarterly net income of $3.2 million, up 74% from the year-ago period. Earnings per share for the quarter rose to $0.17 per diluted share, an 89% increase over the $0.09 per share diluted in the year-ago quarter. Adjusted EBITDA for the quarter increased as well by just under $1 million to $4.4 million from $3.5 million in the year-ago quarter.

Please see our press release issued earlier today to review the reconciliation of GAAP to non-GAAP adjusted EBITDA financial metrics. These favorable metrics demonstrate the traction of our comprehensive line, which is beginning to deliver to our top- and bottom-line results and includes products introduced in the last 18 months and those with recurring monthly revenues.

We are excited about our positioning as a technology leader with new product out in the marketplace. Our focus on diversifying our product line and developing sophisticated products that are scalable and inoperable to deliver a one-stop shopping experience is resonating with our dealers and integrator networks.

Specific product lines that contributed to our solid fourth-quarter results were the Company's Marks door locking products, access control products, and Alarm Lock brand door locking products. The introduction of Alarm Lock network wireless locks, integrated with Continental Access' enterprise class CardAccess systems, has demonstrated solid sales success by providing K-12 and university campus end users with unique lockdown capability.

You might recall that, in May, we announced the $1.5 million order to supply a major university campus with over 1700 network wireless locks. This is the largest single order that our Continental Access control division has been awarded for its network line.

Our full-featured security management suite provides facility management with the technological backbone necessary to support, manage, and protect today's schools, hospitals, corporations, and government facilities, including campus-wide lockdown. The best-in-class wireless technology, coupled with our ability to deliver a custom architectural finish on the locks, was a very important to this customer. We shipped a significant portion of the devices during the fourth quarter, which contributed to the increase in revenues.

In addition, one of the factors in achieving this order was our commitment to have the product installed by the time the university students returned to the campus to resume their studies in the fall. I'm proud to say that we met this challenge and had the product delivered and installed on time. The school's administration is extremely happy with the results.

Because safety and consumer security concerns remain high priorities for people and organizations entrusted with the care and protection of others, we expect that this product configuration represents a potential growth driver for us going forward.

Sales within Marks brand of products grew 29% in the fourth quarter, representing the fourth consecutive quarter of growth in this unit. Marks sales increased 18% for the year, which exceeded expectations. Our pipeline for this segment continues to expand, particularly with our lockdown product group. As I have mentioned in the previous call, since the unfortunate incident in Newtown, Connecticut, administrators of schools around the country from elementary schools to university campuses are pursuing better locking devices on all of their doors to protect their students, teachers, and employees from violent attacks and security breaches within their respective domains. Our Marks division has the most effective product on the market for this. And, as a recognized leader, we are well-positioned to meet this demand.

In addition, we also see strong improvement in the construction industry, and this will also add revenue expansion to this product line. Recently, we introduced Marks USA's anti-ligature LifeSaver product. It's an (inaudible) Grade 1 institutional life safety lock set. This product has provided us with another substantial contributor to sales growth. It addresses (inaudible) liability, accident, suicide prevention, and behavioral healthcare facilities.

We generated solid increases in recurring revenue from our installations of our StarLink 2 radio. For the fiscal 2013 year, StarLink 2 revenue increased by 166%. As a result, we continue to be encouraged by the growth in our recurring revenue stream.

On a quarterly basis, the StarLink 2 delivered a 20% fourth-quarter sequential increase in radio installations over the third fiscal quarter. StarLink 2 grew substantially and sequentially by 20% in third-quarter 2013, 22% sequentially in second-quarter 2013, and 20% sequentially in first-quarter 2013. While we have developed several recurring revenue products, StarLink 2 has gained the quickest momentum and is our leading product and generates recurring revenue -- monthly revenue.

In Q4, we successfully introduced our state-of-the-art StarLink 3, a 3G/4G communicator. This product enables alarm monitoring on the most advanced cellular network in the country. iSee video and ibridge are also generating recurring revenue streams for us.

In addition to controlling the security system and video cameras remotely, the optional features include locking, lighting, heating, and cooling, which provides a basis for recurring revenue and also guarantees that the dealers will share in the recurring revenue opportunity, giving them a strong incentive to sell the product to their end-user.

This new sophisticated technology does require additional training, and we've expanded our free residential and commercial system classes on-site and online to support our dealer and integrated networks as they sell and deliver our systems. These classes offer training for Firewolf and GEM-C systems; Gemini intrusion systems, including panel and keypad programming; iBridge Connected Home; iBridge remote keypad; and iSee Video remote video indirect interactive services; and StarLink radio with an interactive consumer app.

Each class provides an all-around approach to generating sales by training security professionals of all skill levels on new laborsaving technologies; new interactive customer services and experiences; and new intrusion, fire access, and reporting equipment. Our commitment to our dealers and integrated networks and to their success, and ultimately to ours.

We continue to develop, innovate, and extend our product line. During the quarter, we demonstrated the iBridge Connected Home suite, which offers remote app, enabled security and video, plus temperature lighting and locking via [d-way] technology, which is cloud-based, at the Electronic Security Expo 2013.

We also announced availability of our new Continental Access, a stellar term controller that provides significant greater speed, functionality, and integration for credential performance when coupled with the Continental Access CA3000 version 2.9 software. The controller provides robust access control functionality and seamless integration with alarms, locking devices, and a growing list of video systems.

Both of these products meet demands that will be key to our participation in the strategically important, emerging, and expanding security market, and both offer a recurring revenue component that can add incrementally to our top line.

I would now like to turn the call over to Kevin to give a brief overview of the financial details. Kevin?

Thank you, Dick, and good morning, everybody. Revenues for the three months ended June 30, 2013 increased 10% to $21.8 million, compared to $20 million in the same period a year ago. For the 12 months, sales increased 1% to $71.4 million from $70.9 million the same period a year ago.

The increase in sales for the three and 12 months was due to increased sales of the Company's Marks brand door locking products, access control products, and Alarm Lock brand door locking products, partially offset by decreases in the Company's intrusion products.

Gross profit for the three months ended June 30, 2013 increased 18% to $8.3 million, or 38.1% of sales, compared to $7 million, or 35.4% of sales, for the same period a year ago. Gross profit for the 12 months increased 3% to $21.7 million, or 30.4% of sales, compared to $21.2 million, or 29.8% of sales, for the same period a year ago.

The increase in gross profit for the three and 12 months occurred even though the Company committed an additional $900,000 in research and development spending during the year to bring on new products to market faster, and was primarily due to a positive shift in product mix to higher-margin product. This also demonstrates the impact of increased recurring revenue as well as our overall efficiency as our sales volume increases.

Selling, general, and administrative expenses for the quarter were 4.7 million, unchanged for the same period last year. Selling, general, and administrative expenses for the 12 months increased by $600,000, or 3%, to $17.9 million, or 25.1% of sales, compared to $17.3 million, or 24.4% of sales, a year ago. The increase in selling, general, and administrative expense for the 12 months was due primarily to additional sales personnel and increased advertising and tradeshow expenditures to support new product introductions.

Operating income for the quarter increased by $1.2 million, or 51%, to $3.6 million, as compared to $2.4 million, for the same period a year ago. Operating income for the 12 months was $3.8 million, unchanged from the same period a year ago. Interest expense for the quarter decreased by $126,000, or 48%, to $134,000, as compared to $260,000 for the same period a year ago.

Interest expense for the 12 months decreased by $575,000, or 50%, to $574,000, as compared to $1.1 million for the same period a year ago. The decrease in interest expense for the three and 12 months of fiscal 2013 resulted from lower interest rates charged by the Company's bank as well as lower outstanding debt in the current period.

Net income increased by $1.4 million, or 74%, to $3.2 million, or $.17 per diluted share, as compared to $1.8 million, or $0.09 per diluted share for the same period last year. Net income for the 12 months increased by $735,000, or 32%, to $3 million, or $0.16 per diluted share, compared to net income of $2.3 million, or $0.12 per diluted share for the same period last year.

Adjusted EBITDA for the quarter, as per the schedule included in today's press release, increased $933,000, or approximately 27%, to $4.4 million, as compared to $3.5 million last year. Adjusted EBITDA for the 12 months decreased $474,000, or 7%, to $6.1 million, as compared to $6.6 million for the same period a year ago.

At June 30, 2013, the Company had $3.2 million in cash and cash equivalents, compared to $3 million at June 30, 2012. The Company also had working capital of $33.2 million as of June 30, 2013, a $1 million increase as compared with working capital of $32.2 million at June 30, 2012.

Debt, net of cash, was $13.2 million at June 30, 2013, a decrease of $4.1 million, compared to $17.3 million as of June 30, 2012. Cash generated by operating activities for the 12 months increased $800,000, or 20%, to $4.9 million, compared to $4.1 million for the same period last year. At debt, net of cash has now been reduced by $22.7 million from $35.9 million to $13.2 million since we acquired Marks in August of 2008. $4.1 million of this reduction occurred in the past 12 months.

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

Thanks, Kevin. Fiscal 2013 has been a pivotal year for NAPCO, with significant milestones that reflect our delivery of a more diversified, sophisticated product line encompassing intrusion, fire alarm, video systems, building access control systems, and electronic locking devices to meet changing and heightening demand for security products. We are committed to provide our customer base with the most advanced and integrated technology; stay at the forefront of the security marketplace.

I am pleased with NAPCO's 2013 performance; in particular, our strong-finishing fourth quarter. The fiscal year was not without its challenges, including the lingering effects of Superstorm Sandy in our revenue goals midyear. However, more diversified product lines and the momentum that is building with our recurring revenue model allowed us to deliver overall strong top and bottom line performance. We expect this momentum to continue in fiscal 2014.

While fiscal Q1 is historically our slowest period, we expect that it may be more robust than a year ago, since some of the aforementioned university product did not ship until after June 30. We are optimistic for fiscal 2014, and we'll continue to pursue our strategy of expanding our product and services, which will add incremental recurring revenue as well as expanding gross margin. We expect that we can consistently deliver 40%-plus gross margin as we approach $100 million in revenues by more fully leveraging our low-cost manufacturing facility in the Dominican Republic. And this is without factoring in the full impact of increased recurring revenue.

Concurrent with gross margin expansion, we will be able to focus on further reducing our debt. Both of these initiatives will have a favorable effect on our overall financial performance in 2014 and beyond. We look for a continued increase in and support of NAPCO as we move forward and you track our continuous growth and financial success.

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

(Operator Instructions). Orin Hirschman, AIGH Investment Partners.

Congratulations on all the progress.

Thank you. Thank you very much.

In terms of some of those school lockdown projects, can you kind of talk about the pipeline and when you might see some additional projects of the same magnitude? I know perhaps you've seen some smaller ones already that have shipped. Just talk about that in general, and also talk about the additional opportunity at that large customer that just purchased, whether there is a beyond that additional $1.5 million.

The school lockdown projects are coming every day, to get different projects with schools, universities. And we have three different products for the applications. We've got mechanical products as well as electronic and then radio controlled products. So we're constantly -- schooled orders for these different products. And as school administrators and school marketing is in play, we're identifying our customer base and trying to target them, show them what the new applications are.

And we have salespeople, and we go to the school shows and the electronic shows to demonstrate the products so we can pick up more and more momentum. The big university project that we did, where we expect to get additional pieces from that project because we've done part of the university but there's more administrative and other areas around the university. Plus, the consultants that worked with us to get us involved with these universities and colleges are putting out a lot of our literature. So we would expect that that would bring additional business.

Okay. And just are there projects out there that are coming up for bid that are this type of magnitude, million-dollar deals?

There's all kinds of projects. The smaller ones, midsized, and big ones also. It's a matter of landing them. The lock is very -- the lock -- the radio controlled lock, as an example, is very unique and adaptable for office buildings as well as for government installations. So we would expect to see more of this through all of these different facets of verticals of our markets.

When we get a big one, believe me, we will announce it.

Can this new area, just because of what's going on unfortunately out there, begin to offset some of your seasonality in general?

I would say that it could help our seasonality. This was an installation that had to be designed and installed during summer months. So, you know, there is probably going to be more of that. Usually, right before the summer is our biggest quarter, like you've seen in the June 30 quarter. But the seasonality should be a little less lumpy with this type of work and also the recurring revenue that keeps on building in the sequential order. So, I would say that's going to be -- help level things out.

And my final question, if I may, is just -- in terms of the recurring revenue aspect, obviously the percentage growth is extremely meaningful. When does it become a big enough piece of the pie, maybe, that you break it out? Could it be this year or next year?

It could be. It could be. We report the sequential growth of it as doing very well. And then we have the new 3G version of that, which is -- was introduced. And then, the iBridge version and the iRemote and a lot of things. So, there's a lot going on. For purposes of confidentiality and competitiveness, we don't like to talk about exact numbers. But -- so we talk in these general terms. But, eventually, we will release the numbers when we have to do that.

Okay. Thanks so much.

George Santana, Ascendiant.

Nice work, guys. Two quick questions. First -- I may have missed it, I apologize if I did. What was the capacity utilization in the last quarter for the Dominican Republic facility?

The Dominican Republic, with 1000 workers on one shift, it's our estimate that we can do $100 million. Right now, we have about 700 workers on one shift. And we can run a second shift. So we could do, in that building on two shifts, $200 million. We are aiming at pushing to do that. So George, if you do the math, and we had a $22 million quarter and you annualized to $88 million, you can say we were at 88% capacity for that quarter, for one shift.

So this is really what's strengthening and the reason behind the margin shifted. The margin improvement should continue as you continue to fill up the plan, correct?

Exactly. You see how explosive the GP was when you could put a $22 million quarter on the board. And we want to do that every quarter, not just one quarter.

That's great. And second question. Have there been any changes in the competitive landscape over the last three to six months? Thank you.

There's always -- you know, there's always companies trying to get into security business. Basically, we find ourselves in a very unique aspect of it because we're the only Company anywhere that has a access control division. They can access control for buildings; locking products -- both mechanical and electronic locking products; and intrusion and fire systems.

So when it comes to competitors coming into the business, they may have one facet of it or two facets of it, but nobody has all the facets that we have. So, as we talked about, it allows us to come out with our integrated platform called Fusion, where we are a one-stop shop for integrators and dealers and they can get everything from us. So, while we watch what goes on out there, it's very hard for other companies to have all the facets of security that we have. So we think we have a big advantage now and going forward in the future.

Thank you, guys. Keep up the great work.

Walter Ramsley, Walrus Partners.

Congratulations Dick, Kevin. That was a great quarter. Got a couple of questions. Like you mentioned in your text, the dealer network took a dip early in the year due the Sandy storm. Can you give us an update on what that situation looks like now?

Well, a lot of the dealers are back in shape and doing installations. And because -- and that's in the intrusion area, specifically intrusion and fire. That was the area that really took a hit because it affected a lot of residential and commercial buildings along the seacoast all the way from Maine down to the Carolinas.

So, while some of the buildings have not come back online, the focus with our marketing has been to supply the dealers for these buildings as they come back online but also to push their remote control locking school security and recurring revenue services. So because we also diversified, one facet of our business got hurt. And it was a big facet, but other ones have made up the difference in this year. So we feel strong because we're diversified.

And the training courses are doing well and people are adopting it adopting the products. And you have a new demographic of homeowner and business owner which are more smart phone oriented which want to have apps to be able to control their systems remotely over smart phones and with that a lot of engineering spend money on doing that developing apps and that technology. So, we want to be on the cutting edge of all of this, and we want to be diversified, and we want to come at it with as many products as we can which have recurring revenue because they have the sale that keeps on giving. And that's what we like.

So the dealers -- you had a few that consolidated last year, too. Did they the bounce back to their original volume or have they remained lower than before?

It's a mixed bag. Typically, a dealer, when he consolidates, sells his account and merges into another company. So, we have that going on. We have other dealers that got stronger by doing that. We have other dealers very diversified thing that maybe the head mechanic left and started to his own alarm company and like the NAPCO products, familiar with it and he has his own alarm company, a new alarm company so it's all of these things.

Okay. Have you guys been able to expand your dealer network?

That's what we're working on. We have more dealers -- we're adding more dealers and integrators all the time. In the alarm business, it's alarm dealers; in the access control, it's integrators. And the locking, it's store professionals. And then you have integrators that do all of these things, so they can do hospitals and schools completely and supply everything from us, with one technical call to us, and we can help them do specific applications.

So we're always expanding our dealer base. There's probably about 20,000 security dealers. There's at least 15,000 integrators. There's 20,000 locking door specialists. So it's a big universe of people. And we try to hit them at all the shows, and we have people in the field working for each of our units. And that's what we do to train and get them familiar with what we're doing.

So in general you're saying the intrusion business really accelerating in the near term or is it still kind of so-so?

I think we're going to see an acceleration in the intrusion business this year. And I think it's going to grow and it brings a lot of recurring revenue along with it.

Okay . Okay, sounds great. Thanks very much.

Rick Fetterman, Fetterman Investments.

You used to, before the housing market collapsed, break out the percentage of business that was commercial and residential. And I was curious with housing staging a fairly decent recovery here in the last 18 months -- or so can you quantify the impact on the residential part of your business? And I wonder if you could break out what percent is residential and what is commercial.

Well, the way we always talk about it, Rick, is we say that NAPCO intrusion and fire is 50-50 -- residential and commercial. And we say that Continental is 100% commercial versus access control systems. And Marks USA is 100% commercial because it's [anti] Grade 1 industrial locks. And Alarm Lock is 100% commercial because it's pushbutton card reading commercial locks for offices. So I would say that we're 20% residential, 80% commercial.

In the residential portion of our business, the new demographic is younger households -- no dial-up phones; use a radio communicator. We have the best radio communicator in the business. It's priced right. It's on the best radio network, a multiple-radio network. And it's really easy for the dealers to install. So it's doing very, very well and generates recurring revenue for us. We've also added to that demographic the fact that these consumers like to use smartphones. They like to control their life on the telephone. You see them around tables. They're controlling everything by their phone. Now we're giving them the ability to control their thermostat, their lighting, the heating, their door locks, watch video, all on their smartphone.

So we see that as very, very strong growth in the years to come. And each of those services is bought by the dealer for the consumer, and there is a recurring revenue fee that you charge for using our cloud computing. So, we look at that as a very strong area. We put a lot of R&D into it. It's very complicated stuff. To get it to work on all the different types of cell phones and to get it to work on all the different types of networks, there's a lot to it. But we have been told and demonstrated that we have the best system on the market; easiest to install, and we expect big things out of this.

Okay. Thank you very much. My other questions had already been answered.

Jeff Kessler, Imperial Capital.

Hi, Dick, and congratulations on the quarter. And I want to let you know I'm now back on the research side. In going to market, you've obviously had to deal with -- you've dealt with dealers and then integrators. On the lock, when you get involved with some of the more sophisticated projects, though, it isn't just the integrator, but you're dealing with specifiers and consultants. How has going to market changed for you? And are you having to make any big adjustments inside the Company with regard to dealing with who is going to get you into that end-user?

Well, the larger jobs, we have to work many levels. But first of all, we have to have a set of drawings on everything that meets the specifications, depending on which jurisdiction. It could be anti-specification, could be national Fire Alarm Association specification, or the like. So we have sent a drawing to the architects, which have all the specs on them. Then we have people that are specializing in calling on architects and showing them our specifications and why our products are great and what heredity is of our product, so that they get put on to the drawings.

And then we do a lot of field training, plus training here at NAPCO, because these products are more sophisticated. They're heavy-duty industrial life-safety type of products. So we have to do a lot of training on that. And, of course, you have to work with the facility management, with the consultant, to get into the different facilities. So it's a more complex sale, but it's a very stable sale and comes with big dollars.

Okay. One other question. Even though, obviously, your backlogs are quite different when it comes to different types of businesses you're in, based on what you see in the order rate, what for the -- you've mentioned already that you see a stronger -- you're starting to see a stronger first quarter, at least in one of your segments, than you had before. Probably because of weather related issues.

But what I'm -- the question I'm asking is specifically is that based on what you were seeing in terms of the various order rates as they come in and the various segments? What are you looking for in terms of strength per segment into the first and second quarter?

What we're doing is each one of the segments we're in, there is some parallel labor that we get. Sales labor, training labor. So we share those -- we share that with each of the different groups. We foresee growth in the intrusion communication area because of what's going on with dial-up disappearing and having the best radio on the market at the right price with the easiest installation. Very important.

We see the smartphone taking hold, with everybody has a smartphone, and people want to control what's going on in their premise or see what's going on in their office or their store or whatever. We see all of that coming on, so that's a very hot area.

We've been doing video for more than five years from the point of view of getting it to this level of performance, where it has the clearest image and real-time and storage and all the other things that are required with video over smartphone and server. So we have that going on.

Then we have our networks locking, which takes our commercial locking and allows you to put nodes throughout buildings so you don't have to rip up the walls and run wiring. Just drop nodes into the drop ceiling or a closet. Each of those nodes talks hundreds of feet to the lock, and you can get all the data out of the lock back to security office for changing codes. Or the security office can lock it down, either from their office or from a remote station with key fobs. So we have that going on.

And then we have that whole network thing, which is brand-new, which is going to be -- we expect to be a very hot part of our business.

We're a one-stop shop. Because, as you know, there is no one company that has access control, video, locking, intrusion, and fire -- right, Jeff? -- in the industry. Right? We're the only one. So when you can put all of that on one network, you become a powerful force, and that's what we're going to do building toward the $100 million number as our first stop and then going to full capacity of a couple of hundred million second stop in our factory. And that's why it's a very exciting time.

All right. One final quick question. That is, on the 20% of your business that is residential, the elephant in the room for the last year or year and a half has been the supposed intrusion of the large carriers, both telco and cable, into the business. We're seeing that, for life safety and security types of marketing, their incursion has not been as great as some people have feared initially. The question is, as I'm putting it as to you, on your residential side, what type of competition are you seeing from the carriers? Or is it still mainly between you and other residential alarm companies?

Well, what happens is, we supply the technology, the tools, the boxes to all of the alarm companies. We have (multiple speakers) --

And that's why I asked the question, because you would -- do you have a window on this?

Yes, we -- to more than 10,000 dealers in the residential side. And these dealers select equipment that they want to use. And in certain parts of the country, there is being the big cable companies offering security services of the new technology. Of course, it's only residential, and it's only limited in its performance. And the small entrepreneurial dealers, which usually like to have other people advertising for them, they don't want to spend the dollars if you don't have to spend the dollars.

But they get called in to their customer, Mr. Smith house. He says, I saw this thing on TV, you can control your heat from the airport when I'm flying. Do you have that? He says, yes, I have the best one, and we've been testing it. And you know I've been monitoring your alarm for the last 10 years. I'll install it for you very easily.

And we find that the big cable companies are helping to market the smaller guys who do most of the business anyway. And, as we know, 75% of the business is done by the smaller alarm companies, not the giants. So, I would expect it to continue that way. And it's also helping us to get our products as the training of the smaller dealers because we're explaining to them, hey listen, you don't want the big boys to eat your lunch. You've got to learn how to combat them. And here is what you use. And this is better than they're offering.

And plus, you're local service and they know you, so they're going to do business with you. And it's kind of this marketing thing, and that's what we see that is going on. It's still in its infancy. There's millions of systems that have to be upgraded, that are installed every year, and this is a big part of it. This is the future.

All right, great. Thank you very much.

Fred Hart, Henley and Company.

Hey, Dick. How are you? Congratulations. I noticed you didn't identify the name of the university. Is that public information?

We signed up with them. We have a nondisclosure with them.

It's a nondisclosure?

Yes.

You mentioned it came from by way of a consultant. Could you elaborate on that at all? What's are the consultants? What role do they play for you?

Well, the consultants do roles a lot in the commercial big jobs, where particular a university school doesn't know exactly what is really out there, and they go to somebody who is a specialist and the consultant says, let me show you the options. And that type of thing. The consultants help explain with us as to the options, understanding the network of the system that we make, understand how the facility operates, and kind of makes it easy for the institutions to make a decision.

I see. Are you free to say if that university is on Long Island, or is it away from Long Island?

We're not free to say anything, Fred.

Okay, okay. Thank you.

Walter Ramsley, Walrus Partners.

Okay. Thanks. Again, just a quick follow-up. The tax rate in the future -- this year it was pretty low. Do you see that getting back to around 20%?

You know, for modeling purposes, Walter, I would use 20%. There's a lot of factors that affect the rate -- if this year's pace became lower than %20. But for modeling purposes, I would use 20%.

Okay. And the share count, you had, like, $500,000 were repurchased. And it looks like about $700,000 that came in from options. What do you think the share count is going to be next year?

Probably a little more than it is right now. Again, for modeling purposes, maybe add a couple of [hundred-thousand] more.

Okay. And you mentioned that the R&D was up $900,000 for the year, I guess it was. Can you say how much it was altogether?

I can. It's over $5 million. One second, I'll tell you the number. $5,119,000.

Okay. And next year, do you see that as going up even more, or are you going to hold the line there?

I would think we're going to be similar -- similar number.

Okay. All right, thanks a lot. Congratulations again.

(Operator Instructions). Gentlemen, we have no further questions at this time.

Okay, all right. It was a great to speak to everybody. Thank you, everyone, for participating in today's conference call. As always, should you have any further questions, please feel free to call Hayden IR, Kevin or myself. We thank you for your interest and support, and we look forward to speaking to all of you again in a few months to discuss NAPCO's first-quarter results of fiscal 2014. Goodbye, and have a great day.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.