NAPCO Security Technologies Inc (NSSC) 2019 Q2 法說會逐字稿

Greetings, and welcome to the NAPCO Security Technologies, Inc. Fiscal Second Quarter 2019 Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Patrick McKillop, Director of Investor Relations. Thank you. You may begin.

Thank you. Good morning. My name is Patrick McKillop, and I'm the Director of Investor Relations for NAPCO Security. Thank you all for joining us for today's conference call to discuss our financial results for our fiscal second quarter 2019.

By now, all of you should have had the opportunity to review the press release discussing the results. If you have not, a copy of the release is available in the Investor Relations section of our website, www.napcosecurity.com.

On the call today is Richard Soloway, President and CEO of NAPCO Security Technologies; and Kevin Buchel, Senior Vice President and CFO. Before we begin, 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.

During the call, we may also present certain non-GAAP financial measures, such as adjusted EBITDA and certain ratios that are used with these measures.

In the press release and on the financial tables issued earlier today, you'll find a definition of these non-GAAP financial measures, a reconciliation of these non-GAAP financial measures with the closest GAAP financial measure as well as a discussion about why we think these non-GAAP financial measures are relevant to our results. These financial measures are included for the benefit of investors and should not be considered instead of GAAP measures.

I will turn the call over to Dick in a moment, but before I do, I just want to mention a few things on the IR front.

In terms of upcoming investor outreach, we will be marketing in Dallas on February 7. And on March 18, we will be attending the Roth Conference in Dana Point, California. Also, recently, we received a new sell-side coverage from William Blair. Matt Pfau and his team did a great job on the report that was issued. Investor outreach is crucial especially for small-cap companies, such as NAPCO, and I would like to thank all of those folks that assist us in these conferences and marketing trips.

With that out of the way, let me turn the call over to Richard Soloway, President and CEO of NAPCO Security Technologies. Dick, the floor is yours.

Thank you, Patrick. Good morning, everyone. Welcome to our conference call. Thank you for joining us today to discuss our result. The second fiscal 2019 marked another record revenue and profitability performance for NAPCO. We now have 18 consecutive quarters of year-over-year record sales. Our recurring revenue continues to grow at a rapid rate. The annual run rate is now $17.2 million as of December 2018.

Our strategy of targeting professional installations and mostly commercial end market is driving our continuous growth. Our balance sheet remains strong with 0 debt as of this report, and our cash balances continue to grow.

We remain focused on capitalizing on key industry trends. These trends include the smart connected home, recurring revenue growth in cellular alarm communication and the creation of school security and safety products. The key metrics of growth, profits and return on equity are equally important to both shareholders and the management team here at NAPCO.

Our business strategy is executing well, and our interests are aligned with our shareholders as senior management at NAPCO owns 38% of the equity.

Before I go into greater detail, I'll now turn the call over to our CFO, Kevin Buchel, who will provide an overview of our fiscal second quarter financial results, and then I'll be back with more on our strategies and outlook. Kevin?

Thank you, Dick, and good morning, everybody.

For the second quarter, net sales increased 18% to $24.8 million, which was a record second quarter performance and the 18th consecutive quarter of year-over-year record sales as compared to $21.1 million last year. For the 6 months ended December 31, 2018, net sales increased 14% to $48.2 million as compared to $42.2 million last year. The increase in sales for the 3 and 6 months ended December 31, 2018 were primarily related to increased sales of our door-locking products, alarm communications and intrusion products and access products. Recurring monthly revenue increased 46% for the quarter to $4.1 million versus $2.8 million a year ago, and for the 6 months, increased 46% to $7.9 million from $5.4 million last year. Recurring revenue now has an annual run rate of $17.2 million based on December 2018 recurring revenue.

Gross profit for the second quarter increased 26% to $10.7 million with a gross margin of 43% as compared to $8.5 million with a gross margin of 40% last year. For the 6 months, gross profit increased 19% to $20.2 million with a gross margin of 42% as compared to $17 million with a gross margin of 40% last year. The increase in gross profit and gross margin for the 3 and 6 months was primarily due to the increase in sales.

R&D expenses for the second quarter increased 8% to $1.8 million or 7% of sales compared to $1.6 million or 8% of sales last year. For the 6 months, R&D expenses increased 8% to $3.5 million or 7% of sales as compared to $3.2 million or 8% of sales last year. The increase for the 3 and the 6 months was primarily due to increased salary and some additional personnel.

SG&A expenses for Q2 decreased 1% year-over-year to $5.6 million or 23% of sales as compared to $5.7 million or 27% of sales last year. For the 6 months, SG&A expenses increased 2% to $11.7 million or 24% of sales as compared to $11.5 million or 27% of sales last year. The SG&A decrease for the quarter was primarily due to lower sales promotion costs, and the increase for the 6 months was primarily due to higher commission and freight driven by higher sales level.

Operating income for the 3 months ended December 31, 2018, increased 183% to $3.3 million as compared to $1.2 million last year. Operating income for the 6 months increased 127% to $5.1 million as compared to $2.2 million a year ago.

Income tax expense for the quarter increased by $508,000 to $419,000 as compared to a benefit of $89,000 last year. The company's effective tax rate is 13% for fiscal Q2 '19 as compared to negative 8% for fiscal Q2 '18. For the 6 months, income tax expense increased $613,000 to $667,000 as compared to $54,000 last year. The company's effective tax rate for the 6 months was 13% as compared to 2% for the same period last year. The increased income tax expenses for both the 3 and the 6 months was primarily due to the aforementioned increased operating income.

Net income for the first quarter increased 133% to a second quarter record of $2.9 million or $0.15 per diluted share as compared to $1.2 million or $0.07 per diluted share last year. Net income for the 6 months increased 106% to $4.4 million or $0.23 per diluted share as compared to $2.1 million or $0.11 per diluted share for the same period last year. The increased net income for the 3 and 6 months was due to the items previously mentioned.

Adjusted EBITDA for the quarter, as outlined in the schedule included in today's press release, increased 135% to $3.8 million or $0.20 per diluted share as compared to $1.6 million or $0.09 per diluted share last year. Adjusted EBITDA for the 6 months increased 94% to $5.9 million or $0.31 per diluted share as compared to $3 million or $0.16 per diluted share last year.

Moving on to the balance sheet. Cash balance at December 31, 2018, was $7.9 million as compared to $5.3 million in June 30, 2018. Our working capital as of December 31, 2018, was $43.3 million as compared to $44.3 million at June 30, 2018, and the current ratio was 4.3:1 at December 31, 2018, as compared with 5.7:1 at June 30, 2018. And debt remained at 0 at December 31, 2018.

Net cash provided by operating activities for the 3 months ended December 31, 2018, increased 144% to $3.2 million as compared to $1.3 million last year. And for the 6 months, net cash provided by operating activities increased 125% to $6.3 million as compared to $2.8 million for the same period last year.

CapEx was $695,000 during the quarter, and for the 6-month period, was $1.1 million. Our stock buyback remains open, and we make purchases opportunistically as we have strong belief that the future remains bright for NAPCO. We bought back 147,000 shares during the quarter end of December 31, 2018, and have bought back approximately 186,000 shares for the 6 months ended December 31, 2018.

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

Kevin, thank you.

We continue to be excited about the growth in our business, which is being driven by the addition of recurring revenue and school security products. We expect that the growth trend in recurring revenue and school security as well as the other parts of our business to continue in the future. We continue to see demand for recurring revenue products coming from alarm communicators, including fire, intrusion and the growth of the smart home category.

The topic of school security remains an important issue in the United States, and we continue to believe there is a significant opportunity in this vertical.

During 2018, there were 82 reported school shooting incidences at K-12 schools. The most since reporting of incidences was started in 1970. As you all know, last year, we witnessed many horrific school shooting tragedies. We remain dedicated to providing solutions and products that the schools desperately need.

We believe that this market is very large, with over 100,000 K-12 and 10,000 colleges and universities in the U.S. In total, states support approximately $1 billion into school security since February 2018. As an example recently, Senator Carlson of Minnesota recently stated that he will be proposing legislation, which will appropriate $500 million for violence, protection and facility security. During 2018, Minnesota budgeted $25 million to school security and a grant request totaling 10x that amount or roughly $250 million. The pipeline for school security projects looks robust, and we will continue to announce new wins when we can as we need to receive approval from the schools prior to doing so.

The professional alarm monitoring market will continue to grow over the next few years, we believe, as the demand for connected systems over traditional systems continue. In the U.S., there are approximately 133 million homes, and just 22% have alarm systems. The growth of the connected home market is in its infancy, and the best is yet to come in our estimation.

Our StarLink alarm communicators are the most extensive product offerings in the industry currently. We offer 4 different versions: intrusion, fire, both single pad and dual pad, and the connect. The fire versions are commercial, while the intrusion and connect are primarily residential and small business. The StarLink communicators allow for the transmission of alarm signals over the cellular networks in lieu of the traditional phone lines that have been used for many years. The use of traditional phone lines has been declining in residential homes for years. The commercial market is being impacted as well with the major telecommunications company -- companies declining to support old-fashioned telephone lines and buildings.

Last quarter, we announced the latest addition to our smart home offering, the video doorbell. The video doorbell has become a popular product, and our dealers have been asking for us to offer one. Our new video doorbell can be integrated with NAPCO systems as well as many of our major competitors' brands. Additionally, our video doorbell will contribute to our recurring revenue line, which, as you know, has been growing at a very strong rate for the past few years.

Another recent addition to our product portfolio is the commercial FireLink fire alarm control panel. FireLink is an all-in-one fire alarm control panel with a built-in cellular StarLink-powered alarm communicator for use in commercial buildings. It comes prefigured and preactivated, enabling easy installation and cost savings for dealers. We believe that it can become a new strong contributor to our recurring revenue for years to come.

This April, we will be at the ISC West Trade Show in Las Vegas. It is the largest industry trade show with over 30,000 security-installing professionals attending. NAPCO will be showing some strategic products that are a combination of hardware and recurring revenue, and we expect them to become great drivers in our business for the future. The show is taking place from April 10 through the 12th. We invite all investors and our covering analysts to attend. You'll be able to see our products as well as meet the dealers who are purchasing them, driving our sales to record level.

If you're interested, please contact Patrick, our Director of Investor Relations, and he can arrange for pass so you can enter the show.

Our R&D team continues to work on developing more products that will bring recurring revenue to our business. We've had great success with our current recurring revenue products, and our goals include the continued growth of that product line. The potential application of Access Control as a service is one example that our engineers are working on.

We will begin our Q&A session portion of this call in a moment. Our second fiscal quarter 2019 was a very successful record-breaking quarter for us as we continue to grow the company and deliver strong profit. Our shareholders have been rewarded with very healthy returns and stock performance. NAPCO is in a strong position to continue its growth in sales and profits going forward. We are excited about the rest of the fiscal year 2019 and beyond.

NAPCO senior management maintains a high level of ownership in our equity, approximately 38%, and I would like to thank everyone for their support and for joining us in this exciting future we have.

Our formal remarks have now been concluded. We would like to open the call for the Q&A session. Operator, please proceed.

(Operator Instructions) Our first question comes from the line of Matt Pfau with William Blair.

I wanted to start off with the recurring revenue business and a nice result there in the quarter. Maybe just an update on how you feel about attaining your $40 million in recurring revenue goal. And then relative to non-StarLink recurring revenue products, when do you think we could start seeing a contribution from those products and the results?

Thanks so much. Our goal is to come out with many new products, which have a recurring revenue component, and it all piles onto our successful results. We keep adding new StarLink communicators. Now we're adding integrated control panels with communicators inside of them. And then at the ISC show, we're going to show some new products, and it's all part of our goal. So if you take the growth rate that we've been talking about between 45% and 50% and you compound it out, we should be into that $40 million number in a couple of years.

Got it. And then I wanted to hit on the school security opportunity. It seems like that was a significant driver of some of the hardware outperformance in the quarter. These school shooting incidents have been happening for quite some time. Obviously, 2018 was a bad year. But I guess, where do you think in terms of the results in the quarter and what you're seeing in the pipeline, where are we at in terms of a tipping point in schools getting more serious about their security?

Well, Matt, we've been saying that we saw the tide turning, so to speak, after the shooting in Parkland, Florida, about a year ago in February 2018. As a result, that seems to be a tipping point change where schools were waking up and finally doing something about this horrible problem of school security. And so for us, we've seen a lot of quoting activity. We've had more wins. We've had more press release announcement. Sometimes they don't let us announce it, but a lot times now they are. And this is just the beginning, we feel. Plus there's been a lot of money that's come down, government and schools to make it easier, especially K-12, was always faced with budget issues, and the universities have taken down, they're just starting to spend that money. So what you saw this quarter, I think, is just the beginning. We think that there's a lot more to go. We talked of these in terms of early stages or early innings of school security. Much more to come, much more to be done and we're there for the schools. I think you could expect to see more of this in the quarters to come.

Got it. And then just one more on the school opportunity. One of the deals you press released this quarter was the Lewisville ISD in Texas. That seemed like, based on the press release, a more comprehensive deal at least for a school district than you've done in the past. So maybe can you just talk about is that the case, what drove them to perhaps purchase more comprehensive set of products than other school districts and then is this -- can this potentially be the trend going forward?

We'd like to cross-sell in all our division, and we're the only company that has locking Access Control and alarm. Our business cards have all our different divisions, and a brief description of what they do. And when the school calls us in for school safety and security, we always like to present the full NAPCO complement of products. And in this case, they needed more burglary products. So our systems division did that job. That's kind of the MO that we're going for. Typically, the security department or the locking department, lock shop department in these schools call you in. We have dealers and we have Access Control specialists in all these territories around the country because we have thousands and thousands of dealers, more than 12,000. We have 2,000 -- we have 10,000 security dealers, 2,000 system integrators, and they're in every territory. So they get called in, and then they call us, and we try to figure out what is the best mix of products that will protect the school. So we go beyond a normal just school locking product. We go in with the fire, burglary and access. And because we have -- the only company with that and because we have a Fusion backbone network, which is our software network, everything integrates well together, and then it's a good -- it helps us a lot. We try to sell with schools because we're one integrated solution rather than dealing with a bunch of different companies where they try to cobble together a system. So that's an advantage. So that's a big marketing push that we have going on here.

Great. And just one last one for me in terms of the hardware revenue. I believe this is the first non-fourth quarter to have hardware revenue over $20 million, which is obviously an important mark for you guys. How should we think about this going forward? Is this something that you think you can reach on a more regular basis now? Or was there something sort of one-off in the quarter that it's still -- we're still a bit of ways before you can hit the $20 million hardware revenue in a non-fourth quarter on a more regular basis?

The long-term goal in a couple of years, couple 3 years is to be $100 million worth of hardware revenue and $40 million worth of recurring monthly revenue. Put those together, you're talking about much greater profitability for the company. So this hardware growth this quarter is part of what you're going to be seeing going forward in the future. But our goal is we don't look at it quarter-to-quarter, but it seems to be coming together pretty quick. And we expect to hit our goals a couple of years out. And I think that Kevin has been modeling with you guys, really could be profitably-wise, and it's very, very positive for the company.

Our next question comes from the line of Mike Walkley with Canaccord Genuity.

This is Anthony on for Mike. Just in terms of the hardware gross margin expansion we saw, was that attributed primarily to higher-margin projects like with the schools? Or are you starting to see some progress on the cost-saving initiatives as far as like sourcing components from Asia?

It's a combination, Anthony. So we've talked a lot about how we get leverage from our Dominican factory when the sales level rose above a certain point. So when we're over the $20 million mark, that's a key for us. And so the leverage starts to kick in on getting margin expansion, overhead absorption. We saw that. We see a lot of that in Q4, but when you go over $20 million, you're going to see it in other quarters. You saw it in this quarter as well. The initiative from Asia, that's begun as well. That takes time to get the true long-term effect, but there's a little bit of that, too. There's a lot more of that to come in the future. And also, school jobs, they can be very profitable. It depends on what the schools buy, and we had some of that in this quarter also. So we had a little bit of everything. But if you get to the point with the $20 million level is exceeded, you're going to get that margin expansion on the hardware side, plus great margins on the recurring. Get both things working, you get numbers like you saw this quarter.

Got it, got it. Great. And then on the R&D, it remained elevated, say, relative to last year, somewhat at Q1 levels. And is this kind of uptick in investment -- I think you mentioned you had more focus on the recurring revenue side. Any sense for the types of offerings we might expect? I know you had just mentioned in your prepared remarks Access Control as a service, any other color you can provide what's coming out of the R&D investment there?

Well, we talked about the integrated alarm, fire alarm systems, with recurring revenue communicators inside. So you're going to see more of that type of thing, and we like to get recurring revenue from all our divisions, and we're working very diligently to do that. We have 50 engineers now. We increased our engineering budget so we could get more people and do these exciting things. We have a lot of ideas, and turn them into finished products. But it all bodes very well for our company for years and years to come. Everybody needs more security. We've got the creative concepts. Now we have more engineers so we can turn more products out. I would say, come to the ISC show and see a couple of things, which are kind of the pretty, pretty revolutionary for our industry, and then you can talk to some of the dealers that are using our products and see how they're going to be responding to the new things we're going to be showing, so it could be a real eye opener.

Right. And then just lastly for me, just coming off the holiday quarter, any data points or colors from dealers on StarLink Connect relative to some of the other...

The StarLink Connect has a very, very large market. It's a market that we're penetrating. It's a good contributor to our growth, and it'll continue for years and years. As you know, the StarLink Connect modernizes 20 million, 30 million alarms that were sold previously by dealers before such thing as connected home was invented. So the StarLink Connect makes those systems, which many of them are working fine. They just don't have app control, a thermostat, lock, lights and live video, makes all of that available to those existing alarms. And the dealers love it because they can be in and out of the premise in an hour rather than days and days where they had to rip out the old alarm system and put a new modernized connected home alarm. Now with StarLink Connect, it's all done in an hour, and it's quite an innovation. It works on every brand of control panel that's out there that's been installed, and it was like a big project here to get it done, and it's reaping nice benefits for the company.

Our next question comes from the line of Gary Mobley with The Benchmark Company.

I'd like to start asking about the accelerating RSR or previously known as RMR revenue. I think that quarter-to-quarter delta has been growing consecutively for the past 3 quarters. And so I'm wondering if that is mostly a function of the two-way radios, which I believe carries a, what, a fivefold increase over the normal or the average for the different radios.

We have a very large assortment of radios now because we make the original burglar radio, which was small business and residential, stores, shopping centers and things like that. That was $5 to $9 a month. And then we have fire radios, which are -- get us up to $25 a month, both single pad and dual pad fire radios, and they've been just approved in the most strict jurisdiction to be a replacement or a leased phone line that commercial buildings have to have. It's a competitive substitute. We get up to $25 a month for those. And then we have the connect radios, which are the ones with a home automation hub built in, we get up to $13 for those. And now we came out with the StarLink with the integrated radio built into it, fire, commercial fire, big business for us, big new growth [pad] for us. And as we like to say, fire is on fire. So we expect more and more business from the integrated solutions that we offer the dealers that go in very quick and very modern and don't have to rely on the telecommunications carrier. Now the dealer can make a profit by installing it. Instead of the -- money is going to the telecommunications company, and it goes to the dealer and also the property owner. They split the difference that the telecom companies would normally be getting. So there's a lot of exciting things. And at the ISC show, we'll show more exciting things with recurring revenues. So it's a good scenario for us and for our dealers and for people to be protected.

Okay. I know in the past, you haven't broken out the Continental Access business contributes to the overall revenue. But I wanted to ask about the diversity of the Continental Access. So in general, the building access security business. How much diversity was there in the quarter, which contributed to the overall product revenue strength? And any level of detail with respect to overall revenue contribution for Continental Access would be helpful as well.

We break out the revenue somewhat, and you'll see it when the Q is published. We combine our locking companies together, the locking piece was up about 11% for the quarter, 7% for 6 months. Recurring was up 46% for the quarter, and it's up 46% for the 6 months. The intrusion and access, we combine that because they're kind of related in many ways. And so the best I could give you in terms of a breakout was that piece was up 16% for the quarter and 13% for the 6 months.

And then with respect to the...

That gives you an idea that -- everything was going also and this was working.

For the diversity of that growth, was it driven by 1 or 2 specific installations?

I would say it was across the board. We always say we're not a one-trick pony. We've got a lot of things going, and it was a lot of things clicking this quarter on all divisions, on all fronts. And that's what we work hard to do. We wanted everything clicking. We don't just want the recurring working. We want the hardware working. We want each of the divisions within the hardware to do well. So there's more that can be done. We could do better even yet. Like we said earlier, the goal of $25 million a quarter is $100 million hardware. That's our goal. We're going to work hard to hit that as fast as we could to get there.

Our next question comes from the line of Joseph Osha with JMP Securities.

I'm wondering if we could return to this issue of integration with third-party hardware. Obviously, you're doing very well with your own products, but you've got some companies out there, Arlo for example, really pushing on price points for third parties. And I'm just wondering, when you interact with your dealers, what type of feedback you're getting in terms of in-house versus third party? It interests me that you still see this 60-40 hardware versus recurring revenue mix even a couple of years out. Wondering if you can comment on that.

Well, some of our products, the access products work with competitors' products, the key competitors' products. So we integrated with those. There are some jobs that we run into where they want to use our locking systems and our access systems. They want to network up with the existing system on a large building or a campus. So we integrate with those other systems. But we're very diversified. And in fact we have our totally integrated solution. So we like to sell what we make, but we try to make our stuff attached to the key software platform that are in the industry. So you're getting -- you're seeing a lot of that.

Do you think that -- obviously, you've got this very nice operating leverage out of the DR, which is great. Do you -- I mean, there will come a point at which you have to decide whether they add to that scale or perhaps took more to third parties. Do you see the mix shifting over time? Or is the idea, even over the longer term, to be the -- to borrow your phrase, sell what you make?

We're going to constantly drive forward to increase our sales both with the integration and to others and also with our total vertically integrated product line. We have a lot of capacity in Dominican Republic. We can do $100 million per shift. We can get all the people we need to make all these products. So we're going to keep building up the factory. As we hit these magic numbers of $100 million, $40 million, the profitability really starts jumping tremendously, and that's our goal. That's where we want to be in a couple of years from now.

Our next question comes from the line of Pete Enderlin with MAZ Partners.

I have a few longer-term questions. First, is there any realistic way, practical way that you can address the international potential of some of your products and thereby, of course, help fill up that plant as well?

The -- a lot of the international -- we use to sell more overseas, but it became complicated because different countries have different specs, and we didn't want to have all these different product lines and pass all the engineering into all these different product lines because it just diffuses our growth areas, which is North and South America, which has plenty of needs and plenty of businesses. So we decided that we'll make a couple of universal items, like our Access Control for overseas. But a lot of the other items, we don't spend a lot of time developing because it would just be a sapsucker to our engineering efforts. We're trying to keep our expenses in line. We did spend more money on engineering, hence you're seeing more new products coming out for the North and South America market, which is a big market. Schools are a big market. Modernizing alarm systems for commercial buildings is a big market, and we can go to really high heights of volume and profitability with just focusing on these things. So that's kind of our direction.

Okay. Fair enough. And also, now that you're debt-free and generating increasing cash flow, would you consider a dividend?

It's one of our considerations, yes. That's on the list. So we'll keep that in mind.

Okay. And then lastly, Dick, you've done a great job, and a lot of this is coming to fruition. What can you tell us about potential succession planning for the company?

Well, we have a very good group here with Kevin, Jorge and Michael. This is our executive team. And we're going to get to a point where these guys can take over and run the place, but we all run it together now, and we all know what we're all doing. We have many management discussions and meeting as far as where we are going. Kevin is involved and not just in the finance, but in the operations of the business, the direction of a product, where we're going with product and marketing. Jorge Hevia is involved in all aspects of the business also, and so is Michael Carrieri, our Engineering Vice President. So that's how we operate the business, and we've been doing it for a lot of years together. And now that the business has hit these paradigm shifts, we're really making a lot of hay out of it with the recurring revenue product and the technologies that we've developed over the years. And it's great that the industry is going more tech because it kind of suits us just right, and all of our guys here that I mentioned are all in these meetings and having discussion, and we come up with great direction and ideas. This quarter was a very nice representation of that.

Our next question comes from the line of Abba Horovitz with OS Capital.

You guys are in a unique position today because you have no debt to pay down and your cash is building. And I assume over the next 2 years through the excess cash flow you'll generate, you'll have quite a bit of money on the balance sheet. And for what I understand also is that you're really not interested in acquisition because there's enough to do in the company itself today that actually would say don't do an acquisition. So you're going to have a real serious cash build, and I'm wondering what do you propose to do with that cash build that you have.

That's a high-class problem that we're starting to face. We've been generating a lot of cash for a number of years. It's accelerating. We paid off the debt originally with this cash. Now it's building. So there's a lot of people that are asking, what are you going to do with it? The previous caller to you said, "Why don't you start giving dividends?" So we have a list of how to solve this high-class cash problem, and that's what we're facing now. So that's it. That's our goal.

Okay. Is there a limit in the stock purchase price? And do you have a limit where you'll buy it? At what level -- is there a number here on -- based on free cash flow or free cash flow yield or something like that? Or...

When we buy back stock, Abba?

Yes. Is there -- do you have a certain price? Would you buy back stock at $20? Or is it more closer to $14?

Very strict guidelines. And so we do it. We always say we do it opportunistically, and we keep our eye on it. And it's worked out well for us. If you look at our average price over the time that we've been doing it versus the stock price today, we've done a really good job indefinitely. We keep watching it. One of the ways we spend the cash. I wouldn't rule out an acquisition either, but it has to be perfect. We always say if we hit the buyer criteria that we want, that's a possible [stomach] of cash. The 5 criteria being it's got to be a fair -- got to pay a fair multiple; got to be accretive from day 1; it's got to utilize our dealer network; it's got to be able to manufacture in the Dominican Republic; and we like to have an earnout associated with it. So if we could hit on those 5 points, an acquisition could be on the table, too. But we don't need to. We've got plenty to do with here.

Okay, wonderful. When can we get some more color on the products that will be coming out to understand better what they do and how the, I guess, the model works?

Are you talking about the new products?

Yes.

Well, they'll be shown at the ISC show, and there'll be press releases about that. So that's in April.

We have reached the end of our question-and-answer session. I would like to turn the call back over to Mr. Soloway for any closing remarks.

Thank you, everyone, for participating in today's conference call. As always, should you have any further questions, please feel free to call Patrick, Kevin or myself. We thank you for your interest and support, and we look forward to speaking to you all again in a few months to discuss NAPCO's fiscal Q3 '19 results. Bye-bye.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.