NAPCO Security Technologies Inc (NSSC) 2020 Q3 法說會逐字稿

Greetings and welcome to NAPCO Security Technologies Fiscal Third Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded. I would now like to turn the call over to your host, Mr. Patrick McKillop. Thank you. You may begin.

Thank you. Good morning. My name is Patrick McKillop. 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 third quarter 2020.

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 statements. 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 the 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, but 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. We remain steadfast in our investor outreach during the COVID-19 crisis and are still available for conference calls and/or video calls with the investor community. Many investor conferences have been switched to a virtual format, and we look forward to this new experience.

We will be in virtual attendance for the Needham Conference on May 20, the Stifel Cross Sector Insight Conference on June 8, the William Blair Conference on June 9 and the Canaccord Genuity Conference on August 11 through the 13. There will be presentations and one-on-one meetings at these conferences, so please mark your calendar.

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 investor outreach efforts. 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, and welcome to our fiscal Q3 earnings results conference call. Thank you for joining us today. We are living in challenging times, to say the least. I am very proud of our company's fiscal third quarter 2020 performance, which marked another record revenue and profitability performance for NAPCO.

Our SaaS recurring revenues continue to grow at a rapid rate. Our recurring revenues annual run rate is now $25.4 million as of the end of March. Our focus on targeting mostly commercial end markets and professional installation is driving this continuous growth. Our cash balances remain healthy, and our balance sheet is clean with no debt.

We continue to be focused on capitalizing on the key industry trends. These trends include wireless fire and intrusion alarm communicators, school security solutions, enterprise access control systems and architectural locking products.

Our management team continues to focus on the key metrics of growth, profits and returns on equity. These metrics are important to us as well as our shareholders. 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 will now turn the call over to our CFO, Kevin Buchel. He will provide an overview of our fiscal third 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 third quarter, net sales increased 4% to $26.2 million, which was a record third quarter performance and the 23rd consecutive quarter of year-over-year record sales as compared to $25.1 million for the same period a year ago.

For the 9 months ended March 31, 2020, net sales increased 7% to $78.4 million as compared to $73.3 million last year. The increase in sales for the quarter and the 9 months were primarily related to increased sales of our alarm communication services and sales of intrusion and access products as partially offset by a decrease in sales of door locking products.

Recurring monthly revenue for the Alarm division increased 37% for the quarter and 39% for the 9 months and now has an annual run rate of $25.4 million based on March 2020 recurring revenue. Net sales for the quarter would likely have been significantly higher, if not for encountered COVID-19-related supply chain disruptions, which has since been rectified and which was caused by the initial shock of this unprecedented crisis.

Gross profit for the third quarter increased 11% to $12 million with a gross margin of 46% as compared to $10.7 million with a gross margin of 43% last year. For the 9 months, gross profit increased 15% to $35.6 million with a gross margin of 45% as compared to $31 million with a gross margin of 42% last year.

The 300 basis point increases in gross margins for the quarter and the 9 months, respectively, was primarily driven by the previously mentioned strong increases in recurring revenue, where the gross margin increased by 500 basis points to 84% for the quarter versus 79% last year and 300 basis points to 81% for the 9 months versus 78% last year.

Recurring revenue margins continued to expand primarily due to the continued strength of the StarLink Fire communicators sales.

R&D expenses for the quarter remained relatively constant at $1.8 million or 7% of sales compared to $1.9 million or 7% of sales last year. And for the 9 months, R&D expenses was also relatively constant at $5.4 million or 7% of sales as compared to $5.4 million or 7% of sales last year.

Selling, general and administrative expenses for Q3 increased 17% to $6.1 million or 23% of sales as compared to $5.2 million or 21% of sales for the same period a year ago. And for the 9 months, SG&A expenses increased 10% to $18.6 million or 24% of sales as compared with -- to $16.9 million or 23% of sales last year. The increases for the 3 and the 9 months was primarily due to increased media advertising, additional sales staff and salary increases.

Operating income for the third quarter increased 11% to $4 million as compared to $3.6 million last year. And for the 9 months, operating income increased 34% to $11.6 million as compared to $8.7 million a year ago.

Income tax expense for the quarter decreased by $95,000 to $425,000 as compared to $520,000 last year. And for the 9 months, income tax expense increased $38,000 to $1.225 million as compared to $1.187 million last year. The company's effective tax rate for income tax, 11% for the 3 and 9 months, and that compares to 14% for the 3 and 9 months last year.

Net income for the third quarter increased 16% to a third quarter record of $3.6 million or $0.20 per diluted share as compared to $3.1 million or $0.17 per diluted share last year. And for the 9 months, net income increased 39% to $10.4 million or $0.56 per diluted share as compared to $7.5 million or $0.40 per diluted share last year. The change in net income for the 3 and the 9 months ended March 31, 2020, was primarily due to the items previously mentioned.

Adjusted EBITDA for the quarter, as outlined in the schedule included in today's press release, increased 22% to $4.9 million or $0.26 per diluted share as compared to $4 million or $0.22 per diluted share last year. For the 9 months, adjusted EBITDA increased 34% to $13.3 million or $0.72 per diluted share as compared to $9.9 million or $0.53 per diluted share last year.

Moving on to the balance sheet. The cash balance at March 31, 2020, was $11 million, and that compares to $8 million at June 30, 2019. Our working capital as of March 31, 2020, was $57.9 million, and that compares with $51.1 million at June 30, 2019. And the current ratio was 5.2:1 at March 31, 2020, and that compares to 4.6:1 at June 30, 2019. And debt remained at 0 at March 31, 2020.

Net cash provided by operating activities for the quarter was $1.8 million, and for the 9 months ended March 31, 2020, was $6.6 million.

Inventory levels remain higher than normal as we continue to gear up for new product launches that we have mentioned on previous calls, including iSecure, which we started to ship at the end of Q2 and continued in Q3, our new Marks Anti-ligature locks and our new line of AT&T LTE StarLink radios.

Inventory levels are also impacted by the level loading of our production output throughout the year, whereas our sales are historically highest in the fourth quarter.

And one additional factor affected inventory levels, we purchased some of our components from China. And to prepare for the disruption of the Chinese New Year, which lasts more like a month, not a day, we purchased extra raw materials. Obviously, we couldn't predict the impact on Chinese factories from COVID-19, but this extra inventory has served us well and has limited any supply chain disruptions we may have had.

CapEx was $261,000 during the quarter versus $479,000 in the year ago period and $1.324 million for the 9 months versus $1.598 million for the comparable period last year.

And during the quarter, we bought back approximately $2.4 million worth of NAPCO stock. We buy back opportunistically when we feel the shares are undervalued and have done so at various times over the past few years. Our cash balances would have been higher at quarter end. However, we determined that this was an attractive use of capital during the quarter.

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

Thanks, Kevin. We continue to believe that the growth we have witnessed in our business should continue in the future. As our business is comprised of 80% commercial, many of our products are deemed essential, such as nondiscretionary commercial fire alarm communicators.

NAPCO also plays a vital role in the health care vertical with our locking and access control divisions, which, for example, provide entry-exit devices and push-pull locks with anti-microbial finishes. Recently, our Alarm Lock division's DL-2700 locks were being installed by the U.S. Army Corps of Engineers at a temporary field hospital in the McCormick Place Convention Center in Chicago, which had a need for access control. We were very proud they chose our Alarm Lock products.

The need for security is greater now with many businesses closed and employees not there to watch the store, restaurant or office. Recently, the New York Post published an article that stated, "NYPD data showed a 25% rise in commercial burglaries during this COVID-19 shutdown, and similar increases have been reported across the country in other large cities."

We continue to see growth coming from alarm communicators of fire, intrusion and the smart home category as evidenced by the growth of our recurring revenue products. The fire radios, in particularly, are literally on fire as evidenced by an 84% gross margin for recurring revenue in Q3.

The school security market remains a contributor to our growth, and there remains a significant marketing opportunity. New funding initiatives continue to take place to help the schools pay for the upgrades they need. Recently, the Kentucky Legislature approved its fiscal 2021 budget, which includes $40 million for school security despite the expectation of lower tax revenues due to COVID-19.

We also continue to monitor the progress of the School Violence Prevention and Mitigation Act of 2019, which was proposed by the Representatives Williams and Deutch in the U.S. House of Representatives in July 2019, which would allocate $2 billion over the next 10 years.

We remain focused on providing schools the products and solutions they need to protect their students and faculty. Funding for school security products remains available for those who need it, thus, we expect growth in this area to continue. Press releases regarding school and university security projects are issued when the opportunity is allowed for us as we must receive approval from these institutions prior to release.

Our pipeline for school security projects remains robust. While many schools are closed during the COVID-19 shutdown, projects are happening depending on state and local government directives concerning COVID-19 shelter-in-place orders. And we are starting to see more of these directives being lifted and expect that to continue in the coming weeks and months.

Our recent launch of the AT&T LTE version StarLink line of universal fire, intrusion and IoT communicators continues to gain market share and are playing a vital role in the need for the upgrade of older 3G AT&T communicators. Our StarLink communicators offer the widest coverage in the U.S. to deals with both AT&T and Verizon LTE service.

During the quarter, we also continued to see growth of our FireLink innovative all-in-one 8- to 32-zone fire alarm control panel with StarLink communication technology built in. This preconfigured and preactivated unit is designed to save the dealers installation time and money while replacing legacy landline systems. The FireLink unit is contributing to our sales growth and also contributing recurring revenue.

NAPCO's latest recurring revenue product innovation, the iSecure commercial and residential 80-zone alarm system, continued its rollout during Q3. The iSecure offers the most cost-effective functionality in the industry and has the StarLink communicator technology inside, which will generate recurring revenue with every sale and installation. The product is designed for the new breed of professional installers and savvy consumers. ISecure has installation times of 1 hour and offers the feature-rich sets for smart home capabilities that many residential, small- to mid-sized businesses are looking for today.

As we look to the future, expanding our cellular communications technology to other areas in the security business is a focal point for our strategy. During this fall, we plan to introduce a cellular-based locking and access control product line using StarLink technology. These product lines will generate hardware sales as well as recurring revenue, while enabling our dealers to provide valuable new services to their end users.

Finally, I'd like to take this time to share some exciting changes in leadership in our sales and marketing teams. As mentioned in this morning's press release, we are excited to announce the hiring of Stephen Spinelli as our new Senior Vice President of Sales. Stephen brings over 25 years of experience in the security business to us, which will help us expand our presence in new channels within the industry while continuing to grow existing channels.

Jorge Hevia, a long time valuable employee of 20 years plus, will now be our Chief of Marketing going forward. And with his efforts focused in this area, plus the addition of Stephen as SVP of Sales, we believe our team has been strengthened for the years to come.

We'll begin our Q&A session portion of this call in a moment. Our fiscal Q3 2020 was a very successful record-breaking quarter for us as we continue to grow the company and deliver strong profits. We are now in our fiscal fourth quarter and our business, like countless others, will likely encounter market challenges that can neither be fully anticipated or quantified.

As we continue to make progress against COVID-19, we believe we are well positioned in the commercial nondiscretionary sector of the security market to weather the storm and look forward to the resurgence of the economy.

We believe the strong growth of our recurring revenue should continue in the future while also expanding our profitability. NAPCO's 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 are now concluded. We would now like to open the call for the Q&A session. Operator, please proceed.

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

Nice job operating in a difficult environment here. So first, I wanted to ask on the production facility in the Dominican Republic. Maybe you can just give us an update on how that's been performing and if you've been able to maintain adequate levels of production.

Kevin, do you want to take that one?

Sure. So DR is operating. Dominican Republic, even though it's a warm climate, has COVID-19 issues like the rest of the world. We've been lucky; we had a little disruption at the end of the quarter, the last week of the quarter and the first week of the new quarter, 2 weeks. And it worked out for us because we were going to be closed for Easter Week anyway, the week of April 6. And like in baseball, you can make trades for these shutdown weeks.

So we have 3 planned shutdown weeks in the DR, Easter Week, the week after the fiscal year is over and Christmas. So because there was a lot of chaos right at the beginning of April, really, the end of March, beginning of April, we closed for 2 weeks and made a trade. The first week that we closed, we traded it for the Easter week. And the next week, we traded for June -- end of June, beginning of July shutdown. So it really doesn't cost us anything. Actually, it's like trading shutdown times.

Since then, they're back in operation, which is very -- we're very fortunate. A lot of our competitors can't say that. We have a competitor who manufacturers in Mexico, their whole operation was shut. So we're very lucky. We're operating, and we were operating in Amityville. And we're going to get through this.

We have a lot of experience getting through crises. And of course, nobody has seen anything like this. But we were prepared from the '08/'09 horrible situation we had with the economy then. Then we had $40 million of debt. We have no debt now. We had no recurring revenue back then. Now we have a $25 million run rate. And of course, we have cash and we're prepared for this.

So I don't know how long it's going to last. But states are starting to open up, but the DR is running, Amityville is running and we're doing the best we can. I feel like things will be back soon. We hope.

Great. And then I wanted to also ask for an update. One of your 10% customers, a large distributor last quarter put a pause on its purchasing as it was going through an M&A process. Can you just give us an update on if you saw that distributor come back this quarter and make additional purchases?

Yes. So this distributor who -- last quarter, they were in the midst of being acquired. Now it's determined who's acquiring them. The acquisition is going forward. It hasn't closed yet. But it will. It's one $8 billion company acquiring another $8 billion company.

We saw sequentially our business with this customer go up 64%. So they are virtually back to where they always were and where we think they always will be. We also, of course, look at the sell-through statistics. And the sell-through stats were up 9% in the third quarter versus the third quarter a year ago.

So these were all very positive signs. The way we look at this is, yes, it's a change, the acquisition hasn't concluded yet. But this is more opportunity for us. This is another giant distributor taking over a fairly big one. The company that did the acquiring, we didn't do any business with them. So now we have the chance to do a lot more business. So we don't look at this negatively. We're very happy with the 64% sequential increase and lots of opportunity ahead is the way we view it.

Got it. And last one for me. Really nice increase on the recurring gross margin, obviously, due to the strong sales of your fire products. How should we think about that gross margin going forward? Should there be some variability there depending upon product mix? Or should it sort of stay at this 84% level?

Well, Matt, gross margins tend to jump around a little bit. We were at 78% a couple of quarters ago. We got to 81% last quarter. Now we're 84% in Q3. It can go higher. The more concentration there is of fire radios, where we get more money for those than the other radios, the better that mix is going to be.

I always like to be conservative. So I don't like to anticipate it's 84%, it's going to 86% to 88% to 90%. But who knows? It could. We're focused big time on getting the margins as high as they could get. And we're doing a lot of other things beyond the mix to try to get those margins higher. So whether it will be 84% in Q4 beyond, I can't really say. But suffice to say, gross margins on recurring are phenomenal.

And then as we add more recurring revenue to our other product lines, it's going to get even better because we're not just satisfied that recurring revenue is -- it's not even 20% of the business. We want it to be 50% of the business. And as we go forward and do more things and have our engineers develop more products, that's our goal. That's our 5-year goal, to have 50% in recurring. And could you imagine that with these kind of margins? It's unbelievable. So that's our goal.

Our next question comes from Mike Walkley with Canaccord Genuity.

Sorry, I was on mute. I hope this finds everybody healthy and well on the call, and congratulations. A great quarter in a tough environment.

Thanks, Mike.

So just building on that last question. When you look at kind of the fire radios, which you guys mentioned on fire in terms of demand, it's my understanding they have even higher ARPU. So is there any reason to think that services revenue gross margins shouldn't remain at 80% or above going forward? I know you think they can bounce around, but it certainly seems like the high-margin business is going to be even improving in the mix over the intermediate term.

You know the more -- fire radios came after the other radios. So the Black radio is the first one. The Connect radio is the next one and then the fire radios came. So the fire radio, they're like the baby of the group. And so we knew that the more they became a larger percentage of the mix that the overall margins would go up. And so honestly, I think this is going to continue.

I always know that margins can jump around, but there's nothing that tells me that this growth of going into the 80s can't continue. It should. We're doing everything we can to sell more fire radios. We also have the fire panel, the filings panel that has the radio built into it. Buildings don't have a choice. They have to put this stuff in, I mean, regardless of what's going on. So yes, there's no reason to believe it shouldn't continue.

Great. I know it's a different world than probably last time you guys set longer-term targets. But how are you feeling about just the recurring revenue ramp and mix of business over time? And say it hits 50% of your business longer term, what do you think that does to the model in terms of adjusted EBITDA margins?

Well, the 5-year goal to be 50-50 split is still our goal. We haven't changed that. And at those levels, EBITDA margins would be tremendous pushing 50%. Whether or not we get there exactly in 5 years, hard to say. But our other goal of getting to $40 million recurring revenue by June of '21, we're still going after that too.

Now will it -- maybe with everything going on, will it take a couple of more quarters? It could, it might. But in the big picture, that's a tremendous run rate to have in a very short order of time. Basically 1 year, 1.5 years from now. It's just what we're going after. We know that the COVID-19 is -- we think it's going to pass eventually. A lot of it's commercial and we're going to still continue to get this recurring revenue. Timing is the hard part to predict. Big picture, it's very, very successful.

Okay. And then just as you look into the June quarter, obviously, a lot can change as states open up and demand improves later in the quarter. Can you first, maybe help us quantify what happened at the Dominican Republic in terms of lock sales at the end of March? Have they already been sold into the channel here during the June quarter? If you could help us with that.

And then based on where you're seeing strength more on the enterprise side, how does that impact what you sell during the quarter in terms of gross margin? Clearly, leverage is important. But is there a product mix that's maybe more favorable in what you are able to sell right now?

So more than $1 million sales was impacted that last week of the quarter. And then once we started up again in the next quarter and the DR came back, those sales are being filled. So it's going to help Q4. We don't know how Q4 is going to play out as a whole. It's possible that we had a very, very successful Q4 last year with $29 million. I don't know if we'll be able to do that again. We're going to do our best.

One of the benefits we have is a lot of our sales come at the end of the quarter. So of the $29 million that we did last June quarter, probably 3/4 of it came at the end, the last few weeks. So that helps us because the more states that open up and the more business gets back to normal as we get closer and closer to June, that gives us an opportunity to recover or at least hit our goals. Because our goals remain the same, we still want to be above last year. We want to keep our streak of successful quarters in a row going. It's going to be hard this quarter, but we think we can do it.

What we don't know is the mix of sales. School security is a big part of what we do. The universities we don't think are being impacted as much as K-12. The universities have money. They have their endowments. Nobody is at these schools. It's a perfect time to put security in place. K-12 is a little different. K-12, those schools are close, too, but they rely on money.

Now a lot of money has been granted to these schools, earmarked specifically for security. And I know K-12, they're going to have a lot of budget issues in a lot of states. But they're going to eventually get back as well, but the margins are better on the university school jobs. But they're all going to need it. It's like -- almost like a pause, but it will continue.

We know a bunch of our sales guys are now starting to travel, believe it or not, in the states that are opening up. One of them I know is visiting a school job this week. So we're counting on the schools to continue. That helps the margins. That helps -- the more product we put through that DR operation, the better the margins are. So our outlook is to get it as high as it could be this quarter. DR is up and running, and let's see what happens.

Great. And last question for me and I'll pass it on. More big picture strategic with -- your mix is pretty good for this tough environment. Some of your competitors might not be as so. How do you see NAPCO's position in the market on the other side, especially since like you highlighted earlier, you have a much stronger balance sheet than '08, '09? Do you see market share gains, opportunities or even the ability maybe to consolidate the market on the other side? Just strategically, how are you guys thinking about things?

The way we're thinking about it is we're going to be adding recurring revenue to all our product lines. And come fall this year, we'll have it for a cloud-based radio system, which will allow access control and locking dealers to be able to get recurring revenue, a different type of recurring revenue for them, utilizing our hardware and paying a fee for the services that we're going to provide them.

And we think that's going to be very exciting for them. It's a system where it doesn't require the IT departments of companies to give it a blessing. The dealer and the management of the company can get it done without affecting the network of the company. It's going to be an exciting time for the dealers. And we're gearing up for that, and that's going to add now recurring revenue to the -- all 3 legs of our business.

And we still feel very confident that, as Kevin was talking about, that we can come out with additional technology products. There's a lot of products we have in the pipeline that are going to be coming out, all going to be enhancing our recurring revenue with equipment and hardware products, which are new and unique to the industry. And we believe that 5 years out, we will get to the 50-50 split of recurring revenue and equipment sales. So we're optimistic that way.

More and more security is needed. More and more security is going to be needed. It's a very important aspect of life today. So we're in a good field and we know how to capitalize on it. And we also know how to control our costs. As you can see, we've controlled our costs very well so that we can get more efficiency out of our operations. So we'd keep an eye on that because we don't want that to get out of hand.

Our next question comes from Jeff Kessler with Imperial Capital.

Can you give me some idea of which verticals are -- that you're working with right now are seeing like site restrictions in which you're getting --- it's, depending on the integrator, kind of tough to get on the site or not at all at this point? And which markets are freely allowing both your install and service people to get on?

It sounds like to me, like universities being closed down are that second group. What's -- what about the first group, where it's a little bit harder? And also maybe are you -- are there some instances in which, particularly in small business, where you've had orders and those orders just have not come through because the business itself has not come through?

Well, Jeff, we're very diversified because we sell more than 15,000 security dealers and integrators. And we sell more than 10,000 locking people. And the products that we sell are in all areas of all types of commerce as well as residential.

Of course, 80% of what we do is commercial. And a lot of that is legislated in to get a certificate of occupancy for buildings. We have great demographics happening now where buildings are changing over from landlines, plain old POTS lines and they need a communications network that works for them, and that's what our StarLink radio communicators do.

So in a lot of cases, the work continues in all kinds of buildings. And they're converting those buildings over to radios and utilizing our network. So it's scattered all over. I can't give you a specific one type of business or another. But you read about it in the newspapers that there's a lot of -- crime has picked up a lot in the commercial line because lots of buildings are closed and there's burglaries and break ins.

Plus you have the phone lines that are not functioning in places that have to be engaged with new StarLink radios due to the fact that the phone company doesn't want to support those lines. So we need continuity of communication between a building and the central station. And when the lines go down because of service issues, the alarm company is dispatched and the communications link is made using our StarLinks. So there's a lot of driving forces and cross-currents, but all of it bodes for good business going forward.

Okay. Second, my follow-up question is the fire business has been around for quite a while. It's a low-growth business, but it is a highly regulated business. It has to be done. But -- and so it's a great business if you can meet that bar. The question is, there are large companies in that business that have kind of put up their lines in the sand with regard to being the provider of product, everything from annunciators to basic old line communicators.

How are you able to get share away from some of these very large, let's call it, incumbents who've been there for years and are seeing the smaller company, all of a sudden, being able to take on and add to their products with new products that the customers are moving toward? There must be some pushback or you must be getting some pushback from some of these folks that -- while you are getting so much success out of your new fire product.

What's happening is -- I've been through this before, where we invented new products in the past and picked up a lot of share. It's actually how the company started. We invented a tape dialer communicator in the very beginning of our company. And all the large competitors that we had that were in the business since the 1920s, these guys didn't have the technology to make the type of products we made or came on late with their version while we got established.

Well, we see the same thing happening today. There's a lot of technology and a lot of special sauce in what we do with our communicator business. The value that we give to our products is recognized by the trade and they're flocking to it. And the competitors have their thing. They are very large ships. It takes a lot of time for those ships to turn and make different moves. But we're there. And you can see from our success that our strategy is working. We're going to be introducing more and more things and always staying one step ahead.

Now that we've got the wind behind us, where communications is going with radio rather than leased copper, which is kind of where a lot of our competitors are, and the functionalities they give with their products doesn't really cut it the way our functionality works. So the dealers say, "You know, I want to use the best for my clients." And we're getting more and more pedigree -- higher pedigree dealers and it seems to be working.

And that's our strategy. It worked since the beginning of NAPCO. It's worked over the years. It's grown NAPCO and it's going to continue to grow NAPCO. And as Kevin enumerated to you, our 5-year plan is to be 50% in equipment and 50% recurring revenue. And that's going to make for very strong margins.

Our next question comes from Abba Horovitz with Old School Partners.

I just wanted to start with -- I have 3 small questions. One, what was the average price you repurchased shares during the quarter?

$16.99.

Wow. Okay. That's pretty good. I also wanted to understand, you put on your website these new locks called GermAway. And it looks like this is a new opportunity, and I know you mentioned at the beginning of the call. Could you talk a little bit about this? What the opportunity is for you guys in this whole GermAway kind of locks that you now are starting to sell?

Are you talking about the ones with the coatings on them?

And antimicrobial finishes.

Right. We do a lot of hospital work with our dealers, and we have coatings, antimicrobial coatings, which are put on to the lock handles such that it kills the germs that get onto the locks. So that's becoming more and more popular. We introduced that maybe a couple years ago, and it's becoming very, very popular. And I expect it's going to become even more popular going forward. It's a special type of coating to it, which kills the germs that get onto it.

Have you gotten interest since the whole -- corona's breakout?

We're selling lots of different types of locks. As you can see, we got chosen by the McCormick for their hospital because they recognized that our locks are special, and more and more dealers are recognizing that. So I expect more and more business from that going forward.

We have business from a lot of different areas, Abba. It's -- we do hospitals and we do schools. And I would expect that more and more people are going to want the antimicrobial on their locks because it just makes for a safer type of environment within a facility.

Okay. But you're not seeing anything special because of the coronavirus in terms of huge spikes in demand for this kind of product?

Very early now, but I would expect it to be very positive.

Okay. And just final question here. In terms of -- because you're mainly -- your supply chain is covered, it looks like -- and you do most of your production, if not all your production in the confines of America, including obviously, the DR. Are you getting any interest from distributors that you didn't do business with before because of the supply chain issue, where they cannot get product that's generally made in China?

Yes. Well, we're recognizing that a lot of our competitors now make their entire product in China. And besides the fact that there's a lot of disruption and because of the news reports about buying American and everything else, I would expect that there's going to be a lot of disruption with our competitors that make their products in China.

So a lot of dealers are wanting to buy American. So that's going to help us also. It's another thing that helps us. Then we have our competitors that make products in Mexico. A lot of Mexican factories of our competitors are closed down. They're not allowed to operate. So we're going to get business from that also. So we're ready with -- ready to build as much as needed to satisfy the dealers.

And what's great about NAPCO is we're out in Amityville Long Island, out in the JFK airport, where they can get answers right away. They can get inventory. They can call in and they speak to people that speak English and are technical. We have a very good technical department so the dealers can get instant answers, and it's a very good thing. And that's why we like to make our products and keep our business in United States, because it's a big market that we can do well in.

(Operator Instructions) There are no further questions at this time. At this point, I'd like to turn the call back to Dick Soloway for closing comments.

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 for further information. 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 Q4 '20 and fiscal year 2020 results. Please stay safe, healthy and strong. Bye-bye.

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