What changed in this filing

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Item 1. Business

2022-08-29 compared with 2021-09-13 · 44 added, 35 removed, 160 unchanged (33% of the section changed)

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We have experienced significant growth in recent years, primarily driven by fast growing recurring service revenues generated from wireless communication services for intrusion and fire alarm systems, as well as our school security products that are designed to meet the increasing needs to enhance school security as a result of on-campus shooting and violence in the U.S.

While recurring service revenues have continued to increase during the COVID-19 pandemic, equipment sales were negatively impacted by the economic slowdown associated with this pandemic.

While recurring service revenues have continued to increase during the COVID-19 pandemic, equipment sales for fiscal 2020 were negatively impacted by the economic slowdown associated with this pandemic.

Since 1969, NAPCO has established a heritage and proven record in the professional security community for reliably delivering both advanced technology and high-quality security solutions, building many of the industry’s widely recognized brands, such as NAPCO Security Systems, Alarm Lock, Continental Access, Marks USA, and other popular product lines:

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Today, millions of businesses, institutions, homes, and people around the globe are protected by products from the NAPCO Group of Companies.

Our net sales were $114.0 million and $101.4 million for the fiscal years ended June 30, 2021 and 2020, respectively.

Our net sales were $143.6 million, $114.0 million and $101.4 million for the fiscal years ended June 30, 2022, 2021 and 2020, respectively.

The change in our net sales was driven primarily by increased sales of our recurring services ($12.1 million) and sales of equipment ($17.5 million) as compared to the same period a year ago.

The increase in equipment sales was due primarily to the recovery from the economic effects of the COVID-19 pandemic and the elimination of most of the closures mandated by federal and state governments during the early and peak stages of the pandemic.

The increase in equipment sales was due primarily to the recovery from the economic effects of the COVID-19 pandemic and the elimination of most of the closures mandated by federal, state and local governments during the early and peak stages of the pandemic.

As these closures abated and economic conditions improved, our equipment sales increased.

Our net income was $14.9 million and $8.5 million for the fiscal years ended June 30, 2021 and 2020, respectively.

The increase in net income during this period was due primarily to the recovery from the COVID-19 impact described above, as well as by the growth of our recurring revenue business.

In addition, fiscal 2022 net sales increased due, in part, to an increase in sales of the Company’s 4G and 5G cellular radio products as the major cellular providers sunset their 3G networks.

Our net income was $19.6 million, $15.4 million and $7.8 million for the fiscal years ended June 30, 2022, 2021 and 2020, respectively.

The increases in net income during this period were due primarily to the recovery from the COVID-19 impact described above, as well as by the growth of our cellular products and the associated recurring service revenues which generated a gross margin of 87% in fiscal 2022.

Our Products and Services

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The Company manufactures a variety of door locking devices including microprocessor-based electronic door locks with push button, card reader and bio-metric operation, door alarms, mechanical door locks and simple dead bolt locks.

These devices may control a

single door or, in the case of some of the Company’s microprocessor-based door locks, may be networked with the Company’s access control systems and controlled remotely.

These devices may control a single door or, in the case of some of the Company’s microprocessor-based door locks, may be networked with the Company’s access control systems and controlled remotely.

Intrusion and Fire Alarm Systems .

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The Company provides cellular access for the cellular communication devices described above.

These services are provided and invoiced on a month to month basis.

These services are provided and invoiced to the Company’s service customers on a month to month basis.

Revenues from these services have grown significantly over the past several years, increasing 91% from fiscal 2020 to fiscal 2022.

These revenues, which currently have a gross margin of approximately 87% for the fiscal year ended June 30, 2022, represent approximately 32% of our total revenue for the fiscal year ended of June 30, 2022.

The Company’s long-term goal is to have recurring revenues from these services to represent at least 50% of total revenue.

The Company’s long-term goal is to have recurring revenues from these services represent at least 50% of total revenue.

Access Control Systems .

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Peripheral Equipment

The Company also markets peripheral and related equipment manufactured by other companies.

The Company also markets peripheral equipment manufactured by other companies.

Revenues from peripheral equipment have not been significant.

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Since then, we have continued to introduce additional products generating recurring revenues, primarily in the cellular communication devices such as our StarLink, iBridge, and more recently the iSecure product lines.

These products are installed at the premises of end customers and we generate revenue by both upfront purchase of our products and monthly subscription fees for services we perform at our cloud-based operations center to monitor security breaches and fire alarms.

These products are installed at the premises of end customers and we generate revenue from the installers by both the upfront purchase of our products and the monthly subscription fees for services we perform at our cloud-based operations center to communicate security breaches and fire alarms to a central station.

The monthly recurring revenue allows us to generate a more consistent and predictable stream of income and mitigates the risk of fluctuation in market demand for our equipment products.

In addition, these products generate higher gross margin, which has the effect of improving our profitability.

In addition, these monthly services generate higher gross margin, which has the effect of improving our profitability.

We believe there is a significant market opportunity for these products and services, because many commercial and residential customers prefer to purchase real-time security monitoring services to ensure continuous protection and swift responses to security breaches and fire alarms.

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We expect that fire radio products will continue to be an increasing portion of the overall mix of our recurring revenue and positively impact our gross margin.

We intend to continue pursuing recurring revenue opportunities by developing new and innovative products and continuing our aggressive and effective sales and marketing efforts.

We intend to continue pursuing recurring revenue opportunities by developing new and innovative products and continuing our aggressive sales and marketing efforts.

For the fiscal year ended June 30, 2022, our recurring revenue constituted approximately 32% of our total revenue.

Our strategy is to increase our recurring revenue as a percentage of total revenue in the foreseeable future.

School Security and Public Safety

The recent growth of our business is partly driven by the significant need for increased security in schools and other public spaces.

In the U.S., there are over 100,000 K-12 schools, over 10,000 colleges and universities and over 350,000 houses of worship.

We have developed products to help address security concerns arising from the significant need for increased security in schools and other public spaces.

In the U.S., there are over 100,000 K-12 schools, over 5,000 colleges and universities and over 350,000 houses of

Management estimates that less than 10% of these institutions have adequate protection from an active shooter or intruder.

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With a full suite of products and solutions, we believe we are well positioned to meet the security needs of schools, houses of worship, and other places where people congregate.

Depending on the needs of the school and their budget, we offer (i) Standalone LocDown

locks which can be operated by a teacher, (ii) a series of Networx standalone wireless locks which communicate with central controls, or (iii) enterprise-class access control with cellular connectivity, which allows the head of security to lock down all or part of the campus, including dorm rooms, classrooms and administrative offices, from a centralized office.

Depending on the needs of the school and their budget, we offer (i) Standalone LocDown locks which can be operated by a teacher, (ii) a series of Networx standalone wireless locks which communicate with central controls, or (iii) enterprise-class access control with cellular connectivity, which allows the head of security to lock down all or part of the campus, including dorm rooms, classrooms and administrative offices, from a centralized office.

The Company has had several significant wins in school security contracts, including the Houston Independent School District, which is the largest school district in Texas and the seventh largest in the U.S.

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The Company's primary competitors are comprised of approximately 12 other companies that manufacture and market security equipment to distributors, dealers, central stations and original equipment manufacturers.

The Company believes that not one of these competitors is dominant in the industry.

The Company believes that none of these competitors is dominant in the industry.

Most of these companies have substantially greater financial and other resources than the Company.

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By having everything manufactured under one roof, we can offer customers one integrated platform solution without the risk of incompatible equipment from multiple vendors to “talk” to each other.

Furthermore, many of our distributors, customers, and dealers prefer a single source of supply with more consistency in quality, pricing and timely shipment of products.

In addition, we believe our competitors will face substantial challenges and barriers to duplicate or establish similar integrated offerings for all of these key markets.

We also have a manufacturing facility located in the Dominican Republic (“D.R.”) that manufactures over 90% of our products.

Our manufacturing facility located in the Dominican Republic (“D.R.”) manufactures over 90% of our products.

It is located in a free zone which is a tax-advantaged location.

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The building is a self-contained “concrete bunker” with ability to withstand Category 5 hurricanes.

Both locations contain enough land to build additional space;

We have enough land to build additional space;

180,000 square feet of additional manufacturing space in the D.R., and approximately 100,000 square feet of office and warehousing space in Amityville, should the need arise.

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The Company also competes by offering technical support services to its customers.

In addition, the Company competes on the basis of its expertise, its proven products, its reputation and its ability to provide products to customers on a timely basis.

In addition, the Company competes on the basis of its expertise, its proven products, its reputation and its ability to provide

products to customers on a timely basis.

The inability of the Company to compete with respect to any one or more of the aforementioned factors could have an adverse impact on the Company's business.

Due to paradigm changes in the security marketplace, the Company’s focus has been on mandatory (non-elective) systems, such as fire systems with central station monitoring in commercial buildings, and iOT-driven connectivity services in high growth and margin

As copper land lines are phased out and more people switch to cellular phone service for their homes, our cellular communication services become increasingly attractive in these installations, both new and existing.

We have built a strong competitive position by developing a wide range of software capabilities from embedded micro-coding to enterprise system software, database design, mobile applications development, user portal design, mechanical and electronic mechanisms and telecommunications, featuring our significant radio and cellular communications expertise.

This has enabled us to create recurring revenue opportunities across product lines, and we intend to expand such opportunities to generate recurring revenue that will account for over 50% of our total revenue and to sustain profitability from recurring revenue margins of over 80%.

This has enabled us to create recurring revenue opportunities across product lines, and our goal is to expand such opportunities to generate recurring revenue that will account for over 50% of our total revenue and to sustain profitability from recurring revenue margins of over 80%.

We are also focusing on security solutions for the healthcare industry, including anti-ligature lockets designed for life safety and liability reduction in hospitals, behavior health institutions and correctional facilities, and such products are highly profitable while complying with applicable regulatory and health standards.

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The Company intends to continue to conduct a significant portion of its future research and development activities internally.

Our Human Capital Resources

As of June 30, 2022, the Company had 1,149 full-time employees.

258 of these were located in the United States (“U.S.”) and 891 were located at our manufacturing facility in the Dominican Republic (“DR”).

42 of our U.S.

employees are covered by a collective bargaining agreement.

We also engage consultants from time to time.

Management considers its relationship with its employees to be very good.

Hiring, motivating and retaining talented employees is an ongoing priority to Napco.

Maintaining a talented workforce at all levels is critical to our ability to delver high quality products and services to our customers as well as maintain shareholder value.

In order to maintain a high level of talent in our workforce, Napco offers comprehensive benefits programs, competitive wages, incentive programs, performance reviews and various employee activities and awards.

We also provide training and management support for employees to enhance their success and to identify outstanding talent and development opportunities.

Government Regulation

Our business and products are subject to various federal, state, local and international regulatory authorities and the regulatory authorities in the countries in which our products are produced or sold.

Compliance with these laws and regulations has not had and is not expected to have a material adverse effect on the Company, including capital expenditures for environmental compliance, or on its earnings or competitive position.

The Company's staff of approximately 60 sales and marketing support employees located at the Company's Amityville offices sells and markets our products primarily to independent distributors, wholesalers and dealers of security alarm and security hardware equipment.

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The Company's sales representatives periodically contact existing and potential customers to introduce new products and create demand for those as well as other Company products.

These sales representatives, together with the Company's technical personnel, provide training and other services to wholesalers and distributors so that they can better service the needs of their customers.

sales representatives, together with the Company's technical personnel, provide training and other services to wholesalers and distributors so that they can better service the needs of their customers.

In addition to direct sales efforts, the Company advertises in technical trade publications and participates in trade shows in major United States cities.

The Company's fiscal year begins on July 1 and ends on June 30.

Historically, the end users of the Company’s products want to install its products prior to the summer;

therefore, sales of its products historically peak in the period April 1 through June 30, the Company's fiscal fourth quarter, and are reduced in the period July 1 through September 30, the Company's fiscal first quarter.

In addition, demand for our products is affected by the housing and construction markets.

Historically, the end users of the Company’s hardware products want to install these products prior to the summer;

therefore, sales of these products historically peak in the period April 1 through June 30, the Company's fiscal fourth quarter, and are reduced in the period July 1 through September 30, the Company's fiscal first quarter.

In addition, demand for all of our products may be affected by the housing and construction markets.

Deterioration of the current economic conditions may also affect this trend.

Our fourth quarter of fiscal 2020 and fiscal 2021 reflected the challenging business environment resulting from the COVID-19 pandemic.

The COVID-19 pandemic had caused difficulties for security equipment professionals getting access to both commercial and residential installation sites.

We sell our products primarily through distribution to dealers and we are now seeing strong sell-through statistics from several of our largest distributors.

Increased sell-through of our products from our distributors to the alarm and locking dealers during the third and fourth quarters of fiscal 2021, as compared to the three quarters preceding them, indicates that security equipment professionals are getting increased access to both commercial and residential installation sites and using more and more of our products.

The monthly recurring revenue, which is less susceptable to these fluctuations, allows us to generate a more consistent and predictable stream of income and mitigates the risk of fluctuation in market demand for our equipment products.

Raw Materials

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Corporate Information and History

The Company was founded in 1969 and incorporated as NAPCO in December 1971 in the State of Delaware.

The Company was founded in 1969 and incorporated as NAPCO Security Systems, Inc.

in December 1971 in the State of Delaware.

NAPCO went public on NASDAQ with the ticker symbol “NSSC”, in 1972.

In December 2008 the Company changed its name to NAPCO Security Technologies, Inc.

In 1987, the Company acquired a locking company, Alarm Lock Systems, the first of its three acquisitions.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business