Napco Security Technologies 2025 Q4 Earnings Mixed Performance as Net Income Declines 14%

Napco Security Technologies reported mixed results for its fiscal 2025 Q4 earnings, with revenue rising slightly while net income declined year-over-year. The company did not provide revised guidance, and performance was impacted by macroeconomic pressures and tariff-related challenges. Despite a new record high for Q4 net income over the past 20 years, the drop in EPS and net income highlights areas of concern for investors.

Revenue

Napco Security Technologies reported total revenue of $50.72 million for fiscal 2025 Q4, an increase of 0.8% from $50.33 million in the same period last year. The company's revenue was split between equipment sales and recurring service revenue, with equipment sales declining 5.5% year-over-year to $28.3 million, while recurring service revenue increased 10% to $22.4 million. This shift reflects the company's growing emphasis on its high-margin recurring revenue model, which now accounts for nearly half of its annual sales. The growth in recurring revenue was primarily driven by strong demand for StarLink Fire Radio services, which operate at a gross margin of 91%.

Earnings/Net Income

The company's earnings per share (EPS) for fiscal 2025 Q4 declined by 11.1% to $0.33, down from $0.37 in the prior year period. Meanwhile, net income for the quarter fell 14.1% to $11.63 million, compared to $13.53 million in the same period last year. Despite the decline, the company achieved a new record high for Q4 net income over the past 20 years, indicating resilience amid macroeconomic challenges. The decline in EPS and net income was attributed to higher tariff costs, reduced absorption of fixed manufacturing costs, and increased SG&A expenses.

This was a bad result for EPS, given the decline despite the company’s strategic shift toward high-margin recurring revenue.

Price Action

Napco's stock price experienced mixed short-term movements following the earnings report. Shares declined 2.32% during the latest trading day but rebounded with a 9.76% gain during the most recent full trading week. Month-to-date, the stock rose 13.27%, suggesting strong investor confidence in the company's long-term strategy despite short-term volatility.

Post Earnings Price Action Review

Investors who purchased shares after the company's revenue growth quarter-over-quarter on the earnings report date and held for 30 days experienced no return over the past three years. This strategy delivered a CAGR of 0.00% and an excess return of -57.31%, significantly underperforming the benchmark return of 57.31%. Additionally, the approach had a maximum drawdown of 0.00% and a Sharpe ratio of 0.00%, indicating it was risk-free but offered minimal returns. This underperformance highlights the challenges investors face in capitalizing on Napco's recent financial developments without long-term commitment.

CEO Commentary

CEO Richard Soloway emphasized that fiscal 2025 was marked by macroeconomic uncertainty and tariff pressures, but the company maintained its focus on long-term strategy, operational discipline, and sustainable growth. He highlighted the strength of the recurring revenue model, which provided stability and profitability, and noted Q4 hardware sales success driven by agility in adapting to demand shifts. Soloway expressed pride in balancing growth with financial stewardship, including debt-free operations and shareholder returns, and proactively addressing tariff impacts through pricing adjustments. Looking ahead, he conveyed optimism for fiscal 2026, citing momentum, a clear focus on strategy, and confidence in the team's ability to execute, alongside ongoing investments in R&D, school security solutions, and the expansion of recurring revenue platforms like MVP.

Guidance

For fiscal 2026, the company expects the full benefits of recent pricing actions—specifically an 8.5% tariff offset increase and a 5% standard increase—to be reflected in Q1. Management anticipates double-digit equipment sales growth, supported by the benefits of these price adjustments and easier year-over-year comparables. Recurring revenue is expected to continue growing, driven by strong radio sales and new product introductions. The CEO expressed confidence in maintaining gross margins, particularly in recurring services, which remain at 91%, and expects to leverage a strong balance sheet to fund strategic investments and shareholder returns while operating debt-free.

Additional News

The company has announced two equipment price increases in response to tariff pressures—8.5% in April and an additional 5% in mid-July. Management expects the margin benefits from these adjustments to begin in fiscal 2026 Q1. Napco also reduced inventory by $8.6 million as of June 2025 compared to the prior year, reflecting active working capital management. In terms of shareholder returns, the company paid $13.6 million in dividends and repurchased $36.8 million of its stock in fiscal 2025, equivalent to 1.2 million shares at an average price of $30.40. The company ended the year with $99.1 million in cash and marketable securities, with no debt outstanding.

Additionally, Napco has continued to invest in R&D and SG&A, with R&D spending increasing 16.9% to $12.6 million in fiscal 2025. The company also launched its MVP platform, a cloud-based access control system that is expected to become a significant recurring revenue stream. Management expects this platform to drive future growth by extending Napco’s leadership into the hosted access control market. The company is also strengthening its presence in the school security market, with its integrated solutions aligned with the PASS standard for best practices in school security.