Napco’s first quarter results for 2025 were received positively by the market, reflecting the company’s ongoing transition toward higher-margin recurring service revenue despite a notable year-over-year sales decline. Management attributed the revenue dip primarily to lower equipment sales among major distributors, driven by efforts to manage inventory levels and uncertainty over potential tariffs. CEO Dick Soloway highlighted that recurring service revenue now comprises nearly half of total revenue and pointed to continued growth in this segment as a stabilizing force, stating, “Recurring revenue continued growing, increasing by 10.6%... and representing 49% of total company revenues with a 91% gross margin.”
Is now the time to buy NSSC? Find out in our full research report (it’s free).
Napco (NSSC) Q1 CY2025 Highlights:
- Revenue: $43.96 million vs analyst estimates of $43.14 million (10.8% year-on-year decline, 1.9% beat)
- Adjusted EBITDA: $13.16 million vs analyst estimates of $11.8 million (29.9% margin, 11.5% beat)
- Operating Margin: 25.4%, down from 29.4% in the same quarter last year
- Market Capitalization: $1.05 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions Napco’s Q1 Earnings Call
- Matt Summerville (D.A. Davidson) asked about the timeline for new product contributions to service revenue. CEO Dick Soloway explained that while StarLink radios remain the primary driver, newer products like MVP access control are expected to become materially additive as adoption grows.
- Jim Ricchiuti (Needham & Company) questioned the weakness in locking product sales and potential tariff impacts. President Kevin Buchel stated that most reductions were temporary, tied to distributor inventory management, and reiterated Napco’s cost advantage from manufacturing in the Dominican Republic and the U.S.
- Jaeson Schmidt (Lake Street) inquired about pricing strategy amid tariffs. Buchel detailed that the company implemented an 8.5% surcharge to offset tariff costs, with further typical price increases planned, adding that customer acceptance has so far been favorable.
- Lance Vitanza (TD Cowen) raised questions on demand sensitivity to economic downturns and capital allocation for share repurchases. Buchel and Soloway described the security industry as largely recession-resistant and stated that continued share repurchases will depend on cash flow and market conditions.
- Jeremy Hamblin (Craig-Hallum Capital Group) asked about recurring service revenue seasonality and dealer incentives. Buchel confirmed that recurring revenue is expected to rise with new product sales and that dealer incentives may be adjusted as market dynamics evolve.
Catalysts in Upcoming Quarters
Looking ahead, our analysts will monitor (1) the pace at which new cloud-based MVP and StarLink products gain traction among dealers, (2) whether equipment sell-through at distributors translates into renewed order growth, and (3) the impact of tariff-related price increases on both margins and customer demand. The evolution of Napco’s market share in school security and commercial segments will also be a crucial signpost.
Napco currently trades at $29.85, up from $23.79 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).
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