Operator: Good morning, ladies and gentlemen, and welcome to the NAPCO Security Technologies fiscal fourth quarter 2026 earnings conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require any tech assistance, please press star zero for the operator. I would now like to turn the conference call over to Francis Okoniewski, VP Investor Relations. Please go ahead.

Francis Okoniewski, Vice President of Investor Relations, NAPCO Security Technologies: Thank you, Jenny. Good morning, everyone. This is Fran Okoniewski, Vice President of Investor Relations for NAPCO Security Technologies. Thank you for joining today’s conference call to discuss our financial results for the fiscal fourth quarter and fiscal year 2026. By now, you should have all had the opportunity to review our earnings press release, which discusses our fiscal fourth quarter and full year results. If you have not yet received it, a copy is available in the investor relations section of our website, www.napcosecurity.com. Joining me on today’s call are Dick Soloway, Founder and Executive Chairman, Kevin Buchel, Chief Executive Officer and President, and Andrew Vuono, our Chief Financial Officer. Before we begin, I would like to review our forward-looking statement. This presentation contains forward-looking statements based on current expectations, estimates, forecasts, and projections of future performance, as well as management’s judgment, beliefs, current trends, and anticipated product performance.

These statements include, without limitation, comments regarding growth drivers of the company’s business, including school security products, recurring revenue services, potential market opportunities, the benefits of our recurring revenue products to customers and dealers, our ability to control expenses and costs, and the expected annual run rate for Software-as-a-Service, or SaaS, recurring monthly revenue. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those expressed or implied in those statements. These risks include, but are not limited to, the factors described in our SEC filings, including our annual report on Form 10-K. Other unknown or unpredictable factors or underlying assumptions that later prove to be incorrect could also cause actual results to differ materially from those discussed in the forward-looking statements.

Although we believe expectations are reflected in these statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. You should not place undue reliance on forward-looking statements. All information provided in today’s press release and on this conference call is as of today’s date, unless otherwise stated, and we undertake no duty to update such information except as required under applicable law. Throughout the presentation, management will discuss certain non-GAAP financial results. We encourage you to refer to the reconciliation between GAAP and non-GAAP results included in our press release. Before turning the call over to Dick, I want to note that we are actively planning our investor relations calendar for upcoming non-deal roadshows and investor conferences. Investor outreach is important to NAPCO, and we appreciate the support of those who help us participate in these events.

Over the coming weeks, we will participate in several key investor events, including the Jefferies Industrial Conference in New York City on September 10, a virtual non-deal roadshow hosted by Lake Street on September 16, and D.A. Davidson’s 25th Annual Diversified Industrials and Services Conference in Nashville, Tennessee later in September. In addition, NAPCO will be exhibiting at ISC East in New York City from November 3 through the 5th, where we will be introducing a number of new products. ISC East is one of the security industry’s premier events on the East Coast, and we welcome investors and analysts who plan to attend to stop by our booth. With that, let me turn the call over to Dick Soloway, our founder and Executive Chairman. Dick, the floor is yours.

Dick Soloway, Founder and Executive Chairman, NAPCO Security Technologies: Thank you, Fran. Fiscal 2026 was a year of exceptional performance and meaningful progress for NAPCO. We strengthened our market position, expanded our capabilities, served our customers at a high level, and delivered results that reflect both the resilience of our business model and the dedication of our employees. At the same time, we continued an important evolution of our company. After five decades of founder-led growth, Kevin Buchel has assumed the role of Chief Executive Officer and President. Having been an important member of our organization for over 25 years, Kevin brings a deep understanding of our business, our customers, and our culture to the role. I have taken on the role of founder and Executive Chairman, allowing me to remain closely involved in the strategic direction of the company while supporting Kevin and the management team in leading the business day to day.

I built this company for 50 years. It is strong enough to evolve beyond my day-to-day leadership, and I am confident in Kevin Buchel that I can remain focused on the long-term future. This transition represents continuity. The values that have guided us for 50 years remain unchanged, while our leadership structure positions us well for the next phase of growth. With that, I will turn the call over to Kevin Buchel. Kevin, the floor is yours.

Operator: Thank you, Dick. Good morning, everyone, and thank you for joining us

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: Before reviewing our fourth quarter and fiscal 2026 results, I want to thank Dick Soloway for his comments and for his confidence in our leadership transition. Having worked alongside Dick for more than 25 years, I am honored to lead NAPCO into its next chapter. Our company wouldn’t be where it is today if not for the outstanding leadership and vision Dick has demonstrated since he founded the company back in 1972. I also want to thank our employees, our dealers, our distributors, our integrators, and shareholders for their continued support. Now, let’s talk about the quarter and the year. I am pleased to report another outstanding quarter and a strong finish to fiscal 2026. Our fourth quarter net sales increased 10% to a record $55.8 million, driven by continued demand across our product portfolio and another quarter of double-digit recurring service revenue growth.

Equipment sales increased nearly 8%, while recurring service revenue grew almost 13% to $25.3 million and produced another exceptional 90.1% gross margin. Our recurring service business continues to build long-term shareholder value. Based on our July recurring revenues, our annualized recurring revenue run rate has reached approximately $103 million, an important milestone that reflects the strength of our connected services strategy and the increasing value of our installed base. The combination of revenue growth and improved operating leverage produced exceptional profitability during the quarter. Gross margin expanded to 61.3%, GAAP net income increased approximately 53%, and adjusted EBITDA grew by more than 44%. For the full fiscal year, non-GAAP net income increased 32% to a record $57.3 million, while non-GAAP diluted earnings per share increased 34.5% to $1.60. These results demonstrate the strength of our operating model and our ability to convert revenue growth into meaningfully higher earnings.

Looking at the full fiscal year, we generated record annual revenue of $202.3 million, surpassing the $200 million mark for the first time in our company’s history. We also delivered adjusted EBITDA of $66.7 million with an adjusted EBITDA margin of approximately 33% and generated more than $59 million of free cash flow. Our strategy remains consistent. We will continue investing in innovative products, expanding our recurring service offerings, strengthening our dealer and integrated relationships, and executing with the financial discipline that has long differentiated NAPCO. As I assume the role of Chief Executive Officer, there is no change to the principles that have made this company successful. We have an outstanding management team, an exceptional balance sheet, and a growing base of recurring revenue and significant opportunities ahead.

Working closely with Dick in his role as Executive Chairman, I am confident we are well-positioned to continue delivering profitable growth and creating long-term value for our shareholders. With that, I will turn the call over to our Chief Financial Officer, Andy Vuono, to review the financial results in greater detail. Andy?

Andrew Vuono, Chief Financial Officer, NAPCO Security Technologies: Thank you, Kevin, and good morning, everyone. The momentum we generated during the first three quarters of fiscal 2026 continued into the fourth quarter. Net revenue for the quarter increased 10% to a quarterly record of $55.8 million. Recurring monthly service revenue continued to grow steadily, increasing 12.9% to $25.3 million, primarily driven by ongoing activations of our StarLink radio fire communicators. Equipment revenue increased 7.7% to $30.5 million. Sales of intrusion access control products increased 20.9%, which was driven by continued strength within the intrusion category. Intrusion product sales, including StarLink radios, increased 35.8%. The total category was partially offset by a 13.8% decrease in access control product sales. Door locking revenue increased 2.2% for the quarter. This consisted of an 18.4% increase in Marks USA lock sales, partially offset by a 5.6% decrease in Alarm Lock sales.

Overall locking revenue was relatively flat compared with the fourth quarter of fiscal 2025, when we experienced a pull-through of locking sales in response to anticipated tariff-related price increases. For the year ending June 30, 2026, net revenue increased 11.4% to a record $202.3 million. Recurring monthly service revenue increased 13% to $97.5 million, primarily driven by steady activations of our StarLink radio fire communicators. Based on our July 2026 recurring service revenue, our estimated prospective annual run rate is now approximately $103 million. Equipment revenue for the year increased 10% to $104.8 million. The full-year increase in equipment revenue reflected growth across several product categories. Intrusion and access control product sales increased 7.8%, driven by a 14.3% increase in intrusion product sales, partially offset by 11% decrease in access control product sales.

Door locking revenue increased 11.1% for the year, reflecting a 19.7% increase in Alarm Lock product sales, partially offset by a 3.3% decrease in Marks USA sales. Gross profit for the quarter increased 27.7% to $34.2 million. Gross margin expanded to 61.3%, compared with 52.8% in the prior year period. Overall gross profit for the quarter benefited by approximately 600 basis points from IEEPA tariff refunds. Recurring service revenue continued to deliver strong profitability. Gross profit from recurring service revenue increased 12.3% to $22.8 million, with a gross margin of 90.1%. Recurring revenue gross margins remained above 90% and were consistent with the comparable quarter in fiscal 2025. Gross profit from equipment revenue increased 76.2% to $11.1 million in the fourth quarter, with gross margin expanding to 37.4%, compared with $6.5 million and a gross margin of 22.9% in the prior period.

Equipment margins benefited from the IEEPA tariff refunds discussed earlier in lower inventory reserve adjustments. These benefits were partially offset by Section 122 tariff costs during the period, as well as increased technical service costs related to investments in AI solutions to improve customer experience. We are also seeing supply chain challenges as a result of data center expansion, which is putting pressure on the cost of electronic component parts. For the year ended June 2026, gross profit increased 18.6% to $119.8 million, with gross margin expanding to 59.2%, compared with $101 million and a gross margin of 55.6% in fiscal 2025. Overall gross profit of the year benefited by approximately 50 basis points from the IEEPA tariff refunds. Recurring service revenue continued to generate strong profitability.

Gross profit from recurring service revenue increased 12.1% to $88 million, with a gross margin of 90.3%, and recurring revenue gross margins continued to exceed 90% and remain consistent with fiscal 2025. Gross profit from equipment revenue increased 41.2% to $31.8 million for the year ended June 2026, with gross margin expanding to 30.3%, compared with $22.5 million and a gross margin of 23.6% in fiscal 2025. Equipment margins benefited from product price increases implemented at the end of fiscal 2025, lower discounts and sales allowances throughout the year, tariff refunds, and lower inventory reserve adjustments. These benefits were partially offset by higher tariff costs during the period and increased technical service costs. R&D costs increased 13.2% to $3.7 million in the fourth quarter, representing 6.6% of net revenue, compared with 6.4% in the prior year.

For the year ended June 2026, R&D costs increased 9.6% to $13.8 million, representing 6.8% of net revenue, compared with 6.9% in fiscal 2025. The increase in R&D spend for both the quarter and full year was primarily driven by annual salary increases, the hiring of additional engineering staff, and hiring UL approval costs for new products. SG&A expense increased 5.6% to $12.1 million in the fourth quarter, representing 21.7% of net revenue, compared with 22.6% in the prior year. The quarterly increase was primarily driven by higher professional fees, increased wages and benefits related to salary increases, and higher advertising costs. These increases were partially offset by lower trade show expenses due to timing of events. For the year ended June 2026, SG&A expenses increased 5.1% to $40.4 million, representing 21.9% of net revenue, compared with 23.2% in fiscal 2025.

The full-year increase was primarily due to higher commissions associated with increased equipment revenue, higher personnel-related expenses from merit increases in the hiring of additional sales and information technology personnel, and increases in insurance, credit card processing fees, and trade show expenses. These increases are partially offset by lower legal and professional fees. Operating income for the quarter increased 52.5% to $18.4 million, reflecting 10% revenue growth, improved margins, and the benefit of tariff refunds during the quarter. For the year ended June 2026, operating income decreased 1.3% to $45.6 million. Full-year operating income was negatively impacted by the $16 million legal settlement announced in our fiscal third quarter. The effective tax rate for the fourth quarter was 9.6%, compared with 10.3% in the prior period. The lower quarterly effective tax rate was primarily due to tax benefits from exercise of equity awards.

For the year ended June 2026, the effective tax rate was 13.3%, which was consistent with fiscal 2025. Net income for the fourth quarter increased 52.7% to $17.8 million, or $0.50 per diluted share, compared with $0.33 per diluted share in the prior year. Net income represented 31.8% of net revenue for the quarter, and diluted EPS benefited by approximately $0.09 from the tariff refunds. For the year ended June 2026, GAAP net income increased 0.9% to $43 million, or $1.20 per diluted share. Non-GAAP net income increased 32% to $57 million, or $1.60 per diluted share, compared with $1.19 per diluted share in fiscal 2025. Non-GAAP net income represented 28.3% of net revenues for the year. Adjusted EBITDA for the fourth quarter increased 44.3% to $20.6 million, or $0.57 per diluted share, compared with $0.40 per diluted share in the prior year.

The adjusted EBITDA margin for the quarter was 36.8%. For the year, adjusted EBITDA increased 27.9% to $66.7 million, or $1.86 per diluted share, compared with $1.43 per diluted share in fiscal 2025, and adjusted EBITDA margin for the year was 33%. Free cash flow for the quarter increased 19.9% to $17.2 million, representing a free cash flow margin of 30.9%. For the full year, free cash flow increased 15.2% to $59.2 million, representing a free cash flow margin of 29.3%. Turning to our balance sheet, we ended fiscal 2026 with substantial liquidity and no debt. As of June 2026, the company had $137.6 million in cash equivalents, and marketable securities, compared with $99.2 million as of June 2025, an increase of 38.7%. The company had no debt as of June 2026. Working capital increased 19.6% to $165.5 million as of June 2026.

Capital expenditures was $405,000 for the quarter, compared with $237,000 in the prior period. For the full fiscal year, CapEx was $1.9 million, compared with $2.1 million for fiscal 2025. That concludes my formal remarks. I will now return the call to Kevin.

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: Thank you, Andy. I want to close with a few reflections on the year behind us and the one ahead. Fiscal 2026 was a year of resilience. NAPCO once again demonstrated the durability of its business model while staying focused on what matters most, creating lasting value for our customers, partners, and shareholders. That durability is most evident in our recurring revenue, which grew 13% this year while sustaining the gross margins above 90%. This high-quality revenue stems from generates consistent cash flow and provides funds for reinvestment in the business. The engine behind that performance remains StarLink, which is now widely regarded as the industry standard for commercial fire communications. One number I want you to take away from this call is this. Sales of radio units in the fourth quarter grew 40% year over year and nearly 30% sequentially.

This is among the highest growth rates in NAPCO’s history. Radios sold today become recurring revenue tomorrow. So that figure says a great deal about the quality of the year ahead. We are winning that business alongside larger dealer and integrators, and we expect those relationships, in addition to many new ones we’re working on, to continue helping us gain share. As I’ve stated before, the conversion from copper phone lines will continue until the end of the decade, and we expect to win a large share of the over 2 million buildings that need to convert. Even after the conversion is complete a few years from now, we’ll continue to generate recurring revenue from new work, where our StarLink radios are built into our fire and alarm panels. Our hardware business also delivered double-digit year-over-year growth, a credit to our team’s agility in adapting to shifting demand.

Behind that growth, we see a healthy pipeline of project and contract opportunities in equipment. These include larger opportunities across schools, healthcare, airports, multi-dwelling housings, as well as government projects. By their nature, these projects arrive over time rather than all at once. Some are already in motion, while others should begin to move through the funnel over the coming quarters. We generally are not permitted to name them. I will not put a number or date on them today because work of this kind is lumpy and it often extends across multiple years. Still, the breadth of what we see in that funnel is a genuine source of confidence as we look to fiscal 2027 and beyond. Operationally, I could not be prouder. We finished the year with $137 million in cash and no debt. Looking ahead, we remain optimistic.

Tariff policy, supply chain challenges, and market conditions are still dynamic, but we are not standing still. Our pricing actions are in place, and we continue to diversify distribution, invest in automation, and enhance the StarLink platform. That is how we sustain growth while protecting margin. As Andy mentioned earlier, our R&D spend increased 10% to $13.8 million. Much of that spend relates to new recurring revenue products. Please come to ISC East, November 4th and 5th, and you will get to see firsthand some of the new and exciting products that are forthcoming. Our balance sheet gives us real flexibility to invest organically, to act on strategic acquisitions if the right one comes along, and to return capital to shareholders. That last commitment is not theoretical. This morning, we announced an increase in our quarterly dividend to $0.17 per share. That is a 13.3% increase over the previous quarterly dividend.

We are raising the dividend while carrying zero debt and while continuing to fund every growth initiative in front of us. That is the kind of financial position this business has earned. Let me turn to one vertical in particular, school security. School safety remains one of the most urgent challenges of our time, and NAPCO is honored to be a proven partner to districts across the country. I am proud to announce that we recently received the 2026 Annual Dean’s List Award. This award sounds like it is for academics, but it is really an award that recognizes premier security providers serving private colleges and universities. School security continues to be a big problem in our country, and we will continue to work hard to provide the over 131,000 K through 12 schools and 5,300 colleges and universities state-of-the-art products that protect students and faculty.

Our divisions work together across this market, from Trilogy and ArchiTech lock sets to enterprise-scale Continental CA4K access control. These platforms are secure, scalable, and aligned with strict code guidelines. What sets us apart is our ability to unify locking access and alarm technology on a single interoperable platform. Knowing our solutions help protect students and staff every day is gratifying, and we see continued responsibility in that effort. In addition, as I mentioned earlier, we continue investing heavily in R&D to open new recurring revenue opportunities across the portfolio. One of the most exciting of these is MVP, our next-generation cloud-based access control platform, built to integrate seamlessly with our locking hardware. MVP creates an entirely new recurring revenue stream for NAPCO and our dealers, with configurations for both enterprise customers and smaller facilities.

We believe it could be a game changer and a foundational contributor to growth in the years ahead, extending our leadership into hosted access control and reinforcing the strategy at the core of this company. Innovative hardware paired with cloud services, generating long-term, high-margin recurring revenue. We exit fiscal 2026 with a strong finish and enter fiscal 2027 with momentum, clarity, and the strongest financial foundation in our history. We have built a business model that delivers even in difficult environments. I am proud of what this team has accomplished, and I am energized by what lies ahead. Thank you all for your support and for joining us in the future we are building. Our formal remarks are now concluded, and we would like to open the call for the Q&A session. Operator, please proceed.

Operator: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star one on your telephone keypad. Should you wish to withdraw your question, you may press star two. Once again, that is star one should you wish to ask a question. Your first question is from Matt Summerville from D.A. Davidson. Your line is now open.

Matt Summerville, Analyst, D.A. Davidson: Thanks. I was hoping first, maybe you could elaborate on some of the supply chain challenges you are experiencing, what mitigation plans you are working on as we speak, and is this hurting your ability to actually ship product? Just maybe a little more detail around that, then I have a follow-up.

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: We have not been impacted at all as of yet by supply chain issues. This kind of reminds me of the COVID times, when parts were hard to get. Because they are hard to get, prices tend to go up. Back in that time, I would get on the phone with the presidents of the various suppliers and bang away at solutions, whether it is to keep the pricing stable, whether it is to make sure we get our fair share of shipments. I am doing that again, and we are having a lot of success. We are very aggressive on trying to keep things going the way they should. If we have purchase orders out there for various parts and the suppliers try to increase it because there are shortages out there, we do not put up with that.

We battle, we get the pricing that we were promised, and we make sure that we get our fair share of shipments. We have not been impacted at all, but it’s fair for us to say that this is something we’re going to have to deal with in this upcoming fiscal year. I think we have a lot of experience. We’ve been through this type of thing before, different ways, but we know how to handle it, and my efforts will be 100% to make sure we get our components on time and at the pricing we’ve agreed to.

Matt Summerville, Analyst, D.A. Davidson: Understood. I appreciate that. As a follow-up, can you maybe spend another moment talking about MVP, kind of where you’re at in that sort of launch cycle, if you will, and if you have any early read on sell-through or uptake or some other similar KPI that we would want to be tracking. I was wondering, while appreciating you wouldn’t want to comment on individual projects, is there a way to either quantitatively or qualitatively think about how that project funnel looks for you guys today versus a year or 2 ago? Thank you.

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: MVP, we have said give it till kind of the back end of the calendar year, which is coming up October, November. That’s when we expect to be able to report meaningful recurring revenue. That’s our hope. We don’t really want to talk about it until we get to that point. It’s not meaningful yet. We’re working hard for it to become meaningful. Our expectation is it’ll get there, whether it’s a couple of months before or after that timeframe, can’t be exactly sure. But by the end of this calendar year, we should be in a position where we’re talking about this in a very favorable way. We’ll keep everybody posted as it warrants. That’s on MVP. What was the second part, Matt? You had a second part to your question.

Matt Summerville, Analyst, D.A. Davidson: I was just wondering if you could either. Appreciating that you can’t talk about individual projects in any sort of specificity, is there a way that we can qualitatively or quantitatively look at the aggregate funnel you see for what you deem as a quote, project, and kind of compare that to how that’s maybe looked a year or 2 ago?

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: Yeah. It is clearly more than it has been. The issue we have is we do not necessarily get the order for the project until they are ready for it. We know we are getting the project, the project is going to be awarded to us, but we have to I do not like to talk about things unless we have an order in place. There are government ones, there are school ones. It is more than we have had in the last couple of years. We will talk about them when, A, we get the order, whether it is shipped or not, and B, we will talk about it if the entity, the customer, allows us to. Often they do not. They like to keep things quiet. But as I sit here today versus a year ago, this is much more than it has been in the last couple of years.

Matt Summerville, Analyst, D.A. Davidson: Thanks, Kevin.

Operator: Hello, may I know which conference you are looking to join?

NAPCO.

Thank you. Your next question is from Jim Ricchiuti from Needham & Company. Your line is now open.

Jim Ricchiuti, Analyst, Needham & Company: Hi. Thank you. Congrats on the quarter. Couple of questions. Yeah, obviously you’ve got some moving parts to the margins, but if we exclude the tariff refund benefit, I’m wondering if you could speak to the impact of the higher revenue contribution from the door locking portion of the business, which have better hardware margins, and the high contribution you saw from radio sales. Is that the right way to think about the overall impact on equipment gross margins? Which it seems like, excluding the tariff refund benefit, were down a bit sequentially. I’m trying to get a sense also as to how we think about that dynamic in the first quarter when you may still have some strength in door locking. Thank you.

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: Jim, when the radio sales are average, the good news is the equipment margins are going to be higher. I don’t know what that is. You still can hear me?

Jim Ricchiuti, Analyst, Needham & Company: Yeah, I can, Kevin. It’s gone.

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: Okay. The locking has the better margins. When locking is dominating, then you might see higher margins. This quarter, the radios were tremendous. That radio sales, what is it, a 20% gross margin item? It’s going to bring down the equipment margins in total. However, it leads to the beautiful recurring revenue, which is the big prize. In our case, it comes later because we sell to distribution. The distributor sits with it for a month or two, then the distributor sells it to the dealer. The dealer activates it right away, typically, and then we offer rebates. There’s like a five, six, seven-month gap from the time we ship the radios, the hardware, till the time we feel the beauty of the recurring revenue. Yes, it brought down the margins, the equipment margins, because it was so strong this quarter.

It’s going to bring our margins way up in total because of recurring that’s coming in the back end. So I’ll take this all day long.

Jim Ricchiuti, Analyst, Needham & Company: All right. The follow-up question I have is, we’re about halfway through the fiscal first quarter. I wonder if you could talk a little bit about the demand trends you’re seeing. Are you seeing any changes in behavior from some of your larger distributors, either related to the macro or possibly even as they may be considering getting ahead of higher component costs?

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: We don’t usually like to comment on the months ahead. Here we are talking about through June. Having said that, there’s been no difference in what we’re feeling. The distribution channel, and I think you do channel checks, you’ve probably talked to several of the distributors. It’s in a good place. They’re all in a good place now. Every now and then it gets a little chaotic, a little lumpy. Right now, the distributors are at a good place. Their inventory levels are good. Their sell-through is good. Hopefully, it stays that way, and our expectation is it will stay that way. Again, there’s issues out there, supply chain issues. We’ve dealt with them before. We’ll deal with them again. We have a lot of experience on how to manage that, and it’s part of what we do, and we’ll have to do it again.

Jim Ricchiuti, Analyst, Needham & Company: Okay. Thank you. I’ll jump back in the queue.

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: Thanks, Jim.

Operator: Thank you. Your next question is from Lance Vitanza from TD Cowen. Your line is now open.

Lance Vitanza, Analyst, TD Cowen: Hi. Thanks, guys. Congrats on the quarter. I have a couple questions if I can. The first is on the recurring service revenues, and you talked earlier in the prepared remarks that we’ve seen sort of this $2 million increase per quarter in sort of the run rate level. As we look into fiscal 2027, and you talked a little bit about MVP, you talked a little bit about the big radio sales in this quarter that we’re discussing today, do we think that there’s some upside to that $2 million per quarter increase, and if so, is it sort of more back half weighted in terms of when we see that? Or how would you sort of expect the cadence to look as we go through 2027?

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: Well, because there’s this delay of feeling the effects of the recurring revenue after you sell the radios, the hardware, and the delay is a good 6 months. That suggests that the run rate should go up towards the back end of the year, because if you get 6 months from now, when we’ll start to feel the recurring revenue from what good work we just did on the hardware sales of the radios. Yes, back end, my hope is that it goes up. Now, MVP, if it’s a contributor by then, we hope it will be, that just adds to it. But even without that, I would expect the run rate to increase.

Lance Vitanza, Analyst, TD Cowen: Okay. And then just pulling back a little bit, Kevin, I know you mentioned during your prepared remarks, and Dick mentioned that this is, the continuity is very important to you. That being said, should we expect that there could be areas where your priorities, perhaps strategic, perhaps capital allocation, do they perhaps differ from what NAPCO has historically emphasized?

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: I don’t think so. I think Dick and I are on the same page. We’re looking potentially at acquisitions, but it’s got to be right. If it’s right, certainly we have the cash to do it. We have the balance sheet to support it. The last one we did was 17 years ago, 18 years ago. So it’s time to do one, but only if it’s right. You saw our

Dick Soloway, Founder and Executive Chairman, NAPCO Security Technologies: We have the factory capacity also to handle it, if it fits our criteria.

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: Right. So that would be like

Dick Soloway, Founder and Executive Chairman, NAPCO Security Technologies: We amortize our overheads in the factory to raise our margin. We are looking very hard at a couple of them right now.

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: Right. Maybe it will feel different when it happens, but we are looking at it. You saw our EBITDA margin for the quarter. It is pushing 40%, and that is one of the goals that we have here. We want to get it over 40. Nobody thought we would get close to that. We are getting pretty close. I am not going to want to do anything that is going to screw that up, but we are going to want to do something that could enhance it. If that comes about, we will do it.

Dick Soloway, Founder and Executive Chairman, NAPCO Security Technologies: You also saw that we increased our R&D 10%. That is because we are creating a sequel to StarLink, which will keep the momentum going in the future.

Lance Vitanza, Analyst, TD Cowen: Thank you both, and congratulations again.

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: Thanks, Lance.

Dick Soloway, Founder and Executive Chairman, NAPCO Security Technologies: Thank you.

Operator: Thank you. Your next question is from Jaeson Schmidt from Lake Street. Your line is now open.

Jaeson Schmidt, Analyst, Lake Street: Hey, guys. Thanks for taking my questions. Just curious if you could comment what you’re seeing at ADI, and specifically how expanding your product portfolio with them is progressing.

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: ADI’s been a great partner since we started up with them. I guess it’s now about three years ago. They’re very organized, buttoned up. They buy a lot of intrusion products, a lot of fire radios. They have a lot of relationships with some of these large dealers that we are now adding to our list of dealers who use our products. It’s working great on that end. We’re trying to get them into the locking side, and they’ve actually trained many of their branches on the MVP products. That could be very good going forward, because if we could get that big, strong machine that they are into locking It’s going to be amazing for us. We’re working on that while continuing to sell them a lot of intrusion products.

Jaeson Schmidt, Analyst, Lake Street: Okay. That’s helpful. Then just as a follow-up, going off your comments on the school security market, just curious if the K through 12 market or the university market is stronger based on what you currently have in the funnel.

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: Both. They’re both strong. The need is in all areas. When we hear the horrific stories that come out, a lot of them are in universities, a lot of them are in K through 12, both. Even though these things have been going on for so long, so many of these schools still are without equipment. The challenge for us is to get out there, it’s a big country, and to get our integrators to understand what products we have to offer and to get in there. I was happy to see at the ISC West show, which was in March, the folks from Pepperdine were there. Pepperdine is now They were a big customer. They did a lot of things. They did all their dorms, they did all the classrooms, the admin offices, et cetera, remote campuses. They’re ready for more now.

They’ve added more dorms, and they love our products. This is an ongoing thing. Even with some of the schools that have used our product, they come back for another round.

Jaeson Schmidt, Analyst, Lake Street: Gotcha. Thanks a lot, guys.

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: Thank you.

Operator: Thank you. Once again, that is star one should you wish to ask a question. Your next question is from Jeremy Hamblin from Craig-Hallum Capital Group. Your line is now open.

Will, Analyst (on for Jeremy Hamblin), Craig-Hallum Capital Group: Hey, this is Will on for Jeremy. Thanks for taking my questions. Just wanted to touch on your discount and pricing strategy for the year. I think you previously noted a little less discounting to smooth out orders and support higher margins. I guess, just how should we be thinking about that strategy in fiscal 2027, and then some of the puts and takes in getting equipment and margins back up to 30%?

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: I’m going to let Andy answer this one. Andy is a great CFO, and he spends time trying to improve our margins with the discounting. He works with the sales team. He looks at this closely. Andy, why don’t you answer this one?

Andrew Vuono, Chief Financial Officer, NAPCO Security Technologies: Okay. I would say, fiscal 2026 is reflecting the improved discipline, one, around our rebate programs. We have volume rebates with the vast majority of our distributors if they hit certain revenue thresholds. We’re more disciplined in the program as far as framing the program, what criteria they need to hit, what bogeys they need to attain. I think we saw the benefits of that in fiscal 2026. On top of that, a concerted effort to, one, lessen the amount of orders and activity we have at the end of the quarter, which we’ll never get away from. To have the sales force be more focused on trying to secure those orders earlier and really negotiating hard with our distributors to get away from large discounts.

I think it just reflects the discipline that we saw in fiscal 2026, and we’re expecting more into 2027. I constantly have conversations with our Chief Revenue Officer, Jill Kucinski, about what our strategies are, our pricing and/or our discounting. I would expect us to hopefully improve on where we are. I think we picked up two points on the equipment revenue in fiscal 2026. Our goal is to continue banging away with that and raise that efficiency even more.

Will, Analyst (on for Jeremy Hamblin), Craig-Hallum Capital Group: Okay. That’s helpful. Just besides ISC East falling in Q4, is there anything else to consider in terms of incremental OpEx for 2027, whether that’s on the R&D side or any sort of SG&A build-out needed over the coming quarters?

Andrew Vuono, Chief Financial Officer, NAPCO Security Technologies: I mean, I’ll weigh on the SG&A. On the SG&A, no, nothing in particular other than I expect us to add some more talent to our internal IT group. One, to meet the needs of the organization, to respond to the obvious risks out there regarding cyber. But outside of that, any unknowns with some of the litigation we’re dealing with on legal, I don’t expect any other significant changes in the SG&A. I’ll let Kevin comment on the R&D.

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: Yeah. On the R&D, I have a lot of confidence in our Chief Technology Officer. He’s great. He’s a very smart guy with products, and he’s very good with budgets. So when he says, "I need more help," I say, "How many you need?" We have the money to do it. I give him whatever he needs, because when we give him what he needs, that leads to more recurring revenue products. So the spend will go up. It won’t be anything crazy. It’ll be what’s necessary to keep the development going so that we come out with more innovative, exciting products all the time.

Will, Analyst (on for Jeremy Hamblin), Craig-Hallum Capital Group: Got it. That’s helpful. Thanks for taking my questions.

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: You got it.

Operator: Thank you, ladies and gentlemen. Once again, should you have additional questions, you may press star one. It seems there are no further questions at this time. Please proceed with the closing remarks.

Kevin Buchel, Chief Executive Officer and President, NAPCO Security Technologies: Okay. Thank you everybody for participating in today’s conference call. As always, should you have any further questions, feel free to call Dick, call Fran, Andy, or myself for further information. We thank you for your interest and support, and we look forward to speaking with you all again in a few months to discuss NAPCO’s fiscal Q1 2027 results. Thank you all. Have a great day.

Operator: Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may now disconnect your lines.