protecting america’s businesses, homes and...
TRANSCRIPT
1
Protecting America’s Businesses, Homes and SchoolsSeptember 2020
2
Special Note on Forward-Looking Statements
This presentation contains forward-looking statements that are based on current expectations, estimates, forecasts and projections of
future performance based on management's judgment, beliefs, current trends, and anticipated product performance. These forward-looking statements include, without limitation, statements relating to growth drivers of the Company’s business such as school security products
and 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 expected annual run rate for Saas recurring monthly revenue. Forward-looking statements
involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements.
These factors include, but are not limited to, such risk factors described in our SEC filings, including our Annual Report onForm 10-K. Other unknown or unpredictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ
materially from those in the forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. You should not place
undue reliance on these forward-looking statements. All information provided in this press release is as of today's date, unless otherwise
stated, and we undertake no duty to update such information, except as required under applicable law.
Use of Non-GAAP Financial Measures
We disclose certain non-GAAP financial measures in this presentation for our historical performance, including EBITDA, non-GAAP operating income and Adjusted EBITDA. We define EBITDA as GAAP net income (loss) plus income tax expense (benefit), net interest
expense and depreciation and amortization expense. Non-GAAP operating income excludes impairment of goodwill, amortization of intangibles, restructuring charges, stock-based compensation expense and other infrequent or unusual charges. We believe that these
historical non-GAAP financial measures provide useful information to both management and investors by excluding certain items and
expenses that are not indicative of our core operating results or do not reflect our normal business operations. In addition, our management uses non-GAAP measures to compare our performance relative to forecasts and to benchmark our performance externally against
competitors. The presentation of this information is not meant to be a substitute for the corresponding financial measures prepared in accordance with generally accepted accounting principles. Our use of non-GAAP financial measures has certain limitations in that such
non-GAAP financial measures may not be directly comparable to those reported by other companies. For example, the terms used in this
presentation, such as Non-GAAP operating income and Adjusted EBITDA, do not have a standardized meaning. Other companies may use the same or similarly named measures, but exclude different items, which may not provide investors with a comparable view of our
performance in relation to other companies. We seek to compensate for the limitation of our non-GAAP presentation by providing adetailed reconciliation of the non-GAAP financial measures to the most directly comparable U.S. GAAP measures in the tables attached
hereto. Readers are encouraged to review the related U.S. GAAP financial measures and the reconciliation of these non-GAAP financial
measures to their most directly comparable U.S. GAAP financial measures.
Leader in Designing and Manufacturing
Commercial & Residential Security Products
Corporate Offices :
Amityville, NY
Manufacturing :
Dominican Republic
Products Sold Through10,000 + Dealers,
Integrators & Distributors in the US
(B2B Business Model)
Established:
R&D
Manufacturing *
Sales & Marketing
Intellectual Property:
Two dozen patents*
Proprietary software and copyrights
Two Major Growth Drivers
1) Recurring Revenue
2) School Security
3
*(issued & pending)
*(ISO Certif ied – Highest Quality Standard)
Company Overview
4
50%
Commercial
50%
Residential
100%
Commercial
100%
Commercial
Total Revenues = 80% Commercial, 20% Residential
100%
Commercial
(Professional Installation)
The NAPCO Group of Companies
5
Product Examples
Small Mid Size Business - Residential
Schools - UniversitiesCommercial Buildings
Medical Centers & Detention Rooms
(Product Portfolio includes 4K SKU’s)
6
Distributors
(200+ in US)
Independent Integrators
2,000 +
NAPCO Factory Sales Team Markets Products to
Distributors, Dealers & Integrators
Installing commercial access control and fire alarm systems for K-12 Schools, Universities, Airports, Office Buildings and
Hospitals with integrators such as Siemens and Red Hawk.
80% Of Alarm Sales Are Sold Private
Labeled For Thousands Of Strategic
Partners, A Few Examples Include:
Independent Dealers
10,000 +
Distribution Channels
Installing small and medium sized business & residential jobs
FAMILY OF COMPANIES
7
END USER
COMMERCIAL BUSINESS or RESIDENCE
NAPCO NETWORK OPERATIONS CENTER
$ RMR to NAPCO
DEALERS
CENTRAL ALARM STATION
✓ Eliminates The Traditional Telephone Land Line ✓ Alarm Signal Transmitted Via Verizon, AT&T And T-Mobile Cellular Networks
✓ Signal-Boost™ Technology To Provide Reliability Even In Remote Areas
✓ iBridge Smartphone IoT App Controls Lighting, Locks, Climate & Video✓ StarLink Connect Works With Millions of Existing Competitors Alarm Systems
✓ Upfront Equipment Sales PLUS Recurring Revenue with up to 90% Gross Margin!✓ Dealer pays NAPCO RMR Monthly Fee
SMALL MID SIZE BUSINESS / RESIDENTIAL$7 to $13 per month
SMALL MID SIZE BUSINESS / RESIDENTIAL$6-8 per month
COMMERCIAL FIRE $12-26 per month
SINGLE PATHCELLULAR
DUAL PATH
CELLULAR + IP
FIRELINK PANEL WITH
STARLINK COMMUNICATOR
BUILT IN
IoT SmartPhone App
How
StarlinkWorks
Transmits
to
Sends
to
Recurring Revenue Products
SMALL MID SIZE BUSINESS / RESIDENTIAL PANEL$7 to $13 per month
8
Recently Introduced Recurring Revenue Product
• Winner of MVP Award @ ISC West Trade Show
• Designed for 1 hour installation time
• Alarm Panel separate from keypad – system not disabled if burglar smashes keypad • iBridge app delivers smart home features – lighting, climate control, video alerts etc.
• Up to 80 zones allows for residential and small mid size business application• Dealers will get faster ROI vs competition
• Recurring Revenue Generator ($7-13 per month)8
Business/Residential Alarm System
9
School Security & SafetyMajor Growth Driver
9
Source: the74million.org August 2018
Examples Include:• Florida $500M
• Wisconsin $100M
• Maryland $125M• Plus More!
Funding for School Security Significantly Increased
Recent Headlines
➢ The School Violence Prevention
and Mitigation Act of 2019
authorizes $2 billion over 10
years for schools to first identify
security risks and then address
any shortfalls.(Bill Proposed by Rep. Williams & Deutch
PR July 2019)
➢ DOJ Awards $85.3 Million in
Grants for School Security.(Sour ce: DO J PR(October 2019)
➢ Kentucky Legislature recently
approved Fiscal 2021 budget
includes $40 Million for school
security.
10
11
LocDown Systems SolutionsLock down classrooms, offices, common areas, labs, with a key, safely from inside
Retrofits standard lockset, several lock body styles & finishes
$100 Per Door ASP
Lock down
classrooms & offices from inside safely:
With a pushbutton on inside door or
wireless fob Lock down up to four doors locally
at once.
$500 Per Door ASP
Campus Security System Lockdown/Notification
App for Staff & Teacher Smartphones.Emergency notifications and pinpointed statusInternal PA and outbound communications with
first responders.
Lockdown activated by the server or from authorized personnel at an indiv idual access lock
Real-time global lockdown or unlock in under 10 seconds, ideal for offices, labs, dorms & classrooms
$600 Per Door ASP
$1,000 Per Door ASP
12
plus many more…
K-12 (Market is 100,000 Schools)
Colleges & Universities (Market is 10,000 Campuses)
plus many more…
Examples of institutions using our LocDown Solutions
13
Alarms
&
Connectivity
Locking
Access Control
NAPCO SECURITY
TECHNOLGIES INC.
INTRUSION & FIRE
NAPCO Is The Only Company With Products In All Three Security Verticals
Competitive Landscape
14
Enterprise-Class Platform That Integrates Each Of Our Division’s Products
FUSION
Technology
Systems
ACCESS
CONTROL
ALARMS &
CONNECTIVITY
• INTRUSION
• FIRE
• SAAS (RMR)
LOCKING
Integrated Solutions
INTRUSION & FIRE
15
Market Opportunity
Residential Market
Homes in US Professional Installed Security
120 Million Homes
22 Million
Opportunity for New Installs and Retrofit
• DIY products not hav ing material
impact on professional installations• Conversion to cellular alarms in
early stages
• Professional Dealers driven by RMR opportunities
• Fire Alarm systems conversion to
cellular in early stages – cost sav ings, reliability, carriers not supporting POTS
• Locking and Access Control drivers include new construction
as well as retrofit opportunities• School Security a Growth Driver
Estimated 5 Million Buildings
Commercial Market
16
Fiscal Q4 & FY2020 Highlights
Fourth Quarter Sales
$23.0 Million
FY 2020 Sales
$101.3 Million
FY 2020 Recurring Revenue Increased 38%
Recurring Revenue Annual Run Rate $27.5 MM*
FY 20 RMR Gross Margin 82%*based on June 2020
FY 2020 Operating Income $10.8M
FY 2020 Net Income
$8.5M
Fiscal Year 2020 EPS .46
Adjusted EBITDA $14.7M
Adj. EBITDA per share .80
Cash Balance of
$18.2 Million
Zero Debt
17
Figures in thousands, except EPS
Fiscal Quarter Performance
Fiscal Period3
Months Ended
6/30/20
3Months Ended
6/30/19
12Months Ended
6/30/20
12Months Ended
6/30/19
Sales $23,006 $29,584 $101,359 $102,932
Net
Income(Loss)
$(1,900) $4,728 $8,520 $12,223
EPS $(0.10) $0.26 $0.46 $0.66
Adjusted
EBITDA
$1,480 $5,151 $14,744 $15,035
Adjusted
EBITDA EPS
$0.08 $0.28 $0.80 $0.81
18
2018 2019 2020
Revenue SG&A R&D
$91.7M $102.9M $101.3M
Consistent Growth & Expense Control
7%
7% 7%
25%
23% 23%
19
$1.4 $1.6
$2.2
$4.7
$2.1
$3.8 $4.0
$5.2
$4.0
$4.7 $4.9
$1.5
$-
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
Q1 Q2 Q3 Q4
FY 2018 FY 2019 FY2020(millions)
Adjusted EBITDA by Quarter
Seasonality Impacts Financial Performance, Expect RMR to Mitigate Seasonality
June 30,2020 (Millions)
(1) Working capital shown as total current assets less total current liabilities.(2) Diluted shares outstanding as of June 30,2020.
Amityville, NY and Dominican Republic Company Owned Facilit ies on the Books For < $1MM While The Market Value Exceeds $17MM
180,000 Square Feet Factory in Dominican Republic. ISO Cert ified
100,000 Square Feet Headquarters and Factory in Amityville, NY
Cash and Cash Equivalents $18.2
Working Capital(1) $62.8
Total Assets$105.8
Debt $0
Total Liabilities $28.0
Stockholders’ Equity$77.9
Diluted Shares Outstanding(2) 18.3
20
Selected Balance Sheet HighlightsNAPCO’S FACILITIES
21
Management
Richard Soloway / President & CEO - Founder, 30+ years security, electronics experience.
Founded two prev ious companies the first of which installed electric garage door openers and the second manufactured guitar amplifiers, buzz boxes and wah wah pedals .Winner of numerous awards including Ernst &Young’s Entrepreneur of the Year and holder of patents
relating to security products
Kevin Buchel / Senior Vice President & CFO - Over 25 years of experience in the security
industry. Began career at Coopers & Lybrand. Certified Public Accountant
Jorge Hevia / Chief of Marketing - Over 20 years of experience in the security industry.
Successful track record in marketing and sales at leading consumer product companies such as Colgate-Palmolive and Unilever
Michael Carrieri / SVP Engineering - Over 20 years of experience in the security industry.
Extensive knowledge of developing advanced electronic products with applications in military/defense, media/broadcasting and consumer electronics. Fire Chief Emeritus of the Fire Department of Melv ille, Long Island
Stephen Spinelli / SVP Sales - 25 years of sales experience in the security industry. Prev iously Mr. Spinelli was with a global leader in commercial & residential security systems, comprising alarms, access control and locking. He has a proven track record of leading sales teams
and consistently surpassing sales goals.
22
Stock Snapshot
Stock Price: $23.25
52 Week Range : $13.33-34.91
Shares Outstanding : 18.3 MM
Market Capitalization : $425 MM
Insider Ownership
~ 38 Percent
Institutional Holders (33% +)
Wasatch Advisors
Allianz Global
Fidelity Investments
Ranger Investment Mgmt
Analyst Coverage
William Blair
Canaccord Genuity
Lake Street Capital
Imperial Capital
Data as of September 4, 2020
23
Summary
✓ Financially Strong: LTM Revenue of $101M, Zero Debt
✓ Growth Drivers: Recurring Revenue and School Security
✓ SaaS RMR Now at $27.5 MM* Annual Run Rate
✓ Consistently Profitable Company With 38% Insider Ownership
*As of June 30,.2020
24
Thank You !!
25
If you would like to receive an electronic copy of this
presentation:
Visit – www.investor.napcosecurity.com
or
Email – Patrick McKillop / Director of Investor Relations [email protected]
Follow NAPCO on social mediaTwitter @NSSCSecurityFacebook @Napco-Security-Technologies-Inc
APPENDIXFinancial
26
27
Napco Security Technologies Inc (NSSC US) -
Adjusted
In Millions of USD except Per Share FY 2018 FY 2019 FY 2020
12 Months Ending 06/30/2018 06/30/2019 6/30/2020
Revenue 91.75 102.93 101.3
+ Sales & Services Revenue 91.75 102.93 101.3
- Cost of Revenue 53.75 59.04 57.76
Gross Profit 38.00 43.89 43.59
- Operating Expenses 29.58 30.42 30.92
+ Selling, General & Admin 22.95 23.21 23.67
+ Research & Development 6.63 7.21 7.25
Operating Income (Loss) 8.41 13.47 10.81
Pretax Income (Loss), GAAP 8.33 13.45 10.8
- Income Tax Expense (Benefit) 0.68 1.22 2.28
Net Income, GAAP 7.65 12.22 8.5
Basic Weighted Avg Shares 18.79 18.57 18.44
Basic EPS, GAAP 0.41 0.66 0.46
Diluted Weighted Avg Shares 18.825 18.624 18.49
Diluted EPS, GAAP 0.41 0.66 0.46
Reference Items
EBITDA 9.82 14.88 14.74
EBITDA Margin (T12M) 10.71 14.45 14.55
Gross Margin 41.41 42.64 43.0
Operating Margin 9.17 13.08 11.73
Profit Margin 8.34 11.87 8.35
28
Reconciliation of Non GAAP Financial Measures
Fiscal Year Ended June 30 ($ in thousands) 2018 2019 2020
Net Income (GAAP) 7,649 12,223 8,469
Add back provision for income taxes 684 1,222 2.,284
Add back interest expense 81 21 9
Operating Income (GAAP) 8,414 13,466 10,800
Adjustments for non-GAAP measurements of performance
Add back amort izat ion of acquisit ion-related intangibles 371 313 264
Add back stock-based compensation expense 145 160 583
Adjusted non-GAAP operating income 8,930 13,939 13,512
Add back depreciat ion and other amort izat ion 1,039 1,096 1.232
Adjusted EBITDA (earnings before interest, taxes, depreciat ion and
amort izat ion) 9,969 15,035 14,744
Adjusted EBITDA* per Diluted Share 0.53 0.81 0.80
Weighted average number of Diluted Shares outstanding 18,825,000 18,624,000 18,493,000