การประชุมแถลงผลประกอบการไตรมาส 1 ปีงบประมาณ 2027 ของ NAPCO Security Technologies (NSSC): อัตรารายได้ประจำต่อปีแตะระดับ 106 ล้านดอลลาร์

ประเด็นสำคัญ

• NAPCO Security Technologies รายงานรายได้สุทธิประจำไตรมาส 1 ปีงบการเงิน 2027 สูงสุดเป็นประวัติการณ์ที่ 50.0 ล้านดอลลาร์ เพิ่มขึ้น 1.7% เมื่อเทียบรายปี เนื่องจากเติบโตของรายได้จากบริการต่อเนื่องช่วยชดเชยยอดขายอุปกรณ์ที่อ่อนตัวลง
• รายได้จากบริการต่อเนื่องเพิ่มขึ้น 11.5% สู่ระดับ 26.1 ล้านดอลลาร์ และคิดเป็น 52% ของรายได้ทั้งหมด เมื่ออิงจากรายได้เดือนตุลาคม 2026 อัตราการสร้างรายได้รายปีในอนาคต (prospective annual run rate) แตะระดับประมาณ 106 ล้านดอลลาร์ เพิ่มขึ้น 3 ล้านดอลลาร์จากเดือนสิงหาคม
• อัตรากำไรขั้นต้นรวมขยายตัวขึ้นสู่ระดับ 58.7% จาก 56.6% อัตรากำไรขั้นต้นของบริการยังคงสูงกว่า 90% อยู่ที่ 90.1% ขณะที่อัตรากำไรขั้นต้นของอุปกรณ์ลดลงสู่ระดับ 24.3%
• กำไรสุทธิเพิ่มขึ้น 6.9% แตะระดับสูงสุดสำหรับไตรมาสแรกของปีงบการเงินที่ 13.0 ล้านดอลลาร์ หรือ 0.36 ดอลลาร์ต่อหุ้นปรับลด EBITDA ปรับปรุงแล้วเพิ่มขึ้น 3.8% แตะระดับสูงสุดเป็นประวัติการณ์ที่ 15.5 ล้านดอลลาร์ โดยมีอัตรากำไรอยู่ที่ 31%
• รายได้จากอุปกรณ์ลดลง 7.3% สู่ระดับ 23.9 ล้านดอลลาร์ สาเหตุหลักมาจากจังหวะการสั่งซื้อของผู้จัดจำหน่ายระบบล็อกสองราย การเปรียบเทียบกับช่วงเดียวกันของปีก่อนที่ได้รับผลกระทบจากภาษีศุลกากร รวมถึงยอดขายระบบควบคุมการเข้าออกและระบบล็อกประตูที่อ่อนตัวลง ฝ่ายบริหารระบุว่ายอดขายหน้าร้านของผู้จัดจำหน่าย (sell-through) ยังคงแข็งแกร่ง
• ฝ่ายบริหารคาดการณ์อัตรากำไรขั้นต้นของอุปกรณ์ตลอดทั้งปีไว้ที่ 26% ถึง 27% โดยได้รับปัจจัยหนุนหลักจากปริมาณการขายที่สูงขึ้น และสัดส่วนผลิตภัณฑ์ที่เอื้ออำนวยมากขึ้น โดยไม่ได้สมมติถึงการปรับขึ้นราคาเพิ่มเติม

ข้อมูลทางการเงินสำคัญ

ผลการดำเนินงานทางธุรกิจและการปฏิบัติการ

รายได้จากบริการต่อเนื่องยังคงเป็นปัจจัยขับเคลื่อนหลักในการเติบโตและอัตรากำไรของ NAPCO การเปิดใช้งานวิทยุเตือนภัยแจ้งเหตุเพลิงไหม้ StarLink เพิ่มขึ้นมากกว่า 8% เมื่อเทียบรายปี และเกือบ 3.5% เมื่อเทียบกับไตรมาสก่อนหน้า ประมาณ 75% ของฐานการติดตั้ง StarLink ประกอบด้วยวิทยุเตือนภัยแจ้งเหตุเพลิงไหม้ที่ใช้ในอาคารพาณิชย์

ฝ่ายบริหารคาดว่าความสัมพันธ์กับผู้ผลิตอุปกรณ์ดั้งเดิม (OEM) จะช่วยขยายขอบเขตการเข้าถึงวิทยุสื่อสารของ NAPCO ในช่วงที่มีการทดแทนสายโทรศัพท์ทองแดง นอกจากนี้ บริษัทสียังได้รับการรับรอง ULC สำหรับวิทยุสื่อสาร ซึ่งช่วยให้สามารถจำหน่ายผลิตภัณฑ์สื่อสารเหล่านี้ในแคนาดาได้ โดย NAPCO วางแผนที่จะสนับสนุนการขยายตลาดในแคนาดาเป็นหลักผ่านการเพิ่มพนักงานขายโดยเฉพาะ

ผลการดำเนินงานด้านอุปกรณ์อ่อนตัวลง โดยรายได้จากระบบแจ้งเตือนการบุกรุกและระบบควบคุมการเข้าออกลดลง 1.8% ในภาพรวม ยอดขายผลิตภัณฑ์แจ้งเตือนการบุกรุก ซึ่งรวมถึงวิทยุ StarLink เพิ่มขึ้น 1.7% แต่ายอดขายผลิตภัณฑ์ควบคุมการเข้าออกลดลง 13.8% ขณะที่รายได้จากระบบล็อกประตูลดลง 10.1%

ฝ่ายบริหารระบุว่าการลดลงของรายได้จากอุปกรณ์เกิดจากการเปรียบเทียบกับตัวเลขฐานที่สูงจากอุปสงค์ค้างส่งอันเนื่องมาจากภาษีศุลกากร และการลดการสั่งซื้อของผู้จัดจำหน่ายระบบล็อกรายใหญ่สองรายที่กำลังระบายสินค้าคงคลัง อย่างไรก็ตาม ยอดขายหน้าร้าน (sell-through) รวมของผู้จัดจำหน่ายเหล่านั้นเพิ่มขึ้นประมาณ 5% เมื่อเทียบรายปี และเติบโตในอัตราเลขสองหลักเมื่อเทียบกับไตรมาสก่อนหน้า โดยผู้จัดจำหน่ายรายหนึ่งได้กลับมาสั่งซื้อสินค้าอีกครั้งตั้งแต่วันที่ 1 ตุลาคม ตามข้อมูลจากฝ่ายบริหาร

นอกจากนี้ NAPCO กำลังขยาย MVP ซึ่งเป็นแพลตฟอร์มควบคุมการเข้าออกบนระบบคลาวด์ ตัวแทนจำหน่ายระดับชาติรายใหม่ที่มีหลายสาขาได้เพิ่ม MVP เข้าไปในข้อเสนอสำหรับลูกค้า ขณะที่ผู้จัดจำหน่ายหลายรายกำลังฝึกอบรมสาขาเกี่ยวกับแพลตฟอร์มดังกล่าว ฝ่ายบริหารระบุว่า MVP มีศักยภาพสูงในการสร้างรายได้จากบริการต่อเนื่อง แม้ว่าการฝึกอบรมตัวแทนจำหน่ายจะยังคงเป็นอุปสรรคสำคัญในการนำไปใช้อย่างแพร่หลาย

ค่าใช้จ่ายด้านวิจัยและพัฒนา (R&D) เพิ่มขึ้น 25.1% สู่ระดับ 4.1 ล้านดอลลาร์ หรือคิดเป็น 8.1% ของรายได้ เนื่องจาก NAPCO เพิ่มบุคลากรด้านวิศวกรรม และมีค่าใช้จ่ายเกี่ยวกับค่าตอบแทน สวัสดิการ และอุปกรณ์ที่สูงขึ้น บริษัทกำลังลงทุนในผลิตภัณฑ์ใหม่ ๆ รวมถึงข้อเสนอที่มีศักยภาพในการสร้างรายได้จากบริการต่อเนื่อง

บริษัทได้คงโครงการจ่ายเงินปันผลประจำไตรมาส โดยประกาศจ่ายเงินปันผล 0.17 ดอลลาร์ต่อหุ้นในวันที่ 4 มกราคม 2027 ให้แก่ผู้ถือหุ้นที่มีชื่อในสมุดทะเบียน ณ วันที่ 14 ธันวาคม 2026

แนวทางจากฝ่ายบริหาร

ฝ่ายบริหารคาดการณ์ว่าอัตรากำไรขั้นต้นของอุปกรณ์ตลอดทั้งปีจะแตะระดับ 26% ถึง 27% ตามประมาณการแบบระมัดระวัง มุมมองดังกล่าวอยู่บนสมมติฐานของปริมาณการขายอุปกรณ์ที่สูงขึ้นและสัดส่วนผลิตภัณฑ์ที่ดีขึ้น ซึ่งรวมถึงผลิตภัณฑ์ล็อกอิเล็กทรอนิกส์ที่มีอัตรากำไรสูงกว่า ทั้งนี้ ยังไม่ได้นับรวมการปรับขึ้นราคาที่อาจเกิดขึ้น

คาดว่าค่าใช้จ่ายด้าน R&D จะยังคงใกล้เคียงกับระดับในไตรมาสแรกของปีงบการเงิน โดยไม่คาดว่าจะมีการขยายตัวเพิ่มขึ้นอย่างมีนัยสำคัญ หากไม่รวมค่าใช้จ่ายทางกฎหมาย ฝ่ายบริหารคาดว่าค่าใช้จ่ายทั่วไปและบริหาร (G&A) อื่นๆ จะทรงตัวโดยกว้างเมื่อเทียบรายปี ค่าใช้จ่ายทางกฎหมายอาจยังคงอยู่ในระดับสูง เนื่องจากบริษัทยังคงดำเนินการเพื่อยุติคดีความที่เปิดเผยไว้ ซึ่งอาจลากยาวไปจนถึงสิ้นปี

ฝ่ายบริหารระบุว่าความร่วมมือด้านวิทยุ OEM และตลาดแคนาดาเป็นโครงการที่มีแนวโน้มจะสร้างรายได้ได้เร็วกว่า โดย MVP อาจเป็นโอกาสสร้างรายได้จากบริการต่อเนื่องที่ใหญ่ที่สุด แต่ก็อาจใช้เวลานานกว่าในการขยายขนาด ทั้งนี้ พอร์ทัลสถาปัตยกรรมและวิศวกรรมของ NAPCO มีกำหนดเปิดตัวในเดือนเมษายน 2027 โดยคาดว่าผลิตภัณฑ์เฉพาะ 40 รายการจะเสร็จสมบูรณ์ภายในสิ้นปีปฏิทิน 2026

ความเสี่ยงและประเด็นที่ต้องติดตาม

• รายได้จากอุปกรณ์ยังคงมีความไวต่อกำหนดการสั่งซื้อของผู้จัดจำหน่าย การบริหารจัดการสินค้าคงคลัง และสัดส่วนผลิตภัณฑ์ แม้ว่ายอดขายหน้าร้านไปยังลูกค้าปลายทางจะยังคงแข็งแกร่งก็ตาม
• ภาษีศุลกากรตามมาตรา 301 ที่สูงขึ้น ต้นทุนบริการทางเทคนิค และสัดส่วนผลิตภัณฑ์ล็อกเชิงกลที่เพิ่มขึ้น เป็นปัจจัยกดดันอัตรากำไรของอุปกรณ์
• ฝ่ายบริหารกำลังพิจารณาปรับเปลี่ยนราคา โดยเฉพาะอย่างยิ่งสำหรับผลิตภัณฑ์ล็อกเชิงกลและงานโครงการ แต่ยังคงระมัดระวังเนื่องจากราคาแข่งขันของวิทยุสื่อสารและการปรับขึ้นราคาจากภาษีศุลกากรก่อนหน้านี้
• NAPCO ยังคงติดตามความพร้อมและต้นทุนของชิ้นส่วนอิเล็กทรอนิกส์อย่างต่อเนื่อง แม้ว่าฝ่ายบริหารจะยังไม่เห็นการเพิ่มขึ้นของต้นทุนชิ้นส่วนอย่างมีนัยสำคัญ ณ เวลาที่แถลงผลประกอบการ
• กระแสเงินสดอิสระลดลงอย่างมีนัยสำคัญจากการชำระเงินค่าไกล่เกลี่ยคดีความจำนวน 15 ล้านดอลลาร์ ขณะที่ค่าใช้จ่ายทางกฎหมายอาจยังคงอยู่ในระดับสูงในระหว่างปีงบการเงิน 2027
• การนำ MVP มาใช้งานขึ้นอยู่กับการฝึกอบรมตัวแทนจำหน่ายระบบล็อกและระบบควบคุมการเข้าออก เพื่อให้สามารถขายและติดตั้งใช้งานแพลตฟอร์มคลาวด์ที่สร้างรายได้ต่อเนื่องได้

ประเด็นสำคัญจากการถาม-ตอบของนักวิเคราะห์

นักวิเคราะห์เน้นไปที่ความยั่งยืนของอัตรากำไรของอุปกรณ์ สินค้าคงคลังของผู้จัดจำหน่าย การนำ MVP มาใช้ และการเติบโตของ StarLink ฝ่ายบริหารกล่าวว่าสินค้าคงคลังในช่องทางจำหน่ายไม่ได้ล้นตลาด โดยทั่วไปผู้จัดจำหน่ายถือสินค้าคงคลังไว้ประมาณสองเดือน ซึ่งน้อยกว่าระดับสามเดือนที่ NAPCO พึงพอใจ

ในส่วนของอัตรากำไรของอุปกรณ์ บริษัทคาดว่าการฟื้นตัวของปริมาณการขายและสัดส่วนผลิตภัณฑ์ล็อกอิเล็กทรอนิกส์ที่ดีขึ้น จะเป็นตัวขับเคลื่อนให้ปรับตัวดีขึ้นไปสู่ช่วง 26% ถึง 27% สำหรับทั้งปี การปรับขึ้นราคาที่อาจเกิดขึ้นจะช่วยเพิ่มอัปไซด์เพิ่มเติมให้กับกรอบดังกล่าว แต่ไม่ได้รวมอยู่ในประมาณการ

สำหรับ StarLink ฝ่ายบริหารย้ำว่าจำนวนการเปิดใช้งานคือดัชนีชี้วัดล่วงหน้าที่สำคัญ การเปิดใช้งานวิทยุเตือนภัยแจ้งเหตุเพลิงไหม้เติบโตมากกว่า 8% เมื่อเทียบรายปี และเกือบ 3.5% เมื่อเทียบกับไตรมาสก่อนหน้า ซึ่งสนับสนุนความเชื่อมั่นในการเติบโตในอัตราเลขสองหลักอย่างต่อเนื่องของรายได้จากบริการต่อเนื่อง

เกี่ยวกับ MVP ฝ่ายบริหารกล่าวว่าข้อกำหนดหลักคือการดำเนินงาน (execution) มากกว่าการลงทุนในโครงสร้างพื้นฐานเพิ่มเติม บุคลากรหลักด้าน R&D และฝ่ายขายมีความพร้อมอยู่แล้ว และการเพิ่มขึ้นของค่าใช้จ่ายในการขายและบริหาร (SG&A) เพิ่มเติมจะสะท้อนถึงค่าคอมมิชชันการขายเป็นหลัก หากการนำไปใช้งานเร่งตัวขึ้น

บันทึกการแถลงผลประกอบการฉบับเต็ม

บทถอดเสียงฉบับเต็มของการประชุมทางโทรศัพท์ผลประกอบการ

คำชี้แจงจากฝ่ายบริหาร

Operator

Good morning, ladies and gentlemen, and welcome to the NAPCO Security Technologies Fiscal Q1 2027 Earnings Conference Call. [Operator Instructions] This call is being recorded on Monday, November 2, 2026. I would now like to turn the conference over to Mr. Francis Okoniewski, Vice President, Investor Relations. Please go ahead, sir.

Francis Okoniewski

Thank you, Anas, and good morning, everyone. This is Fran Okoniewski, Vice President of Investor Relations for NAPCO Security Technologies. Thank you all for joining today's conference call to discuss financial results for our fiscal first quarter 2027. By now, all of you should have had the opportunity to review our earnings press release discussing our quarterly results. If you have not, a copy of the release is available in the Investor Relations section of our website, www.napcosecurity.com. On the call today are Dick Soloway, Founder and Executive Chairman of NAPCO Security Technologies; Kevin Buchel, Chief Executive Officer and President; and Andrew Vuono, Chief Financial Officer.

Before we begin, I'd 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, reoccurring revenue services, potential market opportunities, the benefits of our reoccurring revenue products to customers and dealers, our ability to control expenses and costs and expected annual run rate for software-as-a-service 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 the expectations 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 our GAAP and non-GAAP results included in our press release.

Before turning the call over to Dick, I want to note that we will be attending the International Security Conference trade show later this week, November 4 and 5 in New York City's Javits Center. We will be showcasing an array of exciting innovative products. And if anyone is interested in attending, please contact me, and I will arrange to provide you a guest pass. In addition, we're actively planning our Investor Relations calendar for nondeal roadshow and conference attendance in the near future. Investor outreach is important to NAPCO, and I'd like to thank all those who assist us in these types of events.

In the coming weeks, we'll be attending the Robert Baird Global Industrial Conference in Chicago on November 12; the Stephens Annual Investment Conference in Nashville on November 19; the UBS Global Industrials and Transportation Conference in Palm Beach, Florida on December 3; the Oppenheimer Virtual Winter Industrial Summit on December 9; the Raymond James 23rd Annual Security Investors Conference in New York City on December 16 and 17; and Needham's 28th Annual Growth Conference also in New York City on January 13 and 14.

With that, let me turn the call over to Dick Soloway, our Founder and Executive Chairman. Dick, the floor is yours.

Richard Soloway

Thank you, Fran. Good morning, everyone, and welcome to our conference call. We appreciate you joining us as we review our fiscal first quarter 2027 performance. We began fiscal 2027 with record first quarter revenue, supported by continued growth in recurring revenue service (sic) [ recurring service revenues ].

Our emphasis remains on expanding our recurring revenue base and advancing product innovation and creating long-term shareholder value. As Founder and Chief Executive Chairman, I remain focused on NAPCO's long-term strategic direction and opportunities ahead in commercial fire communications, access control and locking solutions.

I will now turn the call over to our Chief Executive Officer and President, Kevin Buchel, for an overview of the quarter. Kevin, the floor is yours.

Kevin Buchel

Thank you, Dick. Good morning, everyone, and thank you for joining us. We began fiscal 2027 with solid performance, continued growth in recurring service revenue, strong profitability and record first quarter results across several key financial measures. These results underscore the strength of NAPCO's business model and the opportunities ahead.

I'll focus on the principal drivers of our performance, current market trends and our priorities for continued growth. Let's start with recurring service revenue. Recurring service revenue remains a major driver of NAPCO's success. We delivered another quarter of double-digit growth, maintained gross margins above 90% and increased our annualized recurring revenue run rate to approximately $106 million, which is a $3 million increase over the level we reported back in August.

The value of this business extends beyond growth. It's predictable, high-margin revenue and it provides greater visibility into future performance, generates significant cash flow and it supports continued investment in innovation and expansion. StarLink remains central to this strategy. Expanding its adoption across the security and commercial fire markets and growing our recurring revenue base continues to be one of our highest priorities.

Let's talk about the equipment business. Equipment revenue was softer during the quarter, primarily because of purchasing patterns at two locking distributors. Importantly, this reflected the timing of distributor purchases rather than weaker end customer demand. Although these distributors purchased less from NAPCO, their combined sales to end customers increased both year-over-year and sequentially, an encouraging indication that underlying demand remains healthy.

Distributor inventory levels and purchasing decisions can affect quarterly revenue. So customer sell-through provides a more meaningful view of the underlying business. We remain focused on strengthening our locking, intrusion and access control businesses through innovation, close customer relationships and expanded market opportunities.

Let's talk about our business model. NAPCO's differentiated business model combines equipment sales with a growing recurring revenue stream. Our products expand our market presence, while our services deepen customer relationships and generate ongoing revenue. As recurring service revenue becomes a larger share of the business, it continues to enhance overall profitability. At the same time, maintaining a healthy growing equipment business remains an important management priority. Together, these complementary businesses provide a strong platform for sustainable, profitable growth.

Strategic priorities. Looking ahead, our priorities are clear: grow recurring revenue, expand adoption of our communication products and services, strengthen equipment businesses, develop innovative products, support dealers and distributors and pursue opportunities to gain market share, maintain operating discipline, protect strong margins and earnings potential while pursuing additional growth. expand strategically, evaluate disciplined organic investments and potential acquisitions that complement our businesses, strengthen our competitive position and create long-term shareholder value.

As we move further into fiscal 2027, I'm encouraged by the strength of our recurring revenue business, healthy underlying demand and the opportunities across our markets. With a strong financial foundation, and experienced management team and a portfolio addressing critical security and life safety needs, we are well positioned to execute our strategy, deliver consistent profitable growth and build long-term shareholder value. I want to thank our employees for their hard work and dedication, and our dealers, distributors and vendors for their continued support.

With that, I'll turn the call over to Andy Vuono, our CFO, for a detailed review of our financial results, after which I will return to discuss strategy, outlook and some closing comments. Andy?

Andrew Vuono

Thank you, Kevin, and good morning, everyone. I'll walk through our revenue, margins, operating expenses, profitability and cash position for the quarter. Net revenue increased 1.7% to a first quarter record of $50 million. Recurring monthly service revenue continued to grow steadily, increasing 11.5% to $26.1 million, driven by ongoing activations of our StarLink radio fire communicators.

Based on our October 2026 recurring service revenue, our estimated prospective annual run rate is now approximately $106 million. Equipment revenue decreased 7.3% to $23.9 million. The intrusion and access control category decreased 1.8% overall. Within that category, intrusion product sales, which include our StarLink radios, increased 1.7%, offset by a 13.8% decrease in access control product sales.

Door locking revenue decreased 10.1%. The comparison reflects the backlog demand that slowed into the first quarter of fiscal 2026 as a result of tariff-related price increases. In addition, two of our larger locking distributors reduced purchases as they work through existing inventory, which is partially offset by increased sales from project work during the quarter.

Gross profit increased 5.4% to $29.4 million and gross margin expanded to 58.7% from 56.6% in the prior year period. Recurring service revenue continued to deliver strong profitability. Service gross profit increased 11.3% to $23.5 million with a gross margin of 90.1%, remaining above the 90% and consistent with the comparable quarter of fiscal 2026. Equipment gross profit decreased 13.2% to $5.8 million with a gross margin of 24.3% compared with $6.7 million and a 26% gross margin in the prior year period.

Equipment margins were affected by product mix within our locking segment, higher Section 301 tariff costs and technical services costs. We continue to monitor supply chain conditions affecting the availability and cost of electronic components and other materials used in our products.

Moving on to operating expenses. R&D expenses increased 25.1% to $4.1 million, or 8.1% of net revenue compared with 6.6% in the prior year period. The increase was primarily driven by annual salary increases, the hiring of additional engineering staff, higher stock-based comp and benefits and engineering supplies.

SG&A expenses increased 11.1% to $12.1 million, or 24.4% of net revenue compared with 22.3% in the prior year period. The increase was predominantly driven by higher legal and professional fees. Also during the quarter, we recognized a $1 million benefit, representing the difference between the accrued litigation settlement costs and the amount we ultimately paid. This benefit reflects the difference between estimated insurance coverage and the amount paid by the carriers, which reduced the company's portion of the settlement payment by $1 million. This matter also indirectly contributed to the higher legal fees reported in the quarter.

Moving on to profitability. Operating income increased 3.5% to $14.1 million, reflecting 11.5% growth in service revenue, partially offset by lower equipment revenue and margins. Our effective tax rate was 15.2% compared with 16.9% in the prior year. The lower rate was primarily due to remeasurement of certain tax liabilities resulting from the prior year's tax reform, offset by a larger portion of taxable income attributed to the U.S. operations in the current period.

Net income increased 6.9% to a first quarter record of $13 million, or $0.36 per diluted share, compared with $0.34 per diluted share in the prior year. Net income represented 26% of net revenue. Adjusted EBITDA increased 3.8% to a first quarter record of $15.5 million, or $0.43 per diluted share compared with $0.42 per diluted share in the prior year, and our adjusted EBITDA margin was 31%.

Moving on to cash flow and the balance sheet. Our free cash flow decreased 79.8% to $2.3 million, representing a free cash flow margin of 4.6% as a result of the $15 million litigation settlement paid during the quarter. We ended the quarter with substantial liquidity and no debt. As of September 30, we had $134.6 million in cash, cash equivalents and marketable securities. Working capital increased 5.9% to $175.2 million as compared to -- as of September 30, capital expenditures were $433,000 compared with $193,000 in the prior year.

This concludes my formal remarks. I'll now turn the call back to Kevin.

Kevin Buchel

Thank you, Andy. Before we open the line for questions, I want to put this quarter's results in context and discuss where we're headed. Although revenue, net income and adjusted EBITDA reached first quarter records -- all three of those records -- overall revenue growth was more modest than investors are accustomed to seeing from NAPCO.

Two factors drove the decline in equipment sales and neither reflects a weaker market or softer demand for our products. First, last year's first quarter benefited from backlog orders ahead of tariff-related price increases. And second, two of our larger locking distributors reduced purchases as they work through existing inventories.

To assess underlying demand, we closely monitor sell-through statistics of the distributors' sales of our products to the dealers who use them. Those same two distributors I previously mentioned increased their sell-through of NAPCO products, both year-over-year and sequentially. Distributor purchasing patterns can affect quarterly revenue, but strong sell-through remains our best indicator of end customer demand. We also continue to convert more dealers to NAPCO products, and that's a key driver of demand through distribution, and we believe demand remains broad-based.

School security remains a major focus for NAPCO. Our integrated solutions bring locking, access control and intrusion technologies together on a unified platform to protect students and staff every day. Beyond education, our hardware continues to gain traction in health care, retail, multifamily housing and airport infrastructure upgrades.

The core of our business model continues to perform as designed. Recurring service revenue grew 11.5% with gross margins above 90% and now represents 52% of total revenue and our prospective annual run rate, as I mentioned earlier, is approximately $106 million. That run rate is an important leading indicator for our most profitable business. It reflects radios already installed and activated and the revenue we expect them to generate month after month. Each StarLink activation adds to this growing base. Approximately 75% of our installed base is comprised of our StarLink fire radios, which are mandated in commercial buildings, and it generates our most profitable recurring revenue.

This steady, high-margin revenue generates consistent cash flow to fund innovation and growth. We continue to enhance the StarLink platform to accelerate growth and protect margins. The strength of this model was evident in our results. Overall gross margin expanded more than 2 percentage points to 58.7%, which contributed to the record first quarter net income and adjusted EBITDA. Our manufacturing facility in the Dominican Republic remains a key competitive advantage, providing cost efficiencies, stable and efficient logistics and lower tariff exposure.

Even after paying the previously discussed litigation settlement during the quarter, we ended September with $134.6 million in cash and marketable securities and of course, no debt. This financial strength gives us the flexibility to invest organically and pursue potential strategic acquisitions while continuing to return capital to shareholders. We continue to invest in the business and pay dividends while maintaining a debt-free balance sheet. And as announced this morning, we are continuing our dividend program with a payment of $0.17 per share on January 4, 2027, to shareholders of record on December 14, 2026.

A softer equipment quarter has not slowed our investment in growth. R&D spending rose 25% this quarter, largely reflecting the addition of engineering talent. Our goal is to develop more new products than ever before, many with recurring revenue potential and bring them to market ahead of the competition. We are advancing five initiatives to broaden our channels, deepen customer relationships and expand into new markets.

First, our OEM strategy continues to evolve around our radio communicators. We expect these engagements to generate increasing measurable recurring revenue in the upcoming quarters. OEM partnerships extend the reach of our communications business and offer the same recurring revenue potential that has made StarLink a cornerstone of our model.

Second, MVP, our cloud-based access control platform, which integrates seamlessly with our locking hardware and creates recurring revenue opportunities for NAPCO and our dealers. During the quarter, we were happy to report a new national dealer signed on to include MVP in its customer offerings. We are training its sales organizations across multiple locations and supporting the rollout with promotional programs to accelerate adoption.

National dealer partnerships provide scale, and we expect them to become an increasingly important channel. We believe MVP can extend our leadership into hosted access control, reinforcing our strategy of pairing innovative hardware with cloud-based services to generate high-margin recurring revenue. We look forward to discussing MVP in more detail in the coming months.

Having NAPCO products specified at the design stage positions us on projects before bidding begins, one of the most durable ways to win business. Specifications often precede orders by months. As our presence in the architecture and engineering community grows, we believe it will be -- it will improve visibility into future revenue and help build a more predictable project pipeline and backlog.

Our A&E program remains on schedule. We have identified 40 product-specific offerings that we expect to complete by the end of this calendar year. These will be available to design firms through our new A&E portal beginning in April of 2027. Our new showroom opens with a ribbon-cutting ceremony this Wednesday, November 3. We expect more -- actually, the ribbon cutting is tomorrow, not November 3. November 3 is ISC. Tomorrow, we expect more than 25 dealers, national accounts and distributors to attend.

Architects, engineers, dealers and end users will be able to see the full NAPCO portfolio working together. The showroom will also serve as a hub for in-person and remote training access for all of our products. Better trained dealers can sell more effectively, improve installations and help us expand our dealer base.

We also recently received ULC, certification for our radios, which is a requirement for selling into Canada that we had not previously met. With this certification, we can offer Canadian dealers and their customers the same communications solutions that have driven our success in the United States. We view Canada as a sizable growth market that complements our U.S. business. A dedicated NAPCO team is focused on generating customer demand and building our presence with an opportunity to grow meaningfully over the coming years.

We're excited about all these opportunities that lie ahead for us and the rest of fiscal '27 and beyond. And we remain focused on delivering lasting value to our shareholders, customers, partners. We thank you for your continued support and confidence in NAPCO, and that concludes our formal remarks. We'll now turn the call open to the operator for questions.

Operator, please proceed.

Operator

[Operator Instructions] Your first question comes from Matt Summerville with D.A. Davidson.

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Matt Summerville

A couple of questions. OpEx obviously ran a bit hot relative to last year in Q1. You talked about that a bit, but I'm curious how we should be thinking about OpEx cadence for both SG&A and R&D for the rest of the year, that being number one. And then at the same time, can you articulate a reasonable go-forward cadence for equipment gross margins with -- given some of the moving pieces you talked about?

Kevin Buchel

Andy, do you want to take that one?

Andrew Vuono

Let me start with R&D. So I think the R&D levels we're at now in Q1, I wouldn't expect significant expansion of where we are. I think that level is appropriate moving forward. G&A expense, again, in my comments, the bulk of the increase is related to legal fees. We are still working through and trying to settle some litigation that's been disclosed in our filings. Our hope is we'll work through those towards the end of the year, but that will continue to result in an increase during the year. But other G&A expenses should be pretty flat year-over-year. So the main driver is SG&A.

As far as equipment margins, again, in my remarks, they were challenged in the current period because of tariff increases that we saw. And it's always driven by our volume, but I would expect our equipment margins to increase during the period. And for the full year, we expect this to be in the 26%, 27% range conservatively.

Matt Summerville

And then as a follow-up, Kevin, the three or four or five things you talked about towards the end of your final prepared remarks, which has the ability to drive the most financial impact the soonest? And if you can maybe rank order them a little bit, that would be helpful. And I guess, is there a way for you to frame up or put some bookend numbers around what this new dealer relationship could look like for MVP?

Kevin Buchel

Okay. So just going back to what they were. The first one was relationships with OEMs with our radios. We're doing that now. We have relationships with some of the largest companies out there. We talked about them. We're going to expand on what that is. As we head into these next 4 or 5 years of radios taking the place of copper phone lines, we expect whatever you've been seeing over the last 10 years to be even better going forward over the next five because now we have some very large players that we're dealing with.

So to me, that one is in motion already. That one has the most immediate -- that one could be the most immediate impact. The Canadian market, we've been working hard to get the ULC approval. Canada is a big market. There's a lot of big players. We have it now. That could be another immediate helper to our numbers. We're working on it already, just working to get people to recognize -- they know our radios. They were always waiting for the ULC. Now they have the ULC. So that is going to be a big -- I think, a big deal, big market. Canada is a big country, lots of radio potential.

Now the one everybody wants to hear about is MVP. And admittedly, we wished this would move faster than it has. I'm encouraged by what I've seen lately, getting this large dealer to get behind it, a large dealer with multiple locations. That's a big deal. If we remember how the StarLink radios work, when we got one big dealer, it led to another big dealer and another one and another one. They see that it's working. They say, "Hey, if [ IMRON ] is using it, it must be good," and then more guys use it. We're hoping that's the case with this because remember, MVP is something that really never been done. There are other companies out there that try to do it. They have a portion of it. They have the access, but they don't have the cloud. Or if they have the cloud, no locks. We have it all. And I'm very encouraged now by seeing that and also seeing that some of our distributors have gotten behind MVP also with multiple locations, training all their branches.

So if I had to put that one, that one has the most potential in terms of recurring revenue dollars. I don't know if it's going to be as immediate as what we're seeing with the first two things I mentioned, but it could be the biggest of all of them. The specification market, I put that next. The spec market is a big opportunity. We've been missing out. We see -- we listen to the calls of our competitors. They're all big players in the spec market.

When we added Joe Pipczynski as our Chief Revenue Officer, he's got a background in the spec market. He said, "Why aren't you guys doing it? You should do it." He's working hard on getting that done. I don't know if we'll see anything until April-ish, but we'll see it. It's a big market. Most of you are familiar that there's lots of things that go out to bid. If you're not listed, if you're not specified, you're not getting it. We're going to be listed.

And then the showroom is the fifth one. The showroom, we invite all of you guys to come visit it. It's brand new. It's a real show piece. And we're going to invite dealers, distributors. We're inviting them. They're going to be here tomorrow, many of them. And it's a great way to train dealers and distributors going forward. It shows all of our products, and it's very exciting. We worked hard to get it ready for ISC Week, which is this week. It's ready, and it should be a very complementary event to everything else we're doing. I hope that answers you, Matt.

Operator

Your next question comes from Jim Ricchiuti with Needham & Co.

James Ricchiuti

Question I have is just on sell-through. Kevin, if you could, can you give us a little bit more detail on the two distributors on the door locking side, what increases they did see year-over-year and sequentially? And then just more broadly, what are you seeing in terms of sell-through in the rest of the channel?

Kevin Buchel

So the two distributors, they were locking distributors. They are locking distributors. They buy both our Alarm Lock products and our Marks products. They buy both. And I, of course, look at the sell-through stats. What I saw was sequentially, the increase was double digits. That I was very impressed with because that's the latest and greatest info, and it was double digits. The year-over-year was about 5%, not as impressive as the sequential, but sequential to me, more important. So they both were very positive stats.

There's lots of factors that go into why distributors they buy and they don't buy. One of our -- one of these two distributors is opening up a brand-new large branch and they wanted the time when they do the buying for that branch and for their buy as a whole when the branch is ready. Well, the branch is ready now this quarter, Q2 for us, October, November, December. So they held back, but now they're buying already. I think when the whistle blows, December 31, both of these distributors will be back, and this will just be considered a timing difference. It happens. It's happened before, and it will happen again. As we get more and more recurring, and we get more and more predictable business through the things I've spoken about, it will offset our dependency, if you will, on the distributors coming through.

James Ricchiuti

I don't want to put words in your mouth in terms of the one distributor that you alluded to coming back. But as that business started, did you see a pickup in October? And if there's any color you could provide on that -- as well as second distributor? Have you seen signs of that recovery in October? And then one final question. Just with respect to Canada, intriguing news on that front. What investment do you need to make there?

Kevin Buchel

So with regard to your second question, Canada, we really just have to invest in sales personnel. We have reps that cover Canada. But reps are great, but they have lots of different lines they're concentrating on. I've always found you have your own people. I know it's more expensive than just having a rep that you paid just the commission. But if you really want to make a difference, you got to have people who are dedicated to the company. So we have to add personnel. That's to me the biggest investment.

The first question, we've seen business -- I can't get too deep because it's this quarter, and we don't really like to talk about the quarter we're in. But just to give you a little flavor, we actually got orders from one of these two distributors on October 1. The next day, the quarter is over, the next day orders coming in. It's just the way things work. Your reaction is, well, "Why don't you give it to me yesterday?" It's just not how it works. We're happy we got it. It will be part of this quarter and hopefully, a lot more to come.

Operator

Your next question comes from Jaeson Schmidt with Lake Street Capital Markets.

Jaeson Schmidt

Kevin, just curious if you could comment on what you're seeing in overall channel inventory. And I guess related to the locking distributors as well, what do you see from a channel inventory perspective there?

Kevin Buchel

It's not bloated. We've gone through periods when the channel gets bloated. The last one that I remember is when we had the 3G sunset. It wasn't locking, it was radios. But the channel got bloated because everybody loaded up because they were afraid that it was very hard to get inventory. 3G radios were going away. We were one of the only guys, if not the only company, who could deliver radios back then. And so, everybody loaded up. And when it was all said and done, the channel was full. It was bloated as I like to refer to it.

That's not the case here. The only thing I would say here is locking distributors and maybe distribution in general, they don't carry as much as they used to. Years ago, three months, we encourage three months. A lot of them don't want to do that. They carry two months. If it gets too low, we point it out. Sometimes when we point it out, they react, sometimes they don't. But two months, I think it's still safe, three is better. You always want that dealer when he comes into your place, you have the product.

And remember, these two months, three months, they're averages. You want to have what I believe is three months across the board. You never know who's coming in. You don't want them going across the street to the competition. They don't do that as much. Everybody plays it a little tighter, two months, nothing more drastic, I don't see than that. And I don't see any large volumes of inventory choking any of these distributors.

Operator

Your next question comes from Jeremy Hamblin with Craig-Hallum.

Jeremy Hamblin

So I wanted to come back to the MVP rollout. Just in terms of the support, you talked a little bit about rolling out in Canada. But as you look at MVP and the support for that new product line, what do you need to invest in rolling that business out? I know that you're expecting to have a bit of traction that comes in this quarter and hopefully into '27. Can you get into the details around the specific costs to support? What's the incremental to your SG&A on a quarterly basis or on an annualized basis?

Kevin Buchel

We've been investing already. So we put in a lot of the R&D already. That work is essentially done. Little tweaking here and there. Doesn't mean we need to do any large investing on the R&D side as it pertains to MVP. Our sales team is in place. We've added people to cover MVP. It's there. Now it's just a question of execution. So again, I don't anticipate any real impact in the SG&A.

The only thing that could happen -- and I hope it does happen -- is we'll have more commissions to pay because MVP will be successful. We'll be happy to pay that. We'll be happy to spend more SG&A dollars as it pertains to that. But from a foundational point of view, nothing really additional.

Jeremy Hamblin

And then a follow-up question on product pricing. So last year, with the tariffs, you guys obviously had a couple of price increases that you took. Not sure what you are anticipating on a go-forward, whether it's the radios or the locking side of your business. But I think you mentioned that the tariffs impacted gross margin by about 100 basis points in the quarter. Just wondering where you're at in terms of the business itself. Obviously, equipment sales were a little bit light in the quarter. Are you thinking about taking price increase? If so, when? And how do you feel about the overall environment, like competitive environment, on price given that you took a couple of increases last year and this year maybe not as much.

Kevin Buchel

Yes. I'll let Andy handle this one. But I just -- what I would want to mention is pricing is very tricky. So we have -- the tariff rate that we weren't paying is 10%. Nobody likes to pay extra, but we took a price increase to cover it. Then it went up unexpectedly. It went up to 12.5%. So that's an additional 2.5%. We could have raised the price again, say, "Hey, tariffs are up. We're putting another price increase." That's on the heels of tariff refunds. So that doesn't look so great. So we didn't do anything. It doesn't mean we won't. It doesn't mean we can't. But we didn't do anything yet. Still an open issue. Andy, I don't know if you want to add any more color to this.

Andrew Vuono

Jeremy, we're constantly looking at our cost structure and where our current pricing is. I would say we're going to revisit the impact of the tariffs. I think on the intrusion side, the very competitive as far as the radio pricing. So we're going to be cognizant of that. We don't want to do anything that's going to upset our position in the market around that. We are going to take a look at our locking, specifically around our pricing on mechanical locking and some of our project work. So that is in discussions.

And I'm continuously monitoring what the component costs are. I made a comment that to date, we haven't seen a tremendous increase, but we're constantly watching that. So that could also drive some pricing decisions. So I would think in the near term, in this quarter, I'm not sure we're going to do anything specific around the tariffs, but we're looking at that through the rest of the calendar year or the rest of the fiscal year, and we need to make a decision what we're going to do on pricing. But we're cognizant of it, and we may do a pricing increase as a result of tariffs. But to Kevin's point, we were coming off the refunds, we had an 8.5% increase at the end of last year covered tariffs. So we're trying to be cognizant of what the market is. But we're definitely looking at it on the locking side.

Operator

Your next question comes from Andrew Sherman with TD Cowen.

Andrew Sherman

For both Kevin and Andy, it would be great to dig into the StarLink quarter and growth drivers there. How did growth compare with last quarter? How much of the growth you've seen is from replacement of existing versus new installations? And is there any reason why the strong units growth you've seen shouldn't translate into accelerating RSR growth in the next few quarters?

Kevin Buchel

Andy, you can take it.

Andrew Vuono

So like I mentioned in my comments and you'll see in the Q, so intrusion sales on a stand-alone basis increased 1.7%. So as far as radio units being sold in the quarter, it was a good quarter. We're coming off a record Q4. So we were at that level. But we look at activations. So year-over-year, activations of fire radio was up over 8%. And quarter-to-quarter, we're up almost 3.5%. So our leading indicator is activations, which drives demand. So we think from a -- and you saw it from the run rate growth that we continue to see growth in the radio sector and double-digit growth. So we're confident that will continue moving into the next quarter.

Andrew Sherman

And then on the school -- maybe, Kevin, on the schools and universities market, it would be great to hear what you're seeing there. Are you seeing increased demand from schools given the focus on security incidents? And maybe touch on the other markets, too, like health care and retail.

Kevin Buchel

Yes. The school segment, airports, high-rise buildings, hospitals, they're all doing well. I can't break it out for you, especially schools. Schools is the one I'd really like to break out because it's top of mind, everybody understands it. School shootings go on almost on a daily basis. Sometimes there's multiple ones per day. It's insane what's going on.

We're a player in that. A lot of times, it goes through distribution, and we don't even know. Sometimes it comes to us direct, and we want to announce it because we want to tell you the investors what's going on and the schools don't allow it. They don't want it for whatever reason. In my mind, they should be shouting it from the rooftops, but in many ways, they like to stay off the radar screen. So we can't announce it, we can't tell you, but we know it's a strong area.

When locking sales are strong, and they're typically strong, and I know this quarter was a little different because of the distributors, it's a function of each of these areas doing well. But we can't tell you what it is. And I know you asked earlier, how much is new construction, how much is replacements. Again, remember how we sell. We sell to distribution. So we don't know if it's for new work or for replacement. But we know that these are all very successful markets for us and will continue to be so.

Operator

Your next question comes from Ryan Gilchrist at Mizuho.

Ryan Gilchrist

Andy, a quick one, maybe just on the 26% to 27% equipment gross margin target, your outlook for the year. Can you just help us understand what's embedded in that target? Maybe how much improvement comes from distributor volumes versus pricing and cost initiatives and how we should be thinking about that and how it unfolds throughout the year?

Andrew Vuono

So the bulk of it is increased volumes. So we're coming off a somewhat soft Q1. Our expectation is volume increase. Volume is a big driver of increased expansion in margins as it absorbs additional overhead. And the other is mix. Again, in this quarter, even the locking sales, it was more mechanical locking sales than electronics. Electronics are higher margins. So expectation is between product mix and locking and overall increase in volume, those margins should stand between those two items. So I'm not even taking into account potential pricing increases into that number. So my expectation is with volume increase and mix changes we'll improve our margins.

Ryan Gilchrist

And then, Kevin, maybe just one for you on MVP, a follow-up there. With the investment now in place, can you help us understand the biggest obstacle there into turning dealer interest into paying installations and how you guys are thinking about the strategy there?

Kevin Buchel

Yes. The biggest thing, and it's been this way for the last, I'd say, several months, is training; training dealers how the product works. These are locking access dealers. They're not used to this type of setup. Alarm dealers who get recurring revenue all day long, they weren't used to it either 20, 25 years ago. Now it's an everyday event for them. We got to teach the locking dealers how this works, how the product works, and we've made it much easier than it used to be.

Many of you will remember, we had a different product years ago called AirAccess. That was very complicated. This is much simpler. It's just a training thing. We told our team, get out, get with the dealers, train them, hold their hands, whatever you got to do, don't leave until they understand how it works because if they understand how it works, they're going to buy in. So it's training. That's the bottom line.

Operator

There are no further questions at this time. I will turn it back to Mr. Buchel for some closing remarks.

Kevin Buchel

Thank you. And thank you, everyone, for participating in today's conference call. As always, should you have any further questions, feel free to call Dick, Fran, Andy or myself for further information. We thank you for your interest and support, and we look forward to speaking to you all again in a few months to discuss NAPCO's fiscal Q2 results. Have a great day, everybody.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.