Napco Security Technologies, Inc. Investor Presentation June 2015

Transcription

1 Napco Security Technologies, Inc. Investor Presentation June 2015

2 Safe Harbor Statement This presentation may contain forward-looking statements that involve numerous risks and uncertainties. Actual results, performance or achievements could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those set forth in the Company s filings with the Securities and Exchange Commission. 2

3 About NAPCO NAPCO Security Technologies, Inc. provides professional commercial and residential security systems through its robust dealer network. Our 3 Verticals At A Glance Ticker Exchange NSSC NASDAQ Alarms & Connectivity Headquarters Amityville, NY Stock Price $ Week Range $3.98 $6.16 Shares Outstanding Million Locking Access Control & Surveillance Market Capitalization As of June 8, 2015 $107.4 Million 3

4 Why Invest? Middle Deep Market Reseller Focus Network NAPCO sells t0 10,000+ security dealers, integrators, locksmiths and contractors in over 40 countries, including to many major brands like ADT. Product Shift Focus on selling higher margin products with recurring toll revenues will reduce cyclicality in our business and build upon a bedrock of established products. Growing Demand Budget reductions in police/fire departments, increased focus on campus security, sunset of 2G radio network, adoption of out-ofhome connectivity driving increased demand for products. Strong Financial Profile Company has been consistently profitable, initiated a 1 million share repurchase program and has a fixed cost structure from owning its manufacturing facilities, which will drive significant gross margin expansion as revenues approach $20 million/quarter. 4

5 Gross Profit Business Leverage NAPCO begins to see hockey stick-like leverage in our business once quarterly revenues reach $20 million. 42% Fiscal Year 2017 Financial Targets 40% 38% 36% 34% 32% 30% $16 $17 $18 $19 $20 $21 $22 $23 $24 $25 Quarterly Revenue (millions) $100 million target revenue run rate while reducing seasonality $10 million annual revenue contribution from recurring toll revenue streams 41% gross margins $1.00/share in annual earnings 5

6 Growth Drivers The introduction of many new market-leading products should build upon the legacy products so as to enable NAPCO to hit its FY 2017 financial targets ibridge With RMR (IoT Connected Home) StarLink Verizon CDMA Radio With RMR StarLink Fire Radio With RMR (In AT&T/T-Mobile GSM & Verizon CDMA) ibridge Messenger With RMR (SMS/MMS) LocDown School & Campus Security Products ArchiTech Series Networx Locks LifeSaver Locks (Anti-Ligature / Health Care) Carbon Monoxide Detectors 6

7 Business Lines These selected lines are sold through over 10,000 dealers. Alarms & Connectivity Description Alarms & Connectivity Electronic Locks Access Control & Surveillance Door Locking Technologies Revenue Breakdown 50% Commercial/50% Residential 100% Commercial 100% Commercial 100% Commercial Selected Products 7

8 Integrated Solutions: Fusion A scalable, modular, enterprise-class platform that integrates each of our division s products to offer an unparalleled security solution for commercial buildings and campuses of all sizes. 8

9 Alarms & Connectivity Recurring Revenue Services Recurring Revenue Services Grew 46% in Q3 of FY 2015 Suite of connected home services enabling users to remotely manage thermostats, locks, lighting, video cameras, security systems and small appliances via most smartphones or PCs with an app. Connected home notification service, enabling users to be in control of their alarm, video, temperature, lighting and locking, via their phones with text messages and video alerts. An agnostic video surveillance platform providing a highly secure way to record, store and view live video. 9

10 Alarms & Connectivity Recurring Revenue Services (Continued) Designed to work on high-speed 3G/4G and CDMA networks for maximum coverage nationwide, StarLink provide dealers with the ability to eliminate the need for traditional phone lines to communicate with their customers alarms Radios available on the Verizon, AT&T and T-Mobile networks for the widest coverage range in the U.S. Solutions designed for both burglar and commercial fire alarms Meets UL and NFPA fire codes 10

11 Recurring Revenue Commands Higher Valuation NAPCO has achieved significant growth in recurring revenue Alarm monitoring companies are typically acquired for north of 50x their Recurring Monthly Revenue 50x Source: B. Riley 11

12 School Shooting: An Urgent and Accelerating Problem Annual spending for school security expected to increase $4.9 billion by Source: Bloomberg (November 14, 2013) 12

13 School Security Solutions Designed to address growing epidemic of violence in schools Combines mechanical and electronic locking solutions with an enterprise threat monitoring platform Used in hundreds of major schools, including K-12 and Colleges & Universities 13

14 Pepperdine University: Exemplary Project Management under your careful and continuous outreach and management of our needs, Continental [Access] was able to manufacture and ship the entire order on time meeting the needs of our busy campus. Moreover, the superb flexibility of your Access Control Database allowed us to populate our first ever integrated single card solution for our students and staff thank you and the entire Continental team for the continuous communication, outstanding performance and unmatched customer service for this important Safety Initiative for our campus. - Wilbur Falk, Associate Vice President, Pepperdine University 14

15 Revenue Breakdown by End User Residential: 20% Commercial: 80% 15

16 Competitive Landscape NAPCO is the only pure-play security company that provides products and services in all three verticals. Alarms & Connectivity Locking Access Control & Surveillance Major Competitors 16

17 Commercial Security Market According to the Freedonia Group, demand for private contracted security services in the U.S. is expected to increase 5.4% annually to $64.5 billion in

18 NAPCO Owned Facilities Headquarters & Plant 1 Amityville, NY Plant 2 Dominican Republic 250,000 sq. feet of space with a $200 million annual production capacity Fixed cost structure means significant increase in gross margin as revenues approach $20 million/quarter NAPCO carries its Amityville headquarters and Dominican Republic manufacturing facility on its books for under $1 million while the market value exceeds $15 million. 18

19 Management Has 75 Years of Security Experience Combined Richard Soloway Chairman and CEO Founder, 30+ years security, electronics experience Winner of numerous awards and holder of patents relating to innovations in the security industry Kevin Buchel SVP, Operations and Finance Over 25 years of experience in the security industry, primarily at NAPCO Began career at Coopers & Lybrand Jorge Hevia SVP, Sales and Marketing Michael Carrieri SVP, Engineering 16 years of experience in the security industry, primarily at NAPCO Successful track record in marketing and sales at leading consumer product companies such as Colgate-Palmolive ad Unilever 15 years of experience in the security industry Extensive knowledge of developing advanced electronic products with applications in military/defense, media/broadcasting and consumer electronics 19

20 Financials

21 Historical Financial Overview (millions) Revenues (millions) Net Income $80 $70 $71.4 $70.9 $71.4 $74.4 $4 $3.5 $60 $3 $3.0 $50 $2.3 $40 $2 $30 $20 $1 $1.1 $10 $0 FY 2011 FY 2012 FY 2013 FY 2014 $0 FY 2011 FY 2012 FY 2013 FY 2014 Note: Fiscal Year Ends June 30 21

22 Fiscal Third Quarter 2015 Highlights Notable Increase in Sales Net Sales were a $17.9 million, up 4% from Q Sales of the Company's door-locking products increased 10% year-over-year Push to Recurring Revenue Model Showing Traction Alarm Division recurring revenue for the third quarter increased 46% and grew sequentially by 6%; recurring revenue for the first nine months was up 58% over the same period last year Number of dealers participating in ibridge Connected Home Dealer Program rose 27% during the quarter Aggressively Repurchasing Shares and Deleveraging Bought back 398, 717 shares of stock at a weighted average price of $4.74 since the buyback was announced in September Net debt has been reduced by $27.0 million from $35.9 million to $8.9 million since acquiring Marks in August of 2008 Continue to Introduce New, Innovative Products Launched CDMA version of the StarLink alarm communicator, which features Verizon wireless service Expect to unveil full line of StarLink commercial fire alarm communicators in June 22

23 Seasonality Impacts Financial Performance NAPCO sees lower revenues in the fiscal first quarter due to seasonality, with revenues peaking in the fourth quarter. Over time, the increase in products with recurring revenue should mute the impact from seasonality. (millions) $25 Revenues FY 2012 FY 2013 FY 2014 FY 2015 (millions) $9 Gross Profit FY 2012 FY 2013 FY 2014 FY 2015 $8 $20 $7 $6 $15 $5 $4 $10 $3 $5 $2 $1 $0 Q1 Q2 Q3 Q4 $0 Q1 Q2 Q3 Q4 Note: Fiscal Year Ends June 30 23

24 Adjusted EBITDA by Quarter (millions) FY 2012 FY 2013 FY 2014 FY 2015 $4.5 $4.0 $3.5 $3.5 $4.1 $3.3 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 $0.4 $1.4 $1.5 $1.3 $1.2 $0.8 $1.0 $0.8 $0.9 $0.7 $0.7 $0.1 Q1 Q2 Q3 Q4 Non-GAAP Information Certain non-gaap measures are included in this presentation, 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 does not include impairment of goodwill, amortization of intangibles, restructuring charges, stock-based compensation expense and other infrequent or unusual charges. These non-gaap measures are provided to enhance the user s overall understanding of our financial performance. By excluding these charges our non-gaap results provide information to management and investors that is useful in assessing NAPCO s core operating performance and in comparing our results of operations on a consistent basis from period to period. 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. Investors are encouraged to review the reconciliation of GAAP to non-gaap financial measures included in the above. Note: Fiscal Year Ends June 30 24

25 Selected Balance Sheet Highlights March 31, 2015 (millions) Cash and Cash Equivalents $1.7 Working Capital (1) 32.3 Total Assets 61.7 Debt 10.6 Total Liabilities 18.2 Stockholders Equity 43.5 Diluted Shares Outstanding (2) 19.1 (1) Working capital shown as total current assets less total current liabilities. (2) Diluted shares outstanding as of March 31,

26 Debt Cash Aggressive Debt Repayment to Strengthen Balance Sheet (millions) $40 Revolving Debt Term Debt Cash (millions) $9 $35 $30 NAPCO s Net Debt/TTM Adjusted EBITDA is a healthy 1.4x $8 $7 $25 $20 $15 $10 $5 $6 $5 $4 $3 $2 $1 $0 $0 3Q15 2Q15 1Q15 4Q14 3Q14 2Q14 1Q14 4Q13 3Q13 2Q13 1Q13 4Q12 3Q12 2Q12 1Q12 4Q11 3Q11 2Q11 1Q11 4Q10 2Q10 2Q10 1Q10 4Q09 3Q09 Note: Fiscal Year Ends June 30 26

27 Conclusion Steady Business with Strong Underlying Fundamentals Recurring Revenue Streams Growing Dramatically Revenue Growth Driving Hockey Stick-Like Leverage and Increased Gross Margins Well-Poised to Benefit from Demand for School Security Solutions Stock Trades at Compelling Valuation 27

28 Napco Security Technologies, Inc. Investor Presentation June 2015