NAPCO Security Technologies (NSSC) Q3 2026 earnings summary

Executive summary

• Q3 2026 net revenue rose 11.8% year-over-year to $49.2 million, with recurring service revenue up 15.4% to $24.9 million and representing 51% of total sales, maintaining a 90.4% gross margin.

• Equipment revenue increased 8.4% YoY to $24.2 million, driven by demand for door-locking products and improved gross margins to 29%.

• Adjusted EBITDA for Q3 reached $15.8 million, up 20.2% YoY, with a margin of 32.2%.

• Free cash flow for Q3 was $16 million, up 20.3% YoY, and cash and marketable securities totaled $125 million at quarter end, with no debt.

• A $16 million litigation settlement was recorded, resulting in a GAAP net loss of $0.4 million for the quarter.

Financial highlights

• Gross margin for Q3 was 60.0%, up from 57.2% YoY; recurring service gross margin was 90.4%.

• Non-GAAP net income for Q3 was $13.9 million (+36.9% YoY); non-GAAP diluted EPS was $0.39, up from $0.28 YoY.

• Free cash flow margin for Q3 was 32.6%, and adjusted EBITDA margin was 32.2%.

• Annual recurring revenue run-rate reached $101 million.

• Cash and short-term investments at quarter-end were $124.95 million.

Outlook and guidance

• Management expects continued double-digit growth in recurring service revenue, driven by regulatory mandates, school safety, and building retrofits.

• MVP Cloud-Based Access Control Platform is expected to contribute meaningful recurring revenue by October 2026.

• Sufficient liquidity is expected for the next twelve months, with no material impact anticipated from macroeconomic pressures or tariffs.

• Significant whitespace remains in commercial, school, and residential security markets, with multi-billion dollar opportunities projected through 2030.