Protecting America s Homes, Schools and Businesses! May 2016 Corporate Presentation

Transcription

1 Protecting America s Homes, Schools and Businesses! May 2016 Corporate Presentation 1

2 Forward Looking Statements 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 v Leading developer and manufacturer of commercial and residential security products v 10,000 + security distributors, dealers, and integrators in the USA and Internationally v Established R&D, Manufacturing and Sales & Marketing facilities with scalability v Intellectual Property portfolio includes more than two dozen patents (issued & pending), proprietary software and copyrights. v Products are sold via a business to business model (B2B) 3

4 The NAPCO Group of Security Companies Alarms & Connectivity Electronic Locks Access Control & Surveillance Door Locking Technologies 50% Commercial 50% Residential 100% Commercial 100% Commercial 100% Commercial 4

5 The NAPCO Group s Products $80 Million + Sales RMR Products StarLink Radios & ibridge IoT Services Alarm Lock Division Continental Access Control Division Marks USA Division NAPCO ALARM Division The NAPCO Group has approximately 1,000 SKU s No cannibalization with new products that are added 5

6 NAPCO s Dealers and Integrators by the Numbers 10,00o + Number of dealers in the USA and Internationally 2,000 + Number of integrators (colleges, schools, commercial buildings, etc.) 80% of alarms sold white-labeled for strategic partners (and thousands more) No dealer is > 3% of sales 6

7 Integrated Solutions 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. Intrusion Access Control FUSION Systems Fire Locking Technologies 7

8 Proprietary Line of Wireless Solutions NAPCO has demonstrated technical competence in incorporating a number of popular technologies in our products and services. StarLink3 Universal 3/4G GSM and CDMA Radios ArchiTech Designer Wireless Networx Locks with BlueTooth LE Technology and ilockapp Trilogy Wireless Networx Locks Continental Access card solutions ArchiTech Designer Wireless Networx Locks Trilogy Networx Wireless Locks ibridge Connected Home Services 8

9 Paradigm Shifting Technology Fire & Burglar Alarm Radios that generate; recurring monthly revenue (RMR) for NAPCO. $5-9 per month (RMR) Designed to work on high-speed 3G/4G and CDMA networks for maximum coverage nationwide Signal-Boost technology for transmission and reception provide unprecedented reliability even in remote areas Eliminates the need for traditional phone lines (POTS) to communicate with alarms Residential and small business radios Meets UL residential and business codes $15-30 per month (RMR) Commercial fire alarm radios. Meets UL and NFPA fire codes Works with Verizon, AT&T and T-Mobile networks for the widest coverage range in the U.S. NAPCO has bulk rate relationships with Verizon and T-Mobile Flexible for applications large & small: Stores & Shoppes Homes Restaurants Office Buildings & Suites Schools, Colleges, Universities Condo/Coop/Apartment Buildings Healthcare & Hospitals Court & Government Campuses $5-9 per month (RMR) plus $2.50 per month for each ibridge IoT service selected New StarLink Connect: A radio that can be used to take over millions of already existing alarm jobs done by competitors in homes and businesses. It offers dealers RMR for monitoring alarms and adding ibridge Connected Home / Business IoT services. 9

10 Plus Alarm Equipment Sales with RMR that support the radios Offers upfront equipment sales with recurring revenue $150-$500 per residential and small business intrusion system $500-$2,000 per fire system Offers Recurring Revenue to NAPCO for monitoring services $5-9 per month for an intrusion alarm radio $15-30 per month for a fire alarm radio Economic benefit to end-user: Eliminates issues with telephone lines and quality and availability in the building Eliminates need for dedicated FIRE phone lines, which can cost approx. $100 per month per line and there are usually 2 or more lines 2G being replaced by 2017 creating demand for hundreds of thousands devices NAPCO s state-of-the-art Network Operations Center, combined with our access to the networks of Verizon Wireless and AT&T, enable us to provide an alarm monitoring process that few competitors can offer. 10

11 Paradigm Shifting Technology Professional Home / Business Security with (RMR) A smart home / business solution that offers security and convenience Proprietary wireless technologies carrying the industry to the Cloud and Internet of Things Ø Ability to retrofit for existing infrastructure or new construction. Versatile enough act as standalone solution or interact with other OEM s devices Partnerships with Control4 and Zwavealliance for expanded smart home capabilities Offers upfront equipment sales Opportunities for follow-up sales through expanded capabilities Recurring revenue to NAPCO: $2.50 per month per service, e.g. video, temperature control, lighting and locking 11

12 Additional RMR services. Suite of 6 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. $2.50 monthly per each of the 6 services 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. $2.50 monthly per service An agnostic video surveillance platform providing a highly secure way to record, store and view live video. $2.50 monthly per service 12

13 School Security & Safety : A new paradigm shift 13

14 School Security Solutions: A Growing Market Annual spending for school security expected to increase to $4.9 billion by Almost 90% of U.S. school systems have made changes to their facilities or security policies 2 1 Source: Bloomberg (November 14, 2013) 2 Ibid. 14

15 Hundreds of institutions are using NAPCO s systems (here are a few examples) Schools Higher Education Plus many more 15

16 LocDown Systems..the widest range of products in the industry Combines mechanical and electronic locking solutions with an enterprise threat monitoring platform Designed to address growing epidemic of violence in schools Used in hundreds of major schools, including K-12 and Colleges & Universities $100 $500 $600 $1,000 Average Selling Prices 16

17 Pepperdine University: Premier institution and satisfied customer! Wilbur Faulk, Associate Vice President, Pepperdine University 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. 17

18 Competitive Landscape NAPCO is the ONLY pure play with products and services in all three key verticals in the security industry. Alarms & Connectivity Locking Major Competitors Access Control & Surveillance 18

19 Financial Overview 19

20 Fiscal Third Quarter 2016 Highlights Notable Increase in Sales & Profits Net sales were a third quarter record at $19.8 million, the fourth consecutive quarter of record revenues and up 11% from the same quarter last year Net income was $1.0 million for the quarter - an increase of 164% Push to Recurring Revenue Model Showing Traction Alarm Division recurring revenue for the third quarter increased 42% from Q and grew sequentially by 10% Continue to Develop New, Innovative Products Company seeing strong demand in the school and college safety systems vertical as more educational institutions invest in security products and services Prudently investing in R&D to further enhance product lineup 20

21 Historical Financial Overview (millions) $80 Revenues $5 (millions) Net Income $4.8 $78 $77.8 $76 $74 $72 $71.4 $74.4 $4 $3 $3.0 $3.5 $70 $68 FY 2013 FY 2014 FY 2015 $2 FY 2013 FY 2014 FY 2015 Note: Fiscal Year Ends June 30 21

22 Seasonality Impacts Financial Performance Expect recurring revenue line growth to mute impact from seasonality (millions) $25 REVENUES FY 2013 FY 2014 FY 2015 FY 2016 (millions) $10 GROSS PROFIT FY 2013 FY 2014 FY 2015 FY 2016 $9 $20 $8 $7 $15 $6 $5 $10 $4 $3 $5 $2 $1 $0 Q1 Q2 Q3 Q4 $0 Q1 Q2 Q3 Q4 22

23 Business Leverage for Manufacturing Hockey Stick = Revenues > $20MM per Q. (profitability accelerates dramatically) Does not include 90% GM 44% 42% 40% 38% 36% 34% 32% Gross Profit 30% $16 $17 $18 $19 $20 $21 $22 $23 $24 $25 $26 Quarterly Revenue (millions) 23

24 Adjusted EBITDA by Quarter (millions) $4.5 $4.0 $3.5 $3.0 $2.5 FY 2013 FY 2014 FY 2015 FY 2016 $4.1 $3.3 $3.9 $2.0 $1.5 $1.0 $0.5 $0.0 $0.1 $0.7 $0.7 $0.7 $1.5 $1.4 $1.3 $1.6 $1.0 $0.8 $0.8 $0.9 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. 24

25 Selected Balance Sheet Highlights March 31, 2016 (millions) Cash and Cash Equivalents $3.29 Working Capital (1) 34.1 Total Assets 62.4 Debt, net of cash 4.2 Total Liabilities Stockholders Equity 47.8 Diluted Shares Outstanding (2) 18.8 (1) Working capital shown as total current assets less total current liabilities. (2) Diluted shares outstanding as of March 31,

26 Aggressive Debt Repayment to Strengthen Balance Sheet Revolving Debt Term Debt Cash Marks USA acquisition for debt $40 $35 $9 $8 Debt $30 $25 $20 $15 $10 $7 $6 $5 $4 $3 $2 Cash $5 $1 $0 $0 3Q16 1Q16 3Q15 1Q15 3Q14 1Q14 3Q13 1Q13 3Q12 1Q12 3Q11 1Q11 2Q10 1Q10 3Q09 26

27 NAPCO Owned Facilities Amityville, NY Corporate Office & Manufacturing Dominican Republic Manufacturing 270,000 sq. feet of space with a $200 MM annual production capacity 90,000 square feet Fixed cost structure = significant increase in GM as revenues approach $20MM/per Q 180,000 square feet NAPCO carries its Amityville headquarters and Dominican Republic manufacturing facility on its books for under $1 million while the market value exceeds $15 million. 27

28 Management Richard Soloway President & CEO Founder, 30+ years security, electronics experience Founded two previous 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 and holder of patents relating to innovations in the security industry Kevin Buchel Senior Vice President & CFO Over 25 years of experience in the security industry, primarily at NAPCO Began career at Coopers & Lybrand Certified Public Accountant Jorge Hevia SVP, Sales and Marketing 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 Michael Carrieri SVP, Engineering 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 Fire Chief Emeritus of the Fire Department of Melville, Long Island 28

29 Ata Glance Headquarters Amityville, NY Stock Price $ Week Range $4.95 $7.60 Shares Outstanding Insider Ownership Market Capitalization 18.8 Million 38 percent $108 Million As of May 6,

30 Summary Financially Strong: TTM Revenue $80M, Reduced net debt to $4M Major Paradigm Shift : Focus on recurring revenue products, with higher margins and a new income generator Growing Demand: e.g. Major paradigm shift - Increased Campus Security, 2G network sunset and dealer switch to cellular radios from POTS lines Deep Reseller Network: 10,000 + dealers and integrators Fixed cost structure = significant increase in GM as revenues approach $20M / per Q. Profitability accelerates. Growing and Profitable company in a recession resistant industry, with strong cash flow 30