NSSC Q3 Deep Dive: Recurring Revenue and Locking Growth Offset Margin Concerns

Security systems manufacturer Napco (NASDAQ:NSSC) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 11.7% year on year to $49.17 million. Its GAAP profit of $0.34 per share was 11.1% above analysts’ consensus estimates.

Is now the time to buy NSSC? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Napco’s third quarter saw revenue and profit ahead of Wall Street expectations, but the market reacted negatively, likely reflecting investor concerns around service margin compression and the sustainability of recent growth trends. Management cited strong demand for both equipment and recurring service revenue as primary performance drivers, with CEO Richard Soloway highlighting that “our recurring revenue model has continued its steady growth, while maintaining its substantial profitability.” The company also pointed to higher equipment sales—driven by its locking products and early price increases—as key contributors. However, management acknowledged that certain margin headwinds, such as the addition of T-Mobile to its radio service and customer mix shifts, affected results.

Looking forward, management’s guidance centers on incremental benefits from recent price and product changes, as well as continued expansion of recurring service revenue through new offerings like the MVP cloud-based access control platform. Soloway emphasized the potential for MVP to “extend our leadership into hosted access control and reinforce our strategy of pairing innovative hardware with cloud-based services to drive higher-margin recurring revenue.” Management also expects that ongoing school security initiatives and further penetration into healthcare, retail, and infrastructure markets will support long-term growth. The company noted, however, that the full impact of pricing adjustments and new product adoption will take several quarters to materialize.

Key Insights from Management’s Remarks

Management cited robust equipment demand and recurring service growth, while also addressing margin pressures and evolving product mix as central themes this quarter.

• Locking segment strength: Locking products drove substantial growth in equipment sales, benefiting from both increased volume and early impacts of new pricing. President Kevin Buchel noted, “Locking was very strong in this quarter, and the expectation is it will continue to be strong,” with school and commercial demand both contributing.
• Early-stage MVP adoption: The launch of MVP, a cloud-based access control system, is beginning to gain traction with dealers. Management highlighted MVP as a new recurring revenue generator, offering subscription-based services per door and leveraging Napco’s integrated hardware-software model.
• Service margin compression: Recurring service gross margin declined to 90.3%, impacted by the addition of T-Mobile as a third carrier and consolidation among large dealers, which led to some pricing concessions. Buchel explained that “we now have a triple carrier radio; that introduces T-Mobile into the mix,” resulting in incremental costs not yet fully passed through to customers.
• Pricing actions underway: The company implemented two price increases—one in response to tariffs and a regular annual adjustment—but management stressed that the full financial benefit has not yet flowed through results. CFO Andrew Vuono stated that only “about 40%” of equipment revenue growth was attributable to pricing, with more to come in future quarters.
• School security and market expansion: Napco continues to view school security as a significant growth opportunity, with integrated solutions already deployed in districts nationwide. Management sees further upside as adoption of access control and locking systems expands in both educational and healthcare settings.

Drivers of Future Performance

Napco’s outlook is shaped by the ramp-up of new pricing, increasing adoption of cloud-based services, and the evolution of its recurring revenue mix.

• Impact from pricing adjustments: Management expects the full benefit of recent price increases to emerge over the coming quarters, improving equipment margins and partially offsetting cost pressures from tariffs and carrier additions. Buchel indicated, “We expect to feel better about it as we get deeper into the year as the full effect is felt.”
• Recurring revenue expansion: New subscription-based offerings like MVP are seen as key to growing recurring service income. While initial adoption is gradual, management believes these services will become “meaningful” contributors by next year, as dealers and integrators shift toward business models with ongoing revenue streams.
• Margin and competitive risks: The addition of T-Mobile support increases operating costs, which management plans to address through modest price adjustments. However, consolidation among larger dealers may pressure average pricing, and the timeline for MVP’s significant contribution remains uncertain, with CFO Vuono noting it could take “18 months to 2 years” for material impact.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will focus on (1) the pace at which pricing actions and MVP adoption translate into recurring revenue growth, (2) trends in service margin recovery as the company implements cost pass-throughs for new carrier support, and (3) sustained demand for locking solutions in school and healthcare markets. The rollout of new product features and integration with additional distribution partners will also be important to track.

Napco currently trades at $39.69, down from $44.09 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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