Napco Security Technologies (NASDAQ:NSSC) held its fiscal fourth quarter 2026 earnings call on August 24, and the numbers it reported were close to a best-case scenario in the company’s own history. Net revenue hit a quarterly record of $55.8 million, full-year revenue crossed the $200 million mark for the first time, and the company raised its dividend while sitting on $138 million in cash and zero debt. Buried in the same call, though, is a $16 million litigation charge still working its way through the income statement.
The Radio Business That Keeps Paying Rent
The engine under all of this is Napco’s StarLink radio business, which reports monitoring fees the way a cable company reports subscriptions. Recurring service revenue reached $25.3 million in the quarter, up 12.9%, and carried a gross margin of 90.1%. Based on July 2026 activity, the company said its annualized recurring revenue run rate is now around $103 million. Starlink radio sales grew 40% year over year and 30% sequentially in the quarter, which CEO Kevin S. Buchel called one of the highest growth rates in company history, adding, “Radio sold today becomes recurring revenue tomorrow.” That growth has a long runway attached, since Buchel said the shift away from copper phone lines will keep running until the end of the decade across more than 2 million buildings still needing to switch to cellular communicators.
The rest of the business held up its end too. Intrusion and access control sales rose 20.9% in the quarter, powered by a 35.8% jump in intrusion products including StarLink radios, and door locking revenue climbed 11.1% for the full year on a 19.7% increase in Alarm Lock sales. Adjusted EBITDA for the quarter grew 44.3% to $20.6 million, and full-year non-GAAP diluted EPS rose 34.5% to $1.60. Free cash flow reached $59.2 million for the year, funding a dividend increase to $0.17 per share, a 13.3% raise payable Oct. 2, 2026, while the balance sheet carried $138 million in cash and marketable securities as of June 30, 2026, and no debt at all.
A Legal Bill And A Few Cracks In The Foundation
The headline profit numbers hide a rougher full-year picture in one spot. A $16 million litigation settlement recorded in the fiscal third quarter pulled full-year operating income down 1.3% to $45.6 million, even though quarterly operating income jumped 52.5%. Some of the quarter’s gross margin expansion to 61.3% also came from a source that will not repeat indefinitely, since about 600 basis points of it was tariff refunds tied to the American Infrastructure and Industrial Power Act. CFO Andrew J. Vuono also flagged that data center expansion is pushing up the cost of electronic parts, even as the company says it can still ship on time.
Growth was not evenly spread across the portfolio either. Access control product sales fell 13.8% in the quarter and 11% for the full year, offsetting the strength in intrusion, and R&D spending rose to $13.8 million for the year in part because of $4.1 million in Underwriters Laboratories certification costs for products not yet generating revenue. Buchel also declined to put a number or a date on the school, healthcare, airport, and government project pipeline he described, calling that kind of business lumpy and noting some deals could take years to close. All of this arrives as the company completes a leadership change, with founder Richard L. Soloway stepping back after 50 years to become executive chairman while Buchel takes over as CEO.
What The Money Is Doing
Hedge fund ownership in Napco fell from 31 funds to 27 in the most recent count, a pullback that runs against the quarter’s results. Short interest sits at 8.04% of the float, high enough to suggest a real bear camp has formed rather than routine hedging. The stock trades at a forward P/E of 24.69, as of August 31, pricing in continued double-digit growth from the recurring revenue side of the business.
The Bet The Whole Company Is Making
Napco heads into fiscal 2027 with a recurring revenue base compounding at double-digit rates and a balance sheet clean enough to keep raising the dividend while still funding new products like the MVP access control platform. It also heads in with a legal charge still working through the numbers and a new CEO settling into a job held by one person for fifty years. Starlink adoption and the copper-to-cellular conversion give the growth story real runway, but the tariff refunds propping up this quarter’s margin and the sliding access control line are the parts that need to keep working.
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