NAPCO Security Technologies, Inc. (NASDAQ: NSSC) continues to prove that its strategic shift from a hardware manufacturer to a high-margin recurring revenue powerhouse is a masterclass in business model evolution. In its Fiscal Q2 2026 results released on February 2, 2026, the company reported record-breaking performance that significantly outperformed Wall Street’s profitability expectations.
Financial Highlights: The “Beat and Raise” Quarter
NAPCO delivered a decisive beat on the bottom line, significantly outperforming Wall Street’s profitability estimates.
Net Revenue: Reached a record $48.2 million, a 12.2% increase year-over-year.
Net Income: Surged 29% to a Q2 record of $13.5 million, compared to $10.5 million in the prior year.
Earnings Per Share (EPS): Reported at $0.38, beating the analyst consensus of $0.32 by nearly 19%.
Adjusted EBITDA: Climbed to $15.35 million, with margins expanding to 31.9%, up from 28.4% YoY.
Segment Performance & Strategy
Recurring revenue continues to be the crown jewel of NAPCO’s business model.
Revenue: $23.8 Million (+12.5% YoY).
Gross Margin: Maintained an elite 90.2%.
Annual Run Rate (ARR): The January 2026 run rate reached approximately $99 million, putting the company on the cusp of the $100M milestone.
Mix: RSR now represents 50% of total revenue, providing a stable, recession-resistant floor for the company’s valuation.
Equipment & Locking Solutions
Equipment sales saw double-digit growth (+12.0% to $24.3M), fueled by robust demand for door-locking products and school safety solutions. Management noted that equipment gross margins also improved, indicating a move away from the supply chain pressures of previous years.
Earnings Call Highlights & Management Commentary
Chairman and CEO Richard Soloway emphasized that the company is just beginning to scratch the surface of its “RSR everywhere” strategy. In a sign of confidence in future cash flows, the Board increased the quarterly dividend by 7% to $0.15 per share.
The MVP Access Platform: Management spent significant time discussing the MVP Access platform, which is gaining traction among dealers. This is seen as a key driver for future RSR growth.
New Leadership: The company announced the appointment of Joseph Pipczynski as Chief Revenue Officer effective Jan 29, 2026. His role is specifically focused on accelerating the adoption of high-margin recurring solutions.
Fortress Balance Sheet: NAPCO remains debt-free with approximately $105.8 million in cash and short-term investments, providing ample “dry powder” for potential M&A or further shareholder returns.
The SaaS Transformation: Recurring Revenue at the Helm
The most critical takeaway from the quarter is the continued dominance of Recurring Service Revenue (RSR). For the first time, RSR accounted for 50% of total revenue, effectively transforming NAPCO into a hybrid SaaS (Security-as-a-Service) entity.
Elite Margins: RSR maintained a staggering 90.2% gross margin, a level typically reserved for top-tier software companies.
Approaching the $100M Milestone: The prospective Annual Run Rate (ARR) reached approximately $99 million based on January 2026 data. Crossing the $100 million ARR threshold is expected to be a major valuation catalyst in the coming months.
StarLink Momentum: The growth was largely fueled by continued adoption of StarLink fire and intrusion communicators, which act as the primary “hooks” for long-term service contracts.
Investor Outlook
NAPCO’s Q2 results have silenced skeptics regarding the sustainability of its high-margin growth. By locking in recurring revenue that now pays for the company’s entire operating structure, NAPCO has built a “fortress” model.
