NAPCO Q2: StarLink Growth, Improved Channel Buying Boost Margins

NAPCO Security Technologies (Nasdaq: NSSC) used its fiscal Q2 2026 earnings call to underscore a familiar — but increasingly powerful — message for the security industry: recurring revenue, disciplined pricing, and tightly integrated hardware and software platforms are reshaping both profitability and dealer economics.

The company reported record second-quarter revenue of $48.2 million, up 12.2% year over year, with balanced growth across equipment sales and recurring services. For security integrators, consultants and manufacturing partners, the call offered insight into how NAPCO is aligning its product roadmap and channel strategy around long-term, subscription-based value.

“Our second quarter results, which reflect record Q2 revenue, is a continuation of the momentum we reported from Q1 and is evidence of our focus on long-term growth,” said Chairman and CEO Richard Soloway. “Our strong financial results continue to be fueled by our recurring revenue model, which delivers steady growth while maintaining its substantial profitability.”

Recurring revenue becomes the backbone

Recurring service revenue — largely driven by StarLink commercial fire radios — grew 12.5% year over year to $23.8 million in the quarter, maintaining gross margins above 90%. That performance pushed NAPCO’s prospective annual recurring revenue run rate to approximately $99 million, up $4 million from the prior quarter.

“At the core of our strategy is our recurring service revenue platform,” Soloway said. “Recurring service revenue now represents nearly half of our total sales, supported by sustained gross margins of over 90%… This steady high-quality revenue stream provides predictability, strong cash generation and long-term value creation.”

For integrators, the message was clear: radios and cloud-connected devices are no longer just hardware transactions but gateways to ongoing service revenue. COO Kevin Buchel emphasized that the industrywide move away from copper phone lines continues to favor cellular-based communications.

“There’s a lot of buildings out there that still has to convert away from copper,” Buchel said. “We probably have about 1 million active radios. There’s probably several more million buildings to go by 2029… We expect this to go on forever. This is the new norm.”

Equipment growth, pricing discipline 

Equipment revenue rose 12% year over year to $24.3 million, driven primarily by door locking solutions and intrusion and alarm products. Just as important for the channel, gross margins on equipment improved to nearly 28%, up from 24% a year ago.

Buchel attributed that improvement to a combination of price increases, reduced discounting, and more normalized distributor buying behavior.

“The channel is much more normalized than it was last fiscal year,” he said. “They would buy throughout the quarter, not wait until the very end… What that does for us is that helps reduce the discounting that has to go on.”

NAPCO’s long-term goal, Buchel added, is to bring equipment margins back into the low-30% range as volumes grow and pricing actions fully take hold.

A recurring theme throughout the call was the company’s belief that access control and locking are on the cusp of the same subscription transformation long enjoyed by alarm dealers. NAPCO’s MVP cloud-based access control platform is central to that strategy.

“We’re very encouraged by the reception,” Buchel said, referencing dealer response at recent trade shows. “It’s a new concept for locking dealers, but they’re getting it. They love it because now they’re going to get recurring revenue like the alarm people get.”

While MVP is not expected to materially impact revenue until the second half of calendar 2026 or early fiscal 2027, executives positioned it as a long-term equity builder for locksmiths and access-focused integrators.

“There’s many more doors than there are buildings,” Buchel noted. “The opportunity is tremendous.”

School security and project-based demand

School security remains a significant, if discreet, growth driver. NAPCO executives acknowledged a steady pipeline of K-12 and institutional projects involving integrated locking, access control, and alarm systems, even if details cannot be publicly disclosed.

“There’s projects all the time,” Buchel said. “Some projects go over a number of years… They’re contributors, and we need them, and we’re getting them.”

Soloway reinforced the company’s positioning in education, citing integrated platforms that combine locks, access control, and alarms into unified systems designed for compliance, scalability, and day-to-day safety.

The call also highlighted NAPCO’s expanding relationships with large national and international dealers, often facilitated through distribution partners such as ADI. Beyond volume, Soloway emphasized customization and engineering collaboration as differentiators.

“We do everything internally — hardware development, software, all kinds of app work,” he said. “The special projects that we do for the large installation companies are very important because it works into their automation systems… It ties us closer together.”

Financial strength and capital allocation

The company ended the quarter with $115 million in cash and marketable securities and no debt, while increasing its quarterly dividend to $0.15 per share.

Executives signaled that acquisitions, additional dividends, or other shareholder returns remain on the table, but only if they align with NAPCO’s operational and channel strategy.

“We don’t want to do anything which could cause stress on our operation now,” CFO Andrew Vuono said. “But there are opportunities out there, and we’re looking at that very, very carefully.”

For security executives watching NAPCO’s trajectory, the earnings call reinforced broader industry trends: hardware alone is no longer enough, recurring services are reshaping dealer valuations, and integrated, cloud-enabled platforms are becoming the standard across fire, intrusion, access control and education markets.

As Soloway summed up, “We have begun fiscal 2026 with solid momentum, a clear strategic focus and a stronger financial foundation than ever.”

*This article was created with the help of generative AI tools and edited by our content team for clarity and accuracy.