Richard L. Soloway is Founder, President and CEO of NAPCO Security Technologies, Inc. He is an international expert and counselor in security issues and trends. He is a board member emeritus of the Security Industry Association — SIA. He received Ernst & Young’s “Entrepreneur of the Year” award in 2001. He has over five decades of security industry experience.
In this 2,924 word interview, exclusively in the Wall Street Transcript, Mr. Soloway details the strategic vision he has crafted for NAPCO and how this will translate to significant returns for his investors.
The company has positioned itself for near term growth:
“This is a very exciting time in our history because two major paradigm growth drivers have emerged that we have captured.
These are, one, recurring service revenue generated by our latest product lines. The recurring service revenues now have an annual run rate of $27.5 million with 80% gross margins. Our year-over-year quarters are growing at roughly 35% to 40%.
Two, the urgent need for school security upgrades across the U.S., many K-12, colleges and universities, most of which have no systems in place to keep active shooters and trespassers out of the schools and colleges. This is a large market opportunity of $4.9 billion in the security alarm market and $1.2 billion in the educational market.
The paradigm shift away from legacy copper and 3G telephone infrastructure is huge and is happening now. Our unique StarLink radios and alarm systems for fire and burglary are creating this steady stream of RMR growth.
NAPCO is financially strong, has zero debt, a strong cash position and industry-leading margins. ”
This positioning has significant implications for new investors:
“…We went from a manufacturer solely of security equipment that hooked on to copper phone lines for communication and sold to dealers to now a manufacturer of cellular radio security equipment, which cellularly sends the signals to the dealers’ central stations through our cloud, which is called a network operating center — NOC. That’s how the alarm communication now happens.
And you have 100 million residential buildings that are now going to have to be converted from copper wiring to cellular service.
You have 5 million commercial buildings that have to also be converted to cellular, both in the burglary and the fire sectors of commercial security.
And it’s a tremendous opportunity that should be wonderful for NAPCO for the next 10 years as these conversions are happening from copper wire to cellular.
And we have a leading line of cellular radios for the conversion and a leading line of control panels for new work using cellular that’s built into it.”
This will lead into an exciting growth phase:
“Our fiscal year ends on June 30. Our run rate target for services revenue for on or about our fourth quarter 2021 is $40 million.
Five years thereafter, we are targeting annual sales to be $300 million, of which $150 million would be the run rate of recurring revenue and $150 million of sales of component equipment.
Therefore, recurring monthly services will constitute 50% of our revenue…when we do the $300 million, we are targeting to be 50% gross margin on the manufacturing and 80% gross margin on the recurring revenue.
And that makes for a very, very handsome profit for the company.”