Q3 2024 NAPCO Security Technologies Inc Earnings Call

Participants

Francis Okoniewski III; Vice President of Investor Relations; NAPCO Security Technologies Inc

Richard Soloway; Chairman of the Board, President, Chief Executive Officer, Secretary; NAPCO Security Technologies Inc

Kevin Buchel; President, Chief Operating Officer, and Chief Financial Officer; NAPCO Security Technologies Inc

Matt Summerville; Analyst; D.A. Davidson & Company

Jim Ricchiuti; Analyst; Needham & Company Inc.

Jaeson Schmidt; Analyst; Lake Street Capital Markets

Lance Vitanza; Analyst; TD Cowen

Raj Sharma; Analyst; B. Riley Securities

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Napco Security Technologies FQ. three 2024 earnings conference call. At this time, all lines are in a listen only mode following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on May sixth, 2024.
I would now like to turn the conference over to Francis Noski, VP, Investor Relations. Go ahead.

Francis Okoniewski III

Thank you, Joanna, and good morning, everyone. My name is Fran ConnectKey. I'm Vice President of Investor Relations for Napco Security Technologies. Thank you all for joining today's conference call to discuss financial results for our fiscal third quarter 2024. By now, you should have had the opportunity to review our earnings press release discussing our quarterly results. If not a copy of the release is available in the Investor Relations section of our website, w. w. w. dot NetQoS security.com. On the call today are Dick Soloway, our Chairman and CEO of Napco Security Technologies, and Kevin to Shell President, Chief Operating Officer and Chief Financial Officer.
Before we begin, let me take a moment to read the forward-looking statement as this presentation contains forward-looking statements that are based on current expectations, estimates, forecasts and projections of future performance based on management's judgment, beliefs, current trends and anticipated product performance. These forward-looking statements include, without limitation, statements relating to growth drivers of the Company's business such as school security products, recurring revenue services, potential market opportunities, the benefits of our reoccurring revenue products to customers and dealers, our ability to control expenses and costs and expected annual run rate for our reoccurring monthly revenue. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. These factors include, but are not limited to such risk factors described in our SEC filings, including our annual report on Form 10 K and Other unknown or unpredictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. You should not place undue reliance on these forward-looking statements. All information provided in today's press release in this conference call are as of today's date, unless otherwise stated, and we undertake no duty to update such information except as required under applicable law.
I'll turn the call over to Dick in a moment. But before I do, I want to mention we're actively planning our investor relations calendar for more non-deal roadshow for NDR and conference attendance in the near future. Investor outreach is very important to Napco, and I'd like to thank all those folks that assist us in these types of events. Later this month, we will be attending Needham's 19th annual tech media and consumer conference in New York City, the Bank of America Industrials Conference also in New York City, the 24th Annual B. Riley Institutional Investor Conference in Beverly Hills, California, Craig Hallum 21st Annual Institutional Investment Conference in Minneapolis and TD Cowen 52nd Annual Technology Media and Telecom Conference in New York City. We've also been invited to the Robert W. Baird consumer tech and Services Conference this June in New York City, as well as the Wells Fargo Industrial Conference in Chicago. We're also thrilled to have D.A. Davidson added to our prestigious list of brokerage firms providing research coverage on our company.
With that out of the way, let me turn the call over to Dick Soloway, Chairman and CEO of Napco Security Technologies. Dick, the floor is yours.

Richard Soloway

Thank you, Fran, and good morning, everyone, and welcome to our conference call. We appreciate your participation today as we review our fiscal Q2 three 2024 performance. We are thrilled to announce record sales of $49.3 million for this quarter, marking our 14th consecutive quarter of achieving record sales. Our recurring revenue subscription service continues to exhibit robust growth with an annual perspective, run rate reaching $81 million based on April 2024 recurring revenues. Balance sheet remains strong with cash balances reaching $87.5 million, a 31% increase over the level recorded on June 30th, 2023. We have no debt, and our strategic focus continues to capitalize on key industry trends, including wireless, fire and intrusion alarms, driving recurring revenue services, grew security solutions, enterprise access control systems and architectural locking drugs at NetCo. Our management team remains committed to prioritizing growth, profitability and returns on equity while effectively managing costs. These metrics are critical to us and our shareholders, reflecting our dedication to executing our business strategy and aligning our interests with those of our shareholders.
Now I'd like to hand the call over to our newly appointed President, Chief Operating Officer and Chief Financial Officer, Kevin Michelle, who will provide an overview of our fiscal third quarter results. Following Kevin's remarks, I will return to delve deeper into our strategies and market outlook. Kevin?

Kevin Buchel

Thank you, Dick, and good morning. Everybody. net sales for the three months ended March 31st, 2024 increased 13% to a quarterly record $49.2 million, and that compares to $43.5 million for the same period a year ago. And net sales for the nine months ended March 31st, 2024 increased 10% to a nine month record $138.5 million as compared to $125.3 million for the same period a year ago. Recurring monthly service revenue continued its strong growth, increasing 29% in Q3 to $19.5 million as compared to $15.1 million for the same period last year. And recurring monthly service revenue for the nine months ended March 31, 2024 increased 26% to $55.4 million as compared to $43.8 million last year. And our recurring service revenues now have a prospective annual run rate of approximately $81 million based on April 2024 recurring revenues. And that compares to $76.5 million, which is based on January 2024 recurring service revenues, which we reported back in February. Equipment sales for the quarter increased 5% to $29.7 million as compared to $28 million last year. Equipment sales for the nine months increased 2% to $83.1 million as compared to $81.5 million for the same period last year. These increases were primarily due to revenue increases in Alarm Lock brand door locking products and Mark's brand door lighting products as partially offset by a decrease in intrusion and access from ARM products. Of note is StarLink radio sales sequentially increased over those sales in Q2 by 2% and were 66% higher and such sales in Q1.
Gross profit for the three months ended March 31, 2024 increased 24% to$ 26.5 million with a gross margin of 54% and that compares to $21.3 million with a gross margin of 49% for the same period last year. And gross profit for the nine months increased by 47% to $73.9 million with a gross margin of 53% as compared to $50.2 million with a gross margin of 40% a year ago.
Gross profit for recurring service revenue for the quarter increased 31% to $17.9 million with a gross margin of 92%. That compares to $13.7 million with a gross margin of 90% last year. Gross profit for recurring service revenues for the nine months increased 28% to $50.1 million with a gross margin of 91%, and that compares to $39 million with a gross margin of 89% last year.
Gross profit for equipment revenues in Q3 increased by 12% to $8.6 million with a gross margin of 29% as compared to $7.6 million with a gross margin of 27% last year.
Gross profit for equipment revenues for the nine months increased by 113% to $23.8 million with a gross margin of 29% and that compares to $11.2 million with a gross margin of 14% for the same period last year. The increase in both gross profit dollars and gross margin for recurring revenue for the three and the nine months ended March 31, 2024 was primarily the result of the previously mentioned increase in recurring revenues as well as a greater proportion of those revenues being generated by our StarLink fire radios, which generate higher monthly service charges than the other StarLink radios. The increase in both gross profit dollars and gross margin for equipment revenues for both the three and the nine months ended March 31, 2024, primarily resulted from the aforementioned increase in equipment revenues as well as a favorable shift in product mix for locking products, which typically have higher gross margins than intrusion products and another factor in the increased gross profit and gross margin for equipment revenue as they were lower costs of certain components this year as compared to last year when we were still feeling the effects, I've the global supply chain crisis, research and development costs for the quarter increased 19% to $2.8 million or 6% of sales as compared to $2.3 million or 5% of sales for the same period a year ago.
Research and development costs for the nine months ended March 31, 2024 increased 11% to $7.7 million or 6% of sales as compared to $7 million or 6% of sales for the same period a year ago. The increase for the three and the nine months primarily resulted from compensation increases and additional staff.
Selling, general and administrative expenses for the quarter increased 10% to $9.2 million or 19% of net sales as compared to $8.4 million or 19% of net sales for the same period last year.
Selling, general and administrative expenses for the nine months ended March 31, 2024, increased 6% to $26.3 million or 19% of net sales as compared to $24.7 million or 20% of sales for the same period last year. The increases in SG&A for the three months was primarily due to increases in legal expenses as well as additional expenses relating to the enhancing of our internal control systems. And that was offset by decreases in advertising expenses. The increase for the nine months was primarily due to legal and accounting fees as well as costs associated with enhancing our internal control systems. The decrease in SG&A as a percentage of net sales for the nine months was due to the increase in net sales being proportionately larger, then the increase in SG&A expenses, operating income for the quarter increased 38% to $14.5 million as compared to $10.5 million for the same period last year. Operating income for the nine months ended March 31, 2024 increased 115% to $39.9 million as compared to $18.5 million for the same period last year. Interest and other income for the three months increased 46%, $637,000 as compared to $437,000 last year. And for the nine months. Interest and other income increased by 247% to $1.8 million compared to $521,000 last year. The increases for both the three and nine months ended March 31, 2024 was due to increased interest income from certificates of deposits. The provision for income taxes for the three months increased by $507,000 to $1.9 million with an effective tax rate of 13%, and that compares to $1.4 million with an effective tax rate of 13% last year. And for the nine months, the provision for income taxes increased by $2.9 million to $5.4 million with an effective tax rate of 13%, and that compares to $2.5 million with an effective tax rate of 13% last year. The increase in the provision for both the three and the nine months ended March 31, 2024, we're due to increases in taxable income. Net income for the quarter increased 38% to a quarterly record $13.2 million or $0.36 per diluted share, and that compares to $9.5 million or $0.26 per diluted share for the same period last year. And now represents 27% of net sales. Net income for the nine months ended March 31st, 2024 increased 119% to a nine month record of $36.3 million or $0.98 per diluted share, and that compares to $16.6 million or $0.45 per diluted share for the same period last year and represents 26% of net sales. Adjusted EBITDA for the quarter increased 37% to a quarterly record $15.6 million, or $0.42 per diluted share, and that compares to $11.3 million or $0.31 per diluted share for the same period a year ago and equates to an adjusted EBITDA margin of 32%. Adjusted EBITDA for the nine months ended March 31st, 2024 increased 105% to a nine month record $43.5 million gallons for a $1.18 per diluted share, and that compares to $21.3 million or $0.57 per diluted share for the same period last year. And equates to an adjusted EBITDA margin of 31%.
Now moving on to the balance sheet. As of March 31, 2024, the company had $87.5 million in cash and cash equivalents, other investments and marketable securities, and that compared to $66.7 million as of June 30, 2023. And that's a 31% increase. The Company had no debt as of March 31, 2024. Cash provided by operating activities for the nine months ended March 31, 2024 was $31 million, that compared to $12.4 million for the same period last year. And working capital as defined as current assets less current liabilities was $138.3 million on March 31, 2024, and that compared with working capital of $111.7 million at June 30, 2023. Current ratio, defined as current assets divided by current liabilities to 7.9:1 at March 31, 2024, and 6.7:1 at June 30, 2023. And CapEx for the quarter was $361,000, and that compared to $1.7 million for the prior year period.
That concludes my formal remarks, and I would now like to return the call back to Dick.

Richard Soloway

Kevin? Thank you. For fiscal year 2024 is going exceptionally well with fiscal Q1 Q2 and now Q3 achieving record-breaking results fueled by recurring revenues enabled by our hardware innovations.
It's also worth noting all our growth is organically driven. Recurring revenue continued its strong growth, increasing by 29% to Q3 and representing 40% of total Company revenues and our net income of $13.2 million and adjusted EBITDA of $15.6 million were all quarterly record breakers equipment revenue improved growing 5% over last year for the quarter, with gross margins on such sales increasing to 29% from 27% last year. Radio sales in Q3 improved over Q2, increasing by approximately 2% and 66% over the Q1 level. While such sales were still below the radio sales for Q3 last year when the 3G Verizon sunset was upon us, the increase over the last two quarters is a good sign. We expect radio sales to continue to be a key contributor to our hardware sales and continue to lead to the strong growth of our highly profitable recurring revenues.
Gross margin for recurring revenues continue to get better now at 92%. So 40% of our revenue generated a gross margin of 92%. That's an amazing step and we are very proud of it. We are also very pleased with the increase in the recurring revenue annual run rate, which increased to $81 million based on April 2024 recurring revenues compared to an annual run rate of $76.5 million based on January 2024 recurring revenues. Our Alarm Lock and Mark's locking hardware lines continue to see growth in schools and class. I classroom security health care at a retail loss prevention as well as multifamily dwellings, commercial and residential applications growing approximately 16% compared to last year and approximately 10% compared to Q. two lacking sales once again represented over 60% of hardware sales in Q3. We continue to remain focused on further penetrating each of these markets.
Net income of $13.2 million besides being a Q3 record breaker represents 27% of net sales, adjusted EBITDA of $15.6 million. Also a Q3 record rapid represents and adjusted EBITDA margin of 32%. We believe we are well on our way to achieving our adjusted EBITDA margin target of approximately 45% on or about the end of fiscal 2026 as our targeted equipment sales reached $150 million and our recurring revenue service level reaches $150 million. Our balance sheet continues to get stronger with cash and cash equivalents. Other investments and marketable securities increasing 31% to $87.5 million as compared to $66.7 million at June 30, 2023, we have no debt. And the net cash provided by operating activities for the nine months ending March 31, 2024 was also strong, amounting to $31 million. There are millions of commercial buildings of all types such as offices, hospitals, schools, coffee shops, restaurants as well as residences that still require upgrades from legacy copper phone lines. Our StarLink line of radios have the widest coverage range of both AT&T and Verizon with rich feature sets, which our dealers really love. As we have previously stated, the constraints of the supply chain have abated. And we believe in the coming months and quarters that combined with new distribution sources we have developed, we'll begin to invigorate our equipment sales and ASSOCIATION margins to even higher levels and any time before. As we have stated previously, the higher the hardware sales, the more overhead absorption of COVID occurs in our Dominican Republic factory and this expands our gross margins. And as indicated in this morning's earnings release, the Company will be issuing a quarterly dividend of $0.1 per share to be paid on June 24, 2024 to shareholders of record on June 3, 2024. We are proud of this program as the NetQoS team has created such tremendous shareholder value over the years that this is another way for us to distribute profitable growth to our investors.
Now some comments about the recent ISC West tradeshow We attended last month in Las Vegas, which attracted over 30,000 security professionals. These are dealers and installers and integrators that buy security products. Netco made a significant impact with our prominently positioned new booth designed and shown at the show entrance. The event was attended by key distributors, dealers, integrators and competitors alike. Netqos management and sales leadership and tech team left the continents with a positive outlook on our competitive position in the domestic security space. Favorable impression was reinforced by NetQoS innovative culture, ongoing new product development, strong brand identity and the industry steady growth trajectory. Customer interest levels peak and that received a record number of sales leads driven in part by the successful launch of several highly distinctive products, including NetQoS popular mark, who has a panic exit hardware line expanded to include lockdown models, brand new and FC. solution, i.e., our locks built and access control readers for use with secure mobile credentials stored in the wallet utility of use is smartphones and one that got the most attention StarLink fire Macs to the next generation of our RMR recurring monthly revenue, producing five G. commercial fire series alarm communicators for solution addresses this transition away from vanishing POTS lines for millions of commercial fire alarm panels, fire Max two, with its dual SIM technology. Leveraging Verizon or AT&T signal strength allows dealers to streamline their inventory. The Max to boast a true end to end ULH. 64 listed solution featuring a ULH. 64 listed triple protected network operating center headquartered in the US for optimal response time.
Also, NetQoS PRIMA, all in one system launched late last year continues to gain traction and excitement extending beyond traditional the traditional NetQoS dealer base payment now features more emergency condition detection and all where cameras at a competitively priced price point, enhancing both equipment capabilities and our and our potential in the last nine months of fiscal 2024, we have generated strong sales and profitability. We believe we can continue this growth well into the future as we work toward our fiscal 2026 goals and beyond. I'd like to thank everyone for their support and for joining us in this exciting future. We have our formal remarks are now concluded, and we'd like to open the call for the Q&A session. Operator, please proceed.

Question and Answer Session

Operator

Thank you. We will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. You will hear problems that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you're using a speakerphone, please lift your handsets before passing any.
Your first question comes from the line of Matt Summerville from D.A. Davidson. Your line is open.

Matt Summerville

Thanks. Good morning. Tom, maybe first, if we can talk about hardware, gross margins, nice improvement year on year, no doubt about it, but they've been kind of flattish for the last three quarters. Can you maybe talk about what the catalysts are as we look ahead outside of just overhead absorption to get that margin kind of marching more prominently towards your longer-term projection there? And then I have a follow-up.

Kevin Buchel

Okay, Matt. Well, the overhead absorption is a big factor and I don't want to diminish it because in the past, it has led to our margins going from low to mid 30s to high 30s, low 40s. So it's significant when we put good numbers, strong hardware numbers on the board.
But absent of that, the lacking products which now 66% of the hardware sales that brings better margins than the Internet. Some of the intrusion products like the radio products. Now granted the radio products lead to the recurring revenue, which is the best of a mall, but on a pure hardware basis, so lacking does better.
And so we expect lacking products to continue to get stronger. Dick mentioned in his remarks. Some of the reasons why lacking strong school security is airport infrastructure upgrades, projects that are going on in in buildings and hotel renovations. And there's a lot of things going on that are contributing to lacking. We have two locking companies there, both operating really well hitting on all cylinders, both of them at the same time. And so lacking which has been good. We expect it to get even stronger and that should help margins even further. Those are probably the main the main reasons the mix more lacking, but don't diminish the overhead absorption. It's a big factor.

Matt Summerville

Got it. Let's That's helpful color, Kevin, thank you. Can you maybe talk a little bit more quantitatively or even just qualitatively around the excitement or initial uptake you expect on fire Max to I don't know if you can sort of talk about maybe how this product launch is faring versus the prior gen product launch.
And then similarly, if you can talk about maybe some initial feedback you've had now that premium has been in the market for the last couple of quarters, how you're feeling about uptake there and when maybe we start to see some of them non some of the other businesses outside of fire really starting to drive that recurring revenue mix to a product when the fire alarm business stalled is building fire marshals and the commercial buildings, what dual functionality of communications.

Richard Soloway

So the way the radios that have been out there working is the deal will select the AT&T Verizon signal and also run a wire to connect to the Internet for the second communications link. Max two is very, very different because in a lot of cases, it's harder for the dealers to run a wire and get into the Internet because these alarm systems could be in a basement area, which is where there's no Internet, no Internet close by, but we have this new, you will tool, AT&T and Verizon and one it doesn't require any wire once which every single is stronger. That is the way the system will transmit these the fire emergency or the check into the central station and uses only radio. So it's going to be a faster install for deliveries through it's really unique and special. And we want to have the one and only radio that the dealers will use for all applications. And the MAX two will be at they don't have that any of the models they can use that. And that's a very, very profitable model, great recurring revenue to it. So we expect that that will continue making us the leader at 92% margins a bit. You can see the dealers like our product line. So we expect to drive to keep the margins as high as possible with that product line and sell more and more of them when it comes to the Prima product, more and more adoption is going on and is starting to contribute. It is a unique product it's a different type of product for us because our typical loan products are for more customization of residential and commercial. This product is for mass. It's a product that goes in very quickly with a salesman that sells the alarm job both commercially small commercially or residentially can actually install it himself. He doesn't need a crew so we can sell the alarm system to the end user customer and put it in right away and start getting recurring revenue from it, and we get our recurring revenue from that installation. So it's the conversion process where there are thousands and thousands of companies that are using this type of mass alarm system and we're picking up more share. And we so a lot of interest you at the show you saw it was right upfront. You saw that it was many times during the day. I couldn't even see the carpet that so many people standing on it looking at this alarm system, it's been out now for a little while, but it takes time for dealers to get used to it to talk amongst themselves and start converting over to it, and it looks very, very good that this is the ongoing process.

Matt Summerville

Have a nice day.

Operator

Your next question comes from the line of Jim Ricchiuti from Needham & Co. Your line is open.

Jim Ricchiuti

Thank you. Good morning. I wonder if you would talk to us a little bit about how much of a contribution you saw from the new distributor in the quarter and maybe how you how are you seeing this business scale over the next couple of quarters? And I have a follow-up.

Kevin Buchel

So ADI., the new distributor is doing well with the U.S. FDA has the potential to be doing a lot more. They are the largest distributor of security products in the industry. There are there are companies that are have more volume and nobody has more security sales than them. So the potential is big. We've seen nice growth.
We're only dealing with them a few a few quarters. Each quarter better than the six than the preceding one. And they've made introductions and this is a very important point. They've made introductions to several large dealers that exclusively deal with them so we've been trying to have a relationship with and one of them is Securitas, big name, a big number, maybe the second largest dealer out there, thanks to ADA, we have a relationship now with Securitas. So not only does ABI. help us with fewer sales numbers, but making intros to dealers is a key part.
And we expect the business to keep going up. It's just the beginning, not a situation where we loaded up all 115 branches make a big splash. Did it systematically slowly. We expected to keep growing as each quarter progresses.

Jim Ricchiuti

Kevin, on the some of this new potential business that you're seeing out there, can you talk to us about that type of business versus is this more in some of the areas that you guys are historically very strong in, for instance, in the fire radio business. Maybe just some sense as to where you see inroads with some of these new dealers, potentially large ones and

Kevin Buchel

some of the large we've talked before about some of the large deals that we've picked up over the last several quarters. And fire radios is the biggest one that they were all interested in. We actually took as one of our top sales guys and made him the head of national account as we're picking up more and more of these large dealers in this gentleman's mission with us is to nurture these relationships.
We wanted to sell not only more fire radios. We have a whole line of products. We want to sell them all of our products. So it's starting out with fire radios, the expectation it's going to expand other things, and we've actually added another sales person to assist this guy. So now there's two of them whose job and whose mission is manage and nurture and expand these very large dealers that we know have a relationship with.

Jim Ricchiuti

And thanks for that. And Kevin or Dick, just wanted to follow up with the on the organizational changes that were announced last week and I guess the question is do you foresee the need at some point to add additional resources to senior management with Kevin, with the fact that you're now assuming dual roles as President and CEO, and it's your ongoing CFO role.

Richard Soloway

What's going to happen with us is that, as we said, we keep looking for additional people to help grow our business. Kevin and I have been working together for 30 years. And it's a great team and we have additional people in the senior management with our company that were with the company for 25 years. That know the business side and some we have a bench to a lot of bench strength. We have 10 years that I've been with the Company, people like the I would like working at Napco. We have very little turnover. We get the right person. That person stays with us for his career. We like to promote from within rather than go into the outside just like when we grow our business, we like to grow our business through organic way means we find it's the most efficient way and for we bring people up within the organization and it's the most efficient way. They know the culture, they know the other players in the company. So we have a nice bench strength, at least eight manages that, no, all of the different divisions, products all work together in a team. We do meetings and regular basis and every week. So we have a very, very strong structure for growth the way we're moving along now you can tell that the numbers compared to the competition are doing and much better in growth and ratio of profitability. So I think we've got the right combination of doing things.

Jim Ricchiuti

And then. Well, Kevin, congratulations on the appointment and to the team up on the quarter.

Kevin Buchel

Thanks, Jim.

Operator

Your next question comes from the line of Jaeson Schmidt from Lake Street Capital Markets. Your line is open.

Jaeson Schmidt

Hey, guys. Thanks for taking my questions. Are Kevin, just curious if you could share with us some of the sell-through metrics you saw at the distributors and I guess, relatedly, through that high cost inventory issue that impacted previous quarters, do you think that's completely worked through now?

Kevin Buchel

I'll start with the second part first. So the high cost inventory at the distributors because it's twofold, it's at the distributors. And also we have some we naphtha at the distributors. It's mostly south we have talked about how they are to distributors with too much radio inventory, one completely solved the other, mostly south, but not 100%, probably a few hundred thousand dollars left of what they consider access radio inventory for key train to help them work through it. And it will be gone probably by the end of the fiscal year is our belief, then you have the situation where we have some excess radio inventory. Remember, we we built a lot of inventory in anticipation of the sunset sunset came and went.
We had some extra. We're working through a lot of that, too. The radio demand is big, especially on fire radios. So we expect that to be a non-issue over the next, let's say, six months. We want to read our inventory.
We haven't talked a lot about it. Our inventory has been coming down. Our cash flow is great, but we still want to wring out probably another $10 million from our inventory and it will come from different areas, but radios is one of them. We expect to sell a lot more radios in the next six months, we've been doing great. We expect to sell even more demand is huge.
We have all these big accounts now that have become customers. That's part of why we think we're going to move a lot of the radio inventory, and that's going to lead to the continuation of the recurring grew by 29%, which was nice. It's been growing by 25%. Now it grew by 29% and a lot of it is fire and fire has the great margins, and that's why it was up to 92% on sell-through stats that we don't really disclose a lot of it, but I can share with you that on a sequential basis and the intrusion sell-through stats showed an increase of 13%. And that's very important for that thought.
That's the division that sells among other things. The radios and having a sequential increase of 13% seemed to me that that will bode well for that division as we head into our best quarter historically, our fourth quarter, typically our fourth quarter has always been the best. So if that pattern continues to wonder what we're in now would be the best.
And it's important that we're seeing not only the lacking, which we've talked a lot about how great it's doing. But I like seeing a sequential increase on the extrusion side of 13%.

Jaeson Schmidt

Okay, great. Appreciate that color. I'll jump back into queue. Thanks a lot, guys.

Kevin Buchel

Thanks, Jason.

Operator

Your next question comes from the line of Lance Vitanza from CD Cohen. Your line is open.

Lance Vitanza

Thanks. Thanks, guys for taking the questions. Congratulations on the nice quarter. And most of my questions have been answered. But I guess on the balance sheet and this clean balance sheet that you have, it looks a little bit like an underutilized asset provides a lot of optionality. I'm not sure investors are giving you much credit for that. The question is, are there opportunities to perhaps add a little leverage, maybe 50 million or so for some sort of strategic transaction or ITO? Or is that anathema to sort of your your sort of strategy for maintaining the operational flexibility going forward? Thanks.

Richard Soloway

There are there are possibilities that an acquisition have a product that can be tucked into our product line, what which of which it has to have a nice volume to it, that our dealers use all the time. We don't want to do anything that's outside of our wheelhouse. So there is there is some possibility that it's not a front burner situation, but it is a possibility. We continue to build cash because we like to have enough cash. You never know what the opportunities are going to be like we like to also issue the dividends paid back to the investors that have been supporting us. So that's basically the way we're going right now, but it's a high-class problem that we are addressing.

Lance Vitanza

Thanks very much.

Kevin Buchel

Thanks, Lance.

Operator

Your next question comes from the line of Raj Sharma from B. Riley. Your line is open.

Raj Sharma

Hi. Thank you for taking my questions and congratulations on the excellent continued growth and also the the on the recurring side on the equipment side, I had a question for you and Kevin on the alarms picked up sequentially 2% and the year on year was was down 12% for the intrusion access launch is great to hear that the sell through the dealers are up sequentially 13%.
I just wanted to understand going forward, you saying you see growth pickup from the Pharmexx to end from picking up share with the new dealers. When should we see this pickup in the first half of fiscal 25 or second half?

Kevin Buchel

Well, our hope and expectation, Raj, is we could start seeing it potentially in this Q4 that we're in now. The fact is two factors. One, the comps are much easier Q4 last year, was in a difficult comp that combined with sell-through stats that I referred to earlier, could bode well for an increase in the intrusion segment as we enter next fiscal year, more things should kick in. We should have contributions from those large dealers who should have contributions from Max next to you should have contributions from Prima. These are all things that we expect is going to help that division to do much better than it's been doing.
And it's been doing well. It's like the unsung hero because the radios that it's contributing while not at the same level as what they were in the high of the sunset they are bringing in those. Those are the ratios that are giving us this phenomenal recurring and the 92% margin. So it's doing great.

Richard Soloway

Can I do it better at the show, growth from what we saw was a lot of activity around our fire panels because we also make a fire alarm system, a couple of them for commercial jobs, which have the radios built. A lot of interest in that fire business is very important. And as we've been talking about the fire business is legislated in business. It's a very stable growing business. The fire marshal, make sure that all the commercial buildings in the territories around the United States of working fire alarm systems that communicate regularly to the central station and tell essential that they're working. So it's legislated in business, no matter what's going on in the economy. If the business if the building is open, you have to have a working fire alarm system and we have millions of these buildings that either need to have an upgrade two, their communications, which is away from copper or new construction. And there are lots of cranes all over the USA, putting up new buildings and they need fire alarm systems complete that's the paddle and smoke detectors, carbon monoxide detector. And we have a fantastic we have fantastic offerings for the dealers to do new work. So it's solely replacement work for copper and the new work, and it was very exciting. Also our goal, long term over the next few years is to get recurring revenue from all of our other hardware products because we want the locksmith and DOORS specialty companies to be in the same mode as alarm dealers where they get recurring revenue accounts, I-Logix, let's just do a job and they move on. But there are ways that we are working on products with them. So they get recurring revenue. And because we're a technology company compared to other hardware manufacturers, there's a lot of the other hardware guys that have been at this for years, but they don't know about recurring revenue and network operating centers and ULH. 64 approvals. We know all that.
So that's going to be very important for the future.
Continue. It's going to continue our growth. We've now had a Cabela's it's 13 consecutive quarters of growth,

Kevin Buchel

14, 14 right.

Richard Soloway

And prior to COVID, we had normally 2020, I lost track. I know we were on our way to Joe demand shale story, but I cannot remember the loan and three, and it's the rate. So our goal is to keep the streak up. It does 2026 numbers and have the EBITDA of 45%. And that's it. We love to grow this business organically.
But as I said, if an acquisition came around, which would be something the dealers would use regularly every day like they put in our other products that would be a nice tuck-in. We're bringing it to our Dominican Republic, which has capacity to do $300 million, $100 million per shift. And we have room for another building alongside of it to do another $300 million. It's a great place to manufacture, and we're very, very integrated, as you know, when we do our engineering in house. We don't farm it out our own manufacturing in-house and add capacity. So the future is very bright for us for a while.

Raj Sharma

Thank you. That's very helpful. Thank you. I'll go offline.

Kevin Buchel

Thanks, Raj.

Operator

Again, if you have questions at this time, please press star followed by one on your touchtone phone. Should you wish to decline from a polling process, please press star followed by the two.
There are no further questions at this time. I will turn the call over back to Mr. Soloway.

Richard Soloway

Thank you, everyone, for participating in today's conference call. As always, should you have any further questions, please feel free to call friend Kevin or myself for further information. We thank you for your interest and support, and we look forward to speaking to you all again in a few months to discuss Napco's fiscal Q4 and full year results.
Have a wonderful day. Bye-bye.

Operator

Ladies and gentlemen, this concludes today's conference you may now disconnect.