Release Date: August 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record sales of $50.3 million for Q4, marking the 15th consecutive quarter of record sales.
- Recurring revenue subscription service grew 27% in Q4, with an annual run rate of $84 million.
- Strong balance sheet with cash balances reaching $97.7 million, a 46% increase over the previous year.
- No debt, indicating strong financial health.
- Gross profit for recurring service revenue increased 29% to $18.4 million with a gross margin of 90%.
Negative Points
- Radio sales were down 10% compared to Q4 of last year due to the sunsetting of 3G technology and high inventory levels at distributors.
- Research and development costs increased 28% to $3 million for the quarter, impacting overall expenses.
- Selling, general, and administrative expenses increased 22% to $10.9 million, partly due to trade show expenses and increased stock-based compensation.
- Provision for income taxes for the 12 months increased by 60% to $6.6 million, affecting net income.
- Equipment sales growth was modest at 5% for the quarter, indicating potential challenges in this segment.
Q & A Highlights
Q: On the Locking side of the business, how fast do you think the market is growing, and what are you doing to drive the share capture?
A: The Locking sales have been strong for several quarters. We believe we picked up market share during supply chain disruptions as our competitors couldn't deliver. Our diverse product range, including electrified locks, and our focus on sectors like schools, airports, and hospitals, have driven growth. We expect double-digit growth to continue.
Q: Regarding the Radio side of the business, any early read on the success of the recent product launch? Do you see this business reaccelerating?
A: Despite a decline in radio sales, the recurring revenue continues to grow due to strong performance in fire radios. We are working on new features and addressing inventory issues with distributors. We expect overall radio sales to improve and contribute to growth.
Q: As we think about fiscal '25, is it fair to expect normalization of demand in the fire radio business?
A: We aim for more than normalization; we seek enhancement. We have relationships with big names that should translate into higher radio sales. We expect continued strength in fire radios and improvement in overall radio sales.
Q: Can you provide any color on sell-through metrics with respect to distributors?
A: Our new distributor is performing well and may become a significant hardware customer. We have resolved inventory issues with most distributors, and we are working on the remaining one. Sell-through stats are good, but we need more orders to reduce inventory levels.
Q: How do you view the launch of Prima? How satisfied are you with its development?
A: Prima is an important focus for us, targeting the residential market. We have made enhancements and added salespeople dedicated to this product. We are optimistic about its potential to generate recurring revenue.
Q: Could you provide additional color on the relationship with ADI and its tracking to your expectations?
A: ADI is performing well, making introductions to large dealers we didn't have access to before. They are the largest distributor of security products, and we expect them to become a significant hardware customer.
Q: How do you expect the progression of equipment gross margins in FY25 and beyond?
A: Margins will improve with better mix and volume. Locking products have strong margins, and higher volume through our Dominican Republic factory will lead to better overhead absorption. We aim for close to 40% margins by FY26.
Q: Could you talk about the pricing trends on the services revenue side, particularly fire radios?
A: We promote as necessary but try not to disrupt the successful formula. Fire radios don't need much promotion, but we are more aggressive with non-fire radios. We have 90% margins to work with, so minor adjustments won't significantly impact overall margins.
Q: Can you help break down the portion of the intrusion access alarm that didn't perform well?
A: The decline was mainly in non-fire radios, which had been performing well during the 3G Sunset. We expect easier comps and improvement in radio sales in fiscal 2025.
Q: Do you still expect service revenues to grow greater than 25% year on year going forward?
A: We aim to maintain mid-20s growth in service revenues. New products like Prima and recurring revenue from locking products will contribute to this growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
