Good morning, ladies and gentlemen, and welcome to the NAPCO Security Technologies Fiscal Q4 and Fiscal 2024 Earnings Conference Call. This call is being recorded on Monday, August 26, 2024. I would now like to turn the conference over to Francis Okoniewski, VP, Investor Relations. Please go ahead.

Thank you, Joan, and good morning, everyone. This is Francis Okoniewski, 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 fourth quarter and fiscal year 2024. By now, all of you should have had the opportunity to review our earnings press release discussing our quarterly results. If you have not, a copy of the release is available in the Investor Relations section of our website, www.napcosecurity.com. On the call today are Dick Soloway, Chairman, CEO of NAPCO Security Technologies; and Kevin Buchel, President, Chief Operating Officer and Chief Financial Officer. Before we begin, let me take a moment to read the forward-looking statements. 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, reoccurring revenue services, potential market opportunities, the benefits of our recurring revenue products to customers and dealers, our ability to control expenses and costs and expected annual run rate for our recurring monthly revenue. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those contained in 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. 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 and 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 that we're actively planning our Investor Relations calendar for non-deal roadshow and conference attendance in the near future. Investor outreach is very important to NAPCO, and I'd like to thank all those folks who assist us in these types of events. In the coming weeks, we will be attending the Lake Street Best Ideas Conference in New York City on September 12, and the D.A. Davidson 23rd Annual Diversified Industrials & Services Conference in Nashville, Tennessee on September 18 and 19. We will also be participating in a number of non-deal road shows with firms such as Mizuho, Stephens, JPMorgan, Wells Fargo, TD Cowen, Morgan Stanley, KeyBanc and Bank of America. 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.

Thank you, Francis. Good morning, everyone, and welcome to our conference call. We appreciate your participation today as we review our fiscal Q4 and fiscal 2024 performance. We are thrilled to announce record sales of $50.3 million for this quarter, making our 15th consecutive quarter of achieving record quarterly sales. Our recurring revenue subscription service continues to exhibit robust growth, increasing 27% in Q4 and now has an annualized run rate of $84 million based on July 2024 recurring revenues. Our balance sheet remains strong with cash balances reaching $97.7 million, a 46% increase over the level recorded on June 30, 2023. We have no debt. Our strategic focus continues to capitalize on key industry trends, including wireless fire and intrusion alarms, driving recurring service revenues, school security solutions, enterprise access control systems and architectural locking products. At NAPCO, 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 President, Chief Operating Officer and Chief Financial Officer, Kevin Buchel, who will provide an overview of our fiscal fourth quarter and fiscal 2024 results. Following Kevin's remarks, I will return to delve deeper into our strategies and market outlook. Kevin?

Thank you, Dick. Good morning, everybody. Net sales for the 3 months ended June 30, 2024, increased 13% to a quarterly record of $50.3 million, compared to $44.6 million for the same period a year ago. Net sales for the 12 months ended June 30, 2024, increased 11% to a record $188.8 million compared to $170 million for the same period a year ago. Recurring monthly service revenue continued its strong growth, increasing 27% in Q4 to $20.3 million compared to $16.1 million for the same period last year. Recurring monthly service revenues for the 12 months ended June 30, 2024, increased 26% to $75.7 million compared to $59.9 million last year. These increases are due to the continued strength of our line of StarLink radios. Equipment sales for the quarter increased 5% to $29.9 million compared to $28.6 million last year. Equipment sales for the year ended June 30, 2024, increased 3% to $113 million compared to $110 million for the same period last year. These increases were primarily due to revenue increases in the Alarm Lock and Marks brands' door locking products, partially offset by a decrease in intrusion and access alarm products. Locking sales grew 21% and 18%, respectively, compared to Q4 and the 12 months ended June 30, 2023. Radio sales for the quarter were down 10% compared to Q4 of last year due to the continued effect of the sunsetting of 3G technology as well as the higher inventory levels of radios at that time at some of our distributors. Radio sales represent 59% of intrusion and access alarm product sales, and we expect inventory levels in distribution, which have decreased significantly over the past few quarters, to continue to reduce, leading to increased radio sales. As such, we expect radio sales to continue to be a key contributor to our hardware sales and lead to the continued growth of our highly profitable recurring service revenues. Gross profit for the 3 months ended June 30, 2024, increased 21% to $27.8 million, with a gross margin of 55% compared to $23 million with a gross margin of 52% for the same period last year. Gross profit for the 12 months ended June 30, 2024, increased by 39% to $101.8 million with a gross margin of 54% compared to $73.2 million with a gross margin of 43% a year ago. Gross profit for recurring service revenue for the quarter increased 29% to $18.4 million with a gross margin of 90% compared to $14.3 million with a gross margin of 89% last year. Gross profit for recurring service revenues for the 12 months ended June 30, 2024, increased 28% to $68.5 million with a gross margin of 90% compared to $53.4 million with a gross margin of 89% last year. Gross profit for equipment revenues in Q4 increased by 8% to $9.4 million, with a gross margin of 31% compared to $8.7 million with a gross margin of 30% last year. Gross profit for equipment revenues for the 12 months ended June 30, 2024, increased by 67% to $33.2 million with a gross margin of 29% compared to $19.9 million with a gross margin of 18% for the same period last year. The increase in both gross profit dollars and gross margin for recurring revenue for the 3 and the 12 months ended June 30, 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 and gross margin for equipment revenues for both the 3 and 12 months ended June 30, 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 a higher gross margin than intrusion products. Another factor in the increased profit and gross margin for equipment revenue is increased overhead absorption from our Dominican Republic manufacturing facility as well as the stabilization of component costs from the effects of the global supply chain crisis. Research and development costs for the quarter increased 28% to $3 million or 6% of sales, compared to $2.4 million or 5% of sales for the same period a year ago. Research and development costs for the 12 months ended June 30, 2024, increased 15% to $10.8 million or 6% of sales compared to $9.3 million or 5% of sales for the same period a year ago. The increase for the 3 and the 12 months primarily resulted from salary increases and additional staff. Selling, general and administrative expenses for the quarter increased 22% to $10.9 million or 22% of net sales compared to $8.9 million or 20% of net sales for the same period last year. Selling, general and administrative expenses for the 12 months ended June 30, 2024, increased 11% to $37.1 million or 20% of net sales compared to $33.6 million or 20% of net sales for the same period last year. The increases in SG&A for the 3 months were primarily due to increases in trade show expenses, as the ISC West show occurred in Q4 this year versus Q3 last year. In addition, increased stock-based compensation expenses and increased legal and accounting expenses relating to the enhancing of our internal control systems also contributed to the increase. The increase for the 12 months was primarily due to the aforementioned items with the exception of trade show expenses, which were fairly constant during fiscal 2024 versus fiscal 2023. Operating income for the quarter increased 18% to $14 million compared to $11.8 million for the same period last year. Operating income for the 12 months ended June 30, 2024, increased 77% to $53.8 million compared to $30.3 million for the same period last year. Interest and other income for the 3 months increased 99% to $762,000 compared to $382,000 last year. For the 12 months ended June 30, 2024, interest and other income increased by 184% to $2.6 million compared to $903,000 last year. The increases for both the 3 and the 12 months ended June 30, 2024, were primarily due to increased interest and dividend income from the company's cash and short-term investments. The provision for income taxes for the 3 months decreased by 27% or $434,000 to $1.2 million, with an effective tax rate of 8%, compared to $1.6 million with an effective tax rate of 13% last year. For the 12 months ended June 30, 2024, the provision for income taxes increased by 60% or $2.5 million to $6.6 million with an effective tax rate of 12%, compared to $4.1 million with an effective tax rate of 13% last year. The decrease in the provision for the 3 months is due to NAPCO accruing at a higher rate through Q3, and the increase for the 12 months ended June 30, 2024, was due to increases in taxable income. The decrease in the company's effective tax rate for fiscal 2024 was the result of a larger portion of our taxable income being attributable to foreign operations. Net income for the quarter increased 28% to a quarterly record of $13.5 million or $0.36 per diluted share compared to $10.6 million or $0.28 per diluted share for the same period last year, and represented 27% of net sales. Net income for the 12 months ended June 30, 2024, increased 84% to a 12-month record of $49.8 million or $1.34 per diluted share, compared to $27.1 million or $0.73 per diluted share for the same period last year, representing 26% of net sales. Adjusted EBITDA for the quarter increased 18% to $15.4 million or $0.41 per diluted share compared to $13 million or $0.35 per diluted share for the same period a year ago. This equates to an adjusted EBITDA margin of 31%. Adjusted EBITDA for the 12 months ended June 30, 2024, increased 72% to a 12-month record of $58.9 million or $1.59 per diluted share compared to $34.3 million or $0.93 per diluted share for the same period last year, equating to an adjusted EBITDA margin of 31%. Moving on to the balance sheet. As of June 30, 2024, the company had $97.7 million in cash and cash equivalents, other investments and marketable securities, compared to $66.7 million as of June 30, 2023, representing a 46% increase. The company has no debt. Cash provided by operating activities for the 12 months ended June 30, 2024, was $45.4 million, compared to $24.7 million for the same period last year, reflecting an 84% increase. Working capital, defined as current assets less current liabilities, was $146.5 million on June 30, 2024, compared with working capital of $111.7 million at June 30, 2023. The current ratio, defined as current assets divided by current liabilities, was 7.6:1 at June 30, 2024, and 6.7:1 at June 30, 2023. CapEx for the quarter was $551,000, compared to $415,000 in the prior year period. For the full fiscal year, CapEx was $1.6 million, compared to $3 million last year. That concludes my formal remarks, and I would now like to return the call back to Dick.

Thank you, Kevin. Fiscal 2024 concluded with record revenue and net income for both the fourth quarter and the full fiscal 2024 year ending June 30, 2024. The fourth quarter sales of $50.3 million represent the 15th consecutive quarter of record sales for a quarterly reporting period. Our record quarterly net income of $13.5 million represents 27% of sales. Adjusted EBITDA was $15.4 million for Q4 and $58.9 million for the full fiscal year, equating to a 31% EBITDA margin. Equipment revenue grew 5% for the quarter, with gross margins on such sales sequentially increasing to 31%, compared to 29% in each of the last two quarters. Recurring service revenues, which increased 27% in Q4, are a major contributor to the year-over-year overall sales and earnings growth, representing 40% of total revenue. Gross margin for recurring service revenues remained strong at 90%. Our balance sheet continues to strengthen, with cash and cash equivalents and other investments and marketable securities increasing 46% to $97.7 million. We have no debt, and net cash provided by operating activities was also robust, growing 84% over last year. Our alarm markets, particularly our locking hardware lines, continue to grow in the school and classroom security, healthcare and retail loss prevention, as well as in multifamily commercial and residential applications. We are focused on further penetrating each of these markets. Our StarLink line of radios offer the widest coverage range from both Verizon and AT&T with rich feature sets that our dealers love. We continue to enhance these rich feature sets to make the product easy to install, compatible with all fire and burglar panels, both ours and our competitors'. No other company can claim that. Moreover, our products have received approval from Underwriters Laboratory, the gold standard of the security industry. Millions of commercial buildings still require upgrades from legacy copper phone lines. We are well-positioned for continued strong growth with our StarLink line of radios. Our recent introduction of Prima by NAPCO, a new all-in-one panel for security, fire, video and connected home, features a 5-minute installation, remains a crucial focus for the company. Our goal with Prima is to address an important mass segment of the security market, including residential and small businesses. With its built-in WiFi and cellular/radio indications, customer alert notifications, and video and smart home subscription options for each installed system, both the security dealer and NAPCO stand to gain more recurring service revenue-generating accounts. Fiscal 2024 was a record-breaking year with a net income of $49.8 million, adjusted EBITDA of $58.9 million, and an adjusted EBITDA margin of 31%. While we are pleased with our performance, we recognize that there is still more work to be done. Although we are encouraged by the gross margin for hardware sales of 31.4%, we believe this can improve further in fiscal 2025 and beyond. Our strong net income, adjusted EBITDA, and growing cash position demonstrate the financial strength of our business. We are pleased to announce an increase in our quarterly dividend to $0.125 per share, which is a 25% increase over the $0.10 we paid last quarter. This dividend will be payable on October 3, 2024, to shareholders of record on September 12, 2024. We are committed to achieving our goals of continued financial strength, product innovation, technical superiority, and strong profitability for fiscal 2025 and beyond. We believe we can sustain this growth into the future as we work toward our fiscal 2026 targets. Thank you all for your support. Our formal remarks are now concluded, and we'd like to open the call for a Q&A session. Operator, please proceed.

First question comes from Matt Summerville at D.A. Davidson.

A couple of questions. First, just on the locking side of the business, obviously growing north of 20% in the quarter. How fast do you think the market is actually growing? And what are you guys doing to drive the share capture you're seeing in that market? And then I have a follow-up.

The locking sales have been strong for several quarters. We have two locking companies, and both are performing well. We believe we've gained market share during supply chain challenges as our competitors struggled to deliver. Our Dominican factory continued to operate, allowing us to capture that share. We are well diversified, and our presence in schools is crucial, especially with ongoing concerns about school safety. There is also significant demand for airport renovations and hospitals throughout the country. Our products are unique because we manufacture electrified locks, which distinguishes us from traditional hardware locks. With both of our locking companies thriving simultaneously, our growth has increased by 18% for the year compared to last year. Locking now makes up 65% of our total hardware sales. While I'm uncertain if we can maintain this growth rate, I believe that double-digit growth is certainly possible. We do not expect any slowdown. Our travels across the country suggest that construction activity remains strong, despite reports to the contrary.

And then just on the radio side of the business. You had this recent product launch that you sort of referenced in the prepared remarks. Any early read on the success you're having there? You mentioned the radio business was down this quarter. It sounds like it's probably going to be down in the fiscal first quarter. Do you see that business reaccelerating to a high single to double-digit growth rate as you move through the year?

The radio business, despite the statistics indicating a decrease, did decline, as we've stated, sequentially by 5% and 10% compared to last year's Q4. The downturn pertains primarily to the radios that generate the lowest recurring revenue. We are striving to recover from this decline by introducing new features to our radios, which has been well received. It’s important to note that the recurring revenue continues to grow because our fire radios are performing exceptionally well. As we have discussed repeatedly, fire radios contribute more to our bottom line than other radios. I am pleased that despite the statistics we have shared, our recurring revenue increased by 27% this quarter and grew by 26% over the year. The fire radios are thriving, and we are successfully expanding our relationships with our new distributors and adding significant clients. We believe this positive trend will only improve, and we also expect to enhance the performance of our lower-end radios. Thus, we should see both sides of the business contributing positively, leading to an overall growth in hardware sales for our radio segment. We are stay focused on resolving distribution challenges that have affected sales.

Next question comes from Jim Ricchiuti at Needham.

As a follow-up to the previous question, regarding fiscal '25, could one perspective be that we will see some normalization of demand in the fire radio business? I assume you are benefiting from the new distributor scaling up, and perhaps there is another distributor that might still have excess inventory with the lower-end radios. Is this a valid way to consider the business in the upcoming quarters?

Normalization would be beneficial, but we desire more than that; we want enhancements. We have established relationships with significant clients, which we believe will translate into markedly higher radio sales. We are dedicated to expanding these partnerships, and we foresee opportunities stemming from both these major accounts and the normalization of previous market dynamics, which should lead to a solid increase in overall radio segment performance, not only from fire radios.

Got it. So it sounds like you anticipate continued strength in the fire radio side of the business. But also...

Yes. We haven't observed any slowdown in that area.

Is there any color you can provide? I know it’s a bit of a mixed picture with respect to the distributors. But is there any insight you could share on some of the sell-through metrics in terms of what you're seeing out there?

We have successfully added a new distributor, and their performance has been excellent, positioning them to potentially become a 10% hardware customer in the near future. They’ve only been with us for a year. We also have relationships with other major distributors, like Anixter and Wesco, who have managed through their inventory. However, there is still one more distributor from whom we need to improve our collaboration. Once we resolve the inventory situation with them, I believe the outlook will brighten. The sell-through statistics are strong, but when distributors have excess inventory, it hampers our capacity to receive new orders. So while sell-through figures are positive, we need to work on getting their inventory levels to a healthier state so they can place another round of orders.

Got it. And one final question, just on Prima. How do you view the launch of the product? How satisfied are you with the way the business is starting to develop? I know it's a small part of the revenue right now.

Well, Prima is a significant focus area for us. It is a large market in which we have previously had limited presence. The residential market is massive, and many customers still need to transition away from copper-based systems. The appeal of a 15-minute installation is substantial. Sales representatives could install the product quickly. Thus, the opportunities in this market are considerable. We stand to gain $5 to $6 in recurring revenue for every unit that is sold. Therefore, we can’t overlook this market. We are working diligently on it; we introduced it about a year ago. Like any product, it takes time to penetrate. We are more optimistic about it now than when we first launched. We have made numerous enhancements, added accessories, and hired salespeople specifically focused on this area. We believe these efforts will yield positive results. That's our hope, as it presents an important additional source of recurring revenue.

Congrats on the quarter.

Next question comes from Jaeson Schmidt at Lake Street.

Kevin, I know you noted that ADI is going well. Just curious if you could provide some additional color on that relationship, if it's tracking to your expectations and how we should expect that ramp in fiscal '25?

It's only been a year, and we're very pleased thus far; everything is going well. We need to continue investing effort into this relationship. The statistics are promising, and the opportunities seem viable. ADI is the largest distributor of security products in the industry, even surpassing Wesco, as Wesco distributes other products. Within just a year of collaboration, they have made introductions for us to large dealers we had yet to approach. There are around 30,000 dealers out there; we currently engage with 12,000. There are an additional 18,000 we would love to do business with. ADI’s relationships with these notable dealers have allowed us to penetrate the market with our fire radios. We want to keep leveraging this relationship to grow our business with them. So far, the cooperation has yielded positive results.

That's helpful. And then, as a follow-up, considering that one distributor that still has excess inventory, based on order patterns you’ve observed through September so far, do you expect the inventory issue to be resolved after this quarter?

It’s difficult to determine as much of the business, especially with the larger distributors, comes towards the end of the period. Despite today being August 26, many variables could influence the outcome this quarter. Our hope is yes, but we can't say for sure yet.

The next question comes from Jeremy Hamblin of Craig-Hallum Capital.

Congrats on a strong year. I want to return to your equipment gross margins, which continue to demonstrate solid progress. With an eye on the trends you’re likely to experience in FY '25 and beyond, you aim to achieve gross margins over 40% in a couple of years. Can you provide insight into how this progression may happen, considering there’s at least one distributor with excess inventory?

The margins will be influenced by two factors: product mix and volume. Both aspects contributed positively to margins this past quarter. The product mix, wherein 65% of our sales now come from locking hardware, greatly enhances margins. While we appreciate radios, their margins aren't the highest. Nonetheless, locking represents the dominant portion of our hardware sales. Though we require both segments to thrive, we experienced strong locking sales this quarter, which translate into substantial profit. The volume increases contributed to leverage in our Dominican Republic factory, as it's labor-intensive. Maintaining a high volume increases overhead absorption, leading to higher margins as more products are processed in the facility. We strongly believe the volume will continue on an uptrend, validated by our recent purchase of a second Panasonic chip shooter machine. This $1 million machine enhances our capabilities, providing agility in product changes without causing disruptions. If we didn't believe our hardware sales would grow, we wouldn't have invested in this machine. We anticipate high-volume production will result in elevated margins.

As a quick follow-up regarding the potential for achieving over 40% by FY '26, would that require over 1,000 basis points of margin improvement? Does that feel like a feasible target?

We will have to see how this year unfolds, but we’re aiming to approach 40% this year. Should we achieve that, I'll feel confident about our target for 2026. However, we need to see further growth in our top-line hardware sales, which should continue to be fueled by the strength we've seen in the locking sector for the past few years. Historically, we've noted considerable margin expansion concurrent with volume increases. If you look back at our performance in 2018 and 2019, the increase in sales volume corresponded with significant margin growth. There's no justification for us not to aim for that now, given the strategic steps taken and the fact that locking is an increasing component of our sales. We expect margins to continue climbing throughout fiscal 2025, and at that point, we can reassess the feasibility of our 2026 goal. Importantly, our goal for recurring revenue margin, which was targeted at 80%, is comfortably achievable, as shown by our current margin of 90%.

I’d like to note that our engineering staff has expanded due to the introduction of new products that provide recurring revenue, a feature unique within our industry. This will allow our locking lines to generate recurring revenue for locksmiths and door specialty installers, becoming a significant driver for us. We anticipate that these product updates showcased at the ISC event have garnered positive responses. We are continuously working on their development, and we expect these initiatives to contribute not only to recurring revenue but to our overall equipment sales for many years. Our innovations, including new radios with improved coverage, will also add significant revenue and hardware contributions, and these products are all Underwriters Laboratory approved, which is the accepted standard within our sector. Many of our competitors utilize lower-tier approvals, adequate for smaller firms, but top-tier companies prioritize UL approvals for maximum reliability and equipment performance. We're proud of this accomplishment and consider it a pivotal part of our strategy.

Next question comes from Lance Vitanza at TD Cowen.

I'm going to try to get two in, if I can, one on revenue and one on cost. The revenue question is, could you talk about the pricing trends that you're seeing on the services revenue side, particularly in fire radios? I'm wondering to what extent, if any, you have relied on promotional pricing, and do you expect that to potentially impact gross margins on the service side going forward?

We will promote as necessary, but we try to maintain the established formula that has proven effective since we initiated this cycle. Therefore, we will adjust or promote carefully and only when required. The fire segment doesn't typically need much encouragement, but if circumstances arise, we will respond appropriately. Our current margins of 90% provide us with a comfortable buffer. So far, our approach has been successful. On the side of non-fire radios, we’ve adopted a more aggressive promotional strategy, which could be extended to meet market demands. However, we prefer not to dilute our established formula; we maintain vigilance in the market and will adapt as necessary, but we're pleased with our current strategies.

I hope it’s clear that we derive our recurring revenue and radio sales through two distinct channels. The first is through the retrofitting of older copper jobs within the field that are beginning to fail due to regulatory changes preventing Verizon and AT&T from repairing or installing copper. Currently, around 5 million fire jobs need conversion. Our top-quality radio solutions are well-timed and endorsed by dealers, allowing us to engage effectively here. The second way we capture sales comes from new control panels that already have built-in radios. This leads to supplementary hardware sales tied to smoke detectors, carbon monoxide detectors, and necessary peripherals for fire systems. Therefore, we've identified a significant window for retrofitting encompassing 5 to 7 years for those 5 million areas requiring upgrades. Typically, the dealer will retain the existing system infrastructure and add a new communication link such as StarLink, allowing us to control all the various panels on the market. The opportunities here are substantial.

That's very insightful, Dick. Just to squeeze in one more question regarding the recent increases observed in both R&D and SG&A, I didn't catch as much detail on the R&D side that you may have mentioned. Could you elaborate on what's happening there and what projections we should have for both line items moving forward? Is the $10 million run rate for SG&A reasonable?

Yes, I anticipate that it will be lower than what you observed recently, but it will spike during ISC. This upcoming fiscal year '25 will also occur in Q4. Excluding that, around $10 million is a reasonable level to expect. We keep a close eye on this, and we will work toward reductions wherever feasible. We've had to take several actions as we've scaled, which you are all aware of, like changing accounting firms and adding vital internal auditing roles. We're pleased that this has been achieved. Regarding R&D, we often hear calls to expand our engineering teams. However, we prefer not to emulate organizations such as alarm.com that employ hundreds of engineers. Nevertheless, we are open to increasing our workforce strategically when our head of engineering communicates additional needs that would expedite our development capabilities. The $3 million range for R&D is becoming an operational standard, reflecting a need for approximately 6 or 7 engineers and salary enhancements, all of which are investments that enable us to move towards our goals more quickly.

Next question comes from Raj Sharma of B. Riley.

Congratulations on the solid financials and the good quarter, again. The sell-through stats have improved, and inventories seem to be getting back on track based on your comments. However, I noticed that the Access Alarm segment was down 21% year-on-year. In relation to radios, which represent 59% of the mix, they saw a 10% decline in sales while fire alarms performed significantly better with higher recurring revenue. Can you help break down the segment that didn't fare well? Does it lack recurring revenues?

Yes, the portion of the alarm segment that didn’t perform well lacks the benefits of regular recurring revenue. We do not usually break down specific figures regarding fire versus non-fire sales. I provided the available insights. Most of the net increase is derived from fire products amidst a larger decrease in the lower-end radios that flourished during the supply chain crises, particularly due to the effects of 3G technology cessation when we were the only company capable of fulfilling demands. We’re working through existing distributor inventories, which should ease transitioning into fiscal 2025 with more manageable comparisons than last year.

Understood. And on the service revenue side, given its stellar growth rates recently, are you still forecasting service revenue to exceed 25% to 30% year-on-year in the upcoming periods?

We are certainly trying. Achieving a 27% increase this quarter is impressive. We'd love to maintain service revenue growth in the mid-20% range for the time being. We're actively working on various strategies to enhance what we’re already doing. Our recent product Prima should help boost recurring revenue in a segment we haven't penetrated deeply yet, namely the residential market. Additionally, the push towards generating recurring revenue from locking through Air Access opens up more opportunities. These initiatives could lead to an even greater increase. For now, we are quite satisfied with the 27% growth.

Thank you, ladies and gentlemen, this concludes our question-and-answer session today. I will turn the call back over to Richard Soloway, CEO, for closing comments.

Thank you all for participating in today's conference call. Should you have any further questions, please feel free to call Francis, Kevin or myself for additional information. We appreciate your interest and support and look forward to speaking to you all again in a few months to discuss NAPCO's fiscal Q1 results. Thank you all, and have a great day.

Ladies and gentlemen, this concludes your conference for today. We thank you for participating, and we ask that you please disconnect your lines.