Good morning, ladies and gentlemen, and welcome to the NAPCO Security Technologies Fiscal Second Quarter 2025 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. This call is being recorded on Monday, February 3, 2025. I would now like to turn the conference over to Francis Okoniewski, Vice President of Investor Relations. Please go ahead.

Thank you, Joanne, and good morning. This is Fran 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 second quarter 2025. 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 at www.napcosecurity.com. On the call today are Dick Soloway, Chairman and 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 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 recurring revenue products to customers and dealers, our ability to control expenses and costs and expected annual run-rate for our software as a service recurring 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. 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 and cannot guarantee future results, levels 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 the exciting schedule of investor outreach events lined-up in the coming months. On February 12, we're set to participate in a virtual non-deal roadshow with Seaport Global. Later in February, we'll attend the Citi Global Industrial and Mobility Conference in Miami, Florida. In March, our engagements include the Raymond James 46th Annual Institutional Investors Conference in Orlando, Florida, a virtual non-deal roadshow at Wells Fargo and other non-deal roadshow activity with Robert W. Baird. Finally, we'll cap this busy period by attending our industry's largest trade show ISC West at the Venetian Expo in Las Vegas from March 31 through April 4. If anyone is interested in attending this show, please reach out to me and I'll arrange to get you a pass. Investor outreach is a vital part of NAPCO's strategy, and I'd like to extend my gratitude to everyone who contributes to the success of these events. 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, Fran. Good morning, everyone, and welcome to our conference call. We appreciate you joining us as we review our fiscal second quarter 2025 performance. This quarter yielded mixed results. Our recurring revenue increased by 15%, which generated a gross margin of 91% and led to a 400 basis-point improvement in total gross margin to 57%. The reduction of equipment revenue was a result of timing issues with some of our distributors as well as the timing of certain large locking projects. While certain revenue contributions shifted due to external dynamics. Our core growth drivers remain intact and demand for our products and services continues to build momentum. Importantly, our innovation pipeline is stronger than ever, with new offerings set to launch in the coming months, expanding our recurring revenue opportunities and reinforcing our long-term trajectory. As we move forward, we remain confident in our ability to drive sustainable growth and deliver lasting value to our shareholders. At NAPCO, our strategic focus is centered on capitalizing on key industry trends, including the expansion of wireless fire and intrusion alarms, the growth of recurring revenue services, advancements in school security solutions, enhancements in enterprise access control systems and continued innovation in architectural locking products. We remain committed to delivering sustainable growth, maximizing profitability and driving strong results on equity, all while maintaining disciplined cost management. These priorities are fundamental to our strategy, aligning with the best interest of our shareholders. I'll now turn the call over to our President, Chief Operating Officer and Chief Financial Officer, Kevin Buchel, who will provide an overview of our fiscal second quarter 2025 results. After Kevin's remarks, I'll return to discuss our strategies and outlook in more detail. Kevin, the floor is yours.

Thank you, Dick. Good morning, everyone. Net sales for the quarter decreased 9.7% to $42.9 million, and that compares to $47.5 million for the same period one year ago. Net sales for the six months ended December 31, 2024 decreased 2.6% to $86.9 million and that compares to $89.2 million for the same period one year ago. Recurring monthly service revenue continued its growth, increasing 15% in Q2 to $21.2 million as compared to $18.5 million for the same period last year. Recurring monthly service revenue for the six months ended December 31, 2024 increased 18% to $42.3 million as compared to $35.8 million last year. Our recurring service revenues now have a positive prospective annual run rate of approximately $86 million based on January 2025 recurring service revenues and that compares to $85 million based on October 24 recurring service revenues, which we reported back in November. The increase in net service revenues was due to an increase in our cellular radio communication device activations, particularly fiber radios. We expect radio sales to continue to be a key contributor to our equipment sales and to lead to the continued growth of our highly profitable recurring service revenues. Equipment sales for the quarter decreased 25% to $21.7 million as compared to $29 million last year. The decrease in net equipment sales was primarily attributable to reduced sales from two of the company's larger distributors, one of which our largest customer, who purchases both intrusion and locking products, eliminated all quarter-end purchases from all manufacturers in order to reduce their inventory levels for their December 31 year-end. This distributor I spoke to personally and he said, it's like an old Seinfeld line. He said, it's not you, it's us. So it's a decision they made had nothing to do with our product, our sell-through was good, it's a corporate decision they made. And the other one, there was another distributor who was going through a management restructuring and that resulted in a significant reduction in their purchase. Additionally, the timing of project work related to a significant New York City building renovation for custom locking products resulted in reduced sales in locking in our Q2 as this project began in fiscal 2024 and is winding down in fiscal 2025. Equipment sales for the six months decreased 16% to $44.6 million as compared to $53.4 million for the same period and the decrease was primarily due to the aforementioned reasons I just mentioned. Gross profit for the three months ended December 31, 2024 decreased 2% to $24.4 million with a gross margin of 57% as compared to $25 million with a gross margin of 53% for the same period last year. The gross profit for the six months increased 4% to $49.1 million with a gross margin of 57% as compared to $47.4 million with a gross margin of 53% a year ago. Gross profit for recurring service revenue for the quarter increased 16% to $19.4 million with a gross margin of 91% and that compares to $16.7 million with a gross margin of 90% last year. And gross profit for recurring service revenues for the six months ended December 31, 2024 increased 20% to $38.6 million with a gross margin of 91% and that compares to $32.2 million with a gross margin of 90% last year. Gross profit for equipment revenues in Q2 decreased by 39% to $5.1 million with a gross margin of 24% as compared to $8.4 million with a gross margin of 29% last year and gross profit for equipment revenues for the six months decreased 31% to $10.5 million with a gross margin of 24% as compared to $15.2 million with a gross margin of 29% for the same period last year. The 400 basis point increase in overall gross margin is due to the continued very profitable recurring revenue. The decrease in gross profit and gross margin from equipment sales for both the three and the six months ended December 31, 2024 is primarily the result of the aforementioned lower sales levels, as well as lower overhead absorption of fixed costs from our Dominican Republic manufacturing facility. Research and development costs for the quarter increased 22% to $3.1 million or 7% of sales, and that compared to $2.5 million or 5% of sales for the same period a year ago. And research and development costs for the six months ended December 31, 2024 increased 24% to $6.2 million or 7.1% of sales, and that compares to $5 million or 6% of sales for the same period a year ago. The increase in research and development for the three and the six months resulted primarily from annual compensation increases and the hiring of additional engineers. Selling, general and administrative expenses for the quarter increased 18% to $10.2 million or 24% of net sales and that compares to $8.7 million or 18% of net sales for the same period last year. SG&A expenses for the six months ended December 31, 2024 increased 17% to $19.9 million or 23% of net sales and that compares to $17.1 million or 19% of sales for the same period last year. The increases in SG&A for the three and the six months were primarily due to compensation increases, the hiring of additional staff, increases in advertising and insurance costs as partially offset by decreases in professional fees. Operating income for the quarter decreased 19% to $11.2 million as compared to $13.8 million for the same period last year. Operating income for the six months decreased 9% to $23 million as compared to $25.4 million for the same period last year. Interest and other income for the three months increased 26% to $921,000 as compared to $729,000 last year. And for the six months increased 75% to $2.1 million compared to $1.2 million last year. The increases for both the three and the six months ended December 31, 2024 were primarily due to increased interest and dividend income from the company's cash and short-term investments as our net cash position continues to grow. The provision for income taxes for the three months decreased 16% or $299,000 to $1.6 million with an effective tax rate of 13%, and that compares to $1.9 million with an effective rate of 13% last year. The decrease in the provision for taxes for the three months was primarily due to lower taxable income. For the six months, the provisions remained relatively constant, $3.4 million for both periods this year and last year. The company's effective rate for income tax was 14% and 13% for the six months ended December 31, 2024 and 2023, respectively. The company's effective tax rate for the six months ended December 31, 2024 increased as a result of higher non-deductible stock-based compensation. Net income for the quarter decreased 17% to $10.5 million and that's 24% of net sales or $0.28 per diluted share. And that compares to $12.6 million or 27% of net sales or $0.34 per diluted share for the same period last year. And net income for the six months decreased 6% to $21.7 million or 25% of net sales or $0.59 per diluted share, and that compares to $23.1 million or 26% of sales or $0.62 per diluted share for the same period last year. And adjusted EBITDA for the quarter decreased 19% to $12.2 million, $0.33 per share, and that compares to $15.1 million or $0.41 per diluted share for the same period last year and that equates to an EBITDA margin of 28% compared to 32% last year. And the adjusted EBITDA for the six months decreased 12% to $24.7 million or $0.67 per diluted share, and that compares to $28 million or $0.76 per diluted share for the same period last year. And that equates to an adjusted EBITDA margin of 28% this year compared to 31% last year. Now moving on to the balance sheet. At December 31, 2024, the company had $99.2 million in cash and cash equivalents, other investments, marketable securities. And that compares to $97.7 million as of June 30, 2024, it's a 2% increase and that's even after paying $22.6 million in dividends and stock repurchases during this six month period. The company has no debt, had no debt as of December 31, 2024. Cash provided by operating activities for the three months increased 80% to $13.5 million compared to $7.5 million last year and for the six months increased 37% to $25.5 million and that compares to $18.7 million for the same period last year. And working capital as defined as current assets less current liabilities was $143 million at December 31, 2024, and that compares with working capital of $146.5 million on June 30, 2024. And the current ratio defined as current assets divided by current liabilities was 7.6:1 at both December 31, 2024 and June 30, 2024. And CapEx for the quarter was $1.1 million compared to $426,000 in the same period last year and for the six months amounted to $1.8 million compared to $682,000 last year. This quarter's investment includes the addition of our second state-of-the-art Panasonic chip shooter machine, which is aimed at further improving our DR production efficiencies. That concludes my formal remarks, and I would like to return the call back to Dick.

Thank you, Kevin. As we conclude the first half of fiscal 2025, our performance has faced both challenges related to timing and notable strengths. Although we have seen a decline in revenue, NAPCO continues to achieve solid profitability metrics and strong cash flow generation, which enhance our balance sheet despite maintaining our dividend program and engaging in opportunistic stock buybacks. This demonstrates our business's resilience and the effectiveness of our operational strategies. Despite the decrease in locking hardware due to timing, we recognize significant growth opportunities from investments in government-funded infrastructure projects, as well as ongoing state and federal programs like Florida's School Hardening Act and Indiana's Secured School Safety Grant Program. Other states, such as Texas, have also allocated significant security funds. Growth opportunities are emerging in security, healthcare, retail loss prevention, multi-dwelling, commercial, and residential applications, and we remain focused on enhancing our presence in these markets. A new growth avenue in commercial locking and access control is our long-awaited MVP hosted access system, which has the potential to generate substantial hardware sales and recurring revenue for both the installing locking dealers and NAPCO. This innovative IP technology allows wireless cloud access for end-users. Initially introduced at the International Security Conference in New York City last November, we will showcase the MVP system along with many other exciting products at the upcoming International Security Expo in Las Vegas from March 31 to April 4 at the Venetian Expo, where tens of thousands of security dealers will see it in action. We are optimistic about the potential of this technology for new installations and the easy retrofit or upgrade of existing locks, which could lead to increased equipment sales and recurring revenue. Our recurring revenue growth today is driven by our StarLink radios, valued by alarm dealers for their extensive coverage across Verizon and AT&T networks. With rich feature capabilities, StarLink remains the preferred choice among our dealers. Our R&D team is continuously enhancing these high-performance radios to ensure straightforward installation and compatibility with all fire and burglar alarm panels, including those of our competitors. No other company offers this level of versatility. Unlike our competitors, our radios are underwriter laboratory certified, the gold standard in our industry. Millions of commercial buildings and residences, from offices to schools and restaurants, still need to transition from legacy copper phone lines to cellular connectivity. With StarLink, we are well-positioned for strong continued growth in this area. Our latest StarLink Fire MAX 2, designed for commercial fire and alarm systems, includes dual SIM technology that dynamically utilizes either the Verizon or AT&T networks for optimal signal strength. This solution simplifies inventory for dealers while offering a feature-rich experience. Our recent launch of Prima by NAPCO, an all-in-one panel for security installations and connected homes that allows for 15-minute installations, is a key focus for the company. Prima targets a significant segment of the security market, including residential and small business systems, with built-in WiFi cellular communication, customer alert notifications, and video and smart home subscription options. Each installed system presents a chance for security dealers and the company to generate additional recurring service revenue. Prima also includes a full set of necessary peripherals to complement the kit, which we believe will enhance sales in the future. Although we are disappointed with our overall equipment sales attributed to timing, the strong net income and cash flow reflect our ongoing financial strength. We are pleased to continue our dividend program with a payout of $0.125 per share, payable on April 3, 2025, to shareholders of record on March 12, 2025. Additionally, as announced last quarter, our Board has authorized a share repurchase program, enabling us to strategically buy back NAPCO stock as market conditions allow. We remain committed to achieving continued financial strength, product innovation, technological superiority, and strong profitability for fiscal 2025 and beyond. Thank you all for your support and for being part of this exciting future. Our formal remarks have concluded, and we would now like to open the call for the Q&A session. Operator, please proceed.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. The first question comes from Matt Summerville at D.A. Davidson. Please go ahead.

Thanks. Can you maybe comment on the number of device activations you saw this quarter relative to the prior quarter and maybe on a year-over-year basis? Just trying to get a feel for with the lower hardware volume this quarter, how that impacted activations? And then I have a follow-up.

We don't disclose the activation number, but there were about 1,000 more activations in December compared to November. Additionally, December had about 1,000 more activations than September and June. We believe activations will strengthen over time due to delays in the process, including strong radio sales, distribution, activation by dealers, and rebates. Even with these delays, activations were still up by about 1,000 compared to previous months. That's all I can share.

Yes, that's helpful. I appreciate that. So with the recurring service revenue, we've seen deceleration now for three quarters in a row. I assume that this quarter's equipment sales imply at least another quarter of deceleration. What do you view as the more steady-state growth rate for RSR? And when do we start to see that growth rate accelerate?

So I think in Q3, the quarter that we're now in, we'll see it come down a little more. We were up about 15% this quarter year-over-year. I think that rate of increase will drop a little maybe in the 12% to 12.5% range. Then in Q4, I think it goes up because by Q4, we will feel the effects of the strong radio sales that we saw in Q1 last quarter. And it will stay up for a bit. Depending upon what happens in the upcoming quarter with radio sales, it can stay up at the optimal rate given that the number is much higher than it used to be; we think we should be able to grow this by 20% at least, that is without regard to Prima or MVP that's separate, extra. I don't want to count that. It's got to prove itself. We think it will. But just with our radios that we're currently selling, we think it will come back. It will dip and then it will come back. 20% should be an optimal rate of increase.

Thanks, Kevin.

Thank you. The next question comes from Lance Vitanza at TD Cowen. Please go ahead.

Thanks, guys. A couple more things I wanted to ask you about, a couple more things that are probably beyond your control that could impact the numbers in the third quarter and the second half here. And those two things would be the fires in Los Angeles and Pasadena, number one, and then the tariffs or the tariff wars that seem to be going on right now. Just if you could discuss puts and takes from those two items, that would be great. Thanks.

I can tell you on the tariff side, a lot of our competition gets products from China, and they get finished products. All of our product comes from the Dominican Republic. We don't fly any components into the U.S.; that all goes from around the world into the Dominican Republic, where it's assembled and it comes in as a finished alarm or locking product. Our competition, though, gets finished products. They make everything in China, most of them both in the locking and also in the intrusion and access business. So I would expect that, that 10% is going to make us more competitive in the marketplace and help us win more market share because we have superior products with superior pricing. The deal is price-sensitive, that should really help us pick up a lot of shares. There was some scuttlebutt about Mexico, and I understand they rolled that back this morning for 30 days. Some of our major competitors in the intrusion and fire alarm business make their products in Mexico, all their products in Mexico. So there'll be some settlement, but you can be sure that there's going to be tariffs to those Mexican products, which is going to give us the ability to also pick up share with cost sensitivity. And in Canada, we have some competition also that makes their control panels up there. So that's going to be kind of like the Mexican situation, where there's going to be tariffs. All in all, it should be a benefit for us. The dealers have to keep their installers and salesmen working. So they're going to be going out and keep solutioning jobs, and they're going to need merchandise for that, and the owners of those companies are going to say, you know, let's try the NAPCO products. I've heard a lot of great things about it. And now that the price is so much less expensive, it helps my margins in my business and that's going to be something that our salesmen are going to be looking to do, bringing all kinds of new market shares and new customers in all of our different divisions of locking, access control, and fire and burglar alarms. So that's the situation on that. When it comes to the California fires, there's going to be rebuilding, it's going to be slower. A lot of it was residential. As I said, most of our business in the recurring revenue business is from commercial buildings. So we would expect that the dealers are going to be putting in more fire alarm systems, more and more protection systems, sprinkler systems with fire communicators. When the sprinkler head goes off, the communicator will call the fire department. I hope they're going to have plenty of water out there, but a terrible tragedy won’t happen. So that's how we look at the situation.

And Lance, we did do Pasadena school district, and we also announced Pepperdine. So Pepperdine is right across the street from where all this action is. What we had heard is the kids were out-of-the school for a little bit. I think they're back now. We expect these projects to continue as we go forward.

Very good. Thanks, guys.

Thank you. The next question comes from Jim Ricchiuti at Needham & Company. Please go ahead.

Hi, thank you. I had to jump off momentarily. So apologies if you gave this already, Kevin, and I missed it, but did you provide the breakdown of equipment revenue? I know it's going to be in the 10-Q later.

Yes, I can provide it. It will be in the Q, which will be out shortly. But the intrusion and access for the quarter was $7.6 million. The locking was $14.2 million and the rest was the recurring, which was $21.2 million.

Thank you. It appears that the shortfall primarily stemmed from one distributor, with a smaller contribution from another. My question is regarding the variability in sell-through among your different distributors. Is this issue specifically tied to the distributor you mentioned that is looking to reduce inventory levels, or have you detected any indications from them about changes in demand, possibly due to uncertainties stemming from the economic factors we've been discussing?

Yes. This distributor has no connection to us. Their sell-through statistics and inventory levels are not the reasons they chose not to buy this quarter. As I mentioned earlier, this situation is about them, not us. I've spoken with them since then, and now that we are in a new quarter, they expect everything to return to normal with us and other partners. For whatever reason, as a large corporation, they made a corporate decision, possibly related to an acquisition; the specifics of their decision are unclear. They are very satisfied with our products and purchase all of them, including the NAPCO intrusion and locking products. Their satisfaction stems from the strong demand from locking and alarm dealers. Ultimately, strong demand leads to strong sales. They made a decision regarding their year-end on December 31, and similar situations occur occasionally within distribution.

And last question for me is just on the topic of operating expense just in light of the slower demand that you've seen. Are you making any adjustments to OpEx? I know you've got the big trade show coming up and obviously, you're going to be investing in that, but just any thoughts around OpEx going forward?

No, we will continue with our current approach. Nothing that occurred this quarter impacts our operations. It’s all about timing, as we've mentioned. We are moving forward confidently. We believe we have an adequate number of salespeople and engineers, and if more are needed, we will hire them. Over the past year, we have added several engineers; we previously had around 50 to 55 engineers, and now we probably have over 70. Our goal is to accelerate product launches. Many of our products have recurred, so we want to bring them to market more quickly. If that requires hiring a few more engineers, we can manage it financially. Our profitability and cash flow are not a concern for us.

Yes. Thank you.

Thank you. The next question comes from Jeremy Hamblin at Craig Hallum. Please go ahead.

Thanks for taking the question. And I wanted to take a step back and ask more of a high-level question. You've talked about kind of the push in 2026 towards a goal to get to a 50-50 split on your equipment versus your recurring service revenues. And driving that business really to kind of $300 million total revenues, which would imply $150 million in the RSR. It seems like that's not likely a goal that can be achieved from kind of current levels, but wanted to get a sense for, if you could maybe reframe for us where you think you could bounce back here and how we should be looking at the business. Given that this is kind of a second straight quarter in which you've had adjusted EBITDA margins in the 28% range and kind of with that target that you had laid out before, you've been talking about maybe getting adjusted EBITDA margins up towards 40% plus. And I know that's still, I'm sure the long-term goal, but wanted to sense for what's a bit more kind of visibility on where you are with the business today?

Our goal is to achieve an EBITDA margin in the mid-40s. Currently, we are at 28%, having previously reached 32%. While this margin is still strong, it does not meet our target. To reach our goal, several things need to happen. First, we need to see our recurring revenue grow by around 20%. When we set the $150 million to 45% EBITDA goal, we based our margins on an 80% figure since that was the starting point for our recurring revenue journey. Currently, that margin is at 91% and could potentially increase. If we can maintain a 90% margin and achieve a 20% growth in recurring revenue, that's our first step. The second step requires our equipment revenue to rise by 10%, which is more than what we saw in the last quarter. We don't need anything more significant than 10%. Our equipment margins were once much higher than they are now and need to be in the 30s. If we can achieve a 10% growth in equipment revenue, maintain margins in the 30s, grow recurring revenue by 20%, keep our margin at 90%, and manage our operating expenses to increase by no more than 10% per year, then we'll be on track for the mid-40s. While I can't guarantee we'll hit the original target by the end of 2026, I believe we can get there, and within the next couple of quarters, we aim to demonstrate that we are making progress towards that goal.

Let me ask a follow-up question about the equipment revenues. To achieve these goals, your equipment revenue run-rates were in the high-20s, which supported growth in your service revenues. In terms of increasing your equipment revenue gross margins above 30% and aiming for total company EBITDA margins at least in the mid-30s, what are the absolute dollar sales or revenues you need from equipment on a quarterly or annual basis to consider these targets reasonable for recovering gross margins to over 30% and advancing the total company EBITDA margin?

I would say $30 million hardware is the bare minimum of what we want. It's not unreasonable last year for three out of the four quarters. That's kind of where we were, a little below that. The margins really grow, and you get more sales flowing through your offshore factory. Our Dominican factory, the more volume we push through it, the better the margins are. We've shown this in the past because when we get busy, we just have to add more direct labor. That's the lowest piece of the cost structure. We have a facility that can handle it. We have machinery that can handle it. We just bought another Panasonic chip shooter machine, which will give us even more efficiency that get us even better margins. So you need that volume. And as long as the mix is reasonable, you get there. Locking has to be a key part of the mix. It's been that way. Locking has margins in the 35% to 40% range. We don't care so much about the radio margins, the hardware; it's all about the recurring. So as long as the mix is reasonable and the volume is in the $30 million plus, we could be in the 30s. We proved it in the past; it just happens. Just to add more direct labor, nothing else, more overhead absorption, margins expand. So we got to have that.

Great. Thanks for taking the question and good luck.

Thanks, Jeremy.

Thank you. The next question comes from Jaeson Schmidt at Lake Street. Please go ahead.

Hey guys, thanks for taking my questions. Just curious if you can update us on how the ADI relationship is progressing and if it's progressing to plan?

ADI is doing well, introducing us to more-and-more dealers as we've talked about in the past. They made an intro for us to Securitas who now buys our fire radios. We had said maybe it was the last call. I'm not sure. We thought ADI could be a 10% of equipment sales customer. So that's our hope; their sell-through stats are good. If that keeps up, that could happen. So very happy with the relationship and we have more work to do. The potential is very good with these guys.

Okay. Got you. And then just as a follow-up, just given how December played out and kind of how Q3 here is tracking. Would you still expect sort of normal seasonal patterns for equipment revenue in June?

I would. If you go back to the history books of this company, Q4 is always the strongest. You never know with distribution; you never know with things that are unforeseen. But statistically, I would expect it to be the best. And a lot of our big customers, big distributors, their year-end is December. So they don't usually make decisions like we just saw in the June quarter. And for us, the June quarter is important. We want to maximize our sales. So typically, it's the best. We expect it to be the best. We expect Q3 to be a comeback quarter versus what we just saw. And whatever it is, we expect Q4 to be even better than that.

Okay, perfect. Thanks a lot guys.

Thanks, Jason.

Thank you. A follow up from Matt Summerville at D.A. Davidson. Please go ahead.

Thanks. I just want to be clear; equipment revenue, could we expect that to grow on a year-on-year basis in Q3? I mean, logically, if this was a one-time this is thus not you type thing, why wouldn't we start to see year-on-year growth in Q3 again in hardware?

Q3, like Q2 and Q1, had a very large amount of sales last year from this large New York City project that we've talked about. So it's a special project and it's not going to be as large this year in Q3 as it was last year. That's not to say that there won't be a special project or two in this quarter, but I can't say that as I sit here today. Without that, the comparison is difficult. So if we did close to $30 million last year, we'll have a tough comp because of this special project that we saw last year. So even if the distributor comes back and we're pretty sure he will, we think the other distributor as well, it will significantly put us beyond what we just saw in Q2. But to hit $30 million, I can't say for sure. A lot depends on special projects, which we might get, but that's why there's a little hesitation.

And then just lastly on share repurchases, given what's happening with the stock today, are you thinking about more aggressive repos? You're sitting on $100 million, what's the right way to kind of think about that?

Well, we like to do this opportunistically. This could be a nice opportunity based on what the stock is doing. But we like having a lot of cash and for moments like this where we could use some of it. We still are looking at acquisitions; has to be the right one, but that's part of what we do. We have a lot of banks trying to find the right deal for us. We don't want to do a deal unless it's the right one. We're not going to rush into anything. We feel our business is strong just the way it is, but there could be a deal out there. We keep looking, and it’d be nice to have cash for that too. So we try to balance it: buybacks, the right acquisition, the dividends and keeping cash on hand, all the above. So stock buybacks are in the equation.

Got it. That's it from me. Thank you.

Thanks, Matt.

Thank you. That concludes our Q&A. I will turn the call back over to Richard Soloway for closing comments.

Thank you, everyone, for participating in today's conference call. As always, should you have any further questions, feel free to call Fran, 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 Q3 results. Bye-bye. Have a great day, everybody.

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