Good morning, ladies and gentlemen, and welcome to NAPCO Security Technology's Fiscal Second Quarter 2026 Earnings Conference Call. At this time, note that all participants are in the listen-only mode. Following the presentation, we will conduct a question-and-answer session. And if at any time during this call you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on Monday, February 2, 2026. And I would like to turn the conference over to Francis Okineski, Vice President, Investor Please go ahead.

Thank you, Sylvia, and good morning, everyone. This is Fran Okineski, 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, 2026. By now, all of 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, www.napcosecurity.com. On the call today are Dick Soloway, Chairman and CEO of Napco Security Technologies, and Kevin Buchel, President and Chief Operating Officer, as well as Andrew Vono, our 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, reoccurring 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 SaaS reoccurring monthly revenue. Forward-looking statements invoke 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 10k other unknown or unpredictable factors or underlying assumptions subsequently proved to be incorrect could cause actual results to differ materially from those in the forward-looking statements although we believe that the expectations is 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. Before I do, I want to mention the schedule of investor outreach in the coming months. On February 17th, we're participating in the Barclays' 43rd Annual Industrial Select Conference in Miami Beach, Florida. We're also attending Citigroup's Global Industrial Tech and Mobility Conference, also in Miami Beach, Florida, on February 19th. In March, our engagements include the Raymond James 47th Annual Institutional Investors Conference in Orlando, Florida on March 4th. We will attend Cantor Fitzgerald's Global Technology and Industrials Conference in New York City March 10th and 11th. And finally, we'll cap off this busy period by attending our industry's largest trade show isc west at the venetian expo in las vegas march 23rd through march 27. if anyone's interested in attending please reach out to me and i will arrange to get you a pass investor outreach is a vital part of napco strategy and we'd like to extend our 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 2026 performance. Our second quarter results, which reflect record Q2 revenue, is a continuation of the momentum we reported from Q1 and is evidence of our focus on long-term growth. Our strong financial results continue to be fueled by our recurring revenue model, which delivers steady growth while maintaining its substantial profitability. Our equipment revenue has shown consistent growth as our pricing and market strategies have yielded double-digit increases in equipment, revenue, or consecutive quarters, bolstered by our blockings as well as double-digit growth in our intrusion and alarm segment. The first half of fiscal 2026 has delivered strong financial results, and we are confident in our ability to continue the momentum through the end of the fiscal 2026 and to execute on our plan to provide enhanced shareholder value and growth. In addition to our financial performance, we are pleased with the recent addition of of our Chief Revenue Officer, Joe Popinski. With his 35-plus years as a business development executive, he will provide the company with strong leadership, vision, and the ability to help NAPCO achieve even stronger revenue growth. Now I'll turn the call over to our President and Chief Operating Officer, Kevin Buchel, who will comment on some operational and financial performance highlights. Following Kevin's remarks, our CFO, Andy Bono, will go through the financials in more detail. And then I will return to delve deeper into our strategy and market outlook. Kevin, the floor is yours.

Thank you, Dick. Good morning, everyone. I'm going to take a few minutes to highlight our performance for the second quarter, which marked another strong period of execution for the company. We are extremely pleased with the results this quarter, which reflect disciplined execution, strong demand across our portfolio, and the continued focus of our teams on driving profitable growth. Total revenue for the quarter was $48.2 million, and that represents a Q2 record, and it's an increase of 12.2% compared to last year's second quarter. This performance underscores the momentum we are seeing across our business. Within that total, equipment revenue was $24.3 million, and that's up 12% year-over-year. We're particularly pleased with this result as it demonstrates the continued strength and durability of our distributor and dealer relationships, as well as the impact of the price increases implemented at the end of fiscal 2025, which are contributing as expected. Equipment gross margin continued to improve, reaching 28%, and that compares to 24% in the prior year, and 26% from the previous quarter. This improvement reflects ongoing pricing discipline, operational efficiency, and favorable product mix, and we are very satisfied with the progress we are making. Recurring revenue continued its strong performance, growing 12.5% over last year's Q2, and maintaining a strong gross margin of 90.2%. We're very encouraged by the consistency and the quality of this revenue stream, with Starlink commercial fire radios, again, representing a significant portion of the mix. We also saw continued momentum in our recurring revenue base, with the prospective annual run rate increasing to $99 million, and that's based on January 2026 recurring revenue. and that represents an increase of approximately $4 million from the $95 million run rate we reported last quarter. We are pleased with this steady progress. We are making and building long-term high margin revenue. From a profitability standpoint, operating income for the Q2 increased 32 percent year-over-year to $14.8 million. Net income increased 29 percent to $13.5 million, and that represents 28% of revenue for the quarter. Adjusted EBITDA increased 26% to $15.3 million, and that resulted in an EBITDA margin of 32%. These results demonstrate strong operating leverage, and we are pleased with the level of profitability achieved this quarter. Our balance sheet remains a significant strength. Cash and marketable securities continued to grow in total $115 million as of December 31, 2025. And that gives us substantial flexibility to continue investing in the business while also returning capital to shareholders. Given our strong financial performance and cash position, our board approved another increase to our quarterly dividend, raising it to $0.15 per share, which represents a 7% increase. This decision reflects our confidence in the business and our commitment to delivering shareholder value. Overall, this was another outstanding quarter. We are very pleased with our performance through the first six months of fiscal 2026, and while there is still more work to do, we believe the company is well-positioned to continue executing at a high level. With that, I will turn the call over to our CFO, Andy Bono, for a deeper look at the financials.

Andy? Thank you, Kevin, and good morning, everyone. Net revenue for the quarter increased 12.2% to $48.2 million, as compared to $42.9 million for the same period a year ago. Net revenue for the six months ended December 31st, 2025 increased 12% to $97.3 million, as compared to $86.9 million for the same period a year ago. Recurring monthly service revenue continued its growth, increasing 12.5% in Q2 to $23.8 million, as compared to $21.2 million for the same period last year. Recurring monthly service revenue for the six months ended December 2025 increased 11.8% to $47.3 million, as compared to $42.3 million last year. Our recurring service revenue now has a prospective annual run rate of approximately $99 million based on January 2026 recurring service revenues, and that compares to $95 million based on October 2025 recurring service revenues, which we reported back in November. The increase in net service revenue was due to increase the number of our cellular radio communication devices that activated during the period. We expect radio sales to continue to be a key contributor to our overall equipment sales, which leads to continued growth of our highly profitable recurring service revenue. Equipment revenue for the quarter increased 12% to 24-point green lane compared to 21.7 million last year. The increase in that equipment revenue was primarily attributed to the impact of pricing increases and increased volume in our door-locking product lines. Equipment revenue for the six months increased 12.1 percent to 50.1 million as compared to 44.6 million for the same period last year. The increase was primarily due to increased volume by door locking products as well as increased prices. Gross profit for the three months ended December 2025 increased 15.3 percent to 28.2 million with a gross margin of 58.6 percent as compared to 24.5 million with a gross margin of 57 percent for the same period last year the gross profit of the six months increased 14.2 percent to 56.1 million with a gross margin of 57.6 percent as compared to 49.1 million with a gross margin of 56.5 a year ago gross profit for recurring service revenue for the quarter increased 11.1 percent to 21.5 million with a gross margin of 90.2 percent as compared to 19.4 million with a gross margin of 91.3 percent last year. The gross profit for recurring service revenue for the six months increased 10.6 percent to 42.7 million with a gross margin of 90.3 percent as compared to 38.6 million with a gross margin of 91.2 percent last year. Gross profit from equipment revenues in Q2 increased 31.2 percent to 6.7 million with a with a gross margin of 27.6% as compared to 5.1 million, with a gross margin of 23.6% last year. Gross profit for equipment revenues for the six months increased 27.4% to 13.4 million, with a gross margin of 26.8% as compared to 10.5 million, with a gross margin of 23.6% for the same period last year. The 160 basis point increase in overall gross margin is due to the continued highly profitable recurring revenue and overall improved margins on equipment revenue the decrease in gross profit margin from service surgeons from for both the three and six months period end of december 2025 was a result of one-time credits reducing royalty expense in the comparative periods and marginal increases in data costs to run our network operation center the increase in gross profit and gross margin from equipment revenue for both the three and six months end of december 2025 is attributable to improved manufacturing overhead absorption due to increased production, the impact of price increases in addition to lower sales discount. Research and development costs for the quarter increased 11.8% to 3.5 million with 7.2% of revenue as compared to 3.1 million or 7.2% of revenue for the same period a year ago. R&D costs for the six months end of December 2025 increased 8.9% to 6.7 million, or 6.9% of revenue, and that compares to 6.2 million, or 7.1% of revenue for the same period a year ago. The increase in research has grown for three and six months as primary result of increased labor and benefit costs related to expanding our engineering staff. Selling general and ministry expenses for the quarter decreased 1.9% to 10 million with 20.8% of revenue as compared to 10.2 million with 23.8% of revenue for the same period last year. SG&A expense for the six months ended December 25 increased 5.3% to 21 million with 21.5% of revenue for that, and that compares to 19.9 million with 22.9% of revenue for the same period last year. The decrease in SG&A cost for the quarter was was primarily due to decreases in legal fees, which are net of insurance reimbursements, and accounting fees offset by increases in wages and bonus compensation and sales commissions. The increase in SG&A costs from six months into December 2025 was primarily due to increases in legal fees, commissions and wages and bonus compensation, offset by decreases in accounting fees and stock-based compensation. Operating income for the quarter increased 32.1% to $14.8 million as compared to $11.2 million for the same period last year. Operating income for the six months end of December 2025 increased 23.3% to $28.4 million as compared to $23 million for the same period last year. Interest income for the quarter decreased 4.7% to $884,000 as compared to $921,000 for last year. And for the six months, interest income decreased 6.9% to 1.7 million compared to 1.9 million last year. The decrease of both the three and six month periods was primarily due to the lower interest rate yields on our cash and short-term investments. The provision for income taxes of three months increased 37.6% to 2.2 million with an effective tax rate of 14.2% as compared to 1.6 million with an effective tax rate of 13.4% last year. For the six months ended December 2025, the provision for income taxes increased 36.8% to $4.7 million with an effective tax rate of 15.5% as compared to $3.4 million with an effective tax rate of 13.7% last year. The increase in the provision for the three and six months ended 2025 was due to higher pre-tax income as well as a larger portion of the company's taxable income being attributable to U.S. operations and the re-measurement of certain deferred tax liabilities due to tax ranges, tax rate changes enacted in the one big beautiful bill act. Net income for the quarter increased 29% at 13.5 million with 28% of revenue with 38 cents per diluted share as compared to 10.5 million with 24.4% of revenue with 28 cents per diluted share for the same period last year. That income for the six months increased 18.5% to 25.7 million or 26.4% of revenue or 72 cents per diluted share and compared to 21.7 million or 24.9% of revenue or 59 cents per diluted share for the same period last year. Adjusted EBITDA for the quarter increased 26% to 15.3 million or 43 cents per diluted share as compared to 12.2 million or 33 cents per diluted share for the same period a year ago, and equates to an adjusted EBITDA margin of 31.9% this year compared to 28.4% last year. Adjusted EBITDA for the six months ended December 2025 increased 22.6% to 30.3 million or 84 cents per diluted share and compared to 24, 24.7 million was 67 cents per diluted share for the same period last year and equates to an adjusted evener margin of 31.1 percent this year compared to 28.4 percent last year. Pre-cash flows for the quarter increased 17.4 percent to 14.5 million as compared to 12.4 million for the same period a year ago and equates to a free cash flow margin of 30.1 percent this year compared to 28.8 percent last year. Pre-cash flows for the six months increased 9.5 percent to 26 million as compared to 23.7 million for the same period a year ago and equates to a free cash flow margin of 26.7 percent this year compared to 27.3 percent last year. Continuing on to our balance sheet, as of December 2025, the company had 115.4 million in cash and cash equivalents and marketable securities as compared to 99.2 million as of June 2025, a 16.3% increase after paying 10 million in dividends during the six month period. The company had no debt as of December 2025. Cash provided by operating activities for the six months ended December 2025 increased 4.7% to 26.7 million compared to 25.5 million last year and working capital which is our current assets plus current liabilities was 158.8 million as of december 2025 as it compared to working capital of 138.4 million at june 2025. the current ratio was 8 to 1 at december 2025 and 6.8 to 1 at june 2025. Capital expenses for the quarter total 600,000 compared to 1.1 million in the same period last year. And for the six months amounted to 800,000 compared to 1.8 million last year. That concludes my formal remarks. I would like to return the call back today.

Thank you, Andy. As you heard today, a second quarter and first half of fiscal 2026 reflect another period of strong execution and meaningful progress against our long-term strategy record q2 revenue of 48.2 million double-digit growth across both equipment and recurring service revenue expanding margins and strong operating leverage all reinforce that our business model is working exactly as intended. At the core of our strategy is our recurring service revenue platform, which continues to deliver consistent, high-margin growth. Recurring service revenue now represents nearly half of our total sales, supported by sustained gross margins of over 90 percent, and our annualized run rate has reached approximately This steady, high-quality revenue stream provides predictability, strong cash generation, and long-term value creation. Stalling commercial fire radios remain a key driver and have become the industry standard for commercial fire communicators with continued healthy demand across both new installations and our expanding installed base. On the equipment side, we are equally encouraged by the momentum we're seeing. Equipment revenue increased 12% over a year to $24.3 million, supported by strong performance in our door locking solutions and in our intrusion and alarm product segments. Pricing actions implemented late last fiscal year are having the intended impact, contributing to improved equipment gross margins, which expanded 28% in the quarter. These results reflect discipline, pricing, operational efficiency, and favorable product mix, all of which we continue to actively manage. Profitability remains a major strength of the company. Operating income, net income, and adjusted EBITDA all grew at significantly faster rates than revenue, demonstrating strong operating leverage. With EBITDA margins now exceeding 30%, we are generating substantial cash flow while continuing to invest in innovation infrastructure and growth initiatives our balance sheet further differentiates us with 115 million in cash and marketable securities and no debt we have exceptional financial flexibility this allows us to invest organically pursue strategic opportunities where appropriate, and continue returning capital to shareholders. The Board's decision to increase the quarterly dividend to $0.15 per share reflects our confidence in the sustainability of our cash generation and our ongoing commitment to shareholder value. In addition to our strong financial performance, as I mentioned earlier, we are pleased to announce the appointment of Joseph Kosinski as Chief Revenue Officer, a newly created executive role. In this position, Joe will oversee NAPCO's revenue organization, including sales, channel strategy pricing and go-to-market execution across the company's full product portfolio this appointment underscores our continuing continued focus on accelerating equipment revenue growth expanding recurring service revenue maximizing operating leverage and strengthening customer and dealer engagement for more than 35 years of experience in revenue leadership and business development joe brings deep experience and a strong execution mindset and we believe his leadership will further position napto to capitalize on new market opportunities deepen dealer and customer relationships and accelerate our long-term growth strategy operationally our team continues to execute at a very high level we are managing inventory tightly investing in product development compliance automation and infrastructure and returning capital through dividends all while maintaining a debt-free balance sheet our manufacturing facility in the dominican republic remains a key competitive advantage providing cost efficiency, stable logistics, and low tariff exposure compared to many competitors operating in higher tariff regions. Looking ahead, we remain optimistic about the remainder of fiscal 2026 and beyond. Demand across our product portfolio remains strong. Our recurring service revenue base continues to expand and our operating discipline remains firmly in place we've diversified our distribution base implementing pricing actions and continue to enhance the starlink platform while investing in automation and technology designed to sustain growth and expand margins one One area where NAPCO continues to make a meaningful impact is school security, one of the most critical challenges of our time. We are proud to partner with school districts nationwide, providing integrated solutions that include our Trilogy and Architect lock sets and enterprise-scale access control systems. these platforms are secure scalable and aligned with strict industry standards what truly differentiates napco is our ability to integrate locking access control and alarm technologies into a unified interoperable platform protecting students and staff every day while driving future growth at the same time we continue to expand recurring service revenue opportunities through innovation a great example is our MVP cloud-based access control platform which integrates seamlessly with our locking hardware MVP introduces a new subscription-based revenue stream to both Napco and our dealers and is offered in two configurations, MVP Access, an enterprise-grade solution supporting unlimited users, and MVP EZ, a mobile first solution for locksmiths and smaller facilities. We believe MVP has the potential to be a game-changer, extending our leadership into hosted access control and reinforcing our strategy of pairing innovative hardware with cloud-based services to drive high-margin recurring service revenue. Beyond education, our Alarmlock and Marks hardware lines continue to gain traction in healthcare, retail, multi-dwelling applications, and airport infrastructure upgrades. Additionally, as the transition away from legacy copper phone lines accelerates, our Starlink radios operating on AT&T, Verizon, and now T-Mobile networks are well positioned to capture additional market share across millions of commercial and residential buildings. While external market and regulatory conditions remain fluid, we remain focused on what we can control, driving innovation, executing with discipline, and expanding our base of recurring service revenue. In summary, we have begun fiscal 2026 with solid momentum, a clear strategic focus, and a stronger financial foundation than ever. I'm incredibly proud of our team and what it has accomplished, and excited about the opportunities ahead. And I want to thank all of you for continued support and confidence in NAPCO. Our formal remarks are now concluded, and we'd like to open the call for the Q&A. Operator, please, Steve.

Thank you, sir. Ladies and gentlemen, if you do have any questions, please press star followed by 1 on your touchtone phone. You will then hear a prompt acknowledging that your hand has been raised. And should you wish to decline from the polling process, please press star followed by 2. And if you're using your speakerphone, we ask that you please lift the handset first before pressing any keys. Please go ahead and press star 1 now if you have any questions. First, we will hear from Jeremy Hambly at Craig Hallam. Please go ahead, Jeremy.

Thanks, and congrats on the strong results. I wanted to start by just getting into the dealer channel and what inventory levels look like. You know, you saw a really strong improvement in your gross margin, obviously getting a little bit of benefit from the price increases that were taken last year. But I wanted to just understand, you know, it looks like you may have, you know, a little bit, you know, better inventory situation in the channel in getting that better gross margin flow through. But I wanted to see if you could add a little bit of color on how things shape up here in calendar 2026.

Okay. Thanks, Jeremy. So the channel is much more normalized than it was last fiscal year when there was chaos about tariffs, when there was chaos about certain distributors not wanting to do quarter-end buys. It seems to have become stable. And one of the things we did see in Q2 was a more normal buying pattern. They would buy throughout the quarter, not wait until the very end. Some distributors, not all. But what that does for us is that helps reduce the discounting that has to go on. And that's reflected somewhat in the gross margin. Gross margin was helped by a bunch of things. less discounting, price increases, mix. Locking remains strong. That gives us tremendous margins. And when you discount less and, you know, you wind up with a price increase like we've done, that bodes well. So we wound up having almost a 28% gross margin on revenue that was 24.3 million. Obviously, we want to see that revenue go much higher. And with it, we think we'll get towards our goal, which is to get the hardware margins, the equipment margins, back into the 30s where it used to be and where it belongs. So that's when I said earlier, we have more work to do. That's one of the things we're working on. We think margins could go even higher, and we think they will as this fiscal year progresses.

Great caller. Since you mentioned the strength in the locking segment, I wanted to see if we could dive a little bit deeper into the MVP access platform. I know that you've been rolling that out. It looked like a pretty good response at ISC East in November. But can you give us a sense for what the uptake is on this product, and when you think that it could contribute meaningfully to your recurring service revenues. Is that something that's, you know, kind of a second half of calendar 26, or, you know, at what point do you think that that might be contributing to the run rate?

The first, we knew the first half of our fiscal year was not going to be a major contributor from MVP but we are very encouraged we are getting recurring from it it's not something we have to disclose it's more of a second half of calendar 26 story so maybe by cues one and two of fiscal 27 we'll start to see more meaningful uh contributions but what we are pleased with is the reception and you were at isc east you saw a lot of dealers you know all over our booth and we're still seeing a lot more of that interest it takes time new concept new concept for locking dealers but they're going to love it because now they're going to get recurring revenue like the alarm people get. And so they're going to have a business that has equity, and that's what the alarm guys have. So locking guys are next. The opportunity is tremendous. There's many more doors than there are buildings. Just got to get there. So we're working hard to get to that point. We're going to show it again at ISC West in March, in the March. And then I think, you know, by calendar, by the end of beginning of fiscal 2027, second half of calendar 26, we should start to see some meaningful contributions.

Thank you. Last one for me, just wanted to check to see, you know, obviously the magnitude of kind of the storm activity has had some impact on certainly on construction work and completion of getting some businesses, you know, kind of open here in Q1. Wanted to see if it's had any impact at all from a supply chain perspective or otherwise for your business.

No, no, other than our containers, which we get from the Dominican every week, takes about six days on the water, other than maybe it taking seven days instead of six, you know, something like that. Other than that, we've seen no impact. We just keep rolling along, no problems.

Thanks so much for the color and good luck this year.

Thanks, Jeremy.

Next question will be from Jim Rusciutti at Needham & Co. Please go ahead, Jim.

Hi, thank you. Just on the hardware growth that you saw, it looks like you saw growth in both areas of the business and you talked about price. Going forward, how much an additional benefit could we see from the pricing actions in Q3 versus Q2? In other words, has the bulk of the pricing benefit been realized or is there still more to come in the current quarter versus the December quarter?

Andy, can you take that one?

Sure. So, product pricing has been adjusted throughout the portfolio, so that was effective the beginning of Q2. So, there's no additional price increases other than some one-offs uh expected through the end of the year um so that should be fully baked in you know for the year you know as far as as far as our price increases go we did not see the full lift in q1 i think we just we discussed and we had maybe a few trailing things in q2 on some locking uh back orders but going into qs three and four uh all the pricing has been uh fully adjusted and is baked in for the balance of the period.

Got it, thanks, Andy. Just on the strength that you saw in the door locking device business, was there – how do you characterize the larger projects business? I know that can be lumpy at times and it does create some year-over-year variability, but I was just wondering what are you seeing in that area of the business?

A bunch of projects, school projects, other type projects. Nothing that's going to make a comp difficult for next year, you know, at 24.3 million, that's not a difficult comp for next year. So we just keep working. I wish we could talk to you about some of these projects because we're not allowed to, especially with schools they don't want to be known what's going on but we continue to have projects as a key part of this but no difficult comes no difficult comes really coming up in the balance of this fiscal year either which you know bodes well for our comparisons as we get to q3 and four again ladies and gentlemen please press star one at this time if you have

any questions. And next, we'll hear from Peter Costa at MISRO. Please go ahead, Peter.

Hey, good morning, guys. Could you just provide an update around the ADI partnership? How is penetration at the end-dealer level going, and are you still getting incremental new introductions from ADI? Thanks.

ADI relationship has been great, probably a couple of years now. And we've talked about how they've made introductions to some of the largest dealers in the world and they continue to do that and it's one of the benefits of having them having the relationship with them because they have entree to certain dealers who only for whatever reason even though they're large they like to go through distribution And so ADI continues to help us every day with that, and ADI stats are very good. ADI buys a lot of – we want to get ADI to the point where they're a locking contributor also. We're not seeing that part, and we want that. Can you imagine how they do so well with us on the intrusion side? We could get them really cooking on the locking. That would be tremendous. So we're working hard on that. So we're not just sitting back and saying, everything's great with ADI. There's more work to be done with them as well.

What's interesting, this is Dick Salloway, what's interesting about the ADI relationship as we get introduced to large dealers, both national and international dealers, but we We make products for all of North America. We have an engineering department that's been expanded to 80 engineers. We do everything internally, hardware, development, software, all kinds of app work. So the special projects that we do for the large installation companies are very important because it works into their automation systems, and we give real hands-on service. We do all of our development in Amityville that is for these type of specialized accounts, and it ties us closer together, and we bring a lot of innovation. They bring a lot of ideas. So it's a great collaboration with these introductions, and it makes for solid growth, and we're going to see a lot more of this in the future.

And then maybe just one more on pricing. Is there any need for incremental actions in the second half just to offset any raw material pressures? And were you definitively priced cost positive in the quarter?

I don't believe that somebody has any need to do that. Right, Andy?

We're monitoring our component costs continually, and if we have to make any adjustments in pricing, we will, but we are not seeing any incremental inflation in our component costs and we were, we were, our pricing increases were positive as it pertains to the tariff increases in any incremental course we got our components, you know, for through the six months.

Awesome. Yeah, thanks, guys, and congrats on the quarter.

Yeah, and ladies and gentlemen, one last reminder. Should you have any questions, please press star followed by one. Thank you. Next question will be from Lance Vitenza at PD Cowan. Please go ahead, Lance.

Hi, thanks. I wanted to start with a question regarding the schools and door locking remote access. And I understand that you can't name names, but could you give us a sense for what the sales funnel and the pipeline is looking like? And I guess specifically, you know, is NEPCO in the running for any new projects that you expect will be awarded over the back half of the year? And if you do get awards, how long of a lag before you start to generate revenue from those awards?

There's projects all the time, and they're different. Some projects, the revenue stream could start right away. Some are custom-type projects where our engineers have to develop certain things that these projects require. And some projects go over a number of years. So they come in all sizes and shapes. There's no real way to put it in any specific way. They're contributors, and we need them, and we're getting them, and our sales team is going out working with integrators to get more of them. Big area for us. We don't really disclose what they are. If it's a big school win, I would disclose it if they let us, but they don't typically So just know that we're working hard on it. There's more of them. They will continue, and they'll probably spread over a number of years.

Okay, great. And then just on the equipment side, you had called out door locking sales in the press release and elsewhere, but it looks like radio sales had nice growth year over year in the quarter as well. Could you talk about the outlook there in particular as it feeds into recurring service revenue growth that you're expecting over the back half of the fiscal year?

Well, we were encouraged by the growth rate of the recurring year-over-year. We were encouraged by the run rate of 4 million. There's a lot of buildings out there that still have to convert away from copper. We talk about this. We probably have about a million active radios. There's probably several more million buildings to go. by 2029, which is the date that the carriers have put as the, we're not supporting it anymore after that date. So, there's going to be a lot of action between now and then. We have a lot of relationships with very large dealers now that we didn't have several years back. We basically built the almost $100 million run rate that we have with a lot of small guys guys you never heard of now and we love those guys believe me they like pennies add up to dollars these are important guys but now we're dealing with big guys too and that could bode well over the next four five years as the conversion continues and then of course we put our Starlink radios in our products so for new work we make fire panels control panels with radios in it so we expect this this is the new norm we expect it to go on forever so we're very encouraged by

what we saw this quarter we think it'll be very good for the balance of fiscal 26 and beyond just one last one for me thank you for the color and just one last one for me on the balance sheet you know the cash continues to build up to 115 million of of cash and marketable securities now um i'm just wondering you know is there sort of like a point at which you say hey you know maybe maybe we don't want to be walking around with this much you know cash and we decide either to you know to pull the trigger on an acquisition or maybe there's a special dividend or you know some sort of um other return of capital i'm just wondering how you're thinking about capital

allocation in the context of of the increasing cash build thanks I would say all of the you just mentioned is in our thought process when we do an acquisition we want to make sure it fits our criteria being created from day one it's a product that our dealers install all the time and and that the company is It's buttoned up enough so that it doesn't cause disruption to our existing business, but it enhances our business. And if the company is manufacturing products which are in foreign lands, because of the Dominican operation, we can manufacture it in our factory because we're completely vertically integrated there also from the components that come in to the finished product that goes out and then we get in a week so there are opportunities but we don't want to do anything which could cause stress on our operation now and there are opportunities out there so we're looking at that very very carefully and all the other considerations of increasing our dividend and other things The payback to shareholders is also on the table.

So it's a position that we're very carefully contemplating about on how to do this.

Because we expect the recurring revenue to keep on growing very, very strongly, and now we're piling on more recurring revenue with our Lockheed product line, which is going It should be a fantastic addition because there are so many doers, and there's so much monitoring of those doers that institutions want to do on a real-time basis, and it's an equity builder for the access and the locksmith trade, which they don't have now. So we're very innovative, and we're going to keep it up.

Thanks, Len.

Ladies and gentlemen, one more reminder to please press star 1 if you do have any questions. At this time, it appears we have no other questions registered. I would like to turn the conference back over to Richard Soloway, CEO.

Thank you, everyone, for participating in today's conference call. As always, should you have any further questions, feel free to call Fran, Kevin, Andy, 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 APCO's physical Q3 results. Bye-bye, have a wonderful day and a great week.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your lines.